<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 2000
REGISTRATION NO. 333-91469
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PATHNET TELECOMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
4813
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
52-2201331
(IRS EMPLOYER
IDENTIFICATION NUMBER)
1015 31ST STREET, N.W.
WASHINGTON, D.C. 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, D.C. 20007
(202) 625-7284
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
With a copy to:
BRUCE S. WILSON, ESQ.
COVINGTON & BURLING
1201 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004
(202) 662-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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,
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(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,
check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C> <C> <C>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT PRICE FEE
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Guarantees of 12 1/4% Senior Notes due
2008..................................... N/A N/A N/A $60,326.00(1)
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</TABLE>
(1) The registration fee has been calculated on the basis of the fair market
value of the securities being issued pursuant to Rule 457.
------------------
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, 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> 2
The information in this preliminary prospectus is not complete and may be
changed. We may not sell the securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
Subject to completion. Preliminary Prospectus dated March 10, 2000
PATHNET TELECOMMUNICATIONS, INC.
SENIOR GUARANTEES OF PATHNET, INC. 12 1/4% SENIOR NOTES DUE 2008
[PATHNET LOGO]
Pathnet Telecommunications, Inc. is offering to all holders of Pathnet, Inc.'s
12 1/4% Senior Notes due 2008 our absolute, irrevocable and unconditional senior
guarantees of those notes. Concurrent with our offer, Pathnet, Inc. is seeking
consents from the holders of those notes to the waiver and amendment of certain
provisions of the indenture governing those notes. Pathnet, Inc. is seeking
these consents in connection with a contribution and reorganization transaction
in which Pathnet, Inc. will become our wholly owned subsidiary. In addition to
our guarantees, each holder of the notes on the record date who consents to the
requested waivers and amendments in connection with our reorganization will
receive a consent fee payment of $25.00 per $1,000 in face amount of notes owned
of record by the consenting holder on the record date. Pathnet, Inc. is also
agreeing to purchase and pledge for the benefit of the holders of the notes,
additional United States Treasury securities sufficient to cover the October 16,
2000 interest payment on the notes. Pathnet, Inc. has conditioned its payment of
the consent fee and pledge of additional securities upon the receipt of the
requisite consents to approve the requested waivers and amendments.
PUBLIC OFFERING PRICE: None
PROCEEDS TO PATHNET TELECOM: None
THIS INVESTMENT INVOLVES SUBSTANTIAL RISK. SEE "RISK FACTORS" BEGINNING ON PAGE
7 TO READ ABOUT CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE INVESTING IN THE
SECURITIES.
------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2000.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 7
USE OF PROCEEDS............................................. 26
CAPITALIZATION.............................................. 27
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA.......... 29
BUSINESS.................................................... 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 51
MANAGEMENT.................................................. 60
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 73
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 77
DESCRIPTION OF OUR REORGANIZATION........................... 80
THE PATHNET SENIOR NOTEHOLDER WAIVERS AND OTHER PROPOSED
INDENTURE AMENDMENTS...................................... 91
DESCRIPTION OF THE GUARANTEES............................... 105
DESCRIPTION OF THE CONSENT SOLICITATION PROCESS............. 106
DESCRIPTION OF THE NOTES AND THE INDENTURE.................. 109
DESCRIPTION OF OTHER INDEBTEDNESS AND OTHER FINANCING
ARRANGEMENTS.............................................. 143
DESCRIPTION OF CAPITAL STOCK................................ 145
FEDERAL INCOME TAX CONSEQUENCES............................. 151
PLAN OF DISTRIBUTION........................................ 156
LEGAL MATTERS............................................... 156
EXPERTS..................................................... 156
WHERE YOU CAN FIND MORE INFORMATION......................... 156
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
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<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information that we believe is especially important
concerning our business, the offering of our guarantees and Pathnet's noteholder
consent solicitation. As a summary, it does not contain all of the information
that you should consider before accepting our guarantees and granting your
consent to the requested waivers and amendments to the Indenture that we
describe in this prospectus. Please read the entire prospectus carefully. Except
as otherwise required by the context, references in this prospectus to "Pathnet
Telecom," "we," "us," or "our" refer to Pathnet Telecommunications, Inc., and
references to "Pathnet" refer to Pathnet, Inc. only.
OVERVIEW
We are Pathnet Telecommunications, Inc., a newly formed Delaware
corporation and the issuer of the guarantees in this offering. We are offering
to all holders of Pathnet's 12 1/4% senior notes due 2008 our absolute,
unconditional and continuing guarantee of Pathnet's performance and compliance
with its obligations under the indenture that governs the terms of those notes,
including Pathnet's obligations to make interest and principal payments on the
notes. Concurrent with our offer, Pathnet is seeking consents from the
noteholders to the waiver and amendment of certain provisions of the indenture.
OUR REORGANIZATION
Pathnet is seeking your consent to these waivers and amendments in
connection with a single plan of contribution and reorganization in which:
- the existing shareholders of Pathnet will exchange their shares of
Pathnet's common stock and series A, B and C convertible preferred stock
solely in return for substantially similar shares of our common stock and
our series A, B, and C convertible preferred stock;
- Pathnet will become our wholly owned subsidiary;
- three new investors in the Pathnet business -- The Burlington Northern
and Santa Fe Railway Company, CSX Transportation, Inc. and Colonial
Pipeline Company -- will contribute to us rights of way to permit us to
build our telecommunications network along their existing railroad and
pipeline corridors, with an estimated value of $187 million in return for
an aggregate of 8,511,607 shares of our series D convertible preferred
stock;
- Colonial will also contribute -- in two separate tranches -- an aggregate
of $68 million in cash in return for:
- an aggregate of 2,867,546 shares of our series E convertible preferred
stock at a price of $21.97 per share;
- an option, exercisable by Colonial and certain of Colonial's affiliates,
to purchase up to 1,593,082 shares of our series E convertible preferred
stock at a price of $21.97 per share;
- an option to purchase a number of shares of our common stock equal to up
to 10% of the number of shares that we actually issue in an underwritten
initial public offering, at a price equal to 90% of the per share price
that we charge for the sale of the shares in our initial public
offering; and
- a single fiber optic conduit along a portion of the Colonial right of
way corridors or other telecommunications assets of equivalent value;
- Pathnet will lend to us $50 million of the proceeds remaining from
Pathnet's initial equity investments and the issue of its notes; and
1
<PAGE> 6
- Pathnet will sell to us, for a $70 million promissory note, three fiber
optic development contracts, related assets, other agreements and the
rights to use Pathnet's name and other intellectual property as well as
fiber assets currently held by Pathnet's subsidiary, Pathnet Fiber
Optics, LLC.
Following the conclusion of our reorganization, our beneficial ownership
will be allocated among the participants in our reorganization as set forth in
the following table. For purposes of determining the beneficial ownership of our
voting capital stock following the completion of our reorganization, we assume
in the table:
- Colonial's purchase of the second tranche of shares of our series E
preferred stock and the conversion of those shares into shares of our
common stock;
- except for the Colonial option to purchase shares of our common stock in
connection with our initial public offering, the exercise of all options
to purchase shares of our common stock;
- the exercise of the Colonial option to purchase additional shares of our
series E convertible preferred stock and the conversion of all of our
series of preferred stock into our common stock; and
- the conversion of all outstanding warrants to purchase shares of Pathnet
common stock into warrants to purchase shares of our common stock and the
full exercise of those warrants.
Because we cannot at this time determine the precise number of our shares
that are covered by Colonial's option to purchase our common stock prior to our
initial public offering, we have not assumed the exercise of that option in our
determination of beneficial ownership interests in the table.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
CATEGORY OF EQUITY HOLDER OUR VOTING STOCK
------------------------- -----------------------
<S> <C>
Holders of existing shares of Pathnet series A, B and C
preferred stock........................................... 44.4%
Holders of existing shares of Pathnet common stock (assuming
the conversion and exercise in full of all existing
warrants and options for Pathnet common stock into shares
of our common stock)...................................... 19.2%
The Burlington Northern and Santa Fe Railway Company........ 9.6%
Colonial Pipeline Company and affiliates.................... 17.2%
CSX Transportation, Inc. ................................... 9.6%
------
Total................................................... 100.0%
======
</TABLE>
CONSENT SOLICITATION FOR PATHNET NOTEHOLDER WAIVERS AND OTHER INDENTURE
AMENDMENTS
The structure of our proposed reorganization requires Pathnet to obtain
waivers and consents from the holders of a majority in principal amount of
Pathnet's notes. In consideration for the required consents:
- we are offering our guarantees for all of the notes;
- Pathnet will make a consent payment of $25 per $1,000 in face amount of
the notes to each of the consenting noteholders who held notes on the
record date of the consent solicitation; and
- Pathnet will purchase and pledge as additional security to the indenture
trustee, for the benefit of the noteholders, additional United States
Treasury securities sufficient to cover the October 16, 2000 interest
payment on the notes.
To consent to the transaction, the noteholders will need to:
- waive Pathnet's compliance, for purposes of the transaction, with the
"Change of Control" repurchase obligation and the "Excess Proceeds Offer"
requirements of the indenture, which otherwise would be triggered by the
closing of the transaction; and
2
<PAGE> 7
- agree to the adoption of amendments to the terms of the indenture that
are intended to subject us to indenture covenants parallel to those
currently applicable to Pathnet and extend the scope of indenture tests
and covenants to us and any of our future subsidiaries.
The amendments will permit transactions between Pathnet, us and our other
future subsidiaries to the same extent that the indenture now permits those
transactions between Pathnet and its subsidiaries. We describe specific
amendments of the terms of the indenture below in "THE PATHNET SENIOR NOTEHOLDER
WAIVERS AND OTHER PROPOSED INDENTURE AMENDMENTS".
TAX MATTERS
Pathnet has obtained an opinion from Covington & Burling regarding the
material federal income tax consequences to you and to Pathnet if the proposed
indenture amendments are approved, the waivers are obtained and Pathnet makes
the consent payment. You may be subject to federal income taxation as a
consequence of the proposed indenture amendments, the waivers and the consent
payment, and Pathnet may incur substantial federal income taxes as a consequence
of the proposed indenture amendments, the waivers and the consent payment.
Covington & Burling has advised Pathnet that, due to the lack of specific
guidance and inherently factual nature of the issues involved, Covington is
unable to opine definitively on the consequences of the proposed indenture
amendments, the waivers and the consent payment. For a description of the
potential tax consequences of the proposed indenture amendments, the waivers and
the consent payment, see "FEDERAL INCOME TAX CONSEQUENCES."
THE CONSENT SOLICITATION AND THIS OFFERING WILL END ON MARCH , 2000,
UNLESS EXTENDED. IF WE HAVE NOT RECEIVED BEFORE THE EXPIRATION DATE THE
REQUISITE CONSENTS FROM THE HOLDERS OF A MAJORITY IN OUTSTANDING PRINCIPAL
AMOUNT OF THE NOTES, OUR OFFER OF THE GUARANTEES WILL TERMINATE AND OUR
REORGANIZATION WILL NOT TAKE PLACE AS PLANNED.
OUR COMPANY
We were formed on November 1, 1999, in order to give effect to our
reorganization and become Pathnet's parent company. Pathnet was formed on August
25, 1995. Since inception, Pathnet has operated as a development stage
enterprise, and its operations have resulted in cumulative net losses of $101.5
million through December 31, 1999. Together, we are a wholesale
telecommunications provider building a nationwide network designed to provide
other wholesale and retail telecommunications service providers with access to
underserved and second and third tier markets throughout the United States.
We plan to serve those second and third tier markets with
telecommunications network backbone infrastructure products and services, long
distance network services and local access services. We also expect to capture a
portion of the long distance network services segment between first tier
markets. We estimate that our addressable market for these products and services
was $13 billion in 1999, growing to $27 billion in 2004.
As of December 31, 1999, our network consisted of over 6,300 wireless route
miles, providing wholesale transport services to 30 cities, and 500 route miles
of installed fiber. We are constructing an additional 600 route miles of fiber
optic network scheduled for completion in the first half of 2000. We have also
entered into two co-development agreements for the construction of an additional
750 route miles of fiber optic network. We expect to develop more backbone
network from a pool of over 12,000 route miles of right of way -- 8,000 of which
will have some form of exclusivity -- that we will receive from our new
investors in our reorganization.
Our network will enable our customers, including existing local telephone
companies, long distance companies, Internet service providers, competitive
telecommunications companies, cellular operators and other telecommunications
service providers to offer additional services to new and existing customers in
these markets without having to expend their own resources to build, expand or
upgrade their networks. We expect our nationwide network to grow to
approximately 20,000 route
3
<PAGE> 8
miles using both fiber optic and wireless microwave technologies. We intend to
continue to develop our backbone on a "smart build" basis by prioritizing route
development along corridors with high demand for inactive fiber optic strands
and conduit or by partnering with established companies in the joint development
of those routes.
This prospectus contains the trademark of Pathnet, which is the property of
Pathnet and is licensed to us.
Our principal executive office is located at 1015 31st Street, N.W.,
Washington, D.C. 20007, and our telephone number is (202) 625-7284.
4
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
We present below summary historical consolidated financial data for Pathnet
and the pro forma balance sheet data for Pathnet Telecom. The summary historical
statements of operations data for the years ended December 31, 1997, 1998 and
1999 and the period from August 25, 1995 (the date of Pathnet's inception) to
December 31, 1999 and the summary historical balance sheet data as of December
31, 1999 have been derived from Pathnet's audited financial statements that are
included elsewhere in this prospectus. The unaudited pro forma balance sheet
data as of December 31, 1999 gives effect to our reorganization as if it
occurred on January 1, 1999. We have provided the unaudited pro forma balance
sheet data for informational purposes only.
<TABLE>
<CAPTION>
PATHNET
-----------------------------------------------------------
PERIOD FROM
AUGUST 25, 1995
(DATE OF
YEAR ENDED DECEMBER 31, INCEPTION) TO
----------------------------------------- DECEMBER 31,
1997 1998 1999 1999
----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue................................ $ 162,500 $ 1,583,539 $ 3,311,096 $ 5,058,135
Operating loss......................... (4,131,243) (16,312,761) (31,280,939) (53,495,700)
Net loss............................... $(3,977,400) $(36,296,596) $(59,036,312) $(101,480,769)
Basic and diluted loss per common
share................................ $ (1.37) $ (12.51) $ (20.14)
Weighted average number of common
shares outstanding................... 2,900,000 2,902,029 2,931,644
OTHER FINANCIAL DATA:
Ratio of earnings to fixed charges..... <1 <1 <1
Deficiency of earnings to fixed
charges.............................. $(3,977,400) $(36,658,917) $(62,626,459)
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------
1999
----------------------------
HISTORICAL PRO FORMA (a)
------------ -------------
(unaudited)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities (excluding
marketable securities pledged as collateral) (b).......... $138,402,131 $170,448,726
Property and equipment, net................................. 131,928,365 131,928,365
Intangible assets -- rights of way.......................... -- 187,275,006
Total assets................................................ 320,535,987 547,188,488
Long-term obligations (c)................................... 349,714,404 353,989,404
Total liabilities........................................... 380,303,073 383,749,675
Redeemable preferred stock.................................. 35,969,639 37,871,959
Stockholders' equity (deficit) (d).......................... (95,736,725) 125,566,854
</TABLE>
5
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- ---------------
(a) Our unaudited pro forma balance sheet data as of December 31, 1999 gives
effect to our reorganization as if it occurred on January 1, 1999. The
unaudited pro forma balance sheet was derived by adjusting Pathnet's
historical balance sheet as of December 31, 1999 to reflect the transaction
described below:
- Contribution of over 12,000 route miles of rights of way with an
estimated value of $187 million for 8,511,607 shares of our series D
convertible preferred stock;
- Receipt of $38 million in cash at the initial closing for 1,729,631
shares of our series E preferred stock. Another $25 million in cash
(which is excluded from our above pro forma balance sheet data) will be
received in exchange for 1,137,915 shares of our series E preferred stock
(conditioned upon the completion of a fiber optic network segment build
that we expect to complete during the second calendar quarter of 2000);
- Exchange of 2,977,593 shares of outstanding Pathnet common stock for
2,977,593 shares of our common stock;
- Exchange of 5,470,595 shares of Pathnet mandatorily redeemable preferred
stock into 15,864,715 shares of our convertible preferred stock;
- Receipt of $1 million in cash for options to purchase 1,593,082 shares of
our series E preferred stock at $21.97 per share and shares of our common
stock at the time of an initial public offering;
- Receipt of $4 million in cash for our sale to Colonial of rights in a
specified number of conduit miles of our future network;
- Receipt of $275,000 in rights of way for our sale to CSX of rights a
specified number of conduit miles of our future network; and
- Payment by Pathnet of the proposed 2.5% consent fee to consenting holders
of the notes (assuming all noteholders provide their consent) of
approximately $8.8 million.
See "DESCRIPTION OF OUR REORGANIZATION" included elsewhere in this
prospectus.
(b) Cash, cash equivalents and marketable securities include investments in
marketable securities available for sale.
(c) Long term obligations include other noncurrent liabilities of $3,092,779.
(d) We have not included unaudited pro forma statement of operations information
to give effect to our reorganization as if it occurred on January 1, 1999.
An unaudited pro forma statement of operations would reflect only
amortization expense of approximately $939,000 of deferred financing cost
attributable to the consent fee that we plan to pay in connection with our
reorganization and approximately $2,878,000 of anticipated transaction
costs, of which $2,398,000 will be expensed as incurred and the remainder
offset against the carrying value of the series D and series E preferred
stock. The deferred financing cost will be amortized and charged to interest
expense over the remaining life of the notes. Generally, we do not begin
amortizing rights of way used in our network until the network is completed
and available for use. As of December 31, 1999, none of the rights of way
contemplated by our reorganization were used in our fiber optic network.
Because the amortization of the deferred financing cost and expensed
transaction costs would have represented the only pro forma adjustments to
the statement of operations data, we have not presented unaudited pro forma
statement of operations data. Instead, we have adjusted our pro forma
stockholders' equity (deficit) to account for these expenses.
6
<PAGE> 11
RISK FACTORS
Pathnet Telecom is a new business venture that plans to build on the
existing Pathnet business following the closing of our reorganization. As such,
we will face all of the risks currently faced by Pathnet, as well as a variety
of new risks associated with the expansion of the existing Pathnet business.
You should consider carefully the risk factors described below, in addition
to the other information in this prospectus, before you decide to accept our
guarantees and grant your consent to the requested waivers and amendments to the
indenture necessary to authorize our reorganization. If any of the risks
described below materializes and we are unsuccessful in managing or addressing
the risk, there could be a material adverse effect on our business, financial
condition or results of operations. We cannot assure you that we will
successfully manage or address these risks.
RISKS RELATING TO OUR COMPANY OPERATIONS
IF WE ARE UNABLE TO DEVELOP THE RIGHTS OF WAY THAT WE WILL RECEIVE IN OUR
REORGANIZATION, OR IF THE DEVELOPMENT COSTS MORE OR TAKES LONGER THAN WE
ANTICIPATE, WE MAY NOT BE ABLE TO DEVELOP ALL PORTIONS OF OUR NETWORK OR
GENERATE THE REVENUES NECESSARY TO BECOME PROFITABLE.
Several factors could interfere with our ability to develop or even prevent
us from developing the rights of way or portions of those rights of way that are
the subject of our reorganization:
- our inability to obtain property rights from third parties where BNSF,
CSX and Colonial do not own outright much of the property over which they
are granting us rights of way;
- restrictions imposed by BNSF, CSX, and Colonial to minimize or prevent
interference with their primary business operations;
- physical or engineering restrictions;
- terms of existing contractual arrangements between BNSF, CSX or Colonial
and third parties, including our competitors; and
- competitive factors, including potential oversupply of communications
capacity along the segments that we wish to develop.
We cannot assure you that we will obtain the necessary property rights and
access to the segments that we wish to develop. If we fail to obtain these
rights, we may not be able to develop these rights of way for our network, and
our business plans would be impaired. In addition, we cannot predict with
certainty the costs of developing segments of our network on these rights of
way. These costs could be significantly higher than we anticipate and may be
prohibitively expensive.
IF WE ARE UNABLE TO COMPLETE CONSTRUCTION OF THE NETWORK ROUTE SEGMENT ON WHICH
COLONIAL HAS CONDITIONED THE $25 MILLION SECOND TRANCHE OF ITS INVESTMENT IN OUR
SERIES E PREFERRED STOCK, WE MAY NOT RECEIVE THOSE FUNDS FROM COLONIAL AS
PLANNED.
Our contribution agreement with Colonial requires us to complete the
buildout of our network along a route from Chicago, Illinois to Aurora (a suburb
of Denver), Colorado as a condition to our receiving the second tranche of the
Colonial investment. If we are unsuccessful in building this portion of the
network, we will not receive $25 million of the funds that we expect to receive
from Colonial in our reorganization. The loss of these funds could hinder our
ability to implement our business plan.
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WE HAVE AGREED TO INDEMNIFY BNSF, CSX AND COLONIAL FROM CERTAIN LOSSES AND
LIABILITIES IN DEPLOYING AND OPERATING OUR NETWORK, AND THESE LOSSES AND
LIABILITIES COULD BE SIGNIFICANT.
In the agreements by which we obtain our rights of way, we have agreed to
release and indemnify BNSF, CSX and Colonial from claims, losses or liabilities
resulting from damage to property, personal injury to personnel, and many other
circumstances while we construct and operate our network. In some cases, our
release and indemnity apply even to circumstances outside of our control,
including where the claim, loss or liability arises from the negligence or gross
negligence of BNSF, CSX, Colonial or their employees or contractors within their
control. While we intend to obtain insurance to address these issues, we cannot
ensure that insurance coverage will be available or, if it is available,
adequate to cover all of these risks. If our insurance coverage is inadequate,
or if coverage is not available for some of these risks, we could be exposed to
significant losses and liabilities.
OUR TELECOMMUNICATIONS NETWORK WILL BE CONSTRUCTED ON RIGHTS OF WAY USED FOR
RAILROAD AND PIPELINE PURPOSES AND COULD BE DAMAGED OR DELAYED BY OTHER BUSINESS
OPERATIONS CONDUCTED ALONG THOSE RIGHTS OF WAY.
BNSF, CSX and Colonial use the rights of way on which we intend to install
our telecommunications network for railroad and pipeline purposes. Events could
occur, including the derailment of a train, the breach of a pipeline or damage
resulting from track or pipeline maintenance or construction, that could
interrupt telecommunications services on or otherwise damage our network. If any
of those events occur, our ability to provide telecommunications services to our
customers could be compromised, and our relationship with those customers could
be seriously damaged.
IF WE CANNOT SUCCESSFULLY COORDINATE OUR NETWORK CONSTRUCTION AND OPERATIONS
WITH OUR RIGHTS OF WAY PROVIDERS' EXISTING OPERATIONS, WE MAY NOT BE ABLE TO
DEVELOP OR OPERATE OUR NETWORK AS PLANNED AND OUR REVENUES COULD BE MATERIALLY
IMPAIRED.
The lease and access agreements we will enter into with BNSF, Colonial, CSX
and our other rights of way providers require that we coordinate our network
design, construction, deployment, operation and maintenance with the rail,
pipeline, utility and other operations of the applicable rights of way
providers. Those agreements generally provide that the rights of many providers'
operational needs take precedence over our own in terms of scheduling, access
time, personnel and other rights. Scheduling conflicts could increase our
development or operational costs on particular segments of rights of way, or
make deployment along the affected segment commercially impracticable. If we
cannot coordinate these activities successfully with the rights of way
providers, the development, design, construction, deployment, operation and
maintenance of the affected segments of our network could be delayed or become
prohibitively expensive.
WE ARE UNDERTAKING A MAJOR EXPANSION OF THE BUSINESS PREVIOUSLY CONDUCTED BY
PATHNET AND WE MAY NOT BE ABLE TO MANAGE THIS EXPANSION EFFECTIVELY GIVEN OUR
LIMITED PAST OPERATING EXPERIENCE.
Pathnet was incorporated in August 1995 and is a development stage company
with only a limited operational history. As of December 31, 1999, Pathnet had
constructed approximately 6,300 wireless route miles and 500 fiber route miles
of our digital network. Pathnet had also completed 40 separate
installations -- often referred to as physical collocations -- of our
telecommunications network equipment at existing local telephone company
switching stations, often referred to as central offices. To achieve our
business plan, we will need to expand our fiber network substantially and at a
much faster rate than in prior years.
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The success of this expansion will depend upon, among other things, our
ability effectively to:
- implement our sales and marketing strategy;
- evaluate markets for our products and services;
- acquire additional rights of way;
- identify profitable network routes;
- secure additional financing for our network deployment;
- reach agreement with a sufficient number of appropriate co-development
partners to develop the network necessary to complete our business plan;
- install facilities;
- obtain required government authorizations;
- interconnect to, and collocate with, facilities owned by existing local
telephone companies; and
- obtain appropriately priced individual network service features such as
call switching and local subscriber line access, which are often referred
to in the industry as "unbundled network elements" and wholesale services
from existing local telephone companies.
We must accomplish these activities in a timely manner, at reasonable cost
and on satisfactory terms and conditions. As we increase our product and service
offerings and expand our network into our targeted markets, there will be
additional demands on operating support systems, sales and marketing,
administrative resources and network infrastructure. We cannot assure you that
we will be able to manage our growth successfully, and if we are unsuccessful in
doing so, our business, results of operations and financial condition will be
negatively affected. Moreover, because we are expanding our business plan into
new markets and technologies not previously used by Pathnet, we may not be able
to identify and manage all of the material risks that may arise as we pursue
this new business plan.
DEVELOPING AND EXPANDING OUR BUSINESS MAY SUBJECT US TO ADDED MARKET AND
REGULATORY RISKS.
The rights of way acquired in connection with our reorganization may
significantly expand our business, making us more vulnerable to competition from
major telecommunications companies and more likely to become the subject of
regulatory scrutiny. Increased competition or regulatory burdens could interfere
with our ability to capitalize on the expansion of our business.
OUR BUSINESS PLANS REQUIRE US TO MAKE SIGNIFICANT INVESTMENTS IN A RAPIDLY
EVOLVING INDUSTRY AND OUR BUSINESS AND FINANCIAL PERFORMANCE MAY SUFFER IF
MARKET AND TECHNOLOGICAL DEVELOPMENTS RENDER OUR CHOSEN TECHNOLOGIES AND
STRATEGIES OBSOLETE OR UNRESPONSIVE TO MARKET DEMAND.
Our business strategy is to provide an integrated bundle of
telecommunications services and expand our operations and network. To implement
this strategy we will be investing heavily in a rapidly evolving industry. As a
result, our investments will be subject to a variety of risks in addition to
those described in the other "risk factors" set forth in this prospectus. These
additional risks include:
- market pricing pressures for the services and products we offer;
- changes in expenses associated with the construction and expansion of our
network and services;
- operating and technical problems;
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- availability of alternative technologies; and
- variations in market growth rates for our products and services.
These factors could adversely affect our business strategies by increasing
the cost and difficulty of implementing our business plans, or making it more
difficult for us to generate adequate revenues.
WE MAY BE UNABLE TO HIRE AND RETAIN SUFFICIENT QUALIFIED PERSONNEL, AND THE LOSS
OF ANY OF OUR KEY EMPLOYEES COULD MATERIALLY ADVERSELY AFFECT OUR ABILITY TO
CONSTRUCT OUR NETWORK, CONDUCT OUR NETWORK OPERATIONS AND IMPLEMENT OUR SALES
STRATEGY.
Our products and services are technical in nature, and the market for
employees in the telecommunications industry is competitive and dynamic. As a
result, our future success will depend in large part on our ability to attract
and retain a substantial number of highly skilled, knowledgeable, sophisticated
and qualified managerial, professional and technical personnel. Pathnet has
experienced, and we expect to experience, significant and increasing competition
from other companies in attracting and retaining personnel who possess the
skills that we are seeking. We therefore may be unable to attract and retain
senior management, other key employees, or other skilled personnel in the
future. We depend on these employees to implement our business plan and manage
our planned growth successfully, and losing key employees could have a material
adverse effect on our ability to implement the essential components of our
business plan.
THE LOSS OR INTERRUPTION OF RELATIONSHIPS WITH OR SERVICES FROM KEY SUPPLIERS OR
THIRD PARTY CONTRACTORS COULD DELAY AND INCREASE COSTS ASSOCIATED WITH THE
CONSTRUCTION OF OUR NETWORK.
We depend on third party suppliers for a number of components and parts
used in our network. We may be unable to obtain supplies or services from our
usual suppliers for reasons beyond our control. Although there may be
alternative suppliers of components for all of the components and transmission
equipment contained in our network or required to offer our products and
services, those alternatives may not be available to us on as favorable terms.
Any nationwide shortage, or extended delay or other interruption in the supply
of any of the key components, change in the pricing arrangements with our
suppliers and manufacturers or delay in transitioning a replacement supplier's
product into the network could disrupt our operations.
We also use third party contractors to build various segments of our
network. If any of these relationships is terminated or a supplier or contractor
fails to provide reliable services or equipment, and we are unable to reach
suitable alternative arrangements quickly or on favorable terms, we may
experience significant delays and additional costs. The failure of our
contractors to complete their activities in a timely manner, within anticipated
budgets and in accordance with our quality standards and performance criteria,
could also delay the completion of our network or make it more costly to
construct.
OUR FAILURE TO IDENTIFY, DEPLOY AND MAINTAIN SOPHISTICATED BILLING, CUSTOMER
SERVICE AND INFORMATION SYSTEMS COULD HAVE A NEGATIVE EFFECT ON OUR PRODUCT AND
SERVICE OFFERINGS, CUSTOMER RELATIONS AND REVENUES.
We will depend on sophisticated information and processing systems to grow,
monitor costs, bill customers, service customer orders and achieve operating
efficiencies. As we expand our services and increase our customer base, our need
for enhanced billing and information systems will increase. If we are unable to
adequately identify our information and processing needs or develop or upgrade
systems as necessary, we may not be able to offer services or products that our
customers require, our customer relations could be damaged, and our ability to
reach our financial and operational objectives could be compromised.
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OUR YEAR 2000 COMPLIANCE EFFORTS MAY NOT ULTIMATELY PROVE TO BE SUCCESSFUL,
WHICH COULD MATERIALLY INTERFERE WITH OUR NETWORK AND OTHER BUSINESS OPERATIONS.
The Year 2000 issue is the result of computer programs using two digits,
rather than four, to define the applicable year. Because of this programming
convention, software, hardware or firmware may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failures,
miscalculations or errors causing disruptions of operations or other business
problems, including, among others, an inability to process transactions, send
invoices, or engage in similar normal business activities. As of February 22,
2000, neither Pathnet nor us had experienced any significant Year 2000 issues.
However, we will not be able to fully assess the impact of Year 2000 issues on
our business and operations until later this year. If we or our major vendors,
other key service providers or customers fail to address adequately their
respective Year 2000 issues in a timely manner, we could experience, among other
things, interruptions in our network and a decline in sales which would
adversely affect our business. The Year 2000 issues and our Year 2000 readiness
program are described in further detail below in "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Year 2000 Readiness
Disclosure."
IF WE DO NOT SUCCESSFULLY MANAGE ACQUISITIONS, STRATEGIC ALLIANCES AND JOINT
VENTURES THAT WE MAY NEED TO IMPLEMENT OUR BUSINESS PLAN, OUR FINANCIAL AND
OPERATIONAL PERFORMANCE MAY BE ADVERSELY AFFECTED.
To expand and deploy our network in a timely manner, we may need to acquire
other businesses, form strategic alliances or enter into joint ventures that
will complement our existing business markets or accelerate our entry into our
target markets. These transactions may:
- pose challenges in assimilating the acquired operations and personnel;
- disrupt our ongoing business;
- divert resources;
- create difficulties in maintaining uniform standards, controls,
procedures and policies;
- impede management of our growth and information systems;
- present challenges where entering markets in which we have little
experience; or
- impair relationships with employees or customers.
We currently have no definitive acquisition agreement in place, although we
have had discussions with other companies and will continue to assess
opportunities on an ongoing basis. Our failure to implement our expansion and
growth strategy successfully would have a material adverse effect on our
business, results of operations and financial condition.
RISKS RELATING TO OUR FINANCING
WE EXPECT NEGATIVE OPERATING CASH FLOWS AND SUBSTANTIAL OPERATING LOSSES FOR THE
FORESEEABLE FUTURE.
Pathnet has incurred operating losses and negative cash flow since
inception. From August 25, 1995 through December 31, 1999, Pathnet's operations
have resulted in cumulative net losses of $101.5 million. We expect to incur
continued operating losses and negative cash flow as we build our network, offer
additional products and services and increase our customer base. These losses
will reduce our ability to meet working capital needs and increase our need for
external financing to support our objectives. Until and unless we develop an
adequate customer base and revenue stream, our capital and other operating
expenditures will result in negative cash flow and operating losses. We
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expect these expenditures to increase as we develop our customer base in
existing markets, expand into new markets and diversify our service offerings.
We may never develop an adequate customer base, sustain profitability or
generate sufficient cash flow to meet our obligations on the guarantees, debt or
fund our other business needs. We therefore cannot assure you that we will
become profitable in the future.
WE ANTICIPATE THAT OUR FUTURE GROWTH WILL REQUIRE SIGNIFICANT CAPITAL THAT WE
MAY BE UNABLE TO OBTAIN ON ACCEPTABLE TERMS.
Our business plan requires us to expand our existing network and services,
acquire and develop additional networks and services in new markets, deploy our
own fiber capacity in the majority of our markets and fund our initial operating
losses. These activities will require significant capital and operational
expenditures for the foreseeable future. Although we estimate that our currently
available resources will, together with those received in our reorganization, be
sufficient to fund the implementation of our long term business plan through the
fourth quarter of 2000, after that time we expect we will require additional
financing, which may include commercial bank borrowings, vendor financing or the
sale or issuance of equity or debt securities. Our required financing needs may
change if our reorganization is not consummated or is consummated on different
terms or on a later schedule than anticipated. If we are unable to obtain
necessary additional financing on acceptable terms, our business could be
adversely affected.
WE WILL BE GUARANTEEING AND/OR INCURRING A SUBSTANTIAL AMOUNT OF DEBT THAT MAY
INCREASE OUR OPERATING COSTS AND COULD HINDER OR PREVENT US FROM RAISING
ADDITIONAL REQUIRED FUNDS, INVESTING IN OUR OPERATIONS, OR WITHSTANDING A
DECLINE IN OUR PROJECTED REVENUES.
Pathnet currently has, and after our reorganization has closed we will
have, a substantial amount of debt in relation to its stockholders' equity. As
of December 31, 1999, Pathnet had approximately $380.3 million of indebtedness
outstanding and total stockholders' equity (deficit) of ($95.7) million. We plan
to incur additional indebtedness in developing our business.
The amount of our debt could adversely affect our future prospects by:
- impairing our ability to borrow additional money;
- requiring us to use a substantial portion of our cash flows from
operations to pay interest or repay debt which will reduce the funds
available to us for our operations, acquisition opportunities and capital
expenditures;
- placing us at a competitive disadvantage with companies that are less
restricted by their debt arrangements; and
- making us more vulnerable in the event of a downturn in general economic
conditions or upon the occurrence of any risks described in this section.
WE MAY NOT HAVE SUFFICIENT FUNDS FROM OUR OWN CASH FLOW OR OTHER SOURCES TO
SERVICE OUR DEBT.
We cannot assure you that we or Pathnet will be able to meet our debt
obligations under the guarantees, the Pathnet notes or otherwise. If we are
unable to generate sufficient cash to meet our obligations or if we fail to
satisfy the requirements of our debt agreements, we will be in default. A
default under the notes, which may include a material default under other
indebtedness, would permit the holders of the Pathnet notes (and other debt for
which we will be directly or indirectly responsible) to require payment before
the scheduled due date of the debt, resulting in further financial strain on us
and causing additional defaults under our other indebtedness.
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OUR INABILITY TO OBTAIN ADDITIONAL FINANCING NEEDED IN THE FUTURE MAY DELAY OR
PREVENT THE COMPLETION OF OUR NETWORK AND THE ROLLOUT OF OUR PRODUCTS AND
SERVICES TO OUR CUSTOMERS.
We expect to need significant additional capital to complete the buildout
of our planned network and fulfill our long-term business strategies. We may be
unable to produce sufficient cash flows from ongoing operations to fund our
business plan and future growth. This could require us to alter our business
plan, including delaying, reducing or abandoning our expansion or spending
plans, which could have a material adverse effect on our future revenue
prospects or our business.
In addition, we may elect to pursue other business opportunities that could
require additional capital investments in our network. If any of these events
were to occur, we could be required to sell assets, borrow more money than we
currently anticipate, issue additional debt or equity securities, refinance or
restructure our debt or enter into joint ventures.
Our ability to arrange financing depends upon many factors, including:
- general economic and capital markets conditions, especially the
non-investment grade debt market;
- conditions in the telecommunications industry;
- regulatory, technological or competitive developments;
- investor confidence and credit availability from banks or other lenders;
- the success of our network and demand for our products and services;
- cost overruns and unforeseen delays; and
- provisions of tax and securities laws that affect capital raising
activities.
Our inability to raise additional funds would have an adverse effect on our
ability to complete our network. If we decide to raise additional funds by
incurring more debt, we may become subject to additional or more restrictive
financial covenants. These covenants or other terms of the additional financing
may place significant limits on our financial and operating flexibility, or may
not be acceptable to us. Our failure to raise sufficient funds when needed and
on reasonable terms may require us to modify or significantly curtail our
business expansion plans. These modifications could have a material adverse
impact on our growth and ability to compete and to service our existing debt.
ALTHOUGH YOUR NOTES ARE REFERRED TO AS "SENIOR NOTES" THEY ARE, AND WILL
CONTINUE TO BE, EFFECTIVELY SUBORDINATED TO OUR SECURED DEBT AND THE SECURED AND
UNSECURED DEBT OF OUR SUBSIDIARIES.
The notes are unsecured and therefore are and will continue to be
effectively subordinated to any secured debt we may incur to the extent of the
value of the assets securing that debt. In the event of a default, foreclosure,
bankruptcy or similar proceeding involving us, our assets that serve as
collateral will be available to satisfy the obligations under any secured debt
before any payments are made on the notes. If there is any shortfall after the
foreclosure on these assets, our secured creditors would have a claim for that
shortfall ranking equally with your claim against us under the guarantees. In
addition we may secure any additional debt with our assets or borrow through
subsidiaries. Those secured assets, or the assets of our borrowing subsidiaries,
will be available to other creditors before they are available to you.
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WE WILL DEPEND ON PAYMENTS FROM OUR SUBSIDIARIES TO REPAY OUR DEBTS, AND OTHER
CREDITORS OF OUR SUBSIDIARIES OTHER THAN PATHNET WILL HAVE CLAIMS AGAINST THE
ASSETS OF THOSE SUBSIDIARIES THAT ARE SENIOR TO YOUR NOTES.
After our reorganization has closed, we will be a holding company that
receives a substantial part of our revenues from our subsidiaries. Our ability
to obtain payments from our subsidiaries may be restricted by the profitability
and cash flows of our subsidiaries and laws relating to the payment of dividends
by a subsidiary to its parent company. If our subsidiaries are unable to pay
dividends, we may be unable to service our debt, including our obligations under
the supplemental indenture and the guarantees. If any of our subsidiaries
experiences a bankruptcy, liquidation or reorganization, its creditors will
generally be entitled to payment of their claims from the assets of that
subsidiary before any assets are made available for distributions to us, except
to the extent we may also have a claim as a creditor. In that situation,
creditors of our subsidiaries and future holders of preferred stock, if any, of
our subsidiaries, would have claims on the assets of the subsidiaries with
priority over our claims.
OTHER THAN PATHNET, OUR SUBSIDIARIES, INCLUDING SUBSIDIARIES THAT WE MAY FORM IN
THE FUTURE, WILL NOT GUARANTEE OR OTHERWISE BE RESPONSIBLE FOR MAKING FUNDS
AVAILABLE TO US OR TO PATHNET TO MAKE PAYMENTS ON YOUR NOTES OR GUARANTEES.
Like your notes, your rights under the guarantees will be structurally
subordinated to both secured and unsecured debts of our subsidiaries other than
Pathnet. Under the terms of the existing indenture, Pathnet has formed new
subsidiaries that are separate legal entities with no obligations under the
notes. The supplemental indenture will extend this structure to us. If we
incorporate additional subsidiaries, whether new subsidiaries of Pathnet or
"sister" companies to Pathnet, these new subsidiaries also will be separate
legal entities. They will have no obligation under the supplemental indenture or
the guarantees to make payments or to provide dividends or other funds to us or
Pathnet to permit us to make payments on the notes or guarantees.
We have concluded that revising the indenture to provide for these
guarantees would interfere with our ability to obtain equipment and other
financing necessary in connection with the future development of our network. As
a result, the notes are and will continue to be, and the guarantees will be,
effectively subordinated to the debts of our subsidiaries other than Pathnet.
VENDOR FINANCING ARRANGEMENTS WILL LIKELY REQUIRE US TO FORM SUBSIDIARIES WITH
SUBSTANTIAL ASSETS THAT WILL NOT BE OBLIGATED TO GUARANTEE THE NOTES.
We expect to take advantage of vendor financing in constructing our
network. Our proposed vendor financing agreement with Lucent specifically
requires us, if we wish to take advantage of the Lucent financing, to form a new
subsidiary and to contribute to this new subsidiary a substantial portion of our
assets. This contribution of assets would include the rights of way relating to
the segments of our network that we plan to construct with fiber for which
Lucent provides vendor financing, and could include additional cash
contributions. This new subsidiary will not guarantee the notes. See
"DESCRIPTION OF OTHER INDEBTEDNESS AND OTHER FINANCING ARRANGEMENTS -- Proposed
Credit Facility with Lucent."
OUR INDEBTEDNESS WILL CONTAIN RESTRICTIVE COVENANTS, WHICH COULD EXPOSE US TO
ADDITIONAL DEFAULTS AND RESTRICT OUR OPERATIONS.
By entering into the supplemental indenture, we will become subject to a
number of restrictive covenants parallel to those contained in the indenture and
applicable to Pathnet. These restrictions
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affect, and, in certain cases significantly limit (and in some cases prohibit),
among other things, our ability and the ability of our subsidiaries to:
- incur additional indebtedness;
- create liens;
- make investments;
- pay dividends;
- issue stock; and
- sell assets.
For example, the indenture restricts and the supplemental indenture will
restrict our ability to incur indebtedness other than indebtedness to finance
the acquisition of equipment, inventory or network assets and other specified
indebtedness. In addition, if and when we (or our subsidiaries) borrow funds
under our proposed credit facility with Lucent or under other credit facilities
with other vendors or third parties who may provide financing, we may be
required to maintain specified financial ratios. We cannot assure you that we
will be able to maintain those required ratios after each borrowing, and our
failure to do so or comply with other covenants could lead to a default on those
facilities and a foreclosure against any assets securing the facilities. These
restrictive covenants may also adversely affect our ability to finance our
future operations or capital needs, or to engage in other business activities
that may be in our interest.
PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS, THE STOCKHOLDERS
AGREEMENT TO WHICH WE WILL BECOME A PARTY AND THE TERMS OF THE INDENTURE AND
SUPPLEMENTAL INDENTURE COULD DELAY OR PREVENT OUR CHANGE OF CONTROL, EFFECTIVELY
HINDERING OUR ACCESS TO ADDITIONAL EQUITY FINANCING.
Our certificate of incorporation, bylaws and stockholders agreement contain
provisions that will make any acquisition of us or investment in us more
difficult, including restrictions on removal of directors and limitations on the
ability of stockholders to call special meetings. The terms of the indenture and
supplemental indenture may also restrict and discourage attempts to change
control of Pathnet Telecom. Our ability to attract future equity investment may
be hindered because of these provisions, thereby limiting our access to
additional capital.
RISKS RELATING TO TAX MATTERS
YOU MAY BE SUBJECT TO FEDERAL INCOME TAXATION AS A CONSEQUENCE OF THE WAIVERS,
CONSENT AND PROPOSED INDENTURE AMENDMENTS.
Due to the lack of specific guidance and the inherently factual nature of
the issues involved, Covington & Burling is unable to render an opinion
regarding the tax consequences to you as a result of the waivers, consent and
proposed indenture amendments. Covington has opined that, if the waivers,
consent and proposed indenture amendments result in a "deemed exchange" of the
notes for federal income tax purposes, you would recognize gain or loss on such
deemed exchange if the notes do not constitute securities for purposes of
Section 354 of the tax code. There is uncertainty as to whether the notes
constitute securities for these purposes and as to whether the waivers, consent,
and proposed indenture amendments will result in a "deemed exchange." In
addition, regardless of whether the notes constitute securities, if a deemed
exchange occurs and the notes are publicly traded within the meaning of the tax
code, the notes likely would be treated as having original issue discount. If
the notes have original issue discount, it is Covington's opinion that you
generally will be required to include such discount in income as it accrues in
advance of the receipt of cash attributable to such income. There is uncertainty
as to whether the consent fee should be treated as a
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fee paid to holders for their consents or, alternatively, as a premium that is
part of a deemed exchange. Accordingly, Covington is unable to render an opinion
as to the extent to which you will recognize income on receipt of the consent
fee. The tax consequences of the waivers, consent and proposed indenture
amendments are described more fully in "FEDERAL INCOME TAX CONSEQUENCES."
PATHNET MAY INCUR SUBSTANTIAL FEDERAL INCOME TAXES AS A CONSEQUENCE OF THE
WAIVERS, CONSENT AND PROPOSED INDENTURE AMENDMENTS.
Due to the lack of specific guidance and the inherently factual nature of
the issues involved, Covington & Burling is unable to render an opinion that the
waivers, consent and proposed indenture amendments will not cause Pathnet to
recognize any income for federal income tax purposes. If the waivers, consent
and proposed indenture amendments result in a "deemed exchange" of the notes for
federal income tax purposes and the notes are treated as publicly traded within
the meaning of the tax code, Pathnet could recognize a substantial amount of
cancellation of indebtedness income. Moreover, we cannot assure you that
Pathnet's net operating losses in prior years could be used to offset such
income and thereby reduce any taxes payable with respect to such income. The tax
consequences of the waivers, consent and proposed indenture amendments are
described more fully in "FEDERAL INCOME TAX CONSEQUENCES."
RISKS RELATING TO THE CONSENT SOLICITATION
IF WE HAVE NOT CLOSED OUR REORGANIZATION ON OR BEFORE MARCH 31, 2000, THE
PARTIES TO OUR REORGANIZATION MAY TERMINATE THEIR AGREEMENTS WITH US.
If we have not closed our reorganization on or before March 31, 2000,
provisions in the contribution agreements permit the parties to elect to
terminate those agreements. As a result, if we do not obtain the necessary
consents from the holders of the notes and complete the other steps necessary to
close the reorganization on or before the March 31 termination date, the
reorganization may not proceed as planned. If the reorganization does not take
place, the new investors will not contribute the cash and other assets that we
expect to receive in the reorganization, and Pathnet's business will not expand
as contemplated. We cannot assure you, in the absence of the reorganization,
that Pathnet will be able to find other investors to pursue its business plans.
IF WE HAVE NOT COMPLETED THE REORGANIZATION BEFORE MARCH 31, 2000, WE WILL NEED
TO DELAY AND MAY NEED TO RESTRUCTURE THE REORGANIZATION.
If we have not completed the contribution and reorganization transaction by
the termination date in the contribution agreements, and regardless of whether
the participants in the transaction have elected to exercise their termination
rights, applicable federal securities law may prevent us from completing the
reorganization. Currently, the reorganization and the consent solicitation are
separate offerings. However, if the parties to the reorganization could
voluntarily terminate the agreements, the two offerings might be subject to
integration under the Securities Act. Accordingly, to avoid any suggestion that
our issue of shares in the reorganization should be integrated with the offering
of the guarantees in the consent solicitation, we might need to delay or
restructure the reorganization. If we were required to delay or restructure the
reorganization, we cannot assure you that the parties to the reorganization
would still wish to participate in the transaction.
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RISKS RELATING TO OUR NETWORK BUSINESS
DIFFICULTIES THAT WE MAY EXPERIENCE IN EXPANDING OUR NETWORK COULD INCREASE OUR
ESTIMATED COSTS AND DELAY SCHEDULED COMPLETION OF OUR NETWORK.
We plan to expand our existing network, enter new markets and broaden our
product and service offerings -- all of which are significant undertakings.
These activities will require us to install and operate additional facilities
and equipment, and develop, introduce and market new products and services. To
deploy these additional services we will need to modify and add to our existing
network architecture. We will also need to obtain and install our equipment in
the existing local telephone companies' central office collocation space as
described in further detail below. We may encounter administrative, technical,
operational, regulatory and other problems as a result of our expansion. Many of
these factors and problems are beyond our control. If we experience difficulties
in addressing and solving these problems, we may not be able to complete our
network buildout or expand our products and services as planned or in accordance
with our current cost or time estimates.
WE MAY PURSUE RELATIONSHIPS WITH TELECOMMUNICATIONS PROVIDERS AND OTHER BUSINESS
OPPORTUNITIES THAT COULD EXPOSE US TO ADDITIONAL RISKS OR DELAY THE CONSTRUCTION
AND OPERATION OF OUR NETWORK.
We may enter into relationships with long distance telephone companies,
existing local telephone companies, Internet service providers, competitive
telecommunications companies or other entities to manage existing assets or to
deploy alternative telecommunications products and services. We may also seek to
serve markets in addition to underserved or second or third tier markets and
customers in addition to telecommunications service providers. Pursuing these
other opportunities could require additional financing, pose additional risks
(such as increased or different competition, additional regulatory burdens and
network economics and pricing different from our currently planned network and
products and services) and divert our resources and management time. We cannot
assure you that we will successfully integrate any new opportunity into our
operations or that the opportunity would perform as expected.
WE MAY NOT BE ABLE TO OBTAIN OR MAINTAIN APPROPRIATE RIGHTS OF WAY AND OTHER
ACCESS RIGHTS THAT WE NEED TO BUILD AND OPERATE OUR NETWORK, DEPRIVING US OF THE
REVENUES NECESSARY TO IMPLEMENT OUR BUSINESS PLAN.
In addition to the rights of way to which we will gain access as a result
of our reorganization, we expect that we will need to obtain and maintain
additional rights of way to construct and develop our network. We cannot assure
you, however, that we will continue to have access to existing rights of way,
leases and licenses after the expiration of our current agreements, or that we
will obtain additional rights necessary to extend our network on reasonable
terms. In addition, if a franchise, license or lease agreement is terminated and
we are forced to remove or abandon a significant portion of our network, our
business, results of operations, and financial condition will be materially
adversely affected.
THIRD PARTY CHALLENGES TO OUR USE OF RIGHTS OF WAY OBTAINED FROM OTHERS MAY
DELAY, HINDER OR OTHERWISE LIMIT THE DEVELOPMENT AND OPERATION OF OUR NETWORK
AND IMPLEMENTATION OF OUR BUSINESS PLAN.
To construct and maintain our fiber optic and wireless network, we have
obtained and will obtain easements, leases, rights of way, franchises and
licenses from various private parties, including railroads, pipelines,
utilities, actual and potential competitors and local governments. Some of our
agreements with right of way providers require us to acknowledge that others who
question the right of way providers' ownership claim to the easement or property
right may challenge our claim to the rights of way being granted. Third parties
have challenged, and we expect in the future that third
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parties may challenge, our use of rights of way obtained by or from others,
including the rights of way we will obtain upon the closing of our
reorganization. If we are unable to resolve any of these challenges, or if the
cost of addressing them is higher than we contemplate, these challenges may
hinder or delay our business plans.
IF WE ARE UNABLE TO OBTAIN THE ADDITIONAL PERMITS AND AGREEMENTS NECESSARY TO
OPERATE AND EXPAND OUR NETWORK, WE MAY BE UNABLE TO DEVELOP OUR NETWORK OR
GENERATE SUFFICIENT REVENUES.
We may require additional pole attachment or conduit use agreements with
existing local telephone companies, utilities or other local telephone
companies. We cannot guarantee that we, or our operating companies or partners,
will be able to obtain new or maintain existing permits, pole attachment and
conduit use agreements needed to develop and operate and expand our network and
provide our planned products and services. Our failure to obtain or maintain
necessary permits, pole attachments and conduit use agreements could have a
material adverse effect on our ability to operate and expand our network.
IF WE ARE UNABLE TO OBTAIN AND MAINTAIN ON GOOD TERMS THE LEASEHOLD ACCESS OR
OTHER SERVICES AND MAINTENANCE AGREEMENTS ON WHICH WE RELY TO OPERATE THE
WIRELESS PORTIONS OF OUR NETWORK, IT MAY BECOME MORE EXPENSIVE, OR WE MAY EVEN
BE UNABLE, TO OPERATE THOSE PORTIONS OF OUR NETWORK.
We do not own, and we do not expect to own in the future, the underlying
sites and facilities upon which Pathnet's current wireless digital network is
deployed. Instead, we (or our affiliated companies) have entered into long term
fixed point microwave services agreements with certain of our co-development
partners such as Kinder Morgan, formerly KN Energy. Under these agreements, each
co-development partner has agreed to grant us a leasehold interest in, or a
similar right to use, their facilities and infrastructure as required for us to
deploy our network. As a result, we depend and will continue to depend on the
facilities and infrastructure of our co-development partners for the operation
of our business. In many cases, we also rely on our co-development partners for
the maintenance and provisioning of circuits on our network. We have entered
into maintenance agreements with some of these co-development partners where
they perform maintenance and provisioning services for us in return for a
monthly fee. The cancellation or non-renewal of any of these arrangements or
agreements could have a material adverse effect on our business.
DISAGREEMENTS WITH OUR CO-DEVELOPMENT PARTNERS OR DIFFICULTIES WE MAY EXPERIENCE
IN OUR OTHER STRATEGIC RELATIONSHIPS COULD HINDER THE DEVELOPMENT OF OUR NETWORK
AND OUR EXPANSION INTO TARGET MARKETS.
As part of our "smart build" strategy and our reorganization, we have
formed and plan to continue in the future to pursue strategic alliances and
relationships which would allow us to enter certain markets for
telecommunications services sooner than if we had made the attempt
independently. As our network is further developed, we will be dependent on some
of these arrangements in order to expand our network into target markets.
Any disagreements with our co-development partners or companies with which
we have a strategic alliance could impair or adversely effect our ability to
conduct our business. In addition, the bankruptcy or insolvency of a
co-development partner could result in the termination of its agreement with us
and any related right of way agreements. The effect of those terminations or the
failure of a co-development partner to make required capital contributions would
have a material adverse effect on us.
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<PAGE> 23
WE MAY BE UNABLE TO OBTAIN ACCESS TO AND INTERCONNECTION WITH THE FACILITIES OF
EXISTING LOCAL TELEPHONE COMPANIES ON FAVORABLE TERMS, WHICH COULD DELAY,
INCREASE THE COST OF OR PREVENT US FROM PROVIDING LOCAL ACCESS SERVICES IN OUR
TARGET MARKETS.
Our ability to provide local access services depends upon our securing
access to existing local telephone companies' networks, including locating our
network equipment in, or otherwise fully connecting our network equipment with,
the existing local telephone companies' central offices in our target markets.
Challenges we may face in obtaining central space from the existing local
telephone companies include:
- limitations on the availability of such space in high demand target
markets where other competitive telecommunications companies are seeking
or have obtained such space to offer services;
- delays when existing local telephone companies fail to promptly address
our requests for such space; and
- expenditure of time and money to pursue negotiations, regulatory
disputes, and legal actions for resolution of disputes regarding lack of
sufficient central office space.
We expect that these challenges may delay our attempts to obtain central
office space, which would slow down our deployment of our network and our
ability to increase the number of our customers.
IF EXISTING LOCAL TELEPHONE COMPANIES ON WHOM WE DEPEND FOR INTERCONNECTION AND
OTHER NETWORK ELEMENTS REFUSE TO COOPERATE OR FAIL TO PERFORM THEIR AGREEMENTS
WITH US, WE MAY BE DELAYED IN OR EVEN PREVENTED FROM COMPLETING OUR NETWORK AND
OFFERING COMPETITIVE SERVICES TO OUR CUSTOMERS.
We will interconnect with and use existing local telephone companies'
networks to provide local access services to our customers. This strategy
presents a number of challenges because we depend on existing local telephone
companies to:
- allow us to use their technology and capabilities of their networks to
service our customers;
- cooperate with us to provide and repair facilities; and
- provide the services and network components that we order, for which they
depend significantly on unionized labor. Labor issues have in the past
and may in the future hurt the existing local telephone companies'
performance.
Our dependence on existing local telephone companies may cause us to
encounter delays in establishing our network and rolling out our products and
services. We must also establish satisfactory billing and payment arrangements
with existing local telephone companies. We may not be able to do these things
in a manner that will allow us to retain and grow our customer base.
IF THE QUALITY, AVAILABILITY OR MAINTENANCE OF EXISTING LOCAL TELEPHONE
COMPANIES' NETWORKS IS UNSATISFACTORY, OUR NETWORK MAY NOT BE SUFFICIENTLY
AVAILABLE OR RELIABLE TO MEET OUR BUSINESS PLANS OR CUSTOMER EXPECTATIONS.
We may not be able to obtain the facilities and the services we need from
existing local telephone companies at satisfactory quality levels, rates, terms
and conditions. Our inability to do so could delay the expansion of our network
and degrade the quality of our services to our customers.
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<PAGE> 24
WIRELESS PATH FAILURES OR CABLE CUTS ON OUR NETWORK COULD INTERFERE WITH OUR
NETWORK OPERATIONS, DAMAGE OUR RELATIONSHIPS WITH OUR CUSTOMERS OR EXPOSE US TO
LIABILITY.
We do not have multiple or redundant network paths, often referred to as
"route diversity," on our digital network to maintain services if a wireless
path failure or fiber cable cut occurs. If we were to suffer a deterioration in
the perceived quality or reliability of our service as a result of a path
failure, cable cut, or other network outage, our customer relations would be
materially adversely affected and we could be exposed to liability claims.
RISKS RELATING TO OUR INDUSTRY
OUR BUSINESS AND INDUSTRY ARE VERY COMPETITIVE AND INCREASED COMPETITION COULD
REQUIRE US TO LOWER OUR PRICES OR PROVIDE MORE EXPENSIVE SERVICES THAT WOULD
ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE.
The telecommunications industry is extremely competitive, particularly with
regard to price and service. Many of our existing and potential competitors have
significantly greater financial, personnel, marketing and other resources than
we do. For example, some of our competitors have already made substantial
long-term investments in the construction of wireless and fiber optic networks
and the acquisition of telecommunications capacity. Many of our competitors also
have the added competitive advantage of an established network and existing
customer base. For example, some communications carriers and local cable
companies have extensive networks in place that could be upgraded to fiber optic
cable. Those companies also have more employees and more substantial capital
resources to begin those upgrades. If communications carriers and local cable
companies decide to equip their existing networks with fiber optic cable, they
could become significant competitors of ours in a short period of time.
IF WE ENCOUNTER INCREASED COMPETITION FROM EXISTING AND FUTURE
TELECOMMUNICATIONS SYSTEMS ON ROUTES WHERE WE PLAN TO PROVIDE INFRASTRUCTURE
SERVICES AND WHOLESALE TRANSPORT SERVICES, WE MAY BE UNABLE TO COMPETE
EFFECTIVELY FOR THESE SERVICES OR WE MAY NEED TO REDUCE OUR PRICES IN A MANNER
THAT ADVERSELY AFFECTS OUR FINANCIAL PERFORMANCE.
Other companies may choose to compete with us in our current or planned
markets by selling or leasing network assets or wholesale transport services to
our targeted customers. This competition could have a material adverse effect on
our business. Our competitors for these products and services include:
- long distance companies, such as AT&T Corp., MCI WorldCom, Inc. and
Sprint Corporation;
- wholesale providers, such as Qwest Communications International Inc.,
Williams Communications Group, Inc., IXC Communications, Inc., DTI
Holdings, Inc., Global Crossing Ltd. and Level 3 Communications, Inc.;
- existing local telephone companies, such as US West, BellSouth, Bell
Atlantic, SBC and GTE Corporation, which currently dominate their local
telecommunications markets and have sought or may soon seek or obtain
authority to provide long distance services in their local markets;
- competitive telecommunications companies, such as GST Telecommunications,
Inc., ITC/ Deltacom, Inc. and Metromedia Fiber Network, Inc.; and
- potential competitors capable of offering services similar to those we
offer, such as communications service providers, cable television
companies, electric utilities, microwave carriers, satellite carriers,
wireless telephone operators and large end users with private networks.
20
<PAGE> 25
ADDITIONAL COMPETITION FROM LOCAL TELEPHONE COMPANIES OR OTHER
TELECOMMUNICATIONS SERVICES PROVIDERS AS THEY BEGIN TO PROVIDE OR EXPAND THEIR
LOCAL ACCESS SERVICES IN THE MARKETS THAT WE HAVE TARGETED MAY PREVENT US FROM
ACHIEVING OUR SALES GOALS.
Our principal competitor in the provision of local access services in each
of our markets is the existing local telephone company. Although recent federal
legislation and rule-making proceedings afford us increased opportunities to
compete in providing these services, some aspects of these proceedings also
benefit existing local telephone companies. Potential changes in the regulation
of telecommunications services could deprive us of some competitive advantages
that we now enjoy, which could harm our business.
In addition to the existing local telephone companies, other
telecommunications service providers, such as Covad Communications Group, Inc.,
NorthPoint Communications Group, Inc. and Rhythms Netconnections, Inc., have
recently begun providing some local services. Other competitors and potential
entrants in the market for the provision of these services include long distance
companies, cable television companies, electric utilities, microwave carriers,
wireless telephone system operators, data service companies and operators of
private networks. Significant new competitors also could enter the local market
through consolidation and strategic alliances in the industry, foreign carriers
being allowed to compete in the U.S. market, technological advances, and further
deregulation and other regulatory initiatives. The introduction of any of these
new competitors into our markets for local services could materially and
adversely affect our business. See "BUSINESS -- Competition."
WE DO NOT PLAN TO OFFER A BROAD RANGE OF PRODUCTS OR SERVICES IN THE IMMEDIATE
FUTURE, AND THIS LIMITATION COULD INCREASE OUR VULNERABILITY TO CHANGING TRENDS
IN OUR INDUSTRY OR INCREASED COMPETITION. AT THE SAME TIME, OUR FUTURE SUCCESS
WILL DEPEND ON GROWTH IN THE DEMAND FOR LOCAL ACCESS SERVICES WE PLAN TO
CONTINUE TO OFFER.
We have planned to undertake only a narrow scope of activities in the
immediate future, which could limit potential revenues and result in lower
revenues than competitors who now provide a wide range of services. Although
Pathnet has recently commenced marketing local access services to
telecommunications service providers, we cannot assure you that we will be
successful in entering this business. If the markets for these services fail to
develop, grow more slowly than anticipated or become saturated with competitors,
our business prospects, operating results and financial condition could be
materially adversely affected.
OUR PRODUCT AND SERVICE OFFERINGS ARE SUBJECT TO RISKS OF INDUSTRY OVER-CAPACITY
AND RESULTING DOWNWARD PRICING PRESSURES.
Since shortly after the AT&T divestiture in 1984, the long distance
transmission industry generally has experienced over-capacity and declining
prices. These trends have exerted downward pricing pressures on a number of
telecommunications services, including our wholesale transport services, and we
anticipate that prices for these services will continue to decline over the next
several years because:
- existing long distance carriers and potential new carriers are
constructing new fiber optic and other long distance transmission
networks;
- regulatory changes may permit the existing local telephone companies to
provide long-distance services out-of-region;
- expansion and new construction of transmission networks, particularly
fiber optic cable networks, are likely to create substantial excess
capacity relative to demand in the short or medium term; and
21
<PAGE> 26
- recent technological advances may greatly expand the capacity of existing
and new fiber optic cable.
Dramatic and substantial price reductions in the long distance industry
could require us to reduce our prices significantly or to revise the mix of
products and services we plan to offer. Either of these results could adversely
affect our business. Also, an increase in the capacity of any of our competitors
to provide transport services could adversely affect our business even if we are
also able to increase our capacity.
INCREASED SUPPLY OF FIBER OPTIC CABLE IN THE INDUSTRY MAY LEAD TO LOWER PRICES
FOR OUR PRODUCTS OR SERVICES.
The supply of fiber optic cable that is already buried in conduits but has
none of the associated transmission electronics installed has increased,
resulting in downward pricing pressure on sales of fiber optic strands. The FCC
recently issued an order requiring existing local telephone companies to make
inactive fiber optic strands and other transport facilities available to other
telecommunications carriers at cost-based nondiscriminatory prices. This
requirement could further increase the supply of and decrease demand for fiber
optic strands that we sell and services that we plan to offer, adversely
affecting our business, financial condition and results of operations.
IF WE FAIL TO RECOGNIZE OR MAKE THE INVESTMENTS NECESSARY TO KEEP PACE WITH
RAPID TECHNOLOGICAL CHANGES, OUR SERVICES MAY BECOME LESS DESIRABLE OR OBSOLETE
AND WE MAY FACE HIGHER COSTS OR BE UNABLE TO COMPETE EFFECTIVELY.
The telecommunications industry is characterized by rapid and significant
changes in technology. We cannot predict the effect of technological changes on
our business. The introduction of new products or technologies may reduce the
cost or increase the supply of services similar to those that we plan to
provide, or could render those services and our network assets less desirable or
even obsolete. As a result, new entrants in the communications services industry
may become our most significant competitors in the future. These new entrants
may not be burdened by an installed base of outdated equipment and the resulting
competition they may provide could have a material adverse effect on our ability
to meet our sales targets.
RISKS RELATING TO REGULATION
REGULATORY CHANGES COULD REQUIRE US TO POSTPONE OR MODIFY OUR BUSINESS PLANS OR
DEPRIVE US OF THE MEANS TO ESTABLISH OUR NETWORK IN OUR TARGET MARKETS.
Communications services are subject to significant regulation at the
federal, state and local levels. Our business plans require us to exploit new
opportunities afforded by recent regulatory changes. However, the regulatory
environment could adversely affect us in a number of ways, including:
- delays in receiving required regulatory approvals or the imposition of
onerous conditions for these approvals;
- difficulties in completing and obtaining regulatory approval of
interconnection agreements, which provide for the interconnection of our
networks with existing local telephone companies' networks; and
- enactment of new and adverse legislation or regulatory requirements or
changes in the interpretation of existing laws or regulations.
Many regulatory proceedings regarding issues that are important to our
business are currently underway or are being contemplated by federal and state
authorities. Changes in regulations or future regulations adopted by federal,
state or local regulators, or other legislative or judicial initiatives
22
<PAGE> 27
relating to the telecommunications industry could cause our pricing and business
models to fluctuate dramatically or otherwise have a material adverse effect on
us.
THE FCC MAY IMPLEMENT PROVISIONS OF THE TELECOMMUNICATIONS ACT OF 1996 IN A
MANNER THAT IS ADVERSE TO OUR BUSINESS PLANS AND STRATEGIES.
The Telecommunications Act of 1996 was intended, among other things, to
foster competition in the local telephone market. However, the FCC and the
states are still implementing many of its rules and policies and it remains
uncertain how successfully the Telecommunications Act will promote competition.
Moreover, the Telecommunications Act and other recent federal laws regarding the
U.S. telecommunications industry remain subject to judicial review and
additional FCC rule-making proceedings. Our business strategy involves taking
advantage of some of the competitive opportunities advanced by the
Telecommunications Act, and the FCC may promulgate regulations implementing the
Telecommunications Act that are adverse to our business.
OUR ABILITY TO OFFER LONG DISTANCE COMPANIES LOCAL ACCESS SERVICES AT
COMPETITIVE RATES MAY BE LIMITED BY NEW REGULATIONS AND LEGISLATIVE INITIATIVES.
Like most companies in the communications industry, we must comply with
many regulatory requirements. However, unlike some of our competitors,
particularly the existing local telephone companies, we are not currently
subject to some of the burdensome regulations federal law imposes on the
telecommunications industry. Our ability to compete in the provision of local
access services will depend upon a continued favorable, pro-competitive
regulatory environment. New regulations or legislation affording greater
flexibility and regulatory relief to our competitors could adversely affect us
by increasing competition in the provision of local access services.
The FCC is currently considering an industry proposal to restructure the
fees that existing local telephone companies charge long distance companies to
use their local networks. These fees are referred to as access charges. Changes
in the access charge structure could fundamentally affect the economic
environment in which we and our customers operate. If the FCC reduces the access
charges imposed by existing local telephone companies, it would significantly
reduce our price advantage in the market for local access services used by long
distance companies to access the existing local telephone companies' local
networks.
The FCC is also considering whether to impose limits on certain uses of
unbundled network elements we purchase from the existing local telephone
companies. If the FCC limits our ability to offer long distance companies a
package of unbundled network elements that can be used to reach end users, our
ability to offer our local access services at competitive rates may be harmed.
PENDING REGULATORY INITIATIVES MAY MAKE IT EASIER FOR EXISTING LOCAL TELEPHONE
COMPANIES AND THEIR AFFILIATES TO OFFER DIGITAL SUBSCRIBER LINE SERVICES TO
CUSTOMERS IN OUR TARGET MARKETS, INCREASING THE COMPETITION THAT WE FACE FOR
CUSTOMERS SEEKING THESE SERVICES.
In August 1998, the FCC proposed new rules that would allow existing local
telephone companies to provide digital subscriber line services, which utilize a
transmission technology enabling high-speed access in a local network over
copper wires, through separate affiliates not subject to existing local
telephone company regulation. The FCC recently decided some of the other issues
raised in that proceeding, but the question of whether existing local telephone
companies can provide unregulated digital subscriber line services through a
separate affiliate remains unresolved. Any decision that would permit an
existing local telephone company affiliate to offer digital subscriber line
services without being subject to regulation imposed on existing local telephone
companies could have a material adverse effect on us by, for example, increasing
the competition we face in the provision of digital subscriber line services.
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<PAGE> 28
IF WE ARE UNABLE TO OBTAIN AND MAINTAIN THE NECESSARY FCC LICENSES, WE MAY BE
UNABLE TO OPERATE THE WIRELESS PORTIONS OF OUR NETWORK.
Portions of our network are wireless, meaning that we provide access
services via over-the-air microwave transmissions instead of through fiber optic
cables. Our arrangements with certain of our wireless co-development partners
contemplate that the wireless portion of our digital network will largely
provide "common carrier fixed point-to-point microwave" telecommunications
services under Part 101 of the FCC's rules. These services are subject to
regulation by federal, state and local governmental agencies. Changes in
existing laws and regulations governing our provision of these services could
have a material adverse effect on our business, financial condition, and results
of operations.
IF WE DO NOT ACCURATELY PREDICT THE COST OF COMPLYING WITH FEDERAL AND STATE TAX
AND OTHER SURCHARGES ON OUR SERVICES, WE MAY NOT ACCURATELY ANTICIPATE THE COST
OF PROVIDING OUR SERVICES TO CUSTOMERS, AND OUR EARNINGS AND CUSTOMER
RELATIONSHIPS COULD BE ADVERSELY AFFECTED.
As a telecommunications provider, we must pay a variety of surcharges and
fees on our gross revenues from interstate services and intrastate services.
Interstate surcharges include fees for federal universal service and common
carrier obligations, number administration, the provision of telecommunications
services to the disabled and other miscellaneous FCC requirements. State
regulators impose similar surcharges and fees on intrastate services. The
division of our services between interstate services and intrastate services is
a matter of interpretation, and FCC or relevant state commission authorities may
in the future contest how we allocate our charges. If this allocation is
changed, our payment obligations for the relevant surcharges could increase.
Periodic revisions by state and federal regulators of the applicable surcharges
may also increase the surcharges and fees we currently pay.
For more information on these and other risks posed by regulatory
initiatives, see "BUSINESS -- Government Regulation."
WE MAY BE REQUIRED TO REGISTER AS AN INVESTMENT COMPANY, WHICH WOULD SUBJECT US
TO SIGNIFICANT ADDITIONAL REGULATORY BURDENS AND INTERFERE WITH OUR ABILITY TO
HOLD INVESTMENTS OR RAISE FINANCING FOR OUR BUSINESS.
Pathnet has, and after the consummation of our reorganization we will have,
substantial cash balances and short-term investments on a consolidated basis. As
a result, we may be considered an "investment company" under the Investment
Company Act of 1940. The Investment Company Act requires companies that are
engaged primarily in the business of investing, reinvesting, owning, holding or
trading in securities, or that fail numerical tests regarding composition of
assets and sources of income and that are not primarily engaged in a business
other than investing, reinvesting, owning, holding or trading in securities, to
register as "investment companies." Various substantive restrictions are imposed
on investment companies by the Investment Company Act.
We are primarily engaged in a business other than investing, reinvesting,
owning, holding or trading securities. However, we could be deemed an investment
company within the meaning of the Investment Company Act. If we are required to
register as an investment company under the Investment Company Act, we would
become subject to substantial regulation of our capital structure, management,
operations, transactions with "affiliated persons," as defined in the Investment
Company Act, and other matters. To avoid having to register as an investment
company, we may have to hold a portion of our liquid assets as cash or
government securities instead of as investment securities. Having to register as
an investment company or holding a material portion of our liquid assets as cash
or government securities to avoid registration could have a material adverse
effect on us.
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<PAGE> 29
THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS" AND INFORMATION RELATING
TO OUR BUSINESS AND US THAT ARE NOT HISTORICAL FACTS.
We make statements in this prospectus that are not historical facts. You
can identify these forward-looking statements by our use of terminology such as
"believes," "expects," "plans," "may," "will," "should" or "anticipates" or
comparable words. These forward-looking statements include, among others,
statements concerning:
- Our business strategy and competitive advantages;
- Our anticipated potential revenues from designated markets;
- The growth of the telecommunications industry and our business;
- The markets for our services and products;
- Forecasts of when we will enter particular markets or begin offering
particular services;
- Our anticipated capital expenditures and future funding requirements,
including the role of vendor and other sources of financing for equipment
and related asset purchases; and
- Anticipated regulatory developments.
These statements are only predictions. You should be aware that these
forward-looking statements are subject to risks and uncertainties, including
financial and regulatory developments, industry trends, and projections that
could cause actual events or results to differ materially from those expressed
or implied by the statements. Should one or more of these risks or uncertainties
materialize, or should our underlying assumptions about them prove incorrect,
our actual results, our performance or our proposed activities may vary
materially from those expressed or implied by these forward-looking statements.
We disclose factors that could cause our actual results to differ materially
from our descriptions in this "RISK FACTORS" section and elsewhere in this
prospectus including the sections under the "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "DESCRIPTION OF
OTHER INDEBTEDNESS AND OTHER FINANCING ARRANGEMENTS" and "BUSINESS" captions.
Please read the entire prospectus for a description of some of these risks,
including competitive, financial, developmental, operational, technical,
regulatory and other risks associated with our business, before accepting our
guarantees. You should not place undue reliance on the forward-looking
statements in this prospectus, which speak only as of the date of this
prospectus. Beyond the date indicated on the outside back cover of this
prospectus (the 40th day following the effective date of this prospectus), we
undertake no obligation, and do not intend, to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. However, we will become subject to the requirements of the
Exchange Act following our issuance of the guarantees, and will be required to
disclose to investors all material information that the periodic reporting
requirements of the Exchange Act requires us to disclose.
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<PAGE> 30
USE OF PROCEEDS
We will not receive any proceeds from the issue of our guarantees on your
notes. At December 31, 1999, the proceeds remaining from private placements of
equity securities and the 1998 offering of notes, less pledged funds for
interest payments, consisted of $154.8 million of cash, cash equivalents and
marketable securities. Pathnet will lend $50 million of these proceeds to us in
our reorganization. In addition, in connection with the closing of our
reorganization (including both of the Colonial tranches), we will receive $68
million in cash proceeds from Colonial, comprised of $38 million at the initial
closing; $25 million upon the completion of a fiber optic network segment that
we expect to complete during the second calendar quarter of 2000; $1 million at
the initial closing for the issuance of an option to purchase more of our
shares; and $4 million at the initial closing to acquire a single fiber optic
conduit along a portion of the Colonial right of way corridors or other
telecommunications assets of equivalent value.
We anticipate that after payment of the expenses of this offering and our
reorganization, we will use our proceeds to fund:
- Capital expenditures to be incurred in the development of our digital
network and for other purposes relating to our business (including the
business currently conducted by Pathnet);
- Expenses associated with our (and Pathnet's) development and sales and
marketing activities;
- Operating losses;
- Possible strategic investments and strategic acquisitions; and
- Working capital and other general corporate purposes.
The amounts that we actually expend will vary depending on a number of
factors, including future revenue growth, capital expenditures and the amount of
cash generated by our operations. Additionally, if we determine it would be in
our best interest, we may increase or decrease the number, selection and timing
of entry of our targeted regions. Accordingly, our management will retain broad
discretion in the allocation of such proceeds. We may also use a portion of the
proceeds to pursue possible strategic investments in or acquisitions of
businesses, technologies or products complementary to ours in the future. At
present, we have no understandings, commitments or agreements with respect to
any acquisitions or material investments. Pending use of such net proceeds for
the above purposes, we intend to invest such funds in short-term,
interest-bearing, investment-grade securities.
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<PAGE> 31
CAPITALIZATION
The following table sets forth Pathnet's total cash, cash equivalents and
marketable securities and capitalization as of December 31, 1999 on an actual
basis and our unaudited cash, cash equivalents and marketable securities and
capitalization as of December 31, 1999 on a pro forma basis to give effect to
the consummation of our reorganization and the offering of the guarantees as if
they occurred on January 1, 1999. You should read the information in this table
in conjunction with Pathnet's consolidated financial statements and the notes
related thereto included elsewhere in this prospectus. See also "USE OF
PROCEEDS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------------
PATHNET PATHNET TELECOM
HISTORICAL PRO FORMA(a)
------------- ---------------
(UNAUDITED)
<S> <C> <C>
Cash, cash equivalents and marketable securities (excluding
marketable securities pledged as collateral)(b)........... $ 138,402,131 $ 170,448,726
============= =============
Pledged securities.......................................... $ 21,265,206 $ 21,265,206
============= =============
Long-term obligations:
Notes..................................................... $ 346,621,625 $ 346,621,625
------------- -------------
Mandatorily redeemable preferred stock:
Series A convertible preferred stock, par value $0.01 per
share, 1,000,000 and 0 shares authorized, issued and
outstanding actual and pro forma, respectively.......... 1,000,000 --
Series B convertible preferred stock, par value $0.01 per
share, 1,651,046 and 0 shares authorized, issued and
outstanding actual and pro forma, respectively.......... 5,008,367 --
Series C convertible preferred stock, par value $0.01 per
share, 2,819,549 and 0 shares authorized, issued and
outstanding actual and pro forma, respectively.......... 29,961,272 --
Series E convertible preferred stock, par value $0.01 per
share, 0 and 4,506,145 shares authorized actual and pro
forma, respectively, 0 and 1,729,631 shares issued and
outstanding actual and pro forma, respectively.......... -- 37,871,959
------------- -------------
Total mandatorily redeemable preferred stock....... 35,969,639 37,871,959
------------- -------------
Stockholders' (deficit) equity:
Series A convertible preferred stock, par value $0.01 per
share, 0 and 2,899,999 shares authorized, issued and
outstanding actual and pro forma, respectively.......... -- 29,000
Series B convertible preferred stock, par value $0.01 per
share, 0 and 4,788,030 shares authorized, issued and
outstanding actual and pro forma, respectively.......... -- 47,880
Series C convertible preferred stock, par value $0.01 per
share, 0 and 8,176,686 shares authorized, issued and
outstanding actual and pro forma, respectively.......... -- 81,767
Series D convertible preferred stock, par value $0.01 per
share, 0 and 9,250,000 shares authorized actual and pro
forma, respectively, 0 and 8,511,607 shares issued and
outstanding actual and pro forma, respectively.......... -- 85,116
Undesignated preferred stock, par value $0.01 per share, 0
and 10,000,000 shares authorized, 0 shares issued and
outstanding actual and pro forma........................ -- --
Common stock, par value $0.01 per share, 60,000,000 shares
authorized; 3,068,218 shares issued and outstanding
actual and pro forma.................................... 30,682 30,682
Deferred compensation..................................... (441,760) (441,760)
Additional paid in capital................................ 6,264,362 229,638,152
Accumulated other comprehensive loss...................... (90,240) (90,240)
Deficit accumulated during development stage(c)........... (101,499,769) (103,813,743)
------------- -------------
Total stockholders' (deficit) equity............... (95,736,725) 125,566,854
------------- -------------
Total capitalization............................... $ 286,854,539 $ 510,060,438
============= =============
</TABLE>
Footnotes on following page
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<PAGE> 32
- ---------------
(a) Our unaudited pro forma balance sheet data as of December 31, 1999 gives
effect to the reorganization as if it occurred on January 1, 1999. The
unaudited pro forma balance sheet was derived by adjusting Pathnet's
historical balance sheet as of December 31, 1999 to reflect the transaction
described below:
- Contribution of over 12,000 route miles of rights of way with an
estimated value of $187 million for 8,511,607 shares of our series D
preferred stock;
- Receipt of $38 million in cash at the initial closing for 1,729,631
shares of our series E preferred stock. Another $25 million in cash
(which is excluded from our above pro forma balance sheet data) will be
received in exchange for 1,137,915 shares of our series E preferred stock
(conditioned upon the completion of a fiber optic network segment build
that we expect to complete during the second calendar quarter of 2000);
- Exchange of 2,977,593 shares of outstanding Pathnet common stock for
2,977,593 shares of our common stock;
- Exchange of 5,470,595 shares of Pathnet mandatorily redeemable preferred
stock into 15,864,715 shares of our convertible preferred stock;
- Receipt of $1 million in cash for options to purchase 1,593,082 shares of
our series E preferred stock at $21.97 per share and shares of our common
stock at an initial public offering;
- Receipt of $4 million in cash for our sale to Colonial of rights in a
specified number of conduit miles of our future network;
- Receipt of $275,000 in rights of way for our sale to CSX of rights in a
specified number of conduit miles of our future network; and
- Pathnet's payment of a 2.5% consent fee to holders of the notes (assuming
all holders of notes consent to our reorganization) of approximately $8.8
million.
See "DESCRIPTION OF OUR REORGANIZATION" included elsewhere in this
prospectus.
(b) Cash, cash equivalents and marketable securities include investments in
marketable securities available for sale.
(c) We have not included unaudited pro forma statement of operations information
to give effect to our reorganization as if it occurred on January 1, 1999.
An unaudited pro forma statement of operations would reflect only
amortization expense of approximately $939,000 of deferred financing cost
attributable to the consent fee that we plan to pay in connection with our
reorganization and approximately $2,878,000 of anticipated transaction
costs, of which $2,398,000 will be expensed as incurred and the remainder
offset against the carrying value of the series D and series E preferred
stock. The deferred financing cost will be amortized and charged to interest
expense over the remaining life of the notes. Generally, we do not begin
amortizing rights of way used in our network until the network is completed
and available for use. As of December 31, 1999, none of the rights of way
contemplated by our reorganization were used in our fiber optic network.
Because the amortization of the deferred financing cost and expensed
transaction costs would have represented the only pro forma adjustments to
the statement of operations data, we have not presented unaudited pro forma
statement of operations data. Instead, we have adjusted our pro forma
deficit accumulated during the development stage to account for these
expenses.
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<PAGE> 33
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
We present below selected historical consolidated financial information for
Pathnet and the pro forma balance sheet data for Pathnet Telecom. The summary
historical statements of operations data for the years ended December 31, 1997,
1998 and 1999 and for the period from August 25, 1995 (the date of Pathnet's
inception) to December 31, 1999 and the summary historical balance sheet data as
of December 31, 1998 and 1999 have been derived from Pathnet's audited financial
statements that are included elsewhere in this prospectus. The summary
historical statements of operation data for the period from August 25, 1995
(date of inception) to December 31, 1995 and for the year ended December 31,
1996 and the balance sheet data as of December 31, 1995, 1996 and 1997 have been
derived from Pathnet's audited financial statements that are not included
elsewhere in this prospectus. The unaudited pro forma balance sheet data as of
December 31, 1999 gives effect to our reorganization as if it occurred on
January 1, 1999. We have provided the unaudited pro forma balance sheet data for
informational purposes only.
<TABLE>
<CAPTION>
PATHNET
-------------------------------------------------------------------------------------------
PERIOD FROM PERIOD FROM
AUGUST 25, 1995 AUGUST 25, 1995
(DATE OF YEAR ENDED (DATE OF
INCEPTION) TO DECEMBER 31, INCEPTION) TO
DECEMBER 31, ------------------------------------------------------- DECEMBER 31,
1995 1996 1997 1998 1999 1999
--------------- ----------- ----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue............................. $ -- $ 1,000 $ 162,500 $ 1,583,539 $ 3,311,096 $ 5,058,135
---------- ----------- ----------- ------------ ------------ -------------
Operating expenses:
Cost of revenue................... -- -- -- 7,547,620 12,694,909 20,242,529
Selling, general and
administrative.................. 429,087 1,333,294 4,247,101 9,615,867 14,669,747 30,295,096
Reorganization expenses........... -- -- -- -- 1,022,998 1,022,998
Depreciation and amortization
expense......................... 352 9,024 46,642 732,813 6,204,381 6,993,212
---------- ----------- ----------- ------------ ------------ -------------
Total operating expenses............ 429,439 1,342,318 4,293,743 17,896,300 34,592,035 58,553,835
---------- ----------- ----------- ------------ ------------ -------------
Operating loss...................... (429,439) (1,341,318) (4,131,243) (16,312,761) (31,280,939) (53,495,700)
Interest expense(a)................. -- (415,357) -- (32,572,454) (41,010,069) (73,997,880)
Interest income..................... 2,613 13,040 159,343 13,940,240 13,111,953 27,227,189
Write off of initial public offering
costs............................. -- -- -- (1,354,534) -- (1,354,534)
Other income (expense), net......... -- -- (5,500) 2,913 142,743 140,156
---------- ----------- ----------- ------------ ------------ -------------
Net loss............................ $ (426,826) $(1,743,635) $(3,977,400) $(36,296,596) $(59,036,312) $(101,480,769)
========== =========== =========== ============ ============ =============
Basic and diluted loss per common
share............................. $ (0.15) $ (0.60) $ (1.37) $ (12.51) $ (20.14)
Weighted average number of common
shares outstanding................ 2,900,000 2,900,000 2,900,000 2,902,029 2,931,644
OTHER FINANCIAL DATA (UNAUDITED):
Ratio of earnings to fixed
charges........................... <1 <1 <1 <1 <1
Deficiency of earnings to fixed
charges........................... $ (426,826) $(1,743,635) $(3,977,400) $(36,658,917) $(62,626,459)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------
1995 1996 1997 1998 1999
---- ----------- ----------- ------------ ---------------------------
HISTORICAL PRO FORMA(b)
------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities (excluding marketable
securities pledged as collateral)(c).... $ 82,973 $ 2,318,037 $ 7,631,384 $227,117,417 $138,402,131 $170,448,726
Property and equipment, net............... 8,551 46,180 7,207,094 47,971,336 131,928,365 131,928,365
Intangible assets -- rights of way........ -- -- -- -- -- 187,275,006
Total assets.............................. 91,524 2,365,912 16,097,688 365,414,129 320,535,987 547,188,488
Long-term obligations(d).................. -- -- -- -- 349,714,404 353,989,404
Total liabilities......................... 17,350 145,016 5,892,918 366,492,370 380,303,073 383,749,675
Redeemable preferred stock................ 500,000 4,008,387 15,969,641 35,969,639 35,969,639 37,871,959
Stockholders' equity (deficit)(e)......... $(425,826) $(1,787,471) $(5,764,871) $(37,047,880) $(95,736,725) $125,566,854
</TABLE>
29
<PAGE> 34
- ---------------
(a) The 1996 expense relates to the beneficial conversion feature of a loan at
December 31, 1996.
(b) Our unaudited pro forma balance sheet data as of December 31, 1999 gives
effect to our reorganization as if it occurred on January 1, 1999. The
unaudited pro forma balance sheet was derived by adjusting Pathnet's
historical balance sheet as of December 31, 1999 to reflect the transaction
described below.
- Contribution of over 12,000 route miles of rights of way with an
estimated value of $187 million for 8,511,607 shares of our series D
preferred stock;
- Receipt of $38 million in cash at the initial closing for 1,729,631
shares of our series E preferred stock. Another $25 million in cash
(which is excluded from our above pro forma balance sheet data) will be
received in exchange for 1,137,915 shares of our series E preferred stock
(conditioned upon the completion of a fiber optic network segment build
that we expect to complete during the second calendar quarter of 2000);
- Exchange of 2,977,593 shares of outstanding Pathnet common stock for
2,977,593 shares of our common stock;
- Exchange of 5,470,595 shares of Pathnet mandatorily redeemable preferred
stock into 15,864,715 shares of our convertible preferred stock;
- Receipt of $1 million in cash for options to purchase 1,593,082 shares of
our series E preferred stock at $21.97 per share and shares of our common
stock at an initial public offering;
- Receipt of $4 million in cash for our sale to Colonial of rights in a
specified number of conduit miles of our future network;
- Receipt of $275,000 in rights of way for our sale to CSX of rights in a
specified number of conduit miles of our future network; and
- Pathnet's payment of a 2.5% consent fee to holders of the notes (assuming
all holders of notes consent to our reorganization) of approximately $8.8
million.
See "DESCRIPTION OF OUR REORGANIZATION" included elsewhere in this
prospectus.
(c) Cash, cash equivalents and marketable securities include investments in
marketable securities available for sale.
(d) Long-term obligations include other noncurrent liabilities of $3,092,779
(e) We have not included unaudited pro forma statement of operations information
to give effect to our reorganization as if it occurred on January 1, 1999.
An unaudited pro forma statement of operations would reflect only
amortization expense of approximately $939,000 of deferred financing cost
attributable to the consent fee that we plan to pay in connection with our
reorganization and approximately $2,878,000 of anticipated transaction
costs, of which $2,398,000 will be expensed as incurred and the remainder
offset against the carrying value of the series D and series E preferred
stock. The deferred financing cost will be amortized and charged to interest
expense over the remaining life of the notes. Generally, we do not begin
amortizing rights of way used in our network until the network is completed
and available for use. As of December 31, 1999, none of the rights of way
contemplated by the our reorganization were used in our fiber optic network.
Because the amortization of the deferred financing cost and expensed
transaction costs would have represented the only pro forma adjustments to
the statement of operations data, we have not presented unaudited pro forma
statement of operations data. Instead, we have adjusted our pro forma
stockholders' equity (deficit) to account for these expenses.
30
<PAGE> 35
BUSINESS
You should assume, for the purposes of this section, that all references to
our business, strategies, plans or conditions affecting us prior to the date of
this prospectus are references to Pathnet's business, strategies, plans or
conditions affecting Pathnet. Unless we indicate otherwise, references to our
current or future business, strategies or plans are references to our
consolidated business, strategies or plans, including Pathnet and our other
future subsidiaries. We are providing information regarding Pathnet's past and
future business, strategies, plans and conditions affecting Pathnet because
Pathnet will be our wholly owned subsidiary, and we will be assuming many of
Pathnet's assets and obligations, immediately following the closing of our
reorganization.
OVERVIEW
We are a wholesale telecommunications provider building a nationwide
network designed to provide other wholesale and retail telecommunications
service providers with access to underserved and second and third tier markets
throughout the United States. We have partnered with owners of
telecommunications assets, including utility, pipeline and railroad companies,
to upgrade and aggregate wireless infrastructure to a microwave network using
high capacity synchronous optical network technology, also known as "SONET".
Through 1998, we signed agreements with eight such incumbents and had over 6,000
miles of wireless network under development.
In early 1999, we expanded the scope of our business strategy to include
fiber optic technology to enable us to deliver to our customers -- including
long distance companies, existing local telephone companies, internet service
providers, competitive telecommunications companies, cellular operators and
other telecommunications service providers -- high capacity services as well as
dark fiber and fiber optic strands that have some but not all of the electronics
required to transmit voice or data signals. "Dark fiber" consists of fiber
strands contained within a fiber optic cable which has been laid out but does
not yet have its transmission electronics installed. Our network will enable our
customers, to offer additional services to new and existing customers in these
markets without having to expend their own resources to build, expand, or
upgrade their own networks. In addition to serving unique markets, our network
will be differentiated by both its:
- Ability to provide a complete access solution in our target markets,
including collocations in telephone company central offices and intercity
transport, and
- Advanced network architecture that will allow our customers to offer the
latest voice, video, and data services across a single network at very
high speeds.
We expect our nationwide network to grow to approximately 20,000 route
miles utilizing fiber and SONET microwave. We intend to continue to develop our
backbone on a "smart build" basis by prioritizing route development along
corridors with high demand for dark fiber and conduit or partnering with
established companies in the joint development of those routes. We expect our
network will terminate in central offices in our target markets where we intend
to collocate and use existing local telephone company unbundled network elements
or other third party local network assets in the provision of service to our
customers.
As of December 31, 1999, our network consisted of over 6,300 wireless route
miles, providing wholesale transport services to 30 cities, and 500 route miles
of installed fiber. We are constructing an additional 600 route miles of fiber
network, which is scheduled for completion in the first half of 2000. We have
also entered into two additional co-development agreements for the construction
of an additional 750 route miles of fiber optic network. We expect to develop
additional backbone network from a pool of over 12,000 route miles of right of
way received in our reorganization -- 8,000 of which will have some form of
exclusivity. These additional route miles will provide us with the
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<PAGE> 36
opportunity to develop unique and diverse paths connecting our target markets
back to major tier one metropolitan areas.
In addition to building our network backbone, since inception we have:
- Obtained state regulatory certification or otherwise been authorized to
provide our planned telecommunications services in 15 states, with
applications pending in an additional 6 states, which will allow us to
obtain unbundled network elements from the existing local telephone
companies (we have also obtained certification in Illinois, conditioned
on the closing of our reorganization);
- Executed interconnection agreements with three existing local telephone
companies: US West, Ameritech and Southwestern Bell;
- Executed agreements providing for collocations with US West and
BellSouth;
- Launched our "alliance program" under which we expanded our virtual
network to reach additional markets by reselling portions of two other
carriers' networks;
- Signed master service agreements with the three largest U.S. long
distance companies;
- Completed our fully operational network operations center, providing
twenty-four hours a day, seven days-a-week coverage; and
- Entered into a long-term lease of specific strands of fiber optic cable
or conduit on an "indefeasible right to use" basis (sometimes referred to
as an IRU), for a portion of our dark fiber capacity on our fiber route
currently being constructed from Chicago to Aurora (a suburb of Denver),
Colorado.
MARKET OPPORTUNITY
INDUSTRY OVERVIEW
We believe that the following five factors create a substantial market
opportunity for our products and services:
- Increasing demand for high capacity access and transport services to
accommodate unprecedented consumer demand for internet access and related
services;
- Growing disparity, sometimes referred to as the "digital divide," between
telecommunications services available in the largest markets and those
services available in second and third tier markets due to our
telecommunications service provider customers' nearly exclusive focus of
resources and product offerings on first tier domestic and global
markets;
- Rapid development of new technologies such as digital subscriber line
technology that allow carriers to exploit existing local network
infrastructure to deliver multiple media (including voice, data, video
and internet) at high speed over a single physical local access
connection to a network;
- Rapid migration from circuit-based network architectures to fast
packet-based network technologies that allow for the efficient
integration of multiple customers across a common backbone network
infrastructure; and
- Adoption of the Telecommunications Act and certain state regulatory
initiatives that provide increased opportunities in the
telecommunications marketplace by opening local markets to competition
and requiring existing local telephone companies to provide additional
direct interconnection and collocation to their competitors.
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<PAGE> 37
We intend to exploit these developments and employ emerging convergent
technologies in the deployment of our backbone network and local access
platform. We believe the emergence and acceptance of advanced
convergence-supporting technologies at the user premise will significantly
increase our abilities to provide low cost solutions to our carrier customers in
underserved and second and third tier markets that have been overlooked by other
emerging telecommunications service providers.
ADDRESSABLE MARKET
We worked with The Yankee Group on an addressable market study for the
products and services we expect to bring to the marketplace in the near term.
The study found that the communications market is currently a $270 billion
market in the U.S. and is expected to grow at over 10% annually for the next
five years. According to The Yankee Group, the sections of the market that we
expect to address -- backbone infrastructure services, inter-city and local
wholesale transport services and local access services -- are among the most
rapidly growing components of the current telecommunications landscape which The
Yankee Group forecasts to grow at approximately 18% annually for the next five
years. The Yankee Group estimates that the addressable market for these products
and services in the United States was $30 billion in 1999, expanding to $80
billion by 2005.
We plan to serve second and third tier markets with populations between
600,000 and 50,000, of which there are over 200, with backbone infrastructure
services, long distance network wholesale transport and local access services.
We also expect to capture a portion of the long distance network wholesale
transport services segment between first tier markets with populations over
600,000. We estimate that the addressable market for these products and services
was $13 billion in 1999, growing to $27 billion in 2004.
BUSINESS STRATEGY
Our business objective is to become the preferred facilities-based
wholesale telecommunications provider to customers in our target markets. To
achieve this goal, we plan to:
- Concentrate our focus on the needs of telecommunications service
providers and their customers;
- Focus on underserved and second and third tier markets;
- Enter and roll-out service rapidly in our target markets;
- Design, build and acquire a low-cost network;
- Provide superior customer service and service quality; and
- Pass to our customers savings from the deployment of our local network
access program.
Each of these strategies is discussed in more detail below:
- CONCENTRATE OUR FOCUS ON THE NEEDS OF TELECOMMUNICATIONS SERVICE
PROVIDERS AND THEIR CUSTOMERS. Our customers are companies in the
business of selling communications services to end user customers. We
believe that these companies are investing considerable sums to connect
as many customers as possible to keep pace with the rapidly evolving
telecommunications marketplace and that these carriers would like to find
the means to maximize the return on their investments and deployment of
resources. We further believe that these challenges are magnified when
they consider serving customers in second and third tier markets. Very
few of these telecommunications service providers operate at a scale that
justifies significant investment in building their own network in smaller
markets. The alternative -- re-selling networks of existing local
telephone companies -- has limited appeal because it can be
33
<PAGE> 38
expensive and, in many cases, the network components of existing local
telephone companies lack the broadband capabilities that these
telecommunications service providers need to compete effectively in the
marketplace. We believe that our customers will be able to effectively
"timeshare" our products and services. This will enable them to access
second and third tier markets to serve their customers without incurring
high capital expenditures, or many of the franchising and licensing fees
and long lead times that are usually associated with building their own
networks and establishing a meaningful local collocation presence in
these markets.
- FOCUS ON UNDERSERVED AND SECOND AND THIRD TIER MARKETS. We plan to serve
second and third tier markets with populations between 600,000 and
50,000, of which there are over 200, as well as a portion of the first
tier markets with populations over 600,000. We believe our customers will
value our backbone network because, for the most part, it will be built
along unique rights of way offering route separation and diversity in the
event of a network system failure. Also, unlike other backbone networks
that bypass second and third tier markets, we will construct and design
our backbone to interconnect into these markets. We seek to be among the
first to market advanced wholesale transport and local access services in
many of our markets. By pioneering in second and third tier markets, we
hope to capitalize on escalating demand for high capacity services that
is a product of the current unprecedented demand for Internet access and
related services.
- ENTER AND ROLL OUT SERVICE RAPIDLY IN OUR TARGET MARKETS. We seek to
become the first emerging carrier to enter and roll out our products and
services broadly in our targeted underserved and second and third tier
markets by:
- Securing central office space before our competitors do;
- Obtaining and retaining customers before significant competition for
our products and services in these markets arises; and
- Maintaining advantages over our competitors by offering superior
coverage and high customer satisfaction.
- DESIGN, BUILD AND ACQUIRE A LOW-COST NETWORK. Consistent with our
conservative capital expenditure program, one of our key strategies since
inception has been to establish strategic relationships with owners of
existing telecommunications infrastructure, to reduce our capital costs
and time to market. As of December 31, 1999, we had entered into
strategic relationships with eight companies who have provided the
foundation for our existing 6,300-route mile wireless network. We have
also entered into three co-development agreements relating to the
construction of 1,850 fiber route miles. After completing our
reorganization through our strategic relationships with BNSF, CSX and
Colonial, we will have access to over 12,000 miles of valuable rights of
way, 8,000 miles of which will have some form of exclusivity.
We are developing our network using a "smart build" approach. Under this
approach, we attempt to reduce the risk of building our network by
obtaining one or more co-development partners to share in the costs. We
also determine the level of customer demand before construction by
obtaining direct customer input regarding the attractiveness of a route.
In certain cases, we enter into pre-construction sales of (or, where
appropriate, grant indefeasible rights to use) dark fiber and conduit. As
a result, we expect that the cost of our retained nationwide backbone
network will be significantly less than a comparable network built or
acquired at market rates. We intend to continue this low cost approach in
providing our local access services. We plan to secure status as a
"competitive telecommunications company," which is a category of
telephone service provider that offers services similar to the former
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<PAGE> 39
monopoly local telephone company, in each state where we provide service
and we anticipate signing interconnection agreements with all of the
relevant existing local telephone companies. Under these interconnection
agreements we can construct our microwave tributary routes directly to
the existing local telephone company's switching station, which allows us
to use the existing switching station as a location that serves as a
focal point for our network where transmission or switching equipment is
usually installed, or "point of presence," in the market, and avoid the
cost of separate facilities. This will enable us to obtain and use
unbundled network elements from the existing local telephone companies at
favorable rates and terms, including space in the existing local
telephone company's switching stations that is necessary to establish our
collocations.
- PROVIDE SUPERIOR CUSTOMER SERVICE AND SERVICE QUALITY. As part of our
strategy to obtain and retain business and telecommunications service
provider customers, we intend to provide superior service and customer
care. We will aim to provide high quality services by offering what we
believe to be state-of-the-art networking solutions and superior customer
service. These networking solutions include end-to-end proactive network
monitoring and management through our network operations center, 24 hours
a day, seven days-a-week. We also offer multiple security features and we
have completed implementing our Year 2000 readiness program to ensure
that our networks and systems are Year 2000 compliant. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Year 2000 Readiness Disclosure." We plan to provide
superior customer service to promote a high level of customer
satisfaction, achieve customer loyalty and accelerate the use of our
products and services. In addition, we have, and will continue to
install, a technologically advanced network that we believe provides the
high level of reliability, security and flexibility that our customers
demand. Our fiber and wireless network is designed to meet industry
standards for delivering network reliability of 99.999% per network
segment. We are installing management systems to measure network
reliability, but these systems have not yet been implemented. We cannot
be sure what our actual reliability figures are until the installation of
these management systems is complete.
- PASS TO OUR CUSTOMERS SAVINGS FROM THE DEPLOYMENT OF OUR LOCAL NETWORK
ACCESS PLATFORM. We plan to deploy a convergent local network access
platform. In other words, we intend to combine, or enable the combination
of, all multiple customer applications onto a single physical local
access connection, which will travel on our fast packet-based capable
backbone infrastructure. Using this convergent platform we believe that
our telecommunications service provider customers will be able to launch
their own services to better serve their end user customers.
PROJECTED DEVELOPMENT OF BUSINESS PLAN
With the funds and other assets received in our reorganization, and
additional equity financings, we plan to complete the first phase of our long
term business plan. Our long term business plan calls for us to develop an
approximately 20,000 mile network and provide services to over 200 second and
third tier markets. In the first phase of this plan we expect to complete
development of approximately 12,500 route miles of network and approximately 400
collocations by the end of 2002. We have not yet scheduled or developed the
phase-specific financial models for the remaining phases of our long term
business plan. The timing of these subsequent phases will ultimately depend upon
overall telecommunications market conditions, the availability of alternative
sources of network and customer demand in our target markets, construction
costs, and our capital resources. We plan to complete the schedule and financial
planning for the next phase of our long term business plan before the end of
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<PAGE> 40
2002. We project the development of our network and associated physical
collocations through June 30, 2001 to be as follows:
<TABLE>
<CAPTION>
PROJECTED
PROJECTED PHYSICAL PROJECTED
NETWORK MILES COLLOCATIONS CITIES
------------- ------------ ---------
<S> <C> <C> <C>
As of December 31, 1999......................... 6,800 40 30
End of Second Quarter 2000...................... 7,600 85 50
End of Fourth Quarter 2000...................... 9,100 150 80
End of Second Quarter 2001...................... 10,500 230 120
</TABLE>
We will draw on the following sources of cash to fund the first phase of
our long term business plan:
- our current cash resources;
- the anticipated proceeds (after associated expenses) from both tranches
of Colonial's investment in our shares of series E convertible preferred
stock as part of our reorganization;
- borrowings under senior secured vendor financing that we propose to
execute in connection with the purchase of fiber optic cable and
associated network equipment;
- payments from our co-development partners and sales to infrastructure and
telecommunications services customers; and
- additional equity investment(s) of at least $100 million.
Based on our projected development costs, we believe that these resources
will be sufficient to satisfy the anticipated cash requirements (including both
network development and operating losses) of the first phase of our long term
business plan through its completion at the end of 2002. However, we will
require additional resources to fund the remaining phases of our current long
term business plan, and cannot assure you that these projections will prove to
be accurate or that our development costs will not exceed those that we
currently anticipate.
STRATEGIC RELATIONSHIPS
FIBER CO-DEVELOPMENT PARTNERS
WORLDWIDE FIBER. In March 1999, we entered into a co-development agreement
with Worldwide Fiber, Inc. for the design, engineering and construction by
Worldwide Fiber of a multiple conduit fiber-optic system. One of the conduits
will contain a fiber optic cable consisting of a specified number of fiber optic
strands. The conduits and any installed strands will be equally divided between
Pathnet and Worldwide Fiber, and the costs to construct the route will be shared
equally by the parties. In addition, Pathnet will pay Worldwide Fiber a
management fee equal to 10% of Pathnet's share of the development costs. The
system will be approximately 1,100 route miles long, between Aurora, Colorado (a
suburb of Denver) and Chicago, Illinois. The first segment, Chicago to Omaha,
Nebraska, was completed in the fourth quarter 1999, and the second segment,
Omaha to Aurora, is scheduled to be completed by the end of the second quarter
of 2000. In connection with the co-development agreement, we entered into a
joint marketing agreement with Worldwide Fiber under which both Worldwide Fiber
and we will attempt to sell certain inactive fiber optic strands on the route,
and will share the revenues from such sales. The joint marketing agreement also
permits each party to retain fiber optic strands for its own use, subject to
certain restrictions on resale, and to swap a certain number of fiber optic
strands to third parties.
TRI-STATE. In August 1999, we entered into a co-development agreement with
Tri-State Generation and Transmission Association, Inc. and four regional
electric cooperatives for our design, engineering and construction of an aerial
fiber system, approximately 420 route miles long, between Albuquerque, New
Mexico and Grand Junction, Colorado. This system, constructed on power
36
<PAGE> 41
transmission lines, will contain a specified number of fiber optic strands. The
costs to construct the system will be borne equally between Pathnet and the
other parties. In connection with the co-development agreement, we entered into
a joint marketing agreement under which each party will reserve a portion of the
fiber strands for its own operations, a subset of which will be available for
swaps with third parties. The remaining fiber strands will be jointly sold, with
Pathnet as the exclusive marketing agent. Any revenues derived from the sale of
those fiber strands will be shared equally between Pathnet and Tri-State, after
deduction of a Pathnet marketing fee. We expect this system to be completed in
the second half of 2000.
ALLIANCE PROGRAM. We have entered into capacity purchase agreements with
two other carriers, IXC and Frontier, enabling us to resell capacity on their
networks. This allows us to extend our network reach to points-of-presence, or
POPs, where transmission or switching equipment is usually installed, throughout
the markets reached by Frontier's and IXC's networks and pre-sell capacity along
routes we intend to develop.
WIRELESS CO-DEVELOPMENT PARTNERS
FIXED POINT MICROWAVE SERVICES AGREEMENTS. We have entered into several
fixed point microwave services agreements with co-development partners who own
existing wireless telecommunications assets. Typically, under these agreements
we lease an interest in the co-development partner's sites and facilities on
which our network is built and in return we provide the co-development partner
with capacity on such network for its own internal use. We also typically pay
the co-development partner a portion of the revenue derived from our selling the
excess communications capacity on that co-development partner's route.
Generally, the co-development partner receives up to 20% of the revenues earned
after the systems have been in place for 48 months. In addition, these
agreements generally require the co-development partner to make capital
investments toward the upgrade of its system infrastructure to make it suitable
for installation of the equipment used in our digital network which, in most
cases, includes significant modifications to structures, towers, battery plants
and equipment shelters. These agreements generally provide for a five or ten
year term that is subject to renewal by us upon the occurrence of certain
events, for up to a 25-year term. As of the date of this prospectus, we had
entered into fixed point microwave services agreements with these co-development
partners:
- Idaho Power Company;
- Northern Indiana Public Service Company;
- The Burlington Northern and Santa Fe Railway Company;
- Kinder Morgan, Inc. (formerly KN Energy, Inc.);
- Kinder Morgan, Inc. (formerly KN Telecommunications, Inc.);
- Texaco Pipeline, Inc.;
- Northern Border Pipeline Company; and
- Northeast Missouri Electric Power Cooperative.
TOWER LEASE AGREEMENTS. We entered into a leasing arrangement with
American Tower Corporation under which American Tower granted us a 25-year
license to use certain of its towers to deploy several wireless portions of our
network.
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PRODUCTS AND SERVICES
We plan to offer the following products and services:
- DARK FIBER AND CONDUIT FOR SALE OR GRANT OF LONG TERM LEASES. We sell
rights for dark fiber and related services as well as rights to conduit.
A sale or grant of an indefeasible right to use our dark fiber typically
has a term which approximates the economic life of a fiber optic strand
(generally 20 to 30 years). Purchasers of dark fiber rights typically
install their own electrical and optical transmission equipment.
Substantially all of our current and planned builds include laying spare
conduits, and we may sell rights to use them. A purchaser of conduit
rights typically lays its own cable inside the conduit. Related services
for both sales of rights for dark fiber and conduits may include
installation of customer equipment at the locations where we have
installed transmission equipment and network equipment and maintenance of
the purchased fiber or conduit. Generally, we expect our customers to pay
for dark fiber rights and conduit at the time of delivery and acceptance
of the fiber or conduit, although other payment options may be available.
In addition, depending upon the nature of our contractual terms, we will
treat our sales of dark fiber and conduit as sales-type leases or
operating leases. The impact of recently adopted accounting
pronouncements are described more fully in "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL AND OPERATING DATA." We typically require our
customers to make ongoing payments for maintenance services.
- DARK FIBER FOR LEASE OR LEASE TO PURCHASE. We will also lease dark fiber
for a term less than the period for which the indefeasible usage rights
are typically granted. Leases will be typically structured with monthly
payments over the term of the lease. Generally, we expect to realize a
premium in lease pricing for bearing the risk that the lease will not be
renewed for the balance of the life of the asset. We plan to offer
customers the option to lease to purchase.
- WAVELENGTH LEASE. In our network, we intend to use "dense wavelength
division multiplexing," or DWDM, a technology that allows multiple
optical signals to be combined so that they can be aggregated as a group
and transported over a single fiber to increase capacity. This will allow
us to sell a customer exclusive long-term use of a portion of the
transmission capacity of a fiber optic strand rather than the entire
strand. We expect that the installation of the necessary transmission
equipment to provide these services along our first completed fiber route
from Chicago to Denver will be complete in the first half of 2000. We
expect to be able to derive up to 160 individual wavelength channels at
either OC-48 or OC-192 per fiber pair. "OC" is a measure of digital
transmission speed, and is equal to the corresponding number of DS-3s.
For example, OC-48 is equal to 48 DS-3s. In turn, "DS" is a standard
telecommunications industry digital signal speed that is distinguishable
by the relative number of binary digits transmitted per second.
- INTER-CITY WHOLESALE TRANSPORT SERVICES. Our inter-city transport
services are focused on second and third tier markets and are comprised
of point-to-point services offered as Time Division Multiplexing, or TDM,
which is an electronic process that combines multiple communication
channels into a single, higher-speed channel by interleaving portions of
each in a consistent manner over time-based private dedicated
telecommunications link between different customer locations, or private
lines, at high speed including DS-1, DS-3, OC-3, OC-12, OC-48 and OC-192.
We believe that our services will be particularly attractive to our
customers because of our low cost backbone transport and low cost "local
loops," which are the physical wires that run from the end user's
telephone to the existing local telephone company's central office
(attributable to our collocation in the existing local telephone
company's central office and our use of unbundled network element
transport). We believe that we offer more flexible commitment levels with
higher reliability than are currently available on traditional
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multiplexed services. As of December 31, 1999, we offered inter-city
wholesale transport services on our 6,300 route mile-wireless network as
well as via our Alliance Program.
- LOCAL WHOLESALE TRANSPORT SERVICES. Once we establish collocation in the
central offices of existing local telephone companies in second and third
tier markets, we believe that we will be able to deliver local transport
between central offices or to connect those central offices to our
backbone or a telecommunications service provider customer backbone. We
plan to offer local transport services, such as xDSL-based private lines
or TDM-based private lines at high rates of speed including DS-0, DS-1,
DS-3, OC-3, OC-12, OC-48. We expect our customers to use these services
to reduce charges for inter-office transport or to provide end office
trunking.
- LOCAL ACCESS SERVICES. We plan to deliver our local access services from
network presences we have established by collocating with the existing
local telephone companies in second tier and third tier markets and
through the local networks we have established using a combination of
unbundled network elements and other network components from other
communications carriers.
- VIRTUAL POINTS OF PRESENCE (VPOP). We plan to bundle our wholesale
transport services and local access services to offer our "virtual points
of presence" service, sometimes referred to as VPOP. Through this bundle
of services, we intend to offer our customers the ability to establish a
virtual point of presence for their networks using our facilities, thus
avoiding the need to place any equipment at a collocation site. We will
focus this VPOP service on second and third tier markets. We expect that
our VPOP service will allow our customers to virtually extend the reach
of their networks while expending less resources and incurring far less
risk than if that customer had expanded and built its own network.
SALES AND MARKETING STRATEGY
Our wholesale customers tend to be very knowledgeable about the nature of
the services and technology available in the marketplace. As a result, our
marketing efforts are largely limited to ensuring that our products and services
are visible and well represented in the market. As part of our marketing
strategy, we attempt to position ourselves as the provider of choice for
telecommunication service providers because of the quality of our service, the
control we provide customers over their service platforms, the reliability of
our services and our low cost position. We believe our cost advantages allow us
to sell our services on our network at prices that represent potentially
significant savings for our large-volume customers relative to their other
alternatives.
We sell our services to large regional and national telecommunications
service providers through our direct sales team on a national account basis.
Since we sell primarily to other telecommunications service providers, we expect
that our sales and marketing department will remain relatively small and
focused, resulting in strong customer relationships and lower operating costs.
Our sales team consists of senior level management personnel and experienced
sales representatives with extensive knowledge of the industry and our products.
This team also has key industry contacts at various levels within many
telecommunications service provider organizations.
CUSTOMERS
We have defined a range of products and services designed to meet the
unique needs of our customers and, as a result, we intend to offer several types
of services to these types of customers:
- Full service long distance companies: we intend to provide low cost
digital subscriber line-based transport, used to deliver broadband
access. We expect to provide lower cost access and short haul transport
to reduce the cost of delivering traditional voice, private line or data
services;
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- Competitive telecommunications companies and competitive long distance
companies: we can extend reach to new markets by providing a more
efficient means for competitive telecommunications companies to originate
or terminate voice traffic and a lower cost source of inter-city
wholesale transport or infrastructure services;
- Internet service providers: we intend to offer low cost digital
subscriber line technology to deliver broadband access. We expect to be
able to extend Internet service providers' reach to new markets. We plan
to provide low cost infrastructure services and wholesale transport
services. We expect to provide direct access to the locations at which
Internet service providers exchange each other's traffic.
- Existing local telephone companies: we expect to provide lower cost
network services within the existing local telephone company's own region
and wholesale transport services and local access services out of region
as existing telephone companies become permitted to provide these
services;
- Wireless and cable providers (including cellular companies): we plan to
provide backhaul services, head end distribution services and wholesale
transport services; and
- Other telecommunications service providers: we expect to provide low cost
termination for switched traffic.
THE PATHNET NETWORK
BACKBONE NETWORK
We plan to create an approximately 20,000 route mile nationwide network.
Tributaries using either fiber or wireless technology will connect our backbone
to our targeted markets. We believe that connecting the second and third tier
markets to a national backbone is the key to funneling traffic between these
markets and first tier markets.
NETWORK ROUTE SELECTION AND SMARTBUILD APPROACH. In order to utilize
capital effectively, we employ a "smart-build" approach. This means that we seek
to reduce our risks in undertaking the build by:
- Obtaining one or more co-development partners to share in the costs;
- Determining the levels of customer demand before construction (by
obtaining direct customer input on the route); and
- In certain cases, seeking to effect pre-construction leases or sales of
dark fiber and conduit.
Before deciding to construct or acquire a network to serve particular
markets, we review the demographic, economic, competitive and telecommunications
demand characteristics of the markets along proposed routes, including their
location, the concentration of potential business, government and institutional
end-user customers, the economic prospects for the area, available data
regarding transport demand and actual and potential competitive
telecommunications company competitors. We estimate market demand on the basis
of market research performed by us and others, utilizing a variety of data
including estimates of the number of interstate access and intrastate private
lines in the market based primarily on FCC reports and commercial databases.
We expect to enter into a co-development relationship with one or more
partners to share the costs of building the route as well as the dark fiber
revenue from each constructed route. We recently employed this approach in
developing our fiber routes from Chicago to Aurora (a suburb of Denver,
Colorado), and from Albuquerque, New Mexico to Grand Junction, Colorado with our
partners, Worldwide Fiber and Tri-State. Typically, independent contractors
selected through a competitive bidding process provide our construction and
installation services. In certain of our network builds, we
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provide project management services, including contract negotiation and
supervision of the construction, testing and certification of our facilities.
FIBER CURRENCY, SWAPS AND ACQUISITIONS. When determining the fiber optic
cable and conduit sizing for a particular route, we take into account these
considerations:
- Fiber strands required for our retained network;
- Fiber strands required by our co-development partner's network;
- Projected sales of fiber strands and conduits along the route;
- Quantity of fiber strands to be retained and allocated for swaps to
obtain fiber strands on routes owned by others; and
- Retained empty conduit in the event we desire to deploy different or
advanced technologies.
We believe fiber has a "currency" value depending upon the value of the
route to specific telecommunications service providers. Once we determine a
particular route has a high currency value, we expect to capitalize on this by
using excess fibers and conduit to enable advantageous fiber swaps and sales of
fiber and conduit. If we determine that a particular route is being sufficiently
served by existing fiber, we will not build our own network along that route.
Instead we will use our fiber "currency" to swap for existing fiber along those
routes or we will enter into long term leases for (or purchase indefeasible
rights to use) dark fiber that is already installed by another company. In this
way, swaps will allow us to leverage our network, gain more geographical
coverage and decrease our time to market.
In order to connect our network with our customers, we develop
interconnections from our backbone network into our targeted underserved and
second and third tier markets. We design and install our interconnections using
the most cost effective technology to meet the market's needs. This may include
building fiber optic cable, leasing or purchasing rights to use existing fiber,
installing wireless components, or employing combinations of these technologies.
LOCAL ACCESS CONVERGENT PLATFORM
We believe establishing a local presence in our target markets will
position us to deploy a convergent local network access platform that will
enable multiple customer applications to be combined at a single physical local
access connection and then travel onto our advanced, fast packet-based backbone
infrastructure. From this convergent platform, we expect to enable our
telecommunications service provider customers to launch their own services to
better serve their customers.
We intend to obtain state certification or authorization as a competitive
telecommunications company in each state in which we are required to do so, and
to sign interconnection agreements with the relevant existing local telephone
companies in our target markets. Once we have obtained the appropriate state
authorization and entered into interconnection agreements with the existing
local telephone companies, we will be able to construct our central office
collocation facilities at the premises of, and obtain and use network elements
from, the existing local telephone companies. As of the date of this prospectus,
we were authorized to provide our products and services in 13 states and have
interconnection agreements with US West, Ameritech and Southwestern Bell.
As of December 31, 1999, we had 40 collocations, which are environmentally
controlled, secure sites designed to house transmission, routing and other
equipment. We are designing our collocations with an average of 100 square feet
in order to provide our customers direct local access via our access platform to
those markets. We intend to expand our network to include multiple collocations
in existing local telephone company central offices within our target markets in
order to provide the platform for our end-to-end service offerings for our
customers.
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Once our collocations are established, we plan to link these collocations
together within the market using unbundled network element transport from the
existing local telephone companies in order to provide our products and services
throughout the market. In addition to these unbundled network elements, there
are other possible alternatives for us to employ in linking these central
offices. For instance, we may lease or purchase dark fibers from a third party
provider, use wireless connections or possibly even lay our own local fiber if
warranted based upon demand.
EQUIPMENT SUPPLIER RELATIONSHIPS
We have agreed upon an exclusive vendor agreement with Lucent Technologies
which provides for discounted pricing on the fiber that we purchase from Lucent
as well as marketing and engineering support in connection with the expansion of
our network. The effectiveness of this agreement is conditioned on the execution
of documents relating to the financing by Lucent of such purchases of fiber and
the execution of these financing documents is, in turn, conditioned on the
closing of the reorganization.
Under a master agreement between Pathnet and NEC, dated August 8, 1997, we
agreed to purchase from NEC certain equipment, services and licensed software
for us to use in our network under pricing and payment terms that we believe are
favorable. In addition, NEC has agreed, subject to certain conditions, to
warranty equipment that we purchase 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. This agreement with NEC provides for fixed
prices during the first three years of its term.
We have also entered into a purchase agreement with the Andrew Corporation
in which we agreed exclusively to recommend to our co-development partners
certain products manufactured by Andrew. In return, Andrew agreed to sell those
products to our co-development partners and to us for a three year period,
renewable for two additional one-year periods at our option. The agreement
generally provides for discounted pricing based on projected order volume.
NETWORK RELIABILITY
We have constructed our network operations center in Washington, D.C. This
network operations center currently provides real-time, end-to-end monitoring of
our network operations 24 hours a day, seven days-a-week, as well as pro-active
customer care for all of our customers' services. Our network operations center
ensures the efficient and reliable performance of the network through pro-active
early identification and prevention of potential network disruptions. In
addition, our network operations center enables us to schedule and conduct
maintenance of our network while minimizing interference with the use of the
network by our customers. Specific features provided by our network operations
center include network fault and event management, network and service level
performance management and analysis as well as remote configuration of all
network elements. Our network operations center has full fallback capability and
it appears to be Year 2000 compliant.
COMPETITION
Competition in the telecommunications industry is intense. In our target
markets, we expect to face increasing competition in the areas of price and
performance, transmission quality, breadth and reliability of our network,
customer service and support, brand recognition and critical relationships with
third parties such as Internet service providers. While we generally will not
compete with telecommunications service providers for end user customers, we may
compete as a "carriers' carrier" with certain of those providers including long
distance companies (such as AT&T Corp., MCI WorldCom, Inc. and Sprint
Corporation), wholesale providers (such as Qwest Communications International
Inc., Williams Communications Group, Inc., DTI Holdings, Inc., Global Crossing
Ltd
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and Level 3 Communications, Inc.), existing local telephone companies (such as
US West, BellSouth, Bell Atlantic, SBC and GTE Corporation) and competitive
telecommunications companies (such as GST Communications, Inc., ITC/Deltacom,
Inc. and Metromedia Fiber Network, Inc.) who would otherwise be our customers in
our target markets. Other entities which may become our competitors in this
regard include communications service providers, cable television companies,
electric utilities, wireless telephone operators, microwave carriers, satellite
carriers, and large end users with private networks.
Initially, in second and third tier markets our most significant
competitors will be existing local telephone companies and other competitive
telecommunications companies. Many of the largest existing local telephone
companies will begin offering in the near future some of the products and
services we plan to offer and some have already begun to do so. These companies
are able to draw upon established networks, well-known brand names, customer
loyalty, a pre-existing base of management and employees, and greater access to
capital than will likely be available to us. Moreover, many existing local
telephone companies own the telephone wires they use, and can bundle digital
data services, for example, without having to incur the costs of negotiating
interconnection agreements. As other industry participants also seek to enter
these markets, we will face increasing competition.
Industry consolidation and strategic alliances between participants in the
telecommunications industry will also increase the level of competition we will
face, particularly as the demand for bundling of services surges. New
technologies, further deregulation and other changes in our regulatory
environment will create further competitive pressures as we enter our target
markets.
GOVERNMENT REGULATION
OVERVIEW. Our telecommunications businesses are subject to varying degrees
of federal, state and local regulation. We are a telecommunications carrier
under the terms of the federal Communications Act. As a telecommunications
carrier, we are subject to FCC and state utility commission regulation of our
activities. Local authorities also may regulate the permitting and construction
of our telecommunications facilities.
The Telecommunications Act created a uniform national policy in favor of
competition in all telecommunications market segments. As described below, the
rules and policies implementing the Telecommunications Act remain subject to
agency action and litigation at both the federal and state level. We nonetheless
believe that the national policy in favor of competition that was created by the
Telecommunications Act will lead to increased market opportunities for us.
Because these opportunities require additional agency action before the
Telecommunications Act is fully implemented, and because these actions may be
subject to court review, we cannot predict the pace at which the law will be
fully implemented.
We are required to file federal and state tariffs describing the prices,
terms and conditions of our services, and these tariffs are subject to varying
degrees of regulatory oversight and approval. We must also comply with state and
local license or permit requirements relating to the installation and operation
of our network. Burdensome license, permit or other regulatory requirements or
developments could make it more difficult for us to comply with these laws and
regulations.
The FCC and state public service commissions generally have the right to
impose sanctions, forfeitures, or other penalties mandating refunds if a carrier
fails to comply with applicable rules. We cannot assure you that regulators or
such third parties will determine that we have complied with all applicable laws
and regulations. Any proceedings against us could have a material adverse effect
on our business, financial condition, or results of operations.
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FEDERAL REGULATION. The FCC regulates interstate and international
telecommunications services, and it also regulates the holders of radio
licenses. We are subject to FCC regulation as a common carrier, which means that
we are subject to longstanding general requirements that our rates be "just and
reasonable" and that we not engage in "unjust or unreasonable discrimination" in
serving the public. As a common carrier, we also must file certain periodic
reports and applications with the FCC, and the FCC has jurisdiction to act on
certain complaints for failure to comply with regulatory obligations. We also
are required to file basic tariffs at the FCC for our provision of
telecommunications services generally, although those tariffs are not subject to
pre-effective review and can be amended on one day's notice. We are subject to
the licensing processes of the FCC for the use of our microwave licenses. We
also generally must apply to the FCC for its consent before assigning a radio
license or transferring control (for example, through the sale of stock) of any
company holding radio licenses or common carrier authorizations.
We are not, however, subject to the particular laws and FCC regulations
imposed by the Telecommunications Act on the existing local telephone companies
including, among others, the former Bell operating companies and GTE. These
regulations have provided, and we believe they will continue to provide,
significant opportunities for us to compete with existing local telephone
companies for the provision of competitive telecommunications services. These
laws and regulations require existing local telephone companies to:
- Provide "physical collocation" to competitors, a requirement that permits
us and other similarly licensed common carriers to install and maintain
our own network termination equipment at the existing local telephone
company's central offices;
- "Unbundle" components of their local service networks in a
nondiscriminatory manner so that we and other new competitors can obtain
network facilities, equipment, features, functions and capabilities at
cost-based prices (which may include a reasonable profit);
- Permit us and other competitors to "interconnect" with the existing local
telephone company's facilities at any technically feasible point within
their networks, at prices based on cost (which may include a reasonable
profit);
- Engage in "reciprocal compensation" for the exchange of
telecommunications traffic, an obligation that requires existing local
telephone companies and new competitors to complete calls originated by
competing carriers under reciprocal arrangements at prices based on a
reasonable approximation of incremental cost, or through the mutual
exchange of traffic without explicit payment;
- Establish wholesale prices for their services to promote resale of
services and facilities by new competitors;
- Establish "number portability" so that customers can maintain their
existing phone numbers when they switch from one telecommunications
provider to another without impairing quality, reliability or
convenience;
- Establish "dialing parity" so that customers will not detect a difference
in quality or complexity in dialing telephone numbers or accessing
operators and emergency services; and
- Provide nondiscriminatory access to telephone poles, ducts, conduits and
rights of way.
Applicable FCC regulations require existing local telephone companies to
negotiate in good faith with carriers requesting any of the above arrangements.
If the negotiating carriers cannot reach agreement in a prescribed time, either
carrier may request binding arbitration of the disputed issues by a state
regulatory commission. This set of obligations provides significant market
opportunity for new competitors, but, as discussed below, we cannot assure you
that the various government agencies
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responsible for implementing these pro-competitive policies and requirements
will do so in a timely and effective manner.
The Telecommunications Act requires the FCC to establish rules and
regulations to implement its local competition provisions. In August 1996, the
FCC issued rules governing interconnection, resale, unbundled network elements,
the pricing of those facilities and services, and the negotiation and
arbitration procedures that would be utilized by states to implement those
requirements. These rules, which were generally favorable to new competitors,
were vacated in part by a July 1997 ruling of the United States Court of Appeals
for the Eighth Circuit. On January 25, 1999, the United States Supreme Court
issued an opinion upholding the authority of the FCC to establish rules,
including pricing rules, to implement statutory provisions governing both
interstate and intrastate services under the Telecommunications Act. The Court
also upheld rules allowing carriers to select provisions from among different
interconnection agreements approved by state commissions for the carriers' own
agreements (the "pick-and-choose" rule) and a rule allowing carriers to obtain
combinations of unbundled network elements.
The Supreme Court, however, vacated the FCC rule setting forth the specific
unbundled network elements that existing local telephone companies must make
available, finding that the FCC had failed to apply the appropriate statutory
standard. On November 5, 1999, the FCC responded to the Court's decision by
issuing a decision that maintains competitors' access to a wide variety of
unbundled network elements. Six of the seven unbundled elements the FCC had
originally required carriers to provide in its 1996 order implementing the
Telecommunications Act remain available to competitors. These elements are
loops, including loops used to provide high-capacity and advanced
telecommunications services; network interface devices; local circuit switching,
subject to restrictions in major urban markets; dedicated and shared transport;
signaling and call-related databases; and operations support systems. The FCC
removed access to operator and directory assistance service from the list of
available unbundled network elements. In addition, the FCC added to its list
certain unbundled network elements that were not at issue in 1996. These
elements include subloops, or portions of loops, and dark fiber loops and
transport. The FCC did not, however, require existing local telephone companies
to unbundle facilities used to provide digital subscriber line service (packet
switches and digital subscriber line access multiplexers, which are devices that
house individual circuit cards used to provide digital subscriber line
services). The FCC did not decide, but sought additional information on, the
question of whether carriers may combine certain unbundled network elements to
provide special access services to compete with those provided by the existing
local telephone companies. The ability to obtain unbundled network elements is
an important element of our business, and we believe that the FCC's actions in
this area have generally been positive. However, we cannot predict the extent to
which the existing rules will be sustained in the face of additional legal
action and the scope of the rules that are yet to be crafted by the FCC. For
example, the FCC may restrict the use of unbundled network elements for the
provision of services affording long distance companies access to local
telephone networks, which would reduce our competitive price advantage and limit
the market opportunities in that segment of the telecommunications market.
The rates charged for interconnection and unbundled network elements we
require vary greatly. These rates are subject to the approval of state
regulatory commissions, through approval processes that typically involve a
lengthy review of the rates proposed by the existing local telephone companies
in each state. The final rates approved typically depend on the existing local
telephone company's initial rate proposals and the policies of the state public
utility commission. These rate approval proceedings are time-consuming and
expensive. Recurring and non-recurring charges for telephone lines and other
unbundled network elements may increase based on the rates proposed by the
existing local telephone companies and approved by state regulatory commissions
from time to time, which would have a material adverse effect on the results of
our operations. Moreover, because the cost-
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based methodology for determining these rates is still subject to judicial
review, there is great uncertainty about how these rates will be determined in
the future.
Under the rules adopted by the FCC pursuant to the Telecommunications Act,
we have entered into comprehensive interconnection agreements with three major
existing local telephone companies (US West, Ameritech and Southwestern Bell)
covering 17 states. These agreements include the provision of unbundled network
elements to be used in connection with competitive telecommunications services.
We have also entered into a collocation agreement with another existing local
telephone company, BellSouth, covering 9 states. We expect this collocation
agreement to be part of a more comprehensive interconnection agreement currently
under negotiation. In addition, we are negotiating additional interconnection
and collocation agreements in other states. We expect the pace of these
negotiations to continue for the foreseeable future. Although we expect, based
on our experience thus far, that such negotiations will yield acceptable
agreements that will permit us to implement our business plan on schedule, we
cannot predict the extent to which existing local telephone companies
interpreting the FCC regulations may seek to frustrate our collocation or
interconnection plans or the extent to which we will need to seek arbitration or
commence litigation to achieve our goal. If we are unable to enter into, or
experience a delay in obtaining, interconnection agreements, this inability or
delay may materially and adversely affect our business and financial prospects.
The FCC has been reviewing the policies and practices of the existing local
telephone companies with the goal of facilitating the efforts of
telecommunications companies to obtain access to central office space and other
network facilities more easily and on more favorable terms. On March 31, 1999,
the FCC adopted rules to make it easier and less expensive for
telecommunications companies to obtain central office space and to require
existing local telephone companies to make new alternative arrangements for
providing such space. However, the FCC's new rules are currently subject to
judicial review, have not been uniformly implemented in a timely manner and may
not ultimately enhance our ability to obtain central office space. Difficulties
we experience in obtaining access to and interconnection with the existing local
telephone companies' facilities can negatively impact our future plans for
providing certain services.
Our expected provision of digital subscriber line services is largely
unregulated by the Telecommunications Act or the FCC because we, and the
telecommunications companies that are our target customers for these services,
are not existing local telephone companies. Moreover, our customers providing
digital subscriber line service to end users, such as internet service
providers, are unregulated "information services providers." The FCC affirmed in
a report adopted on April 10, 1998, that internet service providers will not be
subject to regulation as telecommunications carriers under the
Telecommunications Act. They thus will not be subject to universal service
obligations and other regulations. We cannot, however, assure you that neither
Congress nor the FCC will alter that regulatory scheme in the future. Further,
in August 1998, the FCC proposed new rules that would allow existing local
telephone companies to provide their own digital subscriber line services
through separate affiliates that are not subject to existing local telephone
company regulation. Although the FCC recently decided some of the other issues
raised in that proceeding, the question of whether existing local telephone
companies can provide unregulated digital subscriber line services through a
separate affiliate remains unresolved. Some members of Congress also have
expressed interest in giving existing local telephone companies additional
pricing flexibility for high speed data services and expanding the geographic
area in which existing local telephone companies may offer these services to
their customers. Any expansion of existing local telephone companies' ability to
offer high speed data and internet services may have an adverse impact on our
business. On November 18, 1999, the FCC decided to require existing local
telephone companies to share telephone lines with digital subscriber line
service providers, an action that may foster competition by allowing competitors
to offer digital subscriber line services without their customers having to
purchase a second telephone line. Whether
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this development will be implemented in an effective way remains to be seen.
Moreover, it is impossible to predict whether the FCC or Congress may change the
rules under which these services are offered and, if such changes are made, the
extent of the impact of such changes on our business.
The Telecommunications Act obligates the FCC to establish "universal
service" mechanisms to ensure that certain subscribers living in rural and
high-cost areas, as well as certain low-income subscribers, continue to have
access to telecommunications and information services at prices reasonably
comparable to those charged for similar services in urban areas. These
mechanisms also are meant to foster the provision of advanced telecommunications
services to schools, libraries and rural health-care facilities. Under the rules
adopted by the FCC to implement these requirements, we and all other
telecommunications providers will be required to contribute to a fund to support
universal service. The amount that we must contribute to the federal universal
service subsidy will be based on our share of specified defined
telecommunications end-user revenues. Therefore, it is difficult to predict in
advance the precise contributions that we will be required to make.
The FCC regulates the fees that local telephone companies charge long
distance companies for access to their local networks. These fees are commonly
called access charges. The FCC is currently considering a proposal, supported by
parts of both the local and long distance telephone industries, that would
restructure and most likely significantly reduce access charges. Changes in the
access charge structure could fundamentally change the economics of some aspects
of our business. Any material reduction in the access charges imposed by local
telephone companies could significantly reduce our price advantage in the market
for services affording long distance companies access to local telephone
networks.
As an enhancement to our local access services, during the second half of
2000, we expect to begin marketing and selling digital subscriber line services
to our second and third tier markets. To provide unbundled digital subscriber
line capable lines to connect each customer to our equipment, we will use
networks owned by existing local telephone companies. The terms upon which we
connect our network to existing local telephone companies' networks are
specified in interconnection agreements that we must negotiate with the existing
local telephone companies operating in our existing and target markets. Federal
law requires existing local telephone companies to provide access to their
networks through interconnection agreements and to offer network elements to
other telecommunications carriers at rates which generally must be cost-based
and nondiscriminatory. However, we may be unable to negotiate interconnection
agreements on favorable terms. The failure of existing local telephone companies
to comply with their obligations under these interconnection agreements could
result in customer dissatisfaction and the loss of potential customers.
We also are regulated by the FCC as the holder of a substantial number of
common carrier fixed point-to-point microwave licenses that we use on the
wireless portion of our network. Under the FCC's rules, we must coordinate our
proposed frequency use with other existing users of the spectrum to prevent
interference. After completing that process, we (and, in some cases, our co-
development partners) must apply to the FCC for the issuance of a license to
permit us to transmit information on the frequencies we desire to use. To obtain
a license we must demonstrate that the owner of the transmission site has
complied with the reporting, notification and technical requirements of the
Federal Aviation Administration for the construction, installation, location,
lighting and painting of transmitter towers and antennae like ours. Once the
license is obtained, we must make routine regulatory filings and obtain the
FCC's prior consent for any assignment of the license or any substantial change
in control of the entity holding the license and for certain modifications to a
licensed facility. We cannot assure you that we, or any of our co-development
partners who desire to be the licensee for their portion of our network, will
obtain all of the licenses or approvals necessary for the operation of our
business, the transfer of any license or the
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modification of any facility, or that the FCC will not impose burdensome
conditions or limitations on any such license, transfer or approval.
Our ownership also is regulated by the FCC to ensure that we do not exceed
the foreign ownership restrictions imposed by the Communications Act. Under the
Communications Act, we cannot increase our foreign ownership to a level greater
than 25% without obtaining prior FCC consent. The FCC has determined that it
will authorize a higher level of foreign ownership, up to 100%, on a streamlined
basis where the foreign ownership is by citizens of, or companies organized
under the laws of, World Trade Organization member states. (A more demanding
public interest showing is required by proposals to increase foreign ownership
by citizens or countries of non-WTO member states.) We currently comply with the
25% cap on foreign ownership, and we will monitor foreign investment to ensure
that we do not exceed that benchmark without obtaining appropriate FCC consent.
These requirements may, in some circumstances, be applied to our co-development
partners as well. If a co-development partner were to choose to hold the
relevant license itself, and not through a holding company, that co-development
partner would be subject to a provision that limits direct foreign ownership of
FCC licenses to 20%. The FCC does not have discretion to waive this limitation.
If a co-development partner exceeded the 20% limitation it would be required to
reduce its foreign ownership in order to obtain or retain its license.
STATE REGULATION. The Telecommunications Act preempts state statutes and
regulations that restrict the provision of competitive local telecommunications
services. State commissions can, however, impose reasonable terms and conditions
upon the provision of telecommunications service within their respective states.
States also can require that telecommunications providers apply for and obtain a
certificate of public convenience and necessity or other authorization prior to
commencing service in their respective states. We are in the process of becoming
certified, to the extent such certification is required, in the 48 contiguous
states and the District of Columbia as a competitive local exchange carrier or
other competitive telecommunications carrier under the regulations of each
state's regulatory commission. We currently are authorized or permitted to
provide at least a portion of our proposed services in 16 states: Colorado,
Florida, Idaho, Illinois (conditioned on the closing of our reorganization),
Indiana, Iowa, Kentucky, Michigan, Minnesota, Montana, Nebraska, Ohio, Oregon,
Texas, Wisconsin and Wyoming (long distance services only). We have pending
applications before an additional six state commissions. Although we do not
anticipate any issues that would prevent us from obtaining authorization as a
competitive telecommunications carrier in each of the states in which we will
apply, we cannot assure you that all required state authorizations will be
granted.
In most states, we are required to file tariffs setting forth the general
terms, conditions and prices for services classified as intrastate by the
particular state commission in question. Most states require us to list the
services provided and the specific rate for each service. Under various states'
rules, however, we have regulatory flexibility to set price ranges for specific
services and, in some cases, prices can be set on an individual customer basis.
We also may be required to file applications with some states for the assignment
of our state certifications to any other entity and for any transfer of
substantial control that we decide to undertake in the future. Some states also
may require a filing prior to the issuance of substantial debt or equity
securities or other transactions that would result in a lien upon the property
we use to provide intrastate telecommunications services. States generally
require us to file various reports and pay certain fees, including state
universal service subsidies. Like the FCC, most state commissions are empowered
to consider complaints filed against carriers subject to their jurisdiction. We
cannot assure you that our state certificates will not be revoked or amended by
state commissions.
LOCAL REGULATION. We may be required to obtain local permits for street
opening and construction permits to install and expand fiber optic networks.
Local zoning authorities often regulate
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our use of towers for microwave and other telecommunications sites. We also are
subject to general regulations concerning building codes and local licensing.
The Telecommunications Act requires that fees charged to telecommunications
carriers be applied in a competitively neutral manner, but there can be no
assurance that existing local telephone companies and others with whom we will
be competing will bear costs similar to those we will bear in this regard.
OTHER LAWS AND REGULATIONS. Although the foregoing discussion provides an
overview of the material regulatory issues that confront our business, this
discussion does not attempt to describe all current and proposed federal, state
and local rules and initiatives affecting the telecommunications industry. Other
federal and state laws and regulations are currently the subject of judicial
proceedings and proposed additional legislation. In addition, some of the FCC's
rules implementing the Telecommunications Act will be subject to further
judicial review and could be altered or vacated by courts in the future. We
cannot predict the ultimate outcome of any such further proceedings or
legislation.
INTELLECTUAL PROPERTY
We have entered into a license agreement with Pathnet under which we may
use all of Pathnet's tradenames, trademarks and other intellectual property. We
use the name "Pathnet" as our primary business name and service mark, and have
registered that name with the United States Patent and Trademark Office. In
addition, Pathnet has registered its service mark "A NETWORK OF OPPORTUNITIES"
and its logo with the United States Patent and Trademark Office.
We regard our products, services and technology as proprietary and we
attempt to protect them with patents, copyrights, trademarks, trade secret laws,
restrictions on disclosure and other methods. These methods may not be
sufficient to protect our technology. We also enter into confidentiality or
license agreements with our employees and consultants, and generally control
access to and distribution of our documentation and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use our products, services or technology without
authorization, or to develop similar technology independently.
Pathnet currently has a patent application pending and we intend to prepare
additional applications and seek patent protection for our systems to the extent
possible. These patents may not be issued to us, and if issued, they may not
protect our intellectual property from competition that could seek to design
around or invalidate these patents.
PROPERTIES
Our network and our component assets are the principal properties that we
own. Our installed fiber optic cable is laid on rights of way held by us or our
co-development partners, and our digital wireless network is constructed on our
leasehold interests in telecommunications infrastructure. We also own, or are
contracted to purchase, three small parcels of one to five acres of undeveloped
real property along our network backbone, on which we plan to construct
telecommunications equipment shelters for the fiber optic portions of our
network.
Our corporate headquarters are located in Washington, D.C., and Pathnet
leases this space from 6715 Kenilworth Avenue General Partnership, under a Lease
Agreement dated August 9, 1997. Recently, Pathnet executed a lease with 11720
Sunrisecorp., L.L.C. for approximately 40,000 square feet of office space in
Reston, Virginia which will become our new headquarters in the first half of
2000. We also lease office space in Richardson, Texas under a lease that expires
in 2003.
We believe that all of our properties are well maintained.
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EMPLOYEES
As of January 31, 2000, we employed 126 people. As needed, we also hire
temporary employees and independent contractor computer programmers. In
connection with our growth strategy, we anticipate hiring a significant number
of additional personnel in sales and other areas of our operations in the near
future. Our employees are not unionized, and we believe our relations with our
employees are good. Our success will continue to depend in part on our ability
to attract and retain highly qualified employees.
LEGAL PROCEEDINGS
From time to time, we are a party to routine litigation and proceedings in
the ordinary course of business. We are not aware of any current or pending
litigation to which we are or may be a party that we believe could materially
adversely affect our financial position, results of operations or cash flows.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
our combined financial statements and related notes included in this prospectus.
You can find additional information concerning our businesses and strategic
investments and alliances in the section of this prospectus entitled "BUSINESS."
OVERVIEW
Since Pathnet's inception on August 25, 1995, its principal activities have
included:
- Entering into strategic relationships with owners of telecommunications
assets and co-development partners;
- Developing and constructing our digital backbone network;
- Negotiating collocation and interconnection agreements and installing
collocations and interconnections off our backbone network;
- Designing and developing our network architecture and operations support
systems, including the buildout and launch of our 24-hour network
operations center;
- Raising capital and hiring management and other key personnel;
- Developing leading edge products and services; and
- Procuring governmental authorizations.
As of December 31, 1999, our network consisted of over 6,300 wireless route
miles providing wholesale transport services to 30 cities and 500 miles of
installed fiber available for sale. We are constructing an additional 600 route
miles of fiber optic network scheduled for completion in the first half of 2000.
We have also entered into two co-development agreements for the construction of
an additional 750 route miles of fiber optic network. We expect to develop more
backbone network from a pool of over 12,000 route miles of right of way -- 8,000
of which have some form of exclusivity -- that we will receive from our new
investors in our reorganization. During 2000, we intend to deploy additional
products and services including bundled wholesale transport and local access
services.
Pathnet has experienced operating losses since its inception, and we expect
these operating losses to continue as we expand our operations. Implementing our
business plan will require significant capital expenditures. Our financial
performance will vary from market to market, and the time when we will achieve
positive earnings before interest, taxes, depreciation and amortization, if at
all, will depend on the:
- Size of our target markets;
- Timely completion of backbone routes, collocations and interconnections;
- Cost of the necessary infrastructure;
- Timing of and barriers to market entry; and
- Commercial acceptance of our services.
SOURCES OF REVENUE
INFRASTRUCTURE SERVICES. We employ a "smart build" approach in the
development of our network that includes determining the level of customer
demand on a route before construction and, in certain cases, entering into
pre-construction sales of fiber optic strands and conduit. We can sell
indefeasible rights of use or leases of fiber or conduit along a segment of our
network at a fixed price.
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Under our dark fiber and conduit rights of use or lease agreements, we expect to
receive all of the proceeds relating to the disposition of the dark fiber and
conduits upon completion of the route and acceptance by the customer. We face
increasing competition in marketing our dark fiber and conduit for sale or lease
as other carriers build and expand their networks. To expedite infrastructure
development and decrease development risk, we have sought, and in the future
will continue to seek, co-developers to share the project construction costs. We
have pursued co-marketing arrangements to facilitate selling the assets along
network segments and we may continue to do so in the future.
MANAGEMENT SERVICES. To date, we have generated revenues primarily from
services related to the construction of our digital network. We expect to
continue construction of our digital network with co-development partners when
these projects will allow us to retain communications capacity, fiber or conduit
assets on routes that complement and reduce the costs of completing our network.
We anticipate that the percentage of revenues that we receive from management
services will decline as we near the completion of our network.
WHOLESALE TRANSPORT AND LOCAL ACCESS SERVICES. We provide inter-city and
local wholesale transport services and local access services to our customers on
a long-term or month-to-month basis. We plan to bundle local access services
with our wholesale transport services to provide low cost, end-to-end solutions
for our customers. Our service agreements with customers are generally leases of
capacity which provide for monthly payments due in advance on a fixed-rate
basis. We price our customer contracts according to the capacity, the length of
the circuit used, the term of the contract and the extent of value added
services provided. Nonrecurring revenues include installation and activation
charges for new customers. We seek to price our services competitively in
relation to those of the existing local telephone companies and other
competitive telecommunications companies in our targeted underserved and second
and third tier markets.
Although pricing will be an important part of our strategy, we believe that
customer relationships, customer care and consistent quality will be the key to
generating customer loyalty. During the past several years, market prices for
many telecommunications services have been declining -- a trend we believe will
likely continue. As prices decline for any given service, we expect that the
total number of customers and the proportion of our customers purchasing our
bundled services will increase.
OPERATING EXPENSES
COST OF REVENUE. The primary components of our cost of services to date
have been costs relating to network engineering, operations and maintenance.
With expected growth of our bundled wholesale transport and local access
services we expect components such as access costs (including fees for use of
the local loop, rent, power and other fees charged by existing local telephone
companies, competitive telecommunications companies and other providers) and
costs associated with the provision of services to comprise a greater portion of
our costs of service.
SELLING, OPERATIONS AND ADMINISTRATION. We are building a small and
focused sales and marketing department that should allow us to maintain a low
ratio of overhead expenses to revenues compared to other telecommunications
service providers. Our general and administrative costs include expenses typical
of other telecommunications service providers, including office leases, customer
care, billing, corporate administration and human resources. We expect that
these costs will grow significantly as we expand our operations and that our
administrative overhead will be a large portion of these expenses. However, we
expect these expenses to decline as a percentage of our revenue as we build our
customer base and increase the number of customers connected to our network.
DEPRECIATION AND AMORTIZATION. Because we are primarily a facilities-based
wholesale provider, expenses associated with depreciation of property, plant and
equipment will be a substantial ongoing expense for us. We expect depreciation
and amortization expense to increase significantly as more of
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our network becomes operational and as we increase capital expenditures to
expand our network. Depreciation and amortization expense will include:
- Depreciation of network infrastructure equipment;
- Depreciation of improvements to telephone company central offices, other
collocations and related equipment;
- Depreciation of network control center facilities, furniture, fixtures
and corporate facilities;
- Amortization of rights of way; and
- Amortization of software.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
During the year ended December 31, 1999, we continued to focus on:
- Developing relationships and strategic alliances with owners of valuable
telecommunications assets such as rights of way and with co-development
partners,
- Building out our network,
- Obtaining the regulatory status and entering into interconnection
agreements in each of our target markets to enable us to obtain unbundled
network elements and central office space from the existing local
telephone companies, and
- Developing our infrastructure including the hiring of key management
personnel.
REVENUE. For the twelve months ended December 31, 1999 and 1998, we
generated revenues of approximately $3.3 million and $1.6 million, respectively.
This increase is attributable to revenues from our sales of telecommunications
services, which were $2.4 million in 1999 compared with approximately $165,000
in 1998. We expect that a substantial portion of our future revenue will be
generated from our sale of wholesale transport services, local access services
and backbone infrastructure services.
OPERATING EXPENSES. For the twelve months ended December 31, 1999 and
1998, we incurred operating expenses of approximately $34.6 million and $17.9
million, respectively. The increase is primarily a result of additional staff
costs incurred in developing our infrastructure, depreciation expenses as more
of our network came on line and administrative costs related to obtaining
regulatory status. Cost of revenue reflects direct costs we incurred in
performing construction and management services and providing telecommunications
services.
INTEREST EXPENSE. Interest expense for the twelve months ended December
31, 1999 and 1998 was approximately $41.0 million and $32.6 million,
respectively. Interest expense primarily represents interest on the notes
together with the amortization expense related to bond issuance costs in respect
of the notes.
INTEREST INCOME. Interest income for the twelve months ended December 31,
1999 and 1998 was approximately $13.1 million and $13.9 million, respectively.
The decrease in interest income reflects a decrease in cash and cash equivalents
and marketable securities as those funds were used in building our network,
funding operations, and making interest payments on our notes in April and
September of 1999.
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YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
During the twelve months ended December 31, 1998, we focused on (1)
developing relationships and strategic alliances with owners of valuable
telecommunications assets such as rights of way and with co-development
partners, (2) building out our network, and (3) hiring key management and other
personnel.
REVENUE. Substantially all of our revenue for the year ended December 31,
1998 consisted of fees received for services we provided to our wireless
co-development partners, including analysis of existing facilities and system
performance, advisory services relating to personal communication system (or
PCS) provider spectrum relocation matters, and turnkey network construction and
management services. For the years ended December 31, 1998 and 1997, we
generated revenue of approximately $1.6 million and $162,500, respectively. This
increase was attributable to fees we received for performing construction and
management services primarily for one customer.
OPERATING EXPENSES. For the twelve months ended December 31, 1998 and
1997, we incurred operating expenses of approximately $17.9 million and $4.3
million, respectively. This increase results primarily from accelerating the
buildout of our network and additional staff costs incurred in developing our
infrastructure. Cost of revenue reflects direct costs we incurred in performing
construction and management services and providing telecommunications services.
INTEREST EXPENSE. Interest expense for the twelve months ended December
31, 1998 was approximately $32.6 million. We had no interest expense for the
twelve months ended December 31, 1997. Interest expense primarily represents
interest on the notes together with the amortization expense related to bond
issuance costs in respect of the notes.
INTEREST INCOME. Interest income for the twelve months ended December 31,
1998 and 1997 was approximately $13.9 million and $159,300, respectively. The
increase in interest income represents interest earned on the proceeds of the
notes issued in April, 1998.
CAPITAL EXPENDITURES
We have invested a significant amount of capital constructing and deploying
our digital network. We intend to continue to expand our network coverage. We
plan to add a bundled product comprised of local access and wholesale transport
to our existing products. These efforts will require us to fund our operating
losses and we will require significant capital to:
- Continue construction and development of our nationwide network
infrastructure;
- Purchase and install electronics, transmission and interconnection
equipment and other components along the network and as needed to
establish the platform for our local access and bundled services;
- Procure, design and construct telephone company central offices and other
collocation and interconnection sites; and
- Continue development of our corporate infrastructure.
Capital expenditures were approximately $80.2 million for the year ended
December 31, 1999. We expect that our capital expenditures will be substantially
higher in future periods in connection with the expansion of our network and
services in our target markets.
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As of December 31, 1999, we had capital commitments of approximately $89.9
million relating to the development of our network pursuant to existing
agreements. From December 31, 1999 until December 31, 2000 we intend to:
- Complete the construction and lighting of network segments to which we
are currently committed, including Chicago, Illinois to Aurora (a suburb
of Denver), Colorado, Grand Junction, Colorado to Alberquerque, New
Mexico and Alberquerque to El Paso, Texas;
- Begin perfection and pre-engineering of selected network segments from
the right of way acquired under our reorganization;
- Commence construction on up to three additional fiber routes; and
- Continue interconnecting and collocating in 60 to 80 of our targeted
underserved and second and third tier markets.
LIQUIDITY AND CAPITAL RESOURCES
From inception through December 31, 1999, we financed our operations
primarily through private placements of $36 million of equity securities and
$338.7 million of net proceeds raised from the issuance of the notes in April
1998. As of December 31, 1999, we had approximately $138.4 million of cash, cash
equivalents and marketable securities to fund future operations. In connection
with our reorganization, Colonial is contributing an aggregate (including both
tranches) of $68 million in cash to us in exchange for shares of our series E
convertible preferred stock, rights to a single conduit along the Colonial
rights of way and an option to purchase additional shares of our capital stock.
The reorganization will bring the total cash equity investment in Pathnet
Telecom and our subsidiaries to $100 million, including $25 million which will
be received upon the completion of a fiber optic network during the second
calendar quarter of 2000.
In addition, we expect to finance the cost of some of our equipment through
vendor financing arrangements. We have negotiated with Lucent a proposed credit
facility in which Lucent will, subject to certain conditions (including the
closing of our reorganization), provide us with financing for fiber optic cable
that we purchase from them. For a description of the terms and conditions of the
proposed financing transaction with Lucent see "DESCRIPTION OF OTHER
INDEBTEDNESS AND OTHER FINANCING ARRANGEMENTS -- Proposed Credit Facility with
Lucent."
We estimate that our current available resources, together with those
received in our reorganization, will be sufficient to fund the implementation of
our long term business plan, operating losses in new markets, and working
capital needs through the fourth quarter of 2000. In the event the strategic
investment from Colonial is not consummated or is consummated on different
terms, this projection of available resources may change. After such time, we
expect we will require additional financing, which may include commercial bank
borrowings, additional vendor financing or the sale or issuance of equity or
debt securities.
Our expectations of our future capital requirements and cash flows from
operations are based on current estimates. If our plans or assumptions change or
prove to be inaccurate, we may require additional sources of capital or
additional capital sooner than anticipated.
ANTICIPATED FUNDING SOURCES AND CASH USES
Assuming that we close our reorganization on or before March 31, 2000, we
anticipate that our total cash expenditures during the period from January 1,
2000, through June 30, 2001, will be
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approximately $619 million. Our projected sources and uses during the period
January 1, 2000, through June 30, 2001 are set forth in the table below:
PROJECTED SOURCES AND USES
(IN MILLIONS)
<TABLE>
<S> <C>
Sources:
Cash balances at December 31, 1999
Unrestricted cash........................................... $139
Construction/development project escrows.................... 16
Interest escrow for notes................................... 21
----
176
Payments received from co-development partners and
infrastructure and communications capacity services
customers................................................. 200
Drawings under senior secured vendor financings............. 75
Investment from Colonial Pipeline........................... 68
Additional equity investment................................ 100
----
Total sources.......................................... $619
====
Uses:
Operating expenses.......................................... $ 95
Fiber optic network construction............................ 270
Lighting of fiber optic routes.............................. 60
Interconnection and collocation development................. 70
Net interest expense/income................................. 55
Other....................................................... 5
Unrestricted cash balance at June 30, 2001.................. 64
----
Total uses............................................. $619
====
</TABLE>
FUNDING SOURCES
Our primary funding sources consist of the following:
- UNRESTRICTED AND RESTRICTED CASH BALANCES. As of December 31, 1999, our
unrestricted cash balances totaled $139 million. As of December 31, 1999,
we had restricted cash balances totaling $37 million, consisting of $16
million escrowed against our obligations under co-development agreements
with third parties and $21 million in pledged securities escrowed for the
April 2000 interest payment on the notes.
- PAYMENTS RECEIVED FROM CO-DEVELOPMENT PARTNERS AND INFRASTRUCTURE AND
COMMUNICATIONS CAPACITY SERVICES CUSTOMERS. We expect to receive
approximately $200 million from co-development partners and
infrastructure and communications capacity services (local access and
wholesale transport) customers from January 1, 2000, through June 30,
2001. We expect to generate payments from co-development agreements along
future route segments similar to our existing agreement with Tri-State
together with sales or long term leases of dark fiber and conduit to
infrastructure customers for the purpose of reducing our retained cost of
our retained fiber optic strands. We currently project that these
payments will substantially reduce our retained capital cost of our
retained fiber optic strands.
- DRAWINGS UNDER SENIOR SECURED VENDOR FINANCINGS. We intend to enter into
senior secured financing agreements with the vendors providing equipment
for our network. We expect that the economic terms of these agreements
will be similar to the Lucent credit facility that we have negotiated for
our fiber optic cable purchases. We expect these vendors to include those
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providing fiber optic cable, fiber optic lighting optronics equipment and
equipment supporting digital subscriber line and Time Division
Multiplexing, or TDM,-based services. We expect to draw approximately $75
million in senior secured financing from our equipment vendors from
January 1, 2000 through June 30, 2001.
- EQUITY INVESTMENT FROM COLONIAL. As described in the prospectus summary,
we expect to receive from Colonial as part of our reorganization an
aggregate of $68 million in cash in return for two tranches of shares of
our series E preferred stock, an option to acquire additional shares of
our capital stock, and rights to conduit along certain of our corridors.
- ADDITIONAL EQUITY INVESTMENT. We expect to raise approximately $100
million in new equity financing from January 1, 2000 through June 30,
2001. We have not yet identified the sources of this equity investment.
CASH USES
- OPERATING EXPENSES. We expect to incur approximately $95 million in cash
operating expenses from January 1, 2000, through June 30, 2001.
- FIBER OPTIC NETWORK CONSTRUCTION AND LIGHTING OF FIBER OPTIC ROUTES. The
first phase of our business plan involves approximately 12,500 miles of
network route mile construction. We expect to have completed development
of approximately 10,500 routes miles of network capacity by June 30, 2001
consisting of:
- approximately 6,500 miles of wireless network (of which 6,300 miles
were complete as of December 31, 1999);
- 2,600 miles of dark fiber (of which 500 miles were complete as of
December 31, 1999); and
- 1,400 miles of dark fiber acquired through barter exchanges of fiber
optic cable with third parties.
Within these cost projections, we have included our costs of lighting and
making fully operational two of our retained fiber optic strands in each
network route segment. Upon completing the construction of each network
segment, we plan to light these two strands to a minimum initial capacity
of OC-192.
- INTERCONNECTION AND COLLOCATION DEVELOPMENT. We currently expect, on or
before June 30, 2001, to interconnect our fiber optic backbone network to
approximately 120 cities. We contemplate that these interconnections will
require us to develop interconnection paths between our backbone network
and cities in which we establish interconnections. These interconnections
paths -- essentially tributaries from our network backbone -- vary in
distance from several hundred feet to 75 miles. In addition, we expect to
develop over 200 collocations as of June 30, 2001.
- NET INTEREST EXPENSE/INCOME. Projected interest expense from January 1,
2000, through June 30, 2001 consists principally of semi-annual interest
payments on the notes and cash interest paid on senior secured vendor
financing facilities, offset by interest income from short-term
investments of cash balances.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue exists because many computer systems and software
applications use two, rather than four, digits to designate a particular year.
As a result, these systems and applications may
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not properly recognize the Year 2000, or process data that includes that date,
potentially causing data miscalculations or inaccuracies, operational
malfunctions or failures.
OVERVIEW OF OUR YEAR 2000 PROGRAM. In the fourth quarter of 1998, we began
a corporate-wide program to ready technology systems, non-technology systems and
software applications for the Year 2000. We identified all systems and
applications that we believe needed to be modified or reprogrammed to achieve
Year 2000 compliance and implemented the necessary changes.
In December 1999, we completed the inventory, assessment and remediation of
mission critical hardware systems and software applications, including network
computing and network systems engineering. We have developed and tested
contingency plans in the event that certain of our suppliers or service
providers may not have been Year 2000 compliant.
In preparation for the Year 2000 transition, we provided 24-hour coverage
from December 31, 1999 through January 3, 2000 in our network operating center
and our corporate data center. We encountered no Year 2000 related problems and
observed no interruption of service during that time.
As part of our Year 2000 plan, we requested confirmation from our
communications equipment vendors and other key suppliers, financial institutions
and customers that their systems would be Year 2000 compliant. Responses
received indicated a high level of Year 2000 compliance at these companies.
Although we have incurred no Year 2000 problems to date, we cannot assure you
that the systems of companies with which we do business are Year 2000 compliant.
If the vendors important to us fail to provide needed products and services, our
network buildout and operations could be affected and thereby have a material
adverse effect on our results of operations, liquidity and financial condition.
Moreover, to the extent that significant customers are not Year 2000 compliant
and that affects their network needs, our sales could be lower than otherwise
anticipated.
We have hired outside consultants to assist us with our Year 2000
compliance, but we have relied primarily on our own employees to develop and
implement our Year 2000 compliance strategy. Because our existing systems are
relatively new, we have not replaced any significant portion of them. As a
result our expenditures to implement our Year 2000 plan have not been material
to date and we do not believe our future expenditures on this matter will be
material (remediation costs incurred to date have been less than $100,000). Such
expenditures represented less than 1% of 1999 capital expenditures and were
funded out of cash flow from operations. To the extent we will have to replace a
significant portion of our technology systems, which currently appears unlikely,
our expenditures could have material adverse effects on us. As a result, our
expenditures to ensure Year 2000 compliance have not been material to date. We
expect to continue to use existing employees for the significant part of our
Year 2000 compliance efforts.
The discussion of our efforts and management's expectations relating to
Year 2000 compliance are, in part, forward-looking statements. Due to the
general uncertainty inherent in the Year 2000 problem, resulting in large part
from the uncertainty of the Year 2000 readiness of third parties, we cannot
ensure our ability to timely and cost effectively resolve problems associated
with the Year 2000 issue that may adversely affect our operations and business
or expose us to third party liability and we have been unable to fully determine
the risks associated with the reasonably likely worst case scenario.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to minimal market risks. We manage sensitivity of our
results of operations to these risks by maintaining a conservative investment
portfolio, (which primarily consists of debt securities, that typically mature
within one year), and entering into long-term debt obligations with appropriate
pricing and terms. We do not hold or issue derivative, derivative commodity or
other
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financial instruments for trading purposes. Financial instruments held for other
than trading purposes do not impose a material market risk on us.
We are exposed to interest rate risk. We periodically need additional debt
financing due to our large operating losses, and capital expenditures associated
with establishing and expanding our network coverage increase our financing
needs. The interest rate that we will be able to obtain on debt financing will
depend on market conditions at that time, and may differ from the rates we have
obtained on our current debt.
Although all of our long-term debt bears fixed interest rates, the fair
market value of our fixed rate long-term debt is sensitive to changes in
interest rates. We have no cash flow or earnings exposure due to market interest
rate changes for our fixed long-term debt obligations.
NEW ACCOUNTING PRONOUNCEMENT
In July 1999, the Financial Accounting Standards Board (FASB) issued FIN
43, "Real Estate Sales, an interpretation of FASB Statement No. 66". We are
still assessing the impact of FIN 43 on our future operations. Specifically, we
are assessing the impact of the requirement that title transfer in order to use
sale type lease accounting for the sales of dark fiber and conduit. Under FIN 43
the arrangement is accounted for as a operating lease if title does not
transfer. For the year ended December 31, 1999 there has been no revenue
generated from sales of dark fiber and conduit.
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MANAGEMENT
OUR DIRECTORS AND EXECUTIVE OFFICERS
The table below contains information about the ages and positions of our
executive officers, selected key employees, and directors as of the date of this
prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH PATHNET TELECOM
---- --- --------------------------------
<S> <C> <C>
Richard A. Jalkut....................... 55 President, Chief Executive Officer and
Director
Robert A. Rouse......................... 50 Executive Vice President, Chief
Operating Officer and President, Network
Services
James M. Craig.......................... 43 Executive Vice President, Chief
Financial Officer and Treasurer
William R. Smedberg, V.................. 38 Executive Vice President, Corporate
Development
Michael A. Lubin........................ 50 Vice President, General Counsel and
Secretary
Shawn F. O'Donnell...................... 34 Senior Vice President of Engineering and
Construction
Peter J. Barris......................... 47 Director
Kevin J. Maroni......................... 37 Director
Patrick J. Kerins....................... 44 Director
Stephen A. Reinstadtler................. 33 Director
</TABLE>
Richard A. Jalkut has served as President, CEO and director of Pathnet
since August 1997. He will serve in these capacities for Pathnet Telecom upon
the close of our reorganization. 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. From 1991 until 1995, Mr. Jalkut served as President and
CEO of New York Telephone Co. Inc., the predecessor company to NYNEX
Telecommunications Group. Mr. Jalkut currently serves as a member of the board
of directors of HSBC Bank USA, a commercial bank; Ikon Office Solutions, Inc., a
company engaged in wholesale and retail office equipment; Digex, Incorporated;
and Home Wireless Networks, a start-up company developing a wireless product for
home and business premises.
Robert A. Rouse has served as Pathnet's Executive Vice President, President
of Network Services since April 1999 and, since September 1999, as Pathnet's
Chief Operating Officer. He will hold these positions for Pathnet Telecom after
completion of our reorganization. Mr. Rouse joined Pathnet with over 30 years
experience in the telecommunications industry. Before Pathnet, from October 1996
to November 1998, Mr. Rouse was Executive Vice President, Engineering, Systems
and Operations of Intermedia, responsible for network services, engineering and
systems. Before that, from October 1986 to October 1996, he served in several
positions at MCI beginning as the Director of New York City Operations and
spending the last three years as Senior Vice President of Network Services for
MCI/Concert. As Senior Vice President of Network Services for MCI/Concert, he
was responsible for integrating the network and product functionality between
MCI and British Telecom as well as building global networks. From March 1986
until September 1986, Mr. Rouse served as the Regional Vice President for
Eastern Operations for US West. In addition, Mr. Rouse spent 17 years, from June
1969 until March 1986, with Frontier Communications, Inc. where he was
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involved in a series of unregulated start-up business ventures, and he played a
key role in developing Frontier's long distance company.
James M. Craig has served as Executive Vice President, Chief Financial
Officer and Treasurer of Pathnet since April 1999. He will serve in these
capacities for Pathnet Telecom upon the close of our reorganization. Mr. Craig
has 22 years of accounting and finance experience, including 15 years
specifically in the communications industry. From February 1997 to April 1999,
Mr. Craig served as the Senior Director Treasury Management for Omnipoint
Communications, Mr. Craig was responsible for corporate planning and
forecasting. In this position, he also served as a point of contact for
investment banks, sell-side analysts and rating agencies. Before that, Mr. Craig
assisted in the launch of two start-up telecommunications companies, from
February 1996 to February 1997 at UniSite and from September 1995 to February
1997 at National Telecom PCS, Inc. While with UniSite, he established regional
and national alliances between UniSite and telecommunications tower owners. Mr.
Craig also spent a total of 11 years, from 1983 to 1995, with MCI, holding
positions such as Director of Wireless Communications, Director of Corporate
Development, Director of Telecommunications Group Planning and Director of
Corporate Treasury Group. From 1982 through 1983 and from 1977 through 1980, Mr.
Craig served as a Senior Accountant at the Cowper Companies and from 1980 to
1982 he practiced as a certified public accountant with Touche Ross & Co.
William R. Smedberg, V joined Pathnet initially as a consultant in 1996,
served as Vice President, Finance and Corporate Development of Pathnet from
January 1997 to February 1999 and assumed the position of Executive Vice
President, Corporate Development of Pathnet in March 1999. Mr. Smedberg will
serve as Pathnet Telecom's Executive Vice President, Corporate Development after
completion of our reorganization. Before joining Pathnet, Mr. Smedberg 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 Corporation of Virginia, Inc., from 1991 to 1996, where he was responsible
for Jamont's corporate finance, strategic planning and corporate development.
Michael A. Lubin has served as Vice President, General Counsel and
Secretary of Pathnet since its inception in August 1995. He will serve in this
capacity for Pathnet Telecom upon the close of our reorganization. Before
joining Pathnet, Mr. Lubin was an attorney-at-law at Michael A. Lubin, P.C., a
law firm he founded in 1985. Mr. Lubin has experience in telecommunications,
copyright and intellectual property matters, corporate and commercial law,
construction claims adjudication and trial work. From 1976 until 1981, he served
as a federal prosecutor with the Fraud Section, Criminal Division, United States
Department of Justice.
Shawn O'Donnell has served as Senior Vice President of Engineering and
Construction of Pathnet since August 1999. He will serve in this capacity for
Pathnet Telecom upon the close of our reorganization. Mr. O'Donnell has more
than 14 years of engineering experience in the telecommunications industry.
Before joining Pathnet, Mr. O'Donnell served as Director of Transmissions and
Facility Standards and Engineering with MCI WorldCom from November 1996 to
August 1999. In that position, he was in charge of a 340+ person team that was
responsible for overall transmission and facility engineering for local, long
distance and Internet networks. From April 1988 to November 1996, he also held a
variety of other positions at MCI WorldCom, including Senior Manger of
Transmission Engineering Implementation and Senior Manager of Switched Network
Planning. Before MCI WorldCom, from June 1986 to April 1988, Mr. O'Donnell was a
Control Engineer with Potomac Edison. While there, he was responsible for the
management of communications networks associated with high voltage control
systems.
Peter J. Barris has been a director of Pathnet since August 1995 and will
serve as a director of Pathnet Telecom upon consummation of our reorganization.
Since 1992, Mr. Barris has been a
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partner; in 1994, was appointed a General Partner; and, in 1999, was appointed
Managing General Partner of New Enterprise Associates, a firm that manages
venture capital investments. Mr. Barris is also a member of the board of
directors of Mobius Management Systems, Inc., PcOrder.com, Inc. and
Careerbuilder, Inc., each of which is quoted on the NASDAQ National Market.
Kevin J. Maroni has been a director of Pathnet since August 1995 and will
serve as a director of Pathnet Telecom after the closing of our reorganization.
Since 1994, Mr. Maroni has been a principal, and, in 1995, was appointed a
General Partner of Spectrum Equity Investors, which manages private equity funds
focused on growth capital for Telecommunications companies. Prior to Spectrum,
Mr. Maroni worked at Time Warner and Harvard Management Company. Mr. Maroni is
currently on the board of directors of several private companies and CTC
Communications Corp (which is quoted on the NASDAQ National Market).
Patrick J. Kerins has been a director of Pathnet since July 1997 and will
serve as a director of Pathnet Telecom after consummation of our reorganization.
Since March 1997, Mr. Kerins has served as Managing Director of Grotech Capital
Group, which is engaged in venture capital and other private equity investments.
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 a member of the board of directors of CD Now, Inc.,
an online retailer of compact discs and other music related projects which is
quoted on the NASDAQ National Market.
Stephen A. Reinstadtler has been a director of Pathnet since October 1997
and will, upon consummation of our reorganization, serve as a director of
Pathnet Telecom. Since August 1995, Mr. Reinstadtler has served as Vice
President and Director at Toronto Dominion Capital (U.S.A.) Inc., where he has
been involved in private equity and mezzanine debt investments. From April 1994
to July 1995, he was 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.
ADDITIONAL DIRECTORS TO BE ELECTED
Our board of directors currently consists of Richard Jalkut, Kevin Maroni,
Patrick Kerins, Stephen Reinstadtler and Peter Barris, all of whom are also
directors of Pathnet. Upon the closing of our reorganization our stockholders
will designate additional directors as provided in the stockholders agreement
that will be executed at the closing.
Upon the closing of our reorganization, Mr. Barris and Mr. Maroni will
serve as the representative of the holders of our series A convertible preferred
stock, Mr. Kerins will serve as the representative of the holders of our series
B convertible preferred stock, Mr. Reinstadtler will serve as the representative
of our series C convertible preferred stock, and Mr. Jalkut, our President and
CEO, will serve by virtue of his position as CEO. The remaining directors will
be elected as set forth in "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS -- Our Stockholders Agreement." After an initial "Qualified Public
Offering," which the stockholders agreement defines as an underwritten public
offering of more than $75 million in value of our securities at a per share
price that implies a valuation in excess of $600 million for all of the shares
of our capital stock, for so long as BNSF, CSX and Colonial hold at least 5% of
our outstanding voting securities, all of the stockholders who are party to the
stockholders agreement have agreed to vote their shares to elect each of BNSF's,
CSX's and Colonial's designees to the board of directors. The terms of the
stockholders agreement relating to election of directors (other than the
election of the BNSF, CSX and Colonial designees as described above) will
terminate upon the earlier of the date on which no shares of our preferred stock
remain outstanding or, if applicable, on which we complete an initial
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"qualified public offering." After the termination of these stockholders
agreement provisions and the conversion of our preferred stock into common
stock, each of our directors, other than the designees of BNSF, CSX and
Colonial, will be elected by a majority vote of our stockholders.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Although we may establish a compensation committee in the future, we do not
currently have one. Unless our board of directors determines otherwise, our
present intention is to keep Pathnet employees, other than our executive
officers, and accordingly our decisions regarding compensation, at the level of
our Pathnet subsidiary. Pathnet does have a compensation committee of its board
of directors, which currently consists of two of Pathnet's directors, Messrs.
Maroni and Barris. Prior to the resignation of Richard Prins from Pathnet's
board of directors in 1999, Pathnet had a three member compensation committee,
consisting of Messrs. Maroni, Barris and Prins. Pathnet's compensation committee
was established to, among other things, administer Pathnet'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 Pathnet and its executive officers.
During the fiscal year ended December 31, 1999, no executive officer of
Pathnet served as a member of Pathnet's compensation committee or as a director
of any entity of which any of our or Pathnet's directors served as an executive
officer. No member of Pathnet's compensation committee is currently a Pathnet
employee.
COMPENSATION OF OUR DIRECTORS
Currently, our directors do not receive directors' fees or other
compensation and they are not compensated or reimbursed for their out-of-pocket
expenses incurred in serving as directors or for attending meetings of the board
of directors or its committees. However, our new stockholders agreement
contemplates the election of at least one director who is not an affiliate of
any stockholder or member of management. As a result, after the close of our
reorganization, we may consider changing the compensation arrangements for our
directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION
We are incorporated under the laws of the State of Delaware.
Section 102(b)(7) of the Delaware General Corporation Law 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.
Our certificate of incorporation limits, to the fullest extent permitted by
law, the liability of our directors to us and our stockholders for monetary
damages for breach of their fiduciary duty. This provision is intended to afford
our directors the benefit of the Delaware General Corporation Law. This
limitation on liability does not extend to:
- Any breach of a director's duty of loyalty to us or our stockholders;
- Acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
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- Violations of the Delaware General Corporation Law regarding the improper
payment of dividends; or
- Any transaction from which the director derived any improper personal
benefit.
Section 145 of the Delaware General Corporation Law, 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 of
the Delaware General Corporation Law 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.
Our certificate of incorporation requires us to indemnify our directors and
officers to the extent not prohibited by law for actions or proceedings arising
because of their positions as directors or officers.
Our stockholders agreement provides for indemnification of us, our
directors and officers, and persons who control us 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.
In addition, Pathnet maintains, and we will maintain, standard directors'
and officers' insurance policies.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Pathnet Telecom
pursuant to the foregoing agreements and provisions, we have been informed that
in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
COMPENSATION OF OUR EXECUTIVE OFFICERS
We are being formed as part of our reorganization and, as such, we have no
historical compensation information. However, we expect that each of the
executive officers who will serve as our officers immediately after closing the
transaction will be the individuals that held the same office at Pathnet
immediately before closing. Consequently, the following tables present the
compensation information for Pathnet's last three fiscal years as illustrative
of the total compensation that we (including Pathnet) will pay to our executive
officers.
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The table below presents information about compensation earned by Pathnet's
CEO and each of Pathnet's six other Named Executive Officers. The officers
listed in the table below are referred to as the Named Executive Officers:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION OTHER SECURITIES
--------------------- ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION* OPTIONS**
--------------------------- ---- -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Richard A. Jalkut................ 1999 $400,000 $300,000 $40,733(1) --
President and Chief 1998 400,000 -- 40,289(2) --
Executive Officer 1997 166,154(3) -- 9,857(4) 858,754
Michael A. Lubin................. 1999 135,019 47,120 -- --
Vice President, General 1998 136,840 5,000 -- 15,000
Counsel and Secretary 1997 136,115 -- -- --
William R. Smedberg V............ 1999 182,886 139,000 -- 50,000
Executive Vice President, 1998 111,250 28,267 -- 78,656
Corporate Development 1997 100,384 -- -- --
James M. Craig................... 1999 122,206(5) 78,750 -- 125,000
Executive Vice President, Chief
Financial Officer and Treasurer
Shawn F. O'Donnell............... 1999 58,739(6) 57,500 -- 50,000
Senior Vice President of
Engineering and Construction
Robert A. Rouse.................. 1999 239,276(7) 133,751 36,943(8) 350,000
Executive Vice President, Chief
Operating Officer and President
of Network Services
Kevin J. Bennis.................. 1999 207,138(9) 27,500 -- --
Executive Vice President and 1998 246,353(10) -- 185,602(11) 382,500
President Communications
Services
</TABLE>
- ---------------
* Except as stated herein, none of the above Named Executive Officers
received perquisites or other personal benefits in excess of the lesser of
$50,000 or 10% of that individual's salary plus annual bonus.
** We have not issued any stock appreciation rights or long-term incentive
plans.
(1) Consists of $7,227 for club dues; $13,368 for lodging; $15,090 for airfare;
and $5,048 for other transportation.
(2) Consists of $16,277 for club dues; $7,756 for lodging; $11,685 for airfare;
and $4,571 for other transportation.
(3) Mr. Jalkut began his employment with Pathnet in August 1997, and his salary
was $400,000 per annum in 1997.
(4) Reimbursement for travel expenses.
(5) Mr. Craig began his employment with Pathnet on April 19, 1999, and his
salary was $175,000 per annum in 1999.
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(6) Mr. O'Donnell began his employment with Pathnet on August 9, 1999, and his
salary was $150,000 per annum in 1999.
(7) Mr. Rouse began his employment with Pathnet on April 26, 1999, and his
salary was $325,000 per annum in 1999.
(8) Reimbursement for moving expenses.
(9) Mr. Bennis' employment with Pathnet was terminated on September 17, 1999.
(10) Mr. Bennis began his employment with Pathnet on February 9, 1998, and his
salary was $275,000 per annum.
(11) Consisting of $48,093 in residence settlement charges in Georgia, $99,319
residence settlement charges in Virginia, $22,780 in other moving expenses
and $15,410 in rent.
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STOCK OPTION GRANTS IN OUR LAST FISCAL YEAR
The table below provides information regarding stock options granted to the
named executive officers of Pathnet during the year ended December 31, 1999.
None of the named executive officers received stock appreciation rights. As part
of our reorganization, each of the option grants for Pathnet common stock will
be assumed by us and will be exercisable for shares of our common stock on terms
and conditions substantially identical to the terms of the Pathnet options,
including terms relating to the option vesting schedule.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATE OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR THE
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------------
GRANTED FISCAL YEAR $/SHARE DATE 0% 5% 10%
---------- -------------- -------- ---------- --- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard A. Jalkut.............. -- --% $ -- -- $-- $ -- $ --
Michael A. Lubin............... -- -- -- -- -- -- --
William R. Smedberg V.......... 50,000(2) 6.88 5.20 5/13/2009 0 163,513 414,373
James M. Craig................. 125,000(2) 17.21 5.20 5/13/2009 0 408,782 1,035,933
Shawn F. O'Donnell............. 50,000(2) 6.88 5.20 8/5/2009 0 163,513 414,373
Robert A. Rouse................ 350,000(2) 48.18 5.20 5/13/2009 0 1,144,588 2,900,611
Kevin J. Bennis................ -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) The information disclosed assumes, solely for purposes of demonstrating
potential realizable value of the stock options, that the estimated fair
value per share of common stock of Pathnet was $5.20 per share as of the
date of grant and increases at the rate indicated during the option term.
(2) The options vest ratably over a four-year period. The option may be
transferred by will or by the laws of descent and distribution. Upon a
change in control of Pathnet and a termination of the optionee's employment
without cause, the options that would otherwise become vested within one
year will be deemed vested immediately before such optionee's termination.
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<PAGE> 72
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table lists information about the number and value of stock
options held by each of the Named Executive Officers as of December 31, 1999.
None of the Named Executive Officers holds stock appreciation rights.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT VALUE OF UNEXERCISED
SHARES DECEMBER 31, 1999 IN-THE-MONEY OPTIONS(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Jalkut............. -- -- 572,502 286,252 5,650,595 2,825,307
Michael A. Lubin.............. -- -- 145,215 11,250 1,573,621 65,250
William R. Smedberg V......... -- -- 58,686 69,970 513,093 492,191
James M. Craig................ -- -- 0 125,000 0 725,000
Shawn F. O'Donnell............ -- -- 0 50,000 0 290,000
Robert A. Rouse............... -- -- 0 350,000 0 2,030,000
Kevin J. Bennis............... 90,625 $894,469 0 0 0 0
</TABLE>
- ---------------
(1) Based on an assumed market price of Pathnet's common stock of $11.00 per
share as of December 31, 1999.
1995 STOCK OPTION PLAN
We will assume Pathnet's 1995 stock option plan at the closing of our
reorganization. Additionally, upon the close of our reorganization, we will
assume, and we have agreed with the existing option holders to amend, all
existing awards under Pathnet's "1995 plan" so that the awards will be
exercisable for shares of our common stock rather than common stock of Pathnet.
The total number of shares of common stock that we may issue under the 1995 plan
may not exceed 495,126 shares of common stock. As of December 31, 1999, Pathnet
had awarded options on all shares reserved under Pathnet's 1995 plan, at an
exercise price of $0.03 per share. The 1995 plan will permit our board of
directors, or a committee of the board, to exercise broad discretion to grant
stock options to our employees. If additional shares are authorized under the
1995 plan, the 1995 plan will permit the board of directors to exercise its
discretion to determine:
- The exercise price of the options;
- Any vesting provisions, including whether accelerated vesting will occur
with a "change in control"; and
- The term of the options, which cannot exceed 10 years.
Within one year following the closing of our reorganization, our
stockholders must approve our assumption of the 1995 plan and the options
awarded under the plan.
1997 STOCK INCENTIVE PLAN
At the closing of our reorganization, we will assume Pathnet's 1997 stock
incentive plan, which will become our "1997 plan." Additionally, upon the close
of our reorganization, we will assume and amend all existing awards under
Pathnet's 1997 plan so that the awards will be exercisable for our shares of
common stock rather than Pathnet common stock. Our stockholders also must
approve our assumption of the 1997 plan and the options awarded under the 1997
plan. The 1997 plan will permit
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<PAGE> 73
our board of directors, or a committee of the board, to grant a variety of
awards to employees and consultants. Under our 1997 plan, the board of directors
will have the authority to grant:
- Incentive and non-qualified stock options;
- Stock appreciation rights, which are rights to receive an amount equal to
a specified portion of the increase in market value of common stock over
a specified exercise price between the date of grant and the date of
exercise;
- Restricted shares, which involve the immediate transfer of shares of
common stock for the performance of services. Restricted shares must be
subject to a "substantial risk of forfeiture" within the meaning of
Section 83 of the tax code;
- Deferred shares, which involve an agreement to deliver shares of common
stock in the future in consideration for the performance of service;
- Performance awards, each of which is a bookkeeping unit equivalent to one
share of common stock;
- Performance compensation awards; and
- Other stock based awards.
The total number of shares of common stock that may be issued or
transferred under our 1997 plan may not exceed 5,004,874. The maximum share
number is subject to adjustment in the event of a stock split, stock dividend or
other similar transactions.
The board of directors will have broad discretion in granting and
establishing the terms of awards under our 1997 plan. However, our 1997 plan
will contain limitations, including:
- No individual may be granted, in any calendar year, options and stock
appreciation rights for more than 1,160,000 total shares of common stock;
- No individual may be granted, in any one calendar year, performance
compensation awards for more than 1,160,000 shares of common stock or, in
the event the performance compensation is paid in cash, the equivalent
cash value thereof;
- The term of options may not be more than 10 years; and
- Performance compensation awards must specify a performance period not to
exceed one year and pre-established objective performance criteria which,
if achieved, will result in payment.
Similar to our 1995 plan, our 1997 plan will allow the board of directors
to exercise broad discretion in determining:
- The exercise price of any stock based award;
- Any vesting terms of an award, including whether vesting will accelerate
with a "change in control" (which is described below); and
- The term of the options, which cannot exceed 10 years.
Under our 1997 plan, the board of directors may establish performance
criteria for purposes of performance awards. The 1997 plan will also allow the
board of directors to specify performance criteria for stock options, stock
appreciation rights and restricted stock awards that are designated as
performance compensation awards. Performance criteria may be described in terms
of either company-wide objectives or objectives that are related to the
performance of the individual participant or a division, department, region or
function within Pathnet Telecom. Performance criteria applicable to any award to
a participant who is, or is determined by the board of directors likely to
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<PAGE> 74
become, a "covered employee" within the meaning of Section 162(m) of the tax
code must be limited to specified levels of, or growth in, one or more of these
criteria:
- 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.
Except where a modification would result in an award to a "covered
employee" no longer qualifying as performance-based compensation within the
meaning of Section 162(m) of the tax code, the board of directors may modify a
part or all of these performance criteria as it deems appropriate and equitable
in light of events and circumstances, such as changes in our business,
operations, corporate structure or capital structure.
The 1997 plan provides that, if we terminate the optionee's employment
either actually or constructively, following the occurrence of a change in
control, the portion of the option that otherwise would have vested in the
12-month period following the change in control will be deemed vested as of the
date immediately before the date of the change in control.
"Change in control" is defined under the 1997 plan to mean:
- A sale of all or substantially all of our assets or a merger or other
similar transaction involving us which results in less than a majority of
the voting power of the surviving corporation being held by our common
stockholders immediately before the transaction;
- During any two year period, a majority of the board of directors consists
of persons who are not members of or have not been approved by the
incumbent board of directors; or
- The ownership or acquisition of 50% or more of our voting power by any
person or group.
Under the 1997 plan, if Richard Jalkut's or Robert Rouse's employment,
whichever the case may be, is terminated after a change of control, then certain
of their options will be deemed to become vested immediately before the change
in control. Both Mr. Jalkut and Mr. Rouse have agreed with Pathnet that the
reorganization does not constitute a change in control under the 1997 plan.
In August 1997, Mr. Jalkut was granted an option to purchase 296,122 shares
of common stock under the 1997 plan, which vests in equal installments over
three years; the number of shares and the exercise price were subsequently
adjusted in a stock split.
As of December 31, 1999, there were options covering 2,251,204 shares of
Pathnet's common stock outstanding under the 1997 plan.
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<PAGE> 75
SCHAEFFER BOARD RESIGNATION
In October 1997, Mr. Schaeffer was an employee of Pathnet and was granted
an option to purchase 148,418 shares of common stock under the 1997 plan; the
number of shares and the exercise price were subsequently adjusted in a stock
split. Mr. Schaeffer is no longer an officer or director of Pathnet and has not
been an officer or director of Pathnet Telecom. In a letter agreement dated
November 4, 1999, in which Mr. Schaeffer resigned from his position as a
director of Pathnet, Pathnet and Mr. Schaeffer agreed that Mr. Schaeffer holds
options for a total of 107,389 shares of Pathnet common stock, which are fully
vested at an exercise price of $3.67 per share. We will assume these option
grants and convert them to options for shares of our common stock at closing of
our reorganization.
JALKUT EMPLOYMENT AGREEMENT
Pathnet is currently a party to an employment agreement with Mr. Jalkut.
Under this employment agreement, Mr. Jalkut will receive a minimum annual base
salary of $400,000 (or any greater amount approved by a majority of the board of
directors), bonuses and other benefits determined by the board of directors.
Additionally, Mr. Jalkut is entitled to receive reimbursement of certain
expenses, all of which expenses may not exceed $50,000 per year. In accordance
with his employment agreement, on August 4, 1997, Mr. Jalkut received
nonqualified stock options for 296,122 shares of common stock at an exercise
price of $3.28 per share; the number of shares and the option price were
subsequently adjusted in a stock split. These options vest ratably over three
years. We have granted Mr. Jalkut registration rights for the shares he will
receive upon exercise of his options. If we terminate Mr. Jalkut's employment he
may elect, within 10 business days of his termination, to have us pay him,
subject to the terms of the indenture and the supplemental indenture, the
aggregate fair value of his options then vested or held by him. We will be
required to make any payments in accordance with his employment agreement.
During his employment and for two years after his termination, Mr. Jalkut's
employment agreement requires him to refrain from investing in businesses or
activities that compete with us, soliciting our employees or otherwise competing
with us, by, for example, working with or for one of our competitors. Mr.
Jalkut's employment agreement also prevents him from disclosing or using our
confidential or proprietary information at any time.
Other than the restrictions on Mr. Jalkut described above and our
obligation to pay severance for one year following the termination of Mr.
Jalkut's employment (depending on the basis for his termination), Mr. Jalkut's
employment agreement will terminate in the event of his death and may be
terminated:
- By us:
(a) Without cause (as defined in his employment agreement), by giving
60 days' prior written notice; or
(b) For cause, generally subject to a 30-day written notice of the
board's intention to terminate him for cause;
(c) Upon Mr. Jalkut's disability (as defined in his employment
agreement); and
- By Mr. Jalkut:
(a) Without cause, by giving 180 days' prior written notice; and
(b) Immediately, upon a constructive termination (as defined in his
employment agreement).
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<PAGE> 76
Unless we terminate Mr. Jalkut's employment for cause, or Mr. Jalkut
terminates his employment without cause, Mr. Jalkut is entitled to continue to
receive his salary for 12 months following the termination of his employment
with us.
OTHER AGREEMENTS
Messrs. Schaeffer, Lubin, O'Donnell, Rouse, Craig and Smedberg each have
entered into an agreement with Pathnet which requires each of them to (1) assign
to Pathnet all inventions developed by them during their employment, (2)
maintain the confidentiality of our proprietary information, and (3) refrain
from working with or for a competitor of ours for two years after his
termination.
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<PAGE> 77
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We summarize in this section selected material terms of our stockholders
agreement. For a more complete description of these rights, we refer you to the
copy of our stockholders agreement filed as an exhibit to the registration
statement of which this prospectus is a part. If there is an inconsistency
between this summary and our stockholders agreement, the stockholders agreement
will control.
OUR STOCKHOLDERS AGREEMENT
Overview
Upon closing of the various contribution agreements comprising our
reorganization, we will enter into a stockholders agreement with CSX, Colonial,
BNSF, our other preferred stockholders and David Schaeffer. Our stockholders
agreement will put in place at the Pathnet Telecom level many of the provisions
that currently apply under Pathnet's existing investment and stockholders
agreement. Pathnet's existing investment and stockholders agreement will be
terminated after our reorganization.
In accordance with our stockholders agreement, each stockholder will agree
to vote in favor of the election of a board of directors consisting of 10
members:
- Two designees of the series A preferred stockholders (initially, a
designee of Spectrum Equity Investors L.P. and the other will initially
be a designee of New Enterprise Associates VI Limited Partnership);
- One designee of the series B preferred stockholders (initially, a
designee of Grotech Partners, IV, L.P.);
- One designee of the series C preferred stockholders (initially, a
designee of Toronto Dominion Capital (U.S.A.), Inc.) who may not be a
partner or associate of Spectrum, New Enterprise Associates or Grotech
for so long as they have designation rights under our stockholders
agreement;
- Three designees of the series D and E preferred stockholders (one
designated by BNSF, one by CSX and one by Colonial);
- Our CEO;
- One independent "outside" director, who is neither a member of management
nor an affiliate of any stockholder; and
- One director who will be elected by all voting stockholders voting
together as a single class, as provided by our certificate of
incorporation.
Under the stockholders agreement, we will be subject to covenants
substantially similar to those in effect under Pathnet's investment and
stockholders agreement. For so long as at least 25% of the shares of preferred
stock outstanding immediately after the closing of our reorganization remain
outstanding, these covenants will require that we obtain the approval of the
holders of two-thirds of the outstanding shares of preferred stock (all voting
as a single class) before we undertake certain fundamental actions, including
mergers, dispositions, acquisitions, amendments to our certificate of
incorporation and bylaws, affiliated transactions, and certain issuances of
securities. In addition, certain actions that would adversely affect the rights
of a single series of preferred stock relative to any other series of preferred
stock would require the majority vote of each adversely affected series.
Each party to our stockholders agreement will represent and warrant to the
other stockholders that they, he or it (1) has no present intention or plan,
formally or informally, on the closing date to transfer or dispose of any of the
shares received by such party under their, his or its contribution agreement,
and (2) intends for their, his or its contribution of Pathnet shares or other
property to us
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<PAGE> 78
in accordance with their, his or its contribution agreement to be treated as
part of a single integrated transaction in which gain or loss will not be
recognized for tax purposes. Each existing Pathnet stockholder who participates
will represent and warrant to the other parties that it intends its contribution
of Pathnet shares to us to qualify as a tax-free reorganization under Section
368(a)(1)(B) of the tax code, pursuant to which gain or loss will not be
recognized.
Registration Rights
In our stockholders agreement, we will grant registration rights to our
preferred stockholders and to Mr. Jalkut and Mr. Schaeffer. These registration
rights are substantially similar to the registration rights granted to these
same holders in the Pathnet investment and stockholders agreement, except that
Mr. Schaeffer will now have registration rights. The holders of securities
subject to registration rights will have both "demand" and "piggy back"
registration rights.
Demand Rights
We will grant "demand" registration rights for two separate groups of our
equity securities. The groups are broadly distinguished by the identity of the
holders who can demand that we register their shares under the Securities Act.
The first group consists of the holders of:
- Shares of common stock issued to our preferred stockholders, or issuable
to our preferred stockholders upon the conversion of their shares of
preferred stock; and
- Shares of common stock issued or issuable to Mr. Jalkut upon the exercise
of his options.
We refer to these groups of shares as "registrable securities." On three
separate occasions, by the vote of the holders of the applicable percentage of
the registrable securities outstanding in this first group, the holders of the
shares in this group may require us to use our best efforts to file a
registration statement with the SEC in respect of their registrable securities.
Before we make an initial "qualified public offering" (which the stockholders
agreement defines as an underwritten public offering of more than $75 million in
value of our securities at a per share price that implies a valuation in excess
of $600 million for all of the shares of our capital stock), the holders of at
least 67% of the total number of outstanding registrable securities must
affirmatively vote to exercise any of these demand rights. After we make an
initial qualified public offering, the holders of 20% of the total number of
outstanding registrable securities may make the demand. Although we do not
include Mr. Schaeffer's shares in calculating the percentages for purposes of
the demand by this group, he will be entitled to participate on a proportional
basis in any registration demanded by this group of our stockholders.
Separately, we have granted Mr. Schaeffer a single right to demand that we
register his shares of our common stock under the Securities Act. Mr. Schaeffer
may exercise his demand registration right if: (1) we complete an initial
qualified public offering, and (2) our registration statement filed in respect
of that initial offering either:
- Does not include Mr. Schaeffer's shares of our common stock that he
proposes to register; or
- Has ceased to be effective within the thirty-day period following the
expiration of a mandatory "lock-up" period applicable to all of the
holders of our securities with registration rights. (The lock-up
provisions of our stockholders agreement will prohibit sales of our
securities by the parties to our stockholders agreement for a period up
to 180 days following the completion of an initial public offering.)
Although they may not initiate a "demand" under this provision, the holders
of our registrable securities identified above may participate on a proportional
basis in any registration demanded by Mr. Schaeffer under this provision of the
stockholders agreement.
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<PAGE> 79
In exercising these demand registration rights, the stockholders must in
all cases have selected an underwriter reasonably acceptable to us who is
prepared to underwrite the offering of the shares on a firm commitment basis. We
have additional obligations to assist in the registration and underwriting of
any shares that these holders seek to sell pursuant to their registration
rights. We have a right to defer each of those demand registrations for up to 60
days, if our legal counsel has advised us that filing a registration statement
relating to such a demand registration would require us either (1) to disclose a
material impending transaction and we have determined in good faith that the
disclosure would have a material adverse effect on us, or (2) to conduct a
special audit.
Pathnet has separate "demand registration" obligations under a warrant
registration rights agreement executed in conjunction with Pathnet's note and
warrant offering in April 1998. Under that agreement, the holders of a majority
of the Pathnet warrants may require Pathnet on one occasion after an initial
public offering to register under the Securities Act their shares of common
stock received upon the exercise of their warrants, subject to Pathnet's right
to defer the registration of those shares for up to 60 days in similar
circumstances. As we discuss below in "DESCRIPTION OF OUR
REORGANIZATION -- Disposition of Existing Pathnet Stock Options and Warrants,"
we are proposing to the holders of these rights that we assume Pathnet's
obligations under this warrant registration rights agreement. If the requisite
holders of the Pathnet warrants consent to the proposed amendments, or if
individual holders elect to exercise their rights to require us to exchange our
warrants for their Pathnet warrants, we may be required by the terms of the
warrant registration rights agreement to register additional shares of our
common stock upon the exercise of these warrants.
Piggyback Rights
We will also grant to each of these groups of our stockholders (and, if we
assume Pathnet's obligations to the holders of its warrants, then also to those
warrant holders) so-called "piggyback" registration rights, under which they can
require us to register their shares of common stock whenever we register any of
our equity securities under the Securities Act. These piggyback registration
rights will be subject to underwriter "cutbacks," which means that our managing
underwriter may decide to limit the number of shares added to a registration
that we initiate because the underwriter has concluded that including the
additional "piggyback" shares would have an adverse impact on the marketing of
the securities to be sold in the underwritten offering. These piggyback
registration rights will not apply to any registration relating to a public
offering pursuant to demand registration rights granted to the Pathnet
warrantholders, to the registration of securities with our employee benefit
plans, on any SEC form that does not permit secondary offerings, or to
securities we issue in a merger, exchange offer or similar transaction.
We are required to bear up to $60,000 of registration expenses for each
demand registration under our stockholders agreement. In addition, we have
agreed to indemnify the registration rights holders against, and provide
contribution for, liabilities under the Securities Act, the Exchange Act or
other federal or state laws regarding the registration of our securities.
However, we will not indemnify the registration rights holders against, or
provide them contribution for, any untrue statements or omissions made by us in
reliance on and in conformity with information furnished to us in writing by the
registration rights holders.
Preemptive Rights
Under our stockholders agreement, each of our preferred stockholders and
Mr. Schaeffer have the right to participate in certain of our sales of
securities. Specifically, on each occasion between the closing of our
reorganization and an initial "qualified public offering" that we issue shares
of our capital stock (or other securities convertible or exchangeable for our
capital stock), our preferred
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stockholders and Mr. Schaeffer will have the right to purchase their pro rata
share of the newly issued securities. In addition, in the event that any of our
preferred stockholders or Mr. Schaeffer elects not to purchase his or its pro
rata share of the newly issued securities, the remaining preferred stockholders
and Mr. Schaeffer have the right to purchase those shares as well.
Transfer Restrictions
Mr. Schaeffer's ability to transfer his shares of our capital stock is
subject to restrictions under our stockholders agreement. He is prohibited from
making any transfers other than specifically enumerated "permitted transfers."
Those permitted transfers include:
- Transfers made in accordance with specified provisions of our
stockholders agreement which, among other things, grant a right of first
refusal to our preferred stockholders with respect to the shares Mr.
Schaeffer proposes to transfer.
- Transfers by Mr. Schaeffer to his spouse or his children, to a trust he
establishes for his spouse or children, upon his death, to a trust
established under his will and other similar transfers, provided that the
transferee enters into an enforceable written agreement that is
satisfactory to us and to a majority of our preferred stockholders,
providing that the shares transferred by Mr. Schaeffer remain subject to
our stockholders agreement.
- Transfers that constitute a bona fide pledge or other granting of a
security interest in Mr. Schaeffer's shares of our stock to secure a loan
for borrowed money, subject to specified restrictions, including
limitations on the purpose of any such loan, the minimum net assets of
the lending institution, and a review of the applicable loan documents by
our outside counsel for compliance with the terms of our stockholders
agreement.
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<PAGE> 81
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below provides some information regarding beneficial ownership of
our capital stock as of December 31, 1999 for:
- Each of the named executive officers.
- Each of our directors.
- All of our executive officers and directors as a group.
- Each other person, entity or group who we know beneficially owns 5% or
more of any class of our stock.
All share amounts in the table have been adjusted and are presented
assuming that our reorganization was closed as of December 31, 1999. Unless
otherwise noted, the address of each of our named executive officers and
directors is 1015 31st Street, N.W., Washington, D.C. 20007.
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<PAGE> 82
<TABLE>
<CAPTION>
ISSUED AND OUTSTANDING
COMMON STOCK SERIES A PREFERRED SERIES B PREFERRED
---------------------- ---------------------- ----------------------
PERCENTAGE PERCENTAGE PERCENTAGE
STOCKHOLDER (a) SHARES OF CLASS SHARES OF CLASS SHARES OF CLASS
--------------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Spectrum Equity Investors, L.P.(d)................ 0 0.00% 1,372,668 47.33% 1,220,099 25.48%
Spectrum Equity Investors II, L.P.(d)............. 0 0.00% 0 0.00% 0 0.00%
New Enterprise Associates VI, Limited
Partnership(e)................................... 0 0.00% 522,000 18.00% 685,014 14.31%
Onset Enterprise Associates II, L.P.(f)........... 0 0.00% 522,000 18.00% 463,976 9.69%
Onset Enterprise Associates III, L.P.(f).......... 0 0.00% 0 0.00% 0 0.00%
Paul Capital Partner Funds(g)..................... 0 0.00% 245,989 8.48% 125,144 2.61%
Thomas Domencich(h)............................... 0 0.00% 145,000 5.00% 62,573 1.31%
Toronto Dominion Capital (USA) Inc.(i)............ 0 0.00% 0 0.00% 884,146 18.47%
Grotech Partners IV, L.P.(j)...................... 0 0.00% 0 0.00% 884,146 18.47%
Utech Climate Challenge Fund, L.P.(k)............. 0 0.00% 0 0.00% 442,076 9.23%
Utility Competitive Advantage Fund, LLC(l)........ 0 0.00% 0 0.00% 0 0.00%
FBR Technology Venture Partners, L.P.(m).......... 0 0.00% 0 0.00% 0 0.00%
BNSF(n)........................................... 0 0.00% 0 0.00% 0 0.00%
Colonial(o)....................................... 0 0.00% 0 0.00% 0 0.00%
CSX(p)............................................ 0 0.00% 0 0.00% 0 0.00%
David Schaeffer(q)................................ 2,900,000 94.52% 0 0.0% 0 0.0%
Richard A. Jalkut................................. 0 0.00% 0 0.00% 0 0.00%
Michael A. Lubin.................................. 0 0.00% 0 0.00% 0 0.00%
William R. Smedberg V............................. 0 0.00% 0 0.00% 0 0.00%
James M. Craig.................................... 0 0.00% 0 0.00% 0 0.00%
Shawn F. O'Donnell................................ 0 0.00% 0 0.00% 0 0.00%
Robert A. Rouse................................... 0 0.00% 0 0.00% 0 0.00%
Kevin J. Bennis(r)................................ 90,625 2.95% 0 0.00% 0 0.00%
Kevin J. Maroni(s)................................ 0 0.00% 1,372,668 47.33% 1,220,099 25.48%
Peter J. Barris(t)................................ 0 0.00% 522,000 18.00% 685,014 14.31%
Stephen A. Reinstadtler(u)........................ 0 0.00% 0 0.00% 884,146 18.47%
Patrick J. Kerins(v).............................. 0 0.00% 0 0.00% 884,146 18.47%
All Directors and Executive Officers as a Group... 0 0.00% 1,894,668 65.33% 3,673,405 76.72%
<CAPTION>
SERIES C PREFERRED SERIES D PREFERRED SERIES E PREFERRED
---------------------- ---------------------- ----------------------
PERCENTAGE PERCENTAGE PERCENTAGE
STOCKHOLDER (a) SHARES OF CLASS SHARES OF CLASS SHARES OF CLASS
--------------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Spectrum Equity Investors, L.P.(d)................ 1,363,406 16.67% 0 0.00% 0 0.00%
Spectrum Equity Investors II, L.P.(d)............. 1,363,406 16.67% 0 0.00% 0 0.00%
New Enterprise Associates VI, Limited
Partnership(e)................................... 1,374,051 16.80% 0 0.00% 0 0.00%
Onset Enterprise Associates II, L.P.(f)........... 817,672 10.00% 0 0.00% 0 0.00%
Onset Enterprise Associates III, L.P.(f).......... 272,553 3.33% 0 0.00% 0 0.00%
Paul Capital Partner Funds(g)..................... 136,275 1.67% 0 0.00% 0 0.00%
Thomas Domencich(h)............................... 0 0.00% 0 0.00% 0 0.00%
Toronto Dominion Capital (USA) Inc.(i)............ 1,006,500 12.31% 0 0.00% 0 0.00%
Grotech Partners IV, L.P.(j)...................... 1,006,500 12.31% 0 0.00% 0 0.00%
Utech Climate Challenge Fund, L.P.(k)............. 136,276 1.67% 0 0.00% 0 0.00%
Utility Competitive Advantage Fund, LLC(l)........ 366,980 4.49% 0 0.00% 0 0.00%
FBR Technology Venture Partners, L.P.(m).......... 272,556 3.33% 0 0.00% 0 0.00%
BNSF(n)........................................... 0 0.00% 3,413,746 40.11% 0 0.00%
Colonial(o)....................................... 0 0.00% 1,684,115 19.79% 2,867,546 100.00%
CSX(p)............................................ 0 0.00% 3,413,746 40.11% 0 0.00%
David Schaeffer(q)................................ 0 0 0 0.00% 0 0.00%
Richard A. Jalkut................................. 0 0.00% 0 0.00% 0 0.00%
Michael A. Lubin.................................. 0 0.00% 0 0.00% 0 0.00%
William R. Smedberg V............................. 0 0.00% 0 0.00% 0 0.00%
James M. Craig.................................... 0 0.00% 0 0.00% 0 0.00%
Shawn F. O'Donnell................................ 0 0.00% 0 0.00% 0 0.00%
Robert A. Rouse................................... 0 0.00% 0 0.00% 0 0.00%
Kevin J. Bennis(r)................................ 0 0.00% 0 0.00% 0 0.00%
Kevin J. Maroni(s)................................ 2,726,812 33.35% 0 0.00% 0 0.00%
Peter J. Barris(t)................................ 1,374,051 16.80% 0 0.00% 0 0.00%
Stephen A. Reinstadtler(u)........................ 1,006,500 12.31% 0 0.00% 0 0.00%
Patrick J. Kerins(v).............................. 1,006,500 12.31% 0 0.00% 0 0.00%
All Directors and Executive Officers as a Group... 6,113,863 74.77% 0 0.00% 0 0.00%
<CAPTION>
BENEFICIAL OWNERSHIP OF
COMMON STOCK
----------------------------
STOCK PRO FORMA
STOCKHOLDER (a) OPTIONS(b) TOTAL SHARES PERCENTAGE(c)
--------------- ---------- ------------ -------------
<S> <C> <C> <C>
Spectrum Equity Investors, L.P.(d)................ 0 3,956,173 56.32%
Spectrum Equity Investors II, L.P.(d)............. 0 1,363,406 30.77%
New Enterprise Associates VI, Limited
Partnership(e)................................... 0 2,581,065 45.69%
Onset Enterprise Associates II, L.P.(f)........... 0 1,803,648 37.02%
Onset Enterprise Associates III, L.P.(f).......... 0 272,553 8.16%
Paul Capital Partner Funds(g)..................... 0 507,408 14.19%
Thomas Domencich(h)............................... 0 207,573 6.34%
Toronto Dominion Capital (USA) Inc.(i)............ 0 1,890,646 38.13%
Grotech Partners IV, L.P.(j)...................... 0 1,890,646 38.13%
Utech Climate Challenge Fund, L.P.(k)............. 0 578,352 15.86%
Utility Competitive Advantage Fund, LLC(l)........ 0 366,980 10.68%
FBR Technology Venture Partners, L.P.(m).......... 0 272,556 8.16%
BNSF(n)........................................... 0 3,413,746 52.67%
Colonial(o)....................................... 1,593,082 6,144,743 66.70%
CSX(p)............................................ 0 3,413,746 52.67%
David Schaeffer(q)................................ 107,389 3,007,389 94.70%
Richard A. Jalkut................................. 572,502 572,502 15.72%
Michael A. Lubin.................................. 145,215 145,215 4.52%
William R. Smedberg V............................. 128,656 128,656 4.02%
James M. Craig.................................... 0 0 0.00%
Shawn F. O'Donnell................................ 0 0 0.00%
Robert A. Rouse................................... 0 0 0.00%
Kevin J. Bennis(r)................................ 0 90,625 2.95%
Kevin J. Maroni(s)................................ 0 5,319,579 63.42%
Peter J. Barris(t)................................ 0 2,581,065 45.69%
Stephen A. Reinstadtler(u)........................ 0 1,890,646 38.13%
Patrick J. Kerins(v).............................. 0 1,890,646 38.13%
All Directors and Executive Officers as a Group... 903,172 12,585,108 80.40%
</TABLE>
- ---------------
(a) In accordance with the rules of the SEC, each beneficial owner's holding
has been calculated assuming full exercise of outstanding warrants and
options exercisable or convertible by the holder within 60 days after
December 31, 1999.
(b) Only options exercisable within 60 days after December 31, 1999 are listed.
(c) The pro forma percentages of beneficial ownership of common stock as to
each beneficial owner assumes the exercise or conversion into common stock
of all outstanding options, warrants and convertible securities held by
such owner that are exercisable or convertible within 60 days of December
31, 1999, but not the exercise or conversion of options, warrants and
convertible securities held by others shown in the table.
(d) Spectrum Equity Investors, L.P.'s and Spectrum Equity Investors II, L.P.'s
address is One International Place, Boston, Massachusetts, 02110.
(e) New Enterprise Associates VI, Limited Partnership's address is 1119 Saint
Paul Street, Baltimore, Maryland, 21202.
(f) Onset Enterprise Associates II, L.P.'s and Onset Enterprise Associates III,
L.P.'s address is 8911 Capital of Texas Highway, Austin, Texas, 78759.
(g) The Paul Capital Partner Funds are five funds that constitute a "group"
under Section 13(d) of the Exchange Act. Each fund's address is: c/o Paul
Capital Partners, 50 California Street, Suite 3000, San Francisco,
California, 94111. The five funds are Paul Capital Partners V L.P., Paul
Capital Partners V (Domestic Annex Fund) L.P., Paul Capital Partners V
International, L.P., Paul Capital Partners VI, L.P. and PCP Associates,
L.P.
(h) Thomas Domencich's address is 104 Benevolent Street, Providence, Rhode
Island, 02906.
(i) Toronto Dominion Capital (USA) Inc.'s address is 31 West 52nd Street, New
York, New York, 10019.
(j) Grotech Partners IV, L.P.'s address is 9690 Deereco Road, Timonium,
Maryland, 21093.
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(k) Utech Climate Challenge Fund, L.P.'s and Utility Competitive Advantage Fund,
L.L.C.'s address is c/o Arete Ventures, Two Wisconsin Circle, Chevy Chase,
Maryland 20815.
(l) Utility Competitive Advantage Fund L.L.C.'s address is c/o William T.
Heflin, Managing Director, Kinetic Ventures, L.L.C., 2 Wisconsin Circle,
Suite 620, Chevy Chase, Maryland 20815.
(m) FBR Technology Venture Partners, L.P.'s address is 11600 Sunrise Valley
Drive, Suite 460, Reston, VA 20191.
(n) BNSF's address is 2500 Lou Menk Drive, Fort Worth, Texas, 76131.
(o) Colonial Pipeline Company's address is 945 East Paces Ferry Road, NE,
Atlanta, Georgia, 30326.
(p) CSX's address is c/o CSX Real Property, Inc., 301 West Bay Street, J915,
Jacksonville, Florida, 32202.
(q) Mr. Schaeffer is no longer an officer or director of Pathnet and is not an
officer or director of Pathnet Telecom. Mr. Schaeffer's address is 11017
Riverwood Dr., Potomac, MD 20854.
(r) Mr. Bennis is no longer employed by Pathnet, but he is included in the
beneficial ownership computation of all directors and officers as a group
because Mr. Bennis would have been a Named Executive Officer except that he
was not an executive officer of Pathnet at the end of the fiscal year 1999.
(s) 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.
(t) 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.
(u) Mr. Reinstadtler, Vice President and Director of Toronto Dominion Capital
(USA) Inc., disclaims beneficial ownership of the shares owned by Toronto
Dominion Capital (USA) Inc.
(v) Mr. Kerins, Managing Director of the general partner of Grotech Partners
IV, LP, disclaims beneficial ownership of the shares owned by Grotech
Partners IV, LP.
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DESCRIPTION OF OUR REORGANIZATION
TRANSACTION OVERVIEW
OVERVIEW. We have entered into agreements providing for our reorganization
with each of BNSF, CSX, Colonial and all of the existing stockholders of
Pathnet. This section describes the material terms of those agreements and the
reorganization in general. As discussed in the following section entitled "THE
PATHNET SENIOR NOTEHOLDER WAIVERS AND OTHER PROPOSED INDENTURE AMENDMENTS," we
intend by this offering and the consent solicitation to address the current
requirements of the indenture governing the notes that would otherwise inhibit
our ability to complete our reorganization and to operate our businesses
(including the business currently conducted by Pathnet) following the completion
of the reorganization.
Our reorganization consists of the following principal steps:
- Our issuance of 8,511,607 shares of our series D preferred stock, valued
at $187 million, to three new investors -- BNSF, CSX and Colonial -- in
exchange for leasehold interests or comparable license rights to their
railroad and pipeline rights of way in order to construct and operate our
fiber optic telecommunications network;
- Our issuance, at a cash purchase price of $21.97 per share for an
aggregate purchase price of $38 million, of 1,729,631 shares of our
series E preferred stock to Colonial;
- Our issuance of an additional 1,137,915 shares of our series E preferred
stock to Colonial at a cash purchase price of $25 million conditioned
upon the completion of our fiber optic build between Chicago, Illinois
and Aurora (a suburb of Denver), Colorado;
- Our grant, in exchange for a $1 million cash payment at the closing of
the reorganization, of an option to Colonial and certain affiliates of
Colonial to purchase up to an additional 1,593,082 shares of our series E
or, under certain circumstances, series D preferred stock and a separate
option to purchase our common stock;
- The exchange of all shares of the outstanding common and preferred
Pathnet stock solely for shares of our common and preferred stock on
substantially similar terms, after which we will own 100% of Pathnet;
- Our sale to Colonial of rights in a specified number of conduit miles of
our future network along Colonial's rights of way (or equivalent
telecommunications assets) for a $4 million cash payment at the closing
of our reorganization;
- Our purchase from Pathnet for $70 million (payable by means of our
promissory note to Pathnet) of the following Pathnet assets (see "THE
PATHNET SENIOR NOTEHOLDER WAIVERS AND OTHER PROPOSED INDENTURE
AMENDMENTS -- Waiver of Pathnet Obligations" for additional information
on this purchase):
- three fiber co-development contracts and the agreements related to
those co-development contracts;
- those fiber network assets that are currently constructed and
installed relating to Pathnet's network segment build between Chicago
and Aurora (a suburb of Denver), Colorado;
- all other fiber network assets, properties and contracts held by
Pathnet;
- a license to Pathnet's tradenames, trademarks and other intellectual
property;
- all goodwill and going concern rights associated with each of the
items listed above; and
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- fiber assets Pathnet will receive from its subsidiary, Pathnet Fiber
Optics, LLC under an assignment and acceptance agreement.
- Our borrowing from Pathnet (following the execution of the supplemental
indenture referred to under "THE PATHNET SENIOR NOTEHOLDER WAIVERS AND
OTHER PROPOSED INDENTURE AMENDMENTS") of $50 million of the remaining
proceeds from Pathnet's initial equity investments and the issue of its
notes to assist in the development of our fiber optic rights of way
received from BNSF, CSX and Colonial.
Following the conclusion of our reorganization, our beneficial ownership
will be allocated among the participants in our reorganization as set forth in
the following table. For purposes of determining the beneficial ownership of our
voting capital stock following the completion of our reorganization, we assume
in the table:
- Colonial's purchase of the second tranche of shares of our series E
preferred stock and the conversion of those shares into shares of our
common stock;
- except for the Colonial option to purchase shares of our common stock in
connection with our initial public offering, the exercise of all options
to purchase shares of our common stock;
- the exercise of the Colonial option to purchase additional shares of our
series E preferred stock and the conversion of all of our series of
preferred stock into our common stock; and
- the conversion of all outstanding warrants to purchase shares of Pathnet
common stock into warrants to purchase shares of our common stock and the
full exercise of those warrants;
Because we cannot at this time determine the precise number of our shares
that are covered by Colonial's option to purchase our common stock prior to our
initial public offering, we have not assumed the exercise of that option in our
determination of beneficial ownership interests in the table.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
CATEGORY OF EQUITY HOLDER OUR VOTING STOCK
------------------------- -----------------------
<S> <C>
Holders of existing shares of Pathnet Series A, B and C
preferred stock........................................... 44.4%
Holders of existing shares of Pathnet common stock (assuming
the conversion and exercise in full of all existing
warrants and options for Pathnet common stock into shares
of our common stock)...................................... 19.2%
BNSF........................................................ 9.6%
Colonial and affiliates..................................... 17.2%
CSX......................................................... 9.6%
------
Total................................................... 100.0%
======
</TABLE>
THE PARTIES. Pathnet Telecom was formed on November 1, 1999, to effectuate
the reorganization and become the parent company of Pathnet. Pathnet, a company
formed in August 1995, is a wholesale telecommunications provider building a
nationwide network designed to provide our customers, who are telecommunications
providers, with access to underserved and second and third tier markets, of
which there are over 200. CSX, BNSF and Colonial are each holders of extensive
right of way assets that were originally acquired and maintained for use in
their primary railroad and pipeline businesses. The other parties to our
reorganization include all of the existing stockholders of Pathnet.
THE TRANSACTION. BNSF, CSX, and Colonial have agreed to contribute right
of way assets and, in the case of Colonial, both right of way assets and cash,
in exchange for newly-issued shares of our capital stock. At the same time, we
are reorganizing the Pathnet corporate structure, and through an exchange of
shares of our capital stock with existing Pathnet stockholders, Pathnet Telecom
will
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become the parent company of Pathnet. As discussed below, prior to the filing of
the registration statement of which this prospectus is a part, the parties
executed the definitive contribution agreements providing for these
contributions of assets and exchanges of shares. The closing of those
transactions is conditioned principally upon our obtaining the consents of the
holders of a majority in principal of the notes.
PURPOSE OF THE TRANSACTION. We plan to use the rights of way and cash
obtained in our reorganization in the construction of our fiber optic
telecommunications network. BNSF, CSX and Colonial have committed to enter into
right of way leases or licenses permitting us to install and operate a fiber
optic and wireless network across their rights of way for periods ranging from
30 to 35 years. We expect that the access rights that we obtain from CSX, BNSF
and Colonial will satisfy substantially all of our planned right of way
requirements for our backbone network. We will obtain additional rights of way
as necessary to link our backbone network to our target markets. Once the
contribution transactions with CSX, BNSF and Colonial have closed, we will have
right of way agreements in place to access over 12,000 railroad track and
pipeline miles. One of our purposes in entering into the reorganization is to
enhance our ability to conduct and finance the future operations of Pathnet and
Pathnet Telecom in an efficient and competitive manner, but we cannot assure you
that we will realize this goal.
CONSENT OF NOTEHOLDERS REQUIRED. The indenture executed in 1998 between
Pathnet and The Bank of New York as trustee contains the covenants,
restrictions, events of default, and other terms relating to the notes. Under
the terms of the indenture, completing our reorganization technically would
constitute a "change of control" of Pathnet, triggering its obligation (under
Section 1010 of the indenture) to offer to repurchase the notes at a premium to
both their face amount and their current market value. Pathnet likely would not
have access to the funds necessary to meet this repurchase obligation if it were
to arise. Moreover, repurchasing the notes would deprive Pathnet of resources
needed to help fund the development of the Pathnet and Pathnet Telecom network
and other telecommunications businesses. As a result, our reorganization is
subject to conditions, as more fully described below in "-- Conditions to
Closing the Reorganization," under which it will not close if Pathnet is unable
to obtain the waiver of this repurchase obligation from the holders of a
majority in outstanding principal amount of the notes.
In seeking the waiver of this "change of control," Pathnet will also seek
related waivers and amendments to the terms of the Indenture as more fully
described below in "THE PATHNET SENIOR NOTEHOLDER WAIVERS AND OTHER PROPOSED
INDENTURE AMENDMENTS," including a waiver of obligations to consummate the
Excess Proceeds Offer because our reorganization constitutes an "Asset Sale"
under the terms of the indenture. Pathnet's purpose in seeking these related
waivers and amendments is to impose upon us substantially the same covenant
restrictions that are currently imposed upon Pathnet, and to permit
inter-company transactions between us and Pathnet (and our other subsidiaries)
to the same extent that the indenture currently permits those transactions
between Pathnet and its subsidiaries.
One bondholder has informed us that it believes the indenture requires the
unanimous consent of the bondholders in order for us to obtain the requested
waivers of provisions of the indenture in connection with our reorganization. We
and our counsel have carefully considered this claim, and have concluded that it
is plainly inconsistent with the terms of the indenture and is therefore without
merit. We have so informed this bondholder of our view. In granting your
requested consent, you are required to acknowledge that the consent of the
holders of a majority in principal amount of the notes is sufficient for
purposes of the requested waivers and amendments. Pathnet will not accept
partial consents or consents that do not contain the requested acknowledgement.
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DESCRIPTION OF THE REORGANIZATION AGREEMENTS
We have executed contribution agreements with our new investors and former
Pathnet stockholders to accomplish our reorganization. We summarize the material
terms of these agreements in this section. We have filed complete copies of
these agreements as exhibits to our registration statement filed in connection
with this offering, and we encourage you to review the agreements for further
details concerning their terms.
CONTRIBUTION AGREEMENTS WITH CSX, BNSF AND COLONIAL. On November 4, 1999,
we entered into definitive contribution agreements with each of CSX, BNSF and
Colonial to issue our shares of series D and series E preferred stock and obtain
right of way access rights along their railroad and pipeline properties and
easements. Each of these companies has significant property and easement
holdings in areas where we expect to build and expand our fiber optic
telecommunications network. Under those contribution agreements:
- CSX agreed to enter into a Fiber Optic Access and License Agreement by
which CSX will provide us with access to portions of CSX's extensive
railroad corridors covering the eastern United States;
- BNSF agreed to enter into a Fiber Optic Access Agreement by which BNSF
will provide us with access to portions of BNSF's extensive railroad
corridors covering the western United States; and
- Colonial agreed to contribute access to portions of its pipeline
corridors covering the eastern United States.
The contribution agreements are subject to certain conditions to closing,
which are described in more detail below in "-- Conditions to Closing the
Reorganization." In exchange for granting us these rights of way, we will issue
to CSX, BNSF and Colonial shares of our series D preferred stock. In addition,
our contribution agreement with Colonial provides for Colonial to contribute $38
million in cash in exchange for shares of our series E preferred stock. Colonial
has agreed to pay this amount at the initial closing of the reorganization, and
another $25 million in exchange for additional shares of series E preferred
stock promptly following Pathnet's substantial completion of the fiber optic
build between Chicago, Illinois and Aurora, a suburb of Denver, Colorado (which
Pathnet is currently constructing with World Wide Fiber, Inc.). We currently
expect Pathnet to complete this fiber build during the second calendar quarter
of 2000, but we cannot assure you that construction will be completed within
this time frame.
Colonial will pay an additional $4 million at the initial closing of our
reorganization in return for the future right to receive a specified number of
"conduit miles" of installed fiber optic conduit or the equivalent value in
other telecommunications assets.
Under the contribution agreements with BNSF, CSX and Colonial, we have made
a variety of representations and warranties to each of the new investors with
respect to the reorganization, our securities to be issued to each of them, and
the current business and financial condition of Pathnet. We have also agreed to
indemnify the new investors against any breach of those representations and
warranties.
COLONIAL OPTION AGREEMENT. In addition to the contribution and conduit
purchase investments outlined above, our contribution agreement with Colonial
provides for a separate option agreement which will permit Colonial to purchase
additional shares of our stock. Upon the execution of the Colonial option
agreement at the closing of our reorganization, Colonial will pay us a
non-refundable fee of $1 million for the purchase of these options. Under the
Colonial option agreement, we have agreed to grant two options to Colonial in
exchange for their cash contribution.
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The first option, which may be exercised by a number of Colonial's
affiliated companies, permits those affiliates to purchase up to $35 million of
additional shares of our series E preferred stock at the same purchase price as
that paid by Colonial under the Colonial contribution agreement. Colonial also
has the right to exercise up to $10 million of the $35 million on its own
behalf. This option will expire on the later of the date which is 120 days after
the date Colonial's contribution agreement was signed or 15 days after the
closing of the reorganization.
The option agreement also allows us during the same period to enter into
agreements with one or more of Colonial's designated affiliated entities, where
those entities would contribute rights of way in exchange for shares of our
series D preferred stock at $21.97 per share.
The second option permits Colonial to purchase a number of shares of our
common stock equal to 10% of the total number of shares of common stock that we
actually sell in any initial public offering of our common stock. This second
option must be exercised by Colonial at least ten days prior to the filing of
our registration statement for an initial public offering of our common stock,
but the shares will be issued only if and when we close on a firm commitment
underwritten initial public offering. The price at which Colonial may purchase
our shares under this option will be 90% of the price per share of the common
stock offered by us to the public, as reflected in the final prospectus filed
with respect to our initial public offering.
CONTRIBUTION AGREEMENTS WITH PATHNET'S EXISTING STOCKHOLDERS. Concurrent
with our contribution agreements with BNSF, CSX and Colonial, we entered into
contribution agreements with existing Pathnet preferred and common stockholders.
All of the Pathnet common stockholders (except for David Schaeffer) are parties
to one contribution agreement under which those stockholders agreed to exchange
their entire stock and interest in Pathnet for shares of our common stock.
Mr. Schaeffer signed a separate contribution agreement with us under which
he also agreed to exchange his entire stock and interest in Pathnet for shares
of our common stock. Mr. Schaeffer is the only common stockholder that is a
party to the Pathnet Investment and Stockholders Agreement, and he has agreed in
his contribution agreement to enter into our new stockholders agreement.
The holders of Pathnet's series A, B and C preferred stock have also
elected to participate in our reorganization. They executed a contribution
agreement, under which they agreed to exchange their shares of Pathnet series A,
B and C preferred stock solely for shares of our series A, B and C preferred
stock, respectively, with substantially similar terms for each corresponding
series. The contribution agreement with the existing Pathnet preferred
stockholders also requires that those stockholders enter into our new
stockholders agreement. For a discussion of the provisions of that new
stockholders agreement, please refer to the section below entitled "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS -- Our Stockholders Agreement."
As with the contribution transactions involving BNSF, CSX and Colonial, the
closing of the contribution transactions involving all of the existing
stockholders of Pathnet remains subject to the effectiveness of this
registration statement, our receiving appropriate waivers and consents from the
holders of the notes, the FCC, the Antitrust Division of the Department of
Justice and the FTC to all required filings under applicable law.
Under the contribution agreements with the Pathnet existing stockholders,
we have made a limited number of representations and warranties with respect to
our reorganization and our securities to be issued. However, these contribution
agreements do not contain representations and warranties with respect to the
business and financial condition of Pathnet, nor do they contain the
indemnification provisions contained in the contribution agreements with CSX,
BNSF and Colonial.
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STRUCTURE OF THE PATHNET BUSINESS FOLLOWING THE CONCLUSION OF OUR REORGANIZATION
The structure of the issued and outstanding stock and debt security of
Pathnet business immediately following the closing of the reorganization will be
as follows:
[PATHNET GRAPHIC]
To facilitate vendor financing and other business relationships that will
be required to permit us to continue to develop and maintain our network, we may
in the future need to incorporate other subsidiaries ("sister" companies to
Pathnet or other subsidiaries of Pathnet). We plan to enter into vendor
financing arrangements, including a pending fiber optic purchase agreement and
related vendor financing facility with Lucent Technologies, Inc., that would
require us to incorporate those separate subsidiaries and to contribute some of
our assets to those subsidiaries. See "DESCRIPTION OF OTHER INDEBTEDNESS AND
OTHER FINANCING ARRANGEMENTS -- Proposed Credit Facility with Lucent."
To support additional vendor and other financing, we (or our relevant
subsidiaries) may in the future need to pledge or secure our assets, together
with any other assets provided by the vendors, in order to obtain vendor
financing. Because the notes and our guarantees are unsecured, any security that
we provide to a vendor will be senior to your interests as holders of the notes.
Moreover, after our reorganization, we may establish subsidiaries for purposes
of such vendor financing or for other reasons associated with the operation of
our business, which we are permitted to do under the indenture and the
supplemental indenture, and the supplemental indenture, like the indenture, will
not require these new subsidiaries to guarantee the notes. Accordingly, if we
establish additional subsidiaries in the future, your notes will be effectively
subordinated to the claims of the creditors of those subsidiaries, except in
cases in which we or Pathnet are creditors to the new subsidiaries. In
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those cases (and assuming that our status or Pathnet's status as a creditor is
respected in any proceeding relating to a claim as a creditor), our claims still
would be effectively subordinated to any security interests in the assets of the
subsidiary held by vendor finance providers or other creditors.
DESCRIPTION OF FIBER OPTIC ACCESS AGREEMENTS AND RELATED FIBER OPTIC LEASES AND
LICENSES FROM BNSF, CSX AND COLONIAL
Upon the successful completion of the consent solicitation process and the
closing of the reorganization, we will enter into two further agreements
relating to the rights of way with each of BNSF, CSX and Colonial. In each case,
the first agreement, which we refer to as an "access agreement," will describe
the basic structure of our right to develop the rights of way. These agreements
will address the number of miles available for development, the nature and
duration of any exclusive rights we will have in the rights of way, and any
obligation we have to provide additional benefits to BNSF, CSX or Colonial. The
second agreement, which we refer to as a "lease agreement," identifies the
particular segments in which we will have a right of way interest. These
agreements will also ensure that our construction and operational activities
will not interfere with any of the grantors' rail or pipeline businesses,
including any other contractual obligations to which that grantor is a party. We
describe each agreement with BNSF, CSX and Colonial in more detail below.
BNSF AGREEMENTS. The access agreement with BNSF authorizes us to develop
up to a specified number of miles of BNSF's rail corridor. Prior to December 31,
2004, we will have the exclusive right to develop approximately 4,000 miles of
this right of way. In addition, for five years after commencing construction of
each segment along these exclusive corridors, and for three years after
commencing construction on all other BNSF rights of way, any party that requests
the right to develop BNSF rights of way for fiber optic uses must first
negotiate with us to provide for their communications needs. If we do not reach
agreement within a specified time period, the party may proceed to negotiate its
development directly with BNSF.
We could lose these exclusivity rights in certain specified circumstances,
including our failure to develop at least 800 miles of the BNSF rights of way
over which we have exclusive rights before April 30, 2001, and an additional 800
miles per year thereafter. We must also develop or acquire fiber optic rights in
at least 3,000 miles of telecommunications network nationally (including, but
not limited to, the BNSF right of way) by June 30, 2001, increasing to 12,500
miles by June 30, 2005.
The lease agreement with BNSF, which addresses conditions of construction
and operations, is for a term of 35 years and permits us to install an unlimited
number of fibers and conduits. It requires us to use BNSF personnel for
supervising all construction and to pay all costs associated with using these
personnel. It also contains other provisions associated with construction and
operation of our facilities, including indemnification, insurance provisions and
mechanisms for complying with BNSF safety and operations regulations.
CSX AGREEMENTS. The CSX access agreement authorizes us to develop up to a
specified number of miles of CSX's right of way on the former Conrail system and
an additional specified number of miles on the remainder of CSX's system. For
the first three years after the date of the access agreement we will have the
exclusive right to develop up to 2,000 of the former Conrail system rights of
way, subject to restrictions concerning the length and location of specific
developments. For an additional four years after the end of the exclusivity
period on the CSX rights of way, any party that requests the right to develop a
segment of the former Conrail system rights of way where we have commenced
construction must first negotiate with us to provide for their communications
and development needs. If we do not reach an agreement within a specified time
period, the party can proceed to negotiate its development with CSX. If we fail
to develop at least 500 miles of CSX rights of way in each year after the date
of the access agreement, or if at least
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75% of our development is not in contiguous segments of 200 miles each, we will
lose our exclusivity for all segments of right of way on which development is
not complete.
The CSX access agreement also provides that we will construct four conduits
for CSX between Boston and Framingham, Massachusetts and one conduit for CSX
wherever else we develop CSX rights of way. CSX may sell or use the Boston to
Framingham conduits for commercial purposes as soon as we complete construction
but may use each completed segment of the other CSX conduit only for CSX
internal communications until the earlier of five years after completion of
construction of that segment of the conduit, or ten years after the closing of
the reorganization.
The CSX lease agreement is for a term of 30 years and addresses the terms
of constructing and operating our telecommunications network on the CSX rights
of way. We must use CSX personnel to supervise our construction activities and
are responsible for all costs associated with using these personnel. We may
install an unlimited amount of fibers but we may not install more than eight
conduits (plus the conduits that we provide to CSX) without CSX's permission.
COLONIAL AGREEMENTS. The Colonial access agreement authorizes us to
develop our network along the entire route of Colonial's right of way up to a
specified number of miles. We have the exclusive right to develop these rights
of way for ten years following the date of the Colonial lease agreement. Any
segment of the Colonial right of way that we have not designated for development
within five years of the date of the lease agreement, or on which development is
not completed within seven years of the date of the lease agreement, reverts to
Colonial and we have no further right to develop those segments.
Concurrent with the closing of the reorganization, Colonial will pay us $4
million for our obligation to construct a single conduit for Colonial along
2,200 miles of Colonial's right of way. If the full amount of conduit is not
available within five years after the date of the lease agreement, we may
provide alternate telecommunications services or assets of equivalent value on
other portions of our network. Until the fifth anniversary of the date of the
lease, Colonial may use the Colonial conduit only for its internal
communications. After that date, Colonial may sell its conduit on any terms it
desires. However, subject to certain limitations, if Colonial desires to sell
any portion of its conduit, it must first give us an opportunity to purchase
that portion on the same terms. If we decide not to purchase that portion,
Colonial may proceed with the sale.
The Colonial lease agreement is for a term of 30 years, which we may renew
for one term of 10 years by paying a fair market value rental rate. Like the
other lease agreements, the Colonial lease agreement addresses construction and
operational issues affecting the Colonial right of way, and provides that we may
not install more than ten conduits (including the conduit we provide to
Colonial).
TERMS COMMON TO THE BNSF, CSX AND COLONIAL AGREEMENTS. In addition to the
terms described above, several additional provisions are common to our
agreements with each of BNSF, CSX and Colonial. Each may purchase
telecommunications capacity on our national telecommunications network at prices
at least as favorable as we are then offering to our other customers. In certain
defined circumstances which constitute a material breach of our obligations
under a lease agreement or an access agreement, the other party may terminate
that agreement.
Our rights under the access agreements and the lease agreements are subject
to the rights of others with existing contractual arrangements with BNSF, CSX
and Colonial. Other provisions in the lease agreements and the access agreements
describe our obligations to maintain certain levels of insurance and our
obligations to indemnify BNSF, CSX and Colonial for certain specified
liabilities. Our indemnification obligations are broad, and we could incur
significant liabilities if deploying our fiber optic network interferes in any
way with the rail or pipeline operations of BNSF, CSX or Colonial. We are
required to coordinate our construction and maintenance activities with our
partners,
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and we are in some cases responsible for the actions of their employees or
contractors, even where we do not control them.
While our partners own many of their rights of way in fee, in many other
cases they have only an easement or other limited property interest in their
right of way. In many cases, this easement or other limited property interest
may permit railroad or pipeline uses, but may not permit use of the right of way
for fiber optic development. Where that situation exists, we are responsible for
all costs required to obtain any additional property or legal rights necessary
to permit us to develop each right of way. These costs will vary significantly
and could be substantial. In addition, the process of obtaining these additional
rights is time consuming and could significantly delay completion of affected
segments of our network.
DISPOSITION OF EXISTING PATHNET STOCK OPTIONS AND WARRANTS
STOCK OPTIONS. On December 31, 1999, options to purchase an aggregate of
2,675,597 shares of common stock of Pathnet were outstanding with employees and
several consultants of Pathnet under Pathnet's 1995 Stock Option Plan and its
1997 Stock Incentive Plan. As discussed above in "MANAGEMENT -- 1995 Stock
Option Plan" and "MANAGEMENT -- 1997 Stock Incentive Plan," we will upon the
closing of our reorganization assume Pathnet's obligations under its 1995 Plan
and its 1997 Plan. We have entered into agreements with the two employees of
Pathnet who currently hold options issued under Pathnet's 1995 Plan to amend
both the 1995 Plan and their existing option awards under the 1995 Plan. The
amended plan and amended awards will provide that upon the exercise of their
options, we will issue to these two optionees shares of our common stock in lieu
of the shares of Pathnet common stock for which the awards were originally
issued.
Under the terms of Pathnet's 1997 Plan as we will assume it, our board of
directors and the committee appointed to administer the 1997 Plan will exercise
their authority to amend that Plan and the awards already issued under that Plan
at the closing of our reorganization. The amended plan and amended awards will
provide that upon the exercise of awards granted under Pathnet's 1997 Plan, we
will issue shares of our common stock in lieu of the shares of Pathnet common
stock for which the awards were originally issued. For a more detailed
description of our stock option plans, see "MANAGEMENT -- 1995 Stock Option
Plan" and "MANAGEMENT -- 1997 Stock Incentive Plan."
WARRANTS. In April 1998, Pathnet issued warrants for the purchase of
shares of its common stock under a warrant agreement (and a related warrant
registration rights agreement) together with the original private placement of
the Pathnet notes. The Pathnet warrants are not currently exercisable, but
would, unless amended, become exercisable upon the closing of our
reorganization. Concurrent with this offering and the consent solicitation, in a
separate private transaction, Pathnet plans to approach the qualified
institutional buyers permitted to hold the warrants to request that they agree
to amend the terms of the Pathnet warrants, the effect of which would be to
waive their right to exercise their warrants for shares of Pathnet common stock
upon the closing of the reorganization. In return, we propose to amend the
warrant agreement (and the related warrant registration rights agreement) to
require us, upon the closing of our reorganization, to convert their existing
warrants into warrants to purchase shares of our common stock on substantially
similar terms. The terms of the warrant agreement provide that Pathnet may amend
or waive any term of the warrants with the consent of the holders of at least a
majority of the outstanding warrants.
Neither the consent solicitation for the notes nor our reorganization are
conditioned upon the success of the warrant transaction. If the warrant consent
solicitation is not successful, the Pathnet warrants will remain outstanding,
and will be exercisable upon the closing of the reorganization. For additional
information concerning the Pathnet warrants, see "DESCRIPTION OF CAPITAL
STOCK -- Warrants."
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CONDITIONS TO CLOSING THE REORGANIZATION
The conditions listed below must be met before we, or the other parties to
the contribution agreements, are obligated to complete our reorganization:
- There must be no court order or injunction restraining the
reorganization;
- As required by the Hart-Scott-Rodino Antitrust Improvement Act of 1976,
as amended, and the FTC rules promulgated thereunder, BNSF, CSX, Colonial
and certain existing Pathnet stockholders must file premerger
Notification and Report Forms with the FTC and Department of Justice and
all waiting periods applicable to such filings must have either expired
or been terminated early so that all HSR requirements arising from our
transaction will have been satisfied;
- If required by applicable law, we must obtain consents from the FCC or
applicable state public utility commissions either to transfer or license
the FCC or state authorizations and licenses currently held by Pathnet
and its subsidiaries to us, or to continue to operate under the current
Pathnet FCC and state authorizations and licenses;
- All of the representations and warranties made by BNSF, CSX, Colonial and
the existing Pathnet stockholders in the contribution agreements must be
correct in all material respects on the date those agreements are signed
and on the date that the transactions described in the agreements are
completed before we are obligated to close;
- All of the representations and warranties made by Pathnet or by us in the
contribution agreements must be correct in all material respects on the
date those agreements were signed and on the date the transactions
described in the agreements are completed before the other parties are
obligated to close;
- We must have performed our obligations under the contribution agreements
in all material respects;
- On the date the transactions described in the contribution agreements
close, we must also close, as a single overall plan of contribution,
contribution agreements with (1) each of BNSF, CSX and Colonial; (2) the
holders of at least 90% of Pathnet's preferred stock; and (3) certain
common stockholders of Pathnet; so that immediately after closing, we
will own enough Pathnet stock to constitute control under a provision of
the tax code that will require us to hold 80% or more of Pathnet's
outstanding voting stock and 80% or more of any class of Pathnet
non-voting stock;
- All parties to the contribution agreements must deliver closing documents
listed in the contribution agreements, such as certified board
resolutions from us and from Pathnet authorizing the reorganization, and
certificates from us certifying that the representations and warranties
we make in the contribution agreements are correct; and
- Pathnet and we must have obtained the required consents from the holders
of the notes to waivers and amendments to the indenture governing the
notes, as more completely described in this prospectus.
In addition to the conditions outlined above, it is a general condition to
closing all of the contribution agreements that they not have been terminated.
If we have not closed our reorganization on or before the contribution agreement
termination date of March 31, 2000, provisions in the contribution agreements
will permit the parties to elect to terminate those agreements and refuse to
complete the reorganization. As a result, if we do not obtain the necessary
consents from the holders of the notes and complete the other steps necessary to
close our reorganization on or before the March 31 termination date, one or more
parties to the reorganization -- potentially including BNSF, CSX or
Colonial -- may elect to terminate their contribution agreements with us.
Moreover, if we have not completed our reorganization by the termination date,
and regardless of whether the participants in the transaction have elected not
to exercise their termination rights, applicable federal securities law may
prevent us from completing the reorganization as currently structured. After
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March 31, 2000, to avoid any suggestion that our issue of shares in the
reorganization should be integrated with the offering of our guarantees, we
might need to delay or restructure the reorganization. In either of those
circumstances, the current parties to our reorganization might not choose to
participate in our reorganization, and we might be unable to complete the
transaction as planned.
Although not a condition to the closing of our reorganization, we must
complete the buildout of our network from Chicago, Illinois to Aurora (a suburb
of Denver), Colorado in order to receive the second tranche of Colonial's
investment in our shares of series convertible preferred stock. This second
tranche consists of $25 million of the aggregate $68 million cash investment by
Colonial.
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THE PATHNET SENIOR NOTEHOLDER WAIVERS AND OTHER PROPOSED
INDENTURE AMENDMENTS
In April 1998, Pathnet issued $350 million in principal amount of 12 1/4%
senior notes due 2008. A separate agreement, called the indenture, contains a
series of covenants, restrictions, events of default, and other terms relating
to the notes. When we refer in this document to the "senior notes" or just the
"notes" and the indenture, we are referring to those notes and that agreement
unless we expressly state otherwise. The indenture was originally filed by
Pathnet in connection with the registration of the notes in 1998 and was an
exhibit to that registration statement, and we have included that original
indenture as an exhibit to the registration statement of which this prospectus
is a part.
Before our reorganization can occur, Pathnet needs to obtain a waiver of
certain provisions of the indenture, namely the "Change of Control" repurchase
obligation and the "Excess Proceeds Offer" obligation, each of which is more
fully described under the heading "Waiver of Pathnet Obligations" below. Under
section 1019 of the indenture, the holders of at least a majority in outstanding
principal amount of the notes can waive Pathnet's compliance with the Change of
Control Offer obligation and with the Excess Proceeds Offer obligation in
connection with the closing of our reorganization.
To facilitate the consents to the necessary waivers for our reorganization,
we are proposing to issue to the holders of the notes our senior irrevocable and
unconditional guarantees of the notes. The holders of the notes will have
recourse against us, as the ultimate parent entity of the underlying business,
in the form of our guarantees of Pathnet's payment on the notes (as described
more fully under the heading "DESCRIPTION OF THE GUARANTEES" below). You do not
need to provide your consent as a holder of notes to our issue of the
guarantees. However, we will not issue the guarantees unless we obtain the
requisite number of consents, as described below, and close on our
reorganization.
In addition to our agreement to issue the guarantees, upon the receipt of
the requisite consents, we propose to become a party to and be bound by a
supplemental indenture. The supplemental indenture will contain covenants that
correspond to the indenture covenants currently applicable to Pathnet. In return
for our agreement to become bound by the supplemental indenture covenants and to
guarantee Pathnet's obligations under the notes, Pathnet wishes to amend the
scope and application of several terms of the indenture. By proposing the
amendments, Pathnet intends solely to expand the corporate group covered by the
indenture to include Pathnet Telecom and its other Restricted Subsidiaries (as
defined in supplemental indenture), and thereby permit transactions between
Pathnet and Pathnet Telecom (and our other future subsidiaries) to the same
extent that the indenture currently permits such transactions between Pathnet
and its Restricted Subsidiaries (as defined in the indenture). Accordingly,
Pathnet proposes to amend the scope of the restrictions in the indenture that
previously applied to Pathnet and its Restricted Subsidiaries to apply more
broadly to include us and any other Restricted Subsidiaries (as defined in
supplemental indenture) that we may create in the future that would, if Pathnet
created them, fall within the indenture definition of Restricted Subsidiaries.
In order to effect the proposed amendments, it will also be necessary to make
amendments to a number of other defined terms of the indenture.
Pathnet may amend most terms of the indenture by obtaining the approval of
the holders of at least a majority in outstanding principal amount of the notes.
However, section 902(2) of the indenture provides that certain provisions of the
indenture (including the Change of Control Offer obligation and the Excess
Proceeds Offer obligation) cannot be amended without the consent of the holders
of all outstanding notes. Pathnet intends to preserve without modification those
covenant obligations that cannot be amended without the consent of the holders
of all outstanding notes. We describe the proposed amendments to the indenture
more fully in "Proposed Indenture Amendments" below.
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Pathnet has undertaken the consent solicitation process in order to obtain
the waivers and consent to the proposed amendments from the holders of at least
a majority in outstanding principal amount of the notes. The consent
solicitation process and the documentation produced in connection with it is
described in more detail in "The Consent Solicitation Process" below. The
consent solicitation documentation is included as an exhibit to the registration
statement of which this prospectus is a part.
WAIVER OF PATHNET OBLIGATIONS
Waiver of "Change of Control" Offer Obligation. Section 1010 of the
indenture requires Pathnet to repurchase the notes at a premium if a "Change of
Control" (as that term is defined in the indenture) occurs before the notes
mature in 2008. Our reorganization involves a proposed exchange of our shares
with all of Pathnet's current stockholders. Interposing Pathnet Telecom as a
holding company for Pathnet technically constitutes a "Change of Control" of
Pathnet under the applicable definition in the indenture. As a result, if this
change of control repurchase provision were to apply to our reorganization,
closing the reorganization would trigger Pathnet's obligation under the
indenture to offer to repurchase the notes at 101% of their face value, plus
accrued and unpaid interest.
Pathnet does not have the funds to finance the repurchase of the notes at
the price required by the section 1010 change of control provision of the
indenture. Moreover, the repurchase obligation would deprive us and Pathnet of
the funds necessary to contribute to the development of our telecommunications
business, and BNSF, CSX and Colonial would be unwilling to invest in us on the
terms provided in the contribution agreements if Pathnet remained subject to the
repurchase obligation. As a result, if Pathnet does not obtain from the
requisite holders of a majority in outstanding principal amount of the notes the
necessary waiver under section 1019 of the indenture of the Change of Control
Offer Obligation, our reorganization will not take place, and BNSF, CSX and
Colonial will not invest in us as contemplated in the contribution agreements.
Waiver of "Excess Proceeds Offer" Obligation. Section 1017 of the
indenture requires Pathnet to make an Excess Proceeds Offer (as that term is
defined in the indenture) in connection with certain sales and other conveyances
of assets and similar transactions. The Excess Proceeds Offer provision in
effect requires Pathnet to apply excess cash generated from the sale of Pathnet
assets outside the ordinary course of business -- to the extent not applied to
repayment of the notes or investment in other telecommunications assets -- to a
proportional repurchase of the notes.
Pathnet seeks a one-time waiver, pursuant to section 1019 of the indenture,
of the obligation to make an "Excess Proceeds Offer" to permit it to sell to us
in return for a promissory note in the principal amount of $70 million the
following assets:
- The fiber optic network assets already installed and constructed along
the Chicago to Aurora, Colorado, a suburb of Denver route including all
inventories of work-in-progress, raw materials, finished products,
supplies, spare parts and other materials relating to the route;
- The agreement between Pathnet and Worldwide Fiber dated March 31, 1999,
relating to the development of the fiber optic route between Chicago and
Aurora and the joint marketing agreement and other documents and
agreements relating to that agreement and the assets acquired in
accordance with that agreement;
- The Dark Fiber Network Agreement between Pathnet, Tri-State and others
dated August 5, 1999 relating to the development of the fiber optic
network between Albuquerque, New Mexico and Grand Junction, Colorado and
the related escrow arrangements and other documents and agreements with
Tri-State, including the associated right of way under the Fiber Optic
Cable Construction and Use Agreement with Public Service Company of New
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Mexico, dated June 9, 1999 and the Fiber Optic Cable License Agreement
with Public Service Company of New Mexico, dated December 23, 1999;
- The fiber optic development agreement, joint marketing agreement and
other related documents and agreements with CapRock Telecommunications
Corporation relating to the development of an approximately 340 route
mile fiber route between El Paso, Texas and Albuquerque, New Mexico;
- All other fiber network assets, properties and contracts held by Pathnet
including:
-- all rights in and to insurance and indemnity claims;
-- all prepaid expenses, advances and deposits; and
-- all rights, choices in actions and claims (known or unknown, matured
or unmatured, accrued or contingent) against third parties;
- A license to Pathnet's tradenames, trademarks and other intellectual
property;
- All goodwill and going concern rights associated with each of the items
listed above; and
- Fiber assets Pathnet will receive from its subsidiary, Pathnet Fiber
Optics, LLC under an assignment and acceptance agreement
For more detailed information on the transfer of assets described above,
you may refer to the Form of Assignment and Acceptance Agreement between Pathnet
and us and the Form of Assignment and Acceptance Agreement between Pathnet Fiber
Optics, LLC and Pathnet, both of which are filed as exhibits to the registration
statement of which this prospectus is a part.
These sales and other transfers by Pathnet to us would constitute an Asset
Sale and would trigger Pathnet's obligation to make and consummate an Excess
Proceeds Offer. The imposition of this obligation would deprive us and Pathnet
of funds necessary to contribute to the development of our telecommunications
business. Accordingly, Pathnet, BNSF, CSX and Colonial have conditioned their
obligation to consummate the reorganization upon Pathnet having obtained a
waiver of the Excess Proceeds Offer obligation from the requisite holders of the
notes. As a result, if Pathnet does not obtain from the holders of a majority in
outstanding principal amount of the notes the necessary waiver under section
1019 of the indenture of the Excess Proceeds Offer obligation, our
reorganization will not take place, and BNSF, CSX and Colonial will not invest
in us as contemplated in the contribution agreements.
Following the completion of our reorganization, we expect that Pathnet
will:
- Continue to own and operate its existing 6,300 route miles of wireless
network segments and the associated wireless partner contracts, together
all of Pathnet's existing central office collocations, the network
operations center, intellectual property previously developed by Pathnet
and the current Pathnet employees; and
- Provide management and general and administrative services, and related
network operations center functions and support, to Pathnet Telecom and
other companies within the Pathnet Telecom affiliated group, pursuant to
the terms of a management services agreement that we plan to execute with
Pathnet at the closing of our reorganization.
We expect that Pathnet Telecom, either directly or through other
subsidiaries of either Pathnet or Pathnet Telecom, will conduct the fiber and
other businesses made possible by the contribution of the railroad and pipeline
company rights of way.
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PROPOSED INDENTURE AMENDMENTS
The proposed indenture amendments are designed to impose upon us and our
Restricted Subsidiaries restrictions parallel to those that the indenture
currently imposes upon Pathnet and its Restricted Subsidiaries, and to permit
transactions between Pathnet and us (and our other Restricted Subsidiaries) to
the same extent that the indenture currently permits such transactions between
Pathnet and its Restricted Subsidiaries. The necessary amendments to the
indenture will be contained in the supplemental indenture, which will bind both
Pathnet and us. The major changes as proposed in the supplemental indenture are
described in the table below.
This table is a summary of complex provisions contained in the indenture
and the supplemental indenture, and it may omit detailed information important
to your understanding of the operation of relevant covenants of the indenture
and the supplemental indenture in specific circumstances important to you.
<TABLE>
<CAPTION>
CHANGES AS PROPOSED IN THE
PROVISION CURRENT INDENTURE SUPPLEMENTAL INDENTURE
--------- ----------------- --------------------------
<S> <C> <C>
EVENTS OF DEFAULT Payment defaults on the notes. No change for the notes; adds
failure of guarantees to be in
effect.
Covenant defaults on the indenture. Covenant defaults on the indenture,
including obligations imposed
directly on Pathnet Telecom.
Cross defaults to other indebtedness or Cross defaults to other
adverse judgments over $7.5 million indebtedness or adverse judgments
against Pathnet or any Significant over $7.5 million against any of
Subsidiary of Pathnet. Pathnet, Pathnet Telecom, or any
Significant Subsidiary of either
Pathnet or Pathnet Telecom.
Bankruptcy proceedings by or in respect Bankruptcy proceedings by or in
of Pathnet or any Significant respect of Pathnet, Pathnet
Subsidiary of Pathnet. Telecom, or any Significant
Subsidiary of Pathnet or Pathnet
Telecom.
Pledge Agreement ceases to be in full No change.
force and effect.
CONSOLIDATION, Restricts the ability of Pathnet and Expands the covenant so that it
MERGER, CONVEYANCE, its Restricted Subsidiaries to enter applies to Pathnet Telecom and its
TRANSFER OR LEASE into transactions involving a merger or consolidated group, rather than
disposition of all or substantially all solely to Pathnet and its
of Pathnet's and its Restricted consolidated group. Provisions
Subsidiaries' assets on a consolidated relating to the required
basis. substitution of successors and the
requirement to secure the notes in
certain circumstances apply to
Pathnet obligations under the notes
and as appropriate to Pathnet
Telecom obligations under the
guarantees.
</TABLE>
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<TABLE>
<CAPTION>
CHANGES AS PROPOSED IN THE
PROVISION CURRENT INDENTURE SUPPLEMENTAL INDENTURE
--------- ----------------- --------------------------
<S> <C> <C>
AMENDMENTS Certain types of amendments (and Provides that Pathnet Telecom and
TO THE supplemental indentures) may be adopted Pathnet can amend the indenture in
INDENTURE without consent of noteholders. the same circumstances, and with
the same levels of approvals, as
Pathnet is permitted to make such
amendments under the indenture.
Most types of amendments (and Applies to the supplemental
supplemental indentures) may be adopted indenture the same majority consent
with the consent of a majority of the threshold for those amendments that
noteholders. currently require such a majority
in the indenture.
AMENDMENTS TO THE Certain types of amendments (and Subjects Pathnet Telecom to the
INDENTURE (CONTINUED) Supplemental indentures) may not be unanimous consent threshold for the
adopted without the consent of all amendments requiring unanimous
noteholders. consent in the original indenture,
and adds to that list any amendment
that modifies the provisions of the
indenture relating to the
guarantees in a manner adverse to
the holders of the notes.
MAINTENANCE OF OFFICE Pathnet must maintain an office or Both Pathnet and Pathnet Telecom
agency in New York City for service of must maintain an office or agency
notices and demands. in New York City for the service of
notices and demands under the notes
and the guarantees, on the same
terms as that obligation currently
applies to Pathnet.
MONEY FOR NOTE PAYMENTS Regulates Pathnet's dealings with Regulates Pathnet Telecom's
paying agents and its ability to act as dealings with paying agents and
its own paying agent. Pathnet Telecom's ability to make
payments directly to the holders of
the guarantees in the same manner
as Pathnet's dealings are regulated
under the indenture.
CORPORATE EXISTENCE Pathnet and its subsidiaries must Expands the covenant so that it
maintain corporate existence. also applies to Pathnet Telecom and
its other subsidiaries.
PAYMENT OF TAXES AND Pathnet and its subsidiaries must pay Expands the covenant so that it
OTHER CLAIMS taxes and other claims. also applies to Pathnet Telecom and
its other subsidiaries.
</TABLE>
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<TABLE>
<CAPTION>
CHANGES AS PROPOSED IN THE
PROVISION CURRENT INDENTURE SUPPLEMENTAL INDENTURE
--------- ----------------- --------------------------
<S> <C> <C>
MAINTENANCE OF Pathnet and Restricted Subsidiaries Expands the covenant so that it
PROPERTIES must maintain material properties in also applies to Pathnet Telecom and
good condition and repair. its Restricted Subsidiaries.
INSURANCE Pathnet and Restricted Subsidiaries Expands the covenant so that it
must maintain customary insurance. also applies to Pathnet Telecom and
its Restricted Subsidiaries.
OFFICERS COMPLIANCE Required from Pathnet. Required from Pathnet and from
CERTIFICATE Pathnet Telecom.
FINANCIAL STATEMENTS Pathnet must file Exchange Act reports Pathnet Telecom must file Exchange
with the SEC (whether or not required Act reports (including consolidated
by law to do so) and must provide reports) with the SEC (whether or
trustee with copies. not required by law to do so) and
must provide trustee with copies.
To the extent permitted in the
future by applicable law, releases
Pathnet from separate SEC and
trustee periodic report filing
obligations.
CHANGE OF CONTROL Pathnet required to offer to repurchase No change to Pathnet's obligation.
REPURCHASE OBLIGATION the notes at a premium upon occurrence Expands the provision so that
of a Change of Control. Pathnet's repurchase obligation is
also triggered by a Change of
Control of Pathnet Telecom;
guarantees apply to this
obligation.
</TABLE>
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<TABLE>
<CAPTION>
CHANGES AS PROPOSED IN THE
PROVISION CURRENT INDENTURE SUPPLEMENTAL INDENTURE
--------- ----------------- --------------------------
<S> <C> <C>
LIMITATION ON Subject to a ratio test for Expands the existing covenant so
INDEBTEDNESS Consolidated Indebtedness to that both Pathnet and Pathnet
Consolidated Operating Cash Flow Test Telecom are subject to the same
for Pathnet and its Restricted limitations (including the
Subsidiaries, neither Pathnet nor its limitations on their respective
Restricted Subsidiaries can incur Restricted Subsidiaries), except
Indebtedness other than Permitted that:
Indebtedness. Permitted Indebtedness
includes Telecommunications (1) the definition of Permitted
Indebtedness of either Pathnet or any Indebtedness will continue to
Restricted Subsidiary; subordinated include Telecommunications
indebtedness of Pathnet to its Indebtedness, but will apply to
Restricted Subsidiaries; and any Pathnet Telecom's Restricted
indebtedness of a Restricted Subsidiary Subsidiaries as well as
to Pathnet or to any other Restricted Pathnet's, and will allow
Subsidiary. intercompany Indebtedness among
Pathnet Telecom, Pathnet, and
their respective Restricted
Subsidiaries subject to the
corresponding restrictions; and
(2) the Consolidated Indebtedness
to Consolidated Operating Cash
Flow Ratio used to determine
whether any of the covered
entities can incur additional
debt is calculated by reference
to Pathnet Telecom, Pathnet and
all Restricted Subsidiaries on
a consolidated basis.
RESTRICTED PAYMENTS Restricts Pathnet and its Restricted Changes the cash dividend
LIMITATION Subsidiaries from declaring cash declaration and capital stock
dividends on Pathnet capital stock, redemption restrictions to apply to
redeeming capital stock or subordinated Pathnet Telecom rather than to
debt of Pathnet, or making investments Pathnet.
(other than Permitted Investments), Imposes parallel restrictions on
unless Pathnet could, after such Pathnet Telecom's ability to make
payment, incur additional Indebtedness other Restricted Payments.
under the Permitted Indebtedness
covenant and the aggregate amount of
permitted Restricted Payments does not
exceed an amount determined as
described in the Restricted Payments
covenant.
</TABLE>
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<TABLE>
<CAPTION>
CHANGES AS PROPOSED IN THE
PROVISION CURRENT INDENTURE SUPPLEMENTAL INDENTURE
--------- ----------------- --------------------------
<S> <C> <C>
SALE OF CAPITAL STOCK OF Restricts the sale or issuance of Expands the covenant to apply to
RESTRICTED SUBSIDIARIES Capital Stock of Restricted capital stock of Pathnet and
Subsidiaries of Pathnet to third Restricted Subsidiaries of both
parties. Pathnet Telecom and Pathnet.
TRANSACTIONS WITH Restricts transactions by Pathnet and Imposes the same restriction on
AFFILIATES its Restricted Subsidiaries with Pathnet Telecom and its Restricted
Affiliates unless conducted on an Subsidiaries and expands the
arms'-length basis. definition of Affiliates to include
all Affiliates of Pathnet Telecom.
As provided in the current
indenture for transactions among
Pathnet and its own Restricted
Subsidiaries, the supplemental
indenture provides that
transactions among any of Pathnet
Telecom, Pathnet and any Restricted
Subsidiary are not restricted.
LIEN RESTRICTIONS Neither Pathnet nor any Restricted Expands the restriction to include
Subsidiary can permit any Lien to exist Pathnet Telecom and its Restricted
other than Permitted Liens, unless the Subsidiaries, and expands the
notes are equally and ratably secured. definition of Permitted Liens to
Permitted Liens include liens for include liens among Pathnet
Telecommunications Indebtedness and Telecom, Pathnet and their
liens among Pathnet and any Restricted respective Restricted Subsidiaries.
Subsidiary.
LIMITATIONS ON Prohibits Restricted Subsidiaries of Expands the restrictions to apply
GUARANTEES AND OTHER Pathnet from issuing or guaranteeing to Pathnet Telecom's Restricted
DEBT Debt Securities unless they Subsidiaries; exception for vendor
concurrently guarantee the notes; financings and other borrowings
specific exception excludes from the continues to apply.
definition of Debt Securities any
vendor equipment financing facilities
or similar financings and other
borrowings incurred in a manner not
customarily viewed as a securities
offering.
</TABLE>
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<TABLE>
<CAPTION>
CHANGES AS PROPOSED IN THE
PROVISION CURRENT INDENTURE SUPPLEMENTAL INDENTURE
--------- ----------------- --------------------------
<S> <C> <C>
LIMITATION ON ASSET Pathnet and its Restricted Subsidiaries Retains unmodified Pathnet's
SALES may not engage in an Asset Sale unless obligations in respect of Asset
the transaction is for fair market Sales. Imposes corresponding
value and meets other requirements as obligations on Pathnet Telecom and
to the nature of the consideration; if its Restricted Subsidiaries.
the amount of proceeds exceeds a
specified threshold, Pathnet is
required to commence an offer to
purchase notes up to such amount within
15 business days of the closing of the
Asset Sale.
PROHIBITION AGAINST Subject to exceptions, including, among Expands the existing covenant to
DIVIDEND RESTRICTIONS others, those for Secured Indebtedness apply to Pathnet and to Restricted
and Telecommunications Indebtedness, Subsidiaries of both Pathnet and
Pathnet cannot permit any Restricted Pathnet Telecom.
Subsidiary to accept a restriction on
its ability to pay dividends or make
other payments to Pathnet or any
Restricted Subsidiary of Pathnet to the
extent necessary to permit Pathnet to
make payment on the notes.
SECURITY Pathnet acquired Government Securities Pathnet will acquire additional
and pledged them to the Trustee as Government Securities and pledge
security for the benefit of the holders them to the trustee as security for
of the notes with respect to the the benefit of the holders of the
payment of the first four scheduled notes with respect to the October
interest payments on the notes (through 16, 2000 interest payment on the
the April 15, 2000 interest payment notes.
date).
</TABLE>
The following description provides a narrative summary of the material
amendments to the indenture that Pathnet proposes to make in the supplemental
indenture. Like the table above, this description does not restate the
supplemental indenture in its entirety and you should refer to the supplemental
indenture, which is filed as an exhibit to the registration statement of which
this prospectus is a part, for further information regarding the provisions
summarized here. Capitalized terms used in this description have the meaning
given to them in the indenture as amended by the supplemental indenture unless
we refer to the "original indenture," in which case terms are used as defined in
that version.
- CERTAIN DEFINITIONS IN THE INDENTURE. The definitions used in the
original indenture will be amended to the extent necessary to effect the
proposed amendments to the original indenture
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described below. Revised definitions that are used generally throughout
the supplemental indenture will be contained in section 102 of the
supplemental indenture.
As discussed above, the indenture (section 902(2)) provides that two of
Pathnet's obligations cannot be amended, changed or modified without the
consent of the holders of each outstanding note. These are Pathnet's
obligations to make and consummate (1) an Excess Proceeds Offer with
respect to any Asset Sale by Pathnet or any of its Restricted
Subsidiaries in accordance with section 1017 of the indenture; and (2) a
Change of Control Offer in the event of a Change of Control of Pathnet in
accordance with section 1010 of the indenture. The indenture also
provides that Pathnet cannot, without the consent of the holder of each
affected note, amend the definitions relating to these obligations in any
way that would amend, change or modify any of these obligations.
Accordingly, none of the amendments in the supplemental indenture in any
way amends, changes or modifies Pathnet's independent obligation to make
and consummate an Excess Proceeds Offer or a Change of Control Offer
under the indenture.
However, in order to effect the amendments necessary to impose
corresponding obligations on us, Pathnet must amend certain defined terms
that are otherwise used in section 1017 of the original indenture. For
ease of application, we have reproduced in the supplemental indenture as
a new section 1017(a) of the indenture the independent obligation on
Pathnet and its Restricted Subsidiaries pursuant to section 1017 of the
original indenture to make an Excess Proceeds Offer in respect of any
Asset Sale by those entities. We have also reproduced (in section 103 of
the supplemental indenture and without the inclusion of any references to
us) the applicable definitions from section 102 of the supplemental
indenture used in section 1017(a) of the supplemental indenture. These
"section 1017(a)-only" definitions represent definitions previously set
forth in section 101 of the indenture that have been modified solely to
conform to changes to other defined terms or provisions of the indenture
necessitated by the new corporate structure. Examples of these amendments
are the frequent replacement of the term "Restricted Subsidiary" (which
meant all restricted subsidiaries of Pathnet under section 101 of the
original indenture but now means all restricted subsidiaries of Pathnet
and us under section 102 of the supplemental indenture) with the new term
"Restricted Company Subsidiary," which means all restricted subsidiaries
of Pathnet. These changes preserve the meaning of the original provisions
of section 1017 of the indenture.
- MODIFICATION AND AMENDMENT. Section 901 of the indenture specifies the
amendments that Pathnet and the Trustee can make without the consent of
the holders of notes. Section 902 states that Pathnet and the Trustee
must have the unanimous consent of holders of the notes to make any of
the amendments specifically listed in that section, but that any other
amendment can be made with the consent of a majority of holders of the
notes. These sections are modified in the supplemental indenture so that
we can make amendments on the same terms as Pathnet, except that any
amendment to the guarantees adverse to the holders of the notes requires
unanimous consent of the holders.
The defined terms used in section 1010 of the original indenture are
either unamended in the supplemental indenture, or were already defined
within that section. Accordingly, Pathnet does not propose to reproduce
these terms in a separate section of the supplemental indenture.
Defined terms listed in section 101 of the indenture that do not need to
be amended for the purposes of the supplemental indenture, and are not
included in the revised definitions in section 102 or 103 of the
supplemental indenture, retain the meaning given to them in the
indenture.
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- EVENTS OF DEFAULT. Section 501 of the indenture currently contains the
definition of "Event of Default." The supplemental indenture deletes this
section in its entirety and inserts the same definitions of "Event of
Default" in the definition sections, except that:
- the same Events of Default that previously applied to Pathnet (and in
several cases to any of Pathnet's "Significant Subsidiaries") will also
be triggered by us (and in several cases by any of our Significant
Subsidiaries); and
- the supplemental indenture will include an additional Event of Default
for the guarantees ceasing to be in full force and effect before payment
in full of the notes.
- CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE. Article 8 of the
indenture currently restricts the ability of Pathnet and its Restricted
Subsidiaries to consolidate or merge with or into any other person or
entity or to sell, assign, convey, transfer, lease or otherwise dispose
of all or substantially all of the properties or assets of Pathnet or its
Restricted Subsidiaries. The supplemental indenture amends this article
so that the corresponding restrictions apply to us and our Restricted
Subsidiaries as well as Pathnet and its Restricted Subsidiaries, except
that:
- the exceptions for transactions with Restricted Subsidiaries will
include Pathnet and our Restricted Subsidiaries (as redefined in the
supplemental indenture to include any of our other direct or indirect
subsidiaries, which would if Pathnet incorporated them, fall within the
original indenture definition of Restricted Subsidiaries); and
- with respect to us, the provisions relating to substitution of
successors and the requirement to secure the notes in certain events
apply to our obligations under the guarantees.
In determining whether the merger, conveyance, transfer or lease satisfies
paragraph (3) of indenture section 801 (with respect to our ability to
incur additional Indebtedness), the test refers to our "Consolidated
Indebtedness to Consolidated Operating Cash Flow Ratio" calculated by
reference to Pathnet, Pathnet Telecom and all of the Restricted
Subsidiaries on a consolidated basis.
- MAINTENANCE OF OFFICE OR AGENCY. Section 1002 of the indenture currently
requires Pathnet to maintain an office or agency in the City of New York
where notes can be presented or surrendered for payment, or surrendered
for registration of transfer or exchange and where notices and demands to
or upon Pathnet in respect of the notes and the indenture can be served.
The supplemental indenture provides that we are also required to maintain
an office for the service of notice or demands on us with respect to the
guarantees on the terms set out in that section.
- MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST. Section 1003 of the
indenture currently places certain obligations on Pathnet with respect to
its dealings with Paying Agents and regulates the terms on which Pathnet
is able to make any payments on the notes directly to any holder of the
Notes. The supplemental indenture provides that our dealings with Paying
Agents, and our ability to make payments directly to the holders of notes
pursuant to the guarantees, are regulated in the same manner.
- AFFIRMATIVE COVENANTS. These provisions of the indenture currently
contain affirmative covenants of Pathnet (and in certain cases its
subsidiaries or Restricted Subsidiaries):
- Section 1004 (corporate existence);
- Section 1005 (payment of taxes and other claims);
- Section 1006 (maintenance of properties);
- Section 1007 (insurance);
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- Section 1008 (statement by officers as to default); and
- Section 1009 (provision of financial statements).
The supplemental indenture amends these covenants so that each affirmative
covenant also applies to us (and, where the corresponding covenant from
the indenture is so applicable, to any other subsidiaries or Restricted
Subsidiaries that we may in the future incorporate), except that:
- the separate SEC filing requirements and the obligation to prepare and
deliver financial statements under section 1009(a) of the original
indenture will not apply to Pathnet if Pathnet is able to rely on any
law, rule, regulation or SEC approval, whether in force now or
subsequently introduced, to limit the scope of or cease compliance with
these obligations and we are otherwise in compliance with our SEC filing
obligations; and
- the requirements to file documents with the trustee under section
1009(b) will apply only to us and not to Pathnet.
- CHANGE OF CONTROL. Section 1010 of the indenture currently gives holders
of the notes a right to require Pathnet to repurchase notes upon the
occurrence of a Change of Control. The supplemental indenture expands the
definition of Change of Control so that the repurchase right is also
triggered by a change of control of Pathnet Telecom. The proposed
amendment does not change, amend or modify the existing obligation of
Pathnet to make and consummate a Change of Control Offer in the event of
a Change of Control of Pathnet in accordance with section 1010.
- LIMITATION ON INDEBTEDNESS. Section 1011 of the indenture currently
limits the ability of Pathnet and its Restricted Subsidiaries to incur
additional Indebtedness, other than Permitted Indebtedness or
Indebtedness that would not result in Pathnet's Consolidated Indebtedness
to Consolidated Operating Cash Flow Ratio being outside the parameters
described in that section. The supplemental indenture amends this section
so that:
- the Consolidated Indebtedness to Consolidated Operating Cash Flow Ratio
that we must use to determine whether any indebtedness that either we or
Pathnet (or any of our respective Restricted Subsidiaries) wish to incur
is allowed -- is calculated by reference to Pathnet Telecom, Pathnet and
the Restricted Subsidiaries on a consolidated basis; and
- we are subject to the same limitations on our ability (and the ability
of any of our other Restricted Subsidiaries) to incur additional
indebtedness as Pathnet and its Restricted Subsidiaries.
- LIMITATION ON RESTRICTED PAYMENTS. Section 1012 of the indenture
currently restricts the ability of Pathnet and its Restricted
Subsidiaries to (1) declare or pay cash dividends or other distributions;
(2) purchase, redeem or otherwise acquire or retire for value any shares
of Capital Stock of Pathnet or certain of its Affiliates; (3) make any
principal payment on, repurchase, redeem, defease or otherwise acquire or
retire for value indebtedness of Pathnet that is subordinated in right of
payment to the notes; or (4) make any investment (other than a Permitted
Investment) in any Person. The supplemental indenture expands the scope
of this section so that;
- the restriction on cash dividends applies to us, rather than to Pathnet;
- the purchase and redemption restrictions apply to our Capital Stock and
the Capital Stock of our Affiliates (other than our Affiliates that are,
directly or indirectly, wholly-owned by us);
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- the restrictions on principal payments or retirement of Indebtedness
refers to any of our Indebtedness or Indebtedness of Pathnet that is so
expressly subordinated in right of payment to the guarantees or the
notes;
- the restrictions on investment apply to Investments by us, by Pathnet
and by any of our Restricted Subsidiaries, except that the definition of
Permitted Investments will be correspondingly expanded to include
Investments in all Restricted Subsidiaries (and not just those of our
Restricted Subsidiaries that are also Pathnet Restricted Subsidiaries);
and
- in determining whether a Restricted Payment satisfies the test with
respect to our ability to incur additional Indebtedness, reference is
made to the Consolidated Indebtedness to Consolidated Operating Cash
Flow Ratio calculated by reference to Pathnet, Pathnet Telecom and all
Restricted Subsidiaries on a consolidated basis.
- LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. Section 1013 of the indenture currently restricts the
ability of Pathnet and its Restricted Subsidiaries to issue or sell any
capital stock of a Restricted Subsidiary (other than to Pathnet or to a
Restricted Subsidiary). The supplemental indenture expands the scope of
this section so that the same restriction also applies to us and the
issuance or sale of the capital stock of Pathnet and our Restricted
Subsidiaries.
- LIMITATION ON TRANSACTIONS WITH AFFILIATES. Section 1014 of the
indenture currently imposes restrictions on the ability of Pathnet and
its Restricted Subsidiaries to engage in any transaction or series of
related transactions with or for the benefit of Affiliates, unless
conducted on an arms'-length basis with appropriate certifications to the
holders of the notes of the arms'-length nature of such transactions.
This provision also permits transactions between Pathnet and its
Restricted Subsidiaries. This section is amended by the supplemental
indenture so that our ability and the ability of our Restricted
Subsidiaries to engage in transactions with Affiliates is restricted in
the same manner, but so that transactions between us and Pathnet or any
of our Restricted Subsidiaries are not subject to the restrictions under
this section. We have also included (as the indenture provides in respect
of the existing Pathnet Stockholders Agreement) that Pathnet Telecom will
be permitted to perform its obligations under the Pathnet Telecom
stockholders agreement.
- LIMITATION ON LIENS. Section 1015 of the indenture currently limits the
ability of Pathnet or any Restricted Subsidiary to create, incur, assume
or suffer to exist any Lien (other than Permitted Liens) on the property
or assets of Pathnet or any Restricted Subsidiary. The supplemental
indenture amends this section so that our ability and the ability of our
Restricted Subsidiaries to create, incur, assume or suffer to exist any
Lien (other than Permitted Liens) on our respective property or assets is
also restricted in the same manner. The definition of the term "Permitted
Liens" is correspondingly expanded to cover liens and indebtedness within
the Pathnet Telecom "Restricted Entity" group, which will include
Pathnet, Pathnet Telecom, and all their respective Restricted
Subsidiaries, to the extent previously permitted as between Pathnet and
its Restricted Subsidiaries.
- LIMITATION ON ISSUANCE OF CERTAIN GUARANTEES AND DEBT SECURITIES. Section
1016 of the indenture currently limits the ability of Restricted
Subsidiaries of Pathnet to guarantee, assume or in any other manner
become liable for any Debt Securities or to issue any Debt Securities
unless, in either such case, the Restricted Subsidiary simultaneously
executes and delivers a guarantee of payment for the notes. The scope of
this section is expanded so that our Restricted Subsidiaries are subject
to the same limitations. The amendment does not provide for us to be
subject to such limitations as we are already secondarily liable for the
notes under the guarantees.
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- LIMITATIONS ON ASSET SALES. Section 1017 of the indenture currently
restricts the ability of Pathnet and its Restricted Subsidiaries to
engage in Asset Sales. The supplemental indenture expands this section by
adding a new paragraph that imposes equivalent restrictions on Asset
Sales by us and our Restricted Subsidiaries, except that in the new
paragraph, for the purpose of determining whether any transfer of
property or assets by Pathnet or any Restricted Subsidiary of Pathnet
falls within the exemptions in clause (A) or clause (G) of the definition
of "Asset Sale," the Consolidated Indebtedness to Consolidated Operating
Cash Flow Ratio is calculated by reference to Pathnet, Pathnet Telecom,
and all Restricted Subsidiaries on a consolidated basis. Asset Sales
between Pathnet and Pathnet Telecom will continue to be subject to the
limitations under this section, and the proposed amendment will not
change, amend or modify Pathnet's existing obligation to make and
consummate an Excess Proceeds Offer in connection with any Asset Sale in
accordance with section 1017(a) of the indenture. In particular, for the
purpose of determining whether any transfer of property or assets by
Pathnet or any Restricted Subsidiary of Pathnet falls within the
exemptions in clause (A) or clause (G) of the definition of "Asset Sale,"
with respect to section 1017(a), the Consolidated Indebtedness to
Consolidated Operating Cash Flow Ratio is calculated by reference to
Pathnet and its Restricted Subsidiaries alone.
- LIMITATIONS ON DIVIDEND RESTRICTIONS. Section 1018 of the indenture
currently limits the ability of Pathnet and its Restricted Subsidiaries
to create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of the Restricted Subsidiaries
to: (1) pay dividends or other distributions; (2) pay Indebtedness owed
to Pathnet or any other Restricted Subsidiary; (3) make Investments in
Pathnet or any other Restricted Subsidiary, (4) transfer any of their
assets or property to Pathnet or any other Restricted Subsidiary; or (5)
guarantee any Indebtedness of Pathnet or any other Restricted Subsidiary.
This Section is expanded in the supplemental indenture so that these
restrictions apply more broadly to Pathnet and all Restricted
Subsidiaries.
- SECURITY. Article 12 of the indenture currently requires Pathnet to
acquire Government Securities and pledge them to the trustee as security
for the benefit of the holders of the notes with respect to the payment
of the first four scheduled interest payments on the notes (through the
April 15, 2000 interest payment date). This provision is expanded in the
supplemental indenture to provide for a similar escrow obligation with
respect to the October 16, 2000 interest payment on the notes.
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DESCRIPTION OF THE GUARANTEES
The following description is a summary of the material provisions of the
guarantees. It does not restate the terms of the guarantees in their entirety
and is subject to, and qualified in its entirety by reference to, the provisions
of the guarantees. We urge you to read the Form of Guarantee, which is filed as
an exhibit to the registration statement of which this prospectus is a part.
Capitalized terms used in this section have the meanings given to them in the
indenture and the notes.
- GUARANTEE OF THE NOTES. We will unconditionally guarantee to the holder
of any outstanding note(s) all obligations, covenants, liabilities,
undertakings and agreements of any kind of Pathnet contained in the
indenture, including:
(1) the prompt payment in full, in United States currency, when due, of
the principal and of the interest on the notes and all other amounts
that may be owing from Pathnet to the holders of the notes under the
indenture and the notes; and
(2) the prompt performance and observance by Pathnet of all covenants,
agreements and conditions to be performed and observed by Pathnet
under the indenture.
The guarantees will be absolute, unconditional and continuing guarantees of
the obligations of Pathnet under the indenture, including its obligations to
make interest and principal payments. If Pathnet does not comply with its
obligations under the indenture, the holders may proceed directly against us
without being required to seek payment or performance from Pathnet.
- DURATION OF THE GUARANTEES. The guarantees will continue in effect with
respect to any note until the holder of that note has received payment in
full of the Redemption Price with respect to that note, when the
guarantees terminate. Until that time, the holder of any note can enforce
the guarantees as many times as necessary. If we make a payment to any
holder of notes under the guarantees, as a result of Pathnet's
non-compliance with any provision of the indenture, and that payment is
or can be avoided, invalidated, recaptured or set-aside for any reason,
then the guarantees will be reinstated with respect to Pathnet's
compliance with that provision.
- NATURE OF OUR OBLIGATIONS UNDER THE GUARANTEES. Our obligation and
liability under the guarantees is absolute and unconditional. If any
holder of notes makes a claim under the guarantees we will not be
entitled to make any counterclaim, set-off, deduction or raise any
defense based on any claim that we may have against Pathnet or any other
person. We will remain liable even if there is an intervening event,
circumstance or condition that might ordinarily give us a defense,
discharge our liability under the guarantees or limit the extent of any
claim made against us.
- AMENDMENT. We will not be able to amend, modify, waive, discharge or
terminate the guarantees in any way that is adverse to the holders of the
notes without the consent of the holders of all of the notes outstanding
at the time.
- TRANSFERABILITY. The guarantees are intended solely for the benefit of
the holders of the notes. The guarantees will not be transferable
separately from the notes.
- GOVERNING LAW. The guarantees will be governed by the laws of the State
of New York.
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DESCRIPTION OF THE CONSENT SOLICITATION PROCESS
PRINCIPAL TERMS OF THE SOLICITATION
On the terms and subject to the conditions set forth in this prospectus and
in the Consent and Letter of Transmittal, Pathnet is soliciting consents in
connection with our reorganization. Pathnet seeks consents from those persons
who are holders of outstanding notes on the effective date of the registration
statement of which this prospectus is a part (referred to in this section as the
"record date") to each of the following:
- The waiver of Pathnet's compliance with the Change of Control Offer
obligation (as described above);
- The waiver of Pathnet's compliance with the Excess Proceeds Offer
obligation (as described above); and
- The proposed amendments to the indenture (as described above under the
heading "THE PATHNET SENIOR NOTEHOLDER WAIVERS AND OTHER PROPOSED
INDENTURE AMENDMENTS").
Pathnet will make consent payments to the holders of notes on the record
date (referred to in this section as the "record holders") in the amount of
$25.00 in cash for each $1,000 in principal amount of notes for which a validly
delivered and unrevoked consent has been received by the Depositary on or prior
to 5:00 p.m., New York City time, on March ,2000, unless (1) Pathnet extends
the solicitation (referred to in this section as the "expiration date"), or (2)
the solicitation is unsuccessful. If Pathnet extends the solicitation, the term
"expiration date" will mean the latest date and time to which the exchange offer
is extended. In addition, Pathnet agrees to purchase and pledge, for the benefit
of the holders of the notes, additional United States Treasury securities
sufficient to cover the October 16, 2000 interest payment on the notes
conditioned upon Pathnet's receipt of the requisite consents.
CERTAIN CONDITIONS TO THE SOLICITATION
Pathnet will not be required to accept the delivery of consents or make any
consent payments, and we will not be required to deliver the guarantees, if:
- Pathnet and the trustee have not received validly delivered and unrevoked
consents from the holders as at the record date of a majority in
aggregate principal amount of the notes outstanding on that date;
- Any of the conditions to closing our reorganization (as listed under the
heading "DESCRIPTION OF OUR REORGANIZATION -- Conditions to Closing the
Reorganization" above) has not been satisfied;
- The supplemental indenture providing for the proposed amendments has not
been executed by the trustee;
- The trustee objects in any respect to or takes any action that could, in
our judgment, adversely affect the consummation of the solicitation or
Pathnet's or our ability to effect any of the proposed amendments, or
takes any action that challenges the validity or effectiveness of the
procedures used by Pathnet and us in soliciting the consents to the
waivers described above and to the proposed amendments or in the making
of the solicitations or payment for any of the consents; and
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- Any order, statute, rule, regulation, executive order, stay, decree,
judgment or injunction has been proposed, enacted, entered, issued,
promulgated, enforced or deemed applicable by any court or governmental
regulatory or administrative agency or instrumentality that:
- in our judgment might prohibit, prevent, restrict or delay
consummation of the solicitation or any part of our reorganization;
or
- is, or is reasonably likely to be, materially adverse to our
business, operations, properties, condition (financial or
otherwise), assets, liabilities or prospects.
PROCEDURE FOR DELIVERING CONSENTS
DELIVERY OF CONSENTS. To accept your consent in the solicitation, the
depositary must receive it before the expiration date at the address given in
the Consent and Letter of Transmittal. Except as otherwise provided below, the
delivery will be deemed made only when actually received or confirmed by the
depositary. You should send your consent only to the depositary, not to Pathnet,
Pathnet Telecom, the trustee, the information agent or the solicitation agent.
Pathnet intends to cause the execution of a supplemental indenture
providing for the proposed amendments immediately prior to our reorganization
if, as of the expiration date, it has obtained the consents of at least a
majority in aggregate principal amount of the holders of outstanding notes to
the proposed amendments. When executed, the supplemental indenture will be
binding upon you as a holder of notes as at the record date, whether or not you
have given a consent with respect to the proposed amendments.
REVOCATION OF CONSENT. All properly completed and executed consents (1)
waiving Pathnet's compliance with the Change of Control Offer obligation, (2)
waiving Pathnet's compliance with the Excess Proceeds Offer obligation, and (3)
consenting to the proposed amendments that are received by the depositary will
be counted as consents with respect to the waiver of the Change of Control Offer
obligation, the waiver of the Excess Proceeds Offer obligation and the proposed
amendments, unless the depositary receives, prior to the consent date, a written
notice of revocation. You may revoke your consent by delivering a written notice
of revocation in accordance with the procedures described in the consent form.
To be effective, a notice of revocation of consent must (1) contain the name of
the person who delivered the consent and the description of the notes to which
it relates, the certificate number or numbers of such notes and the aggregate
principal amount represented by such notes, (2) be signed by the record holder
thereof in the same manner as the original signature on the consent or be
accompanied by evidence, satisfactory to Pathnet, Pathnet Telecom, the trustee
and the depositary that the holder of the notes revoking the consent has
succeeded to the beneficial ownership of the notes, and (3) be received prior to
the expiration date by the depositary at the address given on the front page of
the Consent and Letter of Transmittal. A purported notice of revocation that
lacks any of the required information or is dispatched to any other address will
not be effective to revoke a consent previously given.
RECORD HOLDERS ENTITLED TO CONSENT. Only a record holder (or his or her
duly authorized proxy) or a beneficial owner who has complied with the
procedures set out in this section may deliver a consent. If you beneficially
own notes that are registered in the name of a broker, dealer, commercial bank,
trust company or other nominee and you wish to deliver a consent, you should
contact the record holder promptly and instruct the record holder to execute and
deliver the consent on your behalf.
The Consent and Letter of Transmittal (available from the solicitation
agent and the information agent identified below) contains additional details
concerning signatures, payment, delivery instructions and tax information
necessary to complete the consent.
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IRREGULARITIES. All questions as to the form of all documents and the
validity (including time of receipt) of deliveries and revocations of consents
will be determined by Pathnet, in its sole discretion, which determination will
be final and binding. Alternative, conditional or contingent consents will not
be considered valid. Pathnet reserves the absolute right to reject any or all
consents that are not in proper form or the acceptance of which would, in
Pathnet's opinion, be unlawful. Pathnet also reserves the right to waive any
defects, irregularities or conditions of delivery as to particular consents.
Pathnet's interpretation of the terms and conditions of the solicitation
(including the instructions in the consent) will be final and binding. Any
defect or irregularity in connection with deliveries of consents must be cured
within such time as Pathnet determines, unless waived by Pathnet. Deliveries of
consents will not be deemed to have been made until all defects and
irregularities have been waived by Pathnet or cured. None of Pathnet, the
trustee, the depositary, the information agent, the solicitation agent or any
other person will be under any duty to give notice of any defects or
irregularities in deliveries of consents, or will incur any liability to record
holders for failure to give any such notice.
WAIVER OF CONDITIONS. Pathnet has expressly reserved the absolute right,
in its sole discretion, to amend or waive any of the conditions to the
solicitation in the case of any consents delivered, in whole or in part, at any
time and from time to time.
SOLICITATION AGENTS
Pathnet has retained Lazard Freres & Co. LLC to act as solicitation agent
in connection with the solicitation. In its capacity as solicitation agent,
Lazard Freres & Co. LLC may contact the holders of outstanding notes regarding
the solicitation and may request brokers, dealers and other nominees to forward
this prospectus and related materials to beneficial owners of notes.
Pathnet has agreed to pay Lazard Freres & Co. LLC a fee for their services
as solicitation agent in connection with the solicitation equal to 0.25 percent
of the principal amount of each note for which consent is given.
DEPOSITARY AND INFORMATION AGENT
The Bank of New York has been appointed depositary for the solicitation.
All deliveries and correspondence sent to the depositary should be directed to
the address set forth on the back cover of the Statement. Requests for
additional copies of the Statement and the Consent and Letter of Transmittal
should be directed to MacKenzie Partners, Inc., as information agent, at the
address set forth on the Letter of Consent and Transmittal. Pathnet has agreed
to pay the depositary and the information agent reasonable and customary fees
for their services and to reimburse the depositary and the information agent for
their reasonable and out-of-pocket expenses in connection therewith. These fees,
together with the expenses of counsel to the bondholders, counsel to the
solicitation agent and fees of counsel, and accountants to Pathnet and Pathnet
Telecom, are in addition to the consent fee payable to the holders of the notes
consenting to the transaction.
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DESCRIPTION OF THE NOTES AND THE INDENTURE
Terms that are used in this section but not previously defined are defined
under the caption "-- certain definitions" below.
Pathnet issued $350 million in aggregate principal amount of 12 1/4% senior
notes due 2008 under an indenture dated April 8, 1998 between Pathnet and The
Bank of New York, as trustee. The indenture is subject to and governed by the
Trust Indenture Act.
The description below is a summary of the material terms of the current
indenture and the notes. The description does not restate the indenture or the
notes in their entirety and you should refer to the indenture and the notes
(including the definitions of certain terms contained in the indenture and those
terms made a part of the indenture by reference to the Trust Indenture Act as in
effect on the date of the indenture), for additional information about terms of
the indenture and the notes. Please note that this summary excludes certain
terms of the notes and the indenture which have been summarized in Pathnet's
Registration Statement No. 333-53467 filed with the SEC on May 22, 1998. We urge
you to read the indenture and a sample note, which have been filed as an exhibit
to the Registration Statement No. 333-52247, filed with the SEC on May 8, 1998.
For your convenience should you wish to read more detail about any particular
provision of the indenture or the notes, parenthetical section references are
provided in this section that refer to the section or sections of the indenture
summarized.
Upon issuance of the guarantees, the indenture as described below will be
modified by the supplemental indenture. See "THE PATHNET SENIOR NOTEHOLDER
WAIVERS AND OTHER PROPOSED INDENTURE AMENDMENTS -- Proposed Indenture
Amendments" for a description of the modifications.
GENERAL
The notes will mature on April 15, 2008, and are limited to an aggregate
principal amount of $350 million. The notes are issued in fully registered form,
without coupons, in denominations of $1,000 and integral multiples of $1,000.
Payments in respect of the notes are made, and the notes are exchangeable and
transferable, at Pathnet's office or agency in the City of New York maintained
for such purposes. That office or agency is currently the office of The Bank of
New York located at 101 Barclay Street, Floor 7 East, New York, New York 10286.
No service charge is made for any registration of transfer, exchange or
redemption of notes, except in certain circumstances for any tax or other
governmental charge that may be imposed. (Sections 202, 203, 301 and 305)
INTEREST
The notes bear interest at the rate of 12 1/4% per annum, payable in
arrears on April 15 and October 15 of each year to holders of record of the
notes at the close of business on the April 1 or October 1 immediately preceding
such interest payment date. Interest is calculated on the basis of a 360-day
year comprised of twelve 30-day months. If Pathnet defaults on any payment of
principal, whether at Stated Maturity, upon redemption or otherwise, interest
will continue to accrue and, to the extent permitted by law, interest will
accrue on overdue installments of interest at the rate of interest borne by the
notes. (Sections 202, 301, 307 and 310)
RANKING
The notes are general unsecured obligations of Pathnet, except for the
pledge by Pathnet of the Pledged Securities under the pledge agreement. The
indebtedness evidenced by the notes ranks equally in right of payment with all
other existing and future unsubordinated senior obligations of Pathnet and
senior in right of payment to all existing and future obligations of Pathnet
expressly
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subordinated in right of payment to the notes. The notes, however, are
effectively subordinated to secured senior obligations of Pathnet with respect
to the assets of Pathnet securing such obligations, including Telecommunications
Indebtedness, which is or may be secured by substantially all of the assets of
Pathnet.
As of December 31, 1999 Pathnet had approximately $0.3 million in
outstanding Indebtedness other than the notes and approximately $33.3 million of
other liabilities. Subject to certain limitations, Pathnet and its Restricted
Subsidiaries may incur additional Indebtedness in the future, including secured
Indebtedness.
SINKING FUND
The notes are not entitled to the benefit of any sinking fund.
REDEMPTION
Pathnet may not redeem the notes before April 15, 2003, except in the
limited circumstances described in the next paragraph. Beginning April 15, 2003,
the notes are redeemable at the option of Pathnet, in whole or in part, on not
less than 30 nor more than 60 days prior notice. The redemption prices for the
notes are listed below and are expressed as percentages of principal amount, if
redeemed during the 12-month period beginning on April 15 of the years listed
below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2003........................................................ 106.125%
2004........................................................ 104.083
2005........................................................ 102.042
2006 and thereafter......................................... 100.000
</TABLE>
Accrued and unpaid interest, if any, to the redemption date must also be
paid. (Sections 203, 1101 and 1102)
In addition, at any time on or before April 15, 2001, Pathnet may redeem up
to 35% of the aggregate principal amount of the notes originally issued with the
net cash proceeds of one or more Public Equity Offerings at a redemption price
equal to 112.25% of the principal amount of the notes, plus any accrued and
unpaid interest to the redemption date. Redemption must occur within 60 days of
the closing date of the Public Equity Offering and, immediately after the
redemption, at least 65% of the principal amount of the notes originally issued
must remain outstanding. (Sections 203 and 1102)
If less than all the notes are redeemed at any time, the trustee will
select, not more than 60 days prior to the redemption date, by such method as it
deems fair and appropriate, the particular notes to be redeemed. No 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 whose notes are to be redeemed at its registered address. On and after the
date of redemption, interest will cease to accrue on notes or the portions of
the notes that are called for redemption and accepted for payment. (Sections
1104, 1105 and 1107)
SECURITY
At the time of issuance of the notes, Pathnet purchased and pledged to the
trustee, in accordance with the terms of the indenture and the Pledge Agreement,
dated April 8, 1998, certain United States Treasury securities as security for
the benefit of the holders of the notes with respect to the payment of the first
four scheduled interest payments on the notes. In addition, in connection
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with our reorganization, Pathnet has offered to purchase and pledge to the
trustee, in accordance with the terms of the supplemental indenture and of an
amended and restated pledge agreement to be executed and delivered upon
consummation of that transaction, approximately $20.9 million of additional
United States Treasury securities as security for the benefit of the holders of
the notes with respect to the payment of the October 16, 2000 interest payment
on the notes. These securities are held by the trustee in an escrow account.
Immediately before any date on which an interest payment to which any such
securities relate is to be made, Pathnet may either (1) deposit with the
trustee, from funds otherwise available to Pathnet, cash sufficient to pay the
interest scheduled to be paid on such date, or (2) direct the trustee to release
from the escrow account proceeds sufficient to pay such scheduled interest
amount. If Pathnet exercises the former option, it may direct the trustee to
release to Pathnet from the escrow account a sum of money or United States
Treasury securities equal to the amount of the deposit that it makes. Pathnet
has exercised that option in respect of each of the payments that have been made
to date and the value of the securities in the escrow account has been reduced
accordingly. Any failure by Pathnet to pay interest on the notes in a timely
manner on the fourth scheduled interest payment date, namely April 15, 2000, or
the fifth scheduled interest payment date, namely October 16, 2000, will
constitute an immediate event of default under the indenture, with no grace or
cure period.
Interest earned on the pledged securities is added to the escrow account.
In the event that, in the opinion of a nationally recognized firm of independent
public accountants selected by Pathnet, the funds or pledged securities held in
the escrow account exceed the sum necessary to provide for payment in full of
the remaining interest payment the trustee is permitted to release to Pathnet,
at Pathnet's request, any such excess amount.
The notes are secured by a first priority security interest in the pledged
securities and in the escrow account and, accordingly, the pledged securities
and the escrow account also secure repayment of the principal amount of the
notes.
Under the pledge agreement, as amended and restated, after Pathnet has made
the fourth scheduled interest payment and the October 16, 2000 interest payment
following consummation of our reorganization in a timely manner, all of the
remaining pledged securities, if any, will be released from the escrow account
and thereafter the notes will be unsecured.
CERTAIN COVENANTS
The indenture contains, among others, the following covenants:
LIMITATION ON INDEBTEDNESS. In general, Pathnet will not, and will not
permit any of its Restricted Subsidiaries to, incur any Indebtedness including
any Acquired Indebtedness. However, Pathnet and its Restricted Subsidiaries can
incur Permitted Indebtedness, as defined below. In addition, Pathnet can incur
additional Indebtedness if, after giving effect to such Indebtedness, 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 after that date.
For the purposes of determining compliance with this covenant, if an item
of Indebtedness or any portion of such item meets the criteria of more than one
of the types of Indebtedness that Pathnet and the Restricted Subsidiaries are
permitted to incur, Pathnet will have the right, in its sole discretion, to
classify such item of Indebtedness or any portion of such item at the time of
its incurrence and will only be required to include the amount and type of such
Indebtedness or portion of such Indebtedness under the clause permitting the
Indebtedness classified in that manner. (Section 1011)
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LIMITATION ON RESTRICTED PAYMENTS. (a) In general, Pathnet will not, and
will not permit any of its Restricted Subsidiaries to take, directly or
indirectly, any of the following actions:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Capital Stock of Pathnet (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);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of Capital Stock of Pathnet 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;
(iii) 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 Pathnet
that is expressly subordinated in right of payment to the notes; or
(iv) make any Investment (other than any Permitted Investment) in any
Person.
The payments or other actions described in (but not excluded from) the list
above are collectively referred to as "Restricted Payments." However, Pathnet
and its Restricted Subsidiaries will be able to make Restricted Payments if,
immediately after giving effect to the proposed Restricted Payment:
(1) no Default or Event of Default will have occurred and be
continuing;
(2) Pathnet could incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the "Limitation on
Indebtedness" covenant; and
(3) the aggregate amount of all Restricted Payments declared or made
after the date of the indenture shall not exceed the sum of:
(A) (i) 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% of such negative amount, in each case on
a cumulative basis for the period beginning on the first day of
Pathnet's first fiscal quarter after the date of the indenture and
ending on the last day of Pathnet's last fiscal quarter ending prior to
the date of such proposed Restricted Payment; PLUS
(B) 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 Pathnet 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 Pathnet (including
upon the exercise of options, warrants or rights) or warrants, options
or rights to purchase shares of Qualified Capital Stock of Pathnet; PLUS
(C) 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 Pathnet 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 Pathnet, 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
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Subsidiary, the assets of which consist primarily of Telecommunications
Assets, received by Pathnet at the time of such conversion or exchange;
PLUS
(D) to the extent not otherwise included in Consolidated Operating
Cash Flow, an amount equal to the sum of (i) 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 Pathnet or any Restricted Subsidiary after the Issue
Date from such Person and (ii) 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 (i) or (ii) above, the foregoing sum will not
exceed the total amount of Investments (other than Permitted
Investments) previously made in such Person or Unrestricted Subsidiary
by Pathnet and its Restricted Subsidiaries.
The amount of any such Restricted Payment, if other than cash, shall be
determined by the Board of Directors of Pathnet, whose determination will be
conclusive and evidenced by a Board Resolution.
(b) Notwithstanding paragraph (a) above, Pathnet and any Restricted
Subsidiary may take the following actions so long as with respect to clauses
(ii) through (vi) below no Default or Event of Default shall have occurred and
be continuing:
(i) the payment of any dividend within 60 days after the date of
declaration of such dividend, if at such date of declaration the payment of
such dividend would have complied with the provisions of paragraph (a)
above and such payment will be deemed to have been paid on such date of
declaration for purposes of the calculation required by paragraph (a)
above;
(ii) the purchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of Pathnet (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
Pathnet; (y) that are held by former officers, employees or directors (or
their estates or beneficiaries under their estates) of Pathnet 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 Pathnet 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 $1.0 million in any given fiscal year;
(iii) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Indebtedness of Pathnet 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
Pathnet;
(iv) the purchase of any Indebtedness of Pathnet 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 the "Purchase of Notes
upon a Change of Control" covenant; provided that prior to such purchase
Pathnet 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;
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(v) the purchase, redemption, defeasance or other acquisition or
retirement for value of Indebtedness (other than Redeemable Capital Stock)
of Pathnet 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
Pathnet 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 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 Pathnet as necessary to accomplish such
refinancing, PLUS, in either case, the amount of expenses of Pathnet
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
(vi) the payment of cash in lieu of fractional shares of common stock
pursuant to the warrant agreement.
The actions described in items (i) through (iv) and (vi) above will be
Restricted Payments that will be permitted in accordance with this paragraph (b)
but will reduce the amount that would otherwise be available for Restricted
Payments under clause (3) of paragraph (a) above. The actions described in item
(v) above will be Restricted Payments that will be permitted in accordance with
this paragraph (b) and will not reduce the amount that would otherwise be
available for Restricted Payments under clause (3) of paragraph (a). (Section
1012)
LIMITATION ON ISSUANCE AND SALES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. In general, Pathnet will not, and will not permit any Restricted
Subsidiary to, issue or sell any Capital Stock of a Restricted Subsidiary (other
than to Pathnet or to a Restricted Subsidiary). However, this covenant will 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 the "Limitation on Restricted
Payments" covenant 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 Pathnet and the Restricted Subsidiaries in compliance
with the "Limitation on Sale of Assets" covenant; 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 Pathnet 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 of directors of Pathnet, the Fair Market Value of any such transfer,
lease, license or grant is not less than the Fair
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Market Value of the Capital Stock of such Restricted Subsidiary issued and
sold in respect thereof. (Section 1013)
LIMITATION ON TRANSACTIONS WITH AFFILIATES. Pathnet will not, and will 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 Pathnet or any
Restricted Subsidiary (other than Pathnet or a Restricted Subsidiary so long as
no Affiliate of Pathnet (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 Pathnet or such Restricted
Subsidiary, as the case may be, than those that could have been obtained in
an arms' 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 million,
Pathnet 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 million,
Pathnet 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 Pathnet or that Pathnet has obtained a written
opinion from a nationally recognized investment banking or public
accounting firm or, if Pathnet believes that an investment banking or
public accounting firm is generally not qualified to give such an opinion,
by a nationally recognized appraisal firm (an "independent financial
expert") certifying that the financial terms of such transaction or series
of related transactions, taken as a whole, are fair to Pathnet or such
Restricted Subsidiary, as the case may be, from a financial point of view;
provided, however, that this covenant will not restrict (1) any transaction
or series of related transactions among Pathnet and one or more of its
Restricted Subsidiaries or among its Restricted Subsidiaries, (2) Pathnet
from paying reasonable and customary regular compensation and fees to
directors of Pathnet or any Restricted Subsidiary who are not employees of
Pathnet or any Restricted Subsidiary, (3) the performance of Pathnet's
obligations under the Investment and Stockholders' Agreement, dated as of
October 31, 1997, among Pathnet, David Schaeffer and the Investors named
therein, as amended; the Investment and Stockholders' Agreement, dated as
of August 28, 1995, by and among Pathnet and the Investors named therein;
the Investment and Stockholders' Agreement, dated as of December 23, 1996,
by and among Pathnet and the Investors named therein; the Non-Qualified
Stock Option Agreement, dated August 4, 1997, between Pathnet and Richard
Jalkut; and the Employment Agreement, dated August 4, 1997, between Pathnet
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 Pathnet 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 Pathnet (including a majority of the Disinterested
Directors), (4) the making of any Restricted Payment not prohibited by the
"Limitations on Restricted Payments" covenant and (5) loans or advances
made to directors, officers or employees of Pathnet 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 1014)
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Under Delaware law, the Disinterested Directors' fiduciary obligations
require that they act in good faith and in a manner which they reasonably
believe to be in the best interests of Pathnet and its stockholders, which may
not necessarily be the same as the interests of holders of the notes.
LIMITATION ON LIENS. Pathnet will not, and will 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 Pathnet 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 1015)
LIMITATION ON ISSUANCE OF CERTAIN GUARANTEES BY, AND DEBT SECURITIES OF,
RESTRICTED SUBSIDIARIES. Pathnet will 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, and 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 will provide by its terms that it shall be automatically
and unconditionally released and discharged upon:
(i) the sale or other disposition, by way of merger or otherwise, to
any Person not an Affiliate of Pathnet, of all of Pathnet's and its
Restricted Subsidiaries' Capital Stock in such Restricted Subsidiary;
(ii) the merger or consolidation of the applicable Restricted
Subsidiary with and into Pathnet 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 Pathnet
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 1016)
PURCHASE OF NOTES UPON A CHANGE OF CONTROL. If a Change of Control occurs
at any time, then each holder of notes will have the right to require that
Pathnet purchase 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
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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 (the "Change of Control Purchase Date") pursuant
to the procedures described below (the "Change of Control Offer") and the other
procedures set forth in the indenture.
Within 15 days following any Change of Control, Pathnet will notify the
trustee thereof and give written notice of such Change of Control to each holder
of notes by first-class mail, postage prepaid, at the address of such holder
appearing in the security register, stating, among other things:
(i) the purchase price and the 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;
(ii) that any note not tendered will continue to accrue interest;
(iii) that, unless Pathnet defaults in the payment of the purchase
price, any notes accepted for payment pursuant to the Change of Control
Offer will cease to accrue interest and Liquidated Damages, if any, after
the Change of Control Purchase Date; and
(iv) certain other procedures that a holder of notes must follow to
accept a Change of Control Offer or to withdraw such acceptance. (Section
1010)
If a Change of Control Offer were made, we cannot assure you that Pathnet
would have available funds sufficient to pay the Change of Control Purchase
Price for all of the notes that might be delivered by holders thereof seeking to
accept the Change of Control Offer. The failure of Pathnet to make or consummate
the Change of Control Offer would result in an Event of Default and would give
the trustee and the holders of the notes the rights described under "Events of
Default."
One of the events that constitutes a Change of Control under the indenture
is the disposition of "all or substantially all" of Pathnet's assets. This term
has not been interpreted under New York law (which is the governing law of the
indenture) to represent a specific quantitative test. As a consequence, if
holders of the notes elect to require Pathnet to purchase the notes and Pathnet
elects to contest such election, there can be no assurance as to how a court
interpreting New York law would interpret the phrase.
The existence of a holder's right to require Pathnet to purchase such
holder's notes upon a Change of Control may deter a third party from acquiring
Pathnet in a transaction that constitutes a Change of Control.
The definition of "Change of Control" in the indenture is limited in scope.
The provisions of the indenture may not afford holders of notes the right to
require Pathnet to purchase such notes in the event of a highly leveraged
transaction or certain transactions with Pathnet's management or its Affiliates,
including a reorganization, restructuring, merger or similar transaction
involving Pathnet (including, in certain circumstances, an acquisition of
Pathnet by management or its Affiliates) that may adversely affect holders of
the notes, if such transaction is not a transaction defined as a Change of
Control. See "Certain Definitions" for the definition of "Change of Control." A
transaction involving Pathnet's management or its Affiliates, or a transaction
involving a recapitalization of Pathnet, would result in a Change of Control if
it is the type of transaction specified by such definition.
Pathnet will comply with the applicable tender offer rules, including Rule
l4e-l under the Exchange Act, and any other applicable securities laws and
regulations in connection with a Change of Control Offer.
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LIMITATION ON SALE OF ASSETS. (a) Pathnet will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, engage in any Asset Sale
unless (i) the consideration received by Pathnet 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 Pathnet, whose
determination shall be conclusive and evidenced by a resolution thereof) and
(ii) the consideration received by Pathnet 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 covenant, "Cash Equivalents" shall
include (i) the amount of any liabilities (other than liabilities that are by
their terms subordinated to the notes) of Pathnet or such Restricted Subsidiary
(as shown on Pathnet'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 Pathnet 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 Pathnet or any of its Restricted Subsidiaries with respect to such
liabilities and (ii) any securities, notes or other obligations received by
Pathnet or any such Restricted Subsidiary in connection with such Asset Sale
that are converted by Pathnet or such Restricted Subsidiary into cash within 60
days of receipt.
(b) If Pathnet or any Restricted Subsidiary engages in an Asset Sale,
Pathnet 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 Pathnet 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 Pathnet 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 Pathnet or a Restricted
Subsidiary, as the case may be. If any such legally binding agreement to invest
such Net Cash Proceeds is terminated, then Pathnet may, within 60 days of such
termination or within 12 months of such Asset 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 million,
Pathnet will, 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 Pathnet ranking equally with the notes
which Indebtedness contains similar provisions requiring Pathnet 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, Pathnet 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 1017)
If an Excess Proceeds Offer were made, there can be no assurance that
Pathnet would have available funds sufficient to pay an Excess Proceeds Offer
Price for all of the notes that might be
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delivered by holders of the notes seeking to accept an Excess Proceeds Offer.
The failure of Pathnet to make or consummate the Excess Proceeds Offer would
result in an Event of Default and would give the trustee and the holders of the
notes the rights described under "Events of Default."
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. Pathnet will not, and will 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 Pathnet or any other Restricted Subsidiary;
(b) pay any Indebtedness owed to Pathnet or any other Restricted
Subsidiary;
(c) make Investments in Pathnet or any other Restricted Subsidiary;
(d) transfer any of its property or assets to Pathnet or any other
Restricted Subsidiary; or
(e) guarantee any Indebtedness of Pathnet 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 Pathnet or any
Restricted Subsidiary, (iv) any agreement or other instrument of a Person
acquired by Pathnet 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 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 Pathnet or a Restricted
Subsidiary otherwise permitted under the indenture, (vi) any encumbrance or
restriction with respect to a Restricted Subsidiary of Pathnet entered into
for the sale or disposition of all or substantially all of the Capital
Stock or assets of such Restricted Subsidiary permitted under the
"Limitation on Sale of Assets" covenant, (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 the indenture for interest, premium and principal
less the amount of cash that is otherwise available to Pathnet at such time
for the payment of interest, premium and principal due and payable in
respect of the notes or the 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 Pathnet determines in good faith that the
terms and conditions of any such encumbrances or restrictions, taken as a
whole, are no less favorable to Pathnet, any Restricted
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Subsidiary and the holders of the notes than those so extended, renewed,
refinanced or replaced. (Section 1018)
PROVISION OF FINANCIAL STATEMENTS AND REPORTS. (a) Pathnet will file on a
timely basis with the SEC, to the extent such filings are accepted by the SEC
and whether or not Pathnet has a class of securities registered under the
Exchange Act, the annual reports, quarterly reports and other documents that
Pathnet would be required to file if it were subject to Section 13 or 15 of the
Exchange Act.
(b) Pathnet will 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 Pathnet files such reports and
documents with the SEC or the date on which Pathnet would be required to file
such reports and documents if Pathnet were so required, and (ii) if filing such
reports and documents with the SEC is not accepted by the SEC or is prohibited
under the Exchange Act, to supply at Pathnet's cost copies of such reports and
documents to any prospective holder promptly upon request. (Section 1009)
CONSOLIDATION, MERGER AND SALE OF ASSETS. Pathnet 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 Pathnet 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 Pathnet and its Restricted Subsidiaries on a
consolidated basis to any other Person or Persons, unless at the time and
immediately after giving effect thereto:
(i) either (a) Pathnet will be the continuing corporation or (b) the
Person (if other than Pathnet) formed by such consolidation or into which
Pathnet 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 Pathnet and its Restricted
Subsidiaries on a consolidated basis, as the case may be (the "Surviving
Entity"), (1) will 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 (2) will expressly assume, by a supplemental indenture to
the indenture in form satisfactory to the trustee, Pathnet'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 of the indenture on the part of Pathnet to be
performed or observed;
(ii) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (and treating
any obligation of Pathnet 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 will have occurred and be continuing;
(iii) 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), Pathnet (or the surviving entity if Pathnet is
not the continuing obligor under the indenture) could incur at least $1.00
of additional Indebtedness (other than Permitted Indebtedness) under the
provisions of the "Limitation on Indebtedness" covenant; and
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(iv) Pathnet or the Surviving Entity 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 (iii) above) and an opinion of counsel, each stating that such
consolidation, merger, sale, assignment, conveyance, transfer, lease or
other disposition, and if a supplemental indenture is required in
connection with such transaction, such supplemental indenture, comply with
the requirements of the indenture and that all conditions precedent therein
provided for relating to such transaction have been complied with. (Section
801)
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of Pathnet in accordance with the immediately preceding paragraphs in
which Pathnet is not the continuing obligor under the indenture, the Surviving
Entity shall succeed to, and be substituted for, and may exercise every right
and power of, Pathnet under the indenture with the same effect as if such
successor had been named as Pathnet therein. When a successor assumes all the
obligations of its predecessor under the indenture, the predecessor shall be
released from those obligations; provided that, in the case of a transfer by
lease, the predecessor shall not be released from the payment of principal of,
premium, if any, and interest on the notes. (Section 802)
EVENTS OF DEFAULT
The following are "Events of Default" under the indenture:
(i) default in the payment of 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);
(ii) default in the payment of principal of or premium, if any, on any
note at its Maturity (upon acceleration, optional redemption, required
purchase or otherwise);
(iii) (A) default in the performance, or breach, of any covenant or
agreement of Pathnet contained in the 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 (i) or (ii) or
in clause (B), (C) or (D) of this clause (iii)) and continuance of such
default or breach for a period of 30 days after written notice shall have
been given to Pathnet by the trustee or to Pathnet 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
the "Limitation on Sale of Assets" covenant; (C) default in the performance
or breach of the provisions of the "Consolidation, Merger and Sale of
Assets" covenant; and (D) default in the performance or breach of the
provisions of the "Purchase of Notes upon a Change of Control" covenant;
(iv) (A) one or more defaults in the payment of principal of or
premium, if any, or interest on Indebtedness of Pathnet or any Significant
Subsidiary aggregating $7.5 million 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 Pathnet or any Significant
Subsidiary aggregating $7.5 million 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);
(v) one or more final judgments, orders or decrees of any court or
regulatory agency shall be rendered against Pathnet or any Significant
Subsidiary or their respective properties for the payment of money, either
individually or in an aggregate amount, in excess of $7.5 million and
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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;
(vi) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to Pathnet or any Significant Subsidiary; or
(vii) if the Pledge Agreement ceases to be in full force and effect
before payment in full of the obligations thereunder. (Section 501)
If an Event of Default (other than an Event of Default arising from an
event of bankruptcy, insolvency or reorganization as specified in clause (vi)
above) occurs and is continuing, the trustee or the holders of not less than 25%
in aggregate principal amount of the notes then outstanding, by written notice
to Pathnet (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 of, premium, if any, and accrued and unpaid interest and Liquidated
Damages, if any, on all outstanding notes immediately due and payable, 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 arising from an event
of bankruptcy, insolvency or reorganization as specified in clause (vi) or (vii)
above occurs and is continuing, then the principal of, premium, if any, and
accrued and unpaid interest and Liquidated Damages, if any, on all of the
outstanding notes will ipso facto become immediately due and payable without any
declaration or other act on the part of the trustee or any holder of notes.
(Section 502)
At any time after a declaration of acceleration under the indenture, but
before a judgment or decree for payment of the money due has been obtained by
the trustee, the holders of a majority in aggregate principal amount of the
outstanding notes, by written notice to Pathnet and the trustee, may rescind or
annul such declaration and its consequences if (a) Pathnet has paid or deposited
with the trustee a sum sufficient to pay (i) all overdue interest and Liquidated
Damages, if any, 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, (iv) all sums paid
or advanced by the trustee under the indenture 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, premium, if any, 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. No such rescission shall affect any subsequent default or impair any
right consequent thereon. (Section 502)
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 defaults under the indenture, except a default in the payment of the
principal of, premium, if any, or interest and Liquidated Damages, if any, on
any note, or in respect of a covenant or provision which under the indenture
cannot be modified or amended without the consent of the holder of each note
outstanding. (Section 513)
If a Default or an Event of Default occurs and is continuing and is known
to the trustee, the trustee will mail to each holder of the notes notice of the
Default or Event of Default within five days after the earlier of receipt from
Pathnet of notice of the occurrence thereof or the date when such Default or
Event of Default becomes known to the trustee. Except in the case of a Default
or an Event of Default in the payment of the principal of, premium, if any, or
interest on any notes, the trustee may withhold the notice to the holders of
such notes if a committee of its trust officers in good faith determines that
withholding such notice is in the interests of the holders of the notes.
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Pathnet is required to furnish to the trustee annual and quarterly
statements as to the performance by Pathnet of its obligations under the
indenture and as to any default in such performance. Pathnet is also required to
notify the trustee within five days of the occurrence of any Default or Event of
Default.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
Pathnet may, at its option and at any time, terminate its obligations with
respect to the outstanding notes ("defeasance"). This means that Pathnet will be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding notes and to have satisfied all its other obligations under such
Notes, except for:
(i) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest and Liquidated
Damages, if any, on the notes when such payments are due;
(ii) Pathnet's obligations to issue temporary notes, register the
transfer or exchange of any such notes, replace mutilated, destroyed, lost
or stolen notes, maintain an office or agency for payments in respect of
the notes and segregate and hold such payments in trust;
(iii) the rights, powers, trusts, duties and immunities of the
trustee; and
(iv) the defeasance provisions of the indenture.
In addition, Pathnet may, at its option and at any time, terminate its
obligations with respect to certain covenants set forth in the indenture, and
any omission to comply with such obligations will not constitute a Default or an
Event of Default with respect to the notes ("covenant defeasance"). (Sections
1301, 1302 and 1303)
In order to exercise either option:
(i) Pathnet must irrevocably deposit or cause to be deposited with the
trustee, in trust, specifically pledged as security for, and dedicated
solely to, the benefit of the holders of the notes, cash in United States
dollars, Government Securities, or a combination or both, that, in the
opinion of a nationally recognized firm of independent public accountants,
will be sufficient to pay and discharge the principal of, premium, if any,
and interest on the outstanding notes on the Stated Maturity (or upon
redemption, if applicable) of such principal, premium, if any, or
installment of interest and Liquidated Damages, if any;
(ii) no Default or Event of Default with respect to the notes can have
occurred and be continuing on the date of such deposit or, insofar as an
event of bankruptcy under clause (vi) of "Events of Default" above is
concerned, at any time during the period ending on the 123rd day after the
date of such deposit;
(iii) Pathnet's termination of its obligations must not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which Pathnet is a
party or by which it is bound;
(iv) in the case of termination of its obligations with respect to the
outstanding notes, Pathnet must have delivered to the trustee an opinion of
counsel stating that Pathnet has received from, or there has been published
by, the IRS a ruling, or since the date of this prospectus there has been a
change in 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 U.S. federal
income tax purposes as a result of Pathnet's termination of its obligations
under the notes and will be subject to United States
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federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such termination had not occurred;
(v) in the case of termination of its obligations under certain
covenants, Pathnet must have delivered to the trustee an opinion of counsel
to the effect that the holders of the notes outstanding will not recognize
income, gain or loss for United States federal income tax purposes as a
result of the termination of its obligations under such covenants and will
be subject to United States federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
termination had not occurred; and
(vi) Pathnet must deliver to the trustee an officers' certificate and
an opinion of counsel, each stating that all conditions precedent provided
for relating to either the termination of its obligations under the notes,
or the termination of its obligations with respect to certain covenants, as
the case may be, have been complied with. (Section 1304)
SATISFACTION AND DISCHARGE
The indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the notes as expressly
provided for in the indenture), and the trustee, at the expense of Pathnet, will
execute proper instruments acknowledging satisfaction and discharge of the
indenture when:
(i) either (A) all the notes that have previously been authenticated
and delivered (other than destroyed, lost or stolen notes which have been
replaced or paid and notes for whose payment money has previously been
deposited in trust or segregated and held in trust by Pathnet, or
discharged) to the trustee for cancellation or (B) all notes not previously
delivered to the trustee for cancellation that (x) have become due and
payable, (y) will become due and payable at their Stated Maturity within
one year or (z) 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 Pathnet, and
Pathnet 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 the notes not previously
delivered to the trustee for cancellation, for the principal of, premium
and Liquidated Damages, if any, and interest on the notes to the date of
such deposit (in the case of notes which have become due and payable) or to
the Stated Maturity or date of redemption, as the case may be;
(ii) Pathnet has paid or caused to be paid all sums payable by it
under the indenture; and
(iii) Pathnet has delivered to the trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent
provided in the indenture relating to the satisfaction and discharge of the
indenture have been complied with. (Section 401)
MODIFICATION AND WAIVER
The indenture may be modified or amended by a supplemental indenture
entered into by Pathnet and the trustee with the consent of the holders of a
majority in aggregate outstanding principal amount of the notes; provided, that
no modification or amendment can do any of the following, without the consent of
the holder of each outstanding note affected by such modification or amendment:
(i) change the Stated Maturity of the principal of, or any installment
of interest on, any note, or reduce the principal amount of any note or
premium, if any, or the rate of interest on such note, alter any redemption
provision with respect to any note or change the coin or currency in which
the principal of any note or any premium or the interest thereon is
payable, or impair
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the right to institute suit for the enforcement of any such payment after
the Stated Maturity of any notes (or, in the case of redemption, on or
after the date of redemption);
(ii) amend, change or modify Pathnet's obligation to make and
consummate an Excess Proceeds Offer with respect to any Asset Sale in
accordance with the "Limitation on Sale of Assets" covenant or Pathnet's
obligation to make and consummate a Change of Control Offer in the event of
a Change of Control in accordance with the "Purchase of Notes Upon a Change
of Control" covenant, including, in each case, amending, changing or
modifying any definition relating to such obligations;
(iii) reduce the percentage of the principal amount of 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 the indenture and their
consequences provided for in the indenture;
(iv) modify any of the provisions relating to supplemental indentures
requiring the consent of holders or relating to the waiver of past defaults
or relating to the waiver of certain covenants, except to increase the
percentage of the aggregate principal amount of outstanding notes required
for such actions or to provide that certain other provisions of the
indenture cannot be modified or waived without the consent of the holder of
each notes affected thereby;
(v) except as otherwise permitted under "Consolidation, Merger and
Sale of Assets," consent to the assignment or transfer by Pathnet of any of
their rights or obligations under the indenture; or
(vi) release any Lien created by the pledge agreement, except in
accordance with the terms of the pledge agreement. (Sections 901 and 902)
Notwithstanding the foregoing, without the consent of any holder of
the notes, Pathnet and the trustee may modify or amend the indenture:
(a) to evidence the succession of another Person to Pathnet or any
other obligor on the notes, and the assumption by any such successor of
the covenants of Pathnet or such obligor in the indenture and in the
notes in accordance with "Consolidation, Merger and Sale of Assets;"
(b) to add to the covenants of Pathnet or any other obligor upon
the notes for the benefit of the holders of the notes or to surrender
any right or power conferred upon Pathnet or any other obligor upon the
notes, as applicable, in the indenture or in the notes;
(c) to cure any ambiguity, or to correct or supplement any
provision in the indenture or in the notes that may be defective or
inconsistent with any other provision in the indenture or in the notes,
or make any other provisions with respect to matters or questions
arising under the indenture or the notes; provided that, in each case,
such action will not adversely affect the interests of the holders of
the notes;
(d) to comply with the requirements of the SEC in order to effect
or maintain the qualification, if any, of the indenture under the Trust
Indenture Act;
(e) to evidence and provide the acceptance of the appointment of a
successor trustee under the indenture;
(f) to mortgage, pledge, hypothecate or grant a security interest
in favor of the trustee for the benefit of the holders of the notes as
additional security for the payment and performance of Pathnet's
obligations under the indenture, in any property or assets, including
any of which are required to be mortgaged, pledged or hypothecated, or
in which
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a security interest is required to be granted to the trustee pursuant to
the Indenture or otherwise; or
(g) to add a guarantor of the notes under the indenture. (Section
901)
The holders of a majority in aggregate principal amount of the notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the indenture. (Section 1019)
GOVERNING LAW
The indenture, the notes and the pledge agreement are governed by, and
construed in accordance with, the laws of the State of New York.
THE TRUSTEE
The indenture provides that, except during the continuance of an Event of
Default, the trustee will perform only the duties that are specifically set
forth in the Indenture. If an Event of Default has occurred and is continuing,
the trustee will exercise such rights and powers vested in it under the
indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of their own
affairs.
The indenture and provisions of the Trust Indenture Act, which are
incorporated into the indenture by reference, contain limitations on the rights
of the trustee, should it become a creditor of Pathnet, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest (as defined) it must eliminate such conflict or resign.
(Sections 601 and 603)
CERTAIN DEFINITIONS
"Accounts Receivable Subsidiary" means any Restricted Subsidiary that is,
directly or indirectly, wholly owned by Pathnet (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 Pathnet 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.
"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 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.
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"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
Pathnet or any Subsidiary; or (iii) any other properties or assets of Pathnet 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 the
indenture described under "Consolidation, Merger and Sale of Assets," (B) of
Pathnet to any Restricted Subsidiary, or of any Restricted Subsidiary to Pathnet
or any other Restricted Subsidiary in accordance with the terms of the
Indenture, (C) having an aggregate Fair Market Value of less than $2 million in
any given fiscal year, (D) by Pathnet or a Restricted Subsidiary to a Person who
is not an Affiliate of Pathnet 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 Pathnet 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 Pathnet 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 the "Limitation on Restricted Payments" covenant when
made, (F) constituting accounts receivable of Pathnet or a Restricted Subsidiary
to an Accounts Receivable Subsidiary or in consideration of Fair Market Value
thereof, to Persons that are not Affiliates of Pathnet or any Subsidiary of
Pathnet 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 the "Limitation on Indebtedness"
covenant, (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 the "Limitation on
Restricted Payments" covenant.
"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.
"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 the indenture, the amount of such obligation at any date
shall be the capitalized amount thereof at such date, determined in accordance
with GAAP.
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"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 million; (c) commercial paper with a maturity of 180 days
or less issued by a corporation that is not an Affiliate of Pathnet 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 Pathnet;
(b) Pathnet 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, Pathnet, in any such event pursuant to a transaction in which
the outstanding Voting Stock of Pathnet is converted into or exchanged for
cash, securities or other property, other than any such transaction
(i) where the outstanding Voting Stock of Pathnet is not converted
or exchanged at all (except to the extent necessary to reflect a change
in the jurisdiction of incorporation of Pathnet) 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 Pathnet as a Restricted Payment as
described under the "Limitation on Restricted Payments" covenant; 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 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 Pathnet
(together with any new directors whose election to such board of directors,
or whose nomination for election by the stockholders of Pathnet, 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 Pathnet then in office;
or
(d) Pathnet is liquidated or dissolved or adopts a plan of liquidation
or dissolution other than in a transaction which complies with the
provisions described under "Consolidation, Merger and Sale of Assets."
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"Consolidated Adjusted Net Income" means, for any period, the consolidated
net income (or loss) of Pathnet 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 dispositions other than in the
ordinary course of business,
(c) the portion of net income (or loss) of any Person (other than
Pathnet or a Restricted Subsidiary), including Unrestricted Subsidiaries,
in which Pathnet or any Restricted Subsidiary has an ownership interest,
except to the extent of the amount of dividends or other distributions
actually paid to Pathnet or any Restricted Subsidiary in cash dividends or
distributions during such period,
(d) the net income (or loss) of any Person combined with Pathnet 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 the
"Limitation on Indebtedness" covenant, any restriction permitted under
clause (vii) or (viii) of "Limitations on Dividend and other Payment
Restrictions Affecting Restricted Subsidiaries"), 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 Pathnet 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 Pathnet 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 will 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, Pathnet 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
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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 Pathnet, 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
Pathnet 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 Pathnet 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 Pathnet and (vi) amortization of debt issuance costs, plus (b) the interest
component of Capitalized Lease Obligations of Pathnet 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 Pathnet, a fixed or floating rate of interest,
shall be computed by applying, at the option of Pathnet, 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 Pathnet and the
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP; (iv) amortization of Pathnet 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 (excluding any non-cash charge which requires
an accrual or reserve for cash charges for any future period) of Pathnet 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 Pathnet and all
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
"Credit Facilities" means, with respect to Pathnet or its Restricted
Subsidiaries, one or more debt facilities or commercial paper facilities with
banks or other institutional lenders providing for
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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 Pathnet or any of its Restricted Subsidiaries.
"Debt Securities" means any debt securities (including any Guarantee of
such securities) issued by Pathnet 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 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.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the board of directors of Pathnet is
required to deliver a resolution thereof under the indenture, a member of the
board of directors of Pathnet 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 Pathnet 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 Pathnet as described herein.
"Event of Default" has the meaning set forth under "Events of Defaults"
herein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"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 the indenture, Fair
Market Value shall be determined by the board of directors of Pathnet acting in
good faith and as of the date on which such determination is made.
"GAAP" means generally accepted accounting principles in the United States
that are in effect on the date of the indenture.
"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,
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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.
"Incumbent" means any railroad, utility, governmental entity, pipeline or
other licensed owner (which ownership is determined immediately prior to any
transaction with Pathnet or a Restricted Subsidiary) of Telecommunications
Assets to be used in Pathnet'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 Pathnet or a
Restricted Subsidiary pursuant to such agreement).
"Incumbent Agreement" means an agreement between an Incumbent and Pathnet
or a Restricted Subsidiary pursuant to which, among other things, such Incumbent
receives a payment equal to a percentage of Pathnet'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 Pathnet or such Restricted
Subsidiary and upon or with respect to which Pathnet or such Restricted
Subsidiary has constructed or intends to construct a portion of its network.
"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 Pathnet to Incur
Indebtedness on a revolving basis, Pathnet 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 Pathnet shall have so designated to be
Incurred in an officer's certificate delivered to the trustee (in which case
Pathnet 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);
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(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 Pathnet 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 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 the 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.
"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.
"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 Pathnet 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 Pathnet,
and (b) 75% of the aggregate net cash proceeds from sales of Redeemable Capital
Stock of Pathnet or Indebtedness of Pathnet convertible into Qualified Capital
Stock of Pathnet, 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
Pathnet'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
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Unrestricted Subsidiary shall be deemed to be an Investment made by Pathnet in
such Unrestricted Subsidiary at such time and the portion (proportionate to
Pathnet'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 the 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.
"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 the 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 Pathnet 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
Pathnet or any Restricted Subsidiary) owning a beneficial interest in the assets
subject to the Asset Sale and (v) appropriate amounts to be provided by Pathnet
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 Pathnet 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 under the "Limitation on Restricted Payments" covenant, 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
Pathnet or any Subsidiary of Pathnet), 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.
"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.
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"Permitted Indebtedness" means:
(a) Indebtedness of Pathnet pursuant to the notes or of any Restricted
Subsidiary pursuant to a Guarantee of the notes;
(b) Indebtedness of Pathnet or any Restricted Subsidiary outstanding
on the Issue Date;
(c) Indebtedness of Pathnet owing to any Restricted Subsidiary (but
only so long as such Indebtedness is held by such Restricted Subsidiary);
provided that any Indebtedness of Pathnet 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 Pathnet'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 Pathnet that is not permitted by this clause
(c);
(d) Indebtedness of any Restricted Subsidiary to Pathnet or of any
Restricted Subsidiary to another Restricted Subsidiary;
(e) Indebtedness of Pathnet 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 Pathnet is limited to the cash securing
such letters of credit;
(f) Indebtedness of Pathnet under Currency Agreements and Interest
Rate Agreements entered into in the ordinary course of business; provided
that such agreements are designed to protect Pathnet or any Restricted
Subsidiary against, or manage exposure to, fluctuations in currency
exchange rates and interest rates, 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 Pathnet or any Restricted Subsidiary consisting of
guarantees, indemnities or obligations in connection with
Telecommunications Indebtedness, Indebtedness permitted under clause (j) or
(m) of the "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 Pathnet 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
Pathnet, 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 the "Limitation on Restricted Payments" covenant 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 Pathnet 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
Pathnet
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as of the last fiscal quarter for which financial statements are prepared
or (y) $50.0 million; 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 Pathnet or a Restricted Subsidiary issued in
exchange for, or the net proceeds of which are used to refinance or refund,
then outstanding Indebtedness of Pathnet or a Restricted Subsidiary,
incurred under the ratio test set forth in clause (i) or (ii) of the
"Limitation on Indebtedness" covenant 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 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 the "Limitation on
Indebtedness" covenant 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 Pathnet 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 Pathnet 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 $30.0 million 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 Pathnet or any Restricted Subsidiary;
(c) Investments by Pathnet 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, Pathnet or a Restricted Subsidiary;
(d) Investments in the form of intercompany Indebtedness to the extent
permitted under clauses (c) and (d) of the definition of "Permitted
Indebtedness;"
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(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 $1.0 million 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
Pathnet, Redeemable Capital Stock of Pathnet, or Indebtedness of Pathnet
convertible into Qualified Capital Stock of Pathnet, in the latter two
cases upon such redemption or conversion thereof into Qualified Capital
Stock of Pathnet, issued by Pathnet or any Restricted Subsidiary of Pathnet
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 Pathnet to a Restricted
Subsidiary of Pathnet), 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 the "Limitation on Restricted Payments"
covenant;
(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 Pathnet 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 the covenant described in "Certain Covenants
Limitation on Asset Sales";
(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;
(n) Investments in or acquisitions of Capital Stock, indebtedness,
securities or other property of Persons (other than Affiliates of Pathnet)
received by Pathnet 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
Pathnet 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 Pathnet in respect of any such Investment plus the Fair
Market Value of any capital stock or other securities received in
connection therewith is 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 $20.0 million.
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"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 Pathnet or any Restricted Subsidiary;
(c) Liens on any property or assets of Pathnet 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 the 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 Pathnet 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 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 Pathnet 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 Pathnet or any Restricted Subsidiary; provided that such Lien does not
extend to any property or assets of Pathnet or any Restricted Subsidiary
other than the assets acquired in connection with the incurrence of such
Acquired Indebtedness;
(l) Liens securing obligations of Pathnet 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 Pathnet 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;
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(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 Pathnet 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;
(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 Pathnet
installed on its network in favor of Persons that have licensed, leased,
transferred or granted to Pathnet or any Restricted Subsidiary a right to
use Telecommunications Assets or financed the purchase of
Telecommunications Assets or securing the obligations of Pathnet or such
Restricted Subsidiary under an Incumbent Agreement; provided that such
Liens will (1) be created on terms that Pathnet reasonably believes to be
no less favorable to Pathnet 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 Pathnet 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 Pathnet.
"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 Pathnet in accordance with GAAP.
"Permitted Telecommunications Joint Venture" means a corporation,
partnership or other entity engaged in one or more Telecommunications Businesses
in which Pathnet 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 initially dated as of the
Issue Date and as amended on the date of consummation of our reorganization, by
and between the trustee and Pathnet, governing the disbursement of funds from
the Escrow Account.
"Pledged Securities" means the securities purchased by Pathnet, which shall
consist of Government Securities, to be deposited in the Escrow Account.
"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 Pathnet pursuant to a registration statement that
has been declared effective by the SEC pursuant to the Securities Act (other
than a registration statement on Form S-8 or otherwise relating
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to equity securities issuable under any employee benefit plan of Pathnet) and
resulting in Net Cash Proceeds to Pathnet of not less than $45 million.
"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 the "Limitation on Asset Sales" and
"Purchase of Notes upon a Change of Control" covenants 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 Pathnet's repurchase of such notes as are required to be repurchased pursuant
to the "Limitation on Asset Sales" and "Purchase of Notes upon a Change of
Control" covenants.
"Restricted Subsidiary" means any Subsidiary of Pathnet 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 Pathnet or a
Restricted Subsidiary) or to which any Person (other than Pathnet or a
Restricted Subsidiary) is a party, providing for the leasing to Pathnet or to a
Restricted Subsidiary of any property for an aggregate term exceeding three
years, whether owned by Pathnet or by any Subsidiary of Pathnet at the Issue
Date or later acquired, which has been or is to be sold or transferred by
Pathnet 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 Pathnet or any Restricted
Subsidiary of Telecommunications Assets to, and the leasing by Pathnet or any
Restricted Subsidiary of such assets from, a Permitted Telecommunications Joint
Venture shall not constitute a Sale-Leaseback Transaction.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of Pathnet, accounted for more than 10% of the consolidated
revenues of Pathnet 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
Pathnet 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 Pathnet 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
Pathnet for such fiscal year.
"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.
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"Subsidiary" means any Person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by Pathnet or by
one or more other Subsidiaries or by Pathnet 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 Pathnet's network, including, without limitation, any businesses or
services in which Pathnet 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 Pathnet or a Restricted Subsidiary, such other Person either is, or
immediately following the relevant transaction shall become, a Restricted
Subsidiary of Pathnet pursuant to the 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 Pathnet.
"Telecommunications Indebtedness" means Indebtedness of Pathnet 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 Pathnet 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" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the time of
determination shall be an Unrestricted Subsidiary (as designated by the board of
directors of Pathnet, as provided below) and (b) any Subsidiary of an
Unrestricted Subsidiary. The board of directors of Pathnet may designate any
Subsidiary (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary so long as (i) neither Pathnet 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 Pathnet 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 result of
designating such Subsidiary an Unrestricted Subsidiary will not violate the
provisions of the "Limitation on Restricted Payments" covenant, (iv) neither
Pathnet 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 Pathnet, and
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(v) neither Pathnet 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 Pathnet shall be evidenced to the
trustee by filing a board resolution with the trustee giving effect to such
designation. The board of directors of Pathnet 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 the
Indenture and Pathnet could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "Limitation on Indebtedness" covenant.
"Vendor Credit Facility" means, collectively, (i) the revolving credit
facility to be entered into by and among Pathnet, the Finance Subsidiary and
NEC, 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
Pathnet, the Finance Subsidiary and Andrew, 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 Pathnet, the Finance Subsidiary and each of the
financial institutions party thereto.
"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.
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DESCRIPTION OF OTHER INDEBTEDNESS AND OTHER FINANCING ARRANGEMENTS
PROPOSED CREDIT FACILITY WITH LUCENT
Pathnet has been negotiating with Lucent Technologies, Inc., over the terms
of a senior secured credit facility that would provide us with vendor financing
for fiber optic cable purchases. The credit facility would be executed in
connection with a fiber optic cable purchase agreement where we agree to make
Lucent our exclusive provider of fiber optic cable. Neither party has signed the
definitive agreements governing the proposed financing, but we expect to execute
definitive agreements in the next several weeks. We describe below the material
terms of the proposed Lucent credit facility, based on the current drafts of the
agreements. We cannot assure you that we will enter into any financing
agreements with Lucent, or that any agreements that we execute will be on these
terms. However, we currently expect that we will enter into a vendor financing
agreement with Lucent on terms similar to those outlined below.
The first tranche of the proposed facility will be $60 million and will be
available to be drawn after the facility becomes effective until January 31,
2001. The proceeds of any loans by Lucent must be used to finance fiber optic
cable that we purchase under the fiber optic cable purchase agreement between us
and Lucent. The loans will not cover the entire invoice cost of those purchases.
Under the Lucent credit facility, we will be required to pay various customary
arrangement, commitment and other fees. To preserve exclusivity, Lucent must
offer additional tranches on similar terms to the first tranche.
If executed as currently drafted, we expect the proposed credit facility
with Lucent to have these terms:
- The first tranche loans would mature on December 31, 2005;
- Mandatory prepayments are required in connection with dark fiber sales
and other dispositions;
- Lucent's obligation to loan any funds under the facility is conditioned
on, among other things:
-- We must purchase and pay for a specified minimum dollar value of
Lucent products;
-- A newly-formed vendor financing subsidiary of Pathnet or Pathnet
Telecom would be the borrower under the credit facility and must be
capitalized with assets having a value of at least $60 million;
-- We must obtain the necessary permits (including any required rights of
way) required to build the network segment in which the financed fiber
will be installed; and
- The loans would bear interest at floating rates based on an index plus a
specified margin.
The indebtedness outstanding under the Lucent credit facility is expected
to be guaranteed by the borrower (a newly formed vendor financing subsidiary of
Pathnet or Pathnet Telecom). The indebtedness will be secured by all property
and assets owned by, and all capital stock of and inter-company indebtedness
owed to, the borrower.
We anticipate that the Lucent credit facility will contain various
covenants typical for facilities of this nature. Some of those covenants will
restrict the vendor financing subsidiary and its subsidiaries, if any, from,
among other things:
- Incurring indebtedness;
- Entering into merger or consolidation transactions;
- Disposing of their assets;
- Acquiring assets; and
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- Making certain restricted payments;
- Paying interest or principal on the notes if excess cash is available at
Pathnet Telecom or Pathnet for note repayment;
- Creating any liens on its assets;
- Making investments;
- Entering into sale and leaseback transactions; and
- Entering into non-arms'-length basis transactions with affiliates.
As currently drafted, the Lucent credit facility also requires that the
vendor financing subsidiary comply with various customary financial covenants,
including required ratios for:
- Consolidated indebtedness to total capitalization;
- Consolidated indebtedness to consolidated EBITDA;
- Consolidated EBITDA to consolidated debt service;
- Consolidated EBITDA to consolidated interest expense; and
- Minimum annual revenues to the vendor financing subsidiary.
The draft Lucent credit facility contains a number of events of default,
including:
- Nonpayment of principal, interest, fees or other amounts;
- The occurrence of a default on other material indebtedness of the vendor
financing subsidiary and its subsidiaries (if any) and, in certain
circumstances, of Pathnet Telecom and our subsidiaries including a
termination by Lucent as the result of our default on the fiber supply
agreement with Lucent;
- Failure to comply with certain covenants, conditions or provisions under
the credit facility;
- The existence of certain judgments;
- The occurrence of any default under material agreements that could result
in a material adverse effect on the vendor financing subsidiary;
- The breach of representations or warranties;
- Commencement of reorganization, bankruptcy, insolvency or similar
proceedings;
- The occurrence of certain ERISA events; and
- A change of control of Pathnet Telecom or the vendor financing
subsidiary.
If the borrowing subsidiary defaults on its obligations under the Lucent
credit facility, all of those obligations could be declared to be immediately
due and payable. Upon a payment default or upon any acceleration of the
obligations under the Lucent credit facility, assuming those obligations
exceeded $7.5 million, any amounts then owing under the notes would become
immediately due and payable.
Under the Lucent credit facility, the vendor financing subsidiary is not
permitted to offer any guarantee of any indebtedness of Pathnet Telecom or
Pathnet. In addition to the Lucent credit facility, we intend to enter into
similar financing arrangements with other of our equipment vendors. We expect
that other vendor financing participants will demand similar restrictions.
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DESCRIPTION OF CAPITAL STOCK
The following summary describes the material structure and terms of our
capital stock. You should refer to our certificate of incorporation and bylaws
for more information. See "WHERE YOU CAN FIND MORE INFORMATION" to locate copies
of those documents.
GENERAL
Our capital stock consists of 60 million shares of common stock, $.01 par
value per share, and 39,620,860 shares of preferred stock, $.01 par value per
share.
OUR CAPITAL STOCK
<TABLE>
<CAPTION>
ISSUED AND
AUTHORIZED SHARES OUTSTANDING SHARES*
----------------- -------------------
<S> <C> <C>
COMMON STOCK:....................................... 60,000,000 2,977,593
---------- ----------
PREFERRED STOCK:
Series A Convertible Preferred Stock........... 2,899,999 2,899,999
Series B Convertible Preferred Stock........... 4,788,030 4,788,030
Series C Convertible Preferred Stock........... 8,176,686 8,176,686
Series D Convertible Preferred Stock........... 9,250,000 8,511,607
Series E Convertible Preferred Stock........... 4,506,145 1,729,631**
Blank Check Preferred Stock.................... 10,000,000 --
---------- ----------
Total Preferred Stock.......................... 39,620,860 26,105,953
---------- ----------
TOTAL OF ALL STOCK........................ 99,620,860 29,083,546
========== ==========
</TABLE>
- ---------------
* After close of our reorganization.
** Assuming no additional series E convertible preferred shares are issued under
the Colonial option agreement. Subsequent to the initial closing, and upon
receipt of the $25 million cash payment from Colonial upon the completion of
the Chicago-Aurora fiber build, we will issue 1,137,915 shares of our series
E stock. At that time, an aggregate of 2,867,546 shares of our series E stock
will be issued and outstanding (again, assuming no additional series E shares
have been issued under the Colonial option agreement).
We describe in the sections below the important terms our capital stock and
our certificate of incorporation and bylaws.
COMMON STOCK
Our common stockholders are entitled to one vote per share of common stock
on all matters to be voted upon by the stockholders generally. Holders of common
stock also will be entitled to receive dividends, if any, declared from time to
time by the board of directors out of funds legally available for dividends. If
we are liquidated, dissolved or wound-up, holders of common stock will share
proportionately in all assets available for distribution. However, both dividend
and distribution rights of our common stockholders are subject to the rights of
our preferred stockholders as described below. Our common stockholders have no
preemptive or conversion rights (other than the preemptive rights granted to Mr.
Schaeffer under our stockholders agreement). Our common stock does not have
cumulative voting rights. There are no redemption or sinking fund provisions
applicable to our common stock.
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BLANK CHECK PREFERRED STOCK
Subject to the limitations described below, our certificate of
incorporation gives our board of directors the authority, without further
stockholder action, to issue up to 10 million shares of preferred stock in one
or more series and to fix the relative powers, preferences, rights,
qualifications, limitations or restrictions of our preferred stock, including:
- Dividend rates;
- Conversion rights;
- Voting powers;
- Terms of redemption;
- Redemption prices;
- Amounts payable upon liquidation; and
- The number of shares constituting any series or the designation of those
series.
Our issuance of preferred stock may have the effect of delaying, deferring
or preventing our "change in control" and may adversely affect the voting and
other rights of our common and preferred stockholders. These effects may include
the loss of voting control to others. Other than our issuance of our preferred
stock in the reorganization (including shares that may be issued under the
Colonial option agreement), we currently have no plans to issue any shares of
preferred stock. In addition, our certificate of incorporation forbids us from
issuing any equity security, other than as set forth in the stockholders
agreement, without the affirmative vote or written consent of 67% of the
outstanding shares of all preferred stock, voting as a single class.
SERIES A, B, C, D AND E CONVERTIBLE PREFERRED STOCK
References in this discussion to "our preferred stockholders" mean the
holders of any of our preferred stock, and "our preferred stock" means any of
our preferred stock.
VOTING. Our preferred stock is voted on an "as converted" basis with our
common stock. This means that each share of our preferred stock will initially
have one vote, representing the number of votes that those shares would have if
they were converted into shares of our common stock. In the event that the
number of shares of common stock into which the shares of any series of
preferred stock may be converted is adjusted in the future, the number of votes
which shares of that series of preferred stock may exercise will be adjusted
accordingly. Upon the closing of our reorganization, our preferred stock will
together represent approximately 90% of our total outstanding voting stock.
VETO RIGHTS. The consent of holders of 67% of our preferred stock voting
together as a single class is required for actions that:
- Redeem or otherwise acquire for value any shares of our capital stock or
capital stock of our subsidiaries, except for certain redemption rights
provided in our certificate of incorporation for the holders of our
series E preferred stock and other redemptions in accordance with
stockholders agreements, option agreements or employment agreements
approved by our board of directors;
- Issue any equity securities or securities convertible into our equity
securities other than as provided in our stockholders agreement;
- Increase or decrease the total number of authorized shares of preferred
stock, other than by conversion as permitted under the certificate of
incorporation;
- Pay or declare any dividends on any capital stock;
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- Enter into a merger, consolidation, reorganization or recapitalization
transaction;
- Amend our certificate of incorporation or bylaws in any way that
adversely affects the rights or preferences of our preferred
stockholders; or
- Incur indebtedness, other than indebtedness existing on the completion of
our reorganization, indebtedness of $5 million or less or indebtedness
incurred in the ordinary course of business.
DIVIDENDS. We cannot pay any dividends on our common stock unless we have
first paid a corresponding dividend on our preferred stock.
LIQUIDATION PREFERENCE. Our preferred stockholders are entitled to a
liquidation preference equal to their initial purchase price for their preferred
shares (as adjusted for stock splits, stock dividends, recapitalizations and
similar events) plus any declared but unpaid dividends. Our series E preferred
stock ranks prior to all of our other shares of capital stock upon liquidation,
including the other shares of all preferred stock. Following payment to the
holders of our series E preferred stock, the remaining shares of all preferred
stock are ranked prior to our common stock, and on a parity with each other.
This preference currently entitles our stockholders to payments of the following
amounts upon our liquidation:
- $0.34 for each share of series A preferred stock;
- $1.13 for each share of series B preferred stock;
- $3.67 for each share of series C preferred stock;
- $21.97 for each share of series D preferred stock; and
- $21.97 for each share of series E preferred stock.
REDEMPTION. The holders of our series E preferred stock have the right to
require us to redeem some or all of their shares of series E preferred stock at
a price equal to the original purchase price paid for our series E preferred
stock if we have not either undergone an IPO, listed our common stock for
trading on a national securities exchange, or had our stock traded in an
over-the-counter market and quoted in an automated quotation system of the
National Association of Securities Dealers, Inc. on or before November 3, 2001.
(In each case, we will also need to meet certain proceeds and valuation
requirements as well.) This right is subject to the limitations on redemptions
contained in the indenture and proposed to be contained in the supplemental
indenture, which will prohibit our making this redemption for so long as this
prohibition is in effect and the notes are outstanding.
Except in circumstances involving an acquisition, merger or similar
transaction in which the holders of the shares of series A, B, C or D preferred
stock would receive as consideration for their shares payment of an amount less
than their applicable liquidation preference, we are not required to redeem our
series A, B, C or D preferred stock. Accordingly, the holders of Pathnet's
series A, B, and C preferred stock who agreed to exchange their Pathnet stock
for our stock in connection with our reorganization transaction will lose their
existing redemption rights under the Pathnet certificate of incorporation,
except in respect to such extraordinary transactions. These existing Pathnet
redemption rights are currently subject to the same contractual restrictions
under the indenture, and Pathnet cannot effect the redemption of any of its
shares so long as this covenant remains in effect and the notes are outstanding.
In addition to the redemption rights described in the preceding paragraph, our
series E shares have similar rights to elect to have their shares redeemed in
the event of an extraordinary corporate transaction for consideration less than
the applicable liquidation preference.
CONVERSION AND ANTI-DILUTION. Our preferred stockholders may convert each
share of their preferred stock at any time into one share of our common stock.
The conversion ratio may be
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increased or decreased as a result of stock splits, dividends, recapitalizations
and similar events. If we issue shares of our common stock for prices less than
the applicable conversion prices (which, immediately following the closing of
our reorganization, will be equal to the liquidation preferences indicated
above), anti-dilution provisions in our certificate of incorporation will
increase the number of shares of our common stock into which each share of the
affected series of preferred stock would be converted. The shares of series E
preferred stock possess more favorable conversion rights than do the series A,
B, C and D preferred stock. In the event of any sale of shares of our common
stock (or securities convertible into shares and our common stock) at a price
less than the applicable conversion price, the conversion formula for the shares
of series E preferred stock will adjust on a so-called "full ratchet" basis.
This means that holders of shares of series E preferred stock will be able to
convert their shares of series E preferred stock into that number of shares of
common stock that would have been available to those holders if they had
originally purchased their shares of series E stock for any reduced price at
which we issue any shares of our common stock or securities convertible into
common stock.
The shares of our series A, B, C and D preferred stock also have
anti-dilution protection, which provides for adjustments based on a
volume-adjusted weighted average of any issue of our shares of common stock (or
securities convertible into common stock) at a price lower than the applicable
conversion price for the shares of that series. You can review this formula in
the copy of our certificate of incorporation attached as an exhibit to the
registration statement filed in connection with this offering. If we were to
sell shares of our common stock (or securities convertible into common stock) at
a price lower than the applicable conversion value for any of the series of
convertible preferred stock, the dilutive effect (on the shares of our common
stock or any shares of preferred stock not participating in an adjustment) of an
anti-dilution adjustment under this formula may be substantially more pronounced
than the more commonly employed "weighted average" anti-dilution formula. Under
our volume-adjusted weighted average approach, we take account of the dilutive
effect of the "full ratchet" anti-dilution protection afforded to our series E
shares, so that even a small issue of new shares of common stock at a low price
will have a significant effect on the conversion ratios of any of our series A,
B, C or D preferred shares for which the conversion ratio is also adjusted. The
anti-dilution provisions generally will not apply to our issue of common stock
pursuant to the exercise of employee stock options or the Pathnet warrants that
we plan to assume. See "Warrants" below.
Our preferred stock automatically converts into common stock if we complete
an IPO or if our common stock is either listed for trading on a national
securities exchange or is traded in an over-the-counter market and quoted in an
automated quotation system of the National Association of Securities Dealers,
Inc. and, in each case, we satisfy certain proceeds and valuation requirements.
REGISTRATION RIGHTS. We have granted registration rights to some holders
of our common stock, preferred stock, options and warrants for the shares of our
common stock already held or to be acquired upon conversion or exercise of these
securities. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Our
Stockholders Agreement" for a description of these registration rights.
OTHER PROVISIONS OF THE PATHNET TELECOM CERTIFICATE OF INCORPORATION AND BYLAWS
Our certificate of incorporation and bylaws contain a number of provisions
relating to our governance and internal operations, including these provisions:
- Following our issuance of the applicable classes of capital stock, the
holders of our series A preferred stock will be entitled to elect two
directors by a separate class vote, the holders of our series B preferred
stock will be entitled to elect one director by a separate class vote;
the holders of our series C preferred stock will be entitled to elect one
director by a separate class
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vote; and the holders of our series D preferred stock and our series E
preferred stock will be entitled to elect three directors, voting
together as a single class;
- Our CEO will also serve as a director;
- Subject to the rights of the holders of our preferred stock to elect
directors by class, the directors in office will fill any vacancy or
newly created directorship on our board of directors, with any new
director to serve until his or her successor is elected and qualified;
- Directors may be removed by the vote of stockholders holding a majority
of the voting power of our issued and outstanding capital stock, except
that, if directors are elected by a voting group of stockholders, only
that voting group may participate in the vote to remove them. In
addition, the board of directors may remove one or more directors for
cause (as defined in our bylaws) by a majority vote of all other
directors; and
- Special meetings of stockholders may be called by our board of directors,
the Chairman of our board of directors, our President or, at any time
before a public offering, by stockholders holding shares entitled to cast
at least 25% of the total votes cast by all stockholders at a meeting of
the stockholders, and the business permitted to be conducted at a special
meeting is limited to the business stated in the notice of the special
meeting or business that is related to the purpose of the special meeting
that is brought before the meeting by our board of directors.
The provisions of our certificate of incorporation and bylaws described
above relating to the removal of directors may discourage or make the
acquisition of control of us by means of a tender offer, open market purchase or
proxy contest more difficult. These provisions may also discourage specific
types of coercive takeover practices and inadequate takeover bids and may
encourage persons seeking to acquire control of us to first negotiate with our
board of directors. We believe that these provisions will benefit us and our
stockholders by enhancing our ability to negotiate with the proponent of any
unfriendly or unsolicited proposal to acquire or restructure us. We also believe
that the benefits of discouraging these proposals outweighs the disadvantages of
doing so, because, among other things, negotiation of these proposals could
result in better terms for our stockholders.
WARRANTS
In April 1998, Pathnet issued warrants entitling the holders to purchase
1,116,500 shares of its common stock (after accounting for adjustments and
splits) to the initial purchasers of the notes. In a separate and private
transaction that Pathnet proposes to conduct only with the qualified
institutional buyers permitted to hold those warrants, Pathnet will propose to
amend and obtain waivers of the terms of the existing warrants to clarify that
upon the closing of our reorganization, we will assume Pathnet's obligations
under the warrants and they will become exercisable for shares of our common
stock. If Pathnet fails to obtain the required consent of the holders of the
Pathnet warrants to amend and waive the terms of the warrants as proposed, the
Pathnet warrants will remain outstanding and will be exercisable upon the
closing of our reorganization. In that case, individual holders of the Pathnet
warrants may exercise "tag along" rights under the warrant agreements that will
permit the electing holders to exchange their Pathnet warrants for our warrants
upon the closing of our reorganization.
Pathnet's warrants currently permit the holders to purchase a total of
1,116,500 shares of Pathnet common stock at $0.01 per share. If Pathnet obtains
the consent of the qualified institution buyers permitted to holds its warrants,
or if all of the holders of the Pathnet warrants elect to exercise their tag
along rights, we will have outstanding warrants permitting the holders to
purchase a total of 1,116,500 shares of our common stock at $0.01 per share.
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DIVIDEND POLICY
Pathnet has never declared or paid any cash dividends on its capital stock.
We have no plans to pay dividends on our common stock in the future, and
presently intend to retain any earnings to fund the growth of our business. Our
board of directors will determine the payment of any future dividends in light
of conditions then existing, including the results of our operations, financial
condition, cash requirements, restrictions in financing agreements, business
conditions and other factors. However, covenants contained in the indenture (and
those proposed to be contained in the supplemental indenture) significantly
restrict our ability to pay dividends.
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FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material anticipated federal
income tax consequences under present law to holders of the notes and to Pathnet
if the proposed indenture amendments are approved, the waivers are obtained and
Pathnet pays the consent fee to holders who are entitled to receive the fee. The
description of federal income tax law and federal income tax consequences
contained in this section constitutes the opinion of Covington & Burling, tax
counsel to Pathnet in connection with the proposed indenture amendments, except
as to matters upon which they have expressly declined to express an opinion, as
disclosed below. Covington's opinions are subject to the assumptions and
qualifications set forth in their opinion letter, a copy of which is included as
an exhibit to the registration statement of which this prospectus is a part.
The following discussion is based on the provisions of the tax code, final
and temporary Treasury regulations issued under the tax code, and administrative
and judicial interpretations of the tax code and regulations, all as in effect
as of the date of this prospectus and all of which are subject to change
(possibly on a retroactive basis). Legislative, judicial, or administrative
changes or interpretations could alter or modify the tax discussion set forth
below. This discussion does not purport to deal with all aspects of federal
income taxation that may be relevant to holders of the notes. The discussion
does not address any aspects of state, local or foreign taxation. Finally,
substantial uncertainties resulting from the lack of definitive judicial or
administrative authority and interpretations apply to various tax issues
addressed in this section, including certain tax consequences arising in
connection with the waivers, the proposed indenture amendments and payment of
the consent fee pursuant to this solicitation. Pathnet has not sought, nor does
it intend to seek, any rulings from the IRS relating to such issues or any other
issues.
This discussion does not attempt to address all issues that may be relevant
to a particular holder of the notes in light of such holder's personal
investment circumstances and does not apply to holders subject to special
treatment under the federal income tax laws such as financial institutions,
broker-dealers, insurance companies, foreign persons and entities, tax-exempt
organizations or taxpayers subject to the alternative minimum tax. This
discussion assumes that holders hold their notes as a "capital asset"
(generally, property held for investment) within the meaning of Section 1221 of
the tax code.
THE TAX TREATMENT OF A HOLDER OF THE NOTES MIGHT BE SUBJECT TO SPECIAL
RULES NOT DISCUSSED BELOW. ACCORDINGLY, EACH HOLDER OF THE NOTES SHOULD CONSULT
SUCH HOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES TO SUCH HOLDER THAT MAY ARISE IN CONNECTION WITH THIS
SOLICITATION.
PROPOSED WAIVERS AND INDENTURE AMENDMENTS
Under general principles of tax law, the modification of a debt instrument
creates a deemed exchange (upon which gain or loss is realized) if the modified
debt instrument differs materially either in kind or in extent from the original
debt instrument.
Under the tax regulations, the modification of a debt instrument is a
"significant" modification (i.e., a modification upon which gain or loss is
realized) if, based on all the facts and circumstances and taking into account
all modifications of the debt instrument collectively, the legal rights or
obligations that are altered and the degree to which they are altered are
"economically significant." A modification that adds a guarantor or pledges
collateral on a recourse debt is not a significant modification unless such
modification results in a change in payment expectations. The addition of a
guarantor or pledge of collateral results in a change in payment expectations if
it results in a substantial enhancement of the obligor's capacity to meet the
payment obligations under the debt instrument, and that capacity was primarily
speculative prior to the guarantee or pledge and is
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adequate after the guarantee or pledge. In addition, a change in the yield of a
debt instrument is a significant modification under the tax regulations if the
yield of the modified instrument (determined by taking into account any payments
made to the holder as consideration for the modification) varies from the yield
on the unmodified instrument (determined as of the date of the modification) by
more than the greater of 1/4 of one percent (25 basis points) or five percent of
the annual yield of the unmodified instrument.
As discussed above, the proposed indenture amendments would change several
terms of the notes, and the holders would waive certain rights in connection
with the solicitation. Whether the legal rights or obligations that would be
altered and the degree to which they would be altered by the proposed indenture
amendments and the waivers would be "economically significant" is not
specifically addressed by existing guidance and therefore is uncertain. However,
the legal rights and obligations that would be changed (other than the changes
resulting from the Pathnet Telecom guarantees, the pledge of collateral to
secure the October 16, 2000 interest payment on the notes following the
consummation of our reorganization and the payment of the consent fee discussed
below) as a result of the proposed indenture amendments principally would impose
new obligations on Pathnet Telecom and generally would change Pathnet's
obligations and rights only in minor respects. Similarly, although it is
uncertain, Pathnet intends to take the position that the one time waiver of the
Excess Proceeds Offer obligation and the Change of Control repurchase obligation
does not constitute an economically significant modification. Hence, Pathnet
intends to take the position that the waivers and the proposed indenture
amendments (other than the guarantees, the pledge of collateral and payment of
the consent fee described below) would not collectively result in a deemed
exchange of the notes for "new" notes ("New Notes"). Due to the inherently
factual nature of this determination and the lack of specific guidance, however,
Covington is unable to render an opinion that a deemed exchange will not occur.
It is the opinion of Covington that the payment of the consent fee should
not change the yield of the notes by an amount that will cause a significant
modification under the tax regulations. The effect of the Pathnet Telecom
guarantees and the pledge of collateral to secure the October 16, 2000 interest
payment on the notes following the consummation of the reorganization is less
clear. It is likely that the addition of the Pathnet Telecom guarantees and the
pledge of collateral will enhance Pathnet's capacity to meet its payment
obligations under the notes. Whether Pathnet's capacity to meet the payment
obligations will change from "primarily speculative" prior to the Pathnet
Telecom guarantees and the pledge of collateral to "adequate" after the
guarantees and the pledge of collateral is a question of fact that cannot be
answered in advance with certainty. Accordingly, Covington expresses no opinion
on whether Pathnet's capacity to meet the payment obligations will change from
"primarily speculative" to "adequate." It is the opinion of Covington that if
Pathnet's capacity to meet the payment obligations under the notes does not
change from "primarily speculative" to "adequate," the Pathnet Telecom
guarantees and the pledge of collateral should not create a deemed exchange of
the notes for New Notes. In such case, except as described below with respect to
the consent fee, a holder should not recognize any gain or loss as a result of
the proposed indenture amendments.
It is possible that Pathnet's capacity to meet the payment obligations will
change from "primarily speculative" to "adequate," thereby creating a deemed
exchange of the notes for New Notes. In the opinion of Covington, even if a
deemed exchange results, the deemed exchange of the notes for New Notes should
be characterized as a tax-free recapitalization under section 368(a)(1)(E) of
the tax code provided, as discussed below, both the notes and the New Notes
constitute securities within the meaning of Section 354 of the tax code. In such
case, except as described below with respect to the consent fee, it is
Covington's opinion that a holder should not recognize gain or loss as a result
of the deemed exchange.
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Whether a debt instrument constitutes a "security" within the meaning of
Section 354 of the tax code depends upon the terms, conditions and other facts
and circumstances relating to the instrument. Generally, instruments with terms
to maturity of ten years or more are treated as securities, and instruments with
terms to maturity of five years or less are generally not treated as securities.
Nevertheless, the IRS and the courts have taken the position that the term to
maturity is not the sole determinative factor, and other factors must be
considered, including the degree of participation and continuing interest in the
business, the extent of proprietary interest compared with the similarity of the
debt to a cash payment, the purposes of the advances, the degree of
subordination of the debt, the debt's exposure to the risks of the enterprise,
and other factors. Based upon an evaluation of these and other factors, Pathnet
intends to take the position that the notes and the New Notes constitute
securities within the meaning of Section 354 of the tax code. However, Covington
has advised Pathnet that, due to the lack of specific guidance and the
inherently factual nature of this determination, Covington is unable to render
an opinion that the notes and the New Notes are securities.
It is Covington's opinion that if an exchange were deemed to occur under
general principles of tax law or under the standards set forth in the tax
regulations, and if either the notes or the New Notes did not constitute
securities within the meaning section 354 of the tax code, then a holder
generally would recognize gain or loss in an amount equal to the difference
between the holder's amount realized and the holder's adjusted tax basis in the
notes deemed to have been exchanged. The holder's amount realized generally
would be the "issue price" of the New Notes. The "issue price" of the New Notes
likely would equal the stated redemption price at maturity of the New Notes,
assuming neither the notes nor the New Notes are "publicly traded" within the
meaning of the tax regulations. It is uncertain whether the notes or the New
Notes will be considered publicly traded because, among other things, certain
events after the date of the deemed exchange could cause the New Notes to
satisfy the publicly traded test set forth in the tax regulations. Such events
would include the appearance of price information regarding the New Notes, in
the form of recent price quotations or actual prices of recent sales
transactions, on a quotation system of general circulation within 30 days after
the New Notes are issued. Accordingly, Covington expresses no opinion on whether
the notes or the New Notes will be publicly traded within the meaning of the tax
regulations. If the notes or the New Notes are publicly traded, it is
Covington's opinion that the issue price of the New Notes would be equal to
their fair market value at the time of the deemed exchange. All or a portion of
any gain from the deemed exchange would constitute ordinary income to the extent
the holder purchased the notes at a market discount, i.e., at an amount less
than the stated redemption price at maturity of the notes.
If a deemed exchange occurs, regardless of whether both the notes and the
New Notes constitute securities within the meaning of section 354 of the tax
code, the New Notes may be treated as issued with original issue discount. The
New Notes generally would have original issue discount if they have an issue
price that is less than their stated redemption price at maturity. As discussed
above, the issue price of the New Notes will depend in part on whether the notes
or the New Notes are "publicly traded" within the meaning of the tax
regulations. If there is a deemed exchange and the notes or the New Notes are
publicly traded, the New Notes likely will have significant original issue
discount. If the New Notes are treated as issued with original issue discount,
holders of the New Notes generally will be required to include such discount in
income as it accrues, in advance of the receipt of cash attributable to such
income. In addition, a corporate holder may be entitled to claim a dividends
received deduction with respect to a portion of such original issue discount in
the event that the New Notes qualify as "applicable high yield discount
obligations" under Section 163 of the tax code. If a holder's tax basis in the
New Notes deemed received exceeds the stated redemption price at maturity of the
notes that are deemed to be exchanged for the New Notes, a holder generally may
elect to amortize such premium.
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TAX CONSEQUENCES TO HOLDERS THAT DO NOT CONSENT
Provided that holders of a majority in principal amount of the notes
provide the necessary consents and waivers, the proposed indenture amendments
and waivers will apply to all holders -- not merely those who consent.
Accordingly, the federal income tax consequences to holders that do not consent
will be the same as those described above for holders that provide their
consent.
RECEIPT OF CONSENT FEE
Because there is no authority specifically addressing the issue, Covington
is unable to render an opinion as to whether the consent fee should be treated
as a fee paid to the holders for their consent or, alternatively, as a premium
that is part of a deemed exchange. Pathnet intends to treat the consent fee as a
fee paid to the holders for their consent. It is Covington's opinion that if
this treatment is correct, the holders should recognize ordinary income for
federal income tax purposes in an amount equal to the consent fee to which they
are entitled, when the consent fee is received or accrued, in accordance with
their method of accounting. However, if a deemed exchange occurs and the
exchange constitutes a tax-free recapitalization, the IRS might treat the
consent fee as part of the recapitalization exchange rather than as a separate
fee. In this event, it is Covington's opinion that a holder receiving a consent
fee generally would recognize taxable gain to the extent of the lesser of (1)
the consent fee received or (2) the gain realized by the holder on the deemed
exchange.
BACKUP WITHHOLDING
The receipt of a consent fee by a holder may be subject to backup
withholding at a rate of 31% of the consent fee payable to a particular holder
of a note unless (1) the holder is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (2) the holder
provides a taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. The amount of any backup withholding from a
payment to a holder generally will be allowed as a credit against such holder's
federal income tax liability.
TAX CONSEQUENCES TO PATHNET
Assuming the waivers, the proposed indenture amendments and payment of the
consent fee do not constitute a significant modification of the notes resulting
in a deemed exchange for federal income tax purposes of the notes for New Notes,
Pathnet will not recognize any gain or loss as a result of the waivers, the
amendments and payment of the consent fee. As discussed above, Covington
expresses no opinion as to whether a deemed exchange will occur. Pathnet intends
to take the position that a deemed exchange will not occur. If a deemed exchange
does occur, it is Covington's opinion that Pathnet will not recognize gain or
loss except that Pathnet will recognize cancellation of indebtedness income to
the extent that the "issue price" of the New Notes is less than the principal
amount of the notes. As discussed above, the issue price of the New Notes will
depend, among other things, upon whether the notes or the New Notes are publicly
traded within the meaning of the tax regulations. If the notes or the New Notes
are publicly traded, the issue price of the New Notes could be significantly
less than the principal amount of the notes. It is Covington's opinion that in
this event, Pathnet would recognize a substantial amount of cancellation of
indebtedness income. Moreover, we cannot assure you that Pathnet's net operating
losses in prior years could be used to offset such income and thereby reduce any
taxes payable with respect to such income.
If, as discussed above, the notes bear original issue discount as a result
of the deemed exchange, Pathnet would have additional interest deductions
available to it by reason of such original issue discount. However, Pathnet's
ability to deduct the original issue discount may be deferred (or even
154
<PAGE> 159
disallowed in part) if the New Notes have significant original issue discount
and satisfy other requirements set forth in Section 163 of the Code with respect
to "applicable high yield discount obligations." The New Notes will have
significant original issue discount as a result of the waivers, the proposed
Indenture amendments, and payment of the consent fee only if there is a deemed
exchange of the notes for New Notes, and the notes or the New Notes are publicly
traded within the meaning of the tax regulations.
HOLDERS OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
SPECIFIC TAX CONSEQUENCES TO SUCH HOLDERS OF THIS SOLICITATION, INCLUDING THE
LIKELIHOOD THAT THE WAIVERS, THE PROPOSED INDENTURE AMENDMENTS OR THE RECEIPT OF
THE CONSENT FEE WILL RESULT IN A DEEMED EXCHANGE OF THE NOTES, AS WELL AS THE
APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
155
<PAGE> 160
PLAN OF DISTRIBUTION
Pathnet will solicit consents from and offer payment of the consent fee to
all holders of the notes, and will purchase and pledge, for the benefit of the
holders of the notes, additional securities sufficient to cover the October 16,
2000 interest payment on the notes, in each case contingent upon Pathnet's
receipt of the requisite consents. If the consent solicitation is successful and
Pathnet obtains, before the expiration of the consent solicitation process, the
required consents from the holders of a majority in outstanding principal amount
of the notes, we will execute the supplemental indenture and issue our
guarantees to all holders of the notes.
LEGAL MATTERS
Certain legal matters relating to the guarantees offered in this prospectus
will be passed upon on our behalf by Covington & Burling. Covington has from
time to time represented, and may continue to represent, us and our affiliates
in certain legal matters.
EXPERTS
Our financial statements as of December 31, 1999 and 1998 and for each of
the three years in the period ended December 31, 1999 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent public accountants, given on the
authority of the firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, a registration statement on Form S-1 under
the Securities Act regarding the offering. As permitted by the rules and
regulations of the SEC, this prospectus does not contain all the information
contained in the registration statement. For further information about us and
the offering, you can read the registration statement and the exhibits and
financial schedules filed with the registration statement. You can read a copy
of each contract or other document filed as an exhibit to the registration
statement.
Pathnet is currently subject to the informational reporting requirements of
the Exchange Act and files periodic reports and other information with the SEC.
We are filing Form 10 to become a reporting company under the Exchange Act. As a
reporting company, we will file periodic reports and other information with the
SEC. Pathnet plans to deregister as a reporting company under the rules of the
SEC when possible.
You can inspect the registration statement and the exhibits and schedules
to the registration statement, as well as the periodic reports, proxy statements
and other information we file with the SEC, without charge at the Public
Reference Section of the SEC located at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Section of the SEC by calling the SEC at
1-800-SEC-0330. You can also inspect and copy these filings at the regional
offices of the SEC located at Seven World Trade Center, 13th Floor, New York,
New York 10048 and the Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You can obtain copies of all or any portion of these
filings from the Public Reference Section of the SEC upon payment of prescribed
fees. The SEC also maintains an Internet site at http://www.sec.gov that
contains reports and information statements regarding issues, including Pathnet
Telecom, that file electronically with the SEC.
156
<PAGE> 161
Pathnet is required under the terms of the indenture to provide the
periodic reports it files with the SEC to each holder of the notes and to the
trustee under the indenture. Upon the effectiveness of the supplemental
indenture, we will be required to provide the periodic reports to holders of the
notes and the trustee, and Pathnet will be relieved of these obligations,
subject to the requirements of applicable law.
157
<PAGE> 162
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PATHNET INC. AND SUBSIDIARIES -- AUDITED FINANCIAL
STATEMENTS
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 and for the period
August 25, 1995 (date of inception) to
December 31, 1999...................................... F-4
Consolidated Statements of Comprehensive Loss for the
years ended December 31, 1999, 1998 and 1997, and for
the period August 25, 1995 (date of inception) to
December 31, 1999...................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997, and for the period
August 25, 1995 (date of inception) to
December 31, 1999...................................... F-6
Consolidated Statements of Stockholders' Equity (Deficit)
for the period August 25, 1995 (date of inception) to
December 31, 1999 and for the years ended December 31,
1997, 1998 and 1999.................................... F-7
Notes to Consolidated Financial Statements................ F-8
PATHNET TELECOMMUNICATIONS, INC. -- AUDITED FINANCIAL
STATEMENTS
Report of Independent Accountants......................... F-24
Balance Sheet as of December 31, 1999..................... F-25
Statement of Operations for the period November 1, 1999
(date of inception) through December 31, 1999.......... F-26
Statement of Cash Flow for the period November 1, 1999
(date of inception) through December 31, 1999.......... F-27
Statement of Stockholders' Equity for the period November
1, 1999 (date of inception) through December 31,
1999................................................... F-28
Notes to Financial Statements............................. F-29
</TABLE>
F-1
<PAGE> 163
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Pathnet, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Pathnet, Inc. and its subsidiaries (a development stage enterprise)
(the Company) at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, 1998 and 1997 and for the period August 25, 1995 (date of inception)
to December 31, 1999, in conformity with accounting principles generally
accepted in the United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
McLean, Virginia
February 22, 2000
F-2
<PAGE> 164
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 90,661,837 $ 57,321,887
Note receivable............................................. -- 3,206,841
Interest receivable......................................... 1,048,417 3,848,753
Marketable securities available for sale, at market......... 42,651,836 97,895,773
Prepaid expenses and other current assets................... 1,437,464 205,505
------------- ------------
Total current assets.................................... 135,799,554 162,478,759
Property and equipment, net................................. 131,928,365 47,971,336
Deferred financing costs, net............................... 9,649,680 10,508,251
Restricted cash............................................. 16,452,916 10,731,353
Marketable securities available for sale, at market......... 5,088,458 71,899,757
Pledged marketable securities held to maturity.............. 21,265,206 61,824,673
Other assets................................................ 351,808 --
------------- ------------
Total assets............................................ $ 320,535,987 $365,414,129
============= ============
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable............................................ $ 18,543,195 $ 10,708,263
Accrued interest............................................ 8,932,293 8,932,294
Accrued expenses and other liabilities...................... 3,113,181 639,688
------------- ------------
Total current liabilities............................... 30,588,669 20,280,245
12 1/4% Senior Notes, net of unamortized bond discount of
$3,378,375 and $3,787,875................................. 346,621,625 346,212,125
Other noncurrent liabilities................................ 3,092,779 --
------------- ------------
Total liabilities....................................... 380,303,073 366,492,370
------------- ------------
Series A convertible preferred stock, $0.01 par value,
1,000,000 shares authorized, issued and outstanding at
December 31, 1999 and 1998, respectively (liquidation
preference $1,000,000).................................... 1,000,000 1,000,000
Series B convertible preferred stock, $0.01 par value,
1,651,046 shares authorized, issued and outstanding at
December 31, 1999 and 1998, respectively (liquidation
preference $5,033,367).................................... 5,008,367 5,008,367
Series C convertible preferred stock, $0.01 par value,
2,819,549 shares authorized, issued and outstanding at
December 31, 1999 and 1998, respectively (liquidation
preference $30,000,052)................................... 29,961,272 29,961,272
------------- ------------
Total mandatorily redeemable preferred stock............ 35,969,639 35,969,639
------------- ------------
Common stock, $0.01 par value, 60,000,000 shares authorized,
3,068,218 and 2,902,358 shares issued and outstanding at
December 31, 1999 and 1998, respectively.................. 30,682 29,024
Deferred compensation....................................... (441,760) (978,064)
Additional paid-in capital.................................. 6,264,362 6,156,406
Accumulated other comprehensive (loss) income............... (90,240) 208,211
Deficit accumulated during the development stage............ (101,499,769) (42,463,457)
------------- ------------
Total stockholders' equity (deficit).................... (95,736,725) (37,047,880)
------------- ------------
Total liabilities, mandatorily redeemable preferred
stock and stockholders' equity (deficit)............... $ 320,535,987 $365,414,129
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 165
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 25, 1995
FOR THE YEAR ENDED DECEMBER 31, (DATE OF INCEPTION)
----------------------------------------- TO DECEMBER 31,
1999 1998 1997 1999
------------ ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Revenue................................ $ 3,311,096 $ 1,583,539 $ 162,500 $ 5,058,135
------------ ------------ ----------- -------------
Operating expenses:
Cost of revenue...................... 12,694,909 7,547,620 -- 20,242,529
Selling, general and
administrative.................... 14,669,747 9,615,867 4,247,101 30,295,096
Reorganization expenses.............. 1,022,998 -- -- 1,022,998
Depreciation expense................. 6,204,381 732,813 46,642 6,993,212
------------ ------------ ----------- -------------
Total operating expenses.......... 34,592,035 17,896,300 4,293,743 58,553,835
------------ ------------ ----------- -------------
Operating loss......................... (31,280,939) (16,312,761) (4,131,243) (53,495,700)
Interest expense....................... (41,010,069) (32,572,454) -- (73,997,880)
Interest income........................ 13,111,953 13,940,240 159,343 27,227,189
Write-off of initial public offering
costs................................ -- (1,354,534) -- (1,354,534)
Other income (expense), net............ 142,743 2,913 (5,500) 140,156
------------ ------------ ----------- -------------
Net loss.......................... $(59,036,312) $(36,296,596) $(3,977,400) $(101,480,769)
============ ============ =========== =============
Basic and diluted net loss per common
share................................ $ (20.14) $ (12.51) $ (1.37)
============ ============ ===========
Weighted average number of common
shares outstanding................... 2,931,644 2,902,029 2,900,000
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 166
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 25, 1995
FOR THE YEAR ENDED DECEMBER 31, (DATE OF INCEPTION)
----------------------------------------- TO DECEMBER 31,
1999 1998 1997 1999
------------ ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Net loss............................... $(59,036,312) $(36,296,596) $(3,977,400) $(101,480,769)
Other comprehensive (loss) income:
Net unrealized (loss) gain on
marketable
securities available for sale........ (298,451) 208,211 -- (90,240)
------------ ------------ ----------- -------------
Comprehensive loss..................... $(59,334,763) $(36,088,385) $(3,977,400) $(101,571,009)
============ ============ =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 167
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED AUGUST 25, 1995
DECEMBER 31, (DATE OF INCEPTION)
------------------------------------------ TO DECEMBER 31,
1999 1998 1997 1999
------------ ------------- ----------- -------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(59,036,312) $ (36,296,596) $(3,977,400) $(101,480,769)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation expense.................................... 6,204,381 732,813 46,642 6,993,212
Amortization of deferred financing costs................ 1,138,722 842,790 -- 1,981,512
Loss on sale of equipment............................... 17,370 -- 5,500 22,870
Gain on sale of marketable securities................... (157,983) -- -- (157,983)
Write-off of deferred financing costs................... -- 581,334 -- 581,334
Interest expense resulting from amortization of discount
on the bonds payable.................................. 409,500 307,125 -- 716,625
Amortization of premium on pledged securities........... 537,251 -- -- 537,251
Amortization of deferred compensation................... 536,304 701,295 -- 1,237,599
Interest expense for beneficial conversion feature of
bridge loan........................................... -- -- -- 381,990
Accrued interest satisfied by conversion of bridge loan
to series B convertible preferred stock............... -- -- -- 33,367
Changes in assets and liabilities:
Interest receivable..................................... 3,370,552 (4,846,952) -- (1,476,400)
Prepaid expenses and other current assets............... (1,583,767) (156,935) (46,876) (1,789,272)
Accounts payable........................................ 689,533 6,709 386,106 3,683,391
Accrued interest........................................ -- 8,932,294 -- 8,932,293
Accrued expenses and other liabilities.................. 2,816,674 339,688 269,783 3,456,361
------------ ------------- ----------- -------------
Net cash used in operating activities................. (45,057,775) (28,856,435) (3,316,245) (76,346,619)
------------ ------------- ----------- -------------
Cash flows from investing activities:
Expenditures for network in progress...................... (79,378,740) (33,619,342) (1,739,782) (117,224,107)
Expenditures for property and equipment................... (910,668) (2,769,076) (381,261) (4,116,561)
Proceeds from sale of equipment........................... 5,624 -- -- 5,624
Sale of marketable securities available for sale.......... 170,446,259 51,542,384 -- 221,988,643
Purchase of marketable securities available for sale...... (48,531,491) (221,129,703) -- (269,661,194)
Purchase of pledged marketable securities held to
maturity................................................ -- (83,097,655) -- (83,097,655)
Maturity of pledged marketable securities held to
maturity................................................ 39,452,000 22,271,181 -- 61,723,181
Restricted cash........................................... (5,721,563) (9,971,142) (760,211) (16,452,916)
Issuance of note receivable to incumbent.................. -- (3,206,841) -- (3,206,841)
Repayment of note receivable.............................. 3,206,841 9,000 -- 3,215,841
------------ ------------- ----------- -------------
Net cash provided by (used in) investing activities..... 78,568,262 (279,971,194) (2,881,254) (206,825,985)
------------ ------------- ----------- -------------
Cash flows from financing activities:
Issuance of voting and non-voting common stock............ -- -- -- 1,000
Proceeds from sale of preferred stock..................... -- 19,999,998 12,000,054 35,000,052
Proceeds from sale of series B convertible preferred stock
representing the conversion of committed but undrawn
portion of bridge loan to series B convertible preferred
stock................................................... -- -- -- 300,000
Proceeds from bond offering............................... -- 350,000,000 -- 350,000,000
Proceeds from bridge loan................................. -- -- -- 700,000
Exercise of employee common stock options................. 109,614 81 -- 109,695
Payment of issuance costs for preferred stock offerings... -- -- (38,780) (63,780)
Payment of deferred financing costs....................... (280,151) (11,681,947) (250,428) (12,212,526)
------------ ------------- ----------- -------------
Net cash (used in) provided by financing activities..... (170,537) 358,318,132 11,710,846 373,834,441
------------ ------------- ----------- -------------
Net increase in cash and cash equivalents................... 33,339,950 49,490,503 5,513,347 90,661,837
Cash and cash equivalents at the beginning of period........ 57,321,887 7,831,384 2,318,037 --
------------ ------------- ----------- -------------
Cash and cash equivalents at the end of period.............. $ 90,661,837 $ 57,321,887 $ 7,831,384 $ 90,661,837
============ ============= =========== =============
Supplemental disclosure:
Cash paid for interest.................................... $ 43,081,220 $ 22,271,234 $ -- $ 65,352,454
============ ============= =========== =============
Noncash investing and financing transactions:
Conversion of bridge loan plus accrued interest to
series B convertible preferred stock.................. $ -- $ -- $ -- $ 733,367
------------ ------------- ----------- -------------
Conversion of non-voting common stock to voting common
stock................................................. $ -- $ -- $ -- $ 500
------------ ------------- ----------- -------------
Issuance of voting and non-voting common stock.......... $ -- $ -- $ -- $ 9,000
------------ ------------- ----------- -------------
Acquisition of network equipment financed by accounts
payable and other long-term obligations............... $ 20,359,001 $ 10,200,650 $ 5,092,013 $ 20,359,001
------------ ------------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 168
PATHNET INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTE OTHER
COMMON STOCK RECEIVABLE ADDITIONAL COMPREHENSIVE
--------------------- FROM DEFERRED PAID-IN INCOME
SHARES AMOUNT STOCKHOLDER COMPENSATION CAPITAL (LOSS)
---------- -------- ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 25, 1995 (date of
inception)................................. -- $ -- $ -- $ -- $ -- $ --
Issuance of Voting common stock.............. 1,450,000 14,500 (4,500) -- -- --
Issuance of Non-voting common stock.......... 1,450,000 14,500 (4,500) -- -- --
Net loss..................................... -- -- -- -- -- --
---------- -------- ------- ----------- ---------- --------
BALANCE AT DECEMBER 31, 1995................. 2,900,000 29,000 (9,000) -- -- --
Cancellation of Non-voting common stock...... (1,450,000) (14,500) -- -- -- --
Issuance of Voting common stock.............. 1,450,000 14,500 -- -- -- --
Interest expense for beneficial conversion
feature of bridge loan..................... -- -- -- -- 381,990 --
Net loss..................................... -- -- -- -- -- --
---------- -------- ------- ----------- ---------- --------
BALANCE AT DECEMBER 31, 1996................. 2,900,000 29,000 (9,000) -- 381,990 --
Net loss..................................... -- -- -- -- -- --
---------- -------- ------- ----------- ---------- --------
BALANCE AT DECEMBER 31, 1997................. 2,900,000 29,000 (9,000) -- 381,990 --
Exercise of stock options.................... 2,358 24 -- -- 57 --
Repayment of note receivable................. -- -- 9,000 -- -- --
Deferred compensation expense related to
issuance of employee common stock
options.................................... -- -- -- (1,679,359) 1,679,359 --
Amortization of deferred compensation expense
related to issuance of employee common
stock options.............................. -- -- -- 701,295 -- --
Fair value of warrants to purchase common
stock...................................... -- -- -- -- 4,095,000 --
Net unrealized gain on marketable securities
available for sale......................... -- -- -- -- -- 208,211
Net loss..................................... -- -- -- -- -- --
---------- -------- ------- ----------- ---------- --------
BALANCE AT DECEMBER 31, 1998................. 2,902,358 29,024 -- (978,064) 6,156,406 208,211
Exercise of stock options.................... 165,860 1,658 107,956
---------- -------- ------- ----------- ---------- --------
Amortization of deferred compensation expense
related to issuance of employee common
stock options.............................. -- -- -- 536,304 -- --
Net unrealized gain on marketable securities
available for sale......................... -- -- -- -- -- (298,451)
Net loss..................................... -- -- -- -- -- --
---------- -------- ------- ----------- ---------- --------
BALANCE AT DECEMBER 31, 1999................. 3,068,218 $ 30,682 $ -- $ (441,760) $6,264,362 $(90,240)
========== ======== ======= =========== ========== ========
<CAPTION>
DEFICIT
ACCUMULATED
DURING
DEVELOPMENT
STAGE TOTAL
------------- ------------
<S> <C> <C>
BALANCE AT AUGUST 25, 1995 (date of
inception)................................. $ -- $ --
Issuance of Voting common stock.............. (9,500) 500
Issuance of Non-voting common stock.......... (9,500) 500
Net loss..................................... (426,826) (426,826)
------------- ------------
BALANCE AT DECEMBER 31, 1995................. (445,826) (425,826)
Cancellation of Non-voting common stock...... -- (14,500)
Issuance of Voting common stock.............. -- 14,500
Interest expense for beneficial conversion
feature of bridge loan..................... -- 381,990
Net loss..................................... (1,743,635) (1,743,635)
------------- ------------
BALANCE AT DECEMBER 31, 1996................. (2,189,461) (1,787,471)
Net loss..................................... (3,977,400) (3,977,400)
------------- ------------
BALANCE AT DECEMBER 31, 1997................. (6,166,861) (5,764,871)
Exercise of stock options.................... -- 81
Repayment of note receivable................. -- 9,000
Deferred compensation expense related to
issuance of employee common stock
options.................................... -- --
Amortization of deferred compensation expense
related to issuance of employee common
stock options.............................. -- 701,295
Fair value of warrants to purchase common
stock...................................... -- 4,095,000
Net unrealized gain on marketable securities
available for sale......................... -- 208,211
Net loss..................................... (36,296,596) (36,296,596)
------------- ------------
BALANCE AT DECEMBER 31, 1998................. (42,463,457) (37,047,880)
Exercise of stock options.................... 109,614
------------- ------------
Amortization of deferred compensation expense
related to issuance of employee common
stock options.............................. -- 536,304
Net unrealized gain on marketable securities
available for sale......................... -- (298,451)
Net loss..................................... (59,036,312) (59,036,312)
------------- ------------
BALANCE AT DECEMBER 31, 1999................. $(101,499,769) $(95,736,725)
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 169
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Pathnet, Inc. (Company) is a wholesale telecommunications provider building
a nationwide network designed to provide other wholesale and retail
telecommunications service providers with access to underserved and second and
third tier markets throughout the United States. The Company's network will
enable its customers including existing local telephone companies, long distance
companies, Internet service providers, competitive telecommunications companies,
cellular operators and other telecommunications service providers to offer
additional services to new and existing customers in these markets without
having to expend their own resources to build, expand, or upgrade their own
networks.
During 1999, Pathnet continued to construct and deploy digital networks
utilizing both wireless and fiber-optic technologies. Pursuant to its agreement
with Worldwide Fiber USA (WFI), the Company began to construct and market a
multi-conduit fiber-optic network between Chicago, Illinois and Denver, Colorado
during the second quarter. In August 1999, the Company announced it will
co-develop a 400 mile fiber network connecting Grand Junction, Colorado to
Albuquerque, New Mexico with Tri-State Generation and Transmission Association,
Inc. (Tri-State).
As of December 31, 1999, the Company's network consisted of over 6,300
wireless route miles providing wholesale transport services to 30 cities and 500
miles of installed fiber. The Company is constructing an additional 600 route
miles of fiber network, which is scheduled for completion in the first half of
2000.
Since inception, the Company's business has been funded primarily through
equity investments by the Company's stockholders and $350.0 million aggregate
principal amount of 12 1/4% Senior Notes due 2008 (Senior Notes) which have been
registered under the Securities Act.
A substantial portion of the Company's initial activities involved
developing strategic relationships with co-developers such as railroads,
pipelines and utilities and building its network. Accordingly, most of its
earlier revenues reflected only project management and advisory services in
connection with the design, development and construction of its network.
Revenues from the sale of telecommunication services along the Company's digital
network are approximately 51% to date. 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 losses.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The Company recently commenced providing telecommunication services to
customers and recognizing the revenue from the sale of such telecommunication
services. The Company's principal activities to date have been securing
contractual alliances with its co-development partners, designing and
constructing network path segments, obtaining capital and planning its proposed
service. Accordingly, the Company's consolidated 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 equity and debt securities, rather than recurring
revenues, for its primary sources of cash since inception.
F-8
<PAGE> 170
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATION
The consolidated financial statements include the accounts of Pathnet, Inc.
and its wholly owned subsidiaries, Pathnet Finance I, LLC, Pathnet/Idaho Power
License, LLC, Pathnet Fiber Optics, LLC and Pathnet/BNSF Equipment, LLC. All
material intercompany accounts and transactions have been eliminated in
consolidation.
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. Actual amounts could differ
from these estimates.
LOSS PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted average number of shares of Common Stock outstanding during the
applicable period. Diluted earnings (loss) per share is computed by dividing net
income (loss) by the weighted average common and potentially dilutive common
equivalent shares outstanding during the applicable period. For each of the
periods presented, basic and diluted loss per share are the same. The exercise
of 2,675,597 employee Common Stock options, the exercise of warrants to purchase
1,116,500 shares of Common Stock, and the conversion of 5,470,595 shares of
Series A, B and C convertible preferred stock into 15,864,715 shares of Common
Stock as of December 31, 1999, which could potentially dilute basic earnings per
share in the future were not included in the computation of diluted loss per
share for the periods presented because to do so would have been antidilutive in
each case.
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. As of
December 31, 1999, the fair value of the Company's 12 1/4% Senior Notes was
approximately $220.5 million.
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, marketable
securities and associated interest receivable, note receivable, and restricted
cash. Marketable securities and associated interest receivable include U.S.
Treasury securities and debt securities of U.S. Government agencies,
certificates of deposit and money market funds, and corporate debt securities.
The Company has invested its excess cash in a money market fund with a
commercial bank. The money market fund is collateralized by the
F-9
<PAGE> 171
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
underlying assets of the fund. The Company's restricted cash is maintained in an
escrow account (see Note 7) at a major bank. The Company has not experienced any
losses on its cash and cash equivalents and restricted cash.
MARKETABLE SECURITIES
Management determines the appropriate classification of its investments in
marketable securities at the time of purchase and reevaluates such
determinations at each balance sheet date. Debt securities are classified as
held to maturity when the Company has the positive intent and ability to hold
the securities to maturity. The Company has classified certain securities as
held to maturity pursuant to a pledge agreement. Held to maturity securities are
stated at amortized cost. Debt securities for which the Company does not have
the intent or ability to hold to maturity are classified as available for sale,
along with any investments in equity securities. Securities are classified as
current or noncurrent based on the maturity date. Securities available for sale
are carried at fair value based on quoted market prices at the balance sheet
date, with unrealized gains and losses reported as part of accumulated other
comprehensive income (loss).
The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization and interest
are included in interest income or expense. Realized gains and losses are
included in other income (expense), net in the consolidated statements of
operations. The cost of securities sold is based on the specific identification
method. The Company's investments in debt and equity securities are diversified
among high credit quality securities in accordance with the Company's investment
policy.
PROPERTY AND EQUIPMENT
Property and equipment, consisting of network in progress, communications
network, office and computer equipment, furniture and fixtures and leasehold
improvements, is stated at cost. Network in progress costs incurred during
development, including interest, are capitalized. Depreciation of the completed
communications network commences when the network equipment is ready for its
intended use and is computed using the straight-line method with estimated
useful lives of network assets ranging between three to twenty years.
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. 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.
F-10
<PAGE> 172
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED INCOME TAXES
The Company uses the liability method of accounting for income taxes.
Deferred income taxes result from temporary 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.
REVENUE RECOGNITION
The Company earns revenue from the sale of telecommunication capacity and
for project management and consulting services. Revenue from the sale of
telecommunications capacity is earned when the service is provided. Revenue for
project management and consulting services is recognized over the related
project period as milestones are achieved. The Company defers revenue when
contractual payments are received in advance of the performance of services.
Revenue from the sale of telecommunications capacity includes revenue
earned under indefeasible right to use agreements. The Company recognizes
revenue earned under such agreements on a straight-line basis over their term.
DEFERRED FINANCING COSTS
The Company has incurred costs related to the Debt Offering together with
costs associated with obtaining future debt financing arrangements. Such costs
are amortized over the term of the debt or financing arrangement other than when
financing has not been obtained, in which case, the costs are expensed
immediately.
SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS No.
131). SFAS No. 131 changes the way public companies report segment information
in annual financial statements and also requires those companies to report
selected segment information in interim financial reports to stockholders. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. Management believes the Company's current
operations comprise only one segment, the sale of telecommunications capacity,
and as such, adoption of SFAS No. 131 does not impact the disclosures made in
the Company's financial statements.
NEW ACCOUNTING PRONOUNCEMENT
In July 1999, the Financial Accounting Standards Board (FASB) issued FIN
43, "Real Estate Sales, an interpretation of FASB Statement No. 66". The Company
is still assessing the impact of FIN 43 on its future operations. Specifically,
the Company is assessing the impact of the requirement that title transfer in
order to use sale type lease accounting for IRU arrangements. Under FIN 43 if
title does not transfer then the arrangement is accounted for as an operating
lease. For the year ended December 31, 1999 there has been no revenue generated
from sales of IRU arrangements.
F-11
<PAGE> 173
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. MARKETABLE SECURITIES
The Company's marketable securities are considered "available for sale,"
and, as such, are stated at market value. The net unrealized gains and losses on
marketable securities are reported as part of accumulated other comprehensive
income (loss). Realized gains or losses from the sale of marketable securities
are based on the specific identification method.
The following is a summary of the investments in marketable securities at
December 31, 1999:
<TABLE>
<CAPTION>
GROSS UNREALIZED
------------------------------------------------
COST GAINS LOSSES MARKET VALUE
------------ -------- ------- ------------
<S> <C> <C> <C> <C>
Available for sale securities:
U.S. Treasury securities and debt
securities of U.S. Government
agencies........................... $ 19,363,417 $ -- $59,490 $ 19,303,927
Corporate debt securities............. 26,959,695 8,880 30,088 26,938,407
Debt securities issued by foreign
governments........................ 1,507,422 -- 9,462 1,497,960
------------ -------- ------- ------------
$ 47,830,534 $ 8,800 $99,040 $ 47,740,294
============ ======== ======= ============
</TABLE>
Gross realized gains on sales available for sale securities were
approximately $158,000 during the year ended December 31, 1999. Gross realized
gains and gross realized losses on sales of available for sale securities were
immaterial during the year ended December 31, 1998.
The amortized cost and market value of available for sale securities by
contractual maturity at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
COST MARKET VALUE
----------- ------------
<S> <C> <C>
Due in one year or less..................................... $42,688,416 $42,651,835
Due after one year through two years........................ 5,142,118 5,088,459
----------- -----------
$47,830,534 $47,740,294
=========== ===========
</TABLE>
Expected maturities may differ from contractual maturities because the
issuers of the securities may have the right to prepay obligations without
prepayment penalties.
In addition to marketable securities, the Company has investments in
pledged marketable securities that are pledged as collateral for repayment of
interest on the Company's Senior Notes through April 2000 (see note 8) and are
classified as non-current assets on the consolidated balance sheet. As of
December 31, 1999 pledged marketable securities consisted of U.S. Treasury
securities classified as held to maturity with an amortized cost of
approximately $20.8 million, interest receivable on the pledged marketable
securities of approximately $356,000 and cash and cash equivalents of
approximately $112,000. All of the investments contractually mature March 31,
2000.
4. NOTE RECEIVABLE
In 1998, under the terms of a promissory note with an incumbent, the
Company agreed to advance up to $10.0 million principal for the purpose of
funding the incumbent's equipment expenditures under a Fixed Point Microwave
Services agreement. Equipment expenditures initially incurred by the Company
were recharged at cost to the incumbent as principal under the promissory note.
The principal amount of the promissory note was paid during 1999.
F-12
<PAGE> 174
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, is comprised of the following at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Network in progress........................................ $ 63,123,322 $38,669,088
Communications network..................................... 71,604,029 6,890,686
Office and computer equipment.............................. 2,262,934 2,267,647
Furniture and fixtures..................................... 1,555,771 766,013
Leasehold improvements..................................... 337,181 166,733
------------ -----------
138,883,237 48,760,167
Less: accumulated depreciation............................. (6,954,872) (788,831)
------------ -----------
Property and equipment, net................................ $131,928,365 $47,971,336
============ ===========
</TABLE>
Network in progress includes (i) all direct material and labor costs
together with related allocable interest costs, necessary to construct
components of a high capacity digital wireless and fiber optic network and (ii)
network related inventory parts and equipment. The network in progress balance
as of December 31, 1999 includes approximately $36.8 million for costs incurred
under the Company's agreement with WFI to construct a digital fiber optic
network and $2.7 million for a right of use under an agreement with Northern
Border Pipeline for microwave access. When a portion of the network has been
completed and made available for use by the Company, the accumulated costs are
transferred from network in progress to communications network and depreciated.
6. DEFERRED FINANCING COSTS
During 1998, the Company incurred total issuance costs of approximately
$11.3 million in connection with the Debt Offering. For the year ended December
31, 1999 and 1998, amortization of the costs of approximately $1.1 million and
$843,000 was charged to interest expense, respectively.
7. RESTRICTED CASH
Restricted cash comprises amounts held in escrow to collateralize the
Company's obligations under certain of its development agreements. The funds in
each escrow account are available only to fund the projects to which the escrow
is related. Generally, funds are released from escrow to pay project costs as
incurred. During the year ended December 31, 1999, the Company deposited
approximately $13.4 million in escrow and $7.7 million was released from escrow.
During the year ended December 31, 1998, the Company deposited approximately
$10.3 million in escrow and no funds were released from escrow.
8. LONG-TERM DEBT
During 1998, the Company completed the Debt Offering for total gross
proceeds of $350.0 million less total issuance costs of approximately $11.3
million. Upon issuance, approximately $345.9 million of the gross proceeds was
allocated to the Senior Notes and approximately $4.1 million was allocated to
the Warrants based upon estimated fair values. The Warrants expire on April 15,
2008. The estimated value attributed to the Warrants has been recorded as a
discount on the face value of the Senior Notes and as additional paid-in
capital. This discount is amortized as an increase to interest expense and the
carrying value of the debt over the related term using the interest method.
F-13
<PAGE> 175
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has recorded approximately $410,000 and $307,000 of expense for the
years ended December 31, 1999 and 1998, respectively, related to the
amortization of this discount. Interest on the Senior Notes accrues 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. For the years ended December 31,
1999 and 1998, interest on the Senior Notes was approximately $42.9 million and
$31.3 million, respectively, of which approximately $3.6 million and $362,000,
respectively, was capitalized as network under development. The Company used
approximately $81.1 million of the proceeds related to the Debt Offering to
purchase U.S. Government debt securities, which are restricted and pledged as
collateral for repayment of all interest due on the Senior Notes through April
15, 2000. The Senior 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 plus accrued and unpaid interest (1) on or after April 15, 2003; 106% of
the principal amount, (2) on or after April 15, 2004; 104% of the principal
amount, (3) on or after April 15, 2005; 102% of the principal amount and (4) on
or after April 15, 2006; 100% of the principal amount. In addition, at any time
prior to April 15, 2001, the Company may redeem within sixty days, with the net
cash proceeds of one or more public equity offerings, up to 35% of the aggregate
principal amount of the Senior Notes at a redemption price equal to 112.25% of
the principal amount plus accrued and unpaid interest provided that at least 65%
of the original principal amount of the Senior Notes remain outstanding. Upon a
change in control, as defined, each holder of the Senior Notes may require the
Company to repurchase all or a portion of such holder's Senior Notes at a
purchase price of cash equal to 101% of the principal amount plus accrued and
unpaid interest and liquidated damages if any.
The Senior Notes contain certain covenants which restrict the activities of
the Company including limitations of indebtedness, restricted payments,
issuances and sales of capital stock, affiliate transactions, liens, guarantees,
sale of assets and dividends.
9. CAPITAL STOCK TRANSACTIONS
COMMON STOCK
The initial capitalization of the Company, on August 25, 1995, occurred
through the issuance by the Company of 1,450,000 shares of voting common stock
and 1,450,000 shares of non-voting common stock.
On May 8, 1998, the Company filed a registration statement with the SEC for
an initial public offering of common stock (Initial Public Offering). The
Company subsequently postponed the Initial Public Offering. In relation to the
postponement of the Initial Public Offering, the Company wrote off approximately
$1.4 million in expenses, consisting primarily of legal and accounting fees,
printing costs, and SEC and NASDAQ Stock Market fees. On July 24, 1998, the
Company's stockholders approved a 2.9-for-1 stock split which was effected on
August 3, 1998, the record date. All share information has been adjusted for
this stock split for all periods presented.
PREFERRED STOCK
As part of its initial capitalization on August 25, 1995, the Company
initiated a private offering of 1 million shares of Series A convertible
preferred stock for $1 million. Pursuant to the terms of the Investment and
Stockholders' Agreement by and among the Company and certain stockholders of the
Company (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
F-14
<PAGE> 176
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$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 million.
The bridge loan carried an interest rate of 12% per annum and was 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 was converted into Series B preferred stock at 73% of the price of
the Series B convertible preferred stock issued in the next 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 under 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 million less issuance
costs of $25,000 pursuant to the Investment and Stockholders Agreement. 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, pursuant to the Investment and Stockholders
Agreement, the Company received an additional $2 million 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.
On October 31, 1997, pursuant to the Investment and Stockholders Agreement,
the Company consummated a private offering of 939,850 shares of Series C
convertible preferred stock for approximately $10 million, less issuance costs
of $38,780. On April 8, 1998, pursuant to the Investment and Stockholders
Agreement, the Company consummated a second closing of 1,879,699 shares of
Series C convertible preferred stock for an aggregate purchase price of
approximately $20.0 million. There were no issuance costs associated with the
second closing.
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 currently convertible.
The holders of the Series A, Series B and Series C 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.
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
F-15
<PAGE> 177
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $0.34, $1.13 or $3.67 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: (1) the Company is valued on a
pre-money basis at greater than $50 million, (2) the gross proceeds received by
the Company exceed $20 million, and (3) the Company uses a nationally recognized
underwriter approved by holders of a majority interest of the Series A, Series B
and Series C convertible preferred stock voting together.
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
F-16
<PAGE> 178
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
within the control of the Company. Therefore, the Company does not present the
Series C preferred stock as a component of stockholders' equity.
Notwithstanding the provisions for optional redemption described above,
pursuant to a Consent Waiver and Amendment effective March 24, 1998 among the
Company and certain stockholders of the Company, the holders of the Series A,
Series B and Series C convertible preferred stock agreed that no optional
redemption of the Series A, Series B or Series C convertible preferred stock may
be made by the Company prior to 90 days after (1) the final maturity dated of
the Senior Notes (2) or such earlier date (after the redemption date specified
for such preferred stock) as the Senior Notes shall be paid in full.
10. STOCK OPTIONS
On August 25, 1995, the Company adopted the 1995 Stock Option Plan (1995
Plan), under which incentive stock options and non-qualified stock options could
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, determined the number of options granted, the vesting period and the
exercise price of each award made under the 1995 Plan. The 1995 Plan will
terminate August 28, 2005 unless terminated earlier by the Board of Directors.
During 1998, the Compensation Committee determined that no further awards would
be granted under the 1995 Plan.
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, 1999, a total of 70,731 non-qualified
stock options and 353,662 incentive stock options were issued at an exercise
price of $0.03 per share, an amount estimated to equal or exceed the per share
fair value of the common stock at the time of grant. As of December 31, 1999,
the options issued at an exercise price of $0.03 had a weighted average
contractual life of 5.7 years. As of December 31, 1999, 424,393 of the options
issued at an exercise price of $0.03 were exercisable.
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 under the 1997 Plan. The Compensation Committee,
which administers the 1997 Plan, determines the number of options granted, the
vesting period and the exercise price of each award granted under the 1997 Plan.
The 1997 Plan will terminate July 31, 2007 unless earlier terminated by the
Board of Directors.
Options granted under the 1997 Plan generally vest over a three to seven
year period and expire: (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) on
the date of the participant's termination with cause or (5) on the date of any
material breach of any confidentiality or non-competition covenant or agreement
entered into between the participant and the Company.
The options issued on October 31, 1997, at $3.67, vest on October 31, 2004
provided, however (1) if the Company has met 80% of its revenue and Earnings
Before Interest, Taxes, Depreciation and Amortization (EBITDA) budget for the
calendar year ended December 31, 1998, which budget is approved by the Board of
Directors of the Company, 50% of the shares covered by the options
F-17
<PAGE> 179
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shall vest and become exercisable on January 1, 1999, (2) if the Company has met
80% of its revenue and EBITDA budget for the calendar year ended 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 (3) 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
(1) above and the Company not only meets 80% of its revenue and EBITDA budget
for the year ended December 31, 1999 but exceeds 80% of its revenue and EBITDA
budget for the year ended 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 ended December 31, 1998, 100% of the shares covered by
the options shall vest and become exercisable on January 1, 2000. Unvested and
uncancelled options issued at $3.67 immediately become fully vested and
exercisable upon a change of control or a qualified public offering, as defined
in the option agreement. In an agreement dated November 4, 1999, 107,389 options
became fully vested at $3.67 per share and the remaining options were cancelled.
The options issued at $1.13 vest ratably over three or four consecutive
years subject to certain acceleration provisions set forth in an employment
agreement such as the immediate vesting upon a change in control or a qualified
initial public offering. Under certain circumstances and subject to the terms of
the Senior Notes, 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.
As of December 31, 1999, a total of 2,251,204 non-qualified options were
issued and outstanding, 1,119,957 at an exercise price of $1.13 per share,
197,110 at an exercise price of $3.67 per share and 934,137 at an exercise price
of $5.20 per share. As of December 31, 1999, a total of 976,785 non-qualified
options were exercisable, 761,921 at an exercise price of $1.13 per share,
129,818 at an exercise price of $3.67 per share and 85,046 at an exercise price
of $5.20 per share. As of December 31, 1999, the weighted average contractual
life of the options issued at $1.13, $3.67 and $5.20 was 7.7 and 8.1 and 9.2
years, respectively.
During the year ended December 31, 1998, 667,373, 89,721 and 350,000
options were issued at an exercise price of $1.13, $3.67 and $5.20 per share,
respectively. The estimated fair value of the Company's underlying common stock
in each case was determined to be $1.99, $16.00 and $5.20 per share,
respectively. Accordingly, the Company calculated deferred compensation expense
of approximately $1.7 million related to the options to be recognized as
compensation expense over their vesting period. The compensation expense
recognized during the years ended December 31, 1999 and 1998 was approximately
$536,000 and $701,000, respectively.
During the year ended December 31, 1999, 726,450 options were issued at an
exercise price of $5.20 per share representing the estimated fair value of the
Company's underlying common stock.
F-18
<PAGE> 180
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock option activity was as follows:
<TABLE>
<CAPTION>
1995 PLAN 1997 PLAN
------------------------------ -----------------------
NON- NON- WEIGHTED
INCENTIVE QUALIFIED QUALIFIED AVERAGE
STOCK STOCK STOCK EXERCISE
OPTIONS OPTIONS PRICE OPTION PRICE PRICE
--------- --------- ------ --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, December
31, 1996................... 424,395 77,805 $0.034 -- -- $ 0.034
Granted...................... -- -- -- 1,289,167 $1.13-$3.67 $ 1.980
Exercised.................... -- -- -- -- -- --
Canceled..................... -- -- -- -- -- --
------- ------ ---------
Options outstanding, December
31, 1997................... 424,395 77,805 $0.034 1,289,167 $1.13-$3.67 $ 1.430
Options granted.............. -- -- -- 1,107,094 $1.13-$5.20 $ 2.622
Options exercised............ -- (2,358) $0.034 -- -- --
Options cancelled............ -- (4,716) $0.034 (5,554) $1.13-$5.20 $ 3.145
------- ------ ---------
Options outstanding at
December 31, 1998.......... 424,395 70,731 $0.034 2,390,707 $1.13-$5.20 $ 1.888
Options granted.............. -- -- -- 726,450 $5.20 $5.2000
Options exercised............ (70,733) -- $0.034 (95,127) $0.03-$1.13 $0.6609
Options cancelled............ -- -- -- (770,826) $1.13-$5.20 $2.9313
------- ------ ------ ---------
Options outstanding at
December 31, 1999.......... 353,662 70,731 $0.034 2,251,204 $1.13-$5.20 $2.5636
======= ====== =========
</TABLE>
The Company measures compensation expense for its employee stock-based
compensation using the intrinsic value method and provides pro forma disclosures
of net loss as if the fair value method had been applied in measuring
compensation expense. Under the intrinsic value method of accounting for
stock-based compensation, when the exercise price of options granted to
employees is less than the fair value of the underlying stock on the date of
grant, compensation expense is to be recognized over the applicable vesting
period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Net loss as reported............................. $59,036,312 $36,296,596 $3,977,400
Pro forma net loss............................... $59,222,962 $36,859,594 $3,978,164
Basic and diluted net loss per share as
reported....................................... $ (20.14) $ (12.51) $ (1.37)
Pro forma basic and diluted net loss per share... $ (20.20) $ (12.70) $ (1.37)
</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 years ended December 31, 1998 and 1997,
respectively: dividend yield of 0%, expected volatility of 0%, risk-free
interest rate of 5.18% and 6.55% and expected terms of 5.5 and 5.0 years. The
following weighted average assumptions were used for grants during the year
ended December 31, 1999: dividend yield of 0%, expected volatility of 0%,
risk-free interest rate of 5.16% and expected terms of 5.8 years.
F-19
<PAGE> 181
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1999 and 1998, the weighted average remaining
contractual life of the options is 7.9 years and 8.6 years, respectively.
11. VENDOR AGREEMENTS
Pursuant to a Master Agreement entered into by the Company and NEC on
August 8, 1997, as amended, the Company has the option to acquire, by March 31,
2003, a total of $200 million worth of 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. As of December 31, 1999, the Company had purchased $51.9
million of equipment under this agreement.
Pursuant to a supply agreement entered into by the Company and Lucent
Technologies (Lucent) on December 18, 1998, the Company agreed that Lucent
should be its exclusive supplier of fiber optic cable for its nationwide, voice
and data network. Lucent may provide financing of up to approximately $400
million of fiber purchases for the construction of the Company's network and may
provide or arrange financing for future phases of the fiber portion of the
Company's network. The total amount of financing over the life of this
seven-year agreement is not to exceed $1.8 billion. Certain material terms of
the Company's transactions with Lucent are currently under review by Lucent and
the Company. There can be no assurance that the financing contemplated by the
supply agreement will be consummated or, if consummated, consummated on the
terms and conditions described above. The supply agreement provides that Lucent
will provide the Company with a broad level of support, including fiber optic
equipment, network planning and design, technical and marketing support, and
financing. As of December 31, 1999, no purchases were made by the Company under
this agreement.
12. COMMITMENTS AND CONTINGENCIES
The Company maintains office space in Washington, D.C., Virginia, Kansas
and Texas. The most significant leases relate to the Company's new headquarters
facilities in Reston, Virginia and Washington, D.C.
On December 30, 1998, the Company entered into a lease agreement for the
lease of tower site space, sufficient to perform its obligations under a fixed
point microwave agreement (FPMA) with an incumbent. Under the terms of the
lease, the Company is obligated to rent of $130,000 per month for a period
expiring on the later of (1) the expiration of the FPMA as to that site, or (2)
ten years from the effective date of the agreement. The agreement provides for
an increase in the rent payable commencing on December 1, 1999 and on each
succeeding year thereafter to December 1, 2008, by an amount equal to 4 percent
of the rent then in effect.
F-20
<PAGE> 182
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's future minimum rental payments under noncancellable operating
leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000........................................................ $ 3,388,583
2001........................................................ 3,216,376
2002........................................................ 3,284,920
2003........................................................ 3,205,368
2004 and thereafter......................................... 19,097,648
-----------
Total............................................. $32,192,895
===========
</TABLE>
Rent expense for the years ended December 31, 1999, 1998 and 1997 was
approximately $821,000, $390,000, and $115,000, respectively.
The Company earns microwave telecommunication capacity revenue under an
indefeasible right of use (IRU) agreement dated December 1, 1998, of $137,000
per month commencing December 1998 and expiring on the later of (1) the
expiration of the FPMA as to that site, or (2) ten years from the effective date
of the agreement. The IRU agreement provides for an increase in the rent
receivable commencing on December 1, 1999 and on each succeeding year thereafter
to December 1, 2008, by an amount equal to 4 percent of the rent then in effect.
As of December 31, 1999, the Company had capital commitments of
approximately $89.9 million relating to purchases of telecommunications and
transmission equipment under its agreements with WFI, Tri-States and CapRock
(See note 14).
During 1999, the Company entered into a contractual agreement that provided
for extended payment terms over a four-year period for the purchase of
approximately $2.7 million in network equipment. Accordingly, such amount has
been included in other noncurrent liabilities in the Company's consolidated
balance sheet as of December 31, 1999.
From time to time, the Company is subject to claims arising in the ordinary
course of business. In the opinion of management, no such matter individually or
in the aggregate, exists which is expected to have a material effect on the
results of operations, cash flows or financial position of the Company.
F-21
<PAGE> 183
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. INCOME TAXES
The tax effect of temporary differences that give rise to significant
portions of the net deferred tax asset at December 31, 1999 and 1998, is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Deferred revenue.......................................... $ 3,646 $ 949
Capitalized start-up costs................................ 1,005,353 1,370,937
Capitalized research and development costs................ 48,482 66,111
Depreciation.............................................. (2,844,859) --
Net operating loss carryforward........................... 40,571,930 15,325,484
Other timing differences.................................. 110,078 --
------------ ------------
38,894,630 16,763,481
Less valuation allowance.................................. (38,894,630) (16,763,481)
------------ ------------
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 are being
amortized over sixty months.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income in the periods in which those temporary
differences are deductible. The Company has provided a valuation allowance
against its deferred tax assets as they are long-term in nature and their
ultimate realization cannot be determined.
14. FIBER AGREEMENTS
In March 1999, the Company entered into a co-development agreement with WFI
for the design, engineering and construction by WFI of a multiple conduit
fiber-optic system. One of the conduits will contain a fiber optic cable
consisting of a specified number of fiber optic strands. The conduits and any
installed strands will be equally divided between the parties, and the cost to
construct the route will be shared equally by the Company and WFI. In addition,
the Company will pay WFI a management fee equal to 10% of the Company's share of
the development costs. The total shared projected costs for the project is in
excess of $100 million. The system will be approximately 1,100 route miles long,
between Aurora, Colorado (a suburb of Denver) and Chicago, Illinois. The first
segment, Chicago, Illinois to Omaha, Nebraska, was completed in the fourth
quarter 1999, and the second segment, Omaha to Aurora, is scheduled to be
completed by the end of the second quarter of 2000. In connection with the co-
development agreement, the Company entered into a joint marketing agreement with
WFI under which both WFI and the Company will attempt to sell certain inactive
fiber optic strands on the route, and will share the revenues from such sales.
The joint marketing agreement also permits each party to retain fiber optic
strands for its own use, subject to certain restrictions on resale, and to swap
a certain number of the fiber optic strands to third parties.
In August 1999, the Company entered into a co-development agreement with
Tri-State and four regional electric cooperatives for design, engineering and
construction of an aerial fiber system, approximately 420 route miles long,
between Albuquerque, New Mexico and Grand Junction, Colorado. This system,
constructed on power transmission lines, will contain a specified number of
fiber optic strands. The cost to construct the system will be borne equally
between the Company and the other parties. The total projected combined cost for
this route is approximately $48 million. In
F-22
<PAGE> 184
PATHNET, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
connection with the co-development agreement, the Company entered into a joint
marketing agreement under which each party will reserve a portion of the fiber
strands for its own operations, a subset of which will be available for swaps
with third parties, the remaining fiber strands will be jointly sold, with the
Company as the exclusive marketing agent.
Any revenues derived from the sale of those fiber strands will be shared
equally between the Company and Tri-State, after deduction of a Company
marketing fee. We expect this system to be completed in the second half of 2000.
15. REORGANIZATION
On November 4, 1999, the Company, together with Pathnet Telecommunications
Inc. (PTI) a Delaware company formed on November 1, 1999, entered into
agreements providing for strategic investments from Colonial Pipeline Company,
Burlington Northern and Santa Fe Corporation and CSX Corporation to PTI. Upon
the closing of this transaction, PTI will receive the right to develop over
12,000 miles of the investors' rights of way with an estimated value of $187.0
million in return for 8,511,607 shares of PTI's Series D convertible preferred
stock. In addition to providing a portion of the right of way access, Colonial
Pipeline will pay $68.0 million of cash to PTI comprised of $38.0 million at the
initial closing for 1,729,631 shares of PTI's Series E redeemable preferred
stock, $25.0 million for 1,137,915 shares of PTI's Series E redeemable preferred
stock (upon the completion of a fiber optic network segment build that the
Company expects to complete during the second calendar quarter of 2000), $1.0
million for the issuance of an option to purchase 1,593,082 shares of PTI's
Series E redeemable preferred stock for $21.97 per share and shares of PTI's
common stock in connection with an initial public offering and $4.0 million for
rights in 2,200 conduit miles of our future network. Further, upon the closing
of this transaction, all of the Company's common stock will be exchanged for
common stock of PTI resulting in the Company becoming a wholly-owned subsidiary
of PTI. In addition, all of the Company's 5,470,595 shares of mandatorily
redeemable preferred stock will be converted into 15,864,715 of PTI's
convertible preferred stock. The new investors collectively will receive an
approximate one-third equity stake in PTI, as well as proportionate
representation on the PTI Board of Directors. As part of this transaction and
the reconstitution of the Pathnet Board, Dave Schaeffer, former Chairman of
Pathnet and an existing director, resigned from the Company's Board of Directors
effective November 4, 1999.
The terms of the strategic investment transaction require that consents be
obtained from the holders of a majority of the Company's existing Senior Notes
in exchange for a proposed payment of approximately $8.8 million. As a result,
on November 22, 1999, PTI filed a preliminary prospectus with the SEC, to offer
all holders of the Senior Notes a guarantee of the obligations of the Company to
make interest and principal payments. Concurrent with this offer, the Company is
seeking consents from the holders of the Senior Notes to the waiver and the
amendment of certain provisions of the indenture. On March 10, 2000, the Company
expects to file an amendment to its preliminary prospectus with the SEC. The
Company expects to close this transaction immediately following receipt of the
required consents and other required regulatory approvals. For the year ended
December 31, 1999, the Company had expensed $1,022,998 of fees related to this
transaction.
F-23
<PAGE> 185
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Pathnet Telecommunications, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Pathnet Telecommunications, Inc. (a development stage enterprise)
(the Company) at December 31, 1999, and the results of their operations and
their cash flows for the period November 1, 1999 (date of inception) to December
31, 1999, in conformity with accounting principles generally accepted in the
United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
McLean, Virginia
March 10, 2000
F-24
<PAGE> 186
PATHNET TELECOMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
<TABLE>
<S> <C>
ASSETS
Total current assets...................................... $ --
Total assets.............................................. $ --
======
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Total current liabilities................................. $ --
Total liabilities......................................... --
Series E convertible preferred stock, par value $0.01
per share, 4,506,145 shares authorized, 0 shares
issued and outstanding................................ --
Total mandatorily redeemable preferred stock.............. --
Series D convertible preferred stock, par value $0.01
per share, 9,250,000 shares authorized 0 shares issued
and outstanding....................................... --
Total shareholders's equity (deficit)..................... --
Total liabilities, mandatorily redeemable preferred stock
and stockholders' equity (deficit)..................... $ --
======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE> 187
PATHNET,TELECOMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE PERIOD
ENDED NOVEMBER 1999
DECEMBER 31, (DATE OF INCEPTION)
------------ TO DECEMBER 31,
1999 1999
------------ -------------------
<S> <C> <C>
Revenue..................................................... $ -- $ --
------------ -------------
Total operating expenses............................... -- --
------------ -------------
Operating loss.............................................. -- --
Net loss............................................... $ -- $ --
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE> 188
PATHNET, TELECOMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE NOVEMBER 1, 1999
YEAR ENDED (DATE OF INCEPTION)
DECEMBER 31, TO DECEMBER 31,
1999 1999
------------ -------------------
<S> <C> <C>
Net loss.................................................... $ -- $ --
------------ -------------
Comprehensive loss.......................................... $ -- --
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE> 189
PATHNET, TELECOMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1999
(DATE OF
FOR THE YEAR ENDED INCEPTION)
DECEMBER 31, TO DECEMBER 31,
1999 1999
------------------ ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ -- $ --
------------ -----------
Net cash used in operating activities................ -- --
------------ -----------
Net cash provided by (used in) investing activities....... -- --
------------ -----------
Net cash (used in) provided by financing activities....... -- --
------------ -----------
Net increase in cash and cash equivalents................... -- --
Cash and cash equivalents at the beginning of period........ -- --
------------ -----------
Cash and cash equivalents at the end of period.............. $ -- $ --
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE> 190
PATHNET TELECOMMUNICATIONS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
NOTE OTHER ACCUMULATED
COMMON STOCK RECEIVABLE ADDITIONAL COMPREHENSIVE DURING
--------------------- FROM DEFERRED PAID-IN INCOME DEVELOPMENT
SHARES AMOUNT STOCKHOLDER COMPENSATION CAPITAL (LOSS) STAGE
---------- -------- ----------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT NOVEMBER 1, 1999 (date
of inception)................... -- $ -- $ -- $ -- $ -- $ -- $ --
Net loss.......................... -- -- -- -- -- -- --
---------- -------- ------- ----------- ---------- -------- -------------
BALANCE AT DECEMBER 31, 1999...... -- -- -- -- -- -- --
========== ======== ======= =========== ========== ======== =============
<CAPTION>
TOTAL
------------
<S> <C>
BALANCE AT NOVEMBER 1, 1999 (date
of inception)................... $ --
Net loss.......................... --
------------
BALANCE AT DECEMBER 31, 1999...... --
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 191
PATHNET TELECOMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Pathnet Telecommunications, Inc. (PTI) was formed on November 1, 1999, in
order to give effect to the reorganization transaction (see Note 3) with
Pathnet, Inc. (Pathnet).
Pathnet was formed on August 25, 1995. Since inception, Pathnet has
operated as a development stage enterprise, and its operations have resulted in
cumulative net losses of $101.5 million through December 31, 1999. PTI and
Pathnet are a wholesale telecommunications provider building a nationwide
network designed to provide other wholesale and retail telecommunications
service providers with access to underserved and second and third tier markets
throughout the United States.
2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING
PTI has no assets, liabilities, revenue or expenses and no principal
activities. In addition, PTI has not yet issued any equity securities.
Accordingly, the PTI'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."
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. Actual amounts could differ
from these estimates.
LOSS PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted average number of shares of Common Stock outstanding during the
applicable period. Diluted earnings (loss) per share is computed by dividing net
income (loss) by the weighted average common and potentially dilutive common
equivalent shares outstanding during the applicable period. For each of the
periods presented, basic and diluted loss per share are the same since PTI has
no net income (loss) and has issued no shares as of December 31, 1999.
3. REORGANIZATION
On November 4, 1999, the PTI, together with Pathnet a Delaware company
formed on November 1, 1999, entered into agreements providing for strategic
investments from Colonial Pipeline Company, Burlington Northern and Santa Fe
Corporation and CSX Corporation to PTI. Upon the closing of this transaction,
PTI will receive the right to develop over 12,000 miles of the investors' rights
of way with an estimated value of $187.0 million in return for 8,511,607 shares
of PTI's Series D convertible preferred stock. In addition to providing a
portion of the right of way access, Colonial Pipeline will pay $68.0 million of
cash to PTI comprised of $38.0 million at the initial closing for 1,729,631
shares of PTI's Series E redeemable preferred stock, $25.0 million for 1,137,915
shares of PTI's Series E redeemable preferred stock (upon the completion of a
fiber optic network segment build that Pathnet expects to complete during the
second calendar quarter of 2000), $1.0 million for the issuance of an option to
purchase 1,593,082 shares of PTI's Series E redeemable preferred stock for
$21.97 per share and shares of PTI's common stock in connection with an initial
F-30
<PAGE> 192
PATHNET TELECOMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
public offering and $4.0 million for rights in 2,200 conduit miles of our future
network. Further, upon the closing of this transaction, all of the Pathnet's
common stock will be exchanged for common stock of PTI resulting in Pathnet
becoming a wholly-owned subsidiary of PTI. In addition, all of the Pathnet's
5,470,595 shares of mandatorily redeemable preferred stock will be converted
into 15,864,715 of PTI's convertible preferred stock. The new investors
collectively will receive an approximate one-third equity stake in PTI, as well
as proportionate representation on the PTI Board of Directors.
The terms of the strategic investment transaction require that consents be
obtained from the holders of a majority of the Pathnet's existing Senior Notes
in exchange for a proposed payment of approximately $8.8 million. As a result,
on November 22, 1999, PTI filed a preliminary prospectus with the SEC, to offer
all holders of the Senior Notes a guarantee of the obligations of Pathnet to
make interest and principal payments. Concurrent with this offer, the Pathnet is
seeking consents from the holders of the Senior Notes to the waiver and the
amendment of certain provisions of the indenture. On March 10, 2000, the Pathnet
filed an amendment to its preliminary prospectus with the SEC. The Company
expects to close this transaction immediately following receipt of the required
consents and other required regulatory approvals. For the year ended December
31, 1999, the Pathnet had expensed $1,022,998 of fees related to this
transaction.
F-31
<PAGE> 193
------------------------------------------------------
------------------------------------------------------
THROUGH AND INCLUDING , 2000 (THE 40TH DAY AFTER THE DATE OF
THIS PROSPECTUS), THE SOLICITATION AGENT AND ANY OTHERS EFFECTING TRANSACTIONS
IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE SOLICITATION
AGENT'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. THIS IS IN ADDITION TO A
SOLICITATION AGENT'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO AN UNSOLD ALLOTMENT OR SUBSCRIPTION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 7
Use of Proceeds........................ 26
Capitalization......................... 27
Selected Consolidated Financial and
Operating Data....................... 29
Business............................... 31
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 51
Management............................. 60
Certain Relationships and Related
Transactions......................... 73
Security Ownership of Certain
Beneficial Owners and Management..... 77
Description of Our Reorganization...... 80
The Pathnet Senior Noteholder Waivers
and Other Proposed Indenture
Amendments........................... 91
Description of the Guarantees.......... 105
Description of the Consent Solicitation
Process.............................. 106
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Description of the Notes and the
Indenture............................ 109
Description of Other Indebtedness and
Other Financing Arrangements......... 143
Description of Capital Stock........... 145
Federal Income Tax Consequences........ 151
Plan of Distribution................... 156
Legal Matters.......................... 156
Experts................................ 156
Where You Can Find More Information.... 156
Index to Financial Statements.......... F-1
</TABLE>
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[PATHNET LOGO]
PATHNET TELECOMMUNICATIONS, INC.
SENIOR GUARANTEES OF PATHNET, INC.
12 1/4% SENIOR NOTES DUE 2008
------------------
PROSPECTUS (SUBJECT TO COMPLETION)
------------------
March , 2000
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<PAGE> 194
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 SEC
registration fee and Blue Sky fees and expenses. We will bear all of these
expenses:*
<TABLE>
<S> <C>
SEC registration fee........................................ $60,326
Blue Sky fees and expenses.................................. $ 1,300
Accounting fees and expenses................................ **
Legal fees and expenses..................................... **
Printing and engraving fees................................. **
Solicitation Agent fees and expenses........................ **
Information Agent fees and expenses......................... **
Miscellaneous............................................... **
Trustee fees and expenses...................................
-------
Total.................................................. $ **
=======
</TABLE>
- ---------------
* All fees except the SEC registration fees are estimates.
** To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
For a description of provisions under our charter documents and other
agreements and under Delaware law addressing indemnification of our directors
and officers, please refer to "MANAGEMENT -- Limitation of Liability and
Indemnification" in the prospectus.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Pathnet Telecom was incorporated on November 1, 1999. Before the execution
of the contribution agreements implementing our reorganization, there were no
sales of our unregistered securities. In connection with the execution of the
contribution agreements implementing our reorganization, we agreed to issue an
aggregate of 26,105,953 shares of our preferred stock to BNSF, CSX, Colonial and
the existing holders of Pathnet preferred stock, and 2,977,593 shares of our
common stock to the existing holders of Pathnet common stock. The shares of
preferred stock do not include any additional shares of series E convertible
preferred stock that may be issued under the Colonial Option Agreement.
Following the initial closing and receipt of the $25 million cash payment from
Colonial upon the completion of the Chicago-Aurora (a suburb of Denver),
Colorado fiber build, we will issue additional shares of our series E
convertible preferred stock to Colonial under the Colonial contribution
agreement. At that time an aggregate of 27,243,868 shares of our preferred stock
will be issued. These shares of stock will be issued in reliance upon the
exemption from registration contained in Section 4(2) of the Securities Act and
Regulation D thereunder. The issue of shares pursuant to the contribution
agreements is subject to no conditions within the control of the acquiring
parties, and the registrant takes the position that transactions are completed
within the meaning of Rule 152 under the Securities Act. Please refer to
"DESCRIPTION OF CAPITAL
II-1
<PAGE> 195
STOCK" and "DESCRIPTION OF OUR REORGANIZATION " in the prospectus for more
information on the issuance of shares in our reorganization.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
NO. NAME OF AGREEMENT
--- -----------------
<C> <S>
3.1(4) Certificate of Incorporation of Pathnet Telecommunications,
Inc.
3.2(4) Bylaws of Pathnet Telecommunications, Inc.
4.1(4) Form of Stockholders Agreement, by and among Pathnet
Telecommunications, Inc. and certain stockholders of Pathnet
Telecommunications, Inc.
4.2+ Indenture, dated as of April 8, 1998, between Pathnet, Inc.
and The Bank of New York, Inc. as Trustee
4.3(1)(5) Form of Supplemental Indenture
4.4+ Form of Note
4.5+ Pledge Agreement, dated as of April 8, 1998, among Pathnet,
Inc., The Bank of New York as Trustee and The Bank of New
York as the Securities Intermediary
4.6(4) Form of Amended and Restated Pledge Agreement
4.7(1)(5) Form of Guarantee (contained within Exhibit 4.3)
5.1(4) Opinion of Covington & Burling, regarding legality of
securities
8.1(1)(5) Opinion of Covington & Burling, regarding tax matters
10.1(4)(2) Pathnet Telecommunications, Inc. 1995 Stock Option Plan, as
amended (as adopted by Pathnet Telecommunications, Inc.)
10.2(4)(2) Pathnet Telecommunications, Inc. 1997 Stock Incentive Plan,
as amended by Amendment No. 1 to 1997 Plan dated March 24,
1998 (as adopted by Pathnet Telecommunications, Inc.)
10.3+++++ Contribution Agreement, dated as of November 2, 1999, by and
among Pathnet Telecommunications, Inc., Pathnet, Inc. and
The Burlington Northern and Santa Fe Railway Company
10.4(1)(3)(5) Form of Fiber Optic Access Agreement, by and between Pathnet
Telecommunications, Inc. and The Burlington Northern and
Santa Fe Railway Company
10.5(1)(3)(5) Form of Fiber Optic Lease, by and between Pathnet
Telecommunications, Inc. and The Burlington Northern and
Santa Fe Railway Company
10.6+++++ Contribution Agreement, dated as of November 2, 1999, by and
among Pathnet Telecommunications, Inc., Pathnet, Inc. and
Colonial Pipeline Company
10.7(1)(5) Form of Master Right-of-Way Lease Agreement, by and between
Pathnet Telecommunications, Inc. and Colonial Pipeline
Company
10.8(1)(3)(5) Form of Fiber Optic Access and Purchase Agreement, by and
between Pathnet Telecommunications, Inc. and Colonial
Pipeline Company
10.9(4) Form of Option Agreement, by and between Pathnet
Telecommunications, Inc. and Colonial Pipeline Company
10.10+++++ Contribution Agreement, dated as of November 2, 1999, by and
among Pathnet Telecommunications, Inc., Pathnet, Inc. and
CSX Transportation, Inc.
</TABLE>
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<PAGE> 196
<TABLE>
<CAPTION>
NO. NAME OF AGREEMENT
--- -----------------
<C> <S>
10.11(1)(3)(5) Form of Fiber Optic Access and License Agreement, by and
between Pathnet Telecommunications, Inc. and CSX
Transportation, Inc.
10.12(1)(3)(5) Form of Right of Way Operating Agreement, by and between
Pathnet Telecommunications, Inc. and CSX Transportation,
Inc.
10.13+++++ Contribution Agreement, dated as of November 2, 1999, by and
among Pathnet Telecommunications, Inc., Pathnet, Inc. and
The Preferred Stockholders of Pathnet, Inc.
10.14+++++ Contribution Agreement, dated as of November 2, 1999, by and
among Pathnet Telecommunications, Inc., Pathnet, Inc. and
Common Stockholders of Pathnet, Inc.
10.15+++++ Contribution Agreement, dated November 4, 1999, by and among
Pathnet Telecommunications, Inc., Pathnet, Inc. and David
Schaeffer
10.16+ Warrant Agreement, dated as of April 8, 1998, between
Pathnet, Inc. and The Bank of New York, as warrant agent
10.17+ Warrant Registration Rights Agreement, dated as of April 8,
1998, among 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 (U.S.A.) Inc.,
Grotech Partners IV, L.P., Richard A. Jalkut, David
Schaeffer and the Initial Purchasers
10.18+ Lease Agreement, dated August 9, 1997, by and between
Pathnet, Inc. and 6715 Kenilworth Avenue General Partnership
relating to Pathnet Inc.'s offices in Georgetown, including
Amendment to Lease Agreement dated March 5, 1998, and Second
Amendment to Lease dated June 1, 1998
10.19++ Amendment No. 3 to Lease Agreement, dated September 1, 1998,
by and between Pathnet, Inc. and 6715 Kenilworth Avenue
General Partnership
10.20+ Notes Registration Rights Agreement, dated April 8, 1998, by
and among Pathnet, Inc. and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Bear Stearns &
Co. Inc., TD Securities (USA) Inc. and Salomon Brothers
10.21+(2) Employment Agreement, dated August 4, 1997, by and between
Pathnet, Inc. and Richard A. Jalkut, as amended by Amendment
to Employment Agreement, dated April 6, 1998
10.22++++++(2) Letter Agreement, dated April 7, 1999, between Pathnet, Inc.
and Robert Rouse, relating to Mr. Rouse's employment with
Pathnet, Inc.
10.23+(2) Non-Disclosure, Assignment of Inventions and Non Competition
Agreement, dated February 2, 1998, by and between Pathnet,
Inc. and Kevin Bennis
10.24.1(4) Form of Assignment and Acceptance Agreement, by and between
Pathnet, Inc. and Pathnet Telecommunications, Inc., Form of
$70 million Promissory Note by Pathnet Telecommunications,
Inc. in favor of Pathnet, Inc. and Form of License of Marks
by and between Pathnet Telecommunications, Inc. and Pathnet,
Inc.
10.24.2(4) Form of Assignment and Acceptance Agreement, by and between
Pathnet, Inc. and Pathnet Fiber Optics, LLC
10.25+(2) Non-Qualified Stock Option Agreement, dated August 4, 1997,
by and between Pathnet, Inc. and Richard A. Jalkut
</TABLE>
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<PAGE> 197
<TABLE>
<CAPTION>
NO. NAME OF AGREEMENT
--- -----------------
<C> <S>
10.26+(2) Non-Qualified Stock Option Agreement, dated October 31,
1997, by and between Pathnet, Inc. and David Schaeffer
10.27(4) Form of $50 million Promissory Note by Pathnet
Telecommunications, Inc. in favor of Pathnet, Inc.
Alliance Program Agreements:
10.28(1)(3)(5) IXC Master Services Agreement, dated June 17, 1999, by and
between IXC Communications Services, Inc. and Pathnet, Inc.,
as amended by Amendment No. 1 dated August 26, 1999 and
Amendment No. 2, dated October 13, 1999
10.29(1)(3)(5) Capacity Agreement, dated August 10, 1999, between Frontier
Communications of the West, Inc. and Pathnet, Inc.
Collocation and Interconnection Agreements:
10.30(4) Collocation Agreement, dated July 29, 1999, by and between
BellSouth Telecommunications, Inc. and Pathnet, Inc.
10.31(4) Interim Collocation Agreement, dated August 12, 1999,
between US West Communications, Inc. and Pathnet, Inc.
Equipment Supply Contracts:
10.32+ Master Agreement, dated August 8, 1997, between Pathnet,
Inc. and NEC America, Inc. as amended by Amendment No. 1 to
Master Agreement, dated November 9, 1997, Amendment No. 2 to
Master Agreement, dated April 2, 1998, Amendment No. 3 to
Master Agreement, dated May 4, 1998, and Amendment No. 4 to
Master Agreement, dated July 10, 1998
10.33+++ Amendment No. 5 to Master Agreement, dated November 20,
1998, by and between Pathnet, Inc. and NEC America, Inc.
10.34+ Purchase Agreement, dated July 1, 1995, between Andrew
Corporation and Path Tel, Inc., as amended by Amendment One,
dated September 16, 1996 and Amendment Two, dated July 1,
1997
10.35 [Intentionally Omitted]
10.36++++++(3) Agreement, dated March 31, 1999, between Pacific Fiber Link,
LLC and Pathnet, Inc.
10.37++++++(3) Marketing Agreement, dated March 31, 1999, between Pacific
Fiber Link, LLC and Pathnet, Inc.
10.38+++++(3) Dark Fiber Network Agreement, dated August 5, 1999, by and
among Pathnet, Inc., Tri-State Generation and Transmission
Association, Inc., Empire Electric Association, Inc., La
Plata Electric Association, Inc., Delta-Montrose Electric
Association, Inc. and San Miguel Power Association, Inc.
10.39(4) Form of Letter agreement, dated November 4, 1999, by and
among Pathnet, Inc., David Schaeffer, Spectrum Equity
Investors, L.P., Spectrum Equity Investors II, L.P., New
Enterprise Associates VI, Limited Partnership and Grotech
Partners IV, L.P.
10.40(4) Licence of Marks, dated November 10, 1999, by and between
Pathnet, Inc. and Pathnet Telecommunications, Inc.
12(4) Statement re: Computation of Ratios
21(4) List of Subsidiaries of Pathnet Telecommunications, Inc.
23.1(4) Consent of PricewaterhouseCoopers LLP
</TABLE>
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<PAGE> 198
<TABLE>
<CAPTION>
NO. NAME OF AGREEMENT
--- -----------------
<C> <S>
23.2(4) Consent of Covington & Burling
24(4) Power of Attorney (included on signature page)
25.1+++++++ Statement of the eligibility and qualification of the Bank
of New York as Trustee under the Indenture relating to
Pathnet, Inc.'s 12 1/4% Senior Notes due 2008 on Form T-1
25.2(4) Statement of the eligibility and qualification of the Bank
of New York as Trustee under the Supplemental Indenture
relating to Pathnet, Inc.'s 12 1/4% Senior Notes due 2008 on
Form T-1.
27(4) Financial Data Schedule
99.1(4) Consent of The Yankee Group
99.2(1)(5) Consent Solicitation Documentation
</TABLE>
- ---------------
+ Incorporated by reference to the corresponding exhibit to Pathnet,
Inc.'s Registration Statement on Form S-1 (Registration No. 333-52247)
filed by Pathnet, Inc. with the SEC on May 8, 1998, as amended by
Amendment No. 1 to such Registration Statement filed with the SEC on
July 16, 1998, and as further amended by Amendment No. 2 to such
Registration Statement filed with the SEC on July 27, 1998, and as
further amended by Amendment No. 3 to such Registration Statement
filed with the SEC on August 10, 1998.
++ Incorporated by reference to Pathnet, Inc.'s Form 10-K (File No.
000-24745) filed by Pathnet, Inc. with the SEC on March 18, 1999.
+++ Incorporated by reference to Pathnet, Inc.'s Form 10-Q (File No.
000-24745) filed by Pathnet, Inc. with the SEC on May 17, 1999.
++++ Incorporated by reference to Pathnet, Inc.'s Form 10-Q (File No.
000-24745) filed by Pathnet, Inc. with the SEC on August 9, 1999.
+++++ Incorporated by reference to Pathnet, Inc.'s Form 10-Q (File No.
000-24745) filed by Pathnet, Inc. with the SEC on November 15, 1999.
++++++ Incorporated by reference to Pathnet, Inc.'s Form 8-K (File No.
000-24745) filed by Pathnet, Inc. with the SEC on April 29, 1999.
+++++++ Incorporated by reference to the corresponding exhibit to Pathnet,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-53467)
filed by Pathnet, Inc. with the SEC on May 22, 1998, as amended by
Amendment No. 1 to such Registration Statement filed with the SEC on
August 12, 1998, and as further amended by Amendment No. 2 to such
Registration Statement filed with the SEC on August 21, 1998, and as
further amended by Amendment No. 3 to such Registration Statement filed
with the SEC on August 31, 1998.
(1) Filed herewith.
(2) Constitutes management contract or compensatory arrangement.
(3) Certain portions of this exhibit have been omitted based on a request
for confidential treatment filed separately with the SEC.
(4) Filed previously.
(5) Supersedes previously filed exhibit.
(b) Financial Statement Schedule
Schedule II -- Valuation and qualifying accounts and report of
PricewaterhouseCoopers LLP thereon.
II-5
<PAGE> 199
All schedules for which provision is made in the applicable accounting
regulations of the SEC are not required, are inapplicable or have been disclosed
in the notes to other financial statements and therefore have been omitted.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant under the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the SEC 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 registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant 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 registrant 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 undersigned registrant hereby undertakes that:
(a) 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 registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(b) 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.
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<PAGE> 200
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Washington, District of Columbia on the tenth day of March, 2000.
PATHNET TELECOMMUNICATIONS, INC.
By: /s/ JAMES M. CRAIG
--------------------------------------
James M. Craig
Executive Vice President, Chief
Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD A. JALKUT* President, Chief March 10, 2000
- --------------------------------------------------- Executive Officer
Richard A. Jalkut (Principal Executive
Officer) and Director
/s/ JAMES M. CRAIG Executive Vice President March 10, 2000
- --------------------------------------------------- Chief Financial Officer
James M. Craig and Treasurer (Principal
Financial Officer and
Controller)
/s/ PETER J. BARRIS* Director March 10, 2000
- ---------------------------------------------------
Peter J. Barris
/s/ KEVIN J. MARONI* Director March 10, 2000
- ---------------------------------------------------
Kevin J. Maroni
/s/ PATRICK J. KERINS* Director March 10, 2000
- ---------------------------------------------------
Patrick J. Kerins
/s/ STEPHEN A. REINSTADTLER* Director March 10, 2000
- ---------------------------------------------------
Stephen A. Reinstadtler
</TABLE>
* James M. Craig, by signing his name hereto, does hereby sign this Amendment
No. 3 to Registration Statement on behalf of each of the directors and
officers of the Registrant after whose typed names asterisks appear as
attorney-in-fact pursuant to the Power of Attorney previously provided as part
of this Registration Statement.
II-7
<PAGE> 1
PATHNET, INC.
PATHNET TELECOMMUNICATIONS, INC.
THE BANK OF NEW YORK
------------------------------
FORM OF SUPPLEMENTAL INDENTURE
Dated as of [ ], 2000
To
Indenture, Dated as of April 8, 1998,
Between
Pathnet, Inc.
and
The Bank of New York, as Trustee
------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
RECITALS.................................................................... 1
AMENDMENTS TO "DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION"..... 2
Section 101. Introduction................................................. 2
Section 102. Revised Definitions.......................................... 3
"Accounts Receivable Subsidiary"........................................ 3
"Amended and Restated Pledge Agreement.................................. 3
"Amendment Date......................................................... 3
"Asset Sale............................................................. 3
"Board of Directors..................................................... 4
"Board Resolution....................................................... 4
"Cash Equivalents....................................................... 4
"Change of Control...................................................... 5
"Consolidated Adjusted Net Income....................................... 6
"Consolidated Indebtedness.............................................. 6
"Consolidated Indebtedness to Consolidated Operating Cash Flow Ratio.... 6
"Consolidated Interest Expense.......................................... 7
"Consolidated Operating Cash Flow....................................... 7
"Consolidated Tax Expense............................................... 8
"Credit Facilities...................................................... 8
"Currency Agreements.................................................... 8
"Debt Securities........................................................ 8
"Disinterested Director................................................. 8
"Escrow Account......................................................... 9
"Event of Default....................................................... 9
"Fair Market Value...................................................... 10
"Guarantee.............................................................. 10
"Incumbent.............................................................. 10
"Incumbent Agreement.................................................... 10
"Incur.................................................................. 10
"Indebtedness........................................................... 11
"Invested Capital....................................................... 12
"Investment............................................................. 12
"Net Cash Proceeds...................................................... 12
"New Pledged Securities................................................. 13
"Officers' Certificate.................................................. 13
"Parent................................................................. 13
"Permitted Holder....................................................... 13
"Permitted Indebtedness................................................. 13
"Permitted Investment................................................... 15
"Permitted Liens........................................................ 17
"Permitted Telecommunications Asset Sale................................ 19
"Permitted Telecommunications Joint Venture............................. 19
"Pledged Securities..................................................... 19
"Redeemable Capital Stock............................................... 19
"Restricted Company Subsidiary.......................................... 19
"Restricted Entity...................................................... 19
"Restricted Parent Subsidiary........................................... 19
</TABLE>
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<TABLE>
<S> <C>
"Restricted Subsidiary.................................................. 19
"Sale-Leaseback Transaction............................................. 19
"Significant Subsidiary................................................. 20
"Subsidiary............................................................. 20
"Telecommunications Assets.............................................. 20
"Telecommunications Business............................................ 20
"Telecommunications Indebtedness........................................ 21
"Unrestricted Subsidiary................................................ 21
Section 103. Definitions for Purposes of Section 1017(a).................. 22
"Accounts Receivable Subsidiary......................................... 22
"Allowable Company Indebtedness......................................... 22
"Asset Sale............................................................. 22
"Board of Directors..................................................... 23
"Board Resolution....................................................... 23
"Cash Equivalents....................................................... 23
"Consolidated Adjusted Net Income....................................... 23
"Consolidated Indebtedness.............................................. 24
"Consolidated Indebtedness to Consolidated Operating Cash Flow Ratio.... 24
"Consolidated Interest Expense.......................................... 24
"Consolidated Operating Cash Flow....................................... 25
"Consolidated Tax Expense............................................... 25
"Event of Default....................................................... 25
"Fair Market Value...................................................... 27
"Incumbent.............................................................. 27
"Incumbent Agreement.................................................... 27
"Incur.................................................................. 27
"Indebtedness........................................................... 27
"Invested Capital....................................................... 29
"Investment............................................................. 29
"Net Cash Proceeds...................................................... 29
"Permitted Indebtedness................................................. 30
"Permitted Investment................................................... 32
"Permitted Liens........................................................ 33
"Permitted Restriction.................................................. 35
"Permitted Telecommunications Asset Sale................................ 35
"Permitted Telecommunications Joint Venture............................. 35
"Permitted Transaction.................................................. 35
"Restricted Payment..................................................... 37
"Restricted Subsidiary.................................................. 40
"Sale-Leaseback Transaction............................................. 40
"Significant Subsidiary................................................. 41
"Telecommunications Assets.............................................. 41
"Telecommunications Business............................................ 41
"Telecommunications Indebtedness........................................ 41
"Unrestricted Company Subsidiary........................................ 42
</TABLE>
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<TABLE>
<S> <C>
Section 104. Amendment to Section 103..................................... 42
AMENDMENTS TO "NOTE FORMS".................................................. 43
Section 105. Amendment to Section 202.................................... 43
Section 106. Amendment to Section 203..................................... 46
Section 107. Addition of Section 203A..................................... 48
Section 108. Amendment to Section 501..................................... 53
AMENDMENTS TO "CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE"........ 53
Section 109. Amendment to Article Eight................................... 53
AMENDMENTS TO "SUPPLEMENTAL INDENTURES"..................................... 55
Section 110. Amendment to Section 901..................................... 55
Section 111. Amendment to Section 902..................................... 56
AMENDMENTS TO "COVENANTS"................................................... 57
Section 112. Amendment to Section 1002.................................... 57
Section 113. Amendment to Section 1003.................................... 58
Section 114. Amendment to Section 1004.................................... 59
Section 115. Amendment to Section 1005.................................... 59
Section 116. Amendment to Section 1006.................................... 60
Section 117. Amendment to Section 1007.................................... 60
Section 118. Amendment to Section 1008.................................... 61
Section 119. Amendment to Section 1009.................................... 61
Section 120. Amendment to Section 1010.................................... 62
Section 121. Amendment to Section 1011.................................... 63
Section 122. Amendment to Section 1012.................................... 63
Section 123. Amendment to Section 1013.................................... 66
Section 124. Amendment to Section 1014.................................... 67
Section 125. Amendment to Section 1015.................................... 68
Section 126. Amendment to Section 1016.................................... 68
Section 127. Amendment to Section 1017.................................... 69
Section 128. Amendment to Section 1018.................................... 71
AMENDMENTS TO "SECURITY".................................................... 72
Section 129. Amendments to Article 12..................................... 72
AMENDMENTS TO "DEFEASANCE AND COVENANT DEFEASANCE".......................... 72
Section 130. Amendments to Article 13..................................... 72
PARENT GUARANTEE............................................................ 77
Section 131. Guarantee.................................................... 77
MISCELLANEOUS............................................................... 77
Section 132. Waiver....................................................... 77
Section 133. Acts of Holders.............................................. 77
Section 134. Notice of Holders; Waiver.................................... 78
Section 135. Counterparts................................................. 79
Section 136. Governing Law................................................ 79
Section 137. Separability Clause.......................................... 79
Section 138. Headings..................................................... 79
</TABLE>
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<TABLE>
<S> <C>
Section 139. Effect of Supplemental Indenture............................. 79
Section 140. Indenture in Full Force and Effect as Supplemented........... 79
</TABLE>
-iv-
<PAGE> 6
SUPPLEMENTAL INDENTURE, dated as of [ ], 2000 (the "Supplemental
Indenture"), among PATHNET, INC., a Delaware corporation (herein called the
"Company") having its principal office at 1015 31st Street, N.W., Washington
D.C. 20007, PATHNET TELECOMMUNICATIONS, INC., a Delaware corporation (herein
called the "Parent") 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,
as Trustee (herein called the "Trustee") to the Indenture, dated as of April 8,
1998, between the Company and the Trustee (the "Original Indenture").
RECITALS
The Company and the Trustee have entered into the Original
Indenture. The Company has issued $350,000,000 in aggregate principal amount of
12-1/4% Senior Notes due 2008. The Company originally issued the notes in a
so-called A/B private placement transaction pursuant to which, in September 1998
(as required by the terms of the Original Indenture), the Company exchanged the
privately placed notes for substantially identical series notes (the "Notes") in
an offering registered under the Securities Act. The Notes, which were
registered with the SEC in the "B" portion of the "A/B" exchange offering,
continue to be governed by the terms of the Original Indenture;
The Company and the Parent are proposing to enter into a
contribution and re-organization transaction (the "Transaction"). In connection
with the Transaction, the Parent and the Company have entered into a series of
Contribution Agreements with the parties to the Transaction pursuant to which
the Parent will (i) issue shares of Series D Convertible Preferred Stock, with a
par value of $0.01 per share and Series E Convertible Preferred Stock, with a
liquidation preference of $0.01 per share in exchange for the contribution of
leasehold interests in rights of way owned by the several counterparties to the
Contribution Agreements, and (ii) exchange shares of Common Stock, par value
$0.01 per share and Series A, B and C Convertible Preferred Stock, each with a
par value of $0.01 per share, for shares of Common Stock, par value $0.01 per
share, and Series A, B and C Preferred Stock, each with a liquidation preference
of $0.01 per share, of the Company held by existing holders of such securities
of the Company;
In connection with the Transaction, the Parent will deliver an
irrevocable and unconditional guarantee of the Company's obligations under the
Notes;
In addition, the Parent has agreed to accept covenant obligations
similar to the covenant obligations that are currently imposed on the Company
under the Original Indenture and the Parent and the Company wish to ensure that
transactions between the Company and the Parent or the Company and certain other
subsidiaries of the Parent are permitted to the same extent that such
transactions were permitted between the Company and its Restricted Subsidiaries
under the Original Indenture;
Pursuant to Section 902 of the Original Indenture, the parties
hereto desire to enter into this Supplemental Indenture and the holders of at
least a majority in aggregate principal amount of the Outstanding Notes have
consented to the amendments to the Original
<PAGE> 7
Indenture set forth in this Supplemental Indenture as required by Section 902 of
the Original Indenture;
Any references herein to the "Indenture" shall be deemed to be a
reference to the Original Indenture as amended by this Supplemental Indenture,
and unmodified references to Sections or Subsections are to such Sections or
Subsections of the Indenture;
It is the intent of the parties that this Supplemental
Indenture be effective as of the date set forth above;
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the foregoing premises and for other
good and valuable consideration, the receipt of which is hereby acknowledged, it
is mutually covenanted and agreed for the equal and proportionate benefit of all
Holders of the Notes as follows:
AMENDMENTS TO "DEFINITIONS
AND OTHER PROVISIONS OF GENERAL APPLICATION"
SECTION 101. INTRODUCTION.
(a) The definitions in the Original Indenture are amended in this
Supplemental Indenture to the extent necessary (1) to impose covenant
obligations upon the Parent that are substantively equivalent to those imposed
on the Company under the Original Indenture, and (2) to permit transactions
between the Parent and the Company or any other Restricted Subsidiaries of the
Parent that may be created in the future to the extent that such transactions
are permitted between the Company and its Restricted Subsidiaries under the
Original Indenture. These amended definitions are contained in Section 102 of
this Supplemental Indenture.
(b) It is the intent of the parties to this Supplemental Indenture
to preserve unmodified the substance of the covenant and other obligations
imposed upon the Company under the Original Indenture.
(c) Section 902(2) of the Original Indenture provides that the
obligation of the Company (1) to make and consummate an Excess Proceeds Offer
with respect to any Asset Sale by the Company or any of its Restricted
Subsidiaries in accordance with Section 1017 of the Original Indenture, and (2)
to make and consummate a Change of Control Offer in the event of a Change of
Control of the Company in accordance with Section 1010 of the Original Indenture
(together, the "Specified Obligations") cannot be amended, changed or modified
without the consent of the Holder of each Outstanding Note affected thereby.
Section 902(2) of the Original Indenture further provides that the definitions
relating to the Specified Obligations cannot be amended, changed or modified so
as to amend, change or modify the obligations of the Company with respect to the
Specified Obligations without the consent of the Holder of each Outstanding Note
affected thereby.
(d) In order to effect the amendments described in paragraph (a)
above, it is necessary to amend certain defined terms that are otherwise used in
Section 1017 of the Original Indenture. In order to comply with the provisions
of Section 902(2) of the Original Indenture, as
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<PAGE> 8
described in paragraph (c) above, the obligations on the Company and the
Restricted Company Subsidiaries pursuant to Section 1017 of the Original
Indenture have been reproduced without the inclusion of references to the Parent
in Section 122(a) of this Supplemental Indenture, and will be incorporated as
Section 1017(a) of the Indenture. The definitions from Section 102 of this
Supplemental Indenture used in Section 1017(a) of the Indenture are also
reproduced without the inclusion of references to the Parent. Certain technical
modifications to these definitions are necessary to preserve the economic
substance of these Company-specific covenants and obligations. These "Section
1017(a) only" definitions are set forth in Section 103 of this Supplemental
Indenture.
(e) It is not necessary to reproduce the obligations of the Company
and the Restricted Company Subsidiaries pursuant to Section 1010 without the
inclusion of reference to the Parent in order to comply with Section 902(2).
This is because the proposed amendment does not modify or amend the obligation
of the Company and its Restricted Company Subsidiaries to make and consummate a
Change of Control Offer, but rather provides that such obligation is also
triggered by a Change of Control of the Parent. The definition of "Change of
Control" is modified accordingly and the revised definition is contained in
Section 102 of this Supplemental Indenture. All other capitalized terms used in
Section 1010 are defined within that Section or have the meaning given to them
in the Original Indenture.
(f) Defined terms set forth in Section 101 of the Original Indenture
that do not need to be amended for the purposes of this Supplemental Indenture,
and are not included in the revised definitions in Section 102 or 103 of this
Supplemental Indenture, retain the meaning given to them in the Original
Indenture.
(g) Wherever used in this Supplemental Indenture, "including" shall
be deemed to mean "including without limitation".
SECTION 102. REVISED DEFINITIONS.
For all purposes of this Supplemental Indenture, except as otherwise
expressly provided herein and subject to Section 103 of this Supplemental
Indenture, the defined terms listed below shall have the meanings ascribed
thereto below. For the avoidance of doubt, any capitalized terms used in Section
1017(a) shall have the meanings ascribed thereto in Section 103 of this
Supplemental Indenture, and to the extent any such term is also defined in this
Section 102, the definition contained in this Section 102 shall not apply to
such term as used in Section 1017(a);
"ACCOUNTS RECEIVABLE SUBSIDIARY" means any Restricted Company
Subsidiary or Restricted Parent Subsidiary that is, directly or indirectly,
wholly owned by the Company or the Parent (as the case may be) (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 any Restricted Entity, (ii) the sale or financing of accounts
receivable or interests therein and (iii) other activities directly related
thereto.
"AMENDED AND RESTATED PLEDGE AGREEMENT" means the amended and
restated pledge agreement dated as of the date hereof, by and between the
Trustee and the Company, governing the disbursement of funds in the Escrow
Account.
"AMENDMENT DATE" means the date as of which this Supplemental
Indenture is executed by the parties hereto.
"ASSET SALE" means any sale, issuance, conveyance, transfer, lease
or other disposition (including by way of merger, consolidation or
Sale-Leaseback Transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i)
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<PAGE> 9
any Capital Stock of any Subsidiary; (ii) all or substantially all of the
properties and assets of the Parent or any Subsidiary; or (iii) any other
properties or assets of the Parent 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 Parent to any
Restricted Parent Subsidiary, or of any Restricted Parent Subsidiary to the
Parent or any other Restricted Parent Subsidiary in accordance with the terms of
this Indenture, (C) having an aggregate Fair Market Value of less than
$2,000,000 (or the equivalent thereof in any other currency) in any given fiscal
year, (D) by the Parent or a Restricted Parent Subsidiary to a Person who is not
an Affiliate of the Parent 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 Parent 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 Parent 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 of the Indenture when made, (F)
constituting accounts receivable of the Parent or a Restricted Parent Subsidiary
to an Accounts Receivable Subsidiary or, in consideration of Fair Market Value
thereof, to Persons that are not Affiliates of the Parent or any Subsidiary of
the Parent 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 of the Indenture, (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 of the Indenture.
"BOARD OF DIRECTORS" means (i) either the board of directors of the
Company or any duly authorized committee of that board, when used with respect
to the Company, or (ii) either the board of directors of the Parent or any duly
authorized committee of that board, when used with respect to the Parent.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Parent to have been duly adopted by
the Board of Directors of the Parent and to be in full force and effect on the
day of such certification and delivered to the Trustee; unless used with respect
to the Company when references to the "Parent" in the preceding sentence shall
be replaced by references to the "Company".
"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);
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<PAGE> 10
(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 Parent and is organized under the
laws of any state of the United States and rated at least A-1 by S&P or at least
P-1 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 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 time),
directly or indirectly, of more than 50% of the total outstanding Voting Stock
of the Company or of the Parent.
(b) the Company or the Parent 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 or the Parent, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the Company
or the Parent (as the case may be) 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 or the Parent (as the case may be) 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 the Parent (as the
case may be)) 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 Parent as a Restricted Payment as
described in Section 1012 of the Indenture in the event of a conversion or
exchange by the Parent or that could be paid by the Company as a Restricted
Payment as described in Section 1012 of the Indenture in the event of a
conversion or exchange by the Company 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 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 or
the Board of Directors of the Parent (together with any new directors whose
election to such Board of Directors, or whose nomination for election by the
stockholders of the Company or the Parent (as the case may be) 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 or the Parent (as the case may be) then in
office; or
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<PAGE> 11
(d) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution other than in a transaction which constitutes a
Permitted Transaction, or the Parent is liquidated or dissolved or adopts a plan
of liquidation or dissolution other than in a transaction which complies with
the provisions of Article 8 of the Indenture.
"CONSOLIDATED ADJUSTED NET INCOME" means, with respect to any
period, the consolidated net income (or loss) of all Restricted Entities 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 dispositions other than in the ordinary
course of business;
(c) the portion of net income (or loss) of any Person (other than a
Restricted Entity), including Unrestricted Subsidiaries, in which any Restricted
Entity has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to any Restricted Entity in cash
dividends or distributions during such period;
(d) the net income (or loss) of any Person combined with any
Restricted Entity on a "pooling of interests" basis attributable to any period
prior to the date of combination;
(e) the net income of the Company or any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by the Company or 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 the Company or such Restricted Subsidiary
or its stockholders (except, for purposes of determining compliance with Section
1011 of the Indenture, any restriction permitted under clause (vii) or (viii) of
Section 1018 of the Indenture; and
(f) any net income (or loss) from the Company or any Restricted
Subsidiary that was an Unrestricted Subsidiary at any time during such period
other than any amounts actually received from the Company or such Restricted
Subsidiary.
"CONSOLIDATED INDEBTEDNESS" means, with respect to any period, the
aggregate amount of Indebtedness of all Restricted Entities 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 of all Restricted Entities to (ii) Consolidated Operating Cash Flow
of all Restricted Entities for the two preceding fiscal quarters for which
financial information is available immediately prior to the date of
determination, multiplied by two; provided further that any Indebtedness
incurred or retired by any Restricted Entity 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 further 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
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<PAGE> 12
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, any Restricted Entity 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 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 any Restricted Entity
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 any
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 consolidated interest expense of all Restricted Entities for
such period, including (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 or the Parent
and (vi) amortization of debt issuance costs; plus
(b) the consolidated interest component of Capitalized Lease
Obligations of all Restricted Entities 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 Parent, a fixed
or floating rate of interest, shall be computed by applying, at the option of
the Parent, 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 of all Restricted Entities for such
period:
(a) increased by (to the extent deducted in computing Consolidated
Adjusted Net Income) the sum of (i) the Consolidated Tax Expense of such
Restricted Subsidiaries as are subject to the immediately preceding
parenthetical clause for such period (other than taxes
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<PAGE> 13
attributable to extraordinary, unusual or non-recurring gains or losses); (ii)
Consolidated Interest Expense of all Restricted Entities for such period; (iii)
depreciation of all Restricted Entities for such period, determined on a
consolidated basis in accordance with GAAP; (iv) amortization of all Restricted
Entities 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 (excluding any non-cash charge which requires
an accrual or reserve for cash charges for any future period) of the Restricted
Entities for such period in accordance with GAAP; and
(b) decreased by any non-cash gains of the Restricted Entities 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 all
Restricted Entities for such period as determined on a consolidated basis in
accordance with GAAP.
"CREDIT FACILITIES" means, with respect to a Restricted Entity, one
or more debt facilities or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, terms 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 AGREEMENTS" means any spot or forward exchange agreements
and currency swap, currency option or other similar financial agreements or
arrangements entered into by the any Restricted Entity.
"DEBT SECURITIES" means any debt securities (including any
Guarantee of such securities) issued by any Restricted Entity 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-affiliates 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 the Company or a Restricted Subsidiary
similar to the Vendor Credit Facility or any Credit Facility or other
commercial bank borrowings, any vendor equipment financing 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".
"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, and with respect to any transaction or series of
transactions in respect of which the board of directors of the Parent is
required to deliver a resolution thereof under this Indenture, a member of the
board of directors of the Parent 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, the Parent or
any of their Restricted Subsidiaries.
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"ESCROW ACCOUNT" means the account established with the Trustee in
its name pursuant to the terms of the Original Pledge Agreement for the deposit
of Pledged Securities.
"EVENT OF DEFAULT", 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):
(a) default in the payment of any interest 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);
(b) 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);
(c) default in the performance, or breach, of any covenant or
agreement of the Company or of the Parent 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 (a) or (b) or in
clause (B), (C) or (D) of this clause (c)) and continuance of such default or
breach for a period of 30 days after written notice shall have been given to the
Company or the Parent (as the case may be) by the Trustee or to the Company or
the Parent 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;
(d) (A) one or more defaults in the payment of principal of or
premium, if any, or interest on Indebtedness of the Company or the Parent 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 the Parent 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;
(e) one or more final judgments, orders or decrees of any court or
regulatory agency shall be rendered against the Company or the Parent 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;
(f) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or the Parent 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 the Parent 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 the Parent 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;
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(g) the institution by the Company or the Parent 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 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 the Parent 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;
(h) the Amended and Restated Pledge Agreement ceases to be in full
force and effect before payment in full of the obligations thereunder; or
the Guarantee ceases to be in full force and effect before payment
in full of the obligations thereunder.
"FAIR MARKET VALUE" means, with respect to any asset or property,
the sale value that would be obtained in an arms' 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 the
Indenture, Fair Market Value shall be determined by the Board of Directors of
the Parent acting in good faith and as of the date on which such determination
is made.
"GUARANTEE" means the guarantee dated as of [ ], 2000 by the
Parent for the benefit of each of the Holders of the outstanding Notes, a copy
of which is attached to this Supplemental Indenture as Exhibit 1.
"INCUMBENT" means any railroad, utility, governmental entity,
pipeline or other licensed owner (which ownership is determined immediately
prior to any transaction with a Restricted Entity) of Telecommunications Assets
to be used in the network of the Company or the Parent 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 a Restricted
Entity pursuant to such agreement).
"INCUMBENT AGREEMENT" means an agreement between an Incumbent and a
Restricted Entity pursuant to which, among other things, such Incumbent receives
a payment equal to such Restricted Entity'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 such
Restricted Entity and upon or with respect to which such Restricted Entity has
constructed or intends to construct a portion of its network.
"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 or the
Parent to Incur Indebtedness on a revolving basis, the Company or the Parent (as
the case may be) shall be deemed to have Incurred the greater of:
(a) the Indebtedness actually Incurred; or
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(b) all or a portion of the amount of such unborrowed commitment
that the Company or the Parent (as the case may be) shall have so designated to
be Incurred in an Officer's Certificate delivered to the Trustee (in which case
the Company or the Parent (as the case may be) 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 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 Parent 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 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
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<PAGE> 17
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.
"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 of the Company subsequent to the Issue Date, or received by the
Parent from the issuance of (or capital contribution with respect to) Qualified
Capital Stock of the Parent subsequent to the Amendment Date, other than the
Issuance of Qualified Capital Stock to the Company or to a Restricted
Subsidiary; and
(b) 75% of the aggregate net proceeds from sales of Redeemable
Capital Stock of the Company or the Parent or Indebtedness of the Company or the
Parent convertible into Qualified Capital Stock of the Company or the Parent (as
the case may be), in each case upon such redemption or conversion thereof into
Qualified Capital Stock.
"INVESTMENT" means, with respect to the Parent's or the Company's
investment with 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
or the Parent'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 or the Parent (as the case may be) in such Unrestricted Subsidiary at
such time and the portion (proportionate to the Company's or the Parent'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.
"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 any Restricted Entity), 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 any Restricted Entity) owning a beneficial
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<PAGE> 18
interest in the assets subject to the Asset Sale and (v) appropriate amounts to
be provided by any Restricted Entity, as the case may be, as a reserve required
in accordance with GAAP against any liabilities associated with such Asset Sale
and retained by any Restricted Entity after such Asset Sale, including 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 of
the Parent or the Company, as the case may be, 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(b)(3), 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 of for, cash or Cash Equivalents (except to the
extent that such obligations are financed or sold with recourse to the Parent or
any Subsidiary of the Parent), 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.
"NEW PLEDGED SECURITIES" means the securities purchased by the
Company to be deposited in the Escrow Account as security for the fifth
scheduled interest payment on the Notes pursuant to the Indenture.
"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 (when used with respect to the Company) or of the Parent (when
used with respect to the Parent), and, in each case, delivered to the Trustee.
"PARENT" means Pathnet Telecommunications, Inc. a corporation
organized and existing under the laws of the state of Delaware.
"PARENT REQUEST" or "PARENT ORDER" means a written request or order
signed in the name of the Parent 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.
"PERMITTED HOLDER" means, when used with respect to 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 (USA), Inc. and Grotech Partners IV,
L.P, any general partner of any such Person on the Issue Date, and any Person
controlled by any such general partner, David Schaeffer or Richard A. Jalkult
and, when used with respect to the Parent or any other Affiliate of the Parent
other than the Company, means [ ].
"PERMITTED INDEBTEDNESS" means:
(a) Indebtedness of the Company pursuant to the Notes or of the
Parent pursuant to the Guarantee;
(b) Indebtedness of the Company or any Restricted Company Subsidiary
outstanding on the Issue Date or Indebtedness of the Parent or any Restricted
Parent Subsidiary outstanding on the Amendment Date;
(c) Indebtedness of the Company or the Parent owing to any
Restricted Subsidiary or of the Parent owing to the Company (but only so long as
such Indebtedness is held by such Restricted Subsidiary) or by the Company, as
the case may be; provided that any Indebtedness of the Company or the Parent (as
the case may be) owing to any such Restricted
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<PAGE> 19
Subsidiary or the Company 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 by the Company or
the Parent (as the case may be) of its obligations under the Notes or the
Guarantee; and provided further that any transaction pursuant to which any
Restricted Subsidiary or the Company to which such Indebtedness is owed ceases
to be a Restricted Subsidiary or, in the case of the Company, a Subsidiary of
the Parent, shall be deemed to be an incurrence of Indebtedness by the Parent or
the Company that is not permitted by this clause (c);
(d) Indebtedness of any Restricted Subsidiary owing to the Company
or the Parent, of the Company owing to the Parent or of any Restricted
Subsidiary owing to another Restricted Subsidiary;
(e) Indebtedness of any Restricted Entity 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 or the Parent is limited to the cash securing such
letters of credit;
(f) Indebtedness of any Restricted Entity under Currency Agreements
and Interest Rate Agreements entered into in the ordinary course of business;
provided that such agreements are designed to protect any Restricted Entity
against, or manage exposure to, fluctuations in currency exchange rates and
interest rates, 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 any Restricted Entity consisting of guarantees,
indemnities or obligations in connection with (1) Telecommunications
Indebtedness, (2) Indebtedness permitted under clause (j) or (m) of this
"Permitted Indebtedness" definition or (3) in respect of purchase price
adjustments in connection with the acquisition of or disposition of assets,
including shares of Capital Stock;
(i) Indebtedness of the Company or the Parent (or consolidated
Indebtedness of the Company and the Parent) 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 an issuance and sale by the Company to a Restricted
Subsidiary or issuance and sale by the Parent to the Company or to any
Restricted Subsidiary, of Qualified Capital Stock of the Company or the Parent,
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 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 any Restricted Entity 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
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<PAGE> 20
time outstanding the greater of (x) 80% of eligible consolidated accounts
receivable of the Company and the Parent as of the last fiscal quarter for which
financial statements are prepared or (y) $50,000,000 (or the equivalent thereof
in one or more foreign currencies); and any Indebtedness issued in exchange for,
or the net proceeds of which are used to refinance or refund, Indebtedness
incurred 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 any Restricted Entity issued in exchange for, or
the net proceeds of which are used to refinance or refund, then-outstanding
Indebtedness of any Restricted Entity 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 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 or the Parent be
refinanced by means of any Indebtedness of any Restricted Subsidiary (in the
case of the Company) or of the Company or any Restricted Subsidiary (in the case
of the Parent) 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 any Restricted Entity 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 (or the equivalent
thereof in one or more foreign currencies) 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 any Restricted Entity;
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(c) Investments by any Restricted Entity in another Person if, as a
result of such Investment, (i) such other Person becomes a Restricted Entity or
(ii) such other Person is merged or consolidated with or into, or transfers or
conveys all or substantially all of its assets to a Restricted Entity;
(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 by the Company or any Restricted Company Subsidiary
in existence on the Issue Date and Investments by the Parent or any Restricted
Parent Subsidiary in existence on the Amendment Date;
(f) Investments in the Pledged Securities to the extent required by
the Amended and Restated Pledge Agreement;
(g) Investments in an amount not to exceed $1,000,000 (or the
equivalent thereof in one or more foreign currencies) 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 and the Parent, Redeemable Capital Stock of the Company and the Parent
convertible into Qualified Capital Stock of the Company or the Parent (as the
case may be), and Indebtedness of the Company and the Parent convertible into
Qualified Capital Stock of the Company or the Parent (as the case may be), in
the latter two cases upon such redemption or conversion thereof into Qualified
Capital Stock of the Company or the Parent (as the case may be), issued by any
Restricted Entity 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 to a Restricted Subsidiary), 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 or the Parent not in excess of
$500,000 (or the equivalent thereof in one or more foreign currencies) in any
fiscal year;
(k) Bonds, notes, debentures or other securities evidencing
indebtedness received as a result of Asset Sales permitted under Section 1017;
(l) Endorsements for collection or deposit in the ordinary course of
business by any Restricted Entity of bank drafts and similar negotiable
instruments of any 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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<PAGE> 22
(n) Investments in or acquisitions of Capital Stock, indebtedness,
securities or other property of Persons (other than Affiliates of the Company or
the Parent) received by the any Restricted Entity 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
a Restricted Entity the right to use such assets pursuant to an Incumbent
Agreement; provided that, in the good faith determination of the Board of
Directors of the Parent or the Company, as the case may be, the present value of
the future payments expected to be received by the Company or the Parent 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 (or the equivalent thereof in one
or more foreign currencies).
"PERMITTED LIENS" means:
(a) Liens existing on the Issue Date, when used with respect to the
Company or any Restricted Company Subsidiary, or Liens existing on the Amendment
Date, when used with respect to the Parent or any Restricted Parent Subsidiary;
(b) Liens on any property or assets of the Company or any Restricted
Subsidiary granted in favor of any Restricted Entity;
(c) Liens on any property or assets of the Company or any Restricted
Subsidiary securing the Notes or the Guarantee;
(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 any Restricted Entity 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 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,
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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 any
Restricted Entity 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 any Restricted Entity; provided that such Lien does not extend to any
property or assets of any Restricted Entity other than the assets acquired in
connection with the incurrence of such Acquired Indebtedness;
(l) Liens securing obligations of the Company or the Parent 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 any Restricted
Entity 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 any Restricted Entity other than the
property and assets so acquired and (ii) the Lien securing such Indebtedness
shall be created within 60 days of such acquisition;
(p) Liens securing the Escrow Account, the Pledged Securities and
the proceeds thereof and the security interest created by the Amended and
Restated 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 or the Parent installed on their respective networks in favor of Persons
that have licensed, leased, transferred or granted to any Restricted Entity a
right to use Telecommunications Assets or financed the purchase of
Telecommunications Assets or securing the obligations of such Restricted Entity
under an Incumbent Agreement; provided that such Liens will (1) be created on
terms that the Company or the Parent (as the case may be) reasonably believes to
be no less favorable to the Company or the Parent 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;
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(s) Liens relating to revenues of any Restricted Entity 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 or the Parent.
"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 Parent or the Company in accordance with
GAAP.
"PERMITTED TELECOMMUNICATIONS JOINT VENTURE" means a corporation,
partnership or other entity engaged in one or more Telecommunications Business
in which the Company or the Parent owns, directly or indirectly, an equity
interest.
"PLEDGED SECURITIES" means the securities, consisting of Government
Securities, deposited in the Escrow Account pursuant to the Original Pledge
Agreement together with the New Pledged Securities.
"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 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 that then provisions
contained in Section 1017 and Section 1010 are to holders of the Notes and the
Guarantees, and such Capital Stock specifically provides that such Person will
not repurchase or redeem any such Capital Stock pursuant to any provision prior
to the repurchase by the Company or the Parent of such Notes and Guarantees as
are required to be repurchased pursuant to Section 1017 and Section 1010.
"RESTRICTED COMPANY SUBSIDIARY" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"RESTRICTED ENTITY" means (i) any Restricted Subsidiary, (ii) the
Parent, and (iii) the Company.
"RESTRICTED PARENT SUBSIDIARY" means any Subsidiary of the Parent
other than (i) the Company, (ii) a Restricted Company Subsidiary, and (iii) an
Unrestricted Subsidiary.
"RESTRICTED SUBSIDIARY" means any Restricted Company Subsidiary and
any Restricted Parent Subsidiary.
"SALE-LEASEBACK TRANSACTION" means any direct or indirect
arrangement, or series of related arrangements, with any Person (other than a
Restricted Entity) or to which any Person (other than a Restricted Entity) is a
party, providing for the leasing to a Restricted Entity of any property for an
aggregate term exceeding three years, whether owned by the Company,
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the Parent or by any Subsidiary of either of them at the Issue Date or later
acquired, which has been or is to be sold or transferred by such Restricted
Entity 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 any Restricted Entity of Telecommunications Assets to, and the
leasing by any Restricted Entity of such assets from, a Permitted
Telecommunications Joint Venture shall not constitute a Sale-Leaseback
Transaction.
"SIGNIFICANT SUBSIDIARY" means at any date of determination, the
Company and any Restricted Subsidiary that, together with its Subsidiaries, (i)
for the most recent fiscal year of the Parent accounted for more than 10% of the
consolidated revenues of the Parent and the Restricted Parent Subsidiaries, (ii)
as of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Parent and the Restricted Parent 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 Parent and the
Restricted Parent 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 Parent for such fiscal year.
"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
Parent or by one or more other Subsidiaries or by the Parent and one or more
other Subsidiaries, unless used with respect to the Company, in which event as
shall mean 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 of its Subsidiaries or by the Company and one or more other its
Subsidiaries.
"TELECOMMUNICATIONS ASSETS" means, with respect to any Person,
assets (including 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 or the Parent's network, including, without limitation, any businesses
or services in which the Company or the Parent is currently engaged and
including any computer systems used in a Telecommunications Business.
Telecommunications Assets 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 a Restricted Entity, such other Person either is, or
immediately following the relevant transaction shall become, a Restricted
Subsidiary 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" contained in Section 102 of this Supplemental
Indenture. The determination of what constitutes Telecommunications Assets shall
be made by the Board of Directors of the Parent 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 Parent or the Company, as the case
may be.
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"TELECOMMUNICATIONS INDEBTEDNESS" means Indebtedness of any
Restricted Entity 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 any Restricted Entity 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.
"UNRESTRICTED SUBSIDIARY" means:
(a) any Subsidiary that at the time of determination shall be an
Unrestricted Subsidiary (as designated by the Board of
Directors of the Parent as provided below); and
(b) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors of the Parent may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary so long as (i) neither the Company, the Parent 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 the Parent 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 result of designating such Subsidiary an Unrestricted
Subsidiary will not violate the provisions of Section 1012, (iv) no Restricted
Entity 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 Parent,
and (v) none of the Company, the Parent, nor any other Subsidiary of either of
them 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 Parent 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 or the Parent (as the case may be)
could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to Section 1011.
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SECTION 103. DEFINITIONS FOR PURPOSES OF SECTION 1017(a).
The following definitions will apply for the purposes of
interpretation of Section 1017(a) and the defined terms contained in this
Section 103. Capitalized terms used in Section 1017(a) or in this Section 103
which are not defined in this Section 103 shall be given the meaning ascribed to
them in Section 102 of this Supplemental Indenture, or, if such term is not
defined in such Section 102, in Section 101 of the Indenture.
"ACCOUNTS RECEIVABLE SUBSIDIARY" means any Restricted Company
Subsidiary 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 any Restricted Company Subsidiary, (ii) the sale or financing of
accounts receivable or interests therein and (iii) other activities directly
related thereto.
"ALLOWABLE COMPANY INDEBTEDNESS" means Indebtedness incurred by the
Company 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 thereafter.
"ASSET SALE" means any sale, issuance, conveyance, transfer, lease
or other disposition (including by way of merger, consolidation or
Sale-Leaseback Transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i) any Capital Stock
of any Subsidiary of the Company; (ii) all or substantially all of the
properties and assets of the Company or any Subsidiary of the Company; or (iii)
any other properties or assets of the Company or any Subsidiary of the Company,
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 constitutes a Permitted Transaction, (B) of the Company to
any Restricted Company Subsidiary, or of any Restricted Company Subsidiary to
the Company or any other Restricted Company Subsidiary in accordance with the
terms of this Indenture, (C) having an aggregate Fair Market Value of less than
$2,000,000 (or the equivalent thereof in any other currency) in any given fiscal
year, (D) by the Company or a Restricted Company 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 Company 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 Company Subsidiary or other
Investment that was not a Restricted Payment when made, (F) constituting
accounts receivable of the Company or a Restricted Company 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
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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 as Permitted Indebtedness or as Allowable
Company Indebtedness, (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 Company Subsidiary if not a Restricted
Payment.
"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 of the Company and to be in full force and effect on the
date of such certification, and delivered to the Trustee.
"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 acceptance 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 and rated at least A-1 by S&P or at least
P-1 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.
"CONSOLIDATED ADJUSTED NET INCOME" means, with respect to any
period, the consolidated net income (or loss) of the Company and all Restricted
Company 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 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 Company Subsidiary), including Unrestricted
Subsidiaries, in which the Company or any Restricted Company 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 Company 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 Company Subsidiary on a "pooling of interests" basis
attributable to any period prior to the date of combination;
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(e) the net income of any Restricted Company Subsidiary to the
extent that the declaration or payment of dividends or similar distributions by
such Restricted Company 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 Company Subsidiary or its
stockholders (except, for purposes of determining whether any Indebtedness is
Allowable Company Indebtedness, any Permitted Restriction); and
(f) any net income (or loss) from any Restricted Company Subsidiary
that was an Unrestricted Company Subsidiary at any time during such period other
than any amounts actually received from such Restricted Company Subsidiary.
"CONSOLIDATED INDEBTEDNESS" means, with respect to any period, the
aggregate amount of Indebtedness of the Company and its Restricted Company
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 Company 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
further 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 Company 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 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
Company 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 any 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 consolidated interest expense of the Company and its
Restricted Company Subsidiaries for such period, including (i) amortization of
debt discount, (ii) the net cost of
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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 consolidated interest component of Capitalized Lease
Obligations of the Company and its Restricted Company Subsidiaries paid, accrued
and/or scheduled to be paid or accrued during such period; excluding, however,
any amount of such interest of any Restricted Company Subsidiary if the net
income of such Restricted Company 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
Company 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 of such
Restricted Company Subsidiaries as are subject to the immediately preceding
parenthetical clause 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 Company Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP; (iv) amortization of the Company and the
Restricted Company 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 (excluding any non-cash
charge which requires an accrual or reserve for cash charges for any future
period) of the Company and its Restricted Company Subsidiaries for such period
in accordance with GAAP; and
(b) decreased by any non-cash gains of the Company and the
Restricted Company Subsidiaries 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 the Restricted Company Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"EVENT OF DEFAULT" 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
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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):
(a) default in the payment of any interest 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);
(b) 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);
(c) 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 (a) or (b) or in clause (B), (C)
or (D) of this clause (c)) 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) completion of any
transaction or series of transactions pursuant to which the Company consolidates
with or merges into any other Person or sells, assigns, conveys, transfers,
leases or otherwise disposes of all of the properties and assets of the Company
and the Restricted Subsidiaries on a consolidated basis to any other Person or
Persons, which does not constitute a Permitted Transaction; and (D) default in
the performance or breach of Section 1010;
(d) (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;
(e) 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;
(f) 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;
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<PAGE> 32
(g) 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 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
(h) the Pledge Agreement ceases to be in full force and effect
before payment in full of the obligations thereunder.
"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 herein,
Fair Market Value shall be determined by the Board of Directors acting in good
faith and as of the date on which such determination is made.
"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 Company 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 Company Subsidiary pursuant to such agreement).
"INCUMBENT AGREEMENT" means an agreement between an Incumbent and
the Company or a Restricted Company Subsidiary pursuant to which, among other
things, such Incumbent receives a payment equal to a percentage of the Company's
or such Restricted Company 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 Company Subsidiary and upon or with respect to which the Company
or such Restricted Company Subsidiary has constructed or intends to construct a
portion of its network.
"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:
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(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 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 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.
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"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 Company Subsidiary; 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 the Company's relationship with
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 Company Subsidiary shall be deemed
to be an "Investment" made by the Company in such Unrestricted Company
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 Company
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.
"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 Company
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 Company 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 Company 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 Company
Subsidiary, as the case may be, after such Asset Sale, including 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
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converted into or exchanged for Qualified Capital Stock, as referred to in the
definition of "Restricted Payment" contained in this Section 103, 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 of for, cash or Cash Equivalents
(except to the extent that such obligations are financed or sold with recourse
to the Parent or any Subsidiary of the Parent), 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.
"PERMITTED INDEBTEDNESS" means:
(a) Indebtedness of the Company pursuant to the Notes or of any
Restricted Company Subsidiary pursuant to a Guarantee of the Notes;
(b) Indebtedness of the Company or any Restricted Company Subsidiary
outstanding on the Issue Date;
(c) Indebtedness of the Company owing to any Restricted Company
Subsidiary (but only so long as such Indebtedness is held by such Restricted
Company Subsidiary); provided that any Indebtedness of the Company owing to any
such Restricted Company 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 Company Subsidiary to which such Indebtedness
is owed ceases to be a Restricted Company 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 Company Subsidiary owing to the
Company or of any Restricted Company Subsidiary owing to another Restricted
Company Subsidiary;
(e) Indebtedness of the Company or any Restricted Company 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 Company Subsidiary against, or manage exposure to, fluctuations in
currency exchange rates and interest rates, 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 Company Subsidiary
consisting of guarantees, indemnities or obligations in connection with (1)
Telecommunications Indebtedness, (2) Indebtedness permitted under clause (j) or
(m) of this "Permitted Indebtedness" definition or (3) in respect of purchase
price adjustments in connection with the acquisition of or disposition of
assets, including shares of Capital Stock;
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(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 Company 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 the definition of "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 Company 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 consolidated accounts
receivable of the Company as of the last fiscal quarter for which financial
statements are prepared or (y) $50,000,000 or the equivalent thereof in one or
more foreign currencies; and any Indebtedness incurred 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 Company 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 Company
Subsidiary, incurred under the ratio test set forth in clause (i) or (ii) of the
definition of "Allowable Company Indebtedness" 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 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 the definition of "Allowable Company Indebtedness"
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 Company
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
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(m) Indebtedness of the Company or any Restricted Company 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 (or the
equivalent thereof in one or more foreign currencies) 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 Company Subsidiary;
(c) Investments by the Company or any Restricted Company Subsidiary
in another Person if, as a result of such Investment, (i) such other Person
becomes a Restricted Company 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 Company Subsidiary;
(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 (or the
equivalent thereof in one or more foreign currencies) 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 Company Subsidiary 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 Company Subsidiary to a Restricted Company Subsidiary), 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;
(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 (or the
equivalent thereof in one or more foreign currencies) in any fiscal year;
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(k) Bonds, notes, debentures or other securities evidencing
Indebtedness received as a result of Asset Sales permitted under Section 1017);
(l) Endorsements for collection or deposit in the ordinary course of
business by the Company or any Restricted Company Subsidiary of bank drafts and
similar negotiable instruments of any 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;
(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 Company 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 Company 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 (or the equivalent thereof in one
or more foreign currencies).
"PERMITTED LIENS" means:
(a) Liens existing on the Issue Date;
(b) Liens on any property or assets of a Restricted Company
Subsidiary granted in favor of the Company or any Restricted Company Subsidiary;
(c) Liens on any property or assets of the Company or any Restricted
Company 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 Company Subsidiary
and, with respect to amounts not yet delinquent or being contested in good faith
by appropriate proceeding, if a reserve or other
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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 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 Company 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 Company Subsidiary; provided that such Lien
does not extend to any property or assets of the Company or any Restricted
Company 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 Company 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 Company
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;
(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
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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 Company Subsidiary a
right to use Telecommunications Assets or financed the purchase of
Telecommunications Assets or securing the obligations of the Company or such
Restricted Company 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
Company 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 RESTRICTION" means:
(a) 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 tendency 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; and
(b) any encumbrance or restriction under the Vendor Credit Facility.
"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 Business
in which the Company owns, directly or indirectly, an equity interest.
"PERMITTED TRANSACTION" means a transaction or a series of
transactions pursuant to which the Company consolidates with or merges with or
into any other Person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its properties
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<PAGE> 41
and assets to any other Person or Persons, or pursuant to which any Restricted
Company Subsidiary enters into any such transaction or series of transactions,
provided always that such transaction or series of transactions, shall not be
permitted if it or they 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 Company Subsidiaries
on a consolidated basis to any other Person or Persons, unless at the time and
immediately after giving effect thereto:
(i) 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 Company
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 Company Subsidiaries on a consolidated basis, as the case
may be (the "Surviving Company Entity"), (1) 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 (2)
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;
(b) 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 Company 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;
(c) 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 Company Entity if the Company is not
the continuing obligor hereunder) could incur at least $1.00 of additional
Allowable Company Indebtedness (other than Permitted Indebtedness); and
(d) 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
(c) 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, constitute a Permitted Transaction for
the purposes of this definition and that all conditions precedent herein
provided for relating to such transaction have been complied with.
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Provided that:
(i) any merger or consolidation of a Restricted
Company Subsidiary with and into the Company (with the Company
being the surviving entity) or another Restricted Company
Subsidiary need only comply with clauses (c) and (d) above in
order to qualify as a Permitted Transaction. Further, any
reincorporation of the Company or any Restricted Company
Subsidiary under the laws of the United States of America, any
state thereof or the District of Columbia shall be a Permitted
Transaction;
(ii) 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 that qualifies as a
Permitted Transaction pursuant to clauses (a) through (d) of
this definition in which the Company is not the continuing
obligor hereunder, the Surviving Company 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.
(iii) 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
qualifies as a Permitted Lien 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.
"RESTRICTED PAYMENT" means any of the following actions
whether taken directly or indirectly and whether taken by the Company or any
Restricted Company Subsidiary:
(a) (1) the declaration or payment of any dividend on, or
making of 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) purchasing, redeeming or otherwise acquiring or
retiring for value, directly or indirectly, any shares of Capital Stock
of the Company or any Capital Stock of
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any of its Affiliates (other than Capital Stock of the Parent, any
Subsidiaries of the Parent that are not Company Restricted Subsidiaries
and any Wholly Owned Restricted Subsidiary) or any options, warrants or
other rights to acquire such shares of Capital Stock;
(3) making any principal payment on, or repurchasing,
redeeming, defeasing or otherwise acquiring or retiring 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) making 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
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 Allowable Company Indebtedness (other than Permitted
Indebtedness) 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 of
the Company less 1.5 times Consolidated Interest Expense of
the Company or (B) if Consolidated Operating Cash Flow of the
Company is a negative, minus 100% 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
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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 of the Company, 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 Company Subsidiary as a
Restricted Company 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 Company Subsidiary by the Company and its
Restricted Company Subsidiaries.
(b) Notwithstanding the above, the following actions by the
Company or any Restricted Company Subsidiary shall not constitute Restricted
Payments so long as (with respect to clauses (1) 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 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 (or the equivalent thereof in one or more foreign
currencies) 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 (or the equivalent thereof in one
or more foreign currencies) 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
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<PAGE> 45
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 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).
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company
other than an Unrestricted Company Subsidiary.
"SALE-LEASEBACK TRANSACTION" means any direct or indirect
arrangement, or series of related arrangements, with any Person (other than the
Company or a Restricted Company Subsidiary) or to which any Person (other than
the Company or a Restricted Company
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<PAGE> 46
Subsidiary) is a party, providing for the leasing to the Company or to a
Restricted Company 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 Company 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 Company Subsidiary of Telecommunications Assets to, and the leasing
by the Company or any Restricted Company Subsidiary of such assets from, a
Permitted Telecommunications Joint Venture shall not constitute a Sale-Leaseback
Transaction.
"SIGNIFICANT SUBSIDIARY" means, at any date of determination,
any Restricted Company 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 Company 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 Company 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 Company 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.
"TELECOMMUNICATIONS ASSETS" means, with respect to any Person,
assets (including 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 any businesses or services in which the Company is
currently engaged and including any computer systems used in a
Telecommunications Business. Telecommunications Assets 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 Company
Subsidiary, such other Person either is, or immediately following the relevant
transaction shall become, a 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" contained in this Section 103. 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 Company 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 Company Subsidiary of any new
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<PAGE> 47
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
at 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.
"UNRESTRICTED COMPANY SUBSIDIARY" means:
(a) any Subsidiary of the Company that at the time of
determination shall be an Unrestricted Company Subsidiary (as designated by the
Board of Directors as provided below); and
(b) any Subsidiary of an Unrestricted Company Subsidiary.
The Board of Directors may designate any Subsidiary of the
Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Company Subsidiary so long as (i)
neither the Company nor any other Subsidiary of the Company 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 Company 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 result of designating
such Subsidiary an Unrestricted Company Subsidiary will not violate the
provisions of Section 1012, (iv) neither the Company nor any Restricted
Company 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 of the Company 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 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 Company Subsidiary as
a Restricted Company 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
Allowable Company Indebtedness (other than Permitted Indebtedness).
SECTION 104. AMENDMENT TO SECTION 103. Section 103 of the Indenture is hereby
amended by deleting the existing Section 103 in its entirety and replacing it
with the following:
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
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<PAGE> 48
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, 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.
Any certificate or opinion of an officer of the Parent 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, an officer or officers of the Parent, 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.
AMENDMENTS TO "NOTE FORMS"
SECTION 105. AMENDMENT TO SECTION 202. Section 202 of the Indenture is hereby
amended by deleting the existing Section 202 in its entirety and replacing it
with the following:
Section 202. Form of Face of Note.
PATHNET, INC.
12 1/4% Senior Note due 2008
[CUSIP]_______________
[ISIN]_________________
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<PAGE> 49
No._____________ $________
Pathnet, Inc., a Delaware corporation (herein called the "Company", which
term includes any successor Person under the Indenture, as amended by the
Supplemental Indenture, each 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 and the Parent (as defined below) 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 of 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.
This Note is unconditionally guaranteed by Pathnet Telecommunications, Inc.,
a Delaware corporation (herein called the "Parent") as set forth in the
Guarantee endorsed hereon.
The following information is supplied for purposes of Section 1273 and 1275
of the Internal Revenue Code.
<TABLE>
<S> <C>
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%
</TABLE>
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, the payment of interest may be made at the
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<PAGE> 50
option of the Company or the Parent, as the case may be (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 Agreements, dated as of April 8, 1998 (the "Notes Registration Right
Agreement"), between the Company and the Initial Purchasers named therein.
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, as amended by the
Supplemental Indenture, or the Guarantee 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
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<PAGE> 51
SECTION 106. AMENDMENT TO SECTION 203. Section 203 of the Indenture is hereby
amended by deleting the existing Section 203 in its entirety and replacing it
with the following:
Section 203. Form of Reverse 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, as amended by
the Supplemental Indenture) in aggregate principal amount to $350,000,000, which
may be issued under an indenture dated as of April 8, 1998 between the Company
and The Bank of New York, as trustee, as amended by the Supplemental Indenture
dated as of [ ], 2000 between the Company, Pathnet Telecommunications,
Inc., and The Bank of New York, as trustee. References in this Note to the
Indenture shall be deemed to be references to the Indenture as amended by the
Supplemental Indenture. The Bank of New York, as trustee is herein called the
"Trustee", which term includes any successor trustee under the Indenture.
Reference is hereby made to the Indenture and all indentures supplemental
thereto for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Parent, 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):
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2003 106.125%
2004 104.083%
2005 102.042%
2006 and thereafter 100.00%
</TABLE>
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
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<PAGE> 52
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. On and after the date of redemption, interest will
cease to accrue on Notes 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 Defaults, upon compliance by
the Company with certain conditions set forth therein, which provisions apply to
this Notice.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modifications of the rights and obligations of the
Company, the Parent 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 Notes, to waive compliance by the Company and
the Parent 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 hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provisions 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 and the Parent maintained for such
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<PAGE> 53
purpose in The City of New York, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company, the Parent 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 and 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 alike 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.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES
THEREOF.
All terms used in this Note which are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
SECTION 107. ADDITION OF SECTION 203A. The following Section 203A is hereby
added to the Indenture:
SECTION 203A. Guarantee of Note. Each of the Notes shall have the
following Guarantee endorsed upon it:
1. Guarantee of Payment and Performance of Obligations.
(a) For value received, Pathnet Telecommunications, Inc.
(the "Parent") unconditionally guarantees to the
holder of any Outstanding Note or Notes (a "Holder")
the full and punctual payment and performance of the
Obligations (as defined in subsection (b) below).
This Guarantee is an absolute, unconditional and
continuing guarantee of the full and punctual payment
and performance by the Company of each of the
Obligations, and not of collectability only, and is
no way conditioned upon any requirement that any
Holder first attempt to seek payment or performance
from the Company or any other Parent or surety or
resort to any security or other means of obtaining
payment of all or any of the Obligations or upon any
other contingency. Upon any default by the Company in
the full and punctual payment or performance of any
of the Obligations, if such default remains uncured
after the giving of any required notice and after any
applicable period of cure, the liabilities and
obligations of the Parent hereunder shall at the
option of any Holder become forthwith effective,
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<PAGE> 54
matured, due and payable without further demand or
notice of any nature, all such demands and notices
being expressly waived by the Parent.
(b) As used herein, the term "Obligations" means all
obligations, covenants, liabilities, undertakings and
agreements of any kind of the Company to all or any
of the Holders contained in the Indenture, to be
performed after the date hereof, howsoever, incurred,
arising or evidenced, whether now or hereafter
existing, due or to become due or of payment or
performance and including, without limitation: (i)
the prompt payment in full, in United States
currency, when due (whether at stated maturity, by
acceleration, by mandatory or optional prepayment or
otherwise) of the principal of and interest on the
Notes (including interest on any overdue principal,
and, to the extent permitted by applicable law, on
any overdue interest) and all other amounts from time
to time owing by the Company under the Indenture and
under the Notes (including costs, expenses and
taxes); and (ii) the prompt performance and
observance by the Company of all covenants,
agreements and conditions on its part to be performed
and observed under the Indenture, in each case
strictly in accordance with the terms thereof (such
payments and other obligations being herein
collectively referred to as the "Obligations").
2. Guarantee Continuing and Liability Unaffected.
(a) Subject to Section 2 (c), this is a continuing
guarantee and shall be binding upon the Parent
regardless of how long before or after the date
hereof any part of the Obligations was or is incurred
by the Company. Subject to Section 2 (c), this
Guarantee may be enforced by any or all of the
Holders from time to time and as often as occasion
for such enforcement may arise.
(b) If after receipt of any payment from the Parent made
hereunder the Holders, or any of them, are compelled
to surrender or voluntarily surrender such payment or
proceeds to any person because such payment or
application of proceeds is or may be avoided,
invalidated, recaptured, or set aside as a
preference, fraudulent conveyance, impermissible
setoff or for any other reason, whether or not such
surrender is the result of (i) any judgment, decree
or order of any court or administrative body having
jurisdiction over the Holders, or (ii) any settlement
or compromise by the Holders of any claim as to any
of the foregoing with any person (including the
Company), then the Obligations or part thereof
affected shall be reinstated and continue and this
Guarantee shall be reinstated and continue in full
force as to such Obligations or part thereof as if
such payment or proceeds had not been received. The
provisions of this Section 2(b) shall survive the
termination of this Guarantee and any satisfaction
and discharge of the Company by virtue of any
payment, court order or any federal or state law.
(c) The Parent shall be subrogated to all rights of the
Holders in respect of any amounts paid by the Parent
pursuant to the provisions of this Guarantee;
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provided, however, that Parent shall be entitled to
enforce, or to receive any payments arising out of or
based upon, such right of subrogation with respect to
any Obligation only after the payment of all amounts
owed by the Company to the Holders with respect to
all of the Obligations have been paid in full.
(d) This Guarantee shall terminate and be of no further
force and effect as to any Note upon full payment of
the Redemption Price with respect to such Note,
provided, however, that this Guarantee shall continue
to be effective or shall be reinstated, as the case
may be, if at any time the Company must restore
payment of any sums paid under such Note or under
this Guarantee for any reason whatsoever.
3. Unconditional Nature of Parent's Obligations and Liabilities.
The obligations and liabilities of the Parent hereunder shall be
absolute and unconditional, and shall not be subject to any
counterclaim, set-off, deduction or defense based upon any claim the
Parent may have against the Company or any other person or entity. Such
obligations and liabilities shall remain in full force and effect for
the period set forth in Section 2 above without regard to any event,
circumstance or condition (whether or not the Parent shall have
knowledge or notice thereof) which but for the provisions of this
Section might constitute a legal or equitable defense or discharge of a
Parent or surety or which might in any way limit recourse against the
Parent, including:
(a) any amendment or modification or supplement to the
terms of the Indenture, this Guarantee or any of the
Notes, including the renewal or extension of the time
for payment of the Notes or the granting of time in
respect of the payment thereof;
(b) any waiver, consent, extension, granting of time,
forbearance, indulgence or other action or inaction
under or in respect of the Indenture or the Notes, or
any exercise or non-exercise of any right, remedy or
power in respect thereof;
(c) the invalidity or unenforceability, in whole or in
part of the Indenture or this Guarantee resulting
from the Company's or the Parent's lack of authority
to enter into the Indenture and/or to incur any or
all of the Obligations, by any person acting for the
Company or the Parent without or in excess of
authority;
(d) any actual, purported or attempted sale, assignment
or other transfer by any or all of the Holders or by
the Company or the Parent of the Indenture or the
Notes or of any of their rights, interests or
obligations thereunder;
(e) the addition of any party as a Parent or surety of
all or any part of the Obligations or any limitation
of the liability of any additional Parent or surety
of all or any part of the Obligations under any other
agreement;
(f) any merger or consolidation of the Company or of the
Parent into or with any other entity, or any sale,
lease, transfer or other disposition of any or all of
any Company's or the Parent's assets or any sale,
transfer or other
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disposition of any or all of the economic interests
in the Company or the Parent to any other person or
entity;
(g) the recovery of any judgment against the Company or
any action to enforce the same; or
(h) any change in the financial condition of the Company
or the Company's entry into an assignment for the
benefit of creditors, an arrangement or any other
agreement or procedure for the restructuring of its
liabilities, or the Company's insolvency, bankruptcy,
reorganization, dissolution, liquidation or any
similar action by or occurrence with respect to the
Company.
4. Parent's Waiver. The Parent unconditionally waives, to the
fullest extent permitted by law:
(a) notice of any of the matters referred to in Section 3
hereof;
(b) diligence, presentment, demand of payment and filing
of claims with a court in the event of bankruptcy or
insolvency of the Company;
(c) any right to the enforcement, assertion or exercise
by any or all of the Holders of any of their rights,
powers or remedies under, against or with respect to
the Company (i) any other Parent or surety, or (ii)
any security for all or any part of the Obligations;
(d) any requirement that the Parent be joined as a party
in any action or proceeding against the Company to
enforce any of the provisions of the Indenture;
(e) acceptance of this Guarantee by any Holder;
and covenants that this Guarantee will not be discharged except by complete
performance of the obligations contained in this Guarantee.
5. Representations and Warranties. The Parent represents and
warrants that:
(a) the Parent is a corporation duly organized and
validly existing in good standing under the laws of
the State of Delaware and has the full power,
authority and legal right to enter into and perform
its obligations under this Guarantee;
(b) this Guarantee has been duly authorized, executed and
delivered by the Parent and constitutes the legal,
valid and binding obligation of the Parent,
enforceable against the Parent in accordance with its
terms, except for the effect of bankruptcy,
insolvency, reorganization, moratorium, receivership
or similar laws affecting the enforcement of
creditors' rights generally;
(c) the execution, delivery and performance by the Parent
of this Guarantee do not and will not contravene any
applicable law, rule, regulation, judgment or order
and do not and will not contravene the provisions of,
constitute a breach of or default under, or result in
the creation of any security interest, lien or
encumbrance on any of the property of the Parent
pursuant to, the Parent's articles of incorporation
or by-laws of any
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indenture, mortgage, license or other contract,
agreement or instrument to which the Parent is a
party or by which it is bound.
6. Attorney's Costs. The Parent agrees to pay all reasonable
attorney's fees and disbursements and all other reasonable and actual costs and
expenses which may be incurred by the Holders in the enforcement of this
Guarantee.
7. Successors and Assigns. This Guarantee shall be binding upon the
Parent and its respective successors and assigns, and shall inure to the benefit
of and be enforceable by the Holders and their respective successors and
assigns.
8. Governing Law. This Guarantee shall be governed by and construed in
accordance with the laws of the State of New York.
9. Severability. Wherever possible, each provision of this Guarantee
shall be construed in such manner as to be valid and enforceable against the
Parent under applicable law, but if any provision hereof shall be deemed invalid
or unenforceable to any extent against the Parent in any jurisdiction, such
provision shall be ineffective only to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remainder
of such provision or any of the other provisions hereof, and any such invalidity
or unenforceability against the Parent in one jurisdiction shall not render such
provision ineffective in any other jurisdiction.
10. Notices.
Any notice, request or other communication required or permitted to
be given hereunder to the Holders shall be given by the Parent in the same
manner as set forth in Section 106 of the Indenture.
11. Transferability. This Guarantee is solely for the benefit of the
Holders and is not separately transferable from the Notes.
12. Headings. Section headings appearing in this Guarantee are for
convenience of reference only and shall not define, limit, amplify or otherwise
modify any provision hereof. Capitalized terms used herein have the meanings
given to them in the Indenture.
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This Guarantee shall not be valid or obligatory to any purpose
until the certificate of authentication on the Note on which this Guarantee has
been endorsed shall have been executed by the Trustee under the Indenture by the
signature of one of its authorized officers.
IN WITNESS WHEREOF, the Parent has caused this Guarantee to be executed on its
behalf by an officer or other person thereunto duly authorized as of the date
first above written.
PATHNET TELECOMMUNICATIONS, INC.
By:
-------------------------------------------
Name:
Title:
AMENDMENT TO "REMEDIES"
SECTION 108. AMENDMENT TO SECTION 501. Section 501 of the Indenture is hereby
amended by deleting the existing Section 501 in its entirety and replacing it
(i) with the definition of "Event of Default" set forth in Section 103 for the
purposes of interpretation of Section 1017(a) and (ii) with the definition of
"Event of Default" set forth in Section 102 for all other purposes.
AMENDMENTS TO "CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE"
SECTION 109. AMENDMENT TO ARTICLE EIGHT. Article Eight of the Indenture is
hereby amended by deleting the existing Article Eight in its entirety and
replacing it with the following:
SECTION 801. Company and Parent May Consolidate, etc., Only on Certain
Terms.
Neither the Company nor the Parent will, 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 neither will the Company or the Parent 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 Restricted Entities on a
consolidated basis to any other Person or Persons, unless at the time and
immediately after giving effect thereto and subject always to the provisions of
Section 1010 and Section 1017:
(1) either (A) the Company or the Parent (as the case
may be) shall be the continuing corporation or (B) the Person (if other
than the Company or the Parent) formed by such consolidation or into
which the Company, the Parent 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 Restricted Entities 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
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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 obligations of the
Company or the Parent pursuant to the Notes or the Guarantee, as the
case may be, 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 or the
Parent 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 any Restricted Entity 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 Parent (as the case may be) (or the Surviving Entity if
the Company or the Parent is not the continuing obligor hereunder)
could incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under Section 1011; and
(4) the Company, the Parent 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 or of
the Company with and into the Company or the Parent (with the Company or the
Parent (as the case may be) 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 any Restricted Entity 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 or the Parent with or
merger of the Company or the Parent with or into any other corporation or any
sale, assignment, conveyance, transfer, lease or disposition of the properties
and assets of the Company or the Parent substantially as an entirety to any
Person in accordance with Section 801 in which the Company or the Parent 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 or the
Parent (as the case may be) hereunder with the same effect as if such successor
Person had been named as the
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Company or the Parent (as the case may be) 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, if any, and interest on the Notes or, in the case where the predecessor
is the Parent, from the obligations under the Guarantees in respect of the
payment of principal of, premium, if any, and interest on the Notes.
SECTION 803. Notes to Be Secured in Certain Events.
If, upon any such consolidation of the Company or the Parent
with or merger of the Company or the Parent into any other corporation, or upon
any sale, assignment, conveyance, lease or transfer of the property of the
Company or the Parent substantially as an entirety to any other Person, any
property or assets of the Company or the Parent (as the case may be) 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 or the Parent (as the case may be), 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 or the Guarantees (as
the case may be) (together with, if the Company or the Parent (as the case may
be) shall so determine, any other Indebtedness of the Company or the Parent (as
the case may be) now existing or hereinafter created which is not subordinate in
right of payment to the Notes or the Guarantees, as the case may be)) 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 or Guarantees to be so
secured.
AMENDMENTS TO "SUPPLEMENTAL INDENTURES"
SECTION 110. AMENDMENT TO SECTION 901. Section 901 of the Indenture is hereby
amended by deleting the existing Section 901 in its entirety and replacing it
with the following:
SECTION 901. Supplemental Indentures Without Consent of
Holders.
Without the consent of any Holders, the Company and the
Parent, 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, the Parent or any other obligor on the Notes, and the
assumption by any such successor of the covenants of the Company or the
Parent 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, the Parent or any
other obligor upon the Notes or the Guarantees for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company, the Parent or any other obligor upon the Notes or the
Guarantees, as applicable, in this Indenture or the Notes;
(3) to cure any ambiguity, to correct or supplement any
provision herein or in the Notes or the Guarantees that may be
defective or inconsistent with any other provision herein or in the
Notes or the Guarantees, or to make any other provisions with respect
to matters or questions arising under this Indenture or the Notes or
the
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Guarantees; provided that, in each case, such action shall not
adversely affect the interest 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 or
the Parent'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 further guarantor of the Notes under the
Indenture;
(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 111. AMENDMENT TO SECTION 902. Section 902 of the Indenture is hereby
amended by deleting the existing Section 902 in its entirety and replacing it
with the following:
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, the Parent and the Trustee, the
Company and the Parent, 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
Liquidate 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);
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(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 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 Amended and Restated
Pledge Agreement, except in accordance with the terms of the Amended
and Restated Pledge Agreement
(7) modify the provisions of this Indenture relating to the
Guarantee in a manner adverse to the Holders.
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.
AMENDMENTS TO "COVENANTS"
SECTION 112. AMENDMENT TO SECTION 1002.
Section 1002 of the Indenture is hereby amended by deleting the existing Section
1002 in its entirety and replacing it with the following:
SECTION 1002. Maintenance of Office or Agency:
The Company and the Parent 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 or the Parent in respect of
the Notes, this Indenture or the Guarantees may be served. The Corporate Trust
Office of the Trustee shall be such office or agency of the Company and the
Parent unless the Company or the Parent shall designate and maintain some other
office or agency for one or more of such purposes. The Company and the Parent
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 or the Parent shall fail
to maintain any such required office or agency or shall
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fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demand may be made or served at the Corporate Trust
Administration office of the Trustee, and the Company and the Parent hereby
appoint the Trustee as their agent to receive all such presentations,
surrenders, notices and demands.
The Company and the Parent 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, that
such designation or rescission shall not in any manner relieve the Company or
the Parent of their obligation to maintain an office or agency in The City of
New York for such purposes. The Company and the Parent will give prompt written
notice to the Trustee of any such designation or rescission and any change in
the location of any such other office or agency.
SECTION 113. AMENDMENT TO SECTION 1003. Section 1003 of the Indenture is hereby
amended by deleting the existing Section 1003 in its entirety and replacing it
with the following:
SECTION 1003. Money for Note Payments to Be Held in Trust
If the Company or the Parent shall at any time act as their
own Paying Agent, they will, on or before each due date of the principal of (or
premium, 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, 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 their action or failure so to act.
Whenever the Company and the Parent shall have one or more
Paying Agents for the Notes, the Company and/or the Parent will, on or before
10:00 a.m. on each due date of the principal of (or premium, if any) or interest
on any Notes, deposit with a Paying Agent a sum sufficient to pay the principal
(and premium, 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 and/or the Parent will
promptly notify the Trustee of such action or any failure so to act.
The Company and the Parent 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, 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
the Parent (or any other obligor upon the Notes) in the making of any
payment of principal (and premium, 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.
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The Company or the Parent 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 or Parent Order direct any Paying Agent to
pay, to the Trustee all sums held in trust by the Company, the Parent or such
Paying Agent, such sums to be held by the Trustee upon the same trusts as those
upon which such sums where held by the Company, the Parent or such Paying Agent;
and, upon such payment by any 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 or the Parent, in trust for the payment of the
principal of (or premium, if any) or interest on any Note and remaining
unclaimed for two years after such principal, premium, interest has become due
and payable shall be paid to the Company on Company Request or to the Parent on
Parent Request, or (if then held by the Company or the Parent) shall be
discharged from such trust. The Holder of such Note, as an unsecured general
creditor, shall look thereafter only to the Company and the Parent for the
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company or the Parent 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 and the Parent 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
or the Parent, as the case may be.
SECTION 114. AMENDMENT TO SECTION 1004. Section 1004 of the Indenture is hereby
amended by deleting the existing Section 1004 in its entirety and replacing it
with the following:
SECTION 1004. Corporate Existence.
Subject to Article Eight, (a) 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 of its Subsidiaries, and (b) the Parent 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 Parent
and each of its Subsidiaries; provided, as the case may be, that neither the
Company nor the Parent, as the case may be, shall be required to preserve any
such right or franchise if the Board of Directors of the Company or the Parent,
as the case may be, shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company or the Parent and its
respective Subsidiaries as a whole.
SECTION 115. AMENDMENT TO SECTION 1005. Section 1005 of the Indenture is hereby
amended by deleting the existing Section 1005 in its entirety and replacing it
with the following:
SECTION 1005. Payment of Taxes and Other Claims.
(a) The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all material taxes,
assessments and governmental charges levied or imposed upon the Company or any
of its Subsidiaries or upon the income, profits or property of the Company or
any Restricted Company Subsidiary and (ii) all material
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lawful claims for labor, materials and supplies, which, if unpaid, might by law
become a lien upon the property of the Company or any of its Subsidiaries; and
(b) the Parent shall pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (i) all material taxes, assessments and
governmental charges levied or imposed upon the Parent or any of its
Subsidiaries or upon the income, profits or property of the Parent or any
Restricted Subsidiary and (ii) all material lawful claims for labor, materials
and supplies, which, if unpaid, might by law become a lien upon the property of
the Parent or any of its Subsidiaries provided, that neither the Company nor the
Parent shall 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.
SECTION 116. AMENDMENT TO SECTION 1006. Section 1006 of the Indenture is hereby
amended by deleting the existing Section 1006 in its entirety and replacing it
with the following:
SECTION 1006. Maintenance of Properties.
(a) The Company shall, or shall cause its Restricted Company
Subsidiaries to, cause all material properties owned by the Company or any
Restricted Company Subsidiary or used or held for use in the conduct of its
business or the business of any Restricted Company 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, and (b) the Parent shall, or shall cause the Restricted
Subsidiaries to, cause all material properties owned by the Parent 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 Parent may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, that nothing in this Section 1006 shall prevent a Restricted Entity
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 Parent, desirable in the conduct of its business or the
business of such Restricted Entity and not disadvantageous in any material
respect to the Holders.
SECTION 117. AMENDMENT TO SECTION 1007. Section 1007 of the Indenture is hereby
amended by deleting the existing Section 1007 in its entirety and replacing it
with the following:
SECTION 1007. Insurance.
(a) The Company shall at all times keep all of its and its Restricted Company
Subsidiaries' properties which are of an insurable nature insured, and (b) the
Parent shall at all times keep all of its and the Restricted Subsidiaries'
properties, which are of an insurable nature insured, in each case with insurers
believed by the Company or the Parent (as the case may be) 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.
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SECTION 118. AMENDMENT TO SECTION 1008. Section 1008 of the Indenture is hereby
amended by deleting the existing Section 1008 in its entirety and replacing it
with the following:
SECTION 1008. Statement by Officers As to Default.
(a) The Company and the Parent 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 of each of the
Company and the Parent as to his or her knowledge of the compliance of the
Company or the Parent (as the case may be) with all conditions and covenants
under this Indenture since the 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 any Restricted Entity 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 (or the equivalent thereof in one
or more foreign currencies)), the Company or the Parent (as the case may be)
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 or the Parent (as
the case may be) becoming aware of its occurrence.
SECTION 119. AMENDMENT TO SECTION 1009. Section 1009 of the Indenture is hereby
amended by deleting the existing Section 1009 in its entirety and replacing it
with the following:
SECTION 1009. Provision of Financial Statements.
(a) Subject to Section 1009(b) below the Company and the Parent 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 or the Parent (as the
case may be) has a class of securities registered under the Exchange Act, the
annual reports, quarterly reports and other documents that the Company or the
Parent (as the case may be) would be required to file if it were subject to
Section 13 or 15(d) of the Exchange Act.
(b) Provided always that the Parent complies fully with its filing
obligations pursuant to Section 1009(a) above, the Company shall be entitled in
its sole discretion to rely on any applicable law, rule, regulation or SEC
approval (together "Relevant Saving"), whether in force at the date hereof or
subsequently promulgated, to limit the scope of or cease to comply with its
filing obligations pursuant to Section 1009(a) to the maximum extent permitted
by such Relevant Saving.
(c) The Parent 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 Parent files
such reports and documents with the Commission or the date on which the Parent
would be required to file such reports and documents if the Parent 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 Parent'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
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contained therein or determinable from information contained therein, including
the Parent's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).
SECTION 120. AMENDMENT TO SECTION 1010. Section 1010 of the Indenture is hereby
amended by deleting the existing Section 1010 in its entirety and replacing it
with the following:
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 or the Parent (as the case may be) 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 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 (if the
Change of Control relates to the Company) or the Parent (if the Change of
Control relates to the Parent) shall notify the Trustee thereof and give to each
Holder of the Notes in the manner provided in Section 105 a notice stating:
(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 Change of Control Purchase Price;
(2) the circumstances and relevant facts regarding such Change of
Control (including 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 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 (c) of this Section.
(c) 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
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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 and Guarantees 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 121. AMENDMENT TO SECTION 1011. Section 1011 of the Indenture is hereby
amended by deleting the existing Section 1011 in its entirety and replacing it
with the following:
SECTION 1011. Limitation on Indebtedness.
Neither the Company nor the Parent shall , and neither shall they
permit any Restricted Subsidiary to, incur any Indebtedness (including any
Acquired Indebtedness) other than Permitted Indebtedness; provided that the
Company or the Parent (as the case may be) may Incur Indebtedness if, at the
time of such incurrence, the Consolidated Indebtedness to Consolidated Operating
Cash Flow Ratio of the Company or the Parent, as the case may be, 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 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 any Restricted Entity is permitted to Incur, the
Parent will have the right, in its sole discretion, to classify such item of
Indebtedness or portion thereof at the time of its incurrence and the Company or
the Parent, as the case may be, 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 122. AMENDMENT TO SECTION 1012. Section 1012 of the Indenture is hereby
amended by deleting the existing Section 1012 in its entirety and replacing it
with the following:
SECTION 1012. Limitation on Restricted Payments.
The Parent shall not, and shall not permit any Restricted Subsidiary
or, in the case of paragraphs (3) and (4) below, the Company to take, directly
or indirectly, any of the following actions:
(a) (1) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Capital Stock of the Parent (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 Parent or any
Capital Stock of any of its Affiliates (other than Capital Stock of the
Company or 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 Parent or of the Company that is expressly subordinated in right
of payment to the Notes or to the Guarantees, as the case may be; or
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(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 Parent, 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 Parent 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) 100% of Consolidated Operating Cash Flow of the Parent less 1.5
times Consolidated Interest Expense of the Parent or (ii) if
Consolidated Operating Cash Flow of the Parent is a negative, minus 100%
of such negative amount, in each case on a cumulative basis for the
period beginning on the first day of the Parent's first fiscal quarter
after the Issue Date and ending on the last day of the Parent'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 Parent 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 Parent
(including upon the exercise of options, warrants or rights) or
warrants, options or rights to purchase shares of Qualified Capital
Stock of the Parent; 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 Parent 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 Parent, 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 Parent at the time of such
conversion or exchange; plus
(iv) to the extent not otherwise included in Consolidated Operating
Cash Flow of the Parent, 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 Parent or any Restricted Subsidiary after
the Issue Date from such Person and (b)
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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 Parent and its Restricted Subsidiaries.
(b) Notwithstanding paragraph (a) above, the Parent 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 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 Parent (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 Parent; or (y) that are held by former officers, employees
or directors (or their estates or beneficiaries under their estates) of
the Parent 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 (or the
equivalent thereof in one or more foreign currencies) in any given
fiscal year;
(3) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Indebtedness of the Parent 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 Parent;
(4) the purchase of any Indebtedness of the Company that is
expressly subordinated in right of payment to the Notes or the purchase
of any Indebtedness of the Parent that is expressly subordinated in
right of payment to the Guarantees, in each case 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 Parent 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 Parent that is expressly subordinated in right of
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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
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 Parent as necessary to
accomplish such refinancing, plus, in either case, the amount of
expenses of the Parent 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 123. AMENDMENT TO SECTION 1013. Section 1013 of the Indenture is hereby
amended by deleting the existing Section 1013 in its entirety and replacing it
with the following:
SECTION 1013. Limitation on Issuance and Sale of Capital Stock of
the Company and Restricted Subsidiaries.
Neither the Company nor the Parent shall , and neither shall they
permit any Restricted Subsidiary to, issue or sell any Capital Stock of the
Company or of a Restricted Subsidiary (other than to a Restricted Entity );
provided, that this covenant shall not prohibit (i) issuances or sales of
Capital Stock of the Company or a Restricted Subsidiary if, immediately after
giving effect to such issuance or sale, the Company would no longer be Wholly
Owned by the Parent or 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 directors' qualifying shares or the ownership by foreign
nationals of Capital Stock of the Company or of any Restricted Subsidiary, to
the extent mandated by applicable law, (iii) the issuance and sale of Capital
Stock of the Company or any Restricted Subsidiary owned by any Restricted Entity
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 the Company or any Restricted Subsidiary to any Person
that transfers, leases, licenses or grants a right to use Telecommunications
Assets to the Parent or the Company (as the case may be) pursuant to an
Incumbent Agreement; provided that, after such issuance and sale, such
subsidiary remains a Restricted Subsidiary and, in the good faith
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determination of the Board of Directors of the Parent, 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 124. AMENDMENT TO SECTION 1014. Section 1014 of the Indenture is hereby
amended by deleting the existing Section 1014 in its entirety and replacing it
with the following:
SECTION 1014. Limitation on Transactions with Affiliates.
Neither the Company nor the Parent shall, and neither shall they
permit any Restricted Subsidiary to, enter into or suffer to exist, directly or
indirectly, any transaction or series of related transactions (including, the
sale, purchase, exchange or lease of assets, property or services) with, or for
the benefit of, any Affiliate of the Parent, the Company or any Restricted
Subsidiary (other than a Restricted Entity so long as no Affiliate of the Parent
(other than a Restricted Entity) shall beneficially own Capital Stock in such
Restricted Entity) unless (i) such transaction or series of related transactions
are on terms, taken as a whole, that are no less favorable to the Company, the
Parent, 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 (or the equivalent thereof in one or more foreign currencies), the
Parent 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 (or the equivalent
thereof in one or more foreign currencies), the Parent will deliver the
Officers' Certificates described in clause (ii) above, which will also certify
that such transaction or series of related transaction has been approved by a
majority of the Disinterested Directors of the Board of Directors of the Parent,
or that the Parent 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, the Parent, or
the Restricted Subsidiary, as the case may be, from a financial point of view:
provided, that this covenant shall not restrict (1) any transaction or series of
related transactions between the Company and the Parent, (2) any transaction or
series of related transactions between either the Company or the Parent (as the
case may be) and one or more of the Restricted Subsidiaries or between the
Restricted Subsidiaries, (3) the Company or the Parent from paying reasonable
and customary regular compensation and fees to directors of any Restricted
Entity who are not employees of any Restricted Entity, (4) the performance of
the Parent's obligations under the Stockholders' Agreement, dated as of [ ],
among the Parent and the Investors named therein, as amended and supplemented
from time to time or (5) 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 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 (5) will be (x) no less favorable to the Parent or the Company, as the
case may be, 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
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Directors of the Parent or the Company, as the case may be, (including a
majority of the Disinterested Directors of the relevant Board of Directors) (6)
the making of any Restricted Payment not prohibited by Section 1012 and (7)
loans or advances made to directors, officers or employees of any Restricted
Entity, 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 (or the equivalent thereof in one or
more foreign currencies in any calendar year.)
SECTION 125. AMENDMENT TO SECTION 1015. Section 1015 of the Indenture is hereby
amended by deleting the existing Section 1015 in its entirety and replacing it
with the following:
SECTION 1015. Limitation on Liens.
Neither the Company nor the Parent shall, and neither shall they
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 any shares of Capital Stock
or Indebtedness of the Company or any Restricted Subsidiary) whether owned at
the Issue Date (in the case of the Company) or the Amendment Date (in the case
of the Parent) 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 or the
Parent (as the case may be) 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 126. AMENDMENT TO SECTION 1016. Section 1016 of the Indenture is hereby
amended by deleting the existing Section 1016 in its entirety and replacing it
with the following:
SECTION 1016. Limitations on Issuance of Certain Guarantees and
Debt Securities.
Neither the Company nor the Parent shall 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
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unconditionally released and discharged upon (i) the sale or other disposition,
by way of merger or otherwise, to any Person not an Affiliate of the Parent, of
all of the Restricted Entities' Capital Stock in such Restricted Subsidiary,
(ii) the merger or consolidation of the applicable Restricted Subsidiary with
and into another Restricted Entity 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 or of the Parent (as the case may
be) 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 127. AMENDMENT TO SECTION 1017. Section 1017 of the Indenture is hereby
amended by deleting the existing Section 1017 in its entirety and replacing it
with the following:
SECTION 1017. Limitation on Sale of Assets.
(a) Limitation on Asset Sales by the Company and Restricted Company
Subsidiaries.
(i) The Company shall not, and shall not permit any Restricted
Company Subsidiary to, directly or indirectly, engage in any Asset Sale
unless (A) the consideration received by the Company or such Restricted
Company 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 (B) the consideration received
by the Company or the relevant Restricted Company Subsidiary in respect
of such Asset Sale consists of at least 75% cash or Cash Equivalents;
provided, that for purposes of this Section 1017(a) "Cash Equivalents"
shall include (X) the amount of any liabilities (other than liabilities
that are by their terms subordinated to the Notes) of the Company or
such Restricted Company Subsidiary (as shown on the Company's or such
Restricted Company 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 Company 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 Company Subsidiaries with respect to
such liabilities and (Y) any securities, notes or other obligations
received by the Company or any such Restricted Company Subsidiary in
connection with such Asset Sale that are converted by the Company or
such Restricted Company Subsidiary into cash within 60 days of receipt.
(ii) If the Company or any Restricted Company Subsidiary engages in
an Asset Sale, the Company may use the Net Cash Proceeds thereof,
within 12 months after such Asset Sale, to (A) 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
Company Subsidiary or permanently reduce (without making any
prepayment) any Indebtedness of the Company ranking equally with the
Notes or any Indebtedness of a Restricted Company Subsidiary or (B)
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
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Restricted Company 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 Sale, whichever is later, apply or invest such Net Cash
Proceeds as provided in clause (A) or (B) (without regard to the
parenthetical contained in such clause (B) above. The amount of such
Net Cash Proceeds not so used as set forth above in this paragraph (ii)
constitutes "Company Excess Proceeds."
(iii) When the aggregate amount of Company Excess Proceeds exceeds
$10,000,000 (or the equivalent thereof in one or more foreign
currencies after deducting fees that would be incurred in converting
such funds to US dollars), the Company shall, within 15 Business Days,
make an offer to purchase (a "Company 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
Company Excess Proceeds. Any Company 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
"Company 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 a Company Excess
Proceeds Offer is less than the Company 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 a Company Excess Proceeds Offer exceeds
the Excess Proceeds, Notes to be purchased will be selected on a
proportional basis. Upon completion of such Company Exceeds Proceeds
Offer, the amount of Company Excess Proceeds shall be reset to zero.
(b) Limitation on Asset Sales by Parent and Restricted Parent
Subsidiaries. (i)The Parent shall not, and shall not permit any Restricted
Parent Subsidiary to, directly or indirectly, engage in any Asset Sale unless
(A) the consideration received by the Parent or such Restricted Parent
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
Parent, whose determination shall be conclusive and evidenced by a resolution
thereof) and (B) the consideration received by the Parent or the relevant
Restricted Parent Subsidiary in respect of such Asset Sale consists of at least
75% cash or Cash Equivalents; provided, that for purposes of this Section
1017(b), "Cash Equivalents" shall include (X) the amount of any liabilities
(other than liabilities that are by their terms subordinated to the Notes) of
the Parent or such Restricted Parent Subsidiary (as shown on the Parent's or
such Restricted Parent 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 Parent or any Restricted
Parent 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 Parent or any of the Restricted Parent Subsidiaries with respect to such
liabilities and (Y) and securities, notes or other obligations received by the
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Parent or any of its Restricted Parent Subsidiaries in connection with such
Asset Sale that are converted by the Parent or such Restricted Parent Subsidiary
into cash within 60 days of receipt.
(ii) If the Parent or any Restricted Parent Subsidiary engages in an
Asset Sale, the Parent may use the Net Cash Proceeds thereof, within 12
months after such Asset Sale, to (A) commence an offer to purchase the
Notes or any then outstanding Indebtedness of the Parent that ranks
equally with the Notes or Indebtedness of any Restricted Parent
Subsidiary or permanently reduce (without making any prepayment) any
Indebtedness of the Parent ranking equally with the Guarantee or any
Indebtedness of a Restricted Parent Subsidiary, (B) cause the Company
to repay or prepay the Notes or any then outstanding Indebtedness of
the Company that ranks equally with the Notes or Indebtedness of any
Restricted Company Subsidiary or permanently reduce (without making any
prepayment) any Indebtedness of the Company ranking equally with the
Notes or Indebtedness of any Restricted Company Subsidiary, or (C)
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. If any such legally
binding agreement to invest such Net Cash Proceeds is terminated, then
the Parent may, within 60 days of such termination or within 12 months
of such Asset Sale, whichever is later, apply or invest such Net Cash
Proceeds as provided in clause (A), or (B) or (C) (without regard to
the parenthetical contained in such clause (C)) above. The amount of
such Net Cash Proceeds not so used as set forth above in this paragraph
(c) constitutes "Parent Excess Proceeds."
(iii) When the aggregate amount of Parent Excess Proceeds exceeds
$10,000,000, the Parent shall, within 15 business days, make an offer
to purchase (a "Parent 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 Parent Excess Proceeds. Any
Parent Excess Proceeds Offer made by the Parent shall include a pro
rata offer under similar circumstances to purchase all other
Indebtedness of the Parent ranking equally with the Notes which
Indebtedness contains similar provisions requiring the Parent to
purchase such Indebtedness. The offer price as to each Note (the
"Parent 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 Parent Excess
Proceeds Offer is less than the Parent Excess Proceeds, the Parent 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 a Parent Excess Proceeds Offer exceeds the Parent
Excess Proceeds, Notes to be purchased will be selected on a
proportional basis. Upon completion of such Parent Excess Proceeds
Offer, the amount of Excess Proceeds shall be reset to zero.
SECTION 128. AMENDMENT TO SECTION 1018. Section 1018 of the Indenture is hereby
amended by deleting the existing Section 1018 in its entirety and replacing it
with the following:
SECTION 1018. Limitations on Dividend Restrictions.
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Neither the Company nor the Parent shall, and neither shall they
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 the Company or 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 the Company or such Restricted Subsidiary owned
by any Restricted Entity, (b) pay any Indebtedness owed to any Restricted
Entity, (c) make Investments in any Restricted Entity, (d) transfer any of its
property or assets to any Restricted Entity or (e) guarantee any indebtedness of
any Restricted Entity, 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 any Restricted
Entity, (iv) any agreement or other instrument of a Person acquired by the any
Restricted Entity 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 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 a Restricted Entity otherwise
permitted hereunder, (vi) any encumbrance or restriction with respect to a
Restricted Subsidiary 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 principal less the amount of cash that is
otherwise available to the Company or the Parent (as the case may be) at such
time for the payment of interest, premium 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 Parent
determines in good faith that the terms and conditions of any such encumbrances
or restrictions, taken as a whole, are no less favorable to any Restricted
Entity and the holders of the Notes than those so extended, renewed, refinanced
or replaced."
AMENDMENTS TO "SECURITY"
SECTION 129. AMENDMENTS TO ARTICLE 12. Article 12 of the Indenture is hereby
amended by deleting the existing Article 12 in its entirety and replacing it
with the following:
SECTION 1201. Security
(a) On the date hereof, the Company shall purchase the New Pledged
Securities, and at all times, subject to the Amended and Restated 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 fourth and fifth 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 Amended and Restated
Pledge Agreement and shall be held by the Trustee in the Escrow Account pending
disposition pursuant to the Amended and Restated Pledge Agreement.
(b) Each Holder, by its continued 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
Amended and Restated 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
Amended and Restated Pledge Agreement, to assure and confirm to the Trustee the
security interest in the Pledged Securities contemplated hereby, by the Amended
and Restated 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 Amended and Restated 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 the third Persons and subject to no other Liens.
(c) The release of any Pledged Securities pursuant to the Amended and
Restated 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 Amended and
Restated 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 Amended and Restated Pledge Agreement and
relating to the substitution therefor of any property or securities to be
subjected to the Lien and security interest of the Amended and Restated 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 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 Amended and Restated 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 Amended and Restated Pledge Agreement and (ii) collect and
receive any and 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 of the Trustee).
AMENDMENTS TO "DEFEASANCE AND COVENANT DEFEASANCE"
SECTION 130. AMENDMENTS TO ARTICLE 13. Article 13 of the Indenture is hereby
amended by deleting the existing Article 13 in its entirety and replacing it
with the following:
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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, each of the Company and the Parent 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 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 and the Parent'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. Forthwith upon
exercise by the Company of its option under this Section 1302 the Guarantees
shall cease to be of further force and effect.
SECTION 1303. Covenant Defeasance.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company and the Parent shall be released
from their respective 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 and the Parent
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.
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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 or the Parent 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 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
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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 or the Parent is a
party or by which it is bound.
(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.
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Anything in this Article Thirteen to the contrary notwithstanding,
the Trustee shall deliver or pay to the or the Parent, as the case may be, from
time to time upon Company Request or Parent Request, as applicable any money or
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.
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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 and the Parent'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 or the
Parent makes any payment of principal of (or premium, if any) or interest on any
Note following the reinstatement of its obligations, the Company or the Parent,
as applicable, 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.
PARENT GUARANTEE
SECTION 131. GUARANTEE. Parent agrees that forthwith upon execution of this
Supplemental Indenture it will enter into a guarantee of the Company's
obligations under the Notes in the form attached hereto as Exhibit 1.
MISCELLANEOUS
SECTION 132. WAIVER. Without limitation to Section 1019 of the Indenture, the
Parent 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
except to the extent so expressly waived, and, until such waivers shall become
effective, the obligations of the Parent and the duties of the Trustee in
respect of any such term, provision or condition shall remain in full force and
effect.
SECTION 133. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Supplemental 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 Parent and/or
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 Supplemental Indenture and conclusive in favor of the Trustee,
the Parent 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 acknowledgements of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution
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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 Parent and/or the Company shall solicit from the Holders of
Notes any request, demand, authorization, direction, notice, consent, waiver or
other Act, the Company or the Parent (as the case may be) 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 neither the Company nor the
Parent 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 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, the Parent or the
Company in reliance thereon, whether or not notation of such action is made upon
such Note.
SECTION 134. NOTICE OF HOLDERS; WAIVER.
Where this Supplemental Indenture provides for notice of any event
to Holders by the Parent 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 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.
-78-
<PAGE> 84
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 135. COUNTERPARTS. This Supplemental 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 together constitute but one and the same
Supplemental Indenture.
SECTION 136. GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
SECTION 137. SEPARABILITY CLAUSE. In case any provision in this
Supplemental Indenture 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 138. HEADINGS. The various headings of this Supplemental Indenture
are inserted for convenience only and shall not affect the meaning or
interpretation of this Supplemental Indenture or any provisions hereof or
thereof.
SECTION 139. EFFECT OF SUPPLEMENTAL INDENTURE. Pursuant to Section 902 of
the Indenture, upon the execution of this Supplemental Indenture, the Indenture
shall be and be deemed to be modified and amended in accordance therewith with
respect to the Notes affected thereby, and the respective rights, limitations of
rights, obligations, duties and liabilities and immunities under the Indenture
of the Trustee shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments, and all the terms
and conditions of this Supplemental Indenture shall be and be deemed to be part
of the terms and conditions of the Indenture for any and all purposes.
SECTION 140. INDENTURE IN FULL FORCE AND EFFECT AS SUPPLEMENTED. Except as
specifically stated herein, all of the terms and conditions of the Indenture
shall remain in full force and effect. All references to the Indenture in any
other document or instrument shall be deemed to mean the Indenture, as
supplemented by this Supplemental Indenture. This Supplemental Indenture shall
not constitute a novation of the Indenture, but shall constitute an amendment
thereto. The parties hereby agree to be bound by the terms and obligations of
the Indenture, as supplemented by this Supplemental Indenture, as though the
terms and obligations of the Indenture were set forth herein.
-79-
<PAGE> 85
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:_________________________________
Name:
Title:
PATHNET TELECOMMUNICATIONS, INC.
By:_________________________________
Name:
Title:
THE BANK OF NEW YORK, TRUSTEE
By:_________________________________
Name:
Title:
-80-
<PAGE> 86
EXHIBIT 1
FORM OF GUARANTEE
1. Guarantee of Payment and Performance of Obligations.
(a) For value received, Pathnet Telecommunications, Inc. (the
"Parent") unconditionally guarantees to the holder of any
Outstanding Note or Notes (a "Holder") the full and punctual
payment and performance of the Obligations (as defined in
subsection (b) below). This Guarantee is an absolute,
unconditional and continuing guarantee of the full and punctual
payment and performance by the Company of each of the
Obligations, and not of collectability only, and is no way
conditioned upon any requirement that any Holder first attempt to
seek payment or performance from the Company or any other Parent
or surety or resort to any security or other means of obtaining
payment of all or any of the Obligations or upon any other
contingency. Upon any default by the Company in the full and
punctual payment or performance of any of the Obligations, if
such default remains uncured after the giving of any required
notice and after any applicable period of cure, the liabilities
and obligations of the Parent hereunder shall at the option of
any Holder become forthwith effective, matured, due and payable
without further demand or notice of any nature, all such demands
and notices being expressly waived by the Parent.
(b) As used herein, the term "Obligations" means all obligations,
covenants, liabilities, undertakings and agreements of any kind
of the Company to all or any of the Holders contained in the
Indenture, to be performed after the date hereof, howsoever,
incurred, arising or evidenced, whether now or hereafter
existing, due or to become due or of payment or performance and
including, without limitation: (i) the prompt payment in full, in
United States currency, when due (whether at stated maturity, by
acceleration, by mandatory or optional prepayment or otherwise)
of the principal of and interest on the Notes (including interest
on any overdue principal, and, to the extent permitted by
applicable law, on any overdue interest) and all other amounts
from time to time owing by the Company under the Indenture and
under the Notes (including costs, expenses and taxes); and (ii)
the prompt performance and observance by the Company of all
covenants, agreements and conditions on its part to be performed
and observed under the Indenture, in each case strictly in
accordance with the terms thereof (such payments and other
obligations being herein collectively referred to as the
"Obligations").
2. Guarantee Continuing and Liability Unaffected.
(a) Subject to Section 2 (c), this is a continuing guarantee and
shall be binding upon the Parent regardless of how long before or
after the date hereof any part of the Obligations was or is
incurred by the Company. Subject to
<PAGE> 87
Section 2 (c), this Guarantee may be enforced by any or all of
the Holders from time to time and as often as occasion for such
enforcement may arise.
(b) If after receipt of any payment from the Parent made hereunder
the Holders, or any of them, are compelled to surrender or
voluntarily surrender such payment or proceeds to any person
because such payment or application of proceeds is or may be
avoided, invalidated, recaptured, or set aside as a preference,
fraudulent conveyance, impermissible setoff or for any other
reason, whether or not such surrender is the result of (i) any
judgment, decree or order of any court or administrative body
having jurisdiction over the Holders, or (ii) any settlement or
compromise by the Holders of any claim as to any of the foregoing
with any person (including the Company), then the Obligations or
part thereof affected shall be reinstated and continue and this
Guarantee shall be reinstated and continue in full force as to
such Obligations or part thereof as if such payment or proceeds
had not been received. The provisions of this Section 2(b) shall
survive the termination of this Guarantee and any satisfaction
and discharge of the Company by virtue of any payment, court
order or any federal or state law.
(c) The Parent shall be subrogated to all rights of the Holders in
respect of any amounts paid by the Parent pursuant to the
provisions of this Guarantee; provided, however, that Parent
shall be entitled to enforce, or to receive any payments arising
out of or based upon, such right of subrogation with respect to
any Obligation only after the payment of all amounts owed by the
Company to the Holders with respect to all of the Obligations
have been paid in full.
(d) This Guarantee shall terminate and be of no further force and
effect as to any Note upon full payment of the Redemption Price
with respect to such Note, provided, however, that this Guarantee
shall continue to be effective or shall be reinstated, as the
case may be, if at any time the Company must restore payment of
any sums paid under such Note or under this Guarantee for any
reason whatsoever.
3. Unconditional Nature of Parent's Obligations and Liabilities. The
obligations and liabilities of the Parent hereunder shall be absolute and
unconditional, and shall not be subject to any counterclaim, set-off,
deduction or defense based upon any claim the Parent may have against the
Company or any other person or entity. Such obligations and liabilities
shall remain in full force and effect for the period set forth in Section 2
above without regard to any event, circumstance or condition (whether or
not the Parent shall have knowledge or notice thereof) which but for the
provisions of this Section might constitute a legal or equitable defense or
discharge of a Parent or surety or which might in any way limit recourse
against the Parent, including:
<PAGE> 88
(a) any amendment or modification or supplement to the terms of the
Indenture, this Guarantee or any of the Notes, including the
renewal or extension of the time for payment of the Notes or the
granting of time in respect of the payment thereof;
(b) any waiver, consent, extension, granting of time, forbearance,
indulgence or other action or inaction under or in respect of the
Indenture or the Notes, or any exercise or non-exercise of any
right, remedy or power in respect thereof;
(c) the invalidity or unenforceability, in whole or in part of the
Indenture or this Guarantee resulting from the Company's or the
Parent's lack of authority to enter into the Indenture and/or to
incur any or all of the Obligations, by any person acting for the
Company or the Parent without or in excess of authority;
(d) any actual, purported or attempted sale, assignment or other
transfer by any or all of the Holders or by the Company or the
Parent of the Indenture or the Notes or of any of their rights,
interests or obligations thereunder;
(e) the addition of any party as a Parent or surety of all or any
part of the Obligations or any limitation of the liability of any
additional Parent or surety of all or any part of the Obligations
under any other agreement;
(f) any merger or consolidation of the Company or of the Parent into
or with any other entity, or any sale, lease, transfer or other
disposition of any or all of any Company's or the Parent's assets
or any sale, transfer or other disposition of any or all of the
economic interests in the Company or the Parent to any other
person or entity;
(g) the recovery of any judgment against the Company or any action to
enforce the same; or
(h) any change in the financial condition of the Company or the
Company's entry into an assignment for the benefit of creditors,
an arrangement or any other agreement or procedure for the
restructuring of its liabilities, or the Company's insolvency,
bankruptcy, reorganization, dissolution, liquidation or any
similar action by or occurrence with respect to the Company.
4. Parent's Waiver. The Parent unconditionally waives, to the fullest
extent permitted by law:
(a) notice of any of the matters referred to in Section 3 hereof;
(b) diligence, presentment, demand of payment and filing of claims
with a court in the event of bankruptcy or insolvency of the
Company;
<PAGE> 89
(c) any right to the enforcement, assertion or exercise by any or all
of the Holders of any of their rights, powers or remedies under,
against or with respect to the Company (i) any other Parent or
surety, or (ii) any security for all or any part of the
Obligations;
(d) any requirement that the Parent be joined as a party in any
action or proceeding against the Company to enforce any of the
provisions of the Indenture;
(e) acceptance of this Guarantee by any Holder;
and covenants that this Guarantee will not be discharged except by complete
performance of the obligations contained in this Guarantee.
5. Representations and Warranties. The Parent represents and warrants
that:
(a) the Parent is a corporation duly organized and validly existing
in good standing under the laws of the State of Delaware and has
the full power, authority and legal right to enter into and
perform its obligations under this Guarantee;
(b) this Guarantee has been duly authorized, executed and delivered
by the Parent and constitutes the legal, valid and binding
obligation of the Parent, enforceable against the Parent in
accordance with its terms, except for the effect of bankruptcy,
insolvency, reorganization, moratorium, receivership or similar
laws affecting the enforcement of creditors' rights generally;
(c) the execution, delivery and performance by the Parent of this
Guarantee do not and will not contravene any applicable law,
rule, regulation, judgment or order and do not and will not
contravene the provisions of, constitute a breach of or default
under, or result in the creation of any security interest, lien
or encumbrance on any of the property of the Parent pursuant to,
the Parent's articles of incorporation or by-laws of any
indenture, mortgage, license or other contract, agreement or
instrument to which the Parent is a party or by which it is
bound.
6. Attorney's Costs. The Parent agrees to pay all reasonable attorney's
fees and disbursements and all other reasonable and actual costs and expenses
which may be incurred by the Holders in the enforcement of this Guarantee.
7. Successors and Assigns. This Guarantee shall be binding upon the
Parent and its respective successors and assigns, and shall inure to the benefit
of and be enforceable by the Holders and their respective successors and
assigns.
8. Governing Law. This Guarantee shall be governed by and construed in
accordance with the laws of the State of New York.
<PAGE> 90
9. Severability. Wherever possible, each provision of this Guarantee
shall be construed in such manner as to be valid and enforceable against the
Parent under applicable law, but if any provision hereof shall be deemed invalid
or unenforceable to any extent against the Parent in any jurisdiction, such
provision shall be ineffective only to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remainder
of such provision or any of the other provisions hereof, and any such invalidity
or unenforceability against the Parent in one jurisdiction shall not render such
provision ineffective in any other jurisdiction.
10. Notices.
Any notice, request or other communication required or permitted to be
given hereunder to the Holders shall be given by the Parent in the same
manner as set forth in Section 106 of the Indenture.
11. Transferability. This Guarantee is solely for the benefit of the
Holders and is not separately transferable from the Notes.
12. Headings. Section headings appearing in this Guarantee are for
convenience of reference only and shall not define, limit, amplify or otherwise
modify any provision hereof. Capitalized terms used herein have the meanings
given to them in the Indenture.
This Guarantee shall not be valid or obligatory to any purpose until
the certificate of authentication on the Note on which this Guarantee has been
endorsed shall have been executed by the Trustee under the Indenture by the
signature of one of its authorized officers.
IN WITNESS WHEREOF, the Parent has caused this Guarantee to be
executed on its behalf by an officer or other person thereunto duly authorized
as of the date first above written.
PATHNET TELECOMMUNICATIONS, INC.
By:
-------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 8.1
March 10, 2000
Pathnet, Inc.
1015 31st Street, N.W.
Washington, D.C. 20007
Re: Registration Statement on Form S-1
(Registration No. 333-91469)
Ladies and Gentlemen:
We have acted as United States federal income tax counsel for
Pathnet, Inc., a Delaware corporation (the "Company"), in connection with the
guarantee by Pathnet Telecommunications, Inc. ("Pathnet Telecom") of
$350,000,000 aggregate principal amount of the Company's 12 1/4% Senior Notes
due 2008 (the "Notes"), and the waiver and amendment of certain provisions of
the Indenture governing the Notes.
We are giving this opinion in connection with a registration
statement on Form S-1, filed on November 22, 1999 (Registration No. 333-91469)
and Amendment No. 1 thereto, filed on December 16, 1999, and Amendment No. 2
thereto, filed on February 22, 2000 and Amendment No. 3 thereto, filed on the
date hereof (as so amended, the "Registration Statement"), relating to the
offering of the Guarantees of Pathnet Telecom and the proposed waivers and
amendments to the Indenture. Capitalized terms used but not defined in this
letter have the respective meanings ascribed to them in the Registration
Statement.
In rendering our opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the Registration
Statement and such agreements and other documents as we have deemed relevant and
necessary and we have made such investigations of law as we have deemed
appropriate as a basis for the opinion expressed below. In our examination, we
have assumed the authenticity of original documents, the accuracy of copies and
the genuineness of signatures. We understand and assume that (i) each such
agreement represents the valid and binding obligation of the respective parties
to such agreement, enforceable in accordance with its respective terms and the
entire agreement between the parties with respect to the subject matter of such
agreement, (ii) the parties to each agreement have complied, and will comply,
with all of their respective covenants, agreements and undertakings contained in
such agreement, and (iii) the transactions provided for by each agreement were
and will be carried out in accordance with their terms. We also understand and
assume that the
<PAGE> 2
Pathnet, Inc.
March 10, 2000
Page 2
Guarantees and waivers of and amendments to the Indenture will be
effectuated in the manner and in accordance with the terms set forth in the
Registration Statement.
We also have relied upon representations by the Company regarding
certain factual matters. If any of such representations are incorrect in whole
or in part, such inaccuracies may have a material adverse affect upon our
opinion set forth in this letter.
The opinion set forth in this letter is limited to the Internal
Revenue Code of 1986, as amended (the "Code"), administrative rulings, judicial
decisions, Treasury regulations and other applicable authorities, all as in
effect on the date of this letter. The statutory provisions, regulations and
interpretations upon which our opinion is based are subject to change, and such
change could apply retroactively. Any such change could affect the continuing
validity of the opinion set forth in this letter. We assume no responsibility to
advise you of any subsequent changes in existing law or facts, nor do we assume
any responsibility to update this opinion with respect to any matters expressly
set forth in this letter, and no opinions are to be implied or may be inferred
beyond the matters expressly so stated.
The opinion set forth in this letter has no binding effect on the
United States Internal Revenue Service or the courts of the United States. No
assurance can be given that, if the matter were contested, a court would agree
with the opinion set forth in this letter.
Based upon and subject to the foregoing, the discussion set forth in
the Registration Statement under the heading "Federal Income Tax Consequences"
constitutes our opinion with respect to such matters, except as to matters upon
which we have expressly declined to express an opinion, as stated therein. While
such discussion addresses the material anticipated United States federal income
tax consequences applicable to certain holders, it does not purport to address
all United States federal income tax consequences and our opinion is limited to
those United States federal income tax consequences specifically addressed
therein.
In giving the foregoing opinion, we express no opinion other than as
to the federal income tax laws of the United States of America.
We are furnishing this letter to you in connection with the
Registration Statement, and the opinion set forth herein is solely for your
benefit, and for the benefit of the holders of the Notes, in connection
therewith and may not be used or relied upon for any other purpose and may not
be circulated, quoted or otherwise referred to for any other purpose without our
express written consent. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the use of our name and the
discussion of our opinions in the Prospectus contained in the Registration
Statement. In giving this consent, we do not thereby concede that we are within
the category of persons whose consent is required by the Securities Act of 1933,
as amended, or the General Rules and Regulations promulgated thereunder.
<PAGE> 1
Portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission.
These portions are designated "[ * * * ]."
Exhibit 10.4
FIBER OPTIC ACCESS AGREEMENT
BETWEEN
PATHNET TELECOMMUNICATIONS, INC.
AND
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY
This fiber optic access agreement ("Agreement") is entered into as
of this ___ day of December, 1999 between Pathnet Telecommunications, Inc., a
Delaware corporation ("Pathnet") and The Burlington Northern and Santa Fe
Railway Company, a Delaware corporation ("BNSF").
WHEREAS, BNSF has certain ownership interests in certain of its rail
corridors covering the western United States, BNSF's rail network consisting of
over 30,000 route miles in 28 states and two Canadian provinces;
WHEREAS, Pathnet desires to obtain from BNSF the right to lease from
BNSF, on specified terms and conditions, strips of land constituting
approximately [ * * * ] route miles, in the aggregate, within any rail
corridor in BNSF's existing rail corridor network (or within the
Auburn-Yakima-Pasco, Washington rail corridor, or the Ortonville,
Minnesota-Terry, Montana rail corridor)(collectively, "Rail Corridors" and any
one individually, "Rail Corridor"), to the extent of BNSF's ownership rights, so
that Pathnet can construct, install, operate, maintain, replace, reconstruct,
remove and/or relocate (collectively, "Construct and Operate") a fiber optic
telecommunications transmission system and certain appurtenant equipment and
structures (collectively, "Fiber Optic Facilities");
WHEREAS, Pathnet intends to construct and operate a network of Fiber
Optic Facilities over many BNSF Rail Corridors, and to construct or acquire, and
then operate, a network of Fiber Optic Facilities over many corridors throughout
the eastern United States;
WHEREAS, Pathnet and BNSF have entered into a Contribution
Agreement, dated October ___, 1999, by which BNSF has agreed to contribute
certain property interests into Pathnet and to execute and deliver this
Agreement and, subject to the terms, conditions and obligations set forth in
this Agreement, perform the duties set forth herein; and
WHEREAS, BNSF is willing, on the terms and conditions set forth in
this Agreement, to enter into various specific leases with Pathnet, in the form
of the Lease attached hereto as Exhibit A, with respect to approximately
[ * * * ] route miles of Rail Corridors of BNSF's existing Rail Corridor
network, as specified by Pathnet and as shown on Exhibits B and C attached
hereto, each Lease to grant to Pathnet the right to Construct and Operate Fiber
Optic Facilities on a specific BNSF Rail Corridor, to the extent of BNSF's
ownership rights therein;
-1-
<PAGE> 2
NOW, THEREFORE, Pathnet and BNSF agree as follows:
1. Condition Precedent to Commencement of Pathnet's Rights.
Pathnet and BNSF have closed the transaction described and
governed by the Contribution Agreement, on the terms set forth in the
Contribution Agreement.
2. Right to Lease.
For a period of 15 years following the date of this Agreement,
on each rail corridor within BNSF's existing Rail Corridor network, subject to
the limitations of BNSF's ownership interest in each Rail Corridor, as set forth
in Section 11 hereof, and to the restrictions set forth in Section 3 hereof
concerning BNSF's overriding rail operations, safety concerns and property
marketing rights, Pathnet shall have the right to enter into a fiber optic lease
with BNSF on the terms set forth in the form of Fiber Optic Lease attached
hereto as Exhibit A and made a part hereof (hereinafter, "Lease"). (Where, with
respect to a particular Rail Corridor BNSF is subject to a limitation on its
ability to grant a Lease, but has a right to grant a fiber optic easement
instead, BNSF shall grant to Pathnet such a fiber optic easement on terms
otherwise identical to the Lease, and any such easement also shall be included
in references hereinafter to the term "Lease.") Pathnet acknowledges that,
subject only to certain restrictions set forth in Section 4 hereof, BNSF will
continue to convey to other parties, or may abandon, various Rail Corridors, or
portions thereof, throughout the term of this Agreement, and that such actions
will affect the Rail Corridor network subject to leasing to Pathnet at any
particular time. Each Lease shall permit Pathnet to Construct and Operate Fiber
Optic Facilities on the specific Rail Corridor premises to which each Lease
applies, subject to the procedures and terms of each Lease. Each Lease shall be
for a term of 35 years unless the Lease is terminated earlier in accordance with
the terms of each Lease.
3. Procedure to Obtain a Lease.
Pathnet may request a Lease in the form of Exhibit A, to the
extent of BNSF's ownership interest in the Rail Corridor, by providing to BNSF
prior written notice of its desire to enter into a Lease, which notice shall
specify the end points of the particular BNSF Rail Corridor where Pathnet
desires a Lease. BNSF shall grant such request, and BNSF and Pathnet shall
execute a Lease in the form of Exhibit A, as soon as practicable but no later
than thirty (30) days after the date BNSF receives such notice from Pathnet,
unless BNSF cannot allow a Lease in the Rail Corridor because either: (i) the
Construction and Operation of Fiber Optic Facilities under the Lease in BNSF's
judgment would materially interfere with, or create a safety hazard to BNSF with
respect to, BNSF's existing or then reasonably foreseeable future rail
operations on a segment of the Rail Corridor, as determined by a BNSF operating
or engineering Vice President or Assistant Vice President; or (ii) the
Construction and Operation of Fiber Optic Facilities under the Lease in BNSF's
judgment would materially interfere with BNSF's existing or then reasonably
foreseeable future plans to market or develop a particular parcel of land for
the benefit of a rail customer or as a real estate development (but not as a
fiber optic venture) on a
-2-
<PAGE> 3
segment of the Rail Corridor, as reasonably determined by a BNSF property
management Vice President or Assistant Vice President. Where BNSF cannot allow a
Lease in the Rail Corridor for one of the reasons just set forth, BNSF shall
cooperate with Pathnet in good faith to seek a solution that will enable Pathnet
to install its Fiber Optic Facilities on the requested portion of the Rail
Corridor and, if BNSF is unable to do so, to allow Pathnet to Construct and
Operate its Fiber Optic Facilities over as much of the Rail Corridor as
possible, consistent with the terms of (i) and (ii) above, and, if Pathnet so
desires, BNSF shall execute a Lease with Pathnet over those portions of the Rail
Corridor where the Lease would not violate the terms of (i) or (ii) above.
4. Restrictions on BNSF's Right to Grant Future Fiber Optic
Rights Along Certain Corridors.
Pathnet acknowledges that the rights to Construct and Operate
Fiber Optic Facilities to be granted to Pathnet in the Lease are nonexclusive,
except to the extent set forth in this Section 4, and that other parties have
rights under their existing agreements with, and/or conveyances from, BNSF to
Construct and Operate Fiber Optic Facilities on various BNSF rail corridors.
Subject to the existing rights of other parties under existing fiber optic
agreements, BNSF agrees as follows:
(a) Immediate Exclusivity Rights: Commencing on the date of
this Agreement, and continuing until December 31, 2004, for all of the Rail
Corridors set forth on Exhibit B attached hereto and made a part hereof,
constituting an aggregate of no more than approximately 4,052 miles ("Exclusive
Corridors"), BNSF shall not grant any rights to any other party to Construct and
Operate any Fiber Optic Facilities on any Exclusive Corridor, except where: (i)
such Fiber Optic Facilities only cross the Exclusive Corridor, and (ii) the
construction and operation of such Fiber Optic Facilities does not materially
disrupt Pathnet's ability to utilize the Fiber Optic Facilities covered by a
Lease. This exclusivity period shall terminate earlier on all routes where
Commencement of Construction (as defined herein) has not occurred, on either:
(x) the dates specified in Section 7 hereof if on such date Pathnet has not met
the applicable fiber optic network development milestone specified in Section 7
with respect to such date; or (y) on one of the dates specified below if:
(I) As of April 30, 2001, Pathnet has not completed
construction, which in this Section 4(a) shall mean
installation of a conduit and at least [* * *] fiber optic
fibers in the conduit, of at least 800 miles of Fiber Optic
Facilities along the Exclusive Corridors;
(II) As of [* * *], a Liquidity Event (as hereinafter
defined) has not occurred;
(III) As of April 30, 2002, Pathnet has not completed
construction of at least 1,600 miles of Fiber Optic Facilities
along the Exclusive Corridors;
-3-
<PAGE> 4
(IV) As of April 30, 2003, Pathnet has not
completed construction of at least 2,400 miles of
Fiber Optic Facilities along the Exclusive Corridors;
(V) As of April 30, 2004, Pathnet has not
completed construction of at least 3,200 miles of Fiber
Optic Facilities along the Exclusive Corridors; or
(VI) As of April 30, 2005, Pathnet has not
completed construction of at least 4,000 miles of Fiber
Optic Facilities along the Exclusive Corridors.
Termination of Pathnet's exclusivity rights on all routes
where Commencement of Construction has not then occurred will be the sole
consequence of Pathnet's failure to reach any milestone set forth in this
Section 4(a). In this Agreement, a "Liquidity Event" shall mean the earliest of:
(aa) a Qualified IPO, as defined in the Stockholders' Agreement, dated as of
October ___, 1999, among Pathnet, the current holders of Pathnet's Preferred
Stock, BNSF, CSX Railway Company and Colonial Pipeline Company; or (bb) the date
on which the common stock or any successor security of Pathnet either is listed
for trading on a national securities exchange registered under the Exchange Act
of 1934, as amended ("Exchange Act"), or is traded in an over-the- counter
market and quoted in an automated quotation system of the National Association
of Securities Dealers, Inc.; or (cc) there has been a transaction in which all
stockholders of Pathnet have received ownership interests which are listed for
trading on a national securities exchange registered under the Exchange Act, or
is traded in an over-the-counter market and quoted in an automated quotation
system of the National Association of Securities Dealers, Inc.
(b) Exclusive Right to Negotiate after Commencement of
Construction:
(1) Definitions. In this Agreement, the term "Commencement
of Construction" shall mean the date of award of the primary
construction contract for any segment of a Rail Corridor. In
this Agreement, the term "Restricted Corridors" shall mean
those Rail Corridors set forth on Exhibit C, which is made a
part hereof, the initial version of which is attached
hereto, which Exhibit C may be modified by Pathnet from time
to time by Pathnet delivering notice of such modification to
BNSF; provided that the aggregate route miles of the
Exclusive Corridors plus the Restricted Corridors during the
term of this Agreement shall not exceed approximately [ * *
*] route miles. In the event that Pathnet revises Exhibit C
to include all or any portion of the Auburn-Yakiman-Pasko,
Washington Rail Corridor or the Ortonville, Minnesota-Terry,
Montana Rail Corridor, BNSF, within 30 days following its
receipt of notice of such revision, shall acquire from its
affiliate now owning certain property rights in each Rail
Corridor that affiliate's rights in the Rail Corridor land
(possibly exclusive of a rail service easement in the case
of the Auburn-Yakima-Pasko rail corridor).
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(2) Exclusive Right to Negotiate. Until Commencement of
Construction occurs on a Rail Corridor, Pathnet shall have
no exclusive right to negotiate and execute a fiber optic
agreement on such Rail Corridor with any third party.
Beginning on the date of Commencement of Construction, and
continuing for up to five years thereafter for each
Exclusive Corridor to the extent Pathnet no longer has
exclusive rights under 4(a) on such Rail Corridor, and for
up to three years thereafter for each Restricted Corridor,
but in no event beyond the termination of the Lease related
to such Exclusive Corridor or Restricted Corridor, Pathnet
shall have an exclusive right to negotiate and execute any
fiber optic agreement on such Rail Corridor, except for any
agreement related to Fiber Optic Facilities which only cross
the Restricted Corridor or Exclusive Corridor, where the
construction and operation of such Fiber Optic Facilities
does not materially disrupt Pathnet's ability to utilize the
Fiber Optic Facilities covered by a Lease; provided that
this exclusive right to negotiate and execute any fiber
optic agreement with respect to any particular party shall
continue for a period of [* * *] (and BNSF thereafter
may negotiate a fiber optic agreement with such party if
by the end of such [* * *] Pathnet does not have an
executed fiber optic agreement with such party). The periods
for exclusive rights to negotiate as specified in this
Section 4(b) shall terminate earlier, as to all Rail
Corridors and Rail Corridor segments on which Pathnet has
not yet reached the stage Commencement of Construction if
Pathnet either: (i) does not meet the applicable
development milestone specified in Section 7 hereof, (ii)
as of [* * *], a Liquidity Event has not occurred, or
(iii) has not met the schedule for constructing Fiber Optic
Facilities along Exclusive Corridors, as set forth in
Section 4(a) hereof . In addition, Pathnet's exclusive
right to negotiate and execute any fiber optic agreement
shall terminate on any Rail Corridor on the date that
Pathnet's Lease on such Rail Corridor is terminated
pursuant to the terms of such Lease. In addition, at any
time prior to the end of the period in which Pathnet has an
exclusive right to negotiate and execute any fiber optic
agreement on any Restricted Corridor, BNSF may not enter
into any fiber optic agreement with another party with
respect to such Restricted Corridor except where such
agreement requires such other party to reach Commencement
of Construction on such Restricted Corridor within one year
following the effective date of such agreement.
5. Limitation on Pathnet's Right to Lease.
If Pathnet enters into a Lease with BNSF, and such Lease
subsequently is terminated for any reason specified in such Lease, for a period
of three (3) years following the date of any such termination, Pathnet shall
have no right to enter into a Lease on any portion of the BNSF Rail Corridor
that was subject to such Lease.
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6. Contribution to Pathnet.
This Agreement is being contributed by BNSF to Pathnet
pursuant to the terms of the Contribution Agreement.
7. Fiber Optic Network Development Schedule.
Pathnet shall develop a Fiber Optic Facilities network
throughout the United States, utilizing BNSF's rail corridors and longitudinal
corridors of one or more other parties in the United States, in accordance with
the following schedule of fiber optic network development milestones:
(a) By June 30, 2001, Pathnet must have completed
construction of, or have acquired, Fiber Optic
Facilities over at least 3,000 Route Miles, in the
aggregate. As used in this Section, each "Route Mile"
shall consist of either one mile of at least [* * *],
or one mile of [* * *] plus [* * *]
(b) By June 30, 2002, Pathnet must have completed
construction of, or have acquired, Fiber Optic
Facilities over at least 6,000 Route Miles, in the
aggregate.
(c) By June 30, 2003, Pathnet must have completed
construction of, or have acquired, Fiber Optic
Facilities over at least 9,500 Route Miles, in the
aggregate.
(d) By June 30, 2004, Pathnet must have completed
construction of, or have acquired, Fiber Optic
Facilities over at least 12,000 Route Miles, in the
aggregate.
(e) By June 30, 2005, Pathnet must have completed
construction of, or have acquired, Fiber Optic
Facilities over at least 12,500 Route Miles, in the
aggregate.
Termination of Pathnet's exclusivity rights on all routes where Commencement of
Construction has not then occurred will be the sole consequence of Pathnet's
failure to reach any milestone set forth in this Section 7.
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8. Reporting Relative to Fiber Optic Network Development
Schedule.
Forty days before each deadline specified in Section 7 hereof,
Pathnet shall deliver to BNSF a report reasonably satisfactory to BNSF showing
Pathnet's progress, as of the date of the report, toward meeting each
appropriate level of development specified in Section 7, and its plans to meet
or exceed each such level by the appropriate deadline. Seven (7) days after each
deadline specified in Section 7, Pathnet shall deliver to BNSF a certified
report showing whether Pathnet has met or exceeded each appropriate level of
development specified in that Section. BNSF shall have the right to audit
Pathnet's records in order to verify the contents of each report required by
this Section 8.
9. Time is of the Essence; Post-Termination Liability.
Time is of the essence in performing this Agreement. No
termination of this Agreement shall release Pathnet from any liability or
obligation of Pathnet under the terms of this Agreement, resulting from events
happening prior to the date of termination.
10. Compliance with Laws.
In exercising any and all of its right under this Agreement,
Pathnet shall comply with all applicable laws, regulations, ordinances, rules,
decisions and orders of any court or governmental body with jurisdiction, and
shall have the sole responsibility for all costs associated with such
compliance. Pathnet, at its sole cost, shall secure and maintain in effect all
federal, state and local permits licenses and/or zoning approvals required to
Construct and Operate the Fiber Optic Facilities, and shall satisfy any and all
conditions that must be met in order to obtain any required permit, license or
zoning approval.
11. Limitations on BNSF's Ownership Rights.
Pathnet acknowledges that one or more other parties,
including, but not limited to, various native American nations, may have, or may
claim to have, ownership rights in certain segments of certain of BNSF's rail
corridors, and may claim that Pathnet also must obtain rights from it (or them)
in order to occupy, or access, the Premises, as defined in each Lease, and that,
in some cases, such claims may be valid. Pathnet acknowledges that BNSF's
ownership interest in many of its Rail Corridors is a determinable fee, a
railroad right of way or a rail service easement, which shall terminate when
BNSF either: (i) ceases to use those Rail Corridors for railroad purposes; or
(ii) uses such Rail Corridors for purposes found to be inconsistent with use of
the corridors for railroad purposes, and that in such circumstances, Pathnet's
right to Lease any such Rail Corridor, or its rights under any Lease of any such
Rail Corridor, may be subject to termination as of the date the circumstances
set forth in either (i) or (ii), above, first arise (unless Pathnet improves the
quality of title to the Lease property by obtaining a patent or deed from the
federal government, if appropriate, or acquiring additional property interests
from third parties). Pathnet also acknowledges that BNSF's ownership rights may
terminate for other reasons, such
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<PAGE> 8
as termination of franchise rights, and that certain segments of BNSF's Rail
Corridors consist only of a trackage rights license to BNSF to enable BNSF to
provide rail service, or shared ownership with other railroads, and that BNSF
may not have rights to include those segments in any Lease to Pathnet. Pathnet
further acknowledges that Pathnet's rights to enter into a Lease on any BNSF
Rail Corridor, and its rights under any Lease of any BNSF Rail Corridor, are
subject and subordinate to all outstanding and/or future rights and encumbrances
on BNSF's Rail Corridors (including liens, security interests and mortgages),
and any and all easements, other leases, licenses, permits or agreements which
now or in the future relate to BNSF's Rail Corridors, except BNSF in the future
shall not place any encumbrance upon any BNSF Rail Corridor then subject to a
Lease to Pathnet, or enter into any easement, lease, license, permit or
agreement, which would materially disrupt Pathnet's ability to exercise its
rights under this Agreement or to utilize the Fiber Optic Facilities covered by
a Lease (and Pathnet acknowledges that its ability to exercise its rights under
this Agreement or to utilize such Fiber Optic Facilities would not be materially
disrupted if either: (x) Pathnet is relocated to another location within the
applicable BNSF Rail Corridor in accordance with the terms of Section 14 of the
applicable Lease, or could be located elsewhere in the Rail Corridor; or (y)
BNSF preserves fiber optic rights and makes those rights available to Pathnet at
no charge payable by Pathnet to the holder of the land interest where such
rights are located and changes following any conveyance by BNSF of its ownership
interest in such a parcel have not caused a significant physical limitation on
constructing Fiber Optic Facilities through such parcel (and Pathnet agrees that
any cost of enforcing such rights shall be the responsibility of Pathnet). BNSF
therefore conveys to Pathnet no more right, title or interest in any Rail
Corridor than BNSF holds in such Rail Corridor at the time of conveyance, and
Pathnet hereby releases BNSF from any and all liability, cost, loss, damage or
expense in connection with any claims that BNSF lacked sufficient legal title to
convey the rights described herein. Pathnet shall have the right, at its sole
cost and expense, to acquire or attempt to acquire from other parties such
rights in BNSF Rail Corridors that Pathnet deems necessary or appropriate.
12. Confidentiality.
The parties hereto shall keep confidential all terms of this
Agreement, except to the extent that disclosure thereof is required by law or
agreed by the parties in writing. In the event either party hereto is required
to disclose any terms of this agreement pursuant to applicable law, at least
three days prior to disclosing the same (or such shorter period permitted by
law), such party shall notify the other party hereto in writing and provide
copies of the terms that the party intends to disclose. The language of the
press release announcing this deal shall be mutually agreed upon between the
parties hereto.
13. No Assignment.
Neither this Agreement, nor any of the rights to lease that
are granted to Pathnet by the terms of this Agreement, shall be assigned by
Pathnet without BNSF's prior written consent, which may be granted or withheld
in BNSF's sole discretion. BNSF acknowledges that Pathnet, without consent of
BNSF may sublease to one or more parties the right to use other
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<PAGE> 9
Fiber Optic Facilities under a Lease, may sell to one or more other parties a
partial ownership in such Fiber Optic Facilities, may sublease or assign this
Agreement or any Lease to a subsidiary, affiliate or parent company controlled
by, under common control with, or controlling, either indirectly or directly,
Pathnet, but only where, and to the extent, that such transaction does not
violate the terms of the Contribution Agreement, or, for financing purposes
only, Pathnet may assign this Agreement to Lucent Technologies, Inc. and/or
Nortel Networks, Inc., or an affiliate of either company, or to some other third
party following the written concurrence of BNSF which shall not be unreasonably
withheld or delayed, or may assign any Lease to a third party, provided that in
any such case Pathnet shall remain fully responsible to BNSF for compliance with
all terms of this Agreement and the Lease. (In the foregoing sentence the terms
"control", "controlled", and "controlling" shall mean ownership of more than 50
percent of the equity interest in a company.) Nothing herein shall prohibit
Pathnet: (i) from involving contractors, or strategic or co-development
partners, in Construction and Operation of the Fiber Optic Facilities, on such
terms as Pathnet may determine in its sole discretion, provided that all such
activities are conducted in accordance with the terms of this Lease, and that
Pathnet remains fully liable for all obligations hereunder; and (ii) from
granting liens or other security interests in the Fiber Optic Facilities or
Pathnet's rights under this Lease in connection with financing or investments
made available to Pathnet, which agreements may permit Pathnet's lenders to take
possession, sell, assign or otherwise transfer the Fiber Optic Facilities,
including the right to operate, or permit a third-party to operate, the Fiber
Optic Facilities, provided that any party taking possession of the Fiber Optic
Facilities shall be subject to all terms of the Lease, and that continued
operation of the Fiber Optic Facilities shall be subject to all terms of the
Lease.
14. Limitation on Damages for Breach of this Agreement.
Damages that may be recovered for breach of this Agreement
shall not include any indirect, consequential, special or punitive damages, or
lost profits, or the cost of Pathnet building Fiber Optic Facilities on any
alternative route.
15. Taxes and Other Charges.
(a) Pathnet shall pay, and shall indemnify BNSF against
the liability for, any and all taxes, levies,
excises, charges and assessments (including any
penalties and interest related thereto)
(collectively, "Taxes") attributable to the
execution, delivery, recording or filing of this
Agreement, including without limitation any ad
valorem taxes assessed against the properties of BNSF
to the extent such ad valorem taxes are attributable
to Pathnet's rights hereunder, but only to the extent
that the ad valorem taxes attributable to the value
of Pathnet's rights have increased due to assessments
levied after the date hereof.
(b) In the case of amounts described in Section 15(a) to
be paid by Pathnet, BNSF shall determine the amount
of such Taxes to be paid by Pathnet by reference to
information provided by the relevant taxing authority
that demonstrates or establishes the increase in such
Taxes after the date hereof. If the information
provided by the relevant taxing authority
demonstrates or establishes that Taxes are
attributable to fiber optic development value, but
the information does not demonstrate or establish the
amount of the Taxes that are so
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<PAGE> 10
(c)
attributable, such amount shall be determined by
reference to a formula that is consistently applied
and that allocates any such Taxes among all of BNSF's
Rail Corridors (including similar agreements) subject
to such Taxes in a manner that reasonably reflects
both the basis upon which the Taxes are imposed and
the relative proportion of such Rail Corridors in
respect of which Pathnet has been granted rights
hereunder. The amount of Taxes attributable to fiber
optic development value shall be fairly allocated
between Pathnet and BNSF based upon the relative
value of Pathnet's rights and the rights of others to
whom BNSF has granted, or in the future may grant,
fiber optic rights with respect to the same property.
In all cases, BNSF promptly shall provide to Pathnet
information that establishes the manner in which any
such Taxes were allocated and the basis for
establishing that such amounts are attributable to
the execution of this Agreement. The parties shall
resolve any dispute regarding the liability for
payment of Taxes hereunder pursuant to the dispute
resolution and arbitration procedures set forth in
Section 21 of the Lease.
(d) Notwithstanding the foregoing, Pathnet shall not
be responsible for any Taxes for which it would
not be responsible pursuant to the provisions of
Section 24(d) or (e) of the form of Lease
attached hereto or for any Taxes on Rail
Corridors for periods in respect of which Pathnet
no longer has rights hereunder.
(e) BNSF agrees to reasonably cooperate with Pathnet
in the refund, rebate, reduction, abatement,
mitigation and contest of any Taxes for which
Pathnet is obligated to pay hereunder.
16. Notices.
Unless otherwise provided herein, all notices and other
communications required by or concerning this Agreement shall be in writing and
shall be deemed to have been duly given when delivered in person, or on the next
business day when sent by a nationally recognized overnight courier, or on the
second succeeding business day when sent by registered or certified United
States Mail (postage prepaid, return receipt requested), or, if postal claim
notice is given , on the date of its return marked "unclaimed" (provided,
however, that upon receipt of a returned notice marked "unclaimed", the sending
party hereto shall make reasonable effort to contact and notify the other party
hereto by telephone) and each respective party hereto at the following addresses
(or at such other address for a party hereto as shall be specified by like
notice):
(1) if to Pathnet:
Pathnet, Inc.
1015 31st Street., N.W.
Washington, DC 20007
Attn: General Counsel
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(2) if to BNSF:
Assistant Vice President, Telecommunications
The Burlington Northern and Santa Fe Railway Company
2600 Lou Menk Drive
Forth Worth, Texas 76131-2830
and to:
Vice President - Law
The Burlington Northern and Santa Fe Railway Company
2500 Lou Menk Drive, AOB-3
Fort Worth, Texas 76131-2830
18. Brokers and Agents.
BNSF and Pathnet represent and warrant to each other that
neither has employed any broker, agent or finder in connection with this
Agreement or the Purchase Agreement, and each indemnifies and agrees to hold
harmless the other from and against any commission or fee claimed by any broker,
agent or finder in connection with this transaction.
19. Force Majeure.
Except as may be elsewhere specifically provided in this
Agreement, any failure or delay in the performance by a party hereto of its
obligations hereunder shall not constitute a breach of this Agreement if such
failure or delay results from causes beyond that party's control, including but
not limited to acts of God, governmental action (whether in its sovereign or
contractual capacity), fire, flood, or other catastrophe, national emergency,
insurrection, riot, and war. The phrase "beyond that party's control" shall not
include any failure to reach agreement with a party with whom Pathnet is
negotiating pursuant to the exclusive right to negotiate provided in Section
4(b).
20. Severability.
If any provision of this Agreement or the application thereof,
shall be held invalid, illegal or unenforceable in whole or in part, the
remainder of this Agreement and the application thereof shall not be affected,
and shall be enforceable to the full extent permitted by law, and the portion
hereof found to be invalid shall be enforced to the fullest extent permitted by
law, and, if possible, shall be reformed to carry out as much as possible the
intent of the parties as expressed herein.
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21. Amendment.
This Agreement may be amended only by a written instrument
executed by both parties hereto. No failure to exercise and no delay in
exercising, on the part of a party hereto, any right, power or privilege
hereunder shall operate as a waiver of any other provision of this Agreement, or
as a waiver of that right, power or privilege either before, or after, the
period of waiver.
22. Entire Agreement.
This Agreement and all Exhibits attached hereto, constitutes
the entire agreement of the parties hereto with respect to the subject matters
hereof, and supersede any and all prior negotiations, understandings and
agreements, whether oral or written, with respect hereto.
23. Applicable Law.
This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Texas. Venue for any legal action to interpret or
enforce this Agreement shall lie exclusively in the United States District Court
for the Northern District of Texas, or if jurisdiction cannot be obtained in
federal court, then venue shall be in a Texas state court in Tarrant County,
Texas.
24. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, authorized representatives of BNSF and Pathnet
have executed this Agreement as of the date first set forth herein.
THE BURLINGTON NORTHERN AND PATHNET TELECOMMUNICATIONS,
SANTA FE RAILWAY COMPANY INC.
By: By:
------------------------------ --------------------------
Name: Name:
------------------------ --------------------
Title: Title:
--------------------------- --------------------------
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EXHIBIT A
FORM OF LEASE
[SEE EXHIBIT 10.5]
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EXHIBIT B
EXCLUSIVE CORRIDORS
Approx.
Corridor Route
Description Miles
[* * *] [* * *]
Total: 4,052
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EXHIBIT C
RESTRICTED CORRIDORS
Approx.
Corridor Route
Description Miles
[* * *]
Total: [* * *]
- ------ -----
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Exhibit 10.5
Portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission.
Those portions are designated "[ * * * ]."
EXHIBIT B
FIBER OPTIC LEASE
THIS FIBER OPTIC LEASE ("Lease") is made as of this ____ day of
______________, 200__ between Pathnet Telecommunications, Inc., a Delaware
corporation ("Pathnet") and The Burlington Northern and Santa Fe Railway
Company, a Delaware corporation ("BNSF"). This Lease is being entered into
pursuant to the terms of that certain fiber optic access agreement between BNSF
and Pathnet dated November __, 1999 ("Fiber Optic Access Agreement"), which sets
forth the terms upon which BNSF granted to Pathnet the right to enter into fiber
optic leases, on the terms of this Lease, on specified rail corridors in the
BNSF rail transportation network and subject to all limitations on the ownership
interest of BNSF, to Construct and Operate Fiber Optic Facilities (as defined
below).
WHEREAS, BNSF has certain ownership interests in a rail corridor
consisting of ___ route miles between ___________________ and
______________________ ("Rail Corridor");
WHEREAS, Pathnet desires to lease from BNSF, on the terms and
conditions set forth herein, a portion of the Rail Corridor, in order for
Pathnet to construct, install, operate, maintain, replace, reconstruct, remove
and/or relocate (collectively, "Construct and Operate") a fiber optic
telecommunications transmission system and certain appurtenant equipment and
structures (collectively, "Fiber Optic Facilities"); and
WHEREAS, BNSF is willing, on the terms and conditions set forth in
this Lease, to lease a portion of the Rail Corridor to Pathnet, for the sole
purpose of allowing Pathnet, subject to all limitations on the ownership
interest of BNSF, to Construct and Operate Fiber Optic Facilities on the Rail
Corridor.
NOW THEREFORE, Pathnet and BNSF agree as follows:
1. Lease Rights. Pursuant to the terms of this Lease and the Fiber
Optic Access Agreement, Pathnet shall have the right to enter upon a portion of
the Rail Corridor, which portion generally shall be a three foot wide strip of
land, or such larger portion required to Construct and Operate the Fiber Optic
Facilities, as specified in the Final Construction Plans (as defined later
herein) but at each repeater station or other required Fiber Optic Facilities
structure occupying more land, the portion shall extend one foot beyond the
perimeter of the structure or equipment, or, where a perimeter fence is built
around the structure or equipment, one foot beyond the perimeter fence, the
specific portion of the Rail Corridor leased ("Premises") being identified in
Exhibit A attached hereto and made a part hereof. All structures may be fenced
by Pathnet, at its sole cost and expense, and may be multiple stories to the
extent approved by BNSF, provided that the height and other dimensions of any
such structure do not interfere with railroad operations or clearance, or create
a safety hazard. Any such structures may exceed 3,500
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<PAGE> 2
square feet only: (i) subject to space availability; (ii) following prior
written approval of BNSF, not to be unreasonably withheld; and (iii) where such
structures are not buildings where people regularly report to work. Pathnet's
right to enter the Premises shall commence on the ___ day of ________________,
200__, and shall be for the sole purpose of allowing Pathnet, or any of its
permitted assignees, sublessees of capacity, agents, contractors, strategic or
co-development partners, customers or invitees, or any of their employees
(collectively, "Pathnet Parties") to Construct and Operate Fiber Optic
Facilities on the Premises, subject to BNSF's rights as set forth herein and all
contract and/or property rights of others in the Premises. Pathnet, and any of
the Pathnet Parties, also shall have the right to cross other property in which
BNSF has a sufficient ownership interest as required to access the Premises,
subject to BNSF's rights as set forth herein and all contract and/or property
rights of others in the Premises, so long as such access shall not cross any
active railroad track, or come within 25 feet of such track, without BNSF's
prior written consent, which will not be unreasonably withheld or delayed. Any
of the Pathnet Parties entering onto the Rail Corridor must first execute an
agreement with BNSF in the form of Exhibit "C-1" attached hereto and made a part
hereof, by which such party agrees to comply with BNSF's Contractor Requirements
set forth as Exhibit "C" attached hereto and made a part hereof (and Pathnet
acknowledges that any such Pathnet Party's execution of the Exhibit "C-1"
agreement shall not relieve Pathnet of its full responsibility hereunder for any
actions, omissions or the presence of such Pathnet Party on or near the Rail
Corridor). Pathnet may install as much fiber optic capacity (which term shall
include conduits, whether installed empty or with fiber) on the Premises as it
determines to be appropriate, and may add further fiber optic capacity during
the term of this Lease. Pathnet's rights under this Lease are granted without
covenant of title or quiet enjoyment and Pathnet acknowledges that one or more
other parties may have, or may claim to have, ownership rights in the Rail
Corridor, and may claim that Pathnet also must obtain rights from it (or them)
in order to occupy or access the Premises, and that, in some cases, such claims
may be valid. Pathnet acknowledges that segments of the Rail Corridor may
consist only of a trackage rights licensed to BNSF to enable BNSF to provide
rail service, or shared ownership with other railroads, and that BNSF may not
have rights to include these segments in any Lease to Pathnet. BNSF will use
reasonable efforts to make available to Pathnet all documents reasonably
requested by Pathnet that could be located in a reasonable search (and, at
BNSF's option, BNSF can require that Pathnet or Pathnet's agent conduct the
search, at Pathnet's cost), which documents concern BNSF's rights, and the
rights of others, which in BNSF's judgment affects the Premises and Pathnet's
rights under this Lease or which Pathnet may identify which reasonably relates
to its rights under this Lease. Pathnet acknowledges that BNSF shall not be
liable for any nondisclosure of any document other than nondisclosure resulting
from gross negligence or wilfull misconduct of BNSF. Pathnet shall keep
confidential all confidential and proprietary data contained in these documents
and shall not use it for any purposes other than as set forth herein. BNSF shall
have the right, without causing undue delay, to review documents prior to
permitting Pathnet or its agent to review those documents, and to redact
confidential and proprietary information contained therein. Where
confidentiality provisions apply to contracts requested by Pathnet under this
Section 1, BNSF shall describe for Pathnet the restrictions and interference
with Pathnet's rights that such contracts permit, and or the fiber optic
capacity that such contracts permit to be built in the Rail Corridor, to the
extent that BNSF determines that it can do so consistent with the terms of each
applicable confidentiality provision. If Pathnet determines that BNSF's
description in such
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<PAGE> 3
circumstances is insufficient, Pathnet shall so inform BNSF and BNSF shall use
good faith efforts to obtain promptly from the other party to the contract at
issue a waiver of the confidentiality provision. Pathnet's rights are subject
and subordinate to all outstanding rights and encumbrances on the Rail Corridor
(including, but not limited to, BNSF's mortgages) which BNSF has placed, or in
the future will place, on the Rail Corridor, and any and all easements, other
leases, licenses, permits or agreements which now or in the future relate to the
Rail Corridor, except that BNSF in the future shall not place any encumbrance
upon the Premises, or enter into any easement, lease, license, permit or
agreement covering any portion of the Premises, which would materially disrupt
Pathnet's ability to utilize the Fiber Optic Facilities under this Lease (and
Pathnet acknowledges that its ability to utilize such Fiber Optic Facilities
would not be materially disrupted if Pathnet is relocated to another location
within the Rail Corridor in accordance with the terms of Section 14 hereof, or
BNSF makes available to Pathnet the fiber optic rights that BNSF has reserved at
no charge payable by Pathnet to the holder of the land interest where such
rights are located (and Pathnet agrees that any cost of enforcing such rights
shall be the responsibility of Pathnet). Pathnet accepts the condition of the
Premises "AS IS, WHERE IS" and "WITH ALL FAULTS". BNSF DISCLAIMS ANY AND ALL
WARRANTIES, EXPRESS OR IMPLIED, THAT ARE NOT SPECIFICALLY SET FORTH HEREIN IN
SECTION 22 HEREOF.
2. Limitations on Lease Rights. Pathnet's rights under this Lease
also shall be subject and subordinate to the prior and continuing rights: (i) of
BNSF (and/or any other party with rights from BNSF) to use and maintain all or
any portion of its Rail Corridor in operating, maintaining, reconstructing or
relocating railroad tracks, signals, communications, electric lines or any other
improvements, equipment or facilities related to providing rail service
(collectively, "Rail Facilities"); (ii) of BNSF to use, and to allow others to
use, all and any portion of the Rail Corridor for any purpose (subject to the
terms of Section 4 of the Fiber Optic Access Agreement), which would not
materially disrupt Pathnet's ability to utilize the Fiber Optic Facilities under
this Lease; (iii) of BNSF to market and/or develop all or any portion of the
Rail Corridor or other BNSF property to rail transportation customers,
utilities, municipalities and other third parties except as restricted by
Section 4 of the Fiber Optic Access Agreement; and (iv) of BNSF to convey to any
party all or any portion of the Rail Corridor, any improvements owned by BNSF on
its Rail Corridor, and any air rights above, or subsurface rights below, the
surface of the Rail Corridor, except that any such conveyance by BNSF after the
date of this Lease shall be subject to this Lease, to the extent permitted by
applicable laws and agreements entered into prior to the date of this Lease. The
provisions of this paragraph shall be subject to the provisions of the Fiber
Optic Access Agreement.
3. Railroad Control. BNSF (and/or any other party with rights from
BNSF) shall have full control at all times over the operation of its railroad
and all Rail Facilities in the Rail Corridor. Pathnet's rights under this Lease
do not authorize Pathnet, or any of the Pathnet Parties, to interfere in any way
with any aspect of BNSF's (and/or such other party's) rail operations, or with
any Rail Facilities, on or near the Rail Corridor, or BNSF's (and/or such other
party) ability to maintain, reconstruct or relocate any Rail Facilities on or
near the Rail Corridor. Pathnet understands that various activities of BNSF, or
parties with rights through BNSF, could have the potential of interrupting
service provided by Pathnet's Fiber Optic Facilities. BNSF
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understands that uninterrupted service via Pathnet's Fiber Optic Facilities is
of critical importance to Pathnet. Where BNSF knows about future activities
which, in BNSF's opinion, would have a reasonable potential of interrupting
service via Pathnet's Fiber Optic Facilities or otherwise materially interfering
with the Construction and Operation of the Fiber Optic Facilities, BNSF shall
provide notice thereof to Pathnet as far in advance as is practical under the
circumstances, and shall cooperate with Pathnet to attempt to avoid any such
service interruption. Any failure by BNSF to provide such notice or cooperation
shall not subject BNSF to any liability, costs, expenses, damages, losses or
claims to Pathnet or any of the Pathnet Parties, except where the failure is due
to the gross negligence or willful misconduct of BNSF.
4. Fiber Optics Rights are Nonexclusive. The fiber optics rights
granted to Pathnet are nonexclusive, except to the extent set forth in Section 4
of the Fiber Optic Access Agreement.
5. Term of Lease. The term of this Lease shall be for 35 years
years from the date set forth in Section 1, except this Lease shall be
terminated earlier, if any of the following circumstances occur, on the specific
date related to those circumstances, as follows:
(a) If Pathnet fails to deliver Proposed Construction Plans
(as defined herein) within one hundred twenty (120) days
after the date of this Lease, or such longer period as
may be reasonably necessary to cure such failure,
provided that Pathnet already has begun to cure such
failure, and continues diligently to cure until
completion;
(b) If Pathnet fails to reach Commencement of Construction
(which is defined herein as the date of award of the
primary construction contract for the segment of the
Rail Corridor covered by the Proposed Construction
Plans), within either: (i) sixty (60) days from the date
that the Proposed Construction Plans become Final
Construction Plans for that segment of the Rail
Corridor, or such longer period as may be reasonably
necessary to cure such failure, provided that Pathnet
already has begun to cure such failure, and continues
diligently to cure until completion; or (ii) thirty (30)
days from a later date agreed to in writing by BNSF;
(c) Upon Pathnet's submission of the Proposed Construction
Plans, Pathnet also will submit to BNSF a construction
schedule ("Construction Schedule") for BNSF's approval,
such approval not to be unreasonably withheld. Pathnet
acknowledges that BNSF desires that construction be
completed as promptly as possible and will take this
into account in preparing the Construction Schedule. The
Construction Schedule shall contemplate completion of
construction of Fiber Optic Facilities on the segment of
the Rail Corridor covered by the Proposed Construction
Plans as promptly after BNSF's final approval of the
Proposed Construction Plans as is commercially feasible,
taking into account issues of weather and season, and
time to complete title due diligence or respond as
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reasonably required to any title problems that likely
would materially affect Pathnet's ability to Construct
and Operate the Fiber Optic Facilities, and to acquire
any necessary construction and operating permits. Upon
approval of the Proposed Construction Plans and
Construction Schedule, Pathnet will construct the Fiber
Optic Facilities in accordance with the Construction
Schedule and otherwise with all promptness and due
diligence, it being understood that modifications in the
Construction Schedule may be required due to issues
arising during construction. If at any time BNSF
believes that Pathnet has failed to construct the Fiber
Optic Facilities as promptly as commercially feasibly,
subject to Pathnet's right to suspend construction as
provided in this Subsection, BNSF may provide Pathnet
with written notice of this fact. If Pathnet does not
cure such failure within thirty (30) days after
receiving such written notice, then upon written notice
to Pathnet, BNSF may terminate the Lease, effective
immediately. Notwithstanding the foregoing, Pathnet may
suspend construction for up to two (2) years, upon
receiving BNSF's written approval, not to be
unreasonably withheld, if market considerations or
financial issues warrant such a suspension. During any
such suspension, Pathnet's exclusive right to negotiate
fiber optic agreements with respect to the Rail
Corridor, as set forth in Section 4(b)(2) of the Fiber
Optic Access Agreement, also shall be suspended.
(d) If Pathnet fails to provide the capacity required by
Section 8 hereof, and such failure continues for a
period of thirty (30) days after Pathnet receives
written notice of such failure, or such longer time as
may be reasonably necessary, provided that Pathnet
commences a cure within thirty (30) days and continues
diligently to cure until such cure is completed.
(e) If BNSF has required that Pathnet suspend construction
activities on the Premises for Pathnet's failure to
comply with any BNSF safety requirements, or on account
of Pathnet's interference with BNSF's rail operations or
maintenance activities, and within twenty four (24)
hours after written notice requiring suspension, Pathnet
has not suspended such activities.
6. Effect of Termination of Lease. Immediately upon termination of
this Lease, or if Pathnet abandons any Fiber Optic Facilities under this Lease
for a period of three years (which term shall mean the failure either to have in
use or to dedicate commercially reasonable marketing efforts to sell conduit,
dark fibers or capacity on the Premises), Pathnet shall relinquish to BNSF
possession of the Premises, provided that, for one hundred eighty (180) days
following such date Pathnet shall have the obligation to, and may continue to
enter the Premises for, the sole purposes of: (i) removing all above ground
Fiber Optic Facilities, (ii) removing below ground fiber Optic Facilities as
desired by Pathnet or to the extent reasonably requested by BNSF, and (iii)
restoring the Premises substantially to their condition on the date of this
Lease, reasonable wear and tear and casualty excepted, or as approved by BNSF.
Failure by Pathnet to
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comply with the foregoing sentence by one hundred eighty (180) days following
the date of termination shall entitle BNSF to treat all remaining Fiber Optic
Facilities as abandoned, and as the property of BNSF.
7. BNSF's Right to Suspend Pathnet Construction and Operating
Activities. In the event that Pathnet or a Pathnet Party fails to comply with
BNSF safety or operational regulations, or interferes or is reasonably likely to
interfere with BNSF rail operations, BNSF may require that Pathnet immediately
suspend all construction and/or operating activities on the Rail Corridor. In
such event, BNSF shall make a good faith effort to make available by
teleconference to discuss with Pathnet, within four (4) hours after suspension,
an individual with sufficient authority to resolve the issue, who shall be
prepared to discuss the reason(s) for such suspension and to attempt to resolve
the issue. If the parties are unable to resolve the issue in such discussion,
then BNSF and Pathnet will escalate the issue to the next higher level of
management, and shall attempt to meet, at a mutually agreeable location, or,
failing that, will have a telephonic meeting, within twenty four (24) hours of
the work suspension, with the goal of resolving the issue at that meeting. The
parties will negotiate in good faith to resolve the issue, and to prevent the
occurrence of similar situations in the future.
8. Fiber Optic Capacity for BNSF.
(a) BNSF has retained the right to use the Premises leased
hereunder to the extent of retaining the right to use fiber optic capacity as
described in this Section 8, either as located on the Rail Corridor or, at
BNSF's option, on an alternative portion of Pathnet's fiber optic network, to
the extent that BNSF's desired point of termination on Pathnet's network is
within [***] miles of BNSF's current rail network (which in this sentence shall
include the two rail corridors included as "Rail Corridors" in the Fiber Optic
Access Agreement and the rail corridors where rail service operating rights
were sold to shortline railroads by BNSF or one of its predecessors and BNSF
retained fiber optic rights in the shortline rail corridor, as such current
rail network is shown on the map identified on Exhibit B). A map generally
depicting BNSF's current rail network is attached as Exhibit B. Accordingly,
Pathnet shall make available to BNSF, on an annual basis each year during the
term of this Lease, at BNSF's request and at no charge to BNSF (except as set
forth in Section 8(e) or (g)), commencing on the later of: (i) the date of
completion of the Initial Construction, or (ii) the date when capacity becomes
available at the desired location, and continuing for the entire term of this
Lease, the following fiber optic capacity, either over the entire length of the
Premises, or over any other Fiber Optic Facilities that are part of Pathnet's
fiber optic network within the area described in this Section 8(a), as
specified by BNSF, whether or not they are located on any of BNSF's Rail
Corridors:
(1) Each year during the first [***] years following
completion of Initial Construction (and each anniversary of the date of
completion of Initial Construction shall be referenced herein as "Anniversary
Date"), [***], or its equivalent, of digital transmission capacity for each
route mile of Pathnet's Fiber Optic Facilities constructed under this Lease;
(2) Each year, commencing on the [***] Anniversary Date,
until the [***] Anniversary Date, [***], or its equivalent, of digital
transmission capacity for each route mile of Pathnet's Fiber Optic Facilities
constructed under this Lease;
(3) Each year, commencing on the [***] Anniversary Date,
until the [***] Anniversary Date, [***], or its equivalent, of digital
transmission capacity for each route mile of Pathnet's Fiber Optic Facilities
constructed under this Lease;
(4) Each year, commencing on the [***] Anniversary Date,
until the [***] Anniversary Date, [***], or its equivalent, of digital
transmission capacity for each route mile of Pathnet's Fiber Optic Facilities
constructed under this Lease;
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(5) Each year, commencing on the [***] Anniversary Date,
until the [***] Anniversary Date, [***], or its equivalent, of digital
transmission capacity for each route mile of Pathnet's Fiber Optic Facilities
constructed under this Lease;
(6) Each year, commencing on the [***] Anniversary Date,
until the [***] Anniversary Date, [***], or its equivalent, of digital
transmission capacity for each route mile of Pathnet's Fiber Optic Facilities
constructed under this Lease; and
(7) Each year, commencing on the [***] Anniversary Date,
until the [***] Anniversary Date, [***], or its equivalent, of digital
transmission capacity for each route mile of Pathnet's Fiber Optic Facilities
constructed under this Lease; and
(8) Each year, commencing on the [***] Anniversary Date,
until the [***] Anniversary Date, [***] miles, or its equivalent, of digital
transmission capacity for each route mile of Pathnet's Fiber Optic Facilities
constructed under this Lease.
(b) The fiber optic capacity described in this Section 8 may be
specified by BNSF in any format then being provided by Pathnet on the Fiber
Optic Facilities on which BNSF requests fiber optic capacity. BNSF shall not be
entitled to the increases in capacity as set forth in Section 8(a) until, and
only to the extent that, the fiber optic capacity increases are required for
BNSF's uses, either on the Premises or on some other route in Pathnet's fiber
optic network within the area described in the first sentence of this Section
8(a). In addition, the miles of digital transmission capacity to which BNSF is
entitled may be specified by BNSF in its equivalent capacity, so that, for
example, if BNSF were entitled to [***] over a 2,000 mile route, this could be
[***] over [***] miles [***] each over [***], [***] over [***], or any
combination of the above totaling the capacity to which BNSF is entitled,
provided that the maximum cross-section at any point shall not exceed the lesser
of [***] of the then-available capacity on the Fiber Optic Facilities at that
location; or (ii) (I) prior to the [***] Anniversary Date, the equivalent of
[***]; (II) after the [***] Anniversary Date, and prior to the [***] Anniversary
Date, the equivalent of [***]; (III) after the [***] Anniversary Date, and prior
to the [***] Anniversary Date, the equivalent of [***]; (IV) after the [***]
[***] Anniversary Date, and prior to the [***] Anniversary Date, the equivalent
[***], and after the [***] Anniversary Date, and prior to the [***] Anniversary
Date, the equivalent of [***]. Pathnet shall have no obligation to install or
upgrade any of its digital telecommunications transmission facilities to provide
to BNSF any fiber optic capacity which at that time is not available on
Pathnet's Fiber Optic Facilities network. Pathnet shall have no obligation to
provide capacity at any multiplexed level below [***]. Pathnet will be
responsible for all costs associated with the creating, maintaining and
transporting the fiber optic capacity to be provided, including all optical
amplification and regeneration, and terminating the capacity at the multiplexor
or other optronic equipment at which the capacity is to be terminated, including
the cost of such terminating equipment. BNSF shall be responsible for all costs
of transport of the fiber optic capacity from the point of termination in the
shelter used by Pathnet to BNSF's desired point of termination.
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(c) The fiber optic capacity described in this Section 8 (including use of
the fibers addressed in Section 8(e)) may be utilized by BNSF and its Affiliates
(excluding any such Affiliate that competes in the telecommunications business)
for their respective internal communications only. The capacity made available
to BNSF by the terms of this Section 8 may not be sold, assigned, leased,
licensed, or otherwise made available to third-parties, or used in connection
with any telecommunications business. Notwithstanding the foregoing, BNSF is
discussing an agreement with a cellular telecommunications carrier that gathers
BNSF operational data, aggregates the BNSF operational data with its own
commercial cellular traffic, and delivers the BNSF operational data to BNSF
facilities. BNSF may allow the cellular telecommunications carrier or
partnership to use a portion of BNSF's retained fiber optic capacity as
described in this Section 8 in connection with the foregoing agreement. In
addition, BNSF may permit this one or other cellular telecommunications carriers
or partnerships to use any amount of additional fiber optic capacity as
described in this Section 8 for similar arrangements in the future. Any cellular
telecommunications carrier or partnership who utilizes BNSF's retained fiber
optic capacity in this way shall pay to Pathnet a charge equal to [***] of the
charge that Pathnet then is offering for sales of like capacity in like
markets."
(c) In the event that Pathnet permanently discontinues telecommunications
services or capacity of which BNSF is using a portion, Pathnet will provide
sixty (60) days prior written notice to BNSF to permit BNSF to try to obtain
replacement capacity.
(e)(1) Subject to the conditions set forth in this Section 8(e), BNSF may
require, in addition to the fiber optic capacity detailed in Section 8(b)
through 8(d), by notice in writing delivered to Pathnet no later than forty-five
(45) days after Pathnet's submission of Proposed Construction Plans respecting
any portion of the Fiber Optic Facilities, that Pathnet install [***] fibers in
those Fiber Optic Facilities, at Pathnet's sole cost, which [***] fibers shall
be an improvement to property of BNSF, from the Pathnet node site to a point
along the route of the Fiber Optic Facilities closest to BNSF's
telecommunications facility (hereinafter referenced as an "End Link"). These
[***] fibers shall be the same fiber type as that then being installed in those
Fiber Optic Facilities for Pathnet's own use, or to lease or sell capacity to
others, and, at Pathnet's sole discretion, may be contained within the same
cable sheath as Pathnet's fibers or within a separate cable sheath. Pathnet
shall be responsible for the maintenance of, and repair of these fibers for the
term of this Lease, so long as some fibers on the Premises, other than these
[***] fibers, are being maintained. Each End Link shall include a separate BNSF
handhole or manhole to be provided to BNSF, at Pathnet's sole cost, which shall
be an improvement to property of BNSF, to terminate and/or provide connection to
BNSF's telecommunications facility. Pathnet shall not be obligated to provide
fibers to BNSF in any End Link that is longer than [***] miles, nor shall
Pathnet be obligated to alter the planned route of the Fiber Optic Facilities,
except where BNSF has agreed in writing in advance to pay Pathnet's incremental
costs, including overhead, of extending any fibers more than [***] miles or
altering the planned route of
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the Fiber Optic Facilities. If BNSF first required Pathnet to extend an End Link
after Commencement of Construction on the Rail Corridor segment where the End
Link is located, BNSF shall reimburse Pathnet for all such incremental costs,
including overhead. Pathnet shall perform such installation unless, in Pathnet's
reasonable judgment, performance thereof would materially adversely affect the
Fiber Optic Facilities or Pathnet's schedule for completion of Initial
Construction.
(e)(2) Where BNSF requests an End Link on any corridor in BNSF's current
rail network, as defined in Section 8(a), Pathnet shall provide two 23-inch
racks, and space therefore, and adequate supporting electrical service, in
equipment shelters at terminal and junction sites on any BNSF Rail Corridor.
Where BNSF requests fiber optic capacity off of a corridor in BNSF's current
rail network, as defined in Section 8(a), Pathnet will make the requested
capacity available to BNSF at no charge, and BNSF shall be responsible to pay
the local exchange company to obtain the space, equipment and connection service
that BNSF requires.
(f) In addition to the capacity to which BNSF is entitled under the terms
of this Section 8, BNSF shall have the right to purchase capacity on any portion
of Pathnet's network on terms no less favorable than Pathnet is then offering
for sales of like capacity and product over like distances in like markets.
9. Construction and Operation of Fiber Optic Facilities.
(a) (1) BNSF shall make available for inspection and
copying by Pathnet, at Pathnet's sole cost: (i) maps of BNSF's
Rail Corridor, and lists and/or center diagrams indicating the
approximate location and nature of all bridges and
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locations of all tunnels, overpasses and other significant
railroad structures located on the Rail Corridor; (ii)
available engineering documents in BNSF's possession
(including profiles, lengths, internal diameter, etc.), that
relate to bridges, overpasses or tunnels on the Rail Corridor,
which Pathnet reasonably requests in connection with its
activities to Construct and Operate the Fiber Optic
Facilities; and (iii) maps, agreements (redacted to remove
confidential business terms) or other documents showing the
identity, location, rights and nature of other known users or
owners of portions of the Rail Corridor whose use, rights or
ownership Pathnet and BNSF reasonably determine would cause
title, possession or operational problems or cost to Pathnet
(including, without limitation, reversion rights of underlying
fee owners and, exclusivity rights of third parties); and (iv)
other such documentation or information reasonably requested
by Pathnet to assist Pathnet in its activities to Construct
and Operate the Fiber Optic Facilities and which, in the
opinion of BNSF, relates to or impacts upon the development of
Fiber Optic Facilities; all to the extent that (i) through
(iv) are readily and available from the records of BNSF or its
outside contractors charged with retaining such records, can
be located by BNSF in a reasonable search, and are not
confidential and proprietary to BNSF or third parties, and if
they are made available to Pathnet without determining what is
confidential or proprietary to BNSF, Pathnet shall keep such
information confidential and proprietary and shall not use it
for any purpose other than as set forth herein. The
availability of all such maps or documents shall not be
considered a guarantee or warranty that such maps or documents
are accurate or complete. The absence of markers, monuments or
maps indicating the present of subterranean facilities,
whether belonging to BNSF or otherwise, shall not constitute a
warranty or representation by BNSF that none exist. Pathnet
accepts this Lease with full cognizance of the potential
presence of the various claims, restrictions and physical
conditions described herein, acknowledging that Pathnet's
costs to Construct and Operate the Fiber Optic Facilities may
increase by reason thereof. Any failure by BNSF to provide
such documents shall not subject BNSF to any liability, costs,
expenses, damages, losses, or claims to Pathnet or any of the
Pathnet Parties, except to the extent of failures due to gross
negligence or willful misconduct.
(2) Pathnet recognizes that any BNSF documents supplied
by BNSF were not prepared for use as real estate title maps.
BNSF does not represent or suggest that the property lines and
Rail Corridor boundary lines shown on such documents are
accurate or that any other information contained on such
documents is correct.
(b) Prior to commencing construction of the Fiber Optic
Facilities, Pathnet, at its sole cost and risk, shall submit
to BNSF four sets of prints showing in detail the proposed
initial construction of all Fiber Optic Facilities on the
Premises, including every proposed element, item of equipment
and improvement included therein that Pathnet plans to locate
on the Premises, which prints shall be referenced herein as
"Proposed Construction Plans". Where Fiber Optic Facilities
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extend over a route longer than 150 miles, Pathnet shall
submit Proposed Construction Plans to BNSF for each 150 mile
segment, as and when they are ready, and shall use its best
efforts to avoid any single submission of such Proposed
Construction Plans for a segment longer than 150 miles.
(c) (1) BNSF shall review the Proposed Construction
Plans, and may disapprove them, or propose changes, but any
disapproval or proposed change must be made in writing and
delivered to Pathnet within thirty (30) days of the date BNSF
receives such plans. Pathnet acknowledges that if BNSF does
not disapprove the Proposed Construction Plans, or propose any
changes to them, this does not constitute a determination by
BNSF that there are no design defects in such plans or that
Fiber Optic Facilities built in accordance with such plans
could be built or operated safely. If BNSF disapproves the
Proposed Construction Plans because it determines that
construction and/or maintenance of the Fiber Optic Facilities
likely would interfere with BNSF's rail operations or create a
safety hazard and that the Fiber Optic Facilities cannot be
located within BNSF's Rail Corridor for a specified distance,
and Pathnet then determines that the cost of locating its
Fiber Optic Facilities off of BNSF's Rail Corridors would be
significantly higher for Pathnet and so notifies BNSF, then
BNSF shall make reasonable efforts to work with Pathnet to
determine if there is a way to locate the Fiber Optic
Facilities somewhere on BNSF's Rail Corridor without
interfering with BNSF's rail operations or creating a safety
hazard. If BNSF disapproves all or any part of the Proposed
Construction Plans, BNSF, at the time of such disapproval,
shall provide to Pathnet a written explanation of the reasons
for disapproval and suggested cures, if any. Pathnet then
shall submit revised Proposed Construction Plans, which shall
be subject to the same review procedures just described. Once
the thirty (30) day period described above has expired and
BNSF has not disapproved the Proposed Plans (or the revised
Proposed Plans, if applicable), the same shall be the "Final
Construction Plans" which term shall also include any
subsequent modifications to the Plans as provided herein.
Pathnet shall not commence construction of the Fiber Optic
Facilities along any portion of the Rail Corridor in each
instance until it has received written notice from BNSF that
BNSF does not disapprove the Final Construction Plans.
(2) If at any time Pathnet desires to amend the Proposed
Construction Plans or the Final Construction Plans, Pathnet
must submit four sets of prints showing such amendment to BNSF
in the same manner described for submission of the Proposed
Construction Plans. If such amendment is not modified or
disapproved by BNSF in the manner specified for modification
or disapproval of Proposed Construction Plans, the Final
Construction Plans will be deemed as of such time to
incorporate such amendment
(d) In constructing the Fiber Optic Facilities, and with
respect to all entries onto the Rail Corridor by Pathnet and
the Pathnet Parties to Construct and
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Operate the Fiber Optic Facilities, or for any other purpose,
Pathnet shall coordinate with BNSF, with the understanding
that BNSF's presence and activities on the Rail Corridor for
any purpose, except as limited by the Fiber Optic Access
Agreement, shall have priority over Pathnet's activities under
this Lease.
(e) The Construction Schedule shall be used by Pathnet
and BNSF to coordinate personnel, activities and train
movements. Pathnet shall amend the Construction Schedule, as
required, to reflect any and all schedule changes and shall
furnish promptly to BNSF any amended Construction Schedule.
BNSF may rely on the Construction Schedule to schedule flagmen
and other BNSF personnel whose duties require them to
accompany personnel constructing the Fiber Optic Facilities.
(f) If, at any time it appears to BNSF that BNSF's
tracks may be "Fouled" (defined in this Lease to mean the
presence of equipment and/or personnel of Pathnet or any of
the Pathnet Parties on a railroad track or within twenty-five
(25) feet of the centerline of any railroad track) in
connection with the exercise of Pathnet's rights under this
Lease, BNSF personnel may be provided, at BNSF's option, to
accompany Pathnet and/or any of the Pathnet Parties who may
Foul BNSF's tracks. Pathnet shall bear the entire cost
associated with such BNSF personnel, regardless of whether
such personnel are actually utilized in a particular case, and
Pathnet agrees promptly to pay all invoices for such personnel
that are submitted to it by BNSF. The failure of BNSF to
furnish such personnel shall not relieve Pathnet, or any of
the Pathnet Parties, of any obligations or liabilities it or
they otherwise have assumed hereunder.
(g) Pathnet, and all Pathnet Parties, who are or will be
involved in any activities or presence permitted under this
Lease on or near the Rail Corridor, shall comply with all
applicable BNSF safety rules and regulations, as set forth in
Exhibits "C" and "C-1" attached hereto. BNSF shall pay for any
such materials or safety training personnel (but Pathnet shall
pay any BNSF safety contractor's cost, including the cost of
any instructors); Pathnet shall pay salaries, any travel
expenses or other costs for Pathnet, and any and all such
Pathnet Parties, to receive such safety training.
(h) As promptly as possible, but in no event later than
six months after each segment of the Fiber Optic Facilities is
installed, Pathnet shall furnish to BNSF "As Built" Fiber
Optic Facilities drawings.
(i) During and in furtherance of completion of Initial
Construction, Pathnet and the Pathnet Parties, subject to
BNSF's prior written approval, may use, as required, and at no
additional charge, available portions of the Rail Corridor, as
identified by local BNSF personnel, for the purpose of
allowing Pathnet, or any of the Pathnet Parties, to erect, at
its sole cost and risk, temporary
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structures and fences to protect Pathnet's material or
equipment necessary for the construction of the Fiber Optic
Facilities, including staging of construction activities and
storage of materials, provided that such structures and
fences: (i) shall not interfere with, or disrupt in any way,
other than in a manner approved in advance by BNSF, any
operations conducted by BNSF, or any activities of third
parties, on the Rail Corridor; and (ii) to the extent
reasonably feasible, shall be as shown and described in the
Final Construction Plans. Pathnet shall restore any land used
for such structures and fences substantially to its previous
condition before Initial Construction is complete, reasonable
wear and tear and casualty excepted, and shall remove all such
structures, fences, equipment and material placed thereon by
Pathnet, or any of the Pathnet Parties, before Initial
Construction is complete. In the event Pathnet does not comply
with the foregoing sentence, BNSF, following reasonable
advance notice to Pathnet, may take the actions specified in
that sentence, and Pathnet shall reimburse to BNSF all cost
incurred by BNSF in taking such actions.
(j) Subject to BNSF's approval and execution by the
applicable utility company of a BNSF standard form right of
entry permit, Pathnet may bring electrical power and other
utilities to the Fiber Optic Facilities. Pathnet shall make
its own arrangements, at its sole cost and risk, to obtain all
electrical power and other utilities or services necessary to
Construct and Operate the Fiber Optic Facilities, and Pathnet
shall indemnify, defend and hold BNSF harmless against any
liability to any utility or service company arising out of
utilities or services ordered or used by or on behalf of
Pathnet, except to the extent caused by the gross negligence
or willful misconduct of BNSF or its agents or contractors, or
any of their employees. Utilities and services needed by
Pathnet at each junction or repeater site shall be as shown
and described in the Final Construction Plans and shall be
part of Fiber Optic Facilities for purposes of this Lease. If
the location of such utilities or services serving the Fiber
Optic Facilities must be changed because of its interference
to BNSF railroad purposes or industrial development related to
railroad purposes, BNSF shall notify Pathnet and Pathnet
promptly shall relocate the affected Fiber Optic Facilities,
at Pathnet's sole cost, in a manner satisfactory to BNSF.
Power sources installed by Pathnet shall be part of the
Initial Construction.
(k) Pathnet, at its sole cost and risk, shall furnish
all materials, supervision, labor, parts, components,
equipment and structures necessary to Construct and Operate
the Fiber Optic Facilities, or any part thereof, in accordance
with this Lease. Any and all work by Pathnet and/or a Pathnet
Party under the authority of this Lease shall be done in a
good and workmanlike manner, in conformity with the Final
Construction Plans, and shall comply with all applicable
engineering, safety, and other statutes, laws, ordinance,
regulations, rules, codes, orders or specifications of any
public body or authority having jurisdiction over the Fiber
Optic Facilities or BNSF's rail operations, including,
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but not limited to, the Federal Communications Commission and
the Federal Railroad Administration.
(l) All installations by Pathnet and/or a Pathnet Party
under the authority of this Lease must meet or exceed
applicable specifications of the public authority of the state
in which the installation is located and must be in compliance
with all existing federal, state or local laws, ordinances,
and regulations. In no case shall any part of the Fiber Optic
Facilities be located in a manner that will interfere with the
presence or activities of BNSF, or any third parties acting
within their rights on the Rail Corridor as they exist on the
date of this Lease. The manner of, and the equipment and
devices to be used for, any installation, relocation or
removal of the Fiber Optic Facilities, shall be reviewed in
advance by BNSF, as set forth herein.
(m) Fiber Optic Facilities may be installed by Pathnet,
at its sole cost and risk, on bridges or other water crossings
on the Rail Corridor by attachment to BNSF's fixed or movable
bridges or crossing structures, as available, as agreed by
BNSF and Pathnet, as shown in the Final Construction Plans.
(n) Installation of Fiber Optic Facilities under public
roadways shall be at Pathnet's sole cost and risk, at a
location and depth as agreed to by BNSF, as shown on the Final
Construction Plans.
(o) Installation of Fiber Optic Facilities crossing over
or under other existing facilities in the Rail Corridor shall
be located and installed, at Pathnet's sole cost and risk, in
accordance with conditions set forth in this Section 9, and
applicable requirements of the owner of each such facility.
If, in the course of any activity that Pathnet is authorized
to undertake under the terms of this Lease, any changes in any
pipelines, sewers, conduits, fences, power, signal or
communication lines or other utility, facility or Railroad
Facilities is necessary (either temporary or permanent), such
change shall require prior review by BNSF, and a letter from
BNSF indicating that it does not disapprove such change, and
all other necessary approvals from third parties. Pathnet
shall indemnify, defend and hold BNSF harmless against all
claims from any third party relating to any such activity.
(p) All cranes, lifts, drilling equipment, or other
machinery that is to be operated in the vicinity of any Rail
Facilities, electric transmission lines or other facilities in
connection with Initial Construction or any other activity
that Pathnet is authorized to undertake under the terms of
this Lease, shall be electrically grounded in a manner
reviewed by, and not disapproved by, BNSF. Pathnet
acknowledges that if BNSF does not disapprove such plans this
does not constitute a determination by BNSF that such plans or
activities are safe. All personnel of Pathnet and any of the
Pathnet Parties that are operating such cranes, lifts,
drilling equipment, or other machinery shall have appropriate
and sufficient
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experience in operating of the machinery being used, and
Pathnet shall be prepared to certify the extent of this
experience upon request by BNSF.
(q) If Pathnet, or any of the Pathnet Parties, acting
under the authority granted by this Lease, discovers any
scientific or historic artifacts, Pathnet immediately shall
notify BNSF of such discovery and shall protect such artifacts
until they are identified and removed by the appropriate
authorities.
(r) BNSF shall have the right to verify by inspection,
at the sole cost of Pathnet, that the location of the work and
the materials constituting the Initial Construction, or used
operation of the Fiber Optic Facilities, are in compliance
with the Final Construction Plans. BNSF shall give Pathnet
reasonable notice of such inspections, and Pathnet, at its
option, may designate a representative to accompany BNSF's
representative on such inspections. If, following an
inspection, BNSF reasonably determines that Pathnet is
conducting activities that do not comply with the approved
Final Construction Plans, the parties hereto shall meet
promptly to discuss the situation and determine a remedy
satisfactory to BNSF. If BNSF is not satisfied with the remedy
selected at such meeting, and its subsequent implementation,
Pathnet's rights to Construct and Operate Fiber Optic
Facilities shall be suspended entirely until the parties have
settled on a remedy that is satisfactory to BNSF. The
provisions of Section 7 shall apply to any suspension of work
pursuant to this Section.
(s) BNSF's expenses for any work performed for or at the
expense of Pathnet pursuant to the terms of this Lease shall
be paid by Pathnet promptly upon Pathnet's receipt of each
itemized bill therefor. Expenses so billed by BNSF shall be
only those attributable to the work performed and shall
include, without limitation, cost of labor (whether performed
by BNSF or a contractor of BNSF) and supervision, necessary
travel or transportation expenses, lodging, meals, equipment
rental, materials, and any freight and handling charges on
materials used, plus standard additives A list of standard
additives then in effect will be provided to Pathnet with any
billing containing such activities.
(t) Pathnet, at its sole cost and risk: (i) shall secure
and maintain in effect all federal, state, and local permits,
licenses, platting, subdivisions, and/or zoning approvals or
any other land use requirement that is required to Construct
and Operate the Fiber Optic Facilities, including, without
limitation, crossing, zoning, building, health, environmental,
and communication permits and licenses, and Pathnet, at its
sole cost and risk, shall satisfy any and all conditions
required to obtain, maintain and comply with any required
permit, license or zoning approval or any other land use
requirement; and (ii) shall indemnify, defend and hold
harmless BNSF from and against payment of the cost therefor,
and against any fines or penalties that may be levied for
failure to procure, maintain or to comply with any such
permits, licenses and/or zoning, or any other land use
requirement as well as any remedial costs incurred by BNSF in
curing any such
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failure. BNSF shall cooperate with Pathnet in securing and
maintaining any such permits or licenses, and Pathnet shall
reimburse any reasonable out-of-pocket costs of BNSF in
providing such cooperation..
(u) Any environmental impact statements required by any
governmental agency in connection with any activity of Pathnet
to Construct and Operate the Fiber Optic Facilities shall be
prepared by Pathnet at Pathnet's sole cost and risk, and
Pathnet, at its sole cost and risk, shall comply with any
conditions required by any applicable government authority in
connection with, or following from, any environmental impact
statement.
(v) BNSF shall cooperate with Pathnet, as requested by
Pathnet, at no out-of-pocket cost to BNSF, in Pathnet's
efforts to obtain and maintain any permits, licenses or
approvals of government agencies or authorities, or any
approvals of any necessary third parties, for the use of any
structures or facilities (including streets, roads or utility
poles) along portions of the Rail Corridor. The provisions of
this paragraph will not be deemed to require BNSF to expend
significant internal resources.
10. Entry Notice.
(a) During progress of the Initial Construction, Pathnet
shall give BNSF at least five days' written notice before
initial entry by Pathnet, or any of the Pathnet Parties, upon
any portion of the Rail Corridor.
(b) After completion of Initial Construction, any entry
by Pathnet or any Pathnet Party onto the Rail Corridor that
does not constitute Routine Maintenance and Operation (defined
later herein) of the Fiber Optic Facilities, or is not related
to an Emergency (defined later herein) shall require: (i)
advance written notice from Pathnet to BNSF not less than ten
days prior to such planned entry, such notice to specify the
purpose of the entry; (ii) if entry involves any new
construction, reconstruction, or removal of Fiber Optic
Facilities, four (4) sets of prints showing in detail such
proposed new construction, reconstruction, or removal; and
(iii) approval by BNSF, which approval shall not be
unreasonably withheld or delayed, taking in account the nature
of the proposed entry. As used herein, "Routine Maintenance
and Operation" shall mean maintenance and operation by Pathnet
and/or a Pathnet Party of the Fiber Optic Facilities that does
not require any: (i) excavation of soil that could alter or
disturb, or threaten the support of, or ability to use, any
Rail Facility; (ii) use of heavy machinery within 50 feet of
any railroad track; or (iii) an activity or presence which
results in a Fouled railroad track. As used herein,
"Emergency" shall mean that service on the Fiber Optic
Facilities has been interrupted or significantly disrupted or
such interruption is reasonably likely, or that there is a
material adverse threat to the integrity of Pathnet's fiber
optic network, in circumstances that make it
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impractical for Pathnet or any Pathnet Party to give BNSF
normal advance written notice of entry onto BNSF's Rail
Corridor.
(c) During Routine Maintenance and Operation, Pathnet
and/or any Pathnet Party may enter the Rail Corridor without
notice to BNSF, for the sole purpose of Routine Maintenance
and Operation; provided, however, that: (i) if any entry for
such purpose is likely to result in a Fouled railroad track,
Pathnet shall give BNSF written notice of the places where and
the manner in which entry is required not less than two (2)
days, and not more than seven (7) days, prior to such entry;
and (ii) without BNSF's prior consent, which shall not be
unreasonably withheld, neither Pathnet nor any Pathnet Party
shall enter the Rail Corridor at any place where BNSF
previously has disapproved entry.
(d) In the event of an Emergency, Pathnet and/or any
Pathnet Party may enter the Rail Corridor without notice to
BNSF, for the sole purpose of dealing with the Emergency;
provided, however, that: (i) if any entry for such purpose is
likely to result in a Fouled railroad track, Pathnet shall
obtain verbal or written approval from BNSF prior to such
entry, promptly followed by written confirmation of such
approval, which may be provided within 24 hours after Pathnet
has addressed the Emergency; (ii) if any entry for such
purpose is likely to require the excavation of soil that could
alter or disturb, or threaten the support of or ability to
use, any Rail Facility, or would involve the use of heavy
machinery within 50 feet of any railroad track, Pathnet shall
give BNSF verbal or telephonic notice of the places where, and
the manner in which, entry is required prior to such entry,
promptly followed by written confirmation which shall be
obtained within 24 hours after Pathnet has addressed the
Emergency. and (iii) without BNSF's prior consent, which shall
not be unreasonably withheld, neither Pathnet nor any Pathnet
Party shall enter the Rail Corridor at any place where BNSF
previously has disapproved entry. Both parties acknowledge
that an Emergency involving a derailment or other similar
situation could cause significant damage to both parties, and
that both parties will need to respond promptly and
effectively to the situation. Subject to (i), (ii) and (iii)
above, in the event of an Emergency involving a derailment or
other similar situation, BNSF agrees that it will not prohibit
Pathnet from responding to the situation as appropriate to
repair or protect the Fiber Optic Facilities, provided that
Pathnet does not interfere with BNSF's rail operations or
related activities. The parties will cooperate with one
another to enable each party to take appropriate response
action as promptly and effectively as possible.
11. Maintenance of Premises and Fiber Optic Facilities. BNSF shall
not be responsible for maintenance of any Fiber Optic Facilities, or for
clearing or removal of trees, shrubs, plants, ice, snow or debris from the
Premises. Pathnet shall be responsible to remove from the Rail Corridor any
debris resulting from any of the activities of Pathnet or any of the Pathnet
Parties acting under the authority of this Lease.
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12. Track Support: Materials Storage.
(a) During any work by Pathnet or any of the Pathnet Parties
pursuant to this Lease, Pathnet shall ensure that all tracks,
supporting structures and roadbed of BNSF is supported in such
manner as is necessary for the safe operation of BNSF without any
slower speed or other train operating restrictions and, upon
completion of such work, Pathnet shall ensure that all such tracks,
supporting structures, and the roadbed are returned to their
pre-existing condition, all at Pathnet's sole cost.
(b) Except as expressly set forth in the Final Construction
Plans, Pathnet shall not store or temporarily place any goods,
materials, or equipment on the Rail Corridor: (i) near a highway or
private grade crossing in such a manner as to interfere with the
sight distance of anyone approaching such crossing; (ii) within
fifteen feet of the end of any tie in any railroad track; or (iii)
within such greater distance as required by an applicable government
authority. Notwithstanding any other provision in this Lease,
Pathnet shall not store or temporarily place fuel or any Hazardous
Substance (as defined later herein) on the Rail Corridor, other than
as may be approved in writing in advance by BNSF. If Pathnet
knowingly discovers any Hazardous Substances on the Premises,
Pathnet will promptly notify BNSF, suspend or relocate activities
that would disturb the Hazardous Substance, and permit BNSF to take
appropriate actions. BNSF will respond promptly to any such
situation.
13. Facility Location Signs. Pathnet, at its sole cost and risk,
shall furnish, erect, and thereafter maintain signs showing the location of all
underground Fiber Optic Facilities. The size, form, color, text, location, and
spacing of such signs shall be subject to advance review by BNSF, and such signs
shall be in conformance with standard industry practices and shall be considered
part of the Fiber Optic Facilities.
14. Relocations.
(a) If BNSF determines that the location of any of the Fiber
Optic Facilities must be changed due to either: (i) relocation or
placement of any Rail Facilities; (ii) rail operating improvements
for BNSF (or for any other party offering rail service in the Rail
Corridor via rights granted or conveyed by BNSF); (iii) locating or
modifying a rail customer's facilities, buildings or other
improvements along BNSF's rail route, or locating or modifying any
facilities, buildings or other improvements for railroad purposes or
industrial development related to railroad purposes; or (iv) any
reason beyond the control of BNSF, BNSF shall notify Pathnet of such
plans and shall use reasonable efforts to secure an alternative
location for the Fiber Optic Facilities within the Rail Corridor, in
light of BNSF's business assets, plans and activities and the rights
of third parties in the Rail Corridor, or to provide Pathnet with an
opportunity to protect its Fiber Optic Facilities if Pathnet may do
so without interference with the situation requiring relocation;
provided however, BNSF shall not be obligated to spend any money, or
incur any
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liabilities, to secure such an alternative location. If such
alternative location is found on the Rail Corridor, Pathnet shall
move the affected Fiber Optic Facilities to such alternative
location, at Pathnet's sole cost and risk, as soon as practicable.
If a location for Fiber Optic Facilities cannot be found on the Rail
Corridor, Pathnet shall move the affected Fiber Optic Facilities off
of the Rail Corridor as soon as practicable, at Pathnet's sole cost
and risk.
(b) In the event BNSF desires that Pathnet also move certain
Rail Facilities (excluding tracks and track structures)
simultaneously with moving its Fiber Optic Facilities, BNSF shall so
notify Pathnet in writing, and Pathnet shall move such Rail
Facilities and shall invoice BNSF for the reasonable, actual
incremental costs, including reasonable overhead costs, that are
incurred by Pathnet in moving such Rail Facilities.
(c) If BNSF desires to relocate any of the Fiber Optic
Facilities in order to accommodate a third party (other than as set
forth in Section 14(a)), BNSF shall so notify Pathnet, and Pathnet
promptly thereafter shall submit to BNSF a reasonable, detailed,
itemized estimate, including reasonable contingencies ("Estimate")
of its anticipated reasonable actual costs to relocate such Fiber
Optic Facilities (including reasonable overhead costs not to exceed
ten percent (10%) of actual costs). Upon receiving from BNSF fifty
percent of the amount of the Estimate, Pathnet shall proceed, as
expeditiously as feasible under the circumstances, to relocate those
Fiber Optic Facilities at a cost not to exceed one hundred ten
percent (110%) of the Estimate. Upon completion of such relocation,
and submission to BNSF of invoices documenting all costs thereof,
BNSF promptly shall pay the balance of such costs to Pathnet.
(d) Pathnet acknowledges that BNSF's ownership rights in all
or certain portions of the Rail Corridor may terminate, or revert,
if BNSF ceases to use the Rail Corridor for rail transportation
purposes, or, in some cases if BNSF uses the Rail Corridor for a
purpose inconsistent with rail transportation purposes, or for other
reasons, such as termination of franchise rights, and that if this
occurs, Pathnet might be required either to relocate its Fiber Optic
Facilities or acquire from the appropriate party the right to
continue to use the Fiber Optic Facilities. BNSF shall have no
obligation not to abandon rail service over all or any portion of
the Rail Corridor, no obligation not to use the Rail Corridor for a
purpose inconsistent with rail transportation purposes, and no
obligation to extend the term of BNSF's franchise rights or
ownership rights in the Rail Corridor.
15. Condemnation. In the event that any portion of the Premises
becomes the subject of condemnation proceedings, BNSF shall make reasonable
efforts to notify Pathnet promptly. Pathnet's interest in the personal property,
improvements, and facilities comprising the Fiber Optic Facilities shall be
valued separately from BNSF's ownership interest in the Fiber Optic Facilities
and the Premises, and BNSF and Pathnet shall seek to have any condemnation
award, or sale in lieu of condemnation, apportioned between Pathnet and BNSF
based on the relative value of their specific ownership interests in the Fiber
Optic Facilities and the Premises.
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16. Conveyance of Rail Corridor. In the event BNSF conveys all or
any portion of the Rail Corridor, in circumstances not covered by Section 14 or
Section 15 of this Lease, such conveyance shall be subject to any existing
rights of Pathnet under this Lease and the Fiber Optic Access Agreement, to the
extent permitted by applicable laws and agreements entered into prior to the
date of this Lease.
17. Compliance with Laws. Pathnet, in exercising any and all
rights under this Lease, shall comply with all applicable laws, regulations,
ordinance, rules, decisions and orders ("Laws") applicable to Pathnet and/or the
Fiber Optic Facilities, or resulting from the exercise of Pathnet's rights, and
shall have the sole responsibility for all costs and risks associated with such
compliance. Pathnet shall indemnify, defend and hold harmless BNSF against any
claims, damages, costs, fines or penalties arising in any way from Pathnet's
breach of this Section 17.
18. Liability: Indemnification. PATHNET HEREBY RELEASES BNSF FROM,
AND AGREES TO INDEMNIFY, DEFEND, PROTECT, AND HOLD BNSF HARMLESS AGAINST, ANY
AND ALL CLAIMS, SUITS, JUDGMENTS, LIABILITIES AND EXPENSES (INCLUDING, BUT NOT
LIMITED TO, REASONABLE ATTORNEYS' FEES) ARISING OUT OF OR RELATED TO:
(1) ANY LOSS OF AND/OR DAMAGE TO THE REAL OR PERSONAL PROPERTY OF
BNSF, PATHNET OR THIRD PARTIES AND ANY LOSS AND/OR DAMAGE ON ACCOUNT OF INJURY
TO, OR DEATH OF, ANYONE, CAUSED BY OR GROWING OUT OF PATHNET'S, OR ANY PATHNET
PARTY'S PRESENCE OR ACTIVITIES ON OR NEAR THE RAIL CORRIDOR, REGARDLESS OF ANY
NEGLIGENCE OF BNSF OR ANY PARTY THEN PERFORMING AS A CONTRACTOR OR AGENT OF
BNSF, EXCEPT TO THE EXTENT (AND ONLY TO THE EXTENT) THAT SUCH LOSS OR DAMAGE IS
PROXIMATELY CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF BNSF OR SUCH
CONTRACTOR OR AGENT OF BNSF;
(2) (i) EXCEPT IN CONNECTION WITH THE FIBERS AND CAPACITY TO BE
PROVIDED TO BNSF, SERVICE INTERRUPTION, CESSATION, OR UNRELIABILITY OF THE FIBER
OPTIC FACILITIES CAUSED BY ANY PERSON, REGARDLESS OF ANY NEGLIGENCE OF BNSF OR
ANY PARTY THEN PERFORMING AS A CONTRACTOR OR AGENT OF BNSF, EXCEPT TO THE EXTENT
(AND ONLY TO THE EXTENT) THAT SUCH SERVICE INTERRUPTION, CESSATION OR
UNRELIABILITY WAS CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF BNSF
OR SUCH CONTRACTOR OR AGENT OF BNSF, OR (ii) EXCEPT IN CONNECTION WITH THE
FIBERS AND CAPACITY TO BE PROVIDED TO BNSF, LIBEL, SLANDER, INFRINGEMENT OR
COPYRIGHT, OR UNAUTHORIZED USE OF ANY TRADEMARK, TRADE NAME, OR SERVICE MARK,
ARISING OUT OF THE MATERIAL, DATA, INFORMATION OR OTHER CONTENT TRANSMITTED OR
RECEIVED OVER THE FIBER OPTIC FACILITIES, IN EACH CASE REGARDLESS OF WHETHER
SUCH CLAIMS, SUITS, JUDGMENTS, OR LIABILITIES ARISE FROM NEGLIGENCE, ACTIONS, OR
INACTION OF BNSF, OR ANY PARTY USING THE RAIL CORRIDOR WITH PERMISSION OF BNSF;
AND
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(3) ANY BREACH OF THE TERMS OF THIS LEASE BY PATHNET OR ANY OF THE
PATHNET PARTIES.
WITHOUT LIMITATION OF ANY OF THE FOREGOING, PATHNET HEREBY AGREES TO
INDEMNIFY, DEFEND, PROTECT AND HOLD BNSF HARMLESS FROM AND AGAINST ANY AND ALL
LOSS, DAMAGE, COST AND EXPENSE SUSTAINED, SUFFERED, OR INCURRED BY BNSF AS A
RESULT OF THE EXISTENCE OF ANY HAZARDOUS SUBSTANCE WITHIN THE RAIL CORRIDOR TO
THE EXTENT CAUSED BY, CONTRIBUTED TO, EXPOSED BY OR AGGRAVATED BY PATHNET OR ANY
PATHNET PARTY. HAZARDOUS SUBSTANCE AS USED HEREIN SHALL MEAN MATERIAL OR
CONTAMINATION IN VIOLATION OF ANY APPLICABLE ENVIRONMENTAL LAW, ORDER, DECISION
OR REGULATION.
19. Insurance.
(a) Pathnet, prior to entering onto the Rail Corridor shall
procure the following insurance, covering all of the work and
services to be performed hereunder by Pathnet, which shall remain in
effect for so long as such party has any personnel, property or
facilities on, or having a right to be on, the Rail Corridor, at
their sole cost:
(1) Workers' Compensation and Employers Liability
Insurance in an amount of at least $1,000,000, covering the
entire liability of Pathnet, as determined by the compensation
laws of the State in which the work is performed, but if
optional under State law the insurance must cover all
employees anyway, or the federal workmen's compensation laws
as applicable. THE CERTIFICATE MUST CONTAIN A SPECIFIC WAIVER
OF THE INSURANCE COMPANY'S SUBROGATION RIGHTS AGAINST THE
BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY.
(2) Commercial General Liability insurance and
umbrella liability insurance covering liability, including but
not limited to Public Liability, Personal Injury, Property
Damage, and Contractual Liability with combined coverage of at
least $21,000,000 per occurrence and a general aggregate of at
least $21,000,000. Where explosion, collapse, or underground
hazards are involved, the X, C and U exclusions must be
removed from the policy;
(3) Automobile Liability insurance, including bodily
injury and property damage, with coverage of at least
$1,000,000 combined single limit or the equivalent covering
any and all vehicles owned, used or hired by Pathnet;
(4) All Risk Property Damage insurance covering all
of the property of Pathnet on a replacement cost basis
including property in their care, custody or control and first
party pollution clean up. The first party pollution clean up
shall include, at a minimum, debris removal and cost of clean
up on a named perils
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basis. Such insurance shall contain a waiver of subrogation in
favor The Burlington Northern and Santa Fe Railway Company.
(5) Pollution Liability coverage in an amount of not
less than $2,000,000 per occurrence and in the aggregate and
shall include coverage for: (a) bodily injury, sickness,
disease, mental anguish or shock sustained by any person,
including death; (b) property damage including physical injury
to or destruction of tangible property including the resulting
loss of use thereof, clean up costs, and the loss of use of
tangible property that has not been physically injured or
destroyed; and (c) defense including loss adjustment costs,
charges and expenses incurred in the investigation adjustment
or defense of claims for such compensatory damages.
(6) If Pathnet requires disposal of any hazardous or
non-hazardous materials off of their property, Pathnet shall
utilize only a fully licensed and qualified disposal company.
(7) Railroad Protective Liability insurance naming The
Burlington Northern and Santa Fe Railway Company as the Named
Insured with coverage of at least $5,000,000 per occurrence
and $10,000,000 in the aggregate. Coverage shall be issued on
a standard ISO for CG 00 35 01 96 and endorsed to include ISO
for CG 28 31 10 93 and the Limited Seepage and Pollution
Endorsement.
All insurance shall be placed with insurance companies licensed to
do business in the States in which the work is to be performed, and
with a Best's Insurance Guide Rating of A- and Class VII, or better.
If any work is to be performed within 50 feet of railroad property,
then the insurance must provide for coverage of incidents occurring
within fifty (50) feet of railroad property, and any provision to
the contrary (including any limitation regarding the definition of
an insured contract) in the insurance policy must be specifically
deleted.
To the extent obtainable, with respect to any incident on or along
the Rail Corridor, in all cases except for Workers' Compensation,
the certificate must specifically state that "THE BURLINGTON
NORTHERN AND SANTA FE RAILWAY COMPANY IS AN ADDITIONAL INSURED." The
Additional Insured endorsement shall, at a minimum, include coverage
for the general supervision performed by BNSF.
Any coverage afforded BNSF, the Certificate Holder, as an Additional
Insured shall apply as primary and not excess to any insurance
issued in the name of BNSF.
(b) Before commencing any work hereunder, Pathnet shall
furnish to BNSF, Certificate of Insurance on the form prescribed by
BNSF, evidencing the issuance to Pathnet of the policies of
insurance providing the types of insurance and limits of liability
prescribed above, and amending the cancellation clause to certify
that BNSF shall be
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given not less than 30 days' written notice prior to any material
change, substitution or cancellation prior to normal expiration
dates. Cancellation or expiration of any of said policies of
insurance shall not preclude BNSF from recovery thereunder for any
liability arising under this Agreement.
If any coverage is purchased on a "claims made" basis, Pathnet
hereby agrees to maintain coverage in force for a minimum of three
years after expiration, cancellation or termination of this
contract. Pathnet shall provide evidence annually of such coverage
as required hereunder.
(c) Pathnet Parties shall procure and maintain insurance as
outlined in Exhibit C-1.
(d) It is mutually understood and agreed that the purchase of
insurance as herein provided shall not in any way limit the
liability of the Pathnet or Pathnet Parties to BNSF, as herein set
forth.
20. Liens.
(a) In the event that any BNSF property becomes subject to any
mechanics' or materialmen's lien, or other construction or
supplier's lien or encumbrance chargeable to or through Pathnet or
any of the Pathnet Parties as a result of a failure to pay. Pathnet
promptly, and in any event within ten days, shall cause such lien or
encumbrance to be discharged or released of record (by payment,
posting of bond, court deposit or other means), without cost to
BNSF, and shall indemnify and hold harmless BNSF against all costs
(including reasonable attorneys' fees) incurred in connection with
such lien or encumbrance. If any such lien or encumbrance is not so
discharged and released, BNSF may pay or secure the release or
discharge thereof, at the expense of Pathnet, after first giving
five days' advance notice of its intention to do so. Pathnet
acknowledges that: (i) all or portions of the Rail Corridor are
subject to the liens of one or more of BNSF's various mortgages;(ii)
BNSF from time to time may place other liens or mortgages on the
Rail Corridor and (iii) the discharge or release of record of the
current or future liens and mortgages from the Rail Corridor is not
required by this Section, provided however, that any such future
liens or mortgages shall be subject to Pathnet's rights under this
Lease.
(b) Nothing herein shall preclude either Pathnet or BNSF from
contesting of any lien or other encumbrance.
21. Liaison, Dispute Resolution and Arbitration.
(a) Not later than thirty days after the date of this Lease,
BNSF and Pathnet each shall send a letter to the other, pursuant to
Section 28 hereof, designating individuals as points of contact at
the following levels: corporate officer for overall decision-making,
corporate officer for dispute resolution; contact person for
day-to-day corporate contact and liaison; contact person for
engineering and project management; contact person for
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field construction; contact person for daily operations and
maintenance; and contact person for disaster operations on a
twenty-four (24) hour basis. The same individual may be designated
for one or more of the foregoing positions, and either BNSF or
Pathnet may change the name of any designated officer or contact
person at any time by so informing the other in writing.
(b) It is the intent of the parties hereto that any dispute
which may arise between them be resolved as quickly and as
informally as possible. When quick and informal resolution of any
dispute is not possible, the issues in dispute shall be referred to
the two corporate officers designated for dispute resolution
pursuant to this Section 21, who shall make a reasonable attempt to
settle the dispute.
(c) The parties hereto agree to waive any rights that either
may have to a remedy in a court of law or in a court of equity
arising out of this Lease, and to submit any dispute arising under
the Lease, and not settled pursuant to Section 21(b) hereof, to
binding arbitration in accordance with this Section 21.
Notwithstanding the foregoing, either party shall have the right to
pursue preliminary equitable relief in connection with this Lease,
or to pursue appropriate legal or equitable remedies in support of a
decision rendered in arbitration.
(d) The parties hereto agree that one of the remedies
available to the arbitrator(s) for any substantial breach of this
Agreement shall be specific performance, and that an award of
specific performance by an arbitrator or arbitrators may be enforced
in a court of law or equity.
(e) Any arbitration under this Agreement shall be conducted in
accordance with the Commercial Rules of the American Arbitration
Association and shall be conducted by an arbitrator, and said
arbitration shall be conducted by a panel of three (3) arbitrators,
one to be selected by BNSF, one to be selected by Pathnet, and one
to be selected by the two designated arbitrators. Discovery shall be
conducted in accordance with the Federal Rules of Civil Procedure
(f) All costs, fees and expense charged by the arbitrator(s)
and other neutral third parties retained by mutual agreement of
Pathnet and BNSF in any arbitration conducted pursuant to this
Section 21 shall be shared equally by Pathnet and BNSF, unless
apportioned otherwise by the arbitrators.
22. Representations and Warranties.
(a) By executing this Lease, BNSF represents and warrants the
following facts:
(1) BNSF has the full right and authority to enter
into and perform this Lease, and by entering into and
performing this Lease, BNSF is not in violation of its charter
or by-laws, or any Laws or agreement by which it is bound or
to which it is subject; it being understood, however, that
this warranty does not
24
<PAGE> 25
constitute a warranty, express or implied, that BNSF has
sufficient rights in the Rail Corridor to permit Pathnet to
Construct and Operate the Fiber Optic Facilities; and
(2) The execution, delivery and performance of this
Lease by BNSF has been duly authorized by all requisite
corporate action, that the signatory for BNSF hereto is
authorized to sign this Lease and bind BNSF to its terms.
(b) By executing this Lease, Pathnet represents and
warrants:
(1) Pathnet has the full right and authority to enter
into and perform this Lease and by entering into and
performing this Lease, Pathnet is not in violation of its
charter or by-laws, or any Laws or agreement by which it is
bound or to which it is bound or to which it is subject;
(2) The execution, delivery and performance of this
Lease by Pathnet has been duly authorized by all requisite
corporate action, that the signatory for Pathnet hereto is
authorized to sign this Lease and bind Pathnet to its terms;
and
(3) Pathnet has the financial capability to fulfill
all of its obligations under this Lease.
23. Limitation on Damages for Breach of this Lease. Damages that
may be recovered for breach of this Lease shall not include any indirect,
consequential, special or punitive damages, or lost profits, or the cost of
Pathnet building Fiber Optic Facilities at a different location than it
originally planned.
24. Recordings, Taxes and Other Charges.
(a) Except as provided in this Section 24, Pathnet shall pay:
(i) all transfer taxes, documentary stamps, recording costs or fees,
or any similar expense in connection with this Lease and/or the
recording or filing of a Memorandum of Lease for this Lease (which
memorandum shall be in a form mutually agreeable between the parties
and the recording of a Memorandum of Lease shall occur only by
mutual agreement by the parties); and (ii) any and all taxes
(including but not limited to transfer, sales, use, and property
taxes), levies, excises, assessments and charges (collectively,
"Taxes"), including any penalties and/or interest thereon, levied or
assessed with respect to the Fiber Optic Facilities or Pathnet's
leasehold interest. Pathnet shall indemnify, defend and hold BNSF
harmless against the payment of any Taxes referenced in this Section
24(a).
(b) BNSF may pay any Taxes, plus any penalty and/or interest
thereon, imposed upon BNSF for which Pathnet is obligated pursuant
to this Lease, if Pathnet
25
<PAGE> 26
does not pay such Taxes when due, and Pathnet shall promptly
reimburse BNSF for any such payment it makes.
(c) In the case of amounts described in Section 24(a)(ii),
where Taxes with respect to Fiber Optic Facilities or Pathnet's
leasehold interest are not separately assessed, BNSF shall determine
the amount of Taxes attributable to the Fiber Optic Facilities and
Pathnet's leasehold interest by reference to information provided by
the relevant taxing authority that demonstrates or establishes that
such Taxes are attributable to the Fiber Optic Facilities or
Pathnet's leasehold interest. If the information provided by the
relevant taxing authority demonstrates or establishes that Taxes are
attributable to the fiber optic value of a Rail Corridor in respect
of which Pathnet has been granted rights hereunder, but does not
demonstrate or establish the value attributable to the Fiber Optic
Facilities or Pathnet's leasehold interest, the amount so
attributable shall be determined by reference to a formula. Such
formula shall be consistently applied, shall reasonably allocate any
Taxes among all of BNSF's rail corridors and fiber optic values with
a further allocation of the Taxes attributable to the fiber optic
value between the Fiber Optic Facilities, Pathnet's leasehold
interest and fiber optic value attributable to fiber optic rights
granted by BNSF to others. In all cases, BNSF promptly shall provide
to Pathnet information that establishes the manner in which any such
Taxes were allocated and the basis for establishing that such
amounts are attributable to the Fiber Optic Facilities or Pathnet's
leasehold interest. The parties shall resolve any dispute regarding
the liability of Taxes hereunder pursuant to the dispute resolution
and arbitration procedures set forth in Section 21 of this Lease.
(d) Notwithstanding anything to the contrary contained in this
Lease, BNSF shall pay (i) any Taxes attributable to rights in the
Fiber Optic Facilities and other assets and services provided to
BNSF pursuant to Section 8 of this Lease; and (ii) property,
franchise or similar taxes that are attributable to a Rail Corridor
that are not attributable to the existence or use of the Fiber Optic
Facilities or Pathnet's leasehold interest. BNSF shall indemnify,
defend and hold Pathnet harmless against the payment of any Taxes
referenced in this Section 24(d). Pathnet may pay any Taxes imposed
on Pathnet for which BNSF is obligated to indemnify Pathnet pursuant
to this Section 24(d), if BNSF does not pay such amounts when due
and BNSF shall promptly reimburse Pathnet for any such payment it
makes. The provision of Section 24(c) shall apply to amounts claimed
by Pathnet, mutatis mutandis.
(e) Neither BNSF nor Pathnet will be responsible for the
income or corporate franchise tax of the other.
(f) Both BNSF and Pathnet agree to reasonably cooperate with
each other in the refund, rebate, reduction, abatement, mitigation
or contest of any Taxes for which either is obligated to pay
hereunder.
25. Independent Contractor Status; No Joint Venture. BNSF reserves
no control whatsoever over the employment, discharge or compensation of
Pathnet's employees or contractors. It is the intention of the parties hereto
that Pathnet shall be and remain an independent contractor, and nothing in this
Lease shall be construed as inconsistent with
26
<PAGE> 27
Pathnet's independent contractor status or creating or implying any partnership
or joint venture between Pathnet and BNSF.
26. Confidentiality.
(a) The terms of this Lease shall be confidential.
Either party hereto may designate as confidential certain materials,
maps, documents and other information exchanged in fulfilling the
terms and intent of this Lease. In addition, in connection with the
provision of material and/or services to BNSF by Pathnet, or to
BNSF, BNSF and/or Pathnet may discover or otherwise come into
contact with specifications, drawings, computer programs, and/or
technical or business information which BNSF or Pathnet has clearly
identified as confidential. All construction plans, drawings and
specifications, including, without limitation, all proposed
Construction Drawings, Final Construction drawings and as-built
plans and all information about the location of the Fiber Optic
Facilities, will constitute confidential information.
(b) Unless confidential information was previously known
free of any obligation to keep it confidential, or has been or is
subsequently made public, it shall be handled in confidence by BNSF
and Pathnet and shall be disclosed only upon a need to know basis,
such terms and conditions as may be mutually agreed upon in writing
by the parties hereto, or as required by law. BNSF and Pathnet shall
advise those employees, agents, and contractors who may have contact
with such information, of the obligation to keep such information
confidential, and will use their best efforts to avoid unauthorized
disclosure of such information. Notwithstanding the foregoing,
either party may disclose confidential information to the extent
required by applicable law or regulations, provided that the
disclosing party has notified the other party of the disclosing
party's obligation to disclose, and provided that the non-disclosing
party has had an opportunity to contest such disclosure.
(c) In the event of an actual or threatened disclosure
of such information by either party hereto which might cause
irreparable harm to the other party hereto, it is agreed that
monetary remedies available at law may be inadequate and, therefore,
the aggrieved or threatened party hereto shall be entitled to
receive injunctive relief as an equitable remedy.
(d) Notwithstanding anything else herein, the
obligations of the parties hereto under this Section 26 shall
survive termination of this Lease for a period of three years.
27. Assignment.
(a) This Lease shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted
successors or assignees. Pathnet shall not assign any of the rights
granted to Pathnet under this Lease, without the prior written
consent of BNSF, which may be withheld or conditioned in BNSF's sole
27
<PAGE> 28
discretion. Any assignment made in violation of this Section 27
shall be null and void, shall confer no rights upon any party as
against BNSF, and shall give BNSF the right to terminate this Lease
effective immediately, or take any other lesser action with respect
thereto. The above requirement for consent shall not apply to (i)
any disposition of all or substantially all of Pathnet's stock or
assets; (ii) any corporate merger, consolidation or reorganization,
whether voluntary or involuntary, involving Pathnet; or (iii) a
sublease or assignment of the Lease (in whole or in part) by Pathnet
to a subsidiary, affiliate, or parent company, controlled, under
common control with, or controlling, either indirectly or directly,
Pathnet, but only where, and to the extent, such transaction does
not violate the terms of the Contribution Agreement; provided that
no assignment not consented to by BNSF shall relieve Pathnet of any
of its obligations or liabilities under this Lease. Nothing herein
shall prohibit Pathnet (i) from involving contractors, or strategic
or co-development partners in Construction and Operation of the
Fiber Optic Facilities, on such terms as Pathnet may determine in
its sole discretion, provided all such activities are conducted in
accordance with the terms of this Lease, and that Pathnet remains
fully liable for all obligations hereunder; and (ii) from granting
liens or other security interests in the Fiber Optic Facilities or
Pathnet's rights under this Lease in connection with financing or
investments made available to Pathnet.
(b) Upon request by Pathnet, BNSF shall execute
reasonable documentation to be provided by Pathnet acknowledging the
rights of Pathnet's lender(s) ("Lender") to obtain ownership of the
Fiber Optic Facilities if this Lease is still in effect and Pathnet
is in material default under the terms of Pathnet's loan to Lender,
provided, however, that in such case Lender shall become an assignee
to this Lease and shall become subject to all rights and obligations
of Pathnet under the terms of this Lease (and Pathnet also shall
remain subject to all obligations of Pathnet under this Lease). In
order to obtain the rights specified in this Lease, Lender must
execute an amendment to this Lease agreeing to be bound by the
terms, conditions and obligations contained in this Lease. The
execution of such an amendment by Lender shall not relieve Pathnet
from any obligations or liabilities contained in this Lease.
Further, before Lender or any other assignee or transferee of
Pathnet's interest in this Agreement may obtain any of Pathnet's
rights hereunder, such Lender, assignee, or transferee must cure any
and all outstanding defaults by Pathnet hereunder. In addition to
the rights granted to Pathnet hereunder, Pathnet's Lender shall have
the additional right to take possession, sell, assign or otherwise
transfer the Fiber Optic Facilities, including the right to operate,
or permit a third-party to operate, the Fiber Optic Facilities,
provided such operation shall be subject to all terms and conditions
of this Lease.
28. Notices. Unless otherwise provided herein, all notices and
other communications required by or concerning this Lease shall be in writing
and shall be deemed to have been duly given when delivered in person or on the
next business day when sent by a nationally recognized overnight courier, or on
the second succeeding business day when sent by registered or certified
28
<PAGE> 29
United States Mail (postage prepaid, return receipt requested), or, if postal
claim notice is given, on the date of its return marked "unclaimed" (provided,
however, that upon receipt of a returned notice marked "unclaimed", the sending
party hereto shall make reasonable effort to contact and notify the other party
hereto by telephone) and each respective party hereto at the following addresses
(or at such other address for a party hereto as shall be specified by like
notice):
(1) if to Pathnet:
Pathnet, Inc.
1015 31st St., N.W.
Washington, DC 20007
Attn: General Counsel
and to:
Pathnet, Inc.
1661 Gateway Boulevard
Richardson, TX 75080
Attn: Senior Vice President, Engineering
(2) if to BNSF:
Assistant Vice President, Telecommunications
The Burlington Northern and Santa Fe Railway Company
2600 Lou Menk Drive
Forth Worth, Texas 76131
and to:
Vice President -Law
The Burlington Northern and Santa Fe Railway Company
2500 Lou Menk Drive, AOB-3
Fort Worth, Texas 76131-2830
29. Brokers and Agents. BNSF and Pathnet represent and warrant to
each other than neither has employed any broker, agent or finder in connection
with this Lease, and each indemnifies and agrees to hold harmless the other from
and against any commission or fee claimed by any broker, agent or finder in
connection with this transaction.
30. Force Majeure. Except as may be elsewhere specifically
provided in this Lease, any failure or delay in the performance by a party
hereto of its obligations hereunder, including, without limitation, Pathnet's
obligations pursuant to Section 5 hereof, shall not be a breach of this Lease if
such failure or delay results from causes beyond that party's control, including
but not limited to acts of God, governmental action or inaction (whether in its
sovereign or contractual capacity), fire, flood, or other catastrophe, national
emergency, insurrection, riot, and
29
<PAGE> 30
war. The phrase "beyond that party's control" shall not include any failure to
reach agreement with a party with whom Pathnet is negotiating pursuant to the
exclusive right to negotiate provided in Section 4(b) of the Fiber Optic Access
Agreement.
31. Costs. Except as specifically provided in this Lease, each
party hereto shall be responsible for its own costs (including legal fees)
incurred in connection with the preparation, execution and performance of this
Lease.
32. Severability. If any provision of this Lease or the
application thereof, shall be held invalid, illegal or unenforceable in whole or
in part, the remainder of this Lease and the application thereof shall not be
affected, and shall be enforceable to the fullest extent permitted by law, and
the portion hereof found to be invalid shall be enforced to the fullest extend
permitted by law, and, if possible, shall be reformed to carry out as much as
possible the intent of the parties as expressed herein.
33. Amendment, Waiver. This Lease may be amended only by a written
instrument executed by both parties hereto. No failure to exercise and no delay
in exercising, on the part of a party hereto, any right, power or privilege
hereunder shall operate as a waiver of any other provision of this Lease, or as
a waiver of that right, power or privilege either before, or after, the period
of waiver.
34. Entire Agreement. This Lease and all Exhibits attached hereto,
together with the Fiber Optic Access Agreement and the Contribution Agreement
between the parties hereto dated as of __________ __, 1999, constitute the
entire agreement of the parties hereto with respect to the subject matters
hereof, and supersede any and all prior negotiations, understandings and
agreements, whether oral or written, with respect hereto.
35. Interpretation; Construction.
(a) Section headings contained in this Lease are solely for
purpose of reference and shall not be construed with the substance
of the Section they caption or in any way affect the meaning or
interpretation of this Lease.
(b) Wherever used in this Lease: (i) any pronoun or pronouns
shall be deemed to include both the plural and the singular and to
cover all genders, and (ii) "or" is used in the inclusive sense, in
all cases where such meanings would be appropriate.
36. Legal Forum. This Lease shall be interpreted, construed and
enforced in accordance with the laws of the State of Texas.
37. Counterparts. This Lease may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
30
<PAGE> 31
IN WITNESS WHEREOF, authorized representatives of BNSF and Pathnet have executed
this Lease as of the date first set forth herein.
PATHNET TELECOMMUNICATIONS, INC. THE BURLINGTON NORTHERN AND
SANTA FE RAILWAY COMPANY
By: By:
----------------------------- ---------------------------
Name: Name:
----------------------------- ---------------------------
Title: Title:
----------------------------- ---------------------------
31
<PAGE> 32
EXHIBIT A
[to be agreed to by the parties]
<PAGE> 33
EXHIBIT B
Map of BNSF Railway Network
[to be agreed to by the parties]
<PAGE> 34
EXHIBIT C
Additional Construction Specifications
--------------------------------------
[to be agreed to by the parties]
<PAGE> 1
Exhibit 10.7
Portions of this exhibit have been
omitted and filed separately with
the Securities and Exchange Commission.
These positions are designated
"[ * * * ]."
MASTER RIGHT-OF-WAY LEASE AGREEMENT
BETWEEN
COLONIAL PIPELINE COMPANY,
A DELAWARE CORPORATION
AND
PATHNET TELECOMMUNICATIONS, INC.,
A DELAWARE CORPORATION
DATED: _________________, 1999
-i-
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I. AGREEMENT TO LICENSE.......................................... 2
1.1 LEASEHOLD INTERESTS............................................... 2
1.2 PERMITS; SEGMENT LEASES........................................... 2
1.3 TERM.............................................................. 4
1.4 REVERSION TO COLONIAL............................................. 4
1.5 USE............................................................... 5
ARTICLE II. CONSIDERATION; RENEWAL PAYMENTS; OTHER FEES AND EXPENSES...... 5
2.1 CONSIDERATION..................................................... 5
2.2 RENEWAL PAYMENT................................................... 5
2.3 EXPENSES.......................................................... 7
2.4 PAYMENTS.......................................................... 8
2.5 DEFAULT INTEREST.................................................. 8
ARTICLE III. INSTALLATION OF TELECOMMUNICATIONS NETWORK.................... 8
3.1 PERFECTION; PRE-INSTALLATION DETERMINATIONS....................... 8
3.2 REQUIREMENTS FOR INSTALLATION OF THE TELECOMMUNICATIONS
NETWORK AND THE PTI WORK.......................................... 10
3.3 SERVICES AGREEMENT WITH COLONIAL.................................. 12
3.4 COMPLETION OF PTI WORK............................................ 13
3.5 UNAUTHORIZED WORK................................................. 13
ARTICLE IV. OPERATION, MAINTENANCE AND REPAIR............................. 14
4.1 PTI OPERATION, MAINTENANCE AND REPAIR............................. 14
4.2 WARRANTIES........................................................ 14
4.3 SUBCONTRACTORS.................................................... 14
4.4 COLONIAL INSPECTIONS.............................................. 14
ARTICLE V. PIPELINE MAINTENANCE AND REPAIR............................... 15
5.1 PIPELINE MAINTENANCE AND REPAIR................................... 15
ARTICLE VI. INSURANCE..................................................... 15
6.1 ACQUISITION OF INSURANCE POLICIES................................. 15
6.2 TYPES OF REQUIRED INSURANCE FOR PTI............................... 15
6.3 TYPES OF REQUIRED INSURANCE FOR COLONIAL.......................... 16
6.4 TERMS OF INSURANCE................................................ 16
6.5 FAILURE TO MAINTAIN INSURANCE..................................... 17
6.6 BLANKET POLICIES; SELF-INSURANCE.................................. 17
ARTICLE VII. INTENTIONALLY OMITTED......................................... 18
ARTICLE VIII. CONDEMNATION.................................................. 18
8.1 MATERIAL TAKING................................................... 18
8.2 CONTINUATION OF AGREEMENT......................................... 18
8.3 APPORTIONMENT OF AWARD(S)......................................... 18
ARTICLE IX. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PTI.............. 19
9.1 PTI'S REPRESENTATIONS, WARRANTIES AND COVENANTS................... 19
ARTICLE X. REPRESENTATIONS, WARRANTIES AND COVENANTS OF COLONIAL......... 21
10.1 COLONIAL'S REPRESENTATIONS, WARRANTIES AND COVENANTS.............. 21
<PAGE> 3
ARTICLE XI. INDEMNIFICATION; LIMITATION OF LIABILITY...................... 22
11.1 INDEMNIFICATION BY PTI............................................ 22
11.2 INDEMNIFICATION BY COLONIAL....................................... 22
11.3 LIMITATION OF LIABILITY........................................... 23
11.4 NO CONSEQUENTIAL OR SPECIAL DAMAGES............................... 23
11.5 LEGAL PROCEEDINGS................................................. 23
ARTICLE XII. DEFAULT....................................................... 24
12.1 EVENT OF DEFAULT BY PTI........................................... 24
12.2 EFFECT OF ARBITRATION............................................. 25
12.3 REMEDIES OF COLONIAL.............................................. 25
12.4 EFFECT OF TERMINATION............................................. 25
12.5 EVENT OF DEFAULT BY COLONIAL...................................... 26
12.6 NO WAIVERS........................................................ 26
12.7 NO REMEDY EXCLUSIVE............................................... 27
12.8 FORCE MAJEURE..................................................... 27
12.9 NO PERSONAL LIABILITY............................................. 27
ARTICLE XIII. VOLUNTARY REMOVAL OF TELECOMMUNICATIONS NETWORK............... 27
13.1 REMOVAL OF TELECOMMUNICATIONS NETWORK BY PTI...................... 27
ARTICLE XIV. ARBITRATION................................................... 28
14.1 ARBITRATION....................................................... 28
14.2 SELECTION OF ARBITRATORS.......................................... 28
14.3 QUALIFIED ARBITRATORS............................................. 28
14.4 ARBITRATION HEARING; DISCOVERY VENUE.............................. 28
14.5 DECISION.......................................................... 29
14.6 NON-BINDING IN CERTAIN EVENTS..................................... 29
ARTICLE XV. ASSIGNMENT.................................................... 29
15.1 ASSIGNMENT BY PTI................................................. 29
15.2 ASSIGNMENT BY COLONIAL............................................ 30
15.3 BINDING UPON SUCCESSORS AND ASSIGNS............................... 30
ARTICLE XVI. CONFIDENTIALITY............................................... 30
16.1 CONFIDENTIALITY................................................... 30
ARTICLE XVII. MISCELLANEOUS................................................. 30
17.1 NOTICES.......................................................... 30
17.2 NO PARTNERSHIP................................................... 31
17.3 TIME OF THE ESSENCE.............................................. 31
17.4 ENTIRE AGREEMENT................................................. 31
17.5 CAPTIONS......................................................... 32
17.6 MEANING OF TERMS................................................. 32
17.7 AGREEMENT CONSTRUED AS A WHOLE................................... 32
17.8 SEVERABILITY..................................................... 32
17.9 SURVIVAL......................................................... 32
17.10 AMENDMENT.................................................... 32
17.11 ATTORNEYS' FEES.............................................. 32
17.12 INTEREST..................................................... 32
17.13 GOVERNING LAW................................................ 33
17.14 BUSINESS DAYS................................................ 33
17.15 REFERENCE DATE OF AGREEMENT.................................. 33
17.16 COUNTERPARTS................................................. 33
17.17 EXHIBITS..................................................... 33
-2-
<PAGE> 4
LIST OF EXHIBITS:
Exhibit A System Map
Exhibit B Form of Right-of-Way Permit
Exhibit C Form of Segment Lease
Exhibit D Currently Perfected Segments
Exhibit E General Colonial Construction Standards
-3-
<PAGE> 5
LIST OF DEFINED TERMS:
- ----------------------
Agreement Recitals
Applicable Laws Subsection 3.2(b)
Colonial Recitals
Colonial Conduit Defined in the Fiber Optic
Access and Purchase Agreement
Colonial Construction Standards Subsection 3.2(c)
Colonial Engineering Notice Subsection 3.1(c)
Colonial Indemnified Parties Section 11.1
Colonial Parties Subsection 10.1(f)
Colonial Pipeline Recitals
Colonial Rights-of-Way Recitals
Colonial System Recitals
Colonial System Map Recitals
Conduit(s) Section 1.5
Construction Management Work Subsection 3.1(b)
Currently Perfected Segments Subsection 2.3(b)
Default Rate Section 17.12
Designation Notice Subsection 1.2(a)
Event of Default Section 12.1
Fiber Optic Access and Purchase Agreement Subsection 1.1(a)
Governmental Authorities Subsection 2.3(a)
Impositions Subsection 9.1(l)
Initial Term Section 1.3
Insurance Requirements Subsection 3.2(e)
Landowners Subsection 2.3(a)
Leasehold Interest Subsection 1.1(a)
Material Taking Section 8.1
Notice of Arbitration Section 14.1
Perfection and Construction Management
Contractor Subsection 3.1(a)
Perfection and Construction Management Work Subsection 3.1(a)
Perfection Expenses Subsection 2.3(a)
Perfection Process Subsection 1.2(b)
Perfection Rights Subsection 1.2(b)
Permit(s) Subsection 1.2(c)
PTI Recitals
PTI Indemnified Parties Section 11.2
PTI Operation and Maintenance Services Section 4.1
PTI Parties Subsection 9.1(i)
PTI Stock Section 2.1
PTI Work Section 3.2
Related Facility(ies) Recitals
Regen Facilities Subsection 1.2(a)
Renewal Payment Subsection 2.2(a)
Renewal Term Section 1.3
Required Permits Subsection 9.1(f)
Rerouted Portion Subsection 3.1(f)
Reversion Date Subsection 1.4(a)
Revised Designation Notice Subsection 1.2(c)
Right-of-Way Agents Subsection 2.3(a)
Route Engineering Work Subsection 3.1(b)
<PAGE> 6
Segment(s) Subsection 1.2(a)
Segment Lease Subsection 1.2(c)
Services Agreement Section 3.3
Sub-Segment(s) Subsection 1.2(a)
Sub-Segment Lease Subsection 1.2(c)
Taking Section 8.1
Telecommunications Network Section 1.5
Telecommunications Network Contractors Subsection 3.2(f)
Term Section 1.3
Trade Standards Subsection 3.2(e)
Undeployed Segments and Stations Subsection 1.4(b)
<PAGE> 7
MASTER RIGHT-OF-WAY LEASE AGREEMENT
THIS MASTER RIGHT-OF-WAY LEASE AGREEMENT (the "Agreement"), made and
entered into as of this ____ day of _________________, 1999, by and between
COLONIAL PIPELINE COMPANY, a Delaware corporation ("Colonial") and PATHNET
TELECOMMUNICATIONS, INC., a Delaware corporation ("PTI").
W I T N E S S E T H:
WHEREAS, Colonial transports refined liquid petroleum products in
interstate commerce as a common carrier and maintains a system of pipelines and
related facilities across fourteen states and the District of Columbia for such
purposes (the "Colonial System");
WHEREAS, the Colonial System consists of (a) pipelines (collectively,
the "Colonial Pipeline") located on certain interests in land (e.g.,
rights-of-way, easements, licenses, permits, leases, etc. [collectively, the
"Colonial Rights-of-Way"]), and (b) injection stations, booster stations, tank
farms, delivery locations and terminals (collectively, the "Related Facilities")
located on certain other tracts of land owned in fee or leased by Colonial, all
of which Colonial Rights-of-Way and Related Facilities are located approximately
as shown on that certain system map of the Colonial System, attached hereto as
Exhibit A and made a part hereof (the "Colonial System Map");
WHEREAS, PTI desires the right to use designated portions of the currently
existing Colonial System for the purpose of installing and operating
communications facilities, including, but not limited to, fiber optic conduits,
regeneration stations and related machinery and equipment for the operation of a
telecommunications network;
WHEREAS, Colonial desires to lease to PTI designated portions of the
Colonial Rights-of-Way and Related Facilities to use for the aforesaid purposes,
subject to applicable title restrictions and encumbrances, and upon the terms
and conditions hereinafter set forth; and
WHEREAS, Colonial and PTI desire to enter into this Agreement in order to
set forth the terms and conditions of the foregoing.
NOW, THEREFORE, for and in consideration of the premises hereof, the
covenants contained herein, the sum of Ten and No/100 Dollars ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Colonial and PTI hereby agree as follows:
<PAGE> 8
ARTICLE I
AGREEMENT TO LEASE
1.1 Leasehold Interests.
(a) Subject to all of the terms and conditions of this Agreement, and
that certain Fiber Optic Access and Purchase Agreement entered into by Colonial
and PTI contemporaneously herewith (the "Fiber Optic Access and Purchase
Agreement"), Colonial agrees to lease to PTI the right to use portions of the
currently existing Colonial Rights-of-Way and Related Facilities for the uses
and purposes described herein (each such portion leased to PTI pursuant to the
terms hereof being a "Leasehold Interest"). The Leasehold Interests to be
granted hereby include the non-exclusive use of a strip of land five (5) feet on
either side of the centerline of the telecommunication conduits and
appurtenances to be installed hereunder within the designated Colonial
Rights-of-Way, or such larger area as may be reasonably necessary for the
construction and operation of the "Telecommunications Network" (as defined in
Section 1.5 hereof), as approved by Colonial in accordance with Article III
hereof; provided that, if necessary along a particular "Segment" (as hereinafter
defined), PTI may request that Colonial attempt to acquire additional
right-of-way at PTI's expense, to be included as part of the Colonial
Rights-of-Way for the purposes hereof.
(b) In the event that Colonial expands the Colonial System beyond its
current boundaries as of the date hereof, and should PTI desire to utilize such
expansion, then Colonial and PTI will negotiate in good faith to extend the
Leasehold Interests to be granted hereunder to include the additional Colonial
Rights-of-Way applicable to such extensions of the Colonial System and to
determine the compensation to be received by Colonial therefor.
(c) PTI's rights in the Colonial Rights-of-Way and Related Facilities
hereunder consist solely of Leasehold Interests subject to the terms of this
Agreement and PTI does not acquire hereby any other or additional rights in or
to any portion of the Colonial Rights-of-Way or any Related Facilities. PTI
further acknowledges that Colonial hereby reserves such access and other rights
as are necessary to enable Colonial to reasonably commercialize the "Colonial
Conduit" (as defined in the Fiber Optic Access and Purchase Agreement),
including, without limitation, full rights of access with respect to any portion
of the Colonial Rights-of-Way otherwise leased to PTI in order to allow Colonial
(or its assignee(s) or licensee(s) to maintain, operate, repair, replace and
upgrade the Colonial Conduit as necessary or appropriate.
1.2 Permits; Segment Leases.
(a) From time to time, PTI shall designate, by written notice to
Colonial (each, a "Designation Notice"), specified segments of the Colonial
System with respect to which PTI desires to acquire Leasehold Interests. Each
such Designation Notice shall identify or describe, as applicable: (i) a segment
or segments of the Colonial Rights-of-Way within the Colonial System (the
"Segment(s)"), using Colonial's location number references as beginning points
and ending points, and shall describe the approximate distance of the applicable
Segment(s); (ii) one or more of the Related Facilities along the Colonial
System; (iii) the types of
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facilities PTI intends to install (i.e., regeneration facilities ("Regen
Facilities"), junctions, terminals, etc.); and (iv) the number of conduits PTI
plans to install within the Segment(s).
(b) Subject to Section 3.3 below, within thirty (30) days after
receipt of a Designation Notice, Colonial shall prepare, execute and deliver to
PTI a segment lease for the applicable Segment or Related Facility in
substantially the form set forth on Exhibit B attached hereto and made a part
hereof (each, a "Segment Lease"). Upon the execution by Colonial of a Segment
Lease, Colonial also shall notify PTI of the exact number of Conduits that
Colonial determines, in its reasonable discretion, may be installed along the
applicable Segment in question without material interference with the use,
operation and maintenance of the Colonial Pipeline in the applicable portion of
the Colonial Rights-of-Way and/or without compromising the safety of the
Colonial Pipeline. If Colonial does not own the applicable Segment or Related
Facility in fee, each such Segment Lease shall have attached as an exhibit
thereto a description of the applicable leases, easements, licenses or other
similar agreements (together with all amendments or modifications thereto),
pursuant to which Colonial has the right to use such portion of the Colonial
Rights-of-Way or Related Facility. Colonial also shall provide or otherwise make
available to PTI such documents, agreements and information pertaining to the
Colonial System, the Colonial Rights-of-Way and or Related Facilities as PTI may
reasonably request. Upon execution and delivery of a completed Segment Lease by
Colonial and PTI, the terms of such Segment Lease will be incorporated into this
Agreement and become subject to its terms and conditions, subject, however, to
modification in accordance with the terms of applicable "Permits" (as described
in Subsection 1.2(c) below issued hereunder). A Segment Lease shall signify
Colonial's authority for PTI to proceed with the modification of such existing
leases, easements, licenses and other agreements to which Colonial is a party in
order to obtain the rights (the "Perfection Rights") for PTI to install, operate
and maintain the Telecommunications Network and the Colonial Conduit through the
designated Segments of the Colonial Rights-of-Way (collectively, the "Perfection
Process"). Each such Segment Lease shall confirm, however, that PTI shall not
have the right to commence any "PTI Work" (as defined in Section 3.2 hereof)
until compliance by PTI with the applicable provisions of Sections 3.1 and 3.2
hereof.
(c) PTI shall notify Colonial in writing upon completion of the
Perfection Process with respect to a particular Segment or Related Facility,
such Perfection Process to be performed in accordance with the terms of Section
3.1 below. After completion of the pre-installation determinations described in
Subsections 3.1(b)-(d) hereof, Colonial shall prepare, execute and deliver to
PTI a Permit for the applicable Segment Lease, in substantially the form set
forth on Exhibit C attached hereto and made a part hereof (each, a "Permit").
PTI's right to use the Leasehold Interests described herein for the installation
and operation of the "Telecommunications Network" (as described in Section 1.5
hereof) shall become effective with respect to a particular Segment and/or a
particular Related Facility only upon the execution and delivery of the
applicable Permit for such Segment or Related Facility; provided, however, that
PTI may request that a Segment Lease be divided into sub-segments for "mini
construction spreads" (hereinafter defined as "Sub-Segment(s)") of no less than
fifteen (15) miles in length. In such event, PTI shall establish the applicable
Sub-Segment by delivering to Colonial a modification to a previously delivered
Designation Notice (a "Revised Designation Notice").
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Receipt of same by Colonial shall authorize Colonial, upon completion of the
Perfection Process with respect to such Sub-Segment, to deliver to PTI a
"Sub-Segment Lease" for the applicable Sub-Segment that conforms to the Revised
Designation Notice.
(d) The books and records of Colonial shall be prima facie evidence
of the location and legal description of any applicable portion of the Colonial
Rights-of-Way or Related Facility in any dispute between Colonial and PTI
relating to this Agreement.
1.3 Term. The initial term of this Agreement shall be for a period of
thirty (30) years from and after the date hereof (the "Initial Term"). Provided
that PTI is not in default hereunder, PTI shall have the right to renew the
Initial Term for one (1) ten (10) year period (the "Renewal Term"), by giving
written notice to Colonial of the exercise of such right not later than twelve
(12) months prior to the expiration of the Initial Term and by paying to
Colonial, upon the termination of the Initial Term, the renewal payment
described in Article II hereof. PTI's use of its rights hereunder during the
Renewal Term shall be on the same terms and conditions as provided in this
Agreement. Whenever the word "Term" is used in this Agreement, it shall be
deemed to mean the Initial Term together with, if applicable, the Renewal Term.
1.4 Reversion to Colonial.
(a) In the event that, as of the fifth (5th) anniversary of the date
of this Agreement (the "Reversion Date"), PTI has not installed its
Telecommunications Network with respect to at least 2,200 miles of Colonial
Rights-of-Way throughout the Colonial System, then PTI shall have the right to
issue a Designation Notice, within ten (10) days after said Reversion Date,
designating additional Segments of the Colonial Rights-of-Way (and Related
Facilities) which, when added to the Segments for which Permits previously have
been granted to PTI, will equal 2,200 miles or less. In such event, upon the
execution and delivery of appropriate Segment Leases for such additional
designated portions of the Colonial Rights-of-Way and Related Facilities, then
PTI shall have the right to use such Segments and Related Facilities in
accordance with the terms of this Agreement.
(b) All other portions of the Colonial Rights-of-Way or Related
Facilities (i) in which PTI has not then installed its Telecommunications
Network; and (ii) that are not then the subject of Designation Notices as
described in Subsection 1.4(a) above will revert to Colonial as of the thirtieth
(30th) day after the Reversion Date. If any such reversion occurs, (aa) PTI will
have no further rights with respect to such portions of the Colonial
Rights-of-Way or Related Facilities (collectively, the "Undeployed Segments and
Stations") and (bb) the Undeployed Segments and Stations will no longer be
subject to the terms and conditions of this Agreement or the Fiber Optic Access
and Purchase Agreement. Additionally, at the end of the second (2nd) year after
the Reversion Date, any Segment of the Colonial Rights-of-Way or Related
Facilities that is the subject of Designation Notices as described in Subsection
1.4(a) above will be released from the exclusivity restrictions set forth in
Section 3 of the Fiber Optic Access and Purchase Agreement from and after such
date unless (x) PTI has then installed its Telecommunications Network within
such Segment, or (y) PTI is then proceeding with such installation process in
good faith and with diligent efforts. Upon the release of any such
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<PAGE> 11
Segments or Related Facilities from said exclusivity restrictions as described
in the immediately preceding sentence, PTI shall continue to have the right to
install its Telecommunications Network within the applicable Segments and/or at
such Related Facilities; provided that PTI's rights under this Agreement with
respect to such Segments or Related Facilities then shall be subject to the
rights of other parties, if any, claiming by, through or under Colonial;
provided, however, that although Colonial acknowledges that it shall not grant
"exclusive rights" to any such other parties, PTI acknowledges that there are
space limitations within the Colonial Rights-of-Way and that any granting by
Colonial of rights to other parties for the last remaining available space
within a Segment or portion thereof shall not constitute the granting of
"exclusive rights" for the purposes hereof.
1.5 Use. PTI acknowledges and agrees that the property to be leased to PTI
hereunder may be used only for the purpose of installing, constructing, using,
operating, maintaining, repairing and replacing a fiber optic telecommunications
network consisting of not more than ten (10) telecommunications conduits (the
"Conduit(s)") within a given Segment (together with appurtenant and necessarily
related Regen Facilities and other telecommunications machinery and equipment
(collectively, the "Telecommunications Network")), the exact number and location
of Conduits to be located within a given Segment to be determined in accordance
with the terms and conditions of Subsection 1.2(b) and Article III hereof.
ARTICLE II
CONSIDERATION; RENEWAL PAYMENT; OTHER FEES AND EXPENSES
2.1 Consideration. The parties hereto acknowledge that, pursuant to that
certain Contribution Agreement, by and between Colonial and PTI, dated as of
October ___, 1999, Colonial and PTI have agreed that, in consideration of
Colonial's permission to allow PTI to use designated portions of the Colonial
Rights-of-Way as described herein for the Initial Term, Colonial has received,
simultaneously with the execution of this Agreement __________________ (_____)
shares of Series D convertible preferred stock of PTI (collectively, the "PTI
Stock").
2.2 Renewal Payment.
(a) In the event that PTI exercises its right to extend the Term of
this Agreement for the Renewal Term, PTI shall pay to Colonial, on or before the
expiration of the Initial Term, a renewal payment equal to the then-current
"fair market value" of the Leasehold Interests to be granted herein (the
"Renewal Payment").
(b) Within the thirty (30) day period commencing upon Colonial's
receipt of PTI's written notice of renewal as described in Section 1.3 above,
Colonial and PTI shall negotiate in good faith in order to determine a mutually
satisfactory amount for the Renewal Payment. If Colonial and PTI fail to agree
upon the amount of such Renewal Payment within such thirty (30) day period, then
the renewal payment will be determined by the following third party independent
appraisal procedure:
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(i) The parties shall attempt to agree upon a single appraiser;
however, if the parties are unable to agree upon an appraiser within
fifteen (15) days after the expiration of the thirty (30) day negotiation
period described in the first sentence of this Subsection 2.2(b), then each
party shall appoint an appraiser within five (5) days after the expiration
of the initial fifteen (15) day period. Upon the appointment of the two (2)
appraisers, said appraisers, within five (5) Business Days after the
appointment of the second appraiser, and before exchanging views as to the
question at issue, shall appoint in writing a third appraiser and give
written notice of such appointment to the parties. If any appraiser shall
not be appointed or agreed upon within the time herein provided, then
either of the parties may apply to the United States District Court for the
Northern District of Georgia for such appointment. The appraisers shall
have thirty (30) days from the date of the appointment of the last
appraiser to provide a determination under this Section 2.2.
(ii) Any appraiser appointed hereunder shall be a member of the
MAI and shall have no less than five (5) years experience in the appraisal
of comparable assets or rights.
(iii) In the event any appraiser appointed as aforesaid
thereafter shall die or become unable or unwilling to act, such appraiser's
successor shall be appointed in the same manner provided in this Section
2.2 for the appointment of the appraiser so dying or becoming unable or
unwilling to act.
(iv) The question to be determined by the appraisers shall be:
"What is the then fair market value of the renewal of the rights leased
under the Segment Leases?"
(v) For the purposes of this Section 2.2, the term "fair market
value" shall mean the highest price for cash that the rights leased under
the Segment Leases would bring in a competitive and open market under all
conditions requisite to a fair transaction with the lessor and lessee each
acting prudently and knowledgeably, and subtracting therefrom the costs and
expenses of such a transaction, including, without limitation, commissions
and legal fees and assuming further that (aa) such price is not affected by
undue stimulus; (bb) lessor and lessee are typically motivated; (cc) both
parties are well-informed or well-advised and are each acting in what it
considers its own best interest; (dd) a reasonable time is allowed for
exposure on the open market; (ee) payment is made in cash or its
equivalent; and (ff) to the extent applicable, that the Telecommunications
Facilities to be installed and operated on the Colonial Rights-of-Way in
connection with such renewal already have been installed.
(vi) As applicable, the determination of (aa) the single
agreed-upon appraiser, or (bb) the concurring determination of any two of
the three appraisers shall be binding upon Colonial and PTI; provided that,
in the event no two of the appraisers shall render a concurring
determination, then the average of the two appraised values that are
closest in amount shall be binding upon Colonial and PTI.
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(vii) The fees and expenses of the appraiser(s) shall be divided
equally between the two parties to the transaction.
(viii) Wherever the determination of "fair market value" of the
rights licensed hereunder is at issue, the procedure established in this
Section 2.2 shall be binding upon Colonial and PTI and shall be a condition
precedent to the filing of any action at law or in equity by any party
hereto.
(c) PTI will not be entitled to any return or refund of all or any
portion of either the PTI Stock or any Renewal Payment in the event of any
termination of this Agreement "for cause" by Colonial or in the event that
PTI elects not to use or is prohibited from using any portion of the
Colonial Rights-of-Way or Related Facilities for the purposes described
herein, including, without limitation, any portions of the Colonial
Rights-of-Way that become Undeployed Segments and Stations pursuant to
Section 1.4 hereof.
2.3 Expenses.
(a) Except to the extent that Colonial is obligated for same pursuant
to the "Services Agreement" described in Section 3.3 hereof, PTI will be solely
responsible for all costs and expenses of any nature whatsoever in connection
with:
(i) all aspects of the Perfection Process (including, without
limitation, any payments to the fee owners, ground lessors or lessees of
applicable land (collectively, the "Landowners") or to contractors,
right-of-way agents and other brokers, agents, consultants or other third
parties (collectively, "Right-of-Way Agents") for the purposes of assisting
in such Perfection Process (all of the foregoing being collectively
referred to as the "Perfection Expenses");
(ii) the construction, installation, use, operation, maintenance,
repair, replacement and/or removal of the Telecommunications Network or any
portion thereof in accordance with the requirements of Articles III, IV and
IX hereof; and
(iii) any construction, grading or other work of any nature
whatsoever required by any state, county, municipal and/or tribal
governments, and/or the appropriate agencies, offices, departments, boards,
bureaus, authorities or commissions thereof with jurisdiction over the
matter in question (collectively, the "Governmental Authorities") in order
to allow the use of applicable portions of the Colonial Rights-of-Way
and/or Related Facilities for the deployment of the Telecommunications
Network;
(b) PTI acknowledges that, as of the date hereof, Colonial has not
completed the Perfection Process with respect to the Colonial Rights-of-Way, but
has substantially completed the Perfection Process with respect to certain
segments of the Colonial Rights-of-Way described on Exhibit D attached hereto
and made a part hereof (collectively, the "Currently Perfected Segments"). Upon
the issuance of a Designation Notice by PTI with respect to a Currently
Perfected Segment, PTI will reimburse Colonial for all actual and reasonable
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Perfection Expenses for such Currently Perfected Segments, such reimbursement to
be made within thirty (30) days of receipt of an invoice from Colonial, and to
be calculated in accordance with the methods and procedures described in the
Services Agreement.
2.4 Payments. All rentals, license fees, Renewal Payments, expenses and
other payments or reimbursements to be paid by PTI to Colonial hereunder shall
be payable in lawful money of the United States of America. All payments shall
be made by PTI to Colonial without notice or demand, deduction or offset at the
address provided in Section 17.1 hereof.
2.5 Default Interest. In the event that any payment or reimbursement is
not paid within ten (10) days after written notice of such nonpayment is given
pursuant to Section 12.1 hereof, then interest shall accrue on such unpaid
payment or reimbursement at the "Default Rate" described in Section 17.12 hereof
from the date such payment or reimbursement was due until finally paid.
ARTICLE III
INSTALLATION OF TELECOMMUNICATIONS NETWORK
3.1 Perfection; Pre-Installation Determinations.
(a) The parties hereto agree that PTI shall be obligated to complete
the Perfection Process for the right to install the Telecommunications Network
and the Colonial Conduit within any discrete portion of a Segment before
commencing any "PTI Work" (as defined in Section 3.2 hereof) within such
portion, unless PTI receives Colonial's express written permission not to do so,
which permission will be based, among other matters, upon PTI's agreement to
indemnify Colonial for any liabilities described in Subsection 11.1(c) hereof.
PTI will use good faith efforts to obtain Perfection Rights in a manner that
provides authority generally to install and operate telecommunications
facilities along the Colonial Rights-of-Way, such good faith efforts to be as
follows: Prior to and during the Perfection Process, Colonial and PTI will work
together to create and modify Perfection Process methodologies that balance (i)
Colonial's interest in maximizing "broad form" perfection and (ii) PTI's
interest in controlling perfection costs and minimizing delays. If it is
determined that there is an incremental cost difference between (aa) broad form
perfection and (bb) the minimum Perfection Rights that are necessary in order to
install PTI's Telecommunications Network and the Colonial Conduit along the
applicable property, then Colonial shall have the option of paying such
difference.
(b) Within thirty (30) days after PTI's designation of a Segment or
Related Facility pursuant to Section 1.2 hereof, Colonial, at its own cost and
expense, (along with any other potential contractor that PTI may consider for
such work) shall prepare a proposal for completion of the Perfection Process,
route engineering that may be necessary prior to the installation of the
Telecommunications Network ("Route Engineering Work") and the performance of
construction management services in connection with installation of the
Telecommunications Network ("Construction Management Work"; the Perfection
Process, Route Engineering Work and Construction Management Work sometimes
collectively referred to as "Perfection and Construction Management Work").
Colonial acknowledges that PTI shall
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have no obligation to select Colonial for the performance of such Perfection and
Construction Management Work; provided, however, that in the event Colonial is
not selected to perform such Perfection and Construction Management Work,
Colonial nevertheless shall have the right to approve the contractor that will
perform such Perfection and Construction Management Work (the "Perfection and
Construction Management Contractor") in accordance with the provisions of
Subsection 3.2(f) hereof. Colonial also shall have the right to review,
supervise and approve, jointly with PTI, the performance of all such Perfection
and Construction Management Work and to receive periodic progress reports from
the Perfection and Construction Management Contractor (if not Colonial) during
the course of performance of the Perfection and Construction Management Work.
(c) PTI shall notify Colonial in writing upon completion of the
Perfection Process as to a Segment of the Colonial Rights-of-Way or a discrete
portion of such Segment. Within thirty (30) days after receipt of such notice,
Colonial shall notify PTI in writing (the "Colonial Engineering Notice") of:
(i) the exact location in which PTI may install the Conduits
within such Segment of the Colonial Rights-of-Way or the applicable portion
thereof (such location to be, whenever possible, running along a centerline
located not less than five (5) feet from an outer right-of-way boundary of
the Segment in question, but no closer than ten (10) feet from the closest
pipeline within the Segment in question); and
(ii) any special conditions regarding any construction,
installation, use or operation that must be conducted within such Segment
or the applicable portion thereof or Related Facility and not otherwise
generally described herein (including, without limitation, the timing
deadlines for the completion of the applicable work on any given
Landowner's property) that are necessary, in Colonial's reasonable
determination, to prevent or limit material interference with the use,
operation and maintenance of Colonial's Pipeline in the applicable portion
of the Colonial Rights-of-Way, to prevent any compromising of the safety of
the Colonial Pipeline and/or, in the case of construction schedules, to
maintain good relations with Landowners on the Colonial Rights-of-Way.
Colonial will attempt to develop general guidelines for such determinations to
the extent reasonably feasible in order to provide PTI with appropriate
flexibility so long as development is consistent with such guidelines. If PTI's
concerns cannot be resolved without re-routing or obtaining additional
Perfection Rights, the cost of same shall be borne by PTI.
(d) If PTI objects to any of the determinations made by Colonial pursuant
to Subsection 3.1(c) above or to the determination of the exact number of
Conduits to be allowed, as described in the second sentence of Subsection 1.2(b)
above, then, upon PTI's written request to Colonial within fifteen (15) days
after receipt of the Colonial Engineering Notice (or other notice provided
pursuant to Subsection 1.2(b), as applicable), representatives of each party's
appropriate departments will meet to discuss the concerns of both parties and
possible resolutions. If the parties are not able to resolve the dispute within
ten (10) days after the first
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meeting, then either party may elect to escalate the issue to the senior vice
president level and/or any comparable executive-level officer of each party for
good faith discussions to resolve the matter. It is the intent of such
discussions to find a resolution that protects the safety and integrity of the
Colonial System, while minimizing to the extent reasonably possible the harm to
PTI that may result from a limitation on the permitted number of Conduits to be
developed or other restrictions imposed by Colonial. If, after such discussions,
the parties are unable to reach agreement, then the decision of Colonial's
applicable executive-level officer shall be final as to the matter in question.
(e) As referenced in Subsection 1.2(b), Permits shall be prepared and
executed upon completion of the Perfection Process and the other
pre-installation determinations described in Subsections 3.1(b)-(d) above. Among
other matters, said Permits shall have the effect of modifying the applicable
Segment Leases by limiting the areas leased to PTI within the Colonial
Rights-of-Way to the areas specifically described in the Permits.
(f) In circumstances in which PTI elects not to install its
facilities within a portion of the Colonial Rights-of-Way and instead installs
its facilities on land that is adjacent to or within five (5) miles of such
portion (the "Rerouted Portion"), PTI agrees (i) to comply with the Perfection
Process and other requirements of this Section 3.1 with respect to all parcels
of land which are within the Rerouted Portion and which are not owned by, or
subject to leases, easements or other right-of-way grants in favor of, utilities
or government authorities (including, without limitation, railroad, power
companies, pipeline companies, and federal, state or local governments or
agencies) and (ii) to provide contemporaneous written notice to Colonial of such
reroute, identifying the Rerouted Portion in reasonable detail.
3.2 Requirements for Installation of the Telecommunications Network and
the PTI Work. All work to be performed by or on behalf of PTI in connection with
the development, construction, installation, operation, maintenance and repair
of PTI's Telecommunications Network within any applicable Segments of Colonial
Rights-of-Way or at any Related Facility (collectively, "PTI Work") shall be
subject in all events to the following terms and conditions, the satisfaction of
which shall be at the sole cost and expense of PTI:
(a) The plans and specifications for all PTI Work and any
modifications thereto must be approved in advance by Colonial and no PTI
Work may commence until receipt of such approval, which approval will not
be unreasonably withheld. PTI shall deliver to Colonial, for its approval,
complete detailed engineering and design plans and specifications for the
performance of the PTI Work on the applicable Segment or at the applicable
Related Facility, including, without limitation, all construction methods
and staging areas to be used in connection with the same. Colonial shall
approve, or propose modifications, within thirty (30) days of its receipt
of such plans and specifications or revised plans and specifications, as
applicable. In the event of any dispute between Colonial and PTI regarding
such approval, the matter shall be referred to the Head Engineer of each of
PTI and Colonial for resolution.
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(b) All PTI Work shall be performed in a good and workmanlike manner,
free and clear of all mechanics' and materialmen's liens and encumbrances
related thereto and in accordance with all applicable present and future
statutes, regulations, rules, ordinances, codes, licenses, permits, orders,
concessions, franchises and similar items of or from all applicable
Governmental Authorities with jurisdiction over the applicable portions of
the Colonial Rights-of-Way and/or the Related Facilities and the use and
operation thereof (including, without limitation, any rules or regulations
issued by the Department of Transportation or the Occupational Safety and
Health Administration, and all applicable judicial, administrative and
regulatory decrees, judgments and orders relating thereto (collectively,
"Applicable Laws").
(c) All PTI Work shall be performed in accordance with the general
construction requirements and specifications for work within the Colonial
Rights-of-Way or at the applicable Related Facility attached hereto as
Exhibit E and made a part hereof (the "Colonial Construction Standards").
(d) All PTI Work with respect to the initial development,
construction and installation of any portion of the Telecommunications
Network within any applicable Segments of Colonial Rights-of-Way or at any
Related Facilities must be performed in accordance with all general or
special conditions or requirements noted on the applicable Permits.
(e) All PTI Work shall be performed in accordance with all standards
or requirements, whether now or hereafter in force, issued by (i) any
insurer or insurance carrier, board of fire underwriters or any other
company, bureau, organization or entity performing the same or similar
functions applicable to the Telecommunications Network, the Colonial
Pipeline and/or the Related Facilities (collectively, the "Insurance
Requirements"); and (ii) the American Society of Mechanical Engineers, the
American Petroleum Institute, the National Electrical Safety Code, and the
National Association of Corrosion Engineers (collectively, the "Trade
Standards").
(f) All contractors, materialmen, mechanics and any other parties who
may perform work in, on or about the Colonial Rights-of-Way or at the
applicable Related Facilities for the benefit of the Telecommunications
Network pursuant to agreements with PTI (collectively, "Telecommunications
Network Contractors") (i) must be approved in advance by Colonial; (ii)
must submit for review and approval by Colonial satisfactory evidence of
contractor's liability and worker's compensation insurance; and (iii) must
acknowledge receipt and review of the Colonial Construction Standards and
the potential liability arising out of any breach of the integrity of the
adjacent Colonial Pipeline. Colonial and PTI will establish a list of
pre-approved contractors and suppliers, and a mechanism to provide for
approval by Colonial of parties performing work on the Colonial
Rights-of-Way or at the applicable Related Facility in a manner that does
not materially delay or interfere with work to be performed on the Colonial
Rights-of-Way or at the applicable Related Facility.
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(g) During all phases of the construction and installation of any
portion of the Telecommunications Network within any applicable Segments of
Colonial Rights-of-Way or at the applicable Related Facility, Colonial
shall assign one or more inspectors to work with each PTI construction crew
in order to provide construction inspection services with respect to such
PTI Work. PTI shall reimburse Colonial for the costs of such inspections
within thirty (30) days of receipt of an invoice from Colonial, such
reimbursement payment to be calculated in accordance with the methods and
procedures described in the Services Agreement. In connection with such
inspections, PTI will make available to Colonial and its inspectors, upon
Colonial's reasonable request, the PTI personnel and all Telecommunications
Network contractors and other agents working for or on behalf of PTI in the
performance of the PTI Work.
(h) All PTI Work must be done in such a manner as will not interfere
with in any way whatsoever the use, maintenance, operation, repair and
replacement of the adjacent Colonial Pipeline.
(i) PTI shall provide monthly engineering progress reports and weekly
construction progress reports advising Colonial of the status and progress
of all PTI Work and any issues of concern arising therefrom.
(j) PTI shall perform a complete locations survey of the applicable
Segment or Related Facility in question, including the staking and marking
of the existing Colonial Pipeline and the route of the Telecommunications
Network and any applicable Regen Facilities that are a part hereof) in
accordance with the Colonial Construction Standards and standard
telecommunications industry practices.
(k) PTI shall prepare field alignment maps showing the route along
the Segment in question as well as the property ownership, terrain
description, materials and other pertinent information.
(l) PTI shall prepare railroad, highway, waterway or wetlands
crossing permit drawings sufficient for approval by the applicable
Governmental Authorities or railroads and obtain any and all other permits
necessary for such crossings.
(m) All PTI Work shall be performed at such a standard of care that
equals the Colonial Construction Standards or that which is normal and
customary in the telecommunications industry, whichever standard is higher.
(n) In the event that PTI fails to comply with Colonial safety or
operational regulations, and such failure interferes or is likely to
interfere with Colonial's operations, Colonial may require that PTI
immediately suspend all affected operations on the applicable Segment.
Promptly after such suspension, and if such suspension materially and
adversely affects PTI's Telecommunications network, within two (2) hours
after such suspension, Colonial and PTI each will make available by
telephone a representative of upper management, as designated on the
escalation list agreed to by the parties, to discuss
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prompt resolution of the situation. If the parties are unable to resolve
the issue by telephone, then Colonial and PTI will escalate the issue to
the next higher individual on the escalation list for a face to face
meeting at a mutually agreeable location within twenty-four (24) hours of
the suspension. The parties thereafter will negotiate in good faith to
resolve the issue and prevent the occurrence of similar situations in the
future.
3.3 Services Agreement with Colonial. Notwithstanding the other provisions
of this Article III or of Subsection 1.2(b) or Section 4.1 below, the parties
hereto acknowledge that Colonial shall not be obligated to execute and deliver
to PTI any Segment Lease hereunder prior to the execution by Colonial and PTI of
that certain Master Services Agreement (the "Services Agreement"). Such Services
Agreement shall set forth, among other matters, the designation by Colonial of
specified employees to work within PTI's organization, Perfection Process
methodologies, the scope of work for Colonial's performance, if any, of any
Perfection and Construction Management Work and inspections with respect to the
Colonial Rights-of-Way and Related Facilities (or portions thereof) to be
deployed by PTI hereunder and the compensation to be paid to Colonial for such
services; however, PTI shall continue to have sole responsibility for all PTI
Work hereunder for any applicable Segment to the extent that Colonial has not
expressly assumed such responsibility within such Segment pursuant to the terms
of the Services Agreement.
3.4 Completion of PTI Work. Upon the completion of any PTI Work within a
designated Segment or Related Facility, PTI shall do the following:
(a) Perform an as-built survey of the Segment or Related Facility in
question and cause any applicable system maps and drawings of Colonial for
such particular Segment or Related Facility to be revised and updated as
appropriate so that each of PTI and Colonial have at least one full set of
revised and updated maps and drawings.
(b) Deliver to Colonial complete technical specifications for the
Telecommunications Network, including all Regen Facilities and any other
machinery or equipment placed within the Colonial Rights-of-Way or at a
Related Facility, as the case may be.
(c) Deliver to Colonial equipment manuals for the proper use,
operation, maintenance and repair of any portion of the Telecommunications
Network, including all Regen Facilities and any other machinery or
equipment that is to be or may be maintained by Colonial.
(d) Deliver to Colonial a certificate from PTI's general
contractor(s), certifying that all PTI Work within the applicable Segment
or Related Facility has been completed in accordance with the plans and
specifications previously approved by Colonial, that all such PTI Work has
been paid for, that all Telecommunications Network Contractors have been
paid and that no party has any lien rights or claims of lien with respect
to any portion of the completed PTI Work for such Segment or Related
Facility.
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(e) Obtain any certificates, permits, licenses or approvals required
to be obtained by any applicable Governmental Authorities under any
Applicable Laws or Trade Standards upon completion of the PTI Work in
question including, without limitation, such of the foregoing as may be
required for the operation of the Telecommunications Network.
3.5 Unauthorized Work. In the event that PTI performs any PTI Work along
any portion of the Colonial Rights-of-Way or at a Related Facility without
obtaining Colonial's approval therefor or completing the Perfection Process with
respect to the applicable Segment, or if Colonial determines that any such PTI
Work or portion thereof is prohibited by applicable Governmental Authorities or
Applicable Laws, then Colonial may require PTI to remove the PTI Work (including
any Conduits, Regen Facilities or other improvements installed therein)
immediately and to restore the subject property to its original condition, wear
and tear and casualty excepted, provided that Colonial will not require such
removal for so long as PTI is in good faith contesting or otherwise attempting
to resolve such prohibitions. In the event that PTI fails to do so, then
Colonial may perform such removal and restoration at PTI's sole cost and
expense, without any liability to Colonial.
ARTICLE IV
OPERATION, MAINTENANCE AND REPAIR
4.1 PTI Operation, Maintenance and Repair. Upon completion of any
applicable portion of the Telecommunications Network, and during the Term hereof
PTI shall be responsible, at its sole expense, for all costs and expenses of the
operation of the Telecommunications Network (except only as expressly described
in the Fiber Optic Access and Purchase Agreement), and all ordinary and
extraordinary maintenance and repair (including, without limitation, the
performance of continual monitoring and routine or special inspections) of all
aspects of the Telecommunications Network (including, without limitation, any
fibers, conduits, Regen Facilities or junctions, line amplifiers and other
equipment and machinery that are a part thereof) (collectively, the "PTI
Operation and Maintenance Services"), all pursuant to and in accordance with the
provisions of Section 3.2 and in compliance with the plans and specifications
for the Telecommunications Network approved by Colonial as provided in Section
3.2. PTI shall have no responsibility for, or authorization to perform
maintenance or repairs on any portion of the Colonial Pipeline or any other
Colonial equipment or machinery located along the Colonial Rights-of-Way or at
the Related Facilities.
4.2 Warranties. In the event any maintenance or repairs to the
Telecommunications Network are required as a result of any breach of any
warranty made by any of PTI's manufacturers, contractors or vendors, PTI shall
pursue any remedies it may have against such manufacturers, contractors or
vendors, and PTI shall reimburse Colonial for any expenses that Colonial has
incurred as a result of any such breach of warranty.
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4.3 Subcontractors. PTI may subcontract its obligations under this Article
IV; however, in any such event, PTI shall require the subcontractors to meet
operations, maintenance and repair standards for the Telecommunications Network
that are at least as high as those standards set forth in Section 3.2 of this
Agreement. The use of any such subcontractor shall not relieve PTI of any of its
obligations hereunder.
4.4 Colonial Inspections . In addition to the matters described in the
Services Agreement, after installation of the Telecommunications Network within
any Segment, Colonial shall have the right, but not the obligation, to inspect
all or any portion of the PTI Work, including, without limitation, the
Telecommunications Network, as Colonial may deem appropriate, such additional
inspections to be performed at Colonial's expense. Notwithstanding the
foregoing, in the event that Colonial considers special, non-periodic
inspections of the PTI Work to be reasonably necessary because of perceived
interference with or threats to the use and operation of the adjacent Colonial
Pipeline and/or the safety and integrity of such Colonial Pipeline, PTI will pay
Colonial for the cost of such special inspections in accordance with the
provisions of the Services Agreement.
ARTICLE V
PIPELINE MAINTENANCE AND REPAIR
5.1 Pipeline Maintenance and Repair. Colonial will perform, at its sole
expense, all emergency, routine and necessary maintenance, replacements and
repair on the Colonial Pipeline and other Colonial equipment located along the
Colonial Rights-of-Way and at the Related Facilities, excluding, however, any
portion of the Telecommunications Network located at any Related Facility.
ARTICLE VI
INSURANCE
6.1 Acquisition of Insurance Policies. During the entire Term, Colonial
and PTI shall procure and maintain the insurance described in this Article VI
(or its then available equivalent). Policy limits shall be reviewed annually and
may be adjusted if prudent, considering levels of inflation, risk of loss,
premium expenses and other relevant factors.
6.2 Types of Required Insurance for PTI. PTI shall procure and maintain
the following:
(a) commercial general public liability insurance covering loss or
damage resulting from accidents or occurrences on, about or arising out of
or in connection with the Telecommunications Network (or the attempted
installation thereof) and/or the Segments that may be leased to PTI
hereunder, with personal injury, death and property damage combined single
limit liability of not less than One Million Dollars ($1,000,000.00)] for
each accident or occurrence and in the aggregate. Coverage under
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such policies shall be broad form and shall include, but shall not be
limited to, operations, contractual, owner's and contractor's protective,
products and completed operations, environmental pollution, and the use of
all owned, non-owned and hired vehicles;
(b) umbrella liability insurance in an amount not less than
Thirty-Five Million Dollars ($35,000,000.00);
(c) "all risk" or "special" physical damage insurance covering all
risks of physical loss or damage to all portions of the Telecommunications
Network installed by or on behalf of PTI, with liability limits of not less
than one hundred percent (100%) of the then full replacement cost of all
such property;
(d) contractor's liability and builder's risk insurance during
performance of all PTI Work and during any subsequent maintenance, repair,
modification, or replacement thereof;
(e) worker's compensation and employer's liability insurance as
required by Applicable Laws; and
(f) such other insurance in amounts from time to time reasonably
required by Colonial against other insurable risks if, at the time, such
coverage is available at commercially reasonable rates and is commonly
obtained with respect to similar improvements or systems.
6.3 Types of Required Insurance for Colonial. Colonial shall procure and
maintain the following:
(a) commercial general public liability insurance covering loss or
damage resulting from accidents or occurrences on or about or arising out
of or in connection with the Colonial Pipeline and/or the portions of the
Colonial Rights-of-Way not leased to PTI hereunder with personal injury,
death and property damage combined single limit liability of not less than
One Million Dollars ($1,000,000.00) for each occurrence and in the
aggregate. Coverage under such policies shall be broad form and shall
include, but shall not be limited to, operations, contractual, owner's and
contractor's protective, products and completed operations, environmental
pollution, and the use of all owned, non-owned and hired vehicles;
(b) umbrella liability insurance in an amount not less than
Thirty-Five Million Dollars ($35,000,000.00); and
(c) worker's compensation and employer's liability insurance as
required by Applicable Laws.
6.4 Terms of Insurance. The policies required under Sections 6.2 and 6.3
shall name Colonial or PTI, as applicable, as additional insured(s). Each party
shall provide to the other
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party certificates of insurance and copies of policies obtained by the insuring
party hereunder promptly upon the request of the other party. All policies of
insurance obtained by a party pursuant to Sections 6.2 or 6.3, as applicable,
also:
(a) shall be written by responsible insurance companies reasonably
acceptable to the other party having a Best's rating of "A-VIII" or better;
(b) shall be written as primary policies with respect to losses
arising out of the acts or omissions of the named insured not contributing
with and not in excess of any coverage that the other party may carry;
(c) shall contain an endorsement providing that the amount of
coverage will not be reduced with respect to any party except after thirty
(30) days' prior written notice from the insurance company to the other
party and such coverage may not be cancelled with respect to any party
(including, without limitation, for non-payment of premium) except after
thirty (30) days' prior written notice from the insurance company to the
other party;
(d) shall contain, if obtainable, a statement that the insurance
shall not be invalidated should any insured waive in writing prior to a
loss any or all right of recovery against any party for loss accruing to
the property described in the insurance policy; and
(e) shall contain, if obtainable, a provision that no act or omission
of the party procuring such insurance shall affect or limit the obligation
of the insurance carrier to pay the amount of any loss sustained.
6.5 Failure to Maintain Insurance. If either party at any time during the
Term fails to procure or maintain any insurance required hereunder or to pay the
premiums therefor, the other party shall have the right to procure the same on
behalf of the defaulting party and to pay any and all premiums thereon. In such
event, any amounts paid by such other party in connection with the acquisition
of such insurance shall be immediately due and payable by the defaulting party
and interest on the amount so paid shall accrue at the Default Rate.
6.6 Blanket Policies; Self-Insurance.
(a) Any insurance required to be carried pursuant to this Article VI
may be carried under a "blanket" policy or policies covering other liabilities
and locations of Colonial or PTI, as applicable; provided, however, that such
policy or policies: (i) shall apply to the property required to be insured by
this Article VI and in an amount not less than the amount of insurance required
to be carried by Colonial or PTI with respect thereto; and (ii) shall provide
that no payment of insurance proceeds under any such policy with respect to any
location other than the Telecommunications Network (with respect to PTI) or
other than the Colonial Rights-of-Way and/or Related Facilities (with respect to
Colonial), shall reduce the amount of insurance available with respect to the
Telecommunications Network or to the Colonial Rights-of-Way
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and/or Related Facilities, as applicable, to an amount below the limits of
liability required to be maintained herein.
(b) The insurance requirements described in this Article VI may be
satisfied with respect to the initial One Million Dollars ($1,000,000.00) of
liability by any plan of self-insurance from time to time maintained by Colonial
or PTI on condition that: (i) the party so self-insuring has and maintains an
aggregate net worth of One Million Dollars ($1,000,000.00) or more; and (ii) any
party so self-insuring shall furnish to the other party, upon request, evidence
of the adequacy of its net worth. The annual report of such party that is
audited by an independent certified public accountant shall be sufficient
evidence of its net worth. If either Colonial or PTI elects to self-insure
pursuant to the provisions set forth herein, or thereafter elects to terminate
such self-insurance program, it shall give at least ten (10) days' prior written
notice thereof to the other party.
ARTICLE VII
INTENTIONALLY OMITTED
ARTICLE VIII
CONDEMNATION
8.1 Material Taking. If (a) all or any portion of a Segment (or a Related
Facility, as applicable) shall be acquired for any public or quasi-public use
through taking by condemnation, eminent domain or any similar proceeding, or
purchase in lieu thereof (each, a "Taking"); and (b) PTI and Colonial reasonably
determine, as applicable, that (i) the Segment or portion thereof cannot, at
reasonable cost, continue to be operated for both the existing Pipeline and the
operation of the Telecommunications Network, or (ii) the Related Facility or
portion thereof cannot, at reasonable cost, continue to be operated for both the
existing Colonial Related Facility and the operation of PTI's Regen Facilities
thereon (in either such case, a "Material Taking"), then any Permits or Segment
Leases applicable to the portion of the Colonial Rights-of-Way or Related
Facility so taken shall cease and terminate as of the date the condemning
authority takes title or possession, whichever first occurs and only to the
extent that such Permits or Segment Leases apply to the property so taken.
8.2 Continuation of Agreement. If there is a Taking that is not a Material
Taking and this Agreement is not partially terminated as provided in Section
8.1, this Agreement shall remain in full force and effect and any award(s)
received thereby shall be apportioned pursuant to Section 8.3 hereof.
8.3 Apportionment of Award(s) .
(a) If there is a Taking, whether a Material Taking or otherwise,
Colonial and PTI shall be entitled to receive and retain such separate awards
and portions of lump sum awards as may be allocated to their respective
interests in any condemnation proceedings, or as may be otherwise agreed, taking
into consideration the nature of the respective interests of Colonial and PTI in
the subject property, as subject to this Agreement.
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(b) If the condemning authority does not make separate awards and the
parties are unable to agree as to amounts that are to be allocated to the
respective interests of Colonial and PTI, the award shall be allocated as
follows: (i) first, if the Taking is not a Material Taking and Colonial and/or
PTI elect(s) to restore the property and improvements so taken, then to such
party(ies) in the amount(s) equal to the costs and expenses incurred by Colonial
and/or PTI in performing any such restoration; (ii) second, to Colonial and PTI
in proportional amounts reflecting the respective unamortized cost of any
portion of the Colonial Pipeline, Related Facilities and/or Telecommunications
Network so taken; and (iii) the balance, if any, shall be distributed in
proportion to the amounts of the award allocated to Colonial and PTI pursuant to
clause (ii) above.
ARTICLE IX
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PTI
9.1 PTI's Representations, Warranties and Covenants. PTI represents,
warrants and covenants that:
(a) PTI is a corporation existing and in good standing under the laws
of the State of Delaware,
(b) PTI has the power and authority to enter into this Agreement and
to consummate the transactions provided for herein. This Agreement and all of
the documents executed and delivered by PTI constitute the legal, valid, binding
and enforceable obligations of PTI and there are no claims or defenses, personal
or otherwise, or offsets whatsoever to the enforceability or validity of this
Agreement.
(c) The execution, delivery and performance by PTI of its obligations
under this Agreement will not conflict with or result in a breach of any
Applicable Law by which PTI is bound or by any of the provisions of any contract
to which PTI is a party or by which PTI is bound, or PTI's articles of
incorporation or by-laws. There is no action, suit, proceeding or investigation
pending or, to PTI's knowledge, threatened, before any agency, court or other
Governmental Authority that relates to PTI, this Agreement or the installation
of the Telecommunications Network contemplated herein that would materially
interfere with PTI's ability to perform its rights and obligations hereunder.
(d) PTI has not made a general assignment for the benefit of
creditors, filed any voluntary petition of bankruptcy or suffered the filing of
an involuntary petition by its creditors, suffered the appointment of a receiver
to take possession of substantially all of its assets, suffered the attachment
or other judicial seizure of substantially all of its assets, admitted its
inability to pay its debts as they come due, or made an offer of settlement,
extension or compromise to its creditors generally.
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(e) PTI warrants and covenants that the installation, use and
operation of the Telecommunications Network (and any related maintenance, repair
or replacement thereof) shall comply with all Applicable Laws.
(f) PTI shall obtain (and cause to remain effective for the Term of
this Agreement) all rights, licenses, authorizations, permits, consents and
other agreements or approvals required by Governmental Authorities
(collectively, the "Required Permits") necessary for the installation, use and
operation of the Telecommunications Network (including, without limitation, all
Conduits, Regen Facilities, cables, fibers or other physical plant facilities or
machinery or equipment related thereto). Colonial shall have the right to review
and approve all documents evidencing or reflecting the Required Permits.
(g) PTI will comply with all requirements, conditions and
stipulations set forth in any of the Required Permits and in any easements,
licenses or other agreements evidencing the rights of Colonial in and to the
Colonial Rights-of-Way that have been disclosed to PTI.
(h) PTI shall notify promptly Colonial of any matters pertaining to
any damage or threatened damage to or loss of any portion of the
Telecommunications Network, the Colonial Pipeline or any Related Facilities of
which it becomes aware.
(i) PTI shall respect Colonial's right to use the Colonial Pipeline
and the Related Facilities. PTI shall not use the Telecommunications Network in
a manner that interferes in any way with or adversely affects the Colonial
Pipeline or any Related Facility, and PTI shall take all reasonable precautions
against, and shall assume liability for, subject to the terms herein, any damage
to the Colonial Pipeline or any Related Facility caused by PTI or any of PTI's
employees, officers, directors, contractors, agents, licensees and/or
concessionaires, as applicable (collectively, the "PTI Parties").
(j) PTI agrees to cooperate with and support Colonial in connection
with the compliance with any government requirements issued by any Governmental
Authority applicable to the Telecommunications Network.
(k) PTI shall pay when due all charges for public or private utility
services to or for any portion of the Telecommunications Network during the
Term, including, without limitation, all charges for electricity, water, sewer,
storm water drainage, gas, telephone and/or garbage collection.
(l) PTI shall pay when due the following, as they arise during the
Term (collectively, the "Impositions"): (i) all real property taxes,
assessments, fees or payments in lieu thereof due with respect to the
Telecommunications Network, or any portion thereof, or any personal property or
intangibles located in or used in connection with the Telecommunications
Network; (ii) any and all sales, use, income, gross receipts or other taxes
assessed on the basis of revenues received or accrued by PTI arising out of its
use of the Telecommunications Network; and (iii) all other taxes, assessments,
excises, levies, license fees, permit fees, franchise fees,
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inspection fees and similar charges assessed, levied, or imposed on any
occupancy, use or possession of the Telecommunications Network, including those
based upon the physical location of the Telecommunications Network and/or the
construction thereof in, on or along any public road, highways, waterways or
rights-of-way, or any part thereof. Notwithstanding the foregoing, PTI shall
have no responsibility for (x) any tax based in whole or in part on Colonial's
income from this Agreement or the Fiber Optic Access and Purchase Agreement; (y)
any taxes that are the responsibility of Colonial pursuant to Subsection 7(g) of
the Fiber Optic Access and Purchase Agreement; or (z) any other real property
taxes or assessments with respect to the Colonial Rights-of-Way other than those
set out in clause (i) of this Subsection 9.1(l) above. PTI shall have the right
to make a claim, and Colonial shall cooperate reasonably with PTI, for refund,
rebate, reduction or abatement of any such Impositions.
ARTICLE X
REPRESENTATIONS, WARRANTIES AND COVENANTS OF COLONIAL
10.1 Colonial's Representations, Warranties and Covenants. Colonial
represents, warrants and covenants that:
(a) Colonial is a corporation existing and in good standing under the
laws of the State of Delaware,
(b) Colonial has the power and authority to enter into this Agreement
and to consummate the transactions provided for herein. This Agreement and all
of the documents executed and delivered by Colonial constitute the legal, valid,
binding and enforceable obligations of Colonial and there are no claims or
defenses, personal or otherwise, or offsets whatsoever to the enforceability or
validity of this Agreement.
(c) The execution, delivery and performance by Colonial of its
obligations under this Agreement will not conflict with or result in a breach of
any Applicable Law by which Colonial is bound or by any of the provisions of any
contract to which Colonial is a party or by which Colonial is bound, or
Colonial's articles of incorporation or by-laws. There is no action, suit,
proceeding or investigation pending or, to Colonial's knowledge, threatened,
before any agency, court or other Governmental Authority that relates to
Colonial, this Agreement, the Colonial Pipeline or any Related Facility.
(d) Colonial has not made a general assignment for the benefit of
creditors, filed any voluntary petition of bankruptcy or suffered the filing of
an involuntary petition by its creditors, suffered the appointment of a receiver
to take possession of substantially all of its assets, suffered the attachment
or other judicial seizure of substantially all of its assets, admitted its
inability to pay its debts as they come due, or made an offer of settlement,
extension or compromise to its creditors generally.
(e) Colonial shall promptly notify PTI of any matters pertaining to
any damage or threatened damage to or loss of any part of the Telecommunications
Network of which Colonial becomes aware.
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(f) Colonial shall respect PTI's right to use the Telecommunications
Network. Colonial shall take all reasonable precautions against, and shall
assume liability for, subject to the terms herein, any damage to the
Telecommunications Network caused by Colonial or any of Colonial's employees,
officers, directors, contractors, agents, licensees and/or concessionaires, as
applicable (collectively, the "Colonial Parties").
(g) Colonial agrees to cooperate with and support PTI in connection
with the compliance with any government requirements issued by any Governmental
Authority and applicable to the Telecommunications Network.
(h) Except as expressly stated in Subsections 10.1(a)-(g) above,
Colonial makes no warranty to PTI or any other person or entity, whether
express, implied or statutory, as to the description, quality, merchantability,
completeness or fitness for any purpose of the Colonial Rights-of-Way
(including, without limitation, for the purposes for which PTI may use the
Colonial Rights-of-Way hereunder), or as to any other matter, all of which
warranties are hereby excluded and disclaimed.
ARTICLE XI
INDEMNIFICATION; LIMITATION OF LIABILITY
11.1 Indemnification by PTI. PTI hereby indemnifies and holds harmless
Colonial, the Colonial Parties and Colonial's affiliates and shareholders and
their respective employees, officers, directors, contractors, agents, licensees
and concessionaires (collectively, the "Colonial Indemnified Parties") from and
against any liability, loss, damage, claim or cause of action of any kind or
nature (including damage to property and injury to or death of persons) whether
actual or alleged, or payments to any person in compromise of settlement
thereof, whether or not liability has been shown or can be known, and any costs
or expenses in connection therewith (including, without limitation, reasonable
court costs, costs of litigation and attorneys' fees and expenses incurred in
enforcing same) arising out of or in connection with PTI's use of the leasehold
rights granted herein (but only to the extent such claims do not arise from the
negligence, gross negligence or willful misconduct of a Colonial Indemnified
Party), including, without limitation:
(a) third party claims, or any death or personal injury to, or loss
or damage to any property of, a Colonial Indemnified Party, to the extent
any of the foregoing is caused in whole or in part by the presence of the
Telecommunications Network on any portion of the Colonial Rights-of-Way or
at any Related Facility or the performance of any PTI Work or PTI Operation
and Maintenance Services by PTI or any PTI Parties on or along the Colonial
Rights-of-Way or at any Related Facility;
(b) penalties, fines or forfeitures imposed by any Governmental
Authority arising out of any failure or refusal by any PTI Party to comply
with Applicable Laws applicable to the installation, operation, use,
maintenance or repair of the
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Telecommunications Network (including, without limitation, any inadvertent
effect the same may have on the Colonial Pipeline or any Related Facility);
and
(c) any other liability arising out of or resulting from the acts or
omissions, negligent or otherwise, of any PTI Party or in connection with a
breach by PTI of any of its obligations under this Agreement, including,
without limitation, liabilities arising out of PTI's failure to obtain
easement, license, lease or other Perfection Rights from any Landowner so
as to allow PTI to install, operate and maintain the Telecommunications
Network through designated Segments of the Colonial Rights-of-Way, it being
acknowledged, however, that nothing in this Subsection 11.1(c) shall limit
or restrict in any manner the obligations and restrictions contained in
Subsection 3.1(a) hereof.
11.2 Indemnification by Colonial. Colonial hereby indemnifies and holds
harmless PTI, the PTI Parties and PTI's affiliates and shareholders and their
respective employees, officers, directors, contractors, agents, licensees and
concessionaires (collectively, the "PTI Indemnified Parties") from and against
any liability, loss, damage, claim or cause of action of any kind or nature
(including damage to property and injury to or death of persons) whether actual
or alleged, or payments to any person in compromise of settlement thereof,
whether or not liability has been shown or can be known, and any costs or
expenses in connection therewith (including, without limitation, reasonable
court costs, costs of litigation and attorneys' fees and expenses incurred in
enforcing same) arising out of or in connection with Colonial's operation of the
Colonial Pipeline and the Related Facilities (but only to the extent such claims
do not arise from the negligence, gross negligence or willful misconduct of a
PTI Indemnified Party, including, without limitation:
(a) third party claims, or any death or personal injury to, or loss
or damage to any property of, a PTI Indemnified Party, to the extent any of
the foregoing is caused in whole or in part by the presence of the Colonial
Pipeline or the Related Facilities;
(b) penalties, fines or forfeitures imposed by any Governmental
Authority arising out of any failure or refusal by any PTI Party to comply
with Applicable Laws applicable to the installation, operation, use,
maintenance or repair of the Colonial Pipeline or any Related Facility
(including, without limitation, any inadvertent effect the same may have on
the Telecommunications Network; and
(c) any other liability arising out of or resulting from the acts or
omissions, negligent or otherwise, of any Colonial Party or in connection
with a breach by Colonial of any of its obligations under this Agreement.
11.3 Limitation of Liability. In no event will Colonial be liable to PTI
for any interruption of or interference with the Telecommunications Network
arising out of any cause whatsoever, except to the extent caused by Colonial's
gross negligence or willful misconduct.
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11.4 No Consequential or Special Damages. Neither party hereto will be
liable to the other for any incidental, punitive, indirect, consequential or
special damages suffered by the other, including lost profits, lost savings or
loss of use.
11.5 Legal Proceedings. If any action, suit or proceeding is brought
against a party to which any indemnity is described in Sections 11.1 or 11.2,
the indemnifying party, upon the request of the indemnified party, and at the
indemnifying party's expense, shall resist and defend such action, suit or
proceeding, or cause the same to be resisted and defended by counsel designated
by the indemnifying party and approved by the indemnified party. The obligations
of the indemnifying party under this Section 11.5 relating to any matter subject
to indemnification under this Agreement that occurs, arises, or accrues during
the Term shall survive the expiration or earlier termination of this Agreement.
The indemnified party, at its sole expense, also shall be entitled to appear,
defend or otherwise take part in the matter involved, at its election, by
separate counsel of its own choosing. The indemnifying party will not settle any
claim without the prior written approval of the indemnified party, which
approval shall not be unreasonably withheld or delayed. The indemnified party
will be entitled to settle any claim on terms it deems appropriate. The parties
will treat any settlement of any claim and the terms of the settlement as
confidential information.
ARTICLE XII
DEFAULT
12.1 Event of Default by PTI. Subject to the other provisions of this
Article XII, the occurrence of any of the following shall constitute an "Event
of Default" by PTI hereunder:
(a) Failure by PTI to make any payment owed to Colonial hereunder
within ten (10) days after written notice thereof is given to PTI by
Colonial;
(b) Failure by PTI to maintain any of the insurance coverage required
hereunder, or to pay any of the premiums to be paid with respect thereto,
and such failure continues for a period of fifteen (15) days after written
notice thereof is given to PTI by Colonial;
(c) PTI breaches or fails to perform, comply with or observe any
other term, covenant, warranty, condition, agreement or undertaking
contained in or arising under this Agreement other than those referred to
in Subsections 12.1(a) and (b) above, and such occurrence or failure
continues for a period of thirty (30) days after written notice thereof is
given by Colonial to PTI; provided, however, that if such default is a
non-monetary default and is not susceptible of being cured within said
thirty (30) day period, then no Event of Default shall occur hereunder if
PTI commences commercially reasonable efforts to cure such default within
such thirty (30) day period and diligently pursues the same to completion
within a reasonable time thereafter, not to exceed a total of one hundred
fifty (150) days;
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(d) The subjection of any right or interest of PTI under this
Agreement to attachment, execution or other levy, or to seizure under legal
process, if not released within sixty (60) days;
(e) PTI shall make an assignment for the benefit of creditors, file a
petition in bankruptcy, petition or apply to any tribunal for the
appointment of a custodian, receiver or any trustee for it or a substantial
part of its assets, or commence any proceedings under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or if there shall have been filed against PTI any such petition or
application, or any such proceeding shall have been commenced against it,
in which an order for relief is entered or which remains undismissed for a
period of ninety (90) days of more; or PTI, by any act or omission,
indicates its consent to, approval of or acquiescence in any such petition,
application or proceeding or order for relief or the appointment of a
custodian, receiver or any trustee for it or any substantial part of any of
its properties, or suffers any such custodianship, receivership or
trusteeship to continue undischarged for a period of ninety (90) days or
more; or
(f) PTI generally is unable to pay its debts as such debts become
due.
12.2 Effect of Arbitration. Notwithstanding the provisions of Section 12.1
hereof, if the Event of Default or the asserted default giving rise to same is
subject to arbitration pursuant hereto, and the existence of such Event of
Default or asserted default is being contested by the party assertedly in
default, then, if and so long as such party is cooperating and acting in good
faith to complete the arbitration proceeding with respect thereto as
expeditiously as possible, the time for curing such asserted default shall
commence upon the rendering of the arbitration decision with respect thereto, or
other resolution thereof, whichever occurs first.
12.3 Remedies of Colonial.
(a) In addition to all of the rights and remedies available to
Colonial by law or equity (other than termination of this Agreement which shall
be available as a remedy for an Event of Default only as provided in this
Section 12.3), at any time after the occurrence of any Event of Default on the
part of PTI:
(i) in the event that such Event of Default is a recurring
and/or flagrant breach of this Agreement and materially and adversely
affects the safety or operation of the Colonial Pipeline, Colonial shall
have the right to terminate this Agreement immediately upon written notice
to PTI; and
(ii) in the event that such Event of Default is not of the type
and nature described in clause (i) of this Subsection 12.3(a), but
constitutes a material breach of a material covenant of PTI under this
Agreement, Colonial shall have the right, upon written notice to PTI, to
suspend immediately all then pending and future installation, construction
and/or deployment of the Telecommunications Network on or about any
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Segment or applicable portion thereof with respect to which the Event of
Default has occurred until such time as the applicable Event of Default is
cured or PTI demonstrates to Colonial's reasonable satisfaction that PTI
has taken such steps and/or implemented such procedures so that the
particular Event of Default in question will not recur.
(b) In the event of any failure on the part of PTI to pay any
sum of money, or to do any act or to satisfy any of the obligations or covenants
that it is required to pay, do or perform under the provisions of this
Agreement, Colonial, at its option, after notice to PTI, may pay any or all of
such sums, or perform any or all of such acts, obligations or covenants or incur
any other expense whatsoever in order to remedy such failure on the part of PTI.
In such event, PTI shall reimburse Colonial for all costs and expenses of any
nature whatsoever incurred by Colonial in connection therewith, together with
interest at the Default Rate provided in Section 17.12 hereof, such interest to
be calculated from and after the date payment is made by Colonial or the expense
is incurred.
12.4 Effect of Termination. At the expiration of the Term or any earlier
termination of this Agreement, whether pursuant to this Article XII or
otherwise, all rights and privileges of PTI and all duties and obligations of
Colonial hereunder shall terminate. Within one hundred eighty (180) days
thereafter, PTI shall remove all above-ground facilities of the
Telecommunications Network and only such underground facilities that Colonial
reasonably requests be removed so as to avoid future interference with Colonial
pipeline operations; provided, however, that PTI may remove fiber optic cables
from within any Conduits (but not the actual Conduits) if such removal of fiber
optic cables may be performed without the use of heavy machinery in and about
the Colonial Rights-of-Way and without the need to dig or excavate within any
portion of the Colonial Rights-of-Way. Any facilities not removed within the
foregoing time period shall become the sole property of Colonial, free and clear
of any and all claims of PTI, without the payment of compensation or
consideration of any kind to PTI. Immediately upon such termination of the
Agreement, and without further notice to any other party, Colonial shall have
the right to assert, perfect, establish or confirm all rights reverting to
Colonial by reason of such termination by any means permitted by law. Subject
only to the rights and obligations of PTI to remove certain facilities as
described in the second sentence of this Section 12,4, and the continuing rights
of any bona fide third party purchasers or assignees who have complied with the
provisions of Subsections 15.1(c) or (d) hereof, as applicable, such rights
shall include, without limitation, the right to take possession of the property
leased to PTI hereunder, together with all improvements thereto, fixtures
therein and any other alterations or improvements that may have been made to the
property leased hereunder (including, without limitation, the Telecommunications
Network), with or without process of law, and to remove, at the option of
Colonial, any such items from the property licensed to PTI hereby, thereby
wholly terminating any right, title, interest or claim of or through PTI as to
such property. If Colonial exercises any such rights, it shall not incur any
liability to PTI for any damage caused or sustained by reason of such entry or
removal, except for damage resulting from Colonial's gross negligence or willful
misconduct in effecting such removal.
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12.5 Event of Default by Colonial.
(a) Subject to the other provisions of this Article XII, it shall be
an Event of Default by Colonial hereunder if Colonial shall be in breach of, or
Colonial shall fail to perform, comply with or observe any term, covenant,
warranty, condition, agreement or undertaking contained in or arising under this
Agreement and such failure continues for a period of thirty (30) days after
written notice thereof is given by PTI to Colonial; provided, however, if such
default is a non-monetary default and is not susceptible of being cured within
thirty (30) days, no Event of Default shall have occurred hereunder by Colonial
if it commences commercially reasonable efforts to cure such default within such
thirty (30) day period and diligently pursues the same to completion within a
reasonable time thereafter, not to exceed a total of one hundred fifty (150)
days.
(b) At any time after the occurrence of an Event of Default on the
part of Colonial, PTI may exercise any and all rights or remedies available to
PTI at law or in equity, subject only to any limitations expressly set forth in
this Agreement.
12.6 No Waivers. No failure by any party hereto to insist upon the strict
performance of any provisions of this Agreement or to exercise any right, power
or remedy consequent to any breach thereof, and no waiver of any such breach,
during the continuance thereof, shall constitute a waiver of any such breach or
of any such provision or otherwise be deemed to affect or alter this Agreement.
In any such event, this Agreement shall continue in full force and effect, and
the rights of any party hereto with respect to any other then-existing breach or
subsequent breach shall remain unaffected thereby.
12.7 No Remedy Exclusive. Except as expressly provided in this Article 12,
no remedy herein conferred or reserved to Colonial or PTI is intended to be
exclusive of any other available remedy or remedies, but each and every such
remedy shall be cumulative, and shall be in addition to every other remedy given
under this Agreement or now or hereafter existing at law or in equity or by
statute. The exercise of any right or remedy should not be construed as an
election of remedies and shall not preclude the right to exercise any other
right or remedy. No delay or failure to exercise any right or power accruing
upon any default or Event of Default shall impair any such right or power or
shall be construed to be a waiver thereof, but any such right and power may be
exercised from time to time and as often as may be deemed expedient. In order to
entitle Colonial or PTI to exercise any remedy reserved to Colonial or PTI in
this Article XII, it shall not be necessary to give any notice, other than such
notice as is herein expressly required by this Agreement.
12.8 Force Majeure. Neither party shall be in default under this Agreement
with respect to any delay in such party's performance, and all time periods
shall be deemed suspended, to the extent resulting from any of the following
conditions: act of God, fire, flood, material shortage or unavailability, lack
of transportation, compliance with Applicable Laws, war or civil disorder, or
any other cause beyond the reasonable control of such party, provided that the
party claiming relief under this Section 12.8 shall notify the other party
promptly in writing of the existence of the event upon which such relief is
claimed and further as to the cessation or
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termination of said event. The party claiming relief under this Section 12.8
shall exercise reasonable efforts to minimize the time for any such delay.
12.9 No Personal Liability. Each action or claim against any party arising
under or relating to this Agreement shall be made only against such party as a
corporation, and any liability relating thereto shall be enforceable only
against the corporate assets of such party. No party shall seek to pierce the
corporate veil or otherwise seek to impose any liability relating to, or arising
from, this Agreement against any shareholder, employee, officer or director of
the other party. Each of such persons is an intended beneficiary of the mutual
promises set forth in this Article XII and shall be entitled to enforce the
obligations of this Article XII.
ARTICLE XIII
VOLUNTARY REMOVAL OF TELECOMMUNICATIONS NETWORK
13.1 Removal of Telecommunications Network by PTI. Provided that an Event
of Default by PTI is not continuing to be in effect at such time, PTI may remove
any portion of the Telecommunications Network from any Segment (except for the
Colonial Conduit and any Regen Facility or other Related Facility that PTI has
made available for use by Colonial in connection with the Colonial Conduit, all
of which must remain in place and intact in all events) (it being acknowledged
herein that PTI has no obligation hereunder to provide any such Regen Facility
or Related Facility for Colonial's use), provided that as to underground
facilities, PTI will provide Colonial with written notice of its intention so to
remove, given (a) at least thirty (30) days prior to the date of such removal,
and (b) not less than one (1) year prior to the expiration of the Term. Such
notice also will state whether PTI intends to replace the underground portion of
the Telecommunications Network so removed. Upon the occurrence of an Event of
Default, PTI's rights of removal hereunder shall be suspended until such time as
such Event of Default has been cured.
ARTICLE XIV
ARBITRATION
14.1 Arbitration. In the event any dispute or disagreement arising between
Colonial and PTI in connection with this Agreement or the Fiber Optic Access and
Purchase Agreement is not settled to the mutual satisfaction of Colonial and PTI
within thirty (30) days from the date that either party informs the other in
writing that such dispute or disagreement exists, then either party may demand
arbitration by notifying the other party in writing (a "Notice of Arbitration")
in accordance with the notice provisions of Section 17.1. The Notice of
Arbitration shall describe the reasons for such demand, the amount involved, if
any, and the particular remedy sought.
14.2 Selection of Arbitrators. The parties shall attempt to agree upon a
single arbitrator; however, if the parties are unable to agree upon a single
arbitrator within fifteen (15) days after the Notice of Arbitration, then each
party shall select an arbitrator within five (5) Business Days of the expiration
of the initial fifteen (15) day period. Upon the appointment of the two
arbitrators, and before exchanging views as to the question at issue, said two
arbitrators
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so selected shall appoint in writing a third arbitrator within ten (10) days of
the selection of both of the first two arbitrators and shall give written notice
of such appointment to the parties. If the two arbitrators fail to appoint a
third arbitrator in a timely manner, then either party may apply to the United
States District Court for the Northern District of Georgia for the appointment
of such third arbitrator.
14.3 Qualified Arbitrator. Any arbitrator selected in accordance with
Section 14.2 shall be a natural person not employed by either of the parties or
any parent or affiliated partnership, corporation or other enterprise thereof
and shall be knowledgeable and experienced in the matters sought to be
arbitrated. In the event that the matter to be arbitrated deals with
construction or engineering issues, the arbitrator so appointed shall be
experienced and knowledgeable in the construction and engineering industry as it
relates to the nature of the structure to which such arbitration applies. In the
event any arbitrator selected as aforesaid thereafter shall die or become unable
or unwilling to act, such arbitrator's successor shall be selected in the same
manner provided in Section 14.2.
14.4 Arbitration Hearing; Discovery; Venue. The arbitration hearing shall
commence within thirty (30) calendar days of appointment of the single or third
arbitrator, as applicable, as described in Section 14.2. There shall be no
dispositive motion practice (such as motions for summary judgment or to dismiss
or the like) except as may be permitted by the arbitrators. All arbitration
shall be conducted in accordance with the rules of the American Arbitration
Association, except that discovery shall be permitted in accordance with the
Federal Rules of Civil Procedure. Venue of any arbitration hearing pursuant to
this Article XIV shall be in the metropolitan Atlanta, Georgia area. Each party
shall bear the cost of preparing and executing its own case.
14.5 Decision. The arbitrators' decision shall be made in no event later
than thirty (30) calendar days after the conclusion of the arbitration hearing
described in Section 14.4. The award shall be final and binding upon the parties
and shall include written findings of law and fact, and judgment may be entered
thereon by either party in any court having competent jurisdiction thereof. The
arbitrators may award specific performance of this Agreement. The arbitrators
may also require remedial measures as part of any award. The cost of the
arbitration, including the fees and expenses of the arbitrator(s), shall be
shared equally by the parties hereto unless the award otherwise provides.
14.6 Non-Binding in Certain Events. Notwithstanding any provision to the
contrary in this Article XIV, the obligation herein to arbitrate shall not be
binding upon any party with respect to requests for preliminary injunctions,
temporary restraining orders or other procedures in a court of competent
jurisdiction to obtain interim relief when deemed necessary by such court to
preserve the status quo or to prevent irreparable injury pending resolution by
arbitration of the actual dispute.
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ARTICLE XV
ASSIGNMENT
15.1 Assignment by PTI.
(a) Except as expressly provided in this Section 15.1 below, PTI
shall not assign or otherwise transfer this Agreement or its rights, covenants,
liabilities or obligations hereunder, in whole or in part, to any other party
without the prior written consent of Colonial. Nothing herein shall prohibit PTI
from involving strategic or co-development partners or customers in connection
with its performance hereunder, on such terms as PTI may determine in its sole
discretion, provided (i) all such activities are conducted in accordance with
the terms of this Agreement; (ii) PTI shall not be released from, and shall
remain fully liable to Colonial for all of its covenants, liabilities and
obligations hereunder and the acts or omissions of all parties claiming by,
through or under PTI; (iii) PTI remains the sole point of contact with Colonial;
and (iv) all activities of parties claiming by, through or under PTI on Colonial
Rights-of-Way are conducted under PTI's supervision.
(b) PTI shall have the right, without Colonial's consent, to assign
or otherwise transfer this Agreement (i) to any entity that, indirectly or
directly, is controlled by, controls or is under common control with PTI, or to
any entity into which PTI may be merged or consolidated or which purchases all
or substantially all of the assets of PTI; or (ii) as collateral in connection
with any financings by any lender; provided, however, that (x) any such
assignment or transfer described in this Subsection 15.1(b) shall be subject and
subordinate in all respects to this Agreement and to Colonial's rights as the
owner of the Colonial Rights-of-Way; (y) any such assignee or transferee
described in clause (i) above shall continue to perform PTI's obligations to
Colonial under the terms and conditions of this Agreement; and (z) any lender
described in clause (ii) above shall have the right to assume all (but not part)
of PTI's rights and obligations under this Agreement. In the event of any
permitted partial assignment of any rights hereunder or in any portion of the
Telecommunications Network, PTI shall remain the sole point of contact with
Colonial.
15.2 Assignment by Colonial. Colonial shall have the right to assign,
license or otherwise transfer this Agreement and/or its rights or obligations
hereunder as it pertains to a particular Segment (or discrete portion thereof)
of the Colonial Rights-of-Way, in connection with a sale or other transfer of
Colonial's rights within such Segment (or discrete portion thereof), to any
third party; provided, however, that any such assignment or transfer shall be
made subject to the terms and conditions of this Agreement and any such assignee
or transferee shall continue to perform Colonial's obligations to PTI under the
terms and conditions of this Agreement. Colonial also shall have the right,
without PTI's consent, to assign or otherwise transfer this Agreement and/or its
rights or obligations hereunder: (i) to any entity that, indirectly or directly,
is controlled by, controls or is under common control with Colonial, or to any
entity into which Colonial may be merged or consolidated or which purchases all
or substantially all of the assets of Colonial; or (ii) as collateral in
connection with any financings by any lender.
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15.3 Binding Upon Successors and Assigns. This Agreement and each of the
parties' respective rights and obligations under this Agreement, shall be
binding upon and shall inure to the benefit of the parties hereto and each of
their respective permitted successors and assigns.
ARTICLE XVI
CONFIDENTIALITY
16.1 Confidentiality. If either party provides confidential information to
the other in writing and it is identified as such, the receiving party shall
protect the confidential information from disclosure to third parties with the
same degree of care accorded its own confidential and proprietary information.
Neither party shall be required to hold confidential any information that (a)
becomes publicly available other than through the recipient; (b) is required to
be disclosed by a Governmental Authority or Applicable Law; provided, however,
that the information disclosed is limited to the existence and general nature of
the relationship between the parties, including, as required, the scope,
approximate revenues, purposes and expectations related to such relationship and
a description of any disputes relating thereto; (c) is independently developed
by the disclosing party; or (d) becomes available to the disclosing party
without restriction from a third party. These obligations shall survive any
expiration or termination of this Agreement.
ARTICLE XVII
MISCELLANEOUS
17.1 Notices. All notices, demands, requests, or other writings delivered
pursuant to this Agreement shall be in writing and may be given personally or
may be delivered by depositing the same in the United States mail, certified,
registered or equivalent, return receipt requested, postage prepaid, properly
addressed, and sent to the following addresses:
If to Colonial: Colonial Pipeline Company
945 E. Paces Ferry Rd., N.E.
Atlanta, GA 30326-0855
Attention: General Counsel
Fax: 404-841-2315
with a copy to: Arnall Golden & Gregory, LLP
1201 West Peachtree Street, Suite 2800
Atlanta, Georgia 30309-2450
Attention: Donald I. Hackney, Jr., Esquire
Fax: 404-873-8639
If to PTI: Pathnet Telecommunications, Inc.
1661 Gateway Boulevard
Richardson, Texas 75080
Attention: Senior Vice President, Engineering
Fax: 972-231-9728
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with a copy to: Pathnet Telecommunications, Inc.
1015 31st St., N.W.
Washington, D.C. 20007
Attention: General Counsel
Fax: 202-625-7369
or to such other address as either party may from time to time designate by
written notice to the other party. Notices given by mail as aforesaid shall be
deemed received and effective as of the first Business Day following such
dispatch; provided, however, that if any such notice or other communication also
shall be sent by telecopy or fax machine, such notice shall be deemed given at
the time and on the date of machine transmittal if the sending party receives a
written send verification on its machines and forwards a copy thereof with its
mailed or courier delivered notice or communication.
17.2 No Partnership. Nothing contained herein or in any instrument relating
hereto shall be construed as creating a partnership or joint venture between
Colonial and PTI or between Colonial and any other party, or cause Colonial to
be responsible in any way for the debts or obligations of PTI or any other
party.
17.3 Time of the Essence. Time is hereby expressly declared to be of the
essence of this Agreement and of each and every term, covenant, agreement,
condition and provision hereof.
17.4 Entire Agreement. Except for the Services Agreement and the Fiber
Optic Access and Purchase Agreement, this Agreement constitutes the entire and
final agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior agreements relating to the
subject matter hereof, which are of no further force or effect. The Exhibits
referred to herein are integral parts hereof and are hereby made a part of this
Agreement.
17.5 Captions. The captions of this Agreement and the table of contents
preceding this Agreement are for convenience and reference only, and are not a
part of this Agreement, and in no way amplify, define, limit or describe the
scope or intent of this Agreement, nor in any way affect this Agreement.
17.6 Meaning of Terms. Words of any gender in this Agreement shall be held
to include any other gender and words in the singular number shall be held to
include the plural when the sense requires.
17.7 Agreement Construed as a Whole. The language throughout this Agreement
shall be construed as a whole according to its fair meaning and neither strictly
for nor against Colonial or PTI.
17.8 Severability. If any provision of this Agreement or the application
thereof to any person or circumstances shall to any extent be invalid or
unenforceable, the remainder of this Agreement, or the application of such
provision to persons or circumstances other than those as to
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which it is invalid or unenforceable, shall not be affected thereby, and each
provision of this Agreement shall be valid and shall be enforced to the fullest
extent permitted by law.
17.9 Survival. Each provision of this Agreement that may require the
payment of money by, to or on behalf of Colonial or PTI or third parties after
the expiration of the Term hereof or its earlier termination shall survive such
expiration or earlier termination.
17.10 Amendment. This Agreement may be modified or amended only in writing,
signed by a duly authorized officer of both Colonial and PTI.
17.11 Attorneys' Fees. In any proceeding or controversy associated with or
arising out of this Agreement or a claimed or actual breach thereof, or in any
proceeding to recover the possession of the property leased hereunder, the
prevailing party shall be entitled to recover from the other party as a part of
the prevailing party's costs, reasonable attorney's fees, the amount of which
may be fixed by the court and may be made a part of any judgment rendered. For
the purposes of this Agreement, the term "reasonable attorneys' fees" shall mean
legal fees actually incurred by a party at the normal and customary hourly rates
of attorneys experienced in the area of law in dispute and shall not be based
upon a percentage of any amount of any judgment, notwithstanding any statutory
or other presumption to the contrary.
17.12 Interest. Except as otherwise specifically provided herein, any
amounts due from one party to the other pursuant to the terms of this Agreement,
including amounts to be reimbursed one to the other, shall bear interest from
the due date or the date the right to reimbursement accrues at (a) the rate
published or publicly announced most recently prior to such date as the lowest
rate charged by [_____________________], or its successor, for commercial,
short-term unsecured loans, plus (b) two percent (2%) (such sum being referred
to herein as the "Default Rate"); provided, however, that such Default Rate
shall not exceed, in any event, the highest rate of interest which may be
charged under Applicable Law without the creation of liability for penalties or
rights of offset or creation of defenses. For purposes of interest calculations
unless otherwise provided herein, the due date of any amount or the date from
which a right to reimbursement accrues shall be deemed to be the date from which
interest accrues.
17.13 Governing Law. This Agreement shall be construed according to and
governed by the laws of the State of Georgia.
17.14 Business Days. For the purposes of this Agreement, a "Business Day"
shall mean a day on which banks are required to open for the conduct of banking
business at their principal offices under the laws of the State of Georgia. If
this Agreement provides for the performance of any obligation or the expiration
of any time period on or no later than a day that is not a Business Day, then
the applicable day of performance or expiration of the time period shall be
extended until the next succeeding Business Day.
17.15. Reference Date of Agreement. For reference purposes, the date of
this Agreement shall be the date on the first page hereof, irrespective of the
date Colonial or PTI actually executes this Agreement.
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17.16 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, and all such counterparts
together shall constitute one and the same agreement.
17.17 Exhibits. The Exhibits to this Agreement are:
EXHIBIT DESCRIPTION
------- -----------
Exhibit A System Map
Exhibit B Form of Segment Lease
Exhibit C Form of Right-of-Way Permit
Exhibit D Currently Perfected Segments
Exhibit E General Colonial Construction Standards
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IN WITNESS WHEREOF, Colonial and PTI have executed this Agreement as of the
day and year first above written.
COLONIAL:
COLONIAL PIPELINE COMPANY,
a Delaware corporation
By:
----------------------------------
Name:
----------------------------
Its:
----------------------------
[CORPORATE SEAL]
PTI:
PATHNET TELECOMMUNICATIONS, INC.,
a Delaware corporation
By:
----------------------------------
Name:
----------------------------
Its:
----------------------------
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EXHIBIT A
SYSTEM MAP
(Map of Colonial System)
[to be agreed to by the parties]
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EXHIBIT B
FORM OF SEGMENT LEASE
- --------------------------------------------------------------------------------
SEGMENT LEASE
THIS SEGMENT LEASE (the "Segment Lease"), made this ____ day of
____________, ____, between COLONIAL PIPELINE COMPANY ("Lessor") and PATHNET
TELECOMMUNICATIONS, INC. ("Lessee").
W I T N E S S E T H:
WHEREAS, Lessor and Lessee heretofore have entered into that certain
Master Right-of-Way Lease Agreement (the "Master Lease Agreement"), dated as of
______________, 1999;
WHEREAS, pursuant to the Master Lease Agreement, Lessee has executed
and delivered to Lessor a "Designation Notice", conforming in form and
substance to the requirements of said Master Lease Agreement;
WHEREAS, said Designation Notice describes a "Segment" of the
"Colonial Rights-of-Way", which Segment is more particularly described on
Exhibit A attached hereto and incorporated herein; and
WHEREAS, Lessor and Lessee desire to enter into this Segment Lease
Agreement, in accordance with the terms of the Master Lease Agreement, in order
to evidence the leasing of the Segment to Lessee, subject to all of the terms
and conditions hereof and in the Master Lease Agreement.
NOW, THEREFORE, for and in consideration of the covenants contained
herein, the sum of Ten and No/100 Dollars ($10.00), and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Lessor and Lessee hereby agree as follows:
1. All capitalized terms used herein and not otherwise defined herein
shall have the same meaning as ascribed to such terms in the Master Lease
Agreement.
2. Subject to Section 4 hereof, Lessor hereby leases to Lessee the
Segment on the terms and conditions contained herein and in the Master Lease
Agreement.
3. The term of this Segment Lease shall commence on the date hereof
and, if not otherwise terminated in accordance herewith or in accordance with
the Master Lease Agreement, shall terminate at the expiration of the "Term".
<PAGE> 44
4. The parties hereto acknowledge that, after completion of the
"Perfection Process" with respect to the Segment, Lessor shall execute and
deliver to Lessee a "Permit" for the Segment, in substantially the form set
forth on Exhibit C to the Master Lease Agreement. Notwithstanding any other
provision herein to the contrary, the parties hereto further acknowledge and
agree that, upon the issuance of such Permit with respect to the Segment
described herein, this Segment Lease shall terminate automatically, without the
requirement of any additional action or documentation on the part of either
party, with respect to all portions of the Segment for which Lessee is not
granted specific rights to use under the terms of the applicable Permit.
5. The Master Lease Agreement shall govern and control the use of the
Segment and, upon the issuance of the Permit, the applicable portion of the
Segment described therein. Lessor and Lessee shall comply with all obligations
contained in the Master Lease Agreement that apply to the Segment or the
applicable portion thereof and Lessor and Lessee shall have all rights and
remedies contained in the Master Lease Agreement with respect thereto. Without
limiting in any way the foregoing, Lessee shall not have the right to commence
any "PTI Work" until compliance by Lessee with the applicable provisions of
Sections 3.1 and 3.2 of the Master Lease Agreement.
6. In the event of any inconsistency between any of the terms hereof
and any of the terms of the Master Lease Agreement, the applicable terms of the
Master Lease Agreement shall govern and control.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
this ___ day of _______________, _______________.
LESSOR:
COLONIAL PIPELINE COMPANY
By: __________________________________
Its: __________________________________
[CORPORATE SEAL]
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<PAGE> 45
LESSEE:
PATHNET TELECOMMUNICATIONS, INC.
By: __________________________________
Its: __________________________________
[CORPORATE SEAL]
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<PAGE> 46
EXHIBIT A TO FORM OF SEGMENT LEASE
Description of Segment
[to be agreed to by the Parties]
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<PAGE> 47
EXHIBIT C
FORM OF RIGHT-OF-WAY PERMIT
LEGAL DESCRIPTION OF RIGHT-OF-WAY
Colonial right-of-way of ________________ (INSERT ACCURATE LEGAL DESCRIPTION)
referenced in Segment Lease dated __________ (the "Segment Lease"). Beginning
approximately at Colonial Location No. ___________ and ending approximately at
Colonial Location No. ___________ for a total distance of approximately ______
miles and as further described on attached as-built survey drawings provided by
PTI.
SPECIAL CONDITIONS ON USE OF RIGHT-OF-WAY
Notwithstanding the terms of the Segment Lease, PTI shall have the right to use
only such portions of the Segment that are the subject of the Segment Lease as
are specifically described hereinbelow. PTI telecommunication lines, cables,
conduits and other similar equipment and facilities shall be installed in
conformity with the plans mutually approved by the parties prior to
construction. In general, the specifications anticipate a minimum separation
of ten feet (10') between the telecommunications lines and the nearest Colonial
pipeline. Where the existing right-of-way provides more than fifteen feet
(15') between the Colonial right-of-way boundary and the nearest Colonial
pipeline, the telecommunication lines shall be built five feet (5') from the
edge of the Colonial right-of-way. Said routing is preliminarily depicted as
shown on attached construction drawings and as-built survey drawings provided
by PTI. It is understood that PTI will need as workspace a strip of land
approximately ____ feet (____') in width in which to perform construction work
and that, upon completion of such work, PTI will restore the right-of-way in
accordance with the agreements between Colonial and the Landowners and in
accordance with the Colonial post-construction grassing specifications, but
under no circumstances shall restoration result in the condition of the subject
land being less favorable to the underlying Landowner than the condition
existing prior to such work. Depth of installation, which shall be at least
thirty-six inches (36"), and the determination as to the side of the Colonial
right-of-way on which installation shall occur must be addressed and PTI must
give advance notice to Colonial of the time and place of any construction.
Colonial shall have the right to observe and inspect all construction within
any Colonial right-of-way. All construction work shall be completed within
_________ (____) days of the date hereof and shall be performed lien free and
upon completion of construction PTI shall deliver a final affidavit and lien
waivers from all contractors, subcontractors and other persons performing work
or supplying material or equipment.
<PAGE> 48
ACKNOWLEDGMENT
Colonial and PTI acknowledge that they intend for this Permit to be
incorporated into the Master Right-of-Way Lease Agreement between the parties
dated ____________, 1999 and that this Permit hereby modifies the aforesaid
Segment Lease by limiting the description of the right-of-way leased thereby to
the specific property described herein. The effective date of this Permit is
the last date on which this Permit was signed by either party, as indicated
below.
COLONIAL PIPELINE COMPANY, PATHNET TELECOMMUNICATIONS,
a Delaware corporation INC., a Delaware corporation
By: By:
------------------------- -------------------------
Its: Its:
------------------------ ------------------------
Date: Date:
----------------------- -----------------------
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EXHIBIT D
Currently Perfected Segments
Listed below are the segments of the Colonial Rights-of-Way that have been
perfected(1) by Colonial for telecommunications purposes as of the date of this
Agreement:
1. Americus Delivery Facility to Bainbridge Deliver Facility - Locations
0515:001 to 0515:098 in Sumter and Dougherty Counties, Georgia, and
Locations 0516:001 to 0516:114 in Dougherty, Mitchell, Baker and Decatur
Counties, Georgia.
2. Dorsey Junction to South Baltimore Delivery Facility - Locations 1007:001
to 1007:176; Locations 1008:001 to 1008:069; and Locations 1010:070 to
1010:176, in Carroll, Howard, Anne Arundel and Baltimore Counties,
Maryland.
3. Dorsey Junction to Curtis Bay Delivery Facility - Locations 1007:001 to
1007:171, in Carroll, Howard and Anne Arundel Counties, Maryland.
4. Dorsey Junction to Baltimore-Washington Airport Delivery Facility -
Locations 1008:001 to 1008:069 and Locations 1012:001 to 1012:011, in
Carroll, Howard and Anne Arundel Counties, Maryland
5. Dorsey Junction to Washington Delivery Facility - Locations 1009:001 to
1009:026 and Locations 1501:026A to 1501:163, in Carroll, Howard,
Montgomery and Prince George's Counties, Maryland and in the District of
Columbia.
6. Dorsey Junction to Finksburg Delivery Facility - Locations 1009:001 to
1009:052, in Howard and Carroll Counties, Maryland.
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(1) Segment 1 above is substantially perfected. In some cases, parcels were
omitted because of unreasonable difficulties that suggested alternate routing
within road rights-of-way that were left unpermitted until construction was
scheduled. In Segments 2 through 6 above, 140 out of 257 parcels contained
telecommunications provisions. Location numbers refer to Colonial's system of
numbering and identification.
<PAGE> 50
EXHIBIT E
GENERAL COLONIAL CONSTRUCTION STANDARDS
A. GENERAL DESCRIPTION OF PROJECT - PROTECTION OF UNDERGROUND PIPELINES
FROM FIBER OPTICS INSTALLATION
This project consists of the protection of underground petroleum pipelines from
a third party's installation of fiber optics cables and related facilities
within the pipeline right of way. These specifications govern all such
installations regardless of their location, rural or urban, regardless of the
width of the right of way, the depth or size of the pipelines, or the size of
the proposed fiber optic conduits.
These specifications are designed to be made a part of any agreement between
Colonial and the fiber optic party encroaching on the pipeline right of way,
its construction contractor and any entity contracted to perform utility
location or inspection services for the benefit of either party (collectively,
the "Company").
B. THE PARTIES ARE CAUTIONED AS FOLLOWS
B.1. The underground pipeline which is the subject of the protective
measures described herein is a carrier of a hazardous and highly volatile
liquid under high pressure. Damage to the pipeline must be avoided in all
circumstances and at any cost. Personal injury and loss of life are not
unlikely if fiber optic construction equipment comes in contact with the
pipeline. Serious damage to property and the environment in the magnitude of
the highest order are a certainty if a leak results from damage to the
pipeline. Damage to the pipelines from such third party installation might
result in an immediate rupture or are likely to weaken the pipeline to the
extent that a leak is inevitable. In either event the resulting damage to the
property and the environment is usually catastrophic.
B.2. The Company, its contractors, agents and subcontractors shall
indemnify, defend and hold Colonial harmless for all injury to all persons or
property, loss and damage resulting from a leak caused directly or indirectly
from installation of the fiber optic facilities contemplated hereunder, and any
direct or indirect consequences therefrom, whether such injury to the pipeline
was caused by negligence, recklessness, or willful misconduct or by a failure
to protect the pipeline as described in these specifications.
B.3. The herein obligations of the Company shall continue for so long
as a pipeline remains within the right of way easement, and shall not be
extinguished upon the sale, assignment or removal of the fiber optic
facilities, and such obligations shall be binding upon up the successors and
assigns of the Company
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<PAGE> 51
C. PRE-CONSTRUCTION REQUIREMENTS
C.1. Subsequent to Colonial providing data regarding its easements,
title, pipeline location and survey, the Company shall coordinate with
Colonial's Right of Way and Engineering departments throughout its title
confirmation, route survey and rights acquisition activities.
C.2. Upon completion of work in C.1, the Company shall prepare
alignment sheets, ownership and construction line lists, and work plans
necessary to prosecute the work described below.
C.3. Among other things, the line lists shall include landowner names,
tenants, special construction provisions, and Colonial shall preview all
instrument forms used to perfect the rights required to install the fiber optic
facilities.
C.4. Among other things, the alignment sheets shall include: the width
of Colonial's easement, the location of Colonial's pipelines, the proposed
location of the Company's facilities and the proposed construction work space
limits and distances of separation of same with pipelines and easement
boundaries.
C.5. Among other things, the work plans shall include a detailed list
of construction procedures, contractors and equipment. Colonial shall be given
the opportunity to preview the Company's proposed construction contracts,
provide comments and recommendations, whereupon the Company shall cooperate
with Colonial to remove all items denoted as "in conflict" with the safety of
Colonial's pipelines, as determined in Colonial's sole and absolute discretion.
Colonial shall inspect and approve all final installations, specifications and
route maps prior to commencing fiber optic installation within its right of way
easements.
C.7. Prior to commencement of construction activities, the Company
shall provide Colonial with a list of all successful bidders contracted to
perform any and all work in prosecution of its construction, as well as the
names of employees and personnel in supervisory positions assigned to such
activity.
C.8. Upon approval of the specifications, Colonial shall furnish a
copy of its detailed encroachment requirements for all phases of fiber optic
line co-location within Colonial's easements. These requirements shall include
but not be limited to: ditching; placement of backfill, replacement of
backfill; tamping and compaction; rock excavation; blasting; road, railroad or
water crossings by trenching, boring, jacking and/or directional drilling; soil
erosion and sedimentation control; equipment traffic paralleling and crossing
the pipeline(s), including requirements for earthen padding, when and how much
is needed; notification; inter-Company communication and landowner relations. A
guided boring head shall be used when boring, jacking or directional drilling
is performed.
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<PAGE> 52
C.9. Colonial and the Company shall compare operating and maintenance
manuals, and revisions shall be made to include the presence of each other's
facilities and what measures shall be taken to protect the other's facilities,
including emergency response procedures and notification instructions.
C.10. All inspectors used to ensure that the installation is performed
to Colonial's standards as expressed herein shall be chosen and trained by
Colonial. Colonial shall provide the Company with a list of its inspection
personnel, and the Company shall submit any objections or suggestions about the
deployment of such personnel and their roles as described below.
D. COMPANY EQUIPMENT EMPLOYED TO INSTALL THE FIBER OPTIC FACILITIES
D.1. The Company shall list and describe all equipment and machinery
which shall be used to construct and install the fiber optic facilities.
D.2. Colonial shall be given the opportunity to review the impact of
the proposed equipment and machinery and amend these specifications to account
for any equipment not anticipated at the time of this Agreement.
D.3. The Company shall make its best efforts to comply with any
Colonial suggestions regarding the use of said equipment and suggested safety
procedures, and cooperate with Colonial to resolve any conflicts ensuing
therefrom.
E. LANDOWNER RELATIONS
E.1. The Company shall include the following landowner relations
activities in prosecution of its construction activities:
(a) Provide personnel to conduct courtesy notifications
to landowners of impending construction activities;
(b) Make arrangements to protect and contain livestock
and other landowner animals and pets;
(c) Take down fences and replace same, repairing any
damage resulting therefrom;
(d) Conduct post construction cleanup activities,
including the reseeding of the construction work
space area with ground cover and erosion control
devices;
(e) Settlement of all off right of way damages, and the
payment of all construction damages not paid in
advance of construction.
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<PAGE> 53
F. SURVEYS AND MAPPING
F.1. The Company shall provide as-built survey personnel during
construction to document actual placement of all underground and above-ground
facilities.
F.2. Alignment sheets of the proposed routing shall be updated monthly
during construction and distributed to designated Colonial offices.
G. APPROVAL OF INSPECTOR
G.1. No fiber optic installation will be allowed to commence in any
Colonial right of way easement without the presence of a Colonial inspector and
such inspector's approval to proceed. Daily work permits shall be obtained from
Colonial for all crews performing excavation or installation within the
easement.
G.2. The inspector is charged with the responsibility of protecting
the pipelines, and any construction activity observed in violation of this
Agreement shall be communicated to the offending equipment operator or other
person acting in violation of this Agreement, whereupon the person performing
the offending activity shall immediately refrain from such activity.
G.3. Failure to refrain from the activity in violation of the terms of
this Agreement shall result in an immediate shut down of such activity until
the Company provides adequate reassurances that corrections have been made to
avoid further occurrence of said activity.
G.4. Failure to observe a shut down order by an inspector shall result
in a breach of this Agreement and subject the Company to the penalties
described in this Agreement under Article ____.
H. LOCATING AND FLAGGING THE FACILITIES, AND MARKING THE CONSTRUCTION
LIMITS
No fiber optic installation will be allowed to commence in any Colonial right
of way easement without the marking of the centerlines of all of Colonial's
existing pipelines and appurtenances, as well as the flagging of the route of
the fiber optics lines and the limits of the construction work space.
H.1. Locating the pipelines shall be accomplished by utilizing a
Metrotech model 810 inductive type finders or equivalent, in the conductive
mode, supported by metal rods probing at the placement of every stake, and then
confirming the location by finding the top of the pipe with a probe rod.
Probing shall only be performed by Colonial personnel, unless approved and
inspected by Colonial's inspector.
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H.2. Flagging stakes on the centerline of the nearest pipeline shall
be made of three-foot (3') wood lathing with red ribbon flagging and shall be
placed at intervals not exceeding fifty feet (50') separation and at all
pipeline P.I. all fence crossing, road and railroad right of way limits and at
all waterway high water marks, along with spray painting of the ground where
the stake enters the earth's surface. Pipeline centerline stakes and fiber
optic line stakes shall be labeled with station numbers at foreign line
crossings, property lines, and the limits of all crossing easements and flagged
with a contrasting color from interval stakes. If pipeline station numbers do
not correspond with Colonial alignment sheets, the route surveyor shall notify
Colonial's inspector and make note of discrepancies on a set of Colonial
alignment sheets designated for changes in surface observations. The pipeline
right of way shall be clear cut or mowed to allow visibility of staking.
Replacement of all stakes is mandatory should they disappear prior to fiber
optic installation.
H.3. The boundary of the work space closest to the pipelines shall be
staked with optic yellow, continuous police-type ribbon draped from stake to
stake, each stake exceeding three feet (3') above ground.
H.4. The centerline of the fiber optic lines shall be staked at
intervals not exceeding fifty feet (50') separation and shall be marked with
optic orange flagging.
H.5. All pipelines must be located to ensure that the pipeline closest
to the proposed installation is identified, however, the Company is required to
flag only the closest pipeline.
I. CONSTRUCTION AND SAFETY
I.1. Placement - All linear fiber optic lines shall be installed near
the outer limits of Colonial's easements, and under no circumstances will
Colonial approve the installation of linear fiber optic lines within ten feet
(10') of the centerline of any of its pipelines.
I.2. If the existing width of Colonial's easement is insufficient to
provide a 10-foot separation, then an easement modification or an new easement
must be acquired.
I.3. Copies of any easement modification or new easements shall be
provided to Colonial prior to commencing installation of the fiber optic lines.
I.4. Machinery and equipment shall only be allowed to cross or travel
across Colonial's pipelines within designated crossing lanes that have been
built up with extra earth padding and/or other protection as approved by
Colonial's inspector. No other work shall be permitted on top of or above
Colonial's pipelines without a written work variance authorization executed by
Colonial's chief engineer, and accompanied by a written description of the work
to be performed.
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I.5. No longitudinal vehicle and equipment traffic over Colonial's
pipelines will be permitted.
I.6. Colonial does not require the installation of fiber optic lines
be at a certain depth, provided, however, that where a crossover is necessary
(a crossover meaning the need to move the fiber optic lines from one side of
Colonial's easement to the other) the fiber optic lines shall be encased in
steel the entire distance of the crossover, and they shall always cross below
Colonial's lines at a minimum clearance of 24 inches. When crossing any
Colonial pipeline, the pipeline crossing location shall be excavated to the
extent that the crossing can be observed without obstruction, and all
excavation within five feet (5') of the outer wall of a pipeline shall be
performed by hand tools, unless authorized by the Colonial inspector. All
crossovers shall be made as near as practical to the perpendicular (90
degrees). The number of crossovers shall be held to an absolute minimum.
I.7. Any surface altering equipment necessary for the installation of
the communication facilities will only be permitted subsequent to the approval
of individual site plans. All installations within Colonial facility property
shall be permitted subsequent to locating all underground pipeline facilities
by Metrotech pipe finders, probing and hand digging to visually spot the
facilities. Any clearing and grading within the easement area shall only be
performed in the presence of a Colonial inspector.
I.8. The installation of cables, conduits, fibers, equipment,
appurtenances and all other facilities, whether above or below ground, shall be
located no less than ten feet (10') from the centerline of any Colonial
pipeline in its right of way, which shall be extended to a minimum distance of
no less than twenty feet (20') at all road and water crossings or in any other
circumstance where installation requires boring or drilling or where soil
conditions dictate.
I.9. No installation shall proceed without the presence of a Colonial
inspector on site and in a position to observe the installation activity.
I.10. No installation shall proceed without the presence of staking
and flagging as described in Section H above.
J. POST-CONSTRUCTION DELIVERABLES
J.1. Within six months of completion of the installation contemplated
herein the Company shall provide Colonial:
(a) "as built" alignment sheets and survey, indicating the
location of fiber optic installations, the depth of the fiber optic facilities
were buried, the distances to the nearest Colonial pipelines, Colonial
stationing and reference to Colonial's alignment sheets; and
(b) updated title information and line lists.
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<PAGE> 1
Portions of this exhibit have been omitted and filed separately with the
Securities and Exchange Commission. These portions are designated "[ * * * ]".
Exhibit 10.8
FIBER OPTIC ACCESS AND PURCHASE AGREEMENT
This FIBER OPTIC ACCESS AND PURCHASE AGREEMENT ("Agreement") is entered
into as of this ___ day of ______________, 1999 between PATHNET
TELECOMMUNICATIONS, INC., a Delaware corporation ("PTI") and COLONIAL PIPELINE
COMPANY, a Delaware and Virginia corporation ("Colonial").
WHEREAS, Colonial and PTI have entered into that certain Contribution
Agreement dated _______________, 1999 (the "Contribution Agreement"), pursuant
to which, among other things, Colonial has agreed to contribute certain assets
to PTI and PTI has agreed to issue certain shares of stock to Colonial, as more
particularly described therein;
WHEREAS, contemporaneous herewith, Colonial and PTI have entered into the
Lease pursuant to which, subject to the terms and conditions of such Lease and
this Agreement, Colonial has leased to PTI specified portions of the Colonial
Rights-of-Way to be designated, from time to time, in order to permit PTI to
construct, install, operate, maintain, replace, reconstruct, remove and/or
relocate (collectively, "Construct or Operate") a Telecommunications Network (as
hereinafter defined);
WHEREAS, Colonial and PTI have entered into the Lease on the condition that
PTI and Colonial agree to certain additional terms regarding PTI's
Telecommunications Network as described herein; and
WHEREAS, Colonial also desires to purchase from PTI, and PTI also desires
to sell to Colonial, a Conduit within PTI's Telecommunications Network, on the
terms and conditions described herein.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and promises of the parties and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. Definitions.
For purposes of this Agreement, the following terms shall have the meanings
set forth below:
(a) "Affiliate" shall mean an entity that, directly or indirectly, is
controlled, under common control with, or controls another entity, or
the successor to an entity by merger or purchase of all or
substantially all of such entity's stock or assets.
(b) "Colonial Conduit" shall be defined as provided in Section 7 hereof.
(c) "Colonial Rights-of-Way" shall have the meaning ascribed to such term
in the Lease.
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<PAGE> 2
(d) "Colonial System" shall have the meaning ascribed to such term in the
Lease.
(e) "Conduits" shall have the meaning ascribed to such term in the Lease.
(f) "Designated Affiliate" shall mean the entities named in Exhibit B,
attached hereto and incorporated by reference herein.
(g) "Disposition" in reference to the Colonial Conduit or to any
telecommunications capacity shall mean the sale, assignment, barter,
swap, lease, license, sub-license, making available to, or other
transfer or grant of rights therein or in respect thereof, and the
terms "Dispose" and "Disposed" shall be interpreted accordingly.
(h) "Landowner" shall have the meaning ascribed to such term in the Lease.
(i) "Lease" shall mean that certain Master Right-of-Way Lease Agreement
entered into by Colonial and PTI in substantially the form attached as
Exhibit A hereto.
(j) "Lease Date" shall mean the date on which the Lease is executed and
becomes binding and effective on the parties thereto.
(k) "Restriction Release Date" shall mean the earlier of the date (i)
which is five (5) years following the Lease Date; or (ii) on which
PTI makes an assignment for the benefit of creditors, files a
voluntary petition in bankruptcy, or an involuntary petition in
bankruptcy is filed against PTI (unless such petition is dismissed or
stayed within ninety (90) days).
(l) "Segment" shall have the meaning ascribed to such term in the Lease.
(m) "Telecommunications Network" shall mean a network or other
communications system capable of transmitting voice, data, images or
other information over strands of optical fiber, copper wire, radio
waves, or other transmission media.
2. Right to Lease. Upon the closing of the transaction contemplated by
the Contribution Agreement, PTI and Colonial shall enter into the Lease and all
other documentation reasonably necessary to more fully effectuate the terms
thereof.
3. Limited Exclusivity. Except with respect to the Colonial Conduit
(which can be commercialized or used in accordance with the provisions of
Section 7 below) and as otherwise contemplated hereunder and in the Lease, for a
period of ten (10) years following the Lease Date:
(a) Colonial shall not, directly or indirectly, lease to, license to,
make available to, or otherwise permit the use of by any other party,
including, without limitation, any Affiliates of Colonial, any portion of
the Colonial Rights-of-Way for the Construction or Operation of a
Telecommunications Network; and
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<PAGE> 3
(b) Colonial shall not, directly or indirectly, use or permit the use
of any portion of the Colonial Rights-of-Way for the Construction or
Operation of a Telecommunications Network.
The foregoing restrictions shall not apply to any portion of the Colonial
Rights-of-Way that reverts to Colonial pursuant to Section 1.4 of the Lease.
4. Provision of Telecommunications Capacity to Colonial. Subject to
availability, as determined by PTI from time to time in its reasonable
discretion and taking into account the reasonably anticipated level of traffic
on PTI's Telecommunications Network, Colonial shall have the right to purchase
telecommunications capacity on PTI's Telecommunications Network at the best
price and terms that such capacity has been or is being offered by PTI to its
preferred customers. The foregoing telecommunications capacity may not be used
in any manner that competes with PTI or its Affiliates, including, without
limitation, used for any purpose other than for the internal communications
purposes of Colonial and its Affiliates, and may not be Disposed of or used in
connection with any other Telecommunications Network or any other
telecommunications venture or business.
5. Compensation for Similar Transactions. If, at any time from the date
of this Agreement until [ * * * ], PTI and/or one of its affiliates or
successors shall enter into an agreement or other contractual relationship with
any Designated Affiliate pursuant to which PTI and/or one of its Affiliates or
successors shall have the right or license to use, lease or occupy all or
portions of the right-of-way of one or more of the Designated Affiliates for
development of a Telecommunications Network, PTI shall pay to Colonial a fee
equal to [ * * * ] per mile of right-of-way which is covered by each such
agreement or relationship. The payment of such fee shall be made within ten (10)
business days of the execution of such agreement or other contractual
relationship.
6. [INTENTIONALLY DELETED]
7. Purchase and Sale of Colonial Conduit.
(a) In addition to the transactions contemplated by the Contribution
Agreement, but simultaneously with the closing of such transactions, Colonial
shall pay to PTI the sum of Four Million Dollars ($4,000,000.00). In
consideration thereof, PTI agrees that along: (i) any Segment of the Colonial
Rights-of-Way in which PTI installs Conduits and in which Colonial's engineers
have determined that PTI can install eight (8) or more Conduits within such
Segment or applicable portion thereof; (ii) any Segment of the Colonial
Rights-of-Way in which PTI notifies Colonial that it desires to commercialize
and deploy less than all of the available Conduits permitted by Colonial within
such Segment (even if Colonial's engineers have determined that the installation
by PTI of at least eight (8) Conduits within such Segment or applicable portion
thereof is not commercially feasible because of pipeline integrity, pipeline
safety, engineering or construction reasons; and (iii) any other rights-of-way
acquired by PTI along the market corridor of the Colonial System that are
necessary as substitutions for or supplements to portions of the Colonial
Rights-of-Way in which PTI installs Conduits, PTI will
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<PAGE> 4
convey one such Conduit installed by PTI within any such Segment or substituted
area to Colonial for the exclusive use, ownership or control by Colonial, its
successors and assigns (as applicable, the "Colonial Conduit"); provided,
however, that Colonial shall be entitled to only 2200 miles of Colonial Conduit
in the aggregate.
(b) Colonial shall own and have full title to such Colonial Conduit
from and after the installation thereof within any such Segment or substituted
area, and PTI promptly thereafter shall execute such documents as shall be
reasonably required to evidence the title thereto vested in Colonial. PTI
covenants and agrees not to assign, mortgage, hypothecate, pledge, encumber,
permit a lien to be placed on, or otherwise transfer all or any portion of the
Colonial Conduit.
(c) Notwithstanding the foregoing Subsection 7(a), the parties hereto
agree and acknowledge that:
(i) (aa) in the event that Colonial's engineers have determined
that the installation by PTI of at least eight (8) Conduits within a
particular Segment or applicable portion thereof is not commercially
feasible because of pipeline integrity, pipeline safety, engineering or
construction reasons, and (bb) if PTI desires to commercialize and deploy
all of the available Conduits permitted by Colonial within such Segment,
then there will not be a Colonial Conduit available for the exclusive use
by Colonial within that Segment or the applicable portion thereof; and
(ii) as of the fifth (5th) anniversary of the Lease Date, PTI may
not have installed its Telecommunications Network (and, thus, the Colonial
Conduit) within Segments aggregating at least 2,200 miles of the Colonial
System.
In either of the circumstances described in clauses (i) and (ii) above, the
parties will negotiate in good faith to make available to Colonial, at no
charge, a suitable alternative to such Colonial Conduit, which alternative may
include the right to use fiber within a conduit, the right to an undivided
percentage interest in a conduit, and/or the right to use fibers or conduit on
other portions of PTI's network, in each case such alternative having a fair
market value comparable to such of the Colonial Conduit as shall have not been
provided. Within (x) six (6) months (if during the first year of this
Agreement), or (y) two (2) months (if after the first year of this Agreement)
after Colonial has knowledge that there will not be a Colonial Conduit
available in a particular Segment or portion of the Colonial System, Colonial
may deliver written notice to PTI (the "Equivalency Request Notice"),
designating the nature and type of equivalency that Colonial requests to
receive from and after the Restriction Release Date. If Colonial and PTI have
not agreed on the nature and type of such equivalency within thirty (30) days
after PTI's receipt of the Equivalency Request Notice, then either party may
institute arbitration proceedings in accordance with Section 14 of the Lease.
(d) Until the Restriction Release Date:
(i) the Colonial Conduit may not be used in any manner that
competes or facilitates competition with PTI or its Affiliates;
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<PAGE> 5
(ii) the Colonial Conduit may be used only for the internal
communications purposes of Colonial and its Affiliates; provided that,
although Colonial may be reimbursed by any such Affiliates for applicable
costs and expenses, Colonial may not earn a profit on such operations for
internal communications purposes; and
(iii) neither the Colonial Conduit, nor any optical fibers or
other communications media installed therein, nor any capacity on such
media, may be Disposed of or otherwise made available to third parties, or
(other than as set forth in item (ii) above) used in connection with any
Telecommunications Network or any other telecommunications venture or
business.
(e) From and after the Restriction Release Date, Colonial shall be
free to sell, assign, license or transfer the Colonial Conduit or any portion
thereof to any third party whatsoever, subject, however, to the provisions of
Section 8 below.
(f) Prior to the Restriction Release Date, PTI will maintain the
Colonial Conduit in the same manner as applies to PTI's maintenance activities
on the Colonial Rights-of-Way under the terms of the Lease so that such Colonial
Conduit is equal to or better in quality and capacity as the conduit in all
other portions of the PTI Telecommunications Network. After the Restriction
Release Date, PTI shall have no responsibility in connection with the
maintenance of the Colonial Conduit.
(g) From and after the date hereof, Colonial will be responsible for
all expenses (other than those described in Subsection 7(f) above) of operating
the Colonial Conduit for the purposes described Subsections 7(d)(ii) and 7(e)
above, as applicable. Furthermore, PTI shall not be responsible for any taxes
that are attributable to the existence and use of the Colonial Conduit by
Colonial; provided, however, that nothing herein shall be deemed to acknowledge
or imply that any taxes necessarily will be imposed upon or attributable to the
existence and use of the Colonial Conduit by Colonial.
8. Disposition of the Colonial Conduit.
(a) Subject to Subsection 8(d) below, PTI and its Affiliates shall
have a right of first refusal as to the Colonial Conduit as described in this
Subsection 8(a) (the "Right of First Refusal"). During the period beginning on
the Restriction Release Date and ending on the tenth (10th) anniversary of the
Lease Date, in the event that Colonial desires to Dispose of the Colonial
Conduit, in whole or in part, Colonial shall provide written notice to PTI
describing the terms of such Disposition, including the price of the
Disposition, the term of any lease or license, and the identity of the proposed
transferee (the "Notice of Terms"). Within sixty (60) days thereafter, PTI may
elect, upon written notice to Colonial, to accept the Disposition on the terms
described in Colonial's Notice of Terms. In the event that PTI so elects to
accept such Notice of Terms, Colonial shall Dispose of the Colonial Conduit to
PTI on the terms set forth in such Notice of Terms or on such other terms as
the parties may mutually agree. If PTI fails to make such election within such
sixty (60) day period, PTI shall be deemed to have declined the
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<PAGE> 6
opportunity to exercise its Right-of-First Refusal as proposed by Colonial in
the Notice of Terms.
(b) In the event that PTI declines or is deemed to have declined the
opportunity to exercise its Right of First Refusal, Colonial shall be free to
Dispose of the Colonial Conduit to the transferee proposed in the Notice of
Terms on terms not materially different than the terms so described in the
Notice of Terms, provided that if Colonial and the transferee fail to consummate
the Disposition within ninety (90) days of the date PTI declines or is deemed
to have declined the Right of First Refusal, then PTI will again have a Right
of First Refusal as to the portion of the Colonial Conduit described in the
Notice of Terms.
(c) Provided Colonial complies with the foregoing provisions, the
consummation of any Disposition of a portion of the Colonial Conduit will
extinguish PTI's Right of First Refusal as to such portion, unless the
Disposition is for a period that terminates prior to the tenth (10th) of the
Lease Date, in which event, upon expiration of such Disposition, PTI will again
have a Right of First Refusal as to such portion on the terms set forth in
Subsection 8(a) above.
(d) The foregoing Right of First Refusal shall apply only to the
extent that the Colonial Conduit or any applicable portion thereof is still in
the state in which it was received by Colonial (e.g., if fibers were provided
to Colonial in "dark" condition, then the Right of First Refusal will not apply
if such fibers are in a "lit" condition at the time of proposed Disposition;
and if Colonial receives a Conduit and later populates the Conduit with fiber,
the Right of First Refusal will not apply to such fibers).
9. Confidentiality. The parties hereto shall keep confidential all terms
of this Agreement, except to the extent that disclosure thereof is required by
law, agreed by the parties in writing. In the event either party hereto is
required to disclose any terms of this Agreement pursuant to applicable law, at
least three (3) days prior to disclosing the same (or such shorter period
permitted by law), such party shall notify the other party hereto in writing and
provide copies of the terms that the party intends to disclose. The language of
the press release announcing this transaction shall be mutually agreed upon
between the parties hereto. The parties acknowledge that the transaction
contemplated herein is part of a larger transaction in which certain other
parties are contemplating contribution of right of way to PTI in exchange for
equity interests in PTI and that disclosure of certain terms of this Agreement
to such parties may be necessary or appropriate in connection with the larger
transaction. PTI shall be permitted to make such disclosures, provided that PTI
limits such disclosures to the extent reasonably necessary to consummate the
larger transaction.
10. Assignment.
(a) Neither this Agreement, nor any of the rights granted to PTI by
the terms of this Agreement, shall be assigned by PTI without Colonial's prior
written consent, which shall not be unreasonably withheld, except that PTI may,
upon prior notice to Colonial, but without the necessity of obtaining Colonial's
prior consent, assign this Agreement to an Affiliate of PTI. Nothing herein
shall prohibit PTI from involving customers or strategic or co-development
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<PAGE> 7
partners in development of the Telecommunications Systems within the Colonial
Rights-of-Way on such terms as PTI may determine in its sole discretion,
provided that: (i) all such activities are conducted in accordance with the
terms of this Agreement and the Lease, (ii) PTI shall not be released from, and
shall remain fully liable to Colonial for all of its covenants, liabilities and
obligations hereunder and under the Lease and for the acts or omissions of all
parties claiming by, through or under PTI within any Colonial Rights-of-Way;
(iii) PTI shall remain the sole point of contact with Colonial; and (iv) all
activities of parties claiming by, through or under PTI within any Colonial
Rights-of-Way are conducted under PTI's supervision.
(b) Colonial shall have the right to assign, license or otherwise
transfer this Agreement and/or its rights or obligations hereunder as it
pertains to a particular Segment (or discrete portion thereof) of the Colonial
Rights-of-Way in connection with a sale or other transfer of Colonial's rights
within such Segment (or discrete portion thereof) to any third party; provided,
however, that any such assignment or transfer shall be made subject to the terms
and conditions of this Agreement and any such assignee or transferee shall
continue to perform Colonial's obligations to PTI under the terms and conditions
of this Agreement. In addition to Colonial's rights under Subsection 7(c)
hereof, Colonial also shall have the right, without PTI's consent, to assign or
otherwise transfer this Agreement and/or its rights or obligations hereunder:
(i) to any entity that, indirectly or directly, is controlled by, controls or is
under common control with Colonial, or to any entity into which Colonial may be
merged or consolidated or which purchases all or substantially all of the assets
of Colonial; or (ii) as collateral in connection with any financings by any
lender.
11. Notices. All notices, demands, requests, or other writings delivered
pursuant to this Agreement shall be in writing and may be given personally or
may be delivered by depositing the same in the United States mail, certified,
registered or equivalent, return receipt requested, postage prepaid, properly
addressed, and sent to the following addresses:
If to Colonial: Colonial Pipeline Company
945 E. Paces Ferry Rd., N.E.
Atlanta, Georgia 30326-0855
Attention: General Counsel
Fax: 404-841-2315
with a copy to: Arnall Golden & Gregory, LLP
1201 West Peachtree Street, Suite 2800
Atlanta, Georgia 30309-2450
Attention: Donald I. Hackney, Jr., Esquire
Fax: 404-873-8639
If to PTI: Pathnet Telecommunications, Inc.
1661 Gateway Boulevard
Richardson, Texas 75080
Attention: Senior Vice President, Engineering
Fax: 972-231-9728
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<PAGE> 8
with a copy to: Pathnet Telecommunications, Inc.
1015 31st St., N.W.
Washington, D.C. 20007
Attention: General Counsel
Fax: 202-625-7369
or to such other address as either party may from time to time designate by
written notice to the other party. Notices given by mail as aforesaid shall be
deemed received and effective as of the first Business Day following such
dispatch; provided, however, that if any such notice or other communication also
shall be sent by telecopy or fax machine, such notice shall be deemed given at
the time and on the date of machine transmittal if the sending party receives a
written send verification on its machines and forwards a copy thereof with its
mailed or courier delivered notice or communication.
12. Force Majeure. Any failure or delay in the performance by a party
hereto of its obligations hereunder shall not constitute a breach of this
Agreement, and each party's obligations to complete actions by specific
deadlines shall be delayed, to the extent attributable to causes beyond that
party's control, including, but not limited to, acts of God, governmental action
(whether in its sovereign or contractual capacity), fire, flood, or other
catastrophe, national emergency, insurrection, riot, and war.
13. Severability. If any provision of this Agreement or the application
thereof, shall be held invalid, illegal or unenforceable in whole or in part,
the remainder of this Agreement and the application thereof shall not be
affected, and shall be enforceable to the full extent permitted by law, and the
portion hereof found to be invalid shall be enforced to the fullest extent
permitted by law, and, if possible, shall be reformed to carry out as much as
possible the intent of the parties as expressed herein.
14. Amendment. This Agreement may be amended only by a written instrument
executed by both parties hereto. No failure to exercise and no delay in
exercising, on the part of a party hereto, any right, power or privilege
hereunder shall operate as a waiver of any other provision of this Agreement, or
as a waiver of that right, power or privilege either before, or after, the
period of waiver.
15. Entire Agreement. This Agreement and all Exhibits attached hereto,
constitute the entire agreement of the parties hereto with respect to the
subject matters hereof, and supersede any and all prior negotiations,
understandings and agreements, whether oral or written with respect hereto.
16. Applicable Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Georgia, without regard to the
conflicts of laws provisions thereof.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
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<PAGE> 9
IN WITNESS WHEREOF, authorized representatives of Colonial and PTI have
executed this Agreement as of the date first set forth herein.
COLONIAL PIPELINE COMPANY PATHNET TELECOMMUNICATIONS, INC.
By: By:
---------------------------- -----------------------------
Name: Name:
Title: Title:
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<PAGE> 10
EXHIBIT A
FORM OF LEASE
(SEE EXHIBIT 10.7)
<PAGE> 11
EXHIBIT B
DESIGNATED AFFILIATES
1. Specified Companies.
Capline Pipeline Company
Chicap Pipeline
Cushing-Chicago Pipeline
Dixie Pipeline Company
Explorer Pipeline Company
Inland Corporation
Kaw Pipeline
Olympic Pipeline
West Shore Pipe Line (Including Badger)
West Texas Gulf Pipe Line
Wolverine Pipe Line
Yellowstone Pipe Line
2. Affiliates of Colonial's Owners.
All pipeline companies in which 75% or more of the outstanding voting equity
interests therein are held by one or more entities which are 100% owned,
directly or indirectly, by any one or more of: (i) the following current owners
of Colonial's outstanding common stock (the "Colonial Owners"); (ii) any entity
which is the 100% owner, directly or indirectly, of such Colonial Owners; or
(iii) any entity that is 100% owned, directly or indirectly, by any of the
entities included in clause (ii). For purposes of this paragraph, the Colonial
Owners shall consist of:
Atlantic Richfield Company (ARCO Pipeline)
Amoco Pipeline Holding Company (BP Amoco Pipeline)
CITGO Pipeline Investment Company
Conoco Pipe Line Company
Koch Petroleum Corporation
Marathon Oil Company (Marathon Ashland Pipe Line, LLC)
Mobil Pipe Line Company
Phillips Petroleum International Investment Company
Texaco Trading and Transporation Inc. (Equilon Pipeline Company, LLC)
Union Oil Company of California
<PAGE> 1
EXHIBIT 10.11
Positions of this exhibit have been
omitted and filed separately with
the Securities and Exchange Commission.
These positions are designated
"[ * * * ]."
THIS AGREEMENT IS DELIVERED WITH THE EXPRESS UNDERSTANDING THAT
CSX TRANSPORTATION, INC.'S LEGAL COUNSEL WILL HAVE THE RIGHT OF FINAL
REVIEW AND APPROVAL PRIOR TO EXECUTION.
FIBER OPTIC ACCESS AND
LICENSE AGREEMENT
dated as of ________, 1999
between
CSX TRANSPORTATION, INC.
A VIRGINIA CORPORATION, FOR ITSELF AND
AS OPERATOR FOR NEW YORK CENTRAL LINES LLC, A DELAWARE LIMITED LIABILITY
COMPANY AND A WHOLLY-OWNED SUBSIDIARY OF CONSOLIDATED RAIL CORPORATION, A
PENNSYLVANIA CORPORATION
and
PATHNET TELECOMMUNICATIONS, INC.,
a Delaware corporation
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
<S> <C> <C>
1. Certain Definitions
2. License
3. Term
4. Exclusivity
5. Equity Consideration
6. Title Limits
7. Third Party Joint Facilities and Trackage Rights
8. Conduit (Innerduct); Fiber; and Capacity
9. Disclaimer
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT SUMMARY
<S> <C>
Exhibit 1 Form Build Supplement
Exhibit 2 Description of NYC and CSXT Corridor
Exhibit 3 Depiction of Radii Around Tier Cities
Exhibit 4 Designation of Tier Cities
Exhibit 5 Depiction of [* * *] and [* * *] Builds
Exhibit 6 Initial Designation of NYC Corridor
Exhibit 7 [* * *]
</TABLE>
<PAGE> 3
FIBER OPTIC ACCESS AND LICENSE AGREEMENT
THIS FIBER OPTIC ACCESS AND LICENSE AGREEMENT (this "License Agreement")
is made as of ___________, 1999 ("Effective Date"), by and between CSX
TRANSPORTATION, INC., a Virginia corporation ("CSXT"), for itself and as
operator for New York Central Lines LLC, a Delaware limited liability company
("NYC Lines") and a wholly owned subsidiary of Consolidated Rail Corporation, a
Pennsylvania corporation (CSXT and NYC Lines, collectively, the "Railroad"),
whose mailing address is 500 Water Street, Jacksonville, Florida 32202, and
PATHNET TELECOMMUNICATIONS, INC., a Delaware corporation ("Pathnet"), whose
mailing address is 1015 31st Street, N.W., Washington, D.C. 20007.
R E C I T A L S:
A. Railroad is the owner or operator of a continuous right-of way (by fee,
easement, license, operating agreement, joint use agreement or other interest)
within certain real property upon which it operates an interstate rail
transportation system, as shown on Railroad's current System Map (hereinafter
referred to as the "Rail Corridor").
B. Pursuant to the Contribution Agreement and Stockholder Agreement being
executed in connection herewith, Pathnet desires to enter into an agreement with
Railroad to permit Pathnet to install, market, sell and/or maintain a Fiber
Optic Communication System, including Conduit (Innerduct), Cable, Optical Fibers
and related equipment and structures, along, in and on up to [ * * * ] miles of
Rail Corridor, along Segments of the Rail Corridor to be selected in accordance
herewith.
C. Pursuant to the Contribution Agreement and Stockholder Agreement being
executed in connection herewith, Railroad is willing to transfer certain
property interests to Pathnet in exchange for stock in Pathnet, provided that
Pathnet accepts a license to use the selected Segments of the Rail Corridor
subject to all of the terms and conditions of this License Agreements and the
Right of Way Operating Agreement being entered into by and between Railroad and
Pathnet concurrently herewith (hereinafter, the "Operating Agreement" and,
together with this License Agreement, the "Agreements"), which Agreements
provide, among other things, that (i) the license granted thereby shall be
subject to the existing rights and interests of other parties, including,
without limitation, [ * * * ] and [ * * * ], and (ii) Railroad makes no
representation or warranty with respect to its right, title or interest, if any,
in and to any portion of the Rail Corridor or its right to grant any type of
license or other right for any party, including Pathnet, to use or occupy the
same.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Railroad and Pathnet hereby agree as
follows:
2
<PAGE> 4
1. CERTAIN DEFINITIONS.
1.1 General Interpretive Principles. For purposes of this License Agreement,
except as otherwise expressly provided or unless the context otherwise requires,
(i) the terms defined in this Section have the meanings assigned to them in this
Section and include the plural as well as the singular, and the use of any
gender in this License Agreement shall be deemed to include the other gender;
(ii) the word "including" means "including, but not limited to," and (iii) the
article, section and paragraph headings in this License Agreement are for
convenience only and are not intended to describe, interpret, define or limit
the scope, extent, or intent of any of the provisions of this License Agreement.
1.2 Incorporation of Recitals. The Recitals set forth above are
incorporated herein by this reference.
1.3 Definitions. As used in this License Agreement, the following terms
shall have the following respective meanings (unless otherwise expressly
provided):
"Affiliate" shall mean any Person that, directly or indirectly, through
one or more intermediaries, controls or is controlled by, or is under common
control with, another Person. The term "control," for this purpose, shall mean
the ability, whether by the ownership of shares or other equity interest, by
contract or otherwise, to elect a majority of the directors of a corporation,
independently to select the managing partner of a partnership or the managing
member of a limited liability company, or otherwise to have the power
independently to remove and then select a majority of those Persons exercising
governing authority over an entity. Control shall be conclusively presumed in
the case of the direct or indirect ownership of fifty percent (50%) or more of
the equity interests in an entity.
"Agreements" shall be as defined in Recital C.
"Broadform Telecommunications Rights" shall mean, exclusive of the Limited
Telecommunications Rights granted hereunder, the right of owners of and other
parties with interests in the land underlying the Rail Corridor to license
generally, for telecommunications purposes, any and all portions of Rail
Corridor.
"Build Supplement" shall have the meaning set forth in Section 2.6 below
"Cable" shall mean a single cable containing Optical Fiber, and any
support material and protective casing, capable of transmitting data or voice
communications in a Fiber Optic Communication System.
"Conduit (Innerduct)" shall mean a single duct or pipe, not exceeding two
inches (2") inside diameter (or similar cross sectional equivalent), except
where specifically required or approved by Railroad, suitable for housing a
Fiber Optic Cable.
"Construction Exclusivity" shall have the meaning set forth in Section 4.2
below.
"Construction Plans" shall mean the drawings, plans and specifications for
the construction and installation of Pathnet's System and Facilities, showing
the proposed location of all Pathnet's System and Facilities, in sufficient
detail, with distance shown from nearest track, with separate detailed drawings
of all junction, Repeater (Regen) Sites, bridge and tunnel occupancies, showing
depth of installation, details and methods
3
<PAGE> 5
of the proposed construction, with numbers and size of Conduit(s) (Innerduct(s))
to be placed, including Optical Fiber count and total mileage for each Segment.
Construction Plans shall clearly note Railroad Valuation Map references,
Railroad Survey Station and Milepost references for all beginning and ending
points and all alignment transition points. Each set of Construction Plans for
each Segment shall have an overview map showing all of the required information.
"Construction Schedule" shall have the meaning set forth in Section 2.6
below
"Contribution Agreement" shall mean that certain Contribution Agreement
dated as of _____________, 1999 by and between, among others, Railroad and
Pathnet.
"CSX Conduits" shall have the meaning set forth in Section 8.5 below.
"CSXT Corridor" shall mean, subject to Section 2.1 of this Agreement, all
of the Rail Corridor exclusive of the NYC Corridor, as described in Exhibit 2,
attached hereto and incorporated herein.
"Designated Rail Corridor" shall mean a Segment of the Rail Corridor
selected by Pathnet and approved by Railroad in accordance with the terms of the
Agreements.
"Designation Period" shall have the meaning set forth in Section 2.6
below.
"Exclusivity Period" shall have the meaning set forth in Section 4.2
below.
"Facilities", when applied to property of or installed by Pathnet, shall
mean Conduit (Innerduct), Cable, carrier pipes, Pathnet wires and poles, Optical
Fibers, junctions, Repeaters (Regens), Handholds, terminals, power sources,
fault alarm system(s), emergency equipment storage shelters, attachments, and
all other structures and articles of personal property connected with, necessary
for, appurtenant to, or useful to the installation, operation, maintenance,
repair, re-installation, replacement, relocation or removal of Pathnet's Fiber
Optic Communication System.
"Fiber Optic" or "Optical Fiber" shall mean a strand of optical waveguide
permitting the transmission of communications signals.
"Fiber Optic Communication System" or "System" shall mean the system
utilizing Optical Fiber as the medium for communications and transmission to be
installed by Pathnet in the Designated Rail Corridor, which may contain
Conduit(s) (Innerducts(s)), Cable(s) and Optical Fiber(s). Such terms shall
include all Conduit (Innerduct), Cable, Optical Fiber, Handholds, manholes,
marker tape, signs, coupler, structure attachment, pull rope, other necessary
ancillary hardware, and bridge, tunnel and trestle attachments, and shall also
include such communications technologies as may hereafter evolve from or
relating to Optical Fiber but which utilize Pathnet's Facilities and/or System
as initially installed or as thereafter modified pursuant to the Agreements.
"Handholds" shall include Cable loops, or boxes or vaults placed in or
above ground at junctions, Repeaters (Regens) or at areas of Cable splicing and
connection, for storage of slack Cable.
"Interest Notice" shall have the meaning set forth in Section 4.2 below.
"License" shall have the meaning set forth in Section 2.1 below.
"Limited Telecommunications Rights" shall mean Pathnet's right to
construct, install, operate, repair and maintain the Facilities and System as
more particularly described in, and subject to the terms and conditions of, the
Agreements, including, without limitation, those contained in Article 6 of the
License Agreement.
"Negotiation Exclusivity" shall have the meaning set forth in Section 4.2
below.
"NYC Corridor" shall mean that certain portion of the Rail Corridor
operated by CSXT pursuant to that certain Operating Agreement dated as of June
1, 1999 by and
4
<PAGE> 6
between NYC Lines, as owner, and CSXT, as operator, as described in Exhibit 2,
attached hereto and incorporated herein.
"Operating Agreement" shall have the meaning set forth in Recital C above.
"Optical Fiber" shall mean Fiber Optic.
"Person" shall mean any individual, association, partnership, limited
liability company, corporation, joint stock company, trust, joint venture,
unincorporated organization or governmental entity or any department, agency or
political subdivision thereof.
"[ * * * ] Obligations" shall mean that Railroad, in accordance with that
certain Agreement, dated as of [ * * * ], between Railroad and [ * * * ], now
known as [ * * * ], shall refer Pathnet's Route Plan on CSXT Corridor to
[ * * * ], in writing, and [ * * * ] shall have ten (10) business days from
receipt to confirm its intent to negotiate with Pathnet for the installation of
a proposed portion of the Pathnet System. If [ * * * ] declines to negotiate
with Pathnet or fails to advise Railroad of its intent to negotiate within ten
(10) business days following its receipt of notification, the terms of this
Agreement shall become operative as to the Build Supplement evidenced by the
Route Plan, except in those areas subject to the following exclusivity
provisions. In addition, [ * * * ] has exclusivity on those segments of CSXT
Corridor on which [ * * * ] has commenced installation of its fiber optic
communications system. Such exclusivity does not apply: (i) to any segment in
which all conduit or fiber optic capacity has been sold or utilized; and (ii)
to third party installations of ten (10) miles or less.
"Rail Corridor" shall have the meaning set forth in Recital A above.
"Railroad Duct" shall have the meaning set forth in Section 8.1 below.
"Repeater (Regen)" shall mean a device which regenerates, amplifies or
extends optical signals, used to send the light impulse through Optical Fiber,
and includes attendant equipment, facilities, power source, and technological
changes.
"Repeater (Regen) Sites" shall mean those permitted portions of the Rail
Corridor on which Repeaters (Regens) are located, and shall be limited to an
area of five hundred (500) square feet or less, and located beyond the
Restricted Working Area, unless otherwise specifically permitted in writing by
Railroad.
"Restricted Working Area" shall mean the area parallel to and located
thirty feet (30') (or the top of any ditch slope if that distance is greater
than thirty feet (30')) from the centerline of the outermost track (on each
side) in the Rail Corridor.
"Segment" shall mean either a longitudinal section of Rail Corridor or a
longitudinal section of Conduit (Innerduct) or Cable installed by Pathnet, as
applicable.
"Stockholder Agreement" shall mean that certain Stockholder Agreement
dated as of ____________, 1999 by and between, among others, Railroad and
Pathnet.
"Substitution Notice" shall have the meaning set forth in Section 4.2
below.
"System" shall mean Fiber Optic Communication System.
"System Map" shall mean Railroad's line map, published periodically,
designating the general location of the Railroad's operating lines.
5
<PAGE> 7
"Term" shall have the meaning set forth in Section 3.1 below.
"Title Deficient Areas" shall mean those portions of the Rail Corridor, if
any, for which Railroad holds title in less than fee simple absolute and for
which Railroad may not otherwise have the right to grant to Pathnet the license
for use and occupancy as contemplated by this License Agreement.
"Trackage Rights" shall mean the rights arising by agreement of one
railroad to use the tracks or right-of-way of another railroad for the carriage
of rail traffic; said agreement ordinarily imparting no ownership interest in
the burdening carrier relating to the tracks or rights-of-way of the burdened
carrier.
"[* * *] Obligations" shall mean that in CSXT Corridor occupied by a
fiber optic communications system installed by [* * *] (or any predecessor
entity) (collectively "[* * *]") or, in any CSXT Corridor over which [* * *]
has exercised its option to install its system within the preceding [* * *]
prior to the date of the applicable Build Supplement, Pathnet's System shall not
be installed in any length longer than [* * *] contiguous miles and no
closer than [* * *] from any existing [* * *] facility. For the purposes
of this limitation only, any two (2) Segments of Pathnet's Fiber Optic
Communications System of which the respective ends are less than [* * *] apart
shall be deemed a single Segment and the aggregate length of such two (2)
Segments (but not the length between the respective ends of such Segments) shall
be considered in determining contiguous mileage.
2. LICENSE
2.1 Grant of License. (a) Subject to the terms and conditions contained in
the Agreements, including, without limitation, Article 6 of this Agreement,
Railroad hereby grants to Pathnet a license of Limited Telecommunications
Rights, for the Term and upon the conditions, covenants and agreements set forth
in the Agreements, to select up to [* * *] miles of Rail Corridor (including
up to 2,000 miles of NYC Corridor) to be designated (as provided herein and
subject to Railroad's approval rights as set forth in the Agreements) as
Designated Rail Corridor and to use such Designated Rail Corridor for the
purpose of constructing, installing, operating, maintaining, repairing,
replacing and removing (and including rights of access subject to the
conditions, covenants and agreements set forth in the Agreements) a Fiber Optic
Communications Systems containing no more than eight (8) Conduits (Innerducts)
and an unlimited number of Optical Fibers therein, together with necessary
appurtenant equipment and structures (the "License"). Subject to Railroad's
prior consent, which may be withheld in Railroad's sole discretion, Pathnet may
install additional Conduits (Innerducts), if Railroad and Pathnet can reach
agreement on how to share in the revenue resulting from sales of such Conduits
(Innerducts) or the Optical Fiber contained therein.
(b) With respect to CSXT Corridor located within the State of
[* * *], Pathnet acknowledges the pendancy of certain class action litiga-
tion concerning the use of railroad rights of way by telecommunications
companies. During the pendancy of this or any related litigation, Pathnet shall
not have any right under this Agreement to install its System or Facilities upon
CSXT Corridor in the State of [* * *] without the prior written consent of
Railroad, which shall not be unreasonably withheld, provided however, that if
the court rules that telecommunications companies (such as Pathnet), cannot
install their systems and facilities on such rights of way, Pathnet shall have
the obligation, prior to the installation of any portion of its System or
Facilities on the CSXT Corridor in the State of [* * *], to acquire Broad-
form Telecommunications Rights sufficient in Railroad's reasonable discretion to
authorize such installation. Pathnet understands and agrees that any Broadform
Telecommunications Rights acquired by Pathnet are subject to the terms and
conditions of this License Agreement.
2.2 Acknowledgement of Condition of Title. Pathnet understands,
acknowledges and agrees that (a) portions of the Designated Rail Corridor may be
in Title Deficient Areas, and (b) Pathnet accepts the License in any Title
Deficient Areas
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<PAGE> 8
subject to the terms and conditions of the Agreements. Subject to the
provisions of this Article 2, with respect to any Segment of the Designated Rail
Corridor in Title Deficient Areas, the License herein granted Pathnet shall
include the additional right in favor of Pathnet to procure all Broadform
Telecommunications Rights from third parties as Pathnet determines are necessary
to enable it to construct, install, operate, maintain, repair, replace and
remove Pathnet's Facilities and System in such Title Deficient Areas provided
that Pathnet shall not acquire exclusive Broadform Telecommunications Rights
(such that the underlying fee owner no longer has the right to grant such rights
to third parties) without the prior written consent of Railroad, which may be
withheld in Railroad's sole discretion. All provisions of the Agreements,
including, but not limited to, Pathnet's obligations for the payment or other
delivery of the consideration described in this License Agreement, shall apply
as between Railroad and Pathnet with respect to any Title Deficient Areas,
notwithstanding that Pathnet's right to occupy the Title Deficient Areas is or
may be derived, in whole or in part, from Broadform Telecommunications Rights
obtained by Pathnet from third parties. The License is made and given subject to
the [* * *] Obligations, the [* * *] Obligations and the rights and
interests of all other third parties, existing as of the Effective Date or the
date of any Build Supplement.
2.3 Operating Agreement. The parties acknowledge and agree that the
License shall be exercised in accordance with the terms and provisions of this
License Agreement and the Operating Agreement, the terms of which are
incorporated herein by this reference. In the event of any conflict between the
Operating Agreement and this License Agreement with respect to any rights or
obligations under this License Agreement, the terms of this License Agreement
shall control. Notwithstanding any contrary provision in the Agreements, the
parties agree that (i) any dispute relating to this License Agreement, except a
dispute arising under Section 8.5 hereof, shall not be subject to Article 25
(Liaison; Coordination and Dispute Resolution) of the Operating Agreement, it
being the specific intention of the parties to litigate any and all disputes
hereunder, without resort to arbitration or mediation, and (ii) the
indemnification provisions contained in this License Agreement shall not be
governed or affected by Article 17 (Liability; Indemnity) of the Operating
Agreement.
2.4 Transfer of Broadform Telecommunications Rights. In the event that
Pathnet obtains Broadform Telecommunications Rights with respect to any Title
Deficient Areas that provide use and occupancy rights in excess of the Limited
Telecommunications Rights granted by Railroad to Pathnet pursuant to the
Agreements, then Pathnet shall immediately offer, by way of assignment, to
convey such Broadform Telecommunications Rights to Railroad. Upon receipt of
Pathnet's offer of assignment, Railroad shall promptly determine, in its sole
and absolute discretion, to accept such assignment or reject the same. In the
event Railroad accepts such assignment, Railroad shall pay to Pathnet, fifty
percent (50%) of the actual direct out of pocket costs (exclusive of Pathnet's
internal overhead) incurred by Pathnet in connection with the acquisition of
such rights together with the actual direct costs including overhead of any
Pathnet field personnel to the extent dedicated to such acquisition.
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<PAGE> 9
2.5 Sublicenses. Pathnet may sell, lease, license, or otherwise grant
rights in and to Optical Fibers, telecommunications capacity, Conduit
(Innerduct) or other portions of Pathnet's System on such terms as Pathnet may
determine in its sole discretion. Pathnet may also involve customers or
co-development or strategic partners in the installation of Pathnet's System on
Designated Rail Corridors on such terms as Pathnet determines, in its sole
discretion. Any such arrangements shall be expressly subject and subordinate to
the terms and conditions of the Agreements, Pathnet shall remain fully liable
for its obligations under the Agreements, Pathnet shall remain the sole point of
contact with Railroad in connection with such arrangements, and Pathnet shall be
responsible for and shall supervise any and all activities on or affecting the
Designated Rail Corridor. Pathnet shall have no right to sell, sublicense or
otherwise transfer the right to access any portion of the Designated Rail
Corridor to a third party without the prior written consent of Railroad, which
consent may be withheld in Railroad's sole discretion.
2.6 Selection and Development of Rail Corridor. Pursuant to one or more
supplements to this License Agreement, the form of which is attached hereto as
Exhibit 1 (each a "Build Supplement"), Pathnet shall, except as otherwise
provided herein, designate as Designated Rail Corridor for its System and
Facilities up to the maximum number of miles of Rail Corridor authorized
hereunder. Pathnet may designate such Designated Rail Corridor at any time
during the first [* * *] years after the Effective Date (the "Designation
Period"). Railroad shall approve each Build Supplement within thirty (30) days
of submission thereof unless such approval cannot be granted due to existing
contractual or other legal limitations, safety concerns, operational or
engineering conflicts or interference with existing or foreseeable future
development of the Rail Corridor for railroad purposes. Designation of the Rail
Corridor pursuant to an approved Build Supplement shall remove the designated
mileage from the mileage bank granted under this License Agreement. Together
with each Build Supplement, Pathnet shall also submit a proposed schedule of
construction (the "Construction Schedule") of its System and Facilities over the
Segment designated in the Build Supplement. Railroad shall have the right, to be
exercised in its reasonable discretion within thirty (30) days after submission,
to approve or reject any proposed Construction Schedule (giving the reasons for
any such rejection and leave for Pathnet to resubmit such Construction Schedule
within the Designation Period), provided that Pathnet shall commence physical
installation of Conduit (Innerduct) in the ground no sooner than sixty (60) days
after Railroad's approval of the Build Supplement and Construction Schedule, but
no later than three (3) years of Pathnet's submission of the applicable Build
Supplement, unless otherwise provided herein. If Pathnet fails to timely
commence such physical installation, Pathnet shall be prohibited from installing
any portion of its Facilities or System within such Segment and shall not be
entitled to any refund of the miles deducted (from the mileage bank granted
hereunder) as a result of such Build Supplement, provided that Pathnet may
submit a second Build Supplement and Construction Schedule for such Segment
during the Designation Period (which second submission shall be treated as an
initial submission hereunder).
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<PAGE> 10
3. TERM
3.1 Term. Unless sooner terminated in accordance with the provisions of
the Agreements, the License, the Agreements and the rights granted under any
Build Supplement shall be for a term commencing as of the Effective Date and
ending thirty (30) years hence (the "Term").
4. EXCLUSIVITY
4.1 Exclusive Rights. Except as set forth below in this Article 4,
Pathnet's rights and interests under the License and with respect to the
Designated Rail Corridor (including those portions of the Designated Rail
Corridor for which Pathnet obtains Broadform Telecommunication Rights) shall be
non-exclusive.
4.2 NYC Corridor Development. For a period of three (3) years from the
Effective Date hereof (the "Exclusivity Period"), with respect to the Segments
of the NYC Corridor (up to a maximum of 2,000 miles) designated by Pathnet upon
execution of this License Agreement as set forth in Exhibit 6 hereof, Pathnet
shall have the exclusive right to place and operate its System and Facilities
within such Segment(s) (the "Construction Exclusivity"); provided, however, that
the foregoing exclusivity right will not apply to any Segment of less that [*
* *] unless either (i) the Segment connects two cities in which Pathnet
establishes a point of presence; or (ii) the Segment connects Pathnet's network
on property that is not within the NYC Corridor to a city on the NYC Corridor in
which Pathnet establishes a point of presence. Notwithstanding the foregoing,
Pathnet will not have exclusivity rights within the radii around the cities
designated on Exhibits 3 and 4, attached hereto and incorporated herein. For the
four (4) years following the expiration of the Exclusivity Period (although the
foregoing exclusivity shall no longer apply), Railroad shall promptly notify
(the "Interest Notice") Pathnet in writing of any serious inquiries from third
parties who wish access to a Segment of the NYC Corridor which Pathnet and
Railroad have executed a Build Supplement for construction and installation of
Pathnet's System and/or Facilities. Within ten (10) days after its receipt of
the Interest Notice, Pathnet shall notify Railroad if it has a good faith
interest in pursuing negotiations with the interested third party. If Pathnet
fails to notify Railroad that it has an interest within such ten (10) day
period, then Pathnet shall be deemed to have conclusively waived its right to
negotiate with such third party. If Pathnet notifies Railroad that it is
interested in such negotiations within such ten (10) day period, Pathnet shall,
for a period of [* * *] after Pathnet's receipt of such Interest Notice,
have the exclusive right to negotiate with such third party with respect to
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<PAGE> 11
such third party's access, construction, installation and/or use of a fiber
optic communications system along such Segment (the foregoing rights,
collectively "Negotiation Exclusivity"). If Pathnet and such third party have
not executed a definitive agreement within such [* * *] period, Railroad
shall be free to negotiate and enter into an agreement with such third party for
the development of the referenced Segments of the NYC Corridor. Upon written
notice to Railroad (the "Substitution Notice"), Pathnet may substitute
additional Segments of NYC Corridor for Segments of NYC Corridor previously
designated in Exhibit 6, provided that (i) any such substitute NYC Corridor
shall be subject to the rights of third parties in such NYC Corridor as of the
date of the Substitution Notice; (ii) the aggregate mileage of Pathnet's
designation of NYC Corridor (after deducting the mileage of the originally
designated Segment(s) and adding the mileage of the substitute Segment(s)) does
not exceed 2,000 miles; (iii) the Construction Exclusivity which initially
attached to the originally designated Segment(s) shall no longer apply to such
Segment(s) after the Substitution Notice; (iv) no Construction Exclusivity shall
attach to the substitute Segment(s); and (v) with respect to such substitute
Segment(s), the Negotiation Exclusivity shall commence upon the date of
completion of such substitute Segment(s) and shall continue for a period of four
(4) years following the expiration of the Exclusivity Period (even though the
Construction Exclusivity shall not apply).
4.3 Third Party Non-Exclusive Grants. Except as provided in Section 4.2
above, Railroad may grant development rights for fiber optic and other
communication systems in the Rail Corridor (including the Designated Rail
Corridor) to any third party on a non-exclusive basis.
4.4 Third Party Exclusive Grants. Except as provided in Section 4.2 above,
Railroad may grant development rights for fiber optic and other communication
systems in the Rail Corridor (including the Designated Rail Corridor) to any
third party on an exclusive basis; provided, however, that Pathnet shall not be
subject to such exclusivity provisions.
4.5 Additional Restrictions. In addition to the foregoing restrictions,
Pathnet represents that (i) Pathnet will commence and diligently pursue to
completion the installation of its System and Facilities over five hundred (500)
miles of NYC Corridor in each of the first three (3) years after the Effective
Date hereof; and (ii) in all stages of its development of the NYC Corridor,
seventy five percent (75%) of the Designated Rail Corridor miles completed and
under development (in accordance with the applicable Construction Schedule(s))
will be in contiguous segments of at least two hundred (200) miles each. In the
event Pathnet breaches either of these representations, then as Railroad's sole
and exclusive remedy, Pathnet will automatically lose Construction Exclusivity
as to the entirety of the NYC Corridor except as to those Segments of NYC
Corridor which Pathnet has completed in accordance with this Section 4.5,
provided that Pathnet shall be entitled to Negotiation Exclusivity commencing on
the date of completion of any Segment(s) for which Construction Exclusivity was
lost hereunder and continuing for a period of four (4) years following the
expiration of the Exclusivity Period (even though the Construction Exclusivity
shall not apply).
5. EQUITY CONSIDERATION
5.1 Consideration. As consideration for the License, Railroad shall
receive an equity interest in Pathnet pursuant to the Contribution Agreement.
6. TITLE LIMITS.
6.1 General. Pathnet understands and acknowledges that Railroad occupies,
uses and possesses lands, rights-of-way and rail corridors under all forms and
qualities of ownership rights or facts, from fee simple absolute to bare
occupation. Accordingly, nothing in the Agreements shall act as or be deemed to
act as any warranty, guaranty or
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<PAGE> 12
representation of the quality or quantity of Railroad's title in and to any
particular Segment occupied, used or enjoyed in any manner by Pathnet under any
rights created in the Agreements. It is expressly understood that Railroad does
not warrant title to any portion of the Rail Corridor, and Pathnet hereby
accepts the grants and privileges contained herein, subject to all lawful
outstanding existing liens, mortgages and superior rights or interests in and to
the Rail Corridor, and all leases, licenses and easements or other interests
previously granted to or reserved by others therein.
6.2 Limitations of License. The term "License" herein shall mean: (a) with
regard to any portion of Rail Corridor which is owned by Railroad in fee simple
absolute or in which the uses contemplated hereunder are otherwise statutorily
authorized or approved by the state in which such Rail Corridor is located,
merely a "license"; (b) with regard to any portion of Rail Corridor owned,
occupied, used or controlled by Railroad in less than fee simple absolute (e.g.,
fee simple determinable, fee simple conditional, lease or rail easement or other
occupancy right), where the applicable law permits such grants by Railroad to
Pathnet, merely "a right of occupancy" commensurate with the term and extent of
Railroad's ownership, occupancy, etc; and (c)with regard to any portion of Rail
Corridor for which Railroad does not possess the right to license the same to
third parties for telecommunications purposes, the Agreements shall not convey
any rights to Pathnet except that Railroad merely waives its exclusive rights to
occupy, use and/or control the Rail Corridor commensurate with the term and
extent of such Railroad rights.
6.3 Broadform Telecommunications Rights. Pathnet understands and agrees
that the rights conveyed hereunder may not be sufficient to permit installation
of its System and Facilities at all desired locations throughout the Designated
Rail Corridor. Accordingly, except as otherwise provided herein, Pathnet may, as
Pathnet reasonably deems necessary, obtain Broadform Telecommunication Rights in
accordance herewith before commencing construction on any Segment, provided,
however, that Pathnet understands and agrees that any such Broadform
Telecommunications Rights acquired by Pathnet within the Designated Rail
Corridor are subject to the terms and conditions of this License Agreement.
6.4 Waiver of Claims. Pathnet agrees it shall not have and hereby
completely and absolutely waives its right to any claim against Railroad for
damages or any other legal or equitable relief on account of any deficiencies in
title to the Designated Rail Corridor.
6.5 Indemnity. In addition to the indemnities contained in the Operating
Agreement, Pathnet shall indemnify, defend (at Pathnet's sole cost and expense,
with counsel selected and controlled by Railroad, if Railroad so requests) and
hold Railroad and its Affiliates, officers, directors, employees and agents
harmless from and against all claims or litigation for trespass, slander of
title, overburden of easement, or any other claims arising out of or based upon
(i) Pathnet's Conduit (Innerduct), Cable or Optical Fiber placement, or (ii) the
presence of Pathnet's Conduit (Innerduct), Cable or Optical
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Fiber or other Facilities in, on or along the Designated Rail Corridor, or (iii)
Pathnet's failure to obtain sufficient Broadform Telecommunications Rights, or
(iv) the presence of Pathnet's purchasers, sublicensees, customers,
co-development or strategic partners, agents, invitees, their respective
employees or any other third party acting for the benefit or at the direction of
Pathnet or any such third party, on the Designated Rail Corridor, or their
individual or collective use of Pathnet's Conduit (Innerduct), Cable or Optical
Fiber or other Facilities in, on or along the Designated Rail Corridor, or (v)
the title related claims of Pathnet's purchasers, sublicensees, customers,
co-development or strategic partners, agents, invitees, their respective
employees or any other third party acting for the benefit or at the direction of
Pathnet or any such third party, including all claims for damages, including,
but not limited to, civil, criminal, compensatory, consequential, direct,
indirect, treble, exemplary, special, punitive and all other damages or
penalties of any kind available at law or in equity.. This indemnity shall
survive the expiration or termination of the Agreements. The foregoing indemnity
shall not be deemed to apply to any of the foregoing claims, liabilities, costs
or expenses to the extent attributable to Railroad's own operations or to
Railroad's grant of rights of way for fiber optic, utility or other uses to any
parties other than Pathnet.
6.6 [* * *] Obligations and [* * *] Obligations. The License and
all other rights and interests granted pursuant to the Agreements and all of the
terms and provisions of the Agreements are made expressly subject to the [* * *]
Obligations and the [* * *] Obligations. The parties acknowledge that the
[* * *] Obligations and the [* * *] Obligations affect all or part of
the CSXT Corridor. The portions of the CSXT Corridor over which [* * *] and
[* * *] have installed conduit are depicted on Exhibit 5, attached hereto
and incorporated herein. Railroad shall promptly give written notice to Pathnet
of all future installations and/or designations of CSXT Corridor by Pathnet and
[* * *]. Nothing in this paragraph will be deemed to expand the [* * *]
or [* * *] Obligations beyond the scope of such obligations arising pursuant
to the agreements between Railroad and [* * *] and [* * *],
respectively.
7. THIRD PARTY JOINT FACILITIES AND TRACKAGE RIGHTS.
7.1 This Agreement does not pertain to any occupancies over or
structures upon rights-of-way owned jointly by Railroad with another Person
which is not an Affiliate of Railroad or upon any Rail Corridor on which
Railroad has only Trackage Rights. Railroad, however, agrees to reasonably
cooperate with and assist Pathnet in obtaining any approvals of third parties
necessary to permit Pathnet to use any such jointly owned rights-of-way, and
agrees not to block Pathnet's application to use any portion of the Rail
Corridor on which Railroad only has Trackage Rights; provided, however, that
Pathnet shall reimburse Railroad, upon demand, for any costs, including
reasonable attorneys' fees, incurred by Railroad in connection with such
cooperation. The portion of the Rail Corridor over which Railroad possesses only
Trackage Rights are depicted on the Railroad System Map which has been made
available to Pathnet.
8. CONDUIT (INNERDUCT); FIBER; AND CAPACITY.
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8.1 Railroad Ducts and Signal Cable. Pathnet, at its sole cost and
expense, shall install one (1) two-inch (2.0") SDR-11 or equivalent single duct
or pipe, of not less than one and nine-tenths inches (1.9") inside diameter for
Railroad (the "Railroad Duct"). The Railroad Duct shall be installed by Pathnet
along the entire length of Designated Rail Corridors in which Pathnet installs
the Pathnet System and where installation of such Railroad Duct in addition to
the Conduits (Innerducts) to be installed by Pathnet, is physically feasible,
with such installation to be concurrent with Pathnet's Conduit (Innerduct)
installation. The Railroad Duct shall become the sole property of Railroad upon
installation, and Railroad, its successors and/or assigns, shall have the
exclusive right of use of such Railroad Duct. To the extent assignable, Pathnet
shall assign to Railroad, without charge, any service and product warranties
relating to such Railroad Duct that it obtains from its manufacturer and/or
installation contractor(s). The Railroad Duct may be used only for Railroad's
internal communications needs, and neither the Railroad Duct, nor Optical Fiber
therein, nor telecommunications capacity thereon, may be sold, assigned, leased,
licensed, or otherwise made available to third-parties, or used in connection
with any telecommunications business, until the earlier of (a) five (5) years
after completion of construction of the relevant Segment containing the Railroad
Duct, (b) the sale, option to purchase, or use by Pathnet of all installed
Conduits (Innerducts) or Optical Fibers on such Segment other than those held in
reserve by Pathnet, or (c) ten (10) years from the Effective Date hereof.
8.2 Fiber Optic Capacity.
A. Pathnet will provide up to [* * *] at no charge to Railroad, provided
that the maximum number of [* * *] miles shall not exceed [* * *] miles.
Such mileage shall be calculated in straight line (i.e. airline) miles, not
route miles. Pathnet will make such capacity available to Railroad at Pathnet's
points of presence, including at any central office where Pathnet is co-located,
where Pathnet has equipment in place to offer [* * *] service. Notwithstanding
the foregoing, Pathnet agrees that if and when it offers services in the cities
listed on [* * *] Pathnet will install equipment to offer [* * *] service
and will provide such [* * *] service to Railroad pursuant to this Agreement.
Railroad will be responsible for any costs required to transport such capacity
from Pathnet's point of presence to Railroad's required point of termination,
including costs of interconnection, provisioning, co-location of additional
required equipment, and the cost of any local loop, leased lines, or other means
of transport. At Railroad's request, Pathnet will arrange such transport and
interconnection costs, provided Railroad reimburses Pathnet for all actual and
reasonable costs incurred by Pathnet in connection therewith, including internal
costs, but excluding any overhead, without mark-up for profit. Prior to
incurring any such costs, Pathnet will discuss such arrangements with Railroad
so that the parties may identify the most cost-effective solution.
B. The maximum cross-section of the capacity provided to Railroad
pursuant to this Section at any point shall not exceed [* * *] of the total
capacity of Pathnet's network at such point. In addition, the number of
[* * *] terminated at any point shall not exceed [* * *] of the capacity
terminated at such point.
C. The capacity described in this Section may be utilized by Railroad and
its Affiliates for its internal communications only, and may not be sold,
assigned, leased, licensed, or otherwise made available to third-parties.
8.3 Ability to Purchase Telecommunications Capacity. CSX shall also have
the right, subject to availability as determined by Pathnet in its reasonable
discretion, to purchase telecommunications capacity anywhere on Pathnet's entire
fiber optic communications system at prices at least as favorable as Pathnet is
then offering as its best rate to other unrelated parties for like amounts of
telecommunications capacity in like markets. The foregoing capacity may be used
only for Railroad's or any Railroad Affiliate's internal communications needs,
and may not be sold, assigned, leased, licensed, or otherwise
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made available to third-parties.
8.4 Last Available Build in Segment. If, in any Segment of Designated Rail
Corridor, Railroad determines that it is likely that Pathnet's construction
will, due to engineering or construction limitations, be the last Conduit
(Innerduct) placed or constructed within such Segment, Railroad may require
Pathnet to build additional Conduits (Innerducts) for Railroad's benefit. In
such event Railroad will pay a sum equal to the ratio of the additional
Conduit(s) (Innerduct(s)) installed in such Segment to the total number of
Conduits (Innerducts) installed therein, multiplied by the total actual direct
out of pocket costs (exclusive of Pathnet's internal overhead) of the entire
installation together with the actual costs (including overhead) of any Pathnet
field personnel to the extent dedicated to such installation. The foregoing
additional Conduits (Innerducts) will be subject to the same restrictions as
apply to the Railroad Duct.
8.5 Boston to Framingham Conduits (Innerducts). On the Effective Date
hereof, Pathnet shall submit a Build Supplement and Construction Schedule for
the development of the Segment of Rail Corridor between Boston and Framingham,
provided that, notwithstanding any provision hereof to the contrary, Pathnet
shall commence physical installation of Conduit (Innerduct) in such Segment
within one (1) year of the Effective Date hereof. In connection with such
installation, Pathnet shall also install, at Pathnet's sole cost and expense,
four (4) two inch (2") Conduits (Innerducts) for Railroad's exclusive use and/or
for sale by Railroad to third parties (the "CSX Conduits"). The CSX Conduits
shall be in lieu of the Railroad Duct to be installed along such Segment by
Pathnet in accordance with Section 8.1. In the event that Pathnet determines
that the Boston to Framingham Segment is not commercially practicable (taking
into consideration Pathnet's obligation to install the CSX Conduits), Pathnet
shall not be obligated to install such Segment, provided that, in recognition of
the value of the CSX Conduits to Railroad, which constituted a material aspect
of the bargain achieved through the Agreements, Pathnet and Railroad shall
negotiate, in good faith, for Pathnet to deliver equivalent value to Railroad
pursuant to a mutually agreed alternative. If the parties are unable to agree
upon such mutually agreed alternative, the dispute shall be subject to Article
25 (Liaison; Coordination and Dispute Resolution) of the Operating Agreement.
9. DISCLAIMER
9.1 Disclaimer Relating to Certain Information. Railroad does not warrant
the accuracy of those maps, descriptions and depictions attached hereto as
Exhibits 2, 3 and 5, nor does it warrant the accuracy of the Railroad Valuation
Maps or the Railroad System Map. Railroad states that such items were prepared
and are utilized in the ordinary course of Railroad's business. With respect to
Exhibit 5 only, Railroad's Assistant Vice President, T. R. Jackson, represents
that such Exhibit accurately depicts the current status of the occupancies of
[* * *] and [* * *] on CSXT Corridor, to the best of his knowledge.
IN WITNESS WHEREOF, the undersigned have executed this License Agreement
as of the Effective Date.
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CSX TRANSPORTATION, INC.,
a Virginia corporation, for itself and as Operator
for New York Central Lines, L.L.C.
By: ____________________________
Title: ___________________________
PATHNET TELECOMMUNICATIONS, INC.,
a Delaware corporation
By: _________________________
Title: ____________________________
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<PAGE> 17
EXHIBIT 1
NYC BUILD SUPPLEMENT NO. -------
Utility Project Name:______________________________________________________
Segment:___________________________________________________________________
Railroad Project Name:_____________________________________________________
THIS BUILD SUPPLEMENT NO._______ ("Build Supplement") is made as of this
_______ day of ____________________, _______ (the "Effective Date"), between CSX
TRANSPORTATION, INC., a Virginia corporation, as Operator for New York Central
Lines LLC, a Delaware limited liability company and a wholly owned subsidiary of
Consolidated Rail Corporation, a Pennsylvania corporation ("Railroad"), and
PATHNET TELECOMMUNICATIONS, INC., a Delaware corporation ("Utility").
RECITALS:
A. Railroad and Utility have previously entered into those certain Fiber
Optic License and Access Agreement and Right of Way Operating
Agreement both dated as of _____ ____________________, as amended and
supplemented from time to time by the parties (collectively, the "Base
Agreement").
B. The Base Agreement grants certain rights to Utility, including the
right to install a Fiber Optic Communications System pursuant to one
or more Build Supplements over certain Segments of Designated Rail
Corridor as more fully defined therein.
C. Utility wishes to expand its current Fiber Optic Communications System
in accordance with the Base Agreement and this Build Supplement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for the sum of Ten and No/100 Dollars ($10.00) in hand
paid and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Railroad and Utility agree as follows:
1. The above Recitals are true and correct and are incorporated herein by
this reference.
2. Unless otherwise specifically defined in this Build Supplement, all
capitalized terms used herein shall have the same meanings defined in the Base
Agreement.
3. In addition to the rights and obligations set forth in the Base
Agreement and any previously executed Build Supplements, and in accordance
therewith and herewith, Utility is hereby granted a non-exclusive License to
install the following additional Segment(s) of its Fiber Optic Communications
System as shown on Exhibit(s) _______________, attached hereto and by this
reference made a part hereof and described as follows:
Segment: from: to:
City, State _______________ _______________,
County _______________ _______________,
Township _______________ _______________,
Valuation Map No. _______________ _______________,
Milepost _______________ _______________,
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Railroad Survey Station No. _______________ _______________,
Total distance: ___________________;
Aggregate Optical Fiber Count
(irrespective of number of Conduit/Innerduct or Cable) ___________________;
Number of Conduit/Innerduct ___________________;
Size of Conduit/Innerduct ___________________;
Number of Cable ___________________;
Size of Cable ___________________.
4. The non-exclusive license granted to Utility with respect to the
additional installation pursuant to this Build Supplement shall be for a term
concurrent with the Base Agreement.
5. The parties hereby ratify and affirm the Base Agreement, as
supplemented hereby, which shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Build Supplement as of
the Effective Date.
Witnesses: CSX TRANSPORTATION, INC.,
a Virginia corporation, as Operator for
New York Central Lines LLC,
a Delaware limited liability company
________________________________ By:_______________________________
Print Name:_______________________
________________________________ Print Title:______________________
Witnesses: PATHNET TELECOMMUNICATIONS, INC.,
a Delaware corporation
________________________________ By:_______________________________
Print Name:_______________________
________________________________ Print Title:______________________
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EXHIBIT 1
CSXT BUILD SUPPLEMENT NO. -------
Utility Project Name:______________________________________________________
Segment:___________________________________________________________________
Railroad Project Name:_____________________________________________________
THIS BUILD SUPPLEMENT NO._______ ("Build Supplement") is made as of this
day of _____ _______________, _______ (the "Effective Date"), between CSX
TRANSPORTATION, INC., a Virginia corporation ("Railroad"), and PATHNET
TELECOMMUNICATIONS, INC., a Delaware corporation ("Utility").
RECITALS:
A. Railroad and Utility have previously entered into those certain Fiber
Optic License and Access Agreement and Right of Way Operating
Agreement both dated as of _____ _______________, as amended and
supplemented from time to time by the parties (collectively, the "Base
Agreement").
B. The Base Agreement grants certain rights to Utility, including the
right to install a Fiber Optic Communications System pursuant to one
or more Build Supplements over certain Segments of Designated Rail
Corridor as more fully defined therein.
C. Utility wishes to expand its current Fiber Optic Communications System
in accordance with the Base Agreement and this Build Supplement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for the sum of Ten and No/100 Dollars ($10.00) in hand
paid and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Railroad and Utility agree as follows:
1. The above Recitals are true and correct and are incorporated herein by
this reference.
2. Unless otherwise specifically defined in this Build Supplement, all
capitalized terms used herein shall have the same meanings defined in the Base
Agreement.
3. In addition to the rights and obligations set forth in the Base
Agreement and any previously executed Build Supplements, and in accordance
therewith and herewith, Utility is hereby granted a non-exclusive License to
install the following additional Segment(s) of its Fiber Optic Communications
System as shown on Exhibit(s) _______________, attached hereto and by this
reference made a part hereof and described as follows:
Segment: from: to:
City, State _______________ _______________,
County _______________ _______________,
Township _______________ _______________,
Valuation Map No. _______________ _______________,
Milepost _______________ _______________,
Railroad Survey Station No. _______________ _______________,
Total distance: ___________________;
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<PAGE> 20
Aggregate Optical Fiber Count
(irrespective of number of Conduit/Innerduct or Cable) ____________________;
Number of Conduit/Innerduct ____________________;
Size of Conduit/Innerduct ____________________;
Number of Cable ____________________;
Size of Cable ____________________.
4. The non-exclusive license granted to Utility with respect to the
additional installation pursuant to this Build Supplement shall be for a term
concurrent with the Base Agreement.
5. The parties hereby ratify and affirm the Base Agreement, as
supplemented hereby, which shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Build Supplement as of
the Effective Date.
Witnesses: CSX TRANSPORTATION, INC.,
a Virginia corporation
_______________________________ By:__________________________________
Print Name:__________________________
_______________________________ Print Title:_________________________
Witnesses: PATHNET TELECOMMUNICATIONS, INC.,
a Delaware corporation
_______________________________ By:__________________________________
Print Name:__________________________
_______________________________ Print Title:_________________________
2
<PAGE> 21
EXHIBIT 2
CSX System Map
--------------
(Map of CSX Railway System)
<PAGE> 22
Exhibit 3
Non-exclusivity around specific cities
--------------------------------------
[ * * * ]
<PAGE> 23
EXHIBIT 4
TIER CITIES
[* * *] [* * *]
[* * *]
<PAGE> 24
Exhibit 5
Map of [* * *] and [* * *] Builds
[* * *]
<PAGE> 25
Exhibit 6
Pathnet's Initial Designation of Conrail Build
[Map of Conrail ROW]
<PAGE> 26
EXHIBIT 7
[ * * * ]
<PAGE> 1
EXHIBIT 10.12
Portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission.
These portions are designated "[ * * * ]."
THIS AGREEMENT IS DELIVERED WITH THE EXPRESS UNDERSTANDING THAT
CSX TRANSPORTATION, INC.'S LEGAL COUNSEL WILL HAVE THE RIGHT OF FINAL REVIEW
AND APPROVAL PRIOR TO EXECUTION.
RIGHT OF WAY OPERATING AGREEMENT
dated as of , 1999
---
between
CSX TRANSPORTATION, INC.
A VIRGINIA CORPORATION, FOR ITSELF AND
AS OPERATOR FOR NEW YORK CENTRAL LINES LLC,
A DELAWARE LIMITED LIABILITY COMPANY
AND A WHOLLY-OWNED SUBSIDIARY OF CONSOLIDATED RAIL CORPORATION,
A PENNSYLVANIA CORPORATION
and
PATHNET TELECOMMUNICATIONS, INC.,
A Delaware corporation
1
<PAGE> 2
TABLE OF CONTENTS
ARTICLE PAGE
1. Certain Definitions
2. Grant of License
3. Limitation of Rights; Railroad's Use Rights
4. Planning, Installation and Implementation
5. Permits
6. Fouling Track; Safety Rules
7. Track Use; Clearances; Crossings
8. Flagging; Watchmen
9. Facility Location Signs
10. Maintenance of Rail Corridor, Facilities
11. Railroad Approvals; Admissions
12. Railroad Expenses; Employee Costs
13. Liens and Encumbrances
14. Taxes
15. Sites for Non-Cable Facilities
16. Independent Contractor Status
17. Liability; Indemnity
18. Insurance
19. Notices
20. Relocations; Alterations
21. Line Sales; Abandonment
22. Condemnation
23. Pathnet Discontinuance
24. Railroad's Right to Require Suspension of Activities; Failure to Make
Timely Payment
25. Liaison; Coordination and Disputes Resolution
xiii
<PAGE> 3
26. Termination; Removal
27. Document Confidentiality
28. General Terms
xiii
<PAGE> 4
EXHIBIT SUMMARY
EXHIBIT A-1 Route Plan
EXHIBIT A-2 As-Built Drawing(s)
EXHIBIT B Planning, Installation and Implementation of Pathnet's System
EXHIBIT C Standard Lease Form (Form 3014-FO)
EXHIBIT D Sign(s) Design
(copy)
EXHIBIT E Specifications for Underground Cable Crossings Under Tracks and
(copy) Rights of Way
EXHIBIT F Communications Manual Part 1-B-1, Paragraphs A through S and
(copy) Specifications for the Construction of Railroad
Communication Pole Lines
EXHIBIT G Specifications for the Attachment of Cables to Railroad Bridges
EXHIBIT H Emergency and Disaster Responses
EXHIBIT I Specifications for Pole(s), Cable Crossing Installation Over
(copy) Railroad Tracks and Operating Right-of-Way
EXHIBIT J EB-2 Schedule
EXHIBIT K Arbitration or Mediation Resolution Procedures
EXHIBIT L Pathnet's Authorization for Fiber Optic Cable Work (sample)
EXHIBIT M Fiber Optic Installation SOP (Standard Operating Procedure,
(copy) MWI 1905-01, Issued 6/30/98)
14
<PAGE> 5
RIGHT OF WAY OPERATING AGREEMENT
THIS RIGHT OF WAY OPERATING AGREEMENT (this "Operating Agreement"),
is made as of ____________, 1999 (the "Effective Date"), by and between CSX
TRANSPORTATION, INC., a Virginia corporation ("CSXT"), for itself and as
Operator for New York Central Lines LLC, a Delaware limited liability company
("NYC Lines") and a wholly-owned subsidiary of Consolidated Rail Corporation, a
Pennsylvania corporation (CSXT and NYC Lines, collectively, "Railroad"), whose
mailing address is 500 Water Street, Jacksonville, Florida 32202, and PATHNET
TELECOMMUNICATIONS, INC., a Delaware corporation ("Pathnet"), whose mailing
address is 1015 31st Street, N.W., Washington, D.C. 20007.
R E C I T A L S
A. Railroad is the owner or operator of a continuous right-of way
(by fee, easement, license, operating agreement, joint use agreement or other
interest) within certain real property upon which it operates an interstate rail
transportation system, as shown on Railroad's current System Map (hereinafter
referred to as the "Rail Corridor").
B. Pursuant to the Contribution Agreement and Stockholder Agreement
being executed in connection herewith, Pathnet desires to enter into an
agreement with Railroad to permit Pathnet to install, market, sell and/or
maintain a Fiber Optic Communication System, including Conduit (Innerduct),
Cable, Optical Fibers and related equipment and structures, along, in and on up
to [ * * * ] miles of Rail Corridor, along Segments of the Rail Corridor to be
selected in accordance herewith.
C. Pursuant to the Contribution Agreement and Stockholder Agreement
being executed in connection herewith, Railroad is willing to transfer certain
property interests to Pathnet in exchange for stock in Pathnet, provided that
Pathnet accepts a license to use the selected Segments of the Rail Corridor
subject to all of the terms and conditions of this Operating Agreement and the
Fiber Optic Access and License Agreement being entered into by and between
Railroad and Pathnet concurrently herewith (hereinafter, the "License Agreement"
and, together with this Operating Agreement, the "Agreements"), which Agreements
provide, among other things, that (i) the license granted thereby shall be
subject to the existing rights and interests of other parties, including,
without limitation, [ * * * ] and [ * * * ], and (ii) Railroad makes no
representation or warranty with respect to its right, title or interest, if any,
in and to any portion of the Rail Corridor or its right to grant any type of
license or other right for any party, including Pathnet, to use or occupy the
same.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Railroad and Pathnet hereby agree as
follows:
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<PAGE> 6
1. CERTAIN DEFINITIONS.
1.1 General Interpretive Principles. For purposes of this Operating
Agreement, except as otherwise expressly provided or unless the context
otherwise requires, (i) the terms defined in this Section have the meanings
assigned to them in this Section and include the plural as well as the singular,
and the use of any gender in this Operating Agreement shall be deemed to include
the other gender; (ii) the word "including" means "including, but not limited
to," and (iii) the article, section and paragraph headings in this Operating
Agreement are for convenience only and are not intended to describe, interpret,
define or limit the scope, extent, or intent of any of the provisions of this
Operating Agreement.
1.2 Incorporation of Recitals. The Recitals set forth above are
incorporated herein by this reference
1.3 Definitions. As used in this Operating Agreement, the following terms
shall have the following respective meanings (unless otherwise expressly
provided):
"Abandonment", when applied to a Rail Corridor, shall mean the application
to (and approval of) the necessary and applicable governmental body for
permission to cease all public rail transportation over any Segment of Rail
Corridor and the removal of all Railroad property, tracks and ties, excluding
permitted or required rail banking conveyances.
"Affiliate" shall mean any Person that, directly or indirectly, through
one or more intermediaries, controls or is controlled by, or is under common
control with, another Person. The term "control," for this purpose, shall mean
the ability, whether by the ownership of shares or other equity interest, by
contract or otherwise, to elect a majority of the directors of a corporation,
independently to select the managing partner of a partnership or the managing
member of a limited liability company, or otherwise to have the power
independently to remove and then select a majority of those Persons exercising
governing authority over an entity. Control shall be conclusively presumed in
the case of the direct or indirect ownership of fifty percent (50%) or more of
the equity interests in an entity.
"Agreements" shall be as defined in Recital C.
"As-Built Drawing" shall comprise Pathnet's Construction Plans, revised to
reflect all changes made during actual construction, and shall show, without
limitation, the exact location of Pathnet's System and Facilities in relation to
the nearest track, and shall, upon submission to and approval by Railroad, be
attached hereto as Exhibit A-2.
"Broadform Telecommunications Rights" shall mean, exclusive of the Limited
Telecommunications Rights granted hereunder, the right of owners of and other
parties with interests in the land underlying the Rail Corridor to license
generally, for telecommunications purposes, any and all portions of Rail
Corridor.
"Cable" shall mean a single cable containing Optical Fiber, and any
support material and protective casing, capable of transmitting data or voice
communications in a Fiber Optic Communication System.
2
<PAGE> 7
"Conduit (Innerduct)" shall mean a single duct or pipe, not exceeding two
inches (2") inside diameter, except where specifically required or approved by
Railroad, suitable for housing a Fiber Optic Cable.
"Conduit Right-of-Way" shall mean that portion of the Designated Rail
Corridor on which Pathnet's Fiber Optic Communication System and Facilities
(other than microwave and transmission towers) are located.
"Construction Plans" shall mean the drawings, plans and specifications for
the construction and installation of Pathnet's System and Facilities, showing
the proposed location of all Pathnet's System and Facilities, in sufficient
detail, with distance shown from nearest track, with separate detailed drawings
of all junction, Repeater (Regen) Sites, bridge and tunnel occupancies, showing
depth of installation, details and methods of the proposed construction, with
numbers and size of Conduit(s) (Innerduct(s)) or bare Cable(s) to be placed,
including Optical Fiber count and total mileage for each Segment. Construction
Plans shall clearly note Railroad Valuation Map references, Railroad Survey
Station and Milepost references for all beginning and ending points and all
alignment transition points. Each set of Construction Plans for each Segment
shall have an overview map showing all of the required information.
"Contracted Railroad Personnel" shall mean, for purposes of the
establishment of liability between and among the contracting parties of this
Operating Agreement only, those employees of Railroad utilized in performing or
directly involved in the route designation, inspection, survey, design, plan,
installation, construction, maintenance or operation of Pathnet's Facilities or
System, upon request of Pathnet or as otherwise required or permitted by this
Operating Agreement; and the same shall be considered as sole agents or servants
of Pathnet when performing such activity.
"Contribution Agreement" shall mean that certain Contribution Agreement
dated as of ____________, 1999 by and between, among others, Railroad and
Pathnet.
"CSXT Corridor" shall mean, subject to Section 2.1 of the License
Agreement, all of the Rail Corridor exclusive of the NYC Corridor, as described
in Exhibit 2 attached to the License Agreement.
"CSXT" shall mean CSX Transportation, Inc., any of its predecessor
railroads, and any successor by merger, consolidation or reorganization.
"Default Rate" shall mean a rate of interest equal to the lesser of (a)
the Prime Rate plus five percent (5%) per annum, or (b) the highest non-usurious
rate permitted under applicable law.
"Designated Rail Corridor" shall mean a Segment of the Rail Corridor
selected by Pathnet and approved by Railroad in accordance with the terms of the
Agreements.
"Discontinuance," when related to bare Conduit (Innerduct) or dark Optical
Fiber within Pathnet's Fiber Optic Communication System or Segment thereof,
shall mean that Pathnet has ceased dedicating commercially reasonable efforts to
the sale and marketing of telecommunications products and services on the
applicable Segment for a period of six consecutive (6) months and when related
to lit Optical Fiber within Pathnet's Fiber Optic Communication System or
Segment thereof, shall mean, for a period of six (6) consecutive
3
<PAGE> 8
months, complete (a) disconnection from power source; (b) disconnection from
terminal; or (c) cessation of transmission of signal through such Segment or
System. Such term shall not include a temporary disconnection or cessation of
transmission during periods of maintenance or repair of the Fiber Optic
Communication System.
"Engineer" shall mean the Chief Engineer of CSXT, or the authorized
representative(s) thereof.
"Facilities", when applied to property of or installed by Pathnet, shall
mean Conduit (Innerduct), Cable, carrier pipes, Pathnet wires and poles, Optical
Fibers, junctions, Repeaters (Regens), Handholds, terminals, power sources,
fault alarm system(s), emergency equipment storage shelters, attachments, and
all other structures and articles of personal property connected with, necessary
for, appurtenant to, or useful to the installation, operation, maintenance,
repair, re-installation, replacement, relocation or removal of Pathnet's Fiber
Optic Communication System.
"Fiber Optic" or "Optical Fiber" shall mean a strand of optical waveguide
permitting the transmission of communications signals.
"Fiber Optic Communication System" or "System" shall mean the system
utilizing Optical Fiber as the medium for communications and transmission to be
installed by Pathnet in the Designated Rail Corridor, which may contain
Conduit(s) (Innerduct(s)), Cable(s) and Optical Fiber(s). Such terms shall
include all Conduit (Innerduct), Cable, Optical Fiber, Handholds, manholes,
marker tape, signs, couplers, structure attachment, pull rope, other necessary
ancillary hardware, and bridge, tunnel and trestle attachments, and shall also
include such communications technologies as may hereafter evolve from or
relating to Optical Fiber but which utilize Pathnet's Facilities and/or System
as initially installed or as thereafter modified pursuant to the Agreements.
"Fouling of Tracks" or "Fouled" shall mean the existence, movement or
placement of equipment and/or personnel on a railroad track or within twelve
feet (12') of the centerline of any track within the Rail Corridor.
"Handholds" shall include Cable loops, or boxes or vaults placed in or
above ground at junctions, Repeaters (Regens) or at areas of Cable splicing and
connection, for storage of slack Cable.
"License Agreement" shall have the meaning set forth in Recital C.
"Limited Telecommunications Rights" shall mean Pathnet's right to
construct, install, operate, repair and maintain Pathnet's Facilities and System
as more particularly described in, and subject to the terms and conditions of,
the Agreements, including, without limitation, those contained in Article 6 of
the License Agreement.
"NYC Corridor" shall mean that certain portion of the Rail Corridor
operated by CSXT pursuant to that certain Operating Agreement dated as of June
1, 1999 by and between New York Central Lines LLC, as owner, and CSXT, as
operator, as described in Exhibit 2 to the License Agreement.
"Optical Fiber" shall mean Fiber Optic.
4
<PAGE> 9
"Pathnet" shall mean Pathnet as defined in the introductory paragraph of
this Agreement, any successor by merger, consolidation or reorganization, and
its permitted assignees. For purposes of Pathnet's construction, maintenance,
repair, replacement or removal of Pathnet's System and/or Facilities, "Pathnet"
shall also mean Pathnet's employees, agents, servants, contractors and
subcontractors.
"Person" shall mean any individual, association, partnership, limited
liability company, corporation, joint stock company, trust, joint venture,
unincorporated organization or governmental entity or any department, agency or
political subdivision thereof.
"Prime Rate" shall mean the prime rate of U.S. money center commercial
banks as published in The Wall Street Journal from time to time.
"[ * * * ] Obligations" shall be as defined in the License Agreement.
"Railroad" shall mean Railroad as defined in the introductory paragraph of
this Agreement, any of its predecessor railroads (including Consolidated Rail
Corporation), any successor by merger, consolidation or reorganization, and its
permitted assignees. For the purposes of Article 17 (excluding the
indemnification obligation in Section 17.2 which shall be limited to Railroad as
defined in the introductory paragraph of this Agreement) and Article 18 only,
the term "Railroad" shall also include all Affiliates of CSXT, Affiliates of NYC
Lines and their respective officers, directors, employees and agents.
"Rail Corridor" shall have the meaning set forth in Recital A.
"Relocation", when related to alteration or removal of Railroad's track
from Rail Corridor, shall mean: (a) change in track grade or location in order
to avoid or eliminate curvature problems; (b) creation or deletion of double or
multiple tracks; or (c) installation of additional passing tracks, storage
sidings, spur or industrial lead tracks, and other track movement for operating
or shipping needs or plans of Railroad. The term, however, shall not include
Abandonment or complete removal of any particular tracks in conjunction with
termination or Abandonment of a service route, branch or main line.
"Repeater (Regen)" shall mean a device which regenerates, amplifies or
extends optical signals, used to send the light impulse through Optical Fiber,
and includes attendant equipment, facilities, power source, and technological
changes.
"Repeater (Regen) Sites" shall mean those permitted portions of the Rail
Corridor on which Repeaters (Regens) are located; and shall be limited to an
area of five hundred (500) square feet or less, and located beyond the
Restricted Working Area, unless otherwise specifically permitted in writing by
Railroad
"Restricted Working Area" shall mean the area parallel to and located
thirty feet (30') (or the top of any ditch slope if that distance is greater
than thirty feet (30')) from the centerline of the outermost track (on each
side) in the Rail Corridor.
5
<PAGE> 10
"Route Plan" shall mean the plan showing the route of placement of
Pathnet's Facilities and System in, on or over Segments of Railroad's Rail
Corridor, as prepared by Pathnet and approved in writing by Railroad, as shown
on Exhibit A-1 attached hereto.
"Segment" shall mean either a longitudinal section of Rail Corridor or a
longitudinal section of Conduit (Innerduct) or Cable installed by Pathnet, as
applicable.
"Stockholder Agreement" shall mean that certain Stockholder Agreement
dated as of ____________, 1999 by and between, among others, Railroad and
Pathnet.
"System" shall mean Fiber Optic Communication System.
"Title Deficient Areas" shall mean those portions of the Rail Corridor, if
any, for which Railroad holds title in less than fee simple absolute and for
which Railroad may not otherwise have the right to grant to Pathnet the license
for use and occupancy as contemplated by the License Agreement.
"Trackage Rights" shall mean the rights arising by agreement of one
railroad to use the tracks or right-of-way of another railroad for the carriage
of rail traffic; said agreement ordinarily imparting no ownership interest in
the burdening carrier relating to the tracks or rights-of-way of the burdened
carrier.
"Valuation Maps" shall mean Railroad's Rail Corridor maps, prepared by
Railroad originally in 1913-1919 under 49 U.S. Code Sections 19 and 19a (now
Sections 10781-10783) for the U.S. Surface Transportation Board, successor to
the Interstate Commerce Commission ("S.T.B"), and the S.T.B. regulations, as
updated from time to time.
"[ * * * ] Obligations" shall be as defined in the License Agreement.
2. GRANT OF LICENSE
2.1 Exercise of Rights Under License Agreement. Pursuant to the terms of
the License Agreement, Pathnet has been granted a license to select and utilize
up to [ * * * ] miles of Rail Corridor (including up to 2,000 miles of NYC
Corridor) for the installation and operation of its System and Facilities. The
rights and interests granted under the License Agreement shall be implemented in
accordance with the terms and provisions of this Operating Agreement. The term
of this Operating Agreement shall be concurrent with the term of the License
Agreement.
2.2 Construction of the Facilities. Construction of the System and
Facilities by Pathnet shall occur in accordance with the following:
(a) Access and Construction. All access and construction activities on
the property by Pathnet shall be conducted in strict accordance with the
requirements of this Operating Agreement and the Exhibits hereto. In the event
of any conflict between the terms of the Exhibits and the body of this Operating
Agreement, the provisions of the body of this Operating Agreement shall control.
(b) Right to Audit. Railroad shall have the right, during regular
business hours, upon reasonable notice to Pathnet, and at mutually agreeable
times, to conduct field examinations
6
<PAGE> 11
of Pathnet's Facilities and System in the presence of an authorized
representative of Pathnet and to examine and audit such books and records of
Pathnet as are appropriate and necessary, in Railroad's sole discretion, to
determine and verify (i) the number and size of Conduits (Innerducts) installed
by Pathnet in the Designated Rail Corridor pursuant to the Agreements, and (ii)
such other items related to Pathnet's compliance with the terms of the
Agreements, as reasonably determined by Railroad. This audit right shall survive
the expiration or other termination of the Agreements for a period of three (3)
years.
3. LIMITATION OF RIGHTS; RAILROAD'S USE RIGHTS.
3.1 Limitation of Rights. Pathnet, at Pathnet's sole risk, cost and
expense, shall furnish all materials, construct, maintain, use, change or remove
Pathnet's Facilities and System or any part thereof, in accordance with the
design, specifications and plans approved as provided in this Operating
Agreement, in a manner reasonably satisfactory to Railroad, all in a prudent and
workmanlike manner, in conformity with any applicable statutes, orders, rules,
regulations and specifications of any public body having jurisdiction thereof,
and so as not to interfere with or endanger, in the sole judgment of Railroad,
any property, traffic (freight or passenger), operations (direct or via Trackage
Rights), maintenance, employees or patrons of Railroad, or of others occupying
or using the property of Railroad for railroad operational purposes at each
location, including other lessees or licensees of Railroad. Railroad may
prohibit development on any Rail Corridor where development would unreasonably
interfere with Railroad's current or reasonably foreseeable future development
for railroad purposes. Pathnet shall be limited to a single build (one-time
placement) in a single trench on each Segment of the Designated Rail Corridor
unless Railroad approves an additional trench, which approval may be withheld in
its sole discretion.
3.2 Railroad's Use Rights. Subject to the terms and provisions of the
Agreements, the rights of Pathnet hereunder shall not limit nor preclude
Railroad's use of its Rail Corridor for other uses and purposes, including
placement and operation of Railroad's own tracks(s), signal and communication
systems (of whatever nature); nor shall this Agreement bar or limit placement
and operation of any other pipe, conduit, cable, optical fiber or wire line by
Railroad or its licensee(s), which does not unreasonably interfere with
Pathnet's Facilities or Fiber Optic Communication System.
4. PLANNING, INSTALLATION AND IMPLEMENTATION.
The procedures and conditions for planning, installation and
implementation of Pathnet's System and Facilities are defined in Exhibit B,
attached hereto.
5. PERMITS.
5.1 Permit Requirements. Pathnet, at its sole cost and expense, shall
secure and maintain in effect all federal, state and local approvals,
authorizations, permits and licenses required for the construction,
installation, operation, maintenance, repair, replacement and/or removal of
Pathnet's Facilities and System, including zoning, building, health,
environmental and communication service permits and licenses, and shall
indemnify Railroad against claims for payment therefor and against any claims
for fines or penalties that may be levied for failure to procure, or to comply
with, such approvals, authorizations, permits or licenses, and any remedial
costs to cure any violations thereof. Without limiting the foregoing, any
development or
7
<PAGE> 12
environmental impact statements required for the Facilities or System shall be
prepared by Pathnet, at Pathnet's sole risk, cost and expense, and all costs for
local zoning, construction and subdivision compliance, approval and permits,
shall be borne solely by Pathnet.
5.2 Railroad Cooperation. Railroad shall not hinder Pathnet's attempts to
secure, and shall cooperate with and assist Pathnet, at Pathnet's cost and
expense, in obtaining, any permits, licenses or approvals of governmental
agencies or authorities, or of any necessary third parties, for use of any
structures or facilities (including streets, roads or utility poles) along the
Designated Rail Corridor not solely owned by Railroad.
6. FOULING TRACK; SAFETY RULES.
6.1 Railroad Safety and Operating Rules. Pathnet employees, agents,
contractors and/or subcontractors seeking to enter or engage in Fouling of
Tracks or any portion of the Rail Corridor (including tunnels and bridges) shall
be trained in the safety and operating rules established by Railroad from time
to time (the "Railroad Safety and Operating Rules"), and shall at all times wear
required identification badges and safety equipment (shoes, hardhat, goggles,
etc.). Pathnet shall bear all travel, lodging, course materials and other
similar costs of its attendees at any program given or administered by Railroad
to train such persons, and Railroad shall bear the costs associated with any
instructors.
6.2 Contracted Railroad Personnel. Railroad shall provide Contracted
Railroad Personnel, as necessary, at Pathnet's sole risk, cost and expense as
provided herein, to accompany Pathnet's employees, agents, contractors or
subcontractors during their presence on the tracks and the Rail Corridor.
6.3 Restriction Right. Notwithstanding any contrary provision contained
herein, Railroad reserves the right, in its sole discretion, to exclude or bar
specifically-named individuals from entrance upon Railroad's tracks and/or Rail
Corridor for demonstrating actions dangerous to themselves or others, or for
refusing to comply with Railroad's safety and operating rules, regulations or
directions, or for any other specific cause deemed sufficient in Railroad's sole
discretion.
7. TRACK USE; CLEARANCES; CROSSINGS.
7.1 Restricted Working Area. No goods, materials, equipment or fuel shall
be placed or stored within the Restricted Working Area.
7.2 No Vehicles. Pathnet shall not use Railroad's tracks for maintenance
or the placement of its vehicles without the prior written approval of such use
by Railroad's Engineer, which approval may be withheld in his or her sole
discretion.
7.3 Pathnet Track Support. During any work of any character at any
location on its System, Pathnet, at its sole risk, cost and expense, shall
support the tracks and roadbed of Railroad to prevent any interference or danger
as necessary in the sole judgment of Railroad's Engineer. Upon the completion of
all work, Pathnet shall restore such tracks, roadbed and other property of
Railroad to the same functional and operational condition as approved by
Railroad's Engineer, which approval may be withheld in his or her sole
discretion.
8
<PAGE> 13
7.4 Railroad Track Support. Railroad may perform or contract to have
performed any or all the work of supporting tracks and roadbed and of restoring
the same, at the sole risk, cost and expense of Pathnet, if (a) Pathnet fails to
perform such work timely or satisfactorily, (b) such work is required by
Railroad's labor agreements in existence at the time, or (c) requested by
Pathnet (subject to availability of Railroad's personnel and equipment and
satisfactory security for payment of costs by Pathnet).
7.5 Crossing Specifications. Crossings of Railroad's track and Rail
Corridor necessitated by difficulties in Conduit (Innerduct) or Cable
construction (i.e., locations of manmade or natural structures, waterways,
streets, etc.) shall be coordinated with and approved in writing by Railroad's
Engineer, which approval may be withheld in his or her sole discretion, and
installation of such crossings shall be in accordance with the requirements set
forth in Exhibit I, all at Pathnet's sole risk, cost and expense.
8. FLAGGING; WATCHMEN.
8.1 General. Railroad shall have the right, in its sole discretion and at
any time during any period of construction, maintenance, repair, renewal,
alteration or removal of Pathnet's System or Facilities, to place watchers,
flaggers, inspectors or supervisors, for the protection of the operations of
Railroad (including freight and passenger service) or the property of Railroad
(including Amtrak) or others (including Pathnet) on the Rail Corridor or other
Railroad property, at the sole risk, cost and expense of Pathnet.
Notwithstanding any contrary provision contained herein, watchmen, flagmen,
inspectors or supervisors placed upon the Rail Corridor or other Railroad
property while working on Pathnet's System or Facilities under this Article 8
shall be deemed to be Contracted Railroad Personnel of Pathnet.
8.2 Scheduling. Pathnet recognizes that because of Railroad's labor and
employment agreements: (a) the furnishing of any watchers or flaggers needs to
be requested at least thirty (30) days prior to actual work date for short term
flagmen or forty-five (45) days prior to actual work date for long term flagmen,
or such watchers/flaggers may not be available; (b) once a watcher/flagger is
designated, he/she cannot be pulled from the job less than seven (7) days prior
to work date, or cost thereof may be incurred by Pathnet; (c) once assigned, for
any period of time, such watcher/flagger must be paid for at least an eight (8)
hour shift, regardless of lesser hours worked; and (d) if Pathnet's needs
overlap ordinary shift turns (or tricks), Pathnet may incur flagging costs for
both shifts/tricks.
9. FACILITY LOCATION SIGNS.
9.1 Pathnet, at its sole cost and expense, shall furnish, erect and
thereafter maintain, signs showing the location of all underground Facilities
and Pathnet's contact telephone number. Such signs shall be painted and placed
in conformity with the provisions of Exhibit D attached hereto, or as otherwise
mutually agreed upon in writing by Railroad and Pathnet.
10. MAINTENANCE OF RAIL CORRIDOR, FACILITIES.
10.1 Maintenance of Conduit Right-of-Way. Unless Railroad and Pathnet
otherwise agree in writing, Railroad shall not be responsible for maintenance of
Pathnet's Conduit Right-of-Way, or for clearing or removing of trees, shrubs,
plants, ice, snow or debris therefrom. If
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Railroad agrees, at Pathnet's request, to extend maintenance to cover Pathnet's
Conduit Right-of-Way, Railroad shall cut, mow and/or treat such Conduit
Right-of-Way maintenance only at the same time as Railroad performs its own
track or Rail Corridor maintenance. Railroad shall perform such extended
maintenance at Pathnet's sole risk, cost and expense and Railroad's employees
performing such maintenance shall be deemed to be Contracted Railroad Personnel
of Pathnet. Railroad shall be reimbursed for all costs incurred, including,
without limitation, any and all billable expenses, labor costs (Railroad or
contract), supplies, parts, materials, etc., directly associated with such
extended maintenance program.
10.2 Maintenance of Facilities. Pathnet shall maintain its Facilities, and
all ancillary structures within Conduit Rights-of-Way, at Pathnet's sole risk,
cost and expense.
11. RAILROAD APPROVALS; ADMISSIONS.
11.1 Any approval given or supervision exercised by Railroad hereunder, or
failure of Railroad to object to any work done, material used or method of
construction or maintenance of Pathnet's System or Facilities, shall not be
construed as an admission of responsibility by Railroad or as a waiver of any of
the obligations of Pathnet under this Operating Agreement.
12. RAILROAD EXPENSES; EMPLOYEE COSTS.
12.1 General. Railroad's costs and expenses for work performed for or at
the expense of Pathnet pursuant to this Agreement (including review and approval
of Pathnet plans and designs) shall be paid by Pathnet within thirty (30) days
of Pathnet's receipt of itemized bills therefor irrespective of any billing
disputes. Interest on unpaid billed amounts shall accrue monthly after the first
thirty (30) days at an annual rate equal to the Default Rate. Pathnet shall have
ninety (90) days from payment to notify Railroad, in writing, of any billing
disputes. Billing disputes that are not resolved within sixty (60) days of such
notice shall be resolved in accordance with the provisions of Article 25.
12.2 Invoice Format. Railroad bills for labor or supervision shall
include: Railroad's Project I.D. Number, Pathnet's Project I.D. Number,
Pathnet's Authorization for Fiber Optic Cable Work (substantially in the form of
Exhibit L attached hereto), and the dates, locations, party names, hourly or
salaried billing rates, number of hours, outside expenses and total charge.
12.3 Permitted Costs and Expenses. Documented costs and expenses directly
attributable to work performed for Pathnet shall include only: (a) labor costs,
plus payroll overhead and additives applicable to each Railroad employee's
salary or hourly rate as set forth in Exhibit J and as may be modified or
updated from time to time by Railroad; (b) for contracted labor or consultants,
reasonable market-based amounts as billed to and paid by Railroad; (c) necessary
and reasonable travel and transportation expenses; (d) the reasonable,
market-based total cost of materials used and equipment rentals, plus actual
cost of freight charges and handling; and (e) reasonable rental cost for any
Railroad equipment used by Railroad or Pathnet or their respective employees or
contractors. Costs and expenses for Railroad's own labor and personnel, and
non-contract administrative overhead, shall be limited to the sum of (i) then
current hourly rate plus, (ii) applicable overhead and additives (which shall
include, but not be limited to, vacation, holiday, health and welfare, insurance
and supervision) in accordance with the applicable rates set forth in the then
current EB-2 Schedule in effect at the time the expense is
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incurred, published by Railroad and amended from time to time. The current EB-2
Schedule applicable as of the Effective Date is attached hereto as Exhibit J.
Updated EB-2 Schedules will be available upon Pathnet's written request.
12.4 Consultant. Railroad shall have the right, in its sole discretion, to
place a consultant on any installation site in lieu of Railroad's own
supervisory personnel, at Pathnet's sole cost and expense (provided such
expenses are reasonable, market-based and consistent with the provisions of
Section 12.3 above), to monitor installation and compliance with approved
Construction Plans, to log progress, and to log the time spent by Railroad
employees (including Contracted Railroad Personnel) in accordance with the
Agreements (by name, date and purpose). Such consultant shall advise Railroad
and Pathnet of any deviation from approved Construction Plans requested by
Pathnet or any of Pathnet's contractors.
12.5 Records. Railroad shall keep accurate records of all costs and
expenses attributable to Pathnet pursuant to the Agreements, and Pathnet shall
have the right, at Pathnet's sole cost and expense, to examine and copy the
applicable records of Railroad to verify that such charges accurately reflect
the costs and expenses thereof.
13. LIENS AND ENCUMBRANCES.
13.1 Pathnet shall not permit any mortgage, pledge, security interest,
lien or encumbrance, including, without limitation, tax liens or encumbrances
and liens or encumbrances with respect to work performed or equipment furnished
in connection with the construction, installation, operation, repair,
maintenance, replacement or removal of the System or Facilities or any portion
of the Rail Corridor occupied by Pathnet (collectively, "Liens or
Encumbrances"), to be established or remain against the Rail Corridor or any
other property of Railroad. In the event that any Railroad property becomes
subject to any Lien or Encumbrance, Pathnet agrees to pay, discharge, bond off
or remove the same within thirty (30) days of Pathnet's receipt of notice that
such Lien or Encumbrance has been recorded, filed or docketed against such Rail
Corridor or other Railroad property; provided, however, that if Pathnet provides
a bond or other security acceptable to Railroad for the payment and removal of
such Lien or Encumbrance, Pathnet shall have the right to challenge, at its sole
expense, the validity and/or enforceability of any such Lien or Encumbrance.
Pathnet shall indemnify, defend and hold Railroad harmless against all damages,
costs (including reasonable attorneys' fees) and expenses, arising out of any
lien, the enforcement or removal thereof, or encumbrance caused by the same,
with respect to the Rail Corridor or any portion thereof or any other Railroad
property.
14. TAXES.
14.1 Transfer Taxes. Except as provided in Section 14.4 of this Operating
Agreement, Pathnet shall pay all transfer or recordation taxes, documentary
stamps, and any similar expenses in connection with the transfer or execution of
the License (as defined in the License Agreement), this Operating Agreement, the
Contribution Agreement, the System and/or the Facilities.
14.2 Sales and Use Taxes. Except as provided in Section 14.4 of this
Operating Agreement, if, pursuant to the Agreements or the Contribution
Agreement (i) the sale, acquisition, license, grant, transfer or disposition of
property or rights, or (ii) the payment
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of any fee or compensation or the payment to Railroad for services provided
thereunder, requires the payment of any sales or use tax (including any Canadian
GST or provincial sales tax) under any statute, regulation or rule, Pathnet
shall pay the same, plus any penalty or interest thereon, to Railroad when due
or if allowable, directly to such taxing authority, and shall indemnify and hold
Railroad harmless therefrom.
14.3 Property Taxes. Pathnet shall pay all annual and periodic ad valorem
and other taxes levied or assessed upon Pathnet's Facilities or the System, and
shall indemnify and hold Railroad harmless therefrom.
14.4 Taxes Payable by Railroad. Pathnet shall have no responsibility for
(i) any taxes (including but not limited to transfer, sales, use, income or
property taxes), assessments or other impositions attributable to Conduit
(Innerduct) or other telecommunications assets or services provided to Railroad
pursuant to Article 8 of the License Agreement; (ii) taxes based on Railroad's
income or corporate franchise; or (iii) property or franchise taxes that are
attributable to the Rail Corridor and not to Pathnet's Facilities or System.
Railroad shall reimburse Pathnet for any such taxes, assessments or impositions
within thirty (30) days after written request.
14.5 Mutual Cooperation. Each party shall cooperate with the other party,
at the first party's sole cost and expense, in the prosecution of any claim for
refund, rebate, reduction or abatement of any taxes which are the responsibility
of the first party under the Agreements or the Contribution Agreement, provided
that a reasonable basis exists for such refund, rebate, reduction or abatement.
The first party shall reimburse the second party for all reasonable out of
pocket expenses incurred in connection therewith. Notwithstanding any other
provision of this Section, the first party is not obligated to pay or reimburse
the second party for any tax for which the first party is liable under this
Section if the party first elects to prosecute a claim for reduction or
abatement of such taxes and prepayment thereof is not a condition to prosecuting
the claim. The first party shall pay or reimburse the second party for any such
taxes when the taxes finally are adjudged to be due and owing by the highest
administrative or judicial authority to which an appeal has been taken.
15. SITES FOR NON-CABLE FACILITIES.
15.1 Non-Cable Areas. Railroad, insofar as it has the right and can
reasonably do so, shall make available to Pathnet for Pathnet's sole use, areas
not to exceed five hundred (500) square feet within the Designated Rail Corridor
for use by Pathnet as Repeater (Regen) Sites, or power or auxiliary power
stations, or sites for construction facilities or temporary storage of materials
and fuel for power stations. Railroad shall have no duty to provide such sites
at a requested location if the width, nature or other uses or planned uses of
the Rail Corridor by Railroad at such location or if restrictions on Railroad's
title or interest in the property preclude such use by Pathnet.
15.2 Adjacent Land. If for any reason, Railroad is unable to provide such
site within the Designated Rail Corridor, and Railroad has available adjacent
land suitable for the location of such site, then Railroad shall furnish the use
of a reasonable portion of such adjacent land to Pathnet for such site at a fee
to be negotiated; provided, however, that such use will not interfere with
Railroad's current or reasonably foreseeable future use of such property. Such
adjacent land usage shall be documented by Railroad's standard form lease, the
form of which is attached hereto as Exhibit C.
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15.3 No Obligation as to Third Parties. Notwithstanding the provisions of
Sections 15.1 and 15.2, Railroad shall have no obligation to provide or make
available any portion of any adjacent land or allow the expansion of any
structure of Pathnet located thereon beyond five hundred (500) square feet or
such additional size initially improved by Pathnet with the approval of
Railroad, which approval may be withheld in its sole discretion, for use by
third party purchasers, sublicensees, transferees or permitted assignees. Any
such accommodation shall be at a fee to be negotiated, shall not interfere with
Railroad's current or future use of such property and shall be documented by
Railroad's standard form lease, the form of which is attached hereto as Exhibit
C. This Section 15.3 shall not apply to Pathnet's partners in development of the
Rail Corridor, and shall not restrict Pathnet's ability to make space in
Pathnet's existing Facilities available to third parties on such terms as
Pathnet determines in its sole discretion. Pathnet shall, except to the extent
caused by Railroad's gross negligence or willful misconduct, (i) assume
responsibility for any and all claims, liabilities, damages, costs (including
reasonable attorneys' fees) and expenses arising out of or based upon the acts
or omissions of any such third party in or around such non-cable facilities, the
Rail Corridor or other Railroad property, and (ii) indemnify, defend and hold
Railroad harmless from and against any and all losses and damages suffered by
such third party as a result of the presence of such third party or its
facilities or equipment in or around such non-cable facilities, the Rail
Corridor or other Railroad property.
15.4 Rent. Rents for any land(s) outside of the Designated Rail Corridor,
or for lands within the Designated Rail Corridor in excess of five hundred (500)
square feet or for uses other than those described in Section 15.1, shall be at
a fee to be negotiated.
15.5 Approval of Structure. The location and size of any buildings or
other structures to be placed by Pathnet or any third party within Railroad's
Rail Corridor or on Railroad's other property shall be as approved by Railroad's
Engineer, which approval may be withheld in his or her sole discretion, on plans
submitted in accordance herewith.
16. INDEPENDENT CONTRACTOR STATUS.
16.1 Except with respect to the Contracted Railroad Personnel, Railroad
reserves no control whatsoever over the employment, discharge, compensation of
or services rendered by Pathnet's employees, agents or contractors, and it is
the intention of the parties that Pathnet shall be and remain a licensee and
that nothing herein shall be construed as inconsistent with that status or as
creating or implying any partnership or joint venture relationship between
Pathnet and Railroad.
17. LIABILITY; INDEMNITY.
17.1 Pathnet's Release and Indemnification. Recognizing that Railroad has
owned and/or operated the Rail Corridor for many years prior to the Effective
Date and prior to entry thereupon by employees, agents, contractors or
representatives of Pathnet, and in addition to the indemnities otherwise
provided in the Agreements, Pathnet hereby assumes, releases and shall defend,
indemnify, protect and save Railroad harmless from and against the following:
(a) All claims, liabilities, losses, damages, causes of action,
costs, and expenses (including reasonable attorneys' fees and costs) arising
from: (1) damage to or destruction of Pathnet's Facilities or System except to
the extent attributable to the willful misconduct of
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Railroad, its employees or contractors and (2) loss of service or use of
Pathnet's Facilities or System or loss of revenue or profit therefrom, including
any claim or loss to any client, customer, patron or other purchaser,
transferee, sublicensee or permitted assignee of Pathnet's rights or services
resulting from any damage to or destruction of Pathnet's Facilities or System.
Railroad shall not under any circumstances be liable for interruption of or
damage to the installation, operation, maintenance or repair of Pathnet's
Facilities or System unless attributable to the willful misconduct of Railroad,
its employees (including Contracted Railroad Personnel), agents, contractors, or
other parties performing services for Railroad. In no event shall Railroad be
liable for loss of income, cost of substitute service, or other consequential
damages of any kind;
(b) All claims, liabilities, losses, damages, causes of action,
costs, and expenses (including reasonable attorneys' fees and costs) arising
from injury to or death of any persons on or about Pathnet's Facilities or
System, including, but not limited to, Pathnet's employees, agents, contractors,
subcontractors, invitees, or other such third parties, purchasers, transferees,
permitted assignees, licensees or sublicensees, resulting from the existence,
construction, maintenance, operation, use, repair, change, placement,
replacement, relocation and/or subsequent removal of Pathnet's Facilities or
System, or any part thereof, or the use of the Rail Corridor or other Railroad
Property, regardless of any approvals, reviews, controls or standards imposed by
Railroad or other actions of Railroad, unless such claims, losses, damages,
causes of action, costs, and expenses (including reasonable attorneys' fees and
costs) result from the willful misconduct of Railroad;
(c) All claims, liabilities, losses, damages, causes of action, costs
and expenses (including reasonable attorneys' fees and costs) arising from any
breach of the Agreements by Pathnet, including, but not limited to, any failure
of Pathnet to support track and/or roadbed, as provided herein or any failure of
Pathnet to secure permits or other approvals as provided herein, regardless of
cause, including Railroad's negligence, but excluding Railroad's willful
misconduct;
(d) All claims, liabilities, losses, damages, causes of action,
costs, and expenses (including reasonable attorneys' fees and costs) arising
from any slide, soil disturbance or environmental damage or impairment resulting
from the existence, construction, installation, maintenance, operation, use,
repair, change, placement, relocation and/or subsequent removal of Pathnet's
Facilities or System, regardless of cause, including Railroad's negligence, but
excluding Railroad's willful misconduct;
(e) Any claim (regardless of merit), loss or damages awarded, whether
civil or criminal, under any antitrust laws, or under any federal, state or
local regulatory actions, attributable to issues arising under the Agreements,
it being understood and agreed that this indemnity shall not apply to any
claims, loss or damage arising out of any other agreement between the parties
or the parties' performance thereunder, including the contributions set forth
in the Contribution Agreement; in any such actions, Railroad shall have the
right to designate and/or employ independent counsel, if deemed necessary by
Railroad, to protect its interests, and the expense of such representation
shall be paid or reimbursed by Pathnet;
(f) Reserved.
(g) All claims, liabilities, losses, damages, causes of action,
costs, and expenses (including reasonable attorneys' fees and costs) arising
from any damage or injury to (including
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loss of use or service of or loss of revenue or profit from) any facilities,
cables, wires, pipes, casings, conduits, innerducts or ducts of any other party
or Conduit Right-of-Way operator or user, licensee, sublicensee, transferee,
purchaser or permitted assignee arising out of or related to any act or omission
of Pathnet or Pathnet's employees, agents, contractors, subcontractors,
licensees, sublicensees, customers, partners, the Contracted Railroad Personnel
or others acting at the direction of any of the foregoing, unless caused by the
willful misconduct of Railroad or Contracted Railroad Personnel;
(h) All claims, liabilities, losses, damages, causes of action,
costs, and expenses (including reasonable attorneys' fees and costs) arising
from any act or omission of Pathnet or Pathnet's employees, agents, contractors,
subcontractors, licensees, sublicensees, customers, partners, the Contracted
Railroad Personnel or others acting at the direction of any of the foregoing
which are not expressly assumed by Railroad under Section 17.2.
17.2 Railroad's Indemnification. Railroad hereby assumes responsibility
for, and shall indemnify, defend and hold Pathnet harmless from, claims,
liabilities, losses, damages, causes of actions, costs, and expenses (including
reasonable attorneys' fees and costs) arising from:
(a) Death of or injury to any employee(s) of Railroad or Railroad's
Affiliates, other than Contracted Railroad Personnel;
(b) Destruction of or damages to any Railroad or Railroad Affiliate
facilities or equipment (moving or stationary) or property;
(c) Interruption to or cessation of freight rail service;
(d) The willful misconduct of Railroad's Affiliates or,
notwithstanding anything to the contrary contained herein, Contracted Railroad
Personnel.
UNLESS such claim, liability, loss, damage, cause of action, cost or expense is
caused by, arises from, or results in whole or in part from:
(i) any act or omission of Pathnet (including, but not limited
to, any improper or negligent plan and/or design, construction, installation,
maintenance, placement, operation, repair, relocation use or removal of
Pathnet's System or Facilities);
(ii) any breach of the Agreements by Pathnet;
(iii) any direct rescheduling, delay or diversion costs, as set
forth in Exhibit B; or
(iv) any matter which is the subject of Pathnet's release and
indemnification in Section 17.1.
17.3 Notice of Claims; Indemnification Procedures. Upon receipt of notice
by Railroad or Pathnet, as applicable, (the "Indemnitee"), of any loss, event,
happening or occurrence which would be the basis of a claim by the Indemnitee
under the provisions of this Article 17 (an "Indemnified Claim"), the Indemnitee
shall immediately provide written notice to the other party (the "Indemnitor")
of such Indemnified Claim. So long as the Indemnitor is not in default in the
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performance of its obligations under the Agreements, as between the Indemnitee
and the Indemnitor, the Indemnitor shall retain primary responsibility for the
conducting of any legal and/or administrative action or other proceeding
regarding any such Indemnified Claim (an "Indemnified Claim Proceeding") and the
defense (and any appropriate appeal) thereof. Legal counsel retained with
respect to any Indemnified Claim proceeding shall be selected by the Indemnitor,
but shall be subject to the reasonable prior approval of the Indemnitee. As
between the Indemnitee and the Indemnitor, all costs incurred with respect to
any Indemnified Claim Proceeding (including, but not limited to, reasonable
costs and attorneys' fees) shall be borne by the Indemnitor, and the
Indemnitor's indemnification obligations set forth in this Article 17 shall
extend to all such costs. Nothing contained herein shall in any way limit the
Indemnitee's right to participate and/or retain independent legal counsel, at
the Indemnitee's expense, with respect to any Indemnified Claim proceeding, but
the Indemnitee shall cooperate with the Indemnitor and coordinate Indemnitee's
participation and/or use of such independent counsel in a matter not
inconsistent with Indemnitor's positions and interests in such Indemnified Claim
Proceeding, to the extent reasonably possible and not adverse to the interests
of Indemnitee. Notwithstanding the foregoing, in the event Indemnitee
determines, in Indemnitee's reasonable opinion, that there is a conflict of
interest or other circumstance whereby such Indemnitor's retained legal counsel
cannot adequately represent Indemnitee's interests in any Indemnified Claim
Proceeding, Indemnitee shall have the right to retain independent legal counsel
and Indemnitor's indemnification obligations set forth in this Article 17 shall
extend to all costs incurred with respect to such separate representation. In
the event that an Indemnitor defends an Indemnitee pursuant to the terms hereof,
and the final adjudication determines that the Indemnitee bears some portion of
liability under the Indemnified Claim which is not subject to the Indemnitor's
indemnification obligations hereunder, the costs of such defense will be
apportioned between the Indemnitor and Indemnitee based upon such parties'
ultimate liability after giving effect to the indemnification provisions hereof.
Any settlement of an Indemnified Claim shall be subject to the written approval
of both the Indemnitee and the Indemnitor. Indemnification payment shall be made
within thirty (30) days of such approval.
17.4 Exceptions to Liability. Notwithstanding any contrary provision
contained herein, (a) Railroad shall not have any liability whatsoever for any
death of or injury to persons or damage to or loss of property arising from or
resulting in connection with any train derailment, and Pathnet hereby releases
Railroad and its Affiliates from any and all claims, liabilities, losses,
damages, causes of action, costs and expenses (including reasonable attorneys'
fees and costs) arising from or resulting in connection with any train
operation, accident or derailment, irrespective of the negligence, gross
negligence or willful misconduct of Railroad, and (b) Pathnet shall have no
liability relating to any Conduits (Innerducts) installed for or capacity sold
or made available to Railroad pursuant to the License Agreement; provided,
however, that (x) any such Conduits (Innerducts) shall be of equal or greater
quality as Pathnet's own Conduits (Innerducts), and (y) Pathnet shall grant the
same remedies to Railroad with respect to such capacity as Pathnet grants to its
customers in the ordinary course of its business (e.g., outage credits, it being
understood that Pathnet shall not be obligated to make any monetary payments as
a remedy in connection with such capacity), which Railroad acknowledges may not
provide it with any incremental benefit.
17.5 Survival. The provisions of this Article 17 shall survive the
expiration or earlier termination of the Agreements.
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18. INSURANCE.
18.1 Railroad Protective Liability Insurance. Before any period of
construction of any portion of the System or Facilities (including preliminary
surveys and inspections), Pathnet shall purchase, or cause its contractor(s) to
purchase, and to maintain in full force and effect, Railroad Protective
Liability Insurance ("RPL") naming Railroad as the insured. Said RPL policy
shall be written on the form prescribed in the Federal Aid Highway Program
Manual, Volume 6, Chapter 6, Section 2, Subsection 2, as amended from time to
time, or as superseded by the AAR/AAHSTO form, and shall provide available
limits of not less than $5,000,000 per occurrence, $10,000,000 aggregate for
bodily injury and property damage (unless Pathnet designates a hazardous
material Rail Corridor as a Conduit Right-of-Way, and then $10,000,000 per
occurrence, $20,000,000 aggregate). The original of said RPL policy shall be
furnished to and approved by Railroad, prior to the commencement of any entry or
other operations under the Agreements.
18.2 Liability Insurance. Pathnet shall purchase and maintain, until all
of its obligations under the Agreements have been fully discharged and
performed, the following insurance coverage: (a) Commercial General Liability
Insurance ("CGL"), including any applicable umbrella policy, with contractual
liability covering actions assumed in the Agreements by Pathnet, providing for
available limits of not less than $5,000,000 single limit, bodily injury and/or
property damage combined, for damages arising out of bodily injuries to or death
of all persons in any one occurrence and for damage to or destruction of
property, including the loss of use thereof, in any one occurrence, including
Federal Employers Liability Act claims ("FELA") against the Railroad, or other
liability arising out of or incidental to railroad operations; (b) Workers'
Compensation, Employer's Liability Insurance and Occupational Disease Insurance;
and (c) Business Automobile Liability Insurance. If any motor vehicles are used
in connection with the work to be performed under the Agreements, Pathnet shall
purchase and maintain Business Automobile Liability Insurance with limits of not
less than $2,000,000 single limit, bodily injury and/or property damage
combined, for damages to or destruction of property including the loss of use
thereof, in any one occurrence. If, in Railroad's reasonable opinion, a higher
limit of liability is necessary for any insurance policy required hereunder,
Railroad shall so notify Pathnet and Pathnet shall, within thirty (30) days of
receipt of such notice, provide a copy of the endorsement to the appropriate
policy increasing the liability coverage to the required limit.
18.3 Policy Requirements. All insurance required hereunder shall be
effected by valid and enforceable policies issued by insurer(s) of financial
responsibility and authorized to do business in the states where the System
and/or Facilities are located, all subject to the reasonable prior approval of
Railroad. Except for the RPL policy (on which Railroad shall be the named
insured), Pathnet's liability insurance policies shall name Railroad as an
additional insured and will not have any exclusions for liability relating to
railroad operations by endorsement. The Pathnet's Workers' Compensation and
property insurance policies shall include waivers of subrogation rights
endorsements. All policies shall contain a provision for thirty (30) days'
written notice to Railroad prior to any expiration or termination of, or any
change in, the coverage provided. The insurance company shall be required to
provide Railroad with at least thirty (30) days' written notice prior to such
expiration, termination or change in any insurance coverage. Prior to any entry
upon the Rail Corridor pursuant to the Agreements and upon Railroad's request
thereafter, Pathnet shall provide Railroad with the original RPL policy and with
certificates of insurance for all other coverages showing that the required
coverages are in effect for the term of
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the Agreements. The liability assumed by Pathnet under the Agreements,
including, but not limited to, Pathnet's indemnification obligations, shall not
be limited to the insurance coverage stipulated herein.
19. NOTICES.
19.1 General. Unless otherwise provided herein, all notices,
communications and deliveries required or permitted under the Agreements shall
be in writing and shall be (a) delivered personally, (b) sent by facsimile
transmission with subsequently transmitted confirmation of receipt, (c) sent by
overnight commercial air courier (such as Federal Express), or (d) mailed,
postage prepaid, certified or registered mail, return receipt requested; to the
parties at the addresses or facsimile numbers hereinafter set forth:
Pathnet: Railroad:
- --------
Pathnet, Inc. CSX Real Property, Inc.
1015 31st Street, NW 301 West Bay Street, Suite 800 (J915)
Washington, D.C. 20007 Jacksonville, Florida 32202
Attention: President Attention: Assistant Vice President
Network Services
Facsimile No: (202) 625-7369 Real Estate Operations
Facsimile No. (904) 633-4586
With a Copy To: With a Copy To:
- --------------
Pathnet, Inc. CSX Transportation, Inc.
1015 31st Street, NW 500 Water Street (J150)
Washington, D.C. 20007 Jacksonville, Florida 32202
Attention: General Counsel Attention: Assistant General Counsel
Facsimile No: (202) 625-7369 Facsimile No. (904) 359-7518
or at such other address(es) or facsimile number(s) as a party shall have duly
notified the other party.
In addition to the foregoing, any notice, communication or delivery required or
permitted under Sections 17 and 18 shall also be sent to:
CSX Corporation
500 Water Street (J907)
Jacksonville, Florida 32202
Attention: Risk Manager
Risk Management Department
Facsimile No. (904) 633-5096
Any such notice, communication or delivery shall be deemed delivered upon the
earliest to occur of: (a) actual delivery; (b) the same day as facsimile
transmission (or the first business day thereafter if faxed on a Saturday,
Sunday or legal holiday); (c) one (1) business day after shipment
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by commercial air courier as aforesaid; or (d) upon receipt if sent by certified
or registered mailing as aforesaid.
19.2 Planning, Design, Installation and Construction Phase Access Notice.
During the Planning and Design and the Installation and Construction Phases,
Pathnet shall, except in the case of emergency, give Railroad's Engineer at
least ten (10) days' written notice before commencing construction or bringing
any vehicle or equipment onto the Rail Corridor or other Railroad property, and
forty-eight (48) hours' notice before any other entry. Any such written notice
shall state the name(s) of Pathnet employee(s) in charge or contractor(s) or
subcontractor(s) performing work or making such entry.
19.3 Maintenance and Operation Phase Access Notice. During the Maintenance
and Operation Phase, in order to secure safety of operated trains, crews,
passengers and cargo of Railroad, and safety of Pathnet employees and/or
contractors, Pathnet shall give CSXT's local Director of Dispatch, (904)
381-2765 and (904) 359-7551, as representative of Engineer, advance telephone or
telegraph notice of entry onto any portion of the Rail Corridor, which entry
shall be subject to consent and approval of Railroad's Engineer as to method and
timing, which approval may be withheld in his or her sole discretion. Any such
notice shall state the name(s) of Pathnet's employee(s) or contractor(s) or
subcontractor(s) performing work or making such entry.
19.4 Emergency Notice. In case of disaster (such as a train derailment or
System failure) or other emergency demanding immediate examination or repairs to
the existing System or Facilities, notice shall be given by either party to the
other in person or by telephone to the Emergency Response Center(s) designated
on Exhibit H attached hereto or as otherwise designated in writing by each party
to the other. Such initial verbal or telephonic notice, however, must be
confirmed in writing within forty-eight (48) hours. Each party will cooperate
with the other to permit restoration of each party's operations as promptly as
feasible after such emergency.
20. RELOCATIONS; ALTERATIONS.
20.1 Relocation to Accommodate Railroad. If Railroad determines that any
Pathnet Facilities or System must be changed, altered or relocated after initial
construction because of Railroad's own track or facility relocations or rail
operational needs or plans (including additions, changes to track(s) to
accommodate freight or passenger customers of Railroad), or any governmental
agency or requirement, Railroad shall promptly give written notice thereof to
Pathnet of such needs, plans or requirements. Within sixty (60) days of receipt
of such notice, Pathnet shall protect or move the Pathnet Facilities and System,
at Pathnet's sole cost and expense, and in a manner satisfactory to Railroad;
provided, however, that Railroad shall reimburse Pathnet for any such costs or
expenses received by Railroad from a governmental entity or other entity in
connection with such relocation.
20.2 Relocation to Accommodate Third Party. In the event of a Railroad
relocation to accommodate any third party other than as provided in Section
20.1, Pathnet shall protect or move its Facilities and System upon receipt from
Railroad of an agreement, in writing, obligating such third party to reimburse
Pathnet for all costs and expenses incurred by Pathnet, including reasonable
administrative and overhead, in connection therewith, or, if Railroad is unable
to obtain such an agreement from such third party, Railroad's agreement to
reimburse Pathnet for the
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foregoing costs (not to include any reimbursement of lost income). Pathnet shall
submit any invoice to Railroad within ninety (90) days after such relocation
work is completed.
20.3 Replacement Land. In the event of any relocation of Pathnet's System
or Facilities under Section 20.1, Railroad shall not be required to purchase for
Pathnet any replacement land or right-of-way or to pay Pathnet the cost to
secure same if there is not available Rail Corridor. However, Railroad agrees to
allow Pathnet to relocate to any other available adjacent or nearby Rail
Corridor or other land owned by Railroad at Pathnet's sole cost; provided,
however, that Railroad shall not be entitled to any additional payment for such
replacement Railroad land or Rail Corridor and the total mileage of such Rail
Corridor or replacement land to which Pathnet relocates shall be deducted from
and the abandoned Rail Corridor shall be added to the total mileage of
Designated Rail Corridor permitted under the License Agreement.
21. LINE SALES; ABANDONMENT.
21.1 In the event of a sale or other transfer of any portion of the
Designated Rail Corridor, such sale shall be made expressly subject to the
Agreements and the rights of Pathnet thereunder. Notwithstanding any provision
herein to the contrary, Railroad shall have the absolute right, in its sole
discretion, to effect an Abandonment of all or any portion of the Rail Corridor.
22. CONDEMNATION.
22.1 Severance of Interests. In the event that any portion of the
Designated Rail Corridor becomes the subject of a condemnation or appropriation
proceeding or offer to acquire, Pathnet's interest (in its Facilities and/or
System and in its occupation of the Segment) shall be severed from Railroad's
interest (both physical and ownership rights) in such proceedings, and the
parties agree to have any such condemnation or appropriation awards specifically
allocated between Pathnet's interest and Railroad's interest.
22.2 Removal of Facilities. Should any Segment of the Designated Rail
Corridor used by Pathnet for a part of Pathnet's Fiber Optic Communications
System or Facilities be condemned, appropriated and/or acquired by any
governmental agency (or other party cloaked with the power of eminent domain)
for public purpose or use, then to the extent required by the condemning
authority, any Facilities or System of Pathnet within such Designated Rail
Corridor not condemned, appropriated and/or acquired by such agency or authority
shall be promptly removed by Pathnet at Pathnet's cost, unless Pathnet makes
other arrangements with the condemning or appropriating agency or authority.
22.3 Notice. Railroad shall promptly notify Pathnet of any condemnation or
appropriation action filed against any portion of the Designated Rail Corridor.
Railroad shall also promptly notify Pathnet of any threatened condemnation or
offer to acquire by any governmental agency (or other party cloaked with the
power of eminent domain) affecting the Designated Rail Corridor (provided the
Railroad employees administering this Agreement have actual knowledge thereof).
Further, any voluntary sale to the condemning or appropriating agency or
authority pursuant to any threatened condemnation or offer to acquire shall be
in accordance with the provisions of Article 21.
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23. PATHNET DISCONTINUANCE.
23.1 In the event of any Discontinuance by Pathnet of its Facilities,
System, Segment or any substantial portion thereof, Railroad shall have the
option, to be exercised in Railroad's sole discretion, to terminate this
Agreement as to the affected Segment(s) upon written notice to Pathnet. Upon
such termination, removal of Pathnet's Facilities and System within such
affected Segment(s) shall be governed by Section 26.2 hereof.
24. RAILROAD'S RIGHT TO TERMINATE OR REQUIRE SUSPENSION OF ACTIVITIES; FAILURE
TO MAKE TIMELY PAYMENT
24.1 Material Breach; Remedy. If Pathnet or Railroad fails to perform,
violates or defaults under any material terms or conditions of the Agreements
("Material Breach"), and fails to remedy any such Material Breach in accordance
herewith, then and in that event, the non-defaulting party shall have the
following rights and remedies:
(i) if the Material Breach (a) adversely affects railroad safety or
operation, or (b) relates to the payment of any fees and expenses due to
Railroad under the Agreements, Railroad shall have the right to terminate
this Agreement upon written notice to Pathnet; and
(ii) if the Material Breach is not of the type and nature described
in Subsection 24.1(i), Railroad shall have the right, upon written notice
to Pathnet, to suspend immediately all then pending and future
installation, construction, maintenance and/or deployment on the entire
Rail Corridor until such time as the applicable Material Breach is cured
and Pathnet demonstrates to Railroad's reasonable satisfaction that
Pathnet has taken such steps and/or implemented such procedures so that
the particular Material Breach in question will not recur.
Upon termination as provided in this Section 24.1, removal of Pathnet's
Facilities and System shall be governed by Section 26.2 hereof. Railroad's right
to terminate this Agreement shall be limited to occurrences of Material Breaches
of the type and nature described in Subsection 24(i) above.
24.2 Examples of Material Breach. For purposes of this Article, any
substantial noncompliance, or any repeated noncompliance, each of which might be
considered minor or singular, may when considered in the aggregate constitute a
Material Breach. In illustration, but without limitation, failure to give
required notices, or failure to give required approvals without cause, or
failure to comply with final decisions under the Dispute Resolution provisions
of Article 25, may constitute a Material Breach.
24.3 Notice and Cure Period. Pathnet and Railroad agree that neither party
shall proceed against the other for any alleged Material Breach before the
offending party has had written notice and reasonable time to respond and cure
such breach; provided, however, that neither party shall be required to give
time to respond and cure if any such delay will cause irreparable harm or
increased risk of liability or injury. Reasonable time to respond and cure shall
for purposes of Subsections 24.1(i)(b) and 24.1(ii) be presumed to be thirty
(30) days, and for purposes of Subsection 24.1(i)(a) be presumed to be
forty-eight (48) hours. If such breach cannot
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reasonably be cured within the applicable cure period, but the party proceeds
promptly to cure the same and prosecutes such cure with due diligence, the time
for curing such breach shall be extended for such reasonable period of time as
may be necessary under the circumstances to complete the cure, but under no
circumstances shall such additional period extend beyond, (i) for purposes of
Subsection 24.1(ii), one hundred eighty (180) days without the specific written
approval of the non-breaching party, which such approval may be withheld in such
party's reasonable discretion, and (ii) for purposes of Subsection 24.1(i)(a)
and (b), thirty (30) days. With respect to any Material Breach (i) which is not
cured by the breaching party within the applicable cure period, or (ii) for
which an opportunity to cure is not required to be given, the non-breaching
party may, at its sole option, cure any such breach in the manner it deems
appropriate. In such event, the breaching party, within thirty (30) days of
written demand and without deduction, set-off or abatement, shall reimburse the
non-breaching party for any and all expenses incurred as a result of the
non-breaching party's curing of such default together with interest at the
Default Rate. Nothing contained herein shall create an obligation on the part of
the non-breaching party to cure any uncured breach existing at any time under
the Agreements.
24.4 No Continuing Waiver. Any waiver by any party at any time of any of
its rights under the Agreements shall not be deemed to be a continuing waiver of
any breach or default or other matter subsequently occurring.
24.5 Waiver of Certain Damages. Except as otherwise provided in Section
6.5 of the License Agreement, neither party shall be liable to the other party
for any consequential, indirect, special, exemplary or punitive damages,
including, but not limited to, damages attributable to or based upon any loss of
present or future profits, any loss of or injury to customer goodwill, or any
lost or foregone investments and opportunities.
25. LIAISON; COORDINATION AND DISPUTES RESOLUTION.
25.1 Specified Disputes. The parties intend that any disputes which may
arise between them relating to access to the Rail Corridor, or the design, plan,
construction, installation, operation, maintenance, repair, replacement, and
removal of Pathnet's Facilities or System or the safe and uninterrupted
operation of the rail system of Railroad (a "Specified Dispute") be resolved as
quickly as possible, which may, in certain instances, involve immediate
decisions. When such quick resolution is not possible, or depending upon the
phase of installation of Pathnet's Facilities and System, the parties agree to
resolve such Specified Disputes as herein provided.
25.2 Field Representatives. Within thirty (30) days after the designation
by Pathnet of the Route Plan as provided in Exhibit B, Railroad and Pathnet
shall each designate in writing the division or field representative(s) as
point(s) of contact for decision making concerning the Specified Disputes.
25.3 Railroad Operations. Questions of Railroad operations or track safety
shall in all instances be referred to Railroad's Engineer, whose decision shall,
for any emergency situation, be made within twenty-four (24) hours, or for any
non-emergency situations, be made as provided in Section 25.7.
25.4 Access. Specified Disputes concerning Pathnet's right of access to
the Rail Corridor during the Planning and Design and Installation and
Construction Phases, including use
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of an on-rail plow installation machine under Exhibit B, or during the
Maintenance and Operation Phase, or access to or copies of Railroad's documents,
shall be referred initially to the designated representative of the Engineer,
who shall render such decision within twenty-four (24) hours. Decisions of the
Engineer's designated representative shall be referable within twenty-four (24)
hours of such decision, by Pathnet to the Engineer of Railroad, whose decision
shall be issued within twenty-four (24) hours of the notice from Pathnet of
dispute with the authorized representative of Engineer.
25.5 Reserved.
25.6 Communications Facilities. Specified Disputes arising out of or in
conjunction with the communications System or Facilities of Pathnet, of
Railroad, or of both, or the capacity and/or installation, maintenance and/or
use of the same, shall be referred initially to Pathnet's system manager (or
other representative designated by Pathnet) for decision, which shall be
rendered, in writing, within thirty (30) days after submission.
25.7 Remaining Specified Disputes. Any other Specified Dispute between the
parties shall be referred initially to the Engineer for decision, which shall be
rendered, in writing, within fifteen (15) days after submission.
25.8 Mediation or Arbitration. Either party may appeal any decision made
pursuant to Sections 25.2 through 25.7 by requesting either arbitration or
mediation within thirty (30) days after the date of receipt of such decision in
writing. Failure to request mediation or arbitration within such thirty (30) day
period shall result in such decision becoming final and conclusive. The selected
arbitration or mediation shall proceed in Jacksonville, Duval County, Florida,
in accordance with the Arbitration or Mediation Resolution Procedures attached
hereto as Exhibit K. Any arbitration decision or mediation agreement, or other
final decision herein, may be enforced by any court having jurisdiction hereof.
25.9 Work Pending Resolution of Specified Dispute. During the period in
which any Specified Dispute is unresolved, any work on the Rail Corridor by or
for Pathnet shall commence or proceed only with maximum security for Railroad
operations, as determined by Railroad's Engineer, and the determination or
allocation of any costs or additional costs therefor shall be resolved
thereafter in accordance with this Article.
26 TERMINATION; REMOVAL.
26.1 Partial Termination. Pathnet may terminate the Agreements with
respect to any individual Segments of the Designated Rail Corridor at any time
during the Term by providing Railroad with six (6) months' prior written notice
of such termination. Such termination shall be only with respect to the
specified Segment(s) of the Designated Rail Corridor identified in the
termination notice and shall not affect the continuation of the Agreements with
respect to the remaining Segments of the Designated Rail Corridor. With such
partial termination, all further obligations (other than obligations which arose
prior to such termination and any provisions hereof which are intended to
survive the expiration or other termination) shall cease only as to affected
Segment(s) and all terms and conditions of the Agreements shall remain unchanged
and in full force and effect as to the remaining Segments within the Designated
Rail Corridor. In the event of any partial termination hereunder, Pathnet shall
not be entitled to any refund, rebate or
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set off relating to the consideration paid or given pursuant to the License
Agreement nor any adjustment to the mileage bank.
26.2 Removal Upon Termination. Within ninety (90) days of the expiration
or earlier or partial termination of the Agreements (or such longer period as
may be reasonably necessary to remove Pathnet's Facilities and System provided
Pathnet begins removal within such ninety (90) day period and continues
diligently to completion), Pathnet, at its own risk, cost and expense, shall
remove all above ground Facilities, System and appurtenances from the Designated
Rail Corridor, all underground Optical Fibers, and such other underground
Facilities, System and appurtenances as Pathnet desires or Railroad reasonably
requests so as to avoid interference with Railroad operations, and restore the
Designated Rail Corridor and other affected property of Railroad to the
functional or operational condition existing prior to the construction or
installation of such Facilities, System and appurtenances. If Pathnet fails to
timely remove the System and Facilities and restore the Designated Rail Corridor
and other affected property as provided in the preceding sentence, Pathnet shall
be deemed to have abandoned such Facilities and System in place, in which event
such Facilities and System shall become the property of Railroad, for purposes
of resale, use or operation by Railroad in any manner and for any purpose
Railroad deems appropriate, in its sole discretion; or Railroad may cause such
removal and restoration to be performed and all costs incurred by Railroad in
such removal and restoration, together with interest thereon at the Default
Rate, shall be due and payable by Pathnet to Railroad upon written demand.
26.3 Continuing Obligations. The expiration or earlier termination of the
Agreements shall not release any party from any liability or obligation incurred
prior to such expiration or termination or terminate any right or obligation
which would have continuing relevance after such expiration or termination of
this Agreement. Without limiting the foregoing, the indemnification obligations
of Pathnet, the rights of Railroad to review Pathnet's books and records, and
such other provisions which are reasonably intended to have continuing validity,
shall survive the expiration or earlier termination of the Agreements.
27. DOCUMENT CONFIDENTIALITY.
27.1 General. Railroad and Pathnet understand and agree that the
Agreements, and all materials, maps, documents and other information that are
referred to therein or attached thereto, exchanged between the parties in
negotiating the Agreements, or utilized in fulfilling the provisions and intent
hereof or thereof, are and shall be confidential, except as may be required by
law or regulation. Any public announcement or press release concerning the
Agreements by either party shall be subject to the prior approval of the other
party, which approval shall not be unreasonably withheld.
27.2 Restricted Distribution. Railroad and Pathnet each agree to respect
such confidentiality, and shall restrict the distribution of the Agreements and
such materials only to those Persons designated to implement the provisions
hereof, and shall not disclose or furnish to any third parties copies of the
Agreements or any materials referred to herein, without the prior written
consent of the other party hereto or, subject to Section 27.3, a Court Order or
Administrative Subpoena requiring same, except as may be required by law or
regulation. The parties agree that in distributing copies or portions of these
materials to Persons necessary to
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implement the same, such copies or materials shall be clearly marked as
confidential, and indicating that the further distribution, copying or
reproduction of the same is expressly prohibited.
27.3 Redacted Copy. The parties shall jointly prepare redacted copies of
the Agreements which may be furnished, as necessary to implement the provisions
hereof, to (a) Arbitration Panel, (b) Court, (c) Administrative Tribunal, (d)
mortgagee(s) or other financial backers of either party, and (e) prospective
users of Pathnet's Conduit (Innerduct), Cable, Optical Fiber or other Facility
authorized in accordance with the Agreements.
27.4 Injunctive Relief. The parties recognize and acknowledge that any
actual or threatened disclosure of such confidential information by either
party, its agents, employees or contractors, will cause irreparable harm to the
other party, such that monetary remedies available at law will not provide
adequate relief, and therefore the aggrieved party shall be entitled to receive
injunctive relief as an equitable remedy.
27.5 No Right to Non-Material Information. Neither party shall have the
right to obtain any information or documents from the other which are not
material to the provisions or implementation of the Agreements.
28. GENERAL TERMS.
28.1 Entire Agreement. The Agreements, and any exhibits or amendments
which may be attached thereto from time to time, constitute the entire agreement
between the parties hereto with respect to the subject matter thereof and may be
modified only by a writing executed by both parties.
28.2 Incorporation by Reference. The Agreements, as amended by the parties
from time to time in accordance therewith, shall be incorporated by reference
into any Build Supplement, separate finance agreement or other document executed
between the parties, and such incorporation shall include all amendments and
exhibits to the Agreements, even if made or attached subsequent to the date of
the Agreements.
28.3 No Third Party Beneficiaries. Except as otherwise provided in the
Agreements, nothing contained therein, in any provision or exhibit thereof, or
in any agreement or provision included by reference, shall operate or be
construed as being for the benefit of any third person.
28.4 Interpretation. Neither the form of the Agreements, nor any provision
therein, shall be interpreted or construed in favor of or against either party
hereto as the sole drafter thereof.
28.5 Force Majeure. The parties agree that a party shall not be liable for
its failure to perform its obligations under the Agreements during any period in
which such performance is delayed by fire, flood, war, embargo, riot, labor
strike or unrest, the intervention of any government authority, train
derailment, or any other event or condition outside the reasonable control of
such party, provided that such party promptly notifies the other party of the
delay and the reason(s) for such delay. The provisions of this paragraph shall
not apply to Pathnet's payment obligations under the License Agreement.
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28.6 Reasonableness. Wherever the term "reasonable" is used in the
Agreements, the term shall mean: for Railroad, application of standard and
established railroad engineering, operating and safety rules, regulations and
procedures; for Pathnet, application of standard and established carrier
engineering and operating rules.
28.7 Approval or Consent. Wherever the term "approval" or "consent" is
used in the Agreements, unless otherwise specifically qualified, the term shall
mean that such "consent" or "approval" shall not be unreasonably withheld,
delayed or conditioned.
28.8 Parties. Wherever used in the Agreements, the terms "Railroad" and
"Pathnet" shall be construed in the singular or plural as the context may
require or admit, and shall include the permitted successors and assigns of such
parties.
28.9 Severability. The Agreements are executed under the current
interpretations of applicable federal, state, county, municipal and local
statutes, ordinances and laws. However, each separate division (section,
paragraph, clause, item, term, condition, covenant or agreement) thereof shall
have independent and severable status for the determination of the legality
thereof. If any separate division is determined to be void or unenforceable for
any reason, such determination shall have no effect upon the validity or
enforceability of each other separate division, or any combination thereof.
28.10 Governing Law; Venue. The Agreements shall be construed and governed
under the laws of the State of Delaware. It is the particular intent of the
parties that the indemnification obligations contained in the Agreements shall
be enforceable and shall not be deemed to be against public policy. The parties
consent to the personal jurisdiction of and to exclusive venue in the United
States District Court in and for the Middle District of Florida, Jacksonville
Division.
28.11 Assignability.
(a) Except as otherwise specifically provided in the Agreements,
Pathnet shall not assign or transfer any right or interest in the Agreements
without the prior written consent of Railroad, which consent may be withheld in
Railroad's sole discretion. The above requirement for consent shall not apply to
(i) any disposition of all or substantially all of Pathnet's stock or assets;
(ii) any corporate merger, consolidation or reorganization, whether voluntary or
involuntary, involving Pathnet; or (iii) a sublease or assignment of the
Agreements (in whole or in part) by Pathnet to a subsidiary, affiliate, or
parent company, controlled by, under common control with, or controlling, either
indirectly or directly, Pathnet, provided that no assignment not consented to by
Railroad shall relieve Pathnet of any of its obligations or liabilities under
the Agreements and, provided further, that such Assignee agrees in writing to be
bound by the terms of the Agreements. Nothing herein shall prohibit Pathnet (i)
from involving contractors, or strategic or co-development partners in
construction and operation of the fiber optic facilities, on such terms as
Pathnet may determine in its sole discretion, provided all such activities are
conducted in accordance with the terms of the Agreements, and that Pathnet
remains fully liable for all obligations thereunder; and (ii) from granting
liens or other security interests in the fiber optic facilities or Pathnet's
rights under the Agreements in connection with financing or investments made
available to Pathnet; provided that all such parties agree that, if and to the
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extent they acquire an ownership interest thereunder, they shall be bound by and
shall comply with the terms of the Agreements.
(b) Upon request by Pathnet, Railroad shall execute reasonable
documentation to be provided by Pathnet acknowledging the rights of Pathnet's
lender(s) ("Lender") to obtain ownership of any fiber optic facilities if the
Agreements are still in effect and Pathnet is in material default under the
terms of Pathnet's loan to Lender, provided, however, that in such case Lender
shall agree in writing that it shall become an assignee to the Agreements and
shall become subject to all rights and obligations of Pathnet under the terms of
the Agreements (and Pathnet also shall remain subject to all obligations of
Pathnet under the Agreements). In addition to the rights granted to Pathnet
under the Agreements, Pathnet's Lender shall have the additional right to take
possession, sell, assign or otherwise transfer any fiber optic facilities,
including the right to operate, or permit a third-party to operate, any fiber
optic facilities, provided such operation shall be subject to all terms and
conditions of the Agreements and provided further that Railroad shall approve
such party, in Railroad's reasonable discretion.
(c) Railroad may assign the Agreements to any Affiliate, any
purchaser(s) of the Designated Rail Corridor to the extent applicable to such
Rail Corridor, or any Person in connection with any merger or consolidation of
Railroad, provided that any such assignment shall be subject to the terms and
conditions of this Agreement.
28.12 Time is of Essence. Time is of the essence in the performance of
each party's obligations under the Agreements.
28.13 Incorporation of Exhibits. All exhibits attached to the Agreements
are incorporated by this reference and made a part of the Agreements for all
purposes.
28.14 Multiple Counterparts. Each of the Agreements may be executed in
several counterparts, each of which shall be deemed an original, and such
counterparts shall constitute one and the same instrument.
28.15 WAIVER OF JURY TRIAL. RAILROAD AND PATHNET HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION
WITH THE AGREEMENTS OR ANY DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION
THEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER ORAL
OR WRITTEN) OR ACTIONS, RIGHTS OR OBLIGATIONS OF EITHER PARTY ARISING OUT OF OR
RELATED IN ANY MANNER TO THE AGREEMENTS (INCLUDING, WITHOUT LIMITATION, ANY
ACTION TO RESCIND OR CANCEL THE AGREEMENTS OR ANY CLAIMS OR DEFENSES ASSERTING
THAT EITHER OF THE AGREEMENTS WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR
VOIDABLE). THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE PARTIES TO ENTER INTO
AND ACCEPT THE AGREEMENTS.
28.16 Authorization. Railroad and Pathnet represent and warrant that each
has obtained all necessary corporate approvals authorizing the execution and
delivery of the Agreements, and
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that the execution and delivery of the Agreements will not violate the articles
of incorporation or by-laws of such corporation, and will not constitute a
material breach of any contract by which such corporation is bound.
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EXECUTED as of the Effective Date.
Witness: CSX TRANSPORTATION, INC.,
For itself and as Operator for New York
Central Lines LLC, a wholly-owned subsidiary
of Consolidated Rail Corporation
By:
- -------------------- --------------------------------
Name:
- -------------------- Title:
Witness: PATHNET TELECOMMUNICATIONS, INC.
By:
--------------------------------
Name:
Title:
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<PAGE> 34
EXHIBIT A
DESCRIPTION/DEPICTION OF THE PREMISES
[to be agreed to by the parties]
<PAGE> 35
EXHIBIT B
1. ROUTE DESIGNATION; DOCUMENTATION; INSPECTION; ACCESS.
1.1 Documentation. Railroad shall furnish to Utility, electronically
if available, at Utility's cost, copies of Valuation Maps with available indices
thereto within thirty (30) days of the date of Utility's written request.
Railroad shall make available to Utility, for reproduction at Utility's cost,
all available Railroad engineering documents relating to bridges, overpasses or
tunnels on or along such Route Plan. Railroad shall also furnish, at Utility's
cost, copies of maps or other documents to assist Utility in determining the
identity and location of other users of those portions of Railroad's Rail
Corridor designated on Utility's Route Plan. The furnishing of maps, documents
or other materials hereunder, however, shall not be a guarantee by Railroad of
the accuracy or completeness of same.
1.2 Inspection. Railroad agrees to participate with Utility in a joint
inspection of those portions of the Railroad Corridor designated on Utility's
Route Plan for the purpose of identifying problem areas and defining final
Conduit Right-of-Way routes or alternatives. Railroad also agrees to participate
in any additional joint inspections that may be required for the purpose of
detailing and developing solutions for problem areas.
1.3 Route Plan. Prior to the preparation of detailed Construction Plans as
contemplated in Section 1.7, Utility shall submit to Railroad a proposed Route
Plan marked on Railroad Valuation Maps. Railroad shall review and, through its
Engineer, approve or reject the proposed Route Plan. If rejected for reasons
other than Railroad's plans to Abandon a Segment of the Railroad Corridor,
Railroad shall cooperate with Utility to locate an alternative mutually
acceptable route along Railroad's Rail Corridor to the extent available. Upon
Railroad's approval of Utility's proposed Route Plan, such approved Route Plan
shall be attached to this Agreement as Exhibit A-1, for the purpose, among other
things, of defining the Designated Railroad Corridor.
1.4 Planning and Design Phase. From and after the date of submission by
Utility to Railroad of Utility's Route Plan, Utility and its designated
employees, agents and representatives shall have the right to enter upon any
portion of Rail Corridor shown on such Route Plan for a period of one hundred
eighty (180) days for the purpose of surveying and inspecting the same, subject
to all applicable notice, approval and other applicable requirements contained
in this Agreement (the "Planning and Design Phase").
1.5 Conditions of Right of Entry. All surveys or route inspections (or any
other entry by Utility hereunder) shall be made upon reasonable advance notice
to and at times satisfactory to Railroad, in a manner so as not to interfere
with operations of Railroad, and shall be at the sole risk, cost and expense of
Utility. Rights of entry shall not be unreasonably withheld or delayed.
1.6 Construction Planning Schedule. Utility shall furnish to Railroad a
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proposed schedule of construction and installation (commencement and completion
dates) on each portion of the Designated Rail Corridor to be utilized for
Utility's System. Said schedule of construction shall be sufficient to allow the
coordination of Railroad, Utility and construction personnel and operating train
movements. Utility shall schedule installation and construction to avoid
disruption of Railroad operations (including operation of freight and passenger
trains. Utility may request Railroad to reschedule or divert trains, where
possible, to minimize disruption of Utility's construction schedule, and, to the
extent possible and practical, as solely determined by Railroad's Engineer,
Railroad shall make such diversion or rescheduling. Utility further recognizes
that regulations of the Federal Railroad Administration (FRA) may require "Slow
Orders" to be issued by Railroad to trains operating in areas of Utility's
construction, and that such "Slow Orders" may cause delays in train movements,
including delays in movement of freight and passenger trains. Additional costs,
expenses or losses to Railroad generated by any "Slow Order", rescheduling,
delay or diversion (including detours or rerouting) resulting from any request
of or actions or omissions of Utility, its employees, agents, contractors or
subcontractors, or which results from any Fouling of Track(s), plus any damage
to or destruction of Railroad's signals, tracks or other facilities resulting
therefrom, shall be reimbursed by Utility.
1.7 Construction Plans. Whenever Utility desires to install or construct
any part or portion of its Facilities or System, including any structural
attachments, within the Designated Rail Corridor, Utility shall submit written
notice (the "Construction Notice") in two (2) signed counterparts, accompanied
by four (4) copies of the relevant Construction Plans, to Railroad's Engineer
for consent and approval of Railroad, which approval shall not be unreasonably
withheld or delayed. Upon approval by Railroad, one (1) signed counterpart of
the Construction Notice shall be returned by Railroad. Upon receipt of the
signed counterpart of the construction Notice by Utility, the Construction
Notice and the Construction Plans so approved shall be considered as being
incorporated into and made a part of this Agreement for all purposes.
1.8 Limited Scope of Approval. Railroad's right of approval of
Construction Plans, and the location of Utility's Facilities and System, and the
nature of Transmission Technology shall apply only to the extent that
construction or use of Facilities, System or Transmission Technology may affect
train or signal operations or the use of Railroad's Rail Corridor.
1.9 Installation and Construction Phase. From and after the date of
Railroad's approval of Utility's Construction Plans, as provided in Section 1.7,
Utility, its employees, agents and/or contractors, shall have the right, for a
period of one hundred eighty (180) days, to enter and construct and install
Utility's Facilities and System on that Segment designated in the Construction
Plans. Utility shall coordinate with, and secure advance written approval from
Railroad's Engineer, for all access to track and Restricted Working Area of Rail
Corridor, understanding that the operation of Railroad trains over any Rail
Corridor shall have priority. Construction and installation shall also be in
accordance with Fiber Optic Installation SOP (Standard Operating Procedure, MWI
1905-01, Issued 6/30/98), a copy of which is attached hereto as Exhibit M.
1.10 As-Built Drawing. Within ninety (90) days after completion of
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construction and installation of each Segment of Utility's System, Utility shall
furnish to Railroad an As-Built Drawing, referencing Railroad stationing,
Valuation Maps and mileposts for such Segment, which, when approved by Railroad
and as amended from time to time, shall be collectively attached hereto as
Exhibit A-2.
1.11 Maintenance and Operation Phase. Only after construction of each
Segment of Utility's System and approval by Railroad's Engineer of the
applicable As-Built Drawing, shall Utility, its employees, agents and/or
contractors, be permitted operational and maintenance access to such Segment, in
accordance with the provisions of this Agreement. With respect to each
independent Segment, the period after the Planning and Design Phase but prior to
the approval of the applicable As-Built Drawing is herein sometimes called the
"Installation and Construction Phase" and the period after the approval of the
As-Built Drawing is herein sometimes called the "Maintenance and Operation
Phase."
1.12 Reinstallation, Replacement and Removal. The provisions of this
Article 1 shall apply to any reinstallation, replacement or removal of any
Facilities by Utility.
2. SURVEYS AND RECORDS; COSTS.
2.1 Railroad Maps and Surveys. Railroad shall, at Utility's cost and upon
Utility's written request, furnish to Utility a copy of its current System Map,
System Diagram Map and Valuation Maps for Segments identified in the Route Plan
as System Segments. Railroad, however, shall not be deemed to have guaranteed
the accuracy of any map, survey or related records made available to Utility.
2.2 Utility Maps, Surveys and Records.
(a) If Utility performs or contracts to perform formal surveys of the
Rail Corridor, or any constructed Conduit Right-of-Way, Utility shall furnish
Railroad, upon request, a copy thereof, at Utility's cost, subject to lawful
limitations of survey contracts and applicable laws. Utility shall not be deemed
to have guaranteed the accuracy of such surveys. If Utility is required or
chooses to secure and/or file any surveys for any of its Facilities, Utility
shall bear the total cost thereof.
(b) Any copies or records made or data compiled by Utility relating
to Railroad's Rail Corridor (including but not limited to: maps; plans; photos;
video tapes; motion pictures; notes; survey data; cassette tapes and other types
of records and measurements) shall become the sole property of Utility. However,
subject to the document confidentiality provisions hereof, Utility shall provide
such data or records to Railroad.
(c) Utility shall, at its expense, furnish Railroad, annually, a map
of Utility's Fiber Optic Communication System ("Fiber Optic System Map")
depicting the location of Utility's Facilities and System on the Designated Rail
Corridor and fiber count by Segment.
(d) Utility shall update its Fiber Optic System Map after each new
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Segment is constructed, and shall include a copy of the relevant portion thereof
with each As-Built Drawing required in Section 1.10.
3. LOCATION OF UTILITY FACILITIES.
3.1 Perimeter Location. Occupation by Utility of the Rail Corridor
(including any portion that shall pass along or through an active operated
Railroad yard, terminal or station) shall be confined where practical to the
outer perimeter of the Rail Corridor, yard, etc. Minimum distance to the
centerline of the nearest track shall be eleven feet (11') unless otherwise
specifically agreed in writing by Railroad. The exact location and depth shall
be determined on a case-by-case basis during the Planning and Design Phase for
the Facilities.
3.2 Railroad Tunnels. The installation of Cable in Railroad tunnels shall
be avoided whenever possible, by the installation of Cable over Railroad tunnels
within Railroad Rail Corridor. Where such installation over the tunnel is not
reasonably possible, and after specific written approval by Railroad's Engineer,
Cable shall be laid or installed within existing conduits or ducts, where
available and in usable condition, or within suitable conduit (nonflammable,
inert material pipe) installed by Utility on the floor level of the tunnel, at a
point farthest away as practical from the nearest operated rail or track.
3.3 Entrance into Tunnel or onto Bridge. Any entrance by Utility or its
employees, agents or contractors into Railroad's tunnel, onto Railroad's bridge,
or on Railroad's property adjacent to a bridge or tunnel for any purposes, shall
be in accordance with the provisions of Article 12 of this Agreement.
4. CONDUIT (INNERDUCT)/CABLE INSTALLATION AND CONSTRUCTION.
4.1 Underground Installation. In all situations where reasonably possible,
Conduit (Innerduct) or Cable shall be installed by Utility, or its
contractor(s), underground, and in accordance with the "Specifications for
Underground Cables Occupying Railroad Rail Corridor" attached hereto as Exhibit
E. Notwithstanding any contrary provisions contained in Exhibit E, the
installation depths and limits of Cable or Conduit (Innerduct) shall be as
follows:
(a) Where Cable crosses underneath tracks, whether mainline,
secondary or industrial, Cable must be installed in Conduit (Innerduct);
(b) Cable to be installed within fifteen linear feet (15') of the
centerline of any tracks, shall be installed in Conduit (Innerduct);
(c) Conduit (Innerduct) installation is not required for Cable to be
installed more than fifteen linear feet (15') from the centerline of any tracks;
(d) The depth of Conduit (Innerduct) under tracks shall be no less
than sixty inches (60") below the bottom of ties, for a length at least two
linear feet (2') beyond the outer end of such ties;
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(e) Where on-rail plowing is authorized, as provided herein, Cable
and/or Conduit (Innerduct) shall be installed at a depth of no less than
forty-two inches (42") below ground surface;
(f) Cable or Conduit (Innerduct) to be installed within twelve linear
feet (12') of the centerline of the nearest track shall be at a depth of no less
than forty-two inches (42") below ground surface;
(g) Cable or Conduit (Innerduct) to be installed twelve linear feet
(12') or more away from the centerline of the nearest track shall be installed
at a depth of no less than thirty-six inches (36") below ground surface.
4.2 On-Rail Plow. Subject to the sole discretion and approval of
Railroad's Engineer for exact location of use, scheduling and utilization of an
on-rail plow machine, Utility shall have the right to utilize such machine for
construction purposes. If such use is approved, Railroad will provide all
necessary work trains and crews at Utility's sole cost and expense to facilitate
use of such machine. When within fifteen feet (15') of any signal wires,
culverts, grade crossings or other Railroad facilities, Utility must cease all
rail plow installation and (a) utilize only hand-trenching, behind (trackside
of) any Railroad facilities or obstructions (signals, signal boxes, relay cases,
etc.) which have wire or Cable connections to any track, and/or (b) place
Utility Conduit (Innerduct) or Cable only to the front (fieldside) thereof.
Utility shall pay for any repairs to signal wires, culverts, grade crossings or
other Railroad facilities damaged by said plowing or trenching.
4.3 Aerial Attachments. In situations where Utility determines that
underground installations are not reasonably practicable, installations shall be
by aerial attachments in accordance with the Association of American Railroads
"Communications Manual Part 1-B-1, Paragraphs A through S" and "Specifications
for the Construction of Railroad Communication Pole Lines, Section K", copies of
which are attached hereto collectively as Exhibit F. Details of each aerial
section of Cable shall be shown where appropriate as a part of the Construction
Plans and As-Built Surveys furnished to Railroad for approval as required under
this Agreement.
4.4 Water Crossings. In the event that Utility elects to perform submarine
Conduit (Innerduct) or Cable installation rather than installation by attachment
to Railroad's existing pole lines or fixed or movable bridges, such submarine
installation shall be performed by Utility or its contractor(s) at Utility's
sole risk, cost and expense.
4.5 Bridge Attachments. Attachment to all Railroad bridges, where
attachment to an adjacent parallel pole line is not desired by Utility, shall be
as prescribed in the "Specifications for the Attachment of Cables to Railroad
Bridges", a copy of which is attached hereto as Exhibit G.
4.6 Public Roadway Crossings. Cable or Conduit (Innerduct) crossing under
public roadways shall be at a location and depth as required by any applicable
federal, state or local laws, regulations or lawful orders. To the extent not
pre-empted by such
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authorities, such installation shall also be in accordance with Exhibit E.
4.7 Public Utility Crossings. Cable or Conduit (Innerduct) crossing over
or under public utilities shall be located and installed in accordance with all
applicable federal, state and local laws, regulations and lawful orders, and
such lawful requirements as may be stipulated by any governmental agency
(including operators of rail passenger services) or public authority. If in the
conduct of any work, any changes or alterations in pipelines, sewers, drains,
conduits, fences, power, signal or communication lines or other utility or
Railroad facilities are necessary (either temporary or permanent) by reason of
the foregoing or the requirements of Railroad, such changes shall be made or
caused to be made solely by Utility at Utility's sole risk, cost and expense;
provided, however, that costs and expenses for any such work, changes or
alterations necessitated by any other third party shall be paid by such third
party.
4.8 Emergency Repair. Emergency Cable installation, maintenance or repair
methods shall be as set forth in Exhibit H attached hereto.
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EXHIBIT C
LEASE
THIS LEASE, made as of this ____ day of ______________, ______, between CSX
TRANSPORTATION, INC., a Virginia corporation, [as operator for New York Central
Lines LLC, a Delaware limited liability company] whose address is 500 Water
Street, Jacksonville, Florida 32202 ("Lessor"), and Pathnet Telecommunications,
Inc., a Delaware corporation, whose address is 1015 31st Street N.W.,
Washington, D.C. 20007 ("Lessee"):
RECITALS
A. Lessor and Lessee have entered into those certain Fiber Optic Access
and License Agreement and Right of Way Operating Agreement dated as of
____________________, as amended and supplemented from time to time by
the parties (the "Base Agreement").
B. The Base Agreement contemplates Lessee's use of certain land owned by
Lessor for the placement of non-cable facilities including Repeater
(Regen) Sites, or power or auxiliary power stations, or sites for
construction facilities or temporary storage of materials and fuel for
power stations.
C. In order to implement the provisions of the Base Agreement, Lessor and
Lessee desire to enter into this Lease for the premises described
herein and on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
the rental to be paid by Lessee and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee
hereby agree as follows:
1. INCORPORATION OF RECITALS.
The parties represent and acknowledge that the foregoing recitals
are true and correct and are incorporated herein by this reference.
2. DESCRIPTION OF PREMISES.
Lessor does hereby lease unto Lessee that certain parcel of
unimproved land (exclusive of tracks and roadbed) located and more particularly
described or depicted on Exhibit "A" attached hereto and by this reference made
a part hereof (the "Premises").
3. CERTAIN DEFINITIONS.
3.1 General Interpretive Principles. For purposes of this Lease,
except as otherwise expressly provided herein or unless the context otherwise
requires: (i) the terms used herein include the plural as well as the singular,
(ii) the use of any gender herein shall be deemed to include the other gender,
(iii) the word "including" means "including, but not limited to," and (iv) the
headings used herein shall not describe, interpret, define or limit the scope,
extent or intent of any provision hereof.
3.2 Definitions. Except as otherwise expressly defined in this
Article 3 or otherwise herein, the capitalized terms used in this Lease shall
have the meanings set forth in the Base Agreement.
3.2.1 "Lessee" shall mean Lessee as defined in the
introductory paragraph of this Lease, any successor by merger, consolidation or
reorganization, and its permitted assigns.
3.2.2 "Lessor" shall mean Lessor as defined in the
introductory paragraph of this Lease, any of its predecessor railroads, any
successor by merger, consolidation or reorganization, and its permitted assigns.
3.2.3 The term "damages" shall mean any and all damages,
including, but not limited to, civil, criminal, compensatory, consequential,
direct, indirect, treble, punitive, exemplary and special damages and all other
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damages and penalties of any kind available at law and/or in equity.
4. PERMITTED USE.
Lessee shall use and occupy the Premises in accordance with Section 21of
the Base Agreement, and for no other purpose (the "Permitted Use").
5. RENT.
Lessee shall pay to Lessor, as base rent for the Premises, the sum of *
DOLLARS ($*.00) per * payable * in advance from the date hereof for the duration
of the Term ("Base Rent"). Lessee shall pay all real estate taxes levied against
the Premises and the cost of any Lessee improvements placed on the Premises and
all costs of or charges for water, sewage, electricity, heat and any other
utilities furnished to the Premises. If any of the foregoing is paid by Lessor,
Lessee shall reimburse Lessor, as additional rent, within thirty (30) days after
presentation to Lessee of bills therefor ("Additional Rent"). The payment by
Lessee of any sum in advance shall not create an irrevocable lease for the
period for which the same is paid. Lessor reserves the right to periodically
adjust the Base Rent any time after the expiration of twelve (12) months (and to
adjust any adjusted rent thereafter), by giving notice of such adjustment to
Lessee at least sixty (60) days prior to the effective date of such adjustment.
Lessee's continued occupation of the Premises after such effective date shall be
deemed an acceptance of such adjusted Base Rent.
6. APPROVAL OF PLANS, TRACK CLEARANCE.
Lessee, prior to placing any improvement on the Premises, shall submit
plans to, and secure approval in writing of, Lessor, which such approval may be
withheld in Lessor's sole discretion. Lessee shall not erect, place or allow to
be erected or placed on the Premises any buildings, structures, fixtures or
obstructions of any kind, either temporary or permanent, within twenty-five feet
(25') of the centerline of the nearest track, unless Lessee obtains the prior
written consent of Lessor, which may be withheld in Lessor's sole discretion;
provided that the foregoing shall not be construed to permit any track clearance
less than the minimum required by any applicable law, rule, order or regulation.
Any approval by Lessor of any improvement or alteration made by Lessee, or
failure of Lessor to object to any work done or material used, or the method of
construction or installation, shall not be construed as an admission of
responsibility by Lessor or as a waiver of any of Lessor's rights under this
Lease.
7. FIRE PREVENTION.
Lessee shall cooperate with the Risk Management Department of Lessor and
shall promptly comply with fire prevention measures requested by said
Department. Lessee shall make no electrical installations or alterations in and
to the improvements or electrical or other circuits (whether for power, light,
heat or other purposes) now or hereafter located on the Premises, except by a
duly licensed electrician, and shall make no installation of natural gas,
propane, kerosene or other combustion fuel heating or cooling units, except by
licensed heating or cooling contractor. No such alterations or installations
shall be made without prior written approval of Lessor's Risk Management
Department, which may be withheld in its sole discretion.
8. PERMITS, ORDINANCES, REGULATIONS:
8.1 Lessee, at Lessee's sole cost and expense, shall obtain any
applicable permits and shall comply with all applicable permits, ordinances,
rules, regulations, requirements and laws of any Governmental authority having
jurisdiction over the Premises or the Permitted Use thereof or the placement or
use of any improvements thereon, including but not limited to zoning, health,
safety, building or environmental matters. Lessee shall supply Lessor with
copies of all permits and letters or certificates of such authority's consent to
and/or approval of Lessee's use of the Premises.
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8.2 Lessee shall further defend, indemnify and hold Lessor harmless
from all losses, damages, costs of defense (including attorneys' fees) and costs
of compliance relating to any ordinance, rule, regulation, law, citation, order
or notice, any violation thereof, any penalty, levy, fine or assessments
therefrom, including any penalty, levy, fine, assessment, compliance cost or
remedial charge levied during the Term, or after termination of this Lease for
events arising during this Lease.
9. MAINTENANCE, REPAIRS AND COSTS.
Lessee will not create or permit any nuisance in, on or about the Premises,
and Lessee shall repair and maintain, at its sole cost and expense, the Premises
and any improvements thereon, in a neat and clean condition to the reasonable
satisfaction of Lessor.
10. SERVICES, UTILITIES.
Lessor will be under no obligation to furnish the Premises with water, gas,
sewage, electricity, heat, or other services and supplies that may be necessary
or desirable in connection with Lessee's use and occupancy of the Premises.
11. ADJACENT AREAS.
Except as provided in Article 12 hereof, Lessee shall not use any property
of Lessor other than the Premises herein leased without first obtaining Lessor's
prior written consent and complying with all requirements of Lessor applicable
thereto, including payment of such charges, costs or fees as Lessor deems
appropriate, in its sole discretion.
12. INGRESS AND EGRESS.
Lessee shall have the right to use, in common with Lessor and others
authorized by Lessor, existing driveways or other property designated by Lessor
as the means of ingress to and egress from the Premises. Lessor shall be under
no obligation with respect to the condition or maintenance of said driveway(s)
or other property, and Lessee's use of same shall be subject to all of the
covenants, terms and conditions of this Lease.
13. PIPE AND WIRE LINES.
Lessor shall at all times have the right to maintain and/or construct, and
to permit others to maintain and/or construct, overhead and/or underground pipe
and/or wire lines now or hereafter installed upon or across the Premises, and to
use, repair, renew, replace and remove the same.
14. CLAIM OF TITLE.
Lessee shall not at any time claim ownership of or any right, title or
interest in or to the Premises, nor shall the exercise of this Lease for any
length of time give rise to any right, title or interest in or to the Premises,
other than the leasehold herein created.
15. MECHANIC'S LIENS.
Lessee shall promptly pay all debts incurred by, and shall promptly satisfy
all liens of, its contractors, subcontractors, mechanics, laborers and material
men in respect to any construction, alteration, maintenance or repair of, in or
to the Premises, and any improvements thereon, and shall indemnify, defend and
hold Lessor harmless from and against all losses, damages, penalties, fines and
legal costs and charges, including attorneys' fees incurred, in any suit
involving any lien, the enforcement or satisfaction thereof, or encumbrance
caused by the same, with respect to the Premises or any part thereof or any
improvements thereon. Further, Lessee shall have no authority to create any
liens for labor or material on or against Lessor's or Lessee's interest in the
Premises, and shall so specify in all contracts let by Lessee for any
construction, erection, installation, alteration, maintenance or repair of the
Premises or any improvement thereon.
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16. TERM, TERMINATION, BREACH, REMOVAL:
16.1 The initial term of this Lease shall be one (1) year, and shall
thereafter run year-to-year (the "Term"). This Lease may be terminated by either
party for any reason and at any time upon not less than three (3) months'
written notice. Notwithstanding the foregoing, in the event of a breach by
Lessee of any covenant, term or condition of this Lease or of the Base
Agreement, Lessor may, at its sole option, terminate this Lease immediately.
16.2 Upon the expiration or earlier termination of this Lease, Lessee
shall immediately vacate the Premises. Within ninety (90) days of the expiration
or earlier termination of this Lease, Lessee, at its own risk, cost and expense,
shall remove all improvements erected or used by Lessee on the Premises and
shall restore the Premises to the functional and operational condition existing
prior to the execution of this Lease. If within such ninety (90) day period,
Lessee fails to remove such improvements and restore the Premises accordingly,
Lessee shall be deemed to have abandoned its improvements in place, in which
event such improvements shall become the property of Lessor, for purposes of
resale, use or operation by Lessor in any manner and for any purpose Lessor
deems appropriate, in its sole discretion; or Lessor may cause such removal and
restoration to be performed and all costs incurred by Lessor in such removal and
restoration, together with interest thereon at the highest non-usurious interest
rate allowed by law, shall be due and payable by Lessee to Lessor upon written
demand.
16.3 The expiration or earlier termination of this Lease shall not
release either party from any liability or obligation incurred prior to such
expiration or termination nor terminate any right or obligation reasonably
intended to have continuing validity hereunder.
17. RELOCATION.
Lessor shall have the sole and absolute right to require the relocation of
the Premises, including any improvements thereon. The terms and conditions
applicable thereto shall be as stated in the Base Agreement.
18. LIABILITY, INDEMNITY.
18.1 In addition to the indemnification obligations stated elsewhere
herein, Lessee hereby releases Lessor, assumes responsibility for and shall
defend, indemnify and hold Lessor harmless from and against all losses, damages,
claims, fines, costs (including attorneys' fees) and expenses arising from or
relating to:
(a) any breach of this Lease by Lessee,
(b) any violation by Lessee of any law, rule, regulation,
order, notice, ordinance or any other requirement of a
public or governmental authority, including Lessee's
failure to obtain any necessary approval, consent or
permit,
(c) any damage (including environmental damage) to the
Premises, improvements or other property,
(d) any bodily injury, including death, of any person,
including, without limitation, the agents, employees,
contractors, licensees, permittees and invitees of
Lessor or Lessee and trespassers, which occurs on the
Premises or relates to any action or omission on the
Premises, and
(e) any liability arising from or relating to the condition
of the Premises, or Lessee's use or occupancy thereof or
placement or use of any improvements thereon,
whether caused by the fault, failure or negligence of Lessee, Lessor or
otherwise.
18.2 Lessee agrees it shall not have and hereby completely and
absolutely waives its right to any claim against Lessor for damages or any other
legal or equitable relief on account of any deficiencies in Lessor's title to
the Premises. Lessee shall indemnify and hold Lessor harmless from and against
all claims, litigation and damages for trespass, slander of title, overburden of
easement, or other claims arising out of or based upon Lessee's use or occupancy
of the Premises or any placement or use of any improvements thereon.
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18.3 Nothing contained herein shall amend, alter, modify, abridge or
affect the provisions of the Base Agreement relating to indemnification or the
allocation of liability.
18.4 The provisions of this Article 18 shall survive the expiration or
earlier termination of this Lease.
19. INSURANCE AND LIABILITY.
Each and every policy of insurance required under the Base Agreement
shall, prior to and during Lessee's use or occupancy of the Premises or any
placement or use of any improvements thereon, be amended or modified to provide
such coverage for Lessee's obligations hereunder, Lessee's use and occupancy of
the Premises and Lessee's placement or use of improvements thereon. Lessee shall
provide Lessor's Risk Management Department, 500 Water Street (J-907),
Jacksonville, FL 32202 with certified copies, except that, in the case of the
Railroad Protective Liability ("RPL") Policy, the original, of the insurance
policies amended or modified in accordance herewith. If, in Lessor's sole
opinion, higher limits of insurance coverage are necessary, Lessor shall so
notify Lessee and Lessee shall, within thirty (30) days of receipt of such
notice, provide to Lessor's Risk Management Department a certified copy (or the
original for the RPL Policy) of the endorsement to the appropriate policy
increasing the liability coverage to the required limit. The liability assumed
by Lessee under this Lease, including, but not limited to, Lessee's
indemnification obligations, shall not be limited to the insurance coverage
stipulated herein.
20. CONDEMNATION.
Should the Premises or any part thereof be condemned, appropriated and/or
acquired for public use, then Lessor, at its sole option, may terminate this
Lease. No part of any damages or award shall belong to Lessee, except to the
extent of any specific award from the governmental authority for improvements of
Lessee. The Premises shall be valued as vacant land, without consideration of
this Lease or Lessee's improvements on the Premises as an enhancement or
detriment to said value. Improvements of Lessee not so condemned, appropriated
and/or acquired shall be removed in accordance herewith.
21. SUCCESSORS, ASSIGNS; NO TRANSFER, SUBLEASE OR ASSIGNMENT.
21.1 The terms, covenants and provisions hereof shall inure to the
benefit of and be binding upon the successors and assigns of Lessor and the
successors and permitted assigns of Lessee.
21.2 The foregoing notwithstanding, Lessee shall not transfer, assign,
encumber or sublet this Lease or any part of the Premises or any rights or
privileges herein granted, without the prior written consent of Lessor, which
may be withheld in Lessor's sole discretion. The foregoing covenant shall also
apply whether such sale or transfer is made voluntarily by Lessee or
involuntarily in any proceeding at law or in equity to which Lessee may be a
party whereby any of the rights, duties and obligations of Lessee shall be sold,
transferred, conveyed, encumbered, abrogated or in any manner altered. Any sale,
conveyance, transfer, assignment, sublease, abrogation or encumbrance of this
Lease, all or any portion of the Premises or any of the rights and privileges
hereunder in violation of this Article 21 shall be null and void and Lessor, at
its sole option, may terminate this Lease.
22. BANKRUPTCY RIGHTS.
It is expressly understood and agreed that in the event of any assignment
for the benefit of creditors, or in the event a petition in bankruptcy shall be
filed by Lessee, or if Lessee shall be adjudged bankrupt or insolvent by any
court, or if a trustee in bankruptcy or a receiver of Lessee or Lessee's
property shall be appointed in any suit or proceeding brought by or against
Lessee, and if at such time this Lease is in default by Lessee, then and in such
event Lessor, at its sole option, may (i) immediately terminate this Lease, or
(ii) may request an election of affirmance or rejection of this Lease under
Section 365 of the Bankruptcy Act by giving Lessee or any such assignee,
trustee, or receiver written notice of such demand for election. If Lessee, or
such assignee, trustee or receiver, fails to elect affirmance and fails to
furnish adequate assurances as to the payment of Lessee's existing and future
indebtedness to Lessor and continued performance under the Lease, Lessee shall
be deemed to have rejected the same. If Lessee or such assignee, trustee or
receiver shall
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reject or be deemed to have rejected this Lease, this Lease shall be deemed
immediately terminated. If Lessee or such assignee, trustee or receiver shall
affirm this Lease, it shall thereupon be bound by all terms hereof, including,
without limitation, the obligation to make payment of all sums then or
thereafter due from Lessee hereunder.
23. SEVERABILITY, GOVERNING LAW, WAIVER, NOTICES.
23.1 Each and every separate division (paragraph, clause, item, term,
condition, covenant or agreement) herein contained shall have independent and
severable status from each other separate division, or combination thereof, for
the determination of legality, so that if any separate division herein is
determined to be unconstitutional, illegal, violative of trade or commerce, in
contravention of public policy, void, voidable, invalid or unenforceable for any
reason, that separate division shall be treated as a nullity, but such holding
or determination shall have no effect upon the validity or enforceability of
each and every other separate division herein contained, or any other
combination thereof.
23.2 This Lease shall be governed by the laws of the State in which
the Premises are located. Nothing contained herein shall amend, alter, modify,
abridge or affect the provisions of the Base Agreement relating to the parties'
choice of governing law as to the rights and obligations contained therein.
23.3 No waiver by Lessor of any breach of any covenant, condition or
agreement herein contained shall operate as a permanent waiver of such covenant,
condition, or agreement, or of any subsequent breach thereof. No payment by
Lessee or receipt by Lessor of a lesser amount than the installments of rent or
other sums due hereunder shall be deemed to be an acceptance thereof or a waiver
of any of Lessor's rights hereunder or a discharge of any obligation of Lessee
hereunder. Lessor shall have the right, in its sole discretion, to apply such
payment to any indebtedness owing from Lessee to Lessor. No endorsement or
statement on any payment or letter accompanying such payment shall be deemed an
accord and satisfaction, and Lessor may accept such payment without prejudice to
Lessor's right to recover any outstanding balance or to pursue any other remedy
provided in this Lease. No re-entry by Lessor after a breach or termination
shall be considered an acceptance of a surrender of the Premises unless
specifically agreed to in writing by Lessor.
23.4 All notices and communications required or permitted under or
otherwise concerning this Lease shall be addressed to Lessor or to Lessee, as
appropriate, at their respective addresses set forth herein, or at such other
address as either party may designate in writing to the other party. Copies of
any notices or communications required or permitted under Section 18 or 19 shall
be provided to Lessor's Risk Management Department, 500 Water Street (J-907),
Jacksonville, FL 32202.
24. OTHER PROVISIONS.
None
6
<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed, in duplicate, as of the day and year first above written.
"LESSOR"
CSX TRANSPORTATION, INC.
[as operator for New York Central Lines LLC,
a Delaware limited liability company]
Witnesses:
____________________________ By:_________________________________
Name:_______________________________
____________________________ Title:______________________________
"LESSEE"
PATHNET TELECOMMUNICATIONS, INC.
Name:_______________________________
____________________________ Title:______________________________
7
<PAGE> 48
EXHIBIT D
---------
[LOGO ART]
When working along the Rail Road Right of Way
Make sure you have all the other RR Tenants notified before digging. Long
Distance Telecommunications Companies use RR ROW to route very small Fiber
Optic Cables which carry huge volumes of Telecommunications traffic including:
Banking, Stock Markets, Point of Sale, 911, FAA and Government. Not to mention
YOUR Family trying to call one another.
LONG DISTANCE PHONE CO.
<TABLE>
<S> <C>
WORLDCOM 1-800-248-0133
AT&T 1-800-252-1133
MCI 1-800-624-9675
SPRINT 1-800-521-0579
QWEST 1-800-283-1237
Interstate FiberNet 1-800-374-2350
</TABLE>
ONE-CALL CENTERS
<TABLE>
<S> <C>
Alabama 1-800-292-8525
Connecticut 1-800-922-4455
DC 1-800-257-7777
Delaware 1-800-282-8555
Florida 1-800-432-4770
Georgia 1-800-282-7411
Illinois (Chicago) 1-312-744-7000
Illinois 1-800-892-0123
Indiana 1-800-382-5544
Kentucky 1-800-752-6007
Louisiana 1-800-272-3020
Massachusetts 1-888-344-7233
Maryland 1-800-257-7777
Maryland 1-800-282-8555
Maine 1-888-344-7233
Michigan 1-800-482-7171
Mississippi 1-800-227-6477
North Carolina 1-800-632-4949
New Hampshire 1-888-344-7233
New Jersey 1-800-272-1000
New York City
(Long Island) 1-800-272-4480
New York 1-800-962-7962
Ohio 1-800-362-2764
Pennsylvania 1-800-242-1776
Rhode Island 1-888-344-7233
South Carolina 1-800-922-0983
Tennessee 1-800-351-1111
Virginia (South) 1-800-552-7001
Virginia (North) 1-800-257-7777
Vermont 1-888-344-7233
West Virginia 1-800-245-4848
</TABLE>
.48
<PAGE> 49
CSXT EXHIBIT E
SPECIFICATIONS FOR UNDERGROUND COMMUNICATIONS AND POWER CABLE CROSSINGS AND
LONGITUDINAL OCCUPANCY UNDER TRACKS AND RIGHTS OF WAY
A. PURPOSE OF SPECIFICATIONS
The purpose of these specifications is to govern the location and
installation of underground communication and power cables crossing under
the track(s) and/or CSXT right of way in a manner that will not interfere
with present and future CSXT construction operations.
B. GENERAL LOCATION OF UNDERGROUND FACILITIES
1. The cable or duct system of proposed underground crossings shall
be laid as straight and direct as possible between the points
where the underground line enters and leaves the property of CSXT.
2. Manholes, pull and splice boxes, and terminals in the underground
crossings should be located off CSXT's right of way where
possible, or at the outer edge of the right of way when on
Railroad property. If the structures must be located further from
the right of way line, and nearer the track(s), they must be
installed below ground, and marked with identification flush with
the ground.
C. DESIGN CRITERIA FOR UNDERGROUND FACILITIES
1. The tops of conduits and/or ducts and cable system structures of
underground cable crossings shall be located at a depth of not
less than 60 inches below the bottom of the crossties. In
addition, the installations shall be at least 36 inches below the
bottom elevations of ditches or 42 inches below ground level for
parallel installations with the lowest depth governing. Where
rail-plow is authorized, conduit or cable shall be at a depth of
not less than 42 inches below ground level.
When installations are proposed by rail plowing, the minimum
offset from the centerline of the near track shall not be less
than 15 feet. When installations are proposed by tractor plowing,
they shall be located more than 15 feet from the centerline of the
near track. Tractor plowing will not be permitted on railroad
embankments without specific site approval. The proposed conduit
installations shall not be located less than 5 feet from CSXT code
cables. Plowing through
<PAGE> 50
public or private road crossings will not be permitted. All
drainage structures will be located and marked prior to plowing or
trenching.
Unless otherwise approved, manholes, hand hole/splice boxes shall
be located at least 25 feet from the centerline of the near track
where right of way is available. Unless otherwise approved, bored
conduits shall clear signal control building and appurtenance
foundations by 5 feet vertically. The conduits are to be clear
such facilities horizontally by 5 feet if trenched and 10 feet if
bored.
2. Underground crossings of power supply cables with a maximum
voltage of 750 volts may be installed by pushing or boring a
galvanized steel pipe under the tracks at a depth specified above
to serve as a conduit, provided such pipe extends at least 25 feet
beyond the outside rail on each end of the crossing and the top of
pipe casing is buried at least 60 inches below the bottom of the
crossties and 36 inches below ditch bottoms at all other points on
the property of CSXT. Longitudinal occupancy shall be approved by
the Chief Engineer to ensure that such proposed occupancy does not
impair the normal functioning of Train Control equipment.
Measurements to the ends of the conduits shall be to the head of
the outside rail and made at right angles to the track. Additional
lengths will be required for crossings in fill sections and those
at angles of less than ninety degrees (90 degrees) and for
multi-track crossings. Generally, on fills, two feet beyond the
toes of the slopes or three feet beyond the ditch should be
sufficient, (refer to Attachment No. 1 and No. 2). All ducts
and/or encasement beneath the tracks must be capable of
withstanding E-80 loading and conform to A.R.E.MA. Part 5, Section
5.3. Conduits and/or encasement larger than four (4) inches shall
be governed by the specifications which normally cover pipelines.
Jacking or boring installation is preferred, and no water is to be
used in the installation of the encasement.
3. Underground crossings of communications cables of low voltage
shall conform to number "2" above, except that encasement may, at
the discretion of the Chief Engineer or his authorized
representative, be restricted to 15 feet beyond the outside rail
of spur or sidetracks measured at right angles to the track. As in
number "2" above, additional lengths will be required for
crossings in fill sections, etc. These criteria shall also apply
to paved street sections.
4. Underground crossings of power supply cables operating above 750
volts will be installed at depths specified above. In addition,
between the points where the underground crossings enter or leave
CSXT
2
<PAGE> 51
property, the cable is to be enclosed in galvanized steel pipe or
in an approved concrete encased duct for mechanical protection of
the cable. No cable of this potential, which is unprotected, will
be permitted. Longitudinal occupancy shall be approved by the
Chief Engineer to ensure that such proposed occupancy does not
impair the normal function of Train Control equipment. If risk to
inductive interference is perceived, a further examination by a
third party may be required.
5. Owners of the conduits and cables shall designate the locations of
such installations to aid in the prevention of damage to the cable
as a result of use of Railroad's property. Signs or markers shall
be placed and maintained preferably at or near the CSXT right of
way line. The signs/markers shall describe the underground
facility and include a telephone number of the facility owner
clearly visible on each side of the track.
6. In addition to the requirements of these specifications, the
underground crossing is to conform to the requirements of the
National Electrical Safety Code, as published by the National
Standards Institute, Inc., the latest revised edition of same
being controlling. The crossing is also to conform to the
requirements of any local or state laws or regulations of any
local code enforcing authority that may be in effect at the time
of the installation.
7. All applications for underground facilities described in this
document shall be submitted to the appropriate Division Engineer
or Manager, or his or her designated representative(s) having
jurisdiction and must be accompanied by complete location and
construction plans referenced to CSXT's milepost. No work is to be
performed on CSXT property prior to granting of authority from the
Division Engineer or Manager. All work on the property will be
performed under the supervision of the Division Engineer or
Manager. The applicants shall bear any expense incurred by CSXT or
its forces, will execute the appropriate agreement and pay all
fees and rentals as required by established standards or as
negotiated.
8. Conduit shall be so installed as to prevent the formation of a
waterway under the railroad, with an even bearing throughout its
length, and shall slope to one end (except for longitudinal
occupancy).
9. Bored or jacked installation shall have a bored hole with the
diameter essentially the same as the outside diameter of the
conduit plus the thickness of any protective coating. If voids
should develop or if the hole diameter is greater than the outside
diameter of the conduit (including coating) by more than one (1)
inch, remedial measures, as
3
<PAGE> 52
approved by the railroad's Chief Engineer, shall be taken. Boring
operations shall not be stopped if such stoppage would be
detrimental to the railroad.
10. Conduits and cables shall be installed by plowing methods where
practical. Directional boring, and trench and back fill techniques
shall be used in those locations where plowing is impractical. In
all cases, the condition of the right of way will be restored,
including vegetation and erosion controls to CSXT's satisfaction,
and in accordance with current CSXT specifications for grading
work.
11. All bridge attachment designs must be approved by CSXT. All
designs are to provide for attachment to the outside of the bridge
structures. Insertions or burial of casing and/or conduit where
the ballast is carried across bridge decks will not be approved
except for aesthetic or historic reasons. Steel pipe casing with
adequate provision for contraction and expansion shall be used to
support the conduit. Core drilling for installation of casing
through bridge back walls, head walls, and wing walls shall be
located not less than one core diameter from the top or outside
face of the wall. Steel sleeves secured by approved grout material
shall be installed in bores through concrete walls prior to the
installation of casing. All FRA and OHSA safety rules for bridge
worker safety shall apply when work is performed on bridges. Care
must be taken to ensure metallic conduit shall not impair or
circumvent Train Control circuitry.
Excavation by blasting methods shall be employed only as a last
resort, must be approved by CSXT in writing in each instance, and
must comply with Sections 1..3..5..9.. of the Manual for Railway
Engineering, refer to Attachment No 3.
12. Point of Presence, Regeneration and Junction Sites are to be
located not less than 25 feet from the centerline of the near
track. Service and access roads are to be located not less than 25
feet from the centerline of the near track. These site
installations shall not interfere with existing drainage
structures and systems, or service roads. Sites involving
buildings or other types of sight obstructions shall be located in
accordance with CSXT crossing sight distance criteria, refer to
Attachment No. 4 and No. 5.
13. The owners of the proposed installations are responsible for
coordination with all existing utilities located on the right of
way during design and construction, and maintaining the proper
clearances. The owners of the proposed installations are
responsible for obtaining all construction and environmental
permits, and compliance with their
4
<PAGE> 53
requirements. The owners of the proposed installations are
responsible for confirmation of title to right of way through
CSX -- Real Property, Inc.
14. Design Plans - All plans shall be submitted to CSXT for review and
approval. No work is to be initiated without approved plans on
site. Plans shall be drawn to scale showing the relation of the
proposed cable system to railroad tracks, railroad signals and
control facilities, angles of crossings, locations of bores,
manholes, hand holes, railroad survey stations, railroad mile
posts with prefixes, right of way lines and general layout of
tracks and facilities, etc. Also, drawings must show number of
conduits, size and location of cable in the conduit, fiber count
in each cable, and details of bridge attachments. A general
location map together with a legend indicating line and symbol
designations with on/off milepost (nearest 0.1 mile) is to be
included. CSXT reserves the right to require plan modifications
during construction to protect railroad facilities and operations.
D. CONSTRUCTION OPERATIONS
Construction operations shall be planned and organized to minimize
conflicts with railroad operations. All operations are to be conducted in
accordance with CSXT Safe Way policies and procedures, and are subject to
CSXT approval.
1. Pre-construction conferences shall be held prior to beginning work
on the right of way. Additional progress meetings and/or
teleconferences may be required during the course of the work.
Coordination shall be provided as outlined in CSXT MWI 1905.
Complete work schedules will be presented at the pre-construction
conference. The schedules are to be updated monthly at a minimum.
2. All construction operations shall be conducted in compliance with
CSXT MWI 1905 and the CSXT Fiber Optic Program Safety Requirements
approved 09-09-98, refer to Attachment No. 6.
All personnel on the projects shall have received CSXT Safe Way
(including FRA OTS) training prior to entering the right of way.
Proof of training may be required at anytime. Construction
operations shall be conducted in accordance with FRA and OSHA
regulations, and coordinated with and subject to the approval of
the CSXT Chief Engineer for Design and Construction, the CSXT
Service Lane or Business Unit Division Engineer, the CSXT Flagmen
and Signalmen, and the consultant inspection personnel assigned to
the projects by CSXT. Permissions shall be obtained from CSXT to
enter the right of way before beginning operations.
5
<PAGE> 54
All personnel shall receive safety briefings by a CSXT Flagman or
designated CSXT representative each day before beginning work on
the right of way. Additional briefings may be required when
conditions and/or work sites are changed. Requests for flagmen
deployments and train orders shall be submitted to the lead
flagman or the designated CSXT representative by 3:00 PM each day
for the following workday.
3. The owners of the facilities shall have construction managers in
responsible charge on site at all times and shall provide
production quantities on a daily basis to the CSXT designated
representative or the consultant inspection personnel assigned to
the project.
4. Accurate notes and records shall be maintained during the course
of the work to enable the preparation of complete "as-built plans"
upon completion of the project(s). The "as-built plans" shall
accurately depict and describe the location of all facilities
installed on the right of way. As-built plans shall be submitted
for approval as specified in the contract with CSXT.
5. Unless otherwise approved or directed, all plowing shall be
performed with plow cutting edge perpendicular to the ground
surface. Plow lines are to be backfilled and compacted, as
required, as conduit installation progresses. All plow areas are
to be backfilled before work is suspended for the day. Follow up
restoration work will be required whenever settlement or erosion
is observed.
In the event of equipment breakdowns, severe weather, or railroad
emergencies that preclude completing and closing excavations or
disallow complete removal of equipment or materials, the areas are
to be surrounded with orange construction fence to the
satisfaction of the CSXT representative. Flashing construction
barricades may be required if the sites are in or near walk ways,
switches, signal control cabinets, or services roads used by CSXT
personnel during night time hours.
Excavations shall comply with OSHA requirements and be promptly
backfilled and compacted in accordance with the drawings and
specifications approved by the CSXT Chief Engineer, refer to
Attachment No. 7.
6. Fouling of the track, ties and ballast will not be permitted.
Approved ballast stone shall be available on the project at all
times. Ballast contaminated or disturbed shall be replaced and/or
reshaped immediately.
6
<PAGE> 55
All obstructions located within 15 feet of the center of the near
track or on or adjacent to the walk areas, switches, and signal
control devices and cabinets are to be removed by the end of each
workday.
Conduit at the end of plow lines, directional bores, and trenches
shall be cut off and buried as the work progresses. In the event
that it becomes necessary to leave exposed ends or sections of
conduit due to emergencies or inclement weather, they are to be
surrounded with orange construction fences until they are
connected or buried. Messages are to be sent to the CSXT
dispatcher advising of potential crew or operational hazards.
Casings and directional bore holes that have failed and are
abandoned shall be sealed to prevent them from becoming conduits
for drainage. Excavations associated with abandoned casings and
bores are to be backfilled and compacted as shown in the
specifications.
The telecom owners are responsible for clearing and grubbing
vegetation that conflicts with the construction and disposal of
the debris off the right of way.
7. Cables and/or wires temporarily installed to monitor or guide
directional boring operations shall be subject to the following:
a) CSXT permission is required if they are to be attached to
railroad structures and the flagmen are to be kept advised of all
installations.
b) Clearances over waterways must be maintained to allow free
unobstructed passage of boat traffic.
c) Wires and supports located on the ground must be clearly marked
and located such that they do not conflict with railroad personnel
and operations. Control wires are not to be installed in advance
of beginning operations and work deferred.
d) When directional bores are monitored by electronic devices that
do not use wire, and the work crosses streets or highways; traffic
control devices, approved by the State DOT, are to be placed when
personnel are on the highway right of way and/or interfere with
traffic.
e) All wires and supports are to be removed from the site promptly
after work is completed.
7
<PAGE> 56
8. Areas disturbed by construction operations shall be reshaped to
drain, seeded, mulched or surfaced with crushed stone as required
to prevent erosion and ensure CSXT personnel and equipment can
safely use all areas at all times. Restoration of right of way
disturbed by construction operations shall be scheduled to
coincide with the installation of conduit and hand hole/splice
boxes and other appurtenances.
The owners of the facilities shall comply with all applicable
CSXT, Federal, State and local environmental laws and regulations.
The owners shall also prevent construction material and debris
from entering waterways, wetlands, and detention and retention
ponds. Any material that inadvertently escapes during construction
operations shall be recovered and properly disposed of at an
acceptable site. Erosion control materials such as silt fencing,
bale checks and mulch shall be available and installed where
necessary to protect potentially environmentally sensitive areas.
Existing riprap or other erosion control structures disturbed or
damaged during the course of the work shall be promptly repaired
to the satisfaction of CSXT. Completed work shall be re-evaluated
following storms or other construction activities to ensure that
the right of way is maintained in a satisfactory manner during the
course of the work.
9. The right of way shall be restored to a condition equal to or
better than the condition prior to beginning the project before
final acceptance will be approved. Conduit and cable reels, and
other debris are to be removed from the right of way as the work
progresses. Failure to remove such materials and perform
restoration promptly may result in a suspension of work order
until satisfactory progress has been demonstrated.
10. Final inspections of the right of way condition and restoration
will be scheduled at CSXT convenience prior to construction
personnel and equipment leaving the project. Punch lists shall be
responded to prior to issuance of an acceptance memorandum signed
by the Division Engineer or his/her designated representative.
8
<PAGE> 57
E. COMPLIANCE WITH SPECIFICATIONS
1. All work performed and materials furnished shall be in reasonably
close conformity with the provisions contained in the plans and
specifications approved by CSXT for the project and the provisions
contained in this document. In the event that materials or the
finished work are not in reasonably close conformity with the
plans and specifications, CSXT will determine if the work or
materials shall be removed and replaced or otherwise corrected to
the satisfaction of CSXT.
2. No revisions to existing installations will be required under
these specifications. When necessary to install, relocate or
replace existing facilities, these specifications will govern.
3. These specifications will become effective on the date of
signature below and will remain in effect until revised by the
Office of Chief Engineer CSX Transportation.
Approved: [SIG]
--------------------------------
Chief Engineer
Date: Mar. 16, 1999
------------------------------------
Approved: [SIG]
--------------------------------
Chief Engineer Train Control
Date: 3-18-19
------------------------------------
Prepared by: B.H. Ortgies, P.E., V.P.
Wilbur Smith Associates
Tallahassee, FL
Revised Dec. 28, 1998
9
<PAGE> 58
ATTACHMENT NO. 1
[LENGTH OF CASING FOR VARIOUS CROSSING ANGLES DIAGRAM]
<PAGE> 59
ATTACHMENT NO. 2
[FILL DIAGRAM]
<PAGE> 60
ATTACHMENT NO. 3
MANUAL FOR RAILROAD ENGINEERING, SECTION 1..3..5..9
1..3..5..9 Controlled Blasting of Rock
The contractor shall make all necessary arrangements satisfactorily to the
engineer for controlled blasting in the vicinity of the track and shall provide
all safeguards required by the railway.
Within the entire area of the contract, complete and continuous precaution shall
be taken by the contractor to prevent any damages to persons, vehicles, trains,
power or communication lines, structures, private dwellings or other
installations by reason of concussion, vibration or flying material.
The contractor shall be familiar with and comply with all regulations governing
the transportation, storage, handling and use of explosives at the location of
the work. He shall obtain such permits as are required.
The contractor shall take all necessary precautions against the effects of
induced currents caused by radio transmitters and receivers, power lines,
transformers, cables, radar beams or any other energy or wave force which might
result in premature firing of the blasting circuits.
All blasting shall be done with extreme care by experienced licensed powder men,
in accordance with procedures approved by the engineer in writing.
The contractor shall submit, in advance of drilling, a drilling and loading
pattern for blasting to the engineer. All drill dust shall be blown out of the
holes and holes shall be protected with suitable plugs or covers.
Approved blasting signals shall be used at all times. All blasting shall be
carried out under strict traffic regulations. Each blast shall be subject to
clearance by the contractor from the engineer to avoid any blasting while a
train is nearby.
When necessary to protect property or facilities, all blasts shall be suitably
covered with blasting mats or other approved protective material, weighted and
secured in such a manner as to prevent projection of debris. The contractor is
fully responsible for the method used in blasting rock and carrying out the
approved procedures and for the prompt removal of all debris deposited on the
track. Approval of the engineer shall not relieve the contractor in any degree
whatsoever of full responsibility for damages caused by blasting operations.
<PAGE> 61
----------------
ATTACHMENT NO. 4
----------------
[ROAD CROSSING SIGHT CLEARANCE DISTANCES DIAGRAM]
<PAGE> 62
----------------
ATTACHMENT NO. 5
----------------
[ROAD CROSSING SIGHT CLEARANCE DISTANCES DIAGRAM]
<PAGE> 63
ATTACHMENT NO. 6
CSX TRANSPORTATION
FIBER OPTIC PROGRAM
SAFETY REQUIREMENTS
GENERAL
- - All fiber optic workers must receive CSXT SAFETY AWARENESS training and
have a verification card and/or hard hat sticker. CSXT Safety Rules and
Contractor Policies will apply to fiber optic workers, where applicable
to the specific work performed.
- - All personnel must wear proper Personal Protection Equipment, which
includes a minimum of a hard a hat, safety glasses, steel toed shoes,
hearing protection, and orange vests with reflective stripes on or around
road crossings. When working beyond 25 feet from the nearest rail of a
main track, hard hats, safety glasses, and laced work boots will be
required.
- - All "FRA Bridge Worker Safety" rules will apply to fiber optic workers
performing bridge attachments, including proper fall protecting rules.
- - All test holes or pits less than 15 feet from the centerline of main
tracks, will be filled or covered prior to passing of trains. No open
pits or holes will be left over night. All pits and trenches will be
shored according to OSHA requirements.
- - No dirt or debris will be allowed to foul the ballast section of the
tracks.
- - All excavation or plow trenches will be back filled and compacted
immediately after the work is done.
- - All public utilities, CSXT Engineering, and the Railroad Train Control
Office, will be notified prior to any construction.
- - Job Briefings will be conducted each morning and throughout the day when
conditions or job scope changes.
WORKING ON OR AROUND TRACKS
- - All work in the FRA Red Zone (within 4 feet from outside rail on each
side of the track) will be done only with a CSXT, FRA qualified flagman
or watchman as specified by the local Engineering representative. All
work beyond 4 feet from the outside rails and within 25 feet, must be
done under the supervision of a CSXT qualified inspector or flagman.
- - Certain types of work done beyond 25 feet from the outside of the rails,
and with equipment that will not reach beyond this point, may be done
without flagging protection or a watchman, IF APPROVED BY THE LOCAL
ENGINEERING REPRESENTATIVE, AND PROTECTED BY A CONSTRUCTION FENCE, IF
WORK IS STATIONARY (WILL NOT BE USED FOR CAT PLOWING).
- - All work must be stopped while trains are passing within the work zone.
- - All workers will remain off the tracks. If necessary to perform the work
on track, protection will be provided as stated above.
ALL VIOLATION OF ANY CSXT SAFETY RULES OR POLICY, MAY RESULT IN REMOVAL OF
CONTRACTOR OR PERSONNEL FROM THE RIGHT OF WAY.
CSXT/LLG Rev. 09-02-98 Approved by: Manager Safety 09-09-98
<PAGE> 64
----------------
ATTACHMENT NO. 7
----------------
[COMPACTION SPECIFICATIONS DIAGRAM]
<PAGE> 65
EXHIBIT F
-1-
Association of American Railroads
Communication Manual
<TABLE>
<CAPTION>
1989 Part 1-B-1
- -------------------------------------------------------------------------------------------------------
Recommended Practices for Communication Lines
Crossing the Tracks of Railroads
Revised 1988 (76 Pages) (DOC. 1-B-1A)
Table of Contents
-----------------
Paragraphs
------------
<S> <C>
Section A -- Purpose................................................................ A-1 to A-2
Section B -- Definitions............................................................ B-1 to B-10
Communication Lines.............................................................. B-1 to B-4
Supply Lines..................................................................... B-5 to B-7
Voltage of a Circuit............................................................. B-8
Minor Tracks..................................................................... B-9
Major Tracks..................................................................... B-10
Section C -- General................................................................ C-1 to C-8
Permits and Notices.............................................................. C-1 and C-2
Marking Poles.................................................................... C-3
Fire Hazard...................................................................... C-4
Protection for Moving Vehicles................................................... C-5
Inspection....................................................................... C-6 to C-8
Part I -- Overhead Crossings
----------------------------
Section D -- General................................................................ D-1 to D-8
Relative Levels of Supply & Communication Wires.................................. D-1 to D-3
Protection of Metals Against Corrosion........................................... D-4
Vertical Pull.................................................................... D-5
Length of Crossing Span.......................................................... D-6 to D-8
Section E -- Clearances............................................................. E-1 to E-7
General.......................................................................... E-1
Side Clearances from Rails....................................................... E-2
Vertical Clearance Above Rails for Fixed Supports................................ E-3 and E-4
Vertical Clearances Between Wires Not on the Same
Supporting Structures......................................................... E-5
Increased Clearances............................................................. E-6
Clearance of Conductor of a Communication Line
From the Supports of Another Line............................................. E-7
Section F -- Loading Assumptions.................................................... F-1 to F-3
Section G -- Poles.................................................................. G-1 to G-10
Material......................................................................... G-1
Sizes............................................................................ G-2
Gains............................................................................ G-3
Setting.......................................................................... G-4 to G-6
Pole Mounts...................................................................... G-7
Spliced Poles.................................................................... G-8
Stub Reinforced Poles............................................................ G-9 and G-10
Section H -- Crossarms and Brackets................................................. H-1 to H-5
Section J -- Crossarm Braces........................................................ J-1 and J-2
Section K -- Pins................................................................... K-1
Section L -- Insulators............................................................. L-1 and L-2
Section M -- Tie Wires.............................................................. M-1
Section N -- Conductors............................................................. N-1 to N-5
Section P -- Sags................................................................... P-1
</TABLE>
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<TABLE>
<CAPTION>
Part 1-B-1 1989
- -------------------------------------------------------------------------------------------------------
Paragraphs
------------
<S> <C>
Section Q -- Guys................................................................... Q-2 to Q-22
Material......................................................................... Q-1
Side Guys........................................................................ Q-2 and Q-3
Head Guys........................................................................ Q-4 and Q-5
Guying at Corners and Terminals.................................................. Q-6 to Q-8
Omission of Guys................................................................ Q-9 to Q-11
Guying in Special Cases.......................................................... Q-12
Guy Leads........................................................................ Q-13
Methods of Anchoring Guys........................................................ Q-14
Guy Rods......................................................................... Q-15
Anchors.......................................................................... Q-16
Method of Securing Guy Strand.................................................... Q-17
Guards for Guys.................................................................. Q-18
Pole Braces...................................................................... Q-19
Section R -- Suspension Strand...................................................... R-1 to R-8
Material......................................................................... R-1
Sizes............................................................................ R-2 and R-3
Attachment to Poles.............................................................. R-4 to R-7
Sags............................................................................. R-8
Section S -- Cable Attachments to Suspension Strands................................ S-1
Part II -- Underbridge Crossings
--------------------------------
Section T -- General................................................................ T-1 to T-4
Avoidance of Attachments......................................................... T-1
Attachments...................................................................... T-2
Clearance from Abutments......................................................... T-3
Clearance from Bridge Structure.................................................. T-4
Part III -- Underground Crossings
---------------------------------
Section U -- General................................................................ U-1 to U-14
Arrangement for Work............................................................. U-1
Location......................................................................... U-2
Side Clearance from Rail......................................................... U-3
Clearance Below Base of Rail..................................................... U-4 and U-5
Arrangement of Conduit System.................................................... U-6
Protection of Ducts.............................................................. U-7 and U-8
Excavation....................................................................... U-9
Shoring.......................................................................... U-10
Grading and Drainage............................................................. U-11
Backfilling...................................................................... U-12
Removing Surplus Material........................................................ U-13
Concrete......................................................................... U-14
</TABLE>
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A -- Purpose
------------
A-1 These recommended practices are for construction and maintenance of
communication lines crossing the tracks and associated parallel
communication lines of steam and electrified railroads, except street
railways.
A-2 Where any requirements of this specification do not meet municipal or
state requirements, such municipal or state requirements shall govern.
B -- Definitions
----------------
B-1 Communication Lines: Communication lines as used in this manual part
mean telegraph, telephone and other communication wires and cables and
their supporting or containing structures which are located outside of
buildings and are used for public or private communication service and
which operate at not exceeding 400 volts to ground or 750 volts
between any two points of the circuit, and the transmitted power of
which does not exceed 150 watts. For such communication wires, when
operating at less than 150 volts between wires or to ground, no limit
is placed on the capacity of the system.
B-2 Interlocking, automatic signal and other similar wires (not including
electric light and supply wires), which operate at not exceeding the
voltage and power requirements of communication wires, should be
classed as communication wires.
B-3 Communication circuits used exclusively in the operation of supply
lines should, in general, be considered as supply circuits of the
highest voltage to which they are exposed, and should be constructed
in accordance with Manual Part 7-1 (Recommended Practices for
Crossings of Electrical Supply Lines and Facilities of Railroads), but
in no case need the communication conductors meet the requirements for
supply conductors in excess of 8,700 volts between conductors.
B-4 Where, however, such communication circuits are below the supply
conductors in the operation of which they are used, at all points
throughout their length or throughout the section in which the railroad
crossing occurs, provided such section of the communication circuits is
isolated from the remainder of the system by transformers or other
means,
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they may be considered as ordinary communication circuits and so
constructed, if either of the following conditions obtain:
(a) Such communication circuits occupy a position below all other
conductors or equipment or other lines at crossings, conflicts,
or on commonly used poles throughout the section to which
reference is made.
(b) Such communication circuits are protected by fuseless lightning
arresters, drainage coils, or other suitable devices to prevent
the communication circuit voltage form normally exceeding 400
volts to ground.
B-5 Supply Lines: Electrical supply lines mean those conductors and their
necessary supporting or containing structures which are located
entirely outside of buildings and are used for transmitting a supply
of electrical energy.
B-6 Except as specified in Paragraphs B-4 and B-7, communication and railway
signaling wires exceeding the voltage or power limitations specified in
Paragraph B-1, are supply lines within the meaning of this manual part and
should be so constructed.
B-7 Circuits used for supplying power solely to apparatus forming part of
a communication system may be run either in open wire or cable as
follows:
(a) Where run in open wire, such circuits should have the strength
of construction, clearances, insulation, etc., prescribed for
communication or supply circuits of the voltage concerned.
(b) Where run in effectively grounded continuous metal sheath
cable or in cable which is attached to effectively grounded
suspension strand by means of metal rings or spirally wound
lashing wire, the strength of construction, clearances,
locations, etc., prescribed in this manual part for
communication cables should apply.
B-8 Voltage of a Circuit: Voltage of a circuit means the highest effective
voltage between any two conductors of the circuit concerned, except
that in a grounded multi-wire circuit of 750 volts or less between
any two conductors, it means the highest effective voltage between any
wire of the circuit and that point or conductor of the circuit that is
grounded.
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B-9 Minor Tracks: Minor tracks mean railroad tracks included in the
following:
(a) Spur tracks less than 2,000 ft. long and not exceeding two tracks
in the same crossing span.
(b) Narrow-gauge or other tracks on which standard rolling stock
cannot, for physical reasons, be operated.
(c) Tracks used only temporarily for construction or similar purposes
for a period not exceeding one year.
(d) Tracks not operated as a public utility, such as industrial
railways used in logging, mining, etc.
(e) By agreement between the parties at interest, other similar minor
tracks than those listed under (a), (b), (c) and (d) above.
B-10 Major Tracks: Major tracks mean any tracks not included under the
definition of minor tracks.
C-General
C-1 Permits and Notices: A party planning to erect wires across the tracks
of a railroad shall give to the Superintendent of Communication or
other designated officer of the railroad, written notice at least 30
days in advance of starting construction. Such notice shall include
information regarding the location and general plan of the crossing,
clearances and other data indicated on Typical Communication Line
Crossing Data Sheet, Appendix L, and on Figures 1B1-1, 1B1-3, 1B1-4 and
1B1-5, and any other pertinent information in sufficient detail so that
it can be determined whether or not the proposed construction will
conform to this specification.
C-2 In cases where 30 days' notice is impracticable because of service
demands or emergency, the parties concerned should cooperate to avoid
unnecessary delay in the construction of the crossing.
C-3 Marking Poles: Crossing poles should be plainly marked by means of
stencils or metal characters showing the name, initials or trade mark
of the owning company. Where lines are located on railroad
right-of-way for at least three poles adjacent to the crossing and it
is the standard practice of the owning company to so mark at least
every fifth pole in the line, the above requirement should be
considered as having been met.
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C-4 Fire Hazard: Crossing poles or other supporting structures shall be
located as far distant as practicable from inflammable structures and
the space around the poles or other supporting structures kept free from
inflammable material.
C-5 Protection from Moving Vehicles: Supporting structures adjacent to
traveled highways shall be located with a view to reducing, as far as
practicable, the danger of being struck by moving vehicles. Structures
which are exposed to abrasion by moving vehicles or to other damage
which would affect their strength materially, shall be protected by
guards.
C-6 Inspection: The construction shall be subject to the inspection of the
railroad company and shall comply with the requirements of this manual
part. Defective material shall be rejected and replaced with acceptable
material.
C-7 All parts of the supporting structures of overhead crossings should be
inspected at such intervals as are necessary to assure adequate
maintenance. All defective parts shall be promptly restored to a safe
condition and, with the exception of wood poles, should be replaced when
they have deteriorated to 50% of their required initial strength. Wood
poles should be replaced when they have deteriorated to two-thirds their
required initial strength. (The ground line circumference of various
classes and species of poles whose strengths have deteriorated to
two-thirds their strength when new is given in Appendix G.) In the
replacement inspection of treated poles where decay is usually internal,
the extent of the decay shall be determined and evaluated in terms of
external decay so that the tables in Appendix G may be applied.
C-B Underground crossings should be properly maintained.
Part I - Overhead Crossings
D-General
D-1 Relative Levels of Supply and Communication Wires: Every reasonable
effort should be made in the construction or reconstruction of a
crossing to arrange or rearrange the lines so that supply wires should
be at a higher level than the communication wires. This does not apply
in the case of trolley contact wires or their associated feeders, which
must, of necessity, occupy a position below all other wires at the
crossing.
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D-2 Where communication lines cross over tracks and a supply line in the
same span, or where supply wires are carried in the lower position on
the same crossing poles as the communication wires, the construction of
the crossing should be as follows, depending upon the voltage of the
supply circuits:
(a) Where the supply line is open wire and the voltage does not
exceed 750 volts ac or dc to ground, constructions should be
in accordance with this manual part.
(b) Where supply circuits of any voltage are carried in cable
having effectively grounded continuous metal sheath or on
effectively grounded suspension strand, the construction
should be in accordance with this manual part.
(c) Where the supply line is open wire or is in cable not meeting
the requirements of (b) above and the voltage exceeds 750
volts ac to ground but does not exceed 5,000 volts between
conductors (2,900 volts to neutral or ground), the
construction should be in accordance with this manual part,
except that the communication conductors should be not smaller
than No. 6 AWG (0.162 in. in diameter) copper or No. 6 Stl WG
(0.192 in. in diameter) steel, or wires the equivalent
thereof.
(d) Where the supply circuits involved are in excess of the ac
voltage limitations in (c) above, or in excess of 750 volts dc
to ground, the construction should not be made except with the
approval of all parties concerned.
D-3 Supply wires or cables carried on the poles supporting communication
circuits crossing over railroad tracks should be constructed in
accordance with the Manual Part 7-1 (Recommended Practices for
Crossings of Electrical Supply Lines and Facilities of Railroads) For
construction of signal supply circuits not in excess of 550 volts and
3,200 watts, located below communication wires Manual Part l-A-6
(Recommended Practices for Construction of Railroad communication Pole
Lines).
D-4 Protection of Metals Against Corrosion: All pole line hardware should
be of material that will not corrode excessively under the prevailing
conditions. Where galvanizing is used, it should meet the requirements
of the specifications for galvanizing of the American Society for
Testing & Materials.
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D-5 Vertical Pull: The vertical distance from the top crossarm of a crossing
pole to a straight line connecting the top crossarm of the next adjacent
poles on either side of this crossing pole should not exceed the values
given in Table D-l.
Table D-l
Recommended Vertical Pull
<TABLE>
<CAPTION>
Average Length of Two Allowable Vertical
Adjacent Spans in Feet Distance in Feet
- ---------------------- ----------------
<S> <C>
Less than 100 8
101 to 130 10
131 to 150 12
Over 150 14
</TABLE>
D-6 Length of Crossing Span: The crossing span should, where practicable,
not exceed 100 ft. in the heavy loading district, 125 ft. in the
medium loading district and 150 ft. in the light loading district. Where
practicable, the adjacent spans should not exceed the length of the
crossing span by more than 50%.
D-7 Where practicable, the supports for the crossing and next adjoining
spans should be located in a straight line.
D-8 The crossing and each adjoining span should be kept free from decayed
trees and as far as practicable from overhanging trees, which might fall
into the line.
E-Clearances
E-l General: The conditions under which all clearances are specified are
15.5C(60F) and no wind. Clearances should be measured between the
nearest parts of the objects concerned. The clearances required
by this section should be maintained at not less than the specified
values.
E-2 Side Clearances from Rails: Poles or towers supporting the crossing
span should, where practicable, be so located as to provide a minimum
horizontal clearance of 17 ft. from the nearest track rail and a minimum
horizontal clearance of 8 ft. between the nearest track rail and any
crossarm, guy or other attachment. Where it is impracticable or
undesirable to provide these clearances, they may be reduced if the
approval of the railroad concerned is obtained. Where necessary to
provide safe operating conditions, which require uninterrupted view
along the tracks for signals, signs, etc., the parties concerned should
cooperate to provide greater clearances than those specified above.
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E-3 Vertical Clearance Above Rails for Fixed Supports: The vertical
clearance between the lowest wire, guy, or cable and the top of rail
should be not less than given in Table E-l.
Table E-l
Recommended Vertical Clearance Above Rails
<TABLE>
<CAPTION>
Vertical Clearance
in Feet
<S> <C>
For Wires............... 27 (a) (b)
For guys, or cables carried
on suspension strands. 25 (b)
</TABLE>
(a) Where the wires are paralleled on the same street or highway by
a trolley contact conductor at a lower level, this clearance
may be reduced to 25 ft.
(b) Where agreed to by the railroad concerned, in special
situations, less clearance may be provided if safety will not
be decreased thereby.
E-4 The clearances specified in Paragraph E-3 are applicable for crossing
span lengths up to 175 ft. in the heavy loading district, 250 ft. in the
medium loading district, and 350 ft. in the light loading district.
Where crossing span lengths greater than these are involved, the
clearances should be increased in accordance with Paragraph E-6 (a).
E-5 Vertical Clearances Between Wires Not on the Same Supporting Structures:
The vertical clearances between conductors of the crossing span and
conductors of other lines should be not less than the values shown
in Table E-2. These clearances apply under the following conditions:
(a) Where the conductors at the upper level have fixed supports
(pin or strain type insulators) or are supported on suspension
type insulators in a suspended position at both supports, or
are arranged so that they are restrained from displacement
toward the crossing.
(b) Where the length of the span of the conductors in the upper
position is not greater than 175 ft. in the heavy loading
district, 250 ft. in the medium loading district, or 350 ft. in
the light loading district.
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Notes for Table E-2
(a) These clearances apply also to inverted levels.
(b) Except where neutral conductors of primary supply circuits are
concerned, a clearance of 2 ft. is permitted where the supply
conductor is above the communication conductor, provided the
crossing is not within 6 ft. of any pole concerned in the
crossing and the voltage to ground of the supply conductor does
not exceed 300 volts.
(c) This clearance should be increased to at least 6 ft. above
trolley contact conductors of more than 750 volts to ground.
This increased clearance should also be provided over
trolley contact conductors of lower voltage, unless the
crossover conductors are beyond reach of a trolley pole leaving
the trolley contact conductor, or are suitably protected
against damage from trolley poles leaving the trolley contact
conductor.
(d) A conductor which is effectively grounded throughout its
length, such as a multi-grounded neutral wire, and is
associated with a circuit of 750 to 15,000 volts between
conductors, may have the clearances specified for open supply
wires of 0 to 750 volts between conductors.
(e) This clearance should be increased to 6 ft. where the supply
wires cross over the communication line within 6 ft.
horizontally of a communication pole.
(f) This clearance should be increased to 4 ft. where communication
cables cross over open supply service wires.
(g) Where the required clearance is 2 ft., and where conditions
are such that the sag in the upper conductor would increase
more than 1.5 ft. at the crossing point, under full load
conditions, the 2 ft. clearance should be increased by the
amount of sag increase less 1.5 ft.
(h) Multi-grounded wye circuits not exceeding 8,700 volts to
ground may have a 4 ft. clearance if the lowest supply wire
at the crossing is not lower than a straight line joining the
points of support of the highest communication conductor,
provided the crossing does not occur within 6 ft. horizontally
of a communication pole.
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TABLE E-2
Recommended Minimum Vertical Clearance In Feet Between
Wires Not on the Same Structures
(All voltages are between wires, except where otherwise stated,or for
trolley contact wires where voltages are to ground.)
<TABLE>
<CAPTION>
Nature of Wires at Higher Level (a)
Open supply wires,
0-750 volts; supply Guys,
Communication cables, all voltages Open supply span wires,
Nature of wires, cables having effectively wires and lightning
wires crossed and suspension grounded metal sheath service drops protection
Over (a) strand or suspension strand (d) wires
750 to 8,700 to
Line wires Service 8,700 50,000
and cables drops Volts Volts
<S> <C> <C> <C> <C> <C> <C>
Communication
wires, cables and
suspension strand 2(g) 4(b) (g) 2(g) 4(e) 6(h) 2
Trolley contact 4(c) ----- ----- ------ ------ 4(c)
conductors
Guys and span wires,
lightning protection
wires, supply service
drops of 0 to 750
volts 2(f) 2 2 4 4 2(j)
</TABLE>
(j) Completely insulated sections of guys attached to supporting
structures having no conductor of more than 8,700 volts
may have less than this clearance from each other.
E-6 Increased Clearances: Conductors in the upper position at the
crossing, except guys or cables supported by suspension strand,
should have greater clearances than given in Paragraphs E-3 and
E-5 under the following conditions. The increases in (a), (b)
and (c) below are cumulative. An example illustrating the
method of determining the clearance between power wires and
communication wires where an open wire communication line
crosses over railroad tracks and under an open wire power line
in the same span is given in Appendix K.
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(a) For crossing spans longer than specified in Paragraphs E-4 and
E-5 (b), clearances should be increased as follows:
(1) The clearances given in Tables E-l and E-2 should be
increased by the following amounts for each 10 ft. by
which the crossing span length exceeds the limits
specified in Paragraphs E-4 and E-5(b):
Table E-3
Recommended Clearance Increase Increments
<TABLE>
<CAPTION>
Amount of Increase per 10 ft.
Loading District Large Conductors Small Conductors*
<S> <C> <C>
Heavy and Medium 0.15 ft. 0.30 ft.
Light 0.10 ft. 0.15 ft.
</TABLE>
* A small conductor is a conductor having an overall diameter of metallic
material equal to or less than the following values:
<TABLE>
<CAPTION>
Outside Diameter of Conductor (Inch)
Material Solid Stranded
<S> <C> <C>
All copper 0.160 0.250
Other than all copper 0.250 0.275
</TABLE>
(2) If the crossing point is located elsewhere than at
mid-span of the conductors in the upper position, the
required clearance may be obtained by multiplying the
clearance determined in (1) above by the appropriate
reduction factors specified in Table E-4. The factors
to be used in any case will depend upon the basic
clearance required by Tables E-l and E-2, and in no
case should the clearance, after the reduction factor
has been applied, be less than such basic clearance.
In applying these factors, the point of crossing in
the case of a railroad crossing is the track rail which
is farthest from the nearer support of the crossing
span. In other situations, it is the location under
the conductors of any topographical feature which is
the determinant of the clearance.
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Table E-4
Recommended Clearance Reduction Factors
<TABLE>
<CAPTION>
Distance from Nearer Support Basic Clearance
of Crossing Span to Point of
Crossing, in Percent of
Crossing 4 Ft. 6 Ft. 27 Ft.
Span Length Reduction Factor
<S> <C> <C> <C>
5 0.35 0.47 0.85
10 0.47 0.58 0.88
15 0.60 0.68 0.91
20 0.71 0.78 0.94
25 0.82 0.85 0.96
30 0.90 0.92 0.98
35 0.96 0.98 0.99
40-50 1.00 1.00 1.00
</TABLE>
Interpolate for intermediate values
(b) For voltages in excess of 50,000 volts between wires,
the vertical clearances given in Table E-2 shou1d
be increased at the rate of 1/2-in. for each 1,000
volts of excess.
(c) Where the conductors of the line in the upper position
at a crossing over a communication line are supported
by suspension type insulators, the clearances should
be increased by such an amount that the values
specified in Table E-2 will be maintained in case of a
broken conductor in either adjacent span, provided such
conductor is supported as follows:
(1) At one support by suspension type
insulators in a suspended position and at
the other support by insulators not free
to swing (including semistrain-type
insulators).
(2) At one support by strain insulators, and
at the other support by semistrain-type
insulators.
E-7 Clearance of Conductors of a Communication Line from the Supports
of Another Line: Where conductors of a communication line are
carried near a supporting structure of any other line and not
attached thereto, they should have a clearance from any part of
such structure not less than the larger value required by either
(a) or (b) below:
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(a) 3 ft., if practicable.
(b) 6 in. plus 1 in. for each 2 ft. of the distance from the
supporting structure of the line passed to the nearest
supporting structure of the communication line.
F-Loading Assumptions
F-1 Three degrees of severity are recognized for the loading due to weather
conditions and are designated, respectively, as heavy, medium and light
loading. The classification of the United States on the basis of the
districts in which these loadings should be considered to apply is
shown on the loading map, Appendix A. Crossing wires and supporting
structures should be designed for heavy, medium and light loading,
dependent upon the district in which they are located.
F-2 In those states in which detailed local districting of loading areas
has been prescribed by state administrative authority, this districting
should be employed in lieu of that given in Appendix A. Where such
districting has not been prescribed, detailed districting or different
loading assumptions from those given in this specification may be
employed where agreed to by all parties concerned, including such
administrative authority as may have jurisdiction.
F-3 The specific transverse and longitudinal loadings which should
be assumed in determining the size of poles or the strength of
guys in each of the loading districts are indicated below:
(a) Transverse Loading (Poles and Side Guys):
(1) Heavy Loading: A horizontal wind pressure at right
angles to the direction of the line of 4 lb./sq. ft.
upon the projected area of the cylindrical surfaces
of all supported conductors and cables, together with
their supporting suspension strand when covered with
a layer of ice 1/2-in. in radial thickness and on
surfaces of poles without ice covering.
For supporting structures, other than unguyed poles
at crossings over major tracks, carrying more than 10
wires, not including cables supported by suspension
strand, the transverse load due to the open wires
should be calculated on two-thirds of the total
number of such wires, with a minimum of 10 wires.
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(2) Medium Loading: A horizontal wind pressure at right
angles to the direction of the line of 4 lb./sq. ft.
foot of the projected area of cylindrical surfaces of
all supported conductors and cables, together with
their supporting suspension strand, when covered with
a layer of ice 1/4-in, in radial thickness and on the
surfaces of the poles without ice covering.
For supporting structures, other than unguyed poles
at crossings over major tracks, carrying more than 10
wires, not including cables supported by suspension
strand, the transverse load should be calculated on
2/3 of the total number of such wires, with a minimum
of 10 wires.
(3) Light Loading: A horizontal wind pressure at right
angles to the direction of the line of 9 lb./sq. ft.
upon the projected area of cylindrical surfaces of
all supported conductors and cables, together with
their supporting suspension strand, and poles,
without ice covering.
(b) Longitudinal Loading (Poles and Head Guys): The longitudinal
loading should be assumed equal to a pull in the direction of
the crossing of all open wire conductors supported, the pull
of each conductor being taken as 50% of its ultimate strength
in the heavy loading district, 33-1/3% in the medium loading
district, and 22-1/4% in the light loading district.
G-Poles
G-1 Material: Wood poles should be of suitable and selected timber free
from observable defects that would decrease their strength or
durability. Poles of Northern White Cedar, Western Red Cedar, Chestnut,
Southern Pine, Lodgepole Pine and Douglas Fir shall meet the
requirements of the American National Standards Institute for poles of
these species. For convenience, tables giving the dimensions of various
classes and lengths of these species of poles, ANSI Standard
05.1-1987(Specifications and Dimensions for Wood Poles) are given in
Appendix J. In the absence of specifications covering other species of
poles, they should be considered on the basis of the ANSI standard for
the species of pole having the nearest equivalent ultimate fiber
stress. A table giving the ultimate fiber stresses of the species of
poles in more common use in communication plant is included in Appendix
H. The use of treated poles is recommended where practicable, but is
not required, except in the case of timbers subject to rapid decay.
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G-2 Sizes: Poles should be of a size not less than the class specified in
Table G-l for the corresponding number of wires carried. If guys are
omitted, poles must be of sufficient strength to meet the requirements
specified in Paragraph Q-9.
<TABLE>
<CAPTION>
Table G-1
---------
Recommended Minimum Class (ANSI Classification)
-----------------------------------------------
10 Wires 11 to 20 21 to 40 Over 40
or less Wires Wires Wires
<S> <C> <C> <C> <C>
Heavy and
Medium
Loading
Districts 7 6 5 4
Light
Loading
District 7 6 6 5
</TABLE>
G-3 Gains: Gains should not be cut to a depth of more than 1/2-in.
G-4 Setting: Table G-2 specifies the minimum depth of setting for unguyed
poles in average soil and in rock.
G-5 Where crossing poles are head and side guyed, the depth of setting of
poles normally employed by a constructing company in the construction
of its lines may, in general, be used. However, in no case should the
depth of setting of a pole at a crossing be more than 1 ft. less than
the depths given in Table G-2, where the pole is set in earth or more
than 1/2-ft. less when set in rock.
G-6 Where soil conditions are such that the above depths of setting will
not develop the strength of the pole, the pole should be set to an
additional depth or other means used to properly secure the pole.
G-7 Pole Mounts: Where a crossing pole is to be set on surface rock, a
concrete bridge abutment, or other masonry or stone structure, approved
pole mounts may be used.
G-8 Spliced Poles: Spliced poles should not be used to support the crossing
span.
G-9 Stub Reinforced Poles: Stub reinforced poles should not be used at
crossings over major tracks. At crossings over minor tracks, the use
of stub reinforcements is permitted, provided:
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Table G-2
Recommended Minimum Depth of Setting for Unguyed Poles
<TABLE>
<CAPTION>
Length of Depth in Feet in Average Soil for Different Classes of Poles Depth in Feet
Pole in Rock
in Feet Class 1 And 2 Class 3 And 4 Class 5 And 6 Class 7 All Classes
<S> <C> <C> <C> <C> <C>
16 ----- ----- 4 3-3/4 3
18 ----- ----- 4-1/4 4 3-1/4
20 4-3/4 4-1/2 4-1/4 4 3-1/4
22 5 4-3/4 4-1/2 4-1/4 3-1/2
25 5-1/2 5-1/4 4-3/4 4-1/2 3-3/4
27 5-3/4 5-1/2 5 4-3/4 4
30 6 5-3/4 5-1/4 5 4-1/4
35 6-1/2 6 5-1/2 5-1/4 4-l/2
40 6-3/4 6-1/4 5-3/4 5-1/2 4-3/4
45 7 6-1/2 6 5-3/4 5
50 7-1/4 6-3/4 6-1/4 6 5-1/4
55 7-1/2 7 6-1/2 ----- 5-1/2
60 7-3/4 7-1/4 6-3/4 ----- 5-3/4
65 8 7-1/2 7 ----- 6
70 8-1/2 8 7-1/2 ----- 6
75 9 8-1/2 8 ----- 6
80 9-l/2 9 8-1/2 ----- -----
85 10 9-1/2 9 ----- -----
90 10-1/2 10 9-1/2 ----- -----
</TABLE>
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(a) The pole above the ground line is in good condition and is of
sufficient size to develop its required strength.
(b) The stub should have a ground line circumference at least as
great as would be required for a new pole in the same location.
(c) The stub should be set to a depth at least as great as that
required for the pole being stubbed. (See Paragraph G-4.)
(d) The stub should be attached to the pole by a method which will
develop at all times the required strength of the pole.
G-10 Stubs should, in general, be set at the side of the pole in a plane
perpendicular to the direction of the line. Where the direction of the
line changes at the pole being stub reinforced, the stub should be at
the side of the pole in a plane bisecting the angle of the corner and
in the direction of the corner pull. Where head guys are omitted, as
permitted in Paragraph Q-9, the stub should be set on the track side of
the pole in line with the crossing span.
H-Crossarms and Brackets
H-1 Wood crossarms supporting the crossing span should be of fir, treated
yellow pine or other suitable timber. They should have a nominal
cross-section of not less than the values given in Table H-1.
Table H-1
Recommended Dimensions of Wood Crossarms
<TABLE>
<CAPTION>
Number Nominal Length Nominal Cross-section
of Wires (Feet) (Inches) (Inches)
<S> <C> <C> <C>
2 1 4-1/2 2-5/16 by 3-5/16
4 3 4-1/2 2-5/16 by 3-5/16
6 6 0 2-3/4 by 3-3/4
10 8 6 2-3/4 by 3-3/4
10 10 0 3 by 4
12* 10 0 3-1/4 by 4-1/4
16** 10 0 3-1/4 by 4-1/4
</TABLE>
* Where crossarms are bored for 1/2-in. steel pins, 3-in. by 4-1/4 in.
crossarms may be used.
** Permitted in medium and light loading districts only.
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H-2 Galvanized or painted iron or steel crossarms of strengths equal to
those of the wood crossarms specified in Table H-1 may be used.
H-3 Double crossarms should be provided on crossing poles and shall be
attached to the pole by means of a 5/8-in. crossarm bolt. Double
crossarms longer than two-pin should be equipped with double arming
bolts at a point near each end of the crossarms.
H-4 Wood pole brackets may only be used at crossings over minor tracks and
should be in duplicate so as to afford two points of support for each
conductor.
H-5 Single metal brackets, drive hooks or fixtures may be used to support
distributing wire at railroad crossings provided such bracket, drive
hook or fixture and the attachment of the wire thereto is such as
to withstand the ultimate breaking strength of the wire.
J-Crossarm Braces
J-1 Crossarms and buckarms, except two-pin crossarms, should be so braced
as to safely support the loads to which they may be subjected in use,
including lineman working on them. This strength may be obtained by the
use of one pair of crossarm braces. Steel crossarm braces should have a
cross section of not less than 1/8-in. by 1-1/8 in. and a length not
less than 20 in.
J-2 The braces should be attached to the pole by a drive screw not less
than 1/2-in. by 3 in. and to the crossarm by bolts 3/8-in. in
diameter.
K-Pins
K-1 Insulator pins should have strength sufficient to withstand the loads
to which they may be subjected. Steel or iron pins should have a
diameter of shank not less than 1/2 in. Wood pins shall be sound and
straight grained with a diameter of shank not less than 1-1/4 in.
L-Insulators
L-1 Each insulator should be of such pattern, design and material that,
when mounted on its pin, it will withstand, without injury and without
being pulled off the pin, the ultimate strength of the conductor which
it supports.
L-2 Each conductor (not including paired wire) unless dead-ended, should be
tied to two supporting insulators in such a manner that they will
securely hold the conductor to its supporting insulators at each
crossing pole.
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M-Tie Wires
M-1 A type of tie should be used which will develop the greatest
practicable holding power without injury to the line conductors.
N-Conductors
N-1 Conductors should be of material or combinations of materials which
will not corrode excessively under the prevailing conditions.
N-2 Conductors of material other than those specified in Table N-1
should be of such size and so erected as to have a mechanical strength
not less than that of the sizes of copper conductors specified
in Table N-1
N-3 The minimum allowable sizes of conductors in a span crossing over a
railroad which does not in the same span also cross over supply
conductors in excess of 750 volts to ground, should be as given in
Table N-1.
Table No. N-1
Recommended Minimum Wire Sizes
<TABLE>
<CAPTION>
Spans Exceeding 125 Ft.
Conductor Spans 125 Ft. or Less up to 150 FT. (Note)
Diameter Diameter
Gage Inches Gage Inches
<S> <C> <C> <C> <C>
Copper,
hard-drawn 10 AWG 0.102 9 AWG 0.114
Steel,
Galvanized:
In general 10 BWG 0.134 8 BWG 0.165
In rural
districts
of arid
regions 12 BWG 0.109 10 BWG 0.134
</TABLE>
Note: If spans in excess of 150 ft. are necessary, the size of conductors
specified above, or the sags of the conductors, should be
correspondingly increased.
N-4 Paired or single distributing wires without a suspension strand should
in no case be used for spans longer than 100 ft. in a heavy loading
district, 125 ft. in the medium loading district, and 150 ft. in the
light loading district. Each wire of a pair not supported by a
suspension strand should have an ultimate strength of not less than 170
lb. Single distributing wires not supported by suspension strand
should have an ultimate strength of not less than 340 lb.
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N-5 Splices should, so far as practicable, be avoided in the crossing and
adjacent spans, unless they are of such a type and so made as to have a
strength substantially equal to that of the conductors in which they are
placed. Taps should be avoided in the crossing span where practicable, but
if required, they should be of a type which will not impair the strength
of the conductors to which they are attached.
P-Sags
P-1 Table P-1 specifies recommended sags for wires shown in Table N-1. Where,
however, the wires in the communication line are strung in accordance with
recognized practices, the stringing tensions employed in the line,
generally will be satisfactory in the crossing span.
Table P-1
Recommended Wire Stringing Sags
Heavy and Medium Loading Districts
<TABLE>
<CAPTION>
Span Length Temperature Deg. F
in Feet 100 80 60 40 20 0 -20
<S> <C> <C> <C> <C> <C> <C> <C>
Sag in inches
70 5-1/2 4-1/2 3-1/2 2-3/4 2-1/4 1-3/4 1-1/2
80 7-1/2 6 4-1/2 3-1/2 2-3/4 2-1/2 2
90 9-1/2 7-1/2 5-1/2 4-1/2 3-1/2 3 2-1/2
100 11-1/2 9 7 5-1/2 4-1/2 3-3/4 3-1/4
110 14 11 8-1/2 6-1/2 5-1/2 4-1/2 4
120 17 13 10 8 6-1/2 5-1/2 4-1/2
130 20 15 12 9-1/2 7-1/2 6-1/2 5-1/2
140 23 18 14 11 8-1/2 7-1/2 6-1/2
150 26 20 16 13 10 8-1/2 7
</TABLE>
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Table P-1 (Continued)
Recommended Wire Stringing Sags
Light Loading District
<TABLE>
<CAPTION>
Span Length Temperature Deg. F
in Feet 120 100 80 60 40 20 0
<S> <C> <C> <C> <C> <C> <C> <C>
Sag in inches
90 7-1/2 6-1/2 5-1/2 4-1/2 3-1/2 3 1-1/2
100 9-1/2 8 6-1/2 5-1/2 4-1/2 3-3/4 3-1/4
110 11-1/2 9-1/2 8 6-1/2 5-1/2 4-1/2 4
120 14 11-1/2 9 7-1/2 6-1/2 5-1/2 4-1/2
130 16 13 11 9 7-1/2 6-1/2 5-1/2
140 18 15 13 10-1/2 8-1/2 7-1/2 6-1/2
150 21 18 15 12 10 8-1/2 7
</TABLE>
Q-Guys
Q-1 Material: Guys should be of galvanized steel or other material that will
not corrode excessively under the prevailing conditions.
Q-2 Side Guys: Poles supporting the crossing span should be side-guyed with
guys having strengths specified in Appendix B, except as provided in
Paragraphs Q-9 and Q-l0. The strength specified in this appendix may be
obtained by using various combinations of standard guys, which, when taken
together, will give strength at least as great as that specified.
Q-3 For the purpose of side-guying, aerial cables and their suspension strands
should have the wire equivalents given in Table Q-1.
Table Q-1
Recommended Wire Equiva1ents
<TABLE>
<CAPTION>
Equivalent Number of Open Wires
Diameter of Cable Heavy Loading Medium Loading Light Loading
District District District
<S> <C> <C> <C>
Less than 1-1/4 in. 3 4 10
1-1/4 to 2-1/4 in. 4 5 15
Over 2-1/4 in. 5 6 20
</TABLE>
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Q-4 Head Guys: Poles supporting the crossing span should be head-guyed away
from the crossing span with guys having strengths specified in Appendix C,
except as provided in Paragraph Q-9. The strength specified in this
appendix may be obtained by using various combinations of standard guys,
which, when taken together, will give strength at least as great as that
specified. For lines carrying both open wire and aerial cable, head guying
need be provided only for the number of wires in excess of 10 if the cable
is supported by a 6,000-lb. suspension strand or for the number of wires
in excess of 20 if the suspension strand is 10,000-lb. or stronger.
Q-5 Head guys should be installed so as not to increase tension in the
crossing span. In order to facilitate the installation of the head guys,
a section of 6,000-lb. strand may be placed between the crossing poles so
as to provide an additional support for pulling up the head guys.
Q-6 Guying at Corners and Terminals: Where the line terminates or changes
direction or has substantially unbalanced tension at any crossing support,
such additional guying as may be necessary should be provided to take care
of the additional load.
Q-7 Where a line crossing a railroad changes direction more than ten degrees
at either crossing support, the side guy within the angle may be omitted
and the head guy, if required, should be placed in the direction of the
adjacent span unless the angle of turn is greater than 60 degrees. Where
the angle is greater than 60 degrees, the head guy should be placed in a
direction away from the crossing span.
Q-8 Corner guys should conform to standard guying requirements unless the
guying prescribed in Appendix B is greater, in which case the latter
guying shall be provided.
Q-9 Omission of Guys: Guys may be omitted in the following cases:
(a) Side guys may be omitted where the poles when new will not be
stressed to more than 25% of their ultimate strengths, when
subjected to the transverse load specified in Paragraph F-3 (a),
except as otherwise permitted in Paragraph Q-10. The maximum number
of wires which can be carried by poles of various classes to meet
this requirement is given in Appendix D.
(b) Head guys may be omitted where the poles when new will not be
stressed to more than 66-2/3% of their ultimate strengths when
subjected to the longitudinal load
<PAGE> 88
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specified in Paragraph F-3 (b). The maximum number of wires of various
sizes which can be carried by poles of various classes to meet this
requirement is given in Appendix F.
Q-1O Where a communication line paralleling a railroad track on the
right-of-way of the railroad crosses any of the minor tracks listed
under Subparagraphs (a), (c), (d) and (e) of Paragraph B-9, the side
guys may be omitted, provided the crossing poles when new will not be
stressed to more than 33-1/3% of their ultimate strengths when
subjected to the transverse load specified in Paragraph F-3 (a). The
maximum number of wires which can be carried by poles of various classes
to meet this requirement is given in Appendix E.
Q-11 If, however, under the conditions stated in Paragraph Q-l0, there is an
angle in the line at either crossing pole, corner guys sufficient to
withstand the unbalanced load on such poles should be installed. Head
guys may be omitted unless conductor tensions are not balanced at one
or both poles due to the dead-ending of any of the wires. Where
conductors are dead-ended, guys of strengths specified in Appendix C
should be provided.
Q-12 Guying in Special Cases: Where, on account of physical conditions, it
is impracticable to side guy the crossing poles, as specified in
Paragraph Q-2, or to provide the strength of an unguyed pole specified
in Paragraphs Q-9 and Q-l0, the requirements may be met by head-guying
and side-guying the line as near as practicable to the crossing,
provided the line is approximately straight and the intermediate poles
are not of a class lower than those specified in Paragraph G-2 and that
a strand of strength equivalent to the load in pounds for which
head-guying is required, is run between the two guyed poles. Where such
guying is employed, it should meet the requirements of paragraphs Q-2
to Q-5, inclusive, and should be applied at a distance not exceeding
500 ft. from the nearest crossing pole. The strand should be attached
to the guyed poles close to the point at which the head guys are
attached, and should be securely attached to every pole between the
guyed poled.
Q-13 Guy Leads: Guy anchors should, where practicable, be located so that
the horizontal distance from the ground line of the pole to the guy or
guy rod will be not less than the height above ground of the attachment
of the guy to the poles for head guys, and not less than one-third that
height for side guys. The guys should be attached as near to the center
of the load as practicable. (See Figure 1B1-2 for method of measuring
guy lead and height.)
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Q-14 Methods of Anchoring Guys: The anchorage for guys shall in all cases be
adequate to develop the required strength of the guys attached to them.
Guys should preferably be attached to anchors set in earth or secured
in rock. Where this is impracticable, guys may be attached to stubs or
poles which are properly anchor guyed, or to buildings or other secure
structures. Guys should not be attached to trees.
Q-15 Guy Rods: Guy rods not smaller than those specified in Table Q-2 should
be employed. The length of guy rods should be sufficient so that where
the anchor is set to adequate depth, the eye of the rod will not be
below the surface of the ground.
Table 0-2
Recommended Minimum Size of Guy Rods
<TABLE>
<CAPTION>
Size of Guy Diameter of Guy Rod
(Pounds) (Inches)
<S> <C>
2,200 1/2
4,000 1/2
6,000 5/8
10,000 3/4
16,000 7/8
</TABLE>
Q-16 Anchors: Where expandable or screw anchors or screw anchors are used,
manufacturer's specifications must be followed as to depth and size of
anchor.
Q-17 Method of Securing Guy Strand: In securing guys, clamps, strand clamps
or guy-grip dead-ends of suitable strength should be employed. A guy
strand may be attached to the pole either by the wrapping method or by
attachment to suitable eye bolts or approved connector. The size of the
eye bolt or approved connector should be sufficient to develop the
required strength of the guy.
Q-18 Guards for Guys: When anchor guys are located so that persons or
livestock may come into accidental contact with them, they should be
equipped with suitable guards.
Q-19 Pole Braces: Pole braces may be used in the place of guys called for in
Paragraphs Q-2 to Q-8, inclusive, to provide equivalent strength.
R-Suspension Strand
R-1 Material: Suspension strands should be of galvanized steel or other
material that will not corrode excessively under the prevailing
conditions.
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R-2 Sizes: For spans of 150 ft. or less, Table R-l gives the minimum
sizes of suspension strand to be used for supporting different sizes
of serial cable.
Table R-1
Recommended Minimum Sizes of Suspension Strand
<TABLE>
<CAPTION>
Weights of Cable in Suspension Strand (Nominal
Pounds per Foot Ultimate Strength in Pounds)
<S> <C>
Less than 2.25 6,000
2.25 to 5 10,000
Exceeding 5 and less than 8.5 16,000
</TABLE>
R-3 For spans exceeding 150 ft. or for heavier cables, a proportionately
larger suspension strand or other proportionately stronger means of
support should be used.
R-4 Attachment to Poles: The suspension strand should be attached to the
pole by means of standard cable suspension clamp secured by a bolt not
less than 5/8 in. in diameter extending through the pole. Three-bolt
suspension clamps should be used with 10,000 and 16,000 lb. suspension
strand; single-bolt suspension clamps may be used for 6,000 lb.
suspension strand.
R-5 Where one or both of the crossing poles is a corner pole and the
corner pull is in excess of 5 ft., suspension clamps with flared
grooves or other means that will prevent sharp bends in the suspension
strand should be employed. Where the cable is carried on the inside of
the corner, reinforcing links or other equivalent means should also be
used where the corner pull exceeds the values given in Table R-2.
Table R-2
<TABLE>
<CAPTION>
Size of
Suspension Strand Pull on Corner
<S> <C>
6M 15 ft. or over
lOM 15 ft. or over
16M 10 ft. or over
</TABLE>
R-6 Safety straps, grade clamps, reinforcing bands or other equivalent
devices which will prevent progressive stripping of cable from entering
the crossing span should be placed at each crossing pole for cables
1-1/2 in. in diameter or larger.
R-7 Where the suspension strand is dead-ended on a crossing pole, it may be
attached by the wrapping method or by attaching it to a suitable eye
bolt or approved connector.
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The size of the eye bolt should be sufficient to develop the required
strength of the suspension strand.
R-8 Sags: Suspension strands for aerial cables should be strung so that when
the cables are in place the sags will be not less than given in Table
R-3.
S-Cable Attachments to Suspension Strands
S-1 Cables should be attached to the suspension strand in the crossing span
by means of suitable metal rings or spirally wound lashing wire which
will resist corrosion. The spacing of rings should not be greater than
indicated in Table S-1. The spirals of lashing wire should be so spaced
that they will safely support the cable and prevent appreciable sagging
between points of support. The metal rings or lashing wire should be so
installed that the protective coating will not be damaged.
Table S-1
Recommended Spacing of Cable Rings
<TABLE>
<CAPTION>
Weight of Cable in Spacing of Cable Rings
Pounds per Foot in Inches
<S> <C>
Less than 5 20
5 to 8.5 15
</TABLE>
Part II - Underbridge Crossings
T-General
T-1 Avoidance of Attachments: The line preferably should be so graded that
it will be unnecessary to make attachment to the bridge structure. If,
for any reason, it is impracticable to grade a cable line to pass under
a bridge and it is undesirable to attach to the bridge, vertical runs
may be made on poles adjacent to the bridge.
T-2 Attachments: Unless approved by the railroad company, attachments to
railroad steel bridges should not be made by devices that require the
drilling or cutting of the bridge structure or the removal of rivets,
and the attachments should be so made that wires, cables and suspension
strand will not be in metallic contact with the bridge structure.
T-2 Clearance from Abutments: The clearance of any conductor from the face
of the abutment, when not attached thereto, should be not less than 3
ft. for steel bridges. Cables or paired wires and their suspension
strand may be attached directly to the face of the abutment if located
not less than 24 in. below the elevation of the bridge seat, and they
should provide suitable clearance for pedestrians, vehicles, etc., as
may be necessary.
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Table R-3
Recommended Minimum Sags in Aerial Cables
(No Ice or Wind Loading)
<TABLE>
<CAPTION>
Average Weight of Size of Sags in inches for Spans
Cables in Pounds Temp. Strand 90 100 110 120 130 140 150
per Foot F. Ft. Ft. Ft. Ft. Ft. Ft. Ft.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 5 6 7 8 10 11 13
Up to .6 60 6,000 5 7 8 10 11 13 15
100 6 8 10 12 14 16 18
Exceeding .6 but 20 6 7 9 10 12 14 16
not exceeding .8 60 6,000 6 8 10 12 14 16 18
100 8 9 11 13 16 18 21
Exceeding .8 but 20 7 9 11 13 15 17 20
not exceeding 1.1 60 6,000 8 10 12 14 17 19 22
100 9 11 13 15 18 21 24
Exceeding 1.1 but 20 9 11 13 16 19 22 25
not exceeding 1.4 60 6,000 10 12 15 17 20 24 27
100 10 13 16 19 22 25 29
Exceeding 1.4 but 20 10 13 16 19 22 25 29
not exceeding 1.8 60 6,000 11 14 17 20 23 27 31
100 12 15 18 21 25 29 33
Exceeding l.8 but 20 12 14 17 20 24 28 32
not exceeding 2.25 60 6,000 12 15 18 22 26 30 34
100 13 16 20 24 28 32 37
Exceeding 2.25 but 20 8 10 12 15 17 20 23
not exceeding 2.8 60 10,000 9 11 13 16 19 22 25
100 10 12 15 17 20 24 27
Exceeding 2.8 but 20 10 13 16 19 22 25 29
not exceeding 3.9 60 10,000 11 14 17 20 23 27 31
100 12 15 18 21 25 29 33
Exceeding 3.9 but 20 12 14 17 20 24 28 32
not exceeding 4.4 60 10,000 12 15 18 22 26 30 34
100 13 16 19 23 27 31 36
Exceeding 4.4 but 20 13 16 19 23 27 31 36
not exceeding 5.0 60 10,000 14 17 20 24 29 33 38
100 14 18 22 26 30 35 40
</TABLE>
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Table R-3 (Continued)
<TABLE>
<CAPTION>
Average Weight of Size of Sags in inches for Spans
Cables in Pounds Temp. Strand 90 100 110 120 130 140 150
per Foot F. Ft. Ft. Ft. Ft. Ft. Ft. Ft.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 11 13 16 19 23 26 30
Up to 5.0 but 60 16,000 12 14 17 20 24 28 32
not exceeding 6.3 100 12 15 18 22 26 30 24
Exceeding 6.3 but 20 12 14 17 20 24 28 32
not exceeding 7.2 60 16,000 12 15 18 22 26 30 34
100 13 16 20 24 28 32 37
Exceeding 7.2 but 20 13 16 19 22 26 31 35
not exceeding 8.1 60 16,000 13 16 19 23 27 31 36
100 14 17 20 24 29 33 38
Exceeding 8.1 but 20 13 16 20 24 28 32 37
not exceeding 8.6 60 16,000 14 17 20 24 29 33 38
100 14 18 22 26 30 35 40
</TABLE>
T-4 Clearance from Bridge Structure: The clearance between any conductor
attached to the bridge in open construction, and any portion of the
bridge structure should preferably be not less than 6 in., but in no
case less than 3 in. The clearance between any conductor not attached to
the bridge and any portion of the bridge structure should preferably be
not less than 1 ft., but in no case less than 6 in.
Part III - Underground Crossings
U-General
U-1 Arrangement for Work: The work should be done at such time and in such a
manner as not to interfere with the proper and safe use or operation of
the property and tracks of the railroad company, previous arrangements
having been made with the duly authorized representative of the
railroad company for date and time of commencement. Where iron or mild
steel pipes are used, as permitted in Paragraph U-7(d), consideration
should be given to forcing or driving them under the roadbed instead of
laying in an open trench.
U-2 Location: The underground system on the railroad property should be so
located as to be subject to the least practicable disturbance. Railway
tracks and underground structures, including catch basins, gas pipes,
etc., should be avoided where practicable. The manholes, pull boxes, and
terminals should, where practicable, be located away from the roadbed.
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U-3 Side Clearance from Rail: Where underground conduit construction
terminates at terminal poles, the side clearance of such poles from the
nearest track rail should be as provided in Paragraph E-2. Where
manholes, handholes, etc., are employed, which project above the surface
of the ground, the side clearance, unless physical conditions prevent,
shall be not less than 17 ft. from the nearest track rail, except that
at sidings, a clearance of 7 ft. may be allowed. At loading sidings,
sufficient space shall be left for a driveway.
U-4 Clearance Below Base of Rail: The top of all conduit protection, except
as specified in Paragraph U-8 should generally be located at a depth of
not less than 48 in. below the base of rail. Where this is
impracticable, or for other reasons, this clearance may be reduced by
agreement between the parties concerned. In no case, however, should the
top of the conduit protection extend higher than the bottom of the
ballast section which is subject to working or cleaning.
U-5 Where unusual conditions exist or where proposed construction would
interfere with existing construction, a greater depth than specified
above may be required.
U-6 Arrangement of Conduit System: The arrangement of ducts in the conduit
system contemplated under this specification should consist of not more
than four ducts of vitrified clay, four impregnated fiber ducts or three
creosoted wood ducts in width. Where other arrangements are
contemplated, additional strength of construction and protection may be
required.
U-7 Protection of Ducts: Ducts extending under the roadbed section of the
right-of-way should be protected under the roadbed section as specified
below and for a distance of at least 6 ft. beyond each outside rail. In
other sections of the right-of-way, concrete, creosoted plank or other
forms of protection should be provided where necessary to prevent injury
to the conduit system.
(a) Vitrified Clay Ducts: The ducts should be laid on at least 4
in. of concrete with at least 3 in. of concrete on the top and
sides.
(b) Impregnated Fiber and Other Tubular Composition Ducts: The
ducts should be completely encased in concrete. The encasement
should be at least 4 in. thick on bottom and at least 3 in.
thick on top and sides.
(c) Creosoted Wood Ducts: The ducts should be protected on the top
and bottom by means of creosoted wood plank not less than 1-1/2
in. in thickness or by 3 in. of concrete.
<PAGE> 95
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(d) Iron or Mild Steel Pipes: Such pipes should normally be encased
in concrete as provided in (b) above. However, where physical
or chemical conditions will permit, a conduit system consisting
of a group of not more than four iron or mild steel pipes not
more than 4 in. in diameter may be laid beneath the roadbed
without any form of protection.
U-8 Where physical and chemical conditions will permit, a conduit consisting
of not more than two iron pipes, not exceeding 4 in. in diameter, or two
creosoted wood ducts not exceeding 6 in. square, or one or more cables
of a type designed for burying directly in the earth may be laid in the
ground beneath railroad tracks without any form of protection at a
minimum depth of 48 in. below the base of the rail, unless the worked
ballast section of the roadbed exceeds 18 in., in which case the conduit
shall be laid below the ballast section. Cables under main line tracks
should preferably be installed in conduit to prevent disturbance to the
roadbed at times of replacement.
U-9 Excavation: The excavated material shall be so placed as not to
interfere with traffic. Ballast material excavated should be kept
separate and free from earth.
U-10 Shoring: Where necessary to prevent caving, the sides of trench should
be supported with suitable planks and bracing. No bracing shall extend
above the base of the rail or be attached in any way to the rails or
ties.
U-ll Grading and Drainage: The trench should be so graded that it will have a
fall of at least 3 in. in l00 ft. toward the lower manhole or terminal,
or from an intermediate point toward both manholes or terminals, and the
bottom of the trench should be graded evenly. Where conditions require,
a sump or other suitable drainage should be provided for manholes.
U-12 Backfilling: The trench should be backfilled with earth to the subgrade
line and tamped. Track ballast shall be replaced under railroad
supervision.
U-13 Removing Surplus Material: All surplus material remaining after the work
has been finished should be removed, and if disposed of upon railroad
property, it should be under railroad supervision.
U-14 Concrete: All concrete employed should be such that when tested in 6 by
12 inch cylinders after 28 days, it should withstand a compressive test
of not less than 2,000 lb./sq. in. square inch without rupture. Concrete
should be thoroughly tamped.
<PAGE> 96
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Part 1-B-1 1989
- --------------------------------------------------------------------------------
Appendix A: District Loading Map
[DISTRICT LOADING MAP DIAGRAM]
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- --------------------------------------------------------------------------------
Appendix B
Recommended Strength of Side Guys Required, in Pounds
(Combinations of Standard Size Guys May Be Used)
Average of Crossing and Adjacent Spans 100 Feet or Less
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of 1 2/3 1/2 1/3
Wires
Heavy Loading
-------------
<S> <C> <C> <C> <C>
2 2,200 2,200 2,200 2,200
4 2,200 2,200 2,200 2,200
6 2,200 2,200 2,200 4,000
10 2,200 2,200 4,000 4,000
20 4,000 4,000 4,000 6,000
30 4,000 4,000 6,000 10,000
40 4,000 6,000 10,000 10,000
50 6,000 10,000 10,000 12,000
60 6,000 10,000 10,000 16,000
70 10,000 10,000 12,000 16,000
80 10,000 10,000 16,000 20,000
</TABLE>
<PAGE> 98
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1989 Part 1-B-1
- --------------------------------------------------------------------------------
Appendix B (Continued)
Recommended Strength of Side Guys Required, in Pounds
(Combinations of Standard Size Guys May Be Used)
Average of Crossing and Adjacent Spans 100 Feet or Less
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of 1 2/3 1/2 1/3
Wires
Medium Loading
--------------
<S> <C> <C> <C> <C>
2 2,200 2,200 2,200 2,200
4 2,200 2,200 2,200 2,200
6 2,200 2,200 2,200 2,200
10 2,200 2,200 2,200 2,200
20 4,000 4,000 4,000 4,000
30 4,000 4,000 4,000 6,000
40 4,000 4,000 4,000 6,000
50 4,000 4,000 6,000 10,000
60 4,000 6,000 6,000 10,000
70 4,000 6,000 10,000 10,000
80 6,000 6,000 10,000 10,000
</TABLE>
<PAGE> 99
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1989 Part 1-B-1
- --------------------------------------------------------------------------------
Appendix B (Continued)
Average of Crossing and Adjacent Spans 100 Feet or Less
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of 1 2/3 1/2 1/3
Wires
Light Loading
-------------
<S> <C> <C> <C> <C>
2 2,200 2,200 2,200 2,200
4 2,200 2,200 2,200 2,200
6 2,200 2,200 2,200 2,200
10 2,200 2,200 2,200 2,200
20 4,000 4,000 4,000 4,000
30 4,000 4,000 4,000 6,000
40 4,000 4,000 4,000 6,000
50 4,000 4,000 6,000 6,000
60 4,000 4,000 6,000 10,000
70 4,000 6,000 6,000 10,000
80 4,000 6,000 10,000 10,000
</TABLE>
<PAGE> 100
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Part 1-B-1 1989
- -------------------------------------------------------------------------------
Appendix B (Continued)
Recommended Strength of Side Guys Required, in Pounds
(Combinations of Standard Size Guys May Be Used)
Average of Crossing and Adjacent Spans 100 to 125 Feet
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of 1 2/3 1/2 1/3
Wires
Heavy Loading
-------------
<S> <C> <C> <C> <C>
2 2,200 2,200 2,200 2,200
4 2,200 2,200 2,200 2,200
6 2,200 2,200 2,200 4,000
10 2,200 4,000 4,000 6,000
20 4,000 4,000 4,000 6,000
30 4,000 6,000 6,000 10,000
40 6,000 10,000 10,000 12,000
50 6,000 10,000 10,000 16,000
60 10,000 10,000 12,000 16,000
70 10,000 12,000 16,000 20,000
80 10,000 16,000 16,000 26,000
</TABLE>
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1989 Part 1-B-1
- -------------------------------------------------------------------------------
Appendix B (Continued)
Average of Crossing and Adjacent Spans 100 to 125 Feet
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of 1 2/3 1/2 1/3
Wires
Medium Loading
--------------
<S> <C> <C> <C> <C>
2 2,200 2,200 2,200 2,200
4 2,200 2,200 2,200 2,200
6 2,200 2,200 2,200 2,200
10 2,200 2,200 2,200 4,000
20 4,000 4,000 4,000 4,000
30 4,000 4,000 4,000 6,000
40 4,000 4,000 6,000 10,000
50 4,000 6,000 6,000 10,000
60 6,000 6,000 10,000 10,000
70 6,000 10,000 10,000 12,000
80 6,000 10,000 10,000 16,000
</TABLE>
<PAGE> 102
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Part 1-B-1 1989
- -------------------------------------------------------------------------------
Appendix B (Continued)
Recommended Strength of Side Guys Required in Pounds
(Combinations of Standard Size Guys May Be Used)
Average of Crossing and Adjacent Spans 100 to 125 Feet
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of 1 2/3 1/2 1/3
Wires
Light Loading
-------------
<S> <C> <C> <C> <C>
2 2,200 2,200 2,200 2,200
4 2,200 2,200 2,200 2,200
6 2,200 2,200 2,200 2,200
10 2,200 2,200 2,200 2,200
20 4,000 4,000 4,000 4,000
30 4,000 4,000 4,000 6,000
40 4,000 4,000 6,000 6,000
50 4,000 6,000 6,000 10,000
60 4,000 6,000 6,000 10,000
70 6,000 6,000 10,000 10,000
80 6,000 6,000 10,000 12,000
</TABLE>
<PAGE> 103
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1989 Part 1-B-1
- --------------------------------------------------------------------------------
Appendix B (Continued)
Average of Crossing and Adjacent Spans 125 to 150 Feet
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of 1 2/3 1/2 1/3
Wires
Heavy Loading
-------------
<S> <C> <C> <C> <C>
2 2,200 2,200 2,200 2,200
4 2,200 2,200 2,200 4,000
6 2,200 2,200 4,000 4,000
10 4,000 4,000 4,000 6,000
20 4,000 4,000 6,000 10,000
30 6,000 6,000 10,000 10,000
40 6,000 10,000 10,000 16,000
50 10,000 10,000 12,000 16,000
60 10,000 12,000 16,000 20,000
70 10,000 16,000 16,000 26,000
80 12,000 16,000 20,000 26,000
</TABLE>
<PAGE> 104
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Part 1-B-1 1989
- --------------------------------------------------------------------------------
Appendix B (Continued)
Recommended Strength of Side Guys Required, in Pounds
(Combinations of Standard Size Guys May Be Used)
Average of Crossing and Adjacent Spans 125 to 150 Feet
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of 1 2/3 1/2 1/3
Wires
Medium Loading
--------------
<S> <C> <C> <C> <C>
2 2,200 2,200 2,200 2,200
4 2,200 2,200 2,200 2,200
6 2,200 2,200 2,200 2,200
10 2,200 2,200 2,200 4,000
20 4,000 4,000 4,000 4,000
30 4,000 4,000 6,000 6,000
40 4,000 4,000 6,000 10,000
50 6,000 6,000 10,000 10,000
60 6,000 10,000 10,000 12,000
70 6,000 10,000 10,000 16,000
80 10,000 10,000 12,000 16,000
</TABLE>
<PAGE> 105
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1989 Part 1-B-1
- --------------------------------------------------------------------------------
Appendix B (Continued)
Average of Crossing and Adjacent Spans 125 to 150 Feet
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of 1 2/3 1/2 1/3
Wires
Light Loading
-------------
<S> <C> <C> <C> <C>
2 2,200 2,200 2,200 2,200
4 2,200 2,200 2,200 2,200
6 2,200 2,200 2,200 2,200
10 2,200 2,200 2,200 2,200
20 4,000 4,000 4,000 4,000
30 4,000 4,000 4,000 6,000
40 4,000 4,000 6,000 10,000
50 4,000 6,000 6,000 10,000
60 6,000 6,000 10,000 10,000
70 6,000 10,000 10,000 12,000
80 6,000 10,000 10,000 16,000
</TABLE>
<PAGE> 106
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Part 1-B-1 1989
- --------------------------------------------------------------------------------
Appendix B (Continued)
Recommended Strength of Side Guys Required, in Pounds
(Combinations of Standard Size Guys May Be Used)
Average of Crossing and Adjacent Spans 150 to 175 Feet
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of 1 2/3 1/2 1/3
Wires
Heavy Loading
-------------
<S> <C> <C> <C> <C>
2 2,200 2,200 2,200 2,200
4 2,200 2,200 2,200 4,000
6 2,200 2,200 4,000 4,000
10 4,000 4,000 6,000 6,000
20 4,000 6,000 6,000 10,000
30 6,000 10,000 10,000 12,000
40 10,000 10,000 12,000 16,000
50 10,000 12,000 16,000 20,000
60 10,000 16,000 16,000 26,000
70 12,000 16,000 20,000 30,000
80 16,000 20,000 26,000 30,000
</TABLE>
<PAGE> 107
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1989 Part 1-B-1
- --------------------------------------------------------------------------------
Appendix B (Continued)
Average of Crossing and Adjacent Spans 150 to 175 Feet
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of 1 2/3 1/2 1/3
Wires
Medium Loading
--------------
<S> <C> <C> <C> <C>
2 2,200 2,200 2,200 2,200
4 2,200 2,200 2,200 2,200
6 2,200 2,200 2,200 4,000
10 2,200 2,200 4,000 4,000
20 4,000 4,000 4,000 6,000
30 4,000 4,000 6,000 10,000
40 4,000 6,000 10,000 10,000
50 6,000 10,000 10,000 12,000
60 6,000 10,000 10,000 16,000
70 10,000 10,000 12,000 16,000
80 10,000 10,000 16,000 20,000
</TABLE>
<PAGE> 108
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Part 1-B-1 1989
- --------------------------------------------------------------------------------
Appendix B (Continued)
Recommended Strength of Side Guys Required, in Pounds
(Combinations of Standard Size Guys May Be Used)
Average of Crossing and Adjacent Spans 150 to 175 Feet
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of 1 2/3 1/2 1/3
Wires
Light Loading
-------------
<S> <C> <C> <C> <C>
2 2,200 2,200 2,200 2,200
4 2,200 2,200 2,200 2,200
6 2,200 2,200 2,200 2,200
10 2,200 2,200 2,200 4,000
20 4,000 4,000 4,000 4,000
30 4,000 4,000 6,000 6,000
40 4,000 6,000 6,000 10,000
50 6,000 6,000 10,000 10,000
60 6,000 10,000 10,000 12,000
70 6,000 10,000 10,000 16,000
80 10,000 10,000 10,000 16,000
</TABLE>
<PAGE> 109
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1989 Part 1-B-1
- --------------------------------------------------------------------------------
Appendix B (Continued)
Average of Crossing and Adjacent Spans 175 to 200 Feet
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of 1 2/3 1/2 1/3
Wires
Heavy Loading
-------------
<S> <C> <C> <C> <C>
2 2,200 2,200 2,200 2,200
4 2,200 2,200 2,200 4,000
6 2,200 4,000 4,000 6,000
10 4,000 4,000 6,000 10,000
20 4,000 6,000 10,000 10,000
30 6,000 10,000 10,000 16,000
40 10,000 10,000 16,000 20,000
50 10,000 16,000 16,000 26,000
60 12,000 16,000 20,000 26,000
70 16,000 20,000 26,000 30,000
80 16,000 20,000 26,000 40,000
</TABLE>
<PAGE> 110
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Part 1-B-1 1989
- --------------------------------------------------------------------------------
Appendix B (Continued)
Recommended Strength of Side Guys Required, in Pounds
(Combinations of Standard Size Guys May Be Used)
Average of Crossing and Adjacent Spans 175 to 200 Feet
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of 1 2/3 1/2 1/3
Wires
Medium Loading
--------------
<S> <C> <C> <C> <C>
2 2,200 2,200 2,200 2,200
4 2,200 2,200 2,200 2,200
6 2,200 2,200 2,200 4,000
10 2,200 2,200 4,000 4,000
20 4,000 4,000 4,000 6,000
30 4,000 6,000 6,000 10,000
40 6,000 6,000 10,000 10,000
50 6,000 10,000 10,000 16,000
60 10,000 10,000 12,000 16,000
70 10,000 10,000 16,000 20,000
80 10,000 12,000 16,000 20,000
</TABLE>
<PAGE> 111
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1989 Part 1-B-1
- --------------------------------------------------------------------------------
Appendix B (Continued)
Average of Crossing and Adjacent Spans 175 to 200 Feet
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of 1 2/3 1/2 1/3
Wires
Light Loading
-------------
<S> <C> <C> <C> <C>
2 2,200 2,200 2,200 2,200
4 2,200 2,200 2,200 2,200
6 2,200 2,200 2,200 2,200
10 2,200 2,200 2,200 4,000
20 4,000 4,000 4,000 6,000
30 4,000 4,000 6,000 10,000
40 4,000 6,000 6,000 10,000
50 6,000 6,000 10,000 12,000
60 6,000 10,000 10,000 16,000
70 10,000 10,000 10,000 16,000
80 10,000 10,000 12,000 16,000
</TABLE>
<PAGE> 112
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Part 1-B-1 1989
- --------------------------------------------------------------------------------
Appendix C
Recommended Strength of Head Guys Required, in Pounds
(Combinations of Standard Size Guys May Be Used)
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of
Wires 1-1/4 1 3/4 2/3 1/2
Heavy Loading
-------------
<S> <C> <C> <C> <C> <C>
2 4,000 4,000 4,000 4,000 4,000
6 4,000 4,000 4,000 4,000 6,000
10 6,000 6,000 6,000 10,000 10,000
20 10,000 10,000 12,000 16,000 16,000
30 16,000 16,000 20,000 20,000 26,000
40 20,000 20,000 26,000 26,000 32,000
50 20,000 20,000 30,000 32,000 42,000
60 26,000 30,000 36,000 36,000 48,000
70 30,000 30,000 40,000 48,000 60,000
80 36,000 40,000 48,000 60,000 70,000
Medium Loading
--------------
2 4,000 4,000 4,000 4,000 4,000
6 4,000 4,000 4,000 4,000 4,000
10 4,000 4,000 6,000 6,000 6,000
20 6,000 10,000 10,000 10,000 12,000
30 10,000 10,000 12,000 16,000 16,000
40 12,000 16,000 16,000 16,000 20,000
50 16,000 16,000 20,000 20,000 26,000
60 20,000 20,000 26,000 26,000 30,000
70 20,000 20,000 26,000 30,000 36,000
80 26,000 26,000 30,000 32,000 40,000
</TABLE>
<PAGE> 113
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1989 Part 1-B-1
- --------------------------------------------------------------------------------
Appendix C (Continued)
<TABLE>
<CAPTION>
Number Ratio of Guy Lead to Height Not less than
of
Wires 1-1/4 1 3/4 2/3 1/2
Light Loading
-------------
<S> <C> <C> <C> <C> <C>
2 4,000 4,000 4,000 4,000 4,000
6 4,000 4,000 4,000 4,000 4,000
10 4,000 4,000 4,000 4,000 4,000
20 4,000 6,000 6,000 6,000 10,000
30 6,000 10,000 10,000 10,000 12,000
40 10,000 10,000 10,000 12,000 16,000
50 10,000 10,000 16,000 16,000 20,000
60 12,000 16,000 16,000 16,000 20,000
70 16,000 16,000 20,000 20,000 26,000
80 16,000 20,000 20,000 26,000 30,000
</TABLE>
<PAGE> 114
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Part 1-B-1 1989
- --------------------------------------------------------------------------------
Appendix D
Recommended Maximum Number of Wires Which can be
Supported by Poles of Various Classes Without
Side Guys at Crossings over Railroad Tracks
(For the Special Case Covered By Paragraph Q-10, See Appendix E)
<TABLE>
Class Average of Crossing and Adjacent Spans - Feet
of
Pole 100 125 150 175 200
Heavy Loading District
----------------------
<S> <C> <C> <C> <C> <C>
1 28 22 18 15 13
2 22 18 14 12 11
3 17 14 11 10 8
4 13 11 9 8 7
5 10 8 7 6 5
6 8 6 5 4 4
7 6 5 4 3 3
<CAPTION>
Class Average of Crossing and Adjacent Spans - Feet
of
Pole 100 125 150 175 200
Medium Loading District
-----------------------
<S> <C> <C> <C> <C> <C>
1 53 41 33 28 24
2 41 32 26 22 19
3 32 25 21 17 15
4 24 19 16 14 12
5 18 15 12 10 9
6 14 11 9 8 7
7 10 8 7 6 5
</TABLE>
<PAGE> 115
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1989 Part 1-B-1
- -------------------------------------------------------------------------------
Appendix D (Continued)
(For the Special Case Covered By Paragraph Q-1O, See Appendix E)
<TABLE>
<CAPTION>
Class Average of Crossing and Adjacent Spans - Feet
of
Pole 100 125 150 175 200
Light Loading District
----------------------
<S> <C> <C> <C> <C> <C>
1 -- 82 65 54 46
2 81 61 49 41 35
3 58 45 37 31 27
4 42 33 27 23 20
5 29 23 19 15 14
6 19 15 13 11 9
7 10 10 8 7 6
</TABLE>
<PAGE> 116
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Part 1-B-1 1989
- --------------------------------------------------------------------------------
Appendix E
Recommended Maximum Number of Wires Which can be
Supported by Poles of Various Classes Without
Side Guys at Crossings Over Minor Tracks Under
the Conditions Specified in Paragraph Q-10
<TABLE>
<CAPTION>
Class Average of Crossing and Adjacent Spans - Feet
of
Pole 100 125 150 175 200
Heavy Loading District
----------------------
<S> <C> <C> <C> <C> <C>
1 62 48 39 33 28
2 48 38 31 26 23
3 38 29 24 20 18
4 29 23 19 16 9
5 22 17 9 8 7
6 16 9 8 7 6
7 8 7 6 5 4
</TABLE>
<TABLE>
<CAPTION>
Class Average of Crossing and Adjacent Spans - Feet
of
Pole 100 125 150 175 200
Medium Loading District
-----------------------
<S> <C> <C> <C> <C> <C>
1 -- 90 76 63 54
2 -- 74 59 50 42
3 75 56 45 39 33
4 55 42 35 29 25
5 40 32 26 22 19
6 20 20 20 17 9
7 10 10 10 8 7
</TABLE>
<PAGE> 117
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1989 Part 1-B-1
- --------------------------------------------------------------------------------
Appendix E (Continued)
<TABLE>
<CAPTION>
Class Average of Crossing and Adjacent Spans - Feet
of
Pole 100 125 150 175 200
Light Loading District
-----------------------
<S> <C> <C> <C> <C> <C>
1 -- -- -- 81 68
2 -- -- 75 61 52
3 -- 70 55 46 39
4 65 50 40 34 30
5 45 35 29 24 21
6 31 25 20 17 15
7 10 10 10 10 10
</TABLE>
<PAGE> 118
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Part 1-B-1 1989
- --------------------------------------------------------------------------------
Appendix F
Recommended Maximum Number of Wires Which can be
Supported by Poles of Various Classes Without Head Guys
<TABLE>
<CAPTION>
Ultimate Class of Pole
Wire Diameter Strength
Gage & Material (Inches) (Pounds) 1 2 3 4 5 6 7
Heavy Loading District
----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 AWG Copper 0.102 530 11 9 7 6 4 3 2
9 AWG Copper 0.114 660 8 7 6 4 3 3 2
8 AWG Copper 0.128 826 7 5 4 4 3 2 1
8 BWG Copper 0.165 1,325 4 3 3 2 2 1 1
10 BWG Steel 0.134 1,200 4 4 3 2 2 1 1
8 BWG Steel 0.165 1,710 3 2 2 2 1 1 0
</TABLE>
<TABLE>
<CAPTION>
Ultimate Class of Pole
Wire Diameter Strength
Gage & Material (Inches) (Pounds) 1 2 3 4 5 6 7
Medium Loading District
-----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 AWG Copper 0.102 530 16 13 11 8 6 5 4
9 AWG Copper 0.114 660 13 11 9 6 5 4 3
8 AWG copper 0.128 826 10 8 7 5 4 3 2
8 BWG Copper 0.165 1,325 5 5 4 3 3 2 1
10 BWG Steel 0.134 1,200 7 6 5 4 4 2 1
8 BWG Steel 0.165 1,700 5 4 3 2 2 2 1
</TABLE>
Where wires of other sizes or having other ultimate strengths, as in the
case of various grades of steel, are used, the number of wires can be
determined by selecting the wire in the table which has the nearest to the same
ultimate strength as the wire under consideration.
<PAGE> 119
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1989 Part 1-B-1
- --------------------------------------------------------------------------------
Appendix F (Continued)
<TABLE>
<CAPTION>
Ultimate Class of Pole
Wire Diameter Strength
Gage & Material (Inches) (Pounds) 1 2 3 4 5 6 7
Light Loading District
----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 AWG Copper 0.102 530 24 21 16 13 10 8 6
9 AWG Copper 0.114 660 20 16 13 10 8 7 5
8 AWG Copper 0.128 826 16 13 10 8 6 5 4
8 BWG Copper 0.165 1,325 10 8 6 5 4 3 2
10 BWG Steel 0.134 1,200 10 8 7 5 4 3 2
8 BWG Steel 0.165 1,710 7 6 5 4 3 2 2
</TABLE>
Where wires of other sizes or having other ultimate strengths, as in the
case of various grades of steel, are used, the number of wires can be
determined by selecting the wire in the table which has the nearest to the
same ultimate strength as the wire under consideration.
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Appendix G
Recommended Ground Line Circumference of Poles of Various Classes
and Species which have Deteriorated to
Two-Thirds their Strength when New
Northern White Cedar and Other Species of Poles Having A Fiber Strength of
3,600 Pounds per Square Inch. (See Group No. 1 in Appendix H)
<TABLE>
<CAPTION>
Length Class of Pole
of Pole 1 2 3 4 5 6 7
Feet Ground Line Circumference - Inches
<S> <C> <C> <C> <C> <C> <C> <C>
20 34-1/2 32-1/2 30-1/2 28-1/2 26-1/2 24-1/2 22-1/2
25 38 35-1/2 33-1/2 30-1/2 29 27 25
30 41-1/2 38-1/2 36 33-1/2 31 28-1/2 27
35 44 41 38-1/2 35-1/2 33 30 28
40 46-1/2 43-1/2 40-1/2 37-1/2 35 32-1/2 ------
45 48-1/2 45-1/2 42-1/2 39-1/2 36-1/2 ------ ------
50 50-1/2 47-1/2 44-1/2 41 38 ------ ------
55 52-1/2 49 46 42-1/2 39-1/2 ------ ------
60 54 51 47-1/2 44 40-1/2 ------- ------
</TABLE>
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Appendix G (Continued)
Western Red Cedar and Other Species of Poles Having a Fiber Strength of
5,600 Pounds per Square Inch. (See Group No. 2 in Appendix H)
<TABLE>
<CAPTION>
Length Class of Pole
of Pole 1 2 3 4 5 6 7
Feet Ground Line Circumference - Inches
<S> <C> <C> <C> <C> <C> <C> <C>
20 30 28 26-1/2 24-1/2 22-1/2 21 19-1/2
25 32-1/2 31 29 26-1/2 25 23 21-1/2
30 35-1/2 33-1/2 31 28-1/2 26-1/2 25 23-1/2
35 37-1/2 35-1/2 33-1/2 30-1/2 28-1/2 26-1/2 24-1/2
40 40 37-1/2 35 32-1/2 30-1/2 27-1/2 ------
45 42 39 37 34 31-1/2 ------ ------
50 43-1/2 41 38-1/2 35 32-1/2 ------ ------
55 45-1/2 42-1/2 39-1/2 37 34 ------ ------
60 46-1/2 43-1/2 41 38 ------- ------- ------
65 48-1/2 45 42 39-1/2 ------- ------- ------
70 50 46-1/2 43-1/2 40-1/2 ------- ------- ------
75 50-1/2 47-1/2 44-1/2 41-1/2 ------- ------- ------
80 52 48-1/2 45-1/2 42 ------- ------- ------
85 53 49-1/2 46-1/2 ------- ------- ------- ------
90 56 52-1/2 47-1/2 ------- ------- ------- ------
</TABLE>
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Appendix G (Continued)
Recommended Ground Line Circumference of Poles of Various Classes
and Species which have Deteriorated to
Two-Thirds their Strength when New
Chestnut Poles - Fiber Strength, 6,000 Pounds per Square Inch
<TABLE>
<CAPTION>
Length Class of Pole
of Pole 1 2 3 4 5 6 7
Feet Ground Line Circumference - Inches
<S> <C> <C> <C> <C> <C> <C> <C>
20 29 27-1/2 25-1/2 24 22 20-1/2 19-1/2
25 32-1/2 30-1/2 28-1/2 26 24-1/2 22-1/2 21
30 34-1/2 32-1/2 30-1/2 28-1/2 26 24 22-1/2
35 37 34-1/2 32-1/2 30-1/2 28 25-1/2 24-1/2
40 39 36-1/2 34-1/2 31-1/2 29-1/2 27 25-1/2
45 41 38-1/2 36 33-1/2 31 28-1/2 26-1/2
50 42-1/2 40 37-1/2 34-1/2 32-1/2 30 27-1/2
55 44 41-1/2 38-1/2 36 33-1/2 30-1/2 ------
60 45-1/2 43 40 37 ------- ------- ------
65 47 44 41 38-1/2 ------- ------- ------
70 48 45-1/2 ------- ------- ------- ------- ------
</TABLE>
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Appendix G (Continued)
Lodgepole Pine - Fiber Strength of 6,600 Pounds per Square Inch
<TABLE>
<CAPTION>
Length Class of Pole
of Pole 1 2 3 4 5 6 7
Feet Ground Line Circumference - Inches
<S> <C> <C> <C> <C> <C> <C> <C>
20 28-1/2 26-1/2 25 23 21-1/2 20 19
25 31-1/2 29-1/2 27-1/2 25 24 21-1/2 20-1/2
30 33-1/2 31-1/2 29-1/2 27-1/2 25-1/2 23-1/2 22
35 35-1/2 33-1/2 31-1/2 29-1/2 27 24-1/2 23-1/2
40 38 35-1/2 33-1/2 30-1/2 28-1/2 26-1/2 24-1/2
45 39-1/2 37 35 32-1/2 30 27-1/2 25-1/2
50 41-1/2 38-1/2 36-1/2 33-1/2 31-1/2 29 27
55 42-1/2 40 37-1/2 35 32-1/2 30 ------
60 44 41-1/2 39 36 33 30-1/2 ------
65 45-1/2 42-1/2 40 37 34-1/2 ------- ------
70 47 43-1/2 41 38 35-1/2 ------- ------
75 48 45 42 39 ------- ------- ------
80 49 46 43 40 ------- ------- ------
85 50-1/2 47 44 ------- ------- ------- ------
90 53 49-1/2 45 ------- ------- ------- ------
</TABLE>
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Appendix G (Continued)
Recommended Ground Line Circumference of Poles of Various Classes
and Species which have Deteriorated to
Two-Thirds their Strength when New
Southern Pine, Douglas Fir and Other Species of Poles Having a Fiber Strength
of 7,400 Pounds per Square Inch. (See Group No. 5 in Appendix H)
<TABLE>
<CAPTION>
Length Class of Pole
of Pole 1 2 3 4 5 6 7
Feet Ground Line Circumference - Inches
<S> <C> <C> <C> <C> <C> <C> <C>
20 27-1/2 25-1/2 24 22-1/2 20-1/2 19 18
25 30 28 26-1/2 24 23 21 19-1/2
30 32-1/2 30-1/2 28-1/2 26-1/2 24-1/2 22-1/2 21
35 34-1/2 32 30-1/2 28-1/2 26 24-1/2 22-1/2
40 36-1/2 34 32 29-1/2 27-1/2 25-1/2 24
45 38-1/2 35-1/2 33-1/2 31 29 26-1/2 25
50 40 37 35 32-1/2 30 28 26
55 41-1/2 39 36 33-1/2 31 29 ------
60 42-1/2 40 37-1/2 35 32 29-1/2 ------
65 44 41 38-1/2 35-1/2 ------ ------- ------
70 45 42 39-1/2 36-1/2 ------ ------- ------
75 46-1/2 43 40-1/2 ------ ------- ------- ------
80 47 44 41-1/2 ------ ------- ------- ------
85 48 45 ------ ------- ------- ------- ------
90 51 48 ------ ------- ------- ------- ------
</TABLE>
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Appendix H
Recommended Ultimate Fiber Stress (Modulus of Rupture)
of Various Species of Wood Poles
<TABLE>
<CAPTION>
Group No. 1 (Pounds per Square Inch)
-----------
<S> <C>
*Northern White Cedar 3,600
Eastern White Cedar 3,600
Red Wood 3,600
Group No. 2
-----------
*Western Red Cedar 5,600
Southern Red Cedar 5,600
Washington Cedar 5,600
Idaho Cedar 5,600
Port Oxford Cedar 5,600
Cypress 5,000
Group No. 3
-----------
*Chestnut 6,000
Group No. 4
-----------
*Lodgepole Pine 6,600
Group No. 5
-----------
*Douglas Fir 7,400
*Southern Pine, creosoted 7,400
</TABLE>
*American National Standards Institute (ANSI)
Standard 05.1-1987 (Specifications & Dimensions
of Wood Poles
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Appendix J
Recommended Dimensions for New Poles of Various Species as
Specified in ANSI Specifications 05.1 to 05.6, inclusive,
of the American National Standards Institute
Northern White Cedar
Fiber Strength, 3,600 Pounds per Square Inch.
From ANSI 05.1-1979
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Class of Pole 1 2 3 4 5 6 7
Minimum Top
Circumference (Inches) 27 25 23 21 19 17 15
</TABLE>
<TABLE>
<CAPTION>
Length Ground
of Line Distance Minimum Circumference at Six Feet from Butt
Pole from Butt (inches)
Feet Feet
<S> <C> <C> <C> <C> <C> <C> <C> <C>
16 3-l/2 ---- ---- ---- ---- 26.0 24.0 22.0
18 3-1/2 ---- ---- 32.5 30.0 28.0 25.5 23.5
20 4 39.5 37.0 34.0 31.5 29.0 27.0 25.0
22 4 41.0 38.5 36.0 33.0 30.5 28.0 26.0
25 5 43.5 41.0 38.0 35.5 32.5 30.0 28.0
30 5-1/2 47.5 44.5 41.5 38.5 35.5 33.0 30.5
35 6 50.5 47.5 44.0 41.0 38.0 35.0 32.5
40 6 53.5 50.0 46.5 43.5 40.0 37.0 ----
45 6-1/2 56.0 52.5 49.0 45.5 42.0 ---- ----
50 7 58.5 55.0 51.5 47.5 44.0 ---- ----
55 7-1/2 61.0 57.5 53.5 49.5 46.0 ---- ----
60 8 63.5 59.5 55.5 51.5 ---- ---- ----
</TABLE>
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Appendix J (Continued)
Western Red Cedar
Fiber Strength, 5,600 Pounds per Square Inch.
From ANSI 05.1-1979
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Class of Pole 1 2 3 4 5 6 7
Minimum Top
Circumference (Inches) 27 25 23 21 19 17 15
</TABLE>
<TABLE>
<CAPTION>
Length Ground
of Line Distance Minimum Circumference at Six Feet from Butt
Pole from Butt (Inches)
Feet Feet
<S> <C> <C> <C> <C> <C> <C> <C> <C>
16 3-1/2 ---- ---- ---- ---- 23.0 21.5 19.5
18 3-1/2 ---- ---- 28.5 26.5 24.5 22.5 21.0
20 4 34.5 32.0 30.0 28.0 25.5 23.5 22.0
22 4 36.0 33.5 31.5 29.0 27.0 25.0 23.0
25 5 38.0 35.5 33.0 30.5 28.5 26.0 24.5
30 5-1/2 41.0 38.5 35.5 33.0 30.5 28.5 26.5
35 6 43.5 41.0 38.0 35.5 32.5 30.5 28.0
40 6 46.0 43.5 40.5 37.5 34.5 32.0 ----
45 6-1/2 48.5 45.5 42.5 39.5 36.5 ---- ----
50 7 50.5 47.5 44.5 41.0 38.0 ---- ----
55 7-1/2 52.5 49.5 46.0 42.5 39.5 ---- ----
60 8 54.5 51.0 47.5 44.0 ---- ---- ----
65 8-1/2 56.0 52.5 49.0 45.5 ---- ---- ----
70 9 57.5 54.0 50.5 47.0 ---- ---- ----
75 9-1/2 59.5 55.5 52.0 48.5 ---- ---- ----
80 10 61.0 57.0 53.5 49.5 ---- ---- ----
85 10-1/2 62.5 58.5 54.5 ---- ---- ---- ----
90 11 63.5 60.0 56.0 ---- ---- ---- ----
</TABLE>
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Appendix J (Continued)
Recommended Dimensions for New Poles of Various Species as
Specified in ANSI Specifications 05.1 to 05.6. inclusive,
of the American National Standards Institute
Chestnut
Fiber Strength, 6,000 Pounds per Square Inch.
From ANSI 05.1-1979
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Class of Pole 1 2 3 4 5 6 7
Minimum Top
Circumference (inches) 27 25 23 21 19 17 15
</TABLE>
<TABLE>
<CAPTION>
Length Ground
of Line Distance Minimum Circumference at Six Feet from Butt
Pole from Butt (inches)
Feet Feet
<S> <C> <C> <C> <C> <C> <C> <C> <C>
16 3-1/2 ----- ----- ----- ----- 22.5 21.0 19.5
18 3-1/2 ----- ----- 28.0 26 24.0 22.0 20.5
20 4 33.5 31.5 29.5 27.0 25.0 23.0 21.5
22 4 35.0 33.0 30.5 28.5 26.5 24.5 22.5
25 5 37.0 34.5 32.5 30.0 28.0 25.5 24.0
30 5-1/2 40.0 37.5 35.0 32.5 30.0 28.0 26.0
35 6 42.5 40.0 37.5 34.5 32.0 30.0 27.5
40 6 45.0 42.5 39.5 36.5 34.0 31.5 29.5
45 6-1/2 47.5 44.5 41.5 38.5 36.0 33.0 31.0
50 7 49.5 46.5 43.5 40.0 37.5 34.5 32.0
55 7-1/2 51.5 48.5 45.0 42.0 39.0 36.0 -----
60 8 53.5 50.0 46.5 43.5 ----- ----- -----
65 8-1/2 55.0 51.5 48.0 45.0 ----- ----- -----
70 9 56.5 53.0 ----- ----- ----- ----- -----
</TABLE>
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Appendix J (Continued)
Lodgepole Pine
Fiber Strength, 6,600 Pounds per Square Inch
From ANSI 05.1-1979
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Class of Pole 1 2 3 4 5 6 7
Minimum Top
Circumference (Inches) 27 25 23 21 19 17 15
</TABLE>
<TABLE>
<CAPTION>
Length Ground
of Line Distance Minimum Circumference at Six Feet from Butt
Pole from Butt (inches)
Feet Feet
<S> <C> <C> <C> <C> <C> <C> <C> <C>
16 3-1/2 ----- ----- ----- ----- 22.0 20.5 19.0
18 3-1/2 ----- ----- 27.5 25.5 23.5 21.5 20.0
20 4 32.5 30.5 28.5 26.5 24.5 22.5 21.0
22 4 34.0 32.0 30.0 27.5 25.5 23.5 22.0
25 5 36.0 33.5 31.0 29.0 27.0 25.0 23.0
30 5-1/2 39.0 36.5 34.0 31.5 29.0 27.0 25.0
35 6 41.5 38.5 36.0 33.5 31.0 28.5 26.5
40 6 44.0 41.0 38.0 35.5 33.0 30.5 28.0
45 6-1/2 46.0 43.0 40.0 . 37.0 34.5 32.0 29.5
50 7 48.0 45.0 42.0 39.0 36.0 33.5 31.0
55 7-1/2 49.5 46.5 43.5 40.5 37.5 34.5 -----
60 8 51.5 48.0 45.0 42.0 38.5 ----- -----
65 8-1/2 53.0 49.5 46.0 43.0 ----- ----- -----
70 9 54.5 51.0 47.5 ----- ----- ----- -----
75 9-1/2 56.0 52.5 ----- ----- ----- ----- -----
</TABLE>
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Appendix J (Continued)
Recommended Dimensions for New Poles of Various Species as
Specified in ANSI Specifications 05.1 to 05.6, inclusive,
of the American National Standards Institute
Southern Pine (Creosoted) and Douglas Fir (Creosoted)
Fiber Strength, 7,400 Pounds per Square inch.
From ANSI 05.1-1979
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Class of Pole 1 2 3 4 5 6 7
Minimum Top
Circumference (inches) 27 25 23 21 19 17 15
</TABLE>
<TABLE>
<CAPTION>
Length Ground
of Line Distance Minimum Circumference at Six Feet from Butt
Pole from Butt (inches)
Feet Feet
<S> <C> <C> <C> <C> <C> <C> <C> <C>
16 3-1/2 ----- ----- ------ ----- 21.5 19.5 18.0
18 3-1/2 ----- ----- 26.5 24.5 22.5 21.0 19.0
20 4 31.5 29.5 27.5 25.5 23.5 22.0 20.0
22 4 33.0 31.0 29.0 26.5 24.5 23.0 21.0
25 5 34.5 32.5 30.0 28.0 26.0 24.0 22.0
30 5-1/2 37.5 35.0 32.5 30.0 28.0 26.0 24.0
35 6 40.0 37.5 35.0 32.0 30.0 27.5 25.5
40 6 42.0 39.5 37.0 34.0 31.5 29.0 27.0
45 6-1/2 44.0 41.5 38.5 36.0 33.0 30.5 28.5
50 7 46.0 43.0 40.0 37.5 34.5 32.0 29.5
55 7-1/2 47.5 44.5 41.5 39.0 36.0 33.5 -----
60 8 49.5 46.0 43.0 40.0 37.0 34.5 -----
65 8-1/2 51.0 47.5 44.5 41.5 38.5 ----- -----
70 9 52.5 49.0 46.0 42.5 39.5 ----- -----
75 9-1/2 54.0 50.5 47.0 44.0 ----- ----- -----
80 10 55.0 51.5 48.5 45.0 ----- ----- -----
85 10-1/2 56.5 53.0 49.5 ----- ----- ----- -----
90 11 57.5 54.0 50.5 ----- ----- ----- -----
</TABLE>
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Appendix K
Here is an example of computation of clearance between power wires and
communication wires where an open-wire communication line crosses over the
tracks of a railroad and under an open-wire power line in the same span.
Assume the case in which the power line carries a single-phase, two-wire circuit
of 6,900 volts between wires, the wires attached to pin-type insulators on wood
crossarms and that each wire consists of two strands of solid copper and one
strand of copper-covered steel, the overall diameter of which is 0.230 in.
Assume also that the crossing is located in the heavy loading district and that
the length of the power line span concerned is 255 ft. The method of determining
the required clearance between the lowest power wire and the highest
communication wire consists of the following steps:
1. Referring to Table E-2; the power line takes the classification of open
supply wires, 750 to 8,700 volts and the basic clearance is, therefore,
4 ft.
2. Referring to Paragraph E-6(a); since the crossing is located in the
heavy loading district, and the power line span exceeds 175 ft. in
length, an increase in clearance is required. Referring to the second
table in Subparagraph (1) of Paragraph E-6(a), the wire used in this
example takes the classification of a "small conductor" since it is
stranded, is other than all-copper and has an overall diameter less than
0.275 in. Referring now to the first table in this same subparagraph, it
will be seen that the amount of clearance increase for a "small
conductor" in the heavy loading district is 0.30 ft. for each 10 ft. by
which the span length exceeds 175 ft. The span length of 255 ft. exceeds
175 ft. by 80 ft., so that the clearance increase is 8 multiplied by
0.30 ft., or 2.4 ft. The total clearance is, therefore, the sum of 4 and
2.4, or 6.4 ft.
3. This clearance is applicable if the communication line crosses under
the power line at or near the middle of the power line span where the
sags of the power wires will be greatest when they are loaded with ice.
Since the increased sag of the power wires caused by ice loading is less
near the power poles than at mid-span, the clearance need not be as
great as 6.4 ft. if the point where the communication line crosses under
the power line (crossing point) is other than at the middle of the power
line span. To take account of this permissible decrease, another step is
necessary.
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4. Referring to Table E-4; assume that the distance from the nearest
power pole to the center line of the communication line is 51 ft. or
20% of the length of the power line span. The corresponding reduction
factor given in the table for a basic clearance of 4 ft. is 0.71.
Multiplying this by 6.4 gives a net clearance of 4.5 ft. which is the
clearance that should be provided under the conditions assumed. If
this clearance had been less than 4 ft., the basic clearance of 4 ft.
should have been provided in accordance with the requirements of
Subparagraph (2) of Paragraph E-6 (a).
5. The above assumes that the supply wires cross over the communication
wires at a distance of more than 6 ft. horizontally from the nearest
communication line pole. In accordance with Note (e) of Table E-2, if
this horizontal distance is less than 6 ft., the basic clearance used
in the above computations should be 6 ft. and the clearance under the
conditions assumed above would be 8.4 ft. at mid-span or 6.6 ft. at
the 20% point.
6. The above takes care of the clearance increase required by Paragraph
E-6 (a). The next step is to determine the further increase required by
the voltage of the power circuit as given in Paragraph E-6 (b). In the
case assumed, since the voltage is less than 50,000 volts, no increase
is required and the clearance as determined in Step (d) or (e) above
would meet the combined requirements of Paragraphs E-6 (a) and E-6(b).
Had the voltage been 69,000 instead of 6,900 volts, the basic clearance
from Table E-2 would have been 6 ft., the clearance due to span length
would have been that determined in Step (e) above to which would be
added 1/2 in. for each 1,000 volts that the voltage exceeds 50,000
volts. This increase would amount to 9-1/2 in., or 0.8 ft., and the
total clearance would have been 9.2 ft. at mid-span, or 7.4 ft. at the
20% point.
7. The final factor which enters into the determination of the clearance
is the method of support of the power conductors as given in Paragraph
E-6(c). The object of this clearance increase is to insure that a total
clearance is provided such that at least the basic clearance called for
in Table E-2 will be maintained in the event that the power conductor
is broken in the span adjacent to the crossing in those situations
where the conductor is more or less rigidly supported at one crossing
structure and at the other crossing structure is supported by
suspension or other type insulators which are free to swing and thereby
permit a large increase in the sag of the power wire in the crossing
span. Where the power conductor is supported by pin-type insulators at
both crossing structures, as assumed
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in the example in this appendix, this effect is not present and no
increase in clearance is required for this item. The same result would
have obtained had the power conductor been supported by suspension-type
insulators at both crossing structures. This effect is important only
where the method of supporting the power conductor is such as not to
permit the same freedom of movement of the conductor at one crossing
structure as at the other. The determination of the increase in sag
which would result from such dissimilar supporting arrangements is
complicated and since it is a type of construction which will rarely be
encountered where this specification is involved, it will generally be
found preferable to obtain the information from the engineers of the
company owning the power line rather than attempt to compute it.
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Appendix L
Recommended Typical Communication Line Crossing Data Sheet
A data sheet of the type illustrated below shall be filled out by the party
planning to erect wires across the railroad and forwarded to the Superintendent
of Communications or other designated officer, together with the plan and other
pertinent information, as a part of the notice required by Paragraph C-1.
Name of party desiring crossing...............................................
Location of proposed crossing.................................................
1. Poles - Kind of timber - Treated or untreated.............................
2. Poles - Class and length..................................................
3. Poles - Depth of setting..................................................
4. Poles - Poles - Setting - Kind of earth, i.e., rock, firm
earth or swampy ground....................................................
5. Guys, Side - Number, kind and size........................................
6. Guys, Side - Nominal breaking strength....................................
7. Guys, Head - Number, kind and size........................................
8. Guys, Head - Nominal breaking strength....................................
9. Guy Clamps - Kind and size................................................
10. Guy Clamps - Number at pole end...........................................
11. Guy Clamps - Number at guy rod end........................................
12. Guy Rods - Kind and size..................................................
13. Anchors - Kind and size...................................................
14. Anchors - Depth of setting................................................
15. Crossarms - Number, immediate construction................................
16. Crossarms - Number, future construction...................................
17. Crossarms - Material......................................................
18. Crossarms - Size..........................................................
19. Crossarms - Number of pins per arm........................................
20. Pins - Material...........................................................
21. Pins - Type...............................................................
22. Pins - Size...............................................................
23. Pins - If metal, state if galvanized......................................
24. Insulators - Material.....................................................
25. Insulators - Type.........................................................
26. Wires - Material and number...............................................
27. Wires - Size and gage.....................................................
28. Wires, supply, involved in crossing - Voltage.............................
29. Suspension Strand - Kind and size.........................................
30. Suspension Strand - Nominal breaking strength.............................
31. Suspension Strand Attachment - Kind and size of through
bolt......................................................................
32. Suspension Strand Attachment - Type of suspension clamp...................
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33. Suspension Strand Attachment - Type of safety strap.........................
34. Suspension Strand Attachment - Kind and size of safety
strap bolt..................................................................
35. Suspension Strand Attachment - Type of reinforcing links....................
36. Suspension Strand Attachment - Kind and size of reinforcing
link bolts..................................................................
37. Cable, if any, diameter, inches.............................................
38. Cable, if any, weight, pounds, per foot.....................................
39. Cable Rings - Material......................................................
40. Cable Rings - Type..........................................................
41. Cable Rings - Spacing.......................................................
42. Cable Lashing Wires, Size...................................................
<PAGE> 136
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Association of American Railroads
Communications Manual
Part 1-B-1 1989
- --------------------------------------------------------------------------------
Figure 1B1-1: Typical Drawing for Communication Lines Crossing over Railroads
[COMMUNICATION LINES CROSSING OVER RAILROADS DIAGRAM]
<PAGE> 137
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Association of American Railroads
Communication Manual
1989 Part 1-B-1
- --------------------------------------------------------------------------------
Figure 1B1-2: Guy Lead and Height and their Ratio
[GUY LEAD AND HEIGHT DIAGRAM]
<PAGE> 138
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Association of American Railroads
Communication Manual
Part 1-B-1 1989
- --------------------------------------------------------------------------------
Figure 1B1-3: Typical Arrangement of Underground Crossing
[ARRANGEMENT OF UNDERGROUND CROSSING DIAGRAM]
<PAGE> 139
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Association of American Railroads
Communication Manual
1989 Part 1-B-1
- --------------------------------------------------------------------------------
Figure 1B1-4: Typical Drawing for Communication Line Crossing Under Bridges
[COMMUNICATION LINE CROSSING UNDER BRIDGES DIAGRAM]
<PAGE> 140
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Association of American Railroads
Communication Manual
Part 1-B-1 1989
- -------------------------------------------------------------------------------
Figure 1B1-5: Typical Arrangement of Conduits for Underground Crossing
[CONDUITS FOR UNDERGROUND CROSSING DIAGRAM]
<PAGE> 141
EXHIBIT G
SPECIFICATION FOR THE ATTACHMENT
OF CABLES TO RAILROAD BRIDGES
I. AVOIDANCE OF ATTACHMENTS
The cable system preferably should be so graded that it will be unnecessary
to make attachments to railroad bridge structures.
II. ATTACHMENTS TO FIXED BRIDGES
Unless separate written approval of the Railroad's Chief Engineer has been
obtained, cable will be encased in steel conduit, and attachments to steel
bridges shall be made with devices that do not require the drilling or
cutting of the bridge structure or the removal of rivets. Attachments to
each individual bridge shall be in accordance with drawings prepared by or
for Utility and approved by the Railroad. Typical attachment drawings may
be prepared for those types of bridges whose design and construction lend
themselves to repetition of attachment method and detail. However, the
Railroad shall make final determination as to the applicability of any
typical attachment drawings to an individual bridge.
III. ATTACHMENTS TO MOVABLE BRIDGES
All attachments to movable bridges require separate written approval of the
Railroad's Chief Engineer and will be made in accordance with requirements
prescribed for that particular bridge by the Railroad.
IV. TEMPORARY RELOCATION OF ATTACHMENTS
Temporary relocation of cable systems attached to bridges will be made
promptly and without cost to Railroad when necessary for Railroad to
perform bridge maintenance. Notification will not be less than 30 days
prior to date that relocation must be complete, except in case of
emergency. The attachment requirements set forth by the Railroad will
locate the attachment, to the extent possible, such that the occurrence of
such temporary relocations will be minimized.
V. NEW BRIDGES
In the event that new railroad bridges are to be constructed along the
right-of-way occupied by Utility and Utility desires to locate its cable
facility on such bridges, provision for Utility cable will be incorporated
into the bridge design. Costs of design, construction, and materials
attributable solely to Utility's use of the structure, as well as costs of
any temporary relocation of Utility's facilities during bridge
construction, will be paid by Utility.
<PAGE> 142
EXHIBIT H
EMERGENCY AND DISASTER RESPONSES
In the event of an emergency or disaster which results in actual damage to
Facilities or System or to Railroad's facilities or operations, or creates a
situation wherein it is reasonably possible that such damage may occur,
immediate contact shall be established between Railroad's Operations Center, and
applicable division personnel, and Utility's Operation Center and applicable
Area Representatives. Detailed procedures effectuating the above notification
shall be mutually established.
Railroad and Utility will fully cooperate with each other and coordinate their
efforts to jointly and severally restore operation of their respective rail and
communication systems, with each being solely responsible for all costs incurred
in repairing its own facilities. In the event such cooperation results in one
party incurring costs that are for the benefit of the other (e.g., Railroad
providing railroad equipment to Utility), such costs shall be subsequently fully
reimbursed.
Utility will maintain emergency material and repair kits at various points
throughout its System.
Railroad shall have the right to establish priorities for making repairs which
impact upon rail operations, but shall permit Utility to move forward in making
repairs to Utility's System or Facilities when to do so would not impair rail
operations.
<PAGE> 143
EXHIBIT I
CSX
TRANSPORTATION
Specifications for crossings of wires or cables of Telegraph, Telephone, Signal,
and other Circuits of Similar character over CSXT Rights of Way,
Tracks, or Lines of wires of the same classes.
1. PURPOSE.
The purpose of these specifications is to describe the general
requirements of construction and maintenance of communication lines crossing
the tracks and associated parallel communication lines of railroads. They are
based on National Electrical Safety Code and A.A.R. communications section.
Specification 1 3 1. For further details, see complete specifications.
Wires covered by these specifications shall not carry more than 400 volts
to ground.
2. DRAWINGS.
Complete drawings shall be furnished in duplicate before construction is
commenced. These drawings shall show the general plan of the right of way,
tracks and wires to be crossed and the construction proposed, including the
locations of the poles supporting the crossing span and the adjoining spans on
either side of the crossing span, the number, kind and size of wires, and the
proposed clearances of the existing tracks and wires.
3. LOCATION OF POLES.
Spans crossing railroad rights of way, preferably should be supported upon
poles placed outside of the right of way.
The crossing span shall, where practicable, not exceed 175 ft. in the
heavy loading district, 250 ft. in the medium loading district, and 350 ft. in
the light loading district. Where practicable, the adjacent spans shall not
exceed the length of the crossing by more than 50%. Wherever practicable, the
poles supporting the crossing span and the adjoining span on each side thereof
shall be in a straight line.
4. CLEARANCES.
General. The condition under which all clearances are specified are
60(degrees)F. and no wind. Clearances shall be measured between the nearest
parts of the objects concerned. The clearances required by this section shall
be maintained at not less than the specified values.
Side Clearance From Rails. Poles or towers supporting the crossing span
shall, where practicable, be so located as to provide a minimum horizontal
clearance of twelve (12) feet from the nearest track rail (except at sidings a
clearance of not less than eight (8) feet may be allowed) and a minimum
horizontal clearance of eight (8) feet between the nearest track rail and any
crossarm, guy, or other attachments. Where it is impracticable or undesirable
to provide these clearances, they may be reduced if the approval of CSXT is
obtained. Where necessary to provide safe operating conditions, which require
uninterrupted view along the tracks for signals, signs, etc., the parties shall
cooperate to provide greater clearances than those specified above.
Vertical Clearance Above Rails for Fixed Supports. The vertical clearance
between the lowest wire, guy, or cable and the top of rail shall not be less
than the Table below:
VERTICAL CLEARANCE ABOVE RAILS
<TABLE>
<CAPTION>
Vertical Clearance
in Feet
------------------
<S> <C>
For wires 27
For guys or cables
carried on suspension
strands 25
</TABLE>
Vertical Clearances Between Wires Not on the Same Supporting Structures.
The vertical clearances between conductors of the crossing span and
conductors of other lines shall be not less than the values shown in the
following Table.
<PAGE> 144
Minimum Vertical Clearance in Feet Between
Wires not on the same structure
(All voltages are between wires, except where otherwise stated or for
trolley contact wires where voltages are to ground.)
<TABLE>
<CAPTION>
Nature of Wires at High Level
Open supply of wires,
0-750 volts, supply Guys,
Communication cables, all voltages span wires,
Nature of wires, cables having effectively Open supply lightning
wires crossed and suspension grounded metal sheath wires and protection
over strand or suspension strand service drops wires
750 to 8,700 to
Line wires Service 8,700 50,000
and cables drops Volts Volts
<S> <C> <C> <C> <C> <C> <C>
Communication
wires, cables and
suspension strand 2 4 2 4 6 2
Guys and span wires,
lightning protection wires,
supply service drops of
0 to 750 volts 4 2 2 2 4 2
</TABLE>
LOADING ASSUMPTIONS
Three degrees of severity are recognized on the Railroad for the loading
due to weather conditions and are designated, respectively, as Heavy, Medium,
and Light Loading:
(a) Heavy Loading Territory: All lines north of Virginia-North Carolina
State Line.
(b) Medium Loading Territory: All lines south of Virginia-North Carolina
State Line and north of a parallel of latitude passing through
Charleston, S.C., Fairfax, S.C., Woodbury, Ga, and LaGrange, Ga.
(c) Light Loading Territory: All lines south of territory designated in
(b) above.
5. POLES
Material. Wood poles shall be of suitable and selected timber free from
observable defects that would decrease the strength of durability.
Sizes. Creosoted Southern Pine--Poles shall be of a size not less than the
class specified in Table for the corresponding number of wires carried. If guys
are omitted, poles must be of sufficient strength to meet the requirements
specified in paragraph Q-9 of A.A.R. Specification 131.
MINIMUM SIZES
<TABLE>
<CAPTION>
Over 40 wires 21 to 40 wires 11 to 20 wires 10 wires or less
<S> <C> <C> <C> <C>
Medium Loading Territory
Minimum top Cir. (in.) 21 (class 4) 19 (class 5) 17 (class 6) 15 (Class 7)
Light Loading Territory
Minimum Top Cir. (in.) 19 (class 5) 17 (class 6) 17 (class 6) 15 (Class 7)
</TABLE>
Gains. Gains shall not be cut to a depth of more than one-half inch.
Setting. Following Table specifies the minimum depth of setting for
unguyed poles in average soil and in rock.
MINIMUM DEPTH OF SETTING FOR UNGUYED POLES
<TABLE>
<CAPTION>
Length of Depth in feet in average soil for different classes of poles Depth in feet in
pole in Rock For all
feet Class 4 Class 5 and 6 Class 7 classes
<S> <C> <C> <C> <C>
16 -- 4 3 3/4 3
18 -- 4 1/4 4 3 1/4
20 4 1/2 4 1/4 4 3 1/4
22 4 3/4 4 1/2 4 1/4 3 1/2
25 5 1/4 4 3/4 4 1/2 3 3/4
27 5 1/2 5 4 3/4 4
30 5 3/4 5 1/4 5 4 1/4
35 6 5 1/2 5 1/4 4 1/2
40 6 1/4 5 3/4 5 1/2 4 3/4
45 6 1/2 6 5 3/4 5
50 6 3/4 6 1/4 6 5 1/4
55 7 6 1/2 -- 5 1/2
60 7 1/4 6 3/4 -- 5 3/4
</TABLE>
Where soil conditions are such that the above depths of setting will not
develop the strength of the pole, the pole shall be set to an additional depth
or other means used to properly secure the pole.
Spliced Poles. Spliced poles shall not be used to support the crossing
span.
<PAGE> 145
6. CROSSARMS AND BRACKETS.
Wood crossarms supporting the crossing span shall be of fir, treated
yellow pine or other suitable timber. They shall have a nominal cross-section
on not less than the value given in Table below.
DIMENSIONS OF WOOD CROSSARMS
<TABLE>
<CAPTION>
Number Nominal Length Nominal Cross-Section
of wires (Feet) (Inches) (Inches)
<S> <C> <C> <C>
2 1 4 1/2 2 5/16 by 3 5/16
4 3 4 1/2 2 5/16 by 3 5/16
6 6 0 2 3/4 by 3 3/4
10 8 6 2 3/4 by 3 3/4
10 10 0 3 by 4
12* 10 0 3 1/4 by 4 1/4
16** 10 0 3 1/4 by 4 1/4
</TABLE>
* Where crossarms are bored for 1/2 inch steel pine, 3 inch by 4 1/4 inch
crossarms may be used.
** Permitted in medium and light loading districts only.
Galvanized or painted iron or steel crossarms of strength equal to those
of the wood crossarms specified in above Table may be used.
Double crossarms shall be provided on crossing poles and shall be attached
to the pole by means of a 5/8 inch crossarm bolt. Double crossarms longer than
two-pin shall be equipped with double arming bolts, or spacing blocks and
crossarm bolts, at a point near each end of the crossarms. Each wire shall be
attached to each insulator of its pair upon the double arm.
Wood pole brackets may only be used at crossings over minor tracks and
shall be in duplicate so as to afford two points of support for each conductor.
7. HARDWARE.
All pole line hardware shall be galvanized.
8. PINS.
Insulator pins shall have strength sufficient to withstand the loads to
which they may be subjected. Steel or iron pins shall have a diameter of shank
not less than 1/2 inch. Wood pins shall be sound and straight grained with a
diameter of shank not less than 1 3/4 inches.
9. INSULATORS.
Each insulator shall be of such pattern, design and material that, when
mounted on its pin, it will withstand, without injury, and without being pulled
off the pin, the ultimate strength of the conductor which it supports.
10. CONDUCTORS.
Conductors shall be of material or combination of materials which will not
corrode excessively under the prevailing conditions.
Conductors of material other than those specified in Table below shall be
of such size and so erected as to have mechanical strength not less than that
of the sizes of copper conductors specified.
The minimum allowable sizes of conductors in a span crossing over a
railroad which does not in the same span also cross over supply conductors in
excess of 750 volts to ground, shall be as given in following Table.
MINIMUM WIRE SIZES
<TABLE>
<CAPTION>
Spans exceeding 125 feet up to
Conductor Spans 125 feet or less 150 feet (Note)
Gage Diameter Inches Gage Diameter Inches
<S> <C> <C> <C> <C>
Copper, Hard Drawn 10 AWG 0.102 9 AWG 0.114
Steel Galvanized:
In general 10 BWG 0.134 8 BWG 0.165
In rural districts
or arid regions 12 BWG 0.109 10 BWG 0.134
</TABLE>
NOTE:--If Spans in excess of 150 ft. are necessary, the size of conductors
specified above, or the sags of the conductors, shall be correspondingly
increased.
11. GUYS.
Poles supporting the crossing span shall be side guyed in both directions,
if practicable, and shall be head guyed away from the crossing span when the
construction of the crossing span places undue stress on crossing poles. Guys
shall be of galvanized steel wire or stranded steel cable.
<PAGE> 146
12. SUSPENSION STRAND.
Material. Suspension strands shall be of galvanized steel or other
material that will not corrode excessively under the prevailing conditions.
Size. For spans of 150 feet or less, the following Table gives the
minimum sizes of suspension strand to be used for supporting different sizes of
aerial cable.
MINIMUM SIZES OF SUSPENSION STRAND
<TABLE>
<CAPTION>
Weights of cable in Suspension Strand (Nominal Ultimate
pounds per foot Strength in Pounds)
<S> <C>
Less than 2.25 6.000
2.25 to 5 10.000
Exceeding 5 and less than 8.5 16.000
</TABLE>
13. INSPECTION.
The construction shall be subject to the inspection of the railroad
company and shall comply with the requirements of these specifications.
Defective material shall be rejected and replaced with acceptable material.
14. MAINTENANCE.
The crossing shall be maintained in safe condition. The poles, crossarms,
insulators, guys, wires, and other parts and materials used in the structure of
the crossing shall be periodically inspected, and all defects shall be promptly
repaired by the owner of the line. The guys and anchors shall be maintained so
that the guys are kept taut and serve the purpose for which they are intended.
The line wires shall be kept to the proper sag. Underbrush, grass, or other
inflammable material shall be kept removed by the crossing owner, from the
poles for a sufficient distance to reduce the fire hazard to the minimum.
<PAGE> 147
EXHIBIT J
CSX TRANSPORTATION - EB2 PUBLICATION SCHEDULE OF LABOR OVERHEAD RATES USED FOR
BILLING OUTSIDE PARTIES OTHER THAN GOVERNMENT AGENCIES AND RAILROADS
ITEM 1. SUMMARY OF LABOR SURCHARGES TO BE APPLIED TO DIRECT LABOR EFFECTIVE
1/1/97:
<TABLE>
<CAPTION>
NON-
DESCRIPTION MOW SIG M OF E TRANS GOB/SS CONTRACT
- ----------- ---- --- ------ ----- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Vacation and other 8.35% 6.42% 7.59% 10.60% 12.82% 5.74%
Holiday 3.97% 3.65% 3.87% 0.69% 3.46% 0.00%
RRUI 27.01% 26.48% 26.48% 24.76% 26.64% 18.46%
Suppl. Annuity Tax 1.86% 1.64% 1.74% 1.60% 1.66% 0.00%
Suppl. Sick Ins. 1.07% 0.88% 1.21% 0.00% 0.00% 0.00%
Health & Welfare 16.13% 15.81% 16.01% 15.99% 16.70% 7.44%
Small tools 2.00% 2.00% 0.00% 0.00% 0.00% 0.00%
Safety/Training 4.00% 4.00% 4.00% 3.00% 0.00% 0.00%
Supervision 67.10% 61.33% 32.23% 31.98% 19.32% 0.00%
Force Acct. Ins. 23.00% 23.00% 23.00% 23.00% 0.00% 0.00%
Funded Pension 0.00% 0.00% 0.00% 0.00% 0.00% 7.36%
Composite Rate 154.49% 145.21% 116.13% 111.62% 80.60% 39.00%
</TABLE>
* Other included sick leave, personal leave, jury duty, bereavement,
compassionate leave.
Note: The rates above do not include the surcharge of 24.6% for Signal Shop
Labor
<PAGE> 148
EXHIBIT K
ARBITRATION OR MEDIATION RESOLUTION PROCEDURES
A. In the event of any controversy, claim or dispute between Utility and
Railroad referred to arbitration or mediation pursuant to this Agreement
(hereinafter referred to as "Dispute"), the parties agree to use the procedure
herein.
B. The parties agree that the only circumstances in which a Dispute will
not be subject to the provisions of this Exhibit are: (i) where a party makes a
good faith determination that a breach of the terms of the Agreement by the
other party will cause irreparable damage to the complaining party unless such
breach is enjoined by a court of competent jurisdiction; or (ii) where one party
has been made a party to a judicial proceeding, and the other party is an
appropriate additional party to such proceeding. Breach of the Agreement will be
deemed to cause irreparable damage if it is incapable of adequate redress if not
promptly enjoined, so that a temporary or preliminary restraining order or other
immediate injunctive relief is the only adequate remedy. If one party files a
pleading seeking injunctive relief, and such pleading is challenged by the other
party, and the injunctive relief sought is not awarded in substantial part, the
party filing the pleading seeking immediate injunctive relief shall pay all the
costs, attorneys' fees and expenses of the party successfully challenging the
pleading.
1. Notice of Arbitration or Mediation. If the parties have not
succeeded in negotiating a resolution of a Dispute within thirty (30) business
days following the Trigger Notice (which period may be extended by mutual
agreement of the parties), arbitration or mediation shall be conducted as set
forth below. The Trigger Notice shall specify in reasonable detail the nature of
the Dispute and comply with the procedures set forth in Paragraph 2 or Paragraph
3.
2. Arbitration Procedures. Arbitration shall be conducted in
accordance with the then-current CPR Non-Administered Arbitration Rules (the
"Rules"). The provisions of the Agreement shall control if they conflict with
the Rules. Arbitration shall be before three (3) arbitrators. Each party shall
appoint one (1) arbitrator within fifteen (15) business days following the
commencement of the procedure by Trigger Notice above (which period may be
extended by mutual agreement). Within fifteen (15) business days following their
appointment, the two (2) arbitrators so selected shall appoint the third
arbitrator, who shall serve as Chairman of the arbitration panel. The Chairman
shall be an attorney at law admitted to practice in the United States and
experienced in arbitration. The arbitrators shall determine issues of
arbitrability in accordance with federal law, but may not limit, expand or
otherwise modify the terms of the Agreement. Arbitration shall be governed by
the United States Arbitration Act, 9 U.S.C. Sections 1-16, and judgment upon the
award may be entered by any court having jurisdiction thereof. In addition, the
following shall apply with respect to any arbitration conducted pursuant to this
Appendix:
(a) Costs/Fees. If either party submits a matter to arbitration,
and provided that one of the parties prevails over the other, the
arbitrators may award such prevailing party an amount equal to its
reasonable attorneys' fees and expenses, experts' fees, and other
reasonable costs and expenses that it has incurred in connection with the
arbitration. Otherwise, each party shall be responsible for its own fees
and expenses.
(b) Remedies. Upon a showing of material breach of the Agreement,
the arbitrators are empowered to award actual or compensatory damages,
unless prohibited by applicable state law or the Agreement. The arbitrators
may not award consequential, punitive or multiple damages; the parties
expressly waiving any entitlement to such relief.
(c) Location of Arbitration. The place of the arbitration shall be
Jacksonville, Florida.
(d) Confidentiality. The parties, their representatives, the
arbitrators and any other participants in the arbitration shall treat all
aspects of the arbitration as confidential, including but not limited to
all documents, testimony, information or other things produced, inspected
or otherwise
1
<PAGE> 149
made available in connection with the arbitration. Neither the parties nor
the arbitrators may disclose the existence, content or results of the
arbitration, except as necessary to comply with applicable law or
regulatory requirements. Before making any such disclosure, the party
seeking disclosure shall give written notice to the other party, and shall
afford such party a reasonable opportunity to protect its interests. In no
event shall a disclosure necessary to comply with legal or regulatory
requirements be deemed to waive the confidential nature of the disclosed
information.
(e) Discovery. The arbitrators shall permit and facilitate such
discovery in accordance with Federal Rules of Evidence and Federal Rules of
Civil Procedure, as they shall determine is appropriate under the
circumstances, taking into account the needs of the parties, the relevance
of the requested discovery to the matter in controversy and the
desirability of making discovery expeditious and cost-effective. The
parties agree that the following information shall not be subject to
discovery in connection with the arbitration unless it is expressly
authorized by the arbitrators upon a showing of substantial need by the
party seeking discovery: (i) information relating to Railroad's agreements
with any customers; (ii) information relating to Utility's cost structure,
contribution or profits under third party usages allowed under the
Agreement.
3. Mediation Procedures. Mediation is a voluntary process in which a
neutral third party, who lacks authority to impose a solution, helps
participants reach their own agreement for resolving a dispute or transaction.
Utility and Railroad agree to act in good faith negotiation, with the jointly
appointed mediator, to reach an agreement, utilizing the following basic roles
of the mediator in the Dispute resolution:
- urging participants to agree to talk;
- helping participants understand the mediation process;
- carrying messages between parties;
- helping participants agree upon an agenda;
- setting an agenda;
- providing a suitable environment for negotiation;
- maintaining order;
- helping participants understand the problem(s);
- defusing unrealistic expectations;
- helping participants develop their own proposals;
- helping participants negotiate;
- persuading participants to accept a particular solution.
(a) Mediation shall be held in Jacksonville, Florida.
(b) Each party shall be responsible for its own attorney
fees, and costs (including exhibits, witness fees, etc.), and shall each
pay one-half (1/2) of the Mediator's fee(s).
(c) The mediator shall be jointly selected as follows:
(1) Railroad shall designate five (5) members from the listed
panel of the U.S. District Court, Middle District of Florida as
a Potential Mediation Panel;
(2) Utility shall select one (1) of such Panel as the mediator;
(3) If the selected mediator does not accept the mediation
appointment, Utility shall designate an alternative, and
continue until a selected mediator accepts the mediation
appointment;
(4) If none of the Panel accepts the appointment, Utility shall
designate a new Potential Mediation Panel of five (5) from the
list in Paragraph 2.(b)(1), and Railroad shall select one (1)
of such Panel, as in Paragraphs (2) and (3).
(d) The form of the Agreement to Mediate shall be as follows:
2
<PAGE> 150
AGREEMENT TO MEDIATE
Railroad and Utility, through their respective counsel, stipulate
that:
1. The Dispute embodied in the Agreement stated is hereby submitted to
mediation.
2. The parties have selected _________________________ to be the
mediator in this case.
3. Parties agree to meet with the mediator at _________ on _________,
and continue to engage in the mediation process thereafter, if appropriate,
as agreed to by the parties.
4. The mediator shall be paid an hourly fee of $__________, with said
fee apportioned equally among the parties.
5. The mediation shall be private, unless the parties and the mediator
otherwise agree. No session shall be recorded, and there shall be no
stenographic record maintained.
6. Parties and counsel agree that the mediator's work product, case
file and any communication made in the course of the mediation (other than
the final signed Mediation Agreement) shall be confidential and not subject
to disclosure in any subsequent judicial, administrative or private
proceeding.
7. Parties and counsel agree that any information, writings or
disclosures made during the mediation process are governed by Rule 408 of
the Federal Rules of Evidence, and shall not be admissible in any
subsequent proceedings unless otherwise discoverable.
8. Parties and counsel agree to participate fully in the mediation
process and to do so in good faith.
9. The mediator shall not be liable to any party for any act or
omission in connection with the mediation conducted in this case.
10. If possible, officers of the parties with full authority to settle
the Dispute shall be present at the Mediation. Should officers of the
parties, for whatever reason, not be present, counsel for each party agrees
to attend the mediation and have full and immediate access to the person
authorized to settle during the entire course of the mediation.
11. An agreement shall be executed by the parties if the Dispute is
resolved.
12. The mediation shall commence at the offices of __________________,
on ____________________, at ____________________.
RAILROAD: By:___________________________ Date:___________________________
RAILROAD ATTORNEY:_______________________________________
UTILITY: By:___________________________ Date:___________________________
UTILITY ATTORNEY:________________________________________
Accepted by Mediator:____________________ Date:___________________________
4. Modification. These procedures may be modified by the parties hereto
without necessity of amending the Agreement.
3
<PAGE> 151
EXHIBIT L
AUTHORIZATION FOR FIBER OPTIC CABLE WORK
FOR __________________________________________________ ("UTILITY")
CSX TRANSPORTATION, INC.
EXPENDITURES BILLING - J686
6735 Southpoint Drive, S
Jacksonville, FL 32216-6177
ATTENTION: GAIL A. LYCETT
(904) 279-6667 - FAX
THIS NOTICE CONFIRMS UTILITY'S AUTHORIZATION FOR FIBER OPTIC CABLE MAINTENANCE
OR EMERGENCY REPAIRS ON CSXT RIGHT-OF-WAY.
CSXT COST COLLECTION NUMBER (OSP):______________________________________________
EFFECTIVE DATE:_________________________________________________________________
LOCATION (S): CITY_____________________________________________ STATE__________
MILEPOST (S):___________________________________________________________________
UTILITY'S PROJECT NUMBER:_______________________________________________________
WORK DESCRIPTION:_______________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
BEGINNING/ENDING DATES: 1. START________________________________________
2. END ________________________________________
IF YOU HAVE ANY ADDITIONAL QUESTIONS, PLEASE CALL _________________________
Utility Representative's Phone Number)
APPROVED:
_________________________________ ______________________________
NAME TITLE
CC: L. L. GALBREATH - CSXT (904)245-1030FAX
<PAGE> 152
EXHIBIT M
MWI 1905-01
FIBER OPTIC INSTALLATION SOP
[CSX TRANSPORTATION] ISSUED: 6/30/98 INITIAL ISSUE
PAGE 1 OF 9
- --------------------------------------------------------------------------------
PURPOSE: To provide a Standard Operating Procedure for all fiber
optic installations.
SAFETY: Observe all applicable Safety, and Operating Rules and
Regulations; and Safe Job Procedures. The CSXT Fiber Optic
Safety Program Requirements are included in this MWI.
LOCATION: All CSXT tracks.
ENVIRONMENTAL: Observe all applicable Federal, State and Local
MSDS: environmental rules and regulations.
I. DISCUSSION
There are three previously issued MWIs concerning Fiber Optic projects. This
MWI is intended to supplement and support those MWIs. The previous MWIs are:
- MWI 1902, Fiber Optic Maintenance Projects,
- MWI 1903, Protection and/or Relocation of Fiber Optic Cable for CSXT
Purposes or Installation of Side Tracks Serving CSXT Shippers, and
- MWI 1904, New Installation Projects for Fiber Optic Telecommunications.
II. PROCEDURE
The following procedure is the CSXT Standard Operating Procedure (SOP) for all
fiber optic installations on CSXT properties and will be included in all fiber
optic specifications for construction.
A. Quarterly Oversight Meetings:
The Director - Budget and Contracts will schedule these oversight
meetings once per quarter. Additional meetings may be scheduled, if
required by the volume of activity. The meetings will be attended by
representatives from all concerned Fiber Optic Companies (FOC) and CSXT
Management, Real Property and Engineering. The meetings will review the
scopes of work and schedules of all current and future projects, as well
as planning, pre-bid, pre-construction and construction requirements as
described below.
<PAGE> 153
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B. Plan Review Meeting:
The Director - Budget and Contracts will schedule these Plan Review
meetings as necessary. The meeting will be attended by representatives
from the concerned FOC, CSXT Engineering and the CSXT engineering
consultant for the project. The meeting will review the pre-bid and
scheduling, pre-construction and construction requirements described
below.
C. Pre-Bid and Scheduling Meeting:
The FOC will schedule the Pre-Bid and Scheduling meeting. The meeting
will be attended by representatives from the concerned FOC, Contractors
and CSXT Engineering (and/or CSXT Consultant). This meeting will assign
the Point Of Contact (POC) for the FOC and for the CSXT, as well as
clarify the safety and manpower requirements.
1. Project Points of Contact
a) The POC will be assigned for the CSXT Subdivision on which
the project is located. There will be a single POC for the
Railroad and another designated by the FOC. These two
individual will be the contact points and decision makers for
the project. All calls, questions or problems will be handled
with the assigned POC. This will eliminate many unnecessary
calls.
b) The CSXT POC will be responsible for:
- All contacts within CSXT, including coordination of all
departments involved with the pre-construction and
construction portions of the project.
- All CSXT Transportation, Engineering, and Train Control
decisions during construction.
c) The CSXT POC and the FOC POC will coordinate all aspects of
construction.
2. Requirements for Safety and Manpower:
a) Safety Requirements include:
- Daily job briefing and updates as required.
- All workers on CSXT property must comply with CSXT
Safety Requirements including wear all required safety
equipment (see Safety Requirements, page 5).
- CSXT will train one FOC employee in safety. The FOC is
responsible for ensuring all FOC employees & contractors
on site are properly trained.
<PAGE> 154
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b) Notification for Flagman and Signalman:
- Because of manpower demands and/or labor agreements, a
minimum of 6 weeks notice is preferred, for either
position. Less than six weeks notice may result in job
delays.
- Because of safety concerns and customer obligations, a
10 mile work limit per RR Subdivision is necessary.
3. Emergency Contact Procedures:
- All emergencies will be reported to both POCs.
- In event the POCs cannot be reached, the emergency
information will be reported the CSX Police operator
at 1-800-232-0144. The POCs must be notified of existing
situation ASAP.
D. Pre-Construction Meeting:
The FOC will schedule the Pre-Construction meeting. FOC will provide
two (2) weeks written notice prior to Pre-Construction Meeting to CSXT
POC, CSXT Director - Budget and Contracts, CSX Real Property, & CSXT
Train Control (Jacksonville). The meeting will be attended by both
POCs, representatives from Contractors and CSXT Engineering (and/or
CSXT Consultant) and field supervisors, as necessary. The meeting will
review the pre-bid and scheduling requirements described above.
E. Construction Meeting:
The FOC will schedule the Construction meeting. The meeting will be
attended by both POCs, representatives from Contractors and CSXT
Engineering (and/or CSXT Consultant) and field supervisors, as
necessary. The meeting will review the pre-bid and scheduling
requirements, as well as the results of the construction meeting
described above.
1. The project schedule will be reviewed in detail. The CSXT POC,
after consultation with the Division Engineer's office, will
advise the FOC POC of all work times and locations.
2. Track roadbed and ballast protection will be highlighted to the
FOC and its contractors. The FOC and/or its contractors will
maintain (at all times) sufficient ballast rock on the job site
for necessary ballast section repairs and/or backfill, including
appropriate machinery for placement and compaction.
3. All excavation will be shored in accordance with CSXT Safe Way
Rule E-2 and restored as required above.
<PAGE> 155
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4. All construction and site restoration will be performed to the
satisfaction of the Division Engineer and approved by the CSXT POC.
III. REFERENCES
A. The CSX Transportation Fiber Optic Program Safety Requirements are
included for easy reference. It begins on page five.
B. The services provided by the consultants provide by CSXT are identified
in the CSX Transportation Inspection and Supervision of Installation of
Fiber Optic Conduit System. It begins on page six.
<PAGE> 156
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CSX TRANSPORTATION
FIBER OPTIC PROGRAM
SAFETY REQUIREMENTS
GENERAL
- - All fiber optic workers must receive CSXT SAFETY AWARENESS training and have
a verification card and/or hard hat sticker. All CSXT Safety Rules and
Contractor Policies will apply to fiber optic workers.
- - All personnel must wear CSXT approved Personal Protection Equipment in
accordance with "The CSX Safe Way" book, which includes hard hat, safety
glasses, steel toed shoes, hearing protection, and others as specified, by
work type or local supervision, WHEN WORKING CLOSER THAN 25 FEET FROM THE
NEAREST RAIL OF A MAIN TRACK. When working beyond 25 feet from the nearest
rail of a main track, hard hats, safety glasses, and laced work boots (no
tennis shoes or street shoes) will be required.
- - All "FRA Bridge Worker Safety" rules will apply to fiber optic workers
performing bridge attachments, including proper fall protection rules.
- - All test holes or pits less than 15 feet from the centerline of main tracks,
will be filled or covered prior to passing of trains. No open pits or holes
will be left over night. All pits and trenches will be shored according to
OSHA requirements.
- - No dirt or debris will be allowed to foul the ballast section of the tracks.
- - No markings will be made on the rail or ties.
- - All excavation or plow trenches will be back filled and compacted
immediately after the work is done.
- - All public utilities, CSXT Engineering, and the Railroad Train Control
Office, will be notified prior to any construction.
- - Job Briefings will be conducted each morning and throughout the day when
conditions or job scope changes.
WORKING ON OR AROUND TRACKS
- - All work in the FRA Red Zone (4 feet from outside rail on each side of the
track) will be done only with a CSXT, FRA qualified flagman or watchman as
specified by the local Engineering representative.
- - All work beyond 4 feet from the outside rails, must be done under the
supervision of a CSXT qualified inspector or flagman.
- - Certain types of work done beyond 25 feet from the outside of the rails, and
with equipment that will not reach beyond this point, may be done without
flagging protection or a watchman, IF APPROVED BY THE LOCAL ENGINEERING
REPRESENTATIVE, AND PROTECTED BY A CONSTRUCTION FENCE.
- - All work must be stopped while trains are passing within the work zone.
- - All workers will remain off the tracks. If necessary to perform the work on
track, protection will be provided as stated above.
ANY VIOLATION OF ANY CSXT SAFETY RULES OR POLICY, MAY RESULT IN REMOVAL OF
CONTRACTOR OR PERSONEL FROM THE RIGHT OF WAY.
CSXT/LLG Rev. 06-12-98 Approved by Manager Safety
<PAGE> 157
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CSX TRANSPORTATION
ENGINEERING DEPARTMENT
JACKSONVILLE, FL
INSPECTION AND SUPERVISION OF
INSTALLATION OF FIBER OPTIC CONDUIT SYSTEM
CSXT has retained (consultant) as an engineering consultant to perform
certain professional services, which primarily entail intellectual work and
professional judgment, and may or may not require supervision and
performance of some ancillary tasks or use of equipment such as
instruments, tools, or machinery.
SCOPE OF ENGINEERING SERVICES SUMMARY
GENERAL
The engineering services described herein are intended to protect the
interests of CSXT during the installation of conduit systems by system
owners and their installers on CSXT right-of-way. These engineering
services will be performed by (consultant), Inc., hereinafter called
"Consultant".
The fiber conduit system will not be owned nor installed by CSXT (CSXT may
acquire conduits or cables after installation). Plans and specifications
for the installation of the conduit system will be prepared by conduit
system owners or their designated representatives. Plans and specifications
will be subject to the review and approval of CSXT. Installation of the
conduit system will be performed by system owners or their contracted
installers.
SAFETY
The Consultant's employees that enter CSXT right-of-way shall be trained in
Railroad Safety Awareness, knowledgeable of "FRA On Track Worker Safety
Rules", and shall at all times wear required safety equipment (steel toe
shoes, hard hat, safety glasses with side shields or goggles, and other
items as specified by CSXT supervisors).
SUMMARY OF SERVICES
Engineering services shall include, but not be limited to, the following:
- PLAN REVIEW SERVICES
Review plans and specifications submitted by Fiber Optic Communication
companies, or their installers, and provide other support as directed by
CSXT. The tasks assigned may include the following:
Perform plan reviews and on-site inspections in accordance with CSXT
Standards, and verify the terms of the installation agreements.
Obtain and coordinate input from other CSXT units such as Design and
Construction, Real Estate Properties, Division Engineering Units, or
their designated representatives.
<PAGE> 158
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Prepare marked up plans together with reports that identify
recommended actions and/or changes.
Communicate with the Fiber Optics Communications companies and/or
their installers with regard to changes, revisions and approvals.
Coordinate with other utility and/or fiber optic companies who
already have facilities and installations in place on CSXT right of
way, or plan future installations.
Coordinate the scheduling of High Rail Inspections of projects during
the planning and design phases.
Obtain final plan approvals from the Division Engineering Units.
- CONSTRUCTION SERVICES
Provide Construction Engineering and Inspection Services as follows:
Promote safety at the work site by verifying that the owners and
their installers comply with instructions of CSXT's flagmen,
watchmen, etc., and with CSXT Safety and FRA On Track Worker Safety
Requirements. (CSXT will provide a flagman to provide warning and
protect the tracks for the movement of trains, when required).
Provide engineering representation on behalf of CSXT at on-and
off-site meetings, pre-bid meetings, pre-construction meetings,
progress meetings, final inspection, etc.
Represent CSXT in meetings with state and local agencies regarding
entry and disturbance of road crossings and other public facilities
by the owners or installers.
Confirm that the owners or their installers have notified the owners
of underground facilities on CSXT property which may be affected by
the proposed work, and confirm that they have coordinated the
proposed work with them.
For each inspection location, maintain daily communication (or more
frequent if required) with CSXT Division Engineer or designated
representative or D & C Project Manager as may be directed by the
office of the Assistant Chief Engineer D & C via fax and/or e-mail,
and cell phone.
Provide daily on-site observation at all work locations on or
immediately adjacent to CSXT property during installation of the
fiber optic conduit systems.
Verify that the owners and/or their installers are in compliance with
the requirements for Federal, State, Local and CSXT environmental
regulations, permits, etc., and coordinate with the CSXT
Environmental Department.
Monitor the installation of the conduit system for compliance with
the approved plans and specifications. Consultant will have the
authority to act on behalf of CSXT and the Chief Engineer, or his
representative, to insure such compliance.
<PAGE> 159
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Approve minor adjustments or deviations from the plan, provided such
adjustments or deviations are consistent with the criteria furnished
by CSXT and used for Consultant's review of the plans.
Promptly report any disputes, major deviations and other items of
concern to the designated CSXT Division Engineer, CSXT Project
Manager or any environmental concerns to the designated CSXT
Environmental Officer.
Confirm the actual horizontal and vertical location of the fiber
optic cable conform to the plans and specifications by physical
measurement at regular intervals and where otherwise required in
Consultant's judgment. This work shall be coordinated with the owner
and/or installer, and CSXT as required.
Ensure prompt clean up and restoration of CSXT property by the owners
and/or installers following installation of the fiber optic cable
systems, to the satisfaction of the Division/Service Lane/Business
Unit engineering representative.
STAFFING
Upon notice of project authorization, (consultant) will assign, as a
minimum, one Senior Construction Inspector to each project.
Additional inspectors may be assigned to large, urban, or highly
complex projects when specified by CSXT. The inspectors will be
equipped with suitable transportation, cell phones, portable
computers and other equipment as may be required on the project. The
inspectors will based near the site, and be available during the
normal hours worked by the owner's and/or installer's forces.
REPORTS
- - PLAN REVIEW SERVICES
Prepare marked up plans and reports documenting recommended actions
and/or proposed changes.
- - CONSTRUCTION SERVICES
Maintain a daily diary or log of events including items such as:
supervisory personnel employed by the owners or their installers at
the work site; type, number and condition of the owner's or
installer's equipment; time of arrival and departure of CSXT flagmen,
watchmen, signal inspectors and other personnel; time of arrival and
departure of work trains and other CSXT furnished equipment; "track
time" allowed for work; the owners or their installers production and
progress; and any unusual occurrences.
Provide detailed weekly status reports for all work locations.
Approved: signed by R. K. Beckham
Date: June 5, 1998
CSXT/LLG-Rev. 06-04-98
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Prepared by: L. L. Galbreath
Reviewed: /s/ ILLEGIBLE
-------------------------------------------
Director - Standards & Testing
Approved: /s/ ILLEGIBLE
-------------------------------------------
AVP - Equipment & Track Systems Engineering
Office of the Assistant Vice President - Equipment and Track Systems Engineering
Jacksonville, Florida
MWI 1905-01, June 30, 1998
<PAGE> 1
Portions of this exhibit have been omitted
and filed separately with the Securities and Exchange
Commission. These portions are designated
"[ * * * ]"
EXHIBIT 10.28
[IXC LOGO]
IXC
MASTER SERVICE AGREEMENT
This Agreement for telecommunications services is made as of the date of last
execution below (the "Effective Date") and entered into by and between IXC
COMMUNICATIONS SERVICES, INC., a Delaware corporation with its principal place
of business at 1122 Capital of Texas Hwy. South, Austin, Texas 78746-6426
("Supplier"), and PATHNET, INC., a Delaware corporation with its principal place
of business at 1015 31st Street Northwest, Suite 500, Washington, DC 20007
("Customer").
WHEREAS, Customer desires to obtain telecommunications services as described
below (the "Service") from Supplier, and Supplier is willing to provide the
Service for the rates attached hereto.
NOW, THEREFORE, Customer and Supplier hereby mutually agree as follows:
CREDIT REQUIREMENTS:
SERVICE, TERM AND RATES: Supplier agrees to provide and Customer agrees to
purchase Service(s) indicated below. This agreement, including any terms and
conditions, addenda, schedules, supplements or exhibits which are attached
hereto and incorporated herein, constitutes the entire agreement (the
"Agreement") by Supplier and Customer pertaining to the subject matter(s) hereof
and supersedes all prior and contemporaneous agreements and understandings in
connection herewith.
IXC - CONFIDENTIAL 06/03/99
<PAGE> 2
<TABLE>
<CAPTION>
SERVICE TYPE:
- ------------
<S> <C>
SWITCHED SERVICE: BROADBAND SERVICE:
/s/ KJB Xclusive /s/ KJB ATM
---------------- -----------------
Xnet LATA Frame Relay
---------------- -----------------
Xnet LEx Network Management Services
---------------- -----------------
PRIVATE LINE SERVICE: Training
X Digital -----------------
---------------- CUSTOMER INTERFACE:
X Optical Rack Space & Power
---------------- -----------------
Shelf Space
-----------------
Collocation
-----------------
</TABLE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date last
written below.
<TABLE>
<CAPTION>
IXC COMMUNICATIONS SERVICES, INC. PATHNET, INC.
<S> <C>
BY: /s/ LEO WELSH BY: /s/ KEVIN J. BENNIS
---------------------------------- --------------------------------------
NAME: LEO WELSH NAME: KEVIN J. BENNIS
-------------------------------- ------------------------------------
TITLE: PRES-WHOLESALE TITLE: PRESIDENT - COMMUNICATION SERVICES
------------------------------- -----------------------------------
DATE: 6/17/99 DATE: 6/4/99
-------------------------------- ------------------------------------
FULL BUSINESS ADDRESS: FULL BUSINESS ADDRESS:
1122 CAPITAL OF TEXAS HWY. SOUTH 1015 31ST STREET NORTHWEST, SUITE 500
AUSTIN, TEXAS 78746-6426 WASHINGTON, DC 20007
TELEPHONE: (512) 427-3700 TELEPHONE: (202) 625-7284
FACSIMILE: (512) 328-7902 FACSIMILE: (202) 625-7369
BILLING CONTACT: BILL COTTA
-------------------------
TELEPHONE: 202-295-3100
-------------------------------
</TABLE>
IXC - CONFIDENTIAL 06/03/99
<PAGE> 3
MASTER SERVICE AGREEMENT
TERMS & CONDITIONS
1. CREDIT. All Services ordered hereunder are subject to credit approval.
Customer shall complete a credit application form attached hereto as
Exhibit A.
2. PROVISION OF BALANCE SHEET. Prior to commencement of Service, Customer
shall provide Supplier with financial statements including a consolidated
balance sheet of Customer as of the end of the most recent quarter and
consolidated statements of income and retained earnings of such quarter and
the fiscal year to date through such quarter, all in reasonable detail and
certified by Customer's chief financial officer as having been prepared in
accordance with generally accepted accounting principles, consistently
applied. Customer shall provide updated financial statements as reasonably
requested by Supplier.
3. PAYMENT TERMS. Invoices for Service are due and payable within thirty (30)
days of the receipt of invoice (unless otherwise indicated in the Credit
Requirements section of the Master Service Agreement), without demand or
set off by Customer. Payments not received within thirty (30) days of the
receipt of invoice are considered past due. In addition to Supplier
undertaking any of the actions set forth in this Agreement, if any invoice
is not paid when due, Supplier may: (i) impose a late charge equal to
1-1/2% (or the maximum legal rate, if less) of the unpaid balance per
month; (ii) require an increase in the amount of Security Deposit, as set
forth in Section 5.
4. BILLING DISPUTES. If Customer in good faith disputes any portion of any
Supplier invoice, Customer shall submit to Supplier, within thirty (30)
days following the date of the invoice, full payment of the undisputed
portion of the invoice and written documentation identifying and
substantiating the disputed amount. If Customer does not report a dispute
within the thirty (30) day period, Customer shall have waived its dispute
rights for that invoice. Supplier and Customer agree to use their
respective best efforts to resolve any dispute within fifteen (15) days
after Supplier receives written notice of the dispute from Customer. Any
disputed amounts resolved in favor of Customer shall be credited to
Customer's account on the next invoice following resolution of the dispute.
Any disputed amounts determined to be payable to Supplier shall be due
within ten (10) days of the resolution of the dispute.
Any dispute arising out of or relating to this Agreement which has not been
resolved by the good faith efforts of the parties will be settled by
binding arbitration conducted expeditiously in accordance with Section 16.
5. ADDITIONAL ASSURANCES. If at any time during the term of this Agreement
there is a material and adverse change in Customer's creditworthiness,
which shall be determined by Supplier in its sole and absolute discretion,
then Supplier may demand that Customer increase the amount of the/or
provide a Security Deposit pursuant to Supplier's standard terms and
conditions, by either requiring cash or a letter of credit, as security for
the full and faithful performance of Customer of the terms, conditions and
covenants of this Agreement; provided, however, that in no event shall the
amount of the Security Deposit ever exceed two months' estimated Usage
Charges and other amounts payable by Customer to Supplier hereunder.
6. CERTIFICATION. If applicable, Customer and Supplier hereby represent and
warrant that each of them is certified to do business in all jurisdictions
in which it conducts business and is in good standing in all such
jurisdictions. Customer and Supplier further represent and warrant that
each of them is certified by the proper regulatory agencies to provide
whatever interstate, intrastate and international long distance services to
users in those jurisdictions where such services are to be provided.
Customer and Supplier shall keep current during the term of this Agreement,
copies of their Certificates of Public Convenience and Necessity or similar
documents certifying interstate, intrastate, or international operating
authority in any local, state, or federal jurisdiction (collectively,
"Service Compliance Certificates") and furnish copies thereof to each other
within ten days of written request. Supplier reserves the right to refuse
or withhold Service in any jurisdiction in which Customer's Service
Compliance Certificate has not been furnished to Supplier in a timely
manner. Customer shall defend and indemnify Supplier from any losses,
expenses, demands and claims in connection with Customer's failure to
provide Supplier with such Service Compliance Certificates. Such
indemnification includes costs and expenses (including reasonable
attorney's fees) incurred by Supplier in settling, defending or appealing
any claims or actions brought against it relating to Customer's failure to
provide such Service Compliance Certificates. Supplier shall defend and
indemnify Customer from any losses, expenses, demands and claims in
connection with Supplier's failure to provide Customer with such Service
Compliance Certificates. Such indemnification includes costs and expenses
(including reasonable attorney's fees) incurred by Customer in settling,
defending or appealing any claims or actions brought against it relating to
Supplier's failure to provide such Service Compliance Certificates.
7. GOVERNING LAW. This Agreement shall be construed and enforced in accordance
with, and the validity and performance hereof, shall be governed by the
laws of the State of Delaware without regard to its principles of choice of
law.
8. NOTICES. All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given as of the date of delivery,
facsimile transmission or mailing, and if mailed, first class postage
prepaid, certified or registered mail, return receipt requested to the
following persons, unless contrary instructions are given by the parties in
writing:
If to Supplier: IXC Communications Services, Inc.
1122 Capital of Texas Hwy. South
Austin, Texas 78746-6426
Attention: Contract Administration
IXC - CONFIDENTIAL 1 06/03/99
<PAGE> 4
If to Customer: Pathnet, Inc.
1015 31st Street, NW, Suite 500
Washington, DC 20007
Attention: General Counsel__________
9. WAIVER OF BREACH OR VIOLATION NOT DEEMED CONTINUING. The waiver by either
party of a breach or violation of any provision of this Agreement shall not
operate as or be construed to be a waiver of any subsequent breach hereof.
10. BANKRUPTCY. In the event of the bankruptcy or insolvency of either party
hereto or if either party hereto shall make an assignment for the benefit
of creditors or take advantage of any act or law for relief of debtors, the
other party to this Agreement shall have the right to terminate this
Agreement without further obligation or liability on its part.
11. BUSINESS RELATIONSHIP. This Agreement shall not create any agency,
employment, joint venture, partnership, representation, or fiduciary
relationship between the parties. Neither party shall have the authority
to, nor shall any party attempt to, create any obligation on behalf of the
other party.
12. EVENTS OF DEFAULT:
A "DEFAULT" shall occur if: (a) Customer fails to make any payment required
to be made by it under this Agreement and any such failure remains
uncorrected for five (5) business days after written notice of such
failure; or (b) either party fails to perform or observe any material term
or obligation (other than making payment) contained in this Agreement, and
any such failure remains uncorrected for thirty (30) calendar days after
written notice from the non-defaulting party informing the defaulting party
of such failure.
13. INDEMNITY.
A. Each party shall indemnify, defend, release and hold harmless the other
party and all of its officers, agents, directors, shareholders,
subcontractors, subsidiaries, employees and other affiliates (collectively
"Affiliates") from and against any action, claim, court cost, damage,
demand, expense, liability, loss, penalty, proceeding or suit,
(collectively, together with related reasonable attorneys' fees; including
costs and disbursements, "Claims") imposed upon either party by reason of
damages to property or injuries, including death, as a result of an
intentional or a negligent act or omission on the part of the indemnifying
party or any of its Affiliates in connection with: (i) the performance of
this Agreement; or (ii) other activities relating to the property or
facilities which are the subject of this Agreement, whether or not the
Claims result from a sole negligent act or omission on the part of the
indemnifying party, whether the Claims result from the concurrent negligent
act or omission on the part of both parties, or whether the Claims result
from the negligent act or omission of the indemnifying party and some other
third party. In the event a Clam relates to the negligence of both
parties, the relative burden of the Claim shall be attributed equitably
between the parties in accordance with the principles of comparative
negligence.
B. In the event any action shall be brought against the indemnified party,
such party shall immediately notify the indemnifying party in writing, and
the indemnifying party, upon the request of the indemnified party, shall
assume the defense thereof on behalf of the indemnified party and its
Affiliates and shall pay all reasonable expenses and satisfy all judgments
which may be incurred by or rendered against the indemnified party or its
Affiliates in connection therewith, provided that the indemnified party
shall not be liable for any settlement of any such action effected without
its written consent.
C. Notwithstanding the termination of this Agreement for any reason, this
Section 12 shall survive such termination.
14. INSURANCE. Throughout the term of this Agreement and any extension thereof,
each party shall maintain and, upon written request, shall provide to the
other proof of adequate liability insurance:
(i) Worker's compensation insurance up to the amount of the statutory limit
in the state or states where work is to be performed;
(ii) Employer's liability insurance with a limit of not less than $200,000
per claim with an all-states endorsement;
(iii) Comprehensive general liability insurance with a limit of not less
than $1,000,000 per occurrence for bodily injury liability and property
damage liability, including coverage extensions for blanket contractual
liability, personal injury liability and products and completed operations
liability; and
(iv) Comprehensive Auto Liability insurance with a limit of not less than
$1,000,000 per accident for Bodily Injury Liability and Property Damage
Liability arising out of the ownership, maintenance or use of any vehicle
in the performance of this Agreement.
15. AUTHORIZED USE OF NAME. Without Supplier's prior written consent, Customer
shall not: (i) refer to itself as an authorized representative of Supplier
in promotional, advertising or other materials; or (ii) use Supplier's
logos, trade marks, service marks, or any variations thereof in any of its
promotional, advertising or other materials or in any activity using or
displaying Supplier's name or the Services to be provided by Supplier.
Customer agrees to change or correct, at Customer's expense, any such
material or activity which Supplier, in its sole judgment, determines to be
inaccurate, misleading or otherwise objectionable in relation to using or
marketing Supplier's services. Customer is explicitly authorized to only
use the following statements in its sales literature: (i) "Customer
utilizes the Supplier's network"; (ii) "Customer utilizes Supplier's
facilities"; (iii) "Supplier provides only the network facilities"; and
(iv) "Supplier is our network services provider". Without Customer's prior
written consent, Supplier shall not refer to Customer in any promotional
context, in any media. It is expressly understood that Supplier may refer
to Customer as may be necessary for public company reporting purposes.
16. ASSIGNMENT. Neither party hereto may assign this Agreement without the
express written consent of the other party hereto, which consent shall not
be unreasonably withheld. Notwithstanding the foregoing: (i) a security
interest in this Agreement may be granted by Supplier to any lender to
secure borrowings by Supplier or any of its
IXC - CONFIDENTIAL 2 06/03/99
<PAGE> 5
affiliates; (ii) Supplier may assign all its rights and obligations
hereunder to any Affiliate; and (iii) any subsidiary of Supplier may assign
any amounts due from Customer under any Supplement to Supplier for billing
purposes.
17. BINDING ARBITRATION. The parties will attempt in good faith to resolve any
controversy or claim arising out of or relating to this Agreement promptly
through discussions between themselves at the operational level. In the
event a resolution cannot be reached, such controversy or claim shall be
negotiated between appointed counsel or senior executives of the parties
who have authority to settle the controversy.
The disputing party shall give the other party written notice of the
dispute. If the parties fail to resolve such controversy or claim within
thirty (30) days of the disputing party's notice, either party may seek
arbitration as set forth below.
Any controversy or claim arising out of or relating to this Agreement, or a
breach of this Agreement, shall be finally settled by arbitration in
Austin, Texas, and shall be resolved under the laws of the State of
Delaware. The arbitration shall be conducted before a single arbitrator in
accordance with the commercial rules and practices of the American
Arbitration Association then in effect, with the exception that discovery
shall be conducted in accordance with the Federal Rules of Civil Procedures
with all discovery disputes to be resolved by the arbitrator.
The arbitrator shall have the power to order specific performance if
requested. Any award, order, or judgment pursuant to such arbitration shall
be deemed final and binding and may be enforced in any court of competent
jurisdiction. The parties agree that the arbitrator shall have no power or
authority to make awards or issue orders of any kind except as expressly
permitted by this Agreement, and in no event shall the arbitrator have the
authority to make any award that provides for punitive or exemplary
damages. All such arbitration proceedings shall be conducted on a
confidential basis. The arbitrator may, as part of the arbitration award,
permit the substantially prevailing party to recover all or part of its
attorney's fees and other out-of-pocket costs incurred in connection with
such arbitration. Customer may, at its option, continue to accept what it
considers to be below-standard Services and pay the charges hereunder
relating thereto during such pendency of such arbitration, without
prejudice thereto.
18. LEGAL CONSTRUCTION. In the event one or more of the provisions contained in
this Agreement shall, for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
In the event of any conflict between the provisions of these Terms &
Conditions and the applicable Supplement and Exhibits, the conflict shall
be resolved by reference to the following order of priority of
interpretation: a) Exhibits; b) Supplement; and c) Terms & Conditions. Not
withstanding the foregoing no Exhibit requiring execution shall be binding
unless and until such Exhibit has been executed by an authorized officer of
Customer.
19. NO PERSONAL LIABILITY. Each action or claim of any party arising under or
relating to this Agreement shall be made only against the other party as a
corporation, and any liability relating thereto shall be enforceable only
against the corporate assets of such party. No party shall seek to pierce
the corporate veil or otherwise seek to impose any liability relating to,
or arising from, this Agreement against any shareholder, employee, officer
or director of the other party. Each of such persons is an intended
beneficiary of the mutual promises set forth in this Section and shall be
entitled to enforce the obligations of this Section.
20. NOTICE OF BREACH OF AGREEMENT. To be effective, written notice of any
material breach (except Payment Default) must prominently contain the
following sentences in capital letters: "THIS IS FORMAL NOTICE OF A BREACH
OF CONTRACT. FAILURE TO CURE SUCH BREACH WILL HAVE SIGNIFICANT LEGAL
CONSEQUENCES."
21. LIMITATION OF LIABILITY. Supplier's liability arising out of delays in
restoration of the Services to be provided under this Agreement or out of
mistakes, accidents, omissions, interruptions, or errors or defects in
interruption of Services, shall be subject to the limitations set forth
below and in the applicable Tariff. EXCEPT OTHERWISE PROVIDED HEREIN, IN NO
EVENT SHALL SUPPLIER BE LIABLE TO CUSTOMER OR ANY OF THE CUSTOMER'S OWN
CUSTOMERS OR ANY OTHER THIRD PARTY IN ANY RESPECT, INCLUDING, WITHOUT
LIMITATION, FOR ANY DAMAGES, EITHER DIRECT, INDIRECT, CONSEQUENTIAL,
SPECIAL, INCIDENTAL, ACTUAL, PUNITIVE, OR ANY OTHER DAMAGES, OR FOR ANY
LOST PROFITS OF ANY KIND OR NATURE WHATSOEVER, ARISING OUT OF MISTAKES,
ACCIDENTS, ERRORS, OMISSIONS, INTERRUPTIONS, OR DEFECTS IN TRANSMISSION, OR
DELAYS, INCLUDING THOSE WHICH MAY BE CAUSED BY REGULATORY OR JUDICIAL
AUTHORITIES, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
OBLIGATIONS OF SUPPLIER PURSUANT TO THIS AGREEMENT; AND IN NO EVENT SHALL
SUPPLIER BE LIABLE AT ANY TIME FOR ANY AMOUNT IN EXCESS OF THE AGGREGATE
AMOUNT IT HAS PRIOR TO SUCH TIME COLLECTED FROM CUSTOMER WITH RESPECT TO
SERVICES DELIVERED HEREUNDER. SUPPLIER MAKES NO WARRANTY TO CUSTOMER OR ANY
OTHER PERSON OR ENTITY, WHETHER EXPRESS, IMPLIED, OR STATUTORY, AS TO THE
DESCRIPTION, QUALITY, MERCHANTABILITY, COMPLETENESS OR FITNESS FOR ANY
PURPOSE OF ANY SERVICE PROVIDED HEREUNDER OR DESCRIBED HEREIN, OR AS TO ANY
OTHER MATTER, ALL OF WHICH WARRANTIES BY SUPPLIER ARE HEREBY EXCLUDED AND
DISCLAIMED. For purposes of this Section, the term "Supplier" shall be
deemed to include Supplier, its shareholders, directors, officers and
employees, and any
IXC - CONFIDENTIAL 3 06/03/99
<PAGE> 6
person or entity assisting Supplier in its performance pursuant to this
Agreement.
22. SYSTEM MAINTENANCE. In the event Supplier determines to interrupt Services
for the performance of routine system maintenance, Supplier will use
reasonable efforts to notify Customer prior to the interruption and to
conduct such maintenance during non-peak hours. In no event shall
interruption for system maintenance constitute a Failure of Performance by
Supplier.
23. MAINTENANCE & TROUBLE REPORTING. Supplier's standard fees for Customer
maintenance support services are as follows:
Maintenance services shall be defined as all work performed by Supplier on
equipment provided by or on behalf of the Customer, or supervision of the
Customer's work within Supplier's terminal facilities. Maintenance Service
charges are not billed for troubles found within that portion of a circuit
provided by Supplier. The following billing rates apply for these services:
A. [* * *] per hour ([* * *] hour minimum - if dispatch is required) Monday
through Friday during the business hours of 8:00 a.m. - 5:00 p.m. local
time, exclusive of the following holidays: New Year's Day, President's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and the day
after Thanksgiving and Christmas Day.
B. [* * *] per hour ([* * *] hour minimum) for overtime work done after
business hours (defined above) and/or on holidays (defined above) and/or
all day on Saturdays and Sundays.
C. As requests for maintenance services are typically made via telephone,
Supplier must be advised in writing as to the person(s) who are authorized
to request service. It is the Customer's responsibility to keep Supplier
apprised of any changes to its list of representative(s).
D. To request technical assistance and help under the maintenance services,
a call must be made to Supplier's Network Control Center at 1-800-526-2488.
This number should be used for Supplier technical assistance,
troubleshooting or testing of circuits, not for service impairment or
outages. The person calling in must be on the authorized list in order to
commit for charges for this technical assistance. If that person is not on
the list, the request cannot be accommodated.
The Network Control Center personnel will take the call, record the
caller's name and phone number along with facts concerning the assistance
and support needed. The caller will then be given the number of the
"Assistance Ticket."
Upon completion of work, this "Assistance Ticket" will be given to
Supplier's Accounting Department, and the Customer will subsequently be
billed based upon the information on that ticket. A copy will be attached
to the invoice.
Except for emergencies, Supplier's technicians cannot be dispatched unless
requests are made in accordance with the above call-out procedure.
24. SUBJECT TO LAWS. This Agreement is subject to, and Customer agrees to
comply with, all applicable federal, state and local laws, and regulations,
rulings and orders of governmental agencies, including, but not limited to,
the Communications Act of 1934, the Telecommunications Act of 1996, the
Rules and Regulations of the Federal Communications Commission ("FCC") and
state public utility or service commissions ("PSC"), tariffs and the
obtaining and continuance of any required certification, permit, license,
approval or authorization of the FCC and PSC or any governmental body,
including, but not limited to regulations applying to feature group
termination and Letter of Agencies ("LOAs").
25. FCC PERMITS, AUTHORIZATION AND FILINGS. Supplier represents and warrants
that it has taken all necessary and appropriate steps, and will continue to
take all such steps as soon as possible, to procure from the FCC the
necessary authorizations, if any, to deliver Services hereunder to
Customer and whatever approvals are necessary from any other federal or
state agency. Supplier will not voluntarily take or accede to any action,
including the filing of a tariff, that would have the effect of materially
modifying the rates contained herein without the prior written consent of
Customer.
26. COUNTERPARTS. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, and when taken together shall
constitute one document.
27. CONFIDENTIAL INFORMATION AND NONSOLICITATION. "Confidential Information"
shall mean all information disclosed in writing by one party to the other
party which is clearly marked "CONFIDENTIAL" by the disclosing party at the
time of disclosure. "Confidential Information" shall also include certain
oral information disclosed by one party to the other party, provided that
the disclosing party designates such information as confidential at the
time of disclosure and gives recipient a written summary of such
information within five business days after the oral disclosure was made.
Notwithstanding the foregoing, all information concerning the traffic
volume/distribution of Supplier, pricing rates, and customer lists is
hereby deemed to be Confidential Information regardless of whether it is so
identified. The term "Confidential Information" does not include any
information which: (i) was already known by the receiving party free of any
obligation to keep it confidential at the time of its disclosure by the
disclosing party, (ii) becomes publicly known through no wrongful act of
the receiving party, (iii) is rightfully received from a third person
without knowledge of any confidentiality obligation, (iv) is independently
acquired or developed without violating any of the obligations under this
Agreement, (v) is disclosed to a third person by the disclosing party
without similar confidentiality restrictions on such third person rights,
or (vi) is approved for release by written authorization of the disclosing
party.
Further, the recipient may disclose Confidential Information pursuant to
any judicial or governmental
IXC - CONFIDENTIAL 4 06/03/99
<PAGE> 7
request, requirement or order. The recipient, however, shall take
reasonable steps to give the disclosing party sufficient prior notice to
contest such request, requirement or order. Confidential Information shall
remain the property of the disclosing party, and shall be returned to the
disclosing party or destroyed upon request of the disclosing party.
Supplier may make such Confidential Information available to its lenders.
Accordingly, in the event of a breach or threatened breach of the foregoing
provisions, Supplier shall be entitled to an injunction or restraining
order, in addition to such other rights or remedies as may be available
under this Agreement, at law or in equity, including but not limited to
money damages.
28. FORCE MAJEURE. Supplier shall not be liable for any failure of performance
hereunder due to causes beyond its reasonable control, including, but not
limited to: acts of God, fire, explosion, vandalism, cable cut, storm or
other similar catastrophes; any law, order, regulation, direction, action
or request of the United States government, or of any other government,
including state and local governments having jurisdiction over either of
the parties, or of any department, agency, commission, court, bureau,
corporation or other instrumentality of any one or more of said governments
(provided that Supplier uses best efforts to prevent such government
actions, whenever possible); administrative delays by governmental
agencies; national emergencies; insurrections; riots; wars; or strikes,
lock outs, work stoppages or other labor difficulties.
29. SURVIVAL. The covenants and agreements of Customer contained in this
Agreement with respect to payment of amounts due, confidentiality and
indemnification shall survive any termination of this Agreement. The rights
and obligations under this Agreement shall survive any merger or sale of
either party and shall be binding upon the successors and permitted assigns
of each party.
30. REGULATORY. Customer is responsible for payment of, or reimbursement to
Supplier for, Universal Service Fund and Lifeline Assistance Charges
(Presubscribed line charges) set forth in the National Exchange Carrier
Association (NECA) Tariff FCC #5, sections 8.5., 8.5.2 and 17.1.4 (A) &
(B), as the same may be amended from time to time, or any successor tariffs
or sections, with respect to any Customer ANI's subscribed to Supplier and
sold to End User customers (non-carrier sales). In addition, with respect
to the Services, Customer is responsible for payment of, or reimbursement
to Supplier for: (i) telecommunication relay service charges required by
the Americans with Disabilities Act or otherwise (both federal and state);
(ii) interexchange carrier fees payable to the FCC under the Omnibus Budget
Reconciliation Act of 1993 or otherwise; (iii) payphone service provider
compensation as determined by the FCC in CC Docket No.96-128; (iv)
universal service fund charges, intraLATA compensation charges; and (v)
other federal or state fees or charges imposed on Supplier, as required by
law in connection with sales to end user customer's (non-carrier sales).
Supplier will furnish, at Customer's request, documentation to support the
fees or charges payable by Customer to Supplier pursuant to this Section
29.
Customer shall furnish to Supplier valid and appropriate tax exemption
certificates for all applicable jurisdictions (federal, state and local) in
which it performs customer billing. Customer is responsible for properly
charging tax to its subscribers and for the proper and timely reporting and
payment of applicable taxes to the taxing authorities and shall defend and
indemnify Supplier from payment and reporting of all applicable federal,
state and local taxes, including, but not limited to, gross receipts taxes,
surcharges, franchise fees, occupational, excise and other taxes (and
penalties and interest thereon), relating to the Services. Such
indemnification includes costs and expenses (including reasonable
attorney's fees) incurred by Supplier in settling, defending or appealing
any claims or actions brought against it relating to said taxes. If
Customer fails to provide and maintain the required certificates, Supplier
may charge Customer and Customer shall pay such applicable taxes.
The amounts payable by Customer under this Agreement do not include any
state and local sales or use taxes, or utility taxes, however designated,
which may be levied on the goods and services provided by Supplier
hereunder. With respect to such taxes, if applicable, Customer shall
furnish Supplier with an appropriate exemption certificate or pay to
Supplier, upon timely presentation of invoices therefore, such amounts
thereof as Supplier may be by law required to collect or pay. Any and all
other taxes, including but not limited to franchise, net or gross income,
license, occupation, and real or personal property taxes, shall be timely
paid by Supplier. Customer shall pay to Supplier any such taxes that
Supplier may be required to collect or pay.
31. OBLIGATIONS SEVERAL AND NOT JOINT. Each party shall be responsible only
for its own performance under the Agreement (including any attachments,
exhibits, schedules or addenda) and not for that of any other party.
32. AMENDMENTS. This Agreement may only be modified or supplemented by an
instrument in writing executed by each party.
IXC - CONFIDENTIAL 5 06/03/99
<PAGE> 8
PRIVATE LINE SERVICE SUPPLEMENT
DIGITAL SERVICE
1. SCOPE AND RATES. Supplier shall use its best efforts (considering the needs
of its other customers) to provide Service for which a Purchase Order has
been accepted. A form of Purchase Order is attached hereto as Exhibit A.
The rates for Service are set forth in Exhibit D, unless otherwise
specified in the applicable Purchase Order. Such rates are valid for the
term of this Agreement. Supplier may thereafter change such rates, but not
for any Circuit then in service. Customer may also order the services
listed in Exhibit B, subject to availability. Supplier's On-Net City
listing is attached hereto as Exhibit C.
2. TERM. The Agreement is for a term of three (3) years commencing on the
Effective Date and shall continue through the end of the Circuit Lease Term
which is last to expire. If Service continues after such Circuit Lease
Term, the applicable rates will be equal to 100% of the rates hereunder,
and Service shall be automatically continued for automatic six (6) month
extensions, unless either party provides 30 days' notice of its desire to
discontinue such extension for the Circuit Lease Term.
3. INVOICE. Customer will be invoiced monthly for: (i) the monthly lease rate
(prorated for any partial month) for each Available Circuit; and (ii) the
charges for other services received. The first invoice shall be for the
first two months; each invoice thereafter shall be for the following month.
4. TERMINATION. Customer may terminate any Circuit upon 45 calendar days prior
written notice, provided that if termination occurs: (i) prior to the
Activation Date, Customer shall reimburse Supplier for all costs of the
implementation of such Circuit; or (ii) on or after such date Customer
shall pay: (A) all charges for Service previously rendered; and (B) the
amount due through the end of the applicable Circuit Lease Term (Supplier
shall try to re-lease such Circuit for such term, refunding to Customer the
amount so collected, if any). If Supplier fails to provide Service within
sixty (60) days of the Firm Order Commitment, Customer may, as its only
remedy, terminate the affected Circuit. If Supplier fails to cure a
material breach hereof within 10 calendar days of written notice from
Customer, Customer may terminate the affected Circuit.
5. OUTAGE CREDITS. Supplier shall give Customer a credit in accordance with
its then-current outage policy for periods in which any Circuit loses
continuity and fails to comply with applicable specifications. Such credit
shall be Customer's sole remedy with respect to such an event; provided,
however, that no such credits shall be allowed and Supplier shall not be
liable for any Service defect from causes outside its control, including
accidents, cable cuts, fires, floods, emergencies, government regulation
(provided that Supplier uses best efforts to prevent such government
regulation, wherever possible), wars, or acts of God. SUPPLIER DISCLAIMS
ALL EXPRESS AND IMPLIED WARRANTIES RELATING TO SERVICE, INCLUDING BUT NOT
LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE. CUSTOMER HAS NOT RELIED ON ANY REPRESENTATION NOT SET FORTH
HEREIN. CUSTOMER SHALL INDEMNIFY SUPPLIER FROM ANY CLAIMS MADE BY ANY
CUSTOMER OF CUSTOMER.
6. DEFINITIONS. For purposes hereof: "Available" means all necessary Supplier
equipment for a Circuit has been installed. "Activation Date" means the
date a Circuit is first made Available to Customer. "Circuit" means a DS-0,
DS-1, DS-3, OC-3 or a OC-12. "Circuit Lease Term" means the term of a
Circuit specified in the applicable Purchase Order. "Circuit Mileage" means
the length of a Circuit specified in the applicable Purchase Order. "DS-0"
means a circuit complying with TR-TSY-000333 "Switched and Special Access
Services - Transmission Parameter Limits and Interface Combinations" Issue
1, July 1990. A "DS-1" is a signal conforming to the requirements set forth
in Sections 9.3 and 10.2 of Bellcore TR-NWT-000499, Issue 5, December,
1993. A "DS-3" is a signal conforming to the requirements set forth in
Section 9.6 and 10.5 of Bellcore TR-NWT-000499, Issue 5, December, 1993. A
"Firm Order Commitment" means the written confirmation provided to Customer
which confirms the specific date that the Circuit is available to Customer.
An "OC-3" is a signal based on the SONET frame structure as specified in
Bellcore GR-253-CORE, Synchronous Optical Network (SONET) Transport
Systems: Common Criteria Physical Layer, and ANSI T1.105, Digital
Hierarchy-Optical Interface Rates and Formats Specifications. An "OC-12" is
a signal based on the SONET frame structure as specified in Bellcore
GR-253-CORE, Synchronous Optical Network (SONET) Transport Systems: Common
Criteria Physical Layer, and ANSI T1.105, Digital Hierarchy-Optical
Interface Rates and Formats Specifications. "Purchase Order" means any
Customer purchase order accepted by Supplier. "Requested Service Date"
means the date Service on a Circuit is requested to commence specified in
the applicable Purchase Order. "Service" means transmission service
provided between North American DSX standard cross-connect panels located
in Supplier's terminal locations.
IXC - CONFIDENTIAL 1 06/03/99
<PAGE> 9
EXHIBIT A
[FORM OF PURCHASE ORDER/MARKET SERVICE ORDER]
<PAGE> 10
EXHIBIT B
PRIVATE LINE SERVICE ANCILLARY PRICING
[Superceded]
<PAGE> 11
EXHIBIT C
On Net City Listing for Private Line*
<TABLE>
<CAPTION>
Location LATA Address/(NPA) NXX
- -------- ----------- -----------------
<S> <C> <C>
[ * * * ] [ * * * ] [ * * * ]
</TABLE>
* Subject to Availability
<PAGE> 12
EXHIBIT D
Private Line Pricing
[ Superceded ]
<PAGE> 13
Exhibit E
Taxes on Telecommunications Service
[ * * * ]
<PAGE> 14
AMENDMENT NO. 1 TO IXC
MASTER SERVICE AGREEMENT
[IXC COMMUNICATIONS LOGO]
This Amendment No. 1 to the Master Service Agreement is made and entered into
by and between IXC COMMUNICATIONS SERVICES, INC., a Delaware corporation with
its principal place of busines at 1122 Capital of Texas Hwy. South, Austin,
Texas 78746-6426 ("Supplier"), and PATHNET, INC., a Delaware corporation with
its principal place of business at 1015 31st Street Northwest, Suite 500,
Washington DC 20007 ("Customer").
For purposes of this Amendment, the rates, terms and conditions set forth
herein shall become effective on the first day of the next IXC billing cycle
following the last date of execution below (the "Amendment Effective Date").
This Amendment is made with reference to the following facts:
A. Customer and Supplier are parties to that certain Master Service
Agreement dated as of June 17, 1999 (the "Agreement").
B. The parties desire to amend the Agreement pursuant to the terms set
forth below.
TERMS OF AMENDMENT
Accordingly, in consideration of the mutual promises set forth below, the
parties agree as follows:
1. Exhibit D -- Private Line Pricing, shall be modified and reinstated
with Exhibit D, Private Line Pricing, attached hereto.
2. The following shall be added in its entirety as Section 33, Year 2000
Compliance, to the Master Service Agreement Terms and Conditions:
33. YEAR 2000 COMPLIANCE. Each party represents that its Services will
operate on and after January 1, 2000, in the same manner, and with the
same functionality, as the Services would and do on or before December
31, 1999. Each party represents that its monitoring and maintenance
capabilities accommodate the four-digit data field requirement for the
year 2000 and beyond and will lose no functionality with respect to
the introduction of records containing dates falling on or after
January 1, 2000.
3. Section 6, Definitions, of Private Line Service Supplement shall be
modified and reinstated as follows:
6. DEFINITIONS. For purposes hereof: "Activation Date" means the date a
Circuit is first made Available to Customer. "Available" means all
necessary Supplier equipment for a Circuit has been installed.
"Circuit" means a DS-0, DS-1, DS-3, OC-3, OC-12 or an OC-48. "Circuit
Lease Term" means the term of a Circuit specified in the applicable
Purchase Order. "Circuit Mileage" means the length of a Circuit
specified in the applicable Purchase Order. "DS-0" means a circuit
complying with TR-TSY-000333 "Switched and Special Access Services -
Transmission Parameter Limits and Interface Combinations" Issue 1, July
1990. A "DS-l" is a signal conforming to the requirements set forth in
Sections 9.3 and 10.2 of Bellcore TR-NWT-000499, Issue 5, December
1993. A "DS-3" is a signal conforming to the requirements set forth in
Section 9.6 and 10.5 of Bellcore TR-NWT-000499, Issue 5, December 1993.
"FOC" means Firm Order Confirmation, the form Supplier submits to
Customer indicating the date that an ordered Circuit will be activated.
An "OC-3c" is a signal based on the SONET frame structure as specified
in Bellcore GR-253-CORE, Synchronous Optical Network (SONET) Transport
Systems: Common Criteria Physical Layer, and ANSI T1.105, Digital
Hierarchy- Optical Interface Rates and Formats Specifications. An
"OC-12c" is a signal based on the SONET frame structure as specified in
Bellcore GR-253-CORE, Synchronous Optical Network (SONET) Transport
Systems: Common Criteria Physical Layer, and ANSI TI.105, Digital
Hierarchy-Optical Interface Rates and Formats Specifications. An
"OC-48c" is a signal based on the SONET frame structure as specified in
Bellcore GR-253-CORE, Synchronous Optical Network (SONET) Transport
Systems: Common Criteria Physical Layer, and ANSI T1.105, Digital
Hierarchy-Optical Interface Rates and Formats Specifications. "On-Net"
means a Circuit(s) provided on Supplier's network between two cities.
"Purchase Order" means any Customer purchase
IXC-CONFIDENTIAL IXC CONTRACT NO. 7188 PAGE 1 OF AMENDMENT NO.1 TO MSA 08/12/99
<PAGE> 15
order accepted by Supplier. "Requested Service Date" means the date
Service on a Circuit is requested to commence specified in the
applicable Purchase Order. "Service" means transmission service
provided between North American DSX standard cross-connect panels
located in Supplier's terminal locations or when provided via IXC LDX
Optical cross-connect panels located in Supplier's terminal locations.
4. Section 7, Billing Commencement Date, below shall be added in its
entirety to the Private Line Service Supplement:
7. BILLING COMMENCEMENT DATE. If Circuit is made available prior to the
FOC date, billing shall commence on the Circuit Activation Date after
Customer has tested and accepted Circuit, or on the scheduled FOC
date, provided Circuit has been made available to Customer. In no
event shall billing commence prior to the FOC date without Customer
acceptance.
5. All other terms and conditions, provisions, supplements and exhibits
of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
last written below.
<TABLE>
<CAPTION>
IXC COMMUNICATIONS SERVICES, INC. PATHNET, INC.
<S> <C>
BY: /s/ DAVE HUGHART BY: /s/ MICHAEL A LUBIN
------------------------------- -------------------------------
NAME: Dave Hughart NAME: MICHAEL A LUBIN
----------------------------- -----------------------------
TITLE: President, Sales TITLE: Vice President
---------------------------- ----------------------------
DATE: 8/26/99 DATE: 8/19/99
----------------------------- -----------------------------
FULL BUSINESS ADDRESS: FULL BUSINESS ADDRESS:
1122 CAPITAL OF TEXAS HWY. SOUTH 1015 31st STREET NORTHWEST, SUITE 500
AUSTIN, TEXAS 78746-6426 APPROVED AS TO FORM WASHINGTON DC 20007
TELEPHONE: 512-427-3700 LEGAL DEPT. TELEPHONE: 202-625-7284 OR 202-295-3988
FACSIMILE: 512-328-7902 FACSIMILE: 202-625-7368
BILLING CONTACT: BILL COTTA
TELEPHONE: 202-295-3100
</TABLE>
IXC-CONFIDENTIAL IXC CONTRACT NO. 7188 PAGE 2 OF AMENDMENT NO. 1 TO MSA 08/12/99
<PAGE> 16
EXHIBIT D
Private Line Pricing
[ Superceded ]
<PAGE> 17
[IXC COMMUNICATIONS LOGO] AMENDMENT NO.2 TO IXC
MASTER SERVICE AGREEMENT
This Amendment No. 2 to the Master Service Agreement is made and entered into
by and between IXC COMMUNICATIONS SERVICES, INC., a Delaware corporation with
its principal place of business at 1122 Capital of Texas Hwy. South, Austin,
Texas 78746-6426 ("Supplier"), and PATHNET, INC, a Delaware corporation with its
principal place of business at 1015 31st Street Northwest, Suite 500,
Washington DC 20007 ("Customer").
For purposes of this Amendment, the rates, terms and conditions set forth
herein shall become effective on the first day of the next IXC billing cycle
following the last date of execution below (the "Amendment Effective Date").
This Amendment is made with reference to the following facts:
A. Customer and Supplier are parties to that certain Master Service
Agreement dated as of June 17, 1999 and subsequent Amendment No. 1 dated August
26, 1999 (as amended, the "Agreement").
B. The parties desire to amend the Agreement pursuant to the terms set
forth below.
TERMS OF AMENDMENT
Accordingly, in consideration of the mutual promises set forth below, the
parties agree as follows:
1. Exhibit B, Private Line Service Ancillary Page, shall be replaced in
its entirety with Exhibit B, Private Line Service Ancillary Page, attached
hereto.
2. Exhibit D, Private Line Pricing, shall be replaced in its entirety with
Exhibit D, Private Line Pricing, attached hereto.
3. All other terms and conditions, provisions, supplements and exhibits
of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date last
written below.
<TABLE>
<CAPTION>
IXC COMMUNICATIONS SERVICES, INC. PATHNET, INC.
<S> <C> <C>
BY: /s/ DAVID HUGHART BY: /s/ MICHAEL A LUBIN
------------------------------- -------------------------------
NAME: David Hughart NAME: MICHAEL A LUBIN
----------------------------- -----------------------------
TITLE: President-Sales TITLE: Vice President
---------------------------- ----------------------------
DATE: 10/13/99 DATE: 10/8/99
----------------------------- -----------------------------
FULL BUSINESS ADDRESS: FULL BUSINESS ADDRESS:
1122 CAPITAL OF TEXAS HWY. SOUTH 1015 31st STREET NORTHWEST, SUITE 500
AUSTIN, TEXAS 78746-6426 APPROVED AS TO FORM WASHINGTON DC 20007
TELEPHONE: 512-427-3700 LEGAL DEPT. TELEPHONE: 202-625-7284 OR 202-295-3988
FACSIMILE: 512-328-7902 FACSIMILE: 202-625-7368
BILLING CONTACT: BILL COTTA
TELEPHONE: 202-295-3100
</TABLE>
IXC-CONFIDENTIAL IXC CONTRACT NO. 7188 PAGE 1 OF AMENDMENT NO. 2 TO MSA 09/29/99
<PAGE> 18
EXHIBIT B
Private Line Services Ancillary Pricing
<TABLE>
<CAPTION>
DS-0 DS-1 DS-3 OC-3 OC-12 OC-48
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
RECURRING
Minimum Circuit Charge [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ]
NON RECURRING
New Order Installation [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ]
Change of requested service date - 1st [ * * * ] [ * * * ] [ * * * ] [ * * * ]* [ * * * ]* [ * * * ]*
Change of requested service date -- 2nd and more [ * * * ] [ * * * ] [ * * * ] [ * * * ]* [ * * * ]* [ * * * ]*
Order Change (pre-engineering) [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ]
Order Change (post-engineering) [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ]
Order Cancellation (pre-engineering) [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ]
Order Cancellation (post-engineering) [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ]
ASR (new or disconnect) Special Access** [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ]
ASR Supplement [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ]
Order Expedite [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ]
Reconfiguration [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ]
</TABLE>
* Customer must notify IXC of service date changes ten (10) days prior to due
date. Service date changes can be extended a maximum of (thirty) 30 days after
due date. Service date changes for OC3, OC12, and OC48 bandwidths are
restricted to one change, after which order will be subject to billing.
** If Customer is ordering Integrated Access Service with multiple applications
(i.e., any combination of Xclusive/Xnet Voice frame, Private Line and/or
Internet) the ASR fee will be $250 for any and all applications instead of $250
per application.
<TABLE>
<CAPTION>
DS-1 DS-3 OC-3 OC-12 OC-48
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CROSS-CONNECT CHARGE
Recurring [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ]
Non Recurring [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ]
INTERCONNECT CHARGE
Recurring [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ]
Non Recurring [ * * * ] [ * * * ] [ * * * ] [ * * * ] [ * * * ]
</TABLE>
Cross-connect: Local access or customer collocation facility to Supplier local
access or bypass facility within the same Supplier POP. Cross-connect charges
do not apply to Long Haul Circuits purchased from Supplier if bandwidth being
cross-connected is 1-to-1 bandwidth relationship or less. Interconnect charges
apply to connections between Supplier POPs in the same city or between Supplier
suite to another suite in the same building. Since costs vary widely by
location, the interconnect charges indicated above are the minimum amount that
will be charged monthly. All I.C.B. charges incurred by Supplier will be passed
through to the Customer.
<TABLE>
<CAPTION>
RECURRING NON RECURRING
--------- -------------
<S> <C> <C>
MULTIPLEX CHARGES FOR DS-1 TO DS-3
1 Year Term [ * * * ]
2 Year Term [ * * * ]
3 Year Term [ * * * ]
DACS Charge (Switching Only) per DSO [ * * * ]
DACS Port Charge (Bell Access to DACS) per DSO [ * * * ]
DS-1 DACS Port [ * * * ]
Echo Canceller (Per Circuit End; see Note 5 below.) [ * * * ] [ * * * ]
Second End Loop (Ex; for ADPCM) [ * * * ] [ * * * ]
MAINTENANCE CHARGES
Trouble Assistance Ticket per dispatch:
Monday through Friday, 8 am to 5 pm [ * * * ]
After Hours (Work limited to recovery of downed
circuits or equipment, not new installations.) [ * * * ]
</TABLE>
Notes
1. All charges incurred by Supplier on Customer's behalf from any Local
Exchange Carrier, Competitive Access Provider or Competitive Local
Exchange Carrier will be directly passed on to the Customer.
2. Services not described above will be considered special handling and charges
will be assessed on an Individual Case Basis (I.C.B.).
3. All of the above charges are subject to changes with a 30-day notice.
4. All Private Line ancillary service charges to cities not listed will be
priced on an individual case basis and will be subject to the terms and
charges of the underlying carrier.
5. Echo canceller charges apply to each end or Circuit. There is no expressed
Circuit length minimum for Private Line; when echo cans are required,
Supplier installs them and charges for them.
All products, cross-connects and interconnects will be provided based upon
availability.
<PAGE> 19
EXHIBIT D
Private Line Service Rates
<TABLE>
<CAPTION>
Rate per V&H DS-O-Mile/Circuit Lease Term
----------------------------------------
Service Type 1 Year 3 Year 5 Year
- ------------ ------ ------ ------
<S> <C> <C> <C>
DS-0 I.C.B. I.C.B. I.C.B.
DS-1 [ * * * ]
DS-3 [ * * * ]
OC-3 [ * * * ]
OC-12 [ * * * ]
OC-48 [ * * * ]
</TABLE>
Minimum Circuit Charges:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DS-0 $[ * * * ]
DS-1 [ * * * ]
DS-3 [ * * * ]
OC-3 [ * * * ]
OC-12 [ * * * ]
OC-48 [ * * * ]
</TABLE>
Minimum Circuit Term:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DS-0 $[ * * * ]
DS-1 [ * * * ]
DS-3 [ * * * ]
OC-3 [ * * * ]
OC-12 [ * * * ]
OC-48 [ * * * ]
</TABLE>
NOTES:
1. All private line service to cities not on Supplier's On-net City
List will be priced on an individual case basis and will be subject to the
terms of the underlying carrier.
2. These rates shall apply to new service orders. Existing service may be
renewed at these rates upon expiration of a circuit's current lease terms.
<PAGE> 1
Portions of this exhibit have been omitted and filed separately with the
Securities and Exchange Commission. These portions are designated "[ * * * ]".
EXHIBIT 10.29
[FRONTIER LOGO]
CAPACITY AGREEMENT
BETWEEN
FRONTIER COMMUNICATIONS OF THE WEST, INC.
AND
PATHNET, INC.
08/16/99 CONFIDENTIAL
<PAGE> 2
CAPACITY AGREEMENT
This Capacity Agreement ("Agreement") is entered into between the provider of
service, Frontier Communications of the West, Inc. on behalf of itself and its
affiliates that may provide a portion of the services hereunder ("Frontier"), a
California corporation located at 90 Castilian Drive, Goleta, CA 93117 and
Pathnet, Inc. ("Pathnet" or "Purchaser"), a Delaware corporation with its
principal place of business located at lOl5 31st Street NW, Washington DC 20007
(hereinafter, Frontier and Pathnet may be referred to in the aggregate as
"Parties", and each singularly as a "Party".)
PURPOSE
Pathnet desires to purchase dedicated circuit capacity from Frontier for the
transport of Pathnet's telecommunications traffic. For valuable consideration,
receipt of which is hereby acknowledged, the Parties hereto agree as follows.
DEFINITIONS (not otherwise defined in the body of this Agreement or an
attachment).
A. "Affiliate" means any entity directly or indirectly controlling,
controlled by or under common control with a Party.
B. "Billing Cycle" is the Frontier billing cycle to which Pathnet's
account hereunder is assigned by Frontier (a full billing cycle
approximates 30 days).
C. "Business Day" is Monday through Friday, 8:00 am to 5:00 PM EST,
excluding nationally recognized holidays. Unless otherwise stated,
"days" refers to calendar days.
D. "Delinquent" (whether capitalized or not) means any invoiced amounts
not properly disputed under Section 4 of this Agreement and remaining
unpaid on the due date of the invoice.
1. SERVICES; CIRCUIT TERM; CIRCUIT AVAILABILITY DATE:
1.1 Frontier shall, in accordance with the terms of this Agreement,
provide Pathnet with DS-1, DS-3, OC-3 and OC-12 circuit capacity as
the same may be ordered by Pathnet and the order accepted by Frontier
hereunder from time to time. All such circuit capacity collectively
referred to as the "Services" or "Private Line Services.
1.2 Unless one Party provides the other with at least 90 days prior
written notice of its intent not to renew a circuit after the
circuit's minimum commitment period expires, then, unless the Parties
agree otherwise in writing, a circuit shall automatically renew on a
month to month basis at Frontier's then-current rates and charges for
that circuit type or as the parties may mutually agree in writing.
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<PAGE> 3
1.3 Frontier shall provide a 48 hour turnaround response to a Pathnet
feasibility request. Response shall include provider's POP to POP
capacity availability and detailed price quote for the POP to POP
service. Once Frontier fully defines a process for quoting local loops
on DS1 and DS3 level circuits, Frontier agrees to provide Pathnet with
a detailed price quote in writing and in a time frame agreed to by the
Parties. Interval calculation shall commence upon the issuance of a
completed order by Pathnet and acceptance by Frontier. Frontier shall
provide notification and appropriate circuit provisioning information
on the following provisioning dates:
a. ORC -- Order Receipt Date: The date upon which Frontier shall
notify Pathnet that Pathnet's firm order request has been
received and accepted and any standard interval quote has
commenced.
b. FOC -- Firm Order Confirmation: The date upon which Frontier
shall notify Pathnet of the firm due date as well as final
pricing details for both POP to POP and any third party access.
c. DLRD -- Design Layout and Design: The date upon which Frontier
shall notify Pathnet regarding specific circuit configuration to
include POP to POP locations, Circuit ID, Circuit ID of each
access line and provider as well as any demarc/interconnect
information.
d. Service Turnup -- The date upon which Frontier will notify
Pathnet when the end to end circuit including any third party
access ordered and coordinated by Frontier has passed the circuit
acceptance criteria.
Pathnet will be responsible for accepting/rejecting the end to
end service within 48 hours of Service Turnup from Frontier.
Frontier will not start billing of any part of the end to end
(Pathnet premises to Pathnet premises) service until acceptance
of the service from Pathnet which shall occur within 48 hours. If
Pathnet does not communicate a good faith rejection of the
circuit within 48 hours, it shall be deemed to have been
accepted. Upon receipt of a complete and accurate service order
for a circuit, Frontier shall notify Pathnet of its target date
for the delivery of each circuit (the "Estimated Availability
Date"). Any Estimated Availability Date given by Frontier to
Pathnet shall be subject to Frontier's then-current standard and
expedited interval guidelines. Frontier shall use reasonable
efforts to install each circuit on or before the Estimated
Availability Date, but the inability of Frontier to deliver a
circuit by such date, or within the interval guidelines, shall
not be deemed a breach of this Agreement by Frontier. If Frontier
fails to make any circuit available within 90 days after
acceptance by Frontier of the service order with respect to such
circuit (or such greater time as is set forth in the interval
guidelines), Pathnet's sole remedy shall be to cancel the service
order which pertains to such circuit upon ten days prior written
notice to Frontier.
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<PAGE> 4
1.4 At each end of the city pairs on which Pathnet orders circuits,
Frontier shall provide appropriate equipment in its SONET POP
locations necessary to connect the circuits to Pathnet's
Interconnection Facilities. If Pathnet desires to install its own
equipment in one or more SONET POP, and Frontier, in its sole
discretion, agrees to such installation, the Parties shall execute a
collocation agreement acceptable to both Parties. Pathnet agrees that
its Interconnection Facilities shall connect to the circuits provided
by Frontier hereunder at the network interface points located in the
Frontier SONET POPs. As used herein, the term "Interconnection
Facilities" shall mean transmission capacity provided by Pathnet or
its third party Frontier to extend the circuits provided by Frontier
from a SONET POP to any other location (e.g., a local access telephone
service provided by a local telephone company).
1.5 For DS-3 and lesser capacity circuits, Frontier shall use reasonable
efforts to order Interconnection Facilities on behalf of Pathnet from
Pathnet's designated Frontier, provided that Pathnet furnishes
Frontier with an acceptable letter of agency. Pathnet shall be billed
directly by Frontier of such Interconnection Facilities, and shall
defend and indemnify Frontier from any loss or liability incurred by
Frontier as a result of Frontier's ordering Interconnection Facilities
from any third party on Pathnet's behalf. Pathnet may, at its
election, but subject to Frontier's prior written approval, order its
own Interconnection Facilities. If any party other than Frontier
provides Interconnection Facilities, then unavailability,
incompatibility, delay in installation, or other impairment of
Interconnection Facilities shall not excuse Pathnet's obligation to
pay Frontier all rates or charges applicable to the circuits, whether
or not such circuits are useable by Pathnet. Frontier will not order
Interconnection Facilities on behalf of Pathnet for OC-N circuits.
2. TERM OF THE AGREEMENT:
This Agreement is binding on the Parties upon the date of execution by
Frontier ("Effective Date") and, subject to the termination provisions of
this Agreement, shall continue in effect for a period of three (3) years
from the Effective Date (the" Initial Term"). If a circuit remains
installed beyond the term of this Agreement, then this Agreement shall
remain in effect as long as a circuit is installed hereunder.
3. BILLING AND PAYMENT; MINIMUM COMMITMENTS:
3.1 Pathnet shall pay Frontier for the Services at the rates and charges
set out in Exhibit A or as the Parties may otherwise agree in writing.
Pathnet is also liable for applicable taxes and governmental
assessments with respect to its use of the Services. If Pathnet is
required to provide security for payment hereunder, then Frontier is
not obligated to accept orders, or provide or continue to provide any
Services or circuits, until the required security is received by
Frontier. That commencement may be delayed by Pathnet for a cumulative
period of 30 days from Firm Order Confirmation date without penalty.
All invoices shall include the itemized detail of price elements
comprising each service, including all charges and credits. The
Pathnet circuit ID entered on the originating Service Order request
shall be cross-referenced on a separate report setting forth the
appropriate Frontier circuit ID. All discounts and promotions, if any,
and taxes, will be included in the monthly invoice. All pro-rated
monthly charges will be based upon a 30 day month. Billing for a POP
to POP circuit shall commence upon the earlier to occur of (i) 30 days
following the date Frontier notifies Pathnet, in writing or via
electronic transmission, that the ordered circuit capacity is
available from Frontier (regardless of whether or not Pathnet's
Interconnection Facilities are installed and operational), and (ii)
the date the ordered circuit capacity is first utilized by Pathnet
(the "Service Date").
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<PAGE> 5
3.2 Pathnet shall provide Frontier with financial security in the amount
of $0.
3.3 Pathnet's initial credit limit hereunder shall be [ * * * ]. If
Pathnet's monthly charges for the Services exceed its credit limit,
Frontier may require security of its choice from Pathnet in an amount
equal to Pathnet's highest invoice over the prior six month period (or
such lesser period if this Agreement has not been in effect for six
months) as a condition to continuing to provide the Services. In
addition, if Pathnet is delinquent in payment of an invoice and
Frontier does not have security from Pathnet in an amount equal to
Pathnet's highest invoice over the prior six month period (or such
lesser period if this Agreement has not been in effect for six
months), Frontier may require additional security of its choice from
Pathnet in such amount. Any such additional security shall be provided
by Pathnet to Frontier within 48 hours (if the security is to be other
than a letter of credit and within ten Business Days if the security
is to be a letter of credit) from its receipt of Frontier's written
request for additional security.
3.4 Monthly recurring charges ("MRC") shall be invoiced by Frontier on a
monthly basis in advance and non-recurring charges shall be invoiced
in arrears. If the Service Date for any circuit falls on other than
the first day of any Billing Cycle, the initial charge to Pathnet
shall consist of: (i) the pro-rata portion of the applicable monthly
charge covering the period from the Service Date to the first day of
the subsequent Billing Cycle, and (ii) the monthly charge for the
following Billing Cycle. Payment terms are net 30 days from the
invoice date. Any invoice not paid by its due date shall bear late
payment fees at the rate of 1-1/2% per month (or such lower amount as
maybe required by law) until paid.
3.5 The pricing in this Agreement and any attached Exhibits applies only
to the Private Line Services provided between the "on-net" nodes set
out in the Frontier SONET POP List attached hereto as Exhibit B or as
amended and is valid for the term of this Agreement. If Frontier's
cost in providing the Private Line Services is increased due to
circumstances beyond its reasonable control, or Frontier elects to
pass through any governmental or regulatory assessments related to its
provision of the Private Line Services, then Frontier may revise the
rates and charges in this Agreement and any attached Exhibits upon 30
days written notice to Pathnet. Pathnet may cancel any circuits
subject to a rate/charge increase upon written notice to Frontier
given no later than 30 days after Pathnet's receipt of the increase
notice.
3.6 Commencing with the twelfth (12th) month following the Effective
Date, Pathnet shall be liable for a monthly minimum usage charge for
the Services of $150,000 (the "Minimum Charge"). If during the term of
the contract, Pathnet's net charges for the Services are less than the
Minimum Charge, Pathnet shall pay rates as outlined in Exhibit A
Standard Pricing. If this Agreement is terminated prior to the time
the Minimum Charge becomes effective (other than termination by
Pathnet for an uncured breach by Frontier), Pathnet shall be liable
for an amount equal to the Minimum Charge for the remaining portion of
the unexpired term of this Agreement.
3.7 Pathnet shall be liable for the applicable minimum circuit terms and
minimum circuit commitment charges set out in Exhibit A.
Notwithstanding the foregoing, should Pathnet fail to place an order
for the two OC-12 circuits (as stated in Exhibit A) (the "Pathnet
Specific Circuits") by September 30, 1999, then the Pathnet Specific
Circuits shall be considered null and void and will require
re-negotiation between the Parties.
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<PAGE> 6
Frontier agrees to provide the Special Pricing for circuits ordered
with one year terms during Pathnet's ramp up period and shall continue
at such pricing level provided Pathnet is attaining its Minimum Charge
obligation under this Agreement. In the event, Pathnet is not meeting
its Minimum Charge obligation, then Pathnet will be charged the
Standard Pricing for any circuits ordered.
3.8 If a circuit is canceled prior to expiration of its minimum term
commitment, except if canceled by Pathnet under Section 3.5 hereof, or
this Agreement is terminated for Frontier's uncured breach, Pathnet
shall be liable for, and shall pay to Frontier upon demand, an early
termination fee in an amount equal to the applicable monthly per
circuit minimum charge times the number of months remaining on the
unexpired term commitment (whether the initial or a renewal term) for
the circuit.
3.9 Pathnet agrees that any minimum charge shortfall and any early
termination fees for which it may be liable under this Agreement are
based on agreed upon minimum commitments on its part and corresponding
rate concessions on Frontier's part, and are not penalties or
consequential or other damages under Section 6.3 hereof.
3.10 Pathnet agrees that a breach of any other agreement it may have with
Frontier or a Frontier Affiliate shall be deemed a material breach of
this Agreement.
4. BILLING DISPUTES: Pathnet shall have the affirmative obligation of
providing written notice of any dispute with an invoice within 90 days
after receipt of the invoice by Pathnet (which notice shall include
sufficient detail for Frontier to investigate the dispute). Pathnet may
withhold payment only on amounts so disputed within 30 Business Days after
Pathnet's receipt of the invoice. Pathnet may not withhold payment of
amounts disputed after such 30 Business Day period. Pathnet shall not be
responsible for the payment of any charges nor shall Frontier invoice any
charges for Services that were not invoiced within 90 days after the
Service for the charge was actually rendered other than third party charges
not invoiced within the same 90 day period. If Pathnet does not report a
dispute with respect to an invoice within the 90 day period, Pathnet is
deemed to have waived its dispute rights for that invoice and to have
agreed to pay the same. Provided Pathnet has provided sufficient detail for
investigation of the dispute, Frontier will use reasonable efforts to
resolve and communicate its resolution of the dispute within 30 Business
Days of its receipt of the dispute notice. If the dispute is resolved in
Frontier's favor any amounts to be paid by Pathnet shall be subject to the
late payment charges under Section 3.4 hereof retroactive to the due date
of the disputed invoice. Notwithstanding anything herein to the contrary,
Pathnet shall not withhold any disputed amounts while its Frontier account
is delinquent.
5. TERMINATION RIGHTS:
5.1 Either Party may terminate this Agreement upon the other Party's
insolvency, dissolution or cessation of business operations.
5.2 Frontier may, upon written notice, only immediately terminate this
Agreement for (i) Pathnet's failure to pay any delinquent invoice, or
(ii) to pay any security or additional security within the time-frame
required under this Agreement.
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<PAGE> 7
5.3 In the event of a breach of any material term or condition of this
Agreement by a Party (other than a failure to pay or provide security
which is covered under Section 5.2 hereof), the other Party may
terminate this Agreement upon 30 days written notice, unless the
breaching Party cures the breach during the 30 day period. A breach
that cannot be reasonably cured within a 30 day period may be
addressed by a written waiver of this paragraph signed by the Parties.
In addition to any other rights hereunder, Pathnet may terminate this
Agreement and/or the affected Service without early termination fee or
penalty, except for unpaid charges as of the effective date of
termination, as follows:
Pathnet shall have the right to terminate a circuit, without incurring
early termination liability, upon ten days written notice to Frontier
that the circuit has experienced repeated or chronic Service Outages
(as defined below). For purposes of this Section, "repeated or chronic
Service Outages" is defined as the occurrence of four (4) or more
Pathnet reported service interruptions or outages (excepting planned
maintenance and force majeure events) in the same circuit of more than
one (1) hour duration each in any month.
5.4 If this Agreement is terminated prior to expiration of a circuit's
term commitment, except if terminated by Pathnet under Section 5.3
hereof, then Pathnet shall pay to Frontier upon demand an early
termination fee in an amount equal to the aggregate sum of each
existing circuit's monthly minimum commitment, times the number of
months remaining on each circuit's minimum commitment period.
6. WARRANTIES AND LIMITATION OF LIABILITY:
6.1 The Services shall be provided by Frontier in accordance with the
applicable technical standards established for dedicated circuit
capacity by the telecommunications industry for a digital fiber optic
network. FRONTIER MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, WITH
RESPECT TO TRANSMISSION, EQUIPMENT OR SERVICE PROVIDED HEREUNDER, AND
EXPRESSLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE OR FUNCTION.
6.2 The entire liability of Frontier for all claims of whatever nature
arising out of its provision of the Private Line Services (including
its negligence), and not caused by (i) Pathnet or third parties, or
(ii) a scheduled or emergency interruption, shall be a credit for
service interruptions greater than 120 continuous minutes for linear
routes and 60 continuous minutes for protected routes (hereafter an
"Outage"). The amount of the credit is computed in accordance with the
following formula (the "Outage Credit"):
<TABLE>
<S> <C>
Example: Outage Credit = Hours of Outage - 2 hours x Total MRC for Affected Circuit
-------------------------
720 hours
</TABLE>
A. The Outage Credit shall apply to the charges for any circuit
affected by an Outage; provided, however, that if any portion of
the affected circuit remains useable by Pathnet, the Outage
Credit shall not apply to that pro-rata portion of the mileage.
The duration of each Outage shall be calculated in hours and
shall include fractional portions thereof. An Outage shall be
deemed to have commenced one hour after verifiable notification
thereof by Pathnet to Frontier, or, when indicated by network
control information actually known to Frontier network personnel,
whichever is earlier for SONET protected routes and after two
hours for linear routes. Each Outage shall be deemed to terminate
upon restoration of the affected circuit as evidenced by
appropriate network tests by Frontier. Frontier shall give notice
to Pathnet of any scheduled interruption as early as is
practicable.
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<PAGE> 8
B. Outage Credits shall not be granted if the malfunction of any
end-to-end circuit is due to an outage or other defect occurring
in Pathnet's Interconnection Facilities.
C. All Outage Credits shall be credited on the next monthly invoice
for the affected circuit after receipt of Pathnet's written
request for credit. The total of all Outage Credits applicable to
or accruing in any given month shall not exceed the amount
payable by Pathnet to Frontier for that same month for the
affected circuit.
D. The Outage Credit described in this Section shall be the sole and
exclusive remedy of Pathnet in the event of any Outage or other
failure in the Services, and under no circumstance shall an
Outage or other such failure be deemed a breach of this Agreement
by Frontier.
6.3 In no event shall either Party be liable to the other Party for
incidental and consequential damages, loss of goodwill, anticipated
profit, or other claims for indirect damages in any manner related to
this Agreement or the Services.
7. INDEMNIFICATION: Each Party shall defend and indemnify the other Party and
its directors, officers, employees, representatives and agents from any and
all claims, taxes, penalties, interest, expenses, damages, lawsuits or
other liabilities (including without limitation, reasonable attorney fees
and court costs) relating to or arising out of (i) acts or omissions in the
operation of its business, and (ii) its breach of this Agreement; provided,
however, Frontier shall not be liable and shall not be obligated to
indemnify Pathnet, and Pathnet shall defend and indemnify Frontier
hereunder, for any claims by any third party, including Pathnet's
customers, with respect to services provided by Pathnet which may
incorporate any of the Services.
8. REPRESENTATION: The Parties acknowledge and agree that the relationship
between them is solely that of independent contractors. Neither Party, nor
their respective employees, agents or representatives, has any right, power
or authority to act or create any obligation, express or implied, on behalf
of the other Party.
9. FORCE MAJEURE: Other than with respect to failure to make payments due
hereunder, neither Party shall be liable under this Agreement for delays,
failures to perform, damages, losses or destruction, or malfunction of any
equipment, or any consequence thereof, caused or occasioned by, or due to
fire, earthquake, flood, water, the elements, labor disputes or shortages,
utility curtailments, power failures, explosions, civil disturbances,
governmental actions, shortages of equipment or supplies, unavailability of
transportation, acts or omissions of third parties, or any other cause
beyond its reasonable control.
10. WAIVERS: Failure of either Party to enforce or insist upon compliance with
the provisions of this Agreement shall not be construed as a general waiver
or relinquishment of any provision or right under this Agreement.
11. ASSIGNMENT: Neither Party may assign or transfer its rights or obligations
under this Agreement without the other Party's written consent, which
consent may not be unreasonably withheld, except that Frontier may assign
this Agreement to its Affiliates or successors in interest without
Pathnet's consent. Any assignment or transfer without the required consent
is void.
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<PAGE> 9
12. CONFIDENTIALITY: Each Party agrees that all information furnished to it by
the other Party, or to which it has access under this Agreement, shall be
deemed the confidential and proprietary information or trade secrets
(collectively referred to as "Proprietary Information") of the Disclosing
Party and shall remain the sole and exclusive property of the Disclosing
Party (the Party furnishing the Proprietary Information referred to as the
"Disclosing Party" and the other Party referred to as the "Receiving
Party"). Each Party shall treat the Proprietary Information and the
contents of this Agreement in a confidential manner and, except to the
extent necessary in connection with the performance of its obligations
under this Agreement, neither Party may directly or indirectly disclose the
same to anyone other than its employees on a need to know basis and who
agree to be bound by the terms of this Section, without the written consent
of the Disclosing Party.
13. INTEGRATION: This Agreement and all Exhibits and other attachments
incorporated herein, represent the entire agreement between the Parties
with respect to the subject matter hereof and supersede and merge all prior
agreements, promises, understandings, statements, representations,
warranties, indemnities and inducements to the making of this Agreement
relied upon by either Party, whether written or oral.
14. GOVERNING LAW: Frontier currently maintains regional service and operations
centers to support customer accounts in New York, California and Michigan.
This Agreement will be construed and enforced in accordance with the law of
the state where Pathnet's account is supported, as designated by Frontier
in this Agreement or as designated in Exhibits or amendments to this
Agreement, without regard to that state's choice of law principles. The
Parties agree that any action related to this Agreement shall be brought
and maintained only: (i) in the Superior court of the State of California
for the County of Santa Barbara, if the designated customer support center
is located in California; (ii) in a Federal or State court of competent
jurisdiction located in Monroe County, New York, if the designated customer
support center is located in New York; or (iii) in the Federal District
Court for the Eastern District of Michigan or a State court of competent
jurisdiction located in Oakland County, Michigan, if the designated
customer support center is located in Michigan. The Parties each consent to
the jurisdiction and venue of such courts and waive any right to object to
such jurisdiction and venue.
15. NOTICES: All notices, including but not limited to, demands, requests and
other communications required or permitted hereunder (not including
Invoices) shall be in writing and shall be deemed given: (i) when delivered
in person, (ii) 24 hours after deposit with an overnight delivery service
for next day delivery, (ii) the same day when sent by facsimile
transmission during normal business hours, receipt confirmed by sender's
equipment, or (iii) 72 hours after deposit in the United States mail,
postage prepaid, registered or certified mail, return receipt requested,
and addressed to the recipient Party at the address set forth below:
If to Frontier: Frontier Communications
180 South Clinton Ave.
Rochester, NY 14646
Attn: Brian Fitzpatrick or Vice President Carrier Services
Facsimile #: (716) 232-9168
with a copy to: Frontier Communications
90 Castilian Drive
Goleta, CA 93117
Attn: Peggy Palak Manager, National Contract Admin.
Facsimile #: (800) 689-2395
08/16/99 10
Initials MAL
--------
Initials
--------
<PAGE> 10
If to Pathnet Pathnet, Inc.
1015 31st Street, NW
Washington, DC 20007
Attn: General Counsel
Facsimilie #: (202) 625-7369
16. COMPLIANCE WITH LAWS: During the term of this Agreement, the Parties shall
comply with all local, state and federal laws and regulations applicable to
this Agreement and to their respective businesses.
17. SURVIVAL OF PROVISIONS: Any obligations of the Parties relating to monies
owed, as well as those provisions relating to confidentiality, limitations
on liability and indemnification, shall survive termination of this
Agreement.
18. UNENFORCEABLE PROVISIONS: The illegality or unenforceability of any
provision of this Agreement does not affect the legality of enforceability
of any other provision or portion. If any provision or portion of this
Agreement is deemed illegal or unenforceable for any reason, there shall be
deemed to be made such minimum change in such provision or portion as is
necessary to make it valid and enforceable as so modified.
19. CUMULATIVE RIGHTS AND REMEDIES: Except as may otherwise be provided herein,
the assertion by a Party of any right or the obtaining of any remedy
hereunder shall not preclude such Party from asserting or obtaining any
other right or remedy, at law or in equity, hereunder.
20. AMENDMENTS: This Agreement is voidable by Frontier if the text is modified
by Pathnet without the written or initialed consent of a Frontier Vice
President. Except as may otherwise be provided herein, any amendments or
modifications to this Agreement must be in writing and signed by a Frontier
Vice President (or higher level officer) and an authorized officer of
Pathnet.
21. NON-SOLICITATION: Pathnet agrees that while this Agreement is in effect,
and for a period of 12 months following expiration or termination of this
Agreement, neither it nor its representatives will directly or indirectly
solicit Frontier employees to leave their employment with Frontier.
22. AUTHORITY: Each individual executing below on behalf of a Party hereby
represents and warrants to the other Party that such individual is duly
authorized to so execute, and to deliver, this Agreement. By its signature
below, each Party acknowledges and agrees that sufficient allowance has
been made for review of this Agreement by respective counsel and that each
Party has been advised by its legal counsel as to its legal rights, duties
and obligations under this Agreement.
Frontier Communications of the West, Inc. Pathnet, Inc.
By:/s/ BRIAN V. FITZPATRICK 8/20/99 By:/s/ MICHAEL A. LUBIN
---------------------------------- --------------------------------
Brian v. Fitzpatrick, SVP Carrier Sales Michael A. Lubin, Vice President
Frontier Carrier Services Group
Date: 8/20/99 Date:
--------------------------------- ----------------------------
11
Initials MAL
-------
Initials
-------
<PAGE> 11
EXHIBIT A
RATES AND CHARGES
Exhibit A
Page 1 of 1
Special Ordered Circuits (Unprotected)
<TABLE>
<CAPTION>
Circuit Capacity
<S> <C> <C> <C> <C>
(1) OC-12 [***] [***] [***] [***]
(1) OC-12 [***] [***] [***] [***]
</TABLE>
Special pricing - Pricing is based on Pathnet maintaining its $150,000
Minimum Charge commitment.
<TABLE>
<CAPTION>
Circuit Capacity
<S> <C> <C>
DS-1 [***] [***]
DS-3 [***] [***]
OC-3 [***] [***]
OC-12 [***] [***]
</TABLE>
Standard pricing - In the event Pathnet fails to meet their $150,000 Minimum
Charge commitment, Pathnet will receive the standard pricing which is based upon
the length of the circuit term commitment.
<TABLE>
<CAPTION>
Circuit Capacity
<S> <C> <C> <C> <C>
DS-1 [***] [***] [***] [***]
DS-3 [***] [***] [***] [***]
OC-3 [***] [***] [***] [***]
OC-12 [***] [***] [***] [***]
</TABLE>
Notes: Pricing is per DS-0 mile times V & H mileage for specific city pairs.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Non-Recurring Charges Installation* Rearrangement** Expedite Drop & Insert
DS-1 [***] [***] [***] [***]
DS-3 [***] [***] [***] [***]
OC-3 [***] [***] [***] [***]
OC-12 [***] [***] [***] [***]
</TABLE>
*Installation charges are per end.
**Rearrangement is defined to be any move, change or rearrangement of a circuit.
Rearrangement charges are per end.
If Pathnet should cancel an ordered circuit prior to the Service Date,
Pathnet will be assessed the applicable cancellation charge.
<TABLE>
<CAPTION>
Circuit Cancellation Charges
<S> <C>
DS-1 [***]
DS-3 [***]
OC-3 [***]
OC-12 [***]
OC-48 [***]
</TABLE>
Initials /s/ MAZ
Initials ____
12
<PAGE> 12
EXHIBIT B
Natural Fiber Network POP Location (By Site)
<TABLE>
<CAPTION>
Expected
Site Service Date State LATA POP Location Zip Code NPA-NXX
- ---- ------------ ----- ---- ------------ -------- -------
[***] [***] [***] [***] [***] [***] [***]
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 99.2
CONSENT AND LETTER OF TRANSMITTAL
FOR
12 1/4% SENIOR NOTES DUE 2008
OF
PATHNET, INC.
SOLICITATION OF CONSENTS
FOR $25.00 IN CASH PER $1,000 PRINCIPAL AMOUNT
PURSUANT TO THE PROSPECTUS OF
PATHNET TELECOMMUNICATIONS, INC., DATED
MARCH __, 2000.
- --------------------------------------------------------------------------------
THE SOLICITATION WILL EXPIRE AT 5:00P.M., NEW YORK CITY TIME, ON MARCH , 2000
(THE "INITIAL EXPIRATION DATE"), UNLESS EXTENDED (THE "EXPIRATION DATE").
CONSENTS MAY BE REVOKED AT ANY TIME UNTIL THE EXPIRATION DATE .
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
The Depositary:
The Bank of New York
101 Barclay Street, 7th Floor
New York, New York 10286
By Hand/Overnight Courier: By Facsimile: By Mail:
(212) 815-6339
The Bank of New York
The Bank of New York 101 Barclay Street, 7th Floor
101 Barclay Street, 7th Floor Confirm by Telephone: New York, New York 10286
New York, New York 10286 (212) 815-6331 ATTENTION: Reorganization Section,
ATTENTION: Reorganization Section, Santino Ginocchitti
Santino Ginocchitti
</TABLE>
DELIVERY OF THIS CONSENT AND LETTER OF TRANSMITTAL TO AN ADDRESS, OR
TRANSMISSION VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE THE CONSENT PAYMENT PURSUANT
TO THE SOLICITATION MUST VALIDLY DELIVER (AND NOT REVOKE) THEIR CONSENTS TO THE
DEPOSITARY PRIOR TO THE EXPIRATION DATE.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
CONSENT AND LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned is a Record Holder (as defined below) of 12 1/4% Senior
Notes (the "Notes") of Pathnet, Inc., a Delaware corporation ("Pathnet"). By
execution hereof, the undersigned acknowledges receipt of the Prospectus of
Pathnet Telecommunications, Inc. ("Pathnet Telecom") dated March __, 2000 (the
"Prospectus"), and of this Consent and Letter of Transmittal and the
instructions hereto (the "Consent and Letter of Transmittal"), which together
constitute the solicitation by Pathnet and Pathnet Telecom (the "Solicitation"),
in connection with the reorganization described in the Prospectus, of consents
(the "Consents") from Record Holders of the Notes to:
(1) the waiver of Pathnet's obligations under certain provisions of the
Indenture, dated as of April 8, 1998 (the "Indenture"), among Pathnet and The
Bank of New York, as Trustee ("Trustee"), namely the Change of Control Offer
obligation under Section 1010 of the Indenture and the Excess Proceeds Offer
obligation under Section 1017 of the Indenture, and
<PAGE> 2
(2) the adoption of a Supplemental Indenture among Pathnet, Pathnet
Telecom and the Trustee, pursuant to which (a) Pathnet Telecom will become bound
by substantially the same covenants and other obligations as are currently
imposed on Pathnet under the Indenture, and (b) transactions between Pathnet and
Pathnet Telecom or Pathnet and certain other subsidiaries of Pathnet Telecom
will be permitted to the same extent that such transactions are currently
permitted between Pathnet and its Restricted Subsidiaries under the Indenture;
in each case as more fully described under the caption "The Pathnet
Senior Noteholder Waivers and Other Proposed Indenture Amendments" in the
Prospectus.
As described in, and subject to the terms and conditions of, the
Prospectus, Pathnet Telecom is offering a guarantee of Pathnet's obligations
under the Notes in exchange for the Consents. In addition, subject to the terms
and conditions of this Consent and Letter of Transmittal and the Prospectus,
Holders of Notes who validly deliver (and do not revoke) their Consents to the
Depositary prior to the Expiration Date will receive a consent payment of $25
per $1,000 in principal amount of the Notes (the "Consent Payments"). Pathnet is
also agreeing, subject to the terms of a pledge agreement to be executed and
delivered upon the consummation of the reorganization, to purchase and pledge
for the benefit of the holders of the Notes additional United States Treasury
securities sufficient to cover the October 16, 2000 interest payment on the
Notes.
Pathnet's obligation to make Consent Payments to Record Holders of Notes
and to purchase and pledge additional security on the Notes pursuant to the
solicitation is conditioned upon, among other things, (i) receipt by Pathnet and
the Trustee of validly delivered and unrevoked Consents from Record Holders of a
majority in aggregate principal amount of the Notes outstanding on the Record
Date (the "Requisite Consents"); and (ii) execution and delivery by the Trustee
of a supplemental indenture providing for the amendments to the Indenture
necessary to accommodate the issuance by Pathnet Telecom of the Guarantees and
the addition of Pathnet Telecom to the Indenture on substantially the same terms
as Pathnet (the "Proposed Amendments"). The Prospectus describes the requested
waivers, the Proposed Amendments, the form of the guarantees offered by Pathnet
Telecom (the "Guarantees") and the solicitation of consents to the adoption of
the Supplemental Indenture and the Proposed Amendments contained therein.
Forms of the Guarantees, the Indenture and the Supplemental Indenture
are filed or incorporated by reference as exhibits to the Registration Statement
of which the Prospectus is a part (Registration No. 333-91469) (the
"Registration Statement"). Copies of these documents may be obtained as
described in the Prospectus under the caption "Where you can find more
information" and also from the Depositary at its address set forth above.
The Solicitation is made only to Record Holders of Notes. The term
"Record Holder" as used herein shall mean the registered holders of Notes
outstanding at 5.00 p.m., New York city time, on March , 2000 (the "Record
Date").
The undersigned has completed, executed and delivered this Consent to
indicate the action the undersigned desires to take with respect to the
Solicitation.
All capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Prospectus.
Your bank or broker can assist you in completing this form. The
instructions included with this Consent and Letter of Transmittal must be
followed. Questions and requests for assistance or for additional copies of the
Prospectus or this Consent and Letter of Transmittal may be directed to the
Information Agent. See Instruction 10 herein.
2
<PAGE> 3
TABLE FOR USE IF CONSENT RELATES TO LESS THAN THE TOTAL
PRINCIPAL AMOUNT OF ALL NOTES HELD BY RECORD HOLDER
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
DESCRIPTION OF NOTES
- --------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF RECORD HOLDER(S) CERTIFICATE(S) AS TO WHICH CONSENT IS GIVEN
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST, IF NECESSARY)
- ------------------------------------------------------------------------------- -------------- ---------------
<S> <C> <C> <C>
PRINCIPAL
AMOUNT AS TO
WHICH
CONSENTS ARE
GIVEN (MUST
AGGREGATE BE AN
PRINCIPAL INTEGRAL
CERTIFICATE AMOUNT MULTIPLE OF
NUMBER(S)* REPRESENTED $1,000)*
-------------- -------------- ---------------
-------------- -------------- ---------------
-------------- -------------- ---------------
-------------- -------------- ---------------
-------------- -------------- ---------------
-------------- -------------- ---------------
- ------------------------------------------------------------------------------- -------------- ---------------
TOTAL PRINCIPAL AMOUNT OF NOTES
- ------------------------------------------------------------------------------- -------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
* If this Consent relates to less than the total principal amount of Notes
registered in the name of the Record Holder(s) on the Record Date, then the
Record Holder(s) must list the certificate numbers and principal amounts of
the Notes as to which this Consent relates. Otherwise, this Consent will be
deemed to relate to the total principal amount of Notes registered in the
name(s) of such Record Holder(s) on the Record Date.
- --------------------------------------------------------------------------------
3
<PAGE> 4
NOTE - SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
By signing and returning this Consent and Letter of Transmittal in
accordance with the instructions hereto, the undersigned hereby (1) waives
Pathnet's compliance with the Change of Control Offer obligation and the Excess
Proceeds Offer obligation (as those terms are described in the Prospectus) for
the purpose of effecting the reorganization; and (2) consents to the adoption of
the Supplemental Indenture and the Proposed Amendments contained therein. Unless
otherwise specified by the undersigned, this Consent relates to the total
principal amount of Notes registered in the undersigned's name on the Record
Date. If this Consent relates to less than the total principal amount of Notes
registered in the undersigned's name on the Record Date, the undersigned has
listed on the table herein the certificate numbers and principal amounts for
which this Consent is given.
The undersigned hereby irrevocably constitutes and appoints the
Depositary the true and lawful agent and attorney-in-fact of the undersigned
(with full knowledge that the Depositary also acts as the agent of the Trustee,
Pathnet and Pathnet Telecom) with respect to this Consent, with full power of
substitution (such power-of-attorney being deemed to be an irrevocable power
coupled with an interest) to deliver to the Trustee this Consent and Letter of
Transmittal as evidence of the undersigned's Consent to (1) waiver of Pathnet's
compliance with the Change of Control Offer obligation and the Excess Proceeds
Offer obligation in connection with the reorganization; and (2) the adoption of
the Supplemental Indenture and the Proposed Amendments contained therein and as
certification that Requisite Consents, duly executed by Record Holders, have
been received, in accordance with the terms of and conditions to the
Solicitation. The undersigned acknowledges that Pathnet and Pathnet Telecom have
nominated the Trustee to receive the Consent on their behalf and that delivery
to the Trustee of this Consent will be deemed for the purposes of this consent
solicitation to be delivery to the Trustee and to Pathnet and Pathnet Telecom.
Pathnet and Pathnet Telecom intend to cause the execution of the
Supplemental Indenture providing for the Proposed Amendments immediately prior
to the reorganization if, as of the Expiration Date, the Requisite Consents have
been obtained.
The undersigned agrees and acknowledges that, by the execution and
delivery hereof, the undersigned makes and provides (1) the written waiver of
Pathnet's compliance with the Change of Control Offer obligation and the Excess
Proceeds Offer obligation as permitted by Section 1019 of the Indenture; and (2)
the written consent to the adoption of the Supplemental Indenture and the
Proposed Amendments as permitted by Section 902(2) of the Indenture. The
undersigned understands that any Consent provided hereby shall remain in full
force and effect unless and until such Consent is revoked in accordance with the
procedures set forth in the Prospectus and this Consent and Letter of
Transmittal. The undersigned understands that a revocation of such Consent will
not be effective following the Expiration Date . The undersigned hereby
represents and warrants that the undersigned has full power and authority to
deliver this Consent. The undersigned will, upon request, execute and deliver
any additional documents deemed by the Depositary, Pathnet, Pathnet Telecom, or
the Trustee to be necessary or desirable to perfect the undersigned's Consent
and to complete the execution of the supplemental indenture to the Indenture
reflecting the Proposed Amendments.
The undersigned understands that delivery of Consents pursuant to any of
the procedures described in the Prospectus under the caption "Description of the
Consent Solicitation Process" and in the instructions hereto and acceptance
thereof by Pathnet and Pathnet Telecom will constitute a binding agreement among
the undersigned, Pathnet and Pathnet Telecom upon the terms and subject to the
conditions of the Solicitation.
The undersigned understands that deliveries of Consents may be revoked
by written notice of revocation received by the Depositary at any time prior to
the Expiration Date. Any Record Holder who revokes a Consent prior to the
Expiration Date shall not be entitled to receive the Consent Payment, unless
such Record Holder subsequently redelivers a valid Consent prior to the
Expiration Date.
The undersigned understands that notice of revocation of a Consent, to
be effective, must (i) contain the name of the person who delivered the Consent
and the description of the Notes to which it relates, the certificate number or
4
<PAGE> 5
numbers of such Notes and the aggregate principal amount represented thereby,
(ii) be signed by the Registered Holder thereof in the same manner as the
original signature on this Consent and Letter of Transmittal or be accompanied
by evidence, satisfactory to Pathnet, Pathnet Telecom, the Trustee and the
Depositary, that the Record Holder of Notes revoking the Consent has succeeded
to ownership of the Notes, and (iii), be received by the Depositary at its
address set forth herein prior to the Expiration Date. A purported notice of
revocation that lacks any of the required information or is dispatched to any
other address will not be effective to revoke a Consent previously given.
All authority conferred or agreed to be conferred by this Consent and
Letter of Transmittal shall survive the death or incapacity of the undersigned
and every obligation of the undersigned under this Consent shall be binding upon
the undersigned's heirs, personal representatives, executors, administrators,
successors, assigns, trustees in bankruptcy and other legal representatives.
The undersigned acknowledges and agrees that receipt of Consents from
the Record Holders of at least a majority in principal amount of the outstanding
Notes, among other things, is required to waive Pathnet's compliance with the
Change of Control Offer obligation and the Excess Proceeds Offer obligation and
to approve the Proposed Amendments. The waiver of Pathnet's compliance with the
Change of Control Offer obligation, the waiver of Pathnet's compliance with the
Excess Proceeds Offer obligation and the Proposed Amendments will become
effective at the time and on the date on which the Supplemental Indenture is
executed.
The undersigned further acknowledges and agrees that by executing and
delivering this Consent and Letter of Transmittal, the undersigned (1) waives
Pathnet's compliance with the Change of Control Offer Obligation and the Excess
Proceeds Offer obligation for the purpose of effecting the reorganization; and
(2) consents to the adoption of the Supplemental Indenture and the Proposed
Amendments contained therein and that it is not possible for the undersigned to
grant such waivers and consents with respect to some but not all of such items.
5
<PAGE> 6
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL CONSENTING RECORD HOLDERS OF NOTES)
This Consent and Letter of Transmittal must be signed by the Record
Holder(S) of Notes in exactly the same manner as the name(S) appear(S) on the
certificate(S) for Notes to which this Consent relates. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person must set forth his or her full title below under "Capacity" and
submit proper evidence satisfactory to Pathnet, Pathnet Telecom and to the
Trustee of such person's authority so to act. See Instruction 5 herein.
If this Consent and Letter of Transmittal is signed by a person other than
the Record Holder(S) of the Notes, the Consent and Letter of Transmittal must
be accompanied by the proxy substantially in the form attached hereto duly
executed by such Record Holders.
X....................................................................
X....................................................................
SIGNATURE(S) OF RECORD HOLDER(S) OR AUTHORIZED SIGNATORY
Date:...........
Name(S): ........................................................
........................................................
(PLEASE PRINT)
Capacity: ........................................................
Address: ........................................................
........................................................
(INCLUDING ZIP CODE)
Area Code and Telephone No.: ........................................
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
- --------------------------------------------------------------------------------
6
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE SOLICITATION
1. DELIVERY OF THIS CONSENT AND LETTER OF TRANSMITTAL. To deliver
Consents in the Solicitation, a properly completed and duly executed copy or
facsimile of this Consent and Letter of Transmittal and a copy of any other
documents required by this Consent and Letter of Transmittal must be received by
the Depositary at its address set forth herein prior to the Expiration Date. The
method of delivery of this Consent and Letter of Transmittal and all other
required documents to the Depositary is at the election and risk of Record
Holders. If such delivery is by mail, it is suggested that Record Holders use
properly insured registered mail with return receipt requested, and that the
mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Depositary prior to such date. Except as otherwise provided
below, the delivery will be deemed made only when actually received by the
Depositary at the address listed on the cover. This Consent and Letter of
Transmittal should be sent only to the Depositary, not to Pathnet, Pathnet
Telecom, the Trustee, the Information Agent or the Solicitation Agent.
PATHNET AND PATHNET TELECOM INTEND TO CAUSE THE EXECUTION OF A
SUPPLEMENTAL INDENTURE PROVIDING FOR THE PROPOSED AMENDMENTS IMMEDIATELY PRIOR
TO THE REORGANIZATION IF, AS OF THE EXPIRATION DATE, THE REQUISITE CONSENTS HAVE
BEEN OBTAINED. SUCH SUPPLEMENTAL INDENTURE WILL BE BINDING UPON EACH RECORD
HOLDER WHETHER OR NOT SUCH RECORD HOLDER GIVES A CONSENT WITH RESPECT THERETO.
2. CONSENT TO WAIVERS AND PROPOSED AMENDMENTS; REVOCATION OF CONSENT. In
accordance with the Prospectus, all properly completed and executed Consents and
Letters of Transmittal (1) waiving Pathnet's compliance with the Change of
Control Offer obligation and the Excess Proceeds Offer obligation and (2)
consenting to the adoption of the Supplemental Indenture and the Proposed
Amendments contained therein that are received by the Depositary will be counted
as Consents with respect to the waiver of the Change of Control Offer
obligation, the waiver of the Excess Proceeds Offer obligation and the adoption
of the Supplemental Indenture and the Proposed Amendments contained therein
unless the Depositary receives, prior to the Expiration Date, a written notice
of revocation of such Consent as described in the Prospectus. Consents may be
revoked by delivery of a written notice of revocation in accordance with the
following procedures. To be effective, a notice of revocation of Consent must
(i) contain the name of the person who delivered the Consent and the description
of the Notes to which it relates, the certificate number or numbers of such
Notes and the aggregate principal amount represented by such Notes, (ii) be
signed by the Record Holder thereof in the same manner as the original signature
on this Consent and Letter of Transmittal or be accompanied by evidence,
satisfactory to Pathnet, Pathnet Telecom, the Trustee and the Depositary that
the holder of the Notes revoking the Consent has succeeded to the beneficial
ownership of the Notes, and (iii) be received prior to the Expiration Date by
the Depositary at one of the addresses set forth herein. A purported notice of
revocation that lacks any of the required information or is dispatched to any
other address will not be effective to revoke a Consent previously given.
3. PARTIAL CONSENTS. Consents will be accepted only in principal amounts
equal to $1,000 or integral multiples thereof. If Consents with respect to less
than the entire principal amount of Notes registered in the name of the Record
Holder are delivered, the Holder must complete the table relating to partial
Consents contained herein. The entire principal amount of Notes registered in
the name of the Record Holder will be deemed to have consented unless otherwise
accurately indicated.
4. RECORD HOLDERS ENTITLED TO CONSENT. Only a Record Holder may deliver
a Consent. Any beneficial owner whose Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to deliver a Consent should contact such Record Holder promptly and instruct
such Record Holder to execute and deliver this Consent on such beneficial
owner's behalf.
5. SIGNATURES ON THIS CONSENT AND LETTER OF TRANSMITTAL. If this Consent
and Letter of Transmittal is signed by the Record Holder(s) of the Notes with
respect to which Consents are given, the signature(s) must correspond with the
name(s) as written on the face of the certificate(s) representing the Notes for
which Consents are given without alteration, enlargement or any change
whatsoever.
7
<PAGE> 8
If any of the Notes with respect to which this Consent is given are
owned by two or more joint Record Holders, all such Record Holders must sign
this Consent and Letter of Transmittal. If any Notes with respect to which this
Consent is given are held in different names on several certificates, it will be
necessary to complete, sign and submit as many separate copies of this Consent
and Letter of Transmittal and any necessary accompanying documents as there are
different names in which certificates are held.
If this Consent and Letter of Transmittal is signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and proper evidence satisfactory to
Pathnet, Pathnet Telecom and the Trustee of their authority so to act must be
submitted with this Consent and Letter of Transmittal.
6. TAXPAYER IDENTIFICATION NUMBER. Each consenting Record Holder is
required to provide the Depositary with the Record Holder's correct taxpayer
identification number ("TIN"), generally the Record Holder's social security or
federal employer identification number, on Substitute Form W-9, which is
provided under "Important Tax Information" below, and to certify that the Record
Holder (or other payee) is not subject to backup withholding. A Record Holder
must cross out item (2) in the Certification box on Substitute Form W-9 if such
Record Holder is subject to backup withholding. Failure to provide the
information on the form may subject the consenting Record Holder to a $50
penalty imposed by the Internal Revenue Service and 31% federal income tax
backup withholding on any Consent Payments made to the Record Holder or other
payee pursuant to the Solicitation. The box in Part 3 of the form should be
checked if the consenting Record Holder has not been issued a TIN and has
applied for a TIN or intends to apply for a TIN in the near future. If the box
in Part 3 is checked and the Depositary is not provided with a TIN by the time
of payment, thereafter the Depositary will withhold 31% on all Consent Payments
to such Record Holder until a TIN is provided to the Depositary.
7. TRANSFER TAXES. Pathnet will pay all transfer taxes, if any,
applicable to the Solicitation of Consents of holders of Notes pursuant to the
Solicitation.
8. IRREGULARITIES. All questions as to the form of all documents and the
validity (including time of receipt) of deliveries and revocations of Consents
will be determined by Pathnet and Pathnet Telecom, in their sole discretion,
which determination shall be final and binding. Alternative, conditional or
contingent Consents will not be considered valid. Pathnet and Pathnet Telecom
reserve the absolute right to reject any or all Consents that are not in proper
form or the acceptance of which would, in Pathnet's and Pathnet Telecom's
opinion, be unlawful. Pathnet and Pathnet Telecom also reserve the right to
waive any defects, irregularities or conditions of delivery as to particular
Consents. Pathnet's and Pathnet Telecom's interpretations of the terms and
conditions of the Solicitation (including the instructions in this Consent and
Letter of Transmittal) will be final and binding. Any defect or irregularity in
connection with deliveries of Consents must be cured within such time as Pathnet
and Pathnet Telecom determine, unless waived by Pathnet and Pathnet Telecom.
Deliveries of Consents shall not be deemed to have been made until all defects
and irregularities have been waived by Pathnet and Pathnet Telecom or cured.
None of Pathnet, Pathnet Telecom, the Trustee, the Depositary, the Information
Agent, the Solicitation Agent or any other person will be under any duty to give
notice of any defects or irregularities in deliveries of Consents, or will incur
any liability to Record Holders for failure to give any such notice.
RECORD HOLDERS SHOULD USE THIS CONSENT AND LETTER OF TRANSMITTAL TO
DELIVER CONSENTS IN THE SOLICITATION.
9. WAIVER OF CONDITIONS. Pathnet and Pathnet Telecom expressly reserve
the absolute right, in their sole discretion, to amend or waive any of the
conditions to the Solicitation in the case of any Consents delivered, in whole
or in part, at any time and from time to time.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for consenting to the waivers described above and to the Proposed
Amendments and requests for assistance or additional copies of the Prospectus
and this Consent and Letter of Transmittal and any other documents related to
the Solicitation may be directed to the Information Agent, whose address and
telephone number appear below. Additional information about the Solicitation may
be obtained from the Depositary, whose address and telephone number appear
below.
8
<PAGE> 9
IMPORTANT TAX INFORMATION
Under federal tax law, a holder who receives a Consent Payment from
Pathnet is required to provide the Depositary (as payer) with such holder's
correct TIN on Substitute Form W-9 below or otherwise establish a basis for
exemption from backup withholding. If such holder is an individual, the TIN is
his or her social security number. If the Depositary is not provided with the
correct TIN, a $50 penalty may be imposed by the Internal Revenue Service, and
any Consent Payments, made with respect to validly delivered and unrevoked
Consents may be subject to backup withholding.
Certain holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Depositary a properly completed Internal Revenue Service Form W-8, signed
under penalties of perjury, attesting to that holder's exempt status. A Form W-8
can be obtained from the Depositary. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
If backup withholding applies, the Depositary is required to withhold
31% of any Consent Payments made to the holder or other payee. Backup
withholding is not an additional federal income tax. Rather, the federal income
tax liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on any Consent Payments paid to a Record
Holder or other payee in connection with the Consent, the holder is required to
provide the Depositary with the holder's correct TIN by completing the form
below, certifying that the TIN provided on Substitute Form W-9 is correct (or
that such holder is awaiting a TIN) and that (i) the holder has not been
notified by the Internal Revenue Service that the holder is subject to backup
withholding as a result of failure to report all interest or dividends or (ii)
the Internal Revenue Service has notified the holder that the holder is no
longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The holder is required to give the Depositary the TIN (e.g., social
security number or employer identification number) of the Record Holder(s) of
the Notes. If the Notes are held in more than one name or are not in the name of
the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
number to report.
9
<PAGE> 10
PAYER'S NAME:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------
SUBSTITUTE ----------------------------
Form W-9 Social Security Number
OR
PART 1-PLEASE PROVIDE YOUR TIN IN THE ----------------------------
BOX AT RIGHT AND CERTIFY BY SIGNING AND Employer Identification
DATING BELOW Number
------------------------------------------------------------ ------------------
PART 2-Certification-Under Penalties of Perjury, I PART 3-
certify that:
Department of the Treasury Awaiting TIN [ ]
Internal Revenue Service (1) The number shown on this form is my correct
Taxpayer Identification Number (or I am
Payer's Request for Taxpayer waiting for a number to be issued to me) and
Identification Number (TIN)
(2) I am not subject to backup withholding
because (a) I am exempt from backup
withholding; (b) I have not
been notified by the Internal Revenue Service ("IRS")
that I am subject to backup withholding as a result
of failure to report all interest or dividends, or
(c) the IRS has notified me that I am no longer
Number (TIN) subject to backup withholding.
Certificate instructions-You must cross out item
(2) in Part 2 above if you have been notified by
the IRS that you are subject to backup withholding
because of underreporting interest or dividends on
your tax return.
SIGNATURE DATE
------------------------------------------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF THE CONSENT PAYMENTS MADE TO YOU PURSUANT TO THE
SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31
percent of all reportable payments made to me thereafter will be withheld until
I provide a taxpayer identification number.
- --------------------------- --------------------
Signature Date
- --------------------------------------------------------------------------------
10
<PAGE> 11
The Information Agent for the Solicitation is:
Mackenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Telephone: 212 929 5500
The Solicitation Agent for the Solicitation is:
Lazard Freres & Co. LLC
30 Rockerfeller Plaza
New York, New York 10020
Telephone: 212 632 6000
<PAGE> 12
PATHNET, INC.
SOLICITATION OF CONSENTS FOR $25.00 IN CASH
PER $1,000 PRINCIPAL AMOUNT OF
12 1/4% SENIOR NOTES DUE 2008
To Our Clients:
Enclosed for your consideration is a Prospectus issued by Pathnet
Telecommunications, Inc. ("Pathnet Telecom") dated March __, 2000 (the
"Prospectus"), and a form of Consent and Letter of Transmittal and instructions
thereto (the "Consent and Letter of Transmittal") relating to the solicitation
(the "Solicitation") by Pathnet, Inc. ("Pathnet") and Pathnet Telecom of
consents (the "Consents") from holders of the 12 1/4% Senior Notes due 2008 of
Pathnet (the "Notes") to the following:
1) the waiver of Pathnet's obligations under certain provisions of
the Indenture, dated as of April 8, 1998 (the "Indenture"), among Pathnet
and The Bank of New York, as Trustee ("Trustee"), namely the Change of
Control Offer obligation under Section 1010 of the Indenture and the
Excess Proceeds Offer obligation under Section 1017 of the Indenture, and
(2) the adoption of a Supplemental Indenture among Pathnet,
Pathnet Telecom and the Trustee, pursuant to which (a) Pathnet Telecom
will become bound by substantially the same covenants and other
obligations as are currently imposed on Pathnet under the Indenture, and
(b) transactions between Pathnet and Pathnet Telecom or Pathnet and
certain other subsidiaries of Pathnet Telecom will be permitted to the
same extent that such transactions are currently permitted between
Pathnet and its Restricted Subsidiaries under the Indenture;
in each case as more fully described under the caption "The Pathnet
Senior Noteholder Waivers and Other Proposed Indenture Amendments" in the
Prospectus.
As described in, and subject to the terms and conditions of, the
Prospectus, Pathnet Telecom is offering a guarantee of Pathnet's obligations
under the Notes in exchange for the Consents. In addition, upon the terms
and subject to the conditions set forth in the Prospectus and the Consent
and Letter of Transmittal, Pathnet will make a Consent Payment at the rate
of $25.00 in cash for each $1,000 principal amount of Notes for which
validly delivered and unrevoked Consents have been received by the
Depository on or prior to the Initial Expiration Date (as defined below),
unless extended (the "Expiration Date"). Pathnet is also agreeing, subject
to the terms of a pledge agreement to be executed and delivered upon the
consummation of the reorganization (as described in the Prospectus), to
purchase and pledge for the benefit of the holders of the Notes additional
United States Treasury securities sufficient to cover the October 16, 2000
interest payment on the Notes.
Pathnet and Pathnet Telecom intend to cause the execution of a
supplemental indenture to accommodate the issuance by Pathnet Telecom of the
Guarantees and the addition of Pathnet Telecom to the Indenture on substantially
the same terms as Pathnet (the "Proposed Amendments") to occur on the Initial
Expiration Date if, as of such date, validly delivered and unrevoked Consents
from Record Holders of a majority in aggregate principal amount of the Notes
outstanding on the Record Date (the "Requisite Consents") have been obtained or,
if later, promptly upon obtaining the Requisite Consents. The Initial Expiration
Date will be at 5.00 p.m., New York city time on March , 2000.
The term "Record Holder" as used herein shall mean the registered holders of
Notes outstanding at 5.00 p.m., New York city time on March , 2000 (the "Record
Date"). The Prospectus describes the requested waivers, the Guarantees, the
Proposed Amendments and the consent solicitation process.
<PAGE> 13
The material is being forwarded to you as the beneficial owner of Notes
carried by us or our affiliates for your account or benefit but not registered
in your name. A delivery of Consents with respect thereto may only be made by us
as the registered holder and pursuant to your instructions. Therefore, Pathnet
and Pathnet Telecom urge beneficial owners of Notes registered in the name of a
broker, dealer, commercial bank, trust company or other nominee to contact such
registered holder promptly if they wish to deliver Consents in the Solicitation.
Accordingly, we request instructions as to whether you wish us or
our affiliates to deliver Consents with respect to your Notes, pursuant
to the terms and conditions set forth in the Prospectus and the Consent
and Letter of Transmittal. We urge you to read carefully the Prospectus
and the Consent and Letter of Transmittal before instructing us or our
affiliates to deliver Consents with respect to your Notes.
Your instructions to us should be forwarded as promptly as possible in order
to permit us or our affiliates to deliver Consents with respect to your Notes on
your behalf in accordance with the provisions of the Solicitation. The
Solicitation will expire at 5:00 p.m., New York City time, on March , 2000
unless extended. Consents delivered pursuant to the Solicitation may be revoked,
subject to the procedures described in the Prospectus, at any time prior to the
Expiration Date.
Your attention is directed to the following:
1. A consenting holder whose Consent is delivered and not revoked on or
prior to the Expiration Date will receive, upon the terms and subject to
the conditions in the Prospectus, $25.00 in cash for each $1,000
principal amount of Notes for which a Consent is validly delivered and
not revoked.
2. Pathnet's obligation to make Consent Payments is conditioned upon, among
other things, (1) receipt by Pathnet, Pathnet Telecom and the Trustee of
validly delivered and unrevoked Consents from the Record Holders of at
least a majority of the aggregate outstanding principal amount of the
Notes outstanding on the Record Date, and (2) execution by the Trustee of
a Supplemental Indenture providing for the Proposed Amendments, all of
which conditions Pathnet and Pathnet Telecom reserve the right to waive.
If you wish to have us deliver your Consent to (1) the waiver of
Pathnet's Change of Control Offer obligation and the Excess Proceeds Offer
obligation in connection with the reorganization; and (2) the adoption of the
Supplemental Indenture and the Proposed Amendments contained therein, please so
instruct us by completing, executing and returning to us the instruction form
that appears below. The accompanying Consent and Letter of Transmittal is
furnished to you for informational purposes only and may not be used by you to
deliver Consents with respect to Notes held by us and registered in our name for
your account or benefit.
2
<PAGE> 14
INSTRUCTIONS
THE UNDERSIGNED ACKNOWLEDGE(s) RECEIPT OF YOUR LETTER AND THE
ENCLOSED MATERIAL REFERRED TO THEREIN RELATING TO THE SOLICITATION
OF PATHNET, INC. AND PATHNET TELECOMMUNICATIONS, INC.
This will instruct you to deliver my Consent to (1) the waiver
of Pathnet's Change of Control Offer obligation and the Excess
Proceeds Offer obligation in connection with the reorganization; and
(2) the adoption of the Supplemental Indenture and the Proposed
Amendments contained therein, with respect to my Notes, pursuant to
the terms of and conditions set forth in the Prospectus and the
Consent and Letter of Transmittal.
[ ] Please deliver my Consent to (1) the waiver of Pathnet's Change of
Control Offer obligation and the Excess Proceeds Offer obligation
with respect to the reorganization; and (2) the adoption of a
Supplemental Indenture and the Proposed Amendments contained therein,
in each case with respect to my Notes. I have identified on a signed
schedule attached hereto the principal amount for which Consents
regarding such Notes are to be delivered, if I wish to consent with
regard to less than all of such Notes.
Date:
-----
...........................................
...........................................
Signatures
...........................................
...........................................
Please print name(s) here
UNLESS A SPECIFIC CONTRARY INSTRUCTION IS GIVEN IN A SIGNED SCHEDULE
ATTACHED HERETO, YOUR SIGNATURE(S) HEREON SHALL CONSTITUTE AN
INSTRUCTION TO US TO CONSENT TO (1) THE WAIVER OF PATHNET'S CHANGE
OF CONTROL OFFER OBLIGATION AND THE EXCESS PROCEEDS OFFER OBLIGATION
IN CONNECTION WITH THIS REORGANIZATION; AND (2) THE ADOPTION OF THE
SUPPLEMENTAL INDENTURE AND THE PROPOSED AMENDMENTS CONTAINED
THEREIN, IN EACH CASE, WITH RESPECT TO ALL OF YOUR NOTES.
3
<PAGE> 15
PATHNET, INC.
SOLICITATION OF CONSENTS
FOR $25.00 IN CASH PER $1,000 PRINCIPAL AMOUNT
OF 12 1/4% SENIOR NOTES DUE 2008
To Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Enclosed for your consideration is a Prospectus issued by Pathnet
Telecommunications, Inc. ("Pathnet Telecom") dated March __, 2000 (the
"Prospectus"), and a form of Consent and Letter of Transmittal and instructions
thereto (the "Consent and Letter of Transmittal") relating to the solicitation
(the "Solicitation") by Pathnet, Inc. ("Pathnet") and Pathnet Telecom of
consents (the "Consents") from holders of the 12 1/4% Senior Notes due 2008 of
Pathnet (the "Notes") to the following:
(1) The waiver of Pathnet's obligations under certain provisions
of the Indenture, dated as of April 8, 1998 (the "Indenture"), among
Pathnet and The Bank of New York, as Trustee ("Trustee"), namely the
Change of Control Offer obligation under Section 1010 of the Indenture
and the Excess Proceeds Offer obligation under Section 1017 of the
Indenture, and
(2) The adoption of a Supplemental Indenture among Pathnet,
Pathnet Telecom and the Trustee, pursuant to which (a) Pathnet Telecom
will become bound by substantially the same covenants and other
obligations as are currently imposed on Pathnet under the Indenture, and
(b) transactions between Pathnet and Pathnet Telecom or Pathnet and
certain other subsidiaries of Pathnet Telecom will be permitted to the
same extent that such transactions are currently permitted between
Pathnet and its Restricted Subsidiaries under the Indenture;
in each case as more fully described under the caption "The Pathnet Senior
Noteholder Waivers and Other Proposed Indenture Amendments" in the Prospectus.
As described in, and subject to the terms and conditions of, the Prospectus,
Pathnet Telecom is offering a guarantee of Pathnet's obligations under the Notes
in exchange for the Consents. In addition, upon the terms and subject to the
conditions set forth in the Prospectus and the Consent and Letter of
Transmittal, Pathnet will make a Consent Payment at the rate of $25.00 in cash
for each $1,000 principal amount of Notes for which validly delivered and
unrevoked Consents have been received by the Depositary on or prior to the
Initial Expiration Date (as defined below), unless extended (the "Expiration
Date"). Pathnet is also agreeing, subject to the terms of a pledge agreement to
be executed and delivered upon the consummation of the reorganization (as
described in the Prospectus), to purchase and pledge for the benefit of the
holders of the Notes additional United States Treasury securities sufficient to
cover the October 16, 2000 interest payment on the Notes.
Pathnet and Pathnet Telecom intend to cause the execution of a
supplemental indenture to accommodate the issuance by Pathnet Telecom of the
Guarantees and the addition of Pathnet Telecom to the Indenture on substantially
the same terms as Pathnet (the "Proposed Amendments") to occur on the Initial
Expiration Date if, as of such date validly delivered and unrevoked Consents
from Record Holders of a majority in aggregate principal amount of the Notes
outstanding on the Record Date (the "Requisite Consents") have been obtained or,
if later, promptly upon obtaining the Requisite Consents. The Initial Expiration
Date will be at 5.00 p.m., New York city time, on March , 2000.
The term "Record Holder" as used herein shall mean the registered
holders of Notes outstanding at 5.00 p.m., New York city time, on March , 2000
(the "Record Date"). The Prospectus describes the requested waivers, the
Guarantees, the Proposed Amendments and the consent solicitation process.
<PAGE> 16
We are asking you to contact your clients for whom you hold Notes
registered in your name or in the name of your nominee. In addition, we ask you
to contact your clients who, to your knowledge, hold Notes registered in their
own name. You will be reimbursed by Pathnet and Pathnet Telecom for customary
mailing and handling expenses incurred by you in forwarding any of the enclosed
materials to your clients.
Enclosed is a copy of each of the following documents:
1. The Prospectus.
2. A Consent and Letter of Transmittal for your use in connection with
the Solicitation relating to the Notes and for the information of
your clients.
3. A form of letter that may be sent to your clients for whose accounts
you hold Notes registered in your name or the name of your nominee
with space provided for obtaining the clients' instructions with
regard to the Solicitation.
4. A letter from Richard A. Jalkut to the holders of Notes.
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
6. A return envelope addressed to the Depositary.
Your prompt action is requested. The Solicitation will expire at 5:00 P.M.,
New York City time, on March , 2000 unless extended. Consents delivered
pursuant to the Solicitation may be revoked, subject to the procedures described
in the Consent and Letter of Transmittal, at any time prior to the Expiration
Date.
To deliver Consents in the Solicitation, a duly executed and properly
completed Consent and Letter of Transmittal or a facsimile thereof, together
with a copy of any other required documents, must be received by the Depositary
as indicated in the Consent and Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
Information Agent, by calling MacKenzie Partners, Inc. on (212) 929-5500.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON
AS AN AGENT OF PATHNET, PATHNET TELECOM, THE TRUSTEE, THE SOLICITATION AGENT,
THE INFORMATION AGENT OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO
MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM WITH RESPECT TO THE SOLICITATION,
EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS OR THE CONSENT AND LETTER
OF TRANSMITTAL.
--------------------------------
Pathnet, Inc.
Pathnet Telecommunications, Inc.
2
