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EXHIBIT 10.3
CONTRIBUTION AGREEMENT
DATED
NOVEMBER 4, 1999
BY AND AMONG
PATHNET TELECOMMUNICATIONS, INC.,
PATHNET, INC.
AND
CSX TRANSPORTATION, INC.
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CONTRIBUTION AGREEMENT
THIS AGREEMENT is made as of November 4, 1999 (the "Agreement Date"),
by and among PATHNET TELECOMMUNICATIONS, INC., a Delaware corporation (the
"Company"), PATHNET, INC., a Delaware corporation ("Pathnet"), and CSX
Transportation, Inc., a Virginia corporation ("CSX");
W I T N E S S E T H:
WHEREAS, CSX has right-of-way interests in certain railroad
corridors covering the eastern United States; and
WHEREAS, the Company intends to construct, install, operate and
maintain fiber optic telecommunications transmission systems and certain
appurtenant equipment and structures on certain CSX railroad corridors; and
WHEREAS, CSX intends, subject to the terms and conditions hereof, to
contribute to the Company certain property interests in the form of the right to
own and/or lease certain property interests on the terms and conditions set
forth in the Fiber Optic License Agreement (as defined below) and the Right of
Way Operating Agreement (as defined below) in exchange for certain Series D
Shares (as defined below); and
WHEREAS, CSX and the other Contributors (as defined below) intend that
the transfers of their respective property interests to the Company in exchange
for shares of the Company will assist the Company and its subsidiaries in
conducting future operations in an efficient manner; and
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
Section 1 Definitions. For the purposes of this
Agreement, the following terms have the meanings set forth below:
"12 1/4% Senior Notes" shall mean those certain senior notes due 2008
issued by Pathnet pursuant to the terms of the 1998 Indenture.
"1998 Indenture" shall mean that certain Indenture, dated as of April
8, 1998, by Pathnet to the Bank of New York, as Trustee, in respect of
$350,000,000 in aggregate principal amount of 12 1/4% Senior Notes.
"Additional Cash Consideration" shall have the meaning set
forth in Section 2B.
"Affiliate" of any particular person or entity means any other person
or entity controlling, controlled by or under common control with such
particular person or entity. 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
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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 exclusively presumed in the case of
the direct or indirect ownership of fifty percent (50%) or more of the equity
interests in an entity.
"Agreement" shall mean this Contribution Agreement, as amended,
supplemented or restated from time to time in accordance with its terms.
"Agreement Date" shall have the meaning set forth in the preamble to
this Agreement.
"Closing" shall have the meaning set forth in Section 6A.
"Closing Date" shall have the meaning set forth in Section
6A.
"Common Stock" shall mean Common Stock of the Company, par value $0.01
per share.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Company Assets" shall mean substantially all of the assets of the
Company and its Subsidiaries (including, but not limited to, all contractual,
real and personal property rights) as of the date of the Closing and all future
assets acquired by the Company or its Subsidiaries after the Closing.
"Contributors" shall mean the parties to this Agreement and the Related
Contribution Agreements (as defined below), other than the Company and Pathnet.
"CSX" shall have the meaning set forth in the preamble to this
Agreement.
"Disclosure Letter" means the disclosure letter of the Company to CSX
of even date herewith.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"FCC" shall mean the Federal Communications Commission and any
governmental body or agency succeeding to the functions thereof.
"FCC Consents" means the consents of the FCC, to the extent required
under the Federal Communications Act and the regulations thereunder in order to
effect the transactions contemplated by this Agreement and the Related
Contribution Agreements, to the assignment or transfer of control of all FCC
licenses and authorizations of the Company and the Subsidiaries, or, in lieu
thereof, special temporary authority to operate under such licenses and
authorizations following such assignment or transfer of control; exclusive,
however, of any FCC licenses or authorizations that may be surrendered or
forfeited to the FCC and that are not material to the operation of Pathnet's
existing networks.
"Fiber Optic License Agreement" means the Fiber Optic Access and
License Agreement substantially in the form attached hereto as Exhibit A.
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"Governing Documents" means, with respect to (i) a limited partnership,
such limited partnership's certificate of limited partnership and the agreement
of limited partnership, and any amendments or modifications of any of the
foregoing; (ii) a corporation, such corporation's articles or certificate of
incorporation, by-laws and any applicable authorizing resolutions, and any
amendments or modifications of any of the foregoing; (iii) a limited liability
company, such limited liability company's articles or certificate of
organization or formation and operating agreement or agreement of limited
liability company, and any amendments or modifications of any of the foregoing;
and (iv) a trust, such trust's declaration of trust, articles supplementary and
by-laws and any amendments or modifications of any of the foregoing.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"Indemnified Person" means the Person or Persons entitled to, or
claiming a right to, indemnification under Section 8.
"Indemnifying Person" means the Person or Persons claimed by the
Indemnified Person to be obliged to provide indemnification under Section 8.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"Latest Balance Sheet" shall have the meaning set forth in Section 4G.
"Licenses" means federal, state, local and foreign franchises, tariffs,
licenses, ordinances, certifications, approvals, authorizations and permits
issued or granted by governmental authorities.
"Loss" or "Losses" means any and all loss, cost, claim, damage,
liability, or expense (including attorneys' fees).
"Material Adverse Effect" means a material adverse effect upon the
assets, liabilities, prospects, financial condition or business operations of,
in the case of the Company, the Company and its Subsidiaries, taken as a whole,
and in the case of CSX, upon CSX and its affiliates and subsidiaries, taken as a
whole.
"Pathnet" shall have the meaning set forth in the preamble to this
Agreement.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, a limited liability company and a governmental entity or any
department, agency or political subdivision thereof.
"Proprietary Rights" means all (i) patents, patent applications, patent
disclosures and inventions, (ii) trademarks, service marks, trade dress, trade
names and corporate names and registrations and applications for registration
thereof, (iii) copyrights and registrations and applications for registration
thereof, (iv) mask works and registrations and applications for registration
thereof, (v) computer software, data and documentation, (vi) trade secrets and
other
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confidential information (including, without limitation, ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial and
marketing plans and customer and supplier lists and information), (vii) other
intellectual property rights, and (viii) copies and tangible embodiments thereof
(in whatever form or medium).
"Qualified Public Offering" shall mean the closing of the first firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act covering the offer and sale of Common Stock
to the public (i) in which the proceeds received by the Company, net of
underwriting discounts and commissions, equal or exceed $75,000,000; (ii)
immediately prior to the consummation of which the Company is valued (based on
the per-share price paid in such public offering, but without regard to any
proceeds to be received by the Company in connection with such public offering)
at greater than $600,000,000; and (iii) in which the Company uses a nationally
recognized underwriter acceptable to the Board of Directors.
"Related Contribution Agreements" shall have the meaning set forth in
Section 3A(v).
"Right of Way Operating Agreement" means the Right of Way Operating
Agreement substantially in the form attached hereto as Exhibit B.
"SEC" shall mean the Securities and Exchange Commission and any
governmental body or agency succeeding to the functions thereof.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"Senior Noteholder Consent" shall mean each and all consents, waivers,
amendments and other action of the holders of the 12 1/4% Senior Notes of
Pathnet in respect of the transactions contemplated herein (and in the Related
Contribution Agreements, all to be closed in connection herewith) that are, in
the reasonable opinion of the Company and its counsel, required to have been
obtained or completed to permit Pathnet to complete such transactions pursuant
to the terms of the 1998 Indenture.
"Senior Noteholder Consent Date" shall mean that date on which the
Senior Noteholder Consent shall have been obtained.
"Series D Shares" shall mean the Series D Convertible Preferred Stock
of the Company, as the terms of such Series D Shares are set forth in the
Certificate of Incorporation of the Company attached as Exhibit C hereto.
"Shares" shall mean the Series D Shares to be issued pursuant to the
terms of this Agreement.
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"Stockholders Agreement" shall mean a Stockholders Agreement
substantially in the form of Exhibit D hereto.
"Subsidiary" means Pathnet and (i) any other corporation of which the
securities having a majority of the ordinary voting power in electing the board
of directors are, at the time as of which any determination is being made, owned
by the Company either directly or through one or more Subsidiaries, (ii) any
partnership, joint venture or similar entity of which or in which such Person,
such Person and one or more of its Subsidiaries, or one or more Subsidiaries of
such Person directly or indirectly own more than 50% of the capital interest or
profits interest, or (iii) any trust, association or other unincorporated
organization of which or in which such Person, such Person and one or more of
its Subsidiaries, or one or more Subsidiaries of such Person directly or
indirectly own more than 50% of the beneficial interest.
"Tax Authority" shall mean any United States federal, foreign,
national, state, county or municipal or other local government, any subdivision,
agency, commission or authority thereof, or any quasi-governmental body
exercising any taxing authority or any other authority exercising tax regulatory
authority.
"Tax Return" shall mean any return, amended return, estimated return,
information return and statement (including any related or supporting
information) filed or to be filed with any Tax Authority in connection with the
determination, assessment, collection or administration of any Tax.
"Taxes" shall mean all taxes, charges, fees, interest, fines,
penalties, additions to tax or other assessments, including without limitation,
income, excise, environmental, property, sales, gross receipts, gains, transfer,
occupation, privilege, employment (including social security and unemployment),
use, value added, capital stock or surplus, franchise taxes, advance corporate
tax and customs duties imposed by any Tax Authority.
"Treasury Regulations" means the United States Treasury Regulations
promulgated under the IRC, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
Section 2 Contribution by CSX. At the Closing, CSX
shall assign, transfer, convey and contribute to the Company certain property
interests in designated portions of rights-of-way currently used by CSX, in
accordance with the terms of the Fiber Optic License Agreement and the Right of
Way Operating Agreement, and in consideration for the execution by CSX of such
Fiber Optic License Agreement and the Right of Way Operating Agreement, the
Company will issue and sell to CSX 3,413,746 Series D Shares.
Section 3 Conditions to Closing.
3A. Conditions Precedent of the Company at the Closing. The
Company's obligations under this Agreement to issue the Shares and otherwise
consummate the transactions contemplated herein in respect of the Closing are
subject to the satisfaction (or waiver in writing by the Company) of the
following conditions on or before the Closing Date:
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i. No Injunction. No temporary restraining order or preliminary
or permanent injunction of any court or administrative agency of
competent jurisdiction prohibiting the consummation of the transactions
contemplated herein shall be in effect or pending.
ii. Governmental Consents. The Company and CSX shall have made all
filings required under the HSR Act for the transactions contemplated
hereby and the applicable waiting period under the HSR Act shall have
elapsed without any second request by the Department of Justice or
Federal Trade Commission with respect to such filings. The Company
shall have obtained all FCC Consents.
iii. Accuracy of the Representations and Warranties. The
representations and warranties of CSX contained in this Agreement shall
be true and correct in all material respects on the date hereof and,
except for representations and warranties made with respect to a
specified date, at and as of the Closing Date.
iv. Performance of Agreement. CSX shall have performed or complied
with, in all material respects, all of its respective agreements,
covenants and obligations required by this Agreement to be performed or
complied with by it prior to or at the Closing, including, without
limitation, delivery of the contribution described in Section 2.
v. Contributions of Other Parties. At or contemporaneously with
the Closing, the Company shall also be closing, as part of the same
overall plan of contribution, upon (a) a Contribution Agreement with
the holders of at least 90% of the outstanding preferred stock of
Pathnet, (b) the Contribution Agreement between the Company and The
Burlington Northern and Santa Fe Railway Company, (c) the Contribution
Agreement between the Company and Colonial Pipeline Company, and (d)
one or more Contribution Agreements with certain holders of shares of
the outstanding common stock of Pathnet, such agreements in
substantially the form previously provided to CSX (the "Related
Contribution Agreements"), such that immediately after the Closing, the
Company will own stock of Pathnet constituting control within the
meaning of IRC Section 368(c).
vi. Senior Noteholder Consent. The Senior Noteholder Consent shall
have been obtained and not revoked.
vii. Delivery of Closing Documents. The Company shall have
received the other closing documents specified in Section 6C.
3B. Conditions Precedent of CSX at the Closing. CSX's
obligations under this Agreement to deliver the contributions described in
Section 2 and otherwise consummate the transactions contemplated herein in
respect of the Closing are subject to the satisfaction (or waiver in writing by
CSX) of the following conditions on or before the Closing Date:
i. No Injunction. No temporary restraining order or preliminary
or permanent injunction of any court or administrative agency of
competent jurisdiction prohibiting the consummation of the transactions
contemplated herein shall be in effect or pending.
ii. Governmental Consents. The Company and CSX shall have made all
filings required under the HSR Act for the transactions contemplated
hereby, and the applicable
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waiting period under the HSR Act shall have elapsed without any second
request by the Department of Justice or Federal Trade Commission with
respect to such filings. The Company shall have obtained all FCC
Consents.
iii. Accuracy of the Representations and Warranties. The
representations and warranties of the Company and Pathnet contained in
this Agreement shall be true and correct in all material respects on
the date hereof and, except for representations and warranties made
with respect to a specified date, at and as of the Closing Date.
iv. Performance of Agreement. Each of the Company and Pathnet
shall have performed or complied with, in all material respects, all of
its respective agreements, covenants and obligations required by this
Agreement to be performed or complied with by it prior to or at the
Closing, including, without limitation, issuance of the Shares by the
Company described in Section 2.
v. Contributions of Other Parties. At or contemporaneously with
the Closing, as part of the same overall plan of contribution, the
Company shall also be closing upon the Related Contribution Agreements,
such that immediately after the Closing, the Company will own stock of
Pathnet constituting control within the meaning of IRC Section 368(c).
vi. Material Adverse Change. Between the Agreement Date and the
Closing there shall not have occurred any event or series of related
events which, individually or in the aggregate, have caused or could
reasonably be anticipated to cause a Material Adverse Effect.
vii. Senior Noteholder Consent. The Senior Noteholder Consent shall
have been obtained and not revoked.
viii. Delivery of Closing Documents. CSX shall have received the
closing documents specified in Section 6B.
Section 4 Representations and Warranties of the
Company and Pathnet. Each of the Company and Pathnet represents and warrants to
CSX with respect to each of the following provisions of this Section 4, at and
as of the Agreement Date and (except for those made with reference to a specific
date) again at and as of the Closing Date:
4A. Organization and Corporate Power. The Company is duly
organized, validly existing and in good standing under the laws of Delaware and
is qualified to do business in every jurisdiction in which its ownership of
property or conduct of business requires it to qualify. The Company has all
requisite corporate power and authority and all material Licenses necessary to
own and operate its properties, to carry on its business as now conducted and
presently proposed to be conducted and to carry out the transactions
contemplated by this Agreement. The copies of the Company's Governing Documents
which have been furnished to CSX reflect all amendments made thereto at any time
prior to the Agreement Date and are correct and complete.
4B. Authorization. Each of the Company and Pathnet has all
necessary corporate power and has been duly authorized by all necessary and
appropriate action to enter
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into this Agreement and the Fiber Optic License Agreement and the Right of Way
Operating Agreement and to consummate the transactions contemplated herein and
therein. The officers of the Company and Pathnet executing this Agreement on
behalf of such corporations have been duly authorized by all necessary and
appropriate corporate action. This Agreement is, and when executed and delivered
the Fiber Optic License Agreement and the Right of Way Operating Agreement will
each be, a valid and binding obligation of each of the Company and Pathnet,
enforceable against it in accordance with its terms, except insofar as
enforceability may be affected by bankruptcy, insolvency or similar laws
affecting creditors' rights generally or by general principles of equity.
4C. Capital Stock and Related Matters.
i. As of the Agreement Date, no shares of capital stock of the
Company are issued and outstanding.
ii. As of the Agreement Date, the authorized capital stock of
Pathnet consists of (a) 10,000,000 shares of preferred stock (of which
zero (0) shares are issued and outstanding); (b) 1,000,000 shares of
Series A Convertible Preferred Stock (all of which are issued and
outstanding); (c) 1,651,046 shares of Series B Convertible Preferred
Stock (all of which are issued and outstanding); (d) 2,819,549 shares
of Series C Convertible Preferred Stock (all of which are issued and
outstanding); and (e) 60,000,000 shares of Common Stock (of which
2,977,593 are issued and outstanding).
iii. As of the Closing and immediately thereafter (assuming that
the Company has completed the closing under each of the Related
Contribution Agreements and under similar contribution agreements with
the holders of common stock of Pathnet) the authorized capital stock of
the Company will consist of (a) 39,620,860 shares of preferred stock,
of which 2,899,999 shares are designated as Series A Convertible
Preferred Stock (all of which will be issued and outstanding),
4,788,030 shares are designated as Series B Convertible Preferred Stock
(all of which will be issued and outstanding), 8,176,686 shares are
designated as Series C Convertible Preferred Stock (all of which will
be issued and outstanding), 9,250,000 shares will be designated as
Series D Convertible Preferred Stock (of which 8,511,607 will be issued
and outstanding, allocated among the holders thereof as set forth in
Section 4C of the Disclosure Letter), and 4,506,145 shares of Series E
Convertible Preferred Stock (of which 1,729,631 will be issued and
outstanding) (collectively, the "Preferred Stock"), and (b) 60,000,000
shares of Common Stock, of which 2,977,593 shares will be issued and
outstanding and 30,000,000 shares will be reserved for issuance upon
conversion of the Preferred Stock. As of the Closing, neither the
Company nor any Subsidiary will have outstanding any stock or
securities convertible or exchangeable for any shares of its capital
stock or containing any profit participation features, nor shall it
have outstanding any rights or options to subscribe for or to purchase
its capital stock or any stock or securities convertible into or
exchangeable for its capital stock or any stock appreciation rights or
phantom stock plans, except for the Preferred Stock and except as set
forth in Section 4C of the Disclosure Letter. Section 4C of the
Disclosure Letter accurately sets forth the following with respect to
all outstanding options and rights to acquire the Company's and
Pathnet's capital stock: the holder, the number of shares covered, the
exercise price and the expiration date. As of the Closing,
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neither the Company nor any Subsidiary will be subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any shares of its capital stock or any warrants, options or
other rights to acquire its capital stock, except as set forth on the
Section 4C of the Disclosure Letter. As of the Closing and immediately
thereafter, all of the outstanding shares of the Company's capital
stock shall be validly issued, fully paid and nonassessable.
iv. The Company has not violated any applicable federal or state
securities laws in connection with the offer, sale or issuance of any
of its capital stock, including the sale of the Shares pursuant to this
Agreement. There are no agreements between the Company's stockholders
or between Pathnet's stockholders with respect to the voting or
transfer of the Company's or Pathnet's capital stock or with respect to
any other aspect of the Company's or Pathnet's affairs, except as set
forth in Section 4C of the Disclosure Letter.
4D. Subsidiaries, Investments. Section 4D of the Disclosure
Letter correctly sets forth the name of each Subsidiary, the jurisdiction of its
incorporation and the Persons owning the outstanding capital stock of such
Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power and authority and all material Licenses necessary to
own its properties and to carry on its businesses as now being conducted and as
presently proposed to be conducted, and is qualified to do business in every
jurisdiction in which its ownership of property or the conduct of business
requires it to qualify, except for any jurisdiction with respect to which the
failure to qualify would not have a Material Adverse Effect. All of the
outstanding shares of capital stock of each Subsidiary are validly issued, fully
paid and nonassessable, and all such shares are owned by the Company or another
Subsidiary free and clear of any lien, charge or encumbrance except as disclosed
in Section 4D of the Disclosure Letter. The copies of each Subsidiary's
Governing Documents which have been furnished to CSX reflect all amendments made
thereto at any time prior to the Agreement Date and are correct and complete.
Except as set forth in Section 4D of the Disclosure Letter, neither the Company
nor any Subsidiary owns or holds the right to acquire any shares of stock or any
other security or interest in any other Person.
4E. No Breach. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby nor the
fulfillment of or compliance with the terms and conditions hereof (a) conflict
with or will result in a breach of, default under, or triggering of any rights
against the Company or any Subsidiary under any terms, conditions or provisions
of (i) the Governing Documents of the Company or any Subsidiary, (ii) the 1998
Indenture, or (iii) any agreement with shareholders, or any other agreement,
contract, indenture, mortgage, deed, easement, order, judgment, decree,
arbitration award, statute, regulation or instrument to which the Company or any
Subsidiary is a party or by which the assets of the Company or any Subsidiary
are bound, in each case except as to matters that would not be reasonably
expected to have a Material Adverse Effect or affect the ability of the Company
or Pathnet to consummate the transactions contemplated herein, or (b)
constitutes or will constitute a violation or default under, or create a right
to terminate, any of the foregoing, except as to matters that would not be
reasonably expected to have a Material Adverse Effect or affect the ability of
the Company or Pathnet to consummate the transactions contemplated herein;
provided that the foregoing qualifier shall not apply to any document specified
in clause (i) or (ii) above. Except as set forth in Section 4E of the Disclosure
Letter, no consent or approval, authorization,
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order, registration or qualification of any governmental entity or any other
Person is required for the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by the Company.
4F. Shares. The issuance or delivery of the Shares hereunder
are not subject to any preemptive right of any Person or to any contractual
right of first refusal or other right in favor of any Person. Upon delivery of
the contributions described in Section 2 to the Company, the Shares will be
validly issued, fully paid and non-assessable.
4G. Financial Statements. The Company has heretofore
delivered to CSX the following financial statements:
i. the audited consolidated balance sheets of Pathnet as of
December 31 for each of 1996, 1997 and 1998, and the related statements
of income and cash flows (or the equivalent) for the respective
twelve-month periods then ended; and
ii. the unaudited consolidated balance sheet of Pathnet as of
September 30, 1999 (the "Latest Balance Sheet"), and the related
statements of income and cash flows (or the equivalent) for the
nine-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) and, once delivered, any subsequent quarterly or annual
financial statement delivered by the Company to CSX prior to the Closing Date,
is accurate and complete in all material respects, consistent with the books and
records of the Company and Pathnet (which, in turn, are accurate and complete in
all material respects), and has been prepared in accordance with generally
accepted accounting principles, consistently applied, and fairly presents the
consolidated financial condition of the Company and Pathnet, as the case may be,
as of the dates thereof and the consolidated results of operations and cash
flows of the Company and Pathnet for the period shown therein, except that the
financial statements in item ii above are subject to the absence of footnotes
and to normal year-end audit adjustments. As of the Agreement Date, the Company
has not engaged in any business, owns no assets and has incurred no liabilities,
other than legal and filing fees in connection with its incorporation and
organization, and has not issued any capital stock.
4H. Absence of Undisclosed Liabilities. Except as set forth
in Section 4H of the Disclosure Letter, the Company and its Subsidiaries do not,
and upon consummation of the transactions contemplated herein, will not, have
any obligation or liability (whether accrued, absolute, contingent, unliquidated
or otherwise, whether or not known to the Company or any Subsidiary, whether due
or to become due and regardless of when asserted) arising out of transactions
entered into at or prior to the Closing, or any action or inaction at or prior
to the Closing, or any state of facts existing at or prior to the Closing other
than: (i) liabilities set forth on the Latest Balance Sheet (including any notes
thereto), (ii) liabilities and obligations which have arisen after the date of
the Latest Balance Sheet in the ordinary course of business (none of which is a
liability resulting from breach of contract, breach of warranty, tort,
infringement, legal claim or lawsuit), (iii) liabilities and obligations under
contracts to which the Company or Pathnet is then a party that arise or are
related to periods after the date of the Latest Balance Sheet (none of which is
a liability resulting from breach of contract, breach of warranty, tort,
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infringement, legal claim or lawsuit), and (iv) other liabilities and
obligations disclosed in the Disclosure Letter.
4I. No Material Adverse Change. Except as set forth in
Section 4I of the Disclosure Letter, since the date of the Latest Balance Sheet,
there has been no material adverse change in the financial condition, operating
results, assets, business, liabilities, operations, business prospects, employee
relations or customer or supplier relations of the Company and its Subsidiaries
taken as a whole.
4J. Absence of Certain Developments.
i. Except as expressly contemplated by this Agreement or as set
forth in Section 4J of the Disclosure Letter, since the date of the
Latest Balance Sheet, neither the Company nor any Subsidiary has:
(a) issued any notes, bonds or other debt securities or any
equity securities or any securities convertible, exchangeable or
exercisable into any equity securities;
(b) borrowed any amount or incurred or become subject to any
liabilities, except current liabilities incurred in the ordinary course
of business and liabilities under contracts entered into in the
ordinary course of business;
(c) discharged or satisfied any lien or encumbrance or paid
any obligation or liability, other than current liabilities paid in the
ordinary course of business;
(d) declared or made any payment or distribution of cash or
other property to its stockholders with respect to its stock or
purchased or redeemed any shares of its stock or any warrants, options
or other rights to acquire its stock;
(e) mortgaged or pledged any of its properties or assets or
subjected them to any lien, security interest, charge or other
encumbrance, except liens for current property taxes not yet due and
payable;
(f) sold, assigned or transferred any of its tangible assets,
except in the ordinary course of business, or canceled any debts or
claims, except in the ordinary course of business;
(g) sold, assigned or transferred any patents or patent
applications, trademarks, service marks, trade names, corporate names,
copyrights or copyright registrations, trade secrets or other
intangible assets, or disclosed any proprietary confidential
information to any Person, other than pursuant to a license arrangement
or agreement made in the ordinary course of business or pursuant to a
non-disclosure arrangement or agreement made in the ordinary course of
business or in connection with the negotiations under this Agreement,
the Related Contribution Agreements, and the other agreements entered
into pursuant hereto and thereto;
(h) suffered any extraordinary losses or waived any rights of
material value, whether or not in the ordinary course of business or
consistent with past practice;
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(i) made any loans or advances to, guarantees for the
benefit of, or any Investments in, any Persons in excess of $100,000 in
the aggregate;
(j) made any capital expenditures or commitments therefor
that aggregate in excess of $5,000,000;
(k) made any charitable contributions or pledges in excess of
$100,000 in the aggregate;
(l) suffered any damage, destruction or casualty loss
exceeding in the aggregate $100,000 not covered by insurance; or
(m) entered into any other transaction other than in the
ordinary course of business.
ii. No officer, director, employee or agent of the Company or any
of its Subsidiaries has been or is authorized to make or receive, and
the Company does not know of any such person making or receiving, any
bribe, kickback or other illegal payment related to the Company or its
Subsidiaries or the conduct of their business.
4K. Assets. Except as set forth in Section 4K of the
Disclosure Letter, the Company and each Subsidiary have, and upon consummation
of the transactions contemplated herein, will have, good and marketable title
to, or a valid leasehold interest, license, or right of way in, the properties
and assets used by them, located on their premises or shown on the Latest
Balance Sheet or acquired thereafter, free and clear of all liens, security
interests, charges and encumbrances, except for properties and assets disposed
of in the ordinary course of business since the date of the Latest Balance Sheet
and except for liens disclosed on the Latest Balance Sheet (including any notes
thereto) and liens for current property taxes not yet due and payable; provided,
however, that neither the Company nor Pathnet makes any representation or
warranty as to the underlying title of any property interest in which it holds a
leasehold interest, license, or right of way, or as to the effect upon the
assets of the Company of any defect in any such title. Except as described in
Section 4K of the Disclosure Letter, the Company's and each Subsidiary's
buildings, equipment and other tangible assets are, in all material respects, in
good operating condition, taking into account normal wear and tear, and fit for
use in the ordinary course of business.
4L. Tax Matters. Except as set forth in Section 4L of the
Disclosure Letter: the Company and each Subsidiary have filed all material Tax
Returns that they are required to file; all such Tax Returns are complete and
correct in all material respects, and no such tax returns contain a disclosure
statement under IRC Section 6662; the Company and each Subsidiary have paid all
Taxes shown on such Tax Returns and have withheld and paid over all material
Taxes that they are obligated to withhold and pay over from amounts paid or
owing to any employee, stockholder, creditor or other third party; neither the
Company nor any Subsidiary has waived any statute of limitations with respect to
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency; the accrual for current taxes on the Latest Balance Sheet would be
adequate to pay all of Pathnet's current Tax liabilities as of the Latest
Balance Sheet; and no foreign, federal, state or local Tax audits are pending or
being conducted
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with respect to the Company or any Subsidiary and no notice indicating an intent
to open an audit or other review has been received by the Company or any
Subsidiary from any foreign, federal, state or local Taxing Authority. Neither
the Company nor any of its Subsidiaries has made an election under Section
341(f) of the IRC. Neither the Company nor any of its Subsidiaries is a party to
or bound by any obligation under any Tax sharing, Tax allocation or
indemnification agreement to which any Person other than the Company or one or
more of its Subsidiaries is a party.
4M. Contracts and Commitments.
i. Except as expressly contemplated by this Agreement or as set
forth in Section 4M of the Disclosure Letter, as of the Closing,
neither the Company nor any Subsidiary is a party to any written or
oral:
(a) contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or other
basis providing annual compensation in excess of $250,000 or contract
relating to loans to officers, directors or affiliates, or any contract
with any labor union, or any severance agreement;
(b) contract under which the Company or any Subsidiary has
loaned any other Person amounts in the aggregate exceeding $100,000;
(c) agreement or indenture relating to the borrowing of money
or the mortgaging, pledging or otherwise placing a lien on any material
asset or material group of assets of the Company or any of its
Subsidiaries,
(d) guarantee of any obligation in excess of $500,000 (other
than a guarantee by the Company of a wholly-owned Subsidiary's debts or
a guarantee by a Subsidiary of the Company's debts or another
Subsidiary's debts, or in respect of any construction performance bond,
letter of credit, surety bond, or other guarantee or liability in
respect of any construction project undertaken by or on behalf of the
Company in connection with the development of its network);
(e) lease or agreement under which the Company or any
Subsidiary is a lessee of or holds or operates any property, real or
personal, owned by any other party, except for any lease of real or
personal property under which the aggregate annual cash rental payments
do not exceed $250,000;
(f) lease or agreement under which the Company or any
Subsidiary is lessor of or permits any third party to hold or operate
any property, real or personal, owned or controlled by the Company or
any Subsidiary;
(g) contract or group of related contracts with the same
party or group of affiliated parties the performance of which requires
the Company or any Subsidiary to pay consideration in excess of
$5,000,000;
(h) assignment, license, indemnification or agreement with
respect to any intangible property (including, without limitation, any
patent, trademark, trade name,
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copyright, know-how, trade secret or confidential information), other
than software license agreements entered into in the ordinary course of
business;
(i) warranty agreement with respect to its services rendered
or its products sold or leased, other than the pass-through of
manufacturers' warranties;
(j) agreement under which it has granted any Person any
registration rights (including piggyback rights);
(k) contract, agreement or other arrangement with any
officer, director, employee or Affiliate, or any Affiliate of any
officer, director or employee;
(l) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to employees or any other generally applicable employee
benefit plan or arrangement;
(m) contract or agreement prohibiting it from freely engaging
in any business or competing anywhere in the world; or
(n) contract or agreement with any investment bank.
ii. All of the contracts, agreements and instruments set forth in
Section 4M of the Disclosure Letter are valid, binding and enforceable
against the Company or the Subsidiary that is a party thereto in
accordance with their respective terms, except insofar as
enforceability may be affected by bankruptcy, insolvency or similar
laws affecting creditor's rights generally or by general principles of
equity, and except for any invalidity, lack of binding nature or
inability to enforce that would not be reasonably expected to have a
Material Adverse Effect. The Company and each Subsidiary have performed
all obligations required to be performed by them under, and are not in
default under or in breach of nor in receipt of any claim of default or
breach under, any contract, agreement or instrument to which the
Company or any Subsidiary is subject; no event has occurred which with
the passage of time or the giving of notice or both would result in a
default, breach or event of noncompliance under any contract, agreement
or instrument to which the Company or any Subsidiary is subject;
neither the Company nor any Subsidiary has any present expectation or
intention of not fully performing all such obligations; and neither the
Company nor any Subsidiary has knowledge of any breach or anticipated
breach by the other parties to any contract or commitment to which it
is a party; except in each case to the extent that any such event would
not be reasonably expected to have a Material Adverse Effect.
iii. CSX has been supplied with a true and correct copy of each of
the written contracts and an accurate description of the oral contracts
which are referred to in Section 4M of the Disclosure Letter, together
with all amendments, waivers or other changes thereto.
4N. Proprietary Rights. Section 4N of the Disclosure Letter
contains a complete and accurate list of (i) all patented and registered
Proprietary Rights currently owned by the Company or any Subsidiary, (ii) all
pending patent applications and applications for
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registrations of other Proprietary Rights filed by the Company or any
Subsidiary, (iii) all unregistered trade names and corporate names owned or used
by the Company and its Subsidiaries and (iv) all unregistered trademarks,
service marks and copyrights and computer software which are used by the Company
and its Subsidiaries and necessary for the operation of the businesses of the
Company and its Subsidiaries as presently conducted and as presently proposed to
be conducted. Section 4N of the Disclosure Letter also contains a complete and
accurate list of all licenses and other rights granted by the Company or any
Subsidiary to any third party with respect to any Proprietary Rights and all
licenses and other rights granted by any third party to the Company or any
Subsidiary with respect to any Proprietary Rights. Except as set forth in
Section 4N of the Disclosure Letter, the Company or one of its Subsidiaries owns
or has the right to use pursuant to a valid license all Proprietary Rights
necessary for the operation of the businesses of the Company and its
Subsidiaries as presently conducted and as presently proposed to be conducted.
Except as set forth in Section 4N of the Disclosure Letter, the loss or
expiration of any Proprietary Right or related group of Proprietary Rights would
not have a Material Adverse Effect, and no such loss or expiration is, to the
best of the Company's and Pathnet's knowledge, threatened, pending or reasonably
foreseeable. Except as indicated in Section 4N of the Disclosure Letter, (i) the
Company and its Subsidiaries own all right, title, and interest in and to all of
the Proprietary Rights listed on such schedule and all other Proprietary Rights
material to the operation of the businesses of the Company and its Subsidiaries,
(ii) there have been no claims made against the Company or any Subsidiary
asserting the invalidity, misuse or unenforceability of any of such rights, and,
to the Company's and Pathnet's knowledge, there are no grounds for the same,
(iii) neither the Company nor any Subsidiary has received a notice of conflict
with the asserted rights of others within the last five years, and (iv) to the
Company's and Pathnet's knowledge, the conduct of the Company's and each
Subsidiary's business has not infringed or misappropriated any Proprietary
Rights of other Persons, nor would any future conduct as presently contemplated
infringe any Proprietary Rights of other Persons and, to the Company's and
Pathnet's knowledge, the Proprietary Rights owned by the Company or any
Subsidiary have not been infringed or misappropriated by other Persons.
4O. Litigation, etc. Except as set forth in Section 4O of the
Disclosure Letter, there are no actions, suits, proceedings, orders,
investigations or claims pending or, to the best of the Company's and Pathnet's
knowledge, threatened against or affecting the Company or any Subsidiary (or to
the best of the Company's and Pathnet's knowledge, pending or threatened against
or affecting any of the officers, directors or employees of the Company or any
of its Subsidiaries with respect to their businesses or proposed business
activities) at law or in equity, or before or by any governmental department,
commission, board, bureau, agency or instrumentality (including, without
limitations, any actions, suit, proceedings or investigations with respect to
the transactions contemplated by this Agreement); neither the Company nor any
Subsidiary is subject to any arbitration proceedings under collective bargaining
agreements or otherwise or, to the best of the Company's and Pathnet's
knowledge, any governmental investigations or inquiries (including inquiries as
to the qualification to hold or receive any license or permit); and, to the
Company's and Pathnet's knowledge, there is no basis for any of the foregoing.
Neither the Company nor any Subsidiary is subject to any judgment, order or
decree of any court or other governmental agency. Neither the Company nor any
Subsidiary has received any opinion or memorandum or legal advice from legal
counsel to the effect that it is exposed, from a legal standpoint, to any
liability or disadvantage which is, in the opinion of such counsel, reasonably
likely to have a Material Adverse Effect on its business.
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4P. Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement binding
upon the Company or any Subsidiary.
4Q. Insurance. Section 4Q of the Disclosure Letter contains a
description of each insurance policy maintained by the Company and its
Subsidiaries with respect to its properties, assets and businesses, and each
such policy is in full force and effect and the Company has no reason to believe
such policies will not remain in full force and effect upon the consummation of
the transactions contemplated hereby. Neither the Company nor any Subsidiary is
in default with respect to its obligations under any insurance policy maintained
by it.
4R. Employees. The Company and each Subsidiary have complied
in all material respects with all laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes. To the
knowledge of the Company and Pathnet, neither the Company nor any Subsidiary is
the subject of any pending union organization activities, or any pending,
threatened or actual strikes, work stoppages or material grievances. Neither the
Company nor Pathnet is aware that any officer or key employee of the Company or
any Subsidiary or any group of employees of the Company or any Subsidiary has
any plans to terminate employment with the Company or any Subsidiary. Neither
the Company, its Subsidiaries nor, to the best of the Company's and Pathnet's
knowledge after due inquiry, any of their employees is subject to any
noncompete, nondisclosure, confidentiality, employment, consulting or similar
agreements relating to, affecting or in conflict with the present or proposed
business activities of the Company or any of its Subsidiaries except for
agreements between the Company and its present and former employees.
4S. ERISA. For purposes of this Section 4S, the term
"Company" includes Pathnet and its Subsidiaries and all organizations under
common control with the Company pursuant to Section 414(b) or (c) of the IRC.
Except as set forth in Section 4S of the Disclosure Letter:
(a) Multiemployer Plans. The Company does not have any
obligation to contribute to (or any other liability, including current or
potential withdrawal liability, with respect to) any "multiemployer plan" (as
defined in Section 3(37) of ERISA).
(b) Retiree Welfare Plans. The Company does not maintain or
have any obligation to contribute to (or any other liability with respect to)
any plan or arrangement whether or not terminated, which provides medical,
health, life insurance or other welfare-type benefits for current or future
retired or terminated employees (except for limited continued medical benefit
coverage required to be provided under Section 4980B of the IRC or as required
under applicable state law).
(c) Defined Benefit Plans. The Company does not maintain,
contribute to or have any liability under (or with respect to) any employee plan
which is a tax-qualified "defined benefit plan" (as defined in Section 3(35) of
ERISA), whether or not terminated.
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(d) Defined Contribution Plans. The Company does not
maintain, contribute to or have any liability under (or with respect to) any
employee plan which is a tax-qualified "defined contribution plan" (as defined
in Section 3(34) of ERISA), whether or not terminated.
(e) Other Plans. The Company does not maintain, contribute to
or have any liability under (or with respect to) any plan or arrangement
providing benefits to current or former employees, including any bonus plan,
plan for deferred compensation, employee health or other welfare benefit plan or
other arrangement, whether or not terminated.
4T. Compliance with Laws. Except as set forth in Section 4T
of the Disclosure Letter, neither the Company nor any Subsidiary has violated
any law or any governmental regulation or requirement which violation would
reasonably be expected to have a Material Adverse Effect, and neither the
Company nor any Subsidiary has received notice of any such violation. To the
knowledge of the Company and Pathnet, neither the Company nor any Subsidiary is
required under any applicable federal, state or local environmental law or
regulation as currently in effect to remediate any environmental condition or to
pay any fine or penalty with respect thereto.
4U. Affiliated Transactions. Except as set forth in Section
4U of the Disclosure Letter, no officer, director, shareholder or Affiliate of
the Company or any Subsidiary or any individual related by blood or marriage to
any such Person or any entity in which any such Person or individual owns any
beneficial interest, is a party to any agreement, contract, commitment or
transaction with the Company or any Subsidiary or has any material interest in
any material property used by the Company or any Subsidiary.
4V. Licenses. Except for (i) licenses set forth in Section 4V
of the Disclosure Letter and (ii) state or local permits necessary for the
construction, maintenance and ownership of fiber optic cable, there are no
Licenses necessary for the Company or its Subsidiaries to conduct the businesses
as currently conducted. All Licenses set forth in Section 4V of the Disclosure
Letter are in full force and effect and no proceeding is pending or threatened
which could have the effect of revoking or limiting any such Licenses. Section
4V of the Disclosure letter sets forth all consents required from the FCC with
respect to the consummation of the transactions contemplated in this Agreement
and the Related Contribution Agreements.
4W. Reports with the SEC. The Company has furnished or made
available to CSX complete and accurate copies of Pathnet's annual report on Form
10-K for its most recent fiscal year, all other reports or documents required to
be filed by Pathnet pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act since the filing of the most recent annual report on Form 10-K, and
all correspondence with the SEC since August 1998. Such filed reports do not, as
of the date hereof, contain any material false statements or any misstatement of
any material fact and do not omit to state any fact necessary to make the
statements set forth therein not misleading. Pathnet has made all filings with
the SEC which it is required to make, and Pathnet has not received any request
from the SEC to file any amendment or supplement to any of the reports described
in this Section 4W.
4X. Transfers of Contributed Properties. There is no plan or
intention by the Company to dispose of any of the contributed properties
described in Section 2 or Section 3A(v),
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except that the Company is contemplating (i) a transfer of certain contributed
properties to Pathnet or another Subsidiary in a transaction that will qualify
as a tax-free transfer pursuant to IRC Section 351, and (ii) the conversion of
certain preferred stock of Pathnet into common stock of Pathnet.
4Y. No Intention to Redeem. There is no current plan or
intention on behalf of the Company to redeem or otherwise reacquire any of the
Shares issued pursuant to the transactions described in Sections 2 and 3A(v)
hereof.
4Z. Disclosure. Neither this Agreement nor the Disclosure
Letter, nor any of the schedules, attachments, written statements, documents,
certificates or other items prepared or supplied to the other parties hereto by
or on behalf of the Company or any Subsidiary with respect to the transactions
contemplated hereby, contain any untrue statement of a material fact or omit a
material fact necessary to make each statement contained herein or therein not
misleading.
4AA. Year 2000 Compliance. The Company and Pathnet have taken
all reasonable steps to ensure that they are Year 2000 Compliant, as that term
is defined below, and there are no foreseeable expenses or other liabilities
associated with the process of becoming Year 2000 Compliant except for or with
respect to any noncompliance or any expenses or liabilities that would not be
reasonably expected to have a Material Adverse Effect on the Company or Pathnet.
"Year 2000 Compliant" means that such hardware or software produced, used, or
provided by the Company or material contractors or vendors, including, but not
limited to, microcode, firmware, system and application programs, files,
databases, computer services, and microcontrollers, including those embedded in
computer and non-computer equipment (the "Computer Systems") will:
(a) process date data from at least the years 1900 through
2001 without error or interruption;
(b) maintain functionality with respect to the introduction
processing, or output of records containing dates falling
on or after January 1, 2000; and
(c) be interoperable with other software or hardware which
may deliver records to, receive records from, or interact
with such Computer Systems in the course of conducting
the business of the Company.
Except as noted on the Disclosure Schedule, there are no software, hardware, or
other devices containing or using electronic components reasonably necessary to
the performance of the business and operations of the Company that to the
knowledge of the Company are not Year 2000 Compliant.
Section 5 Representations and Warranties of CSX. CSX
represents and warrants to the Company and Pathnet with respect to each of the
following at and as of the Agreement Date:
5A. Organization and Corporate Power. CSX is duly organized
and validly existing under the laws of the state of its organization and has
been duly authorized by all
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necessary and appropriate corporate action to enter into this Agreement, the
Fiber Optic License Agreement and the Right of Way Operating Agreement and to
consummate the transactions contemplated herein and therein. The officer of CSX
executing this Agreement on behalf of CSX has been duly authorized by all
necessary and appropriate corporate action. This Agreement is, and when executed
and delivered the Fiber Optic License Agreement and the Right of Way Operating
Agreement will each be, a valid and binding obligation of CSX, enforceable
against it in accordance with its terms, except insofar as enforceability may be
affected by bankruptcy, insolvency or similar laws affecting creditors' rights
generally or by general principles of equity.
5B. Authorization; No Breach. Neither the execution and
delivery of this Agreement, the Fiber Optic License Agreement or the Right of
Way Operating Agreement, nor the consummation of the transactions contemplated
hereby and thereby nor the fulfillment of or compliance with the terms and
conditions hereof and thereof (a) conflicts with or will result in a breach of
any of the terms, conditions or provisions of (i) the Governing Documents of CSX
or (ii) any agreement, contract, indenture, mortgage, deed, easement, order,
judgment, decree, arbitration award, statute, regulation or instrument to which
CSX is a party or by which it or its assets are bound, except as to matters that
would not reasonably be expected to have a Material Adverse Effect on CSX or
materially affect the ability of CSX to consummate the transactions contemplated
herein or (b) constitutes or will constitute a violation or default or create a
right of termination under any of the foregoing, except as to matters that would
not reasonably be expected to have a Material Adverse Effect on CSX or
materially affect the ability of CSX to consummate the transactions contemplated
herein. No consent or approval, authorization, order, regulation or
qualification of any governmental entity or any other Person is required for the
execution and delivery of this Agreement and the Fiber Optic License Agreement
and the Right of Way Operating Agreement and the consummation of the
transactions contemplated hereby and thereby.
5C. Investment Representations. CSX acknowledges that the
Shares have not been and will not be registered or qualified under the
Securities Act or any state securities laws and are offered in reliance upon an
exemption from registration under Regulation D of the Securities Act and similar
state law exceptions. The Shares to be received by CSX hereunder will be held by
such corporation for investment purposes only for its own account, and not with
a view to or for sale in connection with any distribution of the Shares, and CSX
acknowledges that the Shares cannot be sold or otherwise disposed of unless they
are subsequently registered under the Securities Act or pursuant to an exemption
therefrom; and the Shares may not be sold, assigned or otherwise transferred
except in compliance with the Stockholders Agreement. CSX hereby acknowledges
receipt of a copy of the Stockholders Agreement and represents that it has
reviewed and understands the provisions thereof which have a bearing on the
representations made in this Section 5C.
5D. Accredited Investor. CSX is an "accredited investor"
within the meaning of Regulation D under the Securities Act and has the
knowledge and experience in financial and business matters such that it is
capable of evaluating the merits and risks of receiving and owning the Shares
and is able to bear the economic risk of such ownership and understands that an
investment in Shares involves substantial risks.
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5E. Availability of Information. There has been made
available to CSX and its advisors the opportunity to ask questions of, and
receive answers from, the Company concerning the terms and conditions of the
investment in the Shares, and to obtain the financial information with respect
to the Company's assets, the Stockholders Agreement, and any additional
information, to the extent that the Company possesses such information or can
acquire it without unreasonable effort or expense, necessary to verify the
accuracy of the information given to CSX, or to otherwise make an informed
investment decision, that CSX has had an opportunity to consult with counsel and
other advisors about the investment in the Shares, and that all material
document, records and books pertaining to such investment have, on request, been
made available to CSX and its advisors.
5F. No General Solicitation. Neither CSX nor any of its
advisors, is aware of or has engaged in any form of general solicitation or
advertising with respect to sales of the Shares, including (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio; and
(ii) any seminar or meeting whose attendees were invited by any general
solicitation or general advertising.
5G. Litigation. There is no action, suit, proceeding or
investigation pending or, to CSX's knowledge, threatened against CSX that
questions the validity of this Agreement or the ability of CSX to consummate the
transactions contemplated hereby, other than the approximately twenty-five (25)
class action lawsuits filed by alleged underlying fee owners of railroad
right-of-ways against other telecommunications companies, including
MCI/WorldCom, Qwest Communications, Inc., and AT&T, including the suit Xxxx v.
Qwest Commuications, Inc, CSX Tranxportation, Inc., et al., filed in Tennessee.
5H. Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement binding
upon CSX.
5I. Disclosure. Neither this Agreement nor any of the
schedules, attachments, written statements, documents, certificates or other
items prepared or supplied to the other parties hereto by or on behalf of CSX
with respect to the transactions contemplated hereby contain any untrue
statement of a material fact or omit a material fact necessary to make each
statement contained herein or therein not misleading.
5J. No Intention to Transfer Shares. CSX has no intention or
plan, formally or informally, on the date hereof, to transfer any of the Shares
received by CSX pursuant to this Agreement.
Section 6 Closing.
6A. Closing Date. The Company shall notify CSX of the
occurrence of the Senior Noteholder Consent Date within one business day after
such date. The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Xxxxxxxxx & Xxxxxxx, in
Washington, D.C., or at such other place as shall be mutually agreed upon by the
parties, on the date which is five business days following the Senior Noteholder
Consent Date (or, in the event that any other conditions to the obligations of
any party to close as
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provided hereunder shall not have been met at such date, then on the date which
is three (3) business days following the date on which such conditions shall
have been satisfied or waived by the party whose obligations are so
conditioned), or at such other date and time as to which the parties may agree
(the "Closing Date"). The Closing shall be effective immediately prior to the
close of business on the Closing Date.
6B. Deliveries by the Company at the Closing. At the Closing,
the Company and Pathnet shall deliver the following documents:
i. The Fiber Optic License Agreement duly executed and delivered
by the Company or a Subsidiary;
ii. A certificate of the President of each of Pathnet and the
Company, each certifying that its representations and warranties are
true in all material respects as of the Closing Date and that it has
performed or complied, in all material respects, with all of its
respective agreements and obligations required by this Agreement to be
performed or complied with by it prior to or at the Closing;
iii. A certified copy of resolutions of the Board of Directors of
the Company, authorizing the execution and delivery of this Agreement
and the performance of the obligations of the Company hereunder;
iv. A certified copy of resolutions of the Board of Directors of
Pathnet, authorizing the execution and delivery of this Agreement and
the performance of the obligations of Pathnet hereunder;
v. An opinion of Counsel to the Company and Pathnet substantially
in the form set forth on Exhibit F;
vi. The Stockholders Agreement duly executed and delivered by the
Company and each other stockholder of the Company (other than any one
or more stockholders beneficially owning, in the aggregate, not more
than one percent of the outstanding capital stock of the Company);
vii. Certificates representing the Shares to be issued to CSX;
viii. All third party and governmental consents necessary or
appropriate to consummate the transactions contemplated herein,
including, without limitation, the FCC Consents; and
ix. Those other closing documents required to be executed by it or
as may otherwise be reasonably necessary or appropriate to consummate
the transactions contemplated herein.
6C. Deliveries by CSX at the Closing. At the Closing, CSX
shall deliver the following documents:
i. The Fiber Optic License Agreement duly executed and
delivered by CSX;
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ii. The Right of Way Operating Agreement duly executed and
delivered by CSX;
iii. The Stockholders Agreement duly executed and delivered by CSX;
iv. An opinion of Counsel to CSX substantially in the form set
forth on Exhibit G;
v. A certificate of CSX certifying that the representations and
warranties of such corporation contained in this Agreement are true and
correct as of the Closing Date and that it has performed, in all
material respects, all of its respective agreements and obligations
required by this Agreement to be performed or complied with by it prior
to or at the Closing;
vi. A certified copy of resolutions of the Board of Directors of
CSX authorizing the execution and delivery by CSX of this Agreement and
the performance of the obligations of CSX hereunder;
vii. All third party and governmental consents necessary or
appropriate to consummate the transactions contemplated herein; and
viii. Those other closing documents required to be executed by it or
as may otherwise be reasonably necessary or appropriate to consummate
the transactions contemplated herein.
Section 7 Covenants.
7A. Implementing Agreement. Subject to the terms and
conditions hereof, each party hereto shall use its best efforts to take all
action required of it to fulfill its obligations under the terms of this
Agreement and to facilitate the consummation of the transactions contemplated
hereby.
7B. HSR Act Filings. Each of the Company, Pathnet and CSX
shall use reasonable efforts to prepare and, as soon as practicable after the
Agreement Date, file with the Federal Trade Commission and the Antitrust
Division of the Department of Justice any materials and information required to
be filed with or provided pursuant to the HSR Act with respect to the
transactions contemplated by this Agreement. Each of the Company, Pathnet and
CSX shall promptly supply any additional information which may be required or
requested of it in connection with the HSR Act filings.
7C. FCC Filings. Each of the Company and Pathnet shall use
reasonable best efforts to prepare and, as soon as practicable after the
Agreement Date, file with the Federal Communications Commission any applications
necessary to obtain the FCC Consents.
7D. Access to Information. At all times before the Closing
Date, each of the Company and Pathnet shall provide CSX and its employees,
managers, contractors, consultants, agents and representatives, with reasonable
access to those properties, files, books, records and other materials relating
to the Company and the Subsidiaries and their business and the right to examine
and inspect such materials as CSX may deem appropriate (and make copies of the
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same), subject to the terms of the existing Non-Disclosure Agreement between the
Company and CSX.
7E. Preservation of Business. From the Agreement Date until
the Closing Date, the Company and Pathnet shall cause the Company and the
Subsidiaries to be operated only in the ordinary and usual course of business
and consistent with past practice, shall preserve intact assets of the Company
and the Subsidiaries, preserve the good will and advantageous relationships of
the Company and the Subsidiaries with customers, suppliers, independent
contractors, employees and other Persons material to the operations of its
business, shall perform its material obligations under all contracts and shall
not permit any action or omission which would cause any of the representations
or warranties of the Company or Pathnet contained herein to become inaccurate or
any of the covenants of the Company or Pathnet to be breached. Without any
limitation on the foregoing, the Company and Pathnet agree that, from the
Agreement Date until the Closing Date, except as otherwise consented to or
approved by CSX in writing and except as otherwise required by this Agreement:
i. The Company and Pathnet shall use, and cause the Subsidiaries
to use, reasonable best efforts to continue to solicit new business and
to offer the Company's services and facilities in the ordinary course
of business subject to obligations imposed by this Agreement.
ii. Neither the Company nor any Subsidiary shall (i) enter into an
agreement for the transfer, lease (as lessor), license, guarantee,
sale, mortgage, pledge, disposition of or encumbrance of any assets or
the incurrence or modification of any indebtedness or other liability
other than in the ordinary course of business and consistent with past
practice; or (ii) make any loans, advances or capital contributions to,
or investments in, any other Person (other than to wholly owned
subsidiaries).
iii. Neither the Company nor any Subsidiary shall (i) declare, set
aside or pay any dividends on, or make any other actual, constructive
or deemed distributions in respect of, any of its capital stock, or
otherwise make any payments to its shareholders in their capacity as
such; (ii) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock; or (iii)
purchase, redeem or otherwise acquire any shares of its capital stock
or any other securities thereof or any rights, warrants or options to
acquire any such shares or other securities.
iv. Neither the Company nor any Subsidiary shall issue, deliver,
sell, pledge, dispose of or otherwise encumber any shares of its
capital stock, any other voting securities or equity equivalent or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities, equity equivalent or
convertible securities.
v. The Company shall not amend its Governing Documents.
vi. Neither the Company not any Subsidiary shall acquire or agree
to acquire, by merging or consolidating with, by purchasing a
substantial portion of the assets of or equity in, or by any other
manner, any business or any corporation, partnership,
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association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets.
vii. Neither the Company nor any Subsidiary shall sell, lease or
otherwise dispose of or agree to sell, lease or otherwise dispose of
any of its material assets, other than the sale of inventory in the
ordinary course of business.
7F. Consents and Approvals. The Company and Pathnet shall use
their best efforts to obtain all consents, approvals, certificates and other
documents required in connection with its performance under this Agreement and
the consummation of the transactions contemplated hereby. The Company and
Pathnet shall make all filings, applications, statements and reports to all
governmental authorities and other Persons which are required to be made by
either of them prior to the Closing Date by or on behalf of the Company or
Pathnet or any of their Affiliates pursuant to any applicable law or contract in
connection with this Agreement and the transactions contemplated hereby.
7G. Maintenance of Insurance. The Company and Pathnet shall
continue to carry and cause the Subsidiaries to carry its and their existing
insurance through the Closing Date and shall not allow any breach, default,
termination or cancellation of such insurance policies or agreements to occur or
exist.
7H. Representations and Warranties, Supplemental Information.
From time to time prior to the Closing, each party shall promptly disclose in
writing to the other any matter hereafter arising which, if existing, occurring
or known at the Agreement Date would have been required to be disclosed to the
other or which would render inaccurate any of the representations, warranties or
statements set forth herein. No information provided to either party pursuant to
this Section 7H shall be deemed to cure any breach of any representation,
warranty or covenant made in this Agreement.
7I. No Actions Inconsistent with Fiber Optic License
Agreement. From the Agreement Date until the Closing Date, CSX shall not grant,
or enter into any agreement to grant, any right of way, access, or easement that
would be inconsistent with the rights to be granted to the Company under the
Fiber Optic License Agreement, or that relate to Rail Corridors (as defined in
the Fiber Optic License Agreement).
7J. Tax Free Transfers. The parties intend that the
contribution of properties by CSX and the other contributing Persons described
in Section 3A(v) in respect of the Closing will be part of a single integrated
transaction in which no gain or loss will be recognized to the Company or CSX
upon the issuance and receipt of the Shares pursuant to IRC Section 351 and, in
the case of Persons who contribute Pathnet stock to the Company, the
contributions will qualify as a tax-free reorganization pursuant to IRC Section
368(a)(1)(B), and the parties agree that they will prepare and file their
Federal and state income tax returns in a manner consistent with such
characterization. Further, CSX agrees to provide to the Company a statement
setting forth the amount of CSX's tax basis in the property contributed by CSX
so that the Company can determine its tax basis in the property in accordance
with IRC Section 362. CSX agrees to file the information required by Treasury
Regulation Section 1.351-3 for its Federal income tax return for the taxable
year of the contribution, and the Company agrees to furnish to CSX information
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necessary to enable CSX to comply with the information reporting requirements of
Treasury Regulation Section 1.351-3. The Company agrees that it will exercise
reasonable care not to take any action that would cause the transactions
contemplated hereby not to qualify as tax-free pursuant to IRC Section 351. The
Company has no present intention or plan to transfer all or substantially all
(within the meaning of IRC Section 368(a)(1)(C)) of the assets of Pathnet to the
Company. The Company has no present intention or plan to issue additional shares
of the Company (other than the shares proposed to be issued in the transactions
contemplated by Sections 2 and 3A(v) hereof), or rights to acquire additional
shares, for consideration other than cash or property, if the result would be
that the Contributors would fail to have "control" of the Company within the
meaning of IRC Section 368(c).
7K. Disclosure Letter. The Company shall supplement or amend
the Disclosure Letter from time to time prior to the Closing, provided, however,
that such supplements or amendments (other than immaterial updates of matters
arising in the ordinary course of business) shall not affect any rights that CSX
may have with respect to the Disclosure Letter delivered upon the execution of
this Agreement.
7L. Notices. The Company hereby agrees to provide CSX with
not less than fifteen (15) days' prior written notice of the Company's filing of
a registration statement with the SEC for a Qualified Public Offering.
7M. Stock Options. In conjunction with or promptly after the
Closing, the Company shall issue, in exchange for any Pathnet stock options
theretofore issued by Pathnet under its stock option plans, stock options with
respect to the Common Stock of the Company, with the same terms and conditions
except that the options will be exercisable for common stock of the Company.
Section 8 Indemnification.
8A. Indemnification by the Company. Subject to the terms,
conditions and limitations of this Section 8, the Company and Pathnet jointly
and severally shall indemnify CSX and its Affiliates and their respective
officers, directors, trustees, employees, agents and representatives (the "CSX
Indemnified Parties") against, and agrees to hold each of them harmless from,
any and all Losses incurred or suffered by them relating to or arising out of or
in connection with any of the following (in each case so long as notice of a
claim for indemnification is made in good faith):
i. any breach of any representation or warranty made by the
Company or Pathnet to CSX in this Agreement; or
ii. any breach of or failure by the Company or Pathnet to perform
any covenant or obligation of the Company or Pathnet to CSX under this
Agreement.
No knowledge before the Closing Date by any CSX Indemnified Party of
any such breach or inaccuracy shall constitute a waiver of any claim hereunder.
8B. Indemnification by CSX. Subject to the terms, conditions
and limitations of this Section 8, CSX shall indemnify the Company, Pathnet and
their Affiliates and their
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respective officers, directors, trustees, employees, agents and representatives
(the "Company Indemnified Parties") against, and agree to hold each of them
harmless from, any and all Losses incurred or suffered by them relating to or
arising out of or in connection with any of the following (in each case so long
as notice of a claim for indemnification is made in good faith):
i. any breach of any representation or warranty made by CSX to
Pathnet or the Company in this Agreement; or
ii. any breach of or failure by CSX to perform any covenant or
obligation of CSX to Pathnet or the Company under this Agreement.
No knowledge before the Closing by any Company Indemnified Party of any
such breach or inaccuracy shall constitute a waiver of any claim hereunder.
8C. Claims. As soon as is reasonably practicable after
becoming aware of a claim for indemnification under this Agreement the
Indemnified Person shall promptly give notice to the Indemnifying Person of such
claim and the amount the Indemnified Person believes it is entitled to receive
hereunder from the Indemnifying Person; provided that the failure of the
Indemnified Person to give notice shall not relieve the Indemnifying Person of
its obligations under this Section 8, except to the extent (if any) that the
Indemnifying Person shall have been materially prejudiced thereby. If the
Indemnifying Person does not object in writing to such indemnification claim
within 30 calendar days of receiving notice thereof, the Indemnified Person
shall be entitled to recover promptly from the Indemnifying Person the amount of
such claim, and no later objection by the Indemnifying Person shall be
permitted. If the Indemnifying Person agrees that it has an indemnification
obligation but objects that it is obligated to pay only a lesser amount, the
Indemnified Person shall nevertheless be entitled to recover promptly from the
Indemnifying Person the lesser amount, without prejudice to the Indemnified
Person's claim for the difference. Any claim under this Section 8 must be made
on or prior to the end of the survival period set forth in Section 9E. No claim
may be made against an Indemnifying Person under this Section 8 until the
aggregate amount of all such claims equals at least $2.5 million, at which time
the Indemnifying Person shall be liable for all claims including the initial
$2.5 million in claims.
8D. Assumption of Defense. The Indemnifying Person may, at
its own expense, (a) participate in the defense of any claim, suit, action or
proceeding and (b) upon notice to the Indemnified Person and the Indemnifying
Person's delivering to the Indemnified Person a written agreement that the
Indemnified Person is entitled to indemnification pursuant to Section 8A or 8B
for all Losses arising out of such claim, suit, action or proceeding, assume the
defense thereof; provided, however, that (i) the Indemnifying Person's counsel
is reasonably satisfactory to the Indemnified Person and (ii) the Indemnifying
Person shall thereafter consult with the Indemnified Person upon the Indemnified
Person's reasonable request for such consultation from time to time with respect
to such claim, suit, action or proceeding. If the Indemnifying Person assumes
such defense, the Indemnified Person shall have the right (but not the duty) to
participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the Indemnifying Person. If, however, the
Indemnified Person reasonably determines in its judgment that representation by
the Indemnifying Person's counsel of both the Indemnifying Person and the
Indemnified Person would present such counsel with a
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conflict of interest, then such Indemnified Person may employ separate counsel
to represent or defend it in any such claim, action, suit or proceeding and the
Indemnifying Person shall pay the fees and disbursements of such separate
counsel. Whether or not the Indemnifying Person chooses to defend or prosecute
any such claim, suit, action or proceeding, all of the parties hereto shall
cooperate in the defense or prosecution thereof.
8E. Settlement or Compromise. Any settlement or compromise
made or caused to be made by the Indemnified Person or the Indemnifying Person,
as the case may be, of any such claim, suit, action or proceeding of the kind
referred to in Section 8D shall also be binding upon the Indemnifying Person or
the Indemnified Person, as the case may be, in the same manner as if a final
judgment or decree had been entered by a court of competent jurisdiction in the
amount of such settlement or compromise; provided, however, that no obligation,
restriction or Loss shall be imposed on the Indemnified Person as a result of
such settlement without its prior written consent, which consent will not be
unreasonably withheld or delayed. The Indemnified Person will give the
Indemnifying Person at least 30 days' notice of any proposed settlement or
compromise of any claim, suit, action or proceeding it is defending, during
which time the Indemnifying Person may reject such proposed settlement or
compromise; provided, however, that from and after such rejection, the
Indemnifying Person shall be obligated to assume the defense of and full and
complete liability and responsibility for such claim, suit, action or proceeding
and any and all Losses in connection therewith in excess of the amount of
unindemnifiable Losses which the Indemnified Person would have been obligated to
pay under the proposed settlement or compromise.
8F. Failure of Indemnifying Person to Act. In the event that
the Indemnifying Person does not elect to assume the defense of any claim, suit,
action or proceeding, then any failure of the Indemnified Person to defend or to
participate in the defense of any such claim, suit, action or proceeding or to
cause the same to be done, shall not relieve the Indemnifying Person of its
obligations hereunder.
8G. No Set-Off. The indemnification obligations of the
parties hereunder shall be limited as set forth herein and no party shall be
entitled to set-off such indemnification obligations or any other amounts
against any amounts owed to such party by any other party.
Section 9 Miscellaneous.
9A. Transfer and Similar Taxes. Except as otherwise provided
in the Fiber Optic License Agreement and the Right of Way Operating Agreement,
all sales, use, stock, stamp, transfer, registration or similar taxes or duties,
if any, resulting from the transfer by CSX of property described in Section 2
hereof shall be paid one-half by the Company and one-half by CSX. All HSR Act
filing fees required be made in order to effect the issue of the Shares
contemplated hereby, shall be paid one-half by the Company and one-half by CSX.
All FCC and other governmental filing fees, other than in connection with the
HSR Act filing fees, required to be made in order to effect the transactions
contemplated hereby shall be paid by the Company.
9B. Complete Agreement. This Agreement (including the
Exhibits hereto and the Disclosure Letter) represents the entire agreement
between CSX, Pathnet and the Company covering everything agreed upon or
understood in this transaction and all other prior agreements,
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written or oral are merged into this Agreement. There are no oral promises,
conditions, representations, understandings, interpretations or terms of any
kind as conditions or inducements to the execution hereof in effect between the
parties.
9C. Authorized Signatories. The persons executing this
Agreement for and on behalf of CSX, Pathnet and the Company each represent that
they have the requisite authority to bind the entities on whose behalf they are
signing.
9D. Termination. In the event that for any reason the Closing
does not occur on or before the 150th day after the date of this Agreement, then
any party, if not then in breach of its obligations under this Agreement, may
terminate this Agreement by giving written notice thereof to the other party;
provided, however, that no such termination shall relieve either party of
liability for any breach of its obligations hereunder prior to such termination.
9E. Survival of Representations and Warranties. Regardless of
any investigation made by any party or on its behalf, all representations and
warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby for a period of three
years, provided, however, that any representation or warranty that is subject to
a written claim under Section 8A that is received by the Indemnifying Party
prior to the expiration of such three-year period shall continue to survive, and
the representations and warranties made pursuant to Sections 4L, 4Y and 7J shall
survive until the expiration of the applicable statute of limitations.
9F. Successors and Assigns. This Agreement may not be
assigned by either party without the written consent of the other party. Except
as otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not.
9G. Knowledge. As used in this Agreement, the terms
"knowledge" or "aware" with respect to the Company and Pathnet shall mean the
actual knowledge or awareness of any one or more of Xxxxxxx Xxxxxx, Xxxxxxx
Xxxxxxxx, Xxxxxxx Xxxxx, Xxxxx Xxxxx, Xxx Xxxxxxxxxxxxx and Xxxxxx Xxxxx, and
such terms with respect to CSX shall mean the actual knowledge or awareness of
any one or more of Xxxxxx Xxxxxx, Xxx Xxxxxxx, Xxxx Xxxxxx, and Xxxxx Xxxxx.
9H. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
9I. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
shall constitute one and the same Agreement.
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9J. Descriptive Headings: Interpretation. The descriptive
headings of this Agreement are inserted for convenience only and do not
constitute a Section of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
9K. Governing Law. This Agreement shall be governed by the
laws of the State of Delaware.
9L. Amendment. No change or addition shall be made to this
Agreement except by a written agreement executed by CSX, Pathnet and the
Company.
9M. Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by reputable express courier
service (charges prepaid) or mailed to the recipient by certified or registered
mail, return receipt requested and postage prepaid. Such notices, demands and
other communications shall be sent to the parties hereto at the address
indicated below:
If to CSX:
CSX Real Property, Inc.
000 Xxxx Xxx Xxxxxx, X000
Xxxxxxxxxxxx, Xxxxxxx 00000
Attn: Vice President & General Manager
Fax: (000) 000-0000
With a copy to (which shall not constitute notice):
CSX Transportation, Inc.
000 Xxxxx Xxxxxx, X000
Xxxxxxxxxxxx, Xxxxxxx 00000
Attn: Assistant General Counsel - Real Estate
Fax: (000) 000-0000
If to the Company to:
Pathnet Telecommunications, Inc.
0000 00xx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attn: General Counsel
Fax: 000-000-0000
With a copy (which shall not constitute notice) to:
Xxxxxxxxx & Xxxxxxx
0000 Xxxxxxxxxxxx Xxx., X.X.
X.X. Xxx 0000
Xxxxxxxxxx, X.X. 00000
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Attn: Xxxxx X. Xxxxxx, Esq.
Fax: 000-000-0000
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
[End of text; signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
PATHNET TELECOMMUNICATIONS, INC.
BY /s/ XXXXXXX X. XXXXXX
------------------------------
ITS PRESIDENT AND CEO
------------------------------
PATHNET, INC.
BY /s/ XXXXXXX X. XXXXXX
--------------------------
ITS PRESIDENT AND CEO
--------------------------
CSX TRANSPORTATION, INC.
BY /s/ X. XXXXXXX
-----------------------------
ITS VICE PRESIDENT REAL ESTATE AND
-----------------------------
INDUSTRIAL DEVELOPMENT
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