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EXHIBIT 10.1
CONTRIBUTION AGREEMENT
DATED
NOVEMBER 4, 1999
BY AND AMONG
PATHNET TELECOMMUNICATIONS, INC.,
PATHNET, INC.,
AND
THE BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY
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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 THE
BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY, a Delaware corporation
("BNSF");
W I T N E S S E T H:
WHEREAS, BNSF has certain ownership interests in certain railroad
corridors covering the western 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 BNSF rail corridors; and
WHEREAS, BNSF 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 Access Agreement (as defined below) in exchange for
certain Series D Shares (as defined below); and
WHEREAS, BNSF 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 limited liability company, or otherwise to have the power
independently to remove and then
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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.
"BNSF" 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.
"Disclosure Letter" means the disclosure letter of the Company to
BNSF, 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 Access Agreement" means the Fiber Optic Access 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 Hart-Scott-Rodino 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 BNSF, upon BNSF 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).
"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.
"Stockholders Agreement" shall mean a Stockholders Agreement
substantially in the form of Exhibit D hereto.
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"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 BNSF. At the Closing, BNSF
shall assign, transfer, convey and contribute to the Company certain property
in the form of the right to own and/or lease certain property interests in
designated portions of rail corridors currently used by BNSF, in accordance
with the terms of the Fiber Optic Access Agreement, and in consideration for
the execution by BNSF of such Fiber Optic Access Agreement, the Company will
issue and sell to BNSF 3,413,746 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 BNSF 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 BNSF 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. BNSF 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
Colonial Pipeline Company, (c) the Contribution Agreement between the
Company and CSX Transportation, Inc., 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 BNSF (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 BNSF at the Closing. BNSF'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
BNSF) 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 BNSF 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. BNSF 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 BNSF
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 BNSF 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 Access 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 Access Agreement will 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, neither the Company nor any
Subsidiary will be subject to any obligation (contingent or
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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
BNSF 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, order, registration
or qualification of any governmental entity or any other Person is required for
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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 BNSF 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 BNSF 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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14
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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15
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 creditors' 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. BNSF 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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16
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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17
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 BNSF 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 BNSF. BNSF
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. BNSF is duly
organized and validly existing under the laws of the State of Delaware and has
been duly authorized by all necessary
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and appropriate corporate action to enter into this Agreement and the Fiber
Optic Access Agreement and to consummate the transactions contemplated herein
and therein. The officer of BNSF executing this Agreement on behalf of BNSF
has been duly authorized by all necessary and appropriate corporate action.
This Agreement is, and when executed and delivered the Fiber Optic Access
Agreement will be, a valid and binding obligation of BNSF, 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 or the Fiber Optic Access 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 BNSF or (ii) any agreement,
contract, indenture, mortgage, deed, easement, order, judgment, decree,
arbitration award, statute, regulation or instrument to which BNSF 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 BNSF or materially
affect the ability of BNSF 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 BNSF, taken as a
whole, or materially affect the ability of BNSF 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 Access
Agreement and the consummation of the transactions contemplated hereby and
thereby.
5C. Investment Representations. BNSF 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 BNSF 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 BNSF 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.
BNSF 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. BNSF 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.
5E. Availability of Information. There has been made
available to BNSF 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
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21
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 BNSF, or to otherwise make
an informed investment decision, that BNSF 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 BNSF and its advisors.
5F. No General Solicitation. Neither BNSF 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 BNSF 's knowledge, threatened against BNSF that
questions the validity of this Agreement or the ability of BNSF to consummate
the transactions contemplated hereby.
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 BNSF.
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 BNSF
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. BNSF has no
intention or plan, formally or informally, on the date hereof, to transfer any
of the Shares received by BNSF pursuant to this Agreement.
Section 6 Closing.
6A. Closing Date. The Company shall notify BNSF 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 Covington & Burling, 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 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:
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i. The Fiber Optic Access 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 BNSF;
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 BNSF at the Closing. At the Closing,
BNSF shall deliver the following documents:
i. The Fiber Optic Access Agreement duly executed and delivered
by BNSF;
ii. The Stockholders Agreement duly executed and delivered by
BNSF;
iii. An opinion of Counsel to BNSF substantially in the form set
forth on Exhibit G;
iv. A certificate of BNSF 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
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agreements and obligations required by this Agreement to be
performed or complied with by it prior to or at the Closing;
v. A certified copy of resolutions of the Board of Directors of
BNSF authorizing the execution and delivery by BNSF of this
Agreement and the performance of the obligations of BNSF
hereunder;
vi. All third party and governmental consents necessary or
appropriate to consummate the transactions contemplated
herein; and
vii. 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
BNSF 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
BNSF 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 BNSF 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 BNSF may deem appropriate
(and make copies of the same), subject to the terms of the existing
Non-Disclosure Agreement between the Company and BNSF.
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
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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 BNSF 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, 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
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25
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 Access
Agreement. From the Agreement Date until the Closing Date, BNSF 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 Access Agreement.
7J. Tax Free Transfers. The parties intend that the
contribution of properties by BNSF 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 BNSF
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, BNSF agrees to provide to the Company a statement
setting forth the amount of BNSF's tax basis in the property contributed by
BNSF so that the Company can determine its tax basis in the property in
accordance with IRC Section 362. BNSF 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 BNSF
information necessary to enable BNSF 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). Shares of
the Company issued after the Closing pursuant to either the Contribution
Agreement or the Option Agreement by and between the Company and Colonial
Pipeline Company will not result in Colonial Pipeline Company (and any other
person
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26
acquiring such shares pursuant to those agreements) acquiring in the aggregate
twenty percent (20%) or more of the total outstanding shares of the Company.
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 BNSF may have with respect to the Disclosure Letter delivered
upon the execution of this Agreement.
7L. Notices. The Company hereby agrees to provide
BNSF 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 BNSF and its Affiliates
and their respective officers, directors, trustees, employees, agents
and representatives (the "BNSF 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 BNSF 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 BNSF under
this Agreement.
No knowledge before the Closing Date by any BNSF Indemnified Party of
any such breach or inaccuracy shall constitute a waiver of any claim hereunder.
8B. Indemnification by BNSF. Subject to the terms,
conditions and limitations of this Section 8, BNSF shall indemnify the Company,
Pathnet and their Affiliates and their 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 BNSF to
Pathnet or the Company in this Agreement; or
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27
ii. any breach of or failure by BNSF to perform any covenant or
obligation of BNSF 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 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
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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 Access Agreement and Fiber Optic Lease, all sales,
use, stock, stamp, transfer, registration or similar taxes or duties, if any,
resulting from the transfer by BNSF of property described in Section 2 hereof
shall be paid one-half by the Company and one-half by BNSF. 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 BNSF. 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 BNSF, Pathnet and the Company covering everything agreed upon or
understood in this transaction and all other prior agreements, 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 BNSF, Pathnet and the Company each represent
that they have the requisite authority to bind the entities on whose behalf
they are signing.
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29
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 Richard Jalkut, William
Smedberg, Michael Lubin, James Craig, Joe Mastrogiorgio and Robert Rouse, and
such terms with respect to BNSF shall mean the actual knowledge or awareness of
any one or more of Shelley Venick, Thomas N. Hund, Jeffrey R. Moreland and Roy
Dahl.
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.
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.
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9L. Amendment. No change or addition shall be made to
this Agreement except by a written agreement executed by BNSF, 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 BNSF:
The Burlington Northern and Santa Fe Railway Company
2500 Lou Menk Drive
Fort Worth, Texas 76131
Attn: Chief Financial Officer
Fax: 817-352-4804
With a copy (which shall not constitute notice) to:
Mayer, Brown & Platt
190 S. LaSalle
Chicago, IL 60603
Attn: James J. Junewicz, Esq.
Fax: 312-701-7711
If to the Company to:
Pathnet Telecommunications, Inc.
1015 31st Street, N.W.
Washington, D.C. 20007
Attn: General Counsel
Fax: 202-625-7369
With a copy (which shall not constitute notice) to:
Covington & Burling
1201 Pennsylvania Ave., N.W.
P.O. Box 7566
Washington, D.C. 20044
Attn: Bruce S. Wilson, Esq.
Fax: 202-662-6291
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/ RICHARD A. JALKUT
-------------------------------------
ITS PRESIDENT AND CEO
-------------------------------------
PATHNET, INC.
BY /s/ RICHARD A. JALKUT
-------------------------------------
ITS PRESIDENT AND CEO
-------------------------------------
THE BURLINGTON NORTHERN AND
SANTA FE RAILWAY COMPANY
BY /s/ ILLEGIBLE
-------------------------------------
ITS
-------------------------------------
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