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EXHIBIT 10.5
CONTRIBUTION AGREEMENT
DATED
NOVEMBER 4, 1999
BY AND AMONG
PATHNET TELECOMMUNICATIONS, INC.,
PATHNET, INC.
AND
COMMON STOCKHOLDERS OF PATHNET, INC.
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CONTRIBUTION AGREEMENT
THIS AGREEMENT is made as of November 4, 1999 (the "Agreement Date"),
by and among PATHNET TELECOMMUNICATIONS, INC., a Delaware corporation (the
"Company"); PATHNET, INC., a Delaware corporation ("Pathnet"); and CHRIS ROGERS,
an individual resident of Silver Spring, Maryland, JEFFREY LEVITT, an individual
resident of Columbia, Maryland, EDWARD PRINCE an individual resident of Chevy
Chase, Maryland, KEN KLAMM an individual resident of Independence, Kansas, and
ERIC PODIETZ, an individual resident of Dresher, Pennsylvania, Holders of Common
Stock of Pathnet (the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Stockholders own shares of common stock of Pathnet; and
WHEREAS, the Company intends to acquire Pathnet as a subsidiary; and
WHEREAS, the Stockholders intend, subject to the terms and conditions
hereof, to exchange their stock in Pathnet for Shares of the Company; and
WHEREAS, the Stockholders and persons contributing common stock and
preferred stock of Pathnet or other assets to the Company pursuant to the
Related Contribution Agreements (as defined below) intend that the transfers of
the stock and other 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.
"Affiliate" of any particular person or entity shall mean 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
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and then select a majority of those Persons exercising governing authority over
an entity. Control shall be exclusively presumed in the case of the direct or
indirect ownership of fifty percent (50%) or more of the equity interests in an
entity.
"Agreement" shall mean this Contribution Agreement, as amended,
supplemented or restated from time to time in accordance with its terms.
"Agreement Date" shall have the meaning set forth in the preamble to this
Agreement.
"Closing" shall have the meaning set forth in Section 6A.
"Closing Date" shall have the meaning set forth in Section 6A.
"Common Stock" shall mean Common Stock of the Company, par value $0.01
per share.
"Company" shall have the meaning set forth in the preamble to this
Agreement.
"Contributors" shall mean the parties to this Agreement and the Related
Contribution Agreements (as defined below), other than the Company and Pathnet.
"FCC" shall mean the Federal Communications Commission and any
governmental body or agency succeeding to the functions thereof.
"FCC Consents" shall mean 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.
"Governing Documents" shall mean, 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" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"IRC" shall mean 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.
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"Licenses" shall mean federal, state, local and foreign franchises,
tariffs, licenses, ordinances, certifications, approvals, authorizations and
permits issued or granted by governmental authorities.
"Loss" or "Losses" shall mean any and all loss, cost, claim, damage,
liability, or expense (including attorneys' fees).
"Material Adverse Effect" shall mean a material adverse effect upon the
assets, liabilities, prospects, financial condition or business operations of
the Company and its Subsidiaries, taken as a whole.
"Pathnet" shall have the meaning set forth in the preamble to this
Agreement.
"Person" shall mean 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.
"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" shall mean the Securities Act of 1933, as amended, or
any similar federal law then in force.
"Securities Exchange Act" shall mean 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, 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.
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"Shares" shall mean the Common Stock of the Company being issued to the
Stockholders pursuant to the terms hereof as the terms of such Shares are set
forth in the Certificate of Incorporation of the Company attached as Exhibit D
hereto.
"Stockholders" shall have the meaning set forth in the preamble to this
Agreement.
"Stockholders Agreement" shall mean a Stockholders' Agreement
substantially in the form of Exhibit E hereto.
"Subsidiary" shall mean 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.
"Treasury Regulations" shall mean 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 Contributions by the Stockholders in Exchange for
Shares.
At the Closing, each Stockholder shall assign, transfer, convey and
contribute to the Company each of the Stockholder's stock and interest in
Pathnet and in consideration for the stock of Pathnet, the Company shall issue
and sell to each Stockholder Shares, all in the amounts set forth in the
schedule attached as Exhibit A hereto. Each Stockholder shall receive solely
Shares in exchange for such Stockholder's stock and interest in Pathnet.
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:
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 the other parties to the
Related Contribution Agreements 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
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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 Stockholders 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 Stockholder shall have performed or
complied with, in all material respects, all of his respective
agreements, covenants and obligations required by this Agreement to be
performed or complied with by such Stockholder 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) one or more contribution agreements
between the Company, Pathnet and certain holders of shares of the
outstanding common stock of Pathnet, (b) the Contribution Agreement
between the Company, Pathnet and the holders of the issued and
outstanding Preferred Stock of Pathnet, (c) the Contribution Agreement
between the Company, Pathnet and Colonial Pipeline Company, (d) the
Contribution Agreement between the Company, Pathnet and The Burlington
Northern and Santa Fe Railway Company, and (e) the Contribution Agreement
between the Company, Pathnet and CSX Transportation, Inc. (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 the Stockholders at the Closing. The
Stockholders' 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 each Stockholder) 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 the other parties the
Related Contribution Agreements 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
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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. Delivery of Closing Documents. The Stockholders shall have
received the closing documents specified in Section 6B.
viii. Senior Noteholder Consent. The Senior Noteholder Consent shall
have been obtained and not revoked.
Section 4 Representations and Warranties of the Company and
Pathnet. Each of the Company and Pathnet represents and warrants to the
Stockholders 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 the Stockholders 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 into this Agreement and to consummate the
transactions contemplated herein. The officers of
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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 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 a similar contribution agreement with all holders of
the 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 on Exhibit H), 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 on Exhibit
H. Exhibit H 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
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 Exhibit H. As of the Closing and
immediately thereafter, all of the
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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 on
Exhibit H.
4D. Subsidiaries, Investments. Exhibit H 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 Exhibit H. Except as set
forth on Exhibit H, 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. Except as set forth in Exhibit I, no
consent or approval, authorization, order, registration or qualification
of any governmental entity or any other Person is required for the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by the Company.
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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 except as
set forth in the Stockholders Agreement. Upon delivery of the
contributions described in Section 2 to the Company, the Shares will be
validly issued, fully paid and non-assessable.
4G. Related Contribution Agreements. The Company has made
available to the Stockholders true, correct and complete copies of the
Related Contribution Agreements, together with any amendments thereto and
modifications thereof.
4H. 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.
4I. Reports with the SEC. The Company has furnished or made
available to the Stockholders 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 4I.
4J. 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), 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.
4K. 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.
Section 5 Representations and Warranties of the Stockholders. Each
Stockholder individually and severally, but not jointly, represents and warrants
to the Company, to Pathnet and to each of the other Stockholders with respect to
each of the following 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:
5A. Binding Agreement. Such Stockholder has the capacity to enter
into and perform this Agreement. This Agreement has been duly executed by such
Stockholder and constitutes legal, valid and binding obligations of such
Stockholder, enforceable against it in
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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 nor the consummation of the transactions contemplated hereby
nor the fulfillment of or compliance with the terms and conditions hereof (a)
conflicts with or will result in a breach of any of the terms, conditions or
provisions of any agreement, contract, indenture, mortgage, deed, easement,
order, judgment, decree, arbitration award, statute, regulation or instrument to
which such Stockholder is a party or by which his or its assets are bound,
except as to matters that would not reasonably be expected to have a Material
Adverse Effect on such Stockholder or materially affect the ability of such
Stockholder 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 such Stockholder or
materially affect the ability of such Stockholder to consummate the transactions
contemplated herein. No consent or approval, authorization, order, regulation or
qualification of any governmental entity or any other third party is required
for the execution and delivery by such Stockholder of this Agreement and the
consummation by such Stockholder of the transactions contemplated hereby.
5C. Investment Representations. Such Stockholder 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 such Stockholder hereunder
will be held by such Stockholder for investment purposes only for such
Stockholder's own account, and not with a view to or for sale in connection with
any distribution of the Shares, and such Stockholder 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. Such Stockholder 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. Unless otherwise indicated on Exhibit B,
such Stockholder 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
such Stockholder and such Stockholder's advisors the opportunity to ask
questions of, and receive answers from, the Company concerning the terms and
conditions of the investment in the Shares, and to obtain the financial
information with respect to the Company's assets, the Stockholders Agreement,
and any additional information, to the extent that the Company possesses such
information or can acquire it without unreasonable effort or expense, necessary
to verify the accuracy of the information given to such Stockholder, or to
otherwise make an informed investment decision, that such Stockholder has had an
opportunity to consult with counsel and
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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 such Stockholder and his advisors.
5F. No General Solicitation. Neither such Stockholder nor any
advisor to such Stockholder 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 such Stockholder's knowledge, threatened against
such Stockholder that questions the validity of this Agreement or the ability of
such Stockholder to consummate the transactions contemplated hereby.
5H. Brokerage. Such Stockholder acknowledges that 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 such Stockholder.
5I. No Intention to Transfer Shares. Such Stockholder acknowledges
that there is no intention or plan, formally or informally, on the date hereof,
to transfer any of the Shares received by such Stockholder pursuant to this
Agreement.
Section 6 Closing.
6A. Closing Date. The Company shall notify the Stockholders 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 (5) 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:
i. 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;
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ii. 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;
iii. 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;
iv. An opinion of Counsel to the Company substantially in the form set
forth on Exhibit G;
v. 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);
vi. Certificates representing the Shares to be issued to each
Stockholder;
vii. All third party and governmental consents necessary or appropriate
to consummate the transactions contemplated herein, including, without
limitation, the FCC Consents; and
viii. Those other closing documents required to be executed by it or as
may otherwise be reasonably necessary or appropriate to consummate the
transactions contemplated herein.
6C. Deliveries by each Stockholder at the Closing. At the Closing,
each Stockholder shall deliver the following documents:
i. A certificate of such Stockholder certifying that the
representations and warranties of such Stockholder contained in this
Agreement are true and correct as of the Closing Date and that it has
performed, in all material respects, all of its respective agreements and
obligations required by this Agreement to be performed or complied with
by such Stockholder prior to or at the Closing;
ii. All third party and governmental consents necessary or appropriate
to consummate the transactions contemplated herein; and
iii. 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.
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7B. 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.
7C. Consents and Approvals. The Company and Pathnet shall use
their best efforts to obtain all consents, approvals, certificates and other
documents required in connection with its performance under this Agreement and
the consummation of the transactions contemplated hereby. The Company and
Pathnet shall make all filings, applications, statements and reports to all
governmental authorities and other Persons which are required to be made by
either of them prior to the Closing Date by or on behalf of the Company or
Pathnet or any of their Affiliates pursuant to any applicable law or contract in
connection with this Agreement and the transactions contemplated hereby.
7D. Tax Free Transfers. The parties intend that the contribution
of properties by the Stockholders 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 the
Stockholders 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, each Stockholder agrees to provide to the Company a
statement setting forth the amount of such Stockholder's tax basis in the
property contributed by such Stockholder so that the Company can determine its
tax basis in the property in accordance with IRC Section 362. Each Stockholder
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 each Stockholder information necessary to
enable each Stockholder 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).
Section 8 Miscellaneous.
8A. Complete Agreement. This Agreement (including the Exhibits
hereto) represents the entire agreement between the Stockholders, 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.
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8B. Authorized Signatories. The persons executing this Agreement
for and on behalf of each Stockholder, Pathnet and the Company each represent
that they have the requisite authority to bind the entities on whose behalf they
are signing.
8C. 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.
8D. 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 terminate at the Closing.
8E. 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.
8F. 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.
8G. 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.
8H. 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.
8I. 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.
8J. Governing Law. This Agreement shall be governed by the laws of
the State of Delaware.
8K. Amendment. No change or addition shall be made to this
Agreement except by a written agreement executed by the Stockholders, Pathnet
and the Company.
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8L. Expenses. The Company, Pathnet and each Stockholder shall pay
their respective expenses, if any, incurred in connection with the exchange
pursuant to this Agreement.
8M. 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 the Stockholders to such Stockholders' addresses as set forth in Exhibit B
hereto.
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
---------------------------------
Name: Richard A. Jalkut
Title: President and CEO
PATHNET, INC.
By: /s/ RICHARD A. JALKUT
---------------------------------
Name: Richard A. Jalkut
Title: President and CEO
STOCKHOLDERS
/s/ CHRIS ROGERS
--------------------------------
Chris Rogers
/s/ JEFFREY LEVITT
--------------------------------
Jeffrey Levitt
/s/ EDWARD PRINCE
--------------------------------
Edward Prince
/s/ ERIC PODIETZ
--------------------------------
Eric Podietz
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/s/ KEN KLAMM
--------------------------------
Ken Klamm
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