PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. SUCH PORTIONS ARE
DESIGNATED "[***]"
Exhibit 10.4
THIS FIXED POINT MICROWAVE SERVICES AGREEMENT is made and entered into as
of the 17th day of September, 1997 (the "EFFECTIVE DATE"), by and between
PathNet, Inc. ("PATHNET"), a Delaware corporation and KN Energy, Inc.
("INCUMBENT"), a Kansas corporation (collectively, the "PARTIES" and each, a
"PARTY".
W I T N E S S E T H:
WHEREAS, PathNet is engaged in the business of creating high capacity,
digital, microwave communications systems for purposes of marketing and selling
the excess long distance telecommunications capacity created by such systems;
WHEREAS, Incumbent is the owner and operator of an existing microwave
telecommunications system; and
WHEREAS, Incumbent desires to engage PathNet as, and PathNet desires to (i)
install, manage, and operate a high capacity digital microwave system along
Incumbent's current microwave paths and (ii) act as Incumbent's sole
representative for the purpose of marketing and selling any Excess Capacity
created by such high capacity digital microwave system.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the Parties agree as follows:
SECTION 1. DEFINITIONS.
1.1 DEFINITIONS: As used in this Agreement, the following terms shall
have the meanings indicated:
1.1.1 1/0 MULTIPLEXER: Any device that multiplexes capacity
between the DS-1 and the DS-0 levels.
1.1.2 1 X 1: A microwave radio configuration consisting of a
primary and a protect radio.
1.1.3 AFFILIATE: With respect to any Person, any other Person
that directly or indirectly controls, is controlled by, or is under common
control with such Person. For the purposes of this definition, "control"
(including the terms "controlled by" and "under common control with"), as
used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities, by contract, or otherwise.
1.1.4 AGREEMENT: This Fixed Point Microwave Services Agreement,
including the Schedules and Exhibits attached hereto, as the same may be
amended, supplemented or modified in accordance with the terms hereof.
1.1.5 ALARM AND EVENT REPORT: As defined in SECTION 7.7 of
SCHEDULE A.
1.1.6 AMENDED SCHEDULE B: As defined in SECTION 18.15.
1.1.7 ARBITRATION RULES: As defined in SECTION 17.2.2.
1.1.8 AS-BUILT DRAWING: As defined in SECTION 4.1.4 of
SCHEDULE A.
1.1.9 ASSOCIATION: As defined in SECTION 17.2.2.
1.1.10 ASSIGNMENT DOCUMENTS: As defined in SECTION 8.6.1.
1.1.11 AVAILABLE EXCESS CAPACITY: The total PathNet Excess
Capacity available (and not allocated) for use or sale on the System at any
given time from Commissioning through the Expiration Date.
1.1.12 AVERAGE SOLD EXCESS CAPACITY: The cumulative average of
[(PathNet Excess Capacity - Available Excess Capacity)/PathNet Excess
Capacity] taken as a percentage.
1.1.13 BIT ERROR RATE: The number of received bits in error
compared to the total number of bits received.
1.1.14 BREACHING PARTY: As defined in SECTION 17.1.2.
1.1.15 BUSINESS DAY: Any day other than a Saturday, a Sunday, or a
day on which the banking institutions in either New York, New York, or the
city and state in which the principal executive offices of PathNet within
the United States are located, are not open for business.
1.1.16 CAPACITY EXPANSION: An increase in telecommunication
channels a System is able to transmit, receive and transport above those
created by the installation of the Initial System, achieved by an addition
to or change in equipment.
1.1.17 CAPACITY EXPANSION SCHEDULE: As defined in SECTION 7.1 of
SCHEDULE A.
1.1.18 CERCLA: Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 6901 ET SEQ., as amended.
1.1.19 CHANNEL PLAN: As defined in SECTION 1.1 of SCHEDULE A.
1.1.20 COMMISSIONING: With respect to each path or Segment, the
date on which the circuits of such path or Segment are available for
service after completion of all required site acceptance testing on the
Initial System or any Capacity Expansion.
1.1.21 CUSTOMER AGREEMENTS: As defined in SECTION 9.8.1.
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1.1.22 CUTOVER PLAN: As defined in SECTION 4.1.1 of SCHEDULE A.
1.1.23 DS-0: 64,000 bits per second; The world-wide standard speed
for digitizing one voice conversation using pulse code modulation, which is
approximately equivalent to a single voice or data channel.
1.1.24 DS-1: 24 DS-0's.
1.1.25 DS-3: 672 DS-0's or 28 DS-1's.
1.1.26 DEFICIENCY LIST: As defined in SECTION 5.7 of SCHEDULE A.
1.1.27 DISPUTE: As defined in SECTION 17.2.1.
1.1.28 DROP AND INSERT: That process wherein a part of the
information carried in a transmission system is demodulated (dropped) at an
intermediate point and different information is entered (inserted) for
subsequent transmission.
1.1.29 EFFECTIVE DATE: As defined in the introductory paragraph of
this Agreement or the date of any AMENDED SCHEDULE B, as the context
indicates.
1.1.30 ERROR FREE SECOND: Any one-second interval that does not
contain a measurable bit error.
1.1.31 ENCUMBRANCES: Any security interests, mortgages,
restrictions, liens, pledges, options, rights of first refusal and other
encumbrances, as applicable, whether or not relating to the extension of
credit or the borrowing of money. To "Encumber" shall mean to effect any
Encumbrance.
1.1.32 EQUIPMENT: Any and all digital microwave radios, radio
components, cards, antennas, waveguides, multiplexers, software and other
equipment or parts required for the operation of the System provided and
installed by PathNet as set forth on EXHIBIT A-1 to SCHEDULE A.
1.1.33 ERRORED SECONDS: Any one-second interval during which one
or more bit errors occur.
1.1.34 ESCROW AGREEMENT: As defined in SECTION 4.1.5.
1.1.35 EXCESS CAPACITY: The PathNet Excess Capacity and the
Incumbent Excess Capacity.
1.1.36 EXISTING SYSTEM INVENTORY: As defined in SECTION 1.1 of
SCHEDULE A.
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1.1.37 EXPIRATION DATE: The date on which this Agreement and the
rights and obligations hereunder are terminated or expire in accordance
with SECTION 3.
1.1.38 FAA: The Federal Aviation Administration, or any other
Federal agency at the time administering tower registration requirements
and regulations.
1.1.39 FAILED SECOND: Any one-second interval that has 1,544 bit
errors at a DS-1 rate.
1.1.40 FACILITIES: Incumbent's towers, shelters, sites and all
equipment owned by Incumbent relating to and used in association with such
towers, shelters and sites for the purpose of operating the System.
1.1.41 FCC: The Federal Communications Commission, or any other
Federal agency at the time administering the Communications Act of 1934, as
amended, the Telecommunications Act of 1996, as amended and the rules and
regulations promulgated thereunder.
1.1.42 FCC CODE: The Communications Act of 1934, as amended, the
Telecommunications Act of 1996, as amended and the rules and regulations
promulgated thereunder and related thereto.
1.1.43 FIRST EXTENSION PERIOD: As defined in SECTION 3.1.3.
1.1.44 FORCE MAJEURE EVENT: As defined in SECTION 16.3.
1.1.45 FORM 415: As defined in SECTION 10.1.1.
1.1.46 FREQUENCY AVAILABILITY MODEL: As defined in SECTION 1.1 of
SCHEDULE A.
1.1.47 FREQUENCY DIVERSITY: A method of protecting a radio signal
by providing a second radio signal on a different frequency, which will
assume the radio signal load when the regular channel fails.
1.1.48 GOVERNMENTAL AUTHORITY: Any nation or government, any state
or other political subdivision thereof and any court, panel, judge, board,
bureau, commission, agency or other entity, body or other person exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
1.1.49 HAZARDOUS MATERIAL: Any material amount of any substance,
matter or waste which is or becomes regulated by any Federal, state or
local law, ordinance, order, rule, regulation, code or any government
restrictions or requirement including, but not limited to, asbestos,
petroleum products and "Hazardous Substances" and "Hazardous Wastes" (as
such terms are defined in CERCLA and RCRA).
4
1.1.50 INCUMBENT: As defined in the introductory paragraph.
1.1.51 INCUMBENT ESTIMATED COSTS: As defined in SECTION 4.1.2.
1.1.52 INCUMBENT ITEMS: As defined in SECTION 4.1.1.
1.1.53 INCUMBENT PAYMENT CAP: As defined in SECTION 4.1.3.
1.1.54 INCUMBENT DESIRED PATH: As defined in SECTION 9.3.
1.1.55 INCUMBENT EXCESS CAPACITY: As defined in SECTION 9.1.2.
1.1.56 INCUMBENT PROJECT FEE: The fee paid by Incumbent to PathNet
for project development and management, as defined in SECTION 4.3.
1.1.57 INCUMBENT REPRESENTATIVE: As defined in SECTION 18.12.
1.1.58 INITIAL SYSTEM: The initial system with a 1 x 1
configuration which is comprised of the first 84 DS-1's (which is
equivalent to 2,040 DS-0's) of the System and the System's 84 DS-1 protect
channels.
1.1.59 INITIAL PERIOD: As defined in SECTION 3.1.2.
1.1.60 INTERCONNECTION: The point at which a private network is
connected to (i) the PSTN, which can include IXC POPs, tandem access
points, the central office, internet service providers, or major industrial
customer points of presence or (ii) another private network.
1.1.61 INTERFERENCE: Any measurable impairment in the performance
of the System or the quality of the signals received or transmitted on the
System.
1.1.62 IXC: An inter-exchange carrier; a telephone company that
provides long-distance telephone service between LATA's but not within any
one LATA.
1.1.63 JUDGMENT: Any order, judgment, writ, decree, award or other
determination, decision or ruling of any court, judge, justice or
magistrate, any other Governmental Authority or any arbitrator.
1.1.64 LATA: Local Access and Transport Area; one of 161 local
geographic areas in the United States within which a local telephone
company may offer telecommunications services.
1.1.65 LEASED PREMISES: As defined in SECTION 5.1.
1.1.66 LEASED PREMISES ENCUMBRANCE: As defined in SECTION 5.10.
5
1.1.67 LOSSES: Any and all losses, claims, fines, penalties,
causes of action, judgments, assessments, damages, liabilities, expenses
(including reasonable attorneys' and accountants' fees), assessments
sustained, suffered or incurred arising from any matter.
1.1.68 MAINTENANCE SERVICES AGREEMENT: The Maintenance Services
Agreement, by and between PathNet and Incumbent, as the same may be amended
from time to time in accordance with its terms.
1.1.69 MATERIAL ADVERSE EFFECT: Any event, fact, circumstance or
occurrence, which results or would result in a material adverse change in
or a material adverse effect on any of: (i) the condition (financial or
otherwise), business, performance, operations, properties, or prospects of
such Person; (ii) the legality, validity or enforceability of this
Agreement; or (iii) the ability of such Person to perform its material
obligations under this Agreement.
1.1.70 MODIFICATIONS SOW: As defined in SECTION 2.1 of SCHEDULE A.
1.1.71 NETWORK MONITORING CENTER: As defined in SECTION 7.5 of
SCHEDULE A.
1.1.72 NETWORK MANAGEMENT SYSTEM: As defined in SECTION 7.6 of
SCHEDULE A.
1.1.73 NON-BREACHING PARTY: As defined in SECTION 17.1.2.
1.1.74 OC-3 MULTIPLEXER: Any device that multiplexes capacity
between the OC-3 and the DS-1 levels.
1.1.75 ORDER WIRE: A service channel consisting of a 64,000 bit
per second circuit between sites.
1.1.76 OSHA: The Occupational Safety and Health Act, as amended.
1.1.77 OUTAGE: When the Bit Error Rate in each second is worse
than 10-3 for a period of ten (10) consecutive seconds.
1.1.78 PART 101: Part 101 of Title 47 of the Code of Federal
Regulations, as amended.
1.1.79 PARTY: As defined in the introductory paragraph.
1.1.80 PATH STUDIES: As defined in SECTION 1.1 of SCHEDULE A.
1.1.81 PATHNET: As defined in the introductory paragraph.
6
1.1.82 PATHNET ESTIMATED COSTS: As defined in SECTION 4.4.2.
1.1.83 PATHNET EXCESS CAPACITY: At any given time, the
telecommunications channels or DS-0's that the System creates, transports
and receives, less the capacity allocated to Incumbent and to the protect
channels pursuant to the Channel Plan, as amended from time to time.
1.1.84 PATHNET ITEMS: As defined in SECTION 4.4.1.
1.1.85 PATHNET SOFTWARE: The software (including applications
software and systems software) owned or licensed from a third party by
PathNet or owned and developed by PathNet used to provide the services
covered in this Agreement.
1.1.86 PCN: A Prior Coordination Notice sent pursuant to Part 101.
1.1.87 PERMITS: Any and all authorizations, approvals, consents,
licenses, permits, easements, certificates and other rights and permissions
necessary to conduct such Person's business and to own, lease and operate
such Person's properties as currently conducted, owned, leased or operated.
1.1.88 PERSON: An individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
company, or other entity of any kind or any Governmental Authority.
1.1.89 POP: Point Of Presence; The interconnection between any two
facilities based networks.
1.1.90 PROGRESS REPORT: As defined in SECTION 4.1.2 of SCHEDULE A.
1.1.91 PRE-COMMISSIONING TEST EQUIPMENT: All equipment required
for the testing required to be performed on the System pursuant to SECTION
5 of SCHEDULE A, including, but not limited to, all required digital volt
meters, optical power meters, oscilloscopes, RF signal generators, noise
figure meters, noise figure test sets, RF variable attenuators, DADE adjust
cables, receiver card extenders and extension cords.
1.1.92 PRELIMINARY CONSTRUCTION SCHEDULE: As defined in SECTION
1.1 of SCHEDULE A.
1.1.93 PROJECT DRAWINGS: As defined in SECTION 1.3 of SCHEDULE A.
1.1.94 PROJECT MANAGEMENT PLAN: As defined in SECTION 4.1.1 of
SCHEDULE A.
1.1.95 PROJECT SCHEDULE: As defined in SECTION 4.1.1 of
SCHEDULE A.
1.1.96 PROTECTION CONFIGURATION: An engineering plan under which
channel capacity is protected either on a fully redundant basis or on a 1 x
n protection basis.
7
1.1.97 PSTN: Publicly Switched Telephone Network.
1.1.98 QUARTERLY REVENUE REPORT: As defined in SECTION 9.10.
1.1.99 RCRA: Resource Conservation and Recovery Act, 42 U.S.C.
Section 9601 ET SEQ., as amended.
1.1.100 REQUIREMENT OF LAW: With respect to any Person, all
Federal, state and local laws, rules, regulations, Judgments, injunctions,
standards, codes, limitations, restrictions, conditions, prohibitions,
notices, demands or other requirements or determinations of a court or
other Governmental Authority or an arbitrator, applicable to or binding
upon such Person, any of its property or any business conducted by it or to
which such Person, any of its assets or any business conducted by it is
subject.
1.1.101 REVENUE: As defined in SECTION 9.11.4.
1.1.102 SECOND EXTENSION PERIOD: As defined in SECTION 3.1.4.
1.1.103 SEGMENT: The portion of a microwave communications network
existing between two geographic points. For purposes of this Agreement,
Segment A is the portion of Incumbent's microwave communications network
between Casper, Wyoming and Minden, Nebraska, as set forth in SCHEDULE B.
Segment B is the portion of Incumbent's microwave communications network
between Lisco, Nebraska and Lakewood, Colorado. The additional Segments
added to the System pursuant to an AMENDED SCHEDULE B are identified as
Segment C, Segment D, and Segment E, etc.
1.1.104 SERVICES: As defined in SECTION 7.1.
1.1.105 SEVERELY ERRORED SECONDS: Any one second interval where the
Bit Error Rate is greater than or equal to 1 x 10-3 at a DS-1 rate
regardless of the cause of degradation affecting the channel error
performance including, but not limited to, unprotected equipment failures
and any other factors that contribute to poor performance.
1.1.106 SONET: Synchronous Optical Network; a family of fiber-optic
transmission rates from 51.84 Mbps to 13.22 Gbps, created to provide the
flexibility needed to transport many digital signals with different
capacities and to provide a standard to which manufacturers may design.
1.1.107 SPACE DIVERSITY: Protection of a radio signal by providing
a separate antenna on the same tower to assume the radio signal load when
the regular transmission path on the primary antenna fades, thereby
ensuring continuous transmission.
1.1.108 SPARE PARTS: The equipment and parts provided by PathNet to
Incumbent pursuant to the performance of Incumbent's obligations under the
Maintenance Services Agreement.
8
1.1.109 SPECIFICATIONS: As defined in SECTION 7.2.
1.1.110 STATION LOG BOOK: As defined in SECTION 6.2 of SCHEDULE A.
1.1.111 SUBCONTRACTORS: Any firm, corporation, or person working
directly or indirectly for a company that furnishes or performs a portion
of the work, labor or material.
1.1.112 SWITCHED MOD SECTION: A section of network between two
adjacent back-to-back terminals.
1.1.113 SYSTEM: The high capacity digital SONET microwave radio
equipment, antenna, waveguide, Facilities, Network Management System, all
other equipment and materials related thereto, and FCC licenses and other
licenses and Permits related thereof, operated for the purpose of
transmitting, receiving and transporting telecommunications signals over
Incumbent's Segments set forth on SCHEDULE B.
1.1.114 SYSTEM BUDGET: As defined in SECTION 1.1 of SCHEDULE A.
1.1.115 SYSTEM DESIGN: As defined in SECTION 1.1 of SCHEDULE A.
1.1.116 TECHNOLOGY: Inventions, ideas, processes, formulas, and
know-how.
1.1.117 TOWER ANALYSIS: As defined in SECTION 1.1 of SCHEDULE A.
1.1.118 VENDOR CREDIT ASSURANCES: As defined in SECTION 4.4.4.
1.1.119 WAYSIDE CHANNELS: The additional DS-1 of telecommunications
capacity within each radio beyond the base OC-3 capacity.
1.2 TERMS GENERALLY. The definitions in SECTION 1.1 and elsewhere in this
Agreement shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "herein,"
"hereof," "hereto" and "hereunder" and words of similar import refer to this
Agreement (including the Schedules and Exhibits) in its entirety and not to any
part hereto unless the context shall otherwise require. All references herein
to Sections, Exhibits and Schedules shall be deemed references to Sections of,
and Exhibits and Schedules to, this Agreement unless the context shall otherwise
require. Unless otherwise expressly provided herein or unless the context shall
otherwise require, any references as of any time to the "Certificate of
Incorporation," "Articles of Incorporation," "charter," "organizational or
constituent documents" or "Bylaws" of any Entity, to any agreement (including
this Agreement) or other contract, instrument or document or to any agreement
statute or
9
regulation are to it as amended and supplemented from time to time (and, in the
case of a statute or regulation to any corresponding provisions of successor
statutes or regulations). Any reference in this Agreement to a "day" or number
and "days" (without the explicit qualification of "Business") shall be
interpreted as a reference to a calendar day or number of calendar days. If any
action or notice is to be taken or given on or by a particular calendar day, and
such calendar day is not a Business Day, then such action or notice shall be
deferred until, or may be taken or given on, the next Business Day.
SECTION 2. RELATIONSHIP OF THE PARTIES.
2.1 LESSEE, CONTRACTOR, REPRESENTATIVE AND NETWORK MANAGER. Incumbent
shall appoint PathNet and PathNet shall serve in the following capacities during
the term of this Agreement:
(i) In the role of lessee, PathNet will lease space from Incumbent
at Incumbent's sites and Facilities on which to build and operate the
System. As consideration for such lease, PathNet will pay rent to
Incumbent as set forth in SECTION 5.
(ii) As an independent contractor, PathNet will perform analytical
pre-design and design services, and install, test and ensure the
performance of the System, as well as any upgrades to such System in
accordance with the terms and conditions set forth in SECTION 7 and in
SCHEDULE A.
(iii) As the exclusive representative for the marketing and sale of
Excess Capacity for Incumbent, PathNet will market and sell the Excess
Capacity created by System, as described in SECTION 9.
(iv) Also, as an independent contractor, in the role of a network
manager, PathNet will serve as the point of contact for any Outage or
trouble on the System and shall operate the Network Management System and
the Network Monitoring Center as described in SECTION 7.5 and SECTION 7.6
of SCHEDULE A.
2.2 NO JOINT VENTURE, ETC. The Parties expressly disclaim any intention
to create, and nothing herein shall be construed as creating, a partnership,
joint venture, agency or employment relationship between PathNet and Incumbent.
2.3 RESTRICTIONS ON ACTIONS OF INCUMBENT. For the term of this Agreement,
neither Incumbent, nor any Affiliate of Incumbent, shall operate from the
Facilities any parallel microwave telecommunications systems at those sites
listed in SCHEDULE B for the purpose of selling or otherwise providing any
capacity on such parallel facilities or systems.
2.4 RIGHT TO NOTIFICATION AND BID. If and to the extent Incumbent
requests proposals from third parties to develop fiber along Incumbent
right-of-ways, Incumbent shall provide PathNet notice of such fiber build and
grant to PathNet a right to bid on such fiber build on like terms.
10
SECTION 3. TERM AND EXPIRATION.
3.1 TERM, EXTENSION PERIODS, AND RENEWAL.
3.1.1 TERM. This Agreement shall commence on the Effective Date
and shall be in full force and effect for the term as set forth in this
SECTION 3.
3.1.2 INITIAL PERIOD. The initial period (the "INITIAL PERIOD")
shall commence upon Commissioning and shall expire on the fifth (5th)
anniversary of the Commissioning.
3.1.3 FIRST EXTENSION PERIOD. In the event the Average Sold
Excess Capacity is at least ten percent (10%) or greater during the Initial
Period, the term of the Agreement shall be automatically extended for an
extension period (the "FIRST EXTENSION PERIOD") commencing on the day after
the expiration of the Initial Period and expiring on the tenth (10th)
anniversary thereafter.
3.1.4 SECOND EXTENSION PERIOD. In the event the Average Sold
Excess Capacity is at least ten percent (10%) or greater during the Initial
Period and the First Extension Period, the term of the Agreement shall be
automatically extended for a second extension period (the "SECOND EXTENSION
PERIOD") commencing on the day after the expiration of the First Extension
Period and expiring on the tenth (10th) anniversary thereafter.
3.1.5 RENEWAL. Upon expiration of the Initial Period or any
Extension Period thereof, this Agreement shall be automatically renewed for
a one-year term, and at the end of such one-year term for additional
one-year terms for each year thereafter, unless terminated by either Party
upon written notice to the other Party to that effect delivered within the
ninety (90) day period immediately before the end of the Second Extension
Period or any such one-year term.
3.2 NO UNILATERAL RIGHT TO TERMINATE. Neither Party shall have the right
to terminate this Agreement or any rights or obligations of either Party
pursuant to this Agreement.
SECTION 4. COSTS.
4.1 INCUMBENT COSTS.
4.1.1 INCUMBENT ITEMS. Incumbent shall pay for the services,
functions, materials and other items listed in SECTION 1 of SCHEDULE C
(collectively, the "INCUMBENT ITEMS") in the manner set forth in SECTION
4.1.5.
4.1.2 ESTIMATED COST OF INCUMBENT ITEMS. Subject to SECTION
4.1.3, , the total estimated cost of the Incumbent Items is [***]
(the
11
"INCUMBENT ESTIMATED COSTS") and Incumbent Project Fee is
[***] (the "Incumbent Project Fee").
Subject to the Incumbent Payment Cap, the costs of such Incumbent Items and
such Incumbent Estimated Costs are estimates and may be subject to
increases or decreases.
4.1.3 INCUMBENT PAYMENT CAP. Subject to SECTION 4.6.2, Incumbent
shall pay an amount not to exceed [***]
(the "INCUMBENT PAYMENT CAP") for the performance and
completion of the Incumbent Items. The cost of Incumbent Items shall be
accrued in accordance with generally accepted accounting principles.
PathNet shall pay for all amounts incurred over the Incumbent Payment Cap
in the completion and performance of the Incumbent Items. As soon as
Incumbent is aware that Incumbent will pay an amount in excess of the
Incumbent Payment Cap, Incumbent shall notify PathNet to that effect.
4.1.4 DIVISION OF COSTS SAVINGS. In the event the costs of
completion of the Incumbent Items is less than the Incumbent Estimated
Costs, PathNet shall deliver to Incumbent an invoice setting forth the
differential between the total costs to complete and perform the Incumbent
Items and the Incumbent Estimated Costs. Within thirty (30) days of
receipt of such invoice from PathNet, Incumbent shall pay or disburse to
PathNet thirty percent (30%) of such differential.
4.1.5 PAYMENT OF INCUMBENT ITEMS.
(a) Incumbent shall promptly pay for the Incumbent Items upon receipt
of a purchase order, invoice or other bill from PathNet or from an
equipment vendor or service provider (pursuant to any PathNet requested
retention of payment of any invoice), provided PathNet has approved such
purchase order, invoice or bill before any payment is made by Incumbent.
(b) Pursuant to the Escrow Agreement by and between PathNet and
Incumbent substantially in the form attached hereto as SCHEDULE D (the
"Escrow Agreement") and on the Effective Date, Incumbent shall deposit in
an escrow account an amount equal to ten percent (10%) of the Incumbent
Estimated Costs which escrowed funds shall be either (i) provided to
PathNet upon Incumbent's failure to pay any purchase order, invoice or bill
under Section 4.1.5(a) or (ii) returned to Incumbent upon Commissioning of
the Initial System, whichever event occurs earlier.
4.2 INCUMBENT OPERATING AND ADMINISTRATION COSTS. Incumbent shall pay the
operating and administration costs set forth in SECTION 2 of SCHEDULE C as such
costs are actually incurred and become due and payable in the course of the
Incumbent's performance of its obligations under this Agreement.
4.3 INCUMBENT PROJECT FEE. Incumbent shall pay PathNet
[*** ******* **** ******* ********* ******* ************] defined
as the Project Fee. Such Project Fee shall be paid as follows: [***]
to be paid within thirty days of the
Effective Date and [***] to be paid no later
than March 1, 1998.
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4.4 PATHNET COSTS.
4.4.1 PATHNET ITEMS. PathNet shall pay for services, functions,
materials and other items listed in SECTION 3 of SCHEDULE C (the "PATHNET
ITEMS").
4.4.2 ESTIMATED COST OF PATHNET ITEMS. On the Effective Date, the
total estimated cost of the PathNet Items is [***]
(the
"PATHNET ESTIMATED COSTS").
4.4.3 NO CAP ON PATHNET ITEMS. PathNet shall pay for all amounts
incurred in completing the PathNet Items whether or not the cost of
completing such items is less than, equal to or exceeds the PathNet
Estimated Costs.
4.4.4 PAYMENT OF PATHNET ITEMS. To ensure payment of the PathNet
Estimated Costs, simultaneously with the execution and delivery of this
Agreement PathNet shall:
(a) deliver to Incumbent vendor credit assurances (the "VENDOR CREDIT
ASSURANCES"), which shall establish and confirm, among other things, that
PathNet has an adequate credit facility to acquire the Equipment and
Services provided by such vendor; or
(b) deliver to Incumbent the Escrow Agreement pursuant to which,
among other things, (i) PathNet shall place in escrow funds in an amount
equal to one hundred percent (100%) of the PathNet Estimated Costs less the
cost of any equipment provided by the vendors referred to in the Vendor
Credit Assurances (fifty percent (50%) of such costs to be delivered
within sixty (60) days of delivery by PathNet of the System Design and
fifty percent (50%) to be delivered within one hundred and twenty (120)
days of delivery of the first escrow payment), (ii) the escrow agent named
in such Escrow Agreement shall disburse to PathNet the funds necessary to
pay for the cost of the PathNet Items as such PathNet Items are completed
and as PathNet receives invoices relating to such PathNet Items, (iii) in
the event that PathNet fails to timely meet its payment responsibilities
with respect to the PathNet Items or fails to complete the System in
accordance with SECTION 13.2.1 (ix), the escrow agent named in such Escrow
Agreement shall disburse to Incumbent the funds necessary to cure such
failure to pay by PathNet and/or complete the work (iv) such Escrow
Agreement shall terminate upon Commissioning of the System and upon such
termination any funds remaining in escrow, including any interest accrued
on such funds shall be disbursed to PathNet.
4.5 PATHNET OPERATING AND ADMINISTRATION COSTS. PathNet shall pay for the
operating and administration costs set forth in SECTION 4 of SCHEDULE C as such
costs are actually incurred and become due and payable in the course of
PathNet's performance of its obligations under this Agreement.
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4.6 CHANGE ORDERS.
4.6.1 GENERAL. This Agreement anticipates (i) future issuance of
change orders for equipment and services beyond the scope of the Services
and this SECTION 4, and (ii) PathNet's provision of additional equipment
and services in accordance with such orders. To the extent mutually agreed
upon by the Parties, all such orders shall be deemed to be supplements to
and governed by the terms of this Agreement; provided PathNet and
Incumbent's Estimated Costs may be modified to reflect any agreed upon
change orders.
4.6.2 FACILITY CHANGE ORDERS. PathNet and Incumbent acknowledge
that certain Facilities may require alternate site locations in order to
frequency coordinate the System to a 1X7 configuration. If and to the
extent any Facility requires an alternative site, such alternative site
shall (i) be an amendment to Schedule B and Schedule C and (ii) the costs
associated with acquiring the land and the costs of placing a new
foundation on such land shall not apply to the Incumbent Payment Cap.
SECTION 5. LEASEHOLD INTEREST.
5.1 LEASE. Incumbent shall lease to PathNet and PathNet shall lease from
Incumbent space at each of Incumbent's sites and in the Facilities at such sites
set forth on SCHEDULE B as is necessary for the performance of PathNet's rights
and obligations under this Agreement (the "LEASED PREMISES").
5.2 RENT FOR LEASED PREMISES. PathNet shall pay to Incumbent, as
consideration for the Leased Premises, (i) commencing on Commissioning, an
allocation of up to [***]
as set forth by the Parties in the Channel Plan; PROVIDED,
that Incumbent and Incumbent's Affiliates use such allocation of DS-1's only for
their own respective internal communications needs, (ii) commencing on the
[***] after Commissioning of the Initial System, [***]
and (iii)
commencing on the [***] after Commissioning of a Capacity
Expansion, if any, [***]
.
5.3 TERM OF LEASE. The term of PathNet's lease and the Parties
obligations under this SECTION 5, including, but not limited to, PathNet's
obligation to pay rent as set forth in SECTION 5.2, shall commence on the
Effective Date and shall end on the Expiration Date.
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5.4 USE OF LEASED PREMISES.
5.4.1 PEACEFUL ENJOYMENT, USE AND ACCESS. Incumbent shall grant
to PathNet the right to the peaceful use, enjoyment and possession of the
Leased Premises during the term of this Agreement as required for the
performance of PathNet's rights and obligations under this Agreement, which
rights shall include, but not be limited to (i) the right to use
Incumbent's Facilities for the purposes set forth in this Agreement and
(ii) upon the reasonable request by PathNet, the right to full and free
access to Incumbent's sites, Facilities and related equipment; PROVIDED,
HOWEVER, any such access granted by Incumbent to PathNet shall be subject
to the security, health and safety and other regulatory, procedural and
policy requirements of Incumbent, as set forth in SECTION 5.6 and further
provided that PathNet shall have the right to access the sites to
supplement Incumbent's performance under the Maintenance Services
Agreement.
5.4.2 INTERFERENCE. During the term of this Agreement, Incumbent
shall not license or otherwise permit any Person to use its Facilities if
the use of such Facilities by such Person would cause any Interference on
the System. As of the Effective Date, Incumbent shall not knowingly permit
any Person to use its Facilities which use would in any way cause any
Interference on the System. Notwithstanding the foregoing in the event any
Person causes any Interference on the System, Incumbent shall use all best
efforts to compel such Person to immediately take any and all steps
necessary to correct and eliminate such Interference, including, without
limitation, enforcing provisions in any license or other agreement between
Incumbent and such Person and compelling such Person to cease operation of
such Person's system, to remove such Person's equipment or materials or to
modify such Person's equipment or materials. Incumbent acknowledges that
any Interference shall cause irreparable harm to PathNet and the prompt
cessation of Interference is material to PathNet's interest in the Leased
Premises and PathNet's performance under this Agreement and, as such,
PathNet shall be entitled to injunctive relief in the enforcement of this
SECTION 5.4.2.
5.5 VISITING AND EXITING FACILITIES. Upon exiting any Facility at the
Leased Premises, PathNet, on behalf of itself and its employees, agents and
Subcontractors, shall ensure that such Facility is returned to a condition,
which existed immediately prior to such visit.
5.6 SECURITY, DRUG TESTING, SUBSTANCE ABUSE AND HEALTH AND SAFETY.
5.6.1 SECURITY. PathNet shall require its employees, agents and
Subcontractors upon any site visit to comply with Incumbent's security
procedures in effect as of the Effective Date, which procedures are
attached hereto as SCHEDULE E. If and to the extent Incumbent requires
PathNet employees, agents or Subcontractors to be escorted to Incumbent
facilities, such requirements shall be explicitly set forth in SCHEDULE E.
Notwithstanding the foregoing, Incumbent shall allow PathNet employees,
agents or Subcontractors to bring any testing equipment, photographic
equipment or both video and audio recording equipment necessary for the
performance of PathNet's obligations under this Agreement.
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5.6.2 DRUG TESTING. PathNet shall require its employees, agents
and Subcontractors to submit to drug testing in accordance with Incumbent's
drug testing policies and procedures in effect as of the Effective Date,
which policies and procedures are attached hereto as SCHEDULE F.
5.6.3 SUBSTANCE ABUSE POLICY. PathNet shall require its
employees, agents or Subcontractors to comply with Incumbent's substance
abuse policies and procedures in effect as of the Effective Date, which
policies and procedures are attached hereto as SCHEDULE F.
5.6.4 HEALTH AND SAFETY. PathNet shall require its employees,
agents and Subcontractors to comply with Incumbent's rules and regulations
governing the health and safety of its employees in effect on the Effective
Date, which rules and regulations are attached hereto as SCHEDULE H.
5.6.5 CLEARANCES AND OTHER REQUIREMENTS. PathNet shall require
its employees, agents or Subcontractors to (i) apply to Incumbent for any
necessary clearances and (ii) comply with all other applicable
requirements, rules, regulations or ordinances regarding any Person's
ability to have access to Incumbent's sites and Facilities, including, but
not limited to, the Leased Premises, which requirements are set forth as
SCHEDULE I.
5.6.6 INCUMBENT RIGHT TO RESTRICT ACCESS. Notwithstanding
PathNet's right to visit the Facilities in connection with performance of
its duties under this Agreement, in the event the requirements, rules or
regulations pertaining to facility visitation set forth on SCHEDULE E,
SCHEDULE F, SCHEDULE G, SCHEDULE H and SCHEDULE I have been violated or
when the exercise of such right would pose a bona fide serious risk of
bodily harm or injury to any Person as determined by the Parties, Incumbent
reserves the right to reasonably restrict or deny PathNet or its
Subcontractors access to the sites. In the event in Incumbent's reasonable
judgment any Subcontractor should be denied access from Incumbent's
premises, Incumbent shall have the right to remove such person and deny
such person access to Incumbent's Facilities.
5.7 SUBLETTING. PathNet shall not sublet its interest in the Leased
Premises, in whole or in part, without the prior written consent of Incumbent;
PROVIDED, HOWEVER, PathNet shall have the right to transfer and assign its
rights or obligations under this Agreement to any successor or assign in
accordance with SECTION 18.7.
5.8 SURRENDER. Upon the expiration of the Agreement in accordance with
SECTION 3, PathNet shall peacefully and quietly surrender occupation of the
Leased Premises to Incumbent, or Incumbent's successors and assigns, without
delivery by Incumbent to PathNet of any notice to quit or demand for possession.
5.9 COLOCATION. Incumbent shall allow PathNet, at no additional charge,
to collocate at Incumbent's sites all equipment necessary to support the
Interconnections set forth on EXHIBIT A-7 to SCHEDULE A and, upon written
notice, any additional interconnections equipment that may
16
be added by PathNet from time to time and at any time during the term of this
Agreement, subject to the limitations set forth in SECTION 3 of SCHEDULE A.
5.10 SUBORDINATION. PathNet shall subordinate its interest in the Leased
Premises to (i) all deeds of trust, deeds to secure debts, mortgages and other
security instruments now or hereafter Encumbering all or any portion of the real
property described on SCHEDULE B (each, a "LEASED PREMISES ENCUMBRANCE") and
(ii) any increases, renewals, modifications, consolidations, replacements and
extensions of any such Leased Premises Encumbrance. In connection with such
subordination of PathNet's interest in the Leased Premises to all Leased
Premises Encumbrances, PathNet shall, as requested by Incumbent, within sixty
(60) days after the Effective Date, execute and deliver a commercially
reasonable subordination, non-disturbance and attornment agreement with all
Persons secured by such Leased Premises Encumbrances. PathNet shall, as
requested by Incumbent, execute and deliver similar subordination,
non-disturbance and attornment agreements with each future Person secured by a
Leased Premises Encumbrance.
5.11 REMOVAL OF EQUIPMENT. PathNet shall, at Incumbent's request, remove
any or all Equipment from Incumbent's Facilities within sixty (60) days after
the Expiration Date. In the event PathNet fails to perform such requested
removal within such sixty (60) day period, as determined by Incumbent in its
sole discretion, Incumbent may restore each site to its condition as of
Commissioning, (reasonable wear and tear and damage from the elements excepted),
and PathNet shall promptly pay Incumbent all costs reasonably incurred by
Incumbent for such removal and restoration.
5.12 REMOVAL OF HAZARDOUS MATERIALS. PathNet shall expeditiously remove
from Incumbent's sites any and all Hazardous Materials, which were brought to
Incumbent's sites by PathNet during the term of this Agreement and shall be
legally responsible for the safe disposal of any hazardous materials.
5.13 SALE OF INITIAL SYSTEM. Within ten (10) days after the expiration of
the Second Extension Period, if any, PathNet shall, upon request by Incumbent,
sell to Incumbent the radios and radio software relating to the Initial System
for a purchase price of one dollar ($1.00).
SECTION 6. PROGRAM MANAGEMENT AND PROJECT MANAGEMENT.
6.1 PROGRAM MANAGER. In connection with the Services and other services
performed by PathNet under this Agreement, PathNet shall provide a Program
Manager whose duties shall include (i) supervising the project through design,
installation and operation, (ii) supervising the Project Manager, (iii)
overseeing the Field Manager and the other PathNet personnel, (iv) coordinating
the business operations of the System including the sale of Excess Capacity as
set forth in SECTION 9 and (v) ensuring the performance of PathNet's rights and
obligations under this Agreement.
6.2 PROJECT MANAGEMENT FOR MODIFICATIONS. In connection with the
modifications of the Facilities set forth in SECTION 2 of SCHEDULE A, PathNet
shall provide a Project Manager, a
17
Field Manager, an Applications Engineer and a Project Engineer, each of whom
shall have the duties as set forth in SECTION 6.4 with respect to such
modifications of the Facilities.
6.3 PROJECT MANAGEMENT FOR INSTALLATION. In connection with the
installation of the System set forth in SECTION 4 of SCHEDULE A, PathNet shall
provide a Project Manager, a Field Manager, an Applications Engineer and a
Project Engineer, each of whom shall have the duties as set forth in SECTION 6.4
with respect to such installation of the System.
6.4 PATHNET PROJECT MANAGEMENT PERSONNEL. The Project Managers, Field
Managers, Applications Engineers and Project Engineers shall each have the
duties as set forth below:
(a) PROJECT MANAGER. PathNet shall provide a Project Manager whose
duties shall include ensuring the overall functional integrity of the
delivered System, the preparation, amendment and adherence to a
construction schedule, and compliance with PathNet's other obligations
under SCHEDULE A.
(b) FIELD MANAGER. PathNet shall provide a Field Manager whose
duties shall include the oversight and direction of all on-site activities,
the coordination of all Subcontractors and all required communication with
the Project Manager.
(c) APPLICATIONS ENGINEER. PathNet shall provide an Applications
Engineer, whose duties shall include the review and translation of the
System configuration into specific hardware requirements, precise interface
levels, intra and inter-rack cabling and all other necessary peripheral
equipment, rack profiles and required Interconnection data.
(d) PROJECT ENGINEER. PathNet shall provide a Project Engineer whose
duties shall include the performance of all planning and support activities
and a detailed site survey to gather data for development of the
installation plan and testing plan.
SECTION 7. SERVICES AND SYSTEMS SPECIFICATIONS.
7.1 SERVICES.
7.1.1 SYSTEM DESIGN, MODIFICATION, INSTALLATION, OPERATION AND
PERFORMANCE. PathNet and Incumbent shall perform their respective
functions with respect to the design, modification, installation, operation
and performance of the System as set forth on SCHEDULE A and in this
SECTION 7 (the "SERVICES").
7.1.2 UPGRADE OF SYSTEM. PathNet shall, upon written notice to
Incumbent, in its sole discretion, and at its own expense, and not as a
change order, upgrade the System and Equipment, and the System and
Equipment operation policies and procedures, including, but not limited to,
(i) replacing Equipment, (ii) adding newly available improved Equipment and
(iii) modifying policies, procedures and specifications relating to the
System, to conform such policies, procedures and specifications with new
Technology or industry standards.
18
7.1.3 INCUMBENT TRAINING. PathNet shall provide to Incumbent the
training as set forth on SCHEDULE J.
7.1.4 PERFORMANCE OF THE SERVICES. PathNet shall have the right
to engage Subcontractors to perform any of the Services.
7.2 SPECIFICATIONS.
7.2.1 GENERAL. PathNet and Incumbent shall perform the Services
in accordance with any and all technical and operational specifications set
forth in SCHEDULE A (the "SPECIFICATIONS").
7.2.2 CHANNEL PLAN.
(a) ORIGINAL CHANNEL PLAN. On the Effective Date, Incumbent shall
deliver to PathNet a proposed T-1 channelization plan setting forth its
proposed capacity needs at each site listed on SCHEDULE B. Such capacity
shall in no event exceed the capacity granted to Incumbent by PathNet as
rent as set forth in SECTION 5.2 and shall be subject to Drop and Insert
capacity at each Switched Mod Section. PathNet shall incorporate
Incumbent's proposed channelization plan into the Channel Plan subject to
the limitations set forth in this SECTION 7.2.2.
(b) AMENDED CHANNEL PLAN. Incumbent shall have the right to modify,
its allocated capacity (as described in the Channel Plan) along the network
any time after Commissioning, provided that sufficient Drop and Insert
capacity exists between each Switched Mod Section using available Wayside
Channels to effect such modification, by providing written notice to
PathNet to such effect. Within ninety (90) days after receipt of any such
written notice from Incumbent, PathNet shall make such modification to the
configuration of the Channel Plan at no charge to Incumbent. Incumbent
shall not reconfigure the Channel Plan in any manner other than as set
forth in this SECTION 7.2.2. Any amended channel plans shall be attached
as an exhibit to this Agreement.
7.2.3 SPECIFICATIONS, STANDARDS AND INSPECTIONS. In connection
with the Services set forth in SECTION 2 and SECTION 4 of SCHEDULE A,
PathNet shall comply with the following requirements:
(a) REASONABLE EFFORTS. PathNet shall use all commercially
reasonable efforts to ensure that the modification of the System set forth
in SECTION 2 of SCHEDULE A and the installation of the System set forth in
SECTION 4 of SCHEDULE A occur as expeditiously as possible.
(b) INDUSTRY STANDARDS. All Services and materials supplied pursuant
to SCHEDULE A must meet or exceed the following standards: (i) EIA RS-195
(latest edition), (ii) EIA/TIA-222 (latest edition), (iii) American Society
of Testing Materials A 325 and A 572, (iv) the applicable sections of the
National Electric Code, (v) the
19
American National Standards Institute, (vi) ACI 318-83, (vii) ACI-305,
(viii) ACI-306, (ix) OSHA 29 CFR 1910 and (x) all other applicable Federal,
state and local regulations of all Governmental Authorities with
jurisdiction; PROVIDED, HOWEVER, in the case of a conflicting requirement
of standards, the more stringent standard shall apply.
(c) SITE INSPECTIONS. During the performance of the Services,
Incumbent shall allow PathNet to perform Facilities inspections at any
hour, on any day subject to the access limitations set forth in SECTION
5.6.
SECTION 8. OWNERSHIP, DEPRECIATION AND ENCUMBRANCE OF SYSTEM.
8.1 OWNERSHIP OF EQUIPMENT AND ASSETS.
8.1.1 EQUIPMENT AND ASSETS OWNED BY INCUMBENT. Incumbent shall
own the equipment and assets relating to the System as set forth in
SCHEDULE K.
8.1.2 EQUIPMENT AND ASSETS OWNED BY PATHNET. PathNet shall own
the equipment and assets relating to the System as set forth in SCHEDULE K.
8.2 DEPRECIATION OF EQUIPMENT.
8.2.1 DEPRECIATION BY INCUMBENT. Incumbent shall have the right
to fully depreciate the equipment and assets currently owned or to be owned
by Incumbent as listed in SCHEDULE K.
8.2.2 DEPRECIATION BY PATHNET. PathNet shall have the right to
fully depreciate the equipment and assets currently owned or to be owned by
PathNet as listed in SCHEDULE K.
8.3 ENCUMBRANCE.
8.3.1 INITIAL SYSTEM. PathNet shall not Encumber the channels of
telecommunications capacity allocated to the Incumbent as rent in
accordance with SECTION 5.2 of this Agreement produced by such Equipment
and, the radios, radio software, antenna, waveguide, multiplexers or any
other Equipment required to operate the Initial System in accordance with
the Specifications.
8.3.2 OTHER EQUIPMENT, MATERIALS, AGREEMENTS AND ASSETS. PathNet
shall have the right to Encumber (i) the Equipment used in any Capacity
Expansion, (ii) PathNet's allocated portion of the Revenue generated from
the sale of Excess Capacity in accordance with SECTION 9, (iii) any
Customer Agreement relating to the System, (iv) this Agreement and any
related documents, instruments and agreements executed and delivered in
connection with this Agreement and any rights and obligations hereunder or
thereunder and (v) its leasehold interest in the leased space.
20
8.3.3 VENDOR REMEDIES. Incumbent hereby acknowledges that
pursuant to the Encumbrances granted by PathNet to certain equipment
vendors or service providers in accordance with SECTION 8.3.2, such vendors
or providers shall have the right to assume and perform PathNet's rights
and obligations under this Agreement and the other documents, instruments
and agreements executed in connection hereto; provided that in no event
shall PathNet be relieved of its obligations under this Agreement
8.4 TAXES. The Parties' respective responsibilities for taxes arising
under or in connection with this Agreement shall be as follows: (i) each Party
shall be responsible for any personal or real property taxes on property it owns
or leases, for franchise and privilege taxes on its business and for taxes based
on its net income or gross revenue and (ii) PathNet shall be responsible for any
sales, use, excise, value-added services, consumption and other taxes and duties
payable by Incumbent on any goods and services used or consumed in providing the
services to be performed by PathNet under this Agreement, where the tax is
imposed on Incumbent's acquisition or use of such goods or services and the
amount of the tax is measured by Incumbent's costs in acquiring such goods or
services; PROVIDED, HOWEVER, that PathNet shall not be responsible for any
Federal, state or local income taxes of Incumbent or any franchise taxes of
Incumbent.
8.5 SECURITY INTEREST IN INITIAL SYSTEM. On the Effective Date and in
consideration for the Project Fee, Incumbent shall execute and deliver the
Security Agreement substantially in the form attached hereto as Schedule R,
pursuant to which, among other things, PathNet shall grant Incumbent a security
interest in the radio, radio software, antenna, waveguide, multiplexors and any
other Equipment required to operate the Initial System.
8.6 ESCROW OF MANUFACTURER'S WARRANTIES.
8.6.1 ESCROW OF ASSIGNMENT DOCUMENTS BY PATHNET. On the Effective
Date, PathNet shall complete, execute and place in escrow certain documents
(the "ASSIGNMENT DOCUMENTS") that shall provide Incumbent with the required
tools to unilaterally effect the assignment to Incumbent of all of the then
effective manufacturer's warranties relating to the Equipment on the
Initial System.
8.6.2 REMOVAL OF ASSIGNMENT DOCUMENTS BY INCUMBENT. Pursuant to
the escrow arrangement described in SECTION 8.6.1 above, Incumbent shall
have the right to remove the Assignment Documents from escrow upon the
first to occur of the following events: (i) in the event PathNet becomes
insolvent, is unable to pay its debts as they mature, makes assignment for
the benefit of its creditors and/or in the event any case or proceeding is
commenced by or against PathNet under Title 11 of the Unites States Code,
as amended, or under any other state or federal statute for the relief of
debtors, (ii) the Expiration Date or (iii) PathNet defaulting under its
financing arrangement with its vendor and receipt by Incumbent of written
notice from vendor stating its intention to waive its right to operate the
System for the purpose of generating Revenue from the sale of Excess
Capacity.
8.7 FCC LICENSES. PathNet shall relinquish the right to own and transfer
the FCC licenses required to operate the Initial System in the event of (i) the
liquidation or dissolution of
21
PathNet under Chapter 7 of the Federal bankruptcy laws, (ii) the Expiration Date
or (iii) PathNet defaulting under its financing arrangement with its vendor and
receipt by Incumbent of written notice from vendor stating its intention to
waive its right to operate the System for the purpose of generating Revenue from
the sale of Excess Capacity.
SECTION 9. EXCESS CAPACITY MARKETING AND SALES.
9.1 EXCLUSIVE REPRESENTATIVE.
9.1.1 PATHNET EXCESS CAPACITY. PathNet shall have the exclusive
right to market and sell any and all PathNet Excess Capacity.
9.1.2 INCUMBENT EXCESS CAPACITY. At any time and from time to
time, Incumbent shall have the right to request in writing that PathNet
serve as Incumbent's exclusive representative for the marketing and sale of
all or any portion of the capacity allocated to Incumbent in accordance
with the Channel Plan (the "INCUMBENT EXCESS CAPACITY"). Such written
notice shall set forth, (i) that portion of the Incumbent Excess Capacity
to be marketed and sold by PathNet, (ii) the length of time that such
portion of the Incumbent Excess Capacity will be available to be marketed
and sold, and (iii) that Incumbent acknowledges that such Incumbent Excess
Capacity shall not be available for Incumbent's use during the time
specified in such written notice. Upon receipt of such written notice
PathNet shall serve as Incumbent's exclusive representative for the
marketing and sale of such Incumbent Excess Capacity; PROVIDED, HOWEVER,
that PathNet shall have the right, as determined by PathNet in its sole
discretion, to sell the PathNet Excess Capacity on any path or Segment
before selling the Incumbent Excess Capacity on such path or Segment.
9.1.3 MARKETING FEE FOR SALE OF INCUMBENT EXCESS CAPACITY. In the
event PathNet sells any Incumbent Excess Capacity, PathNet shall receive a
marketing fee in the amount of [***] of the Revenue from the
sale of such Incumbent Excess Capacity (Incumbent shall receive the
remaining [***] of such Revenue).
9.1.4 MARKETING AND SALE BY INCUMBENT. Incumbent or any
Affiliates of Incumbent shall not market or sell any Incumbent Excess
Capacity or any capacity purchased by Incumbent pursuant to SECTION 9.3 to
any third party without the prior written consent of PathNet; PROVIDED,
HOWEVER, Incumbent may market and sell all or any portion of the Incumbent
Excess Capacity or any capacity purchased by Incumbent pursuant to SECTION
9.3, to Affiliates of Incumbent for and only for such Affiliates' internal
communications needs and not for resale to third parties. Notwithstanding
anything set forth herein to the contrary, Incumbent shall have the right
to provide, market or sell any Incumbent Excess Capacity to KN Field
Services, Inc. which may provide, market, sell or lease circuits to its
customers for the limited purpose of monitoring data from oil and/or gas
wells.
22
9.2 REFERRALS.
9.2.1 REFERRALS OF CUSTOMERS BY INCUMBENT. Incumbent shall refer
any potential third party customer of Excess Capacity to PathNet.
9.2.2 REFERRAL FEES. If Incumbent is successful in locating a new
customer for the PathNet Excess Capacity created at Incumbent's Facilities,
provided that such customer is not an IXC, PathNet shall pay Incumbent a
[***] actually received from
the sale of capacity to such customer during the initial five (5) years of
continuous sales to such customer payable on a quarterly basis, with all
other payments to Incumbent that may be due and payable, as provided by
SECTION 9.11.
9.3 PURCHASE OF AVAILABLE EXCESS CAPACITY BY INCUMBENT. Incumbent shall
have the right to purchase Available Excess Capacity on any path or Segment of
the System (each such path or Segment being referred to herein as an "INCUMBENT
DESIRED PATH"), at a price equal to either (i) the lowest price paid to PathNet
for like capacity and for a similar term by any purchaser during the one hundred
eighty (180) days immediately preceding the purchase by Incumbent of capacity on
such Incumbent Desired Path or (ii) if no PathNet Excess Capacity has been
purchased on such Incumbent Desired Path during such one hundred eighty (180)
day period, the last price paid for such Incumbent Desired Path; PROVIDED,
HOWEVER, Incumbent shall in no event under clause (i) or clause (ii) above
purchase more than twenty percent (20%) of the Available Excess Capacity on any
Segment or path within the System at any given time.
9.4 COMMERCIALLY REASONABLE EFFORTS. PathNet shall use all commercially
reasonable efforts to obtain the best available price and terms in the marketing
and sale of any Excess Capacity. PathNet shall not, now or in the future,
guarantee any Revenue disbursements nor does PathNet warrant as to its ability
to sell the Excess Capacity.
9.5 SELLING PRICES FOR EXCESS CAPACITY. Notwithstanding anything set
forth herein to the contrary, PathNet shall have the right to (i) sell Excess
Capacity at prices determined by PathNet to be appropriate on specific routes,
which prices may be below or above current competitive market pricing, (ii)
package the Excess Capacity in sales increments of DS-1's, DS-3's or OC-3's, or
any other increments and (iii) aggregate the paths sold in various combinations,
each as determined by PathNet in its sole discretion.
9.6 BARTER ARRANGEMENTS. Incumbent shall be permitted to barter Incumbent
Excess Capacity for telecommunications capacity of other incumbents engaged by
PathNet; PROVIDED, HOWEVER, PathNet shall have the right to approve any barter
arrangement relating to Incumbent Excess Capacity, which approval shall not be
unreasonably withheld. Neither PathNet nor Incumbent shall derive any fee from
facilitating any such barter arrangements.
9.7 ASSUMED NAME; TRADENAMES AND TRADEMARKS. PathNet shall have the right
to market Excess Capacity under its name or any other assumed name, tradename or
trademark which PathNet is authorized to use for such purpose; PROVIDED,
HOWEVER, PathNet shall not use
23
any trademark or tradename of Incumbent or any Affiliate of Incumbent in written
material for purposes of marketing any Excess Capacity without the prior written
consent of Incumbent.
9.8 CUSTOMER AGREEMENTS.
9.8.1 AUTHORIZATION. PathNet shall negotiate, execute and deliver
all agreements and arrangements ("CUSTOMER AGREEMENTS") for customers of
Excess Capacity, which Customer Agreements shall contain, terms and
conditions determined by PathNet in its sole discretion.
9.8.2 APPROVAL AND CONSENT BY INCUMBENT. If the terms of any
Customer Agreement require the written approval or consent of Incumbent as
a condition to the execution, delivery or performance, Incumbent shall
promptly provide such written approval or consent.
9.8.3 MODIFICATIONS TO SYSTEM. In the event that any Customer
Agreement requires that the System be modified in any way, PathNet shall
ensure that any such modifications (i) shall not compromise the integrity
and performance of the System in accordance with the Specifications and
(ii) shall be made at no additional cost to Incumbent.
9.9 MAINTENANCE OF BOOKS AND RECORDS AND AUDIT PROCEDURES.
9.9.1 BOOKS AND RECORDS. PathNet shall maintain and keep detailed
and accurate books and records with regard to sales of Excess Capacity and
the Revenue from such sales.
9.9.2 INCUMBENT REVIEW AND AUDIT PROCEDURES. No more than once
during any consecutive twelve (12) month period, Incumbent shall be
entitled to review and audit PathNet's books and records relating to the
sale of Excess Capacity during business hours upon ten (10) days written
notice to PathNet. Incumbent shall not have the right pursuant to this
SECTION 9.9.2, to review or audit PathNet's corporate income statements,
balance sheets or other forms of general corporate reporting. Incumbent
shall not disclose, at any time before or after the Expiration Date, any
information related to PathNet or PathNet's business obtained by Incumbent
pursuant to a review or audit performed under this SECTION 9.9.2 unless
such information has previously come into the public domain (other than
through unauthorized disclosure) or except as required by law.
9.9.3 EXPENSES OF INCUMBENT REVIEWS AND AUDITS. Incumbent shall
pay the cost of any such review or audit performed pursuant to SECTION
9.9.2.
9.9.4. APPROVAL OF AUTHORIZED REPRESENTATIVE. In the event that
Incumbent hires an authorized representative of Incumbent to perform any
such review or audit pursuant to SECTION 9.9.2, PathNet shall have the
right to approve such authorized
24
representative before any access is granted to such authorized
representative to PathNet's books and records, which approval shall not be
unreasonably withheld.
9.10 QUARTERLY REVENUE REPORTS. PathNet shall issue to Incumbent quarterly
revenue reports substantially in the form of SCHEDULE L (each a "QUARTERLY
REVENUE REPORT") within thirty (30) days after the end of each calendar quarter.
Each such Quarterly Revenue Report shall be an unaudited statement produced by
PathNet.
9.11 COLLECTION AND PAYMENT OF REVENUE.
9.11.1 COSTS OF COLLECTION. PathNet shall deduct any documented
costs reasonably incurred by PathNet in connection with the collection of
any and all revenue generated from the sale of Excess Capacity, including,
but not limited to, the cost of any legal actions, collection fees, court
proceedings, audits, or other enforcement actions. PathNet shall deduct
such costs from gross revenue collected prior to the disbursement of such
revenue to PathNet and Incumbent pursuant to SECTION 5.2 and SECTION 9 and
provide Incumbent with documentation evidencing any such deductions.
9.11.2 MAINTENANCE MONTHLY SERVICE CHARGES. The amount of any
Maintenance Monthly Service Charges (as such term is defined in the
Maintenance Services Agreement) paid by PathNet to Incumbent pursuant to
the Maintenance Services Agreement, shall be deducted from gross revenue
collected prior to disbursement of such revenue to PathNet and Incumbent
pursuant to SECTION 5.2 and SECTION 9.
9.11.3 TAXES ON GROSS REVENUES. The amount of any taxes on gross
revenue paid by PathNet on behalf of Incumbent shall be deducted from any
revenue to be disbursed to Incumbent prior to disbursement of such revenue
as set forth in this SECTION 9.11.
9.11.4 DEFINITION OF REVENUE. For purposes of this Agreement,
"REVENUE" shall mean the gross revenue generated from the sale of Excess
Capacity actually collected less any deductions set forth in SECTION
9.11.1, SECTION 9.11.2 and SECTION 9.11.3.
9.11.5 PAYMENTS TO INCUMBENT. PathNet shall pay Incumbent its
allocated portion of Revenue actually received from the sale of Excess
Capacity within thirty (30) days after the end of each calendar quarter in
accordance with the payment instructions set forth in SCHEDULE M.
9.11.6 INTEREST EARNED ON UNDISTRIBUTED REVENUE. PathNet shall
retain any and all interest earned by PathNet on any Revenue collected but
not yet distributed to Incumbent in accordance with SECTION 5.2 and SECTION
9.
9.11.7 INCUMBENT'S ASSIGNEES OF REVENUES. Incumbent shall have the
right to designate other entities to receive its disbursements by written
notice to PathNet to such effect; PROVIDED, HOWEVER, any such designation
by Incumbent shall not relieve Incumbent of any tax liability resulting
from its receipt of such disbursements pursuant to SECTION 5.2 and SECTION
9.
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SECTION 10. FCC LICENSES AND OTHER REGULATORY APPROVALS AND LICENSES.
10.1 FCC RULES AND REGULATIONS.
10.1.1 MICROWAVE RADIO STATION LICENSES.
(a) PREPARATION AND FILING OF FORMS 415. PathNet shall prepare and
timely file all required Form 415, Applications for Authorization in the
Microwave Services (each a "FORM 415"), or any successor forms, documents
or instruments to such Form 415 as the FCC may prescribe, including but not
limited to, the preparation or ordering of all frequency coordinations
required pursuant to Schedule B and Schedule C of Form 415, in order to
own, operate and sell the Excess Capacity of the System in accordance with
the terms and conditions of this Agreement.
(b) IDENTITY OF LICENSEE. All Microwave Radio Station Licenses
issued by the FCC relating to the System shall be licensed in the name of
PathNet or a wholly-owned subsidiary of PathNet. Incumbent shall be
permitted to continue to own and be licensed as a private microwave
operator at the stations licensed to PathNet relating to the System,
provided that (i) such private licenses are for different frequency pairs
than those assigned to the System (including, but not limited to, any
Capacity Expansion of the System) and (ii) such private licenses are
permitted under the FCC Code.
(c) MAINTENANCE OF LICENSE. PathNet shall maintain in good standing
each Microwave Radio Station License relating to the System, including, but
not limited to, preparing and filing any required amendments to the Forms
415 relating to the System and submitting and filing any supplementary
information as required by the FCC.
10.1.2 COMMON CARRIER REPORTING OBLIGATIONS. PathNet shall prepare
and file all forms, reports, instruments, documents and agreements required
by the FCC and FCC Code relating to PathNet's status as a "common carrier"
under the FCC Code.
10.1.3 TARIFF FILINGS. PathNet shall prepare and timely file all
tariff applications pursuant to 47 CFR 61, as amended, or any successor
statute, rule or regulation and shall request and file all necessary
waivers of such tariff requirements, as determined by PathNet in its sole
discretion.
10.1.4 FREQUENCY COORDINATION NOTICES. During the term of this
Agreement, PathNet shall prepare and send all required frequency
coordination notices required under 47 CFR 101.103, as amended, or any
successor statute, rule or regulation and shall respond as appropriate to
all PCNs received by PathNet or Incumbent relating to the System.
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10.1.5 DELIVERY OF COPIES. Upon Incumbent's request, PathNet shall
provide to Incumbent a copy of all filings and submissions with the FCC,
relating to the System within thirty (30) days of such request by
Incumbent.
10.1.6 ASSISTANCE IN PREPARATION OF LICENSE APPLICATIONS. Upon
request by PathNet and in a timely manner, Incumbent shall provide to
PathNet all information necessary for the completion of all required
filings and submissions with the FCC including, but not limited to
Incumbent's authorized signature on any filings or other submissions to the
FCC or any documents, instruments or agreements completed in connection
with such filings and submissions.
10.1.7 FUTURE CHANGES IN FCC REQUIREMENTS. If FCC requirements
relating to the Form 415, common carriers, frequency coordination or any
other matters relating to the System change or are modified, PathNet shall
be responsible for compliance with such new requirements including, but not
limited to, the payment of any costs or fees associated therewith and
Incumbent shall cooperate with PathNet with respect to such compliance;
PROVIDED, HOWEVER, if the FCC establishes user fees or other such fees
relating to the frequencies used in and the communications business
conducted over the System, the cost of such additional fees shall be
divided between PathNet and Incumbent, as determined by PathNet and
Incumbent at such time.
10.1.8 SPECTRAL LOADING REQUIREMENTS. PathNet shall (i) ensure
that the System, as licensed, shall comply with all spectral loading
requirements set forth in 47 CFR 101.141, or any successor statute, rule or
regulation or (ii) obtain a waiver of any or all of such requirements;
PROVIDED, HOWEVER, if the System does not meet such spectral loading
requirements and PathNet is unable to obtain a waiver of such requirements,
PathNet shall have the right to modify the System to a hot-standby
Protection Configuration until such time as the spectral loading
requirements can be met.
10.1.9 DEFAULT IN FCC LICENSE. In the event that the FCC
institutes a penalty against or fine imposed on PathNet, Incumbent, or the
System, due to non-compliance with any FCC requirements, PathNet shall
promptly pay such penalty or fine (in the case such penalty or fine is
instituted as the result of an act or omission on the part of PathNet) or
Incumbent shall promptly pay such penalty or fine (in the event such
penalty or fine is instituted as the result of an act or omission on the
part of Incumbent).
10.2 ZONING REQUIREMENTS. Incumbent shall be responsible for compliance
with all zoning requirements applicable to the System and its Facilities,
including, but not limited to, the Leased Premises. Incumbent shall advise
PathNet of zoning requirements, which, in the reasonable opinion of Incumbent,
differ from those generally applicable to microwave facilities. PathNet shall
provide to Incumbent all required information and shall cooperate with Incumbent
in connection with Incumbent's compliance with all zoning requirements pursuant
to this SECTION 10.2.
10.3 BUREAU OF LAND MANAGEMENT REQUIREMENTS. Incumbent shall be
responsible for compliance with all United States Department of Interior Bureau
of Land Management
27
requirements applicable to the System and its Facilities, including, but not
limited to, the Leased Premises. PathNet shall provide Incumbent with all
requested information and shall cooperate with Incumbent in connection with
Incumbent's compliance with such United States Department of Interior Bureau of
Land Management requirements pursuant to this SECTION 10.3.
10.4 TOWER REGISTRATION. Incumbent shall ensure compliance with all FAA
and FCC tower registration requirements including, but not limited to, the
preparation of any filings with or the obtaining of any waivers or extensions
from the FAA or FCC. Incumbent shall promptly notify PathNet of any deficiency
on non-compliance with any such tower registration requirements, filings,
waivers or extensions.
SECTION 11. INSURANCE.
11.1 DELIVERY OF CERTIFICATES OF INSURANCE. Upon Incumbent's request and
prior to the commencement of any Services by PathNet, PathNet shall deliver to
Incumbent Certificates of Insurance relating to PathNet's Commercial General
Liability Insurance Policy, Workers Compensation Insurance Policy, Automobile
Liability Insurance and Excess Liability Insurance Policy. Incumbent shall be
named as an additional insured on all policies required under this contract.
All policies shall include a waiver of subrogation against Incumbent, its
Affiliates and its insurance carriers. Until Commissioning, PathNet Insurer's
shall provide Incumbent with thirty (30) days prior written notice of
cancellation or of any material change in PathNet's insurance during the term of
this Agreement. Any deductibles or SIR's on the policies of insurance required
under this Agreement are the sole responsibility of PathNet, and not Incumbent
its Affiliates, shareholders or employees.
11.2 PATHNET INSURANCE COVERAGE. During the term of this Agreement,
PathNet shall maintain the types of insurance at the coverage limits set forth
below:
(a) WORKER'S COMPENSATION INSURANCE. Workers Compensation Insurance
as required by laws and regulations applicable to and covering Persons
performing the Services in an amount of $500,000 for employer's liability
coverage;
(b) COMMERCIAL GENERAL LIABILITY INSURANCE. Commercial General
Liability Insurance with a limit of not less than $1,000,000 per occurrence
and $2,000,000 in the aggregate including products, completed operations,
and contractual liability;
(c) AUTOMOBILE LIABILITY INSURANCE. Automobile Liability Insurance,
which includes coverage for non-owned and hired vehicles with a limit of
not less than $1,000,000; and
(d) EXCESS LIABILITY INSURANCE. Excess Liability Insurance with a
limit of not less than $4,000,000.
11.3 INCUMBENT INSURANCE COVERAGE. Incumbent shall maintain insurance
coverage on properties and operations of Incumbent which coverage shall include
general liability and
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other forms of insurance covering such risks as are usually insured against by
prudent companies engaged in the business and activities in which the Incumbent
is engaged, in amounts which are adequate in relation to the business and
properties of Incumbent, and all premiums to date have been paid in full.
11.4 PROOF OF LICENSED SUBCONTRACTORS. Upon reasonable request of
Incumbent, PathNet shall provide to Incumbent proof of licensing and
certification of insurance for any Subcontractors engaged by PathNet to provide
Services, during the term of such engagement. Incumbent shall be added as an
additional insured on the policies of the Subcontractors.
SECTION 12. SOFTWARE AND PROPRIETARY RIGHTS.
12.1 PATHNET SOFTWARE. PathNet retains all right, title and interest in
and to PathNet Software. As of the Effective Date and pursuant to the PathNet
Sublicense Agreement attached hereto as SCHEDULE N, Incumbent is granted a
royalty free, non-transferable nonexclusive sublicense to use PathNet Software
subject to the terms of any PathNet licenses obtained from third party providers
for the sole purpose of receiving services pursuant to this Agreement. In the
event PathNet develops any PathNet Software, PathNet shall amend to this
Agreement a license agreement for such PathNet Software. PathNet Software will
be made available to Incumbent in such form and on such media as exists on the
Effective Date, together with existing documentation and any other related
materials. Incumbent shall not be permitted to use PathNet Software for the
benefit of any entities other than PathNet or Incumbent affiliates without the
prior written consent which may be withheld at PathNet's sole discretion.
Except as otherwise requested or approved by PathNet, Incumbent shall cease all
use of PathNet Software upon expiration of this Agreement.
12.2 PROPRIETARY RIGHTS. Incumbent acknowledges and agrees that all or
portions of the information and materials, including but not limited to the
PathNet Software and related documentation to be supplied by PathNet hereunder
are owned by PathNet and/or others and are proprietary in nature. Incumbent
also acknowledges and agrees that PathNet and/or its suppliers have and will
retain all proprietary rights in such information and materials. Incumbent (i)
shall respect such claim of proprietary right, (ii) shall protect such
information at least to the extent that it protects its own proprietary
information, (iii) shall not use such information except for the purposes for
which its is being made available as set forth in this Agreement and (iv) shall
not reproduce, print, disclose, or otherwise make said information available to
any third party, in whole or in part, in whatever form.
SECTION 13. REPRESENTATIONS AND WARRANTIES.
13.1 REPRESENTATIONS AND WARRANTIES OF EACH PARTY. Each Party hereby
represents and warrants the other Party as follows:
13.1.1 DUE INCORPORATION AND FORMATION; AUTHORIZATION OF
AGREEMENTS; BINDING EFFECT. Such Party is a corporation or partnership, as
the case may be, duly
29
formed or organized, and validly existing under the laws of its state of
incorporation or organization, and has the corporate or partnership
authority to own its property and carry on its business as owned and
carried on as of the Effective Date. Such Party is duly licensed or
qualified to do business and is in good standing (if applicable) in each
jurisdiction in which the failure to be so licensed or qualified would have
a Material Adverse Effect on such Party. Such Party has the corporate or
partnership authority to execute and deliver this Agreement, to perform its
obligations hereunder, and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by
such Party and this Agreement constitutes a legal, valid and binding
obligation of such Party enforceable in accordance with its terms, subject
as to enforceability to limits imposed by bankruptcy, insolvency or similar
laws affecting creditors rights generally and the availability of equitable
remedies. Attached hereto as SCHEDULE O are the (i) Articles and Bylaws of
PathNet and (ii) a copy of a certificate of good standing of PathNet.
13.1.2 NO CONFLICT; NO DEFAULT. Neither the execution or delivery
of this Agreement by such Party, nor (except as would not have a Material
Adverse Effect on such Party), the performance of this Agreement by such
Party or the consummation by such Party of the transactions contemplated
hereby in accordance with the terms and conditions hereof: (i) will
conflict with, violate, result in a breach of or constitute a default under
any of the terms, conditions or provisions of the certificate or articles
of incorporation or bylaws (or other governing documents) of such Party or
any material agreement or instrument to which such Party is a party or by
which such Party may be bound, (ii) will conflict with, violate or result
in a breach of, constitute a default under (whether with notice or lapse of
time or both), accelerate or permit the acceleration of the performance
required by, give to others any interests or rights or require any consent,
authorization or approval under any contract to which such Party is a party
or by which such Party is or may be bound or to which any equity interest
held by such Party or any of its material properties or assets is subject
or (iii) will result in the creation or imposition of any Encumbrance upon
any equity interest held by such Party or any of the other material
properties or assets of such Party.
13.1.3 NO CONSENT. No consent, approval, order or authorization
of, or registration, declaration or filing with any Governmental Authority,
domestic or foreign, is required to be obtained by such Party in connection
with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
13.1.4 COMPLIANCE WITH LAWS AND REGULATIONS. That the performance
of such Party's obligations under this Agreement will not result in a
violation in any respect of (i) any applicable Federal, state, local or
foreign laws, ordinances, regulations, rulings and orders of government
agencies applicable to its business in any respect the violation of which
could have a Material Adverse Effect (including Requirements of Law
relating to pollution, protection of the environment, emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic, hazardous or regulated substances or
wastes into the environment or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage disposal, transport or
30
handling of pollutants or other such hazardous or regulated substances or
wastes) or (ii) any applicable order, Judgment, injunction, award or decree
in any respect which could have a Material Adverse Effect on such Party.
13.1.5 PERMITS. Such Party has or will obtain all authorizations,
approvals, consents, licenses, Permits and certificates (including, but not
limited to all required approvals from the FCC) necessary to conduct their
respective businesses and to own, lease and operate its properties as
currently or anticipated to be conducted, owned, leased or operated, as the
case may be, for which the failure to possess would result in a Material
Adverse Effect. No violations are outstanding or uncured with respect to
any such Permits and no proceeding is pending to revoke or limit any
Permit.
13.1.6 TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED MATTERS.
Such Party has, and will continue to have for the term of this Agreement as
set forth in SECTION 3, good and marketable title to all the properties,
interests in properties and assets, real, personal or mixed, necessary for
the conduct of such Party's business and for the transactions contemplated
by this Agreement (including, but not limited to, any rights of way,
leasehold interests, easements, proofs of dedication and rights necessary
to perform the obligations hereunder) free and clear of all Encumbrances of
any kind or character, except (i) liens for current taxes not yet due and
payable, (ii) Encumbrances securing taxes, assessments, governmental
charges or levies or the Encumbrances of materialmen, carriers, landlords
and like persons, all of which are not yet due and payable and (iii) minor
Encumbrances of a character that do not substantially impair the assets or
properties of such Party or which will not have a Material Adverse Effect
on such Party.
13.1.7 LABOR MATTERS. Such Party has complied in all material
respects with all applicable Federal, state and local laws and ordinances
relating to the employment of labor, including the provisions thereof
relating to wages, hours, employee benefit plans and the payment of social
security taxes, and is not liable for any arrears of wages or any tax
related thereto (except for currently accrued and unpaid wages and except
for currently accrued withholding, payroll, unemployment and social
security taxes payment of which is not overdue) or penalties for failure to
comply with any of the foregoing, and neither has received a notice to the
contrary from any Governmental Authority. Such Party has not suffered any
strike, slowdown, picketing or work stoppage by any union or other group or
employees affecting the business of such Party, and no such event or action
is threatened.
13.1.8 NO DISCRIMINATION. Such Party warrants that it is an equal
opportunity employer and will not discriminate against any employee or
applicant for employment because of race, color, religion, sex, national
origin, handicap or status as Vietnam Era Veteran. Each Party shall comply
with Executive Orders 11,246 and 11,625, the Vietnam Era Veterans
Readjustment Assistance Act of 1974, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, and all amendments, orders, rules
and regulations issued thereunder or in connection therewith. Such Party
certifies that is does not and will not maintain or provide for its
employees any facilities which are segregated by race, color, religion or
national origin or permit its employees to perform any services
31
at any location, under its control, where segregated facilities are
maintained; and such Party will obtain a similar certification for all
non-exempt subcontracts in accordance with the provisions of 41 C.F.R.
Section60-1.8.
13.1.9 DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT,
NEITHER PATHNET NOR INCUMBENT MAKES ANY OTHER EXPRESS WARRANTY AND THERE
ARE NO IMPLIED WARRANTIES WITH RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES,
RIGHTS OR OTHER SUBJECT MATTER OF THIS AGREEMENT. PATHNET AND INCUMBENT
HEREBY DISCLAIM THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
13.2 REPRESENTATIONS AND WARRANTIES OF PATHNET.
13.2.1 SERVICES. PathNet warrants (i) that the Services will be
performed in a safe, good and workmanlike manner; (ii) that all components,
supplies and materials incorporated in or consumed in the rendering of
PathNet Services shall be new (except those components, supplies and
materials designated to be upgraded or enhanced pursuant to the
modifications SOW) and shall conform in all material respects to the
requirements of this Agreement, provided that PathNet shall pursue all
applicable rights and remedies granted from third party vendor warranties;
(iii) that PathNet shall promptly correct without additional compensation
any portion of the PathNet Services that proves to be improper or defective
in workmanship or not in conformance with the standards and specifications
set forth in this Agreement; (iv) that it owns or has the legal right to
use all of the PathNet Software for all purposes intended hereunder; (v)
that on Effective Date, PathNet has no litigation or contingent liabilities
which could impact this Agreement; (vi) that all Equipment is in good
working order and condition; (vii) all Services shall be free from faults
or defects and improper workmanship; (viii) that any and all change orders
requested or issued under SECTION 4.6 shall reflect additional work to be
done by PathNet rather than corrections to the work already contemplated
hereunder; and (ix) that the System shall be fully operational without
Space Diversity within eighteen (18) months of the grant of any permit or
approval, listed in Exhibit A-10 and required for PathNet to install and
complete the System.
13.3 REPRESENTATIONS AND WARRANTIES OF INCUMBENT.
13.3.1 UNION AND LABOR RELATIONS. Incumbent represents and
warrants that with respect to any services performed pursuant to this
Agreement, Incumbent has complied with any applicable labor or
union-related agreements, regulations and ordinances.
SECTION 14. DELIVERIES.
14.1 DELIVERIES BY INCUMBENT. Incumbent shall provide to PathNet the items
as set forth in SCHEDULE P.
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14.2 DELIVERIES BY PATHNET. PathNet shall provide to Incumbent the items
as set forth in Schedule Q.
SECTION 15. INDEMNIFICATION.
15.1 INDEMNIFICATION BY PATHNET. To the maximum extent permitted by law,
PathNet shall release, protect, defend and hold harmless Incumbent and its
Affiliates and its and their respective officers, directors, employees and
agents from and against any and all Losses arising from (i) personal injury,
disease, death, property damage, pollution and environmental damage (including
clean-up and all fines and penalties of any nature) to the extent directly or
indirectly caused by or related to the negligence (whether simple or gross;
active or passive), strict or absolute liability or fault of PathNet, its
Affiliates or its or their officers, directors, employees, agents or
contractors; (ii) the breach of any representation or warranty set forth in this
Agreement by PathNet; and (iii) any claims of any violation of the antitrust
laws of the United States or of any state in which the System operates, based
upon terms of this Agreement.
15.2 INDEMNIFICATION BY INCUMBENT. To the maximum extent permitted by law,
Incumbent shall release, protect, defend and hold harmless PathNet and its
Affiliates and its and their respective officers, directors, employees and
agents from and against any and all Losses arising from (i) personal injury,
disease, death, property damage, pollution and environmental damage (including
clean-up and all fines and penalties of any nature) to the extent directly or
indirectly caused by or related to the negligence (whether simple or gross;
active or passive), strict or absolute liability or fault of Incumbent, its
Affiliates or its or their officers, directors, employees, agents or contractors
and (ii) the breach of any representation or warranty set forth in this
Agreement by Incumbent.
15.3 INTELLECTUAL PROPERTY INDEMNIFICATION - PATHNET. PathNet hereby
agrees to protect, defend, indemnify and hold harmless Incumbent, its
Affiliates, and its and their respective officers, directors, employees and
agents from and against all Losses relating to (i) an alleged infringement of
any third-party patent rights, patent or application for patent or any invention
covered hereby or any proprietary rights of any kind; and (ii) any alleged
infringement of copyright or trademark arising from PathNet's Services
hereunder. In the event that PathNet's Services or the use or sale of any
articles, materials or equipment to be furnished hereunder by PathNet are
enjoined, PathNet at its sole expense shall at Incumbent's election either
procure for Incumbent the right to continue to use or sell same or replace same
with non-infringing materials and/or services of a grade and quality to meet all
specifications for their required use.
15.4 INTELLECTUAL PROPERTY INDEMNIFICATION - INCUMBENT. Incumbent hereby
agrees to protect, defend, indemnify and hold harmless PathNet, its Affiliates,
and its and their respective officers, directors, employees and agents from and
against all Losses relating to (i) an alleged infringement of any third-party
patent rights, patent or application for patent or any invention covered hereby
or any proprietary rights of any kind; and (ii) any alleged infringement of
copyright or trademark arising from Incumbent's Services hereunder. In the
event that Incumbent's Services or the use or sale of any articles, materials or
equipment to be furnished hereunder by Incumbent are enjoined, Incumbent at its
sole expense shall at PathNet's election either procure for PathNet the right to
continue to use or sell same or replace same with non-
33
infringing materials and/or services of a grade and quality to meet all
specifications for their required use.
SECTION 16. LIABILITY OF THE PARTIES TO EACH OTHER.
16.1 LIABILITY GENERALLY. Subject to the specific provisions of this
SECTION 16, it is the intent of the Parties that each Party shall be liable to
the other Party for damages incurred as a result of the breach of this Agreement
by the other Party and failure to cure such breach as set forth in SECTION
17.1.2.
16.2 LIABILITY RESTRICTIONS.
(a) SUBJECT TO SUBSECTION (b) BELOW, IN NO EVENT, WHETHER IN CONTRACT
OR IN TORT (INCLUDING BREACH OF WARRANTY, NEGLIGENCE AND STRICT LIABILITY
IN TORT), SHALL A PARTY BE LIABLE TO THE OTHER PARTY FOR INDIRECT OR
CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR SPECIAL DAMAGES EVEN IF SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES IN ADVANCE.
(b) The limitations set forth in subsection shall not apply to the
indemnification obligations set forth in SECTION 15.3 and SECTION 15.4.
(c) Each Party shall have a duty to mitigate damages for which the
other Party is responsible.
(d) Each Party shall be liable to the other Party for any actual
damages as set forth in SECTION 16.1 only if, and to the extent that the
aggregate of all losses arising from or in connection with any such failure
to perform obligations in the manner required by this Agreement exceeds ten
thousand dollars ($10,000.00), except for claims of payment from
Subcontractors or vendors
16.3 FORCE MAJEURE. Neither party shall be liable to the other for any
delays or damages or failure to act, except for the obligation to make payment
when due, owing to, occasioned by or caused by reason of strikes, lockouts,
fire, flood, the elements, Acts of God, wars, blockades, insurrections, riots,
landslides, earthquakes, lightning, storms and civil disturbances beyond the
control of the Party affected thereby, and delays due to any of the above causes
shall not be deemed to be a breach or failure to perform under this Agreement (
collectively a "Force Majeure Event"); provided, however, that the Party delayed
by such event shall provide notice thereof to the other Party as soon as
reasonably possible specifying all facts relating thereto, the anticipated
consequences thereof, and any proposed actions to be taken in mitigation of
adverse consequences. Neither Party shall, however, be relieved of liability
for failure of performance due to a claimed Force Majeure Event hereunder if
such failure is due to causes arising out of its own negligence or to removable
causes that it fails to remove or remedy with reasonable dispatch.
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SECTION 17. INFORMAL DISPUTE RESOLUTION; ARBITRATION.
17.1 INFORMAL DISPUTE RESOLUTION.
17.1.1 ROLE OF PROGRAM MANAGER. In the event Incumbent has a
dispute, controversy or other complaint relating to PathNet's performance
of PathNet's rights and obligations under this Agreement, Incumbent shall
have the right to first contact the Program Manager to resolve such
dispute, controversy or other complaint. If Incumbent is not satisfied
with the resolution provided by the Program Manager, Incumbent may resort
to the arbitration procedures set forth in this SECTION 17.
17.1.2 NOTICE OF BREACH, CURE AND REMEDIES. In the event of a
material breach by either PathNet or Incumbent (the "BREACHING PARTY"), the
other Party (the "NON-BREACHING PARTY") shall send by certified mail a
written notice of such material breach to the Breaching Party setting forth
the specific allegations of such breach. Upon receipt of the notice of
breach, the Breaching Party shall have thirty (30) days to cure such
breach. In the event the Breaching Party fails to cure such breach, as
determined by the Non-Breaching Party in its sole discretion, and the
Breaching Party determines, in its sole discretion, that it has cured such
breach, either the Breaching Party or the Non-Breaching Party may invoke
the arbitration procedures set forth in SECTION 17.2 to resolve whether
such breach has been cured.
17.2 ARBITRATION.
17.2.1 ARBITRATION; RESOLUTION OF DISPUTES. Subject to SECTION
17.1, any and all disputes and controversies between Incumbent and PathNet
concerning this Agreement (each a "DISPUTE") shall be subject to
resolution as set forth in this SECTION 17.
17.2.2 REFERRAL TO BINDING ARBITRATION. Each Party shall have the
right, but not the obligation, to refer any Dispute for final resolution by
binding arbitration in accordance with the American Arbitration Association
(the "Association") Rules for Arbitration of business disputes (the
"ARBITRATION RULES").
17.2.3 BINDING EFFECT. The Parties acknowledge and agree that (i)
the award in any arbitration shall be final, conclusive and binding on the
Parties and (ii) any such arbitration award be a final resolution of the
Dispute between the Parties to the same extent as a final judgment of a
court of competent jurisdiction.
17.2.4 USE OF COURTS AND OTHER LEGAL REMEDIES. Each Party
covenants and agrees that it shall not resort to any court for legal
remedies concerning any Dispute other than to enforce a final decision by
the arbitrators or for preliminary, interim or provisional equitable relief
in aid of arbitration.
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17.2.5 ARBITRATION PROCESS.
(a) SITE AND ARBITRATION TRIBUNAL. Absent agreement to the contrary
by the Parties, the arbitration will be conducted in New York, New York, by
a panel of three (3) arbitrators with expertise in the fields of
telecommunications engineering and construction.
(b) LIMITATION ON AWARDS. Arbitrators may not award (i) the right to
terminate this Agreement or any of the rights and obligations hereunder, or
(ii) any other right or remedy that contravenes the terms and conditions of
this Agreement.
(c) PERIOD OF LIMITATIONS. In the event the Party claiming a Dispute
under SECTION 17.1.2 does not institute binding arbitration within four (4)
years after notice of breach, such Party shall forever be barred from
bringing a claim on the specific subject matter of such Dispute.
(d) ATTORNEYS' FEES. The arbitrator shall award the reasonable cost,
including attorneys' fees, to the prevailing Party.
SECTION 18. MISCELLANEOUS.
18.1 NOTICES. All notices pertaining to disputes arising from this
Agreement shall be directed to a corporate entity or employee designated by the
signatories as having full rights and responsibilities to address such issues.
Notices under this Agreement shall be sufficient only if personally delivered by
a commercial prepaid delivery or courier service or mailed by certified or
registered mail, return receipt requested to a Party at its address set forth
below or as amended by notice pursuant to this SECTION 18.1. If not received
sooner, notice by mail shall be deemed received five (5) Business Days after
deposit in the U.S. mail. All notices shall be delivered as follows:
If to PathNet:
Michael A. Lubin, Esquire
Vice President and General Counsel
PathNet, Inc.
1015-31st, N.W.
Washington, D.C. 20007
Tel: (202) 625-7284
Fax: (202) 625-7369
If to Incumbent:
Mr. Tom Bruscino
Director, Telecommunications
KN Energy
370 Van Gordon Street
Lakewood, CO 80228-8304
Tel: (303) 763-3299
Fax: (303) 763-3510
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18.2 BINDING NATURE; ENTIRE AGREEMENT. PathNet and Incumbent acknowledge
that (i) each has read and understands the terms and conditions of this
Agreement and agrees to be bound by such terms and conditions, (ii) this
Agreement shall be binding on each of PathNet and Incumbent and their respective
successors and assigns, (iii) this Agreement is the complete and conclusive
statement of the agreement between the Parties, (iv) this Agreement supercedes
any and all prior agreements and arrangements between the Parties and all
understandings and agreements, oral and written, heretofore made between
Incumbent and PathNet are merged in this Agreement which alone, fully and
completely expresses their agreement on the subject matter of this Agreement and
(v) this Agreement sets forth the entire agreement on the subject matter hereof.
18.3 AMENDMENT. No modifications of, additions to or waiver of this
Agreement shall be binding upon Incumbent or PathNet unless such modification,
addition or waiver is in writing and signed by an authorized representative of
each Party.
18.4 SEVERABILITY. If any term or provision of this Agreement shall to any
extent be held by a court or other tribunal to be invalid, void or
unenforceable, then such term or provision shall be inoperative and void insofar
as it is in conflict with the law, but the remaining terms and provisions of
this Agreement shall nevertheless continue in full force and effect and the
rights and obligations of the Parties shall be deemed to be restated to reflect
as nearly as possible the original intentions of the Parties in accordance with
applicable law.
18.5 GOVERNING LAW. This Agreement, and the rights and obligations of the
Parties hereunder, shall be governed and interpreted in accordance with the laws
of the State of New York (other than the choice of law rules thereof).
18.6 SURVIVAL. Any provision of this Agreement which completes performance
or observance subsequent to any termination or expiration of this Agreement
shall survive such termination of expiration and continue in full force and
effect.
18.7 ASSIGNMENT. At any time and from time to time, PathNet shall have the
right to assign this Agreement or any of PathNet's rights and obligations under
this Agreement; provided, that in no event shall any such assignment relieve
PathNet of its obligations under this Agreement. Incumbent may not or shall not
have the right to assign this Agreement or any of its rights and obligations
hereunder without the prior written consent of PathNet, which consent shall not
be unreasonably withheld; PROVIDED, HOWEVER, Incumbent may assign its right and
obligations, in whole but not in part, under this Agreement without the approval
of PathNet, to any entity which acquires all or substantially all of the assets
of Incumbent or to any subsidiary, Affiliate or successor in a merger or
consolidation of Incumbent; provided, that in no event shall any such assignment
relieve Incumbent of its obligations under this Agreement.
18.8 WAIVER. Failure or delay on the part of Incumbent or PathNet to
exercise any right, power or privilege under this Agreement shall not constitute
a waiver of any right power or privilege of this Agreement.
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18.9 RECORDATION. Each Party hereby acknowledges that this Agreement may
be subject to recordation and the costs, fees or expenses associated with any
such recordation shall be borne by the recording Party.
18.10 GOOD FAITH RENEGOTIATION. Notwithstanding anything set forth
herein to the contrary, the Parties hereby agree that in the event a
Governmental Authority issues a decision, order, rule or other rulemaking of any
kind, which necessitates any modification or amendment to this Agreement, the
Parties shall negotiate in good faith to modify or amend this Agreement to
comply with such decision, order, rule or other rulemaking.
18.11 CONFIDENTIAL TERMS AND CONDITIONS. Incumbent shall not disclose,
except as required by law or as set forth in SECTION 18.9, the terms and
conditions of this Agreement to any third party.
18.12 INCUMBENT'S DESIGNATED REPRESENTATIVE. Incumbent shall on the
Effective Date designate in writing a representative who shall have express
authority to bind Incumbent with respect to all matters requiring Incumbent's
approval or authorization in connection with this Agreement (the "INCUMBENT
REPRESENTATIVE"). Such Incumbent Representative shall have the authority to
make decisions and grant any and all consents required under this Agreement on
behalf of Incumbent and PathNet shall be entitled to rely on any such decision
or consent by the Incumbent Representative.
18.13 OUTSOURCING. In addition to, and not in place of, any rights of
PathNet under this Agreement, PathNet shall have the right to engage third party
Subcontractors to perform any or all of PathNet's rights and obligations under
this Agreement.
18.14 EMPLOYMENT SOLICITATION. During the term of this Agreement,
neither PathNet nor any PathNet Affiliate shall solicit employment from, offer
employment to or hire, in any manner whether as an employee or a Subcontractor,
any Incumbent employee; provided that PathNet may hire any former Incumbent
employee if such employee has not worked for Incumbent for a period of at least
eighteen (18) months.
18.15 EXECUTION OF AN AMENDED SCHEDULE B. In the event that both
Incumbent and PathNet elect to add additional Segments to the System, each of
Incumbent and PathNet shall execute and deliver an "AMENDED SCHEDULE B" setting
forth (i) the additional paths, sites and specific location information of the
additional Segment or Segments, (ii) the rent PathNet shall pay to Incumbent for
such additional Segment (thereby amending SECTION 5.2 with respect to such
additional Segment; PROVIDED, HOWEVER, SECTION 5.2 shall remain in full force
and effect with respect to Segment 1 or any other existing Segment) and (iii)
the Incumbent Items, the amount of the Incumbent Estimated Costs, the amount of
the Incumbent Payment Cap and the method of payment of the cost of the Incumbent
Items with respect to such additional Segment (thereby amending SECTION 4.1 and
SECTION 1 of SCHEDULE C with respect to such additional Segment; PROVIDED,
HOWEVER, SECTION 4.1 and SECTION 1 of SCHEDULE C shall in any event remain in
full force and effect with respect to Segment 1 or any other existing Segment.)
PathNet's and Incumbent's rights and obligations under this Agreement will
commence with respect to such additional Segment or Segments on the date of
execution of such AMENDED SCHEDULE B by both
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Parties which date shall be deemed the "EFFECTIVE DATE" with respect to such
Segment for purposes of this Agreement and each reference to SCHEDULE B in this
Agreement shall be deemed to refer to such AMENDED SCHEDULE B.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement, as of the
date first written above.
PATHNET, INC.
By: /s/ Dave Shaeffer
--------------------------------
Name: Dave Shaeffer
Title: President
KN ENERGY, INC.
By: /s/ Rickey Wells
--------------------------------
Name: Rickey Wells
Title: V.P. Operations
39