PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. SUCH PORTIONS ARE
DESIGNATED "[***]"
Exhibit 10.6
THIS AGREEMENT ("Agreement") is made and entered into as of the ____ day of
____________, 1997 by and between PATHNET, INC. (hereinafter "PathNet"), a
Delaware corporation, having its principal place of business at 6715 Kenilworth
Avenue, Suite 200, Riverdale, Maryland, 20737, and TEXACO PIPELINE INC.
(hereinafter "Texaco"), a Delaware corporation, of 1670 Broadway, Denver,
Colorado, 80202.
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 the long
distance telecommunications capacity created by such systems;
WHEREAS, PathNet currently seeks microwave tower locations in Louisiana and
Texas to implement its microwave communications network;
WHEREAS, Texaco owns and operates the Texana Microwave System which is
currently in need of modernization, capacity additions, and upgrading for which
Texaco has committed certain funds;
WHEREAS, Texaco, owner and operator of the existing Texana Microwave
System, desires to engage PathNet for the purpose of designing, installing and
enhancing its microwave communications system;
WHEREAS, if the Texana Microwave System were suitably modernized and
upgraded, it would extend PathNet's Texas - Louisiana microwave communications
network; and
WHEREAS, PathNet desires to lease Texaco's microwave Facilities for the
purpose of installing digital radios and related equipment and exclusively
marketing the long distance telecommunications Excess Capacity created by the
enhanced system it will install and operate;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:
1. RELATIONSHIP, ROLES AND RESPONSIBILITIES
1.1 DEFINITIONS
The attached SCHEDULE A -- GLOSSARY, contains selected definitions of terms
used in this Agreement. These defined terms are capitalized throughout this
Agreement.
1.2 RELATIONSHIP OF THE PARTIES
1.2.1 APPOINTMENT OF PATHNET. Texaco hereby appoints PathNet for the
term of this Agreement, and PathNet hereby agrees to act for Texaco as Texaco's
sole and exclusive representative for the purpose of providing digital 6 GHz
microwave equipment at Texaco's Facilities, further identified on SCHEDULE B --
THE TEXACO SYSTEM, and creating and managing a high-capacity, digital, microwave
communications system. PathNet's radio communications equipment shall operate
on transmit and receive frequencies as set forth in SCHEDULE K -- ANTENNA
SPECIFICATIONS, POSITIONS AND FREQUENCIES, attached hereto, which describes each
path and the frequencies to be used on each path. PathNet shall use such
equipment and market the telecommunications "Excess Capacity" created by such
system at Texaco's Facilities, subject to all of the terms and conditions of
this Agreement. PathNet shall be Texaco's only representative authorized to
create a 6 GHz system on towers or at Facilities identified in Schedule B of
this Agreement.
1.2.2 INDEPENDENT CONTRACTOR/LESSOR/LESSEE. PathNet's relationship to
Texaco is, at various times, that of an independent contractor and lessee. As
an independent contractor, PathNet, among other services, will perform
analytical pre-design and design services and be responsible for the
installation and testing of the replacement microwave radio system, as well as
2
any upgrades to that system. In the role of Lessee, PathNet will be leasing the
space at the Facilities from Texaco on which to build and operate a
high-capacity, digital microwave system as set forth in Section 2 of this
Agreement. The relationship of PathNet to Texaco is that of an independent
contractor and lessee, and does not represent a partnership or joint venture
with Texaco or any other relationship. PathNet will have exclusive marketing
rights for any and all capacity created on the proposed microwave system in
excess of the capacity allocated to Texaco under this Agreement.
1.3 PROJECT RESPONSIBILITIES
1.3.1 GOALS AND PROJECT ASPECTS. PathNet shall analyze the existing
Facilities, design and install a replacement digital microwave network which
will enable Texaco to operate its existing analog microwave network until such
time as Texaco transfers its circuits to the digital network. Texaco and
PathNet will develop a detailed cutover plan to be set forth in SCHEDULE F --
PROJECT MANAGEMENT PLAN AND PRELIMINARY SCHEDULES, to this Agreement, attached
hereto, to be approved by PathNet and Texaco. PathNet shall actively create at
Texaco's Facilities a 6 GHz/30 MHz digital microwave telecommunications system.
The system will be configured initially in a 1 x 1 protection format. The
system may be expanded during the term, pursuant to the provisions of
PARAGRAPHS 1.3.7 and 2.1.2 of this Agreement, by adding and/or replacing the
radio components (hereinafter referred to as the "Capacity Expansion").
1.1.2 EXISTING SYSTEM EVALUATION. PathNet will complete a detailed
analysis of the existing analog microwave system operated by Texaco on the
Segment. The analysis shall include:
a. an inventory and survey of Texaco's existing microwave sites and
supporting Facilities;
3
b. microwave path studies and reliability analysis to provide performance
data to serve as the engineering basis for the design of a replacement
system;
c. a frequency availability model;
d. a determination of whether structural analysis of towers and loading
factors, for metal towers only, is required;
e. a business case model for the deployment of each high-capacity,
digital system;
f. a design for the new system;
g. a detailed line item budget for the new system;
h. a T-1 plan for channelization; and
i. a preliminary construction management schedule for each replacement
system.
In performing these tasks, PathNet will require the cooperation of Texaco.
PathNet will complete a detailed system evaluation and survey of the existing
analog microwave system operated by Texaco along the Segment attached hereto,
based on information and documents provided by Texaco. The results of this
analysis will be made available to PathNet and Texaco jointly.
1.3.3 SYSTEM DESIGN. PathNet has in conjunction with Texaco specified
a system design that will result in a comprehensive 6 GHz/30 MHz digital system
meeting capacity requirements as well as geographic requirements for points of
transmission on a segment by segment basis. This digital system will have Drop
and Insert capabilities as defined in SCHEDULE D -- T-1 CHANNEL PLAN, and
SCHEDULE G -- MULTIPLEXING CONCEPT, attached hereto. Completion of the system
design shall follow execution of this Agreement. Texaco shall approve all
aspects of system design and such approval(s) shall be reflected in writing.
4
1.3.4 SYSTEM INTEGRATION. PathNet will provide for the integration of
the resulting 6 GHz/30 MHz digital telecommunications system into the total
PathNet telecommunications network with prior coordination with Texaco.
1.3.5 CAPACITY. The system to be installed by PathNet shall have the
initial capacity of 6 DS-3 and two DS-1 Wayside Channels, or approximately 4,080
DS-0's, of which 2,040 DS-0's shall be available for service and the remaining
2,040 DS-0's will be utilized for protection. This capacity shall be delivered
in DS-1 increments with appropriate Drop and Insert characteristics as defined
under the T-1 channelization plan which has been prepared as part of PathNet's
initial evaluation of Texaco's system, and is appended hereto as Schedule D.
Texaco has the ability to move, add or change, its capacity as required along
the network provided sufficient circuit Drop and Insert capacity exists at each
Facility. There will be no fee for Texaco's reconfiguration of its network to
meet its changing capacity requirements. The capacity created by PathNet at the
Facilities by the 6 GHz/30 MHz digital microwave system will be relicensed in a
form capable of being marketed under Part 21/101 of the FCC regulations. This
Excess Capacity then will be aggregated into PathNet's network, which is
expected to have enhanced value.
1.3.6 MAINTENANCE FOR SYSTEMS. Texaco shall be responsible for the
maintenance of the 6 GHz/30 MHz system pursuant to the terms of a separate
written agreement to be entered into by the parties. The separate maintenance
agreement shall provide for ongoing maintenance of PathNet's microwave
facilities for a period of up to twenty-five (25) years. Upon execution of the
Maintenance Agreement, Texaco and PathNet will be required to perform routine
site maintenance on the System, in accordance with the list of routine
maintenance items set forth on SCHEDULE T -- ROUTINE SITE MAINTENANCE
REQUIREMENTS, attached hereto, consistent with their
5
respective ownership interests, as set forth on Schedule E. Texaco's approval
shall be required in advance of any routine maintenance procedures performed by
PathNet at the Facilities, and shall not be unreasonably withheld.
1.3.7 INCREASES IN CAPACITY. PathNet has the authority to periodically
increase the capacity beyond the Initial System. However, each increase in
capacity must meet the upgrade threshold in PARA 2.1.2. PathNet will fund these
increases, which will occur in OC-3 increments. PathNet will own all licenses
and equipment associated with the increases in capacity. If it is technically
possible to increase the capacity beyond the 1 x 7 system specifications,
PathNet shall have the right to do so, provided the increase in capacity does
not: (1) impair system performance by the reduction in system gain, (2)
increase the utilization of power, (3) increase space requirements, (4) increase
tower loading beyond those specifications which are established in the initial
design, or (5) result in a material reduction in Texaco's system performance.
PathNet agrees to provide Texaco with reasonable notice of its intent to
increase the spectral efficiency at its Facilities. PathNet shall have the
right to install additional microwave dishes or devices on towers, as approved
by Texaco. In the event that additional antennas will exceed tower wind loading
requirements, PathNet shall pay for any tower analysis and strengthening that
might be required before such antennas and/or other devices are installed.
1.3.8 TEXACO'S CAPITAL INVESTMENT. As an inducement to PathNet to
enter into a lease arrangement for space at the Facilities, Texaco agrees to
invest capital necessary to upgrade the Facilities to make them suitable for the
installation of PathNet's leasehold improvements. The Facilities' upgrades are
presently estimated to cost approximately [***]
. This capital to be invested by Texaco shall pay for leasehold
improvements including pressurizing equipment, tower strengthening, battery
plants, equipment shelters,
6
shelter freight costs and miscellaneous site work to prepare the Facilities for
installation of PathNet's radio equipment. A description of Texaco's proposed
upgrades and an estimate of its costs are set forth in detail on SCHEDULE C --
VALUATION SCHEDULE OF CAPITAL INVESTMENT TO BE MADE BY TEXACO, attached hereto.
Any capital spent by Texaco for Facility improvements shall be disbursed
directly to vendors of Texaco's choice, provided that the equipment meets the
System specifications and design documentation necessary to prepare the
Facilities for PathNet's leasehold improvements, as set forth on Schedule E,
attached hereto. PathNet will provide the system design documentation to Texaco
and/or maintenance contractor at Commissioning. If additional capital
investment is required by Texaco for the above-described equipment and services
because of unforeseen, pre-existing Facility conditions unknown to PathNet or
Texaco, Texaco shall be required to increase its capital investment to meet the
demands of the Facility upgrades and preparation for the installation of the
digital microwave system, but Texaco's costs for these assets or services to
accommodate installation of the high-capacity digital equipment [***]
as set forth on Schedule C, attached hereto. The [***]
difference between [***] and the Texaco Budgeted Funds shall be known as
the "Texaco Contingency Funds."
1.3.9 TEXACO'S PROJECT MANAGEMENT RESPONSIBILITIES. Texaco shall serve
as project manager for the required improved infrastructure associated with the
Initial Build-Out, including installation of battery plants, towers,
pressurizing equipment and other equipment and property which it will provide.
In order to be certain the Facilities will be suitable for PathNet's leasehold
improvements, Texaco shall schedule all work to be performed in connection with
the Initial Build-Out, subject to the written approval of PathNet, which shall
not be unreasonably withheld. All contractors shall be hired by Texaco for the
Initial Build-Out, and all equipment approved for
7
purchase by both PathNet and Texaco shall be ordered by Texaco. Copies of all
purchase orders issued by Texaco or PathNet shall be transmitted to PathNet
within five (5) business days of issuance.
1.3.10 PATHNET'S CAPITAL INVESTMENT. PathNet shall commit the capital
required to install its leasehold improvements at the Facilities and to complete
the System in accordance with Texaco's approval of the initial design criteria.
However, PathNet shall not be responsible for capital investments required for
the Facilities' preparation or upgrading, as set forth in Schedule B, attached
hereto, (i.e., the building of roads, modifications of towers or construction of
sheds) unless the costs exceed Texaco's capital investment of [***] as set
forth in Schedule C. PathNet shall be responsible for paying for leasehold
Facility improvements along Segment spurs which PathNet wishes to build-out for
its own network purposes and for any such sites which are separately identified
in SCHEDULE S -- NETWORK INTERCONNECTIONS SCHEDULE, attached hereto.
1.3.11 COSTS OF COMPLIANCE WITH LAWS. Any upgrades required to conform
to local building code provisions and any site costs (including fees) incurred
in connection with compliance with regulatory laws, particularly those related
to health and safety, will be borne solely by Texaco. Texaco shall register and
pay F.C.C. registration fees for the Facilities. If a cost differential shall
exist between the site fees Texaco incurs because of PathNet's status as a
common carrier and the site fees Texaco would have incurred as a private
microwave licensee operating its own microwave system along those same paths,
PathNet shall pay such differential. PathNet shall be responsible for payment
of all existing and future regulatory fees, fees for telecom relay services, pay
telephone assessments, access surcharges, universal service changes, and fees
incurred in the event of unusual occurrences and site registration fees.
8
1.3.12 ENCUMBERING EQUIPMENT AND REVENUES. PathNet shall have the right
to encumber the equipment acquired to create Capacity Expansion and PathNet's
portion of the revenues to be received pursuant to the terms of this Agreement.
PathNet shall have no right to encumber the equipment for the Initial System.
However, any revenues PathNet may be due from the marketing of channels created
by the 1 x 1 Initial System may be encumbered by PathNet. This Agreement and
the rights contained herein may serve as collateral for vendors or others who
may provide financing for the equipment of services PathNet shall provide during
the System Build-Out Period. In addition, for financing purposes, PathNet may
encumber and use its portion of the revenues that may be due under the terms of
this Agreement to cross-collateralize the financing of other build-outs of
systems that will be linked to PathNet's network. Any encumbrances placed on
equipment are subject to the review and approval by Texaco, and such approval
shall not be unreasonably withheld. However, any security interest given in the
equipment used for creation of the Initial System shall reflect that the
lienholder is prohibited from removing the equipment from, or disabling,
modifying or adjusting the equipment at the Facilities. In addition, all
encumbrances or security agreements shall reflect that, in the event of default
by PathNet, lienholder's only remedy to recover monies is to proceed against
PathNet's portion of revenues which it may receive and to bring in the services
of a third party to manage and administer the marketable Excess Capacity.
PathNet shall include in its financing agreements a provision that would grant
to Texaco a right of first refusal to purchase the equipment in the event of
PathNet's default under such Financing Agreements.
1.3.13 INFORMATION AND SERVICES. To enable PathNet to make the
leasehold improvements at the Facilities, Texaco shall provide to PathNet, in a
timely manner, relevant existing tower drawings and specifications, inventory
lists, and other documents regarding its
9
relevant paths, equipment, and Facility conditions within thirty (30) days of
execution of this Agreement. Texaco will provide to PathNet evidence of
ownership of the affected sites. For those sites which Texaco leases from
others, Texaco will provide PathNet with copies of such leases. Pursuant to the
terms of this Agreement, PathNet shall provide and pay for radio terminals,
space diversity repeaters, network management systems, antennas, replacement
feedhorns, waveguide, muxing from the DS-3 to DS-1 level, installation and
performance testing, path installation, spare radios, training and such
miscellaneous items required in support of providing the above-listed equipment
and services. Texaco (from the Texaco Budgeted Funds and, if necessary, from
the Texaco Contingency Funds) shall provide and pay for shelter pressurizing
equipment, shelters, shelter freight costs, structural tower analyses, tower
strengthening, tower replacement, miscellaneous site work and battery plants,
pursuant to the terms of this Agreement. Costs for the equipment and services
in excess of Texaco's Budgeted and Contingency Funds shall be borne by PathNet.
1.3.14 STRUCTURAL AND ENVIRONMENTAL TESTS, SURVEYS AND REPORTS. Texaco
shall provide PathNet with all existing current tower drawings and
specifications, if they are in Texaco's possession, custody or control. These
drawings shall include structural details, civil conditions, foundation
drawings, bonding and grounding plans, inventory of all equipment located on the
tower structure, all cabling and feedline locations and placement of all
auxiliary structures within the Facilities. Texaco agrees to provide any and
all of the following documentary information, if such information exists, and is
required to be completed by statute or, if necessary, for completion of the
project:
10
a.reports, surveys, drawings and tests concerning the conditions and
microwave facilities at the Facility, and conformity of the existing system and
Facility conditions with federal, state and local law; and,
b.structural, mechanical, electrical inspections and reports which
have been required by law;
c.such additional documents which may include consultant reports that
contain descriptions of existing equipment and determinations of capabilities,
interference, evaluations of hazardous materials, tower conditions, including
necessary operations for anticipating existing conditions and appropriate
professional recommendations, when such information is reasonably related to the
scope of the Project and is requested by PathNet.
1.3.15 PHYSICAL STRUCTURES. Pursuant to the terms of this Agreement,
Texaco is to provide the appropriate physical structures necessary for PathNet
to deploy a high-capacity, digital microwave network capable of, at minimum,
16,700 DS-0's along the Segment. This infrastructure shall include real estate,
towers, shelters, power systems and miscellaneous items essential to support the
proposed system as further defined in SCHEDULE E -- OWNERSHIP OF RADIOS,
SHELTERS, SYSTEM COMPONENTS AND RELATED EQUIPMENT, attached hereto.
1.3.16 TEXACO'S DESIGNATED REPRESENTATIVE Texaco's Designated
Representative. Texaco shall designate in writing a representative who shall
have express authority to bind Texaco with respect to all matters requiring
Texaco's approval or authorization in connection with this Agreement. This
representative shall have the authority to make decisions on behalf of Texaco
concerning estimates and schedules, engineering capabilities, construction
concerns, and changes in the work, and shall render such decisions promptly and
furnish information expeditiously so as to avoid unreasonable delay in the
services or work of PathNet and/or its subcontractors.
11
1.3.17 TEXACO'S RESPONSIBILITIES - FACILITY USE AND CONDITIONS Texaco's
Responsibilities - Facility Use and Conditions. Texaco hereby warrants and
represents to PathNet that the PathNet program goals as further identified
and set forth in PARA 1.2.1 of this Agreement are consistent with Texaco's
use of all owned or leased Facilities. PathNet will be provided access to all
sites set forth on Schedule B. Texaco, in conjunction with PathNet, will
determine which, if any, Facilities require structural analysis for the
placement of new antenna systems. For those structures identified as
requiring such analysis, Texaco, working closely with PathNet, will engage
and pay for a structural engineer licensed in the state in which the affected
tower resides. Texaco shall pay for the structural analysis from the Texaco
Budgeted Funds. The results of these analyses will be made available to
PathNet.
1.3.18 PATHNET'S RESPONSIBILITIES - FACILITY CONDITIONS
PathNet's Responsibilities - Facility Conditions. PathNet will analyze the
data provided by Texaco and construct a preliminary electronic inventory of
the existing Facility conditions at the time of execution of this Agreement.
PathNet will provide the requirements and specifications for the proposed
digital microwave systems site requirements at each Facility. PathNet will
inspect each Facility which does not have sufficient information provided by
Texaco to complete this analysis. PathNet will provide Texaco with detailed
antenna system requirements, which will include appropriate antenna sizes,
site elevations and azimuths. PathNet will additionally provide Texaco with
the vendor data specifying the wind loading and weight requirements for the
proposed antenna systems, as well as any associated feedlines necessary to
support the proposed system.
1.3.19 LEGAL REQUIREMENTS
Legal Requirements. Texaco shall determine and advise PathNet of any
special regulatory or zoning requirements known to it relating specifically
to the Initial System in the locality of the Facilities which differ from
those generally applicable to microwave facilities.
12
PathNet shall fulfill such legal requirements, in connection with the services
it is to provide under this Agreement.
1.3.20 MAINTENANCE OF TOWERS AND FACILITIES
Maintenance of Towers and Facilities. Texaco shall be responsible for
providing Facility access towers, tower restoration, equipment access,
electricity, compliance with environmental requirements, painting,
lighting, payment of real estate taxes, compliance with FAA requirements,
maintenance of the Facility's building(s), the power systems and common
elements necessary for the continued operation of the telecommunications
asset throughout the duration of this Agreement. Texaco shall also be
responsible for FCC registration and payment of registration fees related
to the Facilities.
1.3.21 USE OF TEXACO'S TOWERS AND OTHER EQUIPMENT
Use of Texaco's Towers and Other Equipment. Texaco shall permit PathNet
to use its towers, antenna, waveguides and equipment shelters at the Facilities.
In order to expand system capacity, if necessary, PathNet shall have the right,
at its own expense, to make leasehold improvements to Facilities beyond the
Initial System. PathNet's leasehold improvements may be removed at PathNet's
expense and option, providing that no structural damage to Texaco's Facility
will result from such removal. All proposed modifications or additions to
Texaco's towers, waveguides, antennas and equipment shelters set forth on
Schedule E, shall be reviewed and approved or disapproved by Texaco within
thirty (30) business days of its submission to Texaco, and such approval shall
not be unreasonably withheld. In the event Texaco does not grant approval, the
parties shall make commercially reasonable efforts to resolve the situation.
PathNet shall pay for capacity expansion and shall not pay for Facility
improvements, except as provided for in PARA 1.3.10 of this Agreement, or unless
agreed to in writing signed by the parties hereto.
13
1.3.22 TOWER APPROVALS AND STRUCTURAL CHANGES. Texaco shall fully
evaluate the tower structures and, if necessary, provide additional
stiffening or strengthening to existing structures. For all towers, Texaco
will obtain all necessary local zoning approvals, FCC approvals, site
licenses and FAA approvals (except FCC licenses provided for in PARA 3.2)
before work related to the project, or any part thereof, is commenced. Any
federal, state or local governmental or regulatory fees associated with
obtaining such tower approvals shall be paid by Texaco. Modifications to
tower structures shall be in full compliance with then current EIA/222F
specifications for loading. All costs associated with tower modifications or
requirements to support the interconnections to PSTN or the other elements of
the PathNet network shall be borne by PathNet. Any costs associated with the
interconnection to other parts of Texaco's network, which are not part of
PathNet's network, shall be paid for by Texaco. Any deficiencies or notices
of violations shall be fully disclosed to PathNet. Any tower or system
modifications that affect the tower lighting or tower alarm monitoring are
subject to the prior written approval of Texaco and shall be paid for by
PathNet.
1.3.23 PARKING AT THE FACILITIES. If required, Texaco will provide
for vehicular parking at each of the affected Facilities at no charge to
PathNet or its agents for use during the term of this Agreement. In the
event affected Facilities are in urban areas where vehicles are parked in
privately operated lots or garages, PathNet shall be responsible for any and all
parking charges it or its agents and employees may incur.
1.1.24 EXITING FACILITIES. Upon leaving Facilities, PathNet, its
employees, agents and contractors shall ensure that the Facility is returned
to a condition which existed immediately prior to their visit with the
exception of any installation, construction, maintenance or other work performed
during such visit.
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1.3.25 SECURITY SEARCHES. Any PathNet employee or agent, if required,
will be subject to a complete security search prior to entering any Texaco
facility where this may be required. PathNet employees or agents will be
allowed to bring necessary testing equipment, photographic equipment and both
video and audio recording equipment to any Facility where general security
requirements permit, subject to the prior written approval of Texaco, which
shall not be unreasonably withheld. PathNet will maintain a diary or log of its
site visits and a copy of such log will be available to Texaco during normal
business hours, provided a minimum of seventy-two (72) hours advance notice is
given to PathNet by Texaco.
1.3.26 USE OF TELECOMMUNICATIONS DEVICES. If necessary, while visiting
the Texaco Facilities, PathNet's employees or agents shall be allowed to
utilize existing telephone lines, or Order Wire to facilitate their
evaluation.
1.3.27 REAL ESTATE AND OTHER PROPERTY TAXES. For all state and local,
real and personal property taxes on equipment installed at Texaco Facilities, as
listed on Schedule E, and real estate supporting the operation of digital
microwave communications system at those sites, each party shall be responsible
for the payment of taxes for property which they separately own, as reflected in
Schedule E, attached hereto.
1.1.28 PATHNET'S OTHER RESPONSIBILITIES. PathNet will design the radio
network to be installed and specify the equipment to be used at the Texaco
Facilities. The design and specifications are subject to the written approval
of Texaco, which shall not be unreasonably withheld. PathNet shall hire any and
all subcontractors for the installation of the radio equipment and shall
coordinate system cutover and testing with Texaco. PathNet shall stage and
schedule delivery of radio, antenna and waveguide equipment and manage the
installation and cutover of the initial 1 x 1 communications system on the
microwave paths comprising the
15
Texaco System, as further described in Schedule B, attached hereto. PathNet
shall also be responsible for the marketing and sale of Excess Capacity created
in accordance with the terms of this Agreement.
2. LEASEHOLD INTEREST
2.1 PREMISES; EQUIPMENT; LOCATION
2.1.1 LEASE OF FACILITIES. Texaco hereby agrees to lease to PathNet
space on Texaco's towers and space in Texaco's equipment buildings at each site
for the purpose of housing the equipment for the installation and operation of
the PathNet communications equipment set forth on Schedule E, at the Facilities,
subject to the terms and conditions set forth in this Agreement. From time to
time, Schedule B may be amended to include additional Facilities of Texaco by
the preparation of an "Amended Schedule B" to the Agreement, dated and signed by
both parties, reflecting additional paths and Facilities and specific location
information. The building layout to be used at each leased Facility is to be
set forth in the mutually agreed upon design drawings. Texaco grants PathNet,
unless PathNet defaults hereunder, the non-exclusive peaceful use, enjoyment and
possession of the Facilities during the term, as herein contemplated.
2.1.2 TERM, RENEWAL AND OPTION PERIODS. The term of the business and
leasehold relationship between Texaco and PathNet shall be up to twenty-six (26)
years for the Segment. This Agreement will become effective on the date of its
execution. The Initial Term includes the Buildout Period and extends for Five
(5) years after the Commissioning of the Initial System. The Build-out Period
of up to one year for design and installation shall commence immediately
following execution of this Agreement and shall end upon Commissioning. An
automatic option accrues to PathNet to extend the Initial Term of this agreement
for an additional ten (10) years, if
16
PathNet sells at least 10% of the Excess Capacity on the Initial System. A
second automatic option period of ten (10) years accrues with the sale of at
least 20% of the Excess Capacity on the Segment during the first option period.
To exercise either of these options, PathNet must notify Texaco in writing at
least 180 days prior to the end of the preceding term. Upon expiration of the
Initial Term and any optional terms PathNet has exercised, the term of the
Agreement shall continue year to year, cancelable by either party upon ninety
(90) days' written notice to the other party. If either PathNet or Texaco
elects to not extend the Agreement after expiration of the Initial Term, or any
option period, PathNet shall sell the Initial System to Texaco for the total sum
of $1.00 and PathNet shall promptly file whatever forms may be necessary to
facilitate the transfer of the license for the initial 1 x 1 system from PathNet
to Texaco. Upon the expiration of this Agreement, PathNet shall, at Texaco's
request, also remove all of its owned equipment within sixty (60) days from
Texaco's Facilities. Should PathNet fail to perform such requested removal
within a timely manner, Texaco may restore the leased premises to its condition
as of the date the System is commissioned, reasonable wear and tear and damage
from the elements excepted, and PathNet shall promptly pay Texaco all costs
reasonably incurred for such removal.
2.1.3 ANTENNAS. PathNet shall furnish all antennas and antenna
mounting hardware for securing the antennas to the towers. The antennas will be
installed on the towers by PathNet and PathNet has the right to install the
antennas with space diversity. PathNet's antennas are to be mounted at
positions on Texaco-owned towers to be noted in the agreed-upon system design
documents. The antenna positions, loading and frequencies are set forth on
Schedule K.
2.1.4 TRANSMISSION LINES. One (1) transmission line will be connected
to each antenna initially. All line(s) will be anchored firmly to the tower in
accordance with the manufacturer's recommendation and as directed by Texaco. If
the System is expanded beyond the 1 x 1 Initial
17
System, PathNet may elect to install a second transmission feed line. PathNet
shall furnish all transmission line(s), connectors and mounting hardware for
securing and grounding to the towers. PathNet, or its contractor, shall install
the transmission line(s) on the tower and route said transmission line(s) to its
equipment rack in Texaco's buildings, connecting both ends of the transmission
line(s). PathNet shall interface the transmission line(s) to its radio
equipment.
2.1.5 EQUIPMENT BUILDINGS. PathNet shall place its equipment inside
the Texaco buildings. Texaco shall allow PathNet access to PathNet's equipment
inside buildings at the Facilities, provided that Texaco shall have the right to
escort PathNet personnel. PathNet shall firmly anchor its equipment racks to
the floor, using a method and location mutually agreed upon by PathNet and
Texaco.
2.2 WARRANTIES REGARDING THE LEASEHOLD INTEREST
2.2.1 TEXACO'S AUTHORITY TO LEASE. Texaco represents and warrants that
it: (i) solely owns (or controls by lease or easement) the Facilities, set
forth in Schedule B, unencumbered by any liens, restrictions, mortgages,
covenants, conditions, easements, agreements, proffers, commitments, agreements
of record, or not of record, which would adversely affect Tenant's use and
enjoyment of the leased premises under this Agreement; (ii) is duly
organized/formed, validly existing and in good standing, and has all rights,
power and authority to make this agreement and bind itself thereto through the
party set forth as signatory as set forth below; (iii) has not dealt with, nor
is any brokerage commission due to any broker in connection with this Agreement;
and, (iv) the Property and its uses and operations, the making of this
Agreement, and Texaco's performance of this Agreement, to the best of Texaco's
knowledge, complies and will comply with all laws and not violate the provision
of any agreement or encumbrance of any
18
kind under which Texaco is a party or is bound or which restricts in any way the
dispositions or use of the Property.
2.2.2 PATHNET'S AUTHORITY TO LEASE.'S AUTHORITY TO LEASE PathNet
represents and warrants that it (i) is authorized to lease the Facilities set
forth in Schedule B, unencumbered by any liens, restrictions, mortgages,
covenants, conditions, easements, agreements, proffers, commitments, agreements
of record, or not of record, which would adversely affect PathNet's use and
enjoyment of the leased premises for the purposes contemplated under this
Agreement; (ii) is duly organized/formed, validly existing and in good standing,
and has all rights, power and authority to make this Agreement and bind itself
thereto through the party set forth as signatory, as set forth below; and,
(iii) has not dealt with, nor is any brokerage commission due to any broker in
connection with this Agreement.
2.3 RENT AND OTHER LEASEHOLD PAYMENT RESPONSIBILITIES
2.3.1 RENT TO TEXACORENT TO TEXACO. PathNet covenants and agrees to
pay to Texaco as rent for the use of the Facilities during each year of the
Initial Term, following the Build-out Period, an allocation of [***] .
PathNet will provide [***] to Texaco with a maximum cross sectional density
of [***] with Drop and Insert capability at the DS-1 level, at the
appropriate Facilities, as represented by the agreed upon channel plan set forth
in Schedule D for Texaco's own internal use and/or sale. The performance of
these DS-1's will meet or exceed the standards set forth in Schedule O.
Commencing in the [***] after Commissioning, PathNet shall
pay to Texaco, as additional rent, [***] of the revenue resulting
from the sale of the Excess Capacity installed at the Facilities, consistent
with the
- -------------------------
(1) [***]
19
provisions and terms of Section 2.3.2 of this Agreement. Texaco shall have
access on interconnections as set forth on Schedule S, attached hereto, with a
maximum cross section density of [***] channels.
2.3.2 SALE OF EXCESS CAPACITY. PathNet shall market all Excess
Capacity created. Texaco shall receive additional rent from PathNet based on
PathNet's sales of Excess Capacity according to the following terms:
a. INITIAL SYSTEM. For the four (4) years following
Commissioning of the Initial System, PathNet shall receive and retain all
revenue from the sale of Excess Capacity created by the Initial System for
the purpose of paying for the Initial System equipment and components. After
the [***] following Commissioning, PathNet shall begin to receive [***]
of the gross revenue and Texaco shall begin to receive, as additional rent,
[***] of the gross revenue on the sale of Excess Capacity created from the
Initial System.
b. SYSTEM CAPACITY EXPANSION. For a period of [***]
immediately following Commissioning of a Capacity Expansion beyond the
Initial System, the entire revenue stream shall be dedicated to servicing the
incurred debt on the cost of the radio and related equipment associated with
such Capacity Expansion. Each Capacity Expansion shall have its own
[***] . Each Capacity Expansion will be assigned an "Expansion" name
(i.e., Expansion 1, Expansion Phase 1...). PathNet will provide Texaco a
schedule that will set forth: (1) the amount of capacity to be included in the
expansion; (2) specific paths to be expanded; (3) the expansion name (including
each Path that is affected); (4) commissioning date; (5) [***] ;
and (6) the date Texaco will begin to receive additional rent from the gross
revenues derived from the expansion. Increases in capacity will be paid for
solely by PathNet and may come from the additional revenue stream which is
generated
20
from the sale of this additional capacity. If payments for radio and related
equipment associated with capacity upgrades or to service debt on such equipment
are needed, PathNet shall advance and make such payments. The determination to
increase telecommunications capacity along any segment of the digital network
will be made solely by PathNet. However, the precondition to any increase in
capacity is that at least [***] the existing capacity shall have been already
sold to PathNet customers for at least one quarterly period. After the
[***] , PathNet shall receive [***] of the revenues produced by
the Capacity Expansion and Texaco shall receive, as additional rent, [***] such
gross revenues. For PathNet's sale of Excess Capacity, as set forth on SCHEDULE
J -- EXCESS TELECOMMUNICATIONS CAPACITY SOLD AND PAID FOR, attached hereto,
which includes facilities controlled by several participants, the revenue to be
received by Texaco will be based upon the ratio of the number of miles Texaco's
network contributes to the Marketable Route, times the price per circuit mile on
the Marketable Route, [***] .
2.3.3 OPTION TO PURCHASE ADDITIONAL CAPACITY. Texaco may purchase
additional capacity from PathNet at a 25% discount to the prevailing lowest
rates as sold to IXC's at the time by PathNet. Texaco shall have the right to
purchase up to 20% of the Excess Capacity available at any time. This
specifically includes the option to purchase, as part of this capacity, any
wayside channels resulting from the addition of radios to create Capacity
Expansion. Texaco may only purchase capacity for its own use in connection with
its core business needs and not for purposes of resale.
2.3.4 TEXACO'S LABOR TO PERFORM SERVICES. PathNet agrees to compensate
Texaco for special services provided by Texaco's employees at the hourly rate of
$60.00 for regular working hours on a business day; $80.00 for a non-business
day; and $100.00 for a Texaco holiday. This
21
requirement to use and pay for Texaco's services (at the indicated rates) shall
apply to the removal of PathNet's equipment or antennas, should PathNet fail to
remove them in accordance with the terms of this Agreement, and to any other
special services agreed upon by the parties and confirmed in writing by PathNet
before such costs are incurred. Alternatively, Texaco may elect for PathNet to
engage and pay for the services of an independent, third-party contractor, to be
selected by PathNet and approved by Texaco, to remove such equipment or perform
other special services. PathNet agrees to reimburse Texaco for any
consequential expenditures, for the benefit of PathNet for the services
described above, at Texaco's cost, plus twenty percent (20%) to cover
administrative handling. PathNet may elect for Texaco to engage and pay for the
services of an independent, third-party contractor, to be selected by Texaco and
approved by PathNet, to remove such equipment. In addition, PathNet agrees to
separately compensate Texaco for maintenance services to be provided by Texaco's
employees, pursuant to the terms of a separate maintenance services agreement
that will be executed by the parties.
2.4 INSTALLATION AND OPERATION
2.4.1 INSTALLATION AND LOCATION. PathNet shall install, operate,
repair and remove its radio equipment in accordance with the terms of the
Agreement as defined in Schedule B. PathNet or PathNet's contractor shall
install PathNet's electronic equipment in PathNet's equipment racks at the
Facilities. PathNet shall not at any time change the location of the equipment
racks or of the antennas on Texaco's microwave tower or install additional
equipment without the written permission of Texaco. PathNet shall not make any
changes in the use of its equipment without written permission of Texaco, which
permission shall not be unreasonably withheld. PathNet may make changes which
increase tower loading at its sole cost.
22
2.5 INTERFERENCE
2.5.1 DETERMINATION OF INTERFERENCE. For purposes of this Agreement,
interference will be deemed to exist if there is a measurable material
impairment in the quality of the frequency or signals received and/or
transmitted which results in harmful interference, as defined by the Federal
Communications Commission.
2.5.2 INTERFERENCE ASSUMPTIONS. At all times during the term of this
Agreement and any extension thereof, PathNet and Texaco agree to use equipment
that is FCC type accepted, FCC licensed or approved, installed, operated and
maintained in accordance with FCC and Vendor specifications. Interference
problems due to improper installation, design and/or maintenance shall not be
sufficient cause for termination of this Agreement. PathNet shall provide
assistance to Texaco while trying to isolate and eliminate interference problems
which involve equipment owned and/or operated by a tenant of Texaco. PathNet
agrees to make no changes in or to its equipment or frequency without the prior
approval of Texaco, which approval will not be withheld or delayed, so long as
such changes do not cause interference to a then present Texaco tenant on the
Facilities.
2.5.3 EXISTING TENANT INTERFERENCE COORDINATION. Before entering into
this Agreement, PathNet and Texaco have performed a preliminary frequency
analysis to determine if any obvious harmful interference would result from
Texaco's present tenants and the deployment of the System along the Segment.
Texaco has provided PathNet with an existing frequency inventory for each
Facility. After the Agreement has been approved, a more detailed frequency
analysis will be completed as a part of the formal design process. Design
approval by Texaco and PathNet will imply that the design calculations reveal no
obvious interference between existing tenants and planned Facility
modifications.
23
2.5.4 NEW TENANT INTERFERENCE COORDINATION. During the term of this
Agreement, Texaco shall not license or permit other persons or entities to use
its Facilities if PathNet's then-in-use signal or frequency or physical location
of equipment would cause interference with such new tenant. Texaco and PathNet
agree that PathNet's signal has a paramount priority with respect to any other
communications signals or facilities installed on the leased premises subsequent
to Texaco's cutover. Texaco further agrees that during the term of this
Agreement, it will not license or permit other persons or entities to use its
communications facilities on the Premises if such persons or entities will cause
interference with PathNet's then-in-use frequency or signal, or with equipment
or antennas. Texaco, upon receiving notice from PathNet of such interference,
shall take all steps necessary to correct and eliminate such interference,
including, without limitation, enforcing provisions in any license or other
agreement between Texaco and the persons or entities causing such interference,
pursuant to which Texaco may compel such persons or entities to cease operation,
modify their equipment and/or antennas, or remove their equipment and/or
antennas from any facilities or towers owned by Texaco. If PathNet or Texaco
breach their obligations under this Section 2.5, the party receiving notice of
such breach from the other will take all steps necessary to correct and
eliminate such interference. If such interference cannot be eliminated within a
reasonable length of time, but not to exceed thirty (30) days after notice
thereof, Texaco or PathNet, as the case may be, shall cause the interference to
cease, except for brief tests necessary for the elimination of the interference.
Texaco acknowledges that: (i) PathNet will operate under a federal license,
(ii) continuing interference with PathNet's operation may cause irreparable harm
to PathNet, (iii) the prompt cessation of interference is material to PathNet's
leasehold interest, and (iv) therefore, PathNet shall have, as one of its
rights,
24
the power to enjoin such interference, as reflected in SCHEDULE L-- DISPUTE
RESOLUTION/ARBITRATION PROVISIONS.
2.6 OTHER PROVISIONS
2.6.1 SUBLETTING. PathNet shall not sublet the Premises, in whole or
in part, without the written consent of Texaco. However, PathNet shall have the
right to transfer and assign its rights under this Agreement to a successor or
assign, pursuant to Section 5.1.4 of this Agreement.
2.6.2 SURRENDER. Upon the expiration or termination of the Agreement
or abandonment of the Premises by PathNet, PathNet shall peacefully and quietly
surrender occupation of the Premises to Texaco, or Texaco's successors and
assigns, without Texaco giving any notice to quit or demand for possession.
PathNet's non-use of the Premises, for the purposes described in this Agreement,
continuing for one (1) year shall be sufficient and conclusive evidence of such
abandonment, unless PathNet shall have notified Texaco in writing of its reasons
for such non-use, and shall continue to provide the [***] to Texaco.
2.6.3 SITE EXCAVATION. PathNet, its employees, agents and contractors
shall perform no site excavation at the Facilities without the prior written
approval of Texaco. PathNet shall have the right to conduct soil borings upon
notification to and approval by Texaco. All Texaco approvals of site excavation
requests shall not be unreasonably delayed or withheld.
2.6.4 SUBORDINATION. PathNet agrees to subordinate its rights under
this Agreement to all deeds of trust, deeds to secure debts, mortgages and other
security instruments (a "Mortgage") now or hereafter encumbering all or any
portion of the real property described on Schedule B to this Agreement (as such
schedule may be amended by PathNet and Texaco from time to time), and to any
increases, renewals, modifications, consolidations, replacements and extensions
thereof, provided that PathNet has received a commercially reasonable
subordination, non-
25
disturbance and attornment agreement from the party(ies) secured by such
Mortgage(s). Any subordination shall not impair, jeopardize or disturb
PathNet's ability to operate its network or operate as a common carrier at the
Facilities.
2.6.5 HAZARDOUS MATERIALS. The parties agree to follow the Hazardous
Materials policy provisions set forth on SCHEDULE M -- HAZARDOUS MATERIALS
PROVISIONS, attached hereto.
2.6.6 ACCESS TO FACILITIES. Access to the Facilities for
installation, evaluation and testing of the replacement telecommunications
system shall not be unreasonably withheld from PathNet or its agents. Any
employee, agent or contractor of PathNet who is granted access to Texaco
Facilities shall provide proof of insurance to Texaco sufficient to
satisfy its minimum corporate requirements, but not to be less than $5 million
in general liability coverage, as set forth more completely in SCHEDULE N --
INSURANCE, attached hereto. If Texaco requires any security clearances, safety
training or drug testing for any non-Texaco personnel, PathNet will require that
its employees, agents or contractors apply to Texaco for such necessary
clearances, obtain the required safety training and submit to the required drug
testing. If required, Facility visits will be escorted by Texaco. PathNet
shall not be responsible for payment of any costs to Texaco associated with
Facility visits required during the installation, design and cutover period, or
for regularly scheduled visits thereafter. In the event of any special services
or emergency visits when Texaco is required to deploy personnel to a Facility,
Texaco shall invoice PathNet and PathNet shall pay the costs of such services at
the rates set forth in Section 2.3.3 of this Agreement. Texaco shall maintain
access to all Facilities in a reasonable manner in accordance with regulations
in their local jurisdictions.
26
3. DESIGN, INSTALLATION, ACCEPTANCE AND OWNERSHIP
3.1 DESIGN, INSTALLATION AND CUTOVER
3.1.1 PATHNET'S DESIGN OBLIGATIONSPathNet's Design Obligations.
PathNet shall design the high-capacity, 6 GHz/30 MHz system in a manner that
will allow the unimpaired, continuous operation of Texaco's low-capacity, 6
GHz/10 MHz system until cutover of all operational circuits and testing of the
System has occurred. After cutover, the System operation standards shall be
controlled by the Minimum Network Performance Standards as set forth in SCHEDULE
O -- MINIMUM NETWORK PERFORMANCE STANDARDS, attached hereto and made a part of
this Agreement. PathNet shall, in installing the System, utilize towers,
antennas, waveguides, and the system components of the existing system wherever
possible. PathNet shall submit all systems and site designs to Texaco for its
review, analysis and approval, which shall not be unreasonably withheld, and
which approval (or disapproval) shall be rendered within (30) thirty days of
submission. Any design modifications shall be discussed and agreed upon in
writing by both Texaco's and PathNet's engineers.
3.1.2 RADIO SYSTEM. The active radio components of the System will be
digital. The specified System will be approved by Texaco and will be engineered
to availability specifications set forth in Schedule O. The System will comply
with the performance criteria set forth in Schedule O. The typical engineering
availability criteria which will be established for the Initial System and the
Capacity Expansion will be for a digital microwave Segment (defined in Schedule
B) which has less than two (2) minutes per annum of outage time, coupled with a
continuous bit error rate not to exceed 10-13.
27
3.1.3 ANTENNASANTENNAS. In any selected frequency range, PathNet shall
ensure that all newly installed antenna reflectors will conform to Category A
standards as defined by the FCC and the antennas must meet the specifications
issued on any prior coordination notices (PCN).
3.1.4 WAVEGUIDE. Any waveguide specified for transmission line shall
be of a premium grade ensuring minimum transmission loss and Andrew part EWP-63
or equivalent.
3.1.5 D.C. POWER REQUIREMENTS. PathNet shall ensure that the active
radio components: (a) will operate in accordance with the manufacturer
specifications set forth in Schedule D, attached hereto; and (b) will be powered
by an uninterruptable power supply operating at 48 volts DC, with at least eight
hours of back-up capability. Texaco shall also ensure that the equipment
shelters are environmentally controlled to mutually agreed upon standards.
3.1.6 DIAGNOSTIC CIRCUITDIAGNOSTIC CIRCUIT. PathNet shall equip each
Facility with a single telephone line for System diagnostic purposes. PathNet
shall carry this circuit, order wire, or DS-0, as part of the System payload,
and it will be PathNet's responsibility to provide this circuit from the
circuits set aside for PathNet or through the order wire. PathNet shall have
the right to install additional order wires at the Facilities.
3.1.7 GROUNDING AND STANDARDS. Texaco shall be responsible for the
costs of delivering the Facilities in compliance with grounding and bonding
standards. The System and all associated electrical components will be grounded
and bonded to current IEEE standards, and shall be approved in writing by
PathNet, which approvals shall not be unreasonably withheld.
3.1.8 MULTIPLEXING FROM OC-3 TO DS-1 LEVEL. PathNet shall provide, at
its cost, the multiplexing of the OC-3 to the DS-1 level at each affected
Facility using OC-3 multiplexing, according to the design specifications set
forth in Schedules D and G. PathNet shall have the right to use Wayside
Channels that are not set forth in Schedules D and G, attached hereto, that
28
result from Capacity Expansion. PathNet's use of the Wayside Channels that are
part of the Initial System must be coordinated with and approved by Texaco.
3.1.9 MULTIPLEXING FROM DS-1 TO DS-0 LEVEL. The multiplexing of the
DS-1 to the DS-0 level at each affected Facility will be Texaco's sole
responsibility. Texaco and PathNet shall jointly determine how Texaco's needs
will be met, as set forth in Schedules D and G, attached hereto.
3.1.10 AC ELECTRICAL POWER. With Texaco Budgeted Funds, Texaco shall
provide AC electrical power consistent with local requirements and the usage at
each of the affected Facilities. If power currently exists at the Facilities
but is inadequate to handle the Expanded Capacity, the cost of such power
enhancements will be borne by Texaco, which shall make payment to the
appropriate utility companies.
3.1.11 MINIMUM SYSTEM DESIGN REQUIREMENTS. PathNet shall ensure that
the proposed System, upon completion, will meet the then current FCC
requirements of spectrum efficiency outlined in the FCC regulations, 47 C.F.R.
Section 21.122. The System will be comprised of, at a minimum, 3 DS-3
capability and will have a 1 x n protection switch allowing for upward migration
to a minimum of 1 x 7 protection, unless Texaco approves in writing of expansion
to a 1 x 15 protection level, utilizing additional spectrum or the use of
crossband filters.
3.1.12 SONET RADIOSONET RADIO. The digital microwave radios will
operate under a SONET format.
3.1.13 PRIOR COORDINATION NOTICES. PathNet will monitor and protest any
proposed PCN which may affect the System by interference, either real or
potential. PathNet will issue
29
any PCN's required or necessary for the construction of the 1 x 1 Initial System
or the Capacity Expansion.
3.1.14 DESIGN DOCUMENTATION. PathNet will propose specific equipment
for each component of the System at each Facility, as well as for the services
involved in System implementation. This proposal will be fully set forth in
writing prior to the parties' design approval or disapproval. PathNet shall
transmit to Texaco the approval specifications for all proposed equipment and
any related FCC-type compliance certificates or waivers.
3.1.15 COMPLIANCE WITH GOVERNMENT REQUIREMENTS. If FCC requirements
change between the design and final construction of the Initial System at the
Facilities, PathNet will be solely responsible for such costs of compliance.
PathNet will also install the System in full compliance with any state and local
regulations in effect at the time of installation which will affect the given
service areas.
3.1.16 FACTORY ACCEPTANCE TESTING. Equipment shall be assembled in
system configuration for factory acceptance testing. Rack, simulated Path,
Switch Section placement and testing shall be performed to verify that the
equipment exceeds the published manufacturer's specification. PathNet shall
provide the manufacturer's published testing procedures to Texaco at least two
(2) weeks before the scheduled factory acceptance testing is to occur. Texaco
shall have the right to review these testing procedures and request procedural
modifications if the procedures deviate from industry standards. The results of
the factory acceptance tests shall be provided to Texaco.
3.1.17 PRE-COMMISSIONING. PathNet shall install an Initial System in
such a way that it can be operated and tested without interfering with Texaco's
existing system performance. PathNet shall have all equipment in place to allow
for a cutover by Texaco of its existing
30
channels. Texaco and PathNet shall mutually agree upon a pre-commission plan
and approve it in writing. This System is deemed Pre-Commissioned when fully
operational.
3.1.18 FACILITY ACCEPTANCE TESTING. After the equipment is delivered
and installed at the Facilities, retesting of Rack and Path and testing shall be
performed to verify proper operation of the equipment. Texaco and PathNet each
shall have the right to observe all site acceptance tests. The procedures to be
utilized in these tests are to be mutually agreed upon between PathNet and
Texaco. The results of the site acceptance tests shall be provided to PathNet
and Texaco. PathNet shall select the contractor that will perform all site
acceptance testing. All site acceptance tests shall be conducted in compliance
with manufacturers' specifications listed in Schedule O, attached hereto.
3.1.19 CUTOVER. A cutover coordination plan will be developed as part
of the joint design and approval process. At the time of design stage approval,
PathNet shall provide a detailed cutover schedule to Texaco. Testing shall
occur in a manner and on dates acceptable to Texaco. Texaco shall participate
in and manage the cutover process for its allocated channels. PathNet shall
allow Texaco a ninety (90) day cutover period during which both the existing
analog and new digital systems will be fully functional. The channel cutover
period shall end either ninety (90) days after it is commenced or upon written
notice from Texaco, whichever may occur first.
3.1.20 COMMISSIONING, INSTALLATION AND COMPLETION. Following the
channel cutover period, PathNet shall modify the System into its final
operational configuration. The completion of the installation shall be marked
by the satisfactory completion of the necessary performance tests, which shall
be paid for by PathNet. Satisfactory testing and evaluation of the System shall
occur immediately following the completion of cutover. Upon completion of the
performance
31
testing by an independent third-party in accordance with the performance testing
specifications set forth in Schedule O, the installation shall be complete.
After successful completion of these tests, PathNet and Texaco will declare in
writing that the Initial System has been Commissioned. This same process shall
be used for each Capacity Expansion.
3.2 FCC LICENSING FCC LICENSING
3.2.1 COMMON CARRIER LICENSE FILING. PathNet shall be the operator of
all System licenses held in its name. PathNet will be responsible for all
filings with regard to common carrier status both at the federal and local
levels. PathNet shall maintain any and all licenses issued by the FCC in good
standing. The FCC licenses issued in connection with the System shall be issued
in the name of PathNet and the licenses and radio equipment shall be owned and
operated by PathNet. PathNet shall prepare and submit all necessary frequency
coordination, licensing and/or relicensing applications and other related
filings on its behalf, as a Part 21 Common Carrier, seeking that it be able to
sell its telecommunications capacity created from the System to other common
carriers. The System designed and installed by PathNet will meet FCC loading
requirements and have capacity which can be resold to common carriers. Copies
of all filings with the FCC, including PathNet's licensing as a common carrier,
shall be provided to Texaco, and Texaco shall not unreasonably withhold its
signature required for such filings. Texaco shall provide assistance to PathNet
in supplying any and all available documentation, as may be required by
regulating agencies. Any expenses incurred with regard to these filings will be
the sole responsibility of PathNet.
3.2.2 IDENTITY OF LICENSEES. The System will be licensed in the name
of the PathNet, under Parts 21 /101 of the FCC Code. Texaco will remain
licensed for the operation of the existing 6 GHz/10 MHz system under Part 94 of
the FCC Code, until such time as its licenses
32
may be terminated. While the responsibility to complete the licensing forms for
filing with the FCC will be PathNet's, upon request and in a timely manner,
Texaco shall provide to PathNet all information necessary for the completion of
these forms which is not proprietary and is readily available to Texaco.
3.2.3 FORMS AND FEES. Licensing forms completed by PathNet, like all
other licensee applications, will become a matter of public record. Currently,
the proposed frequencies to be utilized for creation of microwave facilities
have initial application fees, and such fees will be borne by PathNet. However,
in the future, the FCC may establish user fees for this spectrum. If common
carrier system user fees exceed those of a comparable private microwave system,
PathNet and Texaco shall be responsible for sharing payment of such additional
fees in the same proportion as the revenue split between PathNet and Texaco.
3.2.4 DEPRECIATION OF EQUIPMENT. Texaco will have the right to fully
depreciate any remaining asset value of the pre-existing equipment as well as
for any equipment which it owns. PathNet shall have the right to depreciate the
equipment it pays for on the appropriate depreciation schedules in proportion to
its respective ownership, as permitted by the United States Internal Revenue
Service.
3.2.5 ACCESS TO LOGS AND REPORTS. Texaco and PathNet shall make
available to each other, to its maintenance vendor(s) and/or to the equipment
manufacturers of the affected component(s), all compiled reports, logs,
registers and diaries prepared during installation, cutover and System operation
related to System operation and performance.
3.2.6 FCC LOADING REQUIREMENTSFCC LOADING REQUIREMENTS. The
configuration of the typical microwave replacement path which PathNet will
integrate into its network will be in the form of a 1 x n protection scheme.
The mandated FCC loading requirement for spectral efficiency and traffic
33
volume will be the responsibility of PathNet. Any waivers or extensions
requested by PathNet of the FCC will be initiated and handled by PathNet or its
agents. PathNet will comply with applicable FCC requirements for spectral
efficiency and channel loading. PathNet reserves the right to modify the System
to a hot standby system ensuring for adequate redundancy while meeting the FCC's
criteria for spectral efficiency, if PathNet is unable to secure sufficient
telecommunications and is also unable to have the FCC grant a waiver or
extension to Texaco. The costs of any such reconfiguration, if necessary, will
be borne solely by PathNet. Such a reconfiguration will cause no interruption
to the telecommunications service.
3.3 RESPONSIBILITIES DURING SYSTEM CREATION AND INSTALLATION
3.3.1 REASONABLE EFFORTS AND TIMINGREASONABLE EFFORTS AND TIMING.
PathNet shall utilize commercially reasonable efforts to ensure that System
creation through final acceptance occurs as expeditiously as possible. It is
PathNet's goal that the construction of the System shall occur within eighteen
(18) months of the time all permits and approvals have been secured.
3.3.2 PROJECT MANAGEMENTPROJECT MANAGEMENT. Project Management shall
be the responsibility of Texaco for physical sites and PathNet for the radio
installation. Each party shall issue preliminary project schedules to frame
construction and start-up expectations in connection with their respective
responsibilities. The details of the preliminary schedules and any preliminary
project management plan will be agreed upon by PathNet and Texaco before
contract signing. A final schedule and project management plan shall be agreed
upon by PathNet and Texaco within forty-five (45) days of execution of this
Agreement, and shall be attached hereto as Schedule F.
3.3.3 INSTALLATION REPORTSINSTALLATION REPORTS. After installation has
begun and through final acceptance, Texaco and PathNet shall provide to each
other a bi-weekly progress report relating to the progress of the construction.
This report will be in writing and delivered to PathNet and Texaco
34
the 1st and 15th day of each month until project completion. Each progress
report shall include a description of the work performed during the immediately
preceding period, and the relationship of the work completed to the entire scope
of work necessary for the implementation of the System. This report shall also
include any deviations from the proposed schedule of work and an analysis of
such deviations with respect to their impact upon the timely deployment of the
System.
3.3.4 COOPERATION DURING INSTALLATION. During installation, Texaco
shall continually post at the Facilities any permits or licenses for building or
tower work related to the construction. Texaco agrees to not impede
construction by denying access to its Facilities or failing to perform other
duties or contract requirements. During the period of construction, it may
become necessary for PathNet or various vendors to store equipment and materials
at the Facilities. Texaco shall assist by storing and staging materials, and it
may not impose any fees related to such storage. PathNet shall provide detailed
ship and delivery schedules at least two (2) weeks prior to receipt of equipment
and materials.
3.3.5 SECURITY. PathNet and Texaco shall be responsible for security
during the construction period. The standards for security shall be those that
Texaco regularly employs at its Facilities.
3.3.6 SITE INSPECTORS AND DELAY. During System installation, PathNet,
its employees, agents and vendors, may perform site inspection services at any
hour on any day, with reasonable assistance to be provided by Texaco to gain
access. If installation becomes disrupted due to labor unrest or strike,
PathNet reserves the right to replace its contractor and employees.
3.3.7 PROOF OF LICENSED CONTRACTORS. During installation, PathNet or
Texaco may require, from time to time, proof of licensing and certification of
insurance and compliance with
35
federal, state or local health and safety requirements for contractors
performing construction related services, as set forth on SCHEDULE N --
INSURANCE, SCHEDULE P -- EQUAL EMPLOYMENT OPPORTUNITY POLICY, SCHEDULE Q --
PATHNET SAFETY MANAGEMENT, and SCHEDULE R -- SUBSTANCE ABUSE POLICY, attached
hereto.
3.3.8 SYSTEM OUTAGES. The parties agree to make their best
efforts to avoid unscheduled outages.
3.4 OWNERSHIP OF REPLACEMENT MICROWAVE FACILITIES
3.4.1 RADIO EQUIPMENT AND OTHER ITEMS. Ownership of radios, shelters,
components and related equipment shall be as in accordance with Schedule E,
which separately lists the microwave assets of Texaco and PathNet. All the
related equipment previously owned and/or paid for by Texaco for use in the
System shall be owned by Texaco. All radio equipment and antennas to be
purchased and installed by PathNet shall initially be owned by PathNet and later
transferred to Texaco, in accordance with the terms of this Agreement. With
respect to the System to be installed, PathNet shall pay for and own all newly
purchased radio equipment and multiplexing equipment to the DS-1 level,
antennas, waveguides and other System components. Once equipment necessary to
create and/or increase the System has been installed, this equipment will be
titled to and owned by PathNet. For maintenance and ownership purposes, a list
of equipment at each Facility in the form set forth in Schedule E, attached
hereto, shall be maintained by PathNet and by Texaco, with one copy maintained
at the Facility. The Schedule shall be counter-signed by both parties to this
Agreement and periodically updated as new equipment is added. PathNet will take
title to all upgraded equipment added to the System. All existing common
equipment shall remain the property of Texaco. All newly installed common
equipment paid for by PathNet, such as waveguides and antennas, initially shall
be owned by
36
PathNet, until such time as the antennas and waveguides are fully depreciated in
accordance with generally accepted principles of accounting. Once installed and
cutover, the Initial System shall be transferred to Texaco at its election,
after a period of five (5) years for a sum not to exceed one dollar.
3.4.2 CAPACITY AGGREGATION. During the construction of PathNet's
network, it will be necessary to aggregate the Excess Capacity of each party
into a network. PathNet shall own all equipment necessary for the aggregation
and/or integration of Texaco's capacity to (a) PathNet's network comprised of
telecommunications Excess Capacity supplied by other participants in the PathNet
program, and (b) to the PSTN.
3.4.3 ADDITIONAL EQUIPMENT INSTALLATION, APPROVAL AND NETWORK LINKING.
Any proposed modification and/or installation of additional telecommunications
equipment not appearing on Schedule E shall be subject to the prior approval of
Texaco, which shall not be unreasonably withheld. The direct and indirect costs
of installing any additional equipment shall be borne solely by PathNet.
PathNet shall retain ownership of the linking facilities.
3.4.4 INTERCONNECTIONS. PathNet may create up to four (4)
interconnections per LATA. Two of such interconnections shall be to other
segments of the PathNet network created from facilities of other parties. The
two additional interconnections shall be to publicly switched telephone networks
(PSTN). At each interconnection Facility, PathNet may place up to two (2)
additional antennas at PathNet's cost, but solely for such interconnection
purposes. Those interconnections may be by microwave or other media. PathNet's
interconnection rights shall not be construed as a grant of rights-of-way to
PathNet along any pipeline and PathNet must obtain its own rights-of-way to
reach any Facility. PathNet has the right to co-locate the equipment necessary
to support such interconnections, pursuant to Schedule E, attached hereto.
37
If spurs are developed by PathNet, the interconnections at such spurs shall be
specified on Schedule S, approved by Texaco, and paid for by PathNet.
Conversely, if spurs are to be developed by Texaco at its own costs for its own
connectivity purposes, interconnections at such spurs shall be specified on
Schedule S, and paid for by Texaco. Coordination with PathNet will be as
specified in Section 1.3.9.
3.4.5 INTERCONNECTION PLACEMENT AND REVENUE. PathNet shall determine
the placement of and install connecting facilities from the System to the
existing PSTN at locations to be determined by PathNet's potential customers.
PathNet will connect the System to existing POP's to be determined by PathNet's
potential carrier customers or by PathNet. PathNet or its customers will be
responsible for the facilities necessary to connect the designated POP's to the
network. The ownership of these other facilities and the revenues they may
generate will be the sole property of PathNet or its customers. PathNet will
provide Texaco up to [***] at such Facilities without charge to
Texaco and those channels, which include DS-1 level access, will be allowed to
pass along PathNet's section of the network. PathNet may transfer its authority
to construct additional facilities for links between its system created at the
Facilities and POP's to PathNet's customers. Any fees or charges related to the
interconnection of the PathNet network or capacity created on the System to the
PSTN shall be the sole responsibility of PathNet or its customers. PathNet may
charge its customers fees, tariffs or costs for the connection to the PSTN.
Texaco shall not be responsible for payments of any fees or costs related to the
interconnection to the PSTN.
3.4.6 SELLING PRICES FOR EXCESS CAPACITY. In establishing its selling
price for Excess Capacity, PathNet's goal shall be to maximize revenue on
PathNet's entire network, not to maximize revenue merely on a specific microwave
segment or path. Accordingly, PathNet
38
reserves the exclusive right to sell Excess Capacity at prices it shall
determine appropriate on specific routes for sale to its customers, which prices
may be below or above current competitive market pricing. Selling prices
proposed as part of this aggregation, if required, will be submitted and filed
by PathNet with the appropriate regulatory authority. The price for Excess
Capacity that is charged on Texaco's portion of the sold route will be identical
to that of other participants who are sharing in the proceeds from the
particular sale of a marketable route. Texaco agrees to participate in the path
aggregations for which PathNet has determined, in its sole discretion, the per
circuit mile selling price. PathNet reserves the right to package the Excess
Capacity in sales increments of DS-1's, DS-3's or OC-3's. The price schedule
for various capacities that PathNet will charge its IXC customers from the
Segment will be fully disclosed to Texaco. PathNet will reserve the right to
modify its offerings as far as bandwidth allocation and channelization, if
market conditions indicate that different segmentation will result in higher
aggregate revenues for Excess Capacity on the PathNet network.
3.4.7 SALES TO OTHER TEXACO ENTITIES AND END USERS. Texaco may market
excess digital telecommunications capacity, from its allocated channels on the
Initial System installed by PathNet to other Texaco affiliated companies,
divisions, pipelines and operating units and other oil and gas or energy related
service companies for their own use. Texaco shall not operate parallel
microwave telecommunications facilities to those set forth in Schedule B,
attached hereto, for the purpose of selling digital circuits. PathNet shall
exclusively market all other capacity to entities unaffiliated with Texaco. Any
contact between a prospective PathNet customer and Texaco shall be promptly
referred by Texaco to PathNet's marketing department. If Texaco is successful
in locating such a new customer for PathNet's portion of the Excess Capacity
created at Texaco Facilities, and PathNet concludes a sale to that buyer, Texaco
shall
39
receive [***] to be negotiated by PathNet and Texaco, which shall
not exceed [***] of the revenue received from the sale of this
capacity, in addition to the other revenues outlined in this Agreement.
PathNet or Texaco may also facilitate the barter of Excess Capacity between
parties participating in the PathNet program. In addition, PathNet may
facilitate the creation of network loops or rings to enhance network
reliability. PathNet will not charge Texaco for providing any such network
arrangements. PathNet will not and cannot require any Participant in its
program to enter into any barter arrangement for its internally allocated
telecommunications capacity. Barter agreements will be entered into only if
agreeable to Texaco. PathNet and/or Texaco shall derive no fee from
facilitating such barter arrangements.
3.4.8 INTEGRITY AND SEGREGATION OF CAPACITY. PathNet shall ensure that
PathNet's and Texaco's telecommunications capacities shall be segregated from
the common carrier traffic that will pass through PathNet's network. PathNet
shall provide security for data or voice transmissions via TDMA standard
multiplexing and shall maintain Stratum One Clocking via signals provided by the
PSTN or shall maintain internal Stratum Three Clocking VIA oscillator standards
provided internally by the System or GPS signal. PathNet, at any time, will
have the right to perform frame slippage studies on its entire microwave network
to ensure data and voice integrity. The data and voice transmissions which
PathNet and Texaco will send through the new microwave facilities shall comply
with all FCC regulations and will not jeopardize the ability to continue to
operate as a Part 21 Common Carrier.
3.4.9 INTERCONNECTION TO NETWORK. PathNet shall provide the
interconnection capacity for the System to various networks no more than
twenty-four (24) months after completion of the installation of the System on
paths that have marketable value. These interconnections shall be
40
owned and funded by PathNet. PathNet will be responsible for all filings,
licenses, fees and taxes related to these interconnections.
3.4.10 RECOMMENDED EQUIPMENT. Subject to consultation with Texaco and
its approval, which shall not be unreasonably withheld, PathNet, at its own
cost, or its agents shall be permitted to modify its equipment from time to time
as new versions may become available from manufacturers or software providers.
4. NETWORK MANAGEMENT AND ADMINISTRATION
4.1 NETWORK MANAGEMENT NETWORK MANAGEMENT
4.1.1 NETWORK MANAGEMENT RESPONSIBILITIES. PathNet shall have the sole
responsibility for performing total network management. PathNet shall provide
at its expense, for Texaco's use, a regional network management system. PathNet
shall maintain a national network management center. Notwithstanding what
network management strategies shall be employed, PathNet shall provide the tools
(i.e., remote units and computers) to enable Texaco to collect data and observe
its operating network. PathNet shall provide the people and procedures to
identify any network or System problems and direct maintenance activities to
promptly correct network or System problems. The minimal level of network
management acceptable to and provided by PathNet and Texaco, in connection with
their respective networks, is set forth on SCHEDULE U -- MINIMAL LEVEL OF
ACCEPTABLE NETWORK MANAGEMENT, attached hereto.
4.1.2 CONTRACTING FOR NETWORK MANAGEMENT. PathNet reserves the right
to out-source or contract its network management duties to an independent
third-party contractor. PathNet reserves the right to allow its customers to
contract independently for network management services over the portions of
PathNet's network which these customers have under contract. Texaco may not
unreasonably withhold the consent for PathNet or its agents to access
41
PathNet's and Texaco's equipment for purposes of operating or maintaining the
PathNet network. Texaco may not charge additional site fees or rentals for any
network monitoring equipment that PathNet deems necessary. The adequacy of the
network management systems shall be measured in relation to the minimum network
performance standards as set forth on Schedule O. PathNet shall ensure that
these systems, at a minimum, comply with the published equipment vendors'
specifications. PathNet's network monitoring capabilities shall provide the
ability for Texaco to: 1) monitor its own portion of the network separately
from the overall PathNet Network, and 2) maintain tower lights, Facility power,
environmental conditions and other network connected devices.
4.1.3 NETWORK MANAGEMENT DEVICES. For the purposes of network
management, PathNet retains the right to add to Texaco's existing facilities,
software or mechanisms that it deems necessary to allow it to perform network
management services. The network management system shall provide for site alarm
monitoring for a maximum number of external inputs and controls, as defined in
Schedule U. These devices will be defined during the design phase and provided
to Texaco in writing. At all times, such devices, with the exception of the
common network interface card, shall remain the exclusive property of PathNet.
4.1.4 COMPLIANCE WITH LAWS. PathNet's network monitoring will comply
with all state, local and federal regulations concerning network security.
4.2 MARKETING
4.2.1 MARKETING RIGHTS AND ASSIGNABLE CONTRACT RESPONSIBILITIES. In
its marketing efforts, PathNet reserves the right to market under its name, or
any other trade name which it owns, except as set forth in Section 4.2.2,
herein. The assignment of its rights of exclusive marketing of excess
long-distance capacity shall be allowed under this Agreement and shall only be
42
prohibited if the transference of these rights violates FCC or other Federal or
state laws and regulations. If PathNet transfers or assigns its right(s) to
sell Excess Capacity, all other terms and conditions stated in this contract
shall remain binding on PathNet, its successors and assigns. In the
establishment of its sales effort, PathNet reserves its rights to market and
advertise its services in any and all media it deems fit. The choice of
publications in which to advertise shall solely be that of PathNet.
4.2.2 MARKETING AND ADVERTISING RESTRICTIONS. PathNet shall not use
any trademark or trade name of Texaco, its parents, affiliates or subsidiaries
for purposes of marketing the Excess Capacity created.
4.2.3 CUSTOMER AGREEMENTS. The terms of the agreements between PathNet
and its various customers shall be disclosed by PathNet to Texaco as they relate
to traffic on the System. The term of these agreements will inevitably vary and
will have no fixed minimum time commitments. If the agreements with PathNet's
customers require modifications to PathNet's network or specific installation
requirements, at PathNet's sole discretion, these costs may be passed on to the
customers and will be made at no cost to Texaco. The reimbursement for these
fixed one-time costs shall be direct, and any revenues, other than compensation
for direct and indirect costs related to these network modifications,
installation requirements or connection fees, shall be the property of PathNet.
All costs involved in marketing bandwidth shall be borne by PathNet.
4.2.4 IXC AND CUSTOMER SALES AGREEMENTS. The sales agreements between
PathNet and its interexchange carrier and other customers will clearly identify
the paths or the segments of the affected participants along which the capacity
being sold travels. If IXC and customer
43
sales agreements and supporting documents require the written approval of Texaco
as a condition of sale, Texaco's approval shall not be unreasonably withheld.
4.2.5 METERING AND LIABILITY TO IXC'SMETERING AND LIABILITY TO IXC'S.
PathNet's long-distance communications sales contracts shall be based on flat
monthly rates and shall not be usage sensitive. Any usage-sensitive agreement
which PathNet enters into shall require the inter-exchange carrier to provide
for the necessary metering and a mechanism to ensure that this metering is both
fair and accurate. Any costs related to the verification of metered readings
will be incurred by PathNet and transferred to the affected inter-exchange
customer. Performance criteria related to network design shall be integrated
into PathNet's marketing efforts and contractual relationships with
inter-exchange customers.
4.2.6 REASONABLE EFFORTS - MARKETING. PathNet will use commercially
reasonable efforts to produce, market and sell any excess long-distance capacity
created under the PathNet program. PathNet shall seek the sale of aggregated
long-distance capacity under the best terms commercially obtainable at the time.
As part of such efforts, but without limitation, PathNet will dedicate its
resources and perform the promotional and marketing tasks necessary to obtain
the best available price at the time for the sale of such long-distance capacity
consistent with the goals of PathNet and Texaco, as set forth in this Agreement.
4.3 REVENUE COLLECTION AND DISBURSEMENT
4.3.1 BOOKS AND RECORDS. PathNet shall maintain and keep detailed and
accurate books and records with regard to sales and revenues and the calculation
thereof. Texaco, or its representatives (who shall be reasonably acceptable to
PathNet), shall be entitled to review and audit such books and records, from
time to time, during normal business hours, upon reasonable notice to PathNet,
and at Texaco's expense, provided that PathNet will bear any such expense if
44
the review or audit reveals an underpayment of more than five percent (5%) for
the applicable period has occurred.
4.3.2 QUARTERLY STATEMENTS OF ACCOUNT. PathNet shall issue quarterly
Statements of Account to Texaco within thirty (30) days of the end of each
calendar quarter. The reports shall set forth the revenues computed pursuant to
SCHEDULE H - PAYMENT SCHEDULE and the method of allocating revenues to Texaco
during that quarter.
4.3.3 STATEMENT OF ACCOUNT. PathNet shall make payments due and
payable thirty (30) days from the date PathNet's Statement of Account is issued
to Texaco. The Quarterly Statement of Account, which shall accompany
disbursements, is an unaudited statement produced by PathNet. It shall reflect
the number of path miles of the System built out by PathNet and the excess
long-distance capacity marketed and sold in the aggregate resale market during
each quarterly period, for which payment has been received by PathNet, as
calculated based upon the number of path miles furnished by Texaco in
relationship to the total PathNet network.
4.3.4 PAYMENTS TO TEXACO. PathNet will invoice each of its IXC
customers prior to the commencement of their lease periods for
telecommunications facilities on the PathNet network. These agreements may
typically be monthly, but under certain conditions, may either be quarterly,
semi-annual, annual, or for multi-year periods. PathNet shall make payment to
Texaco for its portion of revenue actually received from the sale of PathNet's
long-distance capacity along paths that use the System. Payments shall be made
in accordance with the other terms of this Agreement and shall be based upon
rates charged for the path miles of the Segment, divided by the network path
miles assembled by PathNet. PathNet's disbursements to Texaco will be
transmitted electronically or by wire transfer, as to be determined and
specified in writing by Texaco, with all account information necessary to
complete payment, as set forth in SCHEDULE V --
45
TEXACO PAYMENT INSTRUCTIONS, attached hereto, which may, from time to time, be
freely amended by Texaco without the approval of PathNet. Upon receipt of
payment from an inter-exchange carrier, PathNet shall disburse revenues no later
than fifteen (15) days following the close of business of the month in which
these revenues were received. Interest, if earned on collected but
undistributed revenues, will be the property of Texaco, and shall be distributed
to Texaco at the time of the next payment. Distribution of revenues for the
portion of PathNet's network that is owned entirely by PathNet shall occur at
the same time that PathNet distributes revenue to Texaco.
4.3.5 ANNUAL AUDIT. All billings and revenue collections will be
subject to an annual certified audit by an independent, nationally recognized
accounting firm selected by PathNet, admitted to practice in all fifty states.
This audit shall be conducted in accordance with generally accepted auditing
standards. The results of this audit will be made available to Texaco no later
than 30 days from the conclusion of the audit findings. PathNet shall not be
responsible for any material breaches or misrepresentations that may occur
through the negligence of outside auditors. PathNet will make its own records
available at its principal business office for inspection by Texaco, upon
written request, received at least after ten (10) business days before such
planned inspection, provided the inspection of these records does not violate
any agreements of confidentiality between PathNet and other participants.
4.3.6 PATHNET'S CORPORATE STATEMENTS.
PathNet's corporate income statements, balance sheets and other forms of general
corporate reporting shall be the sole property of PathNet and shall not be
subject to examination by Texaco. Texaco shall have the right to examine during
an annual audit all other documents which contain information related to the
revenue due to Texaco under the terms of this Agreement. Any disclosure of
PathNet's revenue
46
collections and its disbursements to Texaco shall be strictly confidential and
subject to the terms of the Non-Disclosure Agreement attached hereto as SCHEDULE
W -- NON-DISCLOSURE AGREEMENT.
4.3.7 TEXACO'S ASSIGNEES OF REVENUES. Texaco will have the right to
designate other entities to receive its disbursements. The disbursements issued
by PathNet shall not relieve Texaco of any tax liability resulting from its
receipt of these revenues.
4.3.8 REVENUE NOT GUARANTEED. PathNet does not guarantee any revenue
disbursements. PathNet does not promise or warrant its ability to sell
telecommunications capacity. In the event a dispute arises between PathNet and
Texaco, any disbursements affected by this dispute will be placed in escrow in a
segregated, interest-bearing bank account to be held by PathNet and Texaco. The
signatures of an authorized representative of Texaco and PathNet shall both be
required for disbursement of the escrow monies until such time as the dispute is
resolved pursuant to the terms of Schedule L of this Agreement. Upon resolution
of dispute, the escrow amounts shall promptly be disbursed.
4.3.9 PATHNET COSTS. Any costs PathNet incurs as a result of this
Agreement shall be the sole responsibility of PathNet. It shall not be implied
that Texaco is responsible for such costs.
5. MISCELLANEOUS PROVISIONS
5.1 GENERAL PROVISIONS
5.1.1 RESOLUTION OF DISPUTES. Any dispute arising under this Agreement
pertaining to revenue collection and/or disbursement, shall be subject to
resolution under Schedule L.
47
5.1.2 NO RIGHT TO TERMINATE. Disputes arising under this article of
the Agreement do not give either party the right to terminate this Agreement.
This Agreement is fully binding upon the parties, their heirs and assigns for
the duration of this Agreement as set forth herein.
5.1.3 RECORDATION. This Agreement may be subject to recordation in any
of the affected localities by either party. The costs, fees or expenses
associated with this recordation shall be the sole expense of the recording
party and recordation does not obligate the other party to this Agreement to pay
a portion of recordation of such expenses.
5.1.4 SUCCESSORS AND ASSIGNSSUCCESSORS AND ASSIGNS. Texaco and PathNet
respectively bind themselves, their partners, successors, assigns and legal
representatives to the other party hereto and to partners, successors, assigns
and legal representatives of such other party in respect to covenants,
agreements and obligations contained in this Agreement and attachments thereto.
Neither party to this Agreement shall assign the Agreement in whole or in part
(except as set forth below) without written consent of the other, which shall
not be unreasonably withheld. If either party attempts to make such an
assignment without such consent, that party shall nevertheless remain legally
responsible for all obligations under this Agreement. The rights and
obligations of the parties under this Agreement may not be assigned or
transferred except: (i) the right to payment of money may be assigned, (ii)
PathNet or Texaco may subcontract work, and (iii) this Agreement and the rights
and obligations hereunder may be assigned to an acquirer of all or substantially
all the assets, business or stock of a party. If PathNet sells or assigns the
radio equipment that it has assembled into a network which it owns, the proceeds
from such sale or assignment shall be the sole property of PathNet and Texaco
shall have no claim to a portion of the proceeds. If Texaco sells or in any way
assigns the asset(s) owned by Texaco, the proceeds from such sale or assignment
shall be the sole property of Texaco and PathNet shall have no
48
claim to a portion of such proceeds. If Texaco sells, leases, or assigns the
underlying Texaco asset(s) which support the microwave paths that are a basis of
this Agreement, this Agreement shall survive such transfer or assignment.
5.1.5 FINANCING AGREEMENTS. PathNet shall ensure that the provision
set forth in Section 1.3.12 will be included in the financing agreement and
credit term sheet for the Initial System. Texaco shall have review rights and
receive a copy of each credit term sheet and financing agreement entered into
between PathNet and any other entity as it relates to the financing of the
1 x 1 Initial System, as set forth in Schedule E, attached hereto. A copy of
any vendor credit term sheets shall be submitted to Texaco within sixty (60)
days after execution of this Agreement. A copy of any vendor financing
agreement shall be provided to Texaco within ten (10) days of its execution.
5.2 ASSURANCES OF PATHNET'S PERFORMANCE
5.2.1 ASSURANCES AND ESCROW. Pursuant to the terms of this Agreement,
PathNet, during the Build-Out Period, has responsibility for the payment of
certain equipment and services. Specifically, PathNet shall pay for the
equipment, (OC-3 multiplexing, the digital high-capacity radios, the antennas
and waveguide, ancillary miscellaneous equipment and material), and for the
installation to be performed at the Facilities. To assure performance of
PathNet's payment responsibilities, within sixty (60) days of execution of this
Agreement, PathNet shall provide a combination of vendor credit assurances, an
escrow agreement acceptable to Texaco, to be executed by Texaco and PathNet, and
at PathNet's sole option, a letter of credit. The assurances, escrow agreement,
and/or letter of credit shall establish and confirm that:
a. For radios, multiplexing equipment, antennas, waveguide and
miscellaneous equipment to be provided pursuant to the terms of this Agreement,
this equipment shall be
49
delivered free and clear of liens and encumbrances to the Texaco Facilities and
shall remain free and clear of all liens and encumbrances for the life of this
Agreement. PathNet may secure payment to the manufacturer for the radios from
revenues PathNet may receive pursuant to the terms of this Agreement. This
Agreement itself will become the radio manufacturer's collateral. In the event
any cash deposits are required for equipment to be ordered, PathNet shall either
furnish proof of payment of such deposit or, pursuant to the terms of the escrow
agreement, place in an interest bearing escrow account the amount of any deposit
required by a manufacturer as a precondition to the manufacturer's acceptance of
a purchase order from PathNet. In accordance with the terms of the escrow
agreement and in the absence of default by PathNet of its payment
responsibilities, any interest earned on funds placed in an escrow account shall
be PathNet's property.
b. To assure performance of the installation services to be provided
by PathNet, pursuant to the terms of an escrow agreement to be entered into
between Texaco and PathNet, PathNet shall deposit funds in an interest-bearing
escrow account within sixty (60) days of execution of this Agreement. The
amount deposited shall be equal to the cost of design and installation work, as
estimated by PathNet and agreed to by Texaco.
5.2.2 DEFAULT BY PATHNET. In the event that PathNet defaults on or
fails to timely meet its payment responsibilities in connection with the
equipment or installation of the Initial System within sixty (60) days of such
default event, the assurances, escrow agreement, and/or letter of credit shall
provide that Texaco would be disbursed funds in appropriate amounts, and any
interest earned on such funds.
5.2.3 TERMINATION OF ASSURANCES. The requirement for the assurances,
escrow, and/or letter of credit shall end with the formal commissioning of the
Initial System.
50
5.2.4 INSURANCE. During all phases of the Project, PathNet shall
purchase and maintain adequate insurance against loss or theft during the
installation period and PathNet shall bear the risk of such loss or theft and
such other insurance, as set forth on Schedule N.
5.2.5 INSURANCE REQUIRED OF TEXACO. Texaco hereby represents that it
is self-insured and does not currently purchase and maintain liability insurance
and property insurance, except for stop-loss coverage.
5.2.6 PAYMENT SCHEDULE. The payment schedule for all radio and other
equipment to be purchased in connection with the Initial Build-Out or for any
and all Capacity Expansion is set forth on SCHEDULE H -- PAYMENT SCHEDULE,
attached hereto. This schedule includes commercial terms for payment of net
thirty (30) days and interest at 1% per month on outstanding balances. Any
departures from the payment schedule made by either party must be promptly
brought to the attention of the other party.
5.3 JOINT AND MUTUAL CONFIDENTIALITY PROVISION
PathNet and Texaco have entered into a Non-Disclosure Agreement, attached
hereto as Schedule W, which permits for joint and mutual confidentiality, in
connection with the program and project to be undertaken. This Non-Disclosure
Agreement, which shall govern the responsibilities of the parties to each other
in connection with the disclosure of information, is made a part of this
Agreement. Texaco shall be permitted to distribute the results of any
performance tests to other Texaco units. PathNet, in its sole discretion, may
elect to distribute these results to other companies who allow PathNet to use
their microwave infrastructure to create and market Expansion Capacity from
their systems and the System at Texaco's Facilities. The results of any
performance tests may be made available by PathNet to its customers.
51
5.4 REMEDIES FOR BREACH
5.4.1 NOTICE OF BREACH. All events of breach or disputes by either
PathNet or Texaco shall necessitate a written notice of breach to be delivered
by certified mail to the principal office of the other party. Each notice of
breach shall include specific allegations of breach.
5.4.2 CURE OF BREACH BY PATHNET OR TEXACO. The party receiving a
notice of breach shall have thirty (30) days to cure the breach. In the event
the breach is not cured, the dispute resolution procedures of this Agreement may
be invoked.
5.4.3 NO TERMINATION RIGHTS. Neither Texaco nor PathNet unilaterally
has the right to terminate this Agreement or otherwise alter the relationship of
the parties hereto, except as noted in Section 2.1.2. The only remedies
available to a party for breach are those set forth in Schedule L of this
Agreement.
5.4.4 SURVIVAL. All representations, warranties, covenants, conditions
and agreements contained herein which either are expressed as surviving the
expiration or termination of this contract or, by their nature, are to be
performed or observed, in whole or in part, after the termination or expiration
of this contract, including (without limitation) the warranty and indemnity
provisions, shall survive the termination or expiration of this contract. Any
accrued rights to payment and any remedies for breach of this Agreement shall
survive termination.
5.5 USAGE
The usage herein of singular terms shall include the plural and use of the
masculine, feminine or neuter genders shall include all others.
52
5.6 WAIVER
PathNet or Texaco's failure to object to any statement, invoice, billing or
distribution by any party within a period of four (4) years after receipt
thereof shall constitute that party's acquiescence with respect thereto and
shall render such statement, invoice, billing or distribution and deemed
accepted. Any other waivers to any term or condition of this Agreement must be
executed by the parties in writing.
5.7 FORCE MAJEURE EVENT
Neither party hereto shall be responsible for any failure to perform its
obligations (other than an obligation to pay money) under this Agreement if such
failure is caused by acts of God, war, strikes, revolutions, lack or failure of
transportation facilities, laws or governmental regulations or other causes
which are beyond the reasonable control of such party ("Force Majeure Event").
Obligations hereunder, however, shall in no event be excused, but shall be
suspended only until the cessation of any cause of such Force Majeure Event. If
such Force Majeure Event should obstruct performance of this Agreement for more
than six (6) months, the parties hereto shall consult with each other to
determine whether this Agreement should be modified. The party facing a Force
Majeure Event shall use its best endeavors in order to remedy that situation, as
well as to minimize its effects. A party suspending performance due to a Force
Majeure event shall notify the other party in writing within five (5) days after
such suspension commences. If either party hereto shall be delayed or hindered
in, or prevented from the performance of any act required hereunder by Force
Majeure Event, then the period for the performance of any such act shall be
extended for a period equivalent to the period of such delay.
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5.8 EXTENT AND MODIFICATION OF AGREEMENT EXTENT AND MODIFICATION OF AGREEMENT
This Agreement, the Schedules A through X and other documents incorporated
herein by reference, represent the entire agreement between Texaco and PathNet
and supersede all prior negotiations, representations or agreements, either
written or oral. This Agreement may be amended only by written instrument
signed by both Texaco and PathNet. Unless otherwise specified, any
inconsistency between the contents of a document incorporated by reference and
made a part of this Agreement and the terms of this Agreement shall be resolved
in favor of the terms of this Agreement.
5.9 INDEPENDENT INVESTIGATION
The parties acknowledge that they have independently investigated the
potential for the success of PathNet's ability to create, aggregate and sell
Excess Capacity and have not relied upon any inducements or representations of
the other party or its agents, other than those contained in this Agreement.
5.10 NO DISCRIMINATION
It is intended that both parties intend to subscribe or offer to all
customers, employees, licensees, and invitees the opportunity to obtain all the
goods, services, accommodations, advantages, facilities and privileges without
discrimination because of race, creed, color, sex, age, national origin or
ancestry, in accordance with the EEO Statement attached hereto as Schedule P,
and all federal, state, and local laws.
5.11 NOTICES
All notices pertaining to disputes arising from this Agreement shall be
directed to a corporate entity or employee designated by the signators as having
full rights and responsibilities to address such issues. Notices under this
Agreement shall be sufficient only if personally
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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 in the signature block below, or as amended by notice,
pursuant to this subsection. If not received sooner, notice by mail shall be
deemed received five (5) days after deposit with the courier or 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.
6715 Kenilworth Avenue, Suite 200
Riverdale, Maryland 20737
If to Texaco:
Mr. H. Dave Hunt
Manager of Telecommunications
Texaco Pipeline Inc.
1670 Broadway
Denver, Colorado 80202-4899
5.12 UNENFORCEABILITY
In the event that any provision of this Agreement shall be determined to be
illegal or unenforceable, that provision will be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable.
5.13 COST AND FEES
In any action or proceeding to enforce rights under this Agreement, the
prevailing party shall be entitled to recover reasonable costs and reasonable
attorney's fees.
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5.14 HEADINGS
Headings herein are for convenience or reference only and shall in no way
affect interpretation of the Agreement.
5.15 INCIDENTAL AND CONSEQUENTIAL DAMAGES
NEITHER PARTY WILL BE LIABLE UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER THEORY FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES WITH
RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT.
5.16 WARRANTY AND DISCLAIMER
PathNet warrants: (i) that the work under this Agreement will be performed
in a workmanlike manner, and (ii) that it has and will obtain agreements with
and promptly pay its employees and contractors sufficiently to allow it to
provide Texaco with the services contemplated by this Agreement. OTHERWISE,
EXCEPT AS EXPRESSLY PROVIDED HEREIN, PATHNET AND TEXACO MAKE NO WARRANTY WITH
RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES, RIGHTS OR OTHER SUBJECT MATTER OF
THIS AGREEMENT AND HEREBY DISCLAIMS WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY AND ALL OF THE FOREGOING.
5.17 INDEMNITY AND LIMITATIONS OF OBLIGATIONS AND LIABILITY
The parties agree to limit their respective obligations and
liabilities as set forth in SCHEDULE X -- INDEMNITY AND LIMITATIONS OF
OBLIGATIONS AND LIABILITY, which like any other Schedule attached hereto is an
integral part of this Agreement.
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5.18 AMENDMENT AND WAIVER
Except as otherwise expressly provided herein, any provision of this
Agreement may be waived (either generally or in any particular instance, and
either retroactively or prospectively) only with the written consent of the
parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
caused this Agreement to be executed by a duly authorized officer, as of the
date first written above.
WITNESS: PATHNET, INC.
/s/ Richard A. Jalkut 6/2/97 By: /s/ Dave Schaeffer
- ----------------------------- -----------------------------
Name: Dave Schaeffer
Title: President
WITNESS: TEXACO PIPELINE INC.
/s/ H D Hunt 5/21/97 By: A. A. Nicoletti
- ------------------------------ -----------------------------
Name:_______________________
Title: President
/s/ H D Hunt
FORM APPROVED
BLM
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