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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________.
Commission file number 1-14768
NSTAR
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3466300
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
800 Boylston St. Boston, Massachusetts 02199
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-424-2000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common shares, par value $1 per share New York Stock Exchange
Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 15, 2000 computed as the average of the high and low
market price of the common stock as reported in the listing of composite
transactions for New York Stock Exchange listed securities in the Wall Street
Journal: $2,209,524,613.
Indicate the number of shares outstanding of each for the registrant's classes
of common stock, as of the latest practicable date.
Class Outstanding at March 15, 2000
--------------------------- -----------------------------
Common Shares $1 per value 56,836,646 Shares
Documents Incorporated by Reference Part in Form 10-K
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Portions of the Registrant's Notice of Parts I, II and III
2000 Annual Meeting, Proxy Statement
and 1999 Financial Information
Dated March 30, 2000
--------------
(pages as specified herein)
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NSTAR
Form 10-K Annual Report
December 31, 1999
<TABLE>
<CAPTION>
Part I Page
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<S> <C> <C>
Item 1. Business 3
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 4A. Executive Officers of Registrant
Part II
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Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 33
Item 8. Financial Statements and Supplementary Financial
Information 34
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 62
Part III
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Item 10. Trustees and Executive Officers of the Registrant 62
Item 11. Executive Compensation 62
Item 12. Security Ownership of Certain Beneficial Owners and
Management 62
Item 13. Certain Relationships and Related Transactions 62
Part IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 63
</TABLE>
2
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Part I
Item 1. Business
(a) General Development of Business
NSTAR was created through a merger transaction with BEC Energy (BEC) and
Commonwealth Energy System (COM/Energy) on August 25, 1999 as an exempt public
utility holding company. NSTAR's utility subsidiaries are Boston Edison Company
(Boston Edison), Commonwealth Electric Company (ComElectric), Cambridge Electric
Light Company (Cambridge Electric), Canal Electric Company (Canal Electric) and
Commonwealth Gas Company (ComGas). Utility operations accounted for more than
98% of revenues in both 1999 and 1998.
The electric and natural gas industries have continued to change in response to
legislative, regulatory and marketplace demands for improved customer service at
lower prices. These demands have resulted in an increasing trend in the industry
to seek competitive advantages and other benefits through business combinations.
NSTAR was created to operate in this new marketplace by combining the resources
of its utility subsidiaries and concentrating its activities in the transmission
and distribution of energy. This is illustrated by the sale of Boston Edison's
fossil generating facilities in 1998 and its nuclear generating facility in
1999. Substantially all of COM/Energy's generating facilities were sold in 1998.
Shareholders of BEC and COM/Energy approved the merger on June 24, 1999.
Pursuant to the merger agreement, BEC shareholders received approximately 41
million shares of NSTAR while COM/Energy shareholders received approximately 20
million shares of NSTAR. In addition, BEC and COM/Energy shareholders received
an aggregate amount of cash of approximately $300 million. An initial quarterly
dividend rate of 48.5 cents per share of NSTAR was declared by the board of
trustees ($1.94 on an annualized basis) on September 23, 1999 and paid on
November 1, 1999. The quartely dividend was increased to 50 cents per share
($2.00 on an annualized basis) on December 16, 1999.
In 1998, Boston Edison completed the sale of all of its fossil generating
assets. The amount received above net book value on the sale of these assets is
being returned to customers over approximately 11 years.
In 1998, prior to the merger, COM/Energy sold substantially all of its fossil
generating assets. As part of an agreement with the Massachusetts Department of
Telecommunications and Energy (MDTE), COM/Energy established Energy Investment
Services, Inc. as the vehicle to invest the net proceeds from the sale of these
assets. Both the principal amount and income earned are being used to reduce the
transition costs that would otherwise be billed to customers of Cambridge
Electric and ComElectric. The net proceeds have been classified as restricted
cash on the accompanying Consolidated Balance Sheets.
To complete its divestiture of generating assets, Boston Edison sold the Pilgrim
Nuclear Generating Station (Pilgrim) on July 13, 1999, for $81 million to
Entergy Nuclear Generating Company. As part of the sale, Boston Edison
transferred approximately $228 million in decommissioning funds to the
purchaser. The purchaser, by contract, assumed all future liability related
to the ultimate decommissioning of the plant. The difference between the total
proceeds from the sale and the net book value of the Pilgrim assets plus the net
amount to fully fund the decommissioning trust is included in regulatory assets
on the accompanying Consolidated Balance Sheets as such amounts are collected
from customers.
On July 29, 1999, BEC Funding LLC, a wholly owned special-purpose subsidiary of
Boston Edison, closed the sale of $725 million of notes to a special purpose
trust created by two Massachusetts state agencies. The trust then concurrently
closed the sale on $725 million of electric rate reduction certificates as a
public offering. The certificates are secured by a portion of the transition
charge assessed on Boston Edison's retail customers as permitted under the
Massachusetts Electric Industry Restructuring Act and authorized by the MDTE.
These certificates are non-recourse to Boston Edison.
NSTAR also engages in nonutility and utility generation businesses through its
subsidiaries. These include Boston Energy Technology Group Inc. (BETG), which
engages in a number of businesses including telecommunications through its joint
venture with RCN Telecom Services, Inc.; Canal Electric, which owns a 3.52%
interest in the Seabrook 1 nuclear power plant; Advanced Energy Systems, Inc., a
company that operates an energy plant providing steam, chilled water and
electric generating services serving certain Boston area hospitals and schools;
a steam distribution company; a company that services and processes liquefied
natural gas; and five real estate trusts.
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(b) Financial Information about Industry Segments
NSTAR's principal segments are the electric and natural gas utilities that
provide the transmission and distribution of energy. Refer to Note L of the
Consolidated Financial Statements in Item 8 for specific financial information
related to NSTAR's electric utility, gas utility and unregulated nonutility
segments.
(c) Narrative Description of Business
Principal Products and Services
ELECTRIC INDUSTRY
NSTAR electric operating revenues by class of customers for the last three years
consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
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<S> <C> <C>
Retail electric revenues:
Commercial 51% 51% 51%
Residential 30% 27% 27%
Industrial 9% 9% 9%
Other 1% 1% 1%
Wholesale and contract revenues 9% 12% 12%
===========================================================================
</TABLE>
BEC
In May 1998, Boston Edison, a regulated public utility incorporated in 1886
under Massachusetts' law, received final approval from the SEC for its
reorganization plan to form a holding company structure. Effective May 20, 1998,
BEC, the holding company, was formed and Boston Edison became a wholly owned
subsidiary of BEC. Effective June 25, 1998, BETG ceased being a subsidiary of
Boston Edison and became a wholly owned subsidiary of BEC. Unregulated
activities are conducted through BETG and include telecommunications and
district cooling services. BEC is currently a subsidiary of NSTAR.
Boston Edison currently supplies electricity at retail to an area of 590 square
miles, including the city of Boston and 39 surrounding cities and towns. The
population of the area served with electricity at retail is approximately 1.5
million. In 1999 Boston Edison served an average of approximately 670,000
customers.
COM/Energy
COM/Energy, a Massachusetts business trust, is an unincorporated business
organization with transferable shares organized under a Declaration of Trust in
1926, as amended, pursuant to the laws of Massachusetts. It is an exempt public
utility holding company holding all of the stock of four operating public
utility companies (ComElectric, Cambridge Electric, Canal Electric and ComGas).
Unregulated activities include district heating and cooling and liquidified
natural gas services. On August 25, 1999 COM/Energy became a subsidiary of
NSTAR.
Each of Com/Energy's operating utility subsidiaries serves retail customers
except for Canal Electric.
ComElectric and Cambridge Electric
Electric service is furnished by ComElectric and Cambridge Electric at retail to
approximately 329,000 year-round and 45,000 seasonal customers in 41 communities
in eastern and southeastern Massachusetts covering 1,112 square miles and having
an aggregate population of 645,000. The territory served includes the
communities of Cambridge, New Bedford and Plymouth and the geographic area
comprising Cape Cod and Martha's Vineyard. Cambridge Electric also sells power
at wholesale to the Town of Belmont, Massachusetts.
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Com/Gas
Natural gas is distributed by COMGas to approximately 243,000 customers in 51
communities in central and eastern Massachusetts covering 1,067 square miles and
having an aggregate population of 1,128,000. 25 of these communities are also
served by Boston Edison, Cambridge Electric and ComElectric with electricity.
Some of the larger communities served by ComGas include Cambridge, Somerville,
New Bedford, Plymouth, Worcester, Framingham, Dedham and the Hyde Park area of
Boston.
Sources and Availability of Electric Power Supply
NSTAR on behalf of its electric retail subsidiaries Boston Edison, Cambridge
Electric and ComElectric entered into a six-month agreement effective January 1,
2000 to transfer all of the unit output entitlements in long-term power purchase
contracts to Select Energy (Select), a subsidiary of Northeast Utilities. In
return, Select will provide full energy service requirements, including NEPOOL
capability responsibilities, at Federal Energy Regulatory Commission (FERC)
approved tariff rates through June 30, 2000. NSTAR's 1999 proportionate share of
capacity and total cost reflects four months of the COM/Energy companies from
the date of the merger. For further information, refer to footnote N to
consolidated financial statements in Item 8.
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Commonwealth Electric had an 11% contract entitlement in the output of the
Pilgrim nuclear power plant that was sold by Boston Edison in 1999 to Entergy
Nuclear Generating Company (Entergy). Boston Edison and ComElectric will buy
power generated by the Pilgrim plant from Entergy on a declining basis through
2004. Cambridge Electric has a 2.5% equity ownership in the Vermont Yankee
nuclear power plant. Vermont Yankee is under agreement to be sold to AmerGen
Energy Co.
Information relative to nuclear units that are no longer operating in which
NSTAR has an equity ownership is as follows:
<TABLE>
<CAPTION>
Connecticut Maine Yankee
Yankee Yankee Atomic
------ ------ ------
(dollars in thousands)
<S> <C> <C> <C>
Year of Shutdown 1996 1997 1992
Equity Ownership (%) 14.00 4.00 19.00
Equity Ownership Balance $14,596 $3,519 $2,339
</TABLE>
New England Power Pool
During 1997, the power pool was restructured with changes taking effect to the
membership and governance provisions of the power pooling agreement along with
the transfer of operating responsibility of the integrated transmission and
generation system in New England to ISO New England. Previously, NEPOOL
dispatched generating units for operation based on the lowest operating costs of
available generation and transmission. Under the new structure, generators will
be required to provide ISO New England with market prices at which they will
sell short-term energy supply. These prices formed the basis for dispatch that
began in the second quarter of 1999. As noted in the Sources and Availability of
Electric Power Supply section above, Boston Edison, Cambridge Electric and
ComElectric will receive all of their power supply requirements from Select
through June 30, 2000. Therefore, the change to NEPOOL's operations and pricing
structure is expected to have no material impact on NSTAR's costs for purchased
electric energy.
6
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Franchises
Through their charters, which are unlimited in time, Boston Edison, ComElectric
Cambridge Electric and ComGas have the right to engage in the business of
distributing and selling electricity, natural gas, steam and other forms of
energy, have powers incidental thereto and are entitled to all the rights and
privileges of and subject to the duties imposed upon electric and natural gas
companies under Massachusetts laws. The locations in public ways for electric
transmission and distribution lines or gas distribution are obtained from
municipal and other state authorities which, in granting these locations, act as
agents for the state. In some cases the action of these authorities is subject
to appeal to the MDTE. The rights to these locations are not limited in time,
but are not vested and are subject to the action of these authorities and the
legislature. Pursuant to the Massachusetts Electric Industry Restructuring Act
enacted in November 1997, the MDTE has defined the service territory of Boston
Edison, ComElectric and Cambridge Electric based on the territory actually
served on July 1, 1997, and following, to the extent possible, municipal
boundaries. The legislation further provided that, until terminated by effect of
law or otherwise, these companies shall have the exclusive obligation to provide
distribution service to all retail customers within such service territory. No
other entity shall provide distribution service within this territory without
the written consent of Boston Edison, ComElectric, and Cambridge Electric which
consent, must be filed with the MDTE and the municipality so affected.
Regulation
NSTAR's electric and gas utility subsidiaries, and Boston Edison's wholly owned
subsidiary, Harbor Electric Energy Company (HEEC), operate primarily under the
authority of the MDTE, whose jurisdiction includes supervision over retail rates
for distribution of electricity, natural gas and financing and investing
activities. In addition, the FERC has jurisdiction over various phases of
NSTAR's electric and natural gas utility businesses including rates for
electricity and natural gas sold at wholesale for resale, facilities used for
the transmission or sale of that energy, certain issuances of short-term debt
and regulation of the system of accounts.
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Retail Electric Rates
As a result of electric industry restructuring, the NSTAR electric utility
subsidiaries have unbundled their rates, provided customers with inflation
adjusted rates that are 15 percent lower than rates in effect prior to March 1,
1998, the retail access date, and have afforded customers the opportunity to
purchase generation supply in the competitive market. Unbundled delivery rates
are composed of a customer charge (to collect metering and billing costs), a
distribution charge (to collect the costs of delivering electricity), a
transition charge (to collect past costs for investments in generating plants
and costs related to power contracts), a transmission charge (to collect the
cost of moving the electricity over high voltage lines from a generating plant),
an energy conservation charge (to collect costs for demand-side management
programs) and a renewable energy charge (to collect the cost to support the
development and promotion of renewable energy projects). Electricity supply
services provided by NSTAR's retail electric subsidiaries include optional
standard offer service and default service.
Standard offer service is the electricity that is supplied by the retail
electric subsidiaries until a competitive power supplier is chosen by the
customer. It is designed as a seven-year transitional service (from March 1,
1998) to give the customer time to learn about competitive power suppliers. The
price of standard offer service will increase over time. Default service is
supplied by the local distribution company when a customer is not receiving
power from either standard offer service or a competitive power supplier. The
market price for default service will fluctuate based on the average market
price for power. Amounts collected through these various charges will be
reconciled to actual expenditures on an on-going basis.
Prior to the implementation of industry restructuring on March 1, 1998, Boston
Edison, ComElectric and Cambridge Electric had Fuel Charge rate schedules that
generally allowed for current recovery, from retail customers, of fuel used in
electric production, purchased power and transmission costs.
8
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These schedules required a quarterly computation and MDTE approval of a Fuel
Charge decimal based upon forecasts of fuel, purchased power, transmission costs
and billed unit sales for each period. To the extent that collections under the
rate schedules did not match actual costs for that period, an appropriate
adjustment was reflected in the calculation of the next subsequent calendar
quarter decimal. These rate schedules are no longer in effect.
Gas Industry
NSTAR Gas operating revenues by class of customers, effective September 1, 1999,
consisted of the following:
1999
----------------------------------------
Retail Gas revenues:
Commercial 22%
Residential 70%
Industrial 3%
Other 4%
Wholesale & contract revenues 1%
----------------------------------------
Gas Supply
ComGas purchases transportation, storage and balancing services from Tennessee
Gas Pipeline Company (Tennessee) and Algonguin Gas Transmission Company (and
other upstream pipelines that bring gas from the supply wells to the final
transporting pipelines) and purchases all of its gas supplies from third-party
vendors, utilizing firm contracts with terms of less than one year. The vendors
vary from small independent marketers to major gas and oil companies.
In addition to firm transportation and gas supplies mentioned above, ComGas
utilizes contracts for underground storage and LNG facilities to meet its winter
peaking demands. The underground storage contracts are a combination of existing
and new agreements which are the result of FERC Order 636 service unbundling.
The LNG facilities, described below, are used to liquefy and store pipeline gas
during the warmer months for use during the heating season.
ComGas entered into a multi-party agreement in 1992 to assume a portion of
Boston Gas Company's contracts to purchase Canadian gas supplies from Alberta
Northeast (ANE) and have the volumes delivered by the Iroquois Gas Transmission
System and Tennessee pipelines. The ANE gas supply contract was filed with the
MDTE and hearings were completed in April 1993.
On November 17, 1995, the Department approved the ComGas Original ANE Contract
between ComGas and ANE for the purchase of approximately 4.5 million cubic feet
per day of natural gas from Alberta, Canada. The MDTE approved the Gas Sales
Agreement between Alberta Northeast Gas Limited and ComGas files on March 3,
1999. Previous to the Agreement, ComGas purchased its Canadian Supply through
Boston Gas Company. The agreement allows ComGas to receive up to 4,500
MMBtu/Day of Canada Supply delivered into the Iroquois Gas Transmission system.
In compliance with this order, ComGas also signed transportation agreements
with the Tennessee Gas Pipeline and Iroquois Pipeline.
ComGas began transporting gas on its distribution system in 1990 for end-users.
As of December 31, 1999, there were 732 customers using this transportation
service, accounting for 11,146 BBTU or approximately 24% of total throughput.
A portion of the gas supply for ComGas during the heating season is provided by
Hopkinton LNG Corp. (Hopkinton), a wholly-owned subsidiary of NSTAR. The
facility consists of a liquefaction and vaporization plant and three
above-ground cryogenic storage tanks having an aggregate capacity of 3 million
MCF of natural gas.
In addition, Hopkinton owns a satellite vaporization plant and two above-ground
cryogenic storage tanks located in Acushnet, Massachusetts with an aggregate
capacity of 500,000 MCF of natural gas that are filled with LNG trucked from
Hopkinton.
ComGas has contracts for LNG service with Hopkinton extending on year to year
basis with notice of termination required five years in advance of the
anticipated termination date. Current contract payments include a demand charge
sufficient to cover Hopkinton's fixed changes and an operating charge which
covers liquefaction and vaporization expenses. ComGas furnishes pipeline gas
during the period April 15 to November 15 each year for liquefaction and
storage. As the need arises, LNG is vaporized and placed in the distribution
system of ComGas.
Based upon information presently available regarding projected growth in demand
and estimates of availability of future supplies of pipelines gas, ComGas
believes that its present sources of gas supply are adequate to meet existing
load and allow for future growth in sales.
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Natural Gas Industry Restructuring and Rates
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In September 1997, ComGas along with other gas utilities initiated the
Massachusetts Gas Unbundling Collaborative (the Collaborative), to explore and
develop generic principles to achieve the MDTE's goals of establishing choice
of gas supplier for all customers (comprehensive unbundling).
In August 1998, the MDTE approved the unbundled rate settlement submitted by
ComGas, followed in September with compliance rates submitted by ComGas that
were consistent with a settlement agreement. These unbundled rates became
effective on November 1, 1998.
ComGas has a Seasonal Cost of Gas Adjustment Clause (CGAC) and a Local
Distribution Adjustment Clause (LDAC) that provide for the recovery, from firm
customers or Default Service customers, of certain costs previously recovered
through base rates. The CGAC provides for rates that must be approved semi-
annually by the MDTE. The LDAC provides for rates that require annual approval.
As part of its new unbundled rates, ComGas modified its existing CGAC to allow
for the following changes: (a) the addition of provisions that allow for the
recovery of certain bad-debt expenses; (b) new formulas that no longer adjust
the Gas Adjustment Factors for the seasonal embedded gas costs that were in
existing sales rates; (c) updated language reflecting the ratemaking
requirements for non-core revenue margins; and (d) the removal of provisions for
the recovery of environmental remediation costs and FERC Order 636 transition
costs, which will instead be recovered through the LDAC.
ComGas' approved LDAC recovers conservation charges, environmental remediation
costs, balancing penalty revenue credits, and costs associated with the its
participation in the MGUC.
In February 1999, the MDTE determined that the capacity market in Massachusetts
was not yet workably competitive to allow it to remove traditional regulatory
controls that were designed to ensure the reliability of gas service to
customers. The MDTE further reaffirmed that the local distribution companies
(LDCs) must continue with their obligation to plan for and procure sufficient
upstream capacity.
On November 3, 1999 after numerous Collaborative meetings, the LDC's filed the
remaining sections of the Model Terms and Conditions dealing with capacity
assignment peaking services and default service and also filed draft regulations
that establish rules to govern the statewide customer choice initiative. In
their filing the LDC's indicated that comprehensive unbundling could be
implemented no sooner than April 1, 2000. After reviewing comments from
stakeholders, the MDTE approved the new sections of the Model Terms and
Conditions on January 26, 2000. The MDTE also required each LDC to file
compliance Terms and Conditions within 21 days of their order. On December 19,
1999 the MDTE issued a NOL and a procedural schedule seeking comments from
interested parties regarding the proposed regulations.
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Capital Expenditures and Financings
The most recent estimates of capital expenditures, allowance for funds used
during construction (AFUDC), long-term debt maturities and preferred stock
payment requirements for the years 2000 through 2004 are as follows:
<TABLE>
<CAPTION>
(in thousands) 2000 2001 2002 2003 2004
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital
expenditures (1) $347,000 $216,000 $170,000 $144,000 $143,000
AFUDC $ 4,000 $ 4,000 $ 4,000 $ 4,000 $ 4,000
Long-term debt $166,600 $122,500 $108,800 $241,200 $ 78,700
Preferred stock $ - $ 50,000 $ - $ - $ -
=============================================================================
</TABLE>
(1) Includes both plant expenditures and capital requirements of nonutility
ventures.
Management continuously reviews its capital expenditure and financing programs.
These programs and, therefore, the estimates included in this Form 10-K are
subject to revision due to changes in regulatory requirements,
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environmental standards, availability and cost of capital, interest rates and
other assumptions.
Plant expenditures in 1999 were $159.3 million and consisted primarily of
additions to NSTAR's distribution and transmission systems. The majority of
these expenditures were for system reliability and control improvements,
customer service enhancements and capacity expansion to allow for long-range
growth in the NSTAR service territory.
Refer to the Liquidity section of Item 7 for more information regarding capital
resources to fund NSTAR's construction programs.
Seasonal Nature of Business
Kilowatt-hour sales and revenues are typically higher in the winter and summer
than in the spring and fall as sales tend to vary with weather conditions. Refer
to the Selected Consolidated Quarterly Financial Data (Unaudited) in Item 8 for
specific financial information by quarter for 1999 and 1998. ComElectric's sales
are substantially higher in the summer due to the tourist industry on Cape Cod.
Competitive Conditions
The electric and natural gas industries have continued to change in response to
legislative, regulatory and marketplace demands for improved customer service at
lower prices. These pressures have resulted in an increasing trend in the
industry to seek competitive advantages and other benefits through business
combinations. NSTAR was created to operate in this new marketplace by combining
the resources of its utility subsidiaries in its activities in the transmission
and distribution of energy.
Environmental Matters
NSTAR's and its subsidiaries are subject to numerous federal, state and local
standards with respect to the management of wastes, air and water quality and
other environmental considerations. These standards could require modification
of existing facilities or curtailment or termination of operations at these
facilities. They could also potentially delay or discontinue construction of new
facilities and increase capital and operating costs by substantial amounts.
Noncompliance with certain standards can, in some cases, also result in the
imposition of monetary civil penalties.
Environmental-related capital expenditures for the years 1999 and 1998 were $0.6
million and $1.4 million, respectively. Management believes that its remaining
operating facilities are in substantial compliance with currently applicable
statutory and regulatory environmental requirements. Additional expenditures
could be required as changes in environmental requirements occur.
Number of Employees
As of December 31, 1999, NSTAR's subsidiaries had approximately 3,400 full-time
employees, including approximately 2,300 (68%) employees represented by various
collective bargaining units covered by separate contracts with varying
expiration dates. The contracts with two union locals representing approximately
1,300 employees of the Utility Workers Union of America, AFL-CIO, will terminate
on May 15, 2000. Management believes it has satisfactory employee relations.
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(d) Financial Information about Foreign and Domestic Operations and Export Sales
None of NSTAR's subsidiaries have any foreign operations or export sales.
Item 2. Properties
Substantially all of NSTAR's non-nuclear generating assets were sold as of
December 30, 1998. The Pilgrim Nuclear Generating Station was sold in 1999.
NSTAR, through its Canal Electric subsidiary, still retains its 3.52% interest
(40.5 MW of capacity) in Seabrook 1.
Other electric properties include an integrated system of distribution lines and
substations which are located in the Boston area as well as the outlying
communities and Cape Cod and Martha's Vineyard. In addition, NSTAR's other
principal properties consist of an office building in Wareham, Massachusetts and
other structures such as garages and service buildings.
At December 31, 1999, the electric transmission and distribution system
consisted of 9,580 pole miles of overhead lines, 7,840 cable miles of
underground lines, 507 substations and 1,372,000 active customer meters.
The principal natural gas properties consist of distribution mains, services and
meters necessary to maintain reliable service to customers. At December 31,
1999, the gas system included 2,861 miles of gas distribution lines, 170,103
services and 249,874 customer meters together with the necessary measuring and
regulating equipment. In addition, NSTAR owns a liquefaction and vaporization
plant, a satellite vaporization plant and above-ground cryogenic storage tanks
having an aggregate storage capacity equivalent to 3.5 million MCF of natural
gas. NSTAR's gas division owns an office and service building in Southborough,
Massachusetts, five district office buildings and several natural gas receiving
and take stations.
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NSTAR's subsidiaries' high-tension transmission lines are generally located on
land either owned or subject to easements in its favor. Its low-tension
distribution lines are located principally on public property under permission
granted by municipal and other state authorities.
HEEC, Boston Edison's regulated subsidiary, has a distribution system that
consists principally of a 4.1 mile 115 kV submarine distribution line and a
substation which is located on Deer Island in Boston, Massachusetts. HEEC
provides the ongoing support required to distribute electric energy to its one
customer, the Massachusetts Water Resources Authority, at this location.
Item 3. Legal Proceedings
Industry and corporate restructuring legal proceedings
The MDTE order approving the Boston Edison restructuring settlement agreement
was appealed by certain parties to the Massachusetts Supreme Judicial Court
(SJC). One settlement agreement appeal remains pending; however there has to
date been no briefing, hearing or other action taken with respect to this
proceeding.
In addition, along with other Massachusetts investor-owned utilities, Boston
Edison has been named as a defendant in a class action suit seeking to declare
certain provisions of the Massachusetts electric industry restructuring
legislation unconstitutional.
Management is currently unable to determine the outcome of these outstanding
proceedings however, but if an unfavorable outcome were to occur, there could be
a material adverse impact on business operations, the consolidated financial
position or results of operations for a reporting period.
Regulatory proceedings
In October 1997, the MDTE opened a proceeding to investigate Boston Edison's
compliance with the 1993 order which permitted the formation of BETG and
authorized Boston Edison to invest up to $45 million in unregulated activities.
Hearings were completed in the fourth quarter of 1999. A MDTE ruling is expected
in 2000.
Management is currently unable to determine the outcome of this proceeding;
however, if an unfavorable outcome were to occur, there could be a material
adverse impact on business operations, the consolidated financial position or
results of operations for a reporting period.
Rate Plan
The MDTE issued an order approving most major elements of a rate plan filed by
the retail utility subsidiaries of NSTAR on July 27, 1999. The highlights of the
rate plan include a four-year distribution rate freeze for each of the NSTAR
retail utility subsidiaries, the collection from customers of the
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acquisition premium of approximately $486 million over 40 years and the recovery
of transaction and integration costs initially estimated at approximately $111
million over 10 years. The Massachusetts Attorney General and a group of four
interveners filed separate appeals of the MDTE order with the Massachusetts
Supreme Judicial Court (SHC) regarding the rate plan. While management
anticipates that the MDTE's decision to approve the rate plan will be upheld by
the SJC, it cannot determine the ultimate outcome of these appeals or their
impact on the rate plan.
Other litigation
In October 1998, the town of Plymouth, Massachusetts, the site of Pilgrim
Station, filed suit against Boston Edison. The town claimed that Boston Edison
wrongfully failed to execute an agreement with the town for payments in addition
to taxes due to the town under the Massachusetts electric industry restructuring
legislation. Boston Edison and the town agreed on a 15-year, $141 million
property tax package in March 1999. Payments in each of the first four years are
approximately $15 million after which payments gradually decline. All payments
under this agreement will be recovered from customers through the transition
charge.
In the normal course of its business NSTAR and its subsidiaries are also
involved in certain other legal matters. Management is unable to fully determine
a range of reasonably possible legal costs in excess of amounts accrued. Based
on the information currently available, it does not believe that it is probable
that any such additional costs will have a material impact on its consolidated
financial position. However, it is reasonably possible that additional legal
costs that may result from a change in estimates could have a material impact on
the results of a reporting period.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of 1999.
Item 4A. Executive Officers of Registrant
Identification of Executive Officers
<TABLE>
<CAPTION>
Age
December
Name of Officer Position and Business Experience 31, 1999
- --------------- -------------------------------- --------
<S> <C> <C>
Thomas J. May Chairman of the Board and Chief 52
Executive Office, and a Trustee
NSTAR (since 1999), formerly Chairman of the Board,
President, and Chief Executive Officer, BEC Energy
(1998-1999); Chairman of the Board, President, and
Chief Executive Officer, Boston Edison Company
1995-1999)
Chairman of the Board and Chief Executive Officer and
Trustee of BEC Energy, Commonwealth Energy System,
COM/Energy Acushnet Realty, COM/Energy Cambridge
Realty, COM/Energy Freetown Realty, COM/Energy
Research Park Realty, and Darvel Realty Trust;
Chairman of the Board and Chief Executive Officer and
Director of Advanced Energy Systems, Inc., Advanced
Energy Systems Management Company, Inc., Medical Area
Total Energy Plant, Inc., NSTAR Communications, Inc.,
Boston Edison Company, Cambridge Electric Light
Company, Canal Electric Company, Commonwealth
Electric Company, COM/Energy Marketing, Inc.,
Commonwealth Gas Company, Coneco Corporation, Energy
Investment Services, Inc., Harbor Electric Energy
Company, Hopkinton LNG Corp., COM/Energy Steam
Company, COM/Energy Resources, Inc., Boston Energy
Technology Group, Inc., Boston Edison Services, Inc.,
NSTAR Communication Securities Corporation, NSTAR
Services Corporation, COM/Energy Services Company,
and BEC Funding LLC.
Russell D. Wright President and Chief Operating Officer 53
and Trustee.
President and Chief Operating Officer, NSTAR
(since 1999); formerly President and Chief
Executive Officer, Commonwealth Energy
System (1998-1999); President and Chief
Operating Officer, Commonwealth Energy
System's electric and gas subsidiaries
(1993-1998)
President and Chief Operating Officer and Trustee of BEC
Energy, Commonwealth Energy System; Vice Chairman and
Director of Advanced Energy Systems, Inc., Advanced
Energy Systems Management Company, Inc., Medical Area
Total Energy Plant, Inc., and NSTAR Communications,
Inc.; President and Chief Operating Officer and Director
of Boston Edison Company, Cambridge Electric Light
Company, Canal Electric Company, Commonwealth Electric
Company, Commonwealth Gas Company, Energy Investment
Services, Inc., Harbor Electric Energy Company,
COM/Energy Marketing, Inc., NSTAR Communications
Securities Corporation, NSTAR Services Corporation, and
COM/Energy Services Company; Vice Chairman, President
and Chief Operating and Trustee of COM/Energy Acushnet
Realty, COM/Energy Cambridge Realty, COM/Energy Freetown
Realty, COM/Energy Research Park Realty, and Darvel
Realty Trust; Vie Chairman, President and Chief
Operating Officer and Director of Coneco Corporation,
Hopkinton LNG Corp., COM/Energy Steam Company,
COM/Energy Resources, Inc., Boston Energy Technology
Group, Inc., Boston Edison Services, Inc. and BEC
Funding LLC.
Ronald A. Ledgett Executive Vice President - Electric 61
Operations.
Executive Vice President - Electric
Operations, NSTAR (since 1999); Executive
Vice President, Boston Edison Company (1997
to present); Senior Vice President - Fossil,
Field Service and Electric Delivery, Boston
Edison Company (1996-1997); Senior Vice
President - Power Delivery, Boston Edison
Company (1991-1995)
Executive Vice President - Electric
Operations of BEC Energy, Commonwealth
Energy System, Cambridge Electric Light
Company, Canal Electric Company,
Commonwealth Electric Company, NSTAR
Services Corporation and COM/Energy Services
Company.
Deborah A. McLaughlin Executive Vice President - Customer 41
Care/Shared Services.
Executive Vice President - Customer
Care/Shared Services, NSTAR (since 1999);
President and Chief Operating Officer,
Commonwealth Energy System's electric and
gas subsidiaries (1998-1999); Vice President
- Customer Service, Commonwealth Energy
System's electric and gas subsidiaries
(1993-1998).
Executive Vice President - Customer
Care/Shared Services of BEC energy,
Commonwealth Energy System, Boston Edison
Company, Cambridge Electric Light Company,
Canal Electric Company, Commonwealth
Electric Company, Commonwealth Gas Company,
NSTAR Service Corporation and COM/Energy
Services Company.
Alison Alden Senior Vice President - Human Resources 51
Senior Vice President - Human Resources,
NSTAR (since 1999); formerly Senior Vice
President - Sales, Services and Human
Resources, Boston Edison Company
(1996-1999), Vice President - Sales &
Services, Boston Edison Company (1993-1996)
Senior Vice President - Human Resources of
BEC Energy, Commonwealth Energy System,
Boston Edison Company,
Cambridge Electric Light Company, Canal
Electric Company, Commonwealth Electric
company, Commonwealth Gas Company NSTAR
Services Corporation and COM/Energy
Services Company.
L. Carl Gustin Senior Vice President - Corporate 56
Relations.
Senior Vice President - Corporate Relations, NSTAR
(since 1999) and Boston Edison Company (since 1995)
Senior Vice President - Corporate Relations
of BEC Energy, Commonwealth Energy System,
Cambridge Electric Light Company, Canal
Electric Company, Commonwealth Electric
Company, Commonwealth Gas Company, NSTAR
Services Corporation and COM/Energy Services
Company.
Douglas S. Horan Senior Vice President/Strategy, Law & 50
Policy.
Senior Vice President/Strategy, Law &
Policy, NSTAR (since 1999); formerly Senior
Vice President - Strategy and Law and
General Counsel, BEC Energy (1998-1999) and
Boston Edison Company (1995-1999)
Senior Vice President/Strategy, Law & Policy of BEC
Energy, Commonwealth Energy System, Advanced Energy
Systems, Inc., Advanced Energy Systems Management
Company, Inc., Medical Area Total Energy Plant, Inc.,
NSTAR Communications, Inc., Boston Edison Company,
Cambridge Electric Light Company, Canal Electric
Company, Commonwealth Electric Company, COM/Energy
Marketing, Inc., COM/Energy Acushnet Realty, COM/Energy
Cambridge Realty, COM/Energy Freetown Realty, COM/Energy
Research Park Realty, Darvel Realty Trust, Commonwealth
Gas Company, Coneco Corporation, Energy Investment
Services, Inc., Harbor Electric Energy Company,
Hopkinton LNG Corp., COM/Energy Steam Company,
COM/Energy Resources, Inc., Boston Edison Technology
Group, Inc., Boston Edison Service, Inc., NSTAR
Communications Securities Corporation,
NSTAR Services Corporation, COM/Energy Services
Company, and BEC Funding LLC.
James J. Judge Senior Vice President, Treasurer and 44
Chief Financial Officer
Senior Vice President, Treasurer and Chief
Financial Officer, NSTAR (since 2000);
formerly Senior Vice President and Chief
Financial Officer, NSTAR (1999-2000); Senior
Vice President - Corporate Services and
Treasurer, BEC Energy (1998-1999); Senior
Vice President - Corporate Services and
Treasurer, Boston Edison Company
(1995-1999).
Senior Vice President, Treasurer and Chief Financial
Officer and Trustee of BEC Energy, Commonwealth Energy
System, COM/Energy Acushnet Realty, COM/Energy Cambridge
Realty, COM/Energy Freetown Realty, COM/Energy Research
Park Realty, Darvel Realty Trust; Senior Vice President,
Treasurer and Director of Advanced Energy Systems, Inc.,
Advanced Energy Systems Management Company, Inc.,
Medical Area Total Energy Plant, Inc., NSTAR
Communications, Inc., Boston Edison Company, Cambridge
Electric Light Company, Canal Electric Company,
Commonwealth Electric Company, COM/Energy Marketing,
Inc., Commonwealth Gas Company, Coneco Corporation,
Energy Investment Services, Inc., Harbor Electric Energy
Company, Hopkinton LNG Corp., COM/Energy Steam Company,
COM/Energy Resources, Inc., Boston Energy Technology
Group, Inc., Boston Edison Services, Inc., NSTAR
Communications Securities Corporation, NSTAR Services
Corporation, COM/Energy Services Company, and BEC
Funding LLC.
Michael P. Sullivan Vice President, Secretary/Clerk and 52
General Counsel
Vice President, Secretary/Clerk and General
Counsel, NSTAR (since 1999); formerly Vice
President, Secretary and General Counsel,
Commonwealth Energy System and all of its
subsidiaries
Vice President, Secretary/Clerk and General Counsel of
BEC Energy, Commonwealth Energy System, Advanced Energy
Systems, Inc., Advanced Energy Systems Management
Company, Inc. Medical Area Total Energy Plant, Inc.,
NSTAR Communications, Inc., Boston Edison Company,
Cambridge Electric Light Company, Canal Electric
Company, Commonwealth Electric Company, COM/Energy
Marketing, Inc., COM/Energy Acushnet Realty, COM/Energy
Cambridge Realty, COM/Energy Freetown Realty, COM/Energy
Research Park Realty, Darvel Realty Trust, Commonwealth
Gas Company, Coneco Corporation, Energy Investment
Services, Inc., Harbor Electric Energy Company,
Hopkinton LNG Corp., COM/Energy Steam Company,
COM/Energy Resources, Inc., Boston Energy Technology
Group, Inc., Boston Edison Services, Inc., NSTAR
Communications Securities Corporation, NSTAR Services
Corporation, COM/Energy Services Company, and BEC
Funding LLC.
Robert J. Weafer Jr. Vice President, Controller and Chief 53
Accounting Officer
Vice President, Controller and Chief
Accounting Officer, NSTAR (since 1999), BEC
Energy (since 1998) and Boston Edison
Company (since 1991)
Vice President, Controller and Chief Accounting Officer
of Commonwealth Energy System, Advanced Energy Systems,
Inc., Advanced Energy Systems Management Company, Inc.,
Medical Area Total Energy Plant, Inc., NSTAR
Communications, Inc., Cambridge Electric Light Company,
Canal Electric Company, Commonwealth Electric Company,
COM/Energy Marketing, Inc., COM/Energy Acushnet Realty,
COM/Energy Cambridge Realty, COM/Energy Freetown Realty,
COM/Energy Research Park Realty, Darvel Realty Trust,
Commonwealth Gas Company, Coneco Corporation, Energy
Investment Services, Inc., Harbor Electric Energy
Company, Hopkinton LNG Corp., COM/Energy Steam Company,
COM/Energy
Resources, Inc., Boston Energy Technology
Group, Inc., Boston Edison Services, Inc., NSTAR
Communications Securities Corporation, NSTAR Services
Corporation, COM/Energy Services Company, and BEC
Funding LLC.
</TABLE>
15
<PAGE>
Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
(a) Market Information
NSTAR's common shares are listed on the New York and Boston Stock Exchanges.
The high and low market value per common share as reported in the Wall
Street Journal for each of the quarters in 1999 and 1998 was as follows. (Prior
to September 1999, the information listed refers to BEC Energy common shares
and prior to May 1998, the information listed refers to Boston Edison Company
common stock.)
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------
High Low High Low
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First quarter $41 3/16 $36 7/16 $41 15/16 $35 1/16
Second quarter $44 5/8 $37 3/16 $42 5/8 $38 7/8
Third quarter $43 5/16 $36 3/4 $44 5/16 $37 3/4
Fourth quarter $42 3/8 $36 5/8 $44 15/16 $39 5/8
================================================================================
</TABLE>
(b) Holders
As of March 29, 2000, there were 35,395 holders of NSTAR common shares.
(c) Dividends
Dividends declared per common share for each of the quarters in 1999
and 1998 were as follows. (Prior to September 1999, the information listed
refers to BEC Energy common shares and prior to May 1998, the information listed
refers to Boston Edison Company common stock.)
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------
<S> <C> <C>
First quarter $0.485 $0.470
Second quarter $0.485 $0.470
Third quarter $0.485 $0.470
Fourth quarter $0.500 $0.485
===========================================================
</TABLE>
16
<PAGE>
Item 6. Selected Financial Data
The following table summarizes five years of selected consolidated financial
data (in thousands, except per share data). Prior to September 1999, the
information below refers to BEC Energy.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating
revenues $1,851,427 $1,622,515 $1,778,531 $1,668,856 $1,628,503
Net income $ 146,463 $ 141,046 $ 144,642 $ 141,546 $ 112,310
Earnings per
share of
common
stock:
Basic $ 2.77 $ 2.76 $ 2.71 $ 2.61 $ 2.08(a)
Diluted $ 2.76 $ 2.75 $ 2.71 $ 2.61 $ 2.08(a)
Total
assets $5,482,888 $3,204,036 $3,622,347 $3,729,291 $3,637,170
Long-term
debt $ 986,843 $ 955,563 $1,057,076 $1,058,644 $1,160,223
Transition
property
securitization
certificates $ 646,559 $ 0 $ 0 $ 0 $ 0
Redeemable
preferred
stock $ 92,279 $ 92,040 $ 163,093 $ 203,419 $ 206,514
Cash
dividends
declared
per common
share $ 1.955 $ 1.895 $ 1.880 $ 1.880 $ 1.835
=============================================================================
</TABLE>
(a) Includes $0.44 per share restructuring charge. Excluding the
restructuring charge, 1995 earnings per share were $2.52.
Selected Consolidated Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
(in thousands, except earnings per share) Earnings Basic
Available Earnings
Operating Operating Net for Common Per Average
Revenues Income Income Shareholders Common Share(a)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
First quarter $371,870 $ 43,729 $ 19,562 $ 18,072 $0.38
Second quarter $379,290 $ 58,669 $ 36,253 $ 34,763 $0.76
Third quarter $517,151 $ 85,022 $ 68,260 $ 66,770 $1.32
Fourth quarter $583,116 $ 76,278 $ 22,388 $ 20,898 $0.31
1998
First quarter $394,117 $ 49,390 $ 22,859 $19,940 $0.41
Second quarter $385,348 $ 64,945 $ 34,323 $ 31,452 $0.65
Third quarter $479,897 $100,304 $ 75,490 $ 74,004 $1.55
Fourth quarter $363,153 $ 28,301 $ 8,374 $ 6,885 $0.15
</TABLE>
(a) Based on the weighted average number of common shares outstanding during
each quarter.
17
<PAGE>
Item 7 Management's Discussion and Analysis
NSTAR was created through the merger of BEC Energy (BEC) and Commonwealth Energy
System (COM/Energy) on August 25, 1999 as an exempt public utility holding
company. NSTAR's utility subsidiaries are Boston Edison Company (Boston Edison),
Commonwealth Electric Company (ComElectric), Cambridge Electric Light Company
(Cambridge Electric), Canal Electric Company (Canal Electric) and Commonwealth
Gas Company (ComGas). Utility operations accounted for more than 98% of revenues
in both 1999 and 1998. NSTAR's nonutility operations include telecommunications,
district heating and cooling operations and liquefied natural gas services.
The electric and natural gas industries have continued to change in response to
legislative, regulatory and marketplace demands for improved customer service at
lower prices. These demands have resulted in an increasing trend in the industry
to seek competitive advantages and other benefits through business combinations.
NSTAR was created to operate in this new marketplace by combining the resources
of its utility subsidiaries and concentrating its activities in the transmission
and distribution of energy. This is illustrated by the sale of Boston Edison's
fossil generating facilities in 1998 and its nuclear generating facility in
1999. Substantially all of COM/Energy's generating facilities were sold in 1998.
Merger of BEC Energy and Commonwealth Energy System
Shareholders of BEC and COM/Energy approved the merger on June 24, 1999.
Pursuant to the merger agreement, BEC shareholders received approximately 41
million shares of NSTAR while COM/Energy shareholders received approximately 20
million shares of NSTAR. In addition, BEC and COM/Energy shareholders received
an aggregate amount of cash of approximately $300 million. An initial quarterly
dividend rate of 48.5 cents per share of NSTAR was declared by the board of
trustees ($1.94 on an annualized basis) on September 23, 1999 and paid on
November 1, 1999. The quarterly dividend was increased to 50 cents per share
($2.00 on an annualized basis) on December 16, 1999.
An integral part of the merger is the rate plan that was filed by the retail
utility subsidiaries of BEC and COM/Energy that was approved by the
Massachusetts Department of Telecommunications and Energy (MDTE) on July 27,
1999. Significant elements of the rate plan include a four-year distribution
rate freeze, recovery of the transaction premium (goodwill) over 40 years and
recovery of transaction and integration costs (costs to achieve) over 10 years.
Refer to the Retail Electric Rates section of this discussion for more
information.
The merger was accounted for by NSTAR as an acquisition by BEC of COM/Energy
under the purchase method of accounting. Goodwill amounted to approximately $486
million, resulting in an annual amortization of goodwill of approximately $12.2
million. Costs to achieve are being amortized based on the filed estimate of
$111 million over 10 years. NSTAR's retail electric utility subsidiaries will
reconcile the ultimate costs to achieve with that estimate and any difference is
expected to be recovered over the remainder of the amortization period. To date,
a majority of costs to achieve the merger are for severance costs associated
with a voluntary separation program in which approximately 700 employees elected
to participate. These amounts are expected to be offset by ongoing future cost
savings from streamlined operations and avoidance of costs that would have
otherwise been incurred by BEC and COM/Energy.
A group of four interveners and the Massachusetts Attorney General filed two
separate appeals of the MDTE's rate plan order with the Massachusetts Supreme
Judicial Court (SJC) in August 1999. While management anticipates that the
MDTE's decision to approve the rate plan will be upheld by the SJC, it is
18
<PAGE>
unable to determine the ultimate outcome of these appeals.
Generating Asset Divestiture
In 1998, Boston Edison completed the sale of all of its fossil generating
assets. The amount received above net book value on the sale of these assets is
being returned to customers over approximately 11 years.
In 1998, prior to its merger with BEC, COM/Energy sold substantially all of its
fossil generating assets. As part of an agreement with the MDTE, COM/Energy
established Energy Investment Services, Inc. as the vehicle to invest the net
proceeds from the sale of these assets. Both the principal amount and income
earned are being used to reduce the transition costs that would otherwise be
billed to customers of Cambridge Electric and ComElectric. The net proceeds have
been classified as restricted cash on the accompanying Consolidated Balance
Sheets.
To complete its divestiture of generating assets, Boston Edison sold the Pilgrim
Nuclear Generating Station (Pilgrim) on July 13, 1999, for $81 million to
Entergy Nuclear Generating Company. As part of the sale, Boston Edison
transferred approximately $228 million in decommissioning funds to the
purchaser. The purchaser, by contract, will assume all future liability related
to the ultimate decommissioning of the plant. The difference between the total
proceeds from the sale and the net book value of the Pilgrim assets plus the net
amount to fully fund the decommissioning trust is included in regulatory assets
on the accompanying Consolidated Balance Sheets as such amounts are collected
from customers.
Securitization of Boston Edison's Transition Charge
On July 29, 1999, BEC Funding LLC, a wholly owned special-purpose subsidiary of
Boston Edison, closed the sale of $725 million of notes to a special purpose
trust created by two Massachusetts state agencies. The trust then concurrently
closed the sale on $725 million of electric rate reduction certificates as a
public offering. The certificates are secured by a portion of the transition
charge assessed on Boston Edison's retail customers as permitted under the
Massachusetts Electric Industry Restructuring Act and authorized by the MDTE.
These certificates are non-recourse to Boston Edison.
Retail Electric Rates
As a result of the Massachusetts Electric Restructuring Act, the regulated
retail electric subsidiaries of NSTAR currently provide their standard offer
customers service at inflation adjusted rates that are 15% lower than rates in
effect prior to March 1, 1998, the retail access date.
All distribution customers must pay a transition charge as a component of their
rate. The purpose of the transition charge is to allow for the collection of
generation-related costs that would not be collected in the competitive energy
supply market. The plant and regulatory asset balances that will be recovered
through the transition charge until 2009 were approved by the MDTE.
Massachusetts Electric Restructuring Act requires regulated utilities to obtain
and resell power to customers that choose not to buy energy from a competitive
energy supplier. This is referred to as "standard offer service." Standard offer
service will be available to customers through 2004 at prices approved by the
MDTE. NSTAR is currently evaluating proposals from a number of competitive
energy providers to assume full responsibility for providing customers with
standard offer service through 2004. The cost of providing standard offer
service, which includes purchased
19
<PAGE>
power costs, is recovered from customers on a fully reconciling basis. New
retail customers in the NSTAR electric service territory and previously existing
customers that are no longer eligible for the standard offer service and have
not chosen to receive service from a competitive supplier, are on "default
service." The price of default service is intended to reflect the average
competitive market price for power.
Under the restructuring settlement agreement, Boston Edison's distribution
business is subject to a minimum and maximum return on average common equity
(ROE). The ROE is subject to a floor of 6% and a ceiling of 11.75%. If the ROE
is below 6%, Boston Edison is authorized to add a surcharge to distribution
rates in order to achieve the 6% floor. If the ROE is above 11%, it is required
to adjust distribution rates by an amount necessary to reduce the calculated ROE
between 11% and 12.5% by 50%, and a return above 12.5% by 100%. No adjustment is
made if the ROE is between 6% and 11%. This rate mechanism expires on December
31, 2000. The cost of providing transmission service to all NSTAR distribution
customers is recovered on a fully reconciling basis.
Each NSTAR retail electric subsidiary filed proposed adjustments to their
standard offer and transition charges with the MDTE in November 1999. The MDTE
approved these proposed adjustments to be effective January 1, 2000. The MDTE
continues to examine NSTAR's cost recovery mechanism.
Natural Gas Industry Restructuring and Rates
In September 1997, ComGas along with other gas utilities initiated the
Massachusetts Gas Unbundling Collaborative (the Collaborative), to explore and
develop generic principles to achieve the MDTE's goals of establishing choice of
gas supplier for all customers (comprehensive unbundling).
In August 1998, the MDTE approved the unbundled rate settlement submitted by
ComGas, followed in September with compliance rates submitted by ComGas that
were consistent with a settlement agreement. These unbundled rates became
effective on November 1, 1998.
In February 1999, the MDTE determined that the capacity market in Massachusetts
was not yet workably competitive to allow it to remove traditional regulatory
controls that were designed to ensure the reliability of gas service to
customers. The MDTE further reaffirmed that the local distribution companies
(LDCs) must continue with their obligation to plan for and procure sufficient
upstream capacity.
Results of Operation - 1999 versus 1998
NSTAR's energy delivery businesses continue to be subject to traditional utility
accounting and rate making principles since NSTAR earns a regulated equity
return on its investments in those businesses.
Due to the application of the purchase method of accounting, the results for
1999 reflect 8 months of BEC and 4 months of NSTAR. Results for 1998 only
reflect BEC.
Basic and diluted earnings per common share were $2.77 and $2.76, respectively,
in 1999 compared to $2.76 and $2.75, respectively, in 1998, a 0.4% increase in
earnings as described below.
Operating Revenues
Operating revenues increased 14.1% from 1998 as follows:
20
<PAGE>
<TABLE>
<CAPTION>
(in thousands)
- --------------------------------------------------------------------------------
<S> <C>
Retail electric revenues $ 175,708
Wholesale electric revenues (33,480)
Electric short-term sales and other revenues (21,433)
Gas revenues 108,117
- --------------------------------------------------------------------------------
Increase in operating revenues $ 228,912
================================================================================
</TABLE>
Retail electric revenues were $1,550.8 million in 1999 compared to $1,375.1
million in 1998, an increase of $175.7 million or 13%. The change in 1999
reflects an increase of $163.3 million representing 4 months of revenues from
the former COM/Energy retail electric subsidiaries from the date of the merger.
Without the impact of the merger, retail revenues would have been $1,387.5
million in 1999, an increase from 1998 of $12.4 million or 1%. This change
reflects a 4.7% increase in retail kilowatt-hour (kWh) electric sales that is
partially offset by a decrease in retail revenues reflecting the impact of the
10% reduction in retail rates mandated by the Massachusetts Electric
Restructuring Law that was initially implemented in March 1998, and an
additional 5% rate reduction effective September 1, 1999.
Wholesale electric revenues were $108.5 million in 1999 compared to $142 million
in 1998, a decrease of $33.5 million or 24%. 1999 reflects an increase of $6.1
million representing 4 months of revenues from the former COM/Energy
subsidiaries from the date of the merger. Without the impact of the merger,
wholesale revenues would have been $102.4 million, a decrease from 1998 of $39.6
million or 28%. This decrease in wholesale revenues reflects a $37 million
decrease in sales to Pilgrim contract customers due to the scheduled 1999
refueling and maintenance outage and subsequent sale of the Pilgrim station in
July 1999.
Total electric short-term sales and other revenues were $84 million in 1999
compared to $105.4 million in 1998, a decrease of $21.4 million or 20%. 1999
reflects an increase of $31.4 million representing 4 months of revenues from the
former COM/Energy subsidiaries from the date of the merger. Without the impact
of the merger, short-term and other revenues would have been $52.6 million in
1999, a decrease from 1998 of $52.8 million or 50%. The decrease reflects $20
million of revenue received in 1998 as a result of support of standard offer
service by Boston Edison's fossil generating stations prior to divestiture. The
decline in short-term sales amounting to $35 million is consistent with the
decrease in short-term kWh sales. Under agreements with Select Energy, a
subsidiary of Northeast Utilities, NSTAR's retail electric subsidiaries are only
purchasing enough power to meet obligations to their retail and wholesale
customers. NSTAR has no excess power supply to sell into the New England Power
Pool.
Gas revenues were $108.1 million in 1999 representing 4 months of revenues from
ComGas from the date of the merger.
Operating Expenses
Fuel, purchased power and cost of gas sold expense was $794.7 million in 1999
compared to $567.8 million in 1998, an increase of $226.9 million or 40%. 1999
reflects an increase of $151.2 million representing 4 months of expenses from
the former COM/Energy subsidiaries from the date of the merger. Without the
impact of the merger, fuel, purchased power and cost of gas sold would have been
$643.5 million in 1999, an increase from 1998 of $75.7 million or 13%. Purchased
power expense increased $91 million reflecting the increase in Boston Edison's
purchased power requirements in the absence of its fossil generating units and
the 1999 Pilgrim refueling outage and sale. NSTAR's retail electric companies
adjust their electric rates to collect the costs related to fuel and purchased
power from customers on a fully reconciling basis. Boston Edison's fuel and
purchased power expense reflects a reduction of $56 million in 1999 and $128
million in 1998 related to these rate recovery mechanisms. Due to rate
adjustment mechanisms, changes in the
21
<PAGE>
amount of fuel and purchased power expense have no impact on earnings. The fuel
expense related to Boston Edison's fossil generation units decreased $66 million
reflecting the divestiture of those units in May 1999. Fuel expense related to
Pilgrim decreased $17 million due to the 1999 refueling outage and the sale of
the plant in July 1999.
Operations and maintenance expense was $353.8 million in 1999 compared to $382.4
million in 1998, a decrease of $28.6 million or 7%. 1999 reflects an increase of
$73.7 million representing 4 months of expenses from the former COM/Energy
subsidiaries from the date of the merger. Without the impact of the merger,
operations and maintenance expense would have been $280.1 million in 1999, a
decrease from 1998 of $102.3 million or 27%. This reflects a decrease of $70
million of nuclear power production expenses due to the deferral of costs
related to the 1999 refueling outage and the ultimate sale of the Pilgrim plant
in July 1999, and a decrease of $22 million in fossil-fuel related power
production expenses due to the fossil generation divestiture in May 1998. In
addition, 1999 reflects a decrease of $9 million in expenses reflecting the
discontinued operations of two unregulated subsidiaries.
Depreciation and amortization expense was $210.3 million in 1999 compared to
$195.6 million in 1998, an increase of $14.7 million or 8%. 1999 reflects an
increase of $18.7 million representing 4 months of expenses from the former
COM/Energy subsidiaries from the date of the merger. Without this impact,
depreciation and amortization would have been $191.6 million in 1999, a decrease
from 1998 of $4 million or 2%. This decrease reflects amortization of the gain
on the sale of the fossil plants that began in June 1998. These decreases are
partially offset by an increase of $8 million resulting from the amortization of
goodwill and costs to achieve related to the merger and an increase of $11
million reflecting a reduction in the carrying amount of nonutility property.
Demand side management (DSM) and renewable energy programs expense was $63.4
million in 1999 compared to $51.8 million in 1998, an increase of $11.6 million
or 22%. 1999 reflects an increase of $6 million representing 4 months of
expenses from the former COM/Energy subsidiaries from the date of the merger.
Without the impact of the merger, DSM and renewable energy programs expense
would have been $57.4 million, an increase from 1998 of $5.6 million or 11%. In
accordance with legislative and regulatory directives, these costs are collected
from customers on a fully reconciling basis.
Property and other taxes were $77.8 million in 1999 compared to $84.1 million in
1998, a decrease of $6.3 million or 7%. 1999 reflects an increase of $8.9
million representing 4 months of expenses from the former COM/Energy
subsidiaries from the date of the merger. Without the impact of the merger,
property and other taxes would have been $68.9 million, a decrease from 1998 of
$15.2 million or 18%. This decrease reflects a lower municipal property taxes
resulting from the divesture of the fossil and nuclear generating facilities.
Other Income (Expense), net
Other income, net of tax was $9 million in 1999 compared to other expense, net
of $11.8 million in 1998, a net increase in income of $20.8 million. Prior to
the consideration of tax benefits, other expense was $18.6 million in 1999
compared to $35.9 million in 1998. 1999 reflects an increase of $1.4 million
reflecting 4 months of expense from the former COM/Energy subsidiaries from the
date of the merger. Without the impact of the merger, other expense would have
been $17.2 million in 1999. NSTAR's equity loss in the RCN joint venture was
$16.2 million in 1999 compared to its total equity losses from both the RCN and
EnergyVision joint ventures in 1998 of $19.7 million. 1999 reflects $7 million
of non-recoverable expenses related to the
22
<PAGE>
Pilgrim plant divestiture. 1998 reflects $23.2 million of costs related to the
fossil plants divestiture. 1998 also reflects an additional $3.5 million of
costs related to discontinued operations of a Boston Energy Technology Group
(BETG) subsidiary, Coneco Corporation, and $2.6 million of costs associated with
opposition to the referendum that sought to repeal the Massachusetts Electric
Restructuring Act. These amounts are offset by $5.6 million of interest income
in 1999 compared to $7.6 million in 1998, a decrease of $2 million reflecting
the higher level of cash on hand in 1998 as a result of the proceeds from the
fossil plant divestiture. Other miscellaneous income was $0.4 million in 1999
compared to $5.5 million in 1998. Income tax benefits related to other
income/expense was $27.6 million in 1999 and $24.1 million in 1998. The income
tax benefit includes $20.8 million in 1999 and $10.9 million in 1998 related to
the recognition of previously deferred investment tax credits associated with
the Pilgrim nuclear plant divested in 1999 and the fossil generating stations
divested in 1998.
Interest Charges
Interest on long-term debt and transition property securitization certificates
was $104.6 million in 1999 compared to $83 million in 1998, an increase of $21.6
million or 26%. 1999 reflects an increase of $13 million representing 4 months
of expenses from the former COM/Energy subsidiaries from the date of the merger.
Without the impact of the merger, interest on long-term debt and transition
property securitization certificates was $91.6 million in 1999, an increase from
1998 of $8.6 million or 10%. The increase reflects approximately $20 million
related to securitization. This increase is partially offset by a reduction of
approximately $6 million due to the retirement of $19 million of 7.80%
debentures due March 15, 2023, $66 million, of 9.875% debentures and $91
million, of 9.375% debentures during the third quarter of 1999. The increase is
additionally offset by reductions of approximately $2 million due to the
maturity of $100 million, 5.95% debentures in March 1998 and the cessation of
amortization of the associated discounts and premiums, as well as, a reduction
of approximately $3 million due to the redemption of a $100 million 6.662% bank
loan in June 1998.
Interest on short-term and other debt was $23.8 million in 1999 compared to $8.8
million in 1998, an increase of $15 million or 170%. 1999 reflects an increase
of $9.2 million representing 4 months of expenses from the former COM/Energy
subsidiaries from the date of the merger. The remaining increase primarily
reflects increased borrowings from the revolving line of credit agreements to
finance shares repurchased in connection with the merger, the common share
repurchase program and investments in unregulated subsidiaries.
Preferred dividends of a subsidiary were $6 million in 1999 compared to $8.8
million in 1998, a decrease of $2.8 million or 32%. The decrease is due to the
redemption of 400,000 shares of 7.75% series cumulative preferred stock and the
remaining 320,000 shares of 7.27% series in July 1998. All of COM/Energy's
preferred stock was redeemed prior to the merger.
1998 versus 1997
Basic and diluted earnings per common share were $2.76 and $2.75, respectively,
in 1998 compared to $2.71 and $2.71, respectively, in 1997, a 1.8% increase in
basic earnings as described below. Results of 1998 and 1997 only reflect BEC.
23
<PAGE>
Operating Revenues
Operating revenues decreased 8.8% from 1997 as follows:
<TABLE>
<CAPTION>
(in thousands)
- --------------------------------------------------------------------------------
<S> <C>
Retail revenues $(148,272)
Wholesale revenues (3,721)
Electric short-term sales and other revenues (4,023)
- --------------------------------------------------------------------------------
Decrease in operating revenues $(156,016)
================================================================================
</TABLE>
Retail revenues were $1,375.1 million in 1998 compared to $1,523.4 million in
1997, a decrease of $148.3 million or 10%. Retail revenues reflected the impact
of the mandated 10% retail rate reduction. A 2% increase in retail kWh sales in
1998 partially offset the impact of the rate reduction. Retail revenues also
reflected a decrease due to the timing effect of fuel and purchased power cost
recovery. Prior to its cessation as of March 1, 1998, the fuel clause charge was
lower than the prior year as the 1997 charge reflected the recovery of
substantial prior year under-collections. Fuel clause revenues were offset by
fuel and purchased power expenses and, therefore, had no net effect on earnings.
Short-term sales and other revenues were $105.4 million in 1998 compared to
$109.4 million in 1997, a decrease of $4 million or 4%. Boston Edison
experienced a $20 million decrease in short-term power sales revenues consistent
with an 11% reduction in short-term kWh sales, primarily as a result of the
expiration of certain short-term sales contracts. The decrease had no net impact
on earnings as it was offset by a corresponding decrease in fuel and purchased
power expenses. Additional decreases included a $2 million decrease from Boston
Edison's Harbor Electric Energy Company subsidiary and a $2 million decrease
from BETG. These decreases were partially offset by the recognition of $20
million of revenue related to the support of standard offer service provided by
Boston Edison's fossil generating units prior to divestiture.
Operating Expenses
Fuel and purchased power expense was $567.8 million in 1998 compared to $679.1
million in 1997, a decrease of $111.3 million or 16%. Fuel expense related to
fossil generation units decreased approximately $161 million. This decrease
reflected the divestiture of those units in May 1998. Purchased power expense
increased approximately $94 million, an increase of 26%. This increase reflected
Boston Edison's purchased power requirements in the absence of its fossil
generating units. Prior to the retail access date, the fuel and purchased power
clause component of its electric rates allowed Boston Edison to adjust its rates
to fully collect fuel and purchased power costs. Since the retail access date,
Boston Edison adjusts its electric rates to collect the costs related to fuel
and purchased power from customers on a fully reconciling basis. Boston Edison's
fuel and purchased power expense reflects a reduction of $7 million in 1998 and
an increase of $37 million in 1997 related to these rate recovery mechanisms.
Due to the rate adjustment mechanisms, changes in the amount of fuel and
purchased power expense have no net impact on earnings.
Operations and maintenance expense was $382.4 million in 1998 compared to $423
million in 1997, a decrease of $40.6 million or 10%. The most significant
component of this decrease was a $28 million decrease in power production
expenses primarily due to the fossil plant divestiture in May 1998. Employee
benefit expenses decreased by approximately $24 million due to lower pension and
other postretirement benefit costs. These favorable impacts were partially
offset by a $4 million increase in general and administrative expenses primarily
due to spending related to electric industry restructuring and the year 2000
computer issue and a $7 million increase in expenses related to parent company
costs and unregulated ventures.
Depreciation and amortization expense was $195.6 million in 1998 compared to
$189.5 million in 1997, an increase of $6.1 million or 3%. Depreciation on
24
<PAGE>
distribution utility plant increased approximately $10 million, as Boston Edison
was required to increase this depreciation under the terms of its settlement
agreement. This increase was partially offset by an $8.7 million nonrecurring
charge recorded in 1997 to reflect the removal of specific nuclear-related
intangible assets from the Consolidated Balance Sheets. These intangible assets
related to costs incurred for plant design and safety studies and were
superceded by updated studies.
DSM and renewable energy programs expense was $51.8 million in 1998 compared to
$29.8 million in 1997, an increase of $22 million or 74%. This higher expense
reflects an increase in the required spending for DSM programs in 1998. In
addition, the renewable energy programs expense of $8 million in 1998 was the
result of a new state mandate for the funding of renewable energy that became
effective March 1, 1998. These costs are collected from customers on a fully
reconciling basis.
Property and other taxes were $84.1 million in 1998 compared to $106.4 million
in 1997, a decrease of $22.3 million or 21%. The decrease was due to a reduction
in municipal property taxes resulting from the divestiture of the fossil plants
assets.
Operating income taxes were $97.8 million in 1998 compared to $93.7 million in
1997, an increase of $4.1 million or 4%. The increase in operating income taxes
was primarily the result of a $4 million reduction in investment tax credit
amortization due to the divestiture of the fossil generating assets and
non-deductible expenses incurred at BETG.
Other Income (Expense), net
Other expense, net of tax was $11.8 million in 1998 compared to $6.4 million in
1997, an increase of $5.4 million or 84%. Prior to the consideration of tax
benefits, other expenses were $35.9 million in 1998 compared to $17.7 million in
1997, an increase of $18.2 million. BETG's equity losses in the RCN and
EnergyVision joint ventures were $19.7 million in 1998 compared to $9.2 million
in 1997. The $10.5 million increase was primarily due to RCN which began
operations in the second quarter of 1997. 1998 also reflects $23.2 million of
costs related to the fossil divestiture that is offset by the recognition of
investment tax credits disclosed below, $3.5 million related to discontinued
operations of BETG's subsidiary, Coneco Corporation and $2.6 million of costs
associated with the referendum that sought to repeal the Massachusetts Electric
Restructuring Act. These negative amounts are offset in 1998 by $7.6 million of
interest income due to levels of cash on hand as a result of the proceeds from
the fossil plant divestiture. In addition, 1997 results reflect a charge of
$12.9 million from a nuclear asset impairment. Offsetting the negative impacts
in 1997 was $5 million of interest income received related to the favorable
outcome of an IRS audit. Other miscellaneous income was $5.5 million in 1998 and
other miscellaneous expense was $0.6 million in 1997. Income tax benefits
related to other expenses were $24.1 million in 1998 and $11.3 million in 1997.
The 1998 income tax benefit included $10.9 million related to the recognition of
previously deferred investment tax credits associated with the fossil generating
stations.
Interest Charges
Interest charges on long-term debt were $83 million in 1998 compared to $92.5
million in 1997, a decrease of $9.5 million or 10%. The decrease reflects $6
million due to the maturing of $100 million of 5.95% debentures in March 1998
and the cessation of amortization of the associated redemption premiums as well
as, $2 million due to the redemption of a $100 million, 6.662% bank loan in June
1998.
25
<PAGE>
Short-term interest charges were $8.8 million in 1998 compared to $14.6 million
in 1997, a decrease of $5.8 million or 40%. Approximately $7 million of the
decrease is due to the redemption of Boston Edison's outstanding short-term debt
with proceeds from the fossil divestiture. This was partially offset by $1
million in interest charges from BEC's line of credit entered into in 1998.
Preferred Stock Dividends
Preferred stock dividends were $8.8 million in 1998 compared to $13.1 million in
1997, a decrease of $4.3 million or 33%. Preferred stock dividends decreased $1
million as a result of Boston Edison's redemption of 40,000 shares of 7.27%
series cumulative preferred stock in May 1998 and 1997 and the remaining 320,000
shares in July 1998. An additional $3 million decrease was due to the redemption
of 400,000 shares of 7.75% series cumulative preferred stock in July 1998 and
400,000 shares of 8.25% series in June 1997.
Retail Electric Sales and Revenues
Retail kWh sales increased 18% in 1999. This increase includes an increase of
12% representing 4 months of former COM/Energy subsidiaries from the date of the
merger. Without the impact of the merger, 1999 kWh sales would have increased 5%
from 1998. This increase in retail kWh sales is primarily due to weather
conditions that favored electric sales as well as a continued strong local
economy and an increase in the average number of customers. The commercial
sector represents approximately 50% of electric operating revenues. The
commercial sales increase reflects a 2% increase in the Massachusetts employment
rate and increased hotel occupancy rates in the Boston area.
Total kWh sales increased 2.3% in 1998. The 2% increase in 1998 retail kWh sales
was primarily due to the positive impact of a continued strong local economy on
commercial customers. The Boston area commercial office vacancy rate was at a 17
year low. In addition, the Massachusetts employment rate increased 2.8% over
1997. These positive impacts associated with the economic conditions along with
warmer than normal summer weather was partially offset by the mild winter
weather conditions in the first quarter of 1998.
Gas Sales and Revenue
ComGas generates revenues primarily through the sale and transportation of
natural gas. Gas sales are divided into two categories; firm, whereby ComGas
must supply gas or gas transportation services to customers on demand; and
interruptible, whereby ComGas may, generally during colder months, temporarily
discontinue service to high volume commercial and industrial customers. Sales of
gas to interruptible customers do not materially affect ComGas' operating income
because substantially all margin on such sales is returned to its firm
customers.
ComGas' tariffs include a seasonal Cost of Gas Adjustment Clause (CGAC) and a
Local Distribution Adjustment Clause (LDAC) that provide for the recovery, from
firm customers or default service customers, of certain costs previously
recovered through base rates. The CGAC provides for rates that must be approved
semi-annually by the MDTE. The LDAC provides for rates that require annual
approval.
ComGas' sales are positively impacted by colder weather because the majority
of customers use natural gas for space heating purposes.
Of ComGas' 1999 firm gas unit sales, 64.1% was sold to residential customers,
27.4% to commercial customers, 4.2% to industrial customers and 4.3% to other
customers.
26
<PAGE>
Liquidity and Capital Resources
During 1999, 1998 and 1997 internal generation of cash provided 174%, 97% and
211%, respectively, of plant expenditures. Internally generated funds
consist of cash flows from operating activities, adjusted to exclude changes in
working capital and the payment of dividends. NSTAR companies supplement
internally generated funds as needed, primarily through the issuance of
short-term commercial paper and bank borrowings.
The capital spending level forecasted for 2000 is $347 million, which includes
amounts for utility plant and the capital requirements of nonutility ventures.
The capital spending level over the next four years is forecasted to be
approximately $673 million. In addition to capital expenditures, long-term debt
principal (including securitized debt) and preferred stock payment requirements
will be approximately $251 million in 2000, $123 million in 2001, $109 million
in 2002, $241 million in 2003 and $79 million in 2004.
In February 2000, NSTAR issued $300 million of long-term debt that was used to
reduce short-term borrowings. NSTAR has a $450 million revolving credit
agreement with a group of banks effective through November 2002. As of December
31, 1999, $350 million of short-term debt was outstanding under this credit
agreement. The purpose of this agreement is to provide financing for general
corporate purposes, to fund the common share repurchase program and for funding
NSTAR's unregulated subsidiary ventures.
In April 1998, Boston Edison announced a common share repurchase program under
which it would repurchase up to four million of its common shares. NSTAR assumed
this program effective as of the merger date. In October 1999, this program was
completed by NSTAR. Four million shares were repurchased at a total cost of
approximately $157 million. NSTAR subsequently announced a new $300 million
common share repurchase program. Under both programs, shares are repurchased
through open market, block or privately-negotiated transactions, or a
combination. The timing and actual number of shares repurchased will be impacted
by market conditions.
Boston Edison has authority from the Federal Energy Regulatory Commission (FERC)
to issue up to $350 million of short-term debt. Boston Edison has a $200 million
revolving credit agreement with a group of banks that serve as backup to Boston
Edison's $200 million commercial paper program. Boston Edison had no short-term
debt outstanding as of December 31, 1999.
The former subsidiaries of COM/Energy have $147 million available under several
lines of credit. Approximately $108 million was outstanding under these lines of
credit as of December 31, 1999.
In July 1999, BEC Funding LLC, a wholly owned special-purpose subsidiary (SPS)
of Boston Edison, closed the sale of $725 million of notes to a special purpose
trust created by two Massachusetts state agencies. The trust then concurrently
closed the sale on $725 million of electric rate reduction certificates to the
public. The certificates held by BEC Funding are secured by a portion of the
transition charge assessed to Boston Edison's retail customers as permitted
under the Massachusetts Electric Restructuring Act and authorized by the MDTE.
The certificates were issued in five separate classes with variable payment
periods ranging from approximately one to ten years and bearing fixed interest
rates ranging from 5.99% to 7.03%. The certificates are non-recourse to Boston
Edison. Net proceeds ($719 million received by Boston Edison from BEC Funding)
were utilized to finance a portion of the stranded costs that are being
collected from customers under Boston Edison's restructuring settlement
agreement. Boston Edison will collect a portion of the transition charge on
behalf of BEC Funding and remit
27
<PAGE>
the proceeds to the SPS. Boston Edison used a portion of the proceeds received
from the financing to fund a portion of the nuclear decommissioning fund
transferred to Entergy Nuclear Generating Company as part of the sale of the
Pilgrim generating station. Boston Edison used the remaining proceeds to reduce
capitalization and for general corporate purposes.
NSTAR's goal is to maintain a capital structure that preserves an appropriate
balance between debt and equity. Management believes its liquidity and capital
resources are sufficient to meet its current and projected requirements.
Refer to the Consolidated Financial Statements for more information regarding
the NSTAR companies' current financing activities.
Year 2000
NSTAR's mission critical systems and other important business systems were
considered ready for the year 2000 prior to December 31, 1999. The North
American Electric Reliability Council defined mission critical systems as those
whose mis-operation could result in loss of electric generation, transmission or
load interruption. To date, NSTAR has not experienced any significant year 2000
problems. NSTAR will continue to monitor systems in order to address any
potential continuing risk of non-compliant internal business software, internal
non-business software and embedded chip technology and external noncompliance of
third parties.
Under its year 2000 program NSTAR inventoried mission critical systems that were
date-sensitive and that used embedded technology such as micro-controllers or
microprocessors. Approximately 27% and 20% of BEC's and COM/Energy's systems,
respectively, required modification or replacement.
NSTAR also inventoried important business systems that were date-sensitive and
determined that approximately one-third of BEC's systems and approximately 90%
of COM/Energy's systems needed modification or replacement. Plans were developed
and implemented to correct and test all affected systems, with priorities based
on the importance of the supported activity. As systems were remediated, they
were tested for operational and year 2000 readiness in their own environment.
After implementation, the systems were then tested for their integration and
compatibility with other interactive systems.
In addition, all non-critical internal productivity systems were inventoried and
assessed as part of the year 2000 program. Approximately one-third of BEC's
systems and approximately 90% of COM/Energy's systems required modification or
replacement. All of these systems were declared ready by September 30, 1999.
Costs incurred to upgrade or remediate systems have been expensed as incurred.
In addition, a decision was made to replace some of the less efficient
centralized business systems. Systems replacement costs are being capitalized
and amortized over future periods. NSTAR has expended a total of approximately
$39 million on this project through December 31, 1999.
In addition to its internal efforts, BEC and COM/Energy initiated formal
communications with their significant suppliers, service providers and other
vendors to determine the extent to which they may be vulnerable to these
parties' failure to correct their own year 2000 issues. To date, NSTAR has not
experienced any significant year 2000 problems associated with its reliance on
third parties.
NSTAR's year 2000 program included contingency plans. If required, these plans
were intended to address both internal risks as well as potential
28
<PAGE>
external risks related to vendors, customers and energy suppliers. Plans were
developed in conjunction with available national and regional guidance and were
based on system emergency plans that were developed and successfully tested over
the past several years. Included within its contingency plans were procedures
for the procurement of short-term power supplies and emergency distribution
system restoration procedures. In the event that a problem arises in 2000
(or beyond), these contingency plans would become effective in order to
remediate the problem.
Joint Venture with RCN Telecom Services, Inc. of Massachusetts
In 1997 BETG, a subsidiary of NSTAR, entered into a joint venture agreement
with RCN Telecom Services, Inc. of Massachusetts (RCN) establishing a limited
liability company (LLC) to compete directly with local and long-distance
telephone, video and internet access companies for telecommunications-related
services.
BETG is responsible under the original joint venture agreement for 49% of the
capital requirements of the LLC, while RCN is responsible for 51% and maintains
the day-to-day management. BETG follows the equity method of accounting for its
interest in the LLC. As part of the joint venture agreement, BETG has the option
to exchange portions of its joint venture interest for shares of RCN common
stock. In January 1998, BETG exercised its option to convert a portion of its
interest at a cost of $11 million. As a result of the conversion, BETG received
approximately 1.1 million shares of RCN common stock during the first quarter of
1999. In May 1999, BETG exercised its option to convert an additional portion of
its interest with a book value of approximately $90 million for additional RCN
common stock. On January 24, 2000, BETG received notification that it would
receive approximately 3 million shares of RCN common stock as a result of this
latest conversion. To date, BETG has converted a portion of its joint venture
interest with a book value of approximately $101 million in return for
approximately 4.1 million RCN common shares with a fair value of approximately
$270 million (based on the January 24, 2000 closing price).
Other Matters
Environmental
Various subsidiaries of NSTAR are involved in approximately 30 properties where
oil or other hazardous materials were spilled or released. As such, the
companies are required to clean up these remaining properties in accordance with
a timetable developed by the Massachusetts Department of Environmental
Protection. There are uncertainties associated with these costs due to the
complexities of cleanup technology, regulatory requirements and the particular
characteristics of the different sites. NSTAR subsidiaries also face possible
liability as a potentially responsible party (PRP) in the cleanup of six
multi-party hazardous waste sites in Massachusetts and other states where it is
alleged to have generated, transported or disposed of hazardous waste at the
sites. NSTAR currently expects to have only a small percentage of the total
potential liability for these sites. Through December 31, 1999, NSTAR had
approximately $6.6 million accrued on its Consolidated Balance Sheets related to
these cleanup liabilities. Management is unable to fully determine a range of
reasonably possible cleanup costs in excess of the accrued amount. Based on
preliminary assessments of the specific site circumstances, management does not
believe that it is probable that any such additional costs will have a material
impact on NSTAR's consolidated financial position. However, it is reasonably
possible that additional provisions for cleanup costs that may result from a
change in estimates could have a material impact on the results of a reporting
period in the near term.
29
<PAGE>
Uncertainties continue to exist with respect to the disposal of both spent
nuclear fuel and low-level radioactive waste resulting from the operation of
nuclear generating facilities. The United States Department of Energy (DOE) is
responsible for the ultimate disposal of spent nuclear fuel. However,
uncertainties regarding the DOE's schedule of acceptance of spent fuel for
disposal continue to exist. Under the purchase and sale agreement with Entergy,
the buyer will assume full liability and responsibility for decommissioning and
waste disposal at Pilgrim Station.
Public concern continues regarding electromagnetic fields (EMF) associated with
electric transmission and distribution facilities and appliances and wiring in
buildings and homes. Such concerns have included the possibility of adverse
health effects caused by EMF as well as perceived effects on property values.
NSTAR continues to support research into the subject and participates in the
funding of industry-sponsored studies. It is aware that public concern regarding
EMF in some cases has resulted in litigation, in opposition to existing or
proposed facilities in proceedings before regulators or in requests for
legislation or regulatory standards concerning EMF levels. It has addressed
issues relative to EMF in various legal and regulatory proceedings and in
discussions with customers and other concerned persons; however, to date it has
not been significantly affected by these developments. NSTAR continues to
monitor all aspects of the EMF issue.
ComGas is participating in the assessment of a number of former manufactured gas
plant (MGP) sites and alleged MGP waste disposal locations to determine if and
to what extent such sites have been contaminated and whether ComGas may be
responsible for remedial action. As of December 31, 1999, ComGas has recorded a
liability and corresponding regulatory asset amounting to $2.2 million as an
estimate for site cleanup costs for several MGP sites for which ComGas was
previously cited. The MDTE has approved recovery of costs associated with MGP
sites.
Estimates related to environmental remediation costs are reviewed and adjusted
periodically as further investigation and assignment of responsibility occurs.
NSTAR is unable to estimate its ultimate liability for future environmental
remediation costs. However, in view of NSTAR's current assessment of its
environmental responsibilities, existing legal requirements and regulatory
policies, management does not believe that these matters will have a material
adverse effect on NSTAR's financial position or results of operations for a
reporting period.
Industry and corporate restructuring legal proceedings
The MDTE order approving the Boston Edison settlement agreement was appealed by
certain parties to the Massachusetts Supreme Judicial Court. One settlement
agreement appeal remains pending. However, there has to date been no briefing,
hearing or other action taken with respect to this proceeding.
In addition, along with other Massachusetts investor-owned utilities, NSTAR
subsidiaries have been named as defendants in a class action suit seeking to
declare certain provisions of the Massachusetts electric industry restructuring
legislation unconstitutional.
Management is currently unable to determine the outcome of these outstanding
proceedings; however, if an unfavorable outcome were to occur, there could be a
material adverse impact on business operations, the consolidated financial
position or results of operations for a reporting period.
Regulatory proceedings
In October 1997, the MDTE opened a proceeding to investigate Boston Edison's
compliance with the 1993 order that permitted the formation of BETG and
30
<PAGE>
authorized Boston Edison to invest up to $45 million in unregulated activities.
Hearings were completed in 1999.
Management is currently unable to determine the outcome of these proceedings.
However, if an unfavorable outcome were to occur, there could be a material
adverse impact on business operations, the consolidated financial position or
results of operations for a reporting period.
Other litigation
In October 1998, the town of Plymouth, Massachusetts, the site of Pilgrim
Station, filed suit against Boston Edison. The town claimed that Boston Edison
had wrongfully failed to execute an agreement with the town for payments in
addition to taxes due to the town under the Massachusetts Electric Restructuring
Act. Boston Edison and the town settled the suit by agreeing on a 15-year $141
million property tax package in March 1999. Payments in each of the first four
years are approximately $15 million after which payments gradually decline. All
payments under this agreement will be recovered from customers through the
transition charge.
In the normal course of its business NSTAR and its subsidiaries are also
involved in certain other legal matters. Management is unable to fully determine
a range of reasonably possible legal costs in excess of amounts accrued. Based
on the information currently available, it does not believe that it is probable
that any such additional costs will have a material impact on its consolidated
financial position. However, it is reasonably possible that additional legal
costs that may result from a change in estimates could have a material impact on
the results of a reporting period.
Employees
As of December 31, 1999, NSTAR's subsidiaries had approximately 3,400 full-time
employees, including approximately 2,300 (68%) employees represented by various
collective bargaining units covered by separate contracts. The contracts with
two union locals, representing approximately 1,300 employees of the Utility
Workers Union of America, AFL-CIO, terminate on May 15, 2000. Other collective
bargaining units' contracts expire at various dates through April 2003.
Management believes it has satisfactory employee relations.
Interest rate risk
NSTAR is exposed to changes in interest rates. Carrying amounts and fair values
of mandatory redeemable cumulative preferred stock, and indebtedness (excluding
notes payable) as of December 31, 1999, was as follows:
<TABLE>
<CAPTION>
Weighted
Carrying Fair Average
(in thousands) Amount Value Interest Rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Mandatory redeemable cumulative
preferred stock $ 49,279 $ 52,250 8.0%
Indebtedness 1,854,794 $1,842,373 7.25%
</TABLE>
31
<PAGE>
New Accounting Principles
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts possibly including
fixed-price fuel supply and power contracts) be recorded on the Consolidated
Balance Sheets as either an asset or liability measured at its fair value, SFAS
133, as amended by SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the effective Date of FASB Statement No 133", is
Effective for fiscal years beginning after June 15, 2000 (January 1, 2001 for
calendar year companies). Initial application shall be as of the beginning of an
entity's fiscal quarter.
NSTAR will adopt SFAS 133 as of January 1, 2001. The impact of adoption cannot
be currently estimated and will be dependent upon the value, nature and purpose
of the derivative instruments held, if any, as of January 1, 2001.
Safe harbor cautionary statement
NSTAR occasionally makes forward-looking statements such as forecasts and
projections of expected future performance or statements of its plans and
objectives. These forward-looking statements may be contained in filings with
the Securities and Exchange Commission (SEC), press releases and oral
statements. Actual results could potentially differ materially from these
statements. Therefore, no assurances can be given that the outcomes stated in
such forward-looking statements and estimates will be achieved.
The preceding sections include certain forward-looking statements about
operating results, year 2000 and environmental and legal issues.
The impacts of continued cost control procedures on operating results could
differ from current expectations. The effects of changes in economic conditions,
tax rates, interest rates, technology and the prices and availability of
operating supplies could materially affect the projected operating results.
The timing and total costs related to the year 2000 plan could differ from
current expectations. Factors that may cause such differences include the
ability to locate and correct all relevant computer codes and the availability
of personnel trained in this area. In addition, NSTAR cannot predict the nature
or impact on operations of third party noncompliance.
The impacts of various environmental and legal issues could differ from current
expectations. New regulations or changes to existing regulations could impose
additional operating requirements or liabilities other than expected. The
effects of changes in specific hazardous waste site conditions and cleanup
technology could affect the estimated cleanup liabilities. The impacts of
changes in available information and circumstances regarding legal issues could
affect the estimated litigation costs.
32
<PAGE>
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Although NSTAR has material commodity purchase contracts and financial
instruments (debt), these instruments are not subject market risk. NSTAR's
electric and gas distribution subsidiaries have rate making mechanisms which
allow for the recovery of fuel costs from customers. The fuel adjustment
mechanisms allow NSTAR's subsidiaries to pass all costs related to the purchase
of commodities to the customer, thereby insulating NSTAR from market risk.
Similarly, any change in the fair market value of NSTAR's prudently incurred
debt obligations realized by NSTAR would be borne by customers through future
rates.
33
<PAGE>
Item 8. Financial Statements and Supplementary Financial Information
<TABLE>
<CAPTION>
Consolidated Statements of Income
years ended December 31,
(in thousands, except earnings per share) 1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $1,851,427 $1,622,515 $1,778,531
- -------------------------------------------------------------------------------------
Operating expenses:
Fuel, purchased power 794,748 567,806 679,131
and cost of gas sold
Operations and maintenance 353,768 382,434 423,040
Depreciation and amortization 210,306 195,607 189,489
Demand side management and
renewable energy programs 63,425 51,839 29,790
Taxes-property and other 77,761 84,091 106,428
Income taxes 87,721 97,798 93,709
- -------------------------------------------------------------------------------------
Total operating expenses 1,587,729 1,379,575 1,521,587
- -------------------------------------------------------------------------------------
Operating income 263,698 242,940 256,944
Other income (expense), net 8,965 (11,811) (6,392)
- -------------------------------------------------------------------------------------
Operating and other income 272,663 231,129 250,552
- -------------------------------------------------------------------------------------
Interest charges:
Long-term debt 84,196 82,951 92,489
Transition property securitization
certificates 20,408 0 0
Other 23,760 8,800 14,610
Allowance for borrowed funds used
during construction (AFUDC) (2,164) (1,668) (1,189)
- -------------------------------------------------------------------------------------
Total interest charges 126,200 90,083 105,910
- -------------------------------------------------------------------------------------
Net income 146,463 141,046 144,642
Preferred stock dividends of subsidiary 5,960 8,765 13,149
- -------------------------------------------------------------------------------------
Earnings available for common
shareholders $ 140,503 $ 132,281 $ 131,493
=====================================================================================
Weighted average common shares outstanding:
Basic 50,796 47,973 48,515
Diluted 50,921 48,149 48,562
Earnings per common share:
Basic $ 2.77 $ 2.76 $ 2.71
Diluted $ 2.76 $ 2.75 $ 2.71
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
Consolidated Statements of Comprehensive Income
years ended December 31,
(in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 146,463 $ 141,046 $ 144,642
Other comprehensive income, net:
Unrealized gain on investments 20,115 0 0
Comprehensive income $ 166,578 $ 141,046 $ 144,642
=====================================================================================
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Retained Earnings
years ended December 31,
(in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at the beginning of the year $ 360,509 $ 328,802 $ 292,191
Net income 146,463 141,046 144,642
- ------------------------------------------------------------------------------------
Subtotal 506,972 469,848 436,833
- ------------------------------------------------------------------------------------
Dividends declared:
Common shares 103,099 90,610 91,208
Preferred stock 5,960 8,765 13,149
- ------------------------------------------------------------------------------------
Subtotal 109,059 99,375 104,357
- ------------------------------------------------------------------------------------
Provision for preferred stock
redemption and issuance costs (a) 239 7,833 3,674
Common share repurchase program 7,685 2,131 0
- ------------------------------------------------------------------------------------
Balance at the end of the year $ 389,989 $ 360,509 $ 328,802
====================================================================================
</TABLE>
(a) Refer to Note A. to the Consolidated Financial Statements.
The accompanying notes are an integral part of the consolidated financial
statements.
35
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31,
(in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Utility plant in service, at
original cost $3,787,295 $2,720,681
Less: accumulated depreciation 1,303,893 $2,483,402 926,020 $1,794,661
- -----------------------------------------------------------------------------------------------------------------
Construction work in progress 67,217 40,965
- -----------------------------------------------------------------------------------------------------------------
Net utility plant 2,550,619 1,835,626
Nonutility property 115,270 21,565
Goodwill 485,990 0
Nuclear decommissioning trust 3,885 172,908
Equity investments 173,290 84,770
Other investments 66,057 30,206
Current assets:
Cash and cash equivalents 168,599 89,126
Restricted cash 147,941 0
Accounts receivable, net of
allowance of $22,699 and $9,066
in 1999 and 1998, respectively 392,702 202,275
Accrued unbilled revenues 34,013 14,322
Fuel, materials and supplies,
at average cost 48,756 10,731
Prepaid expenses and other 251,222 1,043,233 92,405 408,859
- -----------------------------------------------------------------------------------------------------------------
Deferred debits:
Regulatory assets 879,547 623,187
Other 164,997 26,915
- -----------------------------------------------------------------------------------------------------------------
Total assets $5,482,888 $3,204,036
=================================================================================================================
Capitalization and Liabilities
Common equity $1,523,532 $1,051,898
Accumulated other comprehensive income, net 20,115 0
Cumulative preferred stock of subsidiary 92,279 92,040
Long-term debt 986,843 955,563
Transition property securitization
certificates 646,559 0
Current liabilities:
Long-term debt
due within one year $ 170,470 $ 667
Transition property securitization
certificates, due within one year 50,922 0
Notes payable 458,000 78,000
Accounts payable 193,937 100,331
Accrued interest 21,830 20,516
Dividends payable 29,871 23,878
Other 271,191 1,196,221 183,664 407,056
- -----------------------------------------------------------------------------------------------------------------
Deferred credits:
Accumulated deferred income taxes 608,587 348,557
Accumulated deferred investment
tax credits 41,946 45,930
Nuclear decommissioning liability 0 176,578
Power contracts 100,741 58,415
Other 266,065 67,999
Commitments and contingencies
- -----------------------------------------------------------------------------------------------------------------
Total capitalization and liabilities $5,482,888 $3,204,036
=================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
36
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
years ended December 31,
(in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 146,463 $ 141,046 $ 144,642
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 212,880 229,668 223,529
Deferred income taxes and investment tax
credits 88,174 (152,798) (21,664)
Allowance for borrowed funds used during
construction (2,164) (1,668) (1,189)
Power contract buy out (65,781) 0 0
Net changes (net of effect of acquisition) in:
Accounts receivable and accrued
unbilled revenues (96,909) 20,544 45,678
Fuel, materials and supplies, at average cost (2,192) 29,565 (5,486)
Accounts payable 19,469 13,316 (47,068)
Other current assets and liabilities (87,032) (33,535) 25,428
Other, net (29,548) 18,851 (4,640)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 183,360 264,989 359,230
- -----------------------------------------------------------------------------------------------------------
Investing activities:
Plant expenditures (excluding AFUDC) (159,295) (120,202) (114,110)
Costs of nuclear divestiture, net (87,248) 0 0
Proceeds from sale of fossil generating assets 0 533,633 0
Nuclear fuel expenditures (16,117) (26,182) (4,089)
Investments (82,403) (81,589) (27,689)
Payment for cost of acquisition,
net of cash acquired (296,262) 0 0
- -----------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (641,325) 305,660 (145,888)
- -----------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from transition property securitization 725,000 0 0
Issuances/(repurchases):
Common shares (189,715) (53,285) 144
Long-term debt 20,000 0 100,000
Redemptions:
Preferred stock 0 (71,519) (44,000)
Long-term debt (255,361) (201,600) (101,600)
Net change in notes payable 340,550 (59,013) (64,441)
Dividends paid (103,036) (100,246) (104,956)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 537,438 (485,663) (214,853)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 79,473 84,986 (1,511)
Cash and cash equivalents at the
beginning of the year 89,126 4,140 5,651
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $ 168,599 $ 89,126 $ 4,140
===========================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized $ 125,840 $ 89,720 $ 100,795
Income taxes $ 36,092 $ 230,260 $ 99,326
Supplemental disclosure of investing activity:
Common shares issued for
Acquisition of COM/Energy 20,251 0 0
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
37
<PAGE>
Notes to Consolidated Financial Statements
Note A. Summary of Significant Accounting Policies
1. General Information
On August 25, 1999, BEC Energy (BEC) and Commonwealth Energy System (COM/Energy)
completed a merger to create a new holding company, NSTAR, an energy delivery
company serving approximately 1.3 million customers in Massachusetts including
more than one million electric customers in 81 communities and 240,000 gas
customers in 51 communities. NSTAR also supplies electricity at wholesale for
resale to municipalities. NSTAR is an exempt public utility holding company
under the provisions of the Public Utility Holding Company Act of 1935. NSTAR's
utility subsidiaries include Boston Edison Company, Commonwealth Electric
Company, Cambridge Electric Light Company, Canal Electric Company and
Commonwealth Gas Company. NSTAR's non-utility operations include
telecommunications, district heating and cooling operations and liquefied
natural gas services.
NSTAR is focusing its utility operations on the transmission and distribution of
energy. This is illustrated by the sale of the majority of NSTAR's subsidiaries
fossil generating assets and the Pilgrim Nuclear Power Station.
2. Basis of Consolidation and Accounting
The accompanying consolidated financial statements reflect the results of
operations, comprehensive income and cash flows of NSTAR and its subsidiaries.
All significant inter-company transactions have been eliminated. Certain
reclassifications have been made to the prior year data to conform with the
current presentation.
NSTAR's utility subsidiaries follow accounting policies prescribed by the
Federal Energy Regulatory Commission (FERC) and the Massachusetts Department of
Telecommunications and Energy (MDTE). In addition, NSTAR and its subsidiaries
are subject to the accounting and reporting requirements of the Securities and
Exchange Commission (SEC). The accompanying consolidated financial statements
conform with Generally Accepted Accounting Principles (GAAP). The rate-regulated
subsidiaries are subject to Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (SFAS 71). The
application of SFAS 71 results in differences in the timing of recognition of
certain expenses from that of other businesses and industries. The distribution
business remains subject to rate-regulation and continues to meet the criteria
for application of SFAS 71. Refer to Note E to these Consolidated Financial
Statements for more information on the accounting implications of the electric
utility industry restructuring.
The preparation of financial statements in conformity with GAAP requires NSTAR
and its subsidiaries to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
38
<PAGE>
3. Revenues
Estimates of transmission and distribution revenues for electricity and natural
gas used by customers but not yet billed are recorded at the end of each
accounting period.
4. Utility Plant
Utility plant is stated at original cost of construction. The costs of
replacements of property units are capitalized. Maintenance and repairs and
replacements of minor items are expensed as incurred. The original cost of
property retired, net of salvage value, and the related costs of removal are
charged to accumulated depreciation.
5. Depreciation
Depreciation of utility plant is computed on a straight-line basis using
composite rates based on the estimated useful lives of the various classes of
property. The overall composite depreciation rates were 3.31%, 3.28% and 3.30%
in 1999, 1998 and 1997, respectively. Depreciation of nonutility property is
computed on a straight-line basis over the estimated life of the asset.
6. Costs Associated with Issuance and Redemption of Debt and Preferred Stock
Consistent with the recovery in utility rates, discounts, redemption premiums
and related costs associated with the issuance and redemption of long-term debt
and preferred stock are deferred. The costs related to long-term debt are
recognized as an addition to interest expense over the life of the original or
replacement debt. Consistent with an accounting order received from the FERC,
costs related to preferred stock issuances and redemptions are reflected as a
direct reduction to retained earnings upon redemption or over the average life
of the replacement preferred stock series as applicable.
7. Allowance for Borrowed Funds Used During Construction (AFUDC)
AFUDC represents the estimated costs to finance utility plant construction. In
accordance with regulatory accounting, AFUDC is included as a cost of utility
plant and a reduction of current interest charges. Although AFUDC is not a
current source of cash income, the costs are recovered from customers over the
service life of the related plant in the form of increased revenues collected as
a result of higher depreciation expense. Average AFUDC rates in 1999, 1998 and
1997 were 5.82%, 5.88% and 6.04%, respectively, and represented only the cost of
short-term debt.
8. Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid securities with
maturities of 90 days or less when purchased. Restricted cash represents the net
proceeds from the sale of Canal Electric Company's generation assets that are
being used to reduce the transition costs that otherwise would be billed to
customers.
9. Equity Method of Accounting
NSTAR uses the equity method of accounting for investments in corporate joint
ventures in which it does not have a controlling interest. Under this
39
<PAGE>
method, it records as income or loss the proportionate share of the net earnings
or losses of the joint ventures with a corresponding increase or decrease in the
carrying value of the investment. The investment is reduced as cash dividends
are received.
10. Regulatory Assets
Regulatory assets represent costs incurred that are expected to be collected
from customers through future charges in accordance with agreements with
regulators. These costs are expensed when the corresponding revenues are
received in order to appropriately match revenues and expenses.
Regulatory assets consist of the following:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Generation-related regulatory assets, net $559,446 $477,317
Power contracts 96,911 58,415
Income taxes, net 65,867 52,168
Merger costs 79,681 0
Redemption premiums 16,014 23,419
Postretirement benefits costs and pension 25,164 8,769
Other 36,464 3,099
- --------------------------------------------------------------------------------
$879,547 $623,187
================================================================================
</TABLE>
11. Amortization of Goodwill and Costs to Achieve
Goodwill and costs to achieve related to the merger discussed in Note B are
being amortized over 40 years and 10 years, respectively.
Note B. Merger of BEC Energy and Commonwealth Energy System
Shareholders of BEC and COM/Energy approved the merger on June 24, 1999. After
receiving various regulatory approvals, the SEC issued its approval of the
merger and the transaction was completed on August 24, 1999. Pursuant to the
merger agreement, BEC shareholders received approximately 41 million shares of
NSTAR, while COM/Energy shareholders received approximately 20 million shares of
NSTAR. In addition, BEC and COM/Energy shareholders received an aggregate amount
of cash of approximately $300 million. An initial quarterly dividend rate of
48.5 cents per share of NSTAR was declared by the board of trustees on September
23, 1999 and paid on November 1, 1999. This dividend rate is reviewed on a
regular basis and on December 16, 1999 a quarterly dividend of 50 cents per
share was declared.
The merger of BEC and COM/Energy has been accounted for as an acquisition of
COM/Energy by BEC using the purchase method of accounting. Under this method,
the accompanying consolidated financial statements of NSTAR include the results
of BEC for years ended December 31, 1999 and 1998 consolidated with those of
COM/Energy from the date of the merger (August 25, 1999). Goodwill amounted to
approximately $486 million while the original estimate of costs to achieve the
merger was $111 million. Goodwill is being amortized over 40 years and will
amount to approximately $12.2 million annually while the cost to achieve is
being amortized over 10 years and will initially be approximately $11.1 million
annually. The ultimate amortization of the cost to achieve will reflect the
total actual costs.
Based on unaudited data, the following pro forma summary presents the
consolidated results of operations for years ended December 31, 1999 and 1998
40
<PAGE>
as if the merger had occurred at the beginning of the years presented. These
results do not reflect future cost savings or avoidances expected from the
merger.
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Revenues $2,419,433 $2,537,907
Earnings available for
Common shareholders $136,782 $158,294
Weighted average common shares
Basic 61,258 63,688
Diluted 61,397 63,864
Earnings per common share
Basic $2.23 $2.49
Diluted $2.23 $2.48
</TABLE>
The pro forma results do not purport to be indicative of the results of
operations that actually would have resulted had the merger occurred at the
beginning of the year presented, or of results that may occur in the future,
including the future cost savings resulting from the merger.
Note C. Earnings Per Common Share
Basic earnings per common share (EPS) is calculated by dividing net income,
after deductions for preferred dividends, by the weighted average common shares
outstanding during the year. Statement of Financial Accounting Standards No.
128, "Earnings per Share", requires the disclosure of diluted EPS. Diluted EPS
is similar to the computation of basic EPS except that the weighted average
common shares is increased to include the number of dilutive potential common
shares. Diluted EPS reflects the impact on shares outstanding of the deferred
(nonvested) shares and stock options granted under the NSTAR's Stock Incentive
Plan.
The following table summarizes the reconciling amounts between basic and diluted
EPS:
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings available for common shareholders $140,503 $132,281 $131,493
Basic EPS $2.77 $2.76 $2.71
Diluted EPS $2.76 $2.75 $2.71
Weighted average common shares outstanding
for basic EPS 50,796 47,973 48,515
Effect of dilutive shares:
Weighted average dilutive potential common
shares 125 176 47
- --------------------------------------------------------------------------------
Weighted average common shares outstanding
for diluted EPS 50,921 48,149 48,562
================================================================================
</TABLE>
41
<PAGE>
Note D. RCN Joint Venture and Investment Conversion
Boston Energy Technology Group (BETG), a subsidiary of NSTAR through NSTAR
Communications, Inc. (NSTAR COM)(formerly known as BecoCom,Inc.) is a
participant in a telecommunications venture with RCN Telecom Services, Inc. of
Massachusetts (RCN). NSTAR accounts for its investment in the joint venture
using the equity method of accounting. As part of the joint venture agreement,
NSTAR has the option to exchange portions of its joint venture interest for
shares of RCN common stock at specified periods. During 1998, NSTAR exercised
its option to convert a portion of its interest. In the first quarter of 1999,
NSTAR received 1.1 million shares of RCN common stock in exchange for a portion
of its joint venture interest that had a book value of $11 million. The RCN
shares received are included in other investments on the accompanying
Consolidated Balance Sheets at their fair value of approximately $54 million at
December 31, 1999. The unrealized gain due to the increase in fair value on
these shares since they were received is reflected, net of associated income
taxes, as comprehensive income on the accompanying Consolidated Statements of
Comprehensive Income and the accompanying Consolidated Balance Sheets.
Note E. Electric Utility Industry Restructuring
1. Accounting Implications
Under the traditional revenue requirements model, electric rates have been based
on the cost of providing electric service. Under this model, NSTAR retail
electric companies have been subject to certain accounting standards that are
not applicable to other businesses and industries in general. The application of
SFAS 71 requires companies to defer the recognition of certain costs when
incurred if future rate recovery of these costs is expected. As a result of the
Massachusetts Electric Restructuring Law enacted in November 1997 and the MDTE
order regarding retail electric companies settlement agreement, as of December
31, 1997, the provisions of SFAS 71 were no longer being applied to Boston
Edison's generation business. NSTAR's remaining generation business, Canal
Electric Company's 3.52% ownership interest in the Seabrook Nuclear Power Plant
is subject to the provisions of SFAS 71.
The implementation of electric utility industry restructuring had certain
accounting implications. The highlights of these include:
a. Generation-related plant and other regulatory assets
Plant and other regulatory assets related to the generation business, are
recovered through the transition charge. This recovery, which includes a return,
occurs over a 12 year period for Boston Edison and an 11 year period for the
former COM/Energy retail electric companies that began on March 1, 1998 (the
retail access date).
b. Fuel and purchased power charge
The fuel and purchased power charge ceased as of the retail access date. The net
remaining over-collection of fuel and purchased power costs is being returned to
customers through March 31, 2000. These over-recovered costs are included as an
offset to the settlement recovery mechanisms, which is included in regulatory
assets on the accompanying Consolidated Balance Sheets.
42
<PAGE>
c. Standard offer charge
Customers have the option of continuing to buy power from the retail electric
delivery businesses at standard offer prices as of the retail access date. The
cost of providing standard offer service, which includes fuel and purchased
power costs, is recovered from standard offer customers on a fully reconciling
basis.
d. Distribution and transmission charges
An integral part of the merger is the rate plan that was filed by the retail
utility subsidiaries of BEC and COM/Energy and approved by the MDTE on July 27,
1999. Significant elements of the rate plan include a four-year distribution
rate freeze, recovery of the acquisition premium (goodwill) over 40 years and
recovery of transaction and integration costs (costs to achieve) over 10 years.
Boston Edison distribution rates are subject to a minimum and maximum return on
average common equity (ROE) from its distribution business through December 31,
2000. The ROE is subject to a floor of 6% and a ceiling of 11.75%. If the ROE is
below 6%, Boston Edison is authorized to add a surcharge to distribution rates
in order to achieve the 6% floor. If the ROE is above 11%, it is required to
adjust distribution rates by an amount necessary to reduce the calculated ROE
between 11% and 12.5% by 50%, and a return above 12.5% by 100%. No adjustment is
made if the ROE is between 6% and 11%. In addition, distribution rates will be
adjusted for any changes in tax laws or accounting principles that result in a
change in costs of more than $1 million. The cost of providing transmission
service to all NSTAR electric distribution customers is recovered on a fully
reconciling basis.
2. Generating Assets Divestiture
On July 13, 1999, Boston Edison completed the sale of the Pilgrim Nuclear
Generating Station to Entergy Nuclear Generating Company, a subsidiary of
Entergy Corporation, for $81 million. In addition to the amount received from
the buyer, Boston Edison has received a total of approximately $158 million from
the Pilgrim contract customers, including $103 million from Commonwealth
Electric Company, to terminate their contracts. Approximately $80 million
remains to be collected under these termination agreements. As part of the sale,
Boston Edison transferred its decommissioning trust fund to Entergy for
decommissioning of the plant. In order to provide Entergy with a fully funded
decommissioning trust fund, Boston Edison contributed approximately $271 million
to the fund at the time of the sale. As a result of a favorable IRS tax ruling,
Boston Edison received $43 million from Entergy reflecting a reduction in the
required decommissioning funding. The difference between the total proceeds
received and the net book value of the Pilgrim assets sold plus the net amount
to fully fund the decommissioning trust is included in the balance of
generation-related regulatory assets, net on the accompanying Consolidated
Balance Sheets as such amounts are being collected from customers under Boston
Edison's settlement agreement. The final amounts to be collected from customers
related to Pilgrim are subject to regulatory review.
Completion of the sale of Boston Edison's fossil generating assets took place in
May 1998. Boston Edison received proceeds from the sale of $674 million,
including $121 million for a six-month transitional power purchase contract.
43
<PAGE>
The amount received above net book value on the sale of these assets is being
returned to Boston Edison's customers over the settlement period.
On July 27, 1999 BEC Funding LLC, a subsidiary of NSTAR, closed the sale of $725
million of notes to a special purpose trust created by two Massachusetts state
agencies. The trust then concurrently closed the sale of $725 million of
electric rate reduction certificates to the public. The certificates are secured
by a portion of the transition charge assessed on Boston Edison's retail
customers as permitted under the Massachusetts Electric Restructuring Law and
authorized by the MDTE. These certificates are non-recourse to Boston Edison.
COM/Energy completed the sale of substantially all of its investment in electric
generation assets in 1998. Proceeds from the sale of these assets, after
construction-related adjustments at the closing that occurred on December 30,
1998, amounted to approximately $453.9 million or 6.1 times their book value of
approximately $74.2 million. The proceeds from the sale, net of book value,
transaction costs and certain other adjustments, amounted to $358.6 million and
is being used to reduce transition costs related to electric industry
restructuring that otherwise would have been collected from customers.
COM/Energy established Energy Investment Services, Inc. (EIS) as the vehicle to
invest the net proceeds from the sale of Canal Electric Company's generation
assets. These proceeds have been invested in a portfolio of securities that is
designed to maintain principal and earn a reasonable return. Both the principal
amount and income earned will be used to reduce the transition costs that would
otherwise be billed to customers of Cambridge Electric Light Company and
Commonwealth Electric Company. The net proceeds have been classified as
restricted cash on the accompanying Consolidated Balance Sheets.
Note F. Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109
requires the recognition of deferred tax assets and liabilities for the future
tax effects of temporary differences between the carrying amounts and the tax
basis of assets and liabilities. In accordance with SFAS 109, net regulatory
assets of $71.1 million and $52.2 million and corresponding net increases in
accumulated deferred income taxes were recorded as of December 31, 1999 and
1998, respectively. The regulatory assets represent the additional future
revenues to be collected from customers for deferred income taxes.
Accumulated deferred income taxes consisted of the following:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Plant-related $ 484,021 $ 412,358
Other 424,128 85,497
- -------------------------------------------------------------------------------
908,149 497,855
- -------------------------------------------------------------------------------
Deferred tax assets:
Plant-related 78,587 13,174
Investment tax credits 29,013 29,622
Other 191,962 106,502
- -------------------------------------------------------------------------------
299,562 149,298
- -------------------------------------------------------------------------------
Net accumulated deferred income taxes $ 608,587 $ 348,557
===============================================================================
</TABLE>
44
<PAGE>
No valuation allowances for deferred tax assets are deemed necessary.
Previously deferred investment tax credits are amortized over the estimated
remaining lives of the property giving rise to the credits.
Components of income tax expense were as follows:
<TABLE>
<CAPTION>
years ended December 31,
(in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income tax expense $(33,121) $239,717 $ 115,373
Deferred income tax expense 123,393 (137,992) (14,104)
Investment tax credit amortization (2,551) (3,927) (7,560)
- -------------------------------------------------------------------------------
Income taxes charged to operations 87,721 97,798 93,709
- -------------------------------------------------------------------------------
Taxes on other income (27,580) (24,116) (11,254)
- -------------------------------------------------------------------------------
Total income tax expense $ 60,141 $ 73,682 $ 82,455
===============================================================================
</TABLE>
The effective income tax rates reflected in the consolidated financial
statements and the reasons for their differences from the statutory federal
income tax rate were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
State income tax, net of federal income tax benefit 5.5 5.2 4.5
Investment tax credits (11.3) (6.9) (3.3)
Other (0.1) 1.0 0.1
- --------------------------------------------------------------------------------
Effective tax rate 29.1% 34.3% 36.3%
================================================================================
</TABLE>
Income tax expense is reflected net of $20.8 million in 1999 and $10.9 million
in 1998 of investment tax credits recognized as a result of generation
divestitures. Excluding these shareholder benefits, the effective tax rate would
have been approximately 39% in each year.
Note G. Pensions and Other Postretirement Benefits
Effective December 31, 1999, the pension and other postretirement benefit plans
of BEC and COM/Energy were combined under NSTAR.
1. Pensions
NSTAR has a defined benefit funded retirement plan with certain contributory
features that covers substantially all employees. NSTAR also maintains an
unfunded supplemental retirement plan for certain management employees.
Effective January 1, 2000, the defined benefit plan was amended to provide
management employees lump sum benefits under a final average pay pension equity
formula. Prior to January 1, 2000 these pension benefits were provided under a
traditional final average pay formula. This amendment is reflected in the
December 31, 1999 benefit obligation.
45
<PAGE>
The changes in benefit obligation and plan assets were as follows:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation, beginning of the year $ 497,988 $ 457,436
COM/Energy obligation 401,902 0
Service cost 14,741 13,645
Interest cost 42,426 31,981
Plan participants' contributions 170 214
Plan amendments (12,697) 0
Actuarial (gain)/loss (62,464) 67,564
Curtailment loss/(gain) 18,424 (15,644)
Special termination benefits 15,712 665
Settlement payments (92,484) (16,246)
Benefits paid (25,470) (41,627)
- -------------------------------------------------------------------------------
Benefit obligation, end of the year $ 798,248 $ 497,988
===============================================================================
Change in plan assets:
Fair value of plan assets, beginning of
the year $ 474,552 $ 401,182
COM/Energy plan assets 395,783 0
Actual return on plan assets 143,116 44,589
Employer contribution 59,831 86,440
Plan participants' contributions 170 214
Settlement payments (92,484) (16,246)
Benefits paid (25,470) (41,627)
- -------------------------------------------------------------------------------
Fair value of plan assets, end of the year $ 955,498 $ 474,552
===============================================================================
<CAPTION>
The plans' funded status were as follows: December 31,
(in thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Funded status $ 157,250 $ (23,436)
Unrecognized actuarial net (gain)/loss (59,909) 96,310
Unrecognized transition obligation 2,783 3,856
Unrecognized prior service cost 260 15,557
- -------------------------------------------------------------------------------
Net amount recognized $ 100,384 $ 92,287
===============================================================================
<CAPTION>
Amount recognized in the Consolidated Balance Sheets consisted of:
December,31,
(in thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Prepaid retirement cost $ 125,664 $ 94,049
Accrued retirement liability (30,966) (9,856)
Intangible asset 5,686 8,094
- -------------------------------------------------------------------------------
Net amount recognized $ 100,384 $ 92,287
===============================================================================
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the supplemental retirement plan with accumulated benefit
obligations in excess of plan assets were $10,325,000, $8,072,000 and $0,
respectively, as of December 31, 1999, and $11,387,000, $9,856,000 and $0,
respectively, as of December 31, 1998.
Weighted average assumptions were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate at the end of the year 8.00% 6.50% 7.25%
Expected return on plan assets for
the year (net of investment expenses) 9.00% 9.00% 9.00%
Rate of compensation increase at the end of
the year 4.00% 4.00% 4.25%
</TABLE>
46
<PAGE>
Components of net periodic benefit cost were as follows:
<TABLE>
<CAPTION>
years ended December 31,
(in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 14,741 $ 13,645 $ 12,625
Interest cost 42,426 31,981 31,537
Expected return on plan assets (53,059) (39,140) (31,250)
Amortization of prior service cost 1,610 1,847 1,827
Amortization of transition obligation 664 860 934
Recognized actuarial loss 3,594 808 1,799
- -------------------------------------------------------------------------------
Net periodic benefit cost $ 9,976 $ 10,001 $ 17,472
===============================================================================
</TABLE>
Primarily as a result of the merger-related separation packages and nuclear
divestiture, amounts recognized for curtailment, settlement and special
termination benefit costs were $19,823,000, $930,000 and $15,712,000,
respectively, for 1999. As a result of the nuclear divestiture, amounts
recognized for curtailment and special termination benefit costs were $2,705,000
and $665,000 respectively for 1998. The amounts resulting from the
merger-related separation packages are recoverable as part of the approved rate
plans of the retail utility subsidiaries of NSTAR. The amounts resulting from
the nuclear divestiture are recoverable under the Boston Edison settlement
agreement.
NSTAR also provides defined contribution 401(k) plans for substantially all
employees. Matching contributions included in the Consolidated Statements of
Income amounted to $9 million in 1999 and $8 million in 1998 and 1997,
respectively.
2. Other Postretirement Benefits
In addition to pension benefits, NSTAR also provides health care and other
benefits to retired employees who meet certain age and years of service
eligibility requirements. These benefits include health and life insurance
coverage and reimbursement of certain Medicare premiums. Under certain
circumstances, eligible employees are required to make contributions for
postretirement benefits. Effective January 1, 2000 the plan was amended to
include certain new managed care features. This amendment is reflected in the
December 31, 1999 benefit obligation.
The changes in benefit obligation and plan assets were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation, beginning of the year $ 258,756 $ 237,616
COM/Energy obligation 146,741 0
Service cost 4,505 3,892
Interest cost 21,896 16,895
Plan participants' contributions 37 1,178
Plan amendments (14,062) 0
Actuarial (gain)/loss (24,186) 27,845
Curtailment loss/(gain) 1,408 (14,665)
Special termination benefits 0 75
Settlement payments (5,810) 0
Benefits paid (18,371) (14,080)
- -------------------------------------------------------------------------------
Benefit obligation, end of the year $ 370,914 $ 258,756
===============================================================================
</TABLE>
47
<PAGE>
<TABLE>
<S> <C> <C>
Change in plan assets:
Fair value of plan assets, beginning
of the year $ 113,818 $ 103,989
COM/Energy plan assets 73,558 0
Actual return on plan assets 23,337 14,344
Employer contribution 14,484 8,387
Plan participants' contributions 37 1,178
Settlement payments (5,810) 0
Benefits paid (18,371) (14,080)
- -------------------------------------------------------------------------------
Fair value of plan assets, end of the year $ 201,053 $ 113,818
===============================================================================
</TABLE>
The plan's funded status and amount recognized in the Consolidated Balance
Sheets were as follows:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Funded status $(169,861) $(144,938)
Unrecognized actuarial net (gain)/loss (9,524) 24,922
Unrecognized transition obligation 73,016 88,814
Unrecognized prior service cost (22,154) (9,827)
- -------------------------------------------------------------------------------
Net amount recognized $(128,523) $ (41,029)
===============================================================================
</TABLE>
Weighted average assumptions were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate at the end of the year 8.00% 6.50% 7.25%
Expected return on plan assets for the year 9.00% 9.00% 9.00%
</TABLE>
For measurement purposes a 7.75% weighted annual rate of increase in per capita
cost of covered medical claims was assumed for 2000. This rate is assumed to
decrease gradually to 4.75% in 2010 and remain at that level thereafter. Dental
claims and Medicare premiums are assumed to increase at a weighted annual rate
of 4.5% and 3.1%, respectively.
A 1% change in the assumed health care cost trend rate would have the following
effects:
<TABLE>
<CAPTION>
One-Percentage-Point
(in thousands) Increase Decrease
- --------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost
components for 1999 $ 3,614 $ (2,936)
Effect on December 31, 1999 postretirement benefit
obligation $ 40,257 $(36,959)
</TABLE>
Components of net periodic benefit cost were as follows:
<TABLE>
<CAPTION>
years ended December 31,
(in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 4,505 $ 3,892 $ 3,543
Interest cost 21,896 16,895 17,006
Expected return on plan assets (12,329) (8,563) (6,421)
Amortization of prior service cost (683) (942) (1,017)
Amortization of transition obligation 6,162 8,474 9,151
Recognized actuarial loss 957 662 1,003
- -------------------------------------------------------------------------------
Net periodic benefit cost $ 20,508 $ 20,418 $ 23,265
===============================================================================
</TABLE>
48
<PAGE>
As a result of the merger-related separation packages and nuclear divestiture,
amounts recognized for curtailment and settlement costs were $8,114,000 and
$172,000, respectively, for 1999. As a result of the nuclear divestiture,
amounts recognized for curtailment and special termination benefit costs were
$21,187,000 and $79,000, respectively, for 1998. The amounts resulting from the
merger-related separation packages are recoverable as part of the approved rate
plans of the retail utility subsidiaries of NSTAR. The amounts resulting from
the nuclear divestiture are recoverable under the Boston Edison settlement
agreement.
Note H. Stock-Based Compensation
In 1997, Boston Edison initiated a Stock Incentive Plan (the Plan) that was
adopted by the board of directors and approved by common stockholders and
subsequently approved for all eligible NSTAR subsidiary company employees. The
Plan permits a variety of stock and stock-based awards, including stock options
and deferred (nonvested) stock to be granted to certain key employees. The Plan
limits the terms of awards to ten years. Subject to adjustment for stock-splits
and similar events, the aggregate number of shares of common stock that may be
delivered under the Plan is 2,000,000, including shares issued in lieu of or
upon reinvestment of dividends arising from awards. During 1999, 58,500 shares
of deferred stock and 248,000 ten-year non-qualified stock options were granted.
During 1998, 19,150 shares of deferred stock and 419,200 ten-year non-qualified
stock options were granted under the Plan. During 1997, 73,820 shares of
deferred stock and 298,400 ten-year non-qualified stock options were granted.
The weighted average grant date fair value of the deferred stock issued during
1999, 1998 and 1997 was $41.73, $39.75 and $27.26, respectively. The options
were granted at the full market price of the stock on the date of the grant. All
the awards vest ratably over a three-year period.
Compensation cost for stock-based awards is computed by measuring the quoted
stock market price at the measurement date less the amount, if any, an employee
is required to pay. The fair value disclosures were as follows:
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income
Actual $146,463 $141,046 $144,642
Pro forma $145,955 $140,661 $144,572
Basic earnings per common share
Actual $ 2.77 $ 2.76 $ 2.71
Pro forma $ 2.76 $ 2.75 $ 2.71
Diluted earnings per common share
Actual $ 2.76 $ 2.75 $ 2.71
Pro forma $ 2.75 $ 2.74 $ 2.71
Stock option activity of the Plan was as follows:
1999 1998 1997
- ------------------------------------------------------------------------------------
Options outstanding at January 1 666,600 273,000 0
Options granted 248,000 419,200 $298,400
Options exercised (4,400) (3,800) 0
Options forfeited (95,933) (21,800) (25,400)
- ------------------------------------------------------------------------------------
Options outstanding at December 31 814,267 666,600 $273,000
====================================================================================
</TABLE>
49
<PAGE>
Summarized information regarding stock options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exerciserable
Weighted Average Weighted Weighted
Remaining Average Average
Range of Numbers Contractual Life Exercise Numbers Execise
Exercise Prices Outstanding (Years) Price Outstanding Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$25.75-$26.00 244,200 7.44 $25.85 168,333 $25.85
$39.75-$41.375 570,067 8.78 $40.35 130,000 $39.75
</TABLE>
There were 298,333, stock options exercisable at December 31, 1999, 87,200 at
December 31, 1998 and 0 at December 31, 1997.
The stock options granted during 1999, 1998 and 1997 have a weighted average
grant date fair value of $4.86, $4.61 and $2.22, respectively. The fair value
was estimated using the Black-Scholes option pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected life (years) 4.0 4.0 4.0
Risk-free interest rate 5.31% 5.66% 6.44%
Volatility 17% 16% 16%
Dividends 4.86% 4.88% 7.28%
</TABLE>
Compensation cost recognized in the accompanying Consolidated Statements of
Income for stock-based compensation awards in 1999, 1998 and 1997 was
$1,044,000, $850,000 and $275,000, respectively.
Note I. Capital Stock
<TABLE>
<CAPTION>
December 31,
(in thousands, except per share amounts) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Common equity:
Common shares, par value $1 per share,
100,000,000 shares authorized; 58,059,646
and 47,184,073 shares issued and
outstanding $ 58,060 $ 47,184
Premium on common shares 1,075,483 644,205
Retained earnings 389,989 360,509
- --------------------------------------------------------------------------------
Total common equity $1,523,532 $1,051,898
================================================================================
</TABLE>
Dividends declared per share of common stock were $1.955, $1.895 and $1.88 in
1999, 1998 and 1997 respectively.
Cumulative preferred stock:
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
- --------------------------------------------------------------------------------
Par value $100 per share, 2,890,000 shares
authorized; issued and outstanding:
Nonmandatory redeemable series:
Current Shares Redemption December 31,
Series Outstanding Price/Share 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4.25% 180,000 $103.625 $ 18,000 $ 18,000
4.78% 250,000 $102.800 25,000 25,000
- --------------------------------------------------------------------------------
Total nonmandatory redeemable series 43,000 43,000
- --------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Mandatory redeemable series:
Current Shares Redemption
Series Outstanding Price/Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8.00% 500,000 0 50,000 50,000
Less: redemption and issuance costs (721) (960)
- --------------------------------------------------------------------------------
Total mandatory redeemable series 49,279 49,040
- --------------------------------------------------------------------------------
Total $ 92,279 $ 92,040
================================================================================
</TABLE>
1. Common Shares
Common share issuances and repurchases in 1997 through 1999 were as follows:
<TABLE>
<CAPTION>
Number Total Premium on
(in thousands) of Shares Par Value Common Shares
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1996 48,510 $ 48,510 $ 695,723
Dividend reinvestment plan 5 5 414
- -------------------------------------------------------------------------------
Balance at December 31, 1997 48,515 48,515 696,137
Common share repurchase program (1,331) (1,331) (49,823)
Stock incentive plan 0 0 (2,109)
- -------------------------------------------------------------------------------
Balance at December 31, 1998 47,184 47,184 644,205
Common share repurchase program (4,839) (4,839) (179,593)
Stock incentive plan 0 0 (3,189)
Shares issued to COM/Energy shareholders 20,251 20,251 809,524
BEC Energy shares repurchased under
merger agreement (4,536) (4,536) (195,464)
- -------------------------------------------------------------------------------
Balance at December 31,1999 58,060 $ 58,060 $1,075,483
===============================================================================
</TABLE>
51
<PAGE>
2. Cumulative Mandatory Redeemable Preferred Stock
Boston Edison redeemed the remaining 360,000 shares of 7.27% sinking fund series
cumulative preferred stock during 1998. The stock was subject to a mandatory
sinking fund requirement of 20,000 shares each May at par plus accrued
dividends. During 1998 and 1997, 40,000 shares were redeemed. In addition,
320,000 shares were redeemed in 1998 at $101.94 per share.
Boston Edison is not able to redeem any part of the 500,000 shares of 8% series
cumulative preferred stock prior to December 2001. The entire series is subject
to mandatory redemption in December 2001 at $100 per share plus accrued
dividends.
Note J. Indebtedness
NSTAR's long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Mortgage Bonds, collateralized by property of operating subsidiaries:
8.99%, due December 2001 $ 7,150 $ 0
6.54%, due September 2007 10,000 0
7.04%, due September 2017 25,000 0
9.95%, due December 2020 25,000 0
7.11%, due December 2033 35,000 0
Notes:
7.75%, due June 2002 2,301 0
9.30%, due January 2002 29,978 0
7.43%, due March 2003 15,000 0
9.50%, due December 2004 5,000 0
7.62%, due November 2006 20,000 0
8.70%, due March 2007 5,000 0
9.55%, due December 2007 10,000 0
7.70%, due March 2008 10,000 0
9.37%, due January 2012 13,684 0
7.98%, due March 2013 25,000 0
9.53%, due December 2014 10,000 0
9.60%, due December 2019 10,000 0
6.924%, due June 2021 105,250 0
8.47%, due March 2023 15,000 0
Debentures:
6.800%, due February 2000 65,000 65,000
6.050%, due August 2000 100,000 100,000
6.800%, due March 2003 150,000 150,000
7.800%, due May 2010 125,000 125,000
9.875%, due June 2020 34,035 100,000
9.375%, due August 2021 24,270 115,000
8.250%, due September 2022 60,000 60,000
7.800%, due March 2023 181,000 200,000
Sewage facility revenue bonds 24,645 26,230
Massachusetts Industrial Finance Agency (MIFA) bonds:
5.75%, due February 2014 15,000 15,000
Transition Property Securitization Certificates:
5.99%, due March 2003 80,981 0
6.45%, due September 2005 170,610 0
6.62%, due March 2007 103,390 0
6.91%, due September 2009 170,876 0
7.03%, due March 2012 171,624 0
- -------------------------------------------------------------------------------
1,854,794 956,230
Amounts due within one year (221,392) (667)
- -------------------------------------------------------------------------------
Total long-term debt $1,633,402 $ 955,563
===============================================================================
</TABLE>
52
<PAGE>
The 9.875% debentures due 2020 are first redeemable in June 2000 at a redemption
price of 104.483%, the 9.375% series due 2021 are first redeemable in August
2001 at 104.612%, the 8.25% series due 2022 are first redeemable in September
2002 at 103.780% and the 7.80% series due 2023 are first redeemable in March
2003 at 103.730%. None of the other series are redeemable prior to maturity.
There is no sinking fund requirement for any series of debentures.
Sewage facility revenue bonds are tax-exempt, subject to annual mandatory
sinking fund redemption requirements and mature through 2015. Scheduled
redemptions of $1.6 million were made in 1999, 1998 and 1997. The weighted
average interest rate of the bonds was 7.3%.
The 5.75% tax-exempt unsecured MIFA bonds due 2014 are redeemable beginning in
February 2004 at a redemption price of 102%. The redemption price decreases to
101% in February 2005 and to par in February 2006.
The aggregate principal amounts of NSTAR long-term-debt (including
securitization certificates and sinking fund requirements) due for the five
years subsequent to 1999 are approximately $251 million in 2000, $123 million in
2001, $109 million in 2002, $241 million in 2003 and $79 million in 2004.
In 1999, BEC Funding LLC, a wholly owned subsidiary of Boston Edison, issued
notes in the principal amount of $725 million to the Trust, in exchange for the
net proceeds from the sale of $725 million of Rate Reduction Certificates issued
by the Trust on July 29, 1999.
2. Short-term Debt
NSTAR has a $450 million revolving credit agreement with a group of banks
effective through November 2002. Under the terms of this agreement, it is
required to maintain a consolidated common equity ratio of not less than 35% at
all times and to maintain a ratio of consolidated earnings before interest and
taxes to consolidated total interest expense of not less than 2 to 1 for each
period of four consecutive fiscal quarters. Commitment fees must be paid on the
total agreement amount. Approximately $350 million was outstanding under this
agreement as of December 31, 1999.
Boston Edison has regulatory authority to issue up to $350 million of short-term
debt. In addition, Boston Edison has a $200 million revolving credit agreement
with a group of banks that serves as back-up to the Boston Edison commercial
paper program. Under the terms of this agreement, Boston Edison is required to
maintain a common equity ratio of not less than 30% at all times. Commitment
fees must be paid on the total agreement amount.
COM/Energy maintains committed lines of credit for the short-term financing of
their construction programs and other corporate purposes. As of December 31,
1999, COM/Energy had $115 million of committed lines of credit that will expire
at varying intervals in 2000. These lines are normally renewed upon expiration
and require annual fees of approximately .1875%.
Interest rates on the outstanding borrowings generally are money market rates
and averaged 5.82% and 5.85% in 1999 and 1998, respectively. Notes payable
53
<PAGE>
to banks totaled $458 million and $78 million at December 31, 1999 and 1998,
respectively.
Note K. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of securities for which it is practicable to estimate the value:
Cash and cash equivalents:
The carrying amount of $169 million approximates fair value due to the
short-term nature of these securities.
Mandatory redeemable cumulative preferred stock and indebtedness (excluding
notes payable):
The fair values of these securities are based upon the quoted market prices of
similar issues. Carrying amounts and fair values as of December 31, 1999, were
as follows:
<TABLE>
<CAPTION>
Carrying Fair
(in thousands) Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Mandatory redeemable cumulative preferred stock $ 49,279 $ 52,250
Long-term indebtedness $1,854,794 $1,842,373
</TABLE>
Note L. Segment and Related Information
For the purpose of providing segment information, NSTAR's principal operating
segments, or its traditional core businesses, are the electric and natural gas
utilities that provide energy delivery services in numerous cities and towns in
Massachusetts. NSTAR subsidiaries also supply electricity at wholesale for
resale to municipalities. The unregulated operating segments engage in
non-utility business activities. Such activities include telecommunications,
district heating and cooling operations, and liquefied natural gas services.
Financial data for the operating segments were as follows:
<TABLE>
<CAPTION>
(in thousands): 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues
Electric utility operations $1,710,576 $1,622,435 $1,776,233
Gas utility operations 108,117 0 0
Unregulated nonutility Operations 32,734 80 2,298
-------------------------------------
Consolidated total $1,851,427 $1,622,515 $1,778,531
Depreciation and amortization
Electric utility operations $ 190,560 $ 192,644 $ 188,687
Gas Utility operations 5,566 0 0
Unregulated nonutility operations 14,180 2,963 802
-------------------------------------
Consolidated total $ 210,306 $ 195,607 $ 189,489
Operating income tax expense (benefit)
Electric utility operations $ 98,125 $ 101,492 $ 95,021
Gas utility operations 4,208 0 0
Unregulated nonutility operations (14,612) (3,694) (1,312)
--------------------------------------
Consolidated total $ 87,721 $ 97,798 $ 93,709
</TABLE>
54
<PAGE>
<TABLE>
<S> <C> <C> <C>
Equity income (loss) in investments
accounted for by the equity method
Electric utility operations $ 999 $ 1,725 $ 1,534
Gas utility operations 0 0 0
Unregulated nonutility operations (10,505) (11,967) (5,571)
--------------------------------------
Consolidated total $ (9,506) $ (10,242)(b) $ (4,037)(b)
Interest charges
Electric utility operations $ 107,717 $ 88,516 $ 105,710
Gas utility operations 3,738 0 0
Unregulated nonutility operations 14,745 1,567 200
--------------------------------------
Consolidated total $ 126,200 $ 90,083 $ 105,910
Segment net income (loss)
Electric utility operations $ 165,655 $ 170,374 $ 153,738
Gas utility operations 5,381 0 0
Unregulated nonutility operations (24,573) (29,328)(a) (9,096)(a)
--------------------------------------
Consolidated total $ 146,463 $ 141,046 $ 144,642
Equity investments
Electric utility operations $ 32,995 $ 20,769 $ 23,326
Gas utility operations 9 0 0
Unregulated nonutility operations 140,286 64,001 12,129
--------------------------------------
Consolidated total $ 173,290 $ 84,770 $ 35,455
Expenditures for property
Electric utility operations $ 134,906 $ 108,344 $ 106,659
Gas utility operations 7,669 0 0
Unregulated nonutility operations 16,720 11,858 7,451
--------------------------------------
Consolidated total $ 159,295 $ 120,202 $ 114,110
Segment assets
Electric utility operations $4,411,630 $3,073,058 $3,584,384
Gas utility operations 459,887 0 0
Unregulated nonutility operations 611,371 130,978 37,963
--------------------------------------
Consolidated total $5,482,888 $3,204,036 $3,622,347
===============================================================================
</TABLE>
(a) During the latter half of 1998 BEC discontinued the operations of Coneco
Corporation, a wholly owned unregulated subsidiary that provided energy
management services, and ceased its participation in EnergyVision, an
energy marketing joint venture with Williams Energy Services Company. The
combined net loss from these businesses was ($11,450,000) and ($3,160,000)
in 1998 and 1997, respectively.
(b) The net equity income (loss) from equity investments is included in other
income (expense), net on the accompanying Consolidated Statements of
Income.
Note M. Commitments and Contingencies
1. Contractual Commitments
As December 31, 1999, NSTAR and its subsidiaries had estimated contractual
obligations for plant and equipment of approximately $347 million.
55
<PAGE>
NSTAR also had leases for certain facilities and equipment. The estimated
minimum rental commitments under both transmission agreements and non-cancelable
operating leases for the years after 1999 are as follows:
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------
<S> <C>
2000 $ 25,649
2001 22,485
2002 20,436
2003 17,142
2004 16,351
Years thereafter 108,302
- ------------------------------------------------
Total $ 210,365
================================================
</TABLE>
The total expense for both lease rentals and transmission agreements was $38.7
million in 1999, $29.6 million in 1998 and $27.5 million in 1997, net of
capitalized expenses of $1.5 million in 1999, $1.6 million in 1998 and $1.2
million in 1997.
Total rent expense for all operating leases, except those with terms of a month
or less, amounted to $10.8 million in 1999, $11.5 million in 1998 and $11.2
million in 1997.
2. Electric Company Investments
NSTAR has an equity investment of approximately 14.5% in two companies that own
and operate transmission facilities to import electricity from the Hydro-Quebec
system in Canada. As an equity participant NSTAR is required to guarantee, in
addition to its own share, the total obligations of those participants who do
not meet certain credit criteria. At December 31, 1999, NSTAR's portion of these
guarantees was $18 million.
NSTAR also has a 2.5% equity investment in the 540 MW Vermont Yankee nuclear
power plant. Vermont Yankee has developed its estimate of the cost of
decommissioning its unit and has received the approval of FERC to include
charges for the estimated costs of decommissioning its unit in the cost of
energy that it sells. Periodically, Vermont Yankee re-estimates the cost of
decommissioning and applies to FERC for increased rates in response to increased
decommissioning costs. The Vermont Yankee unit is under agreement to be sold to
Amergen Energy Company. NSTAR is currently entitled to electricity produced from
the remaining facility based on its ownership interest and is billed for its
entitlement pursuant to a contractual agreement that is approved by the FERC.
The estimated cost to decommission this plant is $428.7 million in current
dollars. NSTAR's share of this liability (approximately $10.7 million), less its
share of the market value of the assets held in a decommissioning trust
(approximately $6.2 million), is approximately $4.5 million at December 31,
1999.
NSTAR has a 14% equity investment in Yankee Atomic Electric Company (Yankee
Atomic). In 1992, the board of directors of Yankee Atomic voted to discontinue
operations of the Yankee Atomic nuclear generating station permanently and
decommission the facility.
Yankee Atomic received approval from the FERC to continue to collect its
investment and decommissioning costs through 2000, the period of the plant's
operating license. The estimate of NSTAR's share of Yankee Atomic's investment
and costs of decommissioning is approximately $4.5 million as of
56
<PAGE>
December 31, 1999. These estimates are recorded on the accompanying Consolidated
Balance Sheets as a power contract liability and an offsetting regulatory asset.
NSTAR also has a 14% equity investment in Connecticut Yankee Atomic Power
Company (CYAPC). In 1996 the board of directors of CYAPC, which owns and
operates the Connecticut Yankee nuclear electric generating unit (Connecticut
Yankee), unanimously voted to retire the unit. NSTAR's share of Connecticut
Yankee's remaining investment and estimated costs of decommissioning is
approximately $42 million as of December 31, 1999. This estimate is recorded on
the accompanying Consolidated Balance Sheets as a power contract liability and
an offsetting regulatory asset similar to Yankee Atomic.
In December 1996, CYAPC filed for rate relief at the FERC seeking to recover
certain post-operating costs, including decommissioning. In August 1998, the
FERC Administrative Law Judge (ALJ) released an initial decision regarding
CYAPC's filing. This decision called for the disallowance of the common equity
return on the CYAPC investment subsequent to the shutdown. The decision also
stated that decommissioning collections should continue to be based on a
previously approved estimate, with an adjustment for inflation, until a more
reliable estimate is developed. In October 1998, both CYAPC and Northeast
Utilities, a 49% equity investor in CYAPC, filed briefs on exceptions to the ALJ
decision. The case is still pending before the FERC. If the initial decision is
upheld by the FERC, CYAPC could be required to write off a portion of its
investment in the generating unit and refund a portion of the previously
collected return on investment to ratepayers. Management is currently unable to
determine the ultimate outcome of this proceeding. However, the estimate of the
effect of the ALJ's initial decision does not have a material impact on its
consolidated financial position or results of operations.
NSTAR has a 4% equity investment in the Maine Yankee Atomic Power Company (Maine
Yankee). In 1997 the board of directors of Maine Yankee voted to discontinue
operations of the Maine Yankee nuclear generating station permanently and
decommission the facility.
NSTAR's share of Maine Yankee's remaining decommissioning is approximately $28
million as of December 31, 1999. This estimate is recorded on the accompanying
Consolidated Balance Sheets as a power contract liability and an offsetting
regulatory asset.
3. Nuclear Insurance
Under the Price-Anderson Act (the Act), owners of nuclear power plants have the
benefit of approximately $9.5 billion of public liability coverage that would
compensate the public for covered bodily injury and property loss in the event
of an accident at a commercial nuclear power plant. The first $200 million of
nuclear liability is covered by commercial insurance. Additional nuclear
liability insurance up to $9.3 billion is provided by a retrospective assessment
of up to $88.1 million per incident levied on each of the 106 nuclear generating
units currently licensed to operate in the United States, with a maximum
assessment of $10 million per incident per year.
NSTAR has an equity ownership interest in four nuclear generating facilities as
well as a 3.52% joint-ownership interest in Seabrook 1. The operators of these
units maintain nuclear insurance coverage (on behalf of the owners of
57
<PAGE>
the facilities) with either Nuclear Electric Insurance Limited (NEIL), a
combination of NEIL and the American Nuclear Insurers (ANI) or ANI only
depending on the limit of insurance required to be maintained. NEIL provides
$2.25 billion of property, boiler, machinery and decontamination insurance
coverage, including accidental premature decommissioning insurance. All
companies insured with NEIL are subject to retroactive assessments. ANI provides
$500 million of "all risk" property damage, boiler, machinery and
decontamination insurance. Three of the four units in which NSTAR has an equity
ownership interest have permanently ceased operations. The Nuclear Regulatory
Commission has approved each of these units' requests to withdraw from
participation in the financial protection insurance program of the act and
reduce their limits of property insurance.
Based on its various ownership interests in the five nuclear generating
facilities, NSTAR's retrospective premium could be $600,000 annually or a
cumulative total of $5.3 million under the Act.
4. Environmental Matters
The utility subsidiaries of NSTAR are involved in approximately 30 properties
where oil or hazardous materials were previously spilled or released. As such,
the companies are required to clean up these remaining properties in accordance
with a timetable developed by the Massachusetts Department of Environmental
Protection. There are uncertainties associated with these costs due to the
complexities of cleanup technology, regulatory requirements and the particular
characteristics of the different sites. NSTAR's subsidiaries also face possible
liability as a potentially responsible party in the cleanup of six multi-party
hazardous waste sites in Massachusetts and other states where it is alleged to
have generated, transported or disposed of hazardous waste at the sites. NSTAR
currently expects to have only a small percentage of the total potential
liability for these sites. Approximately $6.6 million is included in the
December 31, 1999 Consolidated Balance Sheets related to these cleanup
liabilities. Management is unable to fully determine a range of reasonably
possible cleanup costs in excess of the accrued amount. Based on its assessments
of the specific site circumstances, management does not believe that it is
probable that any such additional costs will have a material impact on NSTAR's
consolidated financial position. However, it is reasonably possible that
additional provisions for cleanup costs that may result from a change in
estimates could have a material impact on the results of a reporting period in
the near term.
Public concern continues regarding Electro Magnetic Fields (EMF) associated with
electric transmission and distribution facilities and appliances and wiring in
buildings and homes. Such concerns have included the possibility of adverse
health effects caused by EMF as well as perceived effects on property values.
NSTAR continues to support research into the subject and participates in the
funding of industry-sponsored studies. It is aware that public concern regarding
EMF in some cases has resulted in litigation, in opposition to existing or
proposed facilities in proceedings before regulators or in requests for
legislation or regulatory standards concerning EMF levels. It has addressed
issues relative to EMF in various legal and regulatory proceedings and in
discussions with customers and other concerned persons. However, to date it has
not been significantly affected by these developments. NSTAR continues to
monitor all aspects of the EMF issue.
ComGas is participating in the assessment of a number of former Manufactured Gas
Plant (MGP) sites and alleged MGP waste disposal locations to determine
58
<PAGE>
if and to what extent such sites have been contaminated and whether ComGas may
be responsible for remedial action. As of December 31, 1999, ComGas has recorded
a liability and corresponding regulatory asset amounting to $2.2 million as an
estimate for site cleanup costs for several MGP sites for which ComGas was
previously cited as a Potentially Responsible Party. The MDTE has approved
recovery of costs associated with MGP sites.
Estimates related to environmental remediation costs are reviewed and adjusted
periodically as further investigation and assignment of responsibility occurs.
NSTAR is unable to estimate its ultimate liability for future environmental
remediation costs. However, in view of NSTAR's current assessment of its
environmental responsibilities, existing legal requirements and regulatory
policies, management does not believe that these matters will have material
adverse effect on NSTAR's results of operations or financial position.
5. Generating Unit Performance Program
The MDTE's generating unit performance programs ceased March 1, 1998. Under
these programs the recovery of incremental purchased power costs resulting from
generating unit outages occurring through the retail access date was subject to
review by the MDTE. However, proceedings relative to generating unit performance
remain pending before the MDTE. These proceedings will include the review of
replacement power costs associated with the shutdown of the Connecticut Yankee
nuclear electric generating unit that is discussed in item 2. Management is
unable to fully determine a range of reasonably possible disallowance costs in
excess of amounts accrued. Based on its assessment of the information currently
available, management does not believe that it is probable that any such
additional costs will have a material impact on NSTAR's consolidated financial
position. However, it is reasonably possible that additional provisions for
disallowance costs that may result from a change in estimates could have a
material impact on the results of a reporting period in the near term.
6. Legal Proceedings
Industry and corporate restructuring legal proceedings
The MDTE order approving the Boston Edison restructuring settlement agreement
was appealed by certain parties to the Massachusetts Supreme Judicial Court. One
settlement agreement appeal remains pending; however, there has to date been no
briefing, hearing or other action taken with respect to this proceeding.
In addition, along with other Massachusetts investor-owned utilities, NSTAR
utility subsidiaries have been named as a defendant in a class action suit
seeking to declare certain provisions of the Massachusetts electric industry
restructuring legislation unconstitutional.
Management is currently unable to determine the outcome of these outstanding
proceedings. However, if an unfavorable outcome were to occur, there could be a
material adverse impact on business operations, the consolidated financial
position or results of operations for a reporting period.
59
<PAGE>
Regulatory proceedings
In October 1997, the MDTE opened a proceeding to investigate Boston Edison's
compliance with the 1993 order that permitted the formation of BETG and
authorized Boston Edison to invest up to $45 million in unregulated activities.
Hearings were completed in the first half of 1999.
Management is currently unable to determine the outcome of this proceeding.
However, if an unfavorable outcome were to occur, there could be a material
adverse impact on business operations, the consolidated financial position or
results of operations for a reporting period.
Other litigation
In October 1998, the town of Plymouth, Massachusetts, the site of Pilgrim
Station, filed suit against Boston Edison. The town claimed that Boston Edison
had wrongfully failed to execute an agreement with the town for payments in
addition to taxes due to the town under the Massachusetts Electric Restructuring
Law. Boston Edison and the town settled the suit and agreed on a 15-year $141
million property tax package in March 1999. Payments in each of the first four
years are approximately $15 million after which payments gradually decline. All
payments under this agreement will be recovered from customers through the
transition charge.
In the normal course of its business NSTAR and its subsidiaries are also
involved in certain other legal matters. Management is unable to fully determine
a range of reasonably possible legal costs in excess of amounts accrued. Based
on the information currently available, it does not believe that it is probable
that any such additional costs will have a material impact on its consolidated
financial position. However, it is reasonably possible that additional legal
costs that may result from a change in estimates could have a material impact on
the results of a reporting period in the near term.
Note N. Long-Term Power Contracts for the Purchase of Electricity
1. Energy Agreements
NSTAR on behalf of Boston Edison, Cambridge Electric Light Company and
ComElectric entered into a six-month agreement effective January 1, 2000 to
transfer all of the unit output entitlements in long-term power purchase
contracts to Select Energy (Select), a subsidiary of Northeast Utilities. In
return, Select will provide full energy service requirements, including NEPOOL
capability responsibilities, at FERC approved tariff rates through June 30,
2000. NSTAR's 1999 proportionate share of capacity and total cost reflects four
months of the COM/Energy subsidiaries from the date of the merger.
60
<PAGE>
Information relating to the contracts as of December 31, 1999 is as follows:
<TABLE>
<CAPTION>
proportionate share (in thousands)
Units of ------------------------------------
Range of Capacity Capacity Charge
Contract Purchased 1999 Obligation 1999
Fuel Type of Expiration ------------- Capacity Through Contract Total
Generating Unit Dates % MW Cost Expiration Date Cost
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Natural Gas 2008-2017 11.1-100 28.8-135 $ 94,625 $1,585,675 $258,838
Nuclear 2004-2026 2.3-8.9 40.9-747.1 16,624 691,741 93,719
Waste-to-energy 2015 100 76.9 - - 14,393
Hydro 2014-2023 100 1.3-20 - - 3,680
Oil 2002-2019 50-100 34-282 13,719 99,553 39,020
- -----------------------------------------------------------------------------------------
Total $124,968 $2,376,969 $409,650
=========================================================================================
</TABLE>
Energy is paid for based on a price per kWh actually received. In 1999, NSTAR's
retail distribution companies did not pay a proportionate share of capital and
fixed operating costs for 1,121.4 MW purchased.
NSTAR's total fixed and variable costs associated with these contracts in 1999,
1998 and 1997 were approximately $410 million, $267 million and $288 million,
respectively. NSTAR's capacity charge obligation under these contracts for the
years after 1999 are as follows:
<TABLE>
<CAPTION>
Capacity Charge
(in thousands) Obligation
- --------------------------------------------------------
<S> <C>
2000 $ 179,979
2001 160,648
2002 159,832
2003 147,505
2004 147,538
Years thereafter 1,581,467
- --------------------------------------------------------
Total $2,376,969
========================================================
</TABLE>
2. Natural Gas Contracts
ComGas has various contractual agreements covering the transportation of natural
gas, underground storage facilities and the purchase of natural gas, which are
recoverable under ComGas' CGAC. These contracts expire at various times from
2003 to 2013.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
Not applicable.
61
<PAGE>
Part III
Item 10. Trustees and Executive Officers of the Registrant
(a) Identification of Trustees
Information required by this item is incorporated herein by reference to the
Notice of Year 2000 Annual Meeting, Proxy Statement and 1999 Financial
Information dated March 30, 2000 on pages 3, 4 and 5.
(b) Identification of Officers
Information required by this item is included in Item 4.A.
Item 11. Executive Compensation
Information required by this item is incorporated herein by reference to the
Notice of 2000 Annual Meeting, Proxy Statement and 1999 Financial Information
dated March 30, 2000. Pages 7-14
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item is incorporated herein by reference to the
Notice of 2000 Annual Meeting, Proxy Statement and 1999 Financial Information
dated March 30, 2000. Pages 1 and 6
Item 13. Certain Relationships and Related Transactions
Information required by this item is incorporated herein by reference to the
Notice of 2000 Annual Meeting, Proxy Statement and 1999 Financial Information
dated March 30, 2000. Pages 9 and 10
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<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements:
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997 34
Consolidated Statements of Retained Earnings for the
years ended December 31, 1999, 1998 and 1997 35
Consolidated Balance Sheets as of December 31, 1999 and 1998 36
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997 37
Notes to Consolidated Financial Statements 38
Selected Consolidated Quarterly Financial Data (Unaudited) 17
Report of Independent Accountants 81
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying accounts - years ended December 31,
1999, 1998 and 1997. 78
3. Exhibits:
Refer to the exhibits listing beginning on the following page.
(b) Reports on Form 8-K:
None
</TABLE>
63
<PAGE>
NSTAR (Registrant)
INCORPORATION HEREIN BY REFERENCE
- ---------------------------------
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
December 5, 1998, amended and restated as of May 4, 1999, by and among
BEC Energy, Commonwealth Energy System, NSTAR, BEC Acquisition LLC and
CES Acquisition LLC (incorporated by reference to Annex A to the Joint
Proxy Statement/Prospectus, Registration Statement on Form S-4 of
NSTAR (No. 333-78285)).
3.1 Declaration of Trust of NSTAR (incorporated by reference to Annex D to
the Joint Proxy Statement/Prospectus, which forms part of this
Registration Statement on Form S-4 of NSTAR (No. 333-78285)).
3.2 Bylaws of NSTAR (attached as Annex E to the Joint Proxy
Statement/Prospectus, which forms part of this Registration
Statement).
4.0 Instruments Defining the Rights of Security Holders, Including
Indentures. Management agrees to furnish to the Securities and
Exchange Commission, upon request, a copy of any other agreements or
instruments of the Registrant and its subsidiaries defining the rights
of holders of any long-term debt not exceed 10% of total assets.
4.1 Indenture dated as of January 12, 2000 between NSTAR and Bank One
Trust Company N.A. (incorporated by reference, Exhibit 4.1 to NSTAR
Registration Statement on Form S-3, File No. 333-94735)
FILED HEREIN
- ------------
21 Subsidiaries of Registrant.
27 Schedule UT.
BEC Energy and Subsidiaries of BEC
----------------------------------
FILED HEREIN
- ------------
10.13 License Agreement between Boston Edison Company and Becocom, Inc.,
June 17, 1997. Incorporated herein by Reference.
INCORPORATED HEREIN BY REFERENCE
- --------------------------------
10.14 Chilled Water Service Agreement between Northwind Boston LLC and
Prucenter Acquisition LLC, March 23, 1999.
3.1 Boston Edison Restated Articles of Organization (Form 10-Q for the
quarter ended June 30, 1994, File No. 1-2301).
3.2 Boston Edison Company Bylaws April 19, 1977, as amended January 22,
1987, January 28, 1988, May 28, 1988, and November 22, 1989 (Form 10-Q
for the quarter ended June 30, 1990, File No. 1-2301).
4.1 Medium-Term Notes Series A - Indenture dated September 1, 1988,
between Boston Edison Company and Bank of Montreal Trust Company (Form
10-Q for the quarter ended September 30, 1988, File No. 1-2301).
4.1.1 First Supplemental Indenture dated June 1, 1990 to Indenture dated
September 1, 1988 with Bank of Montreal Trust Company.
64
<PAGE>
<TABLE>
<S> <C>
9 7/8% debentures due June 1, 2020. (Form 8-K dated June 28, 1990,
File No. 1-2301)
4.1.26 Indenture of Trust and Agreement among the City of Boston,
Massachusetts (acting by and through its Industrial Development
Financing Authority) and Harbor Electric Energy Company and Shawmut
Bank, N.A., as Trustee, dated November 1, 1991 (Form 10-K for the year
end December 31 1991, File No. 1-2301)
4.1.27 Votes of the Pricing Committee of the Board of Directors of Boston
Edison Company taken August 5, 1991 re 9 3/8% debentures due August
15, 2021 (Form 10-K for the year ended December 31, 1991, File No.
1-2301)
4.1.25 Votes of the Pricing Committee of the Board of Directors of Boston
Edison Company taken September 10, 1992 re 8 1/4% debentures due
September 15, 2022 (Form 10-K for the year ended December 31, 1997,
File No. 1-2301)
4.1.26 Votes of the Pricing Committee of the Board of Directors of Boston
Edison Company taken January 27, 1993 re 6/80% debentures due February
1, 2000 (Form 10-K for the year ended December 31, 1992, File No.
1-2301)
4.1.27 Votes of the Pricing Committee of the Board of Directors of Boston
Edison Company taken March 5, 1993 re 6/80% Debentures due March 15,
2003 and 7.80% debentures due March 15, 2023 (Form 10-K for the year
ended December 31, 1992, File No. 1-2301)
4.1.28 Votes of the Pricing Committee of the Board of Directors of Boston
Edison Company taken August 18,1993 re 6.05% debentures due August 15,
2000 (Form 10-K for year ended December 31, 1993, File No. 1-2301)
4.1.9 Votes of the Pricing Committee of the Board of Directors of Boston
Edison Company taken May 10, 1995 re 7.80% debentures due May 15, 2010
(Form 10-K for the year ended December 31, 1995, File No. 1-2301)
10.3.1 Key Executive Benefit Plan Standard Form of Agreement, May 1986, with
modifications (Form 10-K for the year ended December 31, 1991, File
No. 1-2301, File No. 1-2301)
10.5 Executive Annual Incentive Compensation Plan (Form 10-K for the year
ended December 31, 1988, File No. 1-2301)
</TABLE>
65
<PAGE>
<TABLE>
<S> <C>
10.1 Supplemental Executive Retirement Plan (Form 10-Q for the quarter
ended June 10, 1997, File No. 1-2301)
10.2 1997 Stock Incentive Plan (Form 10-Q for the quarter ended June 30,
1997, File No. 1-2301)
10.11 Boston Edison Company Deferred Fee Plan dated January 14, 1993 (Form
10-K for year ended December 31, 1992, File No. 1-2301)
10.10 Deferred Compensation Trust between Boston Edison Company and State
Street Bank and Trust Company dated February 2, 1993 (Form 10-K for
the year ended December 31, 1992, File No. 1-2301)
10.5.1 Amendment No. 1 to Deferred Compensation Trust dated March 31, 1994
(Form 10-K for the year ended December 31, 1994)
10.9 Boston Edison Company Deferred Compensation Plan, Amendment and
Restatement dated January 31, 1995 (Form 10-K for the year ended
December 31, 1994, File No. 1-2301)
10.10 Employment Agreement Applicable to Ronald A. Ledgett dated April 30,
1987 (Form 10-K for the year ended December 31, 1994, File No. 1-2301
10.3 Form of Change in Control Agreement applicable to Ronald A. Ledgett,
James J. Judge and certain other officers dated July 9, 1996
(Form 10-Q for the quarter ended June 30, 1996, File No. 1-2301)
10.12 Boston Edison Company Restructuring Settlement Agreement dated July
1997 (Form 10-K for the year ended December 31, 1997, File No. 1-2301)
10.1 Boston Edison Company and Sithe Energies, Inc. Purchase and Sale and
Transition Agreements dated December 10, 1997 (Form 10-Q for the
quarter ended March 31, 1998, File No. 1-2301)
10.11 Boston Edison Company Directors' Deferred Fee Plan Restatement
effective October 1, 1998 (Form 10-K for the year ended December 31,
1999, File No. 1-2301)
10.12 Boston Edison Company and Entergy Nuclear Generation Company Purchase
and Sale Agreement dated November 18, 1998 (Form 10-K for the year
ended December 31, 1999, File No. 1-2301)
21.1 Boston Edison Company (incorporated in Massachusetts), a wholly owned
subsidiary of BEC Energy
21.2 Boston Energy Technology Group, Inc. (incorporated in Massachusetts),
a wholly owned subsidiary of BEC Energy
</TABLE>
66
<PAGE>
<TABLE>
<S> <C>
21.3 Harbor Electric Energy Company (incorporated in Massachusetts), a
wholly owned subsidiary of Boston Edison Company.
99.1 Settlement Agreement between Boston Edison Company and Commonwealth
Electric Company, Montaup Electric Company and the Municipal Light
Department of the Town of Reading, Massachusetts, dated January 5,
1990 (Form 8-K dated December 21, 1989, File No. 1-2301).
99.2 Settlement Agreement between Boston Edison Company and City of Holyoke
Gas and City of Holyoke Gas and Electric Department et. al., dated
April 26, 1990 (Form 10-Q for the quarter ended March 31, 1990, File
No. 1-2301).
99.3 Information required by SEC Form 11-K for certain employee benefit
plans for the years ended December 31, 1997, 1996 and 1995 (Form
10-K/A Amendments to Form 10-K for the years December 31, 1997, 1996
and 1995 dated June 25, 1998, June 26, 1997 and June 27, 1996
respectively.
Commonwealth Energy System
--------------------------
INCORPORATED HEREIN BY REFERENCE
- --------------------------------
4.1.1 CES Note Agreement ($40 Million Privately Placed Senior Notes) dated
June 28, 1989 (Exhibit 1 to the CES Form 10-Q (September 1989), File
No. 1-7316).
Cambridge Electric Light Company
--------------------------------
INCORPORATED HEREIN BY REFERENCE
- --------------------------------
4.2.1 Original Indenture on Form S-1 (April, 1949) (Exhibit 7(a), File No.
2-7909).
4.2.2 Third Supplemental on Form 10-K (1984) (Exhibit 1, File No. 2-7909).
4.2.3 Fourth Supplemental on Form 10-K (1984) (Exhibit 2, File No. 2-7909).
4.2.4 Sixth Supplemental on Form 10-Q (June 1989) (Exhibit 1, File No.
2-7909).
4.2.5 Seventh Supplemental on Form 10-Q (June 1992), (Exhibit 1, File No.
2-7909).
</TABLE>
67
<PAGE>
<TABLE>
<S> <C>
Commonwealth Gas Company
------------------------
INCORPORATED HEREIN BY REFERENCE
- --------------------------------
4.4.1 Original Indenture on Form S-1 (Feb., 1949) (Exhibit 7(a), File No.
2-7820).
4.4.2 Sixteenth Supplemental on Form 10-K (1986) (Exhibit 1, File No.
2-1647).
4.4.3 Seventeenth Supplemental on Form 10-K (1990) (Exhibit 2, File No.
2-1647).
4.4.4 Eighteenth Supplemental on Form 10-Q (March 1994) (Exhibit 1, File No.
2-1647).
4.4.5 Nineteenth Supplemental on Form 10-K (1997) (Exhibit 1, File No.
2-1647).
10.1 Power contracts.
10.1.1 Power contracts between CEC (Unit 1) and NBGEL and CEL dated
December 1, 1965 (Exhibit 13(a)(1-4) to the CEC Form S-1,
File No. 2-30057).
</TABLE>
68
<PAGE>
<TABLE>
<S> <C>
10.1.2 Power contract between Yankee Atomic Electric Company (YAEC) and CEL
dated June 30, 1959, as amended April 1, 1975 (Refiled as Exhibit 1 to
the 1991 CEL Form 10-K, File No. 2-7909).
10.1.2.1 Second, Third and Fourth Amendments to 10.1.2 as amended October 1,
1980, April 1, 1985 and May 6, 1988, respectively (Exhibit 2 to the
CEL Form 10-Q (June 1988), File No. 2-7909).
10.1.2.2 Fifth and Sixth Amendments to 10.1.2 as amended June 26, 1989 and July
1, 1989, respectively (Exhibit 1 to the CEL Form 10-Q (September
1989), File No. 2-7909).
10.1.3 Power Contract between YAEC and NBGEL dated June 30, 1959, as amended
April 1, 1975 (Refiled as Exhibit 2 to the 1991 CE Form 10-K, File No.
2-7749).
10.1.3.1 Second, Third and Fourth Amendments to 10.1.3 as amended October 1,
1980, April 1, 1985 and May 6, 1988, respectively (Exhibit 1 to the CE
Form 10-Q (June 1988), File No. 2-7749).
10.1.3.2 Fifth and Sixth Amendments to 10.1.3 as amended June 26, 1989 and July
1, 1989, respectively (Exhibit 3 to the CE Form 10-Q (September 1989),
File No. 2-7749).
10.1.4 Power Contract between Connecticut Yankee Atomic Power Company (CYAPC)
and CEL dated July 1, 1964 (Exhibit 13-K1 to the Parent's Form S-1,
(April 1967) File No. 2-25597).
10.1.4.1 Additional Power Contract providing for extension on contract term
between CYAPC and CEL dated April 30, 1984 (Exhibit 5 to the CEL Form
10-Q (June 1984), File No. 2-7909).
10.1.4.2 Second Supplementary Power Contract providing for decommissioning
financing between CYAPC and CEL dated April 30, 1984 (Exhibit 6 to the
CEL Form 10-Q (June 1984), File No. 2-7909).
10.1.5 Power contract between Vermont Yankee Nuclear Power Corporation
(VYNPC) and CEL dated February 1, 1968 (Exhibit 3 to the CEL 1984 Form
10-K, File No. 2-7909).
10.1.5.1 First Amendment dated June 1, 1972 (Section 7) and Second Amendment
dated April 15, 1983 (decommissioning financing) to 10.1.5 (Exhibits 1
and 2, respectively, to the CEL Form 10-Q (June 1984), File No.
2-7909).
10.1.5.2 Third Amendment dated April 1, 1985 and Fourth Amendment dated June 1,
1985 to 10.1.5 (Exhibits 1 and 2, respectively, to the CEL Form 10-Q
(June 1986), File No. 2-7909).
10.1.5.3 Fifth and Sixth Amendments to 10.1.5 dated February 1, 1968, both as
amended May 6, 1988 (Exhibit 1 to the CEL Form 10-Q (June 1988),
File No. 2-7909).
</TABLE>
69
<PAGE>
<TABLE>
<S> <C>
10.1.5.4 Seventh Amendment to 10.1.5 dated February 1, 1968, as amended June
15, 1989 (Exhibit 2 to the CEL Form 10-Q (September 1989), File No.
2-7909).
10.1.5.5 Additional Power Contract dated February 1, 1984 between CEL and VYNPC
providing for decommissioning financing and contract extension
(Refiled as Exhibit 1 to CEL 1993 Form 10-K, File No. 2-7909).
10.1.6 Power contract between Maine Yankee Atomic Power Company (MYAPC) and
CEL dated May 20, 1968 (Exhibit 5 to the Parent's Form S-7, File No.
2-38372).
10.1.6.1 First Amendment dated March 1, 1984 (decommissioning financing) and
Second Amendment dated January 1, 1984 (supplementary payments) to
10.1.6 (Exhibits 3 and 4 to the CEL Form 10-Q (June 1984), File No.
2-7909).
10.1.6.2 Third Amendment to 10.1.6 dated October 1, 1984 (Exhibit 1 to the CEL
Form 10-Q (September 1984), File No. 2-7909).
10.1.7 Agreement between NBGEL and Boston Edison Company (BECO) for the
purchase of electricity from BECO's Pilgrim Unit No. 1 dated August 1,
1972 (Exhibit 7 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.7.1 Service Agreement between NBGEL and BECO for purchase of stand-by
power for BECO's Pilgrim Station dated August 16, 1978 (Exhibit 1 to
the CE 1988 Form 10-K, File No. 2-7749).
10.1.7.2 System Power Sales Agreement by and between CE and BECO dated July 12,
1984 (Exhibit 1 to the CE Form 10-Q (September 1984), File No.
2-7749).
10.1.7.3 Power Exchange Agreement by and between BECO and CE dated December 1,
1984 (Exhibit 16 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.7.4 Service Agreement for Non-Firm Transmission Service between BECO and
CEL dated July 5, 1984 (Exhibit 4 to the CEL 1984 Form 10-K, File No.
2-7909).
10.1.8 Agreement for Joint-Ownership, Construction and Operation of New
Hampshire Nuclear Units (Seabrook) dated May 1, 1973 (Exhibit 13(N) to
the NBGEL Form S-1 dated October 1973, File No. 2-49013 and as amended
below:
10.1.8.1 First through Fifth Amendments to 10.1.8 as amended May 24, 1974, June
21, 1974, September 25, 1974, October 25, 1974 and January 31, 1975,
respectively (Exhibit 13(m) to the NBGEL Form S-1 (November 7, 1975),
File No. 2-54995).
10.1.8.2 Sixth through Eleventh Amendments to 10.1.8 as amended April 18, 1979,
April 25, 1979, June 8, 1979, October 11, 1979 and December 15, 1979,
respectively (Refiled as Exhibit 1 to the CEC 1989 Form 10-K, File No.
2-30057).
10.1.8.3 Twelfth through Fourteenth Amendments to 10.1.8 as amended May 16,
1980, December 31, 1980 and June 1, 1982, respectively (Filed as
Exhibits 1, 2, and 3 to the CE 1992 Form 10-K, File No. 2-7749).
</TABLE>
70
<PAGE>
<TABLE>
<S> <C>
10.1.8.4 Fifteenth and Sixteenth Amendments to 10.1.8 as amended April 27, 1984
and June 15, 1984, respectively (Exhibit 1 to the CEC Form 10-Q (June
1984), File No. 2-30057).
10.1.8.5 Seventeenth Amendment to 10.1.8 as amended March 8, 1985 (Exhibit 1 to
the CEC Form 10-Q (March 1985), File No. 2-30057).
10.1.8.6 Eighteenth Amendment to 10.1.8 as amended March 14, 1986 (Exhibit 1 to
the CEC Form 10-Q (March 1986), File No. 2-30057).
10.1.8.7 Nineteenth Amendment to 10.1.8 as amended May 1, 1986 (Exhibit 1 to
the CEC Form 10-Q (June 1986), File No. 2-30057).
10.1.8.8 Twentieth Amendment to 10.1.8 as amended September 19, 1986 (Exhibit 1
to the CEC 1986 Form 10-K, File No. 2-30057).
10.1.8.9 Twenty-First Amendment to 10.1.8 as amended November 12, 1987 (Exhibit
1 to the CEC 1987 Form 10-K, File No. 2-30057).
10.1.8.10 Settlement Agreement and Twenty-Second Amendment to 10.1.8, both dated
January 13, 1989 (Exhibit 4 to the CEC 1988 Form 10-K, File No.
2-30057).
10.1.9 Purchase and Sale Agreement together with an implementing Addendum
dated December 31, 1981, between CE and CEC, for the purchase and sale
of the CE 3.52% joint-ownership interest in the Seabrook units, dated
January 2, 1981 (Refiled as Exhibit 4 to the CE 1992 Form 10-K, File
No. 2-7749).
10.1.10 Agreement to transfer ownership, construction and operational interest
in the Seabrook Units 1 and 2 from CE to CEC dated January 2, 1981
(Refiled as Exhibit 3 to the 1991 CE Form 10-K, File No. 2-7749).
10.1.11 Power Contract, as amended to February 28, 1990, superseding the Power
Contract dated September 1, 1986 and amendment dated June 1, 1988,
between CEC (seller) and CE and CEL (purchasers) for seller's entire
share of the Net Unit Capability of Seabrook 1 and related energy
(Exhibit 1 to the CEC Form 10-Q (March 1990), File No. 2-30057).
10.1.12 Agreement between NBGEL and Central Maine Power Company (CMP), for the
joint-ownership, construction and operation of William F. Wyman Unit
No. 4 dated November 1, 1974 together with Amendment No. 1 dated June
30, 1975 (Exhibit 13(N) to the NBGEL Form S-1, File No. 2-54955).
</TABLE>
71
<PAGE>
<TABLE>
<S> <C>
10.1.12.1 Amendments No. 2 and 3 to 10.1.12 as amended August 16, 1976 and
December 31, 1978 (Exhibit 5(a) 14 to the Parent's Form S-16 (June
1979), File No. 2-64731).
10.1.13 Agreement between the registrant and Montaup Electric Company (MEC)
for use of common facilities at Canal Units I and II and for
allocation of related costs, executed October 14, 1975 (Exhibit 1 to
the CEC 1985 Form 10-K, File No. 2-30057).
10.1.13.1 Agreement between the registrant and MEC for joint-ownership of Canal
Unit II, executed October 14, 1975 (Exhibit 2 to the CEC 1985 Form
10-K, File No. 2-30057).
10.1.13.2 Agreement between the registrant and MEC for lease relating to Canal
Unit II, executed October 14, 1975 (Exhibit 3 to the CEC 1985 Form
10-K, File No. 2-30057).
10.1.14 Contract between CEC and NBGEL and CEL, affiliated companies, for the
sale of specified amounts of electricity from Canal Unit 2 dated
January 12, 1976 (Exhibit 7 to the Parent's 1985 Form 10-K, File No.
1-7316).
10.1.15 Capacity Acquisition Agreement between CEC,CEL and CE dated September
25, 1980 (Refiled as Exhibit 1 to the 1991 CEC Form 10-K, File No.
2-30057).
10.1.15.1 Amendment to 10.1.15 as amended and restated June 1, 1993, henceforth
referred to as the Capacity Acquisition and Disposition Agreement,
whereby Canal Electric Company, as agent, in addition to acquiring
power may also sell bulk electric power which Cambridge Electric Light
Company and/or Commonwealth Electric Company owns or otherwise has the
right to sell (Exhibit 1 to Canal Electric's Form 10-Q (September
1993), File No. 2-30057).
10.1.16 Phase 1 Vermont Transmission Line Support Agreement and Amendment No.
1 thereto between Vermont Electric Transmission Company, Inc. and
certain other New England utilities, dated December 1, 1981 and June
1, 1982, respectively (Exhibits 5 and 6 to the CE 1992 Form 10-K, File
No. 2-7749).
10.1.16.1 Amendment No. 2 to 10.1.16 as amended November 1, 1982 (Exhibit 5 to
the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.16.2 Amendment No. 3 to 10.1.16 as amended January 1, 1986 (Exhibit 2 to
the CE 1986 Form 10-K, File No. 2-7749).
10.1.17 Power Purchase Agreement between Pioneer Hydropower, Inc. and CE for
the purchase of available hydro-electric energy produced by a facility
located in Ware, Massachusetts, dated September 1, 1983 (Refiled as
Exhibit 1 to the CE 1993 Form 10-K, File No. 2-7749).
</TABLE>
72
<PAGE>
<TABLE>
<S> <C>
10.1.18 Power Purchase Agreement between Corporation Investments, Inc. (CI),
and CE for the purchase of available hydro-electric energy produced by
a facility located in Lowell, Massachusetts, dated January 10, 1983
(Refiled as Exhibit 2 to the CE 1993 Form 10-K, File No. 2-7749).
10.1.18.1 Amendment to 10.1.18 between CI and Boott Hydropower, Inc., an
assignee therefrom, and CE, as amended March 6, 1985 (Exhibit 8 to the
CE 1984 Form 10-K, File No. 2-7749).
10.1.19 Phase 1 Terminal Facility Support Agreement dated December 1, 1981,
Amendment No. 1 dated June 1, 1982 and Amendment No. 2 dated November
1, 1982, between New England Electric Transmission Corporation (NEET),
other New England utilities and CE (Exhibit 1 to the CE Form 10-Q
(June 1984), File No. 2-7749).
10.1.19.1 Amendment No. 3 to 10.1.19 (Exhibit 2 to the CE Form 10-Q (June 1986),
File No. 2-7749).
10.1.20 Preliminary Quebec Interconnection Support Agreement dated May 1,
1981, Amendment No. 1 dated September 1, 1981, Amendment No. 2 dated
June 1, 1982, Amendment No. 3 dated November 1, 1982, Amendment No. 4
dated March 1, 1983 and Amendment No. 5 dated June 1, 1983 among
certain New England Power Pool (NEPOOL) utilities (Exhibit 2 to the CE
Form 10-Q (June 1984), File No. 2-7749).
10.1.21 Agreement with Respect to Use of Quebec Interconnection dated December
1, 1981, Amendment No. 1 dated May 1, 1982 and Amendment No. 2 dated
November 1, 1982 among certain NEPOOL utilities (Exhibit 3 to the CE
Form 10-Q (June 1984), File No. 2-7749).
10.1.21.1 Amendatory Agreement No. 3 to 10.1.21 as amended June 1, 1990, among
certain NEPOOL utilities (Exhibit 1 to the CEC Form 10-Q (September
1990), File No. 2-30057).
10.1.22 Phase I New Hampshire Transmission Line Support Agreement between NEET
and certain other New England Utilities dated December 1, 1981
(Exhibit 4 to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.23 Agreement, dated September 1, 1985, with Respect To Amendment of
Agreement With Respect To Use Of Quebec Interconnection, dated
December 1, 1981, among certain NEPOOL utilities to include Phase II
facilities in the definition of "Project" (Exhibit 1 to the CEC Form
10-Q (September 1985), File No. 2-30057).
10.1.24 Agreement to Preliminary Quebec Interconnection Support Agreement -
Phase II among Public Service Company of New Hampshire (PSNH), New
England Power Co. (NEP), BECO and CEC whereby PSNH assigns a portion
of its interests under the original Agreement to the other three
parties, dated October 1, 1987 (Exhibit 2 to the CEC 1987 Form 10-K,
File No. 2-30057).
</TABLE>
73
<PAGE>
<TABLE>
<S> <C>
10.1.25 Preliminary Quebec Interconnection Support Agreement - Phase II among
certain New England electric utilities dated June 1, 1984 (Exhibit 6
to the CE Form 10-Q (June 1984), File No. 2-7749).
10.1.25.1 First, Second and Third Amendments to 10.1.25 as amended March 1,
1985, January 1, 1986 and March 1, 1987, respectively (Exhibit 1 to
the CEC Form 10-Q (March 1987), File No. 2-30057).
10.1.25.2 Fifth, Sixth and Seventh Amendments to 10.1.25 as amended October 15,
1987, December 15, 1987 and March 1, 1988, respectively (Exhibit 1 to
the CEC Form 10-Q (June 1988), File No. 2-30057).
10.1.25.3 Fourth and Eighth Amendments to 10.1.25 as amended July 1, 1987 and
August 1, 1988, respectively (Exhibit 3 to the CEC Form 10-Q
(September 1988), File No. 2-30057).
10.1.25.4 Ninth and Tenth Amendments to 10.1.25 as amended November 1, 1988 and
January 15, 1989, respectively (Exhibit 2 to the CEC 1988 Form 10-K,
File No. 2-30057).
10.1.25.5 Eleventh Amendment to 10.1.25 as amended November 1, 1989 (Exhibit 4
to the CEC 1989 Form 10-K, File No. 2-30057).
10.1.25.6 Twelfth Amendment to 10.1.25 as amended April 1, 1990 (Exhibit 1 to
the CEC Form 10-Q (June 1990), File No. 2-30057).
10.1.26 Phase II Equity Funding Agreement for New England Hydro-Transmission
Electric Company, Inc. (New England Hydro) (Massachusetts), dated June
1, 1985, between New England Hydro and certain NEPOOL utilities
(Exhibit 2 to the CEC Form 10-Q (September 1985), File No. 2-30057).
10.1.27 Phase II Massachusetts Transmission Facilities Support Agreement dated
June 1, 1985, refiled as a single agreement incorporating Amendments 1
through 7 dated May 1, 1986 through January 1, 1989, respectively,
between New England Hydro and certain NEPOOL utilities (Exhibit 2 to
the CEC Form 10-Q (September 1990), File No. 2-30057).
10.1.28 Phase II New Hampshire Transmission Facilities Support Agreement dated
June 1, 1985, refiled as a single agreement incorporating Amendments 1
through 8 dated May 1, 1986 through January 1, 1990, respectively,
between New England Hydro-Transmission Corporation (New Hampshire
Hydro) and certain NEPOOL utilities (Exhibit 3 to the CEC Form 10-Q
(September 1990), File No. 2-30057).
10.1.29 Phase II Equity Funding Agreement for New Hampshire Hydro, dated June
1, 1985, between New Hampshire Hydro and certain NEPOOL utilities
(Exhibit 3 to the CEC Form 10-Q (September 1985), File No. 2-30057).
10.1.29.1 Amendment No. 1 to 10.1.29 dated May 1, 1986 (Exhibit 6 to the CEC
Form 10-Q (March 1987), File No. 2-30057).
</TABLE>
74
<PAGE>
<TABLE>
<S> <C>
10.1.29.2 Amendment No. 2 to 10.1.29 as amended September 1, 1987 (Exhibit 3 to
the CEC Form 10-Q (September 1987), File No. 2-30057).
10.1.30 Phase II New England Power AC Facilities Support Agreement, dated June
1, 1985, between NEP and certain NEPOOL utilities (Exhibit 6 to the
CEC Form 10-Q (September 1985), File No. 2-30057).
10.1.30.1 Amendments Nos. 1 and 2 to 10.1.30 as amended May 1, 1986 and February
1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q (March 1987),
File No. 2-30057).
10.1.30.2 Amendments Nos. 3 and 4 to 10.1.30 as amended June 1, 1987 and
September 1, 1987, respectively (Exhibit 5 to the CEC Form 10-Q
(September 1987), File No. 2-30057).
10.1.31 Agreement Authorizing Execution of Phase II Firm Energy Contract,
dated September 1, 1985, among certain NEPOOL utilities in regard to
participation in the purchase of power from Hydro-Quebec (Exhibit 8 to
the CEC Form 10-Q (September 1985), File No. 2-30057).
10.1.32 Agreements by and between Swift River Company and CE for the purchase
of available hydro-electric energy to be produced by units located in
Chicopee and North Willbraham, Massachusetts, both dated September 1,
1983 (Exhibits 11 and 12 to the CE 1984 Form 10-K, File No. 2-7749).
10.1.33 Power Purchase Agreement by and between SEMASS Partnership, as seller,
to construct, operate and own a solid waste disposal facility at its
site in Rochester, Massachusetts and CE, as buyer of electric energy
and capacity, dated September 8, 1981 (Exhibit 17 to the CE 1984 Form
10-K, File No. 2-7749).
10.1.33.1 Power Sales Agreement to 10.1.33 for all capacity and related energy
produced, dated October 31, 1985 (Exhibit 2 to the CE 1985 Form 10-K,
File No. 2-7749).
10.1.33.2 Amendment to 10.1.33 for all additional electric capacity and related
energy to be produced by an addition to the Original Unit, dated March
14, 1990 (Exhibit 1 to the CE Form 10-Q (June 1990), File No. 2-7749).
10.1.33.3 Amendment to 10.1.33 for all additional electric capacity and related
energy to be produced by an addition to the Original Unit, dated May
24, 1991 (Exhibit 1 to CE Form 10-Q (June 1991), File No. 2-7749).
10.1.34 Power Sale Agreement by and between CE (buyer) and Northeast Energy
Associated, Ltd. (NEA) (seller) of electric energy and capacity, dated
November 26, 1986 (Exhibit 1 to the CE Form 10-Q (March 1987), File
No. 2-7749).
10.1.34.1 First Amendment to 10.1.34 as amended August 15, 1988 (Exhibit 1 to
the CE Form 10-Q (September 1988), File No. 2-7749).
</TABLE>
75
<PAGE>
<TABLE>
<S> <C>
10.1.34.2 Second Amendment to 10.1.34 as amended January 1, 1989 (Exhibit 2 to
the CE 1988 Form 10-K, File No. 2-7749).
10.1.34.3 Power Sale Agreement dated August 15, 1988 between NEA and CE for the
purchase of 21 MW of electricity (Exhibit 2 to the CE Form 10-Q
(September 1988), File No. 2-7749).
10.1.34.4 Amendment to 10.1.34.3 as amended January 1, 1989 (Exhibit 3 to the CE
1988 Form 10-K, File No. 2-7749).
10.1.35 Power Purchase Agreement and First Amendment, dated September 5, 1989
and August 3, 1990, respectively, by and between Commonwealth Electric
(buyer) and Dartmouth Power Associates Limited Partnership (seller),
whereby buyer will purchase all of the energy (67.6 MW) produced by a
single gas turbine unit (Exhibit 1 to the CE Form 10-Q (June 1992),
File No. 2-7749).
10.1.35.1 Second Amendment, dated June 23, 1994, to 10.1.50 by and between
Commonwealth Electric Company and Dartmouth Power Associates, L.P.
dated September 5, 1989 (Exhibit 4 to the CE Form 10-Q (June 1995),
File No. 2-7749).
10.1.36 Power Purchase Agreement by and between Masspower (seller) and
Com-monwealth Electric Company (buyer) for a 11.11% entitlement to the
electric capacity and related energy of a 240 MW gas-fired
cogen-eration facility, dated February 14, 1992 (Exhibit 1 to
Common-wealth Electric's Form 10-Q (September 1993), File No. 2-7749).
10.1.37 Power Sale Agreement by and between Altresco Pittsfield, L.P. (seller)
and Commonwealth Electric Company (buyer) for a 17.2% entitlement to
the electric capacity and related energy of a 160 MW gas-fired
cogeneration facility, dated February 20, 1992 (Exhibit 2 to
Commonwealth Electric's Form 10-Q (September 1993), File No. 2-7749).
10.1.37.1 System Exchange Agreement by and among Altresco Pittsfield, L.P.,
Cambridge Electric Light Company, Commonwealth Electric Company and
New England Power Company, dated July 2, 1993 (Exhibit 3 to
Commonwealth Electric's Form 10-Q (September 1993), File No 2-7749).
10.1.37.2 Power Sale Agreement by and between Altresco Pittsfield, L. P.
(seller) and Cambridge Electric Light Company (Cambridge Electric)
(buyer) for a 17.2% entitlement to the electric capacity and related
energy of a 160 MW gas-fired cogeneration facility, dated February 20,
1992 (Exhibit 1 to Cambridge Electric's Form 10-Q (September 1993),
File No. 2-7909).
10.1.37.3 First Amendment, dated November 7, 1994, to 10.1.37 by and between
Commonwealth Electric Company and Altresco Pittsfield, L.P. dated
February 20, 1992 (Filed as Exhibit 3 to Commonwealth Electric
Company's Form 10-Q (June 1995), File 2-7749).
</TABLE>
76
<PAGE>
<TABLE>
<S> <C>
10.1.37.4 First Amendment, dated November 7, 1994, to 10.1.37.2 by and between
Cambridge Electric Light Company and Altresco Pittsfield, L.P. dated
February 20, 1992 (Filed as Exhibit 2 to Cambridge Electric Light
Company's Form 10-Q (June 1995), File 2-7909).
10.2.1 Transportation Agreement between CNG and CG to provide for
transportation of natural gas on a daily basis from Steuben Gas
Storage Company to TGP (Exhibit 10 to the CG 1991 Form 10-K, File No.
2-1647).
10.3.1 Pension Plan for Employees of Commonwealth Energy System and
Subsidiary Companies as amended and restated January 1, 1993 (Exhibit
1 to CES Form 10-Q (September 1993), File No. 1-7316).
10.3.2 Employees Savings Plan of Commonwealth Energy System and Subsid-iary
Companies as amended and restated January 1, 1993 (Exhibit 2 to CES
Form 10-Q (September 1993), File No. 1-7316).
10.3.2.1 First Amendment to 10.3.2, effective October 1, 1994. (Exhibit 1 to
CES Form S-8 (January 1995), File No. 1-7316).
10.3.2.2 Second Amendment to 10.3.2, effective April 1, 1996 (Exhibit 1 to CES
Form 10-K/A Amendment No. 1 (April 30, 1996), File No. 1-7316).
10.3.2.3 Third Amendment to 10.3.2, effective January 1, 1997 (Exhibit 1 to CES
Form 10-K/A Amendment No. 1 (April 29, 1997), File No. 1-7316).
10.3.3 New England Power Pool Agreement (NEPOOL) dated September 1, 1971 as
amended through August 1, 1977, between NEGEA Service Corporation, as
agent for CEL, CEC, NBGEL, and various other electric utilities
operating in New England together with amendments dated August 15,
1978, January 31, 1979 and February 1, 1980. (Exhibit 5(c)13 to New
England Gas and Electric Association's Form S-16 (April 1980), File
No. 2-64731).
10.3.3.1 Thirteenth Amendment to 10.3.3 as amended September 1, 1981 (Refiled
as Exhibit 3 to the Parent's 1991 Form 10-K, File No. 1-7316).
10.3.3.2 Fourteenth through Twentieth Amendments to 10.3.3 as amended December
1, 1981, June 1, 1982, June 15, 1983, October 1, 1983, August 1, 1985,
August 15, 1985 and September 1, 1985, respectively (Exhibit 4 to the
CES Form 10-Q (September 1985), File No. 1-7316).
10.3.3.3 Twenty-first Amendment to 10.3.3 as amended to January 1, 1986
(Exhibit 1 to the CES Form 10-Q (March 1986), File No. 1-7316).
10.3.3.4 Twenty-second Amendment to 10.3.3 as amended to September 1, 1986
(Exhibit 1 to the CES Form 10-Q (September 1986), File No. 1-7316).
10.3.3.5 Twenty-third Amendment to 10.3.3 as amended to April 30, 1987 (Exhibit
1 to the CES Form 10-Q (June 1987), File No. 1-7316).
</TABLE>
77
<PAGE>
<TABLE>
<S> <C>
10.3.3.6 Twenty-fourth Amendment to 10.3.3 as amended March 1, 1988 (Exhibit 1
to the CES Form 10-Q (March 1989), File No. 1-7316).
10.3.3.7 Twenty-fifth Amendment to 10.3.3. as amended to May 1, 1988 (Exhibit 1
to the CES Form 10-Q (March 1988), File No. 1-7316).
10.3.3.8 Twenty-sixth Agreement to 10.3.3 as amended March 15, 1989 (Exhibit 1
to the CES Form 10-Q (March 1989), File No. 1-7316).
10.3.3.9 Twenty-seventh Agreement to 10.3.3 as amended October 1, 1990 (Exhibit
3 to the CES 1990 Form 10-K, File No. 1-7316).
10.3.3.10 Twenty-eighth Agreement to 10.3.3 as amended September 15, 1992
(Exhibit 1 to the CES Form 10-Q (September 1994), File No. 1-7316).
10.3.3.11 Twenty-ninth Agreement to 10.3.3 as amended May 1, 1993 (Exhibit 2 to
the CES Form 10-Q (September 1994), File No. 1-7316).
10.3.4 Guarantee Agreement by CEL (as guarantor) and MYA Fuel Company (as
initial lender) covering the unconditional guarantee of a portion of
the payment obligations of Maine Yankee Atomic Power Company under a
loan agreement and note initially between Maine Yankee and MYA Fuel
Company (Exhibit 3 to the CEL Form 10-K for 1985, File No. 2-7909).
</TABLE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION> Additions
---------------------------
Balance at Provisions Deductions Balance
Beginning Charged to Accounts at End
Description of Year Operations Recoveries Written Off of Year
- ----------- ---------- ----------- ---------- ------------ --------
Year Ended December 31, 1999
----------------------------
<S> <C> <C> <C> <C> <C>
Allowance for
Doubtful Accounts $14,158(a) $23,098 $5,260 $20,089 $22,427
<CAPTION>
Year Ended December 31, 1998
----------------------------
<S> <C> <C> <C> <C> <C>
Allowance for
Doubtful Accounts $10,228 $ 9,555 $4,242 $14,959 $ 9,066
<CAPTION>
Year Ended December 31, 1997
----------------------------
<S> <C> <C> <C> <C> <C>
Allowance for
Doubtful Accounts $ 2,000 $24,884 $3,593 $20,249 $10,228
</TABLE>
(a) The beginning balance includes $5,092,000 that relates to COM/Energy's
reserve balance at the merger date of August 25, 1999.
78
<PAGE>
FORM 10K NSTAR DECEMBER 31, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NSTAR
By: /s/ James J. Judge
---------------------------------------
James J. Judge
Senior Vice President, Chief
Financial Officer and Treasurer
Date: March 25, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934 this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 25th day of March 2000.
/s/ Thomas J. May Chairman of the Board
- ----------------------------------- and Chief Executive Officer
Thomas J. May
/s/ Robert J. Weafer, Jr. Vice President, Controller and
- ----------------------------------- Chief Accounting Officer
Robert J. Weafer, Jr.
/s/ Kevin C. Bryant Trustee
- -----------------------------------
Kevin C. Bryant
/s/ Sheldon A. Buckler Trustee
- -----------------------------------
Sheldon A. Buckler
/s/ Gary L. Countryman Trustee
- -----------------------------------
Gary L. Countryman
Trustee
- -----------------------------------
Peter H. Cressy
/s/ Thomas G. Dignan, Jr. Trustee
- -----------------------------------
Thomas G. Dignan, Jr.
79
<PAGE>
Trustee
- -----------------------------------
Richard J. Egan
Trustee
- -----------------------------------
Betty L. Francis
/s/ Charles K. Gifford Trustee
- -----------------------------------
Charles K. Gifford
/s/ Nelson S. Gifford Trustee
- -----------------------------------
Nelson S. Gifford
/s/ Matina S. Horner Trustee
- -----------------------------------
Matina S. Horner
/s/ Franklin M. Hundley Trustee
- -----------------------------------
Franklin M. Hundley
/s/ Paul A. La Camera Trustee
- -----------------------------------
Paul A. La Camera
/s/ Thomas J. May Trustee
- -----------------------------------
Thomas J. May
/s/ William J. O'Brien Trustee
- -----------------------------------
William J. O'Brien
/s/ Sherry H. Penney Trustee
- -----------------------------------
Sherry H. Penney
Trustee
- -----------------------------------
Herbert Roth Jr.
Trustee
- -----------------------------------
Stephen J. Sweeney
/s/ Gerald L. Wilson Trustee
- -----------------------------------
Gerald L. Wilson
/s/ Russell D. Wright Trustee
- -----------------------------------
Russell D. Wright
80
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of NSTAR:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 63 and listed in the index appearing under
Item 14(a)(2) on page 63, respectively, present fairly, in all material
respects, the financial position of NSTAR and its subsidiaries at December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. In addition, in
our opinion, the financial statement schedules listed in the index appearing
under Item 14(a)(1) on page 63 and listed in the index appearing under Item
14(a)(2) on page 63, respectively, present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits. We conducted our audits of
these statements and schedule in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 26, 2000
81
<PAGE>
Selected Consolidated Financial Statistics (Unaudited)
<TABLE>
<CAPTION>
1999(a) 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues (000) $ 1,851,427 $ 1,622,515 $ 1,776,233 $ 1,666,303 $ 1,628,503
Earnings available for
common (000) $ 140,503 $ 132,281 $ 131,493 $ 126,181 $ 96,739(b)
Per common share:
Earnings $ 2.77 $ 2.76 $ 2.71 $ 2.61(a) $ 2.08(b)
Dividends declared $ 1.955 $ 1.880 $ 1.880 $ 1.835 $ 1.775
Dividends paid $ 1.94 $ 1.88 $ 1.88 $ 1.82 $$1.76
Book value $ 26.25 $ 22.13 $ 21.37 $ 20.61 $ 20.11
Payout ratio 70% 68% 69% 72% 88%(b)
Return on average common
equity 11.7% 12.3% 12.4% 12.4% 10.0%
Year-end dividend yield 4.9% 4.7% 5.0% 7.0% 6.4%
Fixed charge coverage (SEC) 2.32 2.74 2.50 2.91 2.38
Capitalization:
Total debt 47% 48% 51% 52% 54%
Preferred equity 3% 4% 7% 8% 8%
Common equity 50% 48% 42% 40% 38%
Long-term debt (000) $ 986,843 $ 955,563 $ 1,057,076 $ 1,058,644 $ 1,160,223
Mandatory redeemable
preferred stock (000) $ 49,279 $ 49,040 $ 80,093 $ 83,465 $ 86,837
Total assets (000) $ 5,483,013 $ 3,213,899 $ 3,622,347 $ 3,729,291 $ 3,637,170
Internal generation after
dividends (000) $ 276,636 $ 116,002 $ 240,362 $ 257,446 $ 184,492
Plant expenditures (000) $ 154,295 $ 120,202 $ 114,110 $ 145,347 $ 180,822
Internal generation 174% 97% 211% 177% 102%
Common shares outstanding:
Weighted average 50,795,874 47,973,402 48,514,958 48,264,734 46,591,662
Year-end 58,059,646 47,184,073 48,514,973 48,509,537 48,003,178
Stock price:
High $44 5/8 $44 15/16 $38 3/8 $30 1/8 $29 1/2
Low $36 7/16 $35 1/16 $24 5/8 $21 3/4 $23 1/8
Year-end $40 1/2 $41 3/16 $37 7/8 $26 7/8 $29 1/2
Year-end market
value (000) $ 2,351,416 $ 1,943,394 $ 1,837,505 $ 1,303,694 $ 1,416,094
Trading volume
(shares) 20,131,700 33,574,000 37,732,900 41,105,700 23,078,900
Market/book ratio
(year-end) 1.52 1.85 1.71 1.26 1.43
Price/earnings ratio
(year-end) 14.6 14.9 14.0 10.3 14.2(b)
Number of utility employees
At year-end 3,381 2,919 3,227 3,362 3,812
</TABLE>
(a) Due to the application of the purchase method of accounting, the results
for 1999 reflect 8 months of BEC energy and 4 months of NSTAR.
(b) Amounts excluding $34 million pre-tax restructuring charge:
<TABLE>
<S> <C>
Earnings available
for common (000) $ 117,403
Earnings $ 2.52
Payout ratio 72%
Return on average
common equity 12.2%
Price/earnings ratio 11.7
</TABLE>
Certain reclassifications and recalculations were made to the data reported in
prior years to conform with the method of presentation used in 1997.
<PAGE>
EXHIBIT 3.2.1
BYLAWS OF BOSTON EDISON THROUGH SEPTEMBER 20, 1999
BYLAWS
OF
BOSTON EDISON COMPANY
April 19, 1997, as amended
January 22, 1987;
January 28, 1988;
May 24, 1988;
November 22, 1989;
July 22, 1999; and
September 20, 1999
Section 1. ARTICLES OF ORGANIZATION
The name and purposes of the corporation shall be as set forth in the
Articles of Organization. These Bylaws, the powers of the corporation and of its
directors and stockholders, or of any class of stockholders, and all matters
concerning the conduct and regulation of the business and affairs of the
corporation shall be subject to such provisions in regard thereto, if any, as
are set forth in the Articles of Organization as from time to time are in
effect.
Section 2. STOCKHOLDERS
2.1 Annual Meeting. The annual meeting of the stockholders shall be held
--------------
at 11:00 in the forenoon on the last Tuesday in April in each year, unless a
different date or hour is fixed by the president or the directors. If that day
be a legal holiday at the place where the meeting is to be held, the meeting
shall be held on the next succeeding day not a legal holiday at such place.
Purposes for which an annual meeting is to be held, additional to those
prescribed by law, by the Articles of Organization or by these Bylaws, may be
specified by the president or by the directors.
2.2 Special Meeting in Place of Annual Meeting. If no annual meeting has
------------------------------------------
been held in accordance with the foregoing provisions, a special meeting of the
stockholders may be held in place thereof, and any action taken at such special
meeting shall have the same force and effect as if taken at the annual meeting,
and in such case all references in these Bylaws to the annual meeting of the
stockholders shall be deemed to refer to such special meeting. Any such special
meeting shall be called as provided in Section 2.3.
<PAGE>
BYLAWS
OF
BOSTON EDISON COMPANY
April 19, 1977, as amended
January 22, 1987;
January 28, 1988;
May 24, 1988;
November 22, 1989;
July 22, 1999; and
September 20, 1999
Section 1. ARTICLES OF ORGANIZATION
The name and purposes of the corporation shall be as set forth in the
Articles of Organization. These Bylaws, the powers of the corporation and of its
directors and stockholders, or of any class of stockholders, and all matters
concerning the conduct and regulation of the business and affairs of the
corporation shall be subject to such provisions in regard thereto, if any, as
are set forth in the Articles of Organization as from time to time in effect.
Section 2. STOCKHOLDERS
2.1 Annual Meeting. The annual meeting of the stockholders shall be held at
11:00 in the forenoon on the last Tuesday in April in each year, unless a
different date or hour is fixed by the president or the directors. If that day
be a legal holiday at the place where the meeting is to be held, the meeting
shall be held on the next succeeding day not a legal holiday at such place.
Purposes for which an annual meeting is to be held, additional to those
prescribed by law, by the Articles of Organization or by these Bylaws, may be
specified by the president or by the directors.
2.2 Special Meeting in Place of Annual Meeting. If no annual meeting has
been held in accordance with the foregoing provisions, a special meeting of the
stockholders may be held in place thereof, and any action taken at such special
meeting shall have the same force and effect as if taken at the annual meeting,
and in such case all references in these Bylaws to the annual meeting of the
stockholders shall be deemed to refer to such special meeting. Any such special
meeting shall be called as provided in Section 2.3.
<PAGE>
2.3 Special Meetings. A special meeting of the stockholders entitled to
vote at the meeting may be called by order of the president or as provided in
the Articles of Organization, and the clerk shall, upon request of a majority of
the directors then in office, call a special meeting of such stockholders.
2.4 Place of Meetings. All meetings of the stockholders shall be held at
the principal office of the corporation in Boston or at such other place in The
Commonwealth of Massachusetts as shall be fixed by the president or the
directors. Any adjourned session of any meeting of the stockholders shall be
held in The Commonwealth of Massachusetts at the place designated in the vote of
adjournment.
2.5 Notice of Meetings. A written notice of each meeting of stockholders,
stating the place, date and hour and the purposes of the meeting, shall be given
at least seven days before the meeting to each stockholder entitled to vote
thereat and to each stockholder who, by law, by the Articles of Organization or
by these Bylaws, is entitled to notice, by leaving such notice with him or at
the stockholder's residence or usual place of business, or by mailing it,
postage prepaid, addressed to such stockholder at the stockholder's address as
it appears in the records of the corporation. Such notice shall be given by the
clerk or an assistant clerk or by an officer designated by the directors.
Whenever notice of a meeting is required to be given to a stockholder under any
provision of Massachusetts law applicable to the corporation or of the Articles
of Organization or of these Bylaws, a written waiver thereof, executed before or
after the meeting by such stockholder or the stockholder's attorney thereunto
authorized and filed with the records of the meeting, shall be deemed equivalent
to such notice.
2.6 Quorum of Stockholders. At any meeting of the stockholders, a quorum
shall consist of a majority in interest of all stock issued and outstanding and
entitled to vote at the meeing, except as otherwise provided in the Articles of
Organization or in these Bylaws and except when a larger quorum is required by
law. Stock owned directly or indirectly by the corporation, if any, shall not be
deemed outstanding for this purpose. Any meeting may be adjourned from time to
time by a majority of the votes properly cast upon any question, whether or not
a quorum is present, and the meeting may be held as adjourned without further
notice.
2.7 Action by Vote. When a quorum is present at any meeting, a plurality of
the votes properly cast for election to any office shall elect to such office,
and a majority of the votes properly cast upon any question other than an
election to an office shall decide the question, except when a larger vote is
required by law, by the Articles of Organization or by these Bylaws. No ballot
shall be required for any election unless requested by a stockholder present or
represented at the meeting and entitled to vote in the election.
2.8 Voting. Stockholders entitled to vote shall have one vote for each
share of stock entitled to vote held by them of record according to the records
of the corporation, unless otherwise provided by the Articles of Organization.
The corporation shall not, directly or indirectly, vote any share of its own
stock.
-2-
<PAGE>
2.9 Proxies. Stockholders entitled to vote may vote either in person or by
proxy in writing dated not more than six months before the meeting named
therein, which proxies shall be filed with the clerk or other person responsible
to record the proceedings of the meeting before being voted. Unless otherwise
specifically limited by their terms, such proxies shall entitle the holders
thereof to vote at any adjournment of such meeting but shall not be valid after
the final adjournment of such meeting.
Section 3. BOARD OF DIRECTORS
3.1 Number. The corporation shall not have less that three directors, the
number of directors to be fixed from time to time by vote of a majority of the
directors then in office; provided, however, that the number of directors shall
be fixed at not less than two whenever the corporation shall have only two
stockholders and not less than one whenever the corporation shall have only one
stockholder. Except in connection with the election of directors at the annual
meeting of stockholders, the number of directors may be decreased only to
eliminate vacancies existing by reason of the death, resignation, removal or
disqualification of one or more directors. No director need be a stockholder.
3.2 Tenure. Except as otherwise provided by law, by the Articles of
Organization, or by these Bylaws, each director shall hold office until the next
annual meeting of the shareholders and until such director's successor is duly
elected and qualified, or until such director sooner dies, resigns, is removed
or becomes disqualified.
3.3 Powers. Except as reserved to the stockholders by law, by the Articles
of Organization or by these Bylaws, the business of the corporation shall be
managed by the directors who shall have and may exercise all of the powers of
the corporation. In particular, and without limiting the generality of the
foregoing, the directors may, subject to any requirements of law, at any time
issue all or from time to time any part of the unissued capital stock of the
corporation from time to time authorized under the Articles of Organization and
may determine, subject to any requirements of law, the consideration for which
stock is to be issued and the manner of allocating such consideration between
capital and surplus.
3.4 Committees. The directors shall, by vote of a majority of the directors
then in office, elect from their number an executive committee which shall
include the chairman of the board of directors, if any, and the president, and
which shall have and exercise the powers of the board in the intervals between
the meetings of the board, except that the executive committee shall not
exercise those powers of the board which by law, by the Articles of Organization
or by these Bylaws the board is prohibited from delegating. The directors may
also, by vote of a majority of the directors then in office, elect from their
number other committees and may by vote delegate to any such committee or
committees some or all of the power of the directors except those which by law,
by the Articles of Organization or by these Bylaws they are prohibited from
delegating. Except as the directors may otherwise determine, any such committee
may make rules for the conduct of its business, but unless otherwise provided by
the directors or such rules, its business shall be conducted as nearly as may be
in the same manner as is provided by these Bylaws for the conduct of business by
the directors.
-3-
<PAGE>
3.5 Regular Meetings. Regular meetings of the directors may be held without
call or notice at such places and at such times as the directors may from time
to time determine, provided that notice of the first regular meeting following
any such determination shall be given to absent directors. A regular meeting of
the directors may be held without call or notice immediately after and at the
same place as the annual meeting of the stockholders.
3.6 Special Meetings. Special meetings of the directors may be held at any
time and at any place designated in the call of the meeting, when called by the
chairman of the board of directors, if any, or by the president or the treasurer
or by three or more directors, reasonable notice thereof being given to each
director by the clerk or an assistant clerk, or by the officer or one of the
directors calling the meeting.
3.7 Notice. It shall be sufficient notice to a director to send notice by
mail at least forty-eight hours or by telegram at least twenty-four hours before
the meeting addressed to such director at the director's usual or last known
business or residence address or to give notice to such director in person or by
telephone at least twenty-four hours before the meeting. Notice of a meeting
need not be given to any director if a written waiver of notice, executed by
such director before or after the meeting, is filed with the records of the
meeting, or to any director who attends the meeting without protesting prior
thereto or at its commencement the lack of such notice. Neither notice of a
meeting nor a waiver of a notice need specify the purposes of the meeting.
3.8 Presence through Communications Equipment. Unless otherwise provided by
law or the Articles of Organization, members of the board of directors or any
committee designated thereby may participate in a meeting of such board or
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
at the same time and participation by such means shall constitute presence in
person at a meeting.
3.9 Quorum. At any meeting of the directors, six directors shall constitute
a quorum, except when the number of directors then in office shall be less than
twelve, in which case a majority of the directors then in office shall
constitute a quorum. Any meeting may be adjourned from time to time by a
majority of the votes cast upon the question, whether or not a quorum is
present, and the meeting may be held as adjourned without further notice.
3.10 Action by Vote. When a quorum is present at any meeting, a majority of
the directors present may take any action, except when a larger vote is required
by law, by the Articles of Organization or by these Bylaws.
3.11 Action by Writing. Unless the Articles of Organization otherwise
provide, any action required or permitted to be taken at any meeting of the
directors may be taken without a meeting if all the directors consent to the
action in writing and the written consents are filed with the records of the
meetings of the directors. Such consents shall be treated for all purposes as a
vote taken at a meeting.
-4-
<PAGE>
Section 4. OFFICERS AND AGENTS
4.1 Enumeration; Qualification. The officers of the corporation shall be a
president, a treasurer, a clerk, and such other officers, including a chairman
of the board of directors, as the directors from time to time may in their
discretion elect or appoint. The corporation may also have such agents, if any,
as the directors from time to time may in their discretion appoint. Any officer
may be but none need be a director or stockholder. The clerk shall be a resident
of Massachusetts unless the corporation has a resident agent appointed for the
purpose of service of process. Any two or more offices may be held by the same
person. Any officer may be required by the directors to give bond for the
faithful performance of his or her duties to the corporation in such amount and
with such sureties as the directors may determine.
4.2 Powers. Subject to law, to the Articles of Organization and to the
other provisions of these Bylaws, each officer shall have, in addition to the
duties and powers herein set forth, such duties and powers as are commonly
incident to his or her office and such duties and powers as the directors may
from time to time designate.
4.3 Election. The chairman of the board of directors, if any, and the
president, the treasurer and the clerk shall be elected annually by the
directors at their first meeting following the annual meeting of the
stockholders. Other officers, if any, may be elevated or appointed by the board
of directors at said meeting or at any other time.
4.4 Tenure. Except as otherwise provided by law or by the Articles of
Organization or by these Bylaws, the chairman of the board of directors, if any,
the president, the treasurer and the clerk shall hold office until the first
meeting of the directors following the next annual meeting of the stockholders
and until their respective successors are chosen and qualified, and other
officers shall hold office until their respective successors are chosen and
qualified, or in each case until any such officer sooner dies, resigns, is
removed or becomes disqualified. Each agent shall retain his authority at the
pleasure of the directors.
4.5 Chief Executive Officer, Chairman of the Board, President and Vice
Presidents. The directors of the corporation shall designate either the chairman
of the board of directors, if any, or the president as the chief executive
officer of the corporation who shall have general charge and supervision of the
business of the corporation, subject to the control of the directors.
The president, if not designated chief executive officer, and any vice
president shall have such duties and powers as shall be designated from time to
time by the directors or the chief executive officer of the corporation.
4.6 Treasurer and Assistant Treasurers. The treasurer shall be in charge of
the corporation's funds and valuable papers, books of account and accounting
records and shall have such other duties and powers as may be designated from
time to time by the directors or by the chief executive officer of the
corporation.
-5-
<PAGE>
Any assistant treasurers shall have such duties and powers as shall be
designated from time to time by the directors or the chief executive officer of
the corporation.
4.7 Clerk and Assistant Clerk. The clerk shall record all proceedings of
the stockholders in a book or series of books to be kept therefor, which book or
books shall be kept at the principal office of the corporation or at the office
of its transfer agent or of its clerk and shall be open at all reasonable times
to the inspection of any stockholder. In the absence of the clerk from any
meeting of stockholders, an assistant clerk, or if there be none or the
assistant clerk is absent, a temporary clerk chosen at the meeting, shall record
the proceedings thereof in the aforesaid book. Unless a transfer agent has been
appointed, the clerk shall keep or cause to be kept the stock and transfer
records of the corporation, which shall contain the names and record addresses
of all stockholders and the amount of stock held by each. The clerk shall keep a
true record of the proceedings of all meetings of the directors and in the
clerk's absence from any such meeting an assistant clerk, or if there be none or
the assistant clerk is absent, a temporary clerk chosen at the meeting, shall
record the proceedings thereof.
Any assistant clerk shall have such other duties and powers as shall be
designated from time to time by the directors or the chief executive officer of
the corporation.
Section 5. RESIGNATIONS AND REMOVALS
Any director or officer may resign at any time by delivering his or her
resignation in writing to the chairman of the board, if any, the president, the
treasurer or the clerk or to a meeting of the directors. Such resignation shall
be effective upon receipt unless specified to be effective at some other time.
Except as otherwise provided in the Articles of Organization, a director
(including persons elected by directors to fill vacancies in the board) may be
removed from office: (a) for cause by the vote of the holders of a majority of
the shares issued and outstanding and entitled to vote generally in the election
of directors, provided that the directors of a class elected by a particular
class of stockholders may be removed only by the vote of the holders of a
majority of the shares of such class; (b) without cause by the vote of the
holders of 80% of the shares issued and outstanding and entitled to vote
generally in the election of directors, provided that the directors of a class
elected by a particular class of stockholders may be removed without cause only
by a vote of the holders of a majority of the shares of such class; or (c) for
cause by a vote of a majority of the directors then in office. The directors may
remove any officer elected or appointed by them with or without cause by the
vote of a majority of the directors then in office. A director or officer may be
removed for cause only after reasonable notice and opportunity to be heard
before the body proposing to remove him or her. Except where a right to receive
compensation shall be expressly provided in a duly authorized written agreement
with the corporation, no director or officer resigning, and no director or
officer removed, shall have any right to any compensation as such director or
officer for any period following his or her resignation or removal, or any right
to damages on account of such removal, whether his or her compensation be by the
month or by the year or otherwise, unless in the case of a resignation the
directors, or in the case of a removal the body acting on the removal, shall in
their or its discretion provide for compensation.
-6-
<PAGE>
Section 6. VACANCIES
Any vacancy in the board of directors, including a vacancy resulting from
the enlargement of the board, may be filled by vote of the stockholders or, in
the absence of stockholder action, by the directors by vote of a majority of the
directors then in office. The directors shall elect a successor if the office of
the president, treasurer or clerk becomes vacant and may elect a successor if
any other office becomes vacant. Each such successor shall hold office for the
unexpired term and, in the case of the president, treasurer or clerk, until such
officer's successor is chosen and qualified, or in each case until such officer
sooner dies, resigns, is removed or becomes disqualified. The directors may
exercise all their powers notwithstanding the existence of one or more vacancies
in their number.
Section 7. CAPITAL STOCK
7.1 Number and Par Value. The total number of shares and the par value, if
any, of each class of stock which the corporation is authorized to issue shall
be as stated in the Articles of Organization.
7.2 Fractional Shares. The corporation shall not issue fractional shares of
stock but may issue scrip in registered or bearer form which shall entitle the
holder to receive a certificate for a full share upon surrender of such scrip
aggregating a full share, the terms and conditions and manner of issue of such
scrip to be fixed by the directors.
7.3 Stock Certificates. Each stockholder shall be entitled to a certificate
stating the number and the class and the designation of the series, if any, of
the shares held by such stockholder, in such form as shall, in conformity to
law, be prescribed from time to time by the directors. Such certificate shall be
signed by the president or a vice president and by the treasurer or an assistant
treasurer. Such signatures may be facsimiles if the certificate is signed by a
transfer agent, or by a registrar, other than a director, officer or employee of
the corporation. In case any officer who has signed or whose facsimile signature
has been placed on such certificate shall have ceased to be such officer before
such certificate is issued, it may be issued by the corporation with the same
effect as if he or she were such officer at the time of its issue.
The stock and transfer records shall be kept at the corporation's principal
office or an office of its transfer agent.
7.4 Loss of Certificates. In the case of the alleged loss or destruction or
the mutilation of a certificate of stock, a duplicate certificate may be issued
in place thereof, upon such terms as the directors may prescribe.
Section 8. TRANSFER OF SHARES OF STOCK
8.1 Transfer on Books. Subject to the restrictions, if any, stated or noted
on the stock certificates, shares of stock may be transferred on the books of
the corporation by the surrender
-7-
<PAGE>
to the corporation or its transfer agent of the certificate therefor properly
endorsed or accompanied by a written assignment and power of attorney properly
executed, with necessary transfer stamps affixed, and with such proof of the
authenticity of signature as the directors or the transfer agent of the
corporation may reasonably require. Except as may be otherwise required by law,
by the Articles of Organization or by these Bylaws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to receive notice and to vote with respect thereto, regardless of any transfer,
pledge or other disposition of such stock, until the shares have been
transferred on the books of the corporation in accordance with the requirements
of these Bylaws.
It shall be the duty of each stockholder to notify the corporation of his
or her post office address.
8.2 Record Date and Closing Transfer Books. The directors may fix in
advance a time, which shall not be more than sixty days before the date of any
meeting of stockholders or the date for the payment of any dividend or making of
any distribution to stockholders or the last day on which the consent or dissent
of stockholders may be effectively expressed for any purpose, as the record date
for determining the stockholders having the right to notice of and to vote at
such meeting and any adjournment thereof or the right to receive such dividend
or distribution or the right to give such consent or dissent, and in such case
only stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the corporation after the
record date; or without fixing such record date the directors may for any of
such purposes close the transfer books for all or any part of such period. If no
record date is fixed and the transfer books are not closed:
(1) The record date for determining stockholders having the right to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the date next preceding the day on which notice is given.
(2) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of
directors acts with respect thereto.
Section 9. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the extent legally permissible, indemnify each of
its directors and officers (including persons who serve at its request as
directors, officers or trustees of another organization in which it has any
interest, as a shareholder, creditor or otherwise) against all liabilities and
expenses, including amounts paid in satisfaction of judgments, in compromise or
as fines and penalties, and counsel fees, reasonably incurred by such person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which such person may be involved or
with which such person may be threatened, while in office or thereafter, by
reason of such person's being or having been such a director, officer or
trustee, except with respect to any matter as to which such person shall have
been adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that his or her action was in the best interests of the
corporation, and any person serving another organization in one or more of the
indicated capacities at the request of this corporation who shall have acted in
good faith in the reasonable belief that his or her action was
-8-
<PAGE>
in the best interests of such other organization will be deemed to have acted in
the best interests of this corporation; provided, however, that as to any matter
disposed of by a compromise payment by such director or officer, pursuant to a
consent decree or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless such compromise shall be approved as
in the best interests of the corporation, after notice that it involved such
indemnification: (a) by a disinterested majority of the directors then in
office; (b) by a majority of the disinterested directors then in office,
provided that there has been obtained an opinion in writing of independent legal
counsel to the effect that such director or officer appears to have acted in
good faith in the reasonable belief that his or her action was in the best
interests of the corporation; or (c) by the holders of a majority of the
outstanding stock at the time entitled to vote for directors, voting as a single
class, exclusive of any stock owned by any interested director or officer. Each
director and officer of the corporation shall, in the performance of his or her
duties, be fully protected in relying in good faith upon the books of account of
the corporation, reports made to the corporation by any of its officers or
employees or by counsel, accountants, appraisers or other experts or consultants
selected with reasonable care by the directors, or upon other records of the
corporation. Expenses, including counsel fees, reasonably incurred by any
director or officer in connection with the defense or disposition of any such
action, suit or other proceeding may be paid from time to time by the
corporation in advance of the final disposition thereof upon receipt of an
undertaking by such director or officer to repay the amounts so paid by the
corporation if it is ultimately determined that indemnification for such
expenses is not authorized under this section. The right of indemnification
hereby provided shall not be exclusive of or affect any other rights to which
any director or officer may be entitled. As used in this section, the terms
"director" and "officer" include their respective heirs, executors and
administrators, and an "interested" director or officer is one against whom in
such capacity the proceedings in question or another proceeding on the same or
similar grounds is then pending. Nothing contained in this section shall affect
any rights to indemnification to which corporate personnel other than directors
and officers may be entitled by contract or otherwise under law.
Section 10. CORPORATE SEAL
The seal of the corporation shall bear the inscription: Boston Edison
Company - 1886 - Massachusetts.
Section 11. EXECUTION OF PAPERS
Except as the directors may generally or in particular cases authorize the
execution thereof in some other manner, all deeds, leases, transfers, contracts,
bonds, notes, checks, drafts and other obligations made, accepted or endorsed by
the corporation shall be signed by the chairman of the board of directors, if
any, or by the president or by one of the vice presidents or by the treasurer.
-9-
<PAGE>
Section 12. FISCAL YEAR
Except as otherwise provided by the board of directors, the fiscal year of
the corporation shall end on the last day of December in each year.
Section 13. CONTROL SHARE ACQUISITION
The provisions of Massachusetts General Laws Chapter 110D as in effect from
time to time shall not apply to control share acquisitions of the corporation.
Section 14. AMENDMENTS
These Bylaws may be altered, amended or repealed at any annual or special
meeting of the stockholders called for the purpose, of which the notice shall
specify the subject matter of the proposed alteration, amendment or repeal or
the sections to be affected thereby, by vote of the stockholders, or if there
shall be two or more classes or series of stock entitled to vote on the
question, by vote of each such class or series. The vote of the holders of 80%
of the shares issued and outstanding and entitled to vote generally in the
election of directors shall be required for any alteration, amendment or repeal
adopted or recommended by 80% of the directors then in office. These Bylaws may
also be altered, amended or repealed by vote of a majority of the directors then
in office, except with respect to any provision which by law, the Articles of
Organization, or these Bylaws requires action by the stockholders and except for
any alteration, amendment or repeal of Section 3.1, Section 3.2, the third
sentence of Section 5 or the first two sentences of Section 6 which shall
require a vote of 80% of the directors then in office. Action by the
stockholders is required to amend, alter or repeal Section 9 of these Bylaws, or
to amend, alter or repeal this Section 14 so as to increase the power of the
directors or to reduce the power of the stockholders to amend, alter or repeal
these Bylaws.
Any Bylaw so altered, amended or repealed by the directors may be further
altered or amended or reinstated by the stockholders in the above manner.
-10-
<PAGE>
EXHIBIT 3.3.1
AMENDED AND RESTATED DECLARATION OF TRUST OF BEC ENERGY
MARCH 25, 1997
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
BEC ENERGY
(FORMERLY BOSTON EDISON HOLDINGS)
(FORMERLY BEC GROUP)
(FORMERLY BOSTON EDISON HOLDCO)
Dated March 25, 1997, as amended September 20, 1999
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
BEC ENERGY
(FORMERLY BOSTON EDISON HOLDINGS)
(FORMERLY BEC GROUP)
(FORMERLY BOSTON EDISON HOLDCO)
Dated March 25, 1997, as amended September 20, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Name; Purpose.........................................................................1
2. Definitions...........................................................................1
3. Limitations on Liability..............................................................2
4. Nonassessability of Shareholders......................................................2
5. Reliance of Third Persons.............................................................2
6. Place of Business.....................................................................3
7. Trust Estate; Conversion into Personal Estate.........................................3
8. Powers of Trustees....................................................................3
9. Number and Election...................................................................7
10. Resignation; Vacancies; Removals......................................................8
11. Vesting in New Trustees...............................................................8
12. Compensation..........................................................................9
13. Unissued Shares.......................................................................9
14. Determination of Capital and Income...................................................9
15. Dividends.............................................................................9
16. Fiscal Year; Accounts.................................................................9
17. Action by Board; Quorum...............................................................9
18. By-laws...............................................................................9
19. Certificate Evidencing Votes.........................................................10
20. Trustees and Officers................................................................10
21. Liability............................................................................10
22. Books and Reports....................................................................11
23. Advance of Expenses..................................................................11
24. Rights Not Exclusive; Definitions....................................................11
25. Shareholders.........................................................................11
26. Shareholders, Trustees, Officers and Agents..........................................11
27. Authorization or Ratification by Shareholders........................................12
28. Number; Nonassessable................................................................12
29. Shares Personal Property; Trust Only.................................................13
30. Rights of Shareholders; Limitation on Rights of Action...............................13
31. Additional Shares....................................................................13
32. Preferred Shares.....................................................................13
33. All Other Changes in Shares..........................................................13
34. Consideration for Issue..............................................................13
35. No Preemptive or Preferential Rights of Subscription.................................13
36. Treasury Shares......................................................................13
37. Transfer Books.......................................................................14
38. Transfer Agent.......................................................................14
39. Share Certificates...................................................................14
40. Lost, Stolen or Destroyed Share Certificates.........................................14
41. Transfer of Shares...................................................................14
42. Transfers by Operation of Law........................................................14
43. Joint Owners.........................................................................15
44. No Duty to Examine into Trusts, Pledges, etc., to Which Shares Are Subject...........15
45. Annual Meeting.......................................................................15
46. Special Meetings.....................................................................15
47. Presiding Officer....................................................................15
48. Business to be Transacted............................................................15
</TABLE>
<PAGE>
<TABLE>
<S> <C>
49. Notices..............................................................................15
50. Voting; Quorum.......................................................................16
51. Adjournment of Meeting...............................................................16
52. Requisite Vote to Act................................................................16
53. Record Date for Voting, Dividends and Offerings......................................16
54. Duration of Trust....................................................................17
55. Death of Shareholder or Trustee Not to Terminate Trust...............................17
56. Termination; Combination; Affiliation. .............................................17
57. Certain Transactions.................................................................17
58. Amendments...........................................................................21
59. Certificate of Termination or Amendment..............................................21
60. Disposition of Trust Estate on Termination...........................................22
61. Filing...............................................................................23
62. Protection of Company, Stock of Which Held by Trust..................................23
63. Authority of the Trustees to Construe Terms Hereof...................................23
64. Effect of Captions and Table of Contents.............................................23
65. Counterparts.........................................................................23
66. Governing Law........................................................................23
67. Provisions in Conflict with Law or Regulations.......................................23
</TABLE>
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
BEC ENERGY
(FORMERLY BOSTON EDISON HOLDINGS)
(FORMERLY BEC GROUP)
(FORMERLY BOSTON EDISON HOLDCO)
This AMENDED AND RESTATED DECLARATION OF TRUST made at Boston in the County
of Suffolk, The Commonwealth of Massachusetts, this 25th day of March, 1997 by
Thomas J. May of 107 Margery Lane, Westwood, MA 02090, James J. Judge of 30
Cushing Hill Road, Hanover, MA 02339 and Theodora S. Convisser of 613 Pleasant
Street, Belmont, MA 02178, hereby amends and restates in its entirety the
Amended and Restated Declaration of Trust dated the 14th day of March, 1997, as
heretofore amended.
WHEREAS it is desired to create under and in accordance with the provisions
of this instrument a voluntary business association with transferable shares for
the acquisition of property and the conduct of business as hereinafter set
forth;
NOW, THEREFORE, this DECLARATION OF TRUST WITNESSETH that said Thomas J.
May, James J. Judge and Theodora S. Convisser, for themselves, their heirs,
executors, administrators, successors and assigns, do hereby declare that they
and their successors from time to time, as Trustees hereunder, will hold, manage
and dispose of the trust estate, as hereinafter defined in trust in the manner
and with and subject to the powers and provisions hereinafter contained
concerning the same, for the benefit of the Shareholders (as hereinafter
defined) according to the number and kind of shares held by them respectively.
Name; Purpose
1. Name; Purpose. The Trustees as trustees hereunder, though not in their
individual capacities, shall be designated BEC Energy and are hereinafter
referred to as the "Company." So far as may be practicable, all things relating
to the trust hereby created shall be done under such name. The purpose of the
Company shall be to engage, either directly or through direct or indirect
subsidiaries, joint ventures, partnerships, limited liability companies or other
combinations or associations, in any manufacturing, mercantile, selling,
management, service or other business, operation or activity related to energy
generation, transmission or distribution, utilization, conservation or
transportation, construction, telecommunications, or any other manufacturing,
mercantile, selling, management, service or other business, operation or
activity, whether or not related to the foregoing enumerated areas, that a
<PAGE>
corporation organized under the Business Corporation Law of The Commonwealth of
Massachusetts could carry on.
Definitions
2. Definitions. Except where the context otherwise requires, the following
terms when used herein shall mean the following:
(a) "Trustee" or "Trustees" means the person which is the trustee hereunder
for the time being, if there is only one, or if more than one, the persons
who are the trustees hereunder for the time being, whether, in each case,
original, additional or successor;
(b) "Trust estate" means the property at any time received by the Trustees
or otherwise acquired and held on behalf of the Company as hereinafter
provided;
(c) "Shareholder" or "Shareholders" means the person or persons, natural or
corporate, at the time registered as the holder or holders of the shares of
the Company and, except to the extent limited by any subscription or by any
subscription certificate or part-paid shares accepted or issued, include
the person or persons, natural or corporate, at the time registered as the
holder or holders of such subscription certificates and part-paid shares;
and
(d) "Share" or "shares" means the transferable share or shares of
beneficial interest provided for in Article 29 and includes any
subscription certificate or part-paid share issued except to the extent
limited in such subscription certificate or part-paid share.
Rights of Third Persons
3. Limitations on Liability. The Trust estate shall be directly liable for
the payment and satisfaction of all obligations and liabilities incurred in the
carrying on of the business of the Company. No Trustee shall be held to any
liability whatever for the payment of any sum of money, or for damages or
otherwise under any contract, obligation or undertaking made, entered into or
issued by the Company or by any Trustee, officer, agent or representative
thereof, or in tort or otherwise, and no such contract, obligation or
undertaking shall be enforceable against the Trustees, the Shareholders, or the
officers, agents or other representatives of the Company or any of them in
their, his or her individual capacities or capacity and all such contracts,
obligations and undertakings shall be enforceable only against the Company; and
every person, firm, association, trust and corporation shall look only to the
Trust estate for the payment or satisfaction of any liability, damages, claim or
demand. In every agreement and obligation entered into and in every writing by
or on behalf of the Company, reference shall be made to this declaration of
trust, and the substance of such parts of the preceding sentence of this Article
3 as are applicable shall be set forth; and neither the Trustees nor any
officer, agent or representative of the Company shall have any power or
authority to enter into any agreement or obligation on behalf of the Company
<PAGE>
except in accordance with the provisions of this Article 3. Failure to comply
with the provisions of this Article shall, however, in no event render any
Trustee, Shareholder, officer, or agent personally liable to the Company or its
Shareholders.
4. Nonassessability of Shareholders. No Trustee, officer, agent or
representative of the Company shall be entitled to look to the Shareholders
personally for indemnity against any liability incurred by them in the execution
of this trust or to call upon the Shareholders for the payment of any sum of
money or any assessment whatever, except when and to the extent that shares in
the Company are by their express terms issued part-paid and assessable.
5. Reliance of Third Persons. The receipts of the Company for moneys or
things paid or delivered to it shall be effective discharges to the person,
firm, association, trust or corporation paying or delivering the same and from
all liability to see to the application thereof. No purchaser or person, firm,
association, trust or corporation dealing with the Company or with the Trustees,
officers, agents or representatives of the Company shall be bound to ascertain
or inquire whether any consent, resolution or other authorization of the
Trustees or Shareholders, as is herein required or provided for, has been
obtained or passed or as to the existence or occurrence of any event or purpose
in or for which a sale, lease, mortgage, pledge or charge is herein authorized
or directed, or otherwise as to the purpose or regularity of any of the acts of
the Trustees or the officers, agents or representatives of the Company
purporting to be done in pursuance of the trust or powers herein contained, or
as to the regularity of the removal, resignation or appointment of any Trustee
or any officer, agent or representative; and a transfer of the Trust estate, or
any part thereof, executed by the Trustees in whom the same shall be vested at
the time of any such removal, resignation or appointment (including any retiring
Trustee who shall be willing to act and shall act in executing such transfer but
not otherwise including any such retiring Trustee) for the purpose of vesting
the same in a successor Trustee or providing evidence of such vesting
independently of such removal, resignation or appointment, shall, as to the
property comprised in such transfer, be conclusive evidence in favor of any such
purchaser or other person, firm, association, trust or corporation dealing with
the Company of the validity of such transfer and of the matters therein recited
relating to such removal, resignation or appointment or the occasion thereof or
the occasion of such transfer.
Place of Business; Trust Estate
6. Place of Business. The principal place of business of the Company shall
be 800 Boylston Street, Boston, MA 02199, or at such other place in
Massachusetts as the Trustees shall from time to time determine.
7. Trust Estate; Conversion into Personal Estate. All property at any time
and from time to time subject to this trust shall, subject to the provisions of
Articles 8(c) and 8(g), be transferred to and vested in such of the Trustees as
are residents of Massachusetts. Notwithstanding any other provisions hereof, all
real estate at any time forming part of the Trust estate shall be held upon
trust for sale and conversion into personal estate at such time
<PAGE>
or times and in such manner and upon such terms as the Trustee shall approve,
but the Trustees shall have power, until the termination of this trust, to
postpone such conversion so long as they in their uncontrolled discretion shall
think fit, and for the purpose of determining the nature of the interest of the
Shareholders therein, all such real estate shall at all times be considered as
personal estate; and the real estate and personal property comprised in the
Trust estate shall constitute a single fund. For the purpose of such sale and
conversion of real estate the Trustees shall have full power to sell or exchange
the same and to execute and deliver proper deeds and instruments of conveyance
thereof.
The Trustees
8. Powers of Trustees. Subject to the provisions and conditions contained
herein, the Trustees shall have power from time to time, in addition to the
specific powers and authorities herein expressly granted, to take any action
which they deem to be necessary or convenient to carry out the business of the
Company, including without limitation of the generality of the foregoing, the
powers hereinafter specified:
(a) Hold Investments. To purchase, subscribe for or otherwise acquire
stocks, shares, bonds or other securities, property or obligations of any
corporation, wherever incorporated, or of any trust, association or other
entity, or of any nation, state, municipality or other governmental or
public agency, division or body or certificates or other evidences of
interest in any real or personal property, and to be a member of any
company, syndicate or joint undertaking, or the beneficiary of any trust,
and all whether or not any such company be domestic or foreign, and whether
or not the purposes of or character of business carried on or assets held
by any such company, syndicate or joint undertaking, or comprised of any
such real or personal property, be similar to the purposes of or business
carried on or assets held by the Company, and whether or not any such
securities, membership or beneficial interest might be considered
speculative, hazardous, nonproductive or wasting or would ordinarily be
considered a proper or prudent investment or activity for a trustee and,
whether or not any contingent or other liability may arise or exist in
respect thereof and irrespective of the proportion of the Trust estate
invested in one or more of said securities, properties or companies, and to
exercise all the rights and privileges of an owner thereof and, without
limiting the generality of the foregoing, to acquire, by exchange, purchase
or otherwise, the shares and dividend and profit rights in, and the bonds
and other securities and obligations of, the Company;
(b) Assume Obligations. To assume any obligations or liabilities of any
corporation, wherever incorporated, or of any trust, association or other
entity, and to discharge or liquidate such obligations or liabilities;
(c) Borrow. To borrow money for the purposes of the Company, and to issue,
whether for borrowed money or for other consideration, bonds or other
securities or obligations therefor if desired, which may mature at any time
or times, and may be
<PAGE>
convertible or after the issuance thereof may be made convertible, with or
without additional consideration for such conversion right, into other
securities of the Company or into other securities, all for such periods
and upon such terms as the Trustees may determine, and to secure the
payment thereof if desired by mortgage, pledge, assignment, transfer or
conveyance of or charge on the whole or any part of the Trust estate then
owned or thereafter acquired, which bonds or other securities or
obligations may be signed on behalf of the Company by the chairman, the
president or a vice president and by the treasurer or an assistant
treasurer, or by facsimiles of such signatures if the bonds or other
securities or obligations are authenticated or certified by a trustee or by
a registrar other than a trustee, officer or employee of the Company, and
may have affixed thereto the common seal of the Company or a facsimile
thereof and may carry interest coupons authenticated by the facsimile
signature of the treasurer; provided that no mortgage, pledge, assignment,
transfer or conveyance of or charge on the Trust estate as a whole or
substantially as a whole shall be made without authorization or approval by
vote, at a meeting duly called and held, of the holders of a majority of
the shares outstanding and entitled to vote thereon; and provided further
that even though any officer who has signed or whose facsimile signature
has been placed on any bond or other security or obligation shall have
ceased to be such officer before such bond, security or obligation is
issued, such bond, security or obligation may nonetheless be issued by the
Company;
(d) Lend and Aid. To advance or lend money to, and otherwise aid by
endorsement, guarantee or otherwise, and with or without security, and to
make capital contributions to, any corporation, trust, association or other
entity, any of the stocks, shares, bonds or other securities or obligations
of which shall have been acquired or subscribed for by or on behalf of the
Company or in which the Company has any business interest (including,
without limitation of the generality of the foregoing, the power to
guarantee the performance of any undertaking or obligation or the payment
of dividends on stock), and to discharge and cancel without payment any
indebtedness thus arising or to convert the same into stocks, shares,
bonds, or other obligations of such corporation, trust association or other
entity, or any other with or into which it may be consolidated or merged,
or to which its property may be transferred or leased, and in like manner
to advance or lend money to and otherwise aid any person or company
(whether or not a Shareholder), whenever the Trustees shall deem such
action to be necessary or convenient in the business or conducive to the
advantage of the Company;
(e) Exercise Powers of Holder of Investments. To exercise any and all
powers and rights belonging to the holder of any stocks, shares, bonds,
securities, property or obligations forming part of the Trust estate,
whether by voting or by giving any consent, request or notice, or
otherwise, either in person or by proxy or attorney, and to give proxies or
powers of attorney therefor, with or without power of substitution, which
proxies and powers of attorney may be for meetings or action generally or
for any particular meeting, meetings or action, and may include the
exercise of any
<PAGE>
discretionary powers; and, without limiting the generality of the
foregoing, to vote in favor of or to consent to the creation of any
mortgage, lien or other encumbrance upon all or part of the franchises and
property, real and personal, then owned or thereafter acquired, of any or
all of the corporations, trusts, associations and other entities, any of
the stocks, shares, bonds, securities or obligations of which may at the
time be subject to this trust, or to vote in favor of or to consent to the
merger or consolidation of any such corporation, trust association or other
entity with any other corporation, trust association or other entity, or
the sale, lease, surrender or abandonment of all or part of the franchises
and property, real and personal, of any such corporation, trust association
or other entity;
(f) Sell. To sell at public auction or by private contract or otherwise use
and deal in and with the whole or any part of the Trust estate, free and
discharged of this trust, and to convert, exchange or refund the whole or
any part of the Trust estate for or into any shares, bonds or other
securities or obligations, property or effects in which the Company might,
under the provisions hereof, invest any moneys; provided, however, that
except as provided in Article 8(o), Article 57 or Article 60, no sale or
other disposition of the Trust estate as a whole or substantially as a
whole shall be made without authorization or approval by vote, at a meeting
duly called and held, of the holders of two-thirds of the shares
outstanding and entitled to vote thereon, but this proviso shall not apply
to any disposition pursuant to any mortgage, pledge, or charge;
(g) Transfer Securities Into Names of Others. To cause any real or personal
property, including without limitation of the generality of the foregoing,
securities forming all or part of the Trust estate, to be transferred into
the name of the Company or transferred into the name of or vested in the
Trustees, or to cause or allow any real or personal property to remain in
the name of, or to be transferred into the name of, any other person, firm,
association, or other entity, trust, corporation or other entity and in any
such case in such manner as not to give notice that the same are affected
by any trust;
(h) Delegate Powers. To employ and act through and to delegate any or all
of the powers and discretions of the Company to, and to permit any or all
of such powers and discretions to be exercised by, any of the officers,
agents or representatives of the Company or of the Trustees, including
without limitation the officers, employees, agents and representatives
referred to in the last paragraph of this Article 8;
(i) Collect Funds. To collect, sue for, receive and receipt for all sums of
money coming due to the Company, to consent to the extension of the time
for payment, or to the renewal, of any bonds or other securities, property
or obligations subject to this trust, and to prosecute, defend, compound,
compromise, abandon or adjust, by arbitration or otherwise, any actions,
suits, proceedings, disputes, claims, demands and things relating to the
Trust estate, and to extend time, with or without security, for
<PAGE>
the payment or delivery of any debts or property and to execute and enter
into releases, agreements and other instruments and to pay or satisfy any
debts or claims upon any evidence that the Trustees shall think sufficient;
(j) Deposit Funds. To deposit any moneys included in the Trust estate in
any bank or trust company including any bank or trust company that may at
the time be the Trustee, and to entrust to any such bank or trust company
for safekeeping any of the stock or share certificates, bonds or other
securities, property or obligations and any documents and papers comprised
in or relating to the Trust estate;
(k) Pay Taxes. To pay any and all taxes or liens of whatever nature or kind
imposed upon or against the Company or the Trustee in connection with the
Trust estate, or upon or against the Trust estate or any part thereof;
(l) Establish Surplus Funds. To set apart, from time to time, as surplus
funds, such sums as the Trustees may deem proper out of any sources which
according to generally accepted accounting principles may be considered
surplus, which surplus funds shall be applicable to any purposes to which
money forming part of the capital or income of the Trust estate may be
applied, including the payment of dividends;
(m) Adopt Seal. To adopt and use a common seal;
(n) Purchase Insurance. To take out and maintain insurance or establish
self-insurance programs in such amounts and of such kinds and in such
companies and through such brokers and agents as may be necessary,
convenient or desirable, including insurance policies insuring the
Trustees, officers, employees and agents of the Company against claims and
liabilities of every nature arising by reason of holding, being or having
held any such office or position, or by reason of any action alleged to
have been taken or omitted by any such person as a Trustee, officer,
employee or agent, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Company would have
the power to indemnify such person against such liability;
(o) Transfer to New Trust or Corporation. When authorized by a majority
vote of Shareholders at a meeting, to sell and convey as an entirety and
going concern all the property and assets of the Company to a corporation
or a new association or trust organized for the purpose of acquiring the
same and organized with the same authorized classes of shares as the
Company shall then have with the same or substantially the same
preferences, voting powers, restrictions and qualifications thereof as
attach to the shares of the Company, the consideration for such sale and
conveyance to be the assumption by such new corporation, association or
trust of all liabilities and obligations of the Company then outstanding
and the issuance and delivery by such new corporation or association or
trust to the Company, or upon its order, for distribution as hereinafter
provided for, of such shares as will enable the
<PAGE>
Company to exchange its shares, share for share and class for class, for
the shares of such new corporation or association or trust and thereupon
such exchange shall be made, and this trust shall be terminated, and each
Shareholder of the Company by becoming a Shareholder shall agree to receive
and accept in such case the shares of such new corporation or association
or trust in exchange on the basis aforesaid as a full and final
distributive share of the proceeds in liquidation of such sale and
conveyance, and further agrees that in such case his or her shares in the
Company shall thereafter have no rights and privileges whatsoever except
the right and privilege of being exchanged for shares of such new
corporation or association or trust on the basis aforesaid;
(p) Invest Capital. To invest and re-invest the capital or other funds of
this trust in real or personal property of any kind, or in any interest
therein;
(q) Establish Pension and Other Compensation Plans. To establish and carry
out pension, profit-sharing, share bonus, share purchase, share option,
savings, thrift and other retirement, incentive, health, welfare and
benefit plans, trusts and provisions for any or all of the Trustees,
officers, employees, agents and consultants of the Company or of any of its
subsidiaries;
(r) To enter into or become partners or members in joint ventures, general
or limited partnerships, limited liability companies and any other
combinations or associations;
(s) To purchase, acquire, hold, utilize, lease, carry on, sell, exchange
and dispose of any other business or property, rights, or privileges which
may be deemed to be suitable, convenient or profitable for or in connection
with any of the purposes of the Company;
(t) To grant rights or options good for any period of time, including an
unlimited period of time (but not exceeding the duration of the Company) to
purchase from the Company any securities of the Company which have been
authorized but remain unissued or are held in the treasury, at such prices
and on such terms and conditions as may be fixed from time to time by the
Trustees; and to create and issue warrants or other instruments
representing such rights or options in such form as the trustees mat
determine;
(u) Perform Other Necessary Things. To do each and every thing necessary,
suitable, desirable, convenient or proper for the accomplishment of any of
the purposes or the attainment of any one or more of the objects
hereinbefore enumerated or incidental to the powers herein named and,
without limiting the generality of the foregoing, to deal with the Trust
estate and manage and conduct the business of the trust hereunder as fully
as if the Company were the absolute owner of the Trust estate and in so
doing to execute all contracts, agreements, deeds, covenants and
instruments, and do all such things as the Trustees may deem proper for the
purposes
<PAGE>
of the Company, whether or not involving action of a kind or extent legal
or customary for a trustee or for the management of trust funds.
The powers and authority, whether discretionary or otherwise, conferred
upon the Trustees by this Article 8 and elsewhere in this declaration of trust
may be delegated to committees, officers, employees, agents and representatives
of the Company, and shall not be deemed to be mandatory but shall, together with
any and all implied powers and discretions, be exercised by the Trustees from
time to time to the extent deemed to be advantageous to the Company, and may be
exercised either alone or in association with others and to the same extent and
as fully as individuals might or could do as principals, agents, contractors or
otherwise and either alone or in conjunction with or in partnership with others,
and both within and without The Commonwealth of Massachusetts. The acts of any
committee, officers and agents, within the scope of their respective
authorities, shall be as agents and delegates of the Trustees, and shall be
deemed to be the acts of the Trustees and not of the Shareholders. When
authorized by the Trustees, mortgages, conveyances and other instruments of
transfer of real or other property may be executed by any officer of the Company
on behalf of the Trustees or such of them as are residents of Massachusetts.
The Trustees
9. Number and Election. The persons signing this Declaration of Trust shall
be the original Trustees. The number of Trustees shall be determined from time
to time by the Trustees but shall not be less than three; provided, however,
that the number of Trustees shall be fixed at not less than two whenever the
Company shall have less than two Shareholders and not less than one whenever the
Company shall have only one Shareholder. Except in connection with the election
of Trustees at the annual meeting of shareholders, the numbers of Trustees may
be decreased only to eliminate vacancies existing by reason of the death,
resignation, removal or disqualification of one or more Trustees. The Trustees
shall be elected at the annual meeting of the Shareholders by such Shareholders
as have the right to vote at such election.
The Trustees shall be elected as follows. The term of office of each
Trustee shall continue until the first annual meeting of the Shareholders
following the date of the Trustee's election and until his or her respective
successor is chosen and qualified (unless otherwise required by law) or until
the Trustee sooner dies, resigns or is removed. References in this Article 9 to
an annual meeting of Shareholders shall be deemed to include a special meeting
held in place of an annual meeting.
10. Resignation; Vacancies; Removals. A Trustee may resign by presenting
his or her resignation in writing at a meeting of the Trustees or delivering the
same at the principal office of the Company, addressed to the chairman,
president or clerk of the Company, and its acceptance by the Trustees shall not
be required unless so stated in the resignation. Any vacancy in the number of
Trustees not required to be filled by the Shareholders may be filled by the
Trustees by vote of a majority of the remaining Trustees although less than a
quorum.
<PAGE>
Any Trustees so chosen shall continue in office for the remainder of the full
term of the Trustees in which the new trusteeship was created or the vacancy
occurred and until his or her successor, if there be one, is chosen and
qualified. The remaining Trustees may act notwithstanding any vacancy in their
numbers. Except as otherwise provided in this Declaration of Trust, a Trustee
(including persons elected by the Trustees to fill any vacancies) may be removed
from office: (i) with or without cause by the vote of the holders of a majority
of the shares issued and outstanding and entitled to vote generally in the
election of Trustees; or (ii) for cause by vote of a majority of the Trustees
then in office. A Trustee may be removed for cause only after reasonable notice
and opportunity to be heard before the body proposing to remove him or her.
Except where a right to receive compensation shall be expressly provided in a
duly authorized written agreement with the Company, no Trustee resigning or
removed shall have any right to any compensation as such Trustee for any period
following his or her resignation or removal, or any right to damages on account
of such removal, whether his or her compensation be by the month or by the year
or otherwise, unless the body acting on the removal shall in their or its
discretion provide for the compensation.
11. Vesting in New Trustees. Upon the resignation or removal of a Trustee
hereunder and upon the election or appointment of a new Trustee hereunder, such
instruments shall be executed, acknowledged and delivered as the remaining
Trustees or the new Trustees shall deem necessary or convenient for confirming
or providing evidence of the vesting of the Trust estate in the Trustees for the
time being who are residents of Massachusetts. Notwithstanding the failure to
execute any conveyance, the Trust estate shall always (not restricting the same
to the above enumerated cases) vest in the Trustees for the time being hereunder
and the Trust estate shall always vest in such Trustees as are residents of
Massachusetts.
12. Compensation. Each Trustee shall receive such reasonable compensation
as the Trustees may determine, and shall not be limited by any provision of law
with regard to the compensation of trustees of an express trust.
13. Unissued Shares. In particular, and without limiting the generality of
the foregoing, the Trustees may, subject to any requirement of law, at any time
issue all or from time to time any part of the unissued shares of the Company
from time to time authorized and may determine, subject to any requirements of
law, the consideration for which such shares is to be issued and the manner of
allocating such consideration between capital and surplus. Unless the Trustees
otherwise specify, the excess of the consideration for any share with par value
issued by it over such par value shall be paid-in surplus. The Trustees may
allocate to capital stock less than all of the consideration for any share
without par value issued by it, in which case the balance of such consideration
shall be paid-in surplus. All surplus shall be available for any corporate
purpose, including the payment of dividends.
14. Determination of Capital and Income. The Trustees shall have power to
determine what constitutes capital or income, what constitutes the income of the
Trust estate
<PAGE>
for any year or other period, in what manner any expenses or disbursements are
to be allocated between capital and income, and the amount of the net earnings
and of the earned surplus; and every such determination, whether express or
implied in the acts or proceedings of the Trustees, shall be conclusive and
binding upon all persons interested.
15. Dividends. The Trustees may from time to time in their discretion
declare dividends out of the net earnings of the Trust estate or out of the
earned surplus or capital surplus, payable out of the Trust estate, at any date
fixed by the Trustees, in cash or property, including without limitation bonds
or other obligations of and the shares in the Company, and for that purpose may
capitalize all or any part of the earned surplus; but no Shareholder shall have
any right to any dividends except when and as the same are declared by the
Trustees, and no Trustee or Shareholder, officer, agent or representative of the
Company shall be liable therefor, and any Shareholder entitled thereto shall
look only to the Trust estate for the payment of any such dividends. The Company
shall pay and distribute the said dividends so declared to the Shareholders
according to the number of shares held by them respectively.
16. Fiscal Year; Accounts. The Trustees may determine the fiscal year for
the Company, and the form in which the accounts of the Company shall be kept,
and may from time to time change the fiscal year or form of accounts.
17. Action by Board; Quorum. The action of the Trustees in respect of any
matter shall be by vote passed by the Trustees at a meeting or by a written vote
without a meeting (with or without notice to the other Trustees) signed by at
least a majority of the Trustees. At any meeting of the Trustees, six trustees
shall constitute a quorum for the transaction of business, except when the
number of Trustees then in office shall be less than twelve, in which case a
majority of the Trustees then in office shall constitute a quorum. Any meeting
may be adjourned from time to time by a majority of the votes cast on the
question, and the meeting may be held as adjourned without further notice.
Except as herein otherwise provided, when a quorum is present at any meeting a
majority of the Trustees in attendance thereat shall decide any questions before
such meeting. Nothing in this Article 17 shall be construed as limiting the
delegation of any power to a committee of the Trustees.
18. By-laws. The Trustees may by vote of a majority of the Trustees then in
office, make and from time to time amend, add to or rescind by-laws for the
Company (the "By-laws"). The By-laws may, subject to the provisions of this
declaration of trust: (a) fix the fiscal year; (b) regulate the affairs of the
Trustees, including provisions for the nomination thereof; (c) provide for such
committees as the Trustees shall deem appropriate, including an executive
committee which shall be vested with all of the powers and authorities of the
Trustees in the intervals between meetings of the Trustees; (d) provide for the
appointment of a chairman of the Trustees, a president, one or more vice
presidents, a treasurer, a clerk and such other officers as the Trustees may
deem appropriate, and the manner of their appointment and removal, and their
respective powers and duties; (e) provide for the manner in which documents
shall be executed, including share certificates; (f) provide for the
<PAGE>
appointment of transfer agents or officers and registrars, and (g) contain such
further provisions relating to the above matters or otherwise, incidental or in
addition to but not inconsistent with the provisions of this declaration of
trust, as the Trustees shall deem appropriate.
19. Certificate Evidencing Votes. A certificate signed by the chairman, the
president, the treasurer, the clerk or any assistant or temporary clerk, or one
or more of the Trustees, shall be conclusive evidence, in favor of every person,
firm, association, trust and corporation acting in good faith in reliance
thereon, as to the contents of any vote of the Trustees, or any committee
thereof, or of the Shareholders, and as to all matters in such certificate
contained relating to the meeting, if any, at which any vote is therein
certified to have been passed, including the regularity of the said meeting and
the passage of any vote thereat, and as to all other matters and things stated
in such certificate, and no person, firm, association, trust or corporation
shall be obligated to make any inquiry as to any of the said matters, or as to
the election or appointment of any person acting as a Trustee at such meeting,
or as to the holding of any shares by any person, firm, association, trust or
corporation acting as a Shareholder at such meeting, or be affected by actual or
implied notice of any irregularity whatsoever therein.
Indemnification and Limitation of Liability
20. Trustees and Officers. To the extent legally permissible, each of the
Company's Trustees and officers, as defined in Article 24, shall be indemnified
by the Trust estate against any loss, liability or expense, including amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
counsel fees, imposed upon or reasonably incurred by such person in connection
with the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, in which such person may be involved or with which such
person may be threatened, while in office or thereafter, by reason of such
person's being or having been such a Trustee or officer, except with respect to
any matter as to which such person shall have been adjudicated in such action,
suit or proceeding not to have acted in good faith in the reasonable belief that
his or her action was in the best interests of the Company; provided, however,
that as to any matter disposed of by a compromise payment by such Trustee or
officer, pursuant to a consent decree or otherwise, no indemnification either
for said payment or for any other expenses shall be provided unless such
compromise shall be approved as in the best interests of the Company, after
notice that it involves such indemnification, (i) by a disinterested majority of
the Trustees then in office, or (ii) by a majority of the Disinterested Trustees
then in office, provided that there has been obtained an opinion in writing of
independent legal counsel to the effect that such Trustee or officer appears to
have acted in good faith in the reasonable belief that his or her action was in
the best interests of the Company, or (iii) by the vote, at a meeting duly
called and held, of the holders of a majority of the shares outstanding and
entitled to vote thereon, exclusive of any shares owned by any interested
Trustee or officer.
<PAGE>
21. Liability. No Trustee, officer or agent of the Company shall be liable
except for acts or failures to act which at the time would impose liability on
him or her if this trust were a Massachusetts business corporation and he or she
were a director, officer or agent thereof respectively. In determining what he
or she reasonably believes to be in the best interests of the Company, a Trustee
may consider the interests of the Company's employees, suppliers, creditors and
customers, the economy of the state, region and nation, community and societal
considerations, and the long-term and short-term interests of the Company, its
subsidiaries and its Shareholders, including the possibility that these
interests may best be served by the continued independence of the Company.
Notwithstanding any provision of law or this Article 21 or any other provision
in this declaration of trust contained, a Trustee shall not be liable to the
Company or any Shareholder for monetary damages for breach of fiduciary duty as
a Trustee except with respect to any matter as to which such liability is
imposed by applicable law and he or she shall have been adjudicated (i) to have
breached his or her duty of loyalty to the Company or its Shareholders, (ii) to
have acted not in good faith, or omitted to act in good faith, (iii) to have
knowingly violated the law or intentionally engaged in misconduct, or (iv) to
have derived any improper personal benefit from a transaction. No amendment to
or repeal of this Article shall apply to or have any effect on the liability or
alleged liability of any Trustee for or with respect to any acts or omissions of
such Trustee occurring prior to such amendment or repeal.
22. Books and Reports. In discharging his or her duties a Trustee or
officer of the Company, when acting in good faith, shall be fully protected in
relying upon the books of account of the Company or of another organization in
which he or she serves as contemplated by Article 24, reports made to the
Company or to such other organization by any of its officers or employees or by
counsel, accountants, appraisers or other experts or consultants selected with
reasonable care by the Trustees or similar governing body of such other
organization, or upon other records of the Company or of such other
organization.
23. Advance of Expenses. Expenses, including counsel fees, reasonably
incurred by any Trustee or officer with respect to the defense or disposition of
any action, suit or proceeding referred to in Article 20 may be advanced by the
Company prior to the final disposition of such action, suit or proceeding, upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
unless it is ultimately determined that he or she is entitled to
indemnification.
24. Rights Not Exclusive; Definitions. The rights of indemnification
provided in Article 20 shall not be exclusive of or affect any other rights to
which any Trustee or officer may be entitled and such rights shall inure to the
benefit of his or her successors, heirs, executors, administrators and other
legal representatives. Such other rights shall include all powers, immunities
and rights of reimbursement which would be allowed under the laws of The
Commonwealth of Massachusetts were the Company a business corporation organized
under such laws. As used in Articles 20, 21, 22 and 23 and this Article 24, the
terms "Trustee" and "officer" include persons who serve at the request of the
Company as directors, officers, or trustees of another organization in which the
Company has any direct or indirect
<PAGE>
interest as a shareholder, creditor or otherwise. An "interested" Trustee or
officer is one against whom in such capacity the proceeding in question or
another proceeding on the same or similar grounds is then pending. Nothing
contained in Articles 20, 21, 22 and 23 and this Article 24 shall affect any
rights to indemnification to which Company personnel other than Trustees and
officers may be entitled by contract or otherwise under law. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
or her duties.
25. Shareholders. In case any Shareholder shall at any time for any reason
be held to or be under any personal liability solely by reason of his or her
being or having been a Shareholder and not by reason of his or her acts or
omissions as a Shareholder, then such Shareholder (or his or her heirs,
executors, administrators, or other legal representatives) shall be entitled out
of the Trust estate to be held harmless from, and indemnified against, all loss,
liability or expense by reason of such liability.
Interested Trustees, Shareholders, and Officers; Ratification by Shareholders
26. Shareholders, Trustees, Officers and Agents. No agreement, dealing,
relationship or arrangement of any kind with the Company, or with any company
which may be controlled by the Company or in which the Company may have any
interest, in which any Shareholder, Trustee, officer, agent or other
representative of the Company shall have a personal interest shall be void or
voidable or otherwise affected by such interest nor shall such Shareholder,
Trustee, officer, agent or other representative so interested be liable to
account in respect thereof, except such effect or liability, if any, as would
have resulted under the same circumstances had the Company been a business
corporation organized under the laws of The Commonwealth of Massachusetts. No
Trustee, officer, agent or other representative of the Company shall be
precluded, by his or her office, from acquiring shares or stock in or bonds or
other obligations of or from holding any office or place of profit in the
Company or any company in which the Company shall be interested as stockholder
or otherwise. No Shareholder, by reason of his or her holding such shares,
however great in amount, shall be precluded from holding any office or place of
profit hereunder or under any company in which the Company or the Trustees shall
be interested as stockholder or otherwise.
27. Authorization or Ratification by Shareholders. Regardless of whether
the foregoing provisions have or have not been complied with, any agreement,
dealing, relationship or arrangement entered into by or on behalf of the Company
or by the Trustees, officers, agents or other representatives of the Company, or
by or on behalf of any company in which the Company or the Trustees shall be
interested as stockholder, or otherwise, shall not be voided by reason of the
interest therein of any Shareholder, Trustee, officer, agent or other
representative nor shall any Shareholder, Trustee, officer, agent or
<PAGE>
other representative being so interested be liable to account to the Company or
to the Trustees, officers or Shareholders, or otherwise, for any profit or
benefit realized through any such agreement, dealing, relationship or
arrangement by reason of such Shareholder, Trustee, officer, agent or other
representative holding that position or of the fiduciary relation thereby
established, if such agreement, dealing, relationship or arrangement shall have
been authorized or ratified by the Shareholders or by the stockholders of any
such company, as the case may be, after notice of the fact of the interest
therein (including a general statement of the nature and extent of such
interest) of such Shareholder, Trustee, officer, agent or other representative,
except that if such agreement, dealing, relationship or arrangement was with a
Shareholder or Shareholders the authorization or ratification shall be by a
majority vote of disinterested Shareholders at a meeting.
Shares of Beneficial Interest
28. Number; Nonassessable. The entire beneficial interest in the Trust
estate and in all business conducted by the Company and all profits earned by it
shall be, and during the continuance of this trust shall remain, in the owners
from time to time of transferable shares of beneficial interest. The shares of
beneficial interest shall consist of (i) 100,000,000 common shares all of the
same class and each with a par value of one dollar ($1.00), and (ii) 10,000,000
preferred shares, each with a par value of one dollar ($1.00) and may be issued
from time to time by the Trustees without the necessity of obtaining the consent
of the Shareholders. Subject to the limitations prescribed by law and the
provisions of this declaration of trust, the Trustees are authorized to issue
the preferred shares from time to time in one or more series, each of such
series to have such voting powers, full or limited, or no voting powers,
participating, optional or other special rights, and such qualifications,
limitations or restrictions thereof, as shall be determined by the Trustees in a
resolution or resolutions providing for the issue of such preferred shares.
Subject to the powers, preferences and rights of any preferred shares, including
any series thereof, having any preference or priority over, or rights superior
to, the common shares and except as otherwise provided by law, the holders of
the common shares shall have and possess all powers and voting and other rights
pertaining to the shares of this Company and each common share shall be entitled
to one vote. All shares issued and to be issued shall be fully paid and
nonassessable except to the extent otherwise specifically provided in the
certificates representing such shares. In any issue of common shares, fractional
shares may be issued if authorized by the Trustees; and in lieu thereof the
Trustees may issue transferable or nontransferable instruments representing or
relating to fractional interests (on such terms and in such form as the Trustees
shall determine) and may appoint an exchange agent or exchange agents to assist
Shareholders in buying or selling such fractional interests.
29. Shares Personal Property; Trust Only. Shares shall be personal property
entitling the holders only to the rights and interest in the Trust estate set
forth in these presents, and it is expressly declared and agreed by and between
the Shareholders, Trustees and officers of the Company that a trust and not a
partnership is deemed to be created by this instrument and that irrespective of
whether any different status may be held to exist as far as others are
concerned, nevertheless as between the said Shareholders, Trustees and officers
the Shareholders shall be deemed to hold only the relationship of cestuis que
trustent to the
<PAGE>
Trustees, with only such rights as are conferred upon them as such cestuis que
trustent hereunder.
30. Rights of Shareholders; Limitation on Rights of Action. No Shareholder
shall have or acquire at any time any interest in any specific property, real or
personal, at any time forming part of the Trust estate, or any right to any
division or partition thereof or any other rights with reference thereto, except
to have said property dealt with as herein provided, to receive dividends
therefrom, as herein provided, and to share in the distribution of the cash
proceeds thereof, or distributions in kind, or both, upon the termination of the
trust, as herein provided. No action may be brought by a Shareholder on behalf
of the Company unless a prior demand regarding such matter has been made on the
Trustees and the Shareholders of the Company.
31. Additional Shares. Additional common shares may be authorized from time
to time by a majority vote of the Shareholders at a meeting. Such additional
common shares shall rank equally and be in all respects identical with the
common shares originally authorized and may be issued from time to time by the
Trustees without the necessity of obtaining the consent of the Shareholders.
32. Preferred Shares. Additional preferred shares may be authorized from
time to time by vote, at a meeting duly called and held, of the holders of
two-thirds of the shares outstanding and entitled to vote thereon, and such
additional shares may be issued in one or more classes and in one or more series
within a class and shall have such voting powers, full or limited, or no voting
powers, participating, optional or other special rights, and such
qualifications, limitations or restrictions thereof, as shall be determined in
the vote authorizing them or by the Trustees pursuant to authority granted to it
by such vote or as provided in Article 29.
33. All Other Changes in Shares. Any authorized shares, whether issued or
unissued, may, by vote, at a meeting duly called and held, of the holders of a
majority of the shares outstanding and entitled to vote thereon, be changed by
increasing or decreasing their par value, be reduced in number, be changed into
the same or a different number of shares of any class or classes with or without
par value, or be classified or reclassified. In connection with any of the
foregoing, the Trustees may increase, decrease or adjust the capital accounts of
the Company.
34. Consideration for Issue. Unless otherwise prescribed by vote of the
Shareholders, all shares may be issued for money, services or property
(including other shares of the Company at the time outstanding), or as a
distribution to Shareholders, and upon such terms as to valuation of shares,
services or property and otherwise, as the Trustees may in its absolute
discretion determine.
35. No Preemptive or Preferential Rights of Subscription. No holder of
shares of any class and no holder of other securities of the Company,
convertible or otherwise, shall have
<PAGE>
any preemptive or preferential right of subscription to, or purchase of, any
securities of the Company.
36. Treasury Shares. Shares in the Company acquired by the Company may be
canceled and the number of shares issued may thereby be reduced, or such shares
may be held in the treasury and be disposed of by the Company, when authorized
by the Trustees, as the trustees may from time to time determine; but such
shares while so held in the treasury shall not be entitled to any voting rights
or to any dividends and shall not be deemed outstanding in computing proportions
or percentages of shares hereunder or for any other purpose hereof. Shares
canceled pursuant to this Article 36 shall have the status of authorized but
unissued shares.
37. Transfer Books. A register or registers shall be kept under the
direction of the Trustees, which shall contain the names and addresses of the
Shareholders and the number and kind of shares held by them respectively and a
record of all transfers thereof. No Shareholder shall be entitled to receive
payment of any dividend declared, nor to have any notice given to him or her as
herein provided, until he or she has given his or her address to the transfer
agent, or such other officer or agent of the Company as shall keep the said
register, for entry thereon.
38. Transfer Agent. The Company, when authorized by the Trustees, may
employ in the City of Boston or in any other cities the Trustees may designate a
transfer agent or transfer agents and a registrar or registrars. The transfer
agent or transfer agents shall keep the said registers and record therein the
transfers of any of the said shares and countersign certificates of shares
issued to the persons entitled to the same. The transfer agents and registrars
shall perform the duties usually performed by transfer agents and registrars of
certificates of stock in a corporation, except as modified by the Trustees.
39. Share Certificates. No certificates certifying the ownership of shares
need be issued unless the Trustees otherwise determine from time to time. The
Trustees may make such rules as they consider appropriate for the issuance of
share certificates, the form thereof, and similar matters.
40. Lost, Stolen or Destroyed Share Certificates. In the event the Trustees
authorize the issuance of share certificates, a new certificate may be issued to
replace any certificate previously issued, on satisfactory evidence that the
said certificate previously issued has been worn out, mutilated, lost or
destroyed and on such terms, if any, as to indemnity and otherwise, as the
Trustees shall deem proper.
41. Transfer of Shares. Every transfer of any certificated shares
(otherwise than by operation of law) shall be signed by the transferor or by his
or her agent thereunto duly authorized in writing, and upon delivery thereof to
the Company or a transfer agent of the Company, accompanied by the existing
certificate for such shares and such evidence of the genuineness of such
transfer, authorization and other matters as may reasonably be required,
<PAGE>
shall be recorded in the register, and a new certificate therefor shall be
issued to the transferee, and in case of a transfer of only a part of the shares
represented by any certificate a new certificate for the residue thereof shall
be issued to the transferor. A Shareholder of record shall be deemed to be the
holder of the share or shares represented thereby for all purposes hereof, and
neither the Trustees nor any transfer agent or registrar nor any officer or
agent of the Company shall be affected by any notice of a transfer until due
presentment of the certificate for such share or shares for registration of
transfer. The Trustees may determine from time to time procedures for the
transfer of uncertificated shares.
42. Transfers by Operation of Law. Any person becoming entitled to any
shares in consequence of the death, bankruptcy or insolvency of any Shareholder,
or otherwise by operation of law, shall be recorded in the register as the
holder of the said shares, and receive a new certificate for the same, upon
production of the proper evidence thereof and delivery of the existing
certificate to the Company or a transfer agent of the Company. Until such
production of evidence and delivery of the existing certificate, the Shareholder
of record shall be deemed to be the holder of such shares for all purposes
hereof, and neither the Trustees nor any transfer agent or registrar nor any
officer or agent of the Company shall be affected by any notice of such death,
bankruptcy, insolvency or other event. The Trustees may determine from time to
time procedures for the transfer by operation of law of uncertificated shares.
43. Joint Owners. Any two or more persons in whose names any share is
registered shall be treated as joint owners of the entire interest therein, and
no entry shall be made in the register or in any certificate that any person is
entitled to any future, limited or contingent interest in any share. However,
any person registered as a holder of any share may, subject to the provisions
hereinafter contained, be described in the register or in any certificate as a
trustee or fiduciary of any kind, and appropriate words may be added to the
description to identify such trust.
44. No Duty to Examine into Trusts, Pledges, etc., to Which Shares Are
Subject. The Company shall not, nor shall the Trustees or the Shareholders or
any officer of the Company or any transfer agent or other agents of the Company,
or the Trustees, be bound to take notice or be affected by notice of any trust,
whether express, implied or constructive, or of any charge, pledge or equity to
which any of the said shares or the interest of any of the Shareholders in this
trust may be subject, or to ascertain or inquire whether any sale or transfer of
any such shares or interest by any such Shareholder or his or her personal
representatives is authorized by such trust, charge, pledge or equity, or to
recognize any person as having any interest therein, except the persons
registered as such Shareholders. The receipt of the person in whose name any
share is registered, or, if such share is registered in the names of more than
one person, the receipt of any one of such persons, or the receipt of the duly
authorized agent of any such person, shall be a sufficient discharge for all
dividends and other money and for all shares, bonds, obligations and other
property payable, issuable or deliverable in respect of such share and from all
liability to see to the application thereof.
<PAGE>
Meetings of Shareholders
45. Annual Meeting. An annual meeting of the Shareholders shall be held on
the last Tuesday of April in every year, or on such other date as the Trustees
or the chairman or the president may from time to time fix, at the principal
office of the Company or at such other place in Massachusetts as may be
designated by the Trustees, the chairman or the president, for the purpose of
electing Trustees and for such other purposes as may be prescribed by law and
hereby or as may be specified in the notice by the Trustees or by the chairman
or by the president of the Company. If such annual meeting is omitted on the day
herein provided for, a special meeting may be held in lieu thereof, and any
business transacted or election held at such special meeting shall have the same
effect as if transacted or held at such annual meeting.
46. Special Meetings. The Trustees, chairman or president of the Company
may, whenever any of them think fit, call or direct any officer of the Company
to call a special meeting of the Shareholders to be held at the principal office
of the Company or, in their discretion, at any other place in Massachusetts, and
such special meeting shall be so called by the clerk, or in the case of the
death, incapacity or refusal of the clerk, by another officer, upon written
application of one or more Shareholders who hold at least forty percent in
interest of the shares entitled to vote at such special meeting.
47. Presiding Officer. The chairman or, if there is no chairman or the
chairman is absent, the president shall preside at every meeting of the
Shareholders, but if neither the chairman nor the president is present at the
commencement of the meeting or, being present, shall not be willing to preside,
the Shareholders present in person or by proxy shall choose the chairman of such
meeting.
48. Business to be Transacted. At any annual or special meeting of
Shareholders, no business shall be transacted other than such as is referred to
in the notice of the meeting.
49. Notices. A written or printed notice of each meeting of the
Shareholders, whether annual or special, specifying the time, place and purposes
thereof, shall be given as hereinafter provided by the clerk or any assistant
clerk or by an officer designated by the Trustees to each of the Shareholders
entitled to vote thereat at least seven (7) days (including Sundays and
holidays) before such meeting. Every notice to any Shareholder required or
provided for herein may be given to him or her personally or by mailing it to
him or her, postage prepaid, at his or her address specified in the records of
the Company. Notice shall be deemed to have been given at the time when it is so
mailed. In respect of any share held jointly by several persons, notice so given
to any one of them shall be sufficient notice to all of them. Any notice so sent
to the address of any Shareholder shall be deemed to have been duly sent in
respect of any such share whether held by him or her solely or jointly with
others, notwithstanding he or she be then deceased or be bankrupt or insolvent
or legally incompetent, and whether the Trustees or any person sending such
notice have knowledge or
<PAGE>
not of his or her death, bankruptcy or insolvency or legal incompetence, until
some other person or persons shall be registered as holders. The certificate of
the person or persons giving such notice shall be sufficient evidence thereof,
and shall protect all persons acting in good faith in reliance on such
certificate. Whenever notice of meeting is required to be given to a Shareholder
under any provision of Massachusetts law applicable to the Company or of this
declaration of trust, a written waiver thereof, executed before or after the
meeting by such Shareholder or Shareholder's attorney thereunto authorized and
filed with the records of the meeting, shall be deemed equivalent to such
notice.
50. Voting; Quorum. At all meetings every Shareholder shall, subject to the
provisions of Article 53, have one vote for each share held by him or her and
may vote at any meeting or any adjournment or adjournments thereof in person or
by proxy in writing dated not more than six months before the meeting named
therein, which proxies shall be filed with the clerk or other person responsible
to record the proceedings of the meeting before being voted; and, except as
otherwise provided herein, the holders of a majority of all the shares issued
and outstanding and entitled to vote shall constitute a quorum for the
transaction of business. The placing of a shareholder's name on a proxy pursuant
to telephonic or electronically transmitted instructions obtained pursuant to
procedures reasonably designed to verify that such instructions have been
authorized by such shareholders shall constitute execution of such proxy by or
on behalf of such shareholder. Shares owned directly or indirectly by the
Company, if any, shall not be deemed outstanding for this purpose, and the
Company shall not, directly or indirectly, vote any share of its own shares.
When any share is held jointly by several persons, any one of them may vote at
any meeting in person or by proxy in respect of such share, but if more than one
of them shall be present at such meeting in person or by proxy, and such joint
owners or their proxies so present disagree as to any vote to be cast, such vote
shall not be received in respect of such share. If the holder of any share is a
minor or a person of unsound mind, or subject to guardianship or to the legal
control of any other person as regards the charge or management of such share,
he or she may vote by his or her guardian or such other person appointed or
having such control, and such vote may be given in person or by proxy. No ballot
shall be required for any election unless requested by a Shareholder present or
represented at the meeting and entitled to vote in the election. Any action
required or permitted to be taken at any meeting of the Shareholders may be
taken without a meeting if all Shareholders entitled to vote on the matter
consent to the action in writing and the written consents are filed with the
records of meetings of Shareholders. Such consents shall be treated for all
purposes as a vote taken at a meeting.
51. Adjournment of Meeting. Any meeting (or portion thereof) may be
adjourned from time to time by a majority of the votes properly cast upon the
question, whether or not a quorum is present, and the meeting (or portion
thereof) may be held as adjourned without further notice.
52. Requisite Vote to Act. Except as otherwise herein provided, when a
quorum is present at any meeting, a plurality of votes properly cast for
election to any office shall elect
<PAGE>
to such office, and a majority of the shares represented at the meeting and
entitled to vote upon any question properly brought before the meeting shall
decide such question. Provisions hereunder for a majority vote of Shareholders
at a meeting mean a vote of the holders of a majority of those shares entitled
to vote thereon which are represented in person or by proxy at such meeting.
53. Record Date for Voting, Dividends and Offerings. For the purpose of
determining the Shareholders who are entitled to vote or act at any meeting or
any adjournment thereof, or who are entitled to receive payment of any dividend
or of any other distribution or offering, the trustees may from time to time fix
in advance a time, which shall be not more than sixty (60) days before the date
of any meeting of Shareholders or the date for the payment of any dividend or of
any other distribution or the date of the offering, as the record date for
determining the Shareholders having the right to notice of and to vote at such
meeting and any adjournment thereof or the right to receive such dividend or
distribution or such offering, and in such case only Shareholders of record on
such record date shall have such right, notwithstanding any transfer of shares
on the books of the Company after the record date; or without fixing such record
date the Trustees may for any of such purposes close the register or transfer
books for all or any part of such period. If no record date is fixed and the
transfer books are not closed, (i) the record date for determining Shareholders
having the right to notice of or to vote at a meeting of Shareholders shall be
at the close of business on the date next preceding the day on which notice is
given, and (ii) the record date for determining Shareholders for any other
purpose shall be at the close of business on the day on which the Trustees acts
with respect thereto.
Duration and Termination of Trust;
Combination; Amendments
54. Duration of Trust. Unless terminated as provided in Article 8(o) or
Article 56, this trust shall continue without limitation of time.
55. Death of Shareholder or Trustee Not to Terminate Trust. The death of a
Trustee hereunder or of a Shareholder or the dissolution of a Shareholder
hereunder during the continuance of this trust shall not operate to terminate
this trust, nor shall it entitle the legal representatives of any such Trustee
or Shareholder to an accounting or to take any action in the courts or
otherwise.
56. Termination; Combination; Affiliation. Except as provided in Article 57
below, the Trustees may terminate this trust at any time, or may cause the
Company to be merged, combined, consolidated or otherwise affiliated with
another trust, association, company, corporation or other entity, if such
termination, merger, combination, consolidation, or affiliation has been
authorized by vote, at a meeting duly called and held, of the holders of
two-thirds of the shares outstanding and entitled to vote thereon or has been
authorized pursuant to Article 8(o). Such termination, merger, combination,
consolidation or affiliation shall become effective only upon presentation to
the Trustees, as required by Article 59, of
<PAGE>
the counterpart of the certificate referred to in said Article 59, or at such
later time as may be specified in the vote effecting such action. In respect of
any such merger, combination, consolidation or affiliation (other than as
provided in Article 8(o)), the agreement in respect thereof shall confer on the
holders of all shares of the Company who dissent from such transaction within
the time and in the manner provided in the Massachusetts statute applicable to
business corporations, substantially those rights they would have if the Company
were at the time a Massachusetts business corporation. Such rights shall be the
Shareholders' exclusive remedy in respect of such holders' dissent from any such
actions.
57. Certain Transactions.
A. Higher Vote for Certain Business Transactions. In addition to any
affirmative vote required by law or otherwise in this declaration of trust, and
except as otherwise expressly provided in Section C of this Article 57:
(1) any merger or consolidation of the Company or any Subsidiary (as
hereinafter defined) with (a) any Interested Shareholder (as hereinafter
defined) or (b) any other company (whether or not itself an Interested
Shareholder) which is or after such merger or consolidation would be an
Affiliate (as hereinafter defined) or Associate (as hereinafter defined) of
an Interested Shareholder; or
(2) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder involving any assets or securities of the Company, any
Subsidiary or any Interested Shareholder or any Affiliate or Associate of
any Interested Shareholder having an aggregate Fair Market Value (as
hereinafter defined) in excess of 5% of the total consolidated book value
of the total assets of the Company and its Subsidiaries as of the end of
the Company's most recent fiscal year prior to the time the determination
is made; or
(3) the adoption of any plan or proposal for the termination, liquidation
or dissolution of the Company proposed by or on behalf of an Interested
Shareholder or any Affiliate or Associate of any Interested Shareholder; or
(4) any reclassification of securities (including any reverse stock split)
or recapitalization of the Company or any merger or consolidation of the
Company with any of its Subsidiaries or any other transaction (whether or
not with or otherwise involving an Interested Shareholder) that has the
effect, directly or indirectly, of increasing the proportionate share of
any class or series of Capital Stock (as hereinafter defined), or any
securities convertible into Capital Stock or into equity securities of any
Subsidiary, that is beneficially owned by any Interested Shareholder or any
Affiliate or Associate of any Interested Shareholder; or
<PAGE>
(5) any tender offer or exchange offer made by the Company for shares of
Capital Stock which may have the effect of increasing an Interested
Shareholder's percentage beneficial ownership (as hereinafter defined) so
that following the completion of the tender offer or exchange offer the
Interested Shareholder's percentage beneficial ownership of the outstanding
Capital Stock may exceed 110% of the Interested Shareholder's percentage
beneficial ownership immediately prior to the commencement of such tender
offer or exchange offer; or
(6) any agreement, contract or other arrangement providing for any one or
more of the actions specified in the foregoing clauses (1) to (5);
shall require the affirmative vote of the holders of Voting Shares (as
hereinafter defined) representing shares equal to the sum of (i) a majority of
the then outstanding Voting Shares, excluding Voting Shares of which such
Interested Shareholder is the beneficial owner, plus (ii) the number of Voting
Shares of which such Interested Shareholder is the beneficial owner, voting
together as a single class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or any agreement with any national
securities exchange or otherwise.
B. Definition of "Business Transaction". For the purposes of this Article 57 the
term "Business Transaction" shall mean any transaction that is referred to in
any one or more of clauses (1) through (6) of Section A of this Article 57.
C. When Higher Vote is Not Required. The provisions of Section A of this Article
57 shall not be applicable to any direct or indirect purchase or other
acquisition by the Company or any Subsidiary of any shares of Capital Stock from
an Interested Shareholder. The provisions of Section A of this Article 57 shall
also not be applicable to any particular Business Transaction involving an
Interested Shareholder, and such Business Transaction shall require only such
affirmative vote, if any, as is required by law or by any other provision of
this declaration of trust if the Business Transaction shall have been approved
by a majority of the Disinterested Trustees (whether such approval is made prior
to or subsequent to the acquisition of beneficial ownership of the Voting Shares
that caused the Interested Shareholder to become an Interested Shareholder).
D. Certain Definitions. For purposes of this Article 57:
(1) The term "Capital Stock" shall mean all the shares of beneficial
interest of the Company authorized to be issued from time to time under
Article 28 of this declaration of trust.
<PAGE>
(2) The term "person" shall mean any individual, firm, corporation or other
entity and shall include any group comprised of any person and any other
person with whom such person or any Affiliate or Associate of such person
has any agreement, arrangement or understanding, directly or indirectly,
for the purpose of acquiring, holding, voting or disposing of Capital
Stock.
(3) The term "Interested Shareholder" shall mean any person (other than the
Company or any Subsidiary and other than any profit-sharing, employee stock
ownership or other employee benefit plan of the Company or any Subsidiary
or any trustee of or fiduciary with respect to any such plan when acting in
such capacity) who or which (a) is the beneficial owner of Voting Shares
representing 5% or more of the votes entitled to be cast by the holders of
all then outstanding Voting Shares; or (b) is an Affiliate of the Company
and at any time within the two-year period immediately prior to the date in
question was the beneficial owner of Voting Shares representing 5% or more
of the votes entitled to be cast by the holders of all the outstanding
Voting Shares.
(4) A person shall be a "beneficial owner" of any Capital Stock (a) which
such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (b) which such person or any of its Affiliates or
Associates has, directly or indirectly, (i) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, (ii) the right to vote pursuant to any agreement, arrangement or
understanding, or (iii) which is beneficially owned, directly or
indirectly, by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares of
Capital Stock. For the purposes of determining whether a person is an
Interested Shareholder pursuant to paragraph 3 above, the number of shares
of Capital Stock deemed to be outstanding shall include shares deemed
beneficially owned by such person through application of this paragraph 4,
but shall not include any other shares of Capital Stock that may be
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(5) An "Affiliate" of a specified person is a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, the person specified.
<PAGE>
(6) The term "Associate" used to indicate a relationship with any person
means (a) any company (other than the Company or any Subsidiary) of which
such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities, (b) any
trust or other estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar
fiduciary capacity, and (c) any relative or spouse of such person, or any
relative of such spouse, who has the same home as such person or who is a
Trustee or officer of the Company or any of its parents or subsidiaries.
(7) The term "Subsidiary" means any company of which a majority of any
class of equity security is beneficially owned by the Company, provided,
however, that for the purposes of the definition of Interested Shareholder
set forth in paragraph 3 above and the definition of Associate set forth in
paragraph 6 above, the term "Subsidiary" shall mean only a company of which
a majority of each class of equity security is beneficially owned by the
Company.
(8) The term "Disinterested Trustee" means any Trustee who is not an
Affiliate or Associate or representative of the Interested Shareholder and
was a Trustee prior to the time that the Interested Shareholder became an
Interested Shareholder, and any Trustee who is a successor of a
Disinterested Trustee, is not an Affiliate or Associate or representative
of the Interested Shareholder and is recommended or elected to succeed the
Disinterested Trustee by a majority of the Disinterested Trustees.
(9) The term "Fair Market Value" means (a) in the case of cash, the amount
of such cash, (b) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in question of a
share of such stock on the Composite Tape for New York Stock Exchange
Listed Stocks, or, if such stock is not quoted on the Composite Tape, on
the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which such stock is listed,
or, if such stock is not listed on any such exchange, the highest closing
bid quotation with respect to a share of such stock during the 30-day
period immediately preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations System or any
similar system then in use, or if no such quotation is available, the fair
market value on the date in question of a share of such stock as determined
by a majority of the
<PAGE>
Disinterested Trustees in good faith; and (c) in the case of property other
than cash or stock, the fair market value of such property on the date in
question as determined in good faith by a majority of the Disinterested
Trustees.
(10) The term "Voting Shares" means all Capital Stock which by its terms
may be voted generally in the election of Trustees of the Company.
E. Powers of the Disinterested Trustees. A majority of the Disinterested
Trustees shall have the power and duty to determine for purposes of this Article
57, on the basis of information known to them after reasonable inquiry, (1)
whether a person is an Interested Shareholder, (2) the number of shares of
Capital Stock or other securities beneficially owned by any person, (3) whether
a person is an Affiliate or Associate of another, and (4) whether the assets
that are the subject of any Business Transaction have, or the consideration to
be received for the issuance or transfer of securities by the Company or any
Subsidiary in any Business Transaction has, an aggregate Fair Market Value in
excess of the amount set forth in clause (2) of Section A of this Article 57.
Any such determination made in good faith shall be binding and conclusive for
all the purposes of this Article 57.
F. No Effect on Fiduciary Obligations of Interested Shareholders. Nothing
contained in this Article 57 shall be construed to relieve any Interested
Shareholder from any fiduciary obligation imposed by law.
G. Alteration, Amendment, Repeal. Notwithstanding any other provisions of this
declaration of trust (and notwithstanding the fact that a lesser percentage or
separate class vote may be specified by law or this declaration of trust), the
affirmative vote of the holders of 80% of the then outstanding Voting Shares
shall be required to alter, amend or repeal this Article 57; provided, however,
that this Section G shall not apply to, and such 80% vote shall not be required
for, any alteration, amendment or repeal recommended by a majority of the
Disinterested Trustees.
58. Amendments. The declaration of trust may be altered, amended, added to
or rescinded by an instrument in writing signed by a majority of the Trustees,
if the same has been authorized by majority vote of the Shareholders at a
meeting, and such other vote, if any, as may be required by the rights or
preferences relating to any class or series of shares; provided that if such
alteration, amendment, addition or rescission shall in the judgment of the
Trustees be of a fundamental character it shall require authorization by vote,
at such a meeting, of the holders of a majority of the shares outstanding and
entitled to vote thereon; and provided further that any alteration, amendment,
addition or rescission of any provision requiring a vote of the holders of a
specified percentage of the shares shall be only by vote of the holders of such
percentage; and provided further that
<PAGE>
the provisions of Articles 3 and 4 exempting from personal liability the
Shareholders, Trustees, officers, agents and other representatives of the
Company may be amended only by unanimous vote of the holders of all shares
entitled to vote at the time such vote is taken and such amendment shall take
effect only prospectively. Such alteration, amendment, addition or rescission
shall become effective at such time as may be specified in the vote effecting
such action. Notwithstanding anything preceding in this Article to the contrary
but subject to the provisions of Article 57, the vote of the holders of 80% of
the shares issued and outstanding and entitled to vote generally in the election
of Trustees shall be required for any alteration, amendment or repeal of
Articles 9 and 10; provided, however, that such 80% vote shall not be required
for any alteration, amendment or repeal adopted or recommended by 80% of the
Trustees then in office. Amendments for the purpose of changing the name of the
Company or of supplying any omission, curing any ambiguity or curing, correcting
or supplementing any defective or inconsistent provision contained in this
declaration of trust shall not require authorization by vote of the
Shareholders.
59. Certificate of Termination or Amendment. In case this trust shall be
terminated or any merger, combination, consolidation or affiliation shall be
effected, or any of the terms, powers and provisions herein contained shall be
altered, amended, added to or rescinded, pursuant to the provisions of Article
8(o), Article 56 or Article 58 or other authority, a certificate in any number
of counterparts deemed desirable, setting forth such termination, alteration,
amendment, addition or rescission or the terms of such merger, combination,
consolidation or affiliation and either that the Shareholders have authorized
the same in accordance with the provisions of said Article 8(o), Article 56 or
Article 58, or the other authority pursuant to which the same has been made,
shall be signed by the chairman or president and by the clerk or any assistant
clerk and shall be acknowledged by either the chairman or president signing the
same and shall be recorded or filed in the various public offices, if any, in
which this declaration of trust is then recorded or filed and at the principal
office of the Company and in such places as may be required by law, but failure
to record or file any such vote or resolution shall not affect the validity
thereof.
60. Disposition of Trust Estate on Termination. Upon the termination of
this trust the Trustees shall, upon such terms as shall be determined by the
Trustees, sell and convert into money or into shares, bonds or other securities
or obligations, whether of the purchaser or otherwise, the whole or any part of
the Trust estate and shall apportion the proceeds thereof and any property
forming part of the Trust estate excepted from such sale among all the
Shareholders in accordance with their respective rights ratably according to the
number and kind of shares held by them respectively. In making any sale under
this provision the Trustees shall have power to sell by public auction or
private contract and to buy in or rescind or vary any contract of sale and to
resell, without being answerable for loss, and for the said purposes to execute
or cause to be executed all proper deeds and instruments and to do all proper
things. The Trustees may, after the distribution of the full amounts of money,
if any, due upon liquidation or termination on any preferred shares of any class
or series which may be outstanding, divide the whole or any part of the
remaining Trust estate in its actual
<PAGE>
state of investment among the Shareholders in accordance with their respective
rights ratably according to the number and kind of shares held by them
respectively, and for such purposes the Trustees shall have power to determine
the values of the property comprising said remaining Trust estate.
Miscellaneous
61. Filing. This instrument and any amendment hereto shall be filed with
the Secretary of The Commonwealth of Massachusetts and in such other places as
may be required under the laws of The Commonwealth of Massachusetts and may also
be filed or recorded in such other places as the Trustees deem appropriate.
Unless any such amendment sets forth some later time for the effectiveness of
such amendment, such amendment shall be effective upon its filing with the
Secretary of The Commonwealth of Massachusetts. A restated declaration of trust,
integrating into a single instrument all of the provisions of this instrument
which are then in effect and operative, may be executed from time to time by the
Trustees and shall, upon filing with the Secretary of The Commonwealth of
Massachusetts, be conclusive evidence of all amendments contained therein and
may hereafter be referred to in lieu of this instrument and the various
amendments thereto.
62. Protection of Company, Stock of Which Held by Trust. No corporation,
trust, association or body politic shall be affected by notice that any of its
shares or bonds or other securities or obligations are subject to this trust or
be bound to see to the execution of this trust or to ascertain or inquire
whether any transfer of any such shares, bonds or securities or obligations by
the Company is authorized, notwithstanding such authority may be disputed by
some other person, firm, association, trust or corporation.
63. Authority of the Trustees to Construe Terms Hereof. The Trustees shall
have the authority to construe any of the terms, powers and provisions herein
contained and to act on any such construction, and its construction of the same
and any action taken pursuant thereto by the Trustees, or any committee, officer
or agent in good faith shall be final and conclusive.
64. Effect of Captions and Table of Contents. The captions and Table of
Contents are inserted for convenience of reference, and are not to be taken as
any part of this instrument or to control or affect the meaning, construction or
effect of the same.
65. Counterparts. This instrument may be simultaneously executed in several
counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
66. Governing Law. This instrument is executed by the original Trustees and
delivered in The Commonwealth of Massachusetts, and with reference to the
statutes and law
<PAGE>
thereof, and the rights of all parties and the construction and effect of every
provision hereof shall be subject to and construed according to the statutes and
law of said Commonwealth.
67. Provisions in Conflict with Law or Regulations. The provisions of this
instrument are severable, and if the Trustees shall determine, with the advice
of counsel, that any of such provisions would be inconsistent with any of the
conditions necessary for qualification of the Company as an exempted holding
company within the meaning of the Public Utility Holding Company Act of 1935, as
amended, and the rules and regulations thereunder or is inconsistent with other
applicable laws and regulations, such provision shall be deemed never to have
constituted a part of this instrument, provided that such determination shall
not affect any of the remaining provisions of this instrument or render invalid
or improper any action taken or omitted prior to such determination. If any
provision of this instrument shall be held invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall attach only to such
provision in such jurisdiction and shall not in any manner affect such provision
in any other jurisdiction or any other provision of this instrument in any
jurisdiction.
IN WITNESS WHEREOF we have hereunto set our hands and seals at Boston in
The Commonwealth of Massachusetts on the date first above mentioned.
7
-------------------------------
[SEAL] Thomas J. May
-------------------------------
[SEAL] James J. Judge
-------------------------------
[SEAL] Theodora S. Convisser
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK, SS.
March ___, 1997
Then personally appeared before me the above-named Thomas J. May, James J.
Judge and Theodora S. Convisser, and severally acknowledged the foregoing
instrument to be their free act and deed.
WITNESS MY HAND and official seal at Boston, Massachusetts.
NOTARIAL SEAL
My commission expires
Notary Public in and for The Commonwealth of Massachusetts
<PAGE>
Exhibit 21
Subsidiaries of Registrant
NSTAR (Merger of BEC Energy and Commonwealth Energy Systems)
BEC Energy
Boston Edison Company*
Harbor Electric Energy Company
BEC Funding LLC*
BETG
Boston Edison Services
NorthWind Boston LLC
Commonwealth Energy System
Commonwealth Electric Company*
Cambridge Electric Light Company*
Canal Electric Company*
Commonwealth Gas Company*
COM/Energy Steam Company
Hopkinton LNG Corp.
Advanced Energy Systems, Inc. (MATEP)
COM/Energy Services Company
COM/Energy Acushnet Realty
COM/Energy Cambridge Realty
COM/Energy Freetown Realty
COM/Energy Research Park Realty
Darvel Realty Trust
Energy Investment Services, Inc.
NSTAR Communications
NSTAR Services Corporation
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,550,619
<OTHER-PROPERTY-AND-INVEST> 358,502
<TOTAL-CURRENT-ASSETS> 1,043,233
<TOTAL-DEFERRED-CHARGES> 1,044,544
<OTHER-ASSETS> 485,990
<TOTAL-ASSETS> 5,482,888
<COMMON> 58,060
<CAPITAL-SURPLUS-PAID-IN> 1,075,483
<RETAINED-EARNINGS> 389,989
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,523,532
49,279
43,000
<LONG-TERM-DEBT-NET> 1,633,402
<SHORT-TERM-NOTES> 458,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 221,392
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,554,283
<TOT-CAPITALIZATION-AND-LIAB> 5,482,888
<GROSS-OPERATING-REVENUE> 1,851,427
<INCOME-TAX-EXPENSE> 87,721
<OTHER-OPERATING-EXPENSES> 1,500,008
<TOTAL-OPERATING-EXPENSES> 1,587,729
<OPERATING-INCOME-LOSS> 263,698
<OTHER-INCOME-NET> 8,965
<INCOME-BEFORE-INTEREST-EXPEN> 272,663
<TOTAL-INTEREST-EXPENSE> 126,200
<NET-INCOME> 146,463
5,960
<EARNINGS-AVAILABLE-FOR-COMM> 140,503
<COMMON-STOCK-DIVIDENDS> 103,099
<TOTAL-INTEREST-ON-BONDS> 3,053
<CASH-FLOW-OPERATIONS> 183,360
<EPS-BASIC> 2.77
<EPS-DILUTED> 2.76
</TABLE>
<PAGE>
EXHIBIT 99.1
================================================================================
CHILLED WATER SERVICE AGREEMENT
Dated as of March 23, 1999
Between
Northwind Boston LLC
and
BP Prucenter Acquisition LLC
================================================================================
<PAGE>
-2-
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
1. Chilled Water Service ........................................................ 1
1.1. Services .............................................................. 1
1.2. Contract Capacity ..................................................... 1
1.2.1. Reduction in Contract Capacity ................................. 1
1.2.2. Contract Capacity Charge ....................................... 2
1.2.3. Contract Capacity Charge Adjustment ............................ 2
1.2.4. Metering ....................................................... 2
1.2.5. Demand Limiting Devices ........................................ 2
1.3. Temporary Additional Capacity ......................................... 3
1.3.1. First Three Annual Periods ..................................... 3
1.3.2. After the First Three Annual Periods ........................... 3
1.3.3. Charge for Temporary Additional Capacity Requests After the
First Three Annual Periods ..................................... 3
1.4. New Construction ...................................................... 3
1.5. Permanent Additional Capacity ......................................... 4
1.5.1. Notice ......................................................... 4
1.5.2. Permanent Additional Capacity Charge For Requests Within
the First Ten Annual Periods ................................... 4
1.5.3. Permanent Additional Capacity Charge For Requests After the
First Ten Annual Periods ....................................... 4
1.5.4. Cancellation ................................................... 5
2. Term
2.1. Commencement Date ..................................................... 5
2.2. Initial Term .......................................................... 5
2.3. Renewal ............................................................... 5
3. Charges and Adjustments
3.1. Consumption Charge .................................................... 6
3.1.1. Consumption Charge Adjustment .................................. 6
3.2. Effects of Changes of Law ............................................. 6
3.3. Taxes ................................................................. 6
4. Payment Terms ................................................................ 6
4.1. Invoices .............................................................. 6
4.2. Default Rate Interest ................................................. 7
5. Installation, Maintenance and Ownership of Energy Transfer Station,
Connection Equipment and Customer Cooling Equipment .......................... 7
5.1. Installation of Equipment ............................................. 7
5.2. Location of Equipment ................................................. 7
5.3. Maintenance of Energy Transfer Station ................................ 7
5.4. Connection Equipment; Customer Cooling Equipment ...................... 7
5.5. Customer Acquisition of Connection Equipment .......................... 7
5.6. Damage to Premises by Supplier ........................................ 7
</TABLE>
<PAGE>
-3-
<TABLE>
<S> <C> <C> <C>
6. Rights of Access ............................................................. 8
6.1. Generally ............................................................. 8
6.2. Protection of Energy Transfer Station ................................. 8
7. Insurance Requirements ....................................................... 8
8. Events of Default ............................................................ 8
8.1. Supplier Default ...................................................... 8
8.1.1. Failure to Provide Chilled Water Service ....................... 8
8.1.2. Failure to Perform Other Obligations ........................... 9
8.2. Customer Default ...................................................... 9
8.2.1. Failure to Pay ................................................. 9
8.2.2. Failure to Perform Other Obligations ........................... 9
9. Planned Maintenance; Other Service Interruptions ............................. 9
9.1. Planned Maintenance ................................................... 9
9.2. Other Interruptions ................................................... 10
9.3. Generally ............................................................. 10
10. Force Majeure Events ......................................................... 10
11. Remedies Following Default ................................................... 11
11.1. Customer's Remedies upon Occurrence of a Supplier Default ............. 11
11.1.1. Abatement ..................................................... 11
11.1.2. Termination ................................................... 11
11.1.3. Other Rights and Remedies ..................................... 11
11.2. Supplier's Remedies upon Customer Default ............................. 11
11.2.1. Discontinue of Performance .................................... 11
11.2.2. Termination ................................................... 12
11.2.3. Other Rights and Remedies ..................................... 12
11.3. No Consequential Damages .............................................. 12
12. Effect of Termination of Agreement ........................................... 12
12.1. Payment; No Further Obligations ....................................... 12
12.2. Disconnection ......................................................... 12
13. Indemnification .............................................................. 13
13.1. Indemnification by Supplier ........................................... 13
13.2. Indemnification by Customer ........................................... 13
13.3. Notice of Claims ...................................................... 13
13.4. Amount of Claim ....................................................... 13
13.5. Defense of Action ..................................................... 13
13.6. Survival of Provisions ................................................ 14
14. Warranties ................................................................... 14
15. Miscellaneous Provisions ..................................................... 14
15.1. Notices ............................................................... 14
15.2. Assignment ............................................................ 14
15.3. Nondisturbance Agreement .............................................. 14
15.4. Memorandum of Agreement ............................................... 14
</TABLE>
<PAGE>
-4-
<TABLE>
<S> <C> <C> <C>
15.5. Confidential Information .............................................. 15
15.6. Successors ............................................................ 15
15.7. Entire Agreement ...................................................... 15
15.8. Amendments to Agreement ............................................... 15
15.9. Waivers; Approvals .................................................... 15
15.10. Partial Invalidity .................................................... 16
15.11. Execution in Counterparts ............................................. 16
15.12. Governing Law ......................................................... 16
15.13. No Third Party Rights ................................................. 16
15.14. Interconnections ...................................................... 16
15.14.1. Performance Bond ............................................. 16
15.15 Other Transactions .................................................... 17
15.16. Cooperation ........................................................... 17
15.17. Supplier Operations ................................................... 17
15.18. Termination ........................................................... 18
15.19. Promotional Efforts ................................................... 18
15.20. Authorization ......................................................... 18
15.21. Hazardous Materials ................................................... 18
</TABLE>
<PAGE>
-5-
NORTHWIND BOSTON LLC
CHILLED WATER SERVICE AGREEMENT COVER PAGE
This Cover Page is attached to and made a part of that certain Chilled Water
Service Agreement dated as of March 23. 1999 by and between the customer
identified below and Northwind Boston LLC, a Massachusetts limited liability
company.
CUSTOMER: BP Prucenter Acquisition LLC, a Delaware
limited liability company
CUSTOMER'S INTEREST IN PREMISES: FEE INTEREST
ADDRESS OF PREMISES: (i) Prudential Tower located at 800
Boylston Street, Boston, MA;
(ii) Prudential Retail area known as the
Shops at Prudential located at 800
Boylston Street, Boston, MA; and
(iii) 101 Huntington Avenue, Boston, MA.
((i), (ii) and (iii) are collectively
referred to hereinafter as the
"Premises")
PROJECTED COMMENCEMENT DATE: June 15, 1999
DURATION OF INITIAL TERM: 25 Annual Periods
CONTRACT CAPACITY: 4620 Tons of chilled water service
INITIAL CONTRACT CAPACITY CHARGE: $175 per Annual Period per Ton of
Contract Capacity. This charge shall
adjusted from time to time in accordance
with the terms of the Chilled Water
Service Agreement.
INITIAL CONSUMPTION CHARGE: $0.128 per Ton-Hour of chilled water
service. This charge will be adjusted
from time to time in accordance with the
terms of the Chilled Water Service
Agreement.
<PAGE>
-6-
NOTICES: All notices and other communications
shall be addressed as follows:
If to Supplier to:
Northwind Boston LLC
800 Boylston Street
Boston, MA 02199
Attn: President
With a copy to:
Northwind Attorney
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Attn: Vincent M. Sacchetti, Esq.
If to Customer to:
BP Prucenter Acquisition LLC
c/o Boston Properties, Inc.
8 Arlington Street
Boston, MA 02116
Attn: David Barrett
With a copy to:
BP Prucenter Acquisition LLC
c/o Boston Properties, Inc.
8 Arlington Street
Boston, MA 02116
Attn: Peter See
This Cover Page is an integral part of the Chilled Water Service Agreement and
its termsare incorporated into such Agreement by reference.
CHILLED WATER SERVICE AGREEMENT
THIS CHILLED WATER SERVICE AGREEMENT (this "Agreement") is dated as of
March 23, 1999, [INITIALED RPT] by and between Northwind Boston LLC, a
Massachusetts liability company (the "Supplier"), and the customer (the
"Customer") identified on the Cover Page (this and all other capitalized terms
used in this Agreement shall have the meanings ascribed to those terms in
Appendix A attached to this Agreement).
RECiTALS:
A. Customer possesses an interest in the Premises, which interest is
described more fully on the Cover Page and the plan attached as Exhibit A
hereto.
<PAGE>
-7-
B. Customer desires to purchase from Supplier, and Supplier desires to
provide to Customer, chilled water service to cool space within the Premises, on
the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Supplier and Customer agree as
follows:
1. Chilled Water Service.
1.1. Services. Supplier agrees to supply Customer with chilled water
service at the Premises as set forth in this Agreement. The specifications for
such service, including the scope of work and temperature and pressure of the
water, are set forth in the IOM Specifications attached hereto as Exhibit C. The
chilled water provided to Customer pursuant to this Agreement shall be used by
Customer as the primary source of cooling for the Premises. Customer shall be
responsible for the temperature levels of all space within the Premises.
1.2. Contract Capacity. Supplier shall supply Customer with chilled water
service at the Premises up to the Contract Capacity.
1.2.1. Reduction in Contract Capacity. If the Customer institutes
energy conservation procedures which reduce its Actual Capacity during warm
weather months below the sum of the Contract Capacity and the Permanent
Additional Capacity, the Customer may request in writing a capacity
reduction from the Supplier; provided, that the Customer shall not make
such a request more than once during any consecutive four (4) Annual
Periods. Upon receipt of such request, the Supplier will, during the next
twelve (12) months, study the Customer's chilled water requirements by
plotting Actual Capacity data points occurring during the warmest four (4)
months of such twelve-month period against temperature data points for the
corresponding dates during the same cooling period of the previous Annual
Period which resulted in corresponding temperatures in the Boston
metropolitan area. The Supplier will extrapolate the resulting
relationships and in the event of a difference of five percent (5%) or more
in the Actual Capacity during such dates, the Supplier will determine a new
Contract Capacity and/or Permanent Additional Capacity for chilled water at
the standard design temperatures contemplated under this Agreement.
Supplier shall determine the new capacity charges by first reducing
Permanent Additional Capacity, and if the reduction is greater than
Permanent Additional Capacity, it will then reduce the Contract Capacity.
In no event, however, shall the Contract Capacity for chilled water be
re-established at less than 80% of the initial Contract Capacity plus
Permanent Additional Capacity. In the event of any reduction in the
Contract Capacity pursuant to this Section, the Contract Capacity Charge
will be reduced by the number of Tons by which the Contract Capacity is
reduced multiplied by the Contract Capacity Charge, per Ton of Contract
Capacity, effective immediately prior to such reduction. In the event of
any reduction in the Permanent Additional Capacity, the Permanent
Additional Capacity Charge will be reduced by the number of Tons by which
the Permanent Additional Capacity is reduced multiplied by the Permanent
Additional Capacity Charge, per Ton of Permanent Additional Capacity,
effective immediately prior to such reduction.
1.2.2. Contract Capacity Charge. Pursuant to Section 4.1 hereof,
Customer shall pay to Supplier monthly during the term of this Agreement
1/12th of the Contract Capacity Charge for the Annual Period for Supplier's
undertaking to supply
<PAGE>
-8-
chilled water service up to the Contract Capacity, regardless of whether
Customer actually requires Contract Capacity during that Month.
1.2.3. Contract Capacity Charge Adjustment. (A) On the commencement of
the eleventh Annual Period after the Commencement Date, the Contract
Capacity Charge shall be increased to $201.25 per Annual Period per Ton of
Contract Capacity, and shall remain fixed for a period of ten Annual
Periods.
(B) On the commencement of the twenty-first Annual Period after the
Commencement Date, the Contract Capacity Charge shall be increased to
$231.44 per Annual Period per Ton of Contract Capacity, and shall remain
fixed for a period of ten Annual Periods (or five Annual periods in the
event the term of this Agreement is not extended for the Renewal Term).
(C) In the event the term of this Agreement is extended for the
Renewal Term, on the commencement of the sixth Annual Period after the
Renewal Term start date, the Contract Capacity Charge shall be increased to
$266 per Annual Period per Ton of Contract Capacity.
The Contract Capacity Charge, as increased, shall then remain
unchanged until it is adjusted again pursuant to the terms of this Section
or Section 3.2. below.
1.2.4. Metering. (A) Customer's Contract Capacity shall be metered
based on the peak coincident cooling demand for the Premises.
(B) Supplier shall retain a third party to calibrate Supplier's
metering equipment for the Premises prior to June 1 of each year during the
term of this Agreement, and shall provide Customer with written calibration
and testing results. Customer shall have the right to audit Supplier's
calibration and testing, at its own cost, and retain a third party to
perform its own testing to verify Supplier's results. If Customer's test
results are different than Supplier's test results by +/- 3%, Customer and
Supplier shall select an independent third party to retest Supplier's
metering equipment. Supplier shall calibrate the metering equipment for the
Premises based upon such independent third party's test results.
1.2.5. Demand Limiting Devices. Supplier shall install a demand
limiting device, in accordance with the IOM Specifications, for the purpose
of limiting excess capacity requirements and avoiding accidental peaks. On
or after the commencement of the fourth Annual Period after the
Commencement Date, Customer may request the temporary removal of such
demand limiting devices. Upon the removal of such demand limiting devices,
any chilled water service provided in excess of the Contract Capacity and
Permanent Additional Capacity shall be treated as Temporary Additional
Capacity pursuant to the terms of Sections 1.3 of this Agreement, unless
the demand limiting devices are removed due to (i) Supplier's failure to
satisfy .the IOM Specification's temperature requirements, or (ii) abnormal
weather conditions defined as the occurrence of dry bulb temperatures in
excess of 95 [degrees] Fahrenheit as recorded by Supplier at its Back Bay
West Energy Center for a period of four (4) consecutive hours.
<PAGE>
-9-
1.3. Temporary Additional Capacity. Upon Customer's request or action,
Supplier may temporarily supply chilled water service in Tons exceeding the
Contract Capacity (such additional temporary service being referred to herein as
"Temporary Additional Capacity").
1.3.1. First Three Annual Periods. If Temporary Additional Capacity is
requested within the first three Annual Periods of the Commencement Date,
such Temporary Additional Capacity shall not result in an increase in the
Contract Capacity and there shall be no Contract Capacity Charge therefor.
1.3.2. After the First Three Annual Periods. Commencing on the fourth
Annual Period after the Commencement Date, if Customer requests and
Supplier delivers Temporary Additional Capacity on more than three separate
occasions or for more than thirty-two (32) hours in the aggregate in an
Annual Period, the Contract Capacity shall be increased for the balance of
the term of this Agreement to include the highest amount in Tons of any
such Temporary Additional Capacity request. Thereafter, if Customer
requests Temporary Additional Capacity during such Annual Period, the
Contract Capacity shall be increased for the balance of the term of this
Agreement by an additional amount in Tons equal to the amount of any such
Temporary Additional Capacity request.
1.3.3. Charge for Temporary Additional Capacity Charge for Requests
After the First Three Annual Periods. On the commencement of the fourth
Annual Period after the Commencement Date, for each Temporary Additional
Capacity requested prior to the date such Temporary Additional Capacity
requests are converted to Contract Capacity, Customer shall pay to Supplier
for such billing period a charge for each such Temporary Additional
Capacity requested equal to the product of (i) the amount of such Temporary
Additional Capacity (as measured in Tons), multiplied by (ii) the Contract
Capacity Charge as modified pursuant to Section 1.2.3.
1.4. New Construction. Customer plans to commence construction of new
properties located at the south side of the Prudential Tower consisting of an
office tower located at 111 Huntington Avenue, Boston, MA (the "111 Office
Tower"), additional retail space (the "111 Retail Space") and residential space
(the "Residential Tower") (collectively the "New Construction") by approximately
April 1, 1999. In anticipation of such New Construction, Supplier agrees to
reserve 2500 Tons of chilled water service capacity at its Back Bay West Energy
Center to supply chilled water service to such New Construction, unless the New
Construction has not materially commenced prior to December 31, 2000 or some
other mutually agreeable date set by the Parties. If Customer constructs the 111
Office Tower and the 111 Retail Space, Customer will be obligated to accept
chilled water service from Supplier pursuant to this Agreement and, upon
commencement of such construction, Customer and Supplier shall agree upon a
schedule for the construction by Supplier of the facilities required to supply
chilled water to the 111 Office Tower and the Ill Retail Space. Supplier shall
supply chilled water to the Residential Tower at the option of Customer
exercised not later than sixty (60) days after commencement of construction of
the Residential Tower and, upon exercise of such option, Supplier and Customer
will agree upon a schedule for the construction by Supplier of the facilities
required to supply chilled water to the Residential Tower. If the New
Construction has not commenced prior to December 31, 2000 or such other mutually
agreeable date set by the Parties, so long as Supplier reasonably demonstrates
to Customer that Supplier has the ability to serve the New Construction from an
alternate cooling capacity source, then Supplier shall have the right to sell
the Back Bay West Energy Center reserved capacity to a third party and the New
Construction shall be serviced from Supplier's alternative capacity source. In
any event the rights of Customer to receive chilled water service for the New
Construction shall expire as to any of the three projects for which construction
has not been started on or before December 1, 2002.
<PAGE>
-11-
(C) On the commencement of the twenty-first Annual Period after each
request for Permanent Additional Capacity pursuant to Section 1.5.3.(A),
the Permanent Additional Capacity Charge for such capacity shall be
increased by an additional fifteen percent (15%).
The Permanent Additional Capacity Charge, as increased, shall then
remain unchanged until it is adjusted again pursuant to the terms of this
Section or Section 3.2. below. Each request for Permanent Additional
Capacity shall be subject to the provisions of this Section.
1.5.4 Cancellation. If Customer requests Permanent Additional Capacity
after the fifth Annual Period after the Commencement Date and Supplier
constructs and modifies its production facilities in order to provide such
increased capacity, and Customer subsequently cancels or fails to accept
delivery of such increased capacity within ninety (90) days of the date
first offered by Supplier, Supplier will be relieved from its obligations
to deliver such Permanent Additional Capacity, and Customer shall pay an
additional monthly Permanent Additional Capacity Charge for such increased
capacity from the date such increased capacity was scheduled to be
delivered until such time as Supplier sells such capacity to another
customer.
2. Term.
2.1. Commencement Date. (A) The Commencement Date shall be the date on
which Supplier is ready and able to begin supplying Customer with the chilled
water service in accordance with the terms of this Agreement, provided such date
shall not be earlier than the Projected Commencement Date as defined on the
Cover Page unless otherwise agreed by Supplier and Customer.
(B) In the event Supplier does not begin to supply Customer with chilled
water service within ninety (90) days alter the Projected Commencement Date for
any reason other than the occurrence of a Force Majeure Event or a delay caused
by Customer, then Customer may, at its option, terminate this Agreement upon not
less than thirty days prior written notice to Supplier. Failure to provide such
service shall not constitute a Supplier Default
2.2. Initial Term. The Initial Term of this Agreement commences on the
Commencement Date and continues for the period specified on the Cover Page,
unless terminated earlier pursuant to the terms of this Agreement
2.3. Renewal. The term of this Agreement may be extended for one subsequent
period of ten (10) Annual Periods each (the "Renewal Term"), upon written notice
from Customer to Supplier given not less than two (2) years prior to the
expiration date of the Initial Term.
3. Consumption, Changes of Law and Taxes.
3.1. Consumption Charge. Customer shall pay to Supplier the monthly
Consumption Charge for chilled water service actually provided to Customer
during such month.
3.1.1. Consumption Charge Adjustment. On each annual anniversary of
the Commencement Date, the Consumption Charge shall be adjusted to the sum
of the following:
(i) the initial Consumption Charge, plus (or minus)
<PAGE>
-12-
(ii) the product of (A) the initial Consumption Charge,
multiplied by (B) 70% of the percentage increase (or decrease), if
any, in the Regional Electricity Index from the calendar month
immediately preceding the month in which the Commencement Date occurs
to the calendar month immediately preceding the month in which the
adjustment to the Consumption Charge is to occur, plus
(iii) the product of (A) the initial Consumption Charge,
multiplied by (B) 30% of the percentage increase (or decrease), if
any, in the Consumer Price Index from the calendar month immediately
preceding the month in which the Commencement Date occurs to the
calendar month immediately preceding the month in which the adjustment
to the Consumption Charge is to occur.
The Consumption Charge, as adjusted, shall then remain unchanged until it
is adjusted again pursuant to the terms of this Section or Section 3.2
below.
3.2. Effects of Changes of Law. Supplier shall adjust the Contract Capacity
Charge and the Permanent Additional Capacity Charge as provided below to reflect
fifty percent (50%) of Customer's pro rata share (determined as set forth below)
of Supplier's capital expenditures required at the Back Bay West Energy Center,
relating to providing chilled water to Customer directly resulting from a Change
of Law.. Such adjustments shall become effective immediately upon written notice
of the adjustment to Customer provided that, except as set forth below, Customer
shall have no liability for such adjustments applicable to any period prior to
such notice. There shall be only included in such adjustments fifty percent
(50%) of the depreciation for such capital improvements made by Supplier, plus
an interest factor equal to the interest rate then charged for long term
mortgages by institutional lenders on like properties within the general
locality in which the Properties are located. Depreciation shall be determined
by dividing the original cost of such capital expenditure by the longer of (i)
the number of years of its useful life, which such useful life shall be
reasonably determined by Supplier in accordance with generally accepted
accounting principles and practices in effect at the time of the capital
expenditure, and (ii) the remaining term of this Agreement. Overhead and general
administrative expenses relating to Supplier's principal office and capital
expenditures which are made in the Back Bay West Energy Center and are not
related to the providing of chilled water to Customer shall not be reflected in
such adjustments and shall not be recoverable by Supplier pursuant to this
Section 3.2. Customer's pro rata share of chilled water at the Back Bay West
Energy Center for purposes of calculating the foregoing adjustment to Contract
Capacity Charge and the Permanent Additional Capacity Charge shall be determined
by dividing the total ton hours of chilled water delivered to Customer for the
twenty-four month period preceding the month in which the adjustment is to be
made by the total ton hours of chilled water delivered to all customers of the
Back Bay West Energy Center during such period. If a Change of Law occurs during
the first twenty-four months of this Agreement, the adjustment contemplated by
this Section 3.2 shall be made in the twenty-fifth month but shall be
retroactive to the later of the date of the costs resulting from the Change of
Law are first incurred by Supplier or the date Supplier first gives Customer
notice of such Change of Law.
3.3. Taxes. Customer shall pay to Supplier any Taxes pertaining to the
supply of chilled water service under this Agreement upon receipt of Supplier's
invoice for such Taxes, except that Supplier shall be responsible for all
interest, penalties and additions thereto unless such interest, penalties and
additions are caused by Customer.
4. Payment Terms.
4.1. Invoices. Beginning on the Commencement Date, Supplier shall deliver
to Customer monthly invoices reflecting all amounts then owing by Customer. The
Contract Capacity
<PAGE>
-13-
Charge and Permanent Additional Capacity Charge shall be prorated for partial
first and last months within the term of this Agreement and shall be due and
payable each month in rears. The Consumption Charge shall be due and payable
each month in arrears. Payment shall be due in full, on or before the 25th day
following the date of each invoice. Customer shall not be permitted to setoff
any amounts owing by Customer to Supplier against any amounts owing by or
claimed to be owing by Supplier to Customer or otherwise reduce any amounts
owing by Customer to Supplier.
4.2. Default Rate Interest. Any amounts owing by Customer to Supplier
pursuant to the terms of this Agreement and not paid within five (5) days of
notice from Supplier of such past due amounts shall bear interest from the date
such amounts were originally due until paid at a floating annual rate equal to
4.0% plus the "prime rate" of interest announced from time to time by BankBoston
or its successor, or the highest rate permitted by law, whichever is less.
Payment of such interest is not Supplier's sole remedy for the failure of
Customer to make timely payments under this Agreement.
5. Installation, Maintenance and Ownership of Energy Transfer Station,
Connection Equipment and Customer Cooling Equipment.
5.1. Installation of Equipment. Supplier shall install, at its own expense,
the Equipment in accordance with the IOM Specifications. Customer shall
cooperate with Supplier to the extent necessary to facilitate the installation
of the Equipment in a timely, safe and efficient manner. The Energy Transfer
Station shall remain the personal property of Supplier and shall not be deemed a
fixture of the Premises, and Supplier may file a memorandum of this Agreement
and/or informational financing statements affecting the Premises to provide
notice to third parties of its ownership of the Energy Transfer Station.
5.2. Location of Equipment. Customer shall provide, at its own expense, a
safe and secure space within the Premises that is reasonable and appropriate for
the installation, inspection, testing, servicing, maintenance, operation,
replacement and removal of the Equipment, which space shall include the
location(s) described in the IOM Specification.
5.3. Maintenance of Energy Transfer Station. Supplier shall maintain the
Energy Transfer Station during the term of this Agreement, at Supplier's sole
cost and expense, in accordance with IOM Specifications, provided that if the
Energy Transfer Station is damaged or destroyed as a direct result of the
negligent acts or willful misconduct of Customer or its agents, employees,
tenants, customers, contractors or other Persons for whom Customer is
responsible, then Customer shall be liable for the reasonable cost of the
required repair or replacement
5.4. Connection Equipment; Customer Cooling Equipment. Customer shall
maintain the Connection Equipment and the Customer Cooling System during the
term of this Agreement, at Customer's sole cost and expense, in accordance with
IOM Specifications. The Connection Equipment shall become the property of
Customer upon payment in full of the amounts set forth in the Sections 5.5.
5.5. Customer's Acquisition of Connection Equipment. Provided no Customer
Default then exists, tide to the Connection Equipment shall transfer to Customer
immediately and without further action by the parties upon payment in full of
the sum of (i) all Contract Capacity Charges through the end of the Initial Term
or the Renewal Term (if this Agreement is extended pursuant to Section 2.3) and
(ii) all other amounts owing by Customer to Supplier. Customer and Supplier
shall execute any such documents or agreements necessary to effecuate such
transfer.
5.6. Damage to Premises by Supplier. Supplier shall promptly repair, at its
expense, any damage to the Premises or Property caused directly by any Supplier
Group Member.
<PAGE>
-14-
6. Rights of Access.
6.1. Generally. Commencing on the date of this Agreement, Supplier and its
employees, agents, contractors and representatives shall have a non-exclusive
right of access to and through the Premises at all times to the extent
reasonably necessary for the efficient exercise and performance of Supplier's
rights, duties and obligations under this Agreement, including the installation,
testing, maintenance, operation, repair, replacement and removal of the
Equipment, provided that (i) Supplier shall take all reasonable efforts to
minimize interference with other parties that have a right of access to the
Premises, (ii) Supplier shall first register with Customer's security officer
before entering the Premises, and (iii) Supplier shall provide Customer with 48
hours notice prior to any access of the Premises other than for emergency
repairs. Supplier shall have 24 hours access to the Premises for any emergency
work on the Equipment.
6.2. Protection of Energy Transfer Station. Neither Customer nor its
agents, employees, tenants, customers, contractors or other Persons under its
control shall authorize or permit any Person (other than a duly authorized
employee or agent of Supplier) to operate, maintain, alter or otherwise have
access to the Energy Transfer Station, any component of the Energy Transfer
Station or other property of Supplier located on or in the Premises, or to break
or replace any seal or lock of Supplier, or to alter or interfere with the
operation of meters or Supplier's connection or metering equipment, or any other
equipment (other than the Connection Equipment) installed by Supplier on the
Premises; provided, however, that if Customer reasonably believes that access to
the aforementioned equipment or property is necessary to prevent imminent harm
to persons or property, then such access shall be permissible and Customer may
take only those actions with respect to such equipment as are reasonably
necessary to prevent said imminent harm. Supplier shall be promptly notified of
such access and other action taken by Customer in connection with such actions.
7. Insurance Requirements. The respective insurance requirements for
Supplier and Customer are set forth in Exhibit B attached hereto, and shall be
maintained throughout the term of this Agreement. The liability of each party
under this Agreement to the other party shall not be diminished by the insurance
limitations set forth in said Exhibit B. All insurance policies required by this
Section shall provide that such policies may not be canceled or terminated
without 30 days prior written notice to both Customer and Supplier. Supplier
shall name Customer, Boston Properties. Inc., Boston Properties Limited
Partnership, BP Management, LP, BP Prucenter Development LLC and any other
affiliated entities reasonably designated by Customer as an additional insured
on all policies in Exhibit B except workers compensation insurance.
8. Events of Default
8.1. Supplier Default. The occurrence at any time of any of the following
events shall constitute a "Supplier Default":
8.1.1. Failure to Provide Chilled Water Service. The failure of
Supplier to provide chilled water service as required by this Agreement, if
and only if
(i) Supplier has not provided Customer with substitute chilled
water service (at the same cost per ton payable hereunder) reasonably
acceptable to Customer up to the lesser of (A) the Contract Capacity
and Permanent Additional Capacity, or (B) the Tons of chilled water
service then required by Customer, and
<PAGE>
-15-
(ii) such failure is not due to an interruption of service that
is permitted pursuant to Section 9.2 below and such failure continues
for two (2) consecutive days, and
(iii) Customer is ready, willing and able to receive such chilled
water service and Supplier's failure is not otherwise the result of
Customer's acts or omissions or those of its agents, employees,
tenants, customers or contractors or of any other Persons for whom
Customer is responsible or over which Customer has control other than
Supplier.
8.1.2. Failure to Perform Other Obligations. The failure of Supplier
to perform or cause to be performed any obligation required to be performed
by Supplier under this Agreement other than a failure described in the
preceding Section; provided, however, that if such failure by its nature
can be cured, then Supplier shall have a period of forty-five (45) days
after written notice from Customer of such failure to cure the same and a
Supplier Default shall not be deemed to exist during such period, and
provided further, that if Supplier commences to cure such failure during
such period and is diligently and in good faith attempting to effect such
cure, said period shall be extended for 60 additional days.
8.2. Customer Default The occurrence at any time of any of the following
events shall constitute a "Customer Default":
8.2.1. Failure to Pay. The failure of Customer to pay any amounts
owing to Supplier under this Agreement on or before the fifth day following
notice of past due payment.
8.2.2. Failure to Perform Other Obligations. The failure of Customer
to perform or cause to be performed any other obligation required to be
performed by Customer under this Agreement; provided, however, that if such
failure by its nature can be cured, then Customer shall have a period of
forty-five (45) days after written notice from Supplier of such failure to
cure the same and a Customer Default shall not be deemed to exist during
such period, and provided further, that if Customer commences to cure such
failure during such period and is diligently and in good faith attempting
to effect such cure, said period shall be extended for 60 additional days.
9. Planned Maintenance; Other Service Interruptions.
9.1. Planned Maintenance. Supplier shall have the right to interrupt or
reduce Customer's chilled water service for a reasonable duration, upon prior
notice to Customer, for the purpose of performing ordinary maintenance, repairs,
replacements, connections or changes (on or off the Premises) of or to the
Energy Transfer Station or any other equipment or apparatus, including any of
the foregoing which is required by good engineering and operating practices or
by manufacturers' specifications. Supplier shall diligently attempt to restore
service as soon as is reasonably possible and in order to minimize interference
with the normal operations of the Premises, Supplier, to the extent reasonably
practicable, shall schedule such interruptions and reductions during non-summer
months and during non-business hours. Supplier shall give Customer three (3)
days notice prior to any such interruption or reduction.
9.2. Other Interruptions. Supplier shall have the right to interrupt or
reduce Customer's chilled water service for a duration determined necessary by
Supplier, in its good faith judgment, without prior notice to Customer, if (i) a
Force Majeure Event has occurred that causes or requires such interruption or
reduction of such service, or (ii) the Customer Cooling System, the Connection
Equipment or the Premises has become dangerous in Supplier's good faith judgment
and, as a
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result thereof, Supplier believes that such interruption or reduction is
necessary to prevent injury to other Persons or damage to or destruction of any
component of the Energy Transfer Station or Supplier's other equipment and
piping or to prevent the interruption or reduction of Supplier's service to its
other customers.
9.3. Generally. Interruptions or reductions by Supplier in chilled water
service for the reasons set forth in Sections 9.1 and 9.2 above shall not be
deemed to be Supplier Defaults.
10. Force Majeure Events. If either party to this Agreement is prevented
from or delayed in performing any of its obligations under this Agreement by
reason of a Force Majeure Event, such party shall notify the other party in
writing as soon as practicable after the outset of such Force Majeure Event and
shall be excused from the performance of its obligations under this Agreement to
the extent such Force Majeure Event has interfered with such performance. The
party whose performance under this Agreement is prevented or delayed as the
result of a Force Majeure Event shall use reasonable efforts to remedy its
inability to perform; provided, however, nothing in this Section shall be
construed to require the settlement of any strike, walkout or other labor
dispute on terms that, in the good faith judgment of the nonperforming party,
are contrary to its interests. If a party's failure to perform its obligations
under this Agreement is due to a Force Majeure Event, then such failure shall
not be deemed a Supplier Default or a Customer Default. If a Force Majeure Event
shall occur and be continuing for not less than 10 days, Customer shall be
entitled to an abatement of the Contract Capacity Charge and Permanent
Additional Capacity Charge from the date on which such Force Majeure Event
commenced through the date on which such Force Majeure Event is remedied or this
Agreement is terminated.
If a Force Majeure Event shall occur and be continuing for not less than
six (6) consecutive months, each of Customer and Supplier shall have the right
to terminate this Agreement upon five (5) days written notice to the other
Party.
11. Remedies Following Default.
11.1. Customer's Remedies upon Occurrence of a Supplier Default
11.1.1. Abatement If a Supplier Default described in Section 8.1.1
above has occurred, Customer shall be entitled to an abatement of the
Contract Capacity Charge and Permanent Additional Capacity Charge from the
date on which such Supplier Default commenced through the date on which
such Supplier Default is waived or this Agreement is terminated (provided
that if substitute chilled water service is provided to Customer in an
amount less than Contract Capacity, Customer shall be entitled only to a
pro rata abatement of the Contract Capacity Charge). Notwithstanding
anything in this Agreement, at law or in equity to the contrary, abatement
of the Contract Capacity Charge and Permanent Additional Capacity Charge
specified in this Section 11.1.1 and Supplier's indemnification of Customer
per Section 13.1 (reduced by the amount of the aforesaid abatement) shall
be Customer's sole and exclusive remedy upon the occurrence of a Supplier
Default described in Section 8.1.1 above, subject to Customer's termination
right under Section 11.1.2 below.
11.1.2. Termination. If a Supplier Default as described in Section
8.1.1 above has occurred and the conditions causing such Supplier Default
have continued thereafter for not less than (i) three (3) consecutive days
if no chilled water service is being provided, (ii) (A) eight (8)
consecutive days during the months of June, July, August or September or
(B) twenty-three (23) consecutive days during the other months, if some but
less than ninety percent (90%) of the amount specified in Section 8.1.1(i)
is being delivered, or (iii) ninety (90) consecutive days if some but less
than one hundred percent (100%) of the amount specified in Section 8.1.1(i)
is
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being delivered, and if Supplier fails to correct or cure such conditions
within five days after the date on which Customer gives Supplier written
notice of Customer's intent to terminate this Agreement as a result of such
Supplier Default, then this Agreement shall terminate and be of no further
force or effect as of the last day of such five day period.
11.1.3. Other Rights and Remedies. If any Supplier Default has
occurred other than the Supplier Default described in Section 8.1.1, or if
a Supplier Default as described in Section 8.1.1 above has occurred and
Customer has terminated this Agreement as a result thereof in accordance
with the terms of Section 11.1.2 above, Customer may pursue any and all
rights or remedies available to it at law or in equity, subject, however,
to the limitations set forth in Section 11.3 below and provided that
Customer's right to terminate this Agreement or abate the Contract Capacity
Charge shall be permitted only in accordance with Sections 11.1.1 and
11.1.2 above.
11.2. Supplier's Remedies upon Customer Default.
11.2.1. Discontinue of Performance. If any Customer Default has
occurred and is continuing, Supplier shall have the right, upon five days
prior written notice to Customer, to immediately discontinue the supply of
chilled water service to Customer, and also shall have the right to
disconnect all related piping and connections, all without liability to
Customer.
11.2.2. Termination. If a Customer Default as described in Section
8.2.1 above has occurred and is continuing, and if Customer fails to
correct or cure the conditions causing such Customer Default within five
days after the date on which Supplier gives Customer written notice of
Supplier's intent to terminate this Agreement as a result of such Customer
Default, then this Agreement shall terminate and be of no further force or
effect as of the last day of such five day period. If any Customer Default
has occurred other than the Customer Default described in Section 8.2.1,
and if such Customer Default is not waived by Supplier in writing within
thirty days after the date on which Supplier gives Customer written notice
of Supplier's intent to terminate this Agreement as a result of such
Customer Default, then this Agreement shall terminate and be of no further
force or effect as of the last day of such thirty day period. If this
Agreement is terminated pursuant to the terms of this Section, the
applicable amount set forth in Exhibit D attached hereto shall be
immediately due and payable, without further notice.
11.2.3. Other Rights and Remedies. In addition to the rights and
remedies of Supplier set forth above, Supplier may pursue any and all other
rights or remedies available to it at law or in equity upon the occurrence
of a Customer Default, subject, however, to the limitations set forth in
Section 11.3 below and the notice requirements of this Agreement.
11.3. No Consequential Damages. Nothing in this Agreement is intended to
cause either party to be, and neither party shall be, liable to the other party
for any lost business, lost profits or revenues (other than revenues lost by
Supplier from Customer under this Agreement on account of a Customer Default) or
other special or consequential damages, all claims for which are hereby
irrevocably waived by Customer and Supplier. Notwithstanding the foregoing, a
third party claim against either Supplier or Customer against which such party
has a right of indemnification pursuant to Section 13 shall not be considered to
be a consequential damage.
12. Effect of Termination of Agreement.
12.1. Payment; No Further Obligations. Upon the termination or expiration
of this Agreement, any amounts then owing by a party to this Agreement to other
party to this Agreement shall become immediately due and payable, and subject to
the provisions of Section 11.2.2., the then future
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obligations of Customer and Supplier under this Agreement shall be terminated
(other than the indemnity obligations set forth in Section 13 below). Such
termination shall not relieve either party from obligations accrued prior to the
effective date of termination or expiration.
12.2. Disconnection. As soon as reasonably practicable after the date on
which this Agreement is terminated or expires, Supplier shall physically
disconnect the Customer Cooling System from the Energy Transfer Station. Within
ninety days after such termination or expiration, Customer may give Supplier
written notice of Customer's desire to have Supplier (a) remove from the
Premises any or all of the components of the Energy Transfer Station and
Supplier's other equipment, piping and other property installed or located on
the Premises, in which case Supplier shall have the right and obligation to do
so, and Customer will provide Supplier with access to the Premises as reasonably
requested by Supplier to allow Supplier to complete such removal, or (b) abandon
any or all of such property to Customer without liability to Customer or
Supplier. If no such notice is given within ninety days of such termination or
expiration, Customer shall be deemed to have elected removal rather than
abandonment. If Supplier is required to remove the Energy Transfer Station and
its other equipment from the Premises pursuant to the preceding sentence,
Supplier shall be responsible for patching and repairing all surfaces disrupted
by the removal of Supplier's equipment and Supplier shall leave in place all
valves as directed by Customer.
13. Indemnification.
13.1. Indemnification by Supplier. Supplier shall fully indemnify, save
harmless and defend each Customer Group Member from and against any and all
Losses and Expenses incurred by such Customer Group Member in connection with or
arising from any claim by a third party for physical damage to or physical
destruction of property, or death of or bodily injury to any Person, caused by
(i) the gross negligence or willful misconduct of Supplier or its agents or
employees or others under Supplier's control, (ii) any damage to the Premises or
Property caused directly by any Supplier Group Member, or (iii) a Supplier
Default provided, however, that nothing in this Section 13.1 is intended to
modify the limitation of Supplier's liability set forth in Sections 11.1 and
11.3 above. Notwithstanding anything in this Agreement to the contrary, Supplier
shall in no event indemnify any Customer Group Member or otherwise be liable to
any Customer Group Member for any Losses as a result of claims by any tenant or
occupant of the Premises based upon a breach of Supplier's obligations under
this Agreement.
13.2. Indemnification by Customer. Customer shall fully indemnify, save
harmless and defend each Supplier Group Member from and against any and all
Losses and Expenses incurred by such Supplier Group Member in connection with or
arising from the following: (i) any physical damage to or physical destruction
of property (other than the personal property of Supplier located on the
Premises), or death of or bodily injury to any Person, caused by (A) the gross
negligence or willful misconduct of Customer or its agents or employees or
others under Customer's control or (B) a Customer Default; or (ii) any action by
any Person (excluding the tenants, licensees and occupants of the Premises)
regarding the supply of or failure to supply chilled water service pursuant to
the terms of this Agreement, which action is not based upon a tort claim against
Supplier, but rather is based upon a breach of Supplier's obligations under this
Agreement. Nothing in this Section is intended to modify the limitation of
Customer's liability set forth in Section 11.3 above.
13.3. Notice of Claims. Any Indemnified Party seeking indemnification under
this Section 14 shall deliver to the Indemnitor a Claim Notice describing the
facts underlying its indemnification claim and the amount of such claim. A
notice describing any action at law or in equity involving an Indemnified Party
shall be delivered promptly to the Indemnitor after the such Indemnified Party
receives notice that such action or suit has commenced; provided, however, that
failure to deliver
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such notice as aforesaid shall not relieve the Indemnitor of its obligations
under this Section 13, except to the extent that such Indemnitor has been
prejudiced by such failure.
13.4. Amount of Claim. The amount to which an Indemnified Party is entitled
under this Section 14 shall be determined by (i) a mutually satisfactory written
agreement between such Indemnified Party and the Indemnitor, (ii) a final
judgment or decree of any court of competent jurisdiction, or (iii) any other
means agreed upon by such Indemnified Party and the Indemnitor.
13.5. Defense of Action. If requested by an Indemnified Party, the
Indemnitor shall assume on behalf of the Indemnified Party, and conduct with due
diligence and in good faith, the defense of such Indemnified Party with counsel
reasonably satisfactory to the Indemnified Party; provided, however, that if the
Indemnitor is a defendant in any such action and the Indemnified Party believes
that there may be legal defenses available to it which are inconsistent with
those available to the Indemnitor, the Indemnified Party shall have the right to
select separate counsel to participate in the defense of such action at the
Indemnitor's expense. If any claim, action, proceeding or investigation arises
as to which the indemnity provided for in this Section 14 applies, and the
Indemnitor fails to assume the defense of such claim, action, proceeding or
investigation after having been requested to do so by the Indemnified Party,
then the Indemnified Party may, at the Indemnitor's expense, contest or, with
the prior written consent of the Indemnitor, which consent shall not be
unreasonably withheld, settle such claim, action, proceeding or investigation.
All costs and expenses incurred by the Indemnified Party in connection with any
such contest or settlement shall be paid upon demand by the Indemnitor.
13.6. Survival of Provisions. The provisions of this Section 14 shall
survive the expiration or termination of this Agreement
14. Warranties. Concurrently with the transfer to Customer of the
Connection Equipment pursuant to the terms of this Agreement, Supplier shall
assign to Customer without recourse any warranties which third parties have
provided to Supplier with respect to the Connection Equipment and which are
assignable. ALL WARRANTIES OF SUPPLIER, EXPRESS OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE REGARDING THE CONNECTION EQUIPMENT OR THE SERVICES PROVIDED
PURSUANT TO THIS AGREEMENT ARE HEREBY DISCLAIMED.
15. Miscellaneous Provisions.
15.1. Notices. All notices, communications and waivers under this Agreement
shall be in writing and shall be (i) delivered in person or (ii) mailed, postage
prepaid, either by registered or certified mail, return receipt requested, or
(iii) sent by overnight express courier, addressed in each case as set forth on
the Cover Page, or to any other address as to either of the parties to this
Agreement as such party shall designate in a written notice to the other party
to this Agreement. All notices sent pursuant to the terms of this Section shall
be deemed received (x) if personally delivered, then on the date of delivery,
(y) if sent by overnight, express courier, then on the next Business Day
immediately following the day sent, or (z) if sent by registered or certified
mail, then on the earlier of the third Business Day following the day sent or
when actually received.
15.2. Assignment. Customer shall not assign this Agreement in whole or in
part except that (i) Customer may assign this entire Agreement to a subsequent
owner of all of the Premises, and (ii) Customer may make a partial assignment of
its rights hereunder to a subsequent owner of the New Construction so long as
such subsequent owner is an affiliate of Customer, in each case with Suppliers
consent, which consent shall not be unreasonably withheld. If Supplier consents
to a partial assignment to a subsequent owner of the 111 Officer Tower, Supplier
will enter into a new agreement, substantially
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in the form of this Agreement, with the owner of the 111 Office Tower, and this
Agreement will be amended to reflect such assignment.
15.3. Nondisturbance Agreement. As a condition precedent to Supplier's
obligations under this Agreement, Customer shall obtain from each third party
holding an interest in the Premises (including, without limitation, any
mortgagees, ground lessors and ground mortgagees, but excluding tenants holding
leasehold interests within the Premises) to the extent required by any agreement
between Customer and such third party, a consent to this Agreement and an
agreement by such third party not to interfere with or prevent the exercise by
Supplier of its rights and remedies under this Agreement in accordance with its
terms, nor to take any action that results in the termination of this Agreement,
together with an acknowledgment by all such third parties that Supplier
possesses an interest in the Energy Transfer Station and the Connection
Equipment and that such equipment shall not constitute a fixture attached to the
Premises. Each third party must also acknowledge and agree that if it succeeds
to Customer's or any other interest in the Premises, it shall also be bound by
or subject to the terms and conditions of this Agreement. Such consents and
agreements shall be in recordable form and otherwise satisfactory to Supplier.
15.4. Memorandum of Agreement. Supplier shall have the right to record a
memorandum of this Agreement in the real estate records for the county in which
the Premises is located in a form reasonably acceptable to Supplier, which
memorandum shall set forth or summarize the interest of Supplier in the Energy
Transfer Station and the Connection Equipment and the rights granted to Supplier
under this Agreement with respect to the Premises.
15.5. Confidential Information. Supplier and Customer each agree to treat
in confidence all information regarding this Agreement and the performance by
them of their respective obligations under this Agreement, and all information
which either Supplier or Customer obtained from the other party in contemplation
of entering into, or in the performance of, this Agreement (including without
limitation, the rates charged under this Agreement provided that nothing in this
Section is intended to limit or restrict Supplier's right to disseminate
information regarding service rates to existing and potential customers or the
identity of the parties to this Agreement). Neither Customer nor Supplier shall
make any use of any of such information for any purpose other than complying
with its obligations under this Agreement. Such information shall not be
communicated to any party other than Supplier or Customer and their respective
officers, directors, employees, agents, lenders, attorneys and professional
consultants to the extent such Persons need to know such information, except to
the extent disclosure of such information (i) is required by law or governmental
authority, or in any judicial or administrative proceedings (ii) is made
pursuant to litigation between the parties, (iii) is made to any lender or
prospective lender to such party (provided such lender or prospective lender is
informed of the terms set forth in this Section), (iv) is made to a tenant of
the Premises whose lease with Customer requires such disclosure (provided such
tenant is informed of the terms set forth in this Section), or (v) is made to a
Person under contract with the disclosing party, or to which the disclosing
party wishes to sell its business or property, which Person has given a
confidentiality undertaking which is substantially similar to this one. The
obligation of each party to treat in confidence, and not to use, information
which it obtains from the other party shall not apply to any information which
is or becomes rightfully available to such party from a source other than the
party providing such information, or is or becomes available to the public other
than as a result of disclosure by such party or its agents in breach of this
Section or by any other Person who is bound by a similar confidentiality
agreement in breach of such agreement
15.6. Successors. The rights, powers and remedies of each party to this
Agreement shall inure to the benefit of such party and its successors.
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15.7. Entire Agreement. This Agreement represents the entire agreement
between the parties to this Agreement with respect to the subject matter of this
Agreement and supersedes all prior and contemporaneous oral and prior written
agreements.
15.8. Amendments to Agreement. This Agreement shall not be amended,
modified or supplemented without the written agreement of Supplier and Customer
at the time of such amendment, modification or supplement.
15.9. Waivers; Approvals. No waiver of any provision of this Agreement
shall be effective unless set forth in writing signed by the party making such
waiver, and any such waiver shall be effective only to the extent it is set
forth in such writing. Failure by a party to this Agreement to insist upon full
and prompt performance of any provision of this Agreement, or to take action in
the event of any breach of any such provision or upon the occurrence of any
Supplier Default or Customer Default, as applicable, shall not constitute a
waiver of any rights of such party, and, subject to the notice requirements of
this Agreement, such party may at any time after such failure exercise all
rights and remedies available under this Agreement with respect to such Supplier
Default or Customer Default. Receipt by a party to this Agreement of any
instrument or document shall not constitute or be deemed to be an approval of
such instrument or document. Any approvals required under this Agreement must be
in writing, signed by the party whose approval is being sought
15.10. Partial Invalidity. In the event that any provision of this
Agreement is deemed to be invalid by reason of the operation of law, or by
reason of the interpretation of such provision by any administrative agency or
any court, Supplier and Customer shall negotiate an equitable adjustment in the
provisions of the same in order to effect, to the maximum extent permitted by
law, the purpose of this Agreement and the validity and enforceability of the
remaining provisions, or portions or applications thereof, shall not be affected
by such adjustment and shall remain in full force and effect.
15.11. Execution in Counterparts. This Agreement may be executed in
counterparts, and all said counterparts when taken together shall constitute one
and the same Agreement.
15.12. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
15.13. No Third Party Rights. This Agreement is only for the benefit of the
parties to this Agreement, their successors and Persons expressly benefited by
the indemnity provisions of this Agreement. No other Person (including, without
limitation, tenants of the Premises) shall be entitled to rely on any matter set
forth in, or shall have any rights on account of the performance or
non-performance by any party of its obligations under, this Agreement.
15.14. Interconnections. Supplier shall install all interconnections, at
its sole expense, necessary to provide the chilled water services pursuant to
the terms and conditions of this Agreement.
15.14.l.Performance Bonds. (A) Upon the execution of this Agreement,
in order to guarantee the full and faithful performance of Supplier's
obligations to perform the interconnection work under this Agreement (other
than New Construction interconnection work), Supplier shall post a
performance bond in an amount equal to two times the estimated cost of such
interconnection work (currently estimated at $1,800,000). Supplier shall
provide contractor cost estimates for such interconnection work to Customer
prior to release of such bond. Such bond shall remain in effect until the
completion of the interconnection work to Customer's reasonable
satisfaction (other than New Construction interconnection work).
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(B) Upon Customer's request at any time after the commencement of the
New Construction, in order to guarantee the full and faithful performance
of Supplier's obligations to perform the New Construction interconnection
work, Supplier shall post a performance bond in an amount equal to two
times the estimated cost of such interconnection work (currently estimated
at $1,000,000). Such bond shall remain in effect until the completion of
the New Construction interconnection work to Customer's reasonable
satisfaction.
15.15. Other Transactions. Supplier hereby agrees that during the term of
this Agreement in the event Supplier agrees to supply chilled water services to
a similarly situated third party at a premises located in the City of Boston
under the same or substantially similar technical requirements including
time/season of use, service requirements, cooling load factor, cooling demands,
contract term, and interconnection requirements, pursuant to terms and
conditions which, when such terms and conditions are viewed in their totality,
are more favorable to such customer than the terms and conditions set forth in
this Agreement, Supplier agrees to amend this Agreement to reflect such terms
given to such third party.
15.16. Cooperation. Supplier and Customer agree to work cooperatively
throughout the term of this Agreement to optimize building system operations,
reduce operating costs and minimize capacity requirements. Customer agrees to
use its reasonable best efforts to limit excess capacity requirements and to
operate the Premises within standard operating conditions.
15.17. Supplier Operations. (A) Supplier shall continually maintain, and
update from time to time, the Back Bay West Energy Center in accordance with
prudent operating standards of reliability, efficiency and operational security.
In the event Customer reasonably determines that Supplier has failed to maintain
such standards and as a result Supplier has materially failed to fully perform
its obligations herein for a period of three (3) months, Customer shall have the
right to recommend an independent third party review of Supplier's operations by
an independent third party acceptable to both parties. Such independent third
party shall produce a written report identifying any deviations from prudent
operating standards and recommendations for corrective action. Supplier shall
comply in all material respects with such independent third party's
recommendations as set forth in a final written report within three (3) months
of receipt of such a report. In the event Supplier materially fails to comply
with such recommendations and as a result Supplier continues to materially fail
to perform its obligations herein for a period of three (3) months from the
later of (i) the report by such independent third party or (ii) such longer
period as reasonably required to implement such recommendations of such third
party provided the Supplier is diligently pursuing such implementation, Customer
shall have the right to propose an alternate operator of the Back Bay West
Energy Center. Any such alternate operator shall then replace Supplier as
operator and operate the Back Bay West Energy Center for a period of 3 years,
provided such alternate operator (i) has at least five (5) years operating
experience with facilities such as the Back Bay West Energy Center, (ii) is not
a direct competitor of Supplier in the greater Boston area, (iii) is acceptable
to any lender(s) who have a mortgage or security interest in the Back Bay Energy
Center, in such lenders' sole discretion, and (iv) such operator enters into an
operations and maintenance agreement with Supplier in form and substance
reasonably satisfactory to Supplier and its lenders for a term of three (3)
years.
(B) Supplier shall provide Customer with at least two (2) years prior
written notice of its intent to discontinue operations at the Back Bay West
Energy Center and shall cooperate with Customer during such two year period to
develop alternative cooling sources. Such notice shall include an early
termination fee as set forth in Section 15.1 8(A).
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15.18. Termination. (A) Pursuant to Section 15.17(B), Supplier shall have
the right to terminate the Agreement any time upon two (2) years of written
notice and the payment of a cancellation fee equal to the Capacity Charge for
the Annual Period in which such termination shall be effective.
(B) Customer shall have the right to terminate the Agreement at any time
upon two (2) years of written notice and the payment of a cancellation fee equal
to the then remaining unamortized interconnection costs and expenses based upon
an initial cost for interconnection of over an amortization period of
twenty-five (25) years with an interest rate of 8.5% per year, as set forth in
Exhibit D.
15.19. Promotional Efforts. Customer hereby agrees to allow Supplier to
make reference to the services supplied pursuant to this Agreement in Supplier's
marketing and promotional efforts, including but not limited to tours,
testimonials, print and media, subject to Customer's reasonable review and
consent. Supplier shall endeavor to portray the Customer as a leader in
technology, innovation, environmental responsibility and energy efficiency.
15.20 Authorization. Each of the Customer and Supplier hereby represent and
warrant that it has duly authorized, executed and delivered this Agreement and
that this Agreement is a legal, valid and binding obligation, enforceable
against such party in accordance with its terms, except to the extent of
bankruptcy, insolvency, moratorium, reorganization or other similar laws
effecting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a preceding in equity or at
law).
15.21 Hazardous Materials. Supplier shall not, nor shall it permit its
employees, invitees, agents, independent contractors, contractors, assignees or
subtenants at the Premises or the Property to, keep, maintain, store or dispose
of (into the sewage or waste disposal system or otherwise) any substance which
is or may hereafter be classified as a hazardous material, waste or substance
(collectively "Hazardous Material,") under federal, state or local laws, rules
and regulations, including, without limitation ,42 U.S.C. Section 6901 et. seq.,
42 U.S.C. Section 9601 et. seq., 42 U.S.C. Section 2601 et seq., 49 U.S.C.
Section 1802 et seq. and Massachusetts General Laws, Chapter 21E and the rules
and regulations promulgated under any of the foregoing, as such laws, rules and
regulations may be amended from time to time (collectively "Hazardous Materials
Laws") other than in compliance with all such Hazardous Material Laws and in the
ordinary course of business of constructing and operating the Equipment and
supplying the services herein. Supplier shall immediately notify Customer of any
environmental condition in, on or about the Premises or the Property caused by
Supplier and known by Supplier which would require the filing of a notice under
any Hazardous Material Laws. Supplier shall materially comply, and shall cause
its employees, invitees, agents, independent contractors, contractors, assignees
and subtenants to so comply with each of the foregoing and Customer shall have
the right to make such inspections (including testing) as Customer shall elect
from time to time to determine that Supplier is in compliance with the
foregoing.
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date set forth above.
NORTHWIND BOSTON LLC,
a Massachusetts limited liability company
By: /s/ Robert P. Thornton
---------------------------------------
Name: Robert P. Thornton
-------------------------------------
Title: PRESIDENT
------------------------------------
BP Prucenter Acquisition LLC,
a Delaware limited liability company
By: Boston Properties Limited Partnership,
a Delaware limited partnership,
its Member
By: Boston Properties, Inc.,
its General Partner
By: /s/ David Barrett
---------------------------------------
Name: DAVID BARRETT
-------------------------------------
Title: SR. VICE PRESIDENT
------------------------------------
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APPENDIX A
DEFINITIONS
The following terms shall have the meanings set forth below:
"Actual Capacity" means the number of Tons of chilled water service that
Supplier delivers to Customer, as determined by sampling actual instantaneous
demand of the entire Premises once every minute and averaging once every hour
period.
"Annual Period" means any period of twelve (12) consecutive months
beginning (i) on the first day of the first month that begins on or after the
Commencement Date, or (ii) on an anniversary of such day.
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"Agreement" means this Chilled Water Service Agreement, the Cover Page and
all exhibits, appendices and riders attached hereto, and any amendments or
modifications made thereto in writing from time to time by both Parties.
"Business Day" means a day on which commercial banks generally are open for
business in Boston, Massachusetts.
"Change of Law" means the adoption or modification of any applicable laws,
rules or regulations of any governmental authority, or from any change in the
interpretation by any court, tribunal or regulatory agency of any such
applicable laws, rules or regulations, after the date of this Agreement,
including but not limited to, any change in laws pertaining to the use of
refrigerants used by Supplier.
"Claim Notice" means a notice by a Customer Group Member or a Supplier
Group Member seeking indemnification pursuant to Section 14 of this Agreement.
"Commencement Date" shall have the meaning ascribed to such term in Section
2.1 of this Agreement.
"Connection Equipment" means all equipment and piping necessary to connect
the Customer Cooling System to the heat exchanger assembly included in the
Energy Transfer Station, as more fully described in the IOM Specifications.
"Consumer Price Index" means the Consumer Price Index - All Urban
Consumers; Series ID CUURAlO3SAOLIE; Boston - Brockton - Nashua, MA-NH-ME-CT,
all items other than food and energy, not seasonably adjusted, as published
monthly by the United States Department of Labor, Bureau of Labor Statistics;
provided, however, that if said Consumer Price Index shall cease to exist or the
method of calculating it is materially changed, then the term "Consumer Price
Index" shall mean such other or similar index reflecting changes in the cost of
living determined in a similar manner as Supplier reasonably selects.
"Consumption Charge" means the monthly charge payable by Customer to
Supplier for Ton-Hours of chilled water service provided to Customer during each
month of the term of this Agreement, as the same may be adjusted from time to
time pursuant to the terms of this Agreement, the initial amount of which is
specified on the Cover Page.
<PAGE>
-26-
"Contract Capacity" means the number of Tons of chilled water service
specified on the Cover Page that Supplier is obligated by this Agreement to make
available to Customer from and after the Commencement Date through the date on
which this Agreement expires or is terminated. The Contract Capacity shall be
initially allocated to the Premises and the New Construction (if applicable) as
follows provided, however, that Customer shall have the discretion to adjust the
distribution allocation of the Contract Capacity among the Premises:
<TABLE>
<CAPTION>
Premises Contract Capacity (Tons)
-------- ------------------------
<S> <C>
1. Prudential Tower 2620
(Comfort 2500 Tons)
(Tenant 120 Tons)
(Condenser water excluded)
2. 101 Huntington Tower 800
(Comfort 800 Tons)
(Tenant 0 Tons)
3. Prudential Retail 1200
(1200 Tons includes 400 Tons
for Moven Pick)
----
4620 Tons Total
<CAPTION>
Estimated
New Construction Contract Capacity (Tons)
---------------- ------------------------
1. 111 Huntington Avenue Office Tower 2,000
2. 111 Retail Space 300
3. Residential Tower 200
----
2,500 Tons Total
</TABLE>
"Contract Capacity Charge" means the monthly charge payable by Customer to
Supplier for making chilled water service up to the Contract Capacity available
for use by Customer pursuant to this Agreement, as the same may be adjusted from
time to time pursuant to the terms of this Agreement, the initial amount of
which is specified on the Cover Page. Customer's obligation to pay the monthly
Contract Capacity Charge for chilled water service up to the Contract Capacity
is unrelated to the amount of chilled water service actually used by Customer.
"Cover Page" means the Cover Page attached to and made a part of this
Agreement, as the same may be amended from time to time.
<PAGE>
-27-
"Customer Cooling System" means the HVAC system serving the Premises,
including piping, pumps and other equipment, owned by Customer that are or will
be used by Customer to cool space within the Premises after the Commencement
Date.
"Customer Default" shall have the meaning ascribed to such term in Section
11.2 of this Agreement.
"Customer Group Member" means Customer and its Affiliates, and the
directors, officers, agents, employees, successors and assigns of each of them.
"Delivery Point" means the point of connection between the Connection
Equipment and the Energy Transfer Station, at which point Supplier delivers
chilled water service to Customer.
"Energy Transfer Station" means the equipment and related piping and
apparatus between Supplier's distribution piping and the Connection Equipment,
including, without limitation, a plate frame heat exchanger assembly or
equivalent device, piping, valves, metering equipment and controls and
additional equipment, if any, described in the IOM Specifications, installed by
Supplier on the Premises pursuant to the terms of this Agreement for use in
providing chilled water service to Customer, and all replacements and additions
from time to time. The Connection Equipment and Customer's chilled water pumps
is not a part of the Energy Transfer Station.
"Equipment" means the Energy Transfer Station and the Connection Equipment,
including associated piping, metering and other equipment
"Expenses" means any and all reasonable and actual costs and expenses
incurred in connection with investigating, defending or asserting any claim,
action, suit or proceeding incident to any matter indemnified against under this
Agreement (including, without limitation, court filing fees, court costs,
arbitration fees or costs, witness fees, and reasonable fees and disbursements
of legal counsel, investigators, expert witnesses, consultants, accountants and
other professionals).
"Force Majeure Event" means acts of God, war, civil commotion, embargoes,
strikes, epidemic, fires, cyclones, droughts or floods; emergencies (other than
those caused by the gross negligence or willful misconduct of the party claiming
the Force Majeure Event), or labor, production or transportation difficulties or
accidents to or involving machinery, equipment or lines of pipe (other than
those accidents caused by the gross negligence or willful misconduct of
Supplier), or shortage of materials, power, fuel, equipment, transportation or
labor, or inability to obtain same without litigation or the payment of
penalties, premiums or unusual prices, or any governmental law, regulation (or
its interpretation), order, request, instruction or injunction, or failure to
provide or cancellation of rights-of-way, permits, licenses or other
authorization, whether valid or invalid, or any other cause, whether or not
similar to the foregoing, beyond the reasonable control of a party hereto.
"Indemnified Party" means a Customer Group Member or a Supplier Group
Member seeking indemnification pursuant to Section 14 of this Agreement.
"Indemnitor" means the Person from which indemnification is sought pursuant
to Section 14 of this Agreement
"Initial Term" shall mean the initial term of this Agreement, the duration
of which is set forth on the Cover Page.
<PAGE>
-28-
"IOM Specifications" means the Installation, Operation and Maintenance
Specifications attached hereto as Exhibit C, as the same may be amended from
time to time in writing by the parties to this Agreement. In the event of any
conflict between the provision of Exhibit C and the other provisions of this
Agreement, such other provisions shall govern.
"Losses" means any and all losses, costs, obligations, liabilities,
settlement payments, awards, judgments, fines, penalties, damages, expenses,
deficiencies or other charges.
"Permanent Additional Capacity" means the number of Tons of chilled water
service in excess of the Contract Capacity that Supplier is obligated to deliver
to Customer from and after the Commencement Date through the date on which this
Agreement expires or is terminated.
"Permanent Additional Capacity Charge" means the monthly charge payable by
Customer to Supplier for chilled water service in excess of the Contract
Capacity for use by Customer pursuant to this Agreement, as the same may be
adjusted from time to time pursuant to the terms of this Agreement.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or governmental authority or regulatory body.
"Premises" means the building(s) located on the property at the address
stated on the Cover Page alongside the caption "Address of Premises" and legally
described on Exhibit A attached to this Agreement.
"Property" means the property located at the addresses stated on the Cover
Page alongside the caption "Address of Premises" and legally described on
Exhibit A attached to this Agreement.
"Refrigerants" means all chlorofluorocarbons and other refrigerants
contained in, or owned and held by Customer for future use in, the Existing
Chiller Equipment.
"Regional Electricity Index" means the Consumer Price Index - All Urban
Consumers; Series ID CUURAlO3SEHFO1; Boston-Brockton-Nashua, MA-NH-ME-CT;
Electricity, not seasonably adjusted, as it appears in the Consumer Price Index
published by the United States Department of Labor, Bureau of Labor Statistics;
provided, however, that if said Consumer Price Index shall cease to exist or the
method of calculating it is materially changed, then the term "Regional
Electricity Index" shall mean such other or similar index or formula as Supplier
reasonably selects to measure change in the price for commercial electric power
as currently calculated under said Consumer Price Index.
"Return Point" means the point of connection between the Energy Transfer
Station and Supplier's chilled water delivery system, at which point chilled
water returns to Supplier's pipes after it has passed through the Energy
Transfer Station.
"Supplier Default" shall have the meaning ascribed to such term in Section
11.1 of this Agreement.
"Supplier Group Member" means Supplier and its Affiliates, and the
directors, officers, agents, employees, successors and assigns of each of them.
"Tax" means any present or future tax (including any sales and use taxes),
levy, impost, duty, charge, assessment or fee of any nature that is imposed by
any federal, state, local or other taxing
<PAGE>
-29-
authority on chilled water service or equipment provided or used by Supplier or
on any aspect of such service, or on any payments made by Customer to Supplier,
under this Agreement.
"Temporary Additional Capacity" means the number of Tons of chilled water
service temporarily in excess of the Contract Capacity that Supplier delivers to
Customer pursuant to Section 1.5 from and after the Commencement Date through
the date on which this Agreement expires or is terminated.
"Temporary Additional Capacity Charge" means the monthly charge payable by
Customer to Supplier for delivering chilled water service in excess of the
Contract Capacity for use by Customer pursuant to this Agreement.
"Ton" means refrigeration capacity equivalent to the cooling capacity of
one ton of ice melting in a period of twenty-four hours (at a rate of 12,000 BTU
per hour).
"Ton-Hour" means cooling service equivalent to 12,000 BTU of cooling,
measured as a function of the gallons of chilled water which pass through the
Energy Transfer Station and the temperature difference of the chilled water at
the Delivery Point and the Return Point, and calculated on the basis of the
aggregate BTU gain occurring.
<PAGE>
-30-
EXHIBIT A
Plan of Premises
<PAGE>
EXHIBIT "A"
[GRAPHIC OMITTED]
[FLOOR PLAN OF DECK LEVEL]
DECK LEVEL
The Prudential Center
<PAGE>
EXHIBIT "B"
[GRAPHIC OMITTED]
[FLOOR PLAN OF PROPSED CONSTRUCTION OF DECK LEVEL]
DECK LEVEL -- PROPOSED CONSTRUCTION
The Prudential Center
<PAGE>
-31-
EXHIBIT B
Insurance Requirements
(a) Supplier's Insurance. At all times during the term of this Agreement,
Supplier, at its sole expense, shall purchase and maintain in full force and
effect, the following insurance coverages:
i) Workers' compensation insurance in statutory amounts and employers'
liability insurance with limits of not less than $1,000,000 per claim;
ii) General comprehensive public liability insurance (including a
contractual liability endorsement) with limits of not less than $2,000,000
per occurrence and $5,000,000 annually and in the aggregate, covering
liability claims arising or resulting from insured acts or omissions of
Supplier and its agents and employees; and
iii) If Supplier operates any motor vehicles, automobile liability
insurance covering all owned and non-owned licensed vehicles of Supplier,
with limits of not less than $1,000,000 per occurrence and combined single
limit.
All such insurance shall be placed with reputable companies licensed to do
business in the Commonwealth of Massachusetts, and may be provided as part of a
blanket policy. Prior to the commencement of the construction required by this
Agreement, Supplier shall deliver to Customer certificates of insurance
evidencing the insurance described in this Section. Additionally, not later than
30 days prior to the stated expiration date of any such policy of insurance,
Supplier shall deliver to Customer evidence of the renewal or replacement of
such policy with a certificate of insurance. All such insurance will require not
less than thirty days prior written notice to Customer in the event of
modification, cancellation or nonrenewal of coverage.
(b) Customer's Insurance. At all times during the term of this Agreement,
Customer, at its sole expense, shall purchase and maintain in full force and
effect, the following insurance coverages:
i) General comprehensive public liability insurance (including a
contractual liability endorsement) with limits of not less than $2,000,000
per occurrence and $5,000,000 annually in the aggregate, covering liability
claims arising or resulting from insured acts or omissions of Customer, its
agents, employees and others under its control; and
ii) All risk property insurance covering physical loss and damage to
all improvements forming part of the Premises, including all machinery,
equipment and fixtures on or connected to the Premises, for the full
replacement value thereof.
All such insurance shall be placed with reputable companies. Prior to the
commencement of the construction required by this Agreement, at Supplier's
request, Customer shall deliver to Supplier certificates of insurance evidencing
the insurance described in this Section.
Any insurance carried by either party with respect to the Premises or the
Property therein or occurrences thereon shall, if it can be so written without
additional premium or with an additional premium which the other party agrees to
pay, include a clause or endorsement denying to the insurer rights of
subrogation against the other party to the extent rights have been waived by the
insured prior to occurrence of injury or loss. Each party, notwithstanding any
provisions of this Agreement to the contrary, hereby waives any rights of
recovery against the other for injury or loss due to hazards covered by such
insurance to the extent of the indemnification received thereunder.
<PAGE>
-32-
EXHIBIT C
Installation, Operation and Maintenance Specifications
[Attached hereto are the preliminary IOM Specifications as of the Effective
Date, the final IOM Specifications shall be attached to this Agreement pursuant
to an amendment to this Agreement.]
<PAGE>
-33-
EXHIBIT D
Termination Payments
[based on a current estimate of $1,800,000 of costs for interconnection work
for the Premises]
<TABLE>
<CAPTION>
Annual Amount
Period
<S> <C> <C>
1 $1,800,000
2 $1,777,119
3 $1,752,293
4 $1,725,357
5 $1,696,131
6 $1,664,421
7 $1,630,016
8 $1,592,687
9 $1,552,184
10 $1,508,238
11 $1,460,558
12 $1,408,824
13 $1,352,693
14 $1,291,791
15 $1,225,712
16 $1,154,017
17 $1,076,227
18 $ 991,825
19 $ 900,249
20 $ 800,890
21 $ 693,084
22 $ 576,115
23 $ 449,204
24 $ 311,505
25 $ 162,102
</TABLE>
This Exhibit D may be amended from time to time in writing by the parties hereto
to reflect the actual interconnection costs and any increased interconnection
costs associated with any new capacity requirements.
<PAGE>
EXHIBIT C
March 23, 1999
INTERCONNECTION, OPERATIONS & MAINTENANCE (IOM)
SPECIFICATIONS
Part 1 - Technical Scope and Exhibits per 12/11/98 Letter of Intent and
subsequent revisions
Part 2 - Interconnection, Operations & Maintenance Specifications
Part 3 - Design Documents: Schematic drawings, Equipment Selections,
Construction Drawings & Construction Specifications
Part 4 - Shop Drawings
Part 5 - Controls & Metering - Yokogawa
Part 6 - Prudential Center "Notice to All Contractors Working in Prudential
Center" Rev 8/98
<PAGE>
EXHIBIT 99.2
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is entered into as of the 17th day of
June, 1997, by and between BOSTON EDISON COMPANY, a Massachusetts corporation
("Licensor") and BECOCOM, INC., a Massachusetts corporation ("Licensee").
Recitals:
A. Licensor is the owner in fee of or holder of rights of access to various
parcels of real property ("Equipment Sites") and either owner or holder of
easements and other rights for transmission and distribution line rights of way
("Rights of Way") in various parcels of real property and public ways situated
in cities and towns throughout eastern Massachusetts, which Licensor utilizes in
its business of producing and delivering electricity and related services
("Licensor's Business"). Licensee is a party to that certain "Construction and
Indefeasible Right of Use Agreement" dated of even date herewith ("IRU
Agreement"), by and between Licensee and RCN-BecoCom, LLC, a Massachusetts
limited liability company ("Carrier"). Licensee desires to license from Licensor
the right to use (and to grant to Carrier under the IRU Agreement the right to
use) certain portions of one or more of such Equipment Sites and Rights of Way
for the purpose of constructing and maintaining thereon certain
telecommunications facilities ("Facilities") operated and utilized by Carrier in
its business of providing voice, video, data and other telecommunications
services ("Services") to its customers in the Relevant Market, as defined in the
IRU Agreement ("Business").
B. Licensor is the owner of certain fiber optic cable installed by Licensor
on the Rights of Way and Equipment Sites (the "Existing Facilities"). Licensee
desires to obtain an indefeasible right to use the Existing Facilities
(excluding certain dedicated fibers reserved for Licensor's exclusive use in the
operation of Licensor's Business) for purposes of granting similar rights with
respect to such Existing Facilities to Carrier for use in the Business, pursuant
to the terms of the IRU Agreement.
C. Licensor has the capability of providing certain engineering, design,
construction and maintenance services in connection with the design,
installation and maintenance of Facilities and Licensee desires to obtain such
services from Licensor from time to time with respect to the Facilities to be
provided under the IRU Agreement.
D. Licensor is willing to provide such rights and services to Licensee,
upon and subject to the terms and conditions set forth herein.
1
<PAGE>
NOW, THEREFORE, in consideration of the foregoing, and the mutual promises
of the parties set forth herein, the parties hereby agree as follows:
All capitalized terms used herein and not otherwise defined shall have the
same meaning assigned to them in the IRU Agreement. Each individual parcel of
real property in which Licensor holds an interest shall be referred to as the
"Premises" and each location within the Premises which the Licensee desires to
license and use, subject to the license hereunder, shall be referred to
individually as an "Equipment Site" or "Site," and collectively as "Equipment
Sites" or "Sites."
1.0 MASTER LICENSE AGREEMENT
1.1 General Intent. It is the general intent of the parties that the
Licensor hereby grant to Licensee such rights and provide to Licensee such
services as may be required, or requested by Licensee from time to time, in
order to permit Licensee to perform its obligations to Carrier under the IRU
Agreement. Notwithstanding anything to the contrary set forth herein, nothing
herein shall obligate Licensor to take any action, or refrain from taking any
action, which would, in Licensor's reasonable opinion, adversely affect the
operation of Licensor's Business.
1.2 License of Existing Facilities. Licensor hereby grants to Licensee an
exclusive, indefeasible and non-cancelable right to use the Existing Facilities
for the conduct of the Business during the Term, with the exception of up to
twelve (12) strands of fiber optic filament reserved for Licensor's exclusive
use (the "Reserved Dedicated Fiber"). Included in the license with respect to
the Existing Facilities is the license to use, at no additional charge, 150
square feet of space and egress to the distribution system at each of
approximately 24 access points along the route of the Existing Facilities, as
identified on Schedule 1.2 attached.
1.3 License of Rights of Way. Licensor hereby grants to Licensee, solely
with respect to the provision of the Services, an exclusive, indefeasible and
non-cancelable right of access to and use of the Rights of Way, now owned or
hereafter acquired, for the installation and maintenance of the Facilities,
subject to the exceptions relative to exclusivity stated in Section 5(c)(ii) of
the IRU Agreement.
1.4 License of Equipment Sites. Licensor hereby agrees to provide
sufficient space to Licensee to accommodate new Facilities at Equipment Sites,
now owned or hereafter acquired, to the extent required under, and subject to
the limitations set forth in, Section 5(b) of the IRU Agreement.
1.5 License to Construct in Power Since. Subject to the terms and
conditions of this Agreement, Licensor hereby grants to Licensee the exclusive
right to install, maintain and operate new Facilities (including any Facilities
necessary to complete Licensor's fiber optic network) in those portions of the
Rights of Way
2
<PAGE>
normally and primarily utilized for the transmission and distribution of
electric power, which space is (a) in the case of above-ground Rights of Way
located on distribution poles, space from the top of such poles to the
communications space, including the neutral space; (b) in the case of
above-ground Rights of Way located on transmission towers, all space located
thereon, except as designated by Licensor, and (c) in the case of below-ground
Rights of Way, all space located therein (the "Power Space"). Nothing herein
shall affect Licensor's continuing right to use the Equipment Sites and Rights
of Way for Licensor's Business.
2.0 EQUIPMENT SITE LICENSE
2.1 This Agreement contains the general terms and conditions applicable to
all Equipment Sites (other than Sites where Existing Facilities are located)
which may from time to time be licensed by Licensor to Licensee. When the
parties have identified a particular Equipment Site, and agreed on any
site-specific terms applicable to such individual Equipment Site, the parties
will execute a completed Site License Addendum ("SLA") in the form attached as
Schedule 2.1. Each executed SLA shall be an integral part of this Agreement. In
the event of a discrepancy or inconsistency between the terms and conditions of
any SLA and this Agreement, the terms and conditions of the SLA shall control.
2.2 Subject to the terms and conditions contained in this Agreement and the
applicable SLA, Licensor licenses to Licensee that portion of the Premises
described as the Equipment Site on the SLA. The Premises of which the Equipment
Site is a part, and, if any, the structure owned by Licensor located on the
Equipment Site, will be described in the SLA. Each Equipment Site will comprise
the following components, to the extent applicable: (a) ground area (expressed
in terms of square feet) reasonably necessary for placement and operation of the
Facilities to be located thereon, and (b) space on Licensor's structure, if any
(expressed in terms of vertical feet and degrees horizontally) on which all or a
portion of the Facilities may be mounted. The SLA will contain a description of
the equipment comprising all or a part of the Facilities to be located on the
Equipment Site by mutual agreement of the parties.
2.3 Licensee shall, at Licensee's sole cost and expense, comply with all
laws, orders, ordinances, regulations and directives of applicable federal,
state, county, and municipal authorities or regulatory agencies having
jurisdiction over the Facilities, the Equipment Site, or Business, including,
without limitation, the Federal Communications Commission ("FCC"). Licensor
makes no representations or warranties concerning the ability of Licensee to use
the Equipment Site for the Business under applicable law, nor about the physical
suitability of the Equipment Site for the Business, or for any other purposes.
3
<PAGE>
2.4 Licensor agrees reasonably to cooperate with Licensee, at Licensee's
cost and expense, in executing such documents or applications as may be required
in order for Licensee to obtain such governmental licenses, permits or approvals
as may be necessary for the Business; provided, that nothing herein shall be
construed to require Licensor to act as surety, guarantor or indemnitor on
behalf of Licensee, or to assent to any restrictions, conditions or limitations
which would have an adverse impact on Licensor's continued operations at the
Premises.
2.5 Licensee shall install, operate and maintain the Facilities in a manner
that does not interfere with the Licensor's Business on the Equipment Site.
2.6 Licensee shall not bring to, store, use, transport across, release or
dispose of any oil or hazardous materials or wastes on any Site, except with the
prior approval of Licensor, which approval shall not be unreasonably withheld or
delayed. Licensee's storage, use, transportation, disposal and release of any
hazardous materials shall comply with all applicable laws, ordinances, and
regulations governing such materials. In the event of any spill, leak or other
release or discharge to the environment, Licensee shall, in addition to any
other requirements imposed by relevant law or regulation, follow the
notification and other procedures established by the Licensor and described on
Schedule 2.6 attached hereto.
3.0 TERM
3.1 Term. This Agreement shall become effective on the date of execution
and delivery by both parties, and shall expire on December 31, 2060 (the
"Term"). Each SLA shall become effective on the date of execution thereof (the
"Commencement Date") and shall remain in effect for the balance of the Term.
3.2 Early Entry. Licensee may enter the Premises before the Commencement
Date, to the extent such entry is related to engineering surveys, soil borings
and inspections, or other reasonably necessary tests required prior to
construction and installation of the Facilities. All such inspections and tests
shall be at Licensee's sole risk, cost and expense, and without damage or injury
to Licensor's property, other than unavoidable soil disturbance, which Licensee
shall minimize, restoring the Premises as reasonably as possible to the
preexisting condition. Any such entry by Licensee shall be with prior notice to
Licensor. Licensor reserves the right to require that a representative of
Licensor be present during any such entry on the Site.
3.3 Site "AS IS". Commencement of construction activities with respect to a
Facilities on an Equipment Site by Licensee shall be conclusive evidence that
Licensee (a) accepts such Site as suitable for the purposes for which it is
licensed, (b) accepts such Site and any structure on such Site and every part
and appurtenance thereof "AS IS," with all faults; and (c) waives all claims
against Licensor with
4
<PAGE>
respect to the condition of the Site, the Premises, or any structure or other
appurtenances and their suitability for any purpose.
4.0 ADDITIONAL AGREEMENTS
4.1 Use of CAD-Image. Licensor hereby grants to Licensee the use of
Licensor's engineering records relative to the Rights of Way and Equipment
Sites, including the use of the CAD-Image GIS database and search engines, and
agrees to provide such additional records support services, all upon terms and
conditions as are described in the document entitled "Proposal to BecoCom, Inc.,
Fibre Optic Information Management System," dated March 21, 1997, a copy of
which is attached hereto as Schedule 4.1, as the same may be modified by mutual
agreement of the parties from time to time.
4.2 Optional Additional Fiber. Licensee hereby grants to Licensor the
right, at its sole election, to acquire the right to use up to twelve (12)
strands of fiber optic filament of any newly constructed Facilities. Licensor
shall exercise its option by notice to Licensee, whereupon the parties shall
execute a separate agreement with respect to such optional additional fiber,
setting forth the terms and conditions, including compensation to be paid by
Licensor to Licensee therefor, which shall consist of a pro-rata share of the
actual costs of construction and maintenance of such newly constructed
Facilities. Such agreement, when executed, shall be filed with the Massachusetts
Department of Public Utilities ("MDPU"), pursuant to the requirements of
Massachusetts General Laws ("M.G.L."), c. 164, s. 85A, as amended, and the
compensation to be paid by Licensor to Licensee thereunder shall be subject to
review and determination by the MDPU, pursuant to M.G.L. c. 164, s. 94B, as
amended.
5.0 RIGHT OF FIRST REFUSAL
5.1 Right of First Refusal. Licensee hereby grants to Licensor the right of
first refusal to perform construction services for Licensee, consisting of (a)
engineering services, (b) fiber optic cable installation services, (c) fiber
optic cable repair and maintenance services, and (d) all safety and supervision
services, associated with the construction and maintenance of the Facilities
("Construction Services"). The terms and conditions for the performance of the
engineering services shall be as set forth in the document entitled "Service
Level Agreement Between the Engineering Services Group and BecoCom, Inc.," dated
April 17, 1997, a copy of which is attached hereto as Schedule 5.1, as the same
may be modified by mutual agreement of the parties from time to time. The terms
and conditions for the performance of Construction Services (other than
engineering services) shall be negotiated between the parties on a
project-by-project basis. If Licensor performs Construction Services, such
performance shall be on a timely and efficient basis.
5
<PAGE>
6.0 LICENSE FEES
6.1 As consideration for the various licenses under this Agreement,
Licensee shall pay or provide Licensor the following:
6.1.1 [Intentionally Omitted]
6.1.2 In consideration of the license of the Rights of Way, Licensee
shall pay Licensor a Right of Way use fee and other charges and expenses
with respect to such Rights of Way, as described in Schedule 6.1 attached.
6.1.3 In consideration of the license of the Equipment Sites (other
than Sites where Existing Facilities are located), Licensee shall pay
Licensor a Site Use Fee agreed upon in each individual SLA with respect to
such Site.
6.1.4 In consideration of the exclusive right to construct Facilities
in the Power Space, Licensee shall (a) assume and perform all of Licensor's
obligations with respect to the provision of non-discriminatory access to
utility infrastructure, as mandated by the Telecommunications Act of 1996,
by licensing the right to use the Facilities to those parties who pay for
the construction of the same, on nondiscriminatory terms; and (b) pay to
Licensor a Right of Way use fee and other charges and expenses with respect
to such Rights of Way, as described in Schedule 6.1 attached.
6.2 Licensee agrees to pay the fees, charges and expenses described in
Schedule 6.1 (collectively, "Fees") quarterly, in arrears, without any
deduction, offset or counterclaim, at the address specified by Licensor, or at
such other address as Licensor may by notice from time to time specify.
6.3 Any Fees not paid within five (5) business days from the date when due
may, at Licensor's option, bear interest until paid at the lesser of (a) one and
one-half percent (1.5%) per month, or (b) the maximum rate allowed under the law
of the Commonwealth of Massachusetts.
6.4 Any Fees not paid within fifteen (15) days from the date when due shall
be subject to a late charge of $150. The late fee shall be due in addition to
the interest Licensor may assess under Section 6.3, but the combination of the
late fee and interest shall in no event exceed limits imposed by state law.
7.0 CONSTRUCTION
7.1 Approval of Plans. Prior to commencing any work on the Site in
connection with the construction of Facilities (whether initial installation or
a subsequent material alteration), Licensee shall obtain Licensor's approval of
(a)
6
<PAGE>
Licensee's plans for all site and construction work, including access and
laydown, and any alterations, modifications or impacts on any structure existing
on the Site or the Premises, (b) the precise location of the Facilities at the
Site, (c) the precise location of any utility connections to the Facilities at
the Site and through the Premises. If Licensee proposes to install any portion
of the Facilities on an existing structure, Licensor may require Licensee to
submit a structural engineering analysis, prepared by a registered professional
engineer, for Licensor's review and approval. Licensee may propose solutions to
any structural problems identified in its analysis, which solutions Licensee is
willing to implement at its cost; however, Licensor shall be under no obligation
to accept any such proposed solution. Licensor reserves the right to determine,
through its own analysis and operational requirements, that a particular
structure requires replacement or modification as a condition to use by
Licensee, in case Licensee shall have the option of (a) paying for the cost (in
whole or in part, as may be agreed to by Licensor) of such replacement or
modification, or (b) selecting another Site. Nothing herein shall require
Licensor to make any modifications to its structures to accommodate Licensee,
where such modification would impose additional costs or operational constraints
on Licensee's operations. Licensor in its discretion may require that a
representative of Licensor be present during the construction of the Facility,
or that such representative make periodic inspections of the progress of the
construction work. Licensor shall not unreasonably withhold or delay its consent
to Licensee's plans; however, depending on the Licensor's own operational needs
at the particular Premises and the Site, Licensor may impose reasonable
requirements in order to ensure electrical system reliability and to minimize or
avoid potential adverse effect on Licensor's Business, which Licensee
acknowledges are a matter of public health and safety. Any alterations or
modifications to a structure existing on the Site must be designed to Licensor's
satisfaction by a licensed engineer at Licensee's sole cost and expense.
Licensor, in its discretion, may require independent engineering review of
Licensee's alterations or modifications, and such independent review shall be at
Licensee's cost.
7.2 All of Licensee's installation and alteration work shall be performed
at Licensee's sole cost and expense, in a good and workmanlike manner by
qualified workmen and in accordance with all applicable laws, ordinances and
regulations and any permits or licenses issued by any governmental authority
having jurisdiction. Licensee agrees to implement reasonable measures requested
by Licensor in order to ensure that any contractors working for Licensee work in
harmony with any Licensor personnel or contractors at a particular Site.
7.3 Licensee shall keep the Premises and the Sites free from any liens
arising from any work performed, materials furnished, or obligations incurred by
or at the request of Licensee. If any lien is filed against the Premises or the
Sites as a result of any such matter, Licensee shall discharge the lien or bond
the lien off in a manner reasonably satisfactory to Licensor within thirty (30)
days after Licensee receives written notice from any party that a lien has been
filed. If Licensee fails to
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discharge or bond any lien within such period, then, in addition to any other
right or remedy, Licensor may, at Licensor's election, take such action as
Licensor deems appropriate under the circumstances, and all reasonable
attorneys' fees and other legal expenses of Licensor incurred in obtaining the
discharge of such lien, together with all necessary disbursements in connection
therewith, shall be due and payable by Licensee to Licensor upon demand.
7.4 Licensee shall at all times maintain the Facilities in good, clean,
safe and operable condition and shall not permit the Facilities or the Sites to
deteriorate, become unsightly, unsafe or a nuisance. Licensee shall not permit
stockpiling of materials or accumulation of rubbish or debris on any Site.
Licensee's work shall not adversely affect the structural integrity or
maintenance of any structure on the Sites, nor the physical condition of the
Sites. Licensee shall take proper steps to ensure public safety at all Sites
where Licensee is conducting construction operations. Licensee shall take
reasonable steps to secure the Facilities (and the Site, if Licensor has no
ongoing presence at the Site) in order to avoid damage to the Premises and the
Sites from vandalism, and to prevent claims of attractive nuisance.
7.5 If at any time Licensor reasonably determines that the location of the
Facilities at any Site is disadvantageous to the Licensor in the operation of
Licensor's Business, Licensor shall have the right, by notice to Licensee, to
require Licensee to relocate such Facilities to another comparable location
within the Premises ("Alternate Site"); provided, that Licensor shall reimburse
Licensee for all reasonable costs and expenses of such relocation. In the event
of such relocation of the Facilities to an Alternate Site, the parties shall
execute a new SLA reflecting the Alternate Site, as if the Alternate Site were
the original SLA executed with respect to such Facilities.
7.6 Licensor's obligations under this Article 7 shall be performed on a
timely and efficient basis.
8.0 UTILITIES
8.1 Licensee shall have the right, at Licensee's sole cost and expense, to
obtain electrical and telephone service from any utility company that provides
such service to the Premises. Licensee shall install, at its cost, any necessary
telecommunications isolation equipment required by the provider of any utility
service to the Facilities.
8.2 Licensee shall pay for all of Licensee's utility service costs when
due.
8.3 Licensee shall be solely responsible for providing any utility services
required during construction.
9.0 ACCESS
8
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9.1 The parties recognize that access to any Site may vary depending on the
nature of the Premises and Licensor's operations thereon, as well as any special
landowner requirements in the case of a Site not owned by Licensor in fee. Any
special access restrictions or requirements imposed by Licensor shall be
specified in the SLA.
9.2 Unless otherwise provided above or in the SLA:
9.2.1 Access for construction, routine maintenance and repair and
other non-emergency visits shall be limited to normal business hours
(defined as Monday through Saturday, 7 AM to 7 PM, excluding holidays).
9.2.2 In the event of an emergency, Licensee is entitled to access to
any Site twenty-four (24) hours per day, seven (7) days per week.
9.2.3 Access to the Premises may be by foot or motor vehicle,
including trucks and equipment.
9.3 Licensee acknowledges that the foregoing access rights are subject to
any limitations or restrictions on access imposed upon Licensor (and therefore
upon Licensee) by the landowner under any underlying deed, easement, lease or
license document relating to a particular Site. Licensee agrees to abide by such
limitations or restrictions, provided that Licensee has been notified by
Licensor of such limitations and restrictions.
10.0 TAXES AND ASSESSMENTS
10.1 Licensor and Licensee shall each be responsible for a portion of the
real property taxes attributable to the Rights of Way and Equipment Sites, as
provided in Schedule 6.1.
10.2 Licensee shall be solely responsible for the payment of all personal
property taxes, assessments and other similar fees or charges attributable to
the Facilities, as well as any increase in real property taxes, to the extent
attributable to the Facilities.
11.0 INSURANCE
11.1 Licensee shall, during the term of this Agreement and at Licensee's
sole expense, obtain and maintain in force (and, to the extent applicable, shall
cause its agents and contractors to obtain and maintain during the term of any
contract), not less than the following insurance:
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11.1.1. Property insurance, including coverage for fire, extended
coverage, vandalism and malicious mischief, upon the Facilities, to the
extent used in the Business, in an amount not less than ninety percent
(90%) of the full replacement cost of the Facilities;
11.1.2. Comprehensive Commercial General Liability and Motor Vehicle
Liability insurance, insuring operations hazard, independent contractor
hazard, contractual liability, and products and completed operations
liability, in limits not less than $5,000,000 combined single limit for
each occurrence for bodily injury, personal injury and property damage
liability, including coverage for liability assumed under the
indemnification provisions of this Agreement, and designating Licensor as
an additional insured; and
11.1.3. Workers' Compensation and Employer's Liability insurance as
required by law.
11.2 All required insurance policies shall be taken out with reputable
national insurers that are licensed to do business in the Commonwealth of
Massachusetts and having a Best rating of not less than A-X. Licensee shall
deliver certificates of insurance to Licensor as soon as practicable after the
placing of the required insurance, but not later than the Commencement Date of a
particular SLA. All policies must contain an undertaking by the insurer to
notify Licensor in writing not less than fifteen (15) days before any material
change, reduction in coverage, cancellation, or termination of the insurance.
11.3 Licensor and Licensee shall each year review the limits for the
insurance policies required by this Agreement. Policy limits will be adjusted to
proper and reasonable limits as circumstances warrant, but policy limits will
not be reduced below those stated above and no increases will be effective
unless Licensor and Licensee mutually agree.
11.4 Licensor shall, upon request, provide Licensee with certificates of
insurance indicating the types and amounts of coverages maintained by Licensor
on the Premises and the facilities of Licensor thereon.
11.5 The provision of insurance required in this Agreement shall not be
construed to limit or otherwise affect the liability of any party to the other
party.
11.6 Licensee shall not do or permit to be done in or about the Premises,
nor bring or keep or permit to be brought to the Premises, anything that (a) is
prohibited by any insurance policy carried by Licensor covering any Site, any
improvements thereon, or the Premises; or (b) will increase the existing
premiums for any such policy beyond that contemplated for the addition of the
Facilities. Licensor acknowledges and agrees that the installation of the
Facilities upon any Site in
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accordance with the terms and conditions of this Agreement will be considered
within the underwriting requirements of any of Licensor's insurers and such
premiums contemplate the addition of the Facilities.
12.0 INDEMNIFICATION
12.1 Licensee shall indemnify, defend and save Licensor, its officers,
directors and employees, harmless for and from and against any and all actions,
charges, claims, damages, expenses, fines, penalties and liabilities whatsoever
arising from, or out of, or in connection with any of the following:
12.1.1 The loss of life, personal injury, or damage to property in,
upon or at the Premises or the Sites caused by the act or omission of
Licensee, Licensee's employees or agents, contractors, or any other person
acting by or through, or with the knowledge or approval of Licensee, except
to the extent caused by the negligence or willful misconduct of Licensor,
Licensor's employees or agents, or any other person acting by or through,
or with the knowledge or approval of Licensor;
12.1.2 The violation of federal, state or local law, regulation or
ordinance applicable to the Sites, the Premises and Licensee's use of, or
presence on, the Premises by Licensee or Licensee's employees or agents,
contractors, or any other person acting by or through, or with the
knowledge or approval of Licensee;
12.1.3 The violation or breach by Licensee of any provision or
obligation of this Agreement or of any SLA; or
12.1.4 Any storage, use, spill, discharge or release to the
environment of any oil or hazardous materials or wastes, as those terms are
defined by applicable federal or state law from time to time, in or upon
any Site or the Premises by Licensee or Licensee's employees or agents,
contractors, or any other person acting by or through, or with the
knowledge or approval of Licensee.
12.2 Licensor shall indemnify, defend and save Licensee, its officers,
directors and employees, harmless for and from and against any and all actions,
charges, claims, damages, expenses, fines, penalties and liabilities whatsoever
arising from, or out of, or in connection with any of the following:
12.2.1 The loss of life, personal injury, or damage to property in,
upon or at the Premises or the Sites caused by the act or omission of
Licensor Licensor's employees or agents, contractors, or any other person
acting by or through, or with the knowledge or approval of Licensor, except
to the extent caused by the negligence or willful misconduct of Licensee,
Licensee's employees or agents,
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<PAGE>
or any other person acting by or through, or with the knowledge or approval
of Licensee;
12.2.2 The violation of federal, state or local law, regulation or
ordinance applicable to the Sites, the Premises and Licensor's use of, or
presence on, the Premises by Licensor or Licensor's employees or agents,
contractors, or any other person acting by or through, or with the
knowledge or approval of Licensor;
12.2.3 The violation or breach by Licensor of any provision or
obligation of this Agreement or of any SLA; or
12.2.4 Any storage, use, spill, discharge or release to the
environment of any oil or hazardous materials or wastes, as those terms are
defined by applicable federal or state law from time to time, in or upon
any Site or the Premises by Licensor or Licensor's employees or agents,
contractors, or any ether person acting by or through, or with the
knowledge or approval of Licensor.
12.3 Neither party shall be liable to the other for any consequential or
punitive damages, or losses in the nature of lost profits, loss of use, or loss
of opportunity.
12.4 The indemnity obligation includes reasonable attorneys' fees,
investigation costs, and all ether reasonable costs and expenses incurred by the
indemnified party from the first notice that any claim or demand has been made
or may be made, and is not limited in any way by any limitation on the amount or
type of damages, compensation, or benefits payable under applicable workers'
compensation acts, disability benefit acts, or other employee benefit acts.
12.5 The provisions of this Section shall survive the termination of this
Agreement or any SLA with respect to any cause of action arising before such
termination, or first cognizable after such termination.
13.0 ASSIGNMENT AND TRANSFER
13.1 Licensee, upon prior written notice to Licensor, shall have the right,
without the necessity of obtaining Licensor's consent, to assign or transfer
this agreement, either in whole or in part, or any rights thereunder, to (a) any
Affiliate of Licensee; (b) any person or entity with whom Licensee has an
agreement for construction and use of newly-constructed Facilities; or (c) any
purchaser of substantially all of the assets of Licensee (collectively
"Permitted Transferees"). No such assignment to a Permitted Transferee shall
relieve Licensee from continuing primary liability and obligation to Licensor
under the terms of this Agreement and any SLA, and Licensor shall have no
obligation to look to such Permitted Transferee for the satisfaction of any
obligations of Licensee hereunder or under any SLA, but
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may at all times seek recourse against Licensee. "Affiliate," for purposes of
this Agreement, shall mean any person or entity in which Licensee has an equity
interest, or any entity controlling, controlled by or under common control with
any such person or entity.
13.2 Licensee shall not assign, sublet, or otherwise transfer this
Agreement, any SLA, any Site or any Facilities, or any rights therein or
thereunder, to any party other than Permitted Transferees without in each case
obtaining Licensor's prior written consent, which consent Licensor may withhold
in its discretion, or condition upon payment to Licensor of additional
consideration.
14.0 TRANSFER BY LICENSOR
14.1 Licensor may not make any sale, lease, license or transfer of any
Site, unless such sale, lease, license or transfer is subject to the terms and
conditions of this Agreement and the applicable SLA. Licensee's rights hereunder
are not exclusive, and Licensor may grant to others rights in any Site
coextensive with those of Licensee, so long as such other person or entity does
not unreasonably interfere with the exercise by Licensee of the rights granted
to it under this Agreement and any SLA.
15.0 CASUALTY OR CONDEMNATION
15.1 If there is a casualty to any structure owned by Licensor upon or
within which Facilities are located, Licensor take all reasonable steps to
repair or restore the structure within sixty (60) days. Licensee may immediately
erect on an unused portion of a Site temporary Facilities, including any
supporting structure, while Licensor makes repairs to the damaged structure.
Upon completion of such repair or restoration, Licensee shall be entitled to
reinstall Licensee's Facilities on or within the Site.
15.2 In the event such repair or restoration will reasonably require more
than sixty (60) days to complete, Licensee shall be entitled to terminate the
applicable SLA, effective upon the expiration of thirty (30) days after written
notice to Licensor; provided, that, if after giving such notice, Licensor is
able to complete such repair or restoration within such additional thirty (30)
days, then the notice of termination shall be deemed withdrawn, and the SLA
shall continue.
15.3 If there is a condemnation of any Site, including without limitation a
transfer of such Site by consensual deed in lieu of condemnation, then the SLA
for such condemned Site will terminate upon transfer of tide to the condemning
authority, without further liability to either party under this Agreement. All
awards on account of a Site shall be the property of Licensor, and Licensee
hereby assigns over any
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claim to such award to Licensor. Licensee shall be entitled to pursue a separate
condemnation award for the Facility from the condemning authority.
16.0 NOTICE
16.1 Any notice or demand required or permitted to be given under this
Agreement or any SLA shall be in writing and shall be made by (a) certified or
registered U.S. mail, return receipt requested, (b) by established overnight
courier providing a receipt, or (c) by facsimile providing a confirmation of
receipt, if followed by hard copy by first class U.S. mail, to the address set
forth below:
To Licensor:
Boston Edison Company
800 Boylston Street
Boston, Massachusetts 02199
Attention: Fred J. Greenberg, General Manager of
Fossil and Electric Delivery
To Licensee:
BecoCom, Inc.
36th Floor
800 Boylston Street
Boston, Massachusetts 02199
Attention: Richard S. Hahn, President
16.2 Any such notice shall be deemed received one (1) business day
following facsimile or deposit with an overnight courier, or five (5) business
days following deposit in the United States mails, addressed as required above.
Each party may from time to time designate any other address for this purpose by
written notice to the other party as provided herein.
17.0 GENERAL PROVISIONS
17.1 The parties agree that Carrier shall be a third-party beneficiary of
this Agreement, with the power to enforce Licensee's rights hereunder upon a
breach of the obligations of either Licensee or Licensor. Licensee and Licensor
shall not voluntarily amend this Agreement without the prior written consent of
Carrier, which consent shall not be unreasonably withheld or delayed.
17.2 This Agreement and each SLA constitutes the entire agreement and
understanding between the parties, and supersedes all offers, negotiations and
other agreements concerning the subject matter contained in this Agreement.
There are no
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<PAGE>
representations or understandings of any kind not set forth in this Agreement.
Any amendments to this Agreement or any SLA must be in writing and executed by
both parties.
17.3 If any provision of this Agreement or any SLA is invalid or
unenforceable with respect to any party, the remainder of this Agreement, the
applicable SLA or the application of such provision to persons other than those
as to whom it is held invalid or unenforceable, shall not be affected and each
provision of this Agreement or the applicable SLA shall be valid and enforceable
to the fullest extent permitted by law.
17.4 This Agreement and each SLA shall be binding on and inure to the
benefit of the respective parties and their respective successors and permitted
assigns.
17.5 The captions of this Agreement are inserted for convenience only and
shall not be construed as part of this Agreement or the applicable SLA or in any
way limiting the scope or intent of its provision.
17.6 No provision of this Agreement or a SLA shall be deemed to have been
waived by either party unless the waiver is in writing and signed by the party
against whom enforcement is attempted. No custom or practice which may develop
between the parties in the administration of the terms of this Agreement or any
SLA shall be construed to waive or lessen any party's right to insist upon
strict performance of the terms of this Agreement or any SLA. The rights granted
in this Agreement and under each SLA are cumulative of every other right or
remedy that the enforcing party may otherwise have at law or in equity, or by
statute and the exercise of one or more rights or remedies will not prejudice or
impair the concurrent or subsequent exercise of other rights or remedies.
17.7 This Agreement and each SLA is governed by the laws of the
Commonwealth of Massachusetts.
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17.8 This Agreement and any SLA may be executed in one or more
counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument, by and through their respective duly authorized representatives, as
of the date first above written.
BOSTON EDISON COMPANY BECOCOM, INC.
By: /s/ [ILLEGIBLE] By: /s/ Richard S. Hahn
---------------------------- -----------------------------
Title: Vice President Title: President
------------------------- --------------------------
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SCHEDULE 1.2
ACCESS POINTS
Prudential Center (subject to the termination or expiration of the lease at such
site); Station 150 (Edgar); Station 470 (Canton); Station 447 (West Walpole);
Station 446 (West Medway); Station 240 (Framingham); Station 148 (Needham);
Station 496 (Hyde Park); Station 282 (Waltham); Station 320 (Lexington); Station
391 (Burlington); Station 250 (Mystic & Head House @ Ryan's Plygrd); Station 80
(Mass Ave.); Station 478 (Holbrook); Station 146 (Walpole); Station 65 (Medway);
Station 274 (Sherborn); Station 433 (Speen Street); Station 110 (Baker Street);
Station 342 (Sudbury); Station 450 (Trapelo Road); Station 533 (Hartwell Ave.);
Station 211 (Woburn); and Station 514 (Boston).
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<PAGE>
SCHEDULE 2.1
SiTE LICENSE ADDENDUM
This Site License Addendum is made to the License Agreement between Boston
Edison Company, as Licensor, and BecoCom, lax, as Licensee, dated ______, 1997.
Capitalized terms used in this SLA shall have the same meaning as such terms in
the License Agreement, unless otherwise indicated. In the event of any conflict
or inconsistency, the provisions of this Addendum shall control.
1. Site Identification Number:
2. Site Street Address, if any, or general location:
3. Site Legal Description: See Schedule 1 attached.
4. Description of Facilities: See Schedule 2 attached.
6. Plans and Specifications: See Schedule 3 attached.
7. Site Use Fee:
8. Licensor contact for emergencies:
9. Licensee contact for emergencies:
10. Special access and other provisions:
LICENSEE:
BOSTON EDISON COMPANY
By: __________________________
Title: __________________________
BECOCOM, INC.
By: __________________________
Title: __________________________
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SCHEDULE 2.6
SPILL NOTIFICATION AND RESPONSE PROCEDURES
All Spills/Releases of oils and/or hazardous materials (hydraulic fluid,
gasoline, etc.) must be reported to the Boston Edison Company Systems
Dispatcher, telephone number 617-541-7888, as soon possible, but within 1 1/2
hours of spill discovery.
NOTIFICATION REQUIREMENTS:
* Your name, Company and association with Boston Edison Company
* Date of release
* Time first observed release
* Location of release
* Source and description of release
* Approximate quantity
* Type of material
* Clean up crew
* Dispatcher will ask additional questions to complete the Spill Notification
Checklist and to determine if release is reportable to the Massachusetts
DEP
* IF SPILL CONDITION CHANGES, NOTIFY SYSTEMS DISPATCHER
INITIAL RESPONSE ACTIONS:
* Survey the area to determine extent of contamination
* Secure the area
* Stop the leak if possible
* Contain the leak (speedi-dri, sand, absorbent materials, etc)
* Report the release
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<PAGE>
AMENDED AND RESTATED OPERATING AGREEMENT
OF
RCN-BECOCOM, LLC
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ARTICLE 1
DEFINITIONS
<S> <C> <C>
1.1 Certain Definitions ....................................... 2
1.2 Other Definitions ......................................... 12
1.3 Construction .............................................. 12
ARTICLE 2
ORGANIZATION
2.1 Organization .............................................. 12
2.2 Name ...................................................... 12
2.3 Registered Office; Registered Agent; Principal
Office in the United States; Other Offices ............... 12
2.4 Purpose ................................................... 13
2.5 Company Powers ............................................ 13
2.6 Foreign Qualification Governmental Filings ................ 14
2.7 Term ...................................................... 14
2.8 No State-Law Partnership .................................. 14
2.9 Activities of the Members ................................. 14
ARTICLE 3
MEMBERS: DISPOSITIONS OF INTERESTS
3.1 Members ................................................... 14
3.2 Restrictions on the Disposition of an Interest ............ 15
3.3 Change of Control ......................................... 18
3.4 Interests in a Member ..................................... 20
3.5 Liability to Third Parties ................................ 20
ARTICLE 4
CAPITAL CONTRIBUTIONS
4.1 Initial Capital Contributions ............................. 20
4.2 Additional Capital Calls .................................. 21
4.3 Failure to Pay a Capital Call ............................. 21
4.4 Return of Contributions ................................... 22
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
ARTICLE 5
INTENTIONALLY DELETED
ARTICLE 6
MEMBER ACCOUNTS; ALLOCATIONS OF PROFIT AND LOSS; DISTRIBUTIONS
<S> <C> <C>
6.1 Capital Accounts .......................................... 22
6.2 Allocations for Capital Account and Tax Purposes .......... 23
ARTICLE 7
MANAGEMENT
7.1 Management by the Members ................................. 26
7.2 Representatives ........................................... 27
7.3 Place of Meeting of Representatives ....................... 27
7.4 Regular Meetings of Representatives ....................... 27
7.5 Special Meetings of Representatives ....................... 27
7.6 Representative Compensation Reimbursement ................. 28
7.7 Manner of Acting and Adjournment of Members ............... 28
7.8 Fundamental Business Actions .............................. 28
7.9 Indemnification ........................................... 31
7.10 Business Plan; Budget ..................................... 33
ARTICLE 8
RIGHTS OF MEMBERS
8.1 Access to Information ..................................... 35
8.2 Audits .................................................... 35
ARTICLE 9
9.1 Tax Returns ............................................... 35
9.2 Tax Elections ............................................. 35
9.3 Tax Matters Partner ....................................... 35
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PAGE
ARTICLE 10
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
<S> <C> <C>
10.1 Accounting ................................................ 36
10.2 Fiscal Year ............................................... 36
10.3 Statements and Reports .................................... 36
10.4 Inspection ................................................ 37
10.5 Bank Accounts ............................................. 37
ARTICLE 11
WITHDRAWAL, EXPULSION, BANKRUPTCY, ETC.
11.1 Withdrawal ................................................ 37
11.2 Bankrupt Members .......................................... 37
ARTICLE 12
TERMINATION, DISSOLUTION AND LIQUIDATION OF THE COMPANY
12.1 Termination and Dissolution ............................... 38
12.2 Liquidation ............................................... 39
ARTICLE 13
GENERAL PROVISIONS
13.1 Representations ........................................... 40
13.2 Additional Representations of RCN-Sub ..................... 41
13.3 Offset .................................................... 42
13.4 Notices ................................................... 42
13.5 Entire Agreement; Supersedure ............................. 43
13.6 Effect of Waiver or Consent ............................... 43
13.7 Amendment or Modification ................................. 43
13.8 Public Announcements ...................................... 44
13.9 Confidentiality ........................................... 44
13.10 Binding Effect ............................................ 44
13.11 Governing Law; Severability ............................... 45
13.12 Specific Performance ...................................... 45
13.13 Further Assurances ........................................ 45
13.14 Counterparts .............................................. 45
13.15 Interpretation ............................................ 45
13.16 Use of Name ............................................... 45
13.17 Continued Support of RCN-Sub .............................. 45
</TABLE>
iii
<PAGE>
This AMENDED AND RESTATED OPERATING AGREEMENT OF RCN-BecoCom, LLC (this
"Agreement") is made and entered into effective as of June 17, 1997 (the
"Effective Date"), by and among the Members (as defined below).
WHEREAS, on December 23, 1996 RCN Telecom Services, Inc., a Delaware
corporation ("RCN"), and Boston Energy Technology Group, Inc., a Massachusetts
corporation ("BETG"), entered into the RCN-BETG, LLC Operating Agreement; and
WHEREAS, Boston Edison Company, a Massachusetts corporation ("BECO"), and
C-Tec Corporation, a Delaware corporation ("C-Tec"), have each executed
instruments of adherence with respect to certain provisions hereof; and
WHEREAS, RCN-BETG, LLC has changed its name to RCN-BecoCom, LLC; and
WHEREAS, RCN and BETG wish to revise the terms of their participations in
RCN BecoCom, LLC, and to assign their interests therein to their respective
affiliates;
NOW, THEREFORE in consideration of the mutual covenants, rights, and
obligations set forth in this Agreement, the benefits to be derived therefrom,
and other good and valuable consideration, the receipt and the sufficiency of
which each Member acknowledges, the Members agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following terms
have the following meanings:
"AAA" shall have the meaning set forth in Section 3.3(iv).
"Act" means the Massachusetts Limited Liability Company Act, Mass.
Gen. Laws Ann. Ch. 156C,ss.ss. 1, et seq. and any successor statute, as
amended from time to time.
"Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end
of the relevant fiscal year of the Company (i) increased by an amount equal
to the sum of such Member's allocable share of the Company's Minimum Gain
attributable to Company Nonrecourse Liabilities and such Member's allocable
share of the Company's Minimum Gain attributable to Member Nonrecourse
Debt, in each case as computed on the last day of such fiscal year in
accordance with applicable Regulations and (ii) reduced by all reasonably
expected adjustments, allocations and distributions described in
Regulations Sections 1.704 - 1(b)(2)(ii)(d)(4), (5) and (6). This
definition of Adjusted Capital Account Deficit is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
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"Affiliate" means, with respect to any Person, any other Person
Controlling, Controlled by, or under common Control with that first Person.
"Agreed Value" of any Contributed Property means the value of such
property or other consideration (a) as agreed by all of the Members and as
listed on Schedule I for that Contributed Property contributed as of the
Closing, and (b) as determined by all of the Members using such reasonable
method of valuation as they may adopt for that Contributed Property
contributed after the Closing; provided, however, that the Agreed Value of
any property deemed contributed to the Company for federal income tax
purposes upon termination and reconstitution thereof pursuant to Section
708 of the Code shall be determined in accordance with Section 6.2(c).
"Agreement" has the meaning given that term in the introductory
paragraph hereof.
"Appraiser" has the meaning given that term in Section 3.3(i).
"Appraiser's Certificate" has the meaning given that term in Section
3.3(11).
"Arbitrator" has the meaning given that term in Section 7.8(e)(i).
"Arbitration Act" has the meaning given that term in Section
7.8(e)(i).
"Award" has the meaning given that term in Section 7.8(e)(i).
"Bankrupt Member" means any Member:
(a) that (i) makes a general assignment for the benefit of
creditors, (ii) files a voluntary bankruptcy petition, (iii) becomes
the subject of an order for relief or is declared insolvent in any
federal or state bankruptcy or insolvency proceeding, (iv) files a
petition or answer seeking for such Member a reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or
similar relief under any law, (v) files an answer or other pleading
admitting or failing to contest the material allegations of a petition
filed against such Member in a proceeding of the type described in
clauses (i)-(iv), (vi) seeks, consents to, or acquiesces in the
appointment of a trustee, receiver, or liquidator of the Member or of
all or any substantial part of the Member's properties, or
(b) with respect to which (i) a proceeding is commenced seeking
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any law and 90 days have expired
without the proceeding being dismissed, or (ii) without that Member's
consent or acquiescence, a trustee, receiver, or liquidator is
appointed of that Member or of all or any substantial part of its
properties and 90 days have expired without the appointment being
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vacated or stayed, or if stayed, 90 days have expired after the date
of expiration of a stay, unless the appointment has been vacated.
"Basic Agreements" has the meaning set forth in the Construction and
Indefeasible Right of Use Agreement, dated as of the date hereof, by and
between BecoCom and the Company (the "IRU Agreement").
"BecoCom" means BecoCom, Inc., a Massachusetts corporation and a
wholly owned subsidiary of BETG.
"BecoCom Contributed Assets" means those certain existing assets
listed in footnote 2 of Schedule 1.
"Budget" has the meaning set forth in Section 7.10.
"Business Day" means any day other than a Saturday, a Sunday or a
holiday on which banks in Massachusetts generally are closed.
"Business Plan" has the meaning set forth in Section 7.10 hereof.
"Capital Account" means the capital accounts maintained with respect
to Membership Interests pursuant to Section 6.1.
"Capital Call" means a request for additional contributions of capital
to the Company.
"Carrying Value" means, with respect to any asset, the asset's
adjusted tax basis for federal income tax purposes except as follows:
(a) The initial Carrying Value of any asset contributed to the
Company by a Member shall be the Agreed Value of such asset;
(b) Consistent with the provisions of Section
1.704-1(b)(2)(iv)(f) of the Regulations, the Carrying Value of all
Company assets shall be adjusted to equal their respective gross fair
market values upon the happening of any of the following events: (i)
issuance of additional Membership Interests to new or existing Members
for more than a de minimis amount of cash or Contributed Property,
(ii) immediately prior to a distribution to a Member of more than a de
minimis amount of Company property (other than a distribution solely
of cash that is not in redemption or retirement of a Membership
Interest) in consideration for an interest in the Company and (iii)
the liquidation of the Company within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g).
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(c) The Carrying Values of Company assets shall be increased or
decreased to reflect any adjustments to the adjusted basis of such
assets pursuant to Section 734(b) or Section 743(b) of the Code, but
only to the extent that such adjustments are taken into account in
determining Capital Accounts pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), Section 6.2(b)(vii) hereof and paragraph (e) of
the definition of Net Income or Net Loss.
If the Carrying Value of an asset has been determined or adjusted pursuant
to subparagraphs (a), (b) or (c) of the definition for Carrying Value, such
Carrying Value shall be adjusted thereafter by the Depreciation taken into
account with respect to such asset for purposes of computing the amount of Net
Income or Net Loss.
"Cash Capital Contribution" means the amount set forth under the
column "Cash Capital Contribution" on Schedule 1.
"Category A Fundamental Business Actions" has the meaning given that
term in Section 7.8(a).
"Category B Fundamental Business Actions" has the meaning given that
term in Section 7.8(b).
"Certificate" has the meaning given that term in Section 2.1.
"Certificate Date" has the meaning given that term in Section 3.3(11).
"Change of Control" of a Member shall be deemed to have occurred when
(i) an Entity, other than a Member Parent of such Member or a Wholly Owned
Affiliate of such Member Parent (an "Unaffiliated Entity") shall acquire
(whether by merger, consolidation, sale, assignment, lease, transfer or
otherwise, in one transaction or a series of related transactions), or
otherwise beneficially own, directly or indirectly, more than 50% of the
outstanding voting interests in such Member entitled to vote generally in
the election of directors, managers or other members of the management
group of such Member or otherwise control such Member (a "Control Entity"),
(ii) the Member Parent of such Member shall otherwise cease to beneficially
own a majority of such outstanding voting securities in such Member or any
Control Entity of such Member, or (iii) an Unaffiliated Entity shall become
a Control Entity of a Member Parent after the Effective Date.
"Code" means the Internal Revenue Code of 1986 and any successor
Statute, as amended from time to time.
"Company" means RCN-BecoCom, LLC, a Massachusetts limited liability
company.
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"Company Debt" shall have the meaning set forth in Section 2.5(a)(iv).
"Company Nonrecourse Deductions" means, with respect to Company
Nonrecourse Liabilities, the amount of deductions, losses and expenses
equal to the net increase during the year in Minimum Gain attributable to
Company Nonrecourse Liabilities, reduced (but not below zero) by the
proceeds, if any, of such Company Nonrecourse Liabilities distributed
during the year, as determined in accordance with applicable Regulations.
"Company Nonrecourse Liabilities" means nonrecourse liabilities (or
portions thereof) of the Company for which no Member (or any Person related
to a Member) bears the Economic Risk of Loss.
"Contributed Property" means each property or other asset, in such
form as may be permitted by the Act, but excluding cash, contributed to the
Company (or deemed contributed to the Company on termination and
reconstitution thereof pursuant to Section 708 of the Code).
"Control" of an Entity means power to direct or cause the direction of
the management or policies of such Entity, whether through the ownership of
voting securities, by agreement or otherwise.
"Deadlock Event" shall have the meaning set forth in Section
7.8(c)(ii) hereof.
"Default Interest Rate" means three percent above LIBOR.
"Delinquent Member" with respect to a Capital Call means a Member who
fails to pay its portion of such Capital Call at the time and in the amount
required under this Agreement.
"Depreciation" means, for each fiscal year or other relevant period,
an amount equal to the depreciation, amortization or other cost recovery
deduction allowable with respect to an asset for such year or other
relevant period, except that if the Carrying Value of an asset differs from
its adjusted basis for federal income tax purposes at the beginning of such
year, Depreciation shall be an amount which bears the same ratio to such
beginning Carrying Value as the federal income tax depreciation,
amortization or other cost recovery deduction for such year bears to such
beginning adjusted tax basis; provided, however, that if the adjusted basis
for federal income tax purposes of an asset at the beginning of such year
is zero, Depreciation shall be determined with reference to such beginning
Carrying Value using any reasonable method selected by the Tax Matters
Partner.
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"Dispose," "Disposing," or "Disposition" means a sale, assignment,
transfer, exchange, pledge, grant of a security interest, or other
disposition or encumbrance, or the acts thereof.
"Disputing Member" has the meaning given that term in Section
7.8(d)(i).
"Dispute Notice" has the meaning given that term in Section 7.8(d)(i).
"Dispute Price" has the meaning given that term in Section 7.8(d)(i).
"Economic Risk of Loss" has the meaning ascribed to it in Section
1.752-2 of the Regulations.
"Effective Date" has the meaning given that term in the introductory
paragraph hereof.
"Entity" means any corporation, limited liability company, general
partnership, limited partnership, venture, trust, business trust, estate or
other entity.
"Exchange Agreement" means that certain Exchange Agreement entered
into between BecoCom and C-Tec of even date herewith.
"Exchange Securities" means any securities into which a Membership
Interest (or any part thereof) is exchanged pursuant to the Exchange
Agreement.
"Fair Market Value" has the meaning given that term in Section 3.3.
"First Appraiser" has the meaning given that term in Section 3.3(i).
"Fundamental Business Actions" has the meaning given that term in
Section 7.8.
"GAAP" means the generally accepted accounting principles in the
United States of America in effect from time to time.
"General Interest Rate" means a rate per annum equal to the lesser of
(a) a varying rate per annum that is equal to the interest rate publicly
quoted by Citibank, N.A. from time to time as its prime commercial or
similar reference interest rate, with adjustments in that varying rate to
be made on the same date as any change in that rate, anti (b) the maximum
rate permitted by applicable law.
"Governmental Entity" has the meaning given that term in Section
2.5(c).
"Higher Value" has the meaning given that term in Section 3.3(iii).
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"Holding Company" means a Holding Company as defined in Section
2(a)(7) of PUHCA.
"Initial Capital Contribution" has the meaning given that term in
Section 4.1.
"Initial LLC Agreement" means that certain operating agreement, dated
as of December 23, 1996, entered into by RCN and BETG.
"Investment Percentage" of a Person means the percentage set forth
opposite such Person's name on Schedule 2, as adjusted on account of
Capital Calls (pursuant to Section 4.3), Dispositions (pursuant to Section
3.2, but not Dispositions in exchange for Exchange Securities pursuant to
the Exchange Agreement) or the disposition of Exchange Securities received
upon an exchange made pursuant to the Exchange Agreement.
"Joint Investment and Non-Competition Agreement" shall mean that
certain Joint Investment and Non-Competition Agreement entered into by
RCN-Sub, BecoCom and NEWCO of even date herewith.
"LIBOR" means the rate of interest equal to the average (rounded
upwards, if necessary, to the nearest 1/16 of 1%) of the rates per annum at
which dollar deposits in immediately available funds are offered in the
London interbank eurodollar market as at or about 2:00 P.M. New York time
on the date the Default Interest Rate becomes effective, adjusted from time
to time as such rate changes.
"Lower Value" has the meaning given that term in Section 3.3(iii).
"Majority Interest" means, in combination, Membership Interests of one
or more Members which, in the aggregate, are entitled to a combined Sharing
Ratio of more than 50%.
"Management Agreement" means that certain Management Agreement entered
into by and among RCN Operating Services, Inc., BecoCom and the Company of
even date herewith.
"Manager" shall have the meaning set forth in Section 7.10(b).
"Member" means any Person executing this Agreement as of the date
hereof as a member or hereafter admitted to the Company as a member as
provided in this Agreement, but does not include any Person who has ceased
to be a member in the Company.
"Membership Interest" means the interest of a Member in the Company,
including, without limitation, such rights to distributions (liquidating or
otherwise),
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allocations, information and to consent or approve as shall be provided by
law or by this Agreement.
"Member Nonrecourse Debt" means any nonrecourse debt of the Company
for which any Member bears the Economic Risk of Loss.
"Member Nonrecourse Deductions" means, with respect to Member
Nonrecourse Debt, the amount of deductions, losses and expenses equal to
the net increase during the year in Minimum Gain attributable to Member
Nonrecourse Debt, reduced (but not below zero) by the proceeds, if any, of
such Member Nonrecourse Debt distributed during the year to the Members who
bear the Economic Risk of Loss for such debt, as determined in accordance
with applicable Regulations.
"Member Parent" means, with respect to RCN-Sub, RCN (as defined
above), and, with respect to BecoCom, BETG, and their respective successors
and assigns, whether by means of merger, spinoff or otherwise.
"Minimum Gain" means (i) with respect to Company Nonrecourse
Liabilities, the amount of gain that would be realized by the Company if it
disposed of (in a taxable transaction) all Company properties that are
subject to Company Nonrecourse Liabilities in full satisfaction of such
liabilities, computed in accordance with applicable Regulations or (ii)
with respect to each Member Nonrecourse Debt, the amount of gain that would
be realized by the Company if it disposed of (in a taxable transaction) the
Company property that is subject to such Member Nonrecourse Debt in full
satisfaction of such debt, computed in accordance with applicable
Regulations.
"Net Agreed Value" means (i) in the case of any Contributed Property,
the Agreed Value of such property reduced by any liabilities either assumed
by the Company upon such contribution or to which such property is subject
when contributed, and (ii) in the case of any property distributed to a
Member by the Company, the Company's Carrying Value of such property (as
adjusted pursuant to Section 6.2(d)(ii)) at the time such property is
distributed, reduced by any liabilities either assumed by such Member upon
such distribution or to which such property is subject at the time of
distribution, in either case, as determined under Section 752 of the Code.
"Net Income" or "Net Loss" means, for each fiscal year or other
period, the taxable income or loss of the Company, as determined in
accordance with Section 703 of the Code, with the following adjustments:
(a) Any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Net Income or
Net Loss shall be added to such taxable income or loss;
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<PAGE>
(b) Any expenditures of the Company described in Section
705(a)(2)(B) of the Code or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Regulations Section 1 .704-1(b)(2)(iv)(i) and
not otherwise taken into account in computing Net Income or Net Loss
shall be subtracted from such taxable income or loss;
(c) In the event that the Carrying Value of any Company asset is
adjusted pursuant to paragraph (b) of the definition for Carrying
Value, the amount of such adjustment shall be taken into account as
gain or loss from the disposition of such asset for purposes of
computing Net Income or Net Loss;
(d) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Carrying Value of the
property disposed of, notwithstanding that the adjusted tax basis of
such property differs from its carrying value;
(e) To the extent that an adjustment to the adjusted tax basis of
any Company asset pursuant to Section 734(b) or Section 743(b) of the
Code is required pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining
Capital Accounts as a result of a distribution other than in complete
liquidation of a Member's Interest, the amount of such adjustment
shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases the basis of
the asset) from the disposition of the asset and shall be taken into
account for purposes of computing Net Income or Net Loss;
(f) In lieu of depreciation, amortization and other cost recovery
deductions taken into account in computing such taxable income or
loss, Depreciation shall be taken into account.
(g) Any items which are specially allocated pursuant to Section
6.2(b) hereof shall not be taken into account in computing Net Income
or Net Loss.
"Nondelinquent Member" has the meaning given that term in Section
4.3(a).
"Notice" has the meaning given that term in Section 7.8(eXi).
"Other Members" has the meaning given that term in Section 7.8(d)(i).
"Person" means any natural person or Entity.
"PUHCA" means the Public Utility Holding Company Act of 1935, as
amended from time to time, 15 U.S.C.ss.ss.79-792-6.
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"Purchasing Members" has the meaning given that term in Section 11.2.
"RCN Contributed Assets" mean those certain existing assets listed in
footnote 1 of Schedule 1.
"RCN-Sub" means RCN Telecom Services of Massachusetts, Inc., a
Massachusetts corporation and wholly-owned subsidiary of RCN.
"Regulations" means the final and temporary Income Tax Regulations
promulgated under the Code, as amended from time to time, and including
corresponding provisions of succeeding regulations.
"Relevant Market" means those certain cities and towns, as set forth
on Exhibit F attached hereto.
"Representative" has the meaning given that term in Section 7.2.
"Respondent" has the meaning given that term in Section 7.8(eXi).
"Rules" has the meaning given that term in Section 7.8(exi).
"Second Appraiser" has the meaning given that term in Section 3.3(i).
"Secretary of State" means the Secretary of State of the Commonwealth
of Massachusetts.
"Selling Member's Interest" has the meaning given that term in Section
3.3.
"Services" means the provision of data, voice, video, other
communications services, and the communications support of energy-related
customer services offered by BECO, to residential and commercial customers
in the Relevant Market or elsewhere.
"Sharing Ratio" with respect to a particular Member means the
percentage set forth opposite such Member's name on Schedule 1, as adjusted
on account of Dispositions (pursuant to Section 3.2 or pursuant to the
Exchange Agreement) or Capital Calls (pursuant to Section 4.3).
"Tax Matters Partner" means such Entity designated by Members holding
Sharing Ratios aggregating more than 50%.
"Third Appraiser" has the meaning given that term in Section 3.3(iv).
"Third Party Sale" has the meaning given that term in Section 3.2(b(v).
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"Third Value" has the meaning given that term in Section 3.3(iv).
"Unrealized Gain" or "Unrealized Loss" attributable to any item of
Company property means, as of any date of determination, the excess or
shortfall, respectively, of (a) the fair market value of such property as
of such date (as determined under Section 6.1(d)) over (b) the Carrying
Value of such property as of such date (prior to any adjustment to be made
pursuant to Section 6.1(d) as of such date).
"Wholly Owned Affiliate" means as to any Entity, (i) an Affiliate all
of the equity interests of which are owned, directly or indirectly, by a
Member or by another Wholly Owned Affiliate of such Member or (ii) an
Affiliate which owns, directly or indirectly, all of the equity interests
of a Member.
1.2 Other Definitions. Other terms defined herein have the meanings so
given them.
1.3 Construction. Whenever the context requires, the gender of all words
used in this Agreement includes the masculine, feminine, and neuter. All
references to Articles and Sections refer to articles and Sections of this
Agreement, and all references to Exhibits are to Exhibits attached hereto, each
of which is made a part hereof for all purposes.
ARTICLE 2
ORGANIZATION
2.1 Organization. The Company was organized on December 24, 1996 pursuant
to a Certificate of Organization filed in the office of the Secretary of State
(the "Certificate") and the Initial LLC Agreement as of December 23, 1996 by and
between RCN and BETO. Concurrently with the execution of this Agreement, RCN is
assigning its Membership Interest to RCN-Sub and BETG is assigning its
Membership Interest to BecoCom, and each of BETO and RCN hereby consents to the
admission of RCN-Sub and BecoCom, as the case may be, as a member, and the
withdrawal of RCN and BETG, as the case may be.
2.2 Name. The name of the Company is "RCN-BecoCom, LLC" and all Company
business must be conducted in that name or such other names that comply with
applicable law as the Managers may select from time to time.
2.3 Registered Office; Registered Agent; Principal Office In the United
States; Other Offices. The registered office of the Company in the Commonwealth
of Massachusetts shall be the initial registered office designated in the
Certificate or such other office (which need not be a place of business of the
Company) as the Members may designate from time to time in the manner provided
by law. The registered agent of the Company in the Commonwealth of Massachusetts
shall be the initial registered agent designated in the Certificate, or such
other Person or Persons as the Members may designate from time to time in the
manner provided by law. The principal office of the Company in the United States
shall be at 419 Boylston Street,
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Boston, Massachusetts 02199, or such other place(s) as the Members may designate
from time to time, which must be in the Commonwealth of Massachusetts. The
Company may have such other offices as the Members may determine appropriate.
2.4 Purpose. Subject to Section 7.8, the business purpose of the Company is
(i) to create, lease and operate a network to provide the Services, (ii) to
market the Services to business and residential customers in the Relevant
Market, and (iii) to engage in and carry on any lawful business, purpose or
activity which is approved pursuant to Section 7.8 hereof not prohibited by the
Act or other applicable law.
2.5 Company Powers.
(a) In furtherance of the business purpose specified in Section 2.4 hereof,
but subject to the limitations and restrictions set forth in this Agreement, the
Company shall be empowered to do or cause to be done, or omit to do or cause to
be done, any and all acts deemed to be necessary or advisable in furtherance of
the business purpose of the Company, including, without limitation, the power
and authority to:
(i) Have, maintain or close one or more offices within or without the
Commonwealth of Massachusetts and in connection therewith to rent or
acquire office space and to engage personnel;
(ii) Open, maintain and close bank and money market accounts,
including the power to draw checks or other orders for the payment of
moneys, and to invest such funds as are temporarily not required for
Company purposes in short-term investments;
(iii) Bring and defend actions and proceedings at law or equity before
any domestic or foreign governmental or regulatory authority, agency or
commission (each, a "Governmental Entity");
(iv) Have outstanding at any time any indebtedness (including any
indebtedness of subsidiaries) for money borrowed, guarantee the obligations
of others or otherwise become contingently liable with respect to any
indebtedness or obligations of others (collectively, "Company Debt"), and,
in connection therewith, to grant security interests, if and only if the
Company Debt was incurred in connection with, or for the purpose of
entering into, the financing of the operations of the business of or for
other business purposes of the Company; provided, that "Company Debt"
shall, for purposes of this Agreement, be deemed to include all interest,
fees (including commitment, guaranty and facility fees), expenses thereon
and all other amounts due in respect thereof;
(v) Enter into, perform and carry out contracts and agreements of
every kind necessary or incidental to the accomplishment of the Company's
purposes,
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and to take or omit to take such other action in connection with the
business of the Company as may be necessary or desirable to further the
purposes of the Company; and
(vi) Carry on any other activities necessary to, in connection with,
or incidental to any of the foregoing or the Company's business.
(b) Notwithstanding anything in Section 2.5(a) to the contrary, the Company
will not take any action, nor will any Member or officer or employee of the
Company take any action, which, in each such case, would cause the Company, any
Member or any Affiliate of a Member to be in violation of any applicable
statute, rule or regulation of any Governmental Entity.
2.6 Foreign Qualification Governmental Filings. Prior to the Company's
conducting business in any jurisdiction other than the Commonwealth of
Massachusetts, the Members shall cause the Company to comply, to the extent
procedures are available, with all requirements necessary to qualify the Company
as a foreign limited liability company in such jurisdiction. Each Member shall
execute, acknowledge, swear to and deliver all certificates and other
instruments conforming to this Agreement that are necessary or appropriate to
qualify, or, as appropriate, to continue or terminate such qualification of, the
Company as a foreign limited liability company in all such jurisdictions in
which the Company may conduct business.
2.7 Term. The Company commenced on the date the Certificate for the Company
was filed with the Secretary of State, and shall continue in existence until
December 31, 2060.
2.8 No State-Law Partnership. The Members intend that the Company not be a
partnership or limited partnership, and that no Member be a partner of any other
Member, for any purposes other than federal, state and local income tax
purposes, and this Agreement shall not be construed to suggest otherwise.
2.9 Activities of the Members. Except as expressly restricted by the Joint
Investment and Non-Competition Agreement, each Member and its Affiliates may
engage in or hold interests in other business ventures and activities of any
nature, including, without limitation, ventures and activities similar to those
of the Company, and neither the Company nor the other Members shall, by virtue
of this Agreement, have any interest or rights in or to such other ventures or
business or any liability or obligation with respect thereto.
ARTICLE 3
MEMBERS; DISPOSITIONS OF INTERESTS
3.1 Members. The Members of the Company are the Persons executing this
Agreement and/or Persons admitted as substitute or additional Members as
permitted by this Article 3.
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3.2 Restrictions on the Disposition of an Interest.
(a) Except as provided in this Section 3.2 and the Exchange Agreement, a
Disposition by a Member of all or any part of a Membership Interest may be
effected only with the prior express written consent of each other Member. Any
attempted Disposition by a Person of a Membership Interest, or any part thereof,
other than in accordance with this Section 3.2 or the terms of the Exchange
Agreement is void and the Company shall not recognize it.
(b) Subject to the provisions of Section 3.2(c), (d), (e), and (f) and the
Exchange Agreement, from and after the date that is three years from the
Effective Date, a Member may Dispose of part or all of its Membership Interest
provided that the Member who wishes to Dispose of its Membership Interest (an
"Offeror") first offers such Membership Interest to the other Members (the
"Offerees") and Disposes of such Membership Interest in accordance with the
following procedures:
(i) The Offeror shall give written notice of the material terms of the
offer, including the price, terms of payment, the Sharing Ratio of such
Offeror's Membership Interest offered and the Sharing Ratios of all
Membership Interests then held by the Offeror (an "Offer Notice") to the
Offerees and the Company.
(ii) Each Offeree shall have 60 days, commencing with the date on
which it has received the Offer Notice, to purchase all or part of its
proportionate share (to be determined by each Offeree's Sharing Ratio or by
such other basis upon which the Offerees agree) of the Membership Interest
offered. Any Membership Interest which an Offeree does not elect to
purchase may be purchased by the other Offerees in a proportion equal to
that which such Offerees' Sharing Ratios bear to each other.
(iii) An Offeree may exercise this election to purchase the Membership
Interest by giving the Offeror and the Company written notice thereof
within 30 days of such Offeree's receipt of the Offer Notice, and the
Company shall then specify the date and time of the closing of the purchase
at the Company's principal office, which shall be reasonably acceptable to
the Offeror and the Offerees, but shall not be later than 60 days following
the Offerees' receipt of the Offer Notice (unless the Offerees and the
Offeror agree upon another time and/or place of closing).
(iv) At the closing, the purchasing Offerees (if any) shall purchase
the Membership Interest at the price and on the terms set forth in the
Offer Notice, and the Offeror shall deliver such usual and customary
documents and instruments of transfer and conveyance.
(v) Should the Offerees fail to purchase all of the offered Membership
Interests specified in the Offer Notice, then the Offeror shall not be
required to Dispose of any of its Membership Interest to the Offerees, but
shall be permitted to Dispose of all (but not less than all) of the offered
Membership Interest specified in the Offer Notice
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to a third party on terms no more favorable to the third party than the
terms set forth in the Offer Notice (a "Third Party Sale"), provided that
the Third Party Sale is consummated within 120 days of the date of the
Offer Notice.
(vi) In addition to the rights set forth above in this Section 3.2(b),
if an Offeror proposes to sell more than 33% of its Membership Interest in
one or a series of Third Party Sales, whether related or unrelated, the
Offeror shall give notice to the Offerees and the Company, not less than 30
and not more than 60 days prior to the consummation of the Third Party
Sale, of the material terms of the Third Party Sale, including the price,
terms of payment, and the Sharing Ratio of such Offeror's Membership
Interest offered and the Sharing Ratios of all Membership Interests then
held by the Offeror. Each Offeree who so elects by written notice (an
"Electing Member") to the Company and the Offerer within 15 days thereafter
shall be entitled to sell a portion of its Membership Interest in the Third
Party Sale that is equal to the proportion that the Sharing Ratio of the
Membership Interest being sold, together with that previously sold, bears
to the Sharing Ratio of the Membership Interest originally owned by the
Offeror.
(c) The Company may not recognize for any purpose any purported Disposition
of all or part of a Membership Interest unless and until the other applicable
provisions of this Section 3.2 have been satisfied and each non-Disposing Member
has received, on behalf of the Company, a document
(i) executed by both the Member effecting the Disposition and the
Person to which the Membership Interest or part thereof is Disposed,
(ii) including the notice address of any Person to be admitted to the
Company as a Member and its agreement to be bound by this Agreement in
respect of the Membership Interest or part thereof being obtained,
(iii) setting forth the Sharing Ratios after the Disposition of the
Member effecting the Disposition and the Person to which the Membership
Interest or part thereof is Disposed (which together must total the sum of
the Sharing Ratios of such Person and the Member effecting the Disposition
before the Disposition),
(iv) containing representations and warranties by such Person and such
Member that the Disposition was made in accordance with all applicable laws
and regulations (including securities laws) and
(v) containing a coalition to closing requiring a certificate, dated
as of the date of the Disposition, duly executed by such Person, to the
effect that the representations and warranties in Section 3.2 are true and
correct with respect to that Person.
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Each Disposition complying with the provisions of this Section 3.2(c) is
effective as of the first day of the calendar month immediately succeeding the
month in which all requirements of this Section 3.2 have been met.
(d) Notwithstanding the foregoing, the provisions of this Section 3.2 shall
not apply to any transfer from a Member to its Member Parent, or a Wholly Owned
Affiliate, provided that such transferee shall comply with all of the
requirements of Section 3.2(c) hereof.
(e) For the right of a Member to Dispose of a Membership Interest or any
part thereof and of any Person to be admitted to the Company in connection
therewith to exist or be exercised (if applicable), either (i) the Membership
Interest or part thereof subject to the Disposition or admission must be
registered under the Securities Act of 1933, as amended, and any applicable
state securities laws or (ii) the Company must receive a favorable opinion of
the Company's legal counsel or of other legal counsel reasonably acceptable to
each non-Disposing Member to the effect that the Disposition or admission is
exempt from registration under those laws. Each non-Disposing Member, however,
may waive the requirements of this Section 3.2(e).
(f) The Member effecting a Disposition shall pay, or reimburse the Company
for, all costs incurred by the Company in connection with the Disposition or
admission (including, without limitation, the legal fees reasonably incurred in
connection with the legal opinions referred to in Section 3.2(e)) on or before
the 10th Business Day after the receipt of the Company's invoice for the amount
due by that Person. If payment is not made by the date due, the Person owing
such amount shall pay interest on the unpaid amount from the date due until paid
at a rate per annum equal to the Default Interest Rate, and such amount may be
withheld from any future distributions.
(g) Notwithstanding any other provisions of this Agreement, if the
Investment Percentage of any Member becomes less than 25% (the "Minority
Member"), then for so long as the Minority Member's Investment Percentage
remains below 25%, the other Members (the "Majority Members") shall have the
option to purchase, pro rata based on their respective Investment Percentages,
the Membership Interest (not including any Exchange Securities) of the Minority
Member. The Majority Members (or any one of them) may initiate procedures to
determine the Fair Market Value (as defined in Section 3.3) of the Membership
Interest to be purchased in the manner provided in Section 3.3 below. Within 30
days after such determination of Fair Market Value, the Majority Members shall
purchase, or elect (by notice given to the Minority Member) not to purchase, the
Membership Interest of the Minority Member. Once the Majority Members initiate
procedures to determine Fair Market Value, the option granted herein shall
remain effective for 30 days after such Fair Market Value is finally determined,
regardless of whether, during such time, the Minority Member's Investment
Percentage becomes 25% or greater. If any of the Majority Members elect not to
purchase their pro rata share of the Minority Member's Membership Interest, the
other Majority Members may purchase such additional share, pro rata based on
their respective Investment Percentages.
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3.3 Change of Control. Upon any Change of Control of either RCN-Sub or
BecoCom, the Member subject to the Change of Control shall promptly give notice
thereof to the other Members and the Members not undergoing the Change of
Control shall be entitled to, at any time within a 90-day period following the
later of such notice or the effective date of such Change of Control, purchase,
on a pro rata basis based upon the respective Investment Percentages (provided
that, if any Member elects not to participate in such purchase, the other
Members may purchase their pro rata share), all but not less than all of the
Membership Interest of the Member undergoing the Change of Control, not
including any Exchange Securities held by such Member or its Affiliates (the
"Selling Member's Interest"), at a purchase price equal to the Fair Market Value
of the Selling Member's Interest determined as described below. The "Fair Market
Value", as of the date of determination, of a Selling Member's Interest shall be
determined (1) by mutual agreement of the Members or (2) if no such agreement is
reached within 10 days of the relevant date of determination, as follows:
(i) Selection of Appraisers. The Member selling the Selling Member's
Interest, on the one hand, and the purchasing Members, on the other hand,
each shall designate by written notice to the Company and each other member
a firm of recognized national standing familiar with appraisal techniques
applicable to assets of the type being evaluated to serve as an appraiser
(an "Appraiser") pursuant to this Section 3.3 (the firms designated by the
Members being referred to herein as "First Appraiser" and the "Second
Appraiser," respectively) within 15 business days after the failure to
reach agreement in accordance with the terms of clause (1) above. In the
event that either Appraiser is not designated within the foregoing time
period, the other Appraiser will serve as the only Appraiser, and its
appraisal will be binding on all Members for purposes of this Section 3.3.
(ii) Evaluation Procedures. Each Appraiser shall be directed to
determine the Fair Market Value of the Selling Member's Interest. Each
Appraiser will also be directed to deliver a certificate (an "Appraiser's
Certificate") setting forth such Appraiser's valuation of the Selling
Member's Interest to each Member on or before the 30th day after their
respective designation (the "Certificate Date"), upon the conclusion of its
evaluation, and each Appraiser Certificate once delivered may not be
retracted or modified in any respect. Each Appraiser will keep confidential
all information disclosed by the Company in the course of conducting its
evaluation, and, to that end, will execute such customary documentation as
the Company may reasonably request with respect to such confidentiality
obligation. The Members will cooperate in causing the Company to provide
each Appraiser with such information within the Company's possession that
may be reasonably requested in writing by the Appraiser for purposes of its
evaluation hereunder. Each Member shall have full access to each
Appraiser's work papers. Each Appraiser will be directed to comply with the
provisions of this Section 3.3, and to that end each party will provide to
its respective Appraiser a complete and correct copy of this Section 3.3
(and the definitions of capitalized terms used in this Section 3.3 that are
defined elsewhere in this Agreement).
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(iii) Fair Market Value Determination. The Fair Market Value of the
Selling Member's Interest shall be determined on the basis of the
Appraiser's Certificates in accordance with the provisions of this
subparagraph (iv), provided, that there shall be no "controlling interest
premium" if the Selling Member's Interest has an Investment Percentage of
less than 66 2/3%. nor any "minority interest discount" if the Selling
Member's Interest has an Investment Percentage of greater than 33 1/3%. The
higher of the values set forth on the Appraisers Certificates is
hereinafter referred to as the "Higher Value," and the lower of such values
is hereinafter referred to as the "Lower Value." If the Higher Value is not
more than 110% of the Lower Value, the Fair Market Value of the Selling
Member's Interest will be the arithmetic average of the Higher Value and
the Lower Value. If the Higher Value is more than 110% of the Lower Value,
a third appraiser shall be selected in accordance with the provisions of
subparagraph (iv) below, and the Fair Market Value of the Selling Member's
Interest will be determined in accordance with the provisions of
subparagraph (v) below.
(iv) Selection of and Procedures for Third Appraiser. If the Higher
Value is more than 110% of the Lower Value, within seven days thereafter
the First Appraiser and the Second Appraiser shall agree upon and jointly
designate a third Appraiser (the "Third Appraiser"), by written notice to
each Member. If the First Appraiser and the Second Appraiser cannot agree
upon a Third Appraiser within seven days, the Third Appraiser shall be
chosen by the American Arbitration Association ("AAA") in Boston,
Massachusetts. The First Appraiser and the Second Appraiser shall direct
the Third Appraiser to determine the Fair Market Value of the Selling
Member's Interest (the "Third Value") in accordance with the provisions of
subparagraph (ii) above, and to deliver to the Members an Appraiser's
Certificate on or before the 30th day after the designation of such
Appraiser hereunder. The Third Appraiser will be directed to comply with
the provisions of this Section 3.3, and to that end each of the parties
will provide to the Third Appraiser a complete and correct copy of this
Section 3.3 (and the definitions of capitalized terms used in this Section
3.3 that are defined elsewhere in this Agreement).
(v) Alternative Determination of Fair Market Value. Upon the delivery
of the Appraiser's Certificate of the Third Appraiser, the Fair Market
Value of the Selling Member's Interest will be determined as provided in
this subparagraph (v). The Fair Market Value of the Selling Member's
Interest will be (w) the Lower Value, if the Third Value is less than the
Lower Value, (x) the Higher Value, if the Third Value is greater than the
Higher Value, (y) the arithmetic average of the Third Value and either the
Higher Value or the Lower Value (whichever is closer to the Third Value) if
the Third Value falls within the range between (and including) the Lower
Value and the Higher Value and (z) the Third Value, if the Lower Value and
the Higher Value are equally close to the Third Value.
(vi) Costs. Each Member will bear the cost of the Appraiser designated
by it or on its behalf. If the Higher Value is not more than 115% of the
Lower Value,
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or if the Higher Value and the Lower Value are equally close to the Third
Value, each Member shall bear 50% of the cost of the Third Appraiser, if
any; otherwise, the Member (or group of Members, pro rata as per their
Investment Percentages), whose Appraiser's determination of the Fair Market
Value of the Selling Member's Interest is further away from the Third Value
shall bear the entire costs of the Third Appraiser. The Members agree to
pay when due the fees and expenses of the Appraisers in accordance with the
foregoing provisions.
(vii) Conclusive Determination. To the fullest extent provided by law,
the determination of the Fair Market Value of the Selling Member's Interest
made pursuant to this Section 3.3 shall be final and binding on the Company
and the Members hereto, and such determination shall not be appealable to
or reviewable by any court or arbitrator, but judgment on such
determination may be entered in any court having jurisdiction thereof;
provided, however, that the foregoing shall not limit a Member's rights to
seek arbitration of the obligations of the other Members and the Company
hereunder.
3.4 Interests in a Member. Notwithstanding the foregoing, without the prior
express written consent of each other Member, no Member shall Dispose of all or
any part of its Membership Interest in such a manner that, after the
Disposition, (i) the Company would be considered to have terminated within the
meaning of Section 708 of the Code if such termination would result in material
adverse tax consequences to the non-transferring Members or (ii) the Company
would become an association taxable as a corporation for federal income tax
purposes.
3.5 Liability to Third Parties. No Member shall have any personal
obligation for any liabilities of the Company, whether such liabilities arise in
contract, tort or otherwise, except to the extent that any such liabilities are
expressly assumed in writing by such Member; provided, however, that nothing in
this Section 3.5 shall be construed as an agreement by the Company to indemnify
or hold harmless any Member.
ARTICLE 4
CAPITAL CONTRIBUTIONS
4.1 Initial Capital Contributions. Contemporaneously with the execution
hereof, (a) each Member shall make the Cash Capital Contribution set forth
opposite such Member's name on Schedule 1 (the "Initial Capital Contribution")
(to the extent not previously paid to the Company) and (b) each of RCN-Sub and
BecoCom shall contribute the RCN Contributed Assets and the BecoCom Contributed
Assets, respectively, to the Company and shall receive a credit to the amount of
its Initial Capital Contribution in the amount set forth on Schedule 1.
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4.2 Additional Capital Calls.
(a) Each Member shall be required to make payment when due, in proportion
to its respective Investment Percentage, of all of its share of the Capital
Calls set forth in the then annual Budget, as such may be amended from time to
time.
(b) In addition, subject to the limitations set forth in Section 7.8
hereof, upon 30 days prior written notice to the Members the Company may, from
time to time, issue Capital Calls, requiring the Members to make additional
contributions of capital to the Company in proportion to their respective
Investment Percentages. Capital Calls specifically referred to in any annual
Budget may be made by the chief executive officer of the Company.
4.3 Failure to Pay a Capital Call.
(a) If any Member fails to make payment when due of all or any portion of
its share of a Capital Call (a "Delinquent Member"), the secretary of the
Company shall give written notice of the failure to such Delinquent Member, with
a copy to all other Members. If the Delinquent Member fails to pay the amount
due within 10 days following receipt of notice, the secretary shall promptly
give notice of such failure to the other Members. At any time within 15 days
following receipt of such notice, then, unless the Members other than the
Delinquent Member ("Nondelinquent Members") elect to make capital contributions
in accordance with Section 4.3(b) hereof, (i) the amount contributed by each
Nondelinquent Member pursuant to the Capital Call shall be treated as a loan to
the Company for a term to be specified by such Nondelinquent Member, bearing
interest payable quarterly at the Default Interest Rate and (ii) each
Nondelinquent Member may make an additional loan to the Company for a term to be
specified by such Nondelinquent Member, also bearing interest payable quarterly
at the Default Interest Rate, in an amount equal to all or any portion of the
unpaid contribution. If two or more Members desire to provide funds under clause
(ii) of the preceding sentence, the total amount of funds provided shall be
allocated among such Members in the same proportion as such Members' then
current Sharing Ratios bear to each other or in such other manner as they may
agree.
(b) If a Nondelinquent Member so elects, then in lieu of making loans to
the Company in accordance with Section 4.3(a) hereof, (A) the amount contributed
by such Nondelinquent Member pursuant to the Capital Call shall be treated as a
contribution to the capital of the Company in exchange for an additional
interest in the Company and (B) each Nondelinquent Member may make an additional
contribution of capital to the Company in exchange for an additional interest in
the Company in an amount equal to all or any portion of the unpaid contribution.
If two or more Members desire to make capital contributions under clause (B) of
the preceding sentence, the total amount of capital to be contributed shall be
allocated among such Members in the same proportion as such Members' then
current Investment Percentages bear to each other or in such other manner as
they may agree.
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(c) The amounts contributed pursuant to Section 4.3(b) hereof shall
increase the Capital Accounts of the contributing Members in accordance with the
terms of this Agreement. In addition, the Sharing Ratios and Investment
Percentages shall be recalculated (and such recalculated Sharing Ratios and
Investment Percentages shall thereafter apply for all purposes of this
Agreement) such that the Sharing Ratios and Investment Percentages of each
Member shall equal the ratio of its specified Capital Account to the aggregate
specified Capital Account of all of the Members, adjusted, in the case of
Sharing Ratios, to reflect any conversion pursuant to the Exchange Agreement.
(d) Notwithstanding any other provision of this Agreement, if a Person's
Capital Account ever equals $1 and such Person fails to make payment to the
Company of its entire share of the Company's next Capital Call, then such
Person's Investment Percentage and Sharing Ratio shall each equal zero %; upon
the payment of $1 to such Person, such Person's Membership Interest and all
rights hereunder shall be extinguished.
4.4 Return of Contributions. A Member is not entitled to the return of any
part of its Capital Contributions or to be paid interest in respect of either
its Capital Account or its Capital Contributions. An unrepaid Capital
Contribution is not a liability of the Company or of the other Members. A Member
is not required to contribute or to lend any cash or property to the Company to
enable the Company to return the other Members' Capital Contributions.
ARTICLE 5
INTENTIONALLY DELETED
ARTICLE 6
MEMBER ACCOUNTS; ALLOCATIONS OF PROFIT AND LOSS; DISTRIBUTlONS
6.1 Capital Accounts.
(a) A Capital Account shall be established and maintained for each Member
in accordance with the rules of Section 1.704-1(b)(2)(iv) of the Regulations.
Such Capital Account shall be increased by (i) the amount of cash and the Net
Agreed Value of all property transferred to the Company as Capital Contributions
with respect to such Member's Interest pursuant to this Agreement and (ii) the
amount of Net Income allocated to the Member pursuant to Article 6 hereof, and
decreased by (iii) the amount of cash and the Net Agreed Value of all actual and
deemed distributions of cash or property made with respect to such Interest
pursuant to this Agreement and (iv) the amount of Net Loss allocated to the
Member pursuant to Article 6 hereof.
(b) A transferee of a Membership Interest shall succeed to a pro rata
portion of the Capital Account of the transferor relating to the Membership
Interest so transferred;
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provided, however, that, if the transfer causes a termination of the Company
under Section 708(6)(1)(8) of the Code, the rules under the Regulations
promulgated under Section 708 of the Code shall govern the treatment of the
Company and the Members upon a termination of the Company pursuant to Section
708 of the Code.
(c) Capital Accounts shall be adjusted, in a manner consistent with this
Section 6.1, to reflect any adjustments in items of the Company's income, gain,
loss or deduction that result from amended returns filed by the Company or
pursuant to an agreement by the Company with the Internal Revenue Service or a
final court decision.
6.2 Allocations for Capital Account and Tax Purposes.
(a) Net Income and Net Loses. After giving effect to the special
allocations set forth in Section 6.2(b), Net Income and Net Loss for each
taxable period shall be allocated as set forth below.
(i) Net Income shall be allocated between the Members in the following
manner:
(A) First, to each Member having a deficit balance in its Capital
Account, in the proportion that such deficit balance bears to the
total deficit balances in the Capital Accounts of all Members, until
each such Member has been allocated Net Income equal to any such
deficit balance in its Capital Account;
(B) Second, to the Members previously allocated Net Loss under
Section 6.2(a)(ii)(A) pro rata to the extent of such Net Loss
previously allocated and not otherwise previously recouped under
Section 6.2(a)(i)(A) or this Section 6.2(a)(i)(B);
(C) Third, to the Members in accordance with their respective
Sharing Ratios.
(ii) Net Loss shall be allocated to the Members in the following
manner:
(A) First, to the Members in proportion to, and to the extent of,
the positive balances in their respective Capital Accounts; and
(B) Second, the balance, if any, to the Members in accordance
with their respective Sharing Ratios.
(b) Special Allocations. Notwithstanding any other provision of this
Section 6.2, the following special allocations shall be made in the following
order:
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(i) Company's Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 6.2, if there is a net decrease in Minimum Gain
attributable to Company's Nonrecourse Liabilities during any Company
taxable period, each Member shall be allocated items of Company income and
gain for such period (and, if necessary, subsequent periods) in the manner
and amounts provided in Sections 1.704-2(f)(1) and (6), 1.704-2(g)(2) and
1.704-1(j)(2)(i) of the Regulations, or any successor provisions. For
purposes of this Section 6.2(b), each Member's Capital Account balance
shall be determined, and the allocation of income or gain required
hereunder shall be effected, prior to the application of any other
allocations pursuant to this Section 6.2(b) with respect to such taxable
period (other than allocations pursuant to Sections 6.2(b)(v) and
6.2(b)(vi)). This Section 6.2(b)(i) is intended to comply with the
"partnership minimum gain chargeback" requirement in Section 1.704-2(0 of
the Regulations and shall be interpreted consistently therewith.
(ii) Chargeback of Member Nonrecourse Debt Minimum Gain.
Notwithstanding the other provisions of this Section 6.2 (other than
Section 6.2(b)(i)), except as provided in Section 1.704-2(i)(4) of the
Regulations, if there is a net decrease in Minimum Gain attributable to
Member Nonrecourse Debt during any Company taxable period, any Member with
a share of Minimum Gain attributable to such Member Nonrecourse Debt at the
beginning of such taxable period shall be allocated items of Company income
and gain for such period (and, if necessary, subsequent periods) in the
manner and amounts provided in Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii)
of the Regulations, or any successor provisions. For purposes of this
Section 6.2(b)(ii), each Member's Capital Account balance shall be
determined, and the allocation of income or gain required hereunder shall
be effected, prior to the application of any other allocations pursuant to
this Section 6.2(b), other than Sections 6.2(b)(i), 6.2(b)(v) and
6.2(b)(vi), with respect to such taxable period. This Section 6.2(b)(ii) is
intended to comply with the chargeback of items of income and gain
requirement in Section 1.704-2(i)(4) of the Regulations and shall be
interpreted consistently therewith.
(iii) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations or distributions described in
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Company income and
gain shall be specially allocated to such Member in an amount and manner
sufficient to eliminate, to the extent required by the Regulations
promulgated under Section 704(b) of the Code, its Adjusted Capital Account
Deficit created by such adjustments, allocations or distributions as
quickly as possible unless such deficit balance is otherwise eliminated
pursuant to Section 6.2(b)(i) or (ii).
(iv) Gross Income Allocations. In the event any Member has a deficit
balance in its Capital Account at the end of any Company taxable period in
excess of the amount such Member is deemed to be obligated to restore
pursuant to the penultimate sentences of Regulations Section l.704-2(g)(1)
and Section 1.704-2(i)(5), such Member shall be specially allocated items
of Company gross income and gain in the amount of
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such excess as quickly as possible; provided, that an allocation pursuant
to this Section 6.2(b)(iv) shall be made only if and to the extent that
such Member would have a deficit balance in its Capital Account after all
other allocations provided for in this Section 6.2(b) have been
tentatively made as if this Section 6.2(b)(iv) were not in this Agreement.
(v) Company Nonrecourse Deductions. Company Nonrecourse Deductions for
any taxable period shall be allocated to the Members in accordance with
their respective Sharing Ratios. If the Members determine in their good
faith discretion that the Company's Nonrecourse Deductions must be
allocated in a different ratio to satisfy the safe harbor requirements of
the Regulations promulgated under Section 704(b) of the Code, the Members
are authorized to revise the prescribed ratio to the numerically closest
ratio that does satisfy such requirements.
(vi) Member Nonrecourse Deductions.. Member Nonrecourse Deductions for
any taxable period shall be allocated 100% to the Member that bears the
Economic Risk of Loss with respect to the Member Nonrecourse Debt to which
such Member Nonrecourse Deductions are attributable in accordance with
Section 1.704-2(i) of the Regulations. If more than one Member bears the
Economic Risk of Loss with respect to a Member Nonrecourse Debt, such
Member Nonrecourse Deductions attributable thereto shall be allocated
between or among such Members in accordance with the ratios in which they
share such Economic Risk of Loss.
(vii) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Section 734(b) or
743(b) of the Code is required, pursuant to Section 1.704-1(b)(2))(iv)(m)
of the Regulations, to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the
asset), or loss (if the adjustment decreases such basis), and such item of
gain or loss shall be specially allocated to the Members in a manner
consistent with the manner in which their Capital Accounts are required to
be adjusted pursuant to such Section of the Regulations.
(viii) Any special allocations of items of income or gain pursuant to
Section 6.2(b)(iii) or (iv) shall be taken into account in computing
subsequent allocations pursuant to Section 6.2(a) so that, for each Member,
the net amount of any such special allocations and all allocations pursuant
to Section 6.2(a) shall, to the extent possible, be equal to the net amount
that would have been allocated to such Member pursuant to the provisions of
Section 6.2(a) without application of Section 6.2(b)(iii) or (iv).
(c) Special Rules.
(i) It is intended that (a) the Capital Accounts be maintained at all
times in accordance with Section 704 of the Code and applicable
Regulations, (b) the
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Capital Accounts be increased or decreased by any items required by the
Regulations under Section 704(b) of the Code to increase or decrease,
respectively, a Member's Capital Account, and (c) the provisions hereof
relating to the Capital Accounts be interpreted in a manner consistent
therewith. The Members shall be authorized to make appropriate amendments
to the allocations of items pursuant to this Section 6.2 if necessary in
order to comply with Section 704 of the Code or applicable Regulations
thereunder.
(ii) All items of income, gain, loss, depreciation, amortization and
cost recovery deductible in respect of Contributed Property for federal
income tax purposes shall be allocated among the Members in the manner
provided under Section 704(c) of the Code that takes into account the
variation between the Agreed Value of such property and its adjusted tax
basis at the time of contribution. In the event that the Carrying Value of
any Company asset is adjusted pursuant to paragraph (b) of the definition
of Carrying Value hereof, subsequent allocations of income, gain, loss and
deduction with respect to such asset shall take account any variation
between the adjusted tax basis of such asset and its Carrying Value in the
same manner as under Section 704(c) of the Code and the Regulations
thereunder.
(iii) Company Nonrecourse Liabilities. For purposes of Section
l.752-3(a)(3) of the Regulations, the Members agree that Company
Nonrecourse Liabilities in excess of the sum of (A) the amount of Minimum
Gain attributable to Company Nonrecourse Liabilities and (B) the total
amount of taxable gain, if any, that would be allocated to the Members
under Section 704(c) of the Code if the Company were to dispose of all
Company assets (in a taxable transaction) subject to one or more Company
Nonrecourse Liabilities in full satisfaction thereof shall be allocated
among the Members in accordance with their respective Sharing Ratios.
ARTICLE 7
MANAGEMENT
7.1 Management by the Members. The business and affairs of the Company
shall be managed by the Members, subject to the binding effect of the Management
Agreement. The Members shall delegate authority to such officers, employees,
agents and/or representatives of the Company as they may from time to time deem
appropriate; provided, however, that for as long as the Investment Percentage of
BecoCom is at least 33 1/3%, BecoCom shall be entitled to (i) appoint a
qualified individual to serve as the Company's chief financial officer; and (ii)
appoint one full-time staff member serving the Company in an operational
capacity. Notwithstanding the immediately preceding sentence, in the event
RCN-Sub or an Affiliate of RCN-Sub is not the manager under the Management
Agreement, and for so long as the Sharing Ratio of RCN-Sub is at least 33 1/3%,
RCN-Sub shall be entitled to (A) appoint a qualified individual to serve as a
senior executive officer of the Company; and (B) appoint one full-time staff
member serving the Company in an operational capacity. Any delegation of
authority to
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take any action must be approved in the same manner as would be required for the
Members to directly approve such action. No Member shall take any action in the
name of or on behalf of the Company, including without limitation assuming any
obligation or responsibility on behalf of the Company, unless such action, and
the taking thereof by such Member, shall have been expressly authorized by the
Members or shall be expressly and specifically authorized by this Agreement.
7.2 Representatives. The Members shall designate an aggregate of five
representatives (each, a "Representative"), pro rata in accordance with their
respective Investment Percentages rounded to the nearest whole number (initially
three Representatives appointed by RCN-Sub and two Representatives appointed by
BecoCom), to take any action required to be taken by Members hereunder and to
serve as an operating committee. Such appointment shall be effected by written
notice given to the Company and to each of the other Members. In the event any
Member appoints more than one Representative, each other Member may rely on the
action of any Representative as constituting the actions of its Member. Each
such representative shall be an officer or employee or former employee of a
Member or an Affiliate thereof.
7.3 Place of Meeting of Representatives. The Representatives may hold their
meetings at such place or places within or outside the Commonwealth of
Massachusetts as the Members holding Investment Percentages aggregating at least
66 2/3% may from time to time determine or as may be designated in the notice
calling the meeting. If a meeting place is not so designated, the meeting shall
be held at the Company's principal office. Representatives may participate by
means of a conference telephone or similar communications equipment by means of
which all persons participating can hear each other, and such participation
shall constitute presence in person at the meeting.
7.4 Regular Meetings of Representatives. Regular meetings of the
Representatives may be held without notice at such time and place as shall be
designated from time to time by resolution of Members holding Investment
Percentages aggregating at least 66 2/3%, but such meetings shall be held at
least monthly through December 1998 unless otherwise specified by the Members.
If the date fixed for any such regular meeting is a Saturday, Sunday or legal
holiday under the laws of the state where such meeting is to be held, then the
meeting shall be held on the next succeeding business day or at such other time
as may be determined by resolution of Members holding Investment Percentages
aggregating at least 66 2/3%. At such meetings the Representatives shall
transact such business as may properly be brought before the meeting.
7.5 Special Meetings of Representatives. Special meetings of the
Representatives may be called by any Member or by the chief executive officer of
the Company. Notice of each such meeting shall be given to each Representative
by telephone, telecopy, telegram or similar method (in which case notice shall
be given at least three days before the time of the meeting) or sent by
first-class mail (in which case notice shall be given at least three days before
the meeting), unless otherwise specified by the Representatives. Each such
notice shall state the time, place and purpose of the meeting to be so held.
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7.6 Representative Compensation; Reimbursement. Representatives shall
receive no compensation for performing their duties under this Agreement;
provided, however, that one Representative of each of the Members shall be
entitled to receive, out of Company funds available therefor, reimbursement of
all amounts expended by such Representative in payment of reasonable expenses
incurred by such Representative in attending meetings of the Representatives.
7.7 Manner of Acting and Adjournment of Members. Any action of the Members
shall require the affirmative vote (in person, by proxy or by written consent)
by the Representatives of Members holding a majority of the Investment
Percentages of all Members, unless otherwise required in this Agreement.
7.8 Fundamental Business Actions. Notwithstanding anything to the contrary
set forth in this Agreement, for as long as BecoCom's Investment Percentage is
at least 33 1/4% the actions set forth below ("Fundamental Business Actions")
may not .be taken by the Company without the affirmative vote or consent of
Members holding Investment Percentages aggregating at least 66 2/3%; Fundamental
Business Actions shall be categorized as follows:
(a) Category A Fundamental Business Actions ("Category A Fundamental
Business Actions") shall mean:
(i) a merger, consolidation or reorganization of the Company or a
disposition of substantially all of its assets;
(ii) the issuance by the Company of any equity or equity-like
instruments including effecting an initial public offering of equity
securities;
(iii) voluntary liquidation, dissolution or winding-up of the Company,
except as specifically provided in Section 12.1, or voluntary initiation by
and with respect to the Company of bankruptcy or similar proceedings;
(iv) amendments to the Company's Certificate of Organization, this
Agreement, or any of the Basic Agreements,
(v) expansion of the operations of the Company beyond the Services; or
(vi) any acquisition of any other business which has a purchase price
of $1,000,000 or more.
(b) Category B Fundamental Business Actions ("Category B Fundamental
Business Actions") shall mean:
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(i) individual capital expenditures in excess of 25% of the amount set
forth for such capital expenditures in the Budget during any fiscal year;
(ii) capital commitments in aggregate in excess of 25% of the amount
set forth in the Budget during any fiscal year;
(iii) transactions with Affiliates in excess of $50,000 singularly or
$500,000 in the aggregate in any fiscal year (except as set forth in the
Basic Agreements);
(iv) incurrence of Company Debt in excess of $5,000,000 in the
aggregate;
(v) guarantees made by the Company involving matters in excess
$5,000,000 of in the aggregate;
(vi) annual expenditures that exceed the amount set forth in the
Budget by more than 33% during any fiscal year;
(vii) appointment of and any change in the auditors of the Company;
(viii) the granting of any lien to secure any debt to any Member or
any Affiliate of a Member; or
(ix) except as otherwise provided in Section 12.2, any distribution of
cash or other assets to the Members.
(c) Upon the occurrence of a dispute of any matter under this Section 7.8,
the Members shall first use their good faith efforts to resolve such matter in a
mutually satisfactory manner. If, after seven days from the date on which any
Member notifies the other Members that a dispute exists, the Members cannot
reach a mutually satisfactory solution, the Members shall resolve such matter as
provided herein:
(i) Each Member shall immediately refer the matter to its chief
executive officer for resolution of the matter.
(ii) Should the chief executive officers of the respective Members
fail to resolve the matter within 20 days from such referral, the matter
shall be considered a deadlock event (a "Deadlock Event"), and shall be
resolved in accordance with the provisions of paragraphs (d) or (e) below,
as the case may be.
(d) In the event of any Deadlock Event arising from a Category A
Fundamental Business Action, the parties agree that such Deadlock Event will not
be referred to any court but that one or more Members shall purchase the entire
Membership Interest of the
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other Member (not including Exchange Securities held by such Member or its
Affiliates) in accordance with the provisions of this Section 7.8(d).
(i) Any Member (the "Disputing Member") may submit a notice (a
"Dispute Notice") to the other Members (the "Other Members") within 60 days
of the date the matter becomes a Deadlock Event. The Dispute Notice shall
set forth, in reasonable detail, the nature of the dispute and the price
(the "Dispute Price") at which the Disputing Member is willing to either
sell its Membership Interest to the Other Members or purchase all
Membership Interests from the Other Members.
(ii) The Dispute Price shall be determined by selecting a price for
the entire Company, and pro-rating such price by the Sharing Ratio of the
Membership Interest to be purchased or sold.
(iii) Within 30 days after the Other Members' receipt of the Dispute
Notice, the Other Members will signify in writing their election, whether
to buy the Disputing Member's Membership Interest at the Dispute Price or
to sell their Membership Interest at the Dispute Price, if the Other
Members fail to make such election within such 30 day period, the Disputing
Member may, within 15 days thereafter, elect to buy the Other Members'
Membership Interests.
(iv) Each Member agrees to execute and deliver all deeds, assignments,
releases, agreements, receipts or other documents necessary to consummate
the transfer of the Membership Interests being sold and delivered upon
payment by the purchasing Member of the consideration provided for in the
Dispute Notice.
(v) The closing of the purchase and sale pursuant to this Section
7.8(d) shall occur no later than 30 days following the receipt of the
election by the Disputing Member or the Other Members, as the case may be.
(e) In the event of any Deadlock Event arising from a Category B
Fundamental Business Action or pursuant to Section 7.10(d), the parties agree
that such Deadlock Event will not be referred to any court but will be referred
to binding arbitration, and the provisions of this Section 7.8(e) shall apply.
(i) The arbitration shall be governed by the AAA Commercial
Arbitration Rules (the "Rules"), as modified by this Section 7.8(e), and by
the United States Arbitration Act, 9 U.S.C. ss.ss. 1 et seq. (the
"Arbitration Act"). Any conflict between the Rules and the Arbitration Act
shall be decided in favor of the Rules. The Member wishing to submit such
matter to arbitration shall, within seven days of the date the matter in
dispute becomes a Deadlock Event, give written notice (the "Notice") to the
other Member (the "Respondent") of its intention to arbitrate. The place of
the arbitration shall be Boston, Massachusetts. The arbitration shall be
conducted, and the final resolution of the Deadlock Event (the "Award")
shall be rendered by one arbitrator (the
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"Arbitrator") to be mutually selected by the Members. If the Members cannot
agree to a mutually acceptable Arbitrator within seven days of Respondent's
receipt of the Notice, the Arbitrator shall be selected in accordance with
rule 13 of the Rules.
(ii) All hearings shall be held within 30 days following the
appointment of the Arbitrator. At a time designated by the Arbitrator, each
party shall simultaneously submit to the Arbitrator and exchange with each
other its final proposed Award, and in rendering the final Award, the
Arbitrator shall be limited to choosing the Award proposed by either of the
parties without modification. The Arbitrator shall issue the final Award no
later than 15 days from the completion of the hearings. The Award of the
Arbitrator shall be final and binding. Judgment on any Award may be entered
in any court having jurisdiction thereof.
(iii) To the extent that the parties are permitted under this Section
7.8(e) to pursue judicial remedy in aid of arbitration, each party consents
and submits to the non-exclusive jurisdiction of and venue in the federal
courts located in Boston, Massachusetts (or, in case such a federal court
does not have jurisdiction, the state courts located in Boston,
Massachusetts). Each party consents to service of the notice of
arbitration, and any other paper in the arbitration, by registered mail or
personal delivery at its address specified in Section 13.3 hereof. Nothing
in this subsection (iii) shall limit the jurisdiction of other courts for
purposes of enforcement of a final arbitral Award.
(iv) The fact that any party has invoked the provisions of this
Section 7.8(e) shall be considered to be confidential information under
Section 13.9 of this Agreement and shall not relieve either party of any
obligations it may otherwise have to continue performance in accordance
with the provisions of this Agreement.
(v) This agreement to arbitrate a Deadlock Event in accordance with
this Section 7.8(e) and any Award made hereunder shall be binding upon the
successors and assigns and any trustee or receiver of each Member.
7.9 Indemnification.
(a) Subject to paragraph (c) below, the Company shall indemnify, defend and
hold harmless any Person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or on behalf of a Member), by reason of the fact that he is or was a
Representative or officer of the Company, or is or was an officer of the Company
serving at the request of the Company as a manager, director, officer, employee
or agent of another Entity against expenses (includiing reasonable attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
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termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the Person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) Subject to paragraph (c) below, the Company shall indemnify any Person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by or on behalf of a Member to
procure a judgment in its favor by reason of the fact that he is or was a
Representative or officer of the Company, or is or was an officer of the Company
serving at the request of the Company as a manager, director, officer, employee
or agent of another Entity against expenses (including reasonable attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
(c) Any indemnification under this Section 7.9 (unless ordered by a court)
shall be made by the Company only as authorized in the specific case upon a
determination that indemnification of the Representative or officer is proper in
the circumstances because he has met the applicable standard of conduct set
forth in paragraphs (a) or (b) above. Such determination shall be made (i) by a
majority vote of the disinterested Members, or (ii) if the Members so direct, by
independent legal counsel in a written opinion. Notwithstanding the foregoing,
to the extent, however, that a Representative or officer of the Company has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including reasonable attorneys' fees)
actually and reasonably incurred by him in connection therewith, without the
necessity of authorization in the specific case.
(d) For purposes of any determination under this Section 7.9, a person
shall be deemed to have acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company, or, with
respect to any criminal action or proceeding, to have had no reasonable cause to
believe his conduct was unlawful, if his action is based on the records or books
of account of the Company or another enterprise, or on information supplied to
him by the officers of the Company or another enterprise in the course of their
duties, or on the advice of legal counsel for the Company or another enterprise
or on information or records given or reports made to the Company or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Company or another enterprise.
The term "another enterprise" as used in this
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paragraph (d) shall mean any Entity which such person is or was serving at the
request of the Company.
(e) Notwithstanding the foregoing, any Representative or officer may apply
to any court of competent jurisdiction in the Commonwealth of Massachusetts for
indemnification to the extent otherwise permissible under paragraphs (a) and (b)
above by reason of the fact that he has met the applicable standard of conduct.
If successful, in whole or in part, the Representative or officer seeking
indemnification shall also be entitled to be paid the expense of prosecuting
such application.
(f) Expenses incurred by a Representative or officer in defending or
investigating a threatened or pending action, suit or proceeding shall be paid
by the Company in advance of the final disposition thereof upon receipt of an
undertaking to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Company as authorized in this Section 7.9.
(g) The indemnification and advancement of expenses in this Section 7.9
shall not be deemed exclusive of any other rights which may apply, it being the
policy of the Company that indemnification of the persons specified in
paragraphs (a) and (b) above shall be made to the fullest extent permitted by
law. The provisions of this Section 7.9 shall not preclude the indemnification
of any person who is not specified herein but whom the Company has the power or
obligation to indemnify under the Act, or otherwise.
(h) The Company may purchase and maintain insurance on behalf of the
persons specified in Section 7.9(a) against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Company would have the power or the obligation to indemnify
him under this Section 7.9.
(i) The indemnification and advancement of expenses provided by this
Section 7.9 shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a Representative or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
(j) Except for proceedings to enforce rights to indemnification (which
shall be governed by paragraph (e) above). the Company shall not be obligated to
indemnify any Representative or officer in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or part thereof) was
authorized or consented to by the Members.
7.10 Business Plan; Budget. (a) All of the Members have adopted an initial
one-year business plan for the Company and shall cause to be prepared annual
business plan for each succeeding year. Each business plan shall include (i) an
operating budget, (ii) a budget for capital expenditures, (iii) a budget for
capital contributions required from the Members (collectively, the "Budget"),
(iv) sales and marketing plan, (v) financial pro forma balance sheet, income
statement and statement of cash flows, and (vi) performance milestones
(collectively, a
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"Business Plan"). Once approved as provided in this Section 7.10, the Budget may
not be revised without the approval of Members with Investment Percentages
aggregating at least 66 2/3%. The methodology for allocation of overhead in each
Business Plan shall be that utilized in the initial one-year Business Plan,
unless an alternative allocation method shall be agreed to by the Members with
Investment Percentages aggregating at least 66 2/3%.
(b) Each Budget shall set forth the operations of the Company (including
provision for employee incentive compensation, employee benefits and
compensation pursuant to the Management Agreement) between January 1 to December
31 of the applicable year and shall be prepared by the manager (the "Manager")
of the Company (pursuant to the terms of the Management Agreement). A
preliminary budget shall be delivered to the Members by the Manager no later
than October 15 of the previous year. The Manager shall consult with Members, as
it deems appropriate, in the process of preparing such preliminary budget. Each
Member shall thereafter have 30 days to review the preliminary budget and to
propose revisions. The Manager and each Member shall then have an additional 30
days to resolve any differences in and to finalize the Budget. If, after such
additional 30 day period, any Member continues to object to any line item of
such preliminary budget, such Member may deliver written notice (the "Budget
Dispute Notice") to the Manager, specifying in reasonable detail its objections.
Any Member who does not submit a Budget Dispute Notice within the given time
shall be deemed to have accepted the preliminary budget in its entirety, which
then shall become the Budget.
(c) If a Member submits a Budget Dispute Notice, the matter shall be
referred to the chief executive officers of the respective Members for
resolution.
(d) Should the chief executive officers of the respective Members fail to
resolve the matter within 20 days after such referral, the matter shall be
considered a Deadlock Event, to be resolved in accordance with the provisions
set forth in Section 7.8(e). Pending the resolution of such Deadlock Event, (i)
all line items not in dispute in the preliminary budget shall take effect and
(ii) (a) with respect to the 1998 and 1999 Budgets, the amount budgeted in the
previous year will be in effect, as if restated in the new Budget, for those
line items in dispute and (b) thereafter, the actual amounts spent on the
disputed line items in the previous year will be in effect, as if restated in
the new Budget, for those line items in dispute.
(e) At such time as all disputes on the preliminary budget have been
resolved, the preliminary budget as so resolved shall become the Budget.
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ARTICLE 8
RIGHTS OF MEMBERS
8.1 Access to Information. In addition to the other rights specifically set
forth in this Agreement, each Member shall have access to all information to
which a Member is entitled to have access pursuant to the Act and such other
information regarding the Company and its business and affairs, as it may
reasonably request from time to time.
8.2 Audits. Each Member shall have the right to conduct, or cause to be
conducted, from time to time, but in any case no more than once in any calendar
year, an audit of the books and records of the Company. Such audit shall be
conducted during normal business hours in a manner so as not to disrupt the
normal business operations of the Company. The Member conducting, or causing to
be conducted, the audit shall bear the entire expense of the audit.
ARTICLE 9
TAXES
9.1 Tax Returns. The Tax Matters Partner shall cause to be prepared and
filed all necessary federal and state income tax returns for the Company,
including making the elections described in Section 9.2. Each other Member shall
furnish to the Tax Matters Partner all pertinent information in its possession
relating to Company operations that is necessary to enable the Company's income
tax returns to be prepared and filed. The Tax Matters Partner shall prepare all
federal and state tax returns on a timely basis and shall furnish to each other
Member copies of returns that are actually filed promptly after their filing.
9.2 Tax Elections. The Company shall make such elections on tax returns as
are deemed appropriate by the Tax Matters Partner. It is the intent of the
Members that the Company be treated as a partnership for federal income tax
purposes and, to the extent permitted by applicable law, for state and local
franchise and income tax purposes, and the Company will make any election to
achieve that status. Neither the Company nor any Member may make an election for
the Company to be excluded from the application of the provisions of subchapter
K of chapter 1 of subtitle A of the Code or any similar provisions of applicable
state or local law, and no provision of this Agreement (including, without
limitation, Section 2.8) shall be construed to sanction or approve such an
election.
9.3 Tax Matters Partner. The Tax Matters Partner shall take such action as
may be necessary to cause each other Member to become a "notice partner" within
the meaning of Section 6223 of the Code. The Tax Matters Partner shall inform
each other Member of all significant matters that may come to its attention in
its capacity as tax matters partner by giving notice thereof on or before the
fifth Business Day after becoming aware thereof and, within that time, shall
forward to each other Member copies of all significant written communications it
may receive in that capacity. The Tax Matters Partner may take any action
contemplated by Sections 6222 through 6232 of the Code without the consent of
each other Member, but this sentence
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does not authorize the Tax Matters Partner to take any action left to the
determination of an individual Member under Sections 6222 through 6232 of the
Code.
ARTICLE 10
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
10.1 Accounting. Except as may be otherwise agreed to by Members holding
Investment Percentages aggregating at least 66 2/3%, the Company will maintain
books and records for tax purposes in accordance with federal income tax
accounting principles utilizing the accrual method of accounting, and for
accounting purposes in accordance with GAAP. In addition, the Company shall
cause to be prepared with respect to each fiscal year of the Company financial
statements based on GAAP. Appropriate records will be kept so that upon each
closing of the Company books it is possible to determine, among other items
defined in this Agreement, (i) the amount of capital (whether in cash or as a
Contributed Asset) actually contributed by each Member; (ii) the amount of cash
or other property distributed to each Member; (iii) the effect of all Company
items of profit, loss, income, gain, loss, deduction or credit on each Member's
Capital Account; and (iv) all pertinent expenses and cash disbursement accounts.
10.2 FIscal Year. Except as may be otherwise determined by Members holding
Investment Percentages aggregating at least 66 2/3%, the fiscal year of the
Company shall be the twelve months ending December 31 of each year.
Notwithstanding the foregoing, the taxable year of the Company shall be
determined in accordance with Code Section 706(b).
10.3 Statements and Reports. Except as may be otherwise determined by
Members holding Investment Percentages aggregating at least 66 2/3%, as soon as
practicable, but in no event later than 90 days after the close of each fiscal
year of the Company, the Company will cause to be prepared and will have
furnished to each of the Members, with respect to such period, (i) a profit and
loss statement, (ii) a statement of cash flows, (iii) a Company balance sheet as
of the close of such period, and (iv) such other statements showing in
reasonable detail each Member's interest in each of the items described in
Section 10.1. The foregoing statements will be prepared in accordance with GAAP,
consistently applied, and audited by an independent certified public accounting
firm of national reputation which shall be designated by Members holding
Investment Percentages aggregating at least 66 2/3%, and the cost of preparing
the statements and of each such audit will be paid for by the Company. In
addition, (i) unaudited quarterly financial reports and updates with respect to
the Company's business shall be prepared and furnished to each Member as soon as
practicable after the end of each fiscal quarter, but in no event later than 45
days following the close of each fiscal quarter and (ii) unaudited monthly
internal reports and updates with respect to the Company's business shall be
prepared and furnished to each Member as soon as practicable after the end of
each calendar month, but in no event later than 20 days following the last day
of each month.
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10.4 Inspection. The Company shall maintain or cause to be maintained
complete and accurate books and records with respect to its business. All books
of account and all other records of the Company including an executed
counterpart of this Agreement and all amendments hereto will at all times be
kept at the Company's principal place of business. Any Member and its
representatives may inspect the books and records of the Company. The Company
shall provide, during regular business hours, access to the facilities, systems
and books and records of the Company to the extent reasonably necessary for such
inspection. Whenever any such inspection is conducted by any Member and its
representatives, such Member shall advise the other Members and permit the other
Members and their representatives to be present during such audit.
10.5 Bank Accounts. The Company shall maintain appropriate accounts at one
or more financial institutions for all funds of the Company. Such accounts shall
be used solely on the business of the Company. Withdrawal from such accounts
shall be made only upon the signature of those persons authorized by the
Members.
ARTICLE 11
WITHDRAWAL, EXPULSION, BANKRUPTCY, ETC.
11.1 Withdrawal. Each Member agrees that it will not resign or withdraw
from the Company without the consent of each other Member. If a Member attempts
or purports to resign or withdraw from the Company in breach of this Section
11.1, the other Members may (i) recover damages from such breaching Member,
including, without limitation, the reasonable cost of obtaining replacement of
the services that such breaching Member is obligated to perform (if any), (ii)
seek specific performance of such breaching Member's obligations to the Company
(and each Member hereby waives any defense that money damages would be a
satisfactory remedy for such breach), (iii) pursue any other remedies available
under applicable law, if any, and (iv) effect recovery of damages by offsetting
those damages against the amount otherwise distributable to such Member.
11.2 Bankrupt Members. This Section 11.2 shall apply if any Member becomes
a Bankrupt Member. In such event, the other Members (the "Purchasing Members"),
shall have the option (but not the obligation), exercisable by notice to the
Bankrupt Member (or its representative) at any time prior to the 90th day after
receipt of notice or obtaining actual knowledge of the occurrence of the event
causing such Member to become a Bankrupt Member, to buy or cause their designee
to buy, and on the exercise of this option the Bankrupt Member (or its
representative) shall sell, its Membership Interest (not including any Exchange
Securities held by the Bankrupt Member or its Affiliates). The purchase shall be
made by the Purchasing Members in proportion to their respective Percentage
Interests at the relevant time. The purchase price shall be an amount equal to
the fair market value of the Membership Interest determined by agreement by the
Bankrupt Member (or its representative) and the Purchasing Members; however, if
those Persons do not agree on the fair market value on or before the 30th day
following the exercise of the option, such fair market value shall be determined
by an
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independent appraiser mutually satisfactory to the Bankrupt Member and the
Purchasing Members (without any "controlling interest premium" if the Bankrupt
Member's Membership Interest has a Sharing Ratio of less than 66 2/3%, nor any
"minority interest discount" if the Bankrupt Member's Membership Interest has a
Sharing Ratio of greater than 33 1/3%. The Purchasing Members shall pay the fair
market value as so determined in four equal cash installments, the first due on
closing and the remainder (together with accumulated interest on the amount
unpaid at the General Interest Rate) due on each of the first three
anniversaries of the closing. The payment to be made to the Bankrupt Member or
its representative under this Section 11.2 is in complete liquidation and
satisfaction of all the rights and interest of the Bankrupt Member and its
representative (and of all Persons claiming by, through, or under the Bankrupt
Member and its representative) in and in respect of the Company, including,
without limitation, any Membership Interest, any rights in specific Company
property, any rights with respect to the management, control or operation of the
Company and any rights against the Company and (insofar as the affairs of the
Company are concerned) against the Members.
ARTICLE 12
TERMINATION, DISSOLUTION AND LIQUIDATION OF THE COMPANY
12.1 Termination and Dissolution.
Except as provided below in this Section 12.1, the Company shall terminate
and dissolve upon the earliest to happen of any of the following events:
(a) The expiration of its term;
(b) The Company shall have only one Member;
(c) A decision approved by Members holding Investment Percentages
aggregating at least 80% to dissolve the Company;
(d) The death, insanity, retirement, resignation, expulsion, bankruptcy or
dissolution of a Member;
(e) A sale of all or substantially all of the assets of the Company; or
(f) The happening of any other event, act or omission causing the
dissolution of the Company under the Act or any other laws of the
Commonwealth of Massachusetts.
The dissolution of the Company shall be effective on the day on which the
event occurs giving rise to the dissolution, unless (and only if and to the
extent permitted by the Act), Members holding Investment Percentages aggregating
at least 66 2/3% of the remaining Sharing Ratios elect to continue the Company
in the manner provided by the Act. Any necessary
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certificate of dissolution shall be filed under the Act upon the dissolution and
the commencement of winding up of the Company; provided, however, that the
Company shall not terminate until the assets of the Company have been
distributed as provided in Section 12.2.
12.2 Liquidation.
(a) As soon as practicable after the dissolution of the Company, the
Liquidator (as defined in Section 12.2(e)) shall notify Members of such fact and
shall prepare a plan as to whether and in what manner the assets of the Company
shall be liquidated.
(b) The Liquidator shall take full account of the Company's assets and
liabilities. The Company's assets shall be liquidated as promptly as is
consistent with obtaining the fair market value thereof and after the allocation
of Net Income or Net Loss in accordance with Article 6 above, the proceeds of
liquidation shall be applied and distributed in the following order and
priority:
(i) First, to secured creditors (including Members and their
Affiliates) in accordance with the priority of their security interests;
(ii) Next, to the payment of debts and liabilities of the Company to
general unsecured creditors;
(iii) Next, to the establishment of any reserves which are reasonably
necessary for contingent, unmatured, unliquidated, disputed, or unforeseen
liabilities and obligations of the Company;
(iv) Last, to the Members in proportion to the positive balances in
their respective Capital Accounts.
(c) The amount of any reserves established pursuant to Section 12.2(b)(iii)
above shall be determined with the approval of the Members who are, or may be,
liable for any liabilities or obligations of the Company for which such reserves
are being established. If any or all of the amount of the reserves are no longer
required by the Company and become available for distribution to the Members,
such amounts shall be distributed to the Members in accordance with Section
12.2(b)(iv) above.
(d) Distributions to Members pursuant to this Section 12.2 may be made
pursuant to a trust established for the benefit of the Members for the purpose
of liquidating the assets of the Company, collecting amounts owed to the
Company, and paying any contingent or unforeseen liabilities or obligations of
the Company. The assets of any such trust shall be distributed to the Members
from time to time, in the reasonable discretion of the Liquidator, in the same
proportions as would have applied pursuant to this Agreement to liquidating
distributions by the Company to the Members.
39
<PAGE>
(e) For the purposes of this Agreement, the "Liquidator" shall be appointed
by the Members from among their number; provided, however that if upon the
dissolution of the Company there is no Member willing or permitted to serve as
Liquidator, the trustee, receiver or other fiduciary who is appointed or is
otherwise authorized by consent of Members holding Investment Percentages
aggregating at least 66 2/3% to act on behalf of the Company in its dissolution,
winding up and liquidation, shall act as liquidator.
ARTICLE 13
GENERAL PROVISIONS
13.1 Representations. Each Member hereby represents and warrants to the
Company and each other Member that:
(a) If such Member is not a natural person, it is duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
and is duly qualified to conduct business in all jurisdictions where such
qualification is required.
(b) It has the power and authority (corporate or otherwise) to execute,
deliver and perform its obligations under this Agreement. Such execution,
delivery and performance have been duly authorized by all necessary action on
the part of such Member and do not and will not contravene the organizational
documents of such Member or conflict with, result in a breach of, or entitle any
party (with due notice or lapse of time or both) to terminate, accelerate or
call a default with respect to, any agreement or instrument to which such Member
is a party or by which such Member is bound. The execution, delivery and
performance by such Member of this Agreement will not result in any violation by
such Member of any law, rule or regulation applicable to such Member. Such
Member is not a party to, nor subject to or bound by, any judgment, injunction
or decree of any court or other Governmental Entity which may restrict or
interfere with the performance of this Agreement by such Member. This Agreement
is a valid and binding obligation of such Member enforceable against such Member
in accordance with its terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) the remedy
of specific performance and injunctive relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
(c) Except as set forth on Schedule 13.1(c), no consent, waiver, approval,
authorization or order of, or registration, qualification or filing with, any
court or other Governmental Entity is required for the execution, delivery and
performance by such Member of this Agreement and the consummation by such Member
of the transactions contemplated hereby. No consent or waiver of any party to
any contract to which such Member is a party or by which it is bound is required
for the execution, delivery and performance by such Member of this Agreement.
40
<PAGE>
(d) Such Member is acquiring the Membership Interest hereunder for its own
account for investment and not with a view to the distribution thereof, and such
Member shall not offer to sell or otherwise dispose of any of the Membership
Interests so acquired by it in violation of the registration requirements of the
Securities Act or applicable state securities laws. Such Member has such
knowledge and experience in financial, business and tax matters that such Member
is capable of evaluating the merits and risks relating to such Member's
Membership Interest and is capable of bearing the risk of loss of its entire
investment in the Company.
(e) There is no action, suit, grievance, arbitration or proceeding pending
or, to the knowledge of such Member, threatened against or affecting such Member
at law or in equity, before any federal, state, municipal or other governmental
court, department, commission, board, arbitrator, bureau, agency or
instrumentality which prohibits or impairs its ability to execute and deliver
this Agreement or the other Basic Agreements or to consummate any of the
transactions contemplated hereby or thereby. To the knowledge of such Member, it
has not received written notice of any pending or threatened investigation,
inquiry or review by any Governmental Entity.
(f) No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission, or to the reimbursement of any of its
expenses, in connection with the transactions contemplated by this Agreement
based upon arrangements made by it or on its behalf.
(g) Such Member has no obligation or agreement, either actual or
contingent, to share any portion of its interest in the Company with any Person.
(h) Such Member is not a Holding Company or otherwise subject to regulation
under PUHCA and the execution and delivery of the Basic Agreements do not cause
such Member to become a Holding Company or otherwise subject to PUHCA.
13.2 Additional Representations of RCN-Sub. RCN-Sub hereby represents and
warrants to the Company and BecoCom that:
(a) RCN-Sub has the full and unrestricted right and authority to contribute
the RCN Contributed Assets to the Company.
(b) RCN-Sub has marketable title to all of the RCN Contributed Assets, free
and clear of all liens and encumbrances of any nature. Notwithstanding the
foregoing, with respect to the RCN-Sub's interest as a lessee under any of the
premises and locations included in the RCN Contributed Assets, RCN-Sub has the
unrestricted right to assign such interests to the Company (or if the consent of
any lessor of any such premises is required to permit such assignment, such
consent has been obtained in writing on or prior to the date hereof).
(c) All items of equipment included in the RCN Contributed Assets,
including without limitation, the "Cable TV Headend" and the "Telephone Switch"
referenced on Schedule
41
<PAGE>
1 hereto, are (i) in good operating condition and order, reasonable wear and
tear excepted, (ii) are suitable to provide their intended functions and (iii)
comply in all material respects with all applicable laws, rules and regulations.
(d) All specifications and other technical information relating to all
items of equipment included in the RCN Contributed Assets, including, without
limitation, the "Cable TV Headend" and the "Telephone Switch" referenced on
Schedule 1 hereto, have been provided by RCN-Sub to BecoCom.
13.3 Offset. Whenever the Company is to pay any sum to any Member, any
amounts such Member owes the Company may be deducted from that sum before
payment.
13.4 Notices. All notices, request and other communication hereunder shall
be deemed to have been duly delivered, given or made to or upon any party hereto
if in writing and delivered by hand against receipt, or by certified or
registered mail, postage prepaid, return receipt requested, or to a courier who
guarantees next Business Day delivery or sent by telecopy (with confirmation) to
such party at its address set forth below or to such other address as such party
may at any time, or from time to time, direct by notice given in accordance
with this Section 13.4.
if to RCN-Sub:
RCN Telecom Services of Massachusetts, Inc.
419 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 267-3499
Attention: General Manager
and
C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Fax: (609) 734-0974 and (609) 734-3830
Attention: Michael J. Mahoney and Raymond B. Ostroski, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 735-2000
Attention: Stephen M Banker, Esq.
42
<PAGE>
if to BecoCom:
c/o Boston Edison Company
800 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 424-2733
Attention: Richard S. Hahn, Vice President
Neven Rabadjija, Esq., Legal Counsel
with a copy to:
Davis, Malm & D'Agostine, P.C.
One Boston Place
Boston, Massachusetts 02108
Fax: (617) 227-3732
Attention: Andrew B. White, Esq.
The date of delivery of any such notice, request or other communication shall be
the earlier of (i) the date of actual receipt or (ii) three Business Days after
such notice, request or other communication is sent if sent by certified or
registered mail, (iii) if sent by courier who guarantees next Business Day
delivery, the Business Day next following the day such notice, request or other
communication is actually delivered to the courier or (iv) the day actually
telecopied.
13.5 Entire Agreement; Supersedure. This Agreement constitutes the entire
agreement of the Members relating to the Company and supersedes all prior
contracts or agreements with respect to the Company, whether oral or written
except the Basic Agreements.
13.6 Effect of Waiver or Consent. A waiver or consent, express or implied,
to or of any breach or default by any Person in the performance by that Person
of its obligations with respect to the Company is not a consent or waiver to or
of any other breach or default in the performance by that Person of the same or
any other obligations of that Person with respect to the Company. Failure on the
part of a Person to complain of any act of any Person or to declare any Person
in default with respect to the Company, irrespective of how long that failure
continues, does not constitute a waiver by that Person of its rights with
respect to that default until the applicable limitations period has expired.
13.7 Amendment or Modification. This Agreement may be amended or modified
from time to time only by a written instrument executed by Members holding
Investment Percentages aggregating at least 66 2/3%, provided, however, that so
long as BecoCom's Investment Percentage is greater than 33 1/3%, amendments to
Section 7.8 also will require the written consent of BecoCom.
43
<PAGE>
13.8 Public Announcements. Except as required by law, any governmental
agency or any securities exchange, the parties hereto agree to obtain the prior
approval of each other before issuing (or allowing their Affiliates to issue)
any press release, public disclosure or other announcement with respect to this
Agreement or any of the transactions contemplated by this Agreement. In the
event either party hereto is so required by law, any governmental agency or any
securities exchange to make a public disclosure or other announcement as
aforesaid, it shall use its best efforts to afford the other a reasonable
opportunity to review the form and content of the announcement or disclosure
prior to making same. In addition, the Members will consult on a regular basis
with regard to joint marketing and positioning efforts for the Company. Each
Member shall also use its reasonable efforts to prohibit its employees, agents,
consultants and representatives from utilizing the corporate names "Boston
Edison Company" as to BecoCom, and "RCN Telecom Services, Inc." and "RCN
Corporation" as to RCN-Sub, with respect to any matters involving public
officials or media activities, without having first consulted with the other.
13.9 Confidentiality. Each of the parties hereto will hold, and will use
its reasonable, good faith efforts to cause its respective shareholders,
partners, members, directors, officers, employees, accountants, counsel,
consultants, agents and financial or other advisors (collectively "Agents") to
hold, in confidence, all information (whether oral or written), including this
Agreement and the documents contemplated herein, concerning the transactions
contemplated by this Agreement furnished to such party by or on behalf of any
other party in connection with such transactions, unless legally compelled (by
deposition, interrogatory, request for documents, subpoena, civil investigative
demand or similar process, or by order of a court or tribunal of competent
jurisdiction, or in order to comply with applicable rules or requirements of any
stock exchange, government department or agency or other regulatory authority,
or by requirements of any securities law or regulation or other legal
requirement) to disclose any such information or documents, and except to the
extent that such information or documents can be shown to have been (a)
previously known on a nonconfidential basis by such party, (b) in the public
domain through no fault of such party or (c) acquired by such party on a
nonconfidential basis from sources not known by such party to be bound by any
obligation of confidentiality in relation thereto. Notwithstanding the foregoing
provisions of this Section 13.9, each party may disclose such information to its
Agents in connection with the transactions contemplated by this Agreement or any
of the other Basic Agreements and to its lenders in connection with obtaining
the financing for the transactions contemplated by this Agreement so long as
such Agents and lenders are informed by such party of the confidential nature of
such information and are directed by such party to treat such information
confidentially and to certain governmental agencies in connection with the
procurement of the governmental authorizations contemplated by this Agreement.
The obligation of each party to hold any such information in confidence shall be
satisfied if such party exercises the same care with respect to such information
as it would take to preserve the confidentiality of its own similar information.
If this Agreement is terminated, each party will, and will use its reasonable,
good faith efforts to cause its respective Agents and lenders to destroy or
deliver to the other party, upon request, all documents and other materials, and
all copies thereof, obtained by such party or on its behalf from the other party
hereto in connection with this Agreement that are subject to such confidence.
44
<PAGE>
13.10 Binding Effect. Subject to the restrictions on Dispositions set forth
in this Agreement this Agreement is binding on and inures to the benefit of the
Members and their respective heirs, legal representatives, successors, and
assigns.
13.11 Governing Law; Severability. THIS AGREEMENT IS GOVERNED BY AND SHALL
BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS,
EXCLUDING ANY CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE
OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION. If any
provision of this Agreement or its application to any Person or circumstance is
held invalid or unenforceable to any extent, the remainder of this Agreement and
the application of such provision to other Persons or circumstances is not
affected and such provision shall be enforced to the greatest extent permitted
by law.
13.12 Specific Performance. The Members agree that irreparable damage will
result if this Agreement is not performed in accordance with its terms, and the
Members agree that any damages available at law for a breach of this Agreement
would not be an adequate remedy. Therefore, the provisions hereof and the
obligations of the Members hereunder shall be enforceable in a court of equity,
or other tribunal with jurisdiction, by a decree of specific performance in aid
of arbitration, and appropriate injunctive relief may be applied for and granted
in connection therewith. Such remedies and all other remedies provided for in
this Agreement shall, however, be cumulative and not exclusive and shall be in
addition to any other remedies that a Member may have under this Agreement, at
law or in equity.
13.13 Further Assurances. In connection with this Agreement and the
transactions contemplated by it, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and such transactions.
13.14 Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all signatories had signed the same
document. All counterparts shall be construed together and constitute the same
instrument.
13.15 Interpretation. In the event of any dispute concerning the
construction or interpretation of any provision of this Agreement or any
ambiguity thereof, there shall be no presumption that this Agreement or any
provision hereof be construed against the party who drafted this Agreement.
13.16 Use of Name. Promptly after the expiration date of the Term (as
defined in the Management Agreement), including any extensions thereof, the
Members shall cause the Company to change its name so as not to include "RCN",
"Residential Communications Network" or any other term which could cause
confusion with RCN and its Affiliates, and to not use any such name from and
after such date; provided, that RCN shall grant an exclusive
45
<PAGE>
license to the Company to use any such name in the Relevant Market for a period
not to exceed one year, in the discretion of the Company.
13.17 Continued Support of RCN-Sub. For a period of two years after RCN-Sub
is no longer a Member of the Company, RCN-Sub or its Affiliates shall continue
to provide to the Company (or its successor) such assets and services necessary
to operate the Company and which were theretofore provided by RCN-Sub or its
Affiliates at cost. Notwithstanding the preceding sentence, RCN-Sub's obligation
to continue providing the Company with such assets and services is conditioned
upon RCN-Sub or any of its Affiliates not being subject to any prohibition by an
outside third party, whether financial or otherwise, to provide such assets and
services.
46
<PAGE>
EXECUTED effective as of the date first set forth above.
MEMBERS:
RCN TELECOM SERVICES
OF MASSACHUSETTS, INC.
By: /s/ Michael J. Mahoney
------------------------------
Name: Michael J. Mahoney
----------------------------
Title: President
---------------------------
BECOCOM, INC.
By: /s/ Richard S. Hahn
------------------------------
Name: RICHARD S. HAHN
----------------------------
Title: PRESIDENT
---------------------------
WITHDRAWING MEMBERS:
RCN TELECOM SERVICES, INC.
By: /s/ Michael J. Mahoney
------------------------------
Name: Michael J. Mahoney
----------------------------
Title: President
---------------------------
BOSTON ENERGY TECHNOLOGY
GROUP, INC.
By: /s/ Philippe Frangules
------------------------------
Name: PHILIPPE FRANGULES
----------------------------
Title: VICE PRESIDENT
---------------------------
47
<PAGE>
SCHEDULE 1
Capitalization
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Sharing Cash Capital Non-Cash Capital
Member Ratio Contribution Contribution Accounts
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RCN-Sub 51% $1,060,911 $13,445,527(1) $14,506,438
- --------------------------------------------------------------------------------
BecoCom 49% $2,343,162 $l1,594,396(2) $13,937,558
- --------------------------------------------------------------------------------
TOTAL 100% $3,404,073 $25,039,923 $28,443,996
- --------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Represents the Agreed Value of the business developed by RCN and its
Affiliates prior to the Closing to provide Services in the Relevant Market,
including access to space, equipment (which includes, without limitation,
the "Cable TV Headend" and the "Telephone Switch") and customers. Includes,
without limitation, the rights granted pursuant to the Dark Fiber IRU
Agreement, dated May 8,1997, by and between RCN and Affiliates of
Metropolitan Fiber Systems/WorldCom ("WorldCom") and the services to be
received pursuant to the Telephone Service to Reseller Agreement, dated May
8, 1997, by and between RCN and WorldCom.
(2) Represents (i) the Agreed Value as of May 31, 1997 of access to and the use
of the "Existing BecoCom Facilities" pursuant to (and as such term is used
in) the IRU Agreement, and (ii) in the future, if the Company requests that
BecoCom expand the fiber optic network using transmission rights of ways
that connect to other transmission stations, BecoCom will provide up to 150
square feet at these transmission stations as a part of its initial
contributed assets. The Company will pay to BecoCom a ROW use fee, property
taxes, O&M, and other fees associated with this expansion as described in
the IRU Agreement.
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SCHEDULE 2
Impact of Various Transactions on Investment Percentage*
(1) Total Exchange - No Disposition
Member exchanges its entire 49% Membership Interest to securities
- Sharing Ratio = 0
- Investment Percentage = 49%
(2) Total Exchange - Total Disposition
- Upon disposition of securities
- Sharing Ratio = 0
- Investment Percentage = 0
(3) Total Exchange - Partial Disposition
a) Upon disposition of 50% of the securities received
- Sharing Ratio = 0
- Investment Percentage = 24.5% (50% of 49%)
b) Upon disposition of 25% of the securities received
- Sharing Ratio = O
- Investment Percentage = 36.75% (49%-25% of 49%)
(4) Partial Exchange - No Disposition
a) Upon exchange of 25% of Membership Interest
- Sharing Ratio = 36.75%
- Investment Percentage = 49%
b) Upon exchange of 50% of Membership Interest
- Sharing Ratio = 24.5%
- Investment Percentage = 49%
- ----------
* The calculations in cases 1-6 assume a 49% Sharing Ratio as a starting
point. If the Sharing Ratio is altered due to capital calls or
dispositions, the calculations set forth herein would be similarly altered.
49
<PAGE>
(5) Partial Exchange - Total Disposition
a) Upon exchange of 25% of Membership Interest and disposition of all the
securities received
- Sharing Ratio = 36.75%
- Investment Percentage = 36.75%
b) Upon exchange of 50% of Membership Interest and disposition of all the
securities received
- Sharing Ratio = 24.5%
- Investment Percentage = 24.5%
(6) Partial Exchange - Partial Disposition
a) Upon exchange of 25% of Membership Interest and disposition of 33 1/3%
of the Securities received
- Sharing Ratio = 36.75%
- Investment Percentage = 45% (36.75 + (100-33 1/3)% of (49-36.75))
b) Upon exchange of 60% of Membership Interest and disposition of 75% of
the Securities received
- Sharing Ratio = 19.6%
- Investment Percentage = 26.95% (19.6 + (100-75)% of (49-19.6))
(7) Subsequent Transactions
a) If, following the transactions in case 6(a) above, the Member
exchanges an additional 10% Membership Interest and disposes of 30% of
the securities then held as a result of such exchange and the earlier
exchange
- Sharing Ratio = 26.75%
- Investment Percentage = 39.53% (45-30% of (45-26.75))
b) If, following the transactions in case 6(b) above, the Member disposes
of 40% of the securities then held as a result of the earlier exchange
- Sharing Ratio = 19.6%
- Investment Percentage = 24.01% (26.95-40% of (26.95-19.6))
Note that the value at time of exchange or time of disposition is irrelevant.
These calculations are purely percentage-based.
50
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CONSTRUCTION AND INDEFEASIBLE RIGHT OF USE AGREEMENT
THIS CONSTRUCTION AND INDEFEASIBLE RIGHT OF USE AGREEMENT (the "Agreement")
is made as of this 17th day of June, 1997 (the "Effective Date"), by and between
BecoCom, Inc., a Massachusetts corporation ("BecoCom"), and RCN-BecoCom, LLC, a
Massachusetts limited liability company ("Carrier").
WHEREAS, RCN Telecom Services, Inc. ("RCN") and Boston Energy Technology
Group, Inc., a Massachusetts corporation ("BETG"), have entered into that
certain Joint Venture Agreement (the "JV Agreement") dated as of December 23,
1996, as amended, setting forth the terms and conditions upon which RCN, through
one of its affiliates, and BETG, acting through BecoCom, its indirect
wholly-owned subsidiary, have organized Carrier to: (i) create, own and operate
a telecommunications network, and (ii) provide voice, video, data, other
communications services, and the communications support component of
energy-related customer services offered by Boston Edison Company, a
Massachusetts company and the direct parent of BETG ("BECO"), to residential and
commercial customers in the Relevant Market (as defined below) (collectively,
the "Services");
WHEREAS, BECO and C-Tec Corporation, a Delaware corporation ("C-Tec"), have
each executed instruments of adherence with respect to certain provisions
hereof; and
WHEREAS, BecoCom currently operates the BecoCom System (as hereinafter
defined);
WHEREAS, BECO has licensed to BecoCom the right to use the portions of the
Rights of Way and the Equipment Sites (each as hereinafter defined) necessary to
BecoCom to perform its obligations hereunder;
WHEREAS, BecoCom is engaged in the business of communications network
planning, design, procurement, construction and testing and desires to provide
certain services to Carrier in connection with the planning, design,
procurement, construction and testing of the Network (as defined below) as
directed by Carrier and upon the terms and conditions of this Agreement;
WHEREAS, Carrier and BecoCom desire to enter into this Agreement to set
forth the terms and conditions under which (i) BecoCom will perform, from time
to time, certain Work (as hereinafter defined) as is necessary or as requested
by Carrier to engineer, procure and construct the Network, and (ii) Carrier will
have the right to use the BecoCom System, for use in the Business (as
hereinafter defined), all upon the terms and subject to the conditions of this
Agreement;
WHEREAS, the parties hereto acknowledge that providing the use of the
BecoCom System as hereinafter provided is vital to the Business in the Relevant
Market; and
<PAGE>
WHEREAS, the parties hereto also acknowledge that the primary purpose of
the Existing BecoCom Facilities and the BecoCom Rights-of-Way (as such terms are
defined below) is to serve the electric transmission and distribution business
of BECO and its Affiliates;
NOW, THEREFORE, for and in consideration of the foregoing, the covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Certain Definitions.
(a) The following terms shall have the following meanings:
"Acceptance Test Plan" means the product acceptance test plan
recommended by the manufacturer of such products, and shall incorporate the
specifications of such manufacturer.
"Affiliate" means, with respect to any Person, any other Person
Controlling, Controlled by, or under common Control with, that first
person.
"Affiliate Right-of-Way Owners" means Right-of-Way Owners which are
Affiliates of BecoCom.
"Basic Agreements" means (i) this Agreement, the JV Agreement and the
Operating Agreement; (ii) the Exchange Agreement, dated as of the date
herewith, between BecoCom and C-Tec; (iii) the Joint Investment and
Non-Competition Agreement, dated as of the date herewith, among RCN Telecom
Services of Massachusetts, Inc., BecoCom and the Carrier; (iv) the
Management Agreement, dated as of the date herewith, among RCN Operating
Services, Inc., BecoCom and the Carrier; and (v) the Initial LLC Agreement
(as defined in the JV Agreement).
"BECO Dedicated Fibers" means such number of Fibers not to exceed
twelve (12) desired by BECO and its Affiliates for use by such parties in
the electric transmission and distribution business, which fibers are (a)
identified in Exhibit A hereto, (b) specified in any Scope of Work or (c)
constructed by Carrier at the request and expense of BecoCom.
"BECO License" means the document pursuant to which BECO and its
Affiliates have made available to BecoCom such BecoCom Facilities, Rights
of Way and Equipment Sites as shall be necessary for BecoCom to satisfy its
obligations under this Agreement.
2
<PAGE>
"BecoCom Facilities" means (a) the Existing BecoCom Facilities, and
(b) all (i) Interim Constructed Facilities, and (ii) New BecoCom
Constructed Facilities, which are Power Space Facilities.
"BecoCom Rights-of-Way" means Rights of Way which BecoCom has acquired
the right to use through the BECO License.
"BecoCom System" means the BecoCom Rights of Way and the BecoCom
Facilities.
"Business" means the provision by Carrier of Services in the Relevant
Market, and all ancillary activities reasonably necessary for the provision
of same, provided such Services and ancillary activities do not violate any
law, rule or regulation.
"Capital Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee which
would, in accordance with generally accepted accounting principles, be
required to be classified and accounted for as a capital lease on a balance
sheet of such Person.
"Carrier Facilities" means all (a) Interim Constructed Facilities, (b)
New BecoCom Constructed Facilities, and (c) New Carrier Constructed
Facilities, which are Non-Power Space Facilities.
"Construction Materials" has the meaning set forth in Section
3(b)(iii) hereof.
"Control" means the power to direct or cause the direction of the
management or policies of an entity, whether through the ownership of
voting securities, by agreement or otherwise.
"DPU" means the Commonwealth of Massachusetts Department of Public
Utilities, or any successor thereto.
"Entity" means any corporation, limited liability company, general
partnership, limited partnership, venture, trust, business trust, estate or
other entity.
"Equipment Sites" means ground space, floor space, vault space, wall
space or rooftop space, whether now owned or hereafter acquired, in, on,
upon or within (a) electric distribution substations owned by BECO which
are enclosed within an existing building or structure; (b) electric
distribution stations owned by BECO which are not enclosed within a
building or structure; (c) service centers or field stations (excluding
generating facilities) operated by BECO, which are located on land owned by
BECO, or leased from a third party; (d) parcels of land comprising the
above-ground electric transmission line rights of way; or (e) vacant land
owned by BECO.
3
<PAGE>
"Existing BecoCom Facilities" means any Facilities (other than Interim
Constructed Facilities) in place or existing as of the date hereof as set
forth in Exhibit A-1, including any upgrades, improvements, or additions
thereto, which BecoCom has the right to use pursuant to the BECO License.
"Facilities" means all installed Fiber (excluding the BECO Dedicated
Fibers), coaxial cable, twisted pair wires, connection cable, splice
closures, splice cases, associated suspension hardware and other pole or
power attachments, electronics, equipment and other items of personal
property, used or usable in the Carrier's conduct of the Business.
"FCC" means the Federal Communications Commission, or any successor
thereto.
"FERC" means the Federal Energy Regulatory Commission, or any
successor thereto.
"Fiber" means fiber optic cable, including optical ground wire, all
dielectric cable, and all dielectric self supporting cable.
"Force Majeure" shall mean the following: acts of God; orders of any
kind of the government of the United States of America or of the
Commonwealth of Massachusetts or of any of their departments, agencies,
political subdivisions, or officials, or any civil or military authority;
civil insurrections; riots; epidemics; landslides; lightning; earthquakes;
fires; hurricanes; or any cause beyond the reasonable control of the party
whose duty or obligation has not been met.
"Interim Constructed Facilities" means all Facilities (both completed
and in progress) constructed by BECO (or BecoCom as assignee of BECO) prior
to the date hereof pursuant to the Interim Construction Agreement, which
Facilities (both completed and in progress) are set forth on Exhibit A-2.
"Interim Construction Agreement" means that certain Interim
Construction Agreement, dated February 6, 1997, between BECO and RCN of
Massachusetts, Inc.
"Liens" means, as to any Person, any mortgage, lien, pledge, adverse
claim, charge, security interest or other encumbrance in or on, or any
interest or title of any vendor, lessor, lender or other secured party to
or of such person under any conditional sale or other title retention
agreement or Capital Lease with respect to, any property or asset owned or
held by such Person, or the signing or filing of a financing statement
which names such Person as debtor, or the signing of any security agreement
authorizing any other party as the secured party thereunder to file any
financing statement.
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"Network" means the BecoCom Facilities and the Carrier Facilities.
"New BecoCom Constructed Facilities" means all New Facilities
constructed by BecoCom.
"New Carrier Constructed Facilities" means all New Facilities
constructed by Carrier.
"New Facilities" means all Facilities constructed after the date
hereof.
"Non-Power Space Facilities" means all Facilities located or to be
located outside the Power Space.
"Operating Agreement" means the Amended and Restated Operating
Agreement of Carrier of even date herewith as it may be amended from time
to time.
"Person" means a corporation, an association, a business, an
individual, a government or political subdivision thereof or a governmental
agency.
"Plans" means all engineering drawings or construction plans relating
to a Project.
"Power Space" means space within the Rights-of-Way normally and
primarily utilized for the transmission and distribution of electric power,
which space is (a) in the case of above-ground Rights-of-Way located on
distribution poles, space from the top of such poles to the communications
space, including the neutral space, (b) in the case of above-ground
Rights-of-Way located on transmission towers, all space located thereon
except as designated by BecoCom, and (c) in the case of below-ground Rights
of Way, all space located therein.
"Power Space Facilities" means all Facilities located or to be located
within the Power Space.
"Project" shall mean the engineering, construction, testing or
buildout, or any combination thereof, of any New Facilities.
"Relevant Market" means those certain cities and towns as set forth on
Exhibit B attached hereto.
"Request for Proposal" has the meaning set forth in Section 3(b)
below.
"Right-of-Way Owner" means the party or parties with whom BecoCom or
its Affiliates shall have contracted for the Rights-of-Way.
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"Rights-of-Way" means, whether now owned or hereafter acquired, all
(a) electric distribution system poles located in public ways and owned by
BECO or owned jointly by BECO and NYNEX Corporation ("NYNEX"); (b) electric
distribution system conduits, manholes and vaults located in public ways
and owned by BECO; (c) electric transmission system poles and towers
located on transmission line rights of way, which consist of strips of land
of varying width, which BECO owns in fee, or in which BECO holds permanent
easements, and in some cases licenses or other lesser interests; and (d)
electric transmission system conduits, manholes and vaults owned by BECO
and located primarily in public ways, and in some cases on private or
public property pursuant to easements or licenses. This includes, but is
not limited to, those areas upon, above, along, across, under and over
those public or private properties, streets, roads, lanes, courts, ways,
alleys, boulevards, water crossings and other places necessary for the
provision of BECO's business.
"Scope of Work" has the meaning set forth in Section 3(c) below.
"Specifications" means the manufacturer's specifications.
"Subcontractor" means any contractor engaged by BecoCom or Carrier, as
the case may be, to perform such party's obligations under any Scope of
Work.
"System Records" means the map which identifies locations of Equipment
Sites at substations or other locations in the Network, along with surveys,
mechanical and structural plans, and other records or documents necessary
or desirable for the purpose of operating or maintaining the Facilities.
"Term" has the meaning set forth in Section 9 hereof.
"Work" means the work necessary to implement any Project pursuant to
this Agreement.
(b) Words importing the singular also include the plural and, vice-versa,
where the context so requires.
(c) All terms used herein which are defined in any one of the attached
Exhibits shall have the meaning ascribed to them in such exhibit unless provided
to the contrary herein.
2. Interim Constructed Facilities. BecoCom and Carrier hereby agree and
confirm that (a) all Interim Constructed Facilities shall be deemed incorporated
into this Agreement for all purposes hereof, (b) from and after the date of this
Agreement, the rights and obligations of the parties with respect to the Interim
Constructed Facilities shall be as provided herein, and (c) the Interim
Construction Agreement shall be deemed terminated
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effective as of the date of this Agreement. To the extent any Interim
Constructed Facilities have not been paid for, such payment shall be an
obligation of the Company to BecoCom.
3. Construction of New Facilities. BecoCom and Carrier agree to the
following provisions with respect to the construction and installation of New
Facilities for the purpose of expanding the Network:
(a) Power Space and Non-Power Space Facilities. BecoCom shall have the sole
and exclusive right and obligation to construct (either directly or through a
Subcontractor) on a timely and efficient basis, at the request of Carrier, all
New Facilities which are Power Space Facilities, upon the terms and conditions
set forth in this Section 3. At Carrier's election, BecoCom shall have the right
and obligation on a timely and efficient basis, or Carrier shall have the right,
to construct (either directly or through a Subcontractor) any New Facilities
which are Non-Power Space Facilities, upon the terms and conditions set forth in
this Section 3 to the extent this Section 3 is specifically applicable to New
Carrier Constructed Facilities. All New Facilities constructed by BecoCom
pursuant to this Section 3 are "New BecoCom Constructed Facilities" for all
purposes of this Agreement, and all New Facilities constructed by Carrier
pursuant to this Section 3 are "New Carrier Constructed Facilities" for all
purposes of this Agreement.
(b) Request for Proposal. At any time Carrier desires BecoCom to perform
Work on any Project hereunder, Carrier shall deliver to BecoCom a notice (a
"Request for Proposal") which includes the following:
(i) a description of the routes to be constructed,
(ii) specification of the amount and type of New Facilities to be
installed;
(iii) a description of any materials, construction equipment, tools,
consumables, temporary services and facilities, transportation,
storage and all other facilities and services (collectively,
"Construction Materials") required for the satisfactory
construction of the New Facilities and performance of the Work and
which Carrier intends to procure and supply;
(iv) a description of all engineering responsibilities to be undertaken
by BecoCom;
(v) any other Plans for the Project, including a plan for splicing;
and
(vi) any other material information as may be necessary or appropriate
for the construction of such New Facilities.
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BecoCom shall, upon request of Carrier, promptly provide to Carrier any
information regarding the BecoCom System as may be necessary or appropriate for
preparing the Request for Proposal.
(c) Scope of Work. Promptly upon receipt of the Request for Proposal, and
in any event not later than three business days thereafter, BecoCom shall
commence discussions with Carrier for the purpose of permitting it to determine
the Work required to complete the Project, and to determine the cost for the
completion of such Project. As part of such process, Carrier and BecoCom may
agree on modifications to the Request for Proposal. As soon as practicable, and
in any event not more than 10 days after receipt of the Request for Proposal,
BecoCom shall deliver to Carrier a proposal for the Project, which shall include
(i) all of the terms of the Request for Proposal, as may be modified pursuant to
discussions between Carrier and BecoCom or otherwise modified as deemed
necessary by BecoCom; (ii) the cost for the completion of the Project (including
the calculation thereof); (iii) the route details for the Project; and (iv) a
schedule for all Work to be performed on the Project. Promptly following receipt
of such proposal, and in any event not more than three business days thereafter,
Carrier shall either reject such proposal, accept such proposal or accept such
proposal as may be modified with the consent of BecoCom (such accepted proposal
being referred to as a "Scope of Work"). If Carrier shall reject BecoCom's
proposal, and the Project relates in whole or in part to any Power Space
Facilities, then BecoCom and Carrier shall immediately thereafter negotiate in
good faith to agree upon a Scope of Work with respect thereto; it being agreed,
however, that such portion of the Project which relates to the construction of
Power Space Facilities may not commence until such Scope of Work is so agreed
upon. With respect to any portion of a Project proposed by BecoCom which relates
to the construction of Non-Power Space Facilities and which has been rejected by
Carrier, BecoCom and Carrier shall immediately thereafter negotiate in good
faith to agree upon a Scope of Work with respect thereto; it being agreed,
however, that if no such agreement is reached within 21 days after the Request
for Proposal, then Carrier shall have the right to perform (either by itself or
through the use of Subcontractors) such portion of the Project which relates to
the construction of such Non-Power Space Facilities.
(d) Construction. BecoCom shall complete, or shall cause the completion by
Subcontractors of, all Projects and all Work relating thereto set forth and in
accordance with any Scope of Work.
(i) BecoCom shall provide all supervision, labor and Construction
Materials required for the satisfactory performance of such Work, except as
provided in the Scope of Work.
(ii) BecoCom, or its Affiliates or agents, shall use its or their best
efforts to secure all necessary agreements from Right-of-Way Owners (other
than Affiliate Right-of-Way Owners), including the Commonwealth of
Massachusetts, its counties or municipalities, any other governmental
entity and any quasi-governmental entity, for use of any poles, conduits or
other rights-of-way (unless specified otherwise
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in any Scope of Work), and Carrier shall reimburse BecoCom for reasonable
and supportable expenses incurred in securing such agreements.
(iii) The New BecoCom Constructed Facilities and all components
thereof shall, when installed, (A) be structurally sound, in good operating
condition and repair, (B) not be in need of maintenance or repairs except
for conditions that will not have a material impact on Carrier's ability to
conduct the Business and (C) meet all specifications provided in the Scope
of Work.
(iv) The System Records delivered to Carrier upon completion of the
New BecoCom Constructed Facilities shall be true, complete and correct
copies. Carrier and BecoCom shall agree on a mutually compatible computer
software system on which such System Records shall be recorded and
delivered to Carrier.
(v) Upon completion of any New BecoCom Constructed Facilities, all
electric facilities required by law or by the normal use and operation of
such New BecoCom Constructed Facilities shall be installed to the property
lines of the properties owned by BecoCom or its Affiliates in fee simple,
shall be connected pursuant to valid permits, and shall be adequate to
service such New BecoCom Constructed Facilities and to permit full
compliance with all requirements of law and normal usage of such New
BecoCom Constructed Facilities. BecoCom shall cooperate with Carrier in
obtaining any telephone facilities required by the normal use and operation
of such New BecoCom Constructed Facilities.
(vi) Construction Materials provided by BecoCom for use in the
construction or installation of the New BecoCom Constructed Facilities
shall be without physical or mechanical defects. BecoCom shall not be
responsible for physical or mechanical defects in Construction Materials
provided by Carrier for such construction or installation; provided,
however, that nothing in this paragraph (vi) shall relieve BecoCom of its
obligation to build New BecoCom Constructed Facilities to meet the
Specifications and the Scope of Work.
(e) Inspection. Carrier and its representatives or agents, and others as
may be required by applicable laws, ordinances and regulations, shall have the
right at all reasonable times to inspect the Work relating to any New BecoCom
Constructed Facilities and all Construction Materials provided by BecoCom for
said Work. BecoCom shall provide or cause to be provided access and sufficient,
safe and proper facilities for such inspections. Except as set forth in the
second sentence of Section 3(d)(vi)above, Carrier's failure to inspect
Construction Materials provided by BecoCom or the Work relating to any New
BecoCom Constructed Facilities shall not relieve BecoCom or any of its
Subcontractors and suppliers of their responsibilities for any such Construction
Materials or Work which prove to be defective or omitted, nor be deemed to be a
waiver of Carrier's rights subsequently to reject any such Work which proves to
be defective. Carrier shall have the right to reject any or all parts of such
Work that do not meet all specifications in any Scope of Work and
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commonly accepted industry standards; such standards shall include, but shall
not be limited to, compliance with state and local construction and permitting
requirements. The method used in making such determination must be based on
commonly accepted industry standards for measuring quality of the same or
similar work. Such rejected Work shall be promptly corrected or replaced, but in
any event commencing within three business days, by BecoCom at BecoCom's expense
(except for Work rejected due to failure to meet the specifications of any Scope
of Work due to physical or mechanical defects in Construction Materials provided
by Carrier, which shall then bear such expense) so that such Work complies with
requirements of this Agreement.
(f) Acceptance and Testing of the New BecoCom Constructed Facilities.
(i) Prior to accepting any New BecoCom Constructed Facilities, Carrier
shall have the right to conduct its own test in accordance with the Test
Acceptance Plan to verify that such New BecoCom Constructed Facilities are
operating in accordance with the Specifications and the Scope of Work
relating thereto. Carrier shall provide BecoCom with five business days'
notice prior to beginning such test procedures. BecoCom shall have the
right to have a person or persons present to observe such test procedures.
(ii) Within 14 days after the conclusion of such test procedures,
Carrier shall provide BecoCom with a copy of the Carrier test results (the
"Carrier Test Results"). If the Carrier Test Results are within the
parameters of the Specifications and the Scope of Work relating to such New
BecoCom Constructed Facilities, Carrier shall provide BecoCom with a
written notice accepting such New BecoCom Constructed Facilities. If such
test procedures are not completed within 60 days after such New BecoCom
Constructed Facilities are installed and capable of being tested, Carrier
shall be deemed to have accepted such New BecoCom Constructed Facilities.
(iii) In the event the Carrier Test Results are not within the
parameters of the Specifications and the Scope of Work relating to such New
BecoCom Constructed Facilities, Carrier may notify BecoCom in writing that
the Carrier Test Results are unacceptable with respect to all or any
portion of such New BecoCom Constructed Facilities. BecoCom shall take such
action, consistent with industry standards, as shall be necessary with
respect to such portion of such New BecoCom Constructed Facilities as do
not operate within the parameters of the Specifications and the Scope of
Work relating thereto, to bring the operating standards of such portion of
such New BecoCom Constructed Facilities within the parameters of the
Specifications and the Scope of Work relating thereto, at its sole cost and
expense. Following such action, Carrier shall retest such New BecoCom
Constructed Facilities to ensure compliance with the Specifications and the
Scope of Work relating thereto.
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(iv) Notwithstanding anything to the contrary in Section 3(f)(iii)
above, Carrier's use of any New BecoCom Constructed Facilities to carry
revenue-bearing traffic shall constitute acceptance of such New BecoCom
Constructed Facilities; provided that, notwithstanding the foregoing,
Carrier shall have the right to notify BecoCom, prior to carrying any
revenue-bearing traffic over such New BecoCom Constructed Facilities, that
it is provisionally or conditionally accepting such New BecoCom Constructed
Facilities, or any part thereof, and specifying the reasons for such
provisional or conditional acceptance, which reasons must be reasonably
related to such New BecoCom Constructed Facilities' not being within the
parameters of the Specifications and the Scope of Work relating thereto as
determined by such test procedures. In such event, the parties may
determine a mutually acceptable method and deadline for resolving Carrier's
objections to unconditional acceptance of such New BecoCom Constructed
Facilities and BecoCom shall thereupon take such action at its sole cost
and expense. Notwithstanding the foregoing, if BecoCom does not resolve
Carrier's objections to such unconditional acceptance as expeditiously as
commercially practicable under the circumstances, Carrier may bring the
operating standards of such portion of such New BecoCom Constructed
Facilities within the parameters of the Specifications and the Scope of
Work relating thereto, at BecoCom's sole cost and expense. In the event
that Carrier takes such action necessary to bring such New BecoCom
Constructed Facilities within such parameters, BecoCom shall, or shall
cause its Affiliates to, provide any accompanying personnel required in
order to comply with any law, rule or regulation pertaining to the access
to such New BecoCom Constructed Facilities or the supervision of the
actions to be taken to resolve Carrier's objections. Until Carrier's
objections to unconditional acceptance have been resolved by BecoCom to
Carrier's satisfaction, the use of such New BecoCom Constructed Facilities,
or any part thereof; by Carrier shall not constitute acceptance of such New
BecoCom Constructed Facilities.
(g) Liens.
(i) BecoCom shall at all times (A) promptly pay for all services,
Construction Materials, and labor used or furnished by BecoCom (except if
provided by Carrier pursuant to Section 3(b)(iii) hereof) in the
performance of the Work under this Agreement in order to keep the BecoCom
Facilities and the New BecoCom Constructed Facilities which are Non-Power
Space Facilities, the premises of the Affiliate Right-of-Way Owners and all
property or rights belonging to Carrier or Affiliate Right-of-Way Owners,
free and clear of any and all Liens and (B) keep the premises of
Right-of-Way Owners who are not Affiliates of BecoCom free and clear of any
and all Liens arising as a result of any activities of BecoCom. If BecoCom
fails to release and discharge any such Lien against the BecoCom Facilities
and premises of Right-of-Way Owners within 30 days after receipt of written
notice from Carrier to remove such Lien, Carrier may, at its option,
discharge or release the Lien or otherwise deal with the Lien claimant, and
BecoCom shall pay Carrier any costs and expenses incurred by Carrier,
including reasonable attorneys' fees, or alternatively
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Carrier may, at its choosing, deduct such costs and fees from amounts due
to BecoCom hereunder.
(ii) Carrier acknowledges that the primary source of revenue of
BecoCom is the payments that Carrier is or becomes obligated to pay BecoCom
pursuant to this Agreement and the other Basic Agreements. Therefore, the
obligations of BecoCom under the provisions of this Section 3(g) may be
enforced by Carrier only so long as Carrier is in material compliance with
its obligations to pay BecoCom pursuant to this Agreement and the other
Basic Agreements.
(h) Duration of Construction Obligation. Notwithstanding anything to the
contrary in Section 9 hereof, BecoCom shall be obligated to fulfill its
obligations under this Section 3 for 10 years from the date of this Agreement.
No later than one year prior to the end of such 10 year period, Carrier and
BecoCom shall commence good-faith negotiations to reach a new agreement
concerning the construction of the Network for an additional 10 year term.
4. Ownership of Facilities. BecoCom and Carrier agree that the various
types of Facilities provided for under this Agreement shall be owned as follows:
(a) BecoCom Facilities. All BecoCom Facilities (including any
Construction Materials supplied by Carrier for inclusion therein) shall be
owned by BecoCom or BECO, as the case may be; provided that all Interim
Constructed Facilities and New Facilities which are Power Space Facilities
shall be owned by BecoCom.
(b) Carrier Facilities. All Carrier Facilities shall be owned by
Carrier.
5. Indefeasible Right-of-Use of the BecoCom System.
(a) Rights of Access and Use.
(i) Upon the terms and conditions set forth in this Section 5,
BecoCom hereby grants to Carrier the exclusive, indefeasible and
non-cancellable right of access to and use of the BecoCom Facilities
for the conduct of the Business during the Term (as defined in Section
9 hereof);
(ii) Upon the terms and conditions set forth in this Section 5,
BecoCom hereby grants to Carrier, with respect solely to the provision
of Services, the exclusive, indefeasible and non-cancellable right of
access to and use of the BecoCom Rights-of-Way, subject to the
provisions of Sections 3(a), 5(c)(ii) and 6 hereof.
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(iii) Carrier may not resell, lease, license, transfer or
otherwise provide the right to use dark Fibers included in the BecoCom
Facilities without BecoCom's consent, which shall not be unreasonably
withheld or delayed; and
(iv) BecoCom may not resell, lease, license, transfer or
otherwise provide the right to use dark Fibers included in the BecoCom
Facilities, without providing Carrier an opportunity to purchase or
lease such dark Fibers on the same terms offered, in writing, by a
party who is not an Affiliate of BecoCom.
The rights granted to Carrier under this Section 5(a) (herein called the
"Indefeasible Rights") include the right of access to and use of the BecoCom
System as if Carrier were the holder of such rights of access to and use of the
BecoCom System as BecoCom holds, including the right to solely use the BecoCom
System in the conduct of the Business.
(b) Equipment Sites. BecoCom will, or will cause its Affiliates to,
provide sufficient space to Carrier to accommodate New Facilities at Equipment
Sites in accordance with any Project; provided, however, that in no event shall
BecoCom or its Affiliates be required to reconfigure, in any way, its electric
transmission or distribution equipment. BecoCom hereby grants to Carrier
reasonable access to the Equipment Sites for such purpose. BecoCom will provide
(i) heating at Equipment Sites at the incremental cost thereof, (ii) to the
extent practicable, air conditioning at Equipment Sites at the incremental cost
thereof and (iii) 24 hours per day, 7 days per week access to the Equipment
Sites. Other than with respect to the Contributed Assets (as defined in the
Operating Agreement), compensation shall be paid by Carrier to BecoCom for the
use of Equipment Sites which are distribution facilities or transmission
Right-of-Way sites on a case-by-case basis at a price to be agreed upon by the
parties; no payment shall be required for the use of 150 square feet of space in
Equipment Sites which are transmission stations.
(c) Exclusivity; Right of First Refusal; Etc.
(i) During the Term, BecoCom shall not grant any right of access to or
use of the BecoCom Facilities to any Entity. BecoCom shall not sell,
assign, mortgage, encumber or pledge or otherwise dispose of (by operation
of law or otherwise) any portion of the BecoCom Facilities, and shall not
permit any of the foregoing to occur.
(ii) Except as may be required (A) by applicable law or regulatory
authority, (B) pursuant to those existing agreements described on Exhibit E
hereto, (C) in connection with BECO's leasing or licensing of locations on
Rights-of-Way or Equipment Sites for use by third parties in providing
wireless telecommunications services, or (D) in connection with the use by
abutters for purposes other than providing telecommunications services
(including video) and which do not adversely affect Carrier's use thereof,
during the Term BecoCom and its Affiliates shall not grant, with respect
solely to the provision of Services, any right of access to or use of
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any other part of the BecoCom System to any Entity (other than BECO or its
Affiliates) without 30 days prior written notice to Carrier, which notice
shall include the material terms and conditions under which such right to
access or use is to be granted. Subject to all requirements of applicable
law or regulatory authority, Carrier shall have 10 days from the date such
notice is given to inform BecoCom of its intention to acquire such right of
access or use. Such acquisition shall include terms and conditions
substantially similar to the terms and conditions contained in the notice.
(iii) In the event that BECO or any of its Affiliates seeks to sell,
assign or otherwise dispose of all or any portion of the BecoCom System in
place on the date hereof (which sale, assignment or disposition shall, in
any event, be subject to the rights and obligations in this Agreement),
BecoCom shall give Carrier written notice of the material terms of the
proposed sale, assignment or other disposition, including the price and
terms of payment. Carrier shall then have 30 days, commencing with the date
on which it received such written notice, to purchase such portion of the
BecoCom System upon comparable terms and conditions, and BecoCom shall
cause BECO and its Affiliates to effect such sale to Carrier.
(d) Continued Use Beyond Term. Not later than one year prior to the end of
the Term, Carrier and BecoCom shall commence good faith negotiations with a goal
of providing to Carrier continued access to the BecoCom System after expiration
of the Term; such negotiations shall take into account Carrier's contribution to
the cost of constructing and maintaining the New BecoCom Constructed Facilities
including, without limitation, payments under this Agreement.
6. Maintenance of the Network.
(a) BecoCom shall repair, maintain, reinforce and otherwise preserve on a
timely and efficient basis (to Carrier's reasonable satisfaction consistent with
the Plans and Specifications) (i) the BecoCom Facilities, which shall be
BecoCom's exclusive right, and (ii), if agreed to by Carrier and BecoCom, any
Carrier Facilities, all in accordance with accepted industry standards and Plans
or, if applicable, with any plan mutually agreed upon by the parties, and with
all applicable federal, state and municipal laws, orders, rules and regulations.
(b) Prior to completion of construction of any BecoCom Facilities, BecoCom
and Carrier shall agree on a plan for regular maintenance and repair thereof, in
sufficient detail to meet Carrier's operational needs. BecoCom will deliver to
Carrier any amendments to any such plan throughout the Term, and such amendments
shall be subject to approval by Carrier, which approval shall not be
unreasonably withheld or delayed. Carrier, in conjunction with BecoCom, will
implement procedures for reviewing and approving or rejecting, within reasonable
time periods, submissions to Carrier for maintenance and repair.
(c) Prior to completion of construction of any Carrier Facilities, BecoCom
and Carrier shall negotiate to agree on a plan for regular maintenance and
repair thereof, in
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sufficient detail to meet Carrier's operational needs. If BecoCom and Carrier
are unable to agree on any such plan, Carrier shall have the right to perform
such regular maintenance and repair itself, or to procure such regular
maintenance and repair from any other Person. If BecoCom and Carrier are able to
agree on any such plan, BecoCom will deliver to Carrier any amendments to any
such plan throughout the Term, and such amendments shall be subject to approval
by Carrier, which approval shall not be unreasonably withheld or delayed.
7. Relocation.
(a) Voluntary Relocation.
(i) If BecoCom, for its own business purposes other than an
involuntary relocation, elects to relocate any Facilities, then BecoCom
shall pay all costs relating to such relocation, including all costs
reasonably incurred by Carrier to connect or reconnect any such Facilities.
BecoCom shall use its best efforts (including coordination with Carrier) to
minimize all relocations and, in the event of a voluntary relocation, shall
ensure Carrier is able to provide the same level and quality of Services
throughout and after such voluntary relocation.
(ii) BecoCom shall provide Carrier notice of any voluntary relocation
no later than 30 days prior to its commencement of such voluntary
relocation. Such notice to Carrier shall provide a description of the
relocation plan.
(b) Involuntary Relocation.
(i) If BecoCom is required to relocate any Facilities as a result of
requirements under a right-of-way agreement, a mandate from any
governmental authority having jurisdiction, or condemnation, BecoCom shall
make a reasonable good faith effort to identify an alternative site for
replacement of such Facilities that, once constructed, will enable the
Carrier to provide the same level and quality of Services. BecoCom shall,
as the circumstances warrant, seek to recover on behalf of Carrier and/or
cooperate with Carrier's efforts to recover from the governmental authority
or other entity requiring such relocation, on behalf of Carrier, any
available reimbursement of any expenses incurred by Carrier as a result of
such involuntary relocation. BecoCom shall use its best efforts to ensure
Carrier is able to provide the same level and quality of Services
throughout and after such involuntary relocation.
(ii) BecoCom shall provide Carrier notice of any requirement of such
involuntary relocation not later than 10 days after its receipt of notice
of the requirement to make such involuntary relocation, and in any event
not later than 10 days prior to the date such relocation will commence.
Such notice to Carrier shall provide a description of the agreement,
mandate or condemnation requiring such relocation and BecoCom's relocation
plan (including the anticipated cost thereof).
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Carrier may, at its option and expense, provide an alternative relocation
plan with respect to such Facilities which are Carrier Facilities.
8. Governmental Authorizations.
(a) Each party shall be responsible for and shall undertake, in good faith,
all actions which may be necessary for it to take in furtherance of the intended
use of the Network by Carrier hereunder, and each party shall be responsible to
undertake, in good faith, to procure and to maintain in full force and effect
all regulatory and other consents, authorizations, or approvals that are
necessary for it to perform its obligations under this Agreement including, but
not limited to, the issuance of all necessary consents, authorizations or
approvals of the DPU, the FCC and the FERC. Each party shall have the right to
review and participate in the preparation of all filings and other documentation
in support of such consents, authorizations and approvals.
(b) BecoCom shall obtain all licenses, permits, easements, approvals and
rights of way required from all governmental authorities necessary for
completion of the New BecoCom Constructed Facilities and to ensure Carrier's
vehicular and pedestrian ingress to and egress from such Facilities where
required for maintenance and repair thereof. Carrier shall reimburse BecoCom for
all reasonable and supportable construction, permit and traffic control fees and
other items expressly set forth in any Scope of Work relating to New BecoCom
Constructed Facilities.
9. Term.
This Agreement shall commence on the date first written above, and shall
expire on December 31, 2060 (the "Term").
10. Compensation. Carrier shall pay to BecoCom the following compensation
with respect to the Facilities:
(a) Existing BecoCom Facilities. The Indefeasible Rights with respect to
the Existing BecoCom Facilities have been contributed by BecoCom to Carrier, as
a "BecoCom Contributed Asset" under the Operating Agreement contemporaneously
with the execution and delivery of this Agreement Notwithstanding such
contribution, Carrier shall pay to BecoCom, for the use of the Existing BecoCom
Facilities, the charges set forth on Exhibit C-1 hereto.
(b) New BecoCom Constructed Facilities. Carrier shall pay to BecoCom (i)
the charges set forth on Exhibit C-1 hereto for the use of the New BecoCom
Constructed Facilities in the Power Space and (ii) the charges set forth on
Exhibit D hereto for BecoCom's construction of the New BecoCom Constructed
Facilities. With respect to each Project as to which BecoCom constructs New
BecoCom Constructed Facilities, payment of such compensation shall commence upon
acceptance by Carrier or deemed acceptance (pursuant to
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Section 3(d) above) of such New BecoCom Constructed Facilities constructed
pursuant to such Project. Not later than October 1, 1998, Carrier and BecoCom
will enter into discussions in order to reach an agreement on performance-based
incentive compensation to be effective starting January 1, 1999 through the end
of the Term and to be paid to BecoCom as earned in addition to the amounts set
forth in Exhibit D. Such performance-based incentive compensation shall be based
on such factors as the parties shall agree.
(c) Maintenance of Power Space Facilities and Carrier Facilities. Carrier
shall pay to BecoCom with respect to the Power Space Facilities and any Carrier
Facilities which BecoCom maintains pursuant to Section 6 hereof (i) the charges
set forth on Exhibit C-2 hereto, and (ii) reasonable charges for general and
administrative costs incurred by BecoCom with respect to such maintenance.
BecoCom and its Affiliates shall use their best efforts to minimize the amounts
provided for in clauses (i) and (ii) above.
(d) Involuntary Relocations. Carrier shall reimburse BecoCom for the cost
of any involuntary relocation of Facilities contemplated by Section 7(b) above,
unless Carrier elects, pursuant to Section 7(b)(ii) above, to undertake such
relocation using contractors other than BecoCom (in which case Carrier shall
reimburse BecoCom for any costs reasonably incurred due to its need to address
safety concerns and to protect BECO's electric transmission and distribution
business). To the extent that any such involuntary relocation also involves
relocation of electric distribution or transmission facilities and Carrier does
not elect to undertake such relocation using contractors other than BecoCom,
Carrier shall only be required to reimburse BecoCom for those costs of
relocation that are incremental to the costs otherwise required for the
relocation of such electric distribution or transmission facilities.
(e) Engineering Costs. Carrier shall reimburse BecoCom for all reasonable
and supportable engineering costs incurred in the preparation of Scopes of Work,
and for all other engineering costs incurred pursuant to Scopes of Work, at
competitive rates.
11. Indemnification; Limitation on Liability.
(a) Indemnification by Carrier. Carrier shall indemnify, defend and hold
harmless BecoCom, its Affiliates, and all officers, directors, employees,
shareholders, partners, members and agents of BecoCom and its Affiliates, from
and against any and all claims, demands, liabilities (including reasonable
attorneys' fees), and judgments, fines, settlements and other amounts
("Damages") arising from any and all civil, criminal, administrative or
investigative proceedings ("Claims") relating to or arising out of:
(i) Any failure of Carrier to materially observe or perform any term
or provision of this Agreement
(ii) Any failure of any representation or warranty made by Carrier
herein to be true in any material respect as of the date made or deemed
made;
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(iii) Any Claim of any third party resulting solely from and to the
extent caused by the gross negligence or willful misconduct of Carrier or
any of its agents or employees;
(iv) The construction, installation, maintenance or operation of any
Carrier Facilities by Carrier, or the conduct or management of the
Business, except to the extent such Damages are caused or contributed to by
BecoCom or its Affiliates; and
(v) Any Claim by any customer of Carrier relating to the provision by
Carrier of Services to such customer over the Network.
(b) Indemnification by BecoCom. BecoCom shall indemnify, defend and hold
harmless Carrier, its Affiliates, and all officers, directors, employees,
stockholders, partners, members and agents of Carrier and its Affiliates from
and against any and all Damages arising from any and all Claims relating to or
arising out of:
(i) Any failure of BecoCom to materially observe or perform any term
or provision of this Agreement;
(ii) Any failure of any representation or warranty made by BecoCom
herein to be true in any material respect as of the date made or deemed
made;
(iii) Any Claim of any third party resulting from the gross negligence
or willful misconduct of BecoCom or any of its agents or employees;
(iv) The construction, installation, maintenance or operation of (A)
any BecoCom Facilities and (B) any Carrier Facilities which BecoCom has
constructed or maintained, or the conduct or actions of BecoCom with regard
to the Business, except to the extent such Damages are caused or
contributed to by Carrier or its Affiliates;
(v) Any Claim by any customer of BecoCom relating to the provision by
BecoCom of any services to such customer over the Network, and
(vi) Any failure of BecoCom or its Subcontractors to be in substantial
compliance with all Environmental Laws (as defined below) applicable to the
Carrier Facilities constructed by BecoCom, which compliance includes, but
is not limited to, the possession by BecoCom or BECO, as the case may be,
of all permits and other governmental authorizations required under the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Resources Compensation and Liability Act, wetlands laws, the Clean Water
Act, the regulations issued pursuant thereto by the Environmental
Protection Agency and/or superlien statutes, if any, in
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the Commonwealth of Massachusetts ("Environmental Laws"), and compliance
with the terms and conditions thereof.
12. Insurance.
(a) Liability Insurance - BecoCom. BecoCom shall maintain (i) such
insurance or (ii) a self-insurance plan as will fully protect both Carrier and
BecoCom from any and all claims by employees of BecoCom under the workers'
compensation act or employees' liability laws, including any employers'
disability insurance laws, and from any and all other claims of whatsoever kind
or nature for any and all damage to personal property or for personal injury,
including death to anyone whomsoever that may arise from operations in
connection with the performance of its duties under this Agreement. BecoCom
shall provide Carrier with certificates evidencing the required coverage.
(b) Liability Insurance - Carrier. Carrier shall maintain (1) such
insurance or (ii) a self-insurance plan as will fully protect both Carrier and
BecoCom from any and all claims by employees of Carrier under the workers'
compensation act or employees' liability laws, including any employers'
disability insurance laws, and from any and all other claims of whatsoever kind
or nature for any and all damage to personal property or for personal injury,
including death to anyone whomsoever that may arise from operations in
connection with the performance of its duties under this Agreement. Carrier
shall provide BecoCom with certificates evidencing the required coverage.
(c) Property Insurance - BecoCom Facilities. BecoCom currently maintains
and will continue to maintain throughout the Term (1) insurance with a reputable
insurance company covering loss or damage to any part of the BecoCom Facilities
by fire and standard extended coverage perils in amounts in no event less than
90% of the full replacement value of such BecoCom Facilities, and (2) such
comprehensive general liability insurance covering personal injury or property
damage occurring in or about such BecoCom Facilities in commercially reasonable
amounts; or (B) a plan of self-insurance sufficient to provide the coverage set
forth in clause (A) above. In the event of any covered loss to any BecoCom
Facilities, BecoCom shall, at the option of Carrier, use the insurance proceeds
therefrom to repair or replace the Facilities, or to reimburse Carrier for
payments made by it for the construction, operation and maintenance of such
Facilities.
(d) Property Insurance - Carrier Facilities. Carrier shall maintain, with a
reputable insurance company throughout the Term (A) (1) insurance covering loss
or damage to any part of the Carrier Facilities by fire and standard extended
coverage perils in amounts in no event less than 90% of the full replacement
value of such Carrier Facilities, and (2) comprehensive general liability
insurance covering personal injury or property damage occurring in or about the
Carrier Facilities in commercially reasonable amounts; or (B) a plan of
self-insurance sufficient to provide the coverage set forth in clause (A) above.
13. Representations and Warranties.
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(a) General Representations and Warranties. Each party hereby represents
and warrants to the other that:
(i) It is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization and is duly qualified to
conduct business in all jurisdictions where such qualification is required.
(ii) It has the power and authority (corporate or otherwise) to
execute, deliver and perform its obligations under this Agreement Such
execution, delivery and performance have been duly authorized by all
necessary action on its part and do not and will not contravene its
organizational documents or conflict with, result in a breach of, or
entitle any party (with due notice or lapse of time or both) to terminate,
accelerate or call a default with respect to, any agreement or instrument
to which it is a party or by which it is bound. The execution, delivery and
performance by it of this Agreement will not result in any violation by it
of any law, rule or regulation applicable to it. It is not a party to, nor
subject to or bound by, any judgment, injunction or decree of any court or
other governmental entity which may restrict or interfere with the
performance of this Agreement by it. This Agreement is its valid and
binding obligation, enforceable against it in accordance with the terms of
this Agreement, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally and (ii)
the remedy of specific performance and injunctive relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(iii) No consent, waiver, order, approval, authorization or order of,
or registration, qualification or filing with, any court or other
governmental entity is required for the execution, delivery and performance
by such party of this Agreement and the consummation by such party of the
transactions contemplated hereby. No consent or waiver of any party to any
contract to which such party is a party or by which it is bound is required
for the execution, delivery and performance by such party of this
Agreement.
(iv) There is no action, suit, grievance, arbitration or proceeding
pending or, to the knowledge of such party, threatened against or affecting
such party at law or in equity, before any federal, state, municipal or
other governmental court, department, commission, board, arbitrator,
bureau, agency or instrumentality which prohibits or impairs its ability to
execute and deliver this Agreement or to consummate any of the transactions
contemplated hereby. Such party has not received written notice of any such
pending or threatened investigation, inquiry or review by any governmental
entity.
(b) Representations and Warranties of BecoCom Regarding the Facilities.
BecoCom represents and warrants to Carrier that:
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(i) The Existing BecoCom Facilities and the Interim Constructed
Facilities installed by BecoCom and its Affiliates prior to the date hereof
have been installed in accordance with the System Records and the
Specifications. All such Facilities are fusion spliced with no unnecessary
mid-span splicing, and satisfy the Acceptance Test Plan.
(ii) BecoCom has the indefeasible right to use the Existing BecoCom
Facilities, sufficient to permit BecoCom to perform its obligations to
Carrier under this Agreement, and such ownership or indefeasible right of
BecoCom are free and clear of any and all Liens, except for (A) Liens on
account of real or personal property taxes not yet due and payable; and (B)
Liens which will not materially impair the use of the Existing BecoCom
Facilities by Carrier for the conduct of the Business, and which are
otherwise not material.
(iii) The Interim Constructed Facilities installed by BecoCom or its
Affiliates prior to the date hereof are free and clear of any and all Liens
arising from any action or omission by BecoCom, except for (A) Liens on
account of real or personal property taxes not yet due and payable; and (B)
Liens which will not materially impair the use of such Interim Constructed
Facilities by Carrier for the conduct of the Business, and which are not
otherwise material.
(iv) The Existing BecoCom Facilities, the Interim Constructed
Facilities installed by BecoCom or its Affiliates prior to the date hereof
and all components thereof are structurally sound, are in good operating
condition and repair and none of the Existing BecoCom Facilities, such
Interim Constructed Facilities or any component thereof, is in need of
maintenance or repairs except for conditions that do not and will not have
a material impact on Carrier's ability to conduct its Business.
(v) The System Records and all records relating to the Existing
BecoCom Facilities and Interim Constructed Facilities installed by BecoCom
or its Affiliates prior to the date hereof and all other contracts or
documents delivered to Carrier pursuant to this Agreement or in connection
with the execution hereof are true, complete and correct copies.
(vi) Carrier has been named as a third party beneficiary of the BECO
License, with power to enforce BecoCom's rights thereunder upon a breach of
the obligations of either BecoCom or BECO. BecoCom has delivered to Carrier
a true and complete copy of the BECO License, and will not permit the BECO
License to be amended without the prior written consent of Carrier, which
consent shall not be unreasonably withheld.
(c) Representations and Warranties of BecoCom Regarding the Rights-of-Way.
BecoCom represents and warrants to Carrier that:
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(i) With respect to those portions of the Rights-of-Way that are
distribution system poles located within public ways, BECO holds, jointly
with NYNEX, licenses permitting the location of such poles within the
public ways. Such licenses are obtained from municipal or state authorities
who, in granting the same, are acting as agents of the state, pursuant to
statutes creating a right to such licenses on the part of public utilities.
These licenses are unlimited in time, but the rights obtained are not
vested, and are subject to the action of the legislature. The use of such
poles is subject to the terms of the Joint Ownership Agreement dated
October 28, 1979, between BECO and New England Telephone and Telegraph
Company, and the corresponding Intercompany Operating Procedures, last
revised effective February 1, 1995, in both cases as amended from time to
time, and Carrier shall be required to execute a separate Aerial License
Agreement with NYNEX and BECO for the use of the communications space on
such poles. Subject to the foregoing, (A) such licenses and the BECO
License are sufficient to permit BecoCom to perform its obligations to
Carrier under this Agreement in all material respects, except for any
limitations which may be imposed by any new and adverse interpretation of
current law, contracts or granting instruments and (B) neither BecoCom nor
any of its Affiliates has any reason to believe or anticipates that the
licenses for use of such portions of the Rights-of-Way shall, during the
Term, expire, be revoked or be modified in such a way as to make such
licenses not sufficient to permit BecoCom to perform its obligations to
Carrier under this Agreement in all material respects.
(ii) With respect to those portions of the Rights-of-Way that are
distribution or transmission system conduits, manholes and vaults located
within public ways, BECO holds licenses permitting the location of such
conduits, manholes and vaults within the public ways. Such licenses are
obtained from municipal or state authorities who, in granting the same, are
acting as agents of the state, pursuant to statutes creating a right to
such licenses on the part of public utilities. These licenses are unlimited
in time, but the rights obtained are not vested, and are subject to the
action of the legislature. Within the City of Boston, the use of such
facilities for telecommunications purposes is subject to the policies
adopted from time to time by the Public Improvements Commission of the City
of Boston. Subject to the foregoing, (A) such licenses and policies and the
BECO License are sufficient to permit BecoCom to perform its obligations to
Carrier under this Agreement in all material respects, except for any
limitations which may be imposed by any new and adverse interpretation of
current law, contracts or granting instruments and (B) neither BecoCom nor
any of its Affiliates has any reason to believe or anticipates that such
licenses or policies for use of such portions of the Rights-of-Way shall,
during the Term, expire, be revoked or be modified in such a way as to make
such licenses not sufficient to permit BecoCom to perform its obligations
to Carrier under this Agreement in all material respects.
(iii) With respect to those portions of the Rights-of-Way that are
electric transmission system poles and towers located on transmission line
rights of
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way, or conduits, manholes and vaults located on private property, BECO
generally either owns in fee or holds permanent easements in the land on
which such structures are located. In some cases, BECO holds licenses or
lesser interests, where such rights of way cross public ways, tidewaters or
water courses, railroad rights of way, state highways, public domain lands,
or lands owned by state or federal agencies or authorities. In some cases,
BECO's rights were obtained by the exercise of eminent domain powers, with
the permission of the Massachusetts Department of Public Utilities. In all
cases where BECO holds less than a fee simple interest, the Rights-of-Way
are subject to the terms, conditions, reservations, restrictions and other
limitations imposed by the grantor and contained in the granting
instrument, generally recorded in the public land records, and in some
cases the paramount authority of the grantor which is a state or federal
agency or authority. In all cases, subject to the foregoing, (A) the rights
held by BecoCom in such portions of the Rights-of-Way are sufficient to
permit BecoCom to perform its obligations to Carrier under this Agreement
in all material respects, except for any limitations which may be imposed
by any new and adverse interpretation of current law, contracts or granting
instruments and (B) neither BecoCom nor any of its Affiliates has any
reason to believe or anticipates that such rights for use of such portions
of the Rights-of-Way shall, during the Term, expire, be revoked or be
modified in such a way as to make such rights not sufficient to permit
BecoCom to perform its obligations to Carrier under this Agreement in all
material respects.
(iv) There are no condemnation, environmental, zoning or other
land-use regulation proceedings, either instituted or, to BecoCom's
knowledge, planned to be instituted, or contractual obligations or third
party actions or claims, nor are there are special assessment proceedings
pending or, to BecoCom's knowledge, threatened, which would affect, in any
material respect, the use and operation of the BecoCom Rights-of-Way for
the Business.
(v) BecoCom has received the BECO License, which license pertains to
the Rights-of-Way.
(d) Representations and Warranties of BecoCom Regarding the Equipment
Sites. BecoCom represents and warrants to Carrier that, as of the time
individual Equipment Sites are identified for purposes of performing the Scope
of Work for any Project:
(i) With respect to those Equipment Sites that are electric
distribution substations owned by BECO, or service centers or field
stations which are located on land owned by BECO, or parcels of land
comprising the above-ground electric transmission line rights of way owned
by BECO in fee, or vacant land owned by BECO in fee, BECO is the sole legal
and equitable owner of record and in fact of good and marketable fee simple
tide, with no imperfections or irregularities therein which materially
impair the use of such property for the purposes for which it is held, and
subject only to (A) Liens on account of real and personal property taxes
and
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assessments not yet due and payable (including any lien in favor of the
Commonwealth of Massachusetts pursuant to Chapter 21E of the General Laws
for costs, if any, incurred by the Commonwealth to clean up hazardous
materials), or which are being contested in good faith, (B) public and
private easements, (C) leases and licenses to third parties for occupancy
purposes, all of which, with respect to (A), (B) and (C) above,
individually or in the aggregate do not and will not materially impair the
use of such property by Carrier in the conduct of its Business, and (D)
zoning and building laws or other restrictions. Subject to the foregoing,
the rights held by BecoCom with respect to such Equipment Sites are
sufficient to permit BecoCom to perform its obligations to Carrier under
this Agreement in all material respects.
(ii) With respect to those Equipment Sites that are service centers or
field stations which are located on land leased by BECO from third parties,
all such leases are valid and subsisting and in full force and effect in
accordance with their terms, and BECO holds a valid leasehold interest in
such Equipment Sites, subject only to the terms and conditions of the
specific leases applicable to such Equipment Sites. Subject to the
foregoing, the rights held by BecoCom with respect to such Equipment Sites
are sufficient to permit BecoCom to perform its obligations to Carrier
under this Agreement in all material respects, subject to any landlord
consents.
(iii) The System Records are true, complete and correct copies.
(iv) The Equipment Sites and all components thereof are structurally
sound, are in good operating condition and repair, and are adequate for the
uses to which they will be put, and none of the Equipment Sites is in need
of maintenance or repairs except for conditions that do not have a material
adverse impact on Carrier's ability to conduct the Business. Subject to the
foregoing, the Equipment Sites have no physical condition that would have a
material impact on Carrier's ability to conduct the Business.
(v) There are no condemnation, environmental, zoning or other land-use
regulation proceedings, either instituted or, to BecoCom's knowledge,
planned to be instituted, or contractual obligation or third party actions
or claims, nor are there any special assessment proceedings pending or, to
BecoCom's knowledge, threatened, which would affect in any material respect
the use of the Equipment Sites for the Business.
(vi) BecoCom has received the BECO License, which license pertains to
the Equipment Sites.
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14. Covenant of BecoCom with respect to Rights-of-Way and Equipment Sites.
BecoCom hereby represents, warrants and covenants with Carrier that, at the
time that specific Rights-of-Way and Equipment Sites are identified in any Scope
of Work, BecoCom shall hold, pursuant to the BECO License and any consents
required from landlords, subject to such qualifications set forth in Sections
13(c) and (d) hereof, sufficient rights in the Rights-of-Way and Equipment Sites
described in such Scope of Work, necessary to implement such Scope of Work and
to permit Carrier to utilize the portion of the BecoCom Facilities installed
within such Rights-of-Way and Equipment Sites for the Business, and further
subject only to
(a) Liens on account of taxes not yet due and payable;
(b) minor imperfections in title or other rights, occupancy leases or
licenses, encroachments and similar matters, none of which individually or
in the aggregate will materially impair the ability of BecoCom to implement
such Scope of Work or the ability of Carrier to conduct the Business;
(c) zoning laws, ordinances or regulations;
(d) environmental laws, ordinances or regulations, none of which
individually or in the aggregate will materially impair the ability of
BecoCom to implement the such Scope of Work or the ability of Carrier to
conduct the Business; and
(e) such matters as are specifically identified in such Scope of Work
as required consents, licenses, permits, approvals, grants, modifications
or other actions necessary to allow the use of particular Rights-of-Way or
Equipment Sites for the Business, none of which will be material relative
to (i) BecoCom's ability to implement such Scope of Work, or (ii) Carrier's
ability to conduct the Business.
15. Right to Cure.
(a) In the event that Carrier shall fail to observe or perform any of its
obligations under this Agreement, BecoCom may (but shall not be obligated to),
at any time after delivery of written notice from BecoCom to Carrier of such
failure (but not later than 30 days after delivery of such notice), undertake
such actions (except such actions as are prohibited by law) as may be related to
curing such default on behalf of Carrier, whereupon Carrier shall reimburse
BecoCom for the full costs reasonably expended therefor by BecoCom, but Carrier
shall not be relieved of any obligation, liability, duty or undertaking
whatsoever relating thereto. Carrier hereby agrees to reasonably cooperate with
BecoCom to facilitate BecoCom's undertaking (including allowing BecoCom's access
as may be necessary to effect such undertaking).
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(b) In the event that BecoCom shall fail to observe or perform any of its
obligations under this Agreement, Carrier may (but shall not be obligated to),
at any time after delivery of written notice from Carrier to BecoCom of such
failure (but not later than 30 days after delivery of such notice), undertake
such actions (except such actions as are prohibited by law) as may be related to
curing such failure on behalf of BecoCom, whereupon BecoCom shall reimburse
Carrier for the full costs reasonably expended therefor by Carrier, but BecoCom
shall not be relieved of any obligation, liability, duty or undertaking
whatsoever relating hereto. BecoCom hereby agrees to reasonably cooperate with
Carrier to facilitate Carrier's undertaking (including allowing Carrier's access
as may be necessary to effect such undertaking, subject to limitations on such
access reasonably imposed, consistent with past practice, for reasons of safety
or the protection of BECO's electric transmission and distribution business).
16. Arbitration.
(a) In the event of any dispute between the parties hereto as to a matter
referred to herein or as to the interpretation of any part of this Agreement,
including but not limited to this Section 16 or as to the determination of any
rights or obligations or entitlements arising from or related to this Agreement
or as to the calculation of any amounts payable under this Agreement, the
parties shall refer the matter to their respective chief executive officers for
resolution.
(b) Should the chief executive officers of the respective parties fail to
resolve the dispute within 20 days from such referral, the parties agree that
such dispute will not be referred to any court but will be referred to binding
arbitration, and the provisions of this Section 16 shall apply.
(c) The arbitration shall be governed by the AAA Commercial Arbitration
Rules or, in the case of Section 2 hereof the AAA Construction Industry
Arbitration Rules (in each case, the "Rules") as modified by this Section 16 and
by the United States Arbitration Act, 9 U.S.C. ss.ss. 1 et seq. (the
"Arbitration Act"). Any conflict between the Rules and the Arbitration Act shall
be decided in favor of the Rules. The party wishing to submit such matter to
arbitration shall give written notice (the "Arbitration Notice") to the other
party (the "Respondent") of its intention to arbitrate. The place of the
arbitration shall be Boston, Massachusetts. The arbitration shall be conducted,
and the final resolution of the dispute (the "Award") shall be rendered by one
arbitrator (the "Arbitrator") to be mutually selected by the parties. If the
parties cannot agree to a mutually acceptable Arbitrator within seven days of
Respondent's receipt of the Arbitration Notice, the Arbitrator shall be selected
in accordance with rule 13 oft. Rules.
(d) All hearings shall be held within 30 days following the appointment of
the Arbitrator. At a time designated by the Arbitrator, each party shall
simultaneously submit to the Arbitrator and exchange with each other its final
proposed Award, and in rendering the final Award, the Arbitrator shall be
limited to choosing the Award proposed by either of the
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parties without modification. The Arbitrator shall issue the final Award no
later than 15 days from the completion of the hearings. The Award of the
Arbitrator shall be final and binding. Judgment on any Award may be entered in
any court having jurisdiction thereof.
(e) To the extent that the parties pursue a judicial remedy in aid of
arbitration, each party consents and submits to the non-exclusive jurisdiction
of and venue in the federal courts located in Boston, Massachusetts (or, in case
such a federal court does not have jurisdiction, the state courts located in
Boston, Massachusetts). Each party consents to service of the notice of
arbitration, and any other paper in the arbitration, by registered mail or
personal delivery at its address specified in Section 17(b) hereof. Nothing in
this subsection (e) shall limit the jurisdiction of other courts for purposes of
enforcement of a final arbitral Award.
(f) The fact that any party has invoked the provisions of this Section 16
shall be considered to be confidential information under Section 17(d) of this
Agreement and shall not relieve either party of any obligations it may otherwise
have to continue performance in accordance with the provisions of this
Agreement.
(g) This agreement to arbitrate a dispute in accordance with this Section
16 and any Award made hereunder shall be binding upon the successors and assigns
and any trustee or receiver of each of the parties hereto.
17. Miscellaneous.
(a) Assignment. This Agreement and the rights and obligations of the
parties hereto may not be assigned by any of the parties hereto without the
prior written consent of the other party which may be withheld by such party in
its sole discretion. This Section 17(a) shall not be interpreted to prohibit the
use of Subcontractors by either party to fulfill its construction, maintenance
or repair obligations hereunder. Notwithstanding the foregoing, either party may
assign its rights and obligations under this Agreement to any of its Affiliates,
provided that the assigning party will continue to be responsible for its
liabilities and obligations hereunder.
(b) Notices. All notices, requests and other communications hereunder
(herein collectively a "notice" or "notices") shall be deemed to have been duly
delivered, given or made to or upon any party hereto if in writing and delivered
by hand against receipt, or by certified or registered mail. postage pre-paid,
return receipt requested, or to a courier who guarantees next business day
delivery or sent by telecopy (with confirmation) to such party at its address
set forth below or to such other address as such party may at any time, or from
time to time, direct by notice given in accordance with this Section 17(b).
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If to Carrier: RCN-BecoCom, LLC
419 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 267-3499
Attention: General Manager
and C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Fax:(609) 734-0974 and (609) 734-3830
Attention: Michael A. Adams and
Raymond B. Ostroski, Esq.
with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York. New York. 10022
Fax: (212) 735-2000
Attention: Stephen M Banker, Esq.
If to BecoCom: BecoCom, Inc.
c/o Boston Edison Company
800 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 424-2733
Attention: Richard S. Hahn, Vice President
Neven Rabadjija, Esq.,
Assistant General Counsel
with a copy to: Davis, Malm & D'Agostine, P.C.
One Boston Place
Boston, Massachusetts 02108
Fax: (617) 227-3732
Attention: Andrew B. White, Esq.
The date of delivery of any such notice, request or other communication shall be
the earlier of (i) the date of actual receipt or (ii) three business days after
such notice, request or other communication is sent by certified or registered
mail, (iii) if sent by courier who guarantees next business day delivery, the
business day next following the day of such notice, request or other
communication is actually delivered to the courier or (iv) the day actually
telecopied (with confirmation received).
(c) Governing Law. The rights and obligations of the parties hereto shall
be construed and interpreted in accordance with the substantive law of the
Commonwealth of Massachusetts without giving effect to its principles for choice
of law.
28
<PAGE>
(d) Confidentiality. Design criteria, Plans and other information obtained
by BecoCom from Carrier and working drawings and specifications prepared by
BecoCom shall be held in confidence by BecoCom, and shall not be used by BecoCom
for any purposes other than for the performance of the Work, the operation of
BECO's electric transmission and distribution business or as authorized in
writing by Carrier to BecoCom or its Affiliates. Documents prepared by or on
behalf of either party with respect to the New Facilities shall be or, upon
preparation, become the joint property of Carrier and BecoCom. Each of Carrier
and BecoCom shall keep confidential, and shall not disseminate to any third
party (other than their respective Affiliates) or use for any other purpose
(except with the written authorization of the other party), all information
relating to the System Records, and any information received from the other
party that is confidential or proprietary unless legally compelled (by
deposition, inquiry, request for documents, subpoena, civil investigative demand
or similar process, or by order of a court, regulatory authority or tribunal of
competent jurisdiction, or in order to comply with applicable rules or
requirements of any stock exchange, government department or agency or other
regulatory authority, or by requirements of any securities law or regulation or
other legal requirement). Each party shall promptly notify the other of any such
requirement or dissemination prior to such event.
(e) No Partnership. Nothing contained in this Agreement shall be construed
to create a partnership or other relationship that may invoke fiduciary
obligations between the parties hereto.
(f) Compliance With Laws. At all times during the term of this Agreement,
the parties shall comply in all material respects with all laws, rules,
regulations, and codes of all governmental authorities having jurisdiction over
each of their respective businesses which are now applicable, or may be
applicable hereafter, including without limitation, all special laws, policies,
ordinances, or regulations now in force, as amended or hereafter enacted.
Nothing herein shall be deemed a waiver of the parties' right to challenge the
validity of any such law, rule or regulation.
(g) Time is of the Essence. Time is of the essence in the performance of
the obligations set forth herein by the parties. Each party acknowledges and
agrees that providing the use of the Network, as set forth herein, is vital to
the Business in the Relevant Market. Therefore, subject to the provisions of
paragraph (h) below, and taking into account the requirements regarding safety
and reliability of the electric transmission and distribution system of BecoCom
and its Affiliates, any consent, authorization or approval that must be obtained
by a party, or any construction, maintenance or other obligation shall be given
or performed within the time specified, or if no time for performance is
specified, shall be given or performed promptly, with no unreasonable delay or
condition. Any extension of the time requested by either of the parties hereto
to meet any of the obligations of the parties pursuant to this Agreement shall
not be unreasonably withheld by the other party, provided that such extension
will not have a material adverse effect on the Business. No party shall be
deemed in violation of this paragraph (g) to the extent that such failure to
comply is caused by a default of the other party.
29
<PAGE>
(h) Force Majeure. If by reason of Force Majeure either party is unable in
whole or in part to carry out its obligations hereunder (other than the payment
of money), said party shall not be deemed in violation or default during the
continuance of such inability.
(i) Fees and Expenses. Except as otherwise provided herein, each of BecoCom
and Carrier shall pay all fees and expenses incurred by, or on behalf of, such
party in connection with, or in anticipation of, this Agreement and the
consummation of the transactions contemplated hereby.
(j) Specific Performance. Each party hereby acknowledges and agrees that
there would be no adequate remedy at law for the other party's breach,
threatened breach or default of its covenants, agreements or undertakings in
this Agreement. As a result, and in addition to and without prejudice to or
waiver in whole or in part of each party's other remedies under this Agreement
and at law and in equity, each party shall have the right to equitable relief
and to specifically enforce its rights and the other party's obligations as set
forth in this Agreement and the breach or threatened breach of such obligations
may be enjoined by each without bond, and accordingly each party consents and
submits to the nonexclusive jurisdiction of and venue in the federal courts
located in Boston, Massachusetts (or in case such a federal court does not have
jurisdiction, the state courts located in Boston, Massachusetts) in aid of
arbitration pursuant to Section 16 hereof.
(k) Condemnation. In the event and to the extent of any condemnation or
other taking by eminent domain of all or any part of the BecoCom Facilities
(other than existing Equipment Sites), or any property or rights relating
thereto, then the proceeds thereof shall by apportioned fairly between BecoCom
and Carrier as their interests may warrant.
(1) Captions. The captions to sections throughout this Agreement are
intended solely to facilitate reading and reference to the sections and
provisions of this Agreement. Such captions shall not affect the meaning or
interpretation of this Agreement.
(m) Entire Agreement. This Agreement sets forth the entire agreement of the
parties, and takes precedence over all prior understandings, with respect to the
subject matter herein. This Agreement may not be amended except by a writing
signed by the parbes.
(n) Binding Effect. Subject to the provisions of Section 17(a) of this
Agreement, this Agreement is binding on and inures to the benefit of the parties
hereto and their respective heirs, legal representatives, successors, and
assigns.
(o) Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the other provisions hereof. If any provision of
this Agreement is held to be invalid, such provision shall not be severed from
this Agreement; instead, the scope of the rights and duties created thereby
shall be reduced by the smallest extent necessary to conform such provision to
the applicable law, preserving to the greatest extent
30
<PAGE>
the intent of the parties to create such rights and duties as set out herein. If
necessary to preserve the intent of the parties hereto, the parties shall
negotiate in good faith to amend this Agreement, adopting a substitute provision
for the one deemed invalid or unenforceable that is legally binding and
enforceable.
(p) Further Assurances. In connection with this Agreement and the
transactions contemplated hereby, each party shall execute, deliver and file or
record any additional documents and instruments and perform any additional acts
that may be necessary or appropriate to evidence or safeguard the rights herein
granted and to effectuate and perform the provisions of this Agreement and such
transactions and the intention of the parties hereto. Each party agrees to
reimburse the other party for its actual out of pocket expenses incurred in
connection therewith.
(q) Waiver of Subrogation. Carrier and BecoCom shall each cause all
policies of fire, extended coverage, and other physical damage insurance
covering the Network to contain a clause or endorsement denying the insurer any
rights of subrogation against the other party provided, that no additional
premium is payable as a result of such request unless the party requesting such
waiver agrees to pay such additional premium. Notwithstanding any provisions of
this Agreement to the contrary, Carrier and BecoCom respectively waive all
claims and rights to recover against the other for injury or loss due to hazards
covered by insurance, so long as waiver does not invalidate such insurance.
(r) Changes in Law. If and to the extent that, during the Term, any laws or
regulations shall change which govern any transaction contemplated herein or
either party's business operations so as to make either unlawful, then Carrier
and BecoCom hereby agree to effect such modifications to this Agreement as shall
be reasonably necessary for the Agreement to accommodate any such legal or
regulatory changes.
(s) Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, any of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same Agreement.
(t) Interpretation. In the event of any dispute concerning the construction
or interpretation of this Agreement or any ambiguity hereof, there shall be no
presumption that this Agreement or any provision hereof be construed against the
party who drafted this Agreement.
(u) Independent Contractor. Nothing in this Agreement shall be construed or
interpreted to make either party, any Subcontractor, or the employees or agents
of either party, to be the agent, representative or employee of the other party
or the Right-of-Way Owners. Each party shall at all times be an independent
contractor and shall have sole responsibility for and control over the details
and means for performance of its obligations hereunder, so long as such party is
in compliance with the terms of this Agreement.
31
<PAGE>
(v) No Other Business. BecoCom shall not engage in any substantial business
other than pursuant to this Agreement and the other Basic Agreements.
(w) No Third Party Beneficiaries. Nothing in this Agreement shall be
construed to create any rights or obligations except between the parties hereto,
and no person or entity shall be or be deemed a third-party beneficiary of this
Agreement.
(x) BECO's Core Business. Notwithstanding anything to the contrary set
forth herein, nothing herein shall obligate BecoCom or its Affiliates to take
any action, or refrain from taking any action, which would, in BecoCom's
reasonable opinion, adversely affect the operation of BECO's electric
transmission and distribution business.
(y) Limitation on Damages. NOTWITHSTANDING ANYTHING TO THE CONTRARY SET
FORTH IN THIS AGREEMENT, NEITHER BECOCOM NOR CARRIER SHALL BE LIABLE TO THE
OTHER FOR OR IN RESPECT OF ANY CONSEQUENTIAL, INDIRECT OR SPECIAL DAMAGES,
INCLUDING, WITHOUT LIMITATION, DAMAGES BASED UPON BUSINESS INTERRUPTION OR LOSS
OF EXPECTED OR ANTICIPATED BUSINESS PROFITS, WHICH MAY ARISE OUT OF OR RESULT
FROM ANY BREACH OF BECOCOM'S OR CARRIER'S OBLIGATIONS UNDER THIS AGREEMENT;
PROVIDED, HOWEVER, THAT THIS PROVISION SHALL NOT MITIGATE THE LIABILITY OF ANY
PARTY WITH RESPECT TO SUCH PARTY'S GROSS NEGLIGENCE AND/OR WILLFUL MISCONDUCT.
32
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement as
an instrument under seal as of the date first set forth above.
BECOCOM, INC.
a Massachusetts corporation
By: /s/RICHARD S. HAHN
---------------------------------
Name: RICHARD S. HAHN
---------------------------------
Title: PRESIDENT
---------------------------------
RCN-BECOCOM, LLC,
a Massachusetts limited liability company
By: /s/MICHAEL A. ADAMS
---------------------------------
Name: MICHAEL A. ADAMS
---------------------------------
Title: President of Technology
& Strategic Development
---------------------------------
STATE OF NEW YORK
COUNTY OF NEW YORK
On this 17th day of June, 1997, before me, a notary public in and for said
county and state, personally came Richard S. Hahn, President of BecoCom, Inc., a
Massachusetts corporation, known to be the identical person who signed the
foregoing Agreement and acknowledged the execution thereof to be his voluntary
act and deed and the voluntary act and deed of said company.
WITNESS, my hand and notarial seal at 919 Third Avenue, New York, New
York 10022 in said county and state, the day and year last above written.
[SEAL] /s/STEPHEN M. BANKER
-----------------------------
NOTARY PUBLIC
My Commission Expires:
STEPHEN M. BANKER
Notary Public, State of New York
No. 31 4710679
Qualified in New York County
Commission Expires Dec. 31,1998
- ---------------------------------
33
<PAGE>
STATE OF NEW YORK
COUNTY OF NEW YORK
On this 17th day of June, 1997, before me, a notary public in and for said
county and state, personally came Michael A. Adams, President of Technology &
Strategic Development of RCN-BecoCom, LLC, a Massachusetts limited liability
company, known to be the identical person who signed the foregoing Agreement and
acknowledged the execution thereof to be his voluntary act and deed and the
voluntary act and deed of said company.
WITNESS, my hand and notarial seal at 919 Third Avenue, New York, New
York 10022 in said county and state, the day and year last above written.
[SEAL] /s/STEPHEN M. BANKER
-----------------------------
NOTARY PUBLIC
My Commission Expires:
STEPHEN M. BANKER
Notary Public, State of New York
No. 31 4710679
Qualified in New York County
Commission Expires Dec. 31,1998
- ---------------------------------
34
<PAGE>
Exhibit A-1
EXISTING BECOCOM FACILITIES
The following is a description of the Existing BecoCom Facilities and
associated properties and rights-of-way. BecoCom will provide to the Company the
ability to use all of the Existing BecoCom Facilities except for any BECO
Dedicated Fibers. BecoCom is providing only those routes where fiber capacity is
available, or where there is commercial potential. The form of this contribution
will be an Indefeasible Right to Use. The Fibers being provided to the Company
include the upgrade to be constructed by BECO in 1997.
<TABLE>
<CAPTION>
Summary by Construction Type
==========================================================================
Type ROW miles Available Fiber-miles
- --------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------
OPGW 84.5 3,654
- --------------------------------------------------------------------------
OH Distrib. ADSS 3.0 36
- --------------------------------------------------------------------------
UG ADSS 38.5 3,282
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
total 126.0 6,972
==========================================================================
<CAPTION>
Summary by Geography
==========================================================================
Type ROW miles Available
Fiber-miles
- --------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------
very dense urban 29.0 2,484
- --------------------------------------------------------------------------
dense urban 9.5 798
- --------------------------------------------------------------------------
suburban 84.5 3,654
- --------------------------------------------------------------------------
distribution 3.0 36
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
total 126.0 6,972
==========================================================================
</TABLE>
The BecoCom Contributed Assets shall also consist of the right to locate Carrier
Facilities on 150 square feet of each of the following sites: Prudential Center
(subject to the termination
<PAGE>
or expiration of the lease at such site); Station 150 (Edgar); Station 470
(Canton); Station 447 (West Walpole); Station 446 (West Medway); Station 240
(Framingham); Station 148 (Needham); Station 496 (Hyde Park); Station 282
(Waltham); Station 320 (Lexington); Station 391 (Burlington); Station 250
(Mystic & Head House @ Ryan's Plygrd); Station 80 (Mass Ave.); Station 478
(Holbrook); Station 146 (Walpole); Station 65 (Medway); Station 274 (Sherborn);
Station 433 (Speen Street); Station 110 (Baker Street); Station 342 (Sudbury);
Station 450 (Trapelo Road); Station 533 (Hartwell Ave.); Station 211 (Woburn);
and Station 514 (Boston).
2
<PAGE>
Exhibit A-1
BECO Fiber Optic Network
JV Contribution
[GRAPHIC OMITTED]
[CHART OF NETWORK IN APPROXIMATE ROUTE MILES]
<PAGE>
Exhibit A-1
BECO Fiber Optic Network
JV Contribution
[GRAPHIC OMITTED]
[CHART OF NETWORK IN APPROXIMATE FIBER MILES]
<PAGE>
Exhibit A-1
BECO Fiber Optic Network
JV Contribution
[GRAPHIC OMITTED]
[CHART OF NETWORK IN APPROXIMATE FIBER MILES BY DENSITY]
<PAGE>
Exhibit A-2
<TABLE>
<CAPTION>
Project Status Project Status
------- ------ ------- ------
<S> <C> <C> <C>
Jobs Completed Jobs in Estimation
Kenmore Hojo to Fenway Hojo Approved 640 Huntington Ave to 621 Huntington Requested
Station 514 to RCN Headend Approved 621 Huntington to Backbone Requested
RCN Headend to Mass Ave Approved 640 Huntington to Backbone Requested
400 Summer Street Approved Somerville Franchise Build / Backbone To Cerntral Hub - Requested
249 'A' Street Approved 1110 Commonwealth Ave Requested
3 Hawkins Street Approved 118 Beacon St, Fischer College Requested
RCN HQ to 200/300 Summer Street Approved 400 Brookline Ave Requested
16 Marlborough St Approved 99 Kent St, Village @ Brookline Requested
Boston University Approved Bear Hill Condos Requested
70 Longwood Ave Approved 150 South Huntington Ave Requested
079-1089 Commonwealth Ave Approved Simmons College Requested
3 Pond St, Brook House Approved Green Loop (Boston) Requested
27-335 Huntington Ave Approved 630 Tremenot, Castle Square Requested
Bentley College Approved
144-1160 Commonwealth Ave HUB Approved Jobs in Engineering
Construction Quarters Requested
Jobs in Construction The Anchorage Requested
Red Loop (Boston) Approved Shipway Condominiums Requested
Magenta Loop (Boston Approved The Basilica Requested
Flagship Wharf Approved The Row Houses Requested
Emerson Place Approved 111 Alantic Ave, Mercantile Wharf Requested
Whittier Place Approved Lewis Wharf Requested
Hawthorne Place Approved Rowes Wharf Requested
Longfellow Place Approved 65 & 85 E. India Row, Harbor Towers Requested
01 Merimac St Requested 296 State St., Marriott Long Wharf Requested
Gray/Bigelow Bldg Requested The Mariner, Atlantic Ave Requested
35 Huntington, Mission Park Approved 131-185 State Street Verbal Approval
30 Tremont, Mass Pike Tower Approved Custom House Verbal Approval
Oak, Quincy Towers Approved Swissotel Requested
32 Harrison, Tai Tung Village Approved Cronin's Landing Requested
30 Stuart, South Cove Plaza Approved 1131-1137 Commonwealth Ave Requested
Bradford Towers Approved 1114-1132 Commonwealth Ave Requested
35 & 536 Beacon St Approved Seaport Hotel Requested
Channel 56, Dorchester Approved
37 'D' Street Verbal Approval Future Jobs
Channel 25, Dedham Requested
Jobs Awaiting Construction Channel 5, Needham Requested
None at this time 75-83 Cambridge Prkwy, Esplanade Condo's Requested
2 Cambridge CO's Requested
Jobs Awaiting Approval from RCN AT&T POP Requested
Blue Loop (Boston) Requested Cable & Wireless POP Requested
Amy Lowell House Verbal Approved Admiral Hill, Chelsea Requested
Spaulding Rehab Requested Channel 4, Brighton Requested
Channel 2, Brighton Requested
Channel 68, Brighton Requested
</TABLE>
<PAGE>
Exhibit B
RELEVANT MARKET
Areas Included in Relevant Market
The following cities, towns or local municipalities (See Attached Map).
<TABLE>
<CAPTION>
<S> <C> <C>
Acton Lexington Walpole
Arlington Lincoln Waltham
Ashland Maynard Watertown
Bedford Medfield Wayland
Bellingham Medway Weston
Boston Millis Westwood
Brookline Milton Winchester
Burlington Natick Woburn
Canton Needham
Carlisle Newton
Chelsea Norfolk
Dedham Sharon
Dover Sherborn
Framingham Somerville
Holliston Stoneham
Hopkinton Sudbury
</TABLE>
Note: Boston shall be defined to include Allston, Brighton, Charleston,
Dorchester, East Boston, Hyde Park, Jamaica Plain, Mattapan, Roslindale,
South Boston and West Roxbury.
Note: The parties, by mutual agreement, may expand the Relevant Market to
include the municipalities of Cambridge, Belmont, Concord, Wellesley,
Norwood, Braintree, Quincy and Weymouth.
<PAGE>
Exhibit C-1
PAYMENT FOR USE OF BECOCOM FACILITIES
Carrier shall pay to BecoCom, each quarter during the Term, the following
amounts:
1. A Right-of-Way (ROW) use fee calculated as follows:
a. Distribution Poles:
o $10.37 per attachment per year.
o rate subject to change per the then applicable Aerial License
Agreement.
b. Overhead Transmission ROWs:
o $0.58 per ROW foot per year through 12/31/98, escalating at 2%
per year thereafter.
o 10 year minimum term.
o no rate changes for duration of minimum term. Thereafter, rates
shall be recalculated with the same methodology in which the
initial rates were calculated, subject to any applicable change
in law or regulation.
c. Underground Conduits:
o $0.86 per conduit foot per year through 12/31/98, escalating at
2% per year thereafter.
o applicable to BECO conduits not constructed at the request and
expense of Carrier.
o 10 year minimum term.
o no rate changes for duration of minimum term. Thereafter, rates
shall be recalculated with the same methodology in which the
initial rates were calculated, subject to any applicable change
in law or regulation.
2. The amount of all property taxes directly attributable to the Facilities
described in Sections 10(a) and 10(c).
3. Any other fees, charges, costs or expenses directly related to the BecoCom
Facilities.
<PAGE>
4. Reasonable charges for general and administrative costs incurred by BecoCom
with respect to the BecoCom Facilities.
BecoCom and its Affiliates shall use their best efforts to minimize the
amounts provided for in clauses (3) and (4) above.
2
<PAGE>
Exhibit C-2
PAYMENT FOR OPERATION AND MAINTENANCE
1. (a) For so long as BecoCom or one of its Affiliates is a member of
Carrier or a stockholder of Carrier or its Affiliates (or, if longer, 3 years
after the Effective Date), Carrier shall pay to BecoCom the actual cost of
operating and maintaining the Facilities described in Section 10(c) (all of
which shall be documented and reasonably efficient and justified); and
(b) After the later of (A) the 3rd anniversary of the Effective Date and
(B) the date on which one of BecoCom or its Affiliates is no longer a member of
Carrier or a stockholder of Carrier or its Affiliates, Carrier shall pay to
BecoCom the actual cost of operating and maintaining the Facilities described in
Section 10(c) plus 25% of such actual cost.
2. The charge for operations and maintenance shall be proportionately
reduced to reflect the use thereof by parties other than Carrier (including
BecoCom and its Affiliates).
<PAGE>
Exhibit D
COMPENSATION FOR CONSTRUCTION OF
NEW BECOCOM CONSTRUCTED FACILITIES
For each Project, Carrier shall pay to BecoCom (a) a one-time, lump-sum
payment for Cost of Construction as follows:
Upon the initiation of Work on each Project, there shall be established a
Cost of Construction for such Project. The Cost of Construction shall equal the
actual cost of the Work as set forth in the Scope of Work, provided that if, at
any time any Project commences after July 1, 1998, Carrier has committed to
fewer than 10,000 miles to be subject to this Agreement (including such Project
and Existing BecoCom Facilities), the Cost of Construction for such Project
shall be multiplied by a factor determined as follows:
<TABLE>
<CAPTION>
Miles Subject to this Agreement Multiplier
------------------------------- ----------
<S> <C>
8,500 to 10,000 1.25
6,500 to 8,499 1.50
4,500 to 6,499 2.00
2,500 to 4,499 2.50
500 to 2,499 3.00
below 500 4.00
</TABLE>
The Cost of Construction shall include any costs incurred beyond the Scope of
Work with the consent of Carrier. The amount determined pursuant to this Exhibit
D will be proportionately reduced if BecoCom or its Affiliates construct, in
connection with the Project, any Facilities for use by any party other than
Carrier.
<PAGE>
Exhibit E
EXISTING OBLIGATIONS
1. Agreement between BECO and Teleport Communications Group ("TCG"),
dated 11/29/95.
2. Agreement between BECO and TCG, dated 4/30/96.
3. Agreement between BECO and TCG, dated 8/21/96.
4. Agreement between BECO and TCG, dated 9/1/96.
5. Agreement between BECO and Metropolitan Fiber System, dated 11/30/93.
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement") is made as of this 17th day of
June, 1997 by and among RCN Operating Services, Inc., a New Jersey corporation
("RCN Operating"), BecoCom, Inc., a Massachusetts corporation ("BecoCom"), and
RCN-BecoCom, LLC, a Massachusetts limited liability company (the "Company").
WHEREAS, RCN Telecom Services of Massachusetts, Inc., a Massachusetts
corporation ("RCN-Sub"), and BecoCom have entered into that certain Amended and
Restated Operating Agreement of the Company of even date herewith (the
"Operating Agreement"), setting forth the terms and conditions that will govern
the operation of the Company; and
WHEREAS, Boston Edison Company, a Massachusetts corporation, and C-Tec
Corporation, a Delaware corporation, have each executed instruments of adherence
with respect to certain provisions hereof; and
WHEREAS, the Company desires to retain RCN Operating to perform certain
management services for the Company, upon the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Retention. The Company hereby retains RCN Operating, and RCN Operating
hereby agrees, to perform management services for the Company, upon the terms
and subject to the conditions set forth in this Agreement. RCN Operating shall,
at all times, use its best efforts in performing its obligations under this
Agreement.
2. Term. (a) The term of this Agreement (the "Term") shall commence on the
date hereof and unless extended or sooner terminated in accordance with this
Section 2 or Section 11 hereof, continue until December 31, 2001.
(b) The Term shall automatically be extended for successive three year
periods unless, no later than 90 days prior to the end of the initial five-year
Term or any three-year extension thereof, BecoCom, on behalf of the Company,
gives written notice of its objection (the "Objection Notice") to RCN
Operating's continued service as manager (the "Manager"). Such Objection Notice
shall include a proposal for a new manager of the Company's business (the "New
Manager") and a description of the terms and conditions under which such New
Manager would be retained.
<PAGE>
(c) Upon RCN Operating's receipt of the Objection Notice, RCN Operating
shall have 30 days to either (i) accept the New Manager proposed by BecoCom,
(ii) propose its own New Manager by written notice to BecoCom, which shall
include a description of the terms and conditions under which such New Manager
would be retained, or (iii) insist on remaining as Manager. If RCN Operating
elects to take either of the actions set forth in clauses (ii) or (iii) above,
RCN Operating and BecoCom shall have 30 days to resolve the dispute. If RCN
Operating and BecoCom cannot resolve the dispute within such 30 days, the party
which, together with its respective Affiliates (as defined in the Operating
Agreement), has the lower Investment Percentage (as defined in the Operating
Agreement) (the "Minority Member") shall have the right to sell to the party
with the higher Investment Percentage (the "Majority Member"), and the Majority
Member shall have the obligation to purchase, the Minority Member's membership
interest ("Interest") in the Company at a price to be determined as follows
(provided that RCN Operating and its Affiliates shall not have such right to
sell if they become a Minority Member because of a failure to satisfy an
obligation to make capital contributions in accordance with the Operating
Agreement):
(i) Selection of Appraisers. Each of RCN-Sub and BecoCom shall
designate by written notice to the Company and each other a firm
of recognized national standing familiar with appraisal techniques
applicable to assets of the type being evaluated to serve as an
appraiser (an "Appraiser") pursuant to this Section 2 (the firms
designated by RCN-Sub and BecoCom being referred to herein as
"RCN-Sub Appraiser" and the "BecoCom Appraiser," respectively)
within five business days after the failure to reach agreement in
accordance with the terms of this paragraph (c). In the event that
either Appraiser is not designated within the foregoing time
period, the other Appraiser will serve as the only Appraiser, and
its appraisal will be binding on both RCN-Sub and BecoCom for
purposes of this paragraph (c).
(ii) Evaluation Procedures. Each Appraiser shall be directed to
determine the fair market value (the "Fair Market Value") of the
Minority Member's Interest Each Appraiser will also be directed to
deliver a certificate (an "Appraiser's Certificate") setting
forth such Appraiser's valuation of the Minority Member's Interest
to both RCN-Sub and BecoCom on or before the 30th day after their
respective designation (the "Certificate Date"), upon the
conclusion of its evaluation, and each Appraiser's Certificate
once delivered may not be retracted or modified in any respect
Each Appraiser will keep confidential all information disclosed by
the Company in the course of conducting its evaluation, and, to
that end, will execute such customary documentation as the Company
may reasonably request with respect to such confidentiality
obligation. Each of RCN-Sub and BecoCom will cooperate in causing
the
- 2 -
<PAGE>
Company to provide each Appraiser with such information within the
Company's possession that may be reasonably requested in writing
by the Appraiser for purposes of its evaluation hereunder. Each of
RCN-Sub and BecoCom shall have full access to each Appraiser's
work papers. Each Appraiser will be directed to comply with the
provisions of this Section 2, and to that end each party will
provide to its respective Appraiser a complete and correct copy of
this Section 2 (and the definitions of capitalized terms used in
this Section 2 that are defined elsewhere in this Agreement).
(iii) Fair Market Value Determination. The Fair Market Value of the
Minority Member's Interest shall be determined on the basis of the
Appraisers' Certificates in accordance with the provisions of this
subparagraph (iii), provided, that there shall be no "controlling
interest premium" if the Majority Member's Interest has a Sharing
Ratio of less than 66 2/3% nor any "minority interest discount" if
the Minority Member's Interest has a Sharing Ratio of greater than
33 1/3%. The higher of the values set forth on the Appraisers'
Certificates is hereinafter referred to as the "Higher Value," and
the lower of such values is hereinafter referred to as the "Lower
Value." If the Higher Value is not more than 110% of the Lower
Value, the Fair Market Value of the Minority Member's Interest
will be the arithmetic average of the Higher Value and the Lower
Value. If the Higher Value is more than 110% of the Lower Value, a
third appraiser shall be selected in accordance with the
provisions of subparagraph (iv) below, and the Fair Market Value
of the Minority Member's Interest will be determined in accordance
with the provisions of subparagraph (v) below.
(iv) Selection of and Procedures for Third Appraiser. If the Higher
Value is more than 110% of the Lower Value, within seven days
thereafter the RCN-Sub Appraiser and the BecoCom Appraiser shall
agree upon and jointly designate a third Appraiser (the "Third
Appraiser"). If the RCN-Sub Appraiser and the BecoCom Appraiser
cannot agree upon a Third Appraiser within seven days, the Third
Appraiser shall be chosen by the American Arbitration Association
in Boston, Massachusetts. The RCN-Sub Appraiser and BecoCom
Appraiser shall direct the Third Appraiser to determine the Fair
Market Value of the Minority Member's Interest (the "Third Value")
in accordance with the provisions of subparagraph (ii) above, and
to deliver to both RCN-Sub and BecoCom an Appraiser's Certificate
on or before the 30th day after the designation of such Appraiser
hereunder. The Third Appraiser
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will be directed to comply with the provisions of this Section 2,
and to that end of the parties will provide to the Third Appraiser
a complete and correct copy of this Section 2 (and the definitions
of capitalized terms used in this Section 2 that are defined
elsewhere in this Agreement).
(v) Alternative Determination of Fair Market Value. Upon the delivery
of the Appraiser's Certificate of the Third Appraiser, the Fair
Market Value of the Minority Member's Interest will be determined
as provided in this subparagraph (v). The Fair Market Value of the
Minority Member's Interest will be (w) the Lower Value, if the
Third Value is less than the Lower Value, (x) the Higher Value, if
the Third Value is greater than the Higher Value, or (y) the
arithmetic average of the Third Value and either the Higher Value
or the Lower Value (whichever is closer to the Third Value) if the
Third Value fails within the range between (and including) the
Lower Value and the Higher Value.
(vi) Costs. Each of RCN-Sub and BecoCom will bear the cost of the
Appraiser designated by it or on its behalf. If the Higher Value
is not more than 115% of the Lower Value, or if the Higher Value
and the Lower Value are equally close to the Third Value, each of
RCN-Sub and BecoCom shall bear 50% of the cost of the Third
Appraiser, if any; otherwise, the party whose Appraiser's
determination of Fair Market Value of the Minority Member's
Interest is further away from the Third Value shall bear the
entire costs of the Third Appraiser. Each of RCN-Sub and BecoCom
agree to pay when due the fees and expenses of the Appraisers in
accordance with the foregoing provisions.
(vii) Conclusive Determination. To the fullest extent provided by law,
the determination of the Fair Market Value of the Minority
Member's Interest made pursuant to this Section 2 shall be final
and binding on the Company, RCN-Sub and BecoCom, and such
determination shall not be appealable to or reviewable by any
court or arbitrator.
(d) RCN Operating shall continue to manage the Company, on the terms set
forth herein, until such time as BecoCom, on behalf of the Company, furnishes an
Objection Notice to RCN Operating, pursuant to this Section 2, and any dispute
in connection therewith is resolved.
(e) In the event that RCN-Sub and its Affiliates which own an Interest in
the Company sell, assign, transfer or otherwise dispose of such Interest (a
"Sale") other than to a
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Wholly-Owned Affiliate (as defined in the Operating Agreement) prior to the
expiration of the Term, the Term shall terminate upon the effective date of such
Sale (the "Effective Date"), unless BecoCom elects, on behalf of the Company, to
extend the Term, in which case the Term shall continue for an additional two
years after the Effective Date.
3. Services.
(a) Scope of Services. Subject to the terms and conditions of this
Agreement and the Operating Agreement including, without limitation, Sections
7.1, 7.8 and 7.10 thereof, RCN Operating shall, on a timely and efficient basis,
manage, and shall have sole power to manage, all aspects of the Company's day to
day operations consistent with the provisions of the Operating Agreement RCN
Operating shall have the power and authority to do those things necessary or, in
RCN Operating's judgment appropriate to conduct operate and manage the business
of the Company, including, but not limited to, the power and authority to:
(i) direct, endorse and deposit all checks and other funds, collect
revenues, and take such other actions (including the establishment
of the Company bank accounts with signatories designated by RCN
Operating) regarding the collection and handling of checks and
other funds owed, owned or held by or on behalf of the Company;
(ii) produce checks and pay all obligations of the Company (by check or
otherwise), including without limitation, normal operating
expenses, extraordinary expenses, required interest and principal
payments on debt and obligations owed to RCN Operating hereunder;
(iii) negotiate or renegotiate and execute business contracts for the
conduct of the Company's business operations and construction and
maintenance activities connected therewith except for this
Agreement and the other Basic Agreements (as defined in the
Operating Agreement);
(iv) subject to the last sentence of this Subsection 3(a), resolve
contractual and other disputes which may arise in the ordinary
course of the Company's business, except for any dispute relating
to the Basic Agreements;
(v) retain attorneys, engineers, consultants and other professionals;
(vi) establish and maintain books and records to enable financial
statements to be prepared, as and when required, in accordance
with generally accepted accounting principles;
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(vii) under the direction of the Tax Matters Partner (as defined in the
Operating Agreement) prepare, or cause to be prepared, and file
all periodical and other required reports of governmental and
regulatory agencies, including tax returns, and perform all
related administrative functions;
(viii) perform all aspects of managing the daily operation of the
Company's business, including, without limitation, engaging,
instructing and supervising all personnel necessary in the
judgment of RCN Operating, and establishing and maintaining all
records relative to the operation thereof;
(ix) select and price all services provided or to be provided to
customers of the Company;
(x) oversee all advertising, marketing and sales and public relations
programs, engage and appoint advertising, marketing and public
relations agencies and consultants;
(xi) execute all instruments of any kind or character which, in RCN
Operating's discretion, shall be deemed necessary or appropriate
in connection with the conduct, operation and management of the
Company's business, including the procurement of insurance of such
types and in such amounts as RCN Operating shall deem appropriate;
(xii) maintain continuing contact with federal, state and local
governmental officials regarding any rights and licenses of the
Company which require periodic review and renegotiation; and
(xiii) perform any and all other acts as may reasonably be necessary or
appropriate to carry out the duties and responsibilities of RCN
Operating contemplated hereunder, whether or not specifically
enumerated herein.
Notwithstanding anything to the contrary in this Subsection 3(a), RCN
Operating's powers and authority shall not extend to any company action which,
pursuant to applicable law or the Operating Agreement, requires the approval or
authorization of the Company's Members (as defined in the Operating Agreement),
including, without limitation, any "Fundamental Business Actions" delineated in
Section 7.8 of the Operating Agreement.
(b) Access. RCN Operating and BecoCom shall have full and unrestricted
access to all books and records of the Company and its subsidiaries, if any,
including without limitation:
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<PAGE>
(i) All contracts, agreements, governmental and regulatory filings;
(ii) All accounting documentation including financial statements, books
and records, audit reports and other documents;
(iii) All tax returns, both federal and state, and related schedules;
(iv) All debt agreements or instruments, including pledge and security
agreements and related documents;
(v) All customer lists, billing records and histories, accounts
receivable records and other reports used in connection with the
Company's business;
(vi) All minute books;
(vii) All personnel records;
(viii) All files relative to both pending and threatened litigation
proceedings, including management's assessment of liability;
(ix) All franchise documents and other governmental authorizations
relative to the Company's business;
(x) A complete list of all real property owned or leased and a
detailed schedule of fixed assets; and
(xi) Any other contracts, documents, statements, returns, lists, books,
files or documentation deemed necessary by RCN Operating in order
to fulfill its obligations under this Agreement.
(c) RCN Operating Personnel. RCN Operating, at its option, may furnish the
services of any RCN Operating personnel or Affiliates as RCN Operating may from
time to time deem necessary or appropriate to perform its obligations hereunder
and such personnel or Affiliates shall have the duties assigned to them by RCN
Operating.
(d) Employees of RCN Operating; No Benefits. The parties acknowledge and
agree that: (i) by furnishing the services of RCN Operating personnel to the
Company, RCN Operating is functioning as an independent contractor to the
Company; (ii) the personnel provided by RCN Operating shall remain employees of
RCN Operating, and RCN Operating retains the right (subject to the terms hereof)
to direct and control the performance of all RCN Operating employees; (iii) RCN
Operating is solely responsible for the payment of salary, employee benefits and
all other compensation due to RCN Operating personnel rendering services to the
Company, and for all applicable federal, state and local tax withholding with
respect to compensation and
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<PAGE>
benefits payable to them under this Agreement or otherwise; and (iv) the
compensation to RCN Operating set forth in Section 4 shall be exclusive and RCN
Operating personnel shall not participate in or be eligible to participate in
any compensation or benefit plan or perquisite of the Company.
(e) Notwithstanding anything to the contrary, if BecoCom believes that it
is capable of providing to the Company certain support and administrative
services in a more efficient and economical manner than RCN Operating or any
third party provider chosen by RCN Operating, then RCN Operating and BecoCom
shall consider in good faith the use of BecoCom or its Affiliates as a provider
of such services.
(f) Any contract between RCN Operating and any of its Affiliates for the
provision of services to the Company shall be on terms no less favorable to the
Company than could be obtained from an unaffiliated third party.
4. Fees. Fees, including incentive compensation, for RCN Operating's
services hereunder shall be determined as part of the annual budgeting process
for the Company.
(a) From the date hereof until December 31, 1998, RCN Operating shall be
reimbursed by the Company only for all of its reasonable direct and indirect
costs allocable in good faith to the Company in connection with its provision of
management services hereunder provided, however, that RCN Operating and its
Affiliates shall use their best efforts to minimize such indirect allocable
costs; the Company and BecoCom shall have reasonable access to the books and
records of RCN Operating to verify such costs.
(b) Not later than October 1,1998, RCN Operating and the Company will enter
into discussions in order to reach an agreement on performance-based incentive
compensation to be effective starting January 1, 1999 through the end of the
Term and to be paid to RCN Operating as earned in addition to the reimbursement
of RCN Operating's reasonable direct and indirect costs. Such performance-based
incentive compensation shall be based on such factors as number of subscribers,
operating cash flow, and other or different factors as the parties shall agree.
The amounts payable pursuant to this Section 4 shall constitute the exclusive
compensation payable to RCN Operating for its services provided under this
Agreement and for the services provided by the RCN Operating personnel
hereunder, and no other compensation or consideration shall be payable to RCN
Operating or any other individual provided by RCN Operating in connection with
the services provided hereunder, except as otherwise expressly provided in this
Agreement.
5. Expense Reimbursement. To the extent not otherwise reimbursed pursuant
to Section 4 hereof, RCN Operating shall be entitled to be reimbursed by the
Company from time to time (but not more frequently than monthly) for reasonable
out-of-pocket business expenses incurred by its employees and others working on
its behalf including expenses in connection
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<PAGE>
with bona fide business travel on behalf of the Company, upon presentation from
time to time of an itemized written account of such expenses.
6. Representations and Warranties. Each of the parties hereto represents
and warrants to the other that, as of the date hereof:
(a) it is duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is formed;
(b) it has the power and authority to execute, deliver and perform its
obligations under this Agreement; and such execution, delivery, performance and
consummation have been duly authorized by all necessary corporate action. This
Agreement has been duly executed and delivered by it and constitutes a valid and
legally binding obligation of it, enforceable against it in accordance with its
terms except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization, or other laws affecting creditors'
rights generally or by the availability of equitable remedies;
(c) the execution, delivery and performance by it of this Agreement (i) do
not contravene any provision of its organizational documents; (ii) do not
violate or conflict with any law, regulation or contractual restriction to which
it is subject, and (iii) shall not result in the creation of, or violate or
conflict with, any lien, mortgage, pledge, security interest or any other
encumbrance upon or with respect to any of its properties;
(d) no consent, order, approval or authorization or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by it of this Agreement
and the consummation of the transactions contemplated hereby; and
(e) there is no action, suit, proceeding or investigation pending, or, to
its knowledge, threatened, against or affecting it or its properties, assets or
business, in any court or before or by any governmental department, board,
agency or instrumentality, or any arbitrator, that materially affects or impairs
its ability to enter into this Agreement, or to consummate the transactions
contemplated hereby.
7. Representation and Warranty of RCN Operating. RCN Operating represents
and warrants to the Company that it has the requisite knowledge, experience and
resources to fulfill its obligations under this Agreement.
8. Covenants of the Company. The Company hereby covenants that it will, and
will cause its officers, managers, agents and representatives to, cooperate
fully with RCN Operating in its performance of its obligations under this
Agreement and to otherwise act at all times in a manner consistent with this
Agreement.
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<PAGE>
9. Indemnification.
(a) Subject to paragraph (c) below, the Company shall indemnify RCN
Operating and all of its Affiliates and their respective officers, directors,
shareholders, employees, representatives, agents or consultants performing
services for or on behalf of the Company (collectively, the "Indemnified
Parties") who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or on behalf
of RCN Operating or BecoCom) caused by, relating to, based upon or arising out
of such Indemnified Party's acceptance of or the performance or non-performance
of obligations under this Agreement against expenses (including reasonable
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or it in connection with such action, suit or
proceeding if he or it acted in good faith and in a manner he or it reasonably
believed to be in or not opposed to the best interest of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or its conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the Indemnified Party did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful, provided, however, that such
indemnification shall not be applicable to any action, suit or proceeding in
which it is finally adjudicated that any damages awarded in, or liability
incurred as a result of the facts and circumstances underlying, such action,
suit or proceeding were directly and primarily caused by the gross negligence of
the Indemnified Party.
(b) Subject to paragraph (c) below, the Company shall indemnify any
Indemnified Party who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or on behalf of RCN
Operating or BecoCom to procure a judgment in its favor by reason of such
Indemnified Party's acceptance of or the performance or non-performance of
obligations under this Agreement against expenses (including reasonable
attorneys' fees) actually and reasonably incurred by him or it in connection
with the defense or settlement of such action or suit if he or it acted in good
faith and in a manner he or it reasonably believed to be in or not opposed to
the best interests of the Company; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable unless and only to the extent that the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper.
(c) Any indemnification under this Section 9 (unless ordered by a court)
shall be made by the Company only as authorized in the specific case upon a
determination that indemnification of the Indemnified Party is proper in the
circumstances because he has met the applicable standard of conduct set forth in
paragraph (a) above. Such determination shall be made by independent legal
counsel in a written opinion. To the extent, however, that an
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<PAGE>
Indemnified Party has been successful on the merits or otherwise in defense of
any action, suit or proceeding described above, or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
reasonable attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific
case.
(d) For purposes of any determination under this Section 9, a person shall
be deemed to have acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company, or, with respect to
any criminal action or proceeding, to have had no reasonable cause to believe
his conduct was unlawful, if his action is based on the records or books of
account of the Company or another enterprise, or on information supplied to him
by the officers of the Company or another enterprise in the course of their
duties, or on the advice of legal counsel for the Company or another enterprise
or on information or records given or reports made to the Company or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Company or another enterprise.
The term "another enterprise" as used in this paragraph (d) shall mean any
entity which such person is or was serving at the request of the Company.
(e) Notwithstanding the foregoing, any Indemnified Party may apply to any
court of competent jurisdiction in the Commonwealth of Massachusetts for
indemnification to the extent otherwise permissible under paragraph (a) above by
reason of the fact that he has met the applicable standard of conduct. If
successful, in whole or in part, the Indemnified Party seeking indemnification
shall also be entitled to be paid the expense of prosecuting such application.
(f) Expenses incurred by an Indemnified Party in defending or investigating
a threatened or pending action, suit or proceeding shall be paid by the Company
in advance of the final disposition thereof upon receipt of an undertaking to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Company as authorized in this Section 9.
(g) The indemnification and advancement of expenses in this Section 9 shall
not be deemed exclusive of any other rights which may apply, it being the policy
of the Company that indemnification of the persons specified in paragraph (a)
above shall be made to the fullest extent permitted by law. The provisions of
this Section 9 shall not preclude the indemnification of any person who is not
specified herein but whom the Company has the power or obligation to indemnify
under the Act, or otherwise.
(h) The indemnification and advancement of expenses provided by this
Section 9 shall, unless otherwise provided when authorized or ratified, inure to
the benefit of the heirs, executors and administrators of an Indemnified Party.
10. Confidentiality. Each of the parties hereto will hold, and will use its
reasonable, good faith efforts to cause its respective shareholders, partners,
members, directors, officers, employees, accountants, counsel, consultants,
agents and financial or other advisors (collectively
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<PAGE>
"Agents") to hold, in confidence, all information (whether oral or written),
including this Agreement and the documents contemplated herein, concerning the
transactions contemplated by this Agreement furnished to such party by or on
behalf of any other party in connection with such transactions, unless legally
compelled (by deposition, interrogatory, request for documents, subpoena, civil
investigative demand or similar process, or by order of a court or tribunal of
competent jurisdiction, or in order to comply with applicable rules or
requirements of any stock exchange, government department or agency or other
regulatory authority, or by requirements of any securities law or regulation or
other legal requirement) to disclose any such information or documents, and
except to the extent that such information or documents can be shown to have
been (a) previously known on a nonconfidential basis by such party, (b) in the
public domain through no fault of such party or (c) acquired by such party on a
nonconfidential basis from sources not known by such party to be bound by any
obligation of confidentiality in relation thereto. Notwithstanding the foregoing
provisions of this Section 10, each party may disclose such information to its
Agents in connection with the transactions contemplated by this Agreement so
long as such Agents are informed by such party of the confidential nature of
such information and are directed by such party to treat such information
confidentially and to certain governmental agencies in connection with the
procurement of the governmental authorizations contemplated by this Agreement.
The obligation of each party to hold any such information in confidence shall be
satisfied if such party exercises the same care with respect to such information
as it would take to preserve the confidentiality of its own similar information.
If this Agreement is terminated, each party will, and will use its reasonable,
good faith efforts to cause its respective Agents and lenders to destroy or
deliver to the other party, upon request, all documents and other materials, and
all copies thereof, obtained by such party or on its behalf from the other party
hereto in connection with this Agreement that are subject to such confidence.
11. Termination.
(a) Either party may terminate this Agreement in the event of a Default (as
hereinafter defined) by the other (unless such default is caused by the party
seeking to terminate this Agreement), provided that the non-defaulting party so
advises the defaulting party in writing of the event of Default and the
defaulting party has not cured, nor commenced the diligent pursuit of the cure
of, the Default within 60 days after written notice thereof is received. Except
as otherwise provided by this Agreement, such termination shall be effective
upon the expiration of the 60 day period immediately following receipt of notice
of Default by the defaulting party.
(b) Termination regardless of cause or nature shall be without prejudice to
any other rights or remedies of the parties and shall be without liability for
any loss or damage occasioned thereby. Termination of this Agreement for any
cause shall not release either party hereto from any liability which at the time
of termination has already accrued to the other party hereto or which thereafter
may accrue in respect of any act or omission prior to termination, or from any
obligation which is expressly stated herein to survive termination.
(c) The term "Default" is defined to include: (i) the initiation of
bankruptcy or receivership proceedings with respect to a party (which are not
dismissed within 60 days),
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<PAGE>
execution of a general assignment for the benefit of creditors or any other
transfer or assignment of a similar nature or otherwise seeking relief under any
applicable bankruptcy reorganization, moratorium or similar debtor relief laws
(it being understood that the execution of any third-party financing agreements
shall not constitute a Default hereunder) or (ii) a material breach of any of
the other terms or conditions hereof.
12. General
(a) Amendment. No modification or amendment of, or waiver under, this
Agreement shall be valid unless in writing and signed by each of the parties
hereto.
(b) Binding Agreement; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. This Agreement may be assigned by RCN Operating to any
of its Affiliates so long as RCN Operating remains bound by for the obligations
hereunder. This Agreement may not be assigned by the Company.
(c) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts without regard to
conflicts-of-laws principles.
(d) Severability. If any term, provision, covenant or restriction herein is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated thereby.
(e) Notices. All notices, requests and other communications hereunder shall
be deemed to have been duly delivered, given or made to or upon any party hereto
if in writing and delivered by hand against receipt, or by certified or
registered mail, postage prepaid, return receipt requested, or to a courier who
guarantees next business day delivery or sent by telecopy (with confirmation),
to such party at its address set forth below or to such other address as such
party may at any time, or from time to time, direct by notice given in
accordance with this Section 12(e).
If to RCN Operating:
c/o RCN Telecom Services, Inc.
419 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 267-3499
Attention: General Manager
and
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<PAGE>
C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Fax: (609) 734-0974 and (609) 734-3830
Attention: Michael J. Mahoney and Raymond B. Ostroski, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 735-2000
Attention: Stephen M Banker, Esq.
If to BecoCom:
800 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 424-2733
Attention: Richard S. Hahn, Vice President
Neven Rabadjija, Esq., Assistant General Counsel
with a copy to:
Davis, Malm & D'Agostine, P.C.
One Boston Place
Boston, Massachusetts 02108
Fax: (617) 227-3732
Attention: Andrew B. White, Esq.
If to the Company:
RCN-BecoCom, LLC
419 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 267-3499
Attention: General Manager
The date of delivery of any such notice, request or other communication shall be
the earlier of (i) the date of actual receipt, (ii) three business days after
such notice, request or other communication is sent if sent by certified or
registered mail, (iii) if sent by courier who guarantees next business day
delivery the business day next following the day such notice, request or other
communication is actually delivered to the courier or (iv) the day actually
telecopied.
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<PAGE>
(f) Entire Agreement. This Agreement contains the entire understanding of
the parties hereto respecting the subject matter hereof and supersedes all prior
discussions and understandings.
(g) Specific Performance. The parties agree that irreparable damage will
result if this Agreement is not performed in accordance with its terms, and the
parties agree that any damages available at law for a breach of this Agreement
would not be an adequate remedy. Therefore, the provisions hereof and the
obligations of the parties hereunder shall be enforceable in a court of equity,
or other tribunal with jurisdiction, by a decree of specific performance, and
appropriate injunctive relief may be applied for and granted in connection
therewith. Such remedies and all other remedies provided for in this Agreement
shall, however, be cumulative and not exclusive and shall be in addition to any
other remedies that a party may have under this Agreement, at law or in equity.
(h) Interpretation. In the event of any dispute concerning the construction
or interpretation of this Agreement or any ambiguity hereof, there shall be no
presumption that this Agreement or any provision hereof be construed against the
party who drafted this Agreement.
(i) Enforcement. In the event of any material breach of this Agreement by
RCN Operating, BecoCom shall have the authority, acting as agent for the
Company, to enforce this Agreement against RCN Operating.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
RCN OPERATING SERVICES, INC.
By /s/ Michael J. Mahoney
----------------------------------
Name: Michael J. Mahoney
Title: President
RCN-BECOCOM, LLC
By /s/ Michael A. Adams
----------------------------------
Name: Michael A. Adams
Title: President of Technology &
Strategic Development
BECOCOM, INC.
By /s/ Richard A. Hahn
----------------------------------
Name: Richard A. Hahn
Title: President
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<PAGE>
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT dated as of the 17th day of June, 1997, by and between
C-TEC CORPORATION, a Delaware corporation ("C-TEC"), and BECOCOM, INC., a
Massachusetts corporation ("BecoCom").
WITNESSETH:
WHEREAS, RCN Telecom Services of Massachusetts, Inc., a Massachusetts
corporation and indirect wholly-owned subsidiary of C-Tec ("RCN-MA"), and
BecoCom have on the date hereof entered into that certain Amended and Restated
Operating Agreement (the "Operating Agreement") of RCN-BETG, LLC, a
Massachusetts limited liability company (the "Company"), which Operating
Agreement sets forth the terms and conditions that will govern the operation of
the Company and the relationship of RCN-MA and BecoCom as the members thereof;
WHEREAS, C-Tec intends to consummate a tax-free corporate reorganization
under Section 355 of the Code (the "C-Tec Reorganization"), pursuant to which,
among other things, all of the issued and outstanding shares of capital stock of
RCN Corporation, a Delaware corporation ("New RCN"), shall be distributed on a
pro rata basis to the then existing C-Tec stockholders (the "C-Tec
Stockholders"); and
WHEREAS, the parties have agreed that BecoCom shall have the right to
exchange all or a portion of its investment in the Company into equity of RCN or
C-Tec, and shall have certain other rights in connection therewith, upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Definitions.
(a) As used in this Agreement, the following capitalized terms shall
have the following meanings:
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by, or under common control with, such Person.
"BecoCom Total Investment" means, as of any date of determination, the
aggregate dollar amount of all cash capital contributions, and the Agreed Value
of all non-cash capital contributions, made by BecoCom to the Company at any
time.
"BecoCom 1997 Appraised Value" means, as of the date of determination, the
product obtained by multiplying (i) the BecoCom 1997 Percentage, by (ii) the
then Company Appraised Value.
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"BecoCom 1997 Cash Investment" means the aggregate dollar amount of cash
capital contributions made by BecoCom to the Company through December 31, 1997.
"BecoCom 1997 Exchange Amount" means an amount determined by BecoCom, up to
the amount of the BecoCom 1997 Cash Investment which, pursuant to the terms of
this Agreement, BecoCom elects, as the case may be, either to (i) exchange for
Registrable Securities, or (ii) require New RCN or C-Tec to purchase.
"BecoCom 1997 Non-Cash Investment" means the Agreed Value, of all non-cash
contributions made by BecoCom to the Company through December 31, 1997.
"BecoCom 1997 Percentage" means, as of the date of determination, a
percentage of to Membership Interest of BecoCom determined by dividing (i) the
BecoCom 1997 Exchange Amount, by (ii) the aggregate of (A) the BecoCom 1997
Total Investment, and (B) the RCN-MA 1997 Total Investment.
"BecoCom 1997 Total Investment" means to aggregate of (i) to BecoCom 1997
Cash Investment, and (ii) the BecoCom 1997 Non-Cash Investment.
"BecoCom Post-1997 Appraised Value" means, as of any date of determination,
the product obtained by multiplying (i) the BecoCom Post-1997 Percentage, by
(ii) the then Company Appraised Value.
"BecoCom Post-1997 Exchange Amount" means an amount determined by BecoCom,
up to the BecoCom Post-1997 Total Investment which, pursuant to the terms of
this Agreement, BecoCom elects as the case may be, either to (i) exchange for
Registrable Securities, or (ii) require New RCN or C-Tec to purchase.
"BecoCom Post-1997 Percentage" means, as of any date of determination, a
percentage of the Membership Interest of BecoCom determined by dividing (i) the
applicable BecoCom Post-1997 Exchange Amount, by (ii) the aggregate of (A) the
BecoCom Post-1997 Total Investment and (B) the RCN-MA Total Investment.
"BecoCom Post-1997 Total Investment" means, as of any date of
determination, the aggregate dollar amount of all cash capital contributions,
and the Agreed Value of all non-cash capital contributions, made by BecoCom to
the Company at any time, determined after deducting therefrom (i) the BecoCom
1997 Exchange Amount, to the extent actually exchanged, (ii) any prior BecoCom
Post-1997 Exchange Amount, to the extent actually exchanged, and (iii) the
dollar amount or Agreed Value of any capital contributions attributable to
portions of a Membership Interest previously disposed of by BecoCom (other than
the BecoCom 1997 Exchange Amount and any prior BecoCom Post-1997 Exchange
Amount).
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<PAGE>
"C-Tec Registrable Securities" means (i) the shares of C-Tec Stock issued
or issuable to BecoCom upon exchange by BecoCom of all or a portion of the
BecoCom 1997 Percentage or any BecoCom Post-1997 Percentage pursuant to Sections
2(c) or 2(d) hereof, and (ii) any securities issued or issuable with respect to
the securities referred to in the foregoing clause (i) by way of replacement,
stock dividend or stock split, or in connection with a combination of shares,
recapitalization, reclassification, merger, consolidation or other similar
corporate event
"C-Tec Stock" means the class or series of publicly-traded C-Tec capital
stock owned by the C-Tec Stockholders as of the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended, and to rules
and regulations promulgated thereunder from time to time.
"Commission" means the Securities and Exchange Commission or any other
successor Federal agency then administering the Securities Act and the Exchange
Act.
"Company Appraised Value" means, as of the date of any Notice furnished by
BecoCom under Sections 2 or 3 hereof, the value of the Company determined in
accordance with the provisions of Section 4 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar Federal statute then in force, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"IRS" means the Internal Revenue Service.
"IRS Restrictions" means any restrictions under Section 355 of the Code, or
the regulations, rulings, revenue procedures or other pronouncements relating
thereto, and any representations or other statements made to the IRS in
connection with obtaining a private letter ruling (the "Ruling") with respect to
the C-Tec Reorganization which may restrict the amount of New RCN Registrable
Securities which may be issued, without giving rise to the possibility of a
revocation of any aspect of the Ruling, to BecoCom pursuant to Sections 2(a) and
2(b) hereof.
"New RCN Registrable Securities" means (i) the shares of New RCN Stock
issued or issuable to BecoCom upon exchange by BecoCom of all or a portion of
the BecoCom 1997 Percentage or any BecoCom Post-1997 Percentage pursuant to
Sections 2(a) or 2(b) hereto which securities shall be of the same class of
securities of New RCN issued to the C-Tec Stockholders, including Kiewit Telecom
Holdings, Inc., and (ii) any securities issued or issuable with respect to the
securities referred to in the foregoing clause (i) by way of replacement, stock
dividend or stock split, or in connection with a combination of shares,
recapitalization, reclassification, merger, consolidation or other similar
corporate event.
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"New RCN Stock" means the securities of New RCN issued to the C-Tec
Stockholders pursuant to the C-Tec Reorganization.
"Notice" means any of the following, as applicable: (i) the 1997 New RCN
Exchange Notice under Section 2(a) hereof (in the case of BecoCom electing to
determine the number of New RCN Registrable Securities to be issued to it under
said Section 2(a) in accordance with clause (ii) thereof), (ii) any Post-1997
New RCN Exchange Notice under Section 2(b) hereof, (iii) the 1997 C-Tec Exchange
Notice under Section 2(c) hereof (in the case of BecoCom electing to determine
the number of C-Tec Registrable Securities to be issued to it under said Section
2(c) in accordance with clause (ii) thereof, (iv) my Post-1997 C-Tec Exchange
Notice under Section 2(d) hereof, (v) a New RCN Put Notice under Section 3(a)
hereof, or (vi) the C-Tec Put Notice under Section 3(b) hereof.
"Person" means any natural person, corporation, limited liability company,
general partnership, limited partnership, joint venture, trust, business trust,
estate or other entity.
"RCN-MA Total Investment" means, as of any date of the aggregate dollar
amount of all cash contributions, and the Agreed Value of all non-cash
contributions made by RCN-MA to the Company at any time.
"RCN-MA 1997 Total Investment" means the aggregate dollar amount of all
cash contributions, and the Agreed Value of all non-cash contributions, made by
RCN-MA to the Company through December 31, 1997.
"Registrable Securities" means the C-Tec Registrable Securities or the New
RCN Registrable Securities, as the case may be.
"Registrant" means either of C-Tec or, after the consummation of the C-Tec
reorganization, New RCN, as the case may be, effecting the registration of such
Registrable Securities designated by BecoCom pursuant to Section 5 hereof.
"Related Securities" means any securities similar or identical to any of
the Registrable Securities, including, without limitation, all options,
warrants, rights and other securities convertible into, or exchangeable or
convertible for, Registrable Securities.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute then in force and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Securities Holders" means the holders of securities of New RCN or C-Tec,
other than BecoCom.
(b) All capitalized terms otherwise used herein without definition shall
have the meanings ascribed to such terms in the Operating Agreement.
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<PAGE>
2. Exchange Rights.
(a) Exchange of BecoCom 1997 Percentage to New RCN Registrable Securities.
In the event that the C-Tec Reorganization is consummated, BecoCom shall have
the right to sell to New RCN, at the time hereinafter provided, all or any
portion of the BecoCom 1997 Percentage, in exchange for such number of New RCN
Registrable Securities determined as hereinafter provided (such sale being
referred to herein as the "1997 New RCN Exchange"). Subject to any limitations
on account of the IRS Restrictions, the number of New RCN Registrable Securities
to be issued to BecoCom in exchange for the BecoCom 1997 Percentage being
exchanged pursuant to this Section 2(a) shall be determined, at BecoCom's option
(which option shall be selected by BecoCom in the 1997 New RCN Exchange Notice
(as hereinafter defined)), by dividing either (i)(A) the BecoCom 1997 Exchange
Amount, by (B) ninety-five percent (95%) of the average closing trading price of
the New RCN Stock during the initial ninety (90) day trading period (the
"Initial Trading Period") of such stock, or (ii)(A) the BecoCom 1997 Appraised
Value, by (B) the closing trading price of the New RCN Stock on the date of the
1997 New RCN Exchange Notice. If BecoCom elects to consummate the 1997 New RCN
Exchange, it shall furnish written notice thereof (the "1997 New RCN Exchange
Notice") to New RCN at any time within the thirty (30) day period immediately
following the end of the Initial Trading Period, and the closing of the 1997 New
RCN Exchange shall occur at the principal offices of the Company, (x) in the
case of BecoCom electing to determine the number of New RCN Registrable
Securities to be issued to it in accordance with clause (i) of this Section
2(a), within ten (10) days after the date of the 1997 New RCN Exchange Notice
and (y) in the case of BecoCom electing to determine the number of New RCN
Registrable Securities to be issued to it in accordance with clause (ii) of this
Section 2(a), within ten (10) days after the determination of the Company
Appraised Value to be utilized in the determination of the BecoCom 1997
Appraised Value; provided, however, that notwithstanding the foregoing, in no
event shall such closing occur prior to December 31, 1997. At the closing of the
1997 New RCN Exchange, New RCN shall issue BecoCom one or more stock
certificates representing the New RCN Registrable Securities to be issued to
BecoCom pursuant to this Section 2(a), and BecoCom shall execute and deliver to
New RCN all such documents necessary to evidence the exchange of the BecoCom
1997 Percentage pursuant to this Section 2(a).
(b) Exchange of BecoCom Post-1997 Percentage to New RCN Registrable
Securities. In the event that the C-Tec Reorganization is consummated, BecoCom
shall have the right to sell to New RCN from time to time, at the times
hereinafter provided, any BecoCom Post-1997 Percentage, in exchange for such
number of New RCN Registrable Securities determined as hereinafter provided (any
such sale being referred to herein as a "Post-1997 New RCN Exchange"); provided,
however, that any BecoCom Post-1997 Percentage to be exchanged pursuant to this
Section 2(b) must utilize, in the determination thereof, a minimum BecoCom
Post-1997 Exchange Amount of the lesser of (i) $50,000,000, or (ii) the then
BecoCom Post-1997 Total Investment; provided, however, that notwithstanding the
foregoing, in all instances BecoCom shall be permitted to retain in the
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<PAGE>
Company and not exchange $1 of the BecoCom Post-1997 Total Investment. Subject
to any limitations on account of the IRS Restrictions, the number of New RCN
Registrable Securities to be issued to BecoCom in exchange for any BecoCom
Post-1997 Percentage being exchanged pursuant to this Section 2(b) shall be
determined by dividing (A) the BecoCom Post-1997 Appraised Value, by (B) the
average closing trading price of the New RCN Stock during the ninety (90) day
period immediately following the date of the applicable Post-1997 New RCN
Exchange Notice (as hereinafter defined) furnished by BecoCom to New RCN in
connection therewith. If BecoCom elects to consummate a Post-1997 New RCN
Exchange, it shall only be permitted to do so once during the twenty-four (24)
month period immediately following the date of the consummation of the C-Tec
Reorganization, and once during each successive twenty-four (24) month period
thereafter (each such twenty-four (24) month period being referred to herein as
a "Post-1997 New RCN Exchange Period"). BecoCom shall furnish written notice of
any such election (a "Post-1997 New RCN Exchange Notice") to New RCN at any time
within a Post-1997 New RCN Exchange Period, and the closing of the Post-1997 New
RCN Exchange relating thereto shall occur at the principal offices of the
Company within ten (10) days after the determination of the Company Appraised
Value to be utilized in the determination of the BecoCom Post-1997 Appraised
Value. At the closing of any Post-1997 New RCN Exchange, New RCN shall issue
BecoCom one or more stock certificates representing the New RCN Registrable
Securities to be issued to BecoCom pursuant this Section 2(b), and BecoCom shall
execute and deliver to New RCN all such documents necessary to evidence the
exchange of such BecoCom Post-1997 Percentage pursuant to this Section 2(b).
(c) Exchange of BecoCom 1997 Percentage to C-Tec Registrable Securities. In
the event that the C-Tec Reorganization is not consummated by June 30, 1998 (the
"C-Tec Reorganization Termination Date"), BecoCom shall have the right to sell
to C-Tec, at the time hereinafter provided, all or any portion of the BecoCom
1997 Percentage, in exchange for such number of C-Tec Registrable Securities
determined as hereinafter provided (such sale being referred to herein as the
"1997 C-Tec Exchange). The number of C-Tec Registrable Securities to be issued
to BecoCom in exchange for the portion of the BecoCom 1997 Percentage being
exchanged pursuant to this Section 2(c) shall be determined, at BecoCom's option
(which option shall be selected by BecoCom in the 1997 C-Tec Exchange Notice (as
hereinafter defined)), by dividing either (i)(A) the BecoCom 1997 Exchange
Amount, by (B) ninety-five percent (95%) of the average closing trading price of
the C-Tec Stock during the ninety (90) day trading period immediately following
the C-Tec Reorganization Termination Date, or (ii)(A) the BecoCom 1997 Appraised
Value, by (B) the closing trading price of the C-Tec stock on the date of the
1997 C-Tec Exchange Notice. If BecoCom elects to consummate to 1997 C-Tec
Exchange, it shall furnish written notice thereof (the "1997 C-Tec Exchange
Notice") to C-Tec at any time within the thirty (30) day period immediately
following the C-Tec Reorganization Termination Date and the closing of the 1997
C-Tec Exchange shall occur at to principal offices of the Company (x) in the
case of BecoCom electing to determine the number of C-Tec Registrable Securities
to be issued to it in accordance with clause (i) of this Section 2(c), within
ten (10) days after the
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<PAGE>
date of the 1997 C-Tec Exchange Notice, and (y) in the case of BecoCom electing
to determine the number of C-Tec Registrable Securities to be issued to it in
accordance with clause (ii) of this Section 2(c), within ten (10) days after the
determination of the Company Appraised Value to be utilized in the determination
of the BecoCom 1997 Appraised Value. At the closing of the 1997 C-Tec Exchange,
C-Tec shall issue BecoCom one or more stock certificates representing the C-Tec
Registrable Securities to be issued to BecoCom pursuant to this Section 2(c),
and BecoCom shall execute and deliver to C-Tec all such documents necessary to
evidence the exchange of the BecoCom 1997 Percentage pursuant to this Section
2(c).
(d) Exchange of BecoCom Post-1997 Percentage to C-Tec Registrable
Securities. In the event that the C-Tec Reorganization is not consummated by the
C-Tec Reorganization Termination Date, BecoCom shall have the right to sell to
C-Tec from time to time, at the times hereinafter provided, any BecoCom
Post-1997 Percentage, in exchange for such number of C-Tec Registrable
Securities determined as hereinafter provided (any such sale being referred
herein as a "Post-1997 C-Tec Exchange"); provided, however, that any BecoCom
Post-1997 Percentage to be exchanged pursuant to this Section 2(d) must utilize,
in the determination thereof, a minimum BecoCom Post-1997 Exchange Amount of the
lesser of (i) $50,000,000, or (ii) the then BECOCOM Post-1997 Total Investment;
provided, however, that notwithstanding the foregoing, in all instances BecoCom
shall be permitted to retain in the Company and not exchange $1 of the BecoCom
Post-1997 Total Investment. The number of C-Tec Registrable Securities to be
issued to BecoCom in exchange for any BecoCom Post-1997 Percentage being
exchanged pursuant to this Section 2(d) shall be determined by dividing (A) the
BecoCom Post-1997 Appraised Value, by (B) the average closing trading price of
the C-Tec Stock during the ninety (90) day period immediately following the date
of the applicable Post-1997 C-Tec Exchange Notice (as hereinafter defined)
furnished by BecoCom to C-Tec in connection therewith. If BecoCom elects to
consummate a Post-1997 C-Tec Exchange, it shall only be permitted to do so once
during the twenty-four (24) month period immediately following the C-Tec
Reorganization Termination Date, and once during each successive twenty-four
(24) month period thereafter (each such twenty-four (24) month period being
referred to herein as a "Post-1997 C-Tec Exchange Period"), BecoCom shall
furnish written notice of any such election (a "Post-1997 C-Tec Exchange
Notice") to C-Tec at any time within a Post-1997 C-Tec Exchange Period, and the
closing of the Post-1997 C-Tec Exchange relating thereto shall occur at the
principal offices of the Company within the (10) days after to date of the
determination of the Company Appraised Value to be utilized in the determination
of the BecoCom Post-1997 Appraised Value. At the closing of any Post-1997 C-Tec
Exchange, C-Tec shall issue BecoCom one or more stock certificates representing
the C-Tec Registrable Securities to be issued to BecoCom pursuant to this
Section 2(d), and BecoCom shall execute and deliver to C-Tec all such documents
necessary to evidence the exchange of the BecoCom Post-1997 pursuant to this
Section 2(d).
7
<PAGE>
(e) Securities Act Issues:
(i) Prior to the issuance to BecoCom of any Registrable Securities,
BecoCom shall deliver to the issuer of such securities a certificate,
in which BecoCom represents and warrants to the issuer as follows:
(A) In evaluating the suitability of an investment in New RCN or
C-Tec, as the case may be, BecoCom has not relied upon any oral or
written representations or other information from New RCN or C-Tec, as
the case may be, or any agent or representative of New RCN or C-Tec,
as the case may be, except as set forth herein.
(B) BecoCom or its advisors have had a reasonable opportunity to
ask questions of and receive answers from a person or persons acting
on behalf of New RCN or C-Tec, as the case may be, except as set forth
herein.
(C) BecoCom acknowledges that it has had access to the same kind
of information that would be available in a registration statement
filed by New RCN or C-Tec, as the case may be, under the Securities
Act.
(D) BecoCom or its advisors, as the case may be, have such
knowledge and experience in financial, tax and business matters so as
to enable BecoCom to utilize the information made available to BecoCom
in connection with the Registrable Securities to evaluate the merits
and risks of an investment in the Registration Securities and to make
an informed investment decision with respect thereto. BecoCom
recognizes that investment in the Registrable Securities involves
substantial risks, including loss of the entire amount of such
investment.
(E) BecoCom represents that it is purchasing the Registrable
Securities for its own account for investment and not with a view to
resale or distribute except in compliance with the Securities Act.
BecoCom will not sell or otherwise transfer the Registrable Securities
without registration under the Securities Act or the applicable state
securities laws or an exemption therefrom. BecoCom acknowledges that
Registrable Securities have not been registered under the Securities
Act or securities laws of any state, and that its purchase of
Registrable Securities is being made in reliance upon an exemption
from registration under the Securities Act
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<PAGE>
for an offer and sale of securities that does not involve a public
offering.
(F) BecoCom is qualified a an accredited investor within the
meaning of Rule 501 of Regulation D promulgated under the Securities
An ("Accredited Investor").
(ii) Each certificate representing shares of Registrable Securities
shall bear substantially the following legend:
THIS CERTIFICATE IS SUBJECT TO, AND IS TRANSFERABLE ONLY UPON COMPLIANCE
WITH, THE PROVISIONS OF THE AMENDED AND RESTATED OPERATING AGREEMENT, DATED
AS OF JUNE 17, 1997, BY AND BETWEEN BECOCOM, INC., AND RCN TELECOM SERVICES
OF MASSACHUSETTS, INC., AND THE EXCHANGE AGREEMENT, DATED AS OF JUNE 17,
1997, BY AND BETWEEN C-TEC CORPORATION AND BECOCOM, INC. COPIES OF THE
ABOVE REFERENCED AGREEMENTS ARE ON FILE AT THE OFFICE OF THE ISSUER.
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR AN
EXEMPTION FROM REGISTRATION, UNDER SAID ACT.
(f) Reservation of Registrable Securities. Each of C-Tec and, after the
consummation of the C-Tec Reorganization, New RCN, shall at all times reserve
and keep available out of its authorized but unissued shares of capital stock,
solely for the purpose of effecting the exchange of the BecoCom 1997 Percentage
and any BecoCom Post-1997 Percentage, such number of Registrable Securities as
shall from time to time be sufficient to effect the exchange of the BecoCom 1997
Percentage and any BecoCom Post-1997 Percentage, and if at any time the number
of authorized but unissued shares of capital stock of the same class as the
Registrable Securities shall not be sufficient to effect the exchanges as
aforesaid, C-Tec or New RCN, as the case may be, shall take such corporate
action, as may be necessary to increase such authorized but unissued shares of
capital stock to such number of shares, as shall be sufficient for such purpose.
C-Tec hereby represents, warrants and confirms to BecoCom that in the event that
the C-Tec Reorganization is consummated, C-Tec estimates in good faith that
after giving effect to the IRS Restrictions, New RCN shall be permitted to issue
to BecoCom, in connection with the exchanges hereinabove described, no less than
3,500,000 New RCN Registrable Securities, or approximately ten percent (10%) of
the shares of New RCN Stock to be issued and outstanding based upon the capital
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<PAGE>
structure of New RCN which on the date hereof is contemplated as of the
consummation of the C-Tec Reorganization, and determined after giving further
effect to (i) the shares of New RCN Stock issuable upon the exercise of all
employee stock options issued or issuable pursuant to all New RCN employee stock
option or similar plans, and (ii) the shares of New RCN Stock which may be
issued to a New RCN employee stock ownership plan formed in connection with the
C-Tec Reorganization (which number of New RCN Registrable Securities to be
issued to BecoCom as aforesaid may be equitably adjusted for any stock dividend,
stock split, combination, reorganization, recapitalization or other similar
event affecting the New RCN Stock).
(g) Effect of Exchange. Any exchange by BecoCom of the BecoCom 1997
Percentage or any BecoCom Post-1997 Percentage pursuant to this Section 2 shall
affect the Sharing Ratios and Investment Percentages as provided in the
Operating Agreement.
3. Put Rights.
(a) To New RCN. In the event that BecoCom is unable to exchange for New RCN
Registrable Securities any portion of the BecoCom 1997 Percentage or any BecoCom
Post-1997 Percentage pursuant to Sections 2(a) or 2(b) hereof on account of the
IRS Restrictions, BecoCom shall have the right to require New RCN to purchase
any such portion which BecoCom is unable to so exchange (herein, an "IRS
Restricted BecoCom Percentage"), for a purchase price determined as hereinafter
provided. The purchase price to be paid by New RCN to BecoCom for any IRS
Restricted BecoCom Percentage shall equal, (i) as to such portion of such IRS
Restricted BecoCom Percentage being comprised of a portion of the BecoCom 1997
Percentage, the BecoCom 1997 Appraised Value, and (ii) as to such portion of
such IRS Restricted BecoCom Percentage being comprised of a portion of any
BecoCom Post-1997 Percentage, the BecoCom Post-1997 Appraised Value. If BecoCom
elects to require New RCN to purchase any IRS Restricted BecoCom Percentage, it
shall furnish written notice thereof (a "New RCN Put Notice") to New RCN within
fifteen (15) days after BecoCom is notified in writing by New RCN that it will
be unable to exchange for New RCN Registrable Securities such IRS Restricted
BecoCom Percentage (which notification shall be accompanied by a detailed
calculation by New RCN showing the number of New RCN Registrable Securities to
which BecoCom is then entitled), and the closing of the purchase and sale of
such IRS Restricted BecoCom Percentage shall occur at the principal offices of
the Company on a date specified by New RCN within the one hundred eighty (180)
day period immediately following the date of the applicable New RCN Put Notice
(but in no event later than the last day of such one hundred eighty (180) day
period). New RCN shall also furnish to BecoCom such additional material and
information as BecoCom shall reasonably request in order for BecoCom to
verify New RCN's calculation as to the number of New RCN Registrable Securities
to which BecoCom is then entitled. At the closing of the purchase and sale of
any IRS Restricted BecoCom Percentage, New RCN shall pay the purchase price
therefor in full by certified or bank check or wire transfer pursuant to wire
instructions furnished by BecoCom to New RCN, and BecoCom shall
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<PAGE>
execute and deliver to New RCN all such documents necessary to evidence the
transfer of such IRS Restricted BecoCom Percentage.
(b) To C-Tec. In the event that the C-Tec Reorganization is not consummated
by the C-Tec Reorganization Termination Date, BecoCom shall have the one (1)
time right, exercisable as hereinafter provided, in lieu of exchanging all or
any portion of the BecoCom 1997 Percentage or any BecoCom Post-1997 Percentage
to C-Tec Registrable Securities pursuant to Sections 2(c) or 2(d) hereof, to
require C-Tec to purchase the aggregate of all of such portions which BecoCom
has elected not to so exchange as of the furnishing of the C-Tec Put Notice (as
hereinafter defined) (herein, the "Reorg Restricted BecoCom Percentage"), for a
purchase price determined as hereinafter provided. The purchase price to be paid
by C-Tec for the Reorg Restricted BecoCom Percentage shall equal in the
aggregate, (i) as to such portion of the Reorg Restricted BecoCom Percentage
being comprised of a portion of the BecoCom 1997 Percentage, the BecoCom 1997
Appraised Value, and (ii) as to such portion of the Reorg Restricted BecoCom
Investment being comprised of the portion of any BecoCom Post-1997 Percentage,
the BecoCom Post-1997 Appraised Value. If BecoCom elects to require C-Tec to
purchase the Reorg Restricted BecoCom Percentage it shall furnished written
notice thereof (the "C-Tec Put Notice") to C-Tec at any time within thirty (30)
days following the C-Tec Reorganization Termination Date, and the closing of the
purchase and sale of the Reorg Restricted BecoCom Percentage shall occur at the
principal offices of the Company on a date specified by C-Tec within the one
hundred eighty (180) day period immediately following the date of the C-Tec Put
Notice (but in no event later than the last day of such one hundred eighty (180)
day period). At the closing of the purchase and sale of the Reorg Restricted
BecoCom Percentage, C-Tec shall pay the purchase price therefor in full by
certified or bank check or wire transfer pursuant to wire instructions furnished
by BecoCom to C-Tec, and BecoCom shall execute and deliver to C-Tec all such
documents necessary to evidence the transfer of the Reorg Restricted BecoCom
Percentage.
4. Determination of Company Appraised Value. For purposes of Sections 2 and
3 hereof, the "Company Appraised Value" shall be determined in accordance with
the following provisions of this Section 4:
(a) Contemporaneously with the delivery by BecoCom of any Notice,
BecoCom and New RCN or C-Tec, as the case may be, shall commence
negotiations to attempt to agree on the fair market value of the Company as
of the date of such Notice, which shall then be the "Company Appraised
Value" for all purposes of this Agreement. If no such agreement is reached
within ten (10) days, then the fair market value of the Company shall be
determined as follows:
(b) BecoCom, on the one hand, and C-Tec or New RCN, as the case may
be, on the other hand (for purposes of this Section 4, to "Exchange
Entity"), shall each designate by written notice to the other a firm of
recognized national standing familiar with appraisal
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techniques applicable to the Company and assets of the type being evaluated to
serve as an appraiser (an "Appraiser") pursuant this Section 4 (the firm
designated by BecoCom being referred to herein as the "First Appraiser," and the
firm designated by the Exchange Entity being referred to herein as the "Second
Appraiser"), within fifteen (15) business days after the failure to reach
agreement in accordance with the terms of Section 4(a) above. In the event that
either Appraiser is not designated within the foregoing time period, the other
Appraiser will serve as the only Appraiser, and its appraisal will be binding on
BecoCom and the Exchange Entity for purposes of this Section 4.
(c) Each Appraiser shall be directed to determine the fair market value of
the Company as of the date of the applicable Notice. Each Appraiser shall also
be directed to deliver a certificate (an "Appraiser's Certificate") setting
forth such Appraiser's determination to the party who has not engaged such
Appraiser on or before the thirtieth (30th) day after its respective
designation, upon the conclusion of its evaluation, and each Appraiser
Certificate once delivered may not be retracted or modified in any respect. In
determining the fair market value of the Company, the Appraisers (i) shall
include as assets of the Company all tangible and intangible assets owned by the
Company, together with all such other assets utilized by the Company in the
operation of its business, whether by lease, license or other arrangement with
unrelated third parties or Affiliates of the Company, BecoCom or RCN-MA, (ii)
shall value the Company as if it were a publicly-traded company, without any
premium for control or discount for a minority interest, using the
fully-distributed public market value, (iii) in the case of (A) an exchange by
BecoCom pursuant to Sections 2(a) or 2(b) hereof, or (B) a put by BecoCom
pursuant to Section 3(a) hereof, shall utilize the same valuation multiples
which are used by financial analysts to value New RCN as of the date of the
applicable Notice, so long as the businesses of New RCN and the Company are
predominantly the same; provided, however, that in the event such businesses are
not predominantly the same, (x) said valuation multiples shall be adjusted to
reflect valuation multiples derived from publicly-traded companies in
predominantly the same business as the Company, and (y) a discounted cash flow
analysis may be utilized,* and (iv) in the case of (A) an exchange by BecoCom
pursuant to Section 2 hereof, or (B) a put by BecoCom pursuant to Section 3
hereof, shall consult with the investment bankers of New RCN or C-Tec, as the
case may be, to take into account the value of the Company as compared with the
value of New RCN or C-Tec, as then case may be. The parties agree that, so long
as New RCN is engaged predominantly in the provision to customers of the same
services that the Company provides, together with maintaining its proportionate
investment in Megacable S. A. de C. V., the business of New RCN shall be deemed
to be predominantly the same as the business of the Company. Each Appraiser will
keep confidential all information disclosed by the Company and BecoCom or the
Exchange Entity, as the case may be, in the course of conducting its evaluation,
and, to that end, will execute such customary documentation as either BecoCom or
the Exchange Entity may reasonably request with respect to such confidentiality
obligation. Each of BecoCom and the Exchange Entity shall cooperate in causing
the Company to provide each Appraiser with such information within the Company's
possession that may be reasonably requested in writing by such
* (but only in such event)
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Appraiser for purposes of its evaluation hereunder. Each of BecoCom and the
Exchange Entity shall have full access to each Appraiser's work papers.
Each Appraiser will be directed to comply with the provisions of this
Section 4, and to that end each party will provide to its respective
Appraiser a complete and correct copy of this Section 4 (and the
definitions of capitalized terms used in this Section 4 that are defined
elsewhere in this Agreement).
(d) The Company Appraised Value shall be determined on the basis of
the Appraiser's Certificates in accordance with the provisions of this
Section 4(d). The higher of fair values set forth in the Appraiser's
Certificates is hereinafter referred to as the "Higher Value," and the
lower of such values is hereinafter referred to as the "Lower Value." If
the Higher Value is more than 110% of the Lower Value, the Company
Appraised Value of the Company will be the arithmetic average of the Higher
Value and the Lower Value. If the Higher Value is more than 110% of the
Lower Value, a third appraiser shall be selected in accordance with the
provisions of Section 4(e) hereof and to Company Appraised Value of the
Company will be determined in accordance with the provision of Section 4(f)
hereof.
(e) If the Higher Value is more than 110% of the Lower Value, within
seven (7) days thereafter the First Appraiser and the Second Appraiser
shall agree upon and jointly designate a third Appraiser (the "Third
Appraiser"), by written notice to each of BecoCom and the Exchange Entity.
If the First Appraiser and the Second Appraiser cannot agree upon a Third
Appraiser within seven days, the Third Appraiser shall be chosen by the
American Arbitration Association ("AAA") in Boston, Massachusetts in
accordance with Rule 13 of the Commercial Arbitration Rules of the AAA. The
First Appraiser and the Second Appraiser shall direct the Third Appraiser
to determine the fair market value of the Company (the "Third Value") in
accordance with the provisions of this Section 4, and to deliver to each of
BecoCom and the Exchange Entity an Appraiser's Certificate on or before the
thirtieth (30th) day after the designation of such Third Appraiser
hereunder. The Third Appraiser will be directed so comply with the
provisions of this Section 4, and to that end the parties will provide to
the Third Appraiser a complete and correct copy of this Section 4 (and the
definitions of capitalized terms used in this Section 4 that are defined
elsewhere in this Agreement).
(f) Upon the delivery of the Appraiser's Certificate of the Third
Appraiser, the Company Appraised Value of the Company will be determined as
provided in this Section 4(f). The Company Appraised Value of the Company
will be (i) the Lower Value, if the Third Value is less than the Lower
Value, (ii) the Higher Value; if the Third Value is greater than the Higher
Value, (iii) the arithmetic average of the Third Value and either the
Higher Value or the Lower Value, (whichever is closer to the Third Value)
if the Third Value falls within the range between (and including) the Lower
Value and the Higher Value and (iv) the Third Value, if the Lower Value and
the Higher Value are equally close to the Third Value.
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(g) Each of BecoCom and the Exchange Entity will bear the cost of the
Appraiser designated by it or on its behalf. If the Higher Value is not
more than 115% of the Lower Value, or if the Higher Value and the Lower
Value are equally close to the Third Value, each of BecoCom and the
Exchange Entity shall bear fifty percent (50%) of the cost of the Third
Appraiser, if any; otherwise, the particular party whose Appraiser's
determination of the fair market value of the Company is further away from
the Third Value shall bear the entire costs of the Third Appraiser. Each of
BecoCom and the Exchange Entity agree to pay when due the fees and expenses
of the Appraisers in accordance with the foregoing provisions.
(h) To the fullest extent provided by law, the determination of the
Company Appraised Value made pursuant to this Section 4 shall be final and
binding on BecoCom and the Exchange Entity, and such determination shall
not be appealable to or reviewable by any court or arbitrator; but judgment
on such determination may be entered in any court having jurisdiction
thereof.
5. Registration Rights.
(a) Demand Registration.
(i) Upon the written request or BecoCom requesting that a
Registrant effect the registration under the Securities Act of all or
any portion of BecoCom's Registrable Securities and specifying the
intended method of disposition thereof (a "Demand Registration"), but
in no event more than twice throughout the effectiveness of this
Agreement, the Registrant, subject to the provisions of this Section
5(a), shall use its best efforts to effect the registration under the
Securities Act of the Registrable Securities which the Registrant has
been so requested to register by BecoCom for disposition in accordance
with the intended method of disposition stated in such request;
provided, that the Registrant shall not be required to effect any
registration of Registrable Securities pursuant to this Section 5(a)
unless the number of shares of Registrable Securities requested to be
registered by BecoCom is at least fifty percent (50%) of the
Registrable Securities then held by BecoCom
(ii) Any Demand Registration under this Section 5(a) shall be on
such appropriate registration form of the Commission (A) as shall be
selected by the Registrant, and (B) as shall permit the disposition
of such Registrable Securities in accordance with the intended method
of disposition specified in the request by BecoCom for such Demand
Registration.
(iii) A Demand Registration requested pursuant to this Section
5(a) shall not be deemed to have been effected (A) unless a
registration statement with respect thereto has become effective;
provided, that a registration which does not become effective after
the Registrant has filed a registration statement with respect thereto
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solely by reason of BecoCom's refusal to proceed, shall be deemed to
have been effected by the Registrant at the request of BecoCom unless
BecoCom shall pay all expenses in connection with such registrant, (B)
if, after it has become effective, such Demand Registration becomes
subject to any stop order; injunction or other order or requirement of
the Commission or other governmental agency or court for any reason,
or (C) if the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with
such registration are not satisfied, other than by reason of some act
or omission by BecoCom.
(iv) The Registrant shall be entitled to (A) postpone the filing
of any registration statement otherwise required to be prepared and
filed by it pursuant to this Section 5(a), or (B) elect that the
registration statement not be useable, in either case for a reasonable
period of time, but not in excess of one hundred twenty (120) days in
any twelve (12) month period (each such period, a "Blackout Period"),
if the Registrant determines in good faith that the registration and
distribution of Registrable Securities (or the use of the
registration statement or related prospectus with respect thereto)
would interfere with any pending financing, acquisition, corporate
reorganization or any other corporate development involving the
Registrant or any of its Affiliates, or would require premature
disclosure thereof, and the Registrant promptly gives BecoCom written
notice of such determination, containing a general statement of the
reasons for such postponement or restriction on use and an
approximation of the anticipated delay.
(v) If any offering pursuant to a registration statement is an
underwritten offering, the Registrant will select a managing
underwriter or underwriters to administer the offering, which managing
underwriter or underwriters shall be reasonably satisfactory to
BecoCom; provided, that BecoCom shall be entitled to select one
underwriter, which underwriter shall be reasonably satisfactory to the
Registrant. The managing underwriter or underwriters selected by the
registrant shall be deemed to be reasonably satisfactory to BecoCom
unless BecoCom sends a written notice of objection to the Registrant
within ten (10) days after receipt of written notice form the
Registrant of the appointment of a managing underwriter or
underwriters.
(vi) If (A) during the effectiveness of this Agreement, the
Registrant shall file a registration statement (other than in
connection with the registration of securities issuable pursuant to an
employee stock option, stock purchase or similar plan, or pursuant to
a merger, exchange offer or transaction of the type specified in Rule
145(a) under the Securities Act) with respect to the Registrable
Securities or Related Securities, and (B) with reasonable prior
notice, the Registrant (in the case of a non-underwritten offering by
the Registrant pursuant to such registration statement) advises
BecoCom in writing that a public sale or distribution of Registrable
Securities would adversely affect such offering, or the managing.
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underwriter or underwriters (in the case of an underwritten offering
by the Registrant pursuant to such registration statement) advises the
Registrant in writing (in which case the Registrant shall notify
BecoCom in writing) that a public sale or distribution of Registrable
Securities would adversely impact such offering BecoCom shall, to the
extent not inconsistent with applicable law, refrain from effecting
any public sale or distribution of Registrable Securities during the
ten (10) day period prior to, and during the one hundred twenty (120)
day period beginning on, the effective date of such registration
statement.
(b) Piggyback Registration.
(i) Whenever the Registrant proposes to register any securities
under the Securities Act (other than pursuant to (A) a registration on
Form 5-4 or any successor form, or (B) an offering of securities in
connection with a employee benefit, share dividend, share ownership or
dividend reinvestment plan), and the registration form to be used may
be used for the registration of Registrable Securities (a "Piggyback
Registration"), the Registrant will give prompt written notice to
BecoCom of its intention to effect such a registration (a "Piggyback
Notice") and, subject to the provisions of this Section 5(b), the
Registrant will include in such registration all Registrable
Securities to the extent BecoCom has provided written notice within
ten (10) days after the date of receipt of the Piggyback Notice.
(ii) If a Piggyback Registration is with respect to an
underwritten primary registration on behalf of the Registrant (whether
or not also on behalf of Securities Holders), and the managing
underwriters advise the Registrant that in their opinion the number of
securities requested to be included in such registration exceeds the
number which can be sold in an orderly manner within a price range
acceptable to the Registrant, the Registrant will include in such
registration (A) first, the securities the Registrant proposes to
sell, and (B) second, to the extent that the managing underwriters
determine, the Registrable Securities and any other securities
requested to be included in such registration, pro rata among BecoCom
and the holders of such other securities on the basis of the number of
shares requested for inclusion in such registration by each of them.
(iii) If a Piggyback Registration is with respect to an
underwritten secondary registration on behalf of Securities Holders
other than BecoCom, and the managing underwriters advise the
Registrant that in their opinion the number of securities requested to
be included in such registration exceeds the number which can be sold
in an orderly manner in such offering within a price range acceptable
to such Securities Holders initially requesting such registration, the
Registrant will include in such registration (A) first, the securities
requested to be included in such registration by the Securities
Holders with the right to demand such registration, if any, and (B)
second, to the extent that the managing underwriters determine, the
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Registrable Securities and any other securities requested to be
included in such Piggyback Registration, pro rata among BecoCom and
the holders of such other securities on the basis of the number or
shares requested for inclusion in such registration by each of them.
(iv) The right of BecoCom to request registration or inclusion in
any registration pursuant to this Section 5(b) shall terminate if all
of the Registrable Securities may be sold by BecoCom under Rule 144
under the Securities Act during any ninety (90) day period.
(v) In the case of an underwritten Piggyback Registration, the
Registrant will have the exclusive right to select the managing
underwriter or underwriters to administer the offering.
(vi) BecoCom agrees not to seek an injunction restraining or
otherwise delaying any registration pursuant to this Agreement as the
result of any controversy that may arise with respect to the
interpretation or implementation of this Agreement.
(c) Conditions of Obligations to Register Registrable Securities. The
obligations of the Registrant to register Registrable Securities hereunder
are subject to the following conditions:
(i) The Registrant shall not be required to include any
Registrable Securities in any registration pursuant to Sections 5(a)
and 5(b) hereof unless BecoCom accepts the terms of the underwriting
as agreed upon between the Registrant and the underwriters selected by
the Registrant.
(ii) BecoCom shall cooperate with the Registrant in connection
with the preparation of the registration statement relating to a
Demand Registration or a Piggyback Registration (a "Registration
Statement"), and for so long as the Registrant is obligated to file
and keep effective the Registration Statement, shall provide to the
Registrant, in writing, for use in the Registration Statement, all
such information regarding BecoCom as the Registrant from time to time
may reasonably request to prepare the Registration Statement and
prospectus covering the Registrable Securities, to maintain the
currency and effectiveness thereof, and otherwise to comply with all
applicable requirements of law in connection therewith.
(iii) During such time as BecoCom may be engaged in a
distribution of the Registrable Securities, BecoCom shall comply with
Rules lOb-6 and lOb-7 promulgated under the Exchange Act. In addition,
in a Demand Registration or a Piggyback Registration, to the extent
required by the Securities Act, BecoCom shall cause to be finished to
each broker through whom the Registrable Securities may be offered, or
to the offeree if an offer is not made through a broker, such copies
of
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to prospectus covering the Registrable Securities and any amendment or
supplement thereto, and documents incorporated by reference therein,
as may be required by law, and shall not bid for or purchase any
securities of the Registrant or attempt to induce any other Person to
purchase any securities of the Registrant other than as permitted
under the Exchange Act.
(iv) BecoCom shall not, to the extent requested by the Registrant
and an underwriter of an offering of common stock of the Registrant
("Common Shares") or Registrable Securities, sell or otherwise
transfer or dispose of any Common Shares or Registrable Securities for
the Stipulated Lock-Up Period (as hereinafter defined) following the
effective date of a registration of Common Shares or Registrable
Securities in which BecoCom was entitled to participate pursuant to
Sections 5(a) or 5(b) hereof. In order to enforce the foregoing
covenant, the Registrant may impose stop transfer instructions with
respect to the Common Shares or Registrable Securities until the end
of such period. As used herein, the term "Stipulated Lock-Up Period"
means the shortest of (A) the minimum period of time any other
Securities Holder participating in the registration is subject to such
restrictions on the sale, transfer or disposition of Common Shares,
(B) one hundred eighty (180) days or (C) such other time as the
managing underwriter may reasonably specify.
(d) Registration Procedures. Whenever BecoCom requests that any
Registrable Securities be registered pursuant to this Agreement (a
"Registration Request"), the Registrant will use its commercially
reasonable efforts to effect the registration and facilitate the sale and
distribution of all such Registrable Securities specified in such
Registration Request in accordance with the intended method of disposition
thereof; provided, that with respect to a Piggyback Registration, nothing
in this Agreement shall prohibit the Registrant from determining in its
sole discretion, at any time, not to file a Registration Statement or, if
filed, to withdraw such registration or terminate the registration related
thereto. Without limiting the foregoing, the Registrant will:
(i) prepare and file with the Commission such amendments,
post-effective amendments and supplements to the Registration
Statement and the prospectus used in connection therewith as may be
necessary to keep the Registration Statement continuously effective
for a period of forty-five (45) days from the date of effectiveness
(unless otherwise required by the Securities Act), or until the
Registrable Securities covered thereunder have been sold, whichever is
earlier;
(ii) furnish to BecoCom such number of copies of the Registration
Statement, each amendment, post-effective amendment and supplement
thereto, the prospectus included in the Registration Statement
(including each preliminary prospectus), and such other documents as
BecoCom may reasonably request, in order to facilitate the disposition
of the Registrable Securities owned by BecoCom;
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(iii) use its commercially reasonable efforts to register or
quality such Registrable Securities under such other securities or
blue sky laws of such jurisdictions as BecoCom reasonably requests, to
keep such registrations or qualifications in effect for so long as the
Registration Statement remains in effect and do any and all other acts
and things which may be reasonably necessary or advisable to enable
BecoCom to consummate the disposition in such jurisdictions of the
Registrable Securities owned by BecoCom (provided that the Registrant
will not be required to (A) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but
for this Section 5(d)(iii), (B) subject itself to taxation in any such
jurisdiction, (C) consent to general service of process in any such
jurisdiction (unless the Registrant is subject to service in such
jurisdiction and except as may be required by the Securities Act), or
(D) qualify such Registrable Securities in a given jurisdiction where
expressions of investment interest are not sufficient in such
jurisdiction to reasonably justify the expense of qualification in
that jurisdiction, or where such qualification would require the
Registrant to register as a broker or dealer in such jurisdiction);
(iv) promptly notify BecoCom, at any time when a prospectus
relating to a Registration Statement is required to be delivered under
the Securities Act, of the happening of any event as a result of which
such prospectus contains an untrue statement of a material fact or
omits any material fact necessary to make the statements therein, in
light of the circumstances in which made, not misleading, and, at the
request of BecoCom, the Registrant will promptly prepare and furnish
BecoCom a supplement or amendment to such prospectus so that as
thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances in which made, not
misleading;
(v) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of the
Registration Statement and thereafter maintain such a transfer agent
and registrar; and
(vi) in the event of the issuance of any stop order suspending
the effectiveness of a Registration Statement, or of any order
suspending or preventing the use of any related prospectus or
suspending the qualification of any Registrable Securities included in
the Registration Statement for sale in any jurisdiction, the
Registrant will use its reasonable best efforts promptly to obtain the
withdrawal of such order
BecoCom agrees that, upon receipt of any notice from the Registrant of the
happening of any event of the kind described in Sections 5(d)(iv)) hereof or
5(d)(vi) hereof, BecoCom will forthwith discontinue disposition of the
Registrable Securities pursuant to a Demand Registration
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or a Piggyback Registration, as the case may be, until receipt of the copies of
an appropriate supplement or amendment to the prospectus under Section 5(d)(iv)
hereof, or until the withdrawal of the stop order under Section 5(d)(vi) hereof.
(e) Registration Expenses. The Registrant will pay all of its expenses
an connection with the registration of Registrable Securities (including
registration and filing fees, printing costs, listing fees and the fees and
expenses of its counsel), and BecoCom shall pay all of its expenses in
connection with the registration of Registrable Securities (including
underwriting discounts and commissions and transfer taxes, if any, relating
to the sale or disposition of Registrable Securities pursuant to any
Registration Statement, and the fees and expenses of its counsel).
(f) Indemnification; Contribution
(i) The Registrant will, to the extent permitted by law,
indemnify, defend and hold harmless BecoCom, its officers, directors,
stockholders, agents, employees and each Person who "controls" (within
the meaning of the Securities Act) BecoCom, from and against any and
all losses, claims, damages, liabilities and expenses whatsoever, as
incurred, including any of the foregoing and reasonable fees and
expenses of counsel incurred in investigating, preparing or defending
against, or aggregate amounts paid in settlement of, any litigation,
action, investigation or proceeding by any governmental agency or
body, commenced or threatened, in each case whether or not a party, or
any claim whatsoever based upon, caused by or arising out of, any
violation of the Securities Act, including, without limitation, any
untrue or alleged untrue statement of material fact by the Registrant
contained in any Registration Statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto, or any
omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any
information furnished in writing to the Registrant by BecoCom, or by
BecoCom's failure to deliver a copy of the Registration Statement or
prospectus or any amendments or supplements thereto after the
Registrant has furnished BecoCom with a sufficient number of copies of
the same.
(ii) In connection with any Registration Statement in which
BecoCom is participating, BecoCom will furnish to the Registrant in
writing such information relating to BecoCom as the Registrant
reasonably requests for use in connection with any such Registration
Statement or prospectus relating thereto, and will, to the extent
permitted by applicable law, indemnify, defend and hold harmless the
Registrant its officers, directors, stockholders, agents, employees
and each Person who "controls" (within the meaning of the Securities
Act) the Registrant, from and against any losses, claims, damages,
liabilities and expenses whatsoever, as incurred, including any of the
foregoing, and reasonable fees and expenses of counsel incurred in
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investigating, preparing or defending against, or aggregate amounts
paid in settlement of, any litigation, action, investigation or
proceeding by any governmental agency or body, commenced or
threatened, in each case whether or not a party, or any claim
whatsoever based upon, caused by or arising out of, any violation of
the Securities Act, including, without limitation, any untrue or
alleged untrue statement of material fact by BecoCom contained in such
Registration Statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto, or any omission or alleged
omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in any information
so furnished in writing by BecoCom expressly for such purpose.
(iii) Any Person entitled to indemnification hereunder will (A)
give reasonably prompt written notice to the indemnifying party of any
claim with respect to which it seeks indemnification, and (B) unless
in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist with
respect to such claim; permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the
indemnified party; provided, that the failure of any indemnified party
to give notice as provided herein shall not relieve the indemnifying
party of its obligations under the preceding sections of this Section
5(f) except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. Such indemnifying party
shall promptly give written notice of its intention to assume such
defense to such indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any
settlement made by the indemnified party without its consent (but such
consent shall not be unreasonably withheld). An indemnifying party who
is not entitled to, or elects not to, assume the defense of a claim
will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of such
indemnified party a conflict of interest exists between such
indemnified party and any other of such indemnified parties with
respect to such claim.
(iv) The indemnification provided for in this Section 5(f) will
remain in full force and effect regardless of any investigation made
by or on behalf of the indemnified party or any officer, director or
controlling person of such indemnified party, and will survive the
transfer of Registrable Securities. The Registrant also agrees to make
such provisions, as are reasonably requested by any indemnified party,
for contribution to such party in the event the Registrant's
indemnification is unavailable for any reason. Such right to
contribution shall be in such proportion as is appropriate to reflect
the relative fault of and benefits to the Registrant on the one hand,
and BecoCom on the other, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities
or expenses, as well as any
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other relevant equitable considerations. The relative benefits to the
indemnifying party and indemnified parties shall be determined by
reference to, among other things, the total proceeds received by the
indemnifying party and indemnified parties in connection with the
offering to which such losses, claims, damages, liabilities or
expenses relate. The relative fault of the indemnifying party and
indemnified parties shall be determined by reference to, among other
things, whether the action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or the indemnified
parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant hereto were determined by pro rata allocation or
by any other method of allocation which does not take account of the
equitable considerations referred to in the immediate preceding
section. No Person found guilty of any fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any Person who was not found guilty of
such fraudulent misrepresentation. Notwithstanding the provisions of
this Section 5(f)(iv)), BecoCom shall not be required to contribute
any amount in excess of the amount of the total price at which the
Registrable Securities of BecoCom were offered to the public.
(g) Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in
any underwriting arrangements approved by the Person or Persons entitled
hereunder to approve such arrangements, and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required under the terms of such
underwriting arrangements; provided, that no holder of Registrable
Securities included in any underwritten registration shall be required to
make any representations or warranties to the Registrant or the
underwriters other than representations and warranties regarding such
holder of Registrable Securities and such holder of Registrable Securities'
intended method of distribution.
6. Pre-emptive Rights. A Registrant shall, prior to any issuance by such
Registrant, after the exchange by BecoCom of the BecoCom 1997 Percentage and/or
any BecoCom Post 1997 Percentage into Registrable Securities of such
Registrant, of any of such Registrant's shares of capital stock of any class or
series, or of any of its other securities (other than debt securities with no
equity feature), offer to BecoCom by written notice (a "Pre-emptive Rights
Notice") the right, for a period of thirty (30) days, to purchase BecoCom's pro
rata share (based upon BecoCom's respective percentage of ownership of the
issued and outstanding shares of capital stock of such Registrant, determined on
a fully-diluted basis) of such securities proposed to be issued (the "Offered
Securities"), for the equivalent cash purchase price or other consideration for
which such Offered
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<PAGE>
Securities are to be issued; provided, however, that the pre-emptive rights of
BecoCom set forth in this Section 6 shall not apply to shares of capital stock
of such Registrant of any class or series, or any of such Registrant's other
securities, issued:
(a) as a stock dividend on shares of such Registrant's capital
stock, or upon any subdivision of shares of such Registrant's capital
stock, provided that the securities issued pursuant to such stock
dividend or subdivision are limited to additional shares of such
capital stock;
(b) solely in consideration for the acquisition (whether by
merger, consolidation or otherwise) by such Registrant of all or
substantially all of the stock or assets of any other Person;
(c) pursuant to the closing of a firmly underwritten public
offering of such Registrant pursuant to an effective Registration
Statement; and
(d) to such Registrant's directors, officers or employees
pursuant to any qualified or non-qualified stock option plan or
agreement, or stock purchase plan or agreement.
Each Pre-emptive Right Notice to BecoCom shall describe the Offered Securities
proposed to be issued by the Registrant, and shall also specify price and
payment terms, and any other material terms related thereto. BecoCom (or any
Affiliate of BecoCom) may accept such Registrant's offer as to the full number
of Offered Securities offered to BecoCom or any lesser number, by written notice
thereof given by BecoCom to such Registrant prior to the expiration of the
aforesaid thirty (30) day period, in which event such Registrant shall promptly
sell and BecoCom shall promptly buy, upon the terms specified in such
Pre-emptive Rights Notice, the number of Offered Securities agreed to be
purchased by BecoCom. Such Registrant shall have the right, at any time during
the ninety (90) days following the date of such Pre-emptive Rights Notice to
BecoCom, to offer and sell, to any third party or parties, the Offered
Securities not agreed by BecoCom to be purchased by it, at a price and on
payment terms no less favorable to such Registrant than those specified in the
Pre-emptive Rights Notice to BecoCom; provided, however, that if such third
party sale or sales are not consummated within such ninety (90) day period, such
Registrant shall not sell such Offered Securities as shall not have been so
purchased without again complying with the provisions of this Section 6.
Notwithstanding anything to the contrary set forth in this Section 6, the
provisions of this Section 6 Shall apply only if, and to the extent that, the
Registrant 6 grants similar rights to any of its other stockholders.
7. Board of Directors. On the date of the consummation of the C-Tec
Reorganization, C-Tec shall cause Thomas J. May, the current Chief Executive
Officer of Boston Edison Company, the indirect corporate parent of BecoCom, to
be elected to the initial Board of Directors of New RCN, provided he continues
to hold such office at such date.
23
<PAGE>
8. Miscellaneous.
(a) Adherence of New RCN to this Agreement. Contemporaneous with the
consummation of the C-Tec Reorganization, C-Tec shall cause New RCN to
become a party to this Agreement pursuant to a an instrument of adherence
in form and substance satisfactory to BecoCom.
(b) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of C-Tec and New RCN (as to New RCN, from and after the
adherence of New RCN to this Agreement as provided in Section 8(a)
hereof), on the one hand, and BecoCom, on the other hand.
(c) Successors and Assigns. This Agreement awl the rights and
obligations of the parties hereto may not be assigned by any of the parties
hereto without the prior written consent of the other parties, except that
the provisions of this Agreement may be assigned by BecoCom to any of its
Affiliates in connection with any assignment by BecoCom of its membership
interest in the Company pursuant to the Operating Agreement. Subject to the
foregoing, all covenants and agreements in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors and permitted assigns of the parties hereto whether
so expressed or not.
(d) Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of
more than one party, but all of which counterparts taken together shall
constitute one and the same Agreement.
(e) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the Commonwealth of Massachusetts
without regard to conflicts of law principles.
(g) Notices. All notices, requests or other communications hereunder
shall be deemed duly delivered, given or made to or upon any party hereto
if in writing and delivered by hand against receipt, or by certified or
registered mail, postage prepaid, return receipt requested, or to a courier
who guarantees next business day delivery or sent by telecopy (with
confirmation), to such party at its address set forth below or to such
other addresses as such party may at any time, or from time to time, direct
by notice given in accordance with this Section 8(g):
24
<PAGE>
If to C-Tec or New RCN:
C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Fax: (609) 734-0974 and (609) 734-3830
Attention: Michael J. Mahoney and Raymond B. Ostroski, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Float LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 735-2000
Attention: Stephen M. Banker, Esq.
If to BecoCom:
c/o Boston Edison Company
800 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 424-2733
Attention: Richard S. Hahn, Vice President
Neven Rabadjija, Esq., Assistant General Counsel
with a copy to:
Davis, Malm & D'Agostine, P.C.
One Boston Place
Boston, Massachusetts 02108
Fax: (617)227-3732
Attention: Andrew B. White, Esq.
The date of delivery of any such notice, request or other communication shall be
the earlier of (i) the date of actual receipt, (ii) three (3) business days
after such notice, request or other communication is sent if sent by certified
or registered mail, (iii) if sent by courier who Guarantees next business day
delivery the business day next following the day such notice, request or other
communication is actually delivered to courier or (iv) the day actually
telecopied.
25
<PAGE>
(h) Not Construed Against Drafter. This Agreement has been negotiated and
prepared by each of C-Tec and BecoCom, and if my provision of this Agreement
requires judicial interpretation, to court interpreting or construing the
provision shall not apply the rule of construction that a document is to be
construed more strictly against the party who prepared the document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as an instrument under seal as of the date first above written.
C-TEC CORPORATION
By: /s/ Michael J. Mahoney
---------------------------
Name: Michael J. Mahoney
-------------------------
Title: President
------------------------
BECOCOM, INC.
By: /s/ Richard S. Hahn
---------------------------
Name: Richard S. Hahn
-------------------------
Title: President
------------------------
26
<PAGE>
JOINT INVESTMENT AND NON-COMPETITION AGREEMENT
THIS JOINT INVESTMENT AND NON-COMPETITION AGREEMENT (this "Agreement") is
made as of this 17th day of June, 1997 by and among RCN Telecom Services of
Massachusetts, Inc., a Massachusetts corporation ("RCN-Sub"), BecoCom, Inc., a
Massachusetts corporation ("BecoCom"), and RCN-BecoCom, LLC, a Massachusetts
limited liability company (the "Company").
WHEREAS, RCN-Sub and BecoCom have entered into that certain Amended and
Restated Operating Agreement of the Company of even date herewith (the
"Operating Agreement"), setting forth the terms and conditions that will govern
the operation of the Company; and
WHEREAS, Boston Edison Company, a Massachusetts corporation ("BECO"), and
CTec Corporation, a Delaware corporation and indirect corporate parent of
RCN-Sub ("C-Tec"), have each executed instruments of adherence with respect to
certain provisions hereof; and
WHEREAS, RCN-Sub and BecoCom wish to establish the relationship to exist
between them with respect to any markets in New England (but outside the
Relevant Market) in which the Company develops a business which would (i)
create, own and operate a communications network and (ii) provide voice, video,
data, other communications services and the communications support component of
energy-related customer services (collectively, the "Services"); and
WHEREAS, RCN-Sub, BecoCom and the Company wish to establish the exclusivity
of the Company for the provision of Services in the Relevant Market; and
WHEREAS, terms not defined herein shall have the meaning given to them in
the Operating Agreement;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Additional Markets Entered by RCN-Sub.
(a) If RCN-Sub or any Affiliate of RCN-Sub (each, an "RCN Entity")
provides, or proposes to provide, Services in any market in Maine, New
Hampshire, Vermont, Massachusetts (but outside the Relevant Market), Rhode
Island or Connecticut through an Entity in which an electric utility
company (an "Electric Utility Company") or any Affiliate of an Electric
Utility Company is a joint venturer or participant with an RCN Entity (the
"New
<PAGE>
Business"), the RCN Entity shall use its best efforts to offer BecoCom, or
to cause BecoCom to be offered, the opportunity to acquire an equity
interest in the New Business. Such offer shall be set forth in writing
delivered by the RCN Entity to BecoCom, describing the New Business, and
the economic basis on which the New Business will be developed. Within 30
days following receipt of such offer, BecoCom may notify the RCN Entity of
its election to acquire an equity interest in the New Business, and
specifying a percentage (but not greater than 20%) that it wishes to
acquire in the New Business. Failure to deliver such notice shall be deemed
an election not to acquire an interest in the New Business.
(b) Upon the RCN Entity's receipt of BecoCom's notice as aforesaid,
the RCN Entity and BecoCom shall commence good faith negotiations to
establish the terms of BecoCom's investment in the particular New Business
on the same economic terms as those of the RCN Entity, taking into account
non-cash contributions by the RCN Entity, and BecoCom's investment shall be
conditioned on the execution of a definitive agreement setting forth such
terms, subject to the following:
(i) BecoCom will execute a voting agreement with the RCN Entity
in which BecoCom will agree to vote its equity interest in the New
Business on all operational or governance matters as directed by the
RCN Entity, except for any matter which materially adversely affects
BecoCom (it being agreed that a material adverse effect on the New
Business does not of itself constitute a material adverse effect on
BecoCom);
(ii) unless otherwise agreed, the New Business shall be
established through a legal entity separate from the Company and shall
operate independently from the Company, provided that the RCN Entity
and BecoCom and personnel of the RCN Entity and BecoCom may provide
services to both the Company and the New Business, so long as the
provision of such services does not impair the ability of the RCN
Entity or BecoCom and their respective personnel to fulfill their
obligations to the Company under the Operating Agreement and the other
Basic Agreements; and
(iii) BecoCom's opportunity to acquire an interest in the New
Business shall be subject to the Electric Utility Company involved in
the New Business not objecting to BecoCom's involvement in the New
Business provided, however, that the RCN Entity shall (A) act in good
faith and use its best efforts to overcome any such objection, (B)
consult with BecoCom with respect to strategy as to how to overcome
any such objection and (C) keep BecoCom advised as to the progress of
such negotiations.
(c) This Section 1 shall terminate upon (i) the latest to occur of (A)
5 years from the date hereof or, (B) 2 years after the Investment
Percentage of RCN-Sub or any Affiliate of RCN-Sub in the Company becoming
less than 33 1/3% or (ii) the Investment
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<PAGE>
Percentage of BecoCom or any Affiliate of BecoCom in the Company becoming
less than 33 1/3%.
2. Non-Competition and Non-Solicitation.
(a) Neither (i) BecoCom or any of its Affiliates nor (ii) RCN-Sub or
any of its Affiliates shall, without the prior written consent of the
other, directly or indirectly own, operate, manage, be employed by, be an
agent of, act as a consultant for, financially support, or have a
proprietary interest in, any enterprise or business which provides Services
in the Relevant Market except for activities currently engaged in by
BecoCom or its Affiliates, as set forth in Schedule 2A hereto.
(b) Each of BecoCom and RCN-Sub shall cause their respective
Affiliates to comply with the provisions of this Section 2.
(c) The provisions of this Section 2 shall terminate (i) as to
RCN-Sub, two years after RCN-Sub no longer has any ownership interest in
the Company or its successors, and (ii) as to BecoCom, two years after
BecoCom no longer has any ownership interest in the Company or its
successors.
3. Representations and Warranties. Each of the parties hereto represents
and warrants to the other that, as of the date hereof:
(a) it is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is formed;
(b) it has the power and authority to execute, deliver and perform its
obligations under this Agreement and such execution, delivery, performance
and consummation have been duly authorized by all necessary corporate
action. This Agreement has been duly executed and delivered by it and
constitutes a valid and legally binding obligation of it, enforceable
against it in accordance with its terms except as such enforceability may
be limited by applicable bankruptcy, insolvency, moratorium,
reorganization, or other laws affecting creditors' rights generally or by
the availability of equitable remedies;
(c) the execution, delivery and performance by it of this Agreement
(i) do not contravene any provision of its organizational documents; (ii)
do not violate or conflict with any law, regulation or contractual
restriction to which it is subject and (iii) shall not result in the
creation of, or violate or conflict with, any lien, mortgage, pledge or
security interest or any other encumbrance upon or with respect to any of
its properties;
(d) no consent, order, approval or authorization or other action by,
and no notice to or filing with, any governmental authority or regulatory
body is required for the due
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<PAGE>
execution, delivery and performance by it of this Agreement and the
consummation of the transactions contemplated hereby; and
(e) there is no action, suit, proceeding or investigation pending, or,
to its knowledge, threatened, against or affecting it or its properties,
assets or business, in any court or before or by any governmental
department, board, agency or instrumentality, or any arbitrator, that
materially affects or impairs its ability to enter into this Agreement, or
to consummate the transactions contemplated hereby.
4. General.
(a) Adherence of RCN Corporation. Contemporaneously with the
consummation by C-Tec, of its intended tax-free corporate reorganization
(the "Spin-Off") under Section 355 of the Internal Revenue Code of 1986, as
amended, C-Tec shall cause RCN Corporation, a Delaware corporation and the
entity which shall become the indirect corporate parent of RCN-Sub by
virtue of the Spin-Off (or any entity which shall become such corporate
parent), to become a party to this Agreement pursuant to an instrument of
adherence in form and substance satisfactory to BecoCom.
(b) Amendment. No modification or amendment of, or waiver under, this
Agreement shall be valid unless in writing and signed by each of the
parties hereto.
(c) Binding Agreement; Assignment. This Agreement shall inure to the
benefit of and be binding upon each of the parties hereto and their
respective successors and assigns. This Agreement may not be assigned by
any party hereto without the prior written consent of the other parties
except to a Wholly Owned Affiliate of such party, provided, however, that
each of the parties hereto shall remain obligated to each other party under
the terms and conditions of this Agreement.
(d) Governing Law; Severability. This Agreement is governed by and
shall be construed in accordance with the laws of the Commonwealth of
Massachusetts, excluding any conflict-of-laws rule or principle that might
refer the governance or the construction of this Agreement to the laws of
another jurisdiction. If any provision of this Agreement or its application
to any Person or circumstance is held invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such
provision to other Persons or circumstances is not affected and such
provision shall be enforced to the greatest extent permitted by law.
(e) Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all signatories had signed the same
document All counterparts shall be construed together and constitute the
same instrument.
(f) Notices. All notices, requests and other communications hereunder
shall be deemed to have been duly delivered, given or made to or upon any
party hereto if in
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<PAGE>
writing and delivered by hand against receipt, or by certified or
registered mail, postage prepaid, return receipt requested, or to a courier
who guarantees next business day delivery or sent by telecopy (with
confirmation), to such party at its address set forth below or to such
other address as such party may at any time, or from time to time, direct
by notice given in accordance with this Section 4(f).
If to RCN-Sub:
c/o RCN Telecom Services, Inc.
419 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 267-3499
Attention: General Manager
and
C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Fax: (609) 734-0974 and (609) 734-3830
Attention: Michael J. Mahoney and Raymond B. Ostroski, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 735-2000
Attention: Stephen M Banker, Esq.
If to BecoCom:
c/o Boston Edison Company
800 Boylston Sweet
Boston, Massachusetts 02199
Fax: (617) 424-2733
Attention: Richard S. Hahn, Vice President
Neven Rabadjija, Esq., Assistant General Counsel
with a copy to:
Davis, Maim & D'Agostine, P.C.
One Boston Place
Boston, Massachusetts 02108
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<PAGE>
Fax: (617) 227-3732
Attention: Andrew B. White, Esq.
If to the Company:
RCN-BecoCom, LLC
419 Boylston Street
Boston, Massachusetts 02199
Fax: (617) 267-3499
Attention: General Manager
The date of delivery of any such notice, request or other communication shall be
the earlier of (i) the date of actual receipt, (ii) three business days after
such notice, request or other communication is sent if sent by certified or
registered mail, (iii) if sent by courier who guarantees next business day
delivery the business day next following the day such notice, request or other
communication is actually delivered to the courier or (iv) the day actually
telecopied.
(g) Entire Agreement. This Agreement contains the entire understanding
of the parties hereto with respect to the subject matter hereof and
supersedes all prior contracts or agreements with respect to such matters,
whether oral or written.
(h) Specific Performance. The parties agree that irreparable damage
will result if this Agreement is not performed in accordance with its
terms, and the parties agree that any damages available at law for a breach
of this Agreement would not be an adequate remedy. Therefore, the
provisions hereof and the obligations of the parties hereunder shall be
enforceable in a court of equity, or other tribunal with jurisdiction, by a
decree of specific performance, and appropriate injunctive relief may be
applied for and granted in connection therewith without the requirement of
the aggrieved party showing the inadequacy of the available remedies at
law. Such remedies and all other remedies provided for in this Agreement
shall, however, be cumulative and not exclusive and shall be in addition to
any other remedies that a party may have under this Agreement, at law or in
equity.
(i) Effect of Waiver or Consent. A waiver or consent, express or
implied, to or of any breach or default by any Person in the performance by
that Person of its obligations hereunder is not a consent or waiver to or
of any other breach or default in the performance by that Person of the
same or any other obligations of that Person hereunder. Failure on the part
of a Person to complain of any act of any Person or to declare any Person
in default hereunder, irrespective of how long that failure continues, does
not constitute a waiver by that Person of its rights with respect to that
default until the applicable limitations period has expired.
(j) Interpretation. In any dispute concerning the construction or
interpretation of any provision of this Agreement or any ambiguity hereof,
there shall be no
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<PAGE>
presumption that this Agreement or any provision hereof be construed
against the party who drafted this Agreement.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
RCN TELECOM SERVICES OF
MASSACHUSETTS, INC.
By /s/ Michael J. Mahoney
-------------------------------------
Name: Michael J. Mahoney
Title: President
BECOCOM, INC.
By /s/ Richard S. Hahn
-------------------------------------
Name: Richard S. Hahn
Title: President
RCN-BECOCOM, LLC
By /s/ Michael A. Adams
-------------------------------------
Name: Michael A. Adams
Title: President of Technology &
Strategic Development
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<PAGE>
SCHEDULE 2A
Activities Excluded from Scope of Non-Competition Provision
Existing agreement between BECO and Teleport Communications Group ("TCG"),
dated 11/29/95, concerning certain point-to-point fiber capacity, but not any
expansions or renewals thereof.
Existing agreement between BECO and TCG, dated 4/30/96, concerning certain
point-to-point fiber capacity, but not any expansions or renewals thereof.
Existing agreement between BECO and TCG, dated 8/21/96, concerning certain
point-to-point fiber capacity, but not any expansions or renewals thereof.
Existing agreement between BECO and TCG, dated 9/1/96, concerning certain
point-to-point fiber capacity, but not any expansions or renewals thereof.
Existing agreement between BECO and Metropolitan Fiber System, dated
11/30/93, concerning certain point-to-point fiber capacity, but not any
expansions or renewals thereof.
Nothing in this Agreement shall prevent BecoCom or its Affiliates (or any
successor thereto as owner of its electric transmission and distribution
facilities) from (i) acting solely as a builder, lessor or licensor of sites for
the location of wired or wireless communications facilities by third-party
telecommunications services providers on a non-discriminatory basis, in the case
of wired communications facilities to the extent required by law or regulation,
or (ii) acting solely as a builder, lessor or licensor of facilities for the
transmission of wired communications by third-party telecommunications services
providers on a non-discriminatory basis, to the extent required by law or
regulation.
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