<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 10, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TELERGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4813 16-1493420
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
TELERGY, INC.
ONE TELERGY PARKWAY
EAST SYRACUSE, NEW YORK 13057
TELEPHONE: (315) 362-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEVEN D. RUBIN
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
TELERGY, INC.
ONE TELERGY PARKWAY
EAST SYRACUSE, NEW YORK 13057
TELEPHONE: (315) 362-2800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JOEL S. KLAPERMAN MICHAEL I. KEYES STEPHEN A. GREENE
SHEARMAN & STERLING STEARNS WEAVER MILLER WEISSLER CAHILL GORDON & REINDEL
599 LEXINGTON AVENUE ALHADEFF & SITTERSON, P.A. 80 PINE STREET
NEW YORK, NEW YORK 10022 150 WEST FLAGLER STREET, SUITE 2200 NEW YORK, NEW YORK 10005
TELEPHONE: (212) 848-4000 MIAMI, FLORIDA 33130 TELEPHONE: (212) 701-3000
FACSIMILE: (212) 848-7179 TELEPHONE: (305) 789-3200 FACSIMILE: (212) 269-5420
FACSIMILE: (305) 789-3395
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- --------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A common stock, $0.0001 par value................. $250,000,000 $66,000
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION. DATED MAY 10, 2000.
Shares
[LOGO] TELERGY, INC.
Class A Common Stock
----------------------
This is an initial public offering of shares of Class A common stock of
Telergy, Inc. All of the shares of Class A common stock are being sold
by Telergy.
Prior to this offering, there has been no public market for the Class A
common stock. It is currently estimated that the initial public offering price
per share will be between $ and $ . Telergy intends to make
application for quotation of the Class A common stock on the Nasdaq National
Market under the symbol "TLGY".
Telergy has two classes of common stock, Class A common stock and Class C
common stock. Holders of each class have identical rights, except for
differences in voting. Holders of Class A common stock have one vote per share,
while holders of Class C common stock have 90,000 votes per share. After this
offering, the holders of Class C common stock will have % of the combined
voting power of the common stock.
See "Risk Factors" beginning on page 6 to read about certain factors you
should consider before buying shares of Class A common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Telergy....................... $ $
</TABLE>
To the extent that the underwriters sell more than shares of Class
A common stock, the underwriters have the option to purchase up to an
additional shares from Telergy at the initial public offering price,
less the underwriting discount.
----------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
----------------------
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
RBC DOMINION SECURITIES
----------------------
Prospectus dated , 2000.
<PAGE> 3
ARTWORK
[Network map depicting long-haul capacity, intracity rings and switch
locations.]
<PAGE> 4
PROSPECTUS SUMMARY
The following summary contains basic information about Telergy and this
offering. It may not contain all the information that may be important to you.
You should read this entire prospectus before making an investment decision.
References in this prospectus to "we" includes Telergy, Inc. and our
subsidiaries and our investment in Telergy East.
THE COMPANY
OVERVIEW
We are a facilities-based provider of integrated broadband
telecommunications services and high-bandwidth fiber optic capacity in the
northeastern United States. Our network is designed to be a regional fiber optic
intranet combining direct last-mile connections to our customers, intracity
rings and long-haul capacity. We are building our network on what we believe to
be the broadest contiguous rights-of-way in the region, primarily using access
rights granted to us by four utility companies with which we have developed
unique relationships. We currently offer both traditional telecommunications
services as well as enhanced services such as video storage and streaming. We
are installing equipment necessary to provide additional enhanced services,
including data storage and disaster recovery, and expect to offer these services
by the end of 2000. We market our services to large businesses and institutions
in the healthcare, education, finance and government sectors, medium- and
small-sized businesses with enterprise networking needs and telecommunications
carriers.
Our agreements with Niagara Mohawk Power Corporation, or Niagara Mohawk;
Consolidated Edison Company of New York, or ConEd; New York State Electric and
Gas, or NYSEG; and GPU Telcom Services, Inc., or GPU Telcom, provide us with
last-mile access to virtually every customer and building in our region,
including those in New York City. By the end of 2001, we expect our network to
be comprised of approximately 586,000 fiber miles over 3,200 route miles
extending from Washington, D.C. to Montreal. As of April 15, 2000, we had
constructed or entered into agreements for indefeasible rights-of-use for
approximately 202,000 fiber miles over 1,800 route miles in New York, New
Jersey, Pennsylvania, Washington, D.C. and Maryland. Our agreements with
utilities allow us to build our network in a capital efficient manner by
significantly reducing the last-mile barriers to entry, construction time and
associated costs. In addition, these agreements eliminate most recurring fees
typically paid to owners of rights-of-way, in exchange for telecommunications
capacity. Substantially all of the utility rights-of-way have never before been
used for commercial telecommunications purposes, making our services attractive
to customers seeking a geographically diverse network.
In addition to our utility relationships, we have formed strategic
relationships with MasTec North America, Inc.; or MasTec, Nortel Networks, or
Nortel; and EMC Corp., or EMC. MasTec provides us with network construction
expertise. Nortel offers advanced equipment, support services and vendor
financing. Through our relationship with EMC, we are jointly developing
customized data and video storage solutions for our customers. In connection
with this relationship, we are the first telecommunications company to install
and operate an EMC video server.
Our goal is to leverage our network and relationships to become the
preferred provider of broadband services in our markets. To achieve this goal,
we are rapidly expanding our direct sales force and have entered into joint
marketing agreements. As of April 15, 2000, we had a direct sales, marketing and
customer care team of 129 employees located in five sales offices in our region.
Our arrangements with Niagara Mohawk Energy, a subsidiary of Niagara Mohawk and
GPU Telcom allow us to jointly market our services to their business and
institutional customers. We believe these arrangements enhance our credibility
with our target customers and our ability to enter new markets quickly.
Since our formation in 1995, we have raised more than $133.0 million in
equity capital.
1
<PAGE> 5
BUSINESS STRATEGY
Our business strategy includes the following elements:
- Build an end-to-end network to maximize profitability.
- Complete our network build-out and pursue additional utility
relationships.
- Build out our network efficiently and cost effectively.
- Offer enhanced video and data services.
- Enhance our access to customers through joint marketing with utilities.
- Leverage our operational support system.
- Capitalize on management ability and relationships.
PRINCIPAL OFFICES
Our principal executive offices are located at One Telergy Parkway, East
Syracuse, New York 13057, and our telephone number is (315) 362-2000. Our
website address is www.telergy.net. Information on our website does not
constitute part of this prospectus.
2
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Class A common stock offered................. shares
Common stock to be outstanding after this
offering:
Class A common stock....................... shares
Class C common stock....................... 100 shares
Total.............................. shares
Voting rights................................ Holders of each class of our common stock
have identical rights, except for differences
in voting. Holders of our Class A common
stock have one vote per share, while holders
of our Class C common stock have 90,000 votes
per share. After this offering, the holders
of our Class C common stock will have %
of the combined voting power of the common
stock. Brian P. Kelly and Kevin J. Kelly,
through their ownership of our Class C common
stock, will continue to have the power to
elect all of our directors and control
stockholder decisions.
Proposed Nasdaq National Market symbol....... TLGY
Use of proceeds.............................. We expect to use the net proceeds for further
development of our network, expansion of our
sales and marketing organization, working
capital, capital expenditures, acquisitions
and other general corporate purposes.
</TABLE>
The number of shares of our Class A common stock outstanding excludes
shares issuable:
- upon the exercise of outstanding stock options and warrants except for
warrants to acquire 564,227 shares of our Class A common stock which
expire upon completion of this offering; and
- for payment of current returns on 358,239 shares of our Class A common
stock. See "Description of Capital Stock -- Minimum Returns on
Investment".
Except as otherwise indicated, all information in this prospectus assumes:
- no exercise of the underwriters' over-allotment option;
- the conversion or exchange of all of our preferred stock for shares of
our Class A common stock; and
- the conversion of Niagara Mohawk Energy's membership interest in Telergy
Central into shares of our Class A common stock.
------------------------
You should refer to the section entitled "Risk Factors" for an explanation
of certain risks of investing in our Class A common stock.
3
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summarizes the consolidated financial data and operating data
for our business. You should read this data along with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our financial
statements and related notes presented elsewhere in this prospectus. The pro
forma as adjusted consolidated balance sheet data reflect:
- the issuance in May 2000 of our Series B preferred stock and related
warrants for aggregate proceeds of $20.0 million and the subsequent
conversion of the Series B preferred stock and related warrants upon
completion of this offering into shares of our Class A common stock,
assuming an initial public offering price of $ per share;
- the exercise of warrants to acquire 564,227 shares of our Class A common
stock which expire upon completion of this offering, and the cancellation
and exchange of our Series A preferred stock along with the payment of
$ in connection with that exercise;
- the conversion of Niagara Mohawk Energy's membership interest in Telergy
Central into shares of our Class A common stock, assuming an
initial public offering price of $ per share; and
- the issuance of shares of Class A common stock in this offering
at an assumed initial public offering price of $ per share, but
after deducting the underwriting discount and estimated expenses.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
---------- ---------- -----------
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Service revenue........................................ $ 2,516 $ 5,206 $ 7,944
Operating expenses:
Cost of services..................................... 2,709 7,477 15,503
Selling, general and administrative.................. 4,642 8,998 19,659
Depreciation and amortization........................ 321 1,737 4,587
Non-cash stock-based compensation.................... 124 5,999 2,687
-------- -------- ---------
Total operating expenses............................... 7,796 24,211 42,436
-------- -------- ---------
Operating loss......................................... (5,280) (19,005) (34,492)
Interest expense, net.................................. (522) (14,625) (28,879)
Net loss............................................... $ (5,394) $(34,957) $ (62,874)
======== ======== =========
OTHER CONSOLIDATED FINANCIAL DATA:
Capital expenditures(1)................................ $ 26,162 $ 35,599 $ 131,450
EBITDA(2).............................................. (4,836) (11,269) (27,219)
Net cash used in operations............................ (418) (14,764) (34,751)
Net cash used in investing activities.................. (24,739) (37,120) (105,618)
Net cash provided by financing activities.............. 26,174 52,451 138,409
OPERATING DATA AT END OF PERIOD:
Route miles............................................ 325 650 1,000
Fiber miles............................................ 31,200 76,500 170,000
Employees.............................................. 57 127 341
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 278 $
Working capital deficit..................................... (150,729)
Property and equipment, net................................. 201,806 201,806
Investment in Telergy East.................................. 3,241 3,241
Total assets................................................ 219,919
Unearned fiber lease revenue................................ 10,386 10,386
Total debt.................................................. 156,441 156,441
Stockholders' equity........................................ 27,245
</TABLE>
- ---------------
(1) Capital expenditures include cash expenditures plus additions to property
and equipment financed through trade payables and capital lease obligations.
Amounts also include capitalized interest.
(2) EBITDA is defined as operating income plus depreciation, amortization and
non-cash stock-based compensation. EBITDA is used by management and some
investors as an indicator of a company's historical ability to service debt.
However, EBITDA is not intended to represent cash flows for the period, nor
has it been presented as an alternative to either (1) operating income (as
determined by generally accepted accounting principles) as an indicator of
operating performance or (2) cash flows from operating, investing and
financing activities (as determined by generally accepted accounting
principles).
5
<PAGE> 9
RISK FACTORS
An investment in our Class A common stock involves a high degree of risk.
You should consider the following risk factors, together with the other
information in this prospectus, when evaluating an investment in our Class A
common stock. If any of the following risks occur, our business, operations or
financial condition would likely suffer. If that happens, the trading price of
our Class A common stock could fall and you may lose all or part of the money
you paid to buy our Class A common stock. The risks and uncertainties described
below are not the only ones facing our company. Additional risks not presently
known to us or that we currently deem immaterial may also impair our business
operations.
RISKS RELATING TO OUR BUSINESS
GIVEN OUR LIMITED OPERATING HISTORY, YOU SHOULD CONSIDER OUR CLASS A COMMON
STOCK TO BE A HIGHLY SPECULATIVE INVESTMENT
We are a development stage company which began operations in early 1996 and
have a limited operating history upon which you can base an evaluation of our
performance, including the reliability of our network and future financial
results. We are still in the early stages of our operations and have yet to
complete construction of our planned network. You should consider the prospects
for our success in light of the risks often encountered in establishing a new
business in an industry subject to rapid technological and price changes and
filled with many competitors. We can not assure you that we will be able to
successfully build out our network or successfully establish our business.
WE HAVE A HISTORY OF OPERATING LOSSES AND WORKING CAPITAL DEFICITS AND WE MAY
NOT BE PROFITABLE IN THE FUTURE
We have incurred operating losses and experienced negative EBITDA and net
income in each quarter since we began operations. As of December 31, 1999, our
accumulated deficit totaled approximately $112.1 million and our working capital
deficit totaled approximately $150.7 million. We expect to incur significant
additional expenses in connection with the development and expansion of our
network infrastructure as well as increases in our sales and marketing and
general administrative expenses. As a result, we expect to continue to incur
significant future operating losses and negative cash flow while we concentrate
on the development and construction of our network and until we have established
a profitable customer base. If our revenues do not increase significantly or if
the increase in our expenses is greater than expected, we may not achieve or
sustain profitability or generate positive cash flow in the future.
AN INABILITY TO MANAGE OUR RAPID GROWTH COULD IMPAIR OUR OPERATING RESULTS
Our current business plan contemplates rapid expansion of our business for
the foreseeable future. This growth has placed, and will place, a significant
strain on our financial, management, operational and other resources. This rapid
expansion will increase our operating complexity and will require that we, among
other things, efficiently:
- address the demand for our products and services;
- control expenses and costs related to our business plan;
- maintain effective quality controls; and
- expand our internal management, technical, provisioning, information,
billing, customer service and accounting systems.
6
<PAGE> 10
The significant size and complexity of our business and our planned network
will make it more difficult for us to manage our growth. If we fail to manage
any of these factors effectively, it could have a material adverse effect on our
business, results of operations and financial condition.
OUR FAILURE TO MAINTAIN OUR ACCESS TO RIGHTS-OF-WAY, OR OBTAIN ADDITIONAL
RIGHTS-OF-WAY IN THE FUTURE, COULD IMPAIR THE DEVELOPMENT OF OUR NETWORK
We have entered into agreements with Niagara Mohawk, NYSEG, ConEd and GPU
Telcom which provide us with non-exclusive access to certain specific
rights-of-way. These rights-of-way are essential to the construction and
installation of our telecommunications network. In some cases, these agreements
require our fiber network to be moved or removed in the event that the utility
needs its rights-of-way for public utility purposes or no longer owns its
rights-of-way. See "Business -- Our Relationships with Utilities." If any of
these agreements were terminated or could not be renewed, it could have a
material adverse effect on our business, results of operations and financial
condition.
In addition, we may require supplemental rights-of-way and other permits
from railroads, utilities, state highway authorities, local governments and
transit authorities to install conduit and related telecommunications equipment
for the expansion of our network into the remainder of the eastern United
States. We can not assure you that we will be successful in obtaining and
maintaining access to these rights-of-way on acceptable terms or at all. Some of
these agreements may be short-term or revocable at will. If any of these
agreements were terminated or could not be renewed and we were forced to remove
our fiber optic cable from under these rights-of-way or abandon our networks, it
would have a material adverse effect on our business, results of operations and
financial condition.
IF ANY OF OUR EXISTING STRATEGIC RELATIONSHIPS TERMINATE, OUR ABILITY TO
PENETRATE OUR TARGET MARKETS COULD BE ADVERSELY AFFECTED
We have formed strategic relationships, both formally and informally, with
various utility providers, hardware and software vendors, telecommunications
companies and other entities for joint marketing and preferred pricing purposes
and to expand our network quickly and efficiently. We plan to maintain these
relationships and seek new marketing or other strategic arrangements in the
future. Our ability to quickly penetrate our target markets may be adversely
affected if we are unable to capitalize on these relationships and to develop
similar relationships in the future.
WE HAVE SUBSTANTIAL INDEBTEDNESS THAT COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND PREVENT US FROM FULFILLING OUR VARIOUS OBLIGATIONS, INCLUDING
OBLIGATIONS IMPOSED BY OUR EXISTING CREDIT FACILITIES
We are, and after the offering will continue to be, substantially
leveraged. At December 31, 1999, we had or were subject to approximately:
- $156.4 million of debt (including capital leases); and
- $112.1 million of accumulated deficit incurred since our inception.
The degree to which we are leveraged could have important consequences to
our future operations, including:
- limiting our ability to fund future capital expenditures, research and
development costs, working capital and other general corporate
requirements;
- requiring us to dedicate a substantial portion of our cash flow from
operations to make interest and principal payments on our indebtedness;
7
<PAGE> 11
- limiting our flexibility in planning for, or reacting to, changes in our
business and the industries in which we operate;
- placing us at a competitive disadvantage compared to our competitors that
have less debt; and
- increasing our vulnerability to general adverse economic and industry
conditions.
In addition, our existing credit facilities contain a number of significant
limitations that could limit our ability to conduct our business, obtain future
financing or withstand a future downturn in our business. Our credit facilities
also require us to maintain specified financial ratios and satisfy financial
tests. We recently amended our credit facilities to reduce these financial
tests. We would not have satisfied these tests without these amendments and our
ability to meet these tests or ratios in the future may be affected by events
beyond our control. If we fail to comply with any of the covenants in our
financing agreements, we will be in default. In the event of a default under our
credit facilities, our lenders could terminate their commitments to lend to us
or accelerate the loans and declare all amounts borrowed due and payable.
Additionally, if we default, borrowings under our other debt agreements that
contain cross-acceleration or cross-default provisions may also be accelerated
and become due and payable. If any of these events occur, we may not be able to
make the necessary payments to the lenders and may not be able to find
alternative financing. Even if we could obtain alternative financing, it may not
be on terms that are favorable or acceptable to us.
A FAILURE TO FINANCE OUR SUBSTANTIAL CAPITAL REQUIREMENTS COULD ADVERSELY AFFECT
OUR BUSINESS PLAN
Our current business plan provides for the completion of our network build
by the end of 2001. We will require additional funds from the conveyance of
indefeasible rights-of-use or through the sale of additional equity or debt
securities in order to complete our network and fund our operating losses. The
timing and cost of developing our network and offering our telecommunications
services will depend on a variety of factors, many of which are beyond our
control. We may not be able to complete our network as planned and our actual
costs may vary materially from those currently budgeted. We may not be able to
convey indefeasible rights-of-use in the quantities or at the prices that we
currently anticipate or sell debt or equity securities on terms or in amounts
satisfactory to us. In the event that our actual costs exceed our current budget
or we do not have the funds we anticipate, we will need to seek additional
sources of financing or adjust the number or sequence of segments we develop.
We may also require additional capital in the future for new business
activities related to our current and planned businesses, or in the event we
decide to make acquisitions or enter into further additional joint ventures and
strategic relationships. If we do require additional financing in the future, we
can not assure you that any additional funds would be available on commercially
reasonable terms, or at all, or that we could obtain any other financing. If we
fail to obtain the required financing, we may be required to delay or abandon
some of our future expansion or spending plans.
Future debt financing may limit our financial and operating flexibility. If
we issue additional equity securities, you may experience additional dilution or
the new equity securities may have rights, preferences or privileges senior to
our Class A common stock.
DIFFICULTIES IN COMPLETING OUR NETWORK COULD INCREASE ITS ESTIMATED COST TO US,
DELAY ITS SCHEDULED COMPLETION AND SUBJECT US TO PENALTIES
Our ability to increase revenues and generate positive cash flow will
depend in large part upon the successful, timely and cost-effective completion
of our network. Significant delays in completing our network could harm our
business and financial performance. Administrative,
8
<PAGE> 12
technical, operational and other problems that could arise may be more difficult
for us to address and solve due to the significant size and complexity of our
planned network. Additionally, we have entered into agreements with other
telecommunications carriers to deliver capacity or indefeasible rights-of-use
over our network. These agreements typically require us to pay penalties if we
fail to deliver the capacity or indefeasible rights-of-use by an agreed
deadline. The successful and timely completion of our network will be affected
by a variety of factors, many of which we can not control, including the
following:
- our ability to acquire additional sites, rights-of-way and required
permits from utilities, governmental authorities or others on
satisfactory terms and conditions;
- our management of costs related to construction of route segments;
- timely performance by contractors and subcontractors;
- the technical performance of the fiber and equipment used in our network;
and
- our ability to attract and retain qualified personnel.
Future expansions and adaptations of our network's electronic and software
components may be necessary in order to respond to a growing number of customers
or increased demands by our customers to transmit larger amounts of data. We can
not guarantee that we will be able to achieve completion, or any future
expansion, on time, within our anticipated budget or at all.
ANY FAILURE OF OUR NETWORK INFRASTRUCTURE COULD LEAD TO SIGNIFICANT COSTS,
SERVICE DISRUPTIONS AND DATA LOSS, WHICH COULD REDUCE OUR REVENUES AND HARM OUR
BUSINESS AND REPUTATION
The success of our operations will require that our network provide
competitive reliability, capacity and security. Some of the risks to our network
and infrastructure include:
- physical damage;
- human error;
- power loss;
- capacity limitations;
- software defects;
- breaches of security, including computer viruses; and
- other disruptions that are beyond our control.
Despite precautions we have taken, the occurrence of a natural disaster or
other problems could result in service interruptions, significant damage to
equipment or loss of customer data. Any widespread loss of services would slow
the adoption of our services and cause damage to our reputation, which could
have a material adverse effect on our business, results of operations and
financial condition.
IF OUR NETWORK SECURITY IS BREACHED, OUR BUSINESS AND REPUTATION WOULD SUFFER
Our customers rely on us for the secure transmission of their data. Third
parties may attempt to breach our security. If they succeed despite our security
measures, they could obtain, destroy or damage confidential information of our
customers. We may be liable to our customers for any breach in our security. Our
failure to prevent security breaches may harm our reputation and thereby could
have a material adverse effect on our business, results of operations and
financial condition.
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<PAGE> 13
WE RELY ON THIRD PARTY SUPPLIERS FOR THE COMPONENTS OF OUR INFRASTRUCTURE AND
THE PRODUCTS WE USE TO DELIVER OUR SERVICES AND ANY INTERRUPTION IN THE SUPPLY
OF THESE PRODUCTS AND MATERIALS COULD HARM OUR BUSINESS
We are dependent on other companies to supply the key components of our
network infrastructure and the hardware and software products we use in
delivering our services. Our infrastructure is based on materials, such as
fiber, routers and switches, which, in the quantities and quality we demand, are
available only from a limited number of suppliers. Recently, some companies have
experienced a shortage of fiber optic cable. Similarly, we currently purchase a
large portion of the software and hardware products used in our services
offerings from a limited number of vendors. Any delay or extended interruption
in our ability to obtain these products and materials, or comparable quality
replacements, could have a material adverse effect on our business, results of
operations and financial condition.
WE HAVE RECENTLY INSTALLED OUR BACK OFFICE INFORMATION AND PROCESSING SYSTEMS
AND WE RELY ON THESE SYSTEMS FOR EFFECTIVE BILLING AND CUSTOMER SERVICE
Our back office information and processing systems are vital to our growth
and our ability to monitor and maintain our network, monitor costs and bill
customers. We are currently designing and implementing significantly expanded
operational support systems and expect the new systems will be operational
during the third quarter of 2000. Our current systems are relatively new and the
systems nearing completion are unproven and they may not perform as expected or
provide efficient operational solutions if:
- we fail to adequately identify or are unsuccessful in implementing all of
our information and processing needs;
- our processing or information systems fail; or
- we fail to upgrade systems when required.
A disruption in or failure of our operational support systems could result
in:
- partial or total failure of our network;
- loss or diminution in service delivery or performance; and
- loss of revenue from billings,
any of which could have a material adverse effect on our business, results of
operations and financial condition.
IF WE DO NOT EXPAND OUR SALES EFFORTS, WE WILL HAVE DIFFICULTY ATTRACTING AND
RETAINING CUSTOMERS
The market for the enhanced data and video services we propose to offer is
relatively new and many prospective customers are unfamiliar with these
services. In addition, we have limited experience offering these services. As a
result, our sales effort requires highly trained and experienced sales
personnel. We need to expand our marketing and sales organization in order to
increase market awareness of our services to a greater number of organizations
and, in turn, to generate increased revenues. We are in the process of
developing our sales force and require additional qualified sales personnel.
Competition for these individuals is intense, and we might not be able to hire
the number of qualified sales personnel we need. Moreover, even after we hire
these individuals, they generally require extensive training. If we are unable
to expand our sales operations and train new sales personnel rapidly, we may not
be able to increase market awareness and sales of our services, which may
prevent us from achieving and maintaining profitability.
10
<PAGE> 14
WE DEPEND ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET, AND IF WE ARE UNABLE TO RETAIN OUR KEY EMPLOYEES, OUR ABILITY
TO COMPETE COULD BE HARMED
Our success depends upon the continued services of our executive officers
and other key technology, sales, marketing and support personnel, who have
critical industry experience and relationships that we rely on in implementing
our business plan. The loss of the services of any of our key employees could
delay the development and introduction of, and negatively impact our ability to
sell, our services. Our future success will also depend on our ability to
attract, train, retain and motivate highly qualified management, technical,
sales, marketing and support personnel. Competition for such personnel is
intense and we can not assure you that we will be able to attract or retain key
personnel.
WE DEPEND ON THE CASH FLOW OF OUR SUBSIDIARIES TO SATISFY OUR OBLIGATIONS
We are a holding company and depend on cash flow from our subsidiaries and
their payments to us in the form of loans, dividends, or otherwise to meet our
obligations. Our subsidiaries, two of which are joint investments with other
parties, may become unable to pay distributions, management fees, loans or other
payments to us. This could impair our ability to meet our obligations under our
indebtedness and it could have a material adverse effect on our business,
results of operations and financial condition.
WE DO NOT HAVE COMPLETE CONTROL OVER KEY OPERATING SUBSIDIARIES
We do not have complete control over Telergy East and Telergy MidAtlantic.
Many actions of Telergy East and Telergy MidAtlantic require the approval of our
strategic partner in the subsidiary, including:
- engaging in certain activities not contemplated by our agreement;
- merging, consolidating or dissolving the subsidiary; and
- selling substantially all of the subsidiary's assets.
If conflicts of interest arise with our strategic partners, or one or more of
our partners fail to meet their financial or other obligations to us, these
subsidiaries may become unable to pay distributions, management fees, loans or
other payments to us.
RISKS RELATED TO OUR INDUSTRIES
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST COMPETITORS THAT HAVE
SIGNIFICANTLY GREATER FINANCIAL, TECHNICAL AND MARKETING RESOURCES THAN WE DO
The industries in which we operate are highly competitive and are affected
by the introduction of new services by, and the market activities of, major
industry participants. We expect competition will intensify in the market for
the telecommunications services we provide and plan to provide. Many of our
competitors are substantially larger and have greater financial, technical and
marketing resources than we do. In particular, larger competitors have
advantages over us which could cause us to lose customers and impede our ability
to attract new customers, including:
- long-standing relationships and brand recognition with customers;
- financial, technical, marketing, personnel and other resources
substantially greater than ours;
- more funds to deploy telecommunications and data services;
11
<PAGE> 15
- the potential to lower prices of competitive telecommunications and data
services; and
- fully deployed networks.
We face competition from other current and potential market entrants,
including:
- domestic and international long distance providers seeking to enter,
re-enter or expand entry into the local telecommunications marketplace;
and
- other domestic and international competitive telecommunications
providers, resellers, cable television companies and electric utilities.
The rapid development of the telecommunications industry and the continuing
trend toward combinations and strategic alliances could give rise to significant
new competitors which could cause us to lose customers and impede our ability to
attract new customers. For example, we believe that Global Crossing, one of our
significant stockholders, has through combinations and alliances, entered into
lines of business that compete with us. In addition, Global Crossing has the
right to designate a member to our board of directors.
Additionally, in the provision of data storage services, we face
competition from storage hardware and software vendors, which sell storage
products or consulting services, as well as managed storage services providers.
Many of these vendors and providers have longer operating histories, greater
name recognition and substantially greater financial, technical and marketing
resources than we have. Many of these vendors and providers also have more
extensive customer bases, broader customer relationships and broader industry
alliances than us, including relationships with many of our current and
potential customers.
The lack of any substantial barriers to entry in our industries means that
significant and potentially larger competitors could enter our market as a
result of other regulatory changes, technological developments or the
establishment of cooperative relationships, including potentially through use of
the same rights-of-way that we use. Foreign telecommunications carriers may also
compete in the United States market. Increased competition could lead to price
reductions, fewer large-volume sales, reduced operating margins and loss of
market share.
INCREASED INDUSTRY CAPACITY AND OTHER FACTORS MAY LEAD TO LOWER PRICES FOR OUR
PRODUCTS AND SERVICES
Prices for telecommunications services have historically declined over
time. We anticipate that prices for our telecommunications services will
continue to decline over the next several years. The prices that we can charge
our customers for wholesale capacity and network services could decline due to
many factors, including:
- installation by us and our competitors of fiber and related equipment
that provides substantially more transmission capacity than needed;
- recent technological advances that permit substantial increases in, or
better usage of, the capacity of transmission media; and
- strategic alliances or similar transactions that decrease industry
participants' costs.
We can not predict to what extent we may need to reduce our prices to
remain competitive or whether we will be able to maintain price competitiveness.
Our failure to achieve or sustain market acceptance at desired pricing levels
could impair our revenue and our ability to achieve profitability, which could
have a material adverse effect on our business, results of operations and
financial condition.
12
<PAGE> 16
THE MARKETS FOR SOME OF OUR SERVICES ARE RELATIVELY NEW AND OUR BUSINESS WILL
SUFFER IF THEY DO NOT DEVELOP AS WE EXPECT
The markets for data and storage services are relatively new and may not
develop as we expect. Growth of our customer base will depend on marketplace
acceptance of our data and storage services and our ability to convince
prospective customers to use our services. Furthermore, we incur operating
expenses based largely on anticipated revenue trends which are difficult to
predict given the recent emergence of the data and storage services markets. We
can not assure you that our data and storage services will receive marketplace
acceptance or that prices and demand for these services will be sufficient to
sustain profitable operations.
OUR BUSINESS WILL SUFFER IF WE DO NOT ENHANCE AND EXPAND OUR SERVICES TO MEET
CHANGING CUSTOMER REQUIREMENTS
Our current and prospective customers may require features and capabilities
that our current services do not offer. To achieve market acceptance for our
services, we must anticipate and adapt to customer requirements in a timely and
efficient manner. The development of new or enhanced services is a complex and
uncertain process that requires the accurate anticipation of technological and
market trends. We may experience design, marketing and other difficulties that
could delay or prevent the development, introduction or marketing of new
services as well as enhancements to our existing services. The introduction of
new or enhanced services also requires that we manage the transition from older
services in order to minimize disruption in customer ordering patterns. Our
failure to anticipate and meet changing customer requirements or to effectively
manage transitions to new services could have a material adverse effect on our
business, results of operations and financial condition.
OUR SUCCESS DEPENDS ON OUR ABILITY TO EXPAND OR ADAPT OUR NETWORK AND SYSTEMS TO
RAPIDLY CHANGING TELECOMMUNICATIONS TECHNOLOGY AND INCREASING DEMAND
The industries in which we operate are subject to rapid and significant
changes in technology. We expect that new products and technologies will emerge,
and we can not predict the effect of these technological changes on our
business. These new products and technologies may render obsolete the products
and technologies we use or offer. These changes could require us to incur
significant expenditures and we can not assure you that technological changes in
the telecommunications industry would not have a material adverse effect on our
business, results of operations and financial condition.
In addition to technological advances, other factors could require us to
expand or adapt our network and systems, including:
- an increasing number of customers;
- demand for greater data transmission capacity;
- changes in our customers' service requirements; and
- emergence of new industry standards.
Expanding or adapting our network could require substantial additional
financial, operational and managerial resources, any of which may not be
available to us. Moreover, technological advances may have the effect of
encouraging our current or future customers to rely on in-house personnel and
equipment to furnish the services we currently provide. We can not assure you
that any expansions or adaptions of our network will be compatible with the
rapidly changing technology and evolving industry standards. Any such
incompatibility or obsolescence of any of our products and services could have a
material adverse effect on our business, results of operations and financial
condition.
13
<PAGE> 17
OUR OPERATIONS ARE SUBJECT TO GOVERNMENTAL REGULATION, WHICH MAY CHANGE
The operation of our network and the provision of our services in the
United States are subject to regulation by federal, state, and local
authorities. In addition, as we expand our operations into other states and
Canada, we will become subject to regulation in those jurisdictions.
In the United States, our interstate and international operations are
governed by the Communications Act of 1934, as amended by the Telecommunications
Act of 1996, or the Telecom Act, and are regulated by the Federal Communications
Commission. Our intrastate activities are regulated by the state public utility
commissions of the states in which we do business. Local governmental
authorities also have authority over certain matters that may affect the
operation of our business, such as zoning and access to rights of way. As we
expand our network and services internationally, we also may become subject to
national, provincial, state, and local regulation in those countries in which we
operate.
Government regulation of the telecommunications sector, both in the United
States and abroad, is continually changing. In the United States, there are
ongoing proceedings at the federal and state level, both by regulatory agencies
and in the courts, regarding the provision of services in a competitive
telecommunications environment. Many foreign regulatory agencies also are
examining similar issues in their telecommunications markets. The decisions of
governmental agencies in these proceedings may affect our business in ways that
can not be accurately predicted and that may have a material adverse effect on
our business, results of operations and financial condition. Moreover, there may
be future changes in the regulatory environment in the United State and abroad
that may affect the manner in which we are permitted to provide our services and
that may have a material adverse effect on our business, results of operations
and financial condition.
In the ordinary course of constructing our networks and providing our
telecommunications services, we are required to obtain and maintain a variety of
national, state, and local telecommunications and other licenses and
authorizations in the jurisdictions in which we operate. We also must comply
with a variety of regulatory obligations, including the filing of regulatory
reports and payment of regulatory fees. Our failure to obtain or maintain
necessary licenses and authorizations, or our failure to comply with the
obligations imposed upon license-holders in one or more jurisdictions, may
result in sanctions, including fines or the revocation of our authority to
provide services. Our inability to provide services in one or more jurisdictions
could have a material adverse effect on our business, results of operations and
financial condition.
RISKS RELATING TO THIS OFFERING
OUR PRINCIPAL STOCKHOLDERS OWN SHARES REPRESENTING % OF THE VOTING POWER AND
CAN CONTROL THE ELECTION OF ALL DIRECTORS AND OTHER MAJOR DECISIONS
After giving effect to this offering, Brian P. Kelly, our Chairman of the
Board and Chief Executive Officer, his brothers Kevin J. Kelly, our Vice
Chairman of the Board and Executive Vice President, and William M. Kelly, Jr.,
our Executive Vice President and one of our directors, together own, through a
voting trust, approximately 1,442,693 shares of our Class A common stock and all
of our Class C common stock which together will constitute approximately %
of the voting power of our outstanding common stock after this offering. In
addition, shares of our Class A common stock held by third parties representing
% of the voting power of our common stock, have also been deposited in a
voting trust of which Kevin J. Kelly is the trustee. As a result, voting power
is concentrated in Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. who
control the election of all of our directors and all other major decisions
involving us or our
14
<PAGE> 18
business. In addition, no third party could acquire control of us without
reaching an agreement with Brian P. Kelly and Kevin J. Kelly.
OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THE OFFERING
AND YOU WILL NOT HAVE THE OPPORTUNITY TO EVALUATE INFORMATION CONCERNING THE
APPLICATION OF PROCEEDS
Our management will have considerable discretion in the application of the
net proceeds of this offering, and you will not have the opportunity, as part of
your investment decision, to assess whether the proceeds are being used
appropriately. We may use the net proceeds for corporate purposes that do not
increase our profitability or our market value. Pending application of the
proceeds, we may place them in investments that do not produce income or that
lose value.
FUTURE SALES OF OUR STOCK, OR THE PERCEPTION THAT SALES MAY OCCUR, COULD
ADVERSELY AFFECT OUR STOCK PRICE
The market price of our Class A common stock may fall as a result of sales
of a large number of shares of our Class A common stock in the market following
this offering, or a perception that these sales could occur. Large sales of our
stock in the market may make it more difficult for us to sell equity securities
in the future at a time or at a price that we believe is appropriate.
Immediately after this offering there will be approximately
shares of our Class A common stock outstanding. Of these shares, all of the
shares sold in this offering and shares held by our current
stockholders will be freely tradeable without restriction under the Securities
Act of 1933, unless acquired by one of our "affiliates." An additional
shares of Class A common stock will become freely tradeable 90
days from the date of this prospectus. After the lock-up agreements pertaining
to this offering expire 180 days from the date of this prospectus, an additional
shares of Class A common stock will be eligible for sale in the
public market.
Holders of approximately 1,458,297 shares of our Class A common stock,
including securities exercisable for or convertible into our Class A common
stock, also have contractual registration rights with respect to their shares.
If the sale of those shares is registered, those shares will be freely tradeable
without restriction under the Securities Act of 1933. Following this offering,
we also intend to file a registration statement under the Securities Act of 1933
to register up to 2,000,000 shares of our Class A common stock subject to
outstanding options or reserved for issuance under our stock incentive plans.
The sale of these additional shares into the market may further adversely affect
the market price of our Class A common stock.
THERE IS NO PRIOR PUBLIC MARKET FOR OUR CLASS A COMMON STOCK
Prior to this offering, there has been no public market for our Class A
common stock. We intend to make application for quotation of our Class A common
stock on the Nasdaq National Market, but we can not predict the extent to which
an active trading market for our stock may develop. We will determine the price
that you will pay for your Class A common stock through negotiations with the
underwriters but the initial public offering price may not be indicative of the
market price for the Class A common stock that will prevail in the trading
market after this offering. The prevailing market price for our Class A common
stock after the offering could be less than the initial public offering price
that you will pay for your shares.
THE MARKET PRICE OF OUR CLASS A COMMON STOCK COULD BE VOLATILE
The market price at which our Class A common stock will trade after this
offering is likely to be volatile and may fluctuate substantially due to many
factors, some of which are beyond our control. In addition, in recent months,
the stock market generally has experienced extreme price and volume fluctuations
affecting the stock of telecommunications companies. These fluctuations may be
unrelated or disproportionate to our performance and may result in a decline in
the
15
<PAGE> 19
trading price of our Class A common stock. Volatility in the market price of our
Class A common stock may prevent you from being able to sell your Class A common
stock at or above our initial public offering price. In the past, class action
litigation has often been brought against companies following periods of
volatility in the market price of those companies' common stocks. We may become
involved in this type of litigation in the future. Litigation is often expensive
and diverts management's attention and resources and could have a material
adverse effect on our business, results of operations and financial condition.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION OF $ IN THE BOOK
VALUE OF YOUR INVESTMENT
If you purchase shares of our Class A common stock in this offering you
will suffer immediate dilution of $ per share because the per share price
that you pay will be substantially greater than the per share net tangible book
value of the shares you acquire. This dilution is due in large part to the fact
that our earlier investors paid substantially less than the public offering
price to purchase their shares. You will experience additional dilution upon the
exercise of stock options and warrants to purchase Class A common stock.
PROVISIONS IN OUR CHARTER DOCUMENTS MAY DETER A THIRD PARTY FROM ACQUIRING US,
EVEN IF THE ACQUISITION WOULD ECONOMICALLY BENEFIT OUR STOCKHOLDERS
Our certificate of incorporation and by-laws include provisions that could
delay, deter or prevent a future takeover or change in our control, including
limiting the ability of stockholders to raise matters at a meeting of
stockholders without giving us advance notice. These provisions may have the
effect of discouraging a third party from making a tender offer or otherwise
attempting to obtain control of us, even though such a change in ownership could
be economically beneficial to us and our stockholders.
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<PAGE> 20
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements including, in
particular, the statements about our plans, expectations, intentions, strategies
and prospects under the headings "Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." These
forward-looking statements include, among others, statements concerning:
- anticipated growth of the telecommunications and information services
industry;
- expectations as to our future revenues, margins, expenses and capital
requirements; and
- anticipated dates on which we will begin providing certain services or
reach specific milestones.
We can not assure you that we will achieve our plans, intentions or
expectations. Important factors that could cause our actual results to differ
materially from the forward-looking statements we make in this prospectus
include, but are not limited to, our failure to:
- achieve and sustain profitability based on the creation and
implementation of our network;
- overcome significant early operating losses;
- raise or generate sufficient funds to implement our business plan;
- develop financial and management controls, as well as additional controls
of operating expenses as well as other costs;
- attract and retain qualified management and other key personnel; and
- install on a timely and efficient basis the fiber optic cable and
associated electronic systems required for successful implementation of
our business plan.
All forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by the cautionary statements
and risk factors contained throughout this prospectus.
INDUSTRY DATA
We have included in this prospectus industry data developed by third party
sources. While we believe that the data estimates are reasonable and reliable,
we have not independently verified this information.
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<PAGE> 21
USE OF PROCEEDS
Our net proceeds from this offering are estimated to be $ million,
at an assumed initial public offering price of $ (after deducting the
underwriting discount and estimated expenses). If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
will be $ million. We expect to use the net proceeds primarily for further
development of our network, expansion of our sales and marketing organization,
working capital, capital expenditures, acquisitions and other general corporate
purposes. Although we evaluate potential acquisitions from time to time, we
currently have no agreement or understanding with any person to effect any
material acquisition. We have not determined the specific amounts we plan to
spend on any of these uses or the timing of these expenditures. Pending our use
of the net proceeds, we intend to invest the net proceeds of this offering in
short-term investments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our Class A common
stock. For the foreseeable future, we intend to retain our earnings for our
operations and the expansion of our business and do not expect to pay dividends
on our Class A common stock. The payment of any future dividends will be at the
discretion of our board of directors and will depend on, among other factors,
our earnings, financial condition, capital requirements and general business
outlook at the time payment is considered. Our existing credit facilities do,
and any future indebtedness incurred by us may, restrict our ability to pay
dividends.
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<PAGE> 22
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis; and
- on a pro forma as adjusted basis to reflect:
- the issuance in May 2000 of our Series B preferred stock and related
warrants for aggregate proceeds of $20.0 million and the subsequent
conversion of the Series B preferred stock and related warrants upon
completion of this offering into shares of our Class A common
stock, assuming an initial public offering price of $ per share;
- the exercise of warrants to acquire 564,227 shares of our Class A
common stock which expire upon completion of this offering, and the
cancellation and exchange of our Series A preferred stock along with
payment of $ in connection with that exercise;
- the conversion of Niagara Mohawk Energy's membership interest in
Telergy Central into shares of our Class A common stock,
assuming an initial public offering price of $ per share; and
- the issuance of shares of Class A common stock in this
offering at an assumed initial public offering price of $ per
share, but after deducting the underwriting discount and estimated
expenses:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------
PRO FORMA
AS ADJUSTED
ACTUAL (UNAUDITED)
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 278 $
========= =========
Debt:
Long-term debt (including current portion)(1)............. $ 131,061 $ 131,061
Capital lease obligations (including current portion)..... 25,380 25,380
--------- ---------
Total debt.................................................. $ 156,441 $ 156,441
Redeemable common stock(2).................................. 809
Redeemable preferred stock(3)............................... 809
Stockholders' equity (deficit):
Common stock, Class A, par value $0.0001, 9,999,900 shares
authorized; 3,383,000 shares issued and outstanding at
December 31, 1999 actual and shares issued and
outstanding pro forma as adjusted....................... --
Common stock, Class C, par value $0.0001, 100 shares
authorized, issued and outstanding actual, pro forma and
pro forma as adjusted................................... --
8% Series A redeemable preferred stock par value $0.0001,
404,576 shares authorized, issued and outstanding actual
and no shares issued and outstanding pro forma as
adjusted................................................ --
10% Series B convertible redeemable preferred stock, par
value $0.0001, 58,700 shares authorized, no shares
issued and outstanding at December 31, 1999 and pro
forma as adjusted....................................... --
Additional paid-in capital................................ 198,601
Accumulated deficit....................................... (112,105)
Deferred compensation..................................... (59,251)
--------- ---------
Total stockholders' equity.................................. 27,245
--------- ---------
Total capitalization........................................ $ 185,304 $
========= =========
</TABLE>
- ---------------
(1) $126.0 million of advances under our credit facility has been recorded as a
current obligation as of December 31, 1999. Upon completion of this
offering, we will reclassify these advances as long-term debt. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
(2) Redeemable common stock is comprised of shares of Class A common stock
issued in 1998 and 1999 that have various contractual rights which provide
holders with a current and capital return, including a put option entitling
the holder to require us to repurchase for cash such Class A common stock in
certain circumstances. This put option expires upon completion of this
offering. See "Description of Capital Stock".
(3) Redeemable preferred stock is based upon our obligation to redeem an amount
of Series A preferred stock equal to the amount of Class A common stock
recorded as redeemable common stock described in Note 2 above. See
"Description of Capital Stock".
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<PAGE> 23
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $
million, or $ per share. Our pro forma net tangible book value per share
represents the amount of our total tangible assets, reduced by the amount of our
total liabilities, and then divided by the total number of shares of Class A
common stock and Class C common stock outstanding after giving effect to (1) the
exercise of warrants for Class A common stock which expire upon completion of
this offering; (2) the automatic conversion of our Series B preferred stock into
shares of Class A common stock; and (3) the conversion of Niagara Mohawk
Energy's membership interest in Telergy Central. Dilution in net tangible book
value per share represents the difference between the amount paid per share by
purchasers of shares of Class A common stock in this offering and the pro forma
net tangible book value per share of our Class A common stock and our Class C
common stock immediately after the completion of the offering. After giving
effect to the sale of the shares of Class A common stock we are
offering at an assumed initial public offering price of $ share, and after
deducting the underwriting discount and estimated offering expenses we will pay,
our pro forma net tangible book value at December 31, 1999 would have been
$ million or $ per share of Class A common stock. This represents an
immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors
purchasing shares at the initial offering price. The following table illustrates
this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
--------
Pro forma net tangible book value per share before the
offering............................................... $
--------
Pro forma increase per share attributable to new
investors..............................................
--------
Pro forma net tangible book value per share after the
offering..................................................
--------
Pro forma dilution to new investors......................... $
========
</TABLE>
The following table summarizes on the pro forma basis described above after
giving effect to the offering, as of December 31, 1999, the differences between
the existing stockholders and the new investors with respect to the number of
shares of common stock and preferred stock purchased from us, the total
consideration paid to us and the average price per share paid (before deducting
the underwriting discount and our estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PER
NUMBER PERCENT AMOUNT PERCENT SHARE PRICE
------ ------- ------ ------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ % $ % $
New investors................ % %
------- --- -------- --- ------
Total.............. % $ % $
======= === ======== === ======
</TABLE>
In the preceding tables, the number of shares of Class A common stock
outstanding excludes shares issuable: (1) upon the exercise of outstanding stock
options and warrants, and (2) for payment of current returns on 358,239 shares
of our Class A common stock. To the extent that options or warrants are
exercised there will be further dilution to new investors. See "Description of
Capital Stock--Minimum Returns on Investment".
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<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected consolidated financial data and other
operating data set forth below along with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our financial statements
and related notes presented elsewhere in this prospectus. We have derived the
consolidated statement of operations data for 1996, 1997, 1998 and 1999, and the
consolidated balance sheet data as of December 31, 1996, 1997, 1998 and 1999
from our financial statements that have been audited by Ernst & Young LLP,
independent auditors. We had no operations prior to 1996. The pro forma as
adjusted consolidated balance sheet data reflect:
- the issuance in May 2000 of our Series B preferred stock and related
warrants for aggregate proceeds of $20.0 million and the subsequent
conversion of the Series B preferred stock and related warrants upon
completion of this offering into shares of our Class A common
stock, assuming an initial public offering price of $ per share;
- the exercise of warrants to acquire 564,227 shares of our Class A common
stock which expire upon completion of this offering, and the cancellation
and exchange of our Series A preferred stock along with payment of
$ in connection with that exercise;
- the conversion of Niagara Mohawk Energy's membership interest in Telergy
Central into shares of our Class A common stock, assuming an
initial public offering price of $ per share; and
- the issuance of shares of Class A common stock in this offering
at an assumed initial public price of $ per share, but after
deducting the underwriting discount and estimated expenses.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1997 1998 1999
------- -------- -------- ---------
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Service revenue............................................. $ 15 $ 2,516 $ 5,206 $ 7,944
Operating expenses:
Cost of services.......................................... 11 2,709 7,477 15,503
Selling, general and administrative....................... 914 4,642 8,998 19,659
Depreciation and amortization............................. 1 321 1,737 4,587
Non-cash stock-based compensation......................... 37 124 5,999 2,687
------- -------- -------- ---------
Total operating expenses.................................... 963 7,796 24,211 42,436
------- -------- -------- ---------
Operating loss.............................................. (948) (5,280) (19,005) (34,492)
Interest expense, net....................................... (463) (522) (14,625) (28,879)
Other nonoperating revenue.................................. -- 30 82 1,130
Income taxes................................................ (1) (1) (2) (3)
Minority interest........................................... 121 379 -- --
Equity interest in loss of unconsolidated investee.......... -- -- (83) (630)
------- -------- -------- ---------
Net loss before cumulative effect adjustment................ (1,291) (5,394) (33,633) (62,874)
Cumulative effect adjustment from adoption of new accounting
standard.................................................. -- -- (1,324) --
------- -------- -------- ---------
Net loss.................................................... $(1,291) $ (5,394) $(34,957) $ (62,874)
======= ======== ======== =========
Basic and diluted net loss per common share................. (0.47) (1.97) (12.69) (20.31)
</TABLE>
21
<PAGE> 25
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1997 1998 1999
------- -------- -------- ---------
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C>
OTHER CONSOLIDATED FINANCIAL DATA:
Capital expenditures(1)..................................... $14,302 $ 26,162 $ 35,599 $ 131,450
EBITDA(2)................................................... (910) (4,836) (11,269) (27,219)
Net cash used in operations................................. (1,267) (418) (14,764) (34,751)
Net cash used in investing activities....................... (941) (24,739) (37,120) (105,618)
Net cash provided by financing activities................... 2,860 26,174 52,451 138,409
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1997 1998 1999
------- -------- -------- ---------
<S> <C> <C> <C> <C>
OPERATING DATA AT END OF PERIOD:
Route miles................................................. 165 325 650 1,000
Fiber miles................................................. 15,840 31,200 76,500 170,000
Number of employees......................................... 33 57 127 341
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------
1999
----------------------
PRO FORMA
AS ADJUSTED
1996 1997 1998 ACTUAL (UNAUDITED)
-------- -------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 653 $ 1,671 $ 2,237 $ 278
Working capital deficit.................................... (15,462) (16,470) (57,324) (150,729)
Property and equipment, net................................ 14,301 40,370 74,509 201,806 201,806
Investment in Telergy East................................. -- -- 2,282 3,241 3,241
Total assets............................................... 16,363 52,518 88,110 219,919
Unearned fiber lease revenue............................... -- 10,000 9,770 10,386 10,386
Long term debt............................................. -- 22,716 33,300 24,793
Total debt including current portion(3).................... 2,360 31,220 80,030 156,441 156,441
Redeemable common stock(4)................................. -- -- 809 809 --
Redeemable preferred stock(5).............................. -- -- -- 809 --
Stockholders' equity....................................... (594) (5,209) (19,538) 27,245
</TABLE>
- ---------------
(1) Capital expenditures include cash expenditures plus additions to property
and equipment financed through trade payables and capital lease obligations.
Amounts include capitalized interest.
(2) EBITDA is defined as operating income plus depreciation, amortization and
non-cash stock-based compensation. EBITDA is used by management and some
investors as an indicator of a company's historical ability to service debt.
However, EBITDA is not intended to represent cash flows for the period, nor
has it been presented as an alternative to either (1) operating income (as
determined by generally accepted accounting principles) as an indicator of
operating performance or (2) cash flows from operating, investing and
financing activities (as determined by generally accepted accounting
principles).
(3) $126.0 million of advances under our credit facility has been recorded as a
current obligation as of December 31, 1999. Upon completion of this
offering, we will reclassify these advances as long-term debt. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
(4) Redeemable common stock is comprised of shares of Class A common stock
issued in 1998 in 1999 that have various contractual rights which provide
holders with a current and capital return, including a put option entitling
the holder to require us to repurchase for cash such Class A common stock in
certain circumstances. This put option expires upon completion of this
offering. See "Description of Capital Stock".
(5) Redeemable preferred stock is based upon our obligation to redeem an amount
of Series A preferred stock equal to the amount of Class A common stock
recorded as redeemable common stock described in Note 4 above. See
"Description of Capital Stock".
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<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with "Selected
Consolidated Financial Data" and our financial statements, including the notes
related thereto, and other financial data appearing elsewhere in this
prospectus. Our financial statements consolidate all of our subsidiaries except
Telergy East, which is accounted for using the equity method.
OVERVIEW
We are a facilities-based provider of integrated broadband
telecommunications services and high-bandwidth fiber optic capacity in the
northeastern United States. Our network is designed to be a regional fiber optic
intranet combining direct last-mile connections to our customers, intracity
rings and long-haul capacity. We are building our network on what we believe to
be the broadest contiguous rights-of-way in the region, primarily using access
rights granted to us by four utility companies with which we have developed
unique relationships. By the end of 2001, we expect our network to be comprised
of approximately 586,000 fiber miles over 3,200 route miles extending from
Washington, D.C. to Montreal. As of April 15, 2000, we have constructed or
entered into agreements for indefeasible rights-of-use for approximately 202,000
fiber miles over 1,800 route miles in New York, New Jersey, Pennsylvania,
Washington, D.C. and Maryland.
We have invested significant capital and effort in developing our
telecommunications business. This capital has been invested in the construction
of our network, the hiring of an experienced management team, the development
and installation of operational support systems, the introduction of new
products and services and the expansion of our marketing and sales forces. We
expect to continue to make capital expenditures to expand our network, to extend
direct last-mile connections to reach customer buildings and to broaden our
service offerings. A large portion of these capital expenditures will be
invested in selected markets before any revenue is generated. We have incurred,
and expect to continue to incur, significant and increasing negative gross
margins and operating losses while we expand our network operations and build
our customer base. Proper management of our growth will require us to maintain
cost controls, continue to assess market potential, ensure quality control in
implementing our services as well as to expand our internal management, customer
care, billing and information systems.
We construct our network with multiple innerducts and large quantities of
fiber. As of April 15, 2000, we had an average of approximately 300 fiber
strands per mile in our intracity rings and approximately 96 fiber strands per
mile in our long-haul capacity, more than we need to meet the service
requirements of our current business plan. As a result, we are able to convey
indefeasible rights-of-use for network capacity in order to help finance the
cost of construction. In addition, we enter into fiber exchanges and joint
construction agreements which allow us to expand our network more rapidly and
cost effectively than we could otherwise. For example, we entered into a fiber
exchange with GPU Telcom and joint construction agreements with companies
including Broadwing Communications Inc., or Broadwing, formerly known as IXC
Communications and Metrix Interlink Corporation, or Metrix, a subsidiary of MCI
WorldCom. Our plan is to continue to convey indefeasible rights-of-use for
network capacity and enter into fiber exchanges and joint construction
agreements to efficiently build out the remainder of our network.
SERVICE REVENUE
Historically, we have derived substantially all of our revenue from the
resale of local and long distance telephone service and data connectivity
provided by incumbent local exchange carriers and interexchange carriers. We
anticipate that a significant amount of our future revenues will be derived from
providing enhanced data services, such as video streaming and storage, directly
to our customers. As our network is completed, we intend to move existing resale
customers onto our network, which will allow us to achieve higher profit margins
on our retail products. We
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<PAGE> 27
recognize service revenue in the month services are provided. Amounts billed in
advance of the service month are recorded as deferred revenue.
We augment our core retail revenue by selectively supplying wholesale
services to telecommunications carriers and large businesses and institutions. A
small portion of our revenue is derived from conveying indefeasible
rights-of-use for network capacity. Payments on indefeasible rights-of-use for
network capacity are usually received up-front, recorded as deferred revenue and
recognized as revenue over their term, typically 20 to 30 years, on a straight
line basis. We charge annual maintenance fees on a per route mile basis in
connection with the conveyance of indefeasible rights-of-use for network
capacity. For other wholesale customers, we generally receive fixed monthly
payments for the leasing of access and capacity on our network and recognize
revenue ratably over the term of the applicable customer agreement.
OPERATING EXPENSES
Our principal operating expenses consist of cost of services, selling,
general and administrative expenses, depreciation and amortization and non-cash
stock-based compensation.
Cost of services include the following:
- charges from incumbent local exchange carriers for resale of local
services;
- charges from interexchange carriers for resale of long distance services;
- real estate leases for central offices, access offices, colocation and
other sites;
- costs to interconnect and terminate traffic with other network providers;
- network design and planning;
- salaries and benefits associated with network operations personnel; and
- network maintenance fees.
We began to provide service on our network in the first quarter of 1999. As
we move service onto our network, charges from incumbent local exchange carriers
and interexchange carriers as a percentage of revenue will decrease
correspondingly.
Selling, general and administrative expenses consist of:
- sales and customer care personnel and supporting costs;
- corporate and finance personnel and supporting costs;
- legal and accounting expenses; and
- expenses relating to billing, customer care and information services.
Depreciation and amortization expenses include depreciation of property and
equipment and amortization of intangible assets. We expect depreciation and
amortization expenses to increase substantially as we increase our capital
expenditure program to build out our network.
Non-cash stock-based compensation expense relates to the issuance of stock
options to employees and directors. The expense amount to be recorded is based
upon the difference between the estimated fair market value of the stock on the
date of the stock option grant and the stock option exercise price. This amount
is recorded as expense over the vesting period of the stock options.
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<PAGE> 28
INCOME TAXES
No tax benefit has been recorded in the financial statements for our net
operating loss carryforwards and other temporary differences due to the
uncertainty of future realization. In addition, significant changes in
ownership, as defined by Section 382 of the Internal Revenue Code, may result in
an annual limitation of the net operating loss carryforward benefit.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
SERVICE REVENUE. Service revenue increased by $2.7 million to $7.9 million
for the year ended December 31, 1999 from $5.2 million for the year ended
December 31, 1998. This increase was the result of growth in our customer base.
Service revenue related to the lease of network capacity, including conveyances
of indefeasible rights-of-use, remained substantially unchanged at approximately
$380,000 for the year ended December 31, 1999.
COST OF SERVICES. Cost of services increased by $8.0 million to $15.5
million for the year ended December 31, 1999 from $7.5 million for the year
ended December 31, 1998. This increase resulted from the additional network
costs associated with our increasing revenue, an increase in our network related
personnel and an increase in real estate taxes and development costs related to
the network build-out.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by $10.7 million to $19.7 million for the year ended December
31, 1999 from $9.0 million for the year ended December 31, 1998. This increase
was the result of an increase in development costs and salaries as we focused on
implementing our back office operations. We also incurred legal and travel costs
related to our business development activities.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by $2.9 million to $4.6 million for the year ended December 31, 1999
from $1.7 million for the year ended December 31, 1998. This increase was
primarily the result of the completion of additional portions of our network,
building, computer and office expenditures and the amortization of intangible
assets.
NON-CASH STOCK-BASED COMPENSATION. Non-cash stock-based compensation
decreased by $3.3 million to $2.7 million for the year ended December 31, 1999
from $6.0 million for the year ended December 31, 1998. This decrease was the
result of the stock options granted in 1999 being subject to extended vesting
periods.
INTEREST EXPENSE. Interest expense increased by $14.5 million to $29.3
million for the year ended December 31, 1999 from $14.8 million for the year
ended December 31, 1998. This increase primarily related to increased debt
financing to fund the development of our network and includes amortization of
related warrant costs. Excluding warrant costs, interest expense would have been
$16.1 million and $11.2 million for the years ended December 31, 1999 and 1998,
respectively.
OTHER. Other income increased by $1.0 million to $1.1 million for the year
ended December 31, 1999 from $82,000 for the year ended December 31, 1998. This
increase primarily related to rental income from an unrelated party who leases
space in our corporate headquarters in Syracuse, New York.
EQUITY INTEREST. Equity interest in loss of unconsolidated investments
increased by $0.5 million to $630,000 for year ended December 31, 1999 from
$83,000 for year ended December 31, 1998. This increase was the result of our
share of the increased loss of in the Telergy East joint venture.
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<PAGE> 29
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
SERVICE REVENUE. Service revenue increased by $2.7 million to $5.2 million
for the year ended December 31, 1998 from $2.5 million for the year ended
December 31, 1997. This increase was the result of growth of our customer base
subsequent to the introduction of local service in April 1997. We also began
recognizing revenue from the conveyance of indefeasible rights-of-use for
network capacity in 1998.
COST OF SERVICES. Cost of services increased by $4.8 million to $7.5
million for the year ended December 31, 1998 from $2.7 million for the year
ended December 31, 1997. This increase resulted from the additional network
costs associated with our increasing revenue, an increase in our network related
personnel and an increase in real estate taxes and development costs related to
our network build-out.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by $4.4 million to $9.0 million for the year ended December
31, 1998 from $4.6 million for the year ended December 31, 1997. This increase
was the result of an increase in development costs and salaries as we focused on
implementing our back office operations. We also incurred legal and travel costs
related to our business development activities.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by $1.4 million to $1.7 million for the year ended December 31, 1998
from $0.3 million for the year ended December 31, 1997. This increase was
primarily the result of portions of our network being completed and placed in
service in 1998.
NON-CASH STOCK-BASED COMPENSATION. Non-cash stock-based compensation
increased by $5.9 million to $6.0 million for the year ended December 31, 1998
from $124,000 for the year ended December 31, 1997. The increase was the result
of stock options with immediate vesting being granted in 1998.
INTEREST EXPENSE. Interest expense increased by $14.1 million to $14.8
million for the year ended December 31, 1998 from $654,000 for the year ended
December 31, 1997. This increase primarily related to increased debt financing
to fund the development of our network and included amortization of $3.6 million
related to warrants issued in connection with our debt financing.
OTHER. Other income increased by $52,000 to $82,000 for the year ended
December 31, 1998 from $30,000 for the year ended December 31, 1997. This
increase primarily related to rental income.
EQUITY INTEREST. We recognized an $83,000 loss for the year ended December
31, 1998 representing our 50% share of the loss of Telergy East.
In 1998, we recognized the cumulative effect adjustment from the adoption
of AICPA Statement of Position 98-5 "Reporting the Costs of Start-Up Activities"
which requires that costs related to start-up activities be expensed as
incurred.
LIQUIDITY AND CAPITAL RESOURCES
The telecommunications service business is capital intensive. Our existing
operations have required and will continue to require substantial capital
investment for network design and development, capital expenditures, working
capital, debt service and continued anticipated operating losses. In addition,
our business plan calls for expansion into additional market areas. This
expansion will require significant additional capital for the design,
development, construction, and expansion of our network and the funding of
operating losses during the start-up phase of each market. Capital expenditures,
including capitalized interest and additions to property and equipment financed
through trade accounts payable and capital lease obligations during 1997, 1998,
and 1999 were $26.2 million, $35.6 million, and $131.5 million, respectively.
26
<PAGE> 30
We have funded substantially all of our expenditures through the private
sale of debt and equity securities, capital leases, short- and long-term debt
financing and the conveyances of indefeasible rights-of-use for network
capacity. In addition to funds generated from operations, sources of funding for
our future financing requirements may include vendor financing, contributed
capital from our utility joint ventures, bank loans and public offerings or
private placements of equity and debt securities.
From our inception in May 1995, we have raised a significant amount of
equity capital in the following transactions:
- In November 1998, we raised $10.0 million through the issuance of Class A
common stock to Niagara Mohawk.
- In May 1999, we raised $15.0 million through the issuance of Class A
common stock to Teleglobe.
- In May 1999, we raised $30.0 million through the issuance of Class A
common stock to an affiliate of Niagara Mohawk.
- From October 1998 to July 1999, we raised an additional $18.0 million
through the issuance of Class A common stock to private investors.
- In September 1999, we raised $40.0 million through the issuance of Series
A preferred stock and warrants to GC Dev. Co., Inc., or GC Dev, an
indirect wholly-owned subsidiary of Global Crossing.
- In May 2000, we raised $20.0 million through the issuance of Series B
preferred stock to GPU Telcom.
We have also obtained significant debt financing since our inception, of
which the following facilities were available as of December 31, 1999:
- In February 1999, we entered into a $30.0 million equipment facility with
Nortel to finance purchases of Nortel goods and services. Principal drawn
is payable in 12 quarterly installments at an interest rate of LIBOR plus
5%. If not previously repaid, principal outstanding is repayable on the
sixth anniversary of the earlier of (1) the third anniversary of the date
of the credit agreement of (2) the date the facility becomes fully drawn.
As of December 31, 1999, we borrowed and repaid $5.3 million, leaving
$24.7 million available under this facility.
- In September 1999, we entered into a $25.0 million equipment leasing
facility with GATX, of which $24.9 million was drawn as of December 31,
1999. Principal payments are due in quarterly installments with the final
payment due on January 1, 2004, and the interest rate on current amounts
outstanding is 13.7%.
- In November 1999, we entered into a $175.0 million revolving credit
facility syndicated by Bank of America, of which $126.0 million was drawn
and outstanding at December 31, 1999. The facility bears interest at a
rate equal to LIBOR plus 4% or an alternate base rate (the higher of the
bank's prime rate plus 3% or the federal funds rate plus 3.5%), and
matures on November 19, 2002. The maximum amount available under this
facility was raised to $200.0 million in March 2000.
We had a working capital deficit of $151.0 million at December 31, 1999,
which includes $126.0 million of borrowings under our credit facility that have
been recorded as a current liability. Upon completion of this offering, this
$126.0 million of borrowings will again be classified as long-term debt with a
maturity date of November 19, 2002.
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<PAGE> 31
To date, the upstate New York portion of our network is substantially
complete, and, through our arrangement with GPU Telcom, we have acquired fiber
optic capacity that extends our network to Washington, D.C. In 2000, our plan is
to:
- complete the expansion of our Manhattan ring to Newark, New Jersey;
- expand our fiber capacity from Buffalo to Albany;
- build a diverse route from Albany to New York City;
- begin deploying electronic equipment to service the portion of our
network received from GPU Telcom in conjunction with our fiber exchange;
- build 50 colocation sites, in addition to our four colocations already
built as of April 15, 2000;
- deploy one additional voice switch and five additional data switches
throughout our coverage area; and
- substantially complete the development of our proprietary operational
support system by the third quarter of 2000.
In 2001, our plan is to:
- complete intracity rings in Washington, D.C. and Philadelphia,
Pennsylvania;
- complete an additional ring to encompass the five boroughs of New York
City;
- complete additional rings in eight tier II and tier III cities;
- build 68 additional colocation sites; and
- deploy two additional voice switches and six additional data switches.
In addition, we expect to make significant capital expenditures to extend
our network to reach private networks and individual buildings off of our
backbone. We currently anticipate aggregate capital expenditures of
approximately $171.0 million in 2000 and $182.0 million in 2001. We have also
committed to providing up to $4.0 million to our joint venture with GPU Telcom
to fund initial start-up and marketing costs.
Net cash used in operating activities amounted to $34.8 million and $14.8
million for the years ended December 31, 1999 and December 31, 1998,
respectively. This increase was primarily the result of the increase in net
operating losses during the year ended December 31, 1999. Cash used in
investment activities, including capital expenditures, other intangible assets
and our investment in Telergy East, amounted to $105.6 million and $37.1 million
for the years ended December 31, 1999 and December 31, 1998, respectively. Net
cash provided by financing activities was $138.4 million and $52.5 million for
the years ended December 31, 1999 and December 31, 1998, respectively. These
amounts represent the proceeds from vendor financing, bank loans and private
placements of debt and equity by us, net of the repayment of indebtedness and
payments of financing costs.
We believe that the following sources will provide us with sufficient
funding to build our network as planned and fund operating losses until we
generate positive operating cash flow:
- cash on hand, including the net proceeds from this offering;
- borrowings under our $200.0 million revolving credit facility;
- borrowings under our $30.0 million vendor facility from Nortel;
- cash proceeds from conveyances of indefeasible rights-of-use of network
capacity; and
28
<PAGE> 32
- approximately $50.0 to $150.0 million from the future issuances of debt
or equity securities.
Our current business plan provides for the completion of our network build
by the end of 2001. However, because the timing and cost of developing our
network and offering our telecommunications services will depend on a variety of
factors, many of which are beyond our control, we may not be able to complete
our network as planned and our actual costs may vary materially from those
currently budgeted. If we fail to complete our network on a timely basis, we may
incur penalties and other costs under agreements with other telecommunications
carriers to deliver capacity or indefeasible rights-of-use over our network by
designated dates. In addition, although we believe that demand for capacity on
our network will exist, we can not assure you that we will be able to convey
indefeasible rights-of-use in the quantities or at the prices that we currently
anticipate. Furthermore, our ability to issue debt or equity securities will
depend on factors beyond our control and we can not assure you that such
financing would be available to us. In the event that our actual costs exceed
our current budget or we do not have the funds we anticipate, we may need to
seek additional sources of financing or adjust the number or sequence of
segments we develop.
In addition, we may require additional capital in the future for new
business activities related to our current and planned businesses, or in the
event we decide to make acquisitions or enter into additional joint ventures and
strategic relationships. Sources of additional capital may include cash flow
from operations, public or private equity and debt financings, bank debt, vendor
financings and conveyances of indefeasible rights-of-use. In addition, we may
enter into joint construction agreements with carriers, thereby reducing our
capital expenditure requirements.
We can not assure you that we will be successful in producing sufficient
cash flow or raising sufficient debt or equity capital to meet our strategic
business objectives or that such funds, if available, will be available on a
timely basis and on terms that are acceptable to us. If we are unable to obtain
such capital, the build-out of portions of our expanded network may be
significantly delayed, curtailed or abandoned. In addition, we may accelerate
the rate of deployment of our network, which in turn may accelerate our need for
additional capital. Our actual capital requirements will also be affected,
possibly materially, by various factors, including the timing and actual cost of
the deployment of our network, the timing and cost of expansion into new
markets, the extent of competition and the pricing of dark fiber and
telecommunications services in our markets.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board, or FASB, issued
Interpretation No. 43, "Real Estate Sales, an interpretation of FASB Statement
No. 66". The interpretation is effective for sales of real estate with property
improvements or integral equipment entered into after June 30, 1999. Under this
interpretation, dark fiber is considered integral equipment and accordingly,
title must transfer to a lessee in order for a lease transaction to be accounted
for as a sales-type lease. The application of the provisions of FASB
Interpretation No. 43 did not have an impact on our financial position, results
of operations or cash flows.
The FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". This standard as amended, will be effective for us
beginning January 1, 2001. This standard requires that all derivatives be
recognized, at fair value, as assets or liabilities in the balance sheet. We do
not believe we have any current transactions that would require accounting and
reporting under SFAS No. 133.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin, or SAB, No. 101, "Revenue Recognition in Financial
Statements". We do not believe that the requirements of SAB No. 101 will have
any effect on, or require any adjustments to, our results of operations and
financial position.
29
<PAGE> 33
YEAR 2000
We believe all our systems are Year 2000 compliant and we have not
experienced any Year 2000 problems since January 1, 2000. However, we can not
assure you that problems will not occur. If problems do occur, they could have a
material adverse effect on our business, results of operations or financial
condition.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not have operations subject to risks of foreign currency
fluctuations, nor do we use derivative financial instruments in our operations.
Our earnings are affected by changes in interest rates as we have long-term debt
with variable interest rates based on either the prime rate or LIBOR. Based upon
our long-term debt balance at December 31, 1999, a 1% increase in interest rates
would increase our interest expense by approximately $1.3 million on an annual
basis. These analyses do not consider the effects of the reduced level of
overall economic activity that could exist in such an environment. Further, in
the event of a change of such magnitude, management would likely take actions to
further mitigate its exposure to the change. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, the
sensitivity analysis assumes no changes in our financial structure.
30
<PAGE> 34
BUSINESS
OVERVIEW
We are a facilities-based provider of integrated broadband
telecommunications services and high-bandwidth fiber optic capacity in the
northeastern United States. Our network is designed to be a regional fiber optic
intranet combining direct last-mile connections to our customers, intracity
rings and long-haul capacity. We are building our network on what we believe to
be the broadest contiguous rights-of-way in the region, primarily using access
rights granted to us by four utility companies with which we have developed
unique relationships. We currently offer both traditional telecommunications
services as well as enhanced services such as video storage and streaming. We
are installing equipment necessary to provide additional enhanced services,
including data storage and disaster recovery, and expect to offer these services
by the end of 2000. We market our services to large businesses and institutions
in the healthcare, education, finance and government sectors, medium- and
small-sized businesses with enterprise networking needs and telecommunications
carriers.
Our agreements with Niagara Mohawk, ConEd, NYSEG and GPU Telcom provide us
with last-mile access to virtually every customer and building in our region,
including those in New York City. By the end of 2001, we expect our network to
be comprised of approximately 586,000 fiber miles over 3,200 route miles
extending from Washington, D.C. to Montreal. As of April 15, 2000, we had
constructed or entered into agreements for indefeasible rights-of-use for
approximately 202,000 fiber miles over 1,800 route miles in New York, New
Jersey, Pennsylvania, Washington, D.C. and Maryland. Our agreements with
utilities allow us to build our network in a capital efficient manner by
significantly reducing the last-mile barriers to entry, construction time and
associated costs. In addition, these agreements eliminate most recurring fees
typically paid to owners of rights-of-way, in exchange for telecommunications
capacity. Substantially all of the utility and freeway rights-of-way have never
before been used for commercial telecommunications purposes, making our services
attractive to customers seeking a geographically diverse network.
In addition to our utility relationships, we have formed strategic
relationships with MasTec, Nortel, and EMC. MasTec provides us with network
construction expertise. Nortel offers advanced equipment, support services and
vendor financing. Through our relationship with EMC, we are jointly developing
customized data and video storage solutions for our customers. In connection
with this relationship, we are the first telecommunications company to install
and operate an EMC video server.
Our goal is to leverage our network and relationships to become the
preferred provider of broadband services in our markets. To achieve this goal,
we are rapidly expanding our direct sales force and have entered into joint
marketing arrangements. As of April 15, 2000, we had a direct sales, marketing
and customer care team of 129 employees located in five sales offices in our
region. Our arrangements with Niagara Mohawk Energy and GPU Telcom allow us to
jointly market our services to their business and institutional customers. We
believe these arrangements enhance our credibility with our target customers and
our ability to enter new markets quickly.
Since our formation in 1995, we have raised more than $133.0 million in
equity capital.
MARKET OPPORTUNITY
We believe we have a significant market opportunity based on the rapidly
growing demand for broadband voice, data and video services. According to the
International Data Corporation, or IDC, the total telecommunications market in
the United States is expected to increase from approximately $262.0 billion in
1999 to $300.0 billion in 2002. IDC also estimates that data revenues will
increase from approximately $45.0 billion in 1999 to $78.0 billion in 2002,
representing a 20% compound annual growth rate. As the demand for high-bandwidth
applications, such as those associated with e-commerce and video conferencing,
continues to increase, the infrastructure necessary to support such applications
will continue to gain in
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<PAGE> 35
importance. We are developing our high-bandwidth fiber optic network
specifically to target these trends.
Businesses are increasingly creating and storing significant amounts of
data. Forrester Research estimates that online storage for Global 2,500
companies will grow from an average of approximately 15 terabytes in 1999 to
approximately 153 terabytes in 2003, representing a compound annual growth rate
of approximately 78%. This growth in online data storage is driven by the need
for continuous availability and redundancy of data, the proliferation of
e-commerce, the implementation of new applications and the creation of data
warehousing and complex data retrieval facilities. Managing this volume of data
is a significant challenge for many businesses. We believe businesses will
increasingly look to outsource their data storage needs. We are responding to
this by combining our high-bandwidth regional fiber optic intranet with storage
equipment to provide secure and scalable data storage solutions for our
customers, including storage capacity and disaster recovery to ensure business
continuance.
We believe we are well-positioned to capitalize on the overall growth of
the telecommunications and data storage industries. We provide our services in
one of the most communications-intensive regions in the world. According to Bell
Atlantic, the corporations they serve represent approximately 30% of the U.S.
business data market. Of this group, we target specifically those customers who
we believe to have the highest demand for broadband services, large businesses
and institutions in the healthcare, education, finance and government sectors
and medium- and small-sized businesses with enterprise networking needs.
In addition, we believe that businesses and other telecommunications
carriers desire alternative paths throughout their networks to provide
reliability in the event of an outage. To achieve true redundancy, it is
necessary for them to seek fiber optic routes built along routes that are
geographically diverse from their own.
BUSINESS STRATEGY
Our business strategy includes the following elements:
- BUILD AN END-TO-END NETWORK TO MAXIMIZE PROFITABILITY. We are using
utility rights-of-way to construct an extensive regional fiber optic
network. Our network is designed to be a regional fiber optic intranet
combining direct last-mile connections to our customers, intracity rings
and long-haul capacity. Our intracity rings are strategically located in
high-density business districts in order to cost-effectively target the
most attractive customers in our markets. Our goal is to deliver a full
range of data, video and voice services over our own network in order to
avoid last-mile access charges and maximize profitability.
- COMPLETE OUR NETWORK BUILD-OUT AND PURSUE ADDITIONAL UTILITY
RELATIONSHIPS. By the end of 2001, we expect our network to be comprised
of approximately 586,000 fiber miles over 3,200 route miles extending
from Washington, D.C. to Montreal. As of April 15, 2000, we had
constructed or entered into agreements for indefeasible rights-of-use for
approximately 202,000 fiber miles over 1,800 route miles in New York, New
Jersey, Pennsylvania, Washington, D.C. and Maryland. We have already
entered into agreements granting us access to rights-of-way for the
remaining portion of our network build-out, except for planned intracity
rings in Washington, D.C. and Baltimore and last-mile access to our
customers from our proposed intracity ring in Long Island. We intend to
pursue opportunities to further expand our network throughout the eastern
United States primarily through our existing agreements with utilities
and the development of new utility relationships. We will continue to
offer our utility partners a mutually attractive proposition that allows
them to capitalize on the growing demand for broadband services and
capacity, while allowing us to efficiently expand our network.
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<PAGE> 36
- BUILD OUT OUR NETWORK EFFICIENTLY AND COST EFFECTIVELY. We construct our
network with multiple innerducts and large quantities of fiber. As of
April 15, 2000, we had an average of approximately 300 fiber strands per
mile in our intracity rings and approximately 96 fiber strands per mile
in our long-haul capacity, more than we need to meet the service
requirements of our current business plan. As a result, we are able to
convey indefeasible rights-of-use for network capacity in order to help
finance the cost of construction. In addition, we enter into fiber
exchanges and joint construction agreements which allow us to expand our
network more rapidly and cost effectively than we could otherwise. For
example, we entered into a fiber exchange with GPU Telcom and joint
construction agreements with companies including Broadwing and Metrix.
Our plan is to continue to convey indefeasible rights-of-use for network
capacity and enter into fiber exchanges and joint construction agreements
to efficiently build out our network.
- OFFER ENHANCED VIDEO AND DATA SERVICES. Our high-bandwidth, end-to-end
network allows us to provide a wide range of high-quality, low-latency
video, data and voice services. We currently offer video storage and
streaming and are developing the infrastructure to offer high-capacity
data storage and disaster recovery services. We have installed data
storage equipment in Syracuse, New York and plan to install additional
equipment in Newark, New Jersey, which we expect to be fully operational
by the end of 2000. In addition, we have entered into a strategic
relationship with EMC, pursuant to which we agreed to jointly design,
develop and implement customized data and video storage solutions for our
customers. We believe these elements, along with the last-mile access to
customers and our geographically diverse network, uniquely position us to
capitalize on the growing need for enhanced data services.
- ENHANCE OUR ACCESS TO CUSTOMERS THROUGH JOINT MARKETING WITH
UTILITIES. Our target customers include large businesses and
institutions in the healthcare, education, finance and government
sectors, medium- and small-sized businesses with enterprise networking
needs and telecommunications carriers. We have arrangements with Niagara
Mohawk Energy and GPU Telcom that allow us to jointly market our services
directly to their business and institutional customers, either
independently or in conjunction with the utility. In addition, our
arrangements allow us to offer our telecommunications services bundled
with our utility partners' energy products. We believe that our
relationships with well-established utilities enhance our credibility
with our target customers and increase our ability to enter new markets
quickly. We intend to pursue opportunities to expand our existing joint
marketing arrangements and to enter into similar arrangements with other
utility partners to continue to enhance our access to our target
customers.
- LEVERAGE OUR OPERATIONAL SUPPORT SYSTEM. We have developed and are
implementing an operational support system that combines our proprietary
integration platform with what we believe to be industry-leading
stand-alone components. These components monitor our network, address
service issues, mediate calls, process orders, track usage and provision
services. We currently operate all of these components independently and
plan to fully integrate this system during the third quarter of 2000. Our
goal is to have complete "flow-through" provisioning capabilities that
will increase our operational efficiency by minimizing human
intervention. As we continue expanding our network and moving our
customers onto our network, we intend to leverage our operational support
system to efficiently scale our business and maximize customer
satisfaction.
- CAPITALIZE ON MANAGEMENT ABILITY AND RELATIONSHIPS. Our management team
has demonstrated its ability to work effectively with utilities, local
governments and regulatory bodies. We intend to leverage their ability to
expand our network and pursue strategic relationships. Additionally, our
management team has significant experience in the critical functions of
network development and operations, sales and marketing, back office and
systems development, customer care and finance. We believe that the
quality and
33
<PAGE> 37
experience of our management team will be key factors in the
implementation of our business strategy.
OUR RELATIONSHIPS WITH UTILITIES
OVERVIEW
We have developed unique relationships with Niagara Mohawk, ConEd, NYSEG
and GPU Telcom. The following table summarizes key terms of our agreements and
other significant elements of our relationships with these utilities. For a more
detailed description of our relationships, see "Certain Relationships and
Related Transactions."
<TABLE>
<CAPTION>
NIAGARA MOHAWK CONED NYSEG GPU TELCOM
-------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
PRIMARY GEOGRAPHIC
AREA................. Northern half New York City and Southern half of New Pennsylvania and New
of New York Westchester County York State to Jersey
State Westchester County
CONSIDERATION FOR
RIGHTS-OF-WAY........ Fiber optic Fiber optic strands and Fiber optic strands and Fiber exchange
strands and an annual cash payment participation in
capacity network construction
TERM................... 25 years, 25 years, expiring in 25 years, expiring in 20 years, expiring in
expiring in 2023, renewable for an 2023, renewable for two 2020 renewable for two
2021, renewable initial ten-year period ten-year periods at our five-year periods at
for two at our option option our option
ten-year
periods at our
option
JOINT MARKETING
ARRANGEMENT.......... Yes No No Yes
EQUITY INVESTMENT IN
TELERGY.............. $40.0 million N/A N/A $20.0 million
OTHER.................. Board N/A N/A Billing services
representation agreement
</TABLE>
UTILITY RELATIONSHIPS: BENEFITS TO US
We believe the unique structure of our utilities relationships gives us
significant competitive advantages including:
- LAST-MILE ACCESS TO CUSTOMERS. Our agreements with utilities provide
access to contiguous rights-of-way and to buildings that allow us to
construct fiber directly to our customers. Our ability to connect these
customers directly to our network allows us to offer a wide range of
high-margin telecommunications services.
- LOWER COST STRUCTURE. Our agreements are structured to provide us access
to the utility rights-of-way in exchange for telecommunications capacity
on our network. These agreements eliminate most recurring fees typically
paid to owners of rights-of-way, providing us with significant cost
savings.
- ROUTE DIVERSITY. We offer our customers a fiber optic network that is
built along routes that are geographically diverse from those offered by
most telecommunications carriers. This is attractive to customers who
seek true redundancy for their telecommunications services.
- IMPROVED SPEED TO MARKET. The scope of our existing agreements with
utilities minimizes the need to negotiate additional access to
rights-of-way as we continue constructing our network. These
relationships allow us to save significant time which would otherwise be
necessary to obtain permits and easements before we build out to our
targeted customers.
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<PAGE> 38
We can further reduce our construction time by using conduit that our
utility partners have already installed along their rights-of-way.
Together, we believe these factors allow us to reduce construction time
by approximately six to 12 months.
- DEMAND-BASED NETWORK ARCHITECTURE. The utility rights-of-way we use
allow us ongoing access to the utilities' conduit systems. This provides
us with the ability to install additional fiber capacity, connect our
network directly to customers and implement upgrades and modifications,
such as expanding intracity rings to connect additional colocations as
demand dictates.
- ACCESS TO UTILITIES CUSTOMERS. Our arrangements with Niagara Mohawk
Energy and GPU Telcom allow us to jointly market our services to their
business and institutional customers. We believe these arrangements
enhance our credibility with our target customers and our ability to
enter new markets quickly.
UTILITY RELATIONSHIPS: BENEFITS TO UTILITIES
We provide the utility companies with an opportunity to capitalize on the
growth of the broadband telecommunications market and the increasing demand for
high-capacity networks. Specifically, we believe that our expertise in
constructing and operating high-capacity fiber optic networks and our focused
marketing and sales strategy offer the utilities the following benefits:
- INCREMENTAL VALUE FOR EXISTING ASSETS/INFRASTRUCTURE. Most utilities
have existing conduit, electric distribution and transmission systems and
access to buildings that can be utilized as the foundation for a
telecommunications network. Working with us allows utilities to realize
significant value for their existing assets without substantial capital
or human resource investment, disruption to energy operations or
potential earnings dilution from developing a telecommunications business
on their own.
- JOINT MARKETING. Our arrangements with Niagara Mohawk Energy and GPU
Telcom allow us to jointly market our services to their business and
institutional customers. This allows these utilities to offer a better
value to their existing customers and gives them access to additional
customers for their energy services. We believe these arrangements will
be more attractive to utilities as their industry continues to undergo
deregulation.
- IMPROVED INTERNAL COMMUNICATIONS NETWORKS AND CAPACITY. We construct
technologically advanced private networks which have high-capacity
transmission capabilities and redundancy features to minimize service
disruptions. As part of our agreements with utilities, we can provide
them with technologically advanced networks for their internal
telecommunications systems.
RELATIONSHIPS WITH OTHERS
In addition to our utility relationships, we have developed strategic
relationships with several other entities that we believe provide cost and speed
to market advantages, brand identity, access to potential customers and
marketing and other support. To date, we have established the following types of
strategic relationships:
- JOINT CONSTRUCTION RELATIONSHIPS. We have established strategic
relationships with companies including Broadwing, Metrix, Adelphia and
Williams Communications Group Inc. to fund joint construction activities.
These relationships provide us with funding for building portions of our
network and, in some cases, preferred status for rates, terms and
conditions to obtain capacity on each others' networks. In general, we
retain control over both the construction and operation of these joint
construction activities.
- VENDOR RELATIONSHIPS. We have entered into strategic relationships with
MasTec, a leading network infrastructure service provider; Nortel, a
major supplier of the electronics,
35
<PAGE> 39
equipment and services used in connection with fiber optic networks; and
EMC, a leading provider of video and data storage solutions. We have
signed an agreement making MasTec our preferred network construction
provider. MasTec's construction expertise allows us to maintain better
control over customer builds and deliver complete end-to-end cabling
solutions. We have selected Nortel as our primary equipment supplier.
Nortel offers us advanced equipment and vendor financing. In addition,
Nortel provides support services including installation, engineering,
marketing and network design. Through our relationship with EMC, we are
jointly developing customized data and video storage solutions for our
customers. In connection with this relationship, we are the first
telecommunications company to install and operate an EMC video server.
- SERVICE AGREEMENTS. We have entered into a service agreement with
Teleglobe which allows for the exchange of our services, such as internet
access, minutes of usage and fiber optic capacity. This agreement allows
us to expend our capital resources on other projects while receiving
services that support and maintain our network. Our agreement with
Teleglobe provides for preferred service rates and additional revenue
opportunities. Teleglobe has also made a significant equity investment in
us.
PRODUCTS AND SERVICES
We provide high-bandwidth integrated telecommunications products and
services, which we offer individually or on a bundled basis. Our products and
services include both traditional telecommunications services as well as
enhanced services as follows:
TRADITIONAL SERVICES
We currently offer the following traditional services:
- LOCAL SERVICES. We provide local dial tone services to customers,
allowing them to complete calls in their local calling area and access
long distance calling areas. Optional local services include
direct-inward-dial/direct-outward-dial facilities, integrated services
digital network, voice mail, customized response and other ancillary
services. We also offer related services such as calling cards and
conference calling.
- LONG DISTANCE SERVICES. We provide domestic and international long
distance services for completing intrastate, interstate and international
calls. These services include outbound calling, inbound toll-free service
and customized calling plans. We terminate calls either directly, over
our own network, or indirectly, through other carriers.
- INTERNET ACCESS. We provide high-speed internet access to business
customers over digital subscriber lines, dedicated circuits, frame relay
or asynchronous transfer mode services.
- ASYMMETRIC DIGITAL SUBSCRIBER LINE. We currently offer asymmetric
digital subscriber line service in four colocations within two cities. By
the end of 2000, we plan to offer asymmetric digital subscriber line
service in 54 colocations within eight cities. Asymmetric digital
subscriber line service allows customers to simultaneously use voice and
high-speed data services over the same telephone line. This service is
currently targeted to meet the secure and high-speed access needs of
small home offices, remote access users of our large business and
institutional customers and off-campus university users.
- HIGH-SPEED PACKET TRANSPORT. We offer our customers both asynchronous
transfer mode and frame relay service for the transport of high-speed
packet information. Both services include guaranteed capacity rates and
varying prices for intracity and intercity service. Our frame relay
transport rates vary from 56 kilobits per second up to 45 megabits per
second and our asynchronous transfer mode transport rates vary from 1.5
megabits per second to
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<PAGE> 40
622 megabits per second. As an additional benefit, we offer internet
access as a permanent virtual circuit connection from either of these
high-speed packet platforms.
- PRIVATE LINE. We offer private line services that give our customers
direct last-mile connections to their long distance carriers, allowing
them to bypass the incumbent local exchange carrier and thereby reduce
long distance rates. Private lines also enable customers to establish
virtual private wide area networks for data and voice transmissions
between or among multiple locations. We also offer other
telecommunications carriers wholesale private line services, which are
delivered either in the form of long-haul capacity or as last-mile access
to the buildings in which we have placed fiber.
- WHOLESALE SERVICES. We offer other telecommunications carriers wholesale
capacity, last-mile access, termination of minutes, and indefeasible
rights-of-use over our network.
ENHANCED SERVICES
We currently offer video services on our network and intend to offer data
storage services by the end of 2000.
- VIDEO SERVICES. We provide a variety of video solutions including
multi-channel broadband video transport, closed distance learning
networks, video streaming and video conferencing. We have installed a
video server that allows us to store media assets in a centralized
location for distribution over our high-speed network. We are also
developing a video gateway to allow customers with different video
compression protocols to interact with each other.
- DATA STORAGE SERVICES. We plan to offer a variety of high-capacity data
storage services such as outsourced storage, hierarchal storage, disaster
recovery and business continuance. We have installed a storage server
that has a current capacity of approximately 12 terabytes and is
expandable to approximately 21 terabytes. This server allows us to store
mission-critical data for our customers by backing up their systems
through constant or periodic updates.
CUSTOMERS
Our network platforms, agreements granting us access to rights-of-way,
strategic relationships and products allow us to effectively deliver service to
a broad base of customers. We currently have customers in all of our target
market segments, which include:
- LARGE BUSINESSES. We target large businesses and institutions, that
typically have more than 500 employees, in the healthcare, education,
finance and government sectors. We provide these customers with a broad
range of traditional and enhanced services by constructing direct
last-mile connections to their locations. Our large business customers
include the Buffalo Medical Group, the New York State Office for
Technology, Blue Cross/ Blue Shield, SUNY Oswego and WIXT, an affiliate
of ABC television in Syracuse, New York.
- MEDIUM- AND SMALL-SIZED BUSINESSES. We target medium- and small-sized
businesses that typically have fewer than 500 employees. We believe this
segment has traditionally been underserved by the incumbent local
exchange carriers. To address this market, we target these customers with
a direct sales force and comprehensive customer care. We offer these
customers a broad range of traditional and enhanced services through a
combination of direct last-mile connections and leased circuits.
- TELECOMMUNICATIONS CARRIERS. We target telecommunications carriers to
help defray the costs of our network build-out. We offer wholesale
capacity, last-mile access, termination of minutes, and indefeasible
rights-of-use over our network. Our current telecommunica-
37
<PAGE> 41
tions carrier customers include Bell Canada, Citizens Telecom Company,
Adelphia, MCI WorldCom, Teleglobe and Global Crossing.
In addition to the above target market segments, we offer asymmetric digital
subscriber line service to meet the secure and high-speed access needs of small
home offices, remote access users of large business and institutional customers
and off-campus university users. To meet their needs, we built our asymmetric
digital subscriber line service to provide increased security by using a direct
link to a customer's private network. This direct link bypasses the internet and
allows a remote access user to authenticate and log in directly with our
customer.
SALES, MARKETING AND CUSTOMER CARE
SALES AND MARKETING
Our sales and marketing organization is comprised of four functional areas:
(1) a direct sales group, with 58 employees, including our senior account
executives and account executives who have primary responsibility for marketing
to our customer base; (2) a customer care group, with 31 employees, which
handles routine customer inquiries such as new services and repair requests; (3)
a product development group, with 20 employees, that has specialized product
knowledge and is responsible for supporting the direct sales effort and
developing product specific promotional literature; and (4) a service delivery
group, with 20 employees, with primary responsibility for monitoring product
integration internally and assuring proper delivery and functioning of new
products delivered to customers.
Our sales and marketing strategy is based on: (1) providing our customers
with highly differentiated products and services that target their specific
telecommunications needs with our technological solutions; (2) rapidly deploying
service; and (3) maximizing profits by providing bundled services over our
network. To meet these objectives, we have tailored our sales and marketing
effort to each of our target market segments and established joint marketing
arrangements with Niagara Mohawk Energy and GPU Telcom.
- LARGE BUSINESSES. We target large business customers with senior account
executives. These senior account executives are supported by a
two-pronged marketing approach that focuses on industry sectors, such as
healthcare, education, finance and government, as well as on technology
products, such as voice, data, video and storage.
- MEDIUM- AND SMALL-SIZED BUSINESSES. We target medium- and small-sized
businesses with account executives. Many of these businesses have little
or no information technology resources and require more assistance when
purchasing telecommunications products. Therefore, our account executives
use a consultative marketing approach, in which they work closely with
the prospective customer to develop a customized package of services.
- TELECOMMUNICATIONS CARRIERS. Our carrier salespeople sell dark fiber,
capacity and minutes of use to wholesale customers including incumbent
local exchange carriers, internet service providers, competitive local
exchange carriers, wireless companies, resellers and interexchange
carriers.
In addition to this direct sales force, joint marketing arrangements with
Niagara Mohawk Energy and GPU Telcom are also key components of our sales and
marketing strategy. We capitalize on these joint marketing arrangements by
utilizing our utility partners' sales force to increase our number of customer
contacts. This helps us increase our knowledge of and access to customers and
increases our potential customer base.
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CUSTOMER CARE
Our customer care objective is to deliver a high level of customer service
that leads to a high level of customer satisfaction. We believe that the
following components of our customer service program will enable us to provide a
superior level of customer care:
- state-of-the-art call center to handle customer care;
- customer service and help desk assistance 24 hours a day, seven days a
week by phone, fax and e-mail;
- network operations center that offer assistance in resolving network
issues 24 hours a day, seven days a week;
- leading management tools to monitor client services; and
- service level guarantees.
Customer relationship management requires instant access to detailed
customer data and simple automated workflow tools to support the selling,
ordering, delivery and repair of our services. Our operational support system
provides for this instant access and allows for minimal human intervention which
leads to greater operational efficiency and a higher level of customer
satisfaction.
OPERATIONAL SUPPORT SYSTEM
Our operational support system refers to the hardware and software systems
that allow us to effectively manage and monitor our network, process orders,
provision services, track usage, address service issues, mediate calls and
accurately bill our customers. This system has been designed to provide greater
flexibility and manage the increased order volume as we move more services onto
our network. We have designed our system to:
- be electronically bonded with Bell Atlantic;
- provide a flexible, maintainable and scalable infrastructure;
- support the bundling of telecommunications and energy services on a
single bill;
- provide consolidated automated support for tracking order provisioning;
- generate customized management reports and analysis; and
- support business products and services in a coordinated and consolidated
effort.
Our proprietary, state-of-the-art operational support system combines a
select standardized systems with our Telergy Hub Manager which is designed to
seamlessly integrate them. We expect that this system will enable us to easily
add new application modules. We selected our vendors because they met our
specific needs in a cost-effective manner and have a strong
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<PAGE> 43
reputation for quality and reliability. The following chart indicates our
vendors and primary applications that are or will be integrated with our Telergy
Hub Manager:
<TABLE>
<CAPTION>
PRODUCT VENDOR APPLICATION
- ------------------- ------------- -----------------------------------
<S> <C> <C>
CostGuard InfoDirectors Retail billing
TBS MetaSolv Provisioning
HNM Harris Network management
Enterprise 2000 GEIS Electronic bonding
PeopleSoft Peoplesoft Accounting
Super Sleuth Nortel Fraud detection
Sterling 500 Telesciences Mediation
Procession DataCore Enterprise wide workflow
Navis Core Ascend Asynchronous transfer mode
monitoring
Orion Orion Fiber test
XEMS Nortel Digital subscriber line element
management
VU-ACD Perimeter Automatic call distributor
CTS 6000 Harris Line test
Xvision Alcatel Element manager
LDAP Netscape Internet service provider directory
services
Steel Belted Radius Funk Software Internet service provider
authentication
</TABLE>
When our operational support system is fully integrated, we will have
complete "flow-through" provisioning capabilities that will allow services to be
implemented with minimal human intervention and lead to greater operational
efficiency and higher margins. We currently operate all parts of our system in a
stand-alone environment and plan to have the system fully implemented during the
third quarter of 2000.
We believe our proprietary operational support system creates a unique and
customized customer interface that can quickly adapt to developments in the
market. Our system has been designed to:
- scale seamlessly as we grow and continue to move more services onto our
network,
- minimize the time between order receipt and revenue generation,
- improve customer satisfaction and
- enable rapid customization of our services to bring new products to
market quickly.
NETWORK OVERVIEW
Our network is designed to be a regional fiber optic intranet combining
direct last-mile connections to our customers, intracity rings and long-haul
capacity. By the end of 2000, we expect our network to be comprised of
approximately 586,000 fiber miles over 3,200 route miles extending from
Washington, D.C. to Montreal. As of April 15, 2000, we had constructed or
entered into agreements for indefeasible rights-of-use for approximately 202,000
fiber miles over 1,800 route miles in New York, New Jersey, Pennsylvania,
Washington, D.C. and Maryland. This is based on the percentage completion of
each network segment. As of April 15, 2000, we have
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<PAGE> 44
conveyed or agreed to convey to third parties approximately 56,000 fiber miles
through indefeasible rights-of-use, agreements to exchange dark fiber and fiber
granted.
We have already entered into agreements granting us access to rights-of-way
for the remaining portion of our network build-out, except for planned intracity
rings in Washington, D.C. and Baltimore and last-mile access to our customers
from our proposed intracity ring in Long Island. We intend to build our network
primarily utilizing our access to utility rights-of-way. We may also build
certain portions of our network on non-utility rights-of-way wherever it is
economical. For instance, the West-side portion of our Manhattan intracity ring
was constructed in the Empire City Subway rights-of-way. We also plan to
construct an additional route along the West-side portion of our Manhattan
intracity ring using ConEd rights-of-way. The following table summarizes our
current and planned network, which may change due to market and other
circumstances, some of which are beyond our control:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED TARGET
ROUTE FIBER FIBER COMPLETION %
LOCATION MILES STRANDS MILES DATE COMPLETE
- -------- --------- ------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
LONG-HAUL
Buffalo to Syracuse I............... 165 96 15,840 Complete 100%
Syracuse to Albany I................ 160 96 15,360 Complete 100%
Albany to Guilderland (backbone
extension)........................ 4 48 192 Complete 100%
Backbone to Batavia (backbone
extension)........................ 14 48 672 Complete 100%
Whitestown to Utica backbone
extension)........................ 9 48 432 Complete 100%
Syracuse to Oswego (backbone
extension)........................ 40 24 960 Complete 100%
Lighthouse Hill to Watertown........ 3 24 72 Complete 100%
Syracuse to Lighthouse Hill......... 39 96 3,744 Complete 100%
Auburn to Binghamton via Ithaca..... 109 108 11,772 Complete 100%
Albany to Pleasant Valley........... 81 192 15,552 Complete 100%
Pleasant Valley to Yonkers.......... 60 288 17,280 Complete 100%
Yonkers to New York City............ 20 432 8,640 Complete 100%
Albany to Montreal.................. 194 144 27,936 Complete 100%
Altoona to Harrisburg............... 120 4 480 Complete 100%
New Brunswick to Morristown to
Scranton to Binghamton............ 180 24 4,320 Complete 100%
Albany to New York City (diverse)... 160 288 46,080 3rd quarter 2000 25%
Altoona to Erie ring................ 500 8 4,000 4th quarter 2000 33%
Harrisburg to Philadelphia.......... 105 12 1,260 4th quarter 2000 33%
New York City to Philadelphia to
Washington, D.C. ................. 235 24 5,640 4th quarter 2000 33%
Philadelphia to New Brunswick to
Atlantic City..................... 160 24 3,840 4th quarter 2000 33%
Buffalo to Syracuse II.............. N/A 432 71,280 4th quarter 2000 0%
Syracuse to Albany II............... N/A 432 69,120 4th quarter 2000 0%
Cleveland to Buffalo................ 190 216 41,040 2nd quarter 2001 0%
----- -------
Subtotal............................ 2,548 365,512
</TABLE>
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<TABLE>
<CAPTION>
ESTIMATED ESTIMATED TARGET
ROUTE FIBER FIBER COMPLETION %
LOCATION MILES STRANDS MILES DATE COMPLETE
- -------- --------- ------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
INTRACITY
New York City (Manhattan)........... 40 432 17,280 Complete 100%
Syracuse Ring I..................... 10 240 2,400 Complete 100%
Syracuse Ring II.................... 25 96 2,400 Complete 100%
Buffalo Ring........................ 40 216 8,640 Complete 100%
Albany.............................. 60 216 12,960 Complete 100%
Manhattan to Newark................. 50 432 21,600 3rd quarter 2000 60%
Albany to Schenectady............... 34 288 9,792 4th quarter 2000 60%
New York City (Manhattan diverse)... 18 432 7,776 4th quarter 2000 0%
Newark to Morristown................ 25 216 5,400 1st quarter 2001 0%
Long Island......................... 100 288 28,800 4th quarter 2001 0%
New York City (five boroughs)....... 60 432 25,920 4th quarter 2001 0%
Washington, D.C. ................... 40 432 17,280 4th quarter 2001 0%
Philadelphia........................ 40 432 17,280 4th quarter 2001 0%
Pittsburgh.......................... 25 288 7,200 4th quarter 2001 0%
Baltimore........................... 25 288 7,200 4th quarter 2001 0%
Rochester........................... 25 288 7,200 4th quarter 2001 0%
Erie................................ 25 288 7,200 4th quarter 2001 0%
Harrisburg.......................... 25 288 7,200 4th quarter 2001 0%
New Brunswick....................... 25 288 7,200 4th quarter 2001 0%
----- -------
Subtotal............................ 692 220,728
----- -------
Total Network Build-out............. 3,240 586,240
===== =======
</TABLE>
NETWORK DESIGN
Our network has been designed to serve our customer base that has various
bandwidth requirements and to deliver the highest quality enhanced services to
our customer base. In order to deliver the highest quality enhanced services, we
employ a design strategy, called OpticalNet, which provides for the construction
of a regional secure and controllable intranet with strategically located
high-speed data switches.
We categorize our network components into three categories: (1) our fiber
optic infrastructure, consisting of our installed fiber optic cable and leased
network elements; (2) our networking infrastructure, consisting of the
switching, transport, data transmission equipment and colocations; and (3) our
OpticalNet.
FIBER OPTIC INFRASTRUCTURE. Our network infrastructure combines direct
last-mile connections to our customers, intracity rings and long-haul capacity.
Our intracity rings are designed with multiple access points for maximum
flexibility and are strategically located near our target customers, allowing us
to economically complete private network builds. The majority of our long-haul
fiber is installed with multiple innerducts and cables with high strand counts,
providing greater flexibility when building local loops or when connecting
directly to customers. This fiber is generally buried and placed in innerducts
for maximum reliability. In addition, to provide service to customers with lower
bandwidth requirements, we lease unbundled network elements or private line
facilities from our colocation or access locations.
NETWORK INFRASTRUCTURE. The network layer includes our switching,
transport and enhanced data transmission equipment and colocations. Our
switching approach is to minimize equipment costs by utilizing our
high-bandwidth backbone to transport voice and data traffic to centralized
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<PAGE> 46
equipment locations. This reduces the need for a switch in every access and
transport area. Currently we have three voice switches in service, including a
Nortel digital multiplex system 100 local switch, a DMS 500 local/tandem switch
and a Lucent 5 electronic switching system local/tandem voice switch, and three
data switches. By the end of 2001, we plan to have six voice switches, 18 data
switches and 122 colocation sites in our network.
Our transport layer is a synchronous optical network-based self-healing
ring platform. The backbone is a dense wavelength division multiplexing
architecture that will operate at speeds up to 320 gigabits per second. The
intracity rings are designed to operate at 622 megabits per second or 2.5
gigabits per second, depending on the size of the ring, number of access points
and expected demand. We design our networks in a ring architecture with
connectivity to our facility hub, the incumbent local exchange carrier's central
offices, interexchange carrier points-of-presence and areas with large
concentrations of telecommunications intensive users.
Our data transmission platform is used to provide enterprise wide
high-speed packet connections. The high-speed packet transport is comprised of
distributed frame relay and asynchronous transfer mode switches, which are
connected via the synchronous optical network transport layer. Internet access
can be delivered over these platforms by connecting to our switch and router.
Our colocation strategy is to gain access to a majority of the business
customers in the tier I, II and III cities we target and to deploy digital
subscriber lines in a significant geographical area in each city to meet the
remote access users of our large business and institutional customers. We target
incumbent local exchange carriers' central offices that have more than 30,000
access lines and that surround the perimeter of our target cities. Generally,
this approach provides us access to approximately 70% of the customer base in
each area. Each colocation site includes equipment to deliver digital subscriber
line, voice and private line service and includes transport to our city hub for
access to our asynchronous transfer mode, frame relay, internet and long-haul
network.
OPTICALNET. OpticalNet is a performance optimized design strategy that
capitalizes on our fiber optic and network infrastructure. This strategy enables
us to deliver the highest quality enhanced services including video storage and
streaming, digital libraries, data storage, disaster recovery, video gateway
services, high-speed internet access, web hosting and authentication/security
services. OpticalNet provides several advantages, including the ability to:
- bundle multiple services on one platform;
- minimize latency and broadband last-mile concerns;
- deliver the highest quality video, data and voice over internet protocol;
- offer increased security; and
- control the access and quality of service delivery.
To deliver these enhanced services, we have installed equipment in
Syracuse, New York, including a video server, data storage devices, access
servers, high-speed internet access and other requisite equipment. This
equipment operates on a fully redundant mirrored architecture with self-healing
transport service between devices. We believe our facility is environmentally,
physically and electronically secure. We are in the process of designing and
plan to install similar equipment in Newark, New Jersey which we expect to be
fully operational by the end of 2000. We intend to install additional equipment
as demand warrants.
NETWORK MANAGEMENT
Our network is monitored by a network operations center located at our
corporate headquarters in Syracuse, New York. The center is divided into three
areas: switched services, transport technology and enhanced data services. The
center provides network monitoring 24 hours a day, seven days a week. We have
installed a new platform that allows us to monitor and provision all network
elements from the network operations center.
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<PAGE> 47
COMPETITION
The industries in which we operate are highly competitive and are affected
by the introduction of new services by, and the market activities of, major
industry participants. We expect competition will intensify in the market for
the telecommunications services we provide and plan to provide. Many of our
competitors are substantially larger and have greater financial, technical and
marketing resources than we do. In particular, larger competitors have
advantages over us which could cause us to lose customers and impede our ability
to attract new customers, including:
- long-standing relationships and brand recognition with customers;
- financial, technical, marketing, personnel and other resources
substantially greater than ours;
- more funds to deploy telecommunications and data services;
- the potential to lower prices of competitive telecommunications and data
services; and
- fully deployed networks.
We face competition from other current and potential market entrants,
including:
- domestic and international long distance providers seeking to enter,
re-enter or expand entry into the local telecommunications marketplace;
and
- other domestic and international competitive telecommunications
providers, resellers, cable television companies and electric utilities.
The rapid development of the telecommunications industry and the continuing
trend toward combinations and strategic alliances in the telecommunications
industry could give rise to significant new competitors which could cause us to
lose customers and impede our ability to attract new customers. For example, we
believe that Global Crossing, one of our significant stockholders, has through
combinations and alliances, entered into lines of business that compete with us.
In addition, Global Crossing has the right to designate a member to our board of
directors.
Additionally, in the provision of data storage services, we face
competition from storage hardware and software vendors, which sell storage
products or consulting services, as well as managed storage services providers.
Many of these vendors and providers have longer operating histories, greater
name recognition and substantially greater financial, technical and marketing
resources than we have. Many of these vendors and providers also have more
extensive customer bases, broader customer relationship and broader industry
alliances than us, including relationships with many of our current and
potential customers.
The lack of any substantial barriers to entry in our industries means that
significant and potentially larger competitors could enter our market as a
result of other regulatory changes, technological developments or the
establishment of cooperative relationships, including potentially through use of
the same rights-of-way that we use. Foreign telecommunications carriers may also
compete in the United States market. Increased competition could lead to price
reductions, fewer large-volume sales, reduced operating margins and loss of
market share.
OPERATING AND CORPORATE GOVERNANCE AGREEMENTS
We are a holding company which directly owns all of Telergy Operating, Inc.
Telergy Operating in turn principally operates through seven subsidiaries. Upon
the completion of this offering, five of the subsidiaries will be wholly-owned
by and will consist of: (1) Telergy Metro LLC; (2) Telergy Network Services,
Inc.; (3) Telergy Canada, Inc.; (4) Telergy Parkway, Inc.; and (5) Telergy
Central, LLC. Telergy Operating's partly-owned subsidiaries are: (1) Telergy
East LLC, which is owned 50% by Telergy Operating and 50% by Energy East
Telecommunications Inc., or Energy East, an affiliate of NYSEG and (2) Telergy
MidAtlantic, LLC, which is
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<PAGE> 48
owned 51% by Telergy Operating and 49% by GPU Telcom, an affiliate of GPU, Inc.
The following chart describes the organizational structure of our group upon the
completion of this offering:
[CHART SHOWING COMPANY AND ITS SUBSIDIARIES WITH PERCENTAGE OWNERSHIP]
Some of our subsidiaries are formed out of strategic arrangements with
electric utilities or their subsidiaries. The operating agreements and by-laws
of our subsidiaries govern, among other things, their capital structure and
contribution requirements, scope of business, dividends, voting and rights of
first refusal, transfer restrictions and dissolution provisions. A more detailed
description of our operating agreements for our jointly-owned subsidiaries is
provided below.
TELERGY CENTRAL
We currently own 75% of Telergy Central and Niagara Mohawk Energy, a
subsidiary of Niagara Mohawk, owns 25% of Telergy Central. Upon the completion
of this offering, Niagara Mohawk Energy is required to sell, and we are required
to purchase, its 25% interest in Telergy Central and its related indefeasible
rights-of-use. Niagara Mohawk Energy may use the proceeds of the sale to acquire
shares of our Class A common stock at the initial public offering price. Our
agreement provides that any such sale of its interest and indefeasible
rights-of-use will be made at fair market value to be determined by the parties
or by an independent expert, provided that the purchase price for its interest
and the indefeasible rights-of-use can not be less than 10% of our value.
TELERGY EAST
OVERVIEW. Telergy East was formed in connection with our agreement with
NYSEG to acquire access to its rights-of-way. In June 1998, Telergy East entered
into a rights-of-occupancy agreement with NYSEG in which NYSEG granted Telergy
East a non-exclusive license to use the conduit, facilities and abandoned gas
pipeline of NYSEG along its current and future rights-of-way in the southern
tier of New York State as well as additional rights-of-way NYSEG acquires within
and outside New York State.
CAPITAL CONTRIBUTIONS AND LOANS. We and NYSEG are each generally obligated
to contribute 50% of the capital necessary for any construction activities that
we and Energy East mutually agree upon. Both we and Energy East reserve the
right to construct additional spurs at our own cost and profit if the other
party does not wish to contribute to the spur.
MANAGEMENT. We appoint the President of Telergy East and Energy East
appoints the Vice-President. Both of these officers act as managers and are
jointly responsible for Telergy East's
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<PAGE> 49
day-to-day management, subject to the oversight of a management committee for
specified actions. The management committee consists of three members appointed
by us and three members appointed by Energy East. Generally, a majority vote is
required to approve matters submitted to the management committee. However, some
actions require the unanimous consent of both us and Energy East, including the
following:
- admitting a new member or issuing any interest in Telergy East;
- selling or otherwise transferring all or substantially all of the assets
of Telergy East;
- merging or consolidating Telergy East with or into any other entity;
- dissolving or liquidating Telergy East;
- increasing a member's capital contribution; and
- amending certain provisions of Telergy East's operating agreement or
articles of organization.
DISTRIBUTIONS. We determine all distributions to be paid by Telergy East,
subject to management committee approval. All distributions by Telergy East must
be made in accordance with the applicable membership percentages. We must use
our best efforts to cause Telergy East to distribute sufficient cash to enable
members to pay their respective income taxes.
TRANSFERS OF OWNERSHIP. Neither we nor Energy East may sell, transfer,
assign, exchange or otherwise transfer our respective membership interests in
Telergy East without the prior written consent of the other, other than to
wholly-owned subsidiaries or in connection with any merger or consolidation in
which the owner is the surviving and controlling party and subject to reciprocal
rights of first refusal. Generally, under the right of first refusal the party
seeking to sell its interest must irrevocably offer in writing to sell its
interest to the other member. The other member has thirty days to either accept
or refuse the offer to purchase the interest. In the event that either party is
subject to any bankruptcy or insolvency law, or any bankruptcy-related
proceeding, then such party is be deemed to have irrevocably offered to sell all
of its interest to the other party. The other party has 90 days to accept in
respect of all, but not less than all, of the interest.
RIGHTS ON STALEMATE. In the event that a quorum of the management
committee is unavailable or the management committee is deadlocked on any
matter, either Energy East or we may request the deadlock be resolved by appeal
to the chief executive officers of Energy East and Telergy. In the event that
those chief executive officers can not resolve the matter, the matter may, but
need not, be submitted to Energy East and Telergy for a vote as members.
Additionally, following the earlier of the completion and installation of
the Ithaca to Auburn to Binghamton backbone and the Ithaca and Binghamton spurs
and June 10, 2000, we may require Energy East to, and Energy East may elect to,
withdraw as a member from Telergy East through the redemption of Energy East's
membership interest upon the occurrence of a stalemate. For purposes of the
agreement, a stalemate exists if:
- the management committee has reached an impasse or deadlock on specified
operational matters and has submitted the matter to the chief executive
officers of Energy East and Telergy for resolution, and
- the chief executive officers are unable to resolve the impasse or
deadlock within ten days after the matter is submitted to them.
It is not necessary that the matter be submitted to a vote of Energy East and
Telergy, as members, for a stalemate to exist.
If either Telergy or Energy East exercises their right to require Energy
East to withdraw from Telergy East, Energy East will immediately cease to have
any right to participate in the
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<PAGE> 50
management of Telergy East or to designate the Vice President or members of the
management committee. Thereafter, Telergy East will redeem Energy East's
membership interest as follows:
- Telergy East will distribute to Energy East an indefeasible rights-of-use
for all remaining dark fiber strands in the Ithaca to Auburn to
Binghamton backbone and the Ithaca and Binghamton spurs (and any other
portions of the network that parties have constructed jointly), up to a
maximum of one-half of the total fiber strands in those portions of the
network as of the date of Energy East's withdrawal, and
- If Energy East is a regulated telephone company on the date of its
withdrawal from Telergy East and obtains any necessary approval from the
New York Public Service Commission within nine months after the date of
its withdrawal, then Telergy East will distribute to Energy East:
- 50% of the customers, facilities, business or assets of Telergy East
attributable to Energy East as of the date of Energy East's
withdrawal, and
- 100% of all of the customers, facilities, business and assets of any
segregated network division of Telergy East paid for in its entirety
by Energy East.
In which case, Energy East's indefeasible right-of-use described above will
immediately terminate upon the second distribution.
In all events, Telergy East will retain its rights-of-way agreement with
NYSEG following Energy East's withdrawal from Telergy East.
TELERGY MIDATLANTIC
OVERVIEW. Telergy MidAtlantic has entered into an arrangement with GPU
Telcom under which GPU Telcom will construct, install and maintain a fiber optic
network for Telergy MidAtlantic in the rights-of-way and facilities of certain
utilities affiliated with GPU Telcom. Telergy MidAtlantic has entered into a
billing services agreement with Telergy Network Services pursuant to which
Telergy Network Services has agreed to perform billing, collection and customer
care services for Telergy MidAtlantic.
CAPITAL CONTRIBUTIONS. We are required to contribute up to $4.0 million to
Telergy MidAtlantic for start-up and initial marketing costs. If necessary, and
agreed upon by both of us, we and GPU Telcom may contribute further capital in
proportion to our membership interests in Telergy MidAtlantic.
RETAIL SALES. So long as Telergy Network Services and GPU Telcom are
members, we and GPU Telcom have agreed to provide retail telecommunications
services in Pennsylvania and New Jersey only through Telergy MidAtlantic. Both
we and GPU Telcom reserve the right to independently construct and operate
segregated networks and market wholesale services within Pennsylvania and New
Jersey.
MANAGEMENT. We and GPU Telcom jointly appoint the manager of Telergy
MidAtlantic, who is responsible for day-to-day management, subject to the
oversight of a management committee for certain actions. The management
committee consists of three members, two members appointed by us and one
appointed by GPU Telcom. Generally, an affirmative vote of the majority of the
members of the management committee is required to approve matters submitted to
the management committee. The following matters require unanimous vote or
consent of the members of the management committee:
- approving or amending a business plan;
- approving or amending budgets for capital expenditures;
- engaging in acquisitions;
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<PAGE> 51
- authorizing distributions of property or restricting certain
distributions of distributable cash;
- issuing notes, bonds or other obligations or securing obligations by
mortgage or pledge of any of Telergy MidAtlantic's property or income, or
assuming liabilities in any transaction by Telergy MidAtlantic;
- appointing an independent auditor of Telergy MidAtlantic; and
- appointing a successor manager.
However, some actions require the unanimous consent of both us and GPU Telcom,
including the following:
- admitting a new member or issuing any interest in Telergy MidAtlantic;
- selling or otherwise transferring all or substantially all of the assets
of Telergy MidAtlantic;
- merging or consolidating Telergy MidAtlantic with or into any other
entity or effecting a change of control of Telergy MidAtlantic;
- dissolving or liquidating Telergy MidAtlantic;
- authorizing specified capital expenditures;
- increasing a member's capital contribution; and
- amending some provisions of Telergy MidAtlantic's operating agreement or
articles of organization.
DISTRIBUTIONS. All distributions by Telergy MidAtlantic are subject to
management committee approval and must be made in accordance with the applicable
membership percentages. We must use our best efforts to cause Telergy
MidAtlantic to distribute sufficient cash to enable members to pay their
respective income taxes.
TRANSFERS OF OWNERSHIP. Neither we nor GPU Telcom may sell or otherwise
transfer our respective membership interests in Telergy MidAtlantic without the
prior written consent of the other, other than to a direct or indirect parent
that wholly owns the applicable member, to wholly-owned subsidiaries or in
connection with any merger or consolidation in which the member is the surviving
and controlling party and subject to reciprocal first offer rights. Generally,
under the right of first offer the party seeking to sell its interest must
irrevocably offer in writing to sell its interest to the other member. The other
member has thirty days to either accept or refuse the offer to purchase the
interest. In the event that either member is subject to any bankruptcy or
insolvency law, or any bankruptcy-related proceeding, then such member is be
deemed to have irrevocably offered to sell all of its interest to the other
member. The other member has 90 days to accept in respect of all, but not less
than all, of the interest.
RIGHTS ON STALEMATE. If the management committee or members are unable to
obtain a quorum for a meeting or are deadlocked on any matter, either we or GPU
Telcom may request the stalemate be resolved by our respective principal
executive officers. If our principal executive officers can not resolve the
stalemate, we and GPU Telcom must negotiate in good faith to achieve mutually
agreeable terms for the purchase of one member's entire interest by the other.
Additionally, for stalemates occurring on or after April 7, 2002, if we and GPU
Telcom can not agree on the terms of a purchase and sale within 30 days after
the stalemate, then we may both, for up to 90 days, seek to sell our respective
interest in Telergy MidAtlantic in a bona fide sale to a third party purchaser.
However, if neither of us consummates a third party sale within the 90-day
period, and the stalemate has not been resolved in the interim, either of us can
elect for Telergy MidAtlantic to redeem GPU Telcom's interest in Telergy
MidAtlantic.
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If we or GPU Telcom exercises our right to force GPU Telcom to withdraw
from Telergy MidAtlantic, Telergy MidAtlantic will redeem GPU Telcom's
membership interest as follows:
- Telergy MidAtlantic will distribute to GPU Telcom indefeasible
rights-of-use for 49% of the available dark fiber strands in Telergy
MidAtlantic's indefeasible rights-of-use, and
- If GPU Telcom is a regulated telephone company on the date of its
withdrawal from Telergy MidAtlantic (or designates a regulated telephone
company to receive its withdrawal distribution) and obtains any necessary
regulatory approval within nine months after the date of its withdrawal,
then Telergy MidAtlantic will distribute to GPU Telcom (or its designee)
49% of the consenting customers that use Telergy MidAtlantic's
indefeasible rights-of-use, facilities, business or assets attributable
to GPU Telcom as of the date of GPU Telcom's withdrawal. In which case,
GPU Telcom's indefeasible rights-of-use described above will immediately
terminate, but GPU Telcom must remain a party to its construction
operating agreement with Telergy MidAtlantic and we will retain our
rights under the construction operating agreement and our rights-of-way
to expand our network and construct segregated networks in GPU Telcom's
territory.
In all events, following GPU Telcom's withdrawal from Telergy MidAtlantic,
we must also assist and train GPU Telcom in developing an independent sales,
marketing and product development expertise in the provision of retail
telecommunications services.
EMPLOYEES
As of April 15, 2000, we employed 419 full-time and seven part-time
employees. None of our employees are represented by a collective bargaining
agreement. We believe that our relations with our employees are good.
PROPERTIES
Our executive and administrative offices are located in East Syracuse, New
York. In December 1998, Telergy Parkway purchased the building where our
executive and administrative offices are located. This building covers
approximately 35,000 square feet. In addition, we sublease approximately 32,5000
square feet in North Syracuse for office and warehouse space and as a
points-of-presence for telecommunications equipment.
Our other executive and principal operating offices are located in Albany,
Buffalo and New York City, where we lease an aggregate of approximately 26,000
square feet under agreements which expire beginning in February 2002. We are
currently negotiating leases for points-of-presence in other cities in New York,
Philadelphia and New Jersey and intend to lease space in other areas as our
needs require. In the ordinary course of our business, we also lease building or
warehouse space or, to the extent necessary, have acquired easements to
accommodate our regeneration sites or for storage purposes.
LEGAL PROCEEDINGS
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims arising in the ordinary course of business.
Currently, we are not a party to any material legal proceeding or claim that we
believe will have a material adverse effect on our financial condition or
results of operations.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We have registered the Telergy name and logo as service marks with the
United States Patent and Trademark Office and the Canadian Patent and Trademark
Office. We have also registered OpticalNet(R) and Telergy Light Speed(R), our
asymmetric digital subscriber line service offering, as service marks. In
addition, we have licenses from third parties for use of various technology
software.
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<PAGE> 53
GOVERNMENT REGULATION
The following summary of regulatory developments and legislation, while not
exhaustive, describes the primary present and proposed federal, state and local
regulation and legislation of the telecommunications industry that could have a
material effect on our business. Existing federal and state regulations are
currently subject to judicial proceedings, legislative hearings and
administrative proposals that could change, in varying degrees, the manner in
which our industry operates. We can not predict the outcome of these proceedings
or their impact upon the telecommunications industry or upon us.
OVERVIEW
Our telecommunications services are subject to federal, state and local
regulation. The Federal Communications Commission, or FCC, exercises
jurisdiction over the facilities and services of telecommunications common
carriers to the extent those facilities are used to provide, originate or
terminate interstate or international telecommunications. State regulatory
commissions exercise jurisdiction over facilities and services to the extent
those facilities are used to provide, originate or terminate intrastate
telecommunications. In addition, as a result of the passage of the
Telecommunications Act of 1996, or the Telecom Act, state and federal regulators
share responsibility for implementing and enforcing its pro-competitive
policies. In particular, state regulatory commissions have substantial oversight
over the provision of interconnection and nondiscriminatory network access to
competitive local exchange carriers. In addition, local governments exercise
authority over some matters that affect our business, such as regulation of the
public rights-of-way necessary to install and operate telecommunications
networks.
FEDERAL REGULATION OF TELECOMMUNICATIONS
The FCC regulates the interstate and international telecommunications
facilities and services of telecommunications common carriers. Specifically,
common carriers must comply with the requirements of the Communications Act of
1934, as amended by the Telecom Act. The Telecom Act established a framework for
the promotion of increased competition in U.S. local telecommunications markets.
Because implementation of the Telecom Act is subject to various federal and
state rulemaking and judicial procedures, the effects of the Telecom Act on us
may change in ways that can not be accurately predicted.
THE TELECOM ACT: OVERVIEW
The intent of the Telecom Act is to increase competition in the U.S.
telecommunications market. To do so, the Telecom Act seeks to open local
telecommunications markets to competition by requiring incumbent local exchange
carriers to permit competitive local exchange carriers to interconnect to their
networks by imposing various obligations on them.
- INTERCONNECTION. Incumbent local exchange carriers must permit
competitive local exchange carriers to interconnect their networks to the
incumbent local exchange carriers' networks at any technically feasible
point, on nondiscriminatory terms and at cost-based prices.
- COLOCATION. Incumbent local exchange carriers must permit competitive
local exchange carriers to place certain network equipment at the
incumbent local exchange carriers' premises (referred to as colocation).
- UNBUNDLED ACCESS. Incumbent local exchange carriers must unbundle and
provide access to certain network elements such as network facilities,
equipment, features, functions and capabilities, on nondiscriminatory
terms and cost-based prices.
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- RECIPROCAL COMPENSATION. Incumbent local exchange carriers and
competitive local exchange carriers are required to compensate each other
on a reciprocal basis for calls that originate on the network of one
carrier and are sent to the network of another for termination.
- RESALE. Incumbent local exchange carriers are required to permit resale
of their services and to set discounted wholesale rates for all end-user
retail services for sale to competitive local exchange carriers.
- NUMBER PORTABILITY. Incumbent local exchange carriers and competitive
local exchange carriers must permit users of telecommunications services
to retain existing telephone numbers within the same local area without
impairment of quality, reliability or convenience when switching from one
telecommunications carrier to another.
- DIALING PARITY. All incumbent local exchange carriers and competitive
local exchange carriers are required to provide "1+" equal access to
competing providers of telephone exchange service and toll service and to
provide nondiscriminatory access to telephone numbers, operator services,
directory assistance and directory listing.
- ACCESS TO RIGHTS-OF-WAY. All incumbent local exchange carriers and
competitive local exchange carriers must permit nondiscriminatory access
to poles, ducts, conduits and rights-of-way.
Incumbent local exchange carriers must negotiate in good faith with
competitive carriers that request any or all of the above arrangements. If the
carriers can not reach agreement within a prescribed time, either carrier may
request binding arbitration by the appropriate state public utility commission,
or PUC. If an agreement still can not be reached, carriers are required to abide
by the obligations established by the FCC and state PUC.
INTERCONNECTION
In August 1996, the FCC released its First Report and Order on
interconnection, or the Interconnection Decision, establishing rules for the
implementation of the above obligations. In July 1997, the U.S. Court of Appeals
for the Eighth Circuit, or Eighth Circuit, vacated portions of the
Interconnection Decision that required prices to be based on forward-looking,
rather than historical, costs and gave the FCC heightened authority to monitor
local telephone companies' compliance with the Telecom Act. On January 25, 1999,
the U.S. Supreme Court reversed the Eighth Circuit's decision. The Supreme Court
affirmed the FCC's authority to promulgate rules governing pricing by local
telephone companies. The Court also found that the FCC had authority to
promulgate a "pick and choose" rule for interconnection, which enables
competitive local exchange carriers to adopt portions of existing
interconnection agreements, and upheld most of the FCC's rules governing access
to unbundled network elements. The Court did find that the FCC had not followed
the statutory test for determining which network elements must be unbundled by
incumbent local exchange carriers and remanded that issue to the FCC for further
consideration.
In response to the remand, on November 5, 1999, the FCC released an order
that retained most of its original list of unbundled network elements. The FCC
eliminated the requirements that incumbent local exchange carriers provide
unbundled access to local switching for customers with four or more lines on the
densest parts of the top 50 Metropolitan Statistical Areas, operator services
and directory assistance. The FCC's order has been appealed. In addition, the
Eighth Circuit is considering certain issues left undecided by the Supreme
Court's decision pertaining to substantive challenges to the FCC's
interconnection rules, including the validity of the FCC's pricing methodology.
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As a result of the Eighth Circuit and Supreme Court decisions and the
pending appeals of the FCC's November 5, 1999 order, the rules governing the
pricing, terms and conditions of interconnection agreements remain unsettled.
The Supreme Court's decision may require or trigger the renegotiation of
existing interconnection agreements. Although state PUCs continue to implement
and enforce existing interconnection agreements, the Supreme Court's ruling and
further proceedings before the Eighth Circuit and the FCC may affect the
authority of state PUCs to do so. They could also result in additional
rulemaking proceedings by the FCC. As a result, the scope of our interconnection
rights may change in ways that are not foreseeable.
We are party to interconnection agreements with Bell Atlantic in New York,
Rhode Island, Massachusetts and New Jersey. The New York agreement expires in
June 2000. We are in the process of renegotiating that agreement; however, we
can not be certain whether we will be able to renegotiate it on commercially
favorable terms. We also will be required to obtain interconnection from the
incumbent local exchange carriers in each of the other states in which we plan
to operate. We can not be certain whether we will be able to obtain
interconnection in those states on commercially favorable terms. Our inability
to obtain interconnection on commercially favorable terms in one or more states
could have a adverse material effect on our business.
LOCAL LOOP UNBUNDLING AND COLOCATION
Incumbent local exchange carriers are required to provide physical
colocation of equipment necessary for competitive local exchange carriers to
obtain interconnection or access to unbundled network elements at incumbent
local exchange carrier premises. Incumbent local exchange carriers may provide
virtual colocation if they demonstrate to a state PUC that physical colocation
is not practical for technical reasons or because of space limitations. On March
18, 1999, the FCC adopted measures designed to facilitate the ability of
competitive providers to access incumbent local exchange carriers local loops
and colocation space, including a requirement that incumbent local exchange
carriers make new colocation arrangements (e.g., shared colocation and cageless
colocation) available to competing carriers and a requirement that competitors
be able to locate all equipment necessary for interconnection, even where such
equipment also has other functions.
On March 17, 2000, the U.S. Court of Appeals for the District of Columbia
Circuit, or the D.C. Circuit, issued a decision largely upholding the FCC's
position. However, the court found that the FCC's definition of the equipment
"necessary" for interconnection was too broad and remanded that part of the
order to the FCC for further consideration. Based on the outcome of the remand
proceeding, the range of equipment that competitive local exchange carriers may
place in incumbent local exchange carrier offices may be restricted, causing
competitive local exchange carriers possibly to incur additional expenses to
build or lease equipment space.
UNIVERSAL SERVICE
The Telecom Act requires the FCC to restructure the manner in which
universal service fund payments are established and distributed. On May 8, 1997,
the FCC issued an order that significantly expanded the federal universal
service subsidy regime. Specifically, the FCC established new universal service
funds to support telecommunications and information services for schools and
libraries and telecommunications services for rural health care providers. The
FCC also expanded federal subsidies for local exchange services provided to
low-income consumers and doubled the size of the high cost fund for non-rural
local exchange carriers.
Providers of interstate telecommunications service must pay for these
programs based on their interstate and international revenue from end-user
telecommunications services. Our
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contribution to these universal service funds will be based on our gross
interstate and international revenue. The FCC assesses such payments on the
basis of a carrier's revenue for the previous year. We are unable to specify the
amount of any universal service contributions that we will be required to make
in future years.
Following several appeals of the FCC's universal service order, the U.S.
Court of Appeals for the Fifth Circuit, or the Fifth Circuit, issued decisions
on July 30, 1999, and January 25, 2000, that upheld the FCC's universal service
fund rules in most respects. However, the court rejected the FCC's effort to
base universal service contributions on the intrastate revenue of interstate
carriers. The court also remanded to the FCC the issue of whether revenue
derived from international services provided by interstate carriers should be
included in a carrier's universal service contribution base. Following remand,
on October 8, 1999, the FCC issued an order holding that revenue derived from
international services of interstate carriers should be included in the
contribution base, unless a carrier's revenue from interstate services are less
than 8% of its total revenue derived from interstate and international services.
The October 8, 1999, order has been appealed to the Fifth Circuit and may be
modified. The universal service program also may be modified as a result of the
FCC's own reconsideration of its policies or by congressional action. Further
FCC rule changes, as well as obligations to contribute to state universal
service funding programs, are likely to increase the overall cost to
telecommunications carriers.
RECIPROCAL COMPENSATION
Under the Telecom Act, a local exchange carrier that terminates calls to
customers on its network is entitled to be compensated by the local exchange
carrier of the originating customer. Incumbent local exchange carriers have
taken the position that compensation is not owed for inbound calls to internet
service providers on the grounds that this type of traffic is not local and,
thus, not covered by the terms of existing interconnection agreements. As a
result, some incumbent local exchange carriers have threatened to withhold, and
in some cases have withheld, compensation to competitive local exchange carriers
for such calls.
Nearly all of the state regulatory commissions that have ruled on this
issue have determined that reciprocal compensation is owed for internet service
provider-bound calls. Many of those rulings have been appealed. To date, every
federal and state court to consider the merits of the issue on appeal has upheld
the decisions of those state PUCs that have concluded that reciprocal
compensation is owed for internet service provider-bound calls. No federal or
state court has issued a decision in an appeal from those few state PUCs that
have denied reciprocal compensation for internet service provider-bound calls.
Some state PUCs have not yet addressed the issue. We can not accurately predict
how these states will rule on this issue or whether some states will change
their position.
On February 26, 1999, the FCC issued a Declaratory Ruling and Notice of
Proposed Rulemaking addressing the issue of reciprocal compensation for inbound
calls to internet service providers, or the Declaratory Ruling. The FCC
determined that internet service provider traffic is jurisdictionally mixed and
largely interstate and, thus, within the FCC's jurisdiction. In so finding, the
FCC applied an end-to-end analysis, concluding that because the communication
would ultimately extend beyond the internet service provider to sites
out-of-state and around the world, it is non-local in nature. However, the FCC
made clear that its conclusion was not dispositive of whether reciprocal
compensation is currently owed. Rather, the FCC determined that there was no
federal rule in place governing reciprocal compensation for internet service
provider-bound traffic when existing interconnection agreements were negotiated.
Therefore, the FCC concluded that, pending the completion of federal rulemaking,
state PUCs could determine whether compensation is owed under existing
agreements. The FCC's Declaratory Ruling was appealed to the D.C. Circuit. On
March 24, 2000, the D.C. Circuit vacated the FCC's ruling, holding that the FCC
failed to explain adequately why the end-to-end analysis was applied to the
reciprocal
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compensation issue, and remanded the issue to the FCC for further proceedings.
We can not accurately predict future FCC action or court rulings on this issue.
The FCC also has requested comments on the rules that should govern
compensation for internet service provider-bound traffic when existing
interconnection agreements expire. Comments were filed by interested parties,
but it is unlikely that a decision will be issued until the FCC addresses the
issues raised by the remand of its Declaratory Ruling. In the absence of a
federal rule, we expect the state commissions to continue to address this issue
in the context of approving and arbitrating new interconnection agreements.
Following the issuance of the Declaratory Ruling, some incumbent local
exchange carriers have asked state PUCs to reconsider and to reverse their prior
decisions requiring the payment of reciprocal compensation on the grounds that
those decisions were inconsistent with the Declaratory Ruling. To date, only the
Massachusetts PUC has reversed a prior decision. Moreover, in light of the D.C.
Circuit's recent opinion, Massachusetts has asked for comments on whether it
should re-open that docket and reconsider its reversal. It is possible that
other state PUCs will reconsider and modify their prior decisions. The impact of
any such decisions on our operations can not be predicted. However, of the 21
states that have considered reciprocal compensation since the FCC's Declaratory
Ruling, only four (Massachusetts, New Jersey, Louisiana and South Carolina) do
not require carriers to compensate each other for terminating internet service
provider-bound calls.
Upon the expiration of current interconnection agreements, new agreements
will have to be negotiated. It is expected that reciprocal compensation
arrangements will be modified and compensation rates will be significantly
lower. The effect of the reduction of compensation rates on us can not be
accurately predicted.
ACCESS CHARGES
The FCC has made and is continuing to consider various reforms to the
existing rate structure for charges assessed by local exchange carriers on
interstate long distance carriers for connection to local networks. These
reforms are designed to move these "access charges" to lower, cost-based rate
levels and rate structures. These changes may reduce incumbent local exchange
carrier access charges and will shift charges, which historically have been
based on minutes-of-use, to flat-rate, monthly, per line charges on end-user
customers rather than on long distance carriers. As a result, the aggregate
amount of interstate access charges paid by long distance carriers to access
providers like us may decrease. In addition, the FCC, noting the proliferation
of fixed monthly charges on the bills of long distance customers, recently
initiated a public inquiry on the impact of these charges on consumers who make
few interstate long distance calls but nonetheless pay fixed end-user charges.
These initiatives could reduce our revenue from access charges and diminish
them as a source of profit. In October 1998, AT&T sought a declaration from the
FCC that AT&T may avoid competitive local exchange carrier access charges by
declining to direct calls to the customers of those competitive local exchange
carriers. While the FCC denied this request, it initiated a proceeding to
examine competitive local exchange carrier access rates. The FCC does not
currently impose any rate level or rate structure requirements on interstate
access charges of competitive local exchange carriers. In addition, AT&T and
Sprint have sent letters to most competitive local exchange carriers demanding a
reduction in access charges to a "competitive" level or risk service
interruption and, in many instances, have refused to pay the tariffed rate for
access services, if at all. A decision by the FCC regulating competitive local
exchange carrier interstate access charges or allowing long distance companies
to refuse in some cases to purchase competitive providers' switched access
services may adversely affect competitive local carriers such as us.
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TARIFFING AND FILING REQUIREMENTS
Currently, non-dominant carriers must file tariffs with the FCC stating the
rates, terms and conditions of their interstate and international services.
However, on April 28, 2000, the D.C. Circuit ruled that the FCC had authority to
eliminate the tariff filing requirement for non-dominant providers of domestic
interstate interexchange services. Unless the D.C. Circuit grants rehearing of
the case or the U.S. Supreme Court agrees to review the D.C. Circuit's decision,
the D.C. Circuit's decision is expected to become effective later this year.
The FCC has stated that it will implement a transition period of
approximately nine months before the detariffing rule takes effect. When the
rule takes effect, non-dominant interstate interexchange service providers like
us will no longer be able to rely on the filing of tariffs with the FCC as a
means of providing uniform notice to customers of prices, terms and conditions
under which they offer their interstate services. Instead, we will need to
implement replacement contracts with each customer or find another means to give
notice to our customers, which could result in substantial administrative and
marketing expenses. The FCC previously indicated that it might implement a
permissive tariffing policy allowing carriers to file tariffs with the FCC.
Adoption of a permissive tariffing policy could alleviate the administrative and
marketing expenses that would arise if the FCC eliminated tariff filing
altogether. The D.C. Circuit's decision does not require the FCC to allow
permissive tariff filing, and we can not accurately predict whether the FCC will
do so.
The FCC also imposes reporting and filing requirements on interstate and
international carriers. We must file periodic reports regarding interstate and
international circuits and deployment of network facilities. Traffic and revenue
reports and universal service contribution worksheets also must be filed.
Carriers also must obtain prior approval from or give notice to the FCC of
certain transfers of control and assignments of operating authorizations, as
well as certain affiliations with foreign carriers. In addition, certain
operating and service agreements with dominant foreign carriers must be filed
with the FCC. The FCC has the authority to impose fines and other penalties for
non-compliance with FCC rules and regulations.
INTERNATIONAL SERVICES
Section 214 of the Communications Act governs the construction of
facilities for international telecommunications services and the provision of
international telecommunications services. As a non-dominant carrier, we are
required to obtain FCC authorization pursuant to Section 214 and to file tariffs
before providing international telecommunications services. Four of our
subsidiaries have obtained Section 214 authorization to provide international
telecommunications services. We also have filed international tariffs with the
FCC. Our provision of international services also requires us to make certain
filings and pay certain regulatory fees to the FCC. Those filings and fees are
discussed in the preceding section.
COMPETITION FROM BELL OPERATING COMPANIES
Section 271 of the Telecom Act contains provisions that permit the Regional
Bell Operating Companies, or RBOCs, to provide long distance services in their
home service areas once they meet procedural and substantive requirements.
Specifically, an RBOC may provide such services only after it demonstrates that
it has entered into interconnection agreements in the states in which it seeks
to offer long distance services and meets a 14-point "competitive checklist."
The FCC also must find that the RBOC's entry into the long distance market is in
the public interest. In late 1999, the FCC issued an order finding that Bell
Atlantic had satisfied the competitive checklist and granted Bell Atlantic
authority to provide long distance services in New York State. To date, the FCC
has granted no other Section 271 petition; however, it is possible that
additional petitions will be granted later this year and in the future. We thus
may be required to
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compete with Bell Atlantic and other incumbent local exchange carriers for the
provision of long distance services.
U.S. Congressman William J. Tauzin (R-LA) has introduced a bill in the U.S.
House of Representatives called the "Internet Freedom and Deployment Act of
1999" that would allow the RBOCs to provide certain high-speed data service and
internet access services free from the restrictions of Section 271. Further,
under the bill, incumbent local exchange carriers would neither have to provide
unbundled access to their high-speed data service network elements nor have to
offer high-speed data service for resale at wholesale rates. The RBOCs would
still be prohibited from marketing, billing or collecting for interstate voice
services provided by means of these high-speed data service networks, until such
time as the RBOC received FCC authorization to provide in-region long distance
services. The bill does not allow incumbent local exchange carriers to avoid
their unbundling obligations with respect to all elements used to provide high-
speed internet access. Incumbent local exchange carriers would continue to have
to provide on an unbundled basis those network elements they were under an
obligation to provide as of January 1, 1999. Although the bill has garnered
substantial support, we can not predict whether this or a modified bill
ultimately will pass or what effect such a bill might have on us.
In the spring of 1998, four RBOCs, including Bell Atlantic, petitioned the
FCC to be relieved of specified regulatory requirements in connection with their
provision of high-speed data services, including obligations to unbundle
high-speed data loops and to resell such services. In October 1998, the FCC
ruled that high-speed data services are telecommunications services subject to
the unbundling and resale obligations of the Telecom Act. However, the FCC has
initiated a proceeding to determine whether RBOCs can create separate affiliates
for their high-speed data services that would be free from these obligations. A
decision in that proceeding permitting RBOCs to offer these services through a
separate subsidiary may have a material adverse effect on our operations.
LINE SHARING
On November 18, 1999, the FCC adopted an order that directed incumbent
local exchange carriers to share their local telephone lines so that competitors
could make use of the high frequency portion of the line. This will enable
competitive carriers to use xDSL technology to provide high-speed data services
over the same telephone lines simultaneously used by incumbent local exchange
carriers to provide basic telephone service, a technique referred to as "line
sharing." We can not accurately predict the short-term effect of this order as
the FCC left it to the states to determine how line sharing should be
implemented and what rates the incumbent local exchange carriers may charge.
This process could take some time, and this order has been challenged before by
both the FCC and the D.C. Circuit. This rule could have the effect of sharply
reducing prices for xDSL service.
INTERNET SERVICES
We offer a variety of internet-related services. The FCC currently
considers most internet services to be enhanced services and not subject to
direct regulation by the FCC. However, the future regulatory status of
internet-related services is uncertain. In an April 1998 report, the FCC
indicated that some services offered over the internet, such as voice over
internet protocol, may be functionally indistinguishable from traditional
telecommunications service offerings and that their non-regulated status may
have to be re-examined. Moreover, although the FCC has decided not to allow
local telephone companies to impose per-minute access charges on internet
service providers, further regulatory and legislative consideration of this
issue is possible. In addition, increased regulation of the internet as a result
of state or federal initiatives, including regulating or criminalizing certain
content, may slow its growth and reduce potential revenue. Internet services
also are subject to intellectual property laws and export laws. These
regulations may
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increase the cost of complying with new laws or doing business over the
internet, may reduce our profits and have a material adverse impact on our
business, financial condition and future prospects.
CUSTOMER INFORMATION
The Telecom Act protects the privacy of certain information about
telecommunications customers that a carrier like us acquires by virtue of our
provision of telecommunications services to such customers. Protected
information includes information related to the quantity, technical
configuration, type, destination and the amount of use of a telecommunications
service. A carrier may not use such information acquired through one of its
service offerings to market certain other service offerings without the approval
of the affected customers. These restrictions may affect our ability to market a
variety of packaged services to existing customers.
STATE REGULATION
The intrastate activities of each of our local telephone service companies
are regulated by the state PUCs of the states in which each subsidiary operates
with respect to such issues as rates, service quality, the issuance of
securities and the construction of facilities. The level of regulation imposed
upon us by state PUCs and the substantive rights and obligations that we have in
each state vary. However, as a competitive provider of telecommunications
services, we are generally less heavily regulated than are incumbent local
exchange carriers.
To provide intrastate services, we generally must obtain a certificate of
public convenience and necessity from the appropriate state PUC. Our operating
subsidiaries have received certification in the following states: New York,
Rhode Island, New Jersey, Pennsylvania, Vermont, New Hampshire, West Virginia,
Delaware, Massachusetts and the District of Columbia. We also have applied for
certification in Connecticut, Florida, Maine, Maryland, Ohio, Texas and
Virginia. We expect our pending applications to be granted by the appropriate
state PUCs in the ordinary course of business. In most states, we are authorized
to provide local and long distance services on a facilities-based and resale
basis.
In carrying out our intrastate operations, we must comply with the terms
and conditions of our certificates and any other regulatory requirements for
telecommunications utilities. Our certificates of authority may be conditioned,
modified or revoked by state regulatory authorities from time to time or for
failure to comply with state law or regulations. Fines and other penalties also
may be imposed upon us for violations of the terms and conditions of our
certificates or other state regulatory requirements.
In most states, certified carriers are required to file tariffs setting
forth the terms, conditions and prices of intrastate services. In some states
the required tariff may list a range of prices for particular services, and in
others such prices can be set on an individual customer basis. We have filed
tariffs in New York and Rhode Island and expect to file tariffs in additional
states in the ordinary course of business. States also often require prior
approvals or notifications for certain transfers of assets, customers or
ownership of a competitive local exchange carrier and for issuance by certified
carriers of equity securities and notes of indebtedness.
A number of state PUCs in the states in which we currently operate or plan
to operate are conducting proceedings related to the rules under which carriers
may operate in an increasingly competitive telecommunications market. PUCs are
examining issues such as unbundling of local network elements, local
interconnection obligations, dialing parity for intra-LATA (or short-haul) toll
traffic, local number portability, resale of local exchange service and
universal service. For example, the New York Public Service Commission is
conducting a number of proceedings and rulemakings that could affect our
business. In 1998, the New York Public Service Commission initiated a proceeding
to review the rates that Bell Atlantic charges competitive local exchange
carriers to use unbundled network elements to provision telecommunications
service. We can not
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accurately predict whether the resulting rates will increase the cost of
providing service in New York and materially adversely affect our business. In
another proceeding, the New York Public Service Commission determined that, in
certain circumstances, Bell Atlantic can pay lower reciprocal compensation rates
for calls terminated by a competitive local exchange carrier in excess of a
ratio of three terminating calls to each originating call. We can not predict
how these state proceedings will ultimately be resolved, when decisions will be
issued or the effects of any such decisions on our operations.
LOCAL REGULATION
Our activities also are subject to local regulation, including compliance
with franchise obligations, building codes and local licensing requirements.
Such regulations vary widely by jurisdiction. To construct and install
transmission facilities, we may need to obtain rights-of-way over public and
privately owned land.
ENERGY REGULATION
The Public Utility Holding Act of 1935, or PUHCA, was amended by the
Telecom Act to permit electric utilities that are subject to PUHCA to form
Exempt Telecommunications Companies that, subject to certain restrictions and
pursuant to FCC approval, may provide telecommunications services, information
services and other services and products subject to the jurisdiction of the FCC.
Congress currently is considering various proposals for legislation that would
affect the provision of electric power and other services by electric utilities.
Many states have enacted or are considering legislative proposals that allow or
will allow retail customers to select their energy suppliers. We can not
accurately predict whether these proposals will be implemented or the effect of
any such proposals on our business plans or upon the electric utilities with
which we have contracts.
In 1996, the Federal Energy Regulatory Commission issued Orders 888 and
889, which promote wholesale competition in the electricity sector by requiring
public electric utilities to make their transmission services available to
others on a nondiscriminatory basis. Also in 1996, the New York Public Service
Commission adopted principles for competition, including retail choice for all
customers, and directed most of New York's major electric utilities to file rate
and restructuring proposals addressing those principles. As a result, most
customers in New York will be able to select their own electric suppliers by the
end of 2000. Similar programs also are being implemented in the natural gas
market. We expect that these initiatives will permit us to provide bundled
energy and telecommunications services; however, we can not accurately predict
whether the liberalization of the energy sector will continue or how it will be
implemented.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The table below shows, as of May 3, 2000, the names and ages of our
executive officers, directors and key employees, and their current positions
with Telergy.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Brian P. Kelly(1).................... 40 Chairman of the Board and Chief Executive Officer
J. Patrick Barrett................... 63 President and Director
Kevin J. Kelly(1).................... 40 Vice Chairman and Executive Vice President
Nicholas A. Merrick.................. 37 Senior Vice President and Chief Financial Officer
Joseph Ciancaglini................... 57 Chief Operating Officer
William M. Kelly, Jr.(1)............. 34 Executive Vice President and Director
Steven D. Rubin...................... 39 Senior Vice President, General Counsel and Secretary
David M. Wolf........................ 39 Chief Technical Officer
Jimmy Wang........................... 38 Chief Information Officer
Thomas G. Young...................... 52 Vice President, Government Relations
Eugene Cho........................... 29 Vice President, Corporate Finance
Barry M. Vaughn...................... 43 Vice President, Sales and Marketing
Nigel S. B. Price.................... 48 Vice President, Information Technology
Richard J. Oliver.................... 46 Vice President, Treasurer
John F. O'Mara....................... 66 Director
J. Philip Frazier.................... 61 Director
Frank J. Zaccanelli.................. 44 Director
Albert J. Budney, Jr................. 52 Director
Joel-Tomas Citron.................... 37 Director
Terence R. McAuliffe................. 43 Director
Vincent F. Spina..................... 38 Director
</TABLE>
- ---------------
(1) Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. are brothers.
BRIAN P. KELLY co-founded Telergy, Inc. in April 1995 and has been serving
as Chairman of the board of directors and Chief Executive Officer since our
inception. From 1986 to 1995, Mr. Kelly served as President of
Telecommunications Management Systems, a telecommunications and television
billing service provider specializing in the healthcare industry.
J. PATRICK BARRETT has been serving as President since April 1998. Mr.
Barrett was elected to the board of directors in May 1999. From April 1998 until
August 1999, Mr. Barrett also served as Chief Operating Officer. From October
1987, Mr. Barrett has served as Chairman and Chief Executive Officer of Carpat
Investments. In addition, Mr. Barrett served as Chairman and Chief Executive
Officer of Avis, Inc., Executive Vice President and Chief Financial Officer and
member of the board of directors of Norton Simon, Inc., President of Carrier
International Corporation, and Vice President and Chief Financial Officer of
Carrier Corporation. Mr. Barrett serves as a trustee of both Syracuse and St.
Lawrence Universities, director of Lincoln National Corp., and serves as
Chairman of the audit committee of Lincoln National. He is also a member of the
board of directors of Coyne International Enterprises Corporation.
KEVIN J. KELLY co-founded Telergy, Inc. in April 1995 and has been serving
as a director and an officer since our inception. Since April 1998, Mr. Kelly
served as Executive Vice President and
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since April 2000, has been Vice Chairman of the board of directors. From 1986 to
1995, Mr. Kelly served as Chief Executive Officer of Telecommunications
Management Systems, a telecommunications and television billing service provider
specializing in the healthcare industry.
NICHOLAS A. MERRICK has been serving as Senior Vice President and our Chief
Financial Officer since May 2000. From October 1997 to February 2000, Mr.
Merrick served as Executive Vice President and from October 1997 to November
1998 also served as Chief Financial Officer of Excel Communications Inc., which
was acquired by Teleglobe. From November 1998 to February 2000, Mr. Merrick was
also President and Chief Executive Officer of up2 technologies, inc., a web
hosting subsidiary of Teleglobe. From March 1996 to October 1997, Mr. Merrick
served as Chief Financial Officer of Telco Communications Group, Inc. until its
acquisition by Excel. From August 1990 to March 1996, Mr. Merrick held several
positions at The Robinson-Humphrey Company, Inc. in Atlanta, including Vice
President, Corporate Finance.
JOSEPH CIANCAGLINI has been serving as our Chief Operating Officer since
August 1999. Mr. Ciancaglini served as Director of Operations of Telergy Network
Services from February 1999 to August 1999. From 1968 to 1999, Mr. Ciancaglini
served as Director of Operations for the Central New York Region at NYNEX/Bell
Atlantic, serving over a 22,000 square mile area and managing approximately 800
employees.
WILLIAM M. KELLY, JR. co-founded Telergy, Inc. in April 1995 and has been
serving as an officer and director since our inception. Since April 2000, Mr.
Kelly has served as Executive Vice President. From April 1995 to April 2000, Mr.
Kelly served as Secretary. From 1986 to 1995, Mr. Kelly served as Chief
Information Officer for Telecommunications Management Systems, a
telecommunications and television billing service provider specializing in the
healthcare market.
STEVEN D. RUBIN has been serving as our Senior Vice President and General
Counsel since January 2000 and Secretary since April 2000. From 1990 to 2000,
Mr. Rubin served as a shareholder of the law firm of Stearns Weaver Miller
Weissler Alhadeff & Sitterson, P.A. and a director of that firm from 1998 to
2000.
DAVID M. WOLF has been serving as our Chief Technical Officer since April
2000. From October 1997 to April 2000, Mr. Wolf served as Vice President of
Corporate Development. From 1984 to 1997, Mr. Wolf was employed by NYNEX/Bell
Atlantic where he held a variety of positions including Implementation Engineer,
Transmission Engineer, Switch Designer, Market Area Planner, and Advanced
Customer Network Engineer. In addition, Mr. Wolf was a Director of the Telecom
Institute at SUNY Institute of Technology at Utica from 1995 to 1997.
JIMMY WANG has been serving as our Chief Information Officer since March
2000. In February and March 2000, Mr. Wang served as Chief Technology Officer.
From 1997 to 2000, Mr. Wang served as Director of System Development/Testing
Group for AT&T Local Systems. From 1994 to 1997, Mr. Wang served as manager of
AT&T Bell Labs. Mr. Wang holds a Ph.D. in operations research from Southern
Methodist University.
THOMAS G. YOUNG has been serving as our Vice President, Government
Relations since April 2000. From August 1995 to April 2000, Mr. Young served as
our Senior Vice President of Government Relationship. From 1994 to 1995, Mr.
Young served as Chairman of the New York Power Authority.
EUGENE CHO has been serving as our Vice President, Corporate Finance since
February 2000. From 1997 to 2000, Mr. Cho was an associate in the investment
banking division of Donaldson, Lufkin & Jenrette Securities Corporation. Mr. Cho
received a Masters of Business Administration from Columbia University in 1997.
Prior to attending business school, Mr. Cho was an analyst in the investment
banking division of Lehman Brothers Inc. Mr. Cho received a bachelors in
economics from Yale University in 1992.
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BARRY M. VAUGHN has been serving as our Vice President, Sales and Marketing
since November 1999. From 1997 to 1999, Mr. Vaughn served as Director of
Commercial Data Solutions for Sensis Corp., an international engineering company
specializing in data telecommunications and sensors for the aviation, air
defense and commercial markets. From 1979 to 1997, Mr. Vaughn held a number of
marketing, technical and operational positions including Director of Marketing
for Health Care Market Management, Director of Emerging Markets for the entire
NYNEX region and Director of Marketing for the Central New York Region.
NIGEL S. B. PRICE has been serving as our Vice President, Information
Technology since May 1999. From 1994 to 1999, Mr. Price worked with Perot
Systems as an information technology consultant. Before working at Perot
Systems, Mr. Price spent 25 years with British Telecom in various management and
systems development roles. At British Telecom, Mr. Price supervised the
development of the GSM Network for Cellnet in the United Kingdom.
RICHARD J. OLIVER has been serving as our Vice President, Treasurer since
April 2000. From 1995 to April 2000, Mr. Oliver served as our Chief Financial
Officer. From 1983 to 1995, Mr. Oliver served as Chief Financial Officer of the
Touchette Corporation where he was also responsible for the operations of the
computer service divisions.
JOHN F. O'MARA has been one of our senior advisors since December 1998 and
one of our directors since May 1999. Mr. O'Mara served as Regulator of the New
York Public Service Commission from 1995 to 1998. Mr. O'Mara is a partner in the
law firm of Davidson and O'Mara.
J. PHILIP FRAZIER has been a member of our board of directors since May
1999. From 1997 to 1998, he served as a director of Telergy Joint Venture, the
predecessor of Telergy Central, LLC. Mr. Frazier has been serving as President
and Chief Executive Officer of Niagara Mohawk Energy since 1996. From 1995 to
1996, Mr. Frazier was employed by Stonehedge Partners where he served as
Operating Partner.
FRANK J. ZACCANELLI has been one of our senior advisors since June 1998 and
a director since May 1999. From 1986 to 1998, Mr. Zaccanelli served as President
of Hillwood Investment Company, a leading commercial real estate company
controlled by the Perot family. In addition, Mr. Zaccanelli has a minority
ownership in the Dallas Mavericks, where he had served as President and General
Manager.
ALBERT J. BUDNEY, JR. has been a member of our board of directors since
September 1999. He is currently serving as President and a director of Niagara
Mohawk Holdings, Inc. From 1995 to 1999, Mr. Budney served as President and
Chief Operating Officer of Niagara Mohawk Power Corporation. Before joining
Niagara Mohawk, he served as Managing Vice President of UtiliCorp Power Services
Group. Mr. Budney is a director of the Utilities Mutual Insurance Company, the
Buffalo Niagara Partnership, and the Central New York United Way, where he is
Vice Chairman. He is a member of the New York State Regional Economic
Development Committee, Chairman of the Board of Governors for Princeton Class of
1968, and President of BorderNet Alliance, a joint U.S.-Canada Economic
Development Organization.
JOEL-TOMAS CITRON has been a member of our board of directors since
September 1999. Since November 1999, Mr. Citron has served as Vice Chairman of
MasTec, Inc. He has served as President of MasTec since May 1999 and Chief
Executive Officer since October 1999. Mr. Citron was the Managing Partner of
Triscope Capital LLC, a private investment partnership, from January 1998 to
November 1998, Chairman of the board of directors of Proventus AB and a member
of its Executive Committee of the group from January 1992 until December 1997.
Mr. Citron has been a director of Neff Corporation since October 1998 and
Chairman of the board of directors of American Information Systems, Inc., a
provider of intranet and internet systems solutions, from September 1996 until
January 1999.
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TERENCE R. MCAULIFFE has been a member of our board of directors since
August 1999. Since December 1995, Mr. McAuliffe has served as Chairman of
American Heritage Corporation. Mr. McAuliffe is also Chairman and Chief
Executive Officer of Jefferson National Title Insurance Company. In addition,
Mr. McAuliffe also serves on the Board of Regents for Catholic University,
National Council for Political Management at George Washington University, and
was Co-Chairman of the 53rd Presidential Inaugural Committee.
VINCENT F. SPINA has been a member of our board of directors since April
2000. Since 1993, Mr. Spina has served as a principal of PricewaterhouseCoopers
LLP where he manages the Global Human Resource Solutions group in Syracuse, New
York. This group includes 28 employees consisting of actuaries, attorneys and
employee benefits specialists. He also manages all phases of the actuarial
valuation process, plan design and qualification and general employee benefits
consulting. From 1989 to 1993, Mr. Spina served as senior consultant at
PricewaterhouseCoopers LLP. Mr. Spina is Vice-Chairperson of the Empire Housing
and Development Corp., is a Treasurer of the William and Mary Jackson
Foundation, Inc. and is a former board member of the Syracuse Chapter of the New
York Employee Benefits Conference.
EXECUTIVE OFFICERS
Our executive officers are elected or appointed by, and serve at the
discretion of, our board of directors. Each officer holds office until his or
her successor is elected and qualified or until his earlier resignation or
removal. There are some family relationships among the members of our board of
directors and officers. Please refer to the section entitled "Certain
Relationships and Related Transactions" for details regarding these
relationships and other relationships between officers and us.
BOARD OF DIRECTORS, DIRECTORS' COMPENSATION AND COMMITTEES OF THE BOARD
Our board of directors consists of eleven members. Directors are elected to
serve until the next annual meeting of stockholders to be held during the
calendar year 2001, and until their successors are elected and qualified. There
are some family relationships among the members of the board and the officers of
the company. Please refer to the section titled "Certain Relationships and
Related Transactions" for details regarding these relationships and other
relationships between directors and us. Global Crossing has the right to
designate one member to our board of directors but presently has not appointed a
designee. See "-- Designation to Our Board of Directors".
COMPENSATION OF DIRECTORS
Directors who are also our officers or employees do not receive
compensation other than reimbursement for out-of-pocket expenses incurred by
them in connection with their travel to and attendance at meetings of the board
of directors or committees thereof. Directors who are not our employees are
reimbursed for all travel and other out-of-pocket expenses incurred in
connection with attending board of directors and committee meetings, but do not
currently receive other directors' fees. Except for Messrs. Zaccannelli and
O'Mara who received stock option grants in 1999, no other non-employee directors
have been granted stock, options or warrants. We may, however, issue options in
the future to our directors under our 1999 Stock Incentive Plan.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has established an audit committee, a compensation
committee, and an executive committee. The functions of each of these committees
are described below.
The audit committee is responsible for reviewing the propriety and accuracy
of the consolidated financial statements of us and our subsidiaries. The audit
committee (1) reviews the internal accounting controls and annual consolidated
financial statements, (2) reviews with the independent certified public
accountants the scope of their audit, their report and their
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<PAGE> 66
recommendations, and (3) considers the possible effect on the independence of
such accountants in approving non-audit services requested of them and
recommends the action to be taken with respect to the appointment of the
independent certified public accountants. The audit committee consists of
Messrs. Zaccanelli, O'Mara and Spina, each of whom is "independent" within the
meaning of applicable Nasdaq listing criteria.
The compensation committee, which consists of Messrs. Zaccanelli and Spina,
is responsible for (1) approving the compensation of all elected officers, (2)
reviewing, advising and making recommendations with respect to elected officer
compensation plans, their benefits and standards and taking all related actions
that are not reserved for the board, and (3) administering our annual incentive
plan and such other salary, compensation or benefit plans as it is designated to
administer. The committee is also responsible for implementing and administering
programs and plans granting stock awards, stock options and other equity
compensation awards.
During intervals between meetings of the board, the executive committee has
and exercises all the powers and authority of the board in the management of our
business and affairs, except as specifically limited in our by-laws and
applicable law. The executive committee currently consists of Messrs. Brian P.
Kelly, J. Patrick Barrett, Kevin J. Kelly and William M. Kelly, Jr.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the cash and
non-cash compensation paid to our Chief Executive Officer and to each of our
four most highly compensated executive officers other than the Chief Executive
Officer, whose combined salary and bonus exceeded $100,000 during the fiscal
year ended December 31, 1999 (these persons collectively are referred to as the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION 1999 LONG-TERM
---------------------------------------- COMPENSATION
OTHER ANNUAL AWARDS
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) STOCK OPTIONS(#)
- --------------------------- --------- -------- --------------- ----------------
<S> <C> <C> <C> <C>
Brian P. Kelly................... $207,538 $200,000 (1) --
Chairman of the Board and Chief
Executive Officer
J. Patrick Barrett............... 207,538 200,000 (1) 150,000
President and Director
Kevin J. Kelly................... 207,538 200,000 (1) --
Vice Chairman and Executive
Vice President
William M. Kelly, Jr. ........... 134,558 200,000 (1) --
Executive Vice President and
Director
Richard J. Oliver................ 135,789 100,000 (1) --
Vice President, Treasurer
</TABLE>
- ---------------
(1) The amount of perquisite and other personal benefits did not exceed the
lesser of $50,000 or 10% of the total of annual salary plus bonus.
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<PAGE> 67
OPTION GRANTS DURING THE FISCAL YEAR ENDED DECEMBER 31, 1999
The following table sets forth information regarding options granted to our
Named Executive Officers during the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED EXERCISE GRANT DATE
OPTIONS TO EMPLOYEES PRICE EXPIRATION PRESENT
NAME GRANTED(#) IN 1999 ($/SHARE) DATE VALUE $(2)
---- ----------- --------------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
J. Patrick Barrett............... 150,000 36% $0.01 4/01/08 $17,998,500
</TABLE>
- ---------------
(1) These nonqualified stock options were granted to Mr. Barrett on April 1,
1999 and will become exercisable upon completion of this offering.
(2) Calculated according to the minimum value option pricing method.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth information concerning option exercises with
respect to Telergy capital stock by the named executive officers during the
fiscal year ended December 31, 1999 and the year-end value of outstanding
options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTION IN-THE-MONEY OPTION
SHARES AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Patrick Barrett... 0 0 100,000 150,000(1) $28,999,000 $43,498,500
</TABLE>
- ---------------
(1) These options will become vested upon completion of this offering. The
exercise price of Mr. Barrett's options is $0.01 per share.
RETIREMENT BENEFITS
As of December 31, 1999, we did not sponsor any retirement plan and
therefore did not offer any of our employees retirement benefits. During the
year 2000, we adopted a defined contribution retirement plan that qualifies
under Section 401(k) of the Internal Revenue Code and offers participation in
the plan to all employees who meet the plans eligibility criteria.
THE 1999 INCENTIVE COMPENSATION PLAN
GENERALLY. The Telergy, Inc. 1999 Incentive Compensation Plan, or ICP, was
adopted by our board of directors and was approved by our stockholders in
September 1999. The purposes of the ICP are to provide an incentive to
employees, non-employee directors and consultants to us and our subsidiaries to
exert maximum efforts towards our growth, profitability and success. It also
serves to enhance our ability to attract and retain outstanding employees to
serve in such capacities.
ADMINISTRATION. The ICP vests broad powers in the committee that
administers and interprets the ICP. The committee may consist of either the
board of directors or a committee or subcommittee of the board appointed by the
board from among its members. In addition to the general administration and
interpretation of the ICP, the committee's powers include authority to select
the persons to be granted awards, to determine the time when awards will be
granted, and to determine and certify whether objectives and conditions for
earning awards have been met. The committee also has authority to determine
whether payment of an award will be made at the end of an award period or
deferred, and to determine whether an award or payment of an award should be
reduced or eliminated. The ICP grants broad powers to the board only to amend
and terminate the plan.
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In order to meet the requirements of Section 162(m) of the Internal Revenue
Code and the rules under Section 16 of the Exchange Act, grants under the ICP
will generally be made by a subcommittee consisting of those members of the
committee who are both "outside directors" as defined for purposes of Section
162(m) of the Internal Revenue Code and regulations thereunder and "non-employee
directors" as defined for purposes of Section 16 of the Exchange Act.
ELIGIBILITY. Any person in the employ of us or any of our subsidiaries,
all members of the board of directors of us and our subsidiaries who are not
employed by either us or any of our subsidiaries and any other person who
renders services to us or any of our subsidiaries who is not an employee or
non-employee director may be selected for an award by the committee.
AWARDS. Under the ICP, up to 1,000,000 shares of common stock are
available for award, subject to automatic annual increases and to adjustment in
the event of certain corporate events such as reorganizations, stock splits and
similar occurrences. The ICP provides for the award of several types of
equity-based and other compensation, including both qualified and nonqualified
stock options, stock appreciation rights, stock awards, stock units, performance
shares, performance units, cash awards and performance-based awards. To date,
only non-qualified stock options have been awarded under the ICP. The number of
shares available for awards under the ICP shall be automatically increased,
effective on the first day of each fiscal year, to a number of shares of Class A
common stock equal to 5% of the then outstanding shares of our Class A common
stock. Furthermore, any number of shares that are subject to awards that lapse,
tendered to pay the exercise price of any award or withheld to satisfy
withholding requirements will again be available for award under the ICP.
STOCK OPTIONS. A stock option represents the right to shares of common
stock that underlie such option in exchange for the payment of the exercise
price. The exercise price for a stock option is determined by the compensation
committee and may be less than the fair market value of the underlying shares on
the date of the grant. Options may be subject to vesting restrictions that
prohibit any exercise until such time that the option, or a portion thereof, is
vested. Vesting may be contingent upon a participant's continued employment with
us or our subsidiaries for a certain period of time or it may be contingent upon
the achievement of performance goals that are determined by the committee. A
qualified stock option is a stock option that qualifies as an "incentive stock
option" under Section 422 of the Internal Revenue Code. In order to qualify as
an incentive stock option, the terms of a stock option must comply with certain
requirements that are set forth in Section 422 including maximum thresholds that
may be offered certain employees, holding periods, mandatory levels of exercise
prices and other criteria. The exercise price of each share of common stock
subject to an incentive stock option may not be less than the fair market value
of such share on the date the option is granted. Accordingly, a participant will
only realize value from his or her incentive stock option award if the value of
our common stock increases above the exercise price. The holder of an incentive
stock option is entitled to certain tax advantages upon exercise. As mentioned
above, none of the stock options that have been issued to date under the ICP
have been incentive stock options. As of May 3, 2000, stock options exercisable
for 709,000 shares of common stock were outstanding under the ICP.
FORFEITURE OF AWARDS. In the event that a participant in the ICP ceases to
provide services to us and our subsidiaries by reason of such participant's
death or disability, such participant, or his or her estate, shall have up to a
period of twelve months to exercise any vested options. In the event that a
participant in the ICP cease to provide services to us and our subsidiaries for
reasons other than death, disability or as a consequence of the participant's
misconduct, such participant will have up to ninety days to exercise his or her
vested options. Under the circumstances described in the prior two sentences,
the subject participants will forfeit any unvested stock options. If a
participant is asked by us to cease providing services to it as a consequence of
his or her misconduct, all such participant's options will immediately lapse and
become void.
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<PAGE> 69
EMPLOYMENT AGREEMENTS
Of the Named Executive Officers, only Mr. Barrett has an employment
agreement with us. All the other Named Executive Officers are employed at will.
BARRETT EMPLOYMENT AGREEMENT. Pursuant to an employment agreement between
us and Mr. J. Patrick Barrett, Mr. Barrett serves as our President and is
entitled to an initial annual base salary of $150,000 and an annual bonus of at
least $100,000. During the last fiscal year, Mr. Barrett received a salary of
$207,538 and a bonus of $200,000. After the initial term, which expired on March
31, 2000, the agreement will automatically renew for successive one-year terms,
provided that either we or Mr. Barrett may terminate his employment agreement
with at least 90 days prior written notice and we may terminate him with cause
at any time. Mr. Barrett's employment agreement was renewed for an additional
year as of March 31, 2000. Mr. Barrett's employment agreement restricts him from
competing with us during the term of the agreement and for two years after
termination of his employment.
As part of his employment agreement, in 1998, Mr. Barrett was granted
options for 100,000 shares of Class A common stock which are fully vested. The
agreement was modified on May 28, 1999 to provide Mr. Barrett with 150,000
additional stock options that vest and are exercisable upon certain events
including an initial public offering of our stock. Once vested, Mr. Barrett may
exercise his stock options at any time provided that each exercise must be for
at least 25,000 shares. To the extent that Mr. Barrett exercises options to
purchase shares of Class A common stock after March 31, 2001, and those shares
are not freely resaleable in a public market, then during the thirteen months
following each exercise of the option, Mr. Barrett has the right to require us
to redeem up to forty percent of the shares of Class A common stock issued on
exercisable options at a price equal to the fair market value of those shares.
DESIGNATION TO OUR BOARD OF DIRECTORS
So long as Niagara Mohawk Energy and Opinac collectively have beneficial
ownership of a minimum of 10% of the outstanding shares of Class A common stock,
Kevin Kelly and Brian Kelly have agreed to vote their shares of our capital
stock in favor of the election of Opinac and Niagara Mohawk Energy's two
designees to our board of directors provided that the representation of the
directors is in proportion to Niagara Mohawk Energy and Opinac's ownership of
Class A common stock . If Niagara Mohawk Energy and Opinac's collective
ownership falls below 10%, but remains equal to or greater than 5%, they will
collectively be entitled to appoint only one person to our board of directors.
If Niagara Mohawk Energy and Opinac's collective ownership falls below 5% they
will not be entitled to designate any person to our board. Opinac and Niagara
Mohawk Energy have agreed that so long as they are beneficial owners of our
capital stock, each shall vote all of its shares in favor of the re-election of
Kevin Kelly and Brian Kelly to our board of directors. Messrs. Budney and
Frazier are Opinac's and Niagara Mohawk Energy's current designees to our board
of directors.
So long as Global Crossing and its affiliates own at least 5% of our fully
diluted voting stock or warrants, options or other convertible securities which
are exercisable for at least 5% of our fully diluted voting stock, Brian P.
Kelly, Kevin J. Kelly, William M. Kelly, Jr. and we will cause one person
designated by GC Dev to be elected to our board of directors. The designee must
be an officer or director of Global Crossing and will be subject to the consent
of Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. Until his
resignation on April 25, 2000, Thomas J. Casey, Vice Chairman and a Director of
Global Crossing, served as the GC Dev designee to our board of directors. Global
Crossing has not designated a replacement director at this time.
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<PAGE> 70
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of May 3, 2000, prior to this offering and as
adjusted to reflect:
- the issuance in May 2000 of our Series B preferred stock and related
warrants and the subsequent conversion of the Series B preferred stock
and related warrants upon completion of this offering into shares
of our Class A common stock assuming an initial public offering price of
$ per share;
- the exercise of warrants to acquire 564,227 shares of our Class A common
stock which expire upon completion of this offering, and the cancellation
and exchange of our Series A preferred stock;
- the conversion of Niagara Mohawk Energy's membership interest in Telergy
Central into shares of our Class A common stock assuming an
initial public offering price of $ per share; and
- the issuance of shares of Class A common stock in this offering
by:
- each person who we know to be the beneficial owner of more than five
percent of any class of our voting securities immediately prior to this
offering;
- each director and executive officer; and
- all directors and executive officers as a group.
We have two classes of common stock, Class A common stock and Class C common
stock. Holders of each class have identical rights, except for differences in
voting. Holders of Class A common stock have one vote per share, while holders
of Class C common stock have 90,000 votes per share.
For purposes of this prospectus, beneficial ownership of securities is
defined in accordance with the rules of the Commission and means generally the
power to vote or exercise investment discretion with respect to securities,
regardless of any economic interests therein. In accordance with these rules,
the number of shares beneficially owned and the percentage of shares outstanding
excludes outstanding stock options and warrants which are not exercisable by
July 3, 2000 or upon completion of this offering. Unless otherwise indicated,
all shares are owned directly and the indicated owner has sole voting and
dispositive power with respect thereto.
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<PAGE> 71
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES OF SHARES OF PERCENTAGE OF VOTING POWER OF ALL
CLASS A PERCENTAGE OF SHARES OF CLASS A CLASS C OUTSTANDING VOTING COMMON
COMMON COMMON STOCK OUTSTANDING COMMON STOCK
STOCK -------------------------------- STOCK ----------------------------------
BENEFICIALLY AFTER OFFERING BENEFICIALLY AFTER OFFERING
NAME OWNED BEFORE OFFERING AS ADJUSTED OWNED(11) BEFORE OFFERING AS ADJUSTED
- ---- ------------ --------------- -------------- ------------ --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Brian P. Kelly(1)........... 478,392 14.0% 50 84.1%
J. Patrick Barrett(2)....... 250,000 6.8 -- 2.0
Kevin J. Kelly(1)(3)........ 481,422 14.1 50 90.8
William M. Kelly, Jr.(1).... 482,879 14.2 -- 84.1
Nicholas A. Merrick(2)...... 15,625 * -- *
Joseph Ciancaglini(2)....... 5,000 * -- *
Steven D. Rubin............. 0 * -- *
John F. O'Mara(2)........... 30,000 * -- *
J. Phillip Frazier(4)....... 834 * -- *
Frank J. Zaccanelli(2)...... 150,000 4.2 -- 1.2
Albert J. Budney, Jr.(5).... 250 * -- *
Joel-Tomas Citron(6)........ 0 * -- *
Terence R. McAuliffe(7)..... 12,728 * -- *
Vincent F. Spina............ 500 * -- *
All directors and executive
officers as a group (14
persons)(8)............... 2,734,511 70.7 -- 91.2
GC Dev. Co., Inc.(9)........ 564,227 14.2 -- 4.4
Opinac North America,
Inc.(10).................. 453,334 13.0 -- 3.6
</TABLE>
- ---------------
* Less than one percent
(1) Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. have deposited all
of their shares of Class A common stock and Class C common stock in a
Family Voting Trust described below of which Brian P. Kelly, Kevin J. Kelly
and William M. Kelly, Jr. are voting trustees and have shared voting power.
Pursuant to the rules of the Commission, each of the Kellys will be deemed
to beneficially own all of the 1,442,693 shares of Class A common stock
(representing 42.3% of our outstanding Class A common stock before this
offering and % after this offering as adjusted) and all of the 100
shares of Class C common stock held in the Family Voting Trust
(representing all of our Class C common stock before and after the
offering).
(2) All of these shares are represented by options which are currently or will
be exercisable within 60 days of this offering either on or before July 2,
2000 or upon completion of this offering.
(3) Pursuant to the rules of the Commission, Kevin J. Kelly will be deemed to
beneficially own an additional 826,881 shares of Class A common stock held
in the Third Party Voting Trust described below of which Kevin J. Kelly is
the voting trustee. The shares held in the Third Party Voting Trust
combined with the shares Kevin J. Kelly will be deemed to beneficially own
in the Family Voting Trust, represent 66.5% of our outstanding Class A
common stock before this offering and % after this offering as
adjusted.
(4) Mr. Frazier is President and Chief Executive Officer of Niagara Mohawk
Energy, an affiliate of Opinac North America. Excludes 103,334 shares of
Class A common stock held by Niagara Mohawk Energy, with respect to which
Mr. Frazier disclaims beneficial ownership.
(5) Mr. Budney is President and a director of Niagara Mohawk Holdings Inc., and
Chief Executive Officer of Opinac North America. Excludes 350,000 shares of
Class A common
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<PAGE> 72
stock beneficially owned by Opinac North America, with respect to which Mr.
Budney disclaims beneficial ownership.
(6) Mr. Citron is Vice Chairman, President and Chief Executive Officer of
MasTec. Excludes warrants to acquire 171,250 shares of Class A common
stock, exercisable within 60 days of this offering, held by MasTec, with
respect to which Mr. Citron disclaims beneficial ownership.
(7) Includes warrants to acquire 7,728 shares of Class A common stock, all of
which are exercisable within 60 days of the date of this offering.
(8) Includes options to acquire 442,728 shares which are exercisable within 60
days after this offering. Also includes all shares held in the Family
Voting Trust and the Third Party Voting Trust. The address for all of the
executive officers and directors of Telergy is One Telergy Parkway, East
Syracuse, New York 13057.
(9) GC Dev is an indirect wholly-owned subsidiary of Global Crossing. Includes
warrants to acquire up to 564,227 shares of Class A common stock. If not
exercised, the warrants will expire simultaneously with the completion of
this offering. Excludes 404,576 shares of Series A preferred stock issued
to Global Crossing on September 9, 1999 that include only limited voting
rights. Global Crossing's address is Wessex House 45 Reid Street, Hamilton
HM12, Bermuda.
(10) Includes 353,334 shares of Class A common stock, and warrants to acquire
100,000 shares of Class A common stock, which are exercisable at any time
on or prior to May 10, 2004 and may be exercised within 60 days of the date
of this offering. Of the 353,334 shares of Class A common stock, 103,334
shares are held by Niagara Mohawk Energy, an affiliate of Opinac North
America. Opinac North America's address is 300 Erie Blvd., West Syracuse,
New York 13202.
(11) No shares of Class C common stock will be sold in this offering.
As of May 3, 2000, we had outstanding warrants to purchase 1,279,709 shares
of our Class A common stock and options to acquire 709,000 shares of our Class A
common stock, excluding contingent warrants issued with our Series B preferred
stock.
As of May 3, 2000, there were 100 shares of Class C common stock
outstanding. All 100 shares of Class C common stock are held in the Family
Voting Trust described below of which Brian P. Kelly, Kevin J. Kelly and William
M. Kelly, Jr. are voting trustees and have shared voting and dispositive power.
VOTING TRUST ARRANGEMENTS
FAMILY VOTING TRUST
Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. are parties to a
voting trust agreement formed in December 1999. As of May 3, 2000, 1,442,693
shares of Class A common stock and 100 shares of Class C common stock remain in
the voting trust. Brian P. Kelly presently has 478,392 shares of Class A common
stock and 50 shares of Class C common stock in the voting trust. Kevin M. Kelly
presently has 481,422 shares of Class A common stock and 50 shares of Class C
common stock in the voting trust. William M. Kelly, Jr. presently has 482,879
shares of Class A common stock in the voting trust. Pursuant to the voting trust
agreement, Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. are all
voting trustees of the trust. So long as there are three trustees, the consent
of at least two of the trustees will be required to authorize any vote or
consent. If there are less than three trustees, the remaining trustees must act
unanimously. Pursuant to the voting trust agreement, Brian P. Kelly, Kevin J.
Kelly and William M. Kelly, Jr. have agreed to vote all of the voting trust
shares for the election of Brian P. Kelly and Kevin J. Kelly as our directors.
The term of this voting trust expires on December 27, 2009.
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<PAGE> 73
THIRD PARTY VOTING TRUST
On February 14, 1997, certain of our stockholders who are neither directors
nor executive officers entered into a voting trust agreement pursuant to which
they contributed their shares to a voting trust. The voting trust agreement has
been amended to add and remove stockholders from time to time. As of May 3,
2000, there were 826,881 shares of our Class A common stock held in this voting
trust. Kevin J. Kelly is the trustee and in the event of his resignation or his
inability to perform his duties at any time, Brian P. Kelly is the successor
trustee of this voting trust. The term of this voting trust expires on March 15,
2003.
DESIGNATION TO OUR BOARD OF DIRECTORS
We have entered into an agreement with Niagara Mohawk Energy and Opinac
regarding their right to appoint members to our board of directors and their
agreement to vote to elect Kevin J. Kelly and Brian P. Kelly to our board of
directors. We have also entered into an agreement with GC Dev regarding their
right to appoint one person to our board of directors. See
"Management -- Designation to our Board of Directors."
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIPS WITH THE KELLY FAMILY
Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr., directors,
executive officers and the principal stockholders of Telergy, are also the
principal shareholders of KCI Long Distance Inc., or KCI, a long distance
telecommunications company, and WorldNet Communications, Inc., which does
business under the name TMS, a system engineering corporation specializing in
healthcare, rental, resale and administrative services under the name TMS. In
1996, Telergy, which was formerly a subsidiary of KCI, was spun-off from KCI in
a tax-free transaction. During 1996 and 1997, we shared office space and
management and administrative services with KCI and TMS.
During 1997, we paid general expenses of KCI and TMS totaling $59,992 and
$60,465, respectively. KCI paid our general expenses in the amount of $141,438.
KCI provided certain consulting services to and agreed not to compete with us,
through December 31, 1997, for a one-time payment of $250,000. We purchased
certain fixed assets and KCI's commercial customer base for $1,250,000, the
Telergy service mark for $150,000, and miscellaneous assets totaling $49,241.
TMS provided certain consulting services to us and agreed not to compete with
Telergy Central, through December 31, 1997, for a one-time payment from us of
$200,000.
During 1998, we paid general expenses of KCI totaling $80,850. KCI paid our
general expenses in the amount of $77,075. We allocated certain overhead costs,
primarily for rent, telephone, salaries and equipment expenses, to TMS in the
amount of $132,960. We purchased from KCI its residential customer base for
$150,000 and the rights to the Telergy Canadian service mark for $150,000.
During 1999, KCI paid our general expenses in the amount of $61,785. We
provided certain consulting services to TMS for a one-time payment of $246,974.
We currently share office space and management/administrative services with TMS.
TMS owned 1,899 shares of our Class A common stock at December 31, 1999.
In March 2000, the stockholders of KCI approved the dissolution of the
corporation and KCI is currently in the process of winding down its operations.
RELATIONSHIPS WITH J. PATRICK BARRETT
J. Patrick Barrett, who is our President and a Director, is the sole
shareholder and a director of Syracuse Executive Air Service, Inc. which has
provided us with charter air services since 1997. We have paid Syracuse
Executive Air Service $22,000, $112,000 and $304,000 for such services in 1997,
1998 and 1999, respectively.
Pursuant to Mr. Barrett's employment agreement, we have granted Mr. Barrett
options to acquire 250,000 shares of Class A common stock at an exercise price
of $0.01 per share. Of such options, 100,000 are exercisable at any time prior
to April 1, 2008, and the balance is exercisable upon certain events, including
an initial public offering of common stock.
On April 30, 1999, Mr. Barrett loaned $500,000 to the Company. The loan was
an open account loan with no stated interest. The loan was repaid in full on May
12, 1999.
RELATIONSHIPS WITH TERENCE R. MCAULIFFE
During 1999, we incurred a fee of $1.2 million payable to Terence R.
McAuliffe, one of our directors, for assisting us in raising equity capital. We
paid this fee in 2000.
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RELATIONSHIPS WITH NIAGARA MOHAWK AND ITS AFFILIATES
NIAGARA MOHAWK ENERGY
CONVERSION RIGHTS. We own 75% of Telergy Central and Niagara Mohawk
Energy, a subsidiary of Niagara Mohawk, owns 25% of Telergy Central. Upon the
completion of this offering, Niagara Mohawk Energy is required to sell, and we
are required to purchase, its 25% interest in Telergy Central and its related
indefeasible rights-of-use. Niagara Mohawk Energy may use the proceeds of the
sale to acquire shares of our Class A common stock at the initial public
offering price. Our agreement provides that any such sale of its interest and
indefeasible rights-of-use will be made at fair market value to be determined by
the parties or by an independent expert, provided that the purchase price for
its interest and the indefeasible rights-of-use can not be less than 10% of our
value. See "Business -- Operating and Corporate Governance Agreements".
STOCK PURCHASE. In November 1998, we entered into a stock purchase
agreement pursuant to which Niagara Mohawk Energy acquired 83,334 shares of
Class A common stock at $120 per share for an aggregate purchase price of $10.0
million. See "Principal Stockholders". We agreed in the stock purchase agreement
to provide Niagara Mohawk Energy with a 20% per year current return on its
investment as well as a capital return. See "Description of Capital
Stock -- Minimum Returns on Investment". We also granted Niagara Mohawk Energy
and Opinac North America, Inc. the right to appoint members to our board of
directors. See "Management -- Designation to our Board of Directors". We also
granted Niagara Mohawk Energy piggyback registration rights. See "Description of
Capital Stock -- Registration Rights".
CONSULTING SERVICES. Niagara Mohawk Energy has provided consulting
services in connection with establishing the fiber optic network to us. Fees for
these services were $108,000 in 1997, $4,000 in 1998 and $264,000 in 1999.
OPINAC
STOCK PURCHASE. In May 1999, in exchange for $30.0 million, we issued to
Opinac, an affiliate of Niagara Mohawk Energy, an 8% subordinated convertible
note due 2001 in the principal amount of $25.0 million, 41,666 shares of our
Class A common stock and a warrant initially exercisable into 100,000 shares of
Class A common stock, with an initial exercise price of $60 per share. See
"Principal Stockholders" and "Description of Capital Stock -- Warrants". The
entire outstanding principal amount of the note was converted in June 1999 into
208,334 shares of our Class A common stock. Opinac shares the right to appoint
members to our board of directors with Niagara Mohawk Energy. See
"Management -- Designation to our Board of Directors". We also granted Opinac
piggyback registration rights. See "Description of Capital Stock -- Registration
Rights".
NIAGARA MOHAWK
RIGHTS-OF-WAY. In February 1996, Telergy Central and Niagara Mohawk
entered into a right-of-occupancy agreement which was modified in September 1997
and as modified provides Telergy Central with non-exclusive access to Niagara
Mohawk's rights-of-way, conduit and electric distribution and transmission
system to construct, install, and operate a telecommunications network. Telergy
Central owns the backbone for the entire Telergy Central network as well as the
telecommunications equipment acquired by Telergy Central in building and
operating the Telergy Central network. Telergy Central does not, however, have
any property interest in Niagara Mohawk facilities or rights-of-way.
Telergy Central is not required to pay recurring monetary charges for the
use of Niagara Mohawk's rights-of-way or conduit. Instead, Telergy Central
provides Niagara Mohawk with, among other things, capacity and four dark fiber
strands in the Telergy Central network located
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in Niagara Mohawk's rights-of-way. The agreement, as modified, was approved by
the New York Public Service Commission in July 1996 and October 1997, is for a
term of 25 years, with Telergy Central having an option to renew for two
consecutive ten-year extensions. Telergy Central has agreed to exercise its
option to renew the agreement pursuant to its fiber construction and operating
agreement with Adelphia. See "-- Relationships with Adelphia".
This agreement also authorizes Telergy Central to extend the backbone
network throughout Niagara Mohawk's entire service territory in the state of New
York. However, Telergy Central's extensions may not interfere with any Niagara
public utility obligations. In addition, the agreement requires that Telergy
Central obtain Niagara Mohawk's consent prior to selling or otherwise
transferring any of its assets and grants Niagara Mohawk a right of first
refusal to purchase any Telergy Central assets prior to sale to a third party.
If Niagara Mohawk's rights-of-way are required for Niagara Mohawk's gas and
electric business, Niagara Mohawk will exercise a best efforts approach for
Telergy Central's continued use of the rights-of-way, but where this is not
appropriate, Niagara Mohawk, at Telergy Central's expense, will pull in and
attach Telergy's fiber optic ground wire on the rebuilt or relocated sections of
the rights-of-way. If any portion of the rights-of-way along Telergy Central's
backbone is appropriated, then the rights-of-occupancy granted to Telergy
Central will terminate, with any award from the appropriated property
specifically allocated in accordance with Telergy Central's interest. In the
event that a governmental agency requires that Niagara Mohawk terminate Telergy
Central's right-of-occupancy, Niagara Mohawk will remove and return Telergy
Central's transmission systems, at Telergy Central's expense.
Niagara Mohawk has the right to terminate the agreement if:
- Telergy Central's facilities violate any law;
- Telergy Central ceases to have authority to construct or operate its
facilities;
- Telergy Central violates the agreement or uses Niagara Mohawk facilities
without permission;
- Telergy Central ceases to provide telecommunications services over its
facilities;
- Telergy Central's facilities or rights-of-way are used by third parties
without the consent of Niagara Mohawk;
- the New York Public Service Commission or Federal Communications
Commission makes a determination that the agreement would make Niagara
Mohawk a telephone corporation; or
- Telergy Central can not maintain the required insurance.
If Telergy Central terminates the agreement, or the operation and
maintenance of the Telergy Central network, during the initial 25-year term
without the written approval of Niagara Mohawk, Telergy Central must pay to
Niagara Mohawk $7,000 per mile (reduced annually by one/twenty-fifth) of Niagara
Mohawk's rights-of-way effected and make business arrangements for the provision
of equivalent capacity granted to Niagara Mohawk under this agreement.
RELATIONSHIPS WITH CONED
RIGHTS-OF-WAY. In January 1998, Telergy Metro entered into a license and
operating agreement with ConEd pursuant to which ConEd granted Telergy Metro a
non-exclusive license to construct, install, operate and maintain the Telergy
Metro network through the use of ConEd's rights-of-way from Pleasant Valley to
and throughout New York City. As part of the agreement, Telergy Metro has access
to ConEd's conduit, facilities and building entrances in exchange for primarily
20 strands of dark fiber and telecommunications services along with an annual
cash payment. Although the license is non-exclusive, ConEd agreed not to grant
any third party rights
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with respect to the rights-of-way that would substantially interfere with
Telergy Metro's rights. In addition, Telergy Metro retains title to all portions
of the Telergy Metro network, including any spur routes. The agreement, which
was approved by the New York Public Service Commission in May 1998, provides for
a 25-year term, with Telergy Metro having an option to extend the agreement for
ten years. In addition, the agreement provides for a second extension, at the
option of Telergy Metro, for an unspecified period to be negotiated by the
parties.
If Telergy Metro decides to install more than one cable through ConEd's
rights-of-way, ConEd has the right to determine the number of additional fiber
optic cables which may be installed by Telergy Metro in ConEd's rights-of-way,
which may not exceed three cables. In addition, the location of spur routes off
of the backbone and the amount of compensation to be paid to ConEd for such spur
routes must be agreed in writing by ConEd and Telergy Metro. The Telergy Metro
network may not interfere with any existing or future generation or distribution
of electricity, gas or steam by ConEd.
Telergy Metro's annual cash payment to ConEd may be reduced by volume
discounts and any equivalent compensation ConEd elects to receive. Such
equivalent compensation includes the use of dark fiber strands with the
associated lightwave distribution patch panels and/or any non-usage based
telecommunications services that Telergy Metro provides, including network
capacity, telephone services and private line circuits. ConEd has initially
elected to receive the use of ten single mode dark fiber strands between its
substations located at Pleasant Valley and Millwood West and 20 single mode dark
fiber strands between Millwood West and its substation located at Hudson Street,
Manhattan, together with use of lightwave distribution patch panels and other
fiber optic facilities. If Telergy Metro installs a second fiber optic cable,
ConEd has initially elected to receive, as equivalent compensation, the use of
ten single mode dark fiber strands from Pleasant Valley to Millwood West,
together with the use of lightwave distribution patch panels and other fiber
optic facilities.
If any portion of the Telergy Metro network or any spur route required by
any governmental authority to be relocated due to its interference with any
public project, then Telergy Metro will reimburse ConEd for a portion of the
costs and expenses of the relocation, based on the percentage of cables, wires,
or other equipment belonging to Telergy Metro as opposed to other entities. If
ConEd determines, in its sole discretion, that it requires any portion of the
rights-of-way for any public utility purpose, or any portion of ConEd's property
is sold or demolished, or any law or regulation requires that any portion of the
Telergy Metro network be removed, then Telergy Metro must remove its network and
any spur routes on ConEd's property at its own expense.
Either party may terminate the agreement upon breach (subject to notice and
a 30-day cure period), provided that ConEd may terminate upon shorter notice if
Telergy Metro interferes with any contract, lien or easement affecting ConEd's
property or immediately upon sending written notice that Telergy Metro
interferes with any public utility purpose.
RELATIONSHIPS WITH NYSEG
RIGHTS-OF-WAY. In June 1998, Telergy East entered into a
right-of-occupancy agreement with NYSEG in which NYSEG granted Telergy East a
non-exclusive license to use the conduit, facilities and abandoned gas pipeline
of NYSEG along its current and future rights-of-way in the southern tier of New
York State. Although the license is non-exclusive, NYSEG agreed not to grant any
third party rights with respect to the rights-of-way that would interfere with
Telergy East's rights. Telergy East has access to NYSEG's rights-of-way,
conduit, facilities, abandoned gas pipeline and building entrances primarily in
exchange for six strands of dark fiber along the entire length of any spur
constructed or installed in a NYSEG rights-of-way. The agreement, which was
approved by the New York Public Service Commission in September 1998, provides
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for a 25-year term, with Telergy East having an option to renew for two
consecutive ten-year extensions.
Consistent with its public service obligations, Telergy East's activities
in NYSEG's rights-of-way may not interfere with any generation, transmission, or
distribution of electricity, gas or steam by NYSEG or with any customer service
work relating to such NYSEG operations, violations of which may result in the
termination of the agreement. If Telergy East's right-of-occupancy is terminated
by NYSEG due to government regulations or requirements, Telergy East must remove
its transmission systems, including conduit, cables and fiber strands, at its
own expense. In the event that NYSEG wants to abandon the property used by
Telergy East, NYSEG may terminate a portion of Telergy East's
right-of-occupancy. NYSEG will, however, on a best efforts basis, attempt to
provide other rights-of-way to meet Telergy East's needs but Telergy East must
relocate its transmission systems in other NYSEG or third-party rights-of-way at
its own expense.
Telergy East or NYSEG may also terminate the agreement due to breach of the
agreement by the other party (subject to notice and a 30-day cure period) and
upon the other party dissolving or liquidating or becoming involved in any act
of bankruptcy.
RELATIONSHIPS WITH GPU TELCOM
INDEFEASIBLE RIGHTS-OF-USE. Our wholly-owned subsidiary, Telergy
Operating, on behalf of its telecommunications operating subsidiaries, has
entered into an indefeasible rights-of-use agreement with GPU Telcom under which
the parties will exchange indefeasible rights-of-use in dark fiber along
specific paths of their respective networks. We will provide GPU Telcom with
indefeasible rights-of-use in 24 strands of dark fiber in three segments of our
network:
- from Albany, New York to Buffalo, New York and from Albany, New York to
Pleasant Valley, New York;
- from Pleasant Valley, New York to New York, New York; and
- from Albany, New York to Montreal, Quebec.
In exchange, GPU Telcom will provide us with indefeasible rights-of-use in
five segments of its network:
- from Altoona, Pennsylvania to Erie, Pennsylvania (8 strands);
- from Altoona, Pennsylvania to Harrisburg, Pennsylvania (4 strands);
- from Harrisburg, Pennsylvania to Philadelphia, Pennsylvania (24 strands);
- from Philadelphia, Pennsylvania to New York, New York and from
Philadelphia, Pennsylvania to Washington, D.C. (24 strands); and
- from Philadelphia, Pennsylvania to Atlantic City, New Jersey (24
strands).
The agreement provides that each party will obtain all necessary
rights-of-ways, permits, franchises and other rights necessary to complete its
respective segments and complete construction of those segments as promptly as
possible, with a target completion date for all segments of December 31, 2000
and an outside completion date of March 31, 2001. The parties will receive their
respective indefeasible rights-of-use upon completion and acceptance of all of
the necessary segments of both networks. However, we may agree with GPU Telcom
to an earlier delivery of the indefeasible rights-of-use on a segment-by-segment
basis. If either party fails to have any of its segments completed by March 31,
2001, that party must provide the other party with an equivalent amount of
substitute fiber between the end locations of each uncompleted segment, in which
case the party who receives substitute fiber need not deliver its segments to
the other party pending completion of the uncompleted segments. The agreement
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further provides that if either party fails to complete any of its segments
before March 31, 2001 and also fails to provide substitute fiber as described
above the party whose segments remain uncompleted will pay the other liquidated
damages in an amount equal to $1,180 annually per strand per uncompleted fiber
mile.
The parties also agreed to reciprocal maintenance terms on the fiber
strands provided to the other party and agreed to use their commercially
reasonable efforts to make colocation space available to the other along the
path of the segments. The agreement provides for a term of 20 years.
CONSTRUCTION ARRANGEMENTS. Telergy MidAtlantic has entered into a
construction operating agreement with GPU Telcom under which GPU Telcom will
construct, install and maintain a fiber optic network for Telergy MidAtlantic in
the rights-of-way and facilities of certain utilities affiliated with GPU
Telcom. These rights-of-ways and facilities are located primarily in New Jersey
and Pennsylvania. GPU Telcom will serve as Telergy MidAtlantic's exclusive
provider of construction, installation and maintenance services with respect to
Telergy MidAtlantic's network. Upon the request of Telergy MidAtlantic, GPU
Telcom will construct and install the network and deliver an indefeasible
rights-of-use to Telergy MidAtlantic. The term of the construction agreement is
20 years, with an option for Telergy MidAtlantic to extend the term for two
consecutive five-year periods. The term of any indefeasible rights-of-use
conveyed in connection with this agreement is 20 years from the date the
applicable segment is accepted. GPU Telcom will be entitled to a fee at then
prevailing competitive rates for its construction, installation and maintenance
services, and this fee shall also constitute payment for the indefeasible
rights-of-use. If an indefeasible rights-of-use is conveyed in an already
existing fiber optic network, the fee payable will be based on prevailing
competitive per mile rates for the indefeasible rights-of-use. Upon the
dissolution of Telergy MidAtlantic, it may assign the rights under the
construction agreement to our wholly-owned subsidiary, Telergy Network Services.
STOCK PURCHASE. In May 2000, GPU Telcom purchased 52,220 shares of our
Series B preferred stock for an aggregate purchase price of $20.0 million, or
$383 per share. The Series B preferred stock will automatically convert, on a
one-to-one basis, subject to adjustment, into Class A common stock upon the
completion of this offering. As part of this transaction, we granted GPU Telcom
contingent warrants to acquire shares of Class A common stock to enable GPU
Telcom to attain a minimum 20% internal rate of return on its investment if the
value of the shares of Class A common stock to be issued upon conversion of the
Series B preferred stock does not provide GPU Telcom with an internal rate of
return of at least 20%. These warrants will be exercisable for a number of
shares of Class A common stock with a value equal to the initial public offering
price that will enable GPU Telcom to attain its 20% minimum internal rate of
return. Assuming an initial public offering of $ per share, the Series B
preferred stock and related warrants will be converted into shares of our
Class A common stock upon completion of this offering. See "Description of
Capital Stock -- Series B Preferred Stock". We have granted GPU Telcom both
demand and piggyback registration rights. See "Description of Capital
Stock -- Registration Rights".
BILLING SERVICES. Telergy MidAtlantic has entered into a billing services
agreement with Telergy Network Services pursuant to which Telergy Network
Services has agreed to perform billing, collection and customer care services
for Telergy MidAtlantic. Under the agreement, Telergy Network Services will bill
Telergy MidAtlantic for its services at customary rates to be agreed upon by the
parties.
RELATIONSHIPS WITH TELEGLOBE
STOCK PURCHASE. On May 6, 1999, Teleglobe purchased 125,000 shares of
Class A common stock from us for $15.0 million. We have agreed to provide
Teleglobe with a 20% per year current return on its investment as well as a
capital return. See "Description of Capital Stock --
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Return on the Investment by Certain of our Investors". We have granted Teleglobe
piggyback registration rights. See "Description of Capital Stock -- Registration
Rights".
MASTER SERVICES. On May 26, 1999, we entered into a master services
agreement with Teleglobe, pursuant to which Teleglobe established a $15.0
million three-year account that we can draw against for network management
services. Pursuant to this agreement we provided Teleglobe with a $15.0 million
three-year fiber credit account. Teleglobe will draw on this account to acquire
20 to 25 year indefeasible rights-of-use installed in our networks. Teleglobe
will have the right to collocate its equipment and receive colocation services
pursuant to the terms of an indefeasible rights-of-use agreement between us and
Teleglobe. We are required to increase Teleglobe's account by certain amounts if
we fail to meet certain enumerated milestones for the completion of our network.
RELATIONSHIPS WITH GLOBAL CROSSING
INDEFEASIBLE RIGHTS-OF-USE. On September 9, 1999, Telergy Metro and US
Crossing, Inc., a wholly-owned subsidiary of Global Crossing, entered into an
agreement for Telergy Metro to provide US Crossing with an indefeasible
rights-of-use in 96 strands of dark fiber in up to 100 miles in our New York
City ring for a minimum of 20 years. The agreement provides that we must deliver
an indefeasible rights-of-use in our Manhattan ring on or before December 31,
2000 and deliver an indefeasible rights-of-use in our planned New York City ring
on or before December 31, 2002. In the event we fail to deliver the indefeasible
rights-of-use on or before these dates, we will be liable for liquidated damages
in the amount of $25,000 per day up to $2.5 million. In the event we fail to
deliver an indefeasible rights-of-use in our Manhattan ring on or before March
1, 2001, liquidated damages will not be the sole remedy available to US
Crossing. Telergy provided a guarantee of Telergy Metro's performance under this
agreement. We have also agreed to construct additional building entrances that
are within a certain distance from the New York City ring through available
ConEd rights-of-ways and service entrance pipes. US Crossing is required to pay
its pro rata share of all costs associated with constructing those building
entrances.
In exchange for the indefeasible rights-of-use, US Crossing has agreed to
pay annual maintenance fees and to provide various forms of operational support.
US Crossing will further explore its use of our facilities to:
- terminate traffic on our networks in markets not served by the New York
City ring;
- provide back-up redundancy to US Crossing in areas we serve; and
- terminate traffic in and throughout New York City which US Crossing can
not transmit because of capacity overload, disruption or otherwise.
US Crossing has also agreed to meet quarterly for the first year and bi-annually
thereafter to discuss these uses and to assist in our development of new
products and services, planning joint development and marketing of new products,
providing Telergy access to US Crossing training and to advise Telergy of any US
Crossing intellectual property that is available for licensing. US Crossing has
agreed to provide Telergy colocation space in Telergy's operating areas in the
United States where US Crossing has such space available. US Crossing has
further agreed to provide capacity and services on its global network if
available at discounts between 5% and 15% off of list prices that would
otherwise apply. US Crossing has also agreed to participate in the preliminary
design of a Long Island spur route and, subject to final agreement between the
parties, joint construction and installation of that spur route.
We have had conversations with representatives of Global Crossing regarding
our build-out in the Empire City Subway rights-of-way in Manhattan. In one of
those conversations, a representative of Global Crossing indicated that he
believed that they may be entitled to
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additional fiber as part of their agreement with us. We do not believe that our
current contract requires us to deliver more fiber than described above.
STOCK PURCHASE. On September 9, 1999, GC Dev, a subsidiary of Global
Crossing, purchased for approximately $40.0 million, 404,576 shares of our
Series A preferred stock and warrants to purchase up to 564,227 shares of our
Class A common stock. See "Description of Capital Stock -- Warrants" and
"Description of Capital Stock -- Series A Preferred Stock". We have also granted
GC Dev demand and piggyback registration rights. See "Description of Capital
Stock -- Registration Rights".
In connection with GC Dev's purchase of our Series A preferred stock and
warrants, we, Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. have
agreed with GC Dev as follows:
DESIGNATION TO OUR BOARD OF DIRECTORS. So long as Global Crossing and
its affiliates own at least 5% of our fully diluted voting stock or
warrants, options or other convertible securities which are exercisable for
at least 5% of our fully diluted voting stock, Brian P. Kelly, Kevin J.
Kelly, William M. Kelly, Jr. and we will cause one person designated by GC
Dev to be elected to our board of directors. The designee must be an
officer or director of Global Crossing and will be subject to the consent
of Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. Until his
resignation on April 25, 2000, Thomas J. Casey, Vice Chairman and Director
of Global Crossing, served as the GC Dev designee to our board of
directors. Global Crossing has not designated a replacement director at
this time.
TAG-ALONG RIGHTS. If Brian P. Kelly, Kevin J. Kelly and William M.
Kelly, Jr. or their affiliates propose to sell any of the common stock that
they own to a third party, other than in a public offering, GC Dev has the
right to require the third party to purchase a proportionate number of its
common shares (based on their respective ownership percentages in Telergy),
at the same price per share and upon the same terms and conditions as the
proposed sale to the third party. These tag-along rights will terminate on
the date when the Class A common stock owned by Global Crossing or its
affiliates or issuable upon exercise of its warrant constitutes less than
5% of our fully diluted voting stock.
DRAG-ALONG RIGHTS. If Brian P. Kelly, Kevin J. Kelly and William M.
Kelly, Jr. receive and accept an offer from a third party to purchase,
other than in a public offering, 100% of our common stock then outstanding,
GC Dev has the obligation, if so requested by Brian P. Kelly, Kevin J.
Kelly and William M. Kelly, Jr., to sell all of its voting stock of the
same class to the third party, on the same terms and conditions as those
given to Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. These
drag-along rights will terminate on the date when the Class A common stock
owned by Global Crossing or its affiliates or issuable upon exercise of its
warrant constitutes less than 5% of our fully diluted voting stock.
PREEMPTIVE RIGHTS. If we propose to issue or sell any shares of
common stock to Niagara Mohawk Energy in connection with its sale to us of
its 25% membership interest in Telergy Central, and if no adjustment in the
exercise price and number of shares issuable upon the exercise of GC Dev's
warrants have been made as a result of such issuance, we must also offer to
sell to GC Dev, on the same terms and conditions, GC Dev's pro rata portion
of any of the shares we are issuing or selling. GC Dev's pro rata portion
will be the amount of shares necessary to ensure that GC Dev's fully
diluted common stock ownership percentage is not reduced by such sale or
issuance.
RELATIONSHIPS WITH MASTEC
OVERVIEW. Joel-Tomas Citron, who is one of our directors, is also Vice
Chairman, President and Chief Executive Officer and a director of MasTec. MasTec
provided us with a $50.0 million revolving credit facility for network
construction that we repaid in full in September 1999 and the
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credit facility has since been terminated. MasTec now provides services billable
as ordinary trade payables. We have issued MasTec a warrant exercisable for
171,250 shares of our Class A common stock in connection with the credit
facility. See "Description of Capital Stock -- Warrants". We have granted MasTec
piggyback registration rights. See "Description of Capital Stock -- Registration
Rights".
CONSTRUCTION. In May 1998, Telergy entered into an agreement with MasTec
North America, Inc. pursuant to which MasTec became our infrastructure service
provider for construction, commercial plant, wiring and installation and our
preferred procurer of certain materials and equipment, including fiber and
conduit. The agreement is automatically terminable by MasTec in its sole
discretion at any time. During the term of the agreement, so long as MasTec's
pricing, terms and conditions remain competitive, we have agreed to use MasTec
as our construction contractor for all fiber construction and installation
projects.
RELATIONSHIPS WITH MCI WORLDCOM
In October 1998, Telergy Network Services entered into an agreement with
Metrix, which has since been acquired by MCI WorldCom, to jointly build a fiber
optic network from Montreal to Albany. The parties have completed construction
of the Montreal backbone using Metrix's technical specifications. Metrix
completed the build from the U.S./Canadian border to Montreal and we constructed
the portion of the build from the border to Albany. The parties have installed
six conduits, with Metrix owning the portion of the network in Canada and
Telergy Network Services owning the portion of the network in the United States.
We have exclusive ownership, control and access to four conduits, which are in
the form of an indefeasible rights-of-use on the Canadian side; Metrix has one
conduit, which is in the form of an indefeasible rights-of-use on the U.S. side,
and the remaining conduit in which the initial fibers are installed is shared
between us (108 strands) and Metrix (36 strands).
Pursuant to a long distance telephone service resale agreement with MCI
WorldCom, we are required to purchase a minimum of $100,000 per month of
services from MCI WorldCom in order to receive certain volume discounts. In the
event we fail to meet our minimum commitment, we must pay a deficiency charge
equal to the difference between the monthly commitment and the actual revenue so
that MCI WorldCom is guaranteed its $100,000 minimum monthly revenues. We have
consistently met our minimum commitments.
RELATIONSHIPS WITH ADELPHIA
In February 1997, we and Telergy Central entered into a strategic
relationship with Hyperion Telecommunications of New York, which has since been
renamed Adelphia, under which we together will fund the construction of local
loops in upstate New York. In addition, in connection with $20.0 million in
financing provided by Adelphia, we and Telergy Central entered into several
agreements with Adelphia. Pursuant to these agreements, Adelphia received (1) a
fully prepaid lease from Telergy Central of 24 strands of dark fiber installed
in the backbone of the Telergy Central network for the maximum term of our
right-of-occupancy agreement with Niagara Mohawk, including the two ten-year
renewal options which Telergy Central is obligated to exercise and (2) a fully
prepaid lease from us for 25 years for 24 strands of dark fiber in our backbone
from Albany to New York City.
In a subsequent amendment, Adelphia waived its right to receive 24 strands
of dark fiber in our Portland/Boston networks and to extend the date to provide
four dark fiber strands in our New York City network. In exchange, we paid $5.2
million to Adelphia and agreed to (1) provide Adelphia with access to four
strands of dark fiber from Syracuse through Auburn to Ithaca and Binghamton at
no additional charge, and (2) waive maintenance and colocation fees for the
fibers delivered under the original agreement. We and Adelphia have also granted
each other
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<PAGE> 83
preferred status for rates, terms and conditions with regard to obtaining access
to commercially available capacity in certain cities on each other's networks.
In the event of any relocation due to Telergy's or Niagara Mohawk's
business, Telergy will exercise its best efforts to provide for Hyperion's
continued use of Telergy's facilities. However, where such continued use is not
feasible, Telergy will pull in and attach Adelphia's connection at its own
expense. For any relocations at the request of Hyperion for its own business
purposes, Adelphia will pay all relocations costs. In the event of a relocation
due to the requirements of any government authority, Adelphia will pay its pro
rata share of relocation costs based on the number of strands of fiber leased to
Adelphia compared to the total number of strands of fiber in the conduit or on
the poles, as the case may be.
RELATIONSHIPS WITH NORTEL
In February 1999, we and Telergy Network Services entered into a series of
transactions with Nortel which provide for:
- a $30.0 million loan, which we may use to purchase Nortel products and
services for Telergy Network Services. The obligation to provide these
funds terminates on the date of the third anniversary and full funding of
the loan. As of December 31, 1999, we borrowed and repaid $5.3 million,
leaving $24.7 million available under this facility; and
- an Authorized Dealer Agreement pursuant to which Telergy Network Services
markets, leases, rents to or sells certain Nortel equipment throughout
the United States.
This relationship with Nortel provides us with the opportunity to purchase
telecommunications equipment to operate, maintain and support our network.
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<PAGE> 84
DESCRIPTION OF CAPITAL STOCK
As of May 3, 2000, our authorized capital stock consisted of 9,999,900
shares of Class A common stock, par value $0.0001 per share, 100 shares of Class
C common stock, par value $0.0001 per share and 3,000,000 shares of preferred
stock, par value $0.0001 per share. As of May 3, 2000, there were outstanding
3,411,362 shares of Class A common stock, 100 shares of Class C common stock,
404,576 shares of Series A preferred stock and 52,220 shares of Series B
preferred stock. On such date, there were also outstanding options to purchase
709,000 shares of Class A common stock and warrants to purchase 1,279,709 shares
of Class A common stock, excluding contingent warrants issued to GPU Telcom. See
"-- Series B Preferred Stock".
COMMON STOCK
The holders of outstanding shares of Class A common stock and Class C
common stock are entitled to receive dividends when, as and if declared by our
board of directors, payable at times that our board of directors may determine.
Any dividend so declared shall be declared and paid without preference or
priority of one class of common stock over the other. Each holder of Class A
common stock is entitled to one vote for each share held and each holder of
Class C common stock is entitled to 90,000 votes for each share held on all
matters submitted to a vote of shareholders, including the election of
directors, with both classes voting as one class, except as otherwise expressly
provided by law. There is no provision for cumulative voting for the election of
directors in our certificate of incorporation, which means that the holders of
shares entitled to cast a majority of votes can elect all of the directors then
standing for election. If at any time we pay a stock dividend or distribution on
our Class A common stock, or split, subdivide, or combine the outstanding shares
of our Class A common stock, the number of votes which a share of Class C common
stock shall entitle the holder thereof to exercise shall be proportionately
adjusted so as to maintain the relative voting power of the Class C common stock
which existed prior to the occurrence of such event.
The Class A common stock and Class C common stock are not entitled to
preemptive rights and are not subject to conversion or redemption. If we
liquidate, dissolve or wind-up, the holders of shares of Class A common stock
and Class C common stock would be entitled to share ratably in the distribution
of all of our assets and funds remaining available for distribution.
SERIES A PREFERRED STOCK
In September 1999, GC Dev purchased for $40.0 million 404,576 shares of
Series A preferred stock and warrants to purchase up to 564,227 shares of our
Class A common stock at an exercise price of $98.87 per share.
The warrants owned by GC Dev expire simultaneously with this offering and
the purchase price upon exercise is payable in cash or with its Series A
preferred stock. We expect that the warrants will be exercised in full in
exchange for the cancellation of the outstanding shares of Series A preferred
stock and the payment of $ in cash. The Series A preferred stock is
redeemable at our (but not GC Dev's) option on or after two years from the date
of issuance and in other circumstances. However, if we are required to purchase
or redeem any of our outstanding Class A common stock under our existing
contractual commitments, we must offer to redeem a like amount of the Series A
preferred stock. Dividends on the Series A preferred stock accrue at an annual
rate of 8% and are payable quarterly in cash or through increases in the stated
value of the Series A preferred stock at our option, except that if we pay all
or a portion of the dividends on the common stock in cash we must pay all
accrued but unpaid dividends on the Series A preferred stock in cash from the
most recent dividend payment date to the date of such dividend. The Series A
preferred stock has no voting rights other than as required by applicable law.
The Series A preferred stock also has a liquidation preference over all other
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<PAGE> 85
preferred stock and all common stock, for its stated value, including all
accrued and unpaid dividends.
SERIES B PREFERRED STOCK
GPU Telcom purchased a total of 52,220 shares of our Series B preferred
stock, together with a contingent warrant described below, at $383 per share for
an aggregate of approximately $20.0 million. All of the outstanding Series B
preferred stock will be automatically converted, on a one-to-one basis, subject
to adjustment, into shares of Class A common stock upon the consummation of this
offering. In addition, the Series B preferred stock also includes a contingent
warrant to acquire shares of Class A common stock to enable the holder to attain
a 20% internal rate of return on its investment if and to the extent the value
of the shares of Class A common stock to be issued upon conversion of its Series
B preferred stock does not provide the holder with this minimum internal rate of
return. Based upon an assumed initial public offering price of $ , the
Series B preferred stock and related warrants will be converted into
shares of our Class A common stock upon completion of this
offering. See "Certain Relationships and Related Transactions -- Relationships
with GPU Telcom" and "--Relationships with Global Crossing".
WARRANTS
As of May 3, 2000, we had outstanding warrants to purchase 1,279,709 shares
of our Class A common stock, excluding contingent warrants issued to GPU Telcom.
See "-- Series B Preferred Stock". The number of shares issuable on exercise of
these warrants and the exercise price thereof are subject to anti-dilution
adjustments in certain circumstances. The following table summarizes the key
terms of these warrants:
<TABLE>
<CAPTION>
CLASS A SHARES
INTO WHICH
DATE OF ISSUE WARRANTS ARE EXERCISE PRICE
OF WARRANTS OWNER OF WARRANTS EXERCISABLE EXERCISABLE THROUGH PER SHARE
- ------------- ---------------------------- -------------- ----------------------- --------------
<S> <C> <C> <C> <C>
September 1, 1996 James M. Darcangelo 9,100 August 31, 2001 $ 5.00
September to Certain investors pursuant 143,041 September 1, 2001 $ 16.50
November, 1996 to a bridge loan
November 1, 1996 William F. Willoth 11,137 October 31, 2001 $ 16.50
December 1997 to Certain investors pursuant 200,890 December 31, 2002 $ 60.00
September 1998 to a bridge loan
May 10, 1999 Opinac North America, Inc. 100,000 May 10, 2004 or the $ 60.00(2)
succeeding banking day
May 12, 1999 MacTec North America Inc. 171,250 May 31, 2004 $ 60.00(2)
September 9, 1999 GC Dev. Co., Inc. 564,227 The consummation of $ 98.87(1)
this offering
September 15, 1999 Lenders under GATX facility 14,583 The later of three $120.00(2)
years from the
consummation of this
offering and September
15, 2006
November 19, 1999 Bank of America, N.A. 65,481 November 19, 2002 $120.00(2)
</TABLE>
- ---------------
(1) The exercise price for the warrants may be paid either in cash or by
surrender of Series A preferred stock.
(2) The exercise price for the warrants may be paid in cash, or, at its option,
the holder may surrender its warrants with a fair market value equal to the
exercise price.
REGISTRATION RIGHTS
As of May 3, 2000 we had granted registration rights to holders of
1,458,297 shares of our Class A common stock including shares issuable upon
exercise of outstanding warrants.
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<PAGE> 86
PIGGYBACK REGISTRATION RIGHTS. At any time we file a registration
statement to register the sale of any of our securities for our own account or
the account of any of our stockholders, holders of an aggregate of 1,458,297 of
our shares of Class A common stock and shares transferable upon exercise of
warrants may request to have their shares included in such registration
statement. The number of times such rights may be exercised is unlimited, but
the number of shares that may be included at any one time is subject to
limitations that an underwriter may impose. We will be responsible for paying
all fees and expenses of the registration other than underwriter discounts and
commissions. Certain holders' registration rights terminate once all of their
shares of Class A common stock can be sold in a single transaction under Rule
144. Among the holders of these piggyback registration rights are Niagara Mohawk
Energy, Opinac, GPU Telcom, GC Dev and MasTec.
DEMAND REGISTRATION RIGHTS. At any time following the first anniversary of
this offering, GPU Telcom may make one demand that we register its shares of
Class A common stock under the Securities Act. At any time after September 9,
2001, GC Dev may make up to two demands that we register its shares of Class A
common stock under the Securities Act. We will be responsible for paying all
fees and expenses of these demand registrations other than underwriting
discounts and commissions.
MINIMUM RETURNS ON INVESTMENT
We agreed to pay Niagara Mohawk Energy a 20% per annum simple rate of
return, referred to as the "current return," on the purchase price of $120 per
share for the 83,334 shares of Class A common stock they purchased from us in
November 1998. The payment is due annually and is payable in cash or shares of
Class A common stock valued at $100 per share, at our option. The current return
ceases to be payable on the date on which all of such shares can be sold in the
public market following this offering under Rule 144 or another exemption under
the Securities Act. We will notify Niagara Mohawk Energy of this date and will
pay the current return calculated from the last payment date of the current
return through the final payment date.
In addition, if the average closing price of Niagara Mohawk Energy's shares
on the Nasdaq National Market for the 10 trading days prior to the final payment
date is less than $180.00 per share, we are also required to pay the difference,
referred to as the "capital return," to Niagara Mohawk Energy in either cash or
shares of Class A common stock, at our option. If we pay in shares, the shares
will be valued at the average closing price of the shares on the Nasdaq National
Market for the 10 trading days prior to the payment date.
We also agreed to pay certain of our investors who purchased shares
pursuant to private placements in 1998 and in 1999 a similar current return and
capital return on 274,905 shares of Class A common stock purchased by them, in
all cases at a purchase price of $120 per share and with the current return
payable in shares of Class A common stock valued at $100 per share. Our
arrangements with the holders of 149,905 such shares provide that the capital
return must be paid in cash, not shares, and that if we pay the current return
in shares, a capital return is required to be paid on such shares as if they
were part of the group of shares originally purchased by such parties.
Our obligation to pay a current return to Niagara Mohawk Energy and the
other investors will terminate no later than 90 days after the completion of
this offering. If we had completed this offering on , 2000 we would
have been obligated to issue an additional shares of Class A Common Stock
to these investors. In addition, since the amount of any capital return which
may be payable to Niagara Mohawk Energy and such other investors will depend
upon the trading price of our Class A Common Stock after the completion of this
offering, we can not currently determine the amount of any capital return to
Niagara Mohawk Energy and these other investors.
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REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND PROPOSALS
Our by-laws will establish advance notice procedures with respect to
stockholder proposals and to the nomination of candidates for elections as
directors, other than nominations made by or at the direction of the board of
directors or a committee on the board.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our Class A common stock is
.
LISTING
We intend to make application for quotation of the Class A common stock on
the Nasdaq National Market under the symbol "TLGY".
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<PAGE> 88
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have shares of our
Class A common stock outstanding, excluding 715,482 shares issuable upon
exercise of warrants and 709,000 shares issuable upon exercise of options. For
additional information on warrants and options, see "Management" and
"Description of Capital Stock -- Warrants". All of the shares of common stock
that we sell in this offering will be freely tradable under the Securities Act
of 1933, as amended, unless acquired by one of our "affiliates" (as that term is
defined under the Securities Act).
shares of our Class A common stock (including
shares underlying warrants) which are held by stockholders who have not entered
into "lock-up" agreements with the underwriters will become eligible for sale 90
days after the date of this prospectus, subject to compliance with Rules 144 and
701 under the Securities Act. shares of our Class A common stock
(including shares underlying warrants) which are held by stockholders who have
not entered into "lock-up" agreements with the underwriters will become eligible
for sale upon the completion of this offering, subject to compliance with Rules
144 and 701 under the Securities Act. Upon the expiration of the "lock-up"
agreements between the underwriters and our directors and officers and our
securityholders, which will occur 180 days after the date of this prospectus,
the shares of our common stock (including shares underlying warrants) held by
them will become eligible for sale, subject to compliance with Rules 144 and 701
under the Securities Act.
In addition, either at the same time as this offering or immediately after
it, we plan to register under the Securities Act all of the shares of our Class
A common stock that are subject to options that we have granted under our ICP.
Once this registration is complete, up to shares of our Class A
common stock will become eligible for sale upon exercise of outstanding options.
In general under Rule 144, a person, or persons whose shares are
aggregated, who has beneficially owned common stock for at least one year
(including common stock held for one year after the date of exercise of a
warrant) will be entitled to sell in any three-month period a number of shares
that does not exceed the greater of:
- one percent of the number of shares of that class of common stock then
outstanding, or
- the average weekly trading volume of that class of common stock on the
Nasdaq National Market during the four calendar weeks immediately
preceding the date on which the notice of sale is filed with the
Securities and Exchange Commission.
Sales under Rule 144 are subject to a number of requirements relating to
the manner and notice of sale. Under the provisions of Rule 144 regarding the
availability of current public information about Telergy, sales may not be made
until 90 days after completion of this offering. A person, or persons who are
aggregated for purposes of Rule 144, who is not deemed to be one of our
affiliates during the three months immediately preceding the sale and who has
beneficially owned "Restricted Securities" as defined in Rule 144, for at least
two years is entitled to sell the shares under Rule 144(k) without regard to the
limitations and requirements discussed above.
Rule 701 under the Securities Act permits resales of shares in reliance
upon Rule 144 but without compliance with certain of its restrictions, including
the holding period requirement, of Rule 144. Any employee, officer or director
of Telergy who purchased shares pursuant to a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701. Rule 701
permits non-affiliates to sell their Rule 701 shares without having to comply
with the holding period, volume limitations, public information or notice
provisions of Rule 144. All
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<PAGE> 89
holders of Rule 701 shares who have not executed lock-up agreements in
connection with this offering will be eligible to sell their Rule 701 shares
beginning 90 days after the date of this prospectus.
Holders of 1,458,297 shares of our common stock have contractual
registration rights with respect to their shares. See "Description of Capital
Stock -- Registration Rights". If the sale of those shares is registered those
shares will be freely tradeable without restriction under the Securities Act of
1933.
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<PAGE> 90
UNDERWRITING
Telergy and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Banc of America Securities LLC, CIBC World
Markets Corp. and RBC Dominion Securities Corporation are the representatives of
the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. .......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Banc of America Securities LLC..............................
CIBC World Markets Corp.....................................
RBC Dominion Securities Corporation.........................
--------
Total.............................................
========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from Telergy to cover such sales. They may exercise that option for 30
days. If any shares are purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Telergy. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by Telergy
----------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share.................................................. $ $
Total...................................................... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
Telergy and its directors, officers and securityholders have agreed with
the underwriters not to dispose of or hedge any of their common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date 180 days
after the date of this prospectus, except with the prior written consent of the
representatives. This agreement does not apply to any existing employee benefit
plans. See "Shares Eligible for Future Sale" for a discussion of certain
transfer restrictions.
At Telergy's request, the underwriters have reserved up to shares
of the Class A common stock offered by this prospectus for sale, at the initial
public offering price, to employees, customers and other friends of Telergy
through a directed share program. The number of shares available for sale to the
public will be reduced to the extent these persons purchase the reserved shares.
There can be no assurance that any of the reserved shares will
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<PAGE> 91
be so purchased. Any reserved shares not so purchased will be offered to the
general public on the same basis as the shares offered hereby.
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Telergy and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Telergy's historical performance, estimates of the business
potential and earnings prospects of Telergy, an assessment of Telergy's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
Telergy intends to make application for quotation of the Class A common
stock on the Nasdaq National Market under the symbol "TLGY".
In connection with this offering, the underwriters may purchase and sell
shares of Class A common stock in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the underwriters of a
greater number of shares than they are required to purchase in this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Class A
common stock while this offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the Class A common stock. As a result, the price of
the class A common stock may be higher than the price that otherwise might exist
in the open market. If these activities are commenced, they may be discontinued
by the underwriters at any time. These transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Telergy estimates that its total expenses for this offering, excluding
underwriting discounts and commissions, will be approximately $ .
Telergy has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
Affiliates of Banc of America Securities LLC, CIBC World Markets Corp. and
RBC Dominion Securities Corporation are lenders under one of our credit
facilities and have received customary fees for services provided in connection
therewith. In connection with a prior credit facility, Bank of America, N.A., an
affiliate of Banc of America Securities LLC, received warrants to purchase an
aggregate of 65,481 shares of our Class A common stock at an exercise price of
$120 per share.
LEGAL MATTERS
The validity of the shares we are offering will be passed upon for us by
Shearman & Sterling. Certain regulatory matters will be passed upon by Swidler
Berlin Shereff Friedman, LLP. Certain legal matters relating to the offering
will be passed upon for the underwriters by Cahill Gordon & Reindel.
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EXPERTS
The consolidated financial statements of Telergy, Inc. and its Subsidiaries
at December 31, 1999 and 1998 and for each of the three years in the period
ended December 31, 1999 and for the period April 19, 1995 (date of inception) to
December 31, 1999 appearing in this prospectus and the registration statement,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the Class A
common stock offered in this offering. This prospectus does not contain all of
the information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to us and the Class A
common stock offered in this offering, we refer you to the registration
statement and to the attached exhibits and schedules. Statements made in this
prospectus concerning the contents of any document referred to in this
prospectus are not necessarily complete. With respect to each such document
filed as an exhibit to the registration statement, we refer you to the exhibit
for a more complete description of the matter involved.
You may read and copy all or any portion of the registration statement or
any reports and other information we file with the Commission at the public
reference facilities that the Commission maintains at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048, and Suite
140, Citicorp Center, 50 West Madison Street, Chicago, Illinois 60661. Copies of
these materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at the principal offices of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain information regarding the
operation of the public reference room by calling 1 (800) SEC-0330. The
Commission also maintains a web site (http://www.sec.gov) that makes available
the reports and other information we have filed with the Commission.
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TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 94
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Telergy, Inc.
We have audited the accompanying consolidated balance sheets of Telergy,
Inc. and subsidiaries (A Development Stage Company) as of December 31, 1998 and
1999, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
December 31, 1999 and for the period April 19, 1995 (date of inception) to
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Telergy, Inc.
and subsidiaries (A Development Stage Company) at December 31, 1998 and 1999,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999 and for the period
April 19, 1995 (date of inception) to December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Syracuse, New York
March 17, 2000, except for the
second paragraph of Note 4,
as to which the date is
April 27, 2000
F-2
<PAGE> 95
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1999
------------ -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 2,237,469 $ 277,552
Accounts receivable, net of allowance for doubtful accounts
of $150,000 in 1998 and $230,000 in 1999.................. 1,214,914 2,433,055
Due from Telergy East LLC................................... 2,364,775 341,208
Due from affiliated companies (Note 13)..................... -- 346,974
Prepaid expenses............................................ 469,331 1,229,534
Other current assets........................................ 388,601 793,097
------------ -------------
Total current assets........................................ 6,675,090 5,421,420
Property and equipment, net (Note 2)........................ 74,509,318 201,805,530
Intangible assets and other deferred costs, net (Note 1).... 4,393,898 9,101,568
Investment in Telergy East LLC (Note 17).................... 2,281,939 3,240,605
Restricted cash (Note 15)................................... 250,000 350,000
------------ -------------
Total assets................................................ $ 88,110,245 $ 219,919,123
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Notes payable............................................... $ 46,359,383 $ --
Accounts payable............................................ 8,652,548 12,653,781
Current portion of long-term debt and capital lease
obligations (Note 4)...................................... 370,656 131,648,297
Due to affiliated companies (Note 13)....................... 28,140 27,519
Accrued expenses and other current liabilities (Note 12).... 8,587,927 11,821,025
------------ -------------
Total current liabilities................................... 63,998,654 156,150,622
Unearned fiber lease revenue................................ 9,540,231 10,112,153
Long-term debt and capital lease obligations (Note 4)....... 33,300,279 24,792,665
Redeemable common stock, Class A (Note 7)................... 809,400 809,400
Redeemable preferred stock (Note 7)......................... -- 809,400
Commitments and contingencies (Note 14)
Stockholders' equity (deficit):
Preferred Stock, Series A 8%, par value $.0001,
authorized -- 3,000,000 shares; issued and
outstanding -- 404,576 shares in 1999.................. -- 40
Common stock, Class A, par value $.0001, authorized --
9,999,900 shares; issued and outstanding -- 2,822,736
shares in 1998 and 3,383,000 shares in 1999............ 282 338
Common stock, Class C, par value $.0001, authorized,
issued and outstanding -- 100 shares in 1998 and
1999................................................... -- --
Additional paid-in-capital................................ 22,406,023 198,600,814
Deferred compensation..................................... -- (59,251,173)
Deficit accumulated during the development stage.......... (41,944,624) (112,105,136)
------------ -------------
Total stockholders' equity (deficit)........................ (19,538,319) 27,244,883
------------ -------------
Total liabilities and stockholders' equity (deficit)........ $ 88,110,245 $ 219,919,123
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 96
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, CUMULATIVE FROM
----------------------------------------- INCEPTION
1997 1998 1999 (APRIL 19, 1995)
----------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Service revenue................... $ 2,515,508 $ 5,205,991 $ 7,943,481 $ 15,680,142
Operating expenses:
Cost of services................ 2,708,871 7,477,404 15,503,198 25,700,920
Selling, general and
administrative............... 4,642,506 8,997,912 19,658,898 34,213,115
Depreciation and amortization... 320,601 1,737,048 4,587,261 6,645,619
Non-cash stock-based
compensation................. 123,750 5,999,000 2,686,442 8,846,567
----------- ------------ ------------ -------------
Total operating expenses.......... 7,795,728 24,211,364 42,435,799 75,406,221
----------- ------------ ------------ -------------
Operating loss.................... (5,280,220) (19,005,373) (34,492,318) (59,726,079)
Other income (expense):
Interest expense................ (653,992) (14,834,973) (29,261,963) (45,223,780)
Interest income................. 131,327 209,953 382,843 734,136
Other........................... 30,451 82,145 1,129,732 1,242,405
----------- ------------ ------------ -------------
(492,214) (14,542,875) (27,749,388) (43,247,239)
----------- ------------ ------------ -------------
Loss before income taxes, minority
interest, equity in loss of
unconsolidated investee, and
cumulative effect adjustment.... (5,772,434) (33,548,248) (62,241,706) (102,973,318)
Income tax expense................ 931 1,954 2,991 6,853
----------- ------------ ------------ -------------
Loss before minority interest,
equity in loss of unconsolidated
investee and cumulative effect
adjustment...................... (5,773,365) (33,550,202) (62,244,697) (102,980,171)
Minority interest................. 379,425 -- -- 500,000
Equity interest in loss of
unconsolidated investee......... -- (82,837) (629,741) (712,578)
----------- ------------ ------------ -------------
Net loss before cumulative effect
adjustment...................... (5,393,940) (33,633,039) (62,874,438) (103,192,749)
Cumulative effect adjustment from
adoption of new accounting
standard (Note 1)............... -- (1,323,930) -- (1,323,930)
----------- ------------ ------------ -------------
Net loss.......................... $(5,393,940) $(34,956,969) $(62,874,438) $(104,516,679)
=========== ============ ============ =============
Preferred stock dividend (Note
7).............................. -- -- (986,677) (986,677)
----------- ------------ ------------ -------------
Net loss available to common
stockholders.................... $(5,393,940) $(34,956,969) $(63,861,115) $(105,503,356)
=========== ============ ============ =============
Basic and diluted loss per common
share (Note 9).................. $ (1.97) $ (12.69) $ (20.31)
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 97
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM APRIL 19, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
SERIES A COMMON COMMON PREFERRED COMMON ADDITIONAL
PREFERRED CLASS A CLASS C STOCK STOCK PAID-IN-
DESCRIPTION AND DATE OF TRANSACTION SHARES SHARES SHARES SERIES A CLASS A CAPITAL
- ----------------------------------- --------- --------- --------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sale of Class A common stock to KCI Long
Distance, Inc. -- November 1, 1995 (Note 7).... -- 10 -- $-- $ -- $ --
------- --------- --- -- ---- ------------
Balance December 31, 1995....................... -- 10 -- -- -- --
Stock dividend on Class A common stock -- July
31, 1996 (Note 7).............................. -- 1,469,490 -- -- 147 --
Issuance of Class A common stock -- August 23,
1996 (Note 7).................................. -- 1,262,500 -- -- 126 --
Sale of Class C common stock -- August 23,
1996........................................... -- -- 2 -- -- 2
Issuance of compensatory Class A common stock
warrants -- September and November 1996........ -- -- -- -- -- 85,041
Issuance of detachable Class A common stock
warrants -- September 1996..................... -- -- -- -- -- 612,224
Net loss........................................ -- -- -- -- -- --
------- --------- --- -- ---- ------------
Balance December 31, 1996....................... -- 2,732,000 2 -- 273 697,267
Issuance of compensatory Class A common
stock -- February 7, 1997...................... -- 7,500 -- -- 1 123,749
Issuance of detachable Class A common stock
warrants -- December 1997...................... -- -- -- -- -- 654,593
Exchange of Class A common stock for Class C
common stock -- December 10, 1997.............. -- (98) 98 -- -- --
Net loss........................................ -- -- -- -- -- --
------- --------- --- -- ---- ------------
Balance December 31, 1997....................... -- 2,739,402 100 -- 274 1,475,609
Issuance of detachable Class A common stock
warrants -- January through September 1998..... -- -- -- -- -- 4,931,342
Current return on Class A common stock (Note
7)............................................. -- -- -- -- -- --
Issuance of compensatory non-qualified stock
options -- April 1, 1998 (Note 8).............. -- -- -- -- -- 5,999,000
Sale of Class A common stock -- November 10,
1998........................................... -- 83,334 -- -- 8 10,000,072
Net loss........................................ -- -- -- -- -- --
------- --------- --- -- ---- ------------
Balance December 31, 1998....................... -- 2,822,736 100 -- 282 22,406,023
Current return on Class A common stock January
through December 1999 (Note 7)................. -- -- -- -- -- --
Sale of Class A common stock -- February through
June 1999...................................... -- 309,826 -- -- 31 36,608,876
Issuance of detachable Class A common stock
warrants -- April, May, and September 1999..... -- -- -- -- -- 11,462,121
Issuance of compensatory non-qualified stock
options -- April through December 1999 (Note
8)............................................. -- -- -- -- -- 61,937,615
Amortization of deferred stock compensation
(Note 8)....................................... -- -- -- -- -- --
Exercise of Class A common stock warrants --
June 25, 1999 and December 1, 1999............. -- 20,484 -- -- 2 148,288
Issuance of Class A common stock upon conversion
of long-term debt -- June 30, 1999 (Note 7).... -- 208,334 -- -- 21 25,000,059
Issuance of Class A preferred stock -- September
9, 1999........................................ 404,576 -- -- 40 -- 37,889,156
Current return on Series A preferred stock --
September through December 1999 (Note 7)....... -- -- -- -- -- 986,678
Issuance of Class A common stock in satisfaction
of portion of current return -- October through
November 1999 (Note 7)......................... -- 21,620 -- -- 2 2,161,998
Net loss........................................ -- -- -- -- -- --
------- --------- --- -- ---- ------------
Balance December 31, 1999....................... 404,576 3,383,000 100 $40 $338 $198,600,814
======= ========= === == ==== ============
<CAPTION>
DEFICIT
ACCUMULATED
DEFERRED DURING THE
STOCK DEVELOPMENT
DESCRIPTION AND DATE OF TRANSACTION COMPENSATION STAGE TOTAL
- ----------------------------------- ------------ ----------- -----
<S> <C> <C> <C>
Sale of Class A common stock to KCI Long
Distance, Inc. -- November 1, 1995 (Note 7).... $ -- $ -- $ --
------------ ------------- ------------
Balance December 31, 1995....................... -- -- --
Stock dividend on Class A common stock -- July
31, 1996 (Note 7).............................. -- -- 147
Issuance of Class A common stock -- August 23,
1996 (Note 7).................................. -- -- 126
Sale of Class C common stock -- August 23,
1996........................................... -- -- 2
Issuance of compensatory Class A common stock
warrants -- September and November 1996........ -- -- 85,041
Issuance of detachable Class A common stock
warrants -- September 1996..................... -- -- 612,224
Net loss........................................ -- (1,291,332) (1,291,332)
------------ ------------- ------------
Balance December 31, 1996....................... -- (1,291,332) (593,792)
Issuance of compensatory Class A common
stock -- February 7, 1997...................... -- -- 123,750
Issuance of detachable Class A common stock
warrants -- December 1997...................... -- -- 654,593
Exchange of Class A common stock for Class C
common stock -- December 10, 1997.............. -- -- --
Net loss........................................ -- (5,393,940) (5,393,940)
------------ ------------- ------------
Balance December 31, 1997....................... -- (6,685,272) (5,209,389)
Issuance of detachable Class A common stock
warrants -- January through September 1998..... -- -- 4,931,342
Current return on Class A common stock (Note
7)............................................. -- (302,383) (302,383)
Issuance of compensatory non-qualified stock
options -- April 1, 1998 (Note 8).............. -- -- 5,999,000
Sale of Class A common stock -- November 10,
1998........................................... -- -- 10,000,080
Net loss........................................ -- (34,956,969) (34,956,969)
------------ ------------- ------------
Balance December 31, 1998....................... -- (41,944,624) (19,538,319)
Current return on Class A common stock January
through December 1999 (Note 7)................. -- (6,299,396) (6,299,396)
Sale of Class A common stock -- February through
June 1999...................................... -- -- 36,608,907
Issuance of detachable Class A common stock
warrants -- April, May, and September 1999..... -- -- 11,462,121
Issuance of compensatory non-qualified stock
options -- April through December 1999 (Note
8)............................................. (61,937,615) -- --
Amortization of deferred stock compensation
(Note 8)....................................... 2,686,442 -- 2,686,442
Exercise of Class A common stock warrants --
June 25, 1999 and December 1, 1999............. -- -- 148,290
Issuance of Class A common stock upon conversion
of long-term debt -- June 30, 1999 (Note 7).... -- -- 25,000,080
Issuance of Class A preferred stock -- September
9, 1999........................................ -- -- 37,889,196
Current return on Series A preferred stock --
September through December 1999 (Note 7)....... -- (986,678) --
Issuance of Class A common stock in satisfaction
of portion of current return -- October through
November 1999 (Note 7)......................... -- -- 2,162,000
Net loss........................................ -- (62,874,438) (62,874,438)
------------ ------------- ------------
Balance December 31, 1999....................... $(59,251,173) $(112,105,136) $ 27,244,883
============ ============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 98
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, CUMULATIVE
------------------------------------------- FROM INCEPTION
1997 1998 1999 (APRIL 19, 1995)
---- ---- ---- ----------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss....................................... $ (5,393,940) $(34,956,969) $ (62,874,438) $(104,516,679)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................. 93,789 1,458,913 4,154,672 5,707,917
Amortization of intangible assets............ 226,812 278,135 432,589 937,702
Amortization of deferred financing costs..... 41,551 2,140,780 8,434,519 10,646,886
Amortization of discount on notes payable.... 50,353 3,645,825 13,138,451 17,222,824
Provision for losses on accounts
receivable................................. 50,000 135,002 306,427 491,429
Minority interest............................ (379,425) -- -- (500,000)
Equity interest in loss of unconsolidated
investee................................... -- 82,837 629,741 712,578
Cumulative effect adjustment from adoption of
new accounting standard.................... -- 1,323,930 -- 1,323,930
Issuance of compensatory common stock and
warrants................................... 123,750 -- -- 161,125
Amortization of compensatory stock options... -- 5,999,000 2,686,442 8,685,442
Issuance of notes payable in lieu of interest
payments (Note 4).......................... 353,864 5,317,595 -- 5,671,459
Restricted cash deposit...................... -- (250,000) (100,000) (350,000)
Net increase (decrease) in cash caused by
changes in operating assets and
liabilities:
Accounts receivable........................ (697,568) (695,386) (1,524,568) (2,924,484)
Due (to) from affiliated companies......... 499,168 (45,877) (347,595) (319,455)
Prepaid expenses and other current
assets................................... (185,819) (641,268) (1,164,699) (2,022,631)
Other receivables.......................... (6,000,000) 6,000,000 -- --
Due from Telergy East LLC.................. -- (2,364,775) 2,023,567 (341,208)
Unearned fiber lease revenue............... 10,000,000 (229,885) 616,170 10,386,285
Accounts payable, accrued expenses and
other current liabilities................ 799,607 (1,961,721) (1,162,203) (2,172,762)
------------ ------------ ------------- -------------
Net cash used in operating activities.......... (417,858) (14,763,864) (34,750,925) (51,199,642)
INVESTING ACTIVITIES
Additions to property and equipment............ (22,672,771) (31,818,688) (103,595,771) (158,444,037)
Additions to intangible assets and other
deferred costs............................... (2,065,833) (2,936,337) (434,169) (6,020,131)
Investment in Telergy East LLC................. -- (2,364,776) (1,588,407) (3,953,183)
------------ ------------ ------------- -------------
Net cash used in investing activities.......... (24,738,604) (37,119,801) (105,618,347) (168,417,351)
FINANCING ACTIVITIES
Proceeds from notes payable.................... 9,025,000 48,104,140 91,296,665 150,785,829
Payment of notes payable....................... (2,360,024) (8,880,000) (139,545,805) (150,785,829)
Proceeds from long-term and convertible debt... 20,000,000 5,114,844 174,595,415 199,710,259
Payment on long-term debt and capital lease
obligations.................................. (42,530) (134,555) (52,802,104) (52,979,189)
Payment of debt financing costs................ (448,161) (2,563,303) (11,790,609) (14,802,073)
Issuance of common stock....................... -- 10,809,480 36,757,197 47,566,952
Issuance of preferred stock.................... -- -- 39,898,596 39,898,596
Minority interest capital contribution......... -- -- -- 500,000
------------ ------------ ------------- -------------
Net cash provided by financing activities...... 26,174,285 52,450,606 138,409,355 219,894,545
------------ ------------ ------------- -------------
Net increase (decrease) in cash................ 1,017,823 566,941 (1,959,917) 277,552
Cash and cash equivalents at beginning of
period....................................... 652,705 1,670,528 2,237,469 --
------------ ------------ ------------- -------------
Cash and cash equivalents at end of period..... $ 1,670,528 $ 2,237,469 $ 277,552 $ 277,552
============ ============ ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 99
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Telergy, Inc. ("Telergy" or "the Company"), formerly KCI Network Services,
Inc. and Niatel, Inc., was formed on April 19, 1995 for the purpose of
developing and marketing telecommunications, energy and energy management
services and products. Telergy commenced operations in 1996 and is in the
development stage as it has devoted most of its efforts to activities such as
financial planning, raising capital, acquiring rights of way, installing its
fiber optic network, recruiting and training personnel, and developing its
markets.
For purposes of segment reporting, the Company operates in the
telecommunications industry.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Telergy and its majority owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Telergy East LLC, which is 50% owned by Telergy, Inc., is an unconsolidated
investee. The Company's investment in Telergy East LLC is stated at cost less
the Company's portion of the accumulated losses since formation. The Company's
share of the loss of the unconsolidated investee is included in consolidated net
loss using the equity method. See Note 17 for summarized financial and other
information on Telergy East LLC.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
PROPERTY, EQUIPMENT AND CAPITALIZED INTEREST
Property and equipment is recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the various assets,
ranging from 5 to 40 years. Maintenance and repairs are charged to operations as
incurred. Property and equipment recorded under capital leases is included with
the Company's owned assets. Amortization of assets recorded under capital leases
is included in depreciation expense.
Network construction costs, including interest during construction, are
capitalized. Total interest costs, including the amortization of financing
costs, incurred in 1997, 1998, and 1999 was approximately $4,785,000,
$15,244,000 and $34,482,024, respectively. Interest capitalized in the years
ended December 31, 1997, 1998 and 1999 was approximately $4,131,000, $409,000
and $5,220,000, respectively.
In accordance with FASB Statement 121, the Company reviews its long-lived
assets by comparing the undiscounted cash flows estimated to be generated by
those assets with the related carrying amount of the assets. Upon an indication
of impairment, a loss is recorded if the discounted cash flows projected for the
assets are less than the assets' carrying value.
F-7
<PAGE> 100
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTANGIBLE ASSETS AND OTHER DEFERRED COSTS
Prior to 1998 certain costs incurred in connection with organization and
development of the fiber network, including costs associated with negotiating
rights-of-way, obtaining legal and regulatory authorizations, and developing
network design, were deferred, and were to be amortized over a five year period.
As the result of the adoption of a new accounting standard the costs at December
31, 1997 of $1,323,930 were charged to expense as a cumulative effect of an
accounting change. See "Adoption of New Accounting Standard" below.
The acquisition cost of customer accounts and Telergy service mark obtained
from a related party, KCI Long Distance, Inc., have been deferred and are being
amortized over 5 years. Acquisition costs of customer accounts and service mark
at December 31, 1998 and 1999 were $1,582,403 and $1,299,302, with accumulated
amortization of $502,962 and $649,581, respectively. During 1999 the Company
wrote-off the unamortized balance of $132,000 relating to service lines
discontinued in 1999.
Costs incurred in connection with obtaining financing have been deferred
and are being amortized as interest expense over the terms of the related debt
agreements. Deferred costs relating to financing at December 31, 1998 and 1999
were $2,521,443 and $5,874,963, with accumulated amortization of $1,781,431 and
$428,861, respectively.
Costs incurred in connection with obtaining certain rights of way have been
deferred and are being amortized over the terms of the related agreements.
Deferred costs relating to rights of way at December 31, 1998 and 1999 were
$2,576,100 and $3,010,269, respectively, with accumulated amortization of $1,655
and $4,524, at December 31, 1998 and 1999, respectively. During 1998 the Company
paid $2,500,000 to Consolidated Edison Communications, Inc. in connection with
the Company's nonexclusive right to use certain Consolidated Edison Co. of New
York, Inc. conduit and facilities.
ADOPTION OF NEW ACCOUNTING STANDARD
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, Reporting the Costs of Start-Up
Activities, which requires that costs related to start-up activities be expensed
as incurred. Prior to 1998, the Company capitalized certain deferred development
costs as described above. The Company adopted the provisions of the SOP in its
financial statements for the year ended December 31, 1998. The effect of
adoption of SOP 98-5 was to increase loss from continuing operations in 1998 by
$1,272,572 ($0.46 per share) and to record a charge for the cumulative effect of
an accounting change of $1,323,930 ($0.48 per share), to expense costs that had
been previously capitalized.
EARNINGS PER SHARE
Basic earnings per share are based on the average number of common shares
outstanding. Diluted earnings per share include any dilutive effect of stock
options and warrants. For the periods presented, diluted loss per share is the
same as the basic calculation as any stock options and warrants outstanding
would be antidilutive. Stock options for the purchase of 0, 100,000 and 518,500
shares of Class A common stock at December 31, 1997, 1998, and 1999,
respectively, and warrants for the purchase of 225,024, 542,152 and 1,280,959
shares of Class A common stock at December 31, 1997, 1998 and 1999,
respectively, were excluded from the computation of diluted loss per common
share because inclusion of these items would be antidilutive.
F-8
<PAGE> 101
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECOGNITION OF REVENUE
The Company recognizes service revenue in the month services are provided.
Service revenue is currently primarily derived from the resale of long distance
and local telephone service and from calling cards issued to Niagara Mohawk
Power Corporation ("NMPC") employees. Amounts billed in advance of the service
month are recorded as deferred revenue.
Grants of indefeasible rights of use, or IRUs, of constructed but unlit
fiber, or dark fiber, in exchange for cash, are accounted for as operating
leases, unless title to the fibers transfers to the lessee, in which case
sales-type lease accounting would be used. Operating lease accounting requires
that the cash received is recognized as revenue over the term of the IRU. In
accordance with Financial Accounting Standards Board ("FASB") Interpretation No.
43, "Real Estate Sales, an interpretation of Statement of Financial Accounting
Standards ("SFAS") No. 66," issued in June 1999, dark fiber is considered
integral equipment and accordingly title must transfer to a lessee in order for
a lease transaction to be recorded as a sale-type lease. All IRUs entered into
by the Company as of December 31, 1999 are accounted for as operating leases
since title to the fiber does not transfer to the lessee.
Revenues on contracts for maintenance of networks are deferred and
amortized on a straight-line basis over the lives of the related contracts.
The Company currently utilizes Bell Atlantic for resale of local telephone
service and MCI WorldCom Network Services for resale of long distance telephone
service.
INCOME TAXES
The Company provides for income taxes in accordance with the liability
method as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under the liability method, deferred taxes are
determined based on the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates expected to be in effect in
the years in which the differences are expected to reverse.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade accounts receivables. At December 31,
1998, six customers comprised approximately 30% of the accounts receivable
balance. At December 31, 1999, five customers comprise approximately 12% of the
accounts receivable balance. The Company performs credit evaluations on
customers prior to providing services. The Company has not experienced
significant losses from sales to any of its significant customers.
There were no individually significant customers in 1999 or 1998. However,
nine customers accounted for approximately 30% of service revenue in 1998 and
approximately 21% of service revenue in 1999, respectively.
F-9
<PAGE> 102
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECENT ACCOUNTING STANDARDS
The FASB issues SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This standard as amended, will be effective for the Company
beginning January 1, 2001. This standard requires that all derivatives be
recognized, at fair value, as assets or liabilities in the balance sheet. The
Company does not believe it has any current transactions that would require
accounting and reporting under SFAS No. 133.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." The Company does not believe that the requirements of SAB No. 101
will have any effect on or require any adjustments to the Company's results of
operations and financial position.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the 1999
presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DEPRECIABLE DECEMBER 31,
LIVES ---------------------------
(IN YEARS) 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Land.................................... $ 804,066 $ 872,840
Buildings............................... 40 8,099,111 15,303,064
Furniture and fixtures.................. 7 1,362,615 3,116,518
Computer and office equipment........... 5 2,337,207 27,480,513
Telecommunications equipment............ 7 3,433,534 11,237,149
Leasehold improvements and other........ 5 to 6 or 200,041 1,800,557
lease term
Telecommunication network............... 20 35,488,802 52,345,031
Electronic and related equipment........ 7 4,307,290 14,011,753
Networks-in-process..................... not 20,029,895 81,344,826
applicable
----------- ------------
76,062,561 207,512,251
Less: Accumulated depreciation and
amortization.......................... (1,553,243) (5,706,721)
----------- ------------
$74,509,318 $201,805,530
=========== ============
</TABLE>
Included in property and equipment is approximately $1,000,000 and
$25,200,000 at December 31, 1998 and 1999, respectively, of various equipment
obtained under capital lease arrangements. Accumulated amortization on these
assets is approximately $200,000 and $1,050,000, respectively, at December 31,
1998 and 1999. Amortization expense is included with depreciation.
3. NOTES PAYABLE
There were no outstanding agreements for demand notes payable or lines of
credit as of December 31, 1999.
F-10
<PAGE> 103
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes payable at December 31, 1998 and their disposition in 1999 are
described below:
Promissory notes to individual investors totaling $9,795,000. The notes
bore interest at an annual stated rate of 12% (effective rate) which was payable
upon the original maturity date of the notes, December 31, 1998. The effective
interest rate, which includes incurred interest and amortization of the discount
on warrants issued in connection with the promissory notes, was 46% in 1998. The
Company extended the maturity date of the notes to March 4, 1999 at which time
they were paid in full. Interest on the notes during the extension period was at
an annual rate of 20%. In conjunction with the promissory notes, the Company
also issued common stock warrants in 1997 and 1998 to the note holders (see Note
7).
Working capital line of credit with a bank, due on demand and secured by
accounts receivable, up to the lesser of $750,000 or 75% of eligible trade
accounts receivable. The line bore interest at an annual rate of prime plus
1.75%. The Company had drawn $600,000 on the line at December 31, 1998. The
outstanding balance on the working capital line was paid in full and terminated
in 1999.
Line of credit with Mastec North America, Inc. ("Mastec"), under financing
agreement dated May 1998, of up to $50 million. The financing available was used
by the Company primarily to fund services, materials, and equipment provided or
rendered by Mastec and its subcontractors in connection with the network
construction. Originally, the outstanding principal balance of the available
financing drawn in each calendar year, together with all accrued interest
thereon, was to be repaid in full by April 30 of the following year. At December
31, 1998 the Company had drawn $37,854,140 on the line. The borrowings under the
facility were secured by a second lien security interest in shares of the
Company's Class A and Class C common stock owned by two principal stockholders
and by the personal guaranty of these stockholders. Certain borrowings were also
secured by telecommunications equipment. The interest rate on these borrowings
was at an annual stated rate of 15%. The effective interest rate, which includes
incurred interest and amortization of the discount on warrants issued in
connection with the notes payable, was 23% in 1998 and 56% in 1999. The
outstanding principal amount of approximately $37.7 million and interest amount
of approximately $800,000 was paid in full in September 1999 and the line of
credit agreement was terminated.
In conjunction with the financing agreement, during 1998, the Company
issued Mastec warrants to acquire 156,250 shares of the Company's Class A common
stock at an exercise price of $60 per share. As consideration for extending the
repayment date of the outstanding balance, the Company issued additional
warrants to Mastec to acquire 15,000 shares of the Company's Class A common
stock at $60 per share. Also during 1999 the warrants issued in 1998 were
terminated, and new warrants to purchase 156,250 shares of the Company's Class A
common stock at an exercise price of $60 per share were issued. All of the
warrants are fully exercisable by Mastec and expire on May 31, 2004. In
connection with the issuance of the warrants, discounts on the financing
agreements of $2,429,688 and $10,217,125 were recorded in 1998 and 1999,
respectively. Since the entire outstanding balance was repaid in 1999 and the
line of credit agreement was terminated, the entire unamortized discount was
charged to interest expense in 1999. The charge to interest expense in
connection with the Mastec warrants was $539,931 and $12,106,882 in 1998 and
1999, respectively.
The Vice Chairman, President and Chief Executive Officer of Mastec became a
Director of Telergy in September 1999.
F-11
<PAGE> 104
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average effective interest rate on short-term borrowings was
13%, 30%, and 45% in 1997, 1998 and 1999, respectively, these rates include
incurred interest and amortization of the discount on warrants issued in
connection with the notes payable.
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1998 1999
---- ----
<S> <C> <C>
Credit Facility (see below).......................... $ -- $ 126,000,000
Master Equipment Lease Agreement (see below)......... -- 23,789,045
Nortel Credit Agreement (see below).................. -- --
Senior secured note (see below)...................... 27,692,752 --
Mortgage note payable to bank in monthly installments
of approximately $49,000, commencing February 1,
1999 through December 31, 2002, including interest
at a prime rate plus one-half percent. (Prime rate
at December 31, 1999 was 8.5%.) Lump sum payment of
approximately $4.2 million due January 1, 2003.
Loan is secured by certain property and
equipment.......................................... 5,000,000 4,853,010
Capital lease obligations due in monthly installments
through 2004. Obligations are secured by the
related leased property............................ 878,651 1,804,797
Other................................................ 99,532 207,538
----------- -------------
33,670,935 156,654,390
Less current portion................................. (370,656) (131,648,297)
Less discount attributable to warrants............... -- (213,428)
----------- -------------
$33,300,279 $ 24,792,665
=========== =============
</TABLE>
The credit facility is with a syndicate of financial institutions led by
Bank of America, N.A. The facility, which originally provided for borrowings up
to $175 million, and was subsequently increased to $200 million in March 2000,
was entered into on November 19, 1999, the closing date. As noted above, the
total amount of advances outstanding at December 31, 1999 is $126 million. At
April 27, 2000 the outstanding balance of the facility was $178 million. The
revolving credit facility bears interest at a rate equal to LIBOR plus 4% (the
"LIBOR rate") or an alternate base rate (the higher of the bank's prime rate
plus 3% or the federal funds rate plus 3.5%). At December 31, 1999, the Company
was charged interest at the LIBOR rate of 10.2%. The facility matures and is
payable in full on November 19, 2002, three years after the closing date. The
facility was amended on April 27, 2000 and under the terms of the amendment the
Company is required to raise a minimum of $200 million through an initial public
offering of its common stock or through the issuance of public debt by September
30, 2000 to remain in compliance with a covenant of the facility. Since the
Company has not completed an initial public offering or issued public debt as of
April 27, 2000, the entire balance of the credit facility has been recorded as a
current liability in the accompanying balance sheet. The credit facility
contains various other restrictive covenants, including cross defaults to
certain other indebtedness. The facility is guaranteed by the Company and some
of its subsidiaries and is also secured by a first priority security interest in
all capital stock of the Company's wholly owned subsidiaries,
F-12
<PAGE> 105
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
except for Telergy Canada, and by substantially all assets and properties owned
by the Company's wholly owned subsidiaries except for Telergy Canada and Telergy
Central.
The Company entered into a credit agreement dated February 26, 1999,
providing two advancing term loan facilities with Nortel Networks Inc., a $30
million and a $15 million loan. The $30 million advancing term loan is to
finance a portion of the Company's costs to purchase Nortel goods and services.
The $15 million advancing term loan was used for general corporate purposes. The
Company can elect to be charged interest at either a base rate or eurodollar
rate. The Company borrowed $5,333,000 on the $30 million facility in 1999 and
paid off this borrowing plus incurred interest in 1999, therefore no advances
are outstanding at December 31, 1999. Amounts outstanding under the $30 million
facility are repayable in twelve quarterly installments. If not previously
repaid, principal outstanding under the $30 million facility is repayable on the
sixth anniversary of the earlier of (a) the third anniversary of the date of the
credit agreement (February 26, 1999) or (b) the date the facility becomes fully
drawn. The Company borrowed the entire amount of the $15 million facility in
1999 and paid off this balance along with interest in 1999 and the facility was
terminated. Nortel is granted a lien by the Company in all Nortel network
equipment purchased and financed under the agreement. The credit agreement for
this facility contains various covenants.
The credit agreement with Nortel was simultaneously entered into along with
a master purchase agreement with Nortel. The Company committed to purchase
products and/or services from Nortel in the aggregate amount of $30 million. The
products are to be purchased under the terms and conditions of the purchase
agreement and the financing associated with such purchase shall be governed by
the credit agreement. The purchase agreement is effective for a term of three
years from the effective date of the agreement.
On September 15, 1999, the Company entered into a Master Equipment Lease
Agreement with GATX Telecom Investors I, L.L.C., a financing syndicate including
GATX. The agreement provides for a total commitment of $35 million, with a
commitment termination date of September 15, 2000. Only $25 million of the
commitment is available unless and until the Company receives gross proceeds of
at least $200 million from the sale of debt securities. As of December 31, 1999,
the Company had drawn $24,933,913 under four separate leases covered by the
lease agreement. An interim payment was made for the period from the lease date
to December 31, 1999. Scheduled payments on the four leases are due quarterly
with a final payment due on January 1, 2004. The computed interest rate under
the four leases is 13.7%. The Agreement includes specific financial and
operating covenants. The lease commitments are secured by the equipment and
software financed under the agreement. In connection with the lease agreement,
the Company paid an origination fee of $270,000 in 1999. This fee is recorded as
deferred financing costs and is amortized over the lease term. The unamortized
cost at December 31, 1999 associated with the origination fee is $254,118.
The Company, in connection with the Master Equipment Lease Agreement, also
issued warrants to the syndicate to acquire 14,583 shares of the Company's Class
A common stock at an exercise price of $120 per share. The warrants are fully
exercisable and expire at the later of (a) seven years after the date of grant,
or (b) three years after the closing of the Company's initial public offering of
its Common Stock. The warrants were valued at $226,766, which is recorded as a
discount to the outstanding lease balance and is being amortized over the lease
term. The unamortized discount at December 31, 1999 associated with the issuance
of the warrants is $213,428.
F-13
<PAGE> 106
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In conjunction with a note purchase agreement, on February 20, 1997 and as
subsequently amended, Telergy issued a $20 million senior secured note to
Hyperion Telecommunications of New York ("Hyperion") due January 20, 2000.
Interest was payable semiannually at an annual rate of 22.5%. On interest
payment dates occurring in the years 1997, 1998 and 1999, the agreement
permitted Telergy to either make cash interest payments or issue additional
notes equal to the interest payment. In 1997, 1998 and 1999, Telergy issued
additional notes of $2,375,156, $5,317,596 and $3,115,435 in lieu of cash
interest payments. The outstanding balance on the note, including the additional
amount for interest, of approximately $30,808,000 was paid in full in 1999.
On April 6, 1998 and August 12, 1998 the Company, in connection with the
Hyperion senior secured note, entered into a binding letter agreement and
supplemental agreement with Hyperion whereby Hyperion waived certain mandatory
prepayment provisions of the senior secured note in order to allow the Company
to draw $15,000,000 on a financing arrangement with Mastec to fund certain
construction and right-of-way costs. In consideration for the waiver, the
Company agreed to provide Hyperion 24 fiber strands in future routes to be
constructed by the Company through Portland, Maine to Boston, Massachusetts and
to Montreal, Canada at a stated cost per mile plus a proportionate share of the
fiber cost. Hyperion will be granted either an exclusive lease or an irrevocable
right to use such fiber strands for a total term equal to twenty years plus any
renewal periods obtained by the Company.
On November 10, 1998 the Company, in connection with the Hyperion senior
secured note, entered into a binding letter agreement with Hyperion whereby
Hyperion waived certain mandatory prepayment provisions of the senior secured
note to allow the Company to sell $30 million of common stock in a private
placement. In consideration for the waiver, the Company agreed to provide
Hyperion the following: At Hyperion's sole option, either 1) access to four dark
strands of fiber at no additional charge to Hyperion or 2) access to the 24
fiber strands described in the preceding paragraph for Hyperion at a stated cost
per mile plus a proportionate share of the materials cost of Hyperion's fiber
strands in the Montreal and Portland networks planned to be built and the
Washington and Toronto networks in the event they are built. Hyperion also
receives access to four dark fiber strands at no additional charge to Hyperion
in a certain New York City fiber ring. Hyperion will be granted either exclusive
lease access to and use of such fiber strands or an irrevocable right to use
(IRU) such fiber stands for a total term equal to the sum of a minimum of twenty
years, plus any additional longer term available to the Company plus all
renewals available to the Company.
On January 1, 1997 Telergy acquired equipment under capital lease
obligations with an unamortized cost and related liability balance of $91,199
from KCI Long Distance, Inc. The Company entered into additional capital lease
obligations totaling $375,729 in 1997 and $573,766 in 1998 for the acquisition
of equipment. The leases have terms of five years and require monthly payments
ranging from $291 to $2,837.
F-14
<PAGE> 107
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities of long-term debt and capital lease obligations at
December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 5,648,297
2001........................................................ 6,334,614
2002........................................................ 132,921,634
2003........................................................ 11,653,024
2004........................................................ 96,821
------------
$156,654,390
============
</TABLE>
Interest paid, net of amounts capitalized, in 1997, 1998 and 1999 was
$281,075, $1,359,691 and $22,519,414, respectively.
5. TELERGY CENTRAL LLC
Telergy, Inc. and Niagara Mohawk Energy, Inc. (NME) entered into a joint
venture agreement, effective January 16, 1996, to form Telergy Joint Venture
("Joint Venture"). Joint Venture was formed in conjunction with the execution of
a Right of Occupancy agreement with Niagara Mohawk Power Corporation (NMPC) (see
Note 6). Telergy, Inc. and NME have a 75% and 25% equity ownership,
respectively. For the first two years Telergy, Inc. committed to fund the
capital necessary to complete the construction of the network and any other
expenditures necessary to establish the business of the Company for its interest
in Joint Venture. NME made a $500,000 cash capital contribution in 1996 in
connection with the agreement. In addition to the equity share, NME was granted
an Indefeasible Right of Use (IRU) in 25% of the total capacity (lit capacity
and dark fiber) of the Upstate New York network. Profits and losses are
allocated based on the equity ownership interests.
On April 24, 1998 Joint Venture, pursuant to an operating agreement between
Telergy and NME, was converted to a limited liability company named Telergy
Central LLC ("Central"). Telergy and NME continue to have membership percentages
of 75% and 25%, respectively, and NME continues to have an IRU in 25% of the
total capacity of the Upstate New York network, subject to certain marketing
limitations. The initial capital of Central is equal to the capital of Joint
Venture at the date of conversion. Subsequent to the conversion date, any
additional capital contributions deemed necessary shall first be made by Telergy
in the form of loans to Central of up to $100 million. Additional capital
contributions required in excess of $100 million will be made by Telergy and NME
proportionate to their membership percentages.
Telergy and NME also on April 24, 1998 entered into a conversion rights
agreement which provides for the conditions and terms by which NME would sell
its membership interest in Central and its IRU to Telergy in the event of an
initial public equity offering or other financial offering by Telergy. The
conversion rights agreement also contains provisions which grant NME certain
rights to purchase shares of Telergy common stock or equivalent in conjunction
with the transaction.
6. RIGHT OF OCCUPANCY AGREEMENT
On February 2, 1996 and as modified on September 25, 1997, Central entered
into a Right of Occupancy agreement with NMPC. The agreement grants Central a
non-exclusive right of occupancy in NMPC right of way, towers, conduit and other
facilities for the construction, installation, operation, and maintenance of a
backbone fiber network, local loops, and spurs, and
F-15
<PAGE> 108
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
conveys certain capacity and fiber strands in upstate New York without recurring
fees. NMPC granted to Telergy access to 16 strands from Scriba, New York to
Clay, New York and 8 strands from Black River, New York to Lighthouse, New York
in certain portions of NMPC's network.
The agreement has an initial term of 25 years and contains provisions for
two consecutive extension periods of 10 years each, exercisable at Central's
option. In consideration of the granting of the right of occupancy, as modified,
Central shall provide NMPC with lit fiber in the amount of five OC-3's of
network capacity along the entire backbone route. This capacity shall be
proportionately increased for any subsequent technological improvements or
extensions that increase the original network capacity. Central must also make
available for NMPC's use, at no cost to NMPC, two dark fiber strands between two
NMPC facilities in the Buffalo, New York area. Additionally, NMPC shall be
entitled to use four fiber optic telecommunication strands anywhere in Central's
facilities that are installed in NMPC's right of way including the backbone
network and any local loops or spurs at no cost to NMPC. NMPC may not use the
fiber to compete with Telergy in New York State, and if NMPC desires to sell the
fiber to third parties, Telergy has the right of first refusal. The Right of
Occupancy agreement was approved by the New York State Public Service Commission
on July 8, 1996. The modification was approved on October 27, 1997.
7. STOCKHOLDERS' EQUITY, WARRANTS AND REDEEMABLE STOCK
Telergy was incorporated on April 19, 1995 as a subsidiary of KCI Long
Distance, Inc. On August 23, 1996, KCI Long Distance, Inc., through a
transaction qualifying under Internal Revenue Code Section 355, distributed all
1,469,500 shares of Telergy Class A common stock it held and owned to its
stockholders. Telergy also issued on August 23, 1996 1,262,500 shares of Class A
common stock as founders stock. Also, in connection with this transaction,
Telergy was recapitalized in 1996 to change the authorized common stock from 200
no par shares to 3,000,000 shares consisting of 2,999,998 shares, par value
$.0001, of Class A common stock and 2 shares, par value $.0001, of Class C
common stock. In November 1997, the authorized common stock was increased to
10,000,000 shares, consisting of 9,999,900 shares, par value $.0001, of Class A
common stock and 100 shares, par value $.0001, of Class C common stock. In
September 1999 the authorized common stock was increased to 13,000,000 shares,
consisting of 9,999,900 shares, par value $.0001, of Class A common stock, 100
shares, par value $.0001, of Class C common stock and 3,000,000 shares, par
value $.0001 of preferred stock.
In September 1999 the Company received approximately $40,000,000 from
Global Crossing, in exchange for the issuance of 404,576 shares of Company
Series A preferred stock and 564,227 warrants to purchase Company Class A common
stock at $98.87 per share. The Series A preferred stock is non voting except for
certain limited matters effecting their shares and has liquidation preferences
over all common stock, for its stated value including all accrued and unpaid
dividends. In the event that the Company is to purchase or redeem any of the
outstanding Class A common stock pursuant to contractual obligations, the
Company will be required to offer to redeem a like amount of Series A preferred
stock and accordingly, $809,400 has been recorded as redeemable preferred stock
in the accompanying consolidated balance sheet. Also, the Series A preferred
stock is redeemable at the Company's option on or after two years from the date
of issuance and in certain other circumstances. The Series A Preferred stock has
a dividend rate of 8% per annum and is payable quarterly in cash or through
increases in the stated value of the Series A preferred stock, at the Company's
option, except if the Company pays any of the Class A common stock dividend in
cash, then the Company must also pay the Series A Preferred stock dividend in
cash from the most recent dividend payment date to the
F-16
<PAGE> 109
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
date of such dividend. In 1999 the Company declared and satisfied through an
increase in the stated value, a preferred stock dividend of approximately
$987,000.
A Vice Chairman and Director of Global Crossing became a Director of
Telergy in September 1999.
During 1998 and 1999 the Company, in connection with private placements,
sold 90,079 and 309,826 shares of Class A common stock for gross proceeds of
approximately $10,809,000 and $37,179,000, respectively. The stock purchase
agreements entered into by certain investors related to these shares contain
provisions for the following returns: A current return will be paid at the rate
of 20% per year on the purchase price of the shares. The current return is to be
paid annually on the anniversary date of the stock purchase agreement until the
earliest of two events occurs as discussed below. The current return can be paid
in cash or additional shares of Class A common stock at the election of the
Company. In connection with the private placements, the Company declared a
dividend on the Class A common stock of approximately $6,299,000, of which the
Company satisfied a portion, $2,162,000, with the issuance of additional Class A
common stock. In addition to the current return, the Company may be required to
pay the investors a capital return at the occurrence of the earlier of one of
the following events: 1) The date following an initial public offering by the
Company of Class A common stock when the investor is able to sell its shares in
the public market. If the fair market value of the Company's stock at that date
is less than $180 per share, then the Company will pay the investor a capital
return equal to the difference between the fair market value per share and $180.
The shortfall can be paid in cash or additional shares of Class A common stock
at the election of the investor. 2) If an initial public offering of Class A
common stock does not occur prior to November 1, 2001, then the investor may
require the Company to repurchase its shares at a price of $180 per share. If
the Company cannot obtain sufficient funds to repurchase the shares within six
months of notice, the purchaser has the right to require the Company to register
the shares.
Subsequent to the sale of the 90,079 shares in 1998 as described in the
preceding paragraph, on July 15, 1999, the stock purchase agreement for 83,334
of the shares acquired by a certain investor was amended to provide that in the
event the shares are put back to the Company for repurchase, the Company, at its
option, can effectuate the redemption by registering the investor's shares for
sale to the public rather than paying cash.
In connection with certain term promissory notes (see Note 3), in 1996,
1997 and 1998 Telergy issued warrants to purchase 143,041, 42,096 and 160,878
shares, respectively, of Telergy's Class A common stock. The warrants issued in
1996 have an exercise price of $16.50 per share and are exercisable through
September 1, 2001. The warrants issued in 1997 and 1998 have an exercise price
of $60 per share and are exercisable through December 31, 2002. The warrants are
redeemable by Telergy at any time after the corresponding promissory notes are
paid in full. These notes were paid in full during 1999. The redemption price is
equal to the fair value of the common stock in excess of the warrant exercise
price. The warrant exercise price is adjusted for subsequent stock dividends,
splits and other common stock transactions effected at a price below the warrant
exercise price. Telergy also in 1996 issued warrants to purchase shares of Class
A common stock in exchange for consulting services as follows: 28,750 at an
exercise price of $5 exercisable through August 31, 2001 and 11,137 at an
exercise price of $16.50 exercisable through October 31, 2001. The Company, in
1998, issued warrants to acquire 156,250 shares of Class A common stock to
Mastec as discussed in Note 3.
F-17
<PAGE> 110
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1999, due to a change in the warrant terms, the Mastec warrants
issued in 1998 were terminated and new warrants to purchase 156,250 shares of
Class A common stock were issued. Also in 1999 an additional 15,000 warrants to
purchase Class A common stock were issued to Mastec. The Company also in 1999
issued 100,000 warrants in connection with the issuance of $25,000,000 of
convertible debt which was subsequently converted into 208,334 shares of Class A
common stock. The Company also in 1999 issued 65,481 warrants in connection with
a credit facility and 14,583 warrants in connection with the Master Equipment
Lease Agreement. All warrants issued during 1999 are exerciseable for shares of
Company Class A common stock and have exercise prices of $60 (covering 271,250
shares), $98.87 (covering 564,227 shares) or $120 per share (covering 80,064
shares). The Company used the minimum value pricing model to estimate the fair
value of the warrants and used assumptions consistent with the assumptions used
for the stock option disclosures required under SFAS 123 and included in Note 8
to the consolidated financial statements. During 1999, 20,484 warrants were
exercised at prices of $5 per share (19,650 warrants) and $60 per share (834
warrants) for 20,484 shares of Class A common stock, no warrants were exercised
during 1998, 1997 or 1996. At December 31, 1997, 1998 and 1999 the Company has
reserved 225,024, 542,152 and 1,280,959 shares, respectively, of authorized
Class A common stock for issuance upon warrant exercise. Additional paid-in-
capital has been recorded in 1996, 1997, 1998 and 1999 for the issuance of
Company warrants and common stock for services based on the estimated minimum
fair value or intrinsic value of the equity instrument.
8. STOCK OPTIONS
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its plan and
recognizes non cash compensation charges related to the intrinsic value of stock
options granted to employees. If the Company had elected to recognize
compensation expense based upon the fair value of the stock option at the date
of grant for awards under the plan, consistent with the methodology prescribed
by SFAS 23, there would be no effect on the Company's net loss and net loss per
common share since the fair value is equal to the intrinsic value.
On April 1, 1998 the Company entered into an employment agreement with a
certain executive whereby the Company granted the executive options to acquire
100,000 shares of the Company's common stock at an exercise price of $.01 per
share. The options are fully exercisable and expire ten years from the date of
the agreement. The Company in 1998 has recorded compensation expense and
additional paid-in capital of $5,999,000 representing the fair value of these
options. The agreement also gives the executive the right to put a portion of
the shares of common stock, acquired from the exercise of the options, back to
the Company for redemption beginning on April 1, 2001. The Company at its option
can effectuate the redemption by registering the investors shares for sale to
the public rather than paying cash. The redemption price is equal to forty
percent of the fair market value of the shares on the date the option is
exercised.
In September 1999 the Company approved the 1999 Incentive Compensation Plan
(the "Plan"). The purpose of the Plan is to attract, maintain and motivate
highly qualified employees, officers, directors and consultants of the Company.
The Company's Compensation Committee acting as the Plan's administrator
determines award terms, possible awards could include incentive stock options,
non-statutory stock options, stock appreciation rights, stock awards or
F-18
<PAGE> 111
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cash. At December 31, 1999 the Company has reserved 1,000,000 shares of Class A
common stock for issuance under the plan and will automatically reserve
additional shares as such to equal at least five percent of the issued and
outstanding shares of Class A common stock.
During 1999 the Company entered into several agreements whereby the Company
granted 418,500 Class A common stock options with exercise prices of $0.01 per
share. Included in this amount are 180,000 options that vest upon an initial
public offering, change in control or certain executive approval. Since none of
these events have occurred as of December 31, 1999, no expense has been
recognized in connection with these options. The fair value of these options is
approximately $21,600,000, this amount will be recorded to expense and an
offsetting equal amount will be recorded to paid in capital at the occurrence of
one of the three conditions stated above. These options expire on April 1, 2008.
The remaining 238,500 options granted in 1999 have ten year lives, and vest over
one to three year periods, with accelerated vesting for certain options upon an
initial public offering.
The fair value of the 100,000 and 418,500 options granted during 1998 and
1999, respectively approximated $5,999,000 and $83,540,000, respectively. The
fair value of the options are estimated on the date of grant using the minimum
value option-pricing method with the following assumptions; risk-free interest
rates of 6% in 1998 and 7% in 1999 and expected lives of 3 years in 1998 and
1999. Total expense recognized for stock option awards approximated $5,999,000
and $2,686,000 for the years ended December 31, 1998 and 1999 respectively. The
difference between the fair value of options granted in 1999 and the
compensation cost recognized in 1999 is due to the vesting provisions of options
which results in expense recognition over a period of up to three years or at
the occurrence of specific events as described above.
The following is a summary of stock option activity for 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at the beginning of the
year................................... -- 100,000 $0.01
Options granted.......................... 100,000 $0.01 418,500 $0.01
------- -------
Outstanding at the end of the year....... 100,000 $0.01 518,500 $0.01
======= =======
Exercisable at December 31............... 100,000 $0.01 115,000 $0.01
======= =======
</TABLE>
The weighted-average remaining contractual life of options outstanding is
9.25 years and 8.88 years at December 31, 1998 and 1999, respectively.
F-19
<PAGE> 112
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LOSS PER SHARE
The loss per common share computations are based on the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1997 1998 1999
----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Numerator:
Net loss.............................. $(5,393,940) $(34,956,969) $(62,874,438)
Preferred stock dividend.............. -- -- (986,677)
----------- ------------ ------------
Numerator for loss per common share..... (5,393,940) (34,956,969) (63,861,115)
Denominator:
----------- ------------ ------------
Weighted average shares outstanding..... 2,738,877 2,754,855 3,144,623
=========== ============ ============
Basic and diluted net loss per share.... $ (1.97) $ (12.69) $ (20.31)
=========== ============ ============
</TABLE>
The impact of outstanding stock options and warrants is not included in the
above calculation of diluted loss per share since the impact of their inclusion
would be antidilutive.
10. INCOME TAXES
The components of the provision for federal and state income taxes are as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Current tax expense -- state............................. $931 $1,954 $2,991
Deferred tax expense..................................... -- -- --
---- ------ ------
Total income tax expense................................. $931 $1,954 $2,991
==== ====== ======
</TABLE>
A reconciliation of the statutory U.S. federal income tax rate to the
effective income tax rate follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate................................... (34)% (34)% (34)%
Deferred tax valuation allowance............................ 34 34 34
--- --- ---
Effective tax rate.......................................... -- -- --
=== === ===
</TABLE>
The Company has net operating loss carryforwards of approximately $82
million at December 31, 1999 which expire in 2011 through 2019. Future
significant changes in ownership, as defined by Section 382 of the Internal
Revenue Code, may result in an annual limitation of the net operating loss
carryforward benefit. Income taxes paid amounted to $333, $1,941, and $3,066 in
1997, 1998 and 1999, respectively.
F-20
<PAGE> 113
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31 are as
follows:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Deferred revenue........................... $ -- $ 507,461
Book over tax amortization................. 1,070,560 192,595
Stock compensation......................... 2,279,620 2,953,050
Bad debt reserve........................... 57,000 58,650
Net operating loss carryforwards........... 12,851,780 27,879,658
------------ ------------
Gross deferred tax assets.................... 16,258,960 31,591,414
Valuation allowance.......................... (15,923,821) (30,849,848)
------------ ------------
Net deferred tax assets...................... 335,139 741,566
Deferred tax liabilities:
Tax over book depreciation................. (335,139) (687,573)
Prepaid real estate taxes.................. -- (53,993)
------------ ------------
(335,139) (741,566)
============ ============
Net deferred taxes........................... $ -- $ --
============ ============
</TABLE>
11. OPERATING LEASES
The Company leases office space and other equipment at various locations
under operating leases. Certain leases contain renewal options. Rent expense
totaled $338,112, $831,910 and $1,541,339 for 1997, 1998 and 1999, respectively.
Future minimum rental payments under noncancelable operating leases at December
31, 1999 were as follows:
<TABLE>
<S> <C>
2000........................................................ $1,202,328
2001........................................................ 1,138,450
2002........................................................ 969,464
2003........................................................ 622,812
2004........................................................ 381,746
Thereafter.................................................. 3,361,705
----------
Total minimum lease payments................................ $7,676,505
==========
</TABLE>
The Company leases a portion of its corporate headquarters to an unrelated
party with annual minimum rental payments of approximately $826,000. The
original lease term expires June 30, 2003. The agreement provides for renewal
periods.
F-21
<PAGE> 114
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consists of the following:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Customer deposits....................................... $1,569,370 $ 1,573,370
Accrued interest........................................ 5,018,789 471,967
Deferred revenue........................................ 371,923 698,803
Current return on Class A common stock.................. 302,383 4,439,779
Accrued financing origination fee....................... -- 1,350,000
Other................................................... 1,325,462 3,287,106
---------- -----------
$8,587,927 $11,821,025
========== ===========
</TABLE>
13. RELATED PARTY TRANSACTIONS
The principal stockholders of Telergy are also principal stockholders of
KCI Long Distance, Inc. ("KCI") and Worldnet Communications, Inc., doing
business as TMS ("TMS") which are related companies with which Telergy shares
common office space and management/ administrative services and also have other
transactions in the ordinary course of business. TMS owns 1,899 Class A common
shares of Telergy as of December 31, 1999.
During 1997 the following significant transactions occurred between the
related companies: The Company paid general expenses of KCI and TMS totaling
$59,992 and $60,465, respectively. KCI paid general expenses of the Company
totaling $141,438. KCI provided certain consulting services to and agreed not to
compete, through December 31, 1997, with Telergy for a one-time payment of
$250,000. Telergy purchased from KCI certain fixed assets and KCI's commercial
customer base for $1,250,000, the Telergy service mark for $150,000, and
miscellaneous assets totaling $49,241. Telergy Central allocated certain
overhead costs, primarily rent, telephone, salaries and equipment expenses, to
KCI in the amount of $35,991 and to TMS in the amount of $107,973. TMS provided
certain consulting services to Telergy and agreed not to compete, through
December 31, 1997, with Central for a one-time payment from Telergy of $200,000.
During 1998 the following significant transactions occurred between the
related companies: The Company paid general expenses of KCI and TMS totaling
$80,850 and $36,134, respectively. KCI paid general expenses of the Company
totaling $77,075. The Company allocated certain overhead costs, primarily rent,
telephone, salaries and equipment expenses, to KCI in the amount of $21,257 and
to TMS in the amount of $132,960. The Company purchased from KCI its residential
customer base for $150,000 and the rights to the Telergy Canadian service mark
for $150,000.
During 1999 the following significant transactions occurred between the
related companies: The Company paid general expenses of KCI and TMS totaling
$5,033 and $24,106, respectively. KCI paid general expenses of the Company
totaling $61,785. The Company allocated rent to TMS in the amount of $47,226.
The Company provided certain consulting services to TMS for a one-time payment
of $246,974.
Transactions are settled through cash payments between the companies or KCI
and TMS applying cash received directly from Telergy Central customers in
payment of accounts receivable towards amounts due. Amounts due as a result of
the above and other transactions
F-22
<PAGE> 115
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
occurring between the related companies are reflected in the due to and due from
affiliated companies amounts in the balance sheet at December 31, 1998 and 1999.
NME has provided certain consulting services in connection with
establishing the fiber optic network to the Company. These services amounted to
$108,000, $4,000 and $264,000 in 1997, 1998 and 1999, respectively.
Approximately $5,000 and $68,000 of these amounts were included in accounts
payable at December 31, 1998 and 1999, respectively.
During 1998, NME purchased 83,334 shares of the Company's Class A common
stock for $10,000,080 (see Note 7). During 1999, Opinac North America, Inc.
("Opinac"), an affiliate of NME, advanced approximately $25 million in exchange
for an 8% convertible note for that amount and acquired 41,666 shares of Class A
common stock and a warrant to purchase 100,000 shares of Class A common stock
for $5 million. The principal amount of the note was subsequently converted in
1999 to 208,334 shares of Class A common stock at a conversion price of $120 per
share.
The President and Chief Executive Officer of NME and the President and
Chief Operating Officer of Niagara Mohawk Holdings, Inc, became Directors of
Telergy during 1999.
The Company paid approximately $22,000, $112,000 and $304,000 for charter
air services in 1997, 1998 and 1999, respectively to a company whose sole
shareholder is an Officer and Director of Telergy.
During 1999 in connection with raising equity capital the Company incurred
a fee in the amount of $1,200,000 payable to a Director of Telergy, this fee was
paid in January 2000. The fee was charged against additional paid-in-capital in
1999.
14. COMMITMENTS AND CONTINGENCIES
Pursuant to a long distance telephone service resale agreement with MCI
WorldCom Network Services ("WorldCom"), the Company is required to purchase a
minimum of $100,000 of services from WorldCom in order to receive certain volume
discounts. In the event the Company fails to meet its minimum commitment, it
must pay a deficiency charge equal to the difference between the monthly
commitment and the actual revenue so that WorldCom is guaranteed its $100,000
minimum monthly revenues. The Company has consistently met its minimum
commitments.
The Company is involved in certain claims and lawsuits arising in the
normal course of business. Management is vigorously defending these actions. The
Company does not believe that these claims or lawsuits will have a material
effect on the Company's financial condition or results of operations.
15. DARK FIBER LEASE AND OTHER AGREEMENTS
On January 31, 1997, Telergy, in its corporate capacity and as General
Partner of Central, and Citizens Communications Company (Citizens) entered into
a User Agreement to Lease Dark Fiber, whereby Central will lease to Citizens 12
strands of dark fiber along Central's fiber optic network for a period of 45
years. This period corresponds to the term of the NMPC Right of Occupancy
agreement including the two 10-year renewal options which Central is required to
exercise under the terms of the Citizens agreement. In return, Citizens paid
Central $10 million in upfront user fees plus certain additional future annual
fees for maintenance and other charges. Central received $4 million in February
1997 and $6 million in February 1998 from Citizens as
F-23
<PAGE> 116
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payment of the user fee. The $10 million of revenue associated with the user
fees has been deferred and is being recognized over the lease term, beginning in
1998 when the network was placed in service. This agreement also permits Central
to lease fiber from Citizens within a route, if constructed, from Syracuse to
Pleasant Valley, New York without cost to Central.
On February 20, 1997, Central, Telergy, Inc. and Hyperion
Telecommunications of NY, Inc. (Hyperion) entered into the Fiber Construction
and Operating Agreement (the Hyperion Agreement), whereby Central will lease to
Hyperion 24 strands of dark fiber along Central's backbone fiber optic network
as well as dark fiber strands in local loops installed in NMPC's territory,
where applicable. Hyperion is required to share in the cost of local loops off
of the network for which it desires dark fiber strands yet to be constructed in
proportion to its share in fibers used within the loop. Hyperion agreed to pay
certain maintenance charges and fees to Central.
In October 1998 the Company entered into an agreement with Bell Canada for
the lease of dark fiber strands in five Segments of the Company's network in New
York State and Canada. The agreement calls for Bell Canada to pay the Company a
set dollar amount per fiber mile for each strand of dark fiber leased in the
segments. The term of the agreement is for a period of 20 years after Bell
Canada's acceptance of the final segment of all of the segments of dark fiber.
Bell Canada was required to pay a deposit of $1,567,000 in 1998 under the lease
agreement. The Company received approximately $10,450,000 of the remaining
minimum amount due under the lease agreement in February 2000 as a result of the
delivery and acceptance of all segments. Approximately $1.3 million remains due
from Bell Canada under the lease agreement. The revenue associated with this
lease is being deferred and will be recognized over the lease term beginning
when each segment is delivered and accepted by Bell Canada.
In 1998 the Company entered into a non-exclusive franchise agreement with
the City of New York which gives the Company the right to install and operate a
telecommunications system over and under property of the City in order to
provide telecommunications services which originate and/or terminate in the
franchise area. The franchise is granted for a term of 15 years. In connection
with this agreement, the Company was required to issue, to the benefit of the
City, and has outstanding at December 31, 1999 an irrevocable standby letter of
credit in the amount of $250,000. The letter of credit is secured by a $250,000
time deposit of the Company. The Company will be required to pay, upon
completion of the City network, a franchise fee each year to the City equal to a
set percentage of gross revenue attributable to the City network, with a minimum
of $200,000. The Company is also committed to provide a certain amount of fiber
capacity in the City network to the City.
In 1998 the Company entered into a binding letter agreement with Metrix
Interlink Corporation ("Metrix") to jointly build a fiber optic network from
Montreal, Canada to Albany, New York using right-of-way obtained by Metrix in
Canada and by the Company in New York State. The costs and expenses of
constructing, installing and maintaining the network will be shared by both
parties. Ownership of the conduits and fibers contained in the network shall be
split between the Company and Metrix. Metrix was subsequently acquired by MCI
WorldCom.
In May 1999, the Company entered into a Master Services Agreement with
Teleglobe USA, Inc. Under the agreement, both Teleglobe and Telergy established
$15 million notional balances to be drawn upon by the other party. The Teleglobe
balance can be drawn upon for a three year period by Telergy for network
management services, customer service and technical support, other consulting
services and use of Teleglobe's network at a discount off Teleglobe's standard
rates. The Telergy balance can be drawn on by Teleglobe to acquire dark fiber
IRUs in the
F-24
<PAGE> 117
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Telergy network. Teleglobe will have the right to collocate its equipment and
receive collocation services pursuant to the terms of an IRU agreement between
Telergy and Teleglobe. As of December 31, 1999, no services were drawn by
Telergy and no dark fiber IRUs have been acquired by Teleglobe, as such there
has been no accounting treatment given to this agreement in the accompanying
financial statements.
In July 1999, the Company entered into an agreement with US Crossing, Inc.
a wholly-owned subsidiary of Global Crossing. Telergy agreed to provide US
Crossing with exclusive use of an IRU in 96 strands of dark fiber in Telergy's
New York City ring for a minimum of 20 years. This includes delivery of an IRU
in a ring around Manhattan on or before December 31, 2000 and delivery of an IRU
in the entire New York city ring on or before December 31, 2002. The Company is
liable for liquidated damages of $25,000 per day up to $2.5 million; if the
Manhattan ring is not delivered by March 1, 2001 remedies beyond liquidated
damages are available to US Crossing. In exchange for the IRUs, US Crossing has
agreed to pay annual maintenance fees and to provide various forms of
operational support and consulting services to Telergy. US Crossing has also
agreed to provide Telergy collocation space in Telergy's operating areas in the
United States where US Crossing has such space available. US Crossing has
further agreed to provide Telergy capacity and services on its global network if
available, at discounted prices.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amount reported in the
balance sheets for cash and cash equivalents approximates fair value.
Accounts Receivable and Accounts Payable: The carrying amounts
reported in the balance sheets for accounts receivable and accounts payable
approximate fair value.
Notes Payable: The carrying amounts reported in the balance sheets
for notes payable approximate fair value based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
Long-Term Debt: The carrying amounts reported in the balance sheet
for long-term debt approximates the fair value based on the Company's
current incremental borrowing rates for similar types of borrowing
arrangements or a settlement rate.
17. INVESTMENT IN TELERGY EAST LLC
On June 10, 1998, the Company entered into an operating agreement with
Energy East Telecommunications, Inc. ("Energy East Telcom"), a wholly owned
subsidiary of Energy East Corporation ("Energy East"), to form a limited
liability company Telergy East LLC ("Telergy East"). The Company and Energy East
Telcom each have a 50% ownership interest in Telergy East. The Company's
investment in Telergy East is accounted for under the equity method and is
stated at cost, plus equity in subsequent earnings or loss. Telergy East will
provide all forms of telecommunication products and services in geographic
locations where a fiber optic network is constructed and installed, including
spurs and loops, using the right-of-way of New York State Electric & Gas
Corporation ("NYSEG") (a wholly owned subsidiary of Energy East). Each member is
obligated to contribute the amount of capital necessary to fund 50% of the
design, permitting, engineering, construction, installation and testing costs of
the backbone network, between Binghamton and Auburn, New York, and spurs to be
constructed in Binghamton and
F-25
<PAGE> 118
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Ithaca, New York. Telergy provided funding of approximately $9,300,000 to
Telergy East during the construction period of the backbone network. During 1999
Energy East made a cash contribution to Telergy East of approximately
$4,650,000, representing 50% of the incurred cost. This contribution was paid to
Telergy in satisfaction of 50% of the amounts due to Telergy, the remaining 50%
due to Telergy was canceled in satisfaction of Telergy's required capital
contribution to Telergy East. Going forward, the members shall contribute
sufficient capital to fund the Ithaca and Binghamton spurs and any other
construction activities mutually agreed upon by Telergy and Energy East.
The Telergy East LLC operating agreement provides for the members to
mutually decide whether to construct and install any other spurs. If one member
elects not to participate in that spur, then the other member can proceed to
have Telergy East construct the spur and that member would be required to make
capital contributions to fund all construction costs. Such one member spurs
would operate as separate divisions of Telergy East. Telergy East entered into a
fiber construction agreement in June 1998 with Wilde Construction, Inc. (a
subsidiary of MasTec North America, Inc.) for Wilde to serve as the primary
contractor for the construction of the backbone network and spurs.
On June 10, 1998 Telergy East entered into an agreement with NYSEG whereby
Telergy East was granted the non-exclusive right-of-occupancy to install Telergy
East's backbone network between Binghamton and Auburn, spurs and facilities
using NYSEG's right-of-way, poles, towers, abandoned gas and propane pipeline,
conduit and ducts. The initial term of the agreement is for 25 years and
includes the right and option to extend the initial term of the agreement for up
to two consecutive extension periods of ten years each. In consideration of the
granting of the right of occupancy within the backbone network rights-of-way,
Telergy East shall pay an annual fee of approximately $338 per pole for
attachment for the initial construction of the backbone network. Initial
backbone network will be constructed using primarily above ground poles and
towers. For spurs to be constructed or installed on NYSEG right-of-way, Telergy
East shall provide NYSEG with six dark fiber strands along the entire length of
any such spur. NYSEG has the irrevocable right to use such dark fibers and NYSEG
shall have the right to use those fibers to satisfy its own internal
communication needs or may lease or transfer the dark fibers to third parties or
NYSEG affiliates.
Energy East Telcom may elect to participate in the Cornell Project and have
it become part of Telergy East by making a capital contribution equal to 50% of
the capital costs incurred by Telergy to construct and install the Cornell
Project. The cash paid in by Energy East Telcom shall be distributed to the
Company. The Company will contribute the business and assets of the Cornell
Project into Telergy East.
F-26
<PAGE> 119
TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is summarized financial information for Telergy East as of
December 31, 1998 and 1999 for the period from June 10, 1998 to December 31,
1998 and the year ended December 31, 1999.
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Current assets.................................... $ 70 $ 58,984
Property and equipment, net....................... 6,566,332 9,274,566
Accounts payable and other current liabilities.... 1,946,288 191,219
Due to Telergy, Inc............................... 4,729,551 341,207
Due to Energy East................................ -- 68,000
Unearned fiber lease revenue...................... -- 2,000,424
Partners' (deficit) equity........................ (109,439) 6,738,900
Service revenue................................... -- 69,998
Operating expenses................................ 109,438 1,061,327
Net loss.......................................... 109,438 1,058,028
</TABLE>
The Due to Telergy, Inc. balance represents amounts advanced, in excess of
repayments received, to Telergy East to fund construction and operations.
18. LIQUIDITY CONSIDERATIONS
The Company has a working capital deficit as of December 31, 1999 of
approximately $151 million. As discussed in Note 4, this is the result of, among
other things, the Company's credit facility being recorded as a current
liability at December 31, 1999, since a covenant of the credit facility requires
the Company to raise a minimum of $200 million through an initial public
offering of its common stock or through the issuance of public debt by September
30, 2000. It is management's intention to complete an initial public offering by
September 30, 2000; however the timely completion can not be assured.
Alternatively, management plans to secure other forms of financing or increase
the amount of dark fiber leased under IRUs in order to raise sufficient proceeds
to pay off the outstanding balance of the credit facility at September 30, 2000.
Management believes that the amount of dark fiber to be leased to pay off the
credit facility would not have a significant impact on the Company's network
capacity for its continuing operations.
F-27
<PAGE> 120
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell on the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 6
Forward-Looking Statements........... 17
Industry Data........................ 17
Use of Proceeds...................... 18
Dividend Policy...................... 18
Capitalization....................... 19
Dilution............................. 20
Selected Consolidated Financial
Data............................... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 23
Business............................. 31
Government Regulation................ 50
Management........................... 59
Principal Stockholders............... 67
Certain Relationships and Related
Transactions....................... 71
Description of Capital Stock......... 81
Shares Eligible for Future Sale...... 85
Underwriting......................... 87
Legal Matters........................ 88
Experts.............................. 89
Where You Can Find Additional
Information........................ 89
Index to Financial Statements........ F-1
</TABLE>
-------------------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Shares
TELERGY, INC.
Class A Common Stock
-------------------------
[LOGO]
-------------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
RBC DOMINION SECURITIES
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 121
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by Registrant in connection with the sale of
common stock being registered hereby. All amounts are estimates except the SEC
registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $66,000
NASD fee.................................................... $25,500
Nasdaq National Market listing fee..........................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue sky fees and expenses..................................
Transfer agent fees.........................................
Miscellaneous...............................................
Total............................................. $
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides,
in effect, that any person made a party to any action by reason of the fact that
he is or was a director, officer, employee or agent of Registrant may and, in
certain cases, must be indemnified by Registrant against, in the case of a
non-derivative action, judgments, fines, amounts paid in settlement and
reasonable expenses (including attorneys' fees) incurred by him as a result of
such action, and in the case of a derivative action, against expenses (including
attorneys' fees), if in either type of action he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
Registrant. This indemnification does not apply, in a derivative action, to
matters as to which it is adjudged that the director, officer, employee or agent
is liable to Registrant, unless upon court order it is determined that, despite
such adjudication of liability, but in view of all the circumstances of the
case, he is fairly and reasonably entitled to indemnity for expenses, and, in a
non-derivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was unlawful.
Article 8 of our Certificate of Incorporation, as amended, provides that no
director shall be liable to Registrant or its stockholders for monetary damages
for breaches of the director's fiduciary duties to the fullest extent permitted
by the DGCL.
Reference is made to the underwriting agreement to be filed as Exhibit 1.1
hereto, pursuant to which the underwriters have agree to indemnify Registrant's
officers and directors against certain liabilities under the Securities Act of
1933.
Registrant has purchased directors' and officers' liability insurance in
order to limit its exposure to liability for indemnification of directors and
officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since May 1, 1997, Registrant has issued unregistered securities to a
limited number of people as described below. These issuances were deemed exempt
from registration under the Securities Act in reliance on Rule 701 or Section
4(2) promulgated thereunder.
II-1
<PAGE> 122
(1) From December 1997 to September 1998, in connection with bridge loans
of approximately $9.8 million, we issued warrants to purchase 202,974 shares of
Class A common stock to certain accredited investors at an exercise price of
$60.00 per share.
(2) In October and November 1998, we issued 6,745 shares of Class A common
stock at a price of $120.00 per share to a group of accredited investors for
$809,400 in cash. These shares contain provisions requiring us to redeem these
shares, in certain circumstances, for cash.
(3) In November 1998, we issued 83,334 shares of Class A common stock at a
price of $120.00 per share to Niagara Mohawk Energy for $10,000,080 in cash.
(4) From February to July 1999, we issued 143,160 shares of Class A common
stock at a price of $120.00 per share to a group of accredited investors for
$17,179,200 in cash.
(5) In May 1999, we issued 125,000 shares of Class A common stock to
Teleglobe at a price of $120.00 and warrants to purchase 83,333 shares of Class
A common stock at an exercise price of 120.00 per share for an aggregate of
$15,000,000 in cash. The warrants were not exercised and expired in 1999.
(6) In May 1999, in exchange for $30.0 million in cash, we issued to
Opinac, an affiliate of Niagara Mohawk Energy, an 8% subordinated convertible
note due 2001 in the principal amount of $25.0 million, 41,666 shares of Class A
common stock and warrants to purchase 100,000 shares of Class A common stock at
an exercise price of $60.00 per share. In June 1999, the entire outstanding
principal amount of the note was converted into 208,334 shares of Class A common
stock.
(7) In May 1999, in connection with a $50.0 million revolving credit
facility, we issued warrants to purchase 171,250 shares of Class A common stock
to MasTec North America, Inc. at an exercise price of $60.00 per share. The
warrant is exercisable at any time until May 31, 2004.
(8) In September 1999, in connection with a $25.0 million capital lease
agreement between us and GATX Telecom Investors I, L.L.C., a financing
syndicate, we issued warrants to purchase an aggregate of 14,583 shares of Class
A common stock to GATX Capital Corporation, Dana Commercial Credit Corporation,
Pacific Century Financial Corporation and IBM Credit Corporation at an exercise
price of $120.00 per share. The warrants are exercisable until the later of
three years from the consummation of this offering and September 15, 2006.
(9) In September 1999, we sold to GC Dev., a subsidiary of Global Crossing,
404,576 shares of 8% Series A preferred stock and warrants to purchase 564,227
shares of Class A redeemable common stock at an exercise price of $98.87 per
share for an aggregate of $40.0 million in cash. The warrant is exercisable
through the consummation of this offering.
(10) In November 1999, in connection with a $50 million credit facility, we
issued warrants to purchase 65,481 shares of Class A common stock to Bank of
America at an exercise price of $120.00 per share. The warrant is exercisable at
any time until November 19, 2002.
(11) In May 2000, we sold to GPU Telcom, 52,220 shares of Series B
convertible redeemable preferred stock at $383 per share and contingent warrants
for an aggregate purchase price of approximately $20.0 million in cash. The
Series B preferred stock will automatically convert, on a one-to-one basis,
subject to adjustment, into Class A common stock upon the consummation of this
offering. The contingent warrants are exercisable, at the same time that the
Series B preferred stock is converted, for a number of shares of Class A common
stock, if any, that will enable GPU Telcom to attain a minimum required return
on its investment.
(12) From April 1998 to May 2000, we granted to certain executive officers
and directors, as part of their employment with us, options to purchase up to
637,500 shares of Class A common stock at an exercise price of $0.01 per share.
The options generally vest over three years and
II-2
<PAGE> 123
expire 10 years after the date of issuance. Certain options will vest upon
completion of this offering.
(13) In June 1999, we issued to one of our directors under an agreement an
option to purchase 30,000 shares of Class A common stock at an exercise price of
$0.01 per share. The option vests upon completion of this offering and expires
in April 2008.
(14) From October 1999 to April 2000, we granted to five employees, as part
of their employment with us, options to purchase 19,500 shares of Class A common
stock at an exercise price of $0.01 per share. The options generally vest over
three years and expire 10 years after the date of issuance.
(15) In March 2000, we granted to an employee an option to purchase 2,000
shares of Class A common stock at an exercise price of $1.00. The option vests
over three years and expires in March 2010.
(16) In March 2000, we granted to an individual under his consulting
agreement an option to purchase up to 20,000 shares of Class A common stock at
an exercise price of $0.01 per share. The option vests over three years and
expires in March 2010.
The sales and issuance of securities described in paragraph (1) through
(11) above were deemed to be exempt from registration under the Securities Act
by virtue of Section 4(2), or Regulation D promulgated thereunder, as a
transaction by an issuer not involving any public offering.
The sales and issuance of securities described in paragraph (12) through
(16) above were deemed to be exempt from registration under the Securities Act
by virtue of Section 4(2) and Rule 701 promulgated thereunder as a transaction
by an issuer not involving any public offering and a transaction either pursuant
to a written compensatory benefit plan or pursuant to a written contract
relating to compensation, as provided in Rule 701.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- -------- -----------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2 Certificate of Designations of Series B Convertible
Redeemable Preferred Stock.
3.3 By-laws of the Registrant.
4.1* Specimen certificate of Class A common stock.
5.1* Opinion of Shearman & Sterling.
9.1 Voting Trust Agreement between Kevin J. Kelly, Brian P.
Kelly and William M. Kelly, Jr. dated December 27, 1999.
9.2 Form of Voting Trust Agreement between Kevin J. Kelly and
certain shareholders.
10.1.1+ Right of Occupancy Agreement between the Registrant and
Niagara Mohawk Power Corporation dated February 2, 1996.
10.1.2+ First Modification to Right of Occupancy Agreement between
the Registrant and Niagara Mohawk Power Corporation dated
September 25, 1997.
10.2.1 Stock Purchase Agreement between the Registrant and Niagara
Mohawk Energy, Inc. dated November 10, 1998.
10.2.2 First Modification to the Stock Purchase Agreement between
the Registrant and Niagara Mohawk Energy, Inc. dated May 11,
1999.
</TABLE>
II-3
<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- -------- -----------
<S> <C>
10.3.1 Conversion Rights Agreement between the Registrant and Plum
Street Enterprises dated April 24, 1998.
10.3.2 Amendment No. 1 to Conversion Rights Agreement between the
Registrant and Plum Street Enterprises dated November 10,
1998.
10.3.3 Amendment No. 2 to Conversion Rights Agreement between the
Registrant and Plum Street Enterprises dated July 15, 1999.
10.4+ License and Operating Agreement between Telergy Metro, LLC
and Consolidated Edison Company of New York, Inc. dated
January 28, 1998.
10.5+ Right of Occupancy Agreement between Telergy East, LLC and
New York State Electric & Gas Corporation dated June 10,
1998.
10.6 Strategic Construction Operating Agreement between the
Registrant and MasTec North America, Inc. dated May 6, 1998.
10.7.1 Master Purchase Agreement between Telergy Network Services,
Inc. and Northern Telecom Inc. dated March 1, 1999.
10.7.2 Amendment No. 1 to Master Purchase Agreement between Telergy
Network Services, Inc. and Northern Telecom, Inc. dated
February 26, 1999.
10.7.3 Amendment No. 2 to Master Purchase Agreement between Telergy
Network Services, Inc. and Northern Telecom, Inc. dated June
28, 1999.
10.8.1+ Credit Agreement between the Registrant, Northern Telecom,
Inc. and the lenders named therein dated February 26, 1999.
10.8.2 First Amendment to the Credit Agreement between the
Registrant, Northern Telecom, Inc. and the lenders named
therein dated November 18, 1999.
10.8.3 Second Amendment to the Credit Agreement between the
Registrant and Nortel Networks Inc. dated December 31, 1999.
10.9 Shareholders Agreement between the Registrant and GC Dev.
Co., Inc. dated September 9, 1999.
10.10+ IRU Agreement between U.S. Crossing, Inc. and Telergy Metro
LLC dated September 9, 1999.
10.11.1+ Master Equipment Lease Agreement between GATX Telecom
Investors I, LLC, Telergy Network Services, Inc. and the
Registrant dated September 15, 1999.
10.11.2 First Amendment to Master Equipment Lease Agreement between
Telergy Network Services, Inc., the Registrant and GATX
Telecom Investors I, L.L.C. dated May 2, 2000.
10.12.1+ Second Amended and Restated Credit Agreement between Telergy
Operating, Inc. and Bank Of America, N.A. dated November 19,
1999.
10.12.2 First Amendment to Second Amended and Restated Credit
Agreement between Telergy Operating, Inc., Bank of America
and the lenders named therein dated March 30, 1999.
10.12.3 Limited Conditional Waiver and Second Amendment to Second
Amended and Restated Credit Agreement between Telergy
Operating, Inc. and Bank of America, N.A. and the lenders
named therein dated April 25, 2000.
10.12.4+ Third Amendment to Second Amended and Restated Credit
Agreement between Telergy Operating, Inc., Bank of America,
N.A. and the lenders named therein dated April 27, 2000.
10.13 Construction Operating Agreement between Telergy
MidAtlantic, LLC and GPU Telcom Services, Inc. dated April
7, 2000.
</TABLE>
II-4
<PAGE> 125
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- -------- -----------
<S> <C>
10.14 Operating Agreement of Telergy Central, LLC between the
Registrant and Plum Street Enterprises, Inc. dated April 24,
1998.
10.15+ Operating Agreement of Telergy East, LLC between the
Registrant and Energy East Telecommunications, Inc. dated
June 10, 1998.
10.16 Operating Agreement of Telergy MidAtlantic, LLC between
Telergy Network Services, Inc. and GPU Telcom
Services, Inc. dated April 7, 2000.
10.17 1999 Incentive Compensation Plan.
10.18.1 Employment Agreement between the Registrant and J. Patrick
Barrett effective April 1, 1998.
10.18.2 Amendment to Employment Agreement between the Registrant and
J. Patrick Barrett effective May 28, 1999.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Shearman & Sterling (included in Exhibit 5.1).
23.2 Consent of Ernst and Young LLP.
24.1 Power of Attorney (included in the signature page of the
Registration Statement).
27.1 Financial Data Schedule.
99.1 Report of Independent Auditors on Financial Statement
Schedule -- Valuation and Qualifying Accounts.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions.
(b) Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts may be found at
Exhibit 99.1.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or related notes.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the DGCL, our Certificate of Incorporation or our by-laws, the underwriting
agreement or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by us of expenses incurred or paid by one of our directors, officers, or
controlling persons in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered hereunder, we will, unless in the opinion of our
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
We hereby undertake that:
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in
II-5
<PAGE> 126
reliance upon Rule 430A and contained in a form of prospectus filed by us
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this Registration Statement as of the time it was
declared effective.
2. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 127
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, we
have duly caused this registration statement to be signed on our behalf by the
undersigned, thereunto duly authorized, in Syracuse, New York, on May 10, 2000.
TELERGY, INC.
By:
------------------------------------
Brian P. Kelly
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Steven D. Rubin and Kevin J. Kelly, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to sign any registration statement for the
same offering covered by this registration statement that is to be effective
upon filing pursuant to Rule 462(b) promulgated under the Securities Act of
1933, and all post-effective amendments thereto, and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
Chairman of the Board and May 10, 2000
- --------------------------------------------------- Chief Executive Officer
Brian P. Kelly (Principal Executive
Officer)
President and Director May 10, 2000
- ---------------------------------------------------
J. Patrick Barrett
Vice Chairman and Executive May 10, 2000
- --------------------------------------------------- Vice President
Kevin J. Kelly
Executive Vice President and May 10, 2000
- --------------------------------------------------- Director
William M. Kelly, Jr.
</TABLE>
II-7
<PAGE> 128
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
Chief Financial Officer May 10, 2000
- --------------------------------------------------- (Principal Accounting
Nicholas A. Merrick Officer)
Director May 10, 2000
- ---------------------------------------------------
John F. O'Mara
Director May 10, 2000
- ---------------------------------------------------
J. Philip Frazier
Director May 10, 2000
- ---------------------------------------------------
Frank J. Zaccanelli
Director May 10, 2000
- ---------------------------------------------------
Albert J. Budney
Director May 10, 2000
- ---------------------------------------------------
Joel-Tomas Citron
Director May 10, 2000
- ---------------------------------------------------
Terence R. McAuliffe
Director May 10, 2000
- ---------------------------------------------------
Vincent F. Spina
</TABLE>
II-8
<PAGE> 129
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- -------- -----------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2 Certificate of Designations of Series B Convertible
Redeemable Preferred Stock.
3.3 By-laws of the Registrant.
4.1* Specimen certificate of Class A common stock.
5.1* Opinion of Shearman & Sterling.
9.1 Voting Trust Agreement between Kevin J. Kelly, Brian P.
Kelly and William M. Kelly, Jr. dated December 27, 1999.
9.2 Form of Voting Trust Agreement between Kevin J. Kelly and
certain shareholders.
10.1.1+ Right of Occupancy Agreement between the Registrant and
Niagara Mohawk Power Corporation dated February 2, 1996.
10.1.2+ First Modification to Right of Occupancy Agreement between
the Registrant and Niagara Mohawk Power Corporation dated
September 25, 1997.
10.2.1 Stock Purchase Agreement between the Registrant and Niagara
Mohawk Energy, Inc. dated November 10, 1998.
10.2.2 First Modification to the Stock Purchase Agreement between
the Registrant and Niagara Mohawk Energy, Inc. dated May 11,
1999.
10.3.1 Conversion Rights Agreement between the Registrant and Plum
Street Enterprises dated April 24, 1998.
10.3.2 Amendment No. 1 to Conversion Rights Agreement between the
Registrant and Plum Street Enterprises dated November 10,
1998.
10.3.3 Amendment No. 2 to Conversion Rights Agreement between the
Registrant and Plum Street Enterprises dated July 15, 1999.
10.4+ License and Operating Agreement between Telergy Metro, LLC
and Consolidated Edison Company of New York, Inc. dated
January 28 1998.
10.5+ Right of Occupancy Agreement between Telergy East, LLC and
New York State Electric & Gas Corporation dated June 10,
1998.
10.6 Strategic Construction Operating Agreement between the
Registrant and MasTec North America, Inc. dated May 6, 1998.
10.7.1 Master Purchase Agreement between Telergy Network Services,
Inc. and Northern Telecom Inc. dated March 1, 1999.
10.7.2 Amendment No. 1 to Master Purchase Agreement between Telergy
Network Services, Inc. and Northern Telecom, Inc. dated
February 26, 1999.
10.7.3 Amendment No. 2 to Master Purchase Agreement between Telergy
Network Services, Inc. and Northern Telecom, Inc. dated June
28, 1999.
10.8.1+ Credit Agreement between Telergy Network Services, Inc.,
Northern Telecom, Inc. and the lenders named therein dated
February 26, 1999.
10.8.2 First Amendment to the Credit Agreement between Telergy
Network Services, Inc., Northern Telecom, Inc. and the
lenders named therein dated November 18, 1999.
10.8.3 Second Amendment to the Credit Agreement between the
Registrant and Nortel Networks Inc. dated December 31, 1999.
10.9 Shareholders Agreement between the Registrant and GC Dev.
Co., Inc. dated September 9, 1999.
</TABLE>
<PAGE> 130
<TABLE>
<CAPTION>
10.10* Warrant, between the Registrant and GC Dev. Co., Inc. dated September 9, 1999.
<S> <C>
10.11* Registration Rights Agreement, between the Registrant and GC Dev. Co., Inc.
dated September 9, 1999.
10.12+ IRU Agreement between U.S. Crossing, Inc. and Telergy Metro LLC dated
September 9, 1999.
10.13.1+ Master Equipment Lease Agreement between GATX Telecom Investors I, LLC,
Telergy Network Services, Inc. and the Registrant dated September 15, 1999.
10.13.2 First Amendment to Master Equipment Lease Agreement between Telergy Network
Services, Inc., the Registrant and GATX Telecom Investors I, L.L.C. dated May
2, 2000.
10.14.1+ Second Amended and Restated Credit Agreement between Telergy Operating, Inc.
and Bank Of America, N.A. dated November 19, 1999.
10.14.2 First Amendment to Second Amended and Restated Credit Agreement between
Telergy Operating, Inc., Bank of America and the lenders named therein dated
March , 1999.
10.14.3 Limited Conditional Waiver and Second Amendment to Second Amended and Restated
Credit Agreement between Telergy Operating, Inc. and Bank of America, N.A. and
the lenders named therein dated April , 2000.
10.14.4+ Third Amendment to Second Amended and Restated Credit Agreement between
Telergy Operating, Inc., Bank of America, N.A. and the lenders named therein
dated April , 2000.
10.15 Construction Operating Agreement between Telergy MidAtlantic, LLC and GPU
Telcom Services, Inc. dated April 7, 2000.
10.16 Operating Agreement of Telergy Central, LLC between the Registrant and Plum
Street Enterprises, Inc. dated April 24, 1998.
10.17+ Operating Agreement of Telergy East, LLC between the Registrant and Energy
East Telecommunications, Inc. dated June 10, 1998.
10.18 Operating Agreement of Telergy MidAtlantic, LLC between Telergy Network
Services, Inc. and GPU Telcom Services, Inc. dated April 7, 2000.
10.19 1999 Incentive Compensation Plan.
10.20.1 Employment Agreement between the Registrant and J. Patrick Barrett effective
April 1, 1998.
10.20.2 Amendment to Employment Agreement between the Registrant and J. Patrick
Barrett effective May 28, 1999.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Shearman & Sterling (included in Exhibit 5.1).
23.2 Consent of Ernst and Young LLP.
24.1 Power of Attorney (included in the signature page of the Registration
Statement).
27.1 Financial Data Schedule.
99.1 Report of Independent Accountants on Financial Data Schedule -- Valuation and
qualifying accounts.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions.
<PAGE> 1
EXHIBIT 3.1
CORRECTED
CERTIFICATE OF INCORPORATION
OF
TELERGY, INC.
UNDER SECTION 102 OF THE DELAWARE GENERAL CORPORATION LAW
1. Name. The name of the corporation is Telergy, Inc. (the
"Corporation").
2. Registered Office and Agent. The address of its registered office in
the State of Delaware is 1209 Orange Street, Wilmington, Delaware, 19801, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. Purpose. The Corporation is formed to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
4. Capital Stock. The total number of shares of stock which the
Corporation shall have authority to issue is thirteen million (13,000,000)
shares consisting of:
(i) ten million shares of Common Stock, par value $0.0001 per
share, of which 9,999,900 shall be Class A Common Stock, par value $0.0001 per
share, and 100 shall be Class C Common Stock, par value $0.0001 per share, and
(ii) three million shares of Preferred Stock, par value $0.0001 per share. The
relative rights, preferences and limitations of the shares of each class are as
follows:
Terms of Common Stock. The Class A Common Stock and the Class
C Common Stock shall be of equal rank and shall entitle the holders thereof to
the same rights and privileges, except as hereinafter expressly provided.
Subject to the rights of the holders of any series of
Preferred Stock, the holders of the Class A Common Stock and the Class C Common
Stock shall be entitled to dividends, when, as and if declared by the Board of
Directors of the Corporation, payable at such time or times as the Board of
Directors may determine and any dividend declared by the Board of Directors
shall be declared and paid upon the outstanding shares of Class A Common Stock
and Class C Common Stock in equal amounts per share and without preference or
priority of one class of stock over the other.
Subject to the rights of the holders of any series of
Preferred Stock, in the event of any liquidation, dissolution, or winding up of
the affairs of the Corporation, whether
<PAGE> 2
voluntary or involuntary, all assets and funds of the Corporation available for
distribution to its shareholders shall be distributed and paid over to the
holders of the Class A Common Stock and the Class C Common Stock in equal
amounts per share and without preference or priority of one class of stock over
the other.
The holders of the Class A Common Stock shall be entitled to
one (1) vote per share, and the holders of Class C Common Stock shall be
entitled to ninety thousand (90,000) votes per share, both classes voting as one
class on all matters to be voted on by shareholders, including the election of
directors, except as otherwise expressly provided by law.
If at any time the Corporation shall pay a stock dividend or
distribution on its Class A Common Stock, or split, subdivide, or combine the
outstanding shares of its Class A Common Stock, the number of votes which a
share of Class C Common Stock shall entitle the holder thereof to exercise shall
be proportionately adjusted as of the date after the record date for such
dividend, distribution, split, subdivision or combination so as to maintain the
relative voting power of the Class C Common Stock which existed prior to the
occurrence of such event. In no event shall the Corporation be permitted to pay
dividends or distributions on its Class A Common Stock in shares of Class C
Common Stock.
Terms of Preferred Stock: The Preferred Stock may be issued
from time to time in one or more series for any proper corporate purpose without
further action by the shareholders. The designation, number, preferences and
other rights and limitations or restrictions of the Preferred Stock of each
series (other than such as are stated and expressed herein) shall be such as may
be fixed by the Board of Directors (authority so to do being hereby expressly
granted) and stated and expressed in a resolution or resolutions adopted by the
Board of Directors providing for the initial issue of Preferred Stock of such
series. Such resolution or resolutions shall (i) fix the designation of such
series, (ii) fix the number of shares of stock which shall constitute the
initial issue of such series, (iii) fix the dividend rights of holders of stock
of such series, including the dividend rate or rates thereon, the time or times
at which such dividends shall be paid or payable, whether such dividends shall
be cumulative, and if so, on what terms, (iv) fix the terms on which stock of
such series may be redeemed, including amounts payable upon redemption if the
shares of such series are to be redeemable, (v) fix the rights of the holders of
stock of such series upon dissolution, liquidation and distribution of assets or
winding up of the affairs of the Corporation, (vi) fix the terms or amount of
the sinking fund, if any, to be provided for the purchase or redemption of stock
of such series, (vii) fix the terms upon which the stock of such series may be
converted into or exchanged for stock of any other class or classes or of any
one or more series of Preferred Stock, if the shares of such series are to be
convertible or exchangeable, (viii) fix the voting rights, if any, of the stock
of such series, and (ix) fix such other powers, preferences and relative,
participating, optional or other special rights of such series, and the
qualifications, limitations or restrictions of such preferences and/or rights
desired to be so fixed.
Except to the extent expressly provided by the terms of a
particular series of Preferred Stock or as expressly required by law, holders of
shares of Preferred Stock of any series shall not be entitled to vote such
shares with respect to any matter which is put to a vote of
<PAGE> 3
the shareholders, and in any event shall not be entitled to more than one vote
per share.
All shares of any one series of Preferred Stock shall be
identical with each other in all respects except that shares of any one series
issued at different times may differ as to the dates from which dividends
thereon shall accumulate, and all series of Preferred Stock shall rank equally
and be identical in all respects except as specified in the respective
resolutions of the Board of Directors providing for the initial issue thereof.
Subject to the prior and superior rights of the Preferred Stock as set forth in
any resolution or resolutions of the Board of Directors providing for the
initial issue of a particular series of Preferred Stock, dividends (payable in
cash, stock or otherwise) as may be determined by the Board of Directors may be
declared and paid on the Common Stock from time to time out of any fund legally
available therefor, and the Preferred Stock shall not be entitled to participate
in any such dividends.
5. Series A Preferred Stock. The respective rights, preferences and
limitations of the shares of Series A Redeemable Preferred Stock are set forth
in this Article 5.
A. Designation of Series and Number of Shares; Limitation on
Future Issuance. There is hereby created a series of the Preferred Shares to be
designated the "Series A Redeemable Preferred Stock" (the "Series A Preferred
Stock"), which series shall consist of an aggregate of 404,576 shares, par value
$0.0001 per share. Such Series A Preferred Stock may be subdivided into two
subseries which may have different issuance dates, but which shall have
identical terms in all other respects. The initial stated value of the Series A
Preferred Stock shall be $98.87 per share (the "Initial Stated Value" and, as
the same may by increased from time to time pursuant to Section 3 hereof, the
"Stated Value"). The Corporation shall not increase the authorized number of
shares of the Series A Preferred Stock from that set forth above.
B. Rank.
(a) The Series A Preferred Stock shall rank, with
respect to dividends and distributions upon the liquidation, winding-up and
dissolution of the Corporation, whether voluntary or involuntary, (i) except to
the extent set forth in Section 3(b) hereof, senior to all classes of Common
Stock of the Corporation and to each other class of capital stock or series of
preferred stock established by the Board of Directors, the terms of which do not
expressly provide that it ranks senior to or on a parity with the Series A
Preferred Stock as to dividends and distributions upon the liquidation,
winding-up and dissolution of the Corporation (collectively referred to with the
Common Stock of the Corporation as "Junior Securities"); (ii) on a parity with
any other class of capital stock or series of preferred stock issued by the
Corporation established by the Board of Directors, the terms of which expressly
provide that such class or series will rank on a parity with the Series A
Preferred Stock as to dividends and distributions upon the liquidation,
winding-up and dissolution of the Corporation (collectively referred to as
"Parity Securities"); and (iii) junior to each class of capital stock or series
of preferred stock issued by the Corporation established by the Board of
Directors, the terms of which expressly provide that such class or series will
rank senior to the Series A Preferred Stock as to dividends and distributions
upon liquidation, winding-up and dissolution of the Corporation (collectively
referred to as "Senior Securities").
<PAGE> 4
(b) Except as permitted in this Section 2(b), no
payment on account of the purchase, redemption, retirement or other acquisition
of shares of Junior Securities, whether voluntary or involuntary, shall be made
directly or indirectly by the Corporation unless and until all the Series A
Preferred Stock shall have been redeemed as provided for herein or otherwise
reacquired by the Corporation. Notwithstanding the preceding sentence, the
Corporation may purchase, redeem, retire or otherwise acquire shares of its
Class A Common Stock pursuant to contractual commitments entered into prior to
July 8, 1999, provided that the Corporation offers to simultaneously redeem, for
cash at the then current Redemption Price (as defined in Section 5(a) hereof),
shares of the Series A Preferred Stock having an aggregate Redemption Price
equal to the aggregate amount to be paid by the Corporation for such purchase,
redemption, retirement or other acquisition of Class A Common Stock. Such
redemption option shall be offered on a pro rata basis to the holders of shares
of each subseries of Series A Preferred Stock as of the date set for such
redemption. In case fewer than all the shares of Series A Preferred Stock
represented by any certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof.
C. Dividends.
(a) The holders of shares of the Series A Preferred
Stock shall be entitled to receive, when, as and if dividends are declared by
the Board of Directors out of funds of the Corporation legally available
therefor, dividends in the amounts set forth below. Dividends shall be payable
quarterly in arrears at an annual rate of 8% of the $98.87 Initial Stated Value
of the Series A Preferred Stock (without giving effect to any increase in the
Initial Stated Value pursuant to this Section 3(a)) on September 30, December
31, March 31 and June 30 of each year (each a "Dividend Payment Date") or, if
any such date is not a Business Day, on the next succeeding Business Day, with
respect to the quarterly dividend period beginning on the preceding July 1,
October 1, January 1 and April 1, respectively, and ending on such Dividend
Payment Date. Dividends shall be paid to the holders of record at the close of
business on the record date specified by the Board of Directors at the time such
dividend is declared. Dividends on the Series A Preferred Stock that are not
paid in cash on the Dividend Payment Date for the dividend period to which they
relate shall be deemed paid and satisfied in full by adding the amount thereof
to the Stated Value of the Series A Preferred Stock. Dividends shall be computed
on the basis of a 360-day year consisting of twelve 30-day months, and will be
deemed to accrue on a daily basis for purposes of determining accrued dividends
payable upon redemption or upon the liquidation, dissolution or winding up of
the Corporation. The initial dividend for the Series A Preferred Stock, payable
on the first Dividend Payment Date, shall be pro-rated and shall accrue from the
date such shares are first issued. All dividends paid with respect to the Series
A Preferred Stock shall be paid ratably to the holders entitled thereto.
(b) No dividend or other distribution, other than
dividends payable solely in shares of Junior Securities, shall be declared, paid
or set apart for payment on shares of Junior Securities unless and until all
accrued and unpaid dividends, if any, on the Series A Preferred Stock from the
most recent Dividend Payment Date to the date of such dividend or distribution
shall have been paid, or declared and a sum of money sufficient for the payment
thereof set apart. No dividends or other distributions, other than dividends or
other distributions
<PAGE> 5
payable solely in shares of Parity Securities, shall be paid on any Parity
Securities except on dates on which dividends are paid on the Series A Preferred
Stock. All cash dividends paid or declared and set apart for payment on the
Series A Preferred Stock and any Parity Securities shall be paid or declared and
set apart for payment pro rata so that the amount of cash dividend paid or
declared and set apart for payment per share on the Series A Preferred Stock and
the Parity Securities on any date shall in all cases bear to each other the same
ratio that accrued and unpaid dividends on the Series A Preferred Stock from the
most recent Dividend Payment Date to the date of such dividend or distribution,
and accrued and unpaid dividends on the Parity Stock for all prior dividend
periods to the date of such dividend or distribution, if any, bear to each
other. Holders of the Series A Preferred Stock will not be entitled to any
dividends, whether payable in cash, property or stock, in excess of the
dividends as herein described.
D. Liquidation Preference. Upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, each holder of shares
of the Series A Preferred Stock will be entitled to payment, out of the assets
of the Corporation available for distribution, of an amount equal to 100% of the
Stated Value per share of Series A Preferred Stock held by such holder, plus
accrued and unpaid dividends, if any, on the Series A Preferred Stock from the
most recent Dividend Payment Date to the date fixed for liquidation, dissolution
or winding-up, without interest, before any distribution is made on any Junior
Securities, including without limitation Common Stock of the Corporation. After
payment in full of the liquidation preferences as set forth in the preceding
sentence, holders of the Series A Preferred Stock will not be entitled to any
further participation in any distribution of assets of the Corporation. If, upon
any voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, the amounts payable with respect to the Series A Preferred Stock
and all other Parity Securities are not paid in full, the holders of the Series
A Preferred Stock and the Parity Securities will share equally and ratably in
any distribution of assets of the Corporation in proportion to the full
liquidation preference and accrued and unpaid dividends, if any, to which each
is entitled. However, neither the voluntary sale, conveyance, exchange or
transfer (for cash, shares of stock, securities or other consideration) of all
or substantially all of the property or assets of the Corporation nor the
consolidation or merger of the Corporation with or into one or more entities,
will be deemed to be a voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, unless such sale, conveyance, exchange or
transfer shall be in connection with a liquidation, dissolution or winding-up of
the business of the Corporation.
E. Redemption.
(a) Optional Redemption by the Corporation. In
addition to any redemption pursuant to Section 2(b) hereof, the Corporation
shall have the right, at any time on or after the second anniversary of the
original issuance of the Series A Preferred Stock, to redeem for cash, out of
any source of funds legally available therefor, all, but not less than all, of
the outstanding shares of Series A Preferred Stock, at a redemption price equal
to 100% of the Stated Value per share on the redemption date plus all accrued
dividends, if any, thereon from the most recent Dividend Payment Date to the
redemption date (collectively, the "Redemption Price").
<PAGE> 6
(b) Procedure for Redemption. In the event that the
Corporation shall redeem shares of Series A Preferred Stock pursuant to Section
5(a) hereof, notice of such redemption shall be mailed by first-class mail,
postage prepaid, and mailed not less than 20 days nor more than 90 days prior to
the redemption date to the holders of record of the shares to be redeemed at
their respective addresses as they shall appear in the records of the
Corporation; provided, however, that failure to give such notice or any defect
therein or in the mailing thereof shall not affect the validity of the
proceeding for the redemption of any shares so to be redeemed except as to the
holder to whom the Corporation has failed to give such notice or except as to
the holder to whom notice was defective. Each such notice shall state: (A) the
redemption date; (B) the number of shares of Series A Preferred Stock to be
redeemed from such holder; (C) the Redemption Price; and (D) the place or places
where certificates for such shares are to be surrendered for payment of the
Redemption Price.
(c) Notice by the Corporation having been mailed as
provided in Section 5(b) hereof, and provided that on or before the applicable
redemption date funds necessary for such redemption shall have been set aside by
the Corporation, separate and apart from its other funds, in trust for the pro
rata benefit of the holders of the shares so called for or entitled to
redemption, so as to be and to continue to be available therefor, then, from and
after the redemption date (unless the Corporation defaults in the payment of the
Redemption Price, in which case such rights shall continue until the Redemption
Price is paid), such shares shall no longer be deemed to be outstanding and
shall not have the status of shares of Series A Preferred Stock, and all rights
of the holders thereof as shareholders of the Corporation (except the right to
receive from the Corporation the applicable Redemption Price) shall cease. Upon
surrender of the certificates for any shares to be redeemed (properly endorsed
or assigned for transfer, if the Board of Directors of the Corporation shall so
require and a notice by the Corporation shall so state), such shares shall be
redeemed by the Corporation at the applicable Redemption Price as aforesaid.
F. Voting Rights.
(a) General. The holders of record of shares of the
Series A Preferred Stock shall have no voting rights, except as hereinafter
provided in this Section 6.
(b) Class Voting. So long as any shares of the
Corporation's Series A Preferred Stock are outstanding the Corporation shall
not, without the affirmative vote or consent of the holders of at least a
majority of all outstanding shares of the Corporation's Series A Preferred
Stock, voting or consenting separately as a class:
(i) reduce or limit the voting rights of the
Series A Preferred Stock from those set forth herein;
(ii) (A) reduce the par value of the Series
A Preferred Stock; (B) change the shares of the Series A Preferred Stock into a
different number of shares of the Series A Preferred Stock or into the same or a
different number of shares of any other class of the Corporation's capital
stock; (C) change or abolish the designation or relative rights,
<PAGE> 7
preferences and limitations of the Series A Preferred Stock, including any
provisions in respect of undeclared dividends (whether or not accrued) or the
redemption of any shares of the Series A Preferred Stock; or (D) provide that
the Series A Preferred Stock may be converted into any other class or series of
the Corporation's capital stock; if in any of the foregoing cases such action
would adversely affect holders of the Series A Preferred Stock.
(iii) create any class of stock that by its
terms ranks senior to or on a parity with the Series A Preferred Stock as to
dividends or as to distributions upon liquidation, dissolution or winding up of
the Corporation; or
(iv) merge or consolidate with or into one
or more other entities if both (A) the Series A Preferred Stock will remain
outstanding after the merger or consolidation or will be converted into the
right to receive shares of stock of the surviving or consolidated entity or
another entity, and (B) the certificate or articles of incorporation of the
surviving or consolidated entity impose a limitation on or a change in the
rights of the Series A Preferred Stock of the nature described in 6 (i), (ii) or
(iii) above).
(c) In any case in which the holders of Series A
Preferred Stock shall be entitled to vote, each holder of shares of Series A
Preferred Stock shall be entitled to one vote for each share of Series A
Preferred Stock held.
G. Status of Acquired Shares. Shares of Series A Preferred
Stock redeemed by the Corporation or otherwise acquired by the Corporation shall
be restored to the status of authorized but unissued shares of capital stock,
without designation as to series, and, subject to the other provisions hereof,
may thereafter be issued.
H. Modification and Waiver. The Corporation may not, without
the consent of each holder affected thereby, (a) reduce the Stated Value or
liquidation preference of, or dividend on, the Series A Preferred Stock, (b)
change the place or currency of payment of the Stated Value or liquidation
preference of, or dividend on, the Series A Preferred Stock or (c) reduce the
percentage of outstanding Series A Preferred Stock necessary to modify or amend
the terms thereof or to grant waivers in respect thereto.
I. Severability of Provisions. Whenever possible, each
provision hereof shall be interpreted in a manner as to be effective and valid
under applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof, unless to do so would
contravene the present valid and legal intent of the Corporation and the initial
purchaser of the Series A Preferred Stock.
6. Incorporator. The name and mailing address of the sole incorporator
is:
Shaun S. Fleming
Buchanan Ingersoll Professional Corporation
20th Floor, 301 Grant Street
<PAGE> 8
Pittsburgh, PA 15219
7. Limitation of Liability.
A. A person serving as a Director of the Corporation shall not
have any personal liability to the Corporation or its stockholders for monetary
damages for breach of his or her fiduciary obligations as a Director, provided
that this limitation shall not apply to any liability of a Director (a) for any
breach of the Director's duty of loyalty to the corporation or its stockholders;
(b) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (c) for the unlawful payment of
dividends or other acts giving rise to liability under Section 174 of the
Delaware General Corporation Law, as amended; or (d) for any transaction from
which the Director derived an improper personal benefit.
B. Any repeal or modification of the foregoing Section A by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
C. If the Delaware General Corporation Law is amended
hereafter to authorize the further elimination or limitation of the liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent authorized by the Delaware General
Corporation Law, as so amended, without further action by either the Board of
Directors or the stockholders of the Corporation.
8. Indemnification
A. General. The Corporation 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, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director or officer of the Corporation,
or is or was serving at the request of the Corporation as a director or officer
of another corporation, partnership, joint venture, trust or other enterprise,
to the full extent authorized or permitted by law, as now or hereafter in
effect, against expenses (including 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
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person seeking indemnification 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 Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
B. Derivative Actions. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed
<PAGE> 9
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, to the full extent authorized or permitted by law, as now or
hereafter in effect, against expenses (including 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 Corporation; provided,
however, 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 to the
Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or 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 of Chancery or such
other court shall deem proper.
C. Successful Defense. To the extent that a present or former
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) above, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
D. Proceedings Initiated by any Person. Notwithstanding
anything to the contrary contained in subsections (a) or (b) above, except for
proceedings to enforce rights to indemnification, the Corporation shall not be
obligated to indemnify any person in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or part thereof) was
authorized in advance, or unanimously consented to, by the Board.
E. Procedure. Any indemnification under subsections (a) and
(b) above (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
present or former director or officer is proper in the circumstances because he
has met the applicable standard of conduct set forth in subsections (a) and (b)
above. Such determination shall be made, with respect to a person who is a
director or officer at the time of such determination (i) by a majority vote of
a quorum of the directors who are not parties to such action, suit or
proceeding, (ii) by a committee of such directors designated by majority vote of
such directors, even though less than a quorum, (iii) if there are no such
directors, or if such directors so direct by independent legal counsel in a
written opinion, or (iv) by the stockholders of the Corporation.
F. Advancement of Expenses. Expenses (including attorneys'
fees) incurred by a director or an officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking in form and substance satisfactory to
the Corporation by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that he is not entitled to be indemnified
by the Corporation pursuant to this Article. Such expenses (including attorneys'
fees) incurred by
<PAGE> 10
former directors and officers or other employees and agents may be so paid upon
such terms and conditions, if any, as the Board deems appropriate.
G. Rights Not Exclusive. The indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of this
Article shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any law,
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
H. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, 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 Corporation would have the power to indemnify him
against such liability under the provisions of the General Corporation Law of
the State of Delaware.
I. Definition of "Corporation". For purposes of this Article,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers so that any person who is or was a director or officer of
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
J. Certain Other Definitions. For purposes of this Article,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director or officer of the
Corporation which imposes duties on, or involves service by, such director or
officer with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation," as referred to in this
Article.
K. Continuation of Rights. The indemnification and advancement
of expenses provided by, or granted pursuant to, this Article shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of the heirs,
executors and administrators of such a person.
L. Repeal or Modification. Any repeal or modification of this
Article by the stockholders of the Corporation shall not adversely affect any
rights to indemnification
<PAGE> 11
and to advancement of expenses that any person may have at the time of such
repeal or modification with respect to any acts or omissions occurring prior to
such repeal or modification.
M. Action Against Corporation. Notwithstanding any provisions
of this Article to the contrary, no person shall be entitled to indemnification
or advancement of expenses under this Article with respect to any action, suit
or proceeding, or any claim therein, brought or made by him against the
Corporation.
9. By-Laws. In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized to make, amend and repeal the By-Laws of the Corporation.
<PAGE> 1
Exhibit 3.2
CERTIFICATE OF DESIGNATIONS
FOR
SERIES B
CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
TELERGY, INC.
The undersigned, Brian P. Kelly, Chief Executive Officer of Telergy, Inc.,
a Delaware corporation (the "Corporation"), hereby certifies that pursuant to
the authority conferred upon the Board of Directors by the Certificate of
Incorporation of the Corporation, and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, the Board of Directors
of the Corporation by unanimous written consent, duly adopted a resolution
providing for the issuance of shares of Series B Convertible Redeemable
Preferred Stock, which resolution is as follows:
RESOLVED, that the Board of Directors hereby authorizes the creation of a
series of preferred stock designated as Series B convertible Redeemable
Preferred Stock (the "Series B Preferred Stock") having the designations,
relative rights, preferences and limitations as set forth below.
SERIES B CONVERTIBLE PREFERRED STOCK
Section 1. Designation, Amount and Stated Value. A series of Preferred
Stock shall be designated the "Series B Convertible Redeemable Preferred Stock"
(the "Series B Preferred Stock") and the number of shares constituting such
series shall be an aggregate of 58,700 shares, par value $0.0001 per share. The
initial stated value of the Series B Preferred Stock shall be $383 per share
(the "Initial Stated Value" and, as the same may be increased from time to time
pursuant to Section 3 hereof, the "Stated Value").
Section 2. Rank.
(a) The Series B Preferred Stock shall rank, with respect to
dividends and distributions upon the liquidation, winding-up and dissolution of
the Corporation, whether voluntary or involuntary, (i) except to the extent set
forth in Section 2(b) hereof, senior to all classes of Common Stock of the
Corporation and to each other class of capital stock or series of preferred
stock established by the Board of Directors, the terms of which do not expressly
provide that it ranks senior to or on a parity with the Series B Preferred Stock
as to dividends and distributions upon the liquidation, winding-up and
dissolution of the Corporation (collectively referred to with the Common Stock
of the Corporation as "Junior Securities"); (ii) on a parity with any other
class of capital stock or series of preferred stock of the Corporation
established by the Board of Directors, the terms of which expressly provide that
such class or series will rank on a parity with the Series B Preferred Stock as
to dividends and distributions upon the liquidation, winding-up and dissolution
of the Corporation (collectively referred to as "Parity Securities"); and (iii)
junior to the Corporation's Series A Redeemable Preferred Stock and each other
class of capital stock or series
<PAGE> 2
of preferred stock of the Corporation established by the Board of Directors, the
terms of which expressly provide that such class or series will rank senior to
the Series B Preferred Stock as to dividends and distributions upon liquidation,
winding-up and dissolution of the Corporation (collectively referred to as
"Senior Securities").
(b) Except as permitted in this Section 2(b), no payment on account of the
purchase, redemption, retirement or other acquisition of shares of Junior
Securities, whether voluntary or involuntary, shall be made directly or
indirectly by the Corporation unless and until all the Series B Preferred Stock
shall have been redeemed as provided for herein or otherwise reacquired by the
Corporation. Notwithstanding the preceding sentence, the Corporation may
purchase, redeem or otherwise acquire shares of its Class A Common Stock, par
value $.0001 per share (the "Class A Common Stock") pursuant to contractual
commitments entered into prior to July 8, 1999, provided that the Corporation
offers to simultaneously redeem, for cash at the then current Repurchase Price
(as defined in Section 6(a) hereof), shares of the Series B Preferred Stock
having an aggregate Repurchase Price equal to the aggregate amount to be paid by
the Corporation for such purchase, redemption or other acquisition of Class A
Common Stock. In addition, in the event that the Corporation purchases, redeems,
or otherwise acquires for cash shares of any Senior Securities (other than in
connection with the purchase, redemption or other acquisition of Class A Common
Stock as contemplated by the preceding sentence), the Corporation shall offer to
simultaneously redeem, for cash at the then current Repurchase Price (as
determined in accordance with Section 6(a)), a pro rata number of shares of
Series B Preferred Stock so that the ratio of the amount paid to purchase,
redeem or otherwise acquire such shares of Senior Securities over the amount
that would be required to be paid on such date to redeem all outstanding shares
of such Senior Securities is the same ratio as the ratio of the aggregate
Repurchase Price payable with respect to the shares of Series B Preferred Stock
to be redeemed over the aggregate Repurchase Price that would be required to be
paid on such date to redeem all outstanding shares of Series B Preferred Stock.
Any offer pursuant to this Section 2(b) to redeem Series B Preferred Stock upon
the purchase, redemption or other acquisition of Class A Common Stock or Senior
Securities, as the case may be, shall be subject in all cases to the terms and
relative rights and preferences of any Senior Securities unless the holders of
such Senior Securities consent to such redemption of the Series B Preferred
Stock. The redemption options provided for in this Section 2(b) shall be offered
on a pro rata basis to the holders of shares of Series B Preferred Stock as of
the date set for such redemption. The Corporation shall provide written notice
of any offer pursuant to this Section 2(b) to all holders of record of Series B
Preferred Stock at their respective addresses as they shall appear in the
records of the Corporation at least fifteen (15) days prior to the proposed
redemption date. Any holder of Series B Preferred Stock electing to have its
shares redeemed shall provide written notice to the Company no later than five
(5) days prior to the date set for redemption. Upon receipt by each applicable
holder of Series B Preferred Stock of the applicable Repurchase Price in cash,
shares so redeemed will no longer be deemed outstanding and all rights of the
holder with respect to those shares will immediately terminate. In case fewer
than all the shares of Series B Preferred Stock represented by any certificate
are redeemed, a new certificate shall be issued representing the unredeemed
shares without cost to the holder thereof.
2
<PAGE> 3
Section 3. DIVIDENDS.
(a) The holders of shares of Series B Preferred Stock shall be
entitled to receive, when, as and if dividends are declared by the Board of
Directors out of funds of the Corporation legally available therefor, dividends
in the amounts set forth below. Dividends shall be payable quarterly in arrears
at an annual rate of 10% of the $383 Initial Stated Value of the Series B
Preferred Stock (without giving effect to any increase in the Initial Stated
Value pursuant to this Section 3(a)) on June 30, September 30, December 31 and
March 31 of each year (each a "Dividend Payment Date") or, if any such date is
not a Business Day, on the next succeeding Business Day, with respect to the
quarterly dividend period beginning on the preceding April 1, July 1, October 1
and January 1, respectively, and ending on such Dividend Payment Date.
Dividends shall be paid to the holders of record at the close of business on
the record date specified by the Board of Directors at the time such dividend
is declared. Dividends on a share of the Series B Preferred Stock that are not
paid in cash on the Dividend Payment Date for the dividend period to which they
relate shall be deemed paid and satisfied in full by adding the amount thereof
to the Stated Value of such share of Series B Preferred Stock. Dividends shall
be computed on the basis of a 360-day year consisting of twelve 30-day months,
and will be deemed to accrue on a daily basis for purposes of determining
accrued dividends payable upon redemption. The initial dividend for a share of
the Series B Preferred Stock, payable on the first Dividend Payment Date, shall
be pro-rated and shall accrue from the date such share is first issued. All
dividends paid with respect to the Series B Preferred Stock shall be paid
ratably to the holders entitled thereto.
(b) No dividend or other distribution, other than dividends
payable solely in shares of Junior Securities or through increases in stated
value of Junior Securities, shall be declared, paid or set apart for payment on
shares of Junior Securities unless and until all accrued and unpaid dividends,
if any, on the Series B Preferred Stock from the most recent Dividend Payment
Date to the date of such dividend or distribution shall have been paid in full
in cash, or declared and a sum of money sufficient for the payment thereof in
full in cash set apart. No dividends or other distributions, other than
dividends or other distributions payable solely in shares of Parity Securities
or through increases in stated value of Parity Securities, shall be paid on any
Parity Securities except on dates on which dividends are paid in cash on the
Series B Preferred Stock. All cash dividends paid or declared and set apart for
payment on the Series B Preferred Stock and any Parity Securities shall be paid
or declared and set apart for payment pro rata so that the amount of cash
dividends paid or declared and set apart for payment per share on the Series B
Preferred Stock and the Parity Securities on any date shall in all cases bear to
each other the same ratio that accrued and unpaid dividends on the Series B
Preferred Stock from the most recent Dividend Payment Date to the date of such
dividend or distribution, and accrued and unpaid dividends on the Parity Stock
for all prior dividend periods to the date of such dividend or distribution, if
any, bear to each other. Holders of the Series B Preferred Stock will not be
entitled to any dividends, whether payable in cash, property or stock, in excess
of the dividends as herein described.
(c) No dividend or other distribution, other than dividends
payable solely in shares of Series B Preferred Stock or through increases in
the Stated Value of the Series B Preferred
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<PAGE> 4
Stock, shall be declared, paid or set apart for payment on shares of Series B
Preferred Stock unless and until all accrued and unpaid dividends, if any, on
Senior Securities shall have been paid, or declared and a sum of money
sufficient for the payment thereof set apart.
Section 4. Liquidation Preference. Upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, each holder of shares
of the Series B Preferred Stock will be entitled to payment, out of the assets
of the Corporation available for distribution to its stockholders, of an amount
per share (the "Liquidation Amount") in cash equal to the sum of (i) Stated
Value plus (ii) an additional amount per share of Series B Preferred stock, if
any, which would be required to be paid to the holder of the Series B Preferred
Stock on the date of payment of the Liquidation Amount to provide such holder
with the Minimum IRR (as defined in Section 6(b)) with respect to each such
share, before any distribution is made on any Junior Securities, including
without limitation Common Stock of the Corporation, but only after the payment
in full of all amounts payable upon such liquidation, dissolution or winding-up
on all Senior Securities. After payment in full of the Liquidation Amount as set
forth in the preceding sentence, holders of the Series B Preferred Stock will
not be entitled to any further participation in any distribution of assets of
the Corporation in respect of such Series B Preferred Stock. If, upon any
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, the amounts payable with respect to the Series B Preferred Stock
and all other Parity Securities are not paid in full, the holders of the Series
B Preferred Stock and the Parity Securities will share equally and ratably in
any distribution of assets of the Corporation in proportion to the full
liquidation preference to which each is entitled. However, neither the voluntary
sale, conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets of
the Corporation nor the consolidation or merger of the Corporation with or into
one or more entities, will be deemed to be a voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, unless such sale,
conveyance, exchange or transfer shall be in connection with a liquidation,
dissolution or winding-up of the business of the Corporation.
Section 5. Conversion.
(a) Optional Conversion.
(i) Shares of Series B Preferred Stock shall, unless
previously redeemed or with respect to which a notice of redemption shall have
been sent pursuant to Section 6(a) hereof prior to the date on which the holder
of such shares has notified the Corporation of its intent to convert, be
convertible, at the option of the holder thereof, at any time in whole, but not
in part, into fully paid and non-assessable shares of Class A Common Stock. The
number of shares of Class A Common Stock into which each share of Series B
Preferred Stock may be converted shall be equal to the quotient of the Stated
Value of such share divided by the conversion price in effect at the time of
conversion determined as hereinafter provided (the "Conversion Price"). The
initial Conversion Price shall be the Initial Stated Value, so that initially
one share of Series B Preferred Stock shall be convertible into one share of
Class A Common Stock.
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(ii) In order to exercise the conversion right, the holder of shares
of Series B Preferred Stock shall surrender the certificate or certificates
representing such shares, duly endorsed or assigned in blank to the Corporation,
at the office of the Corporation together with written notice to the Corporation
of the holder's election to convert and written instructions regarding the
registration and delivery of certificates for shares of Class A Common Stock
acquired thereby. As promptly as practicable thereafter, the Corporation shall
issue and deliver to the holder to the place designated by such holder, a
certificate or certificates for the number of full shares of Class A Common
Stock to which such holder is entitled. The person entitled to receive shares of
Class A Common Stock issuable upon conversion shall be deemed to have become the
holder of record of such shares of Class A Common Stock at the close of business
on the date upon which the conversion right is so exercised or, in the event of
an automatic conversion upon consummation of an IPO (as defined in Section 5(b)
below), on the date upon which the IPO is consummated.
(b) Mandatory Conversion. Each outstanding share of Series B Preferred
Stock shall immediately prior to, and conditioned upon, the consummation of an
IPO and on the date thereof (the "Mandatory Conversion Date"), be automatically
converted into a number of fully paid and non-assessable shares of Class A
Common Stock equal to the quotient of the Stated Value of such share dividend by
the Conversion Price then in effect. For purposes hereof, "IPO" means the
initial underwritten public offer and sale of Class A Common Stock pursuant to a
registration statement on Form S-1 (or similar form) that has been declared
effective pursuant to the Securities Act of 1933, as amended (or any successor
statute), and with respect to which the aggregate gross proceeds to the
Corporation are at least $100 million.
(c) Antidilution. The Conversion Price shall be subject to adjustment
from time to time as follows:
(i) In case the Corporation shall at any time or from time to time
after the original issuance of the Series B Preferred Stock declare a dividend
or make a distribution on all of the outstanding shares of Class A Common Stock
in shares of Class A Common Stock, or effect a subdivision, combination,
consolidation or reclassification of the outstanding shares of Class A Common
Stock into a greater or lesser number of shares of Class A Common Stock, then,
and in each such case, the Conversion Price in effect immediately prior to such
event or the record date therefor, whichever is earlier, shall be adjusted by
multiplying such Conversion Price by a fraction, the numerator of which is the
number of shares of Class A Common Stock that were outstanding immediately prior
to such event and the denominator of which is the number of shares of Class A
Common Stock outstanding immediately after such event. An adjustment made
pursuant to this Section 5(c)(i) shall become effective (x) in the case of any
such dividend or distribution, immediately after the close of business on the
record date for the determination of holders of shares of Class A Common Stock
entitled to receive such dividend or distribution, or (y) in the case of any
such subdivision, reclassification, consolidation or combination, at the close
of business on the day upon which such corporate action becomes effective.
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(ii) In case of any capital reorganization or reclassification of
outstanding shares of Class A Common Stock (other than a change in par value or
other reclassification covered by Section 5(c)(i)), or in case of any
consolidation or merger of the Corporation with or into another entity that
results in a reclassification, change, conversion, exchange or cancellation of
outstanding shares of Class A Common Stock, or in case of any sale or transfer
of the property of the Corporation as an entirety or substantially as an
entirety, each share of Series B Preferred Stock then outstanding shall
thereafter be convertible into, in lieu of the Class A Common Stock issuable
upon such conversion prior to the consummation of such transaction, the kind and
amount of shares of stock and other securities and property (including cash)
receivable upon the consummation of such transaction by a holder of that number
of shares of Class A Common Stock into which one share of Series B Preferred
Stock was convertible immediately prior to such transaction. In any such case,
if necessary, appropriate adjustment (as determined in good faith by the Board
of Directors) shall be made in the application of the provisions set forth in
this Section 5 with respect to rights and interests thereafter of the holders of
shares of Series B Preferred Stock to the end that the provisions set forth
herein for the protection of the conversion rights of the Series B Preferred
Stock shall thereafter be applicable, as nearly as reasonably may be, to any
such other shares of stock and other securities and property deliverable upon
conversion of the shares of Series B Preferred Stock remaining outstanding (with
such adjustments in the conversion price and number of shares issuable upon
conversion and such other adjustments in the provisions hereof as the Board of
Directors shall determine in good faith to be appropriate). In case securities
or property other than Class A Common Stock shall be issuable or deliverable
upon conversion as aforesaid, then all references in this Section 5 shall be
deemed to apply, so far as appropriate and as nearly as may be, to such other
securities or property.
(d) Fractional Shares. In connection with the conversion of any shares of
Series B Preferred Stock, no fractions of shares of Class A Common Stock shall
be issued, but in lieu thereof the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to such fractional
interest multiplied by the greater of (A) the Market Price of such fractional
interest and (B) the Conversion Price in effect on the day on which such shares
of Series B Preferred Stock are deemed to have been converted. If more than one
share of Series B Preferred Stock is surrendered for conversion at the same time
by the same holder, the number of full shares of Class A Common Stock issuable
upon the conversion will be computed on the basis of all shares of Series B
Preferred Stock surrendered at that time by that holder. For purposes hereof,
"Market Price" of the Class A Common Stock means: (a) in connection with a
conversion of Series B Preferred Stock in connection with the IPO, the actual
price per share of Class A Common Stock sold in the IPO; (b) in connection with
any conversion other than in the IPO at a time when Class A Common Stock is
listed on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the average of the closing prices of such security's
sales on all securities exchanges on which such security may at the time be
listed, or, if there has been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day such security is not so listed, the average
of the representative bid and asked prices quoted in the NASDAQ System as of
4:00 P.M., New York time, or, if on any day such security is not quoted in the
NASDAQ System, the average of the highest bid
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and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day; and (c) in connection with any
conversion at any time when Class A Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the "Market Price" shall be the fair value thereof determined by the
Corporation's Board of Directors in its reasonable good faith judgment.
(e) Notice of Certain Events. In case at any time or from time to time
(i) the Corporation shall pay any dividend or make any other distribution to
all of the holders of its Class A Common Stock, (ii) there shall be any capital
reorganization or reclassification of the Class A Common Stock of the
Corporation or consolidation or merger of the Corporation with or into another
entity, or any sale or transfer to another entity of the property of the
Corporation as an entirety or substantially as an entirety, (iii) there shall
be a voluntary or involuntary dissolution, liquidation or winding up of the
Corporation or (iv) the Corporation proposes to consummate an IPO, then, in any
one or more of said cases the Corporation shall give at least 15 days' prior
written notice (the time of mailing of such notice shall be deemed to be the
time of giving thereof) to the registered holders of the Series B Preferred
Stock at the addresses of each as shown on the books of the Corporation of the
date on which (i) the books of the Corporation shall close or a record shall be
taken for such dividend or distribution, (ii) such reorganization,
reclassification, consolidation, merger, sale or transfer, dissolution,
liquidation or winding up shall take place or (iii) such IPO is proposed to be
consummated, as the case may be. Such notice shall also specify the date, if
known, as of which the holders of the Class A Common Stock and of the Series B
Preferred Stock of record shall participate in said dividend or distribution or
shall be entitled to exchange their Class A Common Stock or Series B Preferred
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale or transfer, or participate in
such dissolution, liquidation or winding up, as the case may be.
(f) Deferral of Adjustments. In any case in which this Section 5 shall
require that an adjustment shall become effective as of a record date for an
event, the Corporation may defer until the occurrence of such event (1) issuing
to the holder of any shares of Series B Preferred Stock converted after such
record date and before the occurrence of such event, the additional shares of
Class A Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Class A Common Stock
issuable upon such conversion before giving effect to such adjustment and (2)
payment to such holder of any amount in cash in lieu of a fractional share of
Class A Common Stock, provided that the Corporation shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's
rights to receive such additional shares of Class A Common Stock, or such cash,
upon the occurrence of the event requiring such adjustment.
(g) Notice of Adjustments. Upon any adjustment of the Conversion Price,
the Corporation shall give written notice thereof, by first class mail, postage
prepaid, to each holder of
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Series B Preferred Stock at the address of such holder as shown on the records
of the Corporation, which notice shall state the Conversion Price resulting from
such adjustment and set forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
(h) Certain Covenants. The Corporation hereby covenants that all shares of
Class A Common Stock which may be issued upon conversion of each share of Series
B Preferred Stock will, upon issuance, be legally and validly issued, fully paid
and nonassessable and, without limiting the generality of the foregoing, the
Corporation agrees that it will from time to time take all such action as may be
required to assure that the par value per share of the Class A Common Stock is
at all times not greater than the then current Conversion Price. The Corporation
further covenants that during the Period within which the conversion rights
represented by the Series B Preferred Stock may be exercised, the Corporation
will at all times have authorized and reserved a sufficient number of shares of
Class A Common Stock to provide for the conversion of all outstanding shares of
Series B Preferred Stock.
(i) Transfer Taxes and Issuance of Certificates. The issuance of
certificates of shares of Class A Common Stock upon the conversion of Series B
Preferred Stock shall be made without charge to the converting holder of record
of such Series B Preferred Stock for any transfer or similar tax in respect of
the issuance of such certificates, and such certificates shall be issued in the
respective names of, or, subject to compliance with any applicable transfer
restrictions, in such names as may be directed by, the holder of record of such
Series B Preferred Stock; provided, however, that the Corporation shall not be
required to pay any such tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate in a name other
than that of the holder of record of the Series B Preferred Stock converted, and
the Corporation shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Corporation the amount of such tax or shall have established to the
reasonable satisfaction of the Corporation that such tax has been paid.
(j) Class A Common Stock. References herein to Class A Common Stock shall
be deemed to include, unless the context otherwise requires, any securities of
the Corporation into which such Class A Common Stock or any such other
securities may be reclassified, exchanged or converted.
Section 6. Redemption and Other Repurchase Rights.
(a) Optional Redemption or Repurchase by the Corporation or the
Principals. In addition to any redemption pursuant to Section 2(b) hereof, the
Corporation and the Principals (as defined below) shall have the right, at any
time on or after the seventh anniversary of the original issuance of the Series
B Preferred Stock but prior to consummation of an IPO to redeem or repurchase
for cash, all, but not less than all, of the outstanding shares of Series B
Preferred Stock, at a price per share equal to the sum of (i) the Stated Value
plus (ii) an additional amount per share of Series B Preferred Stock which
additional amount would be required to be paid to such holder on
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<PAGE> 9
the repurchase date to give such holder an IRR equal to the Minimum IRR with
respect to such share that is being repurchased (the "Repurchase Price").
(b) For the purposes hereof, "Minimum IRR" means an IRR of 20% per annum.
For the purposes hereof, "IRR" means, as of the date of determination of the
IRR, the annual interest rate (compounded annually) which, when used to
calculate the net present value on a pre-tax basis as of the date of issuance of
a share of Series B Preferred Stock, of all payments made with respect to each
such share of Series B Preferred Stock, inclusive of the proceeds to be received
as the Repurchase Price or Liquidation Amount, causes the difference between
such net present value amount and the Initial Stated Value to equal zero. For
the purposes hereof, "Principal" means any of (i) Brian P. Kelley, Kevin J.
Kelley or William M. Kelley; (ii) any other family member of any of the
foregoing; (iii) any trust created by or for the benefit of any of the
foregoing; (iv) any entity of which any of the foregoing has a 20% or greater
equity interest or otherwise has the power to control such entity.
(c) Procedure for Redemption or Repurchase. In the event that the
Corporation or the Principals (the "Purchaser" or "Purchasers") shall redeem or
repurchase shares of Series B Preferred Stock pursuant to Section 6(a) hereof,
notice of such redemption or repurchase shall be mailed by first-class mail,
postage prepaid, and mailed not less than 20 days nor more than 90 days prior to
the redemption or repurchase date to the holders of record of the shares to be
redeemed or repurchased at their respective addresses as they shall appear in
the records of the Corporation; provided, however, that failure to give such
notice or any defect therein or in the mailing thereof shall not affect the
validity of the proceeding for the redemption or repurchase of any shares so to
be redeemed or repurchased except as to the holder to whom the Purchasers have
failed to give such notice or except as to the holder to whom notice was
defective. Each such notice shall state: (A) the redemption or repurchase date;
(B) the Repurchase Price (together with a calculation, in reasonable detail, of
the Minimum IRR, which calculation must be reasonably acceptable to the holders
of a majority of the outstanding shares of Series B Preferred Stock); (C) the
place or places where certificates for such shares are to be surrendered for
payment of the Repurchase Price; and (D) the identity of the Purchaser or
Purchasers.
(d) Payment of Repurchase Price. In the case of a redemption by the
Corporation pursuant to Section 6(a) hereof, provided that on or before the
applicable redemption date funds necessary for such redemption shall have been
set aside by the Corporation, separate and apart from its other funds, in trust
for the pro rata benefit of the holders of the shares so called for or entitled
to redemption, so as to be and to continue to be available therefor, then, from
and after the redemption date (unless the Corporation defaults in the payment of
the Repurchase Price, in which case such rights shall continue until the
Repurchase Price is paid in full in cash), such shares shall no longer be deemed
to be outstanding and shall not have the status of shares of Series B Preferred
Stock, and all rights of the holders thereof as shareholders of the Corporation
(except the right to receive from the Corporation the applicable Repurchase
Price) shall cease. Upon surrender of the certificates for any shares to be
redeemed (properly endorsed or assigned for transfer, if the Board of Directors
of the Corporation shall so require and a notice by the Corporation shall so
state) such
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shares shall be redeemed by the Corporation at the applicable Repurchase Price
in cash as aforesaid. In the case of a repurchase by the Principals, the
Principals so electing to repurchase shall tender to each applicable holder of
shares of Series B Preferred Stock the applicable Repurchase Price in cash and
such holder shall deliver the certificate or certificates representing the
applicable shares duly endorsed or assigned in blank to such Principal or
Principals.
(c) Mandatory Redemption at Option of Holder. From and after the
seventh anniversary of the date of issuance of the Series B Preferred Stock,
each holder of Series B Preferred Stock may, upon written notice given to the
Corporation, elect to cause the Corporation to redeem all of such holder's
shares of Series B Preferred Stock at a price per share equal to the Repurchase
Price. Each electing holder of Series B Preferred Stock shall deliver the
applicable shares to the Corporation together with such notice. The Corporation
will pay the Repurchase Price for such shares in cash within sixty days of
receipt of such notice. Upon receipt by each applicable holder of Series B
Preferred Stock of the applicable Repurchase Price in cash, shares so redeemed
will no longer be deemed outstanding and all rights of the holder with respect
to those shares will immediately terminate.
Section 7. Voting Rights.
(a) In General. The holders of record of the shares of Series B
Preferred Stock shall have no voting rights, except as hereinafter provided in
this Section 7 or as otherwise provided by law.
(b) Class Voting. So long as any shares of Series B Preferred Stock
are outstanding the Corporation shall not, without the affirmative vote or
consent of the holders of at least a majority of all outstanding shares of
Series B Preferred Stock, voting or consenting separately as a class:
(i) reduce or limit the voting rights of the Series B Preferred
Stock from those set forth herein or alter or change any of the rights,
privileges or preferences of the Series B Preferred Stock in any adverse manner;
(ii) (A) reduce the par value of the Series B Preferred Stock;
(B) change the shares of the Series B Preferred Stock into a different number of
shares of the Series B Preferred Stock or into the same or a different number of
shares of any other class of the Corporation's capital stock; (C) change or
abolish the designation or relative rights, preferences and limitations of the
Series B Preferred Stock, including any provisions in respect of undeclared
dividends (whether or not accrued) or the redemption or repurchase of any shares
of the Series B Preferred Stock; or (D) provide that the Series B Preferred
Stock may be converted into any other class or series of the Corporation's
capital stock other than the Class A Common Stock; if in any of the foregoing
cases such action would adversely affect holders of the Series B Preferred
Stock;
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(iii) create any class of stock that by its terms ranks senior
to or on a parity with the Series B Preferred Stock as to dividends or
redemption or as to distributions upon liquidation, dissolution or winding up of
the Corporation; or
(iv) merge or consolidate with or into one or more other
entities if both (A) the Series B Preferred Stock will remain outstanding after
the merger or consolidation or will be converted into the right to receive
shares of stock of the surviving or consolidated entity or another entity, and
(B) the certificate or articles of incorporation of the surviving or
consolidated entity impose a limitation on or a change in the rights of the
Series B Preferred Stock of the nature described in Section 7(b)(i), (ii) or
(iii) above).
(c) In any case in which the holders of Series B Preferred Stock
shall be entitled to vote, each holder of shares of Series B Preferred Stock
shall be entitled to one vote for each share of Series B Preferred Stock held.
Section 8. Status of Acquired Shares. Shares of Series B Preferred Stock
redeemed by the Corporation or otherwise acquired by the Corporation shall be
restored to the status of authorized but unissued shares of capital stock,
without designation as to series, and, subject to the other provisions hereof,
may thereafter be issued.
Section 9. Severability of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof, unless to do so would
contravene the present valid and legal intent of the Corporation and the initial
purchaser of the Series B Preferred Stock.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, I have signed and verified this certificate on
April 28, 2000 and affirm under the penalties of perjury that the statements
contained herein are true.
TELERGY, INC.
By: /s/ Brian P. Kelly
----------------------
Brian P. Kelly
Chief Executive Officer
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EXHIBIT 3.3
BY-LAWS
OF
TELERGY, INC.
I OFFICES
Telergy, Inc. (hereinafter the "Corporation") may have offices and
places of business at such places, within or without the State of Delaware, as
the Board of Directors may from time to time determine or the business of the
Corporation may require.
II MEETINGS OF STOCKHOLDERS
A. Place of Meetings.
All meetings of the stockholders for the election of directors
shall be held at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of Delaware
as shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver thereof.
B. Annual Meeting.
Annual meetings of stockholders commencing with the year 2000
shall be held on the date and time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting or in a duly
executed waiver thereof.
C. Special Meetings.
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute or by the Certificate of Incorporation,
may be called by the Chief Executive Officer, President, Executive Vice
President or a majority of the Board of Directors and shall be called by the
Chief Executive Officer, President or Secretary at the request in writing of
stockholders owning not less than a majority of the issued and outstanding Class
C Common Stock of the Corporation. Such request shall state the purpose or
purposes of the proposed meeting.
D. Notice.
Written notice of each meeting of stockholders shall be given in
the manner prescribed in Article IV of these By-Laws which shall state the
place, date and hour of the meeting and, in the case of a special meeting, shall
state the purpose or purposes for which the meeting is called. Such notice shall
be given to each stockholder of record entitled to vote at the meeting not less
than ten (10) nor more
<PAGE> 2
than sixty (60) days prior to the meeting. If mailed, notice is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his or her address as it appears on the records of the
corporation.
E. Business.
Business transacted at any special meeting of stockholders shall
be limited to the purpose or purposes stated in the notice.
F. Quorum and Adjournment.
Except as otherwise provided by statute or the Certificate of
Incorporation, the holders of a majority of the shares of the Corporation issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall be necessary to and shall constitute a quorum for the
transaction of business at each meeting of stockholders. If a quorum shall not
be present at the time fixed for any meeting, the stockholders present, in
person or by proxy, and entitled to vote thereat shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present. At such adjourned meeting at which a
quorum shall be present, any business may be transacted which might have been
transacted at the meeting as originally notified. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
G. Voting.
Except as otherwise provided by law or by the Certificate of
Incorporation each stockholder of record of any class or series of the capital
stock of the Corporation shall be entitled at each meeting of stockholders to
such number of votes, for each share of capital stock as may be fixed in the
Certificate of Incorporation or in the resolution or resolutions adopted by the
Board providing for the issuance of such stock. If the Certificate of
Incorporation provides for more or less than one vote for any share, on any
matter, every reference in these By-Laws to a majority or other proportion of
stock shall refer to such majority or other proportion of the votes of such
stock.
H. Vote Required.
When a quorum is present at any meeting, in all matters other than
the election of directors, the vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote on the subject
matter shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes or of the
Certificate of Incorporation, a different vote is required in which case such
express provision shall govern and control the decision of such question.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
<PAGE> 3
election of directors.
I. Voting Lists.
The officer who has charge of the stock ledger of the Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
J. Proxy.
Each stockholder entitled to vote at a meeting of stockholders or
to express consent or dissent to corporate action in writing without a meeting
may authorize another person or persons to act for him or her by proxy, but no
such proxy shall be voted or acted upon after three (3) years from its date,
unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally.
K. Consents.
Any action required or permitted to be taken at any annual or
special meeting of the stockholders may be taken without a meeting, without
prior notice and a vote, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Where corporate action is taken in such manner by less than
unanimous written consent, prompt written notice of the taking of such action
shall be given to all stockholders who have not consented in writing thereto.
<PAGE> 4
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required by statute to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
III DIRECTORS
A. Board of Directors.
The business and affairs of the Corporation shall be managed by or
under the direction of its Board of Directors, which may exercise all such
powers of the Corporation and do all such lawful acts and things, except as
provided in the Certificate of Incorporation.
B. Number; Election and Tenure.
The number of directors which shall constitute the whole Board
shall be determined from time to time by resolution adopted by the affirmative
vote of a majority of all directors of the Corporation then holding office at
any special or regular meeting. Any such resolution increasing or decreasing the
number of directors shall have the effect of creating or eliminating a vacancy
or vacancies as the case may be, provided that no such resolution shall reduce
the number of directors below the number then holding office. The directors
shall be elected by a plurality of the votes cast at annual meetings of the
stockholders, except as provided in Section 3.3 of this Article, and each
director elected shall hold office until his or her successor is elected and
qualified or until his or her earlier resignation or removal. Any director may
resign at any time upon written notice to the Corporation. Directors need not be
stockholders.
C. Vacancies.
Vacancies in the Board of Directors and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, although less than
quorum, or by a sole remaining director, and the directors so chosen shall hold
office until the next annual election and until their successors are duly
elected and shall qualify, or until his or her earlier resignation or removal.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or the By-Laws or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
by statute.
<PAGE> 5
D. Meetings.
The Board of Directors of the Corporation may hold its meetings,
and have an office or offices, within or without the State of Delaware.
E. First Meeting.
The first meeting of each newly elected Board of Directors shall
be held at such time and place as shall be fixed by the vote of the stockholders
at the annual meeting and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event of the failure of the stockholders to fix
the time or place of such first meeting of the newly elected Board of Directors,
or in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors.
F. Notice.
Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the Board. A special meeting of the Board may be called by the Chief
Executive Officer, President or any Vice President and a special meeting shall
be called by the Chief Executive Officer or the President on the written request
of two directors. Notice of each special meeting of the Board of Directors,
specifying the place, day and hour of the meeting, shall be given in the manner
prescribed in Article IV of these By-Laws and in this Section 3.6, either
personally or by mail, by courier, telex or telegram to each director, at the
address or the telex number supplied by the director to the Corporation for the
purpose of notice, at least 48 hours before the time set for the meeting.
Neither the business to be transacted at, nor the purpose of any meeting of the
Board, need be specified in the notice of the meeting.
G. Quorum and Voting.
Except as may be otherwise specifically provided by statute or by
the Certificate of Incorporation, a majority of the total number of directors
shall constitute a quorum for the transaction of business. The vote of the
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors.
Members of the Board or members of any committee designated by the
Board may participate in meetings of the Board or of such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
such meeting shall constitute presence in person at such meeting.
<PAGE> 6
H. Consents.
Unless otherwise restricted by the Certificate of Incorporation,
any action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
I. Committees.
The Board of Directors may, by resolution passed by a majority of
the whole Board, designate one or more committees, each committee to consist of
one or more directors of the Corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the
extent permitted by law and provided in the resolution, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it. In the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
J. Committee Rules.
Unless the Board of Directors otherwise provides, each committee
designated by the Board may adopt, amend and repeal rules for conducting its
business. In the absence of a provision by the Board or a provision in the rules
of a committee to the contrary, a majority of the entire authorized number of
members of such committee shall constitute a quorum for the transaction of
business, the vote of a majority of the members present at a meeting at the time
of such vote if a quorum is then present shall be the act of such committee, and
in other respects each committee shall conduct its business in the same manner
as the Board conducts its business pursuant to this Article III of these
By-Laws.
K. Committee Minutes.
Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
L. Compensation of Directors.
The directors as such, and as members of any standing or special
committee, may receive such compensation for their services as may be fixed from
time to time by resolution of the Board. Nothing herein contained shall be
construed to
<PAGE> 7
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
The directors may be paid their expenses, if any, for attendance
at each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
M. Removal of Directors.
Any director or the entire Board of Directors may be removed, with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors.
N. Meetings by Conference Telephone, Etc.
Any one or more members of the Board, or of any committee thereof,
may participate in a meeting of the Board, or of such committee, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
IV NOTICES
A. Form of Notice.
Whenever, under the provisions of the Delaware General Corporation
Law or of the Certificate of Incorporation or of these By-Laws, notice is
required to be given to any director or stockholder, it shall not be construed
to mean personal notice, but such notice may be given in writing, by first class
or express mail, addressed to such director or stockholder, at his or her
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail, except that, in the case of
directors, notice sent by first class mail shall be deemed to have been given
forty-eight hours after being deposited in the United States mail. Whenever,
under these By-Laws, notice may be given by telegraph, courier or telex, notice
shall be deemed to have been given when deposited with a telegraph office or
courier service for delivery or, in the case of telex, when dispatched.
B. Waiver of Notice.
Whenever notice is required to be given under any provisions of
the Delaware General Corporation Law or the Certificate of Incorporation or
these By-Laws, a written waiver, signed by the person or persons entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when
<PAGE> 8
the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the Certificate of Incorporation
or the By-Laws.
V. OFFICERS
A. Selection of Officers.
The officers of the Corporation shall be chosen by the directors
and shall consist of a Chief Executive Officer, President, Executive
Vice-President, Secretary, and Treasurer and it may, if it so determines, elect
from among its members a Chairman of the Board and one or more Vice Chairmen of
the Board. The Board of Directors may also choose a General Counsel, a Chief
Financial Officer, a Chief Operating Officer, a Chief Information Officer, one
or more vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and such other officers as the Board may deem desirable or
appropriate and may give any of them such further designations or alternate
titles as it considers desirable. Any number of offices may be held by the same
person, unless the Certificate of Incorporation or these By-Laws otherwise
provide. A failure to elect officers shall not dissolve or otherwise affect the
Corporation.
B. Term of Office, Removal and Vacancies.
Each officer of the Corporation shall hold his or her office until
his or her successor is elected and qualifies or until his or her earlier
resignation or removal. Any officer may resign at any time upon written notice
to the Corporation. Any officer elected or appointed by the Board of Directors
may be removed at any time, with or without cause, by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring by death, resignation,
removal or otherwise, in any office of the Corporation, shall be filled by the
Board of Directors.
C. Compensation.
The salaries of the officers of the Corporation may be fixed by
the Board of Directors or a duly constituted committee thereof.
D. Chairman of the Board.
The Chairman of the Board shall preside at all meetings of the
Board of Directors at which he or she is present and shall have and may exercise
such powers as may, from time to time, be assigned to him or her by the Board.
If the Chairman or any Vice-Chairman is not available to preside over a meeting
of the Board, a director
<PAGE> 9
chosen by a majority of the directors present shall preside over the meeting.
E. The Chief Executive Officer.
The Chief Executive Office shall be the senior officer of the
Corporation and, subject to the control of the Board of Directors, shall have
general and active management and control of the business and affairs of the
Corporation and over its several officers, and shall see that all orders and
resolutions of the Board are carried into effect. The Chief Executive Officer
shall have the power to call special meetings of stockholders and call special
meetings of the Board and shall preside over meetings of the stockholders of the
Corporation.
F. The President.
The President shall have the power to call special meetings of the
Board. If the Chief Executive Officer is not present at a meeting of the
stockholders, the President shall preside, and if the President is not present
at such meeting, a director or officer chosen by a majority of the directors
present shall preside over the meeting. The President shall exercise supervision
over the business of the Corporation and over its several officers, subject to
the oversight of the Chief Executive Officer.
G. Vice President.
Each Vice President, if any, shall perform such duties as shall be
assigned by the Board of Directors, the Chief Executive Officer or President,
and, in the absence or disability of the President, the most senior in rank of
the Vice Presidents shall perform the duties of the President.
H. Secretary.
The Secretary shall, to the extent practicable, attend all
meetings of the Board and all meetings of stockholders and shall record all
votes and the minutes of all proceedings in a book to be kept for that purpose,
and shall perform the same duties for any committee of the Board when so
requested by such committee. He or she shall give, or cause to be given, notice
of all meetings of stockholders and of the Board, shall perform such other
duties as may be prescribed by the Board or the Chief Executive Officer and
shall act under the supervision of the Chief Executive Officer. He or she shall
keep in safe custody the seal of the Corporation and affix the same to any
instrument that requires that the seal be affixed to it and which shall have
been duly authorized for signature in the name of the Corporation and, when so
affixed, the seal shall be attested by his or her signature or by the signature
of the Treasurer of the Corporation or an Assistant Secretary or Assistant
Treasurer of the Corporation. He or she shall keep in safe custody the
certificate books and stockholder records and such other books and records of
the Corporation as the Board or the Chief Executive Officer may direct and shall
perform all other duties incident to the office of Secretary and such other
duties as from time to time may be assigned by the Board or the Chief Executive
Officer.
<PAGE> 10
I. Assistant Secretary.
Assistant Secretaries of the Corporation, if any, in order of
their seniority or in any other order determined by the Board, shall generally
assist the Secretary and perform such other duties as the Board or the Secretary
shall prescribe, and, in the absence or disability of the Secretary, shall
perform the duties and exercise the powers of the Secretary.
J. Chief Operating Officer.
The Chief Operating Officer shall have primary responsibility for
the management and supervision of the day-to-day operations of the business of
the Corporation, subject to the direction of the Chief Executive Officer, and
shall perform such other duties as from time to time may be assigned by the
Chief Executive Officer.
K. Chief Information Officer.
The Chief Information Officer shall have primary responsibility
for corporate communications with shareholders and the general public, and shall
perform such other duties as from time to time may be assigned by the Chief
Executive Officer.
L. General Counsel.
The General Counsel shall be the chief legal officer of the
Corporation and shall have primary responsibility for the supervision of all
legal and regulatory matters involving the Corporation, and shall perform such
other duties as from time to time may be assigned by the Chief Executive
Officer.
M. Chief Financial Officer.
The Chief Financial Officer shall exercise supervision over all of
the financial affairs of the Corporation, and shall perform such other duties as
from time to time may be assigned by the Chief Executive Officer.
N. The Treasurer.
The Treasurer shall have the care and custody of all the funds of
the Corporation and shall deposit such funds in such banks or other depositories
as the Board, or any officer or officers, or any officer and agent jointly, duly
authorized by the Board, shall, from time to time, direct or approve. He or she
shall disburse the funds of the Corporation under the direction of the Board and
the Chief Executive Officer. He or she shall keep a full and accurate account of
all moneys received and paid on account of the Corporation and shall render a
statement of his or her accounts whenever the Board or the Chief Executive
Officer shall so request. He or she shall perform all other necessary actions
and duties in connection with the administration of the financial
<PAGE> 11
affairs of the Corporation and shall generally perform all the duties usually
appertaining to the office of treasurer of a corporation. When required by the
Board, he or she shall give bonds for the faithful discharge of his or her
duties in such sums and with such sureties as the Board shall approve.
O. Assistant Treasurers.
Assistant Treasurers of the Corporation, if any, in order of their
seniority or in any other order determined by the Board, shall generally assist
the Treasurer and perform such other duties as the Board or the Treasurer shall
prescribe, and, in the absence or disability of the Treasurer, shall perform the
duties and exercise the powers of the Treasurer.
P. Other Officers.
The Board or the Chief Executive Officer may appoint such other
officers and assistant officers and agents as it or he or she shall deem
necessary, who shall hold their offices for such terms and shall have authority
and exercise such powers and perform such duties as shall be determined from
time to time by the Board, by resolution not inconsistent with these By-Laws, or
by the Chief Executive Officer.
VI CERTIFICATES OF STOCK AND TRANSFERS
A. Certificates of Stock; Uncertificated Shares.
The shares of the Corporation shall be represented by
certificates, provided that the Board of Directors may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the Corporation by, the Chief Executive Officer,
President, the Executive Vice President or any Vice President, and countersigned
by the Secretary or any Assistant Secretary or the Treasurer or any Assistant
Treasurer, representing the number of shares registered in certificate form. Any
or all the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
B. Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificate or Uncertificated Shares.
The Board of Directors may issue a new certificate of stock or
<PAGE> 12
uncertificated shares in place of any certificate therefore issued by it,
alleged to have been lost, stolen or destroyed, and the Corporation may require
the owner of the lost, stolen or destroyed certificate, or his or her legal
representative to give the Corporation or its transfer agent a bond sufficient
to indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate or uncertificated shares.
C. Record Date.
In order that the Corporation may determine the stockholders
entitled to notice of, or to vote at, any meeting of stockholders or at any
adjournment thereof in respect of which a new record date is not fixed, or to
consent to corporate action without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and which
date shall not be more than sixty (60) nor less than ten (10) days before the
date of any such meeting, nor more than ten (10) days after the date on which
the date fixing the record date for the consent of stockholders without a
meeting is adopted by the Board of Directors, nor more than sixty (60) days
prior to any other such action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
D. Registered Stockholders.
The Corporation shall be entitled to recognize the exclusive right
of a person registered on its books as of any record date fixed or determined
pursuant to Section 6.3 of this Article as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, regardless of whether it shall
have express or other notice thereof, except as otherwise provided by the laws
of the State of Delaware.
E. Regulations.
The Board may make such rules and regulations as it may deem
expedient, not inconsistent with the Certificate of Incorporation or these
Bylaws, concerning the issue, transfer and registration of certificates
evidencing stock of the Corporation. It may appoint, or authorize any principal
officer or officers to appoint, one or more transfer agents and one or more
registrars, and may require all certificates of stock to bear the signature or
signatures (or a facsimile or facsimiles thereof) of any of them. The Board may
at any time terminate the employment of any transfer agent or any registrar of
transfers. In case any officer, transfer agent or registrar who has signed
<PAGE> 13
or whose facsimile signature has been placed upon a certificate shall cease to
be such officer, transfer agent or registrar, whether because of death,
resignation, removal or otherwise before such certificate or certificates shall
have been delivered by the Corporation, such certificate or certificates may
nevertheless be adopted by the Corporation and be issued and delivered as though
the person or persons who signed or whose facsimile signature has been placed
upon such certificate or certificates had not ceased to be such officer,
transfer agent or registrar.
F. Transfer of Stock.
(a) The transfer of shares of stock and the certificates
evidencing such shares of stock of the Corporation shall be governed by Article
8 of Subtitle I of Title 6 of the Delaware Code (the Uniform Commercial Code),
as amended from time to time.
(b) Registration of transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation upon request of
the registered holder thereof, or of his or her attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the Corporation,
and upon the surrender of the certificate or certificates evidencing such shares
properly endorsed or accompanied by a stock power duly executed.
VII GENERAL PROVISIONS
A. Dividends.
Dividends upon the capital stock of the Corporation, subject to
the provisions of the Certificate of Incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the Corporation's
capital stock, subject to the provisions of the Certificate of Incorporation.
B. Liability of Directors as to Dividends or Stock Redemption.
A member of the board of directors, or a member of any committee
designated by the board of directors, shall be fully protected in relying in
good faith upon the records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of its
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the director reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation, as to the value and amount
of the assets, liabilities and/or net profits of the Corporation, or any other
facts pertinent to the existence and amount of surplus or other funds from which
dividends might properly be declared and paid, or with which the Corporation's
stock might properly be purchased or redeemed.
C. Reserve for Dividends.
<PAGE> 14
Before declaring any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
D. Signing Checks, Notes, etc.
All checks or other orders for the payment of money and all notes
or other instruments evidencing indebtedness of the Corporation shall be signed
on its behalf by such officer or officers or such other person or persons as the
Board of Directors may from time to time designate, or, if not so designated, by
the Chief Executive Officer, the President, the Secretary, the Treasurer or any
Vice President or Assistant Treasurer of the Company.
E. Fiscal Year.
The fiscal year of the Corporation shall be fixed, and shall be
subject to change from time to time by the Board of Directors.
F. Seal.
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
G. Voting of Securities of Other Corporations.
In the event that the Corporation shall, at any time or from time
to time, own and have power to vote any securities (including but not limited to
shares of stock or partnership interests) of any other issuer, they shall be
voted by such person or persons, to such extent and in such manner, as may be
determined by the Board of Directors or, if not so determined, by any duly
elected officer of the Corporation.
VIII INDEMNIFICATION
A. Indemnification.
(a) General. The Corporation 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, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he or she
<PAGE> 15
is or was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, to the full extent
authorized or permitted by law, as now or hereafter in effect, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person seeking indemnification did not act in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
(b) Derivative Actions. The Corporation 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 or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he or she is or was a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, to the full extent authorized or
permitted by law, as now or hereafter in effect, against expenses (including
attorneys' fees) actually and reasonably incurred by him or her in connection
with the defense or settlement of such action or suit if he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Corporation; provided, however, 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 to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or 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 of Chancery or such other court
shall deem proper.
(c) Successful Defense. To the extent that a present or former
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in subjection's (a) and (b) above, or in defense of any claim, issue or matter
therein, he or she shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection therewith.
(d) Proceedings Initiated by any Person. Notwithstanding anything
to the contrary contained in subsections (a) or (b) above, except for proceeds
to enforce rights to indemnification, the Corporation shall not be obligated to
indemnify any person in connection with a proceeding (or part thereof) initiated
by such person unless such
<PAGE> 16
proceeding (or part thereof) was authorized in advance, or unanimously consented
to, by the Board.
(e) Procedure. Any indemnification under subsections (a) and (b)
above (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
present or former director, officer, employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in subsections (a) and (b) above. Such determination shall be made, with
respect to a person who is a director or officer at the time of such
determination (i) by a majority vote of a quorum of the directors who are not
parties to such action, suit or proceeding, (ii) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, (iii) if there are no such directors, or if such directors so direct by
independent legal counsel in a written opinion, or (iv) by the stockholders of
the Corporation.
(f) Advancement of Expenses. Expenses (including attorneys' fees)
incurred by a director or an officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking in form and substance satisfactory to
the Corporation by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation pursuant to this Article VIII. Such expenses
(including attorneys' fees) incurred by former directors and officers or other
employees and agents may be so paid upon such terms and conditions, if any, as
the Board deems appropriate.
(g) Rights Not Exclusive. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other subsections of this
Article VIII shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
law, by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
(h) Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against him
or her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability under the provisions of the General
Corporation Law of the State of Delaware.
(i) Definition of "Corporation". For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a
<PAGE> 17
consolidation or merger which, it its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article VIII with respect to
the resulting or surviving corporation as he or she would have with respect to
such constituent corporation of its separate existence had continued.
(j) Certain Other Definitions. For purposes of this Article VIII,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves service by,
such director, officer, employee or agent with respect to any employee benefit
plan, its participants or beneficiaries; and a person who acted in good faith
and in a manner he or she reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation,"
as referred to in this Article VIII.
(k) Continuation of Rights. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VIII shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
(l) Repeal or Modification. Any repeal or modification of this
Article VIII by the stockholders of the Corporation shall not adversely affect
any rights to indemnification and to advancement of expenses that any person may
have at the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.
(m) Action Against Corporation. Notwithstanding any provisions of
this Article VIII to the contrary, no person shall be entitled to
indemnification or advancement of expenses under this Article VIII with respect
to any action, suit or proceeding, or any claim therein, brought or made by him
or her against the Corporation.
Except as otherwise provided below, each person who was or is made
a party or is threatened to be made a party to or is involved in any threatened,
pending or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding") and whether or not
by or in the right of the Corporation or otherwise, by reason of the fact that
he or she or she, or a person of whom he or she or she is the heir, executor or
administrator, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as
<PAGE> 18
director or officer or trustee of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director or officer or trustee, or in any other capacity
while serving as a director or officer or trustee, shall be indemnified and held
harmless by the Corporation to the fullest extent permitted by law, as the same
exist or may hereinafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than are permitted the corporation to provide
prior to such amendment), against all reasonable expenses, including attorneys'
fees, and any liability and loss, including judgments, fines, ERISA excise taxes
or penalties and amounts paid or to be paid in settlement, incurred or paid by
such person in connection therewith, and such indemnification shall continue as
to a person who has ceased to be a director or officer or trustee; provided,
however, that except as provided in paragraph (b) hereof, the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this section shall be a contract right
and shall include the right to be paid by the Corporation the expenses incurred
in defending any such proceeding in advance of the final disposition thereof;
provided, however, that to the extent required by the law, the payment of such
expenses incurred by an officer or director in advance of the final disposition
of a proceeding shall be made only upon receipt of an undertaking, by or on
behalf of such person, to repay all amounts so advanced if it shall ultimately
be determined that he or she or she is not entitled to be indemnified under this
section or otherwise. The right to indemnification and advancement of expenses
provided herein shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such person.
IX AMENDMENTS
These By-Laws may be altered, amended or repealed, and new By-Laws
may be adopted, by the stockholders, or by the Board of Directors when such
power is conferred upon the Board of Directors by the Certificate of
Incorporation.
<PAGE> 1
Exhibit 9.1
VOTING TRUST AGREEMENT
This constitutes a Voting Trust Agreement ("Agreement") made on December
27, 1999, by and between BRIAN P. KELLY residing at 8407 Prestwick Drive,
Manlius, New York 13104 ("Brian"), KEVIN J. KELLY residing at 7868 East Ridge
Point Drive, Fayetteville, New York 13066 ("Kevin") and WILLIAM M. KELLY, JR.
residing at 7402 Highbridge Terrace, Fayetteville, New York 13066
("Bill")(collectively the "Kellys"), and BRIAN P. KELLY, KEVIN J. KELLY, and
WILLIAM M. KELLY, JR., as Voting Trustees (each individually a "Trustee" and
collectively, the "Trustees").
RECITALS
A. Brian, Kevin and Bill Kelly are brothers and the founders of Telergy,
Inc., a New York corporation engaged in the telecommunications business
(hereafter, "Telergy" or the "Corporation"). Collectively they own Telergy
shares which represent a majority of the total shareholder votes outstanding.
B. The authorized common stock of Telergy consists of: (i) 9,999,900
shares of Class A Common Stock, each with one vote per share, 3,389,745 shares
of which are currently issued and outstanding, and (ii) 100 shares of Class C
Common Stock, each with 90,000 votes per share and all of which are issued and
outstanding.
C. The Kellys own Telergy Common shares as follows:
<TABLE>
<CAPTION>
Class A Class C Total Votes
------- ------- -----------
<S> <C> <C> <C>
Brian 481,921 50 4,981,921
Kevin 484,951 50 4,984,951
Bill 482,879 -- 482,879
----------
10,449,751
</TABLE>
<PAGE> 2
Hereafter, all Telergy shares now or hereafter owned by the Kellys are
referred to as "Telergy Shares."
D. The Kellys wish to combine and unify their voting power in order to
secure the continuity and stability of the Corporation's policy and management.
Further, the Kellys wish to ensure that their Telergy Shares will be voted
collectively even if one or more of the brothers is unable to act whether by
reason of death or otherwise. Accordingly, the Kellys have created this Voting
Trust.
E. Each of the Kellys has agreed to act as a Voting Trustee. This
Agreement provides for the appointment of Successor Trustees only in the event
that none of the Kellys is willing or able to perform his duties as Trustee.
TERMS AND CONDITIONS
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement and for other good and valuable consideration, receipt of which is
acknowledged, the parties agree as follows:
1. CREATION OF VOTING TRUST. The Kellys hereby establish a Voting Trust
as provided in this Agreement and in furtherance thereof, each shall deliver
certificates representing all of their Telergy Shares to the Trustees, duly
endorsed for transfer to the Trustees. The Trustees shall deliver these
certificates to Telergy for cancellation, and new stock certificates shall be
issued to: "Brian P. Kelly, Kevin J. Kelly and William M. Kelly, as Trustees
under a Voting Trust Agreement dated December 27, 1999, a copy of which is on
file at the principal office of the Corporation." The Trustees shall ensure that
the foregoing transfers are properly noted on the records of the Corporation as
required by New York Business Corporation Law Section 621.
2
<PAGE> 3
2. VOTING TRUST CERTIFICATES. Promptly after the Trustees
receive the new stock certificates, the Trustees shall issue and deliver to each
Kelly Voting Trust Certificates for the Telergy Shares deposited by him with the
Trustees. These Voting Trust Certificates shall be in substantially the form of
the attached Exhibit A, the terms of which are incorporated by reference in this
Agreement.
3. VOTING. The Trustees shall have the exclusive right to vote
the Telergy Shares, to give written consents in lieu of a meeting of
shareholders as permitted by law and the Certificate of Incorporation and
By-Laws of Telergy, as amended, and to vote in person or by proxy at any and all
meetings of the shareholders of the Corporation, for whatever purpose called or
held, and in any and all proceedings, whether at meeting of the shareholders or
otherwise, wherein the vote or written consent of shareholders may be required
or authorized by law. The Trustees are authorized to vote or consent with
respect to all matters on which a shareholder may vote or consent including, but
not limited to, a merger, sale of assets, liquidation or other extraordinary
matter. So long as there are three Trustees, the consent of at least two of the
Trustees shall be required to authorize any vote or consent. If less than three
Trustees are serving, the remaining Trustees must act unanimously.
4. DIRECTORS. The Trustees are hereby directed to vote all
shares subject to this Voting Trust Agreement for the election of Brian and
Kevin as Directors of the Corporation, provided they are able to serve, and the
Trustees hereby agree to vote accordingly.
5. DIVIDENDS. The Trustees shall receive and hold, subject to
the terms of this Agreement, all stock dividends, stock splits and similar share
distributions declared and paid on the Telergy Shares deposited under this
Agreement and, in the case of any distributions of new Telergy Common stock,
shall issue and deliver Voting Trust Certificates for the additional
3
<PAGE> 4
shares to the beneficial owner of the shares with respect to which the
distribution was made. The Trustees shall distribute all cash dividends declared
and paid on the Telergy Shares to the registered holders of Voting Trust
Certificates representing the shares as shown on the books of the Trustees.
6. DISSOLUTION OF CORPORATION. In the event of the dissolution or total
or partial liquidation of the Corporation, whether voluntary or involuntary,
the Trustees shall receive the moneys, securities, rights, or property to which
each registered holder of Voting Trust Certificates is entitled, and shall
distribute the same among the registered holders of Voting Trust Certificates
in proportion to their respective interests in the Voting Trust as shown on the
books of the Trustees, and upon such distribution all further obligations or
liability of the Trustees in respect of such moneys, securities, rights, or
property shall cease.
7. TERM. This Agreement shall become effective as of its date and shall
continue in effect for a period of ten (10) years from that date subject,
however, to the prior termination of this Agreement by the execution and filing
with the Corporation of an agreement of termination executed by all the parties
to this Agreement.
8. RENEWAL OF AGREEMENT. This Agreement may be renewed for successive
ten (10) year periods or such other term as may be permitted by law provided,
however, that the then Voting Trust Certificate holders desiring to extend and
renew the Agreement give their written consent to each such renewal within the
time period specified by law prior to the termination date. A copy of each
extension agreement and the consents to the extension shall be filed with the
Corporation.
9. SUCCESSOR TRUSTEES. If a Trustee resigns, dies or is otherwise unable
or unwilling to perform his duties as Trustee, the remaining Trustees may, but
are not required to,
4
<PAGE> 5
appoint a successor Trustee. If none of the Trustees is able to continue to
serve as Voting Trustee so there is no Trustee hereunder, one or more Successor
Trustees may be appointed by the management committee of the law firm of Bond,
Schoeneck & King, LLP, or any successor to that firm.
The words "Voting Trustee" or "Trustee" as used in this
Agreement shall mean the Trustee named herein and any duly appointed Successor
Trustee.
10. COMPENSATION AND REIMBURSEMENT OF TRUSTEES. The Trustees shall
serve without compensation. The Trustees shall have the right to incur and pay
such reasonable expenses and charges and to employ such professional counsel as
they deem necessary and proper in the performance of their duties. Any charges
or expenses incurred by the Trustees may be charged pro rata to the holders of
the Voting Trust Certificates.
11. LIMITATION OF LIABILITY. No Trustee shall be liable by reason of
any matter or thing in any way arising out of or in relation to this Agreement
except for loss or damage suffered by the Voting Trust Certificate holders by
reason of the Trustee's willful misfeasance or gross negligence. No Trustee
shall be required to give a bond or other security for the faithful performance
of his duties.
12. INSPECTION. The Trustee shall keep available for inspection by
the holders of Voting Trust Certificates at the East Syracuse, New York offices
of the Corporation, correct and complete books and records of account relating
to this Voting Trust, and a record containing the names and addresses of all
persons who are Voting Trust Certificate holders and the number and class of
shares represented by the certificates held by them and the dates they became
the owners of Voting Trust Certificates.
5
<PAGE> 6
13. FILING. The Trustees shall file a duplicate of this Agreement at the
office of the Corporation.
14. EXCEPTED TRANSACTIONS.
(a) Nothing in this Agreement shall disqualify a Trustee or a
Successor Trustee from voting for himself to serve the Corporation or any of
its subsidiaries or affiliates as officer or director or in any other
capacity, or from voting for himself to receive compensation for these services.
(b) Nothing in this Agreement shall disqualify a Trustee or a
Successor Trustee from dealing or contracting with the Corporation or any of
its subsidiaries or affiliates as a vendor, purchaser, or otherwise, nor shall
any transaction or contract be affected or invalidated by reason of the fact
that the Trustees or any firm or corporation of which the Trustees is a member,
shareholder, director, or employee is in any way interested in the transaction
or contract; nor shall the Trustees be liable to account to the Corporation or
to any shareholder of the Corporation for any profits realized by, from, or
through any transaction or contract by reason of the fact that he or any firm or
corporation of which he is a member, shareholder, director, or employee is
interested in the transaction or contract.
15. WITHDRAWAL OF SHARES. A Voting Trust Certificate holder shall not
have the right to withdraw any Telergy Shares deposited pursuant to this
Agreement without the prior written consent of all of the parties to this
Agreement.
16. PRIOR AGREEMENTS CANCELLED. This Agreement supercedes all existing
Voting Trust Agreements among any of the parties relating to their Telergy
Shares, and all such voting trust agreements shall be deemed terminated as of
this date.
6
<PAGE> 7
17. ENTIRE AGREEMENT. This Agreement expresses the entire agreement
between the parties and may not be changed or modified except in writing
executed by all the parties to this Agreement.
18. NOTICES. Any notice to or communication with the holders of the
Voting Trust Certificates shall be deemed sufficiently given or made if
addressed to the holders at their respective addresses appearing on the
transfer books of the Trustees. Any notice to the Trustees shall be sent c/o
Telergy, Inc., One Telergy Drive, East Syracuse, New York 13057 and shall be
marked "Personal and Confidential."
19. BINDING EFFECT. This Agreement shall benefit and bind the respective
parties, and their heirs, personal and legal representatives, successors and
assigns.
20. NON-WAIVER. No delay or failure by a party to exercise any right
under this Agreement, and no partial or single exercise of that right, shall
constitute a waiver of that or any other right, unless otherwise expressly
consented to in a signed writing by that party.
21. SEVERABILITY. Any term or provision of this Agreement that is found
to be invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions of
this Agreement or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction.
22. SUCCESSOR CORPORATION. If Telergy is reincorporated in the State of
Delaware, this Voting Trust Agreement shall automatically continue and all
shares issued to the Trustees or any of the Kellys in connection with such
reincorporation shall be subject to this Agreement.
7
<PAGE> 8
23. GOVERNING LAW. This Agreement is intended by the parties to be
governed by and construed in accordance with the laws of the State of New York
except that if Telergy becomes a Delaware corporation, the laws of the State of
Delaware shall govern
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
8
<PAGE> 9
IN WITNESS WHEREOF, the Shareholders and the Trustee have executed this
Agreement, to evidence their respective acceptance of this Voting Trust, all as
of the day and year first above written.
SHAREHOLDERS
/s/ Brian P. Kelly
_________________________
Brian P. Kelly
/s/ Kevin J. Kelly
_________________________
Kevin J. Kelly
/s/ William M. Kelly
_________________________
William M. Kelly
VOTING TRUSTEES
/s/ Brian P. Kelly
_________________________
Brian P. Kelly, Trustee
/s/ Kevin J. Kelly
_________________________
Kevin J. Kelly, Trustee
/s/ William M. Kelly
_________________________
William M. Kelly, Trustee
9
<PAGE> 10
STATE OF NEW YORK )
) ss.:
COUNTY OF ONONDAGA)
On December 27, 1999, before me personally came Brian P. Kelly, to me known
and known to me to be the same person described in and who executed the within
instrument, individually and as Trustee, and he duly acknowledged to me that he
executed the same.
/s/ Arthur E. Bongiovanni
_____________________________
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF ONONDAGA)
On December 27, 1999, before me personally came Kevin J. Kelly, to me known
and known to me to be the same person described in and who executed the within
instrument, individually and as Trustee, and he duly acknowledged to me that he
executed the same.
/s/ Arthur E. Bongiovanni
_____________________________
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF ONONDAGA)
On December 27, 1999, before me personally came William M. Kelly, to me
known and known to me to be the same person described in and who executed the
within instrument, individually and as Trustee, and he duly acknowledged to me
that he executed the same.
[STATE OF NEW YORK DEPARTMENT OF STATE SEAL] /s/ Arthur E. Bongiovanni
ARTHUR E. BONGIOVANNI _____________________________
NOTARY PUBLIC, STATE OF NEW YORK Notary Public
NO. 0350084
QUALIFIED IN ONONDAGA COUNTY
MY COMMISSION EXPIRES 6-30-2000
10
<PAGE> 11
EXHIBIT A
TELERGY, INC.
VOTING TRUST CERTIFICATE
This certifies that _____________________ has deposited ________ Class A
Common and ________ Class C Common shares of Telergy, Inc., a New York
corporation (the "Corporation"), with the undersigned Voting Trustees pursuant
to a Voting Trust Agreement dated December 27, 1999, between Brian P. Kelly,
Kevin J. Kelly and William M. Kelly as Shareholders, and Brian P. Kelly, Kevin
J. Kelly and William M. Kelly as Trustees. A copy of the Voting Trust Agreement
is on file in the office of the Corporation, One Telergy Drive, East Syracuse,
New York 13057.
This Certificate and the interests represented by this Certificate are
transferable on the books of the Trustees and upon its surrender properly
endorsed. The holder of this Certificate takes it subject to all the terms and
conditions of the Voting Trust Agreement.
By acceptance of this Certificate, the holder acknowledges that he has
acquired it for investment purposes and not with a view to distribution.
IN WITNESS WHEREOF, the Trustees have signed this Certificate on
__________________.
_______________________________
Brian P. Kelly, Trustee
_______________________________
Kevin J. Kelly, Trustee
_______________________________
William M. Kelly, Trustee
11
<PAGE> 1
EXHIBIT 9.2
FORM OF VOTING TRUST AGREEMENT
THIS AGREEMENT entered into as of the day of , is by and
among , residing at
, ("SHAREHOLDER"), and KEVIN J. KELLY, residing at ("TRUSTEE")
WHEREAS, the SHAREHOLDER has subscribed and paid the requisite
consideration for four hundred seventy-five thousand shares of the common stock
of Telergy, Inc., (the "CORPORATION"), a New York corporation with offices at
5784 Widewaters Parkway, Syracuse, New York 13214, all of which shares the
parties intend to be subject to this Agreement (the "SHARES").
WHEREAS, the Shares constitute a minority stock interest in the CORPORATION
of approximately sixteen percent; and
WHEREAS, the parties desire to secure the continuity and stability of
policy and management of the CORPORATION; and
WHEREAS, the SHAREHOLDER wishes to convey to the TRUSTEE his rights to
vote the Shares for a period of time; and
WHEREAS, the TRUSTEE has agreed to act as voting trustee of the Shares
NOW THEREFORE, it is agreed as follows:
1. THE TRANSFER OF SHARES TO TRUSTEE
The SHAREHOLDER, simultaneously with the execution of this Agreement,
shall assign and deliver the Shares to the TRUSTEE, to be held subject to the
terms of this Agreement from the date hereof until March 15, 2003 and for such
further periods of time as the SHAREHOLDER and the TRUSTEE may agree ("TERM").
The TRUSTEE shall immediately cause the Shares to be transferred to
<PAGE> 2
himself, as TRUSTEE, on the books of the Corporation, and shall properly endorse
on all certificates held by him hereunder the following legend:
This certificate is held subject to a certain Voting Trust
Agreement dated February 14, 1997, copies of which
are in the possession of Kevin J. Kelly, as Trustee, and
filed with the records of the Corporation at its principal
office.
The TRUSTEE shall issue and deliver to the SHAREHOLDER a voting trust
certificate for the Shares, substantially in the form of attached Exhibit A.
2. VOTING
At all meetings of Shareholders of the Corporation and in all
proceedings affecting the Corporation wherein the vote or Written Consent of
Shareholders of the Corporation may be required or authorized by law, the
TRUSTEE shall have the exclusive right to vote the Shares, or give written
consents in lieu of such voting, as he may determine in his sole discretion. The
TRUSTEE agrees to consult periodically with the SHAREHOLDER as to the
SHAREHOLDER'S views on matters affecting the Corporation, provided however, that
the TRUSTEE shall be in no way bound by the SHAREHOLDER'S views. TRUSTEE shall
have full powers of substitution and all powers the undersigned would have to
represent and vote the shares of the Company held of record by the undersigned
for the Term of this Agreement and shall have the power to pledge all powers
conferred on the TRUSTEE herein pursuant to the Proxy and voting pledge
requirements of a certain Note Purchase Agreement between Telergy, Inc. and
Hyperion of New York, Inc.
3. LIABILITY AND POWERS OF TRUSTEE; SUCCESSOR TRUSTEE
The TRUSTEE shall incur no responsibility as shareholder, trustee, or
otherwise, except for his own individual malfeasance, and shall not be liable
for the consequences of any vote cast in good faith by the TRUSTEE, including
but not limited to the election of the TRUSTEE as a director or officer of the
Corporation and the granting of compensation and benefits to directors and
<PAGE> 3
officers of the Corporation. The TRUSTEE shall serve as trustee without
compensation. The TRUSTEE shall have the right to incur and pay such reasonable
expenses and charges and to employ such professional counsel, as he may deem
necessary and proper in performance of his duties hereunder. Any such charges
and expenses may be charged to the SHAREHOLDER. The TRUSTEE may resign at any
time. In the event of the resignation of the TRUSTEE or the inability of the
TRUSTEE to perform his duties under this Agreement for any reason, Brian P.
Kelly is hereby appointed as successor trustee and agrees to serve in such
capacity and to be bound by the terms of this Agreement.
4. DIVIDENDS
The SHAREHOLDER shall be entitled to receive payments from the TRUSTEE
equal to the Cash dividends received by the TRUSTEE on the Shares. If dividends
are declared in voting stock of the Corporation, the TRUSTEE shall retain such
stock, which shall be deemed to have been deposited under the terms of this
Agreement, and shall be included within the definition of "SHARES". The TRUSTEE
shall notify the SHAREHOLDER of the declaration of any such dividends. Stock
dividends declared in stock without voting power shall be assigned immediately
to the SHAREHOLDER by the TRUSTEE.
5. EVENTS OF TERMINATION
All voting rights conferred on the TRUSTEE hereunder shall immediately
be restored to the SHAREHOLDER and this Voting Trust Agreement shall be
terminated upon the occurrence of any of the following events ("EVENTS OF
TERMINATION"):
(a) In the event the Corporation redeems the Shares; or
(b) March 15, 2003.
<PAGE> 4
6. TERMINATION
Upon the occurrence of an Event of Termination, this Agreement shall
terminate and the TRUSTEE shall assign and deliver the Shares to the
SHAREHOLDER.
7. ASSIGNMENT OF SHARES
Subject to compliance with applicable securities laws, the beneficial
interest of any Shares deposited hereunder may be transferred by a separate
instrument of assignment, which shall refer to the provisions of this Agreement
which shall recite that the provisions of this Agreement continue to be binding
upon such assignee.
8. BINDING EFFECT
This Agreement shall inure to the benefit of and be binding upon the
SHAREHOLDER, his successors and assigns, and upon the TRUSTEE.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
first written above.
SHAREHOLDER:
----------------------------------
TRUSTEE:
----------------------------------
The undersigned acknowledges and
agrees to the provisions of
Section 3 above with respect to his
nomination as a successor trustee.
/s/ Brian Kelly
- -------------------------------
BRIAN P. KELLY
<PAGE> 1
EXHIBIT 10.1.1
- --------------------------------------------------------------------------------
RIGHT OF OCCUPANCY AGREEMENT
between
NIAGARA MOHAWK POWER CORPORATION
and
TELERGY JOINT VENTURE
Dated February 2, 1996
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
SECTION TOPIC PAGE
- ------- ----- ----
1 DEFINITIONS........................................................ 1
2 PURPOSE OF AGREEMENT............................................... 5
3 SCOPE OF AGREEMENT................................................. 5
4 RIGHT-OF-OCCUPANCY TERM............................................ 7
5 SCOPE OF RIGHT OF OCCUPANCY........................................ 7
6 SELECTION OF THE SPECIFIC BACKBONE ROUTE........................... 9
Documents To Be Provided To TELERGY........................... 9
Working Drawings.............................................. 10
7 ADDITIONAL RIGHTS-OF-OCCUPANCY FOR SPUR ROUTES..................... 11
8 ENTRY AND NOTICE................................................... 12
9 TELERGY WORK....................................................... 13
10 APPROVALS AND PERMITS.............................................. 14
11 CONSTRUCTION AND INSTALLATION...................................... 15
Non-Cable Facilities.......................................... 17
Cable Installation............................................ 17
12 MAINTENANCE AND OPERATION.......................................... 18
13 NIAGARA CAPACITY, RATES, CHARGES AND COSTS......................... 20
Niagara Capacity.............................................. 20
Niagara Spur Capacity......................................... 21
MODIFYING NIAGARA OR TELERGY FACILITIES............................ 21
15 UNAUTHORIZED USE NIAGARA FACILITIES................................ 22
16 CONDEMNATION, BANKRUPTCY, AND OTHER TRANSFERS...................... 23
Bankruptcy.................................................... 23
Right of First Refusal........................................ 24
Relocations................................................... 24
Condemnation.................................................. 24
17 TERMINATION OR DEFAULT BY TELERGY.................................. 25
ii
<PAGE> 3
<TABLE>
<CAPTION>
SECTION TOPIC PAGE
- ------- ----- ----
<S> <C> <C>
18 TERMINATIONS OF AUTHORIZATIONS................................ 26
19 NIAGARA ABANDONMENT........................................... 28
20 NIAGARA'S EXPENSES AND EMPLOYEE COSTS......................... 29
21 INDEPENDENT CONTRACTOR STATUS................................. 29
22 TAXES......................................................... 30
23 NOTICES....................................................... 31
24 LIABILITIES AND INDEMNIFICATION............................... 32
25 INSURANCE..................................................... 33
26 LIENS......................................................... 37
27 AMENDMENTS.................................................... 37
28 CONFIDENTIALITY............................................... 37
29 DISPUTES...................................................... 39
COVENANTS OF THE PARTIES...................................... 39
31 PUBLIC SERVICE COMMISSION APPROVAL REQUIRED................... 39
32 MISCELLANEOUS PROVISIONS...................................... 40
Entire Agreement and Modification......................... 40
Choice of Law............................................. 40
Consents.................................................. 40
Construction of Agreement................................. 40
No Waiver................................................. 41
Force Majeure............................................. 41
Remedies.................................................. 41
Severability.............................................. 41
Compliance................................................ 41
No Merger................................................. 41
Binding Agreement......................................... 41
Acts in Furtherance Of Agreement.......................... 41
Drug and Alcohol Abuse Policy............................. 42
Intellectual Property Sole Property of Niagara............ 42
Patent, Copyright and Trademark Infringement.............. 42
33 ENVIRONMENTAL HAZARD LIABILITY................................ 43
</TABLE>
iii
<PAGE> 4
<TABLE>
<CAPTION>
SECTION TOPIC PAGE
<S> <C> <C>
34 EQUAL EMPLOYMENT OPPORTUNITIES.................. 43
Federal Subcontracting Requirements........ 44
35 AUDIT AND MAINTENANCE RECORDS................... 45
36 WARRANTIES...................................... 45
37 SURVIVAL........................................ 46
38 END-OF-TERM..................................... 46
</TABLE>
iv
<PAGE> 5
RIGHT OF OCCUPANCY AGREEMENT
THIS AGREEMENT, made this 2nd day of February, 1996, between NIAGARA MOHAWK
POWER CORPORATION, a corporation organized and existing under the laws of the
State of New York, having its principal office at 300 Erie Boulevard West,
Syracuse, New York 13202 (hereinafter called "NIAGARA") and TELERGY JOINT
VENTURE, a Joint Venture organized and existing under the laws of the State of
New York, having its principal office for purposes hereof at 5784 Widewaters
Parkway, Dewitt, New York 13214 (hereinafter called "TELERGY").
In consideration of the mutual promises and covenants contained herein, TELERGY
and NIAGARA intending to be bound, agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall, unless the context
otherwise requires, have the meanings specified in this Section 1.
1.1 "Agreement" shall mean the Right-of-Occupancy Agreement entered into
herein between NIAGARA and TELERGY, and as the same may be amended,
modified and supplemented from time to time. Words such as "herein,"
"hereafter," "hereof," "hereto," "hereby," and "hereunder," when used with
reference to this Agreement refer to this Agreement as a whole unless the
context otherwise requires. The word "shall" denotes mandatory language;
the word "may" denotes discretionary language.
1.2 "Approved Drawings" shall mean Working Drawings that have been
reviewed and approved by NIAGARA.
1.3 "As Built Drawings" shall mean drawings of a System Segment of the
Backbone Network as actually installed and as amended from time-to-time.
1.4 "Backbone Network" shall mean the fiber optic transmission-based
telecommunications network connecting major cities along the Backbone
Route.
1.5 "Backbone Route" shall mean the geographic location of the Backbone
Network which shall connect major Points-of-Presence as set forth in this
Agreement.
1.6 "Bankruptcy" with respect to any principals of the TELERGY shall mean
the happening of any of the following:
(a) The filing of an application for, or consent to, the appointment
by a Federal District Court of a Trustee over all or substantially all
of its assets;
<PAGE> 6
(b) The filing of a voluntary petition in bankruptcy or the filing of
a pleading in any court of record admitting in writing its inability
to pay its debts as they become due;
(c) The making of a general assignment for the benefit of creditors;
(d) The filing of an answer admitting the material allegations of, or
its consenting to, or defaulting in answering, a bankruptcy petition
filed against it in any bankruptcy proceeding; or
(e) The entry of an order, judgment, or decree by any court of
competent jurisdiction adjudicating TELERGY or a TELERGY Affiliate
bankrupt or appointing a Trustee over its assets, and such order,
judgement, or decree continuing unstayed and in effect for a period of
sixty (60) consecutive days.
1.7 "Conduit" shall mean an individual pipe, tube or duct forming an enclosed
raceway for cable and/or conductors, also referred to as "duct".
1.8 "Construction Plan" shall mean a proposed schedule of engineering and
design, commencement and completion dates for receipt of Approvals as set forth
in Section 10 herein, and dates for construction, installation and
implementation of the Segments of the Backbone Network.
1.9 "Easement" shall mean an easement in gross and/or the highest lesser
Right-of-Occupancy or use permitted to be granted by the nature of NIAGARA's
interest in and to its Rights-of-Way.
1.10 "Entry Notice" shall mean such notice as set forth in Section 8.
1.11 "Extension Period" shall mean the two, ten-year options, exercisable by
TELERGY, to extend the Initial Term of this Agreement with respect to the
Right-of-Occupancy used in connection with the Backbone Network or discrete
System Segments.
1.12 "Fiber Optic Ground Wire" or "F.O.G. Wire" shall mean static wire
containing optical fibers.
1.13 "Initial Term" shall mean the initial twenty-five (25) year-period of this
Agreement.
1.14 "Maintenance" shall mean maintenance, repairs, upgrades, relocations,
replacement, reinstallation and removal activities.
2
<PAGE> 7
1.15 "Make-Ready Work" shall mean all work performed by NIAGARA or its
designated contractor, including but not limited to the rearrangement of
existing facilities, replacement of cable, rodding of duct, and installation of
subduct required to accommodate the installation of TELERGY's Facilities in
accordance with this Agreement.
1.16 "NIAGARA" shall mean the Niagara Mohawk Power Corporation, its successors
and assigns.
1.17 "NIAGARA Capacity" shall mean the equivalent capacity of [* * *] as
set forth below in Section 13, which capacity shall be provided to NIAGARA by
TELERGY in consideration for the Right-of-Occupancy conferred by this Agreement.
1.18 "NIAGARA Facilities" shall mean gas and electric transmission and
distribution lines, conduits, poles, electric or other towers, wires,
conductors, pipes, pipelines, structures and necessary appurtenances above and
below ground located within NIAGARA's Right-of-Way, as well as NIAGARA buildings
and structures.
1.19 "NIAGARA Spur Capacity" shall mean NIAGARA's proportionate increased
capacity from any subsequent technological improvements or extensions or Spurs
that increase the original capacity of the Backbone Network; such increased
capacity shall be provided to NIAGARA in accordance with Section 13 herein.
1.20 "Points of Presence" or "POPs" shall mean the points at which long
distance carriers interconnect with local exchanges for the purpose of providing
inter-exchange telecommunications service to customers in such local exchanges;
as well as the points at which the NIAGARA Capacity and any NIAGARA Spur
Capacity shall be delivered to and interconnect with the Backbone Network.
1.21 "Pre-Construction Survey" shall mean the work operations performed by
NIAGARA or its designated contractor in order to process an application for a
Right-of-Occupancy to the point just prior to performing any necessary
Make-Ready Work.
1.22 "Property Drawings" shall mean the NIAGARA Right-of-Way drawings, plan and
profile drawings for a Right-of-Way within which TELERGY has a
Right-of-Occupancy.
1.23 "Regenerator" shall mean a facility which receives, regenerates, and
retransmits a digital telecommunications transmission signal, together with
attendant equipment and structures, including power sources.
1.24 "Right of Occupancy" shall mean the right to place fiber optic cable, and
splice closures, as well as F.O.G. Wire subject to Section 7.4, within the
Right-of-Way, in accordance with the terms and conditions of this Agreement. A
Right-of-Occupancy under this Agreement shall not provide TELERGY with any
ownership interest in NIAGARA
3
CONFIDENTIAL
[* * *] Confidential treatment has been requested with respect to material
omitted on this page. The omitted portions have been filed separately
with the Securities and Exchange Commission.
<PAGE> 8
Facilities, real property or Right-of-Way. Any TELERGY installation of F.O.G.
Wire in accordance with Sections 6.4.10 and/or 16.5, shall be only for the
purposes of this Agreement, and upon installation, such wire shall be included
in the Right-of-Occupancy, subject to Section 38.2 herein.
1.25 "Right-of-Way" shall mean the area of NIAGARA-owned (in fee, easement,
license, permit, franchise or otherwise), -operated, or -controlled real
property for electric and gas transmission and distribution lines as defined by
the NIAGARA Property Drawings and other documents.
1.26 "Spur System" or "Spur Route" shall mean an extension to the original
Backbone Network, either off of the Backbone Route, or from a TELERGY Facility,
such as a terminal or junction, to the Backbone Route.
1.27 "System Segment" or "Segment" shall mean a portion of the Backbone
Network or a Spur Route or a portion of a Spur Route.
1.28 "Telecommunication System" or "System" shall mean the Backbone Network
and TELERGY Facilities as is heretofore or hereafter conceived, invented or
developed by TELERGY, and which primarily utilizes optical fiber as the means
for transmitting voice, data or video and/or other information pursuant to this
Right-of-Occupancy Agreement.
1.29 "TELERGY" shall mean the Joint Venture, which applies for and is granted
permission by NIAGARA under this Agreement to place its Facilities using
NIAGARA's Right-of-Way and Facilities and which is responsible for compliance
with NIAGARA's regulations and/or standards regarding such accommodations.
1.30 "TELERGY Facilities" means telecommunications facilities installed by or
on behalf of TELERGY in, on, upon, under, across, along and through the
Right-of-Occupancy on a Right-of-Way, including the transmission systems
designed to and used to carry communications traffic and including conduit,
carrier pipes, cables, fibers, junctions, regenerators, power sources, fault
alarm systems, electronics, structures or shelters, towers, satellite earth
stations and all other personal property necessary for or useful to the
construction, installation, operation, maintenance, repair, reinstallation,
replacement, relocation and removal of the Telecommunication System.
1.31 "Working Drawings" shall mean drawings prepared by TELERGY and submitted
to NIAGARA for approval depicting the engineering design and configuration of
the Backbone Network and/or System Segments.
4
<PAGE> 9
2 PURPOSE OF AGREEMENT
This Agreement is entered into for the purposes of ensuring that NIAGARA has
sufficient telecommunications capacity to meet its internal needs to satisfy
its public service and corporate obligations and purposes and to authorize
TELERGY's use of NIAGARA's Right-of-Way along the Backbone Route to provide
telecommunications services and advanced interactive information and
entertainment services to customers within and outside New York.
3 SCOPE OF AGREEMENT
3.1 Subject to the provisions of this Agreement, NIAGARA and TELERGY agree
that TELERGY shall acquire, for its own use, unless otherwise provided
pursuant to the terms of this Agreement, a non-exclusive Right-of-Occupancy
in specific NIAGARA Rights-of-Way, for the construction, installation,
operation, and maintenance of a single Backbone Network, comprised of the
backbone cable, related equipment and TELERGY Facilities, along the
Backbone Route. The Right-of-Occupancy shall be revocable only in
accordance with the terms and provisions of this Agreement.
3.2 The rights granted herein constitute Rights-of-Occupancy burdening the
Right-of-Way to the extent such Right-of-Occupancy is permitted pursuant to
the terms of the applicable contract, agreement, easement, permit, license
or franchise conveying to NIAGARA its Right-of-Way.
3.3 Nothing herein shall be construed to obligate NIAGARA in any way to
acquire any Rights-of-Way for TELERGY's use, nor shall NIAGARA be obligated
to grant a Right-of-Occupancy where such grant would contravene any
restriction or condition on NIAGARA's use of a Right-of-Way or otherwise
adversely affect NIAGARA's Facilities or NIAGARA's property rights on any
Right-of-Way, provided that NIAGARA agrees to cooperate and provide
reasonable assistance in good faith, when consistent with NIAGARA's public
service and corporate obligations, with TELERGY efforts to acquire
additional Rights-of-Way, easements or franchises necessary to construct
the Backbone Network, at TELERGY's sole cost and expense.
3.4 NIAGARA does not warrant the validity or apportion ability of any
rights it may hold to place the Backbone Network or TELERGY Facilities
within its Right-of-Way. NIAGARA will, upon written request by TELERGY and
as set forth in Section 6.3, subject to the confidentiality provisions set
forth in Section 28 herein, provide available information and copies of any
documents in its files pertinent to the nature of the rights NIAGARA
possesses over its Right-of-Way. The cost of providing such information and
reproducing documents shall be borne by TELERGY.
5
<PAGE> 10
3.5 Where NIAGARA's Right-of Way is, in its reasonable judgement, sufficiently
broad under New York State law to permit TELERGY's Right-of-Occupancy, TELERGY
shall not be required to obtain an independent easement from the fee owner to
place its Facilities. However, where NIAGARA believes that its rights are
insufficient to grant the requested Right of Occupancy, upon prior notice to
TELERGY, NIAGARA, in its discretion, may seek to obtain permission from the fee
owner for TELERGY Facilities, or to defend or to establish TELERGY's
Right-of-Occupancy for its Facilities independent of an easement as set
forth above. The fully allocable costs, if any, of such efforts shall be paid by
TELERGY. Nothing herein shall be deemed, however, to require NIAGARA to obtain
permission, to defend, or to establish TELERGY's Right-of-Occupancy for
TELERGY's Facilities.
3.6 To the extent it has the ability and right to do so, NIAGARA shall provide,
at no cost to TELERGY, access to Right-of-Way necessary for all end-link
connections and repeaters from the Backbone Network to NIAGARA's
Points-of-Presence in specified locations in Buffalo, Albany, Syracuse,
Oswego/Nine Mile, Watertown, Utica and Guilderland, from TELERGY Facilities in
such cities that will provide mutually cost-effective connections of the
geographic locations set forth in Section 9.5 and the NIAGARA Capacity set forth
in Section 13.
3.7 In addition to the Right-of-Occupancy granted by NIAGARA as described in
Sections 3-6, NIAGARA shall grant TELERGY Rights-of-Occupancy at each
Regenerator or junction, at mutually-approved locations along the Backbone
Route, for the installation, maintenance, operation, repair, replacement and
removal, at TELERGY's sole cost and expense, of utilities required to service
the System including auxiliary and primary power sources and water and sewer
lines. When required by the utility company, power supplier or municipality
providing such services, NIAGARA shall grant appropriate access and/or
Right-of-Occupancy within the Right-of-Way to such utility company, power
supplier and/or municipality.
3.8 Except for the NIAGARA Capacity, NIAGARA Facilities, and NIAGARA
Right-of-Way which shall be the property of NIAGARA, the Backbone Network,
TELERGY Facilities, and the Telecommunication System installed using the
Right-of-Occupancy conferred herein shall be and remain at all times the
personal property of TELERGY regardless of the manner or method of installation
of such System(s) or any part or component. The parties agree to execute all
reasonable documentation requested to evidence such ownership.
3.9 Nothing contained herein shall be construed to compel NIAGARA to construct,
reconstruct, retain, extend, repair, place, replace or maintain any
Right-of-Way or NIAGARA Facilities or Right-of-Way not needed for NIAGARA's own
service requirements.
3.10 NIAGARA reserves to itself, its successors and assigns, the right to
relocate, operate and maintain the NIAGARA Facilities or Right-of-Way in such a
manner as will best enable it to fulfill its own service requirements.
6
<PAGE> 11
4 RIGHT-OF-OCCUPANCY TERM
4.1 For an Initial Term of twenty-five (25) years commencing on the date
of approval by the New York State Public Service Commission (Commencement
Date) and ending on the expiration of the three-hundredth (300th) month
thereafter, unless earlier terminated or unless extended pursuant to this
Agreement, subject to the terms and conditions set forth in this Agreement,
NIAGARA hereby grants to TELERGY a Right-of-Occupancy in, on, upon, under,
over, across, along and through (hereinafter collectively referred
"within") the Backbone Route Right-of-Way.
4.2 NIAGARA hereby grants TELERGY, its successors and assigns, the right
and option to extend the Initial Term of this Agreement in its entirety or
with respect to any System Segments, from the date upon which it would
otherwise expire for up to two (2) consecutive Extension Periods of ten
(10) years each.
4.3 Each Extension Period may be exercised individually as to each System
Segment or collectively as to any two or more System Segments, by written
notice to NIAGARA, three (3) months prior to the expiration of the Initial
Term or an Extension Period as to each such System Segment (hereinafter
"Election Date"). Such notice shall notify NIAGARA of TELERGY's election
either to exercise its said option for the next Extension Period in respect
to the Backbone Network or any System Segment, or terminate this Agreement
with respect to the Backbone Network or a System Segment, subject to the
Severance Payments set forth in Section 17, upon a date which date shall be
no sooner than twenty-four (24) months from the date of such notice to
NIAGARA. In the event that TELERGY shall elect to extend the term of this
Agreement as to a portion only, but not the entirety, of the System,
TELERGY shall nonetheless continue to provide the NIAGARA Capacity and, if
applicable, any NIAGARA Spur Capacity.
4.4 In the event TELERGY does not give NIAGARA notice of election with
respect to any System Segment on or before the Election Date with respect
to any Extension Period, the Initial Term of this Agreement shall
automatically be extended for thirty (30) days after notice from NIAGARA
advising TELERGY that it has failed to notify NIAGARA of any election.
Within thirty (30) days of receipt of the NIAGARA notice, TELERGY shall
either exercise its said option for the next Extension Period, or terminate
this Agreement with respect to any System Segment upon a date that shall be
no sooner than twenty-four (24) months of the date of such response.
7
<PAGE> 12
5. SCOPE OF RIGHT OF OCCUPANCY
5.1 The specific Right-of-Way that will be subject to the
Right-of-Occupancy shall be defined by the parties in the manner set forth
in Section 6. The Right-of-Way for Segment I of the Backbone Route shall be
defined within ninety (90) days following the execution of this Agreement.
Maps showing the Right-of-Way subject to the Right-of-Occupancy shall be
prepared and attached to this Agreement as Exhibit A. The remaining
Rights-of-Way shall be defined by the parties in the manner set forth in
Section 6 within six months following the date of this Agreement.
5.2 Subject to Section 3.6 herein, where TELERGY desires to construct and
install the Backbone Network in areas where NIAGARA's interest in the
Right-of-Way is insufficient to authorize TELERGY Facilities and NIAGARA
does not chose to exercise its right to pursue authorization in accordance
with Section 3.6, TELERGY, at it's sole cost, may negotiate with the fee
simple owners for the right for NIAGARA to allow such use by TELERGY,
provided that NIAGARA shall cooperate with and assist TELERGY as set forth
in Section 3.3 herein.
5.3 TELERGY is not obligated to use the Right-of-Occupancy conferred in
this Agreement. TELERGY may decide to use non-NIAGARA rights-of-way in
certain locations, so long as the specific geographic locations and dates
specified in Sections 3.6 and 9.5, as well as the NIAGARA Capacity as set
forth in Sections 3.6 and 13, are connected to the Backbone Network, which
shall be fully operational.
5.4 The Right-of-Occupancy granted herein shall be nonexclusive, and shall
be subordinated to the provisions of the First Mortgage Indenture dated
October 1, 1937, as amended, from NIAGARA's predecessor (Central New York
Power Corporation) to the Marine Midland Trust Company of New York, now
Marine Midland Bank, N.A. as Trustee, and to all liens, encumbrances,
Rights-of-Occupancy, easements, rights, privileges, licenses, or grants or
whatever nature heretofore or hereinafter given by NIAGARA or its
predecessors or successors in interest, which affect the property of
NIAGARA, including but not limited to drainage rights, streets, roadways,
telephone lines, underground conduits, sewers, manholes, pipes or
right-of-way.
5.5 Nothing herein contained shall be construed as a grant by NIAGARA of
any exclusive Right-of-Occupancy, right or privilege to TELERGY. NIAGARA
shall have the absolute right, without notice to TELERGY, to grant, renew
and extend Right-of-Occupancy, rights, licenses, and privileges to others
not parties to this Agreement, by contract or otherwise, to use any NIAGARA
Facilities or Right-of-Way covered by this Agreement. However,
Right-of-Occupancies existing at the time of such future Right-of-Occupancy
agreements or arrangements shall not be diminished. The rights of TELERGY
shall at all times be subject to such existing and future
Right-of-Occupancy agreements or arrangements. NIAGARA, in negotiating and
entering into any such future Right-of-Occupancy agreements and/or
8
<PAGE> 13
arrangements, shall not diminish the Right-of-Occupancy of TELERGY, as
provided for in this Agreement, except as provided herein.
5.6 The rights of parties to whom NIAGARA currently leases or licenses
any of the Right-of-Way on which the Backbone Network will be installed
shall be protected and TELERGY, its contractors, agents and employees shall
assume all responsibility for any damage actually done by TELERGY, its
contractors, agents and employees to lawns, gardens, shrubbery, fences,
real and personal property. Upon completing construction, TELERGY shall
restore the lands to substantially the same condition as before entering
thereon. TELERGY shall investigate and resolve any and all complaints
arising from or in connection with its Right-of-Occupancy in an expeditious
manner.
6 SELECTION OF THE SPECIFIC BACKBONE ROUTE
6.1 Immediately upon executing this Agreement, the parties agree to work
closely and reasonably to prepare Working Drawings reflecting preliminary
and final sites for the Right-of-Occupancy within any Right-of-Way ensuring
that it connects the Points-of-Presence and geographic locations set forth
in Section 3.6 and 9.5 along the Backbone Route. During the initial joint
review and inspection, every reasonable effort will be made by the parties
to produce and modify, if necessary, the Working Drawings through the most
expeditious means. If known to NIAGARA, it shall notify TELERGY of any
outstanding adverse claims affecting any Right-of-Way which TELERGY has
identified for use by the System.
6.2 In the event that NIAGARA shall agree to undertake any TELERGY
requested special Right-of-Way research and services, or engineering
services, TELERGY shall pay all pre-approved costs incurred by NIAGARA in
providing such research and services.
6.3 Documents To Be Provided To TELERGY.
6.3.1 To facilitate TELERGY's determination of the specific
position and location of TELERGY's Facilities and to prepare the
Construction Plan, NIAGARA agrees to provide TELERGY materials and
documents as described in this Section 6.
6.3.2 Within 15 days of the date of this Agreement, NIAGARA will
provide TELERGY with standard engineering guidelines for construction
plans.
6.3.3 Upon request, reasonable access to available title
documentation and Right-of-Way Maps within NIAGARA's possession that
relate to the Backbone Route, including easements, occupancy rights
or any third-party rights heretofore granted and/or restrictions on
the Right-of-Occupancy intended by this Agreement.
9
<PAGE> 14
6.3.4 Available survey records for inspection and/or reproduction by
TELERGY, at its sole cost and expense, subject to limitations of survey
contracts, regulations or local laws.
6.3.5 NIAGARA does not guarantee the accuracy of Right-of-Way Maps or
surveys in its possession.
6.3.6 TELERGY shall abide by the confidentiality provisions set forth
in Section 28 with respect to NIAGARA Maps and surveys.
6.4 Working Drawings.
6.4.1 NIAGARA shall permit TELERGY's employees, agents and contractors
to enter the Backbone Route Right-of-Way, subject to the notice provisions
set forth in Section 8, for the purpose of surveying and inspecting the
same and to make such engineering and other tests as may be necessary or
advisable to enable TELERGY to prepare Working Drawings and the
Construction Plan, as well to locate the Right-of-Occupancy on such
Right-of-Way, and to determine the engineering and cost consideration with
respect to construction and installation of the Backbone Network therein.
6.4.2 NIAGARA agrees to participate with TELERGY in a joint review of
the preliminary route designation plans for the Backbone Route
Right-of-Occupancy, and in making reasonably necessary physical inspections
of a Right-of-Way for the purpose of identifying problem areas, arriving at
suitable alternatives, and defining final routes.
6.4.3 Based upon the preliminary Right-of-Occupancy designation,
physical inspections and other engineering data available to TELERGY, it
shall prepare and submit to NIAGARA four (4) sets of construction plans
("Working Drawings") for the Backbone Network. Telergy may submit such
Working Drawings for the entire Backbone Network, or for designated System
Segments.
6.4.4 Working Drawings for each System Segment shall be submitted by
TELERGY to NIAGARA's Engineering Department not less than ten (10) days
prior to TELERGY's anticipated initiation of construction for such System
Segment.
6.4.5 Following each submission of Working Drawings, NIAGARA shall, as
soon as reasonably possible, but no later than ten (10) days of its
receipt, approve the Working Drawings, in whole or in part ("Approved
Drawings"), or raise any bona fide objections, in writing, describing in
reasonable detail the basis for rejection and the necessary modifications
to obtain NIAGARA's approval.
10
<PAGE> 15
6.4.6 A "bona fide objection" shall mean any condition that will
cause the unreasonable interference with NIAGARA's operations, pose
an unreasonable hazard to NIAGARA's personnel, customers, properties
or NIAGARA Facilities, pose a violation of law, regulation, code
and/or NIAGARA's Construction Standards and policies, unreasonably
limit the use of the Right-of-Way, or cause a devaluation of
NIAGARA's, its successors' or assigns, rights, title, and or interest
in the Right-of-Way.
6.4.7 Upon receipt of any such objections, TELERGY shall either:
(i) correct the Working Drawings by making appropriate changes thereto
and resubmitting them to NIAGARA for its approval, or (ii) dispute
such objection, by referring the matter in question to NIAGARA for
determination in the first instance, and without thereby waiving any
rights in respect to the matter in controversy.
6.4.8 Upon such resubmission, NIAGARA shall raise any bona fide
objections as set forth in Sections 6.4.5 and 6.4.6.
6.4.9 Notwithstanding anything herein to the contrary, due to the
accelerated construction requirements of the installation of the
Backbone Route, the parties agree to exercise their best efforts
consistent with NIAGARA's public service responsibilities to assure
all Working Drawings are reviewed and approved by NIAGARA in support
of TELERGY's construction schedule.
6.4.10 Procedures and schedules for any necessary F.O.G. Wire
installations on the Backbone Route will be developed jointly by
NIAGARA and TELERGY, who will exercise their best efforts consistent
with NIAGARA's public service responsibility to assure that all F.O.G.
Wire installation(s) are completed as soon as practical.
6.4.11 All Working Drawings, Approved Plans, As-built Drawings,
maps and survey and the copyrights therein, shall be the property of
NIAGARA, and shall be subject to the confidentiality provisions of
this Agreement.
6.4.12 Upon TELERGY's receipt of all Approvals in accordance with
Section 11 as well as the Approved Drawings and NIAGARA's approval of
the Construction Plan, TELERGY's installation and construction in
accordance with this Agreement and, particularly Sections 8-12, shall
commence.
7 ADDITIONAL RIGHTS-OF-OCCUPANCY FOR SPUR ROUTES
7.1 Nothing herein shall be construed to provide TELERGY additional
Right-of-Occupancy in NIAGARA Right-of-Way for the design, engineering,
construction, installation,
11
<PAGE> 16
operation, maintenance, repair, replacement, relocation, reinstallation and
removal of any Spur Routes supplementing or extending the Backbone Network.
7.2 Any such Spur Routes required or desired by TELERGY for the design,
engineering, construction, installation, operations, maintenance, repair,
replacement, relocation, reinstallation and removal within NIAGARA
Rights-of-Way, including the installation of fiber optic cable and related
equipment for any such required or desired Spur Routes, shall be negotiated
by the parties, subject to Section 14 herein.
7.3 TELERGY, however, shall have the right either upon the original
installation or subsequently where appropriate, to install multiple fiber
optic cables within the Right-of-Occupancy contemplated herein along the
Backbone Route or portions thereof only to accommodate additional Spur
Routes or interconnects, subject to Section 7.1 and 7.2.
7.4 Except for F.O.G. Wire, if TELERGY shall utilize any of NIAGARA's
Facilities, buildings or structures for the installation of the TELERGY
Facilities, TELERGY shall enter into an appropriate Agreement with NIAGARA
and shall pay NIAGARA's then prevailing rates, charges or negotiated fees.
8 ENTRY AND NOTICE
8.1 In no event shall TELERGY, its employees, agents or contractors, be
authorized to access NIAGARA Right-of-Way or Facilities without NIAGARA
permission, which shall not be unreasonably withheld, and the presence of
a NIAGARA engineer, inspector or escort. Except for emergency situations
or situations requiring expeditious action, whenever TELERGY desires to
enter upon a Right-of-Occupancy to construct, install, maintain, repair,
reinstall, replace, relocate or remove any part or portion of the System
or its Facilities, TELERGY shall submit written notice ("Entry Notice") in
advance to NIAGARA.
8.2 If Entry Notice is required for proposed work that may disturb
NIAGARA's operations, TELERGY's Entry Notice shall include in reasonable
detail, the purpose of the entry, and methods of the proposed construction,
repair, replacement or other work, and shall require approval from
NIAGARA's engineer, and shall require written approval from NIAGARA'S
Engineer.
8.3 Such plans and the timing of all such work shall be subject to the
consent and approval of NIAGARA, and TELERGY's obtaining any required
Approvals as provided in Section 10.
8.4 Prior to commencement of any cable installation, TELERGY shall
provide required notification to the respective local Underground
Utilities Locating Service as is appropriate for that area.
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8.5 TELERGY, upon not less than seven (7) working days prior notice to
NIAGARA, may during any period of construction and installation of the
Backbone Network or, following completion of construction thereof, in
connection with post-construction cleanup activities. Maintenance or
repairs, place inspectors, supervisors, or other reasonably necessary
personnel on site for the protection of TELERGY's operation, property,
Right-of-Occupancy, or the property of others.
8.6 For and during the term of the Agreement, NIAGARA shall not excavate
for the purposes of longitudinal construction and/or insertion of cable or
conduit within five (5) feet of the running line of the System other than
for necessary operations of NIAGARA's Facilities. Except for NIAGARA System
emergencies, all excavations within ten (10) feet of the running line of
the System shall require not less than thirty (30) days prior written
notice to TELERGY and shall be coordinated with TELERGY so as to prevent
damage to the System and the disruption of transmission there over.
Moreover, NIAGARA shall use its best efforts to minimize any disruptions of
the System during the performance of any work by NIAGARA or others within
the restricted area.
9 TELERGY WORK
9.1 Within ninety (90) days after the date of this Agreement, the parties
shall jointly decide, consistent with NIAGARA's public service
responsibilities, whether the Backbone Network shall be installed and
constructed underground or overhead. Underground facilities shall be
installed when technically, operationally and economically feasible.
9.2 A detailed description of the construction technique for each Segment
of the Backbone Network shall be prepared and attached to this Agreement
and incorporated herein, before any construction or installation commences.
9.3 TELERGY shall comply with NIAGARA's Construction Standards and
policies as well as any Approval or Permits, in the construction of the
System. Any material deviations from NIAGARA's standard engineering
guidelines shall require prior written approval of NIAGARA.
9.4 Any changes necessary to NIAGARA's overhead and underground Facilities
necessitated by this Agreement as reasonably determined by NIAGARA will be
made by NIAGARA at TELERGY's sole cost and expense.
9.5 TELERGY shall install and construct the Backbone Network along the
Backbone Route in three Segments. Segment I shall connect [***], on or
before [***]. Segment II shall connect [***] to the aforementioned city
that was not connected during Segment I, on or before [***]. Segment 3
shall connect [***],
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[***], on or before [***]. The locations and dates are critical to
NIAGARA. Segment I must be installed and fully operational on or before
[***]; Segment II must be installed and fully operational on or before
[***]; and the entire Backbone Network along the Backbone Route must be
fully operational and capable of carrying telecommunications traffic on or
before [***].
9.6 TELERGY shall exercise good faith efforts to obtain all Approvals
and Permits, as set forth in Section 11, necessary for construction of the
Backbone Network as expeditiously as possible. TELERGY shall notify
NIAGARA in writing in the event any Approval or Permit is delayed,
advising of the Approval outstanding, reasons for the delay, efforts to
obtain the approval and minimize any delay, and the anticipated date of
approval.
9.7 TELERGY, at its sole risk, cost and expense, shall furnish all
materials to be used in connection with this Right-of-Occupancy, the
Backbone Network and Telecommunications System, and shall construct,
install, operate, maintain, use, change, alter, relocate or remove TELERGY
Facilities or any part thereof in accordance with the design and
specifications on Approved Plan(s) and the terms and conditions of this
Agreement, in a prudent and workmanlike manner, in conformity with any
applicable statutes, rules, orders, regulations and specifications of any
public body having jurisdiction thereof and in conformity with NIAGARA's
standards, rules and policies, and so as not to interfere with or endanger
any property, operations, maintenance, or employees of NIAGARA, or of
other existing parties occupying or using the property of NIAGARA.
9.8 Power sources installed by TELERGY shall meet all applicable
National Electrical Codes, NIAGARA and state and local-ordinance
requirements.
9.9 NIAGARA's activities to support TELERGY's design, planning,
construction, installation or MAINTENANCE efforts, and its conduct of
periodic and post-construction inspections shall not operate to relieve
TELERGY of any responsibility, obligation or liability specified in this
Agreement. TELERGY shall be responsible for compliance with all Federal,
state or local laws, rules, regulations, codes and/or ordinance governing
the activities contemplated by this Agreement.
10 APPROVALS AND PERMITS
10.1 TELERGY shall secure, at its expense, all necessary, final and
unconditional approvals, permits and licenses (collectively referred to as
"Approvals") from all governmental authorities and/or other parties having
jurisdiction or approval rights with respect to the use and occupation of
the Backbone Right-of-Way and the provision of telecommunications
services, the installation, operation and maintenance of the Backbone
Network and Telecommunications System within the Right-of-Occupancy, and
the provision
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of telecommunications services, specifically including, without limitation, any
required environmental approvals. Environmental impact assessments or statements
required, if any, shall be prepared by TELERGY at its sole risk, cost and
expense, with copies provided to NIAGARA.
10.2 NIAGARA shall be required to obtain Approval of this Agreement by the
Public Service Commission of the State of New York, at TELERGY's sole cost and
expense.
10.3 TELERGY shall be responsible for obtaining from third parties, private
entities and/or public agencies any and all necessary easements, rights of way,
licenses, permits, permissions, certifications or franchises to construct,
operate and/or maintain TELERGY Facilities on private or public property at the
location of TELERGY's Facilities.
10.4 NIAGARA agrees that it shall provide reasonable cooperation to TELERGY in
connection with TELERGY's efforts to obtain such necessary permits and
consents.
10.5 If NIAGARA's permission or consent in writing is required by a governmental
or regulatory agency in conjunction with the processing or application by
TELERGY for such permits and consents, or if NIAGARA is required to obtain any
governmental or regulatory approvals with respect to TELERGY's proposed
activities or any related NIAGARA activities necessary to the completion of
TELERGY's proposed activities, NIAGARA shall provide such consent, provided,
however, that NIAGARA shall have the right to review and approve the terms and
conditions, if any, that may be required or requested of NIAGARA by said
governmental or regulatory agency, which such approval shall not be unreasonably
withheld.
10.6 NIAGARA shall have the right to review and approve the terms and conditions
of any such Approvals to insure that they are compatible with the continued use
and maintenance of NIAGARA's Facilities and Rights-of-Way.
10.7 If required by any law or regulation and upon request, NIAGARA agrees to
review and, if approved, shall cause its authorized officers or representatives
to execute any applications or other documentation prerequisites to securing the
Approvals.
10.8 Following the issuance of any necessary Approvals in respect of any System
Segment, and upon compliance with the terms and conditions of this Agreement,
TELERGY, its employees, agents, contractors and/or subcontractors shall have the
right to construct the System within the Right-of-Occupancy within any
Right-of-way in accordance with the Approved Plans.
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11 CONSTRUCTION AND INSTALLATION
11.1 TELERGY shall furnish to NIAGARA a Construction Plan consisting of a
proposed schedule of engineering and design, commencement and completion
dates for receipt of Approvals as set forth in Section 10 herein, and
dates for construction, installation and implementation of the Segments of
the Backbone Network. Time being of essence with respect to Sections 3.6,
9.5 and 13 herein, said schedule shall not otherwise be binding on the
parties but shall be an indication of proposed construction and
installation, unless otherwise specified in this Agreement.
11.2 Except as herein otherwise expressly set forth, construction and
installation of the Backbone Network and the furnishing of all labor,
materials and equipment necessary to construct and install the same, shall
be at TELERGY's expense. All such work shall be performed in a good and
workmanlike manner and in compliance with all laws, ordinances, codes and
regulations, and Approvals of any governmental authorities having
jurisdiction there over, and any appropriate NIAGARA construction
standards, practices and/or procedures.
11.3 All access to areas in and around NIAGARA Facilities shall be
coordinated by NIAGARA in accordance with TELERGY's anticipated
construction schedule.
11.4 TELERGY shall have the right to select the type of fiber optic cable
to be installed in NIAGARA's Right-of-Way and Facilities, subject to
NIAGARA's review and approval, which shall not be unreasonably withheld.
11.5 TELERGY Facilities shall be placed, maintained, relocated or removed
in accordance with NIAGARA's requirements and specifications, including
but not limited to the current editions of NIAGARA's Code Rule 53,
Underground Standards for Construction, the National Electric Code (NEC),
the National Electrical Safety Code (NESC), Rules and Regulations of the
Occupational Safety and Health Act (OSHA), and all Approvals, or rules or
regulations of any governing authority having jurisdiction. Where a
difference in specification may exist, the more stringent shall apply.
11.6 TELERGY Facilities shall not physically, electronically or
inductively, or otherwise, interfere with NIAGARA's Facilities.
11.7 NIAGARA reserves the right to specify the type of construction
standards and practices required in situations not otherwise covered in
this Agreement. In such cases, NIAGARA, will furnish to TELERGY written
materials, if available, specifying and explaining the required
construction.
11.8 TELERGY Facilities installation may be performed, at TELERGY's
discretion, by NIAGARA, NIAGARA's designated contractor upon delivery of
any appropriate facilities by
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TELERGY, or by TELERGY or its subcontractor, following completion of Make-Ready
Work.
11.9 In the event that TELERGY Facilities installation is performed by a
contractor or sub-contractor, NIAGARA and TELERGY each shall have the right to
approve such contractor or sub-contractor, which approval shall not be
unreasonably withheld; however, TELERGY shall be responsible for all acts of
its contractors and shall ensure its contractors compliance with the provisions
of this Agreement. Following completion of TELERGY Facilities installation,
TELERGY shall have the right to conduct testing in accordance with NIAGARA
approval to insure that agreed-upon design specifications have been met.
11.10 NIAGARA reserves the right to prohibit all TELERGY Facilities other than
fiber optic cable, splice closures and repeaters from its manholes, pull boxes
and hand holes. Splices in TELERGY's fiber optic cables shall be located only
in manholes, pull boxes or hand holes.
11.11 TELERGY shall be responsible for any problems from, or in, TELERGY
Facilities, unless such problem was caused by the intentional or reckless act
or omission of NIAGARA.
11.12 Non-Cable Facilities.
11.12.1 As requested by TELERGY, NIAGARA, where franchised and
reasonable, shall provide to TELERGY at the regenerator sites, metered
electric service, the cost of which shall be paid by TELERGY in accordance
with applicable New York State Public Service Commission approved
tariffs.
11.12.2 TELERGY shall be entitled to install its regenerator facilities
for its Telecommunications System along the Backbone Route. The location
of such Facilities shall be subject to NIAGARA's advance written approval.
No regenerator facility shall be located on any portion of such Rights-of-
Way or other NIAGARA property identified by NIAGARA as unavailable due to
a planned NIAGARA use at such location. Whenever possible, Niagara agrees
to locate TELERGY's regenerator facilities with sites on the Backbone
Route approximately [***] feet by [***] feet in size, which sites will be
located at or near power plants or substations or as identified by
TELERGY, which shall be deemed part of the Right-of-Occupancy hereunder.
11.12.3 During construction of the System, NIAGARA agrees to allow
TELERGY and its contractors and subcontractors, without charge, to use
portions of the Backbone Route Rights-of-Way at NIAGARA pre-approved
locations only for the erection of temporary structures and fences to
protect TELERGY's construction materials, equipment and fuel, provided no
adverse impact to NIAGARA's Facilities, operations or environmental
requirements shall result therefrom and further provided
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that any such structures and/or fences shall be removed by TELERGY
following completion of construction of the applicable System
Segment.
11.13 Cable Installation.
11.13.1 Cables crossing under public roadways shall be at a location
and depth as determined by state and local conditions, laws,
regulations, Approvals or orders of public authorities, and shall
also be in accordance with the Approved Drawings, Construction Plan
and Construction Standards.
11.13.2 Cables crossing over or under other existing public
utilities shall be located and installed in accordance with local
conditions, laws, regulations, Approvals, or orders of public
authorities, and any requirements of the New York State Public
Service Commission.
11.13.3 If, in the conduct of work, any changes or alterations,
permanent or temporary, in existing pipelines, sewers, drains,
conduits, fences, power, signal or communication lines or other
utilities are necessary, such changes shall be made or caused to be
made, by TELERGY and at TELERGY's sole risk, cost and expense, in
accordance with Section 8.1 herein.
11.13.4 Emergency cable installation, Maintenance and repair methods
shall comply with standards and policies to be developed by the
parties.
11.13.5 TELERGY, at its sole cost and expense, shall furnish, erect
and thereafter maintain cable markers designating all TELERGY
underground Facilities. Such markers shall be installed along the
Backbone Network running line. The cable markers shall be placed in
conformity with industry standards or as otherwise approved by
NIAGARA.
12 MAINTENANCE AND OPERATION
12.1 Within six (6) months following completion of any Segment, TELERGY
shall furnish to NIAGARA final, executed "As Built Drawings," of
reproducible quality, depicting the Backbone Network, or System Segment,
which, as the same may be amended from time to time and/or as the running
line may from time to time be shifted by settlement, natural forces or
casualties, shall constitute the locations of the Right-of-Occupancy.
12.2 As Built Drawings shall become Exhibits to and form a part of this
Agreement upon verification and approval by NIAGARA.
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12.3 Following the completion of the initial construction of any
System Segment, the operation, maintenance, repair, replacement,
reinstallation, relocation and/or removal thereof shall be solely at
TELERGY's cost and under its control, except as otherwise set forth in this
Agreement, including but not limited to Sections 8 and 10 governing
Approvals and Entry Notice.
12.4 Unless prohibited by law or any governmental agency ruling or by
local franchise, TELERGY shall have the right to leave in place within the
Right-of-Way rather than remove therefrom any buried cable(s), conduit or
other appurtenances so placed.
12.5 All Maintenance, repair and restoration ("Maintenance") costs
related to the Backbone Network, the Telecommunication System and TELERGY
Facilities shall be the responsibility of TELERGY.
12.6 All Maintenance associated with TELERGY Facilities, including
ongoing operational activities as well as repairs and service interruptions
of TELERGY's Facilities, shall be the ultimate responsibility of TELERGY
subject to NIAGARA review and inspection. TELERGY shall be entitled, at its
sole cost, to hire a qualified telecommunications maintenance company to
perform Maintenance activities with respect to TELERGY Facilities, subject
to NIAGARA approval, which shall not be unreasonably withheld.
12.7 All Maintenance associated with NIAGARA Facilities resulting from
or attributable to TELERGY's Right-of-Occupancy shall be the responsibility
of NIAGARA; however TELERGY shall be responsible for all associated costs.
12.8 To the extent that NIAGARA's maintenance of a Right-of-Way
encompasses a TELERGY Right-of-Occupancy, NIAGARA will extend such standard
maintenance services to cover such Right-of-Occupancy without cost to
TELERGY, unless the existence of TELERGY's Facilities significantly
increases the cost-associated with such Maintenance.
12.9 Upon a request from TELERGY to perform Maintenance with respect
to NIAGARA's Facilities, recognizing that time may be of the essence,
NIAGARA shall investigate the need for such Maintenance, within a
reasonable period of time. Maintenance of NIAGARA Facilities shall be
performed only by NIAGARA's, at its discretion based, on its investigative
findings.
12.10 With respect to Maintenance of TELERGY Facilities, a NIAGARA
inspector, engineer or escort shall be present and shall be authorized to
terminate such activities when, in the inspector's sole discretion, said
activities pose a danger to NIAGARA's Facilities.
12.11 In no event shall access to NIAGARA's Facilities or Right-of-Way
be authorized without the presence of a NIAGARA inspector or escort.
Notwithstanding the foregoing provision, NIAGARA agrees that if TELERGY
designates a contractor for Maintenance, the
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Maintenance company shall be granted access to the NIAGARA Facilities and
TELERGY's Facilities, under such terms and conditions as may be set by
NIAGARA, and within such fixed period of time as may be agreed upon between
TELERGY, NIAGARA and the selected contractor.
12.12 TELERGY shall have the right, subject to NIAGARA's availability,
to inspect its Facilities periodically, upon thirty (30) days prior written
notice to NIAGARA. Such inspection costs shall be borne solely by TELERGY.
No inspection shall be authorized and/or conducted by TELERGY without the
presence of NIAGARA's inspector or escort.
13 NIAGARA CAPACITY, RATES, CHARGES AND COSTS
13.1 Niagara Capacity.
13.1.1 In consideration of the granting of the
Right-of-Occupancy within the Backbone Route Right-of-Way,
TELERGY initially shall provide Niagara with [***] of capacity of
the Backbone Network along the entire Backbone Route ("NIAGARA
Capacity").
13.1.2 The NIAGARA Capacity and any NIAGARA Spur Capacity shall
be delivered to selected NIAGARA Points-of-Presence, which sites
may change from time-to-time during the term of this Agreement.
The NIAGARA Capacity shall be delivered to NIAGARA selected
Points-of-Presence in [***] to ensure that [***] are connected to
the Backbone Network.
13.1.3 In each city, the NIAGARA Capacity dedicated from
TELERGY Facilities in such cities to NIAGARA's Facilities in such
cities shall be engineered and installed by TELERGY to initially
provide NIAGARA with lit fiber in the amount of [***],
delivered to the specified NIAGARA lightwave distribution panel.
Service will be delivered by TELERGY to NIAGARA at the [***]
level but NIAGARA is solely responsible for equipment necessary
to multiplex or demultiplex.
13.1.4 TELERGY shall engineer, furnish, install and maintain
all electronics, cabling, and equipment to each [***] demarcation
in the above locations. Such demarcation will be a standard [***]
interface termination (fiber distribution panel).
13.1.5 NIAGARA shall engineer, furnish, install and maintain
all electronics, cabling, etc, beyond the lightwave distribution
panel demarcation in the above locations. NIAGARA may provide
access, floor space and support service, such as
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commercially available electricity and HVAC, at NIAGARA's Facilities as
listed above where available at NIAGARA's discretion.
13.1.6 The parties agree that the baseline NIAGARA/TELERGY ratio in
respect of the System shall be defined within ninety (90) days after
the System is designed in accordance with this Agreement.
13.2 NIAGARA SPUR CAPACITY.
13.2.1 At its own expense, TELERGY shall have the right to replace
and upgrade the System due to changes in technology as long as the
NIAGARA Capacity is not adversely affected. In the event of any such
replacement and upgrade of the capacity of the Backbone Network,
TELERGY shall increase the NIAGARA Capacity and, if applicable, the
NIAGARA Spur Capacity proportionally as described below.
13.2.2 NIAGARA shall have the right to receive additional NIAGARA
Spur Capacity as a proportionate increase in the capacity of the
Backbone Network at the [***] level in order to maintain, but
not exceed, the baseline NIAGARA/TELERGY established pursuant to
13.1.6, provided that such proportionate increase shall be limited to a
maximum total equivalent capacity of [***].
13.2.3 TELERGY agrees to inform NIAGARA in the event that NIAGARA's
proportionate share of the installed and in service NIAGARA Capacity
exceeds [***].
13.3 The NIAGARA Capacity and, if applicable, the NIAGARA Spur Capacity
shall be owned by NIAGARA and may be utilized for any purpose whatsoever
at NIAGARA's sole discretion.
13.4 In addition to constructing, installing and maintaining the NIAGARA
Capacity and Spur capacity, TELERGY shall be responsible for all costs
arising out of or related to this Right-of-Occupancy Agreement.
14 MODIFYING NIAGARA OR TELERGY FACILITIES
14.1 Should NIAGARA, for its own service requirements, need to modify
existing or install additional NIAGARA Facilities using Right-of-Way
subject to the TELERGY Right-of-Occupancy, NIAGARA shall notify TELERGY.
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14.1.1 Except in an emergency, a written notice shall be sent as
soon as possible before any such installation or modification is
implemented or installed, and NIAGARA shall pay costs for the
rearrangement of TELERGY's Facilities.
14.1.2 In the event TELERGY is responsible for costs pursuant to
Section 14.1.1, TELERGY shall have the option either to (i) pay
NIAGARA the costs thereof for the rearrangement of TELERGY's
Facilities, or (ii) arrange for such reinstallation in accordance with
the terms and conditions of this Agreement.
14.1.3 TELERGY shall have the right to have its inspectors, at its
sole cost and expense, present during any relocation work by NIAGARA
in accordance with Section 12.14.
14.1.4 Within seven (7) working days of the date of completion of
NIAGARA's relocation and post-construction inspection, it shall notify
TELERGY in writing that the relocation is completed.
14.1.5 In the event TELERGY or its contractors performs relocation
activities, TELERGY shall make the necessary arrangements to ensure
that NIAGARA's inspectors are available.
14.1.6 TELERGY shall notify NIAGARA within seven (7) working days of
the completion of any TELERGY Facilities. TELERGY shall make such
arrangements as may be necessary to enable NIAGARA to inspect such
Facilities. If TELERGY's Facilities are not deemed in compliance with
NIAGARA engineering and/or operating standards, applicable Approvals,
and safe work practices on initial inspection by NIAGARA, subsequent
inspections to determine if any appropriate corrective action has been
taken may be made by NIAGARA. TELERGY shall reimburse NIAGARA for the
cost of any inspections of TELERGY's Facilities.
14.2 Should TELERGY, for its own business requirements, require or desire
additional Rights-of-Occupancy or NIAGARA Facilities, TELERGY shall notify
NIAGARA in writing and submit an Application for Right of Occupancy
(Attachment B), if appropriate.
14.2.1 NIAGARA shall process any request in the same manner and
subject to the same conditions and provisions set forth in this
Agreement, advising TELERGY of NIAGARA's acceptance, rejection or
modification of said request.
14.2.2 TELERGY shall reimburse NIAGARA for actual costs involved for
such review, processing and modifications, upon submission of
documented invoices.
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15 UNAUTHORIZED USE NIAGARA FACILITIES
15.1 If any TELERGY Facilities shall be found occupying NIAGARA Facilities
or Right-of-Way for which a Right-of-Occupancy has not been granted by
NIAGARA, NIAGARA, without prejudice to its other rights or remedies under
this Agreement, including termination or otherwise, may impose a charge and
require TELERGY to submit in writing, within ten (10) days after receipt of
written notification from NIAGARA of the unauthorized occupancy, an
Application for a Right-of-Occupancy (Exhibit B). If such Application is
not received by NIAGARA within the specified time period, NIAGARA may
remove TELERGY's Facilities without liability, and the cost of such removal
shall be borne by TELERGY.
15.2 For the purpose of determining the applicable charge, the unauthorized
occupancy of NIAGARA's Facilities or Right-of-Way shall be treated as
having existed for a period of [***] prior to its discovery; or for the
period beginning with the date of the initial Agreement, whichever period
shall be shorter, and NIAGARA's prevailing rates, charges and fees shall be
due and payable forthwith whether or not TELERGY is permitted to continue
the occupancy.
15.3 Should NIAGARA remove TELERGY's Facilities from NIAGARA's Facilities
or Right-of-Way under Section 15.1 or 18.5, NIAGARA will deliver to TELERGY
the Facilities so removed upon payment by TELERGY of the cost of removal,
storage and delivery, and all other amounts due NIAGARA. NIAGARA shall have
a lien on TELERGY's Facilities removed from NIAGARA's Facilities or
Right-of-Way, with power of public or private sale, to cover any amounts
due NIAGARA. Such liens shall not operate to prevent NIAGARA from pursuing,
at its option, any other remedy in law, equity or otherwise.
15.4 No act or failure to act by NIAGARA with regard to an unauthorized
occupancy shall be deemed as a Right-of-Occupancy for the occupancy, and,
if any Right-of-Occupancy should be subsequently issued, it shall not
operate retroactively or constitute a waiver by NIAGARA of any of its
rights or privileges under this Agreement, or otherwise, provided, however,
that TELERGY shall be subject to all liabilities, obligations and
responsibilities of this Agreement in regard to said unauthorized occupancy
from its inception.
16 CONDEMNATION, BANKRUPTCY, AND OTHER TRANSFERS
16.1 Nothing contained in this Agreement shall be construed as prohibiting
NIAGARA from undertaking any merger, reorganization, or acquisition
activity whether voluntary or involuntary, so long as such activity shall
not hinder, impede, alter or vary the terms and conditions of the
Right-of-Occupancy conferred herein.
16.2 TELERGY shall not assign, sub-license, sublet or transfer the rights
associated with this Agreement of the Right-of-Occupancy, granted herein,
and such rights shall not inure to
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the benefit of TELERGY's successors or assigns without the prior written
consent of NIAGARA, as well as Public Service Commission and other
regulatory bodies' review and approval, if required. In the event such
consents are granted by NIAGARA, the provisions of this Agreement shall
apply to and bind TELERGY's successors and assigns.
16.3 Bankruptcy. Subject to the rights of the principals of TELERGY, in
the event that either of the principals of TELERGY is involved in a
bankruptcy as defined in Section 1.5 of this Agreement, or in the event
that the interest of TELERGY Facilities or the Right-of-Occupancy become
the subject of garnishment, attachment or tax lien proceeding, and in the
further event that such a petition and/or proceeding shall not be quashed
or removed within 45 days after filing, service or levy, whichever first
occurs, NIAGARA shall have the right and option within 15 days after the
expiration of such 45-day period to purchase "proportionately the interest
incumbered as the "computed" value payable in cash within that 15-day
period.
"Proportionately" shall mean that portion of the undivided interest in the
property involved in such bankruptcy, garnishment, attachment or tax lien
proceeding, which the undivided interest owned by a TELERGY bears to all of
the undivided interest in the subject property other than that involved in
such bankruptcy, garnishment, attachment of tax lien proceeding.
"Computed value" shall mean the value of the undivided interest in the
subject property as computed by the regularly retained certified public
accountants of TELERGY. Such computation shall be binding and conclusive
upon the parties absent manifest error.
16.4 Right of First Refusal. There shall be no sale, exchange or other
transfer or assignment of the whole or any portion of any assets of TELERGY
without the prior written consent of NIAGARA. NIAGARA shall have the right,
in the first instance, to acquire the subject assets based upon the
computed value as defined in Section 16.3 herein.
16.5 Relocations. In the event that a portion of NIAGARA's Right-of-Way
or NIAGARA Facilities, where TELERGY has a Right-of-Occupancy occupied by
TELERGY Facilities, is required for NIAGARA's gas and electric business,
NIAGARA will exercise a best effort approach for TELERGY's continued use of
the Right-of-Occupancy in Right-of-Way or NIAGARA Facilities. However,
where this is not appropriate, NIAGARA will, where feasible, with F.O.G.
Wire supplied by TELERGY, pull in, attach and make ready for TELERGY
connection, the F.O.G. Wire on the rebuilt/relocated sections of the
Right-of-Way or NIAGARA Facilities.
16.5.1 TELERGY, at its sole cost, assumes all responsibility for all
installations, training, materials, splices and bypass necessary to
reconnect the relocated portion of the System to the balance of the
Backbone Network. Additionally, TELERGY agrees that such F.O.G. Wire
shall meet NIAGARA's electrical and structural design requirements and
all applicable Approvals.
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16.5.2 If NIAGARA is required by any municipal or state public
authority or agency to relocate its Right-of-Way or NIAGARA Facilities
which contain TELERGY's Facilities, TELERGY shall pay its
proportionate share of total relocation costs. The cost shall include
all relocation and reasonably incurred "tie-up" costs under the
circumstances at the usual rates recoverable by NIAGARA in relocation
projects.
16.6 Condemnation. Should any portion of the Right-of-Occupancy along the
Backbone Route used by TELERGY for Backbone Network be appropriated and/or
acquired by condemnation or the power of eminent domain by any public or
quasi-public authority, then the Rights-of-Occupancy hereby granted to the
extent appropriated shall terminate, but this Agreement shall otherwise
remain in full force and effect.
16.6.1 If any taking includes any portion of the Backbone Network,
TELERGY's interest shall be severed from NIAGARA's interest in such
proceeding and the parties agree to have the condemnation awards
specifically allocated between and payable in accordance with
TELERGY's interest, both physical and occupational, including any
incremental value of an affected Right-of-Way by virtue of the
installation of the Backbone Network, and NIAGARA's interest, both
physical and ownership rights. In addition, if permitted pursuant to
applicable law, TELERGY shall be entitled to make a claim for, and
then receive, the portion of the award attributable to either the
entire amount if separately allocated or the proportionate share if
combined in a lump sum award, the Backbone Network and/or damages
payable on account of Backbone Network relocation expenses.
16.6.2 To the extent it has knowledge, NIAGARA shall notify TELERGY
immediately of any condemnation threatened or filed against any
portion of the Right-of-Way along the Backbone Route which includes
TELERGY's preliminary route designation plan or could include any part
of the System within a Right-of-Occupancy. NIAGARA further agrees not
to sell or convey any portion of a Right-of-Occupancy on a
Right-of-Way containing any Facilities to such acquiring authority in
lieu of condemnation without prior notice to and approval by TELERGY.
17. TERMINATION OR DEFAULT BY TELERGY
17.1 TELERGY shall not terminate its use of the System (Discontinuance)
or any portion thereof except as set forth in this Section 17 during the
first twenty-five (25) years of this Agreement ("Initial Term").
17.2 If TELERGY terminates this Agreement during the first twenty-five
(25) years of the Initial Term, or the operation and Maintenance of the
Backbone Network, or any portion thereof, without NIAGARA approval in
writing, TELERGY shall (i) at TELERGY's sole cost, pay NIAGARA a one time
sum of seven thousand dollars ($7,000.00) per mile of
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NIAGARA's Right-of-Way effected by the portion of the Backbone Network so
terminated, and (ii) make business arrangements for the provision of
capacity up to an amount that is equivalent to the NIAGARA Capacity and any
NIAGARA Spur Capacity in service at the time of termination, as determined
by NIAGARA.
17.3 The per-mile-severance-payment figure shall be reduced annually on
the anniversary of the Commencement Date by one/twenty-fifth (1/25th),
commencing with the first anniversary thereof.
17.4 NIAGARA shall advise TELERGY of its Capacity requirements pursuant
to Section 17.2 upon its receipt of notice from TELERGY that TELERGY has
determined to terminate its operation and maintenance of the Backbone
Network, or a portion thereof.
17.5 If TELERGY fails to satisfy the requirements and obligations set
forth in Sections 3.7 and 9.5 of this Agreement, TELERGY shall pay any and
all costs associated with, related to or arising from NIAGARA's relocation
or extension of its private microwave system, including but not limited to,
reasonable attorney fees and disbursements.
17.6 If TELERGY fails to satisfy the requirements set forth in Sections
3.6, 9.5 and/or 13, TELERGY shall pay any and all costs associated with
NIAGARA's relocation or extension of its private microwave system.
18 TERMINATIONS OF AUTHORIZATIONS
18.1 Regardless of the reason for the valid termination of this
Agreement, TELERGY shall reimburse NIAGARA for [***] incurred in
connection with this Agreement.
18.2 In addition to rights of termination provided to NIAGARA under other
provisions of this Agreement, NIAGARA shall have the right to terminate a
Right-of-Occupancy granted pursuant to the provisions of this Agreement
where:
(a) TELERGY's Facilities are maintained or used in violation of any
law or in aid of any unlawful act or undertaking, or
(b) TELERGY ceases to have authority to construct and operate its
Facilities on public or private property covered by the
Right-of-Occupancy; or
(c) TELERGY fails to comply with any of the terms and conditions of
this Agreement or defaults in any of its obligations thereunder.
26
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material
omitted on this page. The omitted portions have been filed separately
with the Securities and Exchange Commission.
<PAGE> 31
(d) TELERGY's Facilities occupy NIAGARA's Facilities or Right-of-way
without having first been issued a Right-of-Occupancy therefor; or
(e) TELERGY, subject to the provisions specified in this ??? should
permanently cease to provide telecommunications services over its
Facilities, which shall mean for a period of six (6) consecutive
months.
(f) TELERGY Facilities or Right-of-Occupancy are used by others not
a party to this Agreement without the prior written consent of
NIAGARA, which consent shall not be unreasonably withheld, provided
that such use shall not be construed as including use by TELERGY's
customers as provided for in this Agreement.
(g) TELERGY sublets or apportions part of a Right-of-Occupancy to an
entity not a party to this Agreement without the prior written consent
of NIAGARA, which consent shall not be unreasonably withheld.
(h) TELERGY's Right-of-Occupancy can be terminated by NIAGARA
wherever and whenever a governmental agency requires the same, in
which case NIAGARA will remove and return TELERGY's Facilities to
TELERGY, at TELERGY's expense.
(i) TELERGY's insurance carrier shall at any time notify NIAGARA
that the policy or policies of insurance as required in Section 26
will be or have been canceled or amended so that those requirements
will no longer be satisfied; or
(j) TELERGY shall fail to pay any sum due or to deposit any sum
required under this Agreement, within thirty (30) days following
TELERGY's receipt of written notice requiring such payment or deposit
from NIAGARA.
(k) any authorization which may be required by any governmental or
private authority for the construction, operation and maintenance of
TELERGY's Facilities in NIAGARA Facilities or Right-of-Way is denied,
revoked or canceled.
(l) the Public Service Commission of the State of New York or the
Federal Communications Commission makes a determination that TELERGY's
Right-of-Occupancy would make NIAGARA a telephone corporation for
purposes of Commission regulation under the Public Service Law.
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18.3 Notwithstanding the above, TELERGY shall have the right to cure the
above stated defaults within thirty (30) days of written notice by NIAGARA
to TELERGY of said default. Upon receipt of said written notice and within
five (5) days, TELERGY shall notify NIAGARA of its intention to cure the
default within the said 30-day period set forth above. If TELERGY fails to
give such five days notice or if TELERGY advises NIAGARA that it does not
intend to cure, then TELERGY shall be deemed in default and the thirty (30)
day period for cure shall not apply.
18.4 In the event of termination of any of TELERGY's authorizations
hereunder, or at the expiration of the Term of this Agreement, NIAGARA will
remove, abandon, or maintain for NIAGARA's use, TELERGY's Facilities within
ninety days of the effective date of the termination; provided, however,
that TELERGY shall be liable for and pay all fees and charges pursuant to
provisions of this Agreement to NIAGARA until TELERGY's Facilities are
actually removed, abandoned or maintenance is taken over by NIAGARA,
whichever comes first and provided further that each party shall be
required to perform any and all obligations under this Agreement until such
time. NIAGARA shall have the right to remove such Facilities at TELERGY's
expense and without any liability on the part of NIAGARA for damage or
injury to such Facilities or interruption of TELERGY's services except for
liability for damage or injury to such Facilities caused by the negligence
of NIAGARA or its agents or employees. At NIAGARA's sole option, NIAGARA
may elect to remove TELERGY's Facilities, or any portion thereof, abandon
such Facilities in place, or maintain such Facilities for its own use.
18.5 When TELERGY's Facilities are removed, abandoned or maintained by
NIAGARA, no further Right-of-Occupancy shall be permitted until TELERGY has
first complied with all of the provisions of this Agreement as though no
such Right-of-Occupancy had been previously made and all outstanding
charges due to NIAGARA for Right-of-Occupancy have been paid in full.
19 NIAGARA ABANDONMENT
19.1 NIAGARA may at any time and for any reason abandon Right-of-Way if
NIAGARA no longer requires it for its public service or corporate purposes,
provided however that in the event of a voluntary NIAGARA abandonment of
Right-of-Way that includes any portion or portions of the Backbone Route or
Spur Route Right-of-Occupancy within which TELERGY shall have installed its
Facilities, NIAGARA shall give TELERGY not less than six (6) months prior
written notice.
19.2 In the case of a proposed involuntary NIAGARA abandonment, such as one
due to a calamity or earthquake or other natural calamity rendering the
Backbone Route or Spur Route Right-of-Way, or portions thereof, unusable,
of any portion or portions of said Backbone Route or Spur Right-of-Way,
within which TELERGY shall have installed
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its Facilities, NIAGARA shall give TELERGY written notice of any such
abandonment as soon as practical before any such abandonment ("Involuntary
Notice").
19.3 In any event, where the NIAGARA abandonment is voluntary, TELERGY
shall have the option to continue to use the affected Right-of-Occupancy,
to the extent possible. If TELERGY should exercise such option to continue
to use a NIAGARA abandoned Right-of-Way, TELERGY shall thereafter be
responsible for the maintenance of the applicable Right-of-Way.
19.4 If an abandoned portion of the Backbone Route or Spur Route
Rights-of-Way shall be acquired, obtained, or sold to any entity other than
TELERGY, such sale shall be subject to the existing Rights-of-Occupancy and
the rights granted to TELERGY under this Agreement. The obligations of the
respective parties under this article shall survive the Expiration Date in
respect of any occurrences within the Term.
20 NIAGARA'S EXPENSES AND EMPLOYEE COSTS
20.1 NIAGARA's costs and expenses for [***].
20.2 Such expenses indicated in Section 21.1 shall include, but not be
limited to [***].
21 INDEPENDENT CONTRACTOR STATUS
NIAGARA reserves no control whatsoever over the employment, discharge,
compensation of or services rendered by TELERGY's employees or contractors,
and it is the intention of the parties that TELERGY shall be and remain, an
independent contractor and that nothing herein shall be construed
inconsistently with TELERGY's status as an independent contractor or as
creating or implying any partnership or joint venture between NIAGARA and
TELERGY.
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CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE> 34
22 TAXES
22.1 TELERGY shall pay all transfer taxes, documentary stamps, recording
costs or fees, or any similar expense in connection with the recording or
filing of any memoranda or short form of the Agreement describing the
Right-of-Occupancy granted to TELERGY hereby.
22.2 TELERGY further agrees that if it is determined by any state or
local governmental authority that the sale, acquisition, license, grant,
transfer or disposition of any part or portion of the Rights-of-Occupancy
herein described requires the payment of any taxes, including but not
limited to sales, use, real property transfer gains taxes, or tax on the
furnishing of utility services under any statute, regulation or rule,
TELERGY shall pay the same, plus any penalty or interest thereon, directly
to said taxing authority, and shall defend and hold NIAGARA harmless
therefrom; provided, however, TELERGY's said obligation to hold NIAGARA
harmless shall not apply to any penalty or interest due in respect of the
delinquent payment of any such tax where the delinquency shall result due
to NIAGARA's failure to promptly notify TELERGY of any known assessment
and/or levy of such tax and/or to send TELERGY any invoice or bill in
respect thereof.
22.3 TELERGY shall pay all annual or periodic real property, personal
property, gross receipts, franchise tax or other taxes levied or assessed
upon the Right-of-Occupancy, Backbone Network, or Telecommunications
System, or on account of their existence, and shall indemnify, defend and
hold harmless NIAGARA against the payment thereof. TELERGY shall be
responsible for the filing of any and all returns or other filings in
respect of such personal property taxes.
22.4 NIAGARA shall indemnify and hold harmless TELERGY from and against
any annual or periodic taxes levied or assessed in respect of the
Rights-of-Way, exclusive of the Right-of-Occupancy, Backbone Network, or
Telecommunications System, including net income taxes, increases in such
taxes.
22.5 To the extent that NIAGARA is required to make any kind of
submission or filing with any governmental or regulatory authority which
could effect the amount of any tax that TELERGY must pay pursuant to this
Agreement, NIAGARA shall coordinate such submission or filing, and the
information contained therein, with TELERGY. Further, NIAGARA agrees that
it shall provide TELERGY prompt notice of the receipt of any notice of
assessment in respect of the Rights-of-Way, or any portion thereof, which
may include as an increment of the amount of such assessment a sum which is
attributable to this Agreement and/or the Backbone Network.
22.6 TELERGY shall have the right to protest any such levy or assessment
in respect of any such tax or other fee or charge which TELERGY is
obligated to pay in accordance with the Agreement, or to make claim for
refund, rebate, reduction or abatement of any of said
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taxes. Further, TELERGY shall have the right to protest any assessment of
which it has been given notice pursuant to this Section. NIAGARA shall
cooperate, where appropriate, with TELERGY, at TELERGY's cost and expense,
including reasonable attorney's fees, in the prosecution of any protest
regarding the assessment and/or levy or any claim for refund, rebate,
reduction or abatement of said taxes.
23 NOTICES
23.1 Any notice to be given to NIAGARA under this Agreement shall be sent
by certified mail or overnight express delivery:
(one copy each to):
(1) Director-Net. Mgmt. & Comm.
NIAGARA Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, NY 13202
and
(2) NIAGARA Project Mgr. - TELERGY Project
Network Management & Comm. Department
NIAGARA Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, NY 13202
23.2 Any notice given to TELERGY under this Agreement shall be sent by
certified mail or overnight express delivery:
(one copy each to):
(1) KCI Network Services, Inc.
5784 Widewaters Parkway
Dewitt, New York 13214
and
(2) Plum Street Enterprises
Vice-President of Mass Marketing
300 Erie Boulevard West
Syracuse, New York 13202
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23.3 Notice shall also be given to such other parties as may be designated
in writing to the other party.
23.4 Unless otherwise herein set forth, notices shall be sent, postage
prepaid, either by registered or certified U.S. Mail, Return Receipt
Requested, or by overnight express delivery service, and shall be deemed
served or given when received by the addressee, as evidenced by the date of
the Return Receipt or the receipt provided by the delivery service.
23.5 In case of an emergency demanding immediate examination or repairs of
the Facilities by NIAGARA, notice shall be given by either party to the
other in person or by telephone to the emergency response center designated
in writing by each party to the other. Each party giving such notice shall
follow up with written notice within three (3) business days.
23.6 During the maintenance and operation phase, in order to secure safety
of NIAGARA's operations, employees and crews, and of TELERGY employees
and/or contractors, Entry Notices shall be given to NIAGARA's appropriate
Regional Control Operator by TELERGY.
24 LIABILITIES AND INDEMNIFICATION
24.1 To the fullest extent permitted by law, TELERGY (in this Section 24
sometimes referred to as "Indemnitor") agrees to defend, indemnify and save
NIAGARA, its agents and employees (sometimes referred to as "Indemnitee")
harmless from and against any and all liabilities, cost, suit charge,
expenses, claims, losses, damages, cause of action, bodily injury or death
of any person whomsoever, including employees of the parties, or damage to
any property, real and personal, including environmental damages, and
economic damages to property of NIAGARA or TELERGY, whether owned, leased
or licensed, including but not limited to TELERGY's Facilities, and all
costs and expenses, including, but not limited to attorneys' fees and
disbursements incurred or sustained by the Indemnified party in any action
or proceeding between Indemnitor and the Indemnified party, or between the
Indemnified party and any third party, or otherwise incurred or sustained
in enforcing this indemnification, caused by, arising out of or in any way
connected with this Right-of-Occupancy or the construction, installation or
subsequent operation, maintenance, repair, replacement, reinstallation,
relocation or removal of TELERGY's Backbone Network, Telecommunications
System, or its Facilities, unless such loss, injury or damage shall have
resulted solely from the reckless or deliberate act or omission to act of
NIAGARA or its agents, employees or contractors.
24.2 To the fullest extent permitted by law, NIAGARA agrees to defend,
indemnify and save TELERGY harmless from and against any and all claims,
losses, damages, bodily injury or death of any persons whomsoever,
including employees of the parties, or damage to any property, including
property of NIAGARA or TELERGY, whether owned, leased or licensed,
including TELERGY's Facilities, excluding damages to TELERGY's Facilities
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occasioned by emergency actions of NIAGARA, and all costs and expenses,
including, but not limited to attorneys' fees and disbursements incurred or
sustained by the Indemnified party in any action or proceeding between
Indemnitor and the Indemnified party, or between the Indemnified party and
any third party, or otherwise incurred or sustained in enforcing this
indemnification, caused by, arising from or growing out of the negligent
act or omission to act of NIAGARA or its agents, employees or contractors.
24.3 Either party ("Indemnitor") shall have the right to defend the
other party ("Indemnitee"), by counsel of the Indemnitor's selection
reasonably satisfactory to the other party ("Indemnitee"), with respect to
any claims within the indemnification provisions hereof. The parties shall
give each other prompt notice of any asserted claims or actions indemnified
against, shall cooperate with each other in the defense of any such claims
or actions and shall not settle any such claims or actions without the
prior consent of the indemnifying party ("Indemnitor").
24.4 Except for third-party bodily injury, personal injury or property
damage obligations, neither of the parties shall be liable to the other for
special, consequential or exemplary damages (including, without limitation,
any claims from any client, customer or patron of either party for loss of
services) arising under this Agreement or from the breach of any of the
provisions hereof.
24.5 The obligations of the respective parties under this Section 24
shall survive the expiration date in respect of any occurrences within the
term. Furthermore, TELERGY understands and agrees that it is responsible
for any and all costs and expenses incurred by NIAGARA to enforce this
indemnification provision. The obligations set forth herein shall survive
completion of the work and termination of this contract for any reason.
24.6 TELERGY shall take prompt action to defend and indemnify NIAGARA
against claims, actual or threatened, but in no event later than the
service of a summons, complaint, petition or other service of process
against NIAGARA alleging damage, injury, liability or expenses attributed
in any way to this Agreement, the Work, or the acts, fault, negligence,
equipment, facilities, personnel, or property of TELERGY, its agents,
employees, subcontractors or suppliers. TELERGY shall defend any such claim
or threatened claim, including as applicable, engagement of legal counsel,
to respond to, defend, settle or compromise any claim or threatened claim.
25 INSURANCE
25.1 From the commencement of the Work, through the term of this
Agreement or longer where specified, TELERGY shall provide at its own
expense, insurance policies with coverages intended to be primary, issued
by reputable insurance companies acceptable to NIAGARA which meet or exceed
the requirements listed herein.
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(a) Workers Compensation and Employers Liability Insurance
required by the State of New York. Coverage shall include the
U.S. Longshoremen's and Harbor Workers Compensation Act and the
Jones Act.
(b) Public Liability, covering all operations to be performed
under this Agreement, with minimum limits of:
- Bodily Injury $1,000,000/$1,000,000
- Property Damage $ 500,000/$ 500,000
OR
- Combined Single Limit $1,000,000
OR
- BI & PD per occurrence $1,000,000
- General Aggregate and
Product Aggregate $2,000,000
25.2 This policy shall include Contractual Liability, Products-Completed
Operations and Explosion, Collapse and Underground (XCU) coverage. If the
Products-Completed Operations coverage is written on a Claims-made basis,
coverage shall be maintained continuously for at least two (2) years after
final acceptance of the work.
25.3 Automobile Liability, covering all owned, non-owned and hired
vehicles used in connection with the work to be performed under this
Contract with minimum limits of:
- Bodily Injury $300,000/$500,000
- Property Damage $100,000
OR
- Combined Single Limit $500,000
25.4 Protective Liability Policy in the name of NIAGARA covering all work
performed under the contract, with limits as specified in Section 25.1. In
lieu of providing this coverage, TELERGY may include NIAGARA as an
additional insured under the public liability policy to provide coverage
for, but not limited to, the liability arising out of TELERGY's work under
this Agreement.
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25.5 Watercraft Liability, if the Work requires the use of watercraft, with the
same limit of liability of not less than $1,000,000 combined single limit.
25.6 Aircraft Liability, if Work requires the use of aircraft, with a limit of
liability of not less than $1,000,000 combined single limit.
25.7 At the request of NIAGARA, TELERGY shall provide Professional liability
coverage with a limit of liability to be determined by NIAGARA's Risk Management
Department.
25.8 In the event TELERGY uses subcontractors in connection with this
Agreement, it shall require all subcontractors to provide the same insurance
coverage as required in Section herein.
25.9 Prior to starting work, TELERGY shall promptly provide NIAGARA with the
original Owner's Protective Liability policy and Certificate(s) of Insurance for
all other coverages required herein at the following address:
Niagara Mohawk Power Corporation
ATTN: Risk Management/Building C-1
300 Erie Boulevard West
Syracuse, New York 13202
Such certificates, and any renewals or extensions thereof, shall provide that at
least thirty (30) days prior written notice shall be given to NIAGARA in the
event of any cancellation or diminution of coverage, except in respect of
non-payment of premiums, in which event NIAGARA shall receive ten (10) days
prior notice. Such certificate(s) of insurance shall outline the amount of
deductible or self-insured retentions which shall be for the account of TELERGY.
Such deductibles of self-insured retentions shall not exceed one-hundred
thousand (100,000) dollars unless agreed to in writing by NIAGARA's Risk
Management Department.
25.10 If any policy should be canceled prior to the period set forth in this
Agreement, and TELERGY fails immediately to procure other insurance as specified
herein, NIAGARA reserves the right to procure such insurance and to charge the
cost to TELERGY.
25.11 TELERGY shall furnish NIAGARA with copies of any accident reports sent to
TELERGY's insurance carriers covering accidents occurring in connection with or
as a result of the performance of work under this Agreement.
25.12 These requirements are in addition to any which may be required elsewhere
in the Contract. TELERGY shall comply with any governmental and/or site specific
insurance requirements even if not stated herein.
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25.13 Nothing contained in these insurance requirements shall be
construed as limiting the extent of TELERGY's responsibility for payment
of damages resulting from its work under the Purchase Order, or under this
Agreement, or limiting, diminishing or waiving TELERGY's obligations to
defend and save harmless NIAGARA in accordance with Section 24.
25.14 The maintenance of the insurance hereinabove specified shall not
limit either party's liability under this Agreement, but shall be
additional security therefor.
25.15 All insurance shall be effected by valid and enforceable policies
issued by insurers of responsibility and licensed to do business in the
State of New York, such responsibility and the insuring agreements to meet
with the reasonable approval of NIAGARA and TELERGY.
25.16 The limits of the policies required hereunder shall be increased
from time to time by agreement of the parties to meet changed
circumstances including, but not limited to, changes in the purchasing
power of the dollar and the course of plaintiff's verdicts in personal
injury actions; provided, however, such limits shall not be increased more
frequently than every five (5) years.
25.17 In recognition of the potential for changes in the insurance
market and the availability and cost of insurance, the parties hereby
expressly agree that, in the event that either (i) the insurance required
of TELERGY hereunder shall cease to be available (either as to limits or
coverages) or (ii) such insurance shall be available only at excessive
cost, the parties shall agree upon alternative policy limits and/or
coverages, as well as appropriate levels of self-insurance for TELERGY.
25.18 Nothing in this Section 25 shall be construed as to prevent
TELERGY from satisfying its insurance obligations pursuant to this
Agreement under a blanket policy or policies or pursuant to a decision to
self insure which meets or exceeds the requirements hereof. In the event
of self insurance, NIAGARA shall receive from TELERGY written notification
indicating such coverage thirty (30) days prior to implementation of self
insurance and thirty (30) days prior to any change in such self insurance
status.
25.19 TELERGY shall be responsible for obtaining property insurance,
at its own cost and expense, covering all real and personal property used
in connection with this Agreement, with minimum limits of liability
customarily maintained by other Persons of similar size and business.
26 LIENS
26.1 In the event that any property of NIAGARA shall become subject
to any mechanics' artisan' or materialmans' liens chargeable to or through
TELERGY, TELERGY shall promptly cause such lien to be discharged and
released of record, by payment, posting of
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bond, court deposit or other means, without cost to NIAGARA and shall
indemnify NIAGARA against all costs and expense, including reasonable
attorneys' fees, reasonably incurred in discharging and releasing such
lien; provided, however, that if any such lien is not so discharged and
released within thirty (30) days after notice thereof by NIAGARA to
TELERGY, or within such shorter period as shall be mandated under
applicable local law, then NIAGARA may pay or secure the release or
discharge thereof at the expense and cost of TELERGY.
26.2 Nothing herein shall preclude TELERGY and/or NIAGARA as the case may
be from contesting any such lien or the contract or action upon which the
same arose after the same shall have been bonded as described above.
27 AMENDMENTS
27.1 Each party shall be responsible for its own costs, including legal
fees, incurred in negotiating or finalizing this Agreement.
27.2 Neither this Agreement nor any term or provision hereof can be
amended, waived, modified, supplemented, discharged or terminated, except
by an instrument in writing signed by the party against which enforcement
thereof is sought.
27.3 This Agreement and any amendment, modification, waiver or supplement
hereto may be executed by the parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original for all
purposes, but all such counterparts shall together constitute but one and
the same instrument.
28 CONFIDENTIALITY
28.1 NIAGARA and TELERGY agree to respect the confidentiality of this
Agreement and materials used or prepared in connection herewith, and shall
restrict the distribution of this Agreement and all maps, material,
documents and information identified in this Agreement as confidential,
only to those persons designated to implement the provisions hereof and
their respective counsels, consultants and advisors; provided, however
that any such disclosure to persons who are not employees and counsel(s)
of the parties shall be made only after such persons have executed a
written agreement to be bound by the terms of this Section and shall not
further disclose confidential information to additional persons absent
written agreement from the parties hereto. The parties further agree that
they shall not disclose or furnish to any third parties copies of this
Agreement or any materials referred to herein, without the prior written
consent of the other party hereto, except as shall be necessary in order
to implement the provisions hereof, including the construction of the
System, securing the necessary approvals therefor, and the financing of
the System, and except as required by Court order
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or as otherwise required by law, the New York State Public Service
Commission or any other governmental entity or in any legal proceedings
relating to this Agreement.
28.2 Notwithstanding to the contrary, either party shall notify the other,
as soon as practicable, in the event that any disclosure request as
contemplated in Section 28.1 would require disclosure of confidential
material provided by any one party to the other hereunder and the party so
notified shall have the right to formally dispute any such disclosure of
such confidential material where such disclosure would unreasonably harm,
prejudice, or destroy such party's proprietary interest, the information
requested is not rationally related to the purpose for which such
information is sought, or such party could submit other non-confidential
information that could satisfy the request. Any such party may petition
for exemption from Freedom of Information Act or other similar disclosure
requirements, for "in camera" inspection of such confidential information,
or for other limitations on the disclosure of confidential information.
28.3 Neither party shall have the right to obtain any information or
documents from the other which are not material to the provisions or
implementation of this Agreement.
28.4 The parties recognize that this Agreement and the materials and
documents referred to herein, may contain information which a reasonably
informed person would recognize as confidential, insider information which
should be handled accordingly.
28.5 The parties agree that in distributing copies or portions of these
materials to person necessary to implement the same, such copies shall be
clearly marked or indicated as "confidential" and prohibiting further
distribution, copy or reproduction of the same.
28.6 In the event of an actual or threatened disclosure of such
information by either party, its agents, employees, or contractors, which
might cause irreparable harm to the other party, it is agreed that
monetary remedies available at all may be inadequate and, therefore, the
aggrieved or threatened party shall be entitled to receive injunctive
relief as an equitable remedy.
28.7 The obligations of the parties under Section 28 shall survive the
expiration date for a period of ten (10) years.
29 DISPUTES
29.1 It is the intent of the parties that disputes which may arise between
them, or between employees of each, be resolved as quickly as possible, and
may, in certain instances, involve decisions made on the spot. When such
resolution is not possible, and depending upon the nature of the dispute
and the phase of installation of the Facilities and System, the parties
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<PAGE> 43
agree to seek to resolve such disputes, insofar as they do not constitute a
breach or default under this Agreement, in the manner set forth in this
section.
29.2 Questions as to the right of access to the Right-of-Occupancy
within a Right-of-Way during design, planning, construction, installation,
maintenance and operational phases, or access to or copies of NIAGARA's
documents, shall in all instances be referred initially to the designated
or authorized representative of NIAGARA, which representative shall render
such decision within a reasonable period. Decisions of such designated or
authorized representative shall be referable by TELERGY to NIAGARA's
Engineer.
29.3 Any other dispute between the parties shall be referred
initially to NIAGARA's Engineer for decision, which shall be rendered in
writing within a reasonable period time.
29.4 The parties agree that neither shall proceed against the other
by litigation or otherwise before the offending party has had notice of and
reasonable time and opportunity to respond to and/or cure any breach or
default hereunder.
29.5 TELERGY agrees to give testimony or depositions, either in court
or before other tribunals in connection with any matters covered by this
Agreement.
30 COVENANTS OF THE PARTIES
30.1 Except as otherwise provided, each of the parties represents,
warrants and covenants to the other that: (i) it has full right and
authority, including any requisite corporate approvals, to enter into and
to perform its respective obligations under this Agreement; (ii) the
execution of this Agreement is not violative of its charter, by-laws or
any laws or regulation by which it is bound or to which it subject; (iii)
no litigation or governmental proceeding is pending or threatened which
might adversely affect this Agreement, the transactions contemplated by
this Agreement, or the rights of the parties hereunder.
31 PUBLIC SERVICE COMMISSION APPROVAL REQUIRED
31.1 TELERGY's and NIAGARA's performance under this Agreement are
contingent upon approval by the NIAGARA Board of Directors and a favorable
determination by the New York Public Service Commission and any authorized
Federal or State agency, from which determination TELERGY shall not seek
appellate review, absent NIAGARA approval, which shall not be withheld
unreasonably.
31.2 In the event that the necessary regulatory approvals are not
obtained, either party shall have the option of terminating this Agreement
on or before July 31, 1996 by written notice to the other party pursuant
to the Notice provisions set forth in Section 28.
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32 MISCELLANEOUS PROVISIONS
32.1 Entire Agreement and Modification. This Agreement constitutes the
entire agreement between the parties pertaining to the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understanding of such parties in connection herewith. It may not be
modified or amended nor may any obligation of either party be changed or
discharged except in writing signed by the duly authorized officer or
agent of the party to be charged. Notice of changes in any applicable
tariffs will be provided in accordance with Section 24. Currently
effective Right-of-Occupancy or Licenses, if any, issued pursuant to
previous agreements shall remain in effect as if issued pursuant to this
Agreement.
32.2 Choice of Law. This Agreement shall be governed by, and interpreted
according to, the laws of the State of New York, without giving effect to
the principles of conflicts of law. No claim, demand, action, proceeding,
arbitration, litigation, hearing, motion or lawsuit arising from, related
to, or connected with this Agreement shall be commenced or prosecuted in
any jurisdiction other than courts in the State of New York, and any
judgment, determination, order, finding or conclusion reached in any other
jurisdiction shall be null and void between the parties hereto.
32.3 Consents. No consent or approval required of any party pursuant to
this Agreement shall be unreasonably withheld or delayed.
32.4 Construction of Agreement. The Section headings in this Agreement and
the Table of Contents hereof are for convenience of reference only and
shall neither be deemed to be a part of this Agreement nor modify,
define, expand or limit any of the terms or provisions hereof. All
references to numbered Sections, unless otherwise indicated, are to
Sections of this Agreement. Words and definitions in the singular shall
be read and construed as though in the plural and vice versa, and words
in the masculine, neuter or feminine gender shall also be read and
construed as though in either of the other genders.
32.5 No Waiver. Any waiver by either party at any time of any of its
rights as to anything contained herein shall not be deemed to be a waiver
of the same or similar right at a subsequent time. The failure of any
party to seek redress for violation of or to insist upon the strict
performance of any covenant or condition of this Agreement shall not
prevent a subsequent act, which would have originally constituted a
violation, from having the effect of any original violation.
32.6 Force Majeure. Any failure of either party to perform its
obligations under this Agreement shall not be a breach of this Agreement
if such failure results from Acts of God, governmental action that did
not result from wrongdoing by the party involved in such governmental
action, or labor strikes that could not reasonably be avoided by the
party subject to such labor strike.
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<PAGE> 45
32.7 Remedies. The rights and remedies provided by this Agreement are
cumulative and the use of any one right or remedy by any party shall not
preclude or waive its right to sue on any or all other remedies. Said
rights and remedies are given in addition to any other rights such party
may have by law, statute, ordinance or otherwise, except as such remedies
are expressly limited in this Agreement.
32.8 Severability. Any provision of this Agreement which is invalid,
illegal or unenforceable in any manner in any jurisdiction shall be, as to
such jurisdiction, ineffective to the extent of such invalidity,
illegality or unenforceability without in any ways affecting the validity,
legality or enforceability of the remaining provisions hereof, and any
such invalidity, illegality or unenforceability in any jurisdiction shall
not invalidate or in any way affect the validity, legality or
enforceability of such provision in any other jurisdiction.
32.9 Compliance. NIAGARA and TELERGY shall at all times observe and
comply with the provisions of this Agreement, and such provisions are
subject to all laws, ordinances, contracts and regulations which in any
manner affect the rights and obligations of the parties herein.
32.10 No Merger. There shall be no merger of this Agreement or the
Rights-of-Occupancy hereby granted with the fee estate in a Right-of-Way
by reason of the fact that this Agreement, and the Rights-of-Occupancy
created by this Agreement, or any interest in this Agreement or in any
such Rights-of-Occupancy, may be held, directly or indirectly, by or for
the account of any person who shall own the fee estate in a Right-of-Way
or any interest in such fee estates, and no such merger shall occur unless
and until all persons having an interest in this Agreement, and in the
Rights-of-Occupancy created by this Agreement, shall join in a written
instrument effecting such merger and shall duly record the same.
32.11 Binding Agreement. Subject to Section 16.2, the provisions of this
Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, successor, and assigns.
32.12 Acts In Furtherance Of Agreement. NIAGARA and TELERGY each agree
to do such other and further acts and things, and to execute and deliver
such additional instruments and documents, not creating any obligations,
or imposing any expenses, additional to those otherwise created or imposed
by this Agreement, as either party may reasonably request from time to
time whether at or after the execution of this Agreement, in furtherance
of the express provisions of this Agreement.
32.13 Drug And Alcohol Abuse Policy. TELERGY personnel, its agents and
contractors shall be fit for duty at all times during their performance of
any activities pursuant to this Agreement, and shall not be under the
influence of alcohol or drugs. TELERGY's personnel, agents and contractors
shall not bring, use, distribute, sell or possess alcoholic beverages or
illegal drugs during the performance of any activities on NIAGARA
property. TELERGY
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<PAGE> 46
shall not assign any individual who is in violation of this policy to
perform and activities pursuant to this Agreement, and if TELERGY
discovers any individual is in violation of these requirements, it shall
immediately remove any such person from the performance of activities
and/or NIAGARA property. Violation of these requirements by TELERGY
personnel, agents and contractors shall result in denial of access to
NIAGARA property, facilities and equipment and, in the case of possession,
use or sale of illegal drugs, shall be reported to NIAGARA's Security
Department immediately.
32.14 Intellectual Property Sole Property of Niagara. All information,
analyses, conclusions, reports, drawings, specifications ("Information")
developed, obtained, or prepared by either party pursuant to this
Agreement shall be the sole property of NIAGARA, provided however that
Working Drawings developed and prepared by TELERGY shall be the sole
property of TELERGY subject to the Confidentiality Provisions set forth in
Section 28 herein.
32.15 Patent, Copyright and Trademark Infringement. All royalties for
any patent, invention, article, name, symbol, logo or arrangement that may
be furnished by TELERGY and used or embraced in TELERGY Facilities shall be
paid solely by TELERGY. TELERGY shall protect and save harmless NIAGARA
against any and all claims, demands, proceedings, judgments, orders and
costs, including legal fees and disbursements, on account of any such
royalty or fee and shall pay all judgments against NIAGARA resulting
therefrom before they become enforceable liens against NIAGARA property.
Should any suits for infringement of patents, copyrights or trademarks be
brought against NIAGARA, TELERGY shall give a bond in amount and with
sureties satisfactory to NIAGARA to indemnify NIAGARA against any
judgments, costs, and attorneys' fees and disbursements. Should any
injunction be threatened or issued, TELERGY shall promptly secure
dissolution thereof by giving bond or otherwise or, a NIAGARA's option,
shall promptly cease use of the article, arrangement, invention, name or
logo that is subject to such dispute.
33 ENVIRONMENTAL HAZARD LIABILITY
33.1 Upon TELERGY's furnishing to NIAGARA appropriate plans and
drawings of its planned facilities and the allowance of a reasonable
amount of time for NIAGARA to review such plans, NIAGARA agrees to
promptly inform TELERGY of any such hazardous or toxic waste areas,
whether or not designated as such by the Environmental Protection Agency
or any other similar federal, state or local authority, of which NIAGARA's
Environmental Affairs Department, Syracuse, New York, has knowledge of or
of which such Department may subsequently learn with respect to the
Backbone Route. If such hazardous or toxic waste areas are located on land
owned by NIAGARA in fee, NIAGARA agrees to defend, indemnify and hold
TELERGY harmless from any and all claims, fines and actions arising out of
the existence of any such hazardous or toxic waste areas or the obligations
which may now or hereafter be imposed, statutory or otherwise, to remove
therefrom or otherwise neutralize or contain, any such toxic or hazardous
substances, unless such liability is: (i) created by a
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<PAGE> 47
release by TELERGY or its agents, employees, contractors or subcontractors
of a toxic or other hazardous substance into the environment, (ii) created
by TELERGY's or its agents', employees', contractors', subcontractors'
disturbance of a pre-existing condition within the Right-of-Way of which
TELERGY had knowledge provided that NIAGARA shall disclose to TELERGY all
such pre-existing conditions within the Backbone Route known to NIAGARA,
or (iii) created by TELERGY's or its agents', employees', contractors' or
subcontractors' disturbance of a pre-existing condition within the
Right-of-Way where the condition was not previously known by NIAGARA.
33.2 No Toxic Materials. TELERGY shall not place any material on
NIAGARA's Right-of-Way or facilities that is recognized by appropriate
governmental authority as toxic/hazardous material, equipment and waste.
33.3 In the event TELERGY discovers, or has knowledge of hazardous or
toxic waste areas, whether or not designated as such the Environmental
Protection Agency or any other similar federal, state or local authority,
it shall immediately stop work if discovered during construction, and
notify the designated representative of NIAGARA's Environmental Affairs
Department in Syracuse, New York.
33.4 NIAGARA also agrees to promptly inform TELERGY of any other uniquely
sensitive and protected environmental resources along the Backbone Route
which is known to NIAGARA's Environmental Affairs Department, Syracuse,
New York.
33.5 In the event any such hazardous or toxic waste areas or any other
regulated environmental resources (including, but not limited to regulated
wetlands, protected streams, navigable waters, rare, threatened,
endangered or protected species or species habitats, sensitive
archaeological sites, etc.) are identified with respect to the Backbone
Route, their location shall be included on the "As Built Drawings"
furnished to NIAGARA in accordance with Section 12.1 of this Agreement.
34 EQUAL EMPLOYMENT OPPORTUNITIES
34.1 The provisions of the following laws, Executive Orders, and any
rules and regulations issued thereunder, are incorporated herein by
reference as part of the Agreement:
(a) Paragraphs one (1) through seven (7) of Section 202 of
Executive Order 11246, as amended, relating to equal opportunity
in employment under government contracts and subcontracts;
(b) Section 2012 of Title 38 of the United States Code and
Executive Order 11701, as amended, relating to affirmative action
obligations of
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government contractors and subcontractors for disabled veterans and
veterans of the Vietnam era;
(e) Section 03 of the Rehabilitation Act of 1973, and Executive Order
1178, as amended, relating to affirmative action obligations of
government contractors and subcontractors for handicapped workers;
and
(d) The Human Right Law of the State of New York (Article 1 of the
Executive Law).
34.2 The parties agree to fully comply with such provisions, and any
amendments thereof. In addition, all subcontractors and agreements that the
parties enter into to accomplish the work under the terms of this Agreement
shall obligate such subcontractors to comply with such provisions.
34.3 FEDERAL SUBCONTRACTING REQUIREMENTS
(a) The provisions of the following laws, Executive Orders, and any
rules and regulations issued thereunder, are incorporated herein by
reference as part of this Agreement;
(b) Executive Order 1162, as amended, relating to utilization of
minority business enterprises in the performance of government
contracts and subcontracts;
(c) Executive Order 12138, as amended, relating to utilization of
women-owned businesses in the performance of government contracts and
subcontracts; and
(d) Section 211 of Public Law 9-07, as amended, relating to
utilization of small business concerns and small disadvantaged
business concerns in the performance of government contracts and
subcontracts.
(e) The parties agree to fully comply with such provisions and any
amendments thereof. In addition, all subcontracts and agreements
the parties enter into to accomplish the work under the terms of this
Agreement shall obligate such subcontractors to comply with such
provisions.
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35 AUDIT AND MAINTENANCE OF RECORDS
35.1 At TELERGY's expense, NIAGARA has the right, upon ten (10) day
written notice to TELERGY, to audit TELERGY's books and records at
the location where such books and records are maintained insofar as
they pertain to the terms and conditions of this Agreement. The
audits will be performed during normal business hours 9:00 a.m. to
5:00 p.m., Monday through Friday. Such audits may be performed by
NIAGARA's employees or by professional auditing firms or both.
36 WARRANTIES
36.1 NIAGARA makes no representation as to the full continuity of
its Backbone Route or Spur Route Rights-of-Way. TELERGY recognizes
that NIAGARA acquired some portions of its Rights-of-Way many years
ago prior to the personal knowledge of existing NIAGARA employees,
and for that reason, NIAGARA cannot warrant that it has complete
title in fee simple, easement or otherwise. NIAGARA will make
available to TELERGY for its review all agreements and other
documents in NIAGARA's possession in respect of NIAGARA's right,
title and interest in and to its Backbone Route and Spur Route
Rights-of-Way. In the event that TELERGY shall determine in its
reasonable judgment that any part or all of NIAGARA's right, title
and interest in and to its Rights-of-Way shall be inadequate for use
in conjunction with the transaction contemplated hereby, NIAGARA at
its option may take, at TELERGY's expense, such action as TELERGY
determines to be necessary to correct such inadequacies. Further,
NIAGARA will at all times following execution of this Agreement and
during the term of Agreement provide such cooperation and assistance
as TELERGY may reasonably request in respect of issues or problems
regarding use of the NIAGARA Rights-of-Way for the purposes
contemplated herein.
36.2 TELERGY warrants that the Facilities connected with, necessary
for, or useful, to the NIAGARA Capacity provided for in Section 13
shall be operational and functional on or before the dates specified
in Section 9.5 herein.
36.3 TELERGY acknowledges that all work, including but not limited
to any construction and maintenance activities, to be performed in
connection with this agreement poses great hazards to human beings
and personal property. TELERGY warrants that it will make its
employees, agents and contractors aware of these hazards as well as
the potential consequences associated with exposure to these hazards.
Furthermore, TELERGY warrants that it has full responsibility for any
and all injury and damages to persons or property resulting from
these hazards and any failure by TELERGY to advise its employees,
agents or contractors as required herein.
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37 SURVIVAL
37.1 The provisions of this Agreement shall survive granting of the
Rights-of-Occupancy provided for herein and delivery of this Agreement for
recording, if such recording is necessary to effectuate the rights granted
herein.
38 END-OF-TERM
38.1 At the expiration of the Term, TELERGY shall remove its Facilities
excluding any buried cable(s), conduit, buried appurtenances associated
with the cable installation (but does not include building foundations/
structures), or any other material and/or equipment as outlined in Section
12A, from the Right-of-Occupancy and restore any material damage resulting
from such removal.
38.2 Except for the NIAGARA Capacity, NIAGARA acknowledges, confirms and
agrees that all of the Facilities at any time and from time to time
installed by or on behalf of TELERGY within the Backbone Route or Spur
Route Rights-of-Way shall at all times be and remain personal property of
TELERGY regardless of the manner or mode of installation thereof and shall
at all times during and within a reasonable period after the expiration of
the Term be removable by TELERGY with the exception of any F.O.G. Wire,
which, at TELERGY's option may either be removed and replaced with a Static
Wire at TELERGY's expense or abandoned in place.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate on the date and year first above written.
Date: 2/2/96 /s/ E. J. Dienst
-------------------- ---------------------------------------
NIAGARA MOHAWK POWER CORP.
By: E. J. Dienst
------------------------------------
Title: VP - Electric Delivery
---------------------------------
Date: 2/2/96 ---------------------------------------
-------------------- TELERGY JOINT VENTURE
By: /s/ Brian Kelly
------------------------------------
Title: C.E.O
---------------------------------
46
<PAGE> 1
EXHIBIT 10.1.2
FIRST MODIFICATION TO
RIGHT OF OCCUPANCY AGREEMENT
THIS AMENDMENT, dated as of the 25th day of September, 1997 between
Niagara Mohawk Power Corporation and its subsidiaries now existing and any
successor(s) thereto which are created as a result of the PowerChoice Case No.
94-E-0098, et al. pending before the New York State Public Service Commission
(NIAGARA), a New York corporation having its principal place of business at 300
Erie Boulevard West, Syracuse, New York 13202 and Telergy Joint Venture
(Telergy), a New York joint venture having its principal place of business at
5784 Widewaters parkway, Syracuse, New York 13204.
W I T N E S S E T H
WHEREAS, NIAGARA and Telergy are parties to a certain Right of
Occupancy Agreement dated as of February 2, 1996 (the RO Agreement), whereby,
among other things, Telergy is granted a non-exclusive Right of Occupancy to
install a Backbone Network and Spur Routes consisting primarily of a fiber optic
telecommunications network and facilities in NIAGARA Rights-of-Way, Facilities
and electric distribution conduit along the Backbone Route as those terms are
defined in the RO Agreement; and
WHEREAS, the parties agreed that it would be mutually beneficial to
amend the RO Agreement in certain respects.
NOW, THEREFORE, in consideration of the promises, mutual covenants and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereby agree that,
effective as of the date first written above, the RO Agreement is hereby amended
in the following respects:
1. Notwithstanding anything to the contrary contained in the RO
Agreement, or any other provisions contained in the RO
Agreement:
1
<PAGE> 2
A. Section 1, DEFINITIONS, shall be amended by adding
thereto the following definitions:
1.32 "CAPS" is defined to mean Competitive Access
Providers to any other telecommunications
network.
1.33 "LOCAL LOOP" is defined to mean the physical
wires/fibers that run from the subscriber"s
telephone set or PBX or key telephone
system, to the telephone Company central
office.
1.34 "NIAGARA STRANDS" is defined to mean a total
of four fiber optic telecommunications
strands anywhere in Telergy's Facilities
that are installed in NIAGARA's Right of Way
or Facilities as included in Exhibit A as it
may be amended from time to time of the same
type and quality as the Backbone Network and
any spurs or LOCAL LOOPS and such four
strands shall not be damaged in any fashion
and shall consist of 2 pairs of such strands
to be located in separate buffer tubes
anywhere that Telergy or its subsidiaries
have installed fiber optic
telecommunications strands installed in such
separate buffer tubes as included in Exhibit
A as it may be amended from time to time.
1.35 "CLEC" ("Competitive Local Exchange
Carrier") is defined to mean a provider of
local exchange services that is not the
incumbent local exchange carrier
B In Sections 2 take out "internal" and in Sections 2
and 3.1, insert "NIAGARA Facilities in" in the third
line of each section before the words "NIAGARA"s
Rights of Way".
2
<PAGE> 3
C. In Section 4.1 on the 5th line, after "occupancy" add
"to construct a fiber Backbone network, LOCAL LOOPS
and Spurs" and continue with the sentence after
"Backbone Route".
Section 4.1 in the RIGHT-OF-OCCUPANCY, "TERM" is
changed to read as follows:
For an Initial Term of twenty-five
(25) years commencing on the date of
approval by the New York State Public
Service Commission (Commencement Date) and
ending on the expiration of the
three-hundredth (300th) month thereafter,
unless earlier terminated or unless extended
pursuant to this Agreement, subject to the
terms and conditions set forth in this
Agreement, NIAGARA hereby grants to TELERGY
a Right-of-Occupancy in, on, upon, under,
over, across, along and through (hereinafter
collectively referred "within") the Backbone
Route and LOCAL LOOPS and spurs within
NIAGARA's Electric Transmissions
Right-of-Way and electric distribution
conduit system, subject to all terms and
conditions of any governing agreements in
addition to this Agreement when conduit,
poles and/or towers are used, except that
compensation for the use of the electronic
distribution and/or transmission conduit
network agreement only has been addressed in
this agreement.
D. Section 5.1 is hereby amended to add the following
paragraph:
The specific Right-of-Way that will
be subject to the Right of Occupancy
Agreement shall be defined in the manner set
forth in Section 6 of the RO Agreement. Maps
showing the revisions to the Backbone Route
as modified by the first Modification to the
RO Agreement shall be prepared and attached
to this Modification to RO Agreement as
Exhibit A, which shall replace the original
Attachment A to the RO Agreement. The
Right-of-Way for the extension to [***]
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
3
<PAGE> 4
and the Rights-of-Way to replace the
extensions to [***] with [***] Operations
Center located in [***] shall be defined by
the parties in the manner set forth in
Section 6 of the RO Agreement within
forty-five (45) working days following the
date of execution of this Modification.
E. Delete Section 7 governing "Additional
Rights-of-Occupancy for Spur Routes.
F. Section 9.5 is hereby modified to replace all
references therein to [***] with [***] to delete the
reference to [***], and to substitute therefor [***]
G. Section 9.5 is hereby modified to add a sentence at
the end of the first paragraph as follows:
Failure to complete Telergy's obligations in
accordance with these dates shall obligate
Telergy to reimburse NIAGARA for any
telecommunications arrangements NIAGARA must
make for its internal telecommunications
needs due to the lack of availability of the
original NIAGARA CAPACITY of [***] to make
up for the telecommunications capacity
currently being provided by NYNEX and AT&T
at Sprint expense through an agreement for
the purchase of the 2 GHz microwave license
from NIAGARA until the NIAGARA CAPACITY is
fully operational; provided, however, that
any delays resulting directly and solely
from NIAGARA's engineering, permitting, and
easement activities shall not constitute a
failure to complete by Telergy, from the
date of last execution of this modification
forward. Telergy agrees to pay directly all
invoices from third parties for any and all
such service within the required days in
such invoices.
4
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE> 5
\ H. Section 9.5 is hereby amended to add the following
paragraph:
Segment III shall connect Albany,
NY to Pleasant Valley, NY, which shall be
constructed at dates and times to be
determined by Telergy, provided, however,
that the extension to Pleasant Valley shall
not interfere with or hinder Telergy's
ability to complete the original Backbone
Route from Buffalo, NY to Albany, NY or to
provide NIAGARA CAPACITY as required in the
RO Agreement.
I. Section 13.1.1 is hereby amended to delete the word
"initially" in the second line and to replace [***]
with [***].
J. Section 13.1.2 is hereby changed to delete the
reference to [***] and substitute [***] in its
place.
K. Section 13.1.3 is hereby amended to delete the word
"initially" in the third line and to replace "[***]"
with "[***]" and to add the following sentence at the
end:
In Syracuse, NY, at the point where
the NIAGARA CAPACITY meets the NIAGARA
dedicated interconnect from Telergy's
Syracuse installation to NIAGARA's Syracuse
facility, the NIAGARA Capacity shall be
engineered and installed to provide NIAGARA
with a cross-section of capacity of [***].
L. Section 13.3 is hereby amended to add ", the NIAGARA
STRANDS" in the first line after the first three
words "The NIAGARA Capacity".
M. Revise Section 14.2 to read as follows: "Should
TELERGY, for its own business requirements, require
or desire additional Rights-of-Occupancy or NIAGARA
Facilities, TELERGY shall notify NIAGARA in writing
and submit a request for Additional
Right-of-Occupancy use,
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
5
<PAGE> 6
if appropriate."
N. Section 14.2.1 in the MODIFYING NIAGARA OR TELERGY
FACILITIES Section is changed as follows:
NIAGARA shall process any request in the
same manner and subject to the same conditions and
provisions set forth in this Agreement as modified,
advising TELERGY of NIAGARA's acceptance, rejection
or modification of said request.
The remainder of Section 14.2 shall remain unchanged.
O. Section 23.1 and 23.2 governing NOTICES is hereby
amended to read as follows:
23.1 Any notice to be given to NIAGARA under
this Agreement shall be sent by certified
mail or overnight express delivery:
(one copy each to):
(1) Director, Telecommunications
Niagara Mohawk Power Corporation
300 Erie Boulevard West - C2
Syracuse, New York 13202
(2) Assistant General Counsel
Niagara Mohawk Power Corporation
300 Erie Boulevard West - A3
Syracuse, New York 13202
23.2 Any notice given to Telergy under
this Agreement shall be sent by
certified mail or overnight express
delivery:
(one copy each to):
(1) Chief Executive Officer
Telergy, Inc.
5784 Widewaters Parkway
6
<PAGE> 7
Syracuse, New York 13214
(2) General Counsel
Telergy, Inc.
20 Corporate Woods Suite 100
Albany, New York 12211
2. Paragraph 31.2 shall be changed to read as follows:
The parties recognize that the compensation
NIAGARA may owe for the RO Agreement is open with the
New York Public Service Commission (PSC) in Case
96-M-0138. The parties also recognize that reasonable
additional compensation is appropriate for NIAGARA's
agreement to the following: [***] All optical fibers
are [***] and will be provided on an "as-where-is"
basis with no warranties express or implied. Unless
otherwise agreed to, all maintenance and/or
construction on strands located on NIAGARA electric
transmission towers that have been allowed to be
installed will be performed by NIAGARA, subject to
the terms and conditions in the applicable electric
transmission structure occupancy agreement.
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
7
<PAGE> 8
As and for compensation for the
modifications herein and to resolve the open
compensation issue in Case 96-M-0138, the
parties agree that Telergy shall provide:
[***]
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material
omitted on this page. The omitted portions have been filed separately
with the Securities and Exchange Commission.
8
<PAGE> 9
This compensation is contingent upon PSC
approval of this Agreement as modified
herein without further modification and
closure of the compensation issue in Case
96-M-0138 without requiring additional
compensation beyond the additional
compensation provided herein. In the event
the PSC conditions its approval of this
Agreement or declines to accept the
additional compensation in its entirety as
and for final compensation for this
Agreement and Case 96-M-0138, the parties
agree to negotiate within thirty (30)
business days of receipt of the written
decision from the Commission such additional
compensation to obtain compliance with any
Commission requirements.
3. The parties further recognize and acknowledge that
Telergy intends to construct and install LOCAL LOOPS
in major cities along the Backbone Route to act as a
CLEC and/or a CAP , including but not
9
<PAGE> 10
limited to Buffalo, Syracuse, and Albany, New York,
which LOCAL LOOPS may require Spurs off the Backbone
Route. To the extent Telergy constructs portions of
the LOCAL LOOPS using NIAGARA conduit, poles or
towers, the parties shall execute the applicable
agreement(s) governing each such use and Telergy
shall pay the standard rate(s) for any such uses, and
all such uses and related construction shall be
subject to all necessary governmental approval prior
to start of construction.
4. All terms appearing in this Modification to Right of
Occupancy Agreement and not otherwise defined herein
shall have the same meaning as set forth in the RO
Agreement.
5. Except as modified and amended by this Modification,
all of the terms, covenants and conditions of the RO
Agreement are hereby ratified and confirmed in all
respects and shall continue to be and remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
TELERGY JOINT VENTURE NIAGARA MOHAWK POWER CORPORATION
By:/s/Brian Kelly By:/s/William J. Synwolst
----------------- -------------------------
Name: Brian Kelly Name: William J. Synwolst
Title: President Title: VP I/T & CIO
10
<PAGE> 1
EXHIBIT 10.2.1
TELERGY, INC.
STOCK PURCHASE AGREEMENT
<PAGE> 2
TELERGY INC.
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is entered into as
of November 10, 1998, by and among Telergy, Inc., a New York corporation with
offices at One Telergy Parkway, East Syracuse, New York 13057 (the "Company"),
and Niagara Mohawk Energy, Inc., a Delaware corporation with offices at 507 Plum
Street, Syracuse, New York 13204 (the "Purchaser") and, with respect to Sections
5.1 and 5.4 only, Kevin J. Kelly and Brian P. Kelly (the "Founders").
RECITALS
WHEREAS, the Company desires to issue and sell an aggregate of
eighty-three thousand, three hundred thirty-four (83,334) shares of its Class A
common stock, $.0001 par value(the "Class A Common Stock") on the terms and
conditions set forth herein;
WHEREAS, the Purchaser desires to purchase an aggregate of eighty-three
thousand, three hundred thirty-four (83,334) shares of the Class A Common Stock
(the "Shares") on the terms and conditions set forth herein;
WHEREAS, the Company and the Purchaser are amending the Conversion
Rights Agreement, dated as of April 24, 1998 (the "Conversion Rights
Agreement"), between the Company and the Purchaser simultaneously with the
execution hereof; and
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. SALE OF THE SHARES
1.1 Sale and Purchase
Immediately following the execution hereof, the Company will issue and
sell to the Purchaser, and the Purchaser will purchase from the Company, the
Shares at a purchase price of $120 per Share for the aggregate purchase price of
Ten Million Eighty Dollars ($10,000,080), payable by certified check in
immediately available funds.
1.2 Deliveries by the Company
Upon receipt of the purchase price pursuant to Section 1.1, the
Company will deliver to the Purchaser a certificate representing the Shares.
Simultaneous therewith the Company will deliver to Purchaser (i) its Financial
Statements (as defined herein) subject to the Confidentiality Agreement by and
between the Company and the Purchaser, (ii) a certificate dated as of the date
hereof, signed by the Chief Executive Officer of the Company, certifying that
the representations and warranties set forth in Section 2 of this Agreement are
true and correct as of the date hereof, (iii) the opinion of internal legal
counsel of the Company substantially in the form attached hereto as Exhibit A,
and (iv) a copy of Amendment No. 1 to the Conversion Rights Agreement, dated as
of the date hereof, duly executed by an executive officer of the Company.
<PAGE> 3
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As of the date hereof, the Company hereby represents and warrants to the
Purchaser as follows:
2.1 Organization, Good Standing, and Qualification
Each of the Company and each of its Subsidiaries is a corporation, limited
liability company, or partnership duly organized, validly existing and in good
standing under the laws of the State of New York (and in the case of Telergy
Canada, Inc., New Brunswick, Canada). For purposes of this Agreement, a
"Subsidiary" of the Company shall mean a corporation, partnership, limited
liability company, joint venture or other entity of which 50% or greater of the
voting power of the equity securities or other equity interests is owned,
directly or indirectly, by the Company or any Subsidiary of the Company. The
Company and each of its Subsidiaries has all requisite corporate power and
authority to own and operate its properties and assets, and to carry on its
business as presently conducted and as presently proposed to be conducted. Each
of the Company and each of its Subsidiaries is duly qualified and is authorized
to do business and is in good standing in all jurisdictions in which the nature
of its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on the Company or its business.
Exhibit B sets forth the Company's Subsidiaries and the other persons, if any,
holding equity interests in such Subsidiaries, including affiliates thereof.
Except as set forth in Section 2.1 of Schedule I, all of the equity interests of
the Company in such Subsidiaries are owned by the Company or another Subsidiary
of the Company, free and clear of any liens, and are not subject to any options,
warrants or other rights to purchase any such interests. Except as set forth on
Exhibit B, the Company does not have any direct or indirect equity interest in
any other corporation, partnership, limited liability company, joint venture or
other entity.
2.2 Capitalization; Voting Rights
As of the date hereof, the authorized capital stock of the Company
consists of (a) nine million, nine hundred ninety-nine thousand, nine hundred
(9,999,900) shares of Class A Common Stock, of which two million, seven hundred
forty-three thousand, four hundred and eighty-three (2,743,483) shares are
issued and outstanding (prior to the issuance of the Shares), and (b) one
hundred (100) shares of Class C Common Stock, $.0001 par value, all of which are
issued and outstanding. All issued and outstanding shares of the Company's Class
A Common Stock and Class C Common Stock and the equity interests in the
Subsidiaries (i) have been duly authorized and validly issued, (ii) are fully
paid and nonassessable, and (iii) were offered, sold, and issued in compliance
with all applicable state and federal laws concerning the offering, sale and
issuance of securities. Other than as set forth in Section 2.2 of Schedule I,
there are no outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or shareholder agreements,
or agreements of any kind for the purchase or acquisition from the Company or
any Subsidiary of any of its securities, nor are there any securities
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries. None of the Company nor any of its Subsidiaries has
any bond, debentures, notes or other obligations the holders of which have the
right to vote with the shareholders of the Company.
<PAGE> 4
When issued in compliance with the provisions of this Agreement, the Shares will
be validly issued, fully paid and nonassessable, and will be free of any liens
or encumbrances; provided, however, that the Shares may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is proposed.
Attached hereto as Exhibit C is a copy of the Company's Restated Certificate of
Incorporation, as amended through the date hereof.
2.3 Authorization; Binding Obligations
Except as set forth in Section 2.3 of Schedule I, all corporate action on
the part of the Company, its officers, directors and shareholders necessary for
the authorization of this Agreement, the performance of all obligations of the
Company hereunder and the authorization, sale, issuance and delivery of the
Shares pursuant hereto has been taken; and the Company has all requisite
corporate power and authority to execute this Agreement, to sell, issue, and
deliver the Shares and to carry out the provisions of this Agreement. This
Agreement is a valid and binding obligation of the Company enforceable in
accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; (ii) general principles of equity
that restrict the availability of equitable remedies; and (iii) to the extent
that the enforceability of the indemnification provisions in Section 6.6 may be
limited by applicable laws. The sale of the Shares are not and will not be
subject to any preemptive rights or rights of first refusal.
2.4 Financial Statements
The Company has provided the Purchaser (i) its audited balance sheet as at
December 31, 1997 and audited statement of income for the year ending December
31, 1997 and (ii) its unaudited balance sheet as at June 30, 1998 and unaudited
statement of income for the six month period ending June 30, 1998 (collectively,
the "Financial Statements"). The Financial Statements, together with the notes
thereto, are complete and correct in all material respects, have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated, except as disclosed therein,
and present fairly the financial condition and position and results of operation
of the Company on a consolidated basis as of December 31, 1997 and June 30,
1998, provided, however, that the unaudited financial statements are subject to
normal year-end audit adjustments (which are not expected to be material in
amount or effect), and do not contain all footnotes and other presentation items
required under generally accepted accounting principles.
2.5 Liabilities
Except as set forth in Section 2.5 of Schedule I, the Company has no
material liabilities and, to the best of its knowledge, knows of no material
contingent liabilities not disclosed in the Financial Statements. The Company
and its Subsidiaries have no liability for any obligations of KCI Long Distance,
Inc. or any of its predecessors or successors.
2.6 Agreements; Action
Except as set forth in Section 2.6 of Schedule I:
<PAGE> 5
(a) There are no agreements, understandings or proposed
transactions between the Company or any of its Subsidiaries
and any of its, or their, officers and directors.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company or any of its Subsidiaries are a
party or to its knowledge by which it is bound or to which its
assets are subject which may involve (i) obligations
(contingent or otherwise) of, or payments to, the Company and
its Subsidiaries in excess of $100,000 (other than obligations
of, or payments to, the Company or any of its Subsidiaries
arising from purchase or sale agreements entered into in the
ordinary course of business), or (ii) the license of any
patent, copyright, trade secret or other proprietary right to
or from the Company or any of its Subsidiaries (other than
licenses arising from the purchase of "off the shelf" or other
standard products), or (iii) provisions restricting or
affecting the development or distribution of services of the
Company or any of its Subsidiaries, or (iv) indemnification by
the Company or any of its Subsidiaries with respect to
infringements of proprietary rights (other than
indemnification obligations arising from purchase or sale
agreements entered into in the ordinary course of business).
(c) The Company and, with respect to (i), (iii) and (iv), any of
its Subsidiaries, has not (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to
any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or any other liabilities
(other than with respect to dividend obligations,
distributions, indebtedness and other obligations incurred in
the ordinary course of business or as disclosed in the
Financial Statements) individually in excess of $100,000 or,
in the case of indebtedness and/or liabilities individually
less than $100,000, in excess of $200,000 in the aggregate,
(iii) made any loans or advances to any person, other than
advances in the ordinary course of business not to exceed
$100,000 individually or $200,000 in the aggregate, or (iv)
sold, exchanged or otherwise disposed of any of its assets or
rights, other than in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings,
instruments, contracts and proposed transactions involving the
same person or entity (including persons or entities the
Company has reason to believe are affiliated therewith) shall
be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.
2.7 Obligations to Related Parties
There are no obligations of the Company or any of its Subsidiaries to
their respective officers, directors, shareholders, or employees other than (a)
for compensation for services rendered, (b) reimbursement for reasonable
expenses incurred on behalf of the Company or
<PAGE> 6
any of its Subsidiaries, and (c) for other standard employee benefits made or to
be made generally available to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board of Directors of
the Company).
2.8 Changes
Except as set forth in Section 2.8 of Schedule I, since June 30,
1998, there has not been to the Company's knowledge:
(a) Any change in the assets, liabilities, financial condition or
operations of the Company or Telergy Central, LLC from that
reflected in the Financial Statements, other than changes in
the ordinary course of business, none of which individually or
in the aggregate has had or is expected to have a material
adverse effect on such assets, liabilities, financial
condition or operations of the Company and Telergy Central,
LLC, or any change in the assets, liabilities, financial
condition or operations of the other Subsidiaries, other than
changes in the ordinary course of business, none of which
individually or in the aggregate has had or is expected to
have a material adverse effect on such assets, liabilities,
financial condition or operations of such other Subsidiaries;
(b) Any resignation or termination of any key officers of the
Company or any of its Subsidiaries; and the Company, to the
best of its knowledge, does not know of the impending
resignation or termination of employment of any such officer;
(c) Any material change in the contingent obligations of the
Company or any of its Subsidiaries by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties,
business or prospects or financial condition of the Company
and its Subsidiaries, taken as a whole;
(e) Any waiver by the Company or any of its Subsidiaries of a
valuable right or of a material debt owed to it;
(f) Any direct or indirect loans made by the Company or any of its
Subsidiaries to any shareholder, employee, officer or director
of the Company or any of its Subsidiaries, other than advances
made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company or any Subsidiary of
the Company that is
<PAGE> 7
not wholly-owned;
(i) Any labor organization activity involving the Company or any
of is Subsidiaries;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company or any of its Subsidiaries, except
those for immaterial amounts or for current liabilities
incurred in the ordinary course of business;
(k) Any sale, assignment or transfer by the Company or any of its
Subsidiaries of any patents, trademarks, copyrights, trade
secrets or other intangible assets;
(l) Any change in any agreement to which the Company or any of its
Subsidiaries is a party or by which it is bound which is
reasonably likely to materially and adversely affect the
business, assets, liabilities, financial condition, operations
or prospects of the Company and its Subsidiaries, taken as a
whole, including compensation agreements with employees of the
Company or any of its Subsidiaries;
(m) Any capital expenditures greater than $10,000,000.00;
(n) Any loss or threatened loss of any supplier or customer of the
Company or any of its Subsidiaries which has had or could
reasonably be expected to have a material adverse effect on
the Company and its Subsidiaries; or
(o) Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely
affected the business, assets, liabilities, financial
condition, operations or prospects of the Company.
2.9 Title to Properties and Assets; Liens, etc.
Except as set forth in Section 2.9 of Schedule I, the Company and
each of its Subsidiaries has good and marketable title to its properties and
assets, including the properties and assets reflected in the balance sheet as at
June 30, 1998 (included in the Financial Statements), and good title to its
leasehold estates, to the Company's knowledge, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (i) those
resulting from taxes which have not yet become delinquent, and (ii) minor liens
and encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company and its
Subsidiaries. The Company and its Subsidiaries have such title in the
rights-of-way granted to the applicable Subsidiary of the Company pursuant to
the right-of-occupancy agreements set forth in Section 2.9 of Schedule I as is
necessary for the Company and its Subsidiaries to operate in the manner in which
they have operated to the date hereof and intend to operate in the future to
install and operate fiber optic telecommunications facilities and to provide
telecommunications services
<PAGE> 8
to customers through such facilities.
2.10 Patents and Trademarks
The Company and each of its Subsidiaries owns or possesses sufficient
legal rights to all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information and other proprietary rights and processes necessary
for its business as now conducted and as proposed to be conducted, without any
known infringement of the rights of others. Except as set forth in Section 2.10
of Schedule I, there are no outstanding options, licenses or agreements of any
kind relating to the foregoing, nor is the Company or any of its Subsidiaries
bound by or a party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary rights and processes
of any other person or entity other than such licenses or agreements arising
from the purchase "off the shelf" of standard products. Except as set forth in
Section 2.10 of Schedule I, neither the Company nor any of its Subsidiaries has
received any communications alleging that the Company or any of its Subsidiaries
has violated or, by conducting its business as proposed, would violate any of
the patents, trademarks, service marks, trade names, copyrights or trade secrets
or other proprietary rights of any other person or entity. Neither the Company
nor any of its Subsidiaries is aware that any of its employees is obligated
under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company or
any of its Subsidiaries or that would conflict with the business of the Company
and its Subsidiaries as proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the carrying on of the business of the Company
and its Subsidiaries by the employees of the Company and its Subsidiaries, nor
the conduct of the business of the Company and its Subsidiaries as proposed,
will, to the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any employee is now obligated. The Company
does not believe it is or will be necessary to utilize any inventions, trade
secrets or proprietary information of any of its employees made prior to their
employment by the Company or any of its Subsidiaries, except for inventions,
trade secrets or proprietary information that have been assigned to the Company.
2.11 Compliance with Other Instruments
<PAGE> 9
Except as set forth of Section 2.11 of Schedule 1, the Company is not in
violation or default of any term of its Restated Articles or bylaws, or of any
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order, writ or, to its knowledge, any statute, rule or regulation
applicable to the Company or any of its Subsidiaries which would materially and
adversely affect the business, assets, liabilities, financial condition,
operations or prospects of the Company and its Subsidiaries taken as a whole.
The execution, delivery, and performance of and compliance with this Agreement
and the issuance and sale of the Shares pursuant hereto, will not result in any
violation of, or be in conflict with or constitute a default under, any of the
foregoing, or result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company or any of its
Subsidiaries or the suspension, revocation, impairment, forfeiture or
non-renewal of any permit, license, authorization or approval applicable to the
Company or any of its Subsidiaries, their respective businesses or operations or
any of their respective assets or properties.
2.12 Litigation
Except as set forth in Section 2.12 of Schedule I, there is no action,
suit, proceeding or investigation pending or to the Company's knowledge
currently threatened against the Company that questions the validity of this
Agreement or the right of the Company to enter into such Agreement, or to
consummate the transactions contemplated hereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company and its Subsidiaries taken as a
whole, financially or otherwise, or any change in the current equity ownership
of the Company, nor is the Company aware that there is any basis for the
foregoing. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the employees of the Company or any of its Subsidiaries,
their use in connection with the business of the Company or its Subsidiaries of
any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers.
Neither the Company nor any of its Subsidiaries is a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
2.13 Tax Returns and Payments
The Company and each of its Subsidiaries has filed all tax returns
(federal, state and local) required to be filed by it. All taxes shown to be due
and payable on such returns, any assessments imposed, and to the Company's
knowledge all other taxes due and payable by the Company and each of its
Subsidiaries have been paid or will be paid prior to the time they become
delinquent.
2.14 Employees
<PAGE> 10
Neither the Company nor any of its Subsidiaries has any collective
bargaining agreement with any of its employees. There is no labor union
organizing activity pending or, to the knowledge of the Company or any of its
Subsidiaries, threatened with respect to the Company or any of its Subsidiaries.
Except as set forth in Section 2.14 of Schedule I, no employee has any agreement
or contract, written or verbal, regarding his employment. To the knowledge of
the Company and each of its Subsidiaries, no employee of the Company and each of
its Subsidiaries, nor any consultant with whom the Company and each of its
Subsidiaries has contracted, is in violation of any term of any employment
contract, patent disclosure agreement or any other agreement relating to the
right of any such individual to be employed by, or to contract with, the Company
or its Subsidiaries because of the nature of the business to be conducted by the
Company or its Subsidiaries; and to the knowledge of the Company and each of its
Subsidiaries, the continued employment by the Company and its Subsidiaries of
its present employees, and the performance of the contracts of the Company and
each of its Subsidiaries with its independent contractors, will not result in
any such violation. Neither the Company nor any of its Subsidiaries has received
any notice alleging that any such violation has occurred. Except as set forth in
Section 2.14 of Schedule I, each employee is employed on an "at will" basis and
has no right to any material compensation following termination of employment
with the Company or its Subsidiaries. Neither the Company nor any of its
Subsidiaries is aware that any officer or key employee, or that any group of key
employees, intends to terminate their employment with the Company or its
Subsidiaries, nor does the Company nor any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
key employees. Neither the Company nor any of its Subsidiaries has ever
maintained, sponsored or contributed to, or been obligated to contribute to, any
employee pension benefit plan as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended.
2.15 Obligations of Management
Each officer of the Company and its Subsidiaries is currently devoting
substantially all of such officer's business time to the conduct of the business
of the Company and the respective Subsidiaries. The Company is not aware of any
officer or key employee of the Company or its Subsidiaries planning to work less
than full time for the Company or its respective Subsidiaries in the future.
2.16 Registration Rights
Except as set forth in Section 2.16 of Schedule I or as required pursuant
to Section 4.3(b) and Article 6 hereof, the Company is presently not under any
obligation, and has not granted any rights, to register (as defined in Section
6.1 hereof) any of the Company's presently outstanding securities or any of its
securities that may hereafter be issued.
2.17 Compliance with Laws; Permits
To its best knowledge, neither the Company nor any of its Subsidiaries is
in violation of any applicable statute, rule, regulation, order or restriction
of any domestic or foreign government or any instrumentality or agency thereof
in respect of the conduct of its business or the ownership of its properties
which violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company and
<PAGE> 11
its Subsidiaries taken as a whole. No governmental orders, permissions,
consents, approvals or authorizations are required to be obtained and no
registrations or declarations are required to be filed in connection with the
execution and delivery of this Agreement and the issuance of the Shares. The
Company and its Subsidiaries have, or is in the process of obtaining, all
franchises, permits, licenses and any similar authority necessary for the
conduct of their respective businesses as now being conducted by it, the lack of
which could materially and adversely affect the business, properties, prospects
or financial condition of the Company and its Subsidiaries taken as a whole and
the Company believes it or the applicable Subsidiary can obtain, without undue
burden or expense, any similar authority for the conduct of the business as
planned to be conducted.
2.18 Environmental and Safety Laws
To the Company's knowledge, and except for such matters that, alone or in
the aggregate, are not reasonably likely to have a material adverse effect on
the business assets, liabilities, financial condition, operations or prospects
of the Company and its Subsidiaries taken as a whole: (i) the Company and its
Subsidiaries have complied at all times with all applicable Environmental Laws;
(ii) no property currently owned or operated by the Company or any of its
Subsidiaries (including soils, groundwater, surface water, buildings or other
structures) is contaminated with any Hazardous Substances; (iii) no property
formerly owned or operated by the Company or any of its Subsidiaries was
contaminated with any Hazardous Substance during or prior to such period of
ownership or operation; (iv) except as may be provided in any right-of-way or
franchise agreement set forth in Schedule I, neither the Company nor any of its
Subsidiaries is subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (v) neither the Company nor any of
its Subsidiaries has been associated with any release or threat of release of
any Hazardous Substance; (vi) neither the Company nor any of its Subsidiaries
has received any notice, demand, letter, claim or request for information
alleging that the Company or any of its Subsidiaries may be in violation of or
subject to liability under any Environmental Law; (vii) neither the Company nor
any of its Subsidiaries is subject to any order, decree, injunction or other
arrangement with any governmental entity or any indemnity or other agreement
with any third party relating to liability under any Environmental Law or
relating to Hazardous Substances; and (viii) except as may be provided in any
right-of-way or franchise agreement, there are no other circumstances or
conditions involving the Company or any of its Subsidiaries that could
reasonably be expected to result in any claim, liability, investigation, cost or
restriction on the ownership, use, or transfer of any property pursuant to any
Environmental Law.
As used herein, the term "Environmental Law" means any federal, state,
local or foreign statute, law, regulation, order, decree, permit, authorization,
opinion, common law or agency requirement relating to: (A) the protection,
investigation or restoration of the environment, health, safety, or natural
resources, (B) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance or (C) noise, odor, indoor air, employee
exposure, wetlands, pollution, contamination or any injury or threat of injury
to persons or property relating to any Hazardous Substance.
As used herein, the term "Hazardous Substance" means any substance that
is: (A) listed, classified or regulated pursuant to any Environmental Law; (B)
any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing,
<PAGE> 12
polychlorinated biphenyls, radioactive material or radon; and (C) any other
substance which may be the subject of regulatory action by any government entity
in connection with any Environmental Law.
2.19 Offering Valid
Assuming the accuracy of the representations and warranties of the
Purchaser contained in Section 4.3 hereof, the offer, sale and issuance of the
Shares will be exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Securities Act") and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
2.20 Full Disclosure
This Agreement, the Exhibits and Schedule hereto, and all other documents
provided or made available by the Company to the Purchaser or its respective
attorneys or agents in connection herewith or with the transactions contemplated
hereby, do not contain any untrue statement of a material fact nor omit to state
a material fact necessary in order to make the statements contained herein or
therein not misleading and the Company has no knowledge of any facts or
circumstances that would make any of the information contained in such documents
untrue or inaccurate in any material respect, nor has anything occurred since
such information was provided to the Purchaser which renders any statement
therein untrue or inaccurate in any material respect. There are no facts which
(individually or in the aggregate) materially adversely affect the business,
assets, liabilities, financial condition, prospects or operations of the Company
and its Subsidiaries taken as a whole that have not been set forth in this
Agreement, the Exhibits and Schedule hereto, or in other documents delivered to
the Purchaser or its attorneys or agents in connection herewith.
2.21 Minute Books
The minute books of the Company made available to the Purchaser contain a
complete summary of all meetings and actions by written consent of directors and
shareholders since the time of incorporation.
2.22 Insurance
The Company has fire, liability and casualty insurance policies with
coverage customary for companies similarly situated to the Company.
2.23 Year 2000
The Company is reviewing its operations and those of its Subsidiaries and
major commercial counterparties with a view to assessing whether it or its
Subsidiaries' respective businesses networks or products will, in the receipt,
transmission, processing, manipulation, storage, retrieval, retransmission or
other utilization of data, be vulnerable to a Year 2000 Issue (including those
business and economic risks resulting from the failure of key
<PAGE> 13
customers, trade counterparties and suppliers of the Company and its
Subsidiaries to properly quantify, address and resolve a Year 2000 Issue). Based
on such review as of the date hereof, the Company has no reason to believe that
the businesses or operations of the Company or any of its Subsidiaries will
suffer a material adverse effect resulting from a Year 2000 Issue. For purposes
of this Agreement, the term "Year 2000 Issue", with respect to any person, shall
mean any significant risk that computer hardware, software or equipment
containing embedded microchips utilized in the business or operations of such
person will not, in the case of dates or time periods occurring after December
31, 1999, function at least as effectively and reliably as in the case of times
or time periods occurring before January 1, 2000, including the making of
accurate leap year calculations, and which will materially adversely affect the
Company and its Subsidiaries.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
As of the date hereof, the Purchaser hereby represents and warrants to the
Company as follows (such representations and warranties do not lessen or obviate
the representations and warranties of the Company set forth in this Agreement):
3.1 Requisite Power and Authority
The Purchaser has all necessary power and authority under all applicable
provisions of law to execute and deliver this Agreement and to carry out its
provisions. All action on the Purchaser's part required for the lawful execution
and delivery of this Agreement has been taken. Upon its execution and delivery,
this Agreement will be a valid and binding obligation of the Purchaser,
enforceable in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, (ii) general principles
of equity that restrict the availability of equitable remedies, and (iii) to the
extent that the enforceability of the indemnification provisions of Section 6.6
of Article 6 hereof may be limited by applicable laws.
3.2 Consents
No consents, approvals, orders, authorizations, registrations,
qualifications, designations, declarations or filings with any governmental or
banking authority on the part of the Purchaser are required in connection with
the consummation of the transactions contemplated in this Agreement.
3.3 Investment Representations
The Purchaser understands that the Shares have not been registered under
the Securities Act. The Purchaser also understands that the Shares are being
offered and sold pursuant to an exemption from registration contained in the
Securities Act based in part upon the Purchaser's representations contained in
this Agreement. The Purchaser hereby represents and warrants as follows:
<PAGE> 14
(a) Purchaser Bears Economic Risk
The Purchaser has substantial experience in evaluating and investing
in private placement transactions of securities in companies similar to the
Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests. The
Purchaser must bear the economic risk of this investment indefinitely unless the
Shares are registered pursuant to the Securities Act, or an exemption from
registration is available. Except as otherwise contemplated herein, the
Purchaser understands that the Company has no present intention of registering
the Shares. The Purchaser also understands that there is no assurance that any
exemption from registration under the Securities Act will be available and that,
even if available, such exemption may not allow such Purchaser to transfer all
or any portion of the Shares under the circumstances, in the amounts or at the
times such Purchaser might propose.
(b) Acquisition for Own Account
The Purchaser is acquiring the Shares for the Purchaser's own
account for investment only, and not with a view towards their distribution.
(c) Purchaser Can Protect Its Interest
The Purchaser represents that by reason of its, or of its
management's, business or financial experience, the Purchaser has the capacity
to protect its own interests in connection with the transactions contemplated in
this Agreement. Further, the Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in this
Agreement.
(d) Accredited Investor
The Purchaser represents that it is an accredited investor within
the meaning of Regulation D under the Securities Act.
(e) Company Information
The Purchaser has received and read the Financial Statements (and
such other Company documents delivered in response to the Purchaser's formal due
diligence request) and has had an opportunity to discuss the Company's business,
management and financial affairs with directors, officers and management of the
Company and has had the opportunity to review the Company's operations and
facilities. The Purchaser has also had the opportunity to ask questions of and
receive answers from the Company and its management regarding the terms and
conditions of this investment.
(f) Rule 144
The Purchaser acknowledges and agrees that the Shares must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available. The Purchaser has been advised
or is aware
<PAGE> 15
of the provisions of Rule 144 promulgated under the Securities Act,
which permits limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934) and the number of shares
being sold during any three-month period not exceeding specified limitations.
4. RETURN OF INVESTMENT
4.1 Current Return
The Company will pay the Purchaser a twenty percent (20%) per annum simple
rate of return on the purchase price of the Shares (the "Current Return") on the
terms and conditions set forth in this Article 4. The Current Return will be
paid annually on the anniversary date of this Agreement until the earliest to
occur of two specific trigger points ("Trigger Points") and will be based upon a
365 day year. The Current Return may be paid in cash or additional shares of
Class A Common Stock at the election of the Company. If paid in shares, such
shares will be valued at $100 per share for purposes of such payments.
4.2 Capital Return
In addition to the Current Return, the Company may pay the Purchaser a
further return (the "Capital Return") at the Trigger Points as set forth in this
Article 4. The Current Return and the Capital Return are together referred to in
this Agreement as the "Return".
4.3 Payment of the Return
(a) The first Trigger Point for the payment of the Return is the
date the Purchaser may sell all of its Shares in the public
market following an initial public offering of shares of Class
A Common Stock by the Company, which date is the date on which
any market stand-off period under Section 6.4 expires and the
Purchaser is permitted to sell all of its Shares under Rule
144 or another exemption under the Securities Act. The Company
will notify the Purchaser of the occurrence of such date (the
"Expiration Date") and will promptly pay the Purchaser the
Current Return calculated from the last payment date of the
Current Return through the Expiration Date. If the Fair Market
Value is less than $180 per Share (the "Target Price") then
the Company will also pay to the Purchaser a Capital Return
per Share equal to the difference between the Target Price and
the Fair Market Value. For purposes of this Section 4.3(a),
"Fair Market Value" shall mean the average of: the closing
prices quoted on any exchange on which the Company's Common
Stock is listed; the closing prices of the Company's Common
Stock on the NASDAQ National Market or NASDAQ SmallCap Market;
or the bid and asked prices of the Company's Common Stock
quoted in the Over-the-Counter Market Summary if not listed on
any exchange or
<PAGE> 16
the NASDAQ system; as reported in the Eastern Edition of The
Wall Street Journal for the ten (10) trading days immediately
prior to the Expiration Date. The Capital Return may be paid
in cash or additional shares of Class A Common Stock at the
election of the Purchaser, provided, however, to the extent
the Purchaser elects to receive the Capital Return in cash,
such amount shall be due and payable within thirty (30) days
after the Expiration Date. If paid in shares, such shares
would be valued at the Fair Market Value on the Expiration
Date.
(b) If the Company has not completed an initial public offering of
shares of Class A Common Stock prior to November 1, 2001, the
Purchaser may thereafter notify the Company of its desire to
have its Shares repurchased by the Company by delivering to
the Company a notice to such effect (the "Repurchase Notice").
The second Trigger Point for the payment of the Return is the
date the Repurchase Notice is deemed given to the Company (as
determined by Section 7.9 below, the "Repurchase Date"). Upon
delivery of the Repurchase Notice, the Company will promptly
pay the Purchaser the Current Return calculated from the last
payment of Current Return through the Repurchase Date. In
addition, subject to the terms of this Section 4.3, within
thirty (30) days after receipt of the Repurchase Notice, the
Company will repurchase the Shares at a per Share price in
cash equal to the sum of (i) the initial purchase price ($120
per share); and (ii) an assumed Capital Return ($60 per Share)
(the "Assumed Capital Return"). If the Company does not have
funds sufficient to repurchase the Shares or is contractually
or otherwise prohibited from repurchasing the Shares, the
Company will have six (6) months from the Repurchase Date in
which to obtain the funds necessary to repurchase the Shares
and complete the repurchase; or, in lieu thereof, at the
Purchaser's election, the Company will promptly file a
registration statement with the Securities and Exchange
Commission, registering the Shares and such additional shares
of Class A Common Stock to be issued by the Company as may be
required to pay the Return in accordance with Article 6. The
number of shares to be registered will be equal to (x) the
initial number of Shares purchased plus (y)(i) shares
representing the Assumed Capital Return based upon a per share
price equal to the anticipated offering price and (ii) shares
representing the Current Return calculated from the last
payment of Current Return through the Repurchase Date and
based upon a $100 per share price (the "Demand Registration
Price").
(c) Additional terms and conditions of the registration are set
forth in Article 6. The specific prices and values per Share
set forth in this Section 4.3, including among others, the
Target Price, initial purchase price, Assumed Capital Return,
and the Demand Registration Price will be appropriately
adjusted for stock splits, stock combinations, stock dividends
and recapitalizations and reorganizations by the Company.
<PAGE> 17
5. COVENANTS
5.1 Board of Representation
As soon as practicable following the date hereof, the Board of Directors
of the Company shall be composed of and fixed at seven members, one whom shall
be designated by the Purchaser. So long as the Purchaser holds 62,500 shares of
Class A Common Stock (or such other number of shares of Class A Common Stock or
other securities into which 62,500 shares may be converted or exchanged as a
result of any stock split, stock dividend, reverse stock split, recombination,
reclassification, recapitalization, reorganization, merger, consolidation or any
other similar action), the Founders shall vote or cause to be voted its shares
of the Company's capital stock in favor of the re-election of the Purchaser's
designee to the Board. Such designee shall be entitled to access such
information of the Company and its Subsidiaries as shall permit such designee to
effectively function as a director. Likewise, the Purchaser agrees that, so long
as it is the beneficial owner of capital stock of the Company, it shall vote or
cause to be voted all of its shares in favor of the re-election of the Founders
to the Board.
5.2 Additional Shares
The Company may sell to any other persons shares of Class A Common Stock
(the "Additional Shares") within the period commencing on the date hereof and
ending on the six (6) month anniversary of the date hereof, only pursuant to one
or more stock purchase agreements, which shall be on terms no more advantageous
to such persons then the terms hereof are to the Purchaser and only at a per
share purchase price of not less than $120.
5.3 "Market Stand-Off" Agreement
Except for sales in connection with an initial public offering and in
accordance with Section 6.3, or pursuant to Section 4.3(b), the Purchaser
agrees, if requested by the Company and the underwriter of Class A Common Stock
of the Company, not to sell or otherwise transfer or dispose of any Class A
Common Stock of the Company held by the Purchaser during the one hundred eighty
(180) day period following the effective date of any registration statement of
the Company filed under the Securities Act with respect to any underwritten
public offering of Class A Common Stock by the Company, provided that:
(a) such agreement shall only apply to the first such registration
statement of the Company; and
(b) The Company's officers and directors as well as the holders of
a majority of the capital stock not held by officers and
directors of the Company shall also enter into similar
agreements.
Such agreement shall be in writing in a form satisfactory to the Company, the
Purchaser and such underwriter. The Company may impose stop-transfer
instructions with respect to the securities subject to the foregoing
restrictions until the end of said one hundred
<PAGE> 18
eighty (180) day period.
5.4 Intercompany Transactions
The Company covenants and agrees that any transactions between the Company
and its Subsidiaries or between the Company (and its Subsidiaries), and either
the Founders or companies controlled by the Founders or their immediate family
members shall be at arms-length upon commercially reasonable terms and
conditions, and the Founders covenant and agree that actions taken by them as
Directors of the Company shall at all times be consistent with and satisfy their
fiduciary obligations under New York law.
6. REGISTRATION RIGHTS
6.1 Certain Definitions. As used in this Article 6, the following terms
have the following meanings:
"Commission" shall mean the Securities and Exchange Commission.
"Registrable Securities" shall mean (i) the Shares, (ii) shares of Class A
Common Stock issued pursuant to Article 4, (iii) any Class A Common Stock issued
in respect of that certain Conversion Rights Agreement dated April 24, 1998 by
and between the Company and the Purchaser, as amended by Amendment No. 1 dated
November 10, 1998, and (iv) any Class A Common Stock issued in respect of such
securities upon any stock split, stock dividend, recapitalization or similar
event.
"Registration" and the related terms "register" and "registered" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with Section 6.2 or Section 6.3 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursement of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company and expenses
of regular annual and periodic audits, which shall be paid in any event by the
Company) and the expenses associated with the Company's obligations under
Section 6.5 hereof.
"Restricted Securities" shall refer collectively to the securities of the
Company required to bear a legend under applicable securities laws.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder, all as the
same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel
<PAGE> 19
for the Purchaser.
6.2 Required Registration. If required pursuant to Section 4.3 hereof, the
Company shall register shares of Class A Common Stock for the Purchaser in
accordance with the terms of this Article 6. Upon the obligation to register
shares of Class A Common Stock for Purchaser, the Company shall notify all other
parties having piggyback registration rights as of the date hereof of its intent
to register such shares and include in such registration any Registrable
Securities such other parties which they request by notice be included in such
registration. Except for the foregoing and for securities for the Company's own
account, no other securities may be included in such registration statement.
Subject to the terms and conditions of this Article 6, the Company shall
promptly effect such registration (and any related qualification under state
blue sky laws and other compliance filings). Only Registrable Securities may be
included in any registration.
6.3 Piggyback Registration Rights
(a) If the Company shall determine to register any of its
securities either for its own account or the account of any
security holder or holders (other than the Purchaser), other
than a registration relating solely to employee benefit plans
or pursuant to a registration statement on Form S-4 or the
then equivalent of such form, the Company will:
(i) Promptly give to the Purchaser written notice thereof;
and
(ii) Except as set forth in Section 6.3(b), include in such
registration (and any related qualification under state
blue sky laws and other compliance filings, and in any
underwriting involved therein), all the Registrable
Securities specified in a written request or requests,
given by the Purchaser within fifteen (15) days after
the written notice from the Company is given.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the
Company shall so advise the Purchaser as part of the written
notice given pursuant to Section 6.3(a)(i). In such event the
right of the Purchaser to registration pursuant to this
Section 6.3 shall be conditioned upon the Purchaser's
participation in such underwriting and the inclusion of the
Purchaser's Registrable Securities in the underwriting to the
extent provided herein. The Purchaser, together with the
Company and the other persons distributing their securities
through such underwriting, shall enter into an underwriting
agreement in customary form with the underwriter or
underwriters selected or approved for underwriting by the
Company. Notwithstanding any other provision of this Section
6.3, if the underwriter determines that marketing factors
require a limitation on the number of shares to be
underwritten, the underwriter may (subject to the allocation
<PAGE> 20
priority set forth below) exclude from such registration and
underwriting some or all of the Purchaser's Registrable
Securities which would otherwise be underwritten pursuant
hereto. The Company shall so advise all persons requesting
registration of the number of shares of securities that are
entitled to be included in the registration and underwriting,
allocated in the following manner: (i) first, the number of
securities which the Company proposes to offer and sell for
its own account, and (ii) to the extent permitted by the
underwriter, there shall be included in such registration that
number of securities which persons having registration rights
shall have requested to be included in such registration, with
any limitation on the number of securities so included to be
imposed pro rata on Purchaser and all other persons to the
extent they request inclusion therein. If the Purchaser or any
other security holder requesting registration disapproves of
the term of any such underwriting, such person may elect to
withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities
excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
6.4 Expense of Registration. All Registration Expenses incurred on behalf
of the Purchaser in connection with any registration, qualification or
compliance pursuant to this Article 6 shall be borne by the Company, and all
Selling Expenses (other than Selling Expenses incurred pursuant to Section
4.3(b) hereof which shall be borne by the Company) shall be borne by the
Purchaser and all other holders of the securities so registered pro rata on the
basis of the number of their shares so registered.
6.5 Registration Procedures. In the case of each registration effected by
the Company pursuant to this Article 6, the Company will advise the Purchaser in
writing as to the initiation of each registration and as to the completion
thereof. The Company will:
(a) Keep such registration effective for a period of ninety (90)
days or until the Purchaser has completed the distribution
described in the registration statement relating thereto,
whichever first occurs.
(b) Furnish such number of prospectuses and other documents
incident thereto as the Purchaser from time to time may
reasonably request.
(c) Register or qualify the Registrable Securities covered by such
registration under such other securities or blue sky laws of
such jurisdiction (subject to the approval of any managing
underwriter involved) as the Purchaser shall reasonably
request, and do any and all other acts and things which may be
reasonably necessary or advisable to enable the Purchaser to
consummate the disposition in such jurisdictions of the
Registrable Securities; provided, however,
<PAGE> 21
that the Company shall not be obligated, by reason thereof, to
qualify as a foreign corporation in any jurisdiction where it
would not otherwise be required to qualify or consent to
general service of process in any such jurisdiction or subject
itself to taxation as doing business in any such jurisdiction.
(d) Notify the Purchaser promptly after the Company shall receive
notice or have knowledge that any registration statement,
supplement or amendment has become effective, any registration
statement is required to be amended or supplemented, any stop
order has been issued, the suspension of the qualification of
the Registrable Securities for sale in any jurisdiction or the
initiation of a proceeding for that purpose, or of the
happening of any event as a result of which, the prospectus
included in such registration statement as then in effect,
includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances under which they were made.
(e) Make every reasonable effort to obtain at the earliest
possible moment the withdrawal of any order suspending the
effectiveness of a registration statement or suspending the
qualification of any of the Registrable Securities for sale in
any jurisdiction.
(f) Promptly prepare and furnish to the Purchaser a reasonable
number of copies of a supplement to or an amendment of a
prospectus as may be necessary so that such prospectus shall
not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances under which they were made.
(g) Include the Registrable Securities for listing on any national
securities exchange or the NASDAQ system on which the
Company's Class A Common Stock is listed.
(h) Make available for inspection by a representative of the
Purchaser, any underwriters participating in any disposition
pursuant hereto, and any attorney or accountant retained by
the Purchaser or such underwriters, upon reasonable notice
during normal business hours all financial and other records,
pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in
connection with such registration; provided that any such
records, information or documents that are designated by the
Company in writing as confidential shall be kept confidential
by such persons unless disclosure of such records, information
or documents is required by court or administrative order.
<PAGE> 22
(i) Make generally available to its securities holders earning
statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
6.6 Indemnification
(a) In the event of the registration of the Purchaser's
Registrable Securities under the Securities Act pursuant to
this Article 6, the Company will indemnify and hold harmless
the Purchaser, each underwriter, if any, of such shares, and
each other person, if any, who controls the Purchaser or any
such underwriter within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or
several, to which the Purchaser, the underwriter or
controlling person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or
are based upon any untrue statement or alleged untrue
statement of any material fact contained, on the effective
date thereof, in any registration statement under which such
Registrable Securities were registered under the Securities
Act, any preliminary prospectus or final prospectus contained
therein (as such may be amended or supplemented), or arise out
of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements contained therein not
misleading (including, without limitation, all information
incorporated by reference in such registration statements and
prospectuses), and will reimburse the Purchaser, each such
underwriter, and each such controlling person for any legal or
any other expenses reasonably incurred by the Purchaser, such
underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will
not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based
upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such registration
statement, such preliminary prospectus, or such final
prospectus (as such may be amended or supplemented) in
reliance upon and in conformity with, written information
furnished to the Company by the Purchaser, the underwriter or
controlling person specifically for use in preparation
thereof.
(b) In the event of the registration by the Company of any of the
Purchaser's Registrable Securities, the Purchaser will
indemnify and hold harmless the Company, each underwriter and
each person who controls the Company or any such underwriter
within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which the
Company, such underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue
<PAGE> 23
statement or alleged untrue statement of any material fact
contained in any registration statement under which such
Registrable Securities were registered under the Securities
Act, any prospectus or preliminary prospectus contained
therein, or amendment or supplement thereto, or arises out of
or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements contained therein not
misleading, which untrue statement or alleged untrue statement
or omission or alleged omission was made therein in reliance
upon and in conformity with, written information furnished to
the Company by the Purchaser specifically for use in
connection with the preparation thereof; and will reimburse
the Company, each such controlling person, and each such
underwriter for any legal or other expenses reasonably
incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action.
(c) Each party entitled to indemnification under this Section 6.6
(the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of
any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the
defense of such claim or any litigation resulting therefrom,
shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 6.6.
No Indemnifying Party, in the defense of any such claim of
litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect
to such claim or litigation.
6.7 Information by the Purchaser. The Purchaser shall furnish in writing
to the Company such information regarding the Purchaser as the Company may
reasonably request and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Article 6.
6.8 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of the
Restricted Securities to the public without registration, the Company agrees to:
(a) Use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule
144 under the
<PAGE> 24
Securities Act, at all times from and after ninety (90) days
following the effective date of the first registration under
the Securities Act filed by the Company for an offering of its
securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company
under the Securities Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act") at any time during which
it is subject to such reporting requirements; and
(c) So long as the Purchaser owns any Restricted Securities,
furnish to the Purchaser forthwith upon request a written
statement by the Company as to its compliance with the
reporting requirements of Rule 144 (at any time from and after
ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of
its securities to the general public), and of the Securities
Act and the Exchange Act (at any time during which it is
subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such
other reports and documents so filed as the Purchaser may
reasonably request in availing itself of any rule or
regulation of the Commission allowing the Purchaser to sell
any such securities without registration.
6.9 Transfer of Registration Rights. The right to cause the Company to
register Registrable Securities pursuant to this Article 6 may be assigned by
the Purchaser to a transferee of Registrable Securities, provided (i) the
Company is, within a reasonable time after such transfer furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned; and (ii) the
transferee or assignee agrees in writing to be bound by the provisions of this
Agreement.
6.10 Termination of Registration Rights. The right to cause the Company to
register securities granted by the Company under this Article 6 shall terminate
with respect to any Purchaser at such time as all of the Registrable Securities
of such Purchaser can be sold (in a single transaction) in accordance with Rule
144.
7. MISCELLANEOUS
7.1 Governing Law
This Agreement shall be governed in all respects by the laws of the State
of New York as such laws are applied to agreements between New York residents
entered into and performed entirely in New York.
7.2 Survival
The representations and warranties made herein shall survive any
investigation made by the Purchaser and the closing of the transactions
contemplated hereby for a period of two (2) years, except that the
representations and warranties set forth in Section 2.1 and 2.3 shall
<PAGE> 25
survive until the termination of the Company's existence. The covenants and
agreements made herein shall survive until they expire by their own terms. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date
hereof.
7.3 Successors and Assigns
Except as otherwise expressly provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of the Shares
from time to time.
7.4 Entire Agreement
This Agreement, the Exhibits and Schedule hereto, and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and no party
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.
7.5 Separability
In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
7.6 Amendment
This Agreement may be amended or modified only upon the written consent of
the Company and holders of at least a majority of the Shares.
7.7 Waiver
The obligations of the Company and the rights of the holders of the Shares
under this Agreement may be waived only with the written consent of the holders
of at least a majority of the Shares.
7.8 Delays or Omissions
It is agreed that no delay or omission to exercise any right, power or
remedy accruing to any party, upon any breach, default or noncompliance by
another party under this Agreement or the Restated Articles, shall impair any
such right, power or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of or in
any similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind
<PAGE> 26
or character on the Purchaser's part of any breach, default or noncompliance
under this Agreement or under the Restated Articles or any waiver on such
party's part of any provisions or conditions of this Agreement must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, the Restated Articles,
bylaws, or otherwise afforded to any party, shall be cumulative and not
alternative.
7.9 Notices
All notices required or permitted hereunder shall be in writing and shall
be deemed effectively given: (i) upon personal delivery to the party to be
notified; (ii) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient, if not, then on the next business day; (iii)
five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iv) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to the Company, to:
Telergy, Inc.
One Telergy Parkway
East Syracuse, NY 13057
Attn: Chief Executive Officer
Facsimile: (315) 433-5358
with a copy to:
Telergy, Inc.
20 Corporate Woods
Albany, NY 12207
Attn: General Counsel
Facsimile: (518) 463-9937
with an additional copy to:
Pepe & Hazard LLP
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attn: Walter W. Simmers, Esq.
Facsimile: (860) 522-2796
(b) if to the Founders, to:
Messrs. Kevin and Brian Kelly
c/o Telergy, Inc.
One Telergy Parkway
<PAGE> 27
East Syracuse, NY 13057
Attn: Chief Executive Officer
Facsimile: (315) 433-5358
with a copy to:
Telergy, Inc.
20 Corporate Woods
Albany, NY 12207
Attn: General Counsel
Facsimile: (518) 463-9937
with an additional copy to:
Pepe & Hazard LLP
Goodwin Square
Hartford, CT 06103
Attn: Walter W. Simmers, Esq.
Facsimile: (860) 522-2796
(c) if to the Purchaser, to:
Niagara Mohawk Energy, Inc.
507 Plum Street
Syracuse, NY 13204
Attn: Treasurer
Facsimile: (315) 460-3338
with a copy to:
Niagara Mohawk Energy, Inc.
507 Plum Street
Syracuse, NY 13204
Attn: General Counsel
Facsimile: (315) 460-3338
with an additional copy to:
Sullivan & Cromwell
1701 Pennsylvania Avenue
Washington, DC 20006
Attn: Janet T. Geldzahler, Esq.
Facsimile: (202) 956-7619
7.10 Expenses
Each of the parties shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement.
<PAGE> 28
7.11 Attorney's Fees
In the event that any dispute among the parties to this Agreement should
result in litigation, the prevailing party in such dispute shall be entitled to
recover from the losing party all fees, costs and expenses of enforcing any
right of such prevailing party under or with respect to this Agreement,
including without limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
7.12 Titles and Subtitles
The titles of the sections and subsections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.
7.13 Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
7.14 Broker's Fees
Each party hereto represents and warrants that no agent, broker,
investment banker, person or firm acting on behalf of or under the authority of
such party hereto is or will be entitled to any broker's or finder's fee or any
other commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 7.14 being untrue.
[Remainder of page has been intentionally left blank]
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth in the first paragraph hereof.
COMPANY:
TELERGY, INC.
By: /s/Brian Kelly
-----------------------
Name: Brian Kelly
Title: C.E.O.
NIAGARA MOHAWK ENERGY, INC.
By: /s/J. Phillip Franzier
-----------------------
Name: J. Phillip Frazier
Title: C.F.O. & President
FOUNDERS
(only as to Sections 5.1 and 5.4 hereof)
/s/Kevin J. Kelly
----------------------------
Kevin J. Kelly, individually
/s/Brian Kelly
----------------------------
Brian P. Kelly, individually
<PAGE> 1
EXHIBIT 10.2.2
TELERGY, INC.
FIRST MODIFICATION TO
STOCK PURCHASE AGREEMENT
May 11, 1999
<PAGE> 2
TELERGY INC.
FIRST MODIFICATION TO STOCK PURCHASE AGREEMENT
This First Modification to Stock Purchase Agreement (this "Agreement") is
entered into as of May 11, 1999, by and among Telergy, Inc., a New York
corporation with offices at One Telergy Parkway, East Syracuse, New York 13057
(the "Company"), and Niagara Mohawk Energy, Inc., ("NME") a Delaware corporation
with offices at 507 Plum Street, Syracuse, New York 13204, and Opinac North
America, Inc. (Opinac) (NME and Opinac are sometimes referred to herein
collectively as the "Purchasers") and, with respect to Sections 5.1 and 5.4
only, Kevin J. Kelly and Brian P. Kelly (the "Founders").
RECITALS
WHEREAS, NME and the Company entered into a Stock Purchase Agreement dated
November 10, 1999; and
WHEREAS, Opinac and the Company entered into a Securities Purchase
Agreement dated May 11, 1999; and
WHEREAS, in connection with their respective investments, the Purchasers
desires to appoint designees to the Company's Board of Directors; and
WHEREAS, the Company has agreed to appoint NME's designee as further
provided in the Stock Purchase Agreement; and
WHEREAS, the Company has agreed to appoint Opinac's designee as further
provided herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. DESIGNATION TO BOARD OF DIRECTORS
The Board of Directors shall elect the NME designee to the Board on or
before May 20, 1999, subject to shareholder ratification. As soon as practicable
following the date hereof, the Board of Directors of the Company shall be
composed of and fixed at a minimum of seven members, one whom shall be
designated by NME, and one of whom shall be designated by Opinac. So long as the
Purchasers collectively hold securities representing the right to hold a minimum
of 10% of the outstanding shares of Class A Common stock (or such other number
of shares of Class A Common stock and such other securities into which the Class
A Common Stock may be converted or exchanged as a result of any stock split,
stock dividend, reverse stock split, recombination, reclassification,
recapitalization, reorganization, merger, consolidation or any other similar
action ("Equivalents")), the Founders shall vote or cause to be voted their
shares of the Company's capital stock in favor of the re-election of each of the
Purchasers' designees to the Board, provided that such representation shall be
proportionate to the Purchasers' ownership of Class A Common Stock
<PAGE> 3
(including Class A Common Stock which the Purchaser has the right to acquire).
In the event Purchasers' ownership of the Class A Common Stock or its Equivalent
falls below 10% but remains equal to or greater than 5% of the outstanding
Common Stock, Purchasers collectively shall be entitled to designate only one
person to the Board of Directors, by written notice to the Company. In the event
Purchasers ownership of Class A Common Stock or its equivalent falls below 5%,
Purchasers shall not be entitled to designate any person to the Board.
Such designees shall be entitled to access such information of the
Company and its Subsidiaries as shall permit such designees to effectively
function as Directors and shall serve as Directors consistent with the
fiduciary duties imposed at law. Likewise, the Purchasers agree that, so long
as they are the beneficial owner of capital stock of the Company, each shall
vote or cause to be voted all of its shares in favor of the re-election of the
Founders to the Board.
Notwithstanding anything to the contrary herein, Opinac shall not be
entitled to nominate a person to the Board and the Founders obligation to vote
in favor of the Opinac designee shall become effective only upon conversion of
the Note to the Conversion Shares as provided in the Securities Purchase
Agreement. In the event such conversion has not been completed on or before July
10, 1999, unless the Company is in breach of its obligation to file pursuant to
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the
Company's obligations with respect to Opinac's designation of a person to the
Board, as well as Opinac's rights hereunder shall be of no further force and
effect and shall terminate.
1. Miscellaneous Provisions
This Agreement shall be governed in all respects by the laws of the State
of New York as such laws are applied to agreements between New York residents
entered into and performed entirely in New York.
This Agreement constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof.
This Agreement may be amended or modified only upon the written consent of
the Company and each of the Purchasers.
The obligations of the Company and the rights of the Purchasers under
this Agreement may be waived only with the written consent of the Purchasers.
All notices required or permitted hereunder shall be in writing and shall
be deemed effectively given for NME and the Company if given in the manner and
method set forth in the Stock Purchase Agreement dated November 10, 1998, and
for Opinac and the Company if given in the manner and method set forth in the
Securities Purchase Agreement dated May 11, 1999.
<PAGE> 4
Each of the parties shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement.
In the event that any dispute among the parties to this Agreement should
result in litigation, the prevailing party in such dispute shall be entitled to
recover from the losing party all fees, costs and expenses of enforcing any
right of such prevailing party under or with respect to this Agreement,
including without limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
[Remainder of page has been intentionally left blank]
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth in the first paragraph hereof.
COMPANY:
TELERGY, INC.
By: /s/Brian Kelly
--------------------------
Name: Brian Kelly
Title: C.E.O.
PURCHASERS:
OPINAC NORTH AMERICA, INC.
By: /s/Albert J. Budney, Jr.
-------------------------
Name: Albert J. Budney, Jr.
Title: President
NIAGARA MOHAWK ENERGY, INC.
By: /s/J. Phillip Frazier
--------------------------
Name: J. Phillip Frazier
Title: C.E.O. & President
FOUNDERS:
/s/Kevin J. Kelly
----------------------------
Kevin J. Kelly, individually
/s/Brian Kelly
----------------------------
Brian P. Kelly, individually
<PAGE> 1
CONVERSION RIGHTS AGREEMENT
This Agreement is made as of April 24, 1998, by and between TELERGY,
INC. ("Telergy"), a New York corporation with a mailing address at 5784
Widewaters Parkway, Dewitt, New York 13214 and PLUM STREET ENTERPRISES, INC.
("PSE"), a Delaware corporation with a mailing address at 507 Plum Street,
Syracuse, New York 13204. Telergy and PSE are venturers of Telergy Joint Venture
which is being converted to Telergy Central, LLC, a New York limited liability
company, to be governed by an Operating Agreement made as of April 24, 1998.
1. Sale of Membership Interest and IRU. In the event of a successful
Financial Offering by Telergy, or by an Affiliate parent corporation or limited
liability company of Telergy, which occurs before the earlier of the transfer,
sale, alienation, assignment, mortgage, pledge or other encumbrance or
disposition (by operation of law or otherwise) by PSE of either its Membership
Interest or the PSE IRU, PSE shall be obligated to sell and Telergy shall be
obligated to purchase PSE's Membership Interest and the PSE IRU, unless, in the
case of a High Yield Bond Offering or a Private Placement, PSE has elected not
to sell its Membership Interest and the PSE IRU, in accordance with the
procedure set forth in Section 5.
2. Purchase of Telergy Common Stock. In the event PSE's Membership
Interest and the PSE IRU are sold to Telergy pursuant to this Agreement, PSE
shall have the right to purchase and Telergy shall be obligated to sell Class A
voting common stock of Telergy, or a stock equivalent (other than Class C common
stock), including convertible preferred stock or warrants which permit the
acquisition of Class A voting common stock or stock equivalent, which is sold in
the Financial Offering by Telergy ("Common Stock"), for cash consideration of up
to the amount of the proceeds received by PSE from Telergy for the sale of PSE's
Membership Interest and the PSE IRU (the "Purchase Option").
3. Financial Offering. For purposes of this Agreement a Financial
Offering by Telergy shall not include its first successful sale of high yield
bonds or similar debt securities whether made through a private placement or a
registered offering, but following such an initial sale of high yield bonds a
Financial Offering by Telergy shall include the first to occur of either (i) an
initial public offering of Common Stock (an "IPO"), (ii) a sale of high yield
bonds in the amount of at least one hundred million dollars ($100,000,000)
whether made through a private placement or a registered offering (a "High Yield
Bond Offering"), or (iii) a private placement of Common Stock and/or Class C
common stock, which does not include the exercise of outstanding warrants or
options, in the amount of at least one hundred million dollars ($100,000,000) (a
"Private Placement"). Notwithstanding the foregoing, for purposes of this
Agreement a Financial Offering by Telergy shall also include an IPO which occurs
prior to Telergy's first successful sale of high yield bonds or similar debt
securities.
4. Definitions. The defined terms used in this Agreement (as
indicated by the first letter of each word in the term being capitalized) shall,
unless the context clearly requires otherwise, have the meanings specified in
the Operating Agreement or as may be specified elsewhere throughout this
Agreement. The singular shall include the plural and the masculine gender shall
include the feminine and neuter, as the context requires.
<PAGE> 2
5. Notice of a Proposed Financial Offering by Telergy. Telergy shall
give PSE a Notice of its intent to make a Financial Offering at least fifteen
(15) days prior to the closing of such a Financial Offering. If the investment
banker of Telergy has made a preliminary valuation of the Membership Interest of
PSE and/or the PSE IRU, Telergy will provide PSE with a reasonable narrative
summary of that valuation, along with its Notice of intent to make a Financial
Offering. If the Financial Offering is a High Yield Bond Offering or a Private
Placement, PSE may make its election not to sell its Membership Interest and the
PSE IRU by giving Telergy Notice of such election within five (5) days after
Telergy's Notice of the intended Financial Offering. Otherwise, within five (5)
days after Telergy's Notice of the intended Financial Offering, (i) PSE shall
execute and deliver to Telergy in escrow an instrument of conveyance for the PSE
IRU, and (ii) Telergy and PSE shall meet to determine how the procedures
authorized by this Agreement will be implemented to determine a sale price for
PSE's Membership Interest and the PSE IRU. PSE shall engage its investment
banking firm, as provided in Section 7(a), within ten (10) days after Telergy's
Notice of the intended Financial Offering.
6. Notice by PSE to Exercise the Purchase Option. PSE shall exercise
its Purchase Option by giving Telergy a Notice of exercise within five (5) days
of receiving Telergy's Notice of the intended Financial Offering, unless PSE has
elected not to sell its Membership Interest and the PSE IRU, in accordance with
the procedure set forth in Section 5. The PSE Notice of exercise shall specify
the percentage of the proceeds to be received from Telergy for the sale of PSE's
Membership Interest and the PSE IRU which is to be used to purchase Common
Stock.
7. Determination of Sale Price for Membership Interest and PSE IRU.
(a) The sale price for the Membership Interest of PSE and the
PSE IRU may be determined by the agreement of Telergy and PSE, and they agree to
negotiate in good faith to determine a sale price. In the event Telergy and PSE
cannot agree on a sale price, then it shall be determined initially by an
investment banking firm selected by PSE which shall determine a sale price based
upon the fair market value of the Membership Interest of PSE and the PSE IRU.
The determination of the investment banking firm shall be submitted to Telergy,
and if Telergy agrees with the determination of the sale price it shall be
binding on the parties. However, if Telergy does not agree with the sale price,
then it shall select an investment banking firm to determine the sale price
based upon the fair market value of the Membership Interest of PSE and the PSE
IRU. If the lower sale price determined by the two investment banking firms is
at least eighty percent (80%) of the higher price, then the sale price shall be
the average of the two prices. Otherwise, the sale price shall be determined by
an arbitrator who shall select the price determined by one of the investment
banking firms. The arbitrator shall be selected by the two investment banking
firms and shall be a Person familiar with the telecommunications industry. The
decision of the arbitrator shall be final and binding on both Telergy and PSE.
The arbitration procedures, protocols and provisions are set forth in Section
7(b). Each party shall bear the fees, costs and out of pocket expenses of the
investment banking firm which it selected, but shall equally share the cost of
any arbitration utilized to determine the sale price. Any investment banking
firm engaged to determine the sale price and the arbitrator must agree in
writing (i) to protect the confidentiality of the Company's non-public, trade
secret, financial, confidential and proprietary data, and (ii) not to disclose
the existence, content or results of any
-2-
<PAGE> 3
arbitration without the prior Consent of Telergy and PSE. Telergy and PSE agree
not to disclose the existence, content or results of any arbitration without the
prior Consent of the other.
(b) The arbitration to determine the sale price for the
Membership Interest of PSE and the PSE IRU shall be conducted in accordance with
the Commercial Arbitration Rules of the American Arbitration Association, as
amended and effective on July 1, 1996, and the Federal Arbitration Act, 9 U.S.C.
ss.1, et seq. (the "Rules") in effect at the time of the arbitration, except as
the Rules conflict with the provisions of this Agreement or as may be modified
by the agreement of the parties. The arbitrator shall have the authority to
order the production of such documents as may be reasonably requested by Telergy
or PSE, by either of the investment banking firms whose determinations of a sale
price are being arbitrated, or by the arbitrator. Prior to any hearing or formal
arbitration, and as set forth in more detail by the arbitrator or in the Rules,
the parties agree that there should be an exchange of written exhibits and a
brief description of the testimony each side proposes to offer. The arbitrator
may, at his or her option, appoint one or more experts to advise him or her with
respect to any issue in the arbitration. If any expert is so appointed, then
Telergy, PSE and the investment banking firms participating in the arbitration
shall have the right to examine such expert's report to the arbitrator and to
question such expert at an oral hearing. The arbitrator's decision shall be in
writing and shall state the reasons for the decision.
8. Determination of Purchase Price for Common Stock. The per share
purchase price for Common Stock to be purchased by PSE shall be (i) determined
by the lead underwriter for an IPO of Common Stock, based upon the underwriter's
pre-IPO valuation of Telergy, (ii) the same price per share paid by the
purchasers of Common Stock in a Private Placement, or (iii) otherwise determined
by an investment banking firm selected by Telergy which shall determine the
price per share based upon the fair market value of Telergy in the event of a
High Yield Bond Offering.
9. Delivery of Prospectus and Offering Memorandum. If the Financial
Offering is an IPO, Telergy shall deliver PSE a copy of its prospectus when it
has been filed with the Securities and Exchange Commission. If the Financial
Offering is a High Yield Bond Offering or a Private Placement, Telergy shall
deliver to PSE a copy of its offering memorandum on the later of (i) the closing
of the respective High Yield Bond Offering or Private Placement, or (ii) a final
determination of the sale price for PSE's Membership Interest and the PSE IRU.
10. Closing. The closing for the sale by PSE of its Membership
Interest and the PSE IRU, and for the purchase, if any, of Common Stock by PSE,
shall occur within ten (10) days following the later of (i) completion of the
Financial Offering by Telergy, (ii) a final determination of the sale price for
PSE's Membership Interest and the PSE IRU, or (iii) the delivery to PSE of the
prospectus or the offering memorandum used by Telergy in the Financial Offering.
The sale price shall be payable to PSE by Telergy in cash, or any other manner
agreeable to PSE; provided, however, that Telergy may credit and set off against
the sale price that amount which is to be used to fund the purchase price of
Common Stock being purchased by PSE. At the closing, PSE shall warrant and
deliver good and marketable title to its Membership Interest and the PSE IRU,
which shall be released from escrow, both being unencumbered by liens or other
forms of security interest, and Telergy shall deliver certificates for the
Common Stock purchased, if any, by PSE. PSE shall further represent that it is
acquiring the Common
-3-
<PAGE> 4
Stock as an investment and not with a view to distribution. The stock
certificates issued to PSE shall contain the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 or any state
securities law. No sale or other disposition of the shares
represented by this certificate may be made without an
effective registration under the Securities Act or an opinion
of counsel reasonably satisfactory to the Company and its
counsel that such registration is not required."
11. Term. This Agreement shall terminate on the earlier of the transfer,
sale, alienation, assignment, mortgage, pledge, or other encumbrance or
disposition (by operation of law or otherwise) by PSE of either its Membership
Interest or the PSE IRU.
12. PSE IRU Charges. Upon or as a result of the sale of the PSE IRU to
Telergy pursuant to this Agreement, the payment of all fees, recurring and
non-recurring charges and maintenance costs as required by Section 3.4(b) of the
Operating Agreement shall be discontinued.
13. Binding Effect. The covenants and agreements contained in this
Agreement shall be binding upon and inure to the benefit of Telergy and PSE and
shall not be assignable by either of them.
14. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of New York State, without giving effect to the
principles of conflicts of laws.
15. Amendments. This Agreement supersedes all prior agreements among the
parties which deals with the same or substantially the same subject matter,
including that certain Joint Venture Agreement between the parties dated January
16, 1996 and that certain Memorandum of Agreement between the parties dated
April 16, 1998. This Agreement may be amended only by the written agreement of
the parties.
16. Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original and both of which shall constitute one and the same
instrument.
17. Severability. If any provision contained herein is determined to be
invalid and contrary to any existing or future law, such invalidity shall not
impair the operation of or affect those provisions of this Agreement which are
valid.
18. Section Headings Not Controlling. Section headings found herein are
for convenience of reference only and shall not control or alter the meaning of
this Agreement.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Conversion Rights
Agreement as of the day and year first above written.
TELERGY, INC.
By: /s/ Brian Kelly
________________________________
Brian P. Kelly
Chief Executive Officer
PLUM STREET ENTERPRISES, INC.
By: /s/ J. Phillip Frazier
________________________________
J. Phillip Frazier
President and Chief Executive Officer
-5-
<PAGE> 1
EXHIBIT 10.3.2
AMENDMENT NO. 1 TO
CONVERSION RIGHTS AGREEMENT
This AMENDMENT NO. 1 to CONVERSION RIGHTS AGREEMENT (hereinafter called
this "Amendment"), dated as of November 10, 1998, between TELERGY, INC., a New
York corporation ("Telergy") and NIAGARA MOHAWK ENERGY, INC., a Delaware
corporation formerly known as Plum Street Enterprises, Inc. ("NME" or "PSE").
R E C I T A L S
WHEREAS, Telergy and NME have entered into a Conversion Rights Agreement,
dated as of April 24, 1998 (the "Conversion Rights Agreement"), providing for
the conversion, under certain circumstances, into common stock of Telergy of
NME's 25% membership interest (the "Membership Interest") in Telergy Central,
LLC ("Telergy Central") and its 25% interest in the indefeasible right of use of
the total capacity of Telergy Central's backbone network;
WHEREAS, concurrently with the execution of this Amendment, Telergy and
NME are entering into a Stock Purchase Agreement, dated as of the date hereof
(the "Stock Purchase Agreement"), pursuant to which NME shall purchase from
Telergy 83,334 shares of Class A common stock of Telergy, and
WHEREAS, in connection with the execution of the Stock Purchase Agreement,
Telergy and NME desire to make certain amendments to the Conversion Rights
Agreement.
NOW THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein and in
the Conversion Rights Agreement, the parties hereto agree as follows:
1. Definitions. Capitalized terms used but not otherwise defined herein
shall have the respective meanings ascribed to them in the Conversion Rights
Agreement.
2. Minimum Interest. (a) In the event that NME sells the Membership
Interest and the PSE IRU and NME does not exercise its right to purchase shares
of Common Stock using the proceeds from the sale pursuant to Section 2 of the
Conversion Rights Agreement, then in no event shall the sale price of the
Membership Interest and the PSE IRU determined in accordance with Section 7(a)
of the Conversion Rights Agreement represent a percentage of the value of
Telergy that is less than nine percent (9%).
<PAGE> 2
(b) In the event that NME sells the Membership Interest and the PSE IRU
and NME exercises its right to purchase shares of Common Stock using the
proceeds from the sale pursuant to Section 2 of the Conversion Rights
Agreement, then in no event shall the determination of (i) the sale price for
the Membership Interest and the PSE IRU pursuant to Section 7 of the Conversion
Rights Agreement and (ii) the per share purchase price for Common Stock to be
purchased by NME pursuant to Section 8 of the Conversion Rights Agreement be
such that, upon exercise in full by NME of the Purchase Option, NME would
receive a number of shares of Common Stock which would represent less than nine
percent (9%) of all of the shares of common stock of Telergy (including the
Class C common stock) outstanding after issuance thereof, calculated on a
fully-diluted basis.
3. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the state of New York, without giving effect to the
principles of conflicts of laws thereof.
4. Counterparts. This Amendment may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
TELERGY, INC.
By: /s/ Brian Kelly
-----------------------
Name: Brian Kelly
Title: CEO
NIAGARA MOHAWK ENERGY, INC.
By: /s/ J. Phillip Frazier
-----------------------
Name: J. Phillip Frazier
Title: CEO & President
<PAGE> 1
EXHIBIT 10.3.3
[Telergy Letterhead]
Via Facsimile
July 15, 1999
Niagara Mohawk Energy, Inc.
507 Plum street
Syracuse, NY 13204
Re: Amendment No. 2 to Conversion Rights Agreement and
Amendment No. 1 to Stock Purchase Agreement (11/10/98)
Dear Sirs:
This letter confirms that we hereby amend the Conversion Rights
Agreement dated April 24, 1998 (as amended on November 10, 1998) to increase
Niagara Mohawk Energy's Minimum Interest as provided in paragraph 2 of the first
amendment to 10%.
In exchange, Niagra Mohawk Energy hereby amends the Stock Purchase
Agreement dated November 10, 1998 as follows: (1) the Capital Return to be paid
under section 4.3(a) may be paid in cash or additional shares of Class A Common
Stock at the election of the Company rather than Niagara Mohawk Energy and (2)
in the event the Company is required to repurchase Niagara Mohawk Energy's
shares under section 4.3(b), the Company may fulfill that obligation by electing
to pay cash to repurchase the shares or by registering such shares for sale by
Niagara Mohawk Energy to the public.
If this letter accurately reflects our agreement, kindly sign and
return by facsimile (518) 463-9937.
Sincerely,
/s/ Kevin J. Kelly
Kevin J. Kelly
Executive Vice President
Accepted and agreed to this 15th day of July
By Niagara Mohawk Energy, Inc.:
By: /s/ Mathew J. Picardi
Title: General Counsel and Secretary
<PAGE> 1
EXHIBIT 10.4
LICENSE AND OPERATING AGREEMENT
THIS LICENSE AND OPERATING AGREEMENT, made this 28th day of January, 1998
("L&O Agreement") is by and between Consolidated Edison Company of New York,
Inc., a corporation organized under the laws of the State of New York, with
offices at 4 Irving Place, New York, NY 10003 ("Con Edison") and Telergy Metro,
LLC, a limited liability company organized and existing under the laws of the
State of New York, with offices at 5784 Widewaters Parkway, Syracuse, New York
13214 ("Telergy Metro").
WHEREAS, Telergy Metro desires to construct, install, operate, and
maintain a certain portion of a fiber optic network (such portion being defined
below as the "Backbone Network") in, on or through certain property owned by Con
Edison (such property being defined below as the "Licensed Property");
WHEREAS, Telergy Metro desires to construct, install, operate, and
maintain certain extensions of the Backbone Network (such extensions of the
Backbone Network being defined below as "Spur Routes");
WHEREAS, Con Edison, in accordance herewith, desires to grant certain
rights to permit the Backbone Network and any Spur Route(s) as may, in the
future, be agreed upon by the parties in accordance with this L&O Agreement, to
be constructed, installed, maintained, and operated in, on, over, or through the
Licensed Property;
NOW, THEREFORE, in consideration of the premises and covenants contained
herein, Con Edison and Telergy Metro agree as follows:
Section 1 - DEFINITIONS
For the purposes of this L&O Agreement, the following definitions apply:
"Backbone Network" means no more than [***] Fiber Optic Cables located in,
on, over, or through the Licensed Property described in Exhibit 1 hereof
together with the terminating lightwave distribution patch panels required at
the sites listed in Exhibit 3 hereof in connection with any Equivalent
Compensation consisting of the use of single mode dark fiber strands that is to
be provided to Con Edison with regard to such Backbone Network and the duct or
other conduit as well as the fiber optic facilities necessary to properly
connect such distribution patch panels with such single mode dark fiber strands
in such Fiber Optic Cables; it being understood and agreed that: (a) the number
of Fiber Optic Cables that will be permitted, subject to such maximum number of
Confidential
[***] Confidential treatment has been requested with respect to material
omitted on this page. The omitted portions have been filed separately
with the Securities and Exchange Commission.
<PAGE> 2
[***] (but in any event no fewer than [***] such Fiber Optic Cable), shall be
determined by Con Edison based on prudent engineering principles and taking into
account, without limitation, the design, condition and other characteristics of
the Licensed Property in, on, over, or through which the Backbone Network shall
be located (but the number of Fiber Optic Cables, up to such permitted number so
determined by Con Edison, that actually will be located in, on, over, or through
the Licensed Property described in Exhibit 1 shall be determined by Telergy
Metro); (b) all such permitted Fiber Optic Cables shall, when the Licensed
Property consists of poles or underground ducts, be located together in, on,
over, or through the same selected pole or underground duct (and such duct's
associated manholes), as applicable, and (c) all such permitted Fiber Optic
Cables shall, when the Licensed Property consists of transmission towers or
transmission rights-of-way be located and routed in, on, over, or through such
transmission towers and transmission tower rights-of-way as described in
Exhibit 1;
"Fiber Optic Cable" means All Dielectric Self Supporting (ADSS) fiber
optic cable with a maximum outside diameter of one and one quarter (1 1/4)
inches and the associated splicing enclosures when such Fiber Optic Cable is
located on or between transmission towers or between a transmission tower and
another structure comprising Licensed Property and otherwise means fiber optic
cable with a maximum outside diameter of one inch and the associated splicing
enclosures; it being understood and agreed that, in accordance with the
construction/installation requirements that are referenced in Section 23 hereof,
the actual outside diameter of Fiber Optic Cable that will be permitted, subject
to such maximum outside diameter of one inch, shall be determined by Con Edison
based on prudent engineering principles and taking into account, without
limitation, the design, condition and other characteristics of the Licensed
Property in, on, or through which the Backbone Network and any Spur Routes shall
be located and the design, condition and other characteristics of the Backbone
Network and any Spur Routes;
" PSC Approval" means (a) a written order of the New York State Public
Service Commission ("PSC") approving this L&O Agreement without any modification
to this L&O Agreement, in which case the date of such PSC Approval shall be the
date of such written order or (b) a written order of the PSC approving this L&O
Agreement with any modification(s) to this L&O Agreement; provided that each
party, in its respective sole discretion which is not to be judged by any
standard of reasonableness or any similar standard, agrees to accept each such
modification to this L&O Agreement in a signed writing between the parties that
is entered into no later than the earlier of (y) sixty (60) days after the date
of such order or (z) within such time as such order requires Con Edison to agree
to such modification(s), in which case the
2
Confidential
[***] Confidential treatment has been requested with respect to material
omitted on this page. The omitted portions have been filed separately
with the Securities and Exchange Commission.
<PAGE> 3
date of such PSC Approval shall be the date of such agreement of the parties to
accept such modification(s).
"Licensed Property" means the Con Edison transmission towers, transmission
tower rights-of-way, poles, and underground ducts (and such ducts' associated
manholes) described in Exhibit 1 hereof, in, on, over, or through which the
Backbone Network shall be located as described in Exhibit 1 hereof and any Con
Edison transmission towers, transmission tower rights-of-way, poles, underground
ducts (and such ducts' associated manholes), and service entrance pipes (and
such pipes' associated service boxes) described in Exhibit 2 hereof, in on,
over, or through which any Spur Routes shall be located; it being understood and
agreed that: (a) the Con Edison transmission towers and transmission tower
rights-of-way comprising a portion of the Licensed Property are described in
Exhibit 1 regarding the Backbone Network and Exhibit 2 as it may be amended
regarding any Spur Routes; (b) the general street path of the poles and
underground ducts (and such ducts' associated manholes) comprising the balance
of the Licensed Property regarding the Backbone Network are described in Exhibit
1 and the general street path of the poles, underground ducts (and such ducts'
associated manholes), and service entrance pipes (and such pipes' associated
service boxes) comprising the balance of the Licensed Property regarding any
Spur Routes are described in Exhibit 2 as it may be amended; (c) during
construction and/or installation of the Backbone Network, Con Edison, in its
sole discretion (which is not to be judged by any standard of reasonableness or
any other similar standard), shall select the precise poles and underground
ducts (and such ducts' associated manholes) along such general street path
(except if a pole or underground duct along such general street path is not
available in which case an available pole or duct in a street in close proximity
to such general street path shall be so selected) and the specific location or
locations on the transmission towers and the transmission towers rights-of-way
in, on, over, or through which the Backbone Network shall be located; (d) during
construction of any Spur Route, Con Edison, in its sole discretion (which is not
to be judged by any standard of reasonableness or any other similar standard),
shall select the precise poles, underground ducts (and such ducts' associated
manholes) and service entrance pipes (and such pipes' associated service boxes)
along such general street path (except if a pole or duct or service entrance
pipe along such general street path is not available in which case an available
pole or duct or service entrance pipe in a street in close proximity to such
general street path shall be so selected) and the specific location or locations
on the transmission towers and the transmission towers rights-of-way in, on,
over, or through which any Spur Routes shall be located; provided, however, that
(y) the precise underground ducts that shall be selected shall be at least three
(3) inches in inside diameter (and with respect to the Backbone Network, Con
3
<PAGE> 4
Edison shall make reasonable effort to select ducts that are at least three and
one-half (3 1/2) inches in inside diameter), and (z) insofar as the termination
of the Backbone Network at [***] is concerned, an unoccupied Con Edison
underground duct in an existing underground duct bank that (i) contains such an
unoccupied underground duct, (ii) contains underground ducts occupied by primary
voltage electric feeders, and (iii) is the closest of the underground duct banks
that satisfy (i) and (ii) immediately above to the point of entry selected by
Telergy Metro for the building address of [***], will be selected (the "[***]
Requirement").
"Spur Route" means an extension to the Backbone Network that (a) connects
directly or indirectly with such Backbone Network; (b) is agreed upon by the
parties pursuant to paragraph D of Section 2 hereof; and (c) is comprised of (i)
no more than [***] Fiber Optic Cables located in, on, over, or through such
Licensed Property as may be agreed upon by the parties pursuant to paragraph D
of Section 2 hereof and described in Exhibit 2 hereof, as it may be amended; and
(ii) any terminating lightwave distribution patch panels required at the sites
listed in the written agreement of the parties pursuant to Paragraph D of
Section 2 hereof in connection with any Equivalent Compensation consisting of
the use of single mode dark fiber strands that is to be provided to Con Edison
with regard to such Spur Route and the duct or other conduit as well as the
fiber optic facilities necessary to properly connect any such distribution patch
panels with such single mode dark fiber strands in such Fiber Optic Cables; it
being understood and agreed that: (w) the number of Fiber Optic Cables that will
be permitted, subject to such maximum number of [***] (but in any event no fewer
than [***] such Fiber Optic Cable), shall be determined by Con Edison based on
prudent engineering principles and taking into account, without limitation, the
design, condition and other characteristics of the Licensed Property in, on,
over, or through which any Spur Route shall be located (but the number of Fiber
Optic Cables, up to such permitted number so determined by Con Edison, that
actually will be located in, on, over, or through the Licensed Property
described in Exhibit 2 hereof as it may be amended shall be determined by
Telergy Metro); (x) all such permitted Fiber Optic Cables shall, when the
Licensed Property consists of poles or underground ducts, be located together
in, on, over, or through the same selected pole or underground duct (and such
duct's associated manholes), as applicable; (y) a maximum of [***] Fiber Optic
Cable shall be permitted in or through any Licensed Property consisting of a
service entrance pipe and such pipe's associated service box; and (z) the
permitted Fiber Optic Cables shall, when the Licensed Property consists of
transmission towers or transmission rights-of-way, be located and routed in, on,
over, or through such transmission towers or transmission tower rights-of-
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
4
<PAGE> 5
way as described in Exhibit 2 as it may be amended.
Section 2 - GRANT OF RIGHT TO USE CON EDISON PROPERTY
A. Subject to all of the terms and conditions of this L&O Agreement,
including but not limited to the construction/installation requirements and the
maintenance requirements referenced in Section 23 hereof, Con Edison hereby
grants to Telergy Metro a non-exclusive license to construct, install, operate
and maintain the Backbone Network in, on, over, or through the Licensed Property
described in Exhibit 1 hereof and any Spur Routes in, on, over, or through any
Licensed Property described in Exhibit 2 hereof as it may be amended (the
"License Grant"), it being understood and agreed that: (a) the Con Edison
transmission towers and transmission tower rights-of-way comprising a portion of
the Licensed Property are described in Exhibit 1 regarding the Backbone Network
and Exhibit 2 as it may be amended regarding any Spur Routes; and (b) the
general street paths of the poles and underground ducts (and such ducts'
associated manholes) comprising the balance of the Licensed Property regarding
the Backbone Network are described in Exhibit 1 and the general street path of
the poles, underground ducts (and such ducts' associated manholes), and service
entrance pipes (and such pipes' associated service boxes) comprising the balance
of the Licensed Property regarding any Spur Routes are described in Exhibit 2
hereof as it may be amended; (c) during construction of the Backbone Network and
any Spur Routes, Con Edison, in its sole discretion (which is not to be judged
by any standard of reasonableness or any other similar standard), shall select
the precise poles and underground ducts (and such ducts' associated manholes)
along such general street path (except if a pole or underground duct along such
general street path is not available in which case an available pole or
underground duct in a street in close proximity to such general street path
shall be so selected) and the specific location or locations on the transmission
towers and the transmission towers rights-of-way in, on, over, or through which
the Backbone Network shall be located; (d) during construction of any Spur
route, Con Edison, it its sole discretion (which is not to be judged by any
standard of reasonableness or any similar standard), shall select the precise
poles, underground ducts (and such ducts' associated manholes) and service
entrance pipes (and such pipes' associated service boxes) along such general
street path (except if a pole or duct or service entrance pipe along such
general street path is not available in which case an available pole or duct or
service entrance pipe in a street in close proximity to such general street path
shall be so selected) and the specific location or locations on the transmission
towers and the transmission towers rights-of-way in, on, over, or through which
any Spur Routes shall be located; provided, however, that (y) the precise
underground ducts that shall be selected shall be at least [***] in inside
diameter (and with regard to
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
5
<PAGE> 6
the Backbone Network, Con Edison shall make reasonable effort to select
underground ducts that are at least [***] in inside diameter), and (z) insofar
as the termination of the Backbone Network at [***] is concerned, the [***]
Requirement as previously defined shall be complied with. No right to locate any
structure, equipment, facilities, or other property of Telergy Metro besides the
Backbone Network and any Spur Routes in, on, over, or through the Licensed
Property is granted hereby and no right in or with regard to any property
besides the Licensed Property is granted hereby.
B. Without limitation of any other condition, limitation, or restriction
imposed by this L&O Agreement or any other agreement between the parties, the
use of the Licensed Property permitted hereunder is restricted to constructing,
installing, operating, and maintaining the Backbone Network and any Spur
Route(s) for the purpose of providing wholesale and retail voice, data and video
telecommunications services (as such services currently exist or as they evolve
through technology) utilizing the single mode dark fiber strands contained in
the Fiber Optic Cable (including leasing or licensing single mode dark or lit
fiber strands) to the extent that such activity does not interfere with any
existing or future generation, transmission, or distribution of electricity,
gas, or steam by Con Edison or by any existing or future parent, subsidiary, or
affiliate of Con Edison or with any existing or future customer service work
related to, arising from, or connected with such generation, transmission, or
distribution (the "Permitted Use"). No such lease or license of single mode dark
or lit fiber strands and no use of such single mode dark or lit fiber strands by
any such lessee or licensee shall release or relieve Telergy Metro from any
obligation pursuant to this L&O Agreement. No such lease or license and no such
use by any such lessee or licensee shall create any contractual rights in any
such lessee or licensee against Con Edison and Con Edison shall have no
obligation or liability whatsoever to any such lessee or licensee based on
contract, tort (including without limitation strict products liability,
negligence, and gross negligence), warranty, or otherwise arising from or
relating to any such lease or license, any such use by any such lessee or
licensee, this L&O Agreement, the Licensed Property, the Backbone Network, or
any Spur Route. In any such lease or license, Telergy Metro shall advise such
lessor or licensee that the single mode dark or lit fiber strands which are the
subject of the lease or license are in close proximity to electrical cables that
are subject to fault, burnout, or other malfunction which can result in damage,
destruction, or disruption to such single mode dark or lit fiber strands and
that as part of the lease or license, such lessee or licensee assumes all risk
of such damage, destruction, or disruption. The Licensed Property may not be
used by Telergy Metro or its permitted successor or
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
6
<PAGE> 7
assigns for any purpose other than the Permitted Use.
C. Nothing herein shall be construed as a grant by Con Edison of any
exclusive right or privilege to Telergy Metro. Nothing herein shall be construed
as a grant of any interest in real property. Without limitation of any other
right of Con Edison hereunder, Con Edison and, to the extent permitted by Con
Edison, any existing or future parent, subsidiary, affiliate or successor or
assign of Con Edison (collectively, the "Con Edison Entities", it being
understood and agreed that for purposes of this L&O Agreement, Telergy Metro
shall not be deemed to be a subsidiary or an affiliate of Con Edison or one of
the Con Edison Entities) has the right to use all or part of the Licensed
Property for any existing or future generation, transmission, or distribution of
electricity, gas, or steam or for any existing or future customer service work
or responsibility related to, arising from, or connected with such generation,
transmission, or distribution (collectively, "Use For Public Utility Functions")
and the License Grant and Permitted Use are subject and subordinate to Use For
Public Utility Functions. In addition to being subject and subordinate to Use
For Public Utility Functions, the License Grant and the Permitted Use also are
subject to and subordinate to all contracts, mortgages, liens, encumbrances,
restrictions, leases, licenses, easements, rights, or privileges of any nature
heretofore or hereafter granted, given, entered into, incurred, or suffered by
any of the Con Edison Entities, or arising pursuant to law which affect the
Licensed Property or the Permitted Use and all existing and future uses by Con
Edison of the Licensed Property; provided, however, that, except as otherwise
permitted by this L&O Agreement or required by law, from the date of this L&O
Agreement until its expiration or earlier termination, Con Edison shall not
grant or give to third parties other than to any of the Con Edison Entities for
Use For Public Utility Functions any right or privilege to use the Licensed
Property which substantially interferes with or precludes the Permitted Use of
the Licensed Property.
D. The License Grant shall be extended to any Spur Routes the location of
which, all issues pertaining to the Preconstruction Compensation to be paid for
which, and other parameters of which Telergy Metro and Con Edison may mutually
agree in their respective sole discretion, which is not to be judged by any
standard of reasonableness or any similar standard. To be effective, any such
agreement must be documented in a writing signed by authorized representatives
of both parties which describes the Licensed Property in, on, over, or through
which the Spur Route will be located, the Preconstruction Compensation agreed
upon, and any Equivalent Compensation (and the value thereof) that Con Edison
may elect to receive, pursuant to Exhibit 3 hereof, in lieu of any or all of the
Compensation otherwise payable for such Spur Route in, on, over, or through the
Licensed
7
<PAGE> 8
Property. In the event of any such agreement of the parties concerning any such
Spur Route, Exhibit 2 of this L&O Agreement shall be deemed amended by the
addition thereto of the description of the general path of the Licensed Property
in, on, over, or through which the Spur Route shall be located.
E. Although Con Edison transmission towers, poles or other facilities or
property containing high voltage transmission (69 kV or higher) electric lines
("High Voltage Facilities") may be part of the Licensed Property such that the
Backbone Network and any Spur Route(s) may be constructed, installed,
maintained, and operated in, on, or through such High Voltage Facilities (i.e.,
xthe Licensed Property in, on or through which the Backbone Network and any Spur
Routes may be located in part may include such High Voltage Facilities), it is
understood and agreed that, subject to the construction/installation
requirements and the maintenance requirements referenced in Section 23 hereof,
Telergy Metro is granted no right to physically access High Voltage Facilities
for any purpose other than to construct, install, maintain and operate splice
enclosures that shall be mounted on the legs of transmission towers as required
by Con Edison. Access to such High Voltage Facilities for purposes of
constructing, installing, and maintaining any portion of the Backbone Network
and any portion of any Spur Route(s) is reserved solely to Con Edison and Con
Edison's contractors, except to the extent that the construction/installation
requirements and/or maintenance requirements referenced in Section 23 hereof
otherwise provide. Construction, installation, maintenance and operation of any
portion of the Backbone Network or any portion of any Spur Routes in, on, over,
or through such High Voltage Facilities shall be in accordance with the
construction/installation requirements and the maintenance requirements
referenced in Section 23 hereof.
F. Except as provided in Paragraph E of this Section and except to the
extent that access restrictions or limitations for a specific portion or
portions of the Licensed Property are set forth in Exhibits 1 or 2 hereof, the
License Grant to Telergy Metro, subject to the construction/installation
requirements and the maintenance requirements referenced in Section 23 hereof,
all applicable federal, state, and local laws, executive orders, regulations,
ordinances, rules, and safety codes, and the terms and conditions of all
applicable governmental and non-governmental franchises, permits,
authorizations, and approvals, shall include the right to access the Licensed
Property 7 days a week, 24 hours a day for the purpose of constructing,
installing maintaining and operating the Backbone Network or any Spur Route.
G. Other than the right to use the Licensed Property for the Permitted Use
in accordance with the terms and conditions hereof, including but not limited to
the construction/installation requirements and the maintenance requirements
referenced in
8
<PAGE> 9
Section 23 hereof, this L&O Agreement does not grant any right to use any Con
Edison property for any purpose.
H. Nothing in this L&O Agreement obligates Con Edison to provide any
utilities including, without limitation, any water, electricity, gas, steam, or
storm or sanitary sewer service ("Utilities") to, or for the benefit of Telergy
Metro. Telergy Metro shall be solely responsible for obtaining, at its sole
expense, any Utilities that it requires. In connection with obtaining the
Utilities that it requires, Telergy Metro shall, at its sole expense, satisfy
any conditions and requirements of the providers of the Utilities and any
conditions and requirements of Con Edison. Con Edison makes no representation or
warranty concerning the availability or suitability of any Utilities, the cost
of obtaining any Utilities, or the ability of the Licensed Property to be
connected to any Utilities.
Section 3 - NO WARRANTIES FROM CON EDISON CONCERNING
LICENSED PROPERTY OR PERMITTED USE; TELERGY METRO'S SATISFACTION WITH THE
LICENSED PROPERTY; TELERGY METRO'S ACKNOWLEDGMENT CONCERNING RISK OF DAMAGE TO
BACKBONE NETWORK AND SPUR ROUTES FROM ELECTRICAL FEEDERS
A. Con Edison does not make, and hereby disclaims, any express, implied,
statutory, or common law warranty, guaranty or representation concerning the
Licensed Property or its suitability for the Permitted Use. WITHOUT LIMITATION
OF THE GENERALITY OF THE FOREGOING, CON EDISON DOES NOT MAKE, AND HEREBY
DISCLAIMS ANY EXPRESS, IMPLIED, STATUTORY, OR COMMON LAW WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
B. Telergy Metro represents that it has visited, examined, and/or analyzed
the Licensed Property, has knowledge of all limitations, restrictions, and
conditions, legal, physical, or otherwise, concerning the Licensed Property
including, without limitation, such limitations, restrictions and conditions as
may affect the suitability of the Licensed Property for the Permitted Use, and
that Telergy Metro is satisfied with the suitability of the Licensed Property
for the Permitted Use. TELERGY METRO ACKNOWLEDGES THAT THE BACKBONE NETWORK AND
ANY SPUR ROUTES WILL BE LOCATED IN, ON, OVER, OR THROUGH LICENSED PROPERTY THAT
IS IN CLOSE PROXIMITY TO ELECTRICAL CABLES THAT ARE SUBJECT TO FAULT, BURNOUT OR
OTHER MALFUNCTION WHICH CAN RESULT IN DAMAGE, DESTRUCTION OR DISRUPTION TO THE
BACKBONE NETWORK AND ANY SPUR ROUTES AND THAT, WITHOUT LIMITATION OF SECTION 12
HEREOF, THE RISK OF SUCH DAMAGE, DESTRUCTION OR DISRUPTION IS A RISK COVERED BY
SECTION 12 HEREOF.
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<PAGE> 10
Section 4 - TERM
This L&O Agreement shall have an "Initial Term" of twenty-five (25) years
commencing on the date of PSC Approval. Upon written notice to Con Edison that
is received during the period commencing with the date that is twenty-four (24)
years after the Initial Term commences and ending with the date that is
twenty-four (24) years and six (6) months after the Initial Term commences,
Telergy Metro may seek to extend this L&O Agreement, as it may be modified by
negotiations of the parties as set forth herein, for a "First Renewal Term" of
ten (10) years. Upon written notice to Con Edison that is received during the
period commencing with the date that is nine (9) years after the First Renewal
Term commences and ending with the date that is nine (9) and six (6) months
after the First Renewal Term commences, Telergy Metro may seek to extend this
L&O Agreement, as it may be modified by negotiations of the parties as set forth
herein, for a "Second Renewal Term." Each and every term and condition (except
the length of the "First Renewal Term" and the length of the "Second Renewal
Term") of this L&O Agreement, (including, without limitation, terms and
conditions pertaining to Preconstruction Compensation, Compensation and
Equivalent Compensation) that is to apply to the First Renewal Term and/or the
Second Renewal Term shall be subject to modification through negotiation and
must be acceptable to each party in its respective sole discretion (which is not
to be judged by any standard of reasonableness or any similar standard). The
negotiations concerning the terms and conditions that shall apply to the First
Renewal Term shall commence within a reasonable time after Con Edison's receipt
of the written notice from Telergy Metro seeking to extend this L&O Agreement,
as it may be modified, for a First Renewal Term and shall end on the date that
is twenty-four (24) years and six (6) months after the Initial Term commences.
If a written agreement concerning the terms and conditions that are to apply to
the First Renewal Term is not signed by authorized representatives of the
parties on or before the end of the negotiation period concerning the First
Renewal Term as set forth above, this L&O Agreement shall not be extended. The
negotiations concerning the terms and conditions that shall apply to the Second
Renewal Term shall commence within a reasonable time after Con Edison's receipt
of the written notice from Telergy Metro seeking to extend this L&O Agreement,
as it may be modified, for a Second Renewal Term and shall end on the date that
is nine years and six (6) months after the First Renewal Term commences. If a
written agreement concerning the terms and conditions that are to apply to the
Second Renewal Term is not signed by authorized representatives of the parties
on or before the end of the negotiation period concerning the Second Renewal
Term as set forth above, this L&O Agreement shall not be extended.
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Section 5 - PRECONSTRUCTION COMPENSATION; COMPENSATION; EQUIVALENT COMPENSATION
As a license fee for being provided with the right to use the Licensed
Property for the Permitted Use in accordance with the terms and conditions
hereof, including but not limited to the construction/installation requirements
and the maintenance requirements referenced in Section 23, Telergy Metro shall
pay and/or provide to Con Edison the "Preconstruction Compensation"
"Compensation" and/or the "Equivalent Compensation" in accordance with Exhibit 3
hereto.
Section 6 - TAXES
A. As used in this Section, the following definitions apply:
"Taxes" shall mean all taxes and assessments and special assessments
(including interest, penalties and additions to tax) levied, assessed or imposed
at any time by any taxing authority upon the Con Edison property which includes
the Licensed Property. If the methods of taxation prevailing at the commencement
of the term of this L&O Agreement shall be altered so that in lieu of, or as an
addition to, the whole or any part of the Taxes there is levied, assessed or
imposed (a) a tax, surcharge, fee, charge, levy, assessment, or special
assessment on the Preconstruction Compensation, Compensation or Equivalent
Compensation paid, payable, provided, or to be provided under this L&O
Agreement, and/or (b) any other different, additional or substitute tax,
surcharge, fee, charge, levy, assessment, or special assessment, then all such
taxes, surcharges, fees, charges, levies, assessments, or special assessments
shall be deemed to be included in the term "Taxes" for the purposes of this
Section.
"Tax Year" shall mean the fiscal year for which taxes are levied by the
taxing authority.
B. To the extent that any Taxes as of the date of this L&O Agreement
increase due to the presence of any portion of the Backbone Network or of any
Spur Route, Con Edison shall provide Telergy Metro with reasonable evidence of
such increase and Telergy Metro shall pay Con Edison an amount equal to such
increase plus any additional amount as described in this Paragraph. Should the
payment to Con Edison of the increase in Taxes be subject to a gross receipts
tax, income tax, or any other tax on amounts received by Con Edison ("Receipts
Tax"), such payment shall be increased by an amount which shall produce the same
net payment to Con Edison after payment by Con Edison of such Receipts Tax.
Telergy Metro shall have the right, at its expense, to challenge such increase
before the appropriate taxing authority
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but neither such right to challenge nor any challenge actually conducted by
Telergy Metro shall affect the obligation of Telergy Metro to make the payment
to Con Edison described in this Section. No such challenge shall be made in Con
Edison's name unless the prior written consent of Con Edison is obtained. Should
any such challenge by Telergy Metro result in a reduction of the increase in
Taxes that was the subject of a prior payment by Telergy Metro to Con Edison
pursuant to this Section, Con Edison shall return to Telergy Metro an amount
equal to such reduction of the increase in Taxes.
C. Telergy Metro shall pay the amounts due under this Section within 30
days after receipt of an invoice from Con Edison therefor, which invoice shall
be accompanied by reasonable evidence of the amounts due; provided, however,
that Telergy Metro shall not be required to make such payment to Con Edison
prior to the date that is thirty (30) days before the date that the associated
Taxes are to be paid by Con Edison to the relevant taxing authority. Telergy
Metro's obligation to pay the amounts due under this Section shall survive the
expiration or termination of this L&O Agreement.
D. Telergy Metro bears all responsibility for any and all federal, state
and local income, sales, use, excise, occupational, franchise, property, gross
receipts, privilege, transfer, unincorporated business and other taxes that may
be applicable to the construction, installation, operation and maintenance of
the Backbone Network and any Spur Route and for all federal, state and local
taxes, contributions, and premiums imposed upon or measured by Telergy Metro's
payroll.
Section 7 - TELERGY METRO'S OPERATION OBLIGATIONS
A. Telergy Metro shall not: (i) cause or permit objectionable odors to
emanate from, or be attributable to, the Licensed Property; (ii) use, store,
dispose or permit to be used, stored, or disposed at the Licensed Premises
(either as part of any Fiber Optic Cable, or in connection with the
construction, installation, maintenance, or operation of the Backbone Network or
any Spur Route, or otherwise) any toxic (including asbestos), hazardous, or
flammable substance or other substance controlled by federal, state or local
law, regulation, or ordinance, (iii) place or permit to be placed in, on, over,
or through the Licensed Property any sign, awning, advertising matter or any
other thing of any kind, other than normal warning signs, or (iv) operate the
Backbone Network in any way which constitutes a public or private nuisance, or
which is annoying, hazardous, or which interferes with or disrupts or threatens
to interfere with or disrupt any Use For Public Utility Functions as described
in Section 2, Paragraph C hereof.
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B. Telergy Metro shall at all times exercise every reasonable precaution
to protect persons and property. Specific precaution requirements will be
addressed in the construction/installation requirements and/or the maintenance
requirements referenced in Section 23 hereof.
C. While on or about the Licensed Property, Telergy Metro shall observe
and comply with all environmental, noise, fire, safety, hazard, "No Smoking",
and all other rules and regulations heretofore or hereafter prescribed by Con
Edison, together with all applicable federal, state, and local laws, executive
orders, regulations, ordinances, rules, and safety codes.
D. Telergy Metro shall promptly report in writing to Con Edison all
releases to the environment of any toxic substance, (including asbestos)
hazardous substance, hazardous waste, flammable substance or any other substance
or waste the release of which to the environment is prohibited, controlled, or
regulated by federal, state or local law, regulation, or ordinance
("Environmental Releases") and all accidents whatsoever relating to, arising out
of, or in connection with the Licensed Property, the Backbone Network, or any
Spur Route, giving full details and statements of witnesses. In addition, if the
accident involves death or serious injury or serious damage or if there is an
Environmental Release, Telergy Metro shall immediately report the accident or
Environmental Release by telephone to Con Edison. The Con Edison contact person
to be notified and his/her address and telephone number shall be provided in a
written notice to Telergy Metro following the execution of this L&O Agreement.
By subsequent written notice to Telergy Metro, Con Edison may change the person
to be notified and/or such person's address and/or telephone number listed.
E. Telergy Metro shall construct, install, operate and maintain the
Backbone Network and any Spur Route and otherwise conduct its operations in such
a manner as to prevent any liens or attachments from arising or being filed,
served, posted, processed or entered with regard to the Licensed Property.
Telergy Metro shall indemnify and hold Con Edison and the Licensed Property
harmless from and against any such liens or attachments. Without limitation of
the generality of the foregoing and to the extent that such a procedure is
permitted by applicable law, Telergy Metro promptly shall remove, release and
discharge any such lien or attachment on the Licensed Property by doing
everything necessary to deposit a sufficient amount or file a sufficient bond
with the appropriate court or other governmental entity or official so that such
lien or attachment is removed, released and discharged from the Licensed
Property and applies instead to such amount or bond so deposited or filed.
Should Telergy Metro fail to so promptly remove, release and discharge any such
lien or
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attachment on the Licensed Property, Con Edison, at the expense of Telergy
Metro, may, but shall not be obligated to, promptly cause any such lien or
attachment to be so removed, released, and discharged.
F. Telergy Metro shall design, construct and operate its equipment in
accordance with the safety clearances and personnel safety requirements
referenced in ANSI C2-1997 (National Electric Safety Code) or subsequent
editions thereof. Telergy Metro shall insure that all vehicles, equipment,
machinery and other apparatus at or near the High Voltage Facilities are
appropriately grounded. In addition, vehicles, equipment, machinery and other
apparatus must be maintained at a minimum of twenty-five (25) feet away from any
energized electrical conductor on the High Voltage Facilities (additional or
different requirements may be imposed by Con Edison for High Voltage Facilities
above 345 kV).
G. Telergy Metro shall ensure that dust and debris generated during work
at or near the Licensed Property is controlled and that dust and debris is not
permitted to affect any electrical conductor on the High Voltage Facilities.
Section 8 - PERMITS, CODES, LAWS AND REGULATIONS
A. Except for the expense associated with Con Edison seeking the approval
of this L&O Agreement by the New York State Public Service Commission ("PSC"),
Telergy Metro shall, at its expense, obtain and maintain all governmental and
non-governmental franchises, consents, easements, permits, authorizations, and
approvals ("Approvals") required for the construction, installation, operation,
and maintenance of the Backbone Network and any Spur Route on the Licensed
Property and must provide copies of same to Con Edison before it is permitted to
use the Licensed Property for the Permitted Use. Without limitation of the
foregoing, Telergy Metro shall bear the expense of Telergy Metro seeking the
approval of this L&O Agreement by the PSC as permitted by Section 22 hereof.
B. If applicable law requires that Con Edison execute applications for an
Approval or documentation related to such applications, Telergy Metro, at its
expense, shall prepare such applications and documentation for review by Con
Edison (which review shall be conducted at Telergy Metro's expense) and, if the
applications and documentation meet with Con Edison's approval (which approval
shall not be unreasonably withheld), Con Edison shall cause its authorized
representative to execute such applications of documentation. Telergy Metro, at
its expense, shall make such corrections or amendments to such applications and
documentation as Con Edison reasonably may request.
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C. Telergy Metro shall comply with all federal, state, and local laws,
executive orders, regulations, ordinances, rules, and safety codes, and Con
Edison requirements applicable to the Licensed Property, the Permitted Use, or
the construction, installation, operation, and maintenance of the Backbone
Network or any Spur Route, including, without limitation, all applicable
federal, state, and local environmental laws, orders, regulations, ordinances,
rules, codes, and Con Edison environmental requirements (including but not
limited to those pertaining to air pollution, water pollution, management,
removal, or disposal of toxic substances (including asbestos), hazardous
substances, flammable substances, hazardous waste, oily waste and solid waste,
pesticides, and protection of wetlands and wildlife).
Section 9 - ENVIRONMENTAL ASSESSMENTS
A. Prior to construction or installation of the Backbone Network or any
Spur Route on the Licensed Property, Telergy Metro shall have the right to
conduct, at Telergy Metro's sole cost and expense, environmental assessments of
the Licensed Property ("Assessments"). The Assessments shall comply with ASTM
standards for Phase I and Phase II Environmental Site Assessments and may
consist of reviewing records of the Licensed Property and, to the extent that
Licensed Property consists of land owned by Con Edison, sampling and testing the
soil and groundwater on the Licensed Property.
B. Con Edison hereby gives permission to Telergy Metro, its contractors,
and subcontractors to enter upon the Licensed Property for the purpose of
conducting the Assessments subject to the following conditions: (i) Telergy
Metro must give notice to Con Edison of any such intent to enter upon the
Licensed Property (and must specify the specific Licensed Property that will be
entered and that will be the subject of any Assessment) at least ten (10)
business days in advance of the access date requested; and (ii) if Telergy Metro
requires a Phase II (Soil or Groundwater Investigation and Sampling)
Environmental Assessment, Telergy Metro must submit a field sampling and
analysis work plan ("Work Plan") to Con Edison for written approval by Con
Edison prior to Telergy Metro's entrance onto the Licensed Property for the
purpose of the Assessments. The Work Plan shall include, at a minimum, a
description of the sampling equipment and procedures to be employed in the
course of the Phase II Assessment, the number of samples to be collected, a
site-specific health and safety plan, and the name and relative qualifications
of the contractor and analytic laboratory to be used by Telergy Metro in
connection with the Assessment and, if necessary, waste management procedures to
be followed by Telergy Metro or its contractor including the name of the
licensed transporter and the licensed waste management
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facility to handle waste streams in compliance with law. Con Edison will have
the right to oversee all field sampling activities conducted by Telergy Metro,
or its contractors or subcontractors in connection with this Section. Telergy
Metro is responsible for all costs and expenses and record keeping associated
with any Assessment, the management, removal or disposal of any wastes generated
in connection with any Assessment, or any work related to such Assessment or to
such Assessment, management, removal, or disposal. Telergy Metro shall defend,
indemnify, and hold Con Edison harmless from any such costs and expenses and
from any and all liabilities in connection with any such Assessment, management,
removal, disposal or any work related to such Assessment, management, removal or
disposal.
C. Telergy Metro shall notify Con Edison in writing within ten (10) days
after the action items in the Work Plan have been completed. Within sixty (60)
days after completion of the action items specified in the Work Plan and receipt
of any testing results, Telergy Metro shall provide Con Edison with a report
detailing the findings of any Assessment, including a description of all field
sampling activities, analytical results and soil boring logs. Should Telergy
Metro obtain any reports from contractors or subcontractors concerning an
Assessment, Telergy Metro shall provide Con Edison with a copy of such reports
as such reports are received by Telergy Metro. Con Edison retains the right to
make initial notification to the New York State Department of Environmental
Conservation ("DEC") or to any other governmental agencies having jurisdiction
of any environmental conditions revealed from the Assessment, unless Telergy
Metro is otherwise required by law to notify the DEC or such other governmental
agencies. Within ninety (90) days after the date of completion of the action
items specified in the Work Plan, each party, based on the information in its
possession from the Assessment, shall notify the other party of any
environmental conditions it asserts exist on the Licensed Property that was the
subject of the Assessment which require remediation. Con Edison shall then have
sixty (60) days from the expiration of such ninety (90) day period within which
to prepare (at Telergy Metro's cost and expense) and submit a written
"Environmental Proposal" to Telergy Metro describing Con Edison's proposed
remedy for the asserted environmental conditions. All costs and expenses
associated with such proposed remedy, any removal, management, or disposal of
waste generated in connection with such proposed remedy, or any other work
related to such proposed remedy or to such removal, management or disposal shall
be borne entirely by Telergy Metro. Without limitation of the terms and
conditions upon which Con Edison may require the work in such Environmental
Proposal to be performed, Telergy Metro shall defend, indemnify, and hold Con
Edison harmless from any such costs and expenses and from any and all
liabilities in connection with such proposed remedy, any removal, management, or
disposal of waste generated in
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connection with such proposed remedy, or any other work related to such proposed
remedy or to such removal, management or disposal. Within thirty (30) days of
its receipt of the Environmental Proposal or within such shorter period as may
be specified in the Environmental Proposal if circumstances, including legal
requirements, reasonably require that the work to effect the remedy described in
such Environmental Proposal be commenced earlier, Telergy Metro shall notify Con
Edison in writing whether it accepts or rejects such Environmental Proposal (a
failure to timely reject such Environmental Proposal shall be considered by the
parties as an acceptance of such Environmental Proposal). If Telergy Metro
rejects such Environmental Proposal, Con Edison shall have the option to
terminate this L&O Agreement without any liability to Telergy Metro by sending
written notice of such termination to Telergy Metro within thirty (30) days
after such rejection. Such a termination shall result in, among other things,
the Backbone Network and any Spur Routes being removed from the Licensed
Property at Telergy Metro's expense in accordance with Section 10 hereof.
D. Without limitation of any other environmental obligation of Telergy
Metro, Telergy Metro shall be responsible for complying fully with any and all
environmental laws, including regulations, guidelines, standards, or policies of
any governmental authorities authorized to regulate environmental conditions or
concerns, as may now or hereafter be in effect, which are applicable to the
Backbone Network, any Spur Route or the Licensed Property or any use of, or
activity upon or concerning same. Telergy Metro shall defend, indemnify and hold
Con Edison harmless from and against any failure of Telergy Metro or its
contractors or subcontractors to comply fully with any such laws, regulations,
guideline, standards, or policies.
E. It is understood and agreed that other environmental obligations of
Telergy Metro in connection with any construction, installation, maintenance, or
operation of the Backbone Network or any Spur Route besides those specified
here, including but not limited to Telergy Metro's obligation to bear the
expense of removal, management and disposal of any waste generated on or about
Licensed Property and of any flushing or cleaning of any manholes or service
boxes that comprise Licensed Property, shall be contained in the
construction/installation requirements and/or the maintenance requirements
referenced in Section 23 hereof.
Section 10 - TITLE TO BACKBONE NETWORK AND SPUR
ROUTES; REMOVAL OF BACKBONE NETWORK
A. Telergy Metro shall retain title to all portions of the Backbone
Network and of any Spur Routes.
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B. All portions of the Backbone Network and of any Spur Routes shall be
capable of removal at any time, including upon the expiration of this L&O
Agreement or its earlier termination. Unless otherwise agreed to in a writing
signed by both parties, within thirty (30) days after the expiration of this L&O
Agreement or its earlier termination for any reason and at Telergy Metro's
expense, the Backbone Network and any Spur Routes shall be removed from the
Licensed Property and the Licensed Property shall be restored to substantially
the same condition as existed prior to the construction, installation,
operation, and maintenance of the Backbone Network and any Spur Routes therein,
thereon, there over, or there through; provided, however, that any portion of
the Backbone Network or of any Spur Route that is direct-buried with two feet or
more of cover on Con Edison-owned land and which is not attached to a Con Edison
transmission tower or contained in a Con Edison duct (any associated manhole) or
service entrance pipe (or any associated service box) may, except as otherwise
provided in the construction/installation requirements or the maintenance
requirements referenced in Section 23 hereof, be abandoned in place, but shall
be subject to removal thereafter by Con Edison. With regard to all portions of
the Backbone Network or of any Spur Routes on or about High Voltage Facilities,
such removal and restoration shall be performed by Con Edison or its contractors
at Telergy Metro's expense, except to the extent that the maintenance
requirements and/or construction/installation requirements referenced in Section
23 hereof otherwise provide.
Section 11 - INSURANCE
A. Telergy Metro shall procure and maintain at its own expense the
following insurance until this L&O Agreement expires or is earlier terminated,
and thereafter to the extent stated below, with at least the monetary limits
specified; provided, however, that Con Edison retains the right to amend these
insurance requirements and monetary limits during the term of the Initial Term
and any Renewal Term of this L&O Agreement upon thirty (30) days' written notice
to Telergy Metro. The insurance shall be in policy forms which contain an
"occurrence" and not a "claims made" determinant of coverage and shall be placed
with insurance companies that are acceptable to Con Edison.
(i) Employment related insurance.
(a) Workers' Compensation Insurance and Disability Insurance
Benefits as required by law.
(b) Employer's Liability Insurance, including accidents (with a
limit of $500,000 per accident) and occupation diseases (with
a limit of $500,000
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per employee).
(c) Where applicable, insurance required by the United States
Longshoremen's and harbor Workers' Act, the Federal Employers'
Liability Act, and the Jones Act.
(ii) Comprehensive (also called Commercial) General Liability Insurance,
including Contractual Liability, with limits of $10,000,000 per
occurrence for bodily injury or death and $10,000,000 per occurrence
for property damage or a combined single limit of $10,000,000 per
occurrence, and, for at least one year after the expiration or
earlier termination of this L&O Agreement, Products/Completed
Operations Liability Insurance with similar but separate and
independent limits. Where work is to be performed in or on streets
or sidewalks the liability policies shall have no deductibles.
Policy deductibles shall be subject to Con Edison's approval. The
insurance shall contain no exclusions for explosion, collapse of a
building or structure, or underground hazards. The insurance policy
or policies shall name Con Edison as an additional insured. There
shall be no exclusions for claims by or on behalf of employees of
Telergy Metro or any contractors or subcontractors of Telergy Metro
against Con Edison based on injury or death to such employees.
Without limitation of the exclusions that shall not be permitted,
there shall be no exclusions for any claims by or on behalf of
customers of Telergy Metro or by or on behalf of lessees or
licensees of single mode dark or lit fiber optic strands in Fiber
Optic Cable.
(iii) Comprehensive Automobile Liability Insurance, covering all owned,
non-owned and hired automobiles used by Telergy Metro, with limits
of $2,000,000 per occurrence for bodily injury or death and
$2,000,000 per occurrence for property damage or a combined single
limit of $2,000,000 per occurrence.
(iv) Where any work involves the use of aircraft, Aircraft Liability
Insurance, covering all owned, non-owned and hired aircraft,
including helicopters, used by Telergy Metro with a combined single
limit of $5,000,000 for bodily injury or death and property damage.
The insurance shall name Con Edison as an additional insured.
(v) For any work involving asbestos abatement or lead abatement,
Asbestos Abatement General Liability Insurance
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and Lead Abatement Liability Insurance, as applicable, each with a
combined single limit of $5,000,000 for bodily injury or death and
property damage. Each insurance policy shall name Con Edison as an
additional insured. Where the abatement work is to be performed by a
contractor or subcontractor, Telergy Metro shall require the
contractor and subcontractor to name Telergy Metro, its contractor
and subcontractor and Con Edison as additional insureds and to
submit copies of the polices to Con Edison.
(vi) If any work involving excavation on Con Edison property is planned
to be performed, thirty (30) days' advance written notice of such
work shall be provided to Con Edison and Con Edison, within fifteen
(15) days after receipt of such notice may, upon written notice to
Telergy Metro, require that such pollution insurance or additional
pollution insurance with such limits as Con Edison may require in
its reasonable discretion be obtained by Telergy Metro prior to the
commencement of such work, in which case each such insurance policy
shall name Con Edison as an additional insured as well as any others
as Con Edison may require in its reasonable discretion.
B. Telergy Metro shall cause all insurance carried hereunder to be
endorsed by the insurer to require that the insurer furnish Con Edison with at
least 30 days' written notice prior to the effective date of cancellation of the
insurance or of any changes in policy limits or scope of coverage. All coverage
of additional insureds shall be primary as to the additional insureds.
C. No later than the earlier of (i) five days after commencement of the
Initial Term as defined in Section 4 hereof, or (ii) three (3) days prior to any
Permitted Use of the Licensed Property, Telergy Metro shall furnish Con Edison
with Certificate(s) of Insurance signed by the insurer or its authorized
representative certifying that the required insurance has been obtained and will
not be cancelled without at least 30 days' prior written notice to Con Edison.
Such certificates shall state that the policies have been issued and are
effective, show their expiration dates, and state that Con Edison is an
additional insured with respect to all coverages enumerated in Paragraph A (ii),
(iv), and (v) of this Section. Such certificates shall not contain a disclaimer
of liability of the insurer for failure to provide Con Edison with notice of
cancellation or substantial alteration. At least 3 days prior to the Initial
Term of this L&O Agreement as defined in Section 4 hereof, Telergy Metro shall
furnish Con Edison with a copy of the insurance policy containing the coverages
enumerated in Paragraph A(ii) of this Section. Con
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Edison shall have the right to require Telergy Metro to furnish Con Edison, upon
request, with a copy of the insurance policy or policies required under
Paragraphs A(i), A(iii), A(iv), A(v), and A(vi) of this Section. Telergy Metro
agrees that this is an insured contract. The insurance required herein is
intended to cover Con Edison for its own liability for negligence or any other
cause of action or lawsuit arising from, relating to, or connected with the
Backbone Network, any Spur Route, or the Licensed Property or any work performed
by any person or entity concerning the Backbone Network, any Spur Route, or the
Licensed Property. For purposes of interpretation of coverage of any policy of
insurance or endorsement thereto, Telergy Metro shall be deemed to have assumed
tort liability for any injury to or death of any employee of Telergy Metro, of
Con Edison, and of any contractor or subcontractor of either arising from,
relating to, or connected with the Backbone Network, any Spur Route, or the
Licensed Property or any work performed by any person or entity concerning the
Backbone Network, any Spur Route, or the Licensed Property, including injury or
death caused by the partial or sole negligence of Con Edison and notwithstanding
any statutory prohibition or limitation of Telergy Metro's indemnification
obligations hereunder.
D. The Certificates of Insurance and the copy of insurance required under
Paragraph C of this Section shall be sent to:
Consolidated Edison Company of New York, Inc.
Law Department
4 Irving Place
New York, N.Y. 10003
Attention: Assistant General Counsel, General Litigation
E. Telergy Metro shall cause provisions to be a part of any contract with
any contractor hired by Telergy Metro to perform work relating to the
construction, installation, maintenance, or operation of the Backbone Network or
any Spur Routes (and shall cause any such contractor who hires a subcontractor
to cause provisions to be a part of any subcontract) which provisions: (i)
require such contractors and subcontractors to procure and maintain, without
expense to Con Edison, the same insurance as Telergy Metro is required to
procure and maintain by this L&O Agreement; (ii) require such contractors and
subcontractors to name Consolidated Edison Company of New York, Inc. as an
additional insured on such insurance policies to the same extent that Con Edison
is required to be named as an additional insured on the policies required to be
procured and maintained by Telergy Metro pursuant to this L&O Agreement; and
(iii) expressly state that such insurance and additional insured requirements
are also for the benefit of Consolidated Edison Company of New York, Inc.
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F. Every five (5) years after commencement of the Initial Term as defined
in Section 4 hereof, Con Edison shall have the right to amend the insurance
requirements and increase the monetary limits contained in this Section, but in
no event shall an increase in a monetary limit for insurance be more than
twenty-five percent (25%) of the monetary limits previously required under this
Section for that insurance immediately before such increase.
Section 12 - INDEMNIFICATION; RELEASE; WAIVER;
LIMITATION OF LIABILITY
A. To the fullest extent permitted by law and to the extent not caused by
the gross negligence or willful misconduct of the Con Edison Entities, Telergy
Metro shall indemnify, defend, and hold harmless the Con Edison Entities and
their trustees, directors, officers, employees, and agents (such Con Edison
Entities and their trustees, directors, officers, employees and agents being
referred to collectively as the "Protected Parties") from and against any and
all claims, actions, liabilities, damages, costs, and expenses (including
without limitation attorney fees and other legal costs and expenses), whether
based in contract, tort (including negligence, gross negligence, and strict
liability) or otherwise, which are asserted, suffered, or incurred by any person
or entity (including Telergy Metro and the Protected Parties), and which arise
from, relate to, or are connected with the Backbone Network, any Spur Route, the
Licensed Property or any work performed by any person or entity concerning the
Backbone Network, any Spur Route, or the Licensed Property (the foregoing
claims, actions, liabilities, damages, costs, and expenses being hereinafter
referred to as the "Covered Claims"). To the fullest extent permitted by law and
to the extent not caused by the gross negligence or willful misconduct of the
Con Edison Entities, Telergy Metro hereby irrevocably and unconditionally agrees
to release and forever discharge the Protected Parties from any and all
liability for any of the Covered Claims, and to waive any and all rights to
assert any of the Covered Claims against the Protected Parties or any of them in
the future.
B. Notwithstanding the exception contained in Paragraph A of this Section
12 relating to Covered Claims to the extent caused by the gross negligence or
willful misconduct of Con Edison, Telergy Metro and Con Edison agree, to the
fullest extent permitted by law, that under no circumstances shall the Protected
Parties or any of them be liable to Telergy Metro, whether in contract, tort
(including negligence, gross negligence, and strict liability), or otherwise,
for any special, indirect, incidental, or consequential damages (including but
not limited to damage, loss, liability, costs, and expenses resulting from loss
of use,
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loss of business or business opportunities, loss of profits or revenue, costs of
capital, loss of goodwill, claims of customers, claims of unrelated companies
and other third parties, cost of purchased or replacement telecommunications
capacity, and like items of special, indirect, incidental, or consequential loss
and damage) asserted, suffered, or incurred by any person or entity (including
Telergy Metro and the Protected Parties), which arise, relate to or are
connected with this L&O Agreement, the implementation of same, the Backbone
Network, any Spur Route, the Licensed Property, or any work performed by any
person or entity concerning the Backbone Network, any Spur Route, or the
Licensed Property regardless of whether or not such damages, loss, liability,
costs or expenses are caused in whole or in part by the acts or omissions
(including negligence, gross negligence or willful acts) of the Protected
Parties or any of them. The damages referred to in this Paragraph B are
hereinafter referred to as the "Consequential Losses." To the fullest extent
permitted by law, Telergy Metro hereby irrevocably and unconditionally agrees to
release and forever discharge the Protected Parties from any and all liability
for any Consequential Losses and to waive any and all rights to recover any
Consequential Losses from the Protected Parties or any of them in the future. To
the fullest extent permitted by law, Telergy Metro shall indemnify, defend, and
hold the Protected Parties harmless from and against any and all Consequential
Losses (including any attorneys fees and any other legal costs and expenses in
connection therewith) asserted, suffered or incurred by any person or entity
(including the parties hereto).
C. If a court of competent jurisdiction determines that any provision of
Paragraph A or B of this Section 12 is unenforceable, the total liability of the
Protected Parties or any of them for all matters which otherwise would have been
covered by such Paragraphs shall be [***]. If a court of competent jurisdiction
determines that any provision of Paragraphs A or B of this Section or the
preceding sentence of this Paragraph C is unenforceable, such court shall limit
the operation of such provision so as to give it the effect intended to the
fullest extent permitted by law.
Section 13 - DAMAGE AND DESTRUCTION
A. Without limitation of Section 12, to the extent that any portion of the
Backbone Network or of any Spur Route or of the Licensed Property shall be
damaged or destroyed during the Initial Term or any First Renewal Term or any
Second Renewal Term of this L&O Agreement by any cause other than the gross
negligence or willful misconduct of the Con Edison Entities, such damage or
destruction shall be promptly repaired or replaced at Telergy Metro's sole
expense and there shall be no abatement or reduction
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material
omitted on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
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in the Compensation or Equivalent Compensation to be paid or provided to Con
Edison hereunder; provided, however, that to the extent that any such damage or
destruction results in any Equivalent Compensation that is to be provided to Con
Edison with regard to the Backbone Network not being provided to Con Edison for
a period in excess of 48 hours in any thirty (30) day period, then, for the
period that any such Equivalent Compensation is not so provided due to such
damage or destruction, Telergy Metro, in lieu of providing any such Equivalent
Compensation with regard to the Backbone Network (except for any Equivalent
Compensation that Con Edison elects to continue to receive as provided in this
sentence), shall pay Compensation (based on Exhibit 3 hereof and without any set
off for the value of Equivalent Compensation) to Con Edison for the location of
the entire Backbone Network in, on, over or through the Licensed Property less
the value (as set forth in Exhibit 3 hereof) of any Equivalent Compensation with
regard to the Backbone Network that Con Edison, in its sole discretion (which is
not to be judged by any standard of reasonableness or any other similar
standard), elects, by written notice to Telergy Metro sent within thirty (30)
days after Con Edison has actual knowledge of such damage or destruction, to
continue to receive. Such obligation to pay Compensation in lieu of providing
Equivalent Compensation shall continue until such time as all Equivalent
Compensation with regard to the Backbone Network that was provided prior to such
damage or destruction can again be provided to Con Edison. Con Edison's rights
in Exhibit 3 hereof to otherwise change the election of any Equivalent
Compensation with regard to the Backbone Network shall not be limited or
otherwise adversely affected by any such damage or destruction or by the rights
or obligations contained in this paragraph. Until such time as all Equivalent
Compensation that was provided with regard to the Backbone Network prior to such
damage or destruction can again be provided to Con Edison, Con Edison shall not
be required to receive any Equivalent Compensation with regard to the Backbone
Network notwithstanding anything to the contrary in Exhibit 3 hereof. To the
extent that any such damage or destruction results in any Equivalent
Compensation that is to be provided to Con Edison with regard to any Spur Route
not being provided to Con Edison for a period in excess of 48 hours in any
thirty (30) day period, then, for the period that any such Equivalent
Compensation is not so provided due to such damage or destruction, Telergy
Metro, in lieu of providing any such Equivalent Compensation with regard to the
affected Spur Route(s) (except for any Equivalent Compensation that Con Edison
elects to continue to receive as provided in this sentence), shall pay
Compensation to Con Edison (based on Exhibit 3 hereof and without any set off
for the value of Equivalent Compensation) for the location of the affected Spur
Route(s) in, on, over, or through the Licensed Property less the value (as set
forth in Exhibit 3 hereof) of any such Equivalent Compensation with regard to
the affected Spur Route(s) that Con Edison, in its
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sole discretion (which is not to be judged by any standard of reasonableness or
any other similar standard), elects, by written notice to Telergy Metro sent
within thirty (30) days after Con Edison has actual knowledge of such damage or
destruction, to continue to receive. Such obligation to pay Compensation in lieu
of Equivalent Compensation with regard to an affected Spur Route shall continue
until such time as the entire Equivalent Compensation with regard to such
affected Spur Route that was provided prior to such damage or destruction can
again be provided to Con Edison (it being understood that the obligation under
this paragraph to pay Compensation in lieu of providing Equivalent Compensation
with regard to an affected Spur Route shall cease for that Spur Route when the
entire Equivalent Compensation for such Spur Route that was provided prior to
such damage or destruction can again be provided to Con Edison, even though the
entire Equivalent Compensation with regard to another affected Spur Route cannot
yet be provided to Con Edison and the obligation under this paragraph to pay
Compensation in lieu of providing Equivalent Compensation with regard to such
other affected Spur Route continues). Con Edison's rights in Exhibit 3 to
otherwise change the election of any Equivalent Compensation with regard any
Spur Route shall not be limited or otherwise adversely affected by any such
damage or destruction or the rights or obligations contained in this paragraph.
Until such time as such entire Equivalent Compensation with regard to the
affected Spur Route(s) that was provided prior to such damage or destruction can
again be provided to Con Edison, Con Edison shall not be required to receive any
Equivalent Compensation with regard to the affected Spur Route(s)
notwithstanding anything to the contrary in Exhibit 3 hereof.
B. To the extent that (i) any portion of the Backbone Network or of any
Spur Route is damaged or destroyed during the Initial Term or any First Renewal
Term or any Second Renewal Term of this L&O Agreement by the gross negligence or
willful misconduct of Con Edison, or (ii) any portion of the Backbone Network or
of any Spur Route is made inoperable by any damage or destruction to any portion
of the Licensed Property caused by the gross negligence or willful misconduct of
Con Edison during the Initial Term, any First Renewal Term or any Second Renewal
Term of this L&O Agreement, such damage or destruction to the Backbone Network,
any Spur Route, or any such Licensed Property shall be promptly repaired or
replaced at Con Edison's sole expense. Such obligation to promptly repair or
replace shall be the sole and exclusive remedy of Telergy Metro against Con
Edison arising from, relating to, or connected with any damage or destruction to
the Backbone Network, any Spur Route or the Licensed Property, except that
Telergy Metro's obligation to pay Compensation or provide Equivalent
Compensation with regard to any portion of the Backbone Network or of any Spur
Route made inoperable by damage or destruction to any portion of the Backbone
Network or of any Spur Route or of the Licensed Property that is caused by the
gross
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negligence or willful misconduct of Con Edison shall be suspended until such so
caused damage or destruction is repaired or replaced. Con Edison's rights in
Exhibit 3 to otherwise change the election of any Equivalent compensation shall
not be limited or otherwise adversely affected by any such damage or destruction
or the rights and obligations contained in this paragraph.
C. Notwithstanding anything to the contrary in Paragraphs A or B of this
Section 13, proceeds from the insurance required by this L&O Agreement on
account of damage or destruction to the Licensed Property, the Backbone Network
or any Spur Route shall be applied to the cost of repairing or replacing such
damage or destruction and the party responsible for bearing the cost of such
repair or replacement only shall be responsible for such cost to the extent it
exceed such insurance proceeds.
Section 14 - CONDEMNATION
A. If any portion of the Backbone Network or of any Spur Route shall be
taken under the power of eminent domain and result in any Equivalent
Compensation that is to be provided to Con Edison with regard to the Backbone
Network not being provided to Con Edison for a period in excess of 48 hours in
any thirty (30) day period, then, for the period that any such Equivalent
Compensation is not so provided due to such taking, Telergy Metro, in lieu of
providing any such Equivalent Compensation with regard to the Backbone Network
(except for any Equivalent Compensation that Con Edison elects to continue to
receive as provided in this sentence and except as otherwise provided in this
paragraph), shall pay Compensation (based on Exhibit 3 hereof and without any
set off for the value of Equivalent Compensation) to Con Edison for the location
of the entire Backbone Network in, on, over, or through the Licensed Property
less the value (as set forth in Exhibit 3 hereof) of any Equivalent Compensation
with regard to the Backbone Network that Con Edison, in its sole discretion
(which is not to be judged by any standard of reasonableness or any other
similar standard), elects, by written notice to Telergy Metro sent within thirty
(30) days after Con Edison has actual knowledge of such taking, to continue to
receive. Such obligation to pay Compensation in lieu of providing Equivalent
Compensation shall continue until such time as all Equivalent Compensation with
regard to the Backbone Network that was provided prior to such taking can again
be provided to Con Edison. Con Edison's rights in Exhibit 3 to otherwise change
the election of any Equivalent Compensation with regard to the Backbone Network
shall not be limited or otherwise adversely affected by any such taking or by
the rights or obligations contained in this paragraph. Until such time as all
Equivalent Compensation with regard to the Backbone Network that was provided
prior to such taking can again be provided to Con Edison, Con Edison shall not
be required to receive any Equivalent Compensation with regard to
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the Backbone Network notwithstanding anything to the contrary in Exhibit 3
hereof. If any portion of the Backbone Network or of any Spur Route shall be
taken under the power of eminent domain and result in any Equivalent
Compensation that is to be provided to Con Edison with regard to any Spur Route
not being provided to Con Edison for a period in excess of 48 hours in any
thirty (30) day period, then, for the period that any such Equivalent
Compensation is not so provided due to such taking, Telergy Metro, in lieu of
providing any such Equivalent Compensation with regard to the affected Spur
Route(s) (except for any Equivalent Compensation that Con Edison elects to
continue to receive as provided in this sentence and except as otherwise
provided in this paragraph), shall pay Compensation (based on Exhibit 3 hereof
and without any set off for the value of Equivalent Compensation) for the
location of the affected Spur Route(s) in, on, over, or through the Licensed
Property less the value (as set forth in Exhibit 3 hereof) of any such
Equivalent Compensation with regard to the affected Spur Route(s) that Con
Edison, in its sole discretion (which is not to be judged by any standard of
reasonableness or any other similar standard), elects, by written notice to
Telergy Metro sent within thirty (30) days after Con Edison has actual knowledge
of such taking, to continue to receive. Such obligation to pay Compensation in
lieu of providing Equivalent Compensation with regard to an affected Spur Route
shall continue until such time as the entire Equivalent Compensation with regard
to the affected Spur Route that was provided prior to such taking can again be
provided to Con Edison (it being understood that the obligation under this
paragraph to pay Compensation in lieu of providing Equivalent Compensation for
an affected Spur Route shall cease for that Spur Route when the entire
Equivalent Compensation for such Spur Route that was provided prior to such
taking can again be provided to Con Edison, even though the entire Equivalent
Compensation with regard to another affected Spur Route that was provided prior
to such taking cannot yet be provided to Con Edison and the obligation under
this paragraph to pay Compensation in lieu of providing Equivalent Compensation
with regard to such other affected Spur Route continues). Con Edison's rights in
Exhibit 3 to otherwise change the election of any Equivalent Compensation with
regard to any Spur Route shall not be limited or otherwise adversely affected by
any such taking or the rights or obligations contained in this paragraph. Until
such time as all Equivalent Compensation with regard to the affected Spur
Route(s) can again be provided to Con Edison, Con Edison shall not be required
to receive any Equivalent Compensation with regard to the affected Spur Route(s)
notwithstanding anything to the contrary in Exhibit 3 hereof. Notwithstanding
anything to the contrary in the foregoing, as of the date Telergy Metro yields
possession to the condemning authority of the portion of the Backbone Network or
of any Spur Route so taken, Telergy Metro shall be relieved of the obligation to
pay Con Edison the Compensation that otherwise would be owed in
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accordance with this paragraph and Exhibit 3 hereof for the location in, on,
over, or through the Licensed Property of the portion of the Backbone Network or
of any Spur Route so taken. In the event that such a taking of a portion of the
Backbone Network or of any Spur Route results in any portion of the Licensed
Property not being available for the Permitted Use of any replacement in kind of
the portion of the Backbone Network or of any Spur Route so taken, Con Edison
shall endeavor in good faith to provide, on terms reasonably acceptable to Con
Edison (which terms must also be reasonably acceptable to Telergy Metro), other
Con Edison property as a substitute for such unavailable Licensed Property and
Telergy Metro shall endeavor in good faith to obtain, on terms reasonably
acceptable to it, the use of property of others as a substitute for such
unavailable Licensed Property. Notwithstanding anything to the contrary in this
paragraph, if Telergy Metro can demonstrate to Con Edison's reasonable
satisfaction that the cost to Telergy Metro of repairing or altering the
Backbone Network and any Spur Routes so as to restore or replace the operation
of the portions of the Backbone Network and any Spur Routes made inoperable by
such taking will exceed $1,000,000, then Telergy Metro may terminate this L&O
Agreement upon written notice received by Con Edison not later than sixty (60)
days after the date that Telergy Metro yields possession to the condemning
authority of the portion of the Backbone Network and any Spur Route so taken and
such termination shall be without any liability on account of such termination
except for any obligation pursuant to Section 10 hereof.
B. To the extent that any portion of the Licensed Property shall be taken
under the power of eminent domain, commencing with the date that Con Edison
yields possession to the condemning authority of the portion of the Licensed
Property so taken (i) the Compensation that is to be paid for, and/or the
Equivalent Compensation that is to be provided with regard to, any portion of
the Backbone Network or of any Spur Route located in, on, over, or through the
portion of the Licensed Property so taken shall not be paid and/or provided
except as described herein, and (ii) the Compensation that is to be paid for,
and/or the Equivalent Compensation that is to be provided with regard to any
portion of the Backbone Network or of any Spur Route that is not contained in
the portion of the Licensed Property so taken but that is made inoperable by the
taking of such portion of the Licensed Property shall not be paid and/or
provided except as described herein. In the event that such a taking of Licensed
Property makes a portion of the Backbone Network or of any Spur Routes
inoperable, Con Edison shall endeavor in good faith to provide, on terms
reasonably acceptable to Con Edison (which terms must also be reasonably
acceptable to Telergy Metro), other Con Edison property as a substitute for the
Licensed Property so taken and Telergy Metro shall endeavor in good faith to
obtain, on terms reasonably acceptable to it, the use of property of others as a
substitute for the Licensed Property so taken. Upon the earlier
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of (i) an agreement of Con Edison and Telergy Metro with regard to other Con
Edison property as a substitute for the Licensed Property so taken, or (ii) an
agreement between Telergy Metro and another property owner for the use by
Telergy Metro of such other owner's property as a substitute for the Licensed
Property so taken, but in any event no later than ninety (90) days after the
date that Con Edison yield possession of the Licensed Property so taken, Telergy
Metro's obligation to pay Compensation for and/or provide Equivalent
Compensation with regard to any portion of the Backbone Network or of any Spur
Route not located in, on, over, or through the portion of the Licensed Property
so taken but made inoperable by such taking shall resume unless (x) no such
agreement between Con Edison and Telergy Metro or between Telergy Metro and
another property owner is made within such ninety (90) day period, and (y)
within ten (10) days after the expiration of such ninety (90) day period, either
party terminates this L&O Agreement by written notice sent to the other party
within such ten (10) day period (which termination shall be without liability to
the other party on account of such termination except for any obligation
pursuant to Section 10 hereof. Notwithstanding anything to the contrary in the
foregoing, if the portion of the Licensed Property so taken is property in, on,
over, or through which more than ten percent (10%) of the sum of the length, in
linear feet, of the Backbone Network and any Spur Routes is located, then either
party may terminate this L&O Agreement upon written notice received by the other
party not later than sixty (60) days after the date that Con Edison yields
possession to the condemning authority of the portion of the Licensed Property
so taken and such termination shall be without any liability on account of such
termination except for any obligation pursuant to Section 10 hereof. Should this
L&O Agreement not be terminated in accordance with this paragraph and Telergy
Metro's obligation to pay compensation and/or provide Equivalent Compensation
with regard to any portion of the Backbone Network or of any Spur Route not
located in, on, over, or through the portion of the Licensed Property so taken
but made inoperable by such taking therefore resume in accordance with this
paragraph, Telergy Metro may be unable to provide the Equivalent Compensation
that it provided prior to such taking. In the event that any Equivalent
Compensation that was provided with regard to the Backbone Network prior to such
taking cannot be provided, Telergy Metro, in lieu of providing any such
Equivalent Compensation with regard to the Backbone Network (except for any
Equivalent Compensation that Con Edison elects to continue to receive as
provided in this sentence and except as otherwise provided in this paragraph),
shall pay Compensation (based on Exhibit 3 hereof and without any set off for
the value of Equivalent Compensation) to Con Edison for the location of the
entire Backbone Network in, on, over, or through the Licensed Property less the
value (as set forth in Exhibit 3 hereof) of any Equivalent Compensation with
regard to the Backbone Network that Con Edison in its sole discretion (which is
not to be
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judged by any standard of reasonableness or any other similar standard), elects,
by written notice to Telergy Metro to continue to receive. Such obligation to
pay Compensation in lieu of providing Equivalent Compensation shall continue
until such time as all Equivalent Compensation with regard to the Backbone
Network that was provided prior to such taking can again be provided to Con
Edison. Con Edison's rights in Exhibit 3 to otherwise change the election of any
Equivalent Compensation with regard to the Backbone Network shall not be limited
or otherwise adversely affected by any such taking or by the rights or
obligations contained in this paragraph. Until such time as all Equivalent
Compensation with regard to the Backbone Network that was provided prior to such
taking can again be provided to Con Edison, Con Edison shall not be required to
receive any Equivalent Compensation with regard to the Backbone Network
notwithstanding anything to the contrary in Exhibit 3 hereof. In the event that
any Equivalent Compensation that was provided with regard to a Spur Route prior
to such taking cannot be provided, Telergy Metro, in lieu of providing any such
Equivalent Compensation with regard to the affected Spur Route(s) (except for
any Equivalent Compensation that Con Edison elects to continue to receive as
provided in this sentence and except as otherwise provided in this paragraph),
shall pay Compensation (based on Exhibit 3 hereof and without any set off for
the value of Equivalent Compensation) for the location of the affected Spur
Route(s) in, on, over, or through the Licensed Property less the value (as set
forth in Exhibit 3 hereof) of any such Equivalent Compensation with regard to
the affected Spur Route(s) that Con Edison, in its sole discretion (which is not
to be judged by any standard of reasonableness or any other similar standard),
elects, by written notice to Telergy Metro to continue to receive. Such
obligation to pay Compensation in lieu of providing Equivalent Compensation with
regard to an affected Spur Route shall continue until such time as the entire
Equivalent Compensation with regard to the affected Spur Route that was provided
prior to such taking can again be provided to Con Edison (it being understood
that the obligation under this paragraph to pay Compensation in lieu of
providing Equivalent Compensation for an affected Spur Route shall cease for
that Spur Route when the entire Equivalent Compensation for such Spur Route that
was provided prior to such taking can again be provided to Con Edison, even
though the entire Equivalent Compensation with regard to another affected Spur
Route that was provided prior to such taking cannot yet be provided to Con
Edison and the obligation under this paragraph to pay Compensation in lieu of
providing Equivalent Compensation with regard to such other affected Spur Route
continues). Con Edison's rights in Exhibit 3 to otherwise change the election of
any Equivalent Compensation with regard to any Spur Route shall not be limited
or otherwise adversely affected by any such taking or the rights or obligations
contained in this paragraph. Until such time as all Equivalent Compensation with
regard to the affected Spur Route(s)
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can again be provided to Con Edison, Con Edison shall not be required to receive
any Equivalent Compensation with regard to the affected Spur Route(s)
notwithstanding anything to the contrary in Exhibit 3 hereof.
C. Each party shall notify the other in writing promptly after it learns
that any eminent domain taking of any portion of the Backbone Network, any Spur
Route, or the Licensed Property is threatened.
D. All compensation awarded for any taking of the Licensed Property or any
portion thereof by power of eminent domain shall belong to Con Edison; provided,
however, that nothing contained herein shall prevent Telergy Metro from applying
(if permitted by law) for reimbursement from the condemning authority for any
expense it suffers relating to or arising from any such taking, including but
not limited to, any expense related to any obligation of Telergy Metro that
arises from such taking for the removal, alteration, relocation, repair,
installation or construction of any portion of the Backbone Network or any Spur
Route, but only if such application will not reduce the amount of the award or
other compensation otherwise recoverable from the condemning authority by Con
Edison.
E. All compensation awarded for any taking of the Backbone Network or any
Spur Route or any portion thereof by power of eminent domain shall belong to
Telergy Metro; provided, however, that nothing contained herein shall prevent
Con Edison from applying (if permitted by law) for reimbursement from the
condemning authority for any expense it suffers relating to or arising from any
such taking, but only if such application will not reduce the amount of the
award or other compensation otherwise recoverable from the condemning authority
by Telergy Metro.
Section 15 - RELOCATION DUE TO PUBLIC PROJECTS
A. If any portion of the Licensed Property is required by any governmental
authority to be relocated or protected/supported in place at Con Edison's
expense in whole or in part due to its interference with any public project,
then Telergy Metro and Con Edison shall have the following obligations:
(i) if the affected portion of the Licensed Property is a pole, Telergy
Metro shall reimburse Con Edison for that fraction of the cost and
expense of relocating or protecting/supporting in place the pole
(inclusive of the cost and expense of relocating or
protecting/supporting in place the wires attached to such utility
pole)
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which is equal to the fraction where [***].
(ii) if the affected portion of the Licensed Property is an underground
duct in a ductbank or portion thereof (or an associated manhole or
portion thereof)that must be relocated or protected/supported in
place, Telergy Metro shall reimburse Con Edison for that fraction of
the cost and expense of relocating or protecting/supporting in place
such ductbank or portion thereof (or such manhole or portion
thereof) which is equal to the fraction where the numerator is [***]
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
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(iii) if the affected portion of the Licensed Property is a service
entrance pipe (or an associated service box) that must be relocated
or protected/supported in place, Telergy Metro shall reimburse Con
Edison for that fraction of the cost and expense of relocating or
protecting/supporting in place such service entrance pipe (or such
service box) which is equal to the fraction where the numerator is
[***]
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted parties have been filed separately with the
Securities and Exchange Commission.
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Licensed Property is a transmission tower, Telergy Metro shall
reimburse Con Edison for that fraction of the cost and expense of
relocating or protecting/supporting in place the transmission tower
(inclusive of the cost and expense of relocating or
protecting/supporting in place the wires attached to such
transmission tower) which is equal to the fraction where the
numerator is [***].
Section 16 - REPRESENTATIONS AND WARRANTIES OF TELERGY METRO
Telergy Metro makes the following representations and warranties to Con
Edison as of the date of this L&O Agreement:
(i) Telergy Metro is a limited liability company duly organized and
validly existing under the laws of the state of New York and has all
the necessary power and authority to execute, deliver and perform
its obligations under this L&O Agreement.
(ii) The execution, delivery and performance by Telergy Metro of this L&O
Agreement does not conflict with, or constitute a breach of or a
default under, any law, regulation, order, license, contract or
instrument to which Telergy Metro is subject or by which Telergy
Metro is bound.
(iii) This L&O Agreement constitutes the valid and binding agreement of
Telergy Metro, enforceable against Telergy Metro in accordance with
its terms.
Section 17 - REPRESENTATIONS AND WARRANTIES OF CON EDISON
Con Edison makes the following representations and warranties to Telergy
Metro as of the date of this L&O Agreement:
(i) Con Edison is a corporation duly organized and validly existing
under the laws of the state of New York and,
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material
omitted on this page. The omitted portions have been filed separately
with the Securities and Exchange Commission.
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subject to approval of this L&O Agreement by the New York State
Public Service Commission, has all the necessary power and authority
to execute, deliver and perform its obligations under this L&O
Agreement.
(ii) The execution, delivery and performance by Con Edison of this L&O
Agreement does not conflict with, or constitute a breach of or a
default under, any law, regulation, order, license, contract or
instrument to which Con Edison is subject or by which Con Edison is
bound.
(iii) This L&O Agreement constitutes the valid and binding agreement of
Con Edison, enforceable against Con Edison in accordance with its
terms.
Section 18 - TERMINATION FOR BREACH
If a party breaches a material term or condition of this L&O Agreement,
the non-breaching party may terminate this L&O Agreement after at least 30 days
has expired since it has given the breaching Party written notice of the nature
of the breach and its intention to terminate, provided that the breaching party
does not cure the claimed breach within such 30 day period or within such longer
period as may be provided in the written notice from the non-breaching party. If
the breach has not been cured within such 30 day period or within such longer
period as may be provided in the first written notice from the non-breaching
party, the non-breaching party shall send a second written notice to the
breaching party notifying the breaching party that this L&O Agreement is
terminated. Notwithstanding the foregoing, (a) Con Edison may terminate on
shorter notice than provided above and/or without any opportunity by Telergy
Metro to cure if Telergy Metro interferes with any contract, mortgage, lien,
encumbrance, restriction, lease, license, easement, right, or privilege
affecting the Licensed Property or use of the Licensed Property to which the
License Grant and Permitted Use are subject and subordinate pursuant to Section
2, paragraph C hereof if such shorter notice and/or no opportunity to cure is
necessary to protect the interests of Con Edison or any other party under or
with regard to any such contract, mortgage, lien, encumbrance, restriction,
lease, license, easement, right, or privilege (provided, however, that a cure
period shall be granted by Con Edison unless granting a cure period would
violate the other contract, mortgage, lien, encumbrance, restriction, lease,
license, easement, right, or privilege); and (b) Con Edison may terminate this
L&O Agreement immediately upon sending written notice of such termination to
Telergy Metro, without any opportunity by Telergy Metro to cure, if Telergy
Metro interferes with any Use For Public Utility Purposes as defined in Section
2,
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Paragraph C hereof.
Section 19 - RECALL OF LICENSED PROPERTY; TERMINATION FOR REASONS OTHER
THAN BREACH
A. If: (i) Con Edison determines in its sole discretion (which is not to
be judged by any standard of reasonableness or any similar standard) that it
(or, to the extent permitted by it, any of the Con Edison Entities) requires any
portion of the Licensed Property for any Use For Public Utility Purposes as
defined in Paragraph C of Section 2 hereof to the exclusion of the Permitted Use
by Telergy Metro; or (ii) any portion of the Licensed Property is sold or
demolished in Con Edison's sole discretion ("Sale/Demolition Purposes"); or
(iii) any law, regulation, rule, ordinance, or executive order or any order,
judgment, or ruling of any court or governmental agency or body of competent
jurisdiction requires that any portion of the Backbone Network or any Spur Route
be removed from, or not operate on, any portion of Licensed Property ("Legal
Requirements"), then, upon thirty (30) days' advance written notice to Telergy
Metro or upon such shorter written notice as may be reasonably required under
the circumstances, Con Edison shall have the right to remove the affected
portion of the Licensed Property from the Licensed Property in the License Grant
(which action shall be referred to as a "recall" of the affected Licensed
Property), Telergy Metro shall no longer be entitled to use the Licensed
Property so recalled, and within such thirty (30) day period or such shorter
period as may be required under the circumstances, the portion of the Backbone
Network and any Spur Route located in, on, over, or through such recalled
Licensed Property shall be removed from such Licensed Property at Telergy
Metro's expense.
B. Commencing with the date that the portion of the Backbone Network and
any Spur Route located in, on, over, or through the recalled Licensed Property
is removed therefrom in accordance with paragraph A of this Section, (i) the
Compensation that is to be paid for, and/or the Equivalent Compensation that is
to be provided with regard to, any portion of the Backbone Network or of any
Spur Route located in, on, over, or through the recalled Licensed Property shall
not be paid and/or provided except as described herein, and (ii) the
Compensation that is to be paid for, and/or the Equivalent Compensation that is
to be provided with regard to any portion of the Backbone Network or of any Spur
Route that is not contained in the recalled Licensed Property but that is made
inoperable by the recall of such Licensed Property shall not be paid and/or
provided except as described herein. In the event that such a recall of Licensed
Property makes a portion of the Backbone Network or of any Spur Routes
inoperable, Con Edison shall endeavor in good faith to provide, on terms
reasonably acceptable to Con Edison (which terms must also be
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reasonably acceptable to Telergy Metro), other Con Edison property as a
substitute for the Licensed Property so recalled and Telergy Metro shall
endeavor in good faith to obtain, on terms reasonably acceptable to it, the use
of property of others as a substitute for the Licensed Property so recalled.
Upon the earlier of (i) an agreement of Con Edison and Telergy Metro with regard
to other Con Edison property as a substitute for the Licensed Property so
recalled, or (ii) an agreement between Telergy Metro and another property owner
for the use by Telergy Metro of such other owner's property as a substitute for
the Licensed Property so recalled, but in any event no later than ninety (90)
days after the date that the portion of the Backbone Network or any Spur Route
located in, on, over, or through the recalled Licensed Property is required to
be removed in accordance with paragraph A of this Section, Telergy Metro's
obligation to pay Compensation for and/or provide Equivalent Compensation with
regard to any portion of the Backbone Network or of any Spur Route not located
in, on, over, or through the portion of the Licensed Property so recalled but
made inoperable by such recall shall resume unless (x) no such agreement between
Con Edison and Telergy Metro or between Telergy Metro and another property owner
is made within such ninety (90) day period, and (y) within ten (10) days after
the expiration of such ninety (90) day period, Telergy Metro terminates this L&O
Agreement by written notice received by Con Edison within such ten (10) day
period (which termination shall be without liability on account of such
termination except for any obligation concerning the removal of the Backbone
Network and any Spur Routes from the Licensed Property upon termination of this
L&O Agreement). Notwithstanding anything to the contrary in the foregoing, if
the portion of the Licensed Property so recalled is property in, on, over, or
through which more than ten percent (10%) of the sum of the length, in linear
feet, of the Backbone Network and any Spur Routes is located, then Telergy Metro
may terminate this L&O Agreement upon written notice received by Con Edison not
later than sixty (60) days after the date that that the portion of the Backbone
Network or any Spur Route located in, on, over, or through the recalled Licensed
Property is required to be removed in accordance with paragraph A of this
Section, and such termination shall be without any liability on account of such
termination except for any obligation concerning the removal of the Backbone
Network and any Spur Routes from the Licensed Property upon termination of this
L&O Agreement. Should this L&O Agreement not be terminated in accordance with
this paragraph and Telergy Metro's obligation to pay Compensation and/or provide
Equivalent Compensation with regard to any portion of the Backbone Network or of
any Spur Route not located in, on, over, or through the portion of the Licensed
Property so recalled but made inoperable by such recall therefore resume in
accordance with this paragraph, Telergy Metro may be unable to provide the
Equivalent Compensation that it provided prior to such recall. In the event that
any Equivalent Compensation that was provided with regard to
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the Backbone Network prior to such recall cannot be provided, Telergy Metro, in
lieu of providing any such Equivalent Compensation with regard to the Backbone
Network (except for any Equivalent Compensation that Con Edison elects to
continue to receive as provided in this sentence and except as otherwise
provided in this paragraph), shall pay Compensation (based on Exhibit 3 hereof
and without any set off for the value of Equivalent Compensation) to Con Edison
for the location of the entire Backbone Network in, on, over, or through the
Licensed Property less the value (as set forth in Exhibit 3 hereof) of any
Equivalent Compensation with regard to the Backbone Network that Con Edison in
its sole discretion (which is not to be judged by any standard of reasonableness
or any other similar standard), elects, by written notice to Telergy Metro to
continue to receive. Such obligation to pay Compensation in lieu of providing
Equivalent Compensation shall continue until such time as all Equivalent
Compensation with regard to the Backbone Network that was provided prior to such
taking can again be provided to Con Edison. Con Edison's rights in Exhibit 3 to
otherwise change the election of any Equivalent Compensation with regard to the
Backbone Network shall not be limited or otherwise adversely affected by any
such recall or by the rights or obligations contained in this paragraph. Until
such time as all Equivalent Compensation with regard to the Backbone Network
that was provided prior to such recall can again be provided to Con Edison, Con
Edison shall not be required to receive any Equivalent Compensation with regard
to the Backbone Network notwithstanding anything to the contrary in Exhibit 3
hereof. In the event that any Equivalent Compensation that was provided with
regard to a Spur Route prior to such recall cannot be provided, Telergy Metro,
in lieu of providing any such Equivalent Compensation with regard to the
affected Spur Route(s) (except for any Equivalent Compensation that Con Edison
elects to continue to receive as provided in this sentence and except as
otherwise provided in this paragraph), shall pay Compensation (based on Exhibit
3 hereof and without any set off for the value of Equivalent Compensation) for
the location of the affected Spur Route(s) in, on, over, or through the Licensed
Property less the value (as set forth in Exhibit 3 hereof) of any such
Equivalent Compensation with regard to the affected Spur Route(s) that Con
Edison, in its sole discretion (which is not to be judged by any standard of
reasonableness or any other similar standard), elects, by written notice to
Telergy Metro to continue to receive. Such obligation to pay Compensation in
lieu of providing Equivalent Compensation with regard to an affected Spur Route
shall continue until such time as the entire Equivalent Compensation with regard
to the affected Spur Route that was provided prior to such recall can again be
provided to Con Edison (it being understood that the obligation under this
paragraph to pay Compensation in lieu of providing Equivalent Compensation for
an affected Spur Route shall cease for that Spur Route when the entire
Equivalent Compensation
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for such Spur Route that was provided prior to such recall can again be provided
to Con Edison, even though the entire Equivalent Compensation with regard to
another affected Spur Route that was provided prior to such recall cannot yet be
provided to Con Edison and the obligation under this paragraph to pay
Compensation in lieu of providing Equivalent Compensation with regard to such
other affected Spur Route continues). Con Edison's rights in Exhibit 3 to
otherwise change the election of any Equivalent Compensation with regard to any
Spur Route shall not be limited or otherwise adversely affected by any such
recall or the rights or obligations contained in this paragraph. Until such time
as all Equivalent Compensation with regard to the affected Spur Route(s) can
again be provided to Con Edison, Con Edison shall not be required to receive any
Equivalent Compensation with regard to the affected Spur Route(s)
notwithstanding anything to the contrary in Exhibit 3 hereof.
C. In the event of a recall of Licensed Property pursuant to this Section,
the sole and exclusive remedies of Telergy Metro shall be as provided in
Paragraph B of this Section and Con Edison shall have no other obligation or
liability to any person or entity ("Recall Liability") on account of such
recall. Telergy Metro hereby irrevocably and unconditionally agrees to release
and forever discharge the Protected Parties (as defined in Section 12) from any
and all such Recall Liability, to waive any and all rights to assert any Recall
Liability against such Protected Parties or any of them in the future and, to
defend, indemnify and hold such Protected Parties harmless from and against any
and all claims for Recall Liability (including, without limitation, attorney
fees and other legal costs and expenses incurred in connection therewith).
D. Should a party dissolve or be liquidated, or admit in writing its
inability to pay its debts as they become due, or fail to lift an execution,
garnishment or attachment of such consequence as will impair such party's
ability to perform substantially its obligations pursuant to this L&O Agreement,
or commit any act of bankruptcy, or be adjudicated as a bankrupt, or make an
assignment for the benefit of its creditors, or enter into an agreement of
composition with its creditors, or should a court of competent jurisdiction
approve a petition applicable to a party in any proceeding for the
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar proceeding instituted under the provisions of any bankruptcy act or
under any similar act in any domestic or foreign jurisdiction which may now be
in effect or hereafter enacted, or within sixty (60) days after the commencement
of any such proceeding against a party such proceeding shall not have been
dismissed, or should an answer be filed by a party admitting or not contesting
the material allegations of a petition against it in such a proceeding, or
should a trustee, receiver or liquidator of a party
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<PAGE> 40
or of any material part of its properties be appointed without such party's
consent or acquiesce and such appointment not be vacated within sixty (60) days
of such appointment, or should a party seek or consent or acquiesce in the
appointment of any trustee, receiver or liquidator of itself or of any material
part of its properties, then, to the extent that termination is not prohibited
by applicable law, the other party, upon written notice to the first party, may
terminate this L&O Agreement.
Section 20 - SECURITY
As security for any provision by Telergy Metro of Equivalent Compensation,
Telergy Metro shall grant Con Edison a senior lien and security interest in the
following, the use of which are provided as Equivalent Compensation: each of the
single mode dark fiber strands provided with regard to the Backbone Network
and/or any Spur Route; the lightwave distribution patch panels at the locations
specified for such lightwave distribution patch panels in Exhibit 3 hereof with
regard to the Backbone Network; any lightwave distribution patch panels at any
locations specified in any written agreement of the parties pursuant to
Paragraph D of Section 2 hereof with regard to any Spur Route; and any Telergy
Metro-owned duct or other conduit and fiber optic facilities necessary to
properly connect such distribution light wave patch panels with such single mode
dark fiber strands (the "Secured Facilities"). Telergy Metro agrees that it
shall execute such documents and make such filings at Telergy Metro's expense as
are reasonably requested by Con Edison in order to perfect, record and file the
senior lien and security interest in such Secured Facilities the use of which
are provided as Equivalent Compensation with regard to the Backbone Network.
Telergy Metro agrees to pay any mortgage tax, recording fee, and any other costs
associated with perfecting, filing and recording such senior lien and security
interest in such Secured Facilities the use of which are provided as Equivalent
Compensation with regard to the Backbone Network, including but not limited to
any such tax, fee, or other cost associated with perfecting, filing and
recording a UCC-1. Should Con Edison wish to perfect, file and record any senior
lien and security interest in the Secured Facilities the use of which are
provided as Equivalent Compensation with regard to any Spur Route, Con Edison
shall be responsible for any taxes, fees and costs associated therewith.
Section 21 - FORCE MAJEURE
Without limitation of any other provision of this L&O Agreement that
limits liability or conditions any obligation to perform, neither Party shall
have any liability for any delay in performing or any failure to perform caused
by any event or occurrence beyond its reasonable control, including but not
limited to acts of God, earthquakes, extraordinary weather
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<PAGE> 41
conditions, accidents such as fires or explosions not due to the negligence of
the party claiming the force majeure event as the reason for a delay in
performing or failure to perform, strikes, labor disputes, riots, insurrections,
acts of war (whether declared or otherwise), and acts or failures to act of
governmental authorities.
Section 22 - SUBJECT TO PSC APPROVAL; TERMINATION
This L&O Agreement is subject to, conditioned upon, and effective upon PSC
Approval; provided, however, that if the PSC or a court of competent
jurisdiction should subsequently modify such PSC Approval in a manner not
acceptable in the sole discretion of either party (which discretion shall not be
judged by any standard of reasonableness or any similar standard) or reverse or
otherwise negate such PSC Approval, this L&O Agreement shall terminate (which
would result, among other things, in the Backbone Network and any Spur Routes
having to be removed from the Licensed property in accordance with Section 10
hereof); and provided further, that if PSC Approval is not obtained within two
(2) years after Con Edison initially applies for such PSC Approval as referenced
in this Section, either party may terminate this L&O Agreement upon written
notice to the other party that is received by such other party within thirty
(30) days of the expiration of such two (2) year period. Within twenty-one (21)
days after this L&O Agreement has been executed by each party and delivered to
the other party, Con Edison shall apply to the New York State Public Service
Commission for such PSC Approval. Con Edison shall notify Telergy Metro in
writing that such application has been filed with the PSC within ten (10)
business days after such filing and provide Telergy Metro with a copy of the
application. After such application has been filed by Con Edison with the PSC,
Telergy Metro may seek to have such application approved by the PSC. Telergy
Metro shall not directly or indirectly attempt to have any portion of this L&O
Agreement changed during any such approval process.
Section 23 - SUBJECT TO
AGREEMENT TO CONSTRUCTION/INSTALLATION REQUIREMENTS AND
MAINTENANCE REQUIREMENTS
It is understood and agreed that Telergy Metro is to bear all cost and
expense associated with constructing, installing, maintaining and operating the
Backbone Network and any Spur Routes. Furthermore, any Permitted Use of the
Licensed Property is subject to and conditioned upon Telergy Metro agreeing in a
signed writing, within ninety (90) days after the date of this L&O Agreement, to
construction/installation requirements being developed by Con Edison (the
"Construction/Installation
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Requirements") and to maintenance requirements being developed by Con Edison
(the "Maintenance Requirements"), which Construction/Installation Requirements
and/or Maintenance Requirements shall govern matters relating to or pertaining
to the construction, installation and maintenance of the Backbone Network and
any Spur Route(s). Such matters may include, but shall not be limited to:
selection of ducts, poles, service pipes, locations on transmission towers,
locations on transmission tower rights of way, requirements as to who may
perform certain work (Con Edison personnel, approved contractors, etc.),
requirements for Con Edison review and/or approval of proposed work and related
documents or drawings, qualification and training requirements for performing
work, procedures for performing services, required contractual terms and
conditions for work to be performed by other than Con Edison personnel,
requirements for notification to and coordination with Con Edison concerning
work, requirements for the presence of Con Edison personnel during work
performed by others, charges or formulas for charges for Con Edison personnel,
access, environmental requirements, safety, and training. All portions of such
contemplated Construction/Installation Requirements and Maintenance Requirements
shall be developed by Con Edison in its sole discretion (which is not to be
judged by any standard of reasonableness or any similar standard) and no matter
relating to or pertaining to the construction, installation or maintenance of
the Backbone Network or any Spur Route that may appear in this L&O Agreement
shall be deemed to limit or otherwise affect the contents of such
Construction/Installation Requirements and/or the Maintenance Requirements.
Telergy Metro agrees that it shall pay Con Edison for any work performed by Con
Edison personnel, whether or not covered by such Construction/Installation
Requirements and/or the Maintenance Requirements at prices that are not less
than those required pursuant to any affiliate transaction rules that Con Edison
is required to follow.
Section 24 - MISCELLANEOUS PROVISIONS
A. Entire Agreement. This L&O Agreement, together with its referenced
documents, constitutes the entire agreement and understanding between the
parties relating to the subject matter hereof. Any prior written or oral
agreements, representations, warranties, promises or understandings between the
parties relating to such subject matter are merged in this L&O Agreement. Any
amendments to this L&O Agreement must be in writing and executed by authorized
representatives of both parties. No waiver of any right under this L&O Agreement
shall be effective unless in writing and signed by an authorized representative
of the party granting such waiver and such waiver shall be effective only with
respect to the particular event expressly referred to in such signed writing.
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B. Governing Law. This L&O Agreement will be governed by the laws of the
State of New York, without regard to such State's conflict of laws rules.
C. Successors and Assigns/Assignment. This L&O Agreement shall apply to
and bind the successors and permitted assigns of the parties provided, however,
that neither Party may assign this L&O Agreement without the prior express
written consent of the other party, which consent shall not unreasonably be
withheld. Any purported assignment without such prior express written consent
shall be void. Notwithstanding the foregoing, however, (i) either party may,
without the other party's consent, assign this L&O Agreement to (1) a parent
corporation or other organization that owns or controls a majority interest in
such party, or (2) a corporation or other organization that is entirely owned or
controlled by the same corporation or other organization that entirely owns or
controls such party, or (3) a corporation or other organization that is entirely
owned or controlled by such party, and (ii) Telergy Metro may, without Con
Edison's consent, assign this L&O Agreement to Telergy Inc. Unless otherwise
agreed in a writing signed by authorized representatives of both parties, any
assignment of this L&O Agreement, whether or not requiring consent of the other
party: (1) shall be conditioned on the assignee expressly assuming all of the
obligations of the assignor under this L&O Agreement and (2) shall not be a
novation or otherwise release or discharge the assignor from any of its
obligations under this L&O Agreement.
D. Counterparts. This L&O Agreement may be signed in one or more
counterparts, each of which is an original for all purposes but all of which
taken together constitute only one instrument.
E. Severability. If any provision of this L&O Agreement or any application
of any such provision is held by a court of competent jurisdiction to be invalid
or unenforceable, the affected provision or application shall be stricken or
limited so as to give it the effect intended to the fullest extent permitted by
law, and the remaining provisions of this L&O Agreement and applications of such
provisions shall continue in full force and effect.
F. Notices. All notices and other communications hereunder required to be
in writing shall be personally delivered, mailed by registered or certified
mail, return receipt requested, postage paid, or transmitted by facsimile, as
provided below. A party may change its address/facsimile number for receipt of
written notices by notifying the other party in writing of such change pursuant
to this Paragraph F.
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If to Con Edison
Consolidated Edison Company of New York, Inc.
4 Irving Place
New York, New York 10003
Attn:
Director, Technology Services - Communication
Services
Telephone: (212) 460-4891
Facsimile: (212) 228-5481
If to Telergy Metro
Telergy Metro, LLC
5784 Widewaters Parkway
Syracuse, New York 13214
Attn: President
Telephone (315) 449-0388
Facsimile (315) 449-0397
With a copy to:
Telergy, Inc.
20 Corporate Woods
Suite 100
Albany, New York 12211
Attn: General Counsel
Such notice or other communication shall be deemed duly given when received or
refused by the addressee.
G. Submission To Jurisdiction/Choice Of Forum/Service Of Process. The
parties hereby irrevocably submit to the jurisdiction of the courts located
within the State of New York with regard to any controversy arising out of or
relating to this L&O Agreement. The parties agree that service of process on
each other in relation to such jurisdiction may be made, at the option of the
serving party, by certified or registered mail, return receipt requested,
postage prepaid addressed as set forth below by actual personal delivery to the
party to be served at the address set forth below:
If Con Edison Is The Party To Be Served
Consolidated Edison Company of New York, Inc.
4 Irving Place, Room 1618-S
New York, New York 10003
Attn: Office Of The Secretary
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If Telergy Metro Is The Party To Be Served
Telergy Metro, LLC
5784 Widewaters Parkway
Syracuse, New York 13214
Attn: President
With a copy to:
Telergy, Inc.
20 Corporate Woods
Suite 100
Albany, New York 12211
Attn: General Counsel
A party may change its address/facsimile number for receipt of service of
process by notifying the other party in writing of such change pursuant to
Paragraph F of this Section 24. Service of process pursuant to this Paragraph
shall be deemed to be sufficient even under circumstances where, apart from this
L&O Agreement, there would be no jurisdictional basis for such service. Service
of process on a Party may also be effected in any manner permitted by law. The
Parties consent to the selection of the New York City, New York State and United
States courts situated within the City of New York or Westchester County (State
of New York) as the exclusive forums for any legal proceeding arising out of or
relating to this L&O Agreement.
H. No Third Party Rights. Except as may be expressly provided herein,
nothing in this L&O Agreement is intended or shall be construed to grant any
rights or benefits to any entity or person other than the parties and their
successors and permitted assigns.
I. No Brokers. Con Edison and Telergy Metro each represent and warrant
that no broker or other third party brought about the execution and delivery of
this L&O Agreement and no discussion or other contact was had with any broker or
other third party which could be the basis of a claim for any brokerage
commission, finder's fee or similar payment arising from, related to, or
connected with this L&O Agreement ("Broker Claims"). Each party agrees to
defend, indemnify, and hold the other party harmless from any and all Broker
Claims arising from, related to, or connected with the indemnifying party's
discussion or other contact with any broker or other third party.
J. L&O Agreement Not Binding Until Executed And Delivered. No portion of
this L&O Agreement is binding upon a party hereto until it is executed by an
authorized representative of that party in the space provided below and
delivered to the other party.
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Prior to such execution and delivery, neither the submission, exchange, return,
discussion, nor the negotiation of this document, whether or not this document
is then designated as a "draft" document, shall have any binding effect.
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<PAGE> 47
IN WITNESS WHEREOF, the parties by their duly authorized representatives
have executed this L&O Agreement as of the date first above written.
TELERGY METRO, LLC CONSOLIDATED EDISON COMPANY
OF NEW YORK, INC.
By: /s/Brian P. Kelly By: /s/Charles F. Soutar
------------------------------- -------------------------------
Name: Brian P. Kelly Name: Charles F. Soutar
Title: Chief Executive Officer Title: Executive Vice President
47
<PAGE> 1
EXHIBIT 10.5
RIGHT-OF-OCCUPANCY AGREEMENT
This Right of Occupancy Agreement, made as of the 10th day of June, 1998,
between NEW YORK STATE ELECTRIC & GAS CORPORATION, a corporation organized and
existing under the laws of the State of New York, having offices for the
transaction of business at 4500 Vestal Pkwy East, Binghamton, New York 13902
(hereinafter called "NYSEG") and TELERGY East, LLC, organized and existing under
the laws of the State of New York, having offices for the transaction of
business at One Telergy Parkway, East Syracuse, New York 13057 (hereinafter
called "TELERGY East").
In consideration of the sum of one dollar lawful money of the United
States of America by each in hand paid to the other, receipt of which is hereby
acknowledged, and of the mutual promises and covenants contained herein, TELERGY
East and NYSEG intending to be bound, agree as follows:
ARTICLE I
SCOPE OF AGREEMENT
Subject to the terms and conditions of this Agreement, NYSEG hereby grants
to TELERGY East for its own use, unless otherwise provided pursuant to the terms
of this Agreement, anon-exclusive Right-of-Occupancy, revocable only in
accordance with the terms and provisions of this Agreement, to install TELERGY
East's Backbone Network, Spurs and Facilities using NYSEG's Rights-of-Way,
poles, towers, abandoned gas and propane pipeline, Conduit and ducts
(hereinafter collectively "Right-of-Way"), which specific Right-of-Way shall be
defined by the parties as set forth in this Agreement; provided, however, NYSEG
shall apportion to TELERGY East only such real property rights that it currently
has or subsequently acquires and which it can lawfully apportion or, in the case
where NYSEG owns its rights-of-way in fee, such grants to TELERGY East as may be
legally permissible) to TELERGY East and the rights to be apportioned and/or
granted to TELERGY East are personal to TELERGY East and are not transferable or
re-apportionable by TELERGY East and shall not inure to the benefit of TELERGY
East's successors and assigns, except as provided in the LLC Operating Agreement
of even date or with the prior written consent of NYSEG (and, if necessary, the
consent of the Public Service Commission), it being the specific understanding
of the parties that the rights to be apportioned hereunder are being apportioned
and/or granted by NYSEG to TELERGY East in the nature of a quitclaim transfer
and that TELERGY East and not NYSEG shall bear the risk that Telergy East is
legally entitled to enter upon, occupy and use NYSEG Rights-of-Way, poles,
towers, Conduits, ducts and abandoned gas and propane air pipelines for the
purposes stated herein, and that TELERGY East specifically agrees to indemnify
NYSEG for all damages, costs, fees, penalties, including reasonable attorney
fees, and for any punitive or exemplary damages that might be imposed as a
result of the occupancy by TELERGY East of NYSEG Rights-of-Way, poles, towers,
Conduits, ducts and abandoned gas and propane air pipelines pursuant to this
Agreement; and further provided, that any new Right-of-Way, poles, towers,
Conduits, ducts or additional abandoned gas or propane air
<PAGE> 2
pipelines that NYSEG may in the future obtain, possess or control shall also
become subject to the terms of this Agreement.
ARTICLE II
DEFINITIONS
"Agreement" shall mean this Right-of-Occupancy Agreement entered into
herein between NYSEG and TELERGY East and as the same may be amended, modified
and supplemented from time to time. Words such as "herein," "hereafter,"
"hereof," "hereto," "hereby," and "hereunder" when used with reference to this
Agreement refer to this Agreement as a whole unless the context otherwise
requires.
"Approved Plans" shall mean plans which have been reviewed and approved by
NYSEG.
"Backbone Network" shall mean the initial path of the Fiber Optic Network
between Binghamton and Auburn, including cable of approximately 100 strands to
be installed overhead pursuant to this Agreement, which will connect to the
Ithaca and Binghamton and other Spurs,. primarily using NYSEG poles and towers.
"Bankruptcy" with respect to any principles of TELERGY East or NYSEG shall
mean the happening of any of the following:
A. The filing of an application for, or consent to, the appointment by a
Federal District Court of a Trustee over all or substantially all of its assets;
B. The filing of a voluntary petition in bankruptcy or the filing of a
pleading in any court of record admitting in writing its inability to pay its
debts as they become due;
C. The making of a general assignment for the benefit of creditors;
D. The filing of an answer admitting the material allegations of, or its
consenting to, or defaulting in answering, a bankruptcy petition filed against
it in any bankruptcy proceeding; or
E. The entry of an order, judgment, or decree by any court of competent
jurisdiction adjudicating TELERGY East or NYSEG or any Parent of either bankrupt
or appointing a Trustee over its assets, and such order, judgment, or decree
continuing unstayed and in effect for a period of sixty (60) consecutive days.
"Binghamton Spur" shall mean a Spur off the Backbone Network to be
constructed and installed in NYSEG Right-of-Way to a point at or near [***].
"Conduit" shall mean an individual pipe, tube or duct forming an enclosed
raceway for cable and/or conductors, also referred to as "duct," which may be
owned by NYSEG or installed by TELERGY East in NYSEG Right-of-way along its
electric or gas distribution or transmission systems and which may contain
multiple innerducts; provided, however, natural gas and/or propane air
pipelines, except abandoned gas or propane air lines, shall not be considered to
fall within the
2
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE> 3
definition of a Conduit and further provided, however, that Rights-of-Way along
the path of natural gas and propane air pipelines shall fall within the
definition of "Right-of-Way."
"Cornell Project" shall mean an ADSL resale application and any necessary
extension off the Backbone Network that may be required to be installed in NYSEG
Right-of-Way or Facilities in connection with Telergy's provisioning of ADSL
services.
"Easement" shall mean an easement in gross and/or the highest lesser real
property Right- of-Occupancy or use permitted to be apportioned or granted to
Telergy So Tier and which shall be consistent with the nature of NYSEG 's
interest in and to its Rights-of-Way.
"Electric Towers" shall mean metal and/or wood structures used for the
attachment of electrical transmission lines.
"Entry Notice" shall mean such notice as set forth in Paragraph 6.10.
"Facilities" when applied to property of or installed by or on behalf of
TELERGY East in, on, upon, under, across, along and through the
Right-of-Occupancy shall mean any transmission systems designed to carry
communications traffic and include Conduit installed by Telergy East,
innerducts, trace wire, carrier pipes, cables, fibers, junctions, regenerators,
power sources, fault alarm systems, electronics, structures or shelters, towers,
satellite earth stations and all other personal property necessary for or useful
to the construction, installation, operation, maintenance, repair,
reinstallation, replacement, relocation and removal of the Fiber Optic Network.
"Fiber Optic Network" shall mean the TELERGY East network, including the
Backbone Network and an spurs, loops or extensions thereto excluding the Cornell
Project, whether heretofore or hereafter conceived, invented or developed, which
primarily utilizes optical fiber as the medium for transmitting voice
communications and/or other information or data and which is located within
NYSEG's Right-of-Way utilized under this Agreement, excluding the Cornell
Project.
"Fiber Optic Ground Wire" or F.O.G. wire shall mean static wire containing
optical fibers.
"Initial Term" shall mean the initial twenty-five (25) year period of this
Agreement.
"Ithaca Spur" shall mean an extension off the Backbone Network to be
constructed and installed in NYSEG Right-of-Way connecting to Cornell and
extending on to connect two points at or near Bell Atlantic POPS.
"TELERGY East" shall mean the limited liability company, which is a party
to this Agreement and is granted permission by NYSEG in accordance with the
terms and conditions of this Agreement to place its Fiber Optic Network and
Facilities using NYSEG 's Right-of-Way and which is responsible for compliance
with NYSEG 's regulations and/or standards as well as all legal and other
regulatory or governmental rules, regulations and orders in performing
activities contemplated by this Agreement.
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"Make-Ready Work" shall mean all work including but not limited to the
rearrangement of existing facilities, rodding of duct, and similar installation
required to accommodate the installation of TELERGY East's Backbone Network and
spurs, loops or extensions thereto, including the Cornell Project, in accordance
with this Agreement.
"NYSEG " shall mean New York State Electric and Gas Corporation, which is
a party to this Agreement.
"NYSEG Capacity" shall mean the dark fiber strands set forth below in
Article 5.1, which dark fiber shall be provided to by TELERGY East in
consideration for the Right-of-Occupancy conferred by this Agreement.
"NYSEG Standards" shall mean all rules, regulations and procedures that
shall govern Telergy East's activities under this Agreement, which standards
shall be attached hereto as Exhibit "A".
"NYSEG System" shall mean NYSEG's Right-of-Way and electric, natural gas
and propane air transmission and distribution systems.
"Pre-Construction Survey" shall mean the work operations to be performed
in order to process an application for a Right-of-Occupancy to the point just
prior to performing any necessary Make-Ready Work. There are three elements of
Pre-Construction Survey:
A. engineering (planning) record search to determine span capacity of
conduit or gas system,
B. field inspection of the existing facilities to verify available space
and determine Make-Ready Work order, and
C. administrative effort required to process the application and prepare
Make-Ready Work order.
"Property Drawings" shall mean the NYSEG Right-of-Way drawings, plan and
profile drawings for the use of Right-of-Way within which TELERGY East has been
granted a Right-of-Occupancy, in accordance with the terms and conditions of
this Agreement.
"Regenerator" shall mean a facility which receives, regenerates, and
retransmits a digital telecommunications transmission signal, together with
attendant equipment and structures, including power sources.
"Right of Occupancy" shall mean Telergy East's right to place its Fiber
Optic Network and Facilities for the Backbone Network and any spurs, loops or
extensions thereto including the Cornell Project in NYSEG's Right-of-Way as
defined below in accordance with and as defined by the terms and conditions of
this Agreement. A Right-of-Occupancy under this Agreement shall not provide
TELERGY East with any ownership interest in NYSEG 's real property or
Right-of-Way.
"Right-of-Way" shall mean the area of NYSEG-owned, -operated, or
- -controlled property for an electric or gas distribution or transmission line,
Conduit, pole, tower, or facilities, abandoned
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gas and propane pipeline and other NYSEG gas or electric as well as access to
Rights-of-Way or easements along the path of any NYSEG natural gas or propane
air pipeline as well as access to Rights-of-Way that may be acquired by NYSEG
within and outside of New York State subsequent to the date of this Agreement.
"Spur" shall mean any extension off the Backbone Network, and shall
include laterals, loops and spurs constructed or installed in NYSEG's
Right-of-Way, excluding the Cornell Project.
"System" shall mean Telergy East's Fiber Optic Network, as is heretofore
or hereafter conceived, invented or developed by TELERGY East, and which
primarily utilizes optical fiber as the means for transmitting voice, data or
video and/or other information pursuant to this Right-of-Occupancy Agreement.
"Term" shall mean the Initial Term and any extensions thereof.
"Tower Sites" shall mean those areas on the Right-of-Way on which towers
or earth satellites are located.
"Working Day" shall mean any day other than a Saturday, a Sunday or a
Federal or New York State holiday.
ARTICLE III
RIGHT-OF-OCCUPANCY DESIGNATION
3.1 For an initial term of twenty-five (25) years, NYSEG hereby grants to
TELERGY So-Tier Right-of-Occupancy in, on, upon, under, across, along and
through (hereinafter collectively referred "within") its Right-of-Way, the
precise locations and path of which will be determined as set forth herein, for
the construction, installation, operation, maintenance, repair, replacement,
relocation, reinstallation and removal therein, thereon, thereover, thereunder
or therefrom of a Fiber Optic Network, including the installation of the
Backbone Network, Spurs and the Cornell Project as well as related equipment or
Facilities, in accordance with the terms and conditions of this Agreement. NYSEG
hereby grants TELERGY East, its successors and assigns, the right and option to
extend the Initial Term of this Agreement in its entirety or with respect to all
or any portion of the system, from the date upon which it would otherwise expire
for up to two (2) consecutive Extension Periods of ten (10) years each.
Nothing in this Agreement permits the installation of more than one
System, except when making necessary repairs, including cable replacement. The
aforesaid grants shall constitute Rights-of-Occupancy burdening the Right-of-Way
to the extent set forth in this Agreement. Nothing herein shall be construed as
to obligate NYSEG in any way to acquire any Rights-of-Way or other interests for
TELERGY East, provided, however, that NYSEG agrees to provide Telergy East with
access to any available Rights-of-Way that NYSEG may subsequently acquire in
accordance with the terms and conditions of this Agreement.
Although TELERGY East shall be entitled to additional Right-of-Occupancy,
in accordance with the terms and conditions of this Agreement for its Spurs
supplementing the Backbone Network
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and the Cornell Project as desired by TELERGY East for the design, engineering,
construction, installation, operations, maintenance, repair, replacement,
relocation reinstallation and removal therein, thereon, thereover, thereunder or
therefrom of Spur, including the installation of fiber optic cable and related
equipment for any Spurs, the precise path of the Spurs shall be mutually decided
by the parties.
TELERGY East shall have the right, in accordance with the terms and
conditions of this Agreement, either upon the original installation or
subsequently where necessary, to install multiple fiber optic cables within
Right-of-Way contemplated herein along the Backbone Network, Spurs or portions
thereof and the Cornell Project to accommodate additional capacity requirements,
provided that available space exists for such multiple fiber optic cables.
Where TELERGY East desires to construct the Fiber Optic Network in areas
where NYSEG does not possess a fee simple interest in the property which contain
its electric towers, NYSEG in such cases, hereby apportions such rights as it
has to Telergy East, in accordance with the terms and conditions of this
Agreement: (i) to construct the System and the Cornell Project in the NYSEG
Right-of-Way and (ii) to negotiate with the fee simple owners. The parties
understand that TELERGY East is not obligated to construct any particular area
and may decide to use non-NYSEG Rights-of-Way or facilities in certain
locations. TELERGY East desires, but is not obligated to construct all or any
portion of the System within any Right-of-Way along the NYSEG Right-of-Occupancy
contemplated by this Agreement.
The Right-of-Occupancy granted herein shall be non-exclusive, and shall be
subordinated to all existing easements, rights, privileges, licenses, or grants
or whatever nature heretofore given by NYSEG, which now exist and which affect
the property NYSEG, including but not limited to drainage rights, streets,
roadways, telephone lines, underground conduits, sewers, manholes, pipes or
right-of-way. Provided further, and notwithstanding the other provisions of this
Agreement, the parties recognize that NYSEG has the legal obligation to provide
non-discriminatory access to all telecommunications providers and, as such,
TELERGY East's Right-of-Occupancy to NYSEG Rights-of-Way, poles, towers,
conduits, ducts and abandoned gas and propane air pipelines shall not be
exclusive, however NYSEG shall not grant any third party rights to utilize
Rights-of-Way that interferes with Telergy East's rights hereunder. If other
telecommunications providers request access to NYSEG's Rights-of Way, for a
particular NYSEG route for which TELERGY East has not already requested such
access and agreed to pay the fees as set forth in Paragraph 5.1, then NYSEG
reserves the right to grant any such other telecommunications provider to
NYSEG's facilities, even if in granting such access, NYSEG would no longer have
any space available on that particular route to permit further or additional
telecommunication construction on that particular route. Further installation of
Facilities shall be permitted only insofar as such installations meet with all
legal, regulatory or governmental requirements and NYSEG Standards.
3.2 NYSEG shall provide at its own expense one set of all reasonably
requested copies of its Property Drawings with available indices for the
designated path of the Backbone Network, any Spurs or the Cornell Project.
Furnishing such drawings or materials however shall not be a guarantee of the
accuracy or completeness by NYSEG, and TELERGY East agrees to hold NYSEG
harmless from any claims by Telergy East or its agents arising from the
inaccuracy or completeness of such drawings or materials.
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3.3 NYSEG shall permit TELERGY East's employees, agents and contractors to
enter Right-of-Way for the Backbone Network, any Spurs, and the Cornell Project
on reasonable prior notice, which notice shall not be required to given more
than three (3) business days for the purpose of surveying and inspecting the
same and to make such engineering and other tests as may be necessary or
advisable to enable TELERGY East to prepare plans for the location of Backbone
Network, Spur, or the Cornell Project within any Right-of-Way and to determine
the engineering and cost consideration with respect to construction of the
System therein.
NYSEG shall also provide TELERGY East reasonable access to available title
documentation within NYSEG 's possession with respect to the Backbone Route and
any Spurs, including easements or occupancy rights, if any, heretofore granted
within any portion of such Right-of-Way, including any third-party rights, and
other existing agreements with respect to the Right-of-Way and/or restrictions
on NYSEG's right to use and occupy the same for the purposes intended by this
Agreement, including without limitation, utility crossings.
NYSEG shall further provide TELERGY East reasonable access to maps and
other documentation within NYSEG's possession as may be sufficient to describe
the identity and location of other users of the portions of the Backbone
Network, any Spurs, or the Cornell Project, which TELERGY East may have under
consideration for the installation or replacement of the System. If known to
NYSEG, it shall notify TELERGY East of any outstanding adverse claims that have
been or are made affecting any Rights-of-Way for which a Right-of-Occupancy has
or may be granted and in which TELERGY East has identified for its use under
this Agreement.
3.4 Within ten (10) days of the date of this Agreement, NYSEG will provide
to TELERGY East standard written engineering guidelines for construction plans
and standard guidelines for determining position and location of TELERGY East `s
Facilities. Any material deviations from such standard guidelines shall be
subject to the written approval of NYSEG .
3.5 The parties intend that to the extent it is reasonable and in
accordance with applicable legal requirements, where TELERGY East installs fiber
optic cable underground, it will place the cable near the perimeter of the
Right-of-Way and the parties agree to work closely and reasonably to select a
preferred route for the Right-of-Occupancy within any Right-of-Way.
3.6 NYSEG agrees to participate with TELERGY East in a joint review of the
preliminary route designation plans for the Right-of-Occupancy and in making
reasonably necessary physical inspections of a Right-of-Way for the purpose of
identifying problem areas, arriving at suitable alternatives, and defining final
routes. Based upon such preliminary plans, physical inspections and other
engineering data available to TELERGY East, it shall prepare and submit to NYSEG
one (1) set of construction plans ("Working Drawings") for the System, which may
be submitted either for the entire System or for designated Spurs. Working
Drawings shall be submitted by TELERGY East to NYSEG 's Engineering Department
not less than ten (10) days prior to TELERGY East's anticipated initiation of
construction.
Following each submission of such Working Drawings, NYSEG shall approve
the same in whole or in part or raise any bona fide objections thereto in whole
or in part which shall be stated in
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writing and shall include reasonable detail of any necessary modifications
provided however, that NYSEG's approval shall be in accordance with the
provisions of Article I and Paragraph 3.1. For purposes of this Agreement, a
"bona fide objection" shall include any condition that will cause the
unreasonable interference with NYSEG 's operations, pose an unreasonable hazard
to NYSEG 's personnel, properties or facilities, or unreasonably limit the use
of the Right-of-Way by NYSEG for power or gas transmission or distribution
purposes. NYSEG agrees to review Working Drawings and to approve or raise bona
fide objections thereto as soon as reasonably practical, but in no event later
than five (5) days following receipt of each submission in NYSEG 's Engineering
Department. Upon receipt of any such objections, TELERGY East shall either: (i)
correct the Working Drawings in respect of which such objections were noted by
making appropriate changes thereto, or (ii) advise NYSEG of any technical
problems that may impede TELERGY East's ability to make the changes, and, in
either event, shall resubmit them to NYSEG.
Notwithstanding anything herein to the contrary, due to the accelerated
construction requirements of the installation of the Backbone Network, the
parties agree to exercise their best efforts consistent with NYSEG 's public
service responsibilities to assure all Working Drawings for the Backbone Network
are reviewed and approved by NYSEG no later than [***], and to ensure that
Working Drawings for the Cornell Project are reviewed and approved by NYSEG no
later than [***].
Procedures and schedules for any necessary F.O.G. Wire installations on
the Backbone Route will be developed jointly by NYSEG and TELERGY East, and each
will exercise their best efforts to assure that all F.O.G. Wire installation(s)
are completed as soon as practical.
In addition to the Right-of-Occupancy apportioned or granted by NYSEG as
described in this Articles I and III, NYSEG shall apportion or grant to TELERGY
East, in accordance with the terms of this Agreement, Rights-of-Occupancy at
each Regenerator or Junction, at locations along the path of the Backbone
Network, any Spurs or the Cornell Project, the precise location of which shall
be mutually approved, for the installation, maintenance, operation, repair,
replacement and removal, at TELERGY East's sole cost and expense, of utilities
required to service the System including auxiliary and primary power sources and
water and sewer lines, for the use of TELERGY East. In furtherance of the
foregoing, and when required by the utility company or municipality providing
such services, NYSEG shall grant appropriate access and/or Right-of-Occupancy
within the Right-of-Way, to the extent NYSEG's Right-of-Way Agreements permit
the apportionment or grant of such access, to such utility company and/or
municipality. Power sources installed by TELERGY East shall meet all applicable
National Electrical Codes, and NYSEG regulatory and local-ordinance
requirements.
ARTICLE IV
SITES FOR NON-CABLE FACILITIES
4.1 As requested by TELERGY East, NYSEG, where franchised, reasonable and
in accordance with any applicable NYSEG Agreements, shall provide TELERGY East
at the Regenerator Sites, metered electric service in accordance with all
applicable tariffs (including any duty that TELERGY East may have to pay the
cost of any such Facilities that exceeds the cost of
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
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what NYSEG may be required to provide pursuant to its tariff free of charge),
the cost of which shall be paid by TELERGY East.
4.2 TELERGY East shall be entitled, in accordance with the terms and
conditions of this Agreement, to install its Regenerator Facilities for its
System or the Cornell Project, along Rights-of-Way; provided, however that no
Regenerator facility shall be located on any portion of such Rights-of-Way or
other NYSEG property identified by NYSEG as unavailable due to a planned NYSEG
use at such location. The location of such Regenerator Facilities shall be
subject to NYSEG 's approval. Wherever possible, NYSEG agrees to use its best
efforts to provide TELERGY East vacant land (a maximum of [***] feet by [***]
feet in size) at or near power plants or substations identified by TELERGY East
along the Backbone Network or any Spurs for use or such Regenerator Facilities,
but only to the extent NYSEG has the right to apportion or grant such access
and, provided further, any costs associated with the use of such vacant land
shall be borne by TELERGY East.
ARTICLE V
NYSEG DARK FIBERS
5.1 In consideration of the granting of the Right-of-Occupancy within the
Backbone Network Rights-of-Way, TELERGY East shall pay an annual fee of
approximately $338 per pole for attachment for the initial construction of the
Backbone Network which is approximately 92 miles from Binghamton to Syracuse.
For Spurs, including the Binghamton and Ithaca Spurs, to be constructed or
installed in the future, where TELERGY East uses NYSEG Right-of-Way, Conduit,
ducts, abandoned gas or propane air pipelines (other than for the initial
Binghamton to Syracuse run) for the purpose of installing Facilities as set
forth in this Agreement, TELERGY East shall provide NYSEG with six (6) dark
fiber strands along the entire length of any such Spur, excluding the Cornell
Project, when such Spur is constructed or installed by TELERGY East on NYSEG's
Rights-of-Way or in NYSEG owned or controlled ducts, Conduits or in abandoned
gas or propane air pipelines and NYSEG the dark fiber shall be accepted as
payment in kind, provided however that NYSEG shall not receive strands within
the service entrance pipes used to access buildings by Telergy East . NYSEG
shall have an irrevocable right to use ("IRU") such dark fibers and NYSEG shall
have the right to utilize those fibers to satisfy its own internal
communications needs, or may lease or transfer the dark fiber to parties
(including those that compete with TELERGY East), or NYSEG"s Affiliates, and/or
make any other lawful and proper use of the dark fiber as NYSEG may desire
provided however that in the event NYSEG uses any portion of the dark fiber or
its IRU for purposes other than its internal communications needs, NYSEG or the
third-party transferee shall be required to pay maintenance fees and other
standard charges as are then in effect at the time of such use.
5.2 If TELERGY East shall utilize any of NYSEG 's distribution poles for
the installation of any portion of TELERGY East's Fiber Optic Network, TELERGY
East shall enter into the appropriate Pole Attachment Agreement and shall pay
NYSEG 's then prevailing pole attachment charge, as filed by NYSEG with the
Public Service Commission of the State of New York and NYSEG shall not be
entitled to any dark fibers along any particular portion of the Backbone Network
or any Spurs where TELERGY East pays NYSEG's standard pole attachment fees.
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material
omitted on this page. The omitted portions have been filed separately
with the Securities and Exchange Commission.
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5.3 At its own expense, TELERGY East shall have the right to replace and
upgrade the System due to changes in technology as long as NYSEG's use of its
dark fiber is not adversely affected, and so long as there is space available.
5.4 In the event NYSEG terminates Telergy East's use of any portion of any
Right-of-Way due to a taking, condemnation or public utility requirement,
Telergy East's obligation to provide dark fiber along the affected portion shall
terminate without further liability or payment to NYSEG.
ARTICLE VI
CONSTRUCTION SCHEDULE, NOTICE, STANDARDS AND PERMITS
6.1 TELERGY East shall furnish to NYSEG a proposed schedule of
commencement and completion dates for construction of the Backbone Network
within ten (10) days of the date of this Agreement. Said schedule shall not be
binding on the parties but shall be an indication of proposed construction and
installation.
6.2 TELERGY East shall secure, at its expense, all necessary and final and
unconditional approvals, permits and licenses (collectively referred to as
"Approvals") from all governmental authorities and/or other parties having
jurisdiction or approval rights in respect of the use and occupation of the
Right-of-Way and the installation, operation and maintenance of the System
within the Right-of-Occupancy, specifically including, without limitation, all
required regulatory environmental approvals. If required by any local law, NYSEG
agrees, upon request to cause its authorized officers or representatives to
execute any applications or other documentation prerequisite to securing the
Approvals. Environmental impact assessments or statements required, if any,
shall be prepared by TELERGY East at its sole risk, cost and expense.
6.3 Following the issuance of any necessary Approvals, TELERGY East, its
employees, agents, contractors and/or subcontractors shall, in accordance with
the terms and conditions of this Agreement, have the right to construct the
System within any Rights-of-Way and shall obtain a Right-of-Occupancy in
accordance with the Working Drawings.
6.4 All access to areas in and around utility tower and pole areas, as
well as power plants and substations shall be coordinated by NYSEG in accordance
with TELERGY East's anticipated construction schedule.
6.5 Except as herein otherwise expressly set forth, construction and
installation of the Backbone Network, Spurs and the Cornell Project and the
furnishing of all labor, materials and equipment necessary to construct and
install the same, shall be at TELERGY East's sole expense. All such work shall
be performed in a good and workmanlike manner and in compliance with all laws,
ordinances, codes and regulations of any governmental authorities having
jurisdiction thereover, subject, nevertheless, to TELERGY East's right in good
faith and at its expense to
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contest any such laws, ordinances, codes or regulations and NYSEG's Standards or
the application thereof to the System or TELERGY East's installation thereof;
and, if required by law, NYSEG , at its discretion, may permit any such contest
to be conducted in its name.
6.6 TELERGY East shall be responsible for obtaining from private entities
and/or public agencies any and all necessary easements, rights of way, licenses,
permits, permissions, certifications or franchises to construct, operate and/or
maintain its Fiber Optic Network or the Cornell Project or portions thereof on
private or public property at the location of TELERGY East's Facilities. NYSEG
agrees that it shall provide reasonable cooperation in connection with TELERGY
East's efforts to obtain such necessary permits and consents.
6.7 If NYSEG 's permission or consent in writing is required by a
governmental or regulatory agency in conjunction with the processing or
application by TELERGY East for such permits and consents, NYSEG shall provide
same, provided, however, that NYSEG shall have the right to review and approve
the terms and conditions, if any, that may be required or requested of NYSEG by
said governmental or regulatory agency, which such approval shall not be
unreasonably withheld.
6.8 In conformance with the other terms and provisions of this Agreement,
NYSEG does not warrant the validity or apportionability of any rights it may
hold for TELERGY East to place its Facilities on private property. NYSEG will,
upon written request by TELERGY East, provide available information and copies
of any documents in its files pertinent to the nature of the rights NYSEG
possesses over private property. The cost of providing such information and
reproducing documents shall be borne by TELERGY East.
6.9 Where TELERGY East determines that NYSEG has an Easement over a public
or private right of way sufficiently broad under New York State law to permit
TELERGY East's Right-of-Occupancy, it shall, in its sole discretion, make the
determination whether to obtain an independent Easement from the property owner
to place its Facilities. NYSEG shall have no duty to advise TELERGY East
concerning its perceptions or beliefs concerning the issue whether TELERGY East
has a lawful right of access to its poles, Rights-of-Way, ducts, Conduits and
abandoned gas and propane air pipelines except that NYSEG shall be required to
inform Telergy East of any known challenges to NYSEG's use or occupancy of any
Right-of-Way, and shall further use its best efforts to advise Telergy East of
any persons or entities with whom NYSEG has had or is aware of disputes
involving real property interests of entering on property; otherwise it shall be
TELERGY East's sole duty and responsibility to review NYSEG records to make such
determinations.
6.10 Except for maintenance, emergency situations or situations requiring
expeditious action, whenever TELERGY East desires to use NYSEG's Right-of-Way to
construct, install, repair, reinstall, replace, relocate or remove any part or
portion of the System or its Facilities, TELERGY East shall submit written
notice ("Entry Notice") three business days in advance to NYSEG . If, other than
in an emergency, the proposed work shall require TELERGY East to disturb NYSEG
's operations, such Entry Notice shall include, as applicable, plans, including
reasonable details and methods of the proposed construction, repair, replacement
or other work. Such plans and the timing of all such work shall be subject to
the consent and approval of NYSEG
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as provided in Paragraph 3.6. Prior to commencement of any cable installation,
TELERGY East shall provide required notification to the respective local
Underground Utilities Locating Service as is appropriate for that area.
For and during the term of the Agreement, NYSEG shall not excavate for the
purposes of longitudinal construction and/or insertion of cable or conduit
within five (5) feet of the Running Line of the System other than for necessary
gas and/or electric distribution or transmission purposes. Except for NYSEG
System emergencies, all excavations within ten (10) feet of the Running Line of
the System shall require not less than thirty (30) days prior written notice to
TELERGY East and shall be coordinated with TELERGY East so as to prevent damage
to the System and the disruption of transmission thereover. Moreover, NYSEG
shall use its best efforts to minimize any disruptions of the System during the
performance of any work by NYSEG or others within the restricted area.
6.11 TELERGY East, at its sole risk, cost and expense, shall furnish all
materials, construct, maintain, use, change or remove TELERGY East Facilities or
any part thereof in accordance with the design and specifications on Working
Drawings, in a prudent and workmanlike manner, in conformity with any applicable
statutes, rules, orders, regulations and specifications of any public body
having jurisdiction thereof and in conformity with NYSEG 's Standards and so as
not to interfere with or endanger any property, operations, maintenance, or
employees of NYSEG , or of other existing parties lawfully occupying or using
the property of NYSEG .
6.12 Except as otherwise provided herein, TELERGY East shall be
responsible for any and all costs associated with the design, engineering,
construction, installation and subsequent maintenance and operations of the
System.
6.13 TELERGY East , upon not less than three (3) working days prior notice
to NYSEG, may during any period of construction and installation of the Backbone
Network, any Spurs or the Cornell Project, following completion of construction
thereof, in connection with post-construction cleanup activities, place
inspectors, supervisors, or other reasonably necessary personnel on site for the
protection of Telergy East's operation, property, Right-of-Way, or the property
of others.
In the event that TELERGY East shall require the use of NYSEG personnel at
other than normal business hours, it shall reimburse NYSEG for payment by to
NYSEG for any "shift differentials" for any such personnel or the excess of
overtime pay for any such personnel over their normal compensation provided that
Telergy East agrees in advance to such additional costs. In addition, TELERGY
East shall pay for all pre-approved personnel to oversee the repair of damage to
NYSEG 's facilities due to TELERGY East's or its subcontractors' negligence
except work performed by NYSEG during construction.
6.14 Following the completion of the initial construction of the Backbone
Network, the operation, maintenance, repair, replacement, reinstallation,
relocation and/or removal thereof shall be solely under the control and at the
expense of TELERGY East, subject nevertheless to the provisions regarding Entry
Notices as set forth above.
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6.15 The parties recognize that high voltage transmission wires may come
into play with the construction and maintenance of some of TELERGY East's
System. There are certain types of work that only "qualified electrical
contractors" can perform (e.g., work within ten (10) feet of high tension wires)
Provided further, in the event maintenance or construction of TELERGY East's
Facilities requires NYSEG to deactivate pipes or lines, TELERGY East shall be
responsible to pay NYSEG all costs associated therewith, including any lost
revenues that NYSEG incurs as a result of such deactivation provided however
that the parties shall meet and agree to the amount of any such lost revenues in
advance..
ARTICLE VII
RELOCATIONS, SURVEY RECORDS, FACILITY LOCATION SIGNS
7.1 In the event that a portion of NYSEG 's Right-of-Way occupied by
TELERGY East is reasonably required (and not merely for NYSEG's convenience) by
NYSEG or is required by regulatory or legal reasons in connection with NYSEG 's
gas and/or electric business, NYSEG will exercise a best effort approach for the
continued use of the Right-of-Occupancy of the Right-of-Way or alternate
Right-of-Way by TELERGY East subject however to the other terms and conditions
of this Agreement. However, where this is not appropriate, NYSEG will, subject
to the terms and conditions of this Agreement, where feasible, with F.O.G. Wire
supplied by TELERGY East, pull in, attach and make ready for TELERGY East
connection, the F.O.G. Wire on the rebuilt/relocated sections of the
Right-of-Way, and NYSEG shall be paid an appropriate fee for such services.
TELERGY East, at its sole cost, assumes all responsibility for all
installations, training, materials, splices and bypass necessary to relocate
and/or reconnect the relocated portion of the System to the balance of the
System and NYSEG shall not incur any cost and TELERGY East shall bear the entire
cost associated with such required relocation or removal of Facilities by
TELERGY East where such relocation and/or removal is reasonably required by
NYSEG (and not merely for NYSEG's convenience) or is required by regulatory or
legal reasons to be used in connection with NYSEG's gas and/or electric
business. Additionally, TELERGY East agrees that such F.O.G. Wire shall meet
NYSEG 's electrical and structural design requirements. In the event of such
relocation, if the continued use of the Right-of-Way by TELERGY East is not
appropriate, and if a F.O.G. Wire installation is not feasible and removal of
all or a portion of TELERGY East's System from NYSEG's right-of-way is required,
all responsibility for provision of the NYSEG dark fiber related to the portion
affected by such removal may be terminated by Telergy East without further
obligation to NYSEG..
7.2 NYSEG shall make available survey records in its possession for
inspection and/or reproduction by TELERGY East at TELERGY East's costs, subject
to limitations of survey contracts, regulations or local laws. NYSEG however
shall not be deemed to have guaranteed the accuracy of such standards.
7.3 TELERGY East's, at its sole cost and expense, shall furnish, erect and
thereafter maintain cable markers designating all TELERGY East underground
Facilities. Such markers shall
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be installed at the edge of the Right-of-Way or some other location reasonably
designated by NYSEG along centerline. The cable markers shall be placed in
conformity with industry standards or as otherwise approved by NYSEG.
If NYSEG is required by any municipal or public authority to relocate its
Conduit System which contains TELERGY East Facilities and TELERGY East desires
to relocate rather than use other Rights-of-Way, including those of third
parties, TELERGY East shall pay its proportionate share of the total relocation
costs. The cost shall include all relocation costs and tie up costs reasonably
incurred under the circumstances at the usual rates recoverable by NYSEG in
relocation projects.
7.4 Should any portion of the Backbone Network, any Spurs or the Cornell
Project installed by TELERGY East in NYSEG Right-of-Way be appropriated and/or
acquired by condemnation or the power of eminent domain by any public or
quasi-public authority, then the Rights-of-Occupancy hereby granted to the
extent appropriated shall terminate, and NYSEG shall use its best efforts to
make other Right-of-Way available to TELERGY East and, in any event, this
Agreement shall otherwise remain in full force and effect.
7.5 If any taking includes any portion of the System, TELERGY East's
Facilities, or the Cornell Project, TELERGY East's interest in the System shall
be severed from NYSEG's interest in such proceeding and the parties agree to
have the condemnation awards specifically allocated between and payable in
accordance with TELERGY East's interest, both physical and occupational,
including any incremental value of an affected Right-of-Way by virtue of the
installation of the System that is awarded, and NYSEG's interest, both physical
and ownership rights. In addition, if permitted pursuant to applicable law,
TELERGY East shall be entitled to make a claim for and receive the portion of
the award attributable to either the entire amount if separately allocated or
the proportionate share if combined in a lump sum award, the System and/or
damages payable on account of System relocation expenses.
To the extent it has knowledge, NYSEG shall notify TELERGY East
immediately of any condemnation threatened or filed against any portion of the
Backbone Network which includes TELERGY East's preliminary Network designation
plan or could include any part of the System within a Right-of-Occupancy, and
NYSEG further agrees not to sell or convey any portion of a Right-of-Occupancy
on a Right-of-Way containing any Facilities to such acquiring authority in lieu
of condemnation without prior notice to and approval by TELERGY East. Upon
giving any such notice to TELERGY East, NYSEG shall, to the extent available to
it, offer TELERGY East, without payment of any additional consideration therefor
by TELERGY East, alternate contiguous areas within the Right-of-Way within which
the Right-of-Occupancy may be relocated following such taking.
ARTICLE VIII
CABLE INSTALLATION AND CONSTRUCTION
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8.1 Except for the initial Backbone Network which shall be installed
primarily using above ground poles and towers, in all situations where possible
and practical, cable shall normally be installed by TELERGY East underground,
and in accordance with Working Drawings approved by NYSEG and with the
construction standards as provided herein. Cables crossing under public roadways
shall be at a location and depth as determined by state and local conditions,
laws, regulations or orders of public authorities and NYSEG Standards and
requirements. To the extent not preempted by state of local laws, regulations or
orders, such installation shall also be in accordance with the approved Working
Drawings and the construction standards as provided herein. Cables crossing over
or under other existing public utilities shall be located and installed in
accordance with local conditions, laws, regulations or orders of public
authorities, NYSEG Standards and requirements and such requirements as may be
required by the New York State Public Service Commission. If in the conduct of
work, any changes or alterations, permanent or temporary, in existing pipelines,
sewers, drains, conduits, fences, power, signal or communication lines or other
utilities are necessary, such changes shall be made or caused to be made solely
by TELERGY East and at TELERGY East's sole risk, cost and expense. Emergency
cable installation, maintenance and repair methods shall comply with standards
and policies to be developed by the parties; provided, however, in no event
shall a TELERGY East emergency situation allow TELERGY East to damage other
third party or NYSEG facilities such that such NYSEG or third party facilities
would be required to be taken out of service.
8.2 The rights of parties to whom NYSEG currently, or to whom NYSEG may in
the future lease, license, or apportion any of the lands on which the Fiber
Optic Network, System or Cornell Project will be installed shall be protected
and TELERGY East, its contractors, agents and employees shall assume all
responsibility for any damage actually done by TELERGY East, its contractors,
agents and employees to lawns, gardens, shrubbery, fences, etc, and upon
completing construction, TELERGY East shall restore the lands to substantially
the same condition as before entering thereon, provided however that in the
event NYSEG performs any such work, NYSEG shall assume all responsibility for
compliance with the terms and conditions of this Agreement applicable to such
NYSEG work. TELERGY East shall investigate and resolve any and all complaints
arising from or in connection with such construction in an expeditious manner.
TELERGY East shall not place any material on NYSEG property that is recognized
by appropriate governmental authority as toxic/hazardous material, equipment and
waste.
8.3 TELERGY East shall comply with NYSEG 's construction standards and
policies in the construction of the System. Any changes necessary to NYSEG 's
overhead and underground facilities necessitated by this Agreement as reasonably
determined by NYSEG will be made by NYSEG at TELERGY East's sole cost and
expense.
ARTICLE IX
NYSEG 'S EXPENSES AND EMPLOYEE COSTS
9.1 NYSEG 's reasonable costs and expenses for any work performed at the
request of TELERGY East pursuant to the terms hereof, including necessary
construction in public right-of-way, shall be paid by TELERGY East within thirty
(30) days of the date of an accurate invoice including appropriate
documentation. Such expenses of NYSEG shall be in accordance with NYSEG 's
standard external billing practices. NYSEG shall present such expenses to
TELERGY
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East monthly for payment via an itemized invoice, together with supporting
documentation of the incurred costs for the previous thirty (30) day period.
ARTICLE X
INDEPENDENT CONTRACTOR STATUS
10.1 NYSEG reserves no control whatsoever over the employment, discharge,
compensation of or services rendered by TELERGY East's employees or contractors,
and it is the intention of the parties that TELERGY East shall be and remain an
independent contractor and that nothing herein shall be construed as
inconsistent with that status or as creating or implying any partnership or
TELERGY East between NYSEG and TELERGY East.
ARTICLE XI
TAXES
11.1 TELERGY East shall pay all transfer taxes, documentary stamps,
recording costs or fees, or any similar expense in connection with the recording
or filing of any memoranda or short form of the Agreement describing the
Right-of-Occupancy granted to TELERGY East hereby. TELERGY East further agrees
that if it is determined by any state or local governmental authority that the
sale, acquisition, license, grant, transfer or disposition of any part or
portion of the Rights-of-Occupancy herein described requires the payment of any
taxes, including but not limited to sales, use, real property, ad valorem,
transfer gains taxes, or tax on the furnishing of utility services under any
statute, regulation or rule, TELERGY East shall pay the same, plus any penalty
or interest thereon, directly to said taxing authority, and shall hold NYSEG
harmless therefrom; provided, however, TELERGY East said obligation to hold
NYSEG harmless shall not apply to any penalty or interest due in respect of the
delinquent payment of any such tax where the delinquency shall result due to
NYSEG 's failure to promptly notify TELERGY East of the assessment and/or levy
of such tax and/or the receipt of any invoice or bill in respect thereof.
11.2 TELERGY East shall pay all annual or periodic real property, personal
property, gross receipts, franchise tax or other taxes levied or assessed upon
the Right-of-Occupancy, System or Facilities, or on account of their existence,
and shall indemnify NYSEG against the payment thereof. TELERGY East shall be
responsible for the filing of any and all returns or other filings in respect of
such personal property taxes.
11.3 To the extent that NYSEG is required to make any kind of submission
or filing with any governmental or regulatory authority which could effect the
amount of any tax that TELERGY East must pay pursuant to this Agreement, NYSEG
shall coordinate such submission or filing, and the information contained
therein, with TELERGY East. Further, NYSEG agrees that it shall provide TELERGY
East prompt notice of the receipt of any notice of assessment in respect of the
Rights-of-Way, or any portion thereof, which may include as an increment of the
amount of such assessment a sum which is attributable to this Agreement and/or
the System and/or the Facilities. TELERGY East shall have the right to protest
any such levy or assessment in respect of any such tax or other fee or charge
which TELERGY East is obligated to pay in accordance with the Agreement, or to
make claim for refund, rebate, reduction or abatement of any of said taxes.
Further, TELERGY East shall have the right to protest any assessment of which it
has been given
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notice pursuant to this Article. NYSEG shall cooperate, where appropriate, with
TELERGY East, at TELERGY East's cost and expense, in the prosecution of any
protest regarding the assessment and/or levy or any claim for refund, rebate,
reduction or abatement of said taxes.
11.4 The Backbone Network, any Spurs, the Cornell Project, Facilities and
the System installed on NYSEG 's Right-of-Way shall be and remain at all times
the personal property of TELERGY East regardless of the manner or method of
installation. The parties agree to execute all reasonable documentation
requested to evidence such ownership.
ARTICLE XII
NOTICES
12.1 Any notice to be given to NYSEG under this Agreement shall be sent by
certified mail or overnight express delivery:
(one copy each to):
New York State Electric & Gas Corporation
Corporate Drive
Kirkwood Industrial Park
Binghamton, NY 13902
Attn: Michael Coppola
and
New York State Electric & Gas Corporation
4500 Vestal Pkwy. East
Binghamton, NY 13902
Attn: Luke Mickum
12.2 Any notice given to TELERGY East under this Agreement shall be sent
by certified mail or overnight express delivery:
(one copy each to):
Telergy East, LLC
One Telergy Parkway
East Syracuse, New York 13057
Attn: President
and
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Telergy, Inc.
20 Corporate Woods Boulevard
Albany, New York 12211
Attn: General Counsel
Notice shall also be given to such other parties as may be designated in writing
to the other party.
12.3 Unless otherwise herein set forth, notices shall be sent, postage
prepaid, either by registered or certified U.S. Mail, Return Receipt Requested,
or by overnight express delivery service, and shall be deemed served or given
when received by the addressee, as evidenced by the date of the Return Receipt
or the receipt provided by the delivery service. In case of an emergency
demanding immediate examination or repairs of the Facilities by NYSEG, notice
shall be given by either party to the other in person or by telephone to the
emergency response center designated in writing by each party to the other. Each
party giving such notice shall follow up with written notice within three (3)
business days.
ARTICLE XIII
LIABILITIES AND INDEMNIFICATION
13.1 To the fullest extent permitted by law, TELERGY East ("Indemnitor")
agrees to defend, indemnify and save NYSEG , its agents and employees
("Indemnitee") harmless from and against any and all liabilities, cost, suit
charge, expenses, claims, losses, damages, cause of action, bodily injury or
death of any person whomsoever (including employees of the parties), or damage
to any property, real and personal, including environmental damages, and
economic damages to property of NYSEG, TELERGY East or other third parties
legally on the Right-of-Way (whether owned, leased or licensed), including but
not limited to TELERGY East's Facilities, and all costs and expenses, including
legal expenses, incurred or sustained in enforcing this indemnification, caused
by, arising out of or in any way connected with this Right-of-Occupancy or the
construction, installation or subsequent operation, maintenance, repair,
replacement, reinstallation, relocation or removal of TELERGY East's Facilities,
unless such loss, injury or damage shall have resulted from the negligent act or
omission to act of NYSEG or its agents, employees or contractors.
13.2 To the fullest extent permitted by law, NYSEG agrees to defend,
indemnify and save TELERGY East harmless from and against any and all claims,
losses, damages, bodily injury or death of any persons whomsoever, including
employees of the parties, or damage to any property, including property of NYSEG
or TELERGY East or other third parties legally located on the Right-of-Way
(whether owned, leased or licensed), including TELERGY East's Facilities and all
costs and expenses, including legal expenses, incurred or sustained in enforcing
this indemnification, caused by, arising from or growing out of (i) the
negligent act or omission to act of NYSEG or its agents, employees or
contractors, or (ii) TELERGY East having followed NYSEG 's express written
instructions as to the manner, means or methods of performing any act.
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13.3 Either party ("Indemnitor") shall have the right to defend the other
party ("Indemnitee"), by counsel of the Indemnitor's selection reasonably
satisfactory to the other party ("Indemnitee"), with respect to any claims
within the indemnification provisions hereof. The parties shall give each other
prompt notice of any asserted claims or actions indemnified against, shall
cooperate with each other in the defense of any such claims or actions and shall
not settle any such claims or actions without the prior consent of the
indemnifying party ("Indemnitor").
13.4 Neither of the parties shall be liable to the other for special,
consequential or exemplary damages (including, without limitation, any claims
from any client, customer or patron of either party for loss of services)
arising under this Agreement or from the breach of any of the provisions hereof.
13.5 The obligations of the respective parties under this Article thirteen
shall survive the expiration date in respect of any occurrences within the term.
ARTICLE XIV
INSURANCE
14.1 From the commencement of the Work, through the term of this
Agreement, TELERGY East shall provide at its own expense, insurance policies,
issued by reputable insurance companies acceptable to NYSEG which meet or exceed
the requirements listed herein:
A. Workers Compensation and Employers Liability Insurance required
by the State of New York. Coverage shall included the U.S. Longshoremen's and
Harbor Workers Compensation Act and the Jones Act.
B. Public Liability, covering all operations to be performed under
this Agreement, with minimum limits of:
- Bodily Injury $1,000,000/$1,000,000
- Property Damage $ 500,000 /$ 500,000
OR
- Combined Single Limit $1,000,000
OR
- BI & PD per occurrence $1,000,000
- General Aggregate and
Product Aggregate $2,000,000
14.2 This policy shall include Contractual Liability, Products-Completed
Operations and Explosion, Collapse and Underground (XCU) coverage. If the
Products-Completed Operations
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coverage is written on a Claims-made basis, coverage shall be maintained
continuously for at least two (2) years after final acceptance of the work.
14.3 Automobile Liability, covering all owned, non-owned and hired
vehicles used in connection with the work to be performed under this
Contract with minimum limits of:
- Bodily Injury $300,000/$500,000
- Property Damage $100,000
OR
- Combined Single Limit $500,000
14.4 Protective Liability Policy in the name of NYSEG covering all work
performed under the contract, with limits as specified in Section 14.1. In lieu
of providing this coverage, TELERGY East may include NYSEG as an additional
insured under the public liability policy to provide coverage for, but not
limited to, the liability arising out of the TELERGY East's work under this
Agreement.
14.5 Watercraft Liability, if the Work requires the use of watercraft,
with the same limit of liability of not less than $1,000,000 combined single
limit.
14.6 Aircraft Liability, if Work requires the use of aircraft, with a
limit of liability of not less than $1,000,000 combined single limit.
14.7 At the request of NYSEG , TELERGY East shall provide Professional
liability coverage with a limit of liability to be determined by NYSEG 's Risk
Management Department.
14.8 In the event TELERGY East uses subcontractors in connection with this
Agreement, it shall require all subcontractors to provide the same insurance
coverage as required in Article XIV herein.
14.9 Prior to starting work, TELERGY East shall promptly provide NYSEG
with the original Owner's Protective Liability policy and (a) Certificate(s) of
Insurance for all other coverages required herein at the following address:
NYSEG
ATTN: Risk Management
_________________________________
_________________________________
_________________________________
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Such certificates, and any renewals or extensions thereof, shall provide
that at least thirty (30) days prior written notice shall be given to NYSEG in
the event of any cancellation or diminution of coverage.
14.10 Reservation of Liens - If any policy should be canceled prior to the
period set forth in this Agreement, and the TELERGY East fails immediately to
procure other insurance as specified herein, NYSEG reserves the right to procure
such insurance and to charge the cost to TELERGY East.
14.11 TELERGY East shall furnish NYSEG with copies of any accident reports
sent to TELERGY East's insurance carriers covering accidents occurring in
connection with or as a result of the performance of work under this Agreement.
14.12 TELERGY East shall furnish NYSEG with a certificate of such
insurance and of renewals thereof prior to the expiration of any such
policy(ies) and shall name NYSEG as an additional insured under its respective
policy(ies), if any.
14.13 All insurance shall be effected by valid and enforceable policies
issued by insurers of responsibility and licensed to do business in the State of
New York, such responsibility and the insuring agreements to meet with the
reasonable approval of NYSEG and TELERGY East. The limits of the policies
required hereunder shall be increased from time to time by agreement of the
parties to meet changed circumstances including, but not limited to, changes in
the purchasing power of the dollar and the course of plaintiff's verdicts in
personal injury actions; provided, however, such limits shall not be increased
more frequently than every five (5) years. In recognition of the potential for
changes in the insurance market and the availability and cost of insurance, the
parties hereby expressly agree that, in the event that either (i) the insurance
required of either party hereunder shall cease to be available (either as to
limits or coverages) or (ii) such insurance shall be available only at excessive
cost, the parties shall agree upon alternative policy limits and/or coverages,
as well as appropriate levels of self-insurance for both parties.
14.14 Nothing in this Article XIV shall be construed as to prevent TELERGY
East from satisfying its insurance obligations pursuant to this Agreement under
a blanket policy or policies.
ARTICLE XV
LIENS
15.1 In the event that any property of NYSEG shall become subject to any
mechanics, artisan or materialmans liens chargeable to or through TELERGY East,
it shall promptly cause such lien to be discharged and released of record, by
payment, posting of bond, court deposit or other means, without cost to NYSEG
and shall indemnify NYSEG against all costs and expense, including reasonable
attorneys' fees, reasonably incurred in discharging and releasing such lien;
provided, however, that if any such lien is not so discharged and released
within thirty (30) days after notice thereof by NYSEG to TELERGY East, or within
such shorter period as shall be mandated under applicable local law, then NYSEG
may pay or secure the release or discharge thereof at the expense and cost of
TELERGY East.
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15.2 Subject to the other terms and conditions of this Agreement, NYSEG
shall keep TELERGY East Facilities free and clear of all liens or other
encumbrances which arise in any way from or as a result of NYSEG 's activities
and cause any such liens or encumbrances which may arise to be discharged or
released of record as provided in this Article within thirty (30) days after
notice thereof by TELERGY East to NYSEG , or within such shorter period as shall
be mandated under applicable local law, then NYSEG may pay or secure the release
or discharge thereof at the expense and cost of TELERGY East.
15.3 Nothing herein shall preclude TELERGY East and/or NYSEG as the case
may be from contesting any such lien or the contract or action upon which the
same arose after the same shall have been bonded as described above.
15.4 TELERGY East hereby recognizes and agrees that this Agreement shall
be subject and subordinate to the provisions of the first mortgage indenture
dated October 1, 1937, as amended, from NYSEG 's predecessor, Central New York
Power Corporation, to the Marine Midland Trust Company of New York, now Marine
Midland Bank, N.A., as Trustee. Notwithstanding such subordination, except for
the NYSEG Capacity, NYSEG hereby recognizes and agrees that the System shall be
and remain at all times the personal property of TELERGY East and the System
shall at no time be or become subject to or collateral under said first mortgage
indenture.
ARTICLE XVI
AMENDMENTS
16.1 Each party shall be responsible for its own costs, including legal
fees, incurred in negotiating or finalizing this Agreement.
16.2 Neither this Agreement nor any term or provision hereof can be
amended, waived, modified, supplemented, discharged or terminated, except by an
instrument in writing signed by the party against which enforcement thereof is
sought.
16.3 This Agreement and any amendment, modification, waiver or supplement
hereto may be executed by the parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original for all purposes, but
all such counterparts shall together constitute but one and the same instrument.
ARTICLE XVII
PROCEDURES
17.1 TELERGY East's Facilities shall be placed, maintained, relocated or
removed in accordance with NYSEG's Standards, including but not limited to the
current editions of NYSEG 's Underground Standards for Construction, the
National Electric Code (NEC), the National Electrical Safety Code (NESC), Rules
and Regulations of the Occupational Safety and Health Act (OSHA) and any
governing authority having jurisdiction. Where a difference in specification may
exist, the more stringent shall apply. TELERGY East's Facilities shall not
physically, electronically or inductively interfere with NYSEG 's Conduit System
or other Facilities.
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17.2 NYSEG reserves the right to specify the type of construction
standards required in situations not otherwise covered in this Agreement. In
such cases, NYSEG will in its discretion furnish to TELERGY East written
material which will specify and explain the required construction. Subject to
Paragraph 17.1, TELERGY East shall have the right to select the type of fiber
optic cable to be installed.
17.3 At TELERGY East's discretion, Facilities installation may be
performed by NYSEG, NYSEG 's designated contractor, or TELERGY East or its
subcontractor, following completion of Make-Ready Work and delivery of
Facilities by TELERGY East to NYSEG. TELERGY East shall have the right to
conduct testing of its Facilities in accordance with mutually agreed-upon
standards (which will be provided and agreed upon prior to installation)
following the completion of fiber optic installation to insure that agreed-upon
design specifications have been met. Splices in TELERGY East fiber optic cables
shall be located only in manholes, pull boxes or handholes.
17.4 TELERGY East shall be responsible for any problems from or in its
Facilities, excepting such as may have been caused by the negligence of NYSEG as
provided for herein.
17.5 Should NYSEG for its own requirements (other than those imposed by
regulatory or legal rules, orders and requirements as contemplated in Section
7.1 of this Agreement), need to install additional conduit, gas or other
facilities or modify such conduit, gas or other facilities in which TELERGY East
has a Right-of-Occupancy, NYSEG shall notify TELERGY East and if Telergy East
desires to utilize additional Rights-of-Way associated with NYSEG's installation
of additional conduit, gas or other facilities, NYSEG shall pay the costs of
such relocation Notification of any relocation by NYSEG shall be given in
writing not less than thirty (30) days before any such modification except in
emergency situations, and TELERGY East shall have the option either to (i)
relocate at NYSEG's costs unless the relocation is required as contemplated in
Section 7.1, or (ii) terminate its use of such facilities and the payment of
dark fiber along the area subject to relocation without further liability to
NYSEG. NYSEG agrees that whenever it performs construction related activities or
installs, or upgrades underground conduit or gas facilities or with respect to
installations through building entrances, it will notify TELERGY East in advance
so that TELERGY East can simultaneously install fiber or conduit for its System
under proportionate cost sharing arrangements to be agreed upon by the parties.
17.6 All maintenance work for Facilities of TELERGY East shall be the
responsibility of TELERGY East. Recognizing that time may be of the essence,
upon a request from TELERGY East to perform maintenance with respect to NYSEG 's
facilities where maintenance is required on NYSEG facilities and such lack of
maintenance is interfering with TELERGY East Facilities, NYSEG shall investigate
reported interruptions of TELERGY East Facilities, within a reasonable time
frame. Repair or restoration of failed Facilities will be dictated by
investigated findings. At TELERGY East's discretion TELERGY East, or its
designated contractor will perform all work necessary for repair or restoration
of its Facilities. NYSEG 's inspector shall have the right to be present and
oversee TELERGY East's repair activities, and to terminate such activities when,
in the inspector's discretion, said activities pose a danger to NYSEG 's
facilities. Notwithstanding the foregoing provision, NYSEG agrees that if a
contractor or subcontractor is designated for
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maintenance work required to repair and restore service interruptions of TELERGY
East's Facilities, a qualified telecommunications maintenance company selected
by TELERGY East shall be granted access to the affected Right-of-Way under such
reasonable terms and conditions as may be set by NYSEG, for the purpose of
restoring service interruptions within such fixed period of time as may be
necessary under the circumstances. NYSEG agrees to have supervisory personnel
available within such period of time in order to supervise the maintenance work
required to repair and restore service interruptions. TELERGY East shall have
the right, subject to NYSEG 's availability, to inspect its Facilities
periodically, upon three (3) days advance written notice to NYSEG. Such
inspection costs shall be borne solely by TELERGY East.
ARTICLE XVIII
LIABILITY AND DAMAGES
18.1 NYSEG reserves to itself, its successors and assigns, the right to
relocate and maintain its Right-of-Way, Conduit, duct and all of its facilities
and to operate its facilities in conjunction therewith in such a manner as will
best enable it to fulfill its own service requirements, with costs associated
with such relocations to be paid as set forth in Sections 7.1 and 17.5 of this
Agreement, provided however that once Telergy installs any portion of its Fiber
Optic Network, System or the Cornell Project in Right-of-Way pursuant to this
Agreement, NYSEG shall not be entitled to interfere with the operation of the
Network except as expressly provided in this Agreement. In emergency situations,
TELERGY East shall be required to act immediately where practicable to
coordinate any emergency responses with NYSEG, including but not limited to any
expedited removal or relocation of TELERGY East Facilities that may be required
in such emergency.
ARTICLE XlX
TERMINATIONS OF AUTHORIZATIONS
19.1 In addition to rights of termination provided to NYSEG under other
provisions of this Agreement, NYSEG shall have the right to terminate a
Right-of-Occupancy granted pursuant to the provisions of this Agreement where:
a. TELERGY East' Facilities are maintained or used in violation of any law
or in aid of any unlawful act or undertaking, or
b. TELERGY East ceases to have authority to construct and operate its
System on public or private property covered by the Right-of-Occupancy; or
c. TELERGY East fails to comply with any of the terms and conditions of
this Agreement or defaults in any of its obligations thereunder.
d. TELERGY East Facilities occupy NYSEG 's Right-of-Way without having
first been issued a Right-of-Occupancy therefor; or
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e. TELERGY East Facilities or Right-of-Occupancy are used by others not a
party to this Agreement (excluding TELERGY East's customers, carriers and
lessees) without the prior written consent of NYSEG, which consent shall not be
unreasonably withheld, provided, however, that a lawful successor of TELERGY
East under the LLC Operating Agreement shall be deemed a party to this
Agreement.
f. TELERGY East's Right-of-Occupancy can be terminated by NYSEG wherever
and whenever a governmental agency requires the same, in which case NYSEG will
return TELERGY East's Facilities to TELERGY East and at TELERGY East shall
remove the same at its expense less any otherwise proper credits accruing to
TELERGY East.
g. TELERGY East's insurance carrier shall at any time notify NYSEG that
the policy or policies of insurance as required in Article V (1) will be or have
been canceled or amended so that those requirements will no longer be satisfied;
or
h. any authorization which may be required by any governmental or private
authority for the construction, operation and maintenance of TELERGY East's
Facilities in the Conduit System is denied, revoked or canceled.
19.2. Notwithstanding the above, TELERGY East shall have the right to cure
the above stated defaults within thirty (30) working days of written notice by
NYSEG to TELERGY East of said default. Upon receipt of said written notice,
TELERGY East shall notify, within five (5) working days, NYSEG of its intention
to cure the default within the said 30-day period set forth above. If TELERGY
East fails to give such five days notice or if TELERGY East advises NYSEG that
it does not intend to cure, then TELERGY East shall be deemed in default and the
thirty (30) working-day period for cure shall not apply.
19.3 In the event NYSEG's desires to abandon property utilized by Telergy
East, NYSEG may at any time terminate a portion of the Right-of-Occupancy upon
the earlier of written notice to Telergy East to be given six (6) months in
advance or as soon as NYSEG decides to abandon any such property in accordance
with any applicable regulatory or legal requirements, which notice shall specify
that East, that NYSEG no longer requires the underlying Right-of-Way for its own
public utility purposes for whatever reason, or the affected portion thereof,
for its own electric and gas purposes. NYSEG will, on a best efforts basis,
attempt to provide other Right-of-Way or Facilities to meet TELERGY East's
needs, however, Telergy East will be required to relocate its Facilities in
other NYSEG or third party Right-of-Way within be six (6) months from the date
of notification at Telergy East's sole cost. In the event of termination of any
of TELERGY East authorizations hereunder, TELERGY East will remove or abandon,
TELERGY East's Facilities within ninety (90) days of the effective date of the
termination; provided, however, that TELERGY East shall be liable for and pay
all fees and charges (including dark fiber) pursuant to provisions of this
Agreement to NYSEG until the expiration of the 90 day period or TELERGY East
Facilities are actually removed, abandoned or maintenance is taken over by
NYSEG, whichever comes first and provided further that each party shall be
required to perform any and all obligations under this Agreement until such
time. NYSEG shall have the right to remove such Facilities at TELERGY East's
expense and without any liability on the part of NYSEG for damage or injury to
such Facilities or interruption of
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TELERGY East's services except for liability for damage or injury to such
Facilities caused by the negligence of NYSEG or its agents or employees.
ARTICLE XXI
MISCELLANEOUS PROVISIONS
Disputes. It is the intent of the parties that disputes which may arise between
them, or between employees of each, be resolved as quickly as possible, and may,
in certain instances, involve decisions made on the spot. When such resolution
is not possible, and depending upon the nature of the dispute and the phase of
installation of the Facilities and System, the parties agree to seek to resolve
such disputes, insofar as they do not constitute a breach or default under this
Agreement, in the manner set forth in this section.
Headings. The Article headings in this Agreement and the Table of Contents
hereof are for convenience of reference only and shall neither be deemed to be a
part of this Agreement nor modify, define, expand or limit any of the terms or
provisions hereof. All references to numbered or lettered Articles or Sections,
unless otherwise indicated are to Articles or Sections of this Agreement. Words
and definitions in the singular shall be read and construed as though in the
plural and vice versa, and words in the masculine, neuter or feminine gender
shall also be read and construed as though in either of the other genders.
Mergers. Neither party shall be prohibited by the terms of this Agreement from
undertaking any merger or acquisition activity whether voluntary or involuntary,
and all such activity shall not hinder, impede, alter or vary the terms,
conditions and covenants of this Agreement. The parties agree that neither shall
proceed against the other by litigation or otherwise before the offending party
has had notice of and reasonable time and opportunity to respond to and/or cure
any breach or default hereunder; and, for purposes of this Agreement, a
reasonable time to cure any breach or default shall be deemed to be fifteen (15)
days after notice, in the case of a monetary default; sixty (60) days after
notice in the case of a non-monetary default, unless the nature of the default
in question is such that it is not reasonably susceptible of being cured within
such 60-day period, then if the curing thereof shall not have commenced within
such period and shall not thereafter be prosecuted to completion with reasonable
diligence. Any waiver by either party at any time of any of its rights as to
anything contained herein shall not be deemed to be a waiver of the same or
similar right at a subsequent time.
Representations. Except as otherwise provided, each of the parties represents,
warrants and covenants to the other that: (i) it has full right and authority,
including any requisite corporate and governmental approvals, to enter into and
to perform its respective obligations under this Agreement; (ii) the execution
of this Agreement is not violative of its charter, by-laws or any laws or
regulation by which it is bound or to which it subject; (iii) no litigation or
governmental proceeding is pending or threatened which might adversely affect
this Agreement, the transactions contemplated by this Agreement, or the rights
of the parties hereunder.
Contingencies. TELERGY East's and NYSEG 's performance under this Agreement are
contingent upon a favorable determination by the New York Public Service
Commission and any
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authorized Federal or State agency, which determination shall not be subject to
appellate review. In the event that the necessary approvals are not obtained on
or before October 31, 1998, either party shall have the option of terminating
this Agreement by written notice to the other party pursuant to the Notice
provisions set forth in Articles 12.1 and 12.2. Except for a termination for
failure to obtain PSC Approval or a breach by NYSEG, TELERGY East shall
reimburse NYSEG for all costs incurred in connection with the termination of
this Agreement.
Force Majeure. Any failure of either party to perform its obligations under this
Agreement shall not be a breach of this Agreement if such failure results from
Acts of God, governmental action that did not result from wrongdoing by the
party involved in such governmental action, omissions of third parties when such
omissions did not occur due to action or inaction or the party failing to
perform, or labor strikes or walkouts that could not reasonably be avoided by
the party subject to such labor strike or walkout.
No Waiver. The rights and remedies provided by this Agreement are cumulative and
the use of any one right or remedy by any party shall not preclude or waive its
right to sue on any or all other remedies. Said rights and remedies are given in
addition to any other rights such party may have by law, statute, ordinance or
otherwise, except as such remedies are expressly limited in this Agreement.
Any provision of this Agreement which is invalid, illegal or unenforceable
in any manner in any jurisdiction shall be, as to such jurisdiction, ineffective
to the extent of such invalidity, illegality or unenforceability without in any
ways affecting the validity, legality or enforceability of the remaining
provisions hereof, and any such invalidity, illegality or unenforceability in
any jurisdiction shall not invalidate or in any way affect the validity,
legality or enforceability of such provision in any other jurisdiction.
Assignment, Subletting and Other Transfers. TELERGY East shall not assign,
sub-license, sublet or transfer ("Assignment") any authorization granted herein,
and such authorization shall not inure to the benefit of TELERGY East's
successors or assigns without the prior written consent of NYSEG, except as
provided in the LLC Operating Agreement, and, where necessary upon approval from
the Public Service Commission. In the event of any such assignment, the
provisions of this Agreement shall apply to and bind the TELERGY East's
successors and assigns.
Compliance with Applicable Laws. NYSEG and TELERGY East shall at all times
observe and comply with the provisions of this Agreement, and such provisions
are subject to all laws, ordinances, contracts and regulations which in any
manner affect the rights and obligations of the parties herein.
Other Agreements. Nothing contained herein shall be construed as a limitation,
restriction, or prohibition against NYSEG with respect to any Right-of-Occupancy
agreements and arrangements which NYSEG has entered into, or may in the future
enter into, with others not covered by this Agreement, except that
Right-of-Occupancies existing at the time of such future grants of
Right-of-Occupancy to NYSEG Right-of-Way, agreements or arrangements shall not
interfere with or be subordinated to the rights of any subsequent third parties.
The rights of TELERGY East shall at all times be subject to such existing
Right-of-Occupancy agreements or arrangements, and all
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future Rights-of-Occupancy shall be subject to Telergy East's rights hereunder.
NYSEG, in negotiating and entering into any such future Right-of-Occupancy,
agreements and/or arrangements, shall not diminish the Right-of-Occupancy of
TELERGY East, as provided for in this Agreement.
Notwithstanding any other provision of this Agreement, TELERGY East as a
common carrier, shall have the right, subject to the terms and conditions of
this Agreement, to permit TELERGY East's customers to use a portion of the
capacity or fiber on TELERGY East's Facilities.
Entire Agreement.. This Agreement constitutes the entire agreement between the
parties with regards to TELERGY East's use of NYSEG 's system. It may not be
modified or amended nor may any obligation of either party be changed or
discharged except in writing signed by the duly authorized officer or agent of
the party to be charged. Prior written notice of changes in any applicable pole
rates (to be approved by the Public Service Commission) shall be given to
TELERGY East five (5) days advance of any such filing with the Public Service
Commission.
Governing Law. This Agreement shall be governed by, and interpreted according
to, the laws of the State of New York, without giving effect to the principles
of conflicts of law. No claim, demand, action, proceeding, arbitration,
litigation, hearing motion or lawsuit arising from, related to, or connected
with this Agreement shall be commenced or prosecuted in any jurisdiction other
than the State of New York, and any judgment, determination, order, finding or
conclusion reached in any other jurisdiction shall be null and void between the
parties hereto.
Bankruptcy. Subject to the rights of the principles of the TELERGY East, in the
event that either of the principles of TELERGY East is involved in a bankruptcy
as defined in Article II of this Agreement, or in the event that the interest of
the TELERGY East in the System becomes the subject of garnishment, attachment or
tax lien proceeding, and in the further event that such a petition and/or
proceeding shall not be quashed or removed within thirty (30) days after filing,
service or levy, whichever first occurs, NYSEG shall have the right and option
within thirty (30) days after the expiration of such thirty (30) day period to
purchase "proportionately the interest encumbered as the "computed" value
payable in cash within that thirty (30) day period.
"Proportionately" shall mean that portion of the undivided interest in the
property involved in such bankruptcy, garnishment, attachment or tax lien
proceeding, which the undivided interest owned by a TELERGY East bears to all of
the undivided interest in the subject property other than that involved in such
bankruptcy, garnishment, attachment of tax lien proceeding.
"Computed value" shall mean the value of the undivided interest in the
subject property as computed by the regularly retained certified public
accountants of the TELERGY East. Such computation shall be binding and
conclusive upon the parties absent manifest error.
Binding Agreement. The provisions of this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their lawful respective
successors and assigns.
Acts In Furtherance. NYSEG and TELERGY East each agree to do such other and
further acts and things, and to execute and deliver such additional instruments
and documents, not creating any
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obligations, or imposing any expenses, additional to those otherwise created or
imposed by this Agreement, as either party may reasonably request from time to
time whether at or after the execution of this Agreement, in furtherance of the
express provisions of this Agreement.
Environmental Hazard Liability. NYSEG agrees to promptly inform TELERGY East of
any such hazardous or toxic waste areas, whether or not designated as such by
the Environmental Protection Agency or any other similar federal, state or local
authority, of which NYSEG 's Environmental Affairs Department, Syracuse, New
York, has knowledge of or of which such Department may subsequently learn with
respect to the Backbone Route. NYSEG agrees to defend, indemnify and hold
TELERGY East harmless from any and all claims, fines and actions arising out of
the existence of any such hazardous or toxic waste areas or the obligations
which may now or hereafter be imposed, statutory or otherwise, to remove
therefrom or otherwise neutralize or contain, any such toxic or hazardous
substances, unless such liability is: (i) created by a release by TELERGY East
or its contractors or subcontractors excluding NYSEG of a toxic or other
hazardous substance into the environment, (ii) created by TELERGY East's
disturbance of a pre-existing condition within the Right-of-Way of which TELERGY
East had knowledge provided that NYSEG shall disclose to TELERGY East all such
pre-existing conditions within the Backbone Route known to NYSEG , or (iii)
created by TELERGY East's disturbance of a pre-existing condition within the
Right-of-Way where the condition was not previously known by NYSEG and was not
created by a disturbance by NYSEG.
Upon learning of any such hazardous or toxic waste areas within which the
Right-of-Occupancy is intended to be or is located, NYSEG shall, within thirty
(30) working days, to the extent available to it, offer TELERGY East, without
payment of any additional consideration therefor, alternate contiguous areas
within which the Backbone Route may be relocated to avoid such hazardous or
toxic waste areas.
In the event TELERGY East discovers, or has knowledge of hazardous or
toxic waste areas, whether or not designated as such the Environmental
Protection Agency or any other similar federal, state or local authority, it
shall immediately stop work if discovered during construction, and notify the
Director of NYSEG 's Environmental Affairs Department in Binghamton, New York.
In Witness Whereof, the parties hereto have executed this Agreement in
duplicate on the date and year first above written.
WITNESS (ATTEST) NEW YORK STATE ELECTRIC & GAS CORPORATION
_______________________ By:_______________________________________
Name:_____________________________________
Title: _____________________________________
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WITNESS (ATTEST) TELERGY EAST, LLC
_______________________ By:_________________________________________
Name:_______________________________________
Title: ________________________________________
30
<PAGE> 1
EXHIBIT 10.6
STRATEGIC CONSTRUCTION OPERATING AGREEMENT
GOVERNING FIBER NETWORK CONSTRUCTION, INSTALLATION,
ENGINEERING AND PROCUREMENT SERVICES
TELERGY, INC.
AND
MASTEC NORTH AMERICA, INC.
Dated: May 6, 1998
<PAGE> 2
STRATEGIC CONSTRUCTION OPERATING AGREEMENT
TABLE OF CONTENTS
Section Index of Terms Page Number
1.0 DEFINITIONS..................................................1
2.0 GENERAL RELATIONSHIP.........................................3
3.0 GENERAL CONSTRUCTION\INSIDE PLANT SERVICES...................5
4.0 MATERIALS AND EQUIPMENT......................................5
5.0 CONSTRUCTION BONDS, LIENS AND ENCUMBRANCES...................6
6.0 CONDITIONS...................................................8
7.0 PERMITS, REGULATIONS, LICENSES AND NOTICES...................8
8.0 CONTROL AND SUPERVISION OF SERVICES..........................9
9.0 OTHER CONTRACTORS, COOPERATION AND INTERFERENCE..............9
10.0 CONTRACT PRICE, INVOICING AND PAYMENTS......................10
11.0 RECORDS.....................................................10
12.0 INSURANCE/INDEMNITY.........................................11
13.0 PROTECTION OF SERVICE AND PROPERTY..........................12
14.0 PROPERTY OWNER CLAIMS.......................................12
15.0 DEFAULTS....................................................12
16.0 ASSIGNMENT..................................................13
17.0 PUBLICITY...................................................13
18.0 GOVERNMENT REQUIREMENTS.....................................13
19.0 WRITTEN NOTICE..............................................14
20.0 CHOICE OF LAW AND INTERPRETATION............................15
21.0 CONSENTS....................................................15
22.0 NO WAIVER...................................................15
23.0 REMEDIES....................................................16
24.0 SEVERABILITY................................................16
25.0 COMPLIANCE..................................................16
26.0 BINDING CONTRACT............................................16
27.0 ACTS IN FURTHERANCE OF CONTRACT.............................16
28.0 CONFIDENTIALITY.............................................16
29.0 FORCE MAJEURE...............................................17
30.0 TERM AND TERMINATION........................................17
i
<PAGE> 3
STRATEGIC CONSTRUCTION OPERATING AGREEMENT
This sets forth the Agreement made as of May 6, 1998 ("Agreement" or "Operating
Agreement") between MASTEC NORTH AMERICA, INC., a Florida corporation with its
mailing address at 3155 N.W. 77th Avenue, Miami, Florida 33122 ("MasTec"), and
TELERGY, INC., a New York corporation with offices located at 5784 Widewaters
Parkway, Syracuse, New York, 13214 ("Telergy").
RECITALS
WHEREAS, Telergy and its subsidiaries and affiliates, among other activities,
constructs, installs, owns and operates fiber optic telecommunications networks
in Upstate, New York and is in the process of finalizing arrangements to perform
similar activities in Downstate, New York and throughout the Northeast region of
the United States of America ("Northeast") and Canada; and
WHEREAS, MasTec. and its subsidiaries and affiliates, among other activities,
performs engineering, construction, installation and related activities
("Services") for telecommunications providers such as Telergy; and
WHEREAS, the parties desire to enter into a mutually beneficial strategic
relationship to construct and install fiber optic telecommunications networks
throughout the Region which will provide Telergy with a turnkey solution for all
of its fiber network requirements, including provisioning of the Services; and
WHEREAS, the parties intend for MasTec to serve as Telergy's Strategic
Construction Contractor on all fiber Network builds except when
construction-related activities are required under regulation, municipal
contract, public utility rules or standards to be performed by others, including
utilities or their designated agents, or when MasTec's rates, terms and
conditions are not competitive; and
WHEREAS, the parties intend for MasTec to act as Telergy's turnkey solution for
inside plant and wiring requirements for Telergy customers, including school
districts and the business and commercial market segments; and
WHEREAS, the parties hereto desire to simultaneously enter into various
financing and security agreements relating to the strategic relationship entered
into pursuant to this Operating Agreement.
TERMS
NOW THEREFORE, in consideration of the matters recited and the mutual promises
contained herein the parties agree as follows:
1.0 DEFINITIONS
"Backbone Network" shall mean the primary fiber optic telecommunications network
connecting major cities from which spurs, loops and rings are connected and
through which long-haul fiber services may be provided to carriers and
customers.
"Backbone Construction Contract" shall mean individual contracts for the
construction and installation of specific Backbone Networks and provisioning of
Services in various geographic locations throughout the Region, which shall be
executed from time to time pursuant to this Agreement and shall be attached
<PAGE> 4
hereto and incorporated herein as sequential numbered Exhibits to this
Agreement.
"Boston Network" shall mean the Backbone Network from Albany through Portland to
Boston Massachusetts, which construction and installation is anticipated to be
completed on or before June 30, 1999.
"Downstate Network " shall mean the Backbone Network from Duchess County to 60
Hudson Street, New York City, which construction and installation is anticipated
to be completed on or before December 31, 1998 in accordance with a License and
Operating Agreement dated January 28, 1998 ("L&O Agreement") between Telergy
Metro LLC and Consolidated Edison Company of New York, Inc. ("CECONY") and
CECONY's construction and maintenance rules, which L&O Agreement is pending
approval from the Public Service Commission of the State of New York ("PSC").
"MasTec" shall mean MasTec North America, Inc. and any of its Subsidiaries that
enter into Backbone Construction Contracts during the Term of this Agreement.
"MasTec's Representative" shall mean the employee of MasTec or its Subsidiary
that is designated to interface with Telergy or its Subsidiary for each Backbone
Construction Contract.
"Material and Equipment" shall have the meaning as set forth in Section 4 of
this Agreement.
"Montreal Backbone" shall mean the Backbone Network from Albany or Glens Falls,
New York to Montreal, Canada, which construction and installation is anticipated
to be conducted jointly with Metrix Interlink Corporation, a Canadian Company,
utilizing the construction services of MasTec's Subsidiary Wilde Construction
Inc. and Metrix's Canadian subcontractor Telecon and which is targeted to be
completed on or before June 1999.
"Other Networks" shall mean all Backbone Networks to be constructed and
installed by Telergy and MasTec or their respective Subsidiaries formed after
the date of this Agreement for which the parties or their Subsidiaries execute
Backbone Construction Contracts.
"Region" shall mean the geographic territory in and around the Boston,
Downstate, Montreal and Upstate Networks, as well as Other Networks in which
Telergy and MasTec or their respective Subsidiaries may enter into Backbone
Construction Contracts throughout New York and the Northeast region of the
United States of America and Canada and for which MasTec or its Subsidiaries
will be providing Services during the Term of this Agreement.
"Right-of-Way Owner" shall mean the party with whom Telergy shall have
contracted for the right to occupy real property or facilities (including
municipalities and utilities) for the purposes of constructing, installing,
maintaining and operating the Backbone Networks. In those instances where the
said party with whom Telergy has contracted is not the holder of record of the
fee title to the said real estate (e.g., where under applicable state law an
entity would be deemed to hold only an easement or right-of-way), "right-of-way
owner" for purposes of this Contract shall be deemed to include the holder(s) of
record of the fee title to the said real estate, whether or not Telergy shall
have obtained the express consent of the said party to the construction,
installation maintenance and operation of the Backbone Networks. "Services"
shall mean all construction and installation services, including time, materials
and labor and
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equipment, as well as the procurement of fiber, switches and electronics,
conduit, handholes and related network components and inside plant and wiring
services as contemplated by this Operating Agreement and the Backbone
Construction Contracts.
"Subsidiary" shall mean with respect to Telergy, MasTec or MasTec's parent,
MasTec, Inc. (each referred to herein as "Company"), (i) any corporation,
association, or other business entity of which at least 50% of the total voting
power of shares of capital stock or other equity interests entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly by such Company or one or more of the other Subsidiaries
of that Company and (ii) any partnership or limited liability company (a) the
sole general partner, the managing general partner or the sole managing Member
of which is such Company or a Subsidiary of such Company, or (b) the only
general partners or Members of which are such Company or of one or more
Subsidiaries of such Company (or any combination thereof).
"Telergy" shall mean "Telergy, Inc." and any of its Subsidiaries that enter into
Backbone Construction Contracts with MasTec or any of its Subsidiaries during
the Term of this Agreement.
"Telergy's Representative" shall mean the employee of Telergy or its Subsidiary
that is designated to interface with MasTec or its Subsidiary under each
Backbone Construction Contract.
"Term" shall mean a period commencing on the date this Agreement is signed by
both parties and expiring on April 30, 2001, unless otherwise extended in
writing by the parties or terminated as provided herein.
"Upstate Network" shall mean the extension of the Upstate Backbone Network
installed from Buffalo to Albany to Pleasant Valley, New York as well as Upstate
Local Loops as contemplated in the Hyperion Operating Agreement dated February
20,1997 and the Niagara Spurs as contemplated in Right-of-Occupancy Agreement
dated January 16, 1996, as modified on September 25, 1997.
2.0 GENERAL RELATIONSHIP
As set forth in the Recitals on the first page of this Agreement, Telergy owns
and operates a fiber optic telecommunications backbone in the Upstate Network
and intends to construct and install Other Networks, including Downstate, Boston
and Montreal Networks. The parties agree that Telergy, in its sole discretion,
shall determine whether to construct Other Networks as well as the timing, route
and manner and method of any such construction. The construction of the
Downstate Backbone is pending approval from the Public Service Commission of the
State of New York and negotiations are underway with respect to the Boston and
Montreal Networks. This Agreement is not intended to create or impose any
obligation on Telergy to construct and install any specific Other Networks
although the parties agree that Telergy intends to construct Backbone Networks
throughout the Region, including expanding the Upstate Network and constructing
and installing the Downstate, Boston and Montreal Networks, and that this
Agreement shall govern the rights and obligations of the parties hereto in
connection with the activities contemplated hereunder.
The parties agree that during the Term of this Agreement so long as MasTec's
pricing, terms and conditions, including those applicable to equipment and
materials, are competitive, Telergy shall use MasTec as its Strategic
Construction Contractor for all future fiber construction and installation
projects (both buried and aerial and tower construction for PCS and wireless
services), including those in the
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Region except when an applicable regulatory or public utility requirement
requires specific contractors for particular segments or aspects of segments of
network construction. In the event public utility or local, state or federal
law, rules or regulations require the use of union personnel, MasTec shall
ensure such union personnel are employed.
The parties agree that in the event Telergy is required by public utility or
regulatory requirements to obtain bids or quotations for all or a portion of the
Services for a specific Backbone Construction Contract, Telergy shall seek such
bids or quotations for such Services and MasTec, in its discretion, may submit
or resubmit a bid or quotation for such Services. To the extent that Telergy is
then required, by public utility or regulatory requirements, to accept a written
bid or quotation other than MasTec's (without resubmission or continuation of
the bid process), Telergy shall be free to do so; provided, however, to the
extent permitted by the public utility or regulatory requirements, MasTec shall
have a first right of refusal to perform any such Services upon the same prices,
terms and conditions as set forth in the written bid or quotation which
otherwise would have been accepted. Additionally, to the extent that Telergy has
obtained a bona fide written offer from an unaffiliated third party (a "Third
Party Offer") to perform Services for a specific Backbone Construction Contract
which establishes that MasTec's pricing, terms and conditions are not
competitive, then, unless MasTec shall agree in writing, within ten days after
receipt of written notice from Telergy (which notice shall include a copy of the
Third Party Offer), to perform such Services upon the same prices, terms and
conditions as provided in the Third Party Offer, Telergy shall be free to accept
the Third Party Offer with respect to the specific Services set forth therein.
The parties acknowledge that for certain construction-related activities such as
work on high-voltage facilities, the Right-of-Way Owner may obligate Telergy to
use specific contractors to perform certain Services, including utility
personnel and their internal designated agents, in connection with particular
Backbone Construction Contracts. Telergy agrees to use its best efforts to
assist MasTec to be included on approved contractor lists of Right-of-Way
Owners, including introducing MasTec to the Right-of-Way Owners.
The parties further agree that MasTec shall provide all inside plant and wiring
services to Telergy customers on an exclusive basis provided that MasTec's rates
are competitive.
In addition, the parties agree that as and when requested by Telergy MasTec will
procure or obtain materials and equipment such as fiber, conduit, switches and
electronics and handholes in connection with Telergy's networks on its behalf
from vendors selected by Telergy, subject to the warranty provisions set forth
in section 4 of this Agreement.
The parties and or their affiliates or subsidiaries intend to enter into
specific Backbone Construction Contracts for each Backbone Network to be
constructed and installed by Telergy utilizing the Services of MasTec and
further intend that the provisions of this Agreement shall apply to, govern and
be incorporated into each Backbone Construction Contract. The parties further
intend that only those terms and conditions that are unique to the construction
and installation of each specific Backbone Network shall be set forth in the
Backbone Construction Contracts, each of which shall otherwise be governed by
this Agreement. This Agreement shall be incorporated in and attached to each
Backbone Construction Contract. The parties acknowledge that where Services will
be performed using rights of way or facilities of third parties, particularly
utilities and municipalities, the utilities and regulators may impose specific
requirements on Telergy's use of such facilities and MasTec recognizes and
agrees to abide by such requirements. Telergy will provide copies of each
applicable section of right-of-way agreements and any construction or
maintenance rules governing the same to the specific MasTec Subsidiary and said
documents shall be attached to the Backbone Construction Contracts and shall be
incorporated therein by reference. Any such municipal or utility requirements
shall precede the terms of this Agreement to the
4
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extent necessary to ensure compliance with the utility or regulatory
requirements.
MasTec is engaged as an independent contractor and is not an agent, partner,
joint venturer or employee of Telergy. MasTec may contract to perform work on
other telecommunications or similar construction projects inside or outside the
Region, even if those projects are for entities that are potential or actual
competitors of Telergy or any of its affiliates, provided however that such
efforts by MasTec shall not interfere with MasTec's performance of its
obligations and duties under this Agreement and any Backbone Construction
Contracts.
3.0 GENERAL CONSTRUCTION\INSIDE PLANT SERVICES
The parties contemplate that individual Backbone Construction Contracts shall be
executed with respect to each Backbone Network to be constructed and installed
hereunder and said contracts shall be attached hereto as sequentially numbered
Exhibits and shall be incorporated herein by reference. The Backbone
Construction Contracts shall contain the terms and conditions set forth in this
Agreement along with the costs and pricing for the specific fiber construction,
inside plant and wiring and procurement of materials and equipment, and any
other terms or conditions specifically required in connection with a particular
Backbone Network, which terms and conditions shall be consistent with the
general terms of this Operating Agreement.
4.0 MATERIALS AND EQUIPMENT
The parties acknowledge that the strategic relationship contemplated hereunder
envisions MasTec purchasing a portion of the telecommunications fiber, conduit,
handholes, switches and electronics, equipment and supplies from
Telergy-designated vendors ("Materials and Equipment"), and that such purchases
may be paid from the trade financing as provided in that certain Financing
Agreement of even date between Telergy and MasTec ("Financing Agreement"). Any
such Materials and Equipment used or installed on behalf of Telergy shall be the
property of Telergy and MasTec shall deliver such Materials and Equipment to
Telergy free and clear of all liens, security interests and encumbrances (except
liens in favor of MasTec permitted by the Financing Agreement), and shall pay
the vendors of such Materials and Equipment on such terms as shall be agreed
upon, prior to invoicing to Telergy. With respect to construction activities,
unless otherwise provided in a Backbone Construction Contract, MasTec shall
furnish and transport all the necessary tools, construction equipment and labor
and all the materials necessary to perform the Services.
In the event Telergy furnishes material, fiber or supplies, the parties agree
that each Backbone Construction Contract shall specify the manner in which such
materials shall be received, unloaded and stored, which party shall be obliged
to verify the quantities and test the materials for compliance with applicable
standards and requirements, and which party shall be responsible for the care,
custody, and control, bearing the risk of damage thereto, for all Telergy
furnished material.
MasTec agrees that it shall at all times in accordance with the industry best
practices protect from damage due to MasTec's and its subcontractors'
operations, equipment and materials, whether stored or installed, paving.
structures and any and all other items on the work site belonging to
right-of-way owners, Telergy or others.
MasTec further agrees to adhere to the standards, rules and regulations of any
public utilities or municipalities governing construction or installation of the
Backbone Networks being constructed and installed in utility or municipal
rights-of-way, conduit, towers and facilities.
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Under each Backbone Construction Contract, upon completion of the Services
thereunder, MasTec shall be responsible for the complete removal from the work
site of all temporary facilities, of whatever nature, and shall restore the
sites to substantially the same condition that existed prior to the construction
or installation activities.
Under each Backbone Construction Contract, construction equipment obtained or
furnished by MasTec shall be in good operating condition, safe, fit for the uses
for which intended, and suitable for safe, legal and efficient performance.
With respect to any telecommunications equipment to be installed by MasTec under
a Backbone Construction Contract, MasTec will install the equipment in
accordance with the manufacturer's specifications. MasTec is not responsible for
the proper functioning of properly installed equipment and Telergy's sole remedy
with respect to such properly installed equipment being the manufacturer's
warranty that MasTec will assign to Telergy upon completion of the Services
under a Backbone Construction Contract.
5.0 CONSTRUCTION BONDS, LIENS AND ENCUMBRANCES
The parties acknowledge that performance and payment bonds may be required in
connection with one or more of the Backbone Construction Contracts and the
parties agree to include any requirements relating to payment and performance
bonds with such sureties as may be required in the Backbone Construction
Contracts on a case-by-case basis. However, the parties agree that MasTec will
be responsible for any contractors' licenses, occupational licenses or similar
licenses required for MasTec to perform the Services, and for any bonds for the
repair of rights-of-way required by the Right-of-Way Owner, or by any local
municipalities or other governmental authorities having jurisdiction with
respect to the performance of Services, copies of which shall be provided to
Telergy upon request.
In the event a contractor's performance bond is required in connection with a
particular construction project, the terms and conditions of any such bond shall
be set forth in the particular Backbone Construction Contract.
In the event that any property installed in the construction of any Backbone
Network shall become subject to any mechanics', artisans, materialmens' or
similar construction liens ("Lien") chargeable to or through MasTec or its
subcontractors, suppliers or representatives, and for which Telergy has paid
MasTec in full, MasTec shall promptly cause such lien to be discharged and
released of record, by payment, posting of bond, court deposit or other means,
without cost to Telergy and MasTec shall indemnify Telergy against all
reasonable cost and expense, including reasonable attorneys' fees, incurred in
discharging and releasing such lien; provided, however, that if any such lien is
not so discharged and released within thirty (30) days after notice thereof by
Telergy to MasTec, or within such shorter period as shall be mandated under
applicable local law, then Telergy may pay or secure the release or discharge
thereof at the cost and expense of MasTec; provided further that nothing herein
shall preclude MasTec or Telergy from contesting any such Lien or the contract
or action upon which the Lien arose after the Lien has been bonded as
contemplated herein.
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6.0 CONDITIONS
Prior to execution of each Backbone Construction Contract, Telergy shall provide
MasTec with copies of any relevant sections of right-of-way access agreements
and/or construction rules and regulations that apply to the particular Backbone
Network, and MasTec shall ensure that it is fully informed as to the nature of
the geographic locations of the Backbone, the physical climatic and other
conditions prevailing at the work site, and all other matters which may in any
way affect the Services to be performed under the Backbone Construction
Contracts, as well as the costs thereof and the time for performing Services. By
way of example but not limited to the foregoing, MasTec agrees to: (a) examine
the specifications, drawings and all other contract documents: (b) inspect the
work site, the size and location of the work areas, the access thereto, and the
availability of utilities; and (c) fully inform itself as to the character,
quality and quantity of the surface and subsurface materials and conditions to
be encountered including, but not limited to, the rock water and soil conditions
and the scope and amount of Services required.
In the course of Backbone Network planning, Telergy may, but shall not be
required to contract with independent contractors for consultative engineering
services, geological studies, rock and survey reports, soil boring reports, and
for other matters of an informational nature. Any such engineering services,
studies, reports or informational matter will be made available to MasTec for
its use in connection with any Backbone Construction Contract, provided however
that MasTec shall be responsible for any conclusions it draws from such reports
and may, at its option and expense, retain its own experts to analyze data and
make additional explorations, tests or studies.
7.0 PERMITS, REGULATIONS, LICENSES AND NOTICES
Unless otherwise required by applicable ordinances, codes or statutes, or as
otherwise agreed to by the parties in any Backbone Construction Contract,
Telergy shall generally obtain all necessary highway permits, construction
permits or right-of-way grants, at its cost and expense.
Telergy is responsible for obtaining all other permits, licenses and other
necessary authorizations to construct and install each Backbone Network,
including all required authorizations from the Right-of-Way Owner and any local
municipalities or governmental authorities to perform the Services. Telergy
shall also be responsible for payment of any inspection or similar fees and
expenses. All necessary permits, licenses and certificates, municipal or
otherwise, including all permits required to handle or use dynamite or other
explosives and the licenses set forth in Section 5 of this Agreement, that are
required in connection with the construction of any Backbone Network shall be
obtained by MasTec, at its expense.
MasTec shall comply strictly with local, municipal, state, federal and
governmental laws, orders, codes and regulations applicable to MasTec's
operations in the performance of the Services hereunder.
MasTec shall coordinate with Telergy with respect to any negotiations with any
governmental authority or agency for acceptance of variations from or revisions
to safety or health, environmental, air, water or noise pollution laws or
regulations relating to this Contract or to the performance thereof and shall
not agree to any such variations or revisions without Telergy's consent, which
will not be withheld unreasonably.
All Services shall be performed in compliance with the instructions of all
responsible governmental
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officials regarding maintenance of traffic and protection of the public.
8.0 CONTROL AND SUPERVISION OF SERVICES
For all Services to be performed under any Backbone Construction Contract,
MasTec shall have full control and direction over the mode and manner of
performing Services, including responsibility for its personnel and
subcontractors. MasTec warrants that it shall provide an adequate number of
qualified and competent project management and supervisory staff, craft persons
and other personnel to perform the Services on a timely basis. At all times
during the course of the Services, MasTec shall provide at the site of the
Services a qualified, competent and responsible MasTec Representative who shall
be approved by Telergy prior to performance of any Services under any Backbone
Construction Contract. Each MasTec Representative shall have full authority to
represent MasTec with respect to any and all matters pertaining to the specific
Backbone Construction Contract, except pricing, which may not be changed without
the written authorization of an officer of MasTec. Telergy shall assign a
Telergy Representative to each Backbone Construction Contract, who shall have
full authority to represent Telergy with respect to any and all matters
pertaining to the specific Backbone Construction Contract, except pricing, which
may not be changed without the written authorization of an officer of Telergy.
For each Backbone Construction Contract, MasTec shall furnish Telergy with the
names and addresses of MasTec's subcontractors, field employees and any key
personnel who will be providing Services in connection with the Backbone
Network.
MasTec acknowledges that Telergy's use of utility and municipal rights-of-way is
subject to close scrutiny and agrees to perform all Services in strict
compliance with rules, requirements and regulations of Right-of-Way Owners, and
the Federal, State, and Local safety and health and performance rules.
9.0 OTHER CONTRACTORS, COOPERATION AND INTERFERENCE
As set forth in Section 2 of this Agreement, Telergy reserves the right to
solicit bids or quotations for the provisioning of Services from, and to award
contracts to, other contractors when necessary to comply with regulatory or
utility requirements and in the event that MasTec's pricing is not competitive
at the time a Backbone Construction Agreement is intended to be executed.
Telergy agrees however that so long as MasTec's quote is comparable in terms of
pricing, terms and conditions and completion dates, Telergy shall award any such
Services to MasTec to the maximum extent permissible. Further Telergy agrees
that all bids submitted by other contractors shall be for comparable Services of
equal quality and that bids for the construction of Backbone Networks shall be
accepted only from entities with a proven record and expertise to perform such
specialized construction activities. To the extent legally permissible, Telergy
agrees that MasTec shall have a first right of refusal to meet the prices and
terms and conditions of any competing quotation.
MasTec warrants the performance of any Services performed by itself and its
subcontractors for a period of one-year after the specific Backbone Network is
completed. In the provisioning of all Services, MasTec agrees to use, at a
minimum, the standards of care, skill and diligence ordinarily provided by a
professional telecommunications construction company providing the unique and
specialized services as contemplated by this Agreement.
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10.0 CONTRACT PRICE, INVOICING AND PAYMENTS
The charges, fees and pricing for Services along with the costs for Materials
and Equipment to be purchased by MasTec on Telergy's behalf shall be set forth
in each Backbone Construction Contract, under the following general parameters:
(1) prices to be paid by Telergy for Services shall be competitive with other
similar contractors and shall include all local, state and federal taxes,
charges and excises that may be imposed in connection with the Services, which
sales and use taxes, if any, which shall be stated separately on each invoice.
MasTec or its Subsidiary shall submit invoices to the Director of Operations of
Telergy Inc., which invoices shall contain detailed itemization and appropriate
documentation for each charge. Telergy shall make payment to MasTec or its
Subsidiary within thirty days of receipt of properly submitted and documented
invoices or shall notify MasTec in writing of any questions or additional
documentation reasonably required. Each Backbone Construction Contract shall
provide for retainage if any is required in connection with a specific Backbone
Network. .
Pursuant to the terms of the Financing Agreement and related documents executed
simultaneous herewith, Telergy may use the financing provided by the Financing
Agreement to make payment of invoices under the Backbone Construction Contracts,
up to an aggregate maximum of Fifty Million Dollars ($50,000,000) at any time
for Services performed under this Agreement or the Backbone Construction
Contracts, subject to the other terms and conditions of the Financing Agreement.
MasTec shall be entitled, in its discretion, to stop work on any pending
Backbone Construction Contracts, unless amounts due under the Financing
Agreement for the particular Backbone Construction Contract or any other
agreement between Telergy and MasTec are paid in full when due.
The specific prices applicable to each Backbone Network shall be set forth in
the particular Backbone Construction Contract, with payments terms governed by
this Agreement and, if applicable, the Financing Agreement.
11.0 RECORDS
MasTec shall maintain complete records including, but not limited to all labor
and Equipment hours, Material purchased, and Services subcontracted to other
parties in connection with all unit rate and cost plus fee Services. The records
shall be maintained in accordance with recognized commercial accounting
practices and in such manner that they may be readily audited. The records,
including all supporting documents, shall be available at all reasonable times
for audit or inspection by Telergy both during the contract period and for one
(1) year following the date of final payment or until all disputes, if any,
between MasTec and Telergy have been finally resolved, whichever is later. After
approval by Telergy's Representative, one copy shall be retained by Telergy's
Representative and one copy by MasTec's Representative
12.0 INSURANCE/INDEMNITY
The parties agree that each Backbone Construction Contract (and any contracts
between MasTec and its subcontractors) shall include the insurance and
indemnification requirements as the parties mutually
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agree, provided however that any insurance or indemnification requirements under
right-of-way access or municipal franchise agreements governing Telergy shall be
included in each such Backbone Construction Contract.
Unless otherwise required by Telergy's contracts with utilities or local
franchising authorities, MasTec will indemnify, defend and hold harmless Telergy
and its officers, directors, stockholders, affiliates, subsidiaries, employees,
agents, subMasTecs, independent MasTecs, independent contractors, officers,
directors, subcontractors, and other representatives (collectively the "Telergy
Indemnities") from and against any and all claims, damages, liabilities, losses,
injuries and expenses (including reasonable attorney and paralegal fees and
court costs and expenses, including penalties and interest) (collectively
"Losses") incurred or suffered, directly or indirectly, by the Telergy
Indemnities and arising out of or resulting from, directly or indirectly, the
performance or quality of the Services or the materials supplied or procured by
MasTec, from any breach of this Agreement or a Backbone Construction Contract by
MasTec or its affiliates, subsidiaries, agents, or subcontractors ("MasTec
Entities"), or from any other action or omission of the MasTec Entities or their
officers, directors, stockholders, employees, independent contractors, invitees
or others under its direction and control.
Unless otherwise required by Telergy's contracts with utilities or local
franchising authorities, Telergy will indemnify, defend and hold harmless MasTec
and its officers, directors, stockholders, affiliates, subsidiaries, employees,
agents, subcontractors, independent contractors and other representatives
(collectively the "MasTec Indemnities") from and against any and all Losses
incurred or suffered, directly or indirectly, by the MasTec Indemnities and
arising out of or resulting from, directly or indirectly, any breach of this
Agreement or a Backbone Construction Contract by Telergy or its affiliates,
subsidiaries, agents, or subcontractors ("Telergy Entities"), or from any other
action or omission of the Telergy Entities or their officers, directors,
stockholders, employees, independent contractors, invitees or others under its
direction and control.
Unless otherwise required by Telergy's contracts with utilities or local
franchising authorities, the obligations to indemnify and hold harmless pursuant
to this Section 12 will survive the termination of this Agreement. The
obligations of the indemnifying party (the "Indemnitor") under this Section 12
to the other party (the "Indemnitee") with respect to claims, demands, damages,
liabilities, costs and expenses asserted by third parties ("Third Party Claims")
will be subject to the following terms and conditions: The Indemnitee will give
the Indemnitor prompt notice of any Third Party Claim, and the Indemnitor will
assume the defense, compromise or settlement thereof promptly by representatives
of its own choosing, at its own cost and expense. No settlement will be agreed
to without the Indemnitee's prior written consent, which shall not be
unreasonably withheld. The Indemnitee will afford the Indemnitor a reasonable
opportunity to resolve the Third Party Claim. The Indemnitee may not offset
against amounts due to the Indemnitor the amount of any Third Party Claim until
the Indemnitor has had a reasonable opportunity to defend and resolve the claim.
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To the extent that Telergy's contracts with utilities or local franchising
authorities requires other provisions governing indemnification, the specific
Backbone Construction Contract shall contain such provisions which shall apply
to and govern indemnification under the particular Backbone Construction
Contract. The Backbone Construction Contracts shall also set forth the
particular insurance Provisions required in connection with the particular Other
Network. After the date of this Agreement, Telergy agrees to use its best
efforts to negotiate all contracts with utilities or local franchising
authorities in a manner so as to prevent any conflict between the provisions of
this Section 12 and such contracts and to permit and uphold the desired
indemnification provisions of Telergy and MasTec as provided in this Section 12.
13.0 PROTECTION OF SERVICE AND PROPERTY
MasTec shall protect all other structures, utilities and Services of any kind
against damage or interruption of service and shall preserve and protect all
trees, shrubs, grass, or other vegetation on or adjacent to the right-of-way or
Services site which do not unreasonably interfere with the Services, and unless
otherwise required by Telergy, MasTec shall restore all property which may be
disturbed in the execution of the Services substantially to its former
condition. Should MasTec fail to properly restore property which MasTec or its
subcontractors have disturbed and should Telergy be required under any contract
with a public utility or local franchising authority to incur any expense in
restoring the same, MasTec shall reimburse Telergy for all reasonable expenses
or, upon notice to MasTec, Telergy may deduct the cost thereof from any amount
due or to become due for Services, unless MasTec objects in writing and
demonstrates that such expenses incurred by Telergy were not reasonable.
14.0 PROPERTY OWNER CLAIMS
MasTec agrees that during performance of Services, Telergy shall be informed of
all communications between MasTec and property owners from whom Telergy has
procured an easement or other property rights. MasTec agrees to cooperate with
Telergy in maintaining good relations with said property owners.
15.0 DEFAULTS
The parties acknowledge that construction and installation of each Backbone
Network may have specific deadlines and the parties agree that the applicable
Backbone Construction Contract shall contain specific default and cure
provision, which will vary depending on whether the time to complete the
specific Backbone Network is "of essence." Subject to Section 29 of this
Agreement, MasTec acknowledges that Telergy will suffer substantial damage if
construction is not completed in accordance with the specific utility,
regulatory or local franchise contracts, rules and requirements that will be set
forth in each particular Backbone Construction Contract, and that MasTec's,
and/or its Subsidiaries' or agents' failure to comply with the same will be
grounds for default by MasTec and the MasTec Subsidiary that has entered into
the specific Backbone Construction Contract with an opportunity to cure only to
the extent the contract governing Telergy's use of rights-of-way or facilities
provides a cure period. Telergy shall provide copies of the sections of the
applicable documents as and when specific Backbone Construction Contracts are
signed.
16.0 ASSIGNMENT
Neither party shall assign its rights or delegate its obligations under this
Operating Agreement or any Backbone Construction Agreement, without the prior
written consent of the other party, which shall not be unreasonably withheld,
except MasTec can delegate the performance of its obligations hereunder to
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any of its operating subsidiaries or divisions, and with the written consent of
Telergy which shall not be unreasonably withheld, to any third-party
subcontractor, and Telergy can delegate the performance of its services and
financing under the Financing Agreement to any of its subsidiaries or operating
companies that sign a specific Backbone Construction Contract, provided however
that the parties to this Agreement shall be and remain at all times the
responsible parties hereunder.
17.0 PUBLICITY
MasTec and Telergy shall submit to the other party proposed copies of all
advertising or other publication wherein the name, trademark, code,
specification or service mark of the other party or its Subsidiaries or
affiliates is mentioned. MasTec, Telergy and their respective subcontractors
shall not make news releases, publicize or issue advertising or any other
publication with respect to the above or pertaining to the Services or this
Operating Agreement without first obtaining approval from the other party in
advance, which shall not be unreasonably withheld.
18.0 GOVERNMENT REQUIREMENTS
MasTec expressly agrees not to discriminate against any employee or applicant
for employment because of race, color, religion, sex, national origin or
handicap, and shall during the performance of this Contract comply with all
applicable Executive Orders and state and federal statutes and regulations.
MasTec shall develop an appropriate safety management plan and take all
reasonably necessary safety and other precautions to protect property and
persons from damage, injury or illness arising out of the performance of the
Services. MasTec shall comply with local, municipal, provincial, state, and
federal laws, orders, and regulations pertaining to health or safety which are
applicable to MasTec or to the Services, including, without limitation, the
Occupational Safety and Health Act of 1970 (84 U.S.C. 1950), as amended, and any
State plans approved thereunder and regulations thereunder to the extent
applicable. and MasTec agrees that the Materials, Equipment and facilities
whether temporary or permanent, furnished by MasTec in connection with the
performance of the Services shall comply with any such reasonably necessary
safety and other precautions.
When working on any right-of-way, the safety and continuity of operations of the
underlying Right-of-Way Owner are of paramount importance. MasTec shall arrange
the work so that the rights-of-way and facilities and any property within or
adjacent to the same are protected and safeguarded at all times.
MasTec shall utilize a suitable qualified safety inspector who will head its
safety program. This safety organization will be responsible for developing the
required safety plan, insuring attendance by all MasTec's employees, its agents
and its subcontractors' personnel at the safety training classes, and enforcing
compliance therewith in accordance with the applicable safety requirements,
laws, regulations, codes, this Agreement, and the specific Backbone Construction
Contracts.
MasTec shall take particular care to prevent the fouling of the rights-of-way
and facilities, and to avoid coming in contact with, or causing damage to the
same, any water, sewer, steam, gas, fuel, or other pipe lines, mains or service
pipes, electrical communications, other energy transmission conduits, cables,
wires, or service connections, other private, utility, or governmental
facilities, and any hazardous, toxic, or dangerous condition or thing, whether
they are located upon below, or above the ground surface.
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Telergy shall provide MasTec with all information in its possession regarding
the location of underground or other utilities in or around project sites.
MasTec shall be responsible for protection of the integrity of the rights-of-way
and facilities and any property within or adjacent thereto. Damage, if caused by
MasTec or its Subsidiaries, representatives or subcontractors, will be the
responsibility of and costs shall be borne solely by MasTec or its
subcontractors. MasTec shall take proper measures to determine the presence of
noxious, combustible, or explosive gases and to prevent ignition in and around
manholes, excavations, and other openings. MasTec shall take all necessary
and/or customary precautions to prevent injury to persons or property from open
manholes, excavations, ditches, and from materials or equipment left on the
worksite, by placing signs and lights, erecting barricades, or doing other
things as prudence may require or as mandated by law, local regulations, or the
right-of-way owners.
MasTec shall comply, at its own expense, with all applicable provisions of the
Workers' compensation, unemployment compensation, sickness and disability social
security laws, Fair Labor Standards Act and all other local, state, and federal
laws or regulations relating to employment and to the licensing and operation of
contractors, applicable to its employees. Upon request from Telergy, MasTec
shall submit evidence of compliance with or coverage or qualification under all
applicable laws or regulations.
MasTec shall fully comply with all laws and regulations as well as utility
requirements relating to protection of the environment and to the use, storage,
handling and disposal of all hazardous substances, materials and waste.
19.0 WRITTEN NOTICE
All notices, demands, requests, instructions, approvals, proposals and claims
shall be in writing and shall be addressed as follows:
MASTEC NORTH AMERICA, INC.
3155 N.W. 77th Avenue
Suite 130
Miami, Florida 33122-1205
Attn: Legal Department
Telergy Inc.
20 Corporate Woods
Suite 100
Albany, New York 12211
Attn: General Counsel
20.0 CHOICE OF LAW AND INTERPRETATION
Each Backbone Construction Contract shall establish choice of law and venue
provisions. This Agreement shall be governed by, and interpreted according to
the laws of the State of Florida without giving effect to the principles of
conflicts of law. No claim, demand, action, proceeding arbitration,
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litigation, hearing, motion or lawsuit arising from, related to, or connected
with this Agreement shall be commenced or prosecuted in any jurisdiction other
than state or federal courts located in the Dade County, Florida, and any
judgment, determination, order, finding or conclusion reached in any other
jurisdiction shall be null and void between the parties hereto.
If any legal proceeding is brought to enforce or interpret this Agreement or any
provision thereof, the prevailing party in any such proceeding shall be entitled
to recover from the other party its reasonable attorneys' and paralegal fees and
court costs. The parties recognize that their respective performance of their
obligations under Section 2 for MasTec to serve as Telergy's Strategic
Construction Contractor is special, unique and extraordinary in character, and
that in the event of the breach or threatened breach by either party of this
obligation, the other party would suffer irreparable injury for which no
adequate remedy at law may exist. Accordingly, in the event of a breach or
threatened breach by either party, the other party will be entitled, if its so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction as defined in this Agreement and the Backbone Construction
Contracts, either in law or in equity, to obtain damages for any breach of this
obligation, to enforce the specific performance of this Agreement by the other
party, or to enjoin it from breaching or attempting to breach this obligation.
21.0 CONSENTS
No consent or approval required of any party in connection with this Agreement
or the Backbone Construction Contracts shall be unreasonably withheld or
delayed.
22.0 NO WAIVER
Any waiver by any party at any time of its rights as to anything contained
herein shall not be deemed to be a waiver of the same or similar right at a
subsequent time. The failure of any party to seek redress for violation or to
insist upon the strict performance of any covenant or condition of this
Agreement shall not prevent a subsequent act, which would have originally
constituted a violation, from having the effect of any original violation.
23.0 REMEDIES
Unless otherwise expressly provided in this Agreement, the rights and remedies
provided by this Agreement are cumulative and the use of any one right or remedy
by any party shall not preclude or waive its right to sue on any or all other
remedies. Said rights and remedies are given in addition to any other rights
such party may have by law, statute, ordinance or otherwise, except as such
remedies are expressly limited by this Agreement.
24.0 SEVERABILITY
Any provision of this Agreement that is invalid, illegal or unenforceable in any
manner and in any jurisdiction shall be, as to such jurisdiction, ineffective to
the extent of such invalidity, illegality or unenforceability without in any way
affecting the validity, legality or enforceability of the remaining provisions
hereof, and any such invalidity, illegality or unenforceability in any
jurisdiction shall not invalidate or in any way affect the validity, legality or
enforceability of such provision in any other
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jurisdiction.
25.0 COMPLIANCE
The parties shall at all times observe and comply with the provisions of this
Agreement, and such provisions are subject to all laws, ordinances, contracts
and regulations which in any manner affect the rights and obligations of the
parties herein.
26.0 BINDING CONTRACT
The provisions of this Agreement, including the attachments and exhibits hereto
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, successors and assigns.
27.0 ACTS IN FURTHERANCE OF CONTRACT
The parties each agree to do such other and further acts and things, and to
execute and deliver such additional instruments and documents, not creating any
obligations, or imposing any expenses, additional to those otherwise created or
imposed by this Operating Agreement, as another party may reasonably request
from time to time, in furtherance of the strategic relationship contemplated
hereunder.
28.0 CONFIDENTIALITY
MasTec agrees that all information, analysis, conclusions, drawings, reports,
specifications ("Information") developed by Telergy or developed by MasTec for
or on behalf of Telergy pursuant to this Agreement or the Backbone Construction
Contracts shall be the sole property of Telergy and that any Information
received by MasTec with respect to the business of Telergy or the Services
contemplated hereunder, proprietary or otherwise, shall be kept confidential and
any Information or other property of Telergy received by MasTec in connection
with the Services shall be returned to Telergy upon completion of the same.
29.0 FORCE MAJEURE
Any failure of a party to perform its obligations under this Agreement shall not
be a breach of this Agreement to the extent such failure results from acts of
God (including fires, hurricanes, earthquakes, tornadoes, flooding, snow storms,
severe thunderstorms, or similar natural occurences), war, riots and civil
insurrection, outbreaks of hostilities, states of emergency, governmental
delays, supply shortages (including power, gasoline, and other fuel shortages),
labor disputes, shortages or strikes or transportation delays, or similar
occurrences beyond the reasonable control of the party.
30.0 TERM AND TERMINATION
This Operating Agreement shall be effective from its date through April 30, 2001
(the "Initial Term"). Thereafter, it shall automatically renew for successive
one-year terms until either party gives written Notice in accordance with
Section 19 of its intention not to renew at least ninety days prior to the end
of any contract year, provided however that this Agreement shall terminate at
MasTec's sole discretion upon termination of the Financing Agreement, and any
Backbone Construction Contracts then underway
15
<PAGE> 18
(and not otherwise terminated) shall survive termination of this Agreement until
said Contracts have been completed or terminated.
Notwithstanding the foregoing, (a) the indemnification obligations of any of the
parties will continue until the expiration of the applicable statute of
limitations, and (b) the termination of this Agreement due to Telergy's breach
will not terminate Telergy's obligations to MasTec under Section 2 or 20 of this
Agreement. Either party may terminate this Agreement upon thirty (30) days'
prior written notice to the other party because of (a) a breach by the other
party of a material term of this Agreement or the Financing Agreement. Either
party may terminate this Agreement or any Backbone Construction Agreement if the
other party becomes insolvent, is unable to pay its debts as they become due,
makes a general assignment for the benefit of creditors, files a voluntary
bankruptcy petition, or takes or has taken against it other similar action. The
party receiving notice of termination may cure the breach or other reason for
termination within thirty (30) days of prior written notice from the terminating
party, except for default under the Financing Agreement may be cured only as
provided in the Financing Agreement and related documents. Upon termination of
this Agreement or any Backbone Construction Contracts, MasTec will immediately
cease the performance of all Services on projects covered under this Agreement
or any terminated Backbone Construction Contract and vacate the job sites,
returning all tools, equipment, vehicles and materials supplied or paid for by
Telergy or other MasTec Subsidiaries. Telergy must pay all amounts due to MasTec
under this Agreement, any terminated Backbone Construction Contracts and the
Financing Agreement within thirty (30) days of such termination. In the event of
a Backbone Construction Contract is terminated by MasTec or is terminated by
Telergy due a breach by MasTec, Telergy shall be free to bring in any other
contractor or agent as necessary or appropriate to complete the Services to be
performed under such Backbone Construction Contract.
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<PAGE> 19
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives on this 6th day of May 1998.
MASTEC NORTH AMERICA, INC. TELERGY, INC.
/s/Edward D. Johnson /s/Brian P. Kelly
- -------------------- -------------------
Signature Signature
Edwin D. Johnson Brian P. Kelly
Title: Senior Vice President Chief Executive Officer.
and Chief Financial Officer
<PAGE> 1
EXHIBIT 10.7.1
MASTER PURCHASE AGREEMENT
BETWEEN
TELERGY NETWORK SERVICES, INC.
AND
NORTHERN TELECOM INC.
<PAGE> 2
TABLE OF CONTENTS
Articles:
Article 1 - Definitions
Article 2 - Scope of Agreement
Article 3 - Placement of Orders
Article 4 - Price and Payment
Article 5 - Shipment, Title and Risk of Loss
Article 6 - Testing, Turnover and Acceptance
Article 7 - Order Cancellation
Article 8 - Warranty
Article 9 - Nortel Networks' Additional Obligations
Article 10 - Software License
Article 11 - Liability for Bodily Injury, Property Damage and Patent
Infringement
Article 12 - Remedies and Limitation of Liability
Article 13 - Term and Termination
Article 14 - Confidentiality
Article 15 - Miscellaneous
Exhibits:
Exhibit A - Product Annexes including lists of Product and Prices
2
<PAGE> 3
MASTER PURCHASE AGREEMENT
This Master Purchase Agreement ("Agreement"), effective as of the 1st day
of March, 1999, is entered into by and between Telergy Network Services, Inc.
(hereinafter "Company") with offices located at One Telergy Parkway, Syracuse,
New York 13057 and Northern Telecom Inc. (hereinafter "Nortel Networks"), with
offices located at 4001 East Chapel Hill-Nelson Highway, Research Triangle Park,
North Carolina 27709.
WHEREAS, Company is engaged in providing communication data services and
products, and providing and maintaining public and private communication and
data networks; and
WHEREAS, Nortel Networks, in conjunction with Nortel Networks Affiliates, is
engaged in the design, development, manufacture and sale of various products and
offers services associated with such products, which can be used in connection
with the communication services, products and networks of Company; and
WHEREAS, Company wishes to be able to purchase and/or license various products
and services for delivery and installation in the United States from Nortel
Networks, which Company will use for its own internal use and not for resale or
as stock in trade and Nortel Networks is willing to sell and/or license such
products to Company, subject to the terms and conditions of this Agreement; and
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements herein set forth, the parties agree as follows:
ARTICLE 1. DEFINITIONS
The following words shall have the meanings set forth below. Words in the
singular shall be held to include the plural and vice versa and words of gender
shall be held to include the other gender as the context requires.
1.1 "Acceptance" shall mean that either (i) Company has indicated that
an ordered Product is operating substantially in accordance with the applicable
Specification; or (ii) an ordered Product has been deemed to be accepted
pursuant to criteria set forth in Article 6.
1.2 "Applications" shall mean any program, product, service,
development or invention developed by a party using the Building Blocks,
including any modified or created Building Blocks, created by Company.
1.3 "Building Block(s)" shall mean those Software files provided by
Nortel Networks with Modifiable Software that are manipulatable or which may be
created by Company with such Modifiable Software and which can be used, created
or manipulated by Company to create Applications.
3
<PAGE> 4
1.4 "Confidential Information" shall mean all information, including
without limitation, specifications, drawings, documentation, know-how, customers
and services and pricing information, of every kind or description which may be
disclosed by one party to the other party in connection with this Agreement.
1.5 "Credit Agreement" (and related loan documents as defined in Credit
Agreement) shall mean the agreement between the parties and Telergy, Inc.
executed simultaneously with this Agreement.
1.6 "Customer" shall mean entities to whom Company provides
communication services as a result of Company's internal use of the Products.
1.7 "Customer Information" or "CI" shall mean the information provided
by Company to Nortel Networks in order for Nortel Networks to engineer and/or
provide the components of Systems.
1.8 "Documentation" shall mean the documents which Nortel Networks
generally makes available to its customers containing descriptive, operating,
installation, engineering and maintenance information for Products, including
Specifications, as such documents may be amended from time to time.
1.9 "Effective Date" shall mean the date this Agreement becomes
effective which shall be the date first identified above.
1.10 "Extension" shall mean Hardware and/or Software which is
engineered by Nortel Networks and added to an Initial System after the Turnover
Date of the Initial System.
1.11 "Hardware" shall mean, individually and collectively, the Nortel
Networks equipment listed in the Product Annexes of Exhibit A, and shall be
deemed to include any equipment which Nortel Networks adds to its generally
available Hardware price lists or so identifies to Company in a Quotation.
1.12 "Hazardous Material" shall mean any pollutants or dangerous, toxic
or hazardous substances (including without limitation, asbestos) as defined in,
or pursuant to the OSHA Hazard Communication Standard (29 CFR Part 1910, Subpart
Z), the Resource Conservation and Recovery Act (15 USC Section 6901, et seq.),
the Toxic Substances Control Act (15 USC Section 2601, et seq.), the
Comprehensive Environmental Response Compensation and Liability Act (42 USC
Section 9601, et seq.), and any other federal, state or local environmental law,
ordinance, rule or regulation or equivalent law or regulation in the location to
which the Product is shipped by Nortel Networks.
1.13 "Initial System" shall mean Hardware and Software, inclusive of a
central processor unit, included in a configuration which Nortel Networks has
identified as a
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<PAGE> 5
System and which is initially engineered by Nortel Networks and installed at a
specific Installation Site.
1.14 "Installation Site" shall mean the location or facility identified
in an Order at which the applicable Products will be installed.
1.15 "Licensed Software" shall mean the Software which Company has
licensed pursuant to this Agreement.
1.16 "Merchandise" shall mean any Hardware or other parts or components
which are not ordered as part of a System and with respect to which no
engineering, installation or other Services are provided by Nortel Networks.
1.17 "Modifiable Software" shall mean Software, or a portion of
Software that is identified as such by Nortel Networks in its applicable
Documentation, which Company may have certain rights to modify and potentially
create Applications or Building Blocks in accordance with the applicable
Documentation.
1.18 "Non-Licensed Software" shall mean Software for which Company has
not yet obtained a license nor paid applicable right-to-use fees but which
Software may be included with Software loads delivered to Company hereunder.
1.19 "Nortel Networks Affiliate" shall mean Nortel Networks' parent
corporation, Northern Telecom Limited and any corporation controlled directly or
indirectly by Northern Telecom Limited through the ownership or control of
shares or other securities in such corporation.
1.20 "Order" shall mean a numerically controlled purchase authorization
document issued by Company to Nortel Networks specifying the types and
quantities of Products and Services to be furnished by Nortel Networks.
1.21 "Product(s)" shall mean, individually and collectively, the
Hardware, Software, and Documentation.
1.22 "Product Annex" shall mean, with respect to a specific Product,
additional or modified terms and conditions as set forth in Exhibit A, inclusive
of but not limited to those that may apply to any Third Party Hardware or Third
Party Software, unique to such Product.
1.23 "Quotation" shall mean a written budgetary or firm price quotation
issued by Nortel Networks to Company for the supply of any Products or Services
pursuant to this Agreement.
1.24 "Service(s)" shall mean, individually and collectively, any of the
services set forth in this Agreement that Company may acquire from Nortel
Networks, such as but
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<PAGE> 6
not limited to maintenance, engineering, installation, training, data
management, program management, project management, commissioning, testing,
technical assistance Service with respect to Products and installation, and
consulting.
1.25 "Services Software" shall mean that Software and related
documentation made available by Nortel Networks which may be used by Company for
estimation, planning or information purposes.
1.26 "Ship Date" shall mean the date as agreed to by the parties, on
which a Product ordered by Company is scheduled to be shipped from Nortel
Networks' facility or in the case of Software which is downloaded, the date upon
which such Software is to be downloaded to the System; however Ship Date shall
not mean the date on which Non-Licensed Software is activated.
1.27 "Software" shall mean (i) computer programs in object code form or
firmware which (a) are owned by, or licensed to, Nortel Networks, (b) reside
in Product memories, tapes, disks or other media, and (c) provide basic logic
operating instructions and user-related application instructions; and (ii)
documentation associated with such computer programs which may be furnished by
Nortel Networks to Company from time to time, including both Licensed Software
and Non-Licensed Software, but in no event shall Software include source code.
1.28 "Software Release" shall mean Software or revisions to Software
containing problem fixes, new features and/or enhancements.
1.29 "Specifications" shall mean with respect to any Product the
specifications and/or practices set forth in Northern Telecom Practices ("NTPs")
or similar documents published by Nortel Networks which Nortel Networks
identifies as the standard performance specifications and practices for such
Product.
1.30 "System" shall mean a configuration of Hardware and Software
providing a specified functionality and includes an Initial System and its
Extensions, if any.
1.31 "Third Party Hardware" shall mean any hardware not of Nortel
Networks' manufacture which shall be deemed to include any such hardware which
Nortel Networks adds to its generally available Third Party Hardware price lists
or so identifies to Company in a Quotation.
1.32 "Third Party Software" shall mean any Software not owned by Nortel
Networks which is included within Licensed Software or Non-Licensed Software.
1.33 "Turnover" shall mean, with respect to any System installed by
Nortel Networks, that Nortel Networks has completed its standard manufacturing,
verification cycle, installation and/or agreed-upon test procedures, as
applicable, and that the System is ready for acceptance testing by Company.
6
<PAGE> 7
1.34 "Turnover Date" shall mean, with respect to any Product installed
by Nortel Networks hereunder, the date on which Nortel Networks provides a
notice of Turnover to Company.
ARTICLE 2. SCOPE OF AGREEMENT
2.1 This Agreement sets forth the terms and conditions under which
Company may order Products and/or Services from Nortel Networks. Company may use
the Products itself, including use to provide services to others, subject to the
terms and conditions of this Agreement. Company expressly represents that it is
not buying Product for resale. All Products shall be delivered and installed in
the United States.
2.2 During the Term, Company commits to purchase Products and/or
Services as identified in Attachment 1 to Product Annex A.1 and Attachment 1 to
Product Annex A.2, to be shipped to the locations specified with the Order
("Sites") in the aggregate amount totaling thirty million dollars ($30,000,000)
("Committed Products") and as long as the Credit Agreement is in effect, Nortel
Networks agrees to Accept at least five million dollars ($5,000,000) in Customer
Orders for such Committed Products. During each year of the Term the Commitment
may be reduced pursuant to Section 3.3. Company commits to purchase a minimum
amount of ten million dollars ($10,000,000) of the Committed Products for a
total minimum commitment of thirty million dollars ($30,000,000) ("Commitment").
The Committed Products shall be purchased under the terms and conditions of this
Agreement and the financing associated with such purchase shall be governed by
the provisions of the Credit Agreement. In addition during the Term, Company may
purchase up to two hundred million dollars ($200,000,000) of products, such as
High Speed service and similar, from Nortel Networks, and if Company should be
awarded the such business by the State University of New York, Company agrees
that Nortel Networks will be the primary supplier of related products and
services.
2.3 To the extent any terms and conditions set forth in this Agreement
are inapplicable to a Product, the applicable terms and conditions and any
additional terms and conditions for such Product shall be set forth in a Product
Annex.
2.4 If specified in a Product Annex as a requirement, Company shall,
fifteen (15) days prior to each calendar quarter, submit to Nortel Networks a
consolidated non-binding forecast of Products by geographic region, that Company
anticipates purchasing or licensing over the next four (4) calendar quarters. In
addition to the type, quantity and cumulative dollar amount of Products, the
parties may agree upon additional information to be included in such forecast.
2.5 All references to prices, charges, fees or other amounts herein
shall be in U.S. dollars and all documentation, correspondence and
communication shall be in the English language.
7
<PAGE> 8
ARTICLE 3. PLACEMENT OF ORDERS
3.1 To order Products and/or Services, Company shall submit to the
Contracts Administration department at Nortel Networks, or another department
that Nortel Networks designates upon written notice to the Company, an Order
which shall at a minimum specify the following, if applicable:
(i) the types and quantities of Products and Services to be
furnished by Nortel Networks;
(ii) the applicable prices, charges and fees with respect to
such Products and Services;
(iii) the location or facility to which the Products are to be
delivered;
(iv) the incorporation by reference of this Agreement;
(v) the Installation Site, if known;
(vi) the requested Ship Date and Turnover Date of the System;
and
(vii) if the purchase shall not be pursuant to the terms and
conditions of the Credit Agreement, which portion is subject
to such Credit Agreement.
(viii) any other information required under this Agreement to
be included in an Order.
3.2 Payment for all Orders for Committed Product placed thereafter
shall be governed by the same terms and conditions set forth in the Credit
Agreement. Company shall order the Committed Products in the minimum quantities
specified in accordance with the Product Models specified in Attachment I to
Product Annex A.1 and Attachment I to Product Annex A.2, in accordance with
Section 2.2. of this Agreement.
3.3 All purchases pursuant to this Agreement shall be made by means of
Orders issued from time to time by Company and accepted by Nortel Networks in
writing within fifteen (15) days after receipt of Order. In the event Nortel
Networks fails to provide its acceptance of an Order in writing within such
fifteen (15) day period, such Order shall be deemed accepted. Nortel Networks
shall have the right to reject any Order, or the applicable portion of such
Order, placed hereunder where Company has a separate agreement with Nortel
Networks for the provision of the Products or Services requested in such Order
or the Order is otherwise not in accordance with this Agreement, provided
however that Nortel Networks shall be required to reject any Order in writing
within fifteen (15) days of receipt. Orders for the Committed Products Accepted
by Nortel Networks shall be financed in accordance with the terms and conditions
of the Credit
8
<PAGE> 9
Agreement. In the event Nortel Networks rejects an Order, in whole or in part,
or fails to make the financing available as required hereunder ("Rejected
Order"), Company shall be free to place the Order, in whole or in part with any
other vendor, in Company's sole discretion and the minimum Commitment shall be
reduced by the dollar amount of any such Rejected Order.
3.4 All Orders issued by Company pursuant to this Agreement shall refer
to and specifically incorporate this Agreement by reference and the terms and
conditions herein shall govern the transaction resulting from such Order
provided that such Order is accepted or deemed accepted by Nortel Networks.
Additionally, all Orders issued for, in whole or in part, Committed Products
shall specifically incorporate the Credit Agreement by reference and the
applicable terms and conditions therein shall also apply to such Order.
Preprinted terms and conditions set forth in Orders issued by Company, or in any
prior Quotations, acknowledgments or other related documentation issued by any
party, shall be considered null and void and shall have no force or effect.
However, any special terms and conditions written on the face of or otherwise
incorporated into an Order by Company shall, upon acceptance in writing by
Nortel Networks, for such Order only, supersede the specific terms and
conditions contained in this Agreement, including all Exhibits attached hereto,
which are in conflict, but only to the extent of such conflict.
3.5 Company may at any time request additions, alterations, deductions
or deviations to an Order subject to the condition that such changes and any
adjustments resulting from such changes including, but not limited to, schedules
and prices, shall be mutually agreed upon and, if so agreed, subsequently
detailed in a written revision to the applicable Order ("Change Order"). Company
acknowledges that a premium charge may be applied by Nortel Networks should
Nortel Networks agree to process a Change Order outside of its standard Order
processing cycle for a Product or in the event that a Change Order requires an
additional amount of work (such as engineering) to be undertaken to comply with
such changes, provided however that any such premium charge shall be agreed upon
and specified in the Change Order.
3.6 If Company desires to receive a budgetary or firm Quotation from
Nortel Networks for a Product or Service, Company shall submit such request in
writing to Nortel Networks' Director, Commercial Marketing, or such other person
as designated by Nortel Networks. The request for Quotation shall include the
information listed in Section 3.1, as applicable.
3.7 Nortel Networks shall respond in writing to requests for budgetary
Quotations and requests for firm Quotations. Unless otherwise specified in the
firm Quotation, such firm Quotation shall be valid for ninety (90) days from the
date of such Quotation. Budgetary Quotations shall be provided for information
and planning purposes only and shall not be considered to be a final or firm
statement binding on either party. The Quotations shall include the following
information:
(i) Budgetary Quotations
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<PAGE> 10
(a) preliminary Hardware and Software lists;
(b) the estimated charges for the Products;
(c) the estimated charges for Services requested; and
(d) any other information requested by Company.
(ii) Firm Quotations
(a) the price to be paid by Company for the Products, after
applying the applicable discounts, if any;
(b) fixed charges for Services requested;
(c) complete Hardware and Software lists and project
schedules; and
(d) any other information requested by Company.
3.8 The Ship Date shall be based on Nortel Networks' standard intervals
for the applicable Product; however, the parties shall always mutually agree on
the Ship Date and take into consideration any unique aspect of the applicable
project.
3.9 Orders may be issued either electronically, such as through
electronic data interchange, or via traditional manual methods, as mutually
agreed to by the parties.
ARTICLE 4. PRICE AND PAYMENT
4.1 Nortel Networks shall charge Company for each Product and/or
Service ordered by Company in accordance with the prices set forth in each
accepted Order, which prices shall be based upon prices identified in one of (i)
a Product Annex; (ii) a Firm Quotation; (iii) Nortel Networks' then current
prices; or (iv) as specified elsewhere in this Agreement or as otherwise
mutually agreed in writing.
4.2 Nortel Networks' prices, if set forth in Exhibit A, may be revised
by Nortel Networks no more than once each calendar year, by providing sixty (60)
days prior written notice to Company. Such notice shall specify the effective
date of the price change and shall apply to all Orders received by Nortel
Networks on or after the effective date of the price change. However, in the
event there is a recognized industry-wide shortage of a component that is
incorporated in a Product, Nortel Networks may increase the price of such
Product, following the provision of written notice to Company fifteen (15) days
prior to the effective date of such increase or such shorter date as is mutually
agreed in view of the shortage. The price increase of such Product due to a
recognized industry-wide component shortage shall be limited to a reasonable
amount under the then-current circumstances having regard for industry
conditions for the period of time during which such recognized shortage exists.
Following the implementation of a price increase due to a component shortage,
the parties shall jointly review every three (3) months or at such other time as
is mutually agreed, in good faith, whether such component shortage still exists.
If the component shortage has abated, the parties shall jointly determine
whether there still is a need for such price increase.
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<PAGE> 11
4.3 Other than with respect to Committed Products, Nortel Networks
shall promptly extend to Company any price reductions made by Nortel Networks in
its generally available, then current list prices for Products and/or Services.
Such price reduction shall apply to all Orders received on or after the
effective date of such price reduction.
4.4 For all Orders, Nortel Networks shall invoice Company for Products
and Services as follows, unless otherwise agreed to in writing:
(i) for Systems, whether or not installation has been ordered
from Nortel Networks, one hundred percent (100%) of the price
of the Products on the Ship Date, one hundred percent (100%)
of the price of any Services upon the date of completion of
such Services, except with respect to installation Services,
if any, which shall be invoiced one hundred percent (100%)
upon Turnover. Except for installation Services, for Services
that have a duration of more than one (1) month to complete,
Nortel Networks may invoice Company monthly for that portion
of such Services which have been performed as of such
invoicing date.
(ii) for Merchandise or Documentation provided on a
furnish-only basis, one hundred percent (100%) of the price on
the Ship Date; and
(iii) for Orders covering Services only, one hundred percent
(100%) of the price for such Services following completion of
performance, except for recurring support Services which shall
be billed quarterly in advance unless otherwise agreed. Some
Services may be subject to monthly invoicing as set out in a
Product Annex or separate Service agreement. To the extent
such Services are to be invoiced differently then set out in
this paragraph (iii), such differences shall be set forth in
the applicable Product Annex or separate Service agreement and
such provisions shall take precedence.
4.5 Except for invoices to be paid in accordance with the Credit
Agreement, invoices shall be paid in full within thirty (30) days after the date
of such invoice. In the event that Company does not pay any invoice in full
within such thirty (30) day period, then Nortel Networks may charge Company
interest on the outstanding portion of such invoice, from day thirty one (31)
forward, at the rate of one and one half percent (1.5%) simple compound interest
per month, or such lesser amount as may be the maximum permissible rate under
applicable law, until such time as the outstanding invoice is paid. In addition,
Company agrees to pay all collection costs and reasonable legal fees incurred by
Nortel Networks as a result of late payment or non-payment by Company, other
than with respect to Products and Services that are subject to the terms and
conditions of the Credit Agreement.
11
<PAGE> 1
Exhibit 10.7.2
AMENDMENT NO. 1
Amendment No. 1 to the Master Purchase Agreement between Nortel Networks, Inc.,
formally Northern Telecom Inc. ("Nortel Networks"), and Telergy Network
Services, Inc. ("Company") effective February 26, 1999 ("Agreement").
WHEREAS, the parties wish to amend the Agreement to include the following
Product Annex(es) in Exhibit A of the Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
set forth, the parties agree as follows:
1. Product Annex A.4, attached hereto, is added to Exhibit A of the
Agreement and the appropriate terms of the Agreement are hereby modified to the
extent specified in Product Annex A.4.
2. This Amendment No. 1 shall be made effective as of the date of execution
by the latter of the parties.
3. Except as expressly modified above, the Agreement shall remain unchanged
and in full force and effect.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THEIR DULY AUTHORIZED
REPRESENTATIVES TO EXECUTE THIS AMENDMENT NO. 1 ON THE DAY AND YEAR LAST
WRITTEN BELOW.
TELERGY NETWORK SERVICES, INC. NORTEL NETWORKS INC.
BY: /S/ William M. Kelly, Jr. By: /s/ Cynthia C. Hemme
------------------------------ --------------------------------------
(signature) (signature)
Name: William M. Kelly, Jr. Name: Cynthia C. Hemme
---------------------------- ------------------------------------
(print) (print)
Title: Exec. V.P. Title: Vice President, Marketing-Contracts
--------------------------- -----------------------------------
Date: 5/24/99 Date: 6-8-99
---------------------------- ------------------------------------
<PAGE> 2
EXHIBIT A
PRODUCT ANNEX A.4
FRAUD SOLUTIONS PRODUCTS
The supplemental terms and conditions provided below take precedence over any
conflicting terms and conditions specified, in the Sections noted below or
elsewhere, in the Agreement as such terms and conditions apply to the range of
SuperSleuth(TM) Software products developed by Fraud Solutions ("Fraud
Solutions Products").
ARTICLE 3, SECTION 3.1
With regard to the subject of submitting Orders, the following shall apply:
Orders for Fraud Solutions Products shall be submitted separately and sent
via facsimile followed by a hard copy sent via U.S. Mail to the following
address:
Fraud Solutions
Attn: Walt Shedd
9580 Oak Avenue Parkway, 7-165
Folsom, California 95630
Fax: 916-987-7265
ARTICLE 3, SECTION 3.2
With regard to the subject of payment of Orders, the following shall apply:
Payment for all Orders for Fraud Solutions Product placed hereunder shall
be governed by the Payment Schedule identified in Attachment 1 of this
Product Annex A.4.
ARTICLE 4, SECTION 4.4
With regard to the subject of invoicing for Products and Services, the
following shall apply:
Products and Services purchased pursuant to this Product Annex A.4 shall
be invoiced separately, and Services purchased pursuant to a support plan,
as identified in Attachment 1 of this Product Annex, A.4, shall be
invoiced annually in advance.
ARTICLE 5, SECTION 5.1
With regard to the subject of reschedule of an Order, the following shall apply:
Company may only reschedule an Order with the written consent of Nortel
Networks.
1
<PAGE> 3
ARTICLE 7, SECTION 7.1
With regard to the subject of Company's cancellation of an Order, the following
shall apply:
Unless otherwise mutually agreed in writing, Customer may not cancel an
Order.
ARTICLE 8, SECTION 8.1
With regard to the subject of Hardware warranty, the following shall apply:
In the event any Hardware is provided hereunder, such Hardware will be
considered Third Party Hardware.
ARTICLE 8, SECTION 8.2
With regard to the subject of installation Services warranty, the following
shall apply:
No installation Services warranty shall arise with respect to Fraud
Solutions Products purchased hereunder.
ARTICLE 8, SECTION 8.3
With regard to the subject of Software warranty, the following shall apply:
Nortel Networks shall warrant that any Licensed Software shall function
without any material, service-affecting, non-conformance to the applicable
Specifications for a period of ninety (90) days from Acceptance.
ARTICLE 10, SECTION 10.1
There are no additional terms regarding Third Party Hardware and Third
Party Software.
ARTICLE 10, SECTION 10.15
With regard to the subject of Software support Services for Fraud Solutions
Products, the following shall apply:
Nortel Networks shall provide Software Maintenance Services in accordance
with a separate Services Agreement at the prices set forth in Attachment 1
of this Product Annex A.4, to be executed between the parties for a
Software release.
Fraud Solutions Annex 5-24-99 2
<PAGE> 1
Exhibit 10.7.3
AMENDMENT NO. 2
TO
PURCHASE AGREEMENT
THIS AMENDMENT NO. 2 ("Amendment") effective as of this 28th day of June, 1999
is made by and between Nortel Networks Inc., a Delaware corporation, with
offices at 4001 E. Chapel Hill-Nelson Highway, Research Triangle Park, North
Carolina 27709 ("Nortel Networks") and Telergy Network Services, Inc.
(hereinafter "Company") with offices located at One Telergy Parkway, Syracuse,
New York 13057.
WHEREAS, the parties entered into a Master Purchase Agreement dated February
27, 1999 for the purchase of various products and services to be used in
connection with the communication services, products and networks of Company
("Agreement");
WHEREAS, in order to provide such Products and Services, the parties agree to
amend the Agreement as set forth herein.
NOW, THEREFORE, the parties hereto do hereby agree to amend the Agreement as
follows:
1. Section 2.2 of the Agreement is hereby deleted and replaced in its
entirety as follows:
During the Term, Company commits to purchase Products and/or Services as
identified in Attachment 1 to Product Annex A.1 and Attachment 1 to Product
Annex A.2, including any Products and/or Services, agreed upon by the
parties, associated with such Products and/or Services as identified in
Attachment 1 to Product Annex A.1 and Attachment 1 to Product Annex A.2, to
be shipped to the locations specified with the Order ("Sites") in the
aggregate amount totaling thirty million dollars ($30,000,000) ("Committed
Products") and as long as the Credit Agreement is in effect, Nortel
Networks agrees to Accept at least five million dollars ($5,000,000) in
Customer Orders for such Committed Products. During each year of the Term
the Commitment may be reduced pursuant to Section 3.3. Company commits to
purchase a minimum amount of ten million dollars ($10,000,000) of the
Committed Products for a total minimum commitment of thirty million dollars
($30,000,000) ("Commitment"). The Committed Products shall be purchased
under the terms and conditions of this Agreement and the financing
associated with such purchase shall be governed by the provisions of the
Credit Agreement. In addition during the Term, Company may purchase up to
two hundred million dollars ($200,000,000) of products, such as High Speed
service and similar, from Nortel Networks, and if Company should be awarded
the such business by the State University of New York, Company agrees that
Nortel Networks will be the primary supplier of related products and
services.
Except as expressly amended above, all provisions of the Agreement shall remain
unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first set forth above.
NORTEL NETWORKS INC. TELERGY NETWORK SERVICES, INC.
By: /s/ By: /s/ Brian Kelly
------------------------------- -------------------------------
Title: VICE PRESIDENT Title: CEO
MARKETING CONTRACTS ----------------------------
----------------------------
Date: 6/28/99 Date: 6/25/99
----------------------------- -----------------------------
06/24/99 1
<PAGE> 1
EXHIBIT 10.8.1
================================================================================
CREDIT AGREEMENT
dated as of February 26, 1999
by and among
TELERGY, INC.
as Borrower,
TELERGY NETWORK SERVICES, INC.
as Guarantor
and
NORTHERN TELECOM INC.
as Administrative Agent
and
THE LENDERS NAMED HEREIN
$30,000,000 ADVANCING TERM LOAN FACILITY
and
$15,000,000 ADVANCING TERM LOAN FACILITY
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE 1 Definitions........................................................1
Section 1.1 Definitions, etc...........................................1
Section 1.2 Other Definitional Provisions.............................19
Section 1.3 Accounting Terms and Determinations.......................20
Section 1.4 Financial Covenants and Reporting.........................20
ARTICLE 2 Loans.............................................................21
Section 2.1 Commitments...............................................21
Section 2.2 Notes.....................................................21
Section 2.3 Repayment of Loans........................................22
Section 2.4 Interest..................................................23
Section 2.5 Borrowing Procedure.......................................24
Section 2.6 Optional Prepayments, Conversions and
Continuations of Loans ...................................24
Section 2.7 Mandatory Prepayments.....................................25
Section 2.8 Minimum Amounts...........................................26
Section 2.9 Certain Notices...........................................26
Section 2.10 Use of Proceeds .........................................27
Section 2.11 Fees ....................................................27
Section 2.12 Computations ............................................27
Section 2.13 Termination or Reduction of Commitments .................28
ARTICLE 3 Payments..........................................................28
Section 3.1 Method of Payment.........................................28
Section 3.2 Pro Rata Treatment........................................29
Section 3.3 Sharing of Payments, Etc..................................29
Section 3.4 Non-Receipt of Funds by the Administrative Agent..........29
Section 3.5 Taxes.....................................................30
Section 3.6 Withholding Tax Exemption.................................31
Section 3.7 Reinstatement of Obligations..............................31
Section 3.8 No Force Majeure, Disputes................................31
ARTICLE 4 Yield Protection and Illegality...................................32
Section 4.1 Additional Costs..........................................32
Section 4.2 Limitation on Types of Loans..............................33
Section 4.3 Illegality................................................34
Section 4.4 Treatment of Affected Loans...............................34
Section 4.5 Compensation..............................................35
Section 4.6 Capital Adequacy..........................................35
Section 4.7 Additional Interest on Eurodollar Loans...................36
ARTICLE 5 Security..........................................................36
Section 5.1 Collateral................................................36
CREDIT AGREEMENT - Page i
<PAGE> 3
Section 5.2 Guaranty..................................................36
Section 5.3 Landlord Waivers..........................................36
Section 5.4 Setoff....................................................37
ARTICLE 6 Conditions Precedent..............................................37
Section 6.1 Initial Extension of Credit...............................37
Section 6.2 All Extensions of Credit................................. 39
Section 6.3 Closing Certificates......................................40
ARTICLE 7 Representations and Warranties....................................41
Section 7.1 Existence.................................................41
Section 7.2 Financial Statements......................................41
Section 7.3 Corporate Action; No Breach...............................41
Section 7.4 Operation of Business; Licenses...........................42
Section 7.5 Intellectual Property.....................................42
Section 7.6 Litigation and Judgments..................................42
Section 7.7 Rights in Properties; Liens...............................43
Section 7.8 Enforceability............................................43
Section 7.9 Approvals.................................................43
Section 7.10 Debt.....................................................43
Section 7.11 Taxes....................................................43
Section 7.12 Margin Securities........................................44
Section 7.13 ERISA....................................................44
Section 7.14 Disclosure...............................................45
Section 7.15 Loan Parties.............................................45
Section 7.16 Compliance with Laws.....................................45
Section 7.17 Investment Company Act...................................45
Section 7.18 Public Utility Holding Company Act.......................45
Section 7.19 Environmental Matters....................................45
Section 7.20 Year 2000 Compliance.....................................46
Section 7.21 Labor Disputes and Acts of God...........................47
Section 7.22 Material Contracts.......................................47
Section 7.23 Outstanding Securities...................................47
Section 7.24 Solvency.................................................47
Section 7.25 Employee Matters.........................................47
Section 7.27 Insurance................................................47
Section 7.28 Common Enterprise........................................47
ARTICLE 8 Affirmative Covenants.............................................48
Section 8.1 Reporting Requirements....................................48
Section 8.2 Maintenance of Existence; Conduct of Business.............51
Section 8.3 Maintenance of Properties and Permits.....................51
Section 8.4 Taxes and Claims..........................................51
Section 8.5 Insurance.................................................51
Section 8.6 Inspection Rights.........................................53
Section 8.7 Keeping Books and Records.................................53
CREDIT AGREEMENT - Page ii
<PAGE> 4
Section 8.8 Compliance with Laws......................................53
Section 8.9 Compliance with Agreements................................53
Section 8.10 Further Assurances.......................................54
Section 8.11 ERISA....................................................54
Section 8.12 Non-Consolidation........................................54
Section 8.13 Year 2000 Compliance.....................................54
Section 8.14 Trade Accounts Payable...................................54
Section 8.15 Delivery of Certain Amendments...........................54
Section 8.16 Board Observation........................................55
ARTICLE 9 Negative Covenants................................................55
Section 9.1 Limitation on Liens.......................................55
Section 9.2 Mergers; Liquidation......................................55
Section 9.3 Restricted Payments.......................................56
Section 9.4 Disposition of Collateral.................................56
Section 9.5 Lines of Business.........................................56
Section 9.6 Environmental Protection..................................56
Section 9.7 Intercompany Transactions.................................56
Section 9.8 Supply Agreement..........................................56
Section 9.9 Modification of Certain Agreements........................57
Section 9.10 ERISA....................................................57
Section 9.10 No Prepayment of Debt, Etc...............................57
ARTICLE 10 Financial Covenants..............................................57
Section 10.1 Credit Facility Debt to Contributed Capital..............57
Section 10.2 Quarterly Minimum EBITDA.................................57
ARTICLE 11 Default..........................................................58
Section 11.1 Events of Default........................................58
Section 11.2 Remedies.................................................60
Section 11.3 Performance by the Administrative Agent, etc.............61
ARTICLE 12 The Administrative Agent.........................................61
Section 12.1 Appointment, Powers and Immunities.......................61
Section 12.2 Rights of Administrative Agent as a Lender...............62
Section 12.3 Defaults.................................................62
Section 12.4 INDEMNIFICATION..........................................63
Section 12.5 Independent Credit Decisions.............................64
Section 12.6 Several Commitments......................................64
Section 12.7 Successor Administrative Agent...........................64
ARTICLE 13 Miscellaneous....................................................65
Section 13.1 Expenses ................................................65
Section 13.2 INDEMNIFICATION..........................................65
Section 13.3 Limitation of Liability..................................66
Section 13.4 No Duty..................................................66
CREDIT AGREEMENT - Page iii
<PAGE> 5
Section 13.5 No Fiduciary Relationship................................67
Section 13.6 Equitable Relief.........................................67
Section 13.7 No Waiver; Cumulative Remedies...........................67
Section 13.8 Successors and Assigns...................................67
Section 13.9 Survival.................................................71
Section 13.10 ENTIRE AGREEMENT........................................71
Section 13.11 Amendments..............................................71
Section 13.12 Maximum Interest Rate...................................72
Section 13.13 Notices.................................................73
Section 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION;
SERVICE OF PROCESS .....................................73
Section 13.15 Counterparts............................................73
Section 13.16 Severability............................................74
Section 13.17 Headings................................................74
Section 13.18 Construction............................................74
Section 13.19 Independence of Covenants...............................74
Section 13.20 Confidentiality.........................................74
Section 13.21 WAIVER OF JURY TRIAL....................................74
Section 13.22 Approvals and Consent...................................75
Section 13.23 Service of Process......................................75
CREDIT AGREEMENT - Page iv
<PAGE> 6
INDEX TO EXHIBITS
Exhibit A - Form of Assignment and Acceptance
Exhibit B-1 - Form of Tranche A Note
Exhibit B-2 - Form of Tranche B Note
Exhibit C - Form of Notice of Borrowings, Conversions, Continuations and
Prepayments
Exhibit D - Form of Compliance Certificate
INDEX TO SCHEDULES
Schedule 10 - Financial Covenants
CREDIT AGREEMENT - Page v
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of February 26, 1999, is by and among
TELERGY, INC., a New York corporation (the "Borrower"), TELERGY NETWORK
SERVICES, INC., a New York corporation (the "Guarantor"), each of the lending
entities which is a party hereto (as evidenced by the signature pages of this
Agreement) or which may from time to time become a party hereto as a lender or
any successor or assignee thereof (individually, a "Lender" and, collectively,
the "Lenders"), and NORTHERN TELECOM INC., a Delaware corporation, as
administrative agent for itself and the other Lenders (in such capacity,
together with its successors in such capacity, the "Administrative Agent").
RECITALS:
A. The Borrower intends to construct and operate the Network.
B. The Borrower desires to obtain a $30,000,000 advancing term loan
facility to finance a portion of Guarantor's costs to purchase Nortel Networks
Goods and Services and a $15,000,000 advancing term loan facility for general
corporate purposes, including but not limited to providing working capital for
the Borrower.
C. The Lender(s) identified on the signature pages of this Agreement
desire to provide such credit facilities with the assistance of the
Administrative Agent upon and subject to the terms and provisions contained in
this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions, etc. As used in this Agreement, the following
terms shall have the following meanings:
"Additional Costs" means as specified in Section 4.1(a).
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of one percent) determined by the Administrative Agent to be equal
to (a) the Eurodollar Rate for such Eurodollar Loan for such Interest Period
divided by (b) one minus the Reserve Requirement for such Eurodollar Loan for
such Interest Period.
"Adjusted Net Income" means for any period, Consolidated Net Income less
the following (without duplication) to the extent that any of the following
shall have been included in Consolidated Net Income for such period: (a) any net
gain or loss arising from the sale of capital assets, (b) any net gain or loss
arising from any write-up or write-down of assets, (c) earnings or losses of any
other
CREDIT AGREEMENT - Page 1
<PAGE> 8
Person, substantially all of the assets of which have been acquired by the
Borrower or a Consolidated Subsidiary of the Borrower in any manner, to the
extent that such earnings or losses were realized by such other Person prior to
the date of such acquisition, (d) earnings or losses of any Person (other than a
Consolidated Subsidiary of the Borrower) in which the Borrower or a Consolidated
Subsidiary has an ownership interest, unless such earnings have actually been
received by the Borrower or such Consolidated Subsidiary in the form of cash
distributions, and (e) any net gain or loss arising from the acquisition of any
securities of the Borrower or a Consolidated Subsidiary of the Borrower.
"Administrative Agent" means as specified in the introductory paragraph of
this Agreement.
"Administrative Agent's Letter" means the letter agreement dated as of
February 26, 1999 between the Administrative Agent and the Borrower.
"Advances" means the Loans made under this Agreement.
"Affiliate" means, as to any Person, any other Person (a) that directly or
indirectly through one or more intermediaries controls or is controlled by, or
is under direct or indirect common control with, such first Person, (b) that
directly or indirectly beneficially owns or holds ten percent or more of any
class of voting Capital Stock of such first Person, or (c) ten percent or more
of the voting Capital Stock of which is directly or indirectly beneficially
owned or held by such first Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the Loan Documents, neither the Administrative Agent nor any Lender
shall be deemed to be an Affiliate of the Borrower or any Loan Party.
"Agreement" means this Agreement and any and all amendments,
modifications, supplements, renewals, extensions or restatements hereof.
"Applicable Lending Office" means for each Lender and each Type of Loan,
the lending office of such Lender (or an Affiliate of such Lender) designated
for such Type of Loan below its name on the signature pages hereof (or, with
respect to a Lender that becomes a party to this Agreement pursuant to an
assignment made in accordance with Section 13.8, in the Assignment and
Acceptance executed by it) or such other office of such Lender (or an Affiliate
of such Lender) as such Lender may from time to time specify to the Borrower and
the Administrative Agent as the office by which its Loans of such Type are to be
made and maintained.
"Applicable Margin" means the rate per annum equal to (a) with respect to
each Base Rate Loan, three and one-half of one percent (3.50%) and (b) with
respect to each Eurodollar Loan, four and one-half of one percent (4.50%).
"Assignee" means as specified in Section 13.8(b).
"Assigning Lender" means as specified in Section 13.8(b).
CREDIT AGREEMENT - Page 2
<PAGE> 9
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and its Assignee and accepted by the Administrative Agent
pursuant to Section 13.8(e), in substantially the form of Exhibit A hereto.
"Bankruptcy Code" means as specified in Section 11.1(e).
"Base Rate" means, at any time, the greater of (a) the rate of interest
per annum then most recently announced or established by the Reference Bank at
its principal office in New York City as its highest commercial prime or base
rate then in effect, or (b) the Federal Funds Rate then in effect plus one-half
of one percent (0.50%). The Base Rate may not necessarily be the lowest rate of
interest charged by the Reference Bank to its commercial borrowers. Each change
in any interest rate provided for herein based upon the prime or base rate or
the Federal Funds Rate resulting from a change in the prime or base rate or the
Federal Funds Rate, respectively, shall take effect without notice to the
Borrower at the time of such change in the prime or base rate or the Federal
Funds Rate, respectively.
"Base Rate Loans" means Loans that bear interest at rates based upon the
Base Rate.
"Basle Accord" means the proposals for risk-based capital framework
described by the Basle Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International Convergence of Capital
Measurement and Capital Standards" dated July 1988, as amended, supplemented and
otherwise modified and in effect from time to time, or any replacement thereof.
"Bell Canada Fiber Agreement" means that certain Fiber Agreement dated as
of October 28, 1998, by and among the Borrower, Telergy Network Services, Inc.,
Telergy Central, LLC, Telergy Metro LLC, Telergy Canada, Inc., BCE Inc., Bell
Canada, 3474461 Canada Inc. and Fiberco Telecommunications Corporation.
"Board of Directors" means the board of directors of the Borrower.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Borrower to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification.
"Borrower" means as specified in the initial paragraph of this Agreement.
"Business Day" means (a) any day other than a Saturday, Sunday or other
day on which commercial banks are authorized or required by law to close in New
York, New York or Dallas, Texas, and (b) with respect to all borrowings,
payments, Conversions, Continuations, Interest Periods and notices in connection
with Eurodollar Loans, any day which is a Business Day described in clause (a)
above and which is also a day on which dealings in Dollar deposits are carried
out in the London interbank market.
"Business Plan" means the Borrower's marketing and construction plans for
the Network, budget and schedule as submitted to the Administrative Agent on or
prior to the Closing Date, including financial projections of the Borrower and
certain of its Subsidiaries, such projections
CREDIT AGREEMENT - Page 3
<PAGE> 10
giving effect to the Debt to be incurred under this Agreement as well as the
other Debt to be incurred by the Borrower and certain of its Consolidated
Subsidiaries during such period, as the same may be updated and delivered to the
Administrative Agent in accordance with this Agreement.
"Capital Lease Obligations" means, as to the Borrower or any Consolidated
Subsidiary, the obligations of such Person to pay rent or other amounts under a
lease of (or other agreement conveying the right to use) real and/or personal
Property, which obligations are classified as a capital lease on a balance sheet
of such Person under GAAP. For purposes of this Agreement, the amount of such
Capital Lease Obligations shall be the capitalized amount thereof, determined in
accordance with GAAP.
"Capital Stock" means corporate stock and any and all securities, shares,
partnership interests, limited partnership interests, limited liability company
interests, membership interests, equity interests, participations, rights or
other equivalents (however designated) of corporate stock or any of the
foregoing issued by any entity (whether a corporation, a partnership or another
entity) and includes, without limitation, securities convertible into Capital
Stock and rights or options to acquire Capital Stock.
"Change in Control" means that the Kelly Holders shall have ceased to own
at least fifty percent (50%) of the Voting Stock of the Borrower or that the
Borrower shall have ceased to own one hundred percent (100%) of the Voting Stock
of the Guarantor.
"Closing Date" means February 26, 1999, the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"Collateral" means all Property of any Loan Party upon which a Lien is
created by any Loan Document as security for the Obligations or any portion
thereof.
"Collateral Disposition" means the disposition of any of the Collateral,
whether by sale, lease, transfer, assignment, condemnation or otherwise.
"Commitment Percentage" means, as to any Lender and as to the Tranche A
Commitments or the Tranche B Commitments (as applicable based upon the context
in which such term is used), the percentage equivalent of a fraction, the
numerator of which is the amount of the outstanding Tranche A Commitments or
Tranche B Commitments (as applicable) of such Lender (or, if such applicable
commitment has terminated or expired, the outstanding principal amount of
Tranche A Loans or Tranche B Loans, respectively, of such Lender) and the
denominator of which is the aggregate amount of the outstanding Tranche A
Commitments or Tranche B Commitments (as applicable) of all Lenders (or, if such
applicable commitments have terminated or expired, the aggregate outstanding
principal amount of Tranche A Loans or Tranche B Loans, respectively, of all
Lenders), as adjusted from time to time in accordance with Section 13.8.
"Commitments" means, as to any Lender, such Lender's Tranche A Commitment
and Tranche B Commitment.
CREDIT AGREEMENT - Page 4
<PAGE> 11
"Communications Act" means the Communications Act of 1934, and any similar
or successor federal statute, and the rules and regulations of the FCC
thereunder, all as amended and as the same may be in effect from time to time.
"Consolidated Interest Expense" means, for any period, all interest on
Debt of the Borrower and its Consolidated Subsidiaries paid in cash during such
period, including the interest portion of payments under capital lease
obligations.
"Consolidated Net Income" means, for any period, the net income (or loss)
of the Borrower and its Consolidated Subsidiaries for such period, determined on
a consolidated basis in accordance with GAAP.
"Consolidated Subsidiary" means any Subsidiary the financial attributes of
which is or would be consolidated with those of the Borrower in the consolidated
financial statements of the Borrower in accordance with GAAP.
"Continue", "Continuation" and "Continued" shall refer to the continuation
pursuant to Section 2.6 of a Eurodollar Loan as a Eurodollar Loan of the same
Type from one Interest Period to the next Interest Period.
"Contract Rate" means as specified in Section 13.12(a).
"Contributed Capital" means, as of any date of determination, the sum of
(a) all equity contributions then made in cash or previously made in cash to the
Borrower (including equity contributed on or before the Closing Date), minus (b)
all Restricted Payments (in any form) then made or previously made by the
Borrower to or for the benefit of any Person.
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.6 or Article 4 of one Type of Loan into the other Type of
Loan.
"Current Date" means (a) a date occurring no more than 30 days prior to
the Closing Date or other relevant date as may be specified herein (as
applicable) or (b) such earlier date which is acceptable to the Administrative
Agent.
"Debt" means as to any Person at any time (without duplication): (a) all
indebtedness, liabilities and obligations of such Person for borrowed money, (b)
all indebtedness, liabilities and obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments, (c) all indebtedness,
liabilities and obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable of such Person arising in
the ordinary course of business that are not past due by more than 90 days, (d)
all Capital Lease Obligations of such Person, (e) all Debt of others Guaranteed
by such Person, (f) all indebtedness, liabilities and obligations secured by a
Lien existing on Property owned by such Person, whether or not the indebtedness,
liabilities or obligations secured thereby have been assumed by such Person or
are non-recourse to such Person, (g) all reimbursement obligations of such
Person (whether contingent or otherwise) in respect of letters of credit,
bankers' acceptances, surety or other bonds and similar instruments, (h)
CREDIT AGREEMENT - Page 5
<PAGE> 12
all indebtedness, liabilities and obligations of such Person to redeem or retire
shares of Capital Stock of such Person, (i) all indebtedness, liabilities and
obligations of such Person under Interest Rate Protection Agreements, and (j)
all indebtedness, liabilities and obligations of such Person in respect of
unfunded vested benefits under any pension plans.
"Default" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"Default Rate" means, in respect of any principal of any Loan at all times
during which any Default has occurred and is continuing or in respect of any
other amount payable by the Borrower under this Agreement or any other Loan
Document which is not paid when due (whether at stated maturity, by acceleration
or otherwise), a rate per annum during the period of such Default or during the
period commencing on the due date of such other amount until such other amount
is paid in full, respectively, equal to the lesser of (a) the sum of three
percent (3.00%) plus the Base Rate as in effect from time to time plus the
Applicable Margin for Base Rate Loans or (b) the Maximum Rate; provided,
however, that (i) if such amount in default is principal of a Eurodollar Loan
and the due date is a day other than the last day of an Interest Period
therefor, the "Default Rate" for such principal shall be, for the period from
and including the due date and to but excluding the last day of the Interest
Period therefor, the lesser of the rate per annum equal to (A) the sum of three
percent (3.00%) plus the interest rate for such Eurodollar Loan for such
Interest Period as provided in clause (ii) of Section 2.4(a) hereof or (B) the
Maximum Rate and, thereafter, the rate provided for above in this definition.
"Dollars" and "$" mean lawful money of the U.S.
"EBITDA" means, for any period, without duplication, the sum of the
following for the Borrower and its Consolidated Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP: (a) Adjusted Net
Income, plus (b) Consolidated Interest Expense, plus (c) income and franchise
taxes to the extent deducted in determining Adjusted Net Income, plus (d)
depreciation and amortization expense and other non-cash, non-tax items to the
extent deducted in determining Adjusted Net Income, minus (e) non-cash income
(or losses) to the extent included in determining Adjusted Net Income.
"Eligible Assignee" means (a) any Affiliate of a Lender, (b) any
commercial bank, savings and loan association, savings bank, finance company,
insurance company, pension fund, mutual fund or other financial institution
(whether a corporation, partnership or other entity) which has been approved by
the Administrative Agent as a Lender under this Agreement or (c) any other
entity approved by the Administrative Agent which is (or which is managed by a
manager which manages funds which are) primarily engaged in making, purchasing
or otherwise investing in commercial loans or extending, or investing in
extensions of, credit for its own account in the ordinary course of its
business; provided, however, that (i) Eligible Assignee shall not include any
Affiliate of the Borrower and (ii) Eligible Assignee shall not include any
business competitor of the Borrower except after the occurrence and during the
continuance of an Event of Default.
"Environmental Law" means any federal, state, provincial, local or foreign
law, statute, code or ordinance, principle of common law, rule or regulation, as
well as any Permit, order, decree,
CREDIT AGREEMENT - Page 6
<PAGE> 13
judgment or injunction issued, promulgated, approved or entered thereunder,
relating to pollution or the protection, cleanup or restoration of the
environment or natural resources, or to the public health or safety, or
otherwise governing the generation, use, handling, collection, treatment,
storage, transportation, recovery, recycling, discharge or disposal of Hazardous
Materials, including, without limitation as to U.S. laws, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.ss.
9601 et seq., the Superfund Amendment and Reauthorization Act of 1986, 99-499,
100 Stat. 1613, the Resource Conservation and Recovery Act of 1976, 42 U. S.
C.ss.6901 et seq., the Occupational Safety and Health Act, 29 U S.C.ss.651 et
seq., the Clean Air Act, 42 U.S.C.ss. 7401 et seq., the Clean Water Act, 33 U.
S. C.ss.1251 et seq., the Emergency Planning and Community Right to Know Act, 42
U. S. C.ss.11001 et seq., the Federal Insecticide, Fungicide and Rodenticide
Act, 7 U.S.C.ss.136 et seq., and the Toxic Substances Control Act, 15
U.S.C.ss.2601 et seq., and any state or local counterparts.
"Environmental Liabilities" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including,
without limitation, all reasonable fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any claim or
demand, by any Person, whether based in contract, tort, implied or express
warranty, strict liability or criminal, penal or civil statute, including,
without limitation, any Environmental Law, Permit, order or agreement with any
Governmental Authority or other Person, arising from environmental, health or
safety conditions or the Release or threatened Release of a Hazardous Material
into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of a group of entities, organizations or employers of which a Loan Party
is also a member and which is treated as a single employer within the meaning of
Sections 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loans" means Loans that bear interest at rates based upon the
Eurodollar Rate or the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/16
of 1%) appearing on Telerate Page 3750 (or any successor page) as the London
interbank offered rate for deposits in Dollars in the approximate amount of the
proposed Eurodollar Loan at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period for a term comparable to
such Interest Period. If such rate ceases to be available from Telerate News
Service, the Eurodollar Rate shall be determined by the Administrative Agent in
good faith from another financial reporting service, which service shall be
reasonably acceptable to the Borrower.
"Event of Default" has the meaning specified in Section 11.1.
"Excess Cash Flow" means, for any fiscal year and without duplication,
EBITDA for such fiscal year minus (a) taxes payable in cash for such fiscal
year, (b) all principal and cash interest
CREDIT AGREEMENT - Page 7
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payments on Debt made during such fiscal year whether optional, mandatory or
scheduled payments, and (c) Capital Expenditures (but only to the extent paid in
cash and not financed) made during such fiscal year.
"Excess Proceeds Amount" means as specified in Section 2.7(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act), and the rules and regulations thereunder (or respective
successors thereto).
"FCC" means the Federal Communications Commission and any successor
agency.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest one-sixteenth of one percent (1/16 of 1%))
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day, provided that (a) if the day for
which such rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day and (b) if such
rate is not so published on such next succeeding Business Day, the Federal Funds
Rate for any day shall be the average rate which would be charged to the
Reference Bank on such day on such transactions as determined by the
Administrative Agent.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their respective successors and
which are applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent basis" when the accounting principles
applied in a current period are comparable in all material respects to those
accounting principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state,
provincial or political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Governmental Requirement" means any law, statute, code, ordinance, order,
rule, regulation, judgment, decree, injunction, franchise, Permit, certificate,
license, authorization or other directive or requirement of any federal, state,
county, municipal, parish, provincial or other Governmental Authority or any
department, commission, board, court, agency or any other instrumentality of any
of them.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt or other obligation
of any other Person and, without limiting the generality of the foregoing, any
indebtedness, liability or obligation, direct or indirect, contingent or
otherwise, of such Person (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Debt or other obligation (whether arising by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, to
CREDIT AGREEMENT - Page 8
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take-or-pay or to maintain financial statement conditions or otherwise) or (b)
entered into for the purpose of assuring in any other manner the obligee of such
Debt or other indebtedness, liability or obligation as to the payment thereof or
to protect the obligee against loss in respect thereof (in whole or in part),
provided that the term Guarantee shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning. The amount of any Guarantee shall be deemed to
be an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Guarantee is made or, if not stated or
determinable, the maximum anticipated liability in respect thereof (assuming
such Person is required to perform thereunder).
"Guarantor" means as specified in the initial paragraph of this Agreement.
"Guaranty" means a guaranty agreement guaranteeing payment and performance
of the Obligations in form and substance satisfactory to the Administrative
Agent executed by a Guarantor in favor of the Administrative Agent and the
Lenders, and any and all amendments, modifications, supplements, renewals,
extensions or restatements thereof.
"Hazardous Material" means any substance, product, liquid, waste,
pollutant, chemical, contaminant, insecticide, pesticide, gaseous or solid
matter, organic or inorganic matter, fuel, micro-organisms, ray, odor,
radiation, energy, vector, plasma, constituent or material which (a) is or
becomes listed, regulated or addressed under any Environmental Law or (b) is, or
is deemed to be, alone or in any combination, hazardous, hazardous waste, toxic,
a pollutant, a deleterious substance, a contaminant or a source of pollution or
contamination under any Environmental Law, including, without limitation,
asbestos, petroleum, underground storage tanks (whether empty or containing any
substance) and polychlorinated biphenyls.
"Insurance Recovery" means, with respect to any Collateral and any single
occurrence or related occurrences with respect thereto, the receipt or
constructive receipt by either Loan Party, or the payment by an insurance
company to the Administrative Agent, of proceeds of any such Collateral or
casualty insurance.
"Intellectual Property" means any U.S. or foreign patents, patent
applications, trademarks, trade names, service marks, brand names, logos and
other trade designations (including unregistered names and marks), trademark and
service mark registrations and applications, copyrights and copyright
registrations and applications, inventions, invention disclosures, protected
formulae, formulations, processes, methods, trade secrets, computer software,
computer programs and source codes, manufacturing research and similar technical
information, engineering know-how, customer and supplier information, assembly
and test data drawings or royalty rights.
"Inter-Company Note" has the meaning set forth in Section 2.10.
"Interest Period" means, with respect to any Eurodollar Loan, each period
commencing on the date such Loan is made or Converted from a Base Rate Loan or
(if Continued) the last day of the next preceding Interest Period with respect
to such Loan, and ending on the numerically corresponding day in the first,
second, third or sixth calendar month thereafter, as the Borrower may select as
provided in Section 2.9 hereof, except that each such Interest Period which
commences on
CREDIT AGREEMENT - Page 9
<PAGE> 16
the last Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (a) each Interest Period which would otherwise
end on a day which is not a Business Day shall end on the next succeeding
Business Day (or, if such succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); (b) any Interest Period
which would otherwise extend beyond the Maturity Date shall end on the Maturity
Date; (c) no more than ten Interest Periods for Eurodollar Loans shall be in
effect at the same time; (d) no Interest Period shall have a duration of less
than one month and, if the Interest Period for any Eurodollar Loans would
otherwise be a shorter period, such Loans shall not be available hereunder; and
(e) no Interest Period for a Term Loan may commence before, and end after, any
principal payment date unless, after giving effect thereto, the aggregate
principal amount of the Eurodollar Loans having Interest Periods that end after
such principal payment date shall be equal to or less than the amount of the
applicable Loans scheduled to be outstanding hereunder after such principal
payment date.
"Interest Rate Protection Agreements" means, with respect to the Borrower,
an interest rate swap, cap or collar agreement or similar arrangement between
the Borrower and one or more Lenders providing for the transfer or mitigation of
interest rate risks either generally or under specified contingencies.
"Kelly Holders" means (a) Brian Kelly, Kevin Kelly and William Kelly and
(b) any spouse, parent, sibling, child or grandchild of any of the aforesaid
individuals (in each case, whether such relationship arises from birth, adoption
or through marriage) or any trust established for the benefit of any such
individuals or any spouse, parent, sibling, child or grandchild of any such
individuals (in each case whether such relationship arises from birth, adoption
or through marriage).
"Lender" and "Lenders" means as specified in the initial paragraph of this
Agreement.
"Lien" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest, tax
lien, financing statement, pledge, charge, hypothecation or other lien, charge,
easement (other than any easement not materially impairing usefulness),
encumbrance, preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever on or with respect to such Property
(including, without limitation, any conditional sale or other title retention
agreement having substantially the same economic effect as any of the
foregoing).
"Loan Documents" means this Agreement, the Notes, the Security Documents,
the Inter-Company Note, the Administrative Agent's Letter and all other
agreements, documents, instruments and certificates now or hereafter executed
and/or delivered pursuant to or in connection with any of the foregoing, and any
and all amendments, modifications, supplements, renewals, extensions or
restatements thereof.
"Loan Party" means the Borrower or the Guarantor and "Loan Parties" means
both of such Persons.
"Loans" means the Tranche A Loans and the Tranche B Loans, and "Loan"
means any of such loans.
CREDIT AGREEMENT - Page 10
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"Material Adverse Effect" means any event, development or circumstance
that has had or could reasonably be expected to have a material adverse effect
on (a) the business, assets, financial condition, results of operations or
prospects of either Loan Party individually or of the Borrower and its
Subsidiaries taken as a whole, (b) the validity or enforceability of any of the
Loan Documents or the rights and remedies of the Administrative Agent and the
Lenders thereunder, (c) the ability of either Loan Party to pay and perform its
indebtedness, liabilities and/or obligations under any of the Loan Documents, or
(d) the value of Collateral available to the Administrative Agent and the
Lenders after giving effect to Liens in favor of other Persons.
"Material Contracts" means, as to either Loan Party, any supply, purchase,
service, employment, tax, indemnity, shareholder or other agreement or contract
for which the aggregate amount or value of services performed or to be performed
for or by, or funds or other Property transferred or to be transferred to or by,
either Loan Party to such agreement or contract, or by which either Loan Party
or any of its Properties is otherwise bound, during any fiscal year of the
Borrower exceeds $1,000,000 (or the equivalent amount in any currency) and any
and all amendments, modifications, supplements, renewals or restatements
thereof.
"Maturity Date" means the Tranche A Maturity Date or the Tranche B
Maturity Date (as applicable, based upon the context in which such term
appears).
"Maximum Rate" means, with respect to any Lender, the maximum non-usurious
interest rate or an amount computed in reference to such rate (as applicable),
if any, that any time or from time to time may be contracted for, taken,
reserved, charged or received with respect to the particular Obligations as to
which such rate is to be determined, payable to such Lender pursuant to this
Agreement or any other Loan Document, under laws applicable to such Lender which
are presently in effect or, to the extent allowed by law, under such applicable
laws which may hereafter be in effect and which allow a higher maximum
non-usurious interest rate than applicable laws now allow. The Maximum Rate
shall be calculated in a manner that takes into account any and all fees,
payments and other charges in respect of the Loan Documents that constitute
interest under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Rate resulting from a change in the Maximum Rate
shall take effect without notice to the Borrower at the time of such change in
the Maximum Rate.
"Monthly Date" means the last day of each month of each year the first of
which shall be March 31, 1999.
"Multiemployer Plan" means a multiemployer plan defined as such in Section
3(37) of ERISA to which contributions have been made by or are required from the
Borrower or any ERISA Affiliate since 1974 and which is covered by Title IV of
ERISA.
"Net Proceeds" means, with respect to any Collateral Disposition, (a) the
gross amount of cash received by either Loan Party from such Collateral
Disposition, minus (b) the amount, if any, of all taxes paid or payable by such
Loan Party directly resulting from such Collateral Disposition (including the
amount, if any, estimated by the Borrower in good faith at the time of such
Collateral Disposition for taxes payable by either Loan Party on or measured by
net income or gain resulting
CREDIT AGREEMENT - Page 11
<PAGE> 18
from such Collateral Disposition), minus (c) the reasonable out-of-pocket costs
and expenses incurred by either Loan Party in connection with such Collateral
Disposition (including reasonable brokerage fees paid to a Person other than an
Affiliate of the Borrower) excluding any fees or expenses paid to an Affiliate
of the Borrower, minus (d) amounts applied to the repayment of indebtedness
(other than the Obligations) secured by any Permitted Lien (if any) on the
Collateral subject to the Collateral Disposition. "Net Proceeds" with respect to
any Collateral Disposition shall also include proceeds (after deducting any
amounts specified in clauses (b), (c) and (d) of the preceding sentence) of
insurance with respect to any actual or constructive loss of Collateral, an
agreed or compromised loss of Collateral or the taking of any Collateral under
the power of eminent domain and condemnation awards and awards in lieu of
condemnation for the taking of Collateral under the power of eminent domain.
"Network" means the fiber-optic network constructed by or on behalf of the
Borrower and owned and operated by the Borrower and its Subsidiaries and located
in the state of New York, the other areas of northeastern United States and the
southeast region of Canada.
"Nortel Networks Equipment" means all equipment sold to the Borrower
pursuant to the Supply Agreement, including, without limitation, the optical
equipment, switches, access nodes and related software.
"Nortel Networks Goods and Services" means sales, installation and
commissioning of Nortel Networks equipment and related software, and project
management, system design and services performed by Nortel Networks personnel
pursuant to the Supply Agreement.
"Nortel Networks" means Northern Telecom Inc., a Delaware corporation.
"Notes" means the Tranche A Notes and the Tranche B Notes, in the form of
Exhibit B-1 and Exhibit B-2, respectively, hereto, made by the Borrower
evidencing the Loans and any and all amendments, modifications, supplements,
renewals, extensions or restatements thereof and all substitutions therefor
(including promissory notes issued by the Borrower pursuant to Section 13.8),
and "Note" means any such promissory note.
"Notice of Borrowing" means as specified in Section 2.9.
"Obligations" means any and all (a) indebtedness, liabilities and
obligations of the Borrower or the Guarantor to the Administrative Agent and the
Lenders, or any of them, evidenced by and/or arising pursuant to any of the Loan
Documents (including, without limitation, this Agreement and the Notes), now
existing or hereafter arising, whether direct, indirect, related, unrelated,
fixed, contingent, liquidated, unliquidated, joint, several or joint and
several, including, without limitation, (i) the obligations of the Borrower to
repay the Loans, to pay interest on the Loans (including, without limitation,
interest accruing after any, if any, bankruptcy, insolvency, reorganization or
other similar filing) and to pay all fees, indemnities, costs and expenses
(including attorneys' fees) provided for in the Loan Documents, (ii) the
obligations of the Guarantor under its Guarantee, and (iii) the indebtedness
constituting the Loans and such interest, fees, indemnities, costs and expenses,
and (b) indebtedness, liabilities and obligations of the Borrower or the
Guarantor under any and all Interest Rate Protection Agreements that it may
enter into with any Lender with the prior written consent of the Administrative
Agent and the Required Lenders.
CREDIT AGREEMENT - Page 12
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"Payor" means as specified in Section 3.4.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Pension Plan" means an employee pension benefit plan as defined in
Section 3(2) of ERISA (including a Multiemployer Plan) which is subject to the
funding requirements under Section 302 of ERISA or Section 412 of the Code, in
whole or in part, and which is maintained or contributed to currently or at any
time within the six years immediately preceding the Closing Date or, in the case
of a Multiemployer Plan, at any time since September 2, 1974, by any Borrower or
any ERISA Affiliate for employees of any Borrower or any ERISA Affiliate.
"Permit" means any permit, certificate, approval, order, license,
right-of-way (whether an easement, contract or agreement in any form) or other
authorization.
"Permitted Liens" mean:
(a) Liens on Property other than the Collateral;
(b) Liens securing the Obligations in favor of the Administrative
Agent (for the benefit of the Administrative Agent and the Lenders)
pursuant to the Loan Documents;
(c) Encumbrances consisting of easements, rights-of-way, zoning
restrictions or other restrictions on the use of real Property or
imperfections to title that do not (individually or in the aggregate)
materially affect the value of the Property encumbered thereby or
materially impair the ability of the Borrower or any of its Subsidiaries
to use such Property in its businesses, and none of which is violated in
any material respect by existing or proposed structures or land use;
(d) Liens for taxes, assessments or other governmental charges that
are not delinquent or which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing
the forfeiture or sale of the Collateral subject to such Liens, and for
which adequate reserves have been established;
(e) Liens of mechanics, materialmen, warehousemen, carriers,
landlords or other similar statutory Liens securing obligations that are
not yet due and are incurred in the ordinary course of business or which
are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the
Collateral subject to such Liens, and for which adequate reserves have
been established;
(f) Liens resulting from good faith deposits to secure payment of
worker's compensation or other social security programs or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, contracts (other than for payment of Debt) or leases, all in the
ordinary course of business; and
CREDIT AGREEMENT - Page 13
<PAGE> 20
(g) Any extension, renewal or replacement of any of the foregoing.
"Person" means any individual, corporation, trust, association, company,
partnership, joint venture, limited liability company, joint stock company,
Governmental Authority or other entity.
"Plan" means any employee benefit plan as defined in Section 3(3) of ERISA
established or maintained or contributed to by either Loan Party or any ERISA
Affiliate, including any Pension Plan.
"Principal Office" means the principal office of the Administrative Agent
in Richardson, Texas, presently located at 2221 Lakeside Blvd., Richardson,
Texas 75082.
"Prohibited Transaction" means any transaction set forth in Section 406 of
ERISA or Section 4975 of the Code.
"Property" means property of all kinds, real, personal or mixed, tangible
or intangible (including, without limitation, all rights relating thereto),
whether owned or acquired on or after the Closing Date.
"Quarterly Date" means the last day of each March, June, September and
December of each year, the first of which shall be June 30, 1999.
"Reference Bank" means Citibank, N.A.
"Register" means as specified in Section 13.8(d).
"Registered Note" means as specified in Section 2.2(b).
"Registered Note Register" means as specified in Section 13.8(h).
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as the same may be amended or supplemented from time to time.
"Regulatory Change" means, with respect to any Lender, any change after
the Closing Date in any U.S. federal or state or foreign laws or regulations
(including Regulation D) or the adoption or making after such date of any
interpretations, directives or requests applying to a class of lenders including
such Lender of or under any U.S. federal or state or foreign laws or regulations
(whether or not having the force of law) by any Governmental Authority charged
with the interpretation or administration thereof.
"Release" means, as to any Person, any release, spill, emission, leaking,
pumping, injection, deposit, discharge, disposal, dispersement, leaching or
migration of Hazardous Materials into the indoor or outdoor environment or into
or out of Property owned by such Person, including, without limitation, the
movement of Hazardous Materials through or in the air, soil, surface water or
ground water.
CREDIT AGREEMENT - Page 14
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"Remedial Action" means all actions required to (a) cleanup, remove,
respond to, treat or otherwise address Hazardous Materials in the indoor or
outdoor environment, (b) prevent the Release or threat of Release or minimize
the further Release of Hazardous Materials so that they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) perform studies and investigations on the extent and
nature of any actual or suspected contamination, the remedy or remedies to be
used or health effects or risks of such contamination, or (d) perform
post-remedial monitoring, care or remedy of a contaminated site.
"Reportable Event" means any of the events set forth in Section 4043(b) of
ERISA other than any such event for which the 30-day notice requirement has been
waived in regulations issued by the PBGC.
"Required Lenders" means, at any date of determination, Lenders holding at
least two-thirds (in Dollar amount) of the sum of (a) the outstanding principal
amount of the Loans, plus (b) the principal amount of the outstanding
Commitments.
"Required Payment" means as specified in Section 3.4.
"Reserve Requirement" means, for any Eurodollar Loan of any Lender for any
Interest Period therefor, the maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under any regulations of the Board of Governors of
the Federal Reserve System (or any successor) by such Lender for deposits
exceeding $1,000,000 against "Eurocurrency Liabilities" as such term is used in
Regulation D. Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
Lenders by reason of any Regulatory Change against (a) any category of
liabilities which includes deposits by reference to which the Eurodollar Rate or
the Adjusted Eurodollar Rate is to be determined or (b) any category of
extensions of credit or other assets which include Eurodollar Loans.
"Responsible Officer" means, as to the Borrower, the chief executive
officer, the president, any vice president, the chief financial officer, the
chief operating officer or the treasurer of such Person.
"Restricted Payment" means (a) any dividend or other distribution (whether
in cash, Property or obligations), direct or indirect, on account of (or the
setting apart of money for a sinking or other analogous fund for) any shares of
any class of Capital Stock of the Borrower or any of its Subsidiaries now or
hereafter outstanding, except a dividend payable solely in shares of that class
of stock to the holders of that class; (b) any redemption, conversion, exchange,
retirement, sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any shares of any class of Capital Stock of the
Borrower or any of its Subsidiaries now or hereafter outstanding; (c) any loan,
advance or payment to any officer, director or shareholder of the Borrower or
any of its Subsidiaries (other than a shareholder consisting of the Borrower or
a Consolidated Subsidiary of the Borrower), exclusive of reasonable compensation
paid to officers or directors paid in the ordinary course of business; and (d)
any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any class of Capital
Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding.
CREDIT AGREEMENT - Page 15
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"Security Agreements" means security agreements, pledge agreements,
securities pledge agreements and other agreements, documents or instruments
evidencing or creating a Lien as security for the Obligations or any portion
thereof in form and substance satisfactory to the Administrative Agent executed
by either Loan Party, in favor of the Administrative Agent for the benefit of
the Administrative Agent and the Lenders, and any such agreement, document or
instrument subsequently executed in accordance or connection with this Agreement
or any other Loan Document, and any and all amendments, modifications,
supplements, renewals, extensions or restatements thereof.
"Security Documents" means the Security Agreements, as they may be
amended, modified, supplemented, renewed, extended or restated from time to
time, and any and all other agreements, deeds of trust, mortgages, chattel
mortgages, security agreements, pledges, guaranties, assignments of proceeds,
assignments of income, assignments of contract rights, assignments of
partnership interests, assignments of royalty interests, assignments of
performance or other collateral assignments, subordination agreements,
undertakings and other agreements, documents, instruments and financing
statements now or hereafter executed and/or delivered by any Person in
connection with or as security or assurance for the payment or performance of
the Obligations or any part thereof.
"Solvent" means, with respect to any Person as of the date of any
determination, that on such date (a) the fair value of the Property of such
Person (both at fair valuation and at present fair saleable value) is greater
than the total liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not intend to, and
does not believe that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature, and (e) such Person is not
engaged in business or a transaction, and is not about to engage in business or
a transaction, for which such Person's Property would constitute unreasonably
small capital after giving due consideration to current and anticipated future
capital requirements and current and anticipated future business conduct and the
prevailing practice in the industry in which such Person is engaged. In
computing the amount of contingent liabilities at any time, such liabilities
shall be computed at the amount which, in light of the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which at least a majority of the outstanding shares of stock or other
ownership interests having by the terms thereof ordinary voting power to elect a
majority of the board of directors (or Persons performing similar functions) of
such corporation or entity (irrespective of whether or not at the time, in the
case of a corporation, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled by such
Person or one or more of its Subsidiaries or by such Person and one or more of
its Subsidiaries.
CREDIT AGREEMENT - Page 16
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"Supply Agreement" means the that certain Agreement for Purchases and
License of Nortel Networks Products and Services dated as of February 26, 1999,
by and between the Guarantor and Nortel Networks, as amended, supplemented or
restated from time to time.
"Telergy/Bell Canada Account" means that certain account to be established
by the Borrower into which the Borrower will direct the Bell Canada parties to
the Bell Canada Fiber Agreement to remit payments due under the Bell Canada
Fiber Agreement, except for payments due to Telergy Canada, Inc., which shall be
remitted to Telergy Canada, Inc. and will be deposited in the Telergy/Bell
Canada Account by Telergy Canada, Inc. within three Business Days.
"Total Debt" means, as of any date, the aggregate principal amount of all
Debt of the Borrower and its Consolidated Subsidiaries outstanding, determined
on a consolidated basis.
"Tranche A Commitment" means, as to any Tranche A Lender, the obligation
of such Tranche A Lender to make or continue Tranche A Loans hereunder in an
aggregate principal amount up to but not exceeding the amount set forth opposite
the name of such Tranche A Lender on the signature pages hereto under the
heading "Tranche A Commitment" or, if such Tranche A Lender is a party to an
Assignment and Acceptance, the amount of the "Tranche A Commitment" set forth in
the most recent Assignment and Acceptance of such Tranche A Lender, as the same
may be reduced or terminated pursuant to Section 2.13 or 11.2, and "Tranche A
Commitments" means such obligations of all Tranche A Lenders. As of the Closing
Date, the aggregate principal amount of the Tranche A Commitments is
$30,000,000.
"Tranche A Commitment Termination Date" means the earlier to occur of (a)
the third anniversary of the Closing Date or (b) the initial date upon which the
Tranche A Loans have become fully funded in an aggregate amount equal to the
Tranche A Commitments (as such Commitments may be reduced or terminated pursuant
to Section 2.13 or 11.2).
"Tranche A Lenders" means the Lenders who hold Tranche A Loans or who have
Tranche A Commitments.
"Tranche A Loans" means as specified in Section 2.1(a).
"Tranche A Maturity Date" means the sixth anniversary of the Tranche A
Commitment Termination Date.
"Tranche A Notes" means the promissory notes evidencing the Tranche A
Loans executed in accordance with Section 2.2.
"Tranche B Commitment" means, as to any Tranche B Lender, the obligation
of such Tranche B Lender to make or continue Tranche B Loans hereunder in an
aggregate principal amount up to but not exceeding the amount set forth opposite
the name of such Tranche B Lender on the signature pages hereto under the
heading "Tranche B Commitment" or, if such Tranche B Lender is a party to an
Assignment and Acceptance, the amount of the "Tranche B Commitment" set forth in
the most recent Assignment and Acceptance of such Tranche B Lender, as the same
may be reduced or terminated pursuant to Section 2.13 or 11.2, and "Tranche B
Commitments" means such
CREDIT AGREEMENT - Page 17
<PAGE> 24
obligations of all Tranche B Lenders. As of the Closing Date, the aggregate
principal amount of the Tranche B Commitments is $15,000,000.
"Tranche B Commitment Termination Date" means the earlier to occur of (a)
January 31, 2000, or (b) the initial date upon which the Tranche B Loans have
become fully funded in an aggregate amount equal to the Tranche B Commitments
(as such Commitments may be reduced or terminated pursuant to Section 2.13 or
11.2).
"Tranche B Lenders" means the Lenders who hold Tranche B Loans or who have
Tranche B Commitments.
"Tranche B Loans" means as specified in Section 2.1(b).
"Tranche B Maturity Date" means January 31, 2000.
"Tranche B Notes" means the promissory notes evidencing the Tranche B
Loans executed in accordance with Section 2.2.
"Type" means any type of Loan (i.e., a Base Rate Loan or Eurodollar Loan).
"UCC" means the Uniform Commercial Code as in effect in the State of New
York and/or any other jurisdiction, the laws of which may be applicable to or in
connection with the creation, perfection or priority of any Lien on any
Collateral created pursuant to any Security Document.
"U.S." means the United States of America.
"U.S. Person" means a citizen or resident of the U.S., a corporation,
partnership or other entity created or organized in or under any laws of the
U.S. or any estate or trust that is subject to U.S. Federal income taxation
regardless of the source of its income.
"U.S. Taxes" means any present or future tax, assessment or other charge
or levy imposed by or on behalf of the U.S. or any taxing authority thereof.
"Vendor" means Nortel Networks in its capacity as vendor under the Supply
Agreement.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors, managers or general
partners (or persons performing similar functions) of such Person, whether at
all times or only for so long as no senior class of securities has such voting
power by reason of any contingency.
"Year 2000 Compliant" means that (a) the services, products or other
item(s) at issue accurately process, provide and/or receive all date/time data
(including calculating, comparing, sequencing, processing and outputting)
within, from, into and between centuries (including the twentieth and
twenty-first centuries and the years 1999 and 2000), including leap year
calculations, and (b) neither the performance nor the functionality nor the
business' provision of the services, products and other item(s) at issue will be
affected by any dates/times prior to, on, after or spanning January 1, 2000. The
design of the services, products and other item(s) at issue to ensure compliance
CREDIT AGREEMENT - Page 18
<PAGE> 25
with the "year 2000" representations and warranties and covenants contained in
this Agreement includes proper date/time data century recognition and
recognition of 1999 and 2000, calculations that accommodate single century and
multi-century formulae and date/time values before, on, after and spanning
January 1, 2000, and date/time data interface values that reflect the century,
1999 and 2000. In particular, but without limitation, such design means that (i)
no value for current date/time will cause any error, interruption or decreased
performance in or for such services, products and other item(s), (ii) all
manipulations of date and time related data (including calculating, comparing,
sequencing processing and outputting) will produce correct results for all valid
dates and times when used independently or in combination with other services,
products and/or items, (iii) date/time elements in interfaces and data storage
will specify the century to eliminate date ambiguity without human intervention,
including leap year calculations, (iv) where any date/time element is
represented without a century, the correct century will be unambiguous for all
manipulations involving that element, (v) authorization codes, passwords and
zaps (purge functions) will function normally and in the same manner during,
prior to, on and after January 1, 2000, including the manner in which they
function with respect to expiration dates and CPU serial numbers, and (vi) the
business' supply of the services, products and other item(s) will not be
materially interrupted, delayed, decreased or otherwise affected by the advent
of the year 2000.
Section 1.2 Other Definitional Provisions. All definitions contained in
this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof", "herein" and "hereunder" and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. The term "continuing",
"continuation" or "continuance" means, in reference to any Default or Event of
Default that has occurred, that such Default or Event of Default has not been
either cured to the reasonable satisfaction of the Administrative Agent within
the applicable grace period (if any) specified in this Agreement or the other
Loan Documents (as applicable) or waived in writing by the requisite Lenders in
accordance with Section 13.11. Unless otherwise specified, all Article and
Section references pertain to this Agreement. Terms used herein that are defined
in the UCC, unless otherwise defined herein, shall have the meanings specified
in the UCC. All references in this Agreement to any agreement shall be deemed to
mean and refer to such agreement as it may be amended, modified or supplemented
from time to time if (but only if) such amendment, modification or supplement
has been approved by the Administrative Agent and the Required Lenders, is
expressly referred to in such reference or is otherwise expressly permitted by
the terms of this Agreement.
Section 1.3 Accounting Terms and Determinations.
(a) All accounting terms not specifically defined herein shall be
construed in accordance with GAAP (subject to year end adjustments, if
applicable) consistent with such accounting principles applied in the
preparation of the audited financial statements referred to in Section 7.2(a).
All financial information delivered to the Administrative Agent pursuant to
Section 8.1 shall be prepared in accordance with GAAP (subject to year end
adjustments, if applicable) applied on a basis consistent with such accounting
principles applied in the preparation of the audited financial statements of
such Person referred to in Section 7.2 or in accordance with Section 8.7.
CREDIT AGREEMENT - Page 19
<PAGE> 26
(b) The Borrower shall deliver to the Administrative Agent and the
Lenders, at the same time as the delivery of any annual or quarterly financial
statement under Section 8.1, (i) a description, in reasonable detail, of any
material variation between the application of GAAP employed in the preparation
of the next preceding annual or quarterly financial statements as to which no
objection has been made in accordance with the last sentence of subsection (a)
preceding and (ii) reasonable estimates of the difference between such
statements arising as a consequence thereof.
(c) To enable the ready and consistent determination of compliance with
the covenants set forth in this Agreement, the Borrower will not change the last
day of its fiscal year from December 31 or the last days of the first three
fiscal quarters of the Borrower in each of its fiscal years from March 31, June
30 and September 30, respectively.
(d) Unless otherwise expressly provided herein to the contrary, all
references herein to the Closing Date shall be deemed to mean and refer to the
Closing Date after giving effect to all transactions which occur on or before
such date.
Section 1.4 Financial Covenants and Reporting. All financial statements
and reports required to be delivered pursuant to this Agreement and the other
Loan Documents, and all financial covenants (if any) contained in this
Agreement, shall be prepared or determined (as applicable) in accordance with
GAAP (except as may be expressly provided to the contrary herein) and, if and to
the extent that such statements, reports or covenants are to be prepared or
determined on a consolidated basis, shall be prepared or determined on a
consolidated basis for the Borrower and its Subsidiaries (except as may be
expressly provided to the contrary herein).
ARTICLE 2
Loans
Section 2.1 Commitments.
(a) Tranche A Loans. Subject to the terms and conditions of this Agreement
(including, without limitation, Section 2.13(a)), each Tranche A Lender
severally agrees to make one or more loans to the Borrower from time to time
from and including the Closing Date to but excluding the Tranche A Commitment
Termination Date up to but not exceeding the amount of such Tranche A Lender's
Tranche A Commitment as then in effect. (Such loans referred to in this Section
2.1(a) now or hereafter made by the Tranche A Lenders to the Borrower,
including, without limitation, such loans which remain outstanding after the
Tranche A Commitment Termination Date, are hereinafter collectively called the
"Tranche A Loans".) The Borrower may not reborrow the Tranche A Loans which have
been repaid.
(b) Tranche B Loans. Subject to the terms and conditions of this Agreement
(including, without limitation, Section 2.13(a)), each Tranche B Lender
severally agrees to make one or more loans to the Borrower from time to time
from and including the Closing Date to but excluding the Tranche B Commitment
Termination Date up to but not exceeding the amount of such Tranche B Lender's
Tranche B Commitment as then in effect. (Such loans referred to in this Section
2.1(b) now
CREDIT AGREEMENT - Page 20
<PAGE> 27
or hereafter made by the Tranche B Lenders to the Borrower, including, without
limitation, such loans which remain outstanding after the Tranche B Commitment
Termination Date, are hereinafter collectively called the "Tranche B Loans".)
The Borrower may not reborrow the Tranche B Loans which have been repaid.
(c) Continuation and Conversion of Certain Loans. Subject to the terms and
conditions of this Agreement, the Borrower may borrow the Loans as Base Rate
Loans or Eurodollar Loans and, until the Maturity Date of such Loan, the
Borrower may Continue Eurodollar Loans or Convert Loans of one Type into Loans
of the other Type.
(d) Lending Offices. Loans of each Type made by each Lender shall be made
and maintained at such Lender's Applicable Lending Office for Loans of such
Type.
Section 2.2 Notes.
(a) Notes. Each of the Tranche A Loans and Tranche B Loans made by each
Lender shall be evidenced by a single promissory note of the Borrower in
substantially the form of Exhibit B-1 and Exhibit B-2, respectively, hereto
dated the Closing Date (or such later date on which such Lender becomes a party
to this Agreement), payable to the order of such Lender in a principal amount
equal to the sum of (i) the aggregate principal amount of such Loans of such
Lender plus (ii) the aggregate principal amount of the unfunded Commitment of
such Lender relating to such Loans as originally in effect. Each Lender is
hereby authorized by the Borrower to endorse on the schedule (or a continuation
thereof) attached to the Notes of such Lender, to the extent applicable, the
date, amount and Type of and the Interest Period for each applicable Loan made
by such Lender to the Borrower and the amount of each payment or prepayment of
principal of such Loan received by such Lender, provided that any failure by
such Lender to make any such endorsement shall not affect the obligations of the
Borrower under any such Note or this Agreement in respect of any such Loan.
(b) Registered Notes. Any Lender that is not a U.S. Person and that could
become completely exempt from withholding of U.S. Taxes in respect of payment of
any Obligations due to such Lender hereunder relating to any of its Loans if
such Loans were in registered form for U.S. Federal income tax purposes may
request the Borrower (through the Administrative Agent), and the Borrower agrees
thereupon, to exchange such Lender's Note evidencing its Loans for a promissory
note registered as provided in Section 13.8(h) hereof (a "Registered Note").
Registered Notes may not be exchanged for Notes that are not in registered form.
CREDIT AGREEMENT - Page 21
<PAGE> 28
Section 2.3 Repayment of Loans.
(a) Tranche A Loans. The Borrower shall pay to the Administrative Agent
for the account of each Lender:
(i) the principal of the Tranche A Loans outstanding as of February
26, 2000 and borrowed between the Closing Date and such date in 12
quarterly installments, commencing on the March 31, 2000, and continuing
on each Quarterly Date thereafter through and including December 31, 2002;
(ii) the principal of the Tranche A Loans outstanding as of February
26, 2001 and borrowed between February 26, 2000 and such date in 12
quarterly installments, commencing on the March 31, 2001, and continuing
on each Quarterly Date thereafter through and including December 31, 2003;
and
(iii) the principal of the Tranche A Loans outstanding as of
February 26, 2002 and borrowed between February 26, 2001 and such date in
12 quarterly installments, commencing on the March 31, 2002, and
continuing on each Quarterly Date thereafter through and including
December 31, 2004;
each of which installments shall be in an amount equal to the percentage of the
principal amount set forth above as of such applicable date specified opposite
such installment in the following table:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Percentage of the Principal Amount of
Principal Installment Applicable Loans Due and Payable
-------------------------------------------------------------------
<S> <C>
1 8.33%
-------------------------------------------------------------------
2 8.33%
-------------------------------------------------------------------
3 8.34%
-------------------------------------------------------------------
4 8.33%
-------------------------------------------------------------------
5 8.33%
-------------------------------------------------------------------
6 8.34%
-------------------------------------------------------------------
7 8.33%
-------------------------------------------------------------------
8 8.33%
-------------------------------------------------------------------
9 8.34%
-------------------------------------------------------------------
10 8.33%
-------------------------------------------------------------------
11 8.33%
-------------------------------------------------------------------
12 8.34%
-------------------------------------------------------------------
</TABLE>
In addition, the Borrower shall pay to the Administrative Agent for the account
of each Lender all outstanding principal of the Tranche A Loans (and all
outstanding principal of the Tranche A Loans shall be due and payable) on the
Tranche A Maturity Date.
CREDIT AGREEMENT - Page 22
<PAGE> 29
(b) Tranche B Loans. The Borrower shall pay to the Administrative Agent
for the account of each Tranche B Lender the principal of the Tranche B Loans
outstanding as of the Tranche B Commitment Termination Date (and the principal
of such Loans outstanding as of such date shall be due and payable) in full on
the Tranche B Maturity Date.
Section 2.4 Interest.
(a) Interest Rate. The Borrower shall pay to the Administrative Agent for
the account of each Lender interest on the unpaid principal amount of each Loan
made by such Lender (or deemed made by such Lender with respect to a Loan
assigned to such Lender after the making of such Loan) to the Borrower for the
period commencing on the date of such Loan to, but excluding, the date such Loan
shall be paid in full, at the following rates per annum:
(i) during the periods such Loan is a Base Rate Loan, the lesser of
(A) the Base Rate plus the Applicable Margin or (B) the Maximum Rate; and
(ii) during the periods such Loan is a Eurodollar Loan, the lesser
of (A) the Adjusted Eurodollar Rate plus the Applicable Margin or (B) the
Maximum Rate.
(b) Payment Dates.
(i) in the case of Base Rate Loans, on each Monthly Date;
(ii) in the case of each Eurodollar Loan, on the last day of the
Interest Period with respect thereto and, in the case of an Interest
Period greater than three months, at three-month intervals after the
first day of such Interest Period;
(iii) upon the payment or prepayment (whether mandatory or optional)
of any such Loan or the Conversion of any such Loan to a Loan of the
other Type (but only on the principal amount so paid, prepaid or
Converted); and
(iv) with respect to all Loans, on the Maturity Date.
(c) Default Interest. Notwithstanding the foregoing, the Borrower shall
pay to the Administrative Agent for the account of each Lender interest at the
applicable Default Rate (i) at all times during which any Default has occurred
and is continuing, on any principal of any Loan outstanding, and (ii) to the
fullest extent permitted by law, any other amount payable by the Borrower under
this Agreement or any other Loan Document to or for the account of such Lender
which is not paid in full when due (whether at stated maturity, by acceleration
or otherwise) for the period from and including the due date thereof to but
excluding the date the same is paid in full. Interest payable at the Default
Rate shall be payable from time to time on demand by the Administrative Agent.
Section 2.5 Borrowing Procedure. The Borrower shall give the
Administrative Agent notice of each borrowing hereunder in accordance with
Section 2.9. Not later than 12:00 noon (New
CREDIT AGREEMENT - Page 23
<PAGE> 30
York, New York time) on the date specified for each borrowing hereunder, each
Lender will make available the amount of the Loan to be made by it on such date
to the Administrative Agent, at the Principal Office, in immediately available
funds, for the account of the Borrower. The amount of each borrowing hereunder
so received by the Administrative Agent shall, subject to the terms and
conditions of this Agreement, be made available, for and on behalf of the
Borrower, in immediately available funds by no later than 2:00 p.m. (New York,
New York time); provided, however, that the Administrative Agent may, in its
discretion, cause such amount to be made available directly to or for the
benefit of the Person who is to receive the proceeds of such Loan in accordance
with Section 2.10. Notwithstanding anything to the contrary contained in this
Agreement, if and to the extent that Nortel Networks is a Tranche A Lender under
this Agreement, the Borrower further hereby irrevocably agrees that each Tranche
A Loan to be advanced by Nortel Networks to the Borrower in accordance with this
Agreement (and only in accordance with this Agreement and after the
Administrative Agent's receipt of a Notice of Borrowing executed by the
Borrower) may (in the discretion of Nortel Networks and if and to the extent
that the proceeds of such Loan are to be paid to Nortel Networks) be effectively
disbursed on the date set forth in the Notice of Borrowing for such disbursement
to the Borrower by virtue of a credit in the amount of such Loan given to the
Guarantor under the Supply Agreement.
Section 2.6 Optional Prepayments, Conversions and Continuations of Loans.
Subject to Section 2.7, the Borrower shall have the right from time to time to
prepay the Loans in whole or in part, to Convert all or part of a Loan of one
Type into a Loan of another Type or to Continue Eurodollar Loans; provided that:
(a) the Borrower shall give the Administrative Agent notice of each such
prepayment, Conversion or Continuation as provided in Section 2.9, (b)
Eurodollar Loans may only be Converted on the last day of the Interest Period
and any prepayment of Eurodollar Loans on any day other than the last day of the
Interest Period shall be subject to payment of the additional compensation
specified in Section 4.5, (c) except for Conversions of Eurodollar Loans into
Base Rate Loans, no Conversions or Continuations shall be made while a Default
has occurred and is continuing, and (d) optional prepayments of the Loans shall
be applied pro rata to the principal of the Loans in the inverse order of the
maturities of the then remaining installments of such Loans. No amounts prepaid
pursuant to this Section 2.6 may be reborrowed.
Section 2.7 Mandatory Prepayments.
(a) Collateral Dispositions, etc. Each Loan Party shall, within three
Business Days after it receives any Net Proceeds of any Collateral Disposition,
proceeds of any Insurance Recovery or proceeds of condemnation awards
aggregating in excess of $100,000 during any period of 12 consecutive months or
less (the amount of such proceeds exceeding $100,000 received during any such
period are herein called the "Excess Proceeds Amount"), pay to the
Administrative Agent, as a prepayment of the Tranche A Loans, an aggregate
amount equal to the Excess Proceeds Amount; provided, that no such prepayment
will be required if and to the extent that the Excess Proceeds Amount is fully
re-invested in productive assets used in the ordinary course of such Loan
Party's business within 60 days of the receipt of such Excess Proceeds Amount;
provided, further, however, that the Excess Proceeds Amount (or portion thereof)
not so re-invested within 60 days of the receipt thereof shall be deposited into
a cash collateral account held by the Administrative Agent pursuant to an
agreement in form and substance satisfactory to the Administrative Agent until
such time as
CREDIT AGREEMENT - Page 24
<PAGE> 31
such amount is either re-invested within 120 days of the receipt thereof or
applied to the Tranche A Loans or other Obligations related to the Tranche A
Loans as provided in this Section 2.7.
(b) Excess Cash Flow. The Borrower shall, commencing on the February 26,
2000 and on each anniversary thereof thereafter, pay (or cause to be paid) to
the Administrative Agent, as a prepayment of the Loans and other Obligations
then outstanding, an aggregate amount equal to [***].
(c) Proceeds of Sale or Placement of Debt or Capital Stock. The Borrower
shall, within three Business Days after it receives aggregate net proceeds (i.e.
gross proceeds less reasonable out-of-pocket transactions costs) in excess of
$175,000,000 from sales or placements of Debt or Capital Stock of the Borrower
closed subsequent to the date of this Agreement, prepay the outstanding Tranche
B Loans.
(d) Payments Received Under Bell Canada Fiber Agreement. The Borrower
shall, within three Business Days after it receives payment in available funds
under the Bell Atlantic Fiber Agreement, pay to the Administrative Agent the
amount received as a prepayment of the Tranche B Loans.
(e) Application of Mandatory Prepayments. All prepayments pursuant to
Section 2.7(a) and Section 2.7(b) shall be applied pro rata to the principal of
the Tranche A Loans in the inverse order of the maturities of the then remaining
installments of such Loans, then to the principal of the Tranche B Loans and
then to the remaining outstanding Obligations in such order as the
Administrative Agent may determine. All prepayments pursuant to Section 2.7(a)
shall be applied to the outstanding Tranche A Loans. All prepayments pursuant to
Section 2.7(c) and Section 2.7(d) shall be applied to the outstanding Tranche B
Loans.
(f) No Reborrowing. No amounts of the Loans prepaid pursuant to this
Section 2.7 may be reborrowed.
Section 2.8 Minimum Amounts. Except for Conversions and prepayments
pursuant to Section 2.7 and Article 4, each Conversion and each optional
prepayment of principal of the Loans shall be in an amount at least equal to
$100,000 or an integral multiple of $100,000 in excess thereof (borrowings,
prepayments or Conversions of or into Loans of different Types or, in the case
of Eurodollar Loans, having different Interest Periods at the same time
hereunder shall be deemed separate borrowings, prepayments and Conversions for
purposes of the foregoing, one for each Type or Interest Period).
Section 2.9 Certain Notices. Notices by the Borrower to the Administrative
Agent of terminations or reductions of Commitments, of borrowings, Conversions,
Continuations and prepayments of Loans and of the duration of Interest Periods
shall be irrevocable and shall be effective only if received by the
Administrative Agent not later than 11:00 a.m. (New York, New York, time) on the
Business Day prior to the date of the relevant termination, reduction,
borrowing, Conversion, Continuation or prepayment or the first day of such
Interest Period specified below:
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
CREDIT AGREEMENT - Page 25
<PAGE> 32
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Number of
Notice Business Days Prior
- ----------------------------------------------------------------------
<S> <C>
Terminations or Reductions of Commitments 1
- ----------------------------------------------------------------------
Borrowings of Loans which are Base Rate Loans 2
- ----------------------------------------------------------------------
Borrowings of Loans which are Eurodollar Loans 3
- ----------------------------------------------------------------------
Prepayments of Loans 3
- ----------------------------------------------------------------------
</TABLE>
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or prepayment shall specify the Loans to be borrowed,
Converted, Continued or prepaid and the amount (subject to Section 2.8 hereof)
and Type of the Loans to be borrowed, Converted, Continued or prepaid (and, in
the case of a Conversion, the Type of Loans to result from such Conversion) and
the date of borrowing, Conversion, Continuation or prepayment (which shall be a
Business Day). Each such notice of termination, reduction, borrowing,
Conversion, Continuation or prepayment shall be in the form of Exhibit C hereto,
appropriately completed as applicable. Each notice of borrowing (a "Notice of
Borrowing") (a) shall certify that all proceeds of the requested Loans are,
concurrently with the making of such Loans, being used by the Borrower for the
purpose specified in Section 2.10 and (b) shall be accompanied by such other
evidence as to use of the proceeds of such borrowing, as the Administrative
Agent may reasonably request from time to time. Each notice which includes
reference to the duration of an Interest Period shall specify the Loans to which
such Interest Period is to relate. The Administrative Agent shall promptly
notify the Lenders of the contents of each such notice. In the event the
Borrower fails to select the Type of Loan, or the duration of any Interest
Period for any Eurodollar Loan, within the time period and otherwise as provided
in this Section 2.9, such Loan (if outstanding as Eurodollar Loan) will be
automatically Converted into a Base Rate Loan on the last day of preceding
Interest Period for such Loan or (if outstanding as a Base Rate Loan) will
remain as, or (if not then outstanding) will be made as, a Base Rate Loan. The
Borrower may not borrow any Eurodollar Loans, Convert any Loans into Eurodollar
Loans or Continue any Loans as Eurodollar Loans if the interest rate for such
Eurodollar Loans would exceed the Maximum Rate.
Section 2.10 Use of Proceeds.
(a) Tranche A Loans. The Borrower agrees that all proceeds of the Tranche
A Loans shall be contributed to or loaned to the Guarantor and used to pay the
purchase price for Nortel Networks Goods and Services provided by Nortel
Networks under the Supply Agreement. In the event the Borrower determines to
loan all or a portion of such funds to the Guarantor, the loan shall be
evidenced by one or more promissory notes in the principal amount of such
loan(s) (the "Inter-Company Note"). The Inter-Company Note(s) shall have
repayment and prepayment terms consistent with the Tranche A Notes and shall be
collaterally assigned to the Administrative Agent to secure the Obligations.
(b) Tranche B Loans. The Borrower agrees that all proceeds of the Tranche
B Loans shall be used by the Borrower for working capital and general corporate
purposes of the Borrower
CREDIT AGREEMENT - Page 26
<PAGE> 33
and its Subsidiaries, subject to compliance with all requirements of law and the
terms and provisions of this Agreement.
(c) Margin Stock. None of the proceeds of any Loan have been or will be
used to acquire any security in any transaction that is subject to Section 13 or
14 of the Exchange Act or to purchase or carry any margin stock (within the
meaning of Regulations T, U or X of the Board of Governors of the Federal
Reserve System).
Section 2.11 Fees.
(a) Subject to Section 13.12, the Borrower shall pay to the Administrative
Agent for the account of each applicable Lender a commitment fee on the daily
average unused or unfunded amount of each of such Lender's Commitments, for the
period from and including the date on which such Lender (or its predecessor in
interest with respect to Commitments assigned to such Lender as to which a
commitment fee has not previously been paid during the applicable period) became
a party hereto but excluding the Tranche A Commitment Termination Date or
Tranche B Commitment Termination Date, as the case may be, [***] per annum based
on a 360 day year and the actual number of days elapsed, which accrued
commitment fees shall be payable in arrears on each Quarterly Date and on the
Tranche A Commitment Termination Date and the Tranche B Commitment Termination
Date, as the case may be.
(b) Subject to Section 13.12, the Borrower agrees to pay to the
Administrative Agent and Nortel Networks such additional fees as are specified
in the Administrative Agent's Letter, which fees shall be payable in such
amounts and on such dates as are specified therein.
Section 2.12 Computations. Interest and fees payable by the Borrower
hereunder and under the other Loan Documents on all Loans shall be computed on
the basis of a year of 360 days and the actual number of days elapsed (including
the first day but excluding the last day) occurring in the period for which
payable unless, in the case of interest, such calculation would result in a
usurious rate, in which case interest shall be calculated on the basis of a year
of 365 or 366 days, as the case may be.
Section 2.13 Termination or Reduction of Commitments.
(a) Notwithstanding anything to the contrary contained in this Agreement,
each of the Commitments shall automatically terminate upon the occurrence of any
Change in Control.
(b) The Borrower shall have the right to terminate or reduce in part the
unused portion of the Tranche A Commitments and the Tranche B Commitments at any
time and from time to time prior to the Tranche A Commitment Termination Date
and the Tranche B Commitment Termination Date, respectively; provided, however,
that no such termination or reduction shall be effective unless the Borrower
shall have given notice of each such termination or reduction as provided in
Section 2.9, and each partial reduction of the Commitments shall be in an
aggregate amount at least equal to $1,000,000 or an integral multiple of
$100,000 in excess thereof.
CREDIT AGREEMENT - Page 27
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE> 34
(c) The Commitments may not be reinstated after they have been terminated
or increased after they have been reduced.
ARTICLE 3
Payments
Section 3.1 Method of Payment. All payments of principal, interest, fees
and other amounts to be made by the Borrower under this Agreement and the other
Loan Documents shall be made to the Administrative Agent at the Principal Office
for the account of each Lender's Applicable Lending Office in Dollars and in
immediately available funds, without setoff, deduction or counterclaim, not
later than 1:00 p.m. (New York, New York time) on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day). The Borrower
shall, at the time of making each such payment, specify to the Administrative
Agent the sums payable by the Borrower under this Agreement and the other Loan
Documents to which such payment is to be applied (and in the event that the
Borrower fails to so specify, or if an Event of Default has occurred and is
continuing, the Administrative Agent may apply such payment to the Obligations
in such order and manner as the Administrative Agent may elect, subject to
Section 3.2). Upon the occurrence and during the continuation of an Event of
Default, all proceeds of any Collateral and all other funds of the Borrower in
the possession of the Administrative Agent or any Lender, may be applied by the
Administrative Agent to the Obligations in such order and manner as the
Administrative Agent may elect, subject to Section 3.2. Each payment received by
the Administrative Agent under this Agreement or any other Loan Document for the
account of a Lender shall be paid promptly to such Lender, in immediately
available funds, for the account of such Lender's Applicable Lending Office.
Whenever any payment under this Agreement or any other Loan Document shall be
stated to be due on a day that is not a Business Day, such payment may be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of the payment of interest and commitment
fee, as the case may be.
Section 3.2 Pro Rata Treatment. Except to the extent otherwise provided in
this Agreement: (a) each Loan shall be made by the Lenders under Section 2.1,
each payment of commitment fees under Section 2.11(a) shall be made for the
account of the Lenders, and each termination or reduction of the Commitments
under Section 2.13 shall be applied to the Commitments of the Lenders, pro rata
according to the respective unused Commitments; (b) the making, Conversion and
Continuation of Loans of a particular Type (other than Conversions provided for
by Section 4.4) shall be made pro rata among the Lenders holding Loans of such
Type according to the amounts of their respective Commitments; (c) each payment
and prepayment by the Borrower of principal of or interest on Loans of a
particular Type shall be made to the Administrative Agent for the account of the
Lenders holding Loans of such Type pro rata in accordance with the respective
unpaid principal amounts of such Loans held by such Lenders; and (d) Interest
Periods for Loans of a particular Type shall be allocated among the Lenders
holding Loans of such Type pro rata according to the respective principal
amounts held by such Lenders.
Section 3.3 Sharing of Payments, Etc. If a Lender shall obtain payment of
any principal of or interest on any of the Obligations due to such Lender
hereunder through the exercise of any
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right of setoff, banker's lien, counterclaim or similar right, or otherwise, it
shall promptly purchase from the other Lenders participations in the Obligations
held by the other Lenders in such amounts, and make such adjustments from time
to time, as shall be equitable to the end that all the Lenders shall share pro
rata in accordance with the unpaid principal and interest on the Obligations
then due to each of them. To such end, all of the Lenders shall make appropriate
adjustments among themselves (by the resale of participations sold or otherwise)
if all or any portion of such excess payment is thereafter rescinded or must
otherwise be restored. The Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any Lender so purchasing a
participation in the Obligations by the other Lenders may exercise all rights of
setoff, banker's lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender were a direct holder of Obligations in
the amount of such participation. Nothing contained herein shall require any
Lender to exercise any such right or shall affect the right of any Lender to
exercise, and retain the benefits of exercising, any such right with respect to
any other indebtedness, liability or obligation of the Borrower.
Section 3.4 Non-Receipt of Funds by the Administrative Agent. Unless the
Administrative Agent shall have been notified by a Lender or the Borrower (the
"Payor") prior to the date on which such Lender is to make payment to the
Administrative Agent of the proceeds of a Loan to be made by it hereunder or the
Borrower is to make a payment to the Administrative Agent for the account of one
or more of the Lenders, as the case may be (such payment being herein called the
"Required Payment"), which notice shall be effective upon receipt, that the
Payor does not intend to make the Required Payment to the Administrative Agent,
the Administrative Agent may assume that the Required Payment has been made and
may, in reliance upon such assumption (but shall not be required to), make the
amount thereof available to the intended recipient on such date and, if the
Payor has not in fact made the Required Payment to the Administrative Agent, the
recipient of such payment shall, on demand, pay to the Administrative Agent the
amount made available to it together with interest thereon in respect of the
period commencing on the date such amount was so made available by the
Administrative Agent until the date the Administrative Agent recovers such
amount at a rate per annum equal to the Federal Funds Rate for such period.
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Section 3.5 Taxes.
(a) All payments by the Borrower of principal of and interest on the Loans
and of all fees and other amounts payable under the Loan Documents shall be made
free and clear of, and without withholding or deduction by reason of, any
present or future taxes, levies, duties, imposts, assessments or other charges
levied or imposed by any Governmental Authority (other than franchise taxes and
taxes on the overall net income of any Lender). If any such taxes, levies,
duties, imposts, assessments or other charges are so levied or imposed, the
Borrower will (i) make additional payments in such amounts so that every net
payment of principal of and interest on the Loans and of all other amounts
payable by it under the Loan Documents, after withholding or deduction for or on
account of any such present or future taxes, levies, duties, imposts,
assessments or other charges (including any tax imposed on or measured by net
income of a Lender attributable to payments made to or on behalf of a Lender
pursuant to this Section 3.5 and any penalties or interest attributable to such
payments), will not be less than the amount provided for herein or therein
absent such withholding or deduction (provided that the Borrower shall not have
any obligation to pay such additional amounts to any Lender to the extent that
such taxes, levies, duties, imposts, assessments or other charges are levied or
imposed by reason of the failure of such Lender to comply with the provisions of
Section 3.6), (ii) make such withholding or deduction and (iii) remit the full
amount deducted or withheld to the relevant Governmental Authority in accordance
with applicable law. Without limiting the generality of the foregoing, the
Borrower will, upon written request of any Lender, reimburse each such Lender
for the amount of (A) such taxes, levies, duties, imports, assessments or other
charges so levied or imposed by any Governmental Authority and paid by such
Lender as a result of payments made by the Borrower under or with respect to the
Loans other than such taxes, levies, duties, imports, assessments and other
charges previously withheld or deducted by the Borrower which have previously
resulted in the payment of the required additional amount to such Lender, and
(B) such taxes, levies, duties, assessments and other charges so levied or
imposed with respect to any Lender reimbursement under the foregoing clause (A),
so that the net amount received by such Lender (net of payments made under or
with respect to the Loans) after such reimbursement will not be less than the
net amount such Lender would have received if such taxes, levies, duties,
assessments and other charges on such reimbursement had not been levied or
imposed. The Borrower shall furnish promptly to the Administrative Agent for
distribution to each affected Lender, as the case may be, upon request of such
Lender, official receipts evidencing any such payment, withholding or reduction.
(b) The Borrower will indemnify the Administrative Agent and each Lender
(without duplication) against, and reimburse the Administrative Agent and each
Lender for, all present and future taxes, levies, duties, imposts, assessments
or other charges (including interest and penalties) levied or collected (whether
or not legally or correctly imposed, assessed, levied or collected), excluding,
however, any taxes imposed on the overall net income of the Administrative Agent
or such Lender or any lending office of the Administrative Agent or such Lender
by any jurisdiction in which the Administrative Agent or such Lender or any such
lending office is located, on or in respect of this Agreement, any of the Loan
Documents or the Obligations or any portion thereof (the "reimbursable taxes").
Any such indemnification shall be on an after-tax basis, taking into account any
such reimbursable taxes imposed on the amounts paid as indemnity.
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(c) Without prejudice to the survival of any other term or provision of
this Agreement, the obligations of the Borrower under this Section 3.5 shall
survive the payment of the Loans and the other Obligations and termination of
the Commitments.
Section 3.6 Withholding Tax Exemption. Each Lender that is not
incorporated or otherwise formed under the laws of the U.S. or a state thereof
agrees that it will, prior to or on or about the Closing Date or the date upon
which it initially becomes a party to this Agreement and if it is legally able
to do so, deliver to the Borrower and the Administrative Agent two duly
completed copies of U.S. Internal Revenue Service Form 1001, 4224 or W-8, as
appropriate, certifying in any case that such Lender is entitled to receive
payments from the Borrower under any Loan Document without deduction or
withholding of any U.S. federal income taxes. Each Lender which so delivers a
Form 1001, 4224 or W-8 further undertakes to deliver to the Borrower and the
Administrative Agent two additional copies of such form (or a successor form) on
or before the date such form expires or becomes obsolete or after the occurrence
of any event requiring a change in the most recent form so delivered by it, and
such amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Borrower or the Administrative Agent, in each case certifying
that such Lender is entitled to receive payments from the Borrower under any
Loan Document without deduction or withholding of any U.S. federal income taxes,
unless an event (including without limitation any change in treaty, law or
regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Lender from duly completing and delivering any such form with
respect to it and such Lender advises the Borrower and the Administrative Agent
that it is not capable of receiving such payments without any deduction or
withholding of U.S. federal income tax.
Section 3.7 Reinstatement of Obligations. Notwithstanding anything to the
contrary contained in this Agreement or any other Loan Document, if the payment
of any amount of principal of or interest with respect to the Loans or any other
amount of the Obligations, or any portion thereof, is rescinded, voided or must
otherwise be refunded by the Administrative Agent or any Lender upon the
insolvency, bankruptcy or reorganization of the Borrower or otherwise for any
reason whatsoever, then each of (a) the Obligations, (b) the Loan Documents
(including, without limitation, this Agreement, the Notes and the Security
Documents), (c) the indebtedness, liabilities and obligations of the Borrower
and any other Loan Parties and (d) all Liens for the benefit of the
Administrative Agent and the Lenders created under or evidenced by the Loan
Documents, will be automatically reinstated and become automatically effective
and in full force and effect, all to the extent that and as though such payment
so rescinded, voided or otherwise refunded had never been made.
Section 3.8 No Force Majeure, Disputes. The Borrower's obligation to pay
all amounts due under the Loans and the other Obligations shall not be affected
by (a) any set-off, counterclaim, recoupment, deduction, abatement, suspension,
diminution, reduction, defense or other right which the Borrower or the
Guarantor may have against the Vendor for any reason whatsoever arising under or
pursuant to the Supply Agreement or otherwise relating to the purchase of goods
or services from the Vendor, (b) any defect in the condition, design, operation
or fitness for use of, or any damage to or loss or destruction of, any equipment
or material or service provided by the Vendor, (c) any insolvency, bankruptcy,
reorganization or similar proceedings by or against the Borrower or affecting
any of its Properties, (d) any action of any Governmental Authority or any
damage to or
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destruction of or any taking of the Borrower's Property or any part thereof, (e)
any change, waiver, extension, indulgence or failure to perform or comply with,
or other action or omission herein or in the other Loan Documents (except for
express written modifications to this Agreement or other Loan Documents as and
in the manner permitted under this Agreement or the other Loan Documents), (f)
any dissolution of the Borrower, (g) any inability or illegality with respect to
the use or ownership of the Borrower's Property, (h) any failure to obtain, or
expiration, suspension or other termination of, or interruption to, any required
licenses, permits, consents, authorizations, approvals or other legal
requirements, (i) the invalidity or unenforceability of any of the Loan
Documents or any other infirmity therein or any lack of power or authority of
the Administrative Agent or any Lender or the Borrower, or (j) any other event
or circumstance whatsoever, whether or not similar to any of the foregoing and
whether or not the Borrower shall have notice or knowledge of any of the
foregoing, it being the intention of the Administrative Agent and the Lenders
and the Borrower that the Obligations of the Borrower shall be absolute and
unconditional and shall be separate and independent covenants and agreements and
shall continue unaffected unless the requirements to pay or perform the same
shall have been terminated pursuant to an express provision thereof or of any of
the other Loan Documents.
ARTICLE 4
Yield Protection and Illegality
Section 4.1 Additional Costs.
(a) The Borrower shall pay directly to each Lender from time to time,
promptly upon the request of such Lender, the costs incurred by such Lender
which such Lender reasonably determines are attributable to its making or
maintaining of any Eurodollar Loans or its obligation to make any of such Loans,
or any reduction in any amount receivable by such Lender hereunder in respect of
any such Loans or obligations (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to such
Lender under this Agreement or its Notes in respect of any of such Loans
(other than taxes imposed on the overall net income of such Lender or its
Applicable Lending Office for any of such Loans by the jurisdiction in
which such Lender has its principal office or such Applicable Lending
Office);
(ii) imposes or modifies any reserve, special deposit, minimum
capital, capital ratio or similar requirement relating to any extensions
of credit or other assets of, or any deposits with or other liabilities or
commitments of, such Lender (including any of such Loans or any deposits
referred to in the definition of "Eurodollar Rate" in Section 1.1 hereof,
but excluding the Reserve Requirement to the extent it is included in the
calculation of the Adjusted Eurodollar Rate); or
(iii) imposes any other condition affecting this Agreement or the
Notes or any extensions of credit or liabilities or commitments
contemplated hereunder or thereunder.
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Each Lender will notify the Borrower (with a copy to the Administrative Agent)
of any event occurring after the Closing Date which will entitle such Lender to
compensation pursuant to this Section 4.1(a) as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation, and (if
so requested by the Borrower) will designate a different Applicable Lending
Office for the Eurodollar Loans of such Lender if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
sole opinion of such Lender, violate any law, rule or regulation or be in any
way disadvantageous to such Lender, provided that such Lender shall have no
obligation to so designate an Applicable Lending Office located in the U.S. Each
Lender will furnish the Borrower with a certificate setting forth the basis and
the amount of each request of such Lender for compensation under this Section
4.1(a). If any Lender requests compensation from the Borrower under this Section
4.1(a), the Borrower may, by notice to such Lender (with a copy to the
Administrative Agent), suspend the obligation of such Lender to make or Continue
making, or Convert Base Rate Loans into, Eurodollar Loans until the Regulatory
Change giving rise to such request ceases to be in effect (in which case the
provisions of Section 4.4 hereof shall be applicable).
(b) Without limiting the effect of the foregoing provisions of this
Section 4.1, in the event that, by reason of any Regulatory Change, any Lender
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Lender which includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Lender which includes Eurodollar
Loans or (ii) becomes subject to restrictions on the amount of such a category
of liabilities or assets which it may hold, then, if such Lender so elects by
notice to the Borrower (with a copy to the Administrative Agent), the obligation
of such Lender to make or Continue making, or Convert Base Rate Loans into,
Eurodollar Loans hereunder shall be suspended until such Regulatory Change
ceases to be in effect (in which case the provisions of Section 4.4 hereof shall
be applicable).
(c) Determinations and allocations by any Lender for purposes of this
Section 4.1 of the effect of any Regulatory Change on its costs of maintaining
its obligation to make Loans or of making or maintaining Loans or on amounts
receivable by it in respect of Loans and of the additional amounts required to
compensate such Lender in respect of any Additional Costs, shall be conclusive
in the absence of manifest error, provided that such determinations and
allocations are made on a reasonable basis.
Section 4.2 Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, if with respect to any Eurodollar Loans for any Interest Period
therefor:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that quotations of interest rates for the
relevant deposits referred to in the definition of "Eurodollar Rate" in Section
1.1 hereof are not being provided in the relative amounts or for the relative
maturities for purposes of determining the rate of interest for such Loans as
provided in this Agreement; or
(b) the Required Lenders determine (which determination shall be
conclusive absent manifest error) and notify the Administrative Agent that the
relevant rates of interest referred to in
CREDIT AGREEMENT - Page 33
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the definition of "Eurodollar Rate" or "Adjusted Eurodollar Rate" in Section 1.1
hereof on the basis of which the rate of interest for such Loans for such
Interest Period is to be determined do not accurately reflect the cost to the
Lenders of making or maintaining such Loans for such Interest Period;
then the Administrative Agent shall give the Borrower prompt notice thereof and,
so long as such condition remains in effect, the Lenders shall be under no
obligation to make Eurodollar Loans or to Convert Base Rate Loans into
Eurodollar Loans and the Borrower shall, on the last day(s) of the then current
Interest Period(s) for the outstanding Eurodollar Loans, either prepay such
Loans or Convert such Loans into Base Rate Loans in accordance with the terms of
this Agreement.
Section 4.3 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to (a) honor its obligation to make Eurodollar Loans
or (b) maintain Eurodollar Loans, then such Lender shall promptly notify the
Borrower (with a copy to the Administrative Agent) thereof and such Lender's
obligation to make or maintain Eurodollar Loans and to Convert Base Rate Loans
into Eurodollar Loans hereunder shall be suspended until such time as such
Lender may again make and maintain Eurodollar Loans (in which case the
provisions of Section 4.4 hereof shall be applicable).
Section 4.4 Treatment of Affected Loans. If the obligation of any Lender
to make or Continue, or to Convert Base Rate Loans into, Eurodollar Loans is
suspended pursuant to Section 4.1 or 4.3 hereof, such Lender's Eurodollar Loans
shall be automatically Converted into Base Rate Loans on the last day(s) of the
then current Interest Period(s) for the Eurodollar Loans (or, in the case of a
Conversion required by Section 4.1(b) or 4.3 hereof, on such earlier date as
such Lender may specify to the Borrower with a copy to the Administrative Agent)
and, unless and until such Lender gives notice as provided below that the
circumstances specified in Section 4.1 or 4.3 hereof which gave rise to such
Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans have been so
Converted, all payments and prepayments of principal which would otherwise be
applied to such Lender's Eurodollar Loans shall be applied instead to its Base
Rate Loans; and
(b) all Loans which would otherwise be made or Continued by such Lender as
Eurodollar Loans shall be made as or Converted into Base Rate Loans and all
Loans of such Lender which would otherwise be Converted into Eurodollar Loans
shall be Converted instead into (or shall remain as) Base Rate Loans.
If such Lender gives notice to the Borrower that the circumstances specified in
Section 4.1 or 4.3 hereof which gave rise to the Conversion of such Lender's
Eurodollar Loans pursuant to this Section 4.4 no longer exist (which such Lender
agrees to do promptly upon such circumstances ceasing to exist) at a time when
Eurodollar Loans are outstanding, such Lender's Base Rate Loans shall be
automatically Converted, on the first day(s) of the next succeeding Interest
Period(s) for such outstanding Eurodollar Loans, to the extent necessary so
that, after giving effect thereto, all Loans held by the Lenders holding
Eurodollar Loans and by such Lender are held pro rata (as to principal amounts,
Types and Interest Periods) in accordance with their respective Commitments.
CREDIT AGREEMENT - Page 34
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Section 4.5 Compensation. The Borrower shall pay to the Administrative
Agent for the account of each Lender, promptly upon the request of such Lender
through the Administrative Agent, such amount or amounts as shall be sufficient
(in the reasonable opinion of such Lender) to compensate it for any loss, cost
or expense incurred by it as a result of:
(a) Any payment, prepayment or Conversion of a Eurodollar Loan for any
reason (including, without limitation, the acceleration of the outstanding Loans
pursuant to Section 11.2) on a date other than the last day of an Interest
Period for such Loan; or
(b) Any failure by the Borrower for any reason (including, without
limitation, the failure of any conditions precedent specified in Article 6 to be
satisfied) to borrow, Convert or prepay a Eurodollar Loan on the date for such
borrowing, Conversion or prepayment specified in the relevant notice of
borrowing, prepayment or Conversion under this Agreement.
Section 4.6 Capital Adequacy. If, after the Closing Date, any Lender shall
have determined that the adoption or implementation of any applicable law, rule
or regulation regarding capital adequacy (including, without limitation, any
law, rule or regulation implementing the Basle Accord), or any change therein,
or any change in the interpretation or administration thereof by any central
bank or other Governmental Authority charged with the interpretation or
administration thereof, or compliance by such Lender (or its parent) with any
guideline, request or directive regarding capital adequacy (whether or not
having the force of law) of any central bank or other Governmental Authority
(including, without limitation, any guideline or other requirement implementing
the Basle Accord), has or would have the effect of reducing the rate of return
on such Lender's (or its parent's) capital as a consequence of its obligations
hereunder or the transactions contemplated hereby to a level below that which
such Lender (or its parent) could have achieved but for such adoption,
implementation, change or compliance (taking into consideration such Lender's
policies with respect to capital adequacy) by an amount reasonably deemed by
such Lender to be material, then from time to time, within ten Business Days
after demand by such Lender (with a copy to the Administrative Agent), the
Borrower shall pay to such Lender such additional amount or amounts as will
compensate such Lender (or its parent) for such reduction. A certificate of such
Lender claiming compensation under this Section 4.6 and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive
absent manifest error, provided that the determination thereof is made on a
reasonable basis. In determining such amount or amounts, such Lender may use any
reasonable averaging and attribution methods.
Section 4.7 Additional Interest on Eurodollar Loans. Without duplication
of Section 2.4 or amounts directly included in the definition of the term
"Adjusted Eurodollar Rate", the Borrower shall pay, directly to each Lender from
time to time, additional interest on the unpaid principal amount of each
Eurodollar Loan held by such Lender, from the date of the making of such
Eurodollar Loan until such principal amount is paid in full, at an interest rate
per annum determined by such Lender in good faith equal to the positive
remainder (if any) of (a) the Adjusted Eurodollar Rate applicable to such
Eurodollar Loan minus (b) the Eurodollar Rate applicable to such Eurodollar
Loan. Each payment of additional interest pursuant to this Section 4.7 shall be
payable by the Borrower on each date upon which interest is payable on such
Eurodollar Loan pursuant to Section 2.4(b); provided, however, that the Borrower
shall not be obligated to make any such payment of additional interest until the
first Business Day after the date when the Borrower has been
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informed (i) that such Lender is subject to a Reserve Requirement and (ii) of
the amount of such Reserve Requirement (after which time the Borrower shall be
obligated to make all such payments of additional interest, including, without
limitation, such payment of additional interest that otherwise would have been
payable by the Borrower on or prior to such time had the Borrower been earlier
informed).
ARTICLE 5
Security
Section 5.1 Collateral. Each Loan Party will grant to the Administrative
Agent for the benefit of the Administrative Agent and the Lenders a perfected,
first priority Lien on all of its right, title and interest in and to the
following Collateral, whether now owned or hereafter acquired, pursuant to the
Security Documents, including, without limitation, the following:
(a) the Guarantor shall grant a Lien all Nortel Networks Equipment
purchased under the Supply Agreement and owned by the Guarantor and any and all
additions, substitutions and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto;
(b) the Borrower shall grant a Lien the Telergy/Bell Canada Account; and
(c) all cash and non-cash proceeds and products of any of the foregoing.
Section 5.2 Guaranty. The Guarantor shall Guarantee the payment and
performance of the Tranche A Loans pursuant to the Guaranty.
Section 5.3 Landlord Waivers. With respect to each lease of real Property
executed by either Loan Party at which Collateral will be located, such Loan
Party will, prior to delivery or installation of such Collateral, obtain waivers
of landlord's Liens from each lessor and other agreements from such lessor and
its lenders necessary or appropriate to ensure Administrative Agent's perfected,
first priority Lien on the Collateral affected thereby, the Administrative
Agent's access to such Collateral and the right of the Administrative Agent, the
Lenders or their designee to succeed to the rights of the Loan Party that is the
lessee under the lease, in each case in form and substance reasonably
satisfactory to the Administrative Agent.
Section 5.4 Setoff. If an Event of Default shall have occurred and be
continuing, each Lender is hereby authorized at any time and from time to time,
without notice to the Borrower (any such notice being hereby expressly waived by
the Borrower), to set off and apply any and all deposits (general or special,
time or demand, provisional or final excluding any trust accounts) at any time
held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any and all of the Obligations of
the Borrower now or hereafter existing under this Agreement, such Lender's Note
or any other Loan Document, irrespective of whether or not the Administrative
Agent or such Lender shall have made any demand under this Agreement, such
Lender's Note or any such other Loan Document and although such Obligations may
be unmatured. Each Lender agrees promptly to notify the Borrower (with a copy to
the Administrative Agent) after any such setoff and application, provided that
the failure to give such
CREDIT AGREEMENT - Page 36
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notice shall not affect the validity of such setoff and application. The rights
and remedies of each Lender hereunder are in addition to other rights and
remedies (including, without limitation, other rights of setoff) which such
Lender may have.
ARTICLE 6
Conditions Precedent
Section 6.1 Initial Extension of Credit. The obligation of each Lender to
make its initial Loan under this Agreement is subject to the receipt by the
Administrative Agent, on or before the Closing Date, of all of the following in
form and substance satisfactory to the Administrative Agent and, in the case of
actions to be taken, the taking of the following required actions and evidence
that such actions have been taken to the satisfaction of the Administrative
Agent:
(a) Resolutions. Resolutions of the board of directors or equivalent
governing body (as applicable) certified by the Secretary or an Assistant
Secretary or equivalent officer or representative of each Loan Party which
authorize the execution, delivery and performance by such Loan Party of the Loan
Documents to which it is or is to be a party;
(b) Incumbency Certificate. A certificate of incumbency certified by the
Secretary or an Assistant Secretary (or other analogous officer) of each Loan
Party certifying as to the name of each officer or other representative of such
Loan Party (i) who is authorized to sign the Loan Documents to which it is or is
to be a party (including any certificates contemplated therein), together with
specimen signatures of each such officer or other representative, and (ii) who
will, until replaced by other officers or representatives duly authorized for
that purpose, act as its representative for the purposes of signing documents
and giving notices and other communications in connection with the Loan
Documents and the transactions contemplated thereby;
(c) Articles of Incorporation. The articles of incorporation, articles of
organization or other analogous constitutional documents of each Loan Party
certified by the Secretary of State or other applicable Governmental Authority
of the state of incorporation or organization of such entity and dated as of a
Current Date;
(d) Bylaws. The bylaws, regulations or other analogous constitutional
documents of each Loan Party certified by its Secretary or an Assistant
Secretary (or other analogous officer or representative);
(e) Governmental Certificates. Certificates of appropriate officials as to
the existence and good standing of each of the Loan Parties in its jurisdiction
of incorporation or organization and in all jurisdictions in which such Loan
Party is qualified or is required to qualify to do business as a foreign entity,
each such certificate to be dated as of a Current Date;
(f) Notes. The Notes duly completed and executed by the Borrower (one
payable to the order of each Lender with respect to each of its Commitments);
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(g) Security Agreements and Other Security Documents. Security Agreements
and other Security Documents executed by the Loan Parties pertaining to the
Collateral owned by such Loan Party or in which such Loan Party has rights
sufficient to create a Lien (one such Security Agreement executed by each such
Loan Party) together with all related financing statements and other filings.
(h) Insurance Certificates and Policies. Certificates evidencing all
insurance policies relating to the Collateral required by this Agreement and the
other Loan Documents and, if requested by the Administrative Agent, copies of
all such insurance policies;
(i) Lien Searches. Lien searches in the name of each of the Loan Parties
(and in all names under which any of them has done business within the last five
years) in each jurisdiction where such Loan Party maintains an office or has or
will have Collateral, showing no financing statements or other Lien instruments
of record affecting the Collateral except for Permitted Liens;
(j) Supply Agreement. The Supply Agreement shall have been executed and
delivered by all parties thereto, and the Administrative Agent shall have
received a photocopy of the Supply Agreement as so executed and delivered,
certified by a Responsible Officer of the Borrower as being a true and correct
copy of such document as of the Closing Date;
(k) Payment of Fees and Expenses. The Borrower shall have paid all fees
due on or before the Closing Date as specified in this Agreement or in the
Administrative Agent's Letter;
(l) Compliance with Laws. As of the Closing Date, the Borrower and the
other Loan Parties shall have complied in all material respects with all
Governmental Requirements necessary to consummate the transactions contemplated
by this Agreement and the other Loan Documents;
(m) No Prohibitions. No Governmental Requirement shall prohibit the
consummation of the transactions contemplated by this Agreement or any other
Loan Document, and no order, judgment or decree of any Governmental Authority or
arbitrator shall, and no litigation or other proceeding shall be pending or to
the Borrower's knowledge, threatened which would, enjoin, prohibit, restrain or
otherwise adversely affect in any material manner the consummation of the
transactions contemplated by this Agreement and the other Loan Documents or
otherwise have a Material Adverse Effect;
(n) Financial Statements. Copies of each of the financial statements
referred to in Section 7.2;
(o) Opinions of Counsel. Favorable legal opinions of counsel for the Loan
Parties, in form and substance satisfactory to the Administrative Agent, with
respect to the Loan Parties and with respect to the Loan Documents and a
favorable legal opinion of regulatory counsel to the Loan Parties in form and
substance satisfactory to the Administrative Agent;
(p) Legal Matters and Loan Documents. All matters of a legal nature
relating to the Borrower and the Loan Documents shall be reasonably satisfactory
to the Administrative Agent and its counsel, and the Administrative Agent shall
have received all such other agreements, documents
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and instruments, each in form and substance and executed and delivered by all
parties, as the Administrative Agent may have reasonably requested to receive;
(q) Business Plan. A copy of the Business Plan;
(r) Waivers and Consents. Copies of all material waivers and consents, if
any, necessary for the execution, delivery and performance by the Loan Parties
of the Loan Documents to which it is a party, including, without limitation, any
waivers and consents in connection with the Supply Agreement as the
Administrative Agent may require, which waivers and consents shall be certified
by a Responsible Officer of the Borrower as true and correct copies of such
consents as of the Closing Date;
(s) Regulatory Approvals. Evidence satisfactory to the Administrative
Agent that all filings, consents or approvals with or of Governmental
Authorities necessary to consummate the transactions contemplated by the Loan
Documents have been made and obtained, as applicable; and
(t) No Material Adverse Change. As of the Closing Date, (i) no material
adverse change shall have occurred with respect to the financial condition,
results of operations, businesses, operations, capitalization, indebtedness,
liabilities, obligations, profitability or prospects or Properties or of the
general affairs or management of the Borrower and its Consolidated Subsidiaries,
taken as a whole, or of the Borrower, in each case since December 31, 1998 and
(ii) the Administrative Agent shall be satisfied that the financial performance
of the Borrower and its Subsidiaries and of the Borrower to the Closing Date is
not materially different from the financial projections for such Person(s)
through the Closing Date that were previously submitted to the Administrative
Agent.
The Borrower shall deliver, or cause to be delivered, to the Administrative
Agent sufficient counterparts of each agreement, document or instrument to be
received by the Administrative Agent under this Section 6. 1 to permit the
Administrative Agent to distribute a copy of the same to each of the Lenders.
After the request of the Borrower, the Administrative Agent shall inform the
Borrower in writing as to the status of satisfaction of the conditions precedent
set forth in this Section 6.1.
Section 6.2 All Extensions of Credit. The obligation of each Lender to
make any Loan (including the initial Loan) under this Agreement is subject to
the continued satisfaction of each of the conditions precedent set forth in
Section 6.1 and each of the following additional conditions precedent:
(a) No Default or Material Adverse Effect. No Default or Material Adverse
Effect shall have occurred and be continuing, or would result from such Loan;
(b) Representations and Warranties. All of the representations and
warranties of the Borrower contained in this Agreement and in the other Loan
Documents shall be true and correct on and as of the date of such Loan with the
same force and effect as if such representations and warranties had been made on
and as of such date unless they relate solely to an earlier date;
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(c) Use of Proceeds. The Borrower shall have certified to the
Administrative Agent that all proceeds of the Loans then being made by the
Lenders are, concurrently with the making of such Loans, being used by the
Borrower for the purposes specified in Section 2.10, and the Borrower shall have
delivered to the Administrative Agent such further evidence thereof (if any) as
the Administrative Agent may reasonably request;
(d) Supply Agreement. The Supply Agreement shall not have been terminated
by the Guarantor;
(e) Full Disclosure. Neither the Borrower nor the Guarantor has failed to
disclose to the Administrative Agent or any Lender any material fact with
respect to the Network or their respective financial conditions (including any
contingent liabilities), or has failed to disclose any information the absence
of which makes any information previously disclosed to the Administrative Agent
or any Lender materially misleading; and
(f) Additional Documentation. The Administrative Agent shall have received
such additional approvals, documents and instruments as the Administrative Agent
may reasonably request.
Each notice of borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower that the conditions precedent set
forth in this Section 6.2 have been satisfied (both as of the date of such
notice and, unless the Borrower otherwise notifies the Administrative Agent
prior to the date of such borrowing, as of the date of such borrowing).
Section 6.3 Closing Certificates. The Borrower shall, concurrently with
the Closing Date (with respect to the conditions precedent set forth in Section
6.1), and concurrently with the date of the making of each other Loan, execute
and deliver to the Administrative Agent a certificate in form and substance
satisfactory to the Administrative Agent certifying as to the satisfaction of
each of the conditions precedent set forth in this Article 6 which are required
to be satisfied on or before such date (without regard to whether such matters
are, in fact, satisfactory to the Administrative Agent to the extent that such
satisfaction is required hereunder).
ARTICLE 7
Representations and Warranties
The Borrower represents and warrants to the Administrative Agent and the
Lenders that the following statements are and, after giving effect to the
funding of the initial Loans on the Closing Date, will be true, correct and
complete:
Section 7.1 Existence. Each Loan Party (a) is a corporation (or other
entity) duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation (or organization), (b) has all requisite
power and authority to own its Properties and carry on its business as now
conducted, and (c) is qualified to do business in all jurisdictions in which the
nature of its business makes such qualification necessary and where failure to
so qualify
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would have a Material Adverse Effect. Each of the Loan Parties has the power and
authority and legal right to execute, deliver and perform its obligations under
the Loan Documents to which it is or may become a party.
Section 7.2 Financial Statements.
(a) The Borrower has delivered to the Administrative Agent and the Lenders
(i) the unaudited consolidated and consolidating financial statements (including
balance sheet and statements of income or operations, shareholders' equity and
cash flows) of the Borrower and its Subsidiaries as of and for the fiscal year
ended December 31, 1998 and (ii) an unaudited pro forma balance sheet of the
Borrower and its Subsidiaries dated as of the Closing Date which gives effect to
the initial Loans made on the Closing Date and the other transactions to occur
on such date. Such financial statements are true and correct, have been prepared
in accordance with GAAP and fairly and accurately present, on a consolidated and
consolidating (where applicable) basis, the financial condition of the Borrower
and its Subsidiaries as of such dates and the results of operations for the
respective periods indicated therein. There has not been, as of the Closing
Date, any material adverse change in the financial condition, results of
operations, businesses, operations, Properties, capitalization, assets or
liabilities of the Borrower and its Subsidiaries, taken as a whole, or of the
Borrower on an individual basis, since December 31, 1998.
(b) The Business Plan (including, without limitation, the financial
projections contained therein) represents, as of the Closing Date, the good
faith estimate of the Borrower and its senior management concerning the probable
financial condition and performance of the Borrower and certain of its
Subsidiaries for the time period covered thereunder based upon the assumptions
believed to be reasonable at the time made.
Section 7.3 Corporate Action; No Breach. The execution, delivery and
performance by each of the Loan Parties of the Loan Documents to which it is or
may become a party and compliance with the terms and provisions hereof and
thereof have been duly authorized by all requisite entity action and do not and
will not (a) violate or conflict with, or result in a breach of, or require any
consent under (i) the articles of incorporation, articles of organization,
bylaws, regulations or other constitutional documents of such Loan Party, (ii)
any Governmental Requirement (including, without limitation, the Communications
Act, any rule or regulation of the FCC or any rule or regulation of any federal
or state public utility commission or other Governmental Authority) or any
order, writ, injunction or decree of any Governmental Authority or arbitrator,
or (iii) any Material Contract to which either Loan Party is a party or by which
either Loan Party or any of its Property is bound or subject, or (b) constitute
a default under any such Material Contract, or result in the creation or
imposition of any Lien (except a Lien in favor of the Administrative Agent for
and on behalf of the Lenders under the Security Documents as provided in Article
5) upon any of the revenues or Property of either Loan Party.
Section 7.4 Operation of Business; Licenses. Each of the Borrower and each
of its Subsidiaries (a) possesses all material Permits, franchises, licenses and
authorizations necessary or appropriate to construct and operate the Network and
to conduct its businesses substantially as now conducted and as to be conducted
as contemplated by the Business Plan, and (b) has complied with all initial and
on-going conditions to the issuance and use of all such Permits, franchises,
licenses
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and authorizations, except where failure to comply could not reasonably be
expected to have a Material Adverse Effect. None of such Persons is in violation
of any such material Permits, franchises, licenses or authorizations which could
be expected to result in any termination or cessation thereof. Such licenses and
Permits have been duly issued by the FCC and the appropriate federal or state
public utility commission or other Governmental Authority (as applicable) and
are in full force and effect, and all provisions of such licenses and Permits
have been complied with in all material respects. No such license or Permit is
subject to any pending or, to the knowledge of the Borrower, threatened
revocation or termination proceeding or action.
Section 7.5 Intellectual Property. Each of the Borrower and its
Subsidiaries owns or possesses (or will be licensed or have the full right to
use) all Intellectual Property which is necessary or appropriate for the
operation of its businesses as presently conducted and as proposed to be
conducted, without any known conflict with the rights of others. The
consummation of the transactions contemplated by this Agreement and the other
Loan Documents will not materially alter or impair, individually or in the
aggregate, any of such rights of such Persons. No product or service of any of
the Borrower or any of its Subsidiaries infringes upon any Intellectual Property
of any other Person, and no claim or litigation is pending or, to the knowledge
of the Borrower, threatened against any such Person contesting its right to sell
or otherwise use any product or material or service which could reasonably be
expected to have a Material Adverse Effect. There is no violation by the
Borrower or any of its Subsidiaries of any right of such Person with respect to
any material Intellectual Property owned or used by such Person.
Section 7.6 Litigation and Judgments. There is no material action, suit,
investigation or proceeding before or by any Governmental Authority or
arbitrator pending or, to the knowledge of the Borrower, threatened against or
affecting either Loan Party, or that relates to any of the Loan Documents as of
the Closing Date. None of such actions, suits, investigations or proceedings
could, if adversely determined, reasonably be expected to have a Material
Adverse Effect. There are no material outstanding judgments against either Loan
Party. No Loan Party has received any opinion or memorandum or legal advice from
legal counsel to the effect that it is exposed to any liability or disadvantage
that could reasonably be expected to have a Material Adverse Effect.
Section 7.7 Rights in Properties; Liens. Each Loan Party has good and
marketable title to or, with respect to leasehold interests, valid leasehold
interests in all of its material Properties and assets, real and personal,
including the material Properties, assets and leasehold interests reflected in
the financial statements described in Section 7.2(a), except where failure to
have good and marketable title or valid leasehold interests could not reasonably
be expected to have a Material Adverse Effect, and none of the Properties or
leasehold interests of any of the Loan Parties is subject to any Lien, except
Permitted Liens. No Loan Party has granted or voluntarily allowed or permitted
to exist any Lien to or in favor of any Person (other than the Administrative
Agent for and on behalf of the Lenders as security for the Obligations) which
attaches or relates to any of the Collateral and the Liens on the Collateral in
favor of the Administrative Agent are perfected, first priority Liens.
Section 7.8 Enforceability. The Loan Documents have been duly and validly
executed and delivered by each of the Loan Parties that is a party thereto, and
such Loan Documents constitute the legal, valid and binding obligations of such
Persons, enforceable against each such Person in
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accordance with their respective terms, except as limited by bankruptcy,
insolvency or other laws of general application relating to the enforcement of
creditors' rights and general principles of equity.
Section 7.9 Approvals. No authorization, approval or consent of, and no
filing or registration with or notice to, any Governmental Authority (including
the FCC) or third party is or will be necessary for the execution, delivery or
performance by either Loan Party of any of the Loan Documents or any of the
Material Contracts to which it is or will be a party or for the validity or
enforceability thereof, except for such consents, approvals and filings as have
been validly obtained or made and are in full force and effect. The consummation
of the transactions contemplated by the Loan Documents and the Material
Contracts does not require the consent or approval of any other Person, except
such consents and approvals (a) as have been validly obtained and are in full
force and effect or (b) as to which the failure to obtain is not, individually
or in the aggregate, material. No Loan Party has failed to obtain any material
consent, approval, Permit, franchise, license or other authorization of any
Governmental Authority (including the FCC) necessary for the ownership or use of
any of its Properties, conduct of its business and performance of the Business
Plan.
Section 7.10 Debt. As of the Closing Date, the Borrower and its
Subsidiaries are not in default of any Debt.
Section 7.11 Taxes. Each of the Loan Parties has filed (a) all tax returns
(federal, state and local) and reports required to be filed including all
income, franchise, employment, Property and sales tax returns, and (b) all other
material tax returns and reports required to be filed except where failure to
file could not reasonably be expected to have a Material Adverse Effect, and has
paid all federal and other material taxes (shown on such returns or reports to
be due and payable), assessments, fees and other governmental charges levied or
imposed upon it or its Properties, income or assets otherwise due and payable
before they become delinquent, except those which are being contested in good
faith by appropriate proceedings and for which adequate reserves have been
provided in accordance with GAAP and no notice of Lien has been filed or
recorded or, as to such Loan Parties only, except where failure to pay could not
reasonably be expected to have a Material Adverse Effect. There is no proposed
tax assessment against either Loan Party which could, if the assessment were
made, reasonably be expected to have a Material Adverse Effect.
Section 7.12 Margin Securities. Neither of the Loan Parties is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations T, U or X of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Loan will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying margin stock.
Section 7.13 ERISA. Neither of the Loan Parties or any ERISA Affiliate
maintains or contributes to, or has any obligation under, any Pension Plan as of
the Closing Date. To the extent either Loan Party adopts a Plan, the following
shall at all times be true and correct:
Each Plan of the Loan Parties is in compliance in all material respects
with all applicable provisions of ERISA and the Code. Neither a Reportable
Event nor a Prohibited Transaction has occurred within the last 60 months
with respect to any
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Plan that could reasonably be expected have a Material Adverse Effect. No
notice of intent to terminate a Pension Plan has been filed, nor has any
Pension Plan been terminated. No circumstances exist which constitute
grounds entitling the PBGC to institute proceedings to terminate, or
appoint a trustee to administer, a Pension Plan, nor has the PBGC
instituted any such proceedings. None of the Borrower, its Subsidiaries
nor any ERISA Affiliate has completely or partially withdrawn from a
Multiemployer Plan. Each of the Borrower and its Subsidiaries and each
ERISA Affiliate have met their minimum funding requirements under ERISA
and the Code or with respect to all of their Pension Plans subject to such
requirements, and the present value of all vested benefits under each
funded Plan (exclusive of any Multiemployer Plan) does not and will not
exceed the fair market value of all such Plan assets allocable to such
benefits, as determined on the most recent valuation date of such Plan and
in accordance with ERISA. Neither the Borrower nor any of its Subsidiaries
nor any ERISA Affiliate has incurred any liability to the PBGC under
ERISA. No litigation is pending or, to the Borrower's knowledge,
threatened concerning or involving any Plan that could reasonably be
expected to have a Material Adverse Effect. There are no unfunded or
unreserved liabilities (on either a going-concern basis or a wind-up
basis) relating to any Plan that could, individually or in the aggregate,
have a Material Adverse Effect if the Borrower were required to fund or
reserve such liability in full. As of the Closing Date, no funding waivers
have been or will have been requested or granted under Section 412 of the
Code with respect to any Plan. No unfunded or unreserved liability for
benefits under any Plan or Plans (exclusive of any Multiemployer Plans)
exceeds $100,000, with respect to any such Plan, or $200,000 with respect
to all such Plans, in the aggregate as of the Closing Date, on either a
going-concern basis or a wind-up basis.
Section 7.14 Disclosure. No written statement, information, report,
representation or warranty made by either Loan Party in any Loan Document or
furnished to the Administrative Agent or any Lender by or on behalf of either
Loan Party in connection with the Loan Documents or any transaction contemplated
hereby or thereby contains any untrue statement of a material fact or omits to
state any material fact necessary to make the statements herein or therein, in
light of the circumstances in which made, not misleading. There is no fact known
to the Borrower which has had a Material Adverse Effect, and there is no fact
known to the Borrower which might in the future have a Material Adverse Effect
except as may have been disclosed in writing to the Administrative Agent.
Section 7.15 Loan Parties. Each Loan Party is incorporated in the State of
New York.
Section 7.16 Compliance with Laws. Neither the Borrower nor any Subsidiary
of the Borrower is in violation of any Governmental Requirement (including,
without limitation, the Communications Act, any rule or regulation of the FCC or
any rule or regulation of any federal or state public utility commission or
other Governmental Authority), except for instances of non-compliance that could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
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Section 7.17 Investment Company Act. No Loan Party is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
Section 7.18 Public Utility Holding Company Act. No Loan Party is a
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or a "public utility" within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
Section 7.19 Environmental Matters.
(a) Except for instances of noncompliance with or exceptions to any of the
following representations and warranties that could not have, individually or in
the aggregate, a Material Adverse Effect:
(i) The Borrower and each of its Subsidiaries and all of their
respective Properties and operations are in full compliance with all
Environmental Laws. The Borrower is not aware of, and neither the Borrower
nor any of its Subsidiaries has received written notice of, any past,
present or future conditions, events, activities, practices or incidents
which may interfere with or prevent the compliance or continued compliance
by the Borrower and its Subsidiaries with all Environmental Laws;
(ii) The Borrower and each of its Subsidiaries have obtained all
Permits that are required under applicable Environmental Laws, and all
such Permits are in good standing and all such Persons are in compliance
with all of the terms and conditions thereof;
(iii) No Hazardous Materials exist on, about or within or have been
(to the knowledge of the Borrower) or are being used, generated, stored,
transported, disposed of on or Released from any of the Properties of the
Borrower or any of its Subsidiaries except in compliance with applicable
Environmental Laws. The use which the Borrower and its Subsidiaries make
and intend to make of their respective Properties will not result in the
use, generation, storage, transportation, accumulation, disposal or
Release of any Hazardous Material on, in or from any of their currently
owned Properties except in compliance with applicable Environmental Laws;
(iv) There are no conditions or circumstances associated with the
currently owned or leased Properties or operations of the Borrower or any
of its Subsidiaries that could reasonably be expected to give rise to any
Environmental Liabilities or claims resulting in any Environmental
Liabilities;
(v) None of the Borrower or any of its Subsidiaries and none of
their respective currently or previously owned or leased Properties or
operations are subject to any outstanding or, to the knowledge of the
Borrower, threatened order from or agreement with any Governmental
Authority or other Person or subject to any judicial or administrative
proceeding with respect to (A) any failure to comply with Environmental
Laws, (B) any Remedial Action, or (C) any Environmental Liabilities;
CREDIT AGREEMENT - Page 45
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(vi) None of the Borrower or any of its Subsidiaries is subject to,
or has received written notice of any claim from any Person alleging that
it is or will be subject to, any Environmental Liabilities;
(vii) None of the Properties of any of the Loan Parties is a
treatment facility (except for the recycling of Hazardous Materials
generated on-site and the treatment of liquid wastes subject to the Clean
Water Act or other applicable Environmental Law for temporary storage of
Hazardous Materials generated on-site prior to their disposal off-site) or
disposal facility requiring a permit under the Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6901 et seq., regulations thereunder or any
comparable provision of state law. The Loan Parties are in compliance with
all applicable financial responsibility requirements of all Environmental
Laws; and
(viii) None of the Borrower or any of its Subsidiaries has failed to
file any notice required under applicable Environmental Law reporting a
Release.
(b) No Lien arising under any Environmental Law that could have,
individually or in the aggregate, a Material Adverse Effect has attached to any
Property or revenues of the Borrower or any of its Subsidiaries.
Section 7.20 Year 2000 Compliance. The Borrower has (a) initiated a review
and assessment of all areas within its and each of its Subsidiaries' business
and operations (including those affected by suppliers and vendors) that could
reasonably be expected to be relevant to whether the Borrower and its
Subsidiaries are Year 2000 Compliant, (b) developed a plan and timeline for
ensuring that the Borrower and its Subsidiaries are Year 2000 Compliant on a
timely basis, and (c) to date, implemented that plan in accordance with that
timetable. Based upon the foregoing, the Borrower believes that it and its
Subsidiaries are Year 2000 Compliant as of the Closing Date.
Section 7.21 Labor Disputes and Acts of God. Neither the business nor the
Properties of any of the Loan Parties are affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance) that is having or could reasonably be
expected to have a Material Adverse Effect.
Section 7.22 Material Contracts. All of the Material Contracts are in full
force and effect and no Loan Party is in default under any Material Contract
and, to the knowledge of the Borrower after due inquiry, no other Person that is
a party thereto is in default under any of the Material Contracts. None of the
Material Contracts prohibits the transactions contemplated under the Loan
Documents.
Section 7.23 Outstanding Securities. As of the Closing Date, all
outstanding securities (as defined in the Securities Act of 1933, as amended, or
any successor thereto, and the rules and regulations of the Securities and
Exchange Commission thereunder) of the Loan Parties have been offered, issued,
sold and delivered in compliance with all applicable Governmental Requirements.
Section 7.24 Solvency. Each of the Loan Parties, as a separate entity, is
Solvent, both before and after giving effect to the Loans.
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Section 7.25 Employee Matters. As of the Closing Date (a) no Loan Party
nor any of their employees is subject to any collective bargaining agreement,
and (b) no petition for certification or union election is pending with respect
to the employees of either Loan Party, and no union or collective bargaining
unit has sought such certification or recognition with respect to the employees
of any such Person. There are no strikes, slowdowns, work stoppages or
controversies pending or, to the best knowledge of the Borrower after due
inquiry, threatened against, either Loan Party or its respective employees which
could have, either individually or in the aggregate, a Material Adverse Effect.
Section 7.27 Insurance. The insurance certificate delivered to the Agent
on or prior to the Closing Date sets forth a complete and accurate description
of all policies of insurance that relate to the Collateral. To the extent such
policies have not been replaced, no notice of cancellation has been received for
such policies and the Borrower and the owner and holder of each such policy are
in compliance with all of the terms and conditions of such policies.
Section 7.28 Common Enterprise. The Borrower is the parent corporation of
the Guarantor. Each of the Borrower and the Guarantor will derive substantial
benefit (and may reasonably be expected to derive substantial benefit), directly
and indirectly, from the Loans contemplated by this Agreement.
ARTICLE 8
Affirmative Covenants
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Lender has any Commitment hereunder, it will
perform and observe, or cause to be performed and observed, the following
covenants:
Section 8.1 Reporting Requirements. The Borrower will furnish (or will
cause to be furnished) to the Administrative Agent and each Lender:
(a) Annual Financial Statements. As soon as available or upon filing with
the Securities and Exchange Commission, and in any event within 120 days after
the end of each fiscal year of the Borrower, beginning with the fiscal year
ending December 31, 1998, either a copy of the form 10-K (including all
financial statements contained therein) filed by the Borrower as of the end of
and for such fiscal year then ended, together with consolidating schedules for
each of the Borrower and its Subsidiaries with respect to the financial
statements contained therein, or a copy of the annual audit report of the
Borrower and its Subsidiaries as of the end of and for such year and the related
consolidated balance sheet and statements of income or operations, shareholders'
equity and cash flows as of the end of and for such fiscal year, together with
unaudited consolidating schedules for the Borrower and its Subsidiaries with
respect to each of such financial statements, in each case setting forth in
comparative form the figures for the previous fiscal year, and accompanied by
the opinion of independent certified public accountants of recognized standing
reasonably acceptable to the Administrative Agent, which opinion shall state
that such consolidated financial statements
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present fairly the financial position and results of operations for the periods
indicated in conformity with GAAP applied on a basis consistent with prior years
and which opinion shall not be qualified or limited because of a restricted or
limited examination by such accountant of any material portion of such Person's
records;
(b) Quarterly Financial Statements. As soon as available or upon filing
with the Securities and Exchange Commission, and in any event within 60 days
after the end of each of the quarters of each fiscal year of the Borrower,
beginning with the fiscal quarter ending March 31, 1999, either a copy of the
form 10-Q (including all financial statements contained therein) filed by the
Borrower as of the end of and for such fiscal quarter then ended, together with
consolidating schedules for each of the Borrower and the Guarantor with respect
to each of the financial statements contained therein, or a copy of the
unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of
the end of such quarter and the related consolidated statements of income or
operations, shareholders' equity and cash flows and quarterly operating budgets
for the period commencing on the first day and ending on the last day of such
quarter, together with unaudited consolidating schedules for the Borrower and
the Guarantor with respect to each of such financial statements, in each case
setting forth in comparative form the information or figures for the
corresponding period of the preceding fiscal year, and certified by an
appropriate Responsible Officer of the Borrower as fairly presenting, in
accordance with GAAP, the financial position and the results of operations of
the Borrower and its Subsidiaries (except for year-end adjustments and financial
statement footnotes required by GAAP);
(c) Compliance Certificate. Concurrently with the delivery of each of the
financial statements referred to in Sections 8.1(a) and 8.1(b), a Compliance
Certificate of a Responsible Officer of the Borrower substantially in the form
of Exhibit D hereto, appropriately completed, stating that, to the best of such
officer's knowledge, no Default has occurred and is continuing or, if a Default
has occurred and is continuing, stating the nature thereof and the action that
has been taken and is proposed to be taken with respect thereto;
(d) Notice of Actions, Suits or Proceedings. Promptly after the
commencement thereof, notice of all actions, suits and proceedings before any
Governmental Authority (including the FCC) or arbitrator affecting either Loan
Party or any license or Permit, which, if determined adversely to the Borrower
or any Subsidiary of the Borrower, could reasonably be expected to have a
Material Adverse Effect;
(e) Notice of Default, etc.. As soon as possible and in any event
immediately upon the Borrower's knowledge of the occurrence of any Default under
this Agreement, a written notice setting forth the details of such Default and
the action that the Borrower has taken and, if and to the extent known, proposes
to take with respect thereto;
(f) ERISA Plan Reports. Promptly after the filing or receipt thereof,
copies of all reports, including annual reports, and notices which the Borrower
or any of its ERISA Affiliates files with or receives from the PBGC or the U.S.
Department of Labor under ERISA with respect to a Pension Plan or for which the
Borrower has any potential liability; and as soon as possible and in any event
within five days after the Borrower knows or has reason to know that any Pension
Plan is insolvent, or that any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or Multiemployer Plan, or that the PBGC, or
the Borrower or any ERISA Affiliate has
CREDIT AGREEMENT - Page 48
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instituted or will institute proceedings under ERISA to terminate or withdraw
from or reorganize any Pension Plan, a certificate of a Responsible Officer of
the Borrower setting forth the details as to such insolvency, withdrawal,
Reportable Event, Prohibited Transaction or termination and the action that the
Borrower has taken and proposes to take with respect thereto;
(g) Proxy Statements, Etc. As soon as available, one copy of each (if any)
financial statement, report, notice or proxy statement sent by the Borrower to
its stockholders or other security holders generally and one copy of each (if
any) regular, periodic or special report (including, without limitation, reports
on forms 10-K, 10-Q and 8-K), registration statement or prospectus filed by the
Borrower with any securities exchange or the Securities and Exchange Commission
or any successor agency;
(h) Insurance. Within 60 days prior to the end of each fiscal year of the
Borrower, a report in form and substance reasonably satisfactory to the
Administrative Agent summarizing all material insurance coverage related to the
Collateral maintained by either Loan Party;
(i) Plan Information. From time to time, as reasonably requested by the
Administrative Agent or any Lender, such books, records and other documents
relating to any Pension Plan as the Administrative Agent or any Lender shall
specify; prior to any termination, partial termination or merger of a Pension
Plan covering employees of the Borrower or any ERISA Affiliate, or a transfer of
assets of a Pension Plan covering employees of the Borrower or any ERISA
Affiliate, written notification thereof; promptly upon the Borrower's receipt
thereof, a copy of any determination letter or advisory opinion regarding any
Pension Plan received from any Governmental Authority and any amendment or
modification thereto as may be necessary as a condition to obtaining a favorable
determination letter or advisory opinion; and promptly upon the occurrence
thereof, written notification of any action requested by any Governmental
Authority to be taken as a condition to any such determination letter or
advisory opinion;
(j) Business Plan, etc. Within 15 after adoption by the Board of
Directors, any update of the Business Plan in reasonable detail generally
consistent with the form and substance of the Business Plan provided to the
Administrative Agent on or before the Closing Date;
(k) Management Letters. Promptly upon each receipt thereof by the Borrower
or any of its Subsidiaries, a copy of any management letter or other written
report submitted to such Loan Party by independent certified public accountants
with respect to the business, condition (financial or otherwise), operations,
prospects or Properties of any such Person;
(l) Reports to Other Creditors. Promptly after the furnishing thereof, a
copy of any financial or other material statement or report furnished by either
Loan Party to any other party pursuant to the terms of any indenture, loan,
stock purchase or credit or similar agreement and not otherwise required to be
furnished to the Administrative Agent and the Lenders pursuant to any other
subsection of this Section 8.1;
(m) Notice of Material Adverse Effect. Within three Business Days after
the Borrower becomes aware thereof, written notice of any matter that could
reasonably be expected to have a Material Adverse Effect;
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(n) Environmental Assessments and Notices. Promptly after the receipt
thereof, a copy of each environmental assessment (including any analysis
relating thereto) prepared with respect to any Property of the Borrower or any
of its Subsidiaries and each notice sent by any Governmental Authority relating
to any failure or alleged failure to comply with any Environmental Law or any
liability with respect thereto;
(o) Notices Under Material Contracts. Promptly after the receipt by the
Borrower or the Guarantor and promptly after the delivery by the Borrower or the
Guarantor, a copy of each written notice delivered under any Material Contract
which notice (i) relates to any alleged default under or noncompliance with or
proposed termination of such Material Contract or (ii) otherwise relates to any
matter under any Material Contract which could give rise to Material Adverse
Effect;
(p) Accountant's Letter. A letter from the Borrower authorizing the
independent public accountants of the Borrower and its Consolidated Subsidiaries
to communicate with the Administrative Agent and the Lenders and acknowledging
reliance with the Administrative Agent and the Lenders on past, present and
future financial statements; and
(q) General Information. Promptly, such other business, financial,
corporate affairs and other similar information concerning the Borrower, the
Guarantor and/or the Collateral as the Administrative Agent or any Lender may
from time to time reasonably request.
Section 8.2 Maintenance of Existence; Conduct of Business. Each Loan Party
will preserve and maintain its entity existence and all of its leases,
privileges, licenses, Permits, franchises, qualifications, Intellectual
Property, intangible Property and rights that are necessary in the ordinary
conduct of its business except to the extent that failure to so preserve and
maintain such could not reasonably be expected to have a Material Adverse
Effect. Each Loan Party will conduct its business in an orderly and efficient
manner in accordance with good business practices and the Business Plan.
Section 8.3 Maintenance of Properties and Permits. Each Loan Party will
maintain, keep and preserve all of its Properties and Permits necessary in the
proper conduct of its businesses in good repair, working order and condition
(ordinary wear and tear excepted) and make all necessary repairs, renewals and
replacements and improvements thereof.
Section 8.4 Taxes and Claims. Each Loan Party will pay or discharge before
becoming delinquent (a) all taxes, levies, assessments and governmental charges
imposed on it or its income or profits or any of its Property and (b) all lawful
claims for labor, material and supplies, which, if unpaid, might become a Lien
upon any of its Property; provided, however, that no Loan Party shall be
required to pay or discharge any tax, levy, assessment or governmental charge,
or claim for labor, material or supplies, whose amount, applicability or
validity is being contested in good faith by appropriate proceedings being
diligently pursued and for which adequate reserves have been established under
GAAP.
Section 8.5 Insurance.
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(a) Each Loan Party will keep insured by financially sound and reputable
insurers all Property of a character usually insured by responsible corporations
engaged in the same or a similar business similarly situated against loss or
damage of the kinds and in the amounts customarily insured against by such
corporations or entities and carry such other insurance as is usually carried by
such corporations or entities, provided that in any event the Borrower and the
other Loan Parties will maintain:
(i) Property Insurance. Insurance against loss or damage covering
substantially all of the tangible real and personal Property (including,
without limitation, the Network and related equipment) and improvements of
such Person by reason of any Peril (as defined below) in such amounts
(subject to any deductibles as shall be satisfactory to the Administrative
Agent) as shall be reasonable and customary and sufficient to avoid the
insured named therein from becoming a co-insurer of any loss under such
policy, but in any event in such amounts as are reasonably available as
determined by the Borrower's independent insurance broker reasonably
acceptable to the Administrative Agent.
(ii) Automobile Liability Insurance for Bodily Injury and Property
Damage. Insurance in respect of all vehicles (whether owned, hired or
rented by such Person) at any time located at, or used in connection with,
its Properties or operations against liabilities for bodily injury and
Property damage in such amounts as are then customary for vehicles used in
connection with similar Properties and businesses, but in any event to the
extent required by applicable law.
(iii) Comprehensive General Liability Insurance. Insurance against
claims for bodily injury, death or Property damage occurring on, in or
about the Property (and adjoining streets, sidewalks and waterways) of
such Person, in such amounts as are then customary for Property similar in
use in the jurisdictions where such Properties are located.
(iv) Worker's Compensation Insurance. Worker's compensation
insurance (including employers' liability insurance) to the extent
required by applicable law, which may be self-insurance to the extent
permitted by applicable law.
Without limiting the generality of the foregoing, the Borrower shall purchase
and maintain in effect all-risk, property and casualty insurance (including
casualty insurance covering earthquake and flood damage) reasonably acceptable
to the Administrative Agent covering all equipment purchased by the Borrower or
the Guarantor from Nortel Networks and liability insurance covering the
operations of the Borrower and the Loan Parties in a commercially reasonable
amount. Such insurance shall be written by financially responsible companies
selected by the Borrower and having an A.M. Best Rating of "A-" or better and
being in a financial size category of "VI" or larger, or by other companies
reasonably acceptable to the Administrative Agent. Each policy referred to in
this Section 8.5 shall name the Administrative Agent (for the benefit of itself
and the other Lenders) as loss payee (with respect to casualty insurance
policies) and additional insured (with respect to liability insurance policies)
and shall provide that it will not be canceled, amended or reduced except after
not less than 30 days' prior written notice to the Administrative Agent and
shall also provide that the interests of the Administrative Agent and the
Lenders shall not be invalidated by any act or negligence of either Loan Party.
The Borrower will advise the Administrative Agent promptly of
CREDIT AGREEMENT - Page 51
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any policy cancellation, reduction or amendment. For purposes hereof, the term
"Peril" shall mean, collectively, fire, lightning, flood, windstorm, hail,
explosion, riot and civil commotion, vandalism and malicious mischief, damage
from aircraft, vehicles and smoke and other perils covered by the "all-risk"
endorsement then in use in the jurisdictions where the Properties of the Loan
Parties are located.
(b) The Borrower will cause each Insurance Recovery related to the
Collateral payable by any insurance company to be deposited promptly with the
Administrative Agent as security for the Tranche A Loans if a Default has then
occurred and is continuing, and will pay all Insurance Recoveries to the
Administrative Agent for application against the Tranche A Loans if and to the
extent required in accordance with Section 2.7(a).
(c) If a Default shall have occurred and be continuing, the Borrower will
cause all proceeds of insurance paid on account of the loss of or damage to any
Collateral and all awards of compensation for any Collateral taken by
condemnation or eminent domain to be paid directly to the Administrative Agent
to be applied against or held as security for the Tranche A Loans, at the
election of the Administrative Agent and the Required Lenders.
Section 8.6 Inspection Rights. The Borrower will, and will cause each of
the Loan Parties to, permit representatives and agents of the Administrative
Agent and each Lender, during normal business hours, upon not less than 10 days
prior notice to the Borrower and without disrupting the Borrower's operations,
to examine, copy and make extracts from its books and records as may be relevant
to the Loans, to visit and inspect its Properties and to discuss its business,
operations and financial condition with its officers and independent certified
public accountants. The Borrower will authorize, and will cause each of the Loan
Parties to authorize, its accountants in writing (with a copy to the
Administrative Agent) to comply with this Section 8.6. The Administrative Agent
or its representatives may, at any time and from time to time at the Borrower's
expense, conduct field exams for such purposes as the Administrative Agent may
reasonably request; provided, so long as no Default shall have occurred and be
continuing, field exams conducted at the expense of the Borrower shall not
exceed $4,000 per calendar year.
.
Section 8.7 Keeping Books and Records. The Borrower will, and will cause
each of the Loan Parties to, maintain appropriate books of record and account in
accordance with GAAP consistently applied in which true, full and correct
entries will be made of all their respective dealings and business affairs. If
any changes in accounting principles from those used in the preparation of the
financial statements referenced in Section 8.1 are hereafter required or
permitted by GAAP and are adopted by the Borrower with the concurrence of its
independent certified public accountants and such changes in GAAP result in a
change in the method of calculation or the interpretation of any of the
covenants, standards or terms contained in this Agreement, the Borrower and the
Required Lenders agree to amend any such affected terms and provisions so as to
reflect such changes in GAAP with the result that the criteria for evaluating
the financial condition or performance of the Loan Parties shall be the same
after such changes in GAAP as if such changes in GAAP had not been made.
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Section 8.8 Compliance with Laws. The Borrower will, and will cause each
of the Loan Parties to, comply with all Governmental Requirements applicable to
the operation of its business (including, without limitation, the Communications
Act, any rule or regulation of the FCC or any rule or regulation of any federal
or state public utility commission or other Governmental Authority), except for
instances of noncompliance that could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
Section 8.9 Compliance with Agreements. The Borrower will, and will cause
each of the Loan Parties to, comply with all agreements, documents and
instruments binding on it or affecting its Properties or business, including,
without limitation, all Material Contracts, except for instances of
noncompliance that could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect, including, without limitation, any
instances of default under a Material Contract in which, if the nature of the
default is such that it is not reasonably susceptible of being promptly cured,
the Borrower promptly commences a cure, prosecutes the same with reasonable
diligence and keeps the Administrative Agent informed as to such default and
such cure, in which case the Borrower shall have such cure period as reasonable
under the circumstances at the time, including, among other factors, the
Administrative Agent's Lien in the Collateral.
Section 8.10 Further Assurances. The Borrower will execute and deliver and
will cause each of the Loan Parties to execute and deliver such further
agreements, documents and instruments (including, without limitation, financing
statements and amendments to financing statements specifying each item of the
Collateral and the serial number therefor) and take such further action as may
be reasonably requested by the Administrative Agent to carry out the provisions
and purposes of this Agreement and the other Loan Documents, to evidence the
Obligations and to create, preserve, maintain and perfect the Liens of the
Administrative Agent for the benefit of itself and the Lenders in and to the
Collateral and the required priority of such Liens. In the event the Borrower
determines to loan all or a portion of the proceeds of the Tranche A Loans to
the Guarantor, the loan shall be evidenced by one or more Inter-Company Note(s),
which shall have repayment and prepayment terms consistent with the Tranche A
Notes, shall be collaterally assigned to the Administrative Agent to secure the
Obligations and shall be delivered to the Administrative Agent.
Section 8.11 ERISA. The Borrower will, and will cause each of its ERISA
Affiliates to, comply with all minimum funding requirements and all other
material requirements of ERISA so as not to give rise to any material liability
thereunder.
Section 8.12 Non-Consolidation. The Borrower will, and will cause each
other Loan Party to: (a) maintain entity records and books of account separate
from those of any other entity which is an Affiliate of such Loan Party; (b) not
commingle its funds or assets with those of any other entity which is an
Affiliate of such Loan Party; and (c) provide that its board of directors or
other analogous governing body will hold all appropriate meetings to authorize
and approve such Person's entity actions, which meetings will be separate from
those of other Loan Parties.
Section 8.13 Year 2000 Compliance. All of the material computer software,
computer hardware (whether general or special purpose), and other similar or
related items of automated, computerized or software systems that are used or
relied upon by the Borrower or any of its Subsidiaries in the conduct of its
business are and will continue to be Year 2000 Compliant and,
CREDIT AGREEMENT - Page 53
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without limiting the generality of the foregoing, will not malfunction, will not
cease to function, will not generate incorrect data and will not produce
incorrect results when processing, providing or receiving (a) date-related data
into and between the twentieth and twenty-first centuries and (b) date-related
data in connection with any valid date in the twentieth and twenty-first
centuries. The Borrower will promptly notify the Administrative Agent in the
event the Borrower discovers or determines that any computer application
(including those of its suppliers and vendors) that is material to its or any of
its Subsidiaries' business and operations will not be Year 2000 Compliant on a
timely basis.
Section 8.14 Trade Accounts Payable. The Borrower will, and will cause the
other Loan Parties to, pay all trade accounts payable before the same become
more than 90 days past due, except (a) trade accounts payable contested in good
faith or (b) trade accounts payable in an aggregate amount not to exceed
$100,000 at any time outstanding and with respect to which no proceeding to
enforce collection has been commenced or, to the knowledge of the Borrower,
threatened.
Section 8.15 Delivery of Certain Amendments. The Borrower will, and will
cause the other Loan Parties to, promptly deliver to the Administrative Agent
any amendment, modification or supplement to the articles of incorporation,
articles of organization, bylaws, regulations or other constitutional documents
of the Borrower or the Guarantor; provided, however, that any such amendment,
modification, or supplement to be subject to the provisions of Section 9.9
hereof.
Section 8.16 Board Observation. The Borrower will give the Administrative
Agent notice of each meeting of the Board of Directors and each committee of the
Board of Directors and a Person designated by the Administrative Agent to attend
such meetings as an observer. Such observer shall not be entitled to vote on any
matter submitted to, or to participate in the discussion of any matter
considered by, the Board of Directors (or any committee of the Board of
Directors) and shall have no rights, duties, liabilities or obligations of a
director. The observer may share any information gained from presence at such
meetings with the Administrative Agent and the Lenders, provided, that any
confidential or proprietary information shall be subject to the provisions of
Section 13.20 of this Agreement. The Borrower may request that the observer be
excused for such portions of a meeting that relate to a highly confidential or
internal matter that is not material to the Lenders. The observer may share any
information gained from presence at such meetings with the Administrative Agent
and the Lenders, provided, that any confidential or proprietary information
shall be subject to the provisions of Section 13.20 of this Agreement. Notice of
meetings of the Board of Directors and each committee of the Board of Directors
shall be given to the Administrative Agent not less than 10 Business Days prior
to each regularly scheduled meeting and not less than 2 Business Days prior to
any special meeting (unless members of the Board of Directors or such committee
are given less notice of any such meeting, in which case notice to the
Administrative Agent shall be given contemporaneous to the notice to such
members). Nothing in this Section 8.17 is intended to limit the ability of the
Board of Directors' to take action by written consent, which may be done without
prior notice to the Administrative Agent, provided, that the Borrower shall send
the Administrative Agent copies of any such written consents. The rights
afforded under this Section 8.16 shall terminate upon the repayment in full of
the Tranche B Loans.
CREDIT AGREEMENT - Page 54
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ARTICLE 9
Negative Covenants
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Lender has any Commitment hereunder, it will
perform and observe, or cause to be performed and observed, the following
covenants:
Section 9.1 Limitation on Liens. Neither the Borrower nor the Guarantor
will incur, create, assume or permit to exist any Lien upon any of the
Collateral except Permitted Liens.
Section 9.2 Mergers; Liquidation. Neither the Borrower nor the Guarantor
will (a) become a party to a merger or consolidation unless such Person is the
surviving entity or (b) wind-up, dissolve or liquidate itself; provided,
however, that the Guarantor may merge with and into the Borrower if the Borrower
is the surviving entity, provided that no consideration is given by the
surviving entity in such merger other than the issuance of any Capital Stock of
the surviving entity. The surviving entity in any such merger shall ratify the
Security Documents and other obligations of the non-surviving entity under the
Loan Documents.
Section 9.3 Restricted Payments. At any time prior to the termination of
the Tranche B Commitments and the repayment in full of the Tranche B Loans, none
of the Borrower or the Guarantor will make any Restricted Payments, except (a)
the Guarantor may repay the Inter-Company Note and may make Restricted Payments
to the Borrower and (b) the Borrower and its Subsidiaries may make temporary
loans or advances to employees, officers and directors of the Loan Parties in
the ordinary course of business that do not exceed $[1,000,000] in aggregate
amount at any time outstanding. At any time after the termination of the Tranche
B Commitments and the repayment in full of the Tranche B Loans, the Borrower and
the Guarantor may make Restricted Payments, unless a Default exists at the time
of such Restricted Payment or would result therefrom.
Section 9.4 Disposition of Collateral. Neither the Borrower nor the
Guarantor will sell, lease, assign, transfer or otherwise dispose of any of the
Collateral without the prior written consent of the Administrative Agent.
Section 9.5 Lines of Business. The Borrower will at all times operate the
Network and conduct of related telecommunications businesses substantially as
described in and contemplated by the Business Plan and may engage in such
additional businesses as the Borrower may determine.
Section 9.6 Environmental Protection. The Borrower will not, and will not
permit any Subsidiary of the Borrower to, (a) use (or permit any tenant to use)
any of its Properties for the handling, processing, storage, transportation or
disposal of any Hazardous Material except in compliance with applicable
Environmental Laws, (b) generate any Hazardous Material except in compliance
with applicable Environmental Laws, (c) conduct any activity that is likely to
cause a Release or threatened Release of any Hazardous Material in violation of
any Environmental Law, or (d) otherwise conduct any activity or use any of its
Properties in any manner, that violates or is likely to violate any
Environmental Law or create any Environmental Liabilities for which the Borrower
or any of its Subsidiaries would be responsible, except for circumstances or
events
CREDIT AGREEMENT - Page 55
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described in clauses (a) through (d) preceding that could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 9.7 Intercompany Transactions. Except as may be expressly
permitted or required by the Loan Documents, the Borrower will not, and will not
permit any Subsidiary of the Borrower to, create or otherwise cause or permit to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Subsidiary to (a) pay dividends or make any other
distribution to the Borrower or any Loan Party in respect of such Subsidiary's
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits or (b) pay any indebtedness owed to the Borrower or any
Loan Party, including, without limitation, any Inter-Company Note that may
hereafter exist.
Section 9.8 Supply Agreement. The Borrower will ensure that the Guarantor
does not terminate the Supply Agreement prior to the later to occur of the
Amortization Commencement Date or the satisfaction in full of the Guarantor's
purchase commitments under the Supply Agreement.
Section 9.9 Modification of Certain Agreements. Neither the Borrower nor
the Guarantor will consent to or implement any termination, amendment,
modification, supplement or waiver of (a) the articles of incorporation,
articles of organization, bylaws, regulations or other constitutional documents
of the Borrower or the Guarantor or (b) prior to the termination of the Tranche
B Commitments and the repayment in full of the Tranche B Loans, the terms of
payment under the Bell Canada Fiber Agreement; provided, however, that the Loan
Parties may amend or modify (i) the documents referred to in clause (a)
preceding if and to the extent that such amendment or modification could not
reasonably be expected to be materially adverse to the Loan Party or the
Administrative Agent or any of the Lenders.
Section 9.10 ERISA. The Borrower will not, and will not permit any
Subsidiary of the Borrower to:
(a) allow, or take (or permit any ERISA Affiliate to take) any action
which would cause, any unfunded or unreserved liability for benefits under any
Plan (exclusive of any Multiemployer Plan) to exist or to be created that
exceeds $100,000 with respect to any such Plan or $200,000 with respect to all
such Plans in the aggregate on either a going concern or a wind-up basis; or
(b) with respect to any Multiemployer Plan, allow, or take (or permit any
ERISA Affiliate to take) any action which would cause, any unfunded or
unreserved liability for benefits under any Multiemployer Plan to exist or to be
created, either individually as to any such Plan or in the aggregate as to all
such Plans, that could, upon any partial or complete withdrawal from or
termination of any such Multiemployer Plan or Plans, have a Material Adverse
Effect.
Section 9.10 No Prepayment of Debt, Etc. Neither the Borrower nor the
Guarantor will, directly or indirectly, make any optional prepayment or
distribution on account of, or voluntarily purchase, acquire, redeem or retire,
any Debt, prior to 30 days before its originally stated maturity (or its stated
maturity as of the Closing Date in the case of Debt outstanding on the Closing
Date), or in the case of interest, its stated due date, or directly or
indirectly become obligated to do any of the foregoing by amending the terms
thereof or otherwise, if a Default then exists or would result from such action.
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ARTICLE 10
Financial Covenants
Section 10.1 Credit Facility Debt to Contributed Capital. The Borrower
will not permit the ratio of (a) Total Debt outstanding under this Agreement at
the end of any of the calendar quarters set forth on Part 1 of Schedule 10 to
(b) Contributed Capital on such date, to exceed the ratio set forth opposite
such date on such Schedule.
Section 10.2 Quarterly Minimum EBITDA. The Borrower will not permit EBITDA
for any of the calendar quarter set forth on Part 2 of Schedule 10 to be less
than the amount set forth opposite such date on such Schedule.
ARTICLE 11
Default
Section 11.1 Events of Default. Each of the following shall be deemed an
"Event of Default":
(a) (i) The Borrower shall fail to pay, repay or prepay when due, any
amount of principal or interest owing to the Administrative Agent or any Lender
pursuant to this Agreement, (ii) the Borrower shall fail to pay, within two
Business Days after the due date thereof, any fee, expense or other amount or
other Obligation owing to the Administrative Agent or any Lender pursuant to
this Agreement, or (iii) any Loan Party shall fail to pay any amount owing to
the Administrative Agent or any Lender pursuant to other Loan Document within
five Business Days after the Borrower's receipt of written notice from the
Administrative Agent of such amount owing.
(b) Any representation or warranty made or deemed made by or on behalf of
either Loan Party in any Loan Document or in any certificate, report, notice or
financial statement furnished at any time in connection with this Agreement or
any other Loan Document shall be false, misleading or erroneous in any material
respect when made or deemed to have been made.
(c) Any Loan Party shall fail to perform, observe or comply with any
covenant, agreement or term contained in 8.1(f), Article 9 or Article 10; any
Loan Party shall fail to perform, observe or comply with any covenant, agreement
or term contained in Article 5, or Section 8.1, 8.2, 8.5, 8.8, 8.9, and 8.10,
and such failure is not remedied or waived within ten days after written notice
thereof from the Administrative Agent; or any Loan Party shall fail to perform,
observe or comply with any other covenant, agreement or term contained in this
Agreement or any other Loan Document (other than covenants to pay the
Obligations) and such failure is not remedied or waived within the earlier to
occur of 30 days after written notice thereof from the Administrative Agent or,
if a different grace period is expressly made applicable in such other Loan
Documents, such applicable grace period.
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(d) Any Loan Party ceases to be Solvent or shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts become due.
(e) Any Loan Party shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee, liquidator or
administrator of itself or of all or a substantial part of its Property, (ii)
admit in writing its inability to, or be generally unable to, pay its debts as
such debts become due, subject to any applicable grace periods, (iii) make a
general assignment for the benefit of its creditors, (iv) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in effect, the
"Bankruptcy Code"), (v) file a petition seeking to take advantage of any other
law providing for the relief of debtors or relating to bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement or winding up, or
composition or readjustment of debts, (vi) fail to controvert in a timely or
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the Bankruptcy Code or other applicable Governmental
Requirement, (vii) dissolve, or (viii) take any entity action for the purpose of
effecting any of the foregoing.
(f) A proceeding or case shall be commenced, without the application or
consent of either Loan Party in any court of competent jurisdiction, seeking (i)
the liquidation, reorganization, dissolution, arrangement, winding up, or
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, examiner, liquidator, administrator or the like of it or of
all or any substantial part of its Property, or (iii) similar relief in respect
of it, under any law providing for the relief of debtors or relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or
winding up, or composition or readjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of 60 or more days; or an order for relief shall be entered
in an involuntary case under the Bankruptcy Code against either Loan Party and
shall continue unstayed and in effect for any period of 60 consecutive days.
(g) Any Loan Party shall fail to discharge within a period of 30 days
after the commencement thereof any attachment, sequestration, forfeiture or
similar proceeding or proceedings involving an aggregate amount in excess of
$250,000 against any of its Properties.
(h) A final judgment or judgments for the payment of money in excess of
$250,000 in the aggregate shall be rendered by a court or courts against either
Loan Party on claims not covered by insurance and the same shall not be
discharged, bonded or a stay of execution thereof shall not be procured, within
30 days from the date of entry thereof and either Loan Party shall not, within
said period of 30 days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal.
(i) Any Loan Party shall fail to pay when due any principal of or interest
on any Debt of such Loan Party (other than the Obligations) having (either
individually or in the aggregate) a principal amount of at least $100,000 or the
maturity of any such Debt shall have been accelerated, or any such Debt shall
have been required to be prepaid prior to the stated maturity thereof, or any
event shall have occurred (and shall not have been waived or otherwise cured)
that permits (or, with the giving of notice or lapse of time or both, would
permit) any holder or holders of such Debt or
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any Person acting on behalf of such holder or holders to accelerate the maturity
thereof or require any such prepayment.
(j) This Agreement or any other Loan Document shall cease to be in full
force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by either Loan Party or
either Loan Party shall deny that it has further liability or obligation under
any of the Loan Documents; or any Lien created or purported to be created by the
Loan Documents shall for any reason cease to be or fail to be a valid, first
priority perfected Lien upon any of material item of the Collateral purported to
be covered thereby.
(k) Any of the following events shall occur or exist with respect to
either Loan Party or any ERISA Affiliate: (i) any Prohibited Transaction
involving any Plan; (ii) any Reportable Event with respect to any Pension Plan;
(iii) the filing under Section 4041 of ERISA of a notice of intent to terminate
any Pension Plan or the termination of any Pension Plan; (iv) any event or
circumstance that could reasonably be expected to constitute grounds entitling
the PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any Pension
Plan, or the institution by the PBGC of any such proceedings; (v) any
"accumulated funding deficiency" (as defined in Section 302 of ERISA or Section
412 of the Code), whether or not waived, shall exist with respect to any Pension
Plan; or (vi) complete or partial withdrawal under Section 4201 or 4204 of ERISA
from a Multiemployer Plan or the reorganization, insolvency or termination of
any Pension Plan; and in each case above, such event or condition, together with
all other events or conditions, if any, have subjected or could in the
reasonable opinion of Required Lenders subject either Loan Party or any ERISA
Affiliate to any tax, penalty or other liability to a Plan, a Multiemployer
Plan, the PBGC or otherwise (or any combination thereof) which in the aggregate
exceed or could reasonably be expected to exceed $100,000.
(l) The occurrence of any breach or default by the Guarantor under the
Supply Agreement (after giving effect to any grace or cure period specified
therein) which breach or default entitles Nortel Networks to exercise a right or
remedy under or in connection with the Supply Agreement.
(m) Any termination, revocation or non-renewal by the FCC or any federal
or state public utility commission or other Governmental Authority of any
material license or Permit of the Borrower or any of its Subsidiaries.
(n) The occurrence of any Material Adverse Effect.
(o) The occurrence of any Change in Control.
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Section 11.2 Remedies. If any Event of Default shall occur and be
continuing, the Administrative Agent may and, if directed by the Required
Lenders, the Administrative Agent shall do any one or more of the following:
(a) Acceleration. Declare all outstanding principal of and accrued and
unpaid interest on the Loans and all other amounts payable by the Borrower under
the Loan Documents immediately due and payable, and the same shall thereupon
become immediately due and payable, without notice, demand, presentment, notice
of dishonor, notice of acceleration, notice of intent to accelerate, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower;
(b) Termination of Commitments. Terminate each of the Commitments without
notice to the Borrower;
(c) Judgment. Reduce any claim to judgment;
(d) Foreclosure. Foreclose or otherwise enforce any Lien granted to the
Administrative Agent for the benefit of the Administrative Agent and the Lenders
to secure payment and performance of the Obligations in accordance with the
terms of the Loan Documents; or
(e) Rights. Exercise any and all rights and remedies afforded by the laws
of the State of New York or any other jurisdiction, by any of the Loan
Documents, by equity or otherwise;
provided, however, that upon the occurrence of an Event of Default under Section
11.1(e) or Section 11.1(f), the Commitments of all of the Lenders shall
immediately and automatically terminate, and the outstanding principal of and
accrued and unpaid interest on the Loans and all other amounts payable by the
Borrower under the Loan Documents shall thereupon become immediately and
automatically due and payable.
Section 11.3 Performance by the Administrative Agent, etc.. If the
Borrower shall fail to perform any covenant or agreement in accordance with the
terms of the Loan Documents, the Administrative Agent may perform or attempt to
perform, or may cause any Lender (with the consent of such Lender) to perform or
attempt to perform, such covenant or agreement on behalf of the Borrower. In
such event, the Borrower shall, at the request of the Administrative Agent,
promptly pay any amount expended by the Administrative Agent or the Lenders in
connection with such performance or attempted performance to the Administrative
Agent at its Principal Office, together with interest thereon at the applicable
Default Rate from and including the date of such expenditure to but excluding
the date such expenditure is paid in full. Notwithstanding the foregoing, it is
expressly agreed that neither the Administrative Agent nor any Lender shall have
any liability or responsibility for the performance of any obligation of the
Borrower or any other Person under this Agreement or any of the other Loan
Documents.
ARTICLE 12
The Administrative Agent
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Section 12.1 Appointment, Powers and Immunities. Each Lender hereby
irrevocably appoints and authorizes the Administrative Agent to act as its agent
hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Administrative Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Neither the Administrative Agent nor any of its
Affiliates, officers, directors, employees, attorneys or agents shall be liable
for any action taken or omitted to be taken by any of them hereunder or
otherwise in connection with this Agreement or any of the other Loan Documents
except for its or their own gross negligence or willful misconduct. Without
limiting the generality of the preceding sentence, the Administrative Agent (a)
may treat the payee of any Note as the holder thereof until the Administrative
Agent receives written notice of the assignment or transfer thereof signed by
such payee and in form satisfactory to the Administrative Agent, (b) shall have
no duties or responsibilities except those expressly set forth in this Agreement
and the other Loan Documents, and shall not by reason of this Agreement or any
other Loan Document be a trustee or fiduciary for any Lender, (c) shall not be
required to initiate any litigation or collection proceedings hereunder or under
any other Loan Document except to the extent requested by the Required Lenders,
(d) shall not be responsible to the Lenders for any recitals, statements,
representations or warranties contained in this Agreement or any other Loan
Document, or any certificate or other document referred to or provided for in,
or received by any of them under, this Agreement or any other Loan Document, or
for the value, validity, effectiveness, enforceability or sufficiency of this
Agreement or any other Loan Document or any other document referred to or
provided for herein or therein or for any failure by any Person to perform any
of its obligations hereunder or thereunder, (e) may consult with legal counsel
(including counsel for the Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts, and (f) shall incur no liability under or in respect of
any Loan Document by acting upon any notice, consent, certificate or other
instrument or writing reasonably believed by it to be genuine and signed or sent
by the proper party or parties. As to any matters not expressly provided for by
this Agreement, the Administrative Agent shall in all cases be fully protected
in acting, or in refraining from acting, hereunder in accordance with
instructions signed by the Required Lenders, and such instructions of the
Required Lenders and any action taken or failure to act pursuant thereto shall
be binding on all of the Lenders; provided, however, that the Administrative
Agent shall not be required to take any action which exposes the Administrative
Agent to liability or which is contrary to this Agreement or any other Loan
Document or applicable law. The Administrative Agent shall not be deemed to have
any fiduciary relationship with any Lender or either Loan Party, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Administrative Agent.
Without limiting the generality of the foregoing, the use of the term "agent" in
this Agreement with respect to the Administrative Agent is not intended to
connote any fiduciary or other express or implied obligation arising under
agency doctrine of any applicable law; instead, such term is used merely as a
matter of market custom and is intended to create or reflect only an
administrative relationship among independent contracting parties.
Section 12.2 Rights of Administrative Agent as a Lender. With respect to
its Commitments, the Loans made by it and the Note(s) issued to it, Nortel
Networks (and any successor acting as Administrative Agent) in its capacity as a
Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not
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acting as the Administrative Agent, and the term "Lender" or "Lenders" shall,
unless the context otherwise indicates, include the Administrative Agent in its
individual capacity. The Administrative Agent and its Affiliates may (without
having to account therefor to any Lender) accept deposits from, lend money to,
act as trustee under indentures of, provide merchant banking services to, own
securities of, and generally engage in any kind of banking, trust or other
business with, the Borrower or any of its Affiliates and any other Person who
may do business with or own securities of the Borrower or any of its Affiliates,
all as if it were not acting as the Administrative Agent and without any duty to
account therefor to the Lenders.
Section 12.3 Defaults. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of a Default (other than the
non-payment of principal of or interest on the Loans or of commitment fees)
unless the Administrative Agent has received notice from a Lender or the
Borrower specifying such Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives such a notice of
the occurrence of a Default, the Administrative Agent shall give prompt notice
thereof to the Lenders (and shall give each Lender prompt notice of each such
non-payment). The Administrative Agent shall (subject to Section 12.1) take such
action with respect to such Default as shall be directed by the Required
Lenders, provided that unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall seem advisable and in the best interest of the
Lenders.
Section 12.4 INDEMNIFICATION. EACH LENDER HEREBY AGREES TO INDEMNIFY THE
ADMINISTRATIVE AGENT FROM AND HOLD THE ADMINISTRATIVE AGENT HARMLESS AGAINST (TO
THE EXTENT NOT REIMBURSED UNDER SECTIONS 13.1 AND 13.2, BUT WITHOUT LIMITING THE
OBLIGATIONS OF THE BORROWER UNDER SECTIONS 13.1 AND 13.2), RATABLY IN ACCORDANCE
WITH ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF ITS COMMITMENT PERCENTAGE OF
THE COMMITMENTS), ANY AND ALL LIABILITIES (INCLUDING, WITHOUT LIMITATION,
ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES) AND
DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED
BY OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT IN ANY WAY RELATING TO OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO BE
TAKEN BY THE ADMINISTRATIVE AGENT UNDER OR IN RESPECT OF ANY OF THE LOAN
DOCUMENTS; PROVIDED, FURTHER, THAT NO LENDER SHALL BE LIABLE FOR ANY PORTION OF
THE FOREGOING TO THE EXTENT CAUSED BY THE ADMINISTRATIVE AGENT'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, IT IS THE
EXPRESS INTENTION OF THE LENDERS THAT THE ADMINISTRATIVE AGENT SHALL BE
INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES
(INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES
(INCLUDING ATTORNEYS' FEES) AND
CREDIT AGREEMENT - Page 62
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DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE ADMINISTRATIVE AGENT
(EXCEPT TO THE EXTENT THE SAME ARE CAUSED BY THE ADMINISTRATIVE AGENT'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT). WITHOUT LIMITING ANY OTHER PROVISION OF THIS
SECTION 12.4, EACH LENDER AGREES TO REIMBURSE THE ADMINISTRATIVE AGENT PROMPTLY
UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF ITS COMMITMENT
PERCENTAGE OF THE COMMITMENTS) OF ANY AND ALL OUT-OF-POCKET EXPENSES (INCLUDING
ATTORNEYS' FEES) INCURRED BY THE ADMINISTRATIVE AGENT IN CONNECTION WITH THE
PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT OR
ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS OR OTHERWISE) OF,
OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN
DOCUMENTS, TO THE EXTENT THAT THE ADMINISTRATIVE AGENT IS NOT PROMPTLY
REIMBURSED FOR SUCH EXPENSES BY THE BORROWER.
Section 12.5 Independent Credit Decisions. Each Lender agrees that it has
independently and without reliance on the Administrative Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Borrower and the Loan Parties
and its own decision to enter into this Agreement and that it will,
independently and without reliance upon the Administrative Agent or any other
Lender, and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Loan
Documents. The Administrative Agent shall not be required to keep itself
informed as to the performance or observance by the Borrower (or any other
Person) of this Agreement or any other Loan Document or to inspect the
Properties or books of the Borrower (or any other Person). Except for notices,
reports and other documents and information expressly required to be furnished
to the Lenders by the Administrative Agent hereunder or under the other Loan
Documents, the Administrative Agent shall not have any duty or responsibility to
provide any Lender with any credit or other financial information concerning the
affairs, financial condition or business of the Borrower (or any of its
Affiliates) which may come into the possession of the Administrative Agent or
any of its Affiliates.
Section 12.6 Several Commitments. The Commitments and other obligations of
the Lenders under this Agreement are several. The default by any Lender in
making a Loan in accordance with any of its Commitments shall not relieve the
other Lenders of their obligations under this Agreement. In the event of any
default by any Lender in making any Loan, each nondefaulting Lender shall be
obligated to make its Loan but shall not be obligated to advance the amount
which the defaulting Lender was required to advance hereunder. In no event shall
any Lender be required to advance an amount or amounts with respect to any of
the Loans which would in the aggregate exceed such Lender's Commitment with
respect to such Loans. No Lender shall be responsible for any act or omission of
any other Lender.
Section 12.7 Successor Administrative Agent. Subject to the appointment
and acceptance of a successor Administrative Agent as provided below, the
Administrative Agent may resign at any
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time by giving notice thereof to the Lenders and the Borrower. Upon any such
resignation, the Required Lenders will have the right to appoint another Lender
as a successor Administrative Agent. If no successor Administrative Agent shall
have been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Administrative Agent's giving of
notice of resignation, then the retiring Administrative Agent may, on behalf of
the Lenders, appoint a successor Administrative Agent, which shall be a
commercial bank organized under the laws of the U.S. or any state thereof or of
a foreign country if acting through its U.S. branch and having combined capital
and surplus of at least $100,000,000. Upon the acceptance of its appointment as
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all rights, powers, privileges,
immunities and duties of the resigning Administrative Agent, and the resigning
Administrative Agent shall be discharged from its duties and obligations under
this Agreement and the other Loan Documents. After any Administrative Agent's
resignation as Administrative Agent, the provisions of this Article 12 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was the Administrative Agent. Each Administrative Agent
(including each successor Administrative Agent) agrees that, so long as it is
acting as Administrative Agent under this Agreement, it shall be a Lender under
this Agreement. Nortel Networks shall not resign as the Administrative Agent
during such time as the Tranche B Loan is outstanding without the prior written
consent of the Borrower which shall not be unreasonably withheld; provided, that
upon the occurrence of an Event of Default, Nortel Networks may resign without
the consent of the Borrower.
ARTICLE 13
Miscellaneous
Section 13.1 Expenses. Each of the Borrower and the Administrative Agent
shall pay its own costs and expenses (including attorneys' fees and expenses)
associated with the preparation, negotiation, execution and delivery of this
Agreement. The Borrower hereby agrees, on demand, to pay or reimburse the
Administrative Agent and each of the Lenders for paying: (a) all reasonable
out-of-pocket costs and expenses of the Administrative Agent accrued in
connection with any and all waivers, amendments, modifications, renewals,
extensions and supplements of or to the Loan Documents, and the syndication of
the Commitments and the Loans, including, without limitation, the reasonable
fees and expenses of legal counsel (including all local counsel) for the
Administrative Agent, (b) all out-of-pocket costs and expenses of the
Administrative Agent and the Lenders in connection with any Default, the
exercise of any right or remedy and the enforcement of this Agreement or any
other Loan Document or any term or provision hereof or thereof, including,
without limitation, the fees and expenses of all legal counsel for the
Administrative Agent and/or any Lender, (c) all transfer, stamp, documentary or
other similar taxes, assessments or charges levied by any Governmental Authority
in respect of this Agreement or any of the other Loan Documents, (d) all costs,
expenses, assessments and other charges incurred in connection with any filing,
registration, recording or perfection of any Lien contemplated by this Agreement
or any other Loan Document, and (e) all reasonable out-of-pocket costs and
expenses incurred by the Administrative Agent in connection with due diligence,
computer services, copying, appraisals, environmental audits, collateral audits,
field exams, insurance, consultants and search reports.
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Section 13.2 INDEMNIFICATION. THE BORROWER HEREBY AGREES TO INDEMNIFY THE
ADMINISTRATIVE AGENT AND EACH LENDER AND EACH AFFILIATE THEREOF AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS FROM, AND HOLD
EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES (INCLUDING,
WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS'
AND CONSULTANTS' FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR
INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY,
PERFORMANCE, ADMINISTRATION OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS,
INCLUDING, WITHOUT LIMITATION, THE EXERCISE OF ANY FORECLOSURE RIGHT OR OTHER
RIGHT OR REMEDY WHETHER OR NOT SUCH EXERCISE IS IN COMPLIANCE WITH LAWS
AFFECTING OTHER PERSONS OR RESULTS IN DAMAGES PAYABLE TO OTHER PERSONS, (B) ANY
OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY THE
BORROWER OF ANY MATERIAL REPRESENTATION, WARRANTY, COVENANT OR OTHER AGREEMENT
CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE USE OR PROPOSED USE OF ANY LOAN,
(E) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL OR CLEANUP OF
ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN OR AFFECTING ANY OF THE
PROPERTIES OF EITHER LOAN PARTY, EXCEPT TO THE EXTENT THAT THE LOSSES,
LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS OR
EXPENSES ARE THE DIRECT RESULT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
PERSON TO BE INDEMNIFIED, OR (F) ANY INVESTIGATION, LITIGATION OR OTHER
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION,
LITIGATION OR OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING; BUT EXCLUDING
ANY OF THE FOREGOING TO THE EXTENT CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. WITHOUT LIMITING ANY PROVISION OF
THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE
PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION 13.2 SHALL
BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES
(INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE
ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY
NEGLIGENCE OF SUCH PERSON. WITHOUT PREJUDICE TO THE SURVIVAL OF ANY OTHER TERM
OR PROVISION OF THIS AGREEMENT, THE OBLIGATIONS OF THE BORROWER UNDER THIS
SECTION 13.2 SHALL SURVIVE THE REPAYMENT OF THE LOANS AND OTHER OBLIGATIONS AND
TERMINATION OF THE COMMITMENTS.
Section 13.3 Limitation of Liability. None of the Administrative Agent,
any Lender or any Affiliate, officer, director, employee, attorney or agent
thereof shall be liable for any error of judgment or act done in good faith, or
be otherwise liable or responsible under any circumstances
CREDIT AGREEMENT - Page 65
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whatsoever (including such Person's negligence), except for such Person's gross
negligence or willful misconduct. None of the Administrative Agent, any Lender
or any Affiliate, officer, director, employee, attorney or agent thereof shall
have any liability with respect to, and the Borrower hereby waives, releases and
agrees not to sue any of them upon, any claim for any special, indirect,
incidental or consequential damages suffered or incurred by the Borrower or any
Affiliate of the Borrower in connection with, arising out of or in any way
related to this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the other Loan Documents.
The Borrower hereby waives, releases and agrees not to sue the Administrative
Agent or any Lender or any of their respective Affiliates, officers, directors,
employees, attorneys or agents for exemplary or punitive damages in respect of
any claim in connection with, arising out of or in any way related to this
Agreement or any of the other Loan Documents, or any of the transactions
contemplated by this Agreement or any of the other Loan Documents.
Section 13.4 No Duty. All attorneys, accountants, appraisers and other
professional Persons and consultants retained by the Administrative Agent and
the Lenders shall have the right to act exclusively in the interest of the
Administrative Agent and the Lenders and shall have no duty of disclosure, duty
of loyalty, duty of care or other duty or obligation of any type or nature
whatsoever to the Borrower or any of its Affiliates or any other Person.
Section 13.5 No Fiduciary Relationship. The relationship between the
Borrower and each Lender is solely that of debtor and creditor, and neither the
Administrative Agent nor any Lender has any fiduciary or other special
relationship with the Borrower or any of its Affiliates, and no term or
condition of any of the Loan Documents shall be construed so as to deem the
relationship between the Borrower and any Lender, or such Affiliate and any
Lender, to be other than that of debtor and creditor. No joint venture or
partnership is created by this Agreement among the Lenders or among the Borrower
or any of its Affiliates and the Lenders.
Section 13.6 Equitable Relief. The Borrower recognizes that, in the event
it fails to pay, perform, observe or discharge any or all of the Obligations,
any remedy at law may prove to be inadequate relief to the Administrative Agent
and the Lenders. The Borrower therefore agrees that the Administrative Agent and
the Lenders, if the Administrative Agent or the Lenders so request, shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
Section 13.7 No Waiver; Cumulative Remedies. No failure on the part of the
Administrative Agent or any Lender to exercise and no delay in exercising, and
no course of dealing with respect to, any right, power or privilege under this
Agreement or any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege under this
Agreement or any other Loan Document preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies provided for in this Agreement and the other Loan Documents are
cumulative and not exclusive of any rights and remedies provided by law.
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Section 13.8 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. The Borrower may not
assign or transfer any of its rights or obligations under this Agreement or any
other Loan Document without the prior written consent of the Administrative
Agent and the Lenders. Any Lender may sell participations in all or a portion of
its rights and obligations under this Agreement and the other Loan Documents
(including, without limitation, all or a portion of its Commitments and the
Loans owing to it); provided, however, that (i) such Lender's obligations under
this Agreement and the other Loan Documents (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the Borrower for the performance of such obligations, (iii) such
Lender shall remain the holder of its Notes for all purposes of this Agreement,
(iv) the Borrower shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
the other Loan Documents, and (v) the Lenders shall not grant any participation
under which the participant shall have the right to approve (or under which the
consent of the participant must be obtained prior to the Lenders' being able to
approve) any amendment or waiver of this Agreement or the other Loan Documents,
except to the extent that such amendment or waiver (A) increases any Commitment,
(B) reduces the interest rate or the amount of principal or fees applicable to
the Loans or Commitments in which such participant is participating, (C) extends
any Maturity Date, (D) releases any of the Collateral (except as provided for
herein or in any other Loan Document) or any guaranty of the Obligations, or (E)
releases either Loan Party from its monetary Obligations under any of the Loan
Documents.
(b) The Borrower and each of the Lenders agree that any Lender (the
"Assigning Lender") may at any time assign to one or more Eligible Assignees all
or any part of its rights and/or obligations under this Agreement and the other
Loan Documents (including, without limitation, its Commitments and/or Loans)
(each an "Assignee"); provided, however, that (i) each such assignment may be of
a varying percentage of the Assigning Lender's rights and/or obligations under
this Agreement and the other Loan Documents and may relate to some but not all
of such rights and/or obligations, (ii) except in the case of an assignment of
all of a Lender's rights and obligations under this Agreement and the other Loan
Documents, the amount of the Commitment(s) and/or Loans of the Assigning Lender
being assigned pursuant to each assignment (determined as of the date of the
Assignment and Acceptance with respect to such assignment) shall in no event be
less than $5,000,000 calculated based upon the aggregate amount of the
Commitment(s) and/or Loans assigned and (iii) the parties to each such
assignment shall execute and deliver to the Administrative Agent for its
acceptance and recording in the Register (as defined below), an Assignment and
Acceptance, together with the Note subject to such assignment, and a processing
and recordation fee of $3,500. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five Business Days after the
execution thereof or such other date as may be approved by the Administrative
Agent, (1) the Assignee thereunder shall be a party hereto as a "Lender" and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, have the rights and obligations of a
Lender hereunder and under the Loan Documents, and (2) the Assigning Lender
thereunder shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under this Agreement and the other Loan
Documents (and,
CREDIT AGREEMENT - Page 67
<PAGE> 74
in the case of an Assignment and Acceptance covering all or the remaining
portion of a Lender's rights and obligations under the Loan Documents, such
Lender shall cease to be a party thereto, provided that such Lender's rights
under Article 4, Section 13.1 and Section 13.2 accrued through the date of
assignment shall continue). The Borrower will provide full and prompt assistance
to each Lender as it may reasonably request from time to time in connection with
such Lender's efforts to assign its Commitments and/or Loans or sell any
participation interest therein. Such assistance shall include, without
limitation, making senior officers of the Borrower available for meetings with
prospective Lenders and participants and providing (in a timely manner) such
assistance as may be reasonably requested by such Lender and/or its advisors,
including, without limitation, providing information to and responding to
inquiries from such prospective Lenders and participants with respect to the
businesses, operations, business plan, financial condition and results of
operations of the Borrower and its Subsidiaries.
(c) By executing and delivering an Assignment and Acceptance, the
Assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such Assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the Loan
Documents or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Documents or any other instrument or document
furnished pursuant thereto; (ii) such Assigning Lender makes no representation
or warranty and assumes no responsibility with respect to the financial
condition or results of operations of the Borrower or any of its Affiliates or
the performance or observance by the Borrower or any of its Affiliates of its
obligations under the Loan Documents; (iii) such Assignee confirms that it has
received a copy of the Loan Documents, together with copies of the financial
statements referred to in Section 7.2 and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Acceptance; (iv) such Assignee will,
independently and without reliance upon the Administrative Agent or such
Assigning Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Documents; (v) such
Assignee confirms that it is an Eligible Assignee; (vi) such Assignee appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and exercise such powers under the Loan Documents as are delegated to the
Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (vii) such Assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of the Loan Documents are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at its Principal Office a copy
of each Assignment and Acceptance delivered to and accepted by it and a register
for the recordation of the names and addresses of the Lenders and the
Commitments of, and principal amount of the Loans owing to, each Lender from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Borrower, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes under the Loan
Documents. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
CREDIT AGREEMENT - Page 68
<PAGE> 75
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assigning Lender and Assignee representing that it is an Eligible Assignee,
together with the Note(s) subject to such assignment, the Administrative Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit A hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register, and
(iii) give prompt written notice thereof to the Borrower. Within five Business
Days after its receipt of such notice, the Borrower, at its expense, shall
execute and deliver to the Administrative Agent in exchange for each surrendered
Note evidencing the Loans assigned, a new Note evidencing such Loans payable to
the order of such Eligible Assignee in an amount equal to such Loans assigned to
it and, if the Assigning Lender has retained any Loans, a new Note evidencing
each such Loans payable to the order of the Assigning Lender in the amount of
such Loans retained by it (each such promissory note shall constitute a "Note"
for purposes of the Loan Documents). Such new Notes shall be dated the effective
date of such Assignment and Acceptance and shall otherwise be in substantially
the form of Exhibit B hereto.
(f) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 13.8, disclose to
the Assignee or participant or proposed Assignee or participant any information
relating to the Borrower or any of its Affiliates furnished to such Lender by or
on behalf of the Borrower or any of its Affiliates; provided that each such
actual or proposed Assignee or participant shall agree to be bound by the
provisions of Section 13.20.
(g) Any Lender may assign and pledge any Note held by it to any Federal
Reserve Bank or the U.S. Treasury as collateral security pursuant to Regulation
A of the Board of Governors of the Federal Reserve System and any operating
circular issued by such Federal Reserve System and/or Federal Reserve Bank;
provided, however, that any payment made by the Borrower for the benefit of such
assigning and/or pledging Lender in accordance with the terms of the Loan
Documents shall satisfy the Borrower's obligations under the Loan Documents in
respect thereof to the extent of such payment. No such assignment and/or pledge
shall release the assigning and/or pledging Lender from its obligations
hereunder.
(h) The Borrower shall maintain, or cause to be maintained, a register
(the "Registered Note Register") (which, at the request of the Borrower (which
request the Borrower makes by the execution of this Agreement) shall be kept by
the Administrative Agent on behalf of the Borrower at no extra charge to the
Borrower at the address to which notices to the Administrative Agent are to be
sent hereunder) on which it shall enter the name of the registered owner of each
of the Loans which is evidenced by a Registered Note. Notwithstanding anything
to the contrary contained in this Section 13.8, a Registered Note and the Loans
evidenced thereby may be assigned or otherwise transferred in whole or in part
only by registration of such assignment or transfer of such Registered Note and
the Loans evidenced thereby on the Registered Note Register (and each Registered
Note shall expressly so provide). Any assignment or transfer of all or part of
such Loans and the Registered Note evidencing the same shall be registered on
the Registered Note Register only upon surrender for registration of assignment
or transfer of the Registered Note evidencing such Loans, duly endorsed by (or
accompanied by a written instrument of assignment or transfer duly executed by)
the registered noteholder thereof, and thereupon one or more new Registered
Notes in the same
CREDIT AGREEMENT - Page 69
<PAGE> 76
aggregate principal amount shall be issued to the designated assignee(s) or
transferee(s). Prior to the due presentment for registration of transfer of any
Registered Note, the Borrower and the Administrative Agent shall treat the
Person in whose name such Loans and the Registered Note(s) evidencing the same
are registered as the owner thereof for the purpose of receiving all payments
thereon and for all other purposes, notwithstanding any notice to the contrary.
The Registered Note Register shall be available for inspection by the Borrower
and any Lender at any reasonable time upon reasonable prior notice.
(i) The Borrower will not become a party to any loan agreement, credit
agreement or similar agreement which restricts or prohibits the right or ability
of any lender which is a party thereto to become a Lender under this Agreement.
(j) The Borrower shall provide prompt assistance to the Administrative
Agent and the Lenders in connection with their efforts in syndicating the Loans
and Commitments. Such assistance shall include making senior officers and other
representatives of the Borrower and its Affiliates available for meetings with
prospective Lenders and providing, in a timely manner, such assistance as may be
reasonably requested by the Administrative Agent or its advisors, including,
without limitation, providing information to and responding to inquiries from
prospective Lenders with respect to the business, operations, Business Plan,
results and other matters relating to the business of the Borrower and the other
Loan Parties.
Section 13.9 Survival. All representations and warranties made or deemed
made in this Agreement or any other Loan Document or in any document, statement
or certificate furnished in connection with this Agreement shall survive the
execution and delivery of this Agreement and the other Loan Documents and the
making of the Loans, and no investigation by the Administrative Agent or any
Lender or any closing shall affect the representations and warranties or the
right of the Administrative Agent or any Lender to rely upon them. Without
prejudice to the survival of any other obligation of the Borrower hereunder, the
obligations of the Borrower under Article 4 and Sections 13.1 and 13.2 shall
survive repayment of the Loans and the Reimbursement Obligations and the other
Obligations.
Section 13.10 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES AND THE OTHER
LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE
PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, TERM SHEETS,
AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS
OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES
HERETO.
Section 13.11 Amendments. No amendment or waiver of any provision of this
Agreement, the Notes or any other Loan Document to which the Borrower is a
party, nor any consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be agreed or consented to by the
Required Lenders and the Borrower in writing, and each such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given;
CREDIT AGREEMENT - Page 70
<PAGE> 77
provided, however, that no amendment, waiver or consent shall, unless in writing
and signed by all of the Lenders and the Borrower, do any of the following: (a)
increase the Commitments of the Lenders (or any Lender) or subject the Lenders
to any additional obligations; (b) reduce the principal of, or interest on, the
Loans or any fees or other amounts payable hereunder; (c) postpone any date
fixed for any payment (including, without limitation, any mandatory prepayment)
of principal of, or interest on, the Loans or any fees or other amounts payable
hereunder; (d) change the Commitment Percentages or the aggregate unpaid
principal amount of the Loans or the number or interests of the Lenders which
shall be required for the Lenders or any of them to take any action under this
Agreement; (e) change any provision contained in Section 3.2, 3.3 or 5.1 or this
Section 13.11 or modify the definition of "Required Lenders" contained in
Section 1.1; or (f) except as expressly authorized by this Agreement, release
any material item of the Collateral from any of the Liens created by the
Security Documents; and provided further, however, that no amendment, waiver or
consent relating to Sections 12.1, 12.2, 12.3, 12.4 or 12.5 shall require the
agreement of the Borrower. Notwithstanding anything to the contrary contained in
this Section 13.11, no amendment, waiver or consent shall be made with respect
to (i) Article 12 hereof without the prior written consent of the Administrative
Agent, (ii) the definition of "Nortel Networks Goods and Services" or "Supply
Agreement" or Section 2.5, 2.9 or 2.10 hereof without the prior written consent
of Nortel Networks (whether or not Nortel Networks is then a Lender hereunder),
or (iii) any condition precedent set forth in Article 6 with respect to the
making of any Tranche A Loans or the Tranche B Loans without the prior written
consent of the Lenders that hold, at the time of such amendment, waiver or
consent, at least a majority (in Dollar amount) of the Tranche A Commitments or
the Tranche B Commitments, respectively.
Section 13.12 Maximum Interest Rate.
(a) No interest rate specified in this Agreement or any other Loan
Document shall at any time exceed the Maximum Rate. If at any time the interest
rate (the "Contract Rate") for any Obligation shall exceed the Maximum Rate,
thereby causing the interest accruing on such Obligation to be limited to the
Maximum Rate, then any subsequent reduction in the Contract Rate for such
Obligation shall not reduce the rate of interest on such Obligation below the
Maximum Rate until the aggregate amount of interest accrued on such Obligation
equals the aggregate amount of interest which would have accrued on such
Obligation if the Contract Rate for such Obligation had at all times been in
effect.
(b) Notwithstanding anything to the contrary contained in this Agreement
or the other Loan Documents, none of the terms and provisions of this Agreement
or the other Loan Documents shall ever be construed to create a contract or
obligation to pay interest at a rate in excess of the Maximum Rate; and neither
the Administrative Agent nor any Lender shall ever charge, receive, take,
collect, reserve or apply, as interest on the Obligations, any amount in excess
of the Maximum Rate. The parties hereto agree that any interest, charge, fee,
expense or other obligation provided for in this Agreement or in the other Loan
Documents which constitutes interest under applicable law shall be, ipso facto
and under any and all circumstances, limited or reduced to an amount equal to
the lesser of (i) the amount of such interest, charge, fee, expense or other
obligation that would be payable in the absence of this Section 13.12(b) or (ii)
an amount, which when added to all other interest payable under this Agreement
and the other Loan Documents, equals the Maximum Rate. If, notwithstanding the
foregoing, the Administrative Agent or any Lender ever contracts for,
CREDIT AGREEMENT - Page 71
<PAGE> 78
charges, receives, takes, collects, reserves or applies as interest any amount
in excess of the Maximum Rate, such amount which would be deemed excessive
interest shall be deemed a partial payment or prepayment of principal of the
Obligations and treated hereunder as such; and if the Obligations, or applicable
portions thereof, are paid in full, any remaining excess shall promptly be paid
to the Borrower. In determining whether the interest paid or payable, under any
specific contingency, exceeds the Maximum Rate, the Borrower, the Administrative
Agent and the Lenders shall, to the maximum extent permitted by applicable law,
(i) characterize any nonprincipal payment as an expense, fee or premium rather
than as interest, (ii) exclude voluntary prepayments and the effects thereof,
and (iii) amortize, prorate, allocate and spread in equal or unequal parts the
total amount of interest throughout the entire contemplated term of the
Obligations, or applicable portions thereof, so that the interest rate does not
exceed the Maximum Rate at any time during the term of the Obligations; provided
that, if the unpaid principal balance is paid and performed in full prior to the
end of the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the Maximum Rate, the Administrative
Agent and/or the Lenders, as appropriate, shall refund to the Borrower the
amount of such excess and, in such event, the Administrative Agent and the
Lenders shall not be subject to any penalties provided by any laws for
contracting for, charging, receiving, taking, collecting, reserving or applying
interest in excess of the Maximum Rate.
Section 13.13 Notices. All notices and other communications provided for
in this Agreement and the other Loan Documents to which either Loan Party is a
party shall be given or made by telecopy or in writing and telecopied, mailed by
certified mail return receipt requested or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof (or, with respect to a Lender that becomes a party to this Agreement
pursuant to an assignment made in accordance with Section 13.8, in the
Assignment and Acceptance executed by it); or, as to any party, at such other
address as shall be designated by such party in a notice to each other party
given in accordance with this Section 13.13. Except as otherwise provided in
this Agreement, all such communications shall be deemed to have been duly given
when transmitted by telecopy or personally delivered or, in the case of a mailed
notice, upon receipt, in each case given or addressed as aforesaid; provided,
however, that notices to the Administrative Agent shall be deemed given when
received by the Administrative Agent.
Section 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF
PROCESS. EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN CERTAIN LOAN
DOCUMENTS, THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND EACH OF THE PARTIES HERETO
CHOOSE THE LAWS OF THE STATE OF NEW YORK TO GOVERN THIS AGREEMENT PURSUANT TO
N.Y. GEN. OBLIG. LAW SECTION 5-1401 (CONSOL. 1995) AND APPLICABLE LAWS OF THE
U.S. THE BORROWER HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF EACH OF
(1) THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, (2) ANY NEW
YORK STATE COURT SITTING IN NEW YORK, NEW YORK, (3) THE U.S. DISTRICT COURT FOR
THE NORTHERN DISTRICT OF TEXAS, AND (4) ANY TEXAS STATE COURT SITTING IN DALLAS
COUNTY, TEXAS, FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS
CREDIT AGREEMENT - Page 72
<PAGE> 79
ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE BORROWER HEREBY IRREVOCABLY
CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES OF SUCH PROCESS TO SUCH PERSON AT ITS ADDRESS SET FORTH
UNDERNEATH ITS SIGNATURE HERETO. THE BORROWER HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORM.
Section 13.15 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13.16 Severability. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
Section 13.17 Headings. The headings, captions and arrangements used in
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
Section 13.18 Construction. The Borrower, the Administrative Agent and
each Lender acknowledges that it has had the benefit of legal counsel of its own
choice and has been afforded an opportunity to review this Agreement and the
other Loan Documents with its legal counsel and that this Agreement and the
other Loan Documents shall be construed as if jointly drafted by the parties
hereto.
Section 13.19 Independence of Covenants. All covenants hereunder shall be
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or such condition
exists.
Section 13.20 Confidentiality. Each Lender agrees to keep any confidential
or proprietary information, including, without limitation, financial
information, delivered or made available by the Borrower to it which is clearly
indicated to be confidential information, confidential from anyone other than
Persons employed or retained by such Lender who are or are expected to become
engaged in evaluating, approving, structuring or administering the Loans;
provided that nothing herein shall prevent any Lender from disclosing such
information (a) to any other Lender, (b) to any Person if reasonably necessary
to the administration of the Loans, (c) upon the order of any court or
administrative agency, (d) upon the request or demand of any regulatory agency
or authority having jurisdiction over such Lender, (e) which has been publicly
disclosed, (f) in connection with any litigation to which the Administrative
Agent, any Lender or their respective Affiliates may be a party, (g) to the
extent reasonably required in connection with the exercise of any right or
remedy under the Loan Documents, (h) to such Lender's legal counsel, independent
auditors and affiliates,
CREDIT AGREEMENT - Page 73
<PAGE> 80
and (i) to any actual or proposed participant or Assignee of all or part of its
rights hereunder, so long as such actual or proposed participant or Assignee
agrees to be bound by the provisions of this Section 13.20; provided, that in
the event of the occurrence of an event set forth in clauses (c), (d) or (f)
above, such Lender shall give the Borrower written notice of such order, request
or demand for such disclosure or such litigation and, to the extent not adverse
to the interests of such Lender, shall not oppose any lawful effort by the
Borrower, made at the expense of the Borrower, to limit or prevent such
disclosure in such court, agency or other forum.
Section 13.21 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF THE BORROWER, THE ADMINISTRATIVE AGENT OR ANY LENDER IN THE
NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.
Section 13.22 Approvals and Consent. Except as may be expressly provided
to the contrary in this Agreement or in the other Loan Documents (as
applicable), in any instance under this Agreement of the other Loan Documents
where the approval, consent or exercise of judgment of the Administrative Agent
or any Lender is requested or required, (a) the granting or denial of such
approval or consent and the exercise of such judgment shall be within the sole
discretion of the Administrative Agent or such Lender, respectively, and the
Administrative Agent and such Lender shall not, for any reason or to any extent,
be required to grant such approval or consent or to exercise such judgment in
any particular manner, regardless of the reasonableness of the request or the
action or judgment of the Administrative Agent or such Lender, and (b) no
approval or consent of the Administrative Agent or any Lender shall in any event
be effective unless the same shall be in writing and the same shall be effective
only in the specific instance and for the specific purpose for which given.
Section 13.23 Service of Process. The Borrower irrevocably consents to the
service of process by the mailing thereof by the Administrative Agent or the
Required Lenders by registered or certified mail, postage prepaid, to the
Borrower at its address listed on the signature pages hereof. Nothing in this
Section 13.23 shall affect the right of the Administrative Agent or the Lenders
to serve legal process in any other manner permitted by law or affect the right
of the Administrative Agent or any Lender to bring any action or proceeding
against the Borrower or its Property in the court of any jurisdiction.
CREDIT AGREEMENT - Page 74
<PAGE> 81
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
TELERGY, INC.
By: /s/ Kevin J. Kelly
______________________________________
Name: Kevin J. Kelly
Title: Executive Vice President
Address for Notices:
One Telergy Parkway
East Syracuse, New York 13057
Attention: Executive Vice President
Telecopy No.: (315) 433-5358
Telephone No.: (315) 433-5330
and
Telergy, Inc.
20 Corporate Woods
Albany, New York 12201
Attention: General Counsel
Telecopy No.: (518) 463-9937
Telephone No.: (518) 463-9937
CREDIT AGREEMENT - Page 75
<PAGE> 82
ADMINISTRATIVE AGENT:
NORTHERN TELECOM INC.,
as Administrative Agent
/s/ Michael W. McCorkle
By: _______________________________________
Michael W. McCorkle
Name: _____________________________________
Director, Customer Finance
Title: ____________________________________
Address for Notices:
Northern Telecom Inc.
8 Federal Street
Billerica, Massachusetts 01821
Attention: Thomas Manley
Vice President, Finance
Carrier Packet Solutions
Telecopy No.: (978) 916-4755
Telephone No.: (978) 916-1751
and
Northern Telecom Inc.
GMS 991 04 B30
2221 Lakeside Blvd.
Richardson, Texas 75082-4399
Attention: Vice President,
Customer Finance North America
Telephone No.: (972) 684-3975
and
Northern Telecom Inc.
PO Box 833858
Richardson, Texas 75083-3858
Mail Stop 04D/02/A40
Attention: Kimberly Poe, Loan Administration
Telecopy No.: (972) 684-3808
Telephone No.: (972) 684-7687
CREDIT AGREEMENT - Page 76
<PAGE> 83
LENDERS:
-------
Tranche A Commitment: $ 30,000,000 NORTHERN TELECOM INC.
Tranche B Commitment: $ 15,000,000
/s/ Michael W. McCorkle
By: _______________________________________
Michael W. McCorkle
Name: _____________________________________
Director, Customer Finance
Title: ____________________________________
Address for Notices:
Northern Telecom Inc.
and
Northern Telecom Inc.
GMS 991 04 B30
2221 Lakeside Blvd.
Richardson, Texas 75082-4399
Attention: Vice President,
Customer Finance North America
Telecopy No.: (972) 684-3679
Telephone No.: (972) 684-3975
and
Northern Telecom Inc.
PO Box 833858
Richardson, Texas 75083-3858
Mail Stop 04D/02/A40
Attention: Kimberly Poe, Loan Administration
Telecopy No.: (972) 684-3808
Telephone No.: (972) 684-7687
Lending Office for Base Rate Loans:
Northern Telecom Inc.
2221 Lakeside Blvd.
Richardson, Texas 75082
Lending Office for Eurodollar Loans:
Northern Telecom Inc.
2221 Lakeside Blvd.
Richardson, Texas 75082
CREDIT AGREEMENT - Page 77
<PAGE> 1
EXHIBIT 10.8.2
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made and
entered into effective as of November 18, 1999, by and among TELERGY, INC. (the
"Borrower"), a New York corporation, each of the lending entities which is a
party hereto (as evidenced by the signature pages of this Agreement) or which
may from time to time become a party hereto as a lender or any successor or
assignee thereof (individually, a "Lender" and, collectively, the "Lenders"),
and NORTEL NETWORKS INC., a Delaware corporation formerly known as Northern
Telecom Inc., as administrative agent for itself and the other Lenders (in such
capacity, together with its successors in such capacity, the "Administrative
Agent").
RECITALS:
A. Pursuant to that certain Credit Agreement dated as of February 26,
1999, by and among the Borrower, the Lenders, and the Administrative Agent
("Credit Agreement"), the Lenders agreed to provide to the Borrower a senior
secured credit facility in the maximum aggregate principal amount of
$45,000,000.
B. Pursuant to the request of the Borrower, the Administrative Agent and
the Lenders have agreed, subject to the terms and conditions of this Amendment,
to amend the Credit Agreement.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Terms Defined. Unless otherwise defined or stated in this Amendment,
each capitalized term used in this Amendment has the meaning given to such term
in the Credit Agreement (as amended by this Amendment).
2. Amendments to Certain Definitions.
(a) The following terms and definitions thereof set forth in Section
1.1 of the Credit Agreement is hereby amended and restated to read in their
entirety as follows:
"Tranche A Commitment Termination Date" means the earliest to
occur of (a) the third anniversary of the Closing Date, (b) the
initial date upon which the Tranche A Loans have become fully funded
in an aggregate amount equal to the Tranche A Commitments (as such
Commitments may be reduced or terminated pursuant to Section 2.13 or
11.2), or (c) June 15, 2000, if (but only if) the aggregate principal
amount of Tranche A Loans outstanding as of June 15, 2000 is less than
$15,000,000.
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 1
<PAGE> 2
"TRANCHE B MATURITY DATE" means November 22, 1999.
3. AMENDMENT TO SCHEDULE 10. Schedule 10 to the Credit Agreement is
hereby amended and restated to read in it entirety as set forth on Exhibit A
hereto.
4. CONDITIONS PRECEDENT. The effectiveness of this Amendment is subject
to the satisfaction of each of the following conditions precedent, all of which
conditions precedent must be satisfied on or before November 22, 1999:
(a) The Administrative Agent shall have received all of the following,
each dated (where applicable and unless otherwise indicated) the date of
this Amendment, in form and substance satisfactory to the Administrative
Agent:
(i) AMENDMENT DOCUMENTS. This Amendment as executed by the parties
hereto;
(ii) RESOLUTIONS. Resolutions of the Board of Directors of the
Borrower and the other Loan Parties certified by its Secretary or an
Assistant Secretary which authorize the execution, delivery and
performance by the Borrower and the other Loan Parties of this Amendment
and the other Amendment Documents to which the Borrower or such Loan
Party is or is to be a party;
(iii) REPAYMENT OF TRANCHE B LOAN. The Tranche B Loan shall have been
repaid in full with in two business days of Agent's execution hereof;
and
iv) FEES, COSTS AND EXPENSES. All fees, costs and expenses
(including, without limitation, attorneys' fees and expenses) incurred
by the Administrative Agent, incident to this Amendment or required to
be paid in accordance with Section 13.1 of the Credit Agreement, to the
extent incurred and submitted to the Borrower, shall have been paid in
full by the Borrower.
(b) The representations and warranties contained herein and in all other
Loan Documents, as amended hereby, shall be true and correct as of the date
hereof as if made again on and as of the date hereof (except if and to the
extent that such representations and warranties are or were expressly made
only as of another specific date); and
(c) No Default or Event of Default shall have occurred and be
continuing.
5. REPRESENTATIONS AND WARRANTIES. Each of the Borrower and the other
Loan Parties hereby jointly and severally represent and warrant to, and agrees
with, the Agent and the Lenders that, as of the date of and after giving effect
to this Amendment (a) the execution, delivery and performance of this Amendment
and any and all other Amendment Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part
PAST AMENDMENT TO CREDIT AGREEMENT - Page 2
<PAGE> 3
of the Borrower and the other Loan Parties and will not violate the Borrower's
or any Loan Party's corporate charter or bylaws; (b) the term Loan Documents as
defined in the Credit Agreement and as used in any of the Loan Documents
includes, without limitation, the Amendment Documents; (c) all representations
and warranties set forth in the Credit Agreement and in the Security Documents
are true and correct as if made again on and as of such date (except if and to
the extent that such representations and warranties were expressly made only as
of another specific date); (d) no Default or Event of Default has occurred and
is continuing; (e) the Loan Parties do not have any unasserted right of setoff,
counterclaim or deduction to the Obligations owning pursuant to the Loan
Documents; and (f) the Credit Agreement, the Notes, the Guaranties, the
Security Documents and the other Loan Documents (as amended by this Amendment)
are and remain legal, valid, binding and enforceable obligations of the
Borrower and the other Loan Parties (as applicable) which are parties thereto
in accordance with their terms, except as limited by bankruptcy, insolvency or
other laws of general application relating to the enforcement of creditors'
rights and general principles of equity.
6. Governing Law. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK (WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND APPLICABLE LAWS OF
THE U.S.
7. Counterparts. This Amendment may be executed in any number of
counterparts, all of which when taken together shall constitute one agreement,
and any of the parties hereto may execute this Amendment by signing any such
counterpart.
8. No Oral Agreements. THIS AMENDMENT, TOGETHER WITH THE CREDIT AGREEMENT
AND THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS BETWEEN
AND AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN (A) THE BORROWER OR ANY OTHER LOAN PARTY AND
(B) THE ADMINISTRATIVE AGENT OR ANY LENDER.
FIRST AMENDMENT TO CREDIT AGREEMENT -- Page 3
<PAGE> 4
9. Agreement Remains in Effect: No Waiver. Except as expressly provided
herein, all terms and provisions of the Credit Agreement and the other the Loan
Documents shall remain unchanged and in full force and effect and are hereby
ratified and confirmed. No waiver by the Administrative Agent or any Lender of
any Default or Event of Default shall be deemed to be a waiver of any other
Default or Event of Default. No delay or omission by the Administrative Agent or
any Lender in exercising any power, right or remedy shall impair such power,
right or remedy or be construed as a waiver thereof or an acquiescence therein,
and no single or partial exercise of any such power, right or remedy shall
preclude other or further exercise thereof or the exercise of any other power,
right or remedy under the Agreement, the Loan Documents or otherwise.
10. Survival of Representations and Warranties. All representations and
warranties made in this Amendment or any other Loan Document shall survive the
execution and delivery of this Amendment and the other Loan Documents, and no
investigation by the Administrative Agent or any Lender or any closing shall
affect the representations and warranties or the right of the Administrative
Agent and the Lenders to rely upon such representations and warranties.
11. Reference to Credit Agreement. This Amendment shall constitute a Loan
Document. Each of the Loan Documents, including the Credit Agreement, the
Amendment Documents and any and all other agreements, documents or instruments
now or hereafter executed and/or delivered pursuant to the terms hereof or
pursuant to the terms of the Credit Agreement as amended hereby, are (if and to
the extent necessary) hereby amended so that any reference in such Loan
Documents to the Credit Agreement shall mean a reference to the Credit
Agreement as amended hereby.
12. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
13. Successors and Assigns. This Amendment is binding upon and shall
inure to the benefit of the Agent, the Lenders, the Borrower and the other Loan
Parties and their respective successors and assigns; provided, however, that
neither the Borrower nor any of the other Loan Parties may assign or transfer
any of its rights or obligations hereunder without the prior written consent of
the Lenders.
14. Headings. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
PROXY AMENDMENT TO CREDIT AGREEMENT - Page 4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers effective as of the day
and year first above written.
BORROWER:
TELERGY, INC.
By:
------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
ADMINISTRATIVE AGENT:
NORTEL NETWORKS INC., formerly known as
Northern Telecom Inc., as Administrative Agent
By:
------------------------------------------
Vice President, Customer Finance
LENDERS:
NORTEL NETWORKS INC.
By:
------------------------------------------
Vice President, Customer Finance
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 5
<PAGE> 1
EXHIBIT 10.8.3
SECOND AMENDMENT TO CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made and
entered into effective as of December 31, 1999, by and among TELERGY, INC. (the
"Borrower"), a New York corporation, each of the lending entities which is a
party hereto (as evidenced by the signature pages of this Agreement) or which
may from time to time become a party hereto as a lender or any successor or
assignee thereof (individually, a "Lender" and, collectively, the "Lenders"),
and NORTEL NETWORKS INC., a Delaware corporation, as administrative agent for
itself and the other Lenders (in such capacity, together with its successors in
such capacity, the "Administrative Agent").
RECITALS:
A. Pursuant to that certain Credit Agreement dated as of February 26,
1999, by and among the Borrower, the Lenders, and the Administrative Agent, as
amended by that certain First Amendment to Credit Agreement dated effective as
of November 18, 1999, and as the same may be further amended from time to time
(the "Credit Agreement"), the Lenders agreed to provide to the Borrower a senior
secured credit facility.
B. Pursuant to the request of the Borrower, the Administrative Agent and
the Lenders have agreed, subject to the terms and conditions of this Amendment,
to amend the Credit Agreement.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Terms Defined. Unless otherwise defined or stated in this Amendment,
each capitalized term used in this Amendment has the meaning given to such term
in the Credit Agreement (as amended by this Amendment).
2. Amendment to Section 2.5. Section 2.5 to the Credit Agreement is hereby
amended and restated to read in its entirety as follows:
Section 2.5 Borrowing Procedure.
(a) Standard Procedure. The Borrower shall give the Administrative
Agent notice of each borrowing hereunder in accordance with Section 2.9.
Not later than 12:00 noon (New York, New York time) on the date specified
for each borrowing hereunder, each Lender will make available the amount
of the Loan to be made by it on such date to the Administrative Agent, at
the Principal Office, in immediately available funds, for the account of
the Borrower. The amount of each borrowing hereunder so received by the
Administrative Agent shall, subject to the terms and conditions of this
Agreement, be made available, for and on behalf of the
<PAGE> 2
Borrower, in immediately available funds by no later than 2:00 p.m. (New
York, New York time); provided, however, that the Administrative Agent
may, in its discretion, cause such amount to be made available directly to
or for the benefit of the Person who is to receive the proceeds of such
Loan in accordance with Section 2.10. Notwithstanding anything to the
contrary contained in this Agreement, if and to the extent that Nortel
Networks is a Tranche A Lender under this Agreement, the Borrower further
hereby irrevocably agrees that each Tranche A Loan to be advanced by
Nortel Networks to the Borrower in accordance with this Agreement (and
only in accordance with this Agreement and after the Administrative
Agent's receipt of a Notice of Borrowing executed by the Borrower) may (in
the discretion of Nortel Networks and if and to the extent that the
proceeds of such Loan are to be paid to Nortel Networks) be effectively
disbursed on the date set forth in the Notice of Borrowing for such
disbursement to the Borrower by virtue of a credit in the amount of such
Loan given to the Guarantor under the Supply Agreement.
(b) Automatic Advancement of Loans. Notwithstanding anything to the
contrary contained in this Agreement, the Administrative Agent shall, at
the request of Nortel Networks so long as it is the only Lender hereunder,
cause Loans to be advanced by the Lenders for and on behalf of the
Borrower whether or not (i) any Notice of Borrowing is given in accordance
with Section 2.9, (ii) any of the conditions precedent set forth in
Article 6 hereof are satisfied, (iii) any Default exists, or (iv) any
other fact or circumstance exists, if Nortel Networks shall have given
five Business Day's prior written notice to the Administrative Agent and
the Borrower of Nortel Networks' desire to cause the Lenders to make such
Loans and all proceeds of such Loans are used to pay the purchase price
for Nortel Networks Goods and Services which has not been disputed and
which has not been paid when due. All Loans advanced pursuant to this
Section 2.5(b) shall be initially advanced as Eurodollar Loans with a one
month Interest Period (unless the Borrower has requested in writing, at
least three Business Days prior to such advance, that any of such Loans
have an Interest Period with a different duration in accordance with the
requirements of this Agreement) or, if the maximum number of Interest
Periods for Eurodollar Loans is already then in effect, as Base Rate
Loans, and shall be advanced as Tranche A Loans (but after such
advancement, may be Converted or Continued in accordance with this
Agreement).
3. Amendment to Schedule 10. Schedule 10 to the Credit Agreement is hereby
amended and restated to read in its entirety as set forth on Exhibit A hereto.
4. Conditions Precedent. The effectiveness of this Amendment is subject to
the satisfaction of each of the following conditions precedent, all of which
conditions precedent must be satisfied on or before May 5, 2000:
2
<PAGE> 3
(a) The Administrative Agent shall have received all of the
following, each dated (where applicable and unless otherwise indicated)
the date of this Amendment, in form and substance satisfactory to the
Administrative Agent:
(i) Amendment Documents. This Amendment as executed by the
parties hereto and any other agreement, document, instrument or
certificate reasonably required by the Administrative Agent or the
Lenders to be executed or delivered by the Borrower or any other
Loan Party in connection with this Amendment;
(ii) Resolutions. Resolutions of the Board of Directors of the
Borrower and the other Loan Parties certified by its Secretary or an
Assistant Secretary which authorize the execution, delivery and
performance by the Borrower and the other Loan Parties of this
Amendment and the other Amendment Documents to which the Borrower or
such Loan Party is or is to be a party;
(iii) Fees, Costs and Expenses. All fees, costs and expenses
(including, without limitation, attorneys' fees and expenses)
incurred by the Administrative Agent incident to this Amendment or
required to be paid in accordance with Section 13.1 of the Credit
Agreement, to the extent incurred and submitted to the Borrower,
shall have been paid in full by the Borrower; and
(iv) Additional Information. The Administrative Agent shall
have received such additional agreements, documents, instruments and
information as the Administrative Agent or its legal counsel,
Jenkens & Gilchrist, a Professional Corporation, may reasonably
request to effect the transactions contemplated hereby.
(b) The representations and warranties contained herein and in all
other Loan Documents, as amended hereby, shall be true and correct as of
the date hereof as if made again on and as of the date hereof (except if
and to the extent that such representations and warranties are or were
expressly made only as of another specific date);
(c) All corporate proceedings taken in connection with this
Amendment and the other Amendment Documents, and all legal matters
incident thereto, shall be reasonably satisfactory to the Administrative
Agent and its legal counsel, Jenkens & Gilchrist, a Professional
Corporation; and
(d) No Default or Event of Default shall have occurred and be
continuing (after giving effect to this Amendment).
5. Representations and Warranties. Each of the Borrower and the other Loan
Parties hereby jointly and severally represent and warrant to, and agrees with,
the Administrative Agent and the Lenders that, as of the date of and after
giving effect to this Amendment (a) the execution, delivery and performance of
this Amendment and any and all other Amendment Documents executed and/or
delivered in connection herewith have been authorized by all requisite corporate
3
<PAGE> 4
action on the part of the Borrower and the other Loan Parties and will not
violate the Borrower's or any Loan Party's corporate charter or bylaws; (b) the
term Loan Documents as defined in the Credit Agreement and as used in any of the
Loan Documents includes, without limitation, the Amendment Documents; (c) all
representations and warranties set forth in the Credit Agreement and in the
Security Documents are true and correct as if made again on and as of such date
(except if and to the extent that such representations and warranties were
expressly made only as of another specific date); (d) no Default or Event of
Default has occurred and is continuing; (e) the Loan Parties do not have any
unasserted right of setoff, counterclaim or deduction to the Obligations owning
pursuant to the Loan Documents; and (f) the Credit Agreement, the Notes, the
Guaranties, the Security Documents and the other Loan Documents (as amended by
this Amendment) are and remain legal, valid, binding and enforceable obligations
of the Borrower and the other Loan Parties (as applicable) which are parties
thereto in accordance with their terms.
6. Governing Law. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND APPLICABLE LAWS OF THE U.S.
7. Counterparts. This Amendment may be executed in any number of
counterparts, all of which when taken together shall constitute one agreement,
and any of the parties hereto may execute this Amendment by signing any such
counterpart.
8. No Oral Agreements. THIS AMENDMENT, TOGETHER WITH THE CREDIT AGREEMENT
AND THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS BETWEEN
AND AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN (A) THE BORROWER OR ANY OTHER LOAN PARTY AND
(B) THE ADMINISTRATIVE AGENT OR ANY LENDER.
9. Agreement Remains in Effect; No Waiver. Except as expressly provided
herein, all terms and provisions of the Credit Agreement and the other the Loan
Documents shall remain unchanged and in full force and effect and are hereby
ratified and confirmed. No waiver by the Administrative Agent or any Lender of
any Default or Event of Default shall be deemed to be a waiver of any other
Default or Event of Default. No delay or omission by the Administrative Agent or
any Lender in exercising any power, right or remedy shall impair such power,
right or remedy or be construed as a waiver thereof or an acquiescence therein,
and no single or partial exercise of any such power, right or remedy shall
preclude other or further exercise thereof or the exercise of any other power,
right or remedy under the Agreement, the Loan Documents or otherwise.
10. Survival of Representations and Warranties. All representations and
warranties made in this Amendment or any other Loan Document shall survive the
execution and delivery of this Amendment and the other Loan Documents, and no
investigation by the Administrative Agent or any
4
<PAGE> 5
Lender or any closing shall affect the representations and warranties or the
right of the Administrative Agent and the Lenders to rely upon such
representations and warranties.
11. Reference to Credit Agreement. This Amendment shall constitute a Loan
Document. Each of the Loan Documents, including the Credit Agreement, the
Amendment Documents and any and all other agreements, documents or instruments
now or hereafter executed and/or delivered pursuant to the terms hereof or
pursuant to the terms of the Credit Agreement as amended hereby, are (if and to
the extent necessary) hereby amended so that any reference in such Loan
Documents to the Credit Agreement shall mean a reference to the Credit Agreement
as amended hereby.
12. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
13. Successors and Assigns. This Amendment is binding upon and shall inure
to the benefit of the Administrative Agent, the Lenders, the Borrower and the
other Loan Parties and their respective successors and assigns; provided,
however, that neither the Borrower nor any of the other Loan Parties may assign
or transfer any of its rights or obligations hereunder without the prior written
consent of the Lenders.
14. Headings. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers effective as of the day
and year first above written.
BORROWER:
TELERGY, INC.
By:
--------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
ADMINISTRATIVE AGENT AND LENDER:
NORTEL NETWORKS INC., as Administrative
Agent and the sole Lender
By: /s/ Mitchell L. Stone
--------------------------------------
Name: Mitchell L. Stone
------------------------------------
Title: Director
------------------------------------
6
<PAGE> 1
EXHIBIT 10.9
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT, dated as of September 9, 1999, among Telergy,
Inc., a New York corporation (together with its successors and assigns, the
"Company"), the shareholders whose names appear on the signature page of this
Agreement (the "Kelly Shareholders ") and GC Dev. Co., Inc., a Delaware
corporation (together with its successors and assigns, the "Purchaser").
W I T N E S S E T H :
WHEREAS, the Company and the Purchaser have entered into an
Amended and Restated Securities Purchase Agreement dated as of July 28, 1999
(the "Amended and Restated Securities Purchase Agreement"); and
WHEREAS, the parties hereto deem it in their best interests
and in the best interests of the Company to provide for certain matters with
respect to the Company and desire to enter into this Agreement in order to
effectuate that purpose.
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
Article I
CERTAIN DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
"Affiliate" shall mean, with respect to any Person, any other
Person that directly or indirectly controls, is controlled by, or is
under common control with, such Person. As used in this definition,
"control" (including its correlative meanings, "controlled by" and
"under common control with") shall mean the possession, directly or
indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or
other ownership interests, by contract or otherwise).
"Agreement" shall mean this Agreement as in effect on the date
hereof and as hereafter from time to time amended, modified or
supplemented in accordance with the terms hereof.
"Amended and Restated Certificate of Incorporation" shall mean
the Amended and Restated Certificate of Incorporation of the Company
filed with the
<PAGE> 2
Secretary of State of the State of New York in accordance with Section
1.5 of the Amended and Restated Securities Purchase Agreement.
"Amended and Restated Securities Purchase Agreement" shall
have the meaning set forth in the recitals hereto, as such agreement
may be amended from time to time.
"Ancillary Documents" shall mean this Agreement, the
Registration Rights Agreement, the Warrant, the Amended and Restated
Certificate of Incorporation and the Certificate of Designations.
"Associate" shall have the meaning set forth in Rule 12b-2
under the Exchange Act.
"Board of Directors" shall mean the Board of Directors of the
Company as from time to time hereafter constituted.
"Business Day" shall mean any day, other than a Saturday,
Sunday or a day on which commercial banks in New York, New York are
authorized or obligated by law or executive order to close.
"Certificate of Designations" shall mean the Certificate of
Designations of the Company filed with the Secretary of State of the
State of New York in accordance with Section 1.5 of the Amended and
Restated Securities Purchase Agreement.
"Class A Common Stock" shall mean the Class A Common stock,
par value $.0001 per share, of the Company and any securities of the
Company into which such Class A Common Stock may be reclassified,
exchanged or converted.
"Class C Common Stock" shall mean the Class C Common Stock,
par value $0.0001 per share, of the Company and any securities of the
Company into which such Class C Common Stock may be reclassified,
exchanged or converted.
"Common Stock" shall mean the Class A Common Stock and the
Class C Common Stock and any other common stock of the Company.
<PAGE> 3
"Company" shall have the meaning set forth in the preamble
hereto.
"Designee" shall have the meaning set forth in Section 2.1(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
"Global Crossing" shall mean Global Crossing Ltd., a company
formed under the laws of Bermuda, together with its successors by
operation of law.
"Initial Public Offering" shall mean the initial public
offering of Common Stock or other equity securities of the Company
pursuant to a registration statement declared effective under the
Securities Act.
"Kelly Shareholders" shall have the meaning set forth in the
preamble hereto.
"Person" shall mean an individual, corporation, unincorporated
association, partnership, group (as defined in Section 13(d)(3) of the
Exchange Act), trust, joint stock company, joint venture, business
trust or unincorporated organization, limited liability company, any
governmental entity or any other entity of whatever nature.
"Preferred Shares" shall have the meaning set forth in the
Amended and Restated Securities Purchase Agreement.
"Purchaser" shall mean GC Dev. Co., Inc., together with its
successors by operation of law and permitted assigns pursuant to
Section 5.10.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement dated as of the date hereof between the Company and
the Purchaser, as it may be amended from time to time.
"Representatives" shall mean, with respect to any Person, such
<PAGE> 4
Person's directors, officers, employees, agents and other
representatives acting in such capacity.
"SEC" shall mean the United States Securities and Exchange
Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Subsidiary" shall mean, as to any Person, a corporation,
partnership, limited liability company, joint venture or other entity
of which 50% or greater of the voting power of the equity securities or
equity interests is owned, directly or indirectly, by such Person.
"Transfer" shall have the meaning set forth in Section 3.1.
"Voting Stock" shall mean shares of the Common Stock and any
other securities of the Company having the ordinary power to vote in
the election of members of the Board of Directors of the Company.
"Warrant" shall have the meaning set forth in the Amended and
Restated Securities Purchase Agreement.
"Warrant Shares" shall have the meaning set forth in the
Amended and Restated Securities Purchase Agreement.
ARTICLE II
CORPORATE GOVERNANCE
Section 2.1 Board of Directors.
(a) On the date of this Agreement, and from time to time
thereafter for as long as the Voting Stock owned by Global Crossing or its
Affiliates or issuable upon the exercise of the Warrant constitutes at least
five percent (5%) of the sum of (i) the issued and outstanding shares of the
Voting Stock of the Company plus (ii) the shares of Voting Stock of the Company
issuable upon the exercise of options, warrants and other convertible securities
which are then exercisable, the Company and the Kelly Shareholders shall take
all such actions as may be necessary or appropriate to cause one (1) person
designated by the Purchaser, who shall be an officer or director of
<PAGE> 5
Global Crossing and shall be subject to the reasonable consent of the Kelly
Shareholders (the "Designee"), to be elected or re-elected as a member of the
Board of Directors and to be maintained in such position at all times, provided
that any such Designee may be removed for cause. So long as the Designee has
been so approved by the Kelly Shareholders and is an officer or director of
Global Crossing, the Designee shall continue to serve until his or her successor
is duly elected.
(b) Subject to applicable law, in the event that the Designee
on the Board of Directors shall cease to serve as a director for any reason
(other than the failure of the shareholders of the Company to elect such person
as director), the Company and the Kelly Shareholders shall take all such actions
as may be necessary or appropriate to cause a Designee of the Purchaser who
shall be an officer or director of Global Crossing and who is reasonably
acceptable to the Kelly Shareholders to be appointed to fill such vacancy as
promptly as possible (which Designee shall be subject to the reasonable approval
of a majority of the Members of the Board of Directors).
Section 2.2 Reimbursement of Expenses; Attendance at Board Meetings;
Indemnification. The Company will reimburse the Designee for all reasonable
costs and expenses (including travel expenses) incurred in connection with the
Designee's attendance at meetings of the Board or any committee of the Board
upon which the Designee may be appointed by the Board, in its sole discretion.
The Company will pay the Designee annual fees and fees for attending Board or
committee meetings to the same extent as other independent directors of the
Company. The Company shall indemnify the Designee to the same extent it
indemnifies its other directors pursuant to its organizational documents and
applicable law.
Section 2.3 Voting. Except as set forth in the Amended and Restated Certificate
of Incorporation or the Certificate of Designations, the Purchaser will not be
entitled or permitted to vote the Preferred Shares, or act by written consent
with respect to the Preferred Shares, on any matter required or permitted to be
voted upon by the holders of Voting Stock.
ARTICLE III
TRANSFER
Section 3.1 Transfer.
(a) The Purchaser shall not, directly or indirectly, sell,
transfer, pledge, hypothecate or otherwise dispose of ("Transfer") all or any
portion of the Warrant, except for Transfers, upon five business days' notice to
the Company, to Global Crossing or direct or indirect wholly owned Subsidiaries
of Global Crossing who agree to be bound by the provisions of this Agreement,
the Registration Rights Agreement and the Warrant. Notwithstanding the
foregoing, the Purchaser may Transfer any of the Preferred Shares or the Warrant
Shares, but the Purchaser understands and agrees that it may do so only pursuant
to an effective registration statement under the Securities Act or pursuant to
an exemption from registration under the Securities Act. The Purchaser agrees to
the imprinting, so long as necessary as provided in this Section 3.1(a), of the
following legends on certificates representing any of the securities
<PAGE> 6
referenced in this Section 3.1(a).
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
OF A SHAREHOLDERS AGREEMENT, DATED AS OF SEPTEMBER 9, 1999, AMONG
TELERGY, INC., GC DEV. CO., INC. AND CERTAIN OTHER SHAREHOLDERS
SIGNATORY THERETO (AS AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM
TIME TO TIME, THE "SHAREHOLDERS AGREEMENT"), A COPY OF WHICH IS ON FILE
WITH THE SECRETARY OF THE COMPANY. NO SALE, TRANSFER, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS
OF SUCH SHAREHOLDERS AGREEMENT.
NEITHER THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES ISSUABLE UPON EXERCISE OF THE SECURITIES REPRESENTED HEREBY
HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS.
The second legend set forth above shall be removed if and when
(i) the securities represented by such certificate are disposed of pursuant to
an effective registration statement under the Securities Act or (ii) the
Purchaser delivers to the Company an opinion of counsel reasonably acceptable to
the Company to the effect that such legend is no longer necessary.
(b) With respect to any proposed sale by any of the Kelly
Shareholders or any of their Affiliates (each, a "Transferring Shareholder ") of
Voting Stock to any Person other than an Affiliate or Associate of the Kelly
Shareholders (a "Third Party") (other than in a public offering), whether
pursuant to a stock sale, merger, consolidation, a tender or exchange offer or
any other transaction (any such transaction, a "Sale"), such Transferring
Shareholder will have the obligation, and the Purchaser will have the right, to
require the Third Party to purchase from the Purchaser, if the Purchaser
exercises its rights under this Section 3.1(b), a number of shares of Voting
Stock (of each class subject to the Sale (it being understood for the purposes
of this Section 3.1(b) that the Class A Common Stock and the Class C Common
Stock are of the same class), up to the product (rounded up to the nearest whole
number) of (i) the quotient determined by dividing (A) the aggregate number of
outstanding shares of such class owned by the Purchaser on the 7th Business Day
following receipt by the
<PAGE> 7
Purchaser of the notice from the Transferring Shareholder described in the next
paragraph (the "Determination Date") by (B) the aggregate number of outstanding
shares of such class owned by the Purchaser and the Transferring Shareholder on
the Determination Date, and (ii) the total number of shares of such class
proposed to be directly or indirectly sold to the Third Party by such
Transferring Shareholders in the contemplated Sale, at the same price per share
and upon the same terms and conditions (including, without limitation, time of
payment and form of consideration) as to be paid by and given to such
Transferring Shareholder. In order to be entitled to exercise its right to sell
Voting Stock to the Third Party pursuant to this Section 3.1(b), the Purchaser
must agree to make to the Third Party the same covenants, indemnities (with
respect to all matters other than the Transferring Shareholder's ownership of
Voting Stock) and agreements as the Transferring Shareholder agrees to make in
connection with the Sale and such representations and warranties (and related
indemnification) as to its ownership of its Voting Stock as are given by the
Transferring Shareholder with respect to the Transferring Shareholder's
ownership of Voting Stock; provided that all such covenants, indemnities and
agreements shall be made by the Purchaser severally and not jointly and that the
liabilities thereunder shall be several and not joint other than costs which
shall be borne on a pro rata basis based on the number of shares sold by each of
the Transferring Shareholder and the Purchaser.
The Transferring Shareholder will give notice to the Purchaser
of each proposed Sale at least 10 Business Days prior to the proposed
consummation of such Sale, setting forth the number of shares of Voting Stock
(of each class) proposed to be so sold, the name and address of the Third Party,
the proposed amount and form of consideration (and if such consideration
consists in part or in whole of property other than cash, the Transferring
Shareholder will provide such information, to the extent reasonably available to
such Transferring Shareholder, relating to such consideration as the Purchaser
may reasonably request in order to evaluate such non--cash consideration) and
other terms and conditions of payment offered by the Third Party. The tag-along
rights provided by this Section 3.1(b) must be exercised by the Purchaser within
7 Business Days following receipt of the notice required by the preceding
sentence by delivery of an irrevocable written notice to the Transferring
Shareholder indicating the Purchaser's exercise of its rights and specifying the
maximum number of shares of Voting Stock (of each class). Absent timely receipt
by the Transferring Shareholder of such notice, the Purchaser's tag-along rights
with respect to the proposed Sale shall be deemed waived. the Purchaser will be
entitled under this Section 3.1(b) to sell to the Third Party the number of
Shares determined in accordance with Section 3.1(b).
If the Purchaser exercises its, her or his rights under
Section 3.1(b), the closing of the purchase of the shares with respect to which
such rights have been exercised is subject to, and will take place concurrently
with, the closing of the sale of the Transferring Shareholder's shares to the
Proposed Transferee.
(c) If the Kelly Shareholders receive an offer from a Third
Party to purchase (other than in a public offering) 100% of the Voting Stock
then outstanding
<PAGE> 8
and such offer is accepted by the Kelly Shareholders (in such capacity, the
"Dragging Parties"), then the Purchaser hereby agrees that, if requested by the
Dragging Parties, it will sell to such Third Party on the same terms and
conditions (including, without limitation, time of payment and form of
consideration) as to be paid and given to the Dragging Parties all of the Voting
Stock beneficially owned by it (of such class).
The Dragging Parties will give written notice (the "Drag-Along
Notice") to the Purchaser of any proposed sale giving rise to the rights of the
Dragging Parties set forth in Section 3.1(c) as soon as practicable following
the acceptance of the offer referred to in Section 3.1(c). The Drag-Along Notice
will set forth the number of shares of Voting Stock (of each class) proposed to
be so sold, the name of the Third Party, the proposed amount and form of
consideration (and if such consideration consists in part or in whole of
property other than cash, the Dragging Parties will provide such information, to
the extent reasonably available to the Dragging Parties, relating to such
consideration as the Purchaser may reasonably request in order to evaluate such
non-cash consideration), the number of shares of Voting Stock (of each class)
sought and the other terms and conditions of the offer. The Dragging Parties
will notify the Purchaser at least 15 Business Days in advance of the closing of
the sale of shares to the Third Party. In any such agreement, the Purchaser will
be required (i) to make or agree to the same covenants, indemnities (with
respect to all matters other than the Dragging Parties' ownership of Voting
Stock) and agreements as the Dragging Parties so long as they are made severally
and not jointly and the liabilities thereunder are borne on a pro rata basis
based on the number of shares sold by each party, (ii) to make representations
and warranties (and provide related indemnification) as to their ownership of
their Voting Stock as are given by the Dragging Parties with respect to the
Purchaser's ownership of Voting Stock and (iii) to pay their proportionate share
of the reasonable costs incurred in connection with such transaction to the
extent not paid or reimbursed by the Company or the transferee or acquiring
Person. If the sale referred to in the Drag-Along Notice is not consummated
within 90 days from the date of the Drag-Along Notice, the Dragging Parties must
deliver another Drag-Along Notice in order to exercise their rights under this
Section 3.1(c) with respect to such sale or any other sale.
Section 3.2 Certain Permitted Transactions.
Notwithstanding the foregoing, this Agreement shall not
prohibit the consummation of any transaction expressly provided for in the
Amended and Restated Securities Purchase Agreement including the acquisition of
the Preferred Shares and the acquisition and/or exercise of the Warrant or any
purchase of the Warrant Shares upon exercise of the Warrant.
Section 3.3 Preemptive Rights.
(a) In the event that the Company proposes to issue or sell
any shares of Voting Stock or any securities convertible, exchangeable or
exercisable for shares of Voting Stock (the "Additional Securities"), the
Company shall, no later than 15 days prior to the consummation of such
transaction (a "Preemptive Rights Transaction"), give notice in writing (the
"Preemptive Right Notice") to the Purchaser of such Preemptive
<PAGE> 9
Rights Transaction. The Preemptive Rights Notice shall describe the proposed
Preemptive Rights Transaction and contain an offer (the "Preemptive Rights
Offer") to sell to the Purchaser, at the same price and for the same
consideration to be paid by the proposed purchaser in an arms-length
transaction, all of the Purchaser's pro rata portion of the Additional
Securities. The Purchaser's pro rata portion shall be such number of securities
as may be necessary so that the Purchaser's fully diluted Voting Stock ownership
percentage (represented by the number of shares of Voting Stock owned by it or
its Affiliates or issuable upon the exercise of the Warrant) is not reduced as a
result of such Preemptive Rights Transaction. If the Purchaser fails to accept
such offer by written notice ten (10) days after its receipt of the Preemptive
Right Notice, the Purchaser's rights hereunder with respect to the proposed
Preemptive Rights Transaction shall be deemed waived, and the Company may
proceed with the proposed issue or sale of the Additional Securities, free of
any right on the part of the Purchaser under this Section 3.3 in respect
thereof.
(b) This Section 3.3 shall not apply to (i) issuances or sales
of options or warrants following the date hereof pursuant to, or issuances or
sales of Common Stock upon exercise of any employee stock option that is granted
following the date hereof under, any plan for officers, employees or directors
of the Company approved by the Board of Directors in an amount not to exceed 10%
of the fully diluted shares of Common Stock on the date hereof, (ii) issuances
or sales of Common Stock pursuant to a merger of the Company or a Subsidiary of
the Company into or with another entity or an acquisition by the Company of a
Subsidiary of the Company or another business or corporation, (iii) issuances of
Common Stock in a public offering, (iv) except as provided in clause (v) hereof,
issuances or sales of Common Stock upon the exercise, exchange or conversion of
any other rights, options, warrants or convertible securities (it being
understood that a Preemptive Rights Offer shall be made at the time of the
issuance by the Company of such rights, options, warrants or convertible
securities), (v) the issuance or sale of Common Stock to Niagara Mohawk Energy
("NME") or its successors and assigns in connection with NME's (or such
successors' and assigns') sale to the Company of a 25% membership interest in
Telergy Central LLC (the "NME Sale") if an adjustment in the Exercise Price and
number of shares of Common Stock issuable upon exercise of a Warrant has been
made under Section 8(b)(ii) of the Warrant Certificate or (vi) the issuance or
sale of Common Stock to Teleglobe Inc. or its successors and assigns if an
adjustment in the Exercise Price and number of shares of Common Stock issuable
upon exercise of a Warrant has been made under Section 8(b)(iii) of the Warrant
Certificate.
ARTICLE IV
Termination
The provisions of this Agreement shall terminate on the date
on which the Voting Stock owned by Global Crossing or its Affiliates or issuable
upon the exercise of the Warrant constitutes less than five percent (5%) of the
sum of (i) the issued and outstanding shares of the Voting Stock of the Company
plus (ii) the shares of Voting
<PAGE> 10
Stock of the Company issuable upon the exercise of options, warrants and other
convertible securities which are then exercisable. Notwithstanding the
foregoing, except with respect to the NME Sale, the provisions of Section 3.3
shall terminate upon the completion of an Initial Public Offering.
ARTICLE V
Miscellaneous
Section 5.1 Notices. All notices required or permitted
hereunder shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified; (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient, if not, then
on the next business day; (iii) upon delivery if sent by registered or certified
mail, return receipt requested, postage prepaid; or (iv) upon delivery if
deposited with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be sent
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to the Purchaser, to:
GC Dev. Co., Inc.
150 El Camino Drive, Suite 204
Beverly Hills, California 90212
Attn: General Counsel
Telecopy: (310) 281-5820
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn: Alan M. Klein, Esq.
Facsimile: (212) 455-2502
(b) if to the Kelly Shareholders, to:
Brian P. Kelly
One Telergy Parkway
East Syracuse, New York 13057
Kevin M. Kelly
One Telergy Parkway
East Syracuse, New York 13057
<PAGE> 11
William M. Kelly, Jr.
One Telergy Parkway
<PAGE> 12
East Syracuse, New York 13057
with a copy to:
Victoria A. Ramundo
Telergy, Inc.
20 Corporate Woods
Albany, New York 12211
Facsimile: (518) 463-9937
(c) if to the Company, to:
Telergy, Inc.
One Telergy Parkway
East Syracuse, New York 13057
Attn: Chief Executive Officer
Facsimile: (315) 433-5358
with a copy to:
Telergy, Inc.
20 Corporate Woods
Albany, New York 12211
Attn: General Counsel
Facsimile: (518) 463-9937
or to such other address or addresses as shall be designated in writing. All
notices shall be effective when received.
Section 5.2 Entire Agreement. This Agreement, the Amended and
Restated Securities Purchase Agreement and the other Ancillary Documents
constitute the full and entire understanding and agreement between the parties
with regard to the subjects thereto and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
Section 5.3 Amendment. This Agreement may be amended or
modified only upon the written consent of the Company, the Kelly Shareholders
and the Purchaser (or its assigns).
Section 5.4 Waiver. The obligations of a party under this
Agreement may be waived only with the written consent of all of the other
parties to this Agreement.
Section 5.5 Delays or Omissions. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to any party, upon any
breach, default or noncompliance by another party under this Agreement, shall
impair any such right, power or remedy, nor shall it be construed to be
<PAGE> 13
a waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of or in any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent or approval of
any kind or character on a party's part of any breach, default or noncompliance
under this Agreement or any waiver on such party's part of any provisions or
conditions of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies under this
Agreement or otherwise afforded to any party shall be cumulative and not
alternative.
Section 5.6 Separability. In case any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
Section 5.7 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
Section 5.8 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of New York.
Section 5.9 Submission to Jurisdiction. (a) Each party hereto
irrevocably consents to the exclusive jurisdiction and venue of the courts of
the State of New York and the courts of the United States for the Northern or
Southern Districts of New York, and in the courts hearing appeals therefrom, for
the resolution of any dispute, action, suit or proceeding arising out of or
relating to this Agreement. Each party hereby irrevocably waives, and agrees not
to assert, by way of motion, as a defense, counterclaim or otherwise, in any
action or proceeding with respect to this Agreement, the defense of sovereign
immunity, any claim that it is not personally subject to the jurisdiction of the
above-named courts for any reason other than the failure to serve process in
accordance with this Section 5.9, that it or its property is exempt or immune
from jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise),
and to the fullest extent permitted by applicable law, that the suit, action or
proceeding in any such court is brought in an inconvenient forum, that the venue
of such suit, action or proceeding is improper, or that this Agreement, or the
subject matter hereof or thereof, may not be enforced in or by such courts and
further irrevocably waives, to the fullest extent permitted by applicable law,
the benefit of any defense that would hinder, fetter or delay the levy,
execution or collection of any amount to which the party is entitled pursuant to
the final judgment of any court having jurisdiction.
(b) The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the State of New York
or any court of the United States for the Northern or
<PAGE> 14
Southern Districts of New York, this being in addition to any other remedy to
which they are entitled at law or in equity.
Section S.10 Successors and Assigns. The provisions hereof
shall inure to the benefit of, and be binding upon, the successors, assigns,
heirs, executors and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of the
Preferred Shares, the Warrant or the Warrant Shares from time to time. Subject
to applicable law and except with respect to Sections 2.1 and 2.2, the Purchaser
may assign its rights under this Agreement in whole or in part, but no such
assignment shall relieve the Purchaser of its obligations hereunder and any
assignee shall agree in writing to be bound by the terms of this Agreement and
the Ancillary Documents. The Company may not assign any of its rights or
delegate any of its duties under this Agreement without the prior written
consent of the Purchaser. Any purported assignment in violation of this Section
shall be void.
Section 5.11 Titles and subtitles. The titles of the sections
and subsections of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
<PAGE> 15
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto or by their respective duly authorized representatives, all as of
the date first above written.
TELERGY, INC.
By: /s/ Kevin J. Kelly
-------------------------------
Name: Kevin J. Kelly
Title: Executive Vice President
GC DEV. CO., INC.
By: /s/ Barry Porter
-------------------------------
Name: Barry Porter
Title: President
/s/ Brian Kelly
- ----------------------------------
Brian P. Kelly
/s/ Kevin J. Kelly
- ----------------------------------
Kevin J. Kelly
/s/ William M. Kelly
- ----------------------------------
William M. Kelly
<PAGE> 1
EXHIBIT 10.12
Title: Chief Executive Officer of Telergy, Inc.
as Managing Member of Telergy Metro LLC
IRU AGREEMENT
BETWEEN
US CROSSING, INC.
AND
TELERGY METRO, LLC
DATED: SEPTEMBER 9, 1999
(NYC FIBER RING)
<PAGE> 2
IRU AGREEMENT
THIS IRU AGREEMENT (this "Agreement") is made, as of the Effective
Date (hereafter defined), by and between US CROSSING, INC. ("Global Crossing"),
a Delaware corporation having its principal office at 150 El Camino Drive, Suite
204, Beverly Hills, CA 90212, and TELERGY METRO, LLC, a New York limited
liability company having its principal office at One Telergy Parkway, East
Syracuse, New York 13057 ("Telergy").
W I T N E S S E T H:
WHEREAS, Telergy is constructing and installing fiber optic
telecommunications networks throughout New York State, including a fiber ring in
and around New York City;
WHEREAS, Global Crossing desires to acquire from Telergy, and
Telergy desires to provide to Global Crossing, an exclusive, indefeasible right
to use certain optical fibers in the NYC Ring along the Route as hereafter
described upon the terms and conditions set forth below and maintenance services
necessary to utilize the Global IRU;
WHEREAS, capitalized terms used in these recitals and not otherwise
defined herein shall have the meanings assigned to them in Article I of this
Agreement; and
WHEREAS, Global Crossing and its Affiliates are developing a
worldwide, multiple fiber pair, fiber optic telecommunications network (the
"Global Crossing Network"), a portion of which Global Crossing Network will
include connectivity within the NYC Ring.
NOW, THEREFORE, in consideration of the mutual promises set forth
below, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms and phrases used in this Agreement shall have the
following meanings:
"Acceptance" shall have the meaning set forth in Paragraph 5.4.
"Acceptance Date" means the date defined in Paragraph 5.4 below.
<PAGE> 3
"AFFILIATE" MEANS ANY PERSON OR ENTITY THAT, DIRECTLY OR INDIRECTLY,
CONTROLS, IS CONTROLLED BY, OR IS UNDER COMMON CONTROL WITH ANOTHER PERSON OR
ENTITY. FOR PURPOSES OF THE PRECEDING SENTENCE, "CONTROL" WITH RESPECT TO ANY
PERSON OR ENTITY MEANS OWNERSHIP, DIRECTLY OR INDIRECTLY, OF OR THE POWER TO
VOTE AT LEAST FIFTY PERCENT (50%) OF THE VOTING INTEREST IN THE PERSON OR
ENTITY.
"AGREEMENT" means this IRU Agreement between Telergy and Global
Crossing dated September 9, 1999 as it may be amended from time to time,
including the Exhibits attached hereto and made a part hereof by reference
hereto and any amendments to the Exhibits or to this Agreement.
"Assignee" or "Assigns" shall have the meaning as set forth in
Article XIX.
"Authorizations" shall have the meaning set forth in Article.20.1F.
"Building Entrances" means Dark Fiber installed in spurs to be
constructed by Telergy (other than the initial diverse paths into the buildings
identified on Appendix C as part of the Manhattan Ring), which spurs connect the
NYC Ring to such buildings in accordance with the provisions set forth in
Paragraph 2.4 of this Agreement.
"Building Entrance IRU" has the meaning set forth in Paragraph
2.4(v).
"Business Day" means any day other than a Saturday, Sunday or a day
on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"CECONY" means Consolidated Edison Company of New York, Inc., which
is the counterparty of Telergy to the L&O Agreement.
"Collocation" ("Collocate") means the arrangement whereby Global
Crossing, at its option and provided that space is available, leases certain
space in a specified portion of the structures belonging to Telergy (the
"Telergy Sites") for purposes of maintaining and installing equipment necessary
to utilize the Global IRU under this Agreement. Such Collocation rights shall be
pursuant to the charges, terms and conditions set forth in Telergy's standard
exhibits governing fees, charges, terms and conditions.
"Collocation Space" shall have the meaning set forth in Paragraph
3.3.
"Confirmation" shall have the meaning set forth in Paragraph 3.2.
"Connecting Point" means a point where the network or facilities of
Global Crossing will connect to the Global IRU.
"Costs" means actual direct costs incurred in the design,
engineering,
<PAGE> 4
construction and installation of any Building Entrances. All Costs shall be
computed in accordance with generally accepted accounting principles. Such Costs
include, without limitation, fees, charges or compensation payable by Telergy to
obtain any necessary Right-of-Way Agreements or Rights-of-Way, equipment,
materials and fiber facilities, labor costs, including wages and salaries, and
benefits and supportable overhead allocable to such labor costs, including
wages, salaries and benefits.
"Cure Period" shall have the meaning set forth in Paragraph 16.1(a).
"Dark Fiber" means single mode dispersion-unshifted strands of
optical fiber through which no light, light communications or signals are
transmitted and meet the specifications set forth in Telergy's standard Dark
Fiber Specifications.
"Effective Date" shall have the meaning set forth in Paragraph in
23.4.
"Equivalent Compensation" means the consideration to be paid by
Global Crossing for the Global IRU as set forth in Article III of this
agreement.
"EVENT OF DEFAULT" SHALL HAVE THE MEANING SET FORTH IN PARAGRAPH
16.1.
"FIBER ACCEPTANCE TESTING" means the fiber acceptance testing
described in Article V.
"Final Acceptance Date" means the Acceptance Date of the final
Segment of the NYC Ring.
"Force Majeure" shall have the definition set forth in Article XXI.
"Global Crossing" means US Crossing, Inc., a party to this Agreement
as defined in the opening paragraph of this Agreement.
"Global Crossing Ltd." means a Bermuda corporation having its
principal offices at 150 El Camino Drive, Suite 204, Beverly Hills, CA 90212 and
which indirectly owns and controls 100% of US Crossing, Inc., a party to this
agreement.
"Global Equipment" shall mean optronic (opto-electrical),
electronic, or optical equipment, or materials, facilities, or other equipment
owned and installed by Global Crossing on Global Crossing-controlled property
utilized by Global Crossing in connection with the Global IRU.
"Global Crossing Network" shall have the meaning set forth in
Paragraph 3.1A.
"Global IRU" means an IRU in 96-strands of Dark Fiber to be provided
for the Term in the NYC Ring, which includes the Manhattan Ring, in accordance
with this
<PAGE> 5
Agreement, as further defined in Paragraph 2.1.
"Indefeasible Right of Use" or "IRU" means an exclusive,
indefeasible right to use the specified property. The grant of an IRU does not
convey title or ownership of the covered property nor any interest in real or
personal property.
"Indemnitor" shall have the meaning set forth in Paragraph 9.1.
"Inspection Period" shall have the meaning set forth in Paragraph
5.3 .
"IRU Fee" means the Equivalent Compensation to be paid by Global
Crossing for the strands of Dark Fiber in the Global IRU during the Term and the
first Renewal Term, if any as further as described in Article III of this
Agreement and the monetary consideration to be paid by Global Crossing for any
Renewal Term as provided in Paragraph 2.3.
"L&O Agreement" means the License and Operating Agreement between
Telergy and CECONY dated January 28, 1998.
"Liens" shall have the meaning set forth in Paragraph 8.4.
"Long Island Segment" shall have the meaning set forth in Paragraph
2.5.
"Maintenance" means the provisions governing maintenance of the
Global IRU, NYC Ring, Building Entrances, if any, and Collocation Space, if any,
set forth in Article VII of this Agreement.
"Maintenance Fee(s)" means the fee or fees charged to Global
Crossing for the maintenance of the Dark Fiber as described in Paragraph 3.8 of
this Agreement.
"Manhattan Acceptance Date" means the Acceptance Date of the final
Segment of the Manhattan Ring.
"Manhattan Ring" means the Segments comprising that portion of the
Global IRU in the NYC Ring that shall be constructed and installed substantially
along the path depicted on the map attached hereto as Appendix C, which shall
include delivery of the Telergy Cable containing up to 96 strands of Dark Fiber
comprising the Global IRU through diverse service entrance pipes or their
equivalents from two diverse manholes into the buildings specified on said map
unless Telergy is restricted by any third-party or governmental entity from
providing such second diverse entry in which case Telergy shall deliver the
Telergy Cable containing the Global IRU through one service entrance pipe or its
equivalent into such buildings.
"Non-ROUTINE MAINTENANCE" shall have the meaning set forth in
Paragraph 7.3.
"NYC Ring" means the Segments of the Telergy Network to be
installed,
<PAGE> 6
owned and operated by Telergy in fiber optic ring up to 100-miles in and
throughout the five boroughs of New York City along the Route, which shall
contain the Global IRU.
"Operational Support" shall have the meaning set forth in Paragraph
3.1 .
"Person(s)" means a natural person, corporation, firm, partnership,
limited liability company, joint venture or other form of association or entity.
"Project Manager" shall have the meaning set forth in Paragraph 4.9.
"Renewal Fees" shall have the meaning set forth in Paragraph 2.3.
"Renewal Term" shall have the meaning set forth in Paragraph 2.3.
"Representatives" shall have the meaning set forth in Paragraph
15.1.
"Right-OF-WAY" means those rights of Telergy pursuant to
Right-of-Way Agreements.
"Right-OF-WAY AGREEMENTS" means rights, licenses, authorizations,
easements, leases, fee interests, franchises or agreements that provide for the
occupancy of real property or fixtures (such as conduit, bridges, river
crossings, or transmission towers) of the NYC Ring, including but not limited to
the L&O Agreement, as well as a certain Amended and Restated Franchise Agreement
between Telergy and The City of New York ("NYC Franchise"), which L&O Agreement
and NYC Franchise are attached hereto as Appendices A and B.
"Route" shall mean the general path of the NYC Ring as depicted on
the maps attached hereto as Appendices C and D.
"Routine Maintenance" shall have the meaning set forth in Paragraph
7.3.
"Segment" means discrete portions of the Global IRU in the NYC Ring
that may be delivered by Telergy pursuant to the Testing, Acceptance and
Delivery provisions set forth in Article V of this Agreement.
"Successor" shall have the meaning set forth in Article XIX.
"Telergy" means Telergy Metro, LLC, a party to this Agreement as
described in the opening paragraph of this Agreement.
"Telergy Cable" means Telergy's fiber optic facilities installed in
the NYC Ring pursuant to this Agreement, including but not limited to conduit,
pipes, innerduct, sub-duct, Dark Fiber , and any replacements or substitutions
thereto, and associated splicing connections, splice boxes and vaults.
"Telergy, Inc." means a New York corporation having its principal
offices
<PAGE> 7
at One Telergy Parkway, East Syracuse, New York 13057 and which owns 100% of and
manages Telergy Metro LLC, a party to this agreement.
"Telergy Network" means the telecommunications networks and related
structures, Telergy Sites and equipment or electronics that are constructed,
installed, operated and/or owned by subsidiaries of Telergy, Inc., including the
NYC Ring Building Entrances.
"Telergy Sites" means the Telergy communications shelters,
collocation cages or repeater hut sites within which Global Crossing may obtain
space to Collocate its equipment as provided in this Agreement and the exhibits
hereto.
"Term" means the term of this Agreement as defined in Paragraph 6.3.
"Test Documents" shall have the definition set forth in Paragraph
5.2.
"Voluntary Relocation" shall have meaning set forth in Paragraph
6.3.
ARTICLE II
TERM AND GRANT OF IRU,
BUILDING ENTRY ACCESS
2.1 Effective as of the Acceptance Date of any Segment and for the
Term and any Renewal Term(s), Telergy Metro, LLC hereby grants to Global
Crossing and Global Crossing hereby obtains an exclusive Indefeasible Right of
Use in ninety-six (96) strands of Dark Fiber in such Segment in the Telergy
Cable to be installed in the NYC Ring, for the purposes described herein on the
terms and subject to the conditions set forth herein (the "Global IRU").
2.2 The Term of the Global IRU for all Segments shall commence upon
the Acceptance Date of such Segment and shall end twenty years after the
Manhattan Acceptance Date ("Term"). Telergy warrants that it has and will
maintain the Rights-of-Way, IRUs or other underlying rights, licenses and
approvals required to deliver the Global IRU for the Term. Telergy estimates
that the remaining useful life of the Global IRU and any Building Entrance IRU
to be at least for the Term.
2.3 Telergy agrees to use commercially reasonable efforts to extend
the Term for one or more additional periods of five years ("Renewal Terms"). In
the event Telergy secures one Renewal Term that commences directly after the
expiration of the Term, and Global Crossing desires to extend the Term of the
Global IRU and any Building Entrance IRU, Global Crossing shall pay its pro-rata
share, based on the number of Dark Fiber strands contained in the Global IRU or
Building Entrance IRU and the total number of strands of Dark Fiber installed in
the Telergy Cable containing the Global IRU or Building Entrance IRU, of the
costs incurred by Telergy to obtain the Renewal Term (such pro-rata share, the
"Renewal Fees"). In the event that Telergy secures any Renewal Term after such
first Renewal Term, the parties agree to negotiate in good faith prior to the
expiration of the Renewal Term to determine the monetary IRU Fee that shall be
paid by Global Crossing for any such Renewal Term
<PAGE> 8
with respect to the Global IRU and any Building Entrance IRU.
2.4 The parties hereby agree that during the Term, Telergy shall
provide Global Crossing delivery of up to ninety-six strands of Dark Fiber in
any Building Entrances requested by Global Crossing, provided, however, that if
more than [***] strands are requested by Global Crossing, Telergy shall be
entitled to provide them in [***] if necessary. Telergy's obligation to provide
the Dark Fiber in such Building Entrances is subject to the following: (a)
Telergy has access to the Rights-of-Way and service entrance pipes from CECONY,
(b) Global Crossing has paid its pro rata share of all Costs for such Building
Entrance(s), and (c) Global Crossing has secured at its cost and expense any
necessary building owner/landlord consents or approvals that may be required to
deliver the Telergy Cable containing the Global IRU from the service entrance
pipes to the Global Crossing fiber demarcation point and within the buildings,
and subject to the following:
(i) Upon receipt of a written request from Global Crossing for any
Building Entrance, Telergy shall prepare a good faith estimate of
the Costs and anticipated completion date to deliver Dark Fiber in
the Building Entrance to Global and send such estimate to Global
Crossing within ten Business Days ("Estimate");
(ii) Within fifteen Business Days of receipt of Telergy's Estimate,
Global Crossing shall notify Telergy in writing whether Telergy
shall proceed with such Building Entrance ("Confirmation"),
provided, however, that the time for Global Crossing to provide the
Confirmation may be extended upon mutual agreement of the parties.
If Global Crossing fails to provide the Confirmation, Telergy shall
be entitled to construct the Building Entrance at its sole cost and
expense and Global Crossing shall not be entitled to a Building
Entrance IRU in connection with such building. Upon sending the
Confirmation, Global Crossing shall be responsible for its pro-rata
share of all Costs associated with such Building Entrance. In the
event that Telergy has information from which it reasonably
determines that the Costs will exceed the Estimate by more than 10%,
it shall promptly notify Global Crossing and Global Crossing shall
have three Business Days to notify Telergy to cease constructing
such Building Entrance provided that Global Crossing shall reimburse
Telergy for a proportionate share of the Costs incurred by Telergy
prior its receipt of such notice to cease.
(iii) Global Crossing may request Telergy to construct and install Dark
Fiber to connect to buildings that are not within five hundred feet
of the Manhattan Ring in CECONY Rights-of-Way or service entrance
pipes, provided however that the determination whether to do so and
the date for the
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE> 9
completion of the same shall be determined by Telergy in its sole
discretion.
(v) Upon testing and Acceptance of the Dark Fiber installed in Building
Entrances pursuant to Article V of this Agreement, Telergy hereby
conveys an IRU for the Term and any Renewal Term in the Dark Fiber
installed in such Building Entrances, without further act or
documentation ("Building Entrance IRU")
(iv) Global Crossing shall at all times be entitled to install Dark Fiber
to any other buildings that are not utilizing CECONY Rights-of-Way
or service entrance pipes or within five hundred feet of the
Manhattan Ring at its own cost and expense, provided that Global
Crossing shall not under any circumstance be entitled to do so using
any Telergy Rights-of-Way.
2.5 Telergy proposes to build, construct, install, acquire, or
otherwise locate fiber optic cable, or conduit or rights-of-way for purposes of
later installing fiber optic cable between any point on Long Island in the State
of New York and any point within the State of New York, including on Long
Island. ("Long Island Segment"). Global Crossing hereby agrees that without
charge, upon 20 days prior written notice from Telergy, Global Crossing will
assist Telergy in determining the originating and terminating points of the Long
Island Segment, and designing the same including the expected fiber capacity,
the nature of the installation, the date on which Telergy expects to begin the
installation, and the date on which the Long Island Segment is anticipated to be
completed. Upon completion of the preliminary design the parties thereafter will
negotiate in good faith to enter into a final agreement regarding the co-build
of the Long Island Segment which negotiations shall be completed within 90 days
of the date on which the parties reached agreement on the preliminary design.
The parties hereby agree to share the total out-of-pocket costs, expenses and
fees actually incurred by them in connection with the co-build (including any
costs associated with obtaining rights-of-way) in proportion to the number of
strands of Dark Fiber and vacant duct, conduit or innerduct each will have in
the Long Island Segment and will equally share any engineer's and similar fees
paid to any non-Affiliated third parties in connection with the preliminary
design. The final agreement of the parties shall provide for the ownership,
operation and maintenance of the Long Island Segment as mutually agreed by the
parties.
2.6 For a period of five years after the Manhattan Acceptance Date
(a) Global Crossing shall not, directly or indirectly, sell, transfer, convey,
assign, sublease, condo, lease, sublicense or wholesale ("Lease"), the Global
IRU to any third party, unless the traffic on such Global IRU is distributed
through the transmission and/or switching equipment of Global Crossing, provided
however that the foregoing restriction shall not apply when either (i) the
third-party is an Affiliate of Global Crossing engaged in the provisioning of
telecommunications services in New York City, or (ii) the third-party Lease is
entered into by Global Crossing for long-haul traffic, provided however
<PAGE> 10
that in either event such third-party Lease or use by an Affiliate of Global
Crossing shall contain the restrictions set forth in this Paragraph, which shall
expressly limit the third-party's uses to intercity traffic and not for
transmission of traffic within points in New York City.
ARTICLE III
CONSIDERATION
3.1 As and for the IRU Fee for Telergy's grant of the Global IRU
during the Term, Global Crossing hereby agrees that it or any Affiliate or
subsidiaries thereof, including, upon consummation of the proposed merger in
connection therewith, Frontier Communications (collectively "Global Affiliate"),
shall, for the Term of this Agreement, provide the Operational Support as
defined in this Paragraph 3.1 to Telergy and its Affiliates.
A. In order to more particularly define elements of the Operational
Support to be provided by Global Crossing hereunder, the parties shall meet no
less than once each calendar quarter for the first year of this Agreement and
then bi-annually thereafter to discuss the opportunities to use Telergy's
facilities to (i) terminate traffic transmitted on the network facilities
operated by Telergy or its Affiliates (the "Global Crossing Network") in markets
not served by the NYC Ring, (ii) provide back-up redundancy to segments or the
Global Crossing Network in areas served by Telergy, and (iii) terminate traffic
which the Global Crossing Network in and throughout New York City cannot
transmit because of capacity overload, disruption in availability of facilities
or any other reason. The uses described in (i), (ii) and (iii) of this Paragraph
are collectively referred to as "Uses". At these meetings, a qualified
representative of Telergy shall discuss forecasts (relevant to the Operational
Support to be provided hereunder) of the availability of capacity for the next
four calendar quarters on Telergy's network facilities to be used in any of the
Uses, and a qualified representative of Global Crossing shall discuss its
forecasts (relevant to the Operational Support to be provided hereunder) for the
next four calendar quarters of its demand for such capacity in such routes or
areas for any of the Uses. The parties shall agree on the terms, where
commercially viable, for Global Crossing to use Telergy's network facilities for
each of the Uses, which terms shall be consistent with industry standards, upon
commercially reasonable terms and conditions and competitive pricing. Each party
shall bear its own costs in connection with such meetings.
B. During the meetings as provided in Paragraph 3.1.A above, the
parties shall also discuss the development of new products and services by
Telergy. At least ten business days prior to each such meeting, Telergy shall
give written notice to Global Crossing of the agenda for the meeting. In
response to that notice, Global Crossing shall use commercially reasonable
efforts to have one or more its representatives qualified to address the items
on the agenda present at the meeting. As illustrations, without limitation, such
representatives may be qualified in the areas of network engineering, software
development, operation support systems, data services, video services, switching
platforms, or marketing. Global Crossing shall not be obligated to provide more
than two representatives for any such meeting. At such
<PAGE> 11
meetings, Telergy may request Global Crossing's assistance in the development of
new products and services, and Global Crossing shall use its reasonable efforts
to provide such assistance. Such assistance may include, without limitation,
analysis of Telergy's plans with regard to technical feasibility, efficiency,
customer demand and consistency with the plans of other providers of capacity,
services or products; planning joint development or marketing of new products
and services by Telergy with Global Crossing or its Affiliates; providing
Telergy with non-confidential, non-proprietary information on the products or
services of equipment or software suppliers or service providers that may be
useful in Telergy's development of products and services; allowing Telergy to
review the non-proprietary and non-confidential technical specifications,
marketing materials and user documents for the services and products of Global
Crossing or its Affiliates; informing Telergy as to any intellectual property
owned or licensed by Global Crossing or its Affiliates that they are willing to
licenses to a third party; and allowing Telergy to send its employees to any
training courses offered by Global Crossing or its Affiliates for its employees
or customers as to products or services intended for third parties that are
similar to those Telergy is developing.
C. For additional services or licenses provided by Global Crossing
(other than joint development or marketing of new products and services, for
which each party shall bear its own costs), Global Crossing shall charge, and
Telergy shall pay, commercially reasonable amounts (direct costs), including the
lowest amount of fees for any similar intellectual property license charged by
Global Crossing of any of its Affiliates to any unaffiliated third party.
D. Should Telergy desire to obtain collocation space in a Global
Crossing (or Affiliate) office, switch location, interconnection point or other
landline facility located within Telergy's operating area in the United States,
Telergy shall submit a written request to Global Crossing at the address set
forth in the opening paragraph of this Agreement identifying such desired
collocation space, and Global Crossing shall promptly notify Telergy whether
such collocation space is available. Global Crossing shall use commercially
reasonable efforts to make such collocation space available to Telergy. If
Telergy thereby obtains any such collocation space, commercially reasonable
terms shall apply to Telergy's use of and access to such collocation space,
including preferred rates.
E. Global Crossing or its Affiliates shall offer to Telergy any
capacity and services on any segment of the Global Crossing Network, to the
extent such capacity or services are available on commercially reasonable terms
at discounts between 5% and 15% off the list prices attached hereto as Appendix
E that would otherwise apply.
F. As further compensation to Telergy for the Global IRU, Global
Crossing hereby agrees, subject to mutually agreed project plan as negotiated
pursuant to Paragraph 2.5 hereof, to participate in the preliminary design of,
and subject to the final agreement as negotiated pursuant to Paragraph 2.5
hereof, to participate in the construction and installation of, the Long Island
Segment.
<PAGE> 12
3.2 As and for compensation to Telergy for any Building Entrance
IRUs, Global Crossing shall pay one-half the amount of its pro-rata portion of
the Costs for such Building Entrance indicated in the Estimate received by
Global Crossing pursuant to Paragraph 2.4(i), such payment to be made within
thirty (30) days after the date of the Confirmation, and (ii) shall pay its
pro-rata share of the remaining balance of the actual total Costs for such
Building Entrance within five Business Days of the Acceptance Date for the
Building Entrance IRU associated therewith. Upon receipt of payment in full of
the all Costs, Telergy shall provide Global Crossing the Building Entrance IRU
for such Building Entrance.
3.3 In the event Global Crossing requests Collocation Space that is
available in Telergy Sites, Global Crossing shall pay the Collocation Fee set
forth in Telergy's standard Collocation Exhibits attached hereto as Exhibit B
and incorporated herein by this reference. The Collocation Fees shall be due
upon delivery of the Collocation Space to Global Crossing and monthly
thereafter. The initial invoice shall reflect the non-recurring charges and
first month's recurring charges in advance.
3.4 Global Crossing hereby agrees to pay annual recurring
Maintenance Fees for all Routine and Non-Routine Maintenance (subject to
Paragraph 7.5) in the amount of $[***] per mile as and for Telergy's Maintenance
of the Global IRU throughout the Term, commencing with the month following the
Acceptance Date. Global Crossing shall pay such amounts in advance (i.e., on or
before the first day of each calendar year during which Routine Maintenance is
to be provided) during the Term. The payment shall be prorated, as necessary,
for the first and last year of the Term.
3.5 Global Crossing shall make all payments of Costs due Telergy
under this Agreement by wire transfer of immediately available funds to the
United States account or accounts designated by Telergy. All other payments,
including but not limited to Maintenance Fees and Collocation Fees, due Telergy
pursuant to this Agreement shall be made by check or draft of immediately
available funds delivered to Telergy at the address designated in writing (e.g.,
in a statement or invoice) or, failing such designation, to the address for
Telergy first set forth in the opening paragraph of this Agreement. Any amounts
not paid by Global Crossing when due and payable under this Agreement shall
thereafter accrue interest at the rate of 12% per annum.
ARTICLE IV
CONSTRUCTION, CONNECTION TO
GLOBAL CROSSING NETWORK AND COLLOCATION
4.1 Telergy will provide access to the Global IRU at all Telergy
splice points (or available manholes) requested by Global Crossing along the
Route, provided however that all splicing and related construction work will be
performed by Telergy in accordance with the Construction Specifications attached
hereto as Exhibit E. Subject to the provisions herein, Global Crossing shall pay
for and arrange for all connections of
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE> 13
its facilities, the Global Equipment, or the Global Crossing Network at any
Connecting Points for the Global IRU.
4.2 Subject to Paragraph 4.10, in the event Global Crossing requests
Collocation Space that is available from Telergy, Telergy shall provide such
Collocation Space upon the prices, terms and conditions set forth in the
Collocation Access Entry Terms attached hereto as Exhibit B, and such Telergy
Sites shall meet the specifications attached hereto as Exhibit F.
4.3 Telergy will be responsible for the construction of the NYC
Ring, the Global IRU and any Building Entrances in accordance and compliance
with sound industry standards using the skill and expertise appropriate for the
project contemplated hereunder, and the Construction Specifications attached
hereto as Exhibit E. Telergy agrees that the Global IRU, other than the Dark
Fiber installed between buildings listed on Appendix C along the Manhattan Ring
and manholes adjacent to such buildings, shall be installed in contiguous fibers
in contiguous buffer tubes. Telergy further agrees that the Dark Fiber contained
in (i) the Global IRU installed into buildings listed on Appendix C along the
Manhattan Ring and manholes adjacent to such buildings, and (ii) Building
Entrance IRUs shall be provided in separate cable sheaths or outside plant
splitters if reasonably available to Telergy without additional cost or expense.
4.4 Telergy, at its sole cost and expense, will obtain all necessary
access to Rights-of Way and will comply with all applicable federal, state or
local laws, ordinances, regulations, orders, permits, franchises, or
requirements of any governmental body having jurisdiction necessary for Telergy
to construct and install the NYC Ring containing the Global IRU and any Building
Entrances. Telergy shall, at its sole cost and expense, secure all necessary
licenses, permits, easements, approvals, and authorizations required for the
construction, installation and maintenance of the NYC Ring containing the Global
IRU.
4.5 Global Crossing, at its sole cost and expense, shall be
responsible for determining the need for, timing and other requirements, and
obtaining any authority, license, franchise, permit or other permission required
by any regulator, landlord or building owner, or any governmental entity of
competent jurisdiction to use the Global IRU, Building Entrance IRU and any
Collocation Space hereunder.
4.6 Telergy shall be responsible for ensuring that all Right-of-Way
Agreements that are necessary to the installation and delivery of the Global IRU
for the Term are, or shall be, in place when needed in order for Telergy to
fulfill its obligations hereunder and for Global Crossing to use the Global IRU
or any Building Entrance IRU during the Term. Telergy shall be responsible for
ensuring that the Rights-of-Way shall be for a period of not less than the Term
it being understood that any further payments required to renew or maintain
Rights-of-Way for any Renewal Term(s) shall be for the sole account of Telergy,
except with respect to Global Crossing's obligation pursuant to Article II to
pay a proportionate share of the Costs associated with Building Entrances and
with the first Renewal Term and the IRU Fees applicable to any subsequent
<PAGE> 14
Renewal Terms.
4.7 Telergy hereby warrants, for the benefit of Global Crossing,
that the Dark Fiber in the Global IRU and in any Building Entrance IRU shall be
constructed and installed in accordance with the construction specifications
contained in Exhibit E and the Fiber Optic Specifications in Exhibit D attached
hereto. Telergy hereby warrants that the Dark Fiber in the Global IRU and any
Building Entrance IRU shall function in accordance with the Fiber Optic
Specifications attached hereto as Exhibit D, for a period of (a) twelve months
from the Acceptance Date of the Segment of the Global IRU or Building Entrance
IRU containing the warranted Dark Fiber, or (b) such longer period as
corresponds to the term(s) of the underlying fiber warranty(ies) Telergy obtains
from its fiber vendor and cable vendor.
4.8 Global Crossing acknowledges that Telergy may subcontract the
Construction of the Global IRU and/or Building Entrances to qualified entities
experienced in constructing and engineering fiber optic networks in New York
State, provided however that Telergy shall be and remain responsible to Global
Crossing at all times for Telergy's obligations under this Agreement. Telergy
and its authorized agents shall perform all network engineering and design,
cable construction and maintenance, including placement, permitting, easement
acquisition, pole attachments, make ready work and splicing necessary for the
Global IRU to be fully operational.
4.9 During the construction of the NYC Ring, each party shall
designate a Project Manager as the single point of contact with respect to the
performance by the parties under this Agreement. The Project Managers, will
among other things, work together to provide maximum physical separation of the
Dark Fiber comprising the Global IRU in the Telergy Cable. The Project Managers
shall establish procedures for periodic verbal and written status reports and
meetings as appropriate to discuss achievements, plans, progress and delays, if
any. Global Crossing shall provide Telergy's Project Manager in writing of its
desires concerning the design of the NYC Ring (excluding the Manhattan Ring) and
Telergy shall take such desires into account prior to finalizing the Route of
the Segments of the NYC Ring provided however that Telergy shall accommodate
Global Crossing's needs only to the extent consistent with Telergy's business
plans and activities. With respect to the Manhattan Ring, Telergy may consider
any information provided in writing by Global Crossing with respect to the order
of delivery of Segments in the Manhattan Ring, provided however that Telergy, in
its sole discretion, shall determine whether to accommodate Global Crossing's
desired delivery schedule.
4.10 The parties hereby agree to discuss the particular requirements
that may be required in connection with Collocation Space in New York City and
in the event the parties enter into a separate Collocation Agreement after the
date of this Agreement, the provisions governing Collocation herein shall be
modified to the extent expressly modified in the separate Collocation Agreement,
and such Collocation Agreement will be attached hereto as Appendix F and
incorporated herein by this reference.
<PAGE> 15
ARTICLE V
TESTING, ACCEPTANCE AND DELIVERY
5.1 Each Segment of the Global IRU and each Building Entrance IRU
shall be deemed ready for delivery to, and lease by, Global Crossing on that
date when (i) all necessary approvals and authorizations for Telergy to deliver
the specific Segment or Building Entrance IRU have been secured by Telergy; and
(ii) the Dark Fiber in the Segment or the Building Entrance IRU has been tested
pursuant to the testing and acceptance provisions of Exhibit C attached hereto
and meets all the Dark Fiber Specifications set forth in Exhibit D. Telergy
agrees to cooperate with Global Crossing in scheduling the testing of any
Segment of the Global IRU or any Building Entrance IRU to allow Global Crossing
an opportunity to participate in such testing and Telergy agrees to provide
Global Crossing five (5) Business Days prior written notice of Telergy's intent
to test any Segment or Building Entrance IRU, and allow Global Crossing to be
present during all phases of testing. The availability of any Segment of the
Global IRU or the Building Entrance IRU for delivery, together with the actual
miles of fiber available for delivery shall be certified to Global Crossing in
writing by Telergy ("Certification").
5.2 Telergy shall notify Global Crossing in writing when any Segment
of the Global IRU or Building Entrance IRU is satisfactorily tested, completed
and ready for delivery to Global Crossing by delivery of the Certification and
all fiber test results (collectively, the "Test Documents"), which fiber test
results shall specify end-to-end loss, measured from repeater hut to repeater
hut and Optical Time Domain Reflectometer traces.
5.3 Global Crossing will have ten (10) Business Days from the date
Telergy delivers the Test Documents to Global Crossing (the "Inspection Period")
to inspect the Test Documentation to insure that the Dark Fiber Specifications
for that Segment or Building Entrance IRU have been met.
5.4 Upon written notice by Global Crossing that a Segment or
Building Entrance IRU is satisfactory to it, the Segment or Building Entrance
IRU shall be deemed delivered by Telergy and accepted by Global Crossing
("Acceptance") unless prior to the expiration of the Inspection Period for the
Segment of the Global IRU or Building Entrance IRU provides written notice of
any deficiencies in any of the Dark Fiber, specifying that Telergy failed to
meet particular Dark Fiber Specifications as set forth in Exhibit D, and
specifically identifying the same. Telergy shall rectify any specification
deficiencies identified by Global Crossing in such notice within 30 days of
receipt of the same. Upon written notification to Global Crossing that such
recertification is complete, a new Inspection Period shall commence. Upon the
earlier to occur of the notice of Acceptance or Global Crossing's failure to
notify Telergy on or before expiration of the Inspection Period shall constitute
Acceptance by Global Crossing of the relevant Segment or Building Entrance IRU
("Acceptance Date").
5.5 Forthwith upon the Acceptance Date in accordance with the
<PAGE> 16
provisions of Paragraph 5.4, and subject to the provisions of this Agreement,
the Global IRU in the Segment, and upon payment of the Costs applicable to a
Building Entrance the Building Entrance IRU, shall be deemed to have been
granted to Global Crossing in accordance with the provisions of this Agreement,
without any further document, act or thing, and all applicable payments due
Telergy from Global Crossing, including but not limited to any Renewal Fees, IRU
Fees, Maintenance Fees and Collocation Fees shall be due in accordance with the
terms of this Agreement and applicable Exhibits.
5.6 Within thirty (30) days after Acceptance of each of the
Segments, Telergy shall deliver to Global Crossing one (1) copy of the as-built
drawings as provided in Exhibit G.
5.7 Telergy (i) shall use it best efforts to cause the Manhattan
Acceptance Date to occur by June 30, 2000, (ii) shall in any event cause the
Manhattan Acceptance Date to occur by December 31, 2000, and (iii) shall cause
the Final Acceptance Date to occur by December 31, 2000.
5.8 The Certification by Telergy for the last Segment of the Global
IRU in the NYC Ring shall include a notation that the Acceptance Date for such
Segment shall be the Final Acceptance Date and the parties agree to work
cooperatively to verify that all the Dark Fibers in the entire Global IRU for
the NYC Ring meets the applicable standards and specifications applicable to the
Acceptance process, provided however that each of the dates set forth in
Paragraph 5.7 (ii) and (iii) and Paragraph 5.9 shall be extended one day for
each day of delay caused by (i) Global Crossing's request for Telergy to deviate
from the path of the Manhattan Ring or the path established by agreement of the
parties for any other Segments of the Global IRU in the NYC Ring, or (ii) the
need for Telergy to construct or install any redundant paths (rather than
utilizing CECONY service entrance pipes) in connection with the buildings
included in the Manhattan Ring.
5.9 The parties agree that damages for delay are difficult to
calculate and therefore agree that liquidated damages will be paid for delay or
later performance of Telergy's obligations under this Agreement pursuant to the
terms hereof. As regarding and limited to the amounts of liquidated damages,
Telergy recognizes that Global Crossing has assumed certain obligations of its
customers and its equipment suppliers for which delivery of the Global IRU is
essential. If (i) Telergy fails to achieve the Manhattan Acceptance Date by
December 31, 2000 (or such later date pursuant to Paragraph 5.8) or (ii) Telergy
fails to achieve the Final Acceptance Date by December 31, 2002 (or such later
date pursuant to Paragraph 5.8), Telergy shall pay liquidated damages to Global
Crossing of $25,000 for each day of delay not to exceed US$2,500,000 in the
aggregate; provided that if such delay in achieving the Manhattan Acceptance
Date or the Final Acceptance Date is attributable to delays or failures by
Global Crossing, no such liquidated damages shall be payable.
Liquidated damages shall not be Global Crossing's sole remedy for a
breach of contract, provided that if liquidated damages have been paid as set
forth
<PAGE> 17
herein, no further damages for delay shall be payable unless the Manhattan
Acceptance Date shall occur later than March 1, 2001 (or such later date
pursuant to Paragraph 5.8) due to Telergy's failure to complete its obligations.
If the Manhattan Acceptance Date is delayed beyond March 1, 2001 due to
Telergy's failure to complete its obligations, Telergy shall be liable for
actual damages in excess of liquidated damages.
ARTICLE VI
RELOCATION, REPLACEMENT, REPAIR
6.1 Telergy shall be responsible for all costs associated with
relocation of any of the Segments (or portions thereof) of the New York City
Ring or Building Entrances, provided, however, that if Telergy is required to
relocate any Segments under its Right-of-Way Agreements by a utility or
governmental body that owns or controls the underlying Right-of-Way for the
limited purposes of condemnation, eminent domain or satisfying public utility or
governmental requirements, or is required to relocate any Building Entrances due
to landlord requirements, Global Crossing shall pay [***], provided that (a)
such relocation is not caused by an act or omission of Telergy, (b) Telergy
shall have used reasonable efforts to avoid the cost of such relocation, and (c)
Telergy shall have used commercially reasonable efforts to achieve such
relocation in a cost-effective manner. In any event, Telergy shall use its best
efforts to minimize the effect of such relocation on Global Crossing's use of
the Global IRU.
6.2 If, following the Acceptance Date for a Segment, Telergy is
required by a third party with legal authority to do so, to relocate, replace or
repair all or any portion of such Segment of the NYC Ring or Building Entrances
or any of the facilities used or required in providing Global Crossing with the
Global IRU ("Mandatory Relocation"), Telergy shall provide Global Crossing
ninety (90) days' prior notice of any such Mandatory Relocation, if possible,
and shall proceed with such relocation, replacement or repair. Telergy shall
have the right hereunder to direct such relocation, replacement or repair
including, but not limited to, the right to determine the extent of, the timing
of, and methods to be used for such relocation, replacement or repair.
6.3 If, following the Acceptance Date for a Segment, Telergy
determines to relocate, replace or repair all or any portion of such Segment of
the NYC Ring or Building Entrances or any of the facilities use or required in
providing Global Crossing with the Global IRU ("Voluntary Relocation"), Telergy
shall provide Global Crossing ninety days' prior notice of any such Voluntary
Relocation which shall be performed at Telergy's sole cost and expense and shall
be undertaken in a manner that avoids any material deviation, including
eliminating the delivery of the of Dark Fiber in any building included in the
Manhattan Ring or any Dark Fiber in any Building Entrance in the Route of the
affected Segment, or a material service interruption. For purposes of this
Paragraph, the parties agree that the terms "material deviation" and "material
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE> 18
service interruption" shall be further defined by the parties within thirty days
from the date of this Agreement and shall be attached hereto as Appendix G and
incorporated herein by this reference.
6.4 For any relocations of Global IRU or Global Equipment at the
request of Global Crossing for its own business purposes, Global Crossing shall
pay all relocation Costs and shall be responsible to acquire all Right-of-Way
Agreements at its sole cost and expense in connection therewith. In the event
Telergy agrees to undertake any such relocations for the convenience of Global
Crossing, Telergy agrees to construct and install any such relocated Segments in
accordance with the applicable specifications included as Exhibits to this
Agreement.
6.5 Global Crossing shall pay all the relocation costs it is
required to pay under this Article VI within thirty (30) days of receipt of
Telergy's invoice and supporting documentation therefor.
ARTICLE VII
OPERATION, MAINTENANCE, AND REPAIR
7.1 Telergy reserves to itself, its Successors and Assigns, the
right, in its sole discretion, to own, operate and maintain the NYC Ring and
Building Entrances, and all related facilities, and Collocation and Telergy
Sites in such manner as will best enable it to meet its business purposes,
provided however that Telergy shall use its best efforts to ensure there is no
interference with Global Crossing's lease, use and possession of the Global IRU
or Building Entrance IRUs.
7.2 Any Maintenance conducted by Telergy shall be conducted in
accordance with the terms of this Agreement, the Maintenance and any equipment
manufacturers'/ suppliers' warranty recommendations in accordance with the
Schedule set forth below and Telergy will provide Global Crossing with
Maintenance routine reports annually.
<PAGE> 19
MAINTENANCE SCHEDULE:
OPERATIONAL HOURS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
BUSY HOURS AFTER HOURS OFF HOURS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[***] Local Monday [***] Local Monday [***] Local Monday
through Friday through Friday through Sunday (seven days a
week)
[***] Local [***] Local Saturday
Saturday and Sunday and Sunday
- -------------------------------------------------------------------------------------------------------------
No activities will take place The time in which activities The time reserved for any
except for EMERGENCY that have minimal impact on activities that could have a
activities. the network and customers direct effect on the network
will take place. This would and/or customers. This would
include non-traffic effecting include splicing active fibers,
activities (i.e., splicing a new installation/removal of active
element on a non-traffic equipment, battery
bearing right, fiber prep work) maintenance, AC/DC power
work, etc.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
7.3 During the Term, Telergy shall perform all required Routine
Maintenance and Non-Routine Maintenance for the Global IRU and any Building
Entrance IRUs pursuant to Exhibit H. "Routine Maintenance" means maintenance and
repair work that Telergy is obligated to provide as routine maintenance under
the terms and conditions of its Maintenance Standards attached hereto as Exhibit
H.
"Non-Routine Maintenance" means maintenance and repair work that
Telergy is obligated to provide, which is:
(a) Other than Routine Maintenance; and
(b) Not required pursuant to any other provision of this Agreement.
7.4 Telergy shall provide Global Crossing with three (3) Business
Days prior written notice of any Non- Routine, non-emergency maintenance, and
shall use its best efforts to ensure that such maintenance shall not in any way
interfere with Global Crossing's lease, use and possession of the Global IRU.
Telergy shall provide Global Crossing with notice of any emergency maintenance
or of any hazardous condition outside the control of Telergy that in Telergy's
reasonable judgment will interrupt service as quickly as possible under the
circumstances giving rise to the emergency or potential disruption and if only
verbal notification is possible, Telergy shall provide Global Crossing with
written notice within three Business Days thereafter. In the event
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material
omitted on this page. The omitted portions have been filed separately
with the Securities and Exchange Commission.
<PAGE> 20
of a disruption of service to the Global IRU, Global Crossing shall immediately
notify Telergy by contacting the 24-hour telephone number designated by Telergy.
Telergy shall follow the Restoration Procedures contained in Exhibit H and shall
use commercially reasonable efforts to respond as promptly as possible under the
circumstances and to use commercially reasonable efforts to restore services to
(a) any non-service affecting failure, interruption, or impairment in the
operation of the Global IRU arising on Telergy's side of the demarcation or
splice point where the Global IRU is delivered to Global Crossing
("Disruptions") within eight hours, and (b) any such service-affecting
Disruptions within six hours.
7.5 The Maintenance Fee set forth in Paragraph 3.4 shall not cover
the following the costs of which Global Crossing shall pay as provided herein
(i) its pro-rata share of the costs of emergency maintenance arising from
disasters or other catastrophic situations outside the control of Telergy and
(ii) the entire costs of damage caused by Global Crossing's negligence or
willful misconduct at Telergy's then-prevailing rates or other actual, direct
and reasonable costs incurred by Telergy. Global Crossing shall be entitled to
request that Telergy perform maintenance in addition to the Routine and
Non-Routine Maintenance upon prices, terms and conditions pertaining thereto to
be negotiated by the parties. Global Crossing shall not be obligated to make
payments pursuant to the preceding clause (ii) to the extent Global Crossing is
obligated to reimburse Telergy for all or a portion of the costs incurred
pursuant to other provisions of this Agreement or if the Non-Routine Maintenance
costs are incurred due to Telergy's negligence or willful misconduct.
7.6 Telergy may subcontract for maintenance, repair, restoration,
relocation, or other operational and technical services it is obligated to
provide hereunder or may have the underlying right-of-way facility owner or its
contractor perform such obligations, though Telergy shall remain liable to
Global Crossing for such obligations relating to the Global IRU and any Building
Entrance IRUs.
7.7 Telergy's maintenance and repair obligations under this
Agreement shall not include maintenance, repair or replacement of Global
Equipment.
7.8 Notwithstanding any other provision of this Agreement, Global
Crossing acknowledges that the fiber strands installed in electric utility
facilities are in close proximity to electrical cables that are subject to
fault, burnout, or other malfunction which can result in damage, destruction, or
disruption to such fiber strands and that as part of the lease of the Global IRU
Global Crossing assumes all risk of such damage, destruction, or disruption of
such Global IRU, provided however that, Telergy shall hold Global Crossing
harmless for any such damage, destruction or disruption of the Global IRU to the
extent that it was proximately caused by Telergy, its agents, employees,
contractors officers or directors.
7.9 Global Crossing shall promptly notify Telergy of any matters
pertaining to any damage or impending damage to or loss of the NYC Ring that are
known to it and that will adversely affect the Global IRU.
<PAGE> 21
7.10 The parties agree to establish detailed communication
principles between them, including details of personnel, contact numbers and
periodic progress meetings or other mechanism to provide updates.
ARTICLE VIII
USE OF THE GLOBAL IRU
8.1 Global Crossing may use the Global IRU for any lawful purpose,
subject to the restrictions set forth in this Agreement, including but not
limited to Paragraph 2.4. Telergy shall have no right to use the Global IRU
during the Term or any Renewal Term.
8.2 Global Crossing shall take all reasonable precautions to prevent
damage to the NYC Ring, Building Entrances, or the Telergy Cable, Sites or
Collocation Space, including the Dark Fiber, Cable or Rights-of-Way, used or
owned by Telergy or third parties in connection therewith.
8.3 Neither party shall use equipment, technologies, or methods of
operation that interfere in any material way with or materially adversely affect
the NYC Ring, any Building Entrances, the Telergy Network, the Global IRU or any
Building Entrance IRU or the lawful use of the same by the other party or by
third parties or the other party's or such third parties' respective Dark Fiber,
equipment, electronics or facilities associated therewith.
8.4 Except with respect to Liens or pledges on the Global IRU, Dark
Fiber in any Building Entrances or Global Equipment in any Collocation Space in
connection with its financing activities, Global Crossing shall not cause or
permit any part of the NYC Ring, Telergy Cable or Telergy Collocation Space to
become subject to any mechanic's lien, materialman's lien, vendor's lien, or any
similar lien whether by operation of law or otherwise ("Liens").If Global
Crossing breaches its obligations under this Paragraph 8.4, it shall immediately
notify Telergy in writing, shall promptly cause such lien to be discharged and
released of record without cost to Telergy, and shall indemnify Telergy against
all costs and expenses (including reasonable attorneys' fees and court costs at
trial and on appeal) incurred in discharging and releasing such Liens. Telergy
shall not cause or permit the Global IRU to become subject to any mechanic's
lien, materialman's lien, vendor's lien, or any similar lien whether by
operation of law or otherwise, provided however that nothing in this Paragraph
shall be construed to prohibit any Liens or pledges by Telergy on the Telergy
Cable, Collocation Space, the NYC Ring or any payments due under this Agreement
in connection with its financing activities. If Telergy breaches its obligations
under this Paragraph, it shall immediately notify Global Crossing in writing,
shall promptly cause such lien to be discharged and released of record without
cost to Global Crossing, and shall indemnify Global Crossing against all costs
and expenses (including reasonable attorneys' fees and court costs at trial and
on appeal) incurred in discharging and releasing such lien.
<PAGE> 22
8.5 Global Crossing shall not access any part of the NYC Ring,
Telergy Sites, the Telergy Network or Telergy Cable except to the extent as
expressly authorized in this Agreement, and Global Crossing shall not enter upon
the Rights-of-Way unless accompanied by a Telergy Escort. Global Crossing
acknowledges that a violation of this provision will constitute a material
breach of this Agreement.
8.6 Telergy agrees to permit the entry by any lender of Global
Crossing that has filed a financing statement on any Global Equipment that is
installed in any Collocation Space owned or controlled by Telergy to enter upon
the premises with a Telergy escort to remove any such Global Equipment upon
advance written notice from the lender describing the Global Equipment to be
removed. Global Crossing hereby releases and agrees to hold Telergy harmless
from any liability in connection with any such removal by a lender of Global
Crossing. Nothing in this Paragraph shall be construed to allow any such lender
to remove any Dark Fiber or any portion of the Telergy Cable or the NYC Ring. In
the event Telergy acquires any collocation space from Global Crossing, Global
Crossing's agreement shall contain the same entry language as set forth in this
Paragraph 8.6.
ARTICLE IX
INDEMNIFICATION
9.1 Each party ("Indemnitor") shall indemnify, defend, protect, and
hold harmless the other party, its employees, members, managers, officers,
agents and subcontractors from and against any injury, death, loss, expense,
liability, claim, cost or damage to any person, tangible property, or facilities
of any person or entity (including reasonable attorneys' fees and costs at trial
and appeal), to the extent arising out of or resulting from the acts or
omissions, negligent or otherwise, of Indemnitor, its officers, employees,
servants, Affiliates, agents or subcontractors (such subcontractors whose acts
may create indemnification obligations not to include, when Global Crossing is
Indemnitor, Telergy), or otherwise resulting from, arising in connection with or
relating to its performance (including breach or failure thereto) under this
Agreement, which performance is within its reasonable control;
9.2 Any claims, liabilities or damages arising out of any violation
by Indemnitor of regulations, rules, statutes, or court orders of any local,
state, or federal governmental agency, court, or body in connection with its
performance under this Agreement or otherwise.
9.3 The obligations of this Article shall survive the expiration or
earlier termination of this Agreement. The provisions of Article IX shall not be
construed as limiting the Indemnitor's obligations pursuant to this Article or
other provisions of this Agreement.
ARTICLE X
LIMITATION OF LIABILITY
10.1 NEITHER PARTY NOR ANY OF A PARTY'S EMPLOYEES,
<PAGE> 23
MEMBERS, MANAGERS, OFFICERS, AGENTS OR SUBCONTRACTORS SHALL BE LIABLE TO THE
OTHER PARTY FOR SPECIAL, PUNITIVE, EXEMPLARY, CONSEQUENTIAL, INCIDENTAL OR
INDIRECT LOSSES OR DAMAGES AS A RESULT OF THE PERFORMANCE OR NONPERFORMANCE OF
ITS OBLIGATIONS UNDER THIS AGREEMENT, OR ITS ACTS OR OMISSIONS RELATED TO THIS
AGREEMENT WHETHER OR NOT ARISING FROM SOLE, JOINT OR CONCURRENT NEGLIGENCE,
STRICT LIABILITY OR VIOLATION OF LAW.
10.2 Subject to Paragraph 10.3, nothing contained in this Agreement
shall operate as a limitation on the right of either Telergy or Global Crossing
to bring an action or claim for damages against any third party, including
indirect, special, or consequential damages, based on any acts or omissions of
such third party as such acts or omissions may affect the construction,
operation or use of such party's Dark Fiber in the NYC Ring or Building
Entrances. Each of Telergy and Global Crossing shall assign such rights of
claims, execute such documents and do whatever else may be reasonably necessary
to enable the other (at such other party's sole expense) to pursue any such
action against such third party.
10.3 To the extent enforceable by law, Global Crossing waives any
right to bring an action or claim for damages against CECONY other than where
such action or claim arises from a direct impact on the Global IRU or any
Building Entrance IRU caused by the gross negligence or willful misconduct of
CECONY. To the extent enforceable by law, Global Crossing waives any right to
bring an action or claim for damages against CECONY for "Consequential Losses"
as such term is defined in Paragraph 12.B of the L&O Agreement. For avoidance of
doubt, Telergy and Global Crossing hereby acknowledge that the intent of this
Paragraph is, to the extent enforceable by law, to prohibit on any action or
claim by Global Crossing against CECONY where such action or claim would give
rise to an obligation by Telergy to indemnify CECONY under the L&O Agreement.
ARTICLE XI
INSURANCE
11.1 Unless higher coverages are required in the provisions
governing insurance as set forth in the Right-of-Way Agreements attached hereto
as Appendices A and B, during the Term, the parties shall each obtain and
maintain not less than the following insurance:
11.2 Commercial General Liability Insurance, including coverage for
sudden and accidental pollution legal liability, with a combined single limit of
$10,000,000 for bodily injury and property damage per occurrence and in the
aggregate.
11.3 Worker's Compensation Insurance in amounts required by
applicable law and Employers Liability Insurance with limits not less than
$1,000,000 each accident.
<PAGE> 24
11.4 Automobile Liability Insurance with a combined single limit of
$2,000,000 for bodily injury and property damage per occurrence, to include
coverage for all owned, non-owned, and hired vehicles.
11.5 The limits set forth above are minimum limits and shall not be
construed to limit the liability of either party. In the event the insurance
requirements under any applicable Right-of-Way Agreements attached hereto as
Appendices A and B required any additional insurance obligations, including any
requirement to name the underlying owner of the right-of-way as an additional
named insured entitled to notice of cancellation ("Additional Insurance
Requirements"), such Additional Insurance Requirements shall be incorporated
herein and required hereunder.
11.6 Unless otherwise agreed, each party's insurance policies
required above shall be obtained and maintained from reputable insurance
companies acceptable to the other party and the other party, its Affiliates,
officers, directors, and employees, and any other party entitled to
indemnification hereunder shall be named as additional insureds to the extent of
such indemnification. Each party shall provide the other party with an insurance
certificate confirming compliance with the insurance requirements of this
Article. The insurance certificate shall indicate that the other party shall be
notified not less than thirty (30) days prior to any cancellation or material
change in coverage.
11.7 If the Additional Insurance Requirements do not prohibit
claims-made policies and either party provides any of the foregoing coverages
through a claims-made policy basis, that party shall cause such policy or
policies to be maintained for at least three (3) years beyond the expiration of
this Agreement.
11.8 To the extent permitted under any Additional Insurance
Requirements, the parties shall each obtain from the insurance companies
providing the coverages required by this Agreement a waiver of all rights of
subrogation or recovery in favor of the other party and, as applicable, its
members, managers, shareholders, Affiliates, assignees, officers, directors, and
employees or any other party entitled to indemnity under this Agreement to the
extent of such indemnity.
11.9 Nothing in this Agreement shall be construed to prevent either
party from satisfying its insurance obligations pursuant to this Agreement under
a blanket policy or policies of insurance that meet or exceed the requirements
of this Article.
ARTICLE XII
TAXES AND GOVERNMENTAL FEES
12.1 Global Crossing and Telergy each shall be responsible for
paying
<PAGE> 25
any and all taxes expressly or implicitly imposed based on the gross or net
receipts or gross or net income, due to their respective assets, properties,
revenues or sales or imposed on any real or personal property of the party
("Taxes") provided however that Global Crossing shall be responsible for any
such Taxes assessed upon the use of the Global Equipment, the Global IRU or any
Building Entrances IRUs
12.2 Subject to Paragraph 12.1 above, Telergy shall timely report
and pay any and all fees assessed against it due to its construction, ownership
or use of the NYC Ring, provided that Global Crossing shall reimburse Telergy
for its pro-rata share of property taxes (including ad valorem, use, real
property, personal property, or similar taxes, franchise fees, or assessments
that are based on the value of property or of a property right) attributable to
the Global IRU, Global Equipment or any Building Entrance IRUs ("Fees").
Further, to the extent any Taxes are based on the value, operation or existence
of any Building Entrance IRU or the Global IRU, Global Crossing shall pay its
pro rata share of such Fees.
12.3 If Telergy is assessed for any Taxes or Fees related to the
Global IRU or Global Crossing's use of the Global IRU or that Global Crossing is
obligated to pay pursuant to Paragraphs 12.1 or 12.2, Global Crossing shall
reimburse Telergy for any payment of such Fees within thirty (30) days of
receipt of Telergy's invoice.
12.4 The parties shall reasonably cooperate in any contest of any
Taxes or Fees so as to avoid, to the extent reasonably possible, prejudicing the
interests of the other party and shall use commercially reasonable efforts to
reduce or eliminate any Taxes or Fees described in this Article .
12.5 In the event that transfer taxes are applicable to the grant of
the Global IRU or any Building Entrance IRU, the parties hereby agree to pay 50%
each of such taxes.
ARTICLE XIII
DISCLAIMER OF WARRANTIES
EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, TELERGY MAKES NO
WARRANTY TO GLOBAL CROSSING OR ANY OTHER PERSON OR ENTITY, WHETHER EXPRESS,
IMPLIED OR STATUTORY, AS TO THE INSTALLATION, DESCRIPTION, QUALITY,
MERCHANTABILITY, COMPLETENESS, OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY
GLOBAL IRU, THE TELERGY NETWORK, THE TELERGY SITES, OR ANY SERVICE PROVIDED
HEREUNDER OR DESCRIBED HEREIN, OR AS TO ANY OTHER MATTER, ALL OF WHICH
WARRANTIES ARE HEREBY EXPRESSLY EXCLUDED AND DISCLAIMED.
ARTICLE XIV
NOTICE
14.1 Unless otherwise provided in this Agreement, all notices and
<PAGE> 26
communications concerning this Agreement shall be in writing and addressed to
the other party as follows:
If to Global Crossing:
US Crossing, Inc.
150 El Camino Drive, Suite 204
Beverly Hills, CA 90212
Attention: President
Facsimile: 310-281-4942
with a copy to:
US Crossing, Inc.
150 El Camino Drive, Suite 204
Beverly Hills, CA 90212
Attention: General Counsel
Facsimile: 310-281-4942
If to Telergy:
Telergy Metro, LLC
Attention: President
One Telergy Parkway
East Syracuse, New York 13057
Facsimile: (315) 433-5358
with a copy to:
Telergy, Inc.
Attention: General Counsel
20 Corporate Woods
Albany, New York 12211
Facsimile: (518) 463-9937
with a copy to:
Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.
Attention: Steven D. Rubin
Museum Tower, Suite 2200
150 West Flagler Street
Miami, Florida 33130
Facsimile: (305) 789-3395
or at such other address as may be designated in writing to the other party.
<PAGE> 27
14.2 Unless otherwise provided herein, notices shall be hand
delivered, sent by registered or certified U.S. Mail, postage prepaid, or by
commercial overnight delivery service, or transmitted by facsimile, and shall be
deemed served or delivered to the addressee or its office when received at the
address for notice specified above when hand delivered, upon written
confirmation of completion of transmission when sent by facsimile, on the day
after being sent when sent by overnight delivery service, or five (5) days after
deposit in the mail when sent by U.S. mail.
ARTICLE XV
CONFIDENTIALITY
15.1 Each party hereby agrees to maintain the confidentiality of all
information received orally or in writing from the other party in the course of
performing or obtaining any benefits, services or consideration under this
Agreement and the receiving party shall protect the confidential information
from disclosure to third parties with the same degree of care accorded its own
confidential and proprietary information; provided, however, that the parties
shall each be entitled to provide such confidential information to their
respective directors, officers, members, managers, employees, agents, and
contractors, consultants ("Representatives"), Affiliates, contractors, financial
institutions, underlying Right-of-Way owners, and Representatives of Affiliates,
in each case whose access is reasonably necessary in furtherance of the
receiving party's performance under this Agreement, including, without
limitation Paragraph 2.4 and Article XX so long as any permitted Affiliate,
Successor or Assignee executes a confidentiality agreement with Telergy agreeing
to the provisions set forth in this Article XV. Each party shall be liable (with
respect to the other party) for any breach of this provision by any person to
whom that party discloses confidential information. The terms of this Agreement
(but not its execution or existence) shall be considered confidential
information for purposes of this Article. Notwithstanding any other provision
herein, neither Telergy nor Global Crossing shall be required to hold
confidential any information that:
(a) becomes publicly available other than through the recipient;
(b) is required to be disclosed by a governmental, regulatory
authority, or judicial order, rule, or regulation or proceedings with respect to
this Agreement or a party's obligations as a publicly held company;
(c) is independently developed by the recipient;
<PAGE> 28
(d) becomes available to the recipient without restriction from a
third party who lawfully obtained the information and who is under no obligation
to the disclosing party;
(e) is required by its lender and is given to such lender on a
confidential basis,
(f) was, prior to the time of disclosure to the recipient, already
known to the recipient and was not acquired, directly or indirectly, from the
disclosing party or its representatives or from a third party who had obtained
the information unlawfully; and
(g) is no longer treated as confidential by the disclosing party,
provided however that in the event of any dispute arising from any disclosure
made pursuant to this subclause, the burden of proving that such information is
no longer so treated shall be on the recipient.
These obligations shall survive expiration or termination of this
Agreement for a period of two (2) years.
15.2 Notwithstanding to the contrary in this Article XV confidential
information shall not include information disclosed by the receiving party as
required by applicable law or regulation; provided, however, that the
information disclosed is limited to the existence and general nature of the
relationship between Telergy and Global Crossing, including, as required, the
scope, approximate revenues, purposes, and expectations related to such
relationship and a description of any disputes relating thereto. Notwithstanding
the foregoing, this Agreement may be provided to any governmental agency or
court of competent jurisdiction to the extent required by applicable law, or in
connection with either party's financing of its business activities, provided
that the recipient agrees that it will provide the disclosing party with prompt
notice of such order(s) to enable the disclosing party to seek and appropriate
protective order or to take steps to protect the confidentiality of such
confidential information.
15.3 Neither party shall use the name, trade name, service mark, or
trademark of the other in any promotional or advertising material without the
prior written consent of the other. The parties shall coordinate and cooperate
with each other when making public announcements related to the terms of this
Agreement and each party shall have the right to promptly review, comment upon,
and approve any publicity materials, press releases, or other public statements
by the other party that refer to, or that describe any aspect of, this
Agreement.
15.4 No provision of this Article 15 shall affect, limit or restrict
either party's right to engage in any business in any place at any time,
whatsoever, provided that the receiving party does not disclose the confidential
information in violation of this
<PAGE> 29
Agreement.
ARTICLE XVI
DEFAULT
16.1 Either party may, by written notice to the other party,
immediately upon receipt or such later date as specified in the notice, in any
one of the following circumstances (each an "Event of Default"), pursue any
legal remedies it may have under applicable law or principles of equity relating
to such Event of Default:
(a) If the other party fails to comply with the material terms and
conditions of this Agreement, including any payment obligations, provided
however, that except for a failure to pay monies when due hereunder, a party
shall not be in default under this Agreement unless and until the other party
provides it written notice of such default and the first party shall have failed
to cure the same within thirty (30) days after receipt of such notice or such
longer period as the non-defaulting party may authorize in writing (such period
the "Cure Period"); provided, further, that where such default cannot reasonably
be cured such Cure Period, if the first party shall proceed promptly to use its
best commercial efforts to cure the same and prosecute such curing with due
diligence and at no cost to the non-defaulting party, the Cure Period shall be
automatically be extended for such period of time as may be required to complete
such curing, provided that the defaulting party shall provide written progress
reports to the non-defaulting party during an extension of the Cure Period. Any
event of default may be waived at the non-defaulting party's option. Upon the
failure of a party to timely cure any such default within the Cure Period then
the non-defaulting party may pursue any legal remedies it may have under
applicable law or principles of equity relating to such breach. Notwithstanding
anything to the contrary in this Paragraph, the Cure Period applicable to a
failure to pay monies when due under this Agreement shall have a duration of ten
Business Days.
(b) If the other party shall commence a voluntary case or other
proceeding seeking liquidation, reorganization, or other relief with respect to
itself or its debts under any bankruptcy, insolvency, or other similar law, now
or hereafter in effect, or seeking the appointment of a trustee, receiver,
liquidator, custodian, or other similar official of it or any substantial part
of its property, or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any corporate action to authorize any of the foregoing;
(c) If an involuntary case or other proceeding shall be commenced
against the other party seeking liquidation, reorganization or other relief to
it or its debt under any bankruptcy, insolvency, or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary proceeding shall remain undismissed and
unstayed for a period of 60 days; or an order for relief shall be entered
against the other party.
<PAGE> 30
(d) Unauthorized use, access or trespass by Global Crossing or its
employees, agents or contractors on the Rights-of-Way or Telergy Facilities or
violation by Global Crossing or its employees, agents, or contractors or any
applicable Right-of-Way or Franchise Agreements applicable to the New York City
Network, including Global Crossing's use of the Global IRU, Building Entrances
or Collocation space in an unlawful manner; which shall constitute a material
breach of this Agreement which, notwithstanding anything to the contrary in this
Agreement, shall not be subject to any Cure Period of Force Majeure.
16.2 Force Majeure events pursuant to Article XVIII shall not
constitute a default or provide a basis for termination under this Article XVI.
16.3 In addition to the rights set forth in this Article XVI, This
Agreement may be terminated by Global Crossing if an Event of Default by Telergy
occurs and is continuing. In addition to the rights set forth in this Article
XVI, this Agreement may be terminated by Telergy in the event of a
bankruptcy-related event as described in subclauses 16.1(b) and (c).
16.4 If the Agreement is terminated as provided in this Article XVI,
the defaulting party shall pay, in addition to any other damages payable, the
reasonable costs of settlement including accounting, legal, clerical and other
expenses necessary for the preparation of settlement claims and supporting data
with respect to the terminated portion of this Agreement.
16.5 Once the Agreement is terminated under this XVI, Global
Crossing shall have no further right to use any of the Global IRU, Building
Entrances or Telergy Sites. Global Crossing shall within fifteen (15) days
remove all Global Equipment without damaging property of Telergy or any other
party, provided that a Telergy escort shall accompany Global Crossing for its
access to any Telergy Sites or facilities. If Global Crossing shall not have
removed Global Equipment within such fifteen (15) -day period, Telergy shall
have the right, but not the obligation, to remove the Global Equipment. Any
costs or expenses incurred by Telergy in removing the Global Equipment shall be
reimbursed by Global Crossing within ten (10) days after receipt of Telergy's
invoice therefor. The foregoing remedy is in addition to any other remedy which
may be available to Telergy under the Agreement, at law or in equity. Nothing in
this Article shall be construed or implied to authorize Global Crossing to
remove any fibers, cable or other facilities installed in the NYC Ring or
Building Entrances.
ARTICLE XVII
FORCE MAJEURE
Neither Telergy nor Global Crossing shall be in default under this
<PAGE> 31
Agreement (nor shall Telergy be liable for liquidated damages pursuant to
Paragraph 5.9 hereof) with respect to any delay in its performance (other than a
failure to make payments when due) caused by any of the following conditions
(each a "Force Majeure"): (a) act of God; (b) fire; (c) flood; (d) material
shortage or unavailability not resulting from the responsible party's failure to
timely place orders or take other necessary actions therefor; (e) acts, or
failure to act of any governmental authority (f) war or civil disorder; or (g)
any other cause beyond the reasonable control of such party, provided that (i)
the failure (other than by reason of Force Majeure) of any subcontractor,
supplier or transporter to perform its obligations to Telergy (including on the
account of insolvency) unless such supplies or transportation or other services
are generally unavailable on commercially reasonable prices, terms or conditions
in the New York City marketplace, and (ii) any increase in Telergy's costs
(other than by reason of Force Majeure) shall not in and of itself constitute
Force Majeure. If any Force Majeure event causes an increase in the time
required for performance of Telergy's obligations hereunder, Telergy shall be
entitled to an equitable extension of time to complete such obligations, in each
case equal to at least one day for each day resulting from the Force Majeure,
provided however that if a Force Majeure applicable to a party continues for a
total of ninety (90) days, the other party may terminate this Agreement by
written notice and this Agreement shall be deemed to have been terminated
without liability or further obligation under this Agreement (except with
respect to the confidentiality provisions set forth in Article XV) to either
party effective on the date the notice is deemed made pursuant to Article XVII
of this Agreement, and neither party shall be liable for damages The party
claiming relief under this Article shall promptly notify the other in writing of
the existence of the Force Majeure relied on, the expected duration of the Force
Majeure Event, and the cessation or termination of the Force Majeure Event. The
party claiming relief under this Article shall exercise commercially reasonable
efforts to minimize the time for any such delay.
ARTICLE XVIII
RULES OF CONSTRUCTION
18.1 The captions or headings in this Agreement are strictly for
convenience and shall not be considered in interpreting this Agreement or as
amplifying or limiting any of its content. Words in this Agreement that import
the singular connotation shall be interpreted as plural, and words that import
the plural connotation shall be interpreted as singular, as the identity of the
parties or objects referred to may require.
18.2 Unless expressly defined herein, words having well-known
technical or trade meanings in the telecommunications industry shall be so
construed.
18.3 Except as set forth to the contrary herein, any right or remedy
of Telergy or Global Crossing shall be cumulative and without prejudice to any
other right or remedy, whether contained herein or not.
18.4 Nothing in this Agreement is intended to provide any legal
rights to anyone not an executing party of this Agreement except under the
indemnification and
<PAGE> 32
insurance provisions.
18.5 This Agreement has been fully negotiated between and jointly
drafted by Telergy and Global Crossing.
18.6 The following Exhibits to this Agreement are hereby
incorporated by reference hereto and made a part of this Agreement:
Exhibit A [Intentionally Omitted]
Exhibit B Collocation Provisions
Exhibit C Fiber Splicing, Testing & Acceptance
Exhibit D Telergy Fiber Optic Cable Specifications
Exhibit E Outside Plant Fiber Optic Construction
Specifications
Exhibit F Telergy Site Specifications
Exhibit G As-Built Drawing Specifications
Exhibit H Maintenance, Operations Specifications,
Telergy Operations Fiber Optic
Restoration Schedule, Telergy
Operations Fiber Optic Maintenance
and Restoration
In the event of a conflict between the provisions of this Agreement
and those of any Exhibit, the provisions of this Agreement shall prevail and
such Exhibits shall be corrected accordingly.
18.7 Except as otherwise set forth herein, for the purpose of this
Agreement the normal standards of performance within the telecommunications
industry in the relevant market shall be the measure of whether a party's
performance is reasonable and timely.
18.8 Except as the context otherwise indicates, all references to
Exhibits, Articles and Paragraphs refer to provisions of this Agreement.
18.9 The failure of either Telergy or Global Crossing to enforce any
of the provisions of this Agreement, or the waiver thereof in any instance,
shall not be construed as a general waiver or relinquishment on its part of any
such provision, but the same shall nevertheless be and remain in full force and
effect.
18.10 This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York without reference to
its choice of law principles.
18.11 If any term, covenant or condition in this Agreement shall, to
any extent, be invalid or unenforceable in any respect under the laws governing
this Agreement, the remainder of this Agreement shall not be affected thereby,
and each term, covenant or condition of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
<PAGE> 33
ARTICLE XIX
ASSIGNMENT
Absent written approval from the other party, this Agreement and any
of the rights, benefits and obligations or duties hereunder may not be assigned
or transferred to another Person, provided however that (i) Global Crossing may
assign this Agreement to (a) a wholly-owned direct or indirect subsidiary of
Global Crossing Ltd. (b) a successor substantially all of the assets or capital
stock of Global Crossing ("Successor") or (c) a lending or banking institution
providing financing for the Global Crossing Network and holding a security
interest in assets comprising the Global Crossing Network and (ii) Telergy may
assign this Agreement to (a) a wholly-owned direct or indirect subsidiary of
Telergy, Inc. (b) a successor substantially all of the assets or capital stock
of Telergy ("Successor") or (c) a lending or banking institution providing
financing for the NYC Ring and holding a security interest in assets comprising
the NYC Ring (each of (i)(a), (b) and (c) and (ii)(a), (b) and (c), an
"Assignee") in each case upon thirty days advance written notice and provided
that the parties hereto shall be and remain liable for its performance under
this Agreement in the event of a breach by the Assignee and further provided
that the such Assignee agrees in writing to be bound by and to comply with all
the terms and conditions of this Agreement. Any purported assignment, transfer
or other disposition by either party which is in violation of this Article shall
be void and of no force and effect.
ARTICLE XX
REPRESENTATIONS AND WARRANTIES
20.1 In addition to any other representations and warranties
contained in this Agreement, each party hereto represents and warrants to the
other that:
A. It has the full right and authority to enter into, execute,
deliver, and perform its obligations under this Agreement;
B. It has taken all requisite corporate, partnership, or other
applicable organizational action to approve the execution, delivery, and
performance of this Agreement;
C. This Agreement constitutes a legal, valid and binding obligation
enforceable against such party in accordance with its terms;
D. Its execution of and performance under this Agreement shall not
violate any applicable existing regulations, rules, statutes, or court orders of
any local, state, or federal government agency, court, or body; and
E. It is financially able to fulfill its payment and other
obligations under this Agreement.
F. Prior to the any Acceptance Date, it will have obtained each
<PAGE> 34
government or municipal approval, franchise and authorization, right-of-way
agreement, pole attachment agreement, conduit agreement and lease, license,
consent or other agreement necessary to fulfill its obligations with respect to
the Segment or Building Entrance IRU being Accepted under this Agreement
("Authorizations").
G. The execution, delivery and performance of this Agreement by each
party and the consummation of the transactions contemplated hereby, does not and
shall not, subject to each obtaining the Authorizations, conflict with, or
result in the breach of, or constitute a default under, or result in the
termination, cancellation or acceleration (whether after the filing of notice or
the lapse of time or both) of any right or obligation of such party under any
material contract of such party, or result in the creation of any encumbrance
attributable to Telergy upon the Global IRU or any Building Entrance IRU or any
encumbrance attributable to Global Crossing upon the NYC Ring, the Telergy Cable
or the Telergy Collocation Space.
20.2 Global Crossing and Telergy each agree to do such other and
further acts and things, and to execute and deliver such additional instruments
and documents, not creating any obligations, or imposing any expenses,
additional to those otherwise created or imposed by this Agreement, as either
party may reasonably request from time to time whether at or after the execution
of this Agreement, in furtherance of the express provisions of this Agreement.
20.3 Global Crossing hereby represents and warrants to Telergy that
is and will continue to be an indirect 100% wholly-owned Subsidiary of Global
Crossing, Ltd., which is the party to the Strategic Partner Term Sheet dated May
16, 1999 between Global Crossing, Ltd. and Telergy, Inc., for the Term of this
Agreement.
20.4 Telergy Metro LLC hereby represents and warrants to Global
Crossing that it is an will continue to be a wholly-owned Subsidiary of Telergy,
Inc., which is the other party to the Strategic Partner Term Sheet dated May 16,
1999 between Global Crossing, Ltd. and Telergy, Inc., for the Term of this
Agreement.
ARTICLE XXI
RELATIONSHIP OF THE PARTIES
The relationship between Telergy and Global Crossing shall not be
that of partners, agents, or joint venturers for one another, and nothing
contained in this Agreement shall be deemed to constitute a partnership or
agency agreement between them for any purposes, including, but not limited to
federal income tax purposes. Telergy and Global Crossing, in performing any of
their obligations hereunder, shall be independent contractors or independent
parties and shall discharge their contractual obligations at their own risk.
ARTICLE XXII
PROHIBITION ON IMPROPER PAYMENTS
Neither party shall use any funds received under this Agreement for
illegal
<PAGE> 35
or otherwise "improper" purposes. Neither party shall pay any commission, fees
or rebates to any employee of the other party, or favor any employee of such
other party with gifts or entertainment of significant cost or value. If either
party has reasonable cause to believe that one of the provisions in this Article
has been violated, it, or its representative, may audit the relevant records of
the other party for the sole purpose of establishing compliance with such
provisions.
ARTICLE XXIII
MISCELLANEOUS
23.1 Except as set forth in Article XXIII, this Agreement
constitutes the entire and final agreement and understanding between Telergy and
Global Crossing with respect to the subject matter hereof and supersedes all
prior agreements relating to the subject matter hereof, which are of no further
force or effect. The Exhibits referred to herein (as may be amended from time to
time in accordance with this Agreement) are integral parts hereof and are made a
part of this Agreement by reference.
23.2 This Agreement may only be amended or supplemented by an
instrument in writing executed by duly authorized representatives of Telergy and
Global Crossing.
23.3 This Agreement may be executed in one or more counterparts, all
of which taken together shall constitute one and the same instrument.
23.4 This Agreement may be duly executed and delivered by a party by
execution and facsimile delivery of the signature page of a counterpart to the
other party, provided that, if delivery is made by facsimile, the executing
party shall promptly deliver a complete counterpart that it has executed to the
other party, and this Agreement shall not be effective until duly signed by both
parties with delivery of the facsimile counterparts to both parties ("Effective
Date").
23.5 Unless otherwise expressly provided in this Agreement, the
rights and remedies provided by this Agreement are cumulative and the use of any
one right or remedy by any party shall not preclude or waive its right to sue on
any or all other remedies. Said rights and remedies are given in addition to any
other rights such party may have by law, statute, ordinance or otherwise, except
as such remedies are expressly limited in this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 36
IN WITNESS WHEREOF and in confirmation of their consent to the terms
and conditions contained in this Agreement and intending to be legally bound
hereby, Telergy and Global Crossing have executed this Agreement as of the dates
set forth below.
US CROSSING, INC.
By: /s/ Barry Porter
____________________________________
Print Name: Barry Porter
____________________________
Title: Senior Vice President
_________________________________
TELERGY METRO, LLC
By: /s/ Brian Kelly
_____________________________________
Print Name: Brian P. Kelly
Title: Chief Executive Officer of Telergy Inc.
as Managing Member of Telergy Metro LLC
<PAGE> 1
EXHIBIT 10.13.1
MASTER EQUIPMENT LEASE AGREEMENT
Agreement No. Dated as of September 15, 1999
-----------------------
among
GATX TELECOM INVESTORS I, L.L.C.,
as Lessor,
TELERGY NETWORK SERVICES, INC.
as Lessee
and
TELERGY, INC.
as Parent
LESSOR'S COMMITMENT: $35,000,000
Initial Rent Factor: 7.601% Initial Lease Term: 48 months
-------- ------
Treasury Base Rate: 5.91% Treasury Note Maturity: 48 months
-------- ------
Initial Implicit Rate: 11%
--------
Commitment Termination Date: September 15, 2000
The terms and information set forth on this cover page are a part of the
MASTER EQUIPMENT LEASE AGREEMENT, dated as of the date first written above (this
"Lease"), entered into by and among GATX TELECOM INVESTORS I, L.L.C. ("Lessor"),
TELERGY NETWORK SERVICES, INC. ("Lessee") and TELERGY, INC. ("Parent"), the
terms and conditions of which are as follows:
<PAGE> 2
LESSOR'S OBLIGATIONS UNDER THIS LEASE AND EACH SCHEDULE ARE SUBJECT TO
THE PRIOR SATISFACTION OF THE CONDITIONS SET FORTH ON RIDER I HERETO.
1. DEFINITIONS: Unless otherwise defined in this Lease (which term
shall include the cover page, any Rider, any Exhibit or any Schedule hereto),
capitalized terms shall have the following meanings:
"Additional Guarantor" means any Person which becomes a party to this
Lease by executing a Guarantor Joinder in the form of Exhibit K hereto.
"Adjusted Indebtedness" means Indebtedness of Lessee less Indebtedness of
Lessee represented by Capital Lease Obligations, mortgage financing or purchase
money obligations and Indebtedness of Lessee owed to Parent or any Person
required to become an Additional Guarantor hereunder.
"Affiliate" with respect to any Person, shall mean (i) any director,
officer or employee of such Person, (ii) any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person, and (iii) any Person beneficially owning or holding 5% or more of
any class of voting securities of such Person or any corporation of which such
Person beneficially owns or holds, in the aggregate, 5% or more of any class of
voting securities The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. The term "Affiliate," when used herein without reference
to any Person, shall mean an Affiliate of Parent.
"Business Plan" shall mean the Business Plan of Parent dated as of July
26, 1999, attached hereto as Exhibit G; provided, that upon approval of a
Revised Business Plan by Lessor, "Business Plan" shall mean the Revised Business
Plan so approved.
"Capitalized Costs" shall mean all amounts incurred in connection with
the implementation of the network infrastructure described in the Business Plan
which are capitalized in accordance with GAAP.
"Capital Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and for purposes of this
Lease, the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Commitment Termination Date" means the date set forth opposite such term
on the cover page of this Lease or such earlier date on which Lessor terminates
its commitment to fund Schedules pursuant to the terms of this Lease.
"Communications Act" shall mean the Communications Act of 1934, as
amended, and the rules and regulations issued thereunder, as in effect from time
to time.
"Consolidated Tangible Net Worth" shall mean, with respect to any Person
and as of any date of determination, the Tangible Net Worth of such Person and
its Subsidiaries, on a consolidated basis determined in accordance with GAAP.
1
<PAGE> 3
"Credit Facilities" mean, one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lender or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, supplemented, modified, renewed, refunded, replaced
or refinanced in whole or in part from time to time.
"Discount Rate" means, as of any date of determination, the lesser of (i)
the then current per annum interest rate for one-year United States treasury
bills as set forth in The Wall Street Journal on such date and (ii) six percent
(6%).
"Disqualified Stock" means, with respect to any Person, any capital stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or becomes mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or becomes exchangeable for Indebtedness at the option
of the holder thereof, or becomes redeemable at the option of the holder
thereof, in whole or in part, on or prior to January 1, 2005.
"EBITDA" means, with respect to Parent and its Subsidiaries on a
consolidated basis for any period, the consolidated net income for such period,
computed in accordance with GAAP, plus, to the extent deducted in computing such
consolidated net income and without duplication, the sum of (a) income tax
expense for such period, (b) interest expense for such period, (c) depreciation
and amortization expense for such period, and (d) extraordinary losses during
such period minus, to the extent added in computing such consolidated net income
and without duplication, extraordinary gains during such period.
"Eligible Equipment" means all assets, rights and properties, whether
tangible or intangible, for use in the business of telephony, data transport,
internet access and other related telecommunications services, including,
without limitation, fully configured DMS-500 switches manufactured by Nortel,
Tellabs DACs, Ascend ATM switches, digital loop carriers, digital access cross
connect systems, other peripheral equipment, system software, any upgrades,
fiber optic cable and connections to local tandems, leasehold improvements,
transmission equipment, IP switches, servers, routers and related equipment and
other ancillary hardware necessary for the installation and operation of a
switch room or central office and co-location with other telecommunications
providers, which are in each case reasonably acceptable to Lessor as to value
and type, and Capitalized Costs related thereto. Eligible Equipment shall also
include Operations Support Systems and other related software and hardware
products integral to developing viable telephony, data transport, internet
access and related telecommunications businesses, in each case reasonably
acceptable to Lessor as to value and type.
"Environmental Law" means the Resource Conservation and Recovery Act of
1987, the Comprehensive Environmental Response, Compensation and Liability Act,
and any other Federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree (in each case having the force of law) regulating or
imposing liability or standards of conduct concerning any Hazardous Materials or
other hazardous, toxic or dangerous waste, constituent, or other substance,
whether solid, liquid or gas, as now or at any time hereafter in effect.
"Equipment" means all Units, whether consisting of tangible or intangible
items, listed in any Schedule together with all replacement parts, additions,
accessions and accessories to such Units.
2
<PAGE> 4
"Equity Securities" of any Person shall mean (a) all common stock,
Preferred Stock, including without limitation, Disqualified Stock,
participations, shares, partnership interests, membership interests or other
equity interests in and of such Person (regardless of how designated and whether
or not voting or non-voting) and (b) all warrants, options and other rights to
acquire any of the foregoing.
"Event of Default" shall have the meaning set forth in Section 13 hereof.
"Fair Market Value" shall have the meaning set forth in Section 4(b).
"Fair Rental Value" shall have the meaning set forth in Section 4(b).
"FCC" shall mean the Federal Communications Commission or any successor
thereto.
"FCC Licenses" shall mean any FCC license, permit, certificate,
ordinance, approval or other authorization, or any renewal or extension thereof
issued by the FCC.
"FCC Rules" shall mean the rules, regulations and policies of the FCC.
"Fiber Projection Schedule" means those projections set forth on Exhibit
I attached hereto.
"Financial Statements" shall mean, with respect to any accounting period
for any Person, statements of operations and cash flow of such Person for such
period and, if applicable, year-to-date, and balance sheets of such Person as of
the end of such period, setting forth in each case in comparative form figures
for the corresponding period in the preceding fiscal year or, if such period is
a full fiscal year, corresponding figures from the preceding fiscal year, all
prepared in reasonable detail and in accordance with GAAP, except, as to
unaudited statements, for the absence of footnotes and normal year-end audit
adjustments. Unless otherwise indicated, each reference to Financial Statements
of any Person shall be deemed to refer to Financial Statements prepared on a
consolidated basis.
"Funding Date" shall mean, with respect to any Schedule, the date first
set forth on such Schedule.
"GAAP" shall mean (i) for purposes of determining compliance with the
covenants set forth in Sections 12(d) and 12(e) of this Agreement, generally
accepted accounting principles and practices as in effect in the United States
of America on the date hereof, and (ii) for any other purpose, generally
accepted accounting principles and practices as in effect in the United States
of America on the date of determination.
"Governmental Authority" shall mean any domestic or foreign national,
state or local government, any political subdivision thereof, any department,
agency, authority or bureau of any of the foregoing, or any other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guarantee" of or by any Person means any obligation, contingent or
otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, and including any obligation of such
Person, direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of such
Indebtedness, (b) to purchase or lease property, securities or services for the
purpose of assuring the owner of such Indebtedness of the payment of such
Indebtedness or (c) to maintain working capital, equity
3
<PAGE> 5
capital or any other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such Indebtedness, and (d) to
guaranty the obligations, payments by or performance of, a Person that is not a
direct or indirect Wholly Owned Subsidiary; provided, however, that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business.
"Guarantor" means each of Parent and any other Person which becomes an
Additional Guarantor.
"Hazardous Material" means any hazardous or toxic substance, material,
pollutant or waste which is regulated by any Federal, state or local
governmental authority.
"Implicit Rate" means, with respect to a Schedule, an implicit interest
rate used in calculating the Rent Factor applicable to such Schedule, calculated
as set forth in Section 3(b) of this Lease.
"Indebtedness" of any Person shall mean, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person under conditional sale or other title retention
agreements relating to property or assets purchased by such Person, (d) all
obligations of such Person issued or assumed as the deferred purchase price of
property or services (excluding trade accounts payable and accrued obligations
incurred in the ordinary course of business), (e) all Indebtedness of others
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the obligations secured thereby have
been assumed but only to the extent of the lesser of the fair market value of
such asset and the amount of such Indebtedness so secured, (f) all Guarantees by
such Person, (g) all Capital Lease Obligations of such Person, (h) all net
obligations of such Person in respect of interest rate protection agreements,
foreign currency exchange agreements or other interest or exchange rate hedging
arrangements and (i) all obligations of such Person as an account party in
respect to letters of credit and bankers' acceptances. The Indebtedness of any
Person shall include the Indebtedness of any partnership in which such Person is
a general partner. Unless otherwise indicated, the term "Indebtedness" shall
include all Indebtedness of Parent and its Subsidiaries.
"Initial Implicit Rate" means the implicit interest rate set forth
following such term on the cover page of this Lease.
"Initial Lease Term" means the period of months set forth following such
term on the cover page of this Lease.
"Initial Rent Factor" means the Rent Factor set forth following such term
on the cover page of this Lease calculated using the Initial Implicit Rate.
"Interim Rental Payment" shall have the meaning set forth in Section 3(a)
of this Lease.
"Investment" of any Person shall mean any loan or advance of funds by
such Person to any other Person (other than advances to employees of such Person
for payroll, commission, moving and travel expense, drawing accounts, loans or
advances by Parent to fund the exercise of options or the purchase of stock of
Parent under any employment agreement or stock or stock option plan and similar
expenditures in the ordinary course of business), any purchase or other
acquisition of any Equity Securities or Indebtedness of any other Person, any
capital contribution by such Person to or any other investment by such Person in
any
4
<PAGE> 6
other Person (including, without limitation, any Indebtedness incurred by such
Person of the type described in clauses (a) and (b) of the definition of
"Indebtedness" on behalf of any other Person); provided, however, that
Investments shall not include accounts receivable or other indebtedness owed by
customers of such Person which are current assets and arose from sales or
non-exclusive licensing in the ordinary course of such Person's business.
"Landlord Waiver" means a Landlord's Waiver and Consent in the form of
Exhibit A hereto.
"Lessor's Commitment" means the maximum amount that Lessor may be
obligated to fund under the Lease, which amount is set forth opposite such term
on the cover page of this Lease.
"Lessor's Cost" means, with respect to a Unit of Equipment, the total
cost to Lessor of purchasing such Unit, as indicated on the applicable Schedule.
"Lien" shall mean any pledge, bailment, lease, mortgage, hypothecation,
conditional sales and title retention agreements, charge, claim, encumbrance or
other lien in favor of any Person.
"Material Adverse Effect means a material adverse effect on (a) the
general affairs, management, results of operations, condition (financial or
otherwise) of Parent and its Subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of business or (b) the
enforceability of any material provision of any Operative Document.
"Obligations" shall mean and include all advances, debts, liabilities and
obligations, howsoever arising, owed by Lessee to Lessor of every kind and
description (whether or not evidenced by any note or instrument and whether or
not for the payment of money), now existing or hereafter arising under or
pursuant to the terms of this Lease, the Schedules and any other Operative
Documents, including, all Rental Payments, interest, fees, charges, expenses,
attorneys' fees and costs and accountants' fees and costs chargeable to and
payable by the Lessee hereunder and thereunder, in each case, whether direct or
indirect, absolute or contingent, due or to become due, and whether or not
arising after the commencement of a proceeding under Title 11 of the United
States Code (11 U. S. C. Section 101 et seq.), as amended from time to time
(including post-petition interest) and whether or not allowed or allowable as a
claim in any such proceeding.
"Operations Support Systems" means hardware and software for the
management of a telecommunications network and business (including without
limitation accounting systems, billing systems, operations systems and support,
customer service and data services) reasonably acceptable to Lessor.
"Operative Documents" means this Lease, the Schedules, the Landlord
Waiver(s) and all other documents, instruments and agreements executed and
delivered in connection herewith or therewith or in respect of the closing of
the transactions contemplated hereby or thereby.
"Origination Fee" means an origination fee in the amount of [***], of
which Lessor has received [***], and the balance of which in the amount of [***]
is payable upon the execution of this Lease.
"Parent" means Telergy, Inc., a New York corporation.
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material
omitted on this page. The omitted portions have been filed separately
with the Securities and Exchange Commission.
5
<PAGE> 7
"Permitted Liens" shall mean:
(a) Liens for fees, taxes, levies, imposts, duties or other
governmental charges of any kind which are not yet delinquent or
which are being contested in good faith by appropriate proceedings
which suspend the collection thereof (provided, however, that such
proceedings do not involve any substantial danger of the sale,
forfeiture or loss of any Unit and that such Lien has been
adequately bonded or reserves sufficient to discharge such Lien
have been provided on the books of Parent); and
(b) Carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course
of business which are not delinquent or remain payable without
penalty or which are being contested in good faith and by
appropriate proceedings.
"Person" shall mean and include an individual, a partnership, a
corporation, a business trust, a joint stock company, a limited liability
company, an unincorporated association or other entity and any domestic or
foreign national, state or local government, any political subdivision thereof,
and any department, agency, authority or bureau of any of the foregoing.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued after
the date hereof, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"Regulatory Authorization" shall mean an approval, authorization,
license, certification, consent, permit, exemption, registration, qualification,
designation and/or declaration required from any Governmental Authority for the
conduct of the business of the Parent and/or its Subsidiaries as now conducted
or as proposed in the Business Plan to be conducted.
"Rent Commencement Date" shall have the meaning, with respect to any
Schedule, set forth in Section 3(a) of such Schedule.
"Rent Factor" means, with respect to a Schedule, the rent factor
calculated using the Implicit Rate applicable on the date of preparation of such
Schedule.
"Rental Payment" means, for any Schedule, the quarterly rent payment for
the Units identified in such Schedule.
"Revenue" means, for any period of determination for the Parent and its
Subsidiaries, the consolidated revenues for such period determined in accordance
with GAAP.
"Revenue Projection Schedule" means those projections set forth in
Exhibit H attached hereto.
"Revised Business Plan" means a business plan or plans of Parent for the
purposes of making acquisitions or funding the buildout of additional markets
which has been submitted to and approved by Lessor.
"Schedule" or "Schedule No. " means a schedule in the form of Exhibit D
to this Lease identifying this Lease and incorporating this Lease by reference,
which is executed by both parties hereto.
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"Soft Costs" means computer software, tooling, integration, programming,
equipment manufactured specially for Lessee, delivery and installation costs,
and other intangible costs approved by Lessor.
"State PUC" shall mean the public utilities commission, public service
commission, or similar administrative agency (by whatever name designated) which
under the laws of a state regulates telecommunications services,
telecommunications companies and/or telecommunications facilities for the state
or states in which the Parent and/or its Subsidiaries control, manage or operate
their business, or any successor agency, and any successor, in whole or in part,
to its functions or jurisdictions.
"State PUC Rules" shall mean the rules, regulations and policies of any
State PUC.
"Stipulated Loss Value" shall have the meaning set forth in Section
11(e).
"Subsidiary" shall mean, with respect to any Person, a Person of which a
majority of the outstanding voting stock is or other Equity Securities are owned
by such Person directly or indirectly through Subsidiaries.
"Surety Instruments" shall mean all letters of credit (including standby
and commercial), banker's acceptances, bank guaranties, shipside bonds, surety
bonds and similar instruments.
"Tangible Net Worth" shall mean, with respect to any Person and as of any
date of determination, the sum of the capital stock and additional paid-in
capital plus retained earnings (or minus accumulated deficit) of such Person
minus intangible assets.
"Term" means the Initial Lease Term, together with any renewal or
extension thereof.
"Threshold Amount" means $5,000,000 or such other higher dollar amount,
if any, set forth as the threshold amount for a cross-default in the Credit
Facility for which Bank of America, N.A., acts as administrative agent which is
in effect on the date hereof or in any successor or replacement facility to such
Credit Facility.
"Treasury Base Rate" means the interest rate set forth following such
term on the cover page of this Lease.
"Treasury Note Maturity" means the period of time set forth following
such term on the cover page of this Lease.
"Unit" means an item of Equipment.
"Warrants" means warrants, each, substantially in the form of Exhibit K,
to purchase up to 14,583 shares of common stock of Parent.
"Wholly Owned Subsidiary" means, with respect to Parent, a Subsidiary of
Parent of which securities (except for directors' qualifying shares) or other
ownership interests representing 100% of the outstanding Equity Securities are,
at the time any determination is being made, owned by the Parent or one or more
Wholly Owned Subsidiaries of Parent or by Parent and one or more Wholly Owned
Subsidiaries of Parent.
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<PAGE> 9
2. LEASE: Lessor agrees to lease to Lessee and Lessee agrees to lease
from Lessor the Equipment described in each Schedule on the terms and subject to
the conditions specified herein and therein. Each Schedule shall constitute a
separate and independent lease and contractual obligation of Lessee
incorporating the terms of this Lease. Lessor's obligation to fund Schedules
under this Lease shall terminate on the Commitment Termination Date. Lessor may,
in its sole discretion, terminate its commitment herein to fund the Lessor's
Commitment or any unfunded portion thereof at any time if: (a) any Material
Adverse Effect has occurred or exists, or (b) any Event of Default exists.
Lessor shall have no obligation to fund any Schedule if any term or condition in
such Schedule is not satisfied by the Funding Date of such Schedule. This Lease,
and Lessee's obligation to pay all rent and other sums hereunder, shall
constitute a "finance lease" under the California Uniform Commercial Code
("UCC") and shall be absolute and unconditional, and shall not be subject to,
and Lessee hereby waives any right of or to, abatement, reduction, set-off,
defense or counterclaim. Lessee waives any and all rights and remedies conferred
upon Lessee by UCC Sections 10508 through 10522, including (without limitation)
Lessee's rights to (i) cancel or repudiate this Lease, (ii) reject or revoke
acceptance of the leased property, (iii) recover damages from Lessor for breach
of warranty or for any other reason, (iv) claim a security interest in any
rejected property in Lessee's possession or control, (v) deduct from Rental
Payments all or any part of any claimed damages resulting from Lessor's default
under this Lease, (vi) accept partial delivery of the Equipment, (vii) "cover"
by making any purchase or lease of other property in substitution for property
due from Lessor, (viii) recover from the Lessor any general, special, incidental
or consequential damages, for any reason whatsoever, and (ix) seek specific
performance, replevin or the like for any of the Equipment. Lessee acknowledges
that it has received and approved or will receive and approve the terms of the
agreements with the vendors under which Lessor will, subject to the terms and
conditions of this Lease, purchase the Units. The Units shall be leased for
commercial purposes only, and not for consumer, personal, home or family
purposes. This Lease describes the terms of, and is intended by the parties
hereto to be, a true lease; provided, however, that the parties acknowledge that
the terms and conditions of the Lease may, alternatively, create a secured
financing or lease for security. If this Lease as supplemented by any Schedule
constitutes a security agreement or lease for security, the Lessee hereby grants
a security interest to Lessor in all of Lessee's right, title and interest in
the Units described in Annex A to such Schedule and the proceeds thereof, to
secure all of Lessee's obligations under this Lease and such Schedule.
3. TERM AND RENTALS: THIS LEASE SHALL BE EFFECTIVE UPON EXECUTION AND
DELIVERY HEREOF by LESSEE AND LESSOR.
(a) The Initial Lease Term for each Schedule shall commence
upon the Rent Commencement Date set forth in such Schedule. For the Initial
Lease Term of such Schedule, Lessee agrees to pay Lessor aggregate rentals, each
payable in advance, equal to the number of quarters, in the Initial Lease Term
of such Schedule multiplied by the amount of the Rental Payment specified in
such Schedule. In addition, for the period from the Funding Date of each
Schedule until such Schedule's Rent Commencement Date, Lessee shall pay an
interim rental ("Interim Rental Payment") equal to the product of (i) the total
annual rental for the first year of the Initial Lease Term of such Schedule
divided by 360 and (ii) the actual number of days between the Funding Date and
the Rent Commencement Date, including the Funding Date but excluding the Rent
Commencement Date. The Interim Rental Payment shall be payable as set forth in
each Schedule to this Lease. Lessor will make reasonable efforts to send Lessee
invoices for Rental Payments, but the failure to do so or the incorrectness of
any invoice will not relieve Lessee of its obligation to pay all amounts,
including Rental Payments, due under this Lease. The Interim Rental Payment for
each Schedule is due on the Funding Date for such Schedule and the remaining
Rental Payments are due commencing on the Rent Commencement Date and thereafter
on the same date of each succeeding quarter of
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<PAGE> 10
the Term, or as specified in the applicable Schedule. A late charge on any
overdue payments shall accrue at the rate of 1.5% per month on the overdue
amount, or the highest lawful rate, whichever is less.
(b) The Rent Factor will be calculated for each Schedule based
on a basis point for basis point adjustment (if any) to the Initial Implicit
Rate equal to any increase in the Treasury Base Rate in the U.S. Treasury note
rate for notes of a term equal to the Treasury Note Maturity as quoted in The
Wall Street Journal on the date such Schedule is prepared; provided that no
change in the Rent Factor will be made if the U.S. Treasury note rate has not
increased more than twenty-five (25) basis points from the initial Treasury Base
Rate.
(c) It is not the intent of the parties to create rent or other
payment obligations of Lessee which will be considered usurious under applicable
law. However, if any such payment shall be found to be usurious by a court of
competent jurisdiction, then Rental Payments or such other amounts shall
automatically be reduced to the highest rate or amounts permitted by applicable
law and the usurious portion of the Rental Payments or such other amounts shall
be applied to the Lessee's remaining obligations under the Lease in a manner
reasonably determined by Lessor. If Lessee retains possession of any Unit after
the expiration or termination of this Lease, Rental Payments shall continue to
be paid with respect to such Unit at the rate set forth in Section 3(a) of the
Schedule relating to such Unit until all obligations of Lessee under this Lease
relating to such Unit, including, without limitation, Rental Payments and
payments due under Section 4 of this Lease, have been satisfied. This Lease may
only be terminated as expressly provided herein.
4. OPTIONS AT END OF INITIAL LEASE TERM:
(a) Provided that the Lease has not been terminated and that no
Default or Event of Default shall have occurred and be continuing, not more than
240 days and not less than 180 days prior to the expiration of the Initial Lease
Term of the Units which are subject to each Schedule, by written notice to
Lessor, Lessee shall irrevocably elect one of the following options in clauses
(i), (ii) or (iii) below:
(i) Lessee's Option to Renew: At the expiration of the
Initial Lease Term of a Schedule, Lessee may elect to renew the
Lease with respect to all, but not less than all, of the Units
(excluding Units consisting of Soft Costs) under such Schedule for
not less than twelve (12) months, for a rent equal to the Fair
Rental Value of such Units (excluding all Units consisting of Soft
Costs) for such additional period, which rent shall be paid
quarterly in advance.
(ii) Lessee's Option to Purchase: At the expiration of
the Initial Lease Term of a Schedule or any renewal or extension
thereof, Lessee may elect to purchase all, but not less than all,
of the Units (excluding all Units consisting of Soft Costs) under
such Schedule to the Lease for a purchase price equal to the Fair
Market Value thereof as of the end of the Initial Lease Term of
such Schedule plus any applicable sales or other transfer tax.
(iii) Lessee's Option to Return: At the expiration of the
Initial Lease Term of a Schedule, Lessee may elect to return all,
but not less than all, of the Units subject to such Schedule in
accordance with Section 6(c).
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If none of the foregoing options is duly exercised by Lessee, this Lease shall
be renewed at the rental in effect immediately prior to the renewal with respect
to all Units covered by the applicable Schedule from the expiration date of the
Initial Lease Term of such Schedule on a quarter to quarter basis. Lessee may
terminate any such extended term on 90 days' notice to Lessor and shall along
with such notice elect one of the options in clauses (i), (ii) or (iii) above.
Notwithstanding the foregoing, Lessee shall in all cases, at the end of the
Initial Lease Term of each Schedule and in lieu of a payment under clause (ii)
above, make a payment to Lessor at the time of the final Rental Payment under
such Schedule equal to 7.5% of Lessor's Cost of all Units consisting of Soft
Costs under such Schedule. Upon such payment, Lessor will be deemed to have
transferred to Lessee all of Lessor's right, title and interest, if any, in and
to the Units consisting of Soft Costs, free and clear of any Lien created by or
on behalf of Lessor.
(b) "Fair Market Value" or "Fair Rental Value", as the
case may be, shall be determined on the basis of and shall be equal in amount to
the value which would obtain in an arm's-length transaction between an informed
and willing buyer-user or lessee-user (other than a used equipment dealer) and
an informed and willing seller or lessor under no compulsion to sell or lease,
on the assumptions that: such Units (i) are being sold "in place and in use";
(ii) are free and clear of all liens and encumbrances; (iii) are in the
condition required upon the return of the Units under Section 9 of this Lease;
and (iv) are being sold with any software necessary for the operation thereof
available for use in connection with such Units. In such determination, costs of
removal from the location of current use shall not be a deduction from such
value(s).
(c) Lessor shall initially determine the Fair Market
Value or Fair Rental Value within 30 days of receipt of notice of the election
to purchase or renew the Lease with respect to a Unit. If Lessee does not agree
with the determination of the Fair Market Value or Fair Rental Value of any Unit
it may within 30 days after receipt of Lessor's determination, require that the
determination be made by a certified independent appraiser paid for by Lessee
and approved by both Lessor and Lessee, such approvals not to be unreasonably
withheld. The appraiser shall be furnished with a letter of instruction
concerning the preparation of the appraisal setting forth the guidelines
specified in Section 4(b) above, together with a copy of the Lease and Schedule
and, to the extent available, related purchase orders and/or invoices. The
appraiser shall be instructed to make such determination within 30 days
following appointment. The determination made by the appraiser shall be final
and binding on both Lessor and Lessee. In the event that the appraiser's
determination of Fair Market Value or Fair Rental Value varies from the Lessor's
initial determination by more than 15%, Lessor shall reimburse Lessee for
one-half of the fees and costs of such appraiser.
(d) The purchase of the Units by Lessee pursuant to its
option herein shall be "AS IS, WHERE IS", without recourse to or any warranty by
Lessor, other than a warranty that the Units are free and clear of liens and
encumbrances resulting from acts of Lessor.
5. WARRANTIES; INDEMNITY:
(a) Lessee acknowledges that it has made the selection
of each Unit based upon its own judgment. LESSOR MAKES NO EXPRESS OR IMPLIED
WARRANTIES INCLUDING, WITHOUT LIMITATION, THOSE OF DESCRIPTION, INFRINGEMENT,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE WITH RESPECT TO THE
EQUIPMENT AND HEREBY DISCLAIMS THE SAME, EXCEPT THAT SO LONG AS NO EVENT OF
DEFAULT HAS OCCURRED AND IS CONTINUING LESSOR SHALL NOT INTERFERE WITH
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<PAGE> 12
LESSEE'S QUIET ENJOYMENT OF THE UNITS. Lessor shall have no liability for any
damages, whether direct or consequential, incurred by Lessee as a result of any
defect or malfunction of a Unit. Lessee agrees to look solely to the
manufacturer or vendor of any defective or malfunctioning Unit for the repair or
replacement of such Unit and to continue to make all Rental Payments with
respect to such Unit in spite of such defect or malfunction. Lessor hereby
assigns to Lessee, for and during the Term, any warranty covenant,
representation, performance guarantee, indemnity (but only so long as Lessor
shall also be covered by such indemnity) or product support agreement of the
manufacturer or vendor issued to Lessor with respect to any Unit and the right
to recover or benefit resulting from the enforcement of such rights (but only so
long as Lessor shall also have the right to any indemnity of the manufacturer or
vendor).
(b) Lessee shall indemnify, reimburse and hold Lessor
(including without limitation, each of its partners) and each of their
respective successors, assigns, agents, officers, directors, shareholders,
servants, agents and employees harmless from and against all liabilities,
losses, damages, actions, suits, demands, claims of any kind and nature
(including, without limitation, claims relating to environmental discharge,
cleanup or compliance), and all costs and expenses whatsoever to the extent they
may be incurred or suffered by such indemnified party in connection therewith
(including, without limitation, reasonable attorneys' fees and expenses), fines,
penalties (and other charges of applicable governmental authorities), licensing
fees relating to any Unit, damage to or loss of use of property (including,
without limitation, consequential or special damages to third parties or damages
to Lessee's property), or bodily injury to or death of any person (including,
without limitation, any agent or employee of Lessee) (each a "Claim"), directly
or indirectly relating to or arising out of the acquisition, use, lease or
sublease, ownership, operation, possession, control, storage, return or
condition of any Unit (regardless of whether such Unit is at the time in the
possession of Lessee), the falsity of any non-tax representation or warranty of
Lessee or Lessee's failure to comply with the terms of the Lease during the
Term. The foregoing indemnity shall cover, without limitation, (i) any Claim in
connection with a design or other defect (latent or patent) in any Unit, (ii)
any Claim for infringement of any patent, copyright, trademark or other
intellectual property right, (iii) any Claim resulting from the presence on or
under or the escape, seepage, leakage, spillage, discharge, emission or release
from any Unit of any Hazardous Materials, including, without limitation, any
Claims asserted or arising under any Environmental Law, or (iv) any Claim for
negligence or strict or absolute liability in tort; provided, however, that
Lessee shall not indemnify Lessor for any liability incurred by Lessor as a
direct and sole result of Lessor's gross negligence or willful misconduct. Such
indemnities shall continue in full force and effect, notwithstanding the
expiration or termination of this Lease. Upon Lessor's written demand, Lessee
shall assume and diligently conduct, at its sole cost and expense, the entire
defense of Lessor and its agents, employees, successors and assigns against any
indemnified Claim described in this Section 5. Lessee shall not settle or
compromise any Claim against or involving Lessor without first obtaining
Lessor's written consent thereto, which consent shall not be unreasonably
withheld.
6. TITLE, LOCATION AND RETURN:
(a) Lessor and Lessee hereby confirm their intent that
the Equipment remain and be deemed personal property and that title thereto
shall remain in Lessor. If requested at any time by Lessor, Lessee will place in
a conspicuous location on each item of Equipment a notice (to be supplied by
Lessor) which reads: "GATX TELECOM INVESTORS I, L.L.C. - Owner/Lessor". Such
notice shall not be removed (or if damaged such notice shall be replaced) until
the Equipment is returned to Lessor or purchased by Lessee.
(b) Lessee may not remove the Equipment from its place
of installation without Lessor's prior written consent. Lessee shall keep the
Equipment free and clear of all liens and encumbrances except
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those created by Lessor and Permitted Liens. Lessor shall have the right to
inspect the Equipment during regular business hours, with reasonable advance
written notice, so long as no Default or Event of Default shall have occurred
and be continuing, and in compliance with Lessee's reasonable security
procedures.
(c) If for any reason the Equipment is to be returned to
Lessor, Lessee shall, together with the written notice of return (if
applicable):
(i) Provide Lessor a detailed inventory of all of
the Units to be returned (including each major component).
The inventory should include a listing of model, serial
numbers for all components comprising the Equipment,
circuit boards, modules and software features.
(ii) Provide or cause the vendors or manufacturers
of the Units to provide up-to-date (1) service manuals,
blue prints, process flow diagrams and operating manuals
including replacements and/or additions thereto; and (2)
documents detailing equipment configuration, operating
requirements, diagrams, maintenance records and other
technical data concerning the set-up and operation of the
Units.
(iii) Provide to Lessor certifications from each
vendor or manufacturer of a Unit (1) that such Unit (as of
the date of return) has been certified and qualified for
the manufacturers used equipment maintenance program; and
(2) that all component parts of such Unit are in good
operating condition and meet or exceed the manufacturer's
minimum recommended specifications. Such certification
shall be transferable to another operator of the Units and
shall permit another operator to receive a transfer of any
software license and to otherwise enjoy all rights and
privileges of use of the Unit as if it were the original
user of the Units.
(d) In addition, during the period after notice is given
of a return of Units and in connection with the return, Lessee shall at its
expense:
(i) Make the Units to be returned available for
on-site operational inspections by Lessor under power and
provide personnel, power and other requirements necessary
to demonstrate electrical, mechanical and other
functionality of each Unit.
(ii) Clean and treat all Units to be returned with
respect to rust, corrosion and appearance in accordance
with the manufacturer's recommendation and consistent with
the best practices of dealers in used equipment similar to
the Units and remove all Lessee installed markings which
are not necessary for the operation, maintenance or repair
of the Units.
(iii) Ensure that all Units to be returned are free
of all Hazardous Materials and conform to all applicable
local, state and federal laws, and health and safety
guidelines which may be in effect at the time of return.
(iv) Allow Lessor the right to attempt resale of
the Units at the Units' location with the Lessee's full
cooperation and assistance, prior to and for a period of up
to sixty (60) days after the end of the Initial Lease Term
(or any extension thereof).
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(v) At Lessor's request, provide insurance and
safe, secure storage for the Units for a period of up to
sixty (60) days after the end of the Initial Lease Term (or
any extension thereof).
(vi) Provide for the deinstallation, packing,
transporting and certifying of the Units (as of the date of
return) including, without limitation, (1) deinstallation
of the Units by the vendor's or manufacturer's
representative or other qualified personnel acceptable to
Lessor; (2) proper packing of the Units for shipping in
accordance with the vendor's or manufacturer's
recommendations.
(vii) If applicable, provide for the professional
decontamination of the Units and have the Units certified
for removal and transport by appropriate authorities, in
accordance with industry standards and applicable laws,
rules and regulations, and consistent with the mode of
transportation specified by Lessor.
(viii) Ship the Units to any locations within 1500
miles of its place of installation in the continental
United States selected by Lessor and provide for a policy
of transit insurance covering such shipment with Lessor
named as loss payee thereof.
7. SUBLEASE, ASSIGNMENT: Lessee acknowledges and agrees that Lessor
may, subject to the terms of this Lease, sell, assign, grant a security interest
in, or otherwise transfer all or any part of its rights, title and interest in
this Lease and the Equipment. Upon Lessor's written notice, Lessee shall, if
requested, pay directly to such assignee without abatement, deduction or set-off
all amounts which become due hereunder. Lessee waives and agrees it will not
assert against such assignee any counterclaim or set-off in any action for rent
under the Lease. Such assignee shall have and be entitled to exercise any and
all rights and remedies of Lessor hereunder, and all references herein to Lessor
shall include Lessor's assignee. Lessee acknowledges that such a sale,
assignment, grant or transfer would neither materially change the Lessee's
duties nor materially increase the burdens or risks imposed on the Lessee under
this Lease. LESSEE MAY NOT, WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, (i)
SUBLEASE, TRANSFER, DISPOSE OF OR ASSIGN ITS RIGHTS IN RESPECT OF ANY UNIT OR
ITS OBLIGATIONS UNDER THIS LEASE (except to a successor in interest to all or
substantially all of the business of Lessee to which the Equipment relates,
provided, that such successor has a net worth and financial condition greater
than or equal to that of Lessee at the time of execution of this Lease as
determined in good faith by Lessor prior to such transfer (such successor being
hereinafter referred to as a "Permitted Transferee"), OR (ii) ASSIGN, GRANT A
SECURITY INTEREST IN, OR OTHERWISE TRANSFER ALL OR ANY PART OF ITS RIGHTS, TITLE
AND INTEREST IN AND TO THIS LEASE OR THE EQUIPMENT. Notwithstanding the
foregoing, Lessee may assign its rights under this Lease or any Schedule to (i)
a Wholly-Owned Subsidiary of Parent, or (ii) Bank of America, N.A., or any
creditworthy Affiliate thereof.
8. TAXES: Lessee agrees to pay if and when due, in addition to other
amounts due hereunder and under each Schedule, all fees and assessments, and all
sales, use, property, excise and other taxes and charges (including all interest
and penalties) (collectively "Taxes"), now or hereafter imposed by any
governmental body or agency upon any of the Equipment or upon the purchase,
ownership, possession, leasing, operation, use, rentals or other payments, or
disposition hereunder whether payable by Lessor or Lessee (exclusive of taxes on
or measured by Lessor's net income). Lessee agrees to prepare and file promptly
with the appropriate offices any and all tax and similar returns required to be
filed with respect thereto, or, if requested by Lessor, to notify Lessor of such
requirements and furnish Lessor with all information required
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by Lessor so that it may effect such filing, at Lessee's expense. Any Taxes paid
by or imposed on, Lessor on behalf of Lessee shall become immediately due and
payable on Lessor's demand. Lessor, as owner, shall be entitled to any and all
depreciation and modified cost recovery deductions provided under the Internal
Revenue Code of 1986, as amended from time to time and any other such tax
benefits which may now or hereafter be available to an owner of such Equipment
(collectively, "Tax Benefits"). If as a result of (i) the inaccuracy or breach
of any of Lessee's representations, warranties and covenants herein or in any
Schedule, or (ii) the acts or failure to act of Lessee or any person claiming an
interest in the Equipment through the Lessee (other than a casualty or other
event described in Section 11 with respect to which Stipulated Loss Value shall
have been paid by Lessee), Lessor or any of its assigns shall lose, or shall
not, in its reasonable opinion, have the right to claim, or there shall be
disallowed, deferred or recaptured, any portion of the Tax Benefits with respect
to a Unit (a "Loss of Tax Benefits") or there shall be included in Lessor's
gross income any amounts other than Rental Payments in respect of the purchase
price of any Unit (an "Inclusion"), then, on and after the next succeeding Rent
Payment date after written notice to Lessee by Lessor, Lessee agrees as follows:
The rent for the Equipment shall, on the Rent Payment date next succeeding
Lessor's written notice to Lessee of Lessor's payment of any tax payment
attributable to such Inclusion or of a Loss of Tax Benefits, be increased to
such amount or amounts as shall, by the end of the Initial Lease Term of the
last Schedule to this Lease, in the reasonable opinion of Lessor, after
deduction of all fees, taxes, or other charges required to be paid by Lessor in
respect of the receipt of all amounts payable by Lessee to Lessor under this
Section 8 under the laws of any federal, state, or local government or taxing
authority in the United States, cause Lessor's after-tax yield and cash flow in
respect of the Equipment to equal those which would have been realized by Lessor
if Lessor had not incurred such a Loss of Tax Benefits or had such an Inclusion.
If any claim or contest regarding any tax indemnity covered by this Section 8
shall arise, such claim or contest shall be addressed or conducted, at Lessee's
expense, in the manner reasonably specified by Lessor. The provisions of this
Section 8 shall survive the cancellation or termination of the Lease or any
Schedule.
9. USE; MAINTENANCE:
(a) Lessee, at its expense, shall make all necessary
site preparations and cause the Equipment to be operated and maintained in
accordance with any applicable manufacturer's manuals or instructions. So long
as no Event of Default has occurred and is continuing, Lessee shall have the
right to quietly possess and use the Equipment as provided herein without
interference by Lessor.
(b) Lessee, at its expense, shall maintain the Equipment
in good condition, reasonable wear and tear excepted, and will comply with all
laws, ordinances and regulations to which the use and operation of the Equipment
may be or become subject. Such obligation shall extend to repair and replacement
of any partial loss or damage to the Equipment, regardless of the cause. Lessee
shall obtain and keep in effect at all times during the Term maintenance service
contracts with the vendor of the Equipment or suppliers approved by Lessor, such
approval not to be unreasonably withheld. All parts furnished in connection with
such maintenance or repair shall immediately become part of the Equipment. All
such maintenance, repair and replacement services shall be immediately paid for
and discharged by Lessee with the result that no lien will attach to the
Equipment. Only qualified personnel of Lessee shall operate the Equipment. The
Equipment shall be used only for the purposes for which it was designed. Upon
prior written notice to Lessor, Lessee may make improvements, modifications or
additions to the Equipment; provided, that if such improvements, modifications
or additions would (i) adversely affect Lessor's tax benefits relating to the
Equipment; or (ii) are not capable of being removed without causing material
damage to the Equipment, then Lessor's prior written consent shall be required.
Upon the return of such Equipment, Lessee shall, at its expense, restore the
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Equipment to the original configuration in accordance with the manufacturer's
specifications; provided, that, with Lessor's prior written consent, Lessee may
return the Equipment as so improved, modified or added to.
10. INSURANCE: Lessee shall, obtain and maintain for the Term, at its
own expense:
(i) "All risk" insurance against loss or damage to the
Collateral. The coverage limit shall be the greater of the replacement cost of
the Equipment or the Stipulated Loss Value applicable to each Schedule. The
deductible shall not exceed $100,000. The policy shall name Lessor as loss payee
with respect to the Equipment, shall not be invalidated by any action of or
breach of warranty by Lessee of any provision thereof and waive subrogation
against Lessor.
(ii) Commercial general liability insurance (including
contractual liability, products liability and completed operations coverages)
reasonably satisfactory to Lessor. The limit of liability shall be at least
$10,000,000 per occurrence. The policy shall be without deductible, except for
products liability coverage which may have a deductible up to $100,000. The
policy(ies) shall name Lessor as an additional insured in the full amount of
Lessee's liability coverage limits (or the coverage limits of any successor to
Lessee or such successor's parent which is providing coverage), be primary and
without contribution as respects any insurance carried by Lessor, and contain
cross liability and severability of interest clauses.
(iii) Such other insurance against risks of loss and with
terms as shall be reasonably required by Lessor.
All policies of insurance shall be placed with financially sound, commercial
insurers reasonably satisfactory to Lessor. All policies of insurance shall
provide that Lessor shall be given 30 days notice of cancellation of coverage.
This notice provision shall be without qualification. On or prior to the first
Funding Date and prior to each policy renewal, Lessee shall furnish to Lessor
certificates of insurance or other evidence satisfactory to Lessor that
insurance complying with all of the above requirements is in effect.
11. LOSS; DAMAGE; DESTRUCTION AND SEIZURE:
(a) Lessee shall bear the risk of the Units being lost,
stolen, destroyed, damaged or seized by governmental authority for any reason
whatsoever at any time until the latest to occur of (i) the expiration or
termination of the Term or (ii) any storage period thereafter or (iii) the
return of the subject Unit to Lessor (if authorized hereunder), and shall
proceed diligently and cooperate fully to recover any and all damages, insurance
proceeds or condemnation awards.
(b) Except as described in Section 11(c) hereof, if
during the Term or the storage period thereafter, any Unit shall be lost,
stolen, destroyed, irreparably damaged or seized by a governmental authority for
a period equal to at least the remainder of the Term, Lessor shall receive from
the proceeds of insurance obtained pursuant to Section 10 hereof, from any award
paid by the seizing governmental authority and, to the extent not received from
the proceeds of such insurance or award or both, from Lessee, on or before the
90th day following such loss, theft, destruction, damage or governmental seizure
shall either: (I) (i) pay all accrued and unpaid rent in respect of such Unit
including rent due on the rental payment date next succeeding the date of such
loss or seizure if the rent is in arrears; (ii) the Stipulated Loss Value of
such Unit, determined as of such Rental Payment date; (iii) all other sums, if
any, that shall have become due and payable hereunder; and (iv) interest on the
foregoing at the lower of the rate equal to 1.5% per month or the
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highest rate then permitted by applicable law from the due dates(s) of such
payment(s) to the date of payment, or (II) so long as no Default or Event of
Default shall have occurred and be continuing, replace the Unit with other
Equipment (each, a "Replacement Unit") in accordance with Section 11(f). On
receipt by Lessor of the amount specified hereinabove with respect to each such
Unit so lost, stolen, destroyed, damaged or seized, (i) this Lease shall be
deemed terminated as to such Unit and rent in respect of such Unit shall be
deemed abated, as of the Rental Payment date next succeeding such loss, theft,
damage, destruction or seizure; and (ii) so long as no Default or Event of
Default has occurred and is continuing hereunder, Lessor shall on demand,
transfer title to such Unit, "AS IS, WHERE IS, WITHOUT RECOURSE, REPRESENTATION
OR WARRANTY," to Lessee, or, if appropriate in Lessor's sole judgment, which
judgment shall be exercised in a reasonable manner, and on prior notice to
Lessee, to Lessee's insurance carrier. Any proceeds of insurance payable to
Lessor pursuant to this Section 11 and Section 10 hereof received by Lessee
shall be paid to Lessor promptly upon their receipt by Lessee. If any proceeds
of insurance or awards received from governmental authorities are in excess of
the amount owed under this Section 11(b), Lessor shall promptly remit to Lessee
the amount in excess of the amount owed to Lessor.
(c) So long as no Event of Default shall have occurred
and be continuing, any proceeds of insurance obtained pursuant to Section 10
hereof received with respect to any Unit the repair of which is practical shall,
at the election of Lessee, be applied either to the repair of such Unit or, upon
Lessor's receipt of evidence of the repair of the Unit reasonably satisfactory
to Lessor, to the reimbursement of Lessee for the cost of such repair.
(d) Lessee shall promptly, but in any event within 30
days thereafter, notify Lessor in writing in reasonable detail of any loss,
theft, destruction or seizure described in this Section 11 and within 60 days
after such occurrence, Lessee shall give written notice to Lessor of its
election to make the payment specified in clause (I) of Section 11(b) or, if
permitted, replace the applicable Unit as specified in clause (II) of Section
11(b) and in Section 11(f).
(e) The Stipulated Loss Value payable by Lessee under
this Lease shall be that percentage of Lessor's Cost of the affected Unit(s) set
forth in the table attached to the applicable Schedule as Annex B opposite the
Rental Payment date next following the event giving rise to Lessee's obligation
to pay Stipulated Loss Value. Stipulated Loss Values and Rental Payments shall
not be prorated.
(f) If Lessee elects to replace a Unit pursuant to
Section 11(b), each Replacement Unit shall be free and clear of all liens and
encumbrances, shall have a fair market value, residual value and remaining
useful life equal to or greater than that of the Unit its replaces and shall be
in as good an operating condition as the Unit it replaces (assuming no casualty
had occurred and that the Unit being replaced had been maintained in accordance
with the provisions of this Lease), in each case as determined by Lessor in its
reasonable discretion. Each Replacement Unit shall be in the same location as
the Unit it replaces. On or prior to the 90th day specified in Section 11(b),
Lessee shall execute and deliver to Lessor a bill of sale and an amended Annex A
to the applicable Schedule with respect to each Replacement Unit, together with
such documents and instruments as reasonably may be required by Lessor in
connection with such replacement, including, without limitation, financing
statements or amendments to financing statements to be filed at Lessee's
expense. Such documentation shall include a representation by Lessee that the
Replacement Units meet the requirements set forth in this Section 11(f).
12. LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS:
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(a) Representations and Warranties as of the Date of
this Lease. Each of Parent and Lessee warrants and represents the following as
of the date hereof: (i) Each of Parent and its Subsidiaries is duly organized,
validly existing and in good standing under the laws of the state of its
organization and is or will be duly qualified and authorized to do business in
the state(s) where the failure to be so qualified could reasonably be expected
to have a Material Adverse Effect; (ii) Each of Parent and Lessee has the full
power, authority and legal right and has obtained all approvals and consents and
has given all notices necessary to execute and deliver this Lease and perform
the terms hereof and of each Schedule; (iii) there is no action, proceeding or
patent claim pending or, insofar as Parent and Lessee know, threatened against
Parent or any of its Subsidiaries before any court or administrative agency
which would reasonably be expected to have a Material Adverse Effect; (iv) this
Lease has been and each Schedule will be duly executed and delivered by each of
Parent and Lessee and constitute or will constitute the valid, binding and
enforceable obligations of Lessee; and (v) Parent has (A) initiated a review and
assessment of all areas within its business and operations (including those
affected by suppliers and vendors) that would reasonably be expected to be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by Parent and its Subsidiaries (or its suppliers and vendors)
may be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999), (ii)
developed a plan and timeline for addressing the Year 2000 Problem on a timely
basis, and (iii) to date, implemented that plan in accordance with that
timetable. Parent reasonably believes that all computer applications (including
those of its suppliers and vendors) that are material to its business and
operations will on a timely basis be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000, except to the extent
that a failure to do so would not reasonably be expected to have a Material
Adverse Effect.
(b) Representations and Warrants as of Each Funding
Date. Lessee agrees that by its signature on each Schedule it shall be deemed to
have warranted and represented the following as of the Funding Date of such
Schedule: (i) all of the Units being delivered on the Funding Date of such
Schedule are accurately described in Annex A attached to such Schedule, have
been fully assembled and conform to all applicable performance criteria; (ii)
the requirements of this Lease and of Lessor with respect to the identification
of the Units have been met; and (iii) each of the representations and warranties
set forth in Section 12(a) remains true and correct.
(c) Affirmative Covenants. So long as the Obligations
remain outstanding or Lessor's Commitment has not been terminated:
(i) Existence; Good Standing; Maintenance. Parent
shall maintain or cause to be maintained its own existence and the existence of
Lessee and any Subsidiary which has guaranteed the Obligations, and the good
standing of each such Person in its jurisdiction of incorporation and maintain
qualification in each jurisdiction in which the failure to so qualify would
reasonably be expected to have a Material Adverse Effect. Parent shall maintain,
and shall cause each of its Subsidiaries to maintain, in force all licenses,
approvals and agreements necessary to construct its network infrastructure and
otherwise operate its business substantially in accordance with industry
standards, the loss of which would reasonably be expected to have a Material
Adverse Effect.
(ii) Governmental Compliance.
(1) Subject to the more specific
requirements of clauses (2) through (5) below, Parent shall comply, and shall
cause each of its Subsidiaries to comply, with all applicable laws, rules and
regulations of any Governmental Authority, including, without limitation,
Environmental Laws, the
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Communications Act, FCC Rules and the State PUC Rules, to which it is subject,
noncompliance with which would reasonably be expected to have a Material Adverse
Effect.
(2) Parent and its Subsidiaries shall operate its
business in all material respects in accordance with the terms and conditions of
all material Regulatory Authorizations, and shall maintain such material
Regulatory Authorizations in full force and effect and without adverse
modification or impairment, except where the failure to maintain such Regulatory
Authorization in full force and effect would not reasonably be expected to have
a Material Adverse Effect.
(3) Parent and its Subsidiaries shall obtain all
Regulatory Authorizations prior to taking any action or engaging in any conduct
for which a Regulatory Authorization is required except where the failure to do
so would not reasonably be expected to have a Material Adverse Effect.
(4) Each of Parent and its Subsidiaries shall
duly, timely, and accurately file all reports and documents required by the FCC,
any State PUC or any other Governmental Authority, the failure of which to
timely and accurately file would reasonably be expected to have a Material
Adverse Effect.
(5) Parent and its Subsidiaries shall take all
actions and perform all obligations that are necessary to effectuate the renewal
of all Regulatory Authorizations, to the extent renewal is required.
(iii) Payment of Taxes, etc. Parent shall pay and
discharge, and cause each Subsidiary to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims which, if unpaid, might
become a Lien upon any of its properties; provided that there shall be no
requirement to pay any such tax, assessment, charge, levy or claim (i) which is
being contested in good faith and by appropriate proceedings or which presents
no risk of seizure, forfeiture, levy or other event which could jeopardize any
Equipment subject to a Schedule, (ii) for which payment in full is bonded or
reserved in Parent's Financial Statements in accordance with GAAP, or (iii)
which constitutes a Permitted Lien. Parent shall pay and discharge, and cause
each Subsidiary to pay and discharge, each of its contractual obligations with
third parties except to the extent that the failure to do so would not
reasonably be expected to have a Material Adverse Effect.
(iv) Inspection Rights. Parent shall, at any reasonable
time and from time to time, and so long as no Default or Event of Default has
occurred and is continuing, upon reasonable notice from Lessor and at Lessor's
sole expense, permit, and shall cause each Subsidiary to permit, Lessor or any
of its agents or representatives to examine and make copies of and abstracts
from the records and books of account of, and visit the properties of, Parent
and its Subsidiaries and to discuss the affairs, finances and accounts of Parent
and its Subsidiaries with any of its officers or directors relating in each case
to Lessor's capacity as lessor hereunder and with respect to the Equipment.
(v) Furnishing Reports. Parent shall furnish to Lessor:
(1) Financial Statements. Promptly as soon as the
necessary information is available and in any event: (A) within forty-five (45)
days of the end of each fiscal quarter, unaudited consolidated Financial
Statements of Parent and Lessee certified on behalf of Parent or Lessee by
Parent's
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chief financial officer and management's discussion and analysis of
such financials, and (B) within one hundred twenty (120) days of the end of each
fiscal year of Parent, audited Financial Statements, together with the
unqualified opinion of a nationally recognized firm of independent public
accountants, and management's discussion and analysis of such financials;
provided, that in each case, at such times as Parent is subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, the requirement
of delivery of management's discussion and analysis of such Financial Statements
shall be satisfied by delivery to Lessor of Parent's filings on Form 10-K and
Form 10-Q within the time periods specified by such reporting requirements.
(2) Compliance Statements. Promptly as soon as the
necessary information is available and in any event within forty-five (45) days
of the end of each fiscal quarter of Parent a certificate of Parent's chief
financial officer or other senior officer in the form of Exhibit E attached
hereto (a "Compliance Statement" stating that he or she has reviewed the
provisions of this Lease and that no Default or Event of Default has occurred,
or if a Default or Event of Default has occurred and is continuing, specifying
all such Defaults and Events of Default of which he or she may have knowledge
and setting forth the calculation of compliance or noncompliance with each of
the financial covenants set forth in Section 12(e).
(3) Quarterly Operating Reports. Within fifteen days
after the end of each quarter, a report setting forth by quarter and
year-to-date (i) new markets entered and total markets existing and (ii) new
customer access lines and total customer access lines.
(4) Notices. Promptly after management of Parent or
Lessee becomes aware thereof, and in any event within ten (10) Business Days of
the occurrence or discovery thereof, provide Lessor with notice of:
(x) the occurrence of a Default or an Event
of Default and a certificate setting forth the facts relating to
or giving rise to such Default or Event of Default and the action
which Parent and Lessee propose to take with respect thereto; and
(y) receipt of any material and adverse
notice or communication issued to or by any Governmental Authority
and copies of any relevant documents with respect thereto,
including, without limitation, (A) any such notice of a
proceeding, order, or complaint issued by or before the FCC, and
State PUC or any other Governmental Authority, that questions the
validity of, contests or could in any manner threaten or adversely
affect the validity, continued effectiveness, or ownership any
material Regulatory Authorization and (B) any such notice or any
other formal communication to the effect that the operations of
Parent or any of its Subsidiaries are not in compliance in all
material respects with all applicable laws, rules and regulations;
(5) Litigation. The institution of any litigation,
investigation or other proceeding by any Person involving any alleged liability
that is reasonably likely to be in excess of Five Million Dollars ($5,000,000);
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(6) Material Adverse Effect. The occurrence or
existence of any event or condition (other than general business conditions)
which would reasonably be expected to have a Material Adverse Effect;
(7) Failure to Achieve Business Plan. Promptly
after the management of Parent or Lessee becomes aware thereof, notice that it
is management's expectation that the actual consolidated results of Parent are
expected to materially and adversely deviate from the forecasts set forth in the
Business Plan.
(8) Miscellaneous. Promptly upon request, such
other information and reports available in the ordinary course of Parent's or
Lessee's business as Lessor may reasonably request from time to time.
(vi) Additional Guarantors. Parent shall cause each
Person who becomes the owner, directly or indirectly, of a majority of any
Equity Securities of Lessee to execute a Guarantor Joinder and become an
Additional Guarantor hereunder within 30 days of the occurrence of such event.
(d) Financial and Operating Covenants of Parent. So long as the
Obligations remain outstanding or Lessor's Commitment has not been terminated,
Parent shall maintain (unless any of the following covenants shall have been
expressly amended in connection with the approval by Lessor of a Revised
Business Plan):
(i) Revenue. Revenue for the most recently completed
month of not less than 80% of projections for such month set forth on the
Revenue Projection Schedule.
(ii) EBITDA. Actual monthly EBITDA for the most recently
completed month of not greater than 120% of EBITDA (while EBITDA is projected to
be negative) as set forth on Revenue Projection Schedule for such month or
actual monthly EBITDA of not less than 80% of projected EBITDA (while EBITDA is
projected to be positive) as set forth on the Revenue Projection Schedule for
such month.
(iii) Completion of Fiber. Actual completed and
operational route fiber miles as of any date of not less than 80% of projected
completed and operational route fiber miles as reflected on the Fiber Projection
Schedule for such date.
(e) Financial Covenant of Lessee. So long as the Obligations
remain outstanding or Lessor's Commitment has not been terminated, Lessee shall
maintain (unless any of the following covenants shall have been expressly
amended in connection with the approval by Lessor of a Revised Business Plan):
(i) Tangible Net Worth of Lessee as of any date of
determination of not less than negative $5,000,000, plus net income minus net
loss for each fiscal quarter ending after the date of this Lease; and
(ii) A ratio of total Adjusted Indebtedness to total
fixed assets before depreciation of Lessee (determined in accordance with GAAP)
of not more than 0.07 to 1.00.
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(f) Termination of Financial Covenants. If Lessee
exercises the early buy-out option specified in Rider III to this Lease, the
covenants specified in Sections 12(d) and 12(e) shall terminate and shall be of
no further force and effect.
13. EVENTS OF DEFAULT: An "Event of Default" shall occur if Lessee or
Parent, as the case may be: (a) fails to pay any Rental Payment or payment of
Stipulated Loss Value when due and such failure continues for a period of five
(5) business days or fails to make any other payment due hereunder and such
failure continues for a period of fifteen (15) business days after written
notice of such failure by Lessor; or (b) fails to perform any covenant (i) under
Section 12(c)(vi) or (ii) under Section 12(d) or 12(e) and Lessee has not
exercised the the early buy-out option specified in Rider III to this Lease
within five (5) days of such failure; or (c) fails to perform or observe any
other material covenant, condition or agreement hereunder or breaches any
provision contained herein or in any other document furnished Lessor in
connection herewith, and such failure or breach continues for a period of thirty
(30) days after written notice by Lessor; or (d) makes any representation or
warranty herein or in any document furnished in connection herewith, which shall
have been materially false or inaccurate when made; or (e) fails to maintain
insurance under this Lease or otherwise required by the Lessor hereunder; or (f)
shall admit in writing that it is unable to pay its debts as they become due,
become insolvent or make an assignment for the benefit of its creditors or
consents to the appointment of a trustee or receiver or insolvency proceedings
shall be instituted by or against Lessee (and in the case of any involuntary
proceedings such proceedings are not dismissed within sixty (60) days); or (g)
shall have outstanding any Indebtedness exceeding the Threshold Amount and (i)
the maturity of such Indebtedness shall be accelerated or such Indebtedness
shall not be paid when due, or (ii) any default shall have occurred under the
documents governing such Indebtedness and such default (1) gives the holder or
holders of such Indebtedness they right to accelerate the maturity thereof and
(2) such default has not been cured or waived by the holder or holders of such
Indebtedness; or (h) shall have rendered against it any single judgment for
payment of money damages in excess of the Threshold Amount, and the same shall
remain unstayed or undischarged for a period of thirty (30) days; or (i) without
Lessor's prior written consent, shall have removed, parted possession with, sold
transferred, encumbered, assigned or sublet any Unit of Equipment or Lessee's
interest under this Lease or attempted to do any of the foregoing or shall have
converted any interest of Lessor arising under this Lease or any purchase order,
or resulting from the purchase of Equipment or attempted to convert any of the
foregoing; or (j) Any Guarantor shall breach or disavow its obligations under
Section 18 of this Lease.
14. REMEDIES: On the occurrence of any Event of Default and at any
time afterwards as long as it continues, Lessor may, at its option and without
notice to Lessee, declare this Lease to be in default and exercise one or more
of the following remedies, to the extent available under, permitted by, and
subject to any mandatory requirements of, applicable law:
(1) Demand that Lessee immediately return the Equipment
to Lessor in the manner specified by written notice, which will be effective on
delivery;
(2) Enter on the premises where all or part of the
Equipment is located and, without incurring liability take immediate possession
of the Equipment and remove it;
(3) Declare immediately due and payable all amounts due
and to become due for the full Term of this Lease;
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(4) Sell the Equipment at private or public sale or
hold, use, operate, or lease the Equipment to others, free and clear of any
rights of Lessee;
(5) Proceed by appropriate court action or actions,
either at law or in equity, to enforce performance by Lessee of the applicable
covenants of this Lease and to obtain relief that the court considers
appropriate for the breach;
(6) Cancel this Lease by written notice, which will be
effective on delivery; and
(7) Exercise all rights available to Lessor under the
UCC.
Whether or not Lessor exercises any of its rights under paragraphs (1),
(2), or (3) above, Lessor may demand, as liquidated damages for loss of the
bargain and not as a penalty (in lieu of the rent due for the period commencing
after the date specified for payment in the notice), any unpaid rent for the
Equipment (prorated on a daily basis) due to and including the payment date
specified in the notice, plus the amount by which the aggregate rent for the
remainder of the Term, discounted periodically (equal to installment frequency)
to present value at the Discount Rate, exceeds the Fair Rental Value of the
Equipment for the remainder of the Term, after discounting the Fair Rental Value
periodically (equal to installment frequency) to present value as of the payment
date specified in the notice at the Discount Rate; provided, however, that if
Lessee has not tendered the Equipment to Lessor, then Lessor may demand, as
liquidated damages for loss of the bargain and not as a penalty, any unpaid rent
for the Equipment (prorated on a daily basis) due to and including the payment
date specified in the notice, plus the amount of the aggregate rent for the
remainder of the Term, discounted periodically (equal to installment frequency)
to present value at the Discount Rate, plus the amount of the then estimated
Fair Market Value of the Equipment, calculated as of the expiration of the Term,
discounted to present value at the Discount Rate.
If Lessor sells the Equipment under paragraph (4) above, Lessor, in lieu
of exercising its rights under paragraph (5) above, may demand that Lessee pay
Lessor, as liquidated damages for loss of the bargain and not as a penalty (in
lieu of the rent due to the period commencing after the sale occurs), any unpaid
rent for the Equipment (prorated on a daily basis) due to and including the date
of sale, plus the amount by which the Stipulated Loss Value of the Equipment,
computed as of the date of the sale, exceeds the net cash proceeds of the sale.
If Lessor, under paragraph (4) above, re-lets the Equipment under a lease
that extends at least to the date on which the Term for the Equipment would have
expired but for Lessee's default, Lessor, in lieu of exercising its rights under
paragraph (5) above, may demand that Lessee pay Lessor liquidated damages for
loss of the bargain and not as a penalty (in lieu of the rent for the Equipment
due after the time of re-letting). The liquidated damages will include any
unpaid rent for the Equipment (pro-rated on a daily basis) due up to the date of
re-letting, plus the amount by which the aggregate rent for the Equipment, which
would otherwise have become due over the Term, discounted periodically (equal to
installment frequency) to present value as of the date of re-letting at the
Discount Rate, exceeds the aggregate rent to become due under the re-letting
from the date of re-letting to the date on which the Term for the Equipment
would have expired but for Lessee's default, discounted periodically (equal to
installment frequency) to present value as of the date of the re-letting at the
Discount Rate.
In addition to the foregoing, without duplication of other amounts
payable hereunder, Lessee will be liable for all unpaid rent during or after the
exercise of any of the remedies described above, together with
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interest on unpaid amounts at the highest rate permitted by law, until
satisfaction of all Lessee's obligations to Lessor and for all reasonable legal
fees and other reasonable costs and expenses incurred by Lessor through the
occurrence of any Event of Default or the exercise of its remedies, including
all costs and expenses incurred in connection with the return of the Equipment
or in putting the Equipment in the condition required by this Lease.
In effecting any repossession, Lessor and its representatives and agents,
to the extent permitted by law, will:
(1) Have the right to enter on any premises where the Equipment is
located;
(2) Not be liable, in conversion or otherwise, for the taking of any
personal property of Lessee that is in or attached to the repossessed Equipment
as long as Lessor promptly returns that property to Lessee;
(3) Not be liable in any manner for any damage to any of Lessee's
property in repossessing and holding the Equipment, except for damage caused by
Lessor's gross negligence or willful misconduct; and
(4) Have the right to maintain possession of and dispose of the
Equipment on any premises owned by Lessee or under Lessee's control.
If reasonably required by Lessor, Lessee, at its sole expense, will
assemble and make the Equipment available at a place designated by Lessor. If
the Equipment is returned to or repossessed by Lessor, any rights in any express
or implied warranty previously assigned to Lessee or otherwise held by it will
without further act, notice, or writing be assigned or reassigned to Lessor, if
assignable. Lessee will be liable to Lessor for all reasonable expenses, costs,
and fees incurred in (1) repossessing, storing, preserving, shipping,
maintaining, repairing, and refurbishing the Equipment to the condition required
by this Lease; and (2) preparing the Equipment for sale or lease, advertising
the sale or lease, and selling or re-letting the Equipment.
At any public sale of the Equipment under this clause, Lessor may bid for
and purchase the Equipment. Lessee agrees that the amounts paid will be used in
the computations contemplated in this clause.
No remedy referred to in this clause is intended to be exclusive, but, to
the extent permissible under applicable law, each will be cumulative and operate
in addition to any other remedy referred to above or otherwise available to
Lessor at law or in equity. The exercise or beginning of exercise by Lessor of
any one or more of its remedies will not preclude the simultaneous or later
exercise by Lessor of any other remedies.
No express or implied waiver by Lessor of any default or event of default
will be construed as a waiver of any future or subsequent default or event of
default.
15. NOTICES. All notices (and financial information required to be
delivered to Lessor under this Lease) shall be addressed as follows:
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If to Lessor:
GATX TELECOM INVESTORS I, L.L.C.
Four Embarcadero Center, Suite 2200
San Francisco, CA 94111
Attn: Contract Administration
With a copy to:
GATX Technology Services Corporation
2505 North Rocky Point Drive
Suite 960
Tampa, Florida 33607
Attn: Contract Administration
If to Lessee:
TELERGY NETWORK SERVICES, INC.
One Telergy Parkway
East Syracuse, New York 13057
Attn: President
With a copy to:
Telergy, Inc.
20 Corporate Woods
Albany, New York 12211
Attn: General Counsel
16. MISCELLANEOUS: (a) Any notices hereunder shall be in writing and
shall be deemed given when delivered personally, by private courier, by
facsimile transmission or sent by certified mail, postage prepaid, addressed to
the other party at its address set forth herein or to such other address as
either party may designate in writing. Such notices or demands shall be deemed
given upon receipt in the case of personal delivery, mailing or facsimile
transmission. (b) Lessee will promptly execute and deliver to Lessor such
further reasonable documents (including, but not limited to, financing
statements) and take such further reasonable action (such as obtaining landlord
or mortgagee's waivers), as Lessor may request in order to more effectively
carry out the intent and purpose of this Lease or an assignment of Lessor's
interest herein. (c) This Lease constitutes the entire agreement on the subject
matter hereof between the parties hereto (other than any document executed in
connection herewith), supersedes the provisions of any "term sheet" executed by
the parties hereto and shall be binding upon and inure to the benefit of the
parties hereto, their permitted successors and assigns. (d) Any provision of the
Lease which is unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof; and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. (e) Time is of the
essence with respect to the Lease. (f) The captions set forth herein are for
convenience only and shall not define or limit any of the terms hereof. (g) The
language in this Lease and the related documents is to be construed as to its
24
<PAGE> 26
fair meaning and not strictly for or against any party. (h) All payments shall
be paid to the address designated by Lessor in the applicable Schedule or
otherwise in a writing signed by Lessor. (i) Lessee's and Lessor's obligations
hereunder shall survive the expiration and termination of the Term to the extent
required for full performance and satisfaction thereof. (j) ALL MATTERS
INVOLVING THE CONSTRUCTION, VALIDITY, PERFORMANCE AND ENFORCEMENT OF THIS LEASE
WILL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. (k) This Lease may be executed
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument; provided, however, that to the extent,
if any, that this Lease or any Schedule constitutes chattel paper (as such term
is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction), no security interest in this Lease may be created through the
transfer or possession of any counterpart of this Lease or any Schedule other
than the original counterparts marked "Lessor's Original Counterpart". (l)
Lessee shall pay on demand (i) all reasonable fees and expenses, including
reasonable attorneys' fees and expenses, incurred by Lessor in connection with
the preparation, execution and delivery of, and evaluation of the transaction,
including the retention of outside consultants to review the equipment, network
implementation and Business Plan and the exercise of its duties under, this
Lease, the Schedules and the documents executed in connection herewith and the
preparation, execution and delivery of amendments and waivers hereunder and (ii)
all reasonable fees and expenses, including reasonable attorneys' fees and
expenses, incurred by Lessor in connection with the enforcement or attempted
enforcement of this Lease or any of the obligations under the Lease or the
Schedules or in preserving any of Lessor's rights and remedies (including,
without limitation, all such fees and expenses incurred in connection with any
"workout" or restructuring affecting the Lease or the Schedules or any
bankruptcy or similar proceeding involving Lessee or any of its Affiliates).
17. CONFIDENTIALITY. All information (other than any periodic reports
filed by Lessee with the Securities and Exchange Commission) disclosed by Lessee
to Lessor in writing or through inspection pursuant to this Lease shall be
considered confidential. Lessor agrees to use the same degree of care to
safeguard and prevent disclosure of such confidential information as Lessor uses
with its own confidential information, but in any event no less than a
reasonable degree of care. Lessor shall not disclose such information to any
third party (other than Lessor's members, Lessor's or Lessor's members'
attorneys and auditors subject to the same confidentiality obligation set forth
herein) and shall use such information only for purposes of evaluation of its
extension of credit to Lessee and the exercise of Lessor's rights and the
enforcement of its remedies under this Lease, the Schedules and the other
document executed in connection herewith. The obligations of confidentiality
shall not apply to any information that (a) was known to the public prior to
disclosure by Lessee under this Lease, (b) becomes known to the public through
no fault of Lessor, (c) is disclosed to Lessor by a third party having a legal
right to make such disclosure, or (d) is independently developed by Lessor from
information not confidential to Lessee.
18. GUARANTY.
(a) Guaranty. In order to induce the Lessor to enter into this
Lease and the Schedules and maintain the extensions of credit hereunder and in
recognition of the direct benefits to be received by the applicable Guarantor,
which directly or indirectly owns Equity Securities of Lessee, from the
extensions of credit hereunder, each Guarantor hereby agrees with Lessor as
follows: Guarantor hereby unconditionally, absolutely, independently and
irrevocably guarantees the full and prompt payment when due, whether upon
maturity, by acceleration or otherwise, of any and all Obligations. If any or
all of Lessee's Obligations become due and payable hereunder and are not paid by
Lessee, Guarantor unconditionally promises to pay all
25
<PAGE> 27
of such Obligations to Lessor, or order, on demand, together with any and all
reasonable expenses which may be incurred by Lessor in collecting any of the
Obligations.
Notwithstanding any provision to the contrary contained herein, to
the extent the obligations of Guarantor shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of any
applicable state or federal law relating to fraudulent conveyances or transfers)
then the obligations of Guarantor hereunder shall be limited to the maximum
amount that is permissible under applicable law (whether federal or state and
including, without limitation, the Bankruptcy Code).
(b) Bankruptcy. Additionally, Guarantor unconditionally and
irrevocably guarantees the payment of any and all Obligations of Lessee to
Lessor whether or not due or payable by Lessee upon the occurrence of any of the
events specified in Section 13(f), and unconditionally promises to pay such
Obligations to Lessor, or order, on demand, in lawful money of the United
States. Guarantor further agrees that to the extent that Lessee shall make a
payment or a transfer of an interest in any property of Lessee, which payment or
transfer or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, or otherwise is avoided, and/or otherwise required
to be repaid (whether as a result of litigation settlement or otherwise) to
Lessee, the estate of Lessee, a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such avoidance or repayment, the obligation or part thereof intended
to be satisfied shall be revived and continued in full force and effect as if
said payment had not been made.
(c) Nature of Liability. The liability of Guarantor hereunder
is exclusive and independent of any security for or other guaranty of the
Obligations of Lessee whether executed by any other guarantor or by any other
party, and Guarantor's liability hereunder shall not be affected or impaired by
(a) any direction as to application of payment by Lessee or by any other party,
or (b) any other continuing or other guaranty, undertaking or maximum liability
of a guarantor or of any other party as to the Obligations, or (c) any payment
on or in reduction of any such other guaranty or undertaking, or (d) any
dissolution, termination or increase, decrease or change in personnel by Lessee
or any change of ownership of Lessee (other than to a Permitted Transferee), or
(e) any payment made to Lessor on the Obligations which Lessor repays to Lessee
pursuant to court order or otherwise in any bankruptcy, reorganization,
arrangement, moratorium or other debtor relief proceeding, and Guarantor waives
any right to the deferral or modification of its obligations hereunder by reason
of any such proceeding.
(d) Independent Obligation. The obligations of Guarantor
hereunder are independent of the obligations of any other guarantor or Lessee,
and a separate action or actions may be brought and prosecuted against Guarantor
whether or not action is brought against any other guarantor or Lessee and
whether or not Guarantor or Lessee is joined in any such action or actions.
(e) Authorization. Guarantor authorizes Lessor without notice
or demand (except as shall be required by applicable statute and cannot be
waived), and without affecting or impairing its liability hereunder, from time
to time to (a) renew, compromise, extend, increase, accelerate or otherwise
change the time for payment of, or otherwise change the terms of the Obligations
or any part thereof in accordance with this Lease, including any increase or
decrease in the Rental Payments and the implicit rate of interest therein, (b)
take and hold security from any guarantor or any other party for the payment of
this guaranty or the Obligations and exchange, enforce waive and release any
such security, (c) apply such security and direct the order or manner of sale
thereof as Lessor in its discretion may determine and (d) release or substitute
any one or more endorsers, guarantors, Lessee or other obligors.
26
<PAGE> 28
(f) Reliance. It is not necessary for Lessor to inquire
into the capacity or powers of Lessee or the officers, directors or agents
acting or purporting to act on its behalf, and any indebtedness or Obligations
made or created in reliance upon the professed exercise of such powers shall be
guaranteed hereunder.
(g) Waiver.
(i) Guarantor waives any right (except as shall
be required by applicable statute and cannot be waived) to require Lessor to (A)
proceed against Lessee, any other guarantor or any other party, (B) proceed
against or exhaust any security held from Lessee, any other guarantor or any
other party, or (C) pursue any other remedy in Lessor's power whatsoever.
Guarantor waives any defense based on or arising out of any defense of Lessee,
any other guarantor or any other party other than payment in full of the
Obligations (other than inchoate indemnity obligations), including without
limitation any defense based on or arising out of the disability of Lessee, any
other guarantor or any other party, or the unenforceability of the indebtedness
or any part thereof from any cause, or the cessation from any cause of the
liability of Lessee other than payment in full of the Obligations. Lessor may,
at its election, foreclose on any security held by the Lessor by one or more
judicial or nonjudicial sales, whether or not every aspect of any such sale is
commercially reasonable (to the extent such sale is permitted by applicable
law), or exercise any other right or remedy Lessor may have against Lessee or
any other party, or any security, without affecting or impairing in any way the
liability of Guarantor hereunder except to the extent the Obligations (other
than inchoate indemnity obligations) have been paid. Guarantor waives any
defense arising out of any such election by Lessor, even though such election
operates to impair or extinguish any right of reimbursement or subrogation or
other right or remedy of Guarantor against Lessee or any other party or any
security.
(ii) Guarantor waives all presentments, demands
for performance, protests and notices, including without limitation notices of
nonperformance, notice of protest, notices of dishonor, notices of acceptance of
the guaranty hereunder, and notices of the existence, creation or incurring of
new or additional Obligations. Guarantor assumes all responsibility for being
and keeping itself informed of Lessee's financial condition and assets, and of
all other circumstances bearing upon the risk of nonpayment of the indebtedness
and the nature, scope and extent of the risks which Guarantor assumes and incurs
hereunder, and agrees that Lessor shall not have any duty to advise Guarantor of
information known to it regarding such circumstances or risks.
(iii) Guarantor hereby agrees it will not exercise
any rights of subrogation which it may at any time otherwise have as a result of
the guaranty hereunder (whether contractual, under Section 509 of the U.S.
Bankruptcy Code, or otherwise) to the claims of Lessor against Lessee or any
other guarantor of the Obligations of Lessee owing to Lessor (collectively, the
"Other Parties") and all contractual, statutory or common law rights of
reimbursement, contribution or indemnity from any Other Party which it may at
any time otherwise have as a result of the guaranty hereunder until such time as
the Obligations (other than inchoate indemnity obligations) shall have been paid
and Lessor's Commitment has been terminated. Guarantor hereby further agrees not
to exercise any right to enforce any other remedy which Lessor now has or may
hereafter have against any other party, any endorser or any other guarantor of
all or any part of the Obligations of Lessee and any benefit of, and any right
to participate in, any security or collateral given to or for the benefit of
Lessor to secure payment of the Obligations until such time as the Obligations
have been paid in full and Lessor's Commitment has been terminated.
27
<PAGE> 29
(h) Except as set forth in Section 18(b), all
guarantees of the Guarantor shall terminate and be of no further force and
effect upon (i) payment in full of the Obligations or (ii) the assignment of the
Obligations to a Permitted Transferee.
28
<PAGE> 30
19. AMENDMENTS, MODIFICATIONS, WAIVERS: NONE OF THE PROVISIONS OF THIS
LEASE MAY BE AMENDED, MODIFIED OR WAIVED EXCEPT IN A WRITING SIGNED BY LESSOR
AND LESSEE.
This Lease is hereby duly executed by the parties hereto as set forth
below.
LESSEE: LESSOR:
TELERGY NETWORK SERVICES, GATX TELECOM INVESTORS I,
INC. L.L.C.
By: GATX Capital Corporation,
its Managing Member
BY: /s/ William M. Kelly, Jr. BY: /s/ Mathew Maloney
-------------------------- ----------------------------
NAME (PRINT): William M. Kelly, Jr. NAME (PRINT): Mathew Maloney
---------------------- ------------------
TITLE: CIO TITLE: Managing Director
------------------- ------------------------
GUARANTOR:
TELERGY, INC.
BY: /s/ Kevin J. Kelly
---------------------
NAME (PRINT): Kevin J. Kelly
-------------------
TITLE: Executive Vice President
--------------------------
This Lease incorporates the following Riders as if set forth herein:
Rider I, Rider II and Rider III
INITIALS (LESSEE) INITIALS (LESSOR)
--------------- ---------------
29
<PAGE> 1
Exhibit 10.13.2
FIRST AMENDMENT
TO
MASTER EQUIPMENT LEASE AGREEMENT
This FIRST AMENDMENT, dated as of May 2, 2000 (the "AMENDMENT"), to MASTER
EQUIPMENT LEASE AGREEMENT, dated as of September 15, 1999 (the "LEASE
AGREEMENT"), is entered into by and among GATX TELECOM INVESTORS I, L.L.C.
("LESSOR"), TELERGY NETWORK SERVICES, INC. ("LESSEE"), and TELERGY, INC.
("PARENT").
RECITAL
A. The Lessee has requested that Lessor amend the Lease Agreement as
provided herein and Lessor has agreed to do so subject to the terms and
conditions of this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Lessee and Lessor hereby agree as follows:
1. Definitions; Interpretation. Unless otherwise defined herein, all
capitalized terms used herein and defined in the Lease Agreement shall have the
respective meanings given to those terms in the Lease Agreement. Other rules of
construction set forth in the Lease Agreement, to the extent not inconsistent
with this Amendment, apply to this Amendment and are hereby incorporated by
reference.
2. Amendment to Lease Agreement and Release. Upon the satisfaction of
the conditions set forth in Section 3 hereof, the Lessee and Lessor hereby
agree as follows:
(a) Exhibit H (Revenue Projection Schedule) to the Lease Agreement is
hereby replaced by a new Exhibit H attached hereto as Exhibit A.
(b) Section 12(d) to the Lease Agreement is hereby amended and
restated in its entirety to read as follows:
"FINANCIAL AND OPERATING COVENANTS OF PARENT. So long as the
Obligations remain outstanding or Lessor's Commitment has not been terminated,
Parent shall maintain (unless any of the following covenants shall have been
expressly amended in connection with the approval by Lessor of a Revised
Business Plan):
(i) Revenue. Revenue for the most recently completed quarter of
not less than 80% of projections for such quarter set forth on the Revenue
Projection Schedule.
(ii) EBITDA. Actual quarterly EBITDA for the most recently
completed quarter of not greater than 120% of EBITDA (while EBITDA is projected
be negative) as set forth on the Revenue Projection Schedule for such quarter
and actual quarterly EBITDA of
<PAGE> 2
not less than 80% of projected EBITDA (while EBITDA is projected to be
positive) as set forth on the Revenue Projection Schedule for such quarter.
(iii) Completion of Fiber. Actual completed and operational
route fiber miles as of any date of not less than 80% of projected completed
and operational route fiber miles as reflected on the Fiber Projection Schedule
for such date."
3. Condition to Effectiveness. The Amendment shall be effective as of
the date hereof, upon:
(a) the delivery to Lessor of this Amendment duly executed by Lessee;
(b) the delivery to Lessee of this Amendment duly executed by
Lessor; and
(c) the delivery by Lessee to Lessor of an amendment fee of
$50,000.00.
4. Effect of Amendment. On and after the date hereof, each reference to
the Lease Agreement in the Lease Agreement or in any other document shall mean
the Lease Agreement as amended by this Amendment. The execution, delivery and
effectiveness of this Amendment shall not operate as a waiver of any right,
power, or remedy of Lessor, nor constitute a waiver of any provision of the
Lease Agreement.
5. Representations and Warranties. Lessee and Parent hereby represent
and warrant to Lessor that:
(a) Each of Lessee and Parent is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation; (ii) Each of Lessee and Parent has the full corporate power,
authority and legal right and has obtained all necessary approvals, consents
and given all notices to execute and deliver this Amendment and perform the
terms hereof; (iii) there is no action, proceeding or patent claim pending or,
insofar as such Lessee or Parent knows, threatened against Lessee, Parent or
any of their subsidiaries before any court or administrative agency which might
have a materially adverse effect on the business, condition or operations of
Lessee or Parent; and (iv) this Amendment has been duly executed and delivered
by such Lessee and constitutes the valid, binding and enforceable obligation of
Lessee and Parent.
(b) No Default or Event of Default under the Lease Agreement has
occurred and is continuing.
6. Special Covenant of Lessee and Parent. Lessee and Parent hereby
undertake to use their respective best efforts to cause any restrictions on the
utilization of the full commitment under the Lease Agreement to be removed. On
the removal of such restrictions, Lessee and Parent agree, subject to the Lease
Agreement, to utilize the full remaining commitment.
7. Full Force and Effect. Except as amended above, the Lease Agreement
remains in full force and effect.
8. Headings. Headings in this Amendment are for convenience of reference
only and are not part of the substance hereof.
9. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of California without reference to
conflicts of law rules.
-2-
<PAGE> 3
10. Counterparts. This Amendment may be executed in any number of
identical counterparts, any set of which signed by all of the parties hereto
shall be deemed to constitute a complete, executed original for all purposes.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Amendment to be
executed as of the day and year first above written.
Lessor: GATX TELECOM INVESTORS I, L.L.C.
By: GATX Capital Corporation
Its: Managing Member
By: /s/ James Glen White
--------------------------------
Name: James Glen White
Title: Vice President
Lessee: TELERGY NETWORK SERVICES, INC.
By:
--------------------------------
Name:
Title:
Parent and Guarantor: TELERGY, INC.
By:
--------------------------------
Name:
Title:
-3-
<PAGE> 1
EXHIBIT 10.14.1
===============================================================================
$175,000,000
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of November 19, 1999
among
TELERGY OPERATING, INC.
as the Borrower
and
THE LENDERS NAMED HEREIN
and
BANK OF AMERICA, N.A.
as the Administrative Agent
and
CIBC INC.
as Syndication Agent
and
ROYAL BANK OF CANADA
as Co-Syndication Agent
and
TORONTO DOMINION (TEXAS), INC.
as Documentation Agent
and
CIBC WORLD MARKETS, INC.
as Co-Lead Arranger
and
BANK OF AMERICA SECURITIES LLC
as
as Co-Lead Arranger
================================================================================
<PAGE> 2
Exhibits and Schedules
Exhibits
Exhibit A - Form of Assignment and Acceptance
Exhibit B - Form of Note
Exhibit C - Form of Borrowing Notice
Exhibit D - Form of Borrowing Base Certificate
Exhibit E - Form of Compliance Certificate
Exhibit F - Form of Application for Standby Letter of Credit
Exhibit G - Notice of Continuation/Conversion
Schedules
Schedule 1.01(a) - Material Right-of-Way Agreements
Schedule 4.08 - Subsidiaries
Schedule 4.18 - Insurance
Schedule 7.02 - Debt for Borrowed Money of the Borrower and its Subsidiaries
Schedule 7.03 - Liens
Schedule 7.05 - Investments
Schedule 7.08 - Affiliate Transactions
Schedule 7.11 - Conversion Rights, Warrants and Options
Schedule 7.15 - Phase I Optical Fiber Routes
<PAGE> 3
TABLE OF CONTENTS
ARTICLE I Definitions
<TABLE>
<S> <C>
SECTION 1.01. Defined Terms........................................1
SECTION 1.02. Terms Generally.....................................23
ARTICLE II The Revolving Loan
SECTION 2.01. The Loan............................................23
SECTION 2.02. Making Advances.....................................24
SECTION 2.03. Evidence of Debt....................................25
SECTION 2.04. Fees................................................26
SECTION 2.05. Reduction of Commitment.............................26
SECTION 2.06. Prepayments.........................................27
SECTION 2.07. Mandatory Repayment.................................28
SECTION 2.08. Interest............................................28
SECTION 2.09. Default Interest....................................29
SECTION 2.10. Continuation and Conversion Elections...............29
SECTION 2.11. Funding Losses......................................30
SECTION 2.12. Computations and Manner of Payments.................31
SECTION 2.13. Sharing of Payments.................................32
SECTION 2.14. Yield Protection....................................32
SECTION 2.15. Taxes...............................................34
SECTION 2.16. Collateral and Collateral Call......................36
SECTION 2.17. Conditions Precedent to the Increase
of the Commitment...................................37
ARTICLE III Letters of Credit
SECTION 3.01. Issuance of Letters of Credit.......................40
SECTION 3.02. Letters of Credit Fee...............................40
SECTION 3.03. Reimbursement Obligations...........................41
SECTION 3.04. Lenders' Obligations................................42
SECTION 3.05. Administrative Agent's Obligations..................43
SECTION 3.06 Reinstatement.......................................43
ARTICLE IV Representations and Warranties
SECTION 4.01. Organization; Powers................................44
SECTION 4.02. Authorization.......................................44
SECTION 4.03. Enforceability......................................44
SECTION 4.04. Governmental Approvals..............................45
SECTION 4.05. Financial Statements................................45
SECTION 4.06. No Material Adverse Change..........................45
SECTION 4.07. Title to Properties; Possession Under Leases........45
SECTION 4.08. The Subsidiaries. ..................................46
SECTION 4.09. Litigation; Compliance with Laws....................46
SECTION 4.10. Agreements..........................................46
SECTION 4.11. Federal Reserve Regulations.........................47
</TABLE>
i
<PAGE> 4
SECTION 4.12. Investment Company Act; Public Utility Holding
Company Act.........................................47
SECTION 4.13. Use of Proceeds.....................................47
SECTION 4.14. Tax Returns.........................................47
SECTION 4.15. No Material Misstatements...........................47
SECTION 4.16. Employee Benefit Plans..............................48
SECTION 4.17. Solvency............................................48
SECTION 4.18. Insurance...........................................48
SECTION 4.19. Environmental Matters...............................48
SECTION 4.20. Year 2000 Compliance................................49
ARTICLE V Conditions of Lending
SECTION 5.01. Closing Date. .....................................50
SECTION 5.02. Conditions Precedent to All Advances and Letters
of Credit...........................................52
ARTICLE VI Affirmative Covenants
SECTION 6.01. Existence; Businesses and Properties................53
SECTION 6.02. Insurance...........................................53
SECTION 6.03. Obligations and Taxes...............................53
SECTION 6.04. Financial Statements, Reports, etc..................54
SECTION 6.05. Litigation and Other Notices........................55
SECTION 6.06. Employee Benefits...................................55
SECTION 6.07. Maintaining Records; Access to Properties and
Inspections.........................................55
SECTION 6.08. Use of Proceeds.....................................56
SECTION 6.09. Compliance with Environmental Laws..................56
SECTION 6.10. Year 2000 Compliance................................56
SECTION 6.11. Survival of Representations and Warranties, etc.....56
ARTICLE VII Negative Covenants
SECTION 7.01. Financial Covenants of the Borrower.................57
SECTION 7.02. Debt for Borrowed Money.............................60
SECTION 7.03. Liens...............................................61
SECTION 7.04. Sale and Lease Back Transactions....................62
SECTION 7.05. Investments, Acquisitions, Loans and Advances.......62
SECTION 7.06. Mergers, Consolidations and Sales of Assets.........63
SECTION 7.07. Restricted Payments.................................64
SECTION 7.08. Transactions with Affiliates........................65
SECTION 7.09. Limitation on Restrictive Agreements................65
SECTION 7.10. Amendments to Organizational Documents and
Material Agreements.................................66
SECTION 7.11. Issuances of Capital Stock..........................66
SECTION 7.12. Subsidiaries of the Borrower that are not Wholly Owned
Subsidiaries........................................67
SECTION 7.13. ERISA...............................................67
SECTION 7.14. Right-Of-Ways.......................................67
SECTION 7.15. Fiber Dispositions..................................67
ii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE VIII Events of Default
SECTION 8.01. Events of Default...................................68
SECTION 8.02. Remedies Upon Default...............................72
SECTION 8.03. Cumulative Rights...................................72
SECTION 8.04. Waivers.............................................72
SECTION 8.05. Performance by Administrative Agent or any Lender...73
SECTION 8.06. Expenditures........................................73
SECTION 8.07. Control.............................................73
ARTICLE IX The Administrative Agent
SECTION 9.01. Authorization and Action............................73
SECTION 9.02. Administrative Agent's Reliance, Etc................74
SECTION 9.03. Bank of America, N. A. and Affiliates...............74
SECTION 9.04. Lender Credit Decision..............................74
SECTION 9.05. Indemnification by Lenders..........................75
SECTION 9.06. Successor Administrative Agent......................75
ARTICLE X Miscellaneous
SECTION 10.01. Waivers; Amendment..................................76
SECTION 10.02. Notices.............................................77
SECTION 10.03. Binding Effect......................................78
SECTION 10.04. Successors and Assigns..............................78
SECTION 10.05. Expenses; Indemnity.................................80
SECTION 10.06. Right of Setoff.....................................81
SECTION 10.07. Applicable Law......................................82
SECTION 10.08. Survival of Agreement...............................82
SECTION 10.09. Interest Rate Limitation............................82
SECTION 10.10. ENTIRE AGREEMENT....................................83
SECTION 10.11. WAIVER OF JURY TRIAL................................83
SECTION 10.12. Severability........................................83
SECTION 10.13. Counterparts........................................83
SECTION 10.14. Headings............................................83
SECTION 10.15. Jurisdiction; Consent to Service of Process.........84
SECTION 10.16. Release of Collateral...............................84
SECTION 10.17. Amendment, Restatement, Extension, Renewal
and Increase........................................84
</TABLE>
iii
<PAGE> 6
TELERGY OPERATING, INC.
$175,000,000
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement"),
dated as of November 19, 1999, among TELERGY OPERATING, INC., a Delaware
corporation, (the "Borrower"), the Lenders (as defined in Article I hereof), and
BANK OF AMERICA, N.A., a national banking association, as administrative agent
(in such capacity, the "Administrative Agent") for the Lenders, as CIBC INC. as
Co-Syndication Agent, ROYAL BANK OF CANADA as Co-Syndication Agent, TORONTO
DOMINION (TEXAS), INC., as Documentation Agent, CIBC WORLD MARKETS, INC. AS
Co-Lead Arranger and BANK OF AMERICA SECURITIES LLC as Co-Lead Arranger.
WHEREAS, Telergy, Inc., a New York corporation (the "Original Borrower")
and Bank of America, N.A. (formerly NationsBank, N.A.) entered into a Credit
Agreement, dated May 18,1999.
WHEREAS, on July 12, 1999, the Original Borrower and the Lenders amended
and restated the Credit Agreement (the "Original Credit Agreement").
WHEREAS, the Original Borrower has reorganized its corporate structure and
the Original Borrower and the Borrower have requested a second amended and
restated credit agreement to provide for a loan facility of $175,000,000, which
may be increased to up to $200,000,000 and the replacement of the Original
Borrower with the Borrower subject to the terms and conditions of this
Agreement.
WHEREAS, Administrative Agent and the Lenders are willing to extend such
credit to the Borrower, on the terms and subject to the conditions set forth
herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms shall have the meanings specified below:
"Advance" means an advance made by a Lender to the Borrower pursuant to
Section 2.01 hereof.
<PAGE> 7
"Affiliate" means, when used with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified,
provided that, with respect to the Parent, the Borrower and their Subsidiaries,
the term Affiliate shall not include any Person that owns any of the Excluded
Stock solely because of the ownership of such Excluded Stock, nor shall it
include a specified Person solely because such Person is a member of the Board
of Directors.
"Agreement" means this credit agreement, as hereafter amended, modified,
or supplemented in accordance with its terms.
"Applicable Law" means in respect of any Person, all provisions of Laws of
Tribunals and Governmental Authorities applicable to such Person, and all orders
and decrees of all courts and arbitrators in proceedings or actions to which the
Person in question is a party, including, without limitation, the Communications
Act and all laws and regulations of any applicable PUC applicable to such
Person.
"Applicable Margin" means (i) with respect to the Base Rate Advances,
3.000% per annum and (ii) with respect to LIBOR Advances, 4.000% per annum.
"Application" means an application for standby Letter of Credit in the
form of Exhibit F hereto.
"Asset Disposition" means the sale or disposition of assets outside the
ordinary course of business, and in any event, a Fiber Disposition shall not be
classified as an Asset Disposition.
"Assignee" has the meaning ascribed thereto in Section 10.04 hereof.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an Eligible Assignee, and accepted by the Administrative
Agent, in the form of Exhibit A hereto as each such agreement may be amended,
modified, extended, restated, renewed, substituted or replaced from time to
time.
"Auditor" means the independent certified public accountants of national
recognized standing selected by the Borrower or other independent certified
public accountants selected by the Borrower and acceptable to Administrative
Agent.
"Available Commitment" means the lesser of (a) the Borrowing Base and (b)
the Commitment.
"Bank Affiliate" means the holding company of any Lender, or any wholly
owned direct or indirect subsidiary of such holding company or of such Lender.
"Bank of America" means Bank of America, N.A.
"Base Rate Advance" means an Advance bearing interest at the Base Rate.
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<PAGE> 8
"Base Rate" means, for any day, a rate per annum equal to the lesser of
(a) the then Highest Lawful Rate and for such day (b) the sum of the Applicable
Margin plus the greater of (i) the sum of Federal Funds Rate in effect plus
0.50% and (ii) the rate of interest as then in effect announced publicly by Bank
of America, N.A. in Dallas, Texas as its U.S. dollar prime commercial lending
rate (such rate may or may not be the lowest rate of interest charged by Bank of
America from time to time). The Base Rate shall be adjusted automatically as of
the opening of business on the effective date of each change in the Federal
Funds Rate or the prime rate to account for such change.
"Board of Governors" means the Board of Governors of the Federal Reserve
System of the United States of America.
"Borrower" means Telergy Operating, a Wholly-Owned Subsidiary of the
Parent.
"Borrowing" means a borrowing under the Loan of the same Type made on the
same day.
"Borrowing Base" means the greater of the (a) Contributed Capital
Borrowing Base and the (b) Net PP&E Borrowing Base.
"Borrowing Base Certificate" means a borrowing base certificate in the
form of Exhibit D showing the calculation of the Borrowing Base as required by
the provisions of Article V hereof.
"Borrowing Notice" has the meaning ascribed thereto in Section 2.02(a)
hereof.
"Business Day" means any day other than a Saturday, Sunday or day on which
banks in Dallas, Texas or New York, New York are authorized or required by Law
to close and, if the applicable day relates to any notice, payment or
calculation related to a LIBOR Advance, in London, England are authorized or
required by Law to close.
"Capital Expenditures" means the aggregate amount of all purchases or
acquisitions of items considered to be capital items under GAAP, and in any
event shall include the aggregate amount of items leased or acquired under
Capital Lease Obligations at the cost of the items.
"Capital Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof determined in accordance with GAAP.
"Capital Stock" means, as to any Person, the equity interests in such
Person, including, without limitation, the shares of each class of capital stock
of any Person that is a corporation, of membership interests in any Person that
is a limited liability company, and of partnership interests (including without
limitation, general, limited and preference units) in any Person that is a
partnership.
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<PAGE> 9
"Cash Dark Fiber Sales" means for the Parent, the Borrower and their
Subsidiaries, the gross cash received from all Fiber Dispositions by the Parent,
the Borrower and their Subsidiaries on or after the date of this Agreement.
"Change in Control" means the occurrence of any one of the following
events: (a) none of Brian P. Kelly, Kevin J. Kelly or William M. Kelly, Jr.
shall be actively serving as an executive officer of the Parent and devoting the
full amount of his business time to the business and affairs of the Parent,
provided that, if (i) none of Brian P. Kelly, Kevin J. Kelly or William M.
Kelly, Jr. shall be actively serving as an executive officer of the Parent and
devoting the full amount of his business time to the business and affairs of the
Parent and (ii) a suitable replacement reasonably acceptable to the
Administrative Agent and the Majority Lenders has been retained within 60 days
after the date that all of the foregoing persons cease to serve in such
capacity, then no Change of Control will be deemed to have occurred; or (b)
Brian P. Kelly, Kevin J. Kelly or William M. Kelly, Jr. and all Related Persons
shall in the aggregate own and control less than 30% of the aggregate ordinary
voting power represented by the issued and outstanding Voting Stock of the
Parent; or (c) the acquisition by a "person" or related group (within the
meaning of Section 13(d)(3) of Section 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), or any successor provisions to either
of the foregoing and including any "group" acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under
the Exchange Act), other than Brian P. Kelly, Kevin J. Kelly or William Kelly,
Jr. or any Related Persons, in a single transaction or in a series of related
transactions, by way of merger, consolidation or other business combination or
purchase of beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act), or any successor provision) of 33% or more of the Voting Stock of
the Parent, measured by the voting power of Voting Stock aggregating 33% or more
of the total number of votes eligible to be voted at such time rather than the
number of shares outstanding at such time.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" has the meaning ascribed thereto in Section 2.16 hereof.
"Commitment" means $175,000,000, as such amount may be increased prior to
March 31, 2000 in accordance with the terms of Section 2.17 hereof, and as such
amount may be reduced from time to time or terminated pursuant to Sections 2.05,
2.07 or 8.02 hereof.
"Commitment Fees" means each of the fees described in Sections 2.04(a) and
2.04(b) hereof.
"Communications Act" means, collectively, the Communications Act of 1934,
as amended by the Telecommunications Act of 1996, and as further amended, and
the rules and regulations promulgated thereunder, as from time to time in
effect.
"Compliance Certificate" means a compliance certificate, in form of
Exhibit E hereof, showing the calculations to evidence compliance by the Parent,
Borrower and their Subsidiaries with the terms of Section 7.01 hereof and
certifying that there exists no Default or Event of Default at the
4
<PAGE> 10
time of delivery thereof, or if a Default or an Event of Default exists,
specifying the nature and extent thereof and the corrective action taken or
proposed to be taken with respect thereto.
"Consequential Loss," with respect to (a) the Borrower's payment of all or
any portion of the then-outstanding principal amount of a LIBOR Advance on a day
other than the last day of the related Interest Period, including, without
limitation, payments made as a result of the acceleration of the maturity of a
Note, (b) (subject to Administrative Agent's prior consent), a LIBOR Advance
made on a date other than the date on which the Advance is to be made according
to Section 2.02(a) or Section 2.10 hereof to the extent such Advance is made on
such other date at the request of the Borrower other than as a result of the
Borrower's failure to meet the conditions precedent to such Advance, or (c) any
of the circumstances specified in Section 2.04, Section 2.05 and Section 2.06
hereof on which a Consequential Loss may be incurred, means any loss, cost or
expense incurred by any Lender as a result of the timing of the payment or
Advance or in liquidating, redepositing, redeploying or reinvesting the
principal amount so paid or affected by the timing of the Advance or the
circumstances described in Section 2.05, Section 2.06, and Section 2.10 hereof,
which amount shall be the sum of (i) the interest that, but for the payment or
timing of Advance, such Lender would have earned in respect of that principal
amount, reduced, if such Lender is able to redeposit, redeploy, or reinvest the
principal amount, by the interest or other earnings earned by such Lender as a
result of redepositing, redeploying or reinvesting the principal amount plus
(ii) any expense or penalty incurred by such Lender by reason of liquidating,
redepositing, redeploying or reinvesting the principal amount. Each
determination by each Lender of any Consequential Loss is, in the absence of
manifest error, conclusive and binding.
"Contingent Liability" means, as to any Person, any obligation, contingent
or otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Debt or obligation of any other Person in any manner, whether
directly or indirectly, including, without limitation, any obligation of such
Person, direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such Debt, (b)
to purchase Property or services for the purpose of assuring the owner of such
Debt of its payment, or (c) to maintain the solvency, working capital, equity,
cash flow, fixed charge or other coverage ratio, or any other financial
condition of the primary obligor so as to enable the primary obligor to pay any
Debt or to comply with any agreement relating to any Debt or obligation, and
shall, in any event, include any contingent obligation under any letter of
credit, application for any letter of credit or other related documentation but
excluding any endorsement of checks, drafts and other instruments in the
ordinary course of business, provided that this definition shall not include
Guarantees by the Parent, the Borrower or their Subsidiaries of any obligations
of the Parent, the Borrower or its Wholly Owned Subsidiaries or Telergy Central.
"Continue," "Continuation" and "Continued" each refer to the continuation
pursuant to Section 2.10 hereof of a LIBOR Advance from one Interest Period to
the next Interest Period.
"Contributed Capital Borrowing Base" means, at any time, (a) 100% of the
aggregate amount of cash theretofore contributed to the capital of the Parent
less (b) any outstanding obligations under secured vendor Debt agreements or
purchase money secured Debt arrangements in connection with Telecommunications
Equipment.
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<PAGE> 11
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise, and
"Controlling" and "Controlled" shall have the meanings correlative thereto.
"Conversion Rights Agreement" means that certain Conversion Rights
Agreement, dated April 24, 1998, as amended through July 15, 1999, between the
Parent and Niagara Mohawk Energy, Inc.
"Debt" means all obligations, contingent or otherwise, which in accordance
with GAAP are required to be classified on the balance sheet as liabilities,
and, in any event, includes accrued Earn-Out Liabilities (in accordance with
GAAP), Capital Lease Obligations, Contingent Liabilities that are required to be
disclosed and quantified in notes to consolidated financial statements in
accordance with GAAP, and liabilities secured by any Lien on any Property,
regardless of whether such secured liability is with or without recourse.
"Debt for Borrowed Money" of any Person means, without duplication, (a)
all obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person under conditional sale or other title retention
agreements relating to property or assets purchased by such Person, (d) all
obligations of such Person issued or assumed as the deferred purchase price of
property or services (excluding trade accounts payable and accrued obligations
incurred in the ordinary course of business), (e) all Debt for Borrowed Money of
others secured by (or for which the holder of such Debt for Borrowed Money has
an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed but only to the extent of the lesser of the
fair market value of such assets and the amount of such Debt for Borrowed Money
so secured, (f) all Guarantees by such Person of Debt for Borrowed Money of
others, (g) all Capital Lease Obligations of such Person, (h) all net
obligations of such Person in respect of interest rate protection agreements,
foreign currency exchange agreements or other interest or exchange rate hedging
arrangements and (i) all obligations of such Person as an account party in
respect to letters of credit and bankers' acceptances. The Debt for Borrowed
Money of any Person shall include the Debt for Borrowed Money of any partnership
in which such Person is a general partner.
"Debtor Relief Laws" means applicable bankruptcy, reorganization,
moratorium, or similar Laws, or principles of equity affecting the enforcement
of creditors' rights generally.
"Default" means any event or condition which upon notice, lapse of time or
both would constitute an Event of Default.
"Distribution" means, as to any Person, (a) any declaration or payment of
any distribution or dividend (other than a stock dividend or a dividend in
options, warrants or other rights to acquire common Capital Stock of a Person)
on, or the making of any distribution to any holder of, any partnership interest
or shares of Capital Stock or other equity interest of such Person (or the
establishment of a sinking fund or otherwise setting aside of funds for any such
purpose), or (b) any
6
<PAGE> 12
purchase, redemption, or other acquisition or retirement for value of any shares
of partnership interest or Capital Stock or other equity interest of such Person
(or the establishment of a sinking fund or otherwise setting aside of funds for
any such purpose).
"dollars" or "$" means lawful money of the United States of America.
"Earn-Out Liabilities means, with respect to the Parent, the Borrower and
their Subsidiaries, any unsecured contingent liability of the Parent, the
Borrower or their Subsidiaries incurred in connection with any acquisitions
permitted under Section 7.05 hereof, which such contingent liability (a)
constitutes a portion of the purchase price for the property acquired but is not
an amount certain, (b) is only payable based on the performance of the acquired
property and in an amount based only on the performance of the acquired property
and (c) is not subject to any acceleration right (other than those rights in
existence as of the date hereof).
"EBITDA" means, with respect to the Parent, the Borrower and their
Subsidiaries on a consolidated basis for any period, the consolidated net income
for such period, computed in accordance with GAAP, plus, to the extent deducted
in computing such consolidated net income and without duplication, the sum of
(a) income tax expense for such period, (b) interest expense for such period,
(c) depreciation and amortization expense for such period, and (d) extraordinary
losses during such period minus, to the extent added in computing such
consolidated net income and without duplication, extraordinary gains during such
period.
"Environment" means ambient air, surface water and groundwater (including
potable water, navigable water and wetlands), the land surface or subsurface
strata, the workplace or as otherwise defined in any Environmental Law.
"Environmental Claim" means any written notice by any Tribunal alleging
liability for damage to the Environment, or by any Person alleging liability for
personal injury (including sickness, disease or death) resulting from or based
upon (a) the presence or release (including sudden or non-sudden, accidental or
non-accidental, leaks or spills) of any Hazardous material at, in or from
property, whether or not owned by the Parent, the Borrower or any of their
Subsidiaries, or (b) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C.ss. 9601 et seq.) ("CERCLA"), the
Hazardous Materials Transportation Act (49 U.S.C.ss.1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C.ss.6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C.ss.1251 et seq.), the Clean Air Act (42
U.S.C.ss.7401 et seq.), the Toxic Substances Control Act (15 U.S.C.ss. 2601 et
seq.), and the Occupational Safety and Health Act (29 U.S.C.ss.651 et seq.)
("OSHA"), as such laws have been or hereafter may be amended or supplemented,
and any and all analogous future federal, or present or future state or local
Laws.
"Environmental Permit" means any permit, approval, authorization,
certificate, license, variance, filing or permission required by or from any
Governmental Authority pursuant to any Environmental Law.
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<PAGE> 13
"ERISA" means the Employee Retirement Income Security Act of 1974, as the
same may be amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code, or solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) a reportable event, within the meaning of Section
4043 of ERISA, unless the 30-day notice requirement with respect thereto has
been waived by the PBGC, (b) the issuance by the administrator of any Plan of a
notice of intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA
(including any such notice with respect to a Plan amendment referred to in
Section 4041(e) of ERISA), (c) the withdrawal by the Parent, the Borrower, any
Subsidiary of the Parent, or an ERISA Affiliate from a Multiemployer Plan during
a Plan year for which it was a substantial employer, as defined in Section
4001(a)(2) of ERISA, (d) the failure by the Borrower, the Parent, any Subsidiary
of the Parent, or any ERISA Affiliate to make a payment to a Plan required under
Section 302 of ERISA, (e) the adoption of an amendment to a Plan requiring the
provision of security to such Plan, pursuant to Section 307 of ERISA, or (f) the
institution by the PBGC of proceedings to terminate a Plan, pursuant to Section
4042 of ERISA, or the occurrence of any event or condition that constitutes
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer a Plan.
"Event of Default" shall have the meaning assigned to such term in Article
VIII hereof, provided that there has been satisfied any requirement in
connection therewith for the giving of notice, lapse of time, or happening of
any further condition.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Excluded Assets" means (i) the Specified Deposit Accounts, (ii) those
assets of the Parent, the Borrower or their Subsidiaries securing Debt for
Borrowed Money permitted by Section 7.02(c) to be incurred under the Nortel
Credit Line and purchased with the proceeds of the Nortel Credit Line and the
GATX Lease Agreement (and not any assets or properties that were not purchased
with the proceeds of the Nortel Credit Line or the GATX Lease), but only for so
long as such assets remain as collateral for the Nortel Credit Line or the GATX
Lease, (iii) those assets owned by Telergy Canada, (iv) fiber and other related
assets subject to an IRU which is not prohibited from disposition in accordance
with the terms of Section 7.15 of this Agreement, (v) Right-of-Way Agreements,
(vi) those assets of the Parent, the Borrower or their Subsidiaries constituting
a Right-of-Way, (vii) those assets of the Parent, the Borrower or their
Subsidiaries that are prohibited by Applicable Law from securing the
Obligations, but only for so long as such prohibition is effective, (viii) those
assets of the Parent, the Borrower or their Subsidiaries securing Debt for
Borrowed Money permitted by Section 7.02(e) or Section 7.02(f) and (ix) those
assets of the Parent, the Borrower or their Subsidiaries which are the subject
of Liens existing on the Closing Date which are described on Schedule 7.03
hereto, and resulting from the permitted refinancing of the related Debt for
Borrowed Money, but only for so long as such assets remain as collateral for
such Debt for Borrowed Money.
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<PAGE> 14
"Excluded Stock" means (a) up to 25% of the Capital Stock of Telergy
Central, which is not owned by Telergy Operating, (b) the Capital Stock of
Telergy East, and (c) up to 34% of the Capital Stock of Telergy Canada, which
may be increased to 66 2/3% of the Capital Stock of Telergy Canada as a result
of the Telergy Canada Reorganization.
"FCC" means the Federal Communications Commission, or any governmental
agency succeeding to the functions thereof.
"Federal Funds Rate" means, for any day, an interest rate per annum equal
to the weighted average of the rates on overnight federal funds transactions
with members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of Dallas, or, if such rate
is not so published for any day which is a Business Day, the average of the
quotations for such day on such transactions received by Administrative Agent
from three federal funds brokers of recognized standing selected by it.
"Fee Letters" means those certain fee letters, dated November 19, 1999,
executed by Borrower in connection with this Agreement, and any other fee
letters executed from time to time after the date of this Agreement among the
Borrower, the Administrative Agent and the Lenders, as each may be amended,
extended, increased, revised or substituted from time to time.
"Fees" means the Commitment Fee and the fees set forth in the Fee Letters.
"Fiber Projection Schedule" means those projections set forth on Section
7.01(b) hereto.
"Fiber Disposition" means any sale, transfer, lease, grant of IRU,
conveyance or other disposition of any interest in dim, dark or lit fiber of the
Parent, the Borrower or any of their Subsidiaries to a Person other than a
Wholly Owned Subsidiary of the Parent, the Borrower and their Subsidiaries or
Telergy Central.
"GAAP" means (i) for purposes of determining compliance with the covenants
set forth in Article VII of this Agreement, United States generally accepted
accounting principles as in effect on the date hereof, and (ii) for all other
purposes, United States generally accepted accounting principles as in effect on
the date of determination.
"GATX Lease Agreement" means that certain Master Equipment Lease
Agreement, dated as of September 15, 1999, by and among GATX Telecom Investors
I, L.L.C., Telergy Network Services, Inc. and the Parent.
"Global Preferred Stock" means the shares of Series A Redeemable Preferred
Stock of par value $0.0001 per share issued to GC Dev. Co., Inc.
"Governmental Authority" means any Federal, state, local or foreign court
or governmental agency, authority, instrumentality, Tribunal or regulatory body,
including, without limitation, the FCC and all PUCs.
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<PAGE> 15
"Guarantee" of or by any Person means any obligation, contingent or
otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Debt for Borrowed Money of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, and including any
obligation of such Person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt for Borrowed
Money or to purchase (or to advance or supply funds for the purchase of) any
security for the payment of such Debt for Borrowed Money, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Debt for Borrowed Money of the payment of such Debt for Borrowed Money, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Debt for Borrowed Money, or (d) to guaranty the obligations,
payments by or performance of, a Person that is not a direct or indirect Wholly
Owned Subsidiary or Telergy Central; provided, however, that the term Guarantee
shall not include endorsements for collection or deposit in the ordinary course
of business.
"Guarantors" means Parent, Telergy Parkway and each newly formed
Subsidiary of the Parent.
"Hazardous Materials" means all materials subject to regulation under any
Environmental Law, including without limitation material listed in 49 C.F.R. ss.
172.101, Hazardous Substances, explosive or radioactive materials, hazardous or
toxic wastes or substances, petroleum or petroleum distillates, asbestos, or
material containing asbestos.
"Hazardous Substances" means hazardous waste as defined in the Clean Water
Act, 33 U.S.C.ss. 1251 et seq., the Comprehensive Environmental Response
Compensation and Liability Act as amended by the Superfund Amendments and
Reauthorization Act, 42 U.S.C.ss. 9601 et seq., the Resource Conservation
Recovery Act, 42 U.S.C.ss.6901 et seq., and the Toxic Substances Control Act, 15
U.S.C.ss.2601 et seq.
"Highest Lawful Rate" means at the particular time in question the maximum
rate of interest which, under Applicable Law, any Lender is then permitted to
charge on the Obligations. If the maximum rate of interest which, under
Applicable Law, any Lender is permitted to charge on the Obligations shall
change after the date hereof, the Highest Lawful Rate shall be automatically
increased or decreased, as the case may be, from time to time as of the
effective time of each change in the Highest Lawful Rate without notice to the
Borrower.
"Indemnitee" has the meaning ascribed thereto in Section 10.05 hereof.
"Interest Hedge Agreements" means any interest rate swap agreements,
interest cap agreements, interest rate collar agreements, or any similar
agreements or arrangements designed to hedge the risk of variable interest rate
volatility, or foreign currency hedge, exchange or similar agreements, on terms
and conditions reasonably acceptable to Administrative Agent (evidenced by
Administrative Agent's consent in writing), as such agreements or arrangements
may be modified, supplemented and in effect from time to time, and
notwithstanding the above, Interest Hedge Agreements may include fixed rate Debt
for Borrowed Money.
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<PAGE> 16
"Interest Period" means, with respect to any LIBOR Advance, the period
beginning on the date an Advance is made or continued as or converted into a
LIBOR Advance and ending one, two, three, six or, to the extent available as
determined by the Administrative Agent after consultation with the Lenders,
twelve months thereafter (as the Borrower shall select) provided, however, that:
(a) the Borrower may not select any Interest Period that ends after
any principal repayment date unless, after giving effect to such
selection, the aggregate principal amount of LIBOR Advances having
Interest Periods that end on or prior to such principal repayment date
shall be at least equal to the principal amount of Advances due and
payable on and prior to such date;
(b) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such Interest
Period shall be extended to occur on the next succeeding Business Day,
provided, however, that if such extension would cause the last day of such
Interest Period to occur in the next following calendar month, the last
day of such Interest Period shall occur on the next preceding Business
Day; and
(c) whenever the first day of any Interest Period occurs on a day of
an initial calendar month for which there is no numerically corresponding
day in the calendar month that succeeds such initial calendar month by the
number of months equal to the number of months in such Interest Period,
such Interest Period shall end on the last Business Day of such succeeding
calendar month.
"Investment" has the meaning ascribed thereto in Section 7.05 hereof.
"IRU" means an indefeasible right to use dark, dim or lit fiber or
telecommunications capacity, including the right to use the related transport
and network equipment, if any.
"Issuing Bank" means Bank of America, N.A.
"Law" means any applicable constitution, statute, law, ordinance,
regulation, rule, order, writ, injunction, or decree of any Governmental
Authority.
"Lenders" means the lenders listed on the signature pages of this
Agreement, and each Assignee which hereafter becomes a party to this Agreement
pursuant to Section 10.04 hereof, for so long as any such Person is owed any
portion of the Obligations or obligated to make any Advances.
"Lending Office" means, with respect to each Lender, its branch or
affiliate, (a) initially, the office of such Lender, branch or affiliate
identified as such on the signature pages hereof, and (b) subsequently, such
other office of such Lender, branch or affiliate as such Lender may designate to
the Borrower and Administrative Agent as the office from which the Advances of
such Lender will be made and maintained and for the account of which all
payments of principal and interest on the Advances and the Commitment Fees will
thereafter be made. Lenders may have more than one Lending Office for the
purpose of making Base Rate Advances and LIBOR Advances.
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<PAGE> 17
"Letter of Credit" means collectively those direct pay or standby
commercial letters of credit issued pursuant to Article III hereof, and any
other letters of credit issued by Issuing Bank for the account of the Parent,
the Borrower or the Subsidiaries of the Borrower.
"Letter of Credit Commitment" means, on any date of determination, an
amount equal to the lesser of (a) $5,000,000 and (b) the Available Commitment
minus the sum of all outstanding Advances and the undrawn face amount of all
outstanding Letters of Credit.
"LIBOR Advance" means an Advance bearing interest at the LIBOR Rate.
"LIBOR Rate" means a simple per annum interest rate equal to the lesser of
(a) the Highest Lawful Rate, and (b) the sum of the LIBOR Rate Basis plus the
Applicable Margin. Once determined, the LIBOR Rate shall remain unchanged during
the applicable Interest Period.
"LIBOR Rate Basis" means, for any LIBOR Advance for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason such
rate is not available, the term "LIBOR Rate Basis" shall mean, for any LIBOR
Advance for any Interest Period therefor, the rate per annum (rounded upwards,
if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page
as the London interbank offered rate for deposits in Dollars at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period; provided,
however, if more than one rate is specified on Reuters Screen LIBO Page, the
applicable rate shall be the arithmetic mean of all such rates.
"Lien" means, with respect to any asset, (a) any mortgage, deed of trust,
lien, pledge, encumbrance, charge or security interest in or on such asset and
(b) the interest of a vendor or a lessor under any conditional sale agreement,
capital lease or title retention agreement (or any financing lease having
substantially the same economic effect as any of the foregoing) relating to such
asset.
"Loan" means that certain revolving loan made by the Lenders to the
Borrower in accordance with the terms and provisions of Section 2.01 hereof and
this Agreement.
"Loan Papers" means this Agreement, each Note, all pledge agreements,
security agreements, guaranties of the Obligations executed by the Guarantors,
Fee Letters, financing statements, all Assignment and Acceptances, post-closing
letters, Letters of Credit, applications, mortgages, deeds of trust and all
other documents, instruments, agreements, or certificates executed or delivered
from time to time by any Person in connection with this Agreement or in
connection with a grant of security for the Obligations hereunder, granting
Collateral or otherwise, as each such agreement may be amended, modified,
substituted, replaced or extended from time to time.
"Majority Lenders" means, on any date of determination, any combination of
Lenders having collectively at least 51% of the aggregate amount of the
outstanding Advances under the Loan,
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provided that, if there are no outstanding Advances under the Loan, "Majority
Lenders" means, on any date of determination, any combination of Lenders having
collectively at least 51% of the aggregate Commitment, provided further, that
(i) if there are three or fewer Lenders, "Majority Lenders" shall mean 100% of
such Lenders and (ii) if there are more than three Lenders, "Majority Lenders"
shall mean the greater of (A) three Lenders or (B) any combination of Lenders
having collectively at least 51% of the aggregate amount of the outstanding
Advances under the Loan, provided that, if there are no outstanding Advances
under the Loan, "Majority Lenders" means, on any date of determination, any
combination of Lenders having collectively at least 51% of the aggregate
Commitment.
"Material Adverse Effect" means (a) a materially adverse effect on the
business, assets, operations, or financial condition of the Parent, the Borrower
and their Subsidiaries taken as a whole, (b) material impairment of the ability
of the Parent, the Borrower and their Subsidiaries to perform any of their
material obligations under this Agreement or under any other Loan Paper or (c)
material impairment of the enforceability of any material provision of this
Agreement, any other Loan Paper or the Loan.
"Material Right-of-Way Agreements" means those certain Right-of-Way
Agreements described on Schedule 1.01(a) hereto.
"Maturity Date" means November 19, 2002, or such earlier date as the
Obligations may become due and payable in full (whether by scheduled reduction,
acceleration, termination or otherwise).
"Maximum Amount" means the maximum amount of interest which, under
Applicable Law, the Administrative Agent or any Lender is permitted to charge on
the Obligations.
"M&T Bank" means Manufacturers and Traders Trust Co., a New York banking
corporation, with its principal banking office at One M&T Plaza, Buffalo, NY
14240.
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"Net PP&E Borrowing Base" means, at any time, (a) 100% of the then
aggregate cost of all Telecommunications Equipment, provided, however, that if
the invoice date of any item of Telecommunications Equipment is a date which is
more than 36 months prior to the date of determination, such item shall be
valued for purposes of this clause (a) at the appraised value thereof as
determined by a third party appraiser selected by Borrower and approved by
Administrative Agent in the Administrative Agent's reasonable discretion, or if
no such appraisal shall have been delivered to the Administrative Agent, zero
less (b) any outstanding obligations under secured vendor debt agreements or
comparable secured Debt arrangements in connection with Telecommunications
Equipment.
"Net Proceeds" means with respect to any Asset Disposition or Fiber
Disposition (i) the gross amount of any cash proceeds paid to or received by the
Parent, the Borrower or their Subsidiaries
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in respect of such Asset Disposition or Fiber Disposition, less (ii) the amount,
if any, of (x) taxes paid in connection with such Asset Disposition or Fiber
Disposition or taxes which the Parent, the Borrower or such Subsidiary in good
faith expects to be paid in the taxable year in which such Asset Disposition or
Fiber Disposition shall occur or in the next taxable year, (y) reasonable and
customary fees, discounts, commissions, costs and other expenses (other than
those payable to the Parent, the Borrower or their Affiliates), which are
incurred in connection with such Asset Disposition or Fiber Disposition and are
payable by the Parent, the Borrower or their Subsidiaries, (z) the amount of
reserves established by Parent, the Borrower or such Subsidiary to fund
Contingent Liabilities reasonably estimated to be payable; provided that to the
extent such Contingent Liabilities do not become payable, the remainder of such
reserves shall be deemed to be "Net Proceeds" and (aa) in the case of an Asset
Disposition, proceeds required to discharge Liens in respect of such assets or
properties permitted by Section 7.03 hereof.
"Network Services" means Telergy Network Services, Inc., a New York
corporation.
"Nortel Credit Line" means the credit line of the Parent with Nortel
Networks, Inc. ("Nortel"), guaranteed by Telergy Network Services, Inc., in the
maximum outstanding amount of $30,000,000, for the purpose of financing the
Borrower and its Subsidiaries' purchase of equipment from Nortel.
"Nortel Note" means that certain promissory note executed by the Borrower
and payable to Nortel Networks, Inc., in the amount of $15,000,000, as such note
exists on the Closing Date.
"Note" means a promissory note duly executed by the Borrower, Telergy
Central, Telergy Metro and Network Services, payable to the order of a Lender in
the amount of such Lender's Specified Percentage of the Loan in the form of
Exhibit B hereto.
"Notice of Conversion or Continuance Notice" has the meaning set forth in
Section 2.10(b) hereof.
"Obligations" means all present and future obligations, indebtedness and
liabilities, and all renewals and extensions of all or any part thereof, of the
Borrower and each other Obligor to the Lenders, the Issuing Bank and the
Administrative Agent arising from, by virtue of, or pursuant to this Agreement,
any of the other Loan Papers and any and all renewals and extensions thereof or
any part thereof, or future amendments thereto, all interest accruing on all or
any part thereof and reasonable attorneys' fees incurred by the Administrative
Agent for the preparation of this Agreement and consummation of the credit
facility contemplated by this Agreement, execution of waivers, amendments and
consents, and in connection with the enforcement or the collection of all or any
part thereof, and reasonable attorneys' fees incurred by the Lenders, the
Issuing Bank or the Administrative Agent in connection with the restructuring,
workout or the enforcement or the collection of all or any part of the
Obligations, in each case whether such obligations, indebtedness and liabilities
are direct, indirect, fixed, contingent, joint, several or joint and several.
Without limiting the generality of the foregoing, "Obligations" includes all
amounts which would be owed under any Loan Paper by the Borrower, each other
Obligor and any other Person (other than the Administrative Agent or the
Lenders) to the Administrative Agent, the Issuing Bank or the Lenders,
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but for the fact that they are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding involving the
Borrower, any other Obligor or any other Person (including all such amounts
which would become due or would be secured but for the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding of the Borrower, any other Obligor or any other Person under any
Debtor Relief Law).
"Obligor" means the Borrower, the Parent, their Subsidiaries and any other
Person liable to the Lenders under the Loan Papers.
"Operating Agreements" means the Telergy Central Operating Agreement and
the Telergy East Operating Agreement.
"Original Credit Agreement" has the meaning ascribed thereto in the
preamble of this Agreement.
"Parent" means Telergy, Inc., a New York corporation.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA.
"Permitted Investments" means:
(a) Marketable, direct obligations of, or guaranteed by, the United States
of America and maturing within 365 days of the date of purchase;
(b) Commercial paper maturing not more than 90 days after the date of
acquisition, issued by U.S. corporations (other than Affiliates of the Borrower)
that have a rating of A-2/P-1 or A-1/P-2 or better by Standard & Poor's Ratings
Group, a Division of McGraw-Hill, Inc. or Moody's Investors Service, Inc.;
(c) time deposit accounts, certificates of deposit and money market
deposits maturing within 365 days of the date of acquisition thereof issued by a
bank or trust company which is organized under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America, and which bank or trust company has a capital surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Exchange Act);
(d) securities with maturities of 12 months or less from the date of
acquisition, issued or fully guaranteed by any state, commonwealth or territory
of the United States of America, or by an political subdivision or taxing
authority thereof, and rated at least "A" by Standard & Poor's Ratings Group, a
Division of McGraw-Hill, Inc. or "A" by Moody's Investors Service, Inc.;
(e) Investments that are in existence on the Closing Date and described on
Schedule 7.05 hereto;
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(f) payroll, travel, commission and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business,
and prepaid expenses, negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar deposits made
in the ordinary course of business.
"Permitted Liens" means, as applied to any Person:
(a) any Lien in favor of the Administrative Agent or the Lenders to secure
the Obligations hereunder;
(b) (i) Liens on real estate for real estate taxes not yet delinquent or
claims being diligently contested in good faith, (ii) Liens created by lease
agreements, licenses or similar interests, or by statute or common law to secure
the payments of rental, license amounts or similar amounts and other sums not
yet due thereunder, (iii) Liens on leasehold interests, licenses or similar
interests created by the lessor, licensee or grantor thereunder in favor of any
mortgagee of the leased premises, and (iv) Liens for taxes, assessments,
governmental charges, levies or claims that are not yet delinquent or remain
payable without penalty or are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on such Person's books, but only so long as no
foreclosure, restraint, sale or similar proceedings have been commenced with
respect thereto;
(c) Liens of carriers, warehousemen, mechanics, laborers and materialmen
and other similar Liens incurred in the ordinary course of business for sums not
yet delinquent or being contested in good faith, if such reserve or appropriate
provision, if any, as shall be required by GAAP shall have been made therefor,
and in addition to the foregoing, Liens of carriers, warehousemen, mechanics,
laborers and materialmen and other similar Liens incurred in the ordinary course
of business that in the aggregate do not secure liabilities in excess of
$500,000 outstanding at any one time;
(d) Liens incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance or similar legislation;
(e) Liens in respect of easements, right-of-way, franchise agreements,
zoning restrictions, servitudes, matters of public record, restrictions and
other similar encumbrances on the use of real property which do not materially
interfere with the ordinary conduct of the business of such Person as being
conducted;
(f) Liens in respect of judgments or awards for which appeals or
proceedings for review are being prosecuted and in respect of which a stay of
execution upon any such appeal or proceeding for review shall have been secured,
provided that (i) such Person shall have established adequate reserves for such
judgments or awards in accordance with GAAP, (ii) such judgments or awards shall
be fully insured (subject to deductibles) and the insurer shall not have denied
coverage, or (iii) such judgments or awards shall have been bonded to the
satisfaction of the Majority Lenders;
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(g) Any Liens existing on the Closing Date which are described on Schedule
7.03 hereto and not otherwise described elsewhere in the definition of Permitted
Liens, and Liens resulting from the refinancing of the related Debt for Borrowed
Money, provided that the Debt for Borrowed Money secured thereby shall not be
increased and the Liens shall not cover additional assets of the Parent, the
Borrower or their Subsidiaries;
(h) Liens, deposits, or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases,
public or statutory obligations, surety, stay appeal, indemnity, performance or
other similar bonds, or other similar obligations arising in the ordinary course
of business;
(i) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor or
deposit accounts or other funds maintained with a creditor depository
institution; provided that (i) such deposit account is not a dedicated cash
collateral account and is not subject to restrictions against access by the
Borrower in excess of those set forth by regulations promulgated by the Board of
Governors or any governmental authority succeeding to any of its principal
functions, and (ii) such deposit account is not intended by the Borrower to
provide collateral to the depository institution; and
(j) Liens arising under any applicable Environmental Law, provided that
such Liens are being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on such Person's books, but only for so long as no foreclosure,
restraint, sale or similar proceedings have been commenced with respect thereto.
"Permitted Refinancing Indebtedness" means Debt for Borrowed Money of the
applicable Obligor to the extent all of the proceeds thereof are used to
refinance Debt for Borrowed Money of such Obligor permitted to exist under
Section 7.02 hereof, provided that both before and after giving effect to the
incurrence of such Debt for Borrowed Money, the Borrower is in pro forma
compliance with the terms of this Agreement, and provided further that (i) the
terms of such new Debt for Borrowed Money are no more restrictive than the
refinanced Debt for Borrowed Money or the Loans, (ii) the final maturity and the
weighted average life to maturity of such new Debt for Borrowed Money is no
shorter than the Debt for Borrowed Money being refinanced, (iii) the only Person
obligated on such refinanced Debt for Borrowed Money is the original Person
obligated on such Debt for Borrowed Money, and (iv) the priority of any such new
Debt for Borrowed Money shall remain unchanged (if such Debt for Borrowed Money
to be refinanced is subordinated, the subordination provisions remain unchanged
in the new refinanced Debt for Borrowed Money).
"Person" means any natural person, corporation, business trust, joint
venture, association, limited liability company, other company, partnership or
government, or any agency or political subdivision thereof.
"Plan" means any employee pension benefit plan (other than a Multiemployer
Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code
or Section 307 of ERISA and in
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respect of which the Borrower or any ERISA Affiliate is (or if such plan were
terminated would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Pledged Stock" means all of the Capital Stock of the Borrower and the
Subsidiaries of the Borrower and the Parent, except Excluded Stock.
"PP&E" means with respect to the Parent, the Borrower and their
consolidated Subsidiaries on any date of determination, the value of the gross
property, plant and equipment of the Parent, the Borrower and their Subsidiaries
on such date, as determined in accordance with GAAP and disclosed on the
Parent's most recently delivered financial statements in accordance with the
terms of Section 6.04 hereof.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution or assets
upon any voluntary or involuntary liquidation or dissolution of any such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Property" or "Properties" means all types of real, personal, tangible,
intangible or mixed property, whether owned in fee simple or leased.
"Private Offering" means the proposed private offering of the Capital
Stock of the Parent in a maximum amount of twenty million dollars in shares of
Capital Stock of the Parent, for the purchase price of $120 per share.
"PUC" means any state regulatory agency or body that exercises
jurisdiction over the rates or services or the ownership, construction or
operation of any network facility or long distance telecommunications systems or
over Persons who own, construct or operate a network facility or long distance
telecommunications systems, in each case by reason of the nature or type of the
business subject to regulation and not pursuant to laws and regulations of
general applicability to Persons conducting business in such state.
"Quarterly Date" means the last Business Day of each March, June,
September and December until the Obligations have been paid in full.
"Ratable" means, as to any Lender, in accordance with its Specified
Percentage.
"Refinancing Advance" means an Advance that is used to pay the principal
amount of an existing Advance (or any portion thereof) at the end of its
Interest Period and which, after giving effect to such application, does not
result in an increase in the aggregate amount of outstanding Advances.
"Related Persons" means (i) members of the immediate families of any of
Brian P. Kelly, Kevin J. Kelly or William M. Kelly, Jr., (ii) any of their
respective spouses, estates, lineal descendants, heirs, trusts for any of their
benefit and charitable foundations to which shares of the Parent's Capital Stock
beneficially owned by any of the foregoing have been transferred and (iii) any
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<PAGE> 24
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of any one or more of the Persons referred
to in clauses (i) or (ii) above.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing,
depositing, dispersing, emanating or migrating of any Hazardous Material in,
into, onto or through the Environment.
"Remedial Action" means (a) "remedial action" as such term is defined in
CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any
Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat,
abate or in any other way address any Hazardous Material in the Environment;
(ii) prevent the Release or threat of Release, or minimize the further Release
of any Hazardous Material so it does not migrate or endanger or threaten to
endanger public health, welfare or the Environment; or (iii) perform studies and
investigations in connection with, or as a precondition to, (i) or (ii) above.
"Responsible Officer" of any corporation means any executive officer of
such corporation and any other officer or similar official thereof responsible
for the administration of the obligations of such corporation in respect of this
Agreement and the other Loan Papers.
"Restricted Payments" means, for the Parent, the Borrower and their
Subsidiaries, (a) any direct or indirect Distribution, dividend or other payment
on account of any equity interest in, or shares of, Capital Stock or other
securities, of the Parent, the Borrower and their Subsidiaries (or the
establishment of any sinking fund or otherwise the setting aside of any funds
with respect thereto); (b) any management, consulting or other similar fees, or
any interest thereon, payable by the Parent, the Borrower or their Subsidiaries
to any Subsidiary of the Parent that is not a Wholly Owned Subsidiary, Telergy
Central or any Affiliate of the Parent (or the establishment of any sinking fund
or otherwise the setting aside of any funds with respect thereto), (c) loans or
advances to employees and/or shareholders of the Parent, the Borrower and their
Subsidiaries, except Investments permitted under Section 7.05 hereof and (d)
payments of principal and/or interest, or the setting aside of funds with
respect thereto, of any Total Debt of the Parent, the Borrower or their
Subsidiaries except the Obligations.
"Revenues" means, for any period of determination for the Parent, the
Borrower and their Subsidiaries, the consolidated revenues for such period
determined in accordance with GAAP.
"Revenue Projection Schedule" means those projections set forth on Section
7.01(a) hereto.
"Rights" means rights, remedies, powers, and privileges.
"Right-of Way" means a right to use Property in installing
Telecommunications Equipment.
"Right-of-Way Agreements" means agreements, documents or instruments that
secure or evidence access to real property or rights-of-way for the purpose of
constructing, installing or
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obtaining facilities in connection with the conduct of business by the Parent,
the Borrower or any of their Subsidiaries.
"Special Common Stock" means the Class A Common Stock of the Parent that
is entitled to a current in-kind distribution held by Niagara Mohawk Energy,
Inc. and certain accredited investors.
"Special Counsel" means the law firm of Donohoe, Jameson & Carroll, P.C.,
Dallas, Texas, special counsel to Administrative Agent, or such other counsel
selected by Administrative Agent from time to time.
"Specified Percentage" means, as to any Lender, the percentage indicated
beside its name on the signature pages hereof as its Specified Percentage, or as
adjusted or specified in any amendment of this Agreement or in any Assignment
and Acceptance.
"Stock Plan" means the Parent's 1999 Incentive Compensation Plan.
"Stock Rights" means all warrants, options, calls, puts, convertible debt
or other conversion rights and other similar preferences in connection with the
Capital Stock of the Parent, the Borrower and their Subsidiaries.
"Subsidiary" means, with respect to any Person (herein referred to as the
"parent"), any corporation, partnership, limited liability company, association
or other business entity of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or more than 50% of the general partnership interests are, at the time any
determination is being made, owned, controlled or held, by the parent or one or
more Subsidiaries of the parent or by the parent and one or more Subsidiaries of
the parent.
"Telecommunications Equipment" means fiber optic cable, switches or other
comparable switches, transmission equipment, and other ancillary equipment
necessary for the installation and operation of a switch room or central office
and co-location with other telecommunications providers which will enable the
Parent, the Borrower or their Subsidiaries to offer telephony services and data
(DSL) services, as well as all software and hardware associated with the network
operating center and back office systems (includes OSS, billing systems, and
data services), together with all related support and installation costs
associated with an operational system, provided that such costs are capitalized
according to GAAP.
"Telergy Canada" means Telergy Canada, Inc., a corporation currently
organized in New Brunswick, Canada and a Subsidiary of Telergy Operating that is
currently owned 100% by Telergy Operating.
"Telergy Canada Reorganization" has the meaning ascribed thereto in
Section 7.06(a) hereof.
"Telergy Central" means Telergy Central, LLC, a limited liability company
organized in New York, New York and a Subsidiary of Telergy Operating that is
currently owned 75% by Telergy Operating.
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"Telergy Central Operating Agreement" means that certain operating
agreement entered into by and between the Parent and Plum Street Enterprises,
Inc., a Delaware corporation (k/n/a Niagara Mohawk Energy, Inc.), dated as of
April 24, 1998, with respect to the operations of Telergy Central, as such
operating agreement may be in effect on the Closing Date.
"Telergy East" means Telergy East, LLC, a limited liability company
organized in New York, New York and that is currently owned 50% by Telergy
Operating.
"Telergy East Operating Agreement" means that certain operating agreement
entered into by and between the Parent and Energy East Telecommunications, Inc.,
a Delaware corporation, dated as of June 10, 1998, with respect to the
operations of Telergy East, as such operating agreement is in effect on the
Closing Date.
"Telergy Operating" means Telergy Operating, Inc., a corporation organized
in Delaware and a Subsidiary of the Parent that is owned 100% by the Parent.
"Telergy Parkway" means Telergy Parkway, Inc., a corporation organized in
New York, New York and a Subsidiary of Telergy Operating that is owned 100% by
Telergy Operating.
"Total Debt" means, for the Parent, the Borrower and their Subsidiaries,
all Debt for Borrowed Money of such Person and its consolidated subsidiaries
determined on a consolidated basis in accordance with GAAP.
"Transactions" shall have the meaning assigned to such term in Section
4.02 hereof.
"Tribunal" means any state, commonwealth, federal, foreign, territorial,
or other court or government body, subdivision, agency, department, commission,
board, bureau, or instrumentality of a governmental body.
"Type" refers to the distinction between Advances bearing interest at the
Base Rate and LIBOR Rate.
"Unavailable Commitment" means (a) prior to March 31, 2000, $25,000,000
(as such amount may be reduced from time to time as a result of the reallocation
of any portion of the Unavailable Commitment to the Commitment in accordance
with the terms of Section 2.17 hereof), and (b) on and after March 31, 2000,
$0.00.
"Voting Stock" of a Person means all classes of Capital Stock of such
Person then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means, with respect to the Parent and the
Borrower, one of their Subsidiaries of which securities (except for directors'
qualifying shares) or other ownership interests representing 100% of the
outstanding Capital Stock are, at the time any determination is being made,
owned by the Parent or the Borrower or one or more of their Wholly Owned
Subsidiaries or by the Parent or the Borrower and one or more of their Wholly
Owned Subsidiaries.
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"Year 2000 Compliant" shall have the meaning ascribed thereto in Section
4.20 hereof.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". All references
herein to Articles, Sections, Exhibits and Schedules shall be deemed references
to Articles and Sections of, and Exhibits and Schedules to, this Agreement
unless the context shall otherwise require. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided,
however, that for purposes of determining compliance with the covenants
contained in Article VI hereof, all accounting terms herein shall be interpreted
and all accounting determinations hereunder shall be made in accordance with
GAAP as in effect on the date of this Agreement and applied on a basis
consistent with the application used in the financial statements referred to in
Section 4.05 hereof. Except where the context otherwise requires, (a)
definitions imparting the singular shall include the plural and vice versa and
(b) all references to time are deemed to refer to Dallas, Texas time.
ARTICLE II
The Revolving Loan
SECTION 2.01. The Loan. Each Lender severally agrees, on the terms and
subject to the conditions hereinafter set forth, from the Closing Date until the
Maturity Date, to make Advances under the Available Commitment to the Borrower
on any Business Day during the period from the Closing Date of this Agreement
until the Maturity Date, in an aggregate principal amount not to exceed at any
time outstanding such Lender's Specified Percentage of the difference between
Available Commitment and the sum of (without duplication) (i) the undrawn face
amount of all outstanding Letters of Credit, plus (ii) reimbursement obligations
under Article III hereof, plus (iii) all Advances then outstanding; provided,
however, that at no time shall the sum of (without duplication) (A) all
outstanding Advances, plus (B) the undrawn face amount of all outstanding
Letters of Credit, plus (C) reimbursement obligations under Article III hereof,
exceed the Available Commitment. Subject to the terms and conditions of this
Agreement, until the Maturity Date, the Borrower may borrow, repay and reborrow
the Advances under the Available Commitment. The Borrower shall repay all
outstanding Advances on the Maturity Date.
22
<PAGE> 28
SECTION 2.02. Making Advances.
(a) Each Borrowing of Advances shall be made upon the written notice of
the Borrower, received by Administrative Agent not later than (i) 12:00 noon
Dallas, Texas time, three Business Days prior to the proposed date of the
Borrowing, in the case of LIBOR Advances, and (ii) not later than 10:00 a.m.
Dallas, Texas time on the date of such Borrowing, in the case of Base Rate
Advances. Each such notice of a Borrowing (a "Borrowing Notice") shall be by
telecopy, promptly confirmed by letter, in substantially the form of Exhibit C
hereto specifying therein:
(i) the date of such proposed Borrowing, which shall be a Business
Day;
(ii) the amount of such proposed Borrowing which, (A) shall not when
aggregated together with (without duplication) the sum of (I) all other
outstanding Advances, plus (II) the undrawn face amount of all outstanding
Letters of Credit, plus (III) reimbursement obligations under Article III
hereof, exceed the Available Commitment, and (B) shall, in the case of a
Borrowing of LIBOR Advances, be in an amount of not less than $1,000,000 or an
integral multiple of $500,000 in excess thereof and, in the case of a Borrowing
of Base Rate Advances, be in an amount of not less than $500,000 or an integral
multiple of $100,000 in excess thereof;
(iii) the Type of Advances of which the Borrowing is to be
comprised; and
(iv) if the Borrowing is to be comprised of LIBOR Advances, the
duration of the initial Interest Period applicable to such Advances.
If the Borrowing Notice fails to specify the duration of the initial
Interest Period for any Borrowing comprised of LIBOR Advances, such Interest
Period shall be one month. Each Lender shall, before 1:00 p.m. on the date of
each Advance (other than a Refinancing Advance), make available to
Administrative Agent
Bank of America Plaza
901 Main Street
14th Floor
Dallas, Texas 75202
such Lender's Specified Percentage of the aggregate Advances, to be made on that
day in immediately available funds.
(b) Unless any applicable condition specified in Article V hereof has not
been satisfied, Administrative Agent will make the funds on Advances under the
Loan promptly available to the Borrower (other than with respect to a
Refinancing Advance) at such account as shall have been specified by the
Borrower.
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<PAGE> 29
(c) After giving effect to any Borrowing, (i) there shall not be more than
five different Interest Periods in the aggregate in effect under the Loan and
(ii) the aggregate principal of the sum of (without duplication) (A) outstanding
Advances, plus (B) the undrawn face amount of all outstanding Letters of Credit,
plus (C) reimbursement obligations under Article III hereof, shall not exceed
the Available Commitment.
(d) No Interest Period for a Borrowing under the Loan shall extend beyond
the Maturity Date.
(e) Unless a Lender shall have notified Administrative Agent prior to the
date of any Advance that it will not make available its Specified Percentage of
any Advance, Administrative Agent may assume that such Lender has made the
appropriate amount available in accordance with Section 2.02(a), and
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If and to the extent any Lender shall not
have made such amount available to Administrative Agent, such Lender and the
Borrower agree to repay to Administrative Agent immediately on demand such
corresponding amount together with interest thereon, from the date such amount
is made available to the Borrower until the date such amount is repaid to
Administrative Agent, at (i) in the case of the Borrower, the Base Rate, and
(ii) in the case of such Lender, the Federal Funds Rate.
(f) The failure by any Lender to make available its Specified Percentage
of any Advance hereunder shall not relieve any other Lender of its obligation,
if any, to make available its Specified Percentage of any Advance. In no event,
however, shall any Lender be responsible for the failure of any other Lender to
make available any portion of any Advance.
(g) The Borrower shall indemnify each Lender against any Consequential
Loss incurred by each Lender as a result of (i) any failure by the Borrower to
fulfill, on or before the date specified for the Advance, the conditions to the
Advance set forth herein or (ii) the Borrower's requesting that an Advance not
be made on the date specified in the Borrowing Notice.
SECTION 2.03. Evidence of Debt.
(a) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from such Lender making its Specified Percentage of the Loan to the
Borrower, including the amounts of principal and interest payable and paid to
such Lender from time to time under this Agreement.
(b) The entries made in the accounts maintained pursuant to paragraph (a)
above shall be prima facie evidence of the existence and amounts of the
obligations therein recorded; provided however, that the failure of any Lender
or the Administrative Agent to maintain such accounts or any error therein shall
not in any manner affect the obligations of the Borrower to repay the Loan in
accordance with its terms.
(c) Notwithstanding anything in this Agreement or in any of the other Loan
Papers to the contrary, and in addition to the required payments set forth in
this Agreement, all outstanding
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<PAGE> 30
amounts under the Loan and all remaining outstanding portions of the Obligations
shall be due and payable on the Maturity Date.
SECTION 2.04. Fees.
(a) Commitment Fee. Subject to Section 10.09 hereof, the Borrower shall
pay to Administrative Agent for the Ratable account of Lenders, a commitment fee
on the average daily amount of the difference between the Commitment and the sum
of (i) all Advances outstanding, plus (ii) the face amount of all outstanding
Letters of Credit, at a per annum rate determined below, payable in arrears on
each Quarterly Date and on the Maturity Date, commencing with the first
Quarterly Date after the Closing Date, and continuing until the Maturity Date.
<TABLE>
<CAPTION>
Percentage Use of Commitment Annual Percentage Fee
- --------------------------- ---------------------
<S> <C>
Less than or equal to 33% 1.500%
Greater than 33% but less than 1.125%
or equal to 66 2/3%
Greater than 66 2/3% 0.750%
</TABLE>
(b) Certain Fees. The Borrower agrees to pay to each Lender, through the
Administrative Agent, such other fees and administrative fees as are set forth
in any Fee Letters in accordance with such terms set forth in the Fee Letters.
All Fees shall be paid on the dates due, in immediately available funds, to the
Administrative Agent for distribution, if and as appropriate, among the Lenders.
Once paid, none of the Fees shall be refundable, except in accordance with the
provisions of Section 10.09 hereof.
SECTION 2.05. Reduction of Commitment.
(a) Voluntary Commitment Reduction. The Borrower shall have the right from
time to time upon notice by the Borrower to the Administrative Agent not later
than 1:00 p.m., three Business Days in advance, to reduce the Commitment, in
whole or in part; provided, however, that the Borrower shall pay the accrued
Commitment Fee on the amount of each such reduction, if any, and any partial
reduction shall be in an aggregate amount which is not less than $1,000,000 and
an integral multiple of $500,000. Such notice shall specify the amount of
reduction and the proposed date of such reduction. The Borrower may state that
such notice is conditioned upon the effectiveness of other credit facilities, in
which case, such notice may be revoked by the Borrower on or prior to the date
of its effectiveness if such condition is not satisfied; provided that Borrower
shall be responsible for any related Consequential Losses.
(b) Mandatory Termination of the Commitment. The Commitment shall reduce
to zero and terminate on the Maturity Date.
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<PAGE> 31
(c) Mandatory Reduction of the Commitment. The Commitment shall be
permanently reduced from time to time on the date of, and by the amount of, each
mandatory prepayment that would be required to be made in accordance with the
terms of Section 2.06(b) hereof regardless of whether there are actually any
outstanding Advances or undrawn Letters of Credit under this Agreement.
(d) Commitment Reductions, Generally. To the extent the sum of the
aggregate outstanding Advances plus the undrawn face amount of outstanding
Letters of Credit exceed the Commitment after any reduction thereof, the
Borrower shall immediately repay on the date of such reduction, any such excess
amount and all accrued interest thereon, together with any amounts constituting
any Consequential Loss and/or cash collateralize any undrawn portion of any
outstanding Letters of Credit. Once reduced or terminated pursuant to this
Section 2.05, the Commitment may not be increased or reinstated.
SECTION 2.06. Prepayments.
(a) Optional Prepayments. The Borrower may, upon at least three Business
Days prior written notice to Administrative Agent stating the proposed date and
aggregate principal amount of the prepayment, prepay the outstanding principal
amount of any Advances in whole or in part, together with accrued interest to
the date of such prepayment on the principal amount prepaid without premium or
penalty other than any Consequential Loss; provided, however, that in the case
of a prepayment of a Base Rate Advance, the notice of prepayment may be given by
telephone by 11:00 a.m. on the date of prepayment. Each partial prepayment
shall, in the case of Base Rate Advances, be in an aggregate principal amount of
not less than $500,000 or a larger integral multiple of $100,000 in excess
thereof and, in the case of LIBOR Advances, be in an aggregate principal amount
of not less than $1,000,000 or a larger integral multiple of $500,000 in excess
thereof. If any notice of prepayment is given, the principal amount stated
therein, together with accrued interest on the amount prepaid and the amount, if
any, due under Sections 2.11 and 2.14 hereof, shall be due and payable on the
date specified in such notice.
(b) Mandatory Prepayments. The Borrower shall make an immediate and
mandatory prepayment of the Loan and/or cash collateralization of the Letters of
Credit by an amount in each case equal to: (i) 100% of the net cash proceeds
from the issuance of any equity or Capital Stock by the Parent or any of its
Subsidiaries (whether as a result of the exercise of a Stock Right or
otherwise), except (A) Capital Stock of the Parent issued (I) pursuant to the
Private Offering, (II) pursuant to the Conversion Rights Agreement, (III) in
accordance with any Stock Plan, and (IV) pursuant to any Stock Rights existing
on the Closing Date, or (B) Capital Stock of Telergy Canada issued to comply
with applicable Law of Canada, (ii) 100% of the Net Proceeds from Asset
Dispositions and Fiber Dispositions by the Parent, the Borrower or any of their
Subsidiaries (specifically excluding Fiber Dispositions not prohibited by the
terms of Section 7.15 hereof) (this section in and of itself not permitting any
such transactions, for permitted Asset Dispositions, see Section 7.06 hereof and
for prohibited Fiber Dispositions, see Section 7.15 hereof), provided that no
prepayment must be made for Asset Dispositions (A) in the ordinary course of
business, (B) among the Parent, the Borrower and their Wholly Owned Subsidiaries
or Telergy Central and (C) the Net Proceeds of which aggregate in an amount over
the term of this Agreement less than
26
<PAGE> 32
$1,000,000; (iii)100% of the net proceeds received by the Parent, the Borrower
or their Subsidiaries in connection with the incurrence of Debt for Borrowed
Money of the Parent, the Borrower or any of their Subsidiaries after the date
hereof (this section in and of itself not permitting any such transactions, for
permitted debt incurrence see Section 7.02 hereof) except with respect to the
incurrence by the Borrower of Debt for Borrowed Money in accordance with the
terms of Section 7.02 hereof; and (iv) 100% of the Obligations if a Change in
Control occurs.
(c) Outstanding Advances in Excess of the Available Commitment. On each
and every date that the sum of (i) the outstanding Advances plus (ii) the
undrawn portion of any outstanding Letters of Credit exceed the Available
Commitment, the Borrower shall make an immediate and mandatory prepayment of the
Loan and/or cash collateralize the undrawn portion of any outstanding Letters of
Credit by an amount in each case equal to the amount of outstanding Advances in
excess of the Available Commitment.
(d) Prepayments, Generally. Any prepayment of Advances pursuant to this
Section 2.06 shall be applied first to Base Rate Advances, if any, then
outstanding under the Loan, second to LIBOR Advances for which the date of
prepayment is the last day of the applicable Interest Period, if any,
outstanding under the Loan and third to LIBOR Advances with the shortest
remaining Interest Periods outstanding under the Loan.
SECTION 2.07. Mandatory Repayment. The Borrower agrees that all
Obligations are due and payable in full on the Maturity Date.
SECTION 2.08. Interest. Subject to Section 2.09 below, the Borrower shall
pay interest on the unpaid principal amount of each Advance from the date of
such Advance until such principal shall be paid in full, at the following rates,
as selected by the Borrower in accordance with the provisions of Section 2.02
hereof:
(a) Base Rate Advances. Base Rate Advances shall bear interest at a
rate per annum equal to the Base Rate as in effect from time to time. If
the amount of interest payable in respect of any interest computation
period is reduced to the Highest Lawful Rate pursuant to the definition of
"Base Rate" and the amount of interest payable in respect of any
subsequent interest computation period would be less than the Maximum
Amount, then the amount of interest payable in respect of such subsequent
interest computation period shall be automatically increased to the
Maximum Amount; provided that at no time shall the aggregate amount by
which interest paid has been increased pursuant to this sentence exceed
the aggregate amount by which interest has been reduced pursuant to the
definition of "Base Rate".
(b) LIBOR Advances. LIBOR Advances shall bear interest at the rate
per annum equal to the LIBOR Rate applicable to such Advance. If the
amount of interest payable in respect of any interest computation period
is reduced to the Highest Lawful Rate pursuant to the definition of "LIBOR
Rate" and the amount of interest payable in respect of any subsequent
interest computation period would be less than the Maximum Amount, then
the amount of interest payable in respect of such subsequent interest
computation period shall
27
<PAGE> 33
be automatically increased to the Maximum Amount; provided that at no time
shall the aggregate amount by which interest paid has been increased
pursuant to this sentence exceed the aggregate amount by which interest
has been reduced pursuant to the definition of "LIBOR Rate".
(c) Payment Dates. Accrued and unpaid interest on Base Rate Advances
shall be paid quarterly in arrears on each Quarterly Date and on the
appropriate maturity, repayment or prepayment date. Accrued and unpaid
interest on LIBOR Advances shall be paid on the last day of the
appropriate Interest Period and on the date of any prepayment or repayment
of such Advance; provided, however, that if any Interest Period for a
LIBOR Advance exceeds three months, interest shall also be paid on each
date occurring during the Interest Period which is the three month
anniversary date of the first day of the Interest Period.
SECTION 2.09. Default Interest. During the continuation of any Event of
Default, the Borrower shall pay, on demand, interest (after as well as before
judgment to the extent permitted by Law) on the principal amount of all Advances
outstanding and on all other Obligations due and unpaid hereunder equal to the
lesser of the (a) the Highest Lawful Rate and (b) the Base Rate (whether or not
in effect) plus 2.00% per annum.
SECTION 2.10. Continuation and Conversion Elections.
(a) The Borrower may upon irrevocable written notice to Administrative
Agent and subject to the terms of this Agreement:
(i) elect to convert, on any Business Day, all or any portion of
outstanding Base Rate Advances (in an aggregate amount not less than
$1,000,000 or a larger integral multiple of $500,000 in excess thereof)
into LIBOR Advances.
(ii) elect to convert at the end of any Interest Period therefor,
all or any portion of outstanding LIBOR Advances comprised in the same
Borrowing (in an aggregate amount not less than $500,000 or a larger
integral multiple of $100,000 in excess thereof) into Base Rate Advances;
or
(iii) elect to continue, at the end of any Interest Period therefor,
any LIBOR Advances;
provided, however, that if the aggregate amount of outstanding LIBOR Advances
comprised in the same Borrowing shall have been reduced as a result of any
payment, prepayment or conversion of part thereof to an amount less than
$1,000,000, the LIBOR Advances comprised in such Borrowing shall automatically
convert into Base Rate Advances at the end of each respective Interest Period.
(b) The Borrower shall deliver a notice of conversion or continuation (a
"Notice of Conversion/Continuation"), in substantially the form of Exhibit G
hereto, to Administrative Agent not later than (i) 12:00 noon three Business
Days prior to the proposed date of conversion or continuation, if the Advances
or any portion thereof are to be converted into or continued as LIBOR
28
<PAGE> 34
Advances; and (ii)10:00 a.m. on the proposed date of conversion or continuation,
if the Advances or any portion thereof are to be converted into Base Rate
Advances.
Each such Notice of Conversion/Continuation shall be by telecopy or
telephone, promptly confirmed in writing, specifying therein:
(i) the proposed date of conversion or continuation;
(ii) the aggregate amount of Advances to be converted or continued;
(iii) the nature of the proposed conversion or continuation; and
(iv) the duration of the applicable Interest Period.
(c) If, upon the expiration of any Interest Period applicable to LIBOR
Advances, the Borrower shall have failed to select a new Interest Period to be
applicable to such LIBOR Advances or if an Event of Default shall then have
occurred and be continuing, the Borrower shall be deemed to have elected to
convert such LIBOR Advances into Base Rate Advances effective as of the
expiration date of such current Interest Period.
(d) Upon receipt of a Notice of Conversion/Continuation, Administrative
Agent shall promptly notify each Lender thereof. All conversions and
continuations shall be made pro rata among Lenders based on their Specified
Percentage of the respective outstanding principal amounts of the Advances with
respect to which such notice was given held by each Lender.
(e) Notwithstanding any other provision contained in this Agreement, after
giving effect to any conversion or continuation of any Advances, there shall not
be outstanding Advances with more than five different Interest Periods in the
aggregate under the Loan.
SECTION 2.11. Funding Losses. If the Borrower makes any payment or
prepayment of principal with respect to any LIBOR Advance (including payments
made after any acceleration thereof) or converts any Advance from a LIBOR
Advance on any day other than the last day of an Interest Period applicable
thereto, or if the Borrower fails to prepay, borrow, convert or continue any
LIBOR Advance after a notice of prepayment, borrowing, conversion or
continuation has been given (or is deemed to have been given) to Administrative
Agent, the Borrower shall pay to each Lender on demand (subject to Section 10.09
hereof) any Consequential Loss. The Borrower agrees that each Lender is not
obligated to actually reinvest the amount prepaid in any specific obligation as
a condition to receiving any Consequential Loss, or otherwise.
SECTION 2.12. Computations and Manner of Payments.
(a) The Borrower shall make each payment hereunder and under the other
Loan Papers not later than 1:00 p.m. on the day when due in same day funds to
Administrative Agent, for the Ratable account of Lenders unless otherwise
specifically provided herein, at
Administrative Agent
29
<PAGE> 35
Bank of America Plaza
901 Main Street
14th Floor
Dallas, Texas 75202
for further credit to the account of the Borrower. No later than the end of each
day when each payment hereunder is made, the Borrower shall notify
Administrative Agent, telephone (800) 880-5537, facsimile (214) 209-2515, or
such other Person as Administrative Agent may from time to time specify.
(b) Unless Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due hereunder that the
Borrower will not make payment in full, Administrative Agent may assume that
such payment is so made on such date and may, in reliance upon such assumption,
make distributions to Lenders. If and to the extent the Borrower shall not have
made such payment in full, each Lender shall repay to Administrative Agent
forthwith on demand the applicable amount distributed, together with interest
thereon at the Federal Funds Rate, from the date of distribution until the date
of repayment. The Borrower hereby authorizes each Lender, if and to the extent
payment is not made when due hereunder, to charge the amount so due against any
account of the Borrower with such Lender.
(c) Subject to Section 10.09 hereof, interest on LIBOR Advances shall be
calculated on the basis of actual days elapsed but computed as if each year
consisted of 360 days. Subject to Section 10.09 hereof, interest on Base Rate
Advances, the Commitment Fees and other amounts due under the Loan Papers shall
be calculated on the basis of actual days elapsed but computed as if each year
consisted of 365 or 366 days, as the case may be. Such computations shall be
made including the first day but excluding the last day occurring in the period
for which such interest, payment or Fees are payable. Each determination by
Administrative Agent or a Lender of an interest rate, fee or commission
hereunder shall be conclusive and binding for all purposes, absent manifest
error. All payments under the Loan Papers shall be made in United States dollars
and without setoff, counterclaim or other defense.
(d) Notwithstanding anything herein or in any Loan Paper to the contrary,
any payment made by the Borrower in excess of outstanding Advances, shall be
applied to outstanding amounts (or to reduce the commitment) of any other
outstanding Obligations.
(e) Reference to any particular index or reference rate for determining
any applicable interest rate under this Agreement is for purposes of calculating
the interest due and is not intended as and shall not be construed as requiring
any Lender to actually fund any Advance at any particular index or reference
rate.
SECTION 2.13. Sharing of Payments. If any Lender shall obtain any payment
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) on account of its portion of the Loan in excess of its pro rata
share of payments made by the Borrower in accordance with such Lender's
Specified Percentage, such Lender shall forthwith purchase participations in the
portion of the Loan made by the other Lenders as shall be necessary to share the
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<PAGE> 36
excess payment pro rata in accordance with each Lender's Specified Percentage
with each of them; provided, however, that if any of such excess payment is
thereafter recovered from the purchasing Lender, its purchase from each Lender
shall be rescinded and each Lender shall repay the purchase price to the extent
of such recovery together with a pro rata share of any interest or other amount
paid or payable by the purchasing Lender in respect of the total amount so
recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 2.13 may, to the fullest extent
permitted by Law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation.
SECTION 2.14. Yield Protection.
(a If any Lender determines that either (i) the adoption, after the date
hereof, of any Applicable Law, rule, regulation or guideline regarding capital
adequacy applicable to commercial banks or financial institutions generally or
any change therein, or any change, after the date hereof, in the interpretation
or administration thereof by any Tribunal, central bank or comparable agency
charged with the interpretation or administration thereof, or (ii) compliance by
any Lender (or Lending Office of any Lender) with any request or directive made
after the date hereof applicable to commercial banks or financial institutions
generally regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency has the effect of reducing
the rate of return on such Lender's capital as a consequence of its obligations
hereunder to a level below that which such Lender could have achieved but for
such adoption, change or compliance (taking into consideration such Lender's
policies with respect to capital adequacy (but excluding consequences of such
Lender's negligence or intentional disregard of law or regulation)) by an amount
reasonably deemed by such Lender to be material, then from time to time, within
fifteen days after demand by such Lender, the Borrower shall pay to such Lender
such additional amount or amounts as will adequately compensate such Lender for
such reduction. Each Lender will notify the Borrower of any event occurring
after the date of this Agreement which will entitle such Lender to compensation
pursuant to this Section 2.14(a) as promptly as practicable after such Lender
obtains actual knowledge of such event; provided that no Lender shall be liable
for its failure or the failure of any other Lender to provide such notification.
A certificate of such Lender claiming compensation under this Section 2.14(a),
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to it hereunder and certifying that such claim is consistent
with such Lender's treatment of similar customers having similar provisions
generally in their agreements with such Lender shall be conclusive in the
absence of manifest error. Each Lender shall use reasonable efforts to mitigate
the effect upon the Borrower of any such increased costs payable to such Lender
under this Section 2.14(a).
(b If, after the date hereof, any Tribunal, central bank or other
comparable authority, at any time imposes, modifies or deems applicable any
reserve (including, without limitation, any imposed by the Board of Governors of
the Federal Reserve System), special deposit or similar requirement against
assets of, deposits with or for the amount of, or credit extended by, any
Lender, or imposes on any Lender any other condition affecting a LIBOR Advance,
the Notes or its obligation to make a LIBOR Advance; and the result of any of
the foregoing is to increase the cost to such Lender of making or maintaining
LIBOR Advances, or to reduce the amount of any sum
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<PAGE> 37
received or receivable by such Lender under this Agreement or under the Notes or
reimbursement obligations by an amount reasonably deemed by such Lender to be
material, then, within five days after demand by such Lender, the Borrower shall
pay to such Lender such additional amount or amounts as will compensate such
Lender for such increased cost or reduction. Each Lender will (i) notify the
Borrower and Administrative Agent of any event occurring after the date of this
Agreement that entitles such Lender to compensation pursuant to this Section
2.14(b), as promptly as practicable after such Lender obtains actual knowledge
of the event; provided that no Lender shall be liable for its failure or the
failure of any other Lender to provide such notification and (ii) use good faith
and reasonable efforts to designate a different Lending Office for LIBOR
Advances of such Lender if the designation will avoid the need for, or reduce
the amount of, the compensation and will not, in the sole opinion of such
Lender, be disadvantageous to such Lender. A certificate of such Lender claiming
compensation under this Section 2.14(b) setting forth in reasonable detail the
computation of the additional amount or amounts to be paid to it hereunder and
certifying that such claim is consistent with such Lender's treatment of similar
customers having similar provisions generally in their agreements with such
Lender shall be conclusive in the absence of manifest error. If such Lender
demands compensation under this Section 2.14(b), the Borrower may at any time,
on at least five Business Days' prior notice to such Lender, (i) repay in full
the then outstanding principal amount of LIBOR Advances of such Lender, together
with accrued interest thereon, or (ii) convert the LIBOR Advances to Base Rate
Advances in accordance with the provisions of this Agreement; provided, however,
that the Borrower shall be liable for the Consequential Loss arising pursuant to
those actions.
(c Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation or administration of
any Law shall make it unlawful, or any central bank or other Tribunal shall
assert that it is unlawful, for a Lender to perform its obligations hereunder to
make LIBOR Advances or to continue to fund or maintain LIBOR Advances hereunder,
then, on notice thereof and demand therefor by such Lender to the Borrower, (i)
each LIBOR Advance will automatically, upon such demand, convert into a Base
Rate Advance, and (ii) the obligation of such Lender to make or to convert
Advances into LIBOR Advances shall be suspended until such Lender notifies
Administrative Agent and the Borrower that such Lender has determined that the
circumstances causing such suspension no longer exist.
(d Upon the occurrence and during the continuance of any Default or Event
of Default, (i) each LIBOR Advance will automatically, on the last day of the
then existing Interest Period therefor, convert into a Base Rate Advance and
(ii) the obligation of each Lender to make or to convert Advances into LIBOR
Advances shall be suspended.
(e Failure on the part of any Lender to demand compensation for any
increased costs, increased capital or reduction in amounts received or
receivable or reduction in return on capital pursuant to this Section 2.14 with
respect to any period shall not constitute a waiver of any Lender's right to
demand compensation with respect to such period or any other period, subject,
however, to the limitations set forth in this Section 2.14.
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<PAGE> 38
(f The term "Lender" for purposes of this Section shall include the
Administrative Agent and the Issuing Bank. The obligations of the Borrower under
this Section 2.14 shall survive any termination of this Agreement.
(g Determinations by Lenders for purposes of this Section 2.14 shall be
conclusive, absent manifest error. Any certificate delivered to the Borrower by
a Lender pursuant to this Section 2.14 shall include in reasonable detail the
basis for such Lender's demand for additional compensation and a certification
that the claim for compensation is consistent with such Lender's treatment of
similar customers having similar provisions generally in their agreements with
such Lender.
(h If Majority Lenders notifies Administrative Agent that the LIBOR Rate
for any Interest Period for any LIBOR Advances will not adequately reflect the
cost to such Lender of making, funding or maintaining LIBOR Advances for such
Interest Period, Administrative Agent shall promptly so notify the Borrower,
whereupon (i) each such LIBOR Advance will automatically, on the last day of the
then existing Interest Period therefor, convert into a Base Rate Advance and
(ii) the obligation of such Lender to make or to convert Advances into LIBOR
Advances shall be suspended until such Lender notifies Administrative Agent that
such Lender has determined that the circumstances causing such suspension no
longer exist and Administrative Agent notifies the Borrower of such fact.
SECTION 2.15. Taxes.
(a) Any and all payments by the Borrower hereunder shall be made, in
accordance with Section 2.12 hereof, free and clear of and without deduction for
any and all current or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding franchise
taxes, excise taxes and taxes based on net income (including branch profit
taxes).
(b) In addition, the Borrower agrees to pay to the relevant Governmental
Authority in accordance with Applicable Law any current or future stamp or
documentary taxes or similar levies that arise from and payment made hereunder
or from the execution, delivery or registration of, or otherwise with respect
to, this Agreement ("Other Taxes").
(c) The Borrower will indemnify the Administrative Agent, the Issuing
Bank, and each Lender for the full amount of taxes and Other Taxes paid by the
Administrative Agent, the Issuing Agent or such Lender and any liability
(including penalties, interest and expenses (including reasonable attorney's
fees and expenses)) arising therefrom or with respect thereto, whether or not
such taxes or Other Taxes were correctly or legally asserted by the relevant
Governmental Authority. A certificate as to the amount of such payment or
liability prepared by the Administrative Agent, a Lender, the Issuing Agent or
the Administrative Agent on its behalf, absent manifest error, shall be final,
conclusive and binding for all purposes. Such indemnification shall be made
within 30 days after the date the Administrative Agent or any affected Lender
makes written demand therefor.
(d) Each Lender and the Administrative Agent hereby agrees to reasonably
pursue any available refund of, or credit for or similar tax benefit with
respect to any taxes or Other Taxes of
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which it is aware, provided that, no such obligation on the part of the
Administrative Agent or any Lender shall require such Person to incur an
unreimbursed loss or unreimbursed cost or expense or otherwise take any action
inconsistent with its internal policies or legal or regulatory restrictions or
suffer any disadvantage or burden deemed by it to be significant. The
Administrative Agent and each such Lender will promptly remit to the Borrower an
amount equal to any refund, credit or benefit received by it.
(e) Each Lender organized under the Laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which it becomes a Lender in the case of each other
Lender, and from time to time thereafter, including, without limitation, upon
the expiration or obsolescence of any previously delivered form or upon the
written request of Borrower or Administrative Agent (but only so long as such
Lender remains lawfully able to do so) shall provide Borrower and Administrative
Agent with (i) Internal Revenue Service Form 1001 or 4224, as appropriate, or
any successor form prescribed by the Internal Revenue Service, certifying that
such Lender is entitled to benefits under an income tax treaty to which the
United States is a party which reduces the rate of withholding tax on payments
of interest or certifying that the income receivable pursuant to this Agreement
is effectively connected with the conduct of a trade or business in the United
States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any
successor form prescribed by the Internal Revenue Service, and (iii) any other
form or certificate required by any taxing authority (including any certificate
required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying
that such Lender is entitled to an exemption from or a reduced rate of tax on
payments pursuant to this Agreement or any of the other Loan Papers.
(f) For any period with respect to which a Lender has failed to provide
Borrower and Administrative Agent with the appropriate form pursuant to Section
2.15(e) hereof (unless such failure is due to a change in Law, occurring
subsequent to the date on which a form originally was required to be provided),
such Lender shall not be entitled to indemnifications under this Section 2.15
hereof with respect to Taxes imposed by the United States; provided, however,
that should a Lender, which is otherwise exempt from or subject to a reduced
rate of withholding tax, become subject to Taxes because of its failure to
deliver a form required hereunder, Borrower shall take such steps as such Lender
shall reasonably request to assist such Lender to recover such Taxes.
SECTION 2.16. Collateral and Collateral Call.
(a) Collateral. Payment of the Obligations will be secured by:
(i) a first perfected security interest in 100% of the Pledged
Stock,
(ii) guaranties of the Obligations by each Guarantor,
(iii) a first perfected security interest (except for Permitted
Liens and Liens permitted pursuant to the terms of Section 7.03 hereof) in
all accounts, inventory, non-fixture equipment and fiber (other than
permitted Fiber Dispositions allowed pursuant to Section
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7.15 hereof, and only to the extent such Fiber Disposition has actually
occurred) of the Parent and the Borrower, except the Excluded Assets,
(iv) upon the execution of the Note, a first perfected security
interest (except for Permitted Liens and Liens permitted pursuant to the
terms of Section 7.03 hereof) in all accounts, inventory, non-fixture
equipment of the Parent's and the Borrower's Subsidiaries except Telergy
Canada, except the Excluded Assets, and
(v) a first perfected security interest (except for Permitted Liens
and Liens permitted pursuant to the terms of Section 7.03 hereof) in all
assets and properties, both real and personal, of Telergy Parkway,
(collectively, together with all other properties or assets of the Parent, the
Borrower and their Subsidiaries and other Persons that secure the Obligations
from time to time, but specifically excluding the Excluded Stock and the
Excluded Assets, the "Collateral"). The Borrower agrees that it will, and will
cause the Parent and their Subsidiaries to execute and deliver, or cause to be
executed and delivered, such documents as the Administrative Agent may from time
to time reasonably request to create and perfect a first Lien (subject to
Permitted Liens and Liens permitted pursuant to the terms of Section 7.03
hereof) for the benefit of the Administrative Agent and the Lenders in the
Collateral in accordance with the terms of this Section 2.16(a).
(b) Collateral Call. The Borrower agrees after the date hereof upon the
creation, formation or acquisition of any direct or indirect Subsidiary of the
Parent, to immediately pledge or cause to be pledged 100% of the Capital Stock
of any such Subsidiary that is owned by the Parent, the Borrower or any of their
Subsidiaries to secure the Obligations, pursuant to a pledge agreement
substantially similar to those executed in connection herewith, and to promptly
deliver to the Administrative Agent all certificates or other documentation
evidencing 100% of such Capital Stock and, if such Capital Stock is stock of a
corporation, together with stock powers executed in blank. The Borrower agrees,
notwithstanding (a) above, promptly upon request by the Administrative Agent, to
use its commercially reasonable efforts to take all actions necessary or
advisable to promptly grant the Administrative Agent on behalf of the Lenders a
Lien and/or security interest in all or any portion of the tangible and
intangible assets and properties of the Parent, the Borrower and their
Subsidiaries except Telergy Canada, owned by the Parent or the Borrower directly
or indirectly (whether through Capital Stock or otherwise), including to
immediately pledge/mortgage or grant a first priority security interest in real
property to secure the Obligations, provided that under no circumstances shall
the Parent or the Borrower be required to grant a Lien and/or security interest
in the Excluded Stock, Excluded Assets, any other assets of the Parent, the
Borrower or any of their Subsidiaries subject to a Permitted Lien or a Lien
permitted by Section 7.03 hereof, or in any other assets (or assign any other
assets) with respect to which the Parent, the Borrower or their Subsidiaries are
contractually prohibited or prohibited by Law from assignment or granting a
Lien.
(c) To the extent that any new Subsidiaries have been created since the
Closing Date, (i) if such Subsidiaries are non-PUC regulated Subsidiaries, 100%
of the Capital Stock of the Subsidiaries will be pledged to secure the
Obligations, the Subsidiaries will execute a guaranty of the Obligations and the
Subsidiaries will execute a security agreement pledging all their assets, other
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than Excluded Assets, to secure the Obligations and (ii) if such Subsidiaries
are PUC regulated Subsidiaries, 100% of the Capital Stock of the Subsidiaries
will be pledged to secure the Obligations, the Subsidiaries will become
co-makers of the Notes and the Subsidiaries will execute a security agreement
pledging all their assets, other than Excluded Assets, to secure the
Obligations.
SECTION 2.17. Conditions Precedent to the Increase of the Commitment.
Prior to March 31, 2000, upon written request by the Borrower to
Administrative Agent and the other existing Lenders of its election ten Business
Days prior to the proposed effective date of the proposed increase, the
Commitment shall, subject to the further terms and conditions set forth below,
increase to a maximum of $200,000,000 in the manner set forth below:
(a) On any date of proposed increase, the representations and
warranties contained in Article V hereof are true and correct on such
date, as though made on and as of such date, except to the extent
expressly made only as of a prior date; and
(b) On any date of proposed increase, no Default or Event of Default
shall exist on any such date, and no Default or Event of Default would
result from such increase in the Commitment and the subsequent Advance to
the Borrower up to the amount of the Commitment; and
(c) On any date of proposed increase, no event shall have occurred
that could reasonably be expected to have a Material Adverse Effect since
December 31, 1998; and
(d) On any date of proposed increase, the sum of (i) all Advances
outstanding (after giving effect to any proposed Advance to be made on
such date), plus (ii) the aggregate face amount of all outstanding Letters
of Credit (after giving effect to any proposed Letter of Credit to be made
on such date), plus (iii) (without duplication) the sum of all
reimbursement obligations with respect to all outstanding Letters of
Credit, shall not exceed the Commitment; and
(e) The proposed increase shall occur prior to March 31, 2000 and
the Commitment as increased shall not be in excess of the sum of the
Commitment prior to such increase plus the Unavailable Commitment prior to
such increase; and
(f) Upon satisfaction of each of the conditions precedent in this
Section 2.17, the Borrower shall be entitled to increase the Commitment
not more than one time, in an aggregate amount for such increase not to
exceed the Unavailable Commitment. Each Lender specified by the Borrower
shall have received not less than ten days' prior written notice from the
Borrower requesting such Commitment increase. Each such Lender electing to
participate in such Commitment increase shall commit to an amount not less
than $5,000,000, but shall accept any allocation amount designated by the
Borrower and the Administrative Agent that is equal to or less than its
proposed portion of the Commitment increase; and
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(g) Notwithstanding anything herein or in any other Loan Paper to
the contrary, (i) the Borrower is not obligated to allocate to any
existing Lender any portion of, the proposed increase, and the Borrower
and the Administrative Agent may agree to add other creditors in
connection with any such proposed increase. Each existing Lender agrees
and acknowledges that new creditors may be allocated all or any portion of
the proposed increase upon the determination of the Borrower and the
Administrative Agent; and
(h) Each of the new Lenders electing to participate in the proposed
increase shall commit to a minimum amount of $10,000,000 and $5,000,000
multiples thereof, although such new Lender shall accept any allocation
equal to or less than its proposed portion of the Commitment increase; and
(i) The Administrative Agent shall have received a certificate from
the Borrower to the effect that (i) such increase has received all
required regulatory approvals, if necessary, and is in compliance with all
Applicable Laws, and (ii) no other approvals or consents from any Person
are required by any such Person except to the extent they have been
received; and
(j) Each new Lender (including any new Lenders party hereto) shall
have received a promissory Note, and the Borrower and each new Lender
agrees to execute any and all such documents deemed necessary by the
Administrative Agent in order to effectuate this Section 2.17 (whether
UCC-1s, new documentation relating to any Collateral, Guaranty or
otherwise); and
(k) On the date of increase, the Administrative Agent shall deliver
to each Lender evidence of new Specified Percentages adjusted to give
effect to the increase in the Commitment; and
(l) On or prior to the date of increase, each new Lender being added
to the credit facility shall deliver to the Borrower and the
Administrative Agent documentation acceptable to the Administrative Agent
evidencing such new Lender's acceptance of this Agreement and all the
other Loan Papers in form and substance reasonably acceptable to the
Administrative Agent (and making such lender a party to this Agreement and
the other Loan Papers); and
(m) The Administrative Agent shall have received financial
projections in form and substance reasonably acceptable to the Lenders and
demonstrating compliance with the financial covenants set forth in Section
7.01 hereof throughout the term of this Agreement; and
(n) The Commitment shall (i) never exceed the sum of the Commitment
(as in effect prior to giving effect to the increase specified in this
Section 2.17) plus the Unavailable Commitment, as each is reduced in
accordance with Section 2.05 hereof, this Section 2.17 and the other terms
of this Agreement, and (ii) never increase except to the extent, and not
to exceed such amount, that the Unavailable Commitment is in excess of
zero; and
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(o) The Unavailable Commitment shall be reduced in accordance with
this Section 2.17 dollar for dollar for each increase in the Commitment;
and
(p) The Administrative Agent on behalf of each Lender shall have
received all amendments to security agreements, deeds of trust and
mortgages as the Administrative Agent shall deem necessary to maintain its
valid and perfected Lien; and
No Lender shall be obligated to increase the dollar amount of its share of
the Commitment without its written consent in its sole discretion. In connection
with any increase to the Commitment in accordance with the terms of this Section
2.17, each existing Lender (regardless of whether such Lender is participating
in such increase) agrees to execute any and all agreements requested by the
Administrative Agent to effectuate the intent of this Section 2.17.
Notwithstanding anything contained herein to the contrary, the limitations
placed upon assignments set forth in Section 10.04 hereof shall not apply to
proposed increases pursuant to this Section.
ARTICLE III
Letters of Credit
SECTION 3.01. Issuance of Letters of Credit. The Borrower shall give the
Administrative Agent not less than five Business Days prior written notice of a
request for the issuance of a Letter of Credit, and the Administrative Agent
shall promptly notify each Lender of such request. Upon receipt of the
Borrower's properly completed and duly executed Applications, and subject to the
terms of such Applications and to the terms of this Agreement, the
Administrative Agent agrees to issue Letters of Credit on behalf of the Borrower
in an aggregate face amount not in excess of the lesser of (a) Letter of Credit
Commitment and (b) the remainder of the Available Commitment minus the sum of
all outstanding Advances plus the aggregate face amount of all outstanding
Letters of Credit. No Letter of Credit shall have a maturity extending beyond
the earliest of (i) the Maturity Date, or (ii) one year from the date of its
issuance, or (iii) such earlier date as may be required to enable the Borrower
to satisfy its repayment obligations under Section 2.07 hereof. Subject to such
maturity limitations and so long as no Default or Event of Default has occurred
and is continuing or would result from the renewal of a Letter of Credit, the
Letters of Credit may be renewed by the Administrative Agent and Issuing Bank in
their discretion. The Lenders shall participate Ratably in any liability under
the Letters of Credit and in any unpaid reimbursement obligations of the
Borrower with respect to any Letter of Credit in their Specified Percentages.
The undrawn amount of the Letters of Credit issued and outstanding and the
unpaid reimbursement obligations of the Borrower for such Letters of Credit
shall reduce the amount of the Available Commitment available, so that at no
time shall the sum of (i) all outstanding Advances in the aggregate, plus (ii)
the aggregate undrawn face amount of all outstanding Letters of Credit, plus
(iii) (without duplication) all outstanding reimbursement obligations related to
Letters of Credit, exceed the Available Commitment, and at no time shall the sum
of all Advances by any Lender made plus its Ratable share of amounts available
to be drawn under the Letters of Credit and the unpaid reimbursement obligations
of the Borrower in respect of such Letters of Credit exceed its Specified
Percentage of the Available Commitment.
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SECTION 3.02. Letters of Credit Fee. In consideration for the issuance of
each Letter of Credit, the Borrower shall pay to (a) the Administrative Agent
for its account and for the account of the Issuing Bank, application and
processing fees in the amount of the higher of (i) $350.00 and (ii) the product
of .125% multiplied by the face amount of such Letter of Credit on each Letter
of Credit, due and payable on the date of issuance of each Letter of Credit, and
(b) the Administrative Agent for the account of the Lenders in accordance with
their Specified Percentages or the Issuing Bank, as case may be, a per annum fee
for each Letter of Credit equal to the higher of (i) $350.00 and (ii) the
product of the Applicable Margin for a LIBOR Advance in effect on the date of
calculation multiplied by the face amount of each such Letter of Credit. Each
fee for each Letter of Credit under subsection (b) above shall be due and
payable to the Administrative Agent or the Issuing Bank, as the case may be,
quarterly as it accrues, on each Quarterly Date during the term of the Letter of
Credit and on the expiration or renewal of each such Letter of Credit, beginning
with the first such Quarterly Date after the issuance of each Letter of Credit
and ending on the expiration date of each such Letter of Credit.
SECTION 3.03. Reimbursement Obligations.
(a) The Borrower hereby agrees to reimburse Administrative Agent and the
Issuing Bank immediately upon demand by Administrative Agent, and in immediately
available funds, for any payment or disbursement made by Administrative Agent or
the Issuing Bank under any Letter of Credit. Payment shall be made by the
Borrower with interest on the amount so paid or disbursed by Administrative
Agent or the Issuing Bank from and including the date payment is made under any
Letter of Credit to and including the date of payment, at the lesser of (i) the
Highest Lawful Rate, and (ii) the sum of the Base Rate in effect from time to
time plus 2% per annum; provided, however, that if the Borrower would be
permitted under the terms of Section 2.01, Section 2.02 and Section 5.02 to
borrow Advances in amounts at least equal to their reimbursement obligation for
a drawing under any Letter of Credit, a Base Advance by each Lender in an amount
equal to such Lender's Specified Percentage shall automatically be deemed made
on the date of any such payment or disbursement made by Administrative Agent or
the Issuing Bank in the amount of such obligation and subject to the terms of
this Agreement.
(b) The Borrower hereby also agrees to pay to Administrative Agent
immediately upon demand by Administrative Agent or the Issuing Bank and in
immediately available funds, as security for its reimbursement obligations in
respect of the Letters of Credit under Section 3.03(a) hereof and any other
amounts payable hereunder and under the Notes, an amount equal to the aggregate
amount available to be drawn under Letters of Credit then outstanding,
irrespective of whether the Letters of Credit have been drawn upon, upon an
Event of Default. Any such payments shall be deposited in a separate account
designated "Telergy Special Account" or such other designation as Administrative
Agent shall elect. All such amounts deposited with Administrative Agent shall be
and shall remain funds of the Borrower on deposit with Administrative Agent and
may be invested by Administrative Agent as Administrative Agent shall determine.
Such amounts may not be used by Administrative Agent or the Issuing Bank to pay
the drawings under the Letters of Credit; however, such amounts may be used by
Administrative Agent and the Issuing Bank as reimbursement for Letter of Credit
drawings which Administrative Agent or the Issuing Bank has
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paid. During the existence of an Event of Default but after the expiration of
any Letter of Credit that was not drawn upon, the Borrower may direct
Administrative Agent or the Issuing Bank to use any cash collateral for any such
expired Letter of Credit, if any, to reduce the amount of the Obligations. Any
amounts remaining in the Telergy Special Account after the date of the
expiration of all Letters of Credit and after all Obligations have been paid in
full, shall be repaid to the Borrower promptly after such expiration and such
payment in full.
(c) The obligations of the Borrower under this Section 3.03 will continue
until all Letters of Credit have expired and all reimbursement obligations with
respect thereto have been paid in full by the Borrower and until all other
Obligations shall have been paid in full and Borrower's reimbursement
obligations hereunder are absolute and unconditional in all circumstances.
(d) The Borrower shall be obligated to reimburse Administrative Agent and
the Issuing Bank upon demand for all amounts paid under the Letters of Credit as
set forth in Section 3.03(a) hereof; provided, however, if the Borrower for any
reason fails to reimburse Administrative Agent or the Issuing Bank in full upon
demand, whether by failing to or not being permitted to borrow Advances to pay
such reimbursement obligations or otherwise, the Lenders shall reimburse
Administrative Agent and the Issuing Bank in accordance with each Lender's
Specified Percentage for amounts due and unpaid from the Borrower as set forth
in Section 3.04 hereof; provided, however, that no such reimbursement made by
the Lenders shall discharge the Borrower's obligations to reimburse
Administrative Agent or the Issuing Bank.
(e) The Borrower and the Parent shall indemnify and hold Administrative
Agent, the Issuing Bank, or any Lender, its officers, directors, representatives
and employees harmless from loss for any claim, demand or liability which may be
asserted against Administrative Agent, the Issuing Bank, or such indemnified
party in connection with actions taken under the Letters of Credit or in
connection therewith (including losses resulting from the negligence of
Administrative Agent or such indemnified party), and shall pay Administrative
Agent and the Issuing Bank for reasonable fees of attorneys (who may be
employees of Administrative Agent and the Issuing Bank) and legal costs paid or
incurred by Administrative Agent and the Issuing Bank in connection with any
matter related to the Letters of Credit, except for losses and liabilities
incurred as a direct result of the gross negligence or wilful misconduct of
Administrative Agent, the Issuing Bank, or such indemnified party. If the
Borrower for any reason fails to indemnify or pay Administrative Agent, the
Issuing Bank or such indemnified party of Administrative Agent as set forth
herein in full, the Lenders shall indemnify and pay Administrative Agent upon
demand, in accordance with each Lender's Specified Percentage of such amounts
due and unpaid from the Borrower. The provisions of this Section 3.03(e) shall
survive the termination of this Agreement.
SECTION 3.04. Lenders' Obligations. Each Lender agrees, unconditionally
and irrevocably, to reimburse Administrative Agent or the Issuing Bank on demand
for such Lender's Specified Percentage of each draw paid by Administrative Agent
or the Issuing Bank under any Letter of Credit that is not reimbursed by the
Borrower. All amounts payable by any Lender under this subsection shall include
interest thereon at the Federal Funds Rate, from the date of the applicable draw
to the date of reimbursement by such Lender. No Lender shall be liable for the
performance or nonperformance of the obligations of any other Lender under this
Section. The
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obligations of the Lenders under this Section shall continue after the Maturity
Date and shall survive termination of any Loan Papers.
SECTION 3.05. Administrative Agent's Obligations.
(a) Administrative Agent and the Issuing Bank each makes no representation
or warranty, and assumes no responsibility with respect to the validity,
legality, sufficiency or enforceability of any Application or any document
relative thereto or to the collectibility thereunder. Administrative Agent and
the Issuing Bank each assumes no responsibility for the financial condition of
the Parent, the Borrower and their Subsidiaries or for the performance of any
obligation of the Borrower. Administrative Agent and the Issuing Bank each may
use its discretion with respect to exercising or refraining from exercising any
rights, or taking or refraining from taking any action which may be vested in it
or which it may be entitled to take or assert with respect to any Letter of
Credit or any Application.
(b) Administrative Agent and Issuing Bank each shall be under no liability
to any Lender with respect to anything Administrative Agent or Issuing Bank may
do or refrain from doing in the exercise of its judgment, the sole liability and
responsibility of Administrative Agent or Issuing Bank being to handle each
Lender's share on as favorable a basis as Administrative Agent or Issuing Bank
handles its own share and to promptly remit to each Lender its share of any sums
received by Administrative Agent under Article III or any Application.
Administrative Agent and Issuing Bank shall have no duties or responsibilities
except those expressly set forth herein, and those duties and liabilities shall
be subject to the limitations and qualifications set forth herein.
(c) Neither Administrative Agent, Issuing Bank, nor any of its directors,
officers, or employees shall be liable for any action taken or omitted (whether
or not such action taken or omitted is expressly set forth herein) under or in
connection herewith or any other instrument or document in connection herewith,
except for gross negligence or willful misconduct, and no Lender waives its
right to institute legal action against Administrative Agent or Issuing Bank for
wrongful payment of any Letter of Credit due to Administrative Agent's or
Issuing Bank's gross negligence or willful misconduct. Administrative Agent and
Issuing Bank shall incur no liability to any Lender, the Borrower or any
Affiliate of the Borrower or Lender in acting upon any notice, document, order,
consent, certificate, warrant or other instrument reasonably believed by
Administrative Agent and Issuing Bank to be genuine or authentic and to be
signed by the proper party.
SECTION 3.06 Reinstatement. The provisions of this Article III shall
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the reimbursement obligations in respect
of Letters of Credit is rescinded or must otherwise be restored or returned by
the Administrative Agent or the Issuing Bank upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or any other Obligor,
or upon or as a result of the appointment of a receiver, intervenor or
conservator of, or custodian, trustee or similar officer for, the Borrower or
any other Obligor or any part of its property, or otherwise, all as though such
payments had not been made.
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ARTICLE IV
Representations and Warranties
The Borrower represents and warrants to the Administrative Agent and each
of the Lenders that on the Closing Date and on the making of each subsequent
Advance by the Lenders hereunder:
SECTION 4.01. Organization; Powers. The Parent, the Borrower and each of
their Subsidiaries (except as hereinafter provided) (a) is duly organized,
validly existing and in good standing under the Laws of the jurisdiction of its
organization, (b) has all requisite power and authority to own its property and
assets and to carry on its business as now conducted and as proposed to be
conducted, (c) is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required, except where the failure so
to qualify could not reasonably be expected to result in a Material Adverse
Effect, and (d) has the requisite power and authority to execute, deliver and
perform its obligations under this Agreement, the other Loan Papers, as
appropriate, and each other agreement or instrument contemplated thereby to
which it is or will be a party and to borrow hereunder.
SECTION 4.02. Authorization. The execution, delivery and performance by
the Borrower of this Agreement, each Note, the borrowing by the Borrower
hereunder, the granting by the Parent, the Borrower and their Subsidiaries
except Telergy Canada of all Liens securing the Obligations, and the execution
of all Loan Papers (collectively, the "Transactions") (a) have been duly
authorized by all requisite partnership, membership, corporate and, if required,
stockholder action, as applicable, and (b) will not (i) violate (A) any
provision of Applicable Law, or of the certificate or articles of incorporation
or other constitutive documents, by-laws or organizational documents of the
Parent, the Borrower or any of their Subsidiaries, (B) any order of any
Governmental Authority binding on the Parent, the Borrower or their Subsidiaries
or (C) any provision of any indenture, material agreement or other material
instrument to which the Parent, Borrower or their Subsidiaries, or by which any
of them or any of their property is or may be bound, (ii) be in conflict with,
result in a breach of or constitute (alone or with notice or lapse of time or
both) a default under, or give rise to any right to accelerate or to require the
prepayment, repurchase or redemption of any obligation under any such indenture,
agreement or other instrument or (iii) result in the creation or imposition of
any Lien upon or with respect to any property or assets now owned or hereafter
acquired by the Parent, the Borrower or their Subsidiaries except Permitted
Liens.
SECTION 4.03. Enforceability. This Agreement and each of the other Loan
Papers to which it is a party has been duly executed and delivered by the
Borrower and constitutes a legal, valid and binding obligation of the Borrower
enforceable against the Borrower in accordance with its terms, subject, to the
following qualifications: (i) equitable principles generally, and (ii)
bankruptcy, insolvency, liquidation, reorganization, moratorium, fraudulent
conveyance, reconstruction or other similar laws affecting enforcement of
creditors' rights generally (insofar as any such law relates to the bankruptcy,
insolvency or similar event of the Parent, the Borrower or their Subsidiaries).
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SECTION 4.04. Governmental Approvals. No action, consent or approval of,
registration or filing with or any other action by any Governmental Authority is
required in connection with the consummation and performance by the Parent, the
Borrower and their Subsidiaries of the Transactions, except for such as have
been made or obtained on or prior to the Closing Date and which will be in full
force and effect on the Closing Date.
SECTION 4.05. Financial Statements. The Borrower has heretofore furnished
to the Administrative Agent and each Lender its consolidated balance sheets and
statements of income and equity and cash flow (a) as of and for the fiscal year
ended December 31, 1998, audited and (b) and for the six-month period ended as
of June 30, 1999, unaudited. Such financial statements present fairly in all
material respects the financial condition and results of operations and cash
flows of the Parent, the Borrower and their Subsidiaries as of the dates and for
the periods covered thereby. Such balance sheets and the notes thereto disclose
all material liabilities, direct or contingent, of the Parent, the Borrower and
their consolidated Subsidiaries as of the dates thereof. Such financial
statements were prepared in accordance with GAAP applied on a consistent basis.
SECTION 4.06. No Material Adverse Change. There has been no material
adverse change in the business, assets, operations, financial condition of the
Parent, the Borrower and their Subsidiaries, taken as a whole, since December
31, 1998. The Borrower has delivered or made available to the Administrative
Agent a copy of every agreement of the Parent, the Borrower and their
Subsidiaries that is, in each case, in effect on the Closing Date and material
to the operations of the Parent, the Borrower and their Subsidiaries, taken as a
whole.
SECTION 4.07. Title to Properties; Possession Under Leases.
(a) Each of the Parent, the Borrower and their Subsidiaries has good and
marketable fee simple title to, or valid leasehold interests in, all of its
material real properties and good title to all of its material personal property
and assets, except for minor defects in title that do not interfere with its
ability to conduct its business as currently conducted or to utilize such
properties and assets for their intended purposes. All such material properties
and assets are free and clear of Liens, other than Permitted Liens and Liens
expressly permitted by Section 7.03 hereof.
(b) Each of the Parent, the Borrower and their Subsidiaries has complied
with all material obligations under all material leases to which it is a party,
except where the failure to so comply could not reasonably be expected to have a
Material Adverse Effect, and all such leases are in full force and effect. Each
of the Parent, the Borrower and their Subsidiaries enjoys peaceful and
undisturbed possession under all such material leases.
(c) Each of the Parent, the Borrower and their Subsidiaries owns or
possesses, or could obtain ownership or possession of, on terms not materially
adverse to it, all patents, trademarks, service marks, trade names, copyrights,
licenses and rights with respect thereto necessary for the present conduct of
its business, without any known conflict with the rights of others, and free
from any burdensome restrictions, except where such conflicts and restrictions
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
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SECTION 4.08. The Subsidiaries. Schedule 4.08 hereto sets forth as of the
date hereof a list of all direct and indirect Subsidiaries of the Borrower and
the Parent, a corporate organizational chart with respect thereto, and the
percentage ownership interest of the Parent and the Borrower, as the case may
be, therein. Schedule 4.08 hereto sets forth all of the Stock Rights in
existence with respect to the Capital Stock of the Borrower and the Subsidiaries
of the Parent and the Borrower in existence on the Closing Date. As of the date
hereof, the shares of Capital Stock or other ownership interests so indicated on
Schedule 4.08 are owned by the holders of the Pledged Stock and the Borrower,
directly or indirectly, and, with respect to the Subsidiaries of the Borrower
and the Parent that are corporations, fully paid and non-assessable. As of the
date hereof and after giving effect to the application of the proceeds of the
Loan made hereunder, the shares of the Pledged Stock are owned by the Parent and
the Borrower free and clear of all Liens except Liens securing the Obligations.
SECTION 4.09. Litigation; Compliance with Laws.
(a) There are not any actions, suits or proceedings at Law or in equity or
by or before any Governmental Authority now pending or, to the knowledge of the
Borrower, threatened against or affecting the Parent, the Borrower or their
Subsidiaries, or any business, property or rights of any such Person, (i) that
involve this Agreement or the Transactions or (ii) as to which there is a
reasonable possibility of an adverse determination and that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect.
(b) None of the Parent, the Borrower or their Subsidiaries, or any of
their respective material properties or assets is in violation of, nor will the
continued operation of their material properties and assets as currently
conducted violate, any Law applicable to such Person, or is in default with
respect to any judgment, writ, injunction, decree or order of any Governmental
Authority, where, in either case, such violation or default could reasonably be
expected to result in a Material Adverse Effect.
SECTION 4.10. Agreements.
(a) Neither the Parent, the Borrower nor any of their Subsidiaries nor is
a party to any agreement or subject to any corporate restriction that has
resulted in, or could reasonably be expected to result in, a Material Adverse
Effect.
(b) Neither the Parent, the Borrower nor any of their Subsidiaries is in
default in any manner under any provision of any indenture or other agreement or
instrument evidencing Debt for Borrowed Money of the Parent, the Borrower or
such Subsidiary, or any other material agreement or instrument to which it is a
party or by which it or any of its properties or assets are or may be bound,
where such default could reasonably be expected to result in a Material Adverse
Effect.
SECTION 4.11. Federal Reserve Regulations. Neither the Parent, the
Borrower nor their Subsidiaries are engaged principally or as one of its
important activities in the business of extending credit for the purpose of
purchasing or carrying any margin stock within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System, and no part of the
proceeds
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of the Loan will be used to purchase or carry any margin stock (as
defined by Regulation U) or to extend credit to others for the purpose of
purchasing or carrying any margin stock. Not more than 25% of the assets of any
of the Parent, the Borrower or their Subsidiaries are margin stock (as defined
by Regulation U). None of the Parent, the Borrower or their Subsidiaries, nor
any agent acting on their behalf, has taken any action which might cause this
Agreement or any Loan Papers to violate any regulation of the Board of Governors
or to violate the Exchange Act, in each case as in effect now or as the same may
hereafter be in effect from time to time.
SECTION 4.12. Investment Company Act; Public Utility Holding Company Act.
Neither the Parent, the Borrower nor any of their Subsidiaries is (a) an
"investment company" as defined in, or subject to regulation under, the
Investment Company Act of 1940 or (b) a "holding company" as defined in, or
subject to regulation under, the Public Utility Holding Company Act of 1935.
SECTION 4.13. Use of Proceeds. The Borrower will use the proceeds of the
Loan only to (a) refinance existing Debt of the Parent owed to Bank of America,
(b) make Capital Expenditures consistent with Borrower's business plan and (c)
for other working capital purposes not in violation of Law.
SECTION 4.14. Tax Returns. Each of the Parent, the Borrower and their
Subsidiaries, has filed or caused to be filed all Federal, state, and material
local and foreign tax returns or materials required to have been filed by it and
has paid or caused to be paid all taxes shown as due by it on such return and
all assessments received by it, except taxes that are being contested in good
faith by appropriate proceedings and for which the Parent, the Borrower or such
Subsidiary, as applicable, shall have set aside on its books adequate reserves.
SECTION 4.15. No Material Misstatements. No written information, report,
financial statement, exhibit or schedule prepared by the Parent or the Borrower
and furnished to the Administrative Agent or any Lender in connection with the
negotiation of this Agreement and the other Loan Papers, or included herein or
delivered pursuant hereto taken as a whole contained, contains or will contain
when furnished any material misstatement of fact or omitted, omits or will omit
when furnished to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were, are or will be
made, not misleading.
SECTION 4.16. Employee Benefit Plans. As of the date hereof, neither the
Parent nor the Borrower has any Plan.
SECTION 4.17. Solvency.
(a) Immediately after the making of the Loan and after giving effect to
the application of the proceeds thereof, (i) the fair value of the assets of the
Parent, the Borrower and their Subsidiaries on a consolidated basis, at a fair
valuation, will exceed the debts and liabilities, direct, subordinated,
contingent or otherwise, of the Parent, the Borrower and their Subsidiaries on a
consolidated basis; (ii) the present fair saleable value of the property of the
Parent, the Borrower and their Subsidiaries on a consolidated basis will be
greater than the amount that will be required to pay
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the probable liability of the Parent, the Borrower and their Subsidiaries on a
consolidated basis on their debts and other liabilities, direct, subordinated,
contingent or otherwise, as such debts and other liabilities become absolute and
matured; (iii) the Parent, the Borrower and their Subsidiaries on a consolidated
basis will be able to pay their debts and liabilities, direct, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured; and (iv) the Parent, the Borrower and their Subsidiaries on a
consolidated basis will not have unreasonably small capital with which to
conduct the businesses in which they are engaged as such businesses are now
conducted and are proposed to be conducted following the Closing Date.
(b) The Parent and the Borrower do not intend to, and do not believe that
they or any of their Subsidiaries on a consolidated basis will, incur debts
beyond their ability to pay such debts as they mature, taking into account the
timing and amounts of cash to be received by the Parent, the Borrower or any
such Subsidiary and the timing and amounts of cash to be payable on or in
respect of its Debt for Borrowed Money or the Debt for Borrowed Money of the
Parent, the Borrower or any such Subsidiary.
SECTION 4.18. Insurance. Schedule 4.18 hereto sets forth a true, complete
and correct description of all liability insurance and all other insurance
maintained by or for the Parent, Borrower or for or by their Subsidiaries as of
the Closing Date. As of the Closing Date, such insurance is in full force and
effect and all premiums have been duly paid. To the Parent's and the Borrower's
knowledge, the Parent, Borrower and their Subsidiaries have insurance in such
amounts and covering such risks and liabilities as are in accordance with normal
industry practice. All property insurance of the Parent, the Borrower and their
Subsidiaries names the Administrative Agent on behalf of the Lenders as loss
payee and will continue in that form until the Obligations have been paid in
full.
SECTION 4.19. Environmental Matters.
(a) The properties owned, operated or leased by the Parent, the Borrower
and their Subsidiaries to the knowledge of the Borrower do not contain any
Hazardous Materials in amounts or concentrations which (i) constitute, or
constituted a violation of, or (ii) could reasonably be expected to give rise to
liability under, Environmental Laws, which violations and liabilities, in the
aggregate, could reasonably be expected to result in a Material Adverse Effect;
(b) All Environmental Permits have been obtained and are in effect with
respect to the Properties and operations of the Parent, the Borrower and their
Subsidiaries, and the Properties and all operations of the Parent, the Borrower
and their Subsidiaries, to the knowledge of the Borrower, are in compliance, and
in the last two years, to the knowledge of the Borrower, have been in
compliance, with all Environmental Laws and all necessary Environmental Permits,
except to the extent that such non-compliance or failure to obtain any necessary
permits, in the aggregate, could not reasonably be expected to result in a
Material Adverse Effect;
(c) Neither the Parent, the Borrower nor any of their Subsidiaries has
received any notice of an Environmental Claim in connection with the Properties
or the operations of the Parent, the Borrower or their Subsidiaries or with
regard to any Person whose liabilities for environmental
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matters the Parent, the Borrower or their Subsidiaries has retained or assumed,
in whole or in part, contractually, which, in the aggregate, could reasonably be
expected to result in a Material Adverse Effect, nor do the Parent, the Borrower
or their Subsidiaries have knowledge that any such notice will be received or is
being threatened;
(d) To the knowledge of the Borrower, no Hazardous Materials have been
transported from the Properties, nor have Hazardous Materials been generated,
treated, stored or disposed of at, on or under any of the Properties in a manner
that could reasonably be expected to give rise to liability under any
Environmental Law or which could reasonably be expected to result in a Material
Adverse Effect, nor have the Parent, the Borrower or their Subsidiaries retained
or assumed any liability contractually, with respect to the generation,
treatment, storage or disposal of Hazardous Materials, which transportation,
generation, treatment, storage or disposal, or retained or assumed liabilities,
in the aggregate, could reasonably be expected to result in a Material Adverse
Effect; and
(e) The representations and warranties set forth in this Section 4.19 are
the sole and exclusive representations and warranties being made by the Parent
and the Borrower with respect to environmental matters.
SECTION 4.20. Year 2000 Compliance. The Parent and the Borrower have (i)
undertaken a detailed review and assessment of all areas within its business and
operations that could reasonably be expected to be adversely affected by the
"Year 2000 Problem" (that is, the risk that computer applications used by the
Parent and the Borrower may be unable to recognize and perform properly the
date-sensitive functions before, during and after January 1, 2000), (ii)
developed a detailed plan and timeline for addressing the Year 2000 Problem on a
timely basis, and (iii) to date, implemented that plan in accordance with that
timetable. The Parent and the Borrower reasonably anticipate that all of their
computer applications which are material to their business and operations will
be able to properly perform date-sensitive functions before, during and after
January 1, 2000 (that is, be "Year 2000 Compliant").
ARTICLE V
Conditions of Lending
The obligations of the Lenders to make the revolving Loan available to the
Parent and the Borrower hereunder are subject to the satisfaction of the
following conditions:
SECTION 5.01. Closing Date. On the Closing Date:
(a) The Administrative Agent shall have received, on behalf of itself and
the Lenders, a favorable written opinion of corporate counsel to the Parent, the
Borrower and each of their Subsidiaries, and covering such matters relating to
this Agreement and the Transactions as the Administrative Agent shall reasonably
request, including, without limitation, (i) an opinion regarding the
Transactions being permitted (or consented to) under the material agreements of
the Parent, the Borrower and their Subsidiaries, FCC and PUC licenses, and
otherwise in form and substance reasonably acceptable to the Administrative
Agent and its counsel and (ii) an opinion from
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Borrower's counsel stating that the Material Right-of-Way Agreements executed by
the Parent's and the Borrower's Subsidiaries do not prohibit the sale of 100% of
the Capital Stock of Telergy Operating nor would such sale, in and of itself
result in the termination of any such Material Right-of-Way Agreements or
trigger any buy-out provisions in the Material Right-of-Way Agreements, and the
Borrower hereby request and instruct such counsel to deliver such opinion. The
opinions shall be addressed to the Administrative Agent and the Lenders.
(b) The Administrative Agent shall have received (i) a copy of the
certificate or articles of incorporation or other articles of organization,
including all amendments thereto, of the Parent, the Borrower and each of their
Subsidiaries, certified by a Responsible Officer of the Parent or the Borrower;
(ii) true and complete copy of the by-laws or other organizational documents,
including amendments thereto, of the Parent, the Borrower and each of their
Subsidiaries certified by a Responsible Officer of the Parent and the Borrower,
(iii) a certificate of a Responsible Officer of the Borrower dated as of the
Closing Date certifying (A) that attached thereto is a true and complete copy of
resolutions or other authorizing documents or instruments duly adopted by the
Board of Directors of the Parent, the Borrower and each of their Subsidiaries
authorizing the execution, delivery and performance of this Agreement, the Loan
Papers and the borrowings hereunder, as appropriate, and that such resolutions
have not been modified rescinded or amended and are in full force and effect,
(B) that (x) neither the certificate or articles of incorporation or other
organizational documents of the Parent, the Borrower and each of their
Subsidiaries nor (y) the by-laws or other organizational documents of the
Parent, the Borrower and their Subsidiaries have been amended since the date of
the last amendment delivered to the Administrative Agent and (C) as to the
incumbency and specimen signature of each officer executing this Agreement, each
Loan Paper, or any other document delivered in connection herewith on behalf of
the Parent, the Borrower and each of their Subsidiaries; and (iv) a certificate
of another officer as to the incumbency and specimen signature of the
Responsible Officer executing the certificate pursuant to (iii) above.
(c) The Administrative Agent shall have received a certificate from a
Responsible Officer of the Parent and the Borrower evidencing compliance with
the terms of Section 7.01 hereof, dated the Closing Date, certifying to the fact
that there exists no Default or Event of Default under the terms of this
Agreement, that all representations and warranties contained in Article IV
hereof are true and correct, that Parent has raised no less than $110,000,000 in
contributed cash capital, that no event has occurred that could reasonably be
expected to have a Material Adverse Effect, and consummating the Agreement and
making the Loan hereunder would not cause a Default or Event of Default.
(d) Each Lender and the Administrative Agent shall have entered into a new
fee letter acceptable to the Administrative Agent and the Borrower, and the
Administrative Agent and each Lender shall have received payment in full of all
Fees and other amounts due and payable on or prior to the Closing Date,
including reimbursement or payment of all reasonable out-of-pocket expenses
required to be reimbursed or paid by the Borrower hereunder.
(e) The Borrower shall have delivered duly executed and completed copies
by the Borrower to the Administrative Agent of each of the following documents
and agreements, in form and substance reasonably satisfactory to the
Administrative Agent: (i) this Agreement, (ii) a Fee
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Letter between the Borrower and the Administrative Agent, (iii) a security
agreement executed by the Borrower, granting a security interest in the
Collateral described in Section 2.16 hereof, together with UCC-1 financing
statements in number reasonably acceptable to the Administrative Agent covering
such Collateral, (iv) a security agreement executed by each of Borrower's
Subsidiaries except Telergy Canada, granting a security interest in the
Collateral described in Section 2.16 hereof, together with UCC-1 financing
statements in number acceptable to the Administrative Agent covering such
Collateral, (v) a guaranty of the Obligations executed by the Guarantors, in
form and substance acceptable to the Administrative Agent, (vi) a Compliance
Certificate, (vii) a Borrowing Base Certificate, (viii) a pledge agreement
executed by the Parent pledging 100% of the Capital Stock of its Subsidiaries
together with delivery of stock certificates and related stock powers and UCC-1
financing statements in number acceptable to Administrative Agent covering such
Capital Stock, and (ix) a pledge agreement executed by Telergy Operating
pledging 100% of the Pledged Stock owned by Telergy Operating together with
delivery of stock certificates, if any, and related stock powers and UCC-1
financing statements in number acceptable to Administrative Agent covering such
Pledged Stock. The Borrower shall have delivered Notes to the Administrative
Agent for each of the Lenders hereunder. The Borrower shall have delivered all
other Loan Papers reasonably required by the Administrative Agent in connection
with this Agreement.
(f) All governmental and third party approvals necessary or advisable in
connection with the Transactions and the continuing operations of the Parent,
the Borrower and their Subsidiaries shall have been obtained and be in full
force and effect, and all applicable waiting periods shall have expired without
any action being taken or threatened by any Governmental Authority which would
restrain, prevent or otherwise impose adverse conditions on the Transactions.
(g) No action, suit, litigation or similar proceeding by or before any
Governmental Authority shall exist or, in the case of litigation by a
Governmental Authority, be threatened, with respect to the Transactions
contemplated thereby or otherwise, which could reasonably be expected to have a
Material Adverse Effect.
(h) The Administrative Agent shall have received from a Responsible
Officer of the Parent and the Borrower, in form and substance reasonably
satisfactory to the Administrative Agent, a certificate certifying the solvency
of the Parent, the Borrower and their Subsidiaries on a consolidated basis.
(i) The Parent, the Borrower and their Subsidiaries shall have received
all required regulatory approvals, including PUC approvals in connection with
this Agreement.
SECTION 5.02. Conditions Precedent to All Advances and Letters of Credit.
The obligation of each Lender to make each Advance or to issue any Letter of
Credit hereunder shall be subject to the further conditions precedent that on
the date of such Advance or issuance:
(a) All of the representations and warranties of the Parent and the
Borrower under this Agreement shall be true and correct at such time in all
material respects, both before and after giving effect to the application of the
proceeds of the Advance or the use of such Letter of Credit, except those
representations and warranties that speak only as of a particular date or time;
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(b) The incumbency of the Responsible Officers shall be as stated in the
certificate of incumbency delivered in the Parent's and the Borrower's loan
certificate pursuant to Section 5.01(b) or as subsequently modified and
reflected in a certificate of incumbency delivered to the Administrative Agent.
The Lenders may, without waiving this condition, consider it fulfilled and a
representation by the Borrower made to such effect if no written notice to the
contrary, dated on or before the date of such Advance or issuance, is received
by the Administrative Agent from the Borrower prior to the making of such
Advance or issuance;
(c) There shall not exist a Default hereunder or an Event of Default
hereunder and none shall exist as a result of making any such Advance or
issuance, and the Administrative Agent shall have received written or telephonic
certification thereof by a Responsible Officer (which certification, if
telephonic, shall be followed promptly by written certification);
(d) There shall have occurred no Material Adverse Effect since December
31, 1998;
(e) (i) The aggregate outstanding Advances, after giving effect to any
such proposed Advance, plus (ii) the undrawn face amount of all outstanding
Letters of Credit, plus (iii) reimbursement obligations under Article III
hereof, shall not exceed the Available Commitment; and
(f) The Administrative Agent shall have received a duly executed and
completed Compliance Certificate and Borrowing Base Certificate evidencing no
Default or Event of Default.
ARTICLE VI
Affirmative Covenants
The Borrower covenants and agrees with each Lender that so long as this
Agreement shall remain in effect and until the Obligations shall have been paid
in full and the Commitment has been reduced to zero and terminated, the Borrower
will, and will cause the Parent and their Subsidiaries to:
SECTION 6.01. Existence; Businesses and Properties.
(a) Do or cause to be done all things necessary to preserve, renew and
keep in full force and effect its legal existence, except as otherwise expressly
permitted under Section 7.10 hereof.
(b) Do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names in
each case material to the conduct of its business; and at all times maintain and
preserve all property material to the conduct of such business and keep such
property in reasonably good repair, working order and condition, taken as a
whole, and from time to time make, or cause to be made, all needful and proper
repairs, renewals, additions, improvements and replacements thereto necessary in
order that the business carried on in connection therewith may be properly
conducted at all times.
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(c) Comply in all material respects with all applicable Laws, whether now
in effect or hereafter enacted, except where the failure to do any of the
foregoing could not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect.
SECTION 6.02. Insurance. Keep its insurable properties insured in
accordance with customary and usual industry standards at all times by
financially sound and reputable insurers; maintain such other insurance, to such
extent and against such risks, including (a) fire and other risks insured
against by extended coverage, as is customary with companies in the same or
similar businesses operating in the same or similar locations and (b) public
liability insurance against claims for personal injury or death or property
damage occurring upon, in, about or in connection with the use of any properties
owned, occupied or controlled by it; and maintain such other insurance as may be
required by Law.
SECTION 6.03. Obligations and Taxes. Pay and discharge promptly when due
all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits or in respect of its property before the date on
which penalties attach thereto, as well as all material lawful claims for labor,
materials and supplies or otherwise that, if unpaid, might give rise to a Lien
upon such properties or any part thereof; provided, however, that such payment
and discharge shall not be required with respect to any such tax, assessment,
charge, levy or claim so long as the validity or amount thereof shall be
contested in good faith by appropriate proceedings and the Borrower shall have
set aside on its books adequate reserves with respect thereto in accordance with
GAAP.
SECTION 6.04. Financial Statements, Reports, etc. In the case of the
Parent, the Borrower and their Subsidiaries, furnish to the Administrative
Agent:
(a) within 120 days after the end of fiscal year 1999, and within 90 days
after the end of each fiscal year thereafter, its consolidated balance sheet and
related consolidated statements of income and cash flow, showing the financial
condition of the Parent, the Borrower and their consolidated Subsidiaries as of
the close of such fiscal year and the results of their operations during such
year, and a comparison of such financial position and results of operations as
of the corresponding date and for the previous fiscal year and pro forma
financial projections for the next fiscal year, and audited (in the case of the
consolidated financial statements) by Auditor, and accompanied by an opinion of
such Auditor (which shall not be qualified in any material respect) to the
effect that such consolidated financial statements fairly present in all
material respects the financial condition and results of operations of the
Parent, the Borrower and their consolidated Subsidiaries on a consolidated basis
in accordance with GAAP consistently applied;
(b) within 60 days after the end of each fiscal quarter through September
30, 2000, and within 45 days after the end of each of the first three fiscal
quarters of each fiscal year thereafter, a consolidated balance sheet and
related consolidated statements of earnings and cash flow showing the financial
condition of the Parent, the Borrower and their consolidated Subsidiaries as of
the close of such fiscal quarter and the results of their operations during such
fiscal quarter and the then elapsed portion of the fiscal year, and a comparison
of such financial position and results of operations as of the corresponding
date and for the corresponding periods in the previous fiscal year, all
certified by one of its Responsible Officers as fairly presenting in all
material respects the
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financial condition and results of operations of the Parent, the Borrower and
their consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments;
(c) (i) concurrently with any delivery of financial statements under
sub-paragraph (a) above, a certificate certifying that no Event of Default has
occurred in Section 7.01 hereof, or if a Default or an Event of Default exists,
specifying the nature and extent thereof and the corrective action taken or
proposed to be taken with respect thereto; and (ii) concurrently with any
delivery of financial statements under sub-paragraph (a) or (b) above, a
Compliance Certificate and Borrowing Base Certificate of a Responsible Officer
of the Borrower;
(d) promptly, from time to time, such other information regarding the
operations, business affairs and financial condition of the Parent, the Borrower
or any of their Subsidiaries, or compliance with the terms of this Agreement and
the other Loan Papers, as the Administrative Agent or any Lender may reasonably
request; and
(e) within 15 calendar days of the end of each month, monthly summaries
for such month with respect to (i) Capital Expenditures, (ii) fiber sales and
(iii) network buildout progress, and after December 31, 2000, such other monthly
reports within 15 calendar days of the end of each month as may be reasonably
requested by the Administrative Agent or at the reasonable direction of Majority
Lenders and may be reasonably produced on such basis by the Borrower as a result
of the implementation of Borrower's new accounting software system.
SECTION 6.05. Litigation and Other Notices. Furnish to the Administrative
Agent promptly upon knowledge by any Responsible Officer of the Parent, the
Borrower or any of their Subsidiaries, written notice of the following:
(a) any Event of Default or Default, specifying the nature and extent
thereof and the corrective action (if any) taken or proposed to be taken with
respect thereto;
(b) the (i) filing or commencement of, or any written threat or notice of
intention of any Person to file or commence, any action, suit or proceeding,
whether at Law or in equity or by or before any Governmental Authority, or (ii)
the making of any written claim, in either case against the Parent, the
Borrower, any Affiliate of the Parent or the Borrower, as to which in each case
if adversely determined, could reasonably be expected to result in a Material
Adverse Effect; and
(c) any breach of a contract by the Parent, the Borrower or any of their
Subsidiaries that could reasonably be expected to result in a Material Adverse
Effect.
SECTION 6.06. Employee Benefits. If the Parent, the Borrower or any of
their Subsidiaries establishes any Plan, the Parent, the Borrower or such
Subsidiary will (a) comply in all material respects with the applicable
provisions of ERISA and the Code and (b) furnish to the Administrative Agent (i)
as soon as possible after, and in any event within 10 days after any Responsible
Officer of the Parent, the Borrower or any ERISA Affiliate knows or has reason
to know that, any ERISA Event has occurred that, alone or together with any
other ERISA Event could
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reasonably be expected to result in liability of the Parent, the Borrower or any
of their Subsidiaries in an aggregate amount exceeding $1,000,000, a statement
of a Responsible Officer of the Borrower setting forth details as to such ERISA
Event and the action, if any, that the Borrower proposes to take with respect
thereto.
SECTION 6.07. Maintaining Records; Access to Properties and Inspections.
Keep proper books of record and account in which full, true and correct entries
in conformity with GAAP and all requirements of Law are made of all dealings and
transactions in relation to its business and activities. The Borrower will, and
will cause the Parent and each of their Subsidiaries to, permit any
representatives designated by the Administrative Agent or any Lender, upon
reasonable notice, to visit and inspect the financial records and the properties
of the Parent, the Borrower or any of their Subsidiaries at reasonable times and
as often as reasonably requested and to make extracts from and copies of such
financial records, and permit any representatives designated by the
Administrative Agent or any Lender to discuss the affairs, finances and
condition of the Parent, the Borrower or any of their Subsidiaries with the
officers thereof and (with the concurrence of the Administrative Agent, and, so
long as no Default or Event of Default is existing, the Borrower, whose consent
will not be unreasonably withheld) independent accountants therefor (provided
that the Borrower has the right to have a representative present for any meeting
with the Borrower's independent accountants).
SECTION 6.08. Use of Proceeds. Use the Loan proceeds as allowed in Section
4.13 hereof.
SECTION 6.09. Compliance with Environmental Laws.
(a) Comply, and exercise commercially reasonable efforts to cause all
lessees and other Persons occupying its Properties to comply, in all material
respects with all Environmental Laws and Environmental Permits applicable to its
operations and Properties; and obtain and renew all material Environmental
Permits necessary for its operations and Properties; and conduct any Remedial
Action to the extent required by and in accordance with Environmental Laws;
provided, however, that none of the Parent, the Borrower or any of their
Subsidiaries shall be required to undertake any Remedial Action to the extent
that its obligation to do so is being contested in good faith and by proper
proceedings and appropriate reserves are being maintained with respect to such
circumstances.
(b) If a Default caused by reason of a breach of paragraph (a) above or
Section 4.19 hereof shall have occurred and be continuing, at the request of the
Majority Lenders through the Administrative Agent, provide to the Lenders within
45 days after such request, at the expense of the Borrower, a "Phase 1"
environmental site assessment report for the Properties which are the subject of
such default prepared by an environmental consulting firm reasonably acceptable
to the Administrative Agent and indicating the presence or absence of Hazardous
Materials and the estimated cost of any compliance or Remedial Action in
connection with such Properties.
SECTION 6.10. Year 2000 Compliance. The Borrower will promptly notify the
Administrative Agent in the event that the Borrower (i) discovers or determines
that any computer applications material to its business operations will not, on
a timely basis, be Year 2000 Compliant, or (ii) receives notice from any vendor
or supplier that such vendor or supplier will not, on a timely
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<PAGE> 59
basis, be Year 2000 Compliant, except, in each case, to the extent that such
occurrence could not be reasonably expected to have a Material Adverse Effect.
SECTION 6.11. Survival of Representations and Warranties, etc. All
representations and warranties made under this Agreement and the other Loan
Papers shall be deemed to be made at and as of the Closing Date and at and as of
the date of the making of each subsequent Advance, and each shall be true and
correct in all material respects when made. All representations and warranties
made under this Agreement and the other Loan Papers shall survive until final
payment in full of the Obligations, and not be waived by, the execution hereof
by the Administrative Agent and the Lenders, any investigation or inquiry by the
Administrative Agent or any Lender, or by the making of any Loan under this
Agreement and the other Loan Papers.
ARTICLE VII
Negative Covenants
The Borrower covenants and agrees with each Lender that, so long as this
Agreement shall remain in effect and until the Obligations have been paid in
full and the Commitment has been reduced to zero and terminated:
SECTION 7.01. Financial Covenants of the Borrower.
(a) Minimum Revenues and EBITDA. The Borrower will not permit
(i) Revenues for any fiscal quarter to be less than the amount
set forth below for such fiscal quarter:
Fiscal Quarter Ending Minimum Revenue
--------------------- ---------------
[S] [C]
December 31, 1999 [***]
March 31, 2000 [***]
June 30, 2000 [***]
September 30, 2000 [***]
December 31, 2000 [***]
March 31, 2001 [***]
June 30, 2001 [***]
September 30, 2001 [***]
54
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material
omitted on this page. The omitted portions have been filed separately
with the Securities and Exchange Commission.
<PAGE> 60
December 31, 2001 [***]
March 31, 2002 [***]
June 30, 2002 [***]
September 30, 2002 [***]
December 31, 2002 [***]
(ii) actual EBITDA for any fiscal quarter to be less than
EBITDA as set forth below for such fiscal quarter:
Fiscal Quarter Ending EBITDA
--------------------- ------
December 31, 1999 [***]
March 31, 2000 [***]
June 30, 2000 [***]
September 30, 2000 [***]
December 31, 2000 [***]
March 31, 200 [***]
June 30, 2001 [***]
September 30, 2001 [***]
December 31, 2001 [***]
March 31, 2002 [***]
June 30, 2002 [***]
September 30, 2002 [***]
December 31, 2002 [***]
(b) Completion of Fiber. The Borrower will not permit the actual
completed and operational route miles or fiber miles to be less than the
number of completed and operational route fiber miles set forth below
opposite such date:
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material
omitted on this page. The omitted portions have been filed separately
with the Securities and Exchange Commission.
55
<PAGE> 61
Fiscal Quarter Ending Route Miles Fiber Miles
--------------------- ----------- -----------
[S] [C] [C]
December 31, 1999 [***] [***]
March 31, 2000 [***] [***]
June 30, 2000 [***] [***]
September 30, 2000 [***] [***]
December 31, 2000 [***] [***]
March 31, 2001 [***] [***]
June 30, 2001 [***] [***]
September 30, 2001 [***] [***]
December 31, 2001 [***] [***]
March 31, 2002 [***] [***]
June 30, 2002 [***] [***]
September 30, 2002 [***] [***]
December 31, 2002 [***] [***]
(c) Capital Expenditures. The Borrower shall not permit Capital
Expenditures made by the Parent, the Borrower and their Subsidiaries for
each fiscal year of the Borrower to exceed the amount set forth below for
each fiscal year; provided, that (i) to the extent that less than such
amount was used by the Borrower for Capital Expenditures for any fiscal
year (before giving effect to any increase therein pursuant to this
proviso), the Parent, the Borrower or their Subsidiaries may increase the
limitation on Capital Expenditures for the succeeding year by the amount
of such unused amount and (ii) to the extent that the Parent issues
Capital Stock after the Closing Date, the amount of net proceeds from such
Capital Stock issuance that is not required to be used to prepay
Obligations or reduce the Commitment under this Agreement in accordance
with the terms of Section 2.06(b) hereof may be used by the Parent, the
Borrower or their Wholly-Owned Subsidiaries or Telergy Central for Capital
Expenditures in excess of the limitations set forth below over the term of
this Agreement.
CONFIDENTIAL.
[***] Confidential treatment has been requested with respect to material
omitted on this page. The omitted portions have been filed
separately with the Securities and Exchange Commission.
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Fiscal Year Amount
----------- ------
1999 [***]
2000 [***]
2001 [***]
2002 [***]
(d) Cash Dark Fiber Sales. The Borrower shall not permit cumulative
Cash Dark Fiber Sales made by the Parent, the Borrower and their
Subsidiaries to be less than the amount set forth below for any period on
a cumulative basis:
Period Ending Minimum Cumulative Cash Dark Fiber Sales
------------- ----------------------------------------
[S] [C]
June 30, 2000 [***]
December 31, 2000 [***]
June 30, 2001 [***]
December 31, 2001 [***]
June 30, 2002 [***]
December 31, 2002 [***]
SECTION 7.02. Debt for Borrowed Money. The Borrower will not, and will not
cause or permit the Parent or any of their Subsidiaries or Telergy East to,
issue any Preferred Stock, or to issue, incur, create, assume or permit to exist
any Debt for Borrowed Money, except:
(a) Debt for Borrowed Money of the Parent, the Borrower and their
Subsidiaries existing on the date hereof and set forth in Schedule 7.02 hereto;
(b) Debt for Borrowed Money of any Subsidiary (other than Telergy Canada)
owed to the Parent, the Borrower or to another Wholly-Owned Subsidiary of the
Borrower (other than Telergy Canada) or Telergy Central;
(c) so long as there exists no Default or Event of Default both
immediately before and after immediately giving effect to the incurrence of such
Debt for Borrowed Money, the Parent, Borrower or Network Services may incur Debt
for Borrowed Money in connection with the terms and conditions of the Nortel
Credit Line and the GATX Lease Agreement;
(d) so long as there exists no Default or Event of Default both
immediately before and after giving effect thereto, in a form reasonably
acceptable to Administrative Agent, Debt for Borrowed Money in respect to
Interest Hedge Agreements;
57
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
on this page. The omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE> 63
(e) so long as there exists no Default or Event of Default both
immediately before and immediately after giving effect to the incurrence
thereof, the Parent, the Borrower and their Subsidiaries may incur purchase
money indebtedness, Capital Leases or other secured and/or unsecured
indebtedness for the purpose of providing financing in connection with the
purchase of any real property or other assets, or for any other purpose, in the
maximum amount not to exceed $1,500,000 at any one time outstanding;
(f) so long as there exists no Default or Event of Default both
immediately before and immediately after giving effect to the incurrence
thereof, the Parent or the Borrower may incur additional Debt for Borrowed Money
to M&T Bank in accordance with the credit line of the Parent or the Borrower,
all such indebtedness owing to M&T Bank shall be in a maximum amount outstanding
at any time not in excess of $800,000;
(g) so long as there exists no Default or Event of Default both
immediately before and immediately after giving effect to the incurrence
thereof, Debt for Borrowed Money of the Parent, the Borrower or any of their
Subsidiaries in respect of Permitted Refinancing Indebtedness;
(h) so long as there exists no Default or Event of Default both
immediately before and immediately after giving effect to the incurrence
thereof, Guarantees by the Parent, the Borrower or their Subsidiaries of Debt
for Borrowed Money permitted to be incurred by this Agreement of the Parent, the
Borrower or their Subsidiaries;
(i) so long as there exists no Default or Event of Default both
immediately before and immediately after giving effect to the incurrence
thereof, Debt for Borrowed Money permitted to be incurred by this Agreement of
the Parent, the Borrower or their Subsidiaries in respect of bids, performance
bonds, completion guarantees and surety and appeal bonds each of which is
incurred in the ordinary course of business; and
(j) so long as there exists no Default or Event of Default both
immediately before and after immediately giving effect thereto, the Parent may
make payments in kind with respect to dividends on the Global Preferred Stock.
SECTION 7.03. Liens. The Borrower will not, and will not cause or permit
the Parent or any of their Subsidiaries, or Telergy East (with respect to its
Capital Stock) to, create, incur, assume or permit to exist any Lien on any of
its property or assets (including on the stock or other securities of any
Person, including the Parent or any Subsidiary of the Parent) now owned or
hereafter acquired by it or them or on any income or revenues or rights in
respect of any thereof, except Permitted Liens and Liens securing Debt for
Borrowed Money permitted to be incurred by the Parent, Borrower and/or their
Subsidiaries, as applicable, under (a) Section 7.02(b) hereof, (b) Section
7.02(c) hereof, but only Liens on such assets that were acquired with the
proceeds of such Debt for Borrowed Money, (c) Section 7.02(d) to the extent such
Lien is in favor of any Lender hereunder, (d) Section 7.02(e) hereof, but only
Liens on such assets that were acquired with the proceeds of such Debt for
Borrowed Money and (e) Section 7.02(f) hereof, but limited to Liens for accounts
receivable no greater than $800,000. The Borrower shall not and shall not permit
the Parent or any of their Subsidiaries to enter into any agreement which
prohibits or limits the ability
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of the Parent, Borrower or their Subsidiaries to create, incur, assume or suffer
to exist any Lien upon any of its assets, whether now owned or hereafter
acquired, other than (a) under Applicable Law, (b) customary non-assignment
provisions in any lease or other contract entered into by the Parent, the
Borrower or any of their Subsidiaries, and (c) any Permitted Lien or other Lien
permitted by this Section 7.03, provided that, in the case of this subsection
(c) any such restriction contained therein must relate only to the asset or
assets subject to such Permitted Lien or other Lien permitted by this Section
7.03.
SECTION 7.04. Sale and Lease Back Transactions. The Borrower will not, and
will not cause or permit the Parent or any of their Subsidiaries to, enter into
any arrangement, directly or indirectly, with any Person whereby it shall sell
or transfer any property, real or personal, used or useful in its business,
whether now owned or hereafter acquired, and thereafter rent or lease such
property or other property which it intends to use for substantially the same
purpose or purposes as the property being sold or transferred except for sales
and leases of assets pursuant to the GATX Lease Agreement.
SECTION 7.05. Investments, Acquisitions, Loans and Advances. The Borrower
will not, and will not cause or permit the Parent or any of their Subsidiaries
to, purchase, hold or acquire any Capital Stock, evidences of Debt for Borrowed
Money (other than restructured receivables) or other securities of, make or
permit to exist any loans or advances to, or any Guarantee of the obligations
of, or make or permit to exist any investment or acquire any other debt or
equity interest in, any other entity, or make any acquisition of assets of any
other Person as a going concern, or create any Subsidiary (other than a Wholly
Owned Subsidiary for which (i) 100% of its Capital Stock is pledged to secure
the Obligations, (ii) that has executed an unlimited Guaranty of the Obligations
and (iii) has executed a security agreement pledging 100% of its assets to
secure the Obligations)(each, an "Investment", provided that such term shall
expressly exclude any accounts receivable of the Parent, Borrower and their
Subsidiaries incurred in the ordinary course of business), except:
(a) Investments existing on the date hereof in the Capital Stock of the
Subsidiaries of the Parent and the Borrower and other Investments as set forth
on Schedule 7.05 hereto;
(b) Permitted Investments;
(c) So long as there exists no Default or Event of Default both
immediately before and immediately after making any such Investment, Investments
constituting loans or advances or capital contributions by the Parent, the
Borrower or their Wholly-Owned Subsidiaries and Telergy Central to or in any
Wholly-Owned Subsidiary of the Parent, the Borrower or Telergy Central (other
than Telergy Canada) so long as (i) the Capital Stock of any Wholly Owned
Subsidiary has been pledged to secure the Obligations, (ii) such Wholly Owned
Subsidiary has executed a security agreement pledging all such Subsidiary's
assets (other than Excluded Assets) to secure the Obligations, (iii) any such
loans or advances are not subordinated to any other Debt for Borrowed Money or
other obligations of such borrowing Subsidiary and rank pari passu with all Debt
for Borrowed Money of such Subsidiary; and (iv) such Subsidiary has executed a
guaranty of the Obligations hereunder or become a co-maker of the Note;
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(d) So long as there exists no Default or Event of Default both
immediately before and immediately after making any such Investment, additional
Investments in Telergy East of up to $4,000,000 in the aggregate during the term
of this Agreement; and
(e) Investments consisting of loans or advances by the Parent, the
Borrower or any of their Subsidiaries to employees or directors of the Parent,
Borrower or their Subsidiaries, provided that in each case, such loans or
advances are made in the ordinary course of business and in accordance with the
past practices of the Parent, the Borrower or such Subsidiary, and in any case,
not in excess of $2,000,000 outstanding at any one time, excluding with respect
to the calculation of such amount, loans to purchase the Capital Stock of the
Parent under the Stock Plan.
SECTION 7.06. Mergers, Consolidations and Sales of Assets. The Borrower
will not, and will not cause or permit the Parent or any of their Subsidiaries
to:
(a) merge into or consolidate with any Person, or permit any other
Person to merge into or consolidate with it, provided that, if there
exists no Default or Event of Default both immediately before or
immediately after giving effect thereto (i) any Subsidiary of the Borrower
may merge into the Borrower in a transaction in which the Borrower is the
surviving corporation, (ii) any Wholly Owned Subsidiary of the Borrower
may merge into or consolidate with any other Wholly Owned Subsidiary of
the Borrower in a transaction in which the surviving entity is a Wholly
Owned Subsidiary of the Borrower and no Person other than the Borrower or
a Wholly Owned Subsidiary of the Borrower receives any consideration,
(iii) the Parent may merge into a Wholly Owned Subsidiary of the Parent
solely for purposes of reincorporating the Parent in Delaware (a "Parent
Merger") in accordance with the merger documents submitted on the Closing
Date in substantially the form attached to an officer's certificate
accompanying such documents; (iv) Telergy Central may complete the
conversion transaction as contemplated and pursuant to the terms of the
Conversion Rights Agreement (the "Telergy Central Conversion"), provided
that, (A) the Borrower provides the Administrative Agent with no less than
10 calendar days, notice of the Telergy Central Conversion, (B) upon the
consummation of the Telergy Central Conversion, 100% of the Capital Stock
of Telergy Central is pledged to secure the Obligations, and (C) upon the
consummation of the Telergy Central Conversion, 100% of the Telergy
Central's assets (other than Excluded Assets) are pledged to secure the
Obligations, and (v) Telergy Canada may merge with any other Subsidiary in
a transaction where a non-Controlling amount of the Capital Stock of the
surviving entity may be owned by another Person to the extent required by
the Laws of Canada (any such transaction being hereinafter referred to as
a "Telergy Canada Reorganization"); or
(b) sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) all or any portion of their
assets (whether now owned or hereafter acquired), or any amount of Capital
Stock of any Subsidiary of the Parent, or consummate any other Asset
Disposition or Fiber Disposition (provided that, issuances of Capital
Stock by the Parent in accordance with the terms of Section 7.11 hereof
shall not be prohibited by this Section 7.06), except that (i) the Parent,
the Borrower and any of their Subsidiaries may sell or dispose of
inventory and obsolete equipment in the ordinary course of business, (ii)
the
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<PAGE> 66
Parent, the Borrower or any of their Subsidiaries may sell, lease or
otherwise dispose of assets to any Wholly Owned Subsidiary (or Telergy
Central) of the Parent for which (A) 100% of the Capital Stock of such
Subsidiary is pledged to secure the Obligations, (B) such Wholly Owned
Subsidiary has pledged its assets (other than Excluded Assets) to secure
the Obligations, and (C) such Wholly Owned Subsidiary has executed a
Guaranty of the Obligations to the extent required by the terms of this
Agreement, and (iii) the Borrower or any of its Subsidiaries may
consummate Fiber Dispositions not prohibited by the terms of Section 7.15
hereof, and (iv) in addition to dispositions permitted by (i), (ii) and
(iii) above, the Parent, the Borrower or any of their Subsidiaries may
consummate Asset Dispositions in an amount in the aggregate over the term
of this Agreement not to exceed $1,000,000.
SECTION 7.07. Restricted Payments. The Borrower will not, and will not
cause or permit the Parent or any of their Subsidiaries to, make any Restricted
Payment, provided, however, that
(a) any Subsidiary of the Borrower may declare and pay dividends or
make other distributions, or repay loans and advances, to a Wholly Owned
Subsidiary of the Borrower (other than Telergy Canada) or to Telergy
Central,
(b) so long as there exists no Default or Event of Default both
immediately before and immediately after giving effect thereto, the
Parent, the Borrower or their Subsidiaries may make payments of interest
only in accordance with the terms of the Nortel Credit Line and all other
Debt for Borrowed Money described on Schedule 7.02 hereof,
(c) the Parent, the Borrower or their Subsidiaries may make payments
of interest and principal amounts to the M&T Bank on the amount the Parent
is permitted to borrow under Section 7.02(f) hereof,
(d) so long as there exists no Default or Event of Default both
immediately before and immediately after giving effect thereto, Telergy
Central may make payments to its members under the Telergy Central
Operating Agreement for the payment of income taxes,
(e) so long as there exists no Default or Event of Default both
immediately before and immediately after giving effect thereto, the
Parent, the Borrower or their Subsidiaries may, from time to time, make
payments pursuant to and in accordance with the GATX Lease Agreement,
(f) so long as there exists no Default or Event of Default both
immediately before and immediately after giving effect thereto, the
Parent, the Borrower or their Subsidiaries may make scheduled in kind
dividend payments of the Global Preferred Stock and dividends in-kind on
the Special Common Stock,
(g) the Parent, the Borrower and their Subsidiaries may enter into
any transactions specifically permitted by Sections 7.08 and 7.10 hereof,
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(h) so long as there exists no Default or Event of Default both
immediately before and immediately after giving effect thereto, the
Parent, the Borrower or their Subsidiaries may repay the principal amount
of (i) indebtedness listed on Part B of Schedule 7.02 hereto scheduled to
be repaid in accordance with the terms of the agreements relating thereto
as they exist on the Closing Date and (ii) indebtedness scheduled to be
repaid in accordance with the terms of any agreements relating to Debt for
Borrowed Money permitted to be incurred under Section 7.02(d) or Section
7.02(e) hereof; and (iii) Debt for Borrowed Money scheduled to be repaid
in accordance with the Nortel Credit Line;
(i) so long as there exists no Default or Event of Default both
immediately before and immediately after giving effect thereto, the
Borrower may declare and pay dividends to the Parent in connection with
Debt for Borrowed Money of the Parent permitted under the terms of this
Agreement and ordinary course of business operating expenses; and
(j) the Parent, the Borrower and their Subsidiaries may repay the
Nortel Note with the proceeds of this Loan.
SECTION 7.08. Transactions with Affiliates. Except as permitted in Section
7.06 hereof, Section 7.12 hereof or in connection with any transaction described
on Schedule 7.08 hereof, the Borrower will not, and will not cause or permit the
Parent or any of their Subsidiaries to, sell or transfer any property or assets
to, or purchase or acquire any property or assets from, or otherwise engage in
any other transactions with, or permit any Subsidiary of the Borrower or the
Parent to sell or transfer any property or assets to, or purchase or acquire any
property or assets from, or otherwise engage in any other transactions with any
of its Affiliates, except that the Parent, the Borrower and their Subsidiaries
(other than Telergy Canada) may engage in any of the foregoing transactions in
the ordinary course of business as currently conducted or to be conducted at
prices and on terms and conditions not less favorable to the Parent, the
Borrower or such Subsidiary than could be obtained on an arm's length basis from
unrelated third parties.
SECTION 7.09. Limitation on Restrictive Agreements. The Borrower will not,
and will not cause or permit the Parent or any of their Subsidiaries to, enter
into after the date hereof any indenture, agreement, instrument, financing
document or other arrangement which, directly or indirectly, prohibits or
restrains, or has the effect of prohibiting or restraining, or imposes
materially adverse conditions upon the amendment of, the restatement or
substitution of, or the acceptance of any consent or waiver with respect to, or
any similar restriction, with respect to this Agreement or any of the other Loan
Papers.
SECTION 7.10. Amendments to Organizational Documents and Material
Agreements. The Borrower will not, and will not cause or permit the Parent or
any of their Subsidiaries to, enter into any amendment of any term or provision,
or accept any consent or waiver with respect to any such provision, of (a) its
articles of incorporation, by-laws, the Operating Agreement or its
organizational documents, as applicable, in a manner that adversely affects the
interests of the Lenders; provided, that, (i) Telergy Canada may amend its
articles of incorporation and by-laws to the extent necessary to consummate any
Telergy Canada Reorganization, (ii) Telergy Central may amend any of its
organizational documents to the extent necessary to consummate the Telergy
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Central Conversion, and (iii) the Parent may amend its articles of incorporation
or by-laws to the extent necessary to complete the Parent Merger or to increase
the outstanding shares of its Capital Stock or to effect a common Capital Stock
split, (b) any document evidencing Debt for Borrowed Money of the Parent, the
Borrower or their Subsidiaries in existence on the date hereof, (c) documents
and instruments evidencing indebtedness owed to M&T Bank, (d) the documents and
agreements evidencing Debt for Borrowed Money executed in connection with the
Nortel Credit Line, (e) the documents and agreements evidencing Debt for
Borrowed Money executed in connection with the GATX Lease Agreement, (f) the
documents and agreements evidencing Debt for Borrowed Money executed in
connection with any Interest Hedge Agreements, (g) the documents and agreements
evidencing Debt for Borrowed Money permitted by Section 7.02(e) hereof, (h) the
documents and agreements evidencing Debt for Borrowed Money executed in
connection with Permitted Refinancing Indebtedness, (i) any agreement, document
or instrument related to, or executed or delivered in connection with, any
equity interest or Capital Stock of the Parent, the Borrower or their
Subsidiaries in a manner that is adverse to the interests of the Lenders and (j)
any Right of Way Agreement.
SECTION 7.11. Issuances of Capital Stock. The Borrower shall not, and
shall not permit the Parent or any of their Subsidiaries to (a) make or permit
any transfer, assignment, distribution, mortgage, pledge or gift of any shares
of Capital Stock of the Parent, the Borrower or their Subsidiaries, except to
another Wholly Owned Subsidiary of the Parent or the Borrower and (b) issue any
Capital Stock or grant any Stock Rights, except: (i) the Parent may issue Class
A Capital Stock of the Parent in accordance with the terms of the Stock Rights
in existence on the Closing Date and described on Schedule 7.11, (ii) so long as
there exists no Default or Event of Default both immediately before and
immediately after giving effect thereto, issuances by the Parent of its Class A
Capital Stock in connection with the Private Offering, so long as such issuance
does not cause a Change in Control, (iii) so long as here exists no Default or
Event of Default both immediately before and immediately after giving effect
thereto, Class A Capital Stock of the Parent issued pursuant to the Stock Plan,
so long as such issuance does not cause a Change in Control, and (iv) so long as
there exists no Default or Event of Default both immediately before and after
giving effect thereto, payments in kind with respect to dividends on the Global
Preferred Stock or the Special Common Stock.
SECTION 7.12. Subsidiaries of the Borrower that are not Wholly Owned
Subsidiaries. The Borrower shall not, and shall not permit the Parent or any of
their Subsidiaries to, contribute any equity, make any loan, advance or other
investment in, or otherwise conduct any business with, (i) any Subsidiary of the
Borrower that is not a Wholly Owned Subsidiary (other than Telergy Central) or
is not a co-maker of the Note or (ii) a non-Wholly Owned Subsidiary of the
Parent which (A) has not executed a security agreement pledging all such
Subsidiary's assets as security for the Obligations of this Agreement, (B) for
which the Borrower or the Parent has not executed a pledge agreement pledging
100% of the Capital Stock of such Subsidiary owned by the Borrower or the
Parent, and (C) which has not executed an unlimited Guaranty of the Obligations
to the extent required by the terms of this Agreement.
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SECTION 7.13. ERISA. The Borrower shall not, and shall not permit the
Parent or any of their Subsidiaries to, establish any Plan during the term of
this Agreement, except for a 401(k) savings plan.
SECTION 7.14. Right-Of-Ways. The Borrower shall not, and shall not permit
any of the Subsidiaries of the Parent or Telergy East to encumber any
Right-of-Way for the purpose of incurring or securing after the Closing Date any
Debt for Borrowed Money (except those related to the acquisition of such
Right-of-Way and provided such encumbrances related only to the Right-of-Way so
acquired).
SECTION 7.15. Fiber Dispositions. The Borrower shall not, and shall not
permit the Parent or any of their Subsidiaries to, consummate any Fiber
Disposition, provided that, the Parent, the Borrower or their Subsidiaries may
consummate Fiber Dispositions so long as, in each case (a) there exists no
Default or Event of Default at the time such Fiber Disposition is made, (b) such
Fiber Disposition would not result in the Parent, the Borrower and their
Subsidiaries having the cumulative indefeasible right to use the
telecommunications capacity on less than (i) 25% of the aggregate optical fibers
within the Phase I optical fiber routes identified in Schedule 7.15 hereto to
which the IRU or other interest subject to the Fiber Disposition is granted or
(ii) 10% of the optical fibers within any one of the Phase I optical fiber
routes identified in Schedule 7.15 hereto to which the IRU or other interest
subject to the Fiber Disposition is granted, except the Buffalo, New York to
Syracuse, New York route and the Syracuse New York to Albany, New York route,
which may be reduced to no less than 5% of the optical fiber within such fiber
route and (c) the Board of Directors has determined in good faith that the
disposition of the fiber capacity involved in such Fiber Disposition would not
cause a shortage of fiber capacity to the Parent, the Borrower or any of their
Subsidiaries which would interfere with (i) the Parent's, the Borrower's or any
of their Subsidiaries' ability to continue providing telecommunications services
at the then current level; or (ii) the Parent's, the Borrower's or any of their
Subsidiaries' business plan.
ARTICLE VIII
Events of Default
SECTION 8.01. Events of Default. Any one or more of the following shall be
an "Event of Default" hereunder, if the same shall occur for any reason
whatsoever, whether voluntary or involuntary, by operation of Law or otherwise:
(a) default shall be made in the payment of any principal of the Loan when
and as the same shall become due and payable, whether at the due date thereof or
at a date fixed for prepayment thereof or by acceleration thereof or otherwise;
(b) default shall be made in the payment of any interest on the Loan or
any Fee or any other amount (other than an amount referred to in (a) above) due
under this Agreement or any other Loan Paper, when and as the same shall become
due and payable, and such default shall continue unremedied for a period of
three Business Days;
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(c) default shall be made in the due observance or performance by the
Parent, the Borrower or any of their Subsidiaries of any covenant, condition or
agreement contained in Sections 6.01(a), 6.05, 6.08 or 6.10 hereof or in Article
VII hereof;
(d) default shall be made in the due observance or performance by the
Parent, the Borrower or any of their Subsidiaries of any covenant, condition or
agreement contained in this Agreement (other than those specified in (a), (b) or
(c) above) or in any Loan Paper and such default shall continue unremedied for a
period of 30 days after the earlier of (i) actual knowledge thereof by any
Responsible Officer and (ii) receipt of notice thereof from the Administrative
Agent or any Lender;
(e) any representation or warranty made or deemed made by the Parent, the
Borrower or any of their Subsidiaries in or in connection with this Agreement or
in any other Loan Paper, or in connection with the borrowings hereunder; or any
representation, warranty, statement or written information contained in any
report, certificate, financial statement or other instrument prepared by the
Parent, the Borrower or any of their Subsidiaries and furnished by the Parent,
the Borrower or any of their Subsidiaries in connection with or pursuant to this
Agreement or any other Loan Paper, shall prove to have been false or misleading
in any material respect when so made, deemed made or furnished;
(f) the Parent, the Borrower or any of their Subsidiaries shall (i) other
than Debt for Borrowed Money under this Agreement, fail to pay any principal or
interest, regardless of amount, due in respect of any Debt for Borrowed Money of
the Parent, the Borrower or any of their Subsidiaries in a principal amount in
excess of $2,500,000, when and as the same shall become due and payable (and
such failure continues after the expiration of any applicable grace periods set
forth therein), or (ii) fail to observe or perform any other term, covenant,
condition or agreement contained in any agreement or instrument evidencing or
governing any such Debt for Borrowed Money if the effect of any failure referred
to in this clause (ii) is to (A) cause, or to permit the holder or holders of
such indebtedness or a trustee on its or their behalf to cause, such Debt for
Borrowed Money to become due prior to its stated maturity or (B) cause any
redemption, prepayment, reduction of commitment or other non-scheduled principal
reduction in any such Debt for Borrowed Money prior to its maturity;
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i) relief
in respect of the Parent, the Borrower or any of their Subsidiaries, or of a
substantial part of the property or assets of the Parent, the Borrower or their
Subsidiaries, under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal, state or foreign bankruptcy,
insolvency, receivership or similar Law, (ii) the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Parent, the Borrower or any of their Subsidiaries or for a substantial part of
the property or assets of the Parent, the Borrower or any of their Subsidiaries
or (iii) the winding-up or liquidation of the Parent, the Borrower or any of
their Subsidiaries; and such proceeding or petition shall continue undismissed
for 60 days or an order or decree approving or ordering any of the foregoing
shall be entered;
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(h) the Parent, the Borrower or any of their Subsidiaries shall (i)
voluntarily commence any proceeding or file any petition seeking relief under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other Federal, state or foreign bankruptcy, insolvency, receivership or
similar Law, (ii) consent to the institution of, or fail to contest in a timely
and appropriate manner, any proceeding or the filing of any petition described
in (g) above, (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Parent, the Borrower or any of their Subsidiaries or for a substantial part of
the property or assets of the Parent, the Borrower or any of their Subsidiaries,
(iv) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for the benefit
of creditors, (vi) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (vii) take any action for the
purpose of effecting any of the foregoing;
(i) one or more judgments for the payment of money in an aggregate amount
in excess of $1,000,000 shall be rendered against the Parent, the Borrower or
any of their Subsidiaries, or any combination thereof and the same shall remain
undischarged or unpaid for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be legally taken
by a judgment creditor to levy upon assets or properties of the Parent, the
Borrower or any of their Subsidiaries to enforce any such judgment;
(j) an ERISA Event shall have occurred that, when taken together with all
other such ERISA Events, could reasonably be expected to result in liability of
the Parent, the Borrower or any of their Subsidiaries, or any combination
thereof, in an aggregate amount exceeding $1,000,000;
(k) any of the following shall occur: (i) this Agreement, any pledge
agreement, any security agreement, any guarantee or any Note executed in
connection with this Agreement (collectively, the "Material Loan Agreements"),
or any material provision of any thereof shall, for any reason, not be valid and
binding on the Parent, the Borrower or any of their Subsidiaries signatory
thereto, or not be in full force and effect, or shall be declared to be null and
void; or (ii) the validity or enforceability of any Material Loan Agreement
shall be contested by any of the Parent, the Borrower or any of their
Subsidiaries, or any of their Affiliates; or (iii) any of the Parent, the
Borrower or their Subsidiaries shall deny in writing that it has any or further
liability or obligation under its respective Material Loan Agreements; or (iv)
any default or breach under any provision of any Material Loan Agreement shall
continue after the applicable grace period, if any, specified in such Material
Loan Agreement;
(l) any of the following shall have occurred: (i) any Loan Paper shall for
any reason (other than pursuant to the terms thereof) cease to create a valid
and perfected first priority Lien in the Collateral purported to be covered
thereby (except as permitted by the terms of this Agreement or as caused, or
consented to, by the Lenders); or (ii) less than 100% of the Capital Stock of
Telergy Parkway shall be pledged to secure the Obligations (except as caused, or
consented to, by the Lenders); or (iii) less than 100% of the Pledged Stock
(except the Capital Stock of Telergy Parkway) shall be pledged to secure the
Obligations (except as caused, or consented to, by the Lenders); or (iv) the
guaranties by the Guarantors of the Obligations required to be delivered in
accordance with the terms of this Agreement shall not be fully enforceable
against each such Guarantor; or (v) the
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security agreements by Telergy Parkway granting Liens on its assets to secure
the Obligations required to be delivered in accordance with the terms of this
Agreement shall not be fully enforceable against Telergy Parkway or (vi) the
security agreements by the Subsidiaries granting Liens on their assets to secure
the Obligations required to be delivered in accordance with the terms of this
Agreement shall not be fully enforceable against each such Subsidiary;
(m) for the date January 1, 2000 and for all dates thereafter, the Parent,
the Borrower or their Subsidiaries shall suffer a catastrophic failure in any
computer application material to its business and operations where such failure
lasts for a period in excess of 30 consecutive days, except in such instances
where such occurrence would not be reasonably expected to have a Material
Adverse Effect, or in such instances where the Borrower replaces the
functionality of the failed computer application through the use of some other
application or system;
(n) any of the following shall have occurred: (i) a final non-appealable
order is issued by any Governmental Authority or Tribunal, including, but not
limited to, the FCC, any applicable PUC, or the United States Justice
Department, requiring any of the Parent, the Borrower or any of their
Subsidiaries to divest a substantial portion of its assets pursuant to any
antitrust, restraint of trade, unfair competition, industry regulation, or
similar Laws, or (ii) any Tribunal shall condemn, seize, or otherwise
appropriate, or take custody or control of all or any substantial portion of the
assets of the Parent, the Borrower or any of their Subsidiaries;
(o) any of the following shall have occurred if the effect thereof could
be reasonably expected to have a Material Adverse Effect: (i) any license from
any Governmental Authority whether presently existing or hereafter granted to or
obtained by the Parent, the Borrower or any of their Subsidiaries shall expire
without renewal or be suspended or revoked, or (ii) the Parent, the Borrower or
any of their Subsidiaries shall become subject to any injunction or other order
affecting or which could reasonably be expected to affect the Parent's, the
Borrower's or any of their Subsidiaries' present or proposed operations under
any such license;
(p) any civil action, suit or proceeding shall be commenced against the
Parent, the Borrower or any of their Subsidiaries under any federal or state
racketeering statute (including, without limitation, the Racketeer Influenced
and Corrupt Organization Act of 1970)("RICO") and such suit shall be adversely
determined by a court of applicable jurisdiction, and which is either
non-appealable or which the Parent, the Borrower or such Subsidiary has elected
not to appeal and such adverse determination could reasonable be expected to
have a Material Adverse Effect; or any criminal action or proceeding shall be
commenced against the Parent, the Borrower or any of their Subsidiaries under
any federal or state racketeering statute (including, without limitation, RICO);
(q) there shall occur a Change in Control;
(r) any litigation commenced against the Parent, the Borrower or any of
their Subsidiaries is adversely determined by a court of applicable
jurisdiction, which such litigation is either non-appealable or which the
Parent, the Borrower or any of their Subsidiaries has elected not to appeal, and
in either case, could reasonably expected to have a Material Adverse Effect;
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(s) the Parent, the Borrower or any of their Subsidiaries shall fail to
comply in any respect with the Communications Act, or any rule or regulation
promulgated by the FCC or any applicable PUC, and such failure could reasonably
be expected to have a Material Adverse Effect; or any license or authorization
constituting authorizations, permits or licenses of the Parent, the Borrower or
any of their Subsidiaries material to the operation of the business of the
Parent, the Borrower and any of their Subsidiaries, has expired or shall expire
without having been renewed or shall be canceled or impaired, and such
expiration, cancellation or impairment could reasonably be expected to have a
Material Adverse Effect;
(t) the Parent, the Borrower or any of their Subsidiaries shall fail to
operate its business for any period of time which, in the aggregate, could
reasonably be expected to have a Material Adverse Effect; or
(u) any Substantial Portion shall not, for any reason (including, without
limitation, loss of FCC license, fiber network or otherwise) be operating for a
period in excess of 30 days. For purposes of this subsection (u), "Substantial
Portion" means any portion of the telecommunications system of the Parent, the
Borrower and their Subsidiaries that has generated, for the most recently
completed twelve month period, in excess of five percent of EBITDA.
SECTION 8.02. Remedies Upon Default. If an Event of Default described in
Section 8.01(g) or Section 8.01(h) hereof shall occur with respect to the
Parent, the Borrower or any of their Subsidiaries, the Commitment shall be
immediately terminated and the aggregate unpaid principal balance of and accrued
interest on all Advances shall, to the extent permitted by applicable Law,
thereupon become due and payable concurrently therewith, without any action by
Administrative Agent or any Lender, and without diligence, presentment, demand,
protest, notice of protest or intent to accelerate, or notice of any other kind,
all of which are hereby expressly waived. Subject to the immediately foregoing
sentence, if any Event of Default shall occur and be continuing, then no LIBOR
Advances shall be available to the Borrower, and Administrative Agent may at its
election, and shall at the direction of Majority Lenders, do any one or more of
the following:
(a) Declare the entire unpaid balance of all Advances immediately due and
payable, whereupon it shall be due and payable without diligence, presentment,
demand, protest, notice of protest or intent to accelerate or notice of any
other kind (except notices specifically provided for under Section 8.01), all of
which are hereby expressly waived (except to the extent waiver of the foregoing
is not permitted by applicable Law);
(b) Terminate the Commitment;
(c) Reduce any claim of Administrative Agent and Lenders to judgment;
(d) Exercise any Rights afforded under any Loan Papers or by Law,
including, without limitation to the UCC, in equity or otherwise; or
(e) Cause the Parent, the Borrower or any of their Subsidiaries to cash
collateralize the Letters of Credit.
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SECTION 8.03. Cumulative Rights. All Rights available to Administrative
Agent and Lenders under the Loan Papers shall be cumulative of and in addition
to all other Rights granted thereto at Law or in equity, whether or not amounts
owing thereunder shall be due and payable and whether or not Administrative
Agent or any Lender shall have instituted any suit for collection or other
action in connection with the Loan Papers.
SECTION 8.04. Waivers. The acceptance by Administrative Agent or any
Lender at any time and from time to time of partial payment of any amount owing
under any Loan Papers shall not be deemed to be a waiver of any Default or Event
of Default then existing. No waiver by Administrative Agent or any Lender of any
Default or Event of Default shall be deemed to be a waiver of any Default or
Event of Default other than such Default or Event of Default. No delay or
omission by Administrative Agent or any Lender in exercising any Right under the
Loan Papers shall impair such Right or be construed as a waiver thereof or an
acquiescence therein, nor shall any single or partial exercise of any such Right
preclude other or further exercise thereof or the exercise of any other Right
under the Loan Papers or otherwise.
SECTION 8.05. Performance by Administrative Agent or any Lender. Should
any covenant of any of the Borrower, the Parent or their Subsidiaries fail to be
performed in accordance with the terms of the Loan Papers, Administrative Agent
may, at its option, perform or attempt to perform such covenant on behalf of
such Person. Notwithstanding the foregoing, it is expressly understood that
neither Administrative Agent nor any Lender assumes, and neither shall ever
have, except by express written consent of Administrative Agent or such Lender,
any liability or responsibility for the performance of any duties or covenants
of the Borrower, the Parent or their Subsidiaries.
SECTION 8.06. Expenditures. The Borrower shall reimburse Administrative
Agent and each Lender for any sums spent by it in connection with the exercise
of any Right provided herein. Such sums shall bear interest at the lesser of (a)
the Base Rate in effect from time to time, plus 2.0%, and (b) the Highest Lawful
Rate, from the date spent until the date of repayment by the Borrower; provided,
that interest shall cease accruing on such expenditures commencing five days
after such expenditure unless and until Administrative Agent provides Borrower
with notice of such expenditure, at which time interest shall recommence accrual
as provided in this Section 8.06.
SECTION 8.07. Control. None of the covenants or other provisions contained
in this Agreement shall, or shall be deemed to, give Administrative Agent or any
Lender any Rights to exercise control over the affairs and/or management of any
of the Borrower, the Parent or their Subsidiaries, the power of Administrative
Agent and each Lender being limited to the Rights to exercise the remedies
provided in this Article; provided, however, that if Administrative Agent or any
Lender becomes the owner of any partnership, stock or other equity interest in
any Person, whether through foreclosure or otherwise, it shall be entitled to
exercise such legal Rights as it may have by being an owner of such stock or
other equity interest in such Person.
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ARTICLE IX
The Administrative Agent
SECTION 9.01. Authorization and Action. Each Lender hereby appoints and
authorizes Administrative Agent to take such action as Administrative Agent
deems appropriate on its behalf and to exercise such powers under this Agreement
and the other Loan Papers as are delegated to the Administrative Agent by the
terms of the Loan Papers, together with such powers as are reasonably incidental
thereto. As to any matters not expressly provided for by this Agreement and the
other Loan Papers (including, without limitation, enforcement or collection of
the Notes), Administrative Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of Majority Lenders (or all Lenders, if required under
Section 10.01), and such instructions shall be binding upon all Lenders;
provided, however, that Administrative Agent shall not be required to take any
action which exposes Administrative Agent to personal liability or which is
contrary to any Loan Papers or applicable Law. Administrative Agent agrees to
give to each Lender notice of each notice given to it by the Borrower pursuant
to the terms of this Agreement and to distribute to each applicable Lender in
like funds all amounts delivered to Administrative Agent by the Borrower for the
Ratable or individual account of any Lender.
SECTION 9.02. Administrative Agent's Reliance, Etc. Neither Administrative
Agent, nor any of its directors, officers, agents, employees, or representatives
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement or any other Loan Paper, except for its or
their own gross negligence or willful misconduct. Without limitation of the
generality of the foregoing, Administrative Agent (a) may treat the payee of any
Note as the holder thereof until Administrative Agent receives written notice of
the assignment or transfer thereof signed by such payee and in form satisfactory
to Administrative Agent; (b) may consult with legal counsel (including counsel
for the Parent, the Borrower or any of their Subsidiaries), independent public
accountants and other experts selected by it, and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations made in or in connection with this
Agreement or any other Loan Papers; (d) shall not have any duty to ascertain or
to inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement or any other Loan Papers on the part of the
Borrower, the Parent or their Subsidiaries or to inspect the Property (including
the books and records) of the Borrower, the Parent or their Subsidiaries; (e)
shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement,
any other Loan Papers, or any other instrument or document furnished pursuant
hereto; and (f) shall incur no liability under or in respect of this Agreement
or any other Loan Papers by acting upon any notice, consent, certificate or
other instrument or writing believed by it to be genuine and signed or sent by
the proper party or parties.
SECTION 9.03. Bank of America, N. A. and Affiliates. With respect to its
Commitment, its Advances, its Specified Percentage and any Loan Papers, Bank of
America, N. A. has the same Rights under this Agreement as any other Lender and
may exercise the same as though it were not Administrative Agent. Bank of
America, N. A. and its Affiliates may accept deposits
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from, lend money to and generally engage in any kind of business with, any of
the Borrower, the Parent or any of their Subsidiaries, any Affiliate thereof,
and any Person who may do business therewith, all as if Bank of America, N. A.
were not Administrative Agent and without any duty to account therefor to any
Lender.
SECTION 9.04. Lender Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon Administrative Agent or any other
Lender, and based on the financial statements referred to in Section 6.04 hereof
and such other documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement and the
other Loan Papers.
SECTION 9.05. Indemnification by Lenders. Lenders shall indemnify
Administrative Agent, Ratably, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against Administrative Agent in any way relating to
or arising out of any Loan Papers or any action taken or omitted by
Administrative Agent thereunder, including any negligence of Administrative
Agent; provided, however, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, or disbursements resulting from Administrative Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, Lenders
shall reimburse Administrative Agent, Ratably, promptly upon demand for any
out-of-pocket expenses (including reasonable attorneys' fees) incurred by
Administrative Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiation, legal proceedings or otherwise) of, or legal and other advice in
respect of rights or responsibilities under, the Loan Papers. The indemnity
provided in this Section 9.05 shall survive the termination of this Agreement.
SECTION 9.06. Successor Administrative Agent. Administrative Agent may
resign at any time by giving written notice thereof to Lenders and the Borrower,
and may be removed at any time with or without cause by the action of all
Lenders (other than Administrative Agent, if it is a Lender). Upon any such
resignation, Majority Lenders shall have the right to appoint a successor
Administrative Agent with the prior written consent of the Borrower (which shall
not be unreasonably withheld, provided further that no such consent shall be
required after the occurrence of and during the continuance of any Default or
Event of Default). If no successor Administrative Agent shall have been so
appointed and shall have accepted such appointment within thirty days after the
retiring Administrative Agent's giving of notice of resignation, then the
retiring Administrative Agent may, on behalf of Lenders, appoint a successor
Administrative Agent, which shall be a commercial bank organized under the Laws
of the United States of America or of any State thereof and having a combined
capital and surplus of at least $50,000,000. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and become
vested with all the Rights
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and duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations under the Loan Papers,
provided that if the retiring or removed Administrative Agent is unable to
appoint a successor Administrative Agent, Administrative Agent shall, after the
expiration of a sixty day period from the date of notice, be relieved of all
obligations as Administrative Agent hereunder. Notwithstanding any
Administrative Agent's resignation or removal hereunder, the provisions of this
Article IX shall continue to inure to its benefit as to any actions taken or
omitted to be taken by it while it was Administrative Agent under this
Agreement.
ARTICLE X
Miscellaneous
SECTION 10.01. Waivers; Amendment.
(a) Neither this Agreement nor any provision hereof or in any other Loan
Paper may be waived, amended or modified except pursuant to an agreement or
agreements in writing entered into by the Borrower and the Administrative Agent,
with the consent of the Majority Lenders; provided, however, that no such
agreement shall (i) decrease the principal amount of, or extend the maturity of,
or any scheduled principal payment date, or date for the payment of any interest
on the Loan, or waive or excuse any such payment or any part thereof, or
decrease the rate of interest on the Loan, decrease the Commitment Fee, the
Letter of Credit fee or any other fees owing hereunder, without the prior
written consent of each Lender affected thereby, (ii) release any material
Collateral or guaranty of the Obligations, provided that, the Administrative
Agent may, at the Borrower's request and without the consent of any Lender,
release (A) any immaterial portion of the Collateral that is immaterial to the
business of the Parent, the Borrower and their Subsidiaries, and (B) any portion
of the Collateral permitted by the terms of this Agreement to be sold or
disposed of (in an IRU or otherwise) in accordance with the terms of Section
7.06 hereof (and so long as the Borrower confirms to the Administrative Agent
that it intends to comply with the terms of Section 2.06 hereof, and grant a
Lien on all newly acquired equipment in accordance with the terms of Section
2.16(b) hereof); (iii) amend or modify the provisions of this Section or the
definition of the terms "Available Commitment", "Commitment", "Unavailable
Commitment", "Specified Percentage" or "Majority Lenders", without the prior
written consent of each Lender; provided further that no such agreement shall
amend, modify or otherwise affect the rights or duties of the Administrative
Agent hereunder without the prior written consent of the Administrative Agent.
The Borrower may rely on the written representation by the Administrative Agent
that consent of the Majority Lenders was obtained.
(b) No failure or delay of the Administrative Agent or any Lender in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent and the
Lenders hereunder are cumulative and are not exclusive of any rights or remedies
that they would otherwise have. No waiver of any provision
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of this Agreement or any other Loan Paper, or consent to any departure by the
Borrower therefrom shall in any event be effective unless the same shall be
permitted by paragraph (a) above, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on the Borrower in any case shall entitle the Borrower to any
other or further notice or demand in similar or other circumstances.
SECTION 10.02. Notices. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at:
c\o Telergy, Inc.
One Telergy Parkway
East Syracuse, New York 13075
Attention: Kevin J. Kelly
Telephone No.: (315) 433-5330
Facsimile No.: (315) 433-5358
With a copy to:
Telergy, Inc.
20 Corporate Woods Boulevard
Albany, New York 12211
Attention: General Counsel
Telephone No.: (518) 462-1882
Facsimile No.: (518) 463-9937
With a copy to:
Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, P.A.
150 W. Flagler Street, Suite 2200
Miami, Florida 33130
Attention: Steven D. Rubin
Telephone No.: (305) 789-3517
Facsimile No.: (305) 789-3395
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(b) if to the Administrative Agent, to it at:
Bank of America, N. A.
Bank of America Plaza
901 Main Street, 64th Floor
Dallas, Texas 75202
Telephone No.: (214) 209-0157
Telecopier No.: (214) 209-9390
Attention: Tony Cacheria
Managing Director
With a copy to:
Donohoe, Jameson & Carroll, P.C.
3400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Telephone No.: (214) 698-3814
Telecopier No.: (214) 744-0231
Attention: Melissa Ruman Stewart
Michael D. Cuda
(c) if to a Lender, to it at its address (or telecopy number) set forth on
the signature pages hereto or in the Assignment and Acceptance pursuant to which
such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement and the other Loan Papers shall be deemed
to have been given on the date of receipt if delivered by hand or overnight
courier service or sent by telecopy or on the date five Business Days after
dispatch by certified or registered mail if mailed, in each case delivered, sent
or mailed (properly addressed) to such party as provided in this Section 10.02
or in accordance with the latest unrevoked direction from such party given in
accordance with this Section 10.02.
SECTION 10.03. Binding Effect. This Agreement shall become effective when
it shall have been executed by the Borrower and the Administrative Agent and
when the Administrative Agent shall have received counterparts hereof which,
when taken together, bear the signatures of each of the other parties hereto,
and thereafter shall be binding upon and inure to the benefit of the parties
hereto and their respective permitted successors and assigns.
SECTION 10.04. Successors and Assigns.
(a) Whenever in this Agreement or any other Loan Paper any of the parties
hereto is referred to, such reference shall be deemed to include the permitted
successors and assigns of such party, and all covenants, promises and agreements
by or on behalf of the Borrower, the Administrative Agent or the Lenders that
are contained in this Agreement and the other Loan Papers shall bind and inure
to the benefit of their respective successors and assigns.
(b) Each Lender may assign to one or more assignee (an "Assignee") all or
a portion of its interests, rights and obligations under this Agreement and the
other Loan Papers (including all or a portion of the Loan at the time owing to
it); provided, however, that (i) except in the case of an assignment to a Lender
or an Affiliate of such Lender, (x) the Administrative Agent and, provided that
there exists no Default or Event of Default, the Borrower, such consent not to
be unreasonably withheld, must give its prior written consent to such assignment
and (y) the amount of the Loan of
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the assigning Lender subject to each such assignment (determined as of the date
the Assignment and Acceptance with respect to such assignment is delivered to
the Administrative Agent) shall not be less than $5,000,000 (or, if less, the
entire remaining amount of such Lender's Loan) and will not result in the
unassigned portion, if any, of the assigning Lender's Loan being less than
$5,000,000, (ii) the parties to each such assignment shall execute and deliver
to the Administrative Agent an Assignment and Acceptance, together with a
processing and recordation fee of $3,500 payable by the parties to the
Assignment and Acceptance (unless such fee is waived by the Administrative
Agent) and (iii) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an administrative questionnaire. From and after the later
of (i) the effective date specified in each Assignment and Acceptance and (ii)
delivery of such Assignment and Acceptance to the Administrative Agent, (A) the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement and the other Loan Papers and (B) the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
and the other Loan Papers (and, in the case of an Assignment and Acceptance
covering all or the remaining portion of an assigning Lender's rights and
obligations under this Agreement and the other Loan Papers, such Lender shall
cease to be a party hereto and to the Loan Papers, but shall continue to be
entitled to the benefits of Sections 2.07 and 9.05 hereof, as well as to any
Fees accrued for its account and not yet paid). The Borrower shall, at their
expense, issue to the assignor and assignee a new Note, as applicable, in the
respective amounts of each such Lender's Specified Percentage in the Loan.
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its outstanding balance of its Loan in each case without giving effect to
assignments thereof which have nor become effective, are as set forth in such
Assignment and Acceptance; (ii) except as set forth in (i) above, such assigning
Lender makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement or any other Loan Paper, or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other Loan Paper, or any other instrument or document furnished
pursuant hereto, or the financial condition of the Parent, the Borrower or any
of their Subsidiaries, or the performance or observance by the Parent, the
Borrower or any of their Subsidiaries of any of its obligations under this
Agreement or any other Loan Paper, or any other instrument or document furnished
pursuant hereto; (iii) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance; (iv) such assignee
confirms that it has received a copy of this Agreement, together with copies of
the most recent financial statements referred to in Section 4.05 or delivered
pursuant to Section 6.04 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance; (v) such assignee will independently and without
reliance upon the Administrative Agent, such assigning Lender or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement and the other Loan Papers; (vi) such assignee
appoints and authorizes the Administrative Agent to take such action as agent on
its
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behalf and to exercise such powers under this Agreement and the other Loan
Papers as are delegated to the Administrative Agent by the terms hereof and
thereof, together with such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with their terms
all the obligations which by the terms of this Agreement and the other Loan
Papers are required to be performed by it as a Lender.
(d) Each Lender may without the consent of the Borrower or the
Administrative Agent sell participations to one or more banks or other entities
in all or a portion of its rights and obligations under this Agreement and the
other Loan Papers (including all or a portion of its Loan owing to it);
provided, however, that (i) such Lender's obligations under this Agreement and
the other Loan Papers shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) the participating banks or other entities shall be entitled
to the benefit of the cost protection provisions contained in Sections 2.06
hereof to the same extent as if they were Lenders, provided that, such
participant shall not be entitled to any greater benefit of such Section than
the Lenders selling such participation interest has at the time and (iv) the
Borrower, the Administrative Agent and the Lenders shall continue to deal solely
and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Papers, and such Lender
shall retain the sole right to enforce the obligations of the Borrower relating
to the Loan and to approve any amendment, modification or waiver of any
provision of this Agreement and the other Loan Papers (other than amendments,
modifications or waivers decreasing any fees payable hereunder or the amount of
principal of or the rate at which interest is payable on the Loan, extending any
scheduled principal payment date or date fixed for the payment of interest on
the Loan).
(e) Any Lender or participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
10.04 disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrower furnished to such Lender by
or on behalf of the Borrower.
(f) Any Lender may at any time assign all or any portion of its rights
under this Agreement and the other Loan Papers to a Federal Reserve Bank to
secure extensions of credit by such Federal Reserve Bank to such Lender;
provided that no such assignment shall release a Lender from any of its
obligations hereunder or substitute any such Bank for such Lender as a party
hereto.
(g) The Borrower shall not assign or delegate any of its rights or duties
hereunder without the prior written consent of the Administrative Agent and each
Lender, and any attempted assignment without such consent shall be null and
void.
SECTION 10.05. Expenses; Indemnity.
(a) The Borrower agrees to pay all reasonable out-of-pocket expenses
(other than income taxes or amounts relating to income taxes) incurred by the
Administrative Agent in connection with the syndication of the credit facilities
provided for herein and the preparation and administration of this Agreement and
the other Loan Papers or in connection with any amendments, modifications or
waivers of the provisions hereof (whether or not the transactions hereby or
thereby contemplated
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shall be consummated) or incurred by the Administrative Agent or any Lender in
connection with the enforcement or protection of its rights in connection with
this Agreement and the Loan Papers, or in connection with the Loan made
hereunder, including the reasonable fees, charges and disbursements of Special
Counsel for the Administrative Agent, and, in connection with any such
enforcement or protection, the reasonable fees, charges and disbursements of any
other counsel for the Administrative Agent or any Lender.
(b) The Borrower agrees to indemnify the Administrative Agent, each
Lender, each Affiliate of any of the foregoing Persons and each of their
respective directors, officers, employees and agents (each such Person being
called an "Indemnitee") against, and to hold each Indemnitee harmless from, any
and all losses, claims, damages, liabilities and related expenses, including
reasonable counsel fees, charges and disbursements (but excluding income taxes
and amounts relating to income taxes), incurred by or asserted against any
Indemnitee arising out of, in any way connected with, or as a result of (i) the
execution or delivery of this Agreement and the other Loan Papers or any
agreement or instrument contemplated thereby, the performance by the parties
thereto of their respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby (other than those
matters raised exclusively by a participant against the Administrative Agent or
any Lender and not the Borrower and related solely to such party's actions),
(ii) the use of the proceeds of the Loan or (iii) any claim, litigation,
investigation or proceeding relating to any of the foregoing, whether or not any
Indemnitee is a party thereto; provided that with respect to such indemnity,
such indemnity shall not, as to any Indemnitee, be available to the extent that
such losses, claims, damages, liabilities or related expenses are determined by
a court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or wilful misconduct of, or breach of
contract by, such Indemnitee.
(c) The provisions of this Section 10.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the other Loan Papers, the consummation of the transactions
contemplated hereby, the repayment of any of the Loan, the invalidity or
unenforceability of any term or provision of this Agreement, any other Loan
Paper, or any investigation made by or on behalf of the Administrative Agent,
any Lender. All amounts due under this Section 10.05 shall be payable on written
demand therefor.
SECTION 10.06. Right of Setoff. If an Event of Default shall have occurred
and be continuing, each Lender is hereby authorized at any time and from time to
time, to the fullest extent permitted by Law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any of and all the obligations of
the Borrower now or hereafter existing under this Agreement and the other Loan
Papers held by such Lender, irrespective of whether or not such Lender shall
have made any demand under this Agreement and although such obligations may be
unmatured. Each Lender shall promptly notify the Borrower after any such set off
and application. The rights of each Lender under this Section 10.06 are in
addition to other rights and remedies (including other rights of setoff) which
such Lender may have.
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SECTION 10.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN PAPERS
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
NEW YORK (EXCEPT, IN THE CASE OF CERTAIN OF THE OTHER LOAN PAPERS, TO THE EXTENT
THE LAWS OF ANOTHER JURISDICTION GOVERN THE PERFECTION AND EFFECT OF PERFECTION
OR NON-PERFECTION OF, CERTAIN LIENS).
SECTION 10.08. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement and the other Loan Papers shall be considered to have
been relied upon by the Lenders and shall survive the making by the Lenders of
the Loan, regardless of any investigation made by the Lenders, or on their
behalf, and shall continue in full force and effect as long as the principal of
or any accrued interest on the Loan or any Fee or any other amount payable under
this Agreement or any other Loan Paper is outstanding and unpaid. The provisions
of Sections 2.06 and 10.05 hereof shall remain operative and in full force and
effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions contemplated hereby, the repayment of any
portion of the Loan, the invalidity or unenforceability of any term or provision
of this Agreement or any other Loan Paper, or any investigation made by or on
behalf of the Administrative Agent or any Lender.
SECTION 10.09. Interest Rate Limitation. It is not the intention of any
party to any Loan Papers to make an agreement violative of the Laws of any
applicable jurisdiction relating to usury. In no event shall the Borrower or any
other Person be obligated to pay any amount in excess of the Maximum Amount. If
the Administrative Agent or any Lender ever receives, collects or applies, as
interest, any such excess, such amount which would be excessive interest shall
be deemed a partial repayment of principal and treated hereunder as such; and if
principal is paid in full, any remaining excess shall be paid to the Borrower or
the other Person entitled thereto. In determining whether or not the interest
paid or payable, under any specific contingency, exceeds the Maximum Amount, the
Parent, the Borrower and each of their Subsidiaries, the Administrative Agent
and each Lender shall, to the maximum extent permitted under Applicable Law, (a)
characterize any nonprincipal payment as an expense, fee or premium rather than
as interest, (b) exclude voluntary prepayments and the effect thereof, and (c)
amortize, prorate, allocate and spread in equal parts, the total amount of
interest throughout the entire contemplated term of the Obligations so that the
interest rate is uniform throughout the entire term of the Obligations; provided
that if the Obligations are paid and performed in full prior to the end of the
full contemplated term thereof, and if the interest received for the actual
period of existence thereof exceeds the Maximum Amount, the Administrative Agent
or Lenders, as appropriate, shall refund to the Borrower the amount of such
excess or credit the amount of such excess against the total principal amount
owing, and, in such event, neither the Administrative Agent nor any Lender shall
be subject to any penalties provided by any Laws for contracting for, charging
or receiving interest in excess of the Maximum Amount. This Section 10.09 shall
control every other provision of all agreements among the parties to the Loan
Papers pertaining to the transactions contemplated by or contained in the Loan
Papers.
SECTION 10.10. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN PAPERS
REPRESENT THE FINAL AGREEMENT BETWEEN THE
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PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
SECTION 10.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN PAPER. EACH PARTY
HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN PAPERS BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.11.
SECTION 10.12. Severability. In the event any one or more of the
provisions contained in this Agreement or in any other Loan Paper should be held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby (it being understood that the
invalidity of a particular provision in a particular jurisdiction shall not in
and of itself affect the validity of such provision in any other jurisdiction).
The parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect of
which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 10.13. Counterparts. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original but all of which when taken together shall
constitute a single contract, and shall become effective as provided in Section
10.03 hereof. Delivery of an executed signature page to this Agreement by
facsimile transmission shall be as effective as delivery of a manually signed
counterpart of this Agreement.
SECTION 10.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 10.15. Jurisdiction; Consent to Service of Process.
(a) The Borrower, the Administrative Agent and each Lender hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York, New York and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or any other Loan Paper, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any
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such action or proceeding may be heard and determined in such New York State or,
to the extent permitted by Law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by Law. Nothing in this Agreement or in any other
Loan Paper shall affect any right that the Administrative Agent or any Lender
may otherwise have to bring any action or proceeding relating to this Agreement
or any other Loan Paper against the Borrower or its properties in the courts of
any jurisdiction.
(b) The Borrower, the Administrative Agent and each Lender hereby
irrevocably and unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection which it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Agreement or any other Loan Paper in any New York State or Federal court.
Each of the parties hereto hereby irrevocably waives, to the fullest extent
permitted by Law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
(c) Each party to this Agreement and any other Loan Paper irrevocably
consents to service of process in the manner provided for notices in Section
10.02 hereof. Nothing in this Agreement or any other Loan Paper will affect the
right of any party to this Agreement or any other Loan Paper to serve process in
any other manner permitted by Law.
SECTION 10.16. Release of Collateral. Promptly after payment in full of
all of the Obligations, the Administrative Agent and the Lenders hereby agree
that they will (a) execute all reasonable releases and UCC-3's necessary to
release all of the Lenders' Liens on the Collateral and (b) deliver all of the
Pledged Stock, together with the stock powers, if any, to the applicable
pledgors or as otherwise directed by the Borrower, and return the Note to the
Borrower marked "canceled" or "paid" or, at the Borrower's request and expense,
assign this Agreement and any or all Loan Papers to such party as the Borrower
may direct, in writing. Promptly upon payment in full of all of the Obligations,
this Agreement shall terminate.
SECTION 10.17. Amendment, Restatement, Extension, Renewal and Increase.
This Agreement is a renewal and amendment and restatement of the Original Credit
Agreement, and, as such, all terms and provisions supersede in their entirety
the Original Credit Agreement. All subordination agreements, security
agreements, pledge agreements, mortgages, deeds of trust and other documents and
instruments granting any security interest or assigning any interest in any
assets of the Parent, the Borrower or any of their Subsidiaries to secure the
Obligation executed and delivered in connection with this Agreement that restate
any previously granted interest shall supersede any subordination agreements,
security agreements, pledge agreements, mortgages, deeds of trust and other
documents and instruments granting any security interest or assigning any
interest in any assets of the Parent, the Borrower or their Subsidiaries that
were executed and delivered in connection with the Original Credit Agreement
(the "Original Security Documents"), except for the Liens created under the
Original Security Documents which shall remain valid, binding and enforceable
Liens against the Parent, the Borrower, their Subsidiaries and each of the other
Persons granting any such Liens as amended by this Agreement and the other Loan
Papers. All other Original Security Documents shall continue to secure the
Obligations as herein defined, and shall be in full force and effect as amended
by this Agreement and the other Loan Papers.
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THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
THE BORROWER:
TELERGY OPERATING, INC.
_____________________________________________
By:__________________________________________
Its:_________________________________________
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THE ADMINISTRATIVE AGENT:
BANK OF AMERICA, N.A.,
as Administrative Agent
_____________________________
By: Anthony M. Cacheria
Title: Managing Director
THE LENDERS:
SPECIFIED BANK OF AMERICA, N.A.,
PERCENTAGE ON THE CLOSING: individually as a Lender
DATE: 28.57142857143%
Address:
901 Main Street
64th Floor
Dallas, Texas 75202
_____________________________
By: Anthony M. Cacheria
Attn: Tony Cacheria Title: Managing Director
Telephone: (214) 209-0157
Telecopy: (214) 209-9390
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SPECIFIED TORONTO DOMINION (TEXAS), INC.
PERCENTAGE ON THE CLOSING: individually as a Lender
DATE: 28.57142857143%
Address:
____________
____________
____________
________________________________
By:_____________________________
Attn:______________ Title:__________________________
Telephone:_________
Telecopy:__________
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<PAGE> 90
SPECIFIED CIBC INC.
PERCENTAGE ON THE CLOSING: individually as a Lender
DATE: 22.85714285714%
Address:
____________
____________
____________
________________________________
By:_____________________________
Attn:______________ Title:__________________________
Telephone:_________
Telecopy:__________
85
<PAGE> 91
SPECIFIED ROYAL BANK OF CANADA,
PERCENTAGE ON THE CLOSING: individually as a Lender
DATE: 20.000000000%
Address:
____________
____________
____________
________________________________
By:_____________________________
Attn:______________ Title:__________________________
Telephone:_________
Telecopy:__________
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<PAGE> 92
NEWCOURT COMMERCIAL FINANCE
CORPORATION, individually as a Lender
Address:
____________
____________
____________
________________________________
By:_____________________________
Attn:______________ Title:__________________________
Telephone:_________
Telecopy:__________
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<PAGE> 1
EXHIBIT 10.14.2
FIRST AMENDMENT
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") is dated as of the 30th day of March, 2000, and entered into
among Telergy Operating, Inc., a Delaware corporation (the "Borrower"), the
Lenders (as defined below) and Bank of America, N.A., as a Lender and
Administrative Agent.
WITNESSETH:
WHEREAS, the Borrower, the Lenders and the Administrative Agent entered
into a Second Amended and Restated Credit Agreement, dated as of November 19,
1999 (as amended, and as further amended, restated or otherwise modified from
time to time, the "Credit Agreement");
WHEREAS, Borrower has informed Administrative Agent that the Borrower has
requested certain amendments to the Credit Agreement;
WHEREAS, the Lenders, the Administrative Agent and the Borrower have
agreed upon the terms and conditions set forth below;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
Borrower, the Lenders and the Administrative Agent agree as follows:
SECTION 1.
(a) Definitions, in general. Unless specifically defined or redefined
below, capitalized terms used herein shall have the meanings ascribed thereto in
the Credit Agreement.
(b) Definition of "Series B Certificate of Designation". A new definition
of "Series B Certificate of Designation" is added to Article I of the Credit
Agreement in alphabetical order as follows:
"Series B Certificate of Designation" means that certain Certificate
of Designation for Series B Convertible Redeemable Preferred Stock of
Telergy, Inc., to be executed by it and filed with Secretary of State of
the State of Delaware.
(c) Definition of "Series B Preferred". A new definition of "Series B
Preferred" is added to Article I of the Credit Agreement in alphabetical order
as follows:
"Series B Preferred" means 52,220 shares to be sold for $383.00 per
share of that Series B Convertible Redeemable Preferred Stock, par value
$.0001 per share.
<PAGE> 2
(d) The definition of "Subsidiary" in Article I of the Credit Agreement is
hereby amended to read in its entirety as follows:
"Subsidiary" means, with respect to any Person (herein referred to
as the "parent"), any corporation, partnership, limited liability company,
association or other business entity of which securities or other
ownership interests representing more than 50% of the equity or more than
50% of the ordinary voting power or more than 50% of the general
partnership interests are, at the time any determination is being made,
owned, controlled or held, by the parent or one or more Subsidiaries of
the parent or by the parent and one or more Subsidiaries of the parent;
provided that Telergy NJ, LLC shall not be considered a Subsidiary for
purposes of this Agreement.
SECTION 2. Amendment to Section 2.06(b). Section 2.06(b) of the Credit
Agreement is amended and restated in its entirety as follows:
(b) Mandatory Prepayments. The Borrower shall make an immediate and
mandatory prepayment of the Loan and/or cash collateralization of the
Letters of Credit by an amount in each case equal to: (i) 100% of the net
cash proceeds from the issuance of any equity or Capital Stock by the
Parent or any of its Subsidiaries (whether as a result of the exercise of
a Stock Right or otherwise), except (A) Capital Stock of the Parent issued
(I) pursuant to the Private Offering, (II) pursuant to the Conversion
Rights Agreement, (III) in accordance with any Stock Plan, (IV) pursuant
to any Stock Rights existing on the Closing Date, and (V) the Series B
Preferred, or (B) Capital Stock of Telergy Canada issued to comply with
applicable Law of Canada, (ii) 100% of the Net Proceeds from Asset
Dispositions and Fiber Dispositions by the Parent, the Borrower or any of
their Subsidiaries (specifically excluding Fiber Dispositions not
prohibited by the terms of Section 7.15 hereof) (this section in and of
itself not permitting any such transactions, for permitted Asset
Dispositions, see Section 7.06 hereof and for prohibited Fiber
Dispositions, see Section 7.15 hereof), provided that no prepayment must
be made for Asset Dispositions (A) in the ordinary course of business, (B)
among the Parent, the Borrower and their Wholly Owned Subsidiaries or
Telergy Central and (C) the Net Proceeds of which aggregate in an amount
over the term of this Agreement less than $1,000,000; (iii)100% of the net
proceeds received by the Parent, the Borrower or their Subsidiaries in
connection with the incurrence of Debt for Borrowed Money of the Parent,
the Borrower or any of their Subsidiaries after the date hereof (this
section in and of itself not permitting any such transactions, for
permitted debt incurrence see Section 7.02 hereof) except with respect to
the incurrence by the Borrower of Debt for Borrowed Money in accordance
with the terms of Section 7.02 hereof; and (iv) 100% of the Obligations if
a Change in Control occurs.
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<PAGE> 3
SECTION 3. Addition of Section 6.01(d) of the Credit Agreement . A new
Section 6.01(d) shall be added to the Credit Agreement as follows:
(d) All leases entered into by the Borrower or any of the Borrower's
or the Parent's Subsidiaries after March 15, 2000 on which Property of the
Borrower or its Subsidiaries valued in excess of $500,000 in the aggregate
is located shall be subject to a landlord's waiver for the benefit of, and
in form and substance acceptable to, the Administrative Agent and the
Lenders. Additionally, in connection with such leases, the Borrower shall
use (and shall cause the Borrower's and the Parent's Subsidiaries to use)
commercially reasonable best efforts to obtain legal descriptions and
permission for the Administrative Agent, for itself and each of the
Lenders, to file a fixture filing for each such leased property on which
Property of the Borrower or the Borrower's and the Parent's Subsidiaries
valued in excess of $500,000 in the aggregate is located. The Borrower
further agrees to assist the Administrative Agent in preparing and filing
any such UCC-1 fixture filing financing statements on such properties.
SECTION 4. Amendment of Sections 7.05(d) and 7.05(e) of the Credit
Agreement and addition of new Section 7.05(f) to the Credit Agreement . Sections
7.05(d) and 7.05(e) of the Credit Agreement are deleted in their entirety and
the following Sections 7.05(d) and 7.05(e) are added in their stead together
with a new Section 7.05(f) as follows:
(d) So long as there exists no Default or Event of Default
both immediately before and immediately after making any such
Investment, additional Investments in Telergy East of up to
$4,000,000 in the aggregate during the term of this Agreement;
(e) Investments consisting of loans or advances by the Parent,
the Borrower or any of their Subsidiaries to employees or directors
of the Parent, Borrower or their Subsidiaries, provided that in each
case, such loans or advances are made in the ordinary course of
business and in accordance with the past practices of the Parent,
the Borrower or such Subsidiary, and in any case, not in excess of
$2,000,000 outstanding at any one time, excluding with respect to
the calculation of such amount, loans to purchase the Capital Stock
of the Parent under the Stock Plan; and
(f) So long as there exists no Default or Event of Default
both immediately before and immediately after making any such
Investment and subject to the prior or contemporaneous sale of the
Series B Preferred, Investments in Telergy NJ, LLC of up to
$4,000,000 in the aggregate during the term of this Agreement.
SECTION 5. Amendment of Sections 7.07(i) and 7.07(j) of the Credit
Agreement and addition of new Section 7.07(k) to the Credit Agreement. Sections
7.07(i) and 7.07(j) of the Credit
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<PAGE> 4
Agreement are deleted in their entirety and the following Sections 7.07(i) and
7.07(j) are added in their stead together with a new Section 7.07(k) as follows:
(i) so long as there exists no Default or Event of Default
both immediately before and immediately after giving effect thereto,
the Borrower may declare and pay dividends to the Parent in
connection with Debt for Borrowed Money of the Parent permitted
under the terms of this Agreement and ordinary course of business
operating expenses;
(j) the Parent, the Borrower and their Subsidiaries may repay
the Nortel Note with the proceeds of this Loan; and
(k) the Parent may make in kind Restricted Payments required
to be made by the Series B Certificate of Designation as in effect
on March , 2000 in the form presented to the Administrative Agent
and the Lenders and related issuances of common stock upon the
conversion of the Series B Preferred in accordance with the Series B
Certificate of Designation.
SECTION 6. Amendment to Section 7.10. Section 7.10 of the Credit Agreement
is amended and restated in its entirety as follows:
SECTION 7.10. Amendments to Organizational Documents and Material
Agreements. The Borrower will not, and will not cause or permit the Parent
or any of their Subsidiaries to, enter into any amendment of any term or
provision, or accept any consent or waiver with respect to any such
provision, of (a) its articles of incorporation, by-laws, the Operating
Agreement or its organizational documents, as applicable, in a manner that
adversely affects the interests of the Lenders; provided, that, (i)
Telergy Canada may amend its articles of incorporation and by-laws to the
extent necessary to consummate any Telergy Canada Reorganization, (ii)
Telergy Central may amend any of its organizational documents to the
extent necessary to consummate the Telergy Central Conversion, (iii) the
Parent may amend its articles of incorporation or by-laws to the extent
necessary to complete the Parent Merger or to increase the outstanding
shares of its Capital Stock or to effect a common Capital Stock split, and
(iv) the Parent may execute and file the Series B Certificate of
Designation, (b) any document evidencing Debt for Borrowed Money of the
Parent, the Borrower or their Subsidiaries in existence on the date
hereof, (c) documents and instruments evidencing indebtedness owed to M&T
Bank, (d) the documents and agreements evidencing Debt for Borrowed Money
executed in connection with the Nortel Credit Line, (e) the documents and
agreements evidencing Debt for Borrowed Money executed in connection with
the GATX Lease Agreement, (f) the documents and agreements evidencing Debt
for Borrowed Money executed in connection with any Interest Hedge
Agreements, (g) the documents and agreements evidencing Debt for Borrowed
Money permitted by Section 7.02(e) hereof, (h) the documents and
agreements evidencing Debt for Borrowed Money executed in connection with
Permitted Refinancing Indebtedness, (i) any agreement,
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<PAGE> 5
document or instrument related to, or executed or delivered in connection
with, any equity interest or Capital Stock of the Parent, the Borrower or
their Subsidiaries in a manner that is adverse to the interests of the
Lenders, (j) any Right of Way Agreement, or (k) the Series B Certificate
of Designation.
SECTION 7. Amendment to Section 7.11. Section 7.11 of the Credit Agreement
is amended and restated in its entirety as follows:
SECTION 7.11. Issuances of Capital Stock. The Borrower shall not,
and shall not permit the Parent or any of their Subsidiaries to (a) make
or permit any transfer, assignment, distribution, mortgage, pledge or gift
of any shares of Capital Stock of the Parent, the Borrower or their
Subsidiaries, except to another Wholly Owned Subsidiary of the Parent or
the Borrower and (b) issue any Capital Stock or grant any Stock Rights,
except: (i) the Parent may issue Class A Capital Stock of the Parent in
accordance with the terms of the Stock Rights in existence on the Closing
Date and described on Schedule 7.11, (ii) so long as there exists no
Default or Event of Default both immediately before and immediately after
giving effect thereto, issuances by the Parent of its Class A Capital
Stock in connection with the Private Offering, so long as such issuance
does not cause a Change in Control, (iii) so long as here exists no
Default or Event of Default both immediately before and immediately after
giving effect thereto, Class A Capital Stock of the Parent issued pursuant
to the Stock Plan, so long as such issuance does not cause a Change in
Control, (iv) so long as there exists no Default or Event of Default both
immediately before and after giving effect thereto, payments in kind with
respect to dividends on the Global Preferred Stock or the Special Common
Stock, and (v) so long as there exists no Default or Event of Default both
immediately before and after giving effect thereto, the Series B
Preferred.
SECTION 8. Conditions Precedent. This First Amendment shall not be
effective until the Administrative Agent shall have received:
(a) executed signature pages from the Borrower, the Parent, Telergy
Parkway, the Administrative Agent and Majority Lenders;
(b) certified copies of resolutions authorizing the execution, delivery
and performance of this First Amendment; and
(c) such other documents, instruments, and certificates, in form and
substance satisfactory to the Administrative Agent and the Lenders,
as the Administrative Agent and the Lenders shall deem necessary or
appropriate in connection with this First Amendment and the
transactions contemplated hereby.
SECTION 9. Representations and Warranties. The Borrower represents and
warrants to the Lenders and the Administrative Agent that (a) this First
Amendment is a Loan Paper under the Credit Agreement and constitutes its legal,
valid, and binding obligation, enforceable in accordance
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<PAGE> 6
with the terms hereof (subject as to enforcement of remedies to any applicable
bankruptcy, reorganization, moratorium, or other laws or principles of equity
affecting the enforcement of creditors' rights generally), (b) there exists no
Default or Event of Default under the Credit Agreement that has not been waived
by the Lenders, (c) its representations and warranties set forth in the Credit
Agreement and other Loan Papers are true and correct on the date hereof, (d) it
has complied with all agreements and conditions to be complied with by it under
the Credit Agreement and the other Loan Papers by the date hereof, and (e) the
Credit Agreement, as amended hereby, and the other Loan Papers remain in full
force and effect.
SECTION 10. Entire Agreement; Ratification. THE CREDIT AGREEMENT AS
AMENDED HEREBY AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES. EXCEPT AS MODIFIED OR SUPPLEMENTED HEREBY, THE CREDIT
AGREEMENT, THE OTHER LOAN PAPERS AND ALL OTHER DOCUMENTS AND AGREEMENTS EXECUTED
IN CONNECTION THEREWITH SHALL CONTINUE IN FULL FORCE AND EFFECT.
SECTION 11. Counterparts. This First Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument. In making proof hereof, it shall not be necessary to produce or
account for any counterpart other than one signed by the party against which
enforcement is sought.
SECTION 12. JURISDICTION; CONSENT TO SERVICE OF PROCESS.
(A) THE BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY
IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE
NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT OF THE
UNITED STATES OF AMERICA SITTING IN NEW YORK, NEW YORK AND ANY APPELLATE COURT
FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN PAPER, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN
SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN
ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN PAPER SHALL AFFECT ANY RIGHT THAT
THE ADMINISTRATIVE AGENT OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR
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<PAGE> 7
ANY OTHER LOAN PAPER AGAINST THE BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY
JURISDICTION.
(B) THE BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND
EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OTHER LOAN PAPER IN ANY NEW YORK STATE OR FEDERAL COURT.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(C) EACH PARTY TO THIS AGREEMENT AND ANY OTHER LOAN PAPER IRREVOCABLY
CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 12
HEREOF. NOTHING IN THIS AGREEMENT OR ANY OTHER LOAN PAPER WILL AFFECT THE RIGHT
OF ANY PARTY TO THIS AGREEMENT OR ANY OTHER LOAN PAPER TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW.
===============================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
===============================================================================
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<PAGE> 8
IN WITNESS WHEREOF, this First Amendment to Credit Agreement is executed
as of the date first set forth above.
THE BORROWER:
TELERGY OPERATING, INC.
/s/ Brian Kelly
----------------------------------------
By: Brian Kelly
------------------------------------
Its: President
------------------------------------
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<PAGE> 9
THE ADMINISTRATIVE AGENT:
BANK OF AMERICA, N.A.,
as Administrative Agent
/s/ Anthony M. Cacheria
________________________________________
By: Anthony M. Cacheria
Title: Managing Director
THE LENDERS:
SPECIFIED BANK OF AMERICA, N.A.,
PERCENTAGE ON THE CLOSING: individually as a Lender
DATE: 28.57142857143%
Address:
901 Main Street
64th Floor
Dallas, Texas 75202
/s/ Anthony M. Cacheria
________________________________________
By: Anthony M. Cacheria
Attn: Tony Cacheria Title: Managing Director
Telephone: (214) 209-0157
Telecopy: (214) 209-9390
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<PAGE> 10
SPECIFIED TORONTO DOMINION (TEXAS), INC.
PERCENTAGE ON THE CLOSING: individually as a Lender
DATE: 28.57142857143%
Address:
__________________________
__________________________
__________________________ ________________________________________
By:_____________________________________
Attn:_____________________
Title:__________________________________
Telephone:________________
Telecopy:_________________
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<PAGE> 11
SPECIFIED CIBC INC.
PERCENTAGE ON THE CLOSING: individually as a Lender
DATE: 22.85714285714%
Address:
__________________________
__________________________
/s/ Colleen Fioux
__________________________ ________________________________________
Colleen Fioux
By:_____________________________________
Attn:_____________________
Executive Director
Title:__________________________________
Telephone:________________
Telecopy:_________________
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<PAGE> 12
SPECIFIED ROYAL BANK OF CANADA,
PERCENTAGE ON THE CLOSING: individually as a Lender
DATE: 20.000000000%
Address:
__________________________
__________________________
__________________________ ________________________________________
By:_____________________________________
Attn:_____________________
Title:__________________________________
Telephone:________________
Telecopy:_________________
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<PAGE> 13
THE GUARANTORS:
ACKNOWLEDGED AND AGREED:
TELERGY, INC.
/s/ Brian Kelly
________________________________________
By: Brian Kelly
_____________________________________
Its:____________________________________
TELERGY PARKWAY, INC.
/s/ Brian Kelly
________________________________________
By: Brian Kelly
_____________________________________
Its:____________________________________
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<PAGE> 1
EXHIBIT 10.14.3
LIMITED CONDITIONAL WAIVER AND SECOND AMENDMENT
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS LIMITED CONDITIONAL WAIVER AND SECOND AMENDMENT TO THE SECOND AMENDED
AND RESTATED CREDIT AGREEMENT (this "Waiver and Amendment") is dated as of the
___ day of April, 2000, and entered into among Telergy Operating, Inc., a
Delaware corporation (the "Borrower"), the Lenders (as defined below) and Bank
of America, N.A., as a Lender and Administrative Agent.
WITNESSETH:
WHEREAS, the Borrower, the Lenders and the Administrative Agent entered
into a Second Amended and Restated Credit Agreement, dated as of November 19,
1999 (as amended, and as further amended, restated or otherwise modified from
time to time, the "Credit Agreement");
WHEREAS, Borrower has informed Administrative Agent that its December 31,
1999 negative EBITDA will exceed the maximum negative EBITDA requirement of
($6,520,500) pursuant to Section 7.01(a)(ii) of the Credit Agreement;
WHEREAS, Borrower has informed Administrative Agent that the Borrower has
requested a waiver of its requirement to comply with this EBITDA covenant for
the fiscal quarter ended December 31, 1999 and certain other amendments to the
Credit Agreement;
WHEREAS, the Lenders, the Administrative Agent and the Borrower have
agreed upon the terms and conditions set forth below;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
Borrower, the Lenders and the Administrative Agent agree as follows:
SECTION 1.
(a) Definitions, in general. Unless specifically defined or redefined
below, capitalized terms used herein shall have the meanings ascribed thereto in
the Credit Agreement.
(b) The definition of "Consequential Loss" in Article I of the Credit
Agreement is hereby amended to read in its entirety as follows:
"Consequential Loss," with respect to (a) the Borrower's payment of
all or any portion of the then-outstanding principal amount of a LIBOR
Advance on a day other than the last day of the related Interest Period,
including, without limitation, payments made as a result of the
acceleration of the maturity of a Note, (b) (subject to Administrative
Agent's prior consent), a LIBOR Advance made on a date other
<PAGE> 2
than the date on which the Advance is to be made according to Section
2.02(a) or Section 2.10 hereof to the extent such Advance is made on such
other date at the request of the Borrower, or (c) any of the circumstances
specified in Section 2.04, Section 2.05 and Section 2.06 hereof on which a
Consequential Loss may be incurred, means any loss, cost or expense
incurred by any Lender as a result of the timing of the payment or Advance
or in liquidating, redepositing, redeploying or reinvesting the principal
amount so paid or affected by the timing of the Advance or the
circumstances described in Section 2.05, Section 2.06, and Section 2.10
hereof, which amount shall be the sum of (i) the interest that, but for
the payment or timing of Advance, such Lender would have earned in respect
of that principal amount, reduced, if such Lender is able to redeposit,
redeploy, or reinvest the principal amount, by the interest or other
earnings earned by such Lender as a result of redepositing, redeploying or
reinvesting the principal amount plus (ii) any expense or penalty incurred
by such Lender by reason of liquidating, redepositing, redeploying or
reinvesting the principal amount. Each determination by each Lender of any
Consequential Loss is, in the absence of manifest error, conclusive and
binding.
(c) The definition of "Excluded Assets" in Article I of the Credit
Agreement is hereby amended to read in its entirety as follows:
"Excluded Assets" means (i) those assets of the Parent, the Borrower
or their Subsidiaries securing Debt for Borrowed Money permitted by
Section 7.02(c) to be incurred under the Nortel Credit Line and purchased
with the proceeds of the Nortel Credit Line and the GATX Lease Agreement
(and not any assets or properties that were not purchased with the
proceeds of the Nortel Credit Line or the GATX Lease), but only for so
long as such assets remain as collateral for the Nortel Credit Line or the
GATX Lease, (ii) those assets owned by Telergy Canada, (iii) fiber and
other related assets subject to an IRU which is not prohibited from
disposition in accordance with the terms of Section 7.15 of this
Agreement, (iv) Right-of-Way Agreements, (v) those assets of the Parent,
the Borrower or their Subsidiaries constituting a Right-of-Way, (vi) those
assets of the Parent, the Borrower or their Subsidiaries that are
prohibited by Applicable Law from securing the Obligations, but only for
so long as such prohibition is effective, (vii) those assets of the
Parent, the Borrower or their Subsidiaries securing Debt for Borrowed
Money permitted by Section 7.02(e) or Section 7.02(f) and (viii) those
assets of the Parent, the Borrower or their Subsidiaries which are the
subject of Liens existing on the Closing Date which are described on
Schedule 7.03 hereto, and resulting from the permitted refinancing of the
related Debt for Borrowed Money, but only for so long as such assets
remain as collateral for such Debt for Borrowed Money.
(d) The definition of "Lenders" in Article I of the Credit Agreement is
hereby amended to read in its entirety as follows:
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<PAGE> 3
"Lenders" means the lenders listed on the signature pages of this
Agreement or specified in any amendment to this Agreement, and each
Assignee which hereafter becomes a party to this Agreement pursuant to
Section 10.04 hereof, for so long as any such Person is owed any portion
of the Obligations or obligated to make any Advances.
(e) The definition of "Subsidiary" in Article I of the Credit Agreement is
hereby amended to read in its entirety as follows:
"Subsidiary" means, with respect to any Person (herein referred to
as the "parent"), any corporation, partnership, limited liability company,
association or other business entity of which securities or other
ownership interests representing more than 50% of the equity or more than
50% of the ordinary voting power or more than 50% of the general
partnership interests are, at the time any determination is being made,
owned, controlled or held, by the parent or one or more Subsidiaries of
the parent or by the parent and one or more Subsidiaries of the parent;
provided that Telergy MidAtlantic shall not be considered a Subsidiary for
purposes of this Agreement.
(f) Definition of "Telergy Metro". A new definition of "Telergy Metro" is
added to Article I of the Credit Agreement in alphabetical order as follows:
Telergy Metro" means Telergy Metro, LLC, a New York limited liability
company.
(g) Definition of "Telergy MidAtlantic". A new definition of "Telergy
MidAtlantic" is added to Article I of the Credit Agreement in alphabetical order
as follows:
Telergy MidAtlantic" means Telergy MidAtlantic, LLC, a New York limited
liability company.
SECTION 2. Amendment to Section 2.05(d). Section 2.05(d) of the Credit
Agreement is amended and restated in its entirety as follows:
(d) Commitment Reductions, Generally. To the extent the sum of the
aggregate outstanding Advances plus the undrawn face amount of outstanding
Letters of Credit plus reimbursement obligations under Article III hereof
exceed the Commitment after any reduction thereof, the Borrower shall
immediately repay on the date of such reduction, any such excess amount
and all accrued interest thereon, together with any amounts constituting
any Consequential Loss and/or cash collateralize any undrawn portion of
any outstanding Letters of Credit. Once reduced or terminated pursuant to
this Section 2.05, the Commitment may not be increased or reinstated.
SECTION 3. Amendment to Section 2.06(b). Section 2.06(b) of the Credit
Agreement is amended and restated in its entirety as follows:
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<PAGE> 4
(b) Mandatory Prepayments. The Borrower shall make an immediate and
mandatory prepayment of the Loan and/or cash collateralization of the
Letters of Credit by an amount in each case equal to: (i) 100% of the net
cash proceeds from the issuance of any equity or Capital Stock by the
Parent or any of its Subsidiaries (whether as a result of the exercise of
a Stock Right or otherwise), except (A) Capital Stock of the Parent issued
(I) pursuant to the Private Offering, (II) pursuant to the Conversion
Rights Agreement, (III) in accordance with any Stock Plan, (IV) pursuant
to any Stock Rights existing on the Closing Date, and (V) the Series B
Preferred, or (B) Capital Stock of Telergy Canada issued to comply with
applicable Law of Canada, (ii) 100% of the Net Proceeds from Asset
Dispositions and Fiber Dispositions by the Parent, the Borrower or any of
their Subsidiaries (specifically excluding Fiber Dispositions not
prohibited by the terms of Section 7.15 hereof) (this section in and of
itself not permitting any such transactions, for permitted Asset
Dispositions, see Section 7.06 hereof and for prohibited Fiber
Dispositions, see Section 7.15 hereof), provided that no prepayment must
be made for Asset Dispositions (A) in the ordinary course of business, (B)
among the Parent, the Borrower and their Wholly Owned Subsidiaries or
Telergy Central and (C) the Net Proceeds of which aggregate in an amount
over the term of this Agreement less than $1,000,000; (iii)100% of the net
proceeds received by the Parent, the Borrower or their Subsidiaries in
connection with the incurrence of Debt for Borrowed Money of the Parent,
the Borrower or any of their Subsidiaries after the date hereof (this
section in and of itself not permitting any such transactions, for
permitted debt incurrence see Section 7.02 hereof) except with respect to
the incurrence by the Borrower of Debt for Borrowed Money in accordance
with the terms of Section 7.02 hereof; (iv) 100% of the Obligations if a
Change in Control occurs ; and (v) 100% of the cash proceeds of any policy
of insurance or condemnation payment or award, eminent domain payment or
award or other compensation received by the Parent, the Borrower or any of
their Subsidiaries arising from, relating to, or as a result of, any loss
of, damages to, or condemnation, eminent domain or other taking of, any
assets or properties of the Parent, the Borrower or any of their
Subsidiaries (a) promptly upon receipt of such proceeds by the Borrower,
the Parent or any of their Subsidiaries (as the case may be), if there
shall have occurred an Event of Default that is continuing, and (b) in all
other cases, that are not reinvested by the recipient of such Proceeds to
repair or restore the affected assets and properties to substantially
their previous condition or to replace such affected assets and properties
with substantially identical assets or properties having substantially
similar value and useful life, upon the earlier to occur of (A) the date
on which the recipient of such proceeds shall have determined not to
restore, repair or replace the affected assets and properties, or (B) the
date that is two hundred seventy (270) days following the date of receipt
of such proceeds by the Parent, the Borrower or any of their Subsidiaries
(as the case may be).
SECTION 4. Amendment to Section 2.06(c). Section 2.06(c) of the Credit
Agreement is amended and restated in its entirety as follows:
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<PAGE> 5
(c) Outstanding Advances in Excess of the Available Commitment. On
each and every date that the sum of (i) the outstanding Advances plus (ii)
the undrawn portion of any outstanding Letters of Credit plus (iii)
reimbursement obligations under Article III hereof exceed the Available
Commitment, the Borrower shall make an immediate and mandatory prepayment
of the Loan and/or cash collateralize the undrawn portion of any
outstanding Letters of Credit by an amount in each case equal to the
amount of outstanding Advances in excess of the Available Commitment.
SECTION 5. Amendment to Section 2.12(a). Section 2.12(a) of the Credit
Agreement is amended and restated in its entirety as follows:
(a) The Borrower shall make each payment hereunder and under the
other Loan Papers not later than 1:00 p.m. on the day when due in same day
funds to Administrative Agent, for the Ratable account of Lenders unless
otherwise specifically provided herein, at
Administrative Agent
Bank of America Plaza
901 Main Street
14th Floor
Dallas, Texas 75202
for further credit to the account of the Lenders. No later than the end of
each day when each payment hereunder is made, the Borrower shall notify
Administrative Agent, telephone (800) 880-5537, facsimile (214) 209-2515,
or such other Person as Administrative Agent may from time to time
specify.
SECTION 6. Amendment to Section 3.01. Section 3.01 of the Credit Agreement
is amended and restated in its entirety as follows:
SECTION 3.01. Issuance of Letters of Credit. The Borrower shall give
the Administrative Agent not less than five Business Days prior written
notice of a request for the issuance of a Letter of Credit, and the
Administrative Agent shall promptly notify each Lender of such request.
Upon receipt of the Borrower's properly completed and duly executed
Applications, and subject to the terms of such Applications and to the
terms of this Agreement, the Administrative Agent agrees to issue Letters
of Credit on behalf of the Borrower in an aggregate face amount not in
excess of the lesser of (a) Letter of Credit Commitment and (b) the
remainder of the Available Commitment minus the sum of all outstanding
Advances plus the aggregate face amount of all outstanding Letters of
Credit plus reimbursement obligations under Article III hereof. No Letter
of Credit shall have a maturity extending beyond the earliest of (i) the
Maturity Date, or (ii) one year from the date of its issuance, or (iii)
such earlier date as may be required to enable the Borrower to satisfy its
repayment obligations under Section 2.07 hereof. Subject to such maturity
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<PAGE> 6
limitations and so long as no Default or Event of Default has occurred and
is continuing or would result from the renewal of a Letter of Credit, the
Letters of Credit may be renewed by the Administrative Agent and Issuing
Bank in their discretion. The Lenders shall participate Ratably in any
liability under the Letters of Credit and in any unpaid reimbursement
obligations of the Borrower with respect to any Letter of Credit in their
Specified Percentages. The undrawn amount of the Letters of Credit issued
and outstanding and the unpaid reimbursement obligations of the Borrower
for such Letters of Credit shall reduce the amount of the Available
Commitment available, so that at no time shall the sum of (i) all
outstanding Advances in the aggregate, plus (ii) the aggregate undrawn
face amount of all outstanding Letters of Credit, plus (iii) (without
duplication) all outstanding reimbursement obligations related to Letters
of Credit, exceed the Available Commitment, and at no time shall the sum
of all Advances by any Lender made plus its Ratable share of amounts
available to be drawn under the Letters of Credit and the unpaid
reimbursement obligations of the Borrower in respect of such Letters of
Credit exceed its Specified Percentage of the Available Commitment.
SECTION 7. Amendment to Section 6.02. Section 6.02 of the Credit Agreement
is amended and restated in its entirety as follows:
SECTION 6.02 Insurance. Keep all of its insurable assets and
properties now or hereafter owned adequately insured at all times against
loss or damage by fire or other casualty on an all-risk basis and for the
full replacement cost thereof, with such limits and deductibles and
pursuant to such other terms and conditions as are at all times, at least
equal to those which are summarized in Schedule 4.18 to the Credit
Agreement and set forth in the applicable underlying policies of insurance
described in such schedule; maintain public liability (including excess or
umbrella coverage) and other types of liability insurance coverages,
insuring the Parent, the Borrower and their Subsidiaries, all by
financially sound and reputable insurers, in such amounts, with such
limits and deductibles and pursuant to such other terms and conditions as
are at all times at least equal to those which are summarized in Schedule
4.18 to the Credit Agreement and set forth in the applicable underlying
policies of insurance described in such schedule, and furnish to the
Administrative Agent (which will promptly furnish the same to any Lender
upon its request) satisfactory evidence of the same (including
certification by a Responsible Officer of timely renewal of, and timely
payment of all insurance premiums payable under, all such policies, which
certification shall be included in the next succeeding Compliance
Certificate to be delivered from time to time pursuant to Section
6.04(c)(ii)); notify the Administrative Agent of any material change in
the insurance maintained on its assets and properties after the date
hereof and furnish to the Administrative Agent satisfactory evidence of
any such change; provide that each insurance policy shall: (a)(i) name the
Administrative Agent, on behalf of the Lenders, as loss payee pursuant to
a so-called "standard mortgagee clause" or "Lender's loss payable
endorsement", with respect to property coverage, and (ii) name the
Administrative Agent and each of the Lenders as additional insureds, with
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<PAGE> 7
respect to general liability coverage; (b) provide that no action of the
Parent, the Borrower or any of their Subsidiaries shall void any such
policy as to the Administrative Agent or the Lenders; and (c) provide that
the insurer(s) shall notify the Administrative Agent (which shall promptly
furnish the same to any Lender upon its request) in writing of any
proposed cancellation of, or material reduction in coverage under, or
other material adverse change in, such policy at least thirty (30) days in
advance thereof (unless such proposed cancellation arises by reason of
non-payment of insurance premiums in which case such notice shall be given
at least ten (10) days in advance thereof) and that the Administrative
Agent will have the opportunity to correct any deficiencies justifying
such proposed cancellation, reduction or change.
SECTION 8. Amendment of Section 7.05(f)of the Credit Agreement . Sections
7.05(f) of the Credit Agreement is deleted in its entirety and the following
Section 7.05(f) is added in its stead:
(f) So long as there exists no Default or Event of Default
both immediately before and immediately after making any such
Investment and subject to the prior or contemporaneous sale of the
Series B Preferred, Investments in Telergy MidAtlantic of up to
$4,000,000 in the aggregate during the term of this Agreement.
SECTION 9. Amendment to Section 7.02(b). Section 7.02(b) of the Credit
Agreement is amended and restated in its entirety as follows:
(b) Debt for Borrowed Money of any Subsidiary (other than Telergy
Canada) owed to the Parent, the Borrower or to another Wholly-Owned
Subsidiary of the Borrower (other than Telergy Canada) or Telergy Central
under Section 7.05(c) hereof;
SECTION 10. Amendment to Section 9.01. Section 9.01 of the Credit
Agreement is amended and restated in its entirety as follows:
SECTION 9.01. Authorization and Action. Each Lender hereby appoints
and authorizes Administrative Agent to take such action as Administrative
Agent deems appropriate on its behalf and to exercise such powers under
this Agreement and the other Loan Papers as are delegated to the
Administrative Agent by the terms of the Loan Papers, together with such
powers as are reasonably incidental thereto. As to any matters not
expressly provided for by this Agreement and the other Loan Papers
(including, without limitation, enforcement or collection of the Notes),
Administrative Agent shall not be required to exercise any discretion or
take any action, but shall be required to act or to refrain from acting
(and shall be fully protected in so acting or refraining from acting) upon
the instructions of Majority Lenders (or all Lenders, if required under
Section 10.01), and such instructions shall be binding upon all Lenders;
provided, however, that Administrative Agent shall not be required to take
any action which exposes
-7-
<PAGE> 8
Administrative Agent to personal liability or which is contrary to any
Loan Papers or applicable Law. Administrative Agent agrees to give to each
Lender notice of each notice given to it by the Borrower pursuant to the
terms of this Agreement and to distribute to each applicable Lender in
like funds all amounts delivered to Administrative Agent by the Borrower
for the Ratable or individual account of any Lender. The Administrative
Agent shall (a) give each of the Lenders prompt written notice of its
receipt of any Borrowing Notice or any Notice of Conversion/Continuation
(together with a copy of such Borrowing Notice or Notice of
Conversion/Continuation) or of any request by the Borrower for the
issuance of a Letter of Credit (including a statement of the proposed face
amount of the applicable Letter of Credit); and (b) promptly upon receipt
thereof by the Administrative Agent, furnish to each of the Lenders any
financial statements and other information furnished by the Borrower, the
Parent or any of their Subsidiaries pursuant to Section 6.04 of the Credit
Agreement.
SECTION 11. Amendment to Section 10.01(a). Section 10.01(a) of the Credit
Agreement is amended and restated in its entirety as follows:
(a) Except as otherwise provided elsewhere herein or in any of the
other Loan Papers, neither this Agreement nor any provision hereof or in
any other Loan Paper may be waived, amended or modified except pursuant to
an agreement or agreements in writing entered into by the Borrower and the
Administrative Agent, with the consent of the Majority Lenders; provided,
however, that no such agreement shall (i) decrease the principal amount
of, or extend the maturity of, or any scheduled principal payment date, or
date for the payment of any interest on the Loan, or waive or excuse any
such payment or any part thereof, or decrease the rate of interest on the
Loan, decrease the Commitment Fee, the Letter of Credit fee or any other
fees owing hereunder, without the prior written consent of each Lender
affected thereby, (ii) release any material Collateral or guaranty of the
Obligations, provided that, the Administrative Agent may, at the
Borrower's request and without the consent of any Lender, release (A) any
immaterial portion of the Collateral that is immaterial to the business of
the Parent, the Borrower and their Subsidiaries, and (B) any portion of
the Collateral permitted by the terms of this Agreement to be sold or
disposed of (in an IRU or otherwise) in accordance with the terms of
Section 7.06 hereof (and so long as the Borrower confirms to the
Administrative Agent that it intends to comply with the terms of Section
2.06 hereof, and grant a Lien on all newly acquired equipment in
accordance with the terms of Section 2.16(b) hereof); (iii) amend or
modify the provisions of this Section or the definition of the terms
"Available Commitment", "Commitment", "Unavailable Commitment", "Specified
Percentage" or "Majority Lenders", without the prior written consent of
each Lender; provided further that no such agreement shall amend, modify
or otherwise affect the rights or duties of the Administrative Agent
hereunder without the prior written consent of the Administrative Agent.
The Borrower may rely on the written representation by the Administrative
Agent that consent of the Majority Lenders was obtained.
-8-
<PAGE> 9
SECTION 12. Amendment to Section 10.02(c). Section 10.02(c) of the Credit
Agreement is amended and restated in its entirety as follows:
(c) if to a Lender, to it at its address (or telecopy number) set
forth on the signature pages hereto or specified in any amendment to this
Agreement, or in the Assignment and Acceptance pursuant to which such
Lender shall have become a party hereto.
SECTION 13. Amendment to Section 10.04(b). Section 10.04(b) of the Credit
Agreement is amended and restated in its entirety as follows:
(b) Each Lender may assign to one or more assignee (an "Assignee")
all or a portion of its interests, rights and obligations under this
Agreement and the other Loan Papers (including all or a portion of the
Loan at the time owing to it); provided, however, that (i) except in the
case of an assignment to a Lender or an Affiliate of such Lender, (x) the
Administrative Agent and, provided that there exists no Default or Event
of Default, the Borrower, such consent not to be unreasonably withheld,
must give its prior written consent to such assignment and (y) the amount
of the Loan of the assigning Lender subject to each such assignment
(determined as of the date the Assignment and Acceptance with respect to
such assignment is delivered to the Administrative Agent) shall not be
less than $5,000,000 (or, if less, the entire remaining amount of such
Lender's Loan) and will not result in the unassigned portion, if any, of
the assigning Lender's Loan being less than $5,000,000, (ii) the parties
to each such assignment shall execute and deliver to the Administrative
Agent an Assignment and Acceptance, together with a processing and
recordation fee of $3,500 payable by the parties to the Assignment and
Acceptance (unless such fee is waived by the Administrative Agent) and
(iii) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an administrative questionnaire. From and after the
later of (i) the effective date specified in each Assignment and
Acceptance and (ii) delivery of such Assignment and Acceptance to the
Administrative Agent, (A) the assignee thereunder shall be a party hereto
and, to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations of a Lender under this
Agreement and the other Loan Papers and (B) the assigning Lender
thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this
Agreement and the other Loan Papers (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's
rights and obligations under this Agreement and the other Loan Papers,
such Lender shall cease to be a party hereto and to the Loan Papers, but
shall continue to be entitled to the benefits of Sections 2.11 and 10.05
hereof, as well as to any Fees accrued for its account and not yet paid).
The Borrower shall, at their expense, issue to the assignor and assignee a
new Note, as applicable, in the respective amounts of each such Lender's
Specified Percentage in the Loan.
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<PAGE> 10
SECTION 14. Amendment to Section 10.04(d). Section 10.04(d) of the Credit
Agreement is amended and restated in its entirety as follows:
(d) Each Lender may without the consent of the Borrower or the
Administrative Agent sell participations to one or more banks or other
entities in all or a portion of its rights and obligations under this
Agreement and the other Loan Papers (including all or a portion of its
Loan owing to it); provided, however, that (i) such Lender's obligations
under this Agreement and the other Loan Papers shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) the participating
banks or other entities shall be entitled to the benefit of the cost
protection provisions contained in Sections 2.11 and 10.05 hereof to the
same extent as if they were Lenders, provided that, such participant shall
not be entitled to any greater benefit of such Section than the Lenders
selling such participation interest has at the time and (iv) the Borrower,
the Administrative Agent and the Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Papers, and such
Lender shall retain the sole right to enforce the obligations of the
Borrower relating to the Loan and to approve any amendment, modification
or waiver of any provision of this Agreement and the other Loan Papers
(other than amendments, modifications or waivers decreasing any fees
payable hereunder or the amount of principal of or the rate at which
interest is payable on the Loan, extending any scheduled principal payment
date or date fixed for the payment of interest on the Loan).
SECTION 15. Amendment to Section 10.08. Section 10.08 of the Credit
Agreement is amended and restated in its entirety as follows:
SECTION 10.08. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement and the other Loan Papers shall be
considered to have been relied upon by the Lenders and shall survive the
making by the Lenders of the Loan, regardless of any investigation made by
the Lenders, or on their behalf, and shall continue in full force and
effect as long as the principal of or any accrued interest on the Loan or
any Fee or any other amount payable under this Agreement or any other Loan
Paper is outstanding and unpaid. The provisions of Sections 2.11 and 10.05
hereof shall remain operative and in full force and effect regardless of
the expiration of the term of this Agreement, the consummation of the
transactions contemplated hereby, the repayment of any portion of the
Loan, the invalidity or unenforceability of any term or provision of this
Agreement or any other Loan Paper, or any investigation made by or on
behalf of the Administrative Agent or any Lender.
SECTION 16. Existing Default and Limited Conditional Waiver. The Borrower
has informed the Administrative Agent that it is seeking a conditional and
limited one time waiver of one provision of the Credit Agreement. In particular,
the Borrower has informed the Administrative
-10-
<PAGE> 11
Agent that for the period ending December 31, 1999, EBITDA was ($7,468,522)
which exceeds the negative EBITDA permitted for such period pursuant to Section
7.01(a)(ii) of the Credit Agreement. The Administrative Agent and the Lenders
agree, on a one time only basis, to waive in its entirety the requirement of
Section 7.01(a)(ii) of the Credit Agreement to satisfy the referenced minimum
EBITDA level for December 31, 1999, provided that the Borrower and each other
party to this Amendment and Waiver meet each of the conditions, representations,
warranties and covenants contained herein and each of the other Loan Papers, the
failure of which will cause this waiver to be void ab initio.
SECTION 17. Conditions Precedent. This Waiver and Amendment shall not be
effective until the Administrative Agent shall have received:
(a) executed signature pages from the Borrower, the Parent, Telergy
Parkway, the Administrative Agent and Majority Lenders;
(b) certified copies of resolutions authorizing the execution, delivery
and performance of this Waiver and Amendment; and
(c) such other documents, instruments, and certificates, in form and
substance satisfactory to the Administrative Agent and the Lenders,
as the Administrative Agent and the Lenders shall deem necessary or
appropriate in connection with this Waiver and Amendment and the
transactions contemplated hereby.
SECTION 18. Representations and Warranties. The Borrower represents and
warrants to the Lenders and the Administrative Agent that (a) this Waiver and
Amendment is a Loan Paper under the Credit Agreement and constitutes its legal,
valid, and binding obligation, enforceable in accordance with the terms hereof
(subject as to enforcement of remedies to any applicable bankruptcy,
reorganization, moratorium, or other laws or principles of equity affecting the
enforcement of creditors' rights generally), (b) there exists no Default or
Event of Default under the Credit Agreement that has not been waived by the
Lenders, (c) its representations and warranties set forth in the Credit
Agreement and other Loan Papers are true and correct on the date hereof, (d) it
has complied with all agreements and conditions to be complied with by it under
the Credit Agreement and the other Loan Papers by the date hereof, (e) the
Credit Agreement, as amended hereby, and the other Loan Papers remain in full
force and effect and (f) EBITDA for the Borrower pursuant to Section 7.01(a)(ii)
of the Credit Agreement for the fiscal quarter ended December 31, 1999 is no
more negative than ($7,468,522).
SECTION 19. Entire Agreement; Ratification. THE CREDIT AGREEMENT AS
AMENDED HEREBY AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES. EXCEPT AS MODIFIED OR SUPPLEMENTED HEREBY, THE CREDIT
AGREEMENT, THE OTHER LOAN PAPERS AND ALL OTHER DOCUMENTS AND
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<PAGE> 12
AGREEMENTS EXECUTED IN CONNECTION THEREWITH SHALL CONTINUE IN FULL FORCE AND
EFFECT.
SECTION 20. Counterparts. This Waiver and Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument. In making proof hereof, it shall not be necessary to produce or
account for any counterpart other than one signed by the party against which
enforcement is sought.
SECTION 21. JURISDICTION; CONSENT TO SERVICE OF PROCESS.
(A) THE BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY
IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE
NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT OF THE
UNITED STATES OF AMERICA SITTING IN NEW YORK, NEW YORK AND ANY APPELLATE COURT
FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN PAPER, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN
SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN
ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN PAPER SHALL AFFECT ANY RIGHT THAT
THE ADMINISTRATIVE AGENT OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN PAPER AGAINST THE
BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(B) THE BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND
EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OTHER LOAN PAPER IN ANY NEW YORK STATE OR FEDERAL COURT.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(C) EACH PARTY TO THIS AGREEMENT AND ANY OTHER LOAN PAPER IRREVOCABLY
CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN PARAGRAPH
21 HEREOF. NOTHING IN THIS AGREEMENT OR ANY OTHER LOAN PAPER WILL AFFECT THE
RIGHT OF ANY PARTY TO THIS
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<PAGE> 13
AGREEMENT OR ANY OTHER LOAN PAPER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW.
===============================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
===============================================================================
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<PAGE> 14
IN WITNESS WHEREOF, this Waiver and Amendment to Credit Agreement is
executed as of the date first set forth above.
THE BORROWER:
TELERGY OPERATING, INC.
/s/ Kevin J. Kelly
________________________________________
By: Kevin J. Kelly
___________________________________
Its: Executive VP
___________________________________
TELERGY CENTRAL, LLC
/s/ Kevin J. Kelly
________________________________________
By: Kevin J. Kelly
___________________________________
Executive VP
___________________________________
TELERGY NETWORK SERVICES, INC.
/s/ Kevin J. Kelly
________________________________________
By: Kevin J. Kelly
___________________________________
Executive VP
___________________________________
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<PAGE> 15
THE ADMINISTRATIVE AGENT:
BANK OF AMERICA, N.A.,
as Administrative Agent
/s/ Anthony Cacheria
________________________________________
By: Anthony M. Cacheria
Title: Managing Director
THE LENDERS:
SPECIFIED BANK OF AMERICA, N.A.,
PERCENTAGE ON THE CLOSING: individually as a Lender
DATE:_____________________%
Address:
901 Main Street
64th Floor
Dallas, Texas 75202
/s/ Anthony Cacheria
________________________________________
By: Anthony M. Cacheria
Attn: Tony Cacheria Title: Managing Director
Telephone: (214) 209-0157
Telecopy: (214) 209-9390
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<PAGE> 16
SPECIFIED TORONTO DOMINION (TEXAS), INC.,
PERCENTAGE ON THE CLOSING: individually as a Lender
DATE:_____________________%
Address:
__________________________
__________________________
__________________________ _______
By:_____________________________________
Attn:_____________________
Title:__________________________________
Telephone:________________
Telecopy:__________________
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<PAGE> 17
SPECIFIED CIBC INC.
PERCENTAGE ON THE CLOSING: individually as a Lender
DATE:_____________________%
Address:
__________________________
__________________________
__________________________ _______
By:_____________________________________
Attn:_____________________
Title:__________________________________
Telephone:________________
Telecopy:__________________
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<PAGE> 18
SPECIFIED ROYAL BANK OF CANADA,
PERCENTAGE ON THE CLOSING: individually as a Lender
DATE:_____________________%
Address:
__________________________
__________________________
__________________________ _______
By:_____________________________________
Attn:_____________________
Title:__________________________________
Telephone:________________
Telecopy:__________________
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<PAGE> 19
SPECIFIED NEWCOURT COMMERCIAL FINANCE
PERCENTAGE ON THE CLOSING: CORPORATION, individually as a Lender
DATE:_____________________%
Address:
__________________________
__________________________
__________________________ _______
By:_____________________________________
Attn:_____________________
Title:__________________________________
Telephone:________________
Telecopy:__________________
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<PAGE> 20
THE GUARANTORS:
ACKNOWLEDGED AND AGREED:
TELERGY, INC.
________________________________________
By:_____________________________________
Its:____________________________________
TELERGY PARKWAY, INC.
________________________________________
By:_____________________________________
Its:____________________________________
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<PAGE> 1
EXHIBIT 10.14.4
THIRD AMENDMENT
TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO THE SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") is dated as of the day of April, 2000, and entered into
among Telergy Operating, Inc., a Delaware corporation (the "Borrower"), the
Lenders (as defined below) and Bank of America, N.A., as a Lender and
Administrative Agent.
WITNESSETH:
WHEREAS, the Borrower, the Lenders and the Administrative Agent entered
into a Second Amended and Restated Credit Agreement, dated as of November 19,
1999 (as amended, and as further amended, restated or otherwise modified from
time to time, the "Credit Agreement");
WHEREAS, Borrower has informed Administrative Agent that it desires to
reset certain covenants contained in the Credit Agreement;
WHEREAS, the Lenders, the Administrative Agent and the Borrower have
agreed upon the terms and conditions set forth below;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
Borrower, the Lenders and the Administrative Agent agree as follows:
SECTION 1. Definitions, in general. Unless specifically defined or
redefined below, capitalized terms used herein shall have the meanings ascribed
thereto in the Credit Agreement.
SECTION 2. Amendment to Section 7,01(a). Section 7.01(a) of the Credit
Agreement is amended and restated in its entirety as follows:
(a) Minimum Revenues and EBITDA.
The Borrower will not permit
(i) Revenues for any fiscal quarter to be less than
the amount set forth below for such fiscal quarter:
<PAGE> 2
Fiscal Quarter Ending Minimum Revenue
- --------------------- ---------------
December 31, 1999 [***]
March 31, 2000 [***]
June 30, 2000 [***]
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material
omitted on this page. The omitted portions have been filed separately
with the Securities and Exchange Commission.
<PAGE> 3
<TABLE>
<S> <C>
September 30, 2000 [***]
December 31, 2000 [***]
March 31, 2001 [***]
June 30, 2001 [***]
September 30, 2001 [***]
December 31, 2001 [***]
March 31, 2002 [***]
June 30, 2002 [***]
September 30, 2002 [***]
December 31, 2002 [***]
</TABLE>
(ii) actual EBITDA for any fiscal quarter to be less than EBITDA as set
forth below for such fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Ending EBITDA
- --------------------- ------
<S> <C>
December 31, 1999 [***]
March 31, 2000 [***]
June 30, 2000 [***]
September 30, 2000 [***]
December 31, 2000 [***]
March 31, 2001 [***]
June 30, 2001 [***]
September 30, 2001 [***]
December 31, 2001 [***]
March 31, 2002 [***]
</TABLE>
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material
omitted on this page. The omitted portions have been filed separately
with the Securities and Exchange Commission.
-2-
<PAGE> 4
<TABLE>
<S> <C>
June 30, 2002
September 30, 2002
December 31, 2002
</TABLE>
SECTION 3. Amendment to Section 8.01. Section 8.01 of the
Credit Agreement is amended and restated in its entirety as follows:
SECTION 8.01, Events of Default. Any one or more of
the following shall be an "Event of Default" hereunder, if the
same shall occur for any reason whatsoever, whether voluntary
or involuntary, by operation of Law or otherwise:
(a) default shall be made in the payment of any
principal of the Loan when and as the same shall become due
and payable, whether at the due date thereof or at a date
fixed for prepayment thereof or by acceleration thereof or
otherwise;
(b) default shall be made in the payment of any
interest on the Loan or any Fee or any other amount (other
than an amount referred to in (a) above) due under this
Agreement or any other Loan Paper, when and as the same shall
become due and payable, and such default shall continue
unremedied for a period of three Business Days;
(c) default shall be made in the due observance or
performance by the Parent, the Borrower or any of their
Subsidiaries of any covenant, condition or agreement contained
in Sections 6.01(a), 6.05, 6.08 or 6.10 hereof or in Article
VII hereof;
(d) the Parent shall fail to raise an additional
$200,000,000 of net proceeds in equity through an initial
public offering of its common capital stock or through the
issuance of public debt by September 30, 2000;
(e) default shall be made in the due observance or
performance by the Parent, the Borrower or any of their
Subsidiaries of any covenant, condition or agreement contained
in this Agreement (other than those specified in (a), (b), (c)
or (d) above) or in any Loan Paper and such default shall
continue unremedied for a period of 30 days after the earlier
of (i) actual knowledge thereof by any Responsible Officer and
(ii) receipt of notice thereof from the Administrative Agent
or any Lender;
(f) any representation or warranty made or deemed
made by the Parent, the Borrower or any of their Subsidiaries
in or in connection with this Agreement or in any other Loan
Paper, or in connection with the borrowings hereunder; or any
representation, warranty, statement or written information
contained in any report,
<PAGE> 5
certificate, financial statement or other instrument prepared
by the Parent, the Borrower or any of their Subsidiaries and
furnished by the Parent, the Borrower or any of their
Subsidiaries in connection with or pursuant to this Agreement
or any other Loan Paper, shall prove to have been false
or misleading in any material respect when so made, deemed
made or furnished;
(g) the Parent, the Borrower or any of their
Subsidiaries shall (i) other than Debt for Borrowed Money
under this Agreement, fail to pay any principal or interest,
regardless of amount, due in respect of any Debt for Borrowed
Money of the Parent, the Borrower or any of their
Subsidiaries in a principal amount in excess of $2,500,000,
when and as the same shall become due and payable (and such
failure continues after the expiration of any applicable
grace periods set forth therein), or (ii) fail to observe or
perform any other term, covenant, condition or agreement
contained in any agreement or instrument evidencing or
governing any such Debt for Borrowed Money if the effect of
any failure referred to in this clause (ii) is to (A) cause,
or to permit the holder or holders of such indebtedness or a
trustee on its or their behalf to cause, such Debt for
Borrowed Money to become due prior to its stated maturity or
(B) cause any redemption, prepayment, reduction of commitment
or other non-scheduled principal reduction in any such Debt
for Borrowed Money prior to its maturity;
(h) an involuntary proceeding shall be commenced or
an involuntary petition shall be filed in a court of
competent jurisdiction seeking (i) relief in respect of the
Parent, the Borrower or any of their Subsidiaries, or of a
substantial part of the property or assets of the Parent, the
Borrower or their Subsidiaries, under Title 11 of the United
States Code, as now constituted or hereafter amended, or any
other Federal, state or foreign bankruptcy, insolvency,
receivership or similar Law, (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or
similar official for the Parent, the Borrower or any of their
Subsidiaries or for a substantial part of the property or
assets of the Parent, the Borrower or any of their
Subsidiaries or (iii) the winding-up or liquidation of the
Parent; the Borrower or any of their Subsidiaries; and such
proceeding or petition shall continue undismissed for 60 days
or an order or decree approving or ordering any of the
foregoing shall be entered;
(i) the Parent, the Borrower or any of their
Subsidiaries shall (i) voluntarily commence any proceeding or
file any petition seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any
other Federal, state or foreign bankruptcy, insolvency,
receivership or similar Law, (ii) consent to the institution
of, or fail to contest in a timely and appropriate manner,
any proceeding or the filing of any petition described in (g)
above, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or
similar official for the Parent, the Borrower or any of
their Subsidiaries or for a substantial part of the property
or assets of the Parent, the Borrower or any of their
Subsidiaries, (iv) file an answer admitting the material
allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for the benefit of
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<PAGE> 6
creditors, (vi) become unable, admit in writing its inability
or fail generally to pay its debts as they become due or
(vii) take any action for the purpose of effecting any of the
foregoing;
(j) one or more judgments for the payment of money in
an aggregate amount in excess of $1,000,000 shall be rendered
against the Parent, the Borrower or any of their Subsidiaries,
or any combination thereof and the same shall remain
undischarged or unpaid for a period of 30 consecutive days
during which execution shall not be effectively stayed, or
any action shall be legally taken by a judgment creditor to
levy upon assets or properties of the Parent, the Borrower or
any of their Subsidiaries to enforce any such judgment;
(k) an ERISA Event shall have occurred that, when
taken together with all other such ERISA Events, could
reasonably be expected to result in liability of the Parent,
the Borrower or any of their Subsidiaries, or any combination
thereof, in an aggregate amount exceeding $1,000,000;
(l) any of the following shall occur: (i) this
Agreement, any pledge agreement, any security agreement, any
guarantee or any Note executed in connection with this
Agreement (collectively, the "Material Loan Agreements"), or
any material provision of any thereof shall, for any reason,
not be valid and binding on the Parent, the Borrower or any of
their Subsidiaries signatory thereto, or not be in full force
and effect, or shall be declared to be null and void; or (ii)
the validity or enforceability of any Material Loan Agreement
shall be contested by any of the Parent, the Borrower or any
of their Subsidiaries, or any of their Affiliates; or (iii)
any of the Parent, the Borrower or their Subsidiaries shall
deny in writing that it has any or further liability or
obligation under its respective Material Loan Agreements; or
(iv) any default or breach under any provision of any Material
Loan Agreement shall continue after the applicable grace
period, if any, specified in such Material Loan Agreement;
(m) any of the following shall have occurred: (i) any
Loan Paper shall for any reason (other than pursuant to the
terms thereof) cease to create a valid and perfected first
priority Lien in the Collateral purported to be covered
thereby (except as permitted by the terms of this Agreement or
as caused, or consented to, by the Lenders); or (ii) less than
100% of the Capital Stock of Telergy Parkway shall be pledged
to secure the Obligations (except as caused, or consented to,
by the Lenders); or (iii) less than 100% of the Pledged Stock
(except the Capital Stock of Telergy Parkway) shall be pledged
to secure the Obligations (except as caused, or consented to,
by the Lenders); or (iv) the guaranties by the Guarantors of
the Obligations required to be delivered in accordance with
the terms of this Agreement shall not be fully enforceable
against each such Guarantor; or (v) the security agreements by
Telergy Parkway granting Liens on its assets to secure the
Obligations required to be delivered in accordance with the
terms of this Agreement shall not be fully enforceable against
Telergy Parkway or (vi) the security agreements by the
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<PAGE> 7
Subsidiaries granting Liens on their assets to secure the
Obligations required to be delivered in accordance with the
terms of this Agreement shall not be fully enforceable
against each such Subsidiary;
(n) for the date January 1, 2000 and for all dates
thereafter, the Parent, the Borrower or their Subsidiaries
shall suffer a catastrophic failure in any computer
application material to its business and operations where such
failure lasts for a period in excess of 30 consecutive days,
except in such instances where such occurrence would not be
reasonably expected to have a Material Adverse Effect, or in
such instances where the Borrower replaces the functionality
of the failed computer application through the use of some
other application or system;
(o) any of the following shall have occurred: (i) a
final non-appealable order is issued by any Governmental
Authority or Tribunal, including, but not limited to, the FCC,
any applicable PUC, or the United States Justice Department,
requiring any of the Parent, the Borrower or any of their
Subsidiaries to divest a substantial portion of its assets
pursuant to any antitrust, restraint of trade, unfair
competition, industry regulation, or similar Laws, or (ii) any
Tribunal shall condemn, seize, or otherwise appropriate, or
take custody or control of all or any substantial portion of
the assets of the Parent, the Borrower or any of their
Subsidiaries,
(p) any of the following shall have occurred if the
effect thereof could be reasonably expected to have a Material
Adverse Effect: (i) any license from any Governmental
Authority whether presently existing or hereafter granted to
or obtained by the Parent, the Borrower or any of their
Subsidiaries shall expire without renewal or be suspended or
revoked, or (ii) the Parent, the Borrower or any of their
Subsidiaries shall become subject to any injunction or other
order affecting or which could reasonably be expected to
affect the Parent's, the Borrower's or any of their
Subsidiaries' present or proposed operations under any such
license;
(q) any civil action, suit or proceeding shall be
commenced against the Parent, the Borrower or any of their
Subsidiaries under any federal or state racketeering statute
(including, without limitation, the racketeer influenced and
Corrupt Organization Act of 1970)("RICO") and such suit shall
be adversely determined by a court of applicable jurisdiction,
and which is either non-appealable or which the Parent, the
Borrower or such Subsidiary has elected not to appeal and such
adverse determination could reasonable be expected to have a
Material Adverse Effect; or any criminal action or proceeding
shall be commenced against the Parent, the Borrower or any of
their Subsidiaries under any federal or state racketeering
statute (including, without limitation, RICO);
(r) there shall occur a Change in Control;
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<PAGE> 8
(s) any litigation commenced against the Parent, the
Borrower or any of their Subsidiaries is adversely determined
by a court of applicable jurisdiction, which such litigation
is either non-appealable or which the Parent, the Borrower or
any of their Subsidiaries has elected not to appeal, and in
either case, could reasonably expected to have a Material
Adverse Effect;
(t) the Parent, the Borrower or any of their
Subsidiaries shall fail to comply in any respect with the
Communications Act, or any rule or regulation promulgated by
the FCC or any applicable PUC, and such failure could
reasonably be expected to have a Material Adverse Effect; or
any license or authorization constituting authorizations,
permits or licenses of the Parent, the Borrower or any of
their Subsidiaries material to the operation of the business
of the Parent, the Borrower and any of their Subsidiaries,
has expired or shall expire without having been renewed or
shall be canceled or impaired, and such expiration,
cancellation or impairment could reasonably be expected to
have a Material Adverse Effect;
(u) the Parent, the Borrower or any of their
Subsidiaries shall fail to operate its business for any
period of time which, in the aggregate, could reasonably be
expected to have a Material Adverse Effect; or
(v) any Substantial Portion shall not, for any reason
(including, without limitation, loss of FCC license, fiber
network or otherwise) be operating for a period in excess of
30 days. For purposes of this subsection (u), "Substantial
Portion" means any portion of the telecommunications system
of the Parent, the Borrower and their Subsidiaries that has
generated for the most recently completed twelve month
period, in excess of five percent of EBITDA.
SECTION 4. Conditions Precedent. This Amendment shall not be
effective until the Administrative Agent shall have received:
(a) executed signature pages from the Borrower, each
signatory to the Notes, the Parent, Telergy Parkway,
the Administrative Agent and Majority Lenders; and
(b) such other documents, instruments, and certificates,
in form and substance satisfactory to the
Administrative Agent and the Lenders, as the
Administrative Agent and the Lenders shall deem
necessary or appropriate in connection with this
Amendment and the transactions contemplated hereby.
SECTION 5. Representations and Warranties. The Borrower
represents and warrants to the Lenders and the Administrative Agent
that (a) this Amendment is a Loan Paper under the Credit Agreement and
constitutes its legal, valid, and binding obligation, enforceable in
accordance with the terms hereof (subject as to enforcement of remedies
to any applicable bankruptcy, reorganization, moratorium, or other laws
or principles of equity affecting the enforcement of creditors' rights
generally), (b) there exists no Default or Event of Default under the
Credit Agreement that has not been waived by the Lenders, (c) its
representations and warranties set forth in the Credit Agreement
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<PAGE> 9
and other Loan Papers are true and correct on the date hereof, (d) it has
complied with all agreements and conditions to be complied with by it under the
Credit Agreement and the other Loan Papers by the date hereof, and (e) the
Credit Agreement, as amended hereby, and the other Loan Papers remain in full
force and effect.
SECTION 6. Entire Agreement; Ratification. THE CREDIT AGREEMENT AS
AMENDED HEREBY AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES. EXCEPT AS MODIFIED OR SUPPLEMENTED HEREBY, THE CREDIT
AGREEMENT, THE OTHER LOAN PAPERS AND ALL OTHER DOCUMENTS AND AGREEMENTS EXECUTED
IN CONNECTION THEREWITH SHALL CONTINUE IN FULL FORCE AND EFFECT.
SECTION 7. Counterparts. This Amendment may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument. In making proof hereof, it shall not be necessary to produce or
account for any counterpart other than one signed by the party against which
enforcement is sought.
SECTION 8. JURISDICTION; CONSENT TO SERVICE OF PROCESS.
(A) THE BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY
IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE
NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT OF THE
UNITED STATES OF AMERICA SITTING IN NEW YORK, NEW YORK AND ANY APPELLATE COURT
FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN PAPER, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN
SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN
ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN PAPER SHALL AFFECT ANY RIGHT THAT
THE ADMINISTRATIVE AGENT OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN PAPER AGAINST THE
BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
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<PAGE> 10
(B) THE BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT
IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN PAPER IN ANY NEW YORK STATE OR FEDERAL COURT. EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH
ACTION OR PROCEEDING IN ANY SUCH COURT.
(C) EACH PARTY TO THIS AGREEMENT AND ANY OTHER LOAN PAPER
IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR
NOTICES IN PARAGRAPH 8 HEREOF. NOTHING IN THIS AGREEMENT OR ANY OTHER
LOAN PAPER WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT OR ANY
OTHER LOAN PAPER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
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<PAGE> 11
IN WITNESS WHEREOF, this Amendment to Credit Agreement is
executed as of the date first set forth above,
THE BORROWER:
TELERGY OPERATING, INC.
/s/ Brian P. Kelly
---------------------
By: Brian P. Kelly
Its: President
TELERGY CENTRAL, LLC
/s/ Brian P. Kelly
---------------------
By: Brian P. Kelly
Its: President
TELERGY METRO, LLC
/s/ Brian P. Kelly
---------------------
By: Brian P. Kelly
Its: President
TELERGY NET-WORK SERVICES, INC.
/s/ Brian P. Kelly
---------------------
By: Brian P. Kelly
Its: President
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<PAGE> 12
THE ADMINISTRATIVE AGENT:
BANK OF AMERICA. N.A.,
as Administrative Agent
/s/ Anthony M. Cacheria
- -----------------------------
By: Anthony M. Cacheria
Title: Managing Director
THE LENDERS:
SPECIFIED
PERCENTAGE ON THE CLOSING
DATE: %
Address:
901 Main Street
64th Floor
Dallas, Texas 75202
Attn: Tony Cacheria
Telephone: (214) 209-0157
Telecopy: (214) 209-9390
BANK OF AMERICA. N.A.,
individually as a Lender
/s/ Anthony M. Cacheria
- -----------------------------
By: Anthony M. Cacheria
Title: Managing Director
-11-
<PAGE> 13
SPECIFIED CIBC INC,
PERCENTAGE ON THE CLOSING individually as a Lender
DATE: %
Address:
/s/ Colleen Fioux
-------------------------
By: Colleen Fioux
Attn: Title: Executive Director
Telephone: CIBC World Markets Corp.,
Telecopy: as agent
-12-
<PAGE> 14
SPECIFIED ROYAL BANK OF CANADA,
PERCENTAGE ON THE CLOSING individually as a Lender
DATE: %
Address:
By:
Attn: Title:
Telephone:
Telecopy:
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<PAGE> 15
THE GUARANTORS:
ACKNOWLEDGED AND AGREED:
TELERGY. INC.
/s/ Brian P. Kelly
--------------------
By: Brian P. Kelly
Its: CEO
TELERGY PARKWAY, INC.
/s/ Brian P. Kelly
--------------------
By: Brian P. Kelly
Its: President
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<PAGE> 1
EXHIBIT 10.15
CONSTRUCTION OPERATING AGREEMENT
THIS AGREEMENT, made this 7 of April, 2000, by and between GPU TELCOM
SERVICES, INC., a Delaware corporation, located at Route 183 & Van Reed Road, PO
Box 15164, Reading, Pennsylvania 19612-5164 (the "Company"), and Telergy
Mid-Atlantic, LLC, a New York limited liability corporation, located at One
Telergy Parkway, East Syracuse, New York, 13057 (the "Customer").
W I T N E S S E T H:
WHEREAS, the Company owns, or has obtained valid and enforceable contract
rights from its affiliates, Jersey Central Power & Light, Metropolitan Edison
Company, and Pennsylvania Electric Company (collectively, "GPU Energy"), or from
other third parties, to attach to and to use certain easements, fiber optic
cable, conduits, manholes, ducts, poles, towers, building or service entrance
pipes, and other electrical facilities, now owned or hereafter acquired by GPU
Energy or other third parties (collectively, the "Company's Facilities"); and
WHEREAS, Company has been retained by Customer as its exclusive provider
of competitively priced construction and installation Services (as defined
below), as well as indefeasible rights of use ("IRUs") to Customer (hereinafter
referred to as the "Customer IRU") in the Company's Facilities in the states of
New Jersey and Pennsylvania upon order for such Customer IRU; and
WHEREAS, in addition to and in conjunction with the above-referenced
Customer IRU, the Company desires to provide the Customer with the right to
occupy the Company's Facilities, and the Customer desires to accept the same
from the Company on the terms of this Agreement.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants and conditions set forth below, the Company and the Customer hereby
agree as follows:
1. Order for IRU: (a) Upon receipt of an order from Customer in the form
attached hereto as Appendix 1 ("Customer Order") requesting the provision of an
IRU from Company, the Company agrees to use commercially reasonable efforts to
deliver the Customer IRU in the Company's Facilities (as defined below),
according to the terms and conditions of an IRU Agreement between Customer and
Company substantially in the form of Appendix 3 hereto (the "IRU Agreement"),
and to provide the Customer with construction, installation and engineering
services for the Customer IRU and the fiber optic equipment, fiber optic
strands, innerduct, or related facilities as specifically defined in Exhibit A
to the IRU Agreement executed simultaneously with the Customer Order ("the
Customer Facilities"), and routine maintenance, and as needed, emergency
services related to the Customer's Facilities as specified in the Customer Order
(all such services, collectively, the "Services"). The Customer agrees that all
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<PAGE> 2
the Services will be performed solely by the Company or the Company's designee
and that the Customer shall not have direct access to the Customer's Facilities
on the splice side or other demarcation point specified in the Customer Order
following installation . The Customer Order shall be completed by Customer with
the assistance of Company and the target date and outside date for delivery of
the Customer IRU shall be as determined by mutual agreement in the Customer
Order. Delivery of the Customer IRU by Company in accordance with the Customer
Order shall constitute acceptance by Customer of the Customer IRU. If either
Party materially breaches the terms of this Agreement or the Customer Order the
other Party is limited to the remedy set forth in Paragraph 8 of this Agreement.
(b) In accordance with the terms and conditions of a Collocation
License Agreement between Customer and Company, which shall be negotiated and
executed substantially in the form of Appendix 4 hereto, prior to the execution
of a Customer Order for services that include collocation (the "Collocation
License Agreement"), the Company will grant to the Customer a non-exclusive
license to use the Company's Facilities for the installation of and access to
the Customer-owned electronics and optronics installed in connection with any
Customer IRU (the "Customer's Equipment") in Company's Facilities, all as more
fully described on the IRU Agreement and any Collocation Agreement executed in
connection with the Customer Order. The Customer is prohibited from installing
the Customer's Equipment on any other property or facility of the Company and/or
GPU Energy.
2. Term: Unless terminated sooner in accordance with the provisions of
this Agreement, this Agreement shall have a term of twenty (20) years ("Initial
Term"). The Customer, is hereby granted the option to extend the Initial Term
for two (2) consecutive terms of five (5) years each, so long as the Customer is
not then in default of any provision of this Agreement at the time of the
exercise of such renewal options. Each such renewal option shall be exercisable
by the Customer giving written notice of renewal to the Company not later than
six (6) months prior to the expiration of the then current term.
3. Fees: The Customer shall reimburse and pay the Company for the Services
and for the attachment rights at the times and in the manner set forth in the
Customer Order. All such Fees for Services shall be competitively priced by
Company.
3.1 Billing. Company shall issue bills for all charges incurred by
Customer as more specifically set forth in the Customer Order.
3.2 Taxes. Except for taxes based on Company's net income and ad
valorem, personal and real property taxes imposed on Company's
property, Customer shall be responsible for payment of all sales,
use, gross receipts, excise, access, bypass, franchise or other
local, state and federal taxes, fees, charges, or surcharges,
however designated, imposed on or based upon the sale to Customer,
or receipt or use by Customer, the Customer IRU.
3.3 Regulatory and Legal Changes. In the event of any change in
applicable law, regulation, decision, rule or order that materially
increases the costs or other terms
2
<PAGE> 3
of delivery of Service, Company and Customer agree to negotiate
regarding the rates to be charged for Services to Customer to
reflect such increase in cost and, in the event that the Parties are
unable to reach agreement respecting new rates within thirty (30)
days after Company delivery of written notice requesting
renegotiation, to Customer, Customer may terminate the affected
Customer Order without termination liability upon sixty (60) days'
prior written notice.
3.4 Fraudulent Use of Services. Customer is responsible for all charges
attributable to Customer incurred respecting the Services, even if
incurred as the result of fraudulent or unauthorized use of the
Services, unless Company has actual knowledge of the same and fails
to notify Customer thereof. Company may, but is not obligated to,
detect or report unauthorized or fraudulent use of Services.
4. Procurement: In the event that the Services include the procurement of
equipment and tangible materials for the Customer ("Deliverables"), the Customer
agrees that the Deliverables shall be furnished and delivered directly to the
Customer by the applicable OEM or OEM dealer. The Customer agrees that title to,
ownership, and all risks related to the Deliverables, including the risks of
defects in, damage to, and loss of the Deliverables, shall pass directly from
such manufacturer and dealer to the Customer, even in the event that the Company
shall, as the Customer's agent, advance payment for the Deliverables, or agree
to assert the Customer's contract rights and remedies against such manufacturer
and/or dealer as an accommodation to the Customer, the Customer hereby agreeing
to pay and reimburse the Company for the Deliverables in accordance with the
terms of this Agreement.
5. Indemnification: (a) The Customer agrees to defend, indemnify and save
harmless the Company (and the Company's directors, officers, agents, and
employees, corporate Parent, and each and every one of them) from and against
all claims, costs (including reasonable attorney fees and costs), claims,
expenses, liabilities, and judgments of every kind and description, actually and
reasonably incurred ("Claims"), whether threatened, pending, or completed,
including without limitation, any claims, suits, costs, expenses and judgments
by reason of any damage to, destruction or contamination of property or to the
environment (e.g. land, air, water, wildlife and vegetation) and/or injury,
sickness, or disease to persons (including death), caused by, resulting from,
arising out of, or occurring in connection with Customer's performance of this
Agreement, or incidental or appertaining thereto and hereto, except to the
extent of any active gross negligence or willful misconduct on the part of the
Company as determined by a finder of fact. In this Paragraph 5 and each other
indemnification obligation of the Customer as may be set forth in this Agreement
or in any other documents which form part of this Agreement, the term Parent
includes GPU, Inc. and all of its subsidiaries and/or affiliates.
(b) Customer shall indemnify, defend and hold harmless Company from
Claims (i) for infringement of any third-party proprietary rights made against
Company in connection with the use by Customer of the Customer IRU; (ii) made
against Company arising out of or relating to any act or failure to act by
Customer in connection with the Customer IRU or (iii) arising from Customer's
gross negligence or willful misconduct.
3
<PAGE> 4
(c) The Company agrees to defend, indemnify and save harmless the
Customer (and the Customer's directors, officers, agents, and employees,
corporate Parent, and each and every one of them) from and against all claims,
costs (including reasonable attorney fees and costs), claims, expenses,
liabilities, and judgments of every kind and description, actually and
reasonably incurred ("Claims"), whether threatened, pending, or completed,
including without limitation, any claims, suits, costs, expenses and judgments
by reason of any damage to, destruction or contamination of property or to the
environment (e.g. land, air, water, wildlife and vegetation) and/or injury,
sickness, or disease to persons (including death), caused by, resulting from,
arising out of, or occurring in connection with the Company's construction,
installation or maintenance of the Customer's IRU or Company's Facilities or the
provisioning of Services under this Agreement, or incidental or appertaining
thereto and hereto, except to the extent of any active gross negligence or
willful misconduct on the part of the Customer, its agents, employees and
contractors as determined by a finder of fact of competent jurisdiction. In this
Paragraph 5 and each other indemnification obligation of the Company as may be
set forth in this Agreement or in any other documents which form part of this
Agreement, the term Parent includes Telergy Operating, Inc. and all of its
subsidiaries and/or affiliates.
(d) Company shall indemnify, defend and hold harmless Customer from
Claims (i) for infringement of any third-party proprietary rights made against
Customer in connection with the delivery by Company of the Customer IRU; (ii)
made against Customer arising out of or relating to any act or failure to act by
Company in connection with the Customer IRU or the provisioning of Services
hereunder or (iii) arising from Company's gross negligence or willful
misconduct.
6. Insurance: The Company and Customer each agree to obtain and maintain
during the term of this Agreement Comprehensive General Liability (CGL)
insurance with a combined single limit of at least One Million ($1,000,000)
Dollars. On or before the date of this Agreement, each Party shall furnish an
insurance certificate to the other Party and if such certificate has an
expiration date, the furnishing Party shall provide an updated insurance
certificate, certifying to the foregoing coverage. The certificate shall include
name of insurance company, policy number and expiration date; the coverage
required whether claims made or occurrence, and the limits on each (all
deductibles for the account of the insuring Party); a statement that the other
Party shall receive not less than thirty (30) days notice of cancellation or
modification of the policy; and, a statement that the other Party has been named
an additional insured (except for worker's compensation) on such policy; and the
contract number, or statement of blanket applicability. The Customer and Company
each hereby waives any rights of subrogation which either Party or any of their
respective insurers may have against the other Party or the other Party's
agents, employees, affiliates, subsidiaries and Parent.
7. Customer Default.
7.1 Discontinuance of Customer Order by Company and/or to discontinue
any Customer Order. The Company shall have the right to terminate
this Agreement and to discontinue upon the occurrence of any one or
more of the following (herein referred to as an "Event of Default")
and Customer shall have the right to terminate this Agreement and to
discontinue upon occurrence of any one or more of the
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<PAGE> 5
following Events of Default described in subclauses (ii)-(vi) below:
(i) the Customer's non-payment of the Fees due herein and/or any and
all other fees and costs on the part of the Customer to be paid
hereunder within thirty (30) days of the Company's written notice of
such failure to pay; (ii) a Party's failure to perform any
non-monetary agreement, term, covenant and/or condition set forth in
this Agreement following not less than forty-five (45) days written
notice from the non-defaulting Party specifying the failure; (iii) a
final, non-appealable determination made by any tribunal, court,
administrative board, or other entity having jurisdiction over the
Party, that the Party materially violated applicable federal, state
or local law, that the Party materially violated applicable federal,
state, or local law; (iv) if either Party becomes insolvent, makes a
general assignment for the benefit of creditors or shall file a
voluntary petition in bankruptcy, or if an involuntary petition in
bankruptcy is filed against a Party and the act of bankruptcy
alleged is not denied by the relevant Party and the involuntary
petition is not dismissed, stayed, or bonded within sixty (60) days
of the date of such petition; (v) either Party's interference with
the other Party's operations which the interfering Party has failed
to resolve following no less than thirty (30) days' written notice
from the non-defaulting Party specifying the interference; and/or
(vi) a material and adverse development affecting the Customer's or
the Company's business which comes to the attention of the other
Party and the other Party seeks but fails to promptly receive from
the affected Party reasonable assurances as to the affected Party's
ability and intention to perform this Agreement within thirty (30)
days of such request.
7.2 Resumption of Service. If Service has been discontinued in
accordance with Section 7.1 by Company and Customer requests that
Service be restored, Company shall have the sole and absolute
discretion to restore such Service.
8. Company Default: In the event that either Party shall materially breach
the terms of this Agreement, the other Party's sole right and remedy in
connection therewith shall be to pursue an action for damages, at law, the other
Party hereby irrevocably waiving any rights to pursue equitable or other relief,
it being further agreed by such other Party that the alleged breaching Party
shall have no liability whatsoever for special, indirect, incidental, exemplary
or punitive damages, including without limitation, damages or losses resulting
from loss of use of property, attorney's fees and expenses of the other Party,
loss of business profits or revenues, cost of capital or return on capital, loss
of goodwill, or claims of the customers/clients of the other Party, in each case
whether or not the alleged breaching Party actually knew or should have known
that such damages or losses would likely result from a breach of this Agreement.
9. Limitation on Liability. Notwithstanding anything to the contrary in
this Agreement, neither Party shall be liable to the other Party for any
indirect, special, punitive or consequential damages (including, but not limited
to, any claim from any customer for loss of services) arising under this
Agreement or from any breach or partial
5
<PAGE> 6
breach of the provisions of this Agreement or arising out of any act or omission
of a Party hereto, its employees, servants, contractors and/or agents.
10. Force Majeure. Neither Party shall be liable to the other for any
failure of performance under this Agreement due to causes beyond its control
(except for the fulfillment of payment obligations as set forth herein),
including, but not limited to: acts of God, fire, flood or other catastrophes;
adverse weather conditions; material or facility shortages or unavailability not
resulting from such Party's failure to timely place orders therefor; lack of
transportation; the imposition of any governmental codes, ordinances, laws,
rules, regulations or restrictions; national emergencies; insurrections; riots,
wars; or strikes, lock-outs, work stoppages or other labor disputes, which labor
disputes are beyond the reasonable control of the Party invoking Force Majeure
(collectively, "Force Majeure Events").
11. Compliance With Laws: The Customer and the Company, at their
respective cost and expense, shall promptly comply with all applicable Federal,
State and local laws, rules, ordinances, regulations, requirements and
directives of any Federal, State, county and municipal governments or public
authorities and of all their departments, bureaus and sub-divisions, including
without limitation, all existing or hereafter enacted environmental laws and
regulations, the rules and regulations of the Federal Communications Commission,
applicable to and affecting the Customer's Equipment, the Customer's Facilities,
the Company's Facilities, the Company Services, the Customer's IRU and
applicable to the business operations of the Customer or the Company. Each Party
covenants and agrees that it shall not do or permit any act or thing to be done
on or to occur to the Company's Facilities or the Customer's Facilities,
Customer's Equipment or Customer's IRU which is contrary to any municipal,
county, state or federal ordinance, statute, law, or regulation or which shall
or might subject the Company or the Customer to any liability or responsibility
to any person or for property damage.
12. Representations: The Customer shall pay, before they become
delinquent, all taxes, assessments and governmental charges of any kind
whatsoever lawfully levied or assessed against the Customer and/or the
Customer's Equipment, including without limitation, all income, franchise,
personal property taxes, and any and all other taxes, levies and fees; the
Customer shall, to the extent necessary for Customer to use or access the
Customer Facilities or Customer Equipment, obtain and maintain at the Customer's
sole cost and expense, all franchises, licenses, easements, rights of way,
approvals and consents from the governmental owners of easements and rights of
way governing the Company's Facilities over which the Customer's Equipment shall
run, waivers and/or permits from all applicable federal authorities, the
Commonwealth of Pennsylvania ("PA") and/or the State of New Jersey ("NJ"), and
from all municipalities and counties through which the Customer's Facilities
shall run. The Company has and shall maintain all franchises, licenses,
easements, rights of way, approvals and consents from GPU Energy and third
parties, which are necessary for the Company to construct, install and/or
delivery Customer IRUs pursuant to this Agreement. Each Party has the power and
authority to enter into and perform this Agreement, and this Agreement is a
valid and binding agreement and the persons who execute this Agreement as
officers of each Party are authorized to do so and their signatures bind the
respective Parties to the terms of this Agreement.
6
<PAGE> 7
13. Confidential Information.
13.1 Disclosure and Use. Any Confidential Information disclosed by either
Party shall be kept by the receiving Party in strict confidence and
not disclose to any third party (except as authorized by these Terms
and Conditions) without the disclosing Party's express written
consent. Each Party agrees to treat all Confidential Information of
the other in the same manner as it treats its own proprietary
information, but in no case will the degree of care be less than
reasonable care.
13.2 Restricted Use. Each Party agrees:
A. to use Confidential Information only for the purposes of
performance of any Customer Order or as otherwise expressly
permitted by these Terms and Conditions;
B. not to make copies of Confidential Information or any part
thereof except for purposes consistent with these Terms and
Conditions; and
C. to reproduce and maintain on any copies of any Confidential
Information such proprietary legends or notices (whether of
disclosing Party or a third party) as are contained in or on
the original or as the disclosing Party may otherwise
reasonably request.
D. to produce any Confidential information in pursuant to a
written request for due diligence in conjunction with a
Party's financing activities.
13.3 Exceptions. Notwithstanding the foregoing, each Party's
confidentiality obligations hereunder shall not apply to information
which:
A. is already known to the receiving Party;
B. becomes publicly available without fault of the receiving
Party;
C. is rightfully obtained by the receiving Party from a third
party without restriction as to disclosure, or is approved for
release by written authorization of the disclosing Party;
D. is developed independently by the receiving Party without use
of the disclosing Party's Confidential Information;
E. is required to be disclosed by law.
13.4 Publicity. This agreement grants no right to use any Party's or its
affiliates' trademarks, service marks or trade names or to otherwise
refer to the other Party in any marketing, promotional or
advertising materials or activities. Without the prior written
consent of the other Party, neither Party shall issue any
publication or press release relating to the existence of, or the
terms and conditions of any contractual relationship between Company
and Customer, except as may be required by law.
7
<PAGE> 8
13.5 Remedies. Notwithstanding any other section of these Terms and
Conditions, the non-breaching Party shall be entitled to seek
equitable relief to protect its interests, including but not limited
to preliminary and permanent injunctive relief. Nothing stated
herein shall be construed to limit any other remedies available to
the Parties.
13.6 Survival. The obligations of confidentiality and limitation of use
shall survive the termination of any applicable Customer Order.
14. Assignment or Transfer. Except with respect to a merger or sale of
substantially all of Customer's assets, Customer may not transfer, sublease or
assign this Agreement and the use of Service or the Customer Orders, IRU
Agreements, or Collocation License Agreements ("Ancillary Agreements") entered
into hereunder without the express prior written consent of Company, and then
only when such transfer or assignment can be accomplished without interruption
of the use or location of Service. Company will not unreasonably withhold its
consent. The terms and conditions of this Agreement shall apply to any
transferees or assignees. Customer shall remain liable for the payment of all
charges due under each Customer Order. Notwithstanding anything to the contrary
in this Agreement and the Ancillary Agreements, in the event of the dissolution
of Customer under the terms and conditions of the Operating Agreement of Telergy
Mid-Atlantic, LLC ("the Operating Agreement"), this Agreement and the Ancillary
Agreements may be assigned by Customer to Telergy Network Services, Inc.
("TNS"), and this Agreement, but not any executed Ancillary Agreements, may be
terminated by Customer upon thirty (30) days' prior written notice.
15. Notices. Notices hereunder shall be deemed properly given when
delivered, if delivered in person, or when sent via facsimile, overnight
courier, electronic mail or when deposited with the U.S. Postal Service, at the
addresses listed below:
If to GPU Telcom:
GPU Telcom Services, Inc.
Route 183 & Van Reed Rd
PO Box 15164
Reading, PA 19612-5164
If to Customer:
Telergy Mid-Atlantic, LLC
One Telergy Parkway
East Syracuse, New York 13057
Each Party shall notify the other Party of any changes to its addresses listed
above.
16. Miscellaneous: Notwithstanding any other term or condition to the
contrary contained in this Agreement, the Company shall be free at any time
during the term of this
8
<PAGE> 9
Agreement to enter into other agreements for the use of the Company's
Facilities, or any other of the Company's facilities and premises none which
shall in any way constitute a breach or default of the terms of this Agreement,
it being hereby agreed that none of the terms of this Agreement shall be deemed
to be or shall be construed to be the Company's covenant or agreement not to
install its own fiber optic telecommunications cable and related equipment and
facilities or to install other users/third parties on the Company's Facilities
and premises, nor shall it be deemed to be the Company's covenant not to compete
with the Customer; nothing contained in this Agreement shall be construed to (i)
except as provided herein, grant or confer upon the Customer any property rights
in any of the Company Facilities, lands or premises or (ii) except with respect
to Customer IRUs granted hereunder, compel or require the Company to continue to
operate and/or maintain the Company's Facilities, and/or any other of the
Company's other equipment and facilities; at no time before, during or after the
term of this Agreement, shall the Company and the Customer be deemed to be
engaged in a joint venture or considered to be partners of any kind, nature or
degree, or to be the agent of each other.
This Agreement shall be governed by and construed under the laws of New
York and each Party hereby agrees to, and shall not contest, the jurisdiction of
the United States District Court of the Southern District of New York or the New
York state courts located in New York City, New York.
In the event that any one or more of the provisions of this Agreement is
for any reason held to be invalid or unenforceable, then the remaining
provisions of this Agreement shall remain in full force and effect. This
Agreement may not be modified, amended or discharged, and no provision may be
waived, unless the same is by a writing duly executed by both the Company and
the Customer. The headings of the Paragraphs and Sub-paragraphs of this
Agreement are for purposes of reference only and do not evidence the agreement
or the intentions of the Parties hereto. The Customer assumes the risk of
interference, if any, with its fiber communications facilities and operations
from the Company's and/or the Company's affiliates' distribution and
transmission of electric power The provisions of this Agreement shall survive
the expiration or earlier termination of this Agreement. Neither the Company nor
The Customer shall record this Agreement or any abstract or memorandum of this
Agreement.
17. Disclaimer: EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE COMPANY HEREBY
DISCLAIMS ALL WARRANTIES OF ANY TYPE OR KIND AND NO WARRANTIES, EXPRESS OR
IMPLIED, ARE MADE BY THE COMPANY WITH RESPECT TO, INTER ALIA, MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE OF THE COMPANY'S FACILITIES, ANY POLES,
DISTRIBUTION POLES, LANDS, PREMISES, AND THE LIKE, OR THE AVAILABLE CAPACITY OR
ANY SERVICES, WHETHER ARISING UNDER LAW OR IN EQUITY.
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<PAGE> 10
IN WITNESS WHEREOF, the Company and the Customer have executed this
Agreement as of the day and year set forth above.
WITNESS/ATTEST: GPU TELCOM SERVICES, INC.
_______________________________ By: /s/ Robert L. Wise
_________________________
Name: Robert L. Wise
_________________________
Title: President
_________________________
Date: April 7, 2000
WITNESS/ATTEST: TELERGY MID-ATLANTIC, LLC
_______________________________ By: /s/ Brian Kelly
_________________________
Name: Brian Kelly
_________________________
Title: Manager
_________________________
Date: April 7, 2000
10
<PAGE> 1
EXHIBIT 10.16
OPERATING AGREEMENT
OF
TELERGY CENTRAL, LLC
DATED AS OF APRIL 24, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms ...................................................1
ARTICLE II
FORMATION, TERM AND PURPOSE
Section 2.1 Formation by Conversion .........................................1
Section 2.2 Name of the Company .............................................2
Section 2.3 Principal Place of Business .....................................2
Section 2.4 Term ............................................................2
Section 2.5 Purpose .........................................................2
ARTICLE III
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
Section 3.1 Capital Contributions ...........................................2
Section 3.2 Capital Accounts ................................................3
Section 3.3 Capital Account Maintenance .....................................3
Section 3.4 Indefeasible Right of Use .......................................4
ARTICLE IV
ALLOCATIONS
Section 4.1 Allocations on the Company Books ................................6
Section 4.2 Excess Nonrecourse Liabilities ..................................6
ARTICLE V
TAX ALLOCATIONS
Section 5.1 Tax Allocations .................................................6
ARTICLE VI
DISTRIBUTIONS OF CASH
Section 6.1 Distributions of Cash Flow ......................................7
<PAGE> 3
TABLE OF CONTENTS (con't)
Page
----
ARTICLE VII
MANAGEMENT OF THE COMPANY
Section 7.1 Power and Authority of the Manager ..............................7
Section 7.2 Signature of the Manager ........................................7
Section 7.3 Indemnification .................................................8
Section 7.4 Confirmation of Authority .......................................8
ARTICLE VIII
DECISIONS BY MEMBERS
Section 8.1 Decisions by Members ............................................9
Section 8.2 Member Meetings .................................................9
ARTICLE IX
REGULATORY APPROVALS; RELATED AGREEMENTS
Section 9.1 Regulatory Approvals ...........................................10
Section 9.2 Related Agreements .............................................10
ARTICLE X
WITHDRAWAL OR TRANSFER OF MEMBERSHIP INTEREST
Section 10.1 Restrictions on Withdrawal or Transfer .........................11
Section 10.2 Right of First Refusal Option ..................................11
Section 10.3 Bankruptcy Purchase Option .....................................12
Section 10.4 Liquidation Purchase Option ....................................13
ARTICLE XI
DISSOLUTION
Section 11.1 Dissolution of the Company .....................................14
Section 11.2 Deferral of Liquidation ........................................15
<PAGE> 4
TABLE OF CONTENTS (con't)
Page
----
ARTICLE XII
ACCOUNTING MATTERS; BANK ACCOUNTS; PROPERTY
Section 12.1 Accounting Matters .............................................16
Section 12.2 Bank Accounts ..................................................16
Section 12.3 Subsidiary Ventures ............................................17
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Other Ventures .................................................17
Section 13.2 Successors and Assigns .........................................17
Section 13.3 Governing Law ..................................................17
Section 13.4 Amendments .....................................................17
Section 13.5 Counterparts ...................................................17
Section 13.6 Severability ...................................................17
Section 13.7 Section Headings Not Controlling ...............................18
Section 13.8 No Partnership .................................................18
Section 13.9 Rights of Creditors ............................................18
Section 13.10 Representations and Warranties .................................18
Section 13.11 Legal Fees .....................................................19
Section 13.12 Confidentiality ................................................19
SIGNATURES ...................................................................20
Exhibit A - Notice Addresses and Telecopy ..............................21
Exhibit B - Capital Contributions ......................................22
Exhibit C - Definitions ................................................23
Exhibit D - Regulatory Allocations .....................................29
<PAGE> 5
TELERGY CENTRAL, LLC
OPERATING AGREEMENT
This Agreement is made as of April 24, 1998, by and between TELERGY,
INC. ("Telergy"), a New York corporation with a mailing address at 5784
Widewaters Parkway, Dewitt, New York 13214, and PLUM STREET ENTERPRISES, INC.
("PSE"), a Delaware corporation with a mailing address at 507 Plum Street,
Syracuse, New York 13204, with respect to the Company known as "Telergy Central,
LLC".
WHEREAS, the parties desire to conduct business as a limited
liability company upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties mutually agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 - Defined Terms: The defined terms used in this
Agreement (as indicated by the first letter of each word in the term being
capitalized) shall, unless the context clearly requires otherwise, have the
meanings specified in Exhibit C, or as may be specified elsewhere throughout the
Agreement. The singular shall include the plural and the masculine gender shall
include the feminine and neuter, as the context requires.
ARTICLE II
FORMATION, TERM AND PURPOSE
Section 2.1 - Formation by Conversion: Telergy and PSI hereby
approve the conversion of Telergy Joint Venture to a New York limited liability
company in accordance with Section 1006 of the LLC Law. The terms and conditions
of the conversion of their interests in Telergy Joint Venture into Membership
Interests are set forth in this Agreement. The Company shall be formed as a New
York limited liability company upon the filing of a Certificate of Conversion
with the New York State Department of State no later than April 30, 1998,
pursuant to the provisions of the LLC Law.
<PAGE> 6
Section 2.2 - Name of the Company: The name under which the Company
shall conduct its Business activities shall be "Telergy Central, LLC."
Section 2.3 - Principal Place of Business: The principal office of
the Company shall be located at 5784 Widewaters Parkway, Dewitt, New York 13214,
or such other address as the Manager may determine.
Section 2.4 - Term: The term of the Company shall continue until it
is terminated pursuant to this Agreement.
Section 2.5 - Purpose: The purpose of this Company shall be to
conduct the Business activities of the Company. If the Company installs Loops in
the cities of Buffalo, Syracuse, Utica or Albany, such Loops shall be installed
primarily using the rights of way and facilities of Niagara Mohawk Power
Corporation.
ARTICLE III
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
Section 3.1 - Capital Contributions
(a) The initial capital of the Company shall be the cash and other
assets converted from Telergy Joint Venture to the Company. The Capital
Contributions of the Members are set forth on Exhibit B, as being their
respective capital account balances in Telergy Joint Venture as of December 31,
1997 which shall be adjusted up to the date of conversion to a limited liability
company to reflect interim business operations, financial activity and capital
contributions.
(b) The Manager shall determine the additional capital (in forms and
amounts) necessary to conduct the Business activities.
(i) Telergy shall initially provide the additional capital by
loans to the Company of up to one hundred million dollars ($100,000,000). The
loans shall be evidenced by promissory notes given by the Company, which shall
contain an interest rate and maturity date identical to the terms of the High
Yield Note, and shall require interest and principal payments which are one (1)
business day prior to the corresponding payment date of the High Yield Note.
Prior to issuance of the High Yield Note, any loans from Telergy shall be
evidenced by demand promissory notes requiring the payment of Market Interest
plus one percent (1%).
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<PAGE> 7
(ii) Once Telergy has loaned one hundred million dollars
($100,000,000) of the initial capital as provided for in Section 3.1(b)(i),
further capital necessary to conduct the Business activities shall be
contributed by the Members in proportion to their Membership Percentages,
provided the Members have first approved the amount of each Member's Capital
Contribution, by a unanimous vote or Consent which shall not be unreasonably
withheld. If, following the Members' approval, PSE decides not to contribute its
proportionate share of additional capital it shall give Notice to Telergy no
later than thirty (30) days before the date on which contributions are to be
made. In that event, then Telergy may, in its sole discretion, provide the
additional capital either (A) as a loan to the Company to be evidenced by a
demand promissory note given by the Company and secured by a perfected first
lien against the Backbone Network, subject to the PSE IRU and the Niagara
Capacity, requiring the payment of Market Interest plus two percent (2%), or (B)
as a Capital Contribution in exchange for an increase in Telergy's Membership
Percentage. The increase to Telergy's Membership Percentage may be determined by
the agreement of Telergy and PSE and they agree to negotiate in good faith to
determine a percent increase. In the event the Members cannot agree on a percent
increase, then it shall be determined by an investment banking firm selected by
Telergy, which investment banking firm shall be subject to the Consent of PSE
within five (5) days of Notice from Telergy, which Consent shall not be
unreasonably withheld.
(c) If a Member unilaterally makes a Capital Contribution, the
Company shall increase the Member's Capital Account balance but shall not alter
the Members' Membership Percentages, except as provided in Section
3.1(b)(ii)(B).
(d) Except as provided in this Agreement, no Member shall have the
right to (i) withdraw any part of its Capital Account, or (ii) receive Property
other than cash.
Section 3.2 - Capital Accounts: A Capital Account shall be
maintained for each Member. The Members' initial Capital Account balances shall
be the same as their capital account balances of Telergy Joint Venture as of the
date of conversion to a limited liability company. The dollar amount for
contributions of cash or the value, determined by agreement of the Members, for
contributions of property shall be recorded in the Capital Account of the
contributing Member.
Section 3.3 - Capital Account Maintenance:
(a) The Company shall maintain for each Member a separate Capital
Account in accordance with this Agreement and the principles of Regulation
Section 1.704-1(b)(2)(iv). No Member shall be entitled to receive interest or be
credited with interest on Capital Accounts, at any time. In the event of the
transfer of all or a portion of a Membership Interest, the transferee Member
shall succeed to such portion of the Capital Account of the transferor Member as
relates to the transferred Membership Interest.
(b) If the Manager is advised by counsel to the Company that the
method of maintaining Capital Accounts provided under this Agreement must be
modified in order to
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<PAGE> 8
maintain compliance with the requirements of the Regulations under Section 704
of the Code, as they may hereafter be amended, the Manager shall amend this
Agreement to modify the method of maintaining Capital Accounts to comply with
the Regulations, provided that no such amendment shall materially alter the
economic arrangement among the Members.
Section 3.4 - Indefeasible Right of Use:
(a) In addition to the Membership Interest of PSE, the Members
hereby acknowledge PSE's Indefeasible Right of Use in twenty five percent (25%)
of the total capacity (lit capacity and dark fiber) of the Backbone Network
("PSE IRU" or "IRU"). The PSE IRU consists of the capacity of the installed
Backbone Network at any point in time. The PSE IRU will be delivered to the PSE
designated Points of Presence ("POPs"). The PSE IRU will terminate at a light
wave distribution frame at each of the PSE designated POPs. All multiplex,
demultiplex, channelization and similar network equipment on the light wave
distribution panel will be provided, installed, operated and maintained solely
by PSE. All repeaters and drop/insert equipment for use in the Backbone Network
will be provided, installed, operated and maintained by the Company, at its cost
and expense.
(b) The Company will install, operate and maintain the network
capacity included in the PSE IRU free-of-charge to PSE, except as described in
this subsection 3.4(b). If PSE or its Affiliate becomes a telephone company
licensed by the New York State Public Service Commission and/or thereby utilizes
any portion of its IRU for purposes other than the internal communications needs
of PSE and its Affiliates, PSE and its Affiliates shall pay to the Company a fee
consisting of a recurring quarterly charge as well as non-recurring charges for
actual costs associated with any such third party's connection and/or
installation to the Backbone Network. The recurring quarterly charge shall be
two percent (2%) of gross revenue received by PSE for such third party's use of
the PSE IRU. If PSE sells, assigns, leases or otherwise transfers all or a
portion of the PSE IRU to a third party, which is not its Affiliate, PSE shall
pay to the Company a fee of ten percent (10%) of the gross proceeds received by
PSE from the third party in lieu of the two percent (2%) recurring quarterly
change, and the conveyance or lease documents between PSE and the third party
shall require payment to the Company of non-recurring charges for actual costs
associated with the third-party's connection and/or installation to the Backbone
Network, as well as the Company's then current standard maintenance charges. The
non-recurring charge shall reimburse the Company for actual pro rated costs of
providing the service, and shall be calculated by adding the actual pro rated
long-run incremental costs of such connection and/or installation to the
Backbone Network.
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<PAGE> 9
(c) Legal title in the entire Backbone Network will reside with the
Company, subject to the PSE IRU and the Niagara Capacity.
(d) The PSE IRU is indefeasible and irrevocable and will survive any
dissolution of the Company. It is further agreed that neither the Members nor
the Company will pledge the Backbone Network or create a lien against the
Backbone Network to obtain financing without obtaining any affected creditor's
express written agreement that such a lien or financing is subject to the PSE
IRU, and the Niagara Capacity, in the event of any foreclosure, repossession, or
similar debt enforcement activities arising from or relating to such lien or
financing.
(e) PSE, its Affiliates, successors and assigns, shall provide a
good faith traffic volume forecast broken down by service type and a system
design/requirement description to the Company on a quarterly basis, sufficient
to enable the Company to adequately anticipate, plan and provision for services
to PSE, its Affiliates, successors and assigns. The facilities and services to
be provided include both dark fiber and lit capacity (including associated
transmitters, repeaters and interface equipment), terminating at the light wave
distribution panels at POPs of PSE, its Affiliates, successors and assigns.
(f) PSE shall not transfer, sell, alienate, assign, mortgage,
pledge, or otherwise encumber or dispose of (by operation of law or otherwise)
the PSE IRU for a period of three (3) years from the date of this Agreement,
except as permitted by Sections 10.3 and 10.4, or with the Consent of Telergy.
Telergy shall be the exclusive marketing agent for the PSE IRU during such three
(3) year period. After such three (3) year period, PSE shall be free of the
restriction in the preceding sentence and shall not require the Consent of
Telergy. However, Telergy's first responsibility as Manager of the Company shall
be to lease and/or sell dark fiber and/or capacity (lit capacity and dark fiber)
on behalf of the Company. If Telergy negotiates a lease and/or sale of capacity
(lit capacity and dark fiber) of the Backbone Network and at its discretion, it
proposes to include a portion of the PSE IRU in the transaction, Telergy shall
deliver a Notice to PSE of the lease and/or sale transaction, including the
terms thereof, within ten (10) business days after a written proposal has been
delivered by the Company describing the lessee or purchaser. If PSE desires to
lease and/or sell a portion of the PSE IRU as part of the lease and/or sale
transaction, it shall deliver a notice to the Company within three (3) business
days after receipt of the Company's Notice, so long as any required approvals of
the inclusion of the PSE IRU in the lease and/or sale transaction can be
obtained from any state or federal regulatory body or agency having jurisdiction
over such a transaction.
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ARTICLE IV
ALLOCATIONS
Section 4.1 - Allocations on the Company Books.
(a) After giving effect to the Regulatory Allocations set forth in
Exhibit D, Profits and Losses of the Company for each Fiscal Year shall be
allocated among the Members in accordance with their Membership Percentages.
(b) If a Membership Interest is transferred or assigned during a
Fiscal Year, that part of each item allocated pursuant to this Section 4.1 with
respect to the interest so transferred shall, in the discretion of the Manager,
either (i) be based on segmentation of the Fiscal Year between the transferor
and the transferee (i.e., the interim closing of the books method as described
in Regulation Section 1.706-1(c)(2)(ii)), or (ii) be allocated between the
transferor and the transferee in proportion to the number of days in such Fiscal
Year during which each owned the Membership Interest, as disclosed on the
Company's books and records.
Section 4.2 - Excess Nonrecourse Liabilities: Solely for purposes of
determining the Members' proportionate share of "excess nonrecourse liabilities"
of the Company within the meaning of Regulation Section 1.752-3(a)(3), the
Members' interest in Company Profits are in accordance with their Membership
Percentages.
ARTICLE V
TAX ALLOCATIONS
Section 5.1 - Tax Allocations:
(a) To the extent permitted by Section 1.704-1(b)(4)(i) of the
Regulations, all items of income, gain, loss and deduction shall be allocated in
accordance with the corresponding allocation provided for in Article IV;
provided, however, that all items of income, gain, loss and deduction with
respect to Property to which there is a difference between Book Value and
adjusted basis for federal income tax purposes shall be allocated in accordance
with the principles of Section 704(c) of the Code and Section 1.704-1(b) and (c)
of the Regulations.
(b) In the event that the Company has taxable income that is
characterized as ordinary income under the recapture provisions of the Code,
each Member's distributive share of taxable gain or loss from the sale of
Company Property (to the extent possible) shall include a proportionate share of
this recapture income equal to that Member's share of prior cumulative
depreciation deductions with respect to the assets that give rise to the
recapture income.
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<PAGE> 11
(c) Any elections or other decisions relating to allocations
provided in this Section 5.1 shall be made by the Manager in any manner that
reasonably reflects the purpose and intention of this Agreement. Allocations
pursuant to this Section 5.1 are solely for the purposes of federal, state and
local taxes and shall not affect, or in any way be taken into account in
computing, any Member's Capital Account, share of Profits and Losses, or
distributions pursuant to any provision of this Agreement.
ARTICLE VI
DISTRIBUTIONS OF CASH
Section 6.1 - Distributions of Cash Flow: The Company shall make
distributions to the Members of so much of the Cash Flow of the Company as shall
be determined by the Manager in its sole discretion. However, the Manager shall
use its best efforts to distribute sufficient cash each year to enable each
Member to pay its federal and state income taxes, determined at the highest
effective tax rate, attributable to its share of the Company's taxable income.
Payments of Cash Flow shall be distributed among the Members in accordance with
their Membership Percentages.
ARTICLE VII
MANAGEMENT OF THE COMPANY
Section 7.1 - Power and Authority of the Manager: The Company shall
be managed by its sole Manager. The Manager shall take all action which may be
necessary or appropriate for the continuation of the Company's valid existence
as a limited liability company under the laws of the State of New York and for
the maintenance and operation of the Company's Business activity in accordance
with the provisions of this Agreement and applicable laws and regulations,
including the LLC law. The Manager shall at all times act in good faith and
exercise due diligence in all activities relating to the conduct of the
Company's Business activity. However, no transaction with the Company shall be
voidable solely because Telergy has a direct or indirect interest in the
transaction if the transaction is fair to the Company. The Manager shall provide
updates on all significant business and financial activities of the Company at
each quarterly meeting of the Members. The Manager shall annually adopt
revisions to the Business Plan of the Company as may be necessary and
appropriate and shall address the revisions with the Members at the regular
meeting of Members held during the second calendar quarter of each Fiscal Year.
Such revisions of the Business Plan shall update the budget projections and the
business objectives.
Section 7.2 - Signature of the Manager: The signature of the Manager
on behalf of the Company on any document or instrument in connection with any
transaction authorized to
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be engaged in by the Company shall be sufficient and binding upon the Company as
to third parties dealing with the Company.
Section 7.3 - Indemnification:
(a) Any loss or damage incurred by the Manager by reason of any act
or omission performed or omitted by the Manager on behalf of the Company in a
manner reasonably believed by the Manager to be within the scope of the
authority granted to it by this Agreement (but not, in any event, any loss or
damage incurred by the Manager by reason of actions which were not in good faith
or without the exercise of due diligence) shall be paid from Company assets to
the extent available, but the Members shall not have any personal liability to
the Manager under any circumstances on account of any loss or damage incurred by
the Manager or on account of the payment thereof.
(b) The directors, officers, employees and agents of the Manager
(collectively the "Indemnified Persons") shall not be liable, responsible or
accountable in damages or otherwise to any of the Members for any act or
omission performed or omitted by them in good faith on behalf of the Manager
and/or the Company and in a manner reasonably believed by them to be within the
scope of the authority granted by this Agreement and in the best interests of
the Company; provided they were not guilty of gross negligence, willful
misconduct or any other breach of their fiduciary duty with respect to such acts
or omissions. Any loss or damages incurred by an Indemnified Person by reason of
any act or omission performed by them in good faith on behalf of the Manager
and/or the Company and in a manner reasonably believed by them to be within the
scope of the authority granted by this Agreement and in the best interests of
the Company (but not, in any event, any loss or damage incurred by an
Indemnified Person by reason of gross negligence, willful misconduct or any
breach of his fiduciary duty with respect to such acts or omissions) shall be
paid from Company assets to the extent available, but the Members shall not have
any personal liability to an Indemnified Person under any circumstances on
account of any loss or damage incurred by an Indemnified Person or on account of
the payment thereof.
(c) The Company shall obtain appropriate directors and officers loss
indemnity or other insurance, if available, for the Manager and the Indemnified
Persons as additional protection for them consistent with the indemnifications
provided for in Sections 7.3(a) and (b).
Section 7.4 - Confirmation of Authority: Each Member agrees that,
upon Notice from the Manager at any time and from time to time, it shall at no
cost or expense to the Company promptly furnish written confirmation of the
legal authority of the Manager and its agents to act on its behalf with respect
to any matter, transaction, document or other act relating to or affecting the
Company; provided that the Manager is so authorized and the Manager has fully
disclosed to such Member all material facts with respect to such matter,
transaction, document or other act.
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ARTICLE VIII
DECISIONS BY MEMBERS
Section 8.1 - Decisions by Members:
(a) The Members hereby delegate all of their authority for
management and the right to vote on affairs of the Company, as contained in the
LLC Law, to the Manager, except that the Manager shall not have the authority to
engage in the following prohibited actions, without the unanimous vote or
Consent of the Members:
(i) admitting a new member into the Company,
(ii) engaging in activities other than the Business
activities,
(iii) the amount of each Member's additional Capital
Contribution, as required by Section 3.1(b)(ii);
(iv) amendment of this Agreement (except as permitted in
Section 3.3(b)) or the Certificate of Conversion, including, but not limited to,
changing the Membership Percentages of either or both Members (except as
provided in Section 3.1(b)(ii)(B)),
(v) sale, transfer or other conveyance of all or substantially
all of the assets of the Company (except for leases of fiber in the ordinary
course of business which do not impair the ability to conduct the Business
activities), it being understood that pledging, encumbering or using the
Property of the Company (A) as collateral in connection with the ordinary course
of business of the Company or, (B) as collateral for a loan from Telergy
pursuant to Section 3.1(b)(ii)(A), shall not constitute a sale, transfer or
conveyance for this purpose;
(vi) merger or consolidation of the Company with or into any
other entity; or
(vii) dissolution, liquidation and winding up of the Company.
(b) All decisions to be made by the Members as set forth in Section
8.1(a) shall be made at a meeting of the Members, or by the unanimous Consent of
the Members. Members may attend a meeting in person or by conference telephone
call. Each Member shall be entitled to one (1) vote and shall designate its
authorized representative to attend the meeting and cast such vote.
Section 8.2 - Member Meetings: Meetings of the Members shall be held
once during each quarter of the Fiscal Year, at a date, time and place mutually
agreeable to the Members. However, any Member may call a meeting to discuss
matters set forth in Section
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8.1(a) on at least ten (10) days prior Notice of the date, time, place and
purpose thereof. A Member may waive Notice of a meeting. The Members shall
maintain written minutes of action taken at any meeting, pursuant to resolutions
approved by a vote of the Members.
ARTICLE IX
REGULATORY APPROVALS; RELATED AGREEMENTS
Section 9.1 - Regulatory Approvals: The Manager shall be responsible
for obtaining all necessary regulatory and other approvals, if any, with the
cooperation of the Members as may be requested by the Manager. However, the
Members acknowledge that there shall be no changes to the rights and obligations
of the Members provided for in this Agreement as a result of regulatory
approvals, without an appropriate amendment to this Agreement as provided for in
Section 13.4.
Section 9.2 - Related Agreements:
(a) The Company shall utilize centralized support services to be
provided by Telergy for billing and collection, customer support,
telecommunications operation and maintenance, provisioning and administrative
support based upon rates, terms and charges appropriate for the provisioning of
services to a lightly regulated telephone corporation in the State of New York
("Management Contracts"), provided, however, that the rates, terms and charges
payable by the Company pursuant to the Management Contracts shall not be less
than actual cost allocated in proportion to the costs incurred by Telergy on
behalf and in support of its subsidiary companies.
(b) The Company shall negotiate with local exchange companies
(LECs), competitive local exchange companies (CLECs), competitive access
providers (CAPs), and long-distance providers, including Hyperion
Telecommunications of New York, Inc. its successors and assigns, network sharing
agreements or interconnection agreements governing the rights of the Company to
use the respective companies' telecommunications networks. Telergy shall cause
its Affiliates to enter into network sharing agreements or interconnection
agreements governing the rights of the Company to use their respective
telecommunication networks which include provisions governing reciprocal
compensation and originating and terminating access charges consistent with the
state and federal regulations applicable to interconnecting facilities-based
providers, and which ensure that the Affiliates of Telergy shall optimize the
use of the Backbone Network consistent with customary routing of traffic
patterns upon competitive rates.
(c) The Company shall negotiate a non-exclusive Energy Marketing
Agreement with PSE or a subsidiary Affiliate of PSE to market and sell electric
power and natural gas as well as other energy, energy-management and
energy-related products offered by PSE or the subsidiary Affiliate of PSE. The
Company may co-market as agent for PSE or the subsidiary Affiliate of PSE or may
purchase for resale from PSE or the subsidiary Affiliate of
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PSE all energy or energy-related products that PSE or a subsidiary Affiliate of
PSE offers, including electric power and natural gas. The Company, in its sole
discretion, shall determine when and to what extent it uses PSE or the
subsidiary Affiliate of PSE in connection with energy sales and energy marketing
activities of the Company.
(d) Telergy shall use its best efforts to obtain, as expeditiously
as possible, written confirmation from Hyperion Telecommunications of New York,
Inc. that Telergy Joint Venture is not obligated to build the Backbone Network
beyond Pleasant Valley, New York.
ARTICLE X
WITHDRAWAL OR TRANSFER OF MEMBERSHIP INTEREST
Section 10.1 - Restrictions on Withdrawal or Transfer:
(a) No Member shall withdraw voluntarily or involuntarily from the
Company. Any Member which otherwise withdraws from the Company shall be liable
to the other Member and to the Company for damages. In no event shall a Member
who otherwise withdraws from the Company be entitled as a consequence of such
withdrawal to receive the benefits of Sections 509 and 606 of the LLC Law.
(b) PSE shall not transfer, sell, alienate, assign, mortgage,
pledge, or otherwise encumber or dispose of (by operation of law or otherwise)
its Membership Interest, or any part thereof (i) for a period of one (1) year
from the date of this Agreement, except with the written consent of Telergy, and
(ii) following the first anniversary of this Agreement, except as permitted by
Section 10.2.
Section 10.2 - Right of First Refusal Option:
(a) If a Member receives a bona fide offer for the purchase or other
form of transfer of all or part of its Membership Interest which it wishes to
accept, then the Member desiring to accept the third party offer (the
"Approached Member") shall first give Notice of an irrevocable offer, including
a complete copy of the third party offer, to sell its Membership Interest to the
other Member (the "Unapproached Member") on terms and conditions no less
favorable to the Unapproached Member than those contained in the third party
offer (the "First Refusal Offer").
(b) The Unapproached Member shall have thirty (30) days from receipt
of the First Refusal Offer to give Notice to the Approached Member that it is
exercising its right of first refusal and will purchase the Approached Member's
Membership Interest on the terms and conditions contained in the First Refusal
Offer. Failure to accept the First Refusal Offer within the thirty (30) day
period shall be conclusively deemed to constitute a rejection of the First
Refusal Offer. If the First Refusal Offer is accepted in the manner set forth in
Section 10.2, the
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closing shall take place within forty-five (45) days after such written
acceptance. If, on the other hand, the First Refusal Offer is rejected, or the
Unapproached Member having accepted the First Refusal Offer fails to close
within forty-five (45) days, then the Approached Member shall be free to sell
its Membership Interest to the proposed third party purchaser on terms no more
favorable to the third party purchaser than those presented in the First Refusal
Offer. The purchaser of the Membership Interest shall execute this Agreement and
its Membership Interest shall be subject to the terms and obligations of this
Agreement governing a Membership Interest.
Section 10.3 - Bankruptcy Purchase Option:
(a) If a Member, or an Affiliate which controls a Member, incurs an
event of Bankruptcy (the "Bankrupt Member"), then the Company shall have the
option to purchase the entire Membership Interest of the Bankrupt Member, and if
PSE is the Bankrupt Member, Telergy shall also have the option to purchase the
PSE IRU (singularly or collectively the "Bankruptcy Purchase Option"). Upon the
exercise of this Bankruptcy Purchase Option, the Bankrupt Member shall be deemed
to have sold and transferred its Membership Interest to the Company and to have
ceased to be a Member for all purposes. The other Member may exercise the
Bankruptcy Purchase Option for the Membership Interest on behalf of the Company
and Telergy may exercise the Bankruptcy Purchase Option for the PSE IRU by
giving Notice to the Bankrupt Member within one (1) year following the later of
(i) the date of occurrence of the event of Bankruptcy, or (ii) the date on which
the other Member first learned of the event of Bankruptcy.
(b) The purchase price for the Membership Interest of the Bankrupt
Member shall be the product of (i) the net of the aggregate fair market value of
the Company's tangible assets, less all liabilities, including contingent
liabilities of the Company, multiplied by (ii) the Membership Percentage of the
Bankrupt Member. The purchase price for the PSE IRU shall be its fair market
value. The purchase price shall be payable by a cash payment at closing of an
amount equal to five percent (5%) of the purchase price and the unpaid balance
shall be evidenced by an unsecured promissory note(s) which shall be payable on
an amortized basis over sixty (60) months, or shall be payable by any other
agreed upon arrangement. The note(s) shall bear interest at the Applicable
Federal Rate in effect as of the date of the promissory note determined under
Code Section 1274.
(c) The fair market value of the tangible assets of the Company and
the PSE IRU shall be determined by a duly qualified appraiser for the type of
asset being appraised, jointly selected by the Members. If the Members are
unable to agree on an appraiser within ten (10) days after the written request
of either one, each shall select an appraiser and the two (2) appraisers shall
agree on the valuation, but if they are unable to agree on any valuation, they
shall mutually select a third (3rd) appraiser whose decision as to any disputed
valuation shall be binding and conclusive on all interested parties. Any
appraiser's fees and costs shall be borne and paid by the party authorized to
selected the appraiser, but where an appraiser is jointly selected or a third
appraiser is selected, such fees and costs of the jointly selected appraiser or
third appraiser shall be borne and paid for in equal shares.
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Section 10.4 - Liquidation Purchase Option:
(a) Upon an event of dissolution of the Company (other than if
pursuant to Section 11.1(a)(iii) as a result of the Bankruptcy of Telergy),
Telergy shall have the option to purchase (the "Liquidation Purchase Option")
the entire Membership Interest of PSE and the PSE IRU. Following the exercise of
this Liquidation Purchase Option, Telergy may assign its right to close the
purchase to a third party, who may be an Affiliate, and elect to continue the
Company, or the Company may proceed with the dissolution by distributing in-kind
all of the assets of the Company, including but not limited to, the Backbone
Network, licenses, permits and government authorizations, and all of the
Company's contracts including the Right of Occupancy Agreement, subject to the
debts and liabilities of the Company. Telergy may exercise the Liquidation
Purchase Option by giving Notice to PSE within thirty (30) days following the
later of (i) the date of occurrence of the event giving rise to dissolution of
the Company, or (ii) the date on which Telergy first learned of the event giving
rise to the dissolution of the Company.
(b) The purchase price for the Membership Interest of PSE and the
PSE IRU may be determined by the agreement of Telergy and PSE and they agree to
negotiate in good faith to determine a purchase price. In the event the Members
cannot agree on a purchase price, then it shall be determined initially by an
investment banking firm selected by PSE which shall determine a purchase price
based upon the fair market value of PSE's Membership Interest and the PSE IRU.
The determination of the investment banking firm shall be submitted to Telergy,
and if Telergy agrees with the determination of the purchase price, it shall be
binding on the parties. However, if Telergy does not agree with the purchase
price, then it shall select an investment banking firm to determine the purchase
price based upon the fair market value of PSE's Membership Interest and the PSE
IRU. If the lower purchase price determined by the two investment banking firms
is at least eighty percent (80%) of the higher price, then the purchase price
shall be the average of the two prices. Otherwise, the purchase price shall be
determined by an arbitrator who shall select the price determined by one of the
investment banking firms. The arbitrator shall be selected by the two investment
banking firms and shall be a Person familiar with the telecommunications
industry. The decision of the arbitrator shall be final and binding on both
Telergy and PSE. The arbitration procedures, protocols and provisions are set
forth in Section 10.4(c). Each party shall bear the fees, costs and
out-of-pocket expenses of the investment banking firm which it selected, but
shall equally share the cost of any arbitration utilized to determine the
purchase price. Any investment banking firm engaged to determine the purchase
price and the arbitrator must agree in writing (i) to protect the
confidentiality of the Company's non-public, trade secret, financial,
confidential and proprietary data, and (ii) not to disclose the existence,
content or results of any arbitration without the prior Consent of Telergy and
PSE. Telergy and PSE agree not to disclose the existence, content or results of
any arbitration without the prior Consent of the other.
(c) The arbitration to determine the purchase price for the
Membership Interest of PSE and the PSE IRU shall be conducted in accordance with
the commercial arbitration rules of the American Arbitration Association (the
"Rules") in effect at the time of the
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arbitration, except as the Rules conflict with the provisions of this Agreement
or as may be modified by the agreement of the Members. The arbitrator shall have
the authority to order the production of such documents as may be reasonably
requested by either Member, by either of the investment banking firms whose
determinations of a purchase price are being arbitrated, or by the arbitrator.
Prior to any hearing or formal arbitration, and as set forth in more detail by
the arbitrator or in the Rules, the Members agree that there should be an
exchange of written exhibits and a brief description of the testimony each side
proposes to offer. The arbitrator may, at his or her option, appoint one or more
experts to advise him or her with respect to any issue in the arbitration. If
any expert is so appointed, then the Members and the investment banking firms
participating in the arbitration shall have the right to examine such expert's
report to the arbitrator and to question such expert at an oral hearing. The
arbitrator's decision shall be in writing and shall state the reasons for the
decision.
ARTICLE XI
DISSOLUTION
Section 11.1 - Dissolution of the Company:
(a) The Company shall dissolve upon the happening of any of the
following events:
(i) the unanimous vote or Consent of the Members to dissolve
the Company;
(ii) the election of either Member if the other Member
unreasonably fails to approve the Capital Contributions as provided in Section
3.1(b)(ii), or having approved the Capital Contributions, the other Member fails
to make payment to the Company when due; provided that the first Member gives
Notice to the other Member, and thirty (30) days within which to cure the
problem which permits the election to dissolve, and provided that during the
thirty (30) day period the Members negotiate in good faith with the objective of
curing the problem and thereby preserving the Company; or
(iii) the Bankruptcy of a Member, unless within the next one
hundred eighty (180) days the Business of the Company is continued by the
Consent of the other Member.
(b) The Company shall not automatically dissolve and may continue as
a single member limited liability company if a Member's Membership Interest is
purchased by the Company pursuant to Sections 10.3 and 10.4. Concurrently with
such a purchase, the Company may accept a Capital Contribution from one or more
third party investors in exchange for the granting of a Membership Interest in
the Company. This may include a nominal Capital
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Contribution, which in the judgment of the Company is sufficient to prevent the
purchase of the Membership Interest from being recognized as a partnership
liquidation pursuant to the Code.
(c) Upon dissolution, (and if pursuant to Section 11.1(a)(iii))
where the other Member does not Consent to continue the Business activity of the
Company), the Company shall cease carrying on its business and shall wind up its
affairs as provided in the LLC Law. Within ninety (90) days following the
dissolution and the commencement of winding up of the Company, Articles of
Dissolution shall be filed with the New York State Department of State pursuant
to the LLC Law.
(d) Upon dissolution of the Company, the Profits and Losses shall
continue to be divided among or borne by the Members during the period of
liquidation in accordance with the provisions of Article IV.
(e) The proceeds of dissolution shall be distributed as realized in
the following order of priority:
(i) first, to the payment and discharge of all of the
Company's debts and liabilities and the expenses of the dissolution;
(ii) second, to the creation of any reserve that the Manager
reasonably deems necessary for any contingent or unforeseen liabilities or
obligations of the Company;
(iii) third, to the Members with positive Capital Account
balances in accordance with the amount of their Capital Account balances, after
giving effect to all contributions, distributions and allocations for all
periods, and
(iv) the balance, if any, to the Members in accordance with
their Membership Percentages.
(f) If a Member contributed Property to the Company, that Member may
request a return of the Property upon dissolution of the Company. The decision
of whether to distribute property in kind shall be within the discretion of the
Manager. Telergy shall have the right to continue to use the trade name
"Telergy" following a dissolution.
(g) A Member with a deficit balance in its Capital Account at the
time of the liquidation or dissolution of the Company or the liquidation of its
Membership Interest, shall have no obligation to restore to the Company such
deficit balance.
Section 11.2 - Deferral of Liquidation: Notwithstanding the
provisions of Section 11.1, if the Manager shall determine that an immediate
sale of part or all of the Company assets would cause undue loss to the Members,
the Company shall either (i) defer liquidation of and withhold from distribution
for a reasonable time, any assets of the Company, except those
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necessary to satisfy the Company's debts and obligations, or (ii) distribute the
assets to the Members in-kind.
ARTICLE XII
ACCOUNTING MATTERS; BANK ACCOUNTS; PROPERTY
Section 12.1 - Accounting Matters:
(a) The Company shall maintain full and accurate books of account.
The Company shall use such Accounting Method as the Manager shall determine. The
Company shall also maintain this Agreement and all amendments, including any
updated Exhibits, a copy of the Certificate of Conversion and all amendments,
and the minutes of all meetings of the Members. Such books of account, together
with a copy of this Agreement and the other records of the Company, shall at all
times be maintained at the principal business office of the Company and, upon
reasonable advance Notice to the Manager, shall be open to inspection and
examination at reasonable times by each Member and, upon five (5) days advance
Notice to the Manager, by each Member's duly authorized representative (provided
that such authorized representative has agreed in writing to protect the
confidentiality of the Company's non-public, trade-secret, financial,
confidential and proprietary data) for any purpose reasonably related to such
Member's interest in the Company.
(b) The Manager shall furnish each Member with (i) a monthly
internal income statement and balance sheet of the Company within forty-five
(45) days after the close of each month, and (ii) annual audited financial
statements prepared in accordance with generally accepted accounting principles,
and the information required annually for each Member to report its share of
Company items affecting its federal income tax return, within ninety (90) days
after the close of each Fiscal Year.
(c) In the event of a transfer of all or any part of the Membership
Interest of a Member, the Company may elect pursuant to Section 754 of the Code
to adjust the basis of the Property. Each Member agrees to furnish the Company
with all information necessary to give effect to this election.
Section 12.2 - Bank Accounts: One or more accounts in the name of
the Company or its nominee shall be maintained in such banks as shall from time
to time be determined by the Manager. All monies of the Company shall be
deposited in a bank account of the Company. Checks may be drawn thereon by such
person(s) as the Manager shall from time to time determine.
Section 12.3 - Subsidiary Ventures: The Manager shall exercise
authority and control over the interests in corporations, partnerships or
limited liability companies owned by
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the Company, and shall vote those interests as may be provided for in the
organizing and operating agreements of the various entities.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 - Other Ventures: The Members may, independently or
with others, invest or engage in any business or venture, including
telecommunications, data and information, energy, and energy marketing and
management activities similar to that of, or in competition with, the Company.
The other Members shall not have any rights or obligations in and to such
independent ventures or the income or profits derived therefrom.
Section 13.2 - Successors and Assigns: The covenants and agreements
contained in this Agreement shall be binding upon and inure to the benefit of
the Members and their successors and assigns.
Section 13.3 - Governing Law: This Agreement shall be construed and
enforced in accordance with the laws of New York State (without giving effect to
principles of conflicts of laws), and in particular the LLC Law which, unless
otherwise provided in this Agreement, shall govern all matters respecting the
relationship between the Members not specifically covered by this Agreement.
Section 13.4 - Amendments: This Agreement supersedes all prior
agreements among the parties which deals with the same or substantially the same
subject matter, including that certain Joint Venture Agreement between the
parties dated January 16, 1996 and that certain Memorandum of Agreement between
the parties dated April 16, 1998. Amendments to this Agreement shall be made
only by a unanimous vote or Consent of the Members, except as otherwise provided
in Section 3.3(b). Except as provided in Section 3.3(b), a Member whose
Membership Interest is adversely affected by an amendment must Consent thereto
for the amendment to apply to its Membership Interest. The Members agree to
negotiate in good faith a change in the rights and obligations provided in this
Agreement, as may be required to comply with or accommodate regulatory approvals
governing the Company.
Section 13.5 - Counterparts: This Agreement may be executed in
counterparts, each of which shall be an original and both of which shall
constitute one and the same instrument.
Section 13.6 - Severability: If any provision contained herein is
determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid.
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Section 13.7 - Section Headings Not Controlling: Section headings
found herein are for convenience of reference only and shall not control or
alter the meaning of this Agreement.
Section 13.8 - No Partnership: By formation of the Company, the
Members expressly do not intend to form a partnership under the New York
Partnership Law or under any theory of common law as established by judicial
decisions of courts at law or equity. The Members do not intend to be partners
to one another, or partners as to any third party. However, the Members intend
for the Company to be taxed in accordance with federal and State laws governing
the taxation of partnerships.
Section 13.9 - Rights of Creditors: This Agreement is expressly not
intended for the benefit of any creditor of the Company or any other Person who
is not a Member. No creditor or other Person shall have any rights to the
Member's obligation for Capital Contributions except for a creditor who extended
credit to the Company in reliance on the Member's obligation for a Capital
Contribution as provided in the LLC Law.
Section 13.10 - Representations and Warranties:
(a) PSE represents and warrants to Telergy that as of the date
hereof:
(i) It is a corporation duly organized and validly existing
and in good standing under the laws of the State of Delaware and has all
necessary corporate power to own its properties and to carry on its business as
now owned and operated.
(ii) Neither the execution and delivery by PSE of this
Agreement, the conversion of Telergy Joint Venture to a limited liability
company, nor the consummation by PSE of the business transactions contemplated
by this Agreement requires any governmental approval or authorization, or will
result in or constitute (A) a breach of any term or condition of this Agreement;
(B) a default, or an event that with notice or lapse of time or both would
constitute a default, breach or violation of the Certificate of Incorporation or
by-laws of PSE or any license, or promissory note, state, federal or local
ruling or order, or other agreement, instrument or arrangement to which PSE or
any of its Affiliates is a party; or (C) an event that would permit any Person
to terminate any agreement or to accelerate the maturity of any obligation of
PSE.
(iii) The Board of Directors of PSE has approved the execution
and delivery of this Agreement.
(iv) PSE has been duly authorized by all necessary corporate
and shareholder action to execute, deliver and perform under this Agreement and
the Person executing this Agreement on behalf of PSE has been duly authorized to
do so.
(b) Telergy represents and warrants to PSE that as of the date
hereof:
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(i) It is a corporation duly organized and validly existing
and in good standing under the laws of the State of New York and has all
necessary corporate power to own its properties and to carry on its business as
now owned and operated.
(ii) Neither the execution and delivery by Telergy of this
Agreement, the conversion of Telergy Joint Venture to a limited liability
company, nor the consummation by Telergy of the business transactions
contemplated by this Agreement requires any governmental approval or
authorization, or will result in or constitute (A) a breach of any term or
condition of this Agreement; (B) a default, or an event that with notice or
lapse of time or both would constitute a default, breach or violation of the
Certificate of Incorporation or by-laws of Telergy or any license, or promissory
note, state, federal or local ruling or order, or other agreement, instrument or
arrangement to which Telergy or any of its Affiliates is a party; or (C) an
event that would permit any Person to terminate any agreement or to accelerate
the maturity of any obligation of Telergy.
(iii) The Board of Directors of Telergy has approved the
execution and delivery of this Agreement.
(iv) Telergy has been duly authorized by all necessary
corporate and shareholder action to execute, deliver and perform under this
Agreement and the Person executing this Agreement on behalf of Telergy has been
duly authorized to do so.
(c) The representations and warranties in Section 13.10 are made as
of the execution and delivery of this Agreement and shall survive indefinitely.
Section 13.11 - Legal Fees: If any legal action, arbitration or
other proceeding is brought for the purpose of enforcing this Agreement, or
because of a dispute, alleged breach, default or misrepresentation in connection
with any of the provisions of this Agreement, the successful or prevailing party
shall be entitled to reasonable attorneys fees and other costs incurred in
connection with such actions, arbitration or proceeding, in addition to any
other relief to which the prevailing party may be entitled.
Section 13.12 - Confidentiality: Telergy and PSE agree that they
will maintain as confidential, and will use their best efforts to cause their
officers, employees, agents, advisors, representatives and Affiliates to
maintain as confidential the terms and conditions of this Agreement, and the
transactions contemplated by this Agreement, along with any related documents,
except for information or documents which (i) are published or otherwise become
available to the public, or (ii) must be disclosed to a governmental body or
regulatory authority or agency under applicable law, rule or regulation. If the
Company is requested or required under applicable law (by interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process) to disclose any non-public information, then Telergy and PSE
agree that the Company shall use its best efforts to obtain assurance that
confidential treatment will be accorded to any such non-public information prior
to its disclosure by the Company.
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<PAGE> 24
IN WITNESS WHEREOF, the Members have executed this Operating
Agreement for Telergy Central, LLC as of the day and year first above written.
TELERGY, INC.
By: /s/ Brian Kelly
-------------------------------------
Brian P. Kelly
Chief Executive Officer
PLUM STREET ENTERPRISES, INC.
By: /s/ J. Phillip Frazier
-------------------------------------
J. Phillip Frazier
President and Chief Executive Officer
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<PAGE> 25
EXHIBIT A
TELERGY CENTRAL, LLC
NOTICE ADDRESSES AND TELECOPY
Members
To Telergy, Inc.:
Telergy, Inc.
5784 Widewaters Parkway
Dewitt, New York 13214
Attention: Chief Executive Officer
Telecopy No.: 315-449-0397
With a copy to:
Telergy, Inc.
20 Corporate Woods Boulevard
Albany, New York 12211
Attention: General Counsel
Telecopy No.: 518-463-9937
To Plum Street Enterprises, Inc.:
Plum Street Enterprises, Inc.
500 Plum Street
Syracuse, New York 13204
Attention: Chief Executive Officer
Telecopy No.: 315-460-3388
With a copy to:
Plum Street Enterprises, Inc.
507 Plum Street
Syracuse, New York 13204
Attention: General Counsel
Telecopy No.: 315-460-3338
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<PAGE> 26
EXHIBIT B
TELERGY CENTRAL, LLC
CAPITAL CONTRIBUTIONS
Capital Account Balances of
Telergy Joint Venture as of
Contribution December 31, 1997
- ------------ -----------------
Telergy, Inc. $19,641,593
Plum Street Enterprises, Inc. ($480,125)
- 22 -
<PAGE> 27
EXHIBIT C
TELERGY CENTRAL, LLC
DEFINITIONS
Accountants: the firm of independent public accountants as shall, from time to
time, be engaged by the Manager to render accounting, auditing, tax and similar
services.
Accounting Method: the general or specific accounting assumptions used to record
transactions of the Company. The accounting records of the Company shall prima
facie be deemed to properly reflect the proper accounting method, absent a
showing of gross error or fraud.
Affiliate: any Person that, directly or indirectly, controls, is controlled by,
or is under common control with another Person or Entity. For purposes of the
preceding sentence, "control" with respect to an Entity means ownership of at
least fifty percent (50%) of the voting interest in the Entity.
Agreement (or Operating Agreement): this document as it may be amended from time
to time, including the Exhibits and any amendments thereto.
Applicable Federal Rate: the rate of interest determined each month by the
Secretary of Treasury pursuant to Code Section 1274(d) for debt instruments
having a maturity of over three (3) years but not over nine (9) years, as
announced by Revenue Ruling issued monthly by the United States Treasury
Department, compounded annually. Pursuant to Code Section 1274(d)(1)(C), the
applicable Federal Rate is determined by the Secretary of Treasury based on the
average market yield (during any one month period selected by the Secretary and
ending in the calendar month in which the determination of the Applicable
Federal Rate is made) on outstanding marketable obligations of the United States
with remaining periods of maturity of over three (3) years but not over nine (9)
years. The Applicable Federal Rate for April, 1998 is 5.7%.
Backbone Network: the fiber optic transmission-based telecommunications network
connecting major cities along the Backbone Route, including Loops and Spurs,
primarily constructed and installed in the rights-of-way of Niagara Mohawk Power
Corporation from Buffalo through Albany to Pleasant Valley, New York.
Backbone Route: the geographic location of the Backbone Network which shall
connect major Points-of-Presence along the Backbone Network as set forth in the
Right-of-Occupancy Agreement.
Bankruptcy: any of (i) filing a petition or other prayer for relief under any
bankruptcy act or statute for the relief of debtors, (ii) the commencement of a
proceeding, voluntary or involuntary, under any other applicable insolvency,
reorganization, bankruptcy or similar laws, (iii) making a
- 23 -
<PAGE> 28
general assignment of assets for the benefit of creditors, or (iv) filing a
petition in a court of record admitting in writing the inability to pay debts as
they come due.
Book Value: the amount recorded for any asset or liability as determined from
the accounting records of the Company taking into account all Company
transactions to the determining date and employing the Accounting Method then in
effect.
Business: developing, deploying, and operating a fiber optic network to provide
intra-city and inter-city voice, data, video, content, and other
telecommunication services, data and information, as well as energy sales,
management and marketing to customers within and outside of New York State as
currently conducted by Telergy Joint Venture and/or as may evolve through
changes in technology, laws and regulations.
Business Plan: the strategic plan adopted by Telergy Joint Venture setting forth
the vision and objectives of the Company, its business focus, market analysis,
marketing plan, financial projections, financing plan, contingency analysis, and
implementation plan in order to carry out the Business activities, as may be
modified from time to time.
Capital Account: with respect to any Member, Capital Account shall mean the
Capital Contribution of such Member, (i) increased by all items of Profit
allocated to such Member under this Agreement, and (ii) any items in the nature
of income or gain which are specifically allocated pursuant to the Regulatory
Allocations, and decreased by (a) the amount of cash or the Gross Asset Value of
property (net of liabilities secured by such property that the Member is
considered to assume or take subject to pursuant to Section 752 of the Code)
distributed to such Member, (b) all items of Loss allocated to such Member under
the Agreement, and (c) any items in the nature of expenses or losses which are
specifically allocated pursuant to the Regulatory Allocations.
Capital Contributions: the total amount of money or other property contributed
or agreed to be contributed to the Company by all the Members or any one Member.
Cash Flow: for each Fiscal Year, the cash receipts of the Company from all
sources (including receipts from operations and receipts from any sale,
disposition or refinancing of any asset of the Company, but excluding Capital
Contributions), increased for any funds released from reserves for working
capital, contingencies and similar purposes, to the extent that such funds were
previously deducted in determining Cash Flow, less the sum of (i) operating
expenses, (ii) debt service payments, (iii) expenditures for the acquisition of
property not financed through Capital Contributions or borrowing, and (iv)
payments to reserves for working capital, purchases of capital assets,
contingencies and other similar purposes.
Certificate of Conversion: the Certificate of Conversion of the Company filed
with the New York State Department of State.
- 24 -
<PAGE> 29
Code: the Internal Revenue Code of 1986, as amended, including any related
judicial and administrative rulings and interpretations.
Company: Telergy Central, LLC, a limited liability company as it may from time
to time be constituted.
Consent: the prior written consent of a Person to do the act or thing for which
the consent is solicited, or the act of granting the consent, as the context may
require.
Depreciation: with respect to any Fiscal Year or other period, an amount equal
to the depreciation, amortization, or other cost recovery deduction allowable
with respect to an asset for the year or other period, except that if the Book
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of the year or other period, Depreciation shall be an
amount which bears the same ratio to the beginning Book Value as the federal
income tax depreciation, amortization, or other cost recovery deduction for the
year or other period bears to the beginning adjusted tax basis; provided,
however, that if the federal income tax depreciation, amortization or other cost
recovery deduction for the year is zero, Depreciation shall be determined with
reference to the beginning Book Value using any reasonable method selected by
the Manager.
Fiscal Year: the calendar year unless otherwise established or changed by the
Manager, including any period of less than a calendar year in the year of
formation or dissolution of the Company.
Gross Asset Value: with respect to any asset, the asset's adjusted basis for
federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Member to the
Company shall be the fair market value of the asset, as determined by the
Members;
(b) The Gross Asset Values of all Company assets may, in the sole discretion of
the Members, be adjusted to equal their respective fair market values, as
determined by the Members, as of the following times: (i) the acquisition of an
additional interest in the Company by any new or existing Member in exchange for
more than a de minimis Capital Contribution; (ii) the distribution by the
Company to a Member of more than a de minimis amount of property as
consideration for an interest in the Company; and (iii) the liquidation of the
Company within the meaning of Regulation Section 1.704-1(b)(2)(ii)(g); provided,
however, that adjustments pursuant to clauses (i) and (ii) above shall be made
only if the Members reasonably determine that the adjustments are necessary or
appropriate to reflect the relative economic interests of the Members in the
Company.
(c) The Gross Asset Value of any Company asset distributed to any Member shall
be the fair market value of the asset, as determined by the Members, on the date
of distribution; and
- 25 -
<PAGE> 30
(d) The Gross Asset Values of Company assets shall be increased (or decreased)
to reflect any adjustments to the adjusted basis of the assets pursuant to
Section 734(b) of the Code or Section 743(b) of the Code, but only to the extent
that the adjustments are taken into account in determining Capital Accounts
pursuant to Regulation Section 1.704-1(b)(2)(iv)(m); provided, however, that
Gross Asset Values shall not be adjusted pursuant to this subsection (d) to the
extent the Manager determines that an adjustment pursuant to subsection (b) of
this definition is necessary or appropriate in connection with a transaction
that would otherwise result in an adjustment pursuant to this subsection (d).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
subsections (a), (b), (c) or (d) of this definition, the Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
the asset for purposes of computing Profits and Losses.
High Yield Notes: high yield notes made by Telergy and purchased by Persons
through an underwritten bond offering, which is anticipated to be completed by
December 31, 1998.
Indefeasible Right of Use or IRU: a communication facility in which the holder
possesses an indefeasible, exclusive and irrevocable right to use and market the
facility, but not the right to control the facility.
LLC Law: the New York Limited Liability Company Law, as amended.
Loops: rings in, around or within metropolitan areas installed by the Company
along the Backbone Network, and connected to the Backbone Network, Spurs or
other Loops.
Manager: Telergy, or the successor and assign of Telergy's Membership Interest
as permitted by this Agreement.
Market Interest: the annual rate of interest, compounded monthly (applied on a
daily basis or such other periodic basis as the Manager shall determine) which
shall equal the greater of (a) the annual rate of interest being charged from
time to time by the primary commercial bank in the State of New York with which
the Company usually does business (but if there be no such bank, then such
commercial bank in the State of New York as is selected by the Manager for prime
credit risk borrowers) plus one percent (1%), or (b) one hundred percent (100%)
of the Applicable Federal Rate in effect as of the date of the promissory note
or other indebtedness as determined under Section 1274 of the Code (but only if
Section 1274 shall apply).
Member: Telergy and/or PSE.
Membership Interest: the entire ownership interest (which may be expressed as a
percentage) of a Member in the Company at any particular time, including its
Membership Percentage and its right to any and all benefits to which a Member
may be entitled as provided in this Agreement
- 26 -
<PAGE> 31
and in the LLC Law, together with its obligations to comply with all the terms
and provisions of this Agreement and of the LLC Law.
Membership Percentages: Telergy - 75%; PSE - 25%.
Niagara Capacity: the equivalent capacity of 5-OC3s and 4 dark fiber strands as
described in the Right-of-Occupancy Agreement.
Notice: a dated writing, containing the information required by this Agreement
to be communicated to any Person, which Notice shall be deemed given on the
sooner of (a) the date of personal delivery, (b) the date of transmittal by
telecopy (FAX) to the Person's telecopy number, but only if the Person's
telecopy number is set forth on Exhibit A, (c) three (3) days following the date
of certified or registered mailing to the Person's address set forth on Exhibit
A, return receipt requested and postage prepaid, or (d) one (1) business day
following delivery to a nationally recognized United States overnight courier
service directed to the Person's address set forth in Exhibit A, fee prepaid and
returned receipt or other confirmation of delivery requested.
Person: any individual, partnership, corporation, trust, limited liability
company, or other entity.
Points of Presence or POPs: the points at which IXCs, CLECs and/or CAPs
interconnect with local exchanges for the purpose of providing
telecommunications services to Persons within such local exchanges; as well as
the Points of Presence at which the Niagara Capacity and PSE's IRU shall be
delivered to an interconnect with PSE as well as NMPC.
Profits and Losses: with respect to any Fiscal Year, an amount equal to the
Company's federal taxable income or loss for such Fiscal Year, determined in
accordance with Section 703(a) of the Code (for this purpose, all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss), 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 Profits or Losses shall be added to
such taxable income or loss;
(b) Any expenditures of the Company described in Sections 705(a)(2)(B) of the
Code or treated as Section 705(a)(2)(B) expenditures pursuant to Regulation
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing
Profits or Losses, shall be subtracted from such taxable income or loss;
(c) In the event the Gross Asset Value of any Company asset is adjusted pursuant
to subsection (b) or (d) of the definition of Gross Asset Value, the amount of
the adjustment shall be taken into account as gain or loss from the disposition
of the asset for purposes of computing Profits and Losses;
- 27 -
<PAGE> 32
(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 Gross Asset Value of the property disposed of,
notwithstanding that the adjusted tax basis of the property differs from its
Gross Asset Value;
(e) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Fiscal Year, computed in
accordance with this Agreement.
Property: any real and personal property, tangible or intangible, including
ownership interests in ventures formed as a corporation, partnership or limited
liability company owned by the Company.
Regulations: the Income Tax Regulations promulgated under the Code, as they may
be amended from time to time.
Right-of-Occupancy Agreement: the Right of Occupancy Agreement dated February 2,
1996, between Niagara Mohawk Power Corporation and Telergy Joint Venture,
modified on September 25, 1997, and as such agreement may be modified from time
to time.
Spurs: extensions to the Backbone Network, Loops or other Spurs installed by the
Company in, around or within metropolitan areas along the Backbone Network,
which may include, among other things, building entrances.
Tax Matters Member: Telergy, the Member designated to represent the Company in
connection with income tax matters pursuant to Section 6231(a)(7) of the Code.
Telergy Joint Venture: the Joint Venture made January 16, 1996 by and between
PSE and Telergy (formerly KCI Network Services, Inc. prior to its name change).
- 28 -
<PAGE> 33
EXHIBIT D
TELERGY CENTRAL, LLC
REGULATORY ALLOCATIONS
Section 1. Regulatory Allocations. Regulatory Allocations shall be made as
follows:
(a) Except as otherwise provided in Section 1.704-2(f) of the Regulations and
notwithstanding any other provision of this Section 1, if there is a net
decrease in Company Minimum Gain during any Fiscal Year, each Member shall be
specially allocated items of Company income and gain for the year (and, if
necessary, subsequent years) in an amount equal to the portion of the Member's
share of the net decrease in Company Minimum Gain, determined in accordance with
Regulation Section 1.704-2(g). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be allocated
to each Member pursuant to the Regulations. The items to be so allocated shall
be determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the
Regulations. This Section 1(a) is intended to comply with the minimum gain
charge back requirement in Section 1.704-2(f) of the Regulations and shall be
interpreted consistently therewith.
(b) Except as otherwise provided in Section 1.704-2(i)(4) of the Regulations and
notwithstanding any other provision of this Section 1 except Section 1(a), if
there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to
a Member Nonrecourse Debt during any Fiscal Year, each Member who has a share of
the Member Nonrecourse Debt Minimum Gain attributable to the Member Nonrecourse
Debt, determined in accordance with Section 1.704-2(i)(5) of the Regulations,
shall be specially allocated items of Company income and gain for the year (and,
if necessary, subsequent years) in an amount equal to the portion of the
Member's share of the net decrease in Member Nonrecourse Debt Minimum Gain
attributable to the Member Nonrecourse Debt, determined in accordance with
Regulation Section 1.704-2(i)(4). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be allocated
to each Member pursuant to the Regulations. The items to be so allocated shall
be determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the
Regulations. This Section 1(b) is intended to comply with the minimum gain
charge back requirement in Section 1.704-2(i)(4) of the Regulations and shall be
interpreted consistently therewith.
(c) To the extent an adjustment to the adjusted tax basis of any Company asset
pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to
Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining
Capital Accounts, the amount of the 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 the basis) and the 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 that
Section of the Regulations.
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<PAGE> 34
(d) Any Member Nonrecourse Deductions for any Fiscal Year shall be specially
allocated to the Member who bears the risk of loss with respect to the loan to
which the Member Nonrecourse Deductions are attributable in accordance with
Regulation Section 1.704-2(i)(1).
(e) Nonrecourse Deductions for any Fiscal Year shall be specially allocated
among the Members in proportion to their Membership Percentages.
(f) Except as provided in Section 1(a) of this Section 1, in the event that any
Member receives an allocation of loss or any distribution which causes the
Member to have an Adjusted Capital Account Deficit at the end of the Fiscal
Year, then all items of Company income and gain shall be specially allocated to
the Member in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, the Adjusted Capital Account Deficit of the Member
as quickly as possible.
(g) The Regulatory Allocations are intended to comply with certain requirements
of the Regulations. It is the intent of the Members that, to the extent
possible, all Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other items of Company
income, gain, loss or deduction pursuant to this Section 1. Therefore,
notwithstanding any other provision of Section 4.1 of the Agreement (other than
the Regulatory Allocations), the Manager shall make the offsetting special
allocations of Company income, gain, loss or deduction in whatever manner it
determines appropriate so that, after the offsetting allocations are made, each
Member's Capital Account balance is, to the extent possible, equal to the
Capital Account balance such Member would have had if the Regulatory Allocations
were not part of the Agreement and all Company items were allocated pursuant to
Section 4.1 of this Agreement.
Section 2. Definitions. For purposes of this Exhibit D, the following
definitions shall apply:
Adjusted Capital Account Deficit - With respect to any Member, the deficit
balance, if any, in the Member's Capital Account as of the end of the relevant
Fiscal Year after giving effect to the following adjustments:
(i) credit to such Capital Account any amounts which the Member is
obligated to restore or is deemed to be obligated to restore pursuant to the
penultimate sentence of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5);
and
(ii) debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
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<PAGE> 35
Company Minimum Gain - has the meaning set forth in Section 1.704-2(d) of the
Regulations for partnership minimum gain, and is provided for in Section 1(a).
Member Nonrecourse Debt - has the meaning set forth in Section 1.704-2(b) of the
Regulations for partner nonrecourse debt, and is provided for in the definition
of Member Nonrecourse Debt Minimum Gain.
Member Nonrecourse Debt Minimum Gain - means an amount, with respect to each
Member Nonrecourse Debt, equal to the Company Minimum Gain that would result if
the Member Nonrecourse Debt were treated as a Nonrecourse Liability, determined
in accordance with Section 1.704-2(i)(3) of the Regulations, and is provided for
in Section 1(b).
Member Nonrecourse Deductions - has the meaning set forth in Sections
1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations for partner nonrecourse
deductions, and is provided for in Section 1(d).
Nonrecourse Deduction - has the meaning set forth in Section 1.704-2(b)(1) of
the Regulations, and is provided for in Section 1(e).
Nonrecourse Liability - has the meaning set forth in Section 1.704-2(b)(3) of
the Regulations, and is provided for in the definition of Member Nonrecourse
Debt Minimum Gain.
- 31 -
<PAGE> 1
EXHIBIT 10.17
OPERATING AGREEMENT
OF
Telergy East, LLC
OPERATING AGREEMENT
OF
Telergy East, LLC
THIS OPERATING AGREEMENT is made and entered into as of this 10th day of
June, 1998, by and between Telergy Inc. ("Telergy"), a New York corporation, and
Energy East Telecommunications, Inc. ("Energy East"), a Delaware corporation
wholly owned by NYSEG, and is to take effect on the Effective Date.
WHEREAS, Telergy and Energy East desire, by execution and delivery
of this Operating Agreement, to approve the Articles of Organization and form a
limited liability company pursuant to the Act.
WITNESSETH:
In consideration of the mutual covenants contained in this Operating
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
In addition to the terms defined elsewhere in this Operating Agreement,
the following terms shall have the following respective meanings:
1.1 "Act" means the New York Limited Liability Company Law, Chapter 34,
Consolidated Laws '101 et seq., and all amendments thereto.
1.2 "Affiliate" means, with respect to a specified Person, (i) any other
Person directly or indirectly controlling, controlled by, or under common
control with the specified Person, (ii) any other Person owning or controlling
ten percent (10%) or more of the outstanding voting interests of the specified
Person, (iii) any officer, director, general partner, member or trustee of the
specified Person, or (iv) any other Person who is an officer, director, general
partner, member, trustee, or holder of ten percent (10%) or more of the
outstanding voting interests of any Person described in clauses (i) through
(iii) of this sentence. For purposes of this definition, the terms "controls,"
"is controlled by," or "is under common control with" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
1.3 "Applicable Federal Rate" means the rate of interest determined each
month by the Secretary of Treasury pursuant to Code Section 1274(d) for debt
instruments having a maturity of over three years but not over nine years as
announced by Revenue Rulings issued monthly by the United States Treasury
Department, compounded annually.
1.4 "Articles of Organization" means the Articles of Organization of the
Company as recorded by the Secretary of State on May 22, 1998, and the Amended
Articles of Organization which changed the name of the Company as recorded by
the Secretary of State on June 5, 1998, and subsequent amendments as may be
filed from time to time as authorized by the unanimous vote or Consent of the
Members.
1.5 "Backbone Network" means the initial path of the Fiber Optic Network
between Binghamton and Auburn, including cable of approximately 100 strands to
be installed overhead pursuant to the ROO Agreement which will connect to the
Ithaca and Binghamton Spurs, primarily using NYSEG poles and towers.
1.6 "Bankruptcy" and "Bankrupt Person" are defined in Section 10.3.
1.7 "Binghamton Spur" means a Spur off the Backbone Network to be
constructed and installed in NYSEG Right-Of-Way to a point at or near [***].
1.8 "Business Plan" means a narrative report articulating the vision and
objectives of the Company, its business focus, market analysis, marketing plan,
financial
CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material
omitted on this page. The omitted portions have been filed separately
with the Securities and Exchange Commission.
<PAGE> 3
projections, financing plan, contingency analysis, and implementation plan in
order to carry out the purpose and business activities as set forth in Article
III.
1.9 "Capital Account" means, as of any given date, the Capital
Contributions to the Company by a Member as adjusted up to the date in question
pursuant to Article VIII.
1.10 "Capital Contributions" means the total amount of cash, and the Fair
Market Value of all tangible or intangible property or services, which a Member
or its predecessor in interest has contributed or has agreed to contribute to
the Company net of liabilities secured thereby that the Company is considered to
assume or to be subject to under Section 752 of the Code.
1.11 "Code" means the Internal Revenue Code of 1986, as amended.
1.12 "Company" means Telergy East, LLC, the limited liability company
formed pursuant to this Operating Agreement.
1.13 "Conduit" is defined in the ROO Agreement.
1.14 "Consent" means the prior written consent of a Person to do the act
or thing for which the Consent is solicited, or the act of granting the Consent,
as the context may require.
1.15 "Cornell Project" means an ADSL resale application and any necessary
extension off the Backbone Network that may be required to be installed in NYSEG
Right-Of-Way or Facilities in connection with Telergy's provisioning of ADSL
services.
1.16 "Deficit Capital Account" means, with respect to any Member, the
deficit balance, if any, in such Member's Capital Account as of the end of the
taxable year, after giving effect to the following adjustments:
(i) credit to such Capital Account any amount that such Member is
obligated to restore under Section 1.704-1(b)(2)(ii)(c) of the Treasury
Regulations, as well as any addition thereto pursuant to the next to last
sentence of Sections 1.704-2(g)(1) and (i)(5) of the Treasury Regulations,
after taking into account thereunder any changes during such year in
limited liability company minimum gain attributable to any member
non-recourse debt (as determined under Section 1.704-2(i)(3) of the
Treasury Regulations); and
(ii) debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations.
This definition of Deficit Capital Account is intended to comply with the
provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and 1.704-2, and
will be interpreted
<PAGE> 4
consistently with those provisions.
1.17 "Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the financial
accounting book value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such Fiscal Year, Depreciation shall be
an amount which bears the same ratio to such beginning book value as the federal
income tax depreciation, amortization, or other cost recovery deduction for such
Fiscal 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 Fiscal Year is zero, Depreciation shall be determined with
reference to such beginning book value using any reasonable method selected by
the Manager.
1.18 "Distributable Cash" means all cash, revenues, and funds received by
the Company, other than Capital Contributions, less the sum of the following to
the extent paid, set aside or accrued by the Company: (i) all principal payments
on indebtedness of the Company and all other sums paid to lenders; (ii) all cash
expenditures for capital improvements, additions and replacements (iii) all cash
expenditures for operating expenses incurred incident to the operation of the
Company's business; and (iv) Reserves.
1.19 "Division" means a portion of the business and assets of the Company
which is accounted for separately, including a Segregated Network the capital
costs of which are funded by a Participating Member.
1.20 "Economic Interest" means the interest, either of a Member or a
Permitted Transferee, expressed as a percentage, in the Company's Net Profits,
Net Losses and distributions of the Company's assets (exclusive of the Cornell
Project) and the entire interest in a Division for which a Participating Member
funded the capital costs, all pursuant to this Agreement and the Act, together
with the obligations to comply with the terms and provisions of the Agreement
and the Act, which does not include any right to participate in the management
of the business or affairs of the Company, the right to vote on, Consent to or
otherwise participate in any decision or action of the Members. The initial
Economic Interests shall be 50% for Telergy and 50% for Energy East.
1.21 "Effective Date" means the date that Telergy and Energy East execute
and deliver this Operating Agreement and the ROO Agreement.
1.22 "Entity" means any general partnership, limited partnership, limited
liability company, corporation, joint venture, trust, business trust,
cooperative, or association or any foreign trust or foreign business
organization.
1.23 "Facilities" means when applied to property of or installed by or on
behalf of the Company in, on, upon, under, across, along and through the
Right-of-Occupancy shall mean any transmission systems designed to carry
communications traffic and include Conduit installed by the Company, innerducts,
trace wire, carrier pipes, cables, fibers,
<PAGE> 5
junctions, regenerators, power sources, fault alarm systems, electronics,
structures or shelters, towers, satellite earth stations and all other personal
property necessary for or useful to the construction, installation, operation,
maintenance, repair, reinstallation, replacement, relocation and removal of the
Fiber Optic Network.
1.24 "Fair Market Value"
(i) for any asset of the Company, whether real, personal or
intangible property, means the value determined from time to time for the
purpose of this Operating Agreement by a majority of the members of the
Management Committee, unless the asset is readily traded and the value is
easily determined, in which case the value shall be such market value. A
determination by the Management Committee shall be binding for a period of
six (6) months following the effective date of the valuation, unless the
value is adjusted during the period or is reaffirmed at the end of the
period by the Management Committee, or unless the valuation shall provide
for a different or longer period during which it shall be effective. If
the Management Committee is unable to agree upon a value or, in the case
of valuation of real estate or unique personal or intangible property, the
value of such property shall be determined from an appraisal of the asset
by a duly qualified appraiser for the type of asset being appraised, which
appraiser shall be selected by the Management Committee. If the interested
parties are unable to agree on an appraiser within ten (10) days after the
written request of either one, each shall select an appraiser and the two
(2) appraisers shall agree on the valuation, but if they are unable to
agree on the valuation, the appraisers shall mutually select a third
appraiser whose decision as to any disputed valuation shall be binding and
conclusive on all interested parties. Any appraisers' fees and costs shall
be borne and paid by the party authorized to select the appraiser, but
where an appraiser is jointly selected or a third appraiser is selected,
such fees and costs of the jointly selected appraiser or third appraiser
shall be borne and paid for by the interested parties in equal shares.
(ii) for an Economic Interest of the Company, means the value
determined from time to time for the purpose of this Operating Agreement
by a duly qualified appraiser knowledgeable about the telecommunications
industry who is jointly selected by the interested parties. If the
interested parties are unable to agree on an appraiser within ten (10)
days after the written request of either one, each shall select an
appraiser and the two (2) appraisers shall agree on the valuation, but if
they are unable to agree on the valuation, the appraisers shall mutually
select a third appraiser whose decision as to any disputed valuation shall
be binding and conclusive on all interested parties. Any appraisers' fees
and costs shall be borne and paid by the party authorized to select the
appraiser, but where an appraiser is jointly selected or a third appraiser
is selected, such fees and costs of the jointly selected appraiser or
third appraiser shall be borne and paid for by the interested parties in
equal shares.
<PAGE> 6
1.25 "Fiber Optic Network" means the Company's network, including the
Backbone Network, and any spurs, loops or extensions thereto and any additional
path of fiber cable in other NYSEG Right-Of-Way, but excluding the Cornell
Project, whether heretofore or hereafter conceived, invented or developed, which
primarily utilizes optical fiber as the medium for transmitting voice
communications and/or other information or data and which is located within
NYSEG's Right-Of-Way utilized under this Agreement, excluding the Cornell
Project. The Fiber Optic Network shall include the Cornell Project if Energy
East makes the election and its Capital Contribution as provided in Section
8.2(c).
1.26 "Fiscal Year" means the calendar year.
1.27 "Gross Asset Value" means, with respect to any asset of the Company,
its adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be its gross Fair Market Value;
(ii) The Gross Asset Values of all Company assets shall be adjusted
to equal their respective gross Fair Market Values as of the following
times: (a) the acquisition of an additional interest by any new or
existing Member in exchange for more than a de minimis Capital
Contribution; (b) the distribution by the Company to a Member of more than
a de minimis amount of property as consideration for a Membership Interest
or Economic Interest; and (c) the liquidation of the Company within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided, however,
that adjustments pursuant to clauses (a) and (b) above shall be made only
if a majority of the members of the Management Committee reasonably
determine that such adjustments are necessary or appropriate to reflect
the relative Economic Interests of the Members in the Company;
(iii) The Gross Asset Value of any Company asset distributed to any
Member shall be adjusted to equal its gross Fair Market Value on the date
of distribution; and
(iv) The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the
extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Regulation Section 1.704-1(b)(2)(iv)(m) and Section
8.4 and subparagraph (iv) under the definition of Net Profits and Net
Losses; provided, however, that Gross Asset Values shall not be adjusted
pursuant to this definition to the extent a majority of the members of the
Management Committee determine that an adjustment pursuant to subparagraph
(ii) of this definition is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
subparagraph (iv).
<PAGE> 7
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
subparagraph (i), (ii), or (iv) of this definition, then such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with respect
to such asset for purposes of computing Net Profits and Net Losses.
1.28 "High Yield Notes" means High Yield Notes made by Telergy and
purchased by Persons through an underwritten bond offering, which is anticipated
to be completed by December 31, 1998.
1.29 "Indefeasible Right of Use or IRU" means a communication facility in
which the holder possesses an indefeasible, exclusive and irrevocable right to
use and market the facility, but not the right to control the facility.
1.30 "Ithaca Spur" means an extension off the Backbone Network to be
constructed and installed in NYSEG Right-Of-Way connecting to Cornell and
extending on to connect two points at or near Bell Atlantic POPs.
1.31 "Management Committee" means a six-person body, three (3) of whom
shall be appointed by Energy East and three (3) of whom shall be appointed by
Telergy. The Initial Management Committee shall be composed of the following
individuals: Brian P. Kelly, J. Patrick Barrett and Kevin J. Kelly, who are the
designees of Telergy, and Michael I. German, Kenneth M. Jasinski and Thomas F.
Dorazio, who are the designees of Energy East. Telergy shall designate the
Chairman of the Management Committee, and the initial Chairman shall be Brian P.
Kelly.
1.32 "Manager" means the individuals initially designated as President and
Vice President in Section 5.6, and their successors upon removal, resignation,
or replacement.
1.33 "Market Interest" means the annual rate of interest, compounded
monthly (applied on a daily basis or such other periodic basis as the Manager
shall determine) which shall equal the greater of (a) the annual rate of
interest being charged from time to time by the primary commercial bank in the
State of New York with which the Company usually does business (but if there by
no such bank, then such commercial bank in the State of New York as is selected
by the Manager for prime credit risk borrowers) plus 1%, or (b) 100% of the
Applicable Federal Rate in effect as of the date of the promissory note or other
indebtedness as determined under Section 1274 of the Code, but only if Section
1274 shall apply).
1.34 "MasTec Financing" means borrowings by Telergy from MasTec North
America, Inc. pursuant to a Financing Agreement dated May 6, 1998 and related
documents.
1.35 "Member" means each of the parties who executes a counterpart of this
Operating Agreement as a Member and each of the parties who may hereafter be
admitted
<PAGE> 8
as Members or become Substitute Members.
1.36 "Membership Interest" means a Member's entire interest in the Company
including such Member's Economic Interest, Voting Interest and such other rights
and privileges that the Member may enjoy by being a Member.
1.37 "Net Profits" and "Net Losses" mean for each Fiscal Year of the
Company an amount equal to the Company's net taxable income or loss for such
Fiscal Year as determined for federal income tax purposes (including separately
stated items) in accordance with the accounting method and rules used by the
Company and in accordance with Section 703 of the Code with the following
adjustments:
(i) any items of income, gain, loss, and deduction allocated to
Members pursuant to Sections 9.1(b) and 9.2 shall not be taken into
account in computing Net Profits or Net Losses for purposes of this
Operating Agreement;
(ii) any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Net Profits and Net
Losses (pursuant to this definition) shall be added to such taxable income
or loss;
(iii) any expenditure of the Company described in Section
705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(I), and not
otherwise taken into account in computing Net Profits and Net Losses
(pursuant to this definition) shall be subtracted from such taxable income
or loss;
(iv) in the event the Gross Asset Value of any Company asset is
adjusted pursuant to clause (ii) or (iii) of the definition of Gross Asset
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
Profits and Net Losses;
(v) gain or loss resulting from any disposition of any Company asset
with respect to which gain or loss is recognized for federal income tax
purposes shall be computed with reference to the Gross Asset Value of the
asset disposed of, notwithstanding that the adjusted tax basis of such
asset differs from its Gross Asset Value;
(vi) in lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such Fiscal Year;
and
(vii) to the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Section 734(b) of the Code or Section 743(b) of
the code is required pursuant to Section 1.704-1(b)(2)(iv)(m)(4) of the
Treasury Regulations to be taken into account in determining Capital
Accounts as a result of a
<PAGE> 9
distribution other than in liquidation of a Membership Interest, the
amount of such adjustment shall be treated as an item of gain (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
Profits or Net Losses.
1.38 "NYSEG" means New York State Electric and Gas Corporation, a New York
corporation with a principal office at 4500 Vestal Parkway East, Binghamton, New
York 13902.
1.39 "Operating Agreement" or "Agreement" means this Operating Agreement
of Telergy East, LLC as the same may be amended from time to time by the
unanimous vote or Consent of the Members.
1.40 "Participating Member" means a Member who causes the Company to
construct a Segregated Network to be operated as a Division.
1.41 "Permitted Transferee" shall mean the holder of an Economic Interest
in the Company who has not been admitted as a Substitute Member, and who
therefore has all of the obligations of a Member, but no right to vote or
participate in the management or affairs of the Company or to exercise any
rights or powers of a Member.
1.42 "Person" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors, and assigns of
such Person where the context so permits.
1.43 "PSC" means the Public Service Commission of New York State.
1.44 "Reserves" means, with respect to any Fiscal Year, funds set aside or
amounts allocated during such period which are deemed sufficient by a majority
of the Members of the Management Committee for working capital and to pay taxes,
insurance, debt service, or other costs or expenses incident to the ownership or
operation of the Company's Business.
1.45 "Right-of-Occupancy" is defined in the ROO Agreement.
1.46 "Right-Of-Way" is defined in the ROO Agreement.
1.47 "ROO Agreement" means the Right-of-Occupancy Agreement executed by
the Company and NYSEG simultaneous with this Operating Agreement, which ROO
Agreement provides the terms and conditions under which the Company may use the
conduit, building entrances, poles, towers and other electric gas transmission
and distributions facilities of NYSEG and its Affiliates to construct and
install the Fiber Optic Network, Segregated Networks and extensions thereto.
1.48 "Secretary of State" means the Secretary of State of the State of New
York.
<PAGE> 10
1.49 "Segregated Network" means the Company's network which primarily
utilizes optic fiber as the medium for transmitting voice communications and/or
other information or data, which is located within NYSEG's Right-of-Way, and
which is operated and accounted for as a Division.
1.50 "Shared Network" means the Backbone Network, the Ithaca and
Binghamton Spurs, and any other portion of the Fiber Optic Network in which both
Members have participated.
1.51 "Selling Member" means any Member which sells all or any portion of
its Economic Interest as described in Section 10.2.
1.52 "Spur" means an extension off the Backbone Network, and shall include
laterals, loops and spurs constructed or installed in NYSEG's Right-Of-Way,
excluding the Cornell Project.
1.53 "Stalemate" means that a matter described in Sections 5.4(a)(i)
through (xii) has been (i) submitted to the Management Committee for its
authorization and it has been unable to obtain the affirmative vote of a
majority of its members, and (ii) submitted to the Chief Executive Officer of
the Members to resolve the stalemate of the Management Committee, but they have
been unable to agree within ten (10) days of submission of the matter to them.
1.54 "Substitute Member" means a Permitted Transferee who has been
admitted as a Member pursuant to Section 10.7.
1.55 "Tax Matters Member" means Telergy, the Member designated to
represent the Company in connection with income tax matters pursuant to Section
6231(a)(7) of the Code.
1.56 "Transferring Member" shall mean a Member who transfers its
Membership Interest or Economic Interest as provided in Article X.
1.57 "Treasury Regulations" shall include proposed, temporary, and final
regulations promulgated under the Code.
1.58 "Voting Interest" means a Member's proportionate rights, as set forth
in this Agreement, to participate in the management of the business or affairs
of the Company and to vote on, Consent to, or otherwise participate in any
decision or action of the Members. The Voting Interests shall be 50% for Telergy
and 50% for Energy East.
1.59 "Withdrawal Date" means the date upon which a Member elects for
Energy East to withdraw from the Company as provided in Section 10.4.
<PAGE> 11
ARTICLE II
FORMATION OF COMPANY
2.1 Formation. The parties, by execution and delivery of this Operating
Agreement, hereby approve the filing of the Articles of Organization with the
Secretary of State and enter into and join together in and do hereby form the
Company, as of the Effective Date, as a New York Limited Liability Company under
and pursuant to the Act.
2.2 Name. The name of the Company is Telergy East, LLC.
2.3 Principal Place of Business; Principal Executive Office. The Company's
initial principal place of business shall be at One Telergy Parkway, Syracuse,
New York 13057. The Company may relocate its principal place of business or its
principal executive office from time to time as a majority of the members of the
Management Committee deems advisable.
2.4 Registered Office and Registered Agent. The address of the Company's
initial registered office shall be One Telergy Parkway, Syracuse, New York
13057. The name and address of the Company's registered agent shall be the
Secretary of State, in accordance with Section 301 of the Act. CT Corporation
system, 1633 Broadway, New York, New York 10019 shall be the designated agent
for the service of process and shall be the party to whom the Secretary of State
shall forward such process as may be served upon the Company. The registered
office and registered agent may be changed from time to time as the Manager
deems advisable by filing notice of such changes with the Department of State in
accordance with Sections 301 and 302 of the Act.
ARTICLE III
BUSINESS OF COMPANY
The business of the Company is to provide all forms of telecommunications
products and services, including data, voice and video on both a wholesale and
retail basis as well as energy sales, management and marketing and Internet
content and access services in geographic locations where the Company constructs
and installs its Fiber Optic Network, including any spurs, loops or extensions
thereto, using the Rights-of-Way of NYSEG and its Affiliates. The Members may
compete with the Company for all or any portion of its business as provided in
Section 17.2.
The provisions of this Article III shall be applied in any interpretation
of the rights and duties of Members, the Manager or the Management Committee
under Section 409 of the Act or under this Operating Agreement, as provided in
Article V. The authority granted to the Manager and the Management Committee
under this Operating Agreement or the Act to bind the Company shall be limited
to actions necessary or convenient to implement the Business Plan within the
capital and operating budgets, and shall be further
<PAGE> 12
limited as provided in Article V and the Articles of Organization.
ARTICLE IV
IDENTITY OF MEMBERS
The names and addresses of the Members, their respective Economic
Interests, Voting Interests and their initial Capital Contributions are to be
set forth on a schedule maintained by the Manager at the Company's principal
office. The initial version of such schedule is attached hereto as Exhibit A.
Such schedule shall be modified from time to time to reflect changes thereto
made in accordance with this Operating Agreement and the Act and shall be made
available to any Member upon request.
ARTICLE V
RIGHTS AND DUTIES OF THE MANAGER,
THE MANAGEMENT COMMITTEE AND THE MEMBERS
5.1 Manager. The Manager is charged with the responsibility for, and is
vested with the day-to-day authority to manage the ordinary course of the
Company's business in accordance with the Business Plan, and with the authority
to spend funds of the Company, but only as set forth in the capital and
operating budgets, except as limited by this Operating Agreement or the Articles
of Organization, and except in those cases in which the approval of the Members
or the Management Committee is expressly required by this Operating Agreement or
by the Act.
5.2 Authority of the Manager.
(a) Authorized Actions. The following actions are illustrative of the
Manager's authority on behalf of the Company without first obtaining the
affirmative vote of a majority of the members of the Management Committee:
(i) hire employees of the Company as contemplated by the Business
Plan, discharge employees as may be appropriate, and make recommendations
to the Management Committee for compensation, bonuses and benefit or
incentive plans;
(ii) appoint or remove an officer of the Company, other than the
President and Vice President;
(iii) consummate transactions between the Company and any Member or
an Affiliate of a Member, as expressly contemplated by this Agreement
and/or otherwise approved by the Management Committee;
(iv) perform any actions as specifically directed by the Management
<PAGE> 13
Committee or the Members.
(b) Prohibited Actions. The Manager shall not have authority to take any
of the following actions on behalf of the Company:
(i) knowingly do any act in contravention of this Operating
Agreement;
(ii) knowingly do any act which would make it impossible to carry on
the ordinary business of the Company, except as otherwise provided in this
Operating Agreement;
(iii) cause the Company to voluntarily take any action that would
cause a Bankruptcy or dissolution of the Company.
(c) Permitted Transactions. The Manager is expressly authorized to
negotiate and execute any agreements necessary to carry out the business
purposes of the Company as authorized by the Management Committee, subject
to the limitations contained in Sections 5.1, 5.2 and 5.8.
5.3 Management Committee. The Management Committee shall have exclusive
authority to manage the Company's business except as limited by this Operating
Agreement or the Articles of Organization, and except in those cases in which
approval of the Members is expressly required by this Operating Agreement or by
the Act.
5.4 Authority of the Management Committee.
(a) Authorized Actions. The Management Committee shall have authority to
take any actions on behalf of the Company which are not specifically reserved to
the Members by this Operating Agreement, the Articles of Organization or the
Act, including, but not limited to:
(i) approve and amend a Business Plan;
(ii) approve and amend annual budgets for capital expenditures and
operating expenses, and the debt or Capital Contributions necessary to
implement such budgets;
(iii) engage in acquisitions related to the business purpose of the
Company;
(iv) purchase, sell or lease real estate;
(v) authorize distributions of property, or restrict distributions
of Distributable Cash to Members with respect to their relative Membership
Interests as provided in Section 9.3;
<PAGE> 14
(vi) authorize the amount of indebtedness of the Company and its
debt to equity ratio;
(vii) incur indebtedness for borrowed money on behalf of the Company
or refinance any such indebtedness of the Company;
(viii) issue notes, bonds, or other obligations or securing
obligations by mortgage or pledge of any of the Company's property or
income, or assume liabilities in any transaction by the Company;
(ix) confess a judgment against the Company, or release, settle or
compromise any claim or right in favor of the Company;
(x) create Reserves;
(xi) determine the special allocations of revenue and expense of a
Division to the Participating Member of a Segregated Network;
(xii) authorize transactions between the Company and the Members, or
any of their Affiliates;
(xiii) appoint independent auditors of the Company;
(xiv) authorize the construction and installation of Spurs or any
additional path of Fiber Optic Network in the NYSEG Right-Of-Way and the
Capital Contributions necessary to fund the related capital costs;
(xv) determine compensation, pay bonuses, establish or modify
pension, profit sharing, benefit or incentive plans; and
(xvi) determine the Fair Market Value for any assets of the Company.
(b) Prohibited Actions. The Management Committee shall not have authority
to take any of the following actions on behalf of the Company, without the
unanimous vote or Consent of the Members:
(i) admit new Members to the Company or issue any interest in the
Company;
(ii) sell or otherwise transfer all or substantially all of the
assets of the Company;
(iii) merge or consolidate the Company with or into any other
entity;
<PAGE> 15
(iv) dissolve or liquidate the Company;
(v) require additional Capital Contributions by the Members other
than as may be approved by the Management Committee as provided in Section
5.4(a)(xiv);
(vi) amend this Operating Agreement or the Articles of Organization.
5.5 Authority of the Members. The Members shall have the authority to take
any action for matters on which the Management Committee has failed to act
because of the inability of the Management Committee to get a quorum for a
meeting or to obtain an affirmative vote or Consent of a majority of the members
of the Management Committee. A Member who does not have a Voting Interest shall
not have authority to take any action to bind the Company.
5.6 Number, Tenure, and Qualifications of Manager, Members of the
Management Committee. The initial Manager(s) of the Company shall be Edward
Hartnett (as designated by Telergy) and Michael Coppola (as designated by Energy
East) and their titles shall be President and Vice President (hereinafter
collectively referred to as ("Manager"), respectively. The President and Vice
President shall act collectively as Manager and with the aforesaid titles at the
discretion of the Management Committee. In the event the President and Vice
President disagree on any issue within the scope of the Manager's
responsibility, the decision of the President shall be controlling. The Manager
shall hold office until his or her respective successor is appointed by the
Member making the initial appointment as provided in this Section 5.6, unless he
or she resigns or is removed under Section 5.7. The Management Committee shall,
as provided in Section 1.31, initially be comprised of six individuals, each of
whom shall serve until his or her successor is appointed by the Member making
the initial appointment as provided in Section 1.31, unless he or she resigns or
is removed under Section 5.7. The parties agree that the costs associated with
the time Management Committee members expend on the Company shall not be
reimbursed by the Company but that Management Committee members shall be
reimbursed by the Company for all out-of-pocket expenses associated with
Management Committee activities, including, but not limited to, travel expenses.
Any vacancy in the office of President and Vice President or in the Management
Committee created by removal or resignation of any of its members shall promptly
be filled by action of the Member entitled to appoint the President, Vice
President or the member of the Management Committee whose removal or resignation
gave rise to the vacancy.
5.7 Removal and Resignation of the Manager and Members of the Management
Committee.
(a) Removal. The President or Vice President may be removed at any time,
with or without cause, by action of the Member who appointed the individual to
the position. Any member of the Management Committee may be removed at any time,
with or without
<PAGE> 16
cause, by action of the Member who appointed such Committee
member.
(b) Resignation. The Manager and any member of the Management Committee
may resign such position by giving written notice to each Member, and shall be
deemed to have resigned upon his or her death.
5.8 Duties of the Manager, Members of the Management Committee, and the
Members.
(a) The Manager, each member of the Management Committee, and each Member
shall exercise its or his or her powers and discharge its or his or her duties
in good faith with a view to the interests of the Company and its Members with
that degree of diligence, care, and skill that ordinarily prudent persons would
exercise under similar circumstances in like positions. The Manager, the members
of the Management Committee, and the Members may in all cases, if acting
reasonably and in good faith, rely upon financial statements of the Company that
were either certified in writing by an independent or certified public
accountant or firm of such accountants fairly to reflect the Company's financial
condition, or reported to such Manager, Management Committee member, or Member
to be correct by the Manager or Member having charge of the books of accounts of
the Company. A Manager, Management Committee member, or Member may not be held
personally liable for monetary damages for failure to discharge any duty as a
Manager, Management Committee member, or Member unless the Manager, Management
Committee member or Member is found not to have acted honestly or in the
reasonable belief that the action was in or not opposed to the best interests of
the Company or its Members.
(b) Every Member, every member of the Management Committee, and the
Manager must account to the Company and hold as trustee for it any profit or
benefit derived by that Person from any transaction connected with the conduct
of the Company's business or winding up of the Company, or any use by the
Manager or any such Management Committee member or Member of the Company's
property, including, but not limited to, confidential or proprietary information
of the Company entrusted to the Person as a result of that Person's status as a
Manager, Management Committee member, or Member, unless that Person has obtained
the Consent of the disinterested Member provided, however, it is not intended
that payments made by the Company to Members pursuant to the Support Services
Agreements (See Exhibits B and C) or payments made by the Company to Telergy for
loans by Telergy pursuant to Section 8.3 are to be accounted to the Company.
(c) Annually before June 30, the Manager shall prepare and submit to the
Management Committee for approval by a majority of its members, capital
expenditures and operating budgets for the next Fiscal Year of the Company, and
shall report to the Management Committee on a quarterly basis with respect to
the Company's actual performance for the preceding fiscal quarter and for the
Fiscal Year to date as compared to the budget then in effect. Each capital
expenditures budget and operating budget shall contain a category for
contingency items which may be spent at the discretion of the
<PAGE> 17
Manager.
5.9 The Members of the Management Committee, and the Members Have No
Exclusive Duty to Company. Notwithstanding the provisions of Section 5.8, any
Member and any member of the Management Committee (provided that such activities
do not violate or conflict with the terms of any written agreement between the
Company and a Management Committee member) may have other business interests and
may engage in other activities similar to and in addition to those relating to
the Company. Neither the Company nor any Member shall have any right, by virtue
of this Operating Agreement, to share or participate in such other permitted
investments or activities of any Management Committee member or any Member or to
the income or proceeds derived therefrom. No Management Committee member, or
Member shall incur any liability to the Company or to any of the Members as a
result of engaging in any such other permitted business or venture.
5.10 Bank Accounts. The Manager may from time to time open bank accounts
in the name of the Company, and any officer or other designee of the Manager
shall be a signatory thereon, unless a majority of the members of the Management
Committee determines otherwise.
5.11 Indemnification of the Manager, Members of the Management Committee,
and Other Agents.
(a) General. The Company shall fully indemnify in all circumstances to the
extent not prohibited by law any person made, or threatened to be made, a party
to an action or proceeding whether civil or criminal, including an
investigative, administrative or legislative proceeding, including an action by
or in the right of the Company or any corporation, partnership, joint venture,
limited liability company, trust, employee benefit plan or other enterprise, of
any type or kind, domestic or foreign, by reason of that fact that such person,
his testator or intestate, is or was a Manager or member of the Management
Committee, or with the approval of a majority of the members of the Management
Committee is or was serving at the request of the Company, in any corporation,
partnership, joint venture, limited liability company, trust, employee benefit
plan or other enterprise of any type or kind, domestic or foreign, as a
director, officer or in any other capacity, against any and all judgments,
fines, amounts paid in settlement and expenses, including attorneys' fees,
actually or reasonably incurred as a result of or in connection with any such
action or proceeding or related appeal; provided, however, that no
indemnification shall be made to or on behalf of any Manager or member of the
Management Committee if a judgment or other final adjudication adverse to him
establishes that his acts were committed in bad faith or were the result of
active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled; and, the Company shall pay
expenses incurred by or on behalf of such a person in defending such a civil or
criminal action or proceeding (including appeals) in advance of the final
disposition of such action or proceeding promptly upon receipt by the
<PAGE> 18
Company, from time to time, of a written demand of such person for such
advancement, together with an undertaking by or on behalf of such person to
repay any expenses so advanced to the extent that the person receiving the
advancement is ultimately found not to be entitled to indemnification for such
expenses; and the right to indemnification and advancement of defense expenses
granted by or pursuant to this Section 5.11 (i) shall not limit or exclude, but
shall be in addition to, any other rights which may be granted by or pursuant to
any statute, certificate of incorporation, by-law, resolution or agreement, (ii)
shall be deemed to constitute a contractual obligation of the Company to any
Manager or member of the Management Committee who serves in such capacity at any
time while this Section 5.11 is in effect, (iii) are intended to be retroactive
and shall be available with respect to events occurring prior to the adoption of
this Section 5.11, and (iv) shall continue to exist after the repeal or
modification hereof with respect to events occurring prior thereto. It is the
intent of this Section 5.11 to require the Company to indemnify the persons
referred to herein for the aforementioned judgments, fines, amounts paid in
settlement and expenses, including attorneys' fees, in each and every
circumstance in which such indemnification could lawfully be permitted by an
express provision, and the indemnification required by this Section 5.11 shall
not be limited by the absence of an express recital of such circumstances.
(b) Insurance. The Company shall purchase and maintain insurance on behalf
of any person who is or was a Manager, or Management Committee member, and shall
have the power to purchase and maintain insurance on behalf of any person who is
or was an employee or agent of the Company, or is or was serving at the request
of the Company as a member, principal, director, officer, trustee, partner,
fiduciary, employee, or agent of another Entity, pension, or other employee
benefit plan or other enterprise, against any liability asserted against that
person and incurred by that person in any such capacity, or arising out of that
person's status as such, whether or not the Company would have the power to
indemnify that person against such liability under this Section 5.11.
ARTICLE VI
LIMITATION OF MEMBERS' LIABILITY AND PRIORITY
6.1 Limitation of Liability. Each Member's liability shall be limited as
set forth in this Operating Agreement, the Act, and other applicable law.
6.2 Deficit Capital Account. No Member shall have any liability to restore
all or any portion of a deficit balance in such Member's Capital Account. A
Member will not be personally liable for any debts or losses of the Company
beyond its respective Capital Contributions and any obligation of the Member
under Section 8.1 or 8.2 to make Capital Contributions, except as otherwise
required by law.
6.3 Priority and Return of Capital. Except as may be expressly provided in
this Agreement, no Member shall have priority over any other Member, either as
to the return of Capital Contributions or as to Net Profits, Net Losses, or
distributions; provided that
<PAGE> 19
this Section shall not apply to loans (as distinguished from Capital
Contributions) that a Member has made to the Company.
ARTICLE VII
MEETINGS OF MEMBERS
7.1 Member Meetings. Meetings of the Members may be called for any purpose
by a majority of the members of the Management Committee, or by any Member. The
Members shall meet at least annually during the month of May.
7.2 Place of Member Meetings. The Person(s) calling a meeting pursuant to
Section 7.1 may designate any place, within or outside the State of New York for
any meeting of the Members. If no designation is made, the place of meeting
shall be the principal executive office of the Company. The Members may meet,
act and conduct business through the use of teleconference or other similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation in such teleconference(s) shall
constitute presence in person at a meeting.
7.3 Notice of Member Meetings. Written notice stating the place, day, and
hour of the meeting and the purpose or purposes for which the meeting is called
shall be delivered not less than ten (10) nor more than sixty (60) days before
the date of the meeting, either personally, by mail, or facsimile, by the
Manager at the direction of the Person(s) calling the meeting, to each Member
entitled to vote at such meeting. The business transacted at each meeting of the
Members shall be limited to the purpose(s) stated in the notice of the meeting.
7.4 Meeting of All Members. If all of the Members meet at any time and
place and consent to the holding of a meeting at such time and place, such
meeting shall be valid without call or notice, and at such meeting lawful action
may be taken.
7.5 Quorum for Member Meetings. Members holding at least a majority of the
Voting Interests of all Members, represented in person or by proxy, shall
constitute a quorum at any meeting of Members.
7.6 Members' Manner of Acting. If a quorum is present, the affirmative
vote of Members holding a majority of the Voting Interests represented in person
or by proxy shall be the act of the Members, unless the vote of a greater or
lesser proportion or number is otherwise required by the Act, by the Articles of
Organization, or by this Operating Agreement. Unless otherwise expressly
provided herein or required under applicable law, Members who have an interest
(economic or otherwise) in the outcome of any particular matter presented to the
Members for a vote may vote or Consent upon any such matter and their Voting
Interest, vote or Consent, as the case may be, shall be counted in the
determination of whether the requisite matter was approved by the Members.
<PAGE> 20
7.7 Member Proxies. At all meetings of Members a Member may vote in person
or by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the Manager before or at the
time of the meeting. No proxy shall be valid after eleven months from the date
of its execution, unless otherwise provided in the proxy.
7.8 Action by Members Without a Meeting. Action required or permitted to
be taken at a meeting of Members may be taken without a meeting if the action is
evidenced by one or more written Consents describing the action taken, signed by
a sufficient number of Members or Members holding the requisite Voting
Interests, as applicable, whose vote is necessary for the taking of the action
described therein and delivered to the Manager for inclusion in the minutes or
for filing with the Company records. Action taken under this Section is
effective when Members in the requisite number or holding the requisite Voting
Interests, as applicable, have signed the Consent, unless the Consent specifies
a different effective date.
7.9 Waiver of Notice for a Member Meeting. When any notice is required to
be given to any Member, a waiver thereof in writing signed by the Member
entitled to such notice, whether before, at, or after the time stated therein,
shall be equivalent to the giving of such notice. Attendance at any meeting
shall constitute a waiver of notice unless there has been made a proper
objection to the meeting or to the items that are to be discussed.
7.10 Stalemate or Impasse by the Management Committee. In the event the
Management Committee is unable to get a quorum for a meeting or is deadlocked on
any issue, a Member may request that the stalemate or impasse be resolved by
appeal to the Chief Executive Officers of the Members who shall then attempt to
resolve the stalemate or impasse. In the event the Members' Chief Executive
Officers cannot resolve the stalemate or impasse, the matter may be submitted to
the Members for a vote, as provided in Section 5.5, but the matter need not be
submitted to the Members for a vote in order for a Stalemate to exist.
7.11 Management Committee Meetings. Meetings of the Management Committee
may be called for any purpose by one or more members of the Management
Committee. The Management Committee shall meet at least annually during the
month of May, following the annual meeting of Members.
7.12 Notice of Management Committee Meetings. Written notice stating the
date, time, and the purpose or purposes of the meeting shall be delivered to
each member of the Management Committee at least five (5) business days prior to
the meeting. The business transacted at each meeting of the Management Committee
is limited to the purpose(s) stated in the notice of the meeting.
<PAGE> 21
7.13 Location and Conduct of the Management Committee Meetings;
Adjournments.
(a) Each meeting of the Management Committee will be held at the Company's
principal executive office or at some other location agreed to by the Management
Committee.
(b) The Chairman of the Management Committee will preside over all
meetings of the Management Committee.
(c) Any meeting of the Management Committee may be adjourned from time to
time to another date and time or to another place. If at the time of adjournment
the Chairman announces the date, time, and place at which the meeting will be
reconvened, it is not necessary to give any further notice of the reconvening.
(d) Any one or more of the members of the Management Committee may
participate in a meeting of the Management Committee by means of a
teleconference or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
7.14 Waiver of Notice for a Management Committee Meeting.
(a) A member of the Management Committee may waive notice of the date,
time, place, and purpose or purposes of a meeting of the Management Committee. A
waiver may be made before, at, or after the meeting, in writing, orally, or by
attendance.
(b) Attendance by a member of the Management Committee at a meeting is a
waiver of notice of that meeting, unless such member objects at the beginning of
the meeting to the transaction of business because the meeting is not properly
called or convened, or objects before a vote on an item of business because the
item may not properly be considered at that meeting and does not participate in
the consideration of the item at that meeting.
7.15 Management Committee Proxies. A member of the Management Committee
may cast or authorize the casting of a vote by filing a written appointment of a
revocable proxy with the Company at or before the meeting at which the
appointment is to be effective. Such member may sign or authorize the written
appointment by facsimile, or other means of electronic transmission stating, or
submitted with information sufficient to determine, that such member authorized
the transmission. Any copy, facsimile, telecommunication, or other reproduction
of the original of either the writing or the transmission may be used in lieu of
the original, if it is a complete and legible reproduction of the entire
original.
7.16 Quorum for Management Committee Meetings. For any meeting of the
Management Committee, a quorum consists of a majority of the members of the
Management Committee present in person or by proxy.
<PAGE> 22
7.17 Action by Management Committee Without a Meeting. Any action required
or permitted to be taken at a meeting of the Management Committee may be taken
without a meeting by written Consent signed by a majority of the members of the
Management Committee. The written Consent is effective when signed by a majority
of the members of the Management Committee, unless a different effective time is
provided therein.
ARTICLE VIII
CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
8.1 Members' Initial Capital Contributions. Each Member shall be obligated
to contribute the amount of capital necessary to fund fifty percent (50%) of the
design, permitting, engineering, construction, installation and testing costs of
the Backbone Network and the Ithaca and Binghamton Spurs, including the cost of
labor, materials, equipment and other charges incurred, as well as the interim
financing costs. These costs will total approximately eight million dollars
($8,000,000), which will be funded through two (2) installments of Capital
Contributions.
(a) Telergy shall loan funds to the Company as provided in Section 8.3 for
the purpose of financing the cost of constructing and installing the fiber cable
along the Backbone Network and the Ithaca and Binghamton Spurs. Once the fiber
cable for the Backbone Network and the Ithaca and Binghamton Spurs is
constructed and installed, the Manager shall give an initial notice to the
Members showing the total costs incurred to date and the amount necessary to
repay the promissory notes issued to Telergy, including accrued but unpaid
interest. Within fifteen (15) days of receiving notification, Energy East shall
be required to make its Capital Contribution of cash for fifty percent (50%) of
such costs to construct and install the fiber cable, and simultaneous therewith,
Telergy shall cancel fifty percent (50%) of the Company's promissory notes,
including accrued but unpaid interest, in satisfaction of its Capital
Contribution. The cash contributed by Energy East to the Company shall be repaid
to Telergy in satisfaction of the remaining one-half of the Company's promissory
notes issued to Telergy.
(b) Upon the earlier of (i) the delivery by the vendor(s) of substantially
all the Facilities for the Backbone Network and the Ithaca and Binghamton Spurs,
or (ii) thirty (30) days after the initial Capital Contributions in satisfaction
of the Company's promissory notes issued to Telergy as provided in Section
8.3(a), Energy East and Telergy shall each be required to make a Capital
Contribution of cash for fifty percent (50%) of the costs of the Facilities.
8.2 Additional Capital Contributions.
(a) No Member shall be required to make any Capital Contribution in
addition to those contemplated by Section 8.1. In the event the Members are
required to make additional Capital Contributions as authorized (i) by the
decision of the Management Committee to construct an additional portion of the
Fiber Optic Network or a new Spur, or (ii) by the Member's unanimous vote or
Consent, the Members shall participate in such
<PAGE> 23
additional Capital Contributions on a pro rata basis in accordance with their
Economic Interests. No additional Capital Contributions may be made other than
in cash without the approval of the Members. In the event one Member makes
additional Capital Contributions in accordance with this Agreement and with the
Consent of the other Member, the non-contributing Member's Economic Interest
shall be diluted. Dilution shall be based upon the Capital Account balance at
the time additional Capital Contributions are made. A Member's Economic Interest
shall be adjusted proportionally to the relative positive Capital Accounts of
the Members at the time any additional Capital Contributions are made, but
excluding any portion of a Capital Account attributable to a Division.
(b) Anything to the contrary contained in Section 8.2 notwithstanding, in
the event that the Manager or the Management Committee reasonably determines
that the Company's cash reserves and reasonably anticipated revenues are less
than is needed to satisfy its existing liabilities or its budgeted needs for
capital expenditures and working capital during the succeeding twelve (12)
months, either Member shall be empowered to seek approval from the Members for
additional Capital Contributions, which shall not be unreasonably withheld,
sufficient in the reasonable judgment of the Manager or the Management Committee
to fund the anticipated shortfall.
(c) Energy East may elect to participate in the Cornell Project and have
it become a part of the Fiber Optic Network and the business and assets of the
Company by making a Capital Contribution equal to fifty percent (50%) of the
capital costs incurred by Telergy to construct and install the Cornell Project.
Energy East may make the election by giving written notice to Telergy at any
time within the one (1) year following the Effective Date. Within fifteen (15)
days of the notice from Energy East, Telergy shall notify Energy East in writing
of the amount of the Capital Contribution to be made, and within the next
fifteen (15) days Energy East shall make its Capital Contribution of cash and
simultaneously therewith, Telergy shall make a Capital Contribution of the
business and assets of the Cornell Project. The cash contributed by Energy East
shall be immediately distributed to Telergy. The Cornell Project shall be
accounted for as part of the business and assets of the Company following these
Capital Contributions by the Members.
(d) A Participating Member shall make the Capital Contributions necessary
to fund the capital costs for the Segregated Network of a Division.
8.3 Loans. Telergy shall loan funds to the Company sufficient to install
the fiber cable along the Backbone Network and the Ithaca and Binghamton Spurs.
Telergy may loan funds to the Company to finance costs authorized by the
Company's capital expenditures and/or operating budgets, subject to Section
5.4(a)(vi). All loans by Telergy shall be evidenced by promissory notes given by
the Company, which shall contain an interest rate and maturity date identical to
the terms of the High Yield Note or the MasTec Financing (if either of these
financings were the source of the funds being loaned) and shall require interest
and principal payments which are one business day prior to the corresponding
payment date of the High Yield Note or MasTec Financing. The
<PAGE> 24
promissory notes given by the Company shall be secured by a perfected first lien
against the assets of the Company including the Fiber Optic Network. Prior to
the issuance of the High Yield Note or when MasTec Financing is not available,
any loans from Telergy shall be evidenced by secured demand promissory notes
requiring the payment of Market Interest plus 2%.
8.4 Capital Accounts.
(a) A separate Capital Account shall be maintained for each Member in
accordance with the capital accounting rules of Section 704(b) of the Code. The
beginning balance in each Member's Capital Account shall be the amount of such
Member's initial Capital Contribution made pursuant to Section 8.1. Thereafter,
a Member's Capital Account shall be increased by (i) the amount of any
subsequent Capital Contribution to the Company by such Member; (ii) such
Member's distributive share of Net Profit and items in the nature of income or
gain which are allocated pursuant to Section 9.2; and (iii) such other amounts
as may be required for the Capital Account to be determined and maintained in
accordance with the rules of Section 1.704-1(b)(2)(iv) of the Treasury
Regulations (including Section 1.704-1(b)(2)(iv)(g) thereof). A Member's Capital
Account shall be decreased by (i) such Member's distributive share of Net Loss
and items in the nature of loss or deduction allocated pursuant to Section 9.2;
(ii) the amount of cash or the Fair Market Value of any property distributed
from the Company to such Member (reduced by the amount of debt, if any, assumed
by such Member in connection with the distribution); and (iii) such other
amounts as may be required for the Capital Account to be determined and
maintained in accordance with the rules of Section 1.704-1(b)(2)(iv) of the
Treasury Regulations (including Section 1.704-1(b)(2)(iv)(g) thereof). It is the
parties' specific intent that Capital Accounts shall be maintained in accordance
with the capital account maintenance rules contained in section 704(b) of the
Code, including the Treasury Regulations thereunder, and this Section 8.4(a)
shall be construed and applied to achieve such result.
(b) Upon liquidation of the Company (or any Member's Membership Interest),
liquidating distributions will be made in accordance with the positive Capital
Account balances of the Members in accordance with Section 12.3 after taking
into account all Capital Account adjustments for the Company's Fiscal Year
during which the liquidation occurs. The Company may offset damages for breach
of this Operating Agreement by a Member whose interest is liquidated (either
upon the withdrawal of the Member or the liquidation of the Company) against any
other amount otherwise distributable to such Member.
8.5 Withdrawal or Reduction of Members' Contributions to Capital.
(a) A Member shall not receive out of the Company's property any part of
its Capital Contribution until all liabilities of the Company have been paid.
(b) A Member, irrespective of the nature of its Capital Contribution, has
only the right to receive cash in return for its Capital Contribution.
<PAGE> 25
(c) A Member may not withdraw from the Company or assign its Membership
Interest or Economic Interest prior to the dissolution and winding up of the
Company, except as provided in Article X. In no event shall a Member who
voluntarily or involuntarily withdraws from the Company be entitled as a
consequence of such withdrawal to receive the benefits of Section 606 of the
Act.
ARTICLE IX
ALLOCATIONS, INCOME TAX, DISTRIBUTIONS,
ELECTIONS, AND REPORTS
9.1 Allocations of Profits and Losses from Operations.
(a) The Net Profits and Net Losses of the Company for each Fiscal Year
shall be allocated between the Members in proportion to the Economic Interests
held by Members.
(b) The items of income, gain, and loss and deduction attributable to a
Division shall be allocated to the Participating Member which funded the capital
costs of the Division.
9.2 Special Allocations to Capital Accounts and Certain Other Income Tax
Allocations. Notwithstanding Section 9.1 hereof:
(a) In the event any Member unexpectedly receives any adjustments,
allocations, or distributions described in Sections 1.704-1(b)(2)(ii)(d)(4),
(5), or (6) of the Treasury Regulations, which create or increase a Deficit
Capital Account of such Member, then items of Company income and gain
(consisting of a pro rata portion of each item of Company income, including
gross income, and gain for such taxable year and, if necessary, for subsequent
years) shall be specially allocated to such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury Regulations, the
Deficit Capital Account so created as quickly as possible. It is the parties'
intent that this Section 9.02(a) be interpreted to comply with the alternate
test for economic effect set forth in Section 1.704-1(b)(2)(ii)(d) of the
Treasury Regulations.
(b) In the event any Member would have a Deficit Capital Account at the
end of any Company taxable year which is in excess of the sum of any amount that
such Member is obligated to restore to the Company under Section
1.704-1(b)(2)(ii)(c) of the Treasury Regulations and such Member's share of
minimum gain as defined in Section 1.704-2(g)(1) of the Treasury Regulations
(which is also treated as an obligation to restore in accordance with Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations), the Capital Account of such
Member shall be specially credited with items of Company income (including gross
income) and gain in the amount of such excess as quickly as possible.
<PAGE> 26
(c) Notwithstanding any other provision of this Section 9.2, if there is a
net decrease in the Company's minimum gain as defined in Treasury Regulation
Section 1.704-2(d) during a taxable year of the Company, then the Capital
Accounts of each Member shall be allocated items of income (including gross
income) and gain for such taxable year (and if necessary for subsequent years)
equal to that Member's share of the net decrease in Company minimum gain. This
Section 9.2(c) is intended to comply with the minimum gain charge-back
requirement of Section 1.704-2 of the Treasury Regulations and shall be
interpreted consistently therewith. If in any taxable year that the Company has
a net decrease in the Company's minimum gain, if the minimum gain charge-back
requirement would cause a distortion in the economic arrangement among the
Members and it is not expected that the Company will have sufficient other
income to correct that distortion, the Tax Matters Member may in its discretion
(and shall, if requested to do so by a Member) seek to have the Internal Revenue
Service waive the minimum gain charge-back requirement in accordance with
Treasury Regulation Section 1.704-2(f)(4).
(d) Items of Company loss, deduction, and expenditures described in
Section 705(a)(2)(B) of the Code that are attributable to any non-recourse debt
of the Company and are characterized as partner (Member) non-recourse deductions
under Section 1.704-2(i) of the Treasury Regulations shall be allocated to the
Members' Capital Accounts in accordance with said Section 1.704-2(i) of the
Treasury Regulations.
(e) Beginning in the first taxable year in which there are allocations of
"nonrecourse deductions" (as described in Section 1.704-2(b) of the Treasury
Regulations), such deductions shall be allocated to the Members in the same
manner as Net Profit or Net Loss is allocated for such period.
(f) In accordance with Section 704(c)(1)(A) of the Code and Section
1.704(b)(2)(i)(iv) of the Treasury Regulations, if a Member contributes property
with a fair market value that differs from its adjusted basis at the time of
contribution, income, gain, loss, and deductions with respect to the property
shall, solely for federal income tax purposes (and not for Capital Account
purposes), be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to the Company and its fair market
value at the time of contribution.
(g) Any credit or charge to the Capital Accounts of the Members pursuant
to Sections 9.2 (a), (b), (c), (d), and/or (e) hereof shall be taken into
account in computing subsequent allocations of Net Profits and Net Losses
pursuant to Section 9.1, so that the net amount of any items charged or credited
to Capital Accounts pursuant to Sections 9.1 and 9.2 (a), (b), (c), (d), and/or
(e) shall to the extent possible, be equal to the net amount that would have
been allocated to the Capital Account of each Member pursuant to the provisions
of this Article IX if the special allocations required by Sections 9.2 (a), (b),
(c), (d), and/or (e) hereof had not occurred.
<PAGE> 27
9.3 Distributions. All distributions of Distributable Cash and property
shall be made to the Members in proportion to the percentages of their Economic
Interests on the record date of such distribution, except that the Distributable
Cash of a Division shall be paid to the Participating Member which funded the
capital costs of the Division. Except as provided in Section 9.4 and except as
restricted by a majority of the members of the Management Committee as provided
in Section 5.4(a)(v), all Distributable Cash shall be paid to the Members
periodically throughout the Fiscal Year during which it was earned or otherwise
received by the Company. The final payment of Distributable Cash determined for
each Fiscal Year shall be no later than March 30 following the end of such
Fiscal Year. The Management Committee shall use its best efforts to authorize
payments of Distributable Cash at such times as to enable each Member to pay its
federal and state income taxes determined at the highest effective tax rate
attributable to its share of the Company's taxable income. Except as provided in
Section 9.4, all distributions of property shall be made at such time as
determined by a majority of the members of the Management Committee as provided
in Section 5.4(a)(v).
9.4 Limitation Upon Distributions. No distribution shall be declared and
paid if, in the determination of a majority of the members of the Management
Committee after giving effect to the distribution:
(a) the Company would not able to pay its debts as they become due in the
usual course of business; or
(b) all liabilities of the Company, other than liabilities for which the
recourse of creditors is limited to specified property of the Company, would
exceed the fair value of the Company's assets, except that the fair value of
property that is subject to a liability for which the recourse of creditors is
limited shall be included in the Company's assets only to the extent the fair
value of that property exceeds that liability.
As contemplated by Section 508 of the Act, the members of the Management
Committee may base the determination under this Section on either:
(a) financial statements prepared on the basis of accounting practices and
principles that are reasonable under the circumstances; or
(b) a fair valuation or other method that is reasonable under the
circumstances.
The members of the Management Committee shall make their determination under
this Section and authorize any distribution under Section 9.3 in accordance with
the standards of Section 508 of the Act.
9.5 Accounting Principles. The Net Profits and Net Losses of the Company
shall be determined as provided in Section 1.37 using the accrual method of
accounting applied on a consistent basis.
9.6 Interest On Capital Contributions. No Member shall be entitled to
interest on
<PAGE> 28
its Capital Contribution, except as otherwise specifically provided for in this
Agreement.
9.7 Accounting Period. The Company's accounting period shall be the Fiscal
Year.
9.8 Books of Account and Records. At the expense of the Company, the
Manager shall maintain and preserve records and accounts of all operations and
expenditures of the Company for the length of time thereafter as may be required
to meet the records retention requirements of any taxing or regulatory body
having direct or indirect jurisdiction over all accounts, books, and other
relevant Company documents. The books of account shall accurately reflect all
transactions and other matters relating to the Company's business in such detail
and completeness as is customary and usual for businesses of the type engaged in
by the Company. As contemplated by Section 1102 of the Act, at a minimum the
Company shall keep at its principal place of business the following records and
shall be prepared to make such records available to regulatory agencies as may
be required by law:
(a) a current list and a past list with the full names and last known
mailing addresses of each Member and each member of the Management Committee;
(b) a copy of the Articles of Organization and all amendments thereto;
(c) copies of the Company's federal, state, and local income tax returns
and financial statements for the six most recent years;
(d) copies of the current and all prior Operating Agreements of the
Company, including all amendments thereto;
(e) a writing setting forth the amount of cash and the Fair Market Value
of property or services contributed by each Member;
(f) copies of any separate agreements pertaining to a Member's obligation
to contribute cash, property, or services; and
(g) minutes of meetings of the Members, the Management Committee, or the
Manager and any written consents obtained from Members, the Management
Committee, or the Manager in lieu of a meeting; and
(h) such other records as the Management Committee deems appropriate.
Upon reasonable advance notice to the Manager, each Member shall have the right,
during ordinary business hours, to inspect and copy such Company documents at
the requesting Member's expense, subject to the Confidentiality provision in
Section 17.16; provided, however, that the Manager shall be authorized, in its
discretion, to withhold from or to restrict or condition the access of one or
more Members to information of the Company
<PAGE> 29
as and to the extent contemplated by Section 1102 (c) of the Act.
9.9 Returns and other Elections. The Manager shall cause the preparation
and timely filing of all tax returns required to be filed by the Company
pursuant to the Code and all other tax returns deemed necessary and required in
each jurisdiction in which the Company does business. Copies of such returns, or
pertinent information therefrom, shall be furnished to the Members within a
reasonable time after the end of the Company's Fiscal Year. All elections
permitted to be made by the Company under federal or state laws shall be made by
the Tax Matters Member, provided that the Tax Matters Member shall make any tax
election requested by the Management Committee or by a unanimous vote or Consent
of the Members.
ARTICLE X
TRANSFERABILITY
10.1 General. Except as otherwise specifically provided in this Article X,
without the unanimous vote or Consent of the Members, a Member shall not have
the right to sell, assign, transfer, exchange, or otherwise transfer
(collectively, "Transfer"), whether or not by operation of law, all or any part
of its Membership Interest.
Notwithstanding the foregoing, a unanimous vote or Consent of the Members
shall not be required in order for a Member to Transfer all or any part of its
Membership Interest, and it shall be permissible for a Member to Transfer all or
part of its Membership Interest and this Agreement, to any wholly-owned
subsidiary, to any second tier wholly owned subsidiary thereof, or in connection
with any merger or consolidation to which the Member is the surviving and
controlling party. Provided further, in the event of a Transfer by a Member to
any such wholly-owned subsidiary or a Transfer that may occur in connection with
any merger or consolidation where the Member is the surviving and controlling
party, the right of first refusal provisions of Section 10.2 shall not apply.
Each Member hereby acknowledges the reasonableness of the restrictions on
Transfer of Membership Interests imposed by this Operating Agreement in view of
the Company's purposes and the relationship of the Members. Accordingly, the
restrictions on Transfer contained in this Article X shall be specifically
enforceable.
<PAGE> 30
10.2 Right-of-First Refusal.
(a) A Member (the "Selling Member") that desires to sell all of its
Economic Interest in the Company to a qualified third party purchaser shall
obtain from such third party purchaser a bona fide written offer to purchase
such Economic Interest, stating the terms and conditions upon which the purchase
is to be made and the consideration offered therefor. The Selling Member shall
give written notice to the other Member of its intention to sell such interest,
which other Member shall have the right to purchase all (but not less than all)
of the Economic Interest proposed to be sold by the Selling Member upon the same
terms and conditions as stated in the aforesaid written offer to purchase by
giving written notice to the Selling Member of its intention to do so within
thirty (30) days after receipt by such other Member of written notice from the
Selling Member. The offer to sell shall be irrevocable during the thirty (30)
day period. If the non-selling Member fails to so notify the Selling Member of
its exercise of this right-of-first refusal within said period, the
right-of-first refusal as to such offer shall terminate and the Selling Member
shall be entitled to consummate the Transfer of its Economic Interest in the
Company to such third party purchaser on the terms set forth in the notice given
to the non-selling Member.
In the event the non-selling Member gives written notice to the Selling
Member of its exercise of this right of first refusal to purchase all of the
Selling Member's Economic Interest in the Company, the non-selling Member shall
have the right to designate the time, date, and place of closing, provided that
the date of closing shall be within the later of sixty (60) days after the
written notice of acceptance by the non-selling Member or sixty (60) days of
receipt of any required regulatory approval for such transfer; provided,
however, that the non-selling Member shall be required to file for any such
regulatory approval within five (5) days of its written notice of acceptance. If
the non-selling Member fails to so file for any required regulatory approval
within such five (5) day period or fails to close within such sixty (60) day
period, the right-of-first refusal shall terminate and the Selling Member shall
be entitled to consummate the transfer of its Economic Interest in the Company
to such third party purchaser on the terms set forth in the notice given to the
non-selling Member.
(b) The third party purchaser shall become a Permitted Transferee of the
Selling Member's Economic Interest in the Company and as a condition to
recognizing the effectiveness and binding nature of any such sale as against the
Company or otherwise, the non-transferring Member may require the Selling Member
and the Permitted Transferee to execute, acknowledge, and deliver to the Company
such instruments of transfer, assignment, and assumption and such other
certificates, representations, and documents, and to perform all such other
acts, which the non-transferring Member may reasonably deem necessary or
desirable to:
(i) constitute such purchaser as a Permitted Transferee;
(ii) confirm that the Permitted Transferee has accepted, assumed,
and agreed to be subject to and bound by all of the terms, obligations,
and conditions
<PAGE> 31
of the Operating Agreement, as the same may have been further amended;
(iii) preserve the status of the Company as a foreign or domestic
limited liability company after the completion of such sale, under the
laws of each jurisdiction in which the Company is qualified, organized, or
does business;
(iv) maintain the status of the Company as a partnership for federal
tax purposes; and
(v) assure compliance with any applicable state and federal laws,
including, without limitation, securities laws and regulations.
10.3 Transfers by Operation of Law.
(a) In the event that a Member or Permitted Transferee (i) files a
voluntary petition under any bankruptcy or insolvency law, or a petition for the
appointment of a receiver, or makes an assignment for the benefit of creditors,
or (ii) is subjected involuntarily to such a petition or assignment, or to an
attachment or other legal or equitable interest with respect to its Membership
Interest, and such involuntary petition or assignment, or attachment or other
legal or equitable interest is not discharged within ninety (90) days after its
date, or (iii) is otherwise subject to a transfer of its Membership Interest by
operation of law or pursuant to judicial decree or settlement of judicial
proceedings, (any of the foregoing being a "Bankruptcy" and the Member or
Permitted Transferee being the "Bankrupt Person"), then in such event the
Bankrupt Person shall have only an Economic Interest in the Company, and shall
have no right to vote or participate in management of the Company or to
designate the President or Vice President, as the case may be, or members of the
Management Committee, and shall be deemed to have offered to sell all of its
Economic Interest to the other Member as provided in this Section 10.3. Such
offer of sale shall be irrevocable for a period of ninety (90) days from the
date on which the other Member first learned of the event which gave rise to the
Bankruptcy, and within said time period the other Member may, by delivering a
written notice of acceptance to the Bankrupt Person, accept the offer in respect
of all, but not less than all, of said Economic Interest. If the other Member
does not notify the Bankrupt Person of its decision to purchase the Economic
Interest within the applicable ninety (90) day offering period, said offer to
sell shall be deemed not to have been accepted by the other Member.
(b) The purchase price at which the other Member may elect to purchase an
Economic Interest in accordance with the provisions of this Section 10.3 shall
be the Fair Market Value of the Bankrupt Person's Economic Interest.
(c) If the other Member elects to purchase an Economic Interest in
accordance with the provisions of this Section 10.3, transfer of the Economic
Interest shall be made at the office of the Company on a mutually satisfactory
business day within the later of thirty (30) days of acceptance of the offer to
sell by the other Member or thirty (30) days of receipt
<PAGE> 32
of any required regulatory approvals for such transfer. Delivery of instruments
evidencing such transfer to the other Member, shall be made upon receipt by the
Bankrupt Person of cash representing the aggregate purchase price for the
Economic Interest or, at the option of the purchaser, of a promissory note for
the purchase price.
10.4 Right of Redemption.
(a) Following the earlier of (i) completion of the construction and
installation of the Backbone Network and the Ithaca and Binghamton Spurs, and
(ii) the second annual anniversary of the Effective Date, either Member may
elect for Energy East to withdraw from the Company upon the occurrence of a
Stalemate. Either Member may exercise this election by giving written notice to
the other Member, and effective as of the date of such notice (the "Withdrawal
Date") Energy East shall have only an Economic Interest in the Company and shall
have no right to participate in management of the Company or to designate the
Vice President or members of the Management Committee.
(b) In the event that a Member elects for Energy East to withdraw from the
Company pursuant to this Section 10.4, the Company shall redeem the Membership
Interest of Energy East in accordance with one of the following procedures:
(i) Energy East shall be distributed an IRU for dark fiber strands
in the Shared Network equal to the lesser of (1) such remaining dark fiber
strands in the Shared Network, or (2) one-half of such total fiber strands in
the Shared Network as of the Withdrawal Date. Energy East shall also be
distributed an IRU for dark fiber strands in any Segregated Network(s) for any
Division(s) in which it was the Participating Member. The IRU shall provide for
Energy East to pay the Company an access and management fee for operating and
maintaining the Fiber Optic Network
(ii) If Energy East is a regulated telephone company as of the
Withdrawal Date, then following receipt of any necessary PSC approval received
within nine (9) months of the redemption of the Membership Interest of Energy
East and distribution of the IRU provided for in Section 10.4(b)(i), Energy East
shall be distributed from the Company:
(A) fifty percent (50%) of the customers utilizing the Shared
Network, Facilities, business and assets of the Company attributable to the
Economic Interest of Energy East as of the Withdrawal Date and including access
to the NYSEG Right-of-Way pursuant to the ROO Agreement, and
(B) all of the customers, Facilities, business and assets of
any Division(s) in which Energy East was the Participating Member.
Energy East shall not be distributed any customers, Facilities, business or
assets of any Division(s) in which Telergy was the Participating Member. The IRU
distributed pursuant to
<PAGE> 33
Section 10.4(b)(i) shall be terminated when the distributions are made pursuant
to Section 10.4(b)(ii). The petition to the PSC required by Section 10.4(b)(ii)
shall be made as soon as possible following the Withdrawal Date. The Company
shall retain the ROO Agreement.
(c) Notwithstanding the foregoing or any other provision of this
Agreement, if Energy East has failed to make its Capital Contribution as and
when required by Section 8.1, Telergy may elect for Energy East to withdraw from
the Company; provided Telergy has given Energy East written notice of such
breach and ten (10) days within which to cure it. Effective on the tenth (10th)
day following such notice if Energy East has not cured its breach and made its
Capital Contribution required by Section 8.1, then the Company shall redeem the
Membership Interest of Energy East upon payment of one dollar ($1) and Energy
East shall withdraw from the Company. The Company shall retain the ROO
Agreement.
10.5 Pledge. Telergy may pledge, hypothecate or mortgage its Economic
Interest to secure obligations or to guarantee indebtedness of the Company, or
of Telergy which is incurred for the benefit of the Company or a portion of
which is to be loaned to the Company pursuant to Section 8.3.
10.6 Effecting a Transfer. The Transferring Member agrees, upon request of
the non-transferring Member, to execute such certificates or other documents and
perform such other acts as may be reasonably requested by the non-transferring
Member from time to time in connection with such Transfer or redemption of a
Membership Interest or Economic Interest. A Member who Transfers or purports to
Transfer a Membership Interest or Economic Interest in violation of this Article
X hereby indemnifies the Company and the remaining Member against any and all
loss, damage, or expense (including, without limitation, tax liabilities or loss
of tax benefits) arising directly or indirectly as a result of such Transfer or
purported Transfer.
10.7 Admission of Substitute Member. The Permitted Transferee of an
Economic Interest may be admitted to the Company as a Substitute Member with the
unanimous approval of the Members. The Substitute Member shall agree in writing
to be bound by the terms of this Agreement and shall have all the rights and
obligations associated with a Membership Interest, including in particular the
right to vote and participate in the management and affairs of the Company as
permitted by this Agreement in accordance with the Voting Interest of the
Transferring Member, the Act and other applicable laws.
<PAGE> 34
ARTICLE XI
ADDITIONAL MEMBERS OR PERMITTED TRANSFEREES
No new Member, Permitted Transferee or Substitute Member shall be entitled
to any retroactive allocation of losses, income, or expense deductions incurred
by the Company. The Manager may, at its option, close the Company books (as
though the Company's tax year had ended) or make pro rata allocations of loss,
income, and expense deductions to a new Member, Permitted Transferee or
Substitute Member for that portion of the Company's Fiscal Year in which it held
a Membership Interest or Economic Interest in accordance with the provisions of
Section 706(d) of the Code and the Treasury Regulations promulgated thereunder.
ARTICLE XII
DISSOLUTION AND TERMINATION
12.1 Dissolution.
(a) The Company shall be dissolved upon the occurrence of any of the
following events:
(i) the unanimous vote or Consent of Members to dissolve the
Company; or
(ii) the sale or other disposition of all or substantially all of
the assets of the Company, or the permanent cessation of the Company's
business operations; or
(iii) the Bankruptcy of a Member, unless within the next one hundred
eighty (180) days of the Bankruptcy the Company is continued by the
Consent of the other Member.
(b) As soon as possible following the occurrence of any of the
events specified in this Section 12.1 effecting the dissolution of the Company
(and if pursuant to Section 12.1(a)(iii) where the other Member does not Consent
to continue the business activity of the Company), the appropriate
representative of the Company shall execute Articles of Dissolution in such form
as shall be prescribed by the Act and file same with the office of the Secretary
of State.
12.2 Effect of Filing Articles of Dissolution. Upon the filing of Articles
of Dissolution with the Secretary of State, the Company shall cease to carry on
its business, except insofar as may be necessary for the winding up of its
business.
<PAGE> 35
12.3 Winding Up, Liquidation, and Distribution of Assets.
(a) Upon dissolution, the Manager shall immediately proceed to wind up the
affairs of the Company in accordance with the requirements of the Act and other
applicable law. In furtherance of the winding up of the Company, the Manager
shall:
(i) sell or otherwise liquidate all of the Company's assets as
promptly as practicable (except to the extent the Management Committee may
determine to distribute any assets to the Members in kind);
(ii) discharge or make reasonable provision for all liabilities of
the Company, including liabilities to Members who are also creditors and
establish such Reserves as may be reasonably necessary to provide for
contingent liabilities of the Company (for purposes of determining the
Capital Accounts of the Members, the amounts of such Reserves shall be
deemed to be an expense of the Company);
(iii) distribute the remaining assets of the Company in the
following order of priority:
(1) To each Member, with respect to the cumulative amount of
all accrued but unpaid pre-dissolution distributions for which the
Company is liable to such Member, the amount of such liability;
(2) The balance of any remaining assets shall be distributed
as follows:
(A) to each Participating Member, that portion of its
Capital Account attributable to the Division(s), if any, for which it
funded the capital costs, after giving effect to contributions,
allocations, and distributions for all periods; and then
(B) to each Member in accordance with the Member's
remaining Capital Account balance, after giving effect to contributions,
allocations, and distributions for all periods.
(b) The Members shall cause an accounting to be made by the Company's
independent accountants of the accounts of the Company and of the Company's
assets, liabilities and operations, from the date of the last previous
accounting until the date of dissolution.
(c) Any assets of the Company which are distributed in kind shall be
deemed to have been sold to the Members in proportion to their Economic
Interests as of the date of dissolution for their Fair Market Value, and the
Capital Accounts of the Members shall be adjusted to reflect such deemed sale.
<PAGE> 36
(d) Notwithstanding anything to the contrary in this Agreement, upon a
liquidation, if any Member has a Deficit Capital Account (after giving effect to
all contributions, distributions, allocations, and other Capital Account
adjustments for all Fiscal Years, including the year during which such
liquidation occurs), such Member shall have no obligation to make any Capital
Contribution, and the negative balance of such Member's Capital Account shall
not be considered a debt owed by such Member to the Company or to any other
person for any purpose whatsoever.
12.4 Return of Capital Contribution - Nonrecourse. Except as provided by
law or as expressly provided in this Agreement, upon dissolution, each Member
shall look solely to the assets of the Company for the return of its Capital
Contribution. If the Company property remaining after the payment or discharge
of the debts and liabilities of the Company is insufficient to return the
Capital Contribution of a Member, such Member shall have no recourse against any
other Member.
12.5 Breach of Joint Venture and Operating Agreement; Remedies; Survival.
The parties agree and acknowledge that, in addition to any other remedies
specifically set forth herein, in the event of a breach of any provision of this
Operating Agreement by a Member, the Company and the non-breaching Members shall
be entitled to receive from the breaching Member any and all damages suffered by
them as a result of such breach, together with all expenses incurred in
connection with the enforcement of this Operating Agreement and the collection
of such damages, including reasonable attorneys' fees. Without limitation of any
other means of recourse, in order to collect any amounts owing hereunder, the
Company and such non-breaching Members shall be entitled to set off against,
withhold, proceed against, or collect or receive directly from the Company, as
applicable, any amounts payable to the breaching Member pursuant to this
Operating Agreement. The obligations of the Members hereunder shall survive the
withdrawal of any Member and the dissolution or termination of the Company.
ARTICLE XIII
REPRESENTATIONS AND WARRANTIES
Each Member hereby represents and warrants to the other as follows:
(a) It has been duly incorporated and is validly existing and in good
standing under the laws of its state of incorporation, and is duly qualified to
conduct business as a foreign corporation in each jurisdiction in which such
qualification is required.
(b) The execution and delivery by it of this Agreement, and the
performance of its obligations hereunder, have been duly authorized by all
necessary corporation action including its Board of Directors, and will not
conflict with or violate any of its constituent documents or any agreement or
instrument to which it is a party or by which it or its properties are subject
and will not violate, or conflict with, or result in a breach of or
<PAGE> 37
constitute a default under, or result in the creation of a right of cancellation
under, or result in the impairment of any right of or result in the creation or
imposition of any lien upon the party under any mortgage, indenture, agreement,
instrument, judgment, statute, law, decree, court order, writ, injunction,
permit, regulation or rule to which it is a party or by which it is bound.
(c) There are no actions, suits, claims, proceedings, investigations or
inquiries pending or, to the best knowledge of the party's knowledge threatened
against it, or against any of its officers or employees which (i) seek to
prevent the acquisition of an interest in the Company or the other transactions
contemplated hereby; or (ii) call into question the validity, or materially
hinder the enforceability or performance of this Agreement. To the best
knowledge of a party, after due inquiry, there are no events or conditions which
would provide the basis for any such litigation, proceeding or investigation.
(d) Neither party has employed any broker or finder or incurred any
liability for any brokerage fees, commissions, or finders' fees in connection
with the acquisition of an interest in the Company or the other transactions
contemplated by this Agreement.
(e) Neither party nor any of its Affiliates is, nor as a result of holding
an interest in the Company be, an "investment company" as defined in, or subject
to regulation under, the Investment Company Act of 1940.
(f) Each party is acquiring its interest in the Company based upon its own
investigation, and the exercise by a party of its rights and the performance of
its obligations under this Agreement will be based upon its own investigation,
analysis and expertise. Each party's acquisition of its interest in the Company
is being made for its own account for investment, and not with a view to the
sale or distribution thereof.
(g) No representation or warranty by a party contained in this Agreement
(including, but not limited to, the Exhibits hereto) contains or will contain
any untrue statement of a material fact, or omits or will omit to state any
material fact required to make the statements contained herein or therein not
misleading.
<PAGE> 38
ARTICLE XIV
DISPUTE RESOLUTION AND INJUNCTION
Any matters which the Management Committee is unable to authorize by a
majority vote of its members (or such higher percentage as may be required by
this Operating Agreement), and any and all disputes arising out of, under, in
connection with, or relating to this Operating Agreement, the breach or any
alleged breach thereof, including disputes regarding the Economic Interests,
Voting Interests or Capital Accounts may be submitted to the Chief Executive
Officers of the Members who shall then attempt to resolve the dispute. Because
of the unique relationship of the Members in the Company and the unique value of
their interests therein, neither party shall be prevented from applying for and
obtaining injunctive relief in instances where, in the absence thereof, the
rights of such party cannot be otherwise adequately protected.
ARTICLE XV
SEPARATE DIVISION
Section 15.1 - New Projects. In the event a Member wants the Company
to construct a Spur and/or any additional path of the Fiber Optic Network, such
Member shall present the project to the Management Committee for its
consideration. If the Management Committee approves the project and authorizes
the construction and installation of fiber cable and Facilities, it shall also
approve a capital expenditures budget and the Capital Contributions necessary to
fund the capital costs of the project. If the Management Committee does not
approve the project, then the Member which presented the project to the
Management Committee (the "Participating Member") may cause the Company to
construct the Spur and/or the additional path of the Fiber Optic Network (a
"Segregated Network") through a separate Division of the Company to be operated
and accounted for independent of the regular business operations of the Company.
Section 15.2 - Construction. The Company shall construct and install
the Segregated Network, including the fiber optic cable and Facilities, at the
direction of the Participating Member.
Section 15.3 - Management and Allocations. The Division shall be
managed by the Manager and the Management Committee. Revenue and expense
associated with the operation of the Division shall be allocated between the
regular business operations of the Company and those of the Division in the
discretion of the Management Committee on a case-by-case basis, taking into
consideration all relevant factors, including, but not limited to, a customer's
use of the Segregated Network as well as other portions of the Fiber Optic
Network, direct maintenance costs of the Segregated Network, marketing and
related costs attributable to potential customers located along the Segregated
Network.
<PAGE> 39
Section 15.4 - Special Provisions. Notwithstanding the provisions of
this Operating Agreement, the following special provisions shall apply with
respect to each Division:
(i) The Participating Member will make Capital Contributions
necessary to fund the capital costs of the Segregated Network as provided
in Section 8.2(d), which will be accounted for as assets of the Division.
(ii) The Participating Member's Capital Account and Membership
Interest will reflect its sole ownership rights to the assets and revenue
of the Division.
(iii) The Participating Member will be specially allocated the
revenue and expense associated with the operation of the Division, as
determined by the Management Committee.
(iv) If the Company leases dark fiber to third parties which
involves the Segregated Network, the Participating Member will be
specially allocated (1) all of the lease revenue, if the lease involves
only the Segregated Network, or (2) a portion of the lease revenue based
on the ratio of the number of miles being leased which are comprised of
the Segregated Network to the total miles of the Fiber Optic Network which
are being leased, but only if the lease involves portions of the Fiber
Optic Network in addition to the Segregated Network.
(v) If the Company liquidates and makes an in-kind distribution of
its assets to its Members, the Participating Member would receive the
assets of the Division(s), including the Segregated Network, for which it
funded the capital costs. If the Company sells some or all of its assets,
the portion of the sale proceeds allocable to the assets of a Division(s),
including the Segregated Network, will be the sole property of the
Participating Member which funded the capital costs of the Division, and
will be distributed to the Participating Member. In the event of a merger
of the Company with another Person, the portion of the consideration
received in the transaction which is attributable to the assets of a
Division(s), including the Segregated Network, will be paid to the
Participating Member which funded the capital costs of the Division(s).
The foregoing is not intended to be an exhaustive list, but rather is
intended to be illustrative for how a Participating Member is to receive
the benefits of a Division in which it has funded the capital costs.
ARTICLE XVI
RELATIONSHIP OF THE PARTIES
16.1 Recovery of Costs. The parties' agree to use their best efforts to
obtain
<PAGE> 40
long-term leases of dark fiber along the Backbone Network and the Ithaca and
Binghamton Spurs, which leases would cover substantially all of the engineering,
development, construction and any related regulatory costs (but not electronics
costs) associated with the Backbone Network and the Ithaca and Binghamton Spurs.
The parties intend to negotiate any such leases of dark fiber prior to
completion of construction of the Backbone Network and the Ithaca and Binghamton
Spurs. However, this provision does not limit the ability of the Company to
obtain the Capital Contributions or the loans from the Members as provided for
in this Operating Agreement.
16.2 Revenue Sharing Procedures. The parties understand and agree that the
Company will interconnect the Fiber Optic Network to networks owned and operated
by local and long distance carriers including telephone companies that are
subsidiaries of Telergy. The parties recognize that such interconnection is
required under the Telecommunications Act of 1996 and by the Federal
Communications Commission and the PSC.
16.3 Solicitation of Employees. Until the expiration of three (3) years
after either party ceases to be a Member of the Company, no party nor their
respective Affiliates will newly employ, engage or seek to employ or engage,
directly or indirectly, any employee of the Company or any employee of the
remaining Members of the Company who are providing services to the Company
without the written consent of the Company, unless such employee has been
discharged by the Company or by such Member or such employee is employed by an
entity that is acquired by a party or one of its Affiliates; provided, however,
that the foregoing provisions shall not apply to any employment or solicitation
of employment by a previous employer (or its Affiliates) of an employee of the
Company.
16.4 Employee Hires. The parties will insure that the Company and its
subsidiaries will not employ, engage or seek to employ or engage, directly or
indirectly, any employee of a Member or its Affiliate, without the written
consent of such Member, unless such employee has been discharged by such Member
or its Affiliate or such employee is employed by an entity that is acquired,
directly or indirectly, by the Company.
16.5 Construction Activity. The parties agree that the Company shall use
MasTec North America, Inc. or its subsidiaries as its prime contractor for all
construction activities of the Fiber Optic Network, Segregated Networks and
extensions thereto.
16.6 Access to Right-of-Way. Subject to and in accordance with the
provisions of the ROO Agreement, the Company intends to construct underground,
buried and aerial fiber optic cables as the Fiber Optic Network, including such
laterals, spurs, loops and extensions in Rights-Of-Way that may be available to
NYSEG and its Affiliates. Such laterals, spurs, loops and extensions shall be
constructed and installed in accordance with the Business Plan as may be amended
from time to time. The parties recognize that the ROO Agreement may require
approval from the PSC and the parties agree to use their best efforts to obtain
such approval once NYSEG files the ROO Agreement with the PSC, which filing
Energy East shall cause to be made within ten (10) days after this Agreement
<PAGE> 41
is executed.
16.7 Support Service Agreements. The parties currently contemplate that
certain services will be provided to the Company by employees of both of the
Members or by employees of companies which are subsidiaries of the Members. The
Members agree that Telergy shall provide services to the Company relating to
operating and maintaining a telecommunications business, excluding sales and
marketing services which will be performed by employees of the Company, and
Energy East shall provide services to the Company relating to the sale,
marketing and management of energy. The Manager shall be authorized to enter
into Support Services Agreements with Telergy and Energy East, and their
respective Affiliates, in substantially the same form as set forth in Exhibits B
and C, which establish the cost reimbursement procedures for the use by the
Company of the employees and other assets of the Members. The Manager will have
the responsibility to hire or contract for such other services as may be
appropriate and necessary for the proper functioning of the Company, subject to
the limitations on Manager's authority contained in Sections 5.1 and 5.2.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1 Notices. Any notice, demand, or communication required or permitted
to be given by any provision of this Operating Agreement shall be deemed to have
been sufficiently given or served for all purposes if delivered personally to
the Person or to an executive officer of the Person to whom the same is directed
or, if sent by registered or certified mail, postage and charges prepaid, or by
facsimile, addressed to the Person's and/or Company's address, as appropriate,
which is set forth in this Operating Agreement. Any such notice given by mail
shall be deemed to be given three business days after the date on which the same
was deposited in a regularly maintained receptacle for the deposit of United
States mail, addressed and sent as aforesaid.
17.2 Other Ventures. The Members may, independently or with others, invest
or engage in any business or venture, including telecommunications, data and
information, energy and energy marketing and management activities similar to
that of, or in competition with, the Company. The other Member shall not have
any rights or obligations in and to such independent ventures or the income or
profits derived therefrom.
17.3 Application of New York Law. This Operating Agreement, and the
application and interpretation hereof, shall be governed exclusively by its
terms and by the laws of the State of New York, excluding conflict of laws
principles.
17.4 Amendments. Other than as expressly provided herein, this Operating
Agreement may not be amended except by the unanimous vote or Consent of both
Members.
<PAGE> 42
17.5 Execution of Additional Instruments. Each Member hereby agrees to
execute such other and further statements of interest and holdings,
designations, powers of attorney, and other instruments necessary to comply with
any laws, rules, or regulations.
17.6 Construction. Whenever used in this Operating Agreement and when
required by the context the singular number shall include the plural and vice
versa, and the masculine gender shall include the feminine and neuter genders
and vice versa.
17.7 Headings and Pronouns. The headings in this Operating Agreement are
inserted for convenience and are in no way intended to describe, interpret,
define, or limit the scope, extent, or intent of this Operating Agreement or any
provision hereof. All pronouns shall be deemed to refer to masculine, feminine,
or neuter, singular or plural as the identity of the Person or Persons may
require.
17.8 Waivers. The failure of any party to seek redress for violation of or
to insist upon the strict performance of any covenant or condition of this
Operating Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
17.9 Rights and Remedies Cumulative. The rights and remedies provided by
this Operating Agreement are cumulative and the use of any one right or remedy
by any party shall not preclude or waive the right to use any or all other
remedies. Said rights and remedies are given in addition to any other rights the
parties may have by law, statute, ordinance or otherwise.
17.10 Severability. If any provision of this Operating Agreement or the
application thereof to any person or circumstance shall be invalid, illegal, or
unenforceable to any extent, the remainder of this Operating Agreement and the
application thereof shall not be affected and shall be enforceable to the
fullest extent permitted by law.
17.11 Heirs, Successors and Assigns. Each and all of the covenants, terms,
provisions and agreements herein contained shall be binding upon and inure to
the benefit of the Members and, to the extent permitted by this Operating
Agreement, their respective heirs, legal representatives, successors and
assigns.
17.12 Rights of Creditors. This Agreement is expressly not intended for
the benefit of any creditor of the Company or any other person who is not a
Member. No creditor or other Person shall have any rights to the Member's
obligation for Capital Contributions except for a creditor who extended credit
to the Company in reliance on the Member's obligation for a Capital Contribution
as provided in the Act.
17.13 Counterparts. This Agreement may be executed in any number of
counterparts, no one of which needs to be executed by both of the Members, and
this Agreement shall be binding upon both the Members with the same force and
effect as if both the Members had signed the same document, and each such signed
counterpart shall constitute an original of this Agreement.
<PAGE> 43
17.14 Integration. This Operating Agreement constitutes the Members'
entire agreement with respect to the subject matter hereof, and supersedes any
and all prior oral or written agreements or understandings with respect thereto.
17.15 Public Announcements. The Members agree that before they or any of
their respective Affiliates issue any press releases or otherwise make any
public statements with respect to this Agreement or issue any further press
releases or otherwise make any public statements with respect to the
transactions contemplated hereby, they will obtain the written Consent of the
other party hereto to such press release or public statement. Neither the
Members nor any of their Affiliates shall issue a press release or make any
public statement without such prior written Consent except, in each case, in the
reasonable opinion of counsel to the disclosing party, as may be required by
applicable law, rule, regulation or order or by obligations pursuant to any
listing agreement with any securities exchange on which any of its or their
securities may be listed, upon prior written notice to the other party, where
such notice is practicable.
17.16 Confidentiality. The Members agree as follows with respect to
information (whether in the form of documents, oral communications, visual
examination of facilities, or otherwise) disclosed by any Member to any other
Member in the course of the formation of the Company or in course of the
Company's operations (the "Confidential Information"):
(a) Subject to the exceptions set forth in Sections 17.16 (b), (c) and
(d), the Members (i) will treat all Confidential Information as confidential,
(ii) will not use Confidential Information for any purpose other than in
connection with the business or their Membership Interest, and (iii) will not
disclose any Confidential Information to third parties. Each Member shall, at
all times, be responsible for compliance by its designated Manager, its
designated members of the Management Committee, and its directors, officers,
employees and agents with the obligations under this Section 17.16.
(b) The confidentiality obligations of the Members contained in Section
17.16(a) shall not apply to any Confidential Information which (i) is or becomes
publicly known through no fault of the Person receiving the Confidential
Information, (ii) is disclosed to the Person receiving the Confidential
Information on a non-confidential basis by a third party who such Person
believes after due inquiry is entitled to disclose it, (iii) the Person
receiving the Confidential Information can demonstrate on the basis of written
records was already known to it on a non-confidential basis prior to receipt,
(iv) is subsequently developed by the Person receiving the Confidential
Information independently of Confidential Information, or (v) subject to Section
17.16(c), is required to be disclosed by law or legal process.
(c) Provided circumstances permit, each Member will provide the Company
and the other Members hereto with prior written notice of each instance in which
Confidential Information is required to be disclosed by law or legal process.
Such written notice shall
<PAGE> 44
be given as promptly as is practicable under the circumstances.
(d) The Members shall be entitled to disclose Confidential Information to
their agents, financial advisors, representatives, consultants (including,
without limitation, legal counsel and accountants) and lenders as they may
determine to be appropriate in connection with the Company or their interest in
the Company. In addition, the Members shall have the right to discuss the
business of the Company, if required, with the staff or members of regulatory
agencies which would have jurisdiction over the Company's business, and Telergy
shall have the right to discuss the business of the Company in connection with
its borrowing of funds through the offering of the High Yield Notes or the
MasTec Financing.
(e) The obligations of this Section 17.16 shall survive the termination of
this Agreement.
17.17 No Third Party Beneficiaries. Except as expressly provided herein,
nothing in this Agreement shall entitle any Person other than the Members or
their respective successors and assigns permitted hereby to any claim, cause of
action, remedy or right of any kind.
17.18 Equitable Relief. The Members agree that irreparable damage would
occur in the event that any of the provisions of this Agreement, including,
without limitation, Section 17.18 hereof, were not performed in accordance with
their specific terms or were otherwise breached. Accordingly, it is agreed that
the Members shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and, subject to the provisions of Section 17.3, to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
17.19 No Partnership Created. It is the express intention of the Members
that the representations, warranties, covenants and agreement contained in this
Agreement do not create a partnership between them.
17.20 Agreement Jointly Drafted. The Members agree that the Agreement was
jointly drafted and that no interpretive presumption shall exist against either
Member as a result of authorship of this Agreement.
17.21 Further Assurances. The Members agree to use their best efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable to carry out all of their respective
obligations under this Agreement and to make effective the contributions and the
and other transactions contemplated by this Agreement.
<PAGE> 45
IN WITNESS WHEREOF, the Members have signed this Operating Agreement of
Telergy East, LLC as of the date first written above.
TELERGY, INC.
By:/s/ Brian P. Kelly
-------------------------
Brian P. Kelly, CEO
ENERGY EAST TELECOMMUNICATIONS, INC.
By:/s/ M. Coppola
-------------------------
Micheal Coppola, President
<PAGE> 1
EXHIBIT 10.18
OPERATING AGREEMENT
OF
Telergy MidAtlantic, LLC
THIS OPERATING AGREEMENT is made and entered into as of this 7th day of
April, 2000 (the "Effective Date"), by and between Telergy Network Services,
Inc. (together with its successors and permitted assigns of its Voting Interest,
("TNS"), a New York corporation with an address for purposes hereof at One
Telergy Parkway, East Syracuse, New York 13057, and GPU Telcom Services, Inc.
(together with its successors and permitted assigns of its Voting Interest, "GPU
Telcom"), a Delaware corporation with an address for purposes hereof at 300
Madison Avenue, P.O. Box 1911, Morristown, NJ, 07962-1911, effective on the
Effective Date.
WHEREAS, TNS and GPU Telcom desire, by execution and delivery of this
Operating Agreement, to approve the Articles of Organization and form Telergy
MidAtlantic, LLC as a limited liability company pursuant to the Act.
WITNESSETH:
In consideration of the mutual covenants contained in this Operating
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
In addition to the terms defined elsewhere in this Operating Agreement,
the following terms shall have the following respective meanings:
1.1 "Act" means the New York Limited Liability Company Law, Chapter 34,
Consolidated Lawsss.101 et seq., and all amendments thereto.
1.2 "Affiliate" means, with respect to a specified Person, (i) any other
Person directly or indirectly controlling, controlled by, or under common
control with the specified Person, (ii) any other Person owning or controlling
ten percent (10%) or more of the outstanding voting interests of the specified
Person, (iii) any officer, director, general partner, member or trustee of the
specified Person, or (iv) any other Person who is an officer, director, general
partner, member, trustee, or holder of ten percent (10%) or more of the
outstanding voting interests of any Person described in clauses (i) through
(iii) of this sentence. For purposes of this definition, the terms "controls,"
"is controlled by," or "is under common control with" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
1.3 "Applicable Federal Rate" means the rate of interest determined each
month by the
<PAGE> 2
Secretary of Treasury pursuant to Code Section 1274(d) for debt instruments
having a maturity of over three years but not over nine years as announced by
Revenue Rulings issued monthly by the United States Treasury Department,
compounded annually.
1.4 "Articles of Organization" means the Articles of Organization of the
Company to be filed with the New York Department of State, and amendments as may
be filed from time to time as authorized by the unanimous vote or Consent of the
Members.
1.5 "Bankruptcy" and "Bankrupt Person" are defined in Section 10.3.
1.6 "Billing and Services Agreement" means the agreement between the
Company and TNS substantially in the form attached hereto as Exhibit B, to be
executed simultaneously with the Construction Operating Agreement.
1.7 "Business" is defined in Article III, and includes modifications by
the Management Committee from time-to-time as authorized herein.
1.8 "Capital Account" means, as of any given date, the Capital
Contributions to the Company by a Member as adjusted up to the date in question
pursuant to Article VIII.
1.9 "Capital Contributions" means the total amount of cash, and the Fair
Market Value of all tangible or intangible property or services (except as
provided in Section 8.3), which a Member or its predecessor in interest has
contributed or has agreed to contribute to the Company net of liabilities
secured thereby that the Company is considered to assume or to be subject to
under Section 752 of the Code.
1.10 "Code" means the Internal Revenue Code of 1986, as amended.
1.11 "Company" means Telergy MidAtlantic, LLC, the limited liability
company formed pursuant to this Operating Agreement.
1.12 "Company IRU" means the IRUs in the specific quantity of dark fiber
strands delivered to the Company, to be constructed, installed and delivered by
GPU Telcom.
1.13 "Consent" means the prior written consent of a Person to do the act
or thing for which the Consent is solicited, or the act of granting the Consent,
as the context may require.
1.14 "Construction Operating Agreement " means the agreement between the
Company and GPU Telcom substantially in the form attached hereto as Exhibit A,
to be executed simultaneously with the Billing and Services Agreement.
1.15 "Deficit Capital Account" means, with respect to any Member, the
deficit balance, if any, in such Member's Capital Account as of the end of the
taxable year, after giving effect to the following adjustments:
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(i) credit to such Capital Account any amount that such Member is
obligated to restore under Section 1.704-1(b)(2)(ii)(c) of the Treasury
Regulations, as well as any addition thereto pursuant to the next to last
sentence of Sections 1.704-2(g)(1) and (i)(5) of the Treasury Regulations, after
taking into account thereunder any changes during such year in limited liability
company minimum gain attributable to any member non-recourse debt (as determined
under Section 1.704-2(i)(3) of the Treasury Regulations); and
(ii) debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations.
This definition of Deficit Capital Account is intended to comply with the
provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and 1.704-2, and
will be interpreted consistently with those provisions.
1.16 "Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the financial
accounting book value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such Fiscal Year, Depreciation shall be
an amount which bears the same ratio to such beginning book value as the federal
income tax depreciation, amortization, or other cost recovery deduction for such
Fiscal 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 Fiscal Year is zero, Depreciation shall be determined with
reference to such beginning book value using any reasonable method selected by
the Manager.
1.17 "Distributable Cash" means all cash, revenues, and funds received by
the Company, other than from borrowings and Capital Contributions, less the sum
of the following to the extent paid, set aside or accrued by the Company: (i)
all principal payments on indebtedness of the Company and all other sums paid to
lenders; (ii) all cash expenditures for capital improvements, additions and
replacements: (iii) all cash expenditures for expenses incurred incident to the
operation of the Company's business; and (iv) Reserves.
1.18 "Economic Interest" means the interest, either of a Member or a
Permitted Transferee, expressed as a percentage, in the Company's Net Profits,
Net Losses and distributions of the Company's assets all pursuant to this
Agreement and the Act, together with the obligations to comply with the terms
and provisions of the Agreement and the Act, which does not include any right to
participate in the management of the business or affairs of the Company, the
right to vote on, Consent to or otherwise participate in any decision or action
of the Members. The initial Economic Interests shall be 51% for TNS and 49% for
GPU Telcom.
1.19 "Effective Date" means the date that the Articles of Organization are
filed with the New York Department of State forming the Company.
1.20 "Entity" means any general partnership, limited partnership, limited
liability company, corporation, joint venture, trust, business trust,
cooperative, or association or any foreign trust or foreign business
organization.
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<PAGE> 4
1.21 "Facilities" means electronics and equipment and ancillary property
that may be installed by the Company in the GPU Telcom Territory necessary or
useful for the Company to access or use the Company IRU, including but not
limited to, junctions, regenerators, power sources, fault alarm systems,
electronics, structures or shelters, building entrance access and all other
personal property.
1.22 "Fair Market Value"
(i) unless the asset is readily traded and the value is easily
determined, in which case the value shall be such market value, for any asset of
the Company, whether real, personal or intangible property, means the value
determined from time to time for the purpose of this Operating Agreement by
unanimous vote or Consent of the members of the Management Committee. A
determination by the Management Committee shall be binding for a period of six
(6) months following the effective date of the valuation, unless the value is
adjusted during the period or is reaffirmed at the end of the period by the
Management Committee, or unless the valuation shall provide for a different or
longer period during which it shall be effective. If the Management Committee is
unable to unanimously agree upon a value or, in the case of valuation of real
estate or unique personal or intangible property, the value of such property
shall be determined from an appraisal of the asset by a duly qualified appraiser
for the type of asset being appraised, which appraiser shall be selected by the
unanimous vote or Consent of the Management Committee, and if all the members of
the Management Committee are unable to agree on an appraiser within ten (10)
business days after the written request of any member of the Management
Committee, GPU and TNS each shall select an appraiser and the two (2) appraisers
shall agree on the valuation, but if they are unable to agree on the valuation,
the appraisers shall mutually select a third appraiser whose decision as to any
disputed valuation shall be binding and conclusive on all interested parties.
Any appraisers' fees and costs shall be borne and paid by the party authorized
to select the appraiser, but where an appraiser is jointly selected or a third
appraiser is selected, such fees and costs of the jointly selected appraiser or
third appraiser shall be borne and paid for by GPU and TNS in equal shares.
(ii) for an Economic Interest of the Company, means the value
determined from time to time for the purpose of this Operating Agreement by a
duly qualified appraiser knowledgeable about the telecommunications industry who
is jointly selected by the interested parties. If the interested parties are
unable to agree on an appraiser within ten (10) business days after the written
request of either one, each shall select an appraiser and the two (2) appraisers
shall agree on the valuation, but if they are unable to agree on the valuation,
the appraisers shall mutually select a third appraiser whose decision as to any
disputed valuation shall be binding and conclusive on all interested parties.
Any appraisers' fees and costs shall be borne and paid by the party authorized
to select the appraiser, but where an appraiser is jointly selected or a third
appraiser is selected, such fees and costs of the jointly selected appraiser or
third appraiser shall be borne and paid for by the interested parties in equal
shares.
1.23 "Fiscal Year" means the calendar year.
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1.24 "Fiber Optic Network" means the fiber optic network containing the
Company IRU as it may be constructed, installed and delivered to the Company by
GPU Telcom pursuant to the Construction Operating Agreement.
1.25 "GPU ROW" means certain rights of GPU Telcom to the electric and gas
transmission and distribution rights-of-way, conduit, poles, towers, service
entrance pipes or other building entry access and any other facilities of GPU
Regulated in the GPU Telcom Territory for the construction, installation and
delivery of the Company IRU and any Segregated Networks as provided in the
Construction Operating Agreement.
1.26 "GPU Regulated" means Jersey Central Power & Light Company, A New
Jersey corporation, Metropolitan Edison Company, a Pennsylvania corporation, and
Pennsylvania Electric Company, a Pennsylvania corporation, which are regulated
electric companies and Affiliates of GPU Telcom.
1.27 "GPU Telcom Network" means the telecommunications networks and
related structures, collocation sites and equipment or electronics that are
constructed, installed, operated and owned by GPU Telcom or its subsidiaries,
excluding the Company IRU.
1.28 "GPU Telcom Representative" is defined in Section 5.6.
1.29 "GPU Telcom Territory" means the geographic area covered by the state
of New Jersey and the Commonwealth of Pennsylvania.
1.30 Gross Asset Value" means, with respect to any asset of the Company,
its adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be its gross Fair Market Value;
(ii) The Gross Asset Values of all Company assets shall be adjusted
to equal their respective gross Fair Market Values as of the following times:
(a) the acquisition of an additional interest by any new or existing Member in
exchange for more than a de minimis Capital Contribution; (b) the distribution
by the Company to a Member of more than a de minimis amount of property as
consideration for a Membership Interest or Economic Interest; and (c) the
liquidation of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to clauses
(a) and (b) above shall be made only if a majority of the members of the
Management Committee reasonably determine that such adjustments are necessary or
appropriate to reflect the relative Economic Interests of the Members in the
Company;
(iii) The Gross Asset Value of any Company asset distributed to any
Member shall be adjusted to equal its gross Fair Market Value on the date of
distribution; and
(iv) The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or
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<PAGE> 6
Code Section 743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Regulation Section
1.704-1(b)(2)(iv)(m) and Section 8.4 and subparagraph (iv) under the definition
of Net Profits and Net Losses; provided, however, that Gross Asset Values shall
not be adjusted pursuant to this definition to the extent a majority of the
members of the Management Committee determine that an adjustment pursuant to
subparagraph (ii) of this definition is necessary or appropriate in connection
with a transaction that would otherwise result in an adjustment pursuant to this
subparagraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subparagraph (i), (ii), or (iv) of this definition, then such Gross
Asset Value shall thereafter be adjusted by the Depreciation taken into account
with respect to such asset for purposes of computing Net Profits and Net Losses.
1.31 "Indefeasible Right of Use or IRU" means a communication facility in
which the holder possesses an indefeasible, exclusive and irrevocable right to
use and market the facility, but not the right to control the facility.
1.32 "Initial Business" is defined in Article III.
1.33 "Management Committee" is defined in Section 5.3.
1.34 "Manager" means the individual initially designated in Section 5.6
and his or her designee, and successor upon removal, resignation, or
replacement.
1.35 "Market Interest" means the annual rate of interest, compounded
monthly (applied on a daily basis or such other periodic basis as the Manager
shall determine) which shall equal the greater of (a) the announced prime rate
of interest being charged from time to time by the primary commercial bank in
the State of New York with which the Company usually does business (but if there
by no such bank, then such commercial bank in the State of New York as is
selected by the Manager) plus 1%, or (b) 100% of the Applicable Federal Rate in
effect as of the date of the promissory note or other indebtedness as determined
under Section 1274 of the Code, but only if Section 1274 shall apply).
1.36 "Member" means each of the parties who execute a counterpart of this
Operating Agreement as a Member and each of the parties who may hereafter be
admitted as Members or become Substitute Members.
1.37 "Membership Interest" means a Member's entire interest in the Company
including such Member's Economic Interest, Voting Interest and such other rights
and privileges that the Member may enjoy by being a Member.
1.38 "Net Profits" and "Net Losses" mean for each Fiscal Year of the
Company an amount equal to the Company's net taxable income or loss for such
Fiscal Year as determined for federal income tax purposes (including separately
stated items) in accordance with the accounting method and rules used by the
Company and in accordance with Section 703 of the Code with the
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<PAGE> 7
following adjustments:
(i) any items of income, gain, loss, and deduction allocated to
Members pursuant to Section and 9.2 shall not be taken into account in computing
Net Profits or Net Losses for purposes of this Operating Agreement;
(ii) any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Net Profits and Net Losses
(pursuant to this definition) shall be added to such taxable income or loss;
(iii) any expenditure of the Company described in Section
705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(I), and not otherwise
taken into account in computing Net Profits and Net Losses (pursuant to this
definition) shall be subtracted from such taxable income or loss;
(iv) in the event the Gross Asset Value of any Company asset is
adjusted pursuant to clause (ii) or (iii) of the definition of Gross Asset
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 Profits and Net
Losses;
(v) gain or loss resulting from any disposition of any Company asset
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed with reference to the Gross Asset Value of the asset disposed
of, notwithstanding that the adjusted tax basis of such asset differs from its
Gross Asset Value;
(vi) in lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year; and
(vii) to the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Section 734(b) of the Code or Section 743(b) of the
code is required pursuant to Section 1.704-1(b)(2)(iv)(m)(4) of the Treasury
Regulations to be taken into account in determining Capital Accounts as a result
of a distribution other than in liquidation of a Membership Interest, the amount
of such adjustment shall be treated as an item of gain (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 Profits or Net Losses.
1.39 "Operating Agreement" or "Agreement" means this Operating Agreement
of Telergy Mid-Atlantic, LLC as the same may be amended from time to time by the
unanimous vote or Consent of the Members.
1.40 "Permitted Transferee" shall mean the holder of an Economic Interest
in the Company who has not been admitted as a Substitute Member, and who
therefore has all of the obligations of a Member, but no right to vote or
participate in the management or affairs of the Company or to exercise any
rights or powers of a Member.
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1.41 "Person" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors, and assigns of
such Person where the context so permits.
1.42 "Regulatory Approval" means the approval, license of other
authorizations required by any state regulator of competent jurisdiction.
1.43 "Reserves" means, with respect to any Fiscal Year, funds set aside or
amounts allocated during such period which are deemed sufficient by a majority
of the members of the Management Committee for working capital and to pay taxes,
insurance, debt service, or other costs or expenses incident to the ownership or
operation of the Company's Business.
1.44 "Secretary of State" means the Secretary of State of the State of New
York.
1.45 "Segregated Networks" means the GPU Telcom Network (excluding the
Company IRU) and the TNS Network, which shall not be construed to be assets of
the Company
1.46 "Selling Member" means any Member which sells all or any portion of
its Economic Interest as described in Section 10.2.
1.47 "Stalemate" means that a matter has been submitted to the Members or
the Management Committee for approval and the Members or the Management
Committee, respectively, have been unable to obtain the unanimous vote or
Consent of the Members or the Management Committee, respectively, required for
such matter, or any other matter with respect to which a Member may declare that
a Stalemate exists pursuant to the terms hereof.
1.48 "Substitute Member" means a Permitted Transferee who has been
admitted as a Member pursuant to Section 10.7.
1.49 "Tax Matters Member" means TNS, the Member designated to represent
the Company in connection with income tax matters pursuant to Section 6231(a)(7)
of the Code.
1.50 "TNS Network" means the telecommunications networks and related
structures, collocation sites and equipment or electronics that are constructed,
installed, operated and owned by TNS or its Affiliates.
1.51 "Transferring Member" shall mean a Member who transfers its
Membership Interest or Economic Interest as provided in Article X.
1.52 "Treasury Regulations" shall include proposed, temporary, and final
regulations promulgated under the Code.
1.53 "Voting Interest" means a Member's proportionate rights, as set forth
in this Agreement, to participate in the management of the business or affairs
of the Company and to vote
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on, Consent to, or otherwise participate in any decision or action of the
Members. The Voting Interests shall be 51% for TNS and 49% for GPU Telcom.
1.54 "Withdrawal Date" means the date upon which a Member elects for GPU
Telcom to withdraw from the Company as provided in Section 10.4.
ARTICLE II
FORMATION OF COMPANY
2.1 Formation. The parties, by execution and delivery of this Operating
Agreement, hereby approve the filing of the Articles of Organization with the
Secretary of State and enter into and join together in and do hereby form the
Company, as of the Effective Date, as a New York Limited Liability Company under
and pursuant to the Act.
2.2 Name. The name of the Company is Telergy MidAltantic, LLC.
2.3 Principal Place of Business; Principal Executive Office. The Company's
initial principal place of business shall be at One Telergy Parkway, Syracuse,
New York 13057. The Company will relocate its principal place of business to a
location in New Jersey or Pennsylvania as selected by the Management Committee.
2.4 Registered Office and Registered Agent. The address of the Company's
initial registered office shall be One Telergy Parkway, Syracuse, New York
13057. The name and address of the Company's registered agent shall be the
Secretary of State, in accordance with Section 301 of the Act. The registered
office and registered agent may be changed from time to time as the Manager
deems advisable by filing notice of such changes with the Department of State in
accordance with Sections 301 and 302 of the Act.
ARTICLE III
BUSINESS OF COMPANY
3.1 Initial Business. The business of the Company is to resell all forms
of telecommunications products and services, including data, voice and video on
a retail basis in the GPU Telcom Territory pursuant to the Billing and Services
Agreement and the terms of this Agreement (the "Initial Business"). Upon funding
by the Members the Business of the Company shall be expanded to include the
Initial Business and owning and operating fiber optic networks, including the
Company IRU, in the GPU Telcom Territory, as well as the provisioning and
marketing of retail (but not wholesale) telecommunications services on a
facilities-based basis in the GPU Telcom Territory (together with the Initial
Business, the "Business"). Subject to the last sentence of Section 5.9, the
Members and their respective Affiliates may compete with the Company for all or
any portion of its business as provided in Section 17.2 and may construct,
install, own and operate Segregated Networks apart from the Business of the
Company.
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3.2 Expansion of Business. Telergy and GPU Telcom shall, to the extent
beneficial to both parties, (i) seek to extend and expand the Initial Business
beyond the GPU Telcom Territory to encompass additional territories, (ii)
explore the possibility of granting to each other, or causing the grant to each
other, of additional Indefeasible Rights of Use of Dark Fiber in each other's
networks and in additional territories and (iii) explore a joint marketing
arrangement with GPU Advanced Resources.
3.3 Interpretation. The provisions of this Article III shall be applied in
any interpretation of the rights and duties of Members, the Manager or the
Management Committee under Section 409 of the Act or under this Operating
Agreement, as provided in Article V. The authority granted to the Manager and
the Management Committee under this Operating Agreement or the Act to bind the
Company shall be limited to actions necessary or convenient to implement the
Business within any capital and operating budgets that may be adopted, and shall
be further limited as provided in Article V and the Articles of Organization.
3.4 Initial Budget. Within thirty (30) days after the Effective Date,
representatives of Telergy and GPU Telcom will together develop a business plan
and initial budget for submission to the Members for their approval. The budget
prepared pursuant to this Section 3.4 shall include an income statement prepared
on a tax basis and an accounting basis which shall show in reasonable detail the
revenues and expenses projected for the Company's business for the forthcoming
twelve (12) months and a cash flow statement which shall show in reasonable
detail the receipts and disbursements projected for the Company's business for
the forthcoming twelve (12) months, and the amount of any corresponding cash
deficiency or surplus, and the projected Capital Contributions of the Members,
if any, and any contemplated borrowings of the Company.
ARTICLE IV
IDENTITY OF MEMBERS
The names and addresses of the Members, their respective Economic
Interests, Voting Interests and their initial Capital Contributions are to be
set forth on a schedule maintained by the Manager at the Company's principal
office. The initial version of such schedule is attached hereto as Exhibit C.
Such schedule shall be modified from time to time to reflect changes thereto
made in accordance with this Operating Agreement and the Act and shall be made
available to any Member upon request.
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ARTICLE V
RIGHTS AND DUTIES OF THE MANAGER,
THE MANAGEMENT COMMITTEE AND THE MEMBERS
5.1 Manager. The Manager is charged with the responsibility for, and is
vested with the day-to-day authority to manage the ordinary course of the
Company's Business, and with the authority to spend funds of the Company, but
only as set forth herein, in each case subject to the overall supervision and
direction of the Management Committee, provided however that the Manager shall
not spend funds prohibited by this Operating Agreement or the Articles of
Organization, and shall obtain prior approval of the Members or the Management
Committee where expressly required by this Operating Agreement or by the Act.
5.2 Authority of the Manager.
(a) Prohibited Actions. The Manager shall not have authority to take any
of the following actions on behalf of the Company:
(i) knowingly do any act in contravention of this Operating
Agreement;
(ii) knowingly do any act which would make it impossible to carry on
the ordinary Business of the Company, except as otherwise provided in this
Operating Agreement;
(iii) cause the Company to voluntarily take any action that would
cause a Bankruptcy or dissolution of the Company.
(b) Permitted Transactions. The Manager is expressly authorized to conduct
the day-to-day activities of the Business of the Company and to negotiate and
execute any agreements necessary to carry out the Initial Business as may be
expanded by the Members from time to time, subject to the limitations contained
in Sections 5.1, 5.2, 5.3, 5.4 , 5.5 and 5.8.
5.3 Management Committee. The Company's Business shall be managed by a
management committee the members of which shall be appointed pursuant to the
provisions of Section 5.6 (the "Management Committee"). The Management Committee
shall have exclusive authority over the Manager and to manage the Company's
Business with respect to the matters set forth in Section 5.4 and to the extent
provided in this Operating Agreement or the Articles of Organization, except in
those cases in which approval of the Members is expressly required by this
Operating Agreement or by the Act.
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5.4 Authority of the Management Committee.
(a) Authorized Actions. Provided that the Management Committee has
obtained the unanimous vote or Consent from the Members for any capital
expenditures or Capital Contributions that may be required, the Management
Committee shall have authority to take any actions on behalf of the Company
which are not specifically reserved to the Members by this Operating Agreement,
the Articles of Organization or the Act, including, but not limited to the
following, except that in connection with any approval of the matters specified
in clauses (i), (ii), (iii), (v), (vi), (viii), (xiii) and (xiv), the unanimous
vote or Consent of the members of the Management Committee shall be required to
have the authority to act :
(i) modify the Initial Business of the Company and approve and amend
a business plan;
(ii) approve and amend budgets for capital expenditures authorized
by the Members and operating expenses, and the debt or Capital Contributions
authorized by the Members necessary to implement such budgets;
(iii) engage in acquisitions related to the business purpose of the
Company;
(iv) purchase, sell or lease real estate, except that the Manager
shall have authority to lease office space in New Jersey and Pennsylvania for
marketing staff;
(v) authorize distributions of property, or restrict distributions
of Distributable Cash to Members with respect to their relative Membership
Interests;
(vi) authorize the amount of indebtedness of the Company and its
debt to equity ratio ;
(vii) incur indebtedness for borrowed money on behalf of the Company
or refinance any such indebtedness of the Company;
(viii) issue notes, bonds, or other obligations or securing
obligations by mortgage or pledge of any of the Company's property or income, or
assume liabilities in any transaction by the Company;
(ix) confess a judgment against the Company, or release, settle or
compromise any claim or right in favor of the Company;
(x) create Reserves;
(xi) authorize transactions between the Company and the Members, or
any of their Affiliates so long as such transactions are on "arm's length"
terms;
(xiii) appoint independent auditors of the Company;
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(xiv) appoint a successor Manager;
(xv) authorize the expansion of the Company IRU and acquire
wholesale capacity in the GPU Telcom Territory provided that the Members
provides Capital Contributions or other funding mechanisms necessary to fund the
related capital costs;
(xvi) determine compensation, pay bonuses, establish or modify
pension, profit sharing, benefit or incentive plans in accordance with the terms
of any budget approved pursuant to Section 5.4(a)(ii) above; and
(xvii) determine the Fair Market Value for any assets of the
Company.
In the event the unanimous vote or Consent of the Management
Committee is required but is not obtained within sixty days from the date
the Manager or a member of the Management Committee requests such vote or
Consent, either Member shall be entitled to declare that a Stalemate
exists, and such Stalemate shall be submitted to each of the principal
executive officers of the Members to resolve as provided in Section 7.10
(b) Prohibited Actions. The Management Committee shall not have authority
to take any of the following actions on behalf of the Company, without the
unanimous vote or Consent of the Members:
(i) admit a new Member or a Substitute Member to the Company or
issue any interest in the Company;
(ii) sell or otherwise transfer all or substantially all of the
assets of the Company;
(iii) merge or consolidate the Company with or into any other entity
or effect a change of control of the Company;
(iv) dissolve or liquidate the Company;
(v) authorize capital expenditures or authorize indebtedness for
borrowed funds and require additional Capital Contributions by the Members other
than as may be approved by all of the Members;
(vi) amend this Operating Agreement or the Articles of Organization.
(vii) terminate the Construction Operating Agreement or the Billing
and Services Agreement with GPU Telcom and TNS, respectively.
5.5 Authority of the Members. The Members shall have the authority to take
any action for matters on which the Management Committee has failed to act or to
obtain an affirmative vote
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or Consent of a majority of the members of the Management Committee. A Permitted
Transferee or a Member who does not have a Voting Interest shall not have
authority to take any action to bind the Company.
5.6 Number, Tenure, and Qualifications of Manager, Members of the
Management Committee.
(a) The initial Manager of the Company shall be Brian Kelly
(hereinafter referred to as "Manager"); provided, however, that within
sixty (60) days of the Effective Date, the Members shall jointly select a
full-time Manager who will be a full-time employee of the Company. The
full-time Manager shall enter into an employment agreement with the
Company which includes such terms and conditions as may be mutually
acceptable to the Members. Each of the Members agree that neither it nor
any of its Affiliates will solicit for employment or employ, as an
employee or consultant, any full-time Manager during the term of such
Manager's employment by the Company for a period of one (1) year
thereafter (unless the Company is dissolved or a Member has withdrawn as
provided in Section 10.4.
(b) The Manager shall hold office until his, her or its respective
successor is appointed by the Management Committee making the initial
appointment as provided in this Section 5.6, unless the Manager resigns or
is removed under Section 5.7. The Management Committee shall be comprised
of three individuals, two of whom shall be designated by TNS and one of
whom shall be designated by GPU Telcom (the "GPU Telcom Representative").
The initial Management Committee shall be composed of the following
individuals: Brian P. Kelly and Kevin J. Kelly, who are the designees of
TNS, and David Brauer, who is the GPU Telcom Representative, each of whom
shall serve until his or her successor is appointed by the Member entitled
to make the appointment as provided in this Section 5.6, unless he or she
resigns or is removed under Section 5.7. TNS shall designate the Chairman
of the Management Committee, and the initial Chairman shall be Brian P.
Kelly.
(c) The parties agree that the costs associated with the time
Management Committee members expend on the Company shall not be reimbursed
by the Company but that the Management Committee members may be reimbursed
by the Company for all out-of-pocket expenses associated with Management
Committee activities, including, but not limited to, reasonable travel
expenses. Any vacancy in the office of the Manager created by removal or
resignation shall be filled by the Management Committee. Any vacancy in
the Management Committee created by removal or resignation of any of its
members shall promptly be filled by action of the Management Committee
entitled to appoint the member of the Management Committee whose removal
or resignation gave rise to the vacancy.
5.7 Removal and Resignation of the Manager and Members of the Management
Committee.
(a) Removal. The Manager may be removed at any time, with or without
cause, by
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unanimous vote or Consent of the Management Committee. Any member of the
Management Committee may be removed at any time, with or without cause, by
action of the Member who appointed such Management Committee member.
(b) Resignation. The Manager and any member of the Management Committee
may resign such position by giving written notice to each Member, and shall be
deemed to have resigned upon his or her death.
5.8 Duties of the Manager, Members of the Management Committee, and the
Members.
(a) The Manager, each member of the Management Committee, and each Member
shall exercise its or his or her powers and discharge its or his or her duties
in good faith with a view to the interests of the Company and its Members with
that degree of diligence, care, and skill that ordinarily prudent persons would
exercise under similar circumstances in like positions. The Manager, the members
of the Management Committee, and the Members may in all cases, if acting
reasonably and in good faith, rely upon financial statements of the Company that
were either certified in writing by an independent or certified public
accountant or firm of such accountants fairly to reflect the Company's financial
condition, or reported to such Manager, Management Committee member, or Member
to be correct by the Manager or Member having charge of the books of accounts of
the Company. A Manager or Management Committee member may not be held personally
liable for monetary damages for failure to discharge any duty as a Manager or
Management Committee, except as provided in Section 417 of the Act. A Member may
not held personally liable for monetary damages for failure to discharge any
duty as a Member unless the Member is found to have engaged in willful
misconduct or knowing violation of law.
(b) The Manager shall prepare and submit to the Management Committee for
unanimous approval or Consent by its members, capital expenditures and operating
budgets for the next Fiscal Year of the Company, and shall report to the
Management Committee on a regular basis with respect to the Company's actual
performance. Any capital expenditures budget and operating budget shall contain
a category for contingency items which may be spent at the discretion of the
Manager.
5.9 The Members of the Management Committee, and the Members Duties to
Company. Any Member and any member of the Management Committee (provided that
such activities do not violate or conflict with the terms of any written
agreement between the Company and a Management Committee member) may have other
business interests and may engage in other activities similar to and in addition
to those relating to the Company. Neither the Company nor any Member shall have
any right, by virtue of this Operating Agreement, to share or participate in
such other permitted investments or activities of any Management Committee
member or any Member or to the income or proceeds derived therefrom, including
the Segregated Networks. No Management Committee member, or Member shall incur
any liability to the Company or to any of the Members as a result of engaging in
any such other permitted business or venture. Notwithstanding the foregoing,
each of TNS and GPU Telcom agree that for so long as it is a Member under this
Agreement, neither it nor any of its Affiliates shall own a ten percent (10%) or
more voting or equity interest in, or manage or operate, any retail
telecommunications business
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other than the Company that engages in the Business in the GPU Telcom Territory,
provided however, that TNS shall be entitled to market and sell wholesale (but
not retail) telecommunications services and capacity, including leases and
conveyances by IRU of dark fiber strands, in the GPU Territory. Upon a
withdrawal of a Member following a Stalemate as provided in Section 10.4, no
restrictions shall apply to either party's business activities and each shall be
free to compete with the Company and with each other in the provisioning of all
forms of facilities-based and resale of telecommunications services on a
wholesale and retail basis.
5.10 Bank Accounts. The Manager may from time to time open bank accounts
in the name of the Company, and any officer or other designee of the Manager
shall be a signatory thereon, unless a majority of the members of the Management
Committee determines otherwise.
5.11 Indemnification of the Manager, Members of the Management Committee,
and Other Agents.
(a) General. The Company shall fully indemnify in all circumstances to the
extent not prohibited by law any person made, or threatened to be made, a party
to an action or proceeding whether civil or criminal, including an
investigative, administrative or legislative proceeding, including an action by
or in the right of the Company or any corporation, partnership, joint venture,
limited liability company, trust, employee benefit plan or other enterprise, of
any type or kind, domestic or foreign, by reason of that fact that such person,
his testator or intestate, is or was a Manager or member of the Management
Committee, or with the approval of a majority of the members of the Management
Committee is or was serving at the request of the Company, in any corporation,
partnership, joint venture, limited liability company, trust, employee benefit
plan or other enterprise of any type or kind, domestic or foreign, as a
director, officer or in any other capacity, against any and all judgments,
fines, amounts paid in settlement and expenses, including attorneys' fees,
actually or reasonably incurred as a result of or in connection with any such
action or proceeding or related appeal; provided, however, that no
indemnification shall be made to or on behalf of any Manager or member of the
Management Committee if a judgment or other final adjudication adverse to him
establishes that his acts were committed in bad faith or were the result of
active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled; and, the Company shall pay
expenses incurred by or on behalf of such a person in defending such a civil or
criminal action or proceeding (including appeals) in advance of the final
disposition of such action or proceeding promptly upon receipt by the Company,
from time to time, of a written demand of such person for such advancement,
together with an undertaking by or on behalf of such person to repay any
expenses so advanced to the extent that the person receiving the advancement is
ultimately found not to be entitled to indemnification for such expenses; and
the right to indemnification and advancement of defense expenses granted by or
pursuant to this Section 5.11 (i) shall not limit or exclude, but shall be in
addition to, any other rights which may be granted by or pursuant to any
statute, certificate of incorporation, by-law, resolution or agreement, (ii)
shall be deemed to constitute a contractual obligation of the Company to any
Manager or member of the Management Committee who serves in such capacity at any
time while this Section 5.11 is in effect, (iii) are intended to be retroactive
and shall be available with respect to events occurring prior to the adoption of
this Section 5.11, and (iv) shall continue to exist after the repeal
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or modification hereof with respect to events occurring prior thereto. It is the
intent of this Section 5.11 to require the Company to indemnify the persons
referred to herein for the aforementioned judgments, fines, amounts paid in
settlement and expenses, including attorneys' fees, in each and every
circumstance in which such indemnification could lawfully be permitted by an
express provision, and the indemnification required by this Section 5.11 shall
not be limited by the absence of an express recital of such circumstances.
(b) Insurance. The Company shall purchase and maintain insurance on behalf
of any person who is or was a Manager, or Management Committee member, and shall
have the power to purchase and maintain insurance on behalf of any person who is
or was an employee or agent of the Company, or is or was serving at the request
of the Company as a member, principal, director, officer, trustee, partner,
fiduciary, employee, or agent of another Entity, pension, or other employee
benefit plan or other enterprise, against any liability asserted against that
person and incurred by that person in any such capacity, or arising out of that
person's status as such, whether or not the Company would have the power to
indemnify that person against such liability under this Section 5.11.
ARTICLE VI
LIMITATION OF MEMBERS' LIABILITY AND PRIORITY
6.1 Limitation of Liability. Each Member's liability shall be limited as
set forth in this Operating Agreement, the Act, and other applicable law.
6.2 Deficit Capital Account. No Member shall have any liability to restore
all or any portion of a deficit balance in such Member's Capital Account. A
Member will not be personally liable for any debts or losses of the Company
beyond its respective Capital Contributions and any obligation of the Member
under Section 8.1 or 8.2 to make Capital Contributions, except as otherwise
required by law.
6.3 Priority and Return of Capital. Except as may be expressly provided in
this Agreement, no Member shall have priority over any other Member, either as
to the return of Capital Contributions or as to Net Profits, Net Losses, or
distributions; provided that this Section shall not apply to loans (as
distinguished from Capital Contributions) that a Member has made to the Company.
ARTICLE VII
MEETINGS
7.1 Member Meetings. Meetings of the Members may be called for any purpose
by a majority of the members of the Management Committee. The Members shall meet
at least annually.
7.2 Place of Member Meetings. The Person(s) calling a meeting pursuant to
Section 7.1
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may designate any place, within or outside the State of New York for any meeting
of the Members. If no designation is made, the place of meeting shall be the
principal executive office of the Company. The Members may meet, act and conduct
business through the use of teleconference or other similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time. Participation in such teleconference(s) shall constitute
presence in person at a meeting.
7.3 Notice of Member Meetings. Written notice stating the place, day, and
hour of the meeting and the purpose or purposes for which the meeting is called
shall be delivered not less than ten (10) nor more than sixty (60) days before
the date of the meeting, either personally, by mail, or facsimile, by the
Manager at the direction of the Person(s) calling the meeting, to each Member
entitled to vote at such meeting. The business transacted at each meeting of the
Members shall be limited to the purpose(s) stated in the notice of the meeting.
7.4 Meeting of All Members. If all of the Members meet at any time and
place and consent to the holding of a meeting at such time and place, such
meeting shall be valid without call or notice, and at such meeting lawful action
may be taken.
7.5 Quorum for Member Meetings. Members holding at least 75% of the Voting
Interests of all Members, represented in person or by proxy, shall constitute a
quorum at any meeting of Members.
7.6 Members' Manner of Acting. If a quorum is present, the affirmative
vote of Members holding a majority of the Voting Interests represented in person
or by proxy shall be the act of the Members, unless the vote of a greater or
lesser proportion or number is otherwise required by the Act, by the Articles of
Organization, or by this Operating Agreement. Unless otherwise expressly
provided herein or required under applicable law, Members who have an interest
(economic or otherwise) in the outcome of any particular matter presented to the
Members for a vote may vote or Consent upon any such matter and their Voting
Interest, vote or Consent, as the case may be, shall be counted in the
determination of whether the requisite matter was approved by the Members.
7.7 Member Proxies. At all meetings of Members a Member may vote in person
or by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the Manager before or at the
time of the meeting. No proxy shall be valid after eleven months from the date
of its execution, unless otherwise provided in the proxy.
7.8 Action by Members Without a Meeting. Action required or permitted to
be taken at a meeting of Members may be taken without a meeting if the action is
evidenced by one or more written Consents describing the action taken, signed by
a sufficient number of Members or Members holding the requisite Voting
Interests, as applicable, whose vote is necessary for the taking of the action
described therein and delivered to the Manager for inclusion in the minutes or
for filing with the Company records. Action taken under this Section is
effective when Members in the requisite number or holding the requisite Voting
Interests, as applicable, have signed the Consent, unless the Consent specifies
a different effective date.
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7.9 Waiver of Notice for a Member Meeting. When any notice is required to
be given to any Member, a waiver thereof in writing signed by the Member
entitled to such notice, whether before, at, or after the time stated therein,
shall be equivalent to the giving of such notice. Attendance at any meeting
shall constitute a waiver of notice unless there has been made a proper
objection to the meeting or to the items that are to be discussed.
7.10 Stalemate or Impasse by the Members. In the event the Members are
unable to get a quorum for a meeting or are deadlocked on any issue, a Member
may declare that a Stalemate exists and shall submit the same to be resolved by
appeal to the principal executive officers of the Members who shall then attempt
to resolve the Stalemate within ten (10) days of submission of the matter to
them In the event the Members' principal executive officer cannot resolve the
Stalemate within such 10 day period, the matter need not be submitted again to
the Members for a vote and the provisions of Section 10.4 shall apply.
7.11 Management Committee Meetings. Meetings of the Management Committee
may be called for any purpose by one or more members of the Management
Committee. The Management Committee shall meet at least monthly, and at such
other times and at such places as the Management Committee determines.
7.12 Notice of Management Committee Meetings. Written notice stating the
date, time, and the purpose or purposes of the meeting shall be delivered to
each member of the Management Committee at least five (5) business days prior to
the meeting. The business transacted at each meeting of the Management Committee
is limited to the purpose(s) stated in the notice of the meeting.
7.13 Location and Conduct of the Management Committee Meetings;
Adjournments.
(a) Each meeting of the Management Committee will be held at the Company's
principal executive office or at some other location agreed to by the Management
Committee.
(b) The Chairman of the Management Committee will preside over all
meetings of the Management Committee.
(c) Any meeting of the Management Committee may be adjourned from time to
time to another date and time or to another place. If at the time of adjournment
the Chairman announces the date, time, and place at which the meeting will be
reconvened, it is not necessary to give any further notice of the reconvening.
(d) Any one or more of the members of the Management Committee may
participate in a meeting of the Management Committee by means of a
teleconference or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
7.14 Waiver of Notice for a Management Committee Meeting.
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(a) A member of the Management Committee may waive notice of the date,
time, place, and purpose or purposes of a meeting of the Management Committee. A
waiver may be made before, at, or after the meeting, in writing, orally, or by
attendance.
(b) Attendance by a member of the Management Committee at a meeting is a
waiver of notice of that meeting, unless such member objects at the beginning of
the meeting to the transaction of business because the meeting is not properly
called or convened, or objects before a vote on an item of business because the
item may not properly be considered at that meeting and does not participate in
the consideration of the item at that meeting.
7.15 Management Committee Proxies. A member of the Management Committee
may cast or authorize the casting of a vote by filing a written appointment of a
revocable proxy with the Company at or before the meeting at which the
appointment is to be effective. Such member may sign or authorize the written
appointment by facsimile, or other means of electronic transmission stating, or
submitted with information sufficient to determine, that such member authorized
the transmission. Any copy, facsimile, telecommunication, or other reproduction
of the original of either the writing or the transmission may be used in lieu of
the original, if it is a complete and legible reproduction of the entire
original.
7.16 Management Committee Manner of Acting. If a quorum is present, the
affirmative vote of a majority of the members of the Management Committee
represented in person or by proxy shall be act of the Management Committee,
unless a unanimous vote is required by this Agreement. Unless otherwise
expressly provided herein or required under applicable law, members of the
Management Committee representing a Member who has an interest in the outcome of
any particular matter presented to the Management Committee for a vote may vote
or Consent upon any such matter. Their vote shall be counted in the
determination of whether the requisite matter was approved by the Management
Committee.
7.17 Quorum for Management Committee Meetings. In the event the Management
Committee is unable to get a quorum for a meeting or is deadlocked on any issue,
a member may request that the Stalemate or impasse be resolved by appeal to the
principal executive officers of the members who shall then attempt to resolve
the Stalemate or impasse. In the event the members' principal executive officers
cannot resolve the Stalemate or impasse, the matter need not be submitted again
to the Management Committee for a vote.
7.18 Quorum for Management Committee Meetings. For any meeting of the
Management Committee, a quorum consists of a majority of the members of the
Management Committee present in person or by proxy.
7.19 Action by Management Committee Without a Meeting. Any action required
or permitted to be taken at a meeting of the Management Committee may be taken
without a meeting by written Consent signed by the members of the Management
Committee required hereunder for such action. The written Consent is effective
when signed by such members of the Management Committee, unless a different
effective time is provided therein.
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ARTICLE VIII
CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
8.1 Members' Initial Capital Contributions.
(a) TNS shall contribute up to $4,000,000 to the Company as an initial
Capital Contribution, which amount shall be funded when and as requested by the
Manager, to fund the start up costs of the Initial Business including without
limitation the leasing of office space in New Jersey and Pennsylvania for
marketing staff, and the initial working capital requirements of the Company for
start-up costs such as expenses related to licenses and authorizations and
Regulatory Approvals, and to market telecommunications services on a resale
basis. In connection with the Initial Business of resale marketing, TNS will
design and implement a marketing campaign and the Manager will lease or
otherwise obtain space for sales offices in New Jersey and in Pennsylvania, and
TNS will assist the Company in the deployment of a direct sales team comprised
of employees of the Company into the GPU Telcom Territory. TNS shall not be
required to make any other Capital Contributions or otherwise fund the Business
of the Company, including but not limited to any requirement to fund the Company
IRU, the ongoing working capital requirements of the Company, the marketing of
telecommunications products and services on behalf of the Company as a
facilities-based provider, or otherwise fund the Business of the Company unless
it agrees to do so in its capacity as a Member.
(b) In connection with the Initial Business of resale marketing, GPU
Telcom will assign one or more customer service representatives familiar with
GPU Telcom's business activities to be employed by the Company at each of the
New Jersey and Pennsylvania offices. For a period of six (6) months from the
Effective Date, GPU Telcom shall make an employee available to the Company (at
the Company's expense) to handle financial, operational and other administrative
matters relating to the commencement of the Initial Business. GPU Telcom shall
not be required to make any Capital Contributions or otherwise fund the Business
of the Company, including but not limited to any requirement to fund the Company
IRU, the ongoing working capital requirements of the Company, the marketing of
telecommunications products and services on behalf of the Company on a resale
basis or as a facilities-based provider, or otherwise fund the Business of the
Company unless it agrees to do so in its capacity as a Member.
8.2 Additional Capital Contributions. Each Member shall be obligated to
contribute the amount of capital as authorized by the unanimous vote or Consent
of the Members.
(a) No Member shall be required to make any Capital Contribution in
addition to those contemplated by Section 8.1(a) or 8.2(b). In the event the
Members are required to make additional Capital Contributions as authorized by
the decision of the Members unanimous vote or Consent, the Members shall
participate in such additional Capital Contributions on a pro rata basis in
accordance with their Economic Interests. No additional Capital Contributions
may be made other than in cash without the approval of the Members. In the event
one Member makes additional Capital Contributions in accordance with this
Agreement and with the Consent of the other
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Member, the non-contributing Member's Economic Interest shall be diluted as
agreed to by the Members.
(b) Notwithstanding anything to the contrary contained in this Agreement,
including but not limited to Sections 8.1 and 8.2, in the event that the Manager
or the Management Committee reasonably determines that the Company's cash
reserves and reasonably anticipated revenues are less than is needed to satisfy
its existing liabilities or its budgeted needs for capital expenditures and
working capital during the succeeding twelve (12) months, the Manager, either
Member or the Management Committee shall be empowered to seek approval from the
Members (i) for additional Capital Contributions that are sufficient in the
reasonable judgment of the Manager or the Management Committee to fund the
anticipated shortfall, which approval may be withheld by either Member for any
or no reason, provided however that the failure by either GPU Telcom or TNS to
provide funds sought pursuant to this paragraph shall entitle either Member to
declare a Stalemate which shall be resolved in accordance with the provisions of
Section 7.10 and/or (ii) to obtain loans from third parties or any Member on
commercially reasonable terms.
8.3 Other Contributions. TNS and GPU Telcom shall contribute their
expertise, name recognition, customer contacts and other intangible assets to
the Company to facilitate the Business of the Company. GPU Telcom hereby
authorizes the Company's use of the GPU Telcom name and reputation in marketing
to customers in the GPU Telcom Territory and to access GPU Telcom customers to
market telecommunications services; provided however, that GPU Telcom shall be
entitled to review and must approve any marketing materials (including written
materials or any prepared script used in oral presentations and subsequently
distributed in writing) that include the GPU Telcom name prior to the use of
such materials by the Company; and provided further that the Company shall not
make any use of the GPU Telcom name that would be reasonably likely to have a
material, detrimental or adverse impact on GPU or any of its Affiliate's
reputation or standing in the business community or their respective
relationship with any regulatory body. Upon receipt by the Company of adequate
revenues or other funding by the Members to pay for the Company IRU under the
Construction Operating Agreement, and upon such payment by the Company to GPU
Telcom for the Company IRU as provided in the Construction Operating Agreement,
GPU Telcom shall deliver the Company IRU and upon such delivery the Company then
shall commence providing facilities-based telecommunications products and
services in the GPU Telcom Territory and the Company or both Members (rather
than TNS alone) shall fund the marketing to customers of facilities-based
telecommunications services on a retail basis, which shall include compensating
TNS for performing certain billing and other services for the Company pursuant
to the Billing and Services Agreement. Neither party shall charge the Company or
be entitled to a credit to their respective Capital Accounts for the intangible
assets contributed hereunder.
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8.4 Capital Accounts.
(a) A separate Capital Account shall be maintained for each Member in
accordance with the capital accounting rules of Section 704(b) of the Code. The
beginning balance in each Member's Capital Account shall be the amount of such
Member's initial Capital Contribution made pursuant to Section 8.1. Thereafter,
a Member's Capital Account shall be increased by (i) the amount of any
subsequent Capital Contribution to the Company by such Member; (ii) such
Member's allocable share of Net Profit and items in the nature of income or gain
which are allocated pursuant to Section 9.2; and (iii) such other amounts as may
be required for the Capital Account to be determined and maintained in
accordance with the rules of Section 1.704-1(b)(2)(iv) of the Treasury
Regulations (including Section 1.704-1(b)(2)(iv)(g) thereof). A Member's Capital
Account shall be decreased by (i) such Member's allocable share of Net Loss and
items in the nature of loss or deduction allocated pursuant to Section 9.2; (ii)
the amount of cash or the Fair Market Value of any property distributed from the
Company to such Member (reduced by the amount of debt, if any, assumed by such
Member in connection with the distribution); and (iii) such other amounts as may
be required for the Capital Account to be determined and maintained in
accordance with the rules of Section 1.704-1(b)(2)(iv) of the Treasury
Regulations (including Section 1.704-1(b)(2)(iv)(g) thereof). It is the parties'
specific intent that Capital Accounts shall be maintained in accordance with the
capital account maintenance rules contained in section 704(b) of the Code,
including the Treasury Regulations thereunder, and this Section 8.4(a) shall be
construed and applied to achieve such result.
(b) Upon liquidation of the Company (or any Member's Membership Interest),
liquidating distributions will be made in accordance with the positive Capital
Account balances of the Members and in accordance with Section 12.3 after taking
into account all Capital Account adjustments for the Company's Fiscal Year
during which the liquidation occurs.
8.5 Withdrawal or Reduction of Members' Contributions to Capital.
(a) A Member shall not receive out of the Company's property any part of
its Capital Contribution until all liabilities of the Company have been paid.
(b) A Member, irrespective of the nature of its Capital Contribution, has
only the right to receive cash in return for its Capital Contribution, except
for liquidation distributions under Section 12.
(c) A Member may not withdraw from the Company or assign its Membership
Interest or Economic Interest prior to the dissolution and winding up of the
Company, except as provided in Article X.
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ARTICLE IX
ALLOCATIONS, INCOME TAX, DISTRIBUTIONS,
ELECTIONS, AND REPORTS
9.1 Allocations of Profits and Losses from Operations. The Net Profits of
the Company for each Fiscal Year shall be allocated between the Members in
proportion to the Economic Interests held by Members. The Net Losses shall be
allocated between the Members in proportion to their Economic Interests;
provided, however, that if a Member's Capital Account is reduced to zero (0),
any additional Net Losses shall be allocated to the other Member until its
Capital Account is reduced to zero (0).
9.2 Special Allocations to Capital Accounts and Certain Other Income Tax
Allocations. Notwithstanding Section 9.1 hereof:
(a) In the event any Member unexpectedly receives any adjustments,
allocations, or distributions described in Sections 1.704-1(b)(2)(ii)(d)(4),
(5), or (6) of the Treasury Regulations, which create or increase a Deficit
Capital Account of such Member, then items of Company income and gain
(consisting of a pro rata portion of each item of Company income, including
gross income, and gain for such taxable year and, if necessary, for subsequent
years) shall be specially allocated to such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury Regulations, the
Deficit Capital Account so created as quickly as possible. It is the parties'
intent that this Section 9.2(a) be interpreted to comply with the alternate test
for economic effect set forth in Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations.
(b) In the event any Member would have a Deficit Capital Account at the
end of any Company taxable year which is in excess of the sum of any amount that
such Member is obligated to restore to the Company under Section
1.704-1(b)(2)(ii)(c) of the Treasury Regulations and such Member's share of
minimum gain as defined in Section 1.704-2(g)(1) of the Treasury Regulations
(which is also treated as an obligation to restore in accordance with Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations), the Capital Account of such
Member shall be specially credited with items of Company income (including gross
income) and gain in the amount of such excess as quickly as possible.
(c) Notwithstanding any other provision of this Section 9.2, if there is a
net decrease in the Company's minimum gain as defined in Treasury Regulation
Section 1.704-2(d) during a taxable year of the Company, then the Capital
Accounts of each Member shall be allocated items of income (including gross
income) and gain for such taxable year (and if necessary for subsequent years)
equal to that Member's share of the net decrease in Company minimum gain. This
Section 9.2(c) is intended to comply with the minimum gain charge-back
requirement of Section 1.704-2 of the Treasury Regulations and shall be
interpreted consistently therewith. If in any taxable year that the Company has
a net decrease in the Company's minimum gain, if the minimum gain charge-back
requirement would cause a distortion in the economic arrangement among the
Members and it is not expected that the Company will have sufficient other
income to correct that distortion, the Tax Matters Member may in its discretion
(and shall, if requested to do so by a Member) seek to have
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the Internal Revenue Service waive the minimum gain charge-back requirement in
accordance with Treasury Regulation Section 1.704-2(f)(4).
(d) Items of Company loss, deduction, and expenditures described in
Section 705(a)(2)(B) of the Code that are attributable to any non-recourse debt
of the Company and are characterized as partner (Member) non-recourse deductions
under Section 1.704-2(i) of the Treasury Regulations shall be allocated to the
Members' Capital Accounts in accordance with said Section 1.704-2(i) of the
Treasury Regulations.
(e) Beginning in the first taxable year in which there are allocations of
"nonrecourse deductions" (as described in Section 1.704-2(b) of the Treasury
Regulations), such deductions shall be allocated to the Members in the same
manner as Net Profit or Net Loss is allocated for such period.
(f) In accordance with Section 704(c)(1)(A) of the Code and Section
1.704(b)(2)(i)(iv) of the Treasury Regulations, if a Member contributes property
with a fair market value that differs from its adjusted basis at the time of
contribution, income, gain, loss, and deductions with respect to the property
shall, solely for federal income tax purposes (and not for Capital Account
purposes), be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to the Company and its fair market
value at the time of contribution.
(g) Any credit or charge to the Capital Accounts of the Members pursuant
to Sections 9.2 (a), (b), (c), (d), and/or (e) hereof shall be taken into
account in computing subsequent allocations of Net Profits and Net Losses
pursuant to Section 9.1, so that the net amount of any items charged or credited
to Capital Accounts pursuant to Sections 9.1 and 9.2 (a), (b), (c), (d), and/or
(e) shall to the extent possible, be equal to the net amount that would have
been allocated to the Capital Account of each Member pursuant to the provisions
of this Article IX if the special allocations required by Sections 9.2 (a), (b),
(c), (d), and/or (e) hereof had not occurred.
9.3 Distributions. All distributions of Distributable Cash and property
shall be made to the Members in proportion to the percentages of their Economic
Interests on the record date of such distribution. Except as provided in Section
9.4 and except as restricted by a majority of the members of the Management
Committee as provided in Section 5.4(a)(v), all Distributable Cash shall be paid
to the Members periodically throughout the Fiscal Year during which it was
earned or otherwise received by the Company. The final payment of Distributable
Cash determined for each Fiscal Year shall be no later than March 30 following
the end of such Fiscal Year. The Management Committee shall use its best efforts
to authorize payments of Distributable Cash at such times as to enable each
Member to pay its federal and state income taxes determined at the highest
effective tax rate attributable to its share of the Company's taxable income.
Except as provided in Section 9.4, all distributions of property shall be made
at such time as determined by a majority of the members of the Management
Committee as provided in Section 5.4(a)(v).
9.4 Limitation Upon Distributions. No distribution shall be declared and
paid if, in the determination of a majority of the members of the Management
Committee after giving effect to the distribution:
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(a) the Company would not able to pay its debts as they become due in the
usual course of business; or
(b) all liabilities of the Company, other than liabilities for which the
recourse of creditors is limited to specified property of the Company, would
exceed the fair value of the Company's assets, except that the fair value of
property that is subject to a liability for which the recourse of creditors is
limited shall be included in the Company's assets only to the extent the fair
value of that property exceeds that liability.
As contemplated by Section 508 of the Act, the members of the
Management Committee may base the determination under this Section on either:
(a) financial statements prepared on the basis of accounting practices and
principles that are reasonable under the circumstances; or
(b) a fair valuation or other method that is reasonable under the
circumstances.
The members of the Management Committee shall make their
determination under this Section and authorize any distribution under Section
9.3 in accordance with the standards of Section 508 of the Act.
9.5 Accounting Principles. The Net Profits and Net Losses of the Company
shall be determined as provided in Section 1.38 using the accrual method of
accounting applied on a consistent basis.
9.6 Interest On Capital Contributions. No Member shall be entitled to
interest on its Capital Contribution, except as otherwise specifically provided
for in this Agreement.
9.7 Accounting Period. The Company's accounting period shall be the Fiscal
Year.
9.8 Books of Account and Records. At the expense of the Company, the
Manager shall maintain and preserve records and accounts of all operations and
expenditures of the Company for the length of time thereafter as may be required
to meet the records retention requirements of any taxing or regulatory body
having direct or indirect jurisdiction over all accounts, books, and other
relevant Company documents. The books of account shall accurately reflect all
transactions and other matters relating to the Company's business in such detail
and completeness as is customary and usual for businesses of the type engaged in
by the Company. As contemplated by Section 1102 of the Act, at a minimum the
Company shall keep at its principal place of business the following records and
shall be prepared to make such records available to regulatory agencies as may
be required by law:
(a) a current list and a past list with the full names and last known
mailing addresses of each Member and each member of the Management Committee;
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(b) a copy of the Articles of Organization and all amendments thereto;
(c) copies of the Company's federal, state, and local income tax returns
and financial statements for the six most recent years;
(d) copies of the current and all prior Operating Agreements of the
Company, including all amendments thereto;
(e) a writing setting forth the amount of cash and the Fair Market Value
of property or services contributed by each Member;
(f) copies of any separate agreements pertaining to a Member's obligation
to contribute cash, property, or services; and
(g) minutes of meetings of the Members, the Management Committee, or the
Manager and any written consents obtained from Members, the Management
Committee, or the Manager in lieu of a meeting; and
(h) such other records as the Management Committee deems appropriate.
Upon reasonable advance notice to the Manager, each Member shall have the
right, during ordinary business hours, to inspect and copy such Company
documents at the requesting Member's expense, subject to the Confidentiality
provision in Section 17.16; provided, however, that the Manager shall be
authorized, in its discretion, to withhold from or to restrict or condition the
access of one or more Members to information of the Company as and to the extent
contemplated by Section 1102 (c) of the Act.
9.9 Returns and other Elections. The Manager shall cause the preparation
and timely filing of all tax returns required to be filed by the Company
pursuant to the Code and all other tax returns deemed necessary and required in
each jurisdiction in which the Company does business. Copies of such returns, or
pertinent information therefrom, shall be furnished to the Members within a
reasonable time after the end of the Company's Fiscal Year. All elections
permitted to be made by the Company under federal or state laws shall be made by
the Tax Matters Member, provided that the Tax Matters Member shall make any tax
election requested by the Management Committee or by a unanimous vote or Consent
of the Members.
9.10 Statements and Reports.
(a) As soon as practicable, but in no event later than ninety (90) days
after the end of each Fiscal Year, the Manager 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 above. 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 the
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unanimous vote or Consent of the Members in accordance with Section
5.4(a)(xiii), and the cost of preparing the statements and of each such audit
will be paid for by the Company.
(b) 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
forty-five (45) days following the end of the fiscal quarter.
(c) Monthly 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 month, but in no event later than fourteen (14) days
following the end of each month.
(d) The Manager will gather and report information as the Members may
reasonably require to enable the Members to satisfy any applicable regulatory
requirements to which the Members may be subject.
ARTICLE X
TRANSFERABILITY
10.1 General. Except as otherwise specifically provided in this Article X,
without the unanimous vote or Consent of the Members, a Member shall not have
the right to sell, assign, transfer, exchange, or otherwise transfer
(collectively, "Transfer"), whether or not by operation of law, all or any part
of its Membership Interest.
Notwithstanding the foregoing, a unanimous vote or Consent of the Members
shall not be required in order for a Member to Transfer all or any part of its
Membership Interest, and it shall be permissible for a Member to Transfer all or
part of its Membership Interest and this Agreement, to any direct or indirect
parent that wholly-owns the Member or to any wholly-owned direct or indirect
subsidiary thereof, or in connection with any merger or consolidation to which
the Member or its parent is the surviving and controlling party. Provided
further, in the event of a Transfer by a Member to any such parent or
wholly-owned direct or indirect subsidiary or a Transfer that may occur in
connection with any merger or consolidation where the Member or its parent is
the surviving and controlling party, the right of first refusal provisions of
Section 10.2 shall not apply.
Each Member hereby acknowledges the reasonableness of the restrictions on
Transfer of Membership Interests imposed by this Operating Agreement in view of
the Company's purposes and the relationship of the Members. Accordingly, the
restrictions on Transfer contained in this Article X shall be specifically
enforceable.
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10.2 Right-of-First Offer.
(a) A Member (the "Selling Member") that desires to sell its Economic
Interest in the Company to a qualified third party purchaser shall at least
thirty (30) days prior to effecting a Transfer, deliver a written notice to the
other Member stating the terms and conditions upon which the sale is to be made
and the consideration offered therefor. The other Member shall have the right to
purchase all (but not less than all) of the Membership Interest proposed to be
sold by the Selling Member upon the same terms and conditions as stated in the
aforesaid written notice of intention to sell by giving written notice to the
Selling Member of its intention to purchase the Selling Member's Membership
Interest within thirty (30) days after receipt by such other Member of written
notice from the Selling Member. The offer to sell shall be irrevocable during
the thirty (30) day period. If the non-selling Member fails to so notify the
Selling Member of its exercise of this right to purchase within said period, the
right to purchase as to such offer shall terminate and the Selling Member shall
be entitled to consummate the Transfer of its Membership Interest in the Company
to a third party purchaser on the terms set forth in the notice given to the
non-selling Member.
In the event the non-selling Member gives written notice to the Selling
Member of its exercise of this right to purchase all of the Selling Member's
Membership Interest in the Company, the non-selling Member shall have the right
to designate the time, date, and place of closing, provided that the date of
closing shall be within the later of sixty (60) days after the written notice of
acceptance by the non-selling Member or sixty (60) days of receipt of any
required regulatory approval for such transfer; provided, however, that the
non-selling Member shall be required to file for any such regulatory approval
within five (5) days of its written notice of acceptance. If the non-selling
Member fails to so file for any required regulatory approval within such five
(5) day period or fails to close within such sixty (60) day period, the right to
purchase shall terminate and the Selling Member shall be entitled to consummate
the transfer of its Membership Interest in the Company to a third party
purchaser on the terms set forth in the notice given to the non-selling Member.
(b) The third party purchaser shall become a Permitted Transferee of the
Selling Member's Membership Interest in the Company and as a condition to
recognizing the effectiveness and binding nature of any such sale as against the
Company or otherwise, the non-transferring Member may require the Selling Member
and the Permitted Transferee to execute, acknowledge, and deliver to the Company
such instruments of transfer, assignment, and assumption and such other
certificates, representations, and documents, and to perform all such other
acts, which the non-transferring Member may reasonably deem necessary or
desirable to:
(i) constitute such purchaser as a Permitted Transferee;
(ii) confirm that the Permitted Transferee has accepted, assumed,
and agreed to be subject to and bound by all of the terms, obligations, and
conditions of the Operating Agreement, as the same may have been further
amended;
(iii) preserve the status of the Company as a foreign or domestic
limited liability
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company after the completion of such sale, under the laws of each jurisdiction
in which the Company is qualified, organized, or does business;
(iv) maintain the status of the Company as a partnership for federal
tax purposes; and
(v) assure compliance with any applicable state and federal laws,
including, without limitation, securities laws and regulations.
10.3 Transfers by Operation of Law.
(a) In the event that a Member or Permitted Transferee (i) files a
voluntary petition under any bankruptcy or insolvency law, or a petition for the
appointment of a receiver, or makes an assignment for the benefit of creditors,
or (ii) is subjected involuntarily to such a petition or assignment, or to an
attachment or other legal or equitable interest with respect to its Membership
Interest, and such involuntary petition or assignment, or attachment or other
legal or equitable interest is not discharged within ninety (90) days after its
date, or (iii) is otherwise subject to a transfer of its Membership Interest by
operation of law or pursuant to judicial decree or settlement of judicial
proceedings, (any of the foregoing being a "Bankruptcy" and the Member or
Permitted Transferee being the "Bankrupt Person"), then in such event the
Bankrupt Person shall have only an Economic Interest in the Company, and shall
have no right to vote or participate in management of the Company or to
designate the Manager or members of the Management Committee, and shall be
deemed to have offered to sell all of its Economic Interest to the other Member
as provided in this Section 10.3. Such offer of sale shall be irrevocable for a
period of ninety (90) days from the date on which the other Member first learned
of the event which gave rise to the Bankruptcy, and within said time period the
other Member may, by delivering a written notice of acceptance to the Bankrupt
Person, accept the offer in respect of all, but not less than all, of said
Economic Interest. If the other Member does not notify the Bankrupt Person of
its decision to purchase the Economic Interest within the applicable ninety (90)
day offering period, said offer to sell shall be deemed not to have been
accepted by the other Member.
(b) The purchase price at which the other Member may elect to purchase an
Economic Interest in accordance with the provisions of this Section 10.3 shall
be the Fair Market Value of the Bankrupt Person's Economic Interest.
(c) If the other Member elects to purchase an Economic Interest in
accordance with the provisions of this Section 10.3, transfer of the Economic
Interest shall be made at the office of the Company on a mutually satisfactory
business day within the later of thirty (30) days of acceptance of the offer to
sell by the other Member or thirty (30) days of receipt of any required
regulatory approvals for such transfer. Delivery of instruments evidencing such
transfer to the other Member, shall be made upon receipt by the Bankrupt Person
of cash representing the aggregate purchase price for the Economic Interest , or
at the option of the purchaser, cash representing 20% of the aggregate purchase
price for the Economic Interest plus a three-year note for the balance of the
purchase price.
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10.4 Stalemate and Right of Redemption.
(a) Upon the occurrence of a Stalemate, each Member shall use good faith
efforts to resolve the dispute giving rise to the Stalemate in accordance with
Section 7.10 or Section 7.17. If such Stalemate has not been resolved within ten
(10) days of its submission to the Members' principal executive officers (the
"Stalemate Date"), each of TNS and GPU Telcom shall then negotiate in good faith
to achieve a mutually agreeable purchase and sale arrangement at Fair Market
Value such that one Member would thereafter own all of the Membership Interests
in the Company. If the Stalemate Date has occurred on or after the two (2) year
anniversary of the Effective Date, and the Members are not able to negotiate a
purchase and sale arrangement within thirty (30) days after the Stalemate Date,
either Member may, for a period of ninety (90) days thereafter, subject to the
provisions of Section 10.2, seek to obtain a bona fide third party purchaser for
its Membership Interest and consummate a sale. If neither Member consummates a
sale, then each of TNS and GPU Telcom shall have the right, exercisable at any
time thereafter (provided that such Stalemate is continuing at the time of such
exercise) by delivery of written notice (the "Withdrawal Notice") to the other
Member, to elect for the Company to redeem GPU Telcom's Membership Interest in
the Company. The date of such notice shall hereinafter be referred to as the
"Withdrawal Date".
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In the event that a Member elects for GPU Telcom to withdraw from the
Company pursuant to this Section 10.4, the Company shall redeem the entire
Membership Interest of GPU Telcom in accordance with the following procedures:
(i) The Company shall distribute to GPU Telcom an IRU in 49% of the
available and unused dark fiber strands in the Company IRU. Upon a
distribution of said IRU to GPU Telcom, GPU Telcom's Membership Interest,
including its Economic Interest, in the Company shall terminate.
(ii) If GPU Telcom is a regulated telephone company as of the
Withdrawal Date (or if GPU Telcom designates a regulated telephone company
to receive the assets to be distributed pursuant to this Section
10.4(a)(ii) (a "Designated Purchaser"), then following receipt of any
necessary Regulatory Approval received within nine (9) months of the
Withdrawal Date, GPU Telcom (or the Designated Purchaser) shall be
distributed from the Company 49% of the customers utilizing the Company
IRU (provided the customers agree to such transfer), facilities, business
and assets of the Company attributable to the Economic Interest of GPU
Telcom (or the Designated Purchaser) as of the Withdrawal Date; provided,
however, that the Company shall continue as a party to the Construction
Operating Agreement.
(iii) The Company IRU distributed pursuant to Section 10.4(a)(i)
shall be terminated when the distributions are made pursuant to Section
10.4(a)(ii). The petition, if any, to the appropriate Public Service or
Public Utility Commissions required by Section 10.4(a)(i) shall be made as
soon as possible at GPU Telcom's sole cost and expense following the
Withdrawal Date. The Company shall retain rights under the Construction
Operating Agreement and the GPU ROW to the extent set forth therein, to
(x) expand the Company's network and (y) to construct and install
Segregated Networks, respectively, in the GPU Telcom Territory
(iv) In the event, GPU Telcom fails to obtain any Regulatory
Approval required in order for the Company to make the distributions under
10.4(a)(ii) within nine months from the Withdrawal Date, GPU Telcom shall
retain the IRU distributed pursuant to 10.4(a)(i) for the term of the
Company IRU, and GPU Telcom shall not be entitled to any further
distributions from the Company or TNS.
(v) TNS agrees to provide GPU Telcom assistance and training on
agreed upon terms to assist GPU Telcom in developing independent sales,
marketing and product development expertise in the provision of retail
telecommunications services and to obtain any necessary Regulatory
Approvals required for any transfer contemplated by this Section 10.4.
10.5 Pledge. TNS and GPU Telcom each may pledge, hypothecate or mortgage
their respective Economic Interests to secure their respective obligations or to
guarantee indebtedness of the Company. The Manager shall be entitled to pledge
the assets of the Company in connection with financing to the extent authorized
by the unanimous vote or Consent of the Members.
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10.6 Effecting a Transfer. The Transferring Member agrees, upon request of
the non-transferring Member, to execute such certificates or other documents and
perform such other acts as may be reasonably requested by the non-transferring
Member from time to time in connection with such Transfer or redemption of a
Membership Interest or Economic Interest. A Member who Transfers or purports to
Transfer a Membership Interest or Economic Interest in violation of this Article
X hereby indemnifies the Company and the remaining Member against any and all
loss, damage, or expense (including, without limitation, tax liabilities or loss
of tax benefits) arising directly or indirectly as a result of such Transfer or
purported Transfer.
10.7 Admission of Substitute Member. The Permitted Transferee shall be
admitted to the Company as a Substitute Member so long as the Substitute Member
shall agree in writing to be bound by the terms of this Agreement and shall have
all the rights and obligations associated with a Membership Interest, including
in particular the right to vote and participate in the management and affairs of
the Company as permitted by this Agreement in accordance with the Voting
Interest of the Transferring Member, the Act and other applicable laws.
ARTICLE XI
ADDITIONAL MEMBERS OR PERMITTED TRANSFEREES
No new Member, Permitted Transferee or Substitute Member shall be entitled
to any retroactive allocation of losses, income, or expense deductions incurred
by the Company. The Manager may, at its option, close the Company books (as
though the Company's tax year had ended) or make pro rata allocations of loss,
income, and expense deductions to a new Member, Permitted Transferee or
Substitute Member for that portion of the Company's Fiscal Year in which it held
a Membership Interest or Economic Interest in accordance with the provisions of
Section 706(d) of the Code and the Treasury Regulations promulgated thereunder.
ARTICLE XII
DISSOLUTION AND TERMINATION
12.1 Dissolution.
(a) The Company shall be dissolved upon the occurrence of any of the
following events:
(i) the unanimous vote or Consent of Members to dissolve the
Company; or
(ii) the sale or other disposition of all or substantially all of
the assets of the Company, or the permanent cessation of the Company's business
operations; or
(iii) the Bankruptcy of a Member, unless within the next one hundred
eighty (180) days of the Bankruptcy the Company is continued by the Consent of
the other Member.
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(b) As soon as possible following the occurrence of any of the events
specified in this Section 12.1 effecting the dissolution of the Company (and if
pursuant to Section 12.1(a)(iii) where the other Member does not Consent to
continue the Business of the Company), the appropriate representative of the
Company shall execute Articles of Dissolution in such form as shall be
prescribed by the Act and file same with the office of the Secretary of State.
12.2 Effect of Filing Articles of Dissolution. Upon the filing of Articles
of Dissolution with the Secretary of State, the Company shall cease to carry on
its business, except insofar as may be necessary for the winding up of its
business.
12.3 Winding Up, Liquidation, and Distribution of Assets.
(a) Upon dissolution, the Manager shall immediately proceed to wind up the
affairs of the Company in accordance with the requirements of the Act and other
applicable law. In furtherance of the winding up of the Company, the Manager
shall:
(i) sell or otherwise liquidate all of the Company's assets, except
the Construction Operating Agreement and any Company IRUs, as promptly as
practicable;
(ii) sell or otherwise liquidate any Company IRUs, to the extent
necessary to fulfill the Company's obligations under subsection (iii);
(iii) discharge or make reasonable provision for all liabilities of
the Company, including liabilities to Members who are also creditors and
establish such Reserves as may be reasonably necessary to provide for
contingent liabilities of the Company (for purposes of determining the
Capital Accounts of the Members, the amounts of such Reserves shall be
deemed to be an expense of the Company);
(iv) distribute the remaining assets of the Company, if any, in the
following order of priority:
(1) To TNS, the Company's rights under the Construction
Operating Agreement;
(2) The balance of any remaining assets shall be distributed
to each Member in accordance with the Member's remaining Capital Account
balance, after giving effect to contributions, allocations, and distributions
for all periods.
(b) The Members shall cause an accounting to be made by the Company's
independent accountants of the accounts of the Company and of the Company's
assets, liabilities and operations, from the date of the last previous
accounting until the date of dissolution.
(c) Any assets of the Company which are distributed in kind shall be
deemed to have been sold to the Members in proportion to their Economic
Interests as of the date of dissolution for their
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<PAGE> 35
Fair Market Value, and the Capital Accounts of the Members shall be adjusted to
reflect such deemed sale.
(d) Notwithstanding anything to the contrary in this Agreement, upon a
liquidation, if any Member has a Deficit Capital Account (after giving effect to
all contributions, distributions, allocations, and other Capital Account
adjustments for all Fiscal Years, including the year during which such
liquidation occurs), such Member shall have no obligation to make any Capital
Contribution, and the negative balance of such Member's Capital Account shall
not be considered a debt owed by such Member to the Company or to any other
person for any purpose whatsoever.
12.4 Return of Capital Contribution - Nonrecourse. Except as provided by
law or as expressly provided in this Agreement, upon dissolution, each Member
shall look solely to the assets of the Company for the return of its Capital
Contribution. If the Company property remaining after the payment or discharge
of the debts and liabilities of the Company is insufficient to return the
Capital Contribution of a Member, such Member shall have no recourse against any
other Member.
12.5 Breach of Operating Agreement; Remedies; Survival. The parties agree
and acknowledge that, in addition to any other remedies specifically set forth
herein, in the event of a breach of any provision of this Operating Agreement by
a Member, the Company and the non-breaching Members shall be entitled to receive
from the breaching Member any and all damages suffered by them as a result of
such breach, together with all reasonable expenses incurred in connection with
the enforcement of this Operating Agreement and the collection of such damages,
including reasonable attorneys' fees. The obligations of the Members hereunder
shall survive the withdrawal of any Member and the dissolution or termination of
the Company.
ARTICLE XIII
REPRESENTATIONS AND WARRANTIES
Each Member hereby represents and warrants, severally as to itself only,
to the other as follows:
(a) It has been duly incorporated and is validly existing and in good
standing under the laws of its state of incorporation, and is duly qualified to
conduct business as a foreign corporation in each jurisdiction in which such
qualification is required, except where the failure to be so qualified would not
be reasonably likely to have a material adverse effect on such Member.
(b) The execution and delivery by it of this Agreement, and the
performance of its obligations hereunder, have been duly authorized by all
necessary corporation action including its Board of Directors, and will not
conflict with or violate any of its constituent documents or any agreement or
instrument to which it is a party or by which it or its properties are subject
and will not violate, or conflict with, or result in a breach of or constitute a
default under, or result in the creation of a right of cancellation under, or
result in the impairment of any right of or result in the creation or imposition
of any lien upon the party under any mortgage, indenture, agreement, instrument,
judgment, statute, law, decree, court order, writ, injunction, permit,
regulation or rule to
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which it is a party or by which it is bound, except to the extent that any of
the foregoing would not be reasonably likely to have a material adverse effect
on such Member.
(c) There are no actions, suits, claims, proceedings, investigations or
inquiries pending or, to the knowledge of such Member's knowledge threatened
against it, or against any of its officers or employees which (i) seek to
prevent the acquisition of an interest in the Company or the other transactions
contemplated hereby; or (ii) call into question the validity, or materially
hinder the enforceability or performance of this Agreement. To the knowledge of
such Member, there are no events or conditions which would provide the basis for
any such litigation, proceeding or investigation.
(d) Such Member has not employed any broker or finder or incurred any
liability for any brokerage fees, commissions, or finders' fees in connection
with the acquisition of an interest in the Company or the other transactions
contemplated by this Agreement.
(e) Such Member is not, and no Affiliate of such Member is, nor as a
result of holding an interest in the Company would such Member or its Affiliates
be, an "investment company" as defined in, or subject to regulation under, the
Investment Company Act of 1940.
(f) Such Member is acquiring its interest in the Company based upon its
own investigation, and the exercise by a party of its rights and the performance
of its obligations under this Agreement will be based upon its own
investigation, analysis and expertise. Such Member's acquisition of its interest
in the Company is being made for its own account for investment, and not with a
view to the sale or distribution thereof.
ARTICLE XIV
INJUNCTION
Because of the unique relationship of the Members in the Company and the
unique value of their interests therein, neither party shall be prevented from
applying for and obtaining injunctive relief in instances where, in the absence
thereof, the rights of such party cannot be otherwise adequately protected. The
Members agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. Accordingly, it is agreed that the
Members shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
ARTICLE XV
SEGREGATED NETWORKS
15.1 GPU Telcom Network. Subject to the restrictions on competition set
forth in Section 5.9, GPU Telcom reserves the right to construct, install, own
and operate the GPU Telcom
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Network and related electronics, equipment and facilities within and outside the
GPU Telcom Territory and GPU Telcom shall retain exclusive ownership of the GPU
Telcom Network (except the Company IRU shall belong to the Company). The Company
shall not have any right, interest or access to the GPU Telcom Network except to
the extent authorized by GPU Telcom, in its sole discretion, provided however,
that the Company shall have the exclusive right, access, control and ownership
of the Company IRU.
15.2 Telergy Network. Subject to restrictions on competition set forth in
Section 5.9, TNS reserves the right to construct, install, own and operate the
TNS Network and related electronics, equipment and facilities within and outside
the GPU Telcom Territory and TNS shall retain exclusive ownership of the TNS
Network. Neither GPU Telcom nor the Company shall have any right, interest or
access to the TNS Network except to the extent authorized by TNS, in its sole
discretion. Upon a Withdrawal of GPU Telcom or purchase and sale of Membership
Interests as provided in Section 10.4, TNS shall be entitled to construct and
install expansions to the Company IRU or any Segregated Networks using the
Construction Operating Agreement and the GPU ROW in the GPU Telcom Territory.
ARTICLE XVI
RELATIONSHIP OF THE PARTIES
16.1 Revenue Sharing Procedures. The parties understand and agree that the
Company will interconnect the Company IRU to networks owned and operated by
local and long distance carriers including TNS or GPU Telcom and their
respective Affiliates.
16.2 Solicitation of Employees. Until the expiration of three (3) years
after either party ceases to be a Member of the Company, no party nor their
respective Affiliates will newly employ, engage or seek to employ or engage,
directly or indirectly, any employee of the Company or any employee of the
remaining Members of the Company who are providing services to the Company
without the written consent of the Company or such Members as applicable, unless
such employee has been discharged by the Company or by such Member or such
employee is employed by an entity that is acquired by a party or one of its
Affiliates.
16.3 Employee Hires. The parties will insure that the Company and its
subsidiaries will not employ, engage or seek to employ or engage, directly or
indirectly, any employee of a Member or its Affiliate, without the written
consent of such Member, unless such employee has been discharged by such Member
or its Affiliate or such employee is employed by an entity that is acquired,
directly or indirectly, by the Company.
16.4 Support Service Agreements. The parties currently contemplate that
certain services will be provided to the Company by employees of both of the
Members or by employees of companies which are subsidiaries or Affiliates of the
Members. The Members agree that TNS and GPU Telcom each shall provide services
to the Company relating to operating and maintaining a telecommunications
business, and GPU Telcom shall serve as the exclusive construction arm
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pursuant to the terms of the Construction Operating Agreement. The parties agree
to execute the Billing and Services Agreement and the Construction Operating
Agreement within thirty days from the Effective Date. The Manager shall execute
the above described agreements, upon execution thereof by GPU Telcom and TNS.
16.5 Access to Right-of-Way. Subject to and in accordance with the
provisions of the Construction Operating Agreement, the Company intends to
obtain the initial Company IRU and to expand the Company IRU by obtaining
additional IRUs from GPU Telcom in the GPU Telcom Territory. To the extent
provided in the Construction Operating Agreement, GPU Telcom has obtained access
to the GPU ROW for the construction, installation, operation and delivery of the
Company IRU as defined from time to time by the Members and Segregated Networks.
As set forth in the Construction Operating Agreement, the Company and TNS shall
retain the right to use the GPU ROW for the Company IRU and any Segregated
Networks and the Company and TNS shall retain the rights, to the extent set
forth therein, to construct and install spurs, extensions, laterals, and rings
in the GPU Telcom Territory upon a withdrawal or dissolution as provided in this
Agreement.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1 Notices. Any notice, demand, or communication required or permitted
to be given by any provision of this Operating Agreement shall be deemed to have
been sufficiently given or served for all purposes if delivered personally to
the Person or to an executive officer of the Person to whom the same is directed
or, if sent by registered or certified mail, postage and charges prepaid, by
reputable overnight courier, or by facsimile, addressed to the Person's and/or
Company's address, as appropriate, which is set forth in this Operating
Agreement. Any such notice given by mail shall be deemed to be given three
business days after the date on which the same was deposited in a regularly
maintained receptacle for the deposit of United States mail, addressed and sent
as aforesaid, one day after deposited with such a reputable overnight courier,
or upon confirmation of actual receipt by the intended recipient when sent via
facsimile.
17.2 Other Ventures. Subject to the penultimate sentence of Section 5.9,
the Members and their respective Affiliates may, independently or with others,
invest or engage in any business or venture, including telecommunications, data
and information, energy and energy marketing and management activities similar
to that of, or in competition with, the Company. The other Member shall not have
any rights or obligations in and to such independent ventures or the income or
profits derived therefrom.
17.3 Application of New York Law. This Operating Agreement, and the
application and interpretation hereof, shall be governed exclusively by its
terms and by the laws of the State of New York.
17.4 Amendments. Other than as expressly provided herein, this Operating
Agreement may not be amended except by the unanimous vote or Consent of the
Members.
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17.5 Execution of Additional Instruments. Each Member hereby agrees to
execute such other and further statements of interest and holdings,
designations, powers of attorney, and other instruments necessary to comply with
any laws, rules, or regulations.
17.6 Construction. Whenever used in this Operating Agreement and when
required by the context the singular number shall include the plural and vice
versa, and the masculine gender shall include the feminine and neuter genders
and vice versa.
17.7 Headings and Pronouns. The headings in this Operating Agreement are
inserted for convenience and are in no way intended to describe, interpret,
define, or limit the scope, extent, or intent of this Operating Agreement or any
provision hereof. All pronouns shall be deemed to refer to masculine, feminine,
or neuter, singular or plural as the identity of the Person or Persons may
require.
17.8 Waivers. The failure of any party to seek redress for violation of or
to insist upon the strict performance of any covenant or condition of this
Operating Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
17.9 Rights and Remedies Cumulative. The rights and remedies provided by
this Operating Agreement are cumulative and the use of any one right or remedy
by any party shall not preclude or waive the right to use any or all other
remedies. Said rights and remedies are given in addition to any other rights the
parties may have by law, statute, ordinance or otherwise.
17.10 Severability. If any provision of this Operating Agreement or the
application thereof to any person or circumstance shall be invalid, illegal, or
unenforceable to any extent, the remainder of this Operating Agreement and the
application thereof shall not be affected and shall be enforceable to the
fullest extent permitted by law.
17.11 Successors and Assigns. Each and all of the covenants, terms,
provisions and agreements herein contained shall be binding upon and inure to
the benefit of the Members and, to the extent permitted by this Operating
Agreement, their respective legal representatives, successors and assigns.
17.12 Rights of Creditors. This Agreement is expressly not intended for
the benefit of any creditor of the Company or any other person who is not a
Member. No creditor or other Person shall have any rights to the Member's
obligation for Capital Contributions.
17.13 Counterparts. This Agreement may be executed in any number of
counterparts, no one of which needs to be executed by both of the Members, and
this Agreement shall be binding upon both the Members with the same force and
effect as if both the Members had signed the same document, and each such signed
counterpart shall constitute an original of this Agreement.
17.14 Integration. This Operating Agreement constitutes the Members'
entire agreement
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with respect to the subject matter hereof, and supersedes any and all prior oral
or written agreements or understandings with respect thereto.
17.15 Public Announcements. The Members agree that before they or any of
their respective Affiliates issue any press releases or otherwise make any
public statements with respect to this Agreement or issue any further press
releases or otherwise make any public statements with respect to the
transactions contemplated hereby, they will obtain the written Consent of the
other party hereto to such press release or public statement. Neither the
Members nor any of their Affiliates shall issue a press release or make any
public statement without such prior written Consent except, in each case, in the
reasonable opinion of counsel to the disclosing party, as may be required by
applicable law, rule, regulation or order or by obligations pursuant to any
listing agreement with any securities exchange on which any of its or their
securities may be listed, upon prior notice to the other party.
17.16 Confidentiality. The Members agree as follows with respect to
information (whether in the form of documents, oral communications, visual
examination of facilities, or otherwise) disclosed by any Member to any other
Member in the course of the formation of the Company or in course of the
Company's operations (the "Confidential Information"):
(a) Subject to the exceptions set forth in Sections 17.16 (b), (c) and
(d), the Members (i) will treat all Confidential Information as confidential,
(ii) will not use Confidential Information for any purpose other than in
connection with the Business or their Membership Interest and, in the case of
the disclosing Member, in connection with such disclosing Member's business, and
(iii) will not disclose any Confidential Information to third parties. Each
Member shall, at all times, be responsible for compliance by its designated
members of the Management Committee, and its directors, officers, employees and
agents with the obligations under this Section 17.16.
(b) The confidentiality obligations of the Members contained in Section
17.16(a) shall not apply to any Confidential Information which (i) is or becomes
publicly known through no fault of the Person receiving the Confidential
Information, (ii) is disclosed to the Person receiving the Confidential
Information on a non-confidential basis by a third party who such Person
believes after due inquiry is entitled to disclose it, (iii) the Person
receiving the Confidential Information can demonstrate on the basis of written
records was already known to it on a non-confidential basis prior to receipt,
(iv) is subsequently developed by the Person receiving the Confidential
Information independently of Confidential Information, or (v) subject to Section
17.16(c), is required to be disclosed by law or legal process.
(c) Each Member will provide the Company and the other Members hereto with
prior notice of each instance in which Confidential Information is required to
be disclosed by law or legal process (which notice shall be reasonable and
written to the extent practicable). Such written notice shall be given as
promptly as is practicable under the circumstances.
(d) The Members shall be entitled to disclose Confidential Information to
their agents, financial advisors, representatives, consultants (including,
without limitation, legal counsel and accountants) and lenders as they may
determine to be appropriate in connection with the Company
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<PAGE> 41
or their interest in the Company. In addition, the Members shall have the right
to discuss the business of the Company, if required, with the staff or members
of regulatory agencies which would have jurisdiction over the Company's
business, and TNS and its Affiliates shall have the right to discuss the
business of the Company in connection with its borrowing of funds through the
offering of a high yield notes or any public or private offering of the
securities of TNS or its Affiliates.
(e) The obligations of this Section 17.16 shall survive the termination of
this Agreement.
17.17 No Third Party Beneficiaries. Except as expressly provided herein,
nothing in this Agreement shall entitle any Person other than the Members or
their respective successors and assigns permitted hereby to any claim, cause of
action, remedy or right of any kind.
17.18 No Partnership Created. It is the express intention of the Members
that the representations, warranties, covenants and agreement contained in this
Agreement do not create a partnership between them (other than for tax
purposes).
17.19 Agreement Jointly Drafted. The Members agree that the Agreement was
jointly drafted and that no interpretive presumption shall exist against either
Member as a result of authorship of this Agreement.
17.20 Further Assurances. The Members agree to use commercially reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable to carry out all of their
respective obligations under this Agreement and to make effective the
contributions and the and other transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, the Members have signed this Operating Agreement of
Telergy Mid-Atlantic, LLC as of the date first written above.
TELERGY NETWORK SERVICES INC.
By: /s/Brian P. Kelly
--------------------------
Brian P. Kelly, CEO
GPU TELCOM SERVICES, INC.
By: /s/Robert L. Wise
--------------------------
Robert L. Wise, President
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<PAGE> 1
EXHIBIT 10.19
TELERGY, INC.
1999 INCENTIVE COMPENSATION PLAN
1.0 DEFINITIONS
The following terms shall have the following meanings unless the context
indicates otherwise:
1.1 "Award" shall mean either a Stock Option, an SAR, a Stock Award, a Stock
Unit, a Performance Share, a Performance Unit, or a Cash Award.
1.2 "Award Agreement" shall mean a written agreement between the Company and
the Participant that establishes the terms, conditions, restrictions
and/or limitations applicable to an Award in addition to those established
by the Plan and by the Committee's exercise of its administrative powers.
1.3 "Board" shall mean the Board of Directors of the Company.
1.4 "Cash Award" shall mean the grant by the Committee to a Participant of an
award of cash as described in Section 11 below.
1.5 "Cause" shall mean (i) willful malfeasance or willful misconduct by the
Employee in connection with his employment, (ii) continuing failure to
perform such duties as are requested by the Company and/or its
subsidiaries, (iii) failure by the Employee to observe material policies
of the Company and/or its subsidiaries applicable to the Employee or (iv)
the commission by the Employee of (x) any felony or (y) any misdemeanor
involving moral turpitude.
1.6 "Change in Control of the Company" shall mean the occurrence of any of the
following events:
(a) any Person, as such term is used for purposes of Section 13(d) or
14(d) of the Exchange Act, or any successor section thereto, (other
than (i) the Company, (ii) any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, (iii) any
Subsidiaries of the Company, (iv) any company owned, directly or
indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company, or (v)
any Kelly Family Member) becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 35% or more of
the combined voting power of the Company's then-outstanding
securities; provided however, that the acquisition of securities in
a bona fide public offering or private placement of securities by an
investor who is acquiring such securities for passive investment
purposes only shall not constitute a "Change in Control".
<PAGE> 2
(b) during any period of twenty-four months, individuals who at the
beginning of such period constitute the Board, and any new director
(other than (i) a director nominated by a Person who has entered
into an agreement with the Company to effect a transaction described
in Sections 1.6 (a), (c) or (d) of the Plan, (ii) a director
nominated by any Person (including the Company) who publicly
announces an intention to take or to consider taking actions
(including, but not limited to, an actual or threatened proxy
contest) which if consummated would constitute a Change in Control
or (iii) a director nominated by any Person who is the beneficial
owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the
Company's securities) whose election by the Board or nomination for
election by the Company's shareholders is or was approved by a vote
of at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or whose
election or nomination for election was previously, so approved,
cease for any reason to constitute at least a majority thereof;
(c) the effective date or date of consummation of any transaction or
series of transactions (other than a transaction to which only the
Company and one or more of its subsidiaries are parties) under which
the Company is merged or consolidated with any other company, other
than a merger or consolidation (i) which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than
66 2/3% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation and (ii) after which no Person holds 35% or
more of the combined voting power of the then-outstanding securities
of the Company or such surviving entity; or
(d) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets;
1.7 "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
1.8 "Committee" shall mean (i) the Board or (ii) a committee or subcommittee
of the Board appointed by the Board from among its members. The Committee
may be the Board's Compensation Committee.
1.9 "Common Stock" shall mean the Class A common stock, par value per share,
stated value of $1 per share of the Company.
1.10 "Company" shall mean Telergy, Inc., a New York corporation.
1.11 "Disability" shall mean shall mean the inability to engage in any
substantial gainful activity by reason of a medically determinable
physical or mental impairment which constitutes a permanent and total
disability, as defined in Section 22(e) (3) of the Code
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(or any successor section thereto). The determination whether a
Participant has suffered a Disability shall be made by the Committee based
upon such evidence as it deems necessary and appropriate, and shall be
conclusive and binding on the Participant. A Participant shall not be
considered disabled unless he or she furnishes such medical or other
evidence of the existence of the Disability as the Committee, in its sole
discretion, may require.
1.12 "Dividend Equivalent Right" shall mean the right to receive an amount
equal to the amount of any dividend paid with respect to a share of Common
Stock multiplied by the number of shares of Common Stock underlying or
with respect to a Stock Option, a SAR, a Stock Unit or a Performance Unit,
and which shall be payable in cash, in Common Stock, in the form of Stock
Units or Performance Units, or a combination of any or all of the
foregoing.
1.13 "Effective Date" shall mean the date on which the Plan is adopted by the
Board.
1.14 "Employee" shall mean an employee of the Company or any Subsidiary as
described in Treasury Regulation Section 1.421-7(h).
1.15 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time, including applicable regulations thereunder.
1.16 "Fair Market Value of the Common Stock" shall mean:
(a) if the Common Stock is readily tradable on a national securities
exchange or other market system, the closing price of the Common
Stock on the date of calculation (or on the last preceding trading
date if Common Stock was not traded on such date), or
(b) if the Common Stock is not readily tradable on a national securities
exchange or other market system, as determined in good faith by the
Board.
1.17 "Independent Contractor" shall mean a person (other than a person who is
an Employee or a Nonemployee Director) or an entity that renders services
to the Company or any Subsidiary.
1.18 "ISO" shall mean an "incentive stock option" as such term is used in Code
Section 422.
1.19 "Kelly Family Member" shall means (1) Brian P. Kelly, Kevin J. Kelly and
William M. Kelly, Jr., (2) members of the immediate families of any of the
persons referred to in clause (1), (3) any of their respective spouses,
estates, lineal descendants, heirs, executors, personal representatives,
administrators, trusts for any of their benefit and charitable foundations
to which shares of the Company's securities beneficially owned by any of
the foregoing have been transferred and (4) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners,
owners or persons beneficially
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holding an 80% or more controlling interest of which consist of any one or
more of the persons referred to in clauses (1) or (2) above.
1.20 "Nonemployee Director" shall mean a member of the Board or the Board of
Directors of a Subsidiary who is not an Employee.
1.21 "Nonqualified Stock Option" shall mean a Stock Option that does not
qualify as an ISO.
1.22 "Participant" shall mean any Employee, Nonemployee Director or Independent
Contractor to whom an Award has been granted by the Committee under the
Plan.
1.23 "Performance-Based Award" shall mean an Award subject to the achievement
of certain performance goal or goals as described in Section 12 below.
1.24 "Performance Share" shall mean the grant by the Committee to a Participant
of an Award as described in Section 10.1 below.
1.25 "Performance Unit" shall mean the grant by the Committee to a Participant
of an Award as described in Section 10.2 below.
1.26 "Plan" shall mean the Telergy, Inc. 1999 Incentive Compensation Plan.
1.27 "SAR" shall mean the grant by the Committee to a Participant of a stock
appreciation right as described in Section 8 below.
1.28 "Stock Award" shall mean the grant by the Committee to a Participant of an
Award of Common Stock as described in Section 9.1 below.
1.29 "Stock Option" shall mean the grant by the Committee to a Participant of
an option to purchase Common Stock as described in Section 7 below.
1.30 "Stock Unit" shall mean the grant by the Committee to a Participant of an
Award as described in Section 9.2 below.
1.31 "Subsidiary" shall mean a corporation of which the Company directly or
indirectly owns more than 50 percent of the Voting Stock or any other
business entity in which the Company directly or indirectly has an
ownership interest of more than 50 percent or, other than with respect to
the grant of ISOs, any other business venture designated by the Committee
in which the Company has a significant interest, as determined in the
discretion of the Committee.
1.32 "Treasury Regulations" shall mean the regulations promulgated under the
Code by the United States Department of the Treasury, as amended from time
to time.
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1.33 "Vest" shall mean:
(a) with respect to Stock Options and SARs, when the Stock Option or SAR
(or a portion of such Stock Option or SAR) first becomes exercisable
and remains exercisable subject to the terms and conditions of such
Stock Option or SAR; or
(b) with respect to Awards other than Stock Options and SARs, when the
Participant has:
(i) an unrestricted right, title and interest to receive the
compensation (whether payable in Common Stock, cash or a
combination of both) attributable to an Award (or a portion of
such Award) or to otherwise enjoy the benefits underlying such
Award; and
(ii) a right to transfer an Award subject to no Company-imposed
restrictions or limitations other than restrictions and/or
limitations imposed by Section 14 below.
1.34 "Vesting Date" shall mean the date or dates on which an Award Vests.
1.35 "Voting Stock" shall mean the capital stock of any class or classes having
general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2.0 PURPOSE AND TERM OF PLAN
2.1 Purpose. The purpose of the Plan is to motivate certain Employees,
Nonemployee Directors and Independent Contractors to put forth maximum
efforts toward the growth, profitability, and success of the Company and
Subsidiaries by providing incentives to such Employees, Nonemployee
Directors and Independent Contractors either through cash payments and/or
through the ownership and performance of the Common Stock. In addition,
the Plan is intended to provide incentives which will attract and retain
highly qualified individuals as Employees and Nonemployee Directors and to
assist in aligning the interests of such Employees and Nonemployee
Directors with those of its stockholders.
2.2 Term. The Plan shall be effective as of the Effective Date; provided,
however, that the Plan shall be approved by the stockholders of the
Company at an annual meeting or any special meeting of stockholders of the
Company within 12 months before or after the Effective Date, and such
approval by the stockholders of the Company shall be a condition to the
right of each Participant to receive Awards hereunder. Any Award granted
under the Plan prior to the approval by the stockholders of the Company
shall be effective as of the date of grant (unless the Committee specifies
otherwise at the time of grant), but no such Award may Vest, be paid out,
or otherwise be disposed of prior to such stockholder approval. If the
stockholders of the Company fail to approve the Plan in accordance with
this Section 2.2, any Award granted under the Plan shall be cancelled.
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The Plan shall be unlimited in duration and in the event of Plan
termination, shall remain in effect as long as any Awards under it are
outstanding; provided, however, that to the extent required by the Code,
no ISO may be granted under the Plan on a date that is more than ten years
from the Effective Date.
3.0 ELIGIBILITY AND PARTICIPATION
3.1 Eligibility. All Employees of the Company, all Nonemployee Directors and
all Independent Contractors shall be eligible to participate in the Plan
and to receive Awards.
3.2 Participation. Participants shall consist of such Employees, Nonemployee
Directors and Independent Contractors as the Committee in its sole
discretion designates to receive Awards under the Plan. Subject to Section
7.1, an Award may also be granted to an Employee, in connection with
hiring, retention or otherwise prior to the date the Employee first
performs services for the Company or any Subsidiary, provided that such
Awards shall not become vested prior to the date the Employee first
performs such services. Designation of a Participant in any year shall not
require the Committee to designate such person or entity to receive an
Award in any other year or, once designated, to receive the same type or
amount of Award as granted to the Participant in any other year. The
Committee shall consider such factors as it deems pertinent in selecting
Participants and in determining the type and amount of their respective
Awards.
4.0 ADMINISTRATION
4.1 Responsibility. The Committee shall have the responsibility, in its sole
discretion, to control, operate, manage and administer the Plan in
accordance with its terms.
4.2 Award Agreement. Each Award granted under the Plan shall be evidenced by
an Award Agreement which shall be signed by the Committee and the
Participant; provided, however, that in the event of any conflict between
a provision of the Plan and any provision of an Award Agreement, the
provision of the Plan shall prevail.
4.3 Authority of the Committee. The Committee shall have all the discretionary
authority that may be necessary or helpful to enable it to discharge its
responsibilities with respect to the Plan, including but not limited to
the following:
(a) to determine eligibility for participation in the Plan;
(b) to determine eligibility for and the type and size of an Award
granted under the Plan;
(c) to supply any omission, correct any defect, or reconcile any
inconsistency in the Plan in such manner and to such extent as it
shall deem appropriate in its sole discretion to carry the same into
effect;
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(d) to issue administrative guidelines as an aid to administer the Plan
and make changes in such guidelines as it from time to time deems
proper;
(e) to make rules for carrying out and administering the Plan and make
changes in such rules as it from time to time deems proper;
(f) to the extent permitted under the Plan, grant waivers of Plan terms,
conditions, restrictions, and limitations;
(g) to accelerate the Vesting of any Award when such action or actions
would be in the best interest of the Company;
(h) to grant Award in replacement of Awards previously granted under
this Plan or any other executive compensation plan of the Company;
and
(i) to take any and all other actions it deems necessary or advisable
for the proper operation or administration of the Plan.
4.4 Action by the Committee. The Committee may act only by a majority of its
members. Any determination of the Committee may be made, without a
meeting, by a writing or writings signed by all of the members of the
Committee. In addition, the Committee may authorize any one or more of its
members to execute and deliver documents on behalf of the Committee.
4.5 Delegation of Authority. The Committee may delegate to one or more of its
members, or to one or more agents, such administrative duties as it may
deem advisable; provided, however, that any such delegation shall be in
writing. In addition, the Committee, or any person to whom it has
delegated duties under this Section 4.5, may employ one or more persons to
render advice with respect to any responsibility the Committee or such
person may have under the Plan. The Committee may employ such legal or
other counsel, consultants and agents as it may deem desirable for the
administration of the Plan and may rely upon any opinion or computation
received from any such counsel, consultant or agent. Expenses incurred by
the Committee in the engagement of such counsel, consultant or agent shall
be paid by the Company, or the Subsidiary whose employees have benefited
from the Plan, as determined by the Committee.
4.6 Determinations and Interpretations by the Committee. All determinations
and interpretations made by the Committee shall be binding and conclusive
on all Participants and their heirs, successors, and legal
representatives.
4.7 Liability. No member of the Board, no member of the Committee and no
employee of the Company shall be liable for any act or failure to act
hereunder, except in circumstances involving his or her bad faith, gross
negligence or willful misconduct, or for any act or failure to act
hereunder by any other member or employee or by any agent to whom duties
in connection with the administration of the Plan have been delegated.
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4.8 Indemnification. The Company shall indemnify members of the Committee and
any agent of the Committee who is an employee of the Company, against any
and all liabilities or expenses to which they may be subjected by reason
of any act or failure to act with respect to their duties on behalf of the
Plan, except in circumstances involving such person's bad faith, gross
negligence or willful misconduct.
5.0 SHARES SUBJECT TO PLAN
5.1 Available Shares. Subject to the provisions of Section 5.2 and Section
5.3 below, the aggregate number of shares of Common Stock which shall be
available for grants or payments of Awards under the Plan during its term
shall be 1,000,000 shares, plus an annual increase to be added on the
first day of the Company's fiscal year equal to the amount which causes
the aggregate number of shares of Common Stock which shall be made
available for Awards under this Plan to equal five percent (5%) of the
then outstanding shares of Common Stock of the Company. In the event that
(i) an Award (or portion thereof) lapses, expires or is otherwise
terminated without the issuance of the shares subject to such Award, (ii)
shares are tendered to pay the exercise price of a Stock Option or other
Award or (iii) shares are withheld from any award to satisfy a
Participant's tax withholding obligations or, if applicable, to pay the
exercise price of a Stock Option or other Award, such shares shall again
become available for grants or Awards hereunder. Such shares of Common
Stock available for issuance under the Plan may be either authorized but
unissued shares, shares of issued stock held in the Company's treasury, or
both, at the discretion of the Company. For purposes of determining the
number of shares that remain available for issuance under the Plan, the
number of shares subject to outstanding Awards shall be charged against
the limit set forth in the first sentence of this Section 5.1 (the
"Section 5.1 Limit"). In addition, any shares underlying a Conversion
Stock Option shall not be counted against the Section 5.1 Limit. Awards
that are payable only in cash are not subject to this Section 5.1.
5.2 Adjustment to Shares. If there is any change in the Common Stock of the
Company, through merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, reverse stock split, split-up, split-off,
spin-off, combination of shares, exchange of shares, dividend in kind or
other like change in capital structure or distribution (other than normal
cash dividends) to stockholders of the Company, an adjustment shall be
made to each outstanding Award so that each such Award shall thereafter be
with respect to or exercisable for such securities, cash and/or other
property as would have been received in respect of the Common Stock
subject to such Award had such Award been paid, distributed or exercised
in full immediately prior to such change or distribution. Such adjustment
shall be made successively each time any such change shall occur. In
addition, in the event of any such change or distribution, in order to
prevent dilution or enlargement of Participants' rights under the Plan,
the Committee shall have the authority to adjust, in an equitable manner,
the number and kind of shares that may be issued under the Plan, the
number and kind of shares subject to outstanding Awards, the exercise
price applicable to outstanding Stock Options, and the Fair Market Value
of the Common Stock and other value determinations applicable to
outstanding Awards. Appropriate adjustments may also be made by the
Committee in the terms of any Awards granted
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under the Plan to reflect such changes or distributions and to modify any
other terms of outstanding Awards on an equitable basis, including
modifications of performance goals and changes in the length of
performance periods; provided, however, that with respect to
Performance-Based Awards, such modifications and/or changes do not
disqualify compensation attributable to such Awards as "performance-based
compensation" under Code Section 162(m). In addition, the Committee is
authorized to make adjustments to the terms and conditions of, and the
criteria included in, Awards in recognition of unusual or nonrecurring
events affecting the Company or the financial statements of the Company,
or in response to changes in applicable laws, regulations, or accounting
principles. Notwithstanding anything contained in the Plan, any adjustment
with respect to an ISO due to a change or distribution described in this
Section 5.2 shall comply with the rules of Code Section 424(a), and in no
event shall any adjustment be made which would render any ISO granted
hereunder other than an incentive stock option for purposes of Code
Section 422.
5.3 The maximum number of shares of Common Stock that may be issued by Stock
Options intended to be ISOs shall be 1,000,000 shares.
6.0 MAXIMUM INDIVIDUAL AWARDS
6.1 Maximum Aggregate Number of Shares Underlying Stock-Based Awards Granted
Under the Plan to Any Single Participant. The maximum aggregate number of
shares of Common Stock underlying all Awards measured in shares of Common
Stock (whether payable in Common Stock, cash or a combination of both)
that may be granted to any single Participant in respect of any fiscal
year of the Company shall be 250,000 shares, subject to adjustment as
provided in Section 5.2 above. For purposes of the preceding sentence,
such Awards that are cancelled or repriced shall continue to be counted in
determining such maximum aggregate number of shares of Common Stock that
may be granted to any single Participant during the life of the Plan.
6.2 Maximum Dollar Amount Underlying Cash-Based Awards Granted Under the Plan
to Any Single Participant. The maximum dollar amount that may be paid to
any single Participant with respect to all Awards measured in cash
(whether payable in Common Stock, cash or a combination of both) in
respect of any fiscal year of the Company shall be $2,000,000.
7.0 STOCK OPTIONS
7.1 In General. The Committee may, in its sole discretion, grant Stock Options
to Employees, Nonemployee Directors and Independent Contractors on or
after the Effective Date. The Committee shall, in its sole discretion,
determine the Employees, the Nonemployee Directors and Independent
Contractors who will receive Stock Options and the number of shares of
Common Stock underlying each Stock Option. With respect to Employees who
become Participants, the Committee may grant such Participants ISOs or
Nonqualified Stock Options or a combination of both. With respect to
Nonemployee Directors and Independent Contractors who become Participants,
the Committee may grant such Participants only Nonqualified Stock Options.
Each Stock Option shall be
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subject to such terms and conditions consistent with the Plan as the
Committee may impose from time to time. In addition, each Stock Option
shall be subject to the following terms and conditions set forth in
Sections 7.2 through 7.8 below.
7.2 Exercise Price. The Committee shall specify the exercise price of each
Stock Option in the Award Agreement; provided, however, that (i) the
exercise price of any ISO shall not be less than 100 percent of the Fair
Market Value of the Common Stock on the date of grant, and (ii) the
exercise price of any Nonqualified Stock Option shall not be less than 100
percent of the Fair Market Value of the Common Stock on the date of grant
unless the Committee in its sole discretion determines otherwise on the
date of grant.
7.3 Term of Stock Option. The Committee shall specify the term of each Stock
Option in the Award Agreement; provided, however, that no ISO shall be
exercised after the 10th anniversary of the date of grant of such ISO.
Each Stock Option shall terminate at such earlier times and upon such
conditions or circumstances as the Committee shall, in its sole
discretion, set forth in the Award Agreement on the date of grant.
7.4 Vesting Date. The Committee shall specify the Vesting Date with respect to
each Stock Option in the Award Agreement. The Committee may grant Stock
Options that are Vested, either in whole or in part, on the date of grant.
If the Committee fails to specify a Vesting Date in the Award Agreement,
25 percent of such Stock Option shall become exercisable on each of the
first 4 anniversaries of the date of grant and shall remain exercisable
following such anniversary date until the Stock Option expires in
accordance with its terms under the Award Agreement or under the terms of
the Plan. The Vesting of a Stock Option may be subject to such other terms
and conditions as shall be determined by the Committee, including, without
limitation, accelerating the Vesting if certain performance goals are
achieved.
7.5 Exercise of Stock Options. The Stock Option exercise price may be paid in
cash or, in the sole discretion of the Committee, by the delivery of
shares of Common Stock then owned by the Participant, by the withholding
of shares of Common Stock for which a Stock Option is exercisable, or by a
combination of these methods. In the sole discretion of the Committee,
payment may also be made by delivering a properly executed exercise notice
to the Company together with a copy of irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan
proceeds to pay the exercise price. To facilitate the foregoing, the
Company may enter into agreements for coordinated procedures with one or
more brokerage firms. The Committee may prescribe any other method of
paying the exercise price that it determines to be consistent with
applicable law and the purpose of the Plan, including, without limitation,
in lieu of the exercise of a Stock Option by delivery of shares of Common
Stock then owned by a Participant, providing the Company with a notarized
statement attesting to the number of shares owned by the Participant,
where upon verification by the Company, the Company would issue to the
Participant only the number of incremental shares to which the Participant
is entitled upon exercise of the Stock Option. In determining which
methods a Participant may utilize to pay the exercise price, the Committee
may consider such factors as it determines are appropriate; provided,
however, (i) that any method approved by the Committee shall comply with
applicable securities laws and (ii) that with respect
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to ISOs, all such discretionary determinations by the Committee shall be
made at the time of grant and specified in the Award Agreement.
7.6 Restrictions Relating to ISOs. In addition to being subject to the terms
and conditions of this Section 7, ISOs shall comply with this Section 7.6
to the extent required by Code Section 422. Any Award which does not
comply with such requirements shall not be an Award of ISOs but shall be
deemed to be an Award of Nonqualified Stock Options. ISOs may be granted
only to Participants who are employees (as described in Treasury
Regulation Section 1.421-7(h)) of the Company or of any "Parent
Corporation" (as defined in Code Section 424(e)) or of any "Subsidiary
Corporation" (as defined in Code Section 424(f)) on the date of grant. The
aggregate market value (determined as of the time the ISO is granted) of
the Common Stock with respect to which ISOs (under all option plans of the
Company and of any Parent Corporation and of any Subsidiary Corporation)
are exercisable for the first time by a Participant during any calendar
year shall not exceed $100,000. ISOs shall not be transferable by the
Participant otherwise than by will or the laws of descent and distribution
and shall be exercisable, during the Participant's lifetime, only by such
Participant. The Committee shall not grant ISOs to any Employee who, at
the time the ISO is granted, owns stock possessing (after the application
of the attribution rules of Code Section 424(d)) more than 10 percent of
the total combined voting power of all classes of stock of the Company or
of any Parent Corporation or of any Subsidiary Corporation unless the
exercise price of the ISO is fixed at not less than 110 percent of the
Fair Market Value of the Common Stock on the date of grant and the
exercise of such ISO is prohibited by its terms after the 5th anniversary
of the ISO's date of grant. In addition, no ISO shall be issued to a
Participant in tandem with a Nonqualified Stock Option issued to such
Participant in accordance with Treasury Regulation Section 14a.422A-1,
Q/A 39.
7.7 Additional Terms and Conditions. The Committee may, by way of the Award
Agreements or otherwise, establish such other terms, conditions,
restrictions and/or limitations, if any, of any Stock Option, provided
they are not inconsistent with the Plan, including, without limitation,
any requirement that the Participant not engage in competition with the
Company or any Subsidiary.
7.8 Conversion Stock Options. The Committee may, in its sole discretion, grant
a Stock Option to any holder of an option (hereinafter referred to as an
"Original Option") to purchase shares of the stock of any corporation:
(a) the stock or assets of which were acquired, directly or indirectly,
by the Company or any Subsidiary, or
(b) which was merged with and into the Company or a Subsidiary,
so that the Original Option is converted into a Stock Option (hereinafter
referred to as a "Conversion Stock Option"); provided, however, that such
Conversion Stock Option as of the date of its grant (the "Conversion Stock
Option Grant Date") shall have the same economic value as the Original
Option as of the Conversion Stock Option Grant Date. In
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addition, unless the Committee, in its sole discretion determines
otherwise, a Conversion Stock Option which is converting an Original
Option intended to qualify as an ISO shall have the same terms and
conditions as applicable to the Original Option in accordance with Code
Section 424 and the Treasury Regulations thereunder so that the conversion
(x) is treated as the issuance or assumption of a stock option under Code
Section 424(a) and (y) is not treated as a modification, extension or
renewal of a stock option under Code Section 424(h).
8.0 SARS
8.1 In General. The Committee may, in its sole discretion, grant SARs to
Employees, Nonemployee Directors, and/or Independent Contractors. An SAR
is a right to receive a payment in cash, Common Stock or a combination of
both, in an amount equal to the excess of (x) the Fair Market Value of the
Common Stock, or other specified valuation, of a specified number of
shares of Common Stock on the date the SAR is exercised over (y) the Fair
Market Value of the Common Stock, or other specified valuation (which
shall be no less than the Fair Market Value of the Common Stock), of such
shares of Common Stock on the date the SAR is granted, all as determined
by the Committee; provided, however, that if a SAR is granted
retroactively in tandem with or in substitution for a Stock Option, the
designated Fair Market Value of the Common Stock in the Award Agreement
may be the Fair Market Value of the Common Stock on the date such Stock
Option was granted. Each SAR shall be subject to such terms and
conditions, including, but not limited to, a provision that automatically
converts a SAR into a Stock Option on a conversion date specified at the
time of grant, as the Committee shall impose from time to time in its sole
discretion and subject to the terms of the Plan.
9.0 STOCK AWARDS AND STOCK UNITS
9.1 Stock Awards. The Committee may, in its sole discretion, grant Stock
Awards to Employees, Nonemployee Directors, and/or Independent Contractors
as additional compensation or in lieu of other compensation for services
to the Company. A Stock Award shall consist of shares of Common Stock
which shall be subject to such terms and conditions as the Committee in
its sole discretion determines appropriate including, without limitation,
restrictions on the sale or other disposition of such shares, the Vesting
Date with respect to such shares, and the right of the Company to
reacquire such shares for no consideration upon termination of the
Participant's employment within specified periods. The Committee may
require the Participant to deliver a duly signed stock power, endorsed in
blank, relating to the Common Stock covered by such Stock Award and/or
that the stock certificates evidencing such shares be held in custody or
bear restrictive legends until the restrictions thereon shall have lapsed.
With respect to the shares of Common Stock subject to a Stock Award, the
Participant shall have all of the rights of a holder of shares of Common
Stock, including the right to receive dividends and to vote the shares,
unless the Committee determines otherwise on the date of grant.
9.2 Stock Units. The Committee may, in its sole discretion, grant to
Employees, Nonemployee Directors, and/or Independent Contractor Stock
Units as additional
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compensation or in lieu of other compensation for services to the Company.
A Stock Unit is a hypothetical share of Common Stock represented by a
notional account established and maintained (or caused to be established
or maintained) by the Company for such Participant who receives a grant of
Stock Units. Stock Units shall be subject to such terms and conditions as
the Committee, in its sole discretion, determines appropriate including,
without limitation, determinations of the Vesting Date with respect to
such Stock Units and the criteria for the Vesting of such Stock Units. A
Stock Unit granted by the Committee shall provide for payment in shares of
Common Stock at such time or times as the Award Agreement shall specify.
The Committee shall determine whether a Participant who has been granted a
Stock Unit shall also be entitled to a Dividend Equivalent Right.
9.3 Payout of Stock Units. Subject to a Participant's election to defer in
accordance with Section 17.3 below, upon the Vesting of a Stock Unit, the
shares of Common Stock representing the Stock Unit shall be distributed to
the Participant, unless the Committee, in its sole discretion, provides
for the payment of the Stock Unit in cash (or partly in cash and partly in
shares of Common Stock) equal to the value of the shares of Common Stock
which would otherwise be distributed to the Participant.
10.0 PERFORMANCE SHARES AND PERFORMANCE UNITS
10.1 Performance Shares. The Committee may, in its sole discretion, grant
Performance Shares to Employees, Nonemployee Directors, and/or Independent
Contractors as additional compensation or in lieu of other compensation
for services to the Company. A Performance Share shall consist of a share
or shares of Common Stock which shall be subject to such terms and
conditions as the Committee, in its sole discretion, determines
appropriate including, without limitation, determining the performance
goal or goals which, depending on the extent to which such goals are met,
will determine the number and/or value of the Performance Shares that will
be paid out or distributed to the Participant who has been granted
Performance Shares. Performance goals may be based on, without limitation,
Company-wide, divisional and/or individual performance, as the Committee,
in its sole discretion, may determine, and may be based on the performance
measures listed in Section 12.3 below.
10.2 Performance Units. The Committee may, in its sole discretion, grant to
Employees, Nonemployee Directors, and/or Independent Contractors
Performance Units as additional compensation or in lieu of other
compensation for services to the Company. A Performance Unit is a
hypothetical share or shares of Common Stock represented by a notional
account which shall be established and maintained (or caused to be
established or maintained) by the Company for such Participant who
receives a grant of Performance Units. Performance Units shall be subject
to such terms and conditions as the Committee, in its sole discretion,
determines appropriate including, without limitation, determining the
performance goal or goals which, depending on the extent to which such
goals are met, will determine the number and/or value of the Performance
Units that will be accrued with respect to the Participant who has been
granted Performance Units. Performance goals may be based on, without
limitation, Company-wide, divisional and/or
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individual performance, as the Committee, in its sole discretion, may
determine, and may be based on the performance measures listed in Section
12.3 below.
10.3 Adjustment of Performance Goals. With respect to those Performance Shares
or Performance Units that are not intended to qualify as Performance-Based
Awards (as described in Section 12 below), the Committee shall have the
authority at any time to make adjustments to performance goals for any
outstanding Performance Shares or Performance Units which the Committee
deems necessary or desirable unless at the time of establishment of the
performance goals the Committee shall have precluded its authority to make
such adjustments.
10.4 Payout of Performance Shares or Performance Units. Subject to a
Participant's election to defer in accordance with Section 17.3 below,
upon the Vesting of a Performance Share or a Performance Unit, the shares
of Common Stock representing the Performance Share or the Performance Unit
shall be distributed to the Participant, unless the Committee, in its sole
discretion, provides for the payment of the Performance Share or a
Performance Unit in cash (or partly in cash and partly in shares of Common
Stock) equal to the value of the shares of Common Stock which would
otherwise be distributed to the Participant.
11.0 CASH AWARDS
11.1 In General. The Committee may, in its sole discretion, grant Cash Awards
to Employees, Nonemployee Directors, and/or Independent Contractors as
additional compensation or in lieu of other compensation for services to
the Company. A Cash Award shall be subject to such terms and conditions as
the Committee, in its sole discretion, determines appropriate including,
without limitation, determining the Vesting Date with respect to such Cash
Award, the criteria for the Vesting of such Cash Award, and the right of
the Company to require the Participant to repay the Cash Award (with or
without interest) upon termination of the Participant's employment within
specified periods.
12.0 PERFORMANCE-BASED AWARDS
12.1 In General. The Committee, in its sole discretion, may designate Awards
granted under the Plan as Performance-Based Awards (as defined below) if
it determines that such compensation might not be tax deductible by the
Company due to the deduction limitation imposed by Code Section 162(m).
Accordingly, an Award granted under the Plan may be granted in such a
manner that the compensation attributable to such Award is intended by the
Committee to qualify as "performance-based compensation" (as such term is
used in Code Section 162(m) and the Treasury Regulations thereunder) and
thus be exempt from the deduction limitation imposed by Code Section
162(m) ("Performance-Based Awards").
12.2 Qualification of Performance-Based Awards. Awards shall only qualify as
Performance-Based Awards under the Plan if:
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(a) at the time of grant the Committee is comprised solely of two or
more "outside directors" (as such term is used in Code Section
162(m) and the Treasury Regulations thereunder);
(b) with respect to either the granting or Vesting of an Award (other
than (i) a Nonqualified Stock Option or (ii) an SAR, which are
granted with an exercise price at or above the Fair Market Value of
the Common Stock on the date of grant), such Award is subject to the
achievement of a performance goal or goals based on one or more of
the performance measures specified in Section 12.3 below;
(c) the Committee establishes in writing (i) the objective
performance-based goals applicable to a given performance period and
(ii) the individual employees or class of employees to which such
performance-based goals apply no later than 90 days after the
commencement of such performance period (but in no event after 25
percent of such performance period has elapsed);
(d) no compensation attributable to a Performance-Based Award will be
paid to or otherwise received by a Participant until the Committee
certifies in writing that the performance goal or goals (and any
other material terms) applicable to such performance period have
been satisfied; and
(e) after the establishment of a performance goal, the Committee shall
not revise such performance goal (unless such revision will not
disqualify compensation attributable to the Award as
"performance-based compensation" under Code Section 162(m)) or
increase the amount of compensation payable with respect to such
Award upon the attainment of such performance goal.
12.3 Performance Measures. The Committee may use the following performance
measures (either individually or in any combination) to set performance
goals with respect to Awards intended to qualify as Performance-Based
Awards: net sales; pretax income before allocation of corporate overhead
and bonus; budget; cash flow; earnings per share; net income; division,
group or corporate financial goals; return on stockholders' equity; return
on assets; attainment of strategic and operational initiatives;
appreciation in and/or maintenance of the price of the Common Stock or any
other publicly-traded securities of the Company; market share; gross
profits; earnings before interest and taxes; earnings before interest,
taxes, depreciation and amortization; economic value-added models;
comparisons with various stock market indices; increase in number of
customers; and/or reductions in costs.
13.0 CHANGE IN CONTROL
13.1 Accelerated Vesting. Notwithstanding any other provision of this Plan to
the contrary, if there is a Change in Control of the Company, the
Committee, in its sole discretion, may take such actions as it deems
appropriate with respect to outstanding Awards, including,
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without limitation, accelerating the Vesting Date and/or payout of such
Awards; provided, however, that such action shall not conflict with any
provision contained in an Award Agreement unless such provision is amended
in accordance with Section 16.3 below.
13.2 Cashout. The Committee, in its sole discretion, may determine that, upon
the occurrence of a Change in Control of the Company, all or a portion of
certain outstanding Awards shall terminate within a specified number of
days after notice to the holders, and each such holder shall receive an
amount equal to the value of such Award on the date of the change in
control, and with respect to each share of Common Stock subject to a Stock
Option or SAR, an amount equal to the excess of the Fair Market Value of
such shares of Common Stock immediately prior to the occurrence of such
change in control over the exercise price per share of such Stock Option
or SAR. Such amount shall be payable in cash, in one or more kinds of
property (including the property, if any, payable in the transaction) or
in a combination thereof, as the Committee, in its sole discretion, shall
determine.
13.3 Assumption or Substitution of Awards. Notwithstanding anything contained
in the Plan to the contrary, the Committee may, in its sole discretion,
provide that an Award may be assumed by any entity which acquires control
of the Company or may be substituted by a similar award under such
entity's compensation plans.
14.0 TERMINATION OF EMPLOYMENT IF PARTICIPANT IS AN EMPLOYEE
14.1 Termination of Employment Due to Death or Disability. Subject to any
written agreement between the Company and a Participant, if a
Participant's employment is terminated due to death or Disability:
(a) all non-Vested portions of Awards held by the Participant on the
date of the Participant's death or the date of the termination of
his or her employment, as the case may be, shall immediately be
forfeited by such Participant as of such date; and
(b) all Vested portions of Stock Options and SARs held by the
Participant on the date of the Participant's death or the date of
the termination of his or her employment, as the case may be, shall
remain exercisable until the earlier of:
(i) the end of the 12-month period following the date of the
Participant's death or the date of the termination of his or
her employment, as the case may be, or
(ii) the date the Stock Option or SAR would otherwise expire.
14.2 Termination of Employment for Cause. Subject to any written agreement
between the Company and a Participant, if a Participant's employment is
terminated by the Company for cause, all Awards held by a Participant on
the date of the termination of his or her employment for Cause, whether
Vested or non-Vested, shall immediately be forfeited by such Participant
as of such date.
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14.3 Other Terminations of Employment. Subject to any written agreement between
the Company and a Participant, if a Participant's employment is terminated
for any reason other than for Cause or other than due to death or
Disability:
(a) all non-Vested portions of Awards held by the Participant on the
date of the termination of his or her employment shall immediately
be forfeited by such Participant as of such date; and
(b) all Vested portions of Stock Options and/or SARs held by the
Participant on the date of the termination of his or her employment
shall remain exercisable until the earlier of (i) the end of the
90-day period following the date of the termination of the
Participant's employment or (ii) the date the Stock Option or SAR
would otherwise expire.
14.4 Committee Discretion. Notwithstanding anything contained in the Plan to
the contrary, the Committee may, in its sole discretion, provide that:
(a) any or all non-Vested portions of Stock Options and/or SARs held by
the Participant on the date of the Participant's death and/or the
date of the termination of his or her employment shall immediately
become exercisable as of such date shall remain exercisable until a
date that occurs on or prior to the date the Stock Option or SAR is
scheduled to expire;
(b) any or all Vested portions of Nonqualified Stock Options and/or SARs
held by the Participant on the date of the Participant's death
and/or the date of the termination of his or her employment shall
remain exercisable until a date that occurs on or prior to the date
the Stock Option or SAR is scheduled to expire; and/or
(c) any or all non-Vested portions of Stock Awards, Stock Units,
Performance Shares, Performance Units, and/or Cash Awards held by
the Participant on the date of the Participant's death and/or the
date of the termination of his or her employment shall immediately
Vest or shall become Vested on a date that occurs on or prior to the
date the Award is scheduled to vest.
15.0 TAXES
15.1 Withholding Taxes. With respect to Employees, the Company, or the
applicable Subsidiary, may require a Participant who has become vested in
his or her Stock Award, Stock Unit, Performance Share or Performance Unit
granted hereunder, or who exercises a Stock Option or SAR granted
hereunder to reimburse the corporation which employs such Participant for
any taxes required by any governmental regulatory authority to be withheld
or otherwise deducted and paid by such corporation or entity in respect of
the issuance or disposition of such shares or the payment of any amounts.
In lieu thereof, the corporation or entity which employs such Participant
shall have the right to withhold the amount of such taxes from any other
sums due or to become due from such corporation or
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<PAGE> 18
entity to the Participant upon such terms and conditions as the Committee
shall prescribe. The corporation or entity that employs such Participant
may, in its discretion, hold the stock certificate to which such
Participant is entitled upon the vesting of a Stock Award, Stock Unit,
Performance Share or Performance Unit or the exercise of a Stock Option or
SAR as security for the payment of such withholding tax liability, until
cash sufficient to pay that liability has been accumulated.
15.2 Use of Common Stock to Satisfy Withholding Obligation. With respect to
Employees, at any time that the Company, Subsidiary or other entity that
employs such Participant becomes subject to a withholding obligation under
applicable law with respect to the vesting of a Stock Award, Stock Unit,
Performance Share or Performance Unit or the exercise of a Nonqualified
Stock Option (the "Tax Date"), except as set forth below, a holder of such
Award may elect to satisfy, in whole or in part, the holder's related
personal tax liabilities (an "Election") by (i) directing the Company,
Subsidiary or other entity that employs such Participant to withhold from
shares issuable in the related vesting or exercise either a specified
number of shares or shares of Common Stock having a specified value (in
each case equal to the related minimum statutory personal withholding tax
liabilities with respect to the applicable taxing jurisdiction in order to
comply with the requirements for a "fixed plan" under Accounting
Principals Board Opinion No. 25), (ii) tendering shares of Common Stock
previously issued pursuant to the exercise of a Stock Option or other
shares of the Common Stock owned by the holder, or (iii) combining any or
all of the foregoing Elections in any fashion. An Election shall be
irrevocable. The withheld shares and other shares of Common Stock tendered
in payment shall be valued at their Fair Market Value of the Common Stock
on the Tax Date. The Committee may disapprove of any Election, suspend or
terminate the right to make Elections or provide that the right to make
Elections shall not apply to particular shares or exercises. The Committee
may impose any additional conditions or restrictions on the right to make
an Election as it shall deem appropriate, including conditions or
restrictions with respect to Section 16 of the Exchange Act.
15.3 No Guarantee of Tax Consequences. No person connected with the Plan in any
capacity, including, but not limited to, the Company and any Subsidiary
and their directors, officers, agents and employees makes any
representation, commitment, or guarantee that any tax treatment,
including, but not limited to, federal, state and local income, estate and
gift tax treatment, will be applicable with respect to amounts deferred
under the Plan, or paid to or for the benefit of a Participant under the
Plan, or that such tax treatment will apply to or be available to a
Participant on account of participation in the Plan.
16.0 AMENDMENT AND TERMINATION
16.1 Termination of Plan. The Board may suspend or terminate the Plan at any
time with or without prior notice; provided, however, that no action
authorized by this Section 16.1 shall reduce the amount of any outstanding
Award or change the terms and conditions thereof without the Participant's
consent.
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16.2 Amendment of Plan. The Board may amend the Plan at any time with or
without prior notice; provided, however, that no amendment or termination
may adversely affect the rights of any participant under any outstanding
Award without the Participant's consent.
16.3 Amendment or Cancellation of Award Agreements. The Committee may amend or
modify any Award Agreement at any time by mutual agreement between the
Committee and the Participant or such other persons as may then have an
interest therein. In addition, by mutual agreement between the Committee
and a Participant or such other persons as may then have an interest
therein, Awards may be granted to an Employee, Nonemployee Director or
Independent Contractor in substitution and exchange for, and in
cancellation of, any Awards previously granted to such Employee,
Nonemployee Director or Independent Contractor under the Plan, or any
award previously granted to such Employee, Nonemployee Director or
Independent Contractor under any other present or future plan of the
Company or any present or future plan of an entity which (i) is purchased
by the Company, (ii) purchases the Company, or (iii) merges into or with
the Company.
17.0 MISCELLANEOUS
17.1 Other Provisions. Awards granted under the Plan may also be subject to
such other provisions (whether or not applicable to the Award granted to
any other Participant) as the Committee determines on the date of grant to
be appropriate, including, without limitation, for the installment
purchase of Common Stock under Stock Options, to assist the Participant in
financing the acquisition of Common Stock, for the forfeiture of, or
restrictions on resale or other disposition of, Common Stock acquired
under any Stock Option, for the acceleration of Vesting of Awards in the
event of a Change in Control of the Company, for the payment of the value
of Awards to Participants in the event of a Change in Control of the
Company, or to comply with federal and state securities laws, or
understandings or conditions as to the Participant's employment in
addition to those specifically provided for under the Plan.
17.2 Transferability. Each Award granted under the Plan to a Participant shall
not be transferable otherwise than by will or the laws of descent and
distribution, and Stock Options and SARs shall be exercisable, during the
Participant's lifetime, only by the Participant. In the event of the death
of a Participant, each Stock Option or SAR theretofore granted to him or
her shall be exercisable during such period after his or her death as the
Committee shall, in its sole discretion, set forth in the Award Agreement
on the date of grant and then only by the executor or administrator of the
estate of the deceased Participant or the person or persons to whom the
deceased Participant's rights under the Stock Option or SAR shall pass by
will or the laws of descent and distribution. Notwithstanding the
foregoing, the Committee, in its sole discretion, may permit the
transferability of a Stock Option by a Participant solely to members of
the Participant's immediate family or trusts or family partnerships or
other similar entities for the benefit of such persons, and subject to
such terms, conditions, restrictions and/or limitations, if any, as the
Committee may establish and include in the Award Agreement.
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<PAGE> 20
17.3 Election to Defer Compensation Attributable to Award. The Committee may,
in its sole discretion, allow a Participant to elect to defer the receipt
of any compensation attributable to an Award under guidelines and
procedures to be established by the Committee after taking into account
the advice of the Company's tax counsel.
17.4 Listing of Shares and Related Matters. If at any time the Committee shall
determine that the listing, registration or qualification of the shares of
Common Stock subject to any Award on any securities exchange or under any
applicable law, or the consent or approval of any governmental regulatory
authority, is necessary or desirable as a condition of, or in connection
with, the granting of an Award or the issuance of shares of Common Stock
thereunder, such Award may not be exercised, distributed or paid out, as
the case may be, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Committee.
17.5 No Right, Title, or Interest in Company Assets. Participants shall have no
right, title, or interest whatsoever in or to any investments which the
Company may make to aid it in meeting its obligations under the Plan.
Nothing contained in the Plan, and no action taken pursuant to its
provisions, shall create or be construed to create a trust of any kind, or
a fiduciary relationship between the Company and any Participant,
beneficiary, legal representative or any other person. To the extent that
any person acquires a right to receive payments from the Company under the
Plan, such right shall be no greater than the right of an unsecured
general creditor of the Company. All payments to be made hereunder shall
be paid from the general funds of the Company and no special or separate
fund shall be established and no segregation of assets shall be made to
assure payment of such amounts except as expressly set forth in the Plan.
The Plan is not intended to be subject to the Employee Retirement Income
Security Act of 1974, as amended.
17.6 No Right to Continued Employment or Service or to Grants. The
Participant's rights, if any, to continue to serve the Company as a
director, officer, employee, independent contractor or otherwise, shall
not be enlarged or otherwise affected by his or her designation as a
Participant under the Plan, and the Company or the applicable Subsidiary
reserves the right to terminate the employment of any Employee or the
services of any Independent Contractor or director at any time. The
adoption of the Plan shall not be deemed to give any Employee, Nonemployee
Director, Independent Contractor or any other individual any right to be
selected as a Participant or to be granted an Award.
17.7 Awards Subject to Foreign Laws. The Committee may grant Awards to
individual Participants who are subject to the tax laws of nations other
than the United States, and such Awards may have terms and conditions as
determined by the Committee as necessary to comply with applicable foreign
laws. The Committee may take any action which it deems advisable to obtain
approval of such Awards by the appropriate foreign governmental entity;
provided, however, that no such Awards may be granted pursuant to this
Section 17.7 and no action may be taken which would result in a violation
of the Exchange Act or any other applicable law.
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<PAGE> 21
7.8 Governing Law. The Plan, all Awards granted hereunder, and all actions
taken in connection herewith shall be governed by and construed in
accordance with the laws of the State of New York without reference to
principles of conflict of laws, except as superseded by applicable federal
law or as otherwise provided in any Award Agreement.
17.9 Other Benefits. No Award granted under the Plan shall be considered
compensation for purposes of computing benefits under any retirement plan
of the Company or any Subsidiary nor affect any benefits or compensation
under any other benefit or compensation plan of the Company or any
Subsidiary now or subsequently in effect.
17.10 No Fractional Shares. No fractional shares of Common Stock shall be issued
or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, Common Stock, Stock Options, or other property
shall be issued or paid in lieu of fractional shares or whether such
fractional shares or any rights thereto shall be forfeited or otherwise
eliminated.
17.11 Authority of the Company and Shareholders. The existence of the Plan, the
Award Agreements and the Awards granted hereunder shall not affect or
restrict in any way the right or power of the Company or the shareholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of stock
or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior
to or affect the Common Stock or the rights thereof or which are
convertible into or exchangeable for Common Stock, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding, whether
of a similar character or otherwise.
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<PAGE> 1
EXHIBIT 10.20.1
EMPLOYMENT AGREEMENT
This sets forth the Employment Agreement ("Agreement") made
effective as of April 1, 1998 between TELERGY, INC., a New York corporation with
its principal office at 5784 Widewaters Parkway, Syracuse, New York 13214
("Employer") and J. PATRICK BARRETT, who resides in Manlius, New York
("Employee").
IN CONSIDERATION of the mutual agreements and covenants contained
herein, and other good and valuable consideration, the parties agree as follows:
1. Employment. Employer hereby employs Employee, and Employee hereby
agrees to serve, as President and Chief Operating Officer of Employer, for an
"Initial Term" commencing April 1, 1998 and ending on March 31, 2000. This
Agreement shall then automatically renew for successive terms of one year (each
one year term being a "Renewal Term") until either party notifies the other of
its intention not to renew this Agreement by giving the other party notice in
writing at least ninety (90) days prior to the end of the applicable term.
2. Duties. Employee shall have primary responsibility, subject to the
control of Employer's Board of Directors, for the management and supervision of
all operational aspects of Employer's business, and the discharge of such other
duties and responsibilities as may from time to time be reasonably assigned to
Employee by the Chief Executive Officer of Employer or by Employer's Board of
Directors. Employee shall report to the Chief Executive Officer of Employer.
Employee shall devote his best efforts to the affairs of Employer, serve
faithfully and to the best of his ability, and devote his attention, knowledge,
experience, energy and skill to the business of Employer. However, Employer
recognizes that Employee is engaged in other businesses and investments, and
this Agreement shall not preclude or restrict Employee from
<PAGE> 2
engaging in other business activities so long as these activities do not compete
or unreasonably interfere with the business of Employer. Further, Employee may
continue to participate in various business, political, and civic organizations
and affairs.
Employee shall be a member of Employer's Board of Directors.
3. Base Salary. During the period of April 1, 1998 through December
31, 1998, Employer shall pay Employee a base salary at an annual rate of
$150,000 ("Base Salary"), payable in accordance with Employer's regular payroll
practices for its executive employees. Employee's Base Salary shall be reviewed
annually by the Board of Directors of Employer commencing in January, 1999, with
any adjustments to be made in the sole discretion of the Board of Directors of
Employer provided that no adjustment shall result in a decrease in Employee's
Base Salary from the preceding year. If the Board of Directors makes an
adjustment in Employee's Base Salary, the adjustment shall be effective as of
the first day of the following month.
4. Bonuses. So long as Employee is in the employ of Employer as of
December 31 each year, Employer shall pay Employee a bonus of at least $100,000.
This bonus shall be payable in January each year commencing with January, 1999.
The amount of this bonus may be increased in the discretion of the Board of
Directors of Employer.
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<PAGE> 3
5. Fringe Benefits.
(a) Benefit Plans. Employee shall be eligible to participate
in any employee pension benefit plans, group life insurance plans, medical
plans, dental plans, long-term disability plans, stock option plans, incentive
compensation plans, business travel insurance programs and other fringe benefit
programs as may be maintained by Employer for the benefit of its executive
employees. Participation in any of Employer's benefit plans and programs shall
be subject to satisfaction of the eligibility requirements and other conditions
of such plans and programs.
(b) Other Benefits. Employee also shall be entitled to five
weeks paid vacation during each calendar year (with no carry over of unused
vacation to a subsequent year), any holidays that may be provided to all
employees of Employer in accordance with Employer's holiday policy, and
reasonable sick leave.
(c) Expenses. Upon submission to Employer of vouchers or other
requisite documentation, Employee shall be reimbursed for Employee's actual
out-of-pocket travel and other expenses reasonably incurred and paid by Employee
in connection with Employee's duties hereunder, not to include club dues or
membership fees.
6. Stock Options.
(a) Grant. In order to induce Employee to enter into this
Agreement and in consideration of his undertaking the duties and obligations set
forth herein, Employer hereby grants Employee an irrevocable option (the
"Option") to purchase up to one hundred thousand (100,000) shares of Employer's
Class A Common stock (the "Option Shares"). The purchase price for the Option
Shares shall equal one cent ($.01) per share (the "Option Price"). The Option
shall not be subject to forfeiture for any reason and it shall continue to be
effective
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<PAGE> 4
notwithstanding the termination of Employee's employment hereunder for any
reason, including termination for cause. The Employee's rights under the Option
shall be non-transferable except that if Employee dies before he has purchased
all of the Option Shares, the unexercised portion of the Option may be exercised
by Employee's estate. The foregoing notwithstanding the Option shall
automatically expire to the extent unexercised ten years from the date of this
Agreement.
(b) Manner of Exercise. Employee may exercise the Option at
any time either in whole or in installments provided that each exercise shall be
for at least twenty five thousand (25,000) shares. Employee shall exercise his
Option by written notice to Employer as provided in Section 13(e), which notice
shall be accompanied by payment of the Option Price for the Option Shares then
being purchased. Certificates representing the Option Shares thereby purchased
shall be issued and delivered to Employee within thirty (30) days after delivery
of Employee's notice of exercise to Employer. Stock certificates issued for
Option Shares shall contain the following legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 or any state securities law. No
sale or other disposition of the shares represented by this
certificate may be made without an effective registration under the
Securities Act or an opinion of counsel reasonably satisfactory to
the company and its counsel that such registration is not required."
(c) Put Right. To the extent that Employee purchases Option
Shares after March 31, 2001, if the Option Shares are not resalable in a public
market, then during the thirteen (13) months following each exercise of the
Option by Employee, Employee shall have the right (the "Put Right") to require
Employer to redeem a portion of the Option Shares for an aggregate redemption
price of up to forty percent (40%) of the fair market value of the Option Shares
on the date the Option was exercised. The number of Option Shares to be redeemed
by
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<PAGE> 5
Employer upon exercise of the Put Right shall be determined based upon a price
per share equal to the fair market value of the shares on the date Employee
exercised his Option to purchase the shares or on the date Employee exercises
his Put Right, whichever is higher. (40% of total FMV of Option Shares on date
of exercise / greater of FMV per share on exercise date of Option or Put =
number of shares to be redeemed.) Employee's Put Right shall be exercised by
written notice to Employer as provided in Section 13(e), and the closing of the
redemption shall take place within thirty (30) days thereafter. The redemption
price shall be paid in cash at closing. To the extent that Employee purchases
Option Shares prior to April 1, 2001, Employee may exercise his Put Right with
respect to such shares during the period April 1, 2001 through September 30,
2001, if the Option Shares are not then resalable in a public market.
(d) Governmental Approvals. Employer will from time to time
take all action which may be necessary to obtain any consents and approvals of
governmental agencies and authorities which may be or become requisite in
connection with the grant of this Option and the issuance, sale and delivery of
the Option Shares, including securing any necessary approvals from the New York
Public Service Commission.
(e) Anti-dilution; Preemptive Rights. If Employer should have
a stock split, stock dividend, or other division of its Class A Common shares
while the Option is outstanding, the number of then unexercised Option Shares
shall be increased pro rata. (Conversely, in the event of a reverse split or
other combination which has the effect of reducing the total number of the
Employer's Class A Common shares outstanding, the number of the then unexercised
Option Shares shall be reduced pro rata.) In the event of any offering or sale
by Employer of its Class A Common shares other than through a public offering,
Employee shall have a preemptive right to purchase such number of shares at the
offering price as will enable
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<PAGE> 6
Employee to preserve his relative ownership interest in Employer's common stock.
This subsection (e) shall terminate upon a public offering of common shares by
Employer.
(f) Additional Right of Sale. By executing this Agreement,
Brian P. Kelly and Kevin J. Kelly agree that they will promptly notify Employee
of negotiations with any third party to purchase or otherwise acquire a majority
of their Class A or Class C Common shares, and that they will afford Employee
the right to participate on equivalent terms in such sale or other transfer up
to the total amount of his Option Shares.
(g) "Most Favored Nation". If Employer hereafter adopts any
stock option plan with more favorable terms than those provided in this Section,
such terms shall likewise be made available to Employee and Employee's rights
under this Section 6 shall, at Employee's option, be deemed to be amended
accordingly.
7. Transfer Restrictions; Registration Rights.
(a) Any Class A Shares purchased by Employee pursuant to the
exercise of the Option will be subject to transfer restrictions imposed by the
Securities Act of 1933 and the securities laws of the State of New York and any
other State having jurisdiction. Further, as part of any registration or public
offering of Class A Shares by Employer, Employee shall be subject to whatever
restrictions on transfer are imposed generally by the underwriter, in connection
with the registration or public offering, on officers, directors and existing
holders of the Class A Shares then outstanding, provided that these restrictions
shall not exceed one hundred eighty (180) days following the registration or
public offering without the written agreement of Employee; however, Employee
during such restricted period, shall be permitted to sell its Class A Shares in
one (1) private transaction at a price which is not less than the market value
for publicly traded shares, provided that Employee obtains an opinion of
counsel,
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<PAGE> 7
acceptable to Employer, that such sale will not be in violation of the
Securities Act of 1933 or the securities laws of the State of New York or any
other State having jurisdiction, and an opinion from the lead underwriter for
the public offering that the proposed transaction will not jeopardize the public
offering. In the event of a public offering of Class A Shares by Employer other
than an initial public offering, or if Class A Shares owned by shareholders
other than Employee are to be registered with the Securities and Exchange
Commission, then Employee shall have the registration rights set forth in this
Section 7.
(b) Employer agrees that there shall be no restrictions
imposed on Employee's ability to sell his Class A Shares in one or more private
transactions prior to a public offering of Employer's stock, provided that no
such private sale shall be permitted unless and until Employer is provided with
an opinion of counsel, reasonably satisfactory to Employer and its counsel, that
registration is not required under the Securities Act of 1933 or the securities
laws of the State of New York or any other State having jurisdiction, and that
the proposed private sale will not be in a violation of any applicable
securities laws.
(c) Employer agrees that if at anytime after an initial public
offering of its shares, Employer proposes to register additional shares with the
Securities Exchange Commission for sale to the public by Employer (i.e., a
primary offering), it will give Employee written notice in the manner provided
in Section 13(e) of this Agreement, of its intention to do so at least sixty
(60) days prior to the anticipated filing date of the registration statement.
Thereafter, upon Employee's written request made in the manner provided in
Section 13(e) within thirty (30) days after the date of the notice from
Employer, Employer shall cause such number of shares then owned by Employee as
Employee may request to be included in the registration. If, however, the
primary offering by Employer is to be an underwritten offering,
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<PAGE> 8
and if the managing underwriter determines in good faith that the amount of
shares to be sold in the proposed offering by persons other than Employer
(including Employee) is greater than the amount that can be offered without
adversely affecting Employer's primary offering, Employer may reduce the number
of shares to be registered by Employee and/or any other shareholders of Employer
to such number of shares as is deemed satisfactory by the managing underwriter
so long as such reduction is imposed pro rata on all shareholders other than
Employer who wish to have their shares included in the registration. Employer
shall be responsible for payment of all expenses incurred in effectuating the
registration including, without limitation, registration and filing fees,
printing expenses, fees and disbursements of counsel for Employer, and the
expenses of any audits incident to or required by such registration.
(d) Employer agrees that in the event Employer plans to
register any Class A Shares owned by shareholders other than Employee with the
Securities and Exchange Commission (i.e., a secondary offering), Employer shall
give Employee written notice in the manner provided in Section 13(e), of its
intention to do so at least sixty (60) days prior to the anticipated filing date
of the registration statement. Such notice shall specify the number of the Class
A Shares to be registered and the percentage of the total Class A Shares issued
and outstanding (excluding the Class A Shares then owned by Employee),
represented by the number of shares to be registered. Thereafter, upon
Employee's written request made in the manner provided in Section 13(e) within
thirty (30) days after the date of the notice from Employer, Employer shall
cause up to an equal percentage of the Class A Shares then owned by Employee to
be included in the registration. (For example, if one-half of the Class A Shares
owned by shareholders other than Employee are to be registered, Employee may
require Employer to include up to one-half of Employee's Class A Shares in the
registration). Employee agrees to
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<PAGE> 9
pay Employer its proportionate share of all expenses incurred by Employer in
effectuating the registration of the secondary offering including, without
limitation, registration and filing fees, printing expenses, fees and
disbursements of counsel for Employer, and the expenses of any audits incident
to or required by such registration.
8. Withholding. Employer shall deduct and withhold from compensation
and benefits provided under this Agreement, except Employee's exercise of the
Option, all necessary income and employment taxes and any other similar sums
required by law to be withheld.
9. Termination. This Agreement, and Employee's employment by
Employer, shall be subject to termination as follows:
(a) Expiration of Term. This Agreement shall terminate
automatically at the end of the Initial Term or any Renewal Term if written
notice of an election not to renew is given in accordance with Section 1 of this
Agreement. Employee's Base Salary shall continue to be paid until the expiration
of the then current term.
(b) Termination Upon Death. This Agreement shall terminate
automatically upon Employee's death. Base Salary accrued but unpaid as of the
date of Employee's death shall be paid to Employee's estate.
(c) Termination Upon Disability.
(i) Employer may terminate this Agreement upon
Employee's "Disability". For purposes of this Agreement, Employee's
inability to perform his duties hereunder by reason of physical or mental
illness or injury for a period of ninety (90) consecutive days shall
constitute "Disability." The determination of Disability shall be made by
a physician selected by Employer.
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<PAGE> 10
(ii) During any waiting period under Employer's
disability benefits plan or policy covering executive employees, Employee
shall be entitled to 100% of Employee's Base Salary otherwise payable
during that period, reduced by any other Employer provided benefits to
which Employee may be entitled for the same period on account of such
disability including, but not limited to, benefits provided under any
disability insurance policy or program, workers' compensation law, or any
other benefit program or arrangement.
(d) Early Termination.
(i) By Employer. Employer may terminate this Agreement
and the Employee's employment hereunder for "cause" by written notice to
Employee in the manner provided in Section 13(e). For purposes of this
Agreement, "cause" shall mean:
(1) Employee's material breach of this Agreement,
or unreasonable neglect or refusal to perform his duties, after sixty (60)
days' prior written notice in the manner provided in Section 13(e) and
opportunity to cure; or
(2) Employee's conviction of a felony involving
theft, dishonesty or fraud.
Employer may also terminate this Agreement without cause during the
Initial Term or any Renewal Term, but in the event of such termination Employer
shall pay Employee a severance payment equal to the total of his then current
Base Salary for the remainder of the Term plus any bonus that would have been
payable during the remaining Term. This severance payment shall be paid to
Employee within not more than thirty (30) days from the date of Employer's
notice of termination.
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<PAGE> 11
(ii) By Employee. Employee may terminate this Agreement
and his employment hereunder if (x) Brian P. Kelly and Kevin J. Kelly no longer
have voting control of Employer or (y) Employee is removed from, or not
reelected to, Employer's Board of Directors.
10. No Prior Restrictions. Employee affirms and represents that
Employee is under no obligations to any present or former employer or other
third party which is in any way inconsistent with, or which imposes any
restriction upon, the employment of Employee by Employer.
11. Indemnification. Employer shall indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, Employee and any person who is made, or is threatened to
be made, a party or is otherwise involved in any action suit or proceeding,
whether civil, criminal, administrative or investigative (a "proceeding") by
reason of the fact that Employee is or was a director, officer, employee or
agent of Employer, or is or was serving at the request for Employer as a
director, officer, employer or agent of another corporation, joint venture,
partnership, limited liability company, trust, enterprise or non-profit entity,
including service with respect to employee benefit plans, against all liability
and losses suffered and expenses reasonably incurred by Employee or his heirs or
personal representatives. Further, to the extent permitted by law, Employer
shall pay, or periodically reimburse Employee or such person for, the expenses
incurred in defending any proceeding in advance of its final disposition. The
rights provided by Employee under this Section shall be in addition to any
indemnification rights Employee may have by statute or under any provision in
Employer's certificate of incorporation or by-laws.
12. Restrictive Covenants.
-11-
<PAGE> 12
(a) Confidentiality. During the period of Employee's
employment hereunder, and for a period of three (3) years thereafter, Employee
shall not, without the prior written consent of Employer, disclose to third
parties any confidential business or technical information or trade secret
acquired in the course of Employee's employment by Employer. This restriction
shall cease to apply to any such confidential information that becomes public
knowledge independently of any action or inaction on the part of the Employee.
(b) Competition. Employee also covenants that for a period of
two (2) years after termination of his employment pursuant to this Agreement,
without the prior written consent of Employer, he will not participate or engage
in any business in competition with Employer, whether as owner, partner,
shareholder, employee, agent, consultant, officer or director, or in any other
capacity. However, these restrictions shall not apply to Employee's ownership of
shares in any public company engaged in the telecommunications business so long
as Employee's ownership does not exceed five percent (5%) of the total shares
outstanding.
(c) Enforcement. Employee acknowledges and agrees that it
would be difficult to compensate Employer fully for damages resulting from the
breach or threatened breach of the restrictive covenants set forth in this
Section, and, agrees that Employer shall be entitled to enforce these covenants
through preliminary and permanent injunctions in addition to any other remedies
available to Employer at law or equity.
13. Miscellaneous.
(a) Governing Laws. The laws of the State of New York,
(irrespective of its choice of law principles) shall govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto.
-12-
<PAGE> 13
(b) Severability. If any one or more provisions of this
Agreement, or the application thereof, shall for any reason and to any extent by
invalid or unenforceable, the remainder of this Agreement shall be interpreted
so as best to reasonably effect the intent of the parties. The parties further
agree to replace any such void or unenforceable provisions of this Agreement
with valid and enforceable provisions which will achieve, to the extent
possible, the economic, business and other purposes of the void or unenforceable
provisions.
(c) Entire Agreement; Amendment. This Agreement constitutes
the entire agreement between the parties with respect to its subject matter and
it supersedes all prior negotiations and agreements. This Agreement may be
amended only by a writing signed by both Employer and Employee.
(d) No Waiver. The failure of any party to enforce any of the
provisions of this Agreement shall not be construed to be a waiver of the right
of the party thereafter to enforce such provisions.
(e) Notices. Whenever a party desires or is required to give
any notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be delivered in person or
transmitted by telegram, or telecopy, or mailed by certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to Employer: Telergy, Inc.
5784 Widewaters Parkway
Syracuse, New York 13214
Attention: Chief Executive Officer
Telecopier: (315) 439-0388
With a copy to: Telergy, Inc.
5784 Widewaters Parkway
Syracuse, New York 13214
Attention: Executive Vice President
Telecopy: (315) 439-0388
If to Employee: J. Patrick Barrett
4605 Watergap
Manlius, New York 13104
Telecopier: (315) 682-6515
-13-
<PAGE> 14
With a copy to: Bond, Schoeneck & King, LLP
One Lincoln Center
Syracuse, New York 13202
Attention: Gary R. Germain, Esq.
Telecopier: (315) 422-3598
or in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the other. All communications shall be
deemed effective upon delivery.
(f) Assignment. Neither this Agreement nor any rights
hereunder are assignable or otherwise transferable by either party, in whole or
in part; provided, however, that Employer may assign or transfer this Agreement
and rights hereunder to any successor company upon advance written notice to
Employee and provided such assignee agrees in writing to the terms and
conditions of this Agreement.
(g) Attorneys Fees. In any action or proceeding under or
relating to this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys fees and other reasonable costs and expenses incurred in
the proceeding.
The foregoing Employment Agreement is established by the following
signatures of the parties.
TELERGY, INC.
By: /s/Brian P. Kelly
--------------------------
Brian P. Kelly,
Chief Executive Officer
/s/ J. Patrick Barrett
-----------------------------
J. PATRICK BARRETT
/s/ Brian P. Kelly
-----------------------------
BRIAN P. KELLY
/s/ Kevin J. Kelly
-----------------------------
KEVIN J. KELLY
-14-
<PAGE> 1
EXHIBIT 10.20.2
AMENDMENT TO EMPLOYMENT AGREEMENT
This sets forth an Amendment To Employment Agreement ("Amendment")
made effective as of May 28, 1999 between TELERGY, INC., a New York corporation
with its principal office at One Telergy Parkway, East Syracuse, New York 13057
("Employer") and J. PATRICK BARRETT who resides in Manlius, New York
("Employee").
By this Amendment, the Employer and Employee intend to modify and
amend the Employment Agreement between them made effective as of April 1, 1998
("Employment Agreement").
IN CONSIDERATION of the Employee's continuing efforts on behalf of
the Employer, and of other good and valuable consideration, the receipt of which
is acknowledged, the parties agree as follows:
1. Paragraph 6(a) of the Employment Agreement is hereby amended to
increase the number of Option Shares, as defined therein, by an additional one
hundred fifty thousand (150,000) shares of Employer's Class A Common stock (the
"Additional Option Shares") from one hundred thousand (100,000) shares of
Employer's Class A Common stock to two hundred fifty thousand (250,000) shares
of Employer's Class A Common stock. All rights and obligations in the Employment
Agreement affecting the Option for the original number of Option Shares,
including without limitation the Option Price and Put Right as defined in the
Employment Agreement, shall continue to apply to the Option for the Additional
Option Shares. However, the Option for the Additional Option Shares shall not be
exercised unless and until they become vested prior to their automatic
expiration on April 1, 2008. The Additional Option Shares shall vest upon the
earlier of (i) a change in the ownership or effective control of Employer
arising from a reorganization of Employer or from a sale or exchange of
Employer's voting stock by the holders of a majority of its stock, or a change
in the ownership of substantially all the assets of Employer, (ii) the closing
of an initial public offering of its stock by Employer, or (iii) approval by
Brian P. Kelly and Kevin J. Kelly, or one of them if the other is deceased or
incompetent to act. If Employee dies prior to the vesting of the Additional
Option Shares, then the Option shall be exercisable by his estate upon the
vesting of the Additional Option Shares.
2. This Amendment in no way affects the terms and conditions of the
Option for the original number of Option Shares. Except as modified and amended
hereby, the Employment Agreement remains in full force and effect in accordance
with its terms and is hereby ratified and confirmed.
The foregoing Amendment To Employment Agreement is established by
the following signatures of the parties.
TELERGY, INC.
By: /s/ Brian P. Kelly /s/ Brian P. Kelly
-------------------------- --------------------------
Brian P. Kelly Brian P. Kelly
Chief Executive Officer
By: /s/ J. Patrick Barrett /s/ Kevin J. Kelly
-------------------------- --------------------------
J. Patrick Barrett Kevin J. Kelly
<PAGE> 1
EXHIBIT 21.1
Subsidiaries
1. Telergy Operating, Inc., a Delaware corporation.
2. Telergy Mid Atlantic, LLC, a Delaware limited liability company.
3. Telergy Central, LLC, a New York limited liability company.
4. Telergy Network Services, Inc., a New York Corporation.
5. Telergy Metro LLC, a New York limited liability company.
6. Telergy Canada, Inc., a corporation organized in New Brunswick, Canada.
7. Telergy Parkway, Inc., a New York corporation.
8. Telergy East, LLC, a New York limited liability company.
<PAGE> 1
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 17, 2000 (except for the second paragraph of
Note 4, as to which the date is April 27, 2000), in the Registration Statement
(Form S-1) and related Prospectus of Telergy, Inc. dated May 10, 2000.
/s/ Ernst & Young LLP
Syracuse, New York
May 9, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 278
<SECURITIES> 0
<RECEIVABLES> 2,663
<ALLOWANCES> 230
<INVENTORY> 0
<CURRENT-ASSETS> 5,421
<PP&E> 207,512
<DEPRECIATION> 5,707
<TOTAL-ASSETS> 219,219
<CURRENT-LIABILITIES> 156,151
<BONDS> 24,793
809
0
<COMMON> 0
<OTHER-SE> 27,245
<TOTAL-LIABILITY-AND-EQUITY> 219,219
<SALES> 7,943
<TOTAL-REVENUES> 7,943
<CGS> 15,503
<TOTAL-COSTS> 15,503
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 306
<INTEREST-EXPENSE> 29,262
<INCOME-PRETAX> (62,871)
<INCOME-TAX> 3
<INCOME-CONTINUING> (62,874)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (62,874)
<EPS-BASIC> (20.31)
<EPS-DILUTED> (20.31)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Telergy, Inc. and
Subsidiaries (A Development Stage Company) as of December 31, 1999 and 1998, and
for each of the three years in the period ended December 31, 1999 and for the
period April 19, 1995 (date of inception) to December 31, 1999, and have issued
our report thereon dated March 17, 2000, except for the second paragraph of Note
4, as to which the date is April 27, 2000, (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedule listed in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Syracuse, New York
March 17, 2000
TELERGY, INC. AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BEGINNING CHARGED TO COSTS ENDING
DESCRIPTION BALANCE AND EXPENSES OTHER DEDUCTIONS(1) BALANCE
- ----------- --------- ---------------- ----- ------------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
1999...................... $150,000 $306,427 $-- $226,427 $230,000
1998...................... 50,000 135,002 -- 35,002 150,000
1997...................... -- 50,000 -- -- 50,000
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
