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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 0000
Xxxxxxxxxx Xxxxxxx, Xxxxxx, Xxx Xxxx 00000 and PLUM STREET ENTERPRISES, INC.
("PSE"), a Delaware corporation with a mailing address at 000 Xxxx Xxxxxx,
Xxxxxxxx, Xxx Xxxx 00000. 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.
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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
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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
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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.
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IN WITNESS WHEREOF, the parties have executed this Conversion Rights
Agreement as of the day and year first above written.
TELERGY, INC.
By: /s/ Xxxxx Xxxxx
________________________________
Xxxxx X. Xxxxx
Chief Executive Officer
PLUM STREET ENTERPRISES, INC.
By: /s/ J. Xxxxxxx Xxxxxxx
________________________________
J. Xxxxxxx Xxxxxxx
President and Chief Executive Officer
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