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EXHIBIT 10.16
OPERATING AGREEMENT
OF
TELERGY CENTRAL, LLC
DATED AS OF APRIL 24, 1998
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TABLE OF CONTENTS
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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
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TABLE OF CONTENTS (con't)
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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
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TABLE OF CONTENTS (con't)
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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
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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 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, 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.
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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 0000 Xxxxxxxxxx Xxxxxxx, Xxxxxx, Xxx Xxxx 00000,
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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(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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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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(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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(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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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/ 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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EXHIBIT A
TELERGY CENTRAL, LLC
NOTICE ADDRESSES AND TELECOPY
Members
To Telergy, Inc.:
Telergy, Inc.
0000 Xxxxxxxxxx Xxxxxxx
Xxxxxx, Xxx Xxxx 00000
Attention: Chief Executive Officer
Telecopy No.: 000-000-0000
With a copy to:
Telergy, Inc.
00 Xxxxxxxxx Xxxxx Xxxxxxxxx
Xxxxxx, Xxx Xxxx 00000
Attention: General Counsel
Telecopy No.: 000-000-0000
To Plum Street Enterprises, Inc.:
Plum Street Enterprises, Inc.
000 Xxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attention: Chief Executive Officer
Telecopy No.: 000-000-0000
With a copy to:
Plum Street Enterprises, Inc.
000 Xxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attention: General Counsel
Telecopy No.: 000-000-0000
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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)
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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
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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.
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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
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(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
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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;
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(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).
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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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(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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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.
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