AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 10, 2000

REGISTRATION NO. 333-


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

TELERGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            DELAWARE                                 4813                                16-1493420
(STATE OR OTHER JURISDICTION OF          (PRIMARY STANDARD INDUSTRIAL                 (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)          CLASSIFICATION CODE NUMBER)               IDENTIFICATION NUMBER)

TELERGY, INC.
ONE TELERGY PARKWAY
EAST SYRACUSE, NEW YORK 13057
TELEPHONE: (315) 362-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

STEVEN D. RUBIN
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
TELERGY, INC.
ONE TELERGY PARKWAY
EAST SYRACUSE, NEW YORK 13057
TELEPHONE: (315) 362-2800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

COPIES TO:

    JOEL S. KLAPERMAN                       MICHAEL I. KEYES                      STEPHEN A. GREENE
   SHEARMAN & STERLING               STEARNS WEAVER MILLER WEISSLER            CAHILL GORDON & REINDEL
   599 LEXINGTON AVENUE                ALHADEFF & SITTERSON, P.A.                   80 PINE STREET
 NEW YORK, NEW YORK 10022         150 WEST FLAGLER STREET, SUITE 2200          NEW YORK, NEW YORK 10005
TELEPHONE: (212) 848-4000                 MIAMI, FLORIDA 33130                TELEPHONE: (212) 701-3000
FACSIMILE: (212) 848-7179              TELEPHONE: (305) 789-3200              FACSIMILE: (212) 269-5420
                                       FACSIMILE: (305) 789-3395


APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as

practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ]

CALCULATION OF REGISTRATION FEE

--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
                 TITLE OF EACH CLASS OF                         PROPOSED MAXIMUM                 AMOUNT OF
              SECURITIES TO BE REGISTERED                      OFFERING PRICE(1)              REGISTRATION FEE
--------------------------------------------------------------------------------------------------------------------
Class A common stock, $0.0001 par value.................          $250,000,000                    $66,000
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------

(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o).

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.



THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION. DATED MAY 10, 2000.

                                               Shares

[LOGO]                           TELERGY, INC.

                              Class A Common Stock
                             ----------------------

     This is an initial public offering of shares of Class A common stock of
Telergy, Inc. All of the          shares of Class A common stock are being sold
by Telergy.

Prior to this offering, there has been no public market for the Class A common stock. It is currently estimated that the initial public offering price per share will be between $ and $ . Telergy intends to make application for quotation of the Class A common stock on the Nasdaq National Market under the symbol "TLGY".

Telergy has two classes of common stock, Class A common stock and Class C common stock. Holders of each class have identical rights, except for differences in voting. Holders of Class A common stock have one vote per share, while holders of Class C common stock have 90,000 votes per share. After this offering, the holders of Class C common stock will have % of the combined voting power of the common stock.

See "Risk Factors" beginning on page 6 to read about certain factors you should consider before buying shares of Class A common stock.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

                                                              Per Share     Total
                                                              ---------     -----
Initial public offering price...............................  $            $
Underwriting discount.......................................  $            $
Proceeds, before expenses, to Telergy.......................  $            $

To the extent that the underwriters sell more than shares of Class A common stock, the underwriters have the option to purchase up to an additional shares from Telergy at the initial public offering price, less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York,

New York on                , 2000.
GOLDMAN, SACHS & CO.                                         MERRILL LYNCH & CO.
                             ----------------------

BANC OF AMERICA SECURITIES LLC
                 CIBC WORLD MARKETS
                                            RBC DOMINION SECURITIES
                             ----------------------

                    Prospectus dated                , 2000.


ARTWORK

[Network map depicting long-haul capacity, intracity rings and switch locations.]


PROSPECTUS SUMMARY

The following summary contains basic information about Telergy and this offering. It may not contain all the information that may be important to you. You should read this entire prospectus before making an investment decision. References in this prospectus to "we" includes Telergy, Inc. and our subsidiaries and our investment in Telergy East.

THE COMPANY

OVERVIEW

We are a facilities-based provider of integrated broadband telecommunications services and high-bandwidth fiber optic capacity in the northeastern United States. Our network is designed to be a regional fiber optic intranet combining direct last-mile connections to our customers, intracity rings and long-haul capacity. We are building our network on what we believe to be the broadest contiguous rights-of-way in the region, primarily using access rights granted to us by four utility companies with which we have developed unique relationships. We currently offer both traditional telecommunications services as well as enhanced services such as video storage and streaming. We are installing equipment necessary to provide additional enhanced services, including data storage and disaster recovery, and expect to offer these services by the end of 2000. We market our services to large businesses and institutions in the healthcare, education, finance and government sectors, medium- and small-sized businesses with enterprise networking needs and telecommunications carriers.

Our agreements with Niagara Mohawk Power Corporation, or Niagara Mohawk; Consolidated Edison Company of New York, or ConEd; New York State Electric and Gas, or NYSEG; and GPU Telcom Services, Inc., or GPU Telcom, provide us with last-mile access to virtually every customer and building in our region, including those in New York City. By the end of 2001, we expect our network to be comprised of approximately 586,000 fiber miles over 3,200 route miles extending from Washington, D.C. to Montreal. As of April 15, 2000, we had constructed or entered into agreements for indefeasible rights-of-use for approximately 202,000 fiber miles over 1,800 route miles in New York, New Jersey, Pennsylvania, Washington, D.C. and Maryland. Our agreements with utilities allow us to build our network in a capital efficient manner by significantly reducing the last-mile barriers to entry, construction time and associated costs. In addition, these agreements eliminate most recurring fees typically paid to owners of rights-of-way, in exchange for telecommunications capacity. Substantially all of the utility rights-of-way have never before been used for commercial telecommunications purposes, making our services attractive to customers seeking a geographically diverse network.

In addition to our utility relationships, we have formed strategic relationships with MasTec North America, Inc.; or MasTec, Nortel Networks, or Nortel; and EMC Corp., or EMC. MasTec provides us with network construction expertise. Nortel offers advanced equipment, support services and vendor financing. Through our relationship with EMC, we are jointly developing customized data and video storage solutions for our customers. In connection with this relationship, we are the first telecommunications company to install and operate an EMC video server.

Our goal is to leverage our network and relationships to become the preferred provider of broadband services in our markets. To achieve this goal, we are rapidly expanding our direct sales force and have entered into joint marketing agreements. As of April 15, 2000, we had a direct sales, marketing and customer care team of 129 employees located in five sales offices in our region. Our arrangements with Niagara Mohawk Energy, a subsidiary of Niagara Mohawk and GPU Telcom allow us to jointly market our services to their business and institutional customers. We believe these arrangements enhance our credibility with our target customers and our ability to enter new markets quickly.

Since our formation in 1995, we have raised more than $133.0 million in equity capital.

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BUSINESS STRATEGY

Our business strategy includes the following elements:

- Build an end-to-end network to maximize profitability.

- Complete our network build-out and pursue additional utility relationships.

- Build out our network efficiently and cost effectively.

- Offer enhanced video and data services.

- Enhance our access to customers through joint marketing with utilities.

- Leverage our operational support system.

- Capitalize on management ability and relationships.

PRINCIPAL OFFICES

Our principal executive offices are located at One Telergy Parkway, East Syracuse, New York 13057, and our telephone number is (315) 362-2000. Our website address is www.telergy.net. Information on our website does not constitute part of this prospectus.

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THE OFFERING

Class A common stock offered.................                     shares
Common stock to be outstanding after this
  offering:
  Class A common stock.......................                     shares
  Class C common stock.......................                   100 shares
          Total..............................                     shares
Voting rights................................  Holders of each class of our common stock
                                               have identical rights, except for differences
                                               in voting. Holders of our Class A common
                                               stock have one vote per share, while holders
                                               of our Class C common stock have 90,000 votes
                                               per share. After this offering, the holders
                                               of our Class C common stock will have      %
                                               of the combined voting power of the common
                                               stock. Brian P. Kelly and Kevin J. Kelly,
                                               through their ownership of our Class C common
                                               stock, will continue to have the power to
                                               elect all of our directors and control
                                               stockholder decisions.
Proposed Nasdaq National Market symbol.......  TLGY
Use of proceeds..............................  We expect to use the net proceeds for further
                                               development of our network, expansion of our
                                               sales and marketing organization, working
                                               capital, capital expenditures, acquisitions
                                               and other general corporate purposes.

The number of shares of our Class A common stock outstanding excludes shares issuable:

- upon the exercise of outstanding stock options and warrants except for warrants to acquire 564,227 shares of our Class A common stock which expire upon completion of this offering; and

- for payment of current returns on 358,239 shares of our Class A common stock. See "Description of Capital Stock -- Minimum Returns on Investment".

Except as otherwise indicated, all information in this prospectus assumes:

- no exercise of the underwriters' over-allotment option;

- the conversion or exchange of all of our preferred stock for shares of our Class A common stock; and

- the conversion of Niagara Mohawk Energy's membership interest in Telergy Central into shares of our Class A common stock.

You should refer to the section entitled "Risk Factors" for an explanation of certain risks of investing in our Class A common stock.

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SUMMARY CONSOLIDATED FINANCIAL DATA

The following summarizes the consolidated financial data and operating data for our business. You should read this data along with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes presented elsewhere in this prospectus. The pro forma as adjusted consolidated balance sheet data reflect:

- the issuance in May 2000 of our Series B preferred stock and related warrants for aggregate proceeds of $20.0 million and the subsequent conversion of the Series B preferred stock and related warrants upon completion of this offering into shares of our Class A common stock, assuming an initial public offering price of $ per share;

- the exercise of warrants to acquire 564,227 shares of our Class A common stock which expire upon completion of this offering, and the cancellation and exchange of our Series A preferred stock along with the payment of $ in connection with that exercise;

- the conversion of Niagara Mohawk Energy's membership interest in Telergy Central into shares of our Class A common stock, assuming an initial public offering price of $ per share; and

- the issuance of shares of Class A common stock in this offering at an assumed initial public offering price of $ per share, but after deducting the underwriting discount and estimated expenses.

                                                                 YEAR ENDED DECEMBER 31,
                                                         ---------------------------------------
                                                            1997          1998          1999
                                                         ----------    ----------    -----------
                                                          (IN THOUSANDS, EXCEPT OPERATING DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Service revenue........................................   $  2,516      $  5,206      $   7,944
Operating expenses:
  Cost of services.....................................      2,709         7,477         15,503
  Selling, general and administrative..................      4,642         8,998         19,659
  Depreciation and amortization........................        321         1,737          4,587
  Non-cash stock-based compensation....................        124         5,999          2,687
                                                          --------      --------      ---------
Total operating expenses...............................      7,796        24,211         42,436
                                                          --------      --------      ---------
Operating loss.........................................     (5,280)      (19,005)       (34,492)
Interest expense, net..................................       (522)      (14,625)       (28,879)
Net loss...............................................   $ (5,394)     $(34,957)     $ (62,874)
                                                          ========      ========      =========

OTHER CONSOLIDATED FINANCIAL DATA:
Capital expenditures(1)................................   $ 26,162      $ 35,599      $ 131,450
EBITDA(2)..............................................     (4,836)      (11,269)       (27,219)
Net cash used in operations............................       (418)      (14,764)       (34,751)
Net cash used in investing activities..................    (24,739)      (37,120)      (105,618)
Net cash provided by financing activities..............     26,174        52,451        138,409

OPERATING DATA AT END OF PERIOD:
Route miles............................................        325           650          1,000
Fiber miles............................................     31,200        76,500        170,000
Employees..............................................         57           127            341

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                                                              AS OF DECEMBER 31, 1999
                                                              -----------------------
                                                                           PRO FORMA
                                                               ACTUAL     AS ADJUSTED
                                                              --------    -----------
                                                                          (UNAUDITED)
                                                                  (IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................  $    278     $
Working capital deficit.....................................  (150,729)
Property and equipment, net.................................   201,806       201,806
Investment in Telergy East..................................     3,241         3,241
Total assets................................................   219,919
Unearned fiber lease revenue................................    10,386        10,386
Total debt..................................................   156,441       156,441
Stockholders' equity........................................    27,245


(1) Capital expenditures include cash expenditures plus additions to property and equipment financed through trade payables and capital lease obligations. Amounts also include capitalized interest.

(2) EBITDA is defined as operating income plus depreciation, amortization and non-cash stock-based compensation. EBITDA is used by management and some investors as an indicator of a company's historical ability to service debt. However, EBITDA is not intended to represent cash flows for the period, nor has it been presented as an alternative to either (1) operating income (as determined by generally accepted accounting principles) as an indicator of operating performance or (2) cash flows from operating, investing and financing activities (as determined by generally accepted accounting principles).

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RISK FACTORS

An investment in our Class A common stock involves a high degree of risk. You should consider the following risk factors, together with the other information in this prospectus, when evaluating an investment in our Class A common stock. If any of the following risks occur, our business, operations or financial condition would likely suffer. If that happens, the trading price of our Class A common stock could fall and you may lose all or part of the money you paid to buy our Class A common stock. The risks and uncertainties described below are not the only ones facing our company. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.

RISKS RELATING TO OUR BUSINESS

GIVEN OUR LIMITED OPERATING HISTORY, YOU SHOULD CONSIDER OUR CLASS A COMMON STOCK TO BE A HIGHLY SPECULATIVE INVESTMENT

We are a development stage company which began operations in early 1996 and have a limited operating history upon which you can base an evaluation of our performance, including the reliability of our network and future financial results. We are still in the early stages of our operations and have yet to complete construction of our planned network. You should consider the prospects for our success in light of the risks often encountered in establishing a new business in an industry subject to rapid technological and price changes and filled with many competitors. We can not assure you that we will be able to successfully build out our network or successfully establish our business.

WE HAVE A HISTORY OF OPERATING LOSSES AND WORKING CAPITAL DEFICITS AND WE MAY NOT BE PROFITABLE IN THE FUTURE

We have incurred operating losses and experienced negative EBITDA and net income in each quarter since we began operations. As of December 31, 1999, our accumulated deficit totaled approximately $112.1 million and our working capital deficit totaled approximately $150.7 million. We expect to incur significant additional expenses in connection with the development and expansion of our network infrastructure as well as increases in our sales and marketing and general administrative expenses. As a result, we expect to continue to incur significant future operating losses and negative cash flow while we concentrate on the development and construction of our network and until we have established a profitable customer base. If our revenues do not increase significantly or if the increase in our expenses is greater than expected, we may not achieve or sustain profitability or generate positive cash flow in the future.

AN INABILITY TO MANAGE OUR RAPID GROWTH COULD IMPAIR OUR OPERATING RESULTS

Our current business plan contemplates rapid expansion of our business for the foreseeable future. This growth has placed, and will place, a significant strain on our financial, management, operational and other resources. This rapid expansion will increase our operating complexity and will require that we, among other things, efficiently:

- address the demand for our products and services;

- control expenses and costs related to our business plan;

- maintain effective quality controls; and

- expand our internal management, technical, provisioning, information, billing, customer service and accounting systems.

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The significant size and complexity of our business and our planned network will make it more difficult for us to manage our growth. If we fail to manage any of these factors effectively, it could have a material adverse effect on our business, results of operations and financial condition.

OUR FAILURE TO MAINTAIN OUR ACCESS TO RIGHTS-OF-WAY, OR OBTAIN ADDITIONAL RIGHTS-OF-WAY IN THE FUTURE, COULD IMPAIR THE DEVELOPMENT OF OUR NETWORK

We have entered into agreements with Niagara Mohawk, NYSEG, ConEd and GPU Telcom which provide us with non-exclusive access to certain specific rights-of-way. These rights-of-way are essential to the construction and installation of our telecommunications network. In some cases, these agreements require our fiber network to be moved or removed in the event that the utility needs its rights-of-way for public utility purposes or no longer owns its rights-of-way. See "Business -- Our Relationships with Utilities." If any of these agreements were terminated or could not be renewed, it could have a material adverse effect on our business, results of operations and financial condition.

In addition, we may require supplemental rights-of-way and other permits from railroads, utilities, state highway authorities, local governments and transit authorities to install conduit and related telecommunications equipment for the expansion of our network into the remainder of the eastern United States. We can not assure you that we will be successful in obtaining and maintaining access to these rights-of-way on acceptable terms or at all. Some of these agreements may be short-term or revocable at will. If any of these agreements were terminated or could not be renewed and we were forced to remove our fiber optic cable from under these rights-of-way or abandon our networks, it would have a material adverse effect on our business, results of operations and financial condition.

IF ANY OF OUR EXISTING STRATEGIC RELATIONSHIPS TERMINATE, OUR ABILITY TO PENETRATE OUR TARGET MARKETS COULD BE ADVERSELY AFFECTED

We have formed strategic relationships, both formally and informally, with various utility providers, hardware and software vendors, telecommunications companies and other entities for joint marketing and preferred pricing purposes and to expand our network quickly and efficiently. We plan to maintain these relationships and seek new marketing or other strategic arrangements in the future. Our ability to quickly penetrate our target markets may be adversely affected if we are unable to capitalize on these relationships and to develop similar relationships in the future.

WE HAVE SUBSTANTIAL INDEBTEDNESS THAT COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND PREVENT US FROM FULFILLING OUR VARIOUS OBLIGATIONS, INCLUDING OBLIGATIONS IMPOSED BY OUR EXISTING CREDIT FACILITIES

We are, and after the offering will continue to be, substantially leveraged. At December 31, 1999, we had or were subject to approximately:

- $156.4 million of debt (including capital leases); and

- $112.1 million of accumulated deficit incurred since our inception.

The degree to which we are leveraged could have important consequences to our future operations, including:

- limiting our ability to fund future capital expenditures, research and development costs, working capital and other general corporate requirements;

- requiring us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our indebtedness;

7

- limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;

- placing us at a competitive disadvantage compared to our competitors that have less debt; and

- increasing our vulnerability to general adverse economic and industry conditions.

In addition, our existing credit facilities contain a number of significant limitations that could limit our ability to conduct our business, obtain future financing or withstand a future downturn in our business. Our credit facilities also require us to maintain specified financial ratios and satisfy financial tests. We recently amended our credit facilities to reduce these financial tests. We would not have satisfied these tests without these amendments and our ability to meet these tests or ratios in the future may be affected by events beyond our control. If we fail to comply with any of the covenants in our financing agreements, we will be in default. In the event of a default under our credit facilities, our lenders could terminate their commitments to lend to us or accelerate the loans and declare all amounts borrowed due and payable. Additionally, if we default, borrowings under our other debt agreements that contain cross-acceleration or cross-default provisions may also be accelerated and become due and payable. If any of these events occur, we may not be able to make the necessary payments to the lenders and may not be able to find alternative financing. Even if we could obtain alternative financing, it may not be on terms that are favorable or acceptable to us.

A FAILURE TO FINANCE OUR SUBSTANTIAL CAPITAL REQUIREMENTS COULD ADVERSELY AFFECT OUR BUSINESS PLAN

Our current business plan provides for the completion of our network build by the end of 2001. We will require additional funds from the conveyance of indefeasible rights-of-use or through the sale of additional equity or debt securities in order to complete our network and fund our operating losses. The timing and cost of developing our network and offering our telecommunications services will depend on a variety of factors, many of which are beyond our control. We may not be able to complete our network as planned and our actual costs may vary materially from those currently budgeted. We may not be able to convey indefeasible rights-of-use in the quantities or at the prices that we currently anticipate or sell debt or equity securities on terms or in amounts satisfactory to us. In the event that our actual costs exceed our current budget or we do not have the funds we anticipate, we will need to seek additional sources of financing or adjust the number or sequence of segments we develop.

We may also require additional capital in the future for new business activities related to our current and planned businesses, or in the event we decide to make acquisitions or enter into further additional joint ventures and strategic relationships. If we do require additional financing in the future, we can not assure you that any additional funds would be available on commercially reasonable terms, or at all, or that we could obtain any other financing. If we fail to obtain the required financing, we may be required to delay or abandon some of our future expansion or spending plans.

Future debt financing may limit our financial and operating flexibility. If we issue additional equity securities, you may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to our Class A common stock.

DIFFICULTIES IN COMPLETING OUR NETWORK COULD INCREASE ITS ESTIMATED COST TO US, DELAY ITS SCHEDULED COMPLETION AND SUBJECT US TO PENALTIES

Our ability to increase revenues and generate positive cash flow will depend in large part upon the successful, timely and cost-effective completion of our network. Significant delays in completing our network could harm our business and financial performance. Administrative,

8

technical, operational and other problems that could arise may be more difficult for us to address and solve due to the significant size and complexity of our planned network. Additionally, we have entered into agreements with other telecommunications carriers to deliver capacity or indefeasible rights-of-use over our network. These agreements typically require us to pay penalties if we fail to deliver the capacity or indefeasible rights-of-use by an agreed deadline. The successful and timely completion of our network will be affected by a variety of factors, many of which we can not control, including the following:

- our ability to acquire additional sites, rights-of-way and required permits from utilities, governmental authorities or others on satisfactory terms and conditions;

- our management of costs related to construction of route segments;

- timely performance by contractors and subcontractors;

- the technical performance of the fiber and equipment used in our network; and

- our ability to attract and retain qualified personnel.

Future expansions and adaptations of our network's electronic and software components may be necessary in order to respond to a growing number of customers or increased demands by our customers to transmit larger amounts of data. We can not guarantee that we will be able to achieve completion, or any future expansion, on time, within our anticipated budget or at all.

ANY FAILURE OF OUR NETWORK INFRASTRUCTURE COULD LEAD TO SIGNIFICANT COSTS, SERVICE DISRUPTIONS AND DATA LOSS, WHICH COULD REDUCE OUR REVENUES AND HARM OUR

BUSINESS AND REPUTATION

The success of our operations will require that our network provide competitive reliability, capacity and security. Some of the risks to our network and infrastructure include:

- physical damage;

- human error;

- power loss;

- capacity limitations;

- software defects;

- breaches of security, including computer viruses; and

- other disruptions that are beyond our control.

Despite precautions we have taken, the occurrence of a natural disaster or other problems could result in service interruptions, significant damage to equipment or loss of customer data. Any widespread loss of services would slow the adoption of our services and cause damage to our reputation, which could have a material adverse effect on our business, results of operations and financial condition.

IF OUR NETWORK SECURITY IS BREACHED, OUR BUSINESS AND REPUTATION WOULD SUFFER

Our customers rely on us for the secure transmission of their data. Third parties may attempt to breach our security. If they succeed despite our security measures, they could obtain, destroy or damage confidential information of our customers. We may be liable to our customers for any breach in our security. Our failure to prevent security breaches may harm our reputation and thereby could have a material adverse effect on our business, results of operations and financial condition.

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WE RELY ON THIRD PARTY SUPPLIERS FOR THE COMPONENTS OF OUR INFRASTRUCTURE AND THE PRODUCTS WE USE TO DELIVER OUR SERVICES AND ANY INTERRUPTION IN THE SUPPLY OF THESE PRODUCTS AND MATERIALS COULD HARM OUR BUSINESS

We are dependent on other companies to supply the key components of our network infrastructure and the hardware and software products we use in delivering our services. Our infrastructure is based on materials, such as fiber, routers and switches, which, in the quantities and quality we demand, are available only from a limited number of suppliers. Recently, some companies have experienced a shortage of fiber optic cable. Similarly, we currently purchase a large portion of the software and hardware products used in our services offerings from a limited number of vendors. Any delay or extended interruption in our ability to obtain these products and materials, or comparable quality replacements, could have a material adverse effect on our business, results of operations and financial condition.

WE HAVE RECENTLY INSTALLED OUR BACK OFFICE INFORMATION AND PROCESSING SYSTEMS AND WE RELY ON THESE SYSTEMS FOR EFFECTIVE BILLING AND CUSTOMER SERVICE

Our back office information and processing systems are vital to our growth and our ability to monitor and maintain our network, monitor costs and bill customers. We are currently designing and implementing significantly expanded operational support systems and expect the new systems will be operational during the third quarter of 2000. Our current systems are relatively new and the systems nearing completion are unproven and they may not perform as expected or provide efficient operational solutions if:

- we fail to adequately identify or are unsuccessful in implementing all of our information and processing needs;

- our processing or information systems fail; or

- we fail to upgrade systems when required.

A disruption in or failure of our operational support systems could result in:

- partial or total failure of our network;

- loss or diminution in service delivery or performance; and

- loss of revenue from billings,

any of which could have a material adverse effect on our business, results of operations and financial condition.

IF WE DO NOT EXPAND OUR SALES EFFORTS, WE WILL HAVE DIFFICULTY ATTRACTING AND RETAINING CUSTOMERS

The market for the enhanced data and video services we propose to offer is relatively new and many prospective customers are unfamiliar with these services. In addition, we have limited experience offering these services. As a result, our sales effort requires highly trained and experienced sales personnel. We need to expand our marketing and sales organization in order to increase market awareness of our services to a greater number of organizations and, in turn, to generate increased revenues. We are in the process of developing our sales force and require additional qualified sales personnel. Competition for these individuals is intense, and we might not be able to hire the number of qualified sales personnel we need. Moreover, even after we hire these individuals, they generally require extensive training. If we are unable to expand our sales operations and train new sales personnel rapidly, we may not be able to increase market awareness and sales of our services, which may prevent us from achieving and maintaining profitability.

10

WE DEPEND ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY CHANGING MARKET, AND IF WE ARE UNABLE TO RETAIN OUR KEY EMPLOYEES, OUR ABILITY TO COMPETE COULD BE HARMED

Our success depends upon the continued services of our executive officers and other key technology, sales, marketing and support personnel, who have critical industry experience and relationships that we rely on in implementing our business plan. The loss of the services of any of our key employees could delay the development and introduction of, and negatively impact our ability to sell, our services. Our future success will also depend on our ability to attract, train, retain and motivate highly qualified management, technical, sales, marketing and support personnel. Competition for such personnel is intense and we can not assure you that we will be able to attract or retain key personnel.

WE DEPEND ON THE CASH FLOW OF OUR SUBSIDIARIES TO SATISFY OUR OBLIGATIONS

We are a holding company and depend on cash flow from our subsidiaries and their payments to us in the form of loans, dividends, or otherwise to meet our obligations. Our subsidiaries, two of which are joint investments with other parties, may become unable to pay distributions, management fees, loans or other payments to us. This could impair our ability to meet our obligations under our indebtedness and it could have a material adverse effect on our business, results of operations and financial condition.

WE DO NOT HAVE COMPLETE CONTROL OVER KEY OPERATING SUBSIDIARIES

We do not have complete control over Telergy East and Telergy MidAtlantic. Many actions of Telergy East and Telergy MidAtlantic require the approval of our strategic partner in the subsidiary, including:

- engaging in certain activities not contemplated by our agreement;

- merging, consolidating or dissolving the subsidiary; and

- selling substantially all of the subsidiary's assets.

If conflicts of interest arise with our strategic partners, or one or more of our partners fail to meet their financial or other obligations to us, these subsidiaries may become unable to pay distributions, management fees, loans or other payments to us.

RISKS RELATED TO OUR INDUSTRIES

WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST COMPETITORS THAT HAVE SIGNIFICANTLY GREATER FINANCIAL, TECHNICAL AND MARKETING RESOURCES THAN WE DO

The industries in which we operate are highly competitive and are affected by the introduction of new services by, and the market activities of, major industry participants. We expect competition will intensify in the market for the telecommunications services we provide and plan to provide. Many of our competitors are substantially larger and have greater financial, technical and marketing resources than we do. In particular, larger competitors have advantages over us which could cause us to lose customers and impede our ability to attract new customers, including:

- long-standing relationships and brand recognition with customers;

- financial, technical, marketing, personnel and other resources substantially greater than ours;

- more funds to deploy telecommunications and data services;

11

- the potential to lower prices of competitive telecommunications and data services; and

- fully deployed networks.

We face competition from other current and potential market entrants, including:

- domestic and international long distance providers seeking to enter, re-enter or expand entry into the local telecommunications marketplace; and

- other domestic and international competitive telecommunications providers, resellers, cable television companies and electric utilities.

The rapid development of the telecommunications industry and the continuing trend toward combinations and strategic alliances could give rise to significant new competitors which could cause us to lose customers and impede our ability to attract new customers. For example, we believe that Global Crossing, one of our significant stockholders, has through combinations and alliances, entered into lines of business that compete with us. In addition, Global Crossing has the right to designate a member to our board of directors.

Additionally, in the provision of data storage services, we face competition from storage hardware and software vendors, which sell storage products or consulting services, as well as managed storage services providers. Many of these vendors and providers have longer operating histories, greater name recognition and substantially greater financial, technical and marketing resources than we have. Many of these vendors and providers also have more extensive customer bases, broader customer relationships and broader industry alliances than us, including relationships with many of our current and potential customers.

The lack of any substantial barriers to entry in our industries means that significant and potentially larger competitors could enter our market as a result of other regulatory changes, technological developments or the establishment of cooperative relationships, including potentially through use of the same rights-of-way that we use. Foreign telecommunications carriers may also compete in the United States market. Increased competition could lead to price reductions, fewer large-volume sales, reduced operating margins and loss of market share.

INCREASED INDUSTRY CAPACITY AND OTHER FACTORS MAY LEAD TO LOWER PRICES FOR OUR PRODUCTS AND SERVICES

Prices for telecommunications services have historically declined over time. We anticipate that prices for our telecommunications services will continue to decline over the next several years. The prices that we can charge our customers for wholesale capacity and network services could decline due to many factors, including:

- installation by us and our competitors of fiber and related equipment that provides substantially more transmission capacity than needed;

- recent technological advances that permit substantial increases in, or better usage of, the capacity of transmission media; and

- strategic alliances or similar transactions that decrease industry participants' costs.

We can not predict to what extent we may need to reduce our prices to remain competitive or whether we will be able to maintain price competitiveness. Our failure to achieve or sustain market acceptance at desired pricing levels could impair our revenue and our ability to achieve profitability, which could have a material adverse effect on our business, results of operations and financial condition.

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THE MARKETS FOR SOME OF OUR SERVICES ARE RELATIVELY NEW AND OUR BUSINESS WILL SUFFER IF THEY DO NOT DEVELOP AS WE EXPECT

The markets for data and storage services are relatively new and may not develop as we expect. Growth of our customer base will depend on marketplace acceptance of our data and storage services and our ability to convince prospective customers to use our services. Furthermore, we incur operating expenses based largely on anticipated revenue trends which are difficult to predict given the recent emergence of the data and storage services markets. We can not assure you that our data and storage services will receive marketplace acceptance or that prices and demand for these services will be sufficient to sustain profitable operations.

OUR BUSINESS WILL SUFFER IF WE DO NOT ENHANCE AND EXPAND OUR SERVICES TO MEET CHANGING CUSTOMER REQUIREMENTS

Our current and prospective customers may require features and capabilities that our current services do not offer. To achieve market acceptance for our services, we must anticipate and adapt to customer requirements in a timely and efficient manner. The development of new or enhanced services is a complex and uncertain process that requires the accurate anticipation of technological and market trends. We may experience design, marketing and other difficulties that could delay or prevent the development, introduction or marketing of new services as well as enhancements to our existing services. The introduction of new or enhanced services also requires that we manage the transition from older services in order to minimize disruption in customer ordering patterns. Our failure to anticipate and meet changing customer requirements or to effectively manage transitions to new services could have a material adverse effect on our business, results of operations and financial condition.

OUR SUCCESS DEPENDS ON OUR ABILITY TO EXPAND OR ADAPT OUR NETWORK AND SYSTEMS TO RAPIDLY CHANGING TELECOMMUNICATIONS TECHNOLOGY AND INCREASING DEMAND

The industries in which we operate are subject to rapid and significant changes in technology. We expect that new products and technologies will emerge, and we can not predict the effect of these technological changes on our business. These new products and technologies may render obsolete the products and technologies we use or offer. These changes could require us to incur significant expenditures and we can not assure you that technological changes in the telecommunications industry would not have a material adverse effect on our business, results of operations and financial condition.

In addition to technological advances, other factors could require us to expand or adapt our network and systems, including:

- an increasing number of customers;

- demand for greater data transmission capacity;

- changes in our customers' service requirements; and

- emergence of new industry standards.

Expanding or adapting our network could require substantial additional financial, operational and managerial resources, any of which may not be available to us. Moreover, technological advances may have the effect of encouraging our current or future customers to rely on in-house personnel and equipment to furnish the services we currently provide. We can not assure you that any expansions or adaptions of our network will be compatible with the rapidly changing technology and evolving industry standards. Any such incompatibility or obsolescence of any of our products and services could have a material adverse effect on our business, results of operations and financial condition.

13

OUR OPERATIONS ARE SUBJECT TO GOVERNMENTAL REGULATION, WHICH MAY CHANGE

The operation of our network and the provision of our services in the United States are subject to regulation by federal, state, and local authorities. In addition, as we expand our operations into other states and Canada, we will become subject to regulation in those jurisdictions.

In the United States, our interstate and international operations are governed by the Communications Act of 1934, as amended by the Telecommunications Act of 1996, or the Telecom Act, and are regulated by the Federal Communications Commission. Our intrastate activities are regulated by the state public utility commissions of the states in which we do business. Local governmental authorities also have authority over certain matters that may affect the operation of our business, such as zoning and access to rights of way. As we expand our network and services internationally, we also may become subject to national, provincial, state, and local regulation in those countries in which we operate.

Government regulation of the telecommunications sector, both in the United States and abroad, is continually changing. In the United States, there are ongoing proceedings at the federal and state level, both by regulatory agencies and in the courts, regarding the provision of services in a competitive telecommunications environment. Many foreign regulatory agencies also are examining similar issues in their telecommunications markets. The decisions of governmental agencies in these proceedings may affect our business in ways that can not be accurately predicted and that may have a material adverse effect on our business, results of operations and financial condition. Moreover, there may be future changes in the regulatory environment in the United State and abroad that may affect the manner in which we are permitted to provide our services and that may have a material adverse effect on our business, results of operations and financial condition.

In the ordinary course of constructing our networks and providing our telecommunications services, we are required to obtain and maintain a variety of national, state, and local telecommunications and other licenses and authorizations in the jurisdictions in which we operate. We also must comply with a variety of regulatory obligations, including the filing of regulatory reports and payment of regulatory fees. Our failure to obtain or maintain necessary licenses and authorizations, or our failure to comply with the obligations imposed upon license-holders in one or more jurisdictions, may result in sanctions, including fines or the revocation of our authority to provide services. Our inability to provide services in one or more jurisdictions could have a material adverse effect on our business, results of operations and financial condition.

RISKS RELATING TO THIS OFFERING

OUR PRINCIPAL STOCKHOLDERS OWN SHARES REPRESENTING % OF THE VOTING POWER AND CAN CONTROL THE ELECTION OF ALL DIRECTORS AND OTHER MAJOR DECISIONS

After giving effect to this offering, Brian P. Kelly, our Chairman of the Board and Chief Executive Officer, his brothers Kevin J. Kelly, our Vice Chairman of the Board and Executive Vice President, and William M. Kelly, Jr., our Executive Vice President and one of our directors, together own, through a voting trust, approximately 1,442,693 shares of our Class A common stock and all of our Class C common stock which together will constitute approximately % of the voting power of our outstanding common stock after this offering. In addition, shares of our Class A common stock held by third parties representing % of the voting power of our common stock, have also been deposited in a voting trust of which Kevin J. Kelly is the trustee. As a result, voting power is concentrated in Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. who control the election of all of our directors and all other major decisions involving us or our

14

business. In addition, no third party could acquire control of us without reaching an agreement with Brian P. Kelly and Kevin J. Kelly.

OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THE OFFERING AND YOU WILL NOT HAVE THE OPPORTUNITY TO EVALUATE INFORMATION CONCERNING THE APPLICATION OF PROCEEDS

Our management will have considerable discretion in the application of the net proceeds of this offering, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. We may use the net proceeds for corporate purposes that do not increase our profitability or our market value. Pending application of the proceeds, we may place them in investments that do not produce income or that lose value.

FUTURE SALES OF OUR STOCK, OR THE PERCEPTION THAT SALES MAY OCCUR, COULD ADVERSELY AFFECT OUR STOCK PRICE

The market price of our Class A common stock may fall as a result of sales of a large number of shares of our Class A common stock in the market following this offering, or a perception that these sales could occur. Large sales of our stock in the market may make it more difficult for us to sell equity securities in the future at a time or at a price that we believe is appropriate. Immediately after this offering there will be approximately shares of our Class A common stock outstanding. Of these shares, all of the shares sold in this offering and shares held by our current stockholders will be freely tradeable without restriction under the Securities Act of 1933, unless acquired by one of our "affiliates." An additional shares of Class A common stock will become freely tradeable 90 days from the date of this prospectus. After the lock-up agreements pertaining to this offering expire 180 days from the date of this prospectus, an additional shares of Class A common stock will be eligible for sale in the public market.

Holders of approximately 1,458,297 shares of our Class A common stock, including securities exercisable for or convertible into our Class A common stock, also have contractual registration rights with respect to their shares. If the sale of those shares is registered, those shares will be freely tradeable without restriction under the Securities Act of 1933. Following this offering, we also intend to file a registration statement under the Securities Act of 1933 to register up to 2,000,000 shares of our Class A common stock subject to outstanding options or reserved for issuance under our stock incentive plans. The sale of these additional shares into the market may further adversely affect the market price of our Class A common stock.

THERE IS NO PRIOR PUBLIC MARKET FOR OUR CLASS A COMMON STOCK

Prior to this offering, there has been no public market for our Class A common stock. We intend to make application for quotation of our Class A common stock on the Nasdaq National Market, but we can not predict the extent to which an active trading market for our stock may develop. We will determine the price that you will pay for your Class A common stock through negotiations with the underwriters but the initial public offering price may not be indicative of the market price for the Class A common stock that will prevail in the trading market after this offering. The prevailing market price for our Class A common stock after the offering could be less than the initial public offering price that you will pay for your shares.

THE MARKET PRICE OF OUR CLASS A COMMON STOCK COULD BE VOLATILE

The market price at which our Class A common stock will trade after this offering is likely to be volatile and may fluctuate substantially due to many factors, some of which are beyond our control. In addition, in recent months, the stock market generally has experienced extreme price and volume fluctuations affecting the stock of telecommunications companies. These fluctuations may be unrelated or disproportionate to our performance and may result in a decline in the

15

trading price of our Class A common stock. Volatility in the market price of our Class A common stock may prevent you from being able to sell your Class A common stock at or above our initial public offering price. In the past, class action litigation has often been brought against companies following periods of volatility in the market price of those companies' common stocks. We may become involved in this type of litigation in the future. Litigation is often expensive and diverts management's attention and resources and could have a material adverse effect on our business, results of operations and financial condition.

YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION OF $ IN THE BOOK
VALUE OF YOUR INVESTMENT

If you purchase shares of our Class A common stock in this offering you will suffer immediate dilution of $ per share because the per share price that you pay will be substantially greater than the per share net tangible book value of the shares you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the public offering price to purchase their shares. You will experience additional dilution upon the exercise of stock options and warrants to purchase Class A common stock.

PROVISIONS IN OUR CHARTER DOCUMENTS MAY DETER A THIRD PARTY FROM ACQUIRING US, EVEN IF THE ACQUISITION WOULD ECONOMICALLY BENEFIT OUR STOCKHOLDERS

Our certificate of incorporation and by-laws include provisions that could delay, deter or prevent a future takeover or change in our control, including limiting the ability of stockholders to raise matters at a meeting of stockholders without giving us advance notice. These provisions may have the effect of discouraging a third party from making a tender offer or otherwise attempting to obtain control of us, even though such a change in ownership could be economically beneficial to us and our stockholders.

16

FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements including, in particular, the statements about our plans, expectations, intentions, strategies and prospects under the headings "Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." These forward-looking statements include, among others, statements concerning:

- anticipated growth of the telecommunications and information services industry;

- expectations as to our future revenues, margins, expenses and capital requirements; and

- anticipated dates on which we will begin providing certain services or reach specific milestones.

We can not assure you that we will achieve our plans, intentions or expectations. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this prospectus include, but are not limited to, our failure to:

- achieve and sustain profitability based on the creation and implementation of our network;

- overcome significant early operating losses;

- raise or generate sufficient funds to implement our business plan;

- develop financial and management controls, as well as additional controls of operating expenses as well as other costs;

- attract and retain qualified management and other key personnel; and

- install on a timely and efficient basis the fiber optic cable and associated electronic systems required for successful implementation of our business plan.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements and risk factors contained throughout this prospectus.

INDUSTRY DATA

We have included in this prospectus industry data developed by third party sources. While we believe that the data estimates are reasonable and reliable, we have not independently verified this information.

17

USE OF PROCEEDS

Our net proceeds from this offering are estimated to be $ million, at an assumed initial public offering price of $ (after deducting the underwriting discount and estimated expenses). If the underwriters' over-allotment option is exercised in full, we estimate that our net proceeds will be $ million. We expect to use the net proceeds primarily for further development of our network, expansion of our sales and marketing organization, working capital, capital expenditures, acquisitions and other general corporate purposes. Although we evaluate potential acquisitions from time to time, we currently have no agreement or understanding with any person to effect any material acquisition. We have not determined the specific amounts we plan to spend on any of these uses or the timing of these expenditures. Pending our use of the net proceeds, we intend to invest the net proceeds of this offering in short-term investments.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our Class A common stock. For the foreseeable future, we intend to retain our earnings for our operations and the expansion of our business and do not expect to pay dividends on our Class A common stock. The payment of any future dividends will be at the discretion of our board of directors and will depend on, among other factors, our earnings, financial condition, capital requirements and general business outlook at the time payment is considered. Our existing credit facilities do, and any future indebtedness incurred by us may, restrict our ability to pay dividends.

18

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1999:

- on an actual basis; and

- on a pro forma as adjusted basis to reflect:

- the issuance in May 2000 of our Series B preferred stock and related warrants for aggregate proceeds of $20.0 million and the subsequent conversion of the Series B preferred stock and related warrants upon completion of this offering into shares of our Class A common stock, assuming an initial public offering price of $ per share;

- the exercise of warrants to acquire 564,227 shares of our Class A common stock which expire upon completion of this offering, and the cancellation and exchange of our Series A preferred stock along with payment of $ in connection with that exercise;

- the conversion of Niagara Mohawk Energy's membership interest in Telergy Central into shares of our Class A common stock, assuming an initial public offering price of $ per share; and

- the issuance of shares of Class A common stock in this offering at an assumed initial public offering price of $ per share, but after deducting the underwriting discount and estimated expenses:

                                                              AS OF DECEMBER 31, 1999
                                                              ------------------------
                                                                            PRO FORMA
                                                                           AS ADJUSTED
                                                               ACTUAL      (UNAUDITED)
                                                              ---------    -----------
                                                                   (IN THOUSANDS)
Cash and cash equivalents...................................  $     278     $
                                                              =========     =========
Debt:
  Long-term debt (including current portion)(1).............  $ 131,061     $ 131,061
  Capital lease obligations (including current portion).....     25,380        25,380
                                                              ---------     ---------
Total debt..................................................  $ 156,441     $ 156,441
Redeemable common stock(2)..................................        809
Redeemable preferred stock(3)...............................        809
Stockholders' equity (deficit):
  Common stock, Class A, par value $0.0001, 9,999,900 shares
    authorized; 3,383,000 shares issued and outstanding at
    December 31, 1999 actual and          shares issued and
    outstanding pro forma as adjusted.......................         --
  Common stock, Class C, par value $0.0001, 100 shares
    authorized, issued and outstanding actual, pro forma and
    pro forma as adjusted...................................         --
  8% Series A redeemable preferred stock par value $0.0001,
    404,576 shares authorized, issued and outstanding actual
    and no shares issued and outstanding pro forma as
    adjusted................................................         --
  10% Series B convertible redeemable preferred stock, par
    value $0.0001, 58,700 shares authorized, no shares
    issued and outstanding at December 31, 1999 and pro
    forma as adjusted.......................................         --
  Additional paid-in capital................................    198,601
  Accumulated deficit.......................................   (112,105)
  Deferred compensation.....................................    (59,251)
                                                              ---------     ---------
Total stockholders' equity..................................     27,245
                                                              ---------     ---------
Total capitalization........................................  $ 185,304     $
                                                              =========     =========


(1) $126.0 million of advances under our credit facility has been recorded as a current obligation as of December 31, 1999. Upon completion of this offering, we will reclassify these advances as long-term debt. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources".

(2) Redeemable common stock is comprised of shares of Class A common stock issued in 1998 and 1999 that have various contractual rights which provide holders with a current and capital return, including a put option entitling the holder to require us to repurchase for cash such Class A common stock in certain circumstances. This put option expires upon completion of this offering. See "Description of Capital Stock".

(3) Redeemable preferred stock is based upon our obligation to redeem an amount of Series A preferred stock equal to the amount of Class A common stock recorded as redeemable common stock described in Note 2 above. See "Description of Capital Stock".

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DILUTION

Our pro forma net tangible book value as of December 31, 1999 was $ million, or $ per share. Our pro forma net tangible book value per share represents the amount of our total tangible assets, reduced by the amount of our total liabilities, and then divided by the total number of shares of Class A common stock and Class C common stock outstanding after giving effect to (1) the exercise of warrants for Class A common stock which expire upon completion of this offering; (2) the automatic conversion of our Series B preferred stock into shares of Class A common stock; and (3) the conversion of Niagara Mohawk Energy's membership interest in Telergy Central. Dilution in net tangible book value per share represents the difference between the amount paid per share by purchasers of shares of Class A common stock in this offering and the pro forma net tangible book value per share of our Class A common stock and our Class C common stock immediately after the completion of the offering. After giving effect to the sale of the shares of Class A common stock we are offering at an assumed initial public offering price of $ share, and after deducting the underwriting discount and estimated offering expenses we will pay, our pro forma net tangible book value at December 31, 1999 would have been $ million or $ per share of Class A common stock. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors purchasing shares at the initial offering price. The following table illustrates this dilution on a per share basis:

Assumed initial public offering price per share.............              $
                                                                          --------
  Pro forma net tangible book value per share before the
     offering...............................................  $
                                                              --------
  Pro forma increase per share attributable to new
     investors..............................................
                                                              --------
Pro forma net tangible book value per share after the
  offering..................................................
                                                                          --------
Pro forma dilution to new investors.........................              $
                                                                          ========

The following table summarizes on the pro forma basis described above after giving effect to the offering, as of December 31, 1999, the differences between the existing stockholders and the new investors with respect to the number of shares of common stock and preferred stock purchased from us, the total consideration paid to us and the average price per share paid (before deducting the underwriting discount and our estimated offering expenses):

                                SHARES PURCHASED     TOTAL CONSIDERATION
                               ------------------    -------------------    AVERAGE PER
                               NUMBER     PERCENT     AMOUNT     PERCENT    SHARE PRICE
                               ------     -------     ------     -------    -----------
Existing stockholders........                  %     $                %       $
New investors................                  %                      %
                               -------      ---      --------      ---        ------
          Total..............                  %     $                %       $
                               =======      ===      ========      ===        ======

In the preceding tables, the number of shares of Class A common stock outstanding excludes shares issuable: (1) upon the exercise of outstanding stock options and warrants, and (2) for payment of current returns on 358,239 shares of our Class A common stock. To the extent that options or warrants are exercised there will be further dilution to new investors. See "Description of Capital Stock--Minimum Returns on Investment".

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SELECTED CONSOLIDATED FINANCIAL DATA

You should read the selected consolidated financial data and other operating data set forth below along with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes presented elsewhere in this prospectus. We have derived the consolidated statement of operations data for 1996, 1997, 1998 and 1999, and the consolidated balance sheet data as of December 31, 1996, 1997, 1998 and 1999 from our financial statements that have been audited by Ernst & Young LLP, independent auditors. We had no operations prior to 1996. The pro forma as adjusted consolidated balance sheet data reflect:

- the issuance in May 2000 of our Series B preferred stock and related warrants for aggregate proceeds of $20.0 million and the subsequent conversion of the Series B preferred stock and related warrants upon completion of this offering into shares of our Class A common stock, assuming an initial public offering price of $ per share;

- the exercise of warrants to acquire 564,227 shares of our Class A common stock which expire upon completion of this offering, and the cancellation and exchange of our Series A preferred stock along with payment of $ in connection with that exercise;

- the conversion of Niagara Mohawk Energy's membership interest in Telergy Central into shares of our Class A common stock, assuming an initial public offering price of $ per share; and

- the issuance of shares of Class A common stock in this offering at an assumed initial public price of $ per share, but after deducting the underwriting discount and estimated expenses.

                                                                        YEAR ENDED DECEMBER 31,
                                                              --------------------------------------------
                                                               1996        1997        1998        1999
                                                              -------    --------    --------    ---------
                                                                 (IN THOUSANDS, EXCEPT OPERATING DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Service revenue.............................................  $    15    $  2,516    $  5,206    $   7,944
Operating expenses:
  Cost of services..........................................       11       2,709       7,477       15,503
  Selling, general and administrative.......................      914       4,642       8,998       19,659
  Depreciation and amortization.............................        1         321       1,737        4,587
  Non-cash stock-based compensation.........................       37         124       5,999        2,687
                                                              -------    --------    --------    ---------
Total operating expenses....................................      963       7,796      24,211       42,436
                                                              -------    --------    --------    ---------
Operating loss..............................................     (948)     (5,280)    (19,005)     (34,492)
Interest expense, net.......................................     (463)       (522)    (14,625)     (28,879)
Other nonoperating revenue..................................       --          30          82        1,130
Income taxes................................................       (1)         (1)         (2)          (3)
Minority interest...........................................      121         379          --           --
Equity interest in loss of unconsolidated investee..........       --          --         (83)        (630)
                                                              -------    --------    --------    ---------
Net loss before cumulative effect adjustment................   (1,291)     (5,394)    (33,633)     (62,874)
Cumulative effect adjustment from adoption of new accounting
  standard..................................................       --          --      (1,324)          --
                                                              -------    --------    --------    ---------
Net loss....................................................  $(1,291)   $ (5,394)   $(34,957)   $ (62,874)
                                                              =======    ========    ========    =========
Basic and diluted net loss per common share.................    (0.47)      (1.97)     (12.69)      (20.31)

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                                                                        YEAR ENDED DECEMBER 31,
                                                              --------------------------------------------
                                                               1996        1997        1998        1999
                                                              -------    --------    --------    ---------
                                                                 (IN THOUSANDS, EXCEPT OPERATING DATA)
OTHER CONSOLIDATED FINANCIAL DATA:
Capital expenditures(1).....................................  $14,302    $ 26,162    $ 35,599    $ 131,450
EBITDA(2)...................................................     (910)     (4,836)    (11,269)     (27,219)
Net cash used in operations.................................   (1,267)       (418)    (14,764)     (34,751)
Net cash used in investing activities.......................     (941)    (24,739)    (37,120)    (105,618)
Net cash provided by financing activities...................    2,860      26,174      52,451      138,409

                                                                        YEAR ENDED DECEMBER 31,
                                                              --------------------------------------------
                                                               1996        1997        1998        1999
                                                              -------    --------    --------    ---------
OPERATING DATA AT END OF PERIOD:
Route miles.................................................      165         325         650        1,000
Fiber miles.................................................   15,840      31,200      76,500      170,000
Number of employees.........................................       33          57         127          341

                                                                               AS OF DECEMBER 31,
                                                             -------------------------------------------------------
                                                                                                       1999
                                                                                              ----------------------
                                                                                                          PRO FORMA
                                                                                                         AS ADJUSTED
                                                               1996       1997       1998      ACTUAL    (UNAUDITED)
                                                             --------   --------   --------   --------   -----------
                                                                                 (IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................................  $    653   $  1,671   $  2,237   $    278
Working capital deficit....................................   (15,462)   (16,470)   (57,324)  (150,729)
Property and equipment, net................................    14,301     40,370     74,509    201,806     201,806
Investment in Telergy East.................................        --         --      2,282      3,241       3,241
Total assets...............................................    16,363     52,518     88,110    219,919
Unearned fiber lease revenue...............................        --     10,000      9,770     10,386      10,386
Long term debt.............................................        --     22,716     33,300     24,793
Total debt including current portion(3)....................     2,360     31,220     80,030    156,441     156,441
Redeemable common stock(4).................................        --         --        809        809          --
Redeemable preferred stock(5)..............................        --         --         --        809          --
Stockholders' equity.......................................      (594)    (5,209)   (19,538)    27,245


(1) Capital expenditures include cash expenditures plus additions to property and equipment financed through trade payables and capital lease obligations. Amounts include capitalized interest.

(2) EBITDA is defined as operating income plus depreciation, amortization and non-cash stock-based compensation. EBITDA is used by management and some investors as an indicator of a company's historical ability to service debt. However, EBITDA is not intended to represent cash flows for the period, nor has it been presented as an alternative to either (1) operating income (as determined by generally accepted accounting principles) as an indicator of operating performance or (2) cash flows from operating, investing and financing activities (as determined by generally accepted accounting principles).

(3) $126.0 million of advances under our credit facility has been recorded as a current obligation as of December 31, 1999. Upon completion of this offering, we will reclassify these advances as long-term debt. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources".

(4) Redeemable common stock is comprised of shares of Class A common stock issued in 1998 in 1999 that have various contractual rights which provide holders with a current and capital return, including a put option entitling the holder to require us to repurchase for cash such Class A common stock in certain circumstances. This put option expires upon completion of this offering. See "Description of Capital Stock".

(5) Redeemable preferred stock is based upon our obligation to redeem an amount of Series A preferred stock equal to the amount of Class A common stock recorded as redeemable common stock described in Note 4 above. See "Description of Capital Stock".

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with "Selected Consolidated Financial Data" and our financial statements, including the notes related thereto, and other financial data appearing elsewhere in this prospectus. Our financial statements consolidate all of our subsidiaries except Telergy East, which is accounted for using the equity method.

OVERVIEW

We are a facilities-based provider of integrated broadband telecommunications services and high-bandwidth fiber optic capacity in the northeastern United States. Our network is designed to be a regional fiber optic intranet combining direct last-mile connections to our customers, intracity rings and long-haul capacity. We are building our network on what we believe to be the broadest contiguous rights-of-way in the region, primarily using access rights granted to us by four utility companies with which we have developed unique relationships. By the end of 2001, we expect our network to be comprised of approximately 586,000 fiber miles over 3,200 route miles extending from Washington, D.C. to Montreal. As of April 15, 2000, we have constructed or entered into agreements for indefeasible rights-of-use for approximately 202,000 fiber miles over 1,800 route miles in New York, New Jersey, Pennsylvania, Washington, D.C. and Maryland.

We have invested significant capital and effort in developing our telecommunications business. This capital has been invested in the construction of our network, the hiring of an experienced management team, the development and installation of operational support systems, the introduction of new products and services and the expansion of our marketing and sales forces. We expect to continue to make capital expenditures to expand our network, to extend direct last-mile connections to reach customer buildings and to broaden our service offerings. A large portion of these capital expenditures will be invested in selected markets before any revenue is generated. We have incurred, and expect to continue to incur, significant and increasing negative gross margins and operating losses while we expand our network operations and build our customer base. Proper management of our growth will require us to maintain cost controls, continue to assess market potential, ensure quality control in implementing our services as well as to expand our internal management, customer care, billing and information systems.

We construct our network with multiple innerducts and large quantities of fiber. As of April 15, 2000, we had an average of approximately 300 fiber strands per mile in our intracity rings and approximately 96 fiber strands per mile in our long-haul capacity, more than we need to meet the service requirements of our current business plan. As a result, we are able to convey indefeasible rights-of-use for network capacity in order to help finance the cost of construction. In addition, we enter into fiber exchanges and joint construction agreements which allow us to expand our network more rapidly and cost effectively than we could otherwise. For example, we entered into a fiber exchange with GPU Telcom and joint construction agreements with companies including Broadwing Communications Inc., or Broadwing, formerly known as IXC Communications and Metrix Interlink Corporation, or Metrix, a subsidiary of MCI WorldCom. Our plan is to continue to convey indefeasible rights-of-use for network capacity and enter into fiber exchanges and joint construction agreements to efficiently build out the remainder of our network.

SERVICE REVENUE

Historically, we have derived substantially all of our revenue from the resale of local and long distance telephone service and data connectivity provided by incumbent local exchange carriers and interexchange carriers. We anticipate that a significant amount of our future revenues will be derived from providing enhanced data services, such as video streaming and storage, directly to our customers. As our network is completed, we intend to move existing resale customers onto our network, which will allow us to achieve higher profit margins on our retail products. We

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recognize service revenue in the month services are provided. Amounts billed in advance of the service month are recorded as deferred revenue.

We augment our core retail revenue by selectively supplying wholesale services to telecommunications carriers and large businesses and institutions. A small portion of our revenue is derived from conveying indefeasible rights-of-use for network capacity. Payments on indefeasible rights-of-use for network capacity are usually received up-front, recorded as deferred revenue and recognized as revenue over their term, typically 20 to 30 years, on a straight line basis. We charge annual maintenance fees on a per route mile basis in connection with the conveyance of indefeasible rights-of-use for network capacity. For other wholesale customers, we generally receive fixed monthly payments for the leasing of access and capacity on our network and recognize revenue ratably over the term of the applicable customer agreement.

OPERATING EXPENSES

Our principal operating expenses consist of cost of services, selling, general and administrative expenses, depreciation and amortization and non-cash stock-based compensation.

Cost of services include the following:

- charges from incumbent local exchange carriers for resale of local services;

- charges from interexchange carriers for resale of long distance services;

- real estate leases for central offices, access offices, colocation and other sites;

- costs to interconnect and terminate traffic with other network providers;

- network design and planning;

- salaries and benefits associated with network operations personnel; and

- network maintenance fees.

We began to provide service on our network in the first quarter of 1999. As we move service onto our network, charges from incumbent local exchange carriers and interexchange carriers as a percentage of revenue will decrease correspondingly.

Selling, general and administrative expenses consist of:

- sales and customer care personnel and supporting costs;

- corporate and finance personnel and supporting costs;

- legal and accounting expenses; and

- expenses relating to billing, customer care and information services.

Depreciation and amortization expenses include depreciation of property and equipment and amortization of intangible assets. We expect depreciation and amortization expenses to increase substantially as we increase our capital expenditure program to build out our network.

Non-cash stock-based compensation expense relates to the issuance of stock options to employees and directors. The expense amount to be recorded is based upon the difference between the estimated fair market value of the stock on the date of the stock option grant and the stock option exercise price. This amount is recorded as expense over the vesting period of the stock options.

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INCOME TAXES

No tax benefit has been recorded in the financial statements for our net operating loss carryforwards and other temporary differences due to the uncertainty of future realization. In addition, significant changes in ownership, as defined by Section 382 of the Internal Revenue Code, may result in an annual limitation of the net operating loss carryforward benefit.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

SERVICE REVENUE. Service revenue increased by $2.7 million to $7.9 million for the year ended December 31, 1999 from $5.2 million for the year ended December 31, 1998. This increase was the result of growth in our customer base. Service revenue related to the lease of network capacity, including conveyances of indefeasible rights-of-use, remained substantially unchanged at approximately $380,000 for the year ended December 31, 1999.

COST OF SERVICES. Cost of services increased by $8.0 million to $15.5 million for the year ended December 31, 1999 from $7.5 million for the year ended December 31, 1998. This increase resulted from the additional network costs associated with our increasing revenue, an increase in our network related personnel and an increase in real estate taxes and development costs related to the network build-out.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased by $10.7 million to $19.7 million for the year ended December 31, 1999 from $9.0 million for the year ended December 31, 1998. This increase was the result of an increase in development costs and salaries as we focused on implementing our back office operations. We also incurred legal and travel costs related to our business development activities.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased by $2.9 million to $4.6 million for the year ended December 31, 1999 from $1.7 million for the year ended December 31, 1998. This increase was primarily the result of the completion of additional portions of our network, building, computer and office expenditures and the amortization of intangible assets.

NON-CASH STOCK-BASED COMPENSATION. Non-cash stock-based compensation decreased by $3.3 million to $2.7 million for the year ended December 31, 1999 from $6.0 million for the year ended December 31, 1998. This decrease was the result of the stock options granted in 1999 being subject to extended vesting periods.

INTEREST EXPENSE. Interest expense increased by $14.5 million to $29.3 million for the year ended December 31, 1999 from $14.8 million for the year ended December 31, 1998. This increase primarily related to increased debt financing to fund the development of our network and includes amortization of related warrant costs. Excluding warrant costs, interest expense would have been $16.1 million and $11.2 million for the years ended December 31, 1999 and 1998, respectively.

OTHER. Other income increased by $1.0 million to $1.1 million for the year ended December 31, 1999 from $82,000 for the year ended December 31, 1998. This increase primarily related to rental income from an unrelated party who leases space in our corporate headquarters in Syracuse, New York.

EQUITY INTEREST. Equity interest in loss of unconsolidated investments increased by $0.5 million to $630,000 for year ended December 31, 1999 from $83,000 for year ended December 31, 1998. This increase was the result of our share of the increased loss of in the Telergy East joint venture.

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YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

SERVICE REVENUE. Service revenue increased by $2.7 million to $5.2 million for the year ended December 31, 1998 from $2.5 million for the year ended December 31, 1997. This increase was the result of growth of our customer base subsequent to the introduction of local service in April 1997. We also began recognizing revenue from the conveyance of indefeasible rights-of-use for network capacity in 1998.

COST OF SERVICES. Cost of services increased by $4.8 million to $7.5 million for the year ended December 31, 1998 from $2.7 million for the year ended December 31, 1997. This increase resulted from the additional network costs associated with our increasing revenue, an increase in our network related personnel and an increase in real estate taxes and development costs related to our network build-out.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased by $4.4 million to $9.0 million for the year ended December 31, 1998 from $4.6 million for the year ended December 31, 1997. This increase was the result of an increase in development costs and salaries as we focused on implementing our back office operations. We also incurred legal and travel costs related to our business development activities.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased by $1.4 million to $1.7 million for the year ended December 31, 1998 from $0.3 million for the year ended December 31, 1997. This increase was primarily the result of portions of our network being completed and placed in service in 1998.

NON-CASH STOCK-BASED COMPENSATION. Non-cash stock-based compensation increased by $5.9 million to $6.0 million for the year ended December 31, 1998 from $124,000 for the year ended December 31, 1997. The increase was the result of stock options with immediate vesting being granted in 1998.

INTEREST EXPENSE. Interest expense increased by $14.1 million to $14.8 million for the year ended December 31, 1998 from $654,000 for the year ended December 31, 1997. This increase primarily related to increased debt financing to fund the development of our network and included amortization of $3.6 million related to warrants issued in connection with our debt financing.

OTHER. Other income increased by $52,000 to $82,000 for the year ended December 31, 1998 from $30,000 for the year ended December 31, 1997. This increase primarily related to rental income.

EQUITY INTEREST. We recognized an $83,000 loss for the year ended December 31, 1998 representing our 50% share of the loss of Telergy East.

In 1998, we recognized the cumulative effect adjustment from the adoption of AICPA Statement of Position 98-5 "Reporting the Costs of Start-Up Activities" which requires that costs related to start-up activities be expensed as incurred.

LIQUIDITY AND CAPITAL RESOURCES

The telecommunications service business is capital intensive. Our existing operations have required and will continue to require substantial capital investment for network design and development, capital expenditures, working capital, debt service and continued anticipated operating losses. In addition, our business plan calls for expansion into additional market areas. This expansion will require significant additional capital for the design, development, construction, and expansion of our network and the funding of operating losses during the start-up phase of each market. Capital expenditures, including capitalized interest and additions to property and equipment financed through trade accounts payable and capital lease obligations during 1997, 1998, and 1999 were $26.2 million, $35.6 million, and $131.5 million, respectively.

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We have funded substantially all of our expenditures through the private sale of debt and equity securities, capital leases, short- and long-term debt financing and the conveyances of indefeasible rights-of-use for network capacity. In addition to funds generated from operations, sources of funding for our future financing requirements may include vendor financing, contributed capital from our utility joint ventures, bank loans and public offerings or private placements of equity and debt securities.

From our inception in May 1995, we have raised a significant amount of equity capital in the following transactions:

- In November 1998, we raised $10.0 million through the issuance of Class A common stock to Niagara Mohawk.

- In May 1999, we raised $15.0 million through the issuance of Class A common stock to Teleglobe.

- In May 1999, we raised $30.0 million through the issuance of Class A common stock to an affiliate of Niagara Mohawk.

- From October 1998 to July 1999, we raised an additional $18.0 million through the issuance of Class A common stock to private investors.

- In September 1999, we raised $40.0 million through the issuance of Series A preferred stock and warrants to GC Dev. Co., Inc., or GC Dev, an indirect wholly-owned subsidiary of Global Crossing.

- In May 2000, we raised $20.0 million through the issuance of Series B preferred stock to GPU Telcom.

We have also obtained significant debt financing since our inception, of which the following facilities were available as of December 31, 1999:

- In February 1999, we entered into a $30.0 million equipment facility with Nortel to finance purchases of Nortel goods and services. Principal drawn is payable in 12 quarterly installments at an interest rate of LIBOR plus 5%. If not previously repaid, principal outstanding is repayable on the sixth anniversary of the earlier of (1) the third anniversary of the date of the credit agreement of (2) the date the facility becomes fully drawn. As of December 31, 1999, we borrowed and repaid $5.3 million, leaving $24.7 million available under this facility.

- In September 1999, we entered into a $25.0 million equipment leasing facility with GATX, of which $24.9 million was drawn as of December 31, 1999. Principal payments are due in quarterly installments with the final payment due on January 1, 2004, and the interest rate on current amounts outstanding is 13.7%.

- In November 1999, we entered into a $175.0 million revolving credit facility syndicated by Bank of America, of which $126.0 million was drawn and outstanding at December 31, 1999. The facility bears interest at a rate equal to LIBOR plus 4% or an alternate base rate (the higher of the bank's prime rate plus 3% or the federal funds rate plus 3.5%), and matures on November 19, 2002. The maximum amount available under this facility was raised to $200.0 million in March 2000.

We had a working capital deficit of $151.0 million at December 31, 1999, which includes $126.0 million of borrowings under our credit facility that have been recorded as a current liability. Upon completion of this offering, this $126.0 million of borrowings will again be classified as long-term debt with a maturity date of November 19, 2002.

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To date, the upstate New York portion of our network is substantially complete, and, through our arrangement with GPU Telcom, we have acquired fiber optic capacity that extends our network to Washington, D.C. In 2000, our plan is to:

- complete the expansion of our Manhattan ring to Newark, New Jersey;

- expand our fiber capacity from Buffalo to Albany;

- build a diverse route from Albany to New York City;

- begin deploying electronic equipment to service the portion of our network received from GPU Telcom in conjunction with our fiber exchange;

- build 50 colocation sites, in addition to our four colocations already built as of April 15, 2000;

- deploy one additional voice switch and five additional data switches throughout our coverage area; and

- substantially complete the development of our proprietary operational support system by the third quarter of 2000.

In 2001, our plan is to:

- complete intracity rings in Washington, D.C. and Philadelphia, Pennsylvania;

- complete an additional ring to encompass the five boroughs of New York City;

- complete additional rings in eight tier II and tier III cities;

- build 68 additional colocation sites; and

- deploy two additional voice switches and six additional data switches.

In addition, we expect to make significant capital expenditures to extend our network to reach private networks and individual buildings off of our backbone. We currently anticipate aggregate capital expenditures of approximately $171.0 million in 2000 and $182.0 million in 2001. We have also committed to providing up to $4.0 million to our joint venture with GPU Telcom to fund initial start-up and marketing costs.

Net cash used in operating activities amounted to $34.8 million and $14.8 million for the years ended December 31, 1999 and December 31, 1998, respectively. This increase was primarily the result of the increase in net operating losses during the year ended December 31, 1999. Cash used in investment activities, including capital expenditures, other intangible assets and our investment in Telergy East, amounted to $105.6 million and $37.1 million for the years ended December 31, 1999 and December 31, 1998, respectively. Net cash provided by financing activities was $138.4 million and $52.5 million for the years ended December 31, 1999 and December 31, 1998, respectively. These amounts represent the proceeds from vendor financing, bank loans and private placements of debt and equity by us, net of the repayment of indebtedness and payments of financing costs.

We believe that the following sources will provide us with sufficient funding to build our network as planned and fund operating losses until we generate positive operating cash flow:

- cash on hand, including the net proceeds from this offering;

- borrowings under our $200.0 million revolving credit facility;

- borrowings under our $30.0 million vendor facility from Nortel;

- cash proceeds from conveyances of indefeasible rights-of-use of network capacity; and

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- approximately $50.0 to $150.0 million from the future issuances of debt or equity securities.

Our current business plan provides for the completion of our network build by the end of 2001. However, because the timing and cost of developing our network and offering our telecommunications services will depend on a variety of factors, many of which are beyond our control, we may not be able to complete our network as planned and our actual costs may vary materially from those currently budgeted. If we fail to complete our network on a timely basis, we may incur penalties and other costs under agreements with other telecommunications carriers to deliver capacity or indefeasible rights-of-use over our network by designated dates. In addition, although we believe that demand for capacity on our network will exist, we can not assure you that we will be able to convey indefeasible rights-of-use in the quantities or at the prices that we currently anticipate. Furthermore, our ability to issue debt or equity securities will depend on factors beyond our control and we can not assure you that such financing would be available to us. In the event that our actual costs exceed our current budget or we do not have the funds we anticipate, we may need to seek additional sources of financing or adjust the number or sequence of segments we develop.

In addition, we may require additional capital in the future for new business activities related to our current and planned businesses, or in the event we decide to make acquisitions or enter into additional joint ventures and strategic relationships. Sources of additional capital may include cash flow from operations, public or private equity and debt financings, bank debt, vendor financings and conveyances of indefeasible rights-of-use. In addition, we may enter into joint construction agreements with carriers, thereby reducing our capital expenditure requirements.

We can not assure you that we will be successful in producing sufficient cash flow or raising sufficient debt or equity capital to meet our strategic business objectives or that such funds, if available, will be available on a timely basis and on terms that are acceptable to us. If we are unable to obtain such capital, the build-out of portions of our expanded network may be significantly delayed, curtailed or abandoned. In addition, we may accelerate the rate of deployment of our network, which in turn may accelerate our need for additional capital. Our actual capital requirements will also be affected, possibly materially, by various factors, including the timing and actual cost of the deployment of our network, the timing and cost of expansion into new markets, the extent of competition and the pricing of dark fiber and telecommunications services in our markets.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In June 1999, the Financial Accounting Standards Board, or FASB, issued Interpretation No. 43, "Real Estate Sales, an interpretation of FASB Statement No. 66". The interpretation is effective for sales of real estate with property improvements or integral equipment entered into after June 30, 1999. Under this interpretation, dark fiber is considered integral equipment and accordingly, title must transfer to a lessee in order for a lease transaction to be accounted for as a sales-type lease. The application of the provisions of FASB Interpretation No. 43 did not have an impact on our financial position, results of operations or cash flows.

The FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This standard as amended, will be effective for us beginning January 1, 2001. This standard requires that all derivatives be recognized, at fair value, as assets or liabilities in the balance sheet. We do not believe we have any current transactions that would require accounting and reporting under SFAS No. 133.

In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin, or SAB, No. 101, "Revenue Recognition in Financial Statements". We do not believe that the requirements of SAB No. 101 will have any effect on, or require any adjustments to, our results of operations and financial position.

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YEAR 2000

We believe all our systems are Year 2000 compliant and we have not experienced any Year 2000 problems since January 1, 2000. However, we can not assure you that problems will not occur. If problems do occur, they could have a material adverse effect on our business, results of operations or financial condition.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We do not have operations subject to risks of foreign currency fluctuations, nor do we use derivative financial instruments in our operations. Our earnings are affected by changes in interest rates as we have long-term debt with variable interest rates based on either the prime rate or LIBOR. Based upon our long-term debt balance at December 31, 1999, a 1% increase in interest rates would increase our interest expense by approximately $1.3 million on an annual basis. These analyses do not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our financial structure.

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BUSINESS

OVERVIEW

We are a facilities-based provider of integrated broadband telecommunications services and high-bandwidth fiber optic capacity in the northeastern United States. Our network is designed to be a regional fiber optic intranet combining direct last-mile connections to our customers, intracity rings and long-haul capacity. We are building our network on what we believe to be the broadest contiguous rights-of-way in the region, primarily using access rights granted to us by four utility companies with which we have developed unique relationships. We currently offer both traditional telecommunications services as well as enhanced services such as video storage and streaming. We are installing equipment necessary to provide additional enhanced services, including data storage and disaster recovery, and expect to offer these services by the end of 2000. We market our services to large businesses and institutions in the healthcare, education, finance and government sectors, medium- and small-sized businesses with enterprise networking needs and telecommunications carriers.

Our agreements with Niagara Mohawk, ConEd, NYSEG and GPU Telcom provide us with last-mile access to virtually every customer and building in our region, including those in New York City. By the end of 2001, we expect our network to be comprised of approximately 586,000 fiber miles over 3,200 route miles extending from Washington, D.C. to Montreal. As of April 15, 2000, we had constructed or entered into agreements for indefeasible rights-of-use for approximately 202,000 fiber miles over 1,800 route miles in New York, New Jersey, Pennsylvania, Washington, D.C. and Maryland. Our agreements with utilities allow us to build our network in a capital efficient manner by significantly reducing the last-mile barriers to entry, construction time and associated costs. In addition, these agreements eliminate most recurring fees typically paid to owners of rights-of-way, in exchange for telecommunications capacity. Substantially all of the utility and freeway rights-of-way have never before been used for commercial telecommunications purposes, making our services attractive to customers seeking a geographically diverse network.

In addition to our utility relationships, we have formed strategic relationships with MasTec, Nortel, and EMC. MasTec provides us with network construction expertise. Nortel offers advanced equipment, support services and vendor financing. Through our relationship with EMC, we are jointly developing customized data and video storage solutions for our customers. In connection with this relationship, we are the first telecommunications company to install and operate an EMC video server.

Our goal is to leverage our network and relationships to become the preferred provider of broadband services in our markets. To achieve this goal, we are rapidly expanding our direct sales force and have entered into joint marketing arrangements. As of April 15, 2000, we had a direct sales, marketing and customer care team of 129 employees located in five sales offices in our region. Our arrangements with Niagara Mohawk Energy and GPU Telcom allow us to jointly market our services to their business and institutional customers. We believe these arrangements enhance our credibility with our target customers and our ability to enter new markets quickly.

Since our formation in 1995, we have raised more than $133.0 million in equity capital.

MARKET OPPORTUNITY

We believe we have a significant market opportunity based on the rapidly growing demand for broadband voice, data and video services. According to the International Data Corporation, or IDC, the total telecommunications market in the United States is expected to increase from approximately $262.0 billion in 1999 to $300.0 billion in 2002. IDC also estimates that data revenues will increase from approximately $45.0 billion in 1999 to $78.0 billion in 2002, representing a 20% compound annual growth rate. As the demand for high-bandwidth applications, such as those associated with e-commerce and video conferencing, continues to increase, the infrastructure necessary to support such applications will continue to gain in

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importance. We are developing our high-bandwidth fiber optic network specifically to target these trends.

Businesses are increasingly creating and storing significant amounts of data. Forrester Research estimates that online storage for Global 2,500 companies will grow from an average of approximately 15 terabytes in 1999 to approximately 153 terabytes in 2003, representing a compound annual growth rate of approximately 78%. This growth in online data storage is driven by the need for continuous availability and redundancy of data, the proliferation of e-commerce, the implementation of new applications and the creation of data warehousing and complex data retrieval facilities. Managing this volume of data is a significant challenge for many businesses. We believe businesses will increasingly look to outsource their data storage needs. We are responding to this by combining our high-bandwidth regional fiber optic intranet with storage equipment to provide secure and scalable data storage solutions for our customers, including storage capacity and disaster recovery to ensure business continuance.

We believe we are well-positioned to capitalize on the overall growth of the telecommunications and data storage industries. We provide our services in one of the most communications-intensive regions in the world. According to Bell Atlantic, the corporations they serve represent approximately 30% of the U.S. business data market. Of this group, we target specifically those customers who we believe to have the highest demand for broadband services, large businesses and institutions in the healthcare, education, finance and government sectors and medium- and small-sized businesses with enterprise networking needs.

In addition, we believe that businesses and other telecommunications carriers desire alternative paths throughout their networks to provide reliability in the event of an outage. To achieve true redundancy, it is necessary for them to seek fiber optic routes built along routes that are geographically diverse from their own.

BUSINESS STRATEGY

Our business strategy includes the following elements:

- BUILD AN END-TO-END NETWORK TO MAXIMIZE PROFITABILITY. We are using utility rights-of-way to construct an extensive regional fiber optic network. Our network is designed to be a regional fiber optic intranet combining direct last-mile connections to our customers, intracity rings and long-haul capacity. Our intracity rings are strategically located in high-density business districts in order to cost-effectively target the most attractive customers in our markets. Our goal is to deliver a full range of data, video and voice services over our own network in order to avoid last-mile access charges and maximize profitability.

- COMPLETE OUR NETWORK BUILD-OUT AND PURSUE ADDITIONAL UTILITY RELATIONSHIPS. By the end of 2001, we expect our network to be comprised of approximately 586,000 fiber miles over 3,200 route miles extending from Washington, D.C. to Montreal. As of April 15, 2000, we had constructed or entered into agreements for indefeasible rights-of-use for approximately 202,000 fiber miles over 1,800 route miles in New York, New Jersey, Pennsylvania, Washington, D.C. and Maryland. We have already entered into agreements granting us access to rights-of-way for the remaining portion of our network build-out, except for planned intracity rings in Washington, D.C. and Baltimore and last-mile access to our customers from our proposed intracity ring in Long Island. We intend to pursue opportunities to further expand our network throughout the eastern United States primarily through our existing agreements with utilities and the development of new utility relationships. We will continue to offer our utility partners a mutually attractive proposition that allows them to capitalize on the growing demand for broadband services and capacity, while allowing us to efficiently expand our network.

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- BUILD OUT OUR NETWORK EFFICIENTLY AND COST EFFECTIVELY. We construct our network with multiple innerducts and large quantities of fiber. As of April 15, 2000, we had an average of approximately 300 fiber strands per mile in our intracity rings and approximately 96 fiber strands per mile in our long-haul capacity, more than we need to meet the service requirements of our current business plan. As a result, we are able to convey indefeasible rights-of-use for network capacity in order to help finance the cost of construction. In addition, we enter into fiber exchanges and joint construction agreements which allow us to expand our network more rapidly and cost effectively than we could otherwise. For example, we entered into a fiber exchange with GPU Telcom and joint construction agreements with companies including Broadwing and Metrix. Our plan is to continue to convey indefeasible rights-of-use for network capacity and enter into fiber exchanges and joint construction agreements to efficiently build out our network.

- OFFER ENHANCED VIDEO AND DATA SERVICES. Our high-bandwidth, end-to-end network allows us to provide a wide range of high-quality, low-latency video, data and voice services. We currently offer video storage and streaming and are developing the infrastructure to offer high-capacity data storage and disaster recovery services. We have installed data storage equipment in Syracuse, New York and plan to install additional equipment in Newark, New Jersey, which we expect to be fully operational by the end of 2000. In addition, we have entered into a strategic relationship with EMC, pursuant to which we agreed to jointly design, develop and implement customized data and video storage solutions for our customers. We believe these elements, along with the last-mile access to customers and our geographically diverse network, uniquely position us to capitalize on the growing need for enhanced data services.

- ENHANCE OUR ACCESS TO CUSTOMERS THROUGH JOINT MARKETING WITH UTILITIES. Our target customers include large businesses and institutions in the healthcare, education, finance and government sectors, medium- and small-sized businesses with enterprise networking needs and telecommunications carriers. We have arrangements with Niagara Mohawk Energy and GPU Telcom that allow us to jointly market our services directly to their business and institutional customers, either independently or in conjunction with the utility. In addition, our arrangements allow us to offer our telecommunications services bundled with our utility partners' energy products. We believe that our relationships with well-established utilities enhance our credibility with our target customers and increase our ability to enter new markets quickly. We intend to pursue opportunities to expand our existing joint marketing arrangements and to enter into similar arrangements with other utility partners to continue to enhance our access to our target customers.

- LEVERAGE OUR OPERATIONAL SUPPORT SYSTEM. We have developed and are implementing an operational support system that combines our proprietary integration platform with what we believe to be industry-leading stand-alone components. These components monitor our network, address service issues, mediate calls, process orders, track usage and provision services. We currently operate all of these components independently and plan to fully integrate this system during the third quarter of 2000. Our goal is to have complete "flow-through" provisioning capabilities that will increase our operational efficiency by minimizing human intervention. As we continue expanding our network and moving our customers onto our network, we intend to leverage our operational support system to efficiently scale our business and maximize customer satisfaction.

- CAPITALIZE ON MANAGEMENT ABILITY AND RELATIONSHIPS. Our management team has demonstrated its ability to work effectively with utilities, local governments and regulatory bodies. We intend to leverage their ability to expand our network and pursue strategic relationships. Additionally, our management team has significant experience in the critical functions of network development and operations, sales and marketing, back office and systems development, customer care and finance. We believe that the quality and

33

experience of our management team will be key factors in the implementation of our business strategy.

OUR RELATIONSHIPS WITH UTILITIES

OVERVIEW

We have developed unique relationships with Niagara Mohawk, ConEd, NYSEG and GPU Telcom. The following table summarizes key terms of our agreements and other significant elements of our relationships with these utilities. For a more detailed description of our relationships, see "Certain Relationships and Related Transactions."

                         NIAGARA MOHAWK            CONED                    NYSEG                 GPU TELCOM
                         --------------   -----------------------  -----------------------  -----------------------
PRIMARY GEOGRAPHIC
  AREA.................  Northern half    New York City and        Southern half of New     Pennsylvania and New
                         of New York      Westchester County       York State to            Jersey
                         State                                     Westchester County
CONSIDERATION FOR
  RIGHTS-OF-WAY........  Fiber optic      Fiber optic strands and  Fiber optic strands and  Fiber exchange
                         strands and      an annual cash payment   participation in
                         capacity                                  network construction
TERM...................  25 years,        25 years, expiring in    25 years, expiring in    20 years, expiring in
                         expiring in      2023, renewable for an   2023, renewable for two  2020 renewable for two
                         2021, renewable  initial ten-year period  ten-year periods at our  five-year periods at
                         for two          at our option            option                   our option
                         ten-year
                         periods at our
                         option
JOINT MARKETING
  ARRANGEMENT..........  Yes              No                       No                       Yes
EQUITY INVESTMENT IN
  TELERGY..............  $40.0 million    N/A                      N/A                      $20.0 million
OTHER..................  Board            N/A                      N/A                      Billing services
                         representation                                                     agreement

UTILITY RELATIONSHIPS: BENEFITS TO US

We believe the unique structure of our utilities relationships gives us significant competitive advantages including:

- LAST-MILE ACCESS TO CUSTOMERS. Our agreements with utilities provide access to contiguous rights-of-way and to buildings that allow us to construct fiber directly to our customers. Our ability to connect these customers directly to our network allows us to offer a wide range of high-margin telecommunications services.

- LOWER COST STRUCTURE. Our agreements are structured to provide us access to the utility rights-of-way in exchange for telecommunications capacity on our network. These agreements eliminate most recurring fees typically paid to owners of rights-of-way, providing us with significant cost savings.

- ROUTE DIVERSITY. We offer our customers a fiber optic network that is built along routes that are geographically diverse from those offered by most telecommunications carriers. This is attractive to customers who seek true redundancy for their telecommunications services.

- IMPROVED SPEED TO MARKET. The scope of our existing agreements with utilities minimizes the need to negotiate additional access to rights-of-way as we continue constructing our network. These relationships allow us to save significant time which would otherwise be necessary to obtain permits and easements before we build out to our targeted customers.

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We can further reduce our construction time by using conduit that our utility partners have already installed along their rights-of-way. Together, we believe these factors allow us to reduce construction time by approximately six to 12 months.

- DEMAND-BASED NETWORK ARCHITECTURE. The utility rights-of-way we use allow us ongoing access to the utilities' conduit systems. This provides us with the ability to install additional fiber capacity, connect our network directly to customers and implement upgrades and modifications, such as expanding intracity rings to connect additional colocations as demand dictates.

- ACCESS TO UTILITIES CUSTOMERS. Our arrangements with Niagara Mohawk Energy and GPU Telcom allow us to jointly market our services to their business and institutional customers. We believe these arrangements enhance our credibility with our target customers and our ability to enter new markets quickly.

UTILITY RELATIONSHIPS: BENEFITS TO UTILITIES

We provide the utility companies with an opportunity to capitalize on the growth of the broadband telecommunications market and the increasing demand for high-capacity networks. Specifically, we believe that our expertise in constructing and operating high-capacity fiber optic networks and our focused marketing and sales strategy offer the utilities the following benefits:

- INCREMENTAL VALUE FOR EXISTING ASSETS/INFRASTRUCTURE. Most utilities have existing conduit, electric distribution and transmission systems and access to buildings that can be utilized as the foundation for a telecommunications network. Working with us allows utilities to realize significant value for their existing assets without substantial capital or human resource investment, disruption to energy operations or potential earnings dilution from developing a telecommunications business on their own.

- JOINT MARKETING. Our arrangements with Niagara Mohawk Energy and GPU Telcom allow us to jointly market our services to their business and institutional customers. This allows these utilities to offer a better value to their existing customers and gives them access to additional customers for their energy services. We believe these arrangements will be more attractive to utilities as their industry continues to undergo deregulation.

- IMPROVED INTERNAL COMMUNICATIONS NETWORKS AND CAPACITY. We construct technologically advanced private networks which have high-capacity transmission capabilities and redundancy features to minimize service disruptions. As part of our agreements with utilities, we can provide them with technologically advanced networks for their internal telecommunications systems.

RELATIONSHIPS WITH OTHERS

In addition to our utility relationships, we have developed strategic relationships with several other entities that we believe provide cost and speed to market advantages, brand identity, access to potential customers and marketing and other support. To date, we have established the following types of strategic relationships:

- JOINT CONSTRUCTION RELATIONSHIPS. We have established strategic relationships with companies including Broadwing, Metrix, Adelphia and Williams Communications Group Inc. to fund joint construction activities. These relationships provide us with funding for building portions of our network and, in some cases, preferred status for rates, terms and conditions to obtain capacity on each others' networks. In general, we retain control over both the construction and operation of these joint construction activities.

- VENDOR RELATIONSHIPS. We have entered into strategic relationships with MasTec, a leading network infrastructure service provider; Nortel, a major supplier of the electronics,

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equipment and services used in connection with fiber optic networks; and EMC, a leading provider of video and data storage solutions. We have signed an agreement making MasTec our preferred network construction provider. MasTec's construction expertise allows us to maintain better control over customer builds and deliver complete end-to-end cabling solutions. We have selected Nortel as our primary equipment supplier. Nortel offers us advanced equipment and vendor financing. In addition, Nortel provides support services including installation, engineering, marketing and network design. Through our relationship with EMC, we are jointly developing customized data and video storage solutions for our customers. In connection with this relationship, we are the first telecommunications company to install and operate an EMC video server.

- SERVICE AGREEMENTS. We have entered into a service agreement with Teleglobe which allows for the exchange of our services, such as internet access, minutes of usage and fiber optic capacity. This agreement allows us to expend our capital resources on other projects while receiving services that support and maintain our network. Our agreement with Teleglobe provides for preferred service rates and additional revenue opportunities. Teleglobe has also made a significant equity investment in us.

PRODUCTS AND SERVICES

We provide high-bandwidth integrated telecommunications products and services, which we offer individually or on a bundled basis. Our products and services include both traditional telecommunications services as well as enhanced services as follows:

TRADITIONAL SERVICES

We currently offer the following traditional services:

- LOCAL SERVICES. We provide local dial tone services to customers, allowing them to complete calls in their local calling area and access long distance calling areas. Optional local services include direct-inward-dial/direct-outward-dial facilities, integrated services digital network, voice mail, customized response and other ancillary services. We also offer related services such as calling cards and conference calling.

- LONG DISTANCE SERVICES. We provide domestic and international long distance services for completing intrastate, interstate and international calls. These services include outbound calling, inbound toll-free service and customized calling plans. We terminate calls either directly, over our own network, or indirectly, through other carriers.

- INTERNET ACCESS. We provide high-speed internet access to business customers over digital subscriber lines, dedicated circuits, frame relay or asynchronous transfer mode services.

- ASYMMETRIC DIGITAL SUBSCRIBER LINE. We currently offer asymmetric digital subscriber line service in four colocations within two cities. By the end of 2000, we plan to offer asymmetric digital subscriber line service in 54 colocations within eight cities. Asymmetric digital subscriber line service allows customers to simultaneously use voice and high-speed data services over the same telephone line. This service is currently targeted to meet the secure and high-speed access needs of small home offices, remote access users of our large business and institutional customers and off-campus university users.

- HIGH-SPEED PACKET TRANSPORT. We offer our customers both asynchronous transfer mode and frame relay service for the transport of high-speed packet information. Both services include guaranteed capacity rates and varying prices for intracity and intercity service. Our frame relay transport rates vary from 56 kilobits per second up to 45 megabits per second and our asynchronous transfer mode transport rates vary from 1.5 megabits per second to

36

622 megabits per second. As an additional benefit, we offer internet access as a permanent virtual circuit connection from either of these high-speed packet platforms.

- PRIVATE LINE. We offer private line services that give our customers direct last-mile connections to their long distance carriers, allowing them to bypass the incumbent local exchange carrier and thereby reduce long distance rates. Private lines also enable customers to establish virtual private wide area networks for data and voice transmissions between or among multiple locations. We also offer other telecommunications carriers wholesale private line services, which are delivered either in the form of long-haul capacity or as last-mile access to the buildings in which we have placed fiber.

- WHOLESALE SERVICES. We offer other telecommunications carriers wholesale capacity, last-mile access, termination of minutes, and indefeasible rights-of-use over our network.

ENHANCED SERVICES

We currently offer video services on our network and intend to offer data storage services by the end of 2000.

- VIDEO SERVICES. We provide a variety of video solutions including multi-channel broadband video transport, closed distance learning networks, video streaming and video conferencing. We have installed a video server that allows us to store media assets in a centralized location for distribution over our high-speed network. We are also developing a video gateway to allow customers with different video compression protocols to interact with each other.

- DATA STORAGE SERVICES. We plan to offer a variety of high-capacity data storage services such as outsourced storage, hierarchal storage, disaster recovery and business continuance. We have installed a storage server that has a current capacity of approximately 12 terabytes and is expandable to approximately 21 terabytes. This server allows us to store mission-critical data for our customers by backing up their systems through constant or periodic updates.

CUSTOMERS

Our network platforms, agreements granting us access to rights-of-way, strategic relationships and products allow us to effectively deliver service to a broad base of customers. We currently have customers in all of our target market segments, which include:

- LARGE BUSINESSES. We target large businesses and institutions, that typically have more than 500 employees, in the healthcare, education, finance and government sectors. We provide these customers with a broad range of traditional and enhanced services by constructing direct last-mile connections to their locations. Our large business customers include the Buffalo Medical Group, the New York State Office for Technology, Blue Cross/ Blue Shield, SUNY Oswego and WIXT, an affiliate of ABC television in Syracuse, New York.

- MEDIUM- AND SMALL-SIZED BUSINESSES. We target medium- and small-sized businesses that typically have fewer than 500 employees. We believe this segment has traditionally been underserved by the incumbent local exchange carriers. To address this market, we target these customers with a direct sales force and comprehensive customer care. We offer these customers a broad range of traditional and enhanced services through a combination of direct last-mile connections and leased circuits.

- TELECOMMUNICATIONS CARRIERS. We target telecommunications carriers to help defray the costs of our network build-out. We offer wholesale capacity, last-mile access, termination of minutes, and indefeasible rights-of-use over our network. Our current telecommunica-

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tions carrier customers include Bell Canada, Citizens Telecom Company, Adelphia, MCI WorldCom, Teleglobe and Global Crossing.

In addition to the above target market segments, we offer asymmetric digital subscriber line service to meet the secure and high-speed access needs of small home offices, remote access users of large business and institutional customers and off-campus university users. To meet their needs, we built our asymmetric digital subscriber line service to provide increased security by using a direct link to a customer's private network. This direct link bypasses the internet and allows a remote access user to authenticate and log in directly with our customer.

SALES, MARKETING AND CUSTOMER CARE

SALES AND MARKETING

Our sales and marketing organization is comprised of four functional areas:
(1) a direct sales group, with 58 employees, including our senior account executives and account executives who have primary responsibility for marketing to our customer base; (2) a customer care group, with 31 employees, which handles routine customer inquiries such as new services and repair requests; (3) a product development group, with 20 employees, that has specialized product knowledge and is responsible for supporting the direct sales effort and developing product specific promotional literature; and (4) a service delivery group, with 20 employees, with primary responsibility for monitoring product integration internally and assuring proper delivery and functioning of new products delivered to customers.

Our sales and marketing strategy is based on: (1) providing our customers with highly differentiated products and services that target their specific telecommunications needs with our technological solutions; (2) rapidly deploying service; and (3) maximizing profits by providing bundled services over our network. To meet these objectives, we have tailored our sales and marketing effort to each of our target market segments and established joint marketing arrangements with Niagara Mohawk Energy and GPU Telcom.

- LARGE BUSINESSES. We target large business customers with senior account executives. These senior account executives are supported by a two-pronged marketing approach that focuses on industry sectors, such as healthcare, education, finance and government, as well as on technology products, such as voice, data, video and storage.

- MEDIUM- AND SMALL-SIZED BUSINESSES. We target medium- and small-sized businesses with account executives. Many of these businesses have little or no information technology resources and require more assistance when purchasing telecommunications products. Therefore, our account executives use a consultative marketing approach, in which they work closely with the prospective customer to develop a customized package of services.

- TELECOMMUNICATIONS CARRIERS. Our carrier salespeople sell dark fiber, capacity and minutes of use to wholesale customers including incumbent local exchange carriers, internet service providers, competitive local exchange carriers, wireless companies, resellers and interexchange carriers.

In addition to this direct sales force, joint marketing arrangements with Niagara Mohawk Energy and GPU Telcom are also key components of our sales and marketing strategy. We capitalize on these joint marketing arrangements by utilizing our utility partners' sales force to increase our number of customer contacts. This helps us increase our knowledge of and access to customers and increases our potential customer base.

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CUSTOMER CARE

Our customer care objective is to deliver a high level of customer service that leads to a high level of customer satisfaction. We believe that the following components of our customer service program will enable us to provide a superior level of customer care:

- state-of-the-art call center to handle customer care;

- customer service and help desk assistance 24 hours a day, seven days a week by phone, fax and e-mail;

- network operations center that offer assistance in resolving network issues 24 hours a day, seven days a week;

- leading management tools to monitor client services; and

- service level guarantees.

Customer relationship management requires instant access to detailed customer data and simple automated workflow tools to support the selling, ordering, delivery and repair of our services. Our operational support system provides for this instant access and allows for minimal human intervention which leads to greater operational efficiency and a higher level of customer satisfaction.

OPERATIONAL SUPPORT SYSTEM

Our operational support system refers to the hardware and software systems that allow us to effectively manage and monitor our network, process orders, provision services, track usage, address service issues, mediate calls and accurately bill our customers. This system has been designed to provide greater flexibility and manage the increased order volume as we move more services onto our network. We have designed our system to:

- be electronically bonded with Bell Atlantic;

- provide a flexible, maintainable and scalable infrastructure;

- support the bundling of telecommunications and energy services on a single bill;

- provide consolidated automated support for tracking order provisioning;

- generate customized management reports and analysis; and

- support business products and services in a coordinated and consolidated effort.

Our proprietary, state-of-the-art operational support system combines a select standardized systems with our Telergy Hub Manager which is designed to seamlessly integrate them. We expect that this system will enable us to easily add new application modules. We selected our vendors because they met our specific needs in a cost-effective manner and have a strong

39

reputation for quality and reliability. The following chart indicates our vendors and primary applications that are or will be integrated with our Telergy Hub Manager:

PRODUCT              VENDOR         APPLICATION
-------------------  -------------  -----------------------------------
CostGuard            InfoDirectors  Retail billing
TBS                  MetaSolv       Provisioning
HNM                  Harris         Network management
Enterprise 2000      GEIS           Electronic bonding
PeopleSoft           Peoplesoft     Accounting
Super Sleuth         Nortel         Fraud detection
Sterling 500         Telesciences   Mediation
Procession           DataCore       Enterprise wide workflow
Navis Core           Ascend         Asynchronous transfer mode
                                    monitoring
Orion                Orion          Fiber test
XEMS                 Nortel         Digital subscriber line element
                                    management
VU-ACD               Perimeter      Automatic call distributor
CTS 6000             Harris         Line test
Xvision              Alcatel        Element manager
LDAP                 Netscape       Internet service provider directory
                                    services
Steel Belted Radius  Funk Software  Internet service provider
                                    authentication

When our operational support system is fully integrated, we will have complete "flow-through" provisioning capabilities that will allow services to be implemented with minimal human intervention and lead to greater operational efficiency and higher margins. We currently operate all parts of our system in a stand-alone environment and plan to have the system fully implemented during the third quarter of 2000.

We believe our proprietary operational support system creates a unique and customized customer interface that can quickly adapt to developments in the market. Our system has been designed to:

- scale seamlessly as we grow and continue to move more services onto our network,

- minimize the time between order receipt and revenue generation,

- improve customer satisfaction and

- enable rapid customization of our services to bring new products to market quickly.

NETWORK OVERVIEW

Our network is designed to be a regional fiber optic intranet combining direct last-mile connections to our customers, intracity rings and long-haul capacity. By the end of 2000, we expect our network to be comprised of approximately 586,000 fiber miles over 3,200 route miles extending from Washington, D.C. to Montreal. As of April 15, 2000, we had constructed or entered into agreements for indefeasible rights-of-use for approximately 202,000 fiber miles over 1,800 route miles in New York, New Jersey, Pennsylvania, Washington, D.C. and Maryland. This is based on the percentage completion of each network segment. As of April 15, 2000, we have

40

conveyed or agreed to convey to third parties approximately 56,000 fiber miles through indefeasible rights-of-use, agreements to exchange dark fiber and fiber granted.

We have already entered into agreements granting us access to rights-of-way for the remaining portion of our network build-out, except for planned intracity rings in Washington, D.C. and Baltimore and last-mile access to our customers from our proposed intracity ring in Long Island. We intend to build our network primarily utilizing our access to utility rights-of-way. We may also build certain portions of our network on non-utility rights-of-way wherever it is economical. For instance, the West-side portion of our Manhattan intracity ring was constructed in the Empire City Subway rights-of-way. We also plan to construct an additional route along the West-side portion of our Manhattan intracity ring using ConEd rights-of-way. The following table summarizes our current and planned network, which may change due to market and other circumstances, some of which are beyond our control:

                                      ESTIMATED             ESTIMATED        TARGET
                                        ROUTE      FIBER      FIBER        COMPLETION            %
LOCATION                                MILES     STRANDS     MILES           DATE            COMPLETE
--------                              ---------   -------   ---------      ----------         --------
LONG-HAUL
Buffalo to Syracuse I...............      165        96       15,840        Complete            100%
Syracuse to Albany I................      160        96       15,360        Complete            100%
Albany to Guilderland (backbone
  extension)........................        4        48          192        Complete            100%
Backbone to Batavia (backbone
  extension)........................       14        48          672        Complete            100%
Whitestown to Utica backbone
  extension)........................        9        48          432        Complete            100%
Syracuse to Oswego (backbone
  extension)........................       40        24          960        Complete            100%
Lighthouse Hill to Watertown........        3        24           72        Complete            100%
Syracuse to Lighthouse Hill.........       39        96        3,744        Complete            100%
Auburn to Binghamton via Ithaca.....      109       108       11,772        Complete            100%
Albany to Pleasant Valley...........       81       192       15,552        Complete            100%
Pleasant Valley to Yonkers..........       60       288       17,280        Complete            100%
Yonkers to New York City............       20       432        8,640        Complete            100%
Albany to Montreal..................      194       144       27,936        Complete            100%
Altoona to Harrisburg...............      120         4          480        Complete            100%
New Brunswick to Morristown to
  Scranton to Binghamton............      180        24        4,320        Complete            100%
Albany to New York City (diverse)...      160       288       46,080    3rd quarter 2000         25%
Altoona to Erie ring................      500         8        4,000    4th quarter 2000         33%
Harrisburg to Philadelphia..........      105        12        1,260    4th quarter 2000         33%
New York City to Philadelphia to
  Washington, D.C. .................      235        24        5,640    4th quarter 2000         33%
Philadelphia to New Brunswick to
  Atlantic City.....................      160        24        3,840    4th quarter 2000         33%
Buffalo to Syracuse II..............      N/A       432       71,280    4th quarter 2000          0%
Syracuse to Albany II...............      N/A       432       69,120    4th quarter 2000          0%
Cleveland to Buffalo................      190       216       41,040    2nd quarter 2001          0%
                                        -----                -------
Subtotal............................    2,548                365,512

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                                      ESTIMATED             ESTIMATED        TARGET
                                        ROUTE      FIBER      FIBER        COMPLETION            %
LOCATION                                MILES     STRANDS     MILES           DATE            COMPLETE
--------                              ---------   -------   ---------      ----------         --------
INTRACITY
New York City (Manhattan)...........       40       432       17,280        Complete            100%
Syracuse Ring I.....................       10       240        2,400        Complete            100%
Syracuse Ring II....................       25        96        2,400        Complete            100%
Buffalo Ring........................       40       216        8,640        Complete            100%
Albany..............................       60       216       12,960        Complete            100%
Manhattan to Newark.................       50       432       21,600    3rd quarter 2000         60%
Albany to Schenectady...............       34       288        9,792    4th quarter 2000         60%
New York City (Manhattan diverse)...       18       432        7,776    4th quarter 2000          0%
Newark to Morristown................       25       216        5,400    1st quarter 2001          0%
Long Island.........................      100       288       28,800    4th quarter 2001          0%
New York City (five boroughs).......       60       432       25,920    4th quarter 2001          0%
Washington, D.C. ...................       40       432       17,280    4th quarter 2001          0%
Philadelphia........................       40       432       17,280    4th quarter 2001          0%
Pittsburgh..........................       25       288        7,200    4th quarter 2001          0%
Baltimore...........................       25       288        7,200    4th quarter 2001          0%
Rochester...........................       25       288        7,200    4th quarter 2001          0%
Erie................................       25       288        7,200    4th quarter 2001          0%
Harrisburg..........................       25       288        7,200    4th quarter 2001          0%
New Brunswick.......................       25       288        7,200    4th quarter 2001          0%
                                        -----                -------
Subtotal............................      692                220,728
                                        -----                -------
Total Network Build-out.............    3,240                586,240
                                        =====                =======

NETWORK DESIGN

Our network has been designed to serve our customer base that has various bandwidth requirements and to deliver the highest quality enhanced services to our customer base. In order to deliver the highest quality enhanced services, we employ a design strategy, called OpticalNet, which provides for the construction of a regional secure and controllable intranet with strategically located high-speed data switches.

We categorize our network components into three categories: (1) our fiber optic infrastructure, consisting of our installed fiber optic cable and leased network elements; (2) our networking infrastructure, consisting of the switching, transport, data transmission equipment and colocations; and (3) our OpticalNet.

FIBER OPTIC INFRASTRUCTURE. Our network infrastructure combines direct last-mile connections to our customers, intracity rings and long-haul capacity. Our intracity rings are designed with multiple access points for maximum flexibility and are strategically located near our target customers, allowing us to economically complete private network builds. The majority of our long-haul fiber is installed with multiple innerducts and cables with high strand counts, providing greater flexibility when building local loops or when connecting directly to customers. This fiber is generally buried and placed in innerducts for maximum reliability. In addition, to provide service to customers with lower bandwidth requirements, we lease unbundled network elements or private line facilities from our colocation or access locations.

NETWORK INFRASTRUCTURE. The network layer includes our switching, transport and enhanced data transmission equipment and colocations. Our switching approach is to minimize equipment costs by utilizing our high-bandwidth backbone to transport voice and data traffic to centralized

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equipment locations. This reduces the need for a switch in every access and transport area. Currently we have three voice switches in service, including a Nortel digital multiplex system 100 local switch, a DMS 500 local/tandem switch and a Lucent 5 electronic switching system local/tandem voice switch, and three data switches. By the end of 2001, we plan to have six voice switches, 18 data switches and 122 colocation sites in our network.

Our transport layer is a synchronous optical network-based self-healing ring platform. The backbone is a dense wavelength division multiplexing architecture that will operate at speeds up to 320 gigabits per second. The intracity rings are designed to operate at 622 megabits per second or 2.5 gigabits per second, depending on the size of the ring, number of access points and expected demand. We design our networks in a ring architecture with connectivity to our facility hub, the incumbent local exchange carrier's central offices, interexchange carrier points-of-presence and areas with large concentrations of telecommunications intensive users.

Our data transmission platform is used to provide enterprise wide high-speed packet connections. The high-speed packet transport is comprised of distributed frame relay and asynchronous transfer mode switches, which are connected via the synchronous optical network transport layer. Internet access can be delivered over these platforms by connecting to our switch and router.

Our colocation strategy is to gain access to a majority of the business customers in the tier I, II and III cities we target and to deploy digital subscriber lines in a significant geographical area in each city to meet the remote access users of our large business and institutional customers. We target incumbent local exchange carriers' central offices that have more than 30,000 access lines and that surround the perimeter of our target cities. Generally, this approach provides us access to approximately 70% of the customer base in each area. Each colocation site includes equipment to deliver digital subscriber line, voice and private line service and includes transport to our city hub for access to our asynchronous transfer mode, frame relay, internet and long-haul network.

OPTICALNET. OpticalNet is a performance optimized design strategy that capitalizes on our fiber optic and network infrastructure. This strategy enables us to deliver the highest quality enhanced services including video storage and streaming, digital libraries, data storage, disaster recovery, video gateway services, high-speed internet access, web hosting and authentication/security services. OpticalNet provides several advantages, including the ability to:

- bundle multiple services on one platform;

- minimize latency and broadband last-mile concerns;

- deliver the highest quality video, data and voice over internet protocol;

- offer increased security; and

- control the access and quality of service delivery.

To deliver these enhanced services, we have installed equipment in Syracuse, New York, including a video server, data storage devices, access servers, high-speed internet access and other requisite equipment. This equipment operates on a fully redundant mirrored architecture with self-healing transport service between devices. We believe our facility is environmentally, physically and electronically secure. We are in the process of designing and plan to install similar equipment in Newark, New Jersey which we expect to be fully operational by the end of 2000. We intend to install additional equipment as demand warrants.

NETWORK MANAGEMENT

Our network is monitored by a network operations center located at our corporate headquarters in Syracuse, New York. The center is divided into three areas: switched services, transport technology and enhanced data services. The center provides network monitoring 24 hours a day, seven days a week. We have installed a new platform that allows us to monitor and provision all network elements from the network operations center.

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COMPETITION

The industries in which we operate are highly competitive and are affected by the introduction of new services by, and the market activities of, major industry participants. We expect competition will intensify in the market for the telecommunications services we provide and plan to provide. Many of our competitors are substantially larger and have greater financial, technical and marketing resources than we do. In particular, larger competitors have advantages over us which could cause us to lose customers and impede our ability to attract new customers, including:

- long-standing relationships and brand recognition with customers;

- financial, technical, marketing, personnel and other resources substantially greater than ours;

- more funds to deploy telecommunications and data services;

- the potential to lower prices of competitive telecommunications and data services; and

- fully deployed networks.

We face competition from other current and potential market entrants, including:

- domestic and international long distance providers seeking to enter, re-enter or expand entry into the local telecommunications marketplace; and

- other domestic and international competitive telecommunications providers, resellers, cable television companies and electric utilities.

The rapid development of the telecommunications industry and the continuing trend toward combinations and strategic alliances in the telecommunications industry could give rise to significant new competitors which could cause us to lose customers and impede our ability to attract new customers. For example, we believe that Global Crossing, one of our significant stockholders, has through combinations and alliances, entered into lines of business that compete with us. In addition, Global Crossing has the right to designate a member to our board of directors.

Additionally, in the provision of data storage services, we face competition from storage hardware and software vendors, which sell storage products or consulting services, as well as managed storage services providers. Many of these vendors and providers have longer operating histories, greater name recognition and substantially greater financial, technical and marketing resources than we have. Many of these vendors and providers also have more extensive customer bases, broader customer relationship and broader industry alliances than us, including relationships with many of our current and potential customers.

The lack of any substantial barriers to entry in our industries means that significant and potentially larger competitors could enter our market as a result of other regulatory changes, technological developments or the establishment of cooperative relationships, including potentially through use of the same rights-of-way that we use. Foreign telecommunications carriers may also compete in the United States market. Increased competition could lead to price reductions, fewer large-volume sales, reduced operating margins and loss of market share.

OPERATING AND CORPORATE GOVERNANCE AGREEMENTS

We are a holding company which directly owns all of Telergy Operating, Inc. Telergy Operating in turn principally operates through seven subsidiaries. Upon the completion of this offering, five of the subsidiaries will be wholly-owned by and will consist of: (1) Telergy Metro LLC; (2) Telergy Network Services, Inc.; (3) Telergy Canada, Inc.; (4) Telergy Parkway, Inc.; and (5) Telergy Central, LLC. Telergy Operating's partly-owned subsidiaries are: (1) Telergy East LLC, which is owned 50% by Telergy Operating and 50% by Energy East Telecommunications Inc., or Energy East, an affiliate of NYSEG and (2) Telergy MidAtlantic, LLC, which is

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owned 51% by Telergy Operating and 49% by GPU Telcom, an affiliate of GPU, Inc. The following chart describes the organizational structure of our group upon the completion of this offering:

[CHART SHOWING COMPANY AND ITS SUBSIDIARIES WITH PERCENTAGE OWNERSHIP]

Some of our subsidiaries are formed out of strategic arrangements with electric utilities or their subsidiaries. The operating agreements and by-laws of our subsidiaries govern, among other things, their capital structure and contribution requirements, scope of business, dividends, voting and rights of first refusal, transfer restrictions and dissolution provisions. A more detailed description of our operating agreements for our jointly-owned subsidiaries is provided below.

TELERGY CENTRAL

We currently own 75% of Telergy Central and Niagara Mohawk Energy, a subsidiary of Niagara Mohawk, owns 25% of Telergy Central. Upon the completion of this offering, Niagara Mohawk Energy is required to sell, and we are required to purchase, its 25% interest in Telergy Central and its related indefeasible rights-of-use. Niagara Mohawk Energy may use the proceeds of the sale to acquire shares of our Class A common stock at the initial public offering price. Our agreement provides that any such sale of its interest and indefeasible rights-of-use will be made at fair market value to be determined by the parties or by an independent expert, provided that the purchase price for its interest and the indefeasible rights-of-use can not be less than 10% of our value.

TELERGY EAST

OVERVIEW. Telergy East was formed in connection with our agreement with NYSEG to acquire access to its rights-of-way. In June 1998, Telergy East entered into a rights-of-occupancy agreement with NYSEG in which NYSEG granted Telergy East a non-exclusive license to use the conduit, facilities and abandoned gas pipeline of NYSEG along its current and future rights-of-way in the southern tier of New York State as well as additional rights-of-way NYSEG acquires within and outside New York State.

CAPITAL CONTRIBUTIONS AND LOANS. We and NYSEG are each generally obligated to contribute 50% of the capital necessary for any construction activities that we and Energy East mutually agree upon. Both we and Energy East reserve the right to construct additional spurs at our own cost and profit if the other party does not wish to contribute to the spur.

MANAGEMENT. We appoint the President of Telergy East and Energy East appoints the Vice-President. Both of these officers act as managers and are jointly responsible for Telergy East's

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day-to-day management, subject to the oversight of a management committee for specified actions. The management committee consists of three members appointed by us and three members appointed by Energy East. Generally, a majority vote is required to approve matters submitted to the management committee. However, some actions require the unanimous consent of both us and Energy East, including the following:

- admitting a new member or issuing any interest in Telergy East;

- selling or otherwise transferring all or substantially all of the assets of Telergy East;

- merging or consolidating Telergy East with or into any other entity;

- dissolving or liquidating Telergy East;

- increasing a member's capital contribution; and

- amending certain provisions of Telergy East's operating agreement or articles of organization.

DISTRIBUTIONS. We determine all distributions to be paid by Telergy East, subject to management committee approval. All distributions by Telergy East must be made in accordance with the applicable membership percentages. We must use our best efforts to cause Telergy East to distribute sufficient cash to enable members to pay their respective income taxes.

TRANSFERS OF OWNERSHIP. Neither we nor Energy East may sell, transfer, assign, exchange or otherwise transfer our respective membership interests in Telergy East without the prior written consent of the other, other than to wholly-owned subsidiaries or in connection with any merger or consolidation in which the owner is the surviving and controlling party and subject to reciprocal rights of first refusal. Generally, under the right of first refusal the party seeking to sell its interest must irrevocably offer in writing to sell its interest to the other member. The other member has thirty days to either accept or refuse the offer to purchase the interest. In the event that either party is subject to any bankruptcy or insolvency law, or any bankruptcy-related proceeding, then such party is be deemed to have irrevocably offered to sell all of its interest to the other party. The other party has 90 days to accept in respect of all, but not less than all, of the interest.

RIGHTS ON STALEMATE. In the event that a quorum of the management committee is unavailable or the management committee is deadlocked on any matter, either Energy East or we may request the deadlock be resolved by appeal to the chief executive officers of Energy East and Telergy. In the event that those chief executive officers can not resolve the matter, the matter may, but need not, be submitted to Energy East and Telergy for a vote as members.

Additionally, following the earlier of the completion and installation of the Ithaca to Auburn to Binghamton backbone and the Ithaca and Binghamton spurs and June 10, 2000, we may require Energy East to, and Energy East may elect to, withdraw as a member from Telergy East through the redemption of Energy East's membership interest upon the occurrence of a stalemate. For purposes of the agreement, a stalemate exists if:

- the management committee has reached an impasse or deadlock on specified operational matters and has submitted the matter to the chief executive officers of Energy East and Telergy for resolution, and

- the chief executive officers are unable to resolve the impasse or deadlock within ten days after the matter is submitted to them.

It is not necessary that the matter be submitted to a vote of Energy East and Telergy, as members, for a stalemate to exist.

If either Telergy or Energy East exercises their right to require Energy East to withdraw from Telergy East, Energy East will immediately cease to have any right to participate in the

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management of Telergy East or to designate the Vice President or members of the management committee. Thereafter, Telergy East will redeem Energy East's membership interest as follows:

- Telergy East will distribute to Energy East an indefeasible rights-of-use for all remaining dark fiber strands in the Ithaca to Auburn to Binghamton backbone and the Ithaca and Binghamton spurs (and any other portions of the network that parties have constructed jointly), up to a maximum of one-half of the total fiber strands in those portions of the network as of the date of Energy East's withdrawal, and

- If Energy East is a regulated telephone company on the date of its withdrawal from Telergy East and obtains any necessary approval from the New York Public Service Commission within nine months after the date of its withdrawal, then Telergy East will distribute to Energy East:

- 50% of the customers, facilities, business or assets of Telergy East attributable to Energy East as of the date of Energy East's withdrawal, and

- 100% of all of the customers, facilities, business and assets of any segregated network division of Telergy East paid for in its entirety by Energy East.

In which case, Energy East's indefeasible right-of-use described above will immediately terminate upon the second distribution.

In all events, Telergy East will retain its rights-of-way agreement with NYSEG following Energy East's withdrawal from Telergy East.

TELERGY MIDATLANTIC

OVERVIEW. Telergy MidAtlantic has entered into an arrangement with GPU Telcom under which GPU Telcom will construct, install and maintain a fiber optic network for Telergy MidAtlantic in the rights-of-way and facilities of certain utilities affiliated with GPU Telcom. Telergy MidAtlantic has entered into a billing services agreement with Telergy Network Services pursuant to which Telergy Network Services has agreed to perform billing, collection and customer care services for Telergy MidAtlantic.

CAPITAL CONTRIBUTIONS. We are required to contribute up to $4.0 million to Telergy MidAtlantic for start-up and initial marketing costs. If necessary, and agreed upon by both of us, we and GPU Telcom may contribute further capital in proportion to our membership interests in Telergy MidAtlantic.

RETAIL SALES. So long as Telergy Network Services and GPU Telcom are members, we and GPU Telcom have agreed to provide retail telecommunications services in Pennsylvania and New Jersey only through Telergy MidAtlantic. Both we and GPU Telcom reserve the right to independently construct and operate segregated networks and market wholesale services within Pennsylvania and New Jersey.

MANAGEMENT. We and GPU Telcom jointly appoint the manager of Telergy MidAtlantic, who is responsible for day-to-day management, subject to the oversight of a management committee for certain actions. The management committee consists of three members, two members appointed by us and one appointed by GPU Telcom. Generally, an affirmative vote of the majority of the members of the management committee is required to approve matters submitted to the management committee. The following matters require unanimous vote or consent of the members of the management committee:

- approving or amending a business plan;

- approving or amending budgets for capital expenditures;

- engaging in acquisitions;

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- authorizing distributions of property or restricting certain distributions of distributable cash;

- issuing notes, bonds or other obligations or securing obligations by mortgage or pledge of any of Telergy MidAtlantic's property or income, or assuming liabilities in any transaction by Telergy MidAtlantic;

- appointing an independent auditor of Telergy MidAtlantic; and

- appointing a successor manager.

However, some actions require the unanimous consent of both us and GPU Telcom, including the following:

- admitting a new member or issuing any interest in Telergy MidAtlantic;

- selling or otherwise transferring all or substantially all of the assets of Telergy MidAtlantic;

- merging or consolidating Telergy MidAtlantic with or into any other entity or effecting a change of control of Telergy MidAtlantic;

- dissolving or liquidating Telergy MidAtlantic;

- authorizing specified capital expenditures;

- increasing a member's capital contribution; and

- amending some provisions of Telergy MidAtlantic's operating agreement or articles of organization.

DISTRIBUTIONS. All distributions by Telergy MidAtlantic are subject to management committee approval and must be made in accordance with the applicable membership percentages. We must use our best efforts to cause Telergy MidAtlantic to distribute sufficient cash to enable members to pay their respective income taxes.

TRANSFERS OF OWNERSHIP. Neither we nor GPU Telcom may sell or otherwise transfer our respective membership interests in Telergy MidAtlantic without the prior written consent of the other, other than to a direct or indirect parent that wholly owns the applicable member, to wholly-owned subsidiaries or in connection with any merger or consolidation in which the member is the surviving and controlling party and subject to reciprocal first offer rights. Generally, under the right of first offer the party seeking to sell its interest must irrevocably offer in writing to sell its interest to the other member. The other member has thirty days to either accept or refuse the offer to purchase the interest. In the event that either member is subject to any bankruptcy or insolvency law, or any bankruptcy-related proceeding, then such member is be deemed to have irrevocably offered to sell all of its interest to the other member. The other member has 90 days to accept in respect of all, but not less than all, of the interest.

RIGHTS ON STALEMATE. If the management committee or members are unable to obtain a quorum for a meeting or are deadlocked on any matter, either we or GPU Telcom may request the stalemate be resolved by our respective principal executive officers. If our principal executive officers can not resolve the stalemate, we and GPU Telcom must negotiate in good faith to achieve mutually agreeable terms for the purchase of one member's entire interest by the other. Additionally, for stalemates occurring on or after April 7, 2002, if we and GPU Telcom can not agree on the terms of a purchase and sale within 30 days after the stalemate, then we may both, for up to 90 days, seek to sell our respective interest in Telergy MidAtlantic in a bona fide sale to a third party purchaser. However, if neither of us consummates a third party sale within the 90-day period, and the stalemate has not been resolved in the interim, either of us can elect for Telergy MidAtlantic to redeem GPU Telcom's interest in Telergy MidAtlantic.

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If we or GPU Telcom exercises our right to force GPU Telcom to withdraw from Telergy MidAtlantic, Telergy MidAtlantic will redeem GPU Telcom's membership interest as follows:

- Telergy MidAtlantic will distribute to GPU Telcom indefeasible rights-of-use for 49% of the available dark fiber strands in Telergy MidAtlantic's indefeasible rights-of-use, and

- If GPU Telcom is a regulated telephone company on the date of its withdrawal from Telergy MidAtlantic (or designates a regulated telephone company to receive its withdrawal distribution) and obtains any necessary regulatory approval within nine months after the date of its withdrawal, then Telergy MidAtlantic will distribute to GPU Telcom (or its designee) 49% of the consenting customers that use Telergy MidAtlantic's indefeasible rights-of-use, facilities, business or assets attributable to GPU Telcom as of the date of GPU Telcom's withdrawal. In which case, GPU Telcom's indefeasible rights-of-use described above will immediately terminate, but GPU Telcom must remain a party to its construction operating agreement with Telergy MidAtlantic and we will retain our rights under the construction operating agreement and our rights-of-way to expand our network and construct segregated networks in GPU Telcom's territory.

In all events, following GPU Telcom's withdrawal from Telergy MidAtlantic, we must also assist and train GPU Telcom in developing an independent sales, marketing and product development expertise in the provision of retail telecommunications services.

EMPLOYEES

As of April 15, 2000, we employed 419 full-time and seven part-time employees. None of our employees are represented by a collective bargaining agreement. We believe that our relations with our employees are good.

PROPERTIES

Our executive and administrative offices are located in East Syracuse, New York. In December 1998, Telergy Parkway purchased the building where our executive and administrative offices are located. This building covers approximately 35,000 square feet. In addition, we sublease approximately 32,5000 square feet in North Syracuse for office and warehouse space and as a points-of-presence for telecommunications equipment.

Our other executive and principal operating offices are located in Albany, Buffalo and New York City, where we lease an aggregate of approximately 26,000 square feet under agreements which expire beginning in February 2002. We are currently negotiating leases for points-of-presence in other cities in New York, Philadelphia and New Jersey and intend to lease space in other areas as our needs require. In the ordinary course of our business, we also lease building or warehouse space or, to the extent necessary, have acquired easements to accommodate our regeneration sites or for storage purposes.

LEGAL PROCEEDINGS

From time to time we have been, and expect to continue to be, subject to legal proceedings and claims arising in the ordinary course of business. Currently, we are not a party to any material legal proceeding or claim that we believe will have a material adverse effect on our financial condition or results of operations.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

We have registered the Telergy name and logo as service marks with the United States Patent and Trademark Office and the Canadian Patent and Trademark Office. We have also registered OpticalNet(R) and Telergy Light Speed(R), our asymmetric digital subscriber line service offering, as service marks. In addition, we have licenses from third parties for use of various technology software.

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GOVERNMENT REGULATION

The following summary of regulatory developments and legislation, while not exhaustive, describes the primary present and proposed federal, state and local regulation and legislation of the telecommunications industry that could have a material effect on our business. Existing federal and state regulations are currently subject to judicial proceedings, legislative hearings and administrative proposals that could change, in varying degrees, the manner in which our industry operates. We can not predict the outcome of these proceedings or their impact upon the telecommunications industry or upon us.

OVERVIEW

Our telecommunications services are subject to federal, state and local regulation. The Federal Communications Commission, or FCC, exercises jurisdiction over the facilities and services of telecommunications common carriers to the extent those facilities are used to provide, originate or terminate interstate or international telecommunications. State regulatory commissions exercise jurisdiction over facilities and services to the extent those facilities are used to provide, originate or terminate intrastate telecommunications. In addition, as a result of the passage of the Telecommunications Act of 1996, or the Telecom Act, state and federal regulators share responsibility for implementing and enforcing its pro-competitive policies. In particular, state regulatory commissions have substantial oversight over the provision of interconnection and nondiscriminatory network access to competitive local exchange carriers. In addition, local governments exercise authority over some matters that affect our business, such as regulation of the public rights-of-way necessary to install and operate telecommunications networks.

FEDERAL REGULATION OF TELECOMMUNICATIONS

The FCC regulates the interstate and international telecommunications facilities and services of telecommunications common carriers. Specifically, common carriers must comply with the requirements of the Communications Act of 1934, as amended by the Telecom Act. The Telecom Act established a framework for the promotion of increased competition in U.S. local telecommunications markets. Because implementation of the Telecom Act is subject to various federal and state rulemaking and judicial procedures, the effects of the Telecom Act on us may change in ways that can not be accurately predicted.

THE TELECOM ACT: OVERVIEW

The intent of the Telecom Act is to increase competition in the U.S. telecommunications market. To do so, the Telecom Act seeks to open local telecommunications markets to competition by requiring incumbent local exchange carriers to permit competitive local exchange carriers to interconnect to their networks by imposing various obligations on them.

- INTERCONNECTION. Incumbent local exchange carriers must permit competitive local exchange carriers to interconnect their networks to the incumbent local exchange carriers' networks at any technically feasible point, on nondiscriminatory terms and at cost-based prices.

- COLOCATION. Incumbent local exchange carriers must permit competitive local exchange carriers to place certain network equipment at the incumbent local exchange carriers' premises (referred to as colocation).

- UNBUNDLED ACCESS. Incumbent local exchange carriers must unbundle and provide access to certain network elements such as network facilities, equipment, features, functions and capabilities, on nondiscriminatory terms and cost-based prices.

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- RECIPROCAL COMPENSATION. Incumbent local exchange carriers and competitive local exchange carriers are required to compensate each other on a reciprocal basis for calls that originate on the network of one carrier and are sent to the network of another for termination.

- RESALE. Incumbent local exchange carriers are required to permit resale of their services and to set discounted wholesale rates for all end-user retail services for sale to competitive local exchange carriers.

- NUMBER PORTABILITY. Incumbent local exchange carriers and competitive local exchange carriers must permit users of telecommunications services to retain existing telephone numbers within the same local area without impairment of quality, reliability or convenience when switching from one telecommunications carrier to another.

- DIALING PARITY. All incumbent local exchange carriers and competitive local exchange carriers are required to provide "1+" equal access to competing providers of telephone exchange service and toll service and to provide nondiscriminatory access to telephone numbers, operator services, directory assistance and directory listing.

- ACCESS TO RIGHTS-OF-WAY. All incumbent local exchange carriers and competitive local exchange carriers must permit nondiscriminatory access to poles, ducts, conduits and rights-of-way.

Incumbent local exchange carriers must negotiate in good faith with competitive carriers that request any or all of the above arrangements. If the carriers can not reach agreement within a prescribed time, either carrier may request binding arbitration by the appropriate state public utility commission, or PUC. If an agreement still can not be reached, carriers are required to abide by the obligations established by the FCC and state PUC.

INTERCONNECTION

In August 1996, the FCC released its First Report and Order on interconnection, or the Interconnection Decision, establishing rules for the implementation of the above obligations. In July 1997, the U.S. Court of Appeals for the Eighth Circuit, or Eighth Circuit, vacated portions of the Interconnection Decision that required prices to be based on forward-looking, rather than historical, costs and gave the FCC heightened authority to monitor local telephone companies' compliance with the Telecom Act. On January 25, 1999, the U.S. Supreme Court reversed the Eighth Circuit's decision. The Supreme Court affirmed the FCC's authority to promulgate rules governing pricing by local telephone companies. The Court also found that the FCC had authority to promulgate a "pick and choose" rule for interconnection, which enables competitive local exchange carriers to adopt portions of existing interconnection agreements, and upheld most of the FCC's rules governing access to unbundled network elements. The Court did find that the FCC had not followed the statutory test for determining which network elements must be unbundled by incumbent local exchange carriers and remanded that issue to the FCC for further consideration.

In response to the remand, on November 5, 1999, the FCC released an order that retained most of its original list of unbundled network elements. The FCC eliminated the requirements that incumbent local exchange carriers provide unbundled access to local switching for customers with four or more lines on the densest parts of the top 50 Metropolitan Statistical Areas, operator services and directory assistance. The FCC's order has been appealed. In addition, the Eighth Circuit is considering certain issues left undecided by the Supreme Court's decision pertaining to substantive challenges to the FCC's interconnection rules, including the validity of the FCC's pricing methodology.

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As a result of the Eighth Circuit and Supreme Court decisions and the pending appeals of the FCC's November 5, 1999 order, the rules governing the pricing, terms and conditions of interconnection agreements remain unsettled. The Supreme Court's decision may require or trigger the renegotiation of existing interconnection agreements. Although state PUCs continue to implement and enforce existing interconnection agreements, the Supreme Court's ruling and further proceedings before the Eighth Circuit and the FCC may affect the authority of state PUCs to do so. They could also result in additional rulemaking proceedings by the FCC. As a result, the scope of our interconnection rights may change in ways that are not foreseeable.

We are party to interconnection agreements with Bell Atlantic in New York, Rhode Island, Massachusetts and New Jersey. The New York agreement expires in June 2000. We are in the process of renegotiating that agreement; however, we can not be certain whether we will be able to renegotiate it on commercially favorable terms. We also will be required to obtain interconnection from the incumbent local exchange carriers in each of the other states in which we plan to operate. We can not be certain whether we will be able to obtain interconnection in those states on commercially favorable terms. Our inability to obtain interconnection on commercially favorable terms in one or more states could have a adverse material effect on our business.

LOCAL LOOP UNBUNDLING AND COLOCATION

Incumbent local exchange carriers are required to provide physical colocation of equipment necessary for competitive local exchange carriers to obtain interconnection or access to unbundled network elements at incumbent local exchange carrier premises. Incumbent local exchange carriers may provide virtual colocation if they demonstrate to a state PUC that physical colocation is not practical for technical reasons or because of space limitations. On March 18, 1999, the FCC adopted measures designed to facilitate the ability of competitive providers to access incumbent local exchange carriers local loops and colocation space, including a requirement that incumbent local exchange carriers make new colocation arrangements (e.g., shared colocation and cageless colocation) available to competing carriers and a requirement that competitors be able to locate all equipment necessary for interconnection, even where such equipment also has other functions.

On March 17, 2000, the U.S. Court of Appeals for the District of Columbia Circuit, or the D.C. Circuit, issued a decision largely upholding the FCC's position. However, the court found that the FCC's definition of the equipment "necessary" for interconnection was too broad and remanded that part of the order to the FCC for further consideration. Based on the outcome of the remand proceeding, the range of equipment that competitive local exchange carriers may place in incumbent local exchange carrier offices may be restricted, causing competitive local exchange carriers possibly to incur additional expenses to build or lease equipment space.

UNIVERSAL SERVICE

The Telecom Act requires the FCC to restructure the manner in which universal service fund payments are established and distributed. On May 8, 1997, the FCC issued an order that significantly expanded the federal universal service subsidy regime. Specifically, the FCC established new universal service funds to support telecommunications and information services for schools and libraries and telecommunications services for rural health care providers. The FCC also expanded federal subsidies for local exchange services provided to low-income consumers and doubled the size of the high cost fund for non-rural local exchange carriers.

Providers of interstate telecommunications service must pay for these programs based on their interstate and international revenue from end-user telecommunications services. Our

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contribution to these universal service funds will be based on our gross interstate and international revenue. The FCC assesses such payments on the basis of a carrier's revenue for the previous year. We are unable to specify the amount of any universal service contributions that we will be required to make in future years.

Following several appeals of the FCC's universal service order, the U.S. Court of Appeals for the Fifth Circuit, or the Fifth Circuit, issued decisions on July 30, 1999, and January 25, 2000, that upheld the FCC's universal service fund rules in most respects. However, the court rejected the FCC's effort to base universal service contributions on the intrastate revenue of interstate carriers. The court also remanded to the FCC the issue of whether revenue derived from international services provided by interstate carriers should be included in a carrier's universal service contribution base. Following remand, on October 8, 1999, the FCC issued an order holding that revenue derived from international services of interstate carriers should be included in the contribution base, unless a carrier's revenue from interstate services are less than 8% of its total revenue derived from interstate and international services. The October 8, 1999, order has been appealed to the Fifth Circuit and may be modified. The universal service program also may be modified as a result of the FCC's own reconsideration of its policies or by congressional action. Further FCC rule changes, as well as obligations to contribute to state universal service funding programs, are likely to increase the overall cost to telecommunications carriers.

RECIPROCAL COMPENSATION

Under the Telecom Act, a local exchange carrier that terminates calls to customers on its network is entitled to be compensated by the local exchange carrier of the originating customer. Incumbent local exchange carriers have taken the position that compensation is not owed for inbound calls to internet service providers on the grounds that this type of traffic is not local and, thus, not covered by the terms of existing interconnection agreements. As a result, some incumbent local exchange carriers have threatened to withhold, and in some cases have withheld, compensation to competitive local exchange carriers for such calls.

Nearly all of the state regulatory commissions that have ruled on this issue have determined that reciprocal compensation is owed for internet service provider-bound calls. Many of those rulings have been appealed. To date, every federal and state court to consider the merits of the issue on appeal has upheld the decisions of those state PUCs that have concluded that reciprocal compensation is owed for internet service provider-bound calls. No federal or state court has issued a decision in an appeal from those few state PUCs that have denied reciprocal compensation for internet service provider-bound calls. Some state PUCs have not yet addressed the issue. We can not accurately predict how these states will rule on this issue or whether some states will change their position.

On February 26, 1999, the FCC issued a Declaratory Ruling and Notice of Proposed Rulemaking addressing the issue of reciprocal compensation for inbound calls to internet service providers, or the Declaratory Ruling. The FCC determined that internet service provider traffic is jurisdictionally mixed and largely interstate and, thus, within the FCC's jurisdiction. In so finding, the FCC applied an end-to-end analysis, concluding that because the communication would ultimately extend beyond the internet service provider to sites out-of-state and around the world, it is non-local in nature. However, the FCC made clear that its conclusion was not dispositive of whether reciprocal compensation is currently owed. Rather, the FCC determined that there was no federal rule in place governing reciprocal compensation for internet service provider-bound traffic when existing interconnection agreements were negotiated. Therefore, the FCC concluded that, pending the completion of federal rulemaking, state PUCs could determine whether compensation is owed under existing agreements. The FCC's Declaratory Ruling was appealed to the D.C. Circuit. On March 24, 2000, the D.C. Circuit vacated the FCC's ruling, holding that the FCC failed to explain adequately why the end-to-end analysis was applied to the reciprocal

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compensation issue, and remanded the issue to the FCC for further proceedings. We can not accurately predict future FCC action or court rulings on this issue.

The FCC also has requested comments on the rules that should govern compensation for internet service provider-bound traffic when existing interconnection agreements expire. Comments were filed by interested parties, but it is unlikely that a decision will be issued until the FCC addresses the issues raised by the remand of its Declaratory Ruling. In the absence of a federal rule, we expect the state commissions to continue to address this issue in the context of approving and arbitrating new interconnection agreements.

Following the issuance of the Declaratory Ruling, some incumbent local exchange carriers have asked state PUCs to reconsider and to reverse their prior decisions requiring the payment of reciprocal compensation on the grounds that those decisions were inconsistent with the Declaratory Ruling. To date, only the Massachusetts PUC has reversed a prior decision. Moreover, in light of the D.C. Circuit's recent opinion, Massachusetts has asked for comments on whether it should re-open that docket and reconsider its reversal. It is possible that other state PUCs will reconsider and modify their prior decisions. The impact of any such decisions on our operations can not be predicted. However, of the 21 states that have considered reciprocal compensation since the FCC's Declaratory Ruling, only four (Massachusetts, New Jersey, Louisiana and South Carolina) do not require carriers to compensate each other for terminating internet service provider-bound calls.

Upon the expiration of current interconnection agreements, new agreements will have to be negotiated. It is expected that reciprocal compensation arrangements will be modified and compensation rates will be significantly lower. The effect of the reduction of compensation rates on us can not be accurately predicted.

ACCESS CHARGES

The FCC has made and is continuing to consider various reforms to the existing rate structure for charges assessed by local exchange carriers on interstate long distance carriers for connection to local networks. These reforms are designed to move these "access charges" to lower, cost-based rate levels and rate structures. These changes may reduce incumbent local exchange carrier access charges and will shift charges, which historically have been based on minutes-of-use, to flat-rate, monthly, per line charges on end-user customers rather than on long distance carriers. As a result, the aggregate amount of interstate access charges paid by long distance carriers to access providers like us may decrease. In addition, the FCC, noting the proliferation of fixed monthly charges on the bills of long distance customers, recently initiated a public inquiry on the impact of these charges on consumers who make few interstate long distance calls but nonetheless pay fixed end-user charges.

These initiatives could reduce our revenue from access charges and diminish them as a source of profit. In October 1998, AT&T sought a declaration from the FCC that AT&T may avoid competitive local exchange carrier access charges by declining to direct calls to the customers of those competitive local exchange carriers. While the FCC denied this request, it initiated a proceeding to examine competitive local exchange carrier access rates. The FCC does not currently impose any rate level or rate structure requirements on interstate access charges of competitive local exchange carriers. In addition, AT&T and Sprint have sent letters to most competitive local exchange carriers demanding a reduction in access charges to a "competitive" level or risk service interruption and, in many instances, have refused to pay the tariffed rate for access services, if at all. A decision by the FCC regulating competitive local exchange carrier interstate access charges or allowing long distance companies to refuse in some cases to purchase competitive providers' switched access services may adversely affect competitive local carriers such as us.

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TARIFFING AND FILING REQUIREMENTS

Currently, non-dominant carriers must file tariffs with the FCC stating the rates, terms and conditions of their interstate and international services. However, on April 28, 2000, the D.C. Circuit ruled that the FCC had authority to eliminate the tariff filing requirement for non-dominant providers of domestic interstate interexchange services. Unless the D.C. Circuit grants rehearing of the case or the U.S. Supreme Court agrees to review the D.C. Circuit's decision, the D.C. Circuit's decision is expected to become effective later this year.

The FCC has stated that it will implement a transition period of approximately nine months before the detariffing rule takes effect. When the rule takes effect, non-dominant interstate interexchange service providers like us will no longer be able to rely on the filing of tariffs with the FCC as a means of providing uniform notice to customers of prices, terms and conditions under which they offer their interstate services. Instead, we will need to implement replacement contracts with each customer or find another means to give notice to our customers, which could result in substantial administrative and marketing expenses. The FCC previously indicated that it might implement a permissive tariffing policy allowing carriers to file tariffs with the FCC. Adoption of a permissive tariffing policy could alleviate the administrative and marketing expenses that would arise if the FCC eliminated tariff filing altogether. The D.C. Circuit's decision does not require the FCC to allow permissive tariff filing, and we can not accurately predict whether the FCC will do so.

The FCC also imposes reporting and filing requirements on interstate and international carriers. We must file periodic reports regarding interstate and international circuits and deployment of network facilities. Traffic and revenue reports and universal service contribution worksheets also must be filed. Carriers also must obtain prior approval from or give notice to the FCC of certain transfers of control and assignments of operating authorizations, as well as certain affiliations with foreign carriers. In addition, certain operating and service agreements with dominant foreign carriers must be filed with the FCC. The FCC has the authority to impose fines and other penalties for non-compliance with FCC rules and regulations.

INTERNATIONAL SERVICES

Section 214 of the Communications Act governs the construction of facilities for international telecommunications services and the provision of international telecommunications services. As a non-dominant carrier, we are required to obtain FCC authorization pursuant to Section 214 and to file tariffs before providing international telecommunications services. Four of our subsidiaries have obtained Section 214 authorization to provide international telecommunications services. We also have filed international tariffs with the FCC. Our provision of international services also requires us to make certain filings and pay certain regulatory fees to the FCC. Those filings and fees are discussed in the preceding section.

COMPETITION FROM BELL OPERATING COMPANIES

Section 271 of the Telecom Act contains provisions that permit the Regional Bell Operating Companies, or RBOCs, to provide long distance services in their home service areas once they meet procedural and substantive requirements. Specifically, an RBOC may provide such services only after it demonstrates that it has entered into interconnection agreements in the states in which it seeks to offer long distance services and meets a 14-point "competitive checklist." The FCC also must find that the RBOC's entry into the long distance market is in the public interest. In late 1999, the FCC issued an order finding that Bell Atlantic had satisfied the competitive checklist and granted Bell Atlantic authority to provide long distance services in New York State. To date, the FCC has granted no other Section 271 petition; however, it is possible that additional petitions will be granted later this year and in the future. We thus may be required to

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compete with Bell Atlantic and other incumbent local exchange carriers for the provision of long distance services.

U.S. Congressman William J. Tauzin (R-LA) has introduced a bill in the U.S. House of Representatives called the "Internet Freedom and Deployment Act of 1999" that would allow the RBOCs to provide certain high-speed data service and internet access services free from the restrictions of Section 271. Further, under the bill, incumbent local exchange carriers would neither have to provide unbundled access to their high-speed data service network elements nor have to offer high-speed data service for resale at wholesale rates. The RBOCs would still be prohibited from marketing, billing or collecting for interstate voice services provided by means of these high-speed data service networks, until such time as the RBOC received FCC authorization to provide in-region long distance services. The bill does not allow incumbent local exchange carriers to avoid their unbundling obligations with respect to all elements used to provide high- speed internet access. Incumbent local exchange carriers would continue to have to provide on an unbundled basis those network elements they were under an obligation to provide as of January 1, 1999. Although the bill has garnered substantial support, we can not predict whether this or a modified bill ultimately will pass or what effect such a bill might have on us.

In the spring of 1998, four RBOCs, including Bell Atlantic, petitioned the FCC to be relieved of specified regulatory requirements in connection with their provision of high-speed data services, including obligations to unbundle high-speed data loops and to resell such services. In October 1998, the FCC ruled that high-speed data services are telecommunications services subject to the unbundling and resale obligations of the Telecom Act. However, the FCC has initiated a proceeding to determine whether RBOCs can create separate affiliates for their high-speed data services that would be free from these obligations. A decision in that proceeding permitting RBOCs to offer these services through a separate subsidiary may have a material adverse effect on our operations.

LINE SHARING

On November 18, 1999, the FCC adopted an order that directed incumbent local exchange carriers to share their local telephone lines so that competitors could make use of the high frequency portion of the line. This will enable competitive carriers to use xDSL technology to provide high-speed data services over the same telephone lines simultaneously used by incumbent local exchange carriers to provide basic telephone service, a technique referred to as "line sharing." We can not accurately predict the short-term effect of this order as the FCC left it to the states to determine how line sharing should be implemented and what rates the incumbent local exchange carriers may charge. This process could take some time, and this order has been challenged before by both the FCC and the D.C. Circuit. This rule could have the effect of sharply reducing prices for xDSL service.

INTERNET SERVICES

We offer a variety of internet-related services. The FCC currently considers most internet services to be enhanced services and not subject to direct regulation by the FCC. However, the future regulatory status of internet-related services is uncertain. In an April 1998 report, the FCC indicated that some services offered over the internet, such as voice over internet protocol, may be functionally indistinguishable from traditional telecommunications service offerings and that their non-regulated status may have to be re-examined. Moreover, although the FCC has decided not to allow local telephone companies to impose per-minute access charges on internet service providers, further regulatory and legislative consideration of this issue is possible. In addition, increased regulation of the internet as a result of state or federal initiatives, including regulating or criminalizing certain content, may slow its growth and reduce potential revenue. Internet services also are subject to intellectual property laws and export laws. These regulations may

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increase the cost of complying with new laws or doing business over the internet, may reduce our profits and have a material adverse impact on our business, financial condition and future prospects.

CUSTOMER INFORMATION

The Telecom Act protects the privacy of certain information about telecommunications customers that a carrier like us acquires by virtue of our provision of telecommunications services to such customers. Protected information includes information related to the quantity, technical configuration, type, destination and the amount of use of a telecommunications service. A carrier may not use such information acquired through one of its service offerings to market certain other service offerings without the approval of the affected customers. These restrictions may affect our ability to market a variety of packaged services to existing customers.

STATE REGULATION

The intrastate activities of each of our local telephone service companies are regulated by the state PUCs of the states in which each subsidiary operates with respect to such issues as rates, service quality, the issuance of securities and the construction of facilities. The level of regulation imposed upon us by state PUCs and the substantive rights and obligations that we have in each state vary. However, as a competitive provider of telecommunications services, we are generally less heavily regulated than are incumbent local exchange carriers.

To provide intrastate services, we generally must obtain a certificate of public convenience and necessity from the appropriate state PUC. Our operating subsidiaries have received certification in the following states: New York, Rhode Island, New Jersey, Pennsylvania, Vermont, New Hampshire, West Virginia, Delaware, Massachusetts and the District of Columbia. We also have applied for certification in Connecticut, Florida, Maine, Maryland, Ohio, Texas and Virginia. We expect our pending applications to be granted by the appropriate state PUCs in the ordinary course of business. In most states, we are authorized to provide local and long distance services on a facilities-based and resale basis.

In carrying out our intrastate operations, we must comply with the terms and conditions of our certificates and any other regulatory requirements for telecommunications utilities. Our certificates of authority may be conditioned, modified or revoked by state regulatory authorities from time to time or for failure to comply with state law or regulations. Fines and other penalties also may be imposed upon us for violations of the terms and conditions of our certificates or other state regulatory requirements.

In most states, certified carriers are required to file tariffs setting forth the terms, conditions and prices of intrastate services. In some states the required tariff may list a range of prices for particular services, and in others such prices can be set on an individual customer basis. We have filed tariffs in New York and Rhode Island and expect to file tariffs in additional states in the ordinary course of business. States also often require prior approvals or notifications for certain transfers of assets, customers or ownership of a competitive local exchange carrier and for issuance by certified carriers of equity securities and notes of indebtedness.

A number of state PUCs in the states in which we currently operate or plan to operate are conducting proceedings related to the rules under which carriers may operate in an increasingly competitive telecommunications market. PUCs are examining issues such as unbundling of local network elements, local interconnection obligations, dialing parity for intra-LATA (or short-haul) toll traffic, local number portability, resale of local exchange service and universal service. For example, the New York Public Service Commission is conducting a number of proceedings and rulemakings that could affect our business. In 1998, the New York Public Service Commission initiated a proceeding to review the rates that Bell Atlantic charges competitive local exchange carriers to use unbundled network elements to provision telecommunications service. We can not

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accurately predict whether the resulting rates will increase the cost of providing service in New York and materially adversely affect our business. In another proceeding, the New York Public Service Commission determined that, in certain circumstances, Bell Atlantic can pay lower reciprocal compensation rates for calls terminated by a competitive local exchange carrier in excess of a ratio of three terminating calls to each originating call. We can not predict how these state proceedings will ultimately be resolved, when decisions will be issued or the effects of any such decisions on our operations.

LOCAL REGULATION

Our activities also are subject to local regulation, including compliance with franchise obligations, building codes and local licensing requirements. Such regulations vary widely by jurisdiction. To construct and install transmission facilities, we may need to obtain rights-of-way over public and privately owned land.

ENERGY REGULATION

The Public Utility Holding Act of 1935, or PUHCA, was amended by the Telecom Act to permit electric utilities that are subject to PUHCA to form Exempt Telecommunications Companies that, subject to certain restrictions and pursuant to FCC approval, may provide telecommunications services, information services and other services and products subject to the jurisdiction of the FCC. Congress currently is considering various proposals for legislation that would affect the provision of electric power and other services by electric utilities. Many states have enacted or are considering legislative proposals that allow or will allow retail customers to select their energy suppliers. We can not accurately predict whether these proposals will be implemented or the effect of any such proposals on our business plans or upon the electric utilities with which we have contracts.

In 1996, the Federal Energy Regulatory Commission issued Orders 888 and 889, which promote wholesale competition in the electricity sector by requiring public electric utilities to make their transmission services available to others on a nondiscriminatory basis. Also in 1996, the New York Public Service Commission adopted principles for competition, including retail choice for all customers, and directed most of New York's major electric utilities to file rate and restructuring proposals addressing those principles. As a result, most customers in New York will be able to select their own electric suppliers by the end of 2000. Similar programs also are being implemented in the natural gas market. We expect that these initiatives will permit us to provide bundled energy and telecommunications services; however, we can not accurately predict whether the liberalization of the energy sector will continue or how it will be implemented.

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MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The table below shows, as of May 3, 2000, the names and ages of our executive officers, directors and key employees, and their current positions with Telergy.

                NAME                   AGE                          POSITION
                ----                   ---                          --------
Brian P. Kelly(1)....................  40    Chairman of the Board and Chief Executive Officer
J. Patrick Barrett...................  63    President and Director
Kevin J. Kelly(1)....................  40    Vice Chairman and Executive Vice President
Nicholas A. Merrick..................  37    Senior Vice President and Chief Financial Officer
Joseph Ciancaglini...................  57    Chief Operating Officer
William M. Kelly, Jr.(1).............  34    Executive Vice President and Director
Steven D. Rubin......................  39    Senior Vice President, General Counsel and Secretary
David M. Wolf........................  39    Chief Technical Officer
Jimmy Wang...........................  38    Chief Information Officer
Thomas G. Young......................  52    Vice President, Government Relations
Eugene Cho...........................  29    Vice President, Corporate Finance
Barry M. Vaughn......................  43    Vice President, Sales and Marketing
Nigel S. B. Price....................  48    Vice President, Information Technology
Richard J. Oliver....................  46    Vice President, Treasurer
John F. O'Mara.......................  66    Director
J. Philip Frazier....................  61    Director
Frank J. Zaccanelli..................  44    Director
Albert J. Budney, Jr.................  52    Director
Joel-Tomas Citron....................  37    Director
Terence R. McAuliffe.................  43    Director
Vincent F. Spina.....................  38    Director


(1) Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. are brothers.

BRIAN P. KELLY co-founded Telergy, Inc. in April 1995 and has been serving as Chairman of the board of directors and Chief Executive Officer since our inception. From 1986 to 1995, Mr. Kelly served as President of Telecommunications Management Systems, a telecommunications and television billing service provider specializing in the healthcare industry.

J. PATRICK BARRETT has been serving as President since April 1998. Mr. Barrett was elected to the board of directors in May 1999. From April 1998 until August 1999, Mr. Barrett also served as Chief Operating Officer. From October 1987, Mr. Barrett has served as Chairman and Chief Executive Officer of Carpat Investments. In addition, Mr. Barrett served as Chairman and Chief Executive Officer of Avis, Inc., Executive Vice President and Chief Financial Officer and member of the board of directors of Norton Simon, Inc., President of Carrier International Corporation, and Vice President and Chief Financial Officer of Carrier Corporation. Mr. Barrett serves as a trustee of both Syracuse and St. Lawrence Universities, director of Lincoln National Corp., and serves as Chairman of the audit committee of Lincoln National. He is also a member of the board of directors of Coyne International Enterprises Corporation.

KEVIN J. KELLY co-founded Telergy, Inc. in April 1995 and has been serving as a director and an officer since our inception. Since April 1998, Mr. Kelly served as Executive Vice President and

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since April 2000, has been Vice Chairman of the board of directors. From 1986 to 1995, Mr. Kelly served as Chief Executive Officer of Telecommunications Management Systems, a telecommunications and television billing service provider specializing in the healthcare industry.

NICHOLAS A. MERRICK has been serving as Senior Vice President and our Chief Financial Officer since May 2000. From October 1997 to February 2000, Mr. Merrick served as Executive Vice President and from October 1997 to November 1998 also served as Chief Financial Officer of Excel Communications Inc., which was acquired by Teleglobe. From November 1998 to February 2000, Mr. Merrick was also President and Chief Executive Officer of up2 technologies, inc., a web hosting subsidiary of Teleglobe. From March 1996 to October 1997, Mr. Merrick served as Chief Financial Officer of Telco Communications Group, Inc. until its acquisition by Excel. From August 1990 to March 1996, Mr. Merrick held several positions at The Robinson-Humphrey Company, Inc. in Atlanta, including Vice President, Corporate Finance.

JOSEPH CIANCAGLINI has been serving as our Chief Operating Officer since August 1999. Mr. Ciancaglini served as Director of Operations of Telergy Network Services from February 1999 to August 1999. From 1968 to 1999, Mr. Ciancaglini served as Director of Operations for the Central New York Region at NYNEX/Bell Atlantic, serving over a 22,000 square mile area and managing approximately 800 employees.

WILLIAM M. KELLY, JR. co-founded Telergy, Inc. in April 1995 and has been serving as an officer and director since our inception. Since April 2000, Mr. Kelly has served as Executive Vice President. From April 1995 to April 2000, Mr. Kelly served as Secretary. From 1986 to 1995, Mr. Kelly served as Chief Information Officer for Telecommunications Management Systems, a telecommunications and television billing service provider specializing in the healthcare market.

STEVEN D. RUBIN has been serving as our Senior Vice President and General Counsel since January 2000 and Secretary since April 2000. From 1990 to 2000, Mr. Rubin served as a shareholder of the law firm of Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. and a director of that firm from 1998 to 2000.

DAVID M. WOLF has been serving as our Chief Technical Officer since April 2000. From October 1997 to April 2000, Mr. Wolf served as Vice President of Corporate Development. From 1984 to 1997, Mr. Wolf was employed by NYNEX/Bell Atlantic where he held a variety of positions including Implementation Engineer, Transmission Engineer, Switch Designer, Market Area Planner, and Advanced Customer Network Engineer. In addition, Mr. Wolf was a Director of the Telecom Institute at SUNY Institute of Technology at Utica from 1995 to 1997.

JIMMY WANG has been serving as our Chief Information Officer since March 2000. In February and March 2000, Mr. Wang served as Chief Technology Officer. From 1997 to 2000, Mr. Wang served as Director of System Development/Testing Group for AT&T Local Systems. From 1994 to 1997, Mr. Wang served as manager of AT&T Bell Labs. Mr. Wang holds a Ph.D. in operations research from Southern Methodist University.

THOMAS G. YOUNG has been serving as our Vice President, Government Relations since April 2000. From August 1995 to April 2000, Mr. Young served as our Senior Vice President of Government Relationship. From 1994 to 1995, Mr. Young served as Chairman of the New York Power Authority.

EUGENE CHO has been serving as our Vice President, Corporate Finance since February 2000. From 1997 to 2000, Mr. Cho was an associate in the investment banking division of Donaldson, Lufkin & Jenrette Securities Corporation. Mr. Cho received a Masters of Business Administration from Columbia University in 1997. Prior to attending business school, Mr. Cho was an analyst in the investment banking division of Lehman Brothers Inc. Mr. Cho received a bachelors in economics from Yale University in 1992.

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BARRY M. VAUGHN has been serving as our Vice President, Sales and Marketing since November 1999. From 1997 to 1999, Mr. Vaughn served as Director of Commercial Data Solutions for Sensis Corp., an international engineering company specializing in data telecommunications and sensors for the aviation, air defense and commercial markets. From 1979 to 1997, Mr. Vaughn held a number of marketing, technical and operational positions including Director of Marketing for Health Care Market Management, Director of Emerging Markets for the entire NYNEX region and Director of Marketing for the Central New York Region.

NIGEL S. B. PRICE has been serving as our Vice President, Information Technology since May 1999. From 1994 to 1999, Mr. Price worked with Perot Systems as an information technology consultant. Before working at Perot Systems, Mr. Price spent 25 years with British Telecom in various management and systems development roles. At British Telecom, Mr. Price supervised the development of the GSM Network for Cellnet in the United Kingdom.

RICHARD J. OLIVER has been serving as our Vice President, Treasurer since April 2000. From 1995 to April 2000, Mr. Oliver served as our Chief Financial Officer. From 1983 to 1995, Mr. Oliver served as Chief Financial Officer of the Touchette Corporation where he was also responsible for the operations of the computer service divisions.

JOHN F. O'MARA has been one of our senior advisors since December 1998 and one of our directors since May 1999. Mr. O'Mara served as Regulator of the New York Public Service Commission from 1995 to 1998. Mr. O'Mara is a partner in the law firm of Davidson and O'Mara.

J. PHILIP FRAZIER has been a member of our board of directors since May 1999. From 1997 to 1998, he served as a director of Telergy Joint Venture, the predecessor of Telergy Central, LLC. Mr. Frazier has been serving as President and Chief Executive Officer of Niagara Mohawk Energy since 1996. From 1995 to 1996, Mr. Frazier was employed by Stonehedge Partners where he served as Operating Partner.

FRANK J. ZACCANELLI has been one of our senior advisors since June 1998 and a director since May 1999. From 1986 to 1998, Mr. Zaccanelli served as President of Hillwood Investment Company, a leading commercial real estate company controlled by the Perot family. In addition, Mr. Zaccanelli has a minority ownership in the Dallas Mavericks, where he had served as President and General Manager.

ALBERT J. BUDNEY, JR. has been a member of our board of directors since September 1999. He is currently serving as President and a director of Niagara Mohawk Holdings, Inc. From 1995 to 1999, Mr. Budney served as President and Chief Operating Officer of Niagara Mohawk Power Corporation. Before joining Niagara Mohawk, he served as Managing Vice President of UtiliCorp Power Services Group. Mr. Budney is a director of the Utilities Mutual Insurance Company, the Buffalo Niagara Partnership, and the Central New York United Way, where he is Vice Chairman. He is a member of the New York State Regional Economic Development Committee, Chairman of the Board of Governors for Princeton Class of 1968, and President of BorderNet Alliance, a joint U.S.-Canada Economic Development Organization.

JOEL-TOMAS CITRON has been a member of our board of directors since September 1999. Since November 1999, Mr. Citron has served as Vice Chairman of MasTec, Inc. He has served as President of MasTec since May 1999 and Chief Executive Officer since October 1999. Mr. Citron was the Managing Partner of Triscope Capital LLC, a private investment partnership, from January 1998 to November 1998, Chairman of the board of directors of Proventus AB and a member of its Executive Committee of the group from January 1992 until December 1997. Mr. Citron has been a director of Neff Corporation since October 1998 and Chairman of the board of directors of American Information Systems, Inc., a provider of intranet and internet systems solutions, from September 1996 until January 1999.

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TERENCE R. MCAULIFFE has been a member of our board of directors since August 1999. Since December 1995, Mr. McAuliffe has served as Chairman of American Heritage Corporation. Mr. McAuliffe is also Chairman and Chief Executive Officer of Jefferson National Title Insurance Company. In addition, Mr. McAuliffe also serves on the Board of Regents for Catholic University, National Council for Political Management at George Washington University, and was Co-Chairman of the 53rd Presidential Inaugural Committee.

VINCENT F. SPINA has been a member of our board of directors since April 2000. Since 1993, Mr. Spina has served as a principal of PricewaterhouseCoopers LLP where he manages the Global Human Resource Solutions group in Syracuse, New York. This group includes 28 employees consisting of actuaries, attorneys and employee benefits specialists. He also manages all phases of the actuarial valuation process, plan design and qualification and general employee benefits consulting. From 1989 to 1993, Mr. Spina served as senior consultant at PricewaterhouseCoopers LLP. Mr. Spina is Vice-Chairperson of the Empire Housing and Development Corp., is a Treasurer of the William and Mary Jackson Foundation, Inc. and is a former board member of the Syracuse Chapter of the New York Employee Benefits Conference.

EXECUTIVE OFFICERS

Our executive officers are elected or appointed by, and serve at the discretion of, our board of directors. Each officer holds office until his or her successor is elected and qualified or until his earlier resignation or removal. There are some family relationships among the members of our board of directors and officers. Please refer to the section entitled "Certain Relationships and Related Transactions" for details regarding these relationships and other relationships between officers and us.

BOARD OF DIRECTORS, DIRECTORS' COMPENSATION AND COMMITTEES OF THE BOARD

Our board of directors consists of eleven members. Directors are elected to serve until the next annual meeting of stockholders to be held during the calendar year 2001, and until their successors are elected and qualified. There are some family relationships among the members of the board and the officers of the company. Please refer to the section titled "Certain Relationships and Related Transactions" for details regarding these relationships and other relationships between directors and us. Global Crossing has the right to designate one member to our board of directors but presently has not appointed a designee. See "-- Designation to Our Board of Directors".

COMPENSATION OF DIRECTORS

Directors who are also our officers or employees do not receive compensation other than reimbursement for out-of-pocket expenses incurred by them in connection with their travel to and attendance at meetings of the board of directors or committees thereof. Directors who are not our employees are reimbursed for all travel and other out-of-pocket expenses incurred in connection with attending board of directors and committee meetings, but do not currently receive other directors' fees. Except for Messrs. Zaccannelli and O'Mara who received stock option grants in 1999, no other non-employee directors have been granted stock, options or warrants. We may, however, issue options in the future to our directors under our 1999 Stock Incentive Plan.

COMMITTEES OF THE BOARD OF DIRECTORS

Our board of directors has established an audit committee, a compensation committee, and an executive committee. The functions of each of these committees are described below.

The audit committee is responsible for reviewing the propriety and accuracy of the consolidated financial statements of us and our subsidiaries. The audit committee (1) reviews the internal accounting controls and annual consolidated financial statements, (2) reviews with the independent certified public accountants the scope of their audit, their report and their

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recommendations, and (3) considers the possible effect on the independence of such accountants in approving non-audit services requested of them and recommends the action to be taken with respect to the appointment of the independent certified public accountants. The audit committee consists of Messrs. Zaccanelli, O'Mara and Spina, each of whom is "independent" within the meaning of applicable Nasdaq listing criteria.

The compensation committee, which consists of Messrs. Zaccanelli and Spina, is responsible for (1) approving the compensation of all elected officers, (2) reviewing, advising and making recommendations with respect to elected officer compensation plans, their benefits and standards and taking all related actions that are not reserved for the board, and (3) administering our annual incentive plan and such other salary, compensation or benefit plans as it is designated to administer. The committee is also responsible for implementing and administering programs and plans granting stock awards, stock options and other equity compensation awards.

During intervals between meetings of the board, the executive committee has and exercises all the powers and authority of the board in the management of our business and affairs, except as specifically limited in our by-laws and applicable law. The executive committee currently consists of Messrs. Brian P. Kelly, J. Patrick Barrett, Kevin J. Kelly and William M. Kelly, Jr.

EXECUTIVE COMPENSATION

The following table sets forth certain information regarding the cash and non-cash compensation paid to our Chief Executive Officer and to each of our four most highly compensated executive officers other than the Chief Executive Officer, whose combined salary and bonus exceeded $100,000 during the fiscal year ended December 31, 1999 (these persons collectively are referred to as the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

                                             ANNUAL COMPENSATION                1999 LONG-TERM
                                   ----------------------------------------      COMPENSATION
                                                             OTHER ANNUAL           AWARDS
NAME AND PRINCIPAL POSITION        SALARY($)    BONUS($)    COMPENSATION($)    STOCK OPTIONS(#)
---------------------------        ---------    --------    ---------------    ----------------
Brian P. Kelly...................  $207,538     $200,000          (1)              --
  Chairman of the Board and Chief
  Executive Officer
J. Patrick Barrett...............   207,538      200,000          (1)              150,000
  President and Director
Kevin J. Kelly...................   207,538      200,000          (1)              --
  Vice Chairman and Executive
  Vice President
William M. Kelly, Jr. ...........   134,558      200,000          (1)              --
  Executive Vice President and
  Director
Richard J. Oliver................   135,789      100,000          (1)              --
  Vice President, Treasurer


(1) The amount of perquisite and other personal benefits did not exceed the lesser of $50,000 or 10% of the total of annual salary plus bonus.

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OPTION GRANTS DURING THE FISCAL YEAR ENDED DECEMBER 31, 1999

The following table sets forth information regarding options granted to our Named Executive Officers during the fiscal year ended December 31, 1999.

                                    NUMBER OF      % OF TOTAL
                                   SECURITIES        OPTIONS
                                   UNDERLYING        GRANTED       EXERCISE                 GRANT DATE
                                     OPTIONS      TO EMPLOYEES       PRICE     EXPIRATION     PRESENT
              NAME                 GRANTED(#)        IN 1999       ($/SHARE)      DATE      VALUE $(2)
              ----                 -----------   ---------------   ---------   ----------   -----------
J. Patrick Barrett...............    150,000           36%           $0.01      4/01/08     $17,998,500


(1) These nonqualified stock options were granted to Mr. Barrett on April 1, 1999 and will become exercisable upon completion of this offering.

(2) Calculated according to the minimum value option pricing method.

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE

The following table sets forth information concerning option exercises with respect to Telergy capital stock by the named executive officers during the fiscal year ended December 31, 1999 and the year-end value of outstanding options.

                                                   NUMBER OF SECURITIES
                                                        UNDERLYING               VALUE OF UNEXERCISED
                                                    UNEXERCISED OPTION            IN-THE-MONEY OPTION
                         SHARES                    AT DECEMBER 31, 1999          AT DECEMBER 31, 1999
                       ACQUIRED ON    VALUE     ---------------------------   ---------------------------
        NAME           EXERCISE(#)   REALIZED   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
        ----           -----------   --------   -----------   -------------   -----------   -------------
J. Patrick Barrett...       0           0         100,000      150,000(1)     $28,999,000    $43,498,500


(1) These options will become vested upon completion of this offering. The exercise price of Mr. Barrett's options is $0.01 per share.

RETIREMENT BENEFITS

As of December 31, 1999, we did not sponsor any retirement plan and therefore did not offer any of our employees retirement benefits. During the year 2000, we adopted a defined contribution retirement plan that qualifies under Section 401(k) of the Internal Revenue Code and offers participation in the plan to all employees who meet the plans eligibility criteria.

THE 1999 INCENTIVE COMPENSATION PLAN

GENERALLY. The Telergy, Inc. 1999 Incentive Compensation Plan, or ICP, was adopted by our board of directors and was approved by our stockholders in September 1999. The purposes of the ICP are to provide an incentive to employees, non-employee directors and consultants to us and our subsidiaries to exert maximum efforts towards our growth, profitability and success. It also serves to enhance our ability to attract and retain outstanding employees to serve in such capacities.

ADMINISTRATION. The ICP vests broad powers in the committee that administers and interprets the ICP. The committee may consist of either the board of directors or a committee or subcommittee of the board appointed by the board from among its members. In addition to the general administration and interpretation of the ICP, the committee's powers include authority to select the persons to be granted awards, to determine the time when awards will be granted, and to determine and certify whether objectives and conditions for earning awards have been met. The committee also has authority to determine whether payment of an award will be made at the end of an award period or deferred, and to determine whether an award or payment of an award should be reduced or eliminated. The ICP grants broad powers to the board only to amend and terminate the plan.

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In order to meet the requirements of Section 162(m) of the Internal Revenue Code and the rules under Section 16 of the Exchange Act, grants under the ICP will generally be made by a subcommittee consisting of those members of the committee who are both "outside directors" as defined for purposes of Section 162(m) of the Internal Revenue Code and regulations thereunder and "non-employee directors" as defined for purposes of Section 16 of the Exchange Act.

ELIGIBILITY. Any person in the employ of us or any of our subsidiaries, all members of the board of directors of us and our subsidiaries who are not employed by either us or any of our subsidiaries and any other person who renders services to us or any of our subsidiaries who is not an employee or non-employee director may be selected for an award by the committee.

AWARDS. Under the ICP, up to 1,000,000 shares of common stock are available for award, subject to automatic annual increases and to adjustment in the event of certain corporate events such as reorganizations, stock splits and similar occurrences. The ICP provides for the award of several types of equity-based and other compensation, including both qualified and nonqualified stock options, stock appreciation rights, stock awards, stock units, performance shares, performance units, cash awards and performance-based awards. To date, only non-qualified stock options have been awarded under the ICP. The number of shares available for awards under the ICP shall be automatically increased, effective on the first day of each fiscal year, to a number of shares of Class A common stock equal to 5% of the then outstanding shares of our Class A common stock. Furthermore, any number of shares that are subject to awards that lapse, tendered to pay the exercise price of any award or withheld to satisfy withholding requirements will again be available for award under the ICP.

STOCK OPTIONS. A stock option represents the right to shares of common stock that underlie such option in exchange for the payment of the exercise price. The exercise price for a stock option is determined by the compensation committee and may be less than the fair market value of the underlying shares on the date of the grant. Options may be subject to vesting restrictions that prohibit any exercise until such time that the option, or a portion thereof, is vested. Vesting may be contingent upon a participant's continued employment with us or our subsidiaries for a certain period of time or it may be contingent upon the achievement of performance goals that are determined by the committee. A qualified stock option is a stock option that qualifies as an "incentive stock option" under Section 422 of the Internal Revenue Code. In order to qualify as an incentive stock option, the terms of a stock option must comply with certain requirements that are set forth in Section 422 including maximum thresholds that may be offered certain employees, holding periods, mandatory levels of exercise prices and other criteria. The exercise price of each share of common stock subject to an incentive stock option may not be less than the fair market value of such share on the date the option is granted. Accordingly, a participant will only realize value from his or her incentive stock option award if the value of our common stock increases above the exercise price. The holder of an incentive stock option is entitled to certain tax advantages upon exercise. As mentioned above, none of the stock options that have been issued to date under the ICP have been incentive stock options. As of May 3, 2000, stock options exercisable for 709,000 shares of common stock were outstanding under the ICP.

FORFEITURE OF AWARDS. In the event that a participant in the ICP ceases to provide services to us and our subsidiaries by reason of such participant's death or disability, such participant, or his or her estate, shall have up to a period of twelve months to exercise any vested options. In the event that a participant in the ICP cease to provide services to us and our subsidiaries for reasons other than death, disability or as a consequence of the participant's misconduct, such participant will have up to ninety days to exercise his or her vested options. Under the circumstances described in the prior two sentences, the subject participants will forfeit any unvested stock options. If a participant is asked by us to cease providing services to it as a consequence of his or her misconduct, all such participant's options will immediately lapse and become void.

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EMPLOYMENT AGREEMENTS

Of the Named Executive Officers, only Mr. Barrett has an employment agreement with us. All the other Named Executive Officers are employed at will.

BARRETT EMPLOYMENT AGREEMENT. Pursuant to an employment agreement between us and Mr. J. Patrick Barrett, Mr. Barrett serves as our President and is entitled to an initial annual base salary of $150,000 and an annual bonus of at least $100,000. During the last fiscal year, Mr. Barrett received a salary of $207,538 and a bonus of $200,000. After the initial term, which expired on March 31, 2000, the agreement will automatically renew for successive one-year terms, provided that either we or Mr. Barrett may terminate his employment agreement with at least 90 days prior written notice and we may terminate him with cause at any time. Mr. Barrett's employment agreement was renewed for an additional year as of March 31, 2000. Mr. Barrett's employment agreement restricts him from competing with us during the term of the agreement and for two years after termination of his employment.

As part of his employment agreement, in 1998, Mr. Barrett was granted options for 100,000 shares of Class A common stock which are fully vested. The agreement was modified on May 28, 1999 to provide Mr. Barrett with 150,000 additional stock options that vest and are exercisable upon certain events including an initial public offering of our stock. Once vested, Mr. Barrett may exercise his stock options at any time provided that each exercise must be for at least 25,000 shares. To the extent that Mr. Barrett exercises options to purchase shares of Class A common stock after March 31, 2001, and those shares are not freely resaleable in a public market, then during the thirteen months following each exercise of the option, Mr. Barrett has the right to require us to redeem up to forty percent of the shares of Class A common stock issued on exercisable options at a price equal to the fair market value of those shares.

DESIGNATION TO OUR BOARD OF DIRECTORS

So long as Niagara Mohawk Energy and Opinac collectively have beneficial ownership of a minimum of 10% of the outstanding shares of Class A common stock, Kevin Kelly and Brian Kelly have agreed to vote their shares of our capital stock in favor of the election of Opinac and Niagara Mohawk Energy's two designees to our board of directors provided that the representation of the directors is in proportion to Niagara Mohawk Energy and Opinac's ownership of Class A common stock . If Niagara Mohawk Energy and Opinac's collective ownership falls below 10%, but remains equal to or greater than 5%, they will collectively be entitled to appoint only one person to our board of directors. If Niagara Mohawk Energy and Opinac's collective ownership falls below 5% they will not be entitled to designate any person to our board. Opinac and Niagara Mohawk Energy have agreed that so long as they are beneficial owners of our capital stock, each shall vote all of its shares in favor of the re-election of Kevin Kelly and Brian Kelly to our board of directors. Messrs. Budney and Frazier are Opinac's and Niagara Mohawk Energy's current designees to our board of directors.

So long as Global Crossing and its affiliates own at least 5% of our fully diluted voting stock or warrants, options or other convertible securities which are exercisable for at least 5% of our fully diluted voting stock, Brian P. Kelly, Kevin J. Kelly, William M. Kelly, Jr. and we will cause one person designated by GC Dev to be elected to our board of directors. The designee must be an officer or director of Global Crossing and will be subject to the consent of Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. Until his resignation on April 25, 2000, Thomas J. Casey, Vice Chairman and a Director of Global Crossing, served as the GC Dev designee to our board of directors. Global Crossing has not designated a replacement director at this time.

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial ownership of our common stock as of May 3, 2000, prior to this offering and as adjusted to reflect:

- the issuance in May 2000 of our Series B preferred stock and related warrants and the subsequent conversion of the Series B preferred stock and related warrants upon completion of this offering into shares of our Class A common stock assuming an initial public offering price of $ per share;

- the exercise of warrants to acquire 564,227 shares of our Class A common stock which expire upon completion of this offering, and the cancellation and exchange of our Series A preferred stock;

- the conversion of Niagara Mohawk Energy's membership interest in Telergy Central into shares of our Class A common stock assuming an initial public offering price of $ per share; and

- the issuance of shares of Class A common stock in this offering

by:

- each person who we know to be the beneficial owner of more than five percent of any class of our voting securities immediately prior to this offering;

- each director and executive officer; and

- all directors and executive officers as a group.

We have two classes of common stock, Class A common stock and Class C common stock. Holders of each class have identical rights, except for differences in voting. Holders of Class A common stock have one vote per share, while holders of Class C common stock have 90,000 votes per share.

For purposes of this prospectus, beneficial ownership of securities is defined in accordance with the rules of the Commission and means generally the power to vote or exercise investment discretion with respect to securities, regardless of any economic interests therein. In accordance with these rules, the number of shares beneficially owned and the percentage of shares outstanding excludes outstanding stock options and warrants which are not exercisable by July 3, 2000 or upon completion of this offering. Unless otherwise indicated, all shares are owned directly and the indicated owner has sole voting and dispositive power with respect thereto.

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                               NUMBER OF                                         NUMBER OF
                               SHARES OF                                         SHARES OF     PERCENTAGE OF VOTING POWER OF ALL
                                CLASS A      PERCENTAGE OF SHARES OF CLASS A      CLASS C          OUTSTANDING VOTING COMMON
                                 COMMON          COMMON STOCK OUTSTANDING          COMMON                    STOCK
                                 STOCK       --------------------------------      STOCK       ----------------------------------
                              BENEFICIALLY                     AFTER OFFERING   BENEFICIALLY                      AFTER OFFERING
NAME                             OWNED       BEFORE OFFERING    AS ADJUSTED      OWNED(11)     BEFORE OFFERING      AS ADJUSTED
----                          ------------   ---------------   --------------   ------------   ---------------    --------------
Brian P. Kelly(1)...........     478,392          14.0%                              50              84.1%
J. Patrick Barrett(2).......     250,000           6.8                               --               2.0
Kevin J. Kelly(1)(3)........     481,422          14.1                               50              90.8
William M. Kelly, Jr.(1)....     482,879          14.2                               --              84.1
Nicholas A. Merrick(2)......      15,625             *                               --                 *
Joseph Ciancaglini(2).......       5,000             *                               --                 *
Steven D. Rubin.............           0             *                               --                 *
John F. O'Mara(2)...........      30,000             *                               --                 *
J. Phillip Frazier(4).......         834             *                               --                 *
Frank J. Zaccanelli(2)......     150,000           4.2                               --               1.2
Albert J. Budney, Jr.(5)....         250             *                               --                 *
Joel-Tomas Citron(6)........           0             *                               --                 *
Terence R. McAuliffe(7).....      12,728             *                               --                 *
Vincent F. Spina............         500             *                               --                 *
All directors and executive
  officers as a group (14
  persons)(8)...............   2,734,511          70.7                               --              91.2
GC Dev. Co., Inc.(9)........     564,227          14.2                               --               4.4
Opinac North America,
  Inc.(10)..................     453,334          13.0                               --               3.6


* Less than one percent

(1) Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. have deposited all of their shares of Class A common stock and Class C common stock in a Family Voting Trust described below of which Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. are voting trustees and have shared voting power. Pursuant to the rules of the Commission, each of the Kellys will be deemed to beneficially own all of the 1,442,693 shares of Class A common stock (representing 42.3% of our outstanding Class A common stock before this offering and % after this offering as adjusted) and all of the 100 shares of Class C common stock held in the Family Voting Trust (representing all of our Class C common stock before and after the offering).

(2) All of these shares are represented by options which are currently or will be exercisable within 60 days of this offering either on or before July 2, 2000 or upon completion of this offering.

(3) Pursuant to the rules of the Commission, Kevin J. Kelly will be deemed to beneficially own an additional 826,881 shares of Class A common stock held in the Third Party Voting Trust described below of which Kevin J. Kelly is the voting trustee. The shares held in the Third Party Voting Trust combined with the shares Kevin J. Kelly will be deemed to beneficially own in the Family Voting Trust, represent 66.5% of our outstanding Class A common stock before this offering and % after this offering as adjusted.

(4) Mr. Frazier is President and Chief Executive Officer of Niagara Mohawk Energy, an affiliate of Opinac North America. Excludes 103,334 shares of Class A common stock held by Niagara Mohawk Energy, with respect to which Mr. Frazier disclaims beneficial ownership.

(5) Mr. Budney is President and a director of Niagara Mohawk Holdings Inc., and Chief Executive Officer of Opinac North America. Excludes 350,000 shares of Class A common

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stock beneficially owned by Opinac North America, with respect to which Mr. Budney disclaims beneficial ownership.

(6) Mr. Citron is Vice Chairman, President and Chief Executive Officer of MasTec. Excludes warrants to acquire 171,250 shares of Class A common stock, exercisable within 60 days of this offering, held by MasTec, with respect to which Mr. Citron disclaims beneficial ownership.

(7) Includes warrants to acquire 7,728 shares of Class A common stock, all of which are exercisable within 60 days of the date of this offering.

(8) Includes options to acquire 442,728 shares which are exercisable within 60 days after this offering. Also includes all shares held in the Family Voting Trust and the Third Party Voting Trust. The address for all of the executive officers and directors of Telergy is One Telergy Parkway, East Syracuse, New York 13057.

(9) GC Dev is an indirect wholly-owned subsidiary of Global Crossing. Includes warrants to acquire up to 564,227 shares of Class A common stock. If not exercised, the warrants will expire simultaneously with the completion of this offering. Excludes 404,576 shares of Series A preferred stock issued to Global Crossing on September 9, 1999 that include only limited voting rights. Global Crossing's address is Wessex House 45 Reid Street, Hamilton HM12, Bermuda.

(10) Includes 353,334 shares of Class A common stock, and warrants to acquire 100,000 shares of Class A common stock, which are exercisable at any time on or prior to May 10, 2004 and may be exercised within 60 days of the date of this offering. Of the 353,334 shares of Class A common stock, 103,334 shares are held by Niagara Mohawk Energy, an affiliate of Opinac North America. Opinac North America's address is 300 Erie Blvd., West Syracuse, New York 13202.

(11) No shares of Class C common stock will be sold in this offering.

As of May 3, 2000, we had outstanding warrants to purchase 1,279,709 shares of our Class A common stock and options to acquire 709,000 shares of our Class A common stock, excluding contingent warrants issued with our Series B preferred stock.

As of May 3, 2000, there were 100 shares of Class C common stock outstanding. All 100 shares of Class C common stock are held in the Family Voting Trust described below of which Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. are voting trustees and have shared voting and dispositive power.

VOTING TRUST ARRANGEMENTS

FAMILY VOTING TRUST

Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. are parties to a voting trust agreement formed in December 1999. As of May 3, 2000, 1,442,693 shares of Class A common stock and 100 shares of Class C common stock remain in the voting trust. Brian P. Kelly presently has 478,392 shares of Class A common stock and 50 shares of Class C common stock in the voting trust. Kevin M. Kelly presently has 481,422 shares of Class A common stock and 50 shares of Class C common stock in the voting trust. William M. Kelly, Jr. presently has 482,879 shares of Class A common stock in the voting trust. Pursuant to the voting trust agreement, Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. are all voting trustees of the trust. So long as there are three trustees, the consent of at least two of the trustees will be required to authorize any vote or consent. If there are less than three trustees, the remaining trustees must act unanimously. Pursuant to the voting trust agreement, Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. have agreed to vote all of the voting trust shares for the election of Brian P. Kelly and Kevin J. Kelly as our directors. The term of this voting trust expires on December 27, 2009.

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THIRD PARTY VOTING TRUST

On February 14, 1997, certain of our stockholders who are neither directors nor executive officers entered into a voting trust agreement pursuant to which they contributed their shares to a voting trust. The voting trust agreement has been amended to add and remove stockholders from time to time. As of May 3, 2000, there were 826,881 shares of our Class A common stock held in this voting trust. Kevin J. Kelly is the trustee and in the event of his resignation or his inability to perform his duties at any time, Brian P. Kelly is the successor trustee of this voting trust. The term of this voting trust expires on March 15, 2003.

DESIGNATION TO OUR BOARD OF DIRECTORS

We have entered into an agreement with Niagara Mohawk Energy and Opinac regarding their right to appoint members to our board of directors and their agreement to vote to elect Kevin J. Kelly and Brian P. Kelly to our board of directors. We have also entered into an agreement with GC Dev regarding their right to appoint one person to our board of directors. See "Management -- Designation to our Board of Directors."

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

RELATIONSHIPS WITH THE KELLY FAMILY

Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr., directors, executive officers and the principal stockholders of Telergy, are also the principal shareholders of KCI Long Distance Inc., or KCI, a long distance telecommunications company, and WorldNet Communications, Inc., which does business under the name TMS, a system engineering corporation specializing in healthcare, rental, resale and administrative services under the name TMS. In 1996, Telergy, which was formerly a subsidiary of KCI, was spun-off from KCI in a tax-free transaction. During 1996 and 1997, we shared office space and management and administrative services with KCI and TMS.

During 1997, we paid general expenses of KCI and TMS totaling $59,992 and $60,465, respectively. KCI paid our general expenses in the amount of $141,438. KCI provided certain consulting services to and agreed not to compete with us, through December 31, 1997, for a one-time payment of $250,000. We purchased certain fixed assets and KCI's commercial customer base for $1,250,000, the Telergy service mark for $150,000, and miscellaneous assets totaling $49,241. TMS provided certain consulting services to us and agreed not to compete with Telergy Central, through December 31, 1997, for a one-time payment from us of $200,000.

During 1998, we paid general expenses of KCI totaling $80,850. KCI paid our general expenses in the amount of $77,075. We allocated certain overhead costs, primarily for rent, telephone, salaries and equipment expenses, to TMS in the amount of $132,960. We purchased from KCI its residential customer base for $150,000 and the rights to the Telergy Canadian service mark for $150,000.

During 1999, KCI paid our general expenses in the amount of $61,785. We provided certain consulting services to TMS for a one-time payment of $246,974. We currently share office space and management/administrative services with TMS. TMS owned 1,899 shares of our Class A common stock at December 31, 1999.

In March 2000, the stockholders of KCI approved the dissolution of the corporation and KCI is currently in the process of winding down its operations.

RELATIONSHIPS WITH J. PATRICK BARRETT

J. Patrick Barrett, who is our President and a Director, is the sole shareholder and a director of Syracuse Executive Air Service, Inc. which has provided us with charter air services since 1997. We have paid Syracuse Executive Air Service $22,000, $112,000 and $304,000 for such services in 1997, 1998 and 1999, respectively.

Pursuant to Mr. Barrett's employment agreement, we have granted Mr. Barrett options to acquire 250,000 shares of Class A common stock at an exercise price of $0.01 per share. Of such options, 100,000 are exercisable at any time prior to April 1, 2008, and the balance is exercisable upon certain events, including an initial public offering of common stock.

On April 30, 1999, Mr. Barrett loaned $500,000 to the Company. The loan was an open account loan with no stated interest. The loan was repaid in full on May 12, 1999.

RELATIONSHIPS WITH TERENCE R. MCAULIFFE

During 1999, we incurred a fee of $1.2 million payable to Terence R. McAuliffe, one of our directors, for assisting us in raising equity capital. We paid this fee in 2000.

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RELATIONSHIPS WITH NIAGARA MOHAWK AND ITS AFFILIATES

NIAGARA MOHAWK ENERGY

CONVERSION RIGHTS. We own 75% of Telergy Central and Niagara Mohawk Energy, a subsidiary of Niagara Mohawk, owns 25% of Telergy Central. Upon the completion of this offering, Niagara Mohawk Energy is required to sell, and we are required to purchase, its 25% interest in Telergy Central and its related indefeasible rights-of-use. Niagara Mohawk Energy may use the proceeds of the sale to acquire shares of our Class A common stock at the initial public offering price. Our agreement provides that any such sale of its interest and indefeasible rights-of-use will be made at fair market value to be determined by the parties or by an independent expert, provided that the purchase price for its interest and the indefeasible rights-of-use can not be less than 10% of our value. See "Business -- Operating and Corporate Governance Agreements".

STOCK PURCHASE. In November 1998, we entered into a stock purchase agreement pursuant to which Niagara Mohawk Energy acquired 83,334 shares of Class A common stock at $120 per share for an aggregate purchase price of $10.0 million. See "Principal Stockholders". We agreed in the stock purchase agreement to provide Niagara Mohawk Energy with a 20% per year current return on its investment as well as a capital return. See "Description of Capital Stock -- Minimum Returns on Investment". We also granted Niagara Mohawk Energy and Opinac North America, Inc. the right to appoint members to our board of directors. See "Management -- Designation to our Board of Directors". We also granted Niagara Mohawk Energy piggyback registration rights. See "Description of Capital Stock -- Registration Rights".

CONSULTING SERVICES. Niagara Mohawk Energy has provided consulting services in connection with establishing the fiber optic network to us. Fees for these services were $108,000 in 1997, $4,000 in 1998 and $264,000 in 1999.

OPINAC

STOCK PURCHASE. In May 1999, in exchange for $30.0 million, we issued to Opinac, an affiliate of Niagara Mohawk Energy, an 8% subordinated convertible note due 2001 in the principal amount of $25.0 million, 41,666 shares of our Class A common stock and a warrant initially exercisable into 100,000 shares of Class A common stock, with an initial exercise price of $60 per share. See "Principal Stockholders" and "Description of Capital Stock -- Warrants". The entire outstanding principal amount of the note was converted in June 1999 into 208,334 shares of our Class A common stock. Opinac shares the right to appoint members to our board of directors with Niagara Mohawk Energy. See "Management -- Designation to our Board of Directors". We also granted Opinac piggyback registration rights. See "Description of Capital Stock -- Registration Rights".

NIAGARA MOHAWK

RIGHTS-OF-WAY. In February 1996, Telergy Central and Niagara Mohawk entered into a right-of-occupancy agreement which was modified in September 1997 and as modified provides Telergy Central with non-exclusive access to Niagara Mohawk's rights-of-way, conduit and electric distribution and transmission system to construct, install, and operate a telecommunications network. Telergy Central owns the backbone for the entire Telergy Central network as well as the telecommunications equipment acquired by Telergy Central in building and operating the Telergy Central network. Telergy Central does not, however, have any property interest in Niagara Mohawk facilities or rights-of-way.

Telergy Central is not required to pay recurring monetary charges for the use of Niagara Mohawk's rights-of-way or conduit. Instead, Telergy Central provides Niagara Mohawk with, among other things, capacity and four dark fiber strands in the Telergy Central network located

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in Niagara Mohawk's rights-of-way. The agreement, as modified, was approved by the New York Public Service Commission in July 1996 and October 1997, is for a term of 25 years, with Telergy Central having an option to renew for two consecutive ten-year extensions. Telergy Central has agreed to exercise its option to renew the agreement pursuant to its fiber construction and operating agreement with Adelphia. See "-- Relationships with Adelphia".

This agreement also authorizes Telergy Central to extend the backbone network throughout Niagara Mohawk's entire service territory in the state of New York. However, Telergy Central's extensions may not interfere with any Niagara public utility obligations. In addition, the agreement requires that Telergy Central obtain Niagara Mohawk's consent prior to selling or otherwise transferring any of its assets and grants Niagara Mohawk a right of first refusal to purchase any Telergy Central assets prior to sale to a third party.

If Niagara Mohawk's rights-of-way are required for Niagara Mohawk's gas and electric business, Niagara Mohawk will exercise a best efforts approach for Telergy Central's continued use of the rights-of-way, but where this is not appropriate, Niagara Mohawk, at Telergy Central's expense, will pull in and attach Telergy's fiber optic ground wire on the rebuilt or relocated sections of the rights-of-way. If any portion of the rights-of-way along Telergy Central's backbone is appropriated, then the rights-of-occupancy granted to Telergy Central will terminate, with any award from the appropriated property specifically allocated in accordance with Telergy Central's interest. In the event that a governmental agency requires that Niagara Mohawk terminate Telergy Central's right-of-occupancy, Niagara Mohawk will remove and return Telergy Central's transmission systems, at Telergy Central's expense.

Niagara Mohawk has the right to terminate the agreement if:

- Telergy Central's facilities violate any law;

- Telergy Central ceases to have authority to construct or operate its facilities;

- Telergy Central violates the agreement or uses Niagara Mohawk facilities without permission;

- Telergy Central ceases to provide telecommunications services over its facilities;

- Telergy Central's facilities or rights-of-way are used by third parties without the consent of Niagara Mohawk;

- the New York Public Service Commission or Federal Communications Commission makes a determination that the agreement would make Niagara Mohawk a telephone corporation; or

- Telergy Central can not maintain the required insurance.

If Telergy Central terminates the agreement, or the operation and maintenance of the Telergy Central network, during the initial 25-year term without the written approval of Niagara Mohawk, Telergy Central must pay to Niagara Mohawk $7,000 per mile (reduced annually by one/twenty-fifth) of Niagara Mohawk's rights-of-way effected and make business arrangements for the provision of equivalent capacity granted to Niagara Mohawk under this agreement.

RELATIONSHIPS WITH CONED

RIGHTS-OF-WAY. In January 1998, Telergy Metro entered into a license and operating agreement with ConEd pursuant to which ConEd granted Telergy Metro a non-exclusive license to construct, install, operate and maintain the Telergy Metro network through the use of ConEd's rights-of-way from Pleasant Valley to and throughout New York City. As part of the agreement, Telergy Metro has access to ConEd's conduit, facilities and building entrances in exchange for primarily 20 strands of dark fiber and telecommunications services along with an annual cash payment. Although the license is non-exclusive, ConEd agreed not to grant any third party rights

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with respect to the rights-of-way that would substantially interfere with Telergy Metro's rights. In addition, Telergy Metro retains title to all portions of the Telergy Metro network, including any spur routes. The agreement, which was approved by the New York Public Service Commission in May 1998, provides for a 25-year term, with Telergy Metro having an option to extend the agreement for ten years. In addition, the agreement provides for a second extension, at the option of Telergy Metro, for an unspecified period to be negotiated by the parties.

If Telergy Metro decides to install more than one cable through ConEd's rights-of-way, ConEd has the right to determine the number of additional fiber optic cables which may be installed by Telergy Metro in ConEd's rights-of-way, which may not exceed three cables. In addition, the location of spur routes off of the backbone and the amount of compensation to be paid to ConEd for such spur routes must be agreed in writing by ConEd and Telergy Metro. The Telergy Metro network may not interfere with any existing or future generation or distribution of electricity, gas or steam by ConEd.

Telergy Metro's annual cash payment to ConEd may be reduced by volume discounts and any equivalent compensation ConEd elects to receive. Such equivalent compensation includes the use of dark fiber strands with the associated lightwave distribution patch panels and/or any non-usage based telecommunications services that Telergy Metro provides, including network capacity, telephone services and private line circuits. ConEd has initially elected to receive the use of ten single mode dark fiber strands between its substations located at Pleasant Valley and Millwood West and 20 single mode dark fiber strands between Millwood West and its substation located at Hudson Street, Manhattan, together with use of lightwave distribution patch panels and other fiber optic facilities. If Telergy Metro installs a second fiber optic cable, ConEd has initially elected to receive, as equivalent compensation, the use of ten single mode dark fiber strands from Pleasant Valley to Millwood West, together with the use of lightwave distribution patch panels and other fiber optic facilities.

If any portion of the Telergy Metro network or any spur route required by any governmental authority to be relocated due to its interference with any public project, then Telergy Metro will reimburse ConEd for a portion of the costs and expenses of the relocation, based on the percentage of cables, wires, or other equipment belonging to Telergy Metro as opposed to other entities. If ConEd determines, in its sole discretion, that it requires any portion of the rights-of-way for any public utility purpose, or any portion of ConEd's property is sold or demolished, or any law or regulation requires that any portion of the Telergy Metro network be removed, then Telergy Metro must remove its network and any spur routes on ConEd's property at its own expense.

Either party may terminate the agreement upon breach (subject to notice and a 30-day cure period), provided that ConEd may terminate upon shorter notice if Telergy Metro interferes with any contract, lien or easement affecting ConEd's property or immediately upon sending written notice that Telergy Metro interferes with any public utility purpose.

RELATIONSHIPS WITH NYSEG

RIGHTS-OF-WAY. In June 1998, Telergy East entered into a right-of-occupancy agreement with NYSEG in which NYSEG granted Telergy East a non-exclusive license to use the conduit, facilities and abandoned gas pipeline of NYSEG along its current and future rights-of-way in the southern tier of New York State. Although the license is non-exclusive, NYSEG agreed not to grant any third party rights with respect to the rights-of-way that would interfere with Telergy East's rights. Telergy East has access to NYSEG's rights-of-way, conduit, facilities, abandoned gas pipeline and building entrances primarily in exchange for six strands of dark fiber along the entire length of any spur constructed or installed in a NYSEG rights-of-way. The agreement, which was approved by the New York Public Service Commission in September 1998, provides

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for a 25-year term, with Telergy East having an option to renew for two consecutive ten-year extensions.

Consistent with its public service obligations, Telergy East's activities in NYSEG's rights-of-way may not interfere with any generation, transmission, or distribution of electricity, gas or steam by NYSEG or with any customer service work relating to such NYSEG operations, violations of which may result in the termination of the agreement. If Telergy East's right-of-occupancy is terminated by NYSEG due to government regulations or requirements, Telergy East must remove its transmission systems, including conduit, cables and fiber strands, at its own expense. In the event that NYSEG wants to abandon the property used by Telergy East, NYSEG may terminate a portion of Telergy East's right-of-occupancy. NYSEG will, however, on a best efforts basis, attempt to provide other rights-of-way to meet Telergy East's needs but Telergy East must relocate its transmission systems in other NYSEG or third-party rights-of-way at its own expense.

Telergy East or NYSEG may also terminate the agreement due to breach of the agreement by the other party (subject to notice and a 30-day cure period) and upon the other party dissolving or liquidating or becoming involved in any act of bankruptcy.

RELATIONSHIPS WITH GPU TELCOM

INDEFEASIBLE RIGHTS-OF-USE. Our wholly-owned subsidiary, Telergy Operating, on behalf of its telecommunications operating subsidiaries, has entered into an indefeasible rights-of-use agreement with GPU Telcom under which the parties will exchange indefeasible rights-of-use in dark fiber along specific paths of their respective networks. We will provide GPU Telcom with indefeasible rights-of-use in 24 strands of dark fiber in three segments of our network:

- from Albany, New York to Buffalo, New York and from Albany, New York to Pleasant Valley, New York;

- from Pleasant Valley, New York to New York, New York; and

- from Albany, New York to Montreal, Quebec.

In exchange, GPU Telcom will provide us with indefeasible rights-of-use in five segments of its network:

- from Altoona, Pennsylvania to Erie, Pennsylvania (8 strands);

- from Altoona, Pennsylvania to Harrisburg, Pennsylvania (4 strands);

- from Harrisburg, Pennsylvania to Philadelphia, Pennsylvania (24 strands);

- from Philadelphia, Pennsylvania to New York, New York and from Philadelphia, Pennsylvania to Washington, D.C. (24 strands); and

- from Philadelphia, Pennsylvania to Atlantic City, New Jersey (24 strands).

The agreement provides that each party will obtain all necessary rights-of-ways, permits, franchises and other rights necessary to complete its respective segments and complete construction of those segments as promptly as possible, with a target completion date for all segments of December 31, 2000 and an outside completion date of March 31, 2001. The parties will receive their respective indefeasible rights-of-use upon completion and acceptance of all of the necessary segments of both networks. However, we may agree with GPU Telcom to an earlier delivery of the indefeasible rights-of-use on a segment-by-segment basis. If either party fails to have any of its segments completed by March 31, 2001, that party must provide the other party with an equivalent amount of substitute fiber between the end locations of each uncompleted segment, in which case the party who receives substitute fiber need not deliver its segments to the other party pending completion of the uncompleted segments. The agreement

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further provides that if either party fails to complete any of its segments before March 31, 2001 and also fails to provide substitute fiber as described above the party whose segments remain uncompleted will pay the other liquidated damages in an amount equal to $1,180 annually per strand per uncompleted fiber mile.

The parties also agreed to reciprocal maintenance terms on the fiber strands provided to the other party and agreed to use their commercially reasonable efforts to make colocation space available to the other along the path of the segments. The agreement provides for a term of 20 years.

CONSTRUCTION ARRANGEMENTS. Telergy MidAtlantic has entered into a construction operating agreement with GPU Telcom under which GPU Telcom will construct, install and maintain a fiber optic network for Telergy MidAtlantic in the rights-of-way and facilities of certain utilities affiliated with GPU Telcom. These rights-of-ways and facilities are located primarily in New Jersey and Pennsylvania. GPU Telcom will serve as Telergy MidAtlantic's exclusive provider of construction, installation and maintenance services with respect to Telergy MidAtlantic's network. Upon the request of Telergy MidAtlantic, GPU Telcom will construct and install the network and deliver an indefeasible rights-of-use to Telergy MidAtlantic. The term of the construction agreement is 20 years, with an option for Telergy MidAtlantic to extend the term for two consecutive five-year periods. The term of any indefeasible rights-of-use conveyed in connection with this agreement is 20 years from the date the applicable segment is accepted. GPU Telcom will be entitled to a fee at then prevailing competitive rates for its construction, installation and maintenance services, and this fee shall also constitute payment for the indefeasible rights-of-use. If an indefeasible rights-of-use is conveyed in an already existing fiber optic network, the fee payable will be based on prevailing competitive per mile rates for the indefeasible rights-of-use. Upon the dissolution of Telergy MidAtlantic, it may assign the rights under the construction agreement to our wholly-owned subsidiary, Telergy Network Services.

STOCK PURCHASE. In May 2000, GPU Telcom purchased 52,220 shares of our Series B preferred stock for an aggregate purchase price of $20.0 million, or $383 per share. The Series B preferred stock will automatically convert, on a one-to-one basis, subject to adjustment, into Class A common stock upon the completion of this offering. As part of this transaction, we granted GPU Telcom contingent warrants to acquire shares of Class A common stock to enable GPU Telcom to attain a minimum 20% internal rate of return on its investment if the value of the shares of Class A common stock to be issued upon conversion of the Series B preferred stock does not provide GPU Telcom with an internal rate of return of at least 20%. These warrants will be exercisable for a number of shares of Class A common stock with a value equal to the initial public offering price that will enable GPU Telcom to attain its 20% minimum internal rate of return. Assuming an initial public offering of $ per share, the Series B preferred stock and related warrants will be converted into shares of our Class A common stock upon completion of this offering. See "Description of Capital Stock -- Series B Preferred Stock". We have granted GPU Telcom both demand and piggyback registration rights. See "Description of Capital Stock -- Registration Rights".

BILLING SERVICES. Telergy MidAtlantic has entered into a billing services agreement with Telergy Network Services pursuant to which Telergy Network Services has agreed to perform billing, collection and customer care services for Telergy MidAtlantic. Under the agreement, Telergy Network Services will bill Telergy MidAtlantic for its services at customary rates to be agreed upon by the parties.

RELATIONSHIPS WITH TELEGLOBE

STOCK PURCHASE. On May 6, 1999, Teleglobe purchased 125,000 shares of Class A common stock from us for $15.0 million. We have agreed to provide Teleglobe with a 20% per year current return on its investment as well as a capital return. See "Description of Capital Stock --

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Return on the Investment by Certain of our Investors". We have granted Teleglobe piggyback registration rights. See "Description of Capital Stock -- Registration Rights".

MASTER SERVICES. On May 26, 1999, we entered into a master services agreement with Teleglobe, pursuant to which Teleglobe established a $15.0 million three-year account that we can draw against for network management services. Pursuant to this agreement we provided Teleglobe with a $15.0 million three-year fiber credit account. Teleglobe will draw on this account to acquire 20 to 25 year indefeasible rights-of-use installed in our networks. Teleglobe will have the right to collocate its equipment and receive colocation services pursuant to the terms of an indefeasible rights-of-use agreement between us and Teleglobe. We are required to increase Teleglobe's account by certain amounts if we fail to meet certain enumerated milestones for the completion of our network.

RELATIONSHIPS WITH GLOBAL CROSSING

INDEFEASIBLE RIGHTS-OF-USE. On September 9, 1999, Telergy Metro and US Crossing, Inc., a wholly-owned subsidiary of Global Crossing, entered into an agreement for Telergy Metro to provide US Crossing with an indefeasible rights-of-use in 96 strands of dark fiber in up to 100 miles in our New York City ring for a minimum of 20 years. The agreement provides that we must deliver an indefeasible rights-of-use in our Manhattan ring on or before December 31, 2000 and deliver an indefeasible rights-of-use in our planned New York City ring on or before December 31, 2002. In the event we fail to deliver the indefeasible rights-of-use on or before these dates, we will be liable for liquidated damages in the amount of $25,000 per day up to $2.5 million. In the event we fail to deliver an indefeasible rights-of-use in our Manhattan ring on or before March 1, 2001, liquidated damages will not be the sole remedy available to US Crossing. Telergy provided a guarantee of Telergy Metro's performance under this agreement. We have also agreed to construct additional building entrances that are within a certain distance from the New York City ring through available ConEd rights-of-ways and service entrance pipes. US Crossing is required to pay its pro rata share of all costs associated with constructing those building entrances.

In exchange for the indefeasible rights-of-use, US Crossing has agreed to pay annual maintenance fees and to provide various forms of operational support. US Crossing will further explore its use of our facilities to:

- terminate traffic on our networks in markets not served by the New York City ring;

- provide back-up redundancy to US Crossing in areas we serve; and

- terminate traffic in and throughout New York City which US Crossing can not transmit because of capacity overload, disruption or otherwise.

US Crossing has also agreed to meet quarterly for the first year and bi-annually thereafter to discuss these uses and to assist in our development of new products and services, planning joint development and marketing of new products, providing Telergy access to US Crossing training and to advise Telergy of any US Crossing intellectual property that is available for licensing. US Crossing has agreed to provide Telergy colocation space in Telergy's operating areas in the United States where US Crossing has such space available. US Crossing has further agreed to provide capacity and services on its global network if available at discounts between 5% and 15% off of list prices that would otherwise apply. US Crossing has also agreed to participate in the preliminary design of a Long Island spur route and, subject to final agreement between the parties, joint construction and installation of that spur route.

We have had conversations with representatives of Global Crossing regarding our build-out in the Empire City Subway rights-of-way in Manhattan. In one of those conversations, a representative of Global Crossing indicated that he believed that they may be entitled to

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additional fiber as part of their agreement with us. We do not believe that our current contract requires us to deliver more fiber than described above.

STOCK PURCHASE. On September 9, 1999, GC Dev, a subsidiary of Global Crossing, purchased for approximately $40.0 million, 404,576 shares of our Series A preferred stock and warrants to purchase up to 564,227 shares of our Class A common stock. See "Description of Capital Stock -- Warrants" and "Description of Capital Stock -- Series A Preferred Stock". We have also granted GC Dev demand and piggyback registration rights. See "Description of Capital Stock -- Registration Rights".

In connection with GC Dev's purchase of our Series A preferred stock and warrants, we, Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. have agreed with GC Dev as follows:

DESIGNATION TO OUR BOARD OF DIRECTORS. So long as Global Crossing and its affiliates own at least 5% of our fully diluted voting stock or warrants, options or other convertible securities which are exercisable for at least 5% of our fully diluted voting stock, Brian P. Kelly, Kevin J. Kelly, William M. Kelly, Jr. and we will cause one person designated by GC Dev to be elected to our board of directors. The designee must be an officer or director of Global Crossing and will be subject to the consent of Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. Until his resignation on April 25, 2000, Thomas J. Casey, Vice Chairman and Director of Global Crossing, served as the GC Dev designee to our board of directors. Global Crossing has not designated a replacement director at this time.

TAG-ALONG RIGHTS. If Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. or their affiliates propose to sell any of the common stock that they own to a third party, other than in a public offering, GC Dev has the right to require the third party to purchase a proportionate number of its common shares (based on their respective ownership percentages in Telergy), at the same price per share and upon the same terms and conditions as the proposed sale to the third party. These tag-along rights will terminate on the date when the Class A common stock owned by Global Crossing or its affiliates or issuable upon exercise of its warrant constitutes less than 5% of our fully diluted voting stock.

DRAG-ALONG RIGHTS. If Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. receive and accept an offer from a third party to purchase, other than in a public offering, 100% of our common stock then outstanding, GC Dev has the obligation, if so requested by Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr., to sell all of its voting stock of the same class to the third party, on the same terms and conditions as those given to Brian P. Kelly, Kevin J. Kelly and William M. Kelly, Jr. These drag-along rights will terminate on the date when the Class A common stock owned by Global Crossing or its affiliates or issuable upon exercise of its warrant constitutes less than 5% of our fully diluted voting stock.

PREEMPTIVE RIGHTS. If we propose to issue or sell any shares of common stock to Niagara Mohawk Energy in connection with its sale to us of its 25% membership interest in Telergy Central, and if no adjustment in the exercise price and number of shares issuable upon the exercise of GC Dev's warrants have been made as a result of such issuance, we must also offer to sell to GC Dev, on the same terms and conditions, GC Dev's pro rata portion of any of the shares we are issuing or selling. GC Dev's pro rata portion will be the amount of shares necessary to ensure that GC Dev's fully diluted common stock ownership percentage is not reduced by such sale or issuance.

RELATIONSHIPS WITH MASTEC

OVERVIEW. Joel-Tomas Citron, who is one of our directors, is also Vice Chairman, President and Chief Executive Officer and a director of MasTec. MasTec provided us with a $50.0 million revolving credit facility for network construction that we repaid in full in September 1999 and the

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credit facility has since been terminated. MasTec now provides services billable as ordinary trade payables. We have issued MasTec a warrant exercisable for 171,250 shares of our Class A common stock in connection with the credit facility. See "Description of Capital Stock -- Warrants". We have granted MasTec piggyback registration rights. See "Description of Capital Stock -- Registration Rights".

CONSTRUCTION. In May 1998, Telergy entered into an agreement with MasTec North America, Inc. pursuant to which MasTec became our infrastructure service provider for construction, commercial plant, wiring and installation and our preferred procurer of certain materials and equipment, including fiber and conduit. The agreement is automatically terminable by MasTec in its sole discretion at any time. During the term of the agreement, so long as MasTec's pricing, terms and conditions remain competitive, we have agreed to use MasTec as our construction contractor for all fiber construction and installation projects.

RELATIONSHIPS WITH MCI WORLDCOM

In October 1998, Telergy Network Services entered into an agreement with Metrix, which has since been acquired by MCI WorldCom, to jointly build a fiber optic network from Montreal to Albany. The parties have completed construction of the Montreal backbone using Metrix's technical specifications. Metrix completed the build from the U.S./Canadian border to Montreal and we constructed the portion of the build from the border to Albany. The parties have installed six conduits, with Metrix owning the portion of the network in Canada and Telergy Network Services owning the portion of the network in the United States. We have exclusive ownership, control and access to four conduits, which are in the form of an indefeasible rights-of-use on the Canadian side; Metrix has one conduit, which is in the form of an indefeasible rights-of-use on the U.S. side, and the remaining conduit in which the initial fibers are installed is shared between us (108 strands) and Metrix (36 strands).

Pursuant to a long distance telephone service resale agreement with MCI WorldCom, we are required to purchase a minimum of $100,000 per month of services from MCI WorldCom in order to receive certain volume discounts. In the event we fail to meet our minimum commitment, we must pay a deficiency charge equal to the difference between the monthly commitment and the actual revenue so that MCI WorldCom is guaranteed its $100,000 minimum monthly revenues. We have consistently met our minimum commitments.

RELATIONSHIPS WITH ADELPHIA

In February 1997, we and Telergy Central entered into a strategic relationship with Hyperion Telecommunications of New York, which has since been renamed Adelphia, under which we together will fund the construction of local loops in upstate New York. In addition, in connection with $20.0 million in financing provided by Adelphia, we and Telergy Central entered into several agreements with Adelphia. Pursuant to these agreements, Adelphia received (1) a fully prepaid lease from Telergy Central of 24 strands of dark fiber installed in the backbone of the Telergy Central network for the maximum term of our right-of-occupancy agreement with Niagara Mohawk, including the two ten-year renewal options which Telergy Central is obligated to exercise and (2) a fully prepaid lease from us for 25 years for 24 strands of dark fiber in our backbone from Albany to New York City.

In a subsequent amendment, Adelphia waived its right to receive 24 strands of dark fiber in our Portland/Boston networks and to extend the date to provide four dark fiber strands in our New York City network. In exchange, we paid $5.2 million to Adelphia and agreed to (1) provide Adelphia with access to four strands of dark fiber from Syracuse through Auburn to Ithaca and Binghamton at no additional charge, and (2) waive maintenance and colocation fees for the fibers delivered under the original agreement. We and Adelphia have also granted each other

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preferred status for rates, terms and conditions with regard to obtaining access to commercially available capacity in certain cities on each other's networks.

In the event of any relocation due to Telergy's or Niagara Mohawk's business, Telergy will exercise its best efforts to provide for Hyperion's continued use of Telergy's facilities. However, where such continued use is not feasible, Telergy will pull in and attach Adelphia's connection at its own expense. For any relocations at the request of Hyperion for its own business purposes, Adelphia will pay all relocations costs. In the event of a relocation due to the requirements of any government authority, Adelphia will pay its pro rata share of relocation costs based on the number of strands of fiber leased to Adelphia compared to the total number of strands of fiber in the conduit or on the poles, as the case may be.

RELATIONSHIPS WITH NORTEL

In February 1999, we and Telergy Network Services entered into a series of transactions with Nortel which provide for:

- a $30.0 million loan, which we may use to purchase Nortel products and services for Telergy Network Services. The obligation to provide these funds terminates on the date of the third anniversary and full funding of the loan. As of December 31, 1999, we borrowed and repaid $5.3 million, leaving $24.7 million available under this facility; and

- an Authorized Dealer Agreement pursuant to which Telergy Network Services markets, leases, rents to or sells certain Nortel equipment throughout the United States.

This relationship with Nortel provides us with the opportunity to purchase telecommunications equipment to operate, maintain and support our network.

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DESCRIPTION OF CAPITAL STOCK

As of May 3, 2000, our authorized capital stock consisted of 9,999,900 shares of Class A common stock, par value $0.0001 per share, 100 shares of Class C common stock, par value $0.0001 per share and 3,000,000 shares of preferred stock, par value $0.0001 per share. As of May 3, 2000, there were outstanding 3,411,362 shares of Class A common stock, 100 shares of Class C common stock, 404,576 shares of Series A preferred stock and 52,220 shares of Series B preferred stock. On such date, there were also outstanding options to purchase 709,000 shares of Class A common stock and warrants to purchase 1,279,709 shares of Class A common stock, excluding contingent warrants issued to GPU Telcom. See "-- Series B Preferred Stock".

COMMON STOCK

The holders of outstanding shares of Class A common stock and Class C common stock are entitled to receive dividends when, as and if declared by our board of directors, payable at times that our board of directors may determine. Any dividend so declared shall be declared and paid without preference or priority of one class of common stock over the other. Each holder of Class A common stock is entitled to one vote for each share held and each holder of Class C common stock is entitled to 90,000 votes for each share held on all matters submitted to a vote of shareholders, including the election of directors, with both classes voting as one class, except as otherwise expressly provided by law. There is no provision for cumulative voting for the election of directors in our certificate of incorporation, which means that the holders of shares entitled to cast a majority of votes can elect all of the directors then standing for election. If at any time we pay a stock dividend or distribution on our Class A common stock, or split, subdivide, or combine the outstanding shares of our Class A common stock, the number of votes which a share of Class C common stock shall entitle the holder thereof to exercise shall be proportionately adjusted so as to maintain the relative voting power of the Class C common stock which existed prior to the occurrence of such event.

The Class A common stock and Class C common stock are not entitled to preemptive rights and are not subject to conversion or redemption. If we liquidate, dissolve or wind-up, the holders of shares of Class A common stock and Class C common stock would be entitled to share ratably in the distribution of all of our assets and funds remaining available for distribution.

SERIES A PREFERRED STOCK

In September 1999, GC Dev purchased for $40.0 million 404,576 shares of Series A preferred stock and warrants to purchase up to 564,227 shares of our Class A common stock at an exercise price of $98.87 per share.

The warrants owned by GC Dev expire simultaneously with this offering and the purchase price upon exercise is payable in cash or with its Series A preferred stock. We expect that the warrants will be exercised in full in exchange for the cancellation of the outstanding shares of Series A preferred stock and the payment of $ in cash. The Series A preferred stock is redeemable at our (but not GC Dev's) option on or after two years from the date of issuance and in other circumstances. However, if we are required to purchase or redeem any of our outstanding Class A common stock under our existing contractual commitments, we must offer to redeem a like amount of the Series A preferred stock. Dividends on the Series A preferred stock accrue at an annual rate of 8% and are payable quarterly in cash or through increases in the stated value of the Series A preferred stock at our option, except that if we pay all or a portion of the dividends on the common stock in cash we must pay all accrued but unpaid dividends on the Series A preferred stock in cash from the most recent dividend payment date to the date of such dividend. The Series A preferred stock has no voting rights other than as required by applicable law. The Series A preferred stock also has a liquidation preference over all other

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preferred stock and all common stock, for its stated value, including all accrued and unpaid dividends.

SERIES B PREFERRED STOCK

GPU Telcom purchased a total of 52,220 shares of our Series B preferred stock, together with a contingent warrant described below, at $383 per share for an aggregate of approximately $20.0 million. All of the outstanding Series B preferred stock will be automatically converted, on a one-to-one basis, subject to adjustment, into shares of Class A common stock upon the consummation of this offering. In addition, the Series B preferred stock also includes a contingent warrant to acquire shares of Class A common stock to enable the holder to attain a 20% internal rate of return on its investment if and to the extent the value of the shares of Class A common stock to be issued upon conversion of its Series B preferred stock does not provide the holder with this minimum internal rate of return. Based upon an assumed initial public offering price of $ , the Series B preferred stock and related warrants will be converted into shares of our Class A common stock upon completion of this offering. See "Certain Relationships and Related Transactions -- Relationships with GPU Telcom" and "--Relationships with Global Crossing".

WARRANTS

As of May 3, 2000, we had outstanding warrants to purchase 1,279,709 shares of our Class A common stock, excluding contingent warrants issued to GPU Telcom. See "-- Series B Preferred Stock". The number of shares issuable on exercise of these warrants and the exercise price thereof are subject to anti-dilution adjustments in certain circumstances. The following table summarizes the key terms of these warrants:

                                                    CLASS A SHARES
                                                      INTO WHICH
DATE OF ISSUE                                        WARRANTS ARE                                EXERCISE PRICE
OF WARRANTS              OWNER OF WARRANTS           EXERCISABLE        EXERCISABLE THROUGH        PER SHARE
-------------       ----------------------------    --------------    -----------------------    --------------
September 1, 1996   James M. Darcangelo                  9,100        August 31, 2001               $  5.00
September to        Certain investors pursuant         143,041        September 1, 2001             $ 16.50
November, 1996      to a bridge loan
November 1, 1996    William F. Willoth                  11,137        October 31, 2001              $ 16.50
December 1997 to    Certain investors pursuant         200,890        December 31, 2002             $ 60.00
September 1998      to a bridge loan
May 10, 1999        Opinac North America, Inc.         100,000        May 10, 2004 or the           $ 60.00(2)
                                                                      succeeding banking day
May 12, 1999        MacTec North America Inc.          171,250        May 31, 2004                  $ 60.00(2)
September 9, 1999   GC Dev. Co., Inc.                  564,227        The consummation of           $ 98.87(1)
                                                                      this offering
September 15, 1999  Lenders under GATX facility         14,583        The later of three            $120.00(2)
                                                                      years from the
                                                                      consummation of this
                                                                      offering and September
                                                                      15, 2006
November 19, 1999   Bank of America, N.A.               65,481        November 19, 2002             $120.00(2)


(1) The exercise price for the warrants may be paid either in cash or by surrender of Series A preferred stock.

(2) The exercise price for the warrants may be paid in cash, or, at its option, the holder may surrender its warrants with a fair market value equal to the exercise price.

REGISTRATION RIGHTS

As of May 3, 2000 we had granted registration rights to holders of 1,458,297 shares of our Class A common stock including shares issuable upon exercise of outstanding warrants.

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PIGGYBACK REGISTRATION RIGHTS. At any time we file a registration statement to register the sale of any of our securities for our own account or the account of any of our stockholders, holders of an aggregate of 1,458,297 of our shares of Class A common stock and shares transferable upon exercise of warrants may request to have their shares included in such registration statement. The number of times such rights may be exercised is unlimited, but the number of shares that may be included at any one time is subject to limitations that an underwriter may impose. We will be responsible for paying all fees and expenses of the registration other than underwriter discounts and commissions. Certain holders' registration rights terminate once all of their shares of Class A common stock can be sold in a single transaction under Rule
144. Among the holders of these piggyback registration rights are Niagara Mohawk Energy, Opinac, GPU Telcom, GC Dev and MasTec.

DEMAND REGISTRATION RIGHTS. At any time following the first anniversary of this offering, GPU Telcom may make one demand that we register its shares of Class A common stock under the Securities Act. At any time after September 9, 2001, GC Dev may make up to two demands that we register its shares of Class A common stock under the Securities Act. We will be responsible for paying all fees and expenses of these demand registrations other than underwriting discounts and commissions.

MINIMUM RETURNS ON INVESTMENT

We agreed to pay Niagara Mohawk Energy a 20% per annum simple rate of return, referred to as the "current return," on the purchase price of $120 per share for the 83,334 shares of Class A common stock they purchased from us in November 1998. The payment is due annually and is payable in cash or shares of Class A common stock valued at $100 per share, at our option. The current return ceases to be payable on the date on which all of such shares can be sold in the public market following this offering under Rule 144 or another exemption under the Securities Act. We will notify Niagara Mohawk Energy of this date and will pay the current return calculated from the last payment date of the current return through the final payment date.

In addition, if the average closing price of Niagara Mohawk Energy's shares on the Nasdaq National Market for the 10 trading days prior to the final payment date is less than $180.00 per share, we are also required to pay the difference, referred to as the "capital return," to Niagara Mohawk Energy in either cash or shares of Class A common stock, at our option. If we pay in shares, the shares will be valued at the average closing price of the shares on the Nasdaq National Market for the 10 trading days prior to the payment date.

We also agreed to pay certain of our investors who purchased shares pursuant to private placements in 1998 and in 1999 a similar current return and capital return on 274,905 shares of Class A common stock purchased by them, in all cases at a purchase price of $120 per share and with the current return payable in shares of Class A common stock valued at $100 per share. Our arrangements with the holders of 149,905 such shares provide that the capital return must be paid in cash, not shares, and that if we pay the current return in shares, a capital return is required to be paid on such shares as if they were part of the group of shares originally purchased by such parties.

Our obligation to pay a current return to Niagara Mohawk Energy and the other investors will terminate no later than 90 days after the completion of this offering. If we had completed this offering on , 2000 we would have been obligated to issue an additional shares of Class A Common Stock to these investors. In addition, since the amount of any capital return which may be payable to Niagara Mohawk Energy and such other investors will depend upon the trading price of our Class A Common Stock after the completion of this offering, we can not currently determine the amount of any capital return to Niagara Mohawk Energy and these other investors.

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REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND PROPOSALS

Our by-laws will establish advance notice procedures with respect to stockholder proposals and to the nomination of candidates for elections as directors, other than nominations made by or at the direction of the board of directors or a committee on the board.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our Class A common stock is .

LISTING

We intend to make application for quotation of the Class A common stock on the Nasdaq National Market under the symbol "TLGY".

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SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering, we will have shares of our Class A common stock outstanding, excluding 715,482 shares issuable upon exercise of warrants and 709,000 shares issuable upon exercise of options. For additional information on warrants and options, see "Management" and "Description of Capital Stock -- Warrants". All of the shares of common stock that we sell in this offering will be freely tradable under the Securities Act of 1933, as amended, unless acquired by one of our "affiliates" (as that term is defined under the Securities Act).

shares of our Class A common stock (including shares underlying warrants) which are held by stockholders who have not entered into "lock-up" agreements with the underwriters will become eligible for sale 90 days after the date of this prospectus, subject to compliance with Rules 144 and 701 under the Securities Act. shares of our Class A common stock (including shares underlying warrants) which are held by stockholders who have not entered into "lock-up" agreements with the underwriters will become eligible for sale upon the completion of this offering, subject to compliance with Rules 144 and 701 under the Securities Act. Upon the expiration of the "lock-up" agreements between the underwriters and our directors and officers and our securityholders, which will occur 180 days after the date of this prospectus, the shares of our common stock (including shares underlying warrants) held by them will become eligible for sale, subject to compliance with Rules 144 and 701 under the Securities Act.

In addition, either at the same time as this offering or immediately after it, we plan to register under the Securities Act all of the shares of our Class A common stock that are subject to options that we have granted under our ICP. Once this registration is complete, up to shares of our Class A common stock will become eligible for sale upon exercise of outstanding options.

In general under Rule 144, a person, or persons whose shares are aggregated, who has beneficially owned common stock for at least one year (including common stock held for one year after the date of exercise of a warrant) will be entitled to sell in any three-month period a number of shares that does not exceed the greater of:

- one percent of the number of shares of that class of common stock then outstanding, or

- the average weekly trading volume of that class of common stock on the Nasdaq National Market during the four calendar weeks immediately preceding the date on which the notice of sale is filed with the Securities and Exchange Commission.

Sales under Rule 144 are subject to a number of requirements relating to the manner and notice of sale. Under the provisions of Rule 144 regarding the availability of current public information about Telergy, sales may not be made until 90 days after completion of this offering. A person, or persons who are aggregated for purposes of Rule 144, who is not deemed to be one of our affiliates during the three months immediately preceding the sale and who has beneficially owned "Restricted Securities" as defined in Rule 144, for at least two years is entitled to sell the shares under Rule 144(k) without regard to the limitations and requirements discussed above.

Rule 701 under the Securities Act permits resales of shares in reliance upon Rule 144 but without compliance with certain of its restrictions, including the holding period requirement, of Rule 144. Any employee, officer or director of Telergy who purchased shares pursuant to a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits non-affiliates to sell their Rule 701 shares without having to comply with the holding period, volume limitations, public information or notice provisions of Rule 144. All

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holders of Rule 701 shares who have not executed lock-up agreements in connection with this offering will be eligible to sell their Rule 701 shares beginning 90 days after the date of this prospectus.

Holders of 1,458,297 shares of our common stock have contractual registration rights with respect to their shares. See "Description of Capital Stock -- Registration Rights". If the sale of those shares is registered those shares will be freely tradeable without restriction under the Securities Act of 1933.

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UNDERWRITING

Telergy and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of America Securities LLC, CIBC World Markets Corp. and RBC Dominion Securities Corporation are the representatives of the underwriters.

                        Underwriters                          Number of Shares
                        ------------                          ----------------
Goldman, Sachs & Co. .......................................
Merrill Lynch, Pierce, Fenner & Smith
             Incorporated...................................
Banc of America Securities LLC..............................
CIBC World Markets Corp.....................................
RBC Dominion Securities Corporation.........................
                                                                  --------
          Total.............................................
                                                                  ========

If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional shares from Telergy to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.

The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by Telergy. Such amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.

                                                                   Paid by Telergy
                                                             ----------------------------
                                                             No Exercise    Full Exercise
                                                             -----------    -------------
Per Share..................................................    $               $
Total......................................................    $               $

Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. Any such securities dealers may resell any shares purchased from the underwriters to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. If all the shares are not sold at the initial offering price, the representatives may change the offering price and the other selling terms.

Telergy and its directors, officers and securityholders have agreed with the underwriters not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of the representatives. This agreement does not apply to any existing employee benefit plans. See "Shares Eligible for Future Sale" for a discussion of certain transfer restrictions.

At Telergy's request, the underwriters have reserved up to shares of the Class A common stock offered by this prospectus for sale, at the initial public offering price, to employees, customers and other friends of Telergy through a directed share program. The number of shares available for sale to the public will be reduced to the extent these persons purchase the reserved shares. There can be no assurance that any of the reserved shares will

87

be so purchased. Any reserved shares not so purchased will be offered to the general public on the same basis as the shares offered hereby.

Prior to this offering, there has been no public market for the shares. The initial public offering price will be negotiated among Telergy and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be Telergy's historical performance, estimates of the business potential and earnings prospects of Telergy, an assessment of Telergy's management and the consideration of the above factors in relation to market valuation of companies in related businesses.

Telergy intends to make application for quotation of the Class A common stock on the Nasdaq National Market under the symbol "TLGY".

In connection with this offering, the underwriters may purchase and sell shares of Class A common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in this offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the Class A common stock while this offering is in progress.

The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the Class A common stock. As a result, the price of the class A common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise.

The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered.

Telergy estimates that its total expenses for this offering, excluding underwriting discounts and commissions, will be approximately $ .

Telergy has agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933.

Affiliates of Banc of America Securities LLC, CIBC World Markets Corp. and RBC Dominion Securities Corporation are lenders under one of our credit facilities and have received customary fees for services provided in connection therewith. In connection with a prior credit facility, Bank of America, N.A., an affiliate of Banc of America Securities LLC, received warrants to purchase an aggregate of 65,481 shares of our Class A common stock at an exercise price of $120 per share.

LEGAL MATTERS

The validity of the shares we are offering will be passed upon for us by Shearman & Sterling. Certain regulatory matters will be passed upon by Swidler Berlin Shereff Friedman, LLP. Certain legal matters relating to the offering will be passed upon for the underwriters by Cahill Gordon & Reindel.

88

EXPERTS

The consolidated financial statements of Telergy, Inc. and its Subsidiaries at December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999 and for the period April 19, 1995 (date of inception) to December 31, 1999 appearing in this prospectus and the registration statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the Class A common stock offered in this offering. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to us and the Class A common stock offered in this offering, we refer you to the registration statement and to the attached exhibits and schedules. Statements made in this prospectus concerning the contents of any document referred to in this prospectus are not necessarily complete. With respect to each such document filed as an exhibit to the registration statement, we refer you to the exhibit for a more complete description of the matter involved.

You may read and copy all or any portion of the registration statement or any reports and other information we file with the Commission at the public reference facilities that the Commission maintains at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048, and Suite 140, Citicorp Center, 50 West Madison Street, Chicago, Illinois 60661. Copies of these materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at the principal offices of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information regarding the operation of the public reference room by calling 1 (800) SEC-0330. The Commission also maintains a web site (http://www.sec.gov) that makes available the reports and other information we have filed with the Commission.

89

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Auditors..............................  F-2
Consolidated Balance Sheets.................................  F-3
Consolidated Statements of Operations.......................  F-4
Consolidated Statements of Stockholders' Equity (Deficit)...  F-5
Consolidated Statements of Cash Flows.......................  F-6
Notes to Consolidated Financial Statements..................  F-7

F-1

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Telergy, Inc.

We have audited the accompanying consolidated balance sheets of Telergy, Inc. and subsidiaries (A Development Stage Company) as of December 31, 1998 and 1999, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1999 and for the period April 19, 1995 (date of inception) to December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Telergy, Inc. and subsidiaries (A Development Stage Company) at December 31, 1998 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 and for the period April 19, 1995 (date of inception) to December 31, 1999, in conformity with accounting principles generally accepted in the United States.

                                                /s/ Ernst & Young LLP

Syracuse, New York
March 17, 2000, except for the
second paragraph of Note 4,
as to which the date is
April 27, 2000

F-2

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

                                                                      DECEMBER 31,
                                                              -----------------------------
                                                                  1998            1999
                                                              ------------    -------------
ASSETS
Cash and cash equivalents...................................  $  2,237,469    $     277,552
Accounts receivable, net of allowance for doubtful accounts
  of $150,000 in 1998 and $230,000 in 1999..................     1,214,914        2,433,055
Due from Telergy East LLC...................................     2,364,775          341,208
Due from affiliated companies (Note 13).....................            --          346,974
Prepaid expenses............................................       469,331        1,229,534
Other current assets........................................       388,601          793,097
                                                              ------------    -------------
Total current assets........................................     6,675,090        5,421,420
Property and equipment, net (Note 2)........................    74,509,318      201,805,530
Intangible assets and other deferred costs, net (Note 1)....     4,393,898        9,101,568
Investment in Telergy East LLC (Note 17)....................     2,281,939        3,240,605
Restricted cash (Note 15)...................................       250,000          350,000
                                                              ------------    -------------
Total assets................................................  $ 88,110,245    $ 219,919,123
                                                              ============    =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Notes payable...............................................  $ 46,359,383    $          --
Accounts payable............................................     8,652,548       12,653,781
Current portion of long-term debt and capital lease
  obligations (Note 4)......................................       370,656      131,648,297
Due to affiliated companies (Note 13).......................        28,140           27,519
Accrued expenses and other current liabilities (Note 12)....     8,587,927       11,821,025
                                                              ------------    -------------
Total current liabilities...................................    63,998,654      156,150,622
Unearned fiber lease revenue................................     9,540,231       10,112,153
Long-term debt and capital lease obligations (Note 4).......    33,300,279       24,792,665
Redeemable common stock, Class A (Note 7)...................       809,400          809,400
Redeemable preferred stock (Note 7).........................            --          809,400
Commitments and contingencies (Note 14)
Stockholders' equity (deficit):
  Preferred Stock, Series A 8%, par value $.0001,
     authorized -- 3,000,000 shares; issued and
     outstanding -- 404,576 shares in 1999..................            --               40
  Common stock, Class A, par value $.0001, authorized --
     9,999,900 shares; issued and outstanding -- 2,822,736
     shares in 1998 and 3,383,000 shares in 1999............           282              338
  Common stock, Class C, par value $.0001, authorized,
     issued and outstanding -- 100 shares in 1998 and
     1999...................................................            --               --
  Additional paid-in-capital................................    22,406,023      198,600,814
  Deferred compensation.....................................            --      (59,251,173)
  Deficit accumulated during the development stage..........   (41,944,624)    (112,105,136)
                                                              ------------    -------------
Total stockholders' equity (deficit)........................   (19,538,319)      27,244,883
                                                              ------------    -------------
Total liabilities and stockholders' equity (deficit)........  $ 88,110,245    $ 219,919,123
                                                              ============    =============

The accompanying notes are an integral part of the financial statements.

F-3

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

                                             YEAR ENDED DECEMBER 31,            CUMULATIVE FROM
                                    -----------------------------------------      INCEPTION
                                       1997           1998           1999       (APRIL 19, 1995)
                                    -----------   ------------   ------------   ----------------
Service revenue...................  $ 2,515,508   $  5,205,991   $  7,943,481    $  15,680,142
Operating expenses:
  Cost of services................    2,708,871      7,477,404     15,503,198       25,700,920
  Selling, general and
     administrative...............    4,642,506      8,997,912     19,658,898       34,213,115
  Depreciation and amortization...      320,601      1,737,048      4,587,261        6,645,619
  Non-cash stock-based
     compensation.................      123,750      5,999,000      2,686,442        8,846,567
                                    -----------   ------------   ------------    -------------
Total operating expenses..........    7,795,728     24,211,364     42,435,799       75,406,221
                                    -----------   ------------   ------------    -------------
Operating loss....................   (5,280,220)   (19,005,373)   (34,492,318)     (59,726,079)
Other income (expense):
  Interest expense................     (653,992)   (14,834,973)   (29,261,963)     (45,223,780)
  Interest income.................      131,327        209,953        382,843          734,136
  Other...........................       30,451         82,145      1,129,732        1,242,405
                                    -----------   ------------   ------------    -------------
                                       (492,214)   (14,542,875)   (27,749,388)     (43,247,239)
                                    -----------   ------------   ------------    -------------
Loss before income taxes, minority
  interest, equity in loss of
  unconsolidated investee, and
  cumulative effect adjustment....   (5,772,434)   (33,548,248)   (62,241,706)    (102,973,318)
Income tax expense................          931          1,954          2,991            6,853
                                    -----------   ------------   ------------    -------------
Loss before minority interest,
  equity in loss of unconsolidated
  investee and cumulative effect
  adjustment......................   (5,773,365)   (33,550,202)   (62,244,697)    (102,980,171)
Minority interest.................      379,425             --             --          500,000
Equity interest in loss of
  unconsolidated investee.........           --        (82,837)      (629,741)        (712,578)
                                    -----------   ------------   ------------    -------------
Net loss before cumulative effect
  adjustment......................   (5,393,940)   (33,633,039)   (62,874,438)    (103,192,749)
Cumulative effect adjustment from
  adoption of new accounting
  standard (Note 1)...............           --     (1,323,930)            --       (1,323,930)
                                    -----------   ------------   ------------    -------------
Net loss..........................  $(5,393,940)  $(34,956,969)  $(62,874,438)   $(104,516,679)
                                    ===========   ============   ============    =============
Preferred stock dividend (Note
  7)..............................           --             --       (986,677)        (986,677)
                                    -----------   ------------   ------------    -------------
Net loss available to common
  stockholders....................  $(5,393,940)  $(34,956,969)  $(63,861,115)   $(105,503,356)
                                    ===========   ============   ============    =============
Basic and diluted loss per common
  share (Note 9)..................  $     (1.97)  $     (12.69)  $     (20.31)
                                    ===========   ============   ============

The accompanying notes are an integral part of the financial statements.

F-4

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

PERIOD FROM APRIL 19, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1999

                                                  NUMBER OF   NUMBER OF   NUMBER OF
                                                  SERIES A     COMMON      COMMON     PREFERRED   COMMON     ADDITIONAL
                                                  PREFERRED    CLASS A     CLASS C      STOCK      STOCK      PAID-IN-
DESCRIPTION AND DATE OF TRANSACTION                SHARES      SHARES      SHARES     SERIES A    CLASS A     CAPITAL
-----------------------------------               ---------   ---------   ---------   ---------   -------    ----------
Sale of Class A common stock to KCI Long
 Distance, Inc. -- November 1, 1995 (Note 7)....        --           10       --         $--       $ --     $         --
                                                   -------    ---------      ---         --        ----     ------------
Balance December 31, 1995.......................        --           10       --         --          --               --
Stock dividend on Class A common stock -- July
 31, 1996 (Note 7)..............................        --    1,469,490       --         --         147               --
Issuance of Class A common stock -- August 23,
 1996 (Note 7)..................................        --    1,262,500       --         --         126               --
Sale of Class C common stock -- August 23,
 1996...........................................        --           --        2         --          --                2
Issuance of compensatory Class A common stock
 warrants -- September and November 1996........        --           --       --         --          --           85,041
Issuance of detachable Class A common stock
 warrants -- September 1996.....................        --           --       --         --          --          612,224
Net loss........................................        --           --       --         --          --               --
                                                   -------    ---------      ---         --        ----     ------------
Balance December 31, 1996.......................        --    2,732,000        2         --         273          697,267
Issuance of compensatory Class A common
 stock -- February 7, 1997......................        --        7,500       --         --           1          123,749
Issuance of detachable Class A common stock
 warrants -- December 1997......................        --           --       --         --          --          654,593
Exchange of Class A common stock for Class C
 common stock -- December 10, 1997..............        --          (98)      98         --          --               --
Net loss........................................        --           --       --         --          --               --
                                                   -------    ---------      ---         --        ----     ------------
Balance December 31, 1997.......................        --    2,739,402      100         --         274        1,475,609
Issuance of detachable Class A common stock
 warrants -- January through September 1998.....        --           --       --         --          --        4,931,342
Current return on Class A common stock (Note
 7).............................................        --           --       --         --          --               --
Issuance of compensatory non-qualified stock
 options -- April 1, 1998 (Note 8)..............        --           --       --         --          --        5,999,000
Sale of Class A common stock -- November 10,
 1998...........................................        --       83,334       --         --           8       10,000,072
Net loss........................................        --           --       --         --          --               --
                                                   -------    ---------      ---         --        ----     ------------
Balance December 31, 1998.......................        --    2,822,736      100         --         282       22,406,023
Current return on Class A common stock January
 through December 1999 (Note 7).................        --           --       --         --          --               --
Sale of Class A common stock -- February through
 June 1999......................................        --      309,826       --         --          31       36,608,876
Issuance of detachable Class A common stock
 warrants -- April, May, and September 1999.....        --           --       --         --          --       11,462,121
Issuance of compensatory non-qualified stock
 options -- April through December 1999 (Note
 8).............................................        --           --       --         --          --       61,937,615
Amortization of deferred stock compensation
 (Note 8).......................................        --           --       --         --          --               --
Exercise of Class A common stock warrants --
 June 25, 1999 and December 1, 1999.............        --       20,484       --         --           2          148,288
Issuance of Class A common stock upon conversion
 of long-term debt -- June 30, 1999 (Note 7)....        --      208,334       --         --          21       25,000,059
Issuance of Class A preferred stock -- September
 9, 1999........................................   404,576           --       --         40          --       37,889,156
Current return on Series A preferred stock --
 September through December 1999 (Note 7).......        --           --       --         --          --          986,678
Issuance of Class A common stock in satisfaction
 of portion of current return -- October through
 November 1999 (Note 7).........................        --       21,620       --         --           2        2,161,998
Net loss........................................        --           --       --         --          --               --
                                                   -------    ---------      ---         --        ----     ------------
Balance December 31, 1999.......................   404,576    3,383,000      100         $40       $338     $198,600,814
                                                   =======    =========      ===         ==        ====     ============

                                                                    DEFICIT
                                                                  ACCUMULATED
                                                    DEFERRED      DURING THE
                                                     STOCK        DEVELOPMENT
DESCRIPTION AND DATE OF TRANSACTION               COMPENSATION       STAGE          TOTAL
-----------------------------------               ------------    -----------       -----
Sale of Class A common stock to KCI Long
 Distance, Inc. -- November 1, 1995 (Note 7)....  $         --   $          --   $         --
                                                  ------------   -------------   ------------
Balance December 31, 1995.......................            --              --             --
Stock dividend on Class A common stock -- July
 31, 1996 (Note 7)..............................            --              --            147
Issuance of Class A common stock -- August 23,
 1996 (Note 7)..................................            --              --            126
Sale of Class C common stock -- August 23,
 1996...........................................            --              --              2
Issuance of compensatory Class A common stock
 warrants -- September and November 1996........            --              --         85,041
Issuance of detachable Class A common stock
 warrants -- September 1996.....................            --              --        612,224
Net loss........................................            --      (1,291,332)    (1,291,332)
                                                  ------------   -------------   ------------
Balance December 31, 1996.......................            --      (1,291,332)      (593,792)
Issuance of compensatory Class A common
 stock -- February 7, 1997......................            --              --        123,750
Issuance of detachable Class A common stock
 warrants -- December 1997......................            --              --        654,593
Exchange of Class A common stock for Class C
 common stock -- December 10, 1997..............            --              --             --
Net loss........................................            --      (5,393,940)    (5,393,940)
                                                  ------------   -------------   ------------
Balance December 31, 1997.......................            --      (6,685,272)    (5,209,389)
Issuance of detachable Class A common stock
 warrants -- January through September 1998.....            --              --      4,931,342
Current return on Class A common stock (Note
 7).............................................            --        (302,383)      (302,383)
Issuance of compensatory non-qualified stock
 options -- April 1, 1998 (Note 8)..............            --              --      5,999,000
Sale of Class A common stock -- November 10,
 1998...........................................            --              --     10,000,080
Net loss........................................            --     (34,956,969)   (34,956,969)
                                                  ------------   -------------   ------------
Balance December 31, 1998.......................            --     (41,944,624)   (19,538,319)
Current return on Class A common stock January
 through December 1999 (Note 7).................            --      (6,299,396)    (6,299,396)
Sale of Class A common stock -- February through
 June 1999......................................            --              --     36,608,907
Issuance of detachable Class A common stock
 warrants -- April, May, and September 1999.....            --              --     11,462,121
Issuance of compensatory non-qualified stock
 options -- April through December 1999 (Note
 8).............................................   (61,937,615)             --             --
Amortization of deferred stock compensation
 (Note 8).......................................     2,686,442              --      2,686,442
Exercise of Class A common stock warrants --
 June 25, 1999 and December 1, 1999.............            --              --        148,290
Issuance of Class A common stock upon conversion
 of long-term debt -- June 30, 1999 (Note 7)....            --              --     25,000,080
Issuance of Class A preferred stock -- September
 9, 1999........................................            --              --     37,889,196
Current return on Series A preferred stock --
 September through December 1999 (Note 7).......            --        (986,678)            --
Issuance of Class A common stock in satisfaction
 of portion of current return -- October through
 November 1999 (Note 7).........................            --              --      2,162,000
Net loss........................................            --     (62,874,438)   (62,874,438)
                                                  ------------   -------------   ------------
Balance December 31, 1999.......................  $(59,251,173)  $(112,105,136)  $ 27,244,883
                                                  ============   =============   ============

The accompanying notes are an integral part of the financial statements.

F-5

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                           YEAR ENDED DECEMBER 31,                CUMULATIVE
                                                 -------------------------------------------    FROM INCEPTION
                                                         1997           1998            1999   (APRIL 19, 1995)
                                                         ----           ----            ----   ----------------
OPERATING ACTIVITIES
Net loss.......................................  $ (5,393,940)  $(34,956,969)  $ (62,874,438)   $(104,516,679)
Adjustments to reconcile net loss to net cash
  used in operating activities:
  Depreciation.................................        93,789      1,458,913       4,154,672        5,707,917
  Amortization of intangible assets............       226,812        278,135         432,589          937,702
  Amortization of deferred financing costs.....        41,551      2,140,780       8,434,519       10,646,886
  Amortization of discount on notes payable....        50,353      3,645,825      13,138,451       17,222,824
  Provision for losses on accounts
    receivable.................................        50,000        135,002         306,427          491,429
  Minority interest............................      (379,425)            --              --         (500,000)
  Equity interest in loss of unconsolidated
    investee...................................            --         82,837         629,741          712,578
  Cumulative effect adjustment from adoption of
    new accounting standard....................            --      1,323,930              --        1,323,930
  Issuance of compensatory common stock and
    warrants...................................       123,750             --              --          161,125
  Amortization of compensatory stock options...            --      5,999,000       2,686,442        8,685,442
  Issuance of notes payable in lieu of interest
    payments (Note 4)..........................       353,864      5,317,595              --        5,671,459
  Restricted cash deposit......................            --       (250,000)       (100,000)        (350,000)
  Net increase (decrease) in cash caused by
    changes in operating assets and
    liabilities:
    Accounts receivable........................      (697,568)      (695,386)     (1,524,568)      (2,924,484)
    Due (to) from affiliated companies.........       499,168        (45,877)       (347,595)        (319,455)
    Prepaid expenses and other current
      assets...................................      (185,819)      (641,268)     (1,164,699)      (2,022,631)
    Other receivables..........................    (6,000,000)     6,000,000              --               --
    Due from Telergy East LLC..................            --     (2,364,775)      2,023,567         (341,208)
    Unearned fiber lease revenue...............    10,000,000       (229,885)        616,170       10,386,285
    Accounts payable, accrued expenses and
      other current liabilities................       799,607     (1,961,721)     (1,162,203)      (2,172,762)
                                                 ------------   ------------   -------------    -------------
Net cash used in operating activities..........      (417,858)   (14,763,864)    (34,750,925)     (51,199,642)
INVESTING ACTIVITIES
Additions to property and equipment............   (22,672,771)   (31,818,688)   (103,595,771)    (158,444,037)
Additions to intangible assets and other
  deferred costs...............................    (2,065,833)    (2,936,337)       (434,169)      (6,020,131)
Investment in Telergy East LLC.................            --     (2,364,776)     (1,588,407)      (3,953,183)
                                                 ------------   ------------   -------------    -------------
Net cash used in investing activities..........   (24,738,604)   (37,119,801)   (105,618,347)    (168,417,351)
FINANCING ACTIVITIES
Proceeds from notes payable....................     9,025,000     48,104,140      91,296,665      150,785,829
Payment of notes payable.......................    (2,360,024)    (8,880,000)   (139,545,805)    (150,785,829)
Proceeds from long-term and convertible debt...    20,000,000      5,114,844     174,595,415      199,710,259
Payment on long-term debt and capital lease
  obligations..................................       (42,530)      (134,555)    (52,802,104)     (52,979,189)
Payment of debt financing costs................      (448,161)    (2,563,303)    (11,790,609)     (14,802,073)
Issuance of common stock.......................            --     10,809,480      36,757,197       47,566,952
Issuance of preferred stock....................            --             --      39,898,596       39,898,596
Minority interest capital contribution.........            --             --              --          500,000
                                                 ------------   ------------   -------------    -------------
Net cash provided by financing activities......    26,174,285     52,450,606     138,409,355      219,894,545
                                                 ------------   ------------   -------------    -------------
Net increase (decrease) in cash................     1,017,823        566,941      (1,959,917)         277,552
Cash and cash equivalents at beginning of
  period.......................................       652,705      1,670,528       2,237,469               --
                                                 ------------   ------------   -------------    -------------
Cash and cash equivalents at end of period.....  $  1,670,528   $  2,237,469   $     277,552    $     277,552
                                                 ============   ============   =============    =============

The accompanying notes are an integral part of the financial statements.

F-6

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL

Telergy, Inc. ("Telergy" or "the Company"), formerly KCI Network Services, Inc. and Niatel, Inc., was formed on April 19, 1995 for the purpose of developing and marketing telecommunications, energy and energy management services and products. Telergy commenced operations in 1996 and is in the development stage as it has devoted most of its efforts to activities such as financial planning, raising capital, acquiring rights of way, installing its fiber optic network, recruiting and training personnel, and developing its markets.

For purposes of segment reporting, the Company operates in the telecommunications industry.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of Telergy and its majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Telergy East LLC, which is 50% owned by Telergy, Inc., is an unconsolidated investee. The Company's investment in Telergy East LLC is stated at cost less the Company's portion of the accumulated losses since formation. The Company's share of the loss of the unconsolidated investee is included in consolidated net loss using the equity method. See Note 17 for summarized financial and other information on Telergy East LLC.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

PROPERTY, EQUIPMENT AND CAPITALIZED INTEREST

Property and equipment is recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the various assets, ranging from 5 to 40 years. Maintenance and repairs are charged to operations as incurred. Property and equipment recorded under capital leases is included with the Company's owned assets. Amortization of assets recorded under capital leases is included in depreciation expense.

Network construction costs, including interest during construction, are capitalized. Total interest costs, including the amortization of financing costs, incurred in 1997, 1998, and 1999 was approximately $4,785,000, $15,244,000 and $34,482,024, respectively. Interest capitalized in the years ended December 31, 1997, 1998 and 1999 was approximately $4,131,000, $409,000 and $5,220,000, respectively.

In accordance with FASB Statement 121, the Company reviews its long-lived assets by comparing the undiscounted cash flows estimated to be generated by those assets with the related carrying amount of the assets. Upon an indication of impairment, a loss is recorded if the discounted cash flows projected for the assets are less than the assets' carrying value.

F-7

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INTANGIBLE ASSETS AND OTHER DEFERRED COSTS

Prior to 1998 certain costs incurred in connection with organization and development of the fiber network, including costs associated with negotiating rights-of-way, obtaining legal and regulatory authorizations, and developing network design, were deferred, and were to be amortized over a five year period. As the result of the adoption of a new accounting standard the costs at December 31, 1997 of $1,323,930 were charged to expense as a cumulative effect of an accounting change. See "Adoption of New Accounting Standard" below.

The acquisition cost of customer accounts and Telergy service mark obtained from a related party, KCI Long Distance, Inc., have been deferred and are being amortized over 5 years. Acquisition costs of customer accounts and service mark at December 31, 1998 and 1999 were $1,582,403 and $1,299,302, with accumulated amortization of $502,962 and $649,581, respectively. During 1999 the Company wrote-off the unamortized balance of $132,000 relating to service lines discontinued in 1999.

Costs incurred in connection with obtaining financing have been deferred and are being amortized as interest expense over the terms of the related debt agreements. Deferred costs relating to financing at December 31, 1998 and 1999 were $2,521,443 and $5,874,963, with accumulated amortization of $1,781,431 and $428,861, respectively.

Costs incurred in connection with obtaining certain rights of way have been deferred and are being amortized over the terms of the related agreements. Deferred costs relating to rights of way at December 31, 1998 and 1999 were $2,576,100 and $3,010,269, respectively, with accumulated amortization of $1,655 and $4,524, at December 31, 1998 and 1999, respectively. During 1998 the Company paid $2,500,000 to Consolidated Edison Communications, Inc. in connection with the Company's nonexclusive right to use certain Consolidated Edison Co. of New York, Inc. conduit and facilities.

ADOPTION OF NEW ACCOUNTING STANDARD

In April 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-5, Reporting the Costs of Start-Up Activities, which requires that costs related to start-up activities be expensed as incurred. Prior to 1998, the Company capitalized certain deferred development costs as described above. The Company adopted the provisions of the SOP in its financial statements for the year ended December 31, 1998. The effect of adoption of SOP 98-5 was to increase loss from continuing operations in 1998 by $1,272,572 ($0.46 per share) and to record a charge for the cumulative effect of an accounting change of $1,323,930 ($0.48 per share), to expense costs that had been previously capitalized.

EARNINGS PER SHARE

Basic earnings per share are based on the average number of common shares outstanding. Diluted earnings per share include any dilutive effect of stock options and warrants. For the periods presented, diluted loss per share is the same as the basic calculation as any stock options and warrants outstanding would be antidilutive. Stock options for the purchase of 0, 100,000 and 518,500 shares of Class A common stock at December 31, 1997, 1998, and 1999, respectively, and warrants for the purchase of 225,024, 542,152 and 1,280,959 shares of Class A common stock at December 31, 1997, 1998 and 1999, respectively, were excluded from the computation of diluted loss per common share because inclusion of these items would be antidilutive.

F-8

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RECOGNITION OF REVENUE

The Company recognizes service revenue in the month services are provided. Service revenue is currently primarily derived from the resale of long distance and local telephone service and from calling cards issued to Niagara Mohawk Power Corporation ("NMPC") employees. Amounts billed in advance of the service month are recorded as deferred revenue.

Grants of indefeasible rights of use, or IRUs, of constructed but unlit fiber, or dark fiber, in exchange for cash, are accounted for as operating leases, unless title to the fibers transfers to the lessee, in which case sales-type lease accounting would be used. Operating lease accounting requires that the cash received is recognized as revenue over the term of the IRU. In accordance with Financial Accounting Standards Board ("FASB") Interpretation No. 43, "Real Estate Sales, an interpretation of Statement of Financial Accounting Standards ("SFAS") No. 66," issued in June 1999, dark fiber is considered integral equipment and accordingly title must transfer to a lessee in order for a lease transaction to be recorded as a sale-type lease. All IRUs entered into by the Company as of December 31, 1999 are accounted for as operating leases since title to the fiber does not transfer to the lessee.

Revenues on contracts for maintenance of networks are deferred and amortized on a straight-line basis over the lives of the related contracts.

The Company currently utilizes Bell Atlantic for resale of local telephone service and MCI WorldCom Network Services for resale of long distance telephone service.

INCOME TAXES

The Company provides for income taxes in accordance with the liability method as set forth in Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under the liability method, deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade accounts receivables. At December 31, 1998, six customers comprised approximately 30% of the accounts receivable balance. At December 31, 1999, five customers comprise approximately 12% of the accounts receivable balance. The Company performs credit evaluations on customers prior to providing services. The Company has not experienced significant losses from sales to any of its significant customers.

There were no individually significant customers in 1999 or 1998. However, nine customers accounted for approximately 30% of service revenue in 1998 and approximately 21% of service revenue in 1999, respectively.

F-9

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RECENT ACCOUNTING STANDARDS

The FASB issues SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard as amended, will be effective for the Company beginning January 1, 2001. This standard requires that all derivatives be recognized, at fair value, as assets or liabilities in the balance sheet. The Company does not believe it has any current transactions that would require accounting and reporting under SFAS No. 133.

In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." The Company does not believe that the requirements of SAB No. 101 will have any effect on or require any adjustments to the Company's results of operations and financial position.

RECLASSIFICATION

Certain prior year amounts have been reclassified to conform to the 1999 presentation.

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

                                          DEPRECIABLE           DECEMBER 31,
                                             LIVES       ---------------------------
                                          (IN YEARS)        1998            1999
                                          -----------    -----------    ------------
Land....................................                 $   804,066    $    872,840
Buildings...............................      40           8,099,111      15,303,064
Furniture and fixtures..................      7            1,362,615       3,116,518
Computer and office equipment...........      5            2,337,207      27,480,513
Telecommunications equipment............      7            3,433,534      11,237,149
Leasehold improvements and other........  5 to 6 or          200,041       1,800,557
                                          lease term
Telecommunication network...............      20          35,488,802      52,345,031
Electronic and related equipment........      7            4,307,290      14,011,753
Networks-in-process.....................     not          20,029,895      81,344,826
                                          applicable
                                                         -----------    ------------
                                                          76,062,561     207,512,251
Less: Accumulated depreciation and
  amortization..........................                  (1,553,243)     (5,706,721)
                                                         -----------    ------------
                                                         $74,509,318    $201,805,530
                                                         ===========    ============

Included in property and equipment is approximately $1,000,000 and $25,200,000 at December 31, 1998 and 1999, respectively, of various equipment obtained under capital lease arrangements. Accumulated amortization on these assets is approximately $200,000 and $1,050,000, respectively, at December 31, 1998 and 1999. Amortization expense is included with depreciation.

3. NOTES PAYABLE

There were no outstanding agreements for demand notes payable or lines of credit as of December 31, 1999.

F-10

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Notes payable at December 31, 1998 and their disposition in 1999 are described below:

Promissory notes to individual investors totaling $9,795,000. The notes bore interest at an annual stated rate of 12% (effective rate) which was payable upon the original maturity date of the notes, December 31, 1998. The effective interest rate, which includes incurred interest and amortization of the discount on warrants issued in connection with the promissory notes, was 46% in 1998. The Company extended the maturity date of the notes to March 4, 1999 at which time they were paid in full. Interest on the notes during the extension period was at an annual rate of 20%. In conjunction with the promissory notes, the Company also issued common stock warrants in 1997 and 1998 to the note holders (see Note 7).

Working capital line of credit with a bank, due on demand and secured by accounts receivable, up to the lesser of $750,000 or 75% of eligible trade accounts receivable. The line bore interest at an annual rate of prime plus 1.75%. The Company had drawn $600,000 on the line at December 31, 1998. The outstanding balance on the working capital line was paid in full and terminated in 1999.

Line of credit with Mastec North America, Inc. ("Mastec"), under financing agreement dated May 1998, of up to $50 million. The financing available was used by the Company primarily to fund services, materials, and equipment provided or rendered by Mastec and its subcontractors in connection with the network construction. Originally, the outstanding principal balance of the available financing drawn in each calendar year, together with all accrued interest thereon, was to be repaid in full by April 30 of the following year. At December 31, 1998 the Company had drawn $37,854,140 on the line. The borrowings under the facility were secured by a second lien security interest in shares of the Company's Class A and Class C common stock owned by two principal stockholders and by the personal guaranty of these stockholders. Certain borrowings were also secured by telecommunications equipment. The interest rate on these borrowings was at an annual stated rate of 15%. The effective interest rate, which includes incurred interest and amortization of the discount on warrants issued in connection with the notes payable, was 23% in 1998 and 56% in 1999. The outstanding principal amount of approximately $37.7 million and interest amount of approximately $800,000 was paid in full in September 1999 and the line of credit agreement was terminated.

In conjunction with the financing agreement, during 1998, the Company issued Mastec warrants to acquire 156,250 shares of the Company's Class A common stock at an exercise price of $60 per share. As consideration for extending the repayment date of the outstanding balance, the Company issued additional warrants to Mastec to acquire 15,000 shares of the Company's Class A common stock at $60 per share. Also during 1999 the warrants issued in 1998 were terminated, and new warrants to purchase 156,250 shares of the Company's Class A common stock at an exercise price of $60 per share were issued. All of the warrants are fully exercisable by Mastec and expire on May 31, 2004. In connection with the issuance of the warrants, discounts on the financing agreements of $2,429,688 and $10,217,125 were recorded in 1998 and 1999, respectively. Since the entire outstanding balance was repaid in 1999 and the line of credit agreement was terminated, the entire unamortized discount was charged to interest expense in 1999. The charge to interest expense in connection with the Mastec warrants was $539,931 and $12,106,882 in 1998 and 1999, respectively.

The Vice Chairman, President and Chief Executive Officer of Mastec became a Director of Telergy in September 1999.

F-11

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The weighted average effective interest rate on short-term borrowings was 13%, 30%, and 45% in 1997, 1998 and 1999, respectively, these rates include incurred interest and amortization of the discount on warrants issued in connection with the notes payable.

4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-term debt and capital lease obligations consist of the following:

                                                               DECEMBER 31
                                                       ----------------------------
                                                          1998            1999
                                                          ----            ----
Credit Facility (see below)..........................  $        --    $ 126,000,000
Master Equipment Lease Agreement (see below).........           --       23,789,045
Nortel Credit Agreement (see below)..................           --               --
Senior secured note (see below)......................   27,692,752               --
Mortgage note payable to bank in monthly installments
  of approximately $49,000, commencing February 1,
  1999 through December 31, 2002, including interest
  at a prime rate plus one-half percent. (Prime rate
  at December 31, 1999 was 8.5%.) Lump sum payment of
  approximately $4.2 million due January 1, 2003.
  Loan is secured by certain property and
  equipment..........................................    5,000,000        4,853,010
Capital lease obligations due in monthly installments
  through 2004. Obligations are secured by the
  related leased property............................      878,651        1,804,797
Other................................................       99,532          207,538
                                                       -----------    -------------
                                                        33,670,935      156,654,390
Less current portion.................................     (370,656)    (131,648,297)
Less discount attributable to warrants...............           --         (213,428)
                                                       -----------    -------------
                                                       $33,300,279    $  24,792,665
                                                       ===========    =============

The credit facility is with a syndicate of financial institutions led by Bank of America, N.A. The facility, which originally provided for borrowings up to $175 million, and was subsequently increased to $200 million in March 2000, was entered into on November 19, 1999, the closing date. As noted above, the total amount of advances outstanding at December 31, 1999 is $126 million. At April 27, 2000 the outstanding balance of the facility was $178 million. The revolving credit facility bears interest at a rate equal to LIBOR plus 4% (the "LIBOR rate") or an alternate base rate (the higher of the bank's prime rate plus 3% or the federal funds rate plus 3.5%). At December 31, 1999, the Company was charged interest at the LIBOR rate of 10.2%. The facility matures and is payable in full on November 19, 2002, three years after the closing date. The facility was amended on April 27, 2000 and under the terms of the amendment the Company is required to raise a minimum of $200 million through an initial public offering of its common stock or through the issuance of public debt by September 30, 2000 to remain in compliance with a covenant of the facility. Since the Company has not completed an initial public offering or issued public debt as of April 27, 2000, the entire balance of the credit facility has been recorded as a current liability in the accompanying balance sheet. The credit facility contains various other restrictive covenants, including cross defaults to certain other indebtedness. The facility is guaranteed by the Company and some of its subsidiaries and is also secured by a first priority security interest in all capital stock of the Company's wholly owned subsidiaries,

F-12

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

except for Telergy Canada, and by substantially all assets and properties owned by the Company's wholly owned subsidiaries except for Telergy Canada and Telergy Central.

The Company entered into a credit agreement dated February 26, 1999, providing two advancing term loan facilities with Nortel Networks Inc., a $30 million and a $15 million loan. The $30 million advancing term loan is to finance a portion of the Company's costs to purchase Nortel goods and services. The $15 million advancing term loan was used for general corporate purposes. The Company can elect to be charged interest at either a base rate or eurodollar rate. The Company borrowed $5,333,000 on the $30 million facility in 1999 and paid off this borrowing plus incurred interest in 1999, therefore no advances are outstanding at December 31, 1999. Amounts outstanding under the $30 million facility are repayable in twelve quarterly installments. If not previously repaid, principal outstanding under the $30 million facility is repayable on the sixth anniversary of the earlier of (a) the third anniversary of the date of the credit agreement (February 26, 1999) or (b) the date the facility becomes fully drawn. The Company borrowed the entire amount of the $15 million facility in 1999 and paid off this balance along with interest in 1999 and the facility was terminated. Nortel is granted a lien by the Company in all Nortel network equipment purchased and financed under the agreement. The credit agreement for this facility contains various covenants.

The credit agreement with Nortel was simultaneously entered into along with a master purchase agreement with Nortel. The Company committed to purchase products and/or services from Nortel in the aggregate amount of $30 million. The products are to be purchased under the terms and conditions of the purchase agreement and the financing associated with such purchase shall be governed by the credit agreement. The purchase agreement is effective for a term of three years from the effective date of the agreement.

On September 15, 1999, the Company entered into a Master Equipment Lease Agreement with GATX Telecom Investors I, L.L.C., a financing syndicate including GATX. The agreement provides for a total commitment of $35 million, with a commitment termination date of September 15, 2000. Only $25 million of the commitment is available unless and until the Company receives gross proceeds of at least $200 million from the sale of debt securities. As of December 31, 1999, the Company had drawn $24,933,913 under four separate leases covered by the lease agreement. An interim payment was made for the period from the lease date to December 31, 1999. Scheduled payments on the four leases are due quarterly with a final payment due on January 1, 2004. The computed interest rate under the four leases is 13.7%. The Agreement includes specific financial and operating covenants. The lease commitments are secured by the equipment and software financed under the agreement. In connection with the lease agreement, the Company paid an origination fee of $270,000 in 1999. This fee is recorded as deferred financing costs and is amortized over the lease term. The unamortized cost at December 31, 1999 associated with the origination fee is $254,118.

The Company, in connection with the Master Equipment Lease Agreement, also issued warrants to the syndicate to acquire 14,583 shares of the Company's Class A common stock at an exercise price of $120 per share. The warrants are fully exercisable and expire at the later of (a) seven years after the date of grant, or (b) three years after the closing of the Company's initial public offering of its Common Stock. The warrants were valued at $226,766, which is recorded as a discount to the outstanding lease balance and is being amortized over the lease term. The unamortized discount at December 31, 1999 associated with the issuance of the warrants is $213,428.

F-13

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In conjunction with a note purchase agreement, on February 20, 1997 and as subsequently amended, Telergy issued a $20 million senior secured note to Hyperion Telecommunications of New York ("Hyperion") due January 20, 2000. Interest was payable semiannually at an annual rate of 22.5%. On interest payment dates occurring in the years 1997, 1998 and 1999, the agreement permitted Telergy to either make cash interest payments or issue additional notes equal to the interest payment. In 1997, 1998 and 1999, Telergy issued additional notes of $2,375,156, $5,317,596 and $3,115,435 in lieu of cash interest payments. The outstanding balance on the note, including the additional amount for interest, of approximately $30,808,000 was paid in full in 1999.

On April 6, 1998 and August 12, 1998 the Company, in connection with the Hyperion senior secured note, entered into a binding letter agreement and supplemental agreement with Hyperion whereby Hyperion waived certain mandatory prepayment provisions of the senior secured note in order to allow the Company to draw $15,000,000 on a financing arrangement with Mastec to fund certain construction and right-of-way costs. In consideration for the waiver, the Company agreed to provide Hyperion 24 fiber strands in future routes to be constructed by the Company through Portland, Maine to Boston, Massachusetts and to Montreal, Canada at a stated cost per mile plus a proportionate share of the fiber cost. Hyperion will be granted either an exclusive lease or an irrevocable right to use such fiber strands for a total term equal to twenty years plus any renewal periods obtained by the Company.

On November 10, 1998 the Company, in connection with the Hyperion senior secured note, entered into a binding letter agreement with Hyperion whereby Hyperion waived certain mandatory prepayment provisions of the senior secured note to allow the Company to sell $30 million of common stock in a private placement. In consideration for the waiver, the Company agreed to provide Hyperion the following: At Hyperion's sole option, either 1) access to four dark strands of fiber at no additional charge to Hyperion or 2) access to the 24 fiber strands described in the preceding paragraph for Hyperion at a stated cost per mile plus a proportionate share of the materials cost of Hyperion's fiber strands in the Montreal and Portland networks planned to be built and the Washington and Toronto networks in the event they are built. Hyperion also receives access to four dark fiber strands at no additional charge to Hyperion in a certain New York City fiber ring. Hyperion will be granted either exclusive lease access to and use of such fiber strands or an irrevocable right to use (IRU) such fiber stands for a total term equal to the sum of a minimum of twenty years, plus any additional longer term available to the Company plus all renewals available to the Company.

On January 1, 1997 Telergy acquired equipment under capital lease obligations with an unamortized cost and related liability balance of $91,199 from KCI Long Distance, Inc. The Company entered into additional capital lease obligations totaling $375,729 in 1997 and $573,766 in 1998 for the acquisition of equipment. The leases have terms of five years and require monthly payments ranging from $291 to $2,837.

F-14

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Annual maturities of long-term debt and capital lease obligations at December 31, 1999 are as follows:

2000........................................................  $  5,648,297
2001........................................................     6,334,614
2002........................................................   132,921,634
2003........................................................    11,653,024
2004........................................................        96,821
                                                              ------------
                                                              $156,654,390
                                                              ============

Interest paid, net of amounts capitalized, in 1997, 1998 and 1999 was $281,075, $1,359,691 and $22,519,414, respectively.

5. TELERGY CENTRAL LLC

Telergy, Inc. and Niagara Mohawk Energy, Inc. (NME) entered into a joint venture agreement, effective January 16, 1996, to form Telergy Joint Venture ("Joint Venture"). Joint Venture was formed in conjunction with the execution of a Right of Occupancy agreement with Niagara Mohawk Power Corporation (NMPC) (see Note 6). Telergy, Inc. and NME have a 75% and 25% equity ownership, respectively. For the first two years Telergy, Inc. committed to fund the capital necessary to complete the construction of the network and any other expenditures necessary to establish the business of the Company for its interest in Joint Venture. NME made a $500,000 cash capital contribution in 1996 in connection with the agreement. In addition to the equity share, NME was granted an Indefeasible Right of Use (IRU) in 25% of the total capacity (lit capacity and dark fiber) of the Upstate New York network. Profits and losses are allocated based on the equity ownership interests.

On April 24, 1998 Joint Venture, pursuant to an operating agreement between Telergy and NME, was converted to a limited liability company named Telergy Central LLC ("Central"). Telergy and NME continue to have membership percentages of 75% and 25%, respectively, and NME continues to have an IRU in 25% of the total capacity of the Upstate New York network, subject to certain marketing limitations. The initial capital of Central is equal to the capital of Joint Venture at the date of conversion. Subsequent to the conversion date, any additional capital contributions deemed necessary shall first be made by Telergy in the form of loans to Central of up to $100 million. Additional capital contributions required in excess of $100 million will be made by Telergy and NME proportionate to their membership percentages.

Telergy and NME also on April 24, 1998 entered into a conversion rights agreement which provides for the conditions and terms by which NME would sell its membership interest in Central and its IRU to Telergy in the event of an initial public equity offering or other financial offering by Telergy. The conversion rights agreement also contains provisions which grant NME certain rights to purchase shares of Telergy common stock or equivalent in conjunction with the transaction.

6. RIGHT OF OCCUPANCY AGREEMENT

On February 2, 1996 and as modified on September 25, 1997, Central entered into a Right of Occupancy agreement with NMPC. The agreement grants Central a non-exclusive right of occupancy in NMPC right of way, towers, conduit and other facilities for the construction, installation, operation, and maintenance of a backbone fiber network, local loops, and spurs, and

F-15

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

conveys certain capacity and fiber strands in upstate New York without recurring fees. NMPC granted to Telergy access to 16 strands from Scriba, New York to Clay, New York and 8 strands from Black River, New York to Lighthouse, New York in certain portions of NMPC's network.

The agreement has an initial term of 25 years and contains provisions for two consecutive extension periods of 10 years each, exercisable at Central's option. In consideration of the granting of the right of occupancy, as modified, Central shall provide NMPC with lit fiber in the amount of five OC-3's of network capacity along the entire backbone route. This capacity shall be proportionately increased for any subsequent technological improvements or extensions that increase the original network capacity. Central must also make available for NMPC's use, at no cost to NMPC, two dark fiber strands between two NMPC facilities in the Buffalo, New York area. Additionally, NMPC shall be entitled to use four fiber optic telecommunication strands anywhere in Central's facilities that are installed in NMPC's right of way including the backbone network and any local loops or spurs at no cost to NMPC. NMPC may not use the fiber to compete with Telergy in New York State, and if NMPC desires to sell the fiber to third parties, Telergy has the right of first refusal. The Right of Occupancy agreement was approved by the New York State Public Service Commission on July 8, 1996. The modification was approved on October 27, 1997.

7. STOCKHOLDERS' EQUITY, WARRANTS AND REDEEMABLE STOCK

Telergy was incorporated on April 19, 1995 as a subsidiary of KCI Long Distance, Inc. On August 23, 1996, KCI Long Distance, Inc., through a transaction qualifying under Internal Revenue Code Section 355, distributed all 1,469,500 shares of Telergy Class A common stock it held and owned to its stockholders. Telergy also issued on August 23, 1996 1,262,500 shares of Class A common stock as founders stock. Also, in connection with this transaction, Telergy was recapitalized in 1996 to change the authorized common stock from 200 no par shares to 3,000,000 shares consisting of 2,999,998 shares, par value $.0001, of Class A common stock and 2 shares, par value $.0001, of Class C common stock. In November 1997, the authorized common stock was increased to 10,000,000 shares, consisting of 9,999,900 shares, par value $.0001, of Class A common stock and 100 shares, par value $.0001, of Class C common stock. In September 1999 the authorized common stock was increased to 13,000,000 shares, consisting of 9,999,900 shares, par value $.0001, of Class A common stock, 100 shares, par value $.0001, of Class C common stock and 3,000,000 shares, par value $.0001 of preferred stock.

In September 1999 the Company received approximately $40,000,000 from Global Crossing, in exchange for the issuance of 404,576 shares of Company Series A preferred stock and 564,227 warrants to purchase Company Class A common stock at $98.87 per share. The Series A preferred stock is non voting except for certain limited matters effecting their shares and has liquidation preferences over all common stock, for its stated value including all accrued and unpaid dividends. In the event that the Company is to purchase or redeem any of the outstanding Class A common stock pursuant to contractual obligations, the Company will be required to offer to redeem a like amount of Series A preferred stock and accordingly, $809,400 has been recorded as redeemable preferred stock in the accompanying consolidated balance sheet. Also, the Series A preferred stock is redeemable at the Company's option on or after two years from the date of issuance and in certain other circumstances. The Series A Preferred stock has a dividend rate of 8% per annum and is payable quarterly in cash or through increases in the stated value of the Series A preferred stock, at the Company's option, except if the Company pays any of the Class A common stock dividend in cash, then the Company must also pay the Series A Preferred stock dividend in cash from the most recent dividend payment date to the

F-16

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

date of such dividend. In 1999 the Company declared and satisfied through an increase in the stated value, a preferred stock dividend of approximately $987,000.

A Vice Chairman and Director of Global Crossing became a Director of Telergy in September 1999.

During 1998 and 1999 the Company, in connection with private placements, sold 90,079 and 309,826 shares of Class A common stock for gross proceeds of approximately $10,809,000 and $37,179,000, respectively. The stock purchase agreements entered into by certain investors related to these shares contain provisions for the following returns: A current return will be paid at the rate of 20% per year on the purchase price of the shares. The current return is to be paid annually on the anniversary date of the stock purchase agreement until the earliest of two events occurs as discussed below. The current return can be paid in cash or additional shares of Class A common stock at the election of the Company. In connection with the private placements, the Company declared a dividend on the Class A common stock of approximately $6,299,000, of which the Company satisfied a portion, $2,162,000, with the issuance of additional Class A common stock. In addition to the current return, the Company may be required to pay the investors a capital return at the occurrence of the earlier of one of the following events: 1) The date following an initial public offering by the Company of Class A common stock when the investor is able to sell its shares in the public market. If the fair market value of the Company's stock at that date is less than $180 per share, then the Company will pay the investor a capital return equal to the difference between the fair market value per share and $180. The shortfall can be paid in cash or additional shares of Class A common stock at the election of the investor. 2) If an initial public offering of Class A common stock does not occur prior to November 1, 2001, then the investor may require the Company to repurchase its shares at a price of $180 per share. If the Company cannot obtain sufficient funds to repurchase the shares within six months of notice, the purchaser has the right to require the Company to register the shares.

Subsequent to the sale of the 90,079 shares in 1998 as described in the preceding paragraph, on July 15, 1999, the stock purchase agreement for 83,334 of the shares acquired by a certain investor was amended to provide that in the event the shares are put back to the Company for repurchase, the Company, at its option, can effectuate the redemption by registering the investor's shares for sale to the public rather than paying cash.

In connection with certain term promissory notes (see Note 3), in 1996, 1997 and 1998 Telergy issued warrants to purchase 143,041, 42,096 and 160,878 shares, respectively, of Telergy's Class A common stock. The warrants issued in 1996 have an exercise price of $16.50 per share and are exercisable through September 1, 2001. The warrants issued in 1997 and 1998 have an exercise price of $60 per share and are exercisable through December 31, 2002. The warrants are redeemable by Telergy at any time after the corresponding promissory notes are paid in full. These notes were paid in full during 1999. The redemption price is equal to the fair value of the common stock in excess of the warrant exercise price. The warrant exercise price is adjusted for subsequent stock dividends, splits and other common stock transactions effected at a price below the warrant exercise price. Telergy also in 1996 issued warrants to purchase shares of Class A common stock in exchange for consulting services as follows: 28,750 at an exercise price of $5 exercisable through August 31, 2001 and 11,137 at an exercise price of $16.50 exercisable through October 31, 2001. The Company, in 1998, issued warrants to acquire 156,250 shares of Class A common stock to Mastec as discussed in Note 3.

F-17

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 1999, due to a change in the warrant terms, the Mastec warrants issued in 1998 were terminated and new warrants to purchase 156,250 shares of Class A common stock were issued. Also in 1999 an additional 15,000 warrants to purchase Class A common stock were issued to Mastec. The Company also in 1999 issued 100,000 warrants in connection with the issuance of $25,000,000 of convertible debt which was subsequently converted into 208,334 shares of Class A common stock. The Company also in 1999 issued 65,481 warrants in connection with a credit facility and 14,583 warrants in connection with the Master Equipment Lease Agreement. All warrants issued during 1999 are exerciseable for shares of Company Class A common stock and have exercise prices of $60 (covering 271,250 shares), $98.87 (covering 564,227 shares) or $120 per share (covering 80,064 shares). The Company used the minimum value pricing model to estimate the fair value of the warrants and used assumptions consistent with the assumptions used for the stock option disclosures required under SFAS 123 and included in Note 8 to the consolidated financial statements. During 1999, 20,484 warrants were exercised at prices of $5 per share (19,650 warrants) and $60 per share (834 warrants) for 20,484 shares of Class A common stock, no warrants were exercised during 1998, 1997 or 1996. At December 31, 1997, 1998 and 1999 the Company has reserved 225,024, 542,152 and 1,280,959 shares, respectively, of authorized Class A common stock for issuance upon warrant exercise. Additional paid-in- capital has been recorded in 1996, 1997, 1998 and 1999 for the issuance of Company warrants and common stock for services based on the estimated minimum fair value or intrinsic value of the equity instrument.

8. STOCK OPTIONS

The Company has adopted the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its plan and recognizes non cash compensation charges related to the intrinsic value of stock options granted to employees. If the Company had elected to recognize compensation expense based upon the fair value of the stock option at the date of grant for awards under the plan, consistent with the methodology prescribed by SFAS 23, there would be no effect on the Company's net loss and net loss per common share since the fair value is equal to the intrinsic value.

On April 1, 1998 the Company entered into an employment agreement with a certain executive whereby the Company granted the executive options to acquire 100,000 shares of the Company's common stock at an exercise price of $.01 per share. The options are fully exercisable and expire ten years from the date of the agreement. The Company in 1998 has recorded compensation expense and additional paid-in capital of $5,999,000 representing the fair value of these options. The agreement also gives the executive the right to put a portion of the shares of common stock, acquired from the exercise of the options, back to the Company for redemption beginning on April 1, 2001. The Company at its option can effectuate the redemption by registering the investors shares for sale to the public rather than paying cash. The redemption price is equal to forty percent of the fair market value of the shares on the date the option is exercised.

In September 1999 the Company approved the 1999 Incentive Compensation Plan (the "Plan"). The purpose of the Plan is to attract, maintain and motivate highly qualified employees, officers, directors and consultants of the Company. The Company's Compensation Committee acting as the Plan's administrator determines award terms, possible awards could include incentive stock options, non-statutory stock options, stock appreciation rights, stock awards or

F-18

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

cash. At December 31, 1999 the Company has reserved 1,000,000 shares of Class A common stock for issuance under the plan and will automatically reserve additional shares as such to equal at least five percent of the issued and outstanding shares of Class A common stock.

During 1999 the Company entered into several agreements whereby the Company granted 418,500 Class A common stock options with exercise prices of $0.01 per share. Included in this amount are 180,000 options that vest upon an initial public offering, change in control or certain executive approval. Since none of these events have occurred as of December 31, 1999, no expense has been recognized in connection with these options. The fair value of these options is approximately $21,600,000, this amount will be recorded to expense and an offsetting equal amount will be recorded to paid in capital at the occurrence of one of the three conditions stated above. These options expire on April 1, 2008. The remaining 238,500 options granted in 1999 have ten year lives, and vest over one to three year periods, with accelerated vesting for certain options upon an initial public offering.

The fair value of the 100,000 and 418,500 options granted during 1998 and 1999, respectively approximated $5,999,000 and $83,540,000, respectively. The fair value of the options are estimated on the date of grant using the minimum value option-pricing method with the following assumptions; risk-free interest rates of 6% in 1998 and 7% in 1999 and expected lives of 3 years in 1998 and 1999. Total expense recognized for stock option awards approximated $5,999,000 and $2,686,000 for the years ended December 31, 1998 and 1999 respectively. The difference between the fair value of options granted in 1999 and the compensation cost recognized in 1999 is due to the vesting provisions of options which results in expense recognition over a period of up to three years or at the occurrence of specific events as described above.

The following is a summary of stock option activity for 1998 and 1999:

                                                  1998                   1999
                                           -------------------    -------------------
                                                      WEIGHTED               WEIGHTED
                                                      AVERAGE                AVERAGE
                                                      EXERCISE               EXERCISE
                                           OPTIONS     PRICE      OPTIONS     PRICE
                                           -------    --------    -------    --------
Outstanding at the beginning of the
  year...................................       --                100,000     $0.01
Options granted..........................  100,000     $0.01      418,500     $0.01
                                           -------                -------
Outstanding at the end of the year.......  100,000     $0.01      518,500     $0.01
                                           =======                =======
Exercisable at December 31...............  100,000     $0.01      115,000     $0.01
                                           =======                =======

The weighted-average remaining contractual life of options outstanding is 9.25 years and 8.88 years at December 31, 1998 and 1999, respectively.

F-19

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. LOSS PER SHARE

The loss per common share computations are based on the following table:

                                                   YEAR ENDED DECEMBER 31
                                          -----------------------------------------
                                             1997           1998           1999
                                          -----------   ------------   ------------
                                                       (IN THOUSANDS)
Numerator:
  Net loss..............................  $(5,393,940)  $(34,956,969)  $(62,874,438)
  Preferred stock dividend..............           --             --       (986,677)
                                          -----------   ------------   ------------
Numerator for loss per common share.....   (5,393,940)   (34,956,969)   (63,861,115)
Denominator:
                                          -----------   ------------   ------------
Weighted average shares outstanding.....    2,738,877      2,754,855      3,144,623
                                          ===========   ============   ============
Basic and diluted net loss per share....  $     (1.97)  $     (12.69)  $     (20.31)
                                          ===========   ============   ============

The impact of outstanding stock options and warrants is not included in the above calculation of diluted loss per share since the impact of their inclusion would be antidilutive.

10. INCOME TAXES

The components of the provision for federal and state income taxes are as follows:

                                                           1997     1998      1999
                                                           ----     ----      ----
Current tax expense -- state.............................  $931    $1,954    $2,991
Deferred tax expense.....................................    --        --        --
                                                           ----    ------    ------
Total income tax expense.................................  $931    $1,954    $2,991
                                                           ====    ======    ======

A reconciliation of the statutory U.S. federal income tax rate to the effective income tax rate follows:

                                                              1997    1998    1999
                                                              ----    ----    ----
Statutory income tax rate...................................  (34)%   (34)%   (34)%
Deferred tax valuation allowance............................   34      34      34
                                                              ---     ---     ---
Effective tax rate..........................................   --      --      --
                                                              ===     ===     ===

The Company has net operating loss carryforwards of approximately $82 million at December 31, 1999 which expire in 2011 through 2019. Future significant changes in ownership, as defined by Section 382 of the Internal Revenue Code, may result in an annual limitation of the net operating loss carryforward benefit. Income taxes paid amounted to $333, $1,941, and $3,066 in 1997, 1998 and 1999, respectively.

F-20

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31 are as follows:

                                                   1998            1999
                                               ------------    ------------
Deferred tax assets:
  Deferred revenue...........................  $         --    $    507,461
  Book over tax amortization.................     1,070,560         192,595
  Stock compensation.........................     2,279,620       2,953,050
  Bad debt reserve...........................        57,000          58,650
  Net operating loss carryforwards...........    12,851,780      27,879,658
                                               ------------    ------------
Gross deferred tax assets....................    16,258,960      31,591,414
Valuation allowance..........................   (15,923,821)    (30,849,848)
                                               ------------    ------------
Net deferred tax assets......................       335,139         741,566
Deferred tax liabilities:
  Tax over book depreciation.................      (335,139)       (687,573)
  Prepaid real estate taxes..................            --         (53,993)
                                               ------------    ------------
                                                   (335,139)       (741,566)
                                               ============    ============
Net deferred taxes...........................  $         --    $         --
                                               ============    ============

11. OPERATING LEASES

The Company leases office space and other equipment at various locations under operating leases. Certain leases contain renewal options. Rent expense totaled $338,112, $831,910 and $1,541,339 for 1997, 1998 and 1999, respectively. Future minimum rental payments under noncancelable operating leases at December 31, 1999 were as follows:

2000........................................................  $1,202,328
2001........................................................   1,138,450
2002........................................................     969,464
2003........................................................     622,812
2004........................................................     381,746
Thereafter..................................................   3,361,705
                                                              ----------
Total minimum lease payments................................  $7,676,505
                                                              ==========

The Company leases a portion of its corporate headquarters to an unrelated party with annual minimum rental payments of approximately $826,000. The original lease term expires June 30, 2003. The agreement provides for renewal periods.

F-21

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consists of the following:

                                                             1998          1999
                                                          ----------    -----------
Customer deposits.......................................  $1,569,370    $ 1,573,370
Accrued interest........................................   5,018,789        471,967
Deferred revenue........................................     371,923        698,803
Current return on Class A common stock..................     302,383      4,439,779
Accrued financing origination fee.......................          --      1,350,000
Other...................................................   1,325,462      3,287,106
                                                          ----------    -----------
                                                          $8,587,927    $11,821,025
                                                          ==========    ===========

13. RELATED PARTY TRANSACTIONS

The principal stockholders of Telergy are also principal stockholders of KCI Long Distance, Inc. ("KCI") and Worldnet Communications, Inc., doing business as TMS ("TMS") which are related companies with which Telergy shares common office space and management/ administrative services and also have other transactions in the ordinary course of business. TMS owns 1,899 Class A common shares of Telergy as of December 31, 1999.

During 1997 the following significant transactions occurred between the related companies: The Company paid general expenses of KCI and TMS totaling $59,992 and $60,465, respectively. KCI paid general expenses of the Company totaling $141,438. KCI provided certain consulting services to and agreed not to compete, through December 31, 1997, with Telergy for a one-time payment of $250,000. Telergy purchased from KCI certain fixed assets and KCI's commercial customer base for $1,250,000, the Telergy service mark for $150,000, and miscellaneous assets totaling $49,241. Telergy Central allocated certain overhead costs, primarily rent, telephone, salaries and equipment expenses, to KCI in the amount of $35,991 and to TMS in the amount of $107,973. TMS provided certain consulting services to Telergy and agreed not to compete, through December 31, 1997, with Central for a one-time payment from Telergy of $200,000.

During 1998 the following significant transactions occurred between the related companies: The Company paid general expenses of KCI and TMS totaling $80,850 and $36,134, respectively. KCI paid general expenses of the Company totaling $77,075. The Company allocated certain overhead costs, primarily rent, telephone, salaries and equipment expenses, to KCI in the amount of $21,257 and to TMS in the amount of $132,960. The Company purchased from KCI its residential customer base for $150,000 and the rights to the Telergy Canadian service mark for $150,000.

During 1999 the following significant transactions occurred between the related companies: The Company paid general expenses of KCI and TMS totaling $5,033 and $24,106, respectively. KCI paid general expenses of the Company totaling $61,785. The Company allocated rent to TMS in the amount of $47,226. The Company provided certain consulting services to TMS for a one-time payment of $246,974.

Transactions are settled through cash payments between the companies or KCI and TMS applying cash received directly from Telergy Central customers in payment of accounts receivable towards amounts due. Amounts due as a result of the above and other transactions

F-22

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

occurring between the related companies are reflected in the due to and due from affiliated companies amounts in the balance sheet at December 31, 1998 and 1999.

NME has provided certain consulting services in connection with establishing the fiber optic network to the Company. These services amounted to $108,000, $4,000 and $264,000 in 1997, 1998 and 1999, respectively. Approximately $5,000 and $68,000 of these amounts were included in accounts payable at December 31, 1998 and 1999, respectively.

During 1998, NME purchased 83,334 shares of the Company's Class A common stock for $10,000,080 (see Note 7). During 1999, Opinac North America, Inc. ("Opinac"), an affiliate of NME, advanced approximately $25 million in exchange for an 8% convertible note for that amount and acquired 41,666 shares of Class A common stock and a warrant to purchase 100,000 shares of Class A common stock for $5 million. The principal amount of the note was subsequently converted in 1999 to 208,334 shares of Class A common stock at a conversion price of $120 per share.

The President and Chief Executive Officer of NME and the President and Chief Operating Officer of Niagara Mohawk Holdings, Inc, became Directors of Telergy during 1999.

The Company paid approximately $22,000, $112,000 and $304,000 for charter air services in 1997, 1998 and 1999, respectively to a company whose sole shareholder is an Officer and Director of Telergy.

During 1999 in connection with raising equity capital the Company incurred a fee in the amount of $1,200,000 payable to a Director of Telergy, this fee was paid in January 2000. The fee was charged against additional paid-in-capital in 1999.

14. COMMITMENTS AND CONTINGENCIES

Pursuant to a long distance telephone service resale agreement with MCI WorldCom Network Services ("WorldCom"), the Company is required to purchase a minimum of $100,000 of services from WorldCom in order to receive certain volume discounts. In the event the Company fails to meet its minimum commitment, it must pay a deficiency charge equal to the difference between the monthly commitment and the actual revenue so that WorldCom is guaranteed its $100,000 minimum monthly revenues. The Company has consistently met its minimum commitments.

The Company is involved in certain claims and lawsuits arising in the normal course of business. Management is vigorously defending these actions. The Company does not believe that these claims or lawsuits will have a material effect on the Company's financial condition or results of operations.

15. DARK FIBER LEASE AND OTHER AGREEMENTS

On January 31, 1997, Telergy, in its corporate capacity and as General Partner of Central, and Citizens Communications Company (Citizens) entered into a User Agreement to Lease Dark Fiber, whereby Central will lease to Citizens 12 strands of dark fiber along Central's fiber optic network for a period of 45 years. This period corresponds to the term of the NMPC Right of Occupancy agreement including the two 10-year renewal options which Central is required to exercise under the terms of the Citizens agreement. In return, Citizens paid Central $10 million in upfront user fees plus certain additional future annual fees for maintenance and other charges. Central received $4 million in February 1997 and $6 million in February 1998 from Citizens as

F-23

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

payment of the user fee. The $10 million of revenue associated with the user fees has been deferred and is being recognized over the lease term, beginning in 1998 when the network was placed in service. This agreement also permits Central to lease fiber from Citizens within a route, if constructed, from Syracuse to Pleasant Valley, New York without cost to Central.

On February 20, 1997, Central, Telergy, Inc. and Hyperion Telecommunications of NY, Inc. (Hyperion) entered into the Fiber Construction and Operating Agreement (the Hyperion Agreement), whereby Central will lease to Hyperion 24 strands of dark fiber along Central's backbone fiber optic network as well as dark fiber strands in local loops installed in NMPC's territory, where applicable. Hyperion is required to share in the cost of local loops off of the network for which it desires dark fiber strands yet to be constructed in proportion to its share in fibers used within the loop. Hyperion agreed to pay certain maintenance charges and fees to Central.

In October 1998 the Company entered into an agreement with Bell Canada for the lease of dark fiber strands in five Segments of the Company's network in New York State and Canada. The agreement calls for Bell Canada to pay the Company a set dollar amount per fiber mile for each strand of dark fiber leased in the segments. The term of the agreement is for a period of 20 years after Bell Canada's acceptance of the final segment of all of the segments of dark fiber. Bell Canada was required to pay a deposit of $1,567,000 in 1998 under the lease agreement. The Company received approximately $10,450,000 of the remaining minimum amount due under the lease agreement in February 2000 as a result of the delivery and acceptance of all segments. Approximately $1.3 million remains due from Bell Canada under the lease agreement. The revenue associated with this lease is being deferred and will be recognized over the lease term beginning when each segment is delivered and accepted by Bell Canada.

In 1998 the Company entered into a non-exclusive franchise agreement with the City of New York which gives the Company the right to install and operate a telecommunications system over and under property of the City in order to provide telecommunications services which originate and/or terminate in the franchise area. The franchise is granted for a term of 15 years. In connection with this agreement, the Company was required to issue, to the benefit of the City, and has outstanding at December 31, 1999 an irrevocable standby letter of credit in the amount of $250,000. The letter of credit is secured by a $250,000 time deposit of the Company. The Company will be required to pay, upon completion of the City network, a franchise fee each year to the City equal to a set percentage of gross revenue attributable to the City network, with a minimum of $200,000. The Company is also committed to provide a certain amount of fiber capacity in the City network to the City.

In 1998 the Company entered into a binding letter agreement with Metrix Interlink Corporation ("Metrix") to jointly build a fiber optic network from Montreal, Canada to Albany, New York using right-of-way obtained by Metrix in Canada and by the Company in New York State. The costs and expenses of constructing, installing and maintaining the network will be shared by both parties. Ownership of the conduits and fibers contained in the network shall be split between the Company and Metrix. Metrix was subsequently acquired by MCI WorldCom.

In May 1999, the Company entered into a Master Services Agreement with Teleglobe USA, Inc. Under the agreement, both Teleglobe and Telergy established $15 million notional balances to be drawn upon by the other party. The Teleglobe balance can be drawn upon for a three year period by Telergy for network management services, customer service and technical support, other consulting services and use of Teleglobe's network at a discount off Teleglobe's standard rates. The Telergy balance can be drawn on by Teleglobe to acquire dark fiber IRUs in the

F-24

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Telergy network. Teleglobe will have the right to collocate its equipment and receive collocation services pursuant to the terms of an IRU agreement between Telergy and Teleglobe. As of December 31, 1999, no services were drawn by Telergy and no dark fiber IRUs have been acquired by Teleglobe, as such there has been no accounting treatment given to this agreement in the accompanying financial statements.

In July 1999, the Company entered into an agreement with US Crossing, Inc. a wholly-owned subsidiary of Global Crossing. Telergy agreed to provide US Crossing with exclusive use of an IRU in 96 strands of dark fiber in Telergy's New York City ring for a minimum of 20 years. This includes delivery of an IRU in a ring around Manhattan on or before December 31, 2000 and delivery of an IRU in the entire New York city ring on or before December 31, 2002. The Company is liable for liquidated damages of $25,000 per day up to $2.5 million; if the Manhattan ring is not delivered by March 1, 2001 remedies beyond liquidated damages are available to US Crossing. In exchange for the IRUs, US Crossing has agreed to pay annual maintenance fees and to provide various forms of operational support and consulting services to Telergy. US Crossing has also agreed to provide Telergy collocation space in Telergy's operating areas in the United States where US Crossing has such space available. US Crossing has further agreed to provide Telergy capacity and services on its global network if available, at discounted prices.

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and Cash Equivalents: The carrying amount reported in the balance sheets for cash and cash equivalents approximates fair value.

Accounts Receivable and Accounts Payable: The carrying amounts reported in the balance sheets for accounts receivable and accounts payable approximate fair value.

Notes Payable: The carrying amounts reported in the balance sheets for notes payable approximate fair value based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.

Long-Term Debt: The carrying amounts reported in the balance sheet for long-term debt approximates the fair value based on the Company's current incremental borrowing rates for similar types of borrowing arrangements or a settlement rate.

17. INVESTMENT IN TELERGY EAST LLC

On June 10, 1998, the Company entered into an operating agreement with Energy East Telecommunications, Inc. ("Energy East Telcom"), a wholly owned subsidiary of Energy East Corporation ("Energy East"), to form a limited liability company Telergy East LLC ("Telergy East"). The Company and Energy East Telcom each have a 50% ownership interest in Telergy East. The Company's investment in Telergy East is accounted for under the equity method and is stated at cost, plus equity in subsequent earnings or loss. Telergy East will provide all forms of telecommunication products and services in geographic locations where a fiber optic network is constructed and installed, including spurs and loops, using the right-of-way of New York State Electric & Gas Corporation ("NYSEG") (a wholly owned subsidiary of Energy East). Each member is obligated to contribute the amount of capital necessary to fund 50% of the design, permitting, engineering, construction, installation and testing costs of the backbone network, between Binghamton and Auburn, New York, and spurs to be constructed in Binghamton and

F-25

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Ithaca, New York. Telergy provided funding of approximately $9,300,000 to Telergy East during the construction period of the backbone network. During 1999 Energy East made a cash contribution to Telergy East of approximately $4,650,000, representing 50% of the incurred cost. This contribution was paid to Telergy in satisfaction of 50% of the amounts due to Telergy, the remaining 50% due to Telergy was canceled in satisfaction of Telergy's required capital contribution to Telergy East. Going forward, the members shall contribute sufficient capital to fund the Ithaca and Binghamton spurs and any other construction activities mutually agreed upon by Telergy and Energy East.

The Telergy East LLC operating agreement provides for the members to mutually decide whether to construct and install any other spurs. If one member elects not to participate in that spur, then the other member can proceed to have Telergy East construct the spur and that member would be required to make capital contributions to fund all construction costs. Such one member spurs would operate as separate divisions of Telergy East. Telergy East entered into a fiber construction agreement in June 1998 with Wilde Construction, Inc. (a subsidiary of MasTec North America, Inc.) for Wilde to serve as the primary contractor for the construction of the backbone network and spurs.

On June 10, 1998 Telergy East entered into an agreement with NYSEG whereby Telergy East was granted the non-exclusive right-of-occupancy to install Telergy East's backbone network between Binghamton and Auburn, spurs and facilities using NYSEG's right-of-way, poles, towers, abandoned gas and propane pipeline, conduit and ducts. The initial term of the agreement is for 25 years and includes the right and option to extend the initial term of the agreement for up to two consecutive extension periods of ten years each. In consideration of the granting of the right of occupancy within the backbone network rights-of-way, Telergy East shall pay an annual fee of approximately $338 per pole for attachment for the initial construction of the backbone network. Initial backbone network will be constructed using primarily above ground poles and towers. For spurs to be constructed or installed on NYSEG right-of-way, Telergy East shall provide NYSEG with six dark fiber strands along the entire length of any such spur. NYSEG has the irrevocable right to use such dark fibers and NYSEG shall have the right to use those fibers to satisfy its own internal communication needs or may lease or transfer the dark fibers to third parties or NYSEG affiliates.

Energy East Telcom may elect to participate in the Cornell Project and have it become part of Telergy East by making a capital contribution equal to 50% of the capital costs incurred by Telergy to construct and install the Cornell Project. The cash paid in by Energy East Telcom shall be distributed to the Company. The Company will contribute the business and assets of the Cornell Project into Telergy East.

F-26

TELERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is summarized financial information for Telergy East as of December 31, 1998 and 1999 for the period from June 10, 1998 to December 31, 1998 and the year ended December 31, 1999.

                                                       1998          1999
                                                    ----------    ----------
Current assets....................................  $       70    $   58,984
Property and equipment, net.......................   6,566,332     9,274,566
Accounts payable and other current liabilities....   1,946,288       191,219
Due to Telergy, Inc...............................   4,729,551       341,207
Due to Energy East................................          --        68,000
Unearned fiber lease revenue......................          --     2,000,424
Partners' (deficit) equity........................    (109,439)    6,738,900
Service revenue...................................          --        69,998
Operating expenses................................     109,438     1,061,327
Net loss..........................................     109,438     1,058,028

The Due to Telergy, Inc. balance represents amounts advanced, in excess of repayments received, to Telergy East to fund construction and operations.

18. LIQUIDITY CONSIDERATIONS

The Company has a working capital deficit as of December 31, 1999 of approximately $151 million. As discussed in Note 4, this is the result of, among other things, the Company's credit facility being recorded as a current liability at December 31, 1999, since a covenant of the credit facility requires the Company to raise a minimum of $200 million through an initial public offering of its common stock or through the issuance of public debt by September 30, 2000. It is management's intention to complete an initial public offering by September 30, 2000; however the timely completion can not be assured. Alternatively, management plans to secure other forms of financing or increase the amount of dark fiber leased under IRUs in order to raise sufficient proceeds to pay off the outstanding balance of the credit facility at September 30, 2000. Management believes that the amount of dark fiber to be leased to pay off the credit facility would not have a significant impact on the Company's network capacity for its continuing operations.

F-27



No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell on the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.


TABLE OF CONTENTS

                                       Page
                                       ----
Prospectus Summary...................    1
Risk Factors.........................    6
Forward-Looking Statements...........   17
Industry Data........................   17
Use of Proceeds......................   18
Dividend Policy......................   18
Capitalization.......................   19
Dilution.............................   20
Selected Consolidated Financial
  Data...............................   21
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations......................   23
Business.............................   31
Government Regulation................   50
Management...........................   59
Principal Stockholders...............   67
Certain Relationships and Related
  Transactions.......................   71
Description of Capital Stock.........   81
Shares Eligible for Future Sale......   85
Underwriting.........................   87
Legal Matters........................   88
Experts..............................   89
Where You Can Find Additional
  Information........................   89
Index to Financial Statements........  F-1


Through and including , 2000 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.





Shares
TELERGY, INC.
Class A Common Stock

[LOGO]


GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
RBC DOMINION SECURITIES

Representatives of the Underwriters




PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than the underwriting discount, payable by Registrant in connection with the sale of common stock being registered hereby. All amounts are estimates except the SEC registration fee and the NASD filing fee.

SEC registration fee........................................  $66,000
NASD fee....................................................  $25,500
Nasdaq National Market listing fee..........................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue sky fees and expenses..................................
Transfer agent fees.........................................
Miscellaneous...............................................
          Total.............................................  $

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law (the "DGCL") provides, in effect, that any person made a party to any action by reason of the fact that he is or was a director, officer, employee or agent of Registrant may and, in certain cases, must be indemnified by Registrant against, in the case of a non-derivative action, judgments, fines, amounts paid in settlement and reasonable expenses (including attorneys' fees) incurred by him as a result of such action, and in the case of a derivative action, against expenses (including attorneys' fees), if in either type of action he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of Registrant. This indemnification does not apply, in a derivative action, to matters as to which it is adjudged that the director, officer, employee or agent is liable to Registrant, unless upon court order it is determined that, despite such adjudication of liability, but in view of all the circumstances of the case, he is fairly and reasonably entitled to indemnity for expenses, and, in a non-derivative action, to any criminal proceeding in which such person had reasonable cause to believe his conduct was unlawful.

Article 8 of our Certificate of Incorporation, as amended, provides that no director shall be liable to Registrant or its stockholders for monetary damages for breaches of the director's fiduciary duties to the fullest extent permitted by the DGCL.

Reference is made to the underwriting agreement to be filed as Exhibit 1.1 hereto, pursuant to which the underwriters have agree to indemnify Registrant's officers and directors against certain liabilities under the Securities Act of 1933.

Registrant has purchased directors' and officers' liability insurance in order to limit its exposure to liability for indemnification of directors and officers.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since May 1, 1997, Registrant has issued unregistered securities to a limited number of people as described below. These issuances were deemed exempt from registration under the Securities Act in reliance on Rule 701 or Section 4(2) promulgated thereunder.

II-1


(1) From December 1997 to September 1998, in connection with bridge loans of approximately $9.8 million, we issued warrants to purchase 202,974 shares of Class A common stock to certain accredited investors at an exercise price of $60.00 per share.

(2) In October and November 1998, we issued 6,745 shares of Class A common stock at a price of $120.00 per share to a group of accredited investors for $809,400 in cash. These shares contain provisions requiring us to redeem these shares, in certain circumstances, for cash.

(3) In November 1998, we issued 83,334 shares of Class A common stock at a price of $120.00 per share to Niagara Mohawk Energy for $10,000,080 in cash.

(4) From February to July 1999, we issued 143,160 shares of Class A common stock at a price of $120.00 per share to a group of accredited investors for $17,179,200 in cash.

(5) In May 1999, we issued 125,000 shares of Class A common stock to Teleglobe at a price of $120.00 and warrants to purchase 83,333 shares of Class A common stock at an exercise price of 120.00 per share for an aggregate of $15,000,000 in cash. The warrants were not exercised and expired in 1999.

(6) In May 1999, in exchange for $30.0 million in cash, we issued to Opinac, an affiliate of Niagara Mohawk Energy, an 8% subordinated convertible note due 2001 in the principal amount of $25.0 million, 41,666 shares of Class A common stock and warrants to purchase 100,000 shares of Class A common stock at an exercise price of $60.00 per share. In June 1999, the entire outstanding principal amount of the note was converted into 208,334 shares of Class A common stock.

(7) In May 1999, in connection with a $50.0 million revolving credit facility, we issued warrants to purchase 171,250 shares of Class A common stock to MasTec North America, Inc. at an exercise price of $60.00 per share. The warrant is exercisable at any time until May 31, 2004.

(8) In September 1999, in connection with a $25.0 million capital lease agreement between us and GATX Telecom Investors I, L.L.C., a financing syndicate, we issued warrants to purchase an aggregate of 14,583 shares of Class A common stock to GATX Capital Corporation, Dana Commercial Credit Corporation, Pacific Century Financial Corporation and IBM Credit Corporation at an exercise price of $120.00 per share. The warrants are exercisable until the later of three years from the consummation of this offering and September 15, 2006.

(9) In September 1999, we sold to GC Dev., a subsidiary of Global Crossing, 404,576 shares of 8% Series A preferred stock and warrants to purchase 564,227 shares of Class A redeemable common stock at an exercise price of $98.87 per share for an aggregate of $40.0 million in cash. The warrant is exercisable through the consummation of this offering.

(10) In November 1999, in connection with a $50 million credit facility, we issued warrants to purchase 65,481 shares of Class A common stock to Bank of America at an exercise price of $120.00 per share. The warrant is exercisable at any time until November 19, 2002.

(11) In May 2000, we sold to GPU Telcom, 52,220 shares of Series B convertible redeemable preferred stock at $383 per share and contingent warrants for an aggregate purchase price of approximately $20.0 million in cash. The Series B preferred stock will automatically convert, on a one-to-one basis, subject to adjustment, into Class A common stock upon the consummation of this offering. The contingent warrants are exercisable, at the same time that the Series B preferred stock is converted, for a number of shares of Class A common stock, if any, that will enable GPU Telcom to attain a minimum required return on its investment.

(12) From April 1998 to May 2000, we granted to certain executive officers and directors, as part of their employment with us, options to purchase up to 637,500 shares of Class A common stock at an exercise price of $0.01 per share. The options generally vest over three years and

II-2


expire 10 years after the date of issuance. Certain options will vest upon completion of this offering.

(13) In June 1999, we issued to one of our directors under an agreement an option to purchase 30,000 shares of Class A common stock at an exercise price of $0.01 per share. The option vests upon completion of this offering and expires in April 2008.

(14) From October 1999 to April 2000, we granted to five employees, as part of their employment with us, options to purchase 19,500 shares of Class A common stock at an exercise price of $0.01 per share. The options generally vest over three years and expire 10 years after the date of issuance.

(15) In March 2000, we granted to an employee an option to purchase 2,000 shares of Class A common stock at an exercise price of $1.00. The option vests over three years and expires in March 2010.

(16) In March 2000, we granted to an individual under his consulting agreement an option to purchase up to 20,000 shares of Class A common stock at an exercise price of $0.01 per share. The option vests over three years and expires in March 2010.

The sales and issuance of securities described in paragraph (1) through
(11) above were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2), or Regulation D promulgated thereunder, as a transaction by an issuer not involving any public offering.

The sales and issuance of securities described in paragraph (12) through
(16) above were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) and Rule 701 promulgated thereunder as a transaction by an issuer not involving any public offering and a transaction either pursuant to a written compensatory benefit plan or pursuant to a written contract relating to compensation, as provided in Rule 701.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

EXHIBIT    DESCRIPTION
--------   -----------
 1.1*      Form of Underwriting Agreement.
 3.1       Certificate of Incorporation of the Registrant, as amended.
 3.2       Certificate of Designations of Series B Convertible
           Redeemable Preferred Stock.
 3.3       By-laws of the Registrant.
 4.1*      Specimen certificate of Class A common stock.
 5.1*      Opinion of Shearman & Sterling.
 9.1       Voting Trust Agreement between Kevin J. Kelly, Brian P.
           Kelly and William M. Kelly, Jr. dated December 27, 1999.
 9.2       Form of Voting Trust Agreement between Kevin J. Kelly and
           certain shareholders.
10.1.1+    Right of Occupancy Agreement between the Registrant and
           Niagara Mohawk Power Corporation dated February 2, 1996.
10.1.2+    First Modification to Right of Occupancy Agreement between
           the Registrant and Niagara Mohawk Power Corporation dated
           September 25, 1997.
10.2.1     Stock Purchase Agreement between the Registrant and Niagara
           Mohawk Energy, Inc. dated November 10, 1998.
10.2.2     First Modification to the Stock Purchase Agreement between
           the Registrant and Niagara Mohawk Energy, Inc. dated May 11,
           1999.

II-3


EXHIBIT    DESCRIPTION
--------   -----------
10.3.1     Conversion Rights Agreement between the Registrant and Plum
           Street Enterprises dated April 24, 1998.
10.3.2     Amendment No. 1 to Conversion Rights Agreement between the
           Registrant and Plum Street Enterprises dated November 10,
           1998.
10.3.3     Amendment No. 2 to Conversion Rights Agreement between the
           Registrant and Plum Street Enterprises dated July 15, 1999.
10.4+      License and Operating Agreement between Telergy Metro, LLC
           and Consolidated Edison Company of New York, Inc. dated
           January 28, 1998.
10.5+      Right of Occupancy Agreement between Telergy East, LLC and
           New York State Electric & Gas Corporation dated June 10,
           1998.
10.6       Strategic Construction Operating Agreement between the
           Registrant and MasTec North America, Inc. dated May 6, 1998.
10.7.1     Master Purchase Agreement between Telergy Network Services,
           Inc. and Northern Telecom Inc. dated March 1, 1999.
10.7.2     Amendment No. 1 to Master Purchase Agreement between Telergy
           Network Services, Inc. and Northern Telecom, Inc. dated
           February 26, 1999.
10.7.3     Amendment No. 2 to Master Purchase Agreement between Telergy
           Network Services, Inc. and Northern Telecom, Inc. dated June
           28, 1999.
10.8.1+    Credit Agreement between the Registrant, Northern Telecom,
           Inc. and the lenders named therein dated February 26, 1999.
10.8.2     First Amendment to the Credit Agreement between the
           Registrant, Northern Telecom, Inc. and the lenders named
           therein dated November 18, 1999.
10.8.3     Second Amendment to the Credit Agreement between the
           Registrant and Nortel Networks Inc. dated December 31, 1999.
10.9       Shareholders Agreement between the Registrant and GC Dev.
           Co., Inc. dated September 9, 1999.
10.10+     IRU Agreement between U.S. Crossing, Inc. and Telergy Metro
           LLC dated September 9, 1999.
10.11.1+   Master Equipment Lease Agreement between GATX Telecom
           Investors I, LLC, Telergy Network Services, Inc. and the
           Registrant dated September 15, 1999.
10.11.2    First Amendment to Master Equipment Lease Agreement between
           Telergy Network Services, Inc., the Registrant and GATX
           Telecom Investors I, L.L.C. dated May 2, 2000.
10.12.1+   Second Amended and Restated Credit Agreement between Telergy
           Operating, Inc. and Bank Of America, N.A. dated November 19,
           1999.
10.12.2    First Amendment to Second Amended and Restated Credit
           Agreement between Telergy Operating, Inc., Bank of America
           and the lenders named therein dated March 30, 1999.
10.12.3    Limited Conditional Waiver and Second Amendment to Second
           Amended and Restated Credit Agreement between Telergy
           Operating, Inc. and Bank of America, N.A. and the lenders
           named therein dated April 25, 2000.
10.12.4+   Third Amendment to Second Amended and Restated Credit
           Agreement between Telergy Operating, Inc., Bank of America,
           N.A. and the lenders named therein dated April 27, 2000.
10.13      Construction Operating Agreement between Telergy
           MidAtlantic, LLC and GPU Telcom Services, Inc. dated April
           7, 2000.

II-4


EXHIBIT    DESCRIPTION
--------   -----------
10.14      Operating Agreement of Telergy Central, LLC between the
           Registrant and Plum Street Enterprises, Inc. dated April 24,
           1998.
10.15+     Operating Agreement of Telergy East, LLC between the
           Registrant and Energy East Telecommunications, Inc. dated
           June 10, 1998.
10.16      Operating Agreement of Telergy MidAtlantic, LLC between
           Telergy Network           Services, Inc. and GPU Telcom
           Services, Inc. dated April 7, 2000.
10.17      1999 Incentive Compensation Plan.
10.18.1    Employment Agreement between the Registrant and J. Patrick
           Barrett effective April 1, 1998.
10.18.2    Amendment to Employment Agreement between the Registrant and
           J. Patrick Barrett effective May 28, 1999.
21.1       Subsidiaries of the Registrant.
23.1*      Consent of Shearman & Sterling (included in Exhibit 5.1).
23.2       Consent of Ernst and Young LLP.
24.1       Power of Attorney (included in the signature page of the
           Registration Statement).
27.1       Financial Data Schedule.
99.1       Report of Independent Auditors on Financial Statement
           Schedule -- Valuation and Qualifying Accounts.


* To be filed by amendment.
+ Confidential treatment requested as to certain portions.

(b) Financial Statement Schedule

Schedule II -- Valuation and Qualifying Accounts may be found at Exhibit 99.1.

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or related notes.

ITEM 17. UNDERTAKINGS

The undersigned hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the DGCL, our Certificate of Incorporation or our by-laws, the underwriting agreement or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

We hereby undertake that:

1. For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in

II-5


reliance upon Rule 430A and contained in a form of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.

2. For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-6


SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, we have duly caused this registration statement to be signed on our behalf by the undersigned, thereunto duly authorized, in Syracuse, New York, on May 10, 2000.

TELERGY, INC.

By:

Brian P. Kelly Chairman of the Board and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Steven D. Rubin and Kevin J. Kelly, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to sign any registration statement for the same offering covered by this registration statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:

                       NAME                                        TITLE                     DATE
                       ----                                        -----                     ----
                                                       Chairman of the Board and         May 10, 2000
---------------------------------------------------      Chief Executive Officer
                  Brian P. Kelly                         (Principal Executive
                                                         Officer)

                                                       President and Director            May 10, 2000
---------------------------------------------------
                J. Patrick Barrett

                                                       Vice Chairman and Executive       May 10, 2000
---------------------------------------------------      Vice President
                  Kevin J. Kelly

                                                       Executive Vice President and      May 10, 2000
---------------------------------------------------      Director
               William M. Kelly, Jr.

II-7


                       NAME                                        TITLE                     DATE
                       ----                                        -----                     ----
                                                       Chief Financial Officer           May 10, 2000
---------------------------------------------------      (Principal Accounting
                Nicholas A. Merrick                      Officer)

                                                       Director                          May 10, 2000
---------------------------------------------------
                  John F. O'Mara

                                                       Director                          May 10, 2000
---------------------------------------------------
                 J. Philip Frazier

                                                       Director                          May 10, 2000
---------------------------------------------------
                Frank J. Zaccanelli

                                                       Director                          May 10, 2000
---------------------------------------------------
                 Albert J. Budney

                                                       Director                          May 10, 2000
---------------------------------------------------
                 Joel-Tomas Citron

                                                       Director                          May 10, 2000
---------------------------------------------------
               Terence R. McAuliffe

                                                       Director                          May 10, 2000
---------------------------------------------------
                 Vincent F. Spina

II-8


EXHIBIT INDEX

EXHIBIT    DESCRIPTION
--------   -----------
 1.1*      Form of Underwriting Agreement.
 3.1       Certificate of Incorporation of the Registrant, as amended.
 3.2       Certificate of Designations of Series B Convertible
           Redeemable Preferred Stock.
 3.3       By-laws of the Registrant.
 4.1*      Specimen certificate of Class A common stock.
 5.1*      Opinion of Shearman & Sterling.
 9.1       Voting Trust Agreement between Kevin J. Kelly, Brian P.
           Kelly and William M. Kelly, Jr. dated December 27, 1999.
 9.2       Form of Voting Trust Agreement between Kevin J. Kelly and
           certain shareholders.
10.1.1+    Right of Occupancy Agreement between the Registrant and
           Niagara Mohawk Power Corporation dated February 2, 1996.
10.1.2+    First Modification to Right of Occupancy Agreement between
           the Registrant and Niagara Mohawk Power Corporation dated
           September 25, 1997.
10.2.1     Stock Purchase Agreement between the Registrant and Niagara
           Mohawk Energy, Inc. dated November 10, 1998.
10.2.2     First Modification to the Stock Purchase Agreement between
           the Registrant and Niagara Mohawk Energy, Inc. dated May 11,
           1999.
10.3.1     Conversion Rights Agreement between the Registrant and Plum
           Street Enterprises dated April 24, 1998.
10.3.2     Amendment No. 1 to Conversion Rights Agreement between the
           Registrant and Plum Street Enterprises dated November 10,
           1998.
10.3.3     Amendment No. 2 to Conversion Rights Agreement between the
           Registrant and Plum Street Enterprises dated July 15, 1999.
10.4+      License and Operating Agreement between Telergy Metro, LLC
           and Consolidated Edison Company of New York, Inc. dated
           January 28 1998.
10.5+      Right of Occupancy Agreement between Telergy East, LLC and
           New York State Electric & Gas Corporation dated June 10,
           1998.
10.6       Strategic Construction Operating Agreement between the
           Registrant and MasTec North America, Inc. dated May 6, 1998.
10.7.1     Master Purchase Agreement between Telergy Network Services,
           Inc. and Northern Telecom Inc. dated March 1, 1999.
10.7.2     Amendment No. 1 to Master Purchase Agreement between Telergy
           Network Services, Inc. and Northern Telecom, Inc. dated
           February 26, 1999.
10.7.3     Amendment No. 2 to Master Purchase Agreement between Telergy
           Network Services, Inc. and Northern Telecom, Inc. dated June
           28, 1999.
10.8.1+    Credit Agreement between Telergy Network Services, Inc.,
           Northern Telecom, Inc. and the lenders named therein dated
           February 26, 1999.
10.8.2     First Amendment to the Credit Agreement between Telergy
           Network Services, Inc., Northern Telecom, Inc. and the
           lenders named therein dated November 18, 1999.
10.8.3     Second Amendment to the Credit Agreement between the
           Registrant and Nortel Networks Inc. dated December 31, 1999.
10.9       Shareholders Agreement between the Registrant and GC Dev.
           Co., Inc. dated September 9, 1999.


10.10*     Warrant, between the Registrant and GC Dev. Co., Inc. dated September 9, 1999.
10.11*     Registration Rights Agreement, between the Registrant and GC Dev. Co., Inc.
           dated September 9, 1999.
10.12+     IRU Agreement between U.S. Crossing, Inc. and Telergy Metro LLC dated
           September 9, 1999.
10.13.1+   Master Equipment Lease Agreement between GATX Telecom Investors I, LLC,
           Telergy Network Services, Inc. and the Registrant dated September 15, 1999.
10.13.2    First Amendment to Master Equipment Lease Agreement between Telergy Network
           Services, Inc., the Registrant and GATX Telecom Investors I, L.L.C. dated May
           2, 2000.
10.14.1+   Second Amended and Restated Credit Agreement between Telergy Operating, Inc.
           and Bank Of America, N.A. dated November 19, 1999.
10.14.2    First Amendment to Second Amended and Restated Credit Agreement between
           Telergy Operating, Inc., Bank of America and the lenders named therein dated
           March   , 1999.
10.14.3    Limited Conditional Waiver and Second Amendment to Second Amended and Restated
           Credit Agreement between Telergy Operating, Inc. and Bank of America, N.A. and
           the lenders named therein dated April   , 2000.
10.14.4+   Third Amendment to Second Amended and Restated Credit Agreement between
           Telergy Operating, Inc., Bank of America, N.A. and the lenders named therein
           dated April   , 2000.
10.15      Construction Operating Agreement between Telergy MidAtlantic, LLC and GPU
           Telcom Services, Inc. dated April 7, 2000.
10.16      Operating Agreement of Telergy Central, LLC between the Registrant and Plum
           Street Enterprises, Inc. dated April 24, 1998.
10.17+     Operating Agreement of Telergy East, LLC between the Registrant and Energy
           East Telecommunications, Inc. dated June 10, 1998.
10.18      Operating Agreement of Telergy MidAtlantic, LLC between Telergy Network
                     Services, Inc. and GPU Telcom Services, Inc. dated April 7, 2000.
10.19      1999 Incentive Compensation Plan.
10.20.1    Employment Agreement between the Registrant and J. Patrick Barrett effective
           April 1, 1998.
10.20.2    Amendment to Employment Agreement between the Registrant and J. Patrick
           Barrett effective May 28, 1999.
21.1       Subsidiaries of the Registrant.
23.1*      Consent of Shearman & Sterling (included in Exhibit 5.1).
23.2       Consent of Ernst and Young LLP.
24.1       Power of Attorney (included in the signature page of the Registration
           Statement).
27.1       Financial Data Schedule.
99.1       Report of Independent Accountants on Financial Data Schedule -- Valuation and
           qualifying accounts.


* To be filed by amendment.

+ Confidential treatment requested as to certain portions.


EXHIBIT 3.1

CORRECTED

CERTIFICATE OF INCORPORATION

OF

TELERGY, INC.

UNDER SECTION 102 OF THE DELAWARE GENERAL CORPORATION LAW

1. Name. The name of the corporation is Telergy, Inc. (the "Corporation").

2. Registered Office and Agent. The address of its registered office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware, 19801, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.

3. Purpose. The Corporation is formed to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

4. Capital Stock. The total number of shares of stock which the Corporation shall have authority to issue is thirteen million (13,000,000) shares consisting of:

(i) ten million shares of Common Stock, par value $0.0001 per share, of which 9,999,900 shall be Class A Common Stock, par value $0.0001 per share, and 100 shall be Class C Common Stock, par value $0.0001 per share, and
(ii) three million shares of Preferred Stock, par value $0.0001 per share. The relative rights, preferences and limitations of the shares of each class are as follows:

Terms of Common Stock. The Class A Common Stock and the Class C Common Stock shall be of equal rank and shall entitle the holders thereof to the same rights and privileges, except as hereinafter expressly provided.

Subject to the rights of the holders of any series of Preferred Stock, the holders of the Class A Common Stock and the Class C Common Stock shall be entitled to dividends, when, as and if declared by the Board of Directors of the Corporation, payable at such time or times as the Board of Directors may determine and any dividend declared by the Board of Directors shall be declared and paid upon the outstanding shares of Class A Common Stock and Class C Common Stock in equal amounts per share and without preference or priority of one class of stock over the other.

Subject to the rights of the holders of any series of Preferred Stock, in the event of any liquidation, dissolution, or winding up of the affairs of the Corporation, whether


voluntary or involuntary, all assets and funds of the Corporation available for distribution to its shareholders shall be distributed and paid over to the holders of the Class A Common Stock and the Class C Common Stock in equal amounts per share and without preference or priority of one class of stock over the other.

The holders of the Class A Common Stock shall be entitled to one (1) vote per share, and the holders of Class C Common Stock shall be entitled to ninety thousand (90,000) votes per share, both classes voting as one class on all matters to be voted on by shareholders, including the election of directors, except as otherwise expressly provided by law.

If at any time the Corporation shall pay a stock dividend or distribution on its Class A Common Stock, or split, subdivide, or combine the outstanding shares of its Class A Common Stock, the number of votes which a share of Class C Common Stock shall entitle the holder thereof to exercise shall be proportionately adjusted as of the date after the record date for such dividend, distribution, split, subdivision or combination so as to maintain the relative voting power of the Class C Common Stock which existed prior to the occurrence of such event. In no event shall the Corporation be permitted to pay dividends or distributions on its Class A Common Stock in shares of Class C Common Stock.

Terms of Preferred Stock: The Preferred Stock may be issued from time to time in one or more series for any proper corporate purpose without further action by the shareholders. The designation, number, preferences and other rights and limitations or restrictions of the Preferred Stock of each series (other than such as are stated and expressed herein) shall be such as may be fixed by the Board of Directors (authority so to do being hereby expressly granted) and stated and expressed in a resolution or resolutions adopted by the Board of Directors providing for the initial issue of Preferred Stock of such series. Such resolution or resolutions shall (i) fix the designation of such series, (ii) fix the number of shares of stock which shall constitute the initial issue of such series, (iii) fix the dividend rights of holders of stock of such series, including the dividend rate or rates thereon, the time or times at which such dividends shall be paid or payable, whether such dividends shall be cumulative, and if so, on what terms, (iv) fix the terms on which stock of such series may be redeemed, including amounts payable upon redemption if the shares of such series are to be redeemable, (v) fix the rights of the holders of stock of such series upon dissolution, liquidation and distribution of assets or winding up of the affairs of the Corporation, (vi) fix the terms or amount of the sinking fund, if any, to be provided for the purchase or redemption of stock of such series, (vii) fix the terms upon which the stock of such series may be converted into or exchanged for stock of any other class or classes or of any one or more series of Preferred Stock, if the shares of such series are to be convertible or exchangeable, (viii) fix the voting rights, if any, of the stock of such series, and (ix) fix such other powers, preferences and relative, participating, optional or other special rights of such series, and the qualifications, limitations or restrictions of such preferences and/or rights desired to be so fixed.

Except to the extent expressly provided by the terms of a particular series of Preferred Stock or as expressly required by law, holders of shares of Preferred Stock of any series shall not be entitled to vote such shares with respect to any matter which is put to a vote of


the shareholders, and in any event shall not be entitled to more than one vote per share.

All shares of any one series of Preferred Stock shall be identical with each other in all respects except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall accumulate, and all series of Preferred Stock shall rank equally and be identical in all respects except as specified in the respective resolutions of the Board of Directors providing for the initial issue thereof. Subject to the prior and superior rights of the Preferred Stock as set forth in any resolution or resolutions of the Board of Directors providing for the initial issue of a particular series of Preferred Stock, dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors may be declared and paid on the Common Stock from time to time out of any fund legally available therefor, and the Preferred Stock shall not be entitled to participate in any such dividends.

5. Series A Preferred Stock. The respective rights, preferences and limitations of the shares of Series A Redeemable Preferred Stock are set forth in this Article 5.

A. Designation of Series and Number of Shares; Limitation on Future Issuance. There is hereby created a series of the Preferred Shares to be designated the "Series A Redeemable Preferred Stock" (the "Series A Preferred Stock"), which series shall consist of an aggregate of 404,576 shares, par value $0.0001 per share. Such Series A Preferred Stock may be subdivided into two subseries which may have different issuance dates, but which shall have identical terms in all other respects. The initial stated value of the Series A Preferred Stock shall be $98.87 per share (the "Initial Stated Value" and, as the same may by increased from time to time pursuant to Section 3 hereof, the "Stated Value"). The Corporation shall not increase the authorized number of shares of the Series A Preferred Stock from that set forth above.

B. Rank.

(a) The Series A Preferred Stock shall rank, with respect to dividends and distributions upon the liquidation, winding-up and dissolution of the Corporation, whether voluntary or involuntary, (i) except to the extent set forth in Section 3(b) hereof, senior to all classes of Common Stock of the Corporation and to each other class of capital stock or series of preferred stock established by the Board of Directors, the terms of which do not expressly provide that it ranks senior to or on a parity with the Series A Preferred Stock as to dividends and distributions upon the liquidation, winding-up and dissolution of the Corporation (collectively referred to with the Common Stock of the Corporation as "Junior Securities"); (ii) on a parity with any other class of capital stock or series of preferred stock issued by the Corporation established by the Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Series A Preferred Stock as to dividends and distributions upon the liquidation, winding-up and dissolution of the Corporation (collectively referred to as "Parity Securities"); and (iii) junior to each class of capital stock or series of preferred stock issued by the Corporation established by the Board of Directors, the terms of which expressly provide that such class or series will rank senior to the Series A Preferred Stock as to dividends and distributions upon liquidation, winding-up and dissolution of the Corporation (collectively referred to as "Senior Securities").


(b) Except as permitted in this Section 2(b), no payment on account of the purchase, redemption, retirement or other acquisition of shares of Junior Securities, whether voluntary or involuntary, shall be made directly or indirectly by the Corporation unless and until all the Series A Preferred Stock shall have been redeemed as provided for herein or otherwise reacquired by the Corporation. Notwithstanding the preceding sentence, the Corporation may purchase, redeem, retire or otherwise acquire shares of its Class A Common Stock pursuant to contractual commitments entered into prior to July 8, 1999, provided that the Corporation offers to simultaneously redeem, for cash at the then current Redemption Price (as defined in Section 5(a) hereof), shares of the Series A Preferred Stock having an aggregate Redemption Price equal to the aggregate amount to be paid by the Corporation for such purchase, redemption, retirement or other acquisition of Class A Common Stock. Such redemption option shall be offered on a pro rata basis to the holders of shares of each subseries of Series A Preferred Stock as of the date set for such redemption. In case fewer than all the shares of Series A Preferred Stock represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof.

C. Dividends.

(a) The holders of shares of the Series A Preferred Stock shall be entitled to receive, when, as and if dividends are declared by the Board of Directors out of funds of the Corporation legally available therefor, dividends in the amounts set forth below. Dividends shall be payable quarterly in arrears at an annual rate of 8% of the $98.87 Initial Stated Value of the Series A Preferred Stock (without giving effect to any increase in the Initial Stated Value pursuant to this Section 3(a)) on September 30, December 31, March 31 and June 30 of each year (each a "Dividend Payment Date") or, if any such date is not a Business Day, on the next succeeding Business Day, with respect to the quarterly dividend period beginning on the preceding July 1, October 1, January 1 and April 1, respectively, and ending on such Dividend Payment Date. Dividends shall be paid to the holders of record at the close of business on the record date specified by the Board of Directors at the time such dividend is declared. Dividends on the Series A Preferred Stock that are not paid in cash on the Dividend Payment Date for the dividend period to which they relate shall be deemed paid and satisfied in full by adding the amount thereof to the Stated Value of the Series A Preferred Stock. Dividends shall be computed on the basis of a 360-day year consisting of twelve 30-day months, and will be deemed to accrue on a daily basis for purposes of determining accrued dividends payable upon redemption or upon the liquidation, dissolution or winding up of the Corporation. The initial dividend for the Series A Preferred Stock, payable on the first Dividend Payment Date, shall be pro-rated and shall accrue from the date such shares are first issued. All dividends paid with respect to the Series A Preferred Stock shall be paid ratably to the holders entitled thereto.

(b) No dividend or other distribution, other than dividends payable solely in shares of Junior Securities, shall be declared, paid or set apart for payment on shares of Junior Securities unless and until all accrued and unpaid dividends, if any, on the Series A Preferred Stock from the most recent Dividend Payment Date to the date of such dividend or distribution shall have been paid, or declared and a sum of money sufficient for the payment thereof set apart. No dividends or other distributions, other than dividends or other distributions


payable solely in shares of Parity Securities, shall be paid on any Parity Securities except on dates on which dividends are paid on the Series A Preferred Stock. All cash dividends paid or declared and set apart for payment on the Series A Preferred Stock and any Parity Securities shall be paid or declared and set apart for payment pro rata so that the amount of cash dividend paid or declared and set apart for payment per share on the Series A Preferred Stock and the Parity Securities on any date shall in all cases bear to each other the same ratio that accrued and unpaid dividends on the Series A Preferred Stock from the most recent Dividend Payment Date to the date of such dividend or distribution, and accrued and unpaid dividends on the Parity Stock for all prior dividend periods to the date of such dividend or distribution, if any, bear to each other. Holders of the Series A Preferred Stock will not be entitled to any dividends, whether payable in cash, property or stock, in excess of the dividends as herein described.

D. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, each holder of shares of the Series A Preferred Stock will be entitled to payment, out of the assets of the Corporation available for distribution, of an amount equal to 100% of the Stated Value per share of Series A Preferred Stock held by such holder, plus accrued and unpaid dividends, if any, on the Series A Preferred Stock from the most recent Dividend Payment Date to the date fixed for liquidation, dissolution or winding-up, without interest, before any distribution is made on any Junior Securities, including without limitation Common Stock of the Corporation. After payment in full of the liquidation preferences as set forth in the preceding sentence, holders of the Series A Preferred Stock will not be entitled to any further participation in any distribution of assets of the Corporation. If, upon any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, the amounts payable with respect to the Series A Preferred Stock and all other Parity Securities are not paid in full, the holders of the Series A Preferred Stock and the Parity Securities will share equally and ratably in any distribution of assets of the Corporation in proportion to the full liquidation preference and accrued and unpaid dividends, if any, to which each is entitled. However, neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more entities, will be deemed to be a voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, unless such sale, conveyance, exchange or transfer shall be in connection with a liquidation, dissolution or winding-up of the business of the Corporation.

E. Redemption.

(a) Optional Redemption by the Corporation. In addition to any redemption pursuant to Section 2(b) hereof, the Corporation shall have the right, at any time on or after the second anniversary of the original issuance of the Series A Preferred Stock, to redeem for cash, out of any source of funds legally available therefor, all, but not less than all, of the outstanding shares of Series A Preferred Stock, at a redemption price equal to 100% of the Stated Value per share on the redemption date plus all accrued dividends, if any, thereon from the most recent Dividend Payment Date to the redemption date (collectively, the "Redemption Price").


(b) Procedure for Redemption. In the event that the Corporation shall redeem shares of Series A Preferred Stock pursuant to Section 5(a) hereof, notice of such redemption shall be mailed by first-class mail, postage prepaid, and mailed not less than 20 days nor more than 90 days prior to the redemption date to the holders of record of the shares to be redeemed at their respective addresses as they shall appear in the records of the Corporation; provided, however, that failure to give such notice or any defect therein or in the mailing thereof shall not affect the validity of the proceeding for the redemption of any shares so to be redeemed except as to the holder to whom the Corporation has failed to give such notice or except as to the holder to whom notice was defective. Each such notice shall state: (A) the redemption date; (B) the number of shares of Series A Preferred Stock to be redeemed from such holder; (C) the Redemption Price; and (D) the place or places where certificates for such shares are to be surrendered for payment of the Redemption Price.

(c) Notice by the Corporation having been mailed as provided in Section 5(b) hereof, and provided that on or before the applicable redemption date funds necessary for such redemption shall have been set aside by the Corporation, separate and apart from its other funds, in trust for the pro rata benefit of the holders of the shares so called for or entitled to redemption, so as to be and to continue to be available therefor, then, from and after the redemption date (unless the Corporation defaults in the payment of the Redemption Price, in which case such rights shall continue until the Redemption Price is paid), such shares shall no longer be deemed to be outstanding and shall not have the status of shares of Series A Preferred Stock, and all rights of the holders thereof as shareholders of the Corporation (except the right to receive from the Corporation the applicable Redemption Price) shall cease. Upon surrender of the certificates for any shares to be redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and a notice by the Corporation shall so state), such shares shall be redeemed by the Corporation at the applicable Redemption Price as aforesaid.

F. Voting Rights.

(a) General. The holders of record of shares of the Series A Preferred Stock shall have no voting rights, except as hereinafter provided in this Section 6.

(b) Class Voting. So long as any shares of the Corporation's Series A Preferred Stock are outstanding the Corporation shall not, without the affirmative vote or consent of the holders of at least a majority of all outstanding shares of the Corporation's Series A Preferred Stock, voting or consenting separately as a class:

(i) reduce or limit the voting rights of the Series A Preferred Stock from those set forth herein;

(ii) (A) reduce the par value of the Series A Preferred Stock; (B) change the shares of the Series A Preferred Stock into a different number of shares of the Series A Preferred Stock or into the same or a different number of shares of any other class of the Corporation's capital stock; (C) change or abolish the designation or relative rights,


preferences and limitations of the Series A Preferred Stock, including any provisions in respect of undeclared dividends (whether or not accrued) or the redemption of any shares of the Series A Preferred Stock; or (D) provide that the Series A Preferred Stock may be converted into any other class or series of the Corporation's capital stock; if in any of the foregoing cases such action would adversely affect holders of the Series A Preferred Stock.

(iii) create any class of stock that by its terms ranks senior to or on a parity with the Series A Preferred Stock as to dividends or as to distributions upon liquidation, dissolution or winding up of the Corporation; or

(iv) merge or consolidate with or into one or more other entities if both (A) the Series A Preferred Stock will remain outstanding after the merger or consolidation or will be converted into the right to receive shares of stock of the surviving or consolidated entity or another entity, and (B) the certificate or articles of incorporation of the surviving or consolidated entity impose a limitation on or a change in the rights of the Series A Preferred Stock of the nature described in 6 (i), (ii) or
(iii) above).

(c) In any case in which the holders of Series A Preferred Stock shall be entitled to vote, each holder of shares of Series A Preferred Stock shall be entitled to one vote for each share of Series A Preferred Stock held.

G. Status of Acquired Shares. Shares of Series A Preferred Stock redeemed by the Corporation or otherwise acquired by the Corporation shall be restored to the status of authorized but unissued shares of capital stock, without designation as to series, and, subject to the other provisions hereof, may thereafter be issued.

H. Modification and Waiver. The Corporation may not, without the consent of each holder affected thereby, (a) reduce the Stated Value or liquidation preference of, or dividend on, the Series A Preferred Stock, (b) change the place or currency of payment of the Stated Value or liquidation preference of, or dividend on, the Series A Preferred Stock or (c) reduce the percentage of outstanding Series A Preferred Stock necessary to modify or amend the terms thereof or to grant waivers in respect thereto.

I. Severability of Provisions. Whenever possible, each provision hereof shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision hereof is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions hereof, unless to do so would contravene the present valid and legal intent of the Corporation and the initial purchaser of the Series A Preferred Stock.

6. Incorporator. The name and mailing address of the sole incorporator is:

Shaun S. Fleming Buchanan Ingersoll Professional Corporation 20th Floor, 301 Grant Street


Pittsburgh, PA 15219

7. Limitation of Liability.

A. A person serving as a Director of the Corporation shall not have any personal liability to the Corporation or its stockholders for monetary damages for breach of his or her fiduciary obligations as a Director, provided that this limitation shall not apply to any liability of a Director (a) for any breach of the Director's duty of loyalty to the corporation or its stockholders;
(b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (c) for the unlawful payment of dividends or other acts giving rise to liability under Section 174 of the Delaware General Corporation Law, as amended; or (d) for any transaction from which the Director derived an improper personal benefit.

B. Any repeal or modification of the foregoing Section A by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.

C. If the Delaware General Corporation Law is amended hereafter to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the Delaware General Corporation Law, as so amended, without further action by either the Board of Directors or the stockholders of the Corporation.

8. Indemnification

A. General. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, to the full extent authorized or permitted by law, as now or hereafter in effect, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person seeking indemnification did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

B. Derivative Actions. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed


action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, to the full extent authorized or permitted by law, as now or hereafter in effect, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

C. Successful Defense. To the extent that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith.

D. Proceedings Initiated by any Person. Notwithstanding anything to the contrary contained in subsections (a) or (b) above, except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any person in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized in advance, or unanimously consented to, by the Board.

E. Procedure. Any indemnification under subsections (a) and
(b) above (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b) above. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination (i) by a majority vote of a quorum of the directors who are not parties to such action, suit or proceeding, (ii) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, (iii) if there are no such directors, or if such directors so direct by independent legal counsel in a written opinion, or (iv) by the stockholders of the Corporation.

F. Advancement of Expenses. Expenses (including attorneys' fees) incurred by a director or an officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking in form and substance satisfactory to the Corporation by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation pursuant to this Article. Such expenses (including attorneys' fees) incurred by


former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate.

G. Rights Not Exclusive. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.

H. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of the General Corporation Law of the State of Delaware.

I. Definition of "Corporation". For purposes of this Article, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers so that any person who is or was a director or officer of such constituent corporation, or is or was serving at the request of such constituent corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.

J. Certain Other Definitions. For purposes of this Article, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director or officer of the Corporation which imposes duties on, or involves service by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation," as referred to in this Article.

K. Continuation of Rights. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.

L. Repeal or Modification. Any repeal or modification of this Article by the stockholders of the Corporation shall not adversely affect any rights to indemnification


and to advancement of expenses that any person may have at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification.

M. Action Against Corporation. Notwithstanding any provisions of this Article to the contrary, no person shall be entitled to indemnification or advancement of expenses under this Article with respect to any action, suit or proceeding, or any claim therein, brought or made by him against the Corporation.

9. By-Laws. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is

expressly authorized to make, amend and repeal the By-Laws of the Corporation.


Exhibit 3.2

CERTIFICATE OF DESIGNATIONS
FOR
SERIES B
CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
TELERGY, INC.

The undersigned, Brian P. Kelly, Chief Executive Officer of Telergy, Inc., a Delaware corporation (the "Corporation"), hereby certifies that pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, and pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation by unanimous written consent, duly adopted a resolution providing for the issuance of shares of Series B Convertible Redeemable Preferred Stock, which resolution is as follows:

RESOLVED, that the Board of Directors hereby authorizes the creation of a series of preferred stock designated as Series B convertible Redeemable Preferred Stock (the "Series B Preferred Stock") having the designations, relative rights, preferences and limitations as set forth below.

SERIES B CONVERTIBLE PREFERRED STOCK

Section 1. Designation, Amount and Stated Value. A series of Preferred Stock shall be designated the "Series B Convertible Redeemable Preferred Stock" (the "Series B Preferred Stock") and the number of shares constituting such series shall be an aggregate of 58,700 shares, par value $0.0001 per share. The initial stated value of the Series B Preferred Stock shall be $383 per share (the "Initial Stated Value" and, as the same may be increased from time to time pursuant to Section 3 hereof, the "Stated Value").

Section 2. Rank.

(a) The Series B Preferred Stock shall rank, with respect to dividends and distributions upon the liquidation, winding-up and dissolution of the Corporation, whether voluntary or involuntary, (i) except to the extent set forth in Section 2(b) hereof, senior to all classes of Common Stock of the Corporation and to each other class of capital stock or series of preferred stock established by the Board of Directors, the terms of which do not expressly provide that it ranks senior to or on a parity with the Series B Preferred Stock as to dividends and distributions upon the liquidation, winding-up and dissolution of the Corporation (collectively referred to with the Common Stock of the Corporation as "Junior Securities"); (ii) on a parity with any other class of capital stock or series of preferred stock of the Corporation established by the Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Series B Preferred Stock as to dividends and distributions upon the liquidation, winding-up and dissolution of the Corporation (collectively referred to as "Parity Securities"); and (iii) junior to the Corporation's Series A Redeemable Preferred Stock and each other class of capital stock or series


of preferred stock of the Corporation established by the Board of Directors, the terms of which expressly provide that such class or series will rank senior to the Series B Preferred Stock as to dividends and distributions upon liquidation, winding-up and dissolution of the Corporation (collectively referred to as "Senior Securities").

(b) Except as permitted in this Section 2(b), no payment on account of the purchase, redemption, retirement or other acquisition of shares of Junior Securities, whether voluntary or involuntary, shall be made directly or indirectly by the Corporation unless and until all the Series B Preferred Stock shall have been redeemed as provided for herein or otherwise reacquired by the Corporation. Notwithstanding the preceding sentence, the Corporation may purchase, redeem or otherwise acquire shares of its Class A Common Stock, par value $.0001 per share (the "Class A Common Stock") pursuant to contractual commitments entered into prior to July 8, 1999, provided that the Corporation offers to simultaneously redeem, for cash at the then current Repurchase Price (as defined in Section 6(a) hereof), shares of the Series B Preferred Stock having an aggregate Repurchase Price equal to the aggregate amount to be paid by the Corporation for such purchase, redemption or other acquisition of Class A Common Stock. In addition, in the event that the Corporation purchases, redeems, or otherwise acquires for cash shares of any Senior Securities (other than in connection with the purchase, redemption or other acquisition of Class A Common Stock as contemplated by the preceding sentence), the Corporation shall offer to simultaneously redeem, for cash at the then current Repurchase Price (as determined in accordance with Section 6(a)), a pro rata number of shares of Series B Preferred Stock so that the ratio of the amount paid to purchase, redeem or otherwise acquire such shares of Senior Securities over the amount that would be required to be paid on such date to redeem all outstanding shares of such Senior Securities is the same ratio as the ratio of the aggregate Repurchase Price payable with respect to the shares of Series B Preferred Stock to be redeemed over the aggregate Repurchase Price that would be required to be paid on such date to redeem all outstanding shares of Series B Preferred Stock. Any offer pursuant to this Section 2(b) to redeem Series B Preferred Stock upon the purchase, redemption or other acquisition of Class A Common Stock or Senior Securities, as the case may be, shall be subject in all cases to the terms and relative rights and preferences of any Senior Securities unless the holders of such Senior Securities consent to such redemption of the Series B Preferred Stock. The redemption options provided for in this Section 2(b) shall be offered on a pro rata basis to the holders of shares of Series B Preferred Stock as of the date set for such redemption. The Corporation shall provide written notice of any offer pursuant to this Section 2(b) to all holders of record of Series B Preferred Stock at their respective addresses as they shall appear in the records of the Corporation at least fifteen (15) days prior to the proposed redemption date. Any holder of Series B Preferred Stock electing to have its shares redeemed shall provide written notice to the Company no later than five
(5) days prior to the date set for redemption. Upon receipt by each applicable holder of Series B Preferred Stock of the applicable Repurchase Price in cash, shares so redeemed will no longer be deemed outstanding and all rights of the holder with respect to those shares will immediately terminate. In case fewer than all the shares of Series B Preferred Stock represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof.

2

Section 3. DIVIDENDS.

(a) The holders of shares of Series B Preferred Stock shall be entitled to receive, when, as and if dividends are declared by the Board of Directors out of funds of the Corporation legally available therefor, dividends in the amounts set forth below. Dividends shall be payable quarterly in arrears at an annual rate of 10% of the $383 Initial Stated Value of the Series B Preferred Stock (without giving effect to any increase in the Initial Stated Value pursuant to this Section 3(a)) on June 30, September 30, December 31 and March 31 of each year (each a "Dividend Payment Date") or, if any such date is not a Business Day, on the next succeeding Business Day, with respect to the quarterly dividend period beginning on the preceding April 1, July 1, October 1 and January 1, respectively, and ending on such Dividend Payment Date. Dividends shall be paid to the holders of record at the close of business on the record date specified by the Board of Directors at the time such dividend is declared. Dividends on a share of the Series B Preferred Stock that are not paid in cash on the Dividend Payment Date for the dividend period to which they relate shall be deemed paid and satisfied in full by adding the amount thereof to the Stated Value of such share of Series B Preferred Stock. Dividends shall be computed on the basis of a 360-day year consisting of twelve 30-day months, and will be deemed to accrue on a daily basis for purposes of determining accrued dividends payable upon redemption. The initial dividend for a share of the Series B Preferred Stock, payable on the first Dividend Payment Date, shall be pro-rated and shall accrue from the date such share is first issued. All dividends paid with respect to the Series B Preferred Stock shall be paid ratably to the holders entitled thereto.

(b) No dividend or other distribution, other than dividends payable solely in shares of Junior Securities or through increases in stated value of Junior Securities, shall be declared, paid or set apart for payment on shares of Junior Securities unless and until all accrued and unpaid dividends, if any, on the Series B Preferred Stock from the most recent Dividend Payment Date to the date of such dividend or distribution shall have been paid in full in cash, or declared and a sum of money sufficient for the payment thereof in full in cash set apart. No dividends or other distributions, other than dividends or other distributions payable solely in shares of Parity Securities or through increases in stated value of Parity Securities, shall be paid on any Parity Securities except on dates on which dividends are paid in cash on the Series B Preferred Stock. All cash dividends paid or declared and set apart for payment on the Series B Preferred Stock and any Parity Securities shall be paid or declared and set apart for payment pro rata so that the amount of cash dividends paid or declared and set apart for payment per share on the Series B Preferred Stock and the Parity Securities on any date shall in all cases bear to each other the same ratio that accrued and unpaid dividends on the Series B Preferred Stock from the most recent Dividend Payment Date to the date of such dividend or distribution, and accrued and unpaid dividends on the Parity Stock for all prior dividend periods to the date of such dividend or distribution, if any, bear to each other. Holders of the Series B Preferred Stock will not be entitled to any dividends, whether payable in cash, property or stock, in excess of the dividends as herein described.

(c) No dividend or other distribution, other than dividends payable solely in shares of Series B Preferred Stock or through increases in the Stated Value of the Series B Preferred

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Stock, shall be declared, paid or set apart for payment on shares of Series B Preferred Stock unless and until all accrued and unpaid dividends, if any, on Senior Securities shall have been paid, or declared and a sum of money sufficient for the payment thereof set apart.

Section 4. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, each holder of shares of the Series B Preferred Stock will be entitled to payment, out of the assets of the Corporation available for distribution to its stockholders, of an amount per share (the "Liquidation Amount") in cash equal to the sum of (i) Stated Value plus (ii) an additional amount per share of Series B Preferred stock, if any, which would be required to be paid to the holder of the Series B Preferred Stock on the date of payment of the Liquidation Amount to provide such holder with the Minimum IRR (as defined in Section 6(b)) with respect to each such share, before any distribution is made on any Junior Securities, including without limitation Common Stock of the Corporation, but only after the payment in full of all amounts payable upon such liquidation, dissolution or winding-up on all Senior Securities. After payment in full of the Liquidation Amount as set forth in the preceding sentence, holders of the Series B Preferred Stock will not be entitled to any further participation in any distribution of assets of the Corporation in respect of such Series B Preferred Stock. If, upon any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, the amounts payable with respect to the Series B Preferred Stock and all other Parity Securities are not paid in full, the holders of the Series B Preferred Stock and the Parity Securities will share equally and ratably in any distribution of assets of the Corporation in proportion to the full liquidation preference to which each is entitled. However, neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more entities, will be deemed to be a voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, unless such sale, conveyance, exchange or transfer shall be in connection with a liquidation, dissolution or winding-up of the business of the Corporation.

Section 5. Conversion.

(a) Optional Conversion.

(i) Shares of Series B Preferred Stock shall, unless previously redeemed or with respect to which a notice of redemption shall have been sent pursuant to Section 6(a) hereof prior to the date on which the holder of such shares has notified the Corporation of its intent to convert, be convertible, at the option of the holder thereof, at any time in whole, but not in part, into fully paid and non-assessable shares of Class A Common Stock. The number of shares of Class A Common Stock into which each share of Series B Preferred Stock may be converted shall be equal to the quotient of the Stated Value of such share divided by the conversion price in effect at the time of conversion determined as hereinafter provided (the "Conversion Price"). The initial Conversion Price shall be the Initial Stated Value, so that initially one share of Series B Preferred Stock shall be convertible into one share of Class A Common Stock.

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(ii) In order to exercise the conversion right, the holder of shares of Series B Preferred Stock shall surrender the certificate or certificates representing such shares, duly endorsed or assigned in blank to the Corporation, at the office of the Corporation together with written notice to the Corporation of the holder's election to convert and written instructions regarding the registration and delivery of certificates for shares of Class A Common Stock acquired thereby. As promptly as practicable thereafter, the Corporation shall issue and deliver to the holder to the place designated by such holder, a certificate or certificates for the number of full shares of Class A Common Stock to which such holder is entitled. The person entitled to receive shares of Class A Common Stock issuable upon conversion shall be deemed to have become the holder of record of such shares of Class A Common Stock at the close of business on the date upon which the conversion right is so exercised or, in the event of an automatic conversion upon consummation of an IPO (as defined in Section 5(b) below), on the date upon which the IPO is consummated.

(b) Mandatory Conversion. Each outstanding share of Series B Preferred Stock shall immediately prior to, and conditioned upon, the consummation of an IPO and on the date thereof (the "Mandatory Conversion Date"), be automatically converted into a number of fully paid and non-assessable shares of Class A Common Stock equal to the quotient of the Stated Value of such share dividend by the Conversion Price then in effect. For purposes hereof, "IPO" means the initial underwritten public offer and sale of Class A Common Stock pursuant to a registration statement on Form S-1 (or similar form) that has been declared effective pursuant to the Securities Act of 1933, as amended (or any successor statute), and with respect to which the aggregate gross proceeds to the Corporation are at least $100 million.

(c) Antidilution. The Conversion Price shall be subject to adjustment from time to time as follows:

(i) In case the Corporation shall at any time or from time to time after the original issuance of the Series B Preferred Stock declare a dividend or make a distribution on all of the outstanding shares of Class A Common Stock in shares of Class A Common Stock, or effect a subdivision, combination, consolidation or reclassification of the outstanding shares of Class A Common Stock into a greater or lesser number of shares of Class A Common Stock, then, and in each such case, the Conversion Price in effect immediately prior to such event or the record date therefor, whichever is earlier, shall be adjusted by multiplying such Conversion Price by a fraction, the numerator of which is the number of shares of Class A Common Stock that were outstanding immediately prior to such event and the denominator of which is the number of shares of Class A Common Stock outstanding immediately after such event. An adjustment made pursuant to this Section 5(c)(i) shall become effective (x) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of shares of Class A Common Stock entitled to receive such dividend or distribution, or (y) in the case of any such subdivision, reclassification, consolidation or combination, at the close of business on the day upon which such corporate action becomes effective.

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(ii) In case of any capital reorganization or reclassification of outstanding shares of Class A Common Stock (other than a change in par value or other reclassification covered by Section 5(c)(i)), or in case of any consolidation or merger of the Corporation with or into another entity that results in a reclassification, change, conversion, exchange or cancellation of outstanding shares of Class A Common Stock, or in case of any sale or transfer of the property of the Corporation as an entirety or substantially as an entirety, each share of Series B Preferred Stock then outstanding shall thereafter be convertible into, in lieu of the Class A Common Stock issuable upon such conversion prior to the consummation of such transaction, the kind and amount of shares of stock and other securities and property (including cash) receivable upon the consummation of such transaction by a holder of that number of shares of Class A Common Stock into which one share of Series B Preferred Stock was convertible immediately prior to such transaction. In any such case, if necessary, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions set forth in this Section 5 with respect to rights and interests thereafter of the holders of shares of Series B Preferred Stock to the end that the provisions set forth herein for the protection of the conversion rights of the Series B Preferred Stock shall thereafter be applicable, as nearly as reasonably may be, to any such other shares of stock and other securities and property deliverable upon conversion of the shares of Series B Preferred Stock remaining outstanding (with such adjustments in the conversion price and number of shares issuable upon conversion and such other adjustments in the provisions hereof as the Board of Directors shall determine in good faith to be appropriate). In case securities or property other than Class A Common Stock shall be issuable or deliverable upon conversion as aforesaid, then all references in this Section 5 shall be deemed to apply, so far as appropriate and as nearly as may be, to such other securities or property.

(d) Fractional Shares. In connection with the conversion of any shares of Series B Preferred Stock, no fractions of shares of Class A Common Stock shall be issued, but in lieu thereof the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the greater of (A) the Market Price of such fractional interest and (B) the Conversion Price in effect on the day on which such shares of Series B Preferred Stock are deemed to have been converted. If more than one share of Series B Preferred Stock is surrendered for conversion at the same time by the same holder, the number of full shares of Class A Common Stock issuable upon the conversion will be computed on the basis of all shares of Series B Preferred Stock surrendered at that time by that holder. For purposes hereof, "Market Price" of the Class A Common Stock means: (a) in connection with a conversion of Series B Preferred Stock in connection with the IPO, the actual price per share of Class A Common Stock sold in the IPO; (b) in connection with any conversion other than in the IPO at a time when Class A Common Stock is listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the average of the closing prices of such security's sales on all securities exchanges on which such security may at the time be listed, or, if there has been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid

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and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which "Market Price" is being determined and the 20 consecutive business days prior to such day; and (c) in connection with any conversion at any time when Class A Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" shall be the fair value thereof determined by the Corporation's Board of Directors in its reasonable good faith judgment.

(e) Notice of Certain Events. In case at any time or from time to time
(i) the Corporation shall pay any dividend or make any other distribution to all of the holders of its Class A Common Stock, (ii) there shall be any capital reorganization or reclassification of the Class A Common Stock of the Corporation or consolidation or merger of the Corporation with or into another entity, or any sale or transfer to another entity of the property of the Corporation as an entirety or substantially as an entirety, (iii) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation or (iv) the Corporation proposes to consummate an IPO, then, in any one or more of said cases the Corporation shall give at least 15 days' prior written notice (the time of mailing of such notice shall be deemed to be the time of giving thereof) to the registered holders of the Series B Preferred Stock at the addresses of each as shown on the books of the Corporation of the date on which (i) the books of the Corporation shall close or a record shall be taken for such dividend or distribution, (ii) such reorganization, reclassification, consolidation, merger, sale or transfer, dissolution, liquidation or winding up shall take place or (iii) such IPO is proposed to be consummated, as the case may be. Such notice shall also specify the date, if known, as of which the holders of the Class A Common Stock and of the Series B Preferred Stock of record shall participate in said dividend or distribution or shall be entitled to exchange their Class A Common Stock or Series B Preferred Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale or transfer, or participate in such dissolution, liquidation or winding up, as the case may be.

(f) Deferral of Adjustments. In any case in which this Section 5 shall require that an adjustment shall become effective as of a record date for an event, the Corporation may defer until the occurrence of such event (1) issuing to the holder of any shares of Series B Preferred Stock converted after such record date and before the occurrence of such event, the additional shares of Class A Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the shares of Class A Common Stock issuable upon such conversion before giving effect to such adjustment and (2) payment to such holder of any amount in cash in lieu of a fractional share of Class A Common Stock, provided that the Corporation shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's rights to receive such additional shares of Class A Common Stock, or such cash, upon the occurrence of the event requiring such adjustment.

(g) Notice of Adjustments. Upon any adjustment of the Conversion Price, the Corporation shall give written notice thereof, by first class mail, postage prepaid, to each holder of

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Series B Preferred Stock at the address of such holder as shown on the records of the Corporation, which notice shall state the Conversion Price resulting from such adjustment and set forth in reasonable detail the method of calculation and the facts upon which such calculation is based.

(h) Certain Covenants. The Corporation hereby covenants that all shares of Class A Common Stock which may be issued upon conversion of each share of Series B Preferred Stock will, upon issuance, be legally and validly issued, fully paid and nonassessable and, without limiting the generality of the foregoing, the Corporation agrees that it will from time to time take all such action as may be required to assure that the par value per share of the Class A Common Stock is at all times not greater than the then current Conversion Price. The Corporation further covenants that during the Period within which the conversion rights represented by the Series B Preferred Stock may be exercised, the Corporation will at all times have authorized and reserved a sufficient number of shares of Class A Common Stock to provide for the conversion of all outstanding shares of Series B Preferred Stock.

(i) Transfer Taxes and Issuance of Certificates. The issuance of certificates of shares of Class A Common Stock upon the conversion of Series B Preferred Stock shall be made without charge to the converting holder of record of such Series B Preferred Stock for any transfer or similar tax in respect of the issuance of such certificates, and such certificates shall be issued in the respective names of, or, subject to compliance with any applicable transfer restrictions, in such names as may be directed by, the holder of record of such Series B Preferred Stock; provided, however, that the Corporation shall not be required to pay any such tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificate in a name other than that of the holder of record of the Series B Preferred Stock converted, and the Corporation shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the reasonable satisfaction of the Corporation that such tax has been paid.

(j) Class A Common Stock. References herein to Class A Common Stock shall be deemed to include, unless the context otherwise requires, any securities of the Corporation into which such Class A Common Stock or any such other securities may be reclassified, exchanged or converted.

Section 6. Redemption and Other Repurchase Rights.

(a) Optional Redemption or Repurchase by the Corporation or the Principals. In addition to any redemption pursuant to Section 2(b) hereof, the Corporation and the Principals (as defined below) shall have the right, at any time on or after the seventh anniversary of the original issuance of the Series B Preferred Stock but prior to consummation of an IPO to redeem or repurchase for cash, all, but not less than all, of the outstanding shares of Series B Preferred Stock, at a price per share equal to the sum of (i) the Stated Value plus (ii) an additional amount per share of Series B Preferred Stock which additional amount would be required to be paid to such holder on

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the repurchase date to give such holder an IRR equal to the Minimum IRR with respect to such share that is being repurchased (the "Repurchase Price").

(b) For the purposes hereof, "Minimum IRR" means an IRR of 20% per annum. For the purposes hereof, "IRR" means, as of the date of determination of the IRR, the annual interest rate (compounded annually) which, when used to calculate the net present value on a pre-tax basis as of the date of issuance of a share of Series B Preferred Stock, of all payments made with respect to each such share of Series B Preferred Stock, inclusive of the proceeds to be received as the Repurchase Price or Liquidation Amount, causes the difference between such net present value amount and the Initial Stated Value to equal zero. For the purposes hereof, "Principal" means any of (i) Brian P. Kelley, Kevin J. Kelley or William M. Kelley; (ii) any other family member of any of the foregoing; (iii) any trust created by or for the benefit of any of the foregoing; (iv) any entity of which any of the foregoing has a 20% or greater equity interest or otherwise has the power to control such entity.

(c) Procedure for Redemption or Repurchase. In the event that the Corporation or the Principals (the "Purchaser" or "Purchasers") shall redeem or repurchase shares of Series B Preferred Stock pursuant to Section 6(a) hereof, notice of such redemption or repurchase shall be mailed by first-class mail, postage prepaid, and mailed not less than 20 days nor more than 90 days prior to the redemption or repurchase date to the holders of record of the shares to be redeemed or repurchased at their respective addresses as they shall appear in the records of the Corporation; provided, however, that failure to give such notice or any defect therein or in the mailing thereof shall not affect the validity of the proceeding for the redemption or repurchase of any shares so to be redeemed or repurchased except as to the holder to whom the Purchasers have failed to give such notice or except as to the holder to whom notice was defective. Each such notice shall state: (A) the redemption or repurchase date; (B) the Repurchase Price (together with a calculation, in reasonable detail, of the Minimum IRR, which calculation must be reasonably acceptable to the holders of a majority of the outstanding shares of Series B Preferred Stock); (C) the place or places where certificates for such shares are to be surrendered for payment of the Repurchase Price; and (D) the identity of the Purchaser or Purchasers.

(d) Payment of Repurchase Price. In the case of a redemption by the Corporation pursuant to Section 6(a) hereof, provided that on or before the applicable redemption date funds necessary for such redemption shall have been set aside by the Corporation, separate and apart from its other funds, in trust for the pro rata benefit of the holders of the shares so called for or entitled to redemption, so as to be and to continue to be available therefor, then, from and after the redemption date (unless the Corporation defaults in the payment of the Repurchase Price, in which case such rights shall continue until the Repurchase Price is paid in full in cash), such shares shall no longer be deemed to be outstanding and shall not have the status of shares of Series B Preferred Stock, and all rights of the holders thereof as shareholders of the Corporation (except the right to receive from the Corporation the applicable Repurchase Price) shall cease. Upon surrender of the certificates for any shares to be redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require and a notice by the Corporation shall so state) such

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shares shall be redeemed by the Corporation at the applicable Repurchase Price in cash as aforesaid. In the case of a repurchase by the Principals, the Principals so electing to repurchase shall tender to each applicable holder of shares of Series B Preferred Stock the applicable Repurchase Price in cash and such holder shall deliver the certificate or certificates representing the applicable shares duly endorsed or assigned in blank to such Principal or Principals.

(c) Mandatory Redemption at Option of Holder. From and after the seventh anniversary of the date of issuance of the Series B Preferred Stock, each holder of Series B Preferred Stock may, upon written notice given to the Corporation, elect to cause the Corporation to redeem all of such holder's shares of Series B Preferred Stock at a price per share equal to the Repurchase Price. Each electing holder of Series B Preferred Stock shall deliver the applicable shares to the Corporation together with such notice. The Corporation will pay the Repurchase Price for such shares in cash within sixty days of receipt of such notice. Upon receipt by each applicable holder of Series B Preferred Stock of the applicable Repurchase Price in cash, shares so redeemed will no longer be deemed outstanding and all rights of the holder with respect to those shares will immediately terminate.

Section 7. Voting Rights.

(a) In General. The holders of record of the shares of Series B Preferred Stock shall have no voting rights, except as hereinafter provided in this Section 7 or as otherwise provided by law.

(b) Class Voting. So long as any shares of Series B Preferred Stock are outstanding the Corporation shall not, without the affirmative vote or consent of the holders of at least a majority of all outstanding shares of Series B Preferred Stock, voting or consenting separately as a class:

(i) reduce or limit the voting rights of the Series B Preferred Stock from those set forth herein or alter or change any of the rights, privileges or preferences of the Series B Preferred Stock in any adverse manner;

(ii) (A) reduce the par value of the Series B Preferred Stock; (B) change the shares of the Series B Preferred Stock into a different number of shares of the Series B Preferred Stock or into the same or a different number of shares of any other class of the Corporation's capital stock; (C) change or abolish the designation or relative rights, preferences and limitations of the Series B Preferred Stock, including any provisions in respect of undeclared dividends (whether or not accrued) or the redemption or repurchase of any shares of the Series B Preferred Stock; or (D) provide that the Series B Preferred Stock may be converted into any other class or series of the Corporation's capital stock other than the Class A Common Stock; if in any of the foregoing cases such action would adversely affect holders of the Series B Preferred Stock;

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(iii) create any class of stock that by its terms ranks senior to or on a parity with the Series B Preferred Stock as to dividends or redemption or as to distributions upon liquidation, dissolution or winding up of the Corporation; or

(iv) merge or consolidate with or into one or more other entities if both (A) the Series B Preferred Stock will remain outstanding after the merger or consolidation or will be converted into the right to receive shares of stock of the surviving or consolidated entity or another entity, and (B) the certificate or articles of incorporation of the surviving or consolidated entity impose a limitation on or a change in the rights of the Series B Preferred Stock of the nature described in Section 7(b)(i), (ii) or
(iii) above).

(c) In any case in which the holders of Series B Preferred Stock shall be entitled to vote, each holder of shares of Series B Preferred Stock shall be entitled to one vote for each share of Series B Preferred Stock held.

Section 8. Status of Acquired Shares. Shares of Series B Preferred Stock redeemed by the Corporation or otherwise acquired by the Corporation shall be restored to the status of authorized but unissued shares of capital stock, without designation as to series, and, subject to the other provisions hereof, may thereafter be issued.

Section 9. Severability of Provisions. Whenever possible, each provision hereof shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision hereof is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions hereof, unless to do so would contravene the present valid and legal intent of the Corporation and the initial purchaser of the Series B Preferred Stock.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

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IN WITNESS WHEREOF, I have signed and verified this certificate on April 28, 2000 and affirm under the penalties of perjury that the statements contained herein are true.

TELERGY, INC.

By: /s/ Brian P. Kelly
    ----------------------
    Brian P. Kelly
    Chief Executive Officer

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EXHIBIT 3.3

BY-LAWS
OF
TELERGY, INC.

I OFFICES

Telergy, Inc. (hereinafter the "Corporation") may have offices and places of business at such places, within or without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require.

II MEETINGS OF STOCKHOLDERS

A. Place of Meetings.

All meetings of the stockholders for the election of directors shall be held at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver thereof.

B. Annual Meeting.

Annual meetings of stockholders commencing with the year 2000 shall be held on the date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver thereof.

C. Special Meetings.

Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the Chief Executive Officer, President, Executive Vice President or a majority of the Board of Directors and shall be called by the Chief Executive Officer, President or Secretary at the request in writing of stockholders owning not less than a majority of the issued and outstanding Class C Common Stock of the Corporation. Such request shall state the purpose or purposes of the proposed meeting.

D. Notice.

Written notice of each meeting of stockholders shall be given in the manner prescribed in Article IV of these By-Laws which shall state the place, date and hour of the meeting and, in the case of a special meeting, shall state the purpose or purposes for which the meeting is called. Such notice shall be given to each stockholder of record entitled to vote at the meeting not less than ten (10) nor more


than sixty (60) days prior to the meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the records of the corporation.

E. Business.

Business transacted at any special meeting of stockholders shall be limited to the purpose or purposes stated in the notice.

F. Quorum and Adjournment.

Except as otherwise provided by statute or the Certificate of Incorporation, the holders of a majority of the shares of the Corporation issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be necessary to and shall constitute a quorum for the transaction of business at each meeting of stockholders. If a quorum shall not be present at the time fixed for any meeting, the stockholders present, in person or by proxy, and entitled to vote thereat shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

G. Voting.

Except as otherwise provided by law or by the Certificate of Incorporation each stockholder of record of any class or series of the capital stock of the Corporation shall be entitled at each meeting of stockholders to such number of votes, for each share of capital stock as may be fixed in the Certificate of Incorporation or in the resolution or resolutions adopted by the Board providing for the issuance of such stock. If the Certificate of Incorporation provides for more or less than one vote for any share, on any matter, every reference in these By-Laws to a majority or other proportion of stock shall refer to such majority or other proportion of the votes of such stock.

H. Vote Required.

When a quorum is present at any meeting, in all matters other than the election of directors, the vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote on the subject matter shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Certificate of Incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the


election of directors.

I. Voting Lists.

The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

J. Proxy.

Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period.

A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally.

K. Consents.

Any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Where corporate action is taken in such manner by less than unanimous written consent, prompt written notice of the taking of such action shall be given to all stockholders who have not consented in writing thereto.


Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by statute to the Corporation, written consents signed by a sufficient number of holders to take action are delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested.

III DIRECTORS

A. Board of Directors.

The business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things, except as provided in the Certificate of Incorporation.

B. Number; Election and Tenure.

The number of directors which shall constitute the whole Board shall be determined from time to time by resolution adopted by the affirmative vote of a majority of all directors of the Corporation then holding office at any special or regular meeting. Any such resolution increasing or decreasing the number of directors shall have the effect of creating or eliminating a vacancy or vacancies as the case may be, provided that no such resolution shall reduce the number of directors below the number then holding office. The directors shall be elected by a plurality of the votes cast at annual meetings of the stockholders, except as provided in Section 3.3 of this Article, and each director elected shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any director may resign at any time upon written notice to the Corporation. Directors need not be stockholders.

C. Vacancies.

Vacancies in the Board of Directors and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, or until his or her earlier resignation or removal. If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the Certificate of Incorporation or the By-Laws or may apply to the Court of Chancery for a decree summarily ordering an election as provided by statute.


D. Meetings.

The Board of Directors of the Corporation may hold its meetings, and have an office or offices, within or without the State of Delaware.

E. First Meeting.

The first meeting of each newly elected Board of Directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected Board of Directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors.

F. Notice.

Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board. A special meeting of the Board may be called by the Chief Executive Officer, President or any Vice President and a special meeting shall be called by the Chief Executive Officer or the President on the written request of two directors. Notice of each special meeting of the Board of Directors, specifying the place, day and hour of the meeting, shall be given in the manner prescribed in Article IV of these By-Laws and in this Section 3.6, either personally or by mail, by courier, telex or telegram to each director, at the address or the telex number supplied by the director to the Corporation for the purpose of notice, at least 48 hours before the time set for the meeting. Neither the business to be transacted at, nor the purpose of any meeting of the Board, need be specified in the notice of the meeting.

G. Quorum and Voting.

Except as may be otherwise specifically provided by statute or by the Certificate of Incorporation, a majority of the total number of directors shall constitute a quorum for the transaction of business. The vote of the majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors.

Members of the Board or members of any committee designated by the Board may participate in meetings of the Board or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such meeting shall constitute presence in person at such meeting.


H. Consents.

Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.

I. Committees.

The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent permitted by law and provided in the resolution, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors.

J. Committee Rules.

Unless the Board of Directors otherwise provides, each committee designated by the Board may adopt, amend and repeal rules for conducting its business. In the absence of a provision by the Board or a provision in the rules of a committee to the contrary, a majority of the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of a majority of the members present at a meeting at the time of such vote if a quorum is then present shall be the act of such committee, and in other respects each committee shall conduct its business in the same manner as the Board conducts its business pursuant to this Article III of these By-Laws.

K. Committee Minutes.

Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.

L. Compensation of Directors.

The directors as such, and as members of any standing or special committee, may receive such compensation for their services as may be fixed from time to time by resolution of the Board. Nothing herein contained shall be construed to


preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

The directors may be paid their expenses, if any, for attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. Members of special or standing committees may be allowed like compensation for attending committee meetings.

M. Removal of Directors.

Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors.

N. Meetings by Conference Telephone, Etc.

Any one or more members of the Board, or of any committee thereof, may participate in a meeting of the Board, or of such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.

IV NOTICES

A. Form of Notice.

Whenever, under the provisions of the Delaware General Corporation Law or of the Certificate of Incorporation or of these By-Laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by first class or express mail, addressed to such director or stockholder, at his or her address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail, except that, in the case of directors, notice sent by first class mail shall be deemed to have been given forty-eight hours after being deposited in the United States mail. Whenever, under these By-Laws, notice may be given by telegraph, courier or telex, notice shall be deemed to have been given when deposited with a telegraph office or courier service for delivery or, in the case of telex, when dispatched.

B. Waiver of Notice.

Whenever notice is required to be given under any provisions of the Delaware General Corporation Law or the Certificate of Incorporation or these By-Laws, a written waiver, signed by the person or persons entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when


the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or the By-Laws.

V. OFFICERS

A. Selection of Officers.

The officers of the Corporation shall be chosen by the directors and shall consist of a Chief Executive Officer, President, Executive Vice-President, Secretary, and Treasurer and it may, if it so determines, elect from among its members a Chairman of the Board and one or more Vice Chairmen of the Board. The Board of Directors may also choose a General Counsel, a Chief Financial Officer, a Chief Operating Officer, a Chief Information Officer, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as the Board may deem desirable or appropriate and may give any of them such further designations or alternate titles as it considers desirable. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provide. A failure to elect officers shall not dissolve or otherwise affect the Corporation.

B. Term of Office, Removal and Vacancies.

Each officer of the Corporation shall hold his or her office until his or her successor is elected and qualifies or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Any officer elected or appointed by the Board of Directors may be removed at any time, with or without cause, by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring by death, resignation, removal or otherwise, in any office of the Corporation, shall be filled by the Board of Directors.

C. Compensation.

The salaries of the officers of the Corporation may be fixed by the Board of Directors or a duly constituted committee thereof.

D. Chairman of the Board.

The Chairman of the Board shall preside at all meetings of the Board of Directors at which he or she is present and shall have and may exercise such powers as may, from time to time, be assigned to him or her by the Board. If the Chairman or any Vice-Chairman is not available to preside over a meeting of the Board, a director


chosen by a majority of the directors present shall preside over the meeting.

E. The Chief Executive Officer.

The Chief Executive Office shall be the senior officer of the Corporation and, subject to the control of the Board of Directors, shall have general and active management and control of the business and affairs of the Corporation and over its several officers, and shall see that all orders and resolutions of the Board are carried into effect. The Chief Executive Officer shall have the power to call special meetings of stockholders and call special meetings of the Board and shall preside over meetings of the stockholders of the Corporation.

F. The President.

The President shall have the power to call special meetings of the Board. If the Chief Executive Officer is not present at a meeting of the stockholders, the President shall preside, and if the President is not present at such meeting, a director or officer chosen by a majority of the directors present shall preside over the meeting. The President shall exercise supervision over the business of the Corporation and over its several officers, subject to the oversight of the Chief Executive Officer.

G. Vice President.

Each Vice President, if any, shall perform such duties as shall be assigned by the Board of Directors, the Chief Executive Officer or President, and, in the absence or disability of the President, the most senior in rank of the Vice Presidents shall perform the duties of the President.

H. Secretary.

The Secretary shall, to the extent practicable, attend all meetings of the Board and all meetings of stockholders and shall record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform the same duties for any committee of the Board when so requested by such committee. He or she shall give, or cause to be given, notice of all meetings of stockholders and of the Board, shall perform such other duties as may be prescribed by the Board or the Chief Executive Officer and shall act under the supervision of the Chief Executive Officer. He or she shall keep in safe custody the seal of the Corporation and affix the same to any instrument that requires that the seal be affixed to it and which shall have been duly authorized for signature in the name of the Corporation and, when so affixed, the seal shall be attested by his or her signature or by the signature of the Treasurer of the Corporation or an Assistant Secretary or Assistant Treasurer of the Corporation. He or she shall keep in safe custody the certificate books and stockholder records and such other books and records of the Corporation as the Board or the Chief Executive Officer may direct and shall perform all other duties incident to the office of Secretary and such other duties as from time to time may be assigned by the Board or the Chief Executive Officer.


I. Assistant Secretary.

Assistant Secretaries of the Corporation, if any, in order of their seniority or in any other order determined by the Board, shall generally assist the Secretary and perform such other duties as the Board or the Secretary shall prescribe, and, in the absence or disability of the Secretary, shall perform the duties and exercise the powers of the Secretary.

J. Chief Operating Officer.

The Chief Operating Officer shall have primary responsibility for the management and supervision of the day-to-day operations of the business of the Corporation, subject to the direction of the Chief Executive Officer, and shall perform such other duties as from time to time may be assigned by the Chief Executive Officer.

K. Chief Information Officer.

The Chief Information Officer shall have primary responsibility for corporate communications with shareholders and the general public, and shall perform such other duties as from time to time may be assigned by the Chief Executive Officer.

L. General Counsel.

The General Counsel shall be the chief legal officer of the Corporation and shall have primary responsibility for the supervision of all legal and regulatory matters involving the Corporation, and shall perform such other duties as from time to time may be assigned by the Chief Executive Officer.

M. Chief Financial Officer.

The Chief Financial Officer shall exercise supervision over all of the financial affairs of the Corporation, and shall perform such other duties as from time to time may be assigned by the Chief Executive Officer.

N. The Treasurer.

The Treasurer shall have the care and custody of all the funds of the Corporation and shall deposit such funds in such banks or other depositories as the Board, or any officer or officers, or any officer and agent jointly, duly authorized by the Board, shall, from time to time, direct or approve. He or she shall disburse the funds of the Corporation under the direction of the Board and the Chief Executive Officer. He or she shall keep a full and accurate account of all moneys received and paid on account of the Corporation and shall render a statement of his or her accounts whenever the Board or the Chief Executive Officer shall so request. He or she shall perform all other necessary actions and duties in connection with the administration of the financial


affairs of the Corporation and shall generally perform all the duties usually appertaining to the office of treasurer of a corporation. When required by the Board, he or she shall give bonds for the faithful discharge of his or her duties in such sums and with such sureties as the Board shall approve.

O. Assistant Treasurers.

Assistant Treasurers of the Corporation, if any, in order of their seniority or in any other order determined by the Board, shall generally assist the Treasurer and perform such other duties as the Board or the Treasurer shall prescribe, and, in the absence or disability of the Treasurer, shall perform the duties and exercise the powers of the Treasurer.

P. Other Officers.

The Board or the Chief Executive Officer may appoint such other officers and assistant officers and agents as it or he or she shall deem necessary, who shall hold their offices for such terms and shall have authority and exercise such powers and perform such duties as shall be determined from time to time by the Board, by resolution not inconsistent with these By-Laws, or by the Chief Executive Officer.

VI CERTIFICATES OF STOCK AND TRANSFERS

A. Certificates of Stock; Uncertificated Shares.

The shares of the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chief Executive Officer, President, the Executive Vice President or any Vice President, and countersigned by the Secretary or any Assistant Secretary or the Treasurer or any Assistant Treasurer, representing the number of shares registered in certificate form. Any or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

B. Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificate or Uncertificated Shares.

The Board of Directors may issue a new certificate of stock or


uncertificated shares in place of any certificate therefore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his or her legal representative to give the Corporation or its transfer agent a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

C. Record Date.

In order that the Corporation may determine the stockholders entitled to notice of, or to vote at, any meeting of stockholders or at any adjournment thereof in respect of which a new record date is not fixed, or to consent to corporate action without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which date shall not be more than sixty (60) nor less than ten (10) days before the date of any such meeting, nor more than ten (10) days after the date on which the date fixing the record date for the consent of stockholders without a meeting is adopted by the Board of Directors, nor more than sixty (60) days prior to any other such action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

D. Registered Stockholders.

The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as of any record date fixed or determined pursuant to Section 6.3 of this Article as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, regardless of whether it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware.

E. Regulations.

The Board may make such rules and regulations as it may deem expedient, not inconsistent with the Certificate of Incorporation or these Bylaws, concerning the issue, transfer and registration of certificates evidencing stock of the Corporation. It may appoint, or authorize any principal officer or officers to appoint, one or more transfer agents and one or more registrars, and may require all certificates of stock to bear the signature or signatures (or a facsimile or facsimiles thereof) of any of them. The Board may at any time terminate the employment of any transfer agent or any registrar of transfers. In case any officer, transfer agent or registrar who has signed


or whose facsimile signature has been placed upon a certificate shall cease to be such officer, transfer agent or registrar, whether because of death, resignation, removal or otherwise before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed or whose facsimile signature has been placed upon such certificate or certificates had not ceased to be such officer, transfer agent or registrar.

F. Transfer of Stock.

(a) The transfer of shares of stock and the certificates evidencing such shares of stock of the Corporation shall be governed by Article 8 of Subtitle I of Title 6 of the Delaware Code (the Uniform Commercial Code), as amended from time to time.

(b) Registration of transfers of shares of stock of the Corporation shall be made only on the books of the Corporation upon request of the registered holder thereof, or of his or her attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and upon the surrender of the certificate or certificates evidencing such shares properly endorsed or accompanied by a stock power duly executed.

VII GENERAL PROVISIONS

A. Dividends.

Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the Corporation's capital stock, subject to the provisions of the Certificate of Incorporation.

B. Liability of Directors as to Dividends or Stock Redemption.

A member of the board of directors, or a member of any committee designated by the board of directors, shall be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors, or by any other person as to matters the director reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation, as to the value and amount of the assets, liabilities and/or net profits of the Corporation, or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared and paid, or with which the Corporation's stock might properly be purchased or redeemed.

C. Reserve for Dividends.


Before declaring any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

D. Signing Checks, Notes, etc.

All checks or other orders for the payment of money and all notes or other instruments evidencing indebtedness of the Corporation shall be signed on its behalf by such officer or officers or such other person or persons as the Board of Directors may from time to time designate, or, if not so designated, by the Chief Executive Officer, the President, the Secretary, the Treasurer or any Vice President or Assistant Treasurer of the Company.

E. Fiscal Year.

The fiscal year of the Corporation shall be fixed, and shall be subject to change from time to time by the Board of Directors.

F. Seal.

The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced.

G. Voting of Securities of Other Corporations.

In the event that the Corporation shall, at any time or from time to time, own and have power to vote any securities (including but not limited to shares of stock or partnership interests) of any other issuer, they shall be voted by such person or persons, to such extent and in such manner, as may be determined by the Board of Directors or, if not so determined, by any duly elected officer of the Corporation.

VIII INDEMNIFICATION

A. Indemnification.

(a) General. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she


is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, to the full extent authorized or permitted by law, as now or hereafter in effect, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person seeking indemnification did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

(b) Derivative Actions. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, to the full extent authorized or permitted by law, as now or hereafter in effect, against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

(c) Successful Defense. To the extent that a present or former director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subjection's (a) and (b) above, or in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith.

(d) Proceedings Initiated by any Person. Notwithstanding anything to the contrary contained in subsections (a) or (b) above, except for proceeds to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any person in connection with a proceeding (or part thereof) initiated by such person unless such


proceeding (or part thereof) was authorized in advance, or unanimously consented to, by the Board.

(e) Procedure. Any indemnification under subsections (a) and (b) above (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in subsections (a) and (b) above. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination (i) by a majority vote of a quorum of the directors who are not parties to such action, suit or proceeding, (ii) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, (iii) if there are no such directors, or if such directors so direct by independent legal counsel in a written opinion, or (iv) by the stockholders of the Corporation.

(f) Advancement of Expenses. Expenses (including attorneys' fees) incurred by a director or an officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking in form and substance satisfactory to the Corporation by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation pursuant to this Article VIII. Such expenses (including attorneys' fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate.

(g) Rights Not Exclusive. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office.

(h) Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of the State of Delaware.

(i) Definition of "Corporation". For purposes of this Article VIII, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a


consolidation or merger which, it its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation of its separate existence had continued.

(j) Certain Other Definitions. For purposes of this Article VIII, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves service by, such director, officer, employee or agent with respect to any employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation," as referred to in this Article VIII.

(k) Continuation of Rights. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

(l) Repeal or Modification. Any repeal or modification of this Article VIII by the stockholders of the Corporation shall not adversely affect any rights to indemnification and to advancement of expenses that any person may have at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification.

(m) Action Against Corporation. Notwithstanding any provisions of this Article VIII to the contrary, no person shall be entitled to indemnification or advancement of expenses under this Article VIII with respect to any action, suit or proceeding, or any claim therein, brought or made by him or her against the Corporation.

Except as otherwise provided below, each person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding") and whether or not by or in the right of the Corporation or otherwise, by reason of the fact that he or she or she, or a person of whom he or she or she is the heir, executor or administrator, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as


director or officer or trustee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director or officer or trustee, or in any other capacity while serving as a director or officer or trustee, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by law, as the same exist or may hereinafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than are permitted the corporation to provide prior to such amendment), against all reasonable expenses, including attorneys' fees, and any liability and loss, including judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement, incurred or paid by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director or officer or trustee; provided, however, that except as provided in paragraph (b) hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of the final disposition thereof; provided, however, that to the extent required by the law, the payment of such expenses incurred by an officer or director in advance of the final disposition of a proceeding shall be made only upon receipt of an undertaking, by or on behalf of such person, to repay all amounts so advanced if it shall ultimately be determined that he or she or she is not entitled to be indemnified under this section or otherwise. The right to indemnification and advancement of expenses provided herein shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such person.

IX AMENDMENTS

These By-Laws may be altered, amended or repealed, and new By-Laws may be adopted, by the stockholders, or by the Board of Directors when such power is conferred upon the Board of Directors by the Certificate of Incorporation.


Exhibit 9.1

VOTING TRUST AGREEMENT

This constitutes a Voting Trust Agreement ("Agreement") made on December 27, 1999, by and between BRIAN P. KELLY residing at 8407 Prestwick Drive, Manlius, New York 13104 ("Brian"), KEVIN J. KELLY residing at 7868 East Ridge Point Drive, Fayetteville, New York 13066 ("Kevin") and WILLIAM M. KELLY, JR. residing at 7402 Highbridge Terrace, Fayetteville, New York 13066 ("Bill")(collectively the "Kellys"), and BRIAN P. KELLY, KEVIN J. KELLY, and WILLIAM M. KELLY, JR., as Voting Trustees (each individually a "Trustee" and collectively, the "Trustees").

RECITALS

A. Brian, Kevin and Bill Kelly are brothers and the founders of Telergy, Inc., a New York corporation engaged in the telecommunications business (hereafter, "Telergy" or the "Corporation"). Collectively they own Telergy shares which represent a majority of the total shareholder votes outstanding.

B. The authorized common stock of Telergy consists of: (i) 9,999,900 shares of Class A Common Stock, each with one vote per share, 3,389,745 shares of which are currently issued and outstanding, and (ii) 100 shares of Class C Common Stock, each with 90,000 votes per share and all of which are issued and outstanding.

C. The Kellys own Telergy Common shares as follows:

                    Class A        Class C       Total Votes
                    -------        -------       -----------
Brian               481,921          50            4,981,921
Kevin               484,951          50            4,984,951
Bill                482,879          --              482,879
                                                  ----------
                                                  10,449,751


Hereafter, all Telergy shares now or hereafter owned by the Kellys are referred to as "Telergy Shares."

D. The Kellys wish to combine and unify their voting power in order to secure the continuity and stability of the Corporation's policy and management. Further, the Kellys wish to ensure that their Telergy Shares will be voted collectively even if one or more of the brothers is unable to act whether by reason of death or otherwise. Accordingly, the Kellys have created this Voting Trust.

E. Each of the Kellys has agreed to act as a Voting Trustee. This Agreement provides for the appointment of Successor Trustees only in the event that none of the Kellys is willing or able to perform his duties as Trustee.

TERMS AND CONDITIONS

NOW THEREFORE, in consideration of the mutual covenants contained in this Agreement and for other good and valuable consideration, receipt of which is acknowledged, the parties agree as follows:

1. CREATION OF VOTING TRUST. The Kellys hereby establish a Voting Trust as provided in this Agreement and in furtherance thereof, each shall deliver certificates representing all of their Telergy Shares to the Trustees, duly endorsed for transfer to the Trustees. The Trustees shall deliver these certificates to Telergy for cancellation, and new stock certificates shall be issued to: "Brian P. Kelly, Kevin J. Kelly and William M. Kelly, as Trustees under a Voting Trust Agreement dated December 27, 1999, a copy of which is on file at the principal office of the Corporation." The Trustees shall ensure that the foregoing transfers are properly noted on the records of the Corporation as required by New York Business Corporation Law Section 621.

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2. VOTING TRUST CERTIFICATES. Promptly after the Trustees receive the new stock certificates, the Trustees shall issue and deliver to each Kelly Voting Trust Certificates for the Telergy Shares deposited by him with the Trustees. These Voting Trust Certificates shall be in substantially the form of the attached Exhibit A, the terms of which are incorporated by reference in this Agreement.

3. VOTING. The Trustees shall have the exclusive right to vote the Telergy Shares, to give written consents in lieu of a meeting of shareholders as permitted by law and the Certificate of Incorporation and By-Laws of Telergy, as amended, and to vote in person or by proxy at any and all meetings of the shareholders of the Corporation, for whatever purpose called or held, and in any and all proceedings, whether at meeting of the shareholders or otherwise, wherein the vote or written consent of shareholders may be required or authorized by law. The Trustees are authorized to vote or consent with respect to all matters on which a shareholder may vote or consent including, but not limited to, a merger, sale of assets, liquidation or other extraordinary matter. So long as there are three Trustees, the consent of at least two of the Trustees shall be required to authorize any vote or consent. If less than three Trustees are serving, the remaining Trustees must act unanimously.

4. DIRECTORS. The Trustees are hereby directed to vote all shares subject to this Voting Trust Agreement for the election of Brian and Kevin as Directors of the Corporation, provided they are able to serve, and the Trustees hereby agree to vote accordingly.

5. DIVIDENDS. The Trustees shall receive and hold, subject to the terms of this Agreement, all stock dividends, stock splits and similar share distributions declared and paid on the Telergy Shares deposited under this Agreement and, in the case of any distributions of new Telergy Common stock, shall issue and deliver Voting Trust Certificates for the additional

3

shares to the beneficial owner of the shares with respect to which the distribution was made. The Trustees shall distribute all cash dividends declared and paid on the Telergy Shares to the registered holders of Voting Trust Certificates representing the shares as shown on the books of the Trustees.

6. DISSOLUTION OF CORPORATION. In the event of the dissolution or total or partial liquidation of the Corporation, whether voluntary or involuntary, the Trustees shall receive the moneys, securities, rights, or property to which each registered holder of Voting Trust Certificates is entitled, and shall distribute the same among the registered holders of Voting Trust Certificates in proportion to their respective interests in the Voting Trust as shown on the books of the Trustees, and upon such distribution all further obligations or liability of the Trustees in respect of such moneys, securities, rights, or property shall cease.

7. TERM. This Agreement shall become effective as of its date and shall continue in effect for a period of ten (10) years from that date subject, however, to the prior termination of this Agreement by the execution and filing with the Corporation of an agreement of termination executed by all the parties to this Agreement.

8. RENEWAL OF AGREEMENT. This Agreement may be renewed for successive ten (10) year periods or such other term as may be permitted by law provided, however, that the then Voting Trust Certificate holders desiring to extend and renew the Agreement give their written consent to each such renewal within the time period specified by law prior to the termination date. A copy of each extension agreement and the consents to the extension shall be filed with the Corporation.

9. SUCCESSOR TRUSTEES. If a Trustee resigns, dies or is otherwise unable or unwilling to perform his duties as Trustee, the remaining Trustees may, but are not required to,

4

appoint a successor Trustee. If none of the Trustees is able to continue to serve as Voting Trustee so there is no Trustee hereunder, one or more Successor Trustees may be appointed by the management committee of the law firm of Bond, Schoeneck & King, LLP, or any successor to that firm.

The words "Voting Trustee" or "Trustee" as used in this Agreement shall mean the Trustee named herein and any duly appointed Successor Trustee.

10. COMPENSATION AND REIMBURSEMENT OF TRUSTEES. The Trustees shall serve without compensation. The Trustees shall have the right to incur and pay such reasonable expenses and charges and to employ such professional counsel as they deem necessary and proper in the performance of their duties. Any charges or expenses incurred by the Trustees may be charged pro rata to the holders of the Voting Trust Certificates.

11. LIMITATION OF LIABILITY. No Trustee shall be liable by reason of any matter or thing in any way arising out of or in relation to this Agreement except for loss or damage suffered by the Voting Trust Certificate holders by reason of the Trustee's willful misfeasance or gross negligence. No Trustee shall be required to give a bond or other security for the faithful performance of his duties.

12. INSPECTION. The Trustee shall keep available for inspection by the holders of Voting Trust Certificates at the East Syracuse, New York offices of the Corporation, correct and complete books and records of account relating to this Voting Trust, and a record containing the names and addresses of all persons who are Voting Trust Certificate holders and the number and class of shares represented by the certificates held by them and the dates they became the owners of Voting Trust Certificates.

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13. FILING. The Trustees shall file a duplicate of this Agreement at the office of the Corporation.

14. EXCEPTED TRANSACTIONS.

(a) Nothing in this Agreement shall disqualify a Trustee or a Successor Trustee from voting for himself to serve the Corporation or any of its subsidiaries or affiliates as officer or director or in any other capacity, or from voting for himself to receive compensation for these services.

(b) Nothing in this Agreement shall disqualify a Trustee or a Successor Trustee from dealing or contracting with the Corporation or any of its subsidiaries or affiliates as a vendor, purchaser, or otherwise, nor shall any transaction or contract be affected or invalidated by reason of the fact that the Trustees or any firm or corporation of which the Trustees is a member, shareholder, director, or employee is in any way interested in the transaction or contract; nor shall the Trustees be liable to account to the Corporation or to any shareholder of the Corporation for any profits realized by, from, or through any transaction or contract by reason of the fact that he or any firm or corporation of which he is a member, shareholder, director, or employee is interested in the transaction or contract.

15. WITHDRAWAL OF SHARES. A Voting Trust Certificate holder shall not have the right to withdraw any Telergy Shares deposited pursuant to this Agreement without the prior written consent of all of the parties to this Agreement.

16. PRIOR AGREEMENTS CANCELLED. This Agreement supercedes all existing Voting Trust Agreements among any of the parties relating to their Telergy Shares, and all such voting trust agreements shall be deemed terminated as of this date.

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17. ENTIRE AGREEMENT. This Agreement expresses the entire agreement between the parties and may not be changed or modified except in writing executed by all the parties to this Agreement.

18. NOTICES. Any notice to or communication with the holders of the Voting Trust Certificates shall be deemed sufficiently given or made if addressed to the holders at their respective addresses appearing on the transfer books of the Trustees. Any notice to the Trustees shall be sent c/o Telergy, Inc., One Telergy Drive, East Syracuse, New York 13057 and shall be marked "Personal and Confidential."

19. BINDING EFFECT. This Agreement shall benefit and bind the respective parties, and their heirs, personal and legal representatives, successors and assigns.

20. NON-WAIVER. No delay or failure by a party to exercise any right under this Agreement, and no partial or single exercise of that right, shall constitute a waiver of that or any other right, unless otherwise expressly consented to in a signed writing by that party.

21. SEVERABILITY. Any term or provision of this Agreement that is found to be invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions of this Agreement or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

22. SUCCESSOR CORPORATION. If Telergy is reincorporated in the State of Delaware, this Voting Trust Agreement shall automatically continue and all shares issued to the Trustees or any of the Kellys in connection with such reincorporation shall be subject to this Agreement.

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23. GOVERNING LAW. This Agreement is intended by the parties to be governed by and construed in accordance with the laws of the State of New York except that if Telergy becomes a Delaware corporation, the laws of the State of Delaware shall govern

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

8

IN WITNESS WHEREOF, the Shareholders and the Trustee have executed this Agreement, to evidence their respective acceptance of this Voting Trust, all as of the day and year first above written.

SHAREHOLDERS

 /s/ Brian P. Kelly
_________________________
Brian P. Kelly


 /s/ Kevin J. Kelly
_________________________
Kevin J. Kelly


 /s/ William M. Kelly
_________________________
William M. Kelly

VOTING TRUSTEES

 /s/ Brian P. Kelly
_________________________
Brian P. Kelly, Trustee


 /s/ Kevin J. Kelly
_________________________
Kevin J. Kelly, Trustee


 /s/ William M. Kelly
_________________________
William M. Kelly, Trustee

9

STATE OF NEW YORK )
) ss.:
COUNTY OF ONONDAGA)

On December 27, 1999, before me personally came Brian P. Kelly, to me known and known to me to be the same person described in and who executed the within instrument, individually and as Trustee, and he duly acknowledged to me that he executed the same.

/s/  Arthur E. Bongiovanni
_____________________________
         Notary Public

STATE OF NEW YORK )
) ss.:
COUNTY OF ONONDAGA)

On December 27, 1999, before me personally came Kevin J. Kelly, to me known and known to me to be the same person described in and who executed the within instrument, individually and as Trustee, and he duly acknowledged to me that he executed the same.

/s/  Arthur E. Bongiovanni
_____________________________
         Notary Public

STATE OF NEW YORK )
) ss.:
COUNTY OF ONONDAGA)

On December 27, 1999, before me personally came William M. Kelly, to me known and known to me to be the same person described in and who executed the within instrument, individually and as Trustee, and he duly acknowledged to me that he executed the same.

[STATE OF NEW YORK DEPARTMENT OF STATE SEAL]       /s/  Arthur E. Bongiovanni
            ARTHUR E. BONGIOVANNI                  _____________________________
       NOTARY PUBLIC, STATE OF NEW YORK                     Notary Public
                  NO. 0350084
          QUALIFIED IN ONONDAGA COUNTY
        MY COMMISSION EXPIRES 6-30-2000

10

EXHIBIT A

TELERGY, INC.
VOTING TRUST CERTIFICATE

This certifies that _____________________ has deposited ________ Class A Common and ________ Class C Common shares of Telergy, Inc., a New York corporation (the "Corporation"), with the undersigned Voting Trustees pursuant to a Voting Trust Agreement dated December 27, 1999, between Brian P. Kelly, Kevin J. Kelly and William M. Kelly as Shareholders, and Brian P. Kelly, Kevin J. Kelly and William M. Kelly as Trustees. A copy of the Voting Trust Agreement is on file in the office of the Corporation, One Telergy Drive, East Syracuse, New York 13057.

This Certificate and the interests represented by this Certificate are transferable on the books of the Trustees and upon its surrender properly endorsed. The holder of this Certificate takes it subject to all the terms and conditions of the Voting Trust Agreement.

By acceptance of this Certificate, the holder acknowledges that he has acquired it for investment purposes and not with a view to distribution.

IN WITNESS WHEREOF, the Trustees have signed this Certificate on __________________.


Brian P. Kelly, Trustee


Kevin J. Kelly, Trustee


William M. Kelly, Trustee

11

EXHIBIT 9.2

FORM OF VOTING TRUST AGREEMENT

THIS AGREEMENT entered into as of the day of , is by and among , residing at
, ("SHAREHOLDER"), and KEVIN J. KELLY, residing at ("TRUSTEE")

WHEREAS, the SHAREHOLDER has subscribed and paid the requisite consideration for four hundred seventy-five thousand shares of the common stock of Telergy, Inc., (the "CORPORATION"), a New York corporation with offices at 5784 Widewaters Parkway, Syracuse, New York 13214, all of which shares the parties intend to be subject to this Agreement (the "SHARES").

WHEREAS, the Shares constitute a minority stock interest in the CORPORATION of approximately sixteen percent; and

WHEREAS, the parties desire to secure the continuity and stability of policy and management of the CORPORATION; and

WHEREAS, the SHAREHOLDER wishes to convey to the TRUSTEE his rights to vote the Shares for a period of time; and

WHEREAS, the TRUSTEE has agreed to act as voting trustee of the Shares

NOW THEREFORE, it is agreed as follows:

1. THE TRANSFER OF SHARES TO TRUSTEE

The SHAREHOLDER, simultaneously with the execution of this Agreement, shall assign and deliver the Shares to the TRUSTEE, to be held subject to the terms of this Agreement from the date hereof until March 15, 2003 and for such further periods of time as the SHAREHOLDER and the TRUSTEE may agree ("TERM"). The TRUSTEE shall immediately cause the Shares to be transferred to


himself, as TRUSTEE, on the books of the Corporation, and shall properly endorse on all certificates held by him hereunder the following legend:

This certificate is held subject to a certain Voting Trust Agreement dated February 14, 1997, copies of which are in the possession of Kevin J. Kelly, as Trustee, and filed with the records of the Corporation at its principal office.

The TRUSTEE shall issue and deliver to the SHAREHOLDER a voting trust certificate for the Shares, substantially in the form of attached Exhibit A.

2. VOTING

At all meetings of Shareholders of the Corporation and in all proceedings affecting the Corporation wherein the vote or Written Consent of Shareholders of the Corporation may be required or authorized by law, the TRUSTEE shall have the exclusive right to vote the Shares, or give written consents in lieu of such voting, as he may determine in his sole discretion. The TRUSTEE agrees to consult periodically with the SHAREHOLDER as to the SHAREHOLDER'S views on matters affecting the Corporation, provided however, that the TRUSTEE shall be in no way bound by the SHAREHOLDER'S views. TRUSTEE shall have full powers of substitution and all powers the undersigned would have to represent and vote the shares of the Company held of record by the undersigned for the Term of this Agreement and shall have the power to pledge all powers conferred on the TRUSTEE herein pursuant to the Proxy and voting pledge requirements of a certain Note Purchase Agreement between Telergy, Inc. and Hyperion of New York, Inc.

3. LIABILITY AND POWERS OF TRUSTEE; SUCCESSOR TRUSTEE

The TRUSTEE shall incur no responsibility as shareholder, trustee, or otherwise, except for his own individual malfeasance, and shall not be liable for the consequences of any vote cast in good faith by the TRUSTEE, including but not limited to the election of the TRUSTEE as a director or officer of the Corporation and the granting of compensation and benefits to directors and


officers of the Corporation. The TRUSTEE shall serve as trustee without compensation. The TRUSTEE shall have the right to incur and pay such reasonable expenses and charges and to employ such professional counsel, as he may deem necessary and proper in performance of his duties hereunder. Any such charges and expenses may be charged to the SHAREHOLDER. The TRUSTEE may resign at any time. In the event of the resignation of the TRUSTEE or the inability of the TRUSTEE to perform his duties under this Agreement for any reason, Brian P. Kelly is hereby appointed as successor trustee and agrees to serve in such capacity and to be bound by the terms of this Agreement.

4. DIVIDENDS

The SHAREHOLDER shall be entitled to receive payments from the TRUSTEE equal to the Cash dividends received by the TRUSTEE on the Shares. If dividends are declared in voting stock of the Corporation, the TRUSTEE shall retain such stock, which shall be deemed to have been deposited under the terms of this Agreement, and shall be included within the definition of "SHARES". The TRUSTEE shall notify the SHAREHOLDER of the declaration of any such dividends. Stock dividends declared in stock without voting power shall be assigned immediately to the SHAREHOLDER by the TRUSTEE.

5. EVENTS OF TERMINATION

All voting rights conferred on the TRUSTEE hereunder shall immediately be restored to the SHAREHOLDER and this Voting Trust Agreement shall be terminated upon the occurrence of any of the following events ("EVENTS OF TERMINATION"):

(a) In the event the Corporation redeems the Shares; or

(b) March 15, 2003.


6. TERMINATION

Upon the occurrence of an Event of Termination, this Agreement shall terminate and the TRUSTEE shall assign and deliver the Shares to the SHAREHOLDER.

7. ASSIGNMENT OF SHARES

Subject to compliance with applicable securities laws, the beneficial interest of any Shares deposited hereunder may be transferred by a separate instrument of assignment, which shall refer to the provisions of this Agreement which shall recite that the provisions of this Agreement continue to be binding upon such assignee.

8. BINDING EFFECT

This Agreement shall inure to the benefit of and be binding upon the SHAREHOLDER, his successors and assigns, and upon the TRUSTEE.

IN WITNESS WHEREOF, the parties have signed this Agreement as of the date first written above.

SHAREHOLDER:


TRUSTEE:


The undersigned acknowledges and
agrees to the provisions of
Section 3 above with respect to his
nomination as a successor trustee.

/s/  Brian Kelly
-------------------------------

BRIAN P. KELLY


EXHIBIT 10.1.1


RIGHT OF OCCUPANCY AGREEMENT

between

NIAGARA MOHAWK POWER CORPORATION

and

TELERGY JOINT VENTURE

Dated February 2, 1996



TABLE OF CONTENTS

SECTION TOPIC PAGE

-------   -----                                                             ----

     1    DEFINITIONS........................................................  1

     2    PURPOSE OF AGREEMENT...............................................  5

     3    SCOPE OF AGREEMENT.................................................  5

     4    RIGHT-OF-OCCUPANCY TERM............................................  7

     5    SCOPE OF RIGHT OF OCCUPANCY........................................  7

     6    SELECTION OF THE SPECIFIC BACKBONE ROUTE...........................  9

               Documents To Be Provided To TELERGY...........................  9
               Working Drawings.............................................. 10

     7    ADDITIONAL RIGHTS-OF-OCCUPANCY FOR SPUR ROUTES..................... 11

     8    ENTRY AND NOTICE................................................... 12

     9    TELERGY WORK....................................................... 13

     10   APPROVALS AND PERMITS.............................................. 14

     11   CONSTRUCTION AND INSTALLATION...................................... 15

               Non-Cable Facilities.......................................... 17
               Cable Installation............................................ 17

     12   MAINTENANCE AND OPERATION.......................................... 18

     13   NIAGARA CAPACITY, RATES, CHARGES AND COSTS......................... 20

               Niagara Capacity.............................................. 20
               Niagara Spur Capacity......................................... 21

          MODIFYING NIAGARA OR TELERGY FACILITIES............................ 21

     15   UNAUTHORIZED USE NIAGARA FACILITIES................................ 22

     16   CONDEMNATION, BANKRUPTCY, AND OTHER TRANSFERS...................... 23

               Bankruptcy.................................................... 23
               Right of First Refusal........................................ 24
               Relocations................................................... 24
               Condemnation.................................................. 24

     17   TERMINATION OR DEFAULT BY TELERGY.................................. 25

ii

SECTION        TOPIC                                                        PAGE
-------        -----                                                        ----
     18        TERMINATIONS OF AUTHORIZATIONS................................ 26

     19        NIAGARA ABANDONMENT........................................... 28

     20        NIAGARA'S EXPENSES AND EMPLOYEE COSTS......................... 29

     21        INDEPENDENT CONTRACTOR STATUS................................. 29

     22        TAXES......................................................... 30

     23        NOTICES....................................................... 31

     24        LIABILITIES AND INDEMNIFICATION............................... 32

     25        INSURANCE..................................................... 33

     26        LIENS......................................................... 37

     27        AMENDMENTS.................................................... 37

     28        CONFIDENTIALITY............................................... 37

     29        DISPUTES...................................................... 39

               COVENANTS OF THE PARTIES...................................... 39

     31        PUBLIC SERVICE COMMISSION APPROVAL REQUIRED................... 39

     32        MISCELLANEOUS PROVISIONS...................................... 40

                   Entire Agreement and Modification......................... 40
                   Choice of Law............................................. 40
                   Consents.................................................. 40
                   Construction of Agreement................................. 40
                   No Waiver................................................. 41
                   Force Majeure............................................. 41
                   Remedies.................................................. 41
                   Severability.............................................. 41
                   Compliance................................................ 41
                   No Merger................................................. 41
                   Binding Agreement......................................... 41
                   Acts in Furtherance Of Agreement.......................... 41
                   Drug and Alcohol Abuse Policy............................. 42
                   Intellectual Property Sole Property of Niagara............ 42
                   Patent, Copyright and Trademark Infringement.............. 42

     33        ENVIRONMENTAL HAZARD LIABILITY................................ 43

iii

SECTION        TOPIC                                             PAGE
34             EQUAL EMPLOYMENT OPPORTUNITIES..................  43

                    Federal Subcontracting Requirements........  44

35             AUDIT AND MAINTENANCE RECORDS...................  45

36             WARRANTIES......................................  45

37             SURVIVAL........................................  46

38             END-OF-TERM.....................................  46

iv

RIGHT OF OCCUPANCY AGREEMENT

THIS AGREEMENT, made this 2nd day of February, 1996, between NIAGARA MOHAWK POWER CORPORATION, a corporation organized and existing under the laws of the State of New York, having its principal office at 300 Erie Boulevard West, Syracuse, New York 13202 (hereinafter called "NIAGARA") and TELERGY JOINT VENTURE, a Joint Venture organized and existing under the laws of the State of New York, having its principal office for purposes hereof at 5784 Widewaters Parkway, Dewitt, New York 13214 (hereinafter called "TELERGY").

In consideration of the mutual promises and covenants contained herein, TELERGY and NIAGARA intending to be bound, agree as follows:

1. DEFINITIONS

As used in this Agreement, the following terms shall, unless the context otherwise requires, have the meanings specified in this Section 1.

1.1 "Agreement" shall mean the Right-of-Occupancy Agreement entered into herein between NIAGARA and TELERGY, and as the same may be amended, modified and supplemented from time to time. Words such as "herein," "hereafter," "hereof," "hereto," "hereby," and "hereunder," when used with reference to this Agreement refer to this Agreement as a whole unless the context otherwise requires. The word "shall" denotes mandatory language; the word "may" denotes discretionary language.

1.2 "Approved Drawings" shall mean Working Drawings that have been reviewed and approved by NIAGARA.

1.3 "As Built Drawings" shall mean drawings of a System Segment of the Backbone Network as actually installed and as amended from time-to-time.

1.4 "Backbone Network" shall mean the fiber optic transmission-based telecommunications network connecting major cities along the Backbone Route.

1.5 "Backbone Route" shall mean the geographic location of the Backbone Network which shall connect major Points-of-Presence as set forth in this Agreement.

1.6 "Bankruptcy" with respect to any principals of the TELERGY shall mean the happening of any of the following:

(a) The filing of an application for, or consent to, the appointment by a Federal District Court of a Trustee over all or substantially all of its assets;


(b) The filing of a voluntary petition in bankruptcy or the filing of a pleading in any court of record admitting in writing its inability to pay its debts as they become due;

(c) The making of a general assignment for the benefit of creditors;

(d) The filing of an answer admitting the material allegations of, or its consenting to, or defaulting in answering, a bankruptcy petition filed against it in any bankruptcy proceeding; or

(e) The entry of an order, judgment, or decree by any court of competent jurisdiction adjudicating TELERGY or a TELERGY Affiliate bankrupt or appointing a Trustee over its assets, and such order, judgement, or decree continuing unstayed and in effect for a period of sixty (60) consecutive days.

1.7 "Conduit" shall mean an individual pipe, tube or duct forming an enclosed raceway for cable and/or conductors, also referred to as "duct".

1.8 "Construction Plan" shall mean a proposed schedule of engineering and design, commencement and completion dates for receipt of Approvals as set forth in Section 10 herein, and dates for construction, installation and implementation of the Segments of the Backbone Network.

1.9 "Easement" shall mean an easement in gross and/or the highest lesser Right-of-Occupancy or use permitted to be granted by the nature of NIAGARA's interest in and to its Rights-of-Way.

1.10 "Entry Notice" shall mean such notice as set forth in Section 8.

1.11 "Extension Period" shall mean the two, ten-year options, exercisable by TELERGY, to extend the Initial Term of this Agreement with respect to the Right-of-Occupancy used in connection with the Backbone Network or discrete System Segments.

1.12 "Fiber Optic Ground Wire" or "F.O.G. Wire" shall mean static wire containing optical fibers.

1.13 "Initial Term" shall mean the initial twenty-five (25) year-period of this Agreement.

1.14 "Maintenance" shall mean maintenance, repairs, upgrades, relocations, replacement, reinstallation and removal activities.

2

1.15 "Make-Ready Work" shall mean all work performed by NIAGARA or its designated contractor, including but not limited to the rearrangement of existing facilities, replacement of cable, rodding of duct, and installation of subduct required to accommodate the installation of TELERGY's Facilities in accordance with this Agreement.

1.16 "NIAGARA" shall mean the Niagara Mohawk Power Corporation, its successors and assigns.

1.17 "NIAGARA Capacity" shall mean the equivalent capacity of [* * *] as set forth below in Section 13, which capacity shall be provided to NIAGARA by TELERGY in consideration for the Right-of-Occupancy conferred by this Agreement.

1.18 "NIAGARA Facilities" shall mean gas and electric transmission and distribution lines, conduits, poles, electric or other towers, wires, conductors, pipes, pipelines, structures and necessary appurtenances above and below ground located within NIAGARA's Right-of-Way, as well as NIAGARA buildings and structures.

1.19 "NIAGARA Spur Capacity" shall mean NIAGARA's proportionate increased capacity from any subsequent technological improvements or extensions or Spurs that increase the original capacity of the Backbone Network; such increased capacity shall be provided to NIAGARA in accordance with Section 13 herein.

1.20 "Points of Presence" or "POPs" shall mean the points at which long distance carriers interconnect with local exchanges for the purpose of providing inter-exchange telecommunications service to customers in such local exchanges; as well as the points at which the NIAGARA Capacity and any NIAGARA Spur Capacity shall be delivered to and interconnect with the Backbone Network.

1.21 "Pre-Construction Survey" shall mean the work operations performed by NIAGARA or its designated contractor in order to process an application for a Right-of-Occupancy to the point just prior to performing any necessary Make-Ready Work.

1.22 "Property Drawings" shall mean the NIAGARA Right-of-Way drawings, plan and profile drawings for a Right-of-Way within which TELERGY has a Right-of-Occupancy.

1.23 "Regenerator" shall mean a facility which receives, regenerates, and retransmits a digital telecommunications transmission signal, together with attendant equipment and structures, including power sources.

1.24 "Right of Occupancy" shall mean the right to place fiber optic cable, and splice closures, as well as F.O.G. Wire subject to Section 7.4, within the Right-of-Way, in accordance with the terms and conditions of this Agreement. A Right-of-Occupancy under this Agreement shall not provide TELERGY with any ownership interest in NIAGARA

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CONFIDENTIAL

[* * *]   Confidential treatment has been requested with respect to material
          omitted on this page. The omitted portions have been filed separately
          with the Securities and Exchange Commission.


Facilities, real property or Right-of-Way. Any TELERGY installation of F.O.G. Wire in accordance with Sections 6.4.10 and/or 16.5, shall be only for the purposes of this Agreement, and upon installation, such wire shall be included in the Right-of-Occupancy, subject to Section 38.2 herein.

1.25 "Right-of-Way" shall mean the area of NIAGARA-owned (in fee, easement, license, permit, franchise or otherwise), -operated, or -controlled real property for electric and gas transmission and distribution lines as defined by the NIAGARA Property Drawings and other documents.

1.26 "Spur System" or "Spur Route" shall mean an extension to the original Backbone Network, either off of the Backbone Route, or from a TELERGY Facility, such as a terminal or junction, to the Backbone Route.

1.27 "System Segment" or "Segment" shall mean a portion of the Backbone Network or a Spur Route or a portion of a Spur Route.

1.28 "Telecommunication System" or "System" shall mean the Backbone Network and TELERGY Facilities as is heretofore or hereafter conceived, invented or developed by TELERGY, and which primarily utilizes optical fiber as the means for transmitting voice, data or video and/or other information pursuant to this Right-of-Occupancy Agreement.

1.29 "TELERGY" shall mean the Joint Venture, which applies for and is granted permission by NIAGARA under this Agreement to place its Facilities using NIAGARA's Right-of-Way and Facilities and which is responsible for compliance with NIAGARA's regulations and/or standards regarding such accommodations.

1.30 "TELERGY Facilities" means telecommunications facilities installed by or on behalf of TELERGY in, on, upon, under, across, along and through the Right-of-Occupancy on a Right-of-Way, including the transmission systems designed to and used to carry communications traffic and including conduit, carrier pipes, cables, fibers, junctions, regenerators, power sources, fault alarm systems, electronics, structures or shelters, towers, satellite earth stations and all other personal property necessary for or useful to the construction, installation, operation, maintenance, repair, reinstallation, replacement, relocation and removal of the Telecommunication System.

1.31 "Working Drawings" shall mean drawings prepared by TELERGY and submitted to NIAGARA for approval depicting the engineering design and configuration of the Backbone Network and/or System Segments.

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2 PURPOSE OF AGREEMENT

This Agreement is entered into for the purposes of ensuring that NIAGARA has sufficient telecommunications capacity to meet its internal needs to satisfy its public service and corporate obligations and purposes and to authorize TELERGY's use of NIAGARA's Right-of-Way along the Backbone Route to provide telecommunications services and advanced interactive information and entertainment services to customers within and outside New York.

3 SCOPE OF AGREEMENT

3.1 Subject to the provisions of this Agreement, NIAGARA and TELERGY agree that TELERGY shall acquire, for its own use, unless otherwise provided pursuant to the terms of this Agreement, a non-exclusive Right-of-Occupancy in specific NIAGARA Rights-of-Way, for the construction, installation, operation, and maintenance of a single Backbone Network, comprised of the backbone cable, related equipment and TELERGY Facilities, along the Backbone Route. The Right-of-Occupancy shall be revocable only in accordance with the terms and provisions of this Agreement.

3.2 The rights granted herein constitute Rights-of-Occupancy burdening the Right-of-Way to the extent such Right-of-Occupancy is permitted pursuant to the terms of the applicable contract, agreement, easement, permit, license or franchise conveying to NIAGARA its Right-of-Way.

3.3 Nothing herein shall be construed to obligate NIAGARA in any way to acquire any Rights-of-Way for TELERGY's use, nor shall NIAGARA be obligated to grant a Right-of-Occupancy where such grant would contravene any restriction or condition on NIAGARA's use of a Right-of-Way or otherwise adversely affect NIAGARA's Facilities or NIAGARA's property rights on any Right-of-Way, provided that NIAGARA agrees to cooperate and provide reasonable assistance in good faith, when consistent with NIAGARA's public service and corporate obligations, with TELERGY efforts to acquire additional Rights-of-Way, easements or franchises necessary to construct the Backbone Network, at TELERGY's sole cost and expense.

3.4 NIAGARA does not warrant the validity or apportion ability of any rights it may hold to place the Backbone Network or TELERGY Facilities within its Right-of-Way. NIAGARA will, upon written request by TELERGY and as set forth in Section 6.3, subject to the confidentiality provisions set forth in Section 28 herein, provide available information and copies of any documents in its files pertinent to the nature of the rights NIAGARA possesses over its Right-of-Way. The cost of providing such information and reproducing documents shall be borne by TELERGY.

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3.5 Where NIAGARA's Right-of Way is, in its reasonable judgement, sufficiently broad under New York State law to permit TELERGY's Right-of-Occupancy, TELERGY shall not be required to obtain an independent easement from the fee owner to place its Facilities. However, where NIAGARA believes that its rights are insufficient to grant the requested Right of Occupancy, upon prior notice to TELERGY, NIAGARA, in its discretion, may seek to obtain permission from the fee owner for TELERGY Facilities, or to defend or to establish TELERGY's Right-of-Occupancy for its Facilities independent of an easement as set forth above. The fully allocable costs, if any, of such efforts shall be paid by TELERGY. Nothing herein shall be deemed, however, to require NIAGARA to obtain permission, to defend, or to establish TELERGY's Right-of-Occupancy for TELERGY's Facilities.

3.6 To the extent it has the ability and right to do so, NIAGARA shall provide, at no cost to TELERGY, access to Right-of-Way necessary for all end-link connections and repeaters from the Backbone Network to NIAGARA's Points-of-Presence in specified locations in Buffalo, Albany, Syracuse, Oswego/Nine Mile, Watertown, Utica and Guilderland, from TELERGY Facilities in such cities that will provide mutually cost-effective connections of the geographic locations set forth in Section 9.5 and the NIAGARA Capacity set forth in Section 13.

3.7 In addition to the Right-of-Occupancy granted by NIAGARA as described in Sections 3-6, NIAGARA shall grant TELERGY Rights-of-Occupancy at each Regenerator or junction, at mutually-approved locations along the Backbone Route, for the installation, maintenance, operation, repair, replacement and removal, at TELERGY's sole cost and expense, of utilities required to service the System including auxiliary and primary power sources and water and sewer lines. When required by the utility company, power supplier or municipality providing such services, NIAGARA shall grant appropriate access and/or Right-of-Occupancy within the Right-of-Way to such utility company, power supplier and/or municipality.

3.8 Except for the NIAGARA Capacity, NIAGARA Facilities, and NIAGARA Right-of-Way which shall be the property of NIAGARA, the Backbone Network, TELERGY Facilities, and the Telecommunication System installed using the Right-of-Occupancy conferred herein shall be and remain at all times the personal property of TELERGY regardless of the manner or method of installation of such System(s) or any part or component. The parties agree to execute all reasonable documentation requested to evidence such ownership.

3.9 Nothing contained herein shall be construed to compel NIAGARA to construct, reconstruct, retain, extend, repair, place, replace or maintain any Right-of-Way or NIAGARA Facilities or Right-of-Way not needed for NIAGARA's own service requirements.

3.10 NIAGARA reserves to itself, its successors and assigns, the right to relocate, operate and maintain the NIAGARA Facilities or Right-of-Way in such a manner as will best enable it to fulfill its own service requirements.

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4 RIGHT-OF-OCCUPANCY TERM

4.1 For an Initial Term of twenty-five (25) years commencing on the date of approval by the New York State Public Service Commission (Commencement Date) and ending on the expiration of the three-hundredth (300th) month thereafter, unless earlier terminated or unless extended pursuant to this Agreement, subject to the terms and conditions set forth in this Agreement, NIAGARA hereby grants to TELERGY a Right-of-Occupancy in, on, upon, under, over, across, along and through (hereinafter collectively referred "within") the Backbone Route Right-of-Way.

4.2 NIAGARA hereby grants TELERGY, its successors and assigns, the right and option to extend the Initial Term of this Agreement in its entirety or with respect to any System Segments, from the date upon which it would otherwise expire for up to two (2) consecutive Extension Periods of ten
(10) years each.

4.3 Each Extension Period may be exercised individually as to each System Segment or collectively as to any two or more System Segments, by written notice to NIAGARA, three (3) months prior to the expiration of the Initial Term or an Extension Period as to each such System Segment (hereinafter "Election Date"). Such notice shall notify NIAGARA of TELERGY's election either to exercise its said option for the next Extension Period in respect to the Backbone Network or any System Segment, or terminate this Agreement with respect to the Backbone Network or a System Segment, subject to the Severance Payments set forth in Section 17, upon a date which date shall be no sooner than twenty-four (24) months from the date of such notice to NIAGARA. In the event that TELERGY shall elect to extend the term of this Agreement as to a portion only, but not the entirety, of the System, TELERGY shall nonetheless continue to provide the NIAGARA Capacity and, if applicable, any NIAGARA Spur Capacity.

4.4 In the event TELERGY does not give NIAGARA notice of election with respect to any System Segment on or before the Election Date with respect to any Extension Period, the Initial Term of this Agreement shall automatically be extended for thirty (30) days after notice from NIAGARA advising TELERGY that it has failed to notify NIAGARA of any election. Within thirty (30) days of receipt of the NIAGARA notice, TELERGY shall either exercise its said option for the next Extension Period, or terminate this Agreement with respect to any System Segment upon a date that shall be no sooner than twenty-four (24) months of the date of such response.

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5. SCOPE OF RIGHT OF OCCUPANCY

5.1 The specific Right-of-Way that will be subject to the Right-of-Occupancy shall be defined by the parties in the manner set forth in Section 6. The Right-of-Way for Segment I of the Backbone Route shall be defined within ninety (90) days following the execution of this Agreement. Maps showing the Right-of-Way subject to the Right-of-Occupancy shall be prepared and attached to this Agreement as Exhibit A. The remaining Rights-of-Way shall be defined by the parties in the manner set forth in
Section 6 within six months following the date of this Agreement.

5.2 Subject to Section 3.6 herein, where TELERGY desires to construct and install the Backbone Network in areas where NIAGARA's interest in the Right-of-Way is insufficient to authorize TELERGY Facilities and NIAGARA does not chose to exercise its right to pursue authorization in accordance with Section 3.6, TELERGY, at it's sole cost, may negotiate with the fee simple owners for the right for NIAGARA to allow such use by TELERGY, provided that NIAGARA shall cooperate with and assist TELERGY as set forth in Section 3.3 herein.

5.3 TELERGY is not obligated to use the Right-of-Occupancy conferred in this Agreement. TELERGY may decide to use non-NIAGARA rights-of-way in certain locations, so long as the specific geographic locations and dates specified in Sections 3.6 and 9.5, as well as the NIAGARA Capacity as set forth in Sections 3.6 and 13, are connected to the Backbone Network, which shall be fully operational.

5.4 The Right-of-Occupancy granted herein shall be nonexclusive, and shall be subordinated to the provisions of the First Mortgage Indenture dated October 1, 1937, as amended, from NIAGARA's predecessor (Central New York Power Corporation) to the Marine Midland Trust Company of New York, now Marine Midland Bank, N.A. as Trustee, and to all liens, encumbrances, Rights-of-Occupancy, easements, rights, privileges, licenses, or grants or whatever nature heretofore or hereinafter given by NIAGARA or its predecessors or successors in interest, which affect the property of NIAGARA, including but not limited to drainage rights, streets, roadways, telephone lines, underground conduits, sewers, manholes, pipes or right-of-way.

5.5 Nothing herein contained shall be construed as a grant by NIAGARA of any exclusive Right-of-Occupancy, right or privilege to TELERGY. NIAGARA shall have the absolute right, without notice to TELERGY, to grant, renew and extend Right-of-Occupancy, rights, licenses, and privileges to others not parties to this Agreement, by contract or otherwise, to use any NIAGARA Facilities or Right-of-Way covered by this Agreement. However, Right-of-Occupancies existing at the time of such future Right-of-Occupancy agreements or arrangements shall not be diminished. The rights of TELERGY shall at all times be subject to such existing and future Right-of-Occupancy agreements or arrangements. NIAGARA, in negotiating and entering into any such future Right-of-Occupancy agreements and/or

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arrangements, shall not diminish the Right-of-Occupancy of TELERGY, as provided for in this Agreement, except as provided herein.

5.6 The rights of parties to whom NIAGARA currently leases or licenses any of the Right-of-Way on which the Backbone Network will be installed shall be protected and TELERGY, its contractors, agents and employees shall assume all responsibility for any damage actually done by TELERGY, its contractors, agents and employees to lawns, gardens, shrubbery, fences, real and personal property. Upon completing construction, TELERGY shall restore the lands to substantially the same condition as before entering thereon. TELERGY shall investigate and resolve any and all complaints arising from or in connection with its Right-of-Occupancy in an expeditious manner.

6 SELECTION OF THE SPECIFIC BACKBONE ROUTE

6.1 Immediately upon executing this Agreement, the parties agree to work closely and reasonably to prepare Working Drawings reflecting preliminary and final sites for the Right-of-Occupancy within any Right-of-Way ensuring that it connects the Points-of-Presence and geographic locations set forth in Section 3.6 and 9.5 along the Backbone Route. During the initial joint review and inspection, every reasonable effort will be made by the parties to produce and modify, if necessary, the Working Drawings through the most expeditious means. If known to NIAGARA, it shall notify TELERGY of any outstanding adverse claims affecting any Right-of-Way which TELERGY has identified for use by the System.

6.2 In the event that NIAGARA shall agree to undertake any TELERGY requested special Right-of-Way research and services, or engineering services, TELERGY shall pay all pre-approved costs incurred by NIAGARA in providing such research and services.

6.3 Documents To Be Provided To TELERGY.

6.3.1 To facilitate TELERGY's determination of the specific position and location of TELERGY's Facilities and to prepare the Construction Plan, NIAGARA agrees to provide TELERGY materials and documents as described in this Section 6.

6.3.2 Within 15 days of the date of this Agreement, NIAGARA will provide TELERGY with standard engineering guidelines for construction plans.

6.3.3 Upon request, reasonable access to available title documentation and Right-of-Way Maps within NIAGARA's possession that relate to the Backbone Route, including easements, occupancy rights or any third-party rights heretofore granted and/or restrictions on the Right-of-Occupancy intended by this Agreement.

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6.3.4 Available survey records for inspection and/or reproduction by TELERGY, at its sole cost and expense, subject to limitations of survey contracts, regulations or local laws.

6.3.5 NIAGARA does not guarantee the accuracy of Right-of-Way Maps or surveys in its possession.

6.3.6 TELERGY shall abide by the confidentiality provisions set forth in Section 28 with respect to NIAGARA Maps and surveys.

6.4 Working Drawings.

6.4.1 NIAGARA shall permit TELERGY's employees, agents and contractors to enter the Backbone Route Right-of-Way, subject to the notice provisions set forth in Section 8, for the purpose of surveying and inspecting the same and to make such engineering and other tests as may be necessary or advisable to enable TELERGY to prepare Working Drawings and the Construction Plan, as well to locate the Right-of-Occupancy on such Right-of-Way, and to determine the engineering and cost consideration with respect to construction and installation of the Backbone Network therein.

6.4.2 NIAGARA agrees to participate with TELERGY in a joint review of the preliminary route designation plans for the Backbone Route Right-of-Occupancy, and in making reasonably necessary physical inspections of a Right-of-Way for the purpose of identifying problem areas, arriving at suitable alternatives, and defining final routes.

6.4.3 Based upon the preliminary Right-of-Occupancy designation, physical inspections and other engineering data available to TELERGY, it shall prepare and submit to NIAGARA four (4) sets of construction plans ("Working Drawings") for the Backbone Network. Telergy may submit such Working Drawings for the entire Backbone Network, or for designated System Segments.

6.4.4 Working Drawings for each System Segment shall be submitted by TELERGY to NIAGARA's Engineering Department not less than ten (10) days prior to TELERGY's anticipated initiation of construction for such System Segment.

6.4.5 Following each submission of Working Drawings, NIAGARA shall, as soon as reasonably possible, but no later than ten (10) days of its receipt, approve the Working Drawings, in whole or in part ("Approved Drawings"), or raise any bona fide objections, in writing, describing in reasonable detail the basis for rejection and the necessary modifications to obtain NIAGARA's approval.

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6.4.6 A "bona fide objection" shall mean any condition that will cause the unreasonable interference with NIAGARA's operations, pose an unreasonable hazard to NIAGARA's personnel, customers, properties or NIAGARA Facilities, pose a violation of law, regulation, code and/or NIAGARA's Construction Standards and policies, unreasonably limit the use of the Right-of-Way, or cause a devaluation of NIAGARA's, its successors' or assigns, rights, title, and or interest in the Right-of-Way.

6.4.7 Upon receipt of any such objections, TELERGY shall either:
(i) correct the Working Drawings by making appropriate changes thereto and resubmitting them to NIAGARA for its approval, or (ii) dispute such objection, by referring the matter in question to NIAGARA for determination in the first instance, and without thereby waiving any rights in respect to the matter in controversy.

6.4.8 Upon such resubmission, NIAGARA shall raise any bona fide objections as set forth in Sections 6.4.5 and 6.4.6.

6.4.9 Notwithstanding anything herein to the contrary, due to the accelerated construction requirements of the installation of the Backbone Route, the parties agree to exercise their best efforts consistent with NIAGARA's public service responsibilities to assure all Working Drawings are reviewed and approved by NIAGARA in support of TELERGY's construction schedule.

6.4.10 Procedures and schedules for any necessary F.O.G. Wire installations on the Backbone Route will be developed jointly by NIAGARA and TELERGY, who will exercise their best efforts consistent with NIAGARA's public service responsibility to assure that all F.O.G. Wire installation(s) are completed as soon as practical.

6.4.11 All Working Drawings, Approved Plans, As-built Drawings, maps and survey and the copyrights therein, shall be the property of NIAGARA, and shall be subject to the confidentiality provisions of this Agreement.

6.4.12 Upon TELERGY's receipt of all Approvals in accordance with
Section 11 as well as the Approved Drawings and NIAGARA's approval of the Construction Plan, TELERGY's installation and construction in accordance with this Agreement and, particularly Sections 8-12, shall commence.

7 ADDITIONAL RIGHTS-OF-OCCUPANCY FOR SPUR ROUTES

7.1 Nothing herein shall be construed to provide TELERGY additional Right-of-Occupancy in NIAGARA Right-of-Way for the design, engineering, construction, installation,

11

operation, maintenance, repair, replacement, relocation, reinstallation and removal of any Spur Routes supplementing or extending the Backbone Network.

7.2 Any such Spur Routes required or desired by TELERGY for the design, engineering, construction, installation, operations, maintenance, repair, replacement, relocation, reinstallation and removal within NIAGARA Rights-of-Way, including the installation of fiber optic cable and related equipment for any such required or desired Spur Routes, shall be negotiated by the parties, subject to Section 14 herein.

7.3 TELERGY, however, shall have the right either upon the original installation or subsequently where appropriate, to install multiple fiber optic cables within the Right-of-Occupancy contemplated herein along the Backbone Route or portions thereof only to accommodate additional Spur Routes or interconnects, subject to Section 7.1 and 7.2.

7.4 Except for F.O.G. Wire, if TELERGY shall utilize any of NIAGARA's Facilities, buildings or structures for the installation of the TELERGY Facilities, TELERGY shall enter into an appropriate Agreement with NIAGARA and shall pay NIAGARA's then prevailing rates, charges or negotiated fees.

8 ENTRY AND NOTICE

8.1 In no event shall TELERGY, its employees, agents or contractors, be authorized to access NIAGARA Right-of-Way or Facilities without NIAGARA permission, which shall not be unreasonably withheld, and the presence of a NIAGARA engineer, inspector or escort. Except for emergency situations or situations requiring expeditious action, whenever TELERGY desires to enter upon a Right-of-Occupancy to construct, install, maintain, repair, reinstall, replace, relocate or remove any part or portion of the System or its Facilities, TELERGY shall submit written notice ("Entry Notice") in advance to NIAGARA.

8.2 If Entry Notice is required for proposed work that may disturb NIAGARA's operations, TELERGY's Entry Notice shall include in reasonable detail, the purpose of the entry, and methods of the proposed construction, repair, replacement or other work, and shall require approval from NIAGARA's engineer, and shall require written approval from NIAGARA'S Engineer.

8.3 Such plans and the timing of all such work shall be subject to the consent and approval of NIAGARA, and TELERGY's obtaining any required Approvals as provided in Section 10.

8.4 Prior to commencement of any cable installation, TELERGY shall provide required notification to the respective local Underground Utilities Locating Service as is appropriate for that area.

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8.5 TELERGY, upon not less than seven (7) working days prior notice to NIAGARA, may during any period of construction and installation of the Backbone Network or, following completion of construction thereof, in connection with post-construction cleanup activities. Maintenance or repairs, place inspectors, supervisors, or other reasonably necessary personnel on site for the protection of TELERGY's operation, property, Right-of-Occupancy, or the property of others.

8.6 For and during the term of the Agreement, NIAGARA shall not excavate for the purposes of longitudinal construction and/or insertion of cable or conduit within five (5) feet of the running line of the System other than for necessary operations of NIAGARA's Facilities. Except for NIAGARA System emergencies, all excavations within ten (10) feet of the running line of the System shall require not less than thirty (30) days prior written notice to TELERGY and shall be coordinated with TELERGY so as to prevent damage to the System and the disruption of transmission there over. Moreover, NIAGARA shall use its best efforts to minimize any disruptions of the System during the performance of any work by NIAGARA or others within the restricted area.

9 TELERGY WORK

9.1 Within ninety (90) days after the date of this Agreement, the parties shall jointly decide, consistent with NIAGARA's public service responsibilities, whether the Backbone Network shall be installed and constructed underground or overhead. Underground facilities shall be installed when technically, operationally and economically feasible.

9.2 A detailed description of the construction technique for each Segment of the Backbone Network shall be prepared and attached to this Agreement and incorporated herein, before any construction or installation commences.

9.3 TELERGY shall comply with NIAGARA's Construction Standards and policies as well as any Approval or Permits, in the construction of the System. Any material deviations from NIAGARA's standard engineering guidelines shall require prior written approval of NIAGARA.

9.4 Any changes necessary to NIAGARA's overhead and underground Facilities necessitated by this Agreement as reasonably determined by NIAGARA will be made by NIAGARA at TELERGY's sole cost and expense.

9.5 TELERGY shall install and construct the Backbone Network along the Backbone Route in three Segments. Segment I shall connect [***], on or before [***]. Segment II shall connect [***] to the aforementioned city that was not connected during Segment I, on or before [***]. Segment 3 shall connect [***],

CONFIDENTIAL

[***]     Confidential treatment has been requested with respect to material
          omitted on this page. The omitted portions have been filed separately
          with the Securities and Exchange Commission.

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      [***], on or before [***]. The locations and dates are critical to
      NIAGARA. Segment I must be installed and fully operational on or before
      [***]; Segment II must be installed and fully operational on or before
      [***]; and the entire Backbone Network along the Backbone Route must be
      fully operational and capable of carrying telecommunications traffic on or
      before [***].

      9.6   TELERGY shall exercise good faith efforts to obtain all Approvals
      and Permits, as set forth in Section 11, necessary for construction of the
      Backbone Network as expeditiously as possible. TELERGY shall notify
      NIAGARA in writing in the event any Approval or Permit is delayed,
      advising of the Approval outstanding, reasons for the delay, efforts to
      obtain the approval and minimize any delay, and the anticipated date of
      approval.

      9.7   TELERGY, at its sole risk, cost and expense, shall furnish all
      materials to be used in connection with this Right-of-Occupancy, the
      Backbone Network and Telecommunications System, and shall construct,
      install, operate, maintain, use, change, alter, relocate or remove TELERGY
      Facilities or any part thereof in accordance with the design and
      specifications on Approved Plan(s) and the terms and conditions of this
      Agreement, in a prudent and workmanlike manner, in conformity with any
      applicable statutes, rules, orders, regulations and specifications of any
      public body having jurisdiction thereof and in conformity with NIAGARA's
      standards, rules and policies, and so as not to interfere with or endanger
      any property, operations, maintenance, or employees of NIAGARA, or of
      other existing parties occupying or using the property of NIAGARA.

      9.8   Power sources installed by TELERGY shall meet all applicable
      National Electrical Codes, NIAGARA and state and local-ordinance
      requirements.

      9.9   NIAGARA's activities to support TELERGY's design, planning,
      construction, installation or MAINTENANCE efforts, and its conduct of
      periodic and post-construction inspections shall not operate to relieve
      TELERGY of any responsibility, obligation or liability specified in this
      Agreement. TELERGY shall be responsible for compliance with all Federal,
      state or local laws, rules, regulations, codes and/or ordinance governing
      the activities contemplated by this Agreement.

10    APPROVALS AND PERMITS

      10.1  TELERGY shall secure, at its expense, all necessary, final and
      unconditional approvals, permits and licenses (collectively referred to as
      "Approvals") from all governmental authorities and/or other parties having
      jurisdiction or approval rights with respect to the use and occupation of
      the Backbone Right-of-Way and the provision of telecommunications
      services, the installation, operation and maintenance of the Backbone
      Network and Telecommunications System within the Right-of-Occupancy, and
      the provision

CONFIDENTIAL

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          omitted on this page. The omitted portions have been filed separately
          with the Securities and Exchange Commission.

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of telecommunications services, specifically including, without limitation, any required environmental approvals. Environmental impact assessments or statements required, if any, shall be prepared by TELERGY at its sole risk, cost and expense, with copies provided to NIAGARA.

10.2 NIAGARA shall be required to obtain Approval of this Agreement by the Public Service Commission of the State of New York, at TELERGY's sole cost and expense.

10.3 TELERGY shall be responsible for obtaining from third parties, private entities and/or public agencies any and all necessary easements, rights of way, licenses, permits, permissions, certifications or franchises to construct, operate and/or maintain TELERGY Facilities on private or public property at the location of TELERGY's Facilities.

10.4 NIAGARA agrees that it shall provide reasonable cooperation to TELERGY in connection with TELERGY's efforts to obtain such necessary permits and consents.

10.5 If NIAGARA's permission or consent in writing is required by a governmental or regulatory agency in conjunction with the processing or application by TELERGY for such permits and consents, or if NIAGARA is required to obtain any governmental or regulatory approvals with respect to TELERGY's proposed activities or any related NIAGARA activities necessary to the completion of TELERGY's proposed activities, NIAGARA shall provide such consent, provided, however, that NIAGARA shall have the right to review and approve the terms and conditions, if any, that may be required or requested of NIAGARA by said governmental or regulatory agency, which such approval shall not be unreasonably withheld.

10.6 NIAGARA shall have the right to review and approve the terms and conditions of any such Approvals to insure that they are compatible with the continued use and maintenance of NIAGARA's Facilities and Rights-of-Way.

10.7 If required by any law or regulation and upon request, NIAGARA agrees to review and, if approved, shall cause its authorized officers or representatives to execute any applications or other documentation prerequisites to securing the Approvals.

10.8 Following the issuance of any necessary Approvals in respect of any System Segment, and upon compliance with the terms and conditions of this Agreement, TELERGY, its employees, agents, contractors and/or subcontractors shall have the right to construct the System within the Right-of-Occupancy within any Right-of-way in accordance with the Approved Plans.

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11 CONSTRUCTION AND INSTALLATION

11.1 TELERGY shall furnish to NIAGARA a Construction Plan consisting of a proposed schedule of engineering and design, commencement and completion dates for receipt of Approvals as set forth in Section 10 herein, and dates for construction, installation and implementation of the Segments of the Backbone Network. Time being of essence with respect to Sections 3.6, 9.5 and 13 herein, said schedule shall not otherwise be binding on the parties but shall be an indication of proposed construction and installation, unless otherwise specified in this Agreement.

11.2 Except as herein otherwise expressly set forth, construction and installation of the Backbone Network and the furnishing of all labor, materials and equipment necessary to construct and install the same, shall be at TELERGY's expense. All such work shall be performed in a good and workmanlike manner and in compliance with all laws, ordinances, codes and regulations, and Approvals of any governmental authorities having jurisdiction there over, and any appropriate NIAGARA construction standards, practices and/or procedures.

11.3 All access to areas in and around NIAGARA Facilities shall be coordinated by NIAGARA in accordance with TELERGY's anticipated construction schedule.

11.4 TELERGY shall have the right to select the type of fiber optic cable to be installed in NIAGARA's Right-of-Way and Facilities, subject to NIAGARA's review and approval, which shall not be unreasonably withheld.

11.5 TELERGY Facilities shall be placed, maintained, relocated or removed in accordance with NIAGARA's requirements and specifications, including but not limited to the current editions of NIAGARA's Code Rule 53, Underground Standards for Construction, the National Electric Code (NEC), the National Electrical Safety Code (NESC), Rules and Regulations of the Occupational Safety and Health Act (OSHA), and all Approvals, or rules or regulations of any governing authority having jurisdiction. Where a difference in specification may exist, the more stringent shall apply.

11.6 TELERGY Facilities shall not physically, electronically or inductively, or otherwise, interfere with NIAGARA's Facilities.

11.7 NIAGARA reserves the right to specify the type of construction standards and practices required in situations not otherwise covered in this Agreement. In such cases, NIAGARA, will furnish to TELERGY written materials, if available, specifying and explaining the required construction.

11.8 TELERGY Facilities installation may be performed, at TELERGY's discretion, by NIAGARA, NIAGARA's designated contractor upon delivery of any appropriate facilities by

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TELERGY, or by TELERGY or its subcontractor, following completion of Make-Ready Work.

11.9 In the event that TELERGY Facilities installation is performed by a contractor or sub-contractor, NIAGARA and TELERGY each shall have the right to approve such contractor or sub-contractor, which approval shall not be unreasonably withheld; however, TELERGY shall be responsible for all acts of its contractors and shall ensure its contractors compliance with the provisions of this Agreement. Following completion of TELERGY Facilities installation, TELERGY shall have the right to conduct testing in accordance with NIAGARA approval to insure that agreed-upon design specifications have been met.

11.10 NIAGARA reserves the right to prohibit all TELERGY Facilities other than fiber optic cable, splice closures and repeaters from its manholes, pull boxes and hand holes. Splices in TELERGY's fiber optic cables shall be located only in manholes, pull boxes or hand holes.

11.11 TELERGY shall be responsible for any problems from, or in, TELERGY Facilities, unless such problem was caused by the intentional or reckless act or omission of NIAGARA.

11.12 Non-Cable Facilities.

11.12.1 As requested by TELERGY, NIAGARA, where franchised and reasonable, shall provide to TELERGY at the regenerator sites, metered electric service, the cost of which shall be paid by TELERGY in accordance with applicable New York State Public Service Commission approved tariffs.

11.12.2 TELERGY shall be entitled to install its regenerator facilities for its Telecommunications System along the Backbone Route. The location of such Facilities shall be subject to NIAGARA's advance written approval. No regenerator facility shall be located on any portion of such Rights-of- Way or other NIAGARA property identified by NIAGARA as unavailable due to a planned NIAGARA use at such location. Whenever possible, Niagara agrees to locate TELERGY's regenerator facilities with sites on the Backbone Route approximately [***] feet by [***] feet in size, which sites will be located at or near power plants or substations or as identified by TELERGY, which shall be deemed part of the Right-of-Occupancy hereunder.

11.12.3 During construction of the System, NIAGARA agrees to allow TELERGY and its contractors and subcontractors, without charge, to use portions of the Backbone Route Rights-of-Way at NIAGARA pre-approved locations only for the erection of temporary structures and fences to protect TELERGY's construction materials, equipment and fuel, provided no adverse impact to NIAGARA's Facilities, operations or environmental requirements shall result therefrom and further provided

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           that any such structures and/or fences shall be removed by TELERGY
           following completion of construction of the applicable System
           Segment.

     11.13 Cable Installation.

           11.13.1  Cables crossing under public roadways shall be at a location
           and depth as determined by state and local conditions, laws,
           regulations, Approvals or orders of public authorities, and shall
           also be in accordance with the Approved Drawings, Construction Plan
           and Construction Standards.

           11.13.2  Cables crossing over or under other existing public
           utilities shall be located and installed in accordance with local
           conditions, laws, regulations, Approvals, or orders of public
           authorities, and any requirements of the New York State Public
           Service Commission.

           11.13.3  If, in the conduct of work, any changes or alterations,
           permanent or temporary, in existing pipelines, sewers, drains,
           conduits, fences, power, signal or communication lines or other
           utilities are necessary, such changes shall be made or caused to be
           made, by TELERGY and at TELERGY's sole risk, cost and expense, in
           accordance with Section 8.1 herein.

           11.13.4  Emergency cable installation, Maintenance and repair methods
           shall comply with standards and policies to be developed by the
           parties.

           11.13.5  TELERGY, at its sole cost and expense, shall furnish, erect
           and thereafter maintain cable markers designating all TELERGY
           underground Facilities. Such markers shall be installed along the
           Backbone Network running line. The cable markers shall be placed in
           conformity with industry standards or as otherwise approved by
           NIAGARA.

12   MAINTENANCE AND OPERATION

     12.1  Within six (6) months following completion of any Segment, TELERGY
     shall furnish to NIAGARA final, executed "As Built Drawings," of
     reproducible quality, depicting the Backbone Network, or System Segment,
     which, as the same may be amended from time to time and/or as the running
     line may from time to time be shifted by settlement, natural forces or
     casualties, shall constitute the locations of the Right-of-Occupancy.

     12.2  As Built Drawings shall become Exhibits to and form a part of this
     Agreement upon verification and approval by NIAGARA.

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12.3 Following the completion of the initial construction of any System Segment, the operation, maintenance, repair, replacement, reinstallation, relocation and/or removal thereof shall be solely at TELERGY's cost and under its control, except as otherwise set forth in this Agreement, including but not limited to Sections 8 and 10 governing Approvals and Entry Notice.

12.4 Unless prohibited by law or any governmental agency ruling or by local franchise, TELERGY shall have the right to leave in place within the Right-of-Way rather than remove therefrom any buried cable(s), conduit or other appurtenances so placed.

12.5 All Maintenance, repair and restoration ("Maintenance") costs related to the Backbone Network, the Telecommunication System and TELERGY Facilities shall be the responsibility of TELERGY.

12.6 All Maintenance associated with TELERGY Facilities, including ongoing operational activities as well as repairs and service interruptions of TELERGY's Facilities, shall be the ultimate responsibility of TELERGY subject to NIAGARA review and inspection. TELERGY shall be entitled, at its sole cost, to hire a qualified telecommunications maintenance company to perform Maintenance activities with respect to TELERGY Facilities, subject to NIAGARA approval, which shall not be unreasonably withheld.

12.7 All Maintenance associated with NIAGARA Facilities resulting from or attributable to TELERGY's Right-of-Occupancy shall be the responsibility of NIAGARA; however TELERGY shall be responsible for all associated costs.

12.8 To the extent that NIAGARA's maintenance of a Right-of-Way encompasses a TELERGY Right-of-Occupancy, NIAGARA will extend such standard maintenance services to cover such Right-of-Occupancy without cost to TELERGY, unless the existence of TELERGY's Facilities significantly increases the cost-associated with such Maintenance.

12.9 Upon a request from TELERGY to perform Maintenance with respect to NIAGARA's Facilities, recognizing that time may be of the essence, NIAGARA shall investigate the need for such Maintenance, within a reasonable period of time. Maintenance of NIAGARA Facilities shall be performed only by NIAGARA's, at its discretion based, on its investigative findings.

12.10 With respect to Maintenance of TELERGY Facilities, a NIAGARA inspector, engineer or escort shall be present and shall be authorized to terminate such activities when, in the inspector's sole discretion, said activities pose a danger to NIAGARA's Facilities.

12.11 In no event shall access to NIAGARA's Facilities or Right-of-Way be authorized without the presence of a NIAGARA inspector or escort. Notwithstanding the foregoing provision, NIAGARA agrees that if TELERGY designates a contractor for Maintenance, the

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Maintenance company shall be granted access to the NIAGARA Facilities and TELERGY's Facilities, under such terms and conditions as may be set by NIAGARA, and within such fixed period of time as may be agreed upon between TELERGY, NIAGARA and the selected contractor.

12.12 TELERGY shall have the right, subject to NIAGARA's availability, to inspect its Facilities periodically, upon thirty (30) days prior written notice to NIAGARA. Such inspection costs shall be borne solely by TELERGY. No inspection shall be authorized and/or conducted by TELERGY without the presence of NIAGARA's inspector or escort.

13 NIAGARA CAPACITY, RATES, CHARGES AND COSTS

13.1 Niagara Capacity.

13.1.1 In consideration of the granting of the Right-of-Occupancy within the Backbone Route Right-of-Way, TELERGY initially shall provide Niagara with [***] of capacity of the Backbone Network along the entire Backbone Route ("NIAGARA Capacity").

13.1.2 The NIAGARA Capacity and any NIAGARA Spur Capacity shall be delivered to selected NIAGARA Points-of-Presence, which sites may change from time-to-time during the term of this Agreement. The NIAGARA Capacity shall be delivered to NIAGARA selected Points-of-Presence in [***] to ensure that [***] are connected to the Backbone Network.

13.1.3 In each city, the NIAGARA Capacity dedicated from TELERGY Facilities in such cities to NIAGARA's Facilities in such cities shall be engineered and installed by TELERGY to initially provide NIAGARA with lit fiber in the amount of [***], delivered to the specified NIAGARA lightwave distribution panel. Service will be delivered by TELERGY to NIAGARA at the [***] level but NIAGARA is solely responsible for equipment necessary to multiplex or demultiplex.

13.1.4 TELERGY shall engineer, furnish, install and maintain all electronics, cabling, and equipment to each [***] demarcation in the above locations. Such demarcation will be a standard [***] interface termination (fiber distribution panel).

13.1.5 NIAGARA shall engineer, furnish, install and maintain all electronics, cabling, etc, beyond the lightwave distribution panel demarcation in the above locations. NIAGARA may provide access, floor space and support service, such as

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         commercially available electricity and HVAC, at NIAGARA's Facilities as
         listed above where available at NIAGARA's discretion.

         13.1.6    The parties agree that the baseline NIAGARA/TELERGY ratio in
         respect of the System shall be defined within ninety (90) days after
         the System is designed in accordance with this Agreement.

     13.2 NIAGARA SPUR CAPACITY.

         13.2.1    At its own expense, TELERGY shall have the right to replace
         and upgrade the System due to changes in technology as long as the
         NIAGARA Capacity is not adversely affected. In the event of any such
         replacement and upgrade of the capacity of the Backbone Network,
         TELERGY shall increase the NIAGARA Capacity and, if applicable, the
         NIAGARA Spur Capacity proportionally as described below.

         13.2.2    NIAGARA shall have the right to receive additional NIAGARA
         Spur Capacity as a proportionate increase in the capacity of the
         Backbone Network at the [***] level in order to maintain, but
         not exceed, the baseline NIAGARA/TELERGY established pursuant to
         13.1.6, provided that such proportionate increase shall be limited to a
         maximum total equivalent capacity of [***].

         13.2.3    TELERGY agrees to inform NIAGARA in the event that NIAGARA's
         proportionate share of the installed and in service NIAGARA Capacity
         exceeds [***].

     13.3 The NIAGARA Capacity and, if applicable, the NIAGARA Spur Capacity
     shall be owned by NIAGARA and may be utilized for any purpose whatsoever
     at NIAGARA's sole discretion.

     13.4 In addition to constructing, installing and maintaining the NIAGARA
     Capacity and Spur capacity, TELERGY shall be responsible for all costs
     arising out of or related to this Right-of-Occupancy Agreement.

14   MODIFYING NIAGARA OR TELERGY FACILITIES

     14.1 Should NIAGARA, for its own service requirements, need to modify
     existing or install additional NIAGARA Facilities using Right-of-Way
     subject to the TELERGY Right-of-Occupancy, NIAGARA shall notify TELERGY.

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14.1.1 Except in an emergency, a written notice shall be sent as soon as possible before any such installation or modification is implemented or installed, and NIAGARA shall pay costs for the rearrangement of TELERGY's Facilities.

14.1.2 In the event TELERGY is responsible for costs pursuant to
Section 14.1.1, TELERGY shall have the option either to (i) pay NIAGARA the costs thereof for the rearrangement of TELERGY's Facilities, or (ii) arrange for such reinstallation in accordance with the terms and conditions of this Agreement.

14.1.3 TELERGY shall have the right to have its inspectors, at its sole cost and expense, present during any relocation work by NIAGARA in accordance with Section 12.14.

14.1.4 Within seven (7) working days of the date of completion of NIAGARA's relocation and post-construction inspection, it shall notify TELERGY in writing that the relocation is completed.

14.1.5 In the event TELERGY or its contractors performs relocation activities, TELERGY shall make the necessary arrangements to ensure that NIAGARA's inspectors are available.

14.1.6 TELERGY shall notify NIAGARA within seven (7) working days of the completion of any TELERGY Facilities. TELERGY shall make such arrangements as may be necessary to enable NIAGARA to inspect such Facilities. If TELERGY's Facilities are not deemed in compliance with NIAGARA engineering and/or operating standards, applicable Approvals, and safe work practices on initial inspection by NIAGARA, subsequent inspections to determine if any appropriate corrective action has been taken may be made by NIAGARA. TELERGY shall reimburse NIAGARA for the cost of any inspections of TELERGY's Facilities.

14.2 Should TELERGY, for its own business requirements, require or desire additional Rights-of-Occupancy or NIAGARA Facilities, TELERGY shall notify NIAGARA in writing and submit an Application for Right of Occupancy (Attachment B), if appropriate.

14.2.1 NIAGARA shall process any request in the same manner and subject to the same conditions and provisions set forth in this Agreement, advising TELERGY of NIAGARA's acceptance, rejection or modification of said request.

14.2.2 TELERGY shall reimburse NIAGARA for actual costs involved for such review, processing and modifications, upon submission of documented invoices.

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15 UNAUTHORIZED USE NIAGARA FACILITIES

15.1 If any TELERGY Facilities shall be found occupying NIAGARA Facilities or Right-of-Way for which a Right-of-Occupancy has not been granted by NIAGARA, NIAGARA, without prejudice to its other rights or remedies under this Agreement, including termination or otherwise, may impose a charge and require TELERGY to submit in writing, within ten (10) days after receipt of written notification from NIAGARA of the unauthorized occupancy, an Application for a Right-of-Occupancy (Exhibit B). If such Application is not received by NIAGARA within the specified time period, NIAGARA may remove TELERGY's Facilities without liability, and the cost of such removal shall be borne by TELERGY.

15.2 For the purpose of determining the applicable charge, the unauthorized occupancy of NIAGARA's Facilities or Right-of-Way shall be treated as having existed for a period of [***] prior to its discovery; or for the period beginning with the date of the initial Agreement, whichever period shall be shorter, and NIAGARA's prevailing rates, charges and fees shall be due and payable forthwith whether or not TELERGY is permitted to continue the occupancy.

15.3 Should NIAGARA remove TELERGY's Facilities from NIAGARA's Facilities or Right-of-Way under Section 15.1 or 18.5, NIAGARA will deliver to TELERGY the Facilities so removed upon payment by TELERGY of the cost of removal, storage and delivery, and all other amounts due NIAGARA. NIAGARA shall have a lien on TELERGY's Facilities removed from NIAGARA's Facilities or Right-of-Way, with power of public or private sale, to cover any amounts due NIAGARA. Such liens shall not operate to prevent NIAGARA from pursuing, at its option, any other remedy in law, equity or otherwise.

15.4 No act or failure to act by NIAGARA with regard to an unauthorized occupancy shall be deemed as a Right-of-Occupancy for the occupancy, and, if any Right-of-Occupancy should be subsequently issued, it shall not operate retroactively or constitute a waiver by NIAGARA of any of its rights or privileges under this Agreement, or otherwise, provided, however, that TELERGY shall be subject to all liabilities, obligations and responsibilities of this Agreement in regard to said unauthorized occupancy from its inception.

16 CONDEMNATION, BANKRUPTCY, AND OTHER TRANSFERS

16.1 Nothing contained in this Agreement shall be construed as prohibiting NIAGARA from undertaking any merger, reorganization, or acquisition activity whether voluntary or involuntary, so long as such activity shall not hinder, impede, alter or vary the terms and conditions of the Right-of-Occupancy conferred herein.

16.2 TELERGY shall not assign, sub-license, sublet or transfer the rights associated with this Agreement of the Right-of-Occupancy, granted herein, and such rights shall not inure to

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     the benefit of TELERGY's successors or assigns without the prior written
     consent of NIAGARA, as well as Public Service Commission and other
     regulatory bodies' review and approval, if required. In the event such
     consents are granted by NIAGARA, the provisions of this Agreement shall
     apply to and bind TELERGY's successors and assigns.

     16.3   Bankruptcy. Subject to the rights of the principals of TELERGY, in
     the event that either of the principals of TELERGY is involved in a
     bankruptcy as defined in Section 1.5 of this Agreement, or in the event
     that the interest of TELERGY Facilities or the Right-of-Occupancy become
     the subject of garnishment, attachment or tax lien proceeding, and in the
     further event that such a petition and/or proceeding shall not be quashed
     or removed within 45 days after filing, service or levy, whichever first
     occurs, NIAGARA shall have the right and option within 15 days after the
     expiration of such 45-day period to purchase "proportionately the interest
     incumbered as the "computed" value payable in cash within that 15-day
     period.

     "Proportionately" shall mean that portion of the undivided interest in the
     property involved in such bankruptcy, garnishment, attachment or tax lien
     proceeding, which the undivided interest owned by a TELERGY bears to all of
     the undivided interest in the subject property other than that involved in
     such bankruptcy, garnishment, attachment of tax lien proceeding.

     "Computed value" shall mean the value of the undivided interest in the
     subject property as computed by the regularly retained certified public
     accountants of TELERGY. Such computation shall be binding and conclusive
     upon the parties absent manifest error.

     16.4   Right of First Refusal. There shall be no sale, exchange or other
     transfer or assignment of the whole or any portion of any assets of TELERGY
     without the prior written consent of NIAGARA. NIAGARA shall have the right,
     in the first instance, to acquire the subject assets based upon the
     computed value as defined in Section 16.3 herein.

     16.5   Relocations. In the event that a portion of NIAGARA's Right-of-Way
     or NIAGARA Facilities, where TELERGY has a Right-of-Occupancy occupied by
     TELERGY Facilities, is required for NIAGARA's gas and electric business,
     NIAGARA will exercise a best effort approach for TELERGY's continued use of
     the Right-of-Occupancy in Right-of-Way or NIAGARA Facilities. However,
     where this is not appropriate, NIAGARA will, where feasible, with F.O.G.
     Wire supplied by TELERGY, pull in, attach and make ready for TELERGY
     connection, the F.O.G. Wire on the rebuilt/relocated sections of the
     Right-of-Way or NIAGARA Facilities.

          16.5.1   TELERGY, at its sole cost, assumes all responsibility for all
          installations, training, materials, splices and bypass necessary to
          reconnect the relocated portion of the System to the balance of the
          Backbone Network. Additionally, TELERGY agrees that such F.O.G. Wire
          shall meet NIAGARA's electrical and structural design requirements and
          all applicable Approvals.

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16.5.2 If NIAGARA is required by any municipal or state public authority or agency to relocate its Right-of-Way or NIAGARA Facilities which contain TELERGY's Facilities, TELERGY shall pay its proportionate share of total relocation costs. The cost shall include all relocation and reasonably incurred "tie-up" costs under the circumstances at the usual rates recoverable by NIAGARA in relocation projects.

16.6 Condemnation. Should any portion of the Right-of-Occupancy along the Backbone Route used by TELERGY for Backbone Network be appropriated and/or acquired by condemnation or the power of eminent domain by any public or quasi-public authority, then the Rights-of-Occupancy hereby granted to the extent appropriated shall terminate, but this Agreement shall otherwise remain in full force and effect.

16.6.1 If any taking includes any portion of the Backbone Network, TELERGY's interest shall be severed from NIAGARA's interest in such proceeding and the parties agree to have the condemnation awards specifically allocated between and payable in accordance with TELERGY's interest, both physical and occupational, including any incremental value of an affected Right-of-Way by virtue of the installation of the Backbone Network, and NIAGARA's interest, both physical and ownership rights. In addition, if permitted pursuant to applicable law, TELERGY shall be entitled to make a claim for, and then receive, the portion of the award attributable to either the entire amount if separately allocated or the proportionate share if combined in a lump sum award, the Backbone Network and/or damages payable on account of Backbone Network relocation expenses.

16.6.2 To the extent it has knowledge, NIAGARA shall notify TELERGY immediately of any condemnation threatened or filed against any portion of the Right-of-Way along the Backbone Route which includes TELERGY's preliminary route designation plan or could include any part of the System within a Right-of-Occupancy. NIAGARA further agrees not to sell or convey any portion of a Right-of-Occupancy on a Right-of-Way containing any Facilities to such acquiring authority in lieu of condemnation without prior notice to and approval by TELERGY.

17. TERMINATION OR DEFAULT BY TELERGY

17.1 TELERGY shall not terminate its use of the System (Discontinuance) or any portion thereof except as set forth in this Section 17 during the first twenty-five (25) years of this Agreement ("Initial Term").

17.2 If TELERGY terminates this Agreement during the first twenty-five
(25) years of the Initial Term, or the operation and Maintenance of the Backbone Network, or any portion thereof, without NIAGARA approval in writing, TELERGY shall (i) at TELERGY's sole cost, pay NIAGARA a one time sum of seven thousand dollars ($7,000.00) per mile of

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NIAGARA's Right-of-Way effected by the portion of the Backbone Network so terminated, and (ii) make business arrangements for the provision of capacity up to an amount that is equivalent to the NIAGARA Capacity and any NIAGARA Spur Capacity in service at the time of termination, as determined by NIAGARA.

17.3 The per-mile-severance-payment figure shall be reduced annually on the anniversary of the Commencement Date by one/twenty-fifth (1/25th), commencing with the first anniversary thereof.

17.4 NIAGARA shall advise TELERGY of its Capacity requirements pursuant to Section 17.2 upon its receipt of notice from TELERGY that TELERGY has determined to terminate its operation and maintenance of the Backbone Network, or a portion thereof.

17.5 If TELERGY fails to satisfy the requirements and obligations set forth in Sections 3.7 and 9.5 of this Agreement, TELERGY shall pay any and all costs associated with, related to or arising from NIAGARA's relocation or extension of its private microwave system, including but not limited to, reasonable attorney fees and disbursements.

17.6 If TELERGY fails to satisfy the requirements set forth in Sections 3.6, 9.5 and/or 13, TELERGY shall pay any and all costs associated with NIAGARA's relocation or extension of its private microwave system.

18 TERMINATIONS OF AUTHORIZATIONS

18.1 Regardless of the reason for the valid termination of this Agreement, TELERGY shall reimburse NIAGARA for [***] incurred in connection with this Agreement.

18.2 In addition to rights of termination provided to NIAGARA under other provisions of this Agreement, NIAGARA shall have the right to terminate a Right-of-Occupancy granted pursuant to the provisions of this Agreement where:

(a) TELERGY's Facilities are maintained or used in violation of any law or in aid of any unlawful act or undertaking, or

(b) TELERGY ceases to have authority to construct and operate its Facilities on public or private property covered by the Right-of-Occupancy; or

(c) TELERGY fails to comply with any of the terms and conditions of this Agreement or defaults in any of its obligations thereunder.

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          (d)   TELERGY's Facilities occupy NIAGARA's Facilities or Right-of-way
          without having first been issued a Right-of-Occupancy therefor; or

          (e)   TELERGY, subject to the provisions specified in this ??? should
          permanently cease to provide telecommunications services over its
          Facilities, which shall mean for a period of six (6) consecutive
          months.

          (f)   TELERGY Facilities or Right-of-Occupancy are used by others not
          a party to this Agreement without the prior written consent of
          NIAGARA, which consent shall not be unreasonably withheld, provided
          that such use shall not be construed as including use by TELERGY's
          customers as provided for in this Agreement.

          (g)   TELERGY sublets or apportions part of a Right-of-Occupancy to an
          entity not a party to this Agreement without the prior written consent
          of NIAGARA, which consent shall not be unreasonably withheld.

          (h)   TELERGY's Right-of-Occupancy can be terminated by NIAGARA
          wherever and whenever a governmental agency requires the same, in
          which case NIAGARA will remove and return TELERGY's Facilities to
          TELERGY, at TELERGY's expense.

          (i)   TELERGY's insurance carrier shall at any time notify NIAGARA
          that the policy or policies of insurance as required in Section 26
          will be or have been canceled or amended so that those requirements
          will no longer be satisfied; or

          (j)   TELERGY shall fail to pay any sum due or to deposit any sum
          required under this Agreement, within thirty (30) days following
          TELERGY's receipt of written notice requiring such payment or deposit
          from NIAGARA.

          (k)   any authorization which may be required by any governmental or
          private authority for the construction, operation and maintenance of
          TELERGY's Facilities in NIAGARA Facilities or Right-of-Way is denied,
          revoked or canceled.

          (l)   the Public Service Commission of the State of New York or the
          Federal Communications Commission makes a determination that TELERGY's
          Right-of-Occupancy would make NIAGARA a telephone corporation for
          purposes of Commission regulation under the Public Service Law.

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     18.3 Notwithstanding the above, TELERGY shall have the right to cure the
     above stated defaults within thirty (30) days of written notice by NIAGARA
     to TELERGY of said default. Upon receipt of said written notice and within
     five (5) days, TELERGY shall notify NIAGARA of its intention to cure the
     default within the said 30-day period set forth above. If TELERGY fails to
     give such five days notice or if TELERGY advises NIAGARA that it does not
     intend to cure, then TELERGY shall be deemed in default and the thirty (30)
     day period for cure shall not apply.

     18.4 In the event of termination of any of TELERGY's authorizations
     hereunder, or at the expiration of the Term of this Agreement, NIAGARA will
     remove, abandon, or maintain for NIAGARA's use, TELERGY's Facilities within
     ninety days of the effective date of the termination; provided, however,
     that TELERGY shall be liable for and pay all fees and charges pursuant to
     provisions of this Agreement to NIAGARA until TELERGY's Facilities are
     actually removed, abandoned or maintenance is taken over by NIAGARA,
     whichever comes first and provided further that each party shall be
     required to perform any and all obligations under this Agreement until such
     time. NIAGARA shall have the right to remove such Facilities at TELERGY's
     expense and without any liability on the part of NIAGARA for damage or
     injury to such Facilities or interruption of TELERGY's services except for
     liability for damage or injury to such Facilities caused by the negligence
     of NIAGARA or its agents or employees. At NIAGARA's sole option, NIAGARA
     may elect to remove TELERGY's Facilities, or any portion thereof, abandon
     such Facilities in place, or maintain such Facilities for its own use.

     18.5 When TELERGY's Facilities are removed, abandoned or maintained by
     NIAGARA, no further Right-of-Occupancy shall be permitted until TELERGY has
     first complied with all of the provisions of this Agreement as though no
     such Right-of-Occupancy had been previously made and all outstanding
     charges due to NIAGARA for Right-of-Occupancy have been paid in full.

19   NIAGARA ABANDONMENT

     19.1 NIAGARA may at any time and for any reason abandon Right-of-Way if
     NIAGARA no longer requires it for its public service or corporate purposes,
     provided however that in the event of a voluntary NIAGARA abandonment of
     Right-of-Way that includes any portion or portions of the Backbone Route or
     Spur Route Right-of-Occupancy within which TELERGY shall have installed its
     Facilities, NIAGARA shall give TELERGY not less than six (6) months prior
     written notice.

     19.2 In the case of a proposed involuntary NIAGARA abandonment, such as one
     due to a calamity or earthquake or other natural calamity rendering the
     Backbone Route or Spur Route Right-of-Way, or portions thereof, unusable,
     of any portion or portions of said Backbone Route or Spur Right-of-Way,
     within which TELERGY shall have installed

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its Facilities, NIAGARA shall give TELERGY written notice of any such abandonment as soon as practical before any such abandonment ("Involuntary Notice").

19.3 In any event, where the NIAGARA abandonment is voluntary, TELERGY shall have the option to continue to use the affected Right-of-Occupancy, to the extent possible. If TELERGY should exercise such option to continue to use a NIAGARA abandoned Right-of-Way, TELERGY shall thereafter be responsible for the maintenance of the applicable Right-of-Way.

19.4 If an abandoned portion of the Backbone Route or Spur Route Rights-of-Way shall be acquired, obtained, or sold to any entity other than TELERGY, such sale shall be subject to the existing Rights-of-Occupancy and the rights granted to TELERGY under this Agreement. The obligations of the respective parties under this article shall survive the Expiration Date in respect of any occurrences within the Term.

20 NIAGARA'S EXPENSES AND EMPLOYEE COSTS

20.1 NIAGARA's costs and expenses for [***].

20.2 Such expenses indicated in Section 21.1 shall include, but not be limited to [***].

21 INDEPENDENT CONTRACTOR STATUS

NIAGARA reserves no control whatsoever over the employment, discharge, compensation of or services rendered by TELERGY's employees or contractors, and it is the intention of the parties that TELERGY shall be and remain, an independent contractor and that nothing herein shall be construed inconsistently with TELERGY's status as an independent contractor or as creating or implying any partnership or joint venture between NIAGARA and TELERGY.

29

CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted on this page. The omitted portions have been filed separately with the Securities and Exchange Commission.


22 TAXES

22.1 TELERGY shall pay all transfer taxes, documentary stamps, recording costs or fees, or any similar expense in connection with the recording or filing of any memoranda or short form of the Agreement describing the Right-of-Occupancy granted to TELERGY hereby.

22.2 TELERGY further agrees that if it is determined by any state or local governmental authority that the sale, acquisition, license, grant, transfer or disposition of any part or portion of the Rights-of-Occupancy herein described requires the payment of any taxes, including but not limited to sales, use, real property transfer gains taxes, or tax on the furnishing of utility services under any statute, regulation or rule, TELERGY shall pay the same, plus any penalty or interest thereon, directly to said taxing authority, and shall defend and hold NIAGARA harmless therefrom; provided, however, TELERGY's said obligation to hold NIAGARA harmless shall not apply to any penalty or interest due in respect of the delinquent payment of any such tax where the delinquency shall result due to NIAGARA's failure to promptly notify TELERGY of any known assessment and/or levy of such tax and/or to send TELERGY any invoice or bill in respect thereof.

22.3 TELERGY shall pay all annual or periodic real property, personal property, gross receipts, franchise tax or other taxes levied or assessed upon the Right-of-Occupancy, Backbone Network, or Telecommunications System, or on account of their existence, and shall indemnify, defend and hold harmless NIAGARA against the payment thereof. TELERGY shall be responsible for the filing of any and all returns or other filings in respect of such personal property taxes.

22.4 NIAGARA shall indemnify and hold harmless TELERGY from and against any annual or periodic taxes levied or assessed in respect of the Rights-of-Way, exclusive of the Right-of-Occupancy, Backbone Network, or Telecommunications System, including net income taxes, increases in such taxes.

22.5 To the extent that NIAGARA is required to make any kind of submission or filing with any governmental or regulatory authority which could effect the amount of any tax that TELERGY must pay pursuant to this Agreement, NIAGARA shall coordinate such submission or filing, and the information contained therein, with TELERGY. Further, NIAGARA agrees that it shall provide TELERGY prompt notice of the receipt of any notice of assessment in respect of the Rights-of-Way, or any portion thereof, which may include as an increment of the amount of such assessment a sum which is attributable to this Agreement and/or the Backbone Network.

22.6 TELERGY shall have the right to protest any such levy or assessment in respect of any such tax or other fee or charge which TELERGY is obligated to pay in accordance with the Agreement, or to make claim for refund, rebate, reduction or abatement of any of said

30

taxes. Further, TELERGY shall have the right to protest any assessment of which it has been given notice pursuant to this Section. NIAGARA shall cooperate, where appropriate, with TELERGY, at TELERGY's cost and expense, including reasonable attorney's fees, in the prosecution of any protest regarding the assessment and/or levy or any claim for refund, rebate, reduction or abatement of said taxes.

23 NOTICES

23.1 Any notice to be given to NIAGARA under this Agreement shall be sent by certified mail or overnight express delivery:

(one copy each to):

(1) Director-Net. Mgmt. & Comm.


NIAGARA Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, NY 13202

and

(2) NIAGARA Project Mgr. - TELERGY Project Network Management & Comm. Department NIAGARA Mohawk Power Corporation 300 Erie Boulevard West Syracuse, NY 13202

23.2 Any notice given to TELERGY under this Agreement shall be sent by certified mail or overnight express delivery:

(one copy each to):

(1) KCI Network Services, Inc. 5784 Widewaters Parkway
Dewitt, New York 13214

and

(2) Plum Street Enterprises Vice-President of Mass Marketing 300 Erie Boulevard West Syracuse, New York 13202

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23.3 Notice shall also be given to such other parties as may be designated in writing to the other party.

23.4 Unless otherwise herein set forth, notices shall be sent, postage prepaid, either by registered or certified U.S. Mail, Return Receipt Requested, or by overnight express delivery service, and shall be deemed served or given when received by the addressee, as evidenced by the date of the Return Receipt or the receipt provided by the delivery service.

23.5 In case of an emergency demanding immediate examination or repairs of the Facilities by NIAGARA, notice shall be given by either party to the other in person or by telephone to the emergency response center designated in writing by each party to the other. Each party giving such notice shall follow up with written notice within three (3) business days.

23.6 During the maintenance and operation phase, in order to secure safety of NIAGARA's operations, employees and crews, and of TELERGY employees and/or contractors, Entry Notices shall be given to NIAGARA's appropriate Regional Control Operator by TELERGY.

24 LIABILITIES AND INDEMNIFICATION

24.1 To the fullest extent permitted by law, TELERGY (in this Section 24 sometimes referred to as "Indemnitor") agrees to defend, indemnify and save NIAGARA, its agents and employees (sometimes referred to as "Indemnitee") harmless from and against any and all liabilities, cost, suit charge, expenses, claims, losses, damages, cause of action, bodily injury or death of any person whomsoever, including employees of the parties, or damage to any property, real and personal, including environmental damages, and economic damages to property of NIAGARA or TELERGY, whether owned, leased or licensed, including but not limited to TELERGY's Facilities, and all costs and expenses, including, but not limited to attorneys' fees and disbursements incurred or sustained by the Indemnified party in any action or proceeding between Indemnitor and the Indemnified party, or between the Indemnified party and any third party, or otherwise incurred or sustained in enforcing this indemnification, caused by, arising out of or in any way connected with this Right-of-Occupancy or the construction, installation or subsequent operation, maintenance, repair, replacement, reinstallation, relocation or removal of TELERGY's Backbone Network, Telecommunications System, or its Facilities, unless such loss, injury or damage shall have resulted solely from the reckless or deliberate act or omission to act of NIAGARA or its agents, employees or contractors.

24.2 To the fullest extent permitted by law, NIAGARA agrees to defend, indemnify and save TELERGY harmless from and against any and all claims, losses, damages, bodily injury or death of any persons whomsoever, including employees of the parties, or damage to any property, including property of NIAGARA or TELERGY, whether owned, leased or licensed, including TELERGY's Facilities, excluding damages to TELERGY's Facilities

32

occasioned by emergency actions of NIAGARA, and all costs and expenses, including, but not limited to attorneys' fees and disbursements incurred or sustained by the Indemnified party in any action or proceeding between Indemnitor and the Indemnified party, or between the Indemnified party and any third party, or otherwise incurred or sustained in enforcing this indemnification, caused by, arising from or growing out of the negligent act or omission to act of NIAGARA or its agents, employees or contractors.

24.3 Either party ("Indemnitor") shall have the right to defend the other party ("Indemnitee"), by counsel of the Indemnitor's selection reasonably satisfactory to the other party ("Indemnitee"), with respect to any claims within the indemnification provisions hereof. The parties shall give each other prompt notice of any asserted claims or actions indemnified against, shall cooperate with each other in the defense of any such claims or actions and shall not settle any such claims or actions without the prior consent of the indemnifying party ("Indemnitor").

24.4 Except for third-party bodily injury, personal injury or property damage obligations, neither of the parties shall be liable to the other for special, consequential or exemplary damages (including, without limitation, any claims from any client, customer or patron of either party for loss of services) arising under this Agreement or from the breach of any of the provisions hereof.

24.5 The obligations of the respective parties under this Section 24 shall survive the expiration date in respect of any occurrences within the term. Furthermore, TELERGY understands and agrees that it is responsible for any and all costs and expenses incurred by NIAGARA to enforce this indemnification provision. The obligations set forth herein shall survive completion of the work and termination of this contract for any reason.

24.6 TELERGY shall take prompt action to defend and indemnify NIAGARA against claims, actual or threatened, but in no event later than the service of a summons, complaint, petition or other service of process against NIAGARA alleging damage, injury, liability or expenses attributed in any way to this Agreement, the Work, or the acts, fault, negligence, equipment, facilities, personnel, or property of TELERGY, its agents, employees, subcontractors or suppliers. TELERGY shall defend any such claim or threatened claim, including as applicable, engagement of legal counsel, to respond to, defend, settle or compromise any claim or threatened claim.

25 INSURANCE

25.1 From the commencement of the Work, through the term of this Agreement or longer where specified, TELERGY shall provide at its own expense, insurance policies with coverages intended to be primary, issued by reputable insurance companies acceptable to NIAGARA which meet or exceed the requirements listed herein.

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(a) Workers Compensation and Employers Liability Insurance required by the State of New York. Coverage shall include the U.S. Longshoremen's and Harbor Workers Compensation Act and the Jones Act.

(b) Public Liability, covering all operations to be performed under this Agreement, with minimum limits of:

- Bodily Injury $1,000,000/$1,000,000
- Property Damage $ 500,000/$ 500,000

OR

- Combined Single Limit $1,000,000

OR

- BI & PD per occurrence $1,000,000
- General Aggregate and Product Aggregate $2,000,000

25.2 This policy shall include Contractual Liability, Products-Completed Operations and Explosion, Collapse and Underground (XCU) coverage. If the Products-Completed Operations coverage is written on a Claims-made basis, coverage shall be maintained continuously for at least two (2) years after final acceptance of the work.

25.3 Automobile Liability, covering all owned, non-owned and hired vehicles used in connection with the work to be performed under this Contract with minimum limits of:

- Bodily Injury $300,000/$500,000

- Property Damage $100,000

OR

- Combined Single Limit $500,000

25.4 Protective Liability Policy in the name of NIAGARA covering all work performed under the contract, with limits as specified in Section 25.1. In lieu of providing this coverage, TELERGY may include NIAGARA as an additional insured under the public liability policy to provide coverage for, but not limited to, the liability arising out of TELERGY's work under this Agreement.

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25.5 Watercraft Liability, if the Work requires the use of watercraft, with the same limit of liability of not less than $1,000,000 combined single limit.

25.6 Aircraft Liability, if Work requires the use of aircraft, with a limit of liability of not less than $1,000,000 combined single limit.

25.7 At the request of NIAGARA, TELERGY shall provide Professional liability coverage with a limit of liability to be determined by NIAGARA's Risk Management Department.

25.8 In the event TELERGY uses subcontractors in connection with this Agreement, it shall require all subcontractors to provide the same insurance coverage as required in Section herein.

25.9 Prior to starting work, TELERGY shall promptly provide NIAGARA with the original Owner's Protective Liability policy and Certificate(s) of Insurance for all other coverages required herein at the following address:

Niagara Mohawk Power Corporation ATTN: Risk Management/Building C-1 300 Erie Boulevard West Syracuse, New York 13202

Such certificates, and any renewals or extensions thereof, shall provide that at least thirty (30) days prior written notice shall be given to NIAGARA in the event of any cancellation or diminution of coverage, except in respect of non-payment of premiums, in which event NIAGARA shall receive ten (10) days prior notice. Such certificate(s) of insurance shall outline the amount of deductible or self-insured retentions which shall be for the account of TELERGY. Such deductibles of self-insured retentions shall not exceed one-hundred thousand (100,000) dollars unless agreed to in writing by NIAGARA's Risk Management Department.

25.10 If any policy should be canceled prior to the period set forth in this Agreement, and TELERGY fails immediately to procure other insurance as specified herein, NIAGARA reserves the right to procure such insurance and to charge the cost to TELERGY.

25.11 TELERGY shall furnish NIAGARA with copies of any accident reports sent to TELERGY's insurance carriers covering accidents occurring in connection with or as a result of the performance of work under this Agreement.

25.12 These requirements are in addition to any which may be required elsewhere in the Contract. TELERGY shall comply with any governmental and/or site specific insurance requirements even if not stated herein.

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25.13 Nothing contained in these insurance requirements shall be construed as limiting the extent of TELERGY's responsibility for payment of damages resulting from its work under the Purchase Order, or under this Agreement, or limiting, diminishing or waiving TELERGY's obligations to defend and save harmless NIAGARA in accordance with Section 24.

25.14 The maintenance of the insurance hereinabove specified shall not limit either party's liability under this Agreement, but shall be additional security therefor.

25.15 All insurance shall be effected by valid and enforceable policies issued by insurers of responsibility and licensed to do business in the State of New York, such responsibility and the insuring agreements to meet with the reasonable approval of NIAGARA and TELERGY.

25.16 The limits of the policies required hereunder shall be increased from time to time by agreement of the parties to meet changed circumstances including, but not limited to, changes in the purchasing power of the dollar and the course of plaintiff's verdicts in personal injury actions; provided, however, such limits shall not be increased more frequently than every five (5) years.

25.17 In recognition of the potential for changes in the insurance market and the availability and cost of insurance, the parties hereby expressly agree that, in the event that either (i) the insurance required of TELERGY hereunder shall cease to be available (either as to limits or coverages) or (ii) such insurance shall be available only at excessive cost, the parties shall agree upon alternative policy limits and/or coverages, as well as appropriate levels of self-insurance for TELERGY.

25.18 Nothing in this Section 25 shall be construed as to prevent TELERGY from satisfying its insurance obligations pursuant to this Agreement under a blanket policy or policies or pursuant to a decision to self insure which meets or exceeds the requirements hereof. In the event of self insurance, NIAGARA shall receive from TELERGY written notification indicating such coverage thirty (30) days prior to implementation of self insurance and thirty (30) days prior to any change in such self insurance status.

25.19 TELERGY shall be responsible for obtaining property insurance, at its own cost and expense, covering all real and personal property used in connection with this Agreement, with minimum limits of liability customarily maintained by other Persons of similar size and business.

26 LIENS

26.1 In the event that any property of NIAGARA shall become subject to any mechanics' artisan' or materialmans' liens chargeable to or through TELERGY, TELERGY shall promptly cause such lien to be discharged and released of record, by payment, posting of

36

bond, court deposit or other means, without cost to NIAGARA and shall indemnify NIAGARA against all costs and expense, including reasonable attorneys' fees, reasonably incurred in discharging and releasing such lien; provided, however, that if any such lien is not so discharged and released within thirty (30) days after notice thereof by NIAGARA to TELERGY, or within such shorter period as shall be mandated under applicable local law, then NIAGARA may pay or secure the release or discharge thereof at the expense and cost of TELERGY.

26.2 Nothing herein shall preclude TELERGY and/or NIAGARA as the case may be from contesting any such lien or the contract or action upon which the same arose after the same shall have been bonded as described above.

27 AMENDMENTS

27.1 Each party shall be responsible for its own costs, including legal fees, incurred in negotiating or finalizing this Agreement.

27.2 Neither this Agreement nor any term or provision hereof can be amended, waived, modified, supplemented, discharged or terminated, except by an instrument in writing signed by the party against which enforcement thereof is sought.

27.3 This Agreement and any amendment, modification, waiver or supplement hereto may be executed by the parties hereto on separate counterparts, each of which when so executed and delivered shall be an original for all purposes, but all such counterparts shall together constitute but one and the same instrument.

28 CONFIDENTIALITY

28.1 NIAGARA and TELERGY agree to respect the confidentiality of this Agreement and materials used or prepared in connection herewith, and shall restrict the distribution of this Agreement and all maps, material, documents and information identified in this Agreement as confidential, only to those persons designated to implement the provisions hereof and their respective counsels, consultants and advisors; provided, however that any such disclosure to persons who are not employees and counsel(s) of the parties shall be made only after such persons have executed a written agreement to be bound by the terms of this Section and shall not further disclose confidential information to additional persons absent written agreement from the parties hereto. The parties further agree that they shall not disclose or furnish to any third parties copies of this Agreement or any materials referred to herein, without the prior written consent of the other party hereto, except as shall be necessary in order to implement the provisions hereof, including the construction of the System, securing the necessary approvals therefor, and the financing of the System, and except as required by Court order

37

or as otherwise required by law, the New York State Public Service Commission or any other governmental entity or in any legal proceedings relating to this Agreement.

28.2 Notwithstanding to the contrary, either party shall notify the other, as soon as practicable, in the event that any disclosure request as contemplated in Section 28.1 would require disclosure of confidential material provided by any one party to the other hereunder and the party so notified shall have the right to formally dispute any such disclosure of such confidential material where such disclosure would unreasonably harm, prejudice, or destroy such party's proprietary interest, the information requested is not rationally related to the purpose for which such information is sought, or such party could submit other non-confidential information that could satisfy the request. Any such party may petition for exemption from Freedom of Information Act or other similar disclosure requirements, for "in camera" inspection of such confidential information, or for other limitations on the disclosure of confidential information.

28.3 Neither party shall have the right to obtain any information or documents from the other which are not material to the provisions or implementation of this Agreement.

28.4 The parties recognize that this Agreement and the materials and documents referred to herein, may contain information which a reasonably informed person would recognize as confidential, insider information which should be handled accordingly.

28.5 The parties agree that in distributing copies or portions of these materials to person necessary to implement the same, such copies shall be clearly marked or indicated as "confidential" and prohibiting further distribution, copy or reproduction of the same.

28.6 In the event of an actual or threatened disclosure of such information by either party, its agents, employees, or contractors, which might cause irreparable harm to the other party, it is agreed that monetary remedies available at all may be inadequate and, therefore, the aggrieved or threatened party shall be entitled to receive injunctive relief as an equitable remedy.

28.7 The obligations of the parties under Section 28 shall survive the expiration date for a period of ten (10) years.

29 DISPUTES

29.1 It is the intent of the parties that disputes which may arise between them, or between employees of each, be resolved as quickly as possible, and may, in certain instances, involve decisions made on the spot. When such resolution is not possible, and depending upon the nature of the dispute and the phase of installation of the Facilities and System, the parties

38

agree to seek to resolve such disputes, insofar as they do not constitute a breach or default under this Agreement, in the manner set forth in this section.

29.2 Questions as to the right of access to the Right-of-Occupancy within a Right-of-Way during design, planning, construction, installation, maintenance and operational phases, or access to or copies of NIAGARA's documents, shall in all instances be referred initially to the designated or authorized representative of NIAGARA, which representative shall render such decision within a reasonable period. Decisions of such designated or authorized representative shall be referable by TELERGY to NIAGARA's Engineer.

29.3 Any other dispute between the parties shall be referred initially to NIAGARA's Engineer for decision, which shall be rendered in writing within a reasonable period time.

29.4 The parties agree that neither shall proceed against the other by litigation or otherwise before the offending party has had notice of and reasonable time and opportunity to respond to and/or cure any breach or default hereunder.

29.5 TELERGY agrees to give testimony or depositions, either in court or before other tribunals in connection with any matters covered by this Agreement.

30 COVENANTS OF THE PARTIES

30.1 Except as otherwise provided, each of the parties represents, warrants and covenants to the other that: (i) it has full right and authority, including any requisite corporate approvals, to enter into and to perform its respective obligations under this Agreement; (ii) the execution of this Agreement is not violative of its charter, by-laws or any laws or regulation by which it is bound or to which it subject; (iii) no litigation or governmental proceeding is pending or threatened which might adversely affect this Agreement, the transactions contemplated by this Agreement, or the rights of the parties hereunder.

31 PUBLIC SERVICE COMMISSION APPROVAL REQUIRED

31.1 TELERGY's and NIAGARA's performance under this Agreement are contingent upon approval by the NIAGARA Board of Directors and a favorable determination by the New York Public Service Commission and any authorized Federal or State agency, from which determination TELERGY shall not seek appellate review, absent NIAGARA approval, which shall not be withheld unreasonably.

31.2 In the event that the necessary regulatory approvals are not obtained, either party shall have the option of terminating this Agreement on or before July 31, 1996 by written notice to the other party pursuant to the Notice provisions set forth in Section 28.

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32 MISCELLANEOUS PROVISIONS

32.1 Entire Agreement and Modification. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements and understanding of such parties in connection herewith. It may not be modified or amended nor may any obligation of either party be changed or discharged except in writing signed by the duly authorized officer or agent of the party to be charged. Notice of changes in any applicable tariffs will be provided in accordance with Section 24. Currently effective Right-of-Occupancy or Licenses, if any, issued pursuant to previous agreements shall remain in effect as if issued pursuant to this Agreement.

32.2 Choice of Law. This Agreement shall be governed by, and interpreted according to, the laws of the State of New York, without giving effect to the principles of conflicts of law. No claim, demand, action, proceeding, arbitration, litigation, hearing, motion or lawsuit arising from, related to, or connected with this Agreement shall be commenced or prosecuted in any jurisdiction other than courts in the State of New York, and any judgment, determination, order, finding or conclusion reached in any other jurisdiction shall be null and void between the parties hereto.

32.3 Consents. No consent or approval required of any party pursuant to this Agreement shall be unreasonably withheld or delayed.

32.4 Construction of Agreement. The Section headings in this Agreement and the Table of Contents hereof are for convenience of reference only and shall neither be deemed to be a part of this Agreement nor modify, define, expand or limit any of the terms or provisions hereof. All references to numbered Sections, unless otherwise indicated, are to Sections of this Agreement. Words and definitions in the singular shall be read and construed as though in the plural and vice versa, and words in the masculine, neuter or feminine gender shall also be read and construed as though in either of the other genders.

32.5 No Waiver. Any waiver by either party at any time of any of its rights as to anything contained herein shall not be deemed to be a waiver of the same or similar right at a subsequent time. The failure of any party to seek redress for violation of or to insist upon the strict performance of any covenant or condition of this Agreement shall not prevent a subsequent act, which would have originally constituted a violation, from having the effect of any original violation.

32.6 Force Majeure. Any failure of either party to perform its obligations under this Agreement shall not be a breach of this Agreement if such failure results from Acts of God, governmental action that did not result from wrongdoing by the party involved in such governmental action, or labor strikes that could not reasonably be avoided by the party subject to such labor strike.

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32.7 Remedies. The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or waive its right to sue on any or all other remedies. Said rights and remedies are given in addition to any other rights such party may have by law, statute, ordinance or otherwise, except as such remedies are expressly limited in this Agreement.

32.8 Severability. Any provision of this Agreement which is invalid, illegal or unenforceable in any manner in any jurisdiction shall be, as to such jurisdiction, ineffective to the extent of such invalidity, illegality or unenforceability without in any ways affecting the validity, legality or enforceability of the remaining provisions hereof, and any such invalidity, illegality or unenforceability in any jurisdiction shall not invalidate or in any way affect the validity, legality or enforceability of such provision in any other jurisdiction.

32.9 Compliance. NIAGARA and TELERGY shall at all times observe and comply with the provisions of this Agreement, and such provisions are subject to all laws, ordinances, contracts and regulations which in any manner affect the rights and obligations of the parties herein.

32.10 No Merger. There shall be no merger of this Agreement or the Rights-of-Occupancy hereby granted with the fee estate in a Right-of-Way by reason of the fact that this Agreement, and the Rights-of-Occupancy created by this Agreement, or any interest in this Agreement or in any such Rights-of-Occupancy, may be held, directly or indirectly, by or for the account of any person who shall own the fee estate in a Right-of-Way or any interest in such fee estates, and no such merger shall occur unless and until all persons having an interest in this Agreement, and in the Rights-of-Occupancy created by this Agreement, shall join in a written instrument effecting such merger and shall duly record the same.

32.11 Binding Agreement. Subject to Section 16.2, the provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successor, and assigns.

32.12 Acts In Furtherance Of Agreement. NIAGARA and TELERGY each agree to do such other and further acts and things, and to execute and deliver such additional instruments and documents, not creating any obligations, or imposing any expenses, additional to those otherwise created or imposed by this Agreement, as either party may reasonably request from time to time whether at or after the execution of this Agreement, in furtherance of the express provisions of this Agreement.

32.13 Drug And Alcohol Abuse Policy. TELERGY personnel, its agents and contractors shall be fit for duty at all times during their performance of any activities pursuant to this Agreement, and shall not be under the influence of alcohol or drugs. TELERGY's personnel, agents and contractors shall not bring, use, distribute, sell or possess alcoholic beverages or illegal drugs during the performance of any activities on NIAGARA property. TELERGY

41

shall not assign any individual who is in violation of this policy to perform and activities pursuant to this Agreement, and if TELERGY discovers any individual is in violation of these requirements, it shall immediately remove any such person from the performance of activities and/or NIAGARA property. Violation of these requirements by TELERGY personnel, agents and contractors shall result in denial of access to NIAGARA property, facilities and equipment and, in the case of possession, use or sale of illegal drugs, shall be reported to NIAGARA's Security Department immediately.

32.14 Intellectual Property Sole Property of Niagara. All information, analyses, conclusions, reports, drawings, specifications ("Information") developed, obtained, or prepared by either party pursuant to this Agreement shall be the sole property of NIAGARA, provided however that Working Drawings developed and prepared by TELERGY shall be the sole property of TELERGY subject to the Confidentiality Provisions set forth in
Section 28 herein.

32.15 Patent, Copyright and Trademark Infringement. All royalties for any patent, invention, article, name, symbol, logo or arrangement that may be furnished by TELERGY and used or embraced in TELERGY Facilities shall be paid solely by TELERGY. TELERGY shall protect and save harmless NIAGARA against any and all claims, demands, proceedings, judgments, orders and costs, including legal fees and disbursements, on account of any such royalty or fee and shall pay all judgments against NIAGARA resulting therefrom before they become enforceable liens against NIAGARA property. Should any suits for infringement of patents, copyrights or trademarks be brought against NIAGARA, TELERGY shall give a bond in amount and with sureties satisfactory to NIAGARA to indemnify NIAGARA against any judgments, costs, and attorneys' fees and disbursements. Should any injunction be threatened or issued, TELERGY shall promptly secure dissolution thereof by giving bond or otherwise or, a NIAGARA's option, shall promptly cease use of the article, arrangement, invention, name or logo that is subject to such dispute.

33 ENVIRONMENTAL HAZARD LIABILITY

33.1 Upon TELERGY's furnishing to NIAGARA appropriate plans and drawings of its planned facilities and the allowance of a reasonable amount of time for NIAGARA to review such plans, NIAGARA agrees to promptly inform TELERGY of any such hazardous or toxic waste areas, whether or not designated as such by the Environmental Protection Agency or any other similar federal, state or local authority, of which NIAGARA's Environmental Affairs Department, Syracuse, New York, has knowledge of or of which such Department may subsequently learn with respect to the Backbone Route. If such hazardous or toxic waste areas are located on land owned by NIAGARA in fee, NIAGARA agrees to defend, indemnify and hold TELERGY harmless from any and all claims, fines and actions arising out of the existence of any such hazardous or toxic waste areas or the obligations which may now or hereafter be imposed, statutory or otherwise, to remove therefrom or otherwise neutralize or contain, any such toxic or hazardous substances, unless such liability is: (i) created by a

42

release by TELERGY or its agents, employees, contractors or subcontractors of a toxic or other hazardous substance into the environment, (ii) created by TELERGY's or its agents', employees', contractors', subcontractors' disturbance of a pre-existing condition within the Right-of-Way of which TELERGY had knowledge provided that NIAGARA shall disclose to TELERGY all such pre-existing conditions within the Backbone Route known to NIAGARA, or (iii) created by TELERGY's or its agents', employees', contractors' or subcontractors' disturbance of a pre-existing condition within the Right-of-Way where the condition was not previously known by NIAGARA.

33.2 No Toxic Materials. TELERGY shall not place any material on NIAGARA's Right-of-Way or facilities that is recognized by appropriate governmental authority as toxic/hazardous material, equipment and waste.

33.3 In the event TELERGY discovers, or has knowledge of hazardous or toxic waste areas, whether or not designated as such the Environmental Protection Agency or any other similar federal, state or local authority, it shall immediately stop work if discovered during construction, and notify the designated representative of NIAGARA's Environmental Affairs Department in Syracuse, New York.

33.4 NIAGARA also agrees to promptly inform TELERGY of any other uniquely sensitive and protected environmental resources along the Backbone Route which is known to NIAGARA's Environmental Affairs Department, Syracuse, New York.

33.5 In the event any such hazardous or toxic waste areas or any other regulated environmental resources (including, but not limited to regulated wetlands, protected streams, navigable waters, rare, threatened, endangered or protected species or species habitats, sensitive archaeological sites, etc.) are identified with respect to the Backbone Route, their location shall be included on the "As Built Drawings" furnished to NIAGARA in accordance with Section 12.1 of this Agreement.

34 EQUAL EMPLOYMENT OPPORTUNITIES

34.1 The provisions of the following laws, Executive Orders, and any rules and regulations issued thereunder, are incorporated herein by reference as part of the Agreement:

(a) Paragraphs one (1) through seven (7) of Section 202 of Executive Order 11246, as amended, relating to equal opportunity in employment under government contracts and subcontracts;

(b) Section 2012 of Title 38 of the United States Code and Executive Order 11701, as amended, relating to affirmative action obligations of

43

government contractors and subcontractors for disabled veterans and veterans of the Vietnam era;

(e) Section 03 of the Rehabilitation Act of 1973, and Executive Order 1178, as amended, relating to affirmative action obligations of government contractors and subcontractors for handicapped workers; and

(d) The Human Right Law of the State of New York (Article 1 of the Executive Law).

34.2 The parties agree to fully comply with such provisions, and any amendments thereof. In addition, all subcontractors and agreements that the parties enter into to accomplish the work under the terms of this Agreement shall obligate such subcontractors to comply with such provisions.

34.3  FEDERAL SUBCONTRACTING REQUIREMENTS

           (a) The provisions of the following laws, Executive Orders, and any
           rules and regulations issued thereunder, are incorporated herein by
           reference as part of this Agreement;

           (b) Executive Order 1162, as amended, relating to utilization of
           minority business enterprises in the performance of government
           contracts and subcontracts;

           (c) Executive Order 12138, as amended, relating to utilization of
           women-owned businesses in the performance of government contracts and
           subcontracts; and

           (d) Section 211 of Public Law 9-07, as amended, relating to
           utilization of small business concerns and small disadvantaged
           business concerns in the performance of government contracts and
           subcontracts.

           (e) The parties agree to fully comply with such provisions and any
           amendments thereof. In addition, all subcontracts and agreements
           the parties enter into to accomplish the work under the terms of this
           Agreement shall obligate such subcontractors to comply with such
           provisions.

                                       44

35         AUDIT AND MAINTENANCE OF RECORDS

           35.1  At TELERGY's expense, NIAGARA has the right, upon ten (10) day
           written notice to TELERGY, to audit TELERGY's books and records at
           the location where such books and records are maintained insofar as
           they pertain to the terms and conditions of this Agreement. The
           audits will be performed during normal business hours 9:00 a.m. to
           5:00 p.m., Monday through Friday. Such audits may be performed by
           NIAGARA's employees or by professional auditing firms or both.

36         WARRANTIES

           36.1  NIAGARA makes no representation as to the full continuity of
           its Backbone Route or Spur Route Rights-of-Way. TELERGY recognizes
           that NIAGARA acquired some portions of its Rights-of-Way many years
           ago prior to the personal knowledge of existing NIAGARA employees,
           and for that reason, NIAGARA cannot warrant that it has complete
           title in fee simple, easement or otherwise. NIAGARA will make
           available to TELERGY for its review all agreements and other
           documents in NIAGARA's possession in respect of NIAGARA's right,
           title and interest in and to its Backbone Route and Spur Route
           Rights-of-Way. In the event that TELERGY shall determine in its
           reasonable judgment that any part or all of NIAGARA's right, title
           and interest in and to its Rights-of-Way shall be inadequate for use
           in conjunction with the transaction contemplated hereby, NIAGARA at
           its option may take, at TELERGY's expense, such action as TELERGY
           determines to be necessary to correct such inadequacies. Further,
           NIAGARA will at all times following execution of this Agreement and
           during the term of Agreement provide such cooperation and assistance
           as TELERGY may reasonably request in respect of issues or problems
           regarding use of the NIAGARA Rights-of-Way for the purposes
           contemplated herein.

           36.2  TELERGY warrants that the Facilities connected with, necessary
           for, or useful, to the NIAGARA Capacity provided for in Section 13
           shall be operational and functional on or before the dates specified
           in Section 9.5 herein.

           36.3  TELERGY acknowledges that all work, including but not limited
           to any construction and maintenance activities, to be performed in
           connection with this agreement poses great hazards to human beings
           and personal property. TELERGY warrants that it will make its
           employees, agents and contractors aware of these hazards as well as
           the potential consequences associated with exposure to these hazards.
           Furthermore, TELERGY warrants that it has full responsibility for any
           and all injury and damages to persons or property resulting from
           these hazards and any failure by TELERGY to advise its employees,
           agents or contractors as required herein.

                                       45

37   SURVIVAL

     37.1 The provisions of this Agreement shall survive granting of the
     Rights-of-Occupancy provided for herein and delivery of this Agreement for
     recording, if such recording is necessary to effectuate the rights granted
     herein.

38   END-OF-TERM

     38.1 At the expiration of the Term, TELERGY shall remove its Facilities
     excluding any buried cable(s), conduit, buried appurtenances associated
     with the cable installation (but does not include building foundations/
     structures), or any other material and/or equipment as outlined in Section
     12A, from the Right-of-Occupancy and restore any material damage resulting
     from such removal.

     38.2 Except for the NIAGARA Capacity, NIAGARA acknowledges, confirms and
     agrees that all of the Facilities at any time and from time to time
     installed by or on behalf of TELERGY within the Backbone Route or Spur
     Route Rights-of-Way shall at all times be and remain personal property of
     TELERGY regardless of the manner or mode of installation thereof and shall
     at all times during and within a reasonable period after the expiration of
     the Term be removable by TELERGY with the exception of any F.O.G. Wire,
     which, at TELERGY's option may either be removed and replaced with a Static
     Wire at TELERGY's expense or abandoned in place.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate on the date and year first above written.

Date:    2/2/96                                    /s/ E. J. Dienst
     --------------------                ---------------------------------------
                                         NIAGARA MOHAWK POWER CORP.

                                         By:           E. J. Dienst
                                            ------------------------------------

                                         Title:     VP - Electric Delivery
                                               ---------------------------------

Date:   2/2/96                           ---------------------------------------
     --------------------                TELERGY JOINT VENTURE

                                         By:       /s/ Brian Kelly
                                            ------------------------------------

                                         Title:         C.E.O
                                               ---------------------------------

46

EXHIBIT 10.1.2

FIRST MODIFICATION TO

RIGHT OF OCCUPANCY AGREEMENT

THIS AMENDMENT, dated as of the 25th day of September, 1997 between Niagara Mohawk Power Corporation and its subsidiaries now existing and any successor(s) thereto which are created as a result of the PowerChoice Case No. 94-E-0098, et al. pending before the New York State Public Service Commission (NIAGARA), a New York corporation having its principal place of business at 300 Erie Boulevard West, Syracuse, New York 13202 and Telergy Joint Venture (Telergy), a New York joint venture having its principal place of business at 5784 Widewaters parkway, Syracuse, New York 13204.

W I T N E S S E T H

WHEREAS, NIAGARA and Telergy are parties to a certain Right of Occupancy Agreement dated as of February 2, 1996 (the RO Agreement), whereby, among other things, Telergy is granted a non-exclusive Right of Occupancy to install a Backbone Network and Spur Routes consisting primarily of a fiber optic telecommunications network and facilities in NIAGARA Rights-of-Way, Facilities and electric distribution conduit along the Backbone Route as those terms are defined in the RO Agreement; and

WHEREAS, the parties agreed that it would be mutually beneficial to amend the RO Agreement in certain respects.

NOW, THEREFORE, in consideration of the promises, mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree that, effective as of the date first written above, the RO Agreement is hereby amended in the following respects:

1. Notwithstanding anything to the contrary contained in the RO Agreement, or any other provisions contained in the RO Agreement:

1

A.   Section 1, DEFINITIONS, shall be amended by adding
     thereto the following definitions:

         1.32     "CAPS" is defined to mean Competitive Access
                  Providers to any other telecommunications
                  network.

         1.33     "LOCAL LOOP" is defined to mean the physical
                  wires/fibers that run from the subscriber"s
                  telephone set or PBX or key telephone
                  system, to the telephone Company central
                  office.

         1.34     "NIAGARA STRANDS" is defined to mean a total
                  of four fiber optic telecommunications
                  strands anywhere in Telergy's Facilities
                  that are installed in NIAGARA's Right of Way
                  or Facilities as included in Exhibit A as it
                  may be amended from time to time of the same
                  type and quality as the Backbone Network and
                  any spurs or LOCAL LOOPS and such four
                  strands shall not be damaged in any fashion
                  and shall consist of 2 pairs of such strands
                  to be located in separate buffer tubes
                  anywhere that Telergy or its subsidiaries
                  have installed fiber optic
                  telecommunications strands installed in such
                  separate buffer tubes as included in Exhibit
                  A as it may be amended from time to time.

         1.35     "CLEC" ("Competitive Local Exchange
                  Carrier") is defined to mean a provider of
                  local exchange services that is not the
                  incumbent local exchange carrier

B        In Sections 2 take out "internal" and in Sections 2
         and 3.1, insert "NIAGARA Facilities in" in the third
         line of each section before the words "NIAGARA"s
         Rights of Way".

2

C. In Section 4.1 on the 5th line, after "occupancy" add "to construct a fiber Backbone network, LOCAL LOOPS and Spurs" and continue with the sentence after "Backbone Route".

Section 4.1 in the RIGHT-OF-OCCUPANCY, "TERM" is changed to read as follows:

For an Initial Term of twenty-five
(25) years commencing on the date of approval by the New York State Public Service Commission (Commencement Date) and ending on the expiration of the three-hundredth (300th) month thereafter, unless earlier terminated or unless extended pursuant to this Agreement, subject to the terms and conditions set forth in this Agreement, NIAGARA hereby grants to TELERGY a Right-of-Occupancy in, on, upon, under, over, across, along and through (hereinafter collectively referred "within") the Backbone Route and LOCAL LOOPS and spurs within NIAGARA's Electric Transmissions Right-of-Way and electric distribution conduit system, subject to all terms and conditions of any governing agreements in addition to this Agreement when conduit, poles and/or towers are used, except that compensation for the use of the electronic distribution and/or transmission conduit network agreement only has been addressed in this agreement.

D. Section 5.1 is hereby amended to add the following paragraph:

The specific Right-of-Way that will be subject to the Right of Occupancy Agreement shall be defined in the manner set forth in Section 6 of the RO Agreement. Maps showing the revisions to the Backbone Route as modified by the first Modification to the RO Agreement shall be prepared and attached to this Modification to RO Agreement as Exhibit A, which shall replace the original Attachment A to the RO Agreement. The Right-of-Way for the extension to [***]

CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted on this page. The omitted portions have been filed separately with the Securities and Exchange Commission.

3

and the Rights-of-Way to replace the extensions to [***] with [***] Operations Center located in [***] shall be defined by the parties in the manner set forth in
Section 6 of the RO Agreement within forty-five (45) working days following the date of execution of this Modification.

E. Delete Section 7 governing "Additional Rights-of-Occupancy for Spur Routes.

F. Section 9.5 is hereby modified to replace all references therein to [***] with [***] to delete the reference to [***], and to substitute therefor [***]

G. Section 9.5 is hereby modified to add a sentence at the end of the first paragraph as follows:

Failure to complete Telergy's obligations in accordance with these dates shall obligate Telergy to reimburse NIAGARA for any telecommunications arrangements NIAGARA must make for its internal telecommunications needs due to the lack of availability of the original NIAGARA CAPACITY of [***] to make up for the telecommunications capacity currently being provided by NYNEX and AT&T at Sprint expense through an agreement for the purchase of the 2 GHz microwave license from NIAGARA until the NIAGARA CAPACITY is fully operational; provided, however, that any delays resulting directly and solely from NIAGARA's engineering, permitting, and easement activities shall not constitute a failure to complete by Telergy, from the date of last execution of this modification forward. Telergy agrees to pay directly all invoices from third parties for any and all such service within the required days in such invoices.

4

CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted on this page. The omitted portions have been filed separately with the Securities and Exchange Commission.


\                  H.       Section 9.5 is hereby amended to add the following
                           paragraph:

                                             Segment III shall connect Albany,
                                    NY to Pleasant Valley, NY, which shall be
                                    constructed at dates and times to be
                                    determined by Telergy, provided, however,
                                    that the extension to Pleasant Valley shall
                                    not interfere with or hinder Telergy's
                                    ability to complete the original Backbone
                                    Route from Buffalo, NY to Albany, NY or to
                                    provide NIAGARA CAPACITY as required in the
                                    RO Agreement.

                  I.       Section 13.1.1 is hereby amended to delete the word
                           "initially" in the second line and to replace [***]
                           with [***].

                  J.       Section 13.1.2 is hereby changed to delete the
                           reference to [***] and substitute [***] in its
                           place.

                  K.       Section 13.1.3 is hereby amended to delete the word
                           "initially" in the third line and to replace "[***]"
                           with "[***]" and to add the following sentence at the
                           end:

                                            In Syracuse, NY, at the point where
                                    the NIAGARA CAPACITY meets the NIAGARA
                                    dedicated interconnect from Telergy's
                                    Syracuse installation to NIAGARA's Syracuse
                                    facility, the NIAGARA Capacity shall be
                                    engineered and installed to provide NIAGARA
                                    with a cross-section of capacity of [***].

                  L.       Section 13.3 is hereby amended to add ", the NIAGARA
                           STRANDS" in the first line after the first three
                           words "The NIAGARA Capacity".

                  M.       Revise Section 14.2 to read as follows: "Should
                           TELERGY, for its own business requirements, require
                           or desire additional Rights-of-Occupancy or NIAGARA
                           Facilities, TELERGY shall notify NIAGARA in writing
                           and submit a request for Additional
                           Right-of-Occupancy use,

CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted on this page. The omitted portions have been filed separately with the Securities and Exchange Commission.

5

if appropriate."

N. Section 14.2.1 in the MODIFYING NIAGARA OR TELERGY FACILITIES Section is changed as follows:

NIAGARA shall process any request in the same manner and subject to the same conditions and provisions set forth in this Agreement as modified, advising TELERGY of NIAGARA's acceptance, rejection or modification of said request.

The remainder of Section 14.2 shall remain unchanged.

O. Section 23.1 and 23.2 governing NOTICES is hereby amended to read as follows:

23.1 Any notice to be given to NIAGARA under this Agreement shall be sent by certified mail or overnight express delivery:

(one copy each to):

(1) Director, Telecommunications Niagara Mohawk Power Corporation 300 Erie Boulevard West - C2 Syracuse, New York 13202

(2) Assistant General Counsel Niagara Mohawk Power Corporation 300 Erie Boulevard West - A3 Syracuse, New York 13202

23.2 Any notice given to Telergy under this Agreement shall be sent by certified mail or overnight express delivery:

(one copy each to):

(1) Chief Executive Officer Telergy, Inc. 5784 Widewaters Parkway

6

Syracuse, New York 13214

(2) General Counsel Telergy, Inc. 20 Corporate Woods Suite 100 Albany, New York 12211

2. Paragraph 31.2 shall be changed to read as follows:

The parties recognize that the compensation NIAGARA may owe for the RO Agreement is open with the New York Public Service Commission (PSC) in Case 96-M-0138. The parties also recognize that reasonable additional compensation is appropriate for NIAGARA's agreement to the following: [***] All optical fibers are [***] and will be provided on an "as-where-is" basis with no warranties express or implied. Unless otherwise agreed to, all maintenance and/or construction on strands located on NIAGARA electric transmission towers that have been allowed to be installed will be performed by NIAGARA, subject to the terms and conditions in the applicable electric transmission structure occupancy agreement.

CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted on this page. The omitted portions have been filed separately with the Securities and Exchange Commission.

7

As and for compensation for the modifications herein and to resolve the open compensation issue in Case 96-M-0138, the parties agree that Telergy shall provide:


[***]

CONFIDENTIAL

[***]     Confidential treatment has been requested with respect to material
          omitted on this page. The omitted portions have been filed separately
          with the Securities and Exchange Commission.

                                       8

                                    This compensation is contingent upon PSC
                                    approval of this Agreement as modified
                                    herein without further modification and
                                    closure of the compensation issue in Case
                                    96-M-0138 without requiring additional
                                    compensation beyond the additional
                                    compensation provided herein. In the event
                                    the PSC conditions its approval of this
                                    Agreement or declines to accept the
                                    additional compensation in its entirety as
                                    and for final compensation for this
                                    Agreement and Case 96-M-0138, the parties
                                    agree to negotiate within thirty (30)
                                    business days of receipt of the written
                                    decision from the Commission such additional
                                    compensation to obtain compliance with any
                                    Commission requirements.

                  3.       The parties further recognize and acknowledge that
                           Telergy intends to construct and install LOCAL LOOPS
                           in major cities along the Backbone Route to act as a
                           CLEC and/or a CAP , including but not

9

limited to Buffalo, Syracuse, and Albany, New York, which LOCAL LOOPS may require Spurs off the Backbone Route. To the extent Telergy constructs portions of the LOCAL LOOPS using NIAGARA conduit, poles or towers, the parties shall execute the applicable agreement(s) governing each such use and Telergy shall pay the standard rate(s) for any such uses, and all such uses and related construction shall be subject to all necessary governmental approval prior to start of construction.

4. All terms appearing in this Modification to Right of Occupancy Agreement and not otherwise defined herein shall have the same meaning as set forth in the RO Agreement.

5. Except as modified and amended by this Modification, all of the terms, covenants and conditions of the RO Agreement are hereby ratified and confirmed in all respects and shall continue to be and remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above.

TELERGY JOINT VENTURE                       NIAGARA MOHAWK POWER CORPORATION

By:/s/Brian Kelly                           By:/s/William J. Synwolst
   -----------------                           -------------------------
Name: Brian Kelly                           Name: William J. Synwolst
Title: President                            Title: VP I/T & CIO

10

EXHIBIT 10.2.1

TELERGY, INC.

STOCK PURCHASE AGREEMENT


TELERGY INC.
STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (this "Agreement") is entered into as of November 10, 1998, by and among Telergy, Inc., a New York corporation with offices at One Telergy Parkway, East Syracuse, New York 13057 (the "Company"), and Niagara Mohawk Energy, Inc., a Delaware corporation with offices at 507 Plum Street, Syracuse, New York 13204 (the "Purchaser") and, with respect to Sections 5.1 and 5.4 only, Kevin J. Kelly and Brian P. Kelly (the "Founders").

RECITALS

WHEREAS, the Company desires to issue and sell an aggregate of eighty-three thousand, three hundred thirty-four (83,334) shares of its Class A common stock, $.0001 par value(the "Class A Common Stock") on the terms and conditions set forth herein;

WHEREAS, the Purchaser desires to purchase an aggregate of eighty-three thousand, three hundred thirty-four (83,334) shares of the Class A Common Stock (the "Shares") on the terms and conditions set forth herein;

WHEREAS, the Company and the Purchaser are amending the Conversion Rights Agreement, dated as of April 24, 1998 (the "Conversion Rights Agreement"), between the Company and the Purchaser simultaneously with the execution hereof; and

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto agree as follows:

1. SALE OF THE SHARES

1.1 Sale and Purchase

Immediately following the execution hereof, the Company will issue and sell to the Purchaser, and the Purchaser will purchase from the Company, the Shares at a purchase price of $120 per Share for the aggregate purchase price of Ten Million Eighty Dollars ($10,000,080), payable by certified check in immediately available funds.

1.2 Deliveries by the Company

Upon receipt of the purchase price pursuant to Section 1.1, the Company will deliver to the Purchaser a certificate representing the Shares. Simultaneous therewith the Company will deliver to Purchaser (i) its Financial Statements (as defined herein) subject to the Confidentiality Agreement by and between the Company and the Purchaser, (ii) a certificate dated as of the date hereof, signed by the Chief Executive Officer of the Company, certifying that the representations and warranties set forth in Section 2 of this Agreement are true and correct as of the date hereof, (iii) the opinion of internal legal counsel of the Company substantially in the form attached hereto as Exhibit A, and (iv) a copy of Amendment No. 1 to the Conversion Rights Agreement, dated as of the date hereof, duly executed by an executive officer of the Company.


2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

As of the date hereof, the Company hereby represents and warrants to the Purchaser as follows:

2.1 Organization, Good Standing, and Qualification

Each of the Company and each of its Subsidiaries is a corporation, limited liability company, or partnership duly organized, validly existing and in good standing under the laws of the State of New York (and in the case of Telergy Canada, Inc., New Brunswick, Canada). For purposes of this Agreement, a "Subsidiary" of the Company shall mean a corporation, partnership, limited liability company, joint venture or other entity of which 50% or greater of the voting power of the equity securities or other equity interests is owned, directly or indirectly, by the Company or any Subsidiary of the Company. The Company and each of its Subsidiaries has all requisite corporate power and authority to own and operate its properties and assets, and to carry on its business as presently conducted and as presently proposed to be conducted. Each of the Company and each of its Subsidiaries is duly qualified and is authorized to do business and is in good standing in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect on the Company or its business. Exhibit B sets forth the Company's Subsidiaries and the other persons, if any, holding equity interests in such Subsidiaries, including affiliates thereof. Except as set forth in Section 2.1 of Schedule I, all of the equity interests of the Company in such Subsidiaries are owned by the Company or another Subsidiary of the Company, free and clear of any liens, and are not subject to any options, warrants or other rights to purchase any such interests. Except as set forth on Exhibit B, the Company does not have any direct or indirect equity interest in any other corporation, partnership, limited liability company, joint venture or other entity.

2.2 Capitalization; Voting Rights

As of the date hereof, the authorized capital stock of the Company consists of (a) nine million, nine hundred ninety-nine thousand, nine hundred (9,999,900) shares of Class A Common Stock, of which two million, seven hundred forty-three thousand, four hundred and eighty-three (2,743,483) shares are issued and outstanding (prior to the issuance of the Shares), and (b) one hundred (100) shares of Class C Common Stock, $.0001 par value, all of which are issued and outstanding. All issued and outstanding shares of the Company's Class A Common Stock and Class C Common Stock and the equity interests in the Subsidiaries (i) have been duly authorized and validly issued, (ii) are fully paid and nonassessable, and (iii) were offered, sold, and issued in compliance with all applicable state and federal laws concerning the offering, sale and issuance of securities. Other than as set forth in Section 2.2 of Schedule I, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal), proxy or shareholder agreements, or agreements of any kind for the purchase or acquisition from the Company or any Subsidiary of any of its securities, nor are there any securities convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries. None of the Company nor any of its Subsidiaries has any bond, debentures, notes or other obligations the holders of which have the right to vote with the shareholders of the Company.


When issued in compliance with the provisions of this Agreement, the Shares will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances; provided, however, that the Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time a transfer is proposed. Attached hereto as Exhibit C is a copy of the Company's Restated Certificate of Incorporation, as amended through the date hereof.

2.3 Authorization; Binding Obligations

Except as set forth in Section 2.3 of Schedule I, all corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization of this Agreement, the performance of all obligations of the Company hereunder and the authorization, sale, issuance and delivery of the Shares pursuant hereto has been taken; and the Company has all requisite corporate power and authority to execute this Agreement, to sell, issue, and deliver the Shares and to carry out the provisions of this Agreement. This Agreement is a valid and binding obligation of the Company enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights; (ii) general principles of equity that restrict the availability of equitable remedies; and (iii) to the extent that the enforceability of the indemnification provisions in Section 6.6 may be limited by applicable laws. The sale of the Shares are not and will not be subject to any preemptive rights or rights of first refusal.

2.4 Financial Statements

The Company has provided the Purchaser (i) its audited balance sheet as at December 31, 1997 and audited statement of income for the year ending December 31, 1997 and (ii) its unaudited balance sheet as at June 30, 1998 and unaudited statement of income for the six month period ending June 30, 1998 (collectively, the "Financial Statements"). The Financial Statements, together with the notes thereto, are complete and correct in all material respects, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated, except as disclosed therein, and present fairly the financial condition and position and results of operation of the Company on a consolidated basis as of December 31, 1997 and June 30, 1998, provided, however, that the unaudited financial statements are subject to normal year-end audit adjustments (which are not expected to be material in amount or effect), and do not contain all footnotes and other presentation items required under generally accepted accounting principles.

2.5 Liabilities

Except as set forth in Section 2.5 of Schedule I, the Company has no material liabilities and, to the best of its knowledge, knows of no material contingent liabilities not disclosed in the Financial Statements. The Company and its Subsidiaries have no liability for any obligations of KCI Long Distance, Inc. or any of its predecessors or successors.

2.6 Agreements; Action

Except as set forth in Section 2.6 of Schedule I:


(a) There are no agreements, understandings or proposed transactions between the Company or any of its Subsidiaries and any of its, or their, officers and directors.

(b) There are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company or any of its Subsidiaries are a party or to its knowledge by which it is bound or to which its assets are subject which may involve (i) obligations (contingent or otherwise) of, or payments to, the Company and its Subsidiaries in excess of $100,000 (other than obligations of, or payments to, the Company or any of its Subsidiaries arising from purchase or sale agreements entered into in the ordinary course of business), or (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company or any of its Subsidiaries (other than licenses arising from the purchase of "off the shelf" or other standard products), or (iii) provisions restricting or affecting the development or distribution of services of the Company or any of its Subsidiaries, or (iv) indemnification by the Company or any of its Subsidiaries with respect to infringements of proprietary rights (other than indemnification obligations arising from purchase or sale agreements entered into in the ordinary course of business).

(c) The Company and, with respect to (i), (iii) and (iv), any of its Subsidiaries, has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or any other liabilities (other than with respect to dividend obligations, distributions, indebtedness and other obligations incurred in the ordinary course of business or as disclosed in the Financial Statements) individually in excess of $100,000 or, in the case of indebtedness and/or liabilities individually less than $100,000, in excess of $200,000 in the aggregate,
(iii) made any loans or advances to any person, other than advances in the ordinary course of business not to exceed $100,000 individually or $200,000 in the aggregate, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than in the ordinary course of business.

(d) For the purposes of subsections (b) and (c) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections.

2.7 Obligations to Related Parties

There are no obligations of the Company or any of its Subsidiaries to their respective officers, directors, shareholders, or employees other than (a) for compensation for services rendered, (b) reimbursement for reasonable expenses incurred on behalf of the Company or


any of its Subsidiaries, and (c) for other standard employee benefits made or to be made generally available to all employees (including stock option agreements outstanding under any stock option plan approved by the Board of Directors of the Company).

2.8 Changes

Except as set forth in Section 2.8 of Schedule I, since June 30, 1998, there has not been to the Company's knowledge:

(a) Any change in the assets, liabilities, financial condition or operations of the Company or Telergy Central, LLC from that reflected in the Financial Statements, other than changes in the ordinary course of business, none of which individually or in the aggregate has had or is expected to have a material adverse effect on such assets, liabilities, financial condition or operations of the Company and Telergy Central, LLC, or any change in the assets, liabilities, financial condition or operations of the other Subsidiaries, other than changes in the ordinary course of business, none of which individually or in the aggregate has had or is expected to have a material adverse effect on such assets, liabilities, financial condition or operations of such other Subsidiaries;

(b) Any resignation or termination of any key officers of the Company or any of its Subsidiaries; and the Company, to the best of its knowledge, does not know of the impending resignation or termination of employment of any such officer;

(c) Any material change in the contingent obligations of the Company or any of its Subsidiaries by way of guaranty, endorsement, indemnity, warranty or otherwise;

(d) Any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the properties, business or prospects or financial condition of the Company and its Subsidiaries, taken as a whole;

(e) Any waiver by the Company or any of its Subsidiaries of a valuable right or of a material debt owed to it;

(f) Any direct or indirect loans made by the Company or any of its Subsidiaries to any shareholder, employee, officer or director of the Company or any of its Subsidiaries, other than advances made in the ordinary course of business;

(g) Any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder;

(h) Any declaration or payment of any dividend or other distribution of the assets of the Company or any Subsidiary of the Company that is


not wholly-owned;

(i) Any labor organization activity involving the Company or any of is Subsidiaries;

(j) Any debt, obligation or liability incurred, assumed or guaranteed by the Company or any of its Subsidiaries, except those for immaterial amounts or for current liabilities incurred in the ordinary course of business;

(k) Any sale, assignment or transfer by the Company or any of its Subsidiaries of any patents, trademarks, copyrights, trade secrets or other intangible assets;

(l) Any change in any agreement to which the Company or any of its Subsidiaries is a party or by which it is bound which is reasonably likely to materially and adversely affect the business, assets, liabilities, financial condition, operations or prospects of the Company and its Subsidiaries, taken as a whole, including compensation agreements with employees of the Company or any of its Subsidiaries;

(m) Any capital expenditures greater than $10,000,000.00;

(n) Any loss or threatened loss of any supplier or customer of the Company or any of its Subsidiaries which has had or could reasonably be expected to have a material adverse effect on the Company and its Subsidiaries; or

(o) Any other event or condition of any character that, either individually or cumulatively, has materially and adversely affected the business, assets, liabilities, financial condition, operations or prospects of the Company.

2.9 Title to Properties and Assets; Liens, etc.

Except as set forth in Section 2.9 of Schedule I, the Company and each of its Subsidiaries has good and marketable title to its properties and assets, including the properties and assets reflected in the balance sheet as at June 30, 1998 (included in the Financial Statements), and good title to its leasehold estates, to the Company's knowledge, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (i) those resulting from taxes which have not yet become delinquent, and (ii) minor liens and encumbrances which do not materially detract from the value of the property subject thereto or materially impair the operations of the Company and its Subsidiaries. The Company and its Subsidiaries have such title in the rights-of-way granted to the applicable Subsidiary of the Company pursuant to the right-of-occupancy agreements set forth in Section 2.9 of Schedule I as is necessary for the Company and its Subsidiaries to operate in the manner in which they have operated to the date hereof and intend to operate in the future to install and operate fiber optic telecommunications facilities and to provide telecommunications services


to customers through such facilities.

2.10 Patents and Trademarks

The Company and each of its Subsidiaries owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, information and other proprietary rights and processes necessary for its business as now conducted and as proposed to be conducted, without any known infringement of the rights of others. Except as set forth in Section 2.10 of Schedule I, there are no outstanding options, licenses or agreements of any kind relating to the foregoing, nor is the Company or any of its Subsidiaries bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes of any other person or entity other than such licenses or agreements arising from the purchase "off the shelf" of standard products. Except as set forth in
Section 2.10 of Schedule I, neither the Company nor any of its Subsidiaries has received any communications alleging that the Company or any of its Subsidiaries has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity. Neither the Company nor any of its Subsidiaries is aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Company or any of its Subsidiaries or that would conflict with the business of the Company and its Subsidiaries as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the business of the Company and its Subsidiaries by the employees of the Company and its Subsidiaries, nor the conduct of the business of the Company and its Subsidiaries as proposed, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any employee is now obligated. The Company does not believe it is or will be necessary to utilize any inventions, trade secrets or proprietary information of any of its employees made prior to their employment by the Company or any of its Subsidiaries, except for inventions, trade secrets or proprietary information that have been assigned to the Company.

2.11 Compliance with Other Instruments


Except as set forth of Section 2.11 of Schedule 1, the Company is not in violation or default of any term of its Restated Articles or bylaws, or of any provision of any mortgage, indenture, contract, agreement, instrument or contract to which it is party or by which it is bound or of any judgment, decree, order, writ or, to its knowledge, any statute, rule or regulation applicable to the Company or any of its Subsidiaries which would materially and adversely affect the business, assets, liabilities, financial condition, operations or prospects of the Company and its Subsidiaries taken as a whole. The execution, delivery, and performance of and compliance with this Agreement and the issuance and sale of the Shares pursuant hereto, will not result in any violation of, or be in conflict with or constitute a default under, any of the foregoing, or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or any of its Subsidiaries or the suspension, revocation, impairment, forfeiture or non-renewal of any permit, license, authorization or approval applicable to the Company or any of its Subsidiaries, their respective businesses or operations or any of their respective assets or properties.

2.12 Litigation

Except as set forth in Section 2.12 of Schedule I, there is no action, suit, proceeding or investigation pending or to the Company's knowledge currently threatened against the Company that questions the validity of this Agreement or the right of the Company to enter into such Agreement, or to consummate the transactions contemplated hereby, or which might result, either individually or in the aggregate, in any material adverse change in the assets, condition, affairs or prospects of the Company and its Subsidiaries taken as a whole, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the employees of the Company or any of its Subsidiaries, their use in connection with the business of the Company or its Subsidiaries of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. Neither the Company nor any of its Subsidiaries is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate.

2.13 Tax Returns and Payments

The Company and each of its Subsidiaries has filed all tax returns (federal, state and local) required to be filed by it. All taxes shown to be due and payable on such returns, any assessments imposed, and to the Company's knowledge all other taxes due and payable by the Company and each of its Subsidiaries have been paid or will be paid prior to the time they become delinquent.

2.14 Employees


Neither the Company nor any of its Subsidiaries has any collective bargaining agreement with any of its employees. There is no labor union organizing activity pending or, to the knowledge of the Company or any of its Subsidiaries, threatened with respect to the Company or any of its Subsidiaries. Except as set forth in Section 2.14 of Schedule I, no employee has any agreement or contract, written or verbal, regarding his employment. To the knowledge of the Company and each of its Subsidiaries, no employee of the Company and each of its Subsidiaries, nor any consultant with whom the Company and each of its Subsidiaries has contracted, is in violation of any term of any employment contract, patent disclosure agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, the Company or its Subsidiaries because of the nature of the business to be conducted by the Company or its Subsidiaries; and to the knowledge of the Company and each of its Subsidiaries, the continued employment by the Company and its Subsidiaries of its present employees, and the performance of the contracts of the Company and each of its Subsidiaries with its independent contractors, will not result in any such violation. Neither the Company nor any of its Subsidiaries has received any notice alleging that any such violation has occurred. Except as set forth in
Section 2.14 of Schedule I, each employee is employed on an "at will" basis and has no right to any material compensation following termination of employment with the Company or its Subsidiaries. Neither the Company nor any of its Subsidiaries is aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Company or its Subsidiaries, nor does the Company nor any of its Subsidiaries have a present intention to terminate the employment of any officer, key employee or group of key employees. Neither the Company nor any of its Subsidiaries has ever maintained, sponsored or contributed to, or been obligated to contribute to, any employee pension benefit plan as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended.

2.15 Obligations of Management

Each officer of the Company and its Subsidiaries is currently devoting substantially all of such officer's business time to the conduct of the business of the Company and the respective Subsidiaries. The Company is not aware of any officer or key employee of the Company or its Subsidiaries planning to work less than full time for the Company or its respective Subsidiaries in the future.

2.16 Registration Rights

Except as set forth in Section 2.16 of Schedule I or as required pursuant to Section 4.3(b) and Article 6 hereof, the Company is presently not under any obligation, and has not granted any rights, to register (as defined in Section 6.1 hereof) any of the Company's presently outstanding securities or any of its securities that may hereafter be issued.

2.17 Compliance with Laws; Permits

To its best knowledge, neither the Company nor any of its Subsidiaries is in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties which violation would materially and adversely affect the business, assets, liabilities, financial condition, operations or prospects of the Company and


its Subsidiaries taken as a whole. No governmental orders, permissions, consents, approvals or authorizations are required to be obtained and no registrations or declarations are required to be filed in connection with the execution and delivery of this Agreement and the issuance of the Shares. The Company and its Subsidiaries have, or is in the process of obtaining, all franchises, permits, licenses and any similar authority necessary for the conduct of their respective businesses as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects or financial condition of the Company and its Subsidiaries taken as a whole and the Company believes it or the applicable Subsidiary can obtain, without undue burden or expense, any similar authority for the conduct of the business as planned to be conducted.

2.18 Environmental and Safety Laws

To the Company's knowledge, and except for such matters that, alone or in the aggregate, are not reasonably likely to have a material adverse effect on the business assets, liabilities, financial condition, operations or prospects of the Company and its Subsidiaries taken as a whole: (i) the Company and its Subsidiaries have complied at all times with all applicable Environmental Laws;
(ii) no property currently owned or operated by the Company or any of its Subsidiaries (including soils, groundwater, surface water, buildings or other structures) is contaminated with any Hazardous Substances; (iii) no property formerly owned or operated by the Company or any of its Subsidiaries was contaminated with any Hazardous Substance during or prior to such period of ownership or operation; (iv) except as may be provided in any right-of-way or franchise agreement set forth in Schedule I, neither the Company nor any of its Subsidiaries is subject to liability for any Hazardous Substance disposal or contamination on any third party property; (v) neither the Company nor any of its Subsidiaries has been associated with any release or threat of release of any Hazardous Substance; (vi) neither the Company nor any of its Subsidiaries has received any notice, demand, letter, claim or request for information alleging that the Company or any of its Subsidiaries may be in violation of or subject to liability under any Environmental Law; (vii) neither the Company nor any of its Subsidiaries is subject to any order, decree, injunction or other arrangement with any governmental entity or any indemnity or other agreement with any third party relating to liability under any Environmental Law or relating to Hazardous Substances; and (viii) except as may be provided in any right-of-way or franchise agreement, there are no other circumstances or conditions involving the Company or any of its Subsidiaries that could reasonably be expected to result in any claim, liability, investigation, cost or restriction on the ownership, use, or transfer of any property pursuant to any Environmental Law.

As used herein, the term "Environmental Law" means any federal, state, local or foreign statute, law, regulation, order, decree, permit, authorization, opinion, common law or agency requirement relating to: (A) the protection, investigation or restoration of the environment, health, safety, or natural resources, (B) the handling, use, presence, disposal, release or threatened release of any Hazardous Substance or (C) noise, odor, indoor air, employee exposure, wetlands, pollution, contamination or any injury or threat of injury to persons or property relating to any Hazardous Substance.

As used herein, the term "Hazardous Substance" means any substance that is: (A) listed, classified or regulated pursuant to any Environmental Law; (B) any petroleum product or by-product, asbestos-containing material, lead-containing paint or plumbing,


polychlorinated biphenyls, radioactive material or radon; and (C) any other substance which may be the subject of regulatory action by any government entity in connection with any Environmental Law.

2.19 Offering Valid

Assuming the accuracy of the representations and warranties of the Purchaser contained in Section 4.3 hereof, the offer, sale and issuance of the Shares will be exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") and will have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws.

2.20 Full Disclosure

This Agreement, the Exhibits and Schedule hereto, and all other documents provided or made available by the Company to the Purchaser or its respective attorneys or agents in connection herewith or with the transactions contemplated hereby, do not contain any untrue statement of a material fact nor omit to state a material fact necessary in order to make the statements contained herein or therein not misleading and the Company has no knowledge of any facts or circumstances that would make any of the information contained in such documents untrue or inaccurate in any material respect, nor has anything occurred since such information was provided to the Purchaser which renders any statement therein untrue or inaccurate in any material respect. There are no facts which (individually or in the aggregate) materially adversely affect the business, assets, liabilities, financial condition, prospects or operations of the Company and its Subsidiaries taken as a whole that have not been set forth in this Agreement, the Exhibits and Schedule hereto, or in other documents delivered to the Purchaser or its attorneys or agents in connection herewith.

2.21 Minute Books

The minute books of the Company made available to the Purchaser contain a complete summary of all meetings and actions by written consent of directors and shareholders since the time of incorporation.

2.22 Insurance

The Company has fire, liability and casualty insurance policies with coverage customary for companies similarly situated to the Company.

2.23 Year 2000

The Company is reviewing its operations and those of its Subsidiaries and major commercial counterparties with a view to assessing whether it or its Subsidiaries' respective businesses networks or products will, in the receipt, transmission, processing, manipulation, storage, retrieval, retransmission or other utilization of data, be vulnerable to a Year 2000 Issue (including those business and economic risks resulting from the failure of key


customers, trade counterparties and suppliers of the Company and its Subsidiaries to properly quantify, address and resolve a Year 2000 Issue). Based on such review as of the date hereof, the Company has no reason to believe that the businesses or operations of the Company or any of its Subsidiaries will suffer a material adverse effect resulting from a Year 2000 Issue. For purposes of this Agreement, the term "Year 2000 Issue", with respect to any person, shall mean any significant risk that computer hardware, software or equipment containing embedded microchips utilized in the business or operations of such person will not, in the case of dates or time periods occurring after December 31, 1999, function at least as effectively and reliably as in the case of times or time periods occurring before January 1, 2000, including the making of accurate leap year calculations, and which will materially adversely affect the Company and its Subsidiaries.

3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

As of the date hereof, the Purchaser hereby represents and warrants to the Company as follows (such representations and warranties do not lessen or obviate the representations and warranties of the Company set forth in this Agreement):

3.1 Requisite Power and Authority

The Purchaser has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and to carry out its provisions. All action on the Purchaser's part required for the lawful execution and delivery of this Agreement has been taken. Upon its execution and delivery, this Agreement will be a valid and binding obligation of the Purchaser, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights, (ii) general principles of equity that restrict the availability of equitable remedies, and (iii) to the extent that the enforceability of the indemnification provisions of Section 6.6 of Article 6 hereof may be limited by applicable laws.

3.2 Consents

No consents, approvals, orders, authorizations, registrations, qualifications, designations, declarations or filings with any governmental or banking authority on the part of the Purchaser are required in connection with the consummation of the transactions contemplated in this Agreement.

3.3 Investment Representations

The Purchaser understands that the Shares have not been registered under the Securities Act. The Purchaser also understands that the Shares are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon the Purchaser's representations contained in this Agreement. The Purchaser hereby represents and warrants as follows:


(a) Purchaser Bears Economic Risk

The Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. The Purchaser must bear the economic risk of this investment indefinitely unless the Shares are registered pursuant to the Securities Act, or an exemption from registration is available. Except as otherwise contemplated herein, the Purchaser understands that the Company has no present intention of registering the Shares. The Purchaser also understands that there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow such Purchaser to transfer all or any portion of the Shares under the circumstances, in the amounts or at the times such Purchaser might propose.

(b) Acquisition for Own Account

The Purchaser is acquiring the Shares for the Purchaser's own account for investment only, and not with a view towards their distribution.

(c) Purchaser Can Protect Its Interest

The Purchaser represents that by reason of its, or of its management's, business or financial experience, the Purchaser has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement. Further, the Purchaser is aware of no publication of any advertisement in connection with the transactions contemplated in this Agreement.

(d) Accredited Investor

The Purchaser represents that it is an accredited investor within the meaning of Regulation D under the Securities Act.

(e) Company Information

The Purchaser has received and read the Financial Statements (and such other Company documents delivered in response to the Purchaser's formal due diligence request) and has had an opportunity to discuss the Company's business, management and financial affairs with directors, officers and management of the Company and has had the opportunity to review the Company's operations and facilities. The Purchaser has also had the opportunity to ask questions of and receive answers from the Company and its management regarding the terms and conditions of this investment.

(f) Rule 144

The Purchaser acknowledges and agrees that the Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. The Purchaser has been advised or is aware


of the provisions of Rule 144 promulgated under the Securities Act, which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things: the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being through an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934) and the number of shares being sold during any three-month period not exceeding specified limitations.

4. RETURN OF INVESTMENT

4.1 Current Return

The Company will pay the Purchaser a twenty percent (20%) per annum simple rate of return on the purchase price of the Shares (the "Current Return") on the terms and conditions set forth in this Article 4. The Current Return will be paid annually on the anniversary date of this Agreement until the earliest to occur of two specific trigger points ("Trigger Points") and will be based upon a 365 day year. The Current Return may be paid in cash or additional shares of Class A Common Stock at the election of the Company. If paid in shares, such shares will be valued at $100 per share for purposes of such payments.

4.2 Capital Return

In addition to the Current Return, the Company may pay the Purchaser a further return (the "Capital Return") at the Trigger Points as set forth in this Article 4. The Current Return and the Capital Return are together referred to in this Agreement as the "Return".

4.3 Payment of the Return

(a) The first Trigger Point for the payment of the Return is the date the Purchaser may sell all of its Shares in the public market following an initial public offering of shares of Class A Common Stock by the Company, which date is the date on which any market stand-off period under Section 6.4 expires and the Purchaser is permitted to sell all of its Shares under Rule 144 or another exemption under the Securities Act. The Company will notify the Purchaser of the occurrence of such date (the "Expiration Date") and will promptly pay the Purchaser the Current Return calculated from the last payment date of the Current Return through the Expiration Date. If the Fair Market Value is less than $180 per Share (the "Target Price") then the Company will also pay to the Purchaser a Capital Return per Share equal to the difference between the Target Price and the Fair Market Value. For purposes of this Section 4.3(a), "Fair Market Value" shall mean the average of: the closing prices quoted on any exchange on which the Company's Common Stock is listed; the closing prices of the Company's Common Stock on the NASDAQ National Market or NASDAQ SmallCap Market; or the bid and asked prices of the Company's Common Stock quoted in the Over-the-Counter Market Summary if not listed on any exchange or


the NASDAQ system; as reported in the Eastern Edition of The Wall Street Journal for the ten (10) trading days immediately prior to the Expiration Date. The Capital Return may be paid in cash or additional shares of Class A Common Stock at the election of the Purchaser, provided, however, to the extent the Purchaser elects to receive the Capital Return in cash, such amount shall be due and payable within thirty (30) days after the Expiration Date. If paid in shares, such shares would be valued at the Fair Market Value on the Expiration Date.

(b) If the Company has not completed an initial public offering of shares of Class A Common Stock prior to November 1, 2001, the Purchaser may thereafter notify the Company of its desire to have its Shares repurchased by the Company by delivering to the Company a notice to such effect (the "Repurchase Notice"). The second Trigger Point for the payment of the Return is the date the Repurchase Notice is deemed given to the Company (as determined by Section 7.9 below, the "Repurchase Date"). Upon delivery of the Repurchase Notice, the Company will promptly pay the Purchaser the Current Return calculated from the last payment of Current Return through the Repurchase Date. In addition, subject to the terms of this Section 4.3, within thirty (30) days after receipt of the Repurchase Notice, the Company will repurchase the Shares at a per Share price in cash equal to the sum of (i) the initial purchase price ($120 per share); and (ii) an assumed Capital Return ($60 per Share) (the "Assumed Capital Return"). If the Company does not have funds sufficient to repurchase the Shares or is contractually or otherwise prohibited from repurchasing the Shares, the Company will have six (6) months from the Repurchase Date in which to obtain the funds necessary to repurchase the Shares and complete the repurchase; or, in lieu thereof, at the Purchaser's election, the Company will promptly file a registration statement with the Securities and Exchange Commission, registering the Shares and such additional shares of Class A Common Stock to be issued by the Company as may be required to pay the Return in accordance with Article 6. The number of shares to be registered will be equal to (x) the initial number of Shares purchased plus (y)(i) shares representing the Assumed Capital Return based upon a per share price equal to the anticipated offering price and (ii) shares representing the Current Return calculated from the last payment of Current Return through the Repurchase Date and based upon a $100 per share price (the "Demand Registration Price").

(c) Additional terms and conditions of the registration are set forth in Article 6. The specific prices and values per Share set forth in this Section 4.3, including among others, the Target Price, initial purchase price, Assumed Capital Return, and the Demand Registration Price will be appropriately adjusted for stock splits, stock combinations, stock dividends and recapitalizations and reorganizations by the Company.


5. COVENANTS

5.1 Board of Representation

As soon as practicable following the date hereof, the Board of Directors of the Company shall be composed of and fixed at seven members, one whom shall be designated by the Purchaser. So long as the Purchaser holds 62,500 shares of Class A Common Stock (or such other number of shares of Class A Common Stock or other securities into which 62,500 shares may be converted or exchanged as a result of any stock split, stock dividend, reverse stock split, recombination, reclassification, recapitalization, reorganization, merger, consolidation or any other similar action), the Founders shall vote or cause to be voted its shares of the Company's capital stock in favor of the re-election of the Purchaser's designee to the Board. Such designee shall be entitled to access such information of the Company and its Subsidiaries as shall permit such designee to effectively function as a director. Likewise, the Purchaser agrees that, so long as it is the beneficial owner of capital stock of the Company, it shall vote or cause to be voted all of its shares in favor of the re-election of the Founders to the Board.

5.2 Additional Shares

The Company may sell to any other persons shares of Class A Common Stock (the "Additional Shares") within the period commencing on the date hereof and ending on the six (6) month anniversary of the date hereof, only pursuant to one or more stock purchase agreements, which shall be on terms no more advantageous to such persons then the terms hereof are to the Purchaser and only at a per share purchase price of not less than $120.

5.3 "Market Stand-Off" Agreement

Except for sales in connection with an initial public offering and in accordance with Section 6.3, or pursuant to Section 4.3(b), the Purchaser agrees, if requested by the Company and the underwriter of Class A Common Stock of the Company, not to sell or otherwise transfer or dispose of any Class A Common Stock of the Company held by the Purchaser during the one hundred eighty
(180) day period following the effective date of any registration statement of the Company filed under the Securities Act with respect to any underwritten public offering of Class A Common Stock by the Company, provided that:

(a) such agreement shall only apply to the first such registration statement of the Company; and

(b) The Company's officers and directors as well as the holders of a majority of the capital stock not held by officers and directors of the Company shall also enter into similar agreements.

Such agreement shall be in writing in a form satisfactory to the Company, the Purchaser and such underwriter. The Company may impose stop-transfer instructions with respect to the securities subject to the foregoing restrictions until the end of said one hundred


eighty (180) day period.

5.4 Intercompany Transactions

The Company covenants and agrees that any transactions between the Company and its Subsidiaries or between the Company (and its Subsidiaries), and either the Founders or companies controlled by the Founders or their immediate family members shall be at arms-length upon commercially reasonable terms and conditions, and the Founders covenant and agree that actions taken by them as Directors of the Company shall at all times be consistent with and satisfy their fiduciary obligations under New York law.

6. REGISTRATION RIGHTS

6.1 Certain Definitions. As used in this Article 6, the following terms have the following meanings:

"Commission" shall mean the Securities and Exchange Commission.

"Registrable Securities" shall mean (i) the Shares, (ii) shares of Class A Common Stock issued pursuant to Article 4, (iii) any Class A Common Stock issued in respect of that certain Conversion Rights Agreement dated April 24, 1998 by and between the Company and the Purchaser, as amended by Amendment No. 1 dated November 10, 1998, and (iv) any Class A Common Stock issued in respect of such securities upon any stock split, stock dividend, recapitalization or similar event.

"Registration" and the related terms "register" and "registered" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement.

"Registration Expenses" shall mean all expenses incurred by the Company in compliance with Section 6.2 or Section 6.3 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursement of counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company and expenses of regular annual and periodic audits, which shall be paid in any event by the Company) and the expenses associated with the Company's obligations under
Section 6.5 hereof.

"Restricted Securities" shall refer collectively to the securities of the Company required to bear a legend under applicable securities laws.

"Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect at the time.

"Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities and all fees and disbursements of counsel


for the Purchaser.

6.2 Required Registration. If required pursuant to Section 4.3 hereof, the Company shall register shares of Class A Common Stock for the Purchaser in accordance with the terms of this Article 6. Upon the obligation to register shares of Class A Common Stock for Purchaser, the Company shall notify all other parties having piggyback registration rights as of the date hereof of its intent to register such shares and include in such registration any Registrable Securities such other parties which they request by notice be included in such registration. Except for the foregoing and for securities for the Company's own account, no other securities may be included in such registration statement. Subject to the terms and conditions of this Article 6, the Company shall promptly effect such registration (and any related qualification under state blue sky laws and other compliance filings). Only Registrable Securities may be included in any registration.

6.3 Piggyback Registration Rights

(a) If the Company shall determine to register any of its securities either for its own account or the account of any security holder or holders (other than the Purchaser), other than a registration relating solely to employee benefit plans or pursuant to a registration statement on Form S-4 or the then equivalent of such form, the Company will:

(i) Promptly give to the Purchaser written notice thereof; and

(ii) Except as set forth in Section 6.3(b), include in such registration (and any related qualification under state blue sky laws and other compliance filings, and in any underwriting involved therein), all the Registrable Securities specified in a written request or requests, given by the Purchaser within fifteen (15) days after the written notice from the Company is given.

(b) If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Purchaser as part of the written notice given pursuant to Section 6.3(a)(i). In such event the right of the Purchaser to registration pursuant to this
Section 6.3 shall be conditioned upon the Purchaser's participation in such underwriting and the inclusion of the Purchaser's Registrable Securities in the underwriting to the extent provided herein. The Purchaser, together with the Company and the other persons distributing their securities through such underwriting, shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected or approved for underwriting by the Company. Notwithstanding any other provision of this Section 6.3, if the underwriter determines that marketing factors require a limitation on the number of shares to be underwritten, the underwriter may (subject to the allocation


priority set forth below) exclude from such registration and underwriting some or all of the Purchaser's Registrable Securities which would otherwise be underwritten pursuant hereto. The Company shall so advise all persons requesting registration of the number of shares of securities that are entitled to be included in the registration and underwriting, allocated in the following manner: (i) first, the number of securities which the Company proposes to offer and sell for its own account, and (ii) to the extent permitted by the underwriter, there shall be included in such registration that number of securities which persons having registration rights shall have requested to be included in such registration, with any limitation on the number of securities so included to be imposed pro rata on Purchaser and all other persons to the extent they request inclusion therein. If the Purchaser or any other security holder requesting registration disapproves of the term of any such underwriting, such person may elect to withdraw therefrom by written notice to the Company and the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration.

6.4 Expense of Registration. All Registration Expenses incurred on behalf of the Purchaser in connection with any registration, qualification or compliance pursuant to this Article 6 shall be borne by the Company, and all Selling Expenses (other than Selling Expenses incurred pursuant to Section 4.3(b) hereof which shall be borne by the Company) shall be borne by the Purchaser and all other holders of the securities so registered pro rata on the basis of the number of their shares so registered.

6.5 Registration Procedures. In the case of each registration effected by the Company pursuant to this Article 6, the Company will advise the Purchaser in writing as to the initiation of each registration and as to the completion thereof. The Company will:

(a) Keep such registration effective for a period of ninety (90) days or until the Purchaser has completed the distribution described in the registration statement relating thereto, whichever first occurs.

(b) Furnish such number of prospectuses and other documents incident thereto as the Purchaser from time to time may reasonably request.

(c) Register or qualify the Registrable Securities covered by such registration under such other securities or blue sky laws of such jurisdiction (subject to the approval of any managing underwriter involved) as the Purchaser shall reasonably request, and do any and all other acts and things which may be reasonably necessary or advisable to enable the Purchaser to consummate the disposition in such jurisdictions of the Registrable Securities; provided, however,


that the Company shall not be obligated, by reason thereof, to qualify as a foreign corporation in any jurisdiction where it would not otherwise be required to qualify or consent to general service of process in any such jurisdiction or subject itself to taxation as doing business in any such jurisdiction.

(d) Notify the Purchaser promptly after the Company shall receive notice or have knowledge that any registration statement, supplement or amendment has become effective, any registration statement is required to be amended or supplemented, any stop order has been issued, the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation of a proceeding for that purpose, or of the happening of any event as a result of which, the prospectus included in such registration statement as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made.

(e) Make every reasonable effort to obtain at the earliest possible moment the withdrawal of any order suspending the effectiveness of a registration statement or suspending the qualification of any of the Registrable Securities for sale in any jurisdiction.

(f) Promptly prepare and furnish to the Purchaser a reasonable number of copies of a supplement to or an amendment of a prospectus as may be necessary so that such prospectus shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made.

(g) Include the Registrable Securities for listing on any national securities exchange or the NASDAQ system on which the Company's Class A Common Stock is listed.

(h) Make available for inspection by a representative of the Purchaser, any underwriters participating in any disposition pursuant hereto, and any attorney or accountant retained by the Purchaser or such underwriters, upon reasonable notice during normal business hours all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such representative, underwriter, attorney or accountant in connection with such registration; provided that any such records, information or documents that are designated by the Company in writing as confidential shall be kept confidential by such persons unless disclosure of such records, information or documents is required by court or administrative order.


(i) Make generally available to its securities holders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.

6.6 Indemnification

(a) In the event of the registration of the Purchaser's Registrable Securities under the Securities Act pursuant to this Article 6, the Company will indemnify and hold harmless the Purchaser, each underwriter, if any, of such shares, and each other person, if any, who controls the Purchaser or any such underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Purchaser, the underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such Registrable Securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein (as such may be amended or supplemented), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements contained therein not misleading (including, without limitation, all information incorporated by reference in such registration statements and prospectuses), and will reimburse the Purchaser, each such underwriter, and each such controlling person for any legal or any other expenses reasonably incurred by the Purchaser, such underwriter or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, such preliminary prospectus, or such final prospectus (as such may be amended or supplemented) in reliance upon and in conformity with, written information furnished to the Company by the Purchaser, the underwriter or controlling person specifically for use in preparation thereof.

(b) In the event of the registration by the Company of any of the Purchaser's Registrable Securities, the Purchaser will indemnify and hold harmless the Company, each underwriter and each person who controls the Company or any such underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Company, such underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue


statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable Securities were registered under the Securities Act, any prospectus or preliminary prospectus contained therein, or amendment or supplement thereto, or arises out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements contained therein not misleading, which untrue statement or alleged untrue statement or omission or alleged omission was made therein in reliance upon and in conformity with, written information furnished to the Company by the Purchaser specifically for use in connection with the preparation thereof; and will reimburse the Company, each such controlling person, and each such underwriter for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action.

(c) Each party entitled to indemnification under this Section 6.6 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 6.6. No Indemnifying Party, in the defense of any such claim of litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation.

6.7 Information by the Purchaser. The Purchaser shall furnish in writing to the Company such information regarding the Purchaser as the Company may reasonably request and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Article 6.

6.8 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may permit the sale of the Restricted Securities to the public without registration, the Company agrees to:

(a) Use its best efforts to make and keep public information available, as those terms are understood and defined in Rule 144 under the


Securities Act, at all times from and after ninety (90) days following the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public;

(b) Use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act") at any time during which it is subject to such reporting requirements; and

(c) So long as the Purchaser owns any Restricted Securities, furnish to the Purchaser forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after ninety (90) days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time during which it is subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as the Purchaser may reasonably request in availing itself of any rule or regulation of the Commission allowing the Purchaser to sell any such securities without registration.

6.9 Transfer of Registration Rights. The right to cause the Company to register Registrable Securities pursuant to this Article 6 may be assigned by the Purchaser to a transferee of Registrable Securities, provided (i) the Company is, within a reasonable time after such transfer furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and (ii) the transferee or assignee agrees in writing to be bound by the provisions of this Agreement.

6.10 Termination of Registration Rights. The right to cause the Company to register securities granted by the Company under this Article 6 shall terminate with respect to any Purchaser at such time as all of the Registrable Securities of such Purchaser can be sold (in a single transaction) in accordance with Rule 144.

7. MISCELLANEOUS

7.1 Governing Law

This Agreement shall be governed in all respects by the laws of the State of New York as such laws are applied to agreements between New York residents entered into and performed entirely in New York.

7.2 Survival

The representations and warranties made herein shall survive any investigation made by the Purchaser and the closing of the transactions contemplated hereby for a period of two (2) years, except that the representations and warranties set forth in Section 2.1 and 2.3 shall


survive until the termination of the Company's existence. The covenants and agreements made herein shall survive until they expire by their own terms. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date hereof.

7.3 Successors and Assigns

Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Shares from time to time.

7.4 Entire Agreement

This Agreement, the Exhibits and Schedule hereto, and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein.

7.5 Separability

In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

7.6 Amendment

This Agreement may be amended or modified only upon the written consent of the Company and holders of at least a majority of the Shares.

7.7 Waiver

The obligations of the Company and the rights of the holders of the Shares under this Agreement may be waived only with the written consent of the holders of at least a majority of the Shares.

7.8 Delays or Omissions

It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement or the Restated Articles, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind


or character on the Purchaser's part of any breach, default or noncompliance under this Agreement or under the Restated Articles or any waiver on such party's part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, the Restated Articles, bylaws, or otherwise afforded to any party, shall be cumulative and not alternative.

7.9 Notices

All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified; (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

(a) if to the Company, to:

Telergy, Inc.
One Telergy Parkway
East Syracuse, NY 13057 Attn: Chief Executive Officer Facsimile: (315) 433-5358

with a copy to:

Telergy, Inc.
20 Corporate Woods
Albany, NY 12207
Attn: General Counsel Facsimile: (518) 463-9937

with an additional copy to:

Pepe & Hazard LLP
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attn: Walter W. Simmers, Esq.

Facsimile: (860) 522-2796

(b) if to the Founders, to:

Messrs. Kevin and Brian Kelly c/o Telergy, Inc.
One Telergy Parkway


East Syracuse, NY 13057 Attn: Chief Executive Officer Facsimile: (315) 433-5358

with a copy to:

Telergy, Inc.
20 Corporate Woods
Albany, NY 12207
Attn: General Counsel Facsimile: (518) 463-9937

with an additional copy to:

Pepe & Hazard LLP
Goodwin Square
Hartford, CT 06103
Attn: Walter W. Simmers, Esq.

Facsimile: (860) 522-2796

(c) if to the Purchaser, to:

Niagara Mohawk Energy, Inc. 507 Plum Street
Syracuse, NY 13204
Attn: Treasurer
Facsimile: (315) 460-3338

with a copy to:

Niagara Mohawk Energy, Inc. 507 Plum Street
Syracuse, NY 13204
Attn: General Counsel
Facsimile: (315) 460-3338

with an additional copy to:

Sullivan & Cromwell
1701 Pennsylvania Avenue Washington, DC 20006
Attn: Janet T. Geldzahler, Esq.

Facsimile: (202) 956-7619

7.10 Expenses

Each of the parties shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement.


7.11 Attorney's Fees

In the event that any dispute among the parties to this Agreement should result in litigation, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.

7.12 Titles and Subtitles

The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

7.13 Counterparts

This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

7.14 Broker's Fees

Each party hereto represents and warrants that no agent, broker, investment banker, person or firm acting on behalf of or under the authority of such party hereto is or will be entitled to any broker's or finder's fee or any other commission directly or indirectly in connection with the transactions contemplated herein. Each party hereto further agrees to indemnify each other party for any claims, losses or expenses incurred by such other party as a result of the representation in this Section 7.14 being untrue.

[Remainder of page has been intentionally left blank]


IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth in the first paragraph hereof.

COMPANY:

TELERGY, INC.

By: /s/Brian Kelly
    -----------------------
Name: Brian Kelly
Title: C.E.O.

NIAGARA MOHAWK ENERGY, INC.

By: /s/J. Phillip Franzier
    -----------------------
Name: J. Phillip Frazier
Title: C.F.O. & President

FOUNDERS
(only as to Sections 5.1 and 5.4 hereof)

/s/Kevin J. Kelly
----------------------------
Kevin J. Kelly, individually

/s/Brian Kelly
----------------------------

Brian P. Kelly, individually


EXHIBIT 10.2.2

TELERGY, INC.

FIRST MODIFICATION TO
STOCK PURCHASE AGREEMENT
May 11, 1999


TELERGY INC.
FIRST MODIFICATION TO STOCK PURCHASE AGREEMENT

This First Modification to Stock Purchase Agreement (this "Agreement") is entered into as of May 11, 1999, by and among Telergy, Inc., a New York corporation with offices at One Telergy Parkway, East Syracuse, New York 13057 (the "Company"), and Niagara Mohawk Energy, Inc., ("NME") a Delaware corporation with offices at 507 Plum Street, Syracuse, New York 13204, and Opinac North America, Inc. (Opinac) (NME and Opinac are sometimes referred to herein collectively as the "Purchasers") and, with respect to Sections 5.1 and 5.4 only, Kevin J. Kelly and Brian P. Kelly (the "Founders").

RECITALS

WHEREAS, NME and the Company entered into a Stock Purchase Agreement dated November 10, 1999; and

WHEREAS, Opinac and the Company entered into a Securities Purchase Agreement dated May 11, 1999; and

WHEREAS, in connection with their respective investments, the Purchasers desires to appoint designees to the Company's Board of Directors; and

WHEREAS, the Company has agreed to appoint NME's designee as further provided in the Stock Purchase Agreement; and

WHEREAS, the Company has agreed to appoint Opinac's designee as further provided herein.

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto agree as follows:

1. DESIGNATION TO BOARD OF DIRECTORS

The Board of Directors shall elect the NME designee to the Board on or before May 20, 1999, subject to shareholder ratification. As soon as practicable following the date hereof, the Board of Directors of the Company shall be composed of and fixed at a minimum of seven members, one whom shall be designated by NME, and one of whom shall be designated by Opinac. So long as the Purchasers collectively hold securities representing the right to hold a minimum of 10% of the outstanding shares of Class A Common stock (or such other number of shares of Class A Common stock and such other securities into which the Class A Common Stock may be converted or exchanged as a result of any stock split, stock dividend, reverse stock split, recombination, reclassification, recapitalization, reorganization, merger, consolidation or any other similar action ("Equivalents")), the Founders shall vote or cause to be voted their shares of the Company's capital stock in favor of the re-election of each of the Purchasers' designees to the Board, provided that such representation shall be proportionate to the Purchasers' ownership of Class A Common Stock


(including Class A Common Stock which the Purchaser has the right to acquire). In the event Purchasers' ownership of the Class A Common Stock or its Equivalent falls below 10% but remains equal to or greater than 5% of the outstanding Common Stock, Purchasers collectively shall be entitled to designate only one person to the Board of Directors, by written notice to the Company. In the event Purchasers ownership of Class A Common Stock or its equivalent falls below 5%, Purchasers shall not be entitled to designate any person to the Board.

Such designees shall be entitled to access such information of the Company and its Subsidiaries as shall permit such designees to effectively function as Directors and shall serve as Directors consistent with the fiduciary duties imposed at law. Likewise, the Purchasers agree that, so long as they are the beneficial owner of capital stock of the Company, each shall vote or cause to be voted all of its shares in favor of the re-election of the Founders to the Board.

Notwithstanding anything to the contrary herein, Opinac shall not be entitled to nominate a person to the Board and the Founders obligation to vote in favor of the Opinac designee shall become effective only upon conversion of the Note to the Conversion Shares as provided in the Securities Purchase Agreement. In the event such conversion has not been completed on or before July 10, 1999, unless the Company is in breach of its obligation to file pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the Company's obligations with respect to Opinac's designation of a person to the Board, as well as Opinac's rights hereunder shall be of no further force and effect and shall terminate.

1. Miscellaneous Provisions

This Agreement shall be governed in all respects by the laws of the State of New York as such laws are applied to agreements between New York residents entered into and performed entirely in New York.

This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof.

This Agreement may be amended or modified only upon the written consent of the Company and each of the Purchasers.

The obligations of the Company and the rights of the Purchasers under this Agreement may be waived only with the written consent of the Purchasers.

All notices required or permitted hereunder shall be in writing and shall be deemed effectively given for NME and the Company if given in the manner and method set forth in the Stock Purchase Agreement dated November 10, 1998, and for Opinac and the Company if given in the manner and method set forth in the Securities Purchase Agreement dated May 11, 1999.


Each of the parties shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement.

In the event that any dispute among the parties to this Agreement should result in litigation, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.

This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

[Remainder of page has been intentionally left blank]


IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth in the first paragraph hereof.

COMPANY:

TELERGY, INC.

By: /s/Brian Kelly
    --------------------------
Name: Brian Kelly
Title: C.E.O.

PURCHASERS:

OPINAC NORTH AMERICA, INC.

By: /s/Albert J. Budney, Jr.
    -------------------------
Name: Albert J. Budney, Jr.
Title: President

NIAGARA MOHAWK ENERGY, INC.

By:  /s/J. Phillip Frazier
    --------------------------
Name: J. Phillip Frazier
Title: C.E.O. & President

FOUNDERS:

/s/Kevin J. Kelly
----------------------------
Kevin J. Kelly, individually

/s/Brian Kelly
----------------------------
Brian P. Kelly, individually


CONVERSION RIGHTS AGREEMENT

This Agreement is made as of April 24, 1998, by and between TELERGY, INC. ("Telergy"), a New York corporation with a mailing address at 5784 Widewaters Parkway, Dewitt, New York 13214 and PLUM STREET ENTERPRISES, INC. ("PSE"), a Delaware corporation with a mailing address at 507 Plum Street, Syracuse, New York 13204. Telergy and PSE are venturers of Telergy Joint Venture which is being converted to Telergy Central, LLC, a New York limited liability company, to be governed by an Operating Agreement made as of April 24, 1998.

1. Sale of Membership Interest and IRU. In the event of a successful Financial Offering by Telergy, or by an Affiliate parent corporation or limited liability company of Telergy, which occurs before the earlier of the transfer, sale, alienation, assignment, mortgage, pledge or other encumbrance or disposition (by operation of law or otherwise) by PSE of either its Membership Interest or the PSE IRU, PSE shall be obligated to sell and Telergy shall be obligated to purchase PSE's Membership Interest and the PSE IRU, unless, in the case of a High Yield Bond Offering or a Private Placement, PSE has elected not to sell its Membership Interest and the PSE IRU, in accordance with the procedure set forth in Section 5.

2. Purchase of Telergy Common Stock. In the event PSE's Membership Interest and the PSE IRU are sold to Telergy pursuant to this Agreement, PSE shall have the right to purchase and Telergy shall be obligated to sell Class A voting common stock of Telergy, or a stock equivalent (other than Class C common stock), including convertible preferred stock or warrants which permit the acquisition of Class A voting common stock or stock equivalent, which is sold in the Financial Offering by Telergy ("Common Stock"), for cash consideration of up to the amount of the proceeds received by PSE from Telergy for the sale of PSE's Membership Interest and the PSE IRU (the "Purchase Option").

3. Financial Offering. For purposes of this Agreement a Financial Offering by Telergy shall not include its first successful sale of high yield bonds or similar debt securities whether made through a private placement or a registered offering, but following such an initial sale of high yield bonds a Financial Offering by Telergy shall include the first to occur of either (i) an initial public offering of Common Stock (an "IPO"), (ii) a sale of high yield bonds in the amount of at least one hundred million dollars ($100,000,000) whether made through a private placement or a registered offering (a "High Yield Bond Offering"), or (iii) a private placement of Common Stock and/or Class C common stock, which does not include the exercise of outstanding warrants or options, in the amount of at least one hundred million dollars ($100,000,000) (a "Private Placement"). Notwithstanding the foregoing, for purposes of this Agreement a Financial Offering by Telergy shall also include an IPO which occurs prior to Telergy's first successful sale of high yield bonds or similar debt securities.

4. Definitions. The defined terms used in this Agreement (as indicated by the first letter of each word in the term being capitalized) shall, unless the context clearly requires otherwise, have the meanings specified in the Operating Agreement or as may be specified elsewhere throughout this Agreement. The singular shall include the plural and the masculine gender shall include the feminine and neuter, as the context requires.


5. Notice of a Proposed Financial Offering by Telergy. Telergy shall give PSE a Notice of its intent to make a Financial Offering at least fifteen
(15) days prior to the closing of such a Financial Offering. If the investment banker of Telergy has made a preliminary valuation of the Membership Interest of PSE and/or the PSE IRU, Telergy will provide PSE with a reasonable narrative summary of that valuation, along with its Notice of intent to make a Financial Offering. If the Financial Offering is a High Yield Bond Offering or a Private Placement, PSE may make its election not to sell its Membership Interest and the PSE IRU by giving Telergy Notice of such election within five (5) days after Telergy's Notice of the intended Financial Offering. Otherwise, within five (5) days after Telergy's Notice of the intended Financial Offering, (i) PSE shall execute and deliver to Telergy in escrow an instrument of conveyance for the PSE IRU, and (ii) Telergy and PSE shall meet to determine how the procedures authorized by this Agreement will be implemented to determine a sale price for PSE's Membership Interest and the PSE IRU. PSE shall engage its investment banking firm, as provided in Section 7(a), within ten (10) days after Telergy's Notice of the intended Financial Offering.

6. Notice by PSE to Exercise the Purchase Option. PSE shall exercise its Purchase Option by giving Telergy a Notice of exercise within five (5) days of receiving Telergy's Notice of the intended Financial Offering, unless PSE has elected not to sell its Membership Interest and the PSE IRU, in accordance with the procedure set forth in Section 5. The PSE Notice of exercise shall specify the percentage of the proceeds to be received from Telergy for the sale of PSE's Membership Interest and the PSE IRU which is to be used to purchase Common Stock.

7. Determination of Sale Price for Membership Interest and PSE IRU.

(a) The sale price for the Membership Interest of PSE and the PSE IRU may be determined by the agreement of Telergy and PSE, and they agree to negotiate in good faith to determine a sale price. In the event Telergy and PSE cannot agree on a sale price, then it shall be determined initially by an investment banking firm selected by PSE which shall determine a sale price based upon the fair market value of the Membership Interest of PSE and the PSE IRU. The determination of the investment banking firm shall be submitted to Telergy, and if Telergy agrees with the determination of the sale price it shall be binding on the parties. However, if Telergy does not agree with the sale price, then it shall select an investment banking firm to determine the sale price based upon the fair market value of the Membership Interest of PSE and the PSE IRU. If the lower sale price determined by the two investment banking firms is at least eighty percent (80%) of the higher price, then the sale price shall be the average of the two prices. Otherwise, the sale price shall be determined by an arbitrator who shall select the price determined by one of the investment banking firms. The arbitrator shall be selected by the two investment banking firms and shall be a Person familiar with the telecommunications industry. The decision of the arbitrator shall be final and binding on both Telergy and PSE. The arbitration procedures, protocols and provisions are set forth in Section
7(b). Each party shall bear the fees, costs and out of pocket expenses of the investment banking firm which it selected, but shall equally share the cost of any arbitration utilized to determine the sale price. Any investment banking firm engaged to determine the sale price and the arbitrator must agree in writing (i) to protect the confidentiality of the Company's non-public, trade secret, financial, confidential and proprietary data, and (ii) not to disclose the existence, content or results of any

-2-

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/ Brian Kelly
   ________________________________
      Brian P. Kelly
      Chief Executive Officer

PLUM STREET ENTERPRISES, INC.

By: /s/ J. Phillip Frazier
   ________________________________
      J. Phillip Frazier
      President and Chief Executive Officer

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EXHIBIT 10.3.2

AMENDMENT NO. 1 TO
CONVERSION RIGHTS AGREEMENT

This AMENDMENT NO. 1 to CONVERSION RIGHTS AGREEMENT (hereinafter called this "Amendment"), dated as of November 10, 1998, between TELERGY, INC., a New York corporation ("Telergy") and NIAGARA MOHAWK ENERGY, INC., a Delaware corporation formerly known as Plum Street Enterprises, Inc. ("NME" or "PSE").

R E C I T A L S

WHEREAS, Telergy and NME have entered into a Conversion Rights Agreement, dated as of April 24, 1998 (the "Conversion Rights Agreement"), providing for the conversion, under certain circumstances, into common stock of Telergy of NME's 25% membership interest (the "Membership Interest") in Telergy Central, LLC ("Telergy Central") and its 25% interest in the indefeasible right of use of the total capacity of Telergy Central's backbone network;

WHEREAS, concurrently with the execution of this Amendment, Telergy and NME are entering into a Stock Purchase Agreement, dated as of the date hereof (the "Stock Purchase Agreement"), pursuant to which NME shall purchase from Telergy 83,334 shares of Class A common stock of Telergy, and

WHEREAS, in connection with the execution of the Stock Purchase Agreement, Telergy and NME desire to make certain amendments to the Conversion Rights Agreement.

NOW THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein and in the Conversion Rights Agreement, the parties hereto agree as follows:

1. Definitions. Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to them in the Conversion Rights Agreement.

2. Minimum Interest. (a) In the event that NME sells the Membership Interest and the PSE IRU and NME does not exercise its right to purchase shares of Common Stock using the proceeds from the sale pursuant to Section 2 of the Conversion Rights Agreement, then in no event shall the sale price of the Membership Interest and the PSE IRU determined in accordance with Section 7(a) of the Conversion Rights Agreement represent a percentage of the value of Telergy that is less than nine percent (9%).


(b) In the event that NME sells the Membership Interest and the PSE IRU and NME exercises its right to purchase shares of Common Stock using the proceeds from the sale pursuant to Section 2 of the Conversion Rights Agreement, then in no event shall the determination of (i) the sale price for the Membership Interest and the PSE IRU pursuant to Section 7 of the Conversion Rights Agreement and (ii) the per share purchase price for Common Stock to be purchased by NME pursuant to Section 8 of the Conversion Rights Agreement be such that, upon exercise in full by NME of the Purchase Option, NME would receive a number of shares of Common Stock which would represent less than nine percent (9%) of all of the shares of common stock of Telergy (including the Class C common stock) outstanding after issuance thereof, calculated on a fully-diluted basis.

3. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the state of New York, without giving effect to the principles of conflicts of laws thereof.

4. Counterparts. This Amendment may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written.

TELERGY, INC.

By:  /s/ Brian Kelly
     -----------------------
Name: Brian Kelly
Title: CEO

NIAGARA MOHAWK ENERGY, INC.

By:  /s/ J. Phillip Frazier
     -----------------------
Name: J. Phillip Frazier
Title: CEO & President


EXHIBIT 10.3.3

[Telergy Letterhead]

Via Facsimile
July 15, 1999

Niagara Mohawk Energy, Inc.
507 Plum street
Syracuse, NY 13204

Re: Amendment No. 2 to Conversion Rights Agreement and Amendment No. 1 to Stock Purchase Agreement (11/10/98)

Dear Sirs:

This letter confirms that we hereby amend the Conversion Rights Agreement dated April 24, 1998 (as amended on November 10, 1998) to increase Niagara Mohawk Energy's Minimum Interest as provided in paragraph 2 of the first amendment to 10%.

In exchange, Niagra Mohawk Energy hereby amends the Stock Purchase Agreement dated November 10, 1998 as follows: (1) the Capital Return to be paid under section 4.3(a) may be paid in cash or additional shares of Class A Common Stock at the election of the Company rather than Niagara Mohawk Energy and (2) in the event the Company is required to repurchase Niagara Mohawk Energy's shares under section 4.3(b), the Company may fulfill that obligation by electing to pay cash to repurchase the shares or by registering such shares for sale by Niagara Mohawk Energy to the public.

If this letter accurately reflects our agreement, kindly sign and return by facsimile (518) 463-9937.

Sincerely,

/s/ Kevin J. Kelly
Kevin J. Kelly
Executive Vice President

Accepted and agreed to this 15th day of July By Niagara Mohawk Energy, Inc.:

By:         /s/ Mathew J. Picardi
Title:      General Counsel and Secretary


EXHIBIT 10.4

LICENSE AND OPERATING AGREEMENT

THIS LICENSE AND OPERATING AGREEMENT, made this 28th day of January, 1998 ("L&O Agreement") is by and between Consolidated Edison Company of New York, Inc., a corporation organized under the laws of the State of New York, with offices at 4 Irving Place, New York, NY 10003 ("Con Edison") and Telergy Metro, LLC, a limited liability company organized and existing under the laws of the State of New York, with offices at 5784 Widewaters Parkway, Syracuse, New York 13214 ("Telergy Metro").

WHEREAS, Telergy Metro desires to construct, install, operate, and maintain a certain portion of a fiber optic network (such portion being defined below as the "Backbone Network") in, on or through certain property owned by Con Edison (such property being defined below as the "Licensed Property");

WHEREAS, Telergy Metro desires to construct, install, operate, and maintain certain extensions of the Backbone Network (such extensions of the Backbone Network being defined below as "Spur Routes");

WHEREAS, Con Edison, in accordance herewith, desires to grant certain rights to permit the Backbone Network and any Spur Route(s) as may, in the future, be agreed upon by the parties in accordance with this L&O Agreement, to be constructed, installed, maintained, and operated in, on, over, or through the Licensed Property;

NOW, THEREFORE, in consideration of the premises and covenants contained herein, Con Edison and Telergy Metro agree as follows:

Section 1 - DEFINITIONS

For the purposes of this L&O Agreement, the following definitions apply:

"Backbone Network" means no more than [***] Fiber Optic Cables located in, on, over, or through the Licensed Property described in Exhibit 1 hereof together with the terminating lightwave distribution patch panels required at the sites listed in Exhibit 3 hereof in connection with any Equivalent Compensation consisting of the use of single mode dark fiber strands that is to be provided to Con Edison with regard to such Backbone Network and the duct or other conduit as well as the fiber optic facilities necessary to properly connect such distribution patch panels with such single mode dark fiber strands in such Fiber Optic Cables; it being understood and agreed that: (a) the number of Fiber Optic Cables that will be permitted, subject to such maximum number of

Confidential

[***]  Confidential treatment has been requested with respect to material
       omitted on this page. The omitted portions have been filed separately
       with the Securities and Exchange Commission.


[***] (but in any event no fewer than [***] such Fiber Optic Cable), shall be determined by Con Edison based on prudent engineering principles and taking into account, without limitation, the design, condition and other characteristics of the Licensed Property in, on, over, or through which the Backbone Network shall be located (but the number of Fiber Optic Cables, up to such permitted number so determined by Con Edison, that actually will be located in, on, over, or through the Licensed Property described in Exhibit 1 shall be determined by Telergy Metro); (b) all such permitted Fiber Optic Cables shall, when the Licensed Property consists of poles or underground ducts, be located together in, on, over, or through the same selected pole or underground duct (and such duct's associated manholes), as applicable, and (c) all such permitted Fiber Optic Cables shall, when the Licensed Property consists of transmission towers or transmission rights-of-way be located and routed in, on, over, or through such transmission towers and transmission tower rights-of-way as described in Exhibit 1;

"Fiber Optic Cable" means All Dielectric Self Supporting (ADSS) fiber optic cable with a maximum outside diameter of one and one quarter (1 1/4) inches and the associated splicing enclosures when such Fiber Optic Cable is located on or between transmission towers or between a transmission tower and another structure comprising Licensed Property and otherwise means fiber optic cable with a maximum outside diameter of one inch and the associated splicing enclosures; it being understood and agreed that, in accordance with the construction/installation requirements that are referenced in Section 23 hereof, the actual outside diameter of Fiber Optic Cable that will be permitted, subject to such maximum outside diameter of one inch, shall be determined by Con Edison based on prudent engineering principles and taking into account, without limitation, the design, condition and other characteristics of the Licensed Property in, on, or through which the Backbone Network and any Spur Routes shall be located and the design, condition and other characteristics of the Backbone Network and any Spur Routes;

" PSC Approval" means (a) a written order of the New York State Public Service Commission ("PSC") approving this L&O Agreement without any modification to this L&O Agreement, in which case the date of such PSC Approval shall be the date of such written order or (b) a written order of the PSC approving this L&O Agreement with any modification(s) to this L&O Agreement; provided that each party, in its respective sole discretion which is not to be judged by any standard of reasonableness or any similar standard, agrees to accept each such modification to this L&O Agreement in a signed writing between the parties that is entered into no later than the earlier of (y) sixty (60) days after the date of such order or (z) within such time as such order requires Con Edison to agree to such modification(s), in which case the

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Confidential

[***]  Confidential treatment has been requested with respect to material
       omitted on this page. The omitted portions have been filed separately
       with the Securities and Exchange Commission.


date of such PSC Approval shall be the date of such agreement of the parties to accept such modification(s).

"Licensed Property" means the Con Edison transmission towers, transmission tower rights-of-way, poles, and underground ducts (and such ducts' associated manholes) described in Exhibit 1 hereof, in, on, over, or through which the Backbone Network shall be located as described in Exhibit 1 hereof and any Con Edison transmission towers, transmission tower rights-of-way, poles, underground ducts (and such ducts' associated manholes), and service entrance pipes (and such pipes' associated service boxes) described in Exhibit 2 hereof, in on, over, or through which any Spur Routes shall be located; it being understood and agreed that: (a) the Con Edison transmission towers and transmission tower rights-of-way comprising a portion of the Licensed Property are described in Exhibit 1 regarding the Backbone Network and Exhibit 2 as it may be amended regarding any Spur Routes; (b) the general street path of the poles and underground ducts (and such ducts' associated manholes) comprising the balance of the Licensed Property regarding the Backbone Network are described in Exhibit 1 and the general street path of the poles, underground ducts (and such ducts' associated manholes), and service entrance pipes (and such pipes' associated service boxes) comprising the balance of the Licensed Property regarding any Spur Routes are described in Exhibit 2 as it may be amended; (c) during construction and/or installation of the Backbone Network, Con Edison, in its sole discretion (which is not to be judged by any standard of reasonableness or any other similar standard), shall select the precise poles and underground ducts (and such ducts' associated manholes) along such general street path (except if a pole or underground duct along such general street path is not available in which case an available pole or duct in a street in close proximity to such general street path shall be so selected) and the specific location or locations on the transmission towers and the transmission towers rights-of-way in, on, over, or through which the Backbone Network shall be located; (d) during construction of any Spur Route, Con Edison, in its sole discretion (which is not to be judged by any standard of reasonableness or any other similar standard), shall select the precise poles, underground ducts (and such ducts' associated manholes) and service entrance pipes (and such pipes' associated service boxes) along such general street path (except if a pole or duct or service entrance pipe along such general street path is not available in which case an available pole or duct or service entrance pipe in a street in close proximity to such general street path shall be so selected) and the specific location or locations on the transmission towers and the transmission towers rights-of-way in, on, over, or through which any Spur Routes shall be located; provided, however, that
(y) the precise underground ducts that shall be selected shall be at least three
(3) inches in inside diameter (and with respect to the Backbone Network, Con

3

Edison shall make reasonable effort to select ducts that are at least three and one-half (3 1/2) inches in inside diameter), and (z) insofar as the termination of the Backbone Network at [***] is concerned, an unoccupied Con Edison underground duct in an existing underground duct bank that (i) contains such an unoccupied underground duct, (ii) contains underground ducts occupied by primary voltage electric feeders, and (iii) is the closest of the underground duct banks that satisfy (i) and (ii) immediately above to the point of entry selected by Telergy Metro for the building address of [***], will be selected (the "[***] Requirement").

"Spur Route" means an extension to the Backbone Network that (a) connects directly or indirectly with such Backbone Network; (b) is agreed upon by the parties pursuant to paragraph D of Section 2 hereof; and (c) is comprised of (i) no more than [***] Fiber Optic Cables located in, on, over, or through such Licensed Property as may be agreed upon by the parties pursuant to paragraph D of Section 2 hereof and described in Exhibit 2 hereof, as it may be amended; and
(ii) any terminating lightwave distribution patch panels required at the sites listed in the written agreement of the parties pursuant to Paragraph D of
Section 2 hereof in connection with any Equivalent Compensation consisting of the use of single mode dark fiber strands that is to be provided to Con Edison with regard to such Spur Route and the duct or other conduit as well as the fiber optic facilities necessary to properly connect any such distribution patch panels with such single mode dark fiber strands in such Fiber Optic Cables; it being understood and agreed that: (w) the number of Fiber Optic Cables that will be permitted, subject to such maximum number of [***] (but in any event no fewer than [***] such Fiber Optic Cable), shall be determined by Con Edison based on prudent engineering principles and taking into account, without limitation, the design, condition and other characteristics of the Licensed Property in, on, over, or through which any Spur Route shall be located (but the number of Fiber Optic Cables, up to such permitted number so determined by Con Edison, that actually will be located in, on, over, or through the Licensed Property described in Exhibit 2 hereof as it may be amended shall be determined by Telergy Metro); (x) all such permitted Fiber Optic Cables shall, when the Licensed Property consists of poles or underground ducts, be located together in, on, over, or through the same selected pole or underground duct (and such duct's associated manholes), as applicable; (y) a maximum of [***] Fiber Optic Cable shall be permitted in or through any Licensed Property consisting of a service entrance pipe and such pipe's associated service box; and (z) the permitted Fiber Optic Cables shall, when the Licensed Property consists of transmission towers or transmission rights-of-way, be located and routed in, on, over, or through such transmission towers or transmission tower rights-of-

[***] Confidential treatment has been requested with respect to material omitted on this page. The omitted portions have been filed separately with the Securities and Exchange Commission.

4

way as described in Exhibit 2 as it may be amended.

Section 2 - GRANT OF RIGHT TO USE CON EDISON PROPERTY

A. Subject to all of the terms and conditions of this L&O Agreement, including but not limited to the construction/installation requirements and the maintenance requirements referenced in Section 23 hereof, Con Edison hereby grants to Telergy Metro a non-exclusive license to construct, install, operate and maintain the Backbone Network in, on, over, or through the Licensed Property described in Exhibit 1 hereof and any Spur Routes in, on, over, or through any Licensed Property described in Exhibit 2 hereof as it may be amended (the "License Grant"), it being understood and agreed that: (a) the Con Edison transmission towers and transmission tower rights-of-way comprising a portion of the Licensed Property are described in Exhibit 1 regarding the Backbone Network and Exhibit 2 as it may be amended regarding any Spur Routes; and (b) the general street paths of the poles and underground ducts (and such ducts' associated manholes) comprising the balance of the Licensed Property regarding the Backbone Network are described in Exhibit 1 and the general street path of the poles, underground ducts (and such ducts' associated manholes), and service entrance pipes (and such pipes' associated service boxes) comprising the balance of the Licensed Property regarding any Spur Routes are described in Exhibit 2 hereof as it may be amended; (c) during construction of the Backbone Network and any Spur Routes, Con Edison, in its sole discretion (which is not to be judged by any standard of reasonableness or any other similar standard), shall select the precise poles and underground ducts (and such ducts' associated manholes) along such general street path (except if a pole or underground duct along such general street path is not available in which case an available pole or underground duct in a street in close proximity to such general street path shall be so selected) and the specific location or locations on the transmission towers and the transmission towers rights-of-way in, on, over, or through which the Backbone Network shall be located; (d) during construction of any Spur route, Con Edison, it its sole discretion (which is not to be judged by any standard of reasonableness or any similar standard), shall select the precise poles, underground ducts (and such ducts' associated manholes) and service entrance pipes (and such pipes' associated service boxes) along such general street path (except if a pole or duct or service entrance pipe along such general street path is not available in which case an available pole or duct or service entrance pipe in a street in close proximity to such general street path shall be so selected) and the specific location or locations on the transmission towers and the transmission towers rights-of-way in, on, over, or through which any Spur Routes shall be located; provided, however, that (y) the precise underground ducts that shall be selected shall be at least [***] in inside diameter (and with regard to

[***] Confidential treatment has been requested with respect to material omitted on this page. The omitted portions have been filed separately with the Securities and Exchange Commission.

5

the Backbone Network, Con Edison shall make reasonable effort to select underground ducts that are at least [***] in inside diameter), and (z) insofar as the termination of the Backbone Network at [***] is concerned, the [***] Requirement as previously defined shall be complied with. No right to locate any structure, equipment, facilities, or other property of Telergy Metro besides the Backbone Network and any Spur Routes in, on, over, or through the Licensed Property is granted hereby and no right in or with regard to any property besides the Licensed Property is granted hereby.

B. Without limitation of any other condition, limitation, or restriction imposed by this L&O Agreement or any other agreement between the parties, the use of the Licensed Property permitted hereunder is restricted to constructing, installing, operating, and maintaining the Backbone Network and any Spur Route(s) for the purpose of providing wholesale and retail voice, data and video telecommunications services (as such services currently exist or as they evolve through technology) utilizing the single mode dark fiber strands contained in the Fiber Optic Cable (including leasing or licensing single mode dark or lit fiber strands) to the extent that such activity does not interfere with any existing or future generation, transmission, or distribution of electricity, gas, or steam by Con Edison or by any existing or future parent, subsidiary, or affiliate of Con Edison or with any existing or future customer service work related to, arising from, or connected with such generation, transmission, or distribution (the "Permitted Use"). No such lease or license of single mode dark or lit fiber strands and no use of such single mode dark or lit fiber strands by any such lessee or licensee shall release or relieve Telergy Metro from any obligation pursuant to this L&O Agreement. No such lease or license and no such use by any such lessee or licensee shall create any contractual rights in any such lessee or licensee against Con Edison and Con Edison shall have no obligation or liability whatsoever to any such lessee or licensee based on contract, tort (including without limitation strict products liability, negligence, and gross negligence), warranty, or otherwise arising from or relating to any such lease or license, any such use by any such lessee or licensee, this L&O Agreement, the Licensed Property, the Backbone Network, or any Spur Route. In any such lease or license, Telergy Metro shall advise such lessor or licensee that the single mode dark or lit fiber strands which are the subject of the lease or license are in close proximity to electrical cables that are subject to fault, burnout, or other malfunction which can result in damage, destruction, or disruption to such single mode dark or lit fiber strands and that as part of the lease or license, such lessee or licensee assumes all risk of such damage, destruction, or disruption. The Licensed Property may not be used by Telergy Metro or its permitted successor or

CONFIDENTIAL

[***] Confidential treatment has been requested with respect to material omitted on this page. The omitted portions have been filed separately with the Securities and Exchange Commission.

6

assigns for any purpose other than the Permitted Use.

C. Nothing herein shall be construed as a grant by Con Edison of any exclusive right or privilege to Telergy Metro. Nothing herein shall be construed as a grant of any interest in real property. Without limitation of any other right of Con Edison hereunder, Con Edison and, to the extent permitted by Con Edison, any existing or future parent, subsidiary, affiliate or successor or assign of Con Edison (collectively, the "Con Edison Entities", it being understood and agreed that for purposes of this L&O Agreement, Telergy Metro shall not be deemed to be a subsidiary or an affiliate of Con Edison or one of the Con Edison Entities) has the right to use all or part of the Licensed Property for any existing or future generation, transmission, or distribution of electricity, gas, or steam or for any existing or future customer service work or responsibility related to, arising from, or connected with such generation, transmission, or distribution (collectively, "Use For Public Utility Functions") and the License Grant and Permitted Use are subject and subordinate to Use For Public Utility Functions. In addition to being subject and subordinate to Use For Public Utility Functions, the License Grant and the Permitted Use also are subject to and subordinate to all contracts, mortgages, liens, encumbrances, restrictions, leases, licenses, easements, rights, or privileges of any nature heretofore or hereafter granted, given, entered into, incurred, or suffered by any of the Con Edison Entities, or arising pursuant to law which affect the Licensed Property or the Permitted Use and all existing and future uses by Con Edison of the Licensed Property; provided, however, that, except as otherwise permitted by this L&O Agreement or required by law, from the date of this L&O Agreement until its expiration or earlier termination, Con Edison shall not grant or give to third parties other than to any of the Con Edison Entities for Use For Public Utility Functions any right or privilege to use the Licensed Property which substantially interferes with or precludes the Permitted Use of the Licensed Property.

D. The License Grant shall be extended to any Spur Routes the location of which, all issues pertaining to the Preconstruction Compensation to be paid for which, and other parameters of which Telergy Metro and Con Edison may mutually agree in their respective sole discretion, which is not to be judged by any standard of reasonableness or any similar standard. To be effective, any such agreement must be documented in a writing signed by authorized representatives of both parties which describes the Licensed Property in, on, over, or through which the Spur Route will be located, the Preconstruction Compensation agreed upon, and any Equivalent Compensation (and the value thereof) that Con Edison may elect to receive, pursuant to Exhibit 3 hereof, in lieu of any or all of the Compensation otherwise payable for such Spur Route in, on, over, or through the Licensed

7

Property. In the event of any such agreement of the parties concerning any such Spur Route, Exhibit 2 of this L&O Agreement shall be deemed amended by the addition thereto of the description of the general path of the Licensed Property in, on, over, or through which the Spur Route shall be located.

E. Although Con Edison transmission towers, poles or other facilities or property containing high voltage transmission (69 kV or higher) electric lines ("High Voltage Facilities") may be part of the Licensed Property such that the Backbone Network and any Spur Route(s) may be constructed, installed, maintained, and operated in, on, or through such High Voltage Facilities (i.e., xthe Licensed Property in, on or through which the Backbone Network and any Spur Routes may be located in part may include such High Voltage Facilities), it is understood and agreed that, subject to the construction/installation requirements and the maintenance requirements referenced in Section 23 hereof, Telergy Metro is granted no right to physically access High Voltage Facilities for any purpose other than to construct, install, maintain and operate splice enclosures that shall be mounted on the legs of transmission towers as required by Con Edison. Access to such High Voltage Facilities for purposes of constructing, installing, and maintaining any portion of the Backbone Network and any portion of any Spur Route(s) is reserved solely to Con Edison and Con Edison's contractors, except to the extent that the construction/installation requirements and/or maintenance requirements referenced in Section 23 hereof otherwise provide. Construction, installation, maintenance and operation of any portion of the Backbone Network or any portion of any Spur Routes in, on, over, or through such High Voltage Facilities shall be in accordance with the construction/installation requirements and the maintenance requirements referenced in Section 23 hereof.

F. Except as provided in Paragraph E of this Section and except to the extent that access restrictions or limitations for a specific portion or portions of the Licensed Property are set forth in Exhibits 1 or 2 hereof, the License Grant to Telergy Metro, subject to the construction/installation requirements and the maintenance requirements referenced in Section 23 hereof, all applicable federal, state, and local laws, executive orders, regulations, ordinances, rules, and safety codes, and the terms and conditions of all applicable governmental and non-governmental franchises, permits, authorizations, and approvals, shall include the right to access the Licensed Property 7 days a week, 24 hours a day for the purpose of constructing, installing maintaining and operating the Backbone Network or any Spur Route.

G. Other than the right to use the Licensed Property for the Permitted Use in accordance with the terms and conditions hereof, including but not limited to the construction/installation requirements and the maintenance requirements referenced in

8

Section 23 hereof, this L&O Agreement does not grant any right to use any Con Edison property for any purpose.

H. Nothing in this L&O Agreement obligates Con Edison to provide any utilities including, without limitation, any water, electricity, gas, steam, or storm or sanitary sewer service ("Utilities") to, or for the benefit of Telergy Metro. Telergy Metro shall be solely responsible for obtaining, at its sole expense, any Utilities that it requires. In connection with obtaining the Utilities that it requires, Telergy Metro shall, at its sole expense, satisfy any conditions and requirements of the providers of the Utilities and any conditions and requirements of Con Edison. Con Edison makes no representation or warranty concerning the availability or suitability of any Utilities, the cost of obtaining any Utilities, or the ability of the Licensed Property to be connected to any Utilities.

Section 3 - NO WARRANTIES FROM CON EDISON CONCERNING

LICENSED PROPERTY OR PERMITTED USE; TELERGY METRO'S SATISFACTION WITH THE LICENSED PROPERTY; TELERGY METRO'S ACKNOWLEDGMENT CONCERNING RISK OF DAMAGE TO BACKBONE NETWORK AND SPUR ROUTES FROM ELECTRICAL FEEDERS

A. Con Edison does not make, and hereby disclaims, any express, implied, statutory, or common law warranty, guaranty or representation concerning the Licensed Property or its suitability for the Permitted Use. WITHOUT LIMITATION OF THE GENERALITY OF THE FOREGOING, CON EDISON DOES NOT MAKE, AND HEREBY DISCLAIMS ANY EXPRESS, IMPLIED, STATUTORY, OR COMMON LAW WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

B. Telergy Metro represents that it has visited, examined, and/or analyzed the Licensed Property, has knowledge of all limitations, restrictions, and conditions, legal, physical, or otherwise, concerning the Licensed Property including, without limitation, such limitations, restrictions and conditions as may affect the suitability of the Licensed Property for the Permitted Use, and that Telergy Metro is satisfied with the suitability of the Licensed Property for the Permitted Use. TELERGY METRO ACKNOWLEDGES THAT THE BACKBONE NETWORK AND ANY SPUR ROUTES WILL BE LOCATED IN, ON, OVER, OR THROUGH LICENSED PROPERTY THAT IS IN CLOSE PROXIMITY TO ELECTRICAL CABLES THAT ARE SUBJECT TO FAULT, BURNOUT OR OTHER MALFUNCTION WHICH CAN RESULT IN DAMAGE, DESTRUCTION OR DISRUPTION TO THE BACKBONE NETWORK AND ANY SPUR ROUTES AND THAT, WITHOUT LIMITATION OF SECTION 12 HEREOF, THE RISK OF SUCH DAMAGE, DESTRUCTION OR DISRUPTION IS A RISK COVERED BY
SECTION 12 HEREOF.

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Section 4 - TERM

This L&O Agreement shall have an "Initial Term" of twenty-five (25) years commencing on the date of PSC Approval. Upon written notice to Con Edison that is received during the period commencing with the date that is twenty-four (24) years after the Initial Term commences and ending with the date that is twenty-four (24) years and six (6) months after the Initial Term commences, Telergy Metro may seek to extend this L&O Agreement, as it may be modified by negotiations of the parties as set forth herein, for a "First Renewal Term" of ten (10) years. Upon written notice to Con Edison that is received during the period commencing with the date that is nine (9) years after the First Renewal Term commences and ending with the date that is nine (9) and six (6) months after the First Renewal Term commences, Telergy Metro may seek to extend this L&O Agreement, as it may be modified by negotiations of the parties as set forth herein, for a "Second Renewal Term." Each and every term and condition (except the length of the "First Renewal Term" and the length of the "Second Renewal Term") of this L&O Agreement, (including, without limitation, terms and conditions pertaining to Preconstruction Compensation, Compensation and Equivalent Compensation) that is to apply to the First Renewal Term and/or the Second Renewal Term shall be subject to modification through negotiation and must be acceptable to each party in its respective sole discretion (which is not to be judged by any standard of reasonableness or any similar standard). The negotiations concerning the terms and conditions that shall apply to the First Renewal Term shall commence within a reasonable time after Con Edison's receipt of the written notice from Telergy Metro seeking to extend this L&O Agreement, as it may be modified, for a First Renewal Term and shall end on the date that is twenty-four (24) years and six (6) months after the Initial Term commences. If a written agreement concerning the terms and conditions that are to apply to the First Renewal Term is not signed by authorized representatives of the parties on or before the end of the negotiation period concerning the First Renewal Term as set forth above, this L&O Agreement shall not be extended. The negotiations concerning the terms and conditions that shall apply to the Second Renewal Term shall commence within a reasonable time after Con Edison's receipt of the written notice from Telergy Metro seeking to extend this L&O Agreement, as it may be modified, for a Second Renewal Term and shall end on the date that is nine years and six (6) months after the First Renewal Term commences. If a written agreement concerning the terms and conditions that are to apply to the Second Renewal Term is not signed by authorized representatives of the parties on or before the end of the negotiation period concerning the Second Renewal Term as set forth above, this L&O Agreement shall not be extended.

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Section 5 - PRECONSTRUCTION COMPENSATION; COMPENSATION; EQUIVALENT COMPENSATION

As a license fee for being provided with the right to use the Licensed Property for the Permitted Use in accordance with the terms and conditions hereof, including but not limited to the construction/installation requirements and the maintenance requirements referenced in Section 23, Telergy Metro shall pay and/or provide to Con Edison the "Preconstruction Compensation" "Compensation" and/or the "Equivalent Compensation" in accordance with Exhibit 3 hereto.

Section 6 - TAXES

A. As used in this Section, the following definitions apply:

"Taxes" shall mean all taxes and assessments and special assessments (including interest, penalties and additions to tax) levied, assessed or imposed at any time by any taxing authority upon the Con Edison property which includes the Licensed Property. If the methods of taxation prevailing at the commencement of the term of this L&O Agreement shall be altered so that in lieu of, or as an addition to, the whole or any part of the Taxes there is levied, assessed or imposed (a) a tax, surcharge, fee, charge, levy, assessment, or special assessment on the Preconstruction Compensation, Compensation or Equivalent Compensation paid, payable, provided, or to be provided under this L&O Agreement, and/or (b) any other different, additional or substitute tax, surcharge, fee, charge, levy, assessment, or special assessment, then all such taxes, surcharges, fees, charges, levies, assessments, or special assessments shall be deemed to be included in the term "Taxes" for the purposes of this Section.

"Tax Year" shall mean the fiscal year for which taxes are levied by the taxing authority.

B. To the extent that any Taxes as of the date of this L&O Agreement increase due to the presence of any portion of the Backbone Network or of any Spur Route, Con Edison shall provide Telergy Metro with reasonable evidence of such increase and Telergy Metro shall pay Con Edison an amount equal to such increase plus any additional amount as described in this Paragraph. Should the payment to Con Edison of the increase in Taxes be subject to a gross receipts tax, income tax, or any other tax on amounts received by Con Edison ("Receipts Tax"), such payment shall be increased by an amount which shall produce the same net payment to Con Edison after payment by Con Edison of such Receipts Tax. Telergy Metro shall have the right, at its expense, to challenge such increase before the appropriate taxing authority

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but neither such right to challenge nor any challenge actually conducted by Telergy Metro shall affect the obligation of Telergy Metro to make the payment to Con Edison described in this Section. No such challenge shall be made in Con Edison's name unless the prior written consent of Con Edison is obtained. Should any such challenge by Telergy Metro result in a reduction of the increase in Taxes that was the subject of a prior payment by Telergy Metro to Con Edison pursuant to this Section, Con Edison shall return to Telergy Metro an amount equal to such reduction of the increase in Taxes.

C. Telergy Metro shall pay the amounts due under this Section within 30 days after receipt of an invoice from Con Edison therefor, which invoice shall be accompanied by reasonable evidence of the amounts due; provided, however, that Telergy Metro shall not be required to make such payment to Con Edison prior to the date that is thirty (30) days before the date that the associated Taxes are to be paid by Con Edison to the relevant taxing authority. Telergy Metro's obligation to pay the amounts due under this Section shall survive the expiration or termination of this L&O Agreement.

D. Telergy Metro bears all responsibility for any and all federal, state and local income, sales, use, excise, occupational, franchise, property, gross receipts, privilege, transfer, unincorporated business and other taxes that may be applicable to the construction, installation, operation and maintenance of the Backbone Network and any Spur Route and for all federal, state and local taxes, contributions, and premiums imposed upon or measured by Telergy Metro's payroll.

Section 7 - TELERGY METRO'S OPERATION OBLIGATIONS

A. Telergy Metro shall not: (i) cause or permit objectionable odors to emanate from, or be attributable to, the Licensed Property; (ii) use, store, dispose or permit to be used, stored, or disposed at the Licensed Premises (either as part of any Fiber Optic Cable, or in connection with the construction, installation, maintenance, or operation of the Backbone Network or any Spur Route, or otherwise) any toxic (including asbestos), hazardous, or flammable substance or other substance controlled by federal, state or local law, regulation, or ordinance, (iii) place or permit to be placed in, on, over, or through the Licensed Property any sign, awning, advertising matter or any other thing of any kind, other than normal warning signs, or (iv) operate the Backbone Network in any way which constitutes a public or private nuisance, or which is annoying, hazardous, or which interferes with or disrupts or threatens to interfere with or disrupt any Use For Public Utility Functions as described in Section 2, Paragraph C hereof.

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B. Telergy Metro shall at all times exercise every reasonable precaution to protect persons and property. Specific precaution requirements will be addressed in the construction/installation requirements and/or the maintenance requirements referenced in Section 23 hereof.

C. While on or about the Licensed Property, Telergy Metro shall observe and comply with all environmental, noise, fire, safety, hazard, "No Smoking", and all other rules and regulations heretofore or hereafter prescribed by Con Edison, together with all applicable federal, state, and local laws, executive orders, regulations, ordinances, rules, and safety codes.

D. Telergy Metro shall promptly report in writing to Con Edison all releases to the environment of any toxic substance, (including asbestos) hazardous substance, hazardous waste, flammable substance or any other substance or waste the release of which to the environment is prohibited, controlled, or regulated by federal, state or local law, regulation, or ordinance ("Environmental Releases") and all accidents whatsoever relating to, arising out of, or in connection with the Licensed Property, the Backbone Network, or any Spur Route, giving full details and statements of witnesses. In addition, if the accident involves death or serious injury or serious damage or if there is an Environmental Release, Telergy Metro shall immediately report the accident or Environmental Release by telephone to Con Edison. The Con Edison contact person to be notified and his/her address and telephone number shall be provided in a written notice to Telergy Metro following the execution of this L&O Agreement. By subsequent written notice to Telergy Metro, Con Edison may change the person to be notified and/or such person's address and/or telephone number listed.

E. Telergy Metro shall construct, install, operate and maintain the Backbone Network and any Spur Route and otherwise conduct its operations in such a manner as to prevent any liens or attachments from arising or being filed, served, posted, processed or entered with regard to the Licensed Property. Telergy Metro shall indemnify and hold Con Edison and the Licensed Property harmless from and against any such liens or attachments. Without limitation of the generality of the foregoing and to the extent that such a procedure is permitted by applicable law, Telergy Metro promptly shall remove, release and discharge any such lien or attachment on the Licensed Property by doing everything necessary to deposit a sufficient amount or file a sufficient bond with the appropriate court or other governmental entity or official so that such lien or attachment is removed, released and discharged from the Licensed Property and applies instead to such amount or bond so deposited or filed. Should Telergy Metro fail to so promptly remove, release and discharge any such lien or

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attachment on the Licensed Property, Con Edison, at the expense of Telergy Metro, may, but shall not be obligated to, promptly cause any such lien or attachment to be so removed, released, and discharged.

F. Telergy Metro shall design, construct and operate its equipment in accordance with the safety clearances and personnel safety requirements referenced in ANSI C2-1997 (National Electric Safety Code) or subsequent editions thereof. Telergy Metro shall insure that all vehicles, equipment, machinery and other apparatus at or near the High Voltage Facilities are appropriately grounded. In addition, vehicles, equipment, machinery and other apparatus must be maintained at a minimum of twenty-five (25) feet away from any energized electrical conductor on the High Voltage Facilities (additional or different requirements may be imposed by Con Edison for High Voltage Facilities above 345 kV).

G. Telergy Metro shall ensure that dust and debris generated during work at or near the Licensed Property is controlled and that dust and debris is not permitted to affect any electrical conductor on the High Voltage Facilities.

Section 8 - PERMITS, CODES, LAWS AND REGULATIONS

A. Except for the expense associated with Con Edison seeking the approval of this L&O Agreement by the New York State Public Service Commission ("PSC"), Telergy Metro shall, at its expense, obtain and maintain all governmental and non-governmental franchises, consents, easements, permits, authorizations, and approvals ("Approvals") required for the construction, installation, operation, and maintenance of the Backbone Network and any Spur Route on the Licensed Property and must provide copies of same to Con Edison before it is permitted to use the Licensed Property for the Permitted Use. Without limitation of the foregoing, Telergy Metro shall bear the expense of Telergy Metro seeking the approval of this L&O Agreement by the PSC as permitted by Section 22 hereof.

B. If applicable law requires that Con Edison execute applications for an Approval or documentation related to such applications, Telergy Metro, at its expense, shall prepare such applications and documentation for review by Con Edison (which review shall be conducted at Telergy Metro's expense) and, if the applications and documentation meet with Con Edison's approval (which approval shall not be unreasonably withheld), Con Edison shall cause its authorized representative to execute such applications of documentation. Telergy Metro, at its expense, shall make such corrections or amendments to such applications and documentation as Con Edison reasonably may request.

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C. Telergy Metro shall comply with all federal, state, and local laws, executive orders, regulations, ordinances, rules, and safety codes, and Con Edison requirements applicable to the Licensed Property, the Permitted Use, or the construction, installation, operation, and maintenance of the Backbone Network or any Spur Route, including, without limitation, all applicable federal, state, and local environmental laws, orders, regulations, ordinances, rules, codes, and Con Edison environmental requirements (including but not limited to those pertaining to air pollution, water pollution, management, removal, or disposal of toxic substances (including asbestos), hazardous substances, flammable substances, hazardous waste, oily waste and solid waste, pesticides, and protection of wetlands and wildlife).

Section 9 - ENVIRONMENTAL ASSESSMENTS

A. Prior to construction or installation of the Backbone Network or any Spur Route on the Licensed Property, Telergy Metro shall have the right to conduct, at Telergy Metro's sole cost and expense, environmental assessments of the Licensed Property ("Assessments"). The Assessments shall comply with ASTM standards for Phase I and Phase II Environmental Site Assessments and may consist of reviewing records of the Licensed Property and, to the extent that Licensed Property consists of land owned by Con Edison, sampling and testing the soil and groundwater on the Licensed Property.

B. Con Edison hereby gives permission to Telergy Metro, its contractors, and subcontractors to enter upon the Licensed Property for the purpose of conducting the Assessments subject to the following conditions: (i) Telergy Metro must give notice to Con Edison of any such intent to enter upon the Licensed Property (and must specify the specific Licensed Property that will be entered and that will be the subject of any Assessment) at least ten (10) business days in advance of the access date requested; and (ii) if Telergy Metro requires a Phase II (Soil or Groundwater Investigation and Sampling) Environmental Assessment, Telergy Metro must submit a field sampling and analysis work plan ("Work Plan") to Con Edison for written approval by Con Edison prior to Telergy Metro's entrance onto the Licensed Property for the purpose of the Assessments. The Work Plan shall include, at a minimum, a description of the sampling equipment and procedures to be employed in the course of the Phase II Assessment, the number of samples to be collected, a site-specific health and safety plan, and the name and relative qualifications of the contractor and analytic laboratory to be used by Telergy Metro in connection with the Assessment and, if necessary, waste management procedures to be followed by Telergy Metro or its contractor including the name of the licensed transporter and the licensed waste management

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facility to handle waste streams in compliance with law. Con Edison will have the right to oversee all field sampling activities conducted by Telergy Metro, or its contractors or subcontractors in connection with this Section. Telergy Metro is responsible for all costs and expenses and record keeping associated with any Assessment, the management, removal or disposal of any wastes generated in connection with any Assessment, or any work related to such Assessment or to such Assessment, management, removal, or disposal. Telergy Metro shall defend, indemnify, and hold Con Edison harmless from any such costs and expenses and from any and all liabilities in connection with any such Assessment, management, removal, disposal or any work related to such Assessment, management, removal or disposal.

C. Telergy Metro shall notify Con Edison in writing within ten (10) days after the action items in the Work Plan have been completed. Within sixty (60) days after completion of the action items specified in the Work Plan and receipt of any testing results, Telergy Metro shall provide Con Edison with a report detailing the findings of any Assessment, including a description of all field sampling activities, analytical results and soil boring logs. Should Telergy Metro obtain any reports from contractors or subcontractors concerning an Assessment, Telergy Metro shall provide Con Edison with a copy of such reports as such reports are received by Telergy Metro. Con Edison retains the right to make initial notification to the New York State Department of Environmental Conservation ("DEC") or to any other governmental agencies having jurisdiction of any environmental conditions revealed from the Assessment, unless Telergy Metro is otherwise required by law to notify the DEC or such other governmental agencies. Within ninety (90) days after the date of completion of the action items specified in the Work Plan, each party, based on the information in its possession from the Assessment, shall notify the other party of any environmental conditions it asserts exist on the Licensed Property that was the subject of the Assessment which require remediation. Con Edison shall then have sixty (60) days from the expiration of such ninety (90) day period within which to prepare (at Telergy Metro's cost and expense) and submit a written "Environmental Proposal" to Telergy Metro describing Con Edison's proposed remedy for the asserted environmental conditions. All costs and expenses associated with such proposed remedy, any removal, management, or disposal of waste generated in connection with such proposed remedy, or any other work related to such proposed remedy or to such removal, management or disposal shall be borne entirely by Telergy Metro. Without limitation of the terms and conditions upon which Con Edison may require the work in such Environmental Proposal to be performed, Telergy Metro shall defend, indemnify, and hold Con Edison harmless from any such costs and expenses and from any and all liabilities in connection with such proposed remedy, any removal, management, or disposal of waste generated in

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connection with such proposed remedy, or any other work related to such proposed remedy or to such removal, management or disposal. Within thirty (30) days of its receipt of the Environmental Proposal or within such shorter period as may be specified in the Environmental Proposal if circumstances, including legal requirements, reasonably require that the work to effect the remedy described in such Environmental Proposal be commenced earlier, Telergy Metro shall notify Con Edison in writing whether it accepts or rejects such Environmental Proposal (a failure to timely reject such Environmental Proposal shall be considered by the parties as an acceptance of such Environmental Proposal). If Telergy Metro rejects such Environmental Proposal, Con Edison shall have the option to terminate this L&O Agreement without any liability to Telergy Metro by sending written notice of such termination to Telergy Metro within thirty (30) days after such rejection. Such a termination shall result in, among other things, the Backbone Network and any Spur Routes being removed from the Licensed Property at Telergy Metro's expense in accordance with Section 10 hereof.

D. Without limitation of any other environmental obligation of Telergy Metro, Telergy Metro shall be responsible for complying fully with any and all environmental laws, including regulations, guidelines, standards, or policies of any governmental authorities authorized to regulate environmental conditions or concerns, as may now or hereafter be in effect, which are applicable to the Backbone Network, any Spur Route or the Licensed Property or any use of, or activity upon or concerning same. Telergy Metro shall defend, indemnify and hold Con Edison harmless from and against any failure of Telergy Metro or its contractors or subcontractors to comply fully with any such laws, regulations, guideline, standards, or policies.

E. It is understood and agreed that other environmental obligations of Telergy Metro in connection with any construction, installation, maintenance, or operation of the Backbone Network or any Spur Route besides those specified here, including but not limited to Telergy Metro's obligation to bear the expense of removal, management and disposal of any waste generated on or about Licensed Property and of any flushing or cleaning of any manholes or service boxes that comprise Licensed Property, shall be contained in the construction/installation requirements and/or the maintenance requirements referenced in Section 23 hereof.

Section 10 - TITLE TO BACKBONE NETWORK AND SPUR ROUTES; REMOVAL OF BACKBONE NETWORK

A. Telergy Metro shall retain title to all portions of the Backbone Network and of any Spur Routes.

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B. All portions of the Backbone Network and of any Spur Routes shall be capable of removal at any time, including upon the expiration of this L&O Agreement or its earlier termination. Unless otherwise agreed to in a writing signed by both parties, within thirty (30) days after the expiration of this L&O Agreement or its earlier termination for any reason and at Telergy Metro's expense, the Backbone Network and any Spur Routes shall be removed from the Licensed Property and the Licensed Property shall be restored to substantially the same condition as existed prior to the construction, installation, operation, and maintenance of the Backbone Network and any Spur Routes therein, thereon, there over, or there through; provided, however, that any portion of the Backbone Network or of any Spur Route that is direct-buried with two feet or more of cover on Con Edison-owned land and which is not attached to a Con Edison transmission tower or contained in a Con Edison duct (any associated manhole) or service entrance pipe (or any associated service box) may, except as otherwise provided in the construction/installation requirements or the maintenance requirements referenced in Section 23 hereof, be abandoned in place, but shall be subject to removal thereafter by Con Edison. With regard to all portions of the Backbone Network or of any Spur Routes on or about High Voltage Facilities, such removal and restoration shall be performed by Con Edison or its contractors at Telergy Metro's expense, except to the extent that the maintenance requirements and/or construction/installation requirements referenced in Section 23 hereof otherwise provide.

Section 11 - INSURANCE

A. Telergy Metro shall procure and maintain at its own expense the following insurance until this L&O Agreement expires or is earlier terminated, and thereafter to the extent stated below, with at least the monetary limits specified; provided, however, that Con Edison retains the right to amend these insurance requirements and monetary limits during the term of the Initial Term and any Renewal Term of this L&O Agreement upon thirty (30) days' written notice to Telergy Metro. The insurance shall be in policy forms which contain an "occurrence" and not a "claims made" determinant of coverage and shall be placed with insurance companies that are acceptable to Con Edison.

(i) Employment related insurance.

(a) Workers' Compensation Insurance and Disability Insurance Benefits as required by law.

(b) Employer's Liability Insurance, including accidents (with a limit of $500,000 per accident) and occupation diseases (with a limit of $500,000

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per employee).

(c) Where applicable, insurance required by the United States Longshoremen's and harbor Workers' Act, the Federal Employers' Liability Act, and the Jones Act.

(ii) Comprehensive (also called Commercial) General Liability Insurance, including Contractual Liability, with limits of $10,000,000 per occurrence for bodily injury or death and $10,000,000 per occurrence for property damage or a combined single limit of $10,000,000 per occurrence, and, for at least one year after the expiration or earlier termination of this L&O Agreement, Products/Completed Operations Liability Insurance with similar but separate and independent limits. Where work is to be performed in or on streets or sidewalks the liability policies shall have no deductibles.

Policy deductibles shall be subject to Con Edison's approval. The insurance shall contain no exclusions for explosion, collapse of a building or structure, or underground hazards. The insurance policy or policies shall name Con Edison as an additional insured. There shall be no exclusions for claims by or on behalf of employees of Telergy Metro or any contractors or subcontractors of Telergy Metro against Con Edison based on injury or death to such employees. Without limitation of the exclusions that shall not be permitted, there shall be no exclusions for any claims by or on behalf of customers of Telergy Metro or by or on behalf of lessees or licensees of single mode dark or lit fiber optic strands in Fiber Optic Cable.

(iii) Comprehensive Automobile Liability Insurance, covering all owned, non-owned and hired automobiles used by Telergy Metro, with limits of $2,000,000 per occurrence for bodily injury or death and $2,000,000 per occurrence for property damage or a combined single limit of $2,000,000 per occurrence.

(iv) Where any work involves the use of aircraft, Aircraft Liability Insurance, covering all owned, non-owned and hired aircraft, including helicopters, used by Telergy Metro with a combined single limit of $5,000,000 for bodily injury or death and property damage. The insurance shall name Con Edison as an additional insured.

(v) For any work involving asbestos abatement or lead abatement, Asbestos Abatement General Liability Insurance

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and Lead Abatement Liability Insurance, as applicable, each with a combined single limit of $5,000,000 for bodily injury or death and property damage. Each insurance policy shall name Con Edison as an additional insured. Where the abatement work is to be performed by a contractor or subcontractor, Telergy Metro shall require the contractor and subcontractor to name Telergy Metro, its contractor and subcontractor and Con Edison as additional insureds and to submit copies of the polices to Con Edison.

(vi) If any work involving excavation on Con Edison property is planned to be performed, thirty (30) days' advance written notice of such work shall be provided to Con Edison and Con Edison, within fifteen
(15) days after receipt of such notice may, upon written notice to Telergy Metro, require that such pollution insurance or additional pollution insurance with such limits as Con Edison may require in its reasonable discretion be obtained by Telergy Metro prior to the commencement of such work, in which case each such insurance policy shall name Con Edison as an additional insured as well as any others as Con Edison may require in its reasonable discretion.

B. Telergy Metro shall cause all insurance carried hereunder to be endorsed by the insurer to require that the insurer furnish Con Edison with at least 30 days' written notice prior to the effective date of cancellation of the insurance or of any changes in policy limits or scope of coverage. All coverage of additional insureds shall be primary as to the additional insureds.

C. No later than the earlier of (i) five days after commencement of the Initial Term as defined in Section 4 hereof, or (ii) three (3) days prior to any Permitted Use of the Licensed Property, Telergy Metro shall furnish Con Edison with Certificate(s) of Insurance signed by the insurer or its authorized representative certifying that the required insurance has been obtained and will not be cancelled without at least 30 days' prior written notice to Con Edison. Such certificates shall state that the policies have been issued and are effective, show their expiration dates, and state that Con Edison is an additional insured with respect to all coverages enumerated in Paragraph A (ii),
(iv), and (v) of this Section. Such certificates shall not contain a disclaimer of liability of the insurer for failure to provide Con Edison with notice of cancellation or substantial alteration. At least 3 days prior to the Initial Term of this L&O Agreement as defined in Section 4 hereof, Telergy Metro shall furnish Con Edison with a copy of the insurance policy containing the coverages enumerated in Paragraph A(ii) of this Section. Con

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Edison shall have the right to require Telergy Metro to furnish Con Edison, upon request, with a copy of the insurance policy or policies required under Paragraphs A(i), A(iii), A(iv), A(v), and A(vi) of this Section. Telergy Metro agrees that this is an insured contract. The insurance required herein is intended to cover Con Edison for its own liability for negligence or any other cause of action or lawsuit arising from, relating to, or connected with the Backbone Network, any Spur Route, or the Licensed Property or any work performed by any person or entity concerning the Backbone Network, any Spur Route, or the Licensed Property. For purposes of interpretation of coverage of any policy of insurance or endorsement thereto, Telergy Metro shall be deemed to have assumed tort liability for any injury to or death of any employee of Telergy Metro, of Con Edison, and of any contractor or subcontractor of either arising from, relating to, or connected with the Backbone Network, any Spur Route, or the Licensed Property or any work performed by any person or entity concerning the Backbone Network, any Spur Route, or the Licensed Property, including injury or death caused by the partial or sole negligence of Con Edison and notwithstanding any statutory prohibition or limitation of Telergy Metro's indemnification obligations hereunder.

D. The Certificates of Insurance and the copy of insurance required under Paragraph C of this Section shall be sent to:

Consolidated Edison Company of New York, Inc. Law Department
4 Irving Place
New York, N.Y. 10003
Attention: Assistant General Counsel, General Litigation

E. Telergy Metro shall cause provisions to be a part of any contract with any contractor hired by Telergy Metro to perform work relating to the construction, installation, maintenance, or operation of the Backbone Network or any Spur Routes (and shall cause any such contractor who hires a subcontractor to cause provisions to be a part of any subcontract) which provisions: (i) require such contractors and subcontractors to procure and maintain, without expense to Con Edison, the same insurance as Telergy Metro is required to procure and maintain by this L&O Agreement; (ii) require such contractors and subcontractors to name Consolidated Edison Company of New York, Inc. as an additional insured on such insurance policies to the same extent that Con Edison is required to be named as an additional insured on the policies required to be procured and maintained by Telergy Metro pursuant to this L&O Agreement; and
(iii) expressly state that such insurance and additional insured requirements are also for the benefit of Consolidated Edison Company of New York, Inc.

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F. Every five (5) years after commencement of the Initial Term as defined in Section 4 hereof, Con Edison shall have the right to amend the insurance requirements and increase the monetary limits contained in this Section, but in no event shall an increase in a monetary limit for insurance be more than twenty-five percent (25%) of the monetary limits previously required under this
Section for that insurance immediately before such increase.

Section 12 - INDEMNIFICATION; RELEASE; WAIVER; LIMITATION OF LIABILITY

A. To the fullest extent permitted by law and to the extent not caused by the gross negligence or willful misconduct of the Con Edison Entities, Telergy Metro shall indemnify, defend, and hold harmless the Con Edison Entities and their trustees, directors, officers, employees, and agents (such Con Edison Entities and their trustees, directors, officers, employees and agents being referred to collectively as the "Protected Parties") from and against any and all claims, actions, liabilities, damages, costs, and expenses (including without limitation attorney fees and other legal costs and expenses), whether based in contract, tort (including negligence, gross negligence, and strict liability) or otherwise, which are asserted, suffered, or incurred by any person or entity (including Telergy Metro and the Protected Parties), and which arise from, relate to, or are connected with the Backbone Network, any Spur Route, the Licensed Property or any work performed by any person or entity concerning the Backbone Network, any Spur Route, or the Licensed Property (the foregoing claims, actions, liabilities, damages, costs, and expenses being hereinafter referred to as the "Covered Claims"). To the fullest extent permitted by law and to the extent not caused by the gross negligence or willful misconduct of the Con Edison Entities, Telergy Metro hereby irrevocably and unconditionally agrees to release and forever discharge the Protected Parties from any and all liability for any of the Covered Claims, and to waive any and all rights to assert any of the Covered Claims against the Protected Parties or any of them in the future.

B. Notwithstanding the exception contained in Paragraph A of this Section 12 relating to Covered Claims to the extent caused by the gross negligence or willful misconduct of Con Edison, Telergy Metro and Con Edison agree, to the fullest extent permitted by law, that under no circumstances shall the Protected Parties or any of them be liable to Telergy Metro, whether in contract, tort (including negligence, gross negligence, and strict liability), or otherwise, for any special, indirect, incidental, or consequential damages (including but not limited to damage, loss, liability, costs, and expenses resulting from loss of use,

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loss of business or business opportunities, loss of profits or revenue, costs of capital, loss of goodwill, claims of customers, claims of unrelated companies and other third parties, cost of purchased or replacement telecommunications capacity, and like items of special, indirect, incidental, or consequential loss and damage) asserted, suffered, or incurred by any person or entity (including Telergy Metro and the Protected Parties), which arise, relate to or are connected with this L&O Agreement, the implementation of same, the Backbone Network, any Spur Route, the Licensed Property, or any work performed by any person or entity concerning the Backbone Network, any Spur Route, or the Licensed Property regardless of whether or not such damages, loss, liability, costs or expenses are caused in whole or in part by the acts or omissions (including negligence, gross negligence or willful acts) of the Protected Parties or any of them. The damages referred to in this Paragraph B are hereinafter referred to as the "Consequential Losses." To the fullest extent permitted by law, Telergy Metro hereby irrevocably and unconditionally agrees to release and forever discharge the Protected Parties from any and all liability for any Consequential Losses and to waive any and all rights to recover any Consequential Losses from the Protected Parties or any of them in the future. To the fullest extent permitted by law, Telergy Metro shall indemnify, defend, and hold the Protected Parties harmless from and against any and all Consequential Losses (including any attorneys fees and any other legal costs and expenses in connection therewith) asserted, suffered or incurred by any person or entity (including the parties hereto).

C. If a court of competent jurisdiction determines that any provision of Paragraph A or B of this Section 12 is unenforceable, the total liability of the Protected Parties or any of them for all matters which otherwise would have been covered by such Paragraphs shall be [***]. If a court of competent jurisdiction determines that any provision of Paragraphs A or B of this Section or the preceding sentence of this Paragraph C is unenforceable, such court shall limit the operation of such provision so as to give it the effect intended to the fullest extent permitted by law.

Section 13 - DAMAGE AND DESTRUCTION

A. Without limitation of Section 12, to the extent that any portion of the Backbone Network or of any Spur Route or of the Licensed Property shall be damaged or destroyed during the Initial Term or any First Renewal Term or any Second Renewal Term of this L&O Agreement by any cause other than the gross negligence or willful misconduct of the Con Edison Entities, such damage or destruction shall be promptly repaired or replaced at Telergy Metro's sole expense and there shall be no abatement or reduction

CONFIDENTIAL

[***] Confidential treatment has been requested with respect to material omitted on this page. The omitted portions have been filed separately with the Securities and Exchange Commission.

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in the Compensation or Equivalent Compensation to be paid or provided to Con Edison hereunder; provided, however, that to the extent that any such damage or destruction results in any Equivalent Compensation that is to be provided to Con Edison with regard to the Backbone Network not being provided to Con Edison for a period in excess of 48 hours in any thirty (30) day period, then, for the period that any such Equivalent Compensation is not so provided due to such damage or destruction, Telergy Metro, in lieu of providing any such Equivalent Compensation with regard to the Backbone Network (except for any Equivalent Compensation that Con Edison elects to continue to receive as provided in this sentence), shall pay Compensation (based on Exhibit 3 hereof and without any set off for the value of Equivalent Compensation) to Con Edison for the location of the entire Backbone Network in, on, over or through the Licensed Property less the value (as set forth in Exhibit 3 hereof) of any Equivalent Compensation with regard to the Backbone Network that Con Edison, in its sole discretion (which is not to be judged by any standard of reasonableness or any other similar standard), elects, by written notice to Telergy Metro sent within thirty (30) days after Con Edison has actual knowledge of such damage or destruction, to continue to receive. Such obligation to pay Compensation in lieu of providing Equivalent Compensation shall continue until such time as all Equivalent Compensation with regard to the Backbone Network that was provided prior to such damage or destruction can again be provided to Con Edison. Con Edison's rights in Exhibit 3 hereof to otherwise change the election of any Equivalent Compensation with regard to the Backbone Network shall not be limited or otherwise adversely affected by any such damage or destruction or by the rights or obligations contained in this paragraph. Until such time as all Equivalent Compensation that was provided with regard to the Backbone Network prior to such damage or destruction can again be provided to Con Edison, Con Edison shall not be required to receive any Equivalent Compensation with regard to the Backbone Network notwithstanding anything to the contrary in Exhibit 3 hereof. To the extent that any such damage or destruction results in any Equivalent Compensation that is to be provided to Con Edison with regard to any Spur Route not being provided to Con Edison for a period in excess of 48 hours in any thirty (30) day period, then, for the period that any such Equivalent Compensation is not so provided due to such damage or destruction, Telergy Metro, in lieu of providing any such Equivalent Compensation with regard to the affected Spur Route(s) (except for any Equivalent Compensation that Con Edison elects to continue to receive as provided in this sentence), shall pay Compensation to Con Edison (based on Exhibit 3 hereof and without any set off for the value of Equivalent Compensation) for the location of the affected Spur Route(s) in, on, over, or through the Licensed Property less the value (as set forth in Exhibit 3 hereof) of any such Equivalent Compensation with regard to the affected Spur Route(s) that Con Edison, in its

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sole discretion (which is not to be judged by any standard of reasonableness or any other similar standard), elects, by written notice to Telergy Metro sent within thirty (30) days after Con Edison has actual knowledge of such damage or destruction, to continue to receive. Such obligation to pay Compensation in lieu of Equivalent Compensation with regard to an affected Spur Route shall continue until such time as the entire Equivalent Compensation with regard to such affected Spur Route that was provided prior to such damage or destruction can again be provided to Con Edison (it being understood that the obligation under this paragraph to pay Compensation in lieu of providing Equivalent Compensation with regard to an affected Spur Route shall cease for that Spur Route when the entire Equivalent Compensation for such Spur Route that was provided prior to such damage or destruction can again be provided to Con Edison, even though the entire Equivalent Compensation with regard to another affected Spur Route cannot yet be provided to Con Edison and the obligation under this paragraph to pay Compensation in lieu of providing Equivalent Compensation with regard to such other affected Spur Route continues). Con Edison's rights in Exhibit 3 to otherwise change the election of any Equivalent Compensation with regard any Spur Route shall not be limited or otherwise adversely affected by any such damage or destruction or the rights or obligations contained in this paragraph. Until such time as such entire Equivalent Compensation with regard to the affected Spur Route(s) that was provided prior to such damage or destruction can again be provided to Con Edison, Con Edison shall not be required to receive any Equivalent Compensation with regard to the affected Spur Route(s) notwithstanding anything to the contrary in Exhibit 3 hereof.

B. To the extent that (i) any portion of the Backbone Network or of any Spur Route is damaged or destroyed during the Initial Term or any First Renewal Term or any Second Renewal Term of this L&O Agreement by the gross negligence or willful misconduct of Con Edison, or (ii) any portion of the Backbone Network or of any Spur Route is made inoperable by any damage or destruction to any portion of the Licensed Property caused by the gross negligence or willful misconduct of Con Edison during the Initial Term, any First Renewal Term or any Second Renewal Term of this L&O