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EXHIBIT 10.18
OPERATING AGREEMENT
OF
Telergy MidAtlantic, LLC
THIS OPERATING AGREEMENT is made and entered into as of this 7th day of
April, 2000 (the "Effective Date"), by and between Telergy Network Services,
Inc. (together with its successors and permitted assigns of its Voting Interest,
("TNS"), a New York corporation with an address for purposes hereof at ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, and GPU Telcom Services, Inc.
(together with its successors and permitted assigns of its Voting Interest, "GPU
Telcom"), a Delaware corporation with an address for purposes hereof at ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇, ▇▇▇▇▇-▇▇▇▇, effective on the
Effective Date.
WHEREAS, TNS and GPU Telcom desire, by execution and delivery of this
Operating Agreement, to approve the Articles of Organization and form Telergy
MidAtlantic, LLC as a limited liability company pursuant to the Act.
WITNESSETH:
In consideration of the mutual covenants contained in this Operating
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
In addition to the terms defined elsewhere in this Operating Agreement,
the following terms shall have the following respective meanings:
1.1 "Act" means the New York Limited Liability Company Law, Chapter 34,
Consolidated Lawsss.101 et seq., and all amendments thereto.
1.2 "Affiliate" means, with respect to a specified Person, (i) any other
Person directly or indirectly controlling, controlled by, or under common
control with the specified Person, (ii) any other Person owning or controlling
ten percent (10%) or more of the outstanding voting interests of the specified
Person, (iii) any officer, director, general partner, member or trustee of the
specified Person, or (iv) any other Person who is an officer, director, general
partner, member, trustee, or holder of ten percent (10%) or more of the
outstanding voting interests of any Person described in clauses (i) through
(iii) of this sentence. For purposes of this definition, the terms "controls,"
"is controlled by," or "is under common control with" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
1.3 "Applicable Federal Rate" means the rate of interest determined each
month by the
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Secretary of Treasury pursuant to Code Section 1274(d) for debt instruments
having a maturity of over three years but not over nine years as announced by
Revenue Rulings issued monthly by the United States Treasury Department,
compounded annually.
1.4 "Articles of Organization" means the Articles of Organization of the
Company to be filed with the New York Department of State, and amendments as may
be filed from time to time as authorized by the unanimous vote or Consent of the
Members.
1.5 "Bankruptcy" and "Bankrupt Person" are defined in Section 10.3.
1.6 "Billing and Services Agreement" means the agreement between the
Company and TNS substantially in the form attached hereto as Exhibit B, to be
executed simultaneously with the Construction Operating Agreement.
1.7 "Business" is defined in Article III, and includes modifications by
the Management Committee from time-to-time as authorized herein.
1.8 "Capital Account" means, as of any given date, the Capital
Contributions to the Company by a Member as adjusted up to the date in question
pursuant to Article VIII.
1.9 "Capital Contributions" means the total amount of cash, and the Fair
Market Value of all tangible or intangible property or services (except as
provided in Section 8.3), which a Member or its predecessor in interest has
contributed or has agreed to contribute to the Company net of liabilities
secured thereby that the Company is considered to assume or to be subject to
under Section 752 of the Code.
1.10 "Code" means the Internal Revenue Code of 1986, as amended.
1.11 "Company" means Telergy MidAtlantic, LLC, the limited liability
company formed pursuant to this Operating Agreement.
1.12 "Company IRU" means the IRUs in the specific quantity of dark fiber
strands delivered to the Company, to be constructed, installed and delivered by
GPU Telcom.
1.13 "Consent" means the prior written consent of a Person to do the act
or thing for which the Consent is solicited, or the act of granting the Consent,
as the context may require.
1.14 "Construction Operating Agreement " means the agreement between the
Company and GPU Telcom substantially in the form attached hereto as Exhibit A,
to be executed simultaneously with the Billing and Services Agreement.
1.15 "Deficit Capital Account" means, with respect to any Member, the
deficit balance, if any, in such Member's Capital Account as of the end of the
taxable year, after giving effect to the following adjustments:
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(i) credit to such Capital Account any amount that such Member is
obligated to restore under Section 1.704-1(b)(2)(ii)(c) of the Treasury
Regulations, as well as any addition thereto pursuant to the next to last
sentence of Sections 1.704-2(g)(1) and (i)(5) of the Treasury Regulations, after
taking into account thereunder any changes during such year in limited liability
company minimum gain attributable to any member non-recourse debt (as determined
under Section 1.704-2(i)(3) of the Treasury Regulations); and
(ii) debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations.
This definition of Deficit Capital Account is intended to comply with the
provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and 1.704-2, and
will be interpreted consistently with those provisions.
1.16 "Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the financial
accounting book value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such Fiscal Year, Depreciation shall be
an amount which bears the same ratio to such beginning book value as the federal
income tax depreciation, amortization, or other cost recovery deduction for such
Fiscal Year bears to such beginning adjusted tax basis; provided, however, that
if the adjusted basis for federal income tax purposes of an asset at the
beginning of such Fiscal Year is zero, Depreciation shall be determined with
reference to such beginning book value using any reasonable method selected by
the Manager.
1.17 "Distributable Cash" means all cash, revenues, and funds received by
the Company, other than from borrowings and Capital Contributions, less the sum
of the following to the extent paid, set aside or accrued by the Company: (i)
all principal payments on indebtedness of the Company and all other sums paid to
lenders; (ii) all cash expenditures for capital improvements, additions and
replacements: (iii) all cash expenditures for expenses incurred incident to the
operation of the Company's business; and (iv) Reserves.
1.18 "Economic Interest" means the interest, either of a Member or a
Permitted Transferee, expressed as a percentage, in the Company's Net Profits,
Net Losses and distributions of the Company's assets all pursuant to this
Agreement and the Act, together with the obligations to comply with the terms
and provisions of the Agreement and the Act, which does not include any right to
participate in the management of the business or affairs of the Company, the
right to vote on, Consent to or otherwise participate in any decision or action
of the Members. The initial Economic Interests shall be 51% for TNS and 49% for
GPU Telcom.
1.19 "Effective Date" means the date that the Articles of Organization are
filed with the New York Department of State forming the Company.
1.20 "Entity" means any general partnership, limited partnership, limited
liability company, corporation, joint venture, trust, business trust,
cooperative, or association or any foreign trust or foreign business
organization.
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1.21 "Facilities" means electronics and equipment and ancillary property
that may be installed by the Company in the GPU Telcom Territory necessary or
useful for the Company to access or use the Company IRU, including but not
limited to, junctions, regenerators, power sources, fault alarm systems,
electronics, structures or shelters, building entrance access and all other
personal property.
1.22 "Fair Market Value"
(i) unless the asset is readily traded and the value is easily
determined, in which case the value shall be such market value, for any asset of
the Company, whether real, personal or intangible property, means the value
determined from time to time for the purpose of this Operating Agreement by
unanimous vote or Consent of the members of the Management Committee. A
determination by the Management Committee shall be binding for a period of six
(6) months following the effective date of the valuation, unless the value is
adjusted during the period or is reaffirmed at the end of the period by the
Management Committee, or unless the valuation shall provide for a different or
longer period during which it shall be effective. If the Management Committee is
unable to unanimously agree upon a value or, in the case of valuation of real
estate or unique personal or intangible property, the value of such property
shall be determined from an appraisal of the asset by a duly qualified appraiser
for the type of asset being appraised, which appraiser shall be selected by the
unanimous vote or Consent of the Management Committee, and if all the members of
the Management Committee are unable to agree on an appraiser within ten (10)
business days after the written request of any member of the Management
Committee, GPU and TNS each shall select an appraiser and the two (2) appraisers
shall agree on the valuation, but if they are unable to agree on the valuation,
the appraisers shall mutually select a third appraiser whose decision as to any
disputed valuation shall be binding and conclusive on all interested parties.
Any appraisers' fees and costs shall be borne and paid by the party authorized
to select the appraiser, but where an appraiser is jointly selected or a third
appraiser is selected, such fees and costs of the jointly selected appraiser or
third appraiser shall be borne and paid for by GPU and TNS in equal shares.
(ii) for an Economic Interest of the Company, means the value
determined from time to time for the purpose of this Operating Agreement by a
duly qualified appraiser knowledgeable about the telecommunications industry who
is jointly selected by the interested parties. If the interested parties are
unable to agree on an appraiser within ten (10) business days after the written
request of either one, each shall select an appraiser and the two (2) appraisers
shall agree on the valuation, but if they are unable to agree on the valuation,
the appraisers shall mutually select a third appraiser whose decision as to any
disputed valuation shall be binding and conclusive on all interested parties.
Any appraisers' fees and costs shall be borne and paid by the party authorized
to select the appraiser, but where an appraiser is jointly selected or a third
appraiser is selected, such fees and costs of the jointly selected appraiser or
third appraiser shall be borne and paid for by the interested parties in equal
shares.
1.23 "Fiscal Year" means the calendar year.
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1.24 "Fiber Optic Network" means the fiber optic network containing the
Company IRU as it may be constructed, installed and delivered to the Company by
GPU Telcom pursuant to the Construction Operating Agreement.
1.25 "GPU ROW" means certain rights of GPU Telcom to the electric and gas
transmission and distribution rights-of-way, conduit, poles, towers, service
entrance pipes or other building entry access and any other facilities of GPU
Regulated in the GPU Telcom Territory for the construction, installation and
delivery of the Company IRU and any Segregated Networks as provided in the
Construction Operating Agreement.
1.26 "GPU Regulated" means Jersey Central Power & Light Company, A New
Jersey corporation, Metropolitan Edison Company, a Pennsylvania corporation, and
Pennsylvania Electric Company, a Pennsylvania corporation, which are regulated
electric companies and Affiliates of GPU Telcom.
1.27 "GPU Telcom Network" means the telecommunications networks and
related structures, collocation sites and equipment or electronics that are
constructed, installed, operated and owned by GPU Telcom or its subsidiaries,
excluding the Company IRU.
1.28 "GPU Telcom Representative" is defined in Section 5.6.
1.29 "GPU Telcom Territory" means the geographic area covered by the state
of New Jersey and the Commonwealth of Pennsylvania.
1.30 Gross Asset Value" means, with respect to any asset of the Company,
its adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be its gross Fair Market Value;
(ii) The Gross Asset Values of all Company assets shall be adjusted
to equal their respective gross Fair Market Values as of the following times:
(a) the acquisition of an additional interest by any new or existing Member in
exchange for more than a de minimis Capital Contribution; (b) the distribution
by the Company to a Member of more than a de minimis amount of property as
consideration for a Membership Interest or Economic Interest; and (c) the
liquidation of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to clauses
(a) and (b) above shall be made only if a majority of the members of the
Management Committee reasonably determine that such adjustments are necessary or
appropriate to reflect the relative Economic Interests of the Members in the
Company;
(iii) The Gross Asset Value of any Company asset distributed to any
Member shall be adjusted to equal its gross Fair Market Value on the date of
distribution; and
(iv) The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or
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Code Section 743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Regulation Section
1.704-1(b)(2)(iv)(m) and Section 8.4 and subparagraph (iv) under the definition
of Net Profits and Net Losses; provided, however, that Gross Asset Values shall
not be adjusted pursuant to this definition to the extent a majority of the
members of the Management Committee determine that an adjustment pursuant to
subparagraph (ii) of this definition is necessary or appropriate in connection
with a transaction that would otherwise result in an adjustment pursuant to this
subparagraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subparagraph (i), (ii), or (iv) of this definition, then such Gross
Asset Value shall thereafter be adjusted by the Depreciation taken into account
with respect to such asset for purposes of computing Net Profits and Net Losses.
1.31 "Indefeasible Right of Use or IRU" means a communication facility in
which the holder possesses an indefeasible, exclusive and irrevocable right to
use and market the facility, but not the right to control the facility.
1.32 "Initial Business" is defined in Article III.
1.33 "Management Committee" is defined in Section 5.3.
1.34 "Manager" means the individual initially designated in Section 5.6
and his or her designee, and successor upon removal, resignation, or
replacement.
1.35 "Market Interest" means the annual rate of interest, compounded
monthly (applied on a daily basis or such other periodic basis as the Manager
shall determine) which shall equal the greater of (a) the announced prime rate
of interest being charged from time to time by the primary commercial bank in
the State of New York with which the Company usually does business (but if there
by no such bank, then such commercial bank in the State of New York as is
selected by the Manager) plus 1%, or (b) 100% of the Applicable Federal Rate in
effect as of the date of the promissory note or other indebtedness as determined
under Section 1274 of the Code, but only if Section 1274 shall apply).
1.36 "Member" means each of the parties who execute a counterpart of this
Operating Agreement as a Member and each of the parties who may hereafter be
admitted as Members or become Substitute Members.
1.37 "Membership Interest" means a Member's entire interest in the Company
including such Member's Economic Interest, Voting Interest and such other rights
and privileges that the Member may enjoy by being a Member.
1.38 "Net Profits" and "Net Losses" mean for each Fiscal Year of the
Company an amount equal to the Company's net taxable income or loss for such
Fiscal Year as determined for federal income tax purposes (including separately
stated items) in accordance with the accounting method and rules used by the
Company and in accordance with Section 703 of the Code with the
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following adjustments:
(i) any items of income, gain, loss, and deduction allocated to
Members pursuant to Section and 9.2 shall not be taken into account in computing
Net Profits or Net Losses for purposes of this Operating Agreement;
(ii) any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Net Profits and Net Losses
(pursuant to this definition) shall be added to such taxable income or loss;
(iii) any expenditure of the Company described in Section
705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) expenditures
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(I), and not otherwise
taken into account in computing Net Profits and Net Losses (pursuant to this
definition) shall be subtracted from such taxable income or loss;
(iv) in the event the Gross Asset Value of any Company asset is
adjusted pursuant to clause (ii) or (iii) of the definition of Gross Asset
Value, the amount of such adjustment shall be taken into account as gain or loss
from the disposition of such asset for purposes of computing Net Profits and Net
Losses;
(v) gain or loss resulting from any disposition of any Company asset
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed with reference to the Gross Asset Value of the asset disposed
of, notwithstanding that the adjusted tax basis of such asset differs from its
Gross Asset Value;
(vi) in lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Fiscal Year; and
(vii) to the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Section 734(b) of the Code or Section 743(b) of the
code is required pursuant to Section 1.704-1(b)(2)(iv)(m)(4) of the Treasury
Regulations to be taken into account in determining Capital Accounts as a result
of a distribution other than in liquidation of a Membership Interest, the amount
of such adjustment shall be treated as an item of gain (if the adjustment
decreases the basis of the asset) from the disposition of the asset and shall be
taken into account for purposes of computing Net Profits or Net Losses.
1.39 "Operating Agreement" or "Agreement" means this Operating Agreement
of Telergy Mid-Atlantic, LLC as the same may be amended from time to time by the
unanimous vote or Consent of the Members.
1.40 "Permitted Transferee" shall mean the holder of an Economic Interest
in the Company who has not been admitted as a Substitute Member, and who
therefore has all of the obligations of a Member, but no right to vote or
participate in the management or affairs of the Company or to exercise any
rights or powers of a Member.
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1.41 "Person" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors, and assigns of
such Person where the context so permits.
1.42 "Regulatory Approval" means the approval, license of other
authorizations required by any state regulator of competent jurisdiction.
1.43 "Reserves" means, with respect to any Fiscal Year, funds set aside or
amounts allocated during such period which are deemed sufficient by a majority
of the members of the Management Committee for working capital and to pay taxes,
insurance, debt service, or other costs or expenses incident to the ownership or
operation of the Company's Business.
1.44 "Secretary of State" means the Secretary of State of the State of New
York.
1.45 "Segregated Networks" means the GPU Telcom Network (excluding the
Company IRU) and the TNS Network, which shall not be construed to be assets of
the Company
1.46 "Selling Member" means any Member which sells all or any portion of
its Economic Interest as described in Section 10.2.
1.47 "Stalemate" means that a matter has been submitted to the Members or
the Management Committee for approval and the Members or the Management
Committee, respectively, have been unable to obtain the unanimous vote or
Consent of the Members or the Management Committee, respectively, required for
such matter, or any other matter with respect to which a Member may declare that
a Stalemate exists pursuant to the terms hereof.
1.48 "Substitute Member" means a Permitted Transferee who has been
admitted as a Member pursuant to Section 10.7.
1.49 "Tax Matters Member" means TNS, the Member designated to represent
the Company in connection with income tax matters pursuant to Section 6231(a)(7)
of the Code.
1.50 "TNS Network" means the telecommunications networks and related
structures, collocation sites and equipment or electronics that are constructed,
installed, operated and owned by TNS or its Affiliates.
1.51 "Transferring Member" shall mean a Member who transfers its
Membership Interest or Economic Interest as provided in Article X.
1.52 "Treasury Regulations" shall include proposed, temporary, and final
regulations promulgated under the Code.
1.53 "Voting Interest" means a Member's proportionate rights, as set forth
in this Agreement, to participate in the management of the business or affairs
of the Company and to vote
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on, Consent to, or otherwise participate in any decision or action of the
Members. The Voting Interests shall be 51% for TNS and 49% for GPU Telcom.
1.54 "Withdrawal Date" means the date upon which a Member elects for GPU
Telcom to withdraw from the Company as provided in Section 10.4.
ARTICLE II
FORMATION OF COMPANY
2.1 Formation. The parties, by execution and delivery of this Operating
Agreement, hereby approve the filing of the Articles of Organization with the
Secretary of State and enter into and join together in and do hereby form the
Company, as of the Effective Date, as a New York Limited Liability Company under
and pursuant to the Act.
2.2 Name. The name of the Company is Telergy MidAltantic, LLC.
2.3 Principal Place of Business; Principal Executive Office. The Company's
initial principal place of business shall be at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇. The Company will relocate its principal place of business to a
location in New Jersey or Pennsylvania as selected by the Management Committee.
2.4 Registered Office and Registered Agent. The address of the Company's
initial registered office shall be ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇. The name and address of the Company's registered agent shall be the
Secretary of State, in accordance with Section 301 of the Act. The registered
office and registered agent may be changed from time to time as the Manager
deems advisable by filing notice of such changes with the Department of State in
accordance with Sections 301 and 302 of the Act.
ARTICLE III
BUSINESS OF COMPANY
3.1 Initial Business. The business of the Company is to resell all forms
of telecommunications products and services, including data, voice and video on
a retail basis in the GPU Telcom Territory pursuant to the Billing and Services
Agreement and the terms of this Agreement (the "Initial Business"). Upon funding
by the Members the Business of the Company shall be expanded to include the
Initial Business and owning and operating fiber optic networks, including the
Company IRU, in the GPU Telcom Territory, as well as the provisioning and
marketing of retail (but not wholesale) telecommunications services on a
facilities-based basis in the GPU Telcom Territory (together with the Initial
Business, the "Business"). Subject to the last sentence of Section 5.9, the
Members and their respective Affiliates may compete with the Company for all or
any portion of its business as provided in Section 17.2 and may construct,
install, own and operate Segregated Networks apart from the Business of the
Company.
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3.2 Expansion of Business. Telergy and GPU Telcom shall, to the extent
beneficial to both parties, (i) seek to extend and expand the Initial Business
beyond the GPU Telcom Territory to encompass additional territories, (ii)
explore the possibility of granting to each other, or causing the grant to each
other, of additional Indefeasible Rights of Use of Dark Fiber in each other's
networks and in additional territories and (iii) explore a joint marketing
arrangement with GPU Advanced Resources.
3.3 Interpretation. The provisions of this Article III shall be applied in
any interpretation of the rights and duties of Members, the Manager or the
Management Committee under Section 409 of the Act or under this Operating
Agreement, as provided in Article V. The authority granted to the Manager and
the Management Committee under this Operating Agreement or the Act to bind the
Company shall be limited to actions necessary or convenient to implement the
Business within any capital and operating budgets that may be adopted, and shall
be further limited as provided in Article V and the Articles of Organization.
3.4 Initial Budget. Within thirty (30) days after the Effective Date,
representatives of Telergy and GPU Telcom will together develop a business plan
and initial budget for submission to the Members for their approval. The budget
prepared pursuant to this Section 3.4 shall include an income statement prepared
on a tax basis and an accounting basis which shall show in reasonable detail the
revenues and expenses projected for the Company's business for the forthcoming
twelve (12) months and a cash flow statement which shall show in reasonable
detail the receipts and disbursements projected for the Company's business for
the forthcoming twelve (12) months, and the amount of any corresponding cash
deficiency or surplus, and the projected Capital Contributions of the Members,
if any, and any contemplated borrowings of the Company.
ARTICLE IV
IDENTITY OF MEMBERS
The names and addresses of the Members, their respective Economic
Interests, Voting Interests and their initial Capital Contributions are to be
set forth on a schedule maintained by the Manager at the Company's principal
office. The initial version of such schedule is attached hereto as Exhibit C.
Such schedule shall be modified from time to time to reflect changes thereto
made in accordance with this Operating Agreement and the Act and shall be made
available to any Member upon request.
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ARTICLE V
RIGHTS AND DUTIES OF THE MANAGER,
THE MANAGEMENT COMMITTEE AND THE MEMBERS
5.1 Manager. The Manager is charged with the responsibility for, and is
vested with the day-to-day authority to manage the ordinary course of the
Company's Business, and with the authority to spend funds of the Company, but
only as set forth herein, in each case subject to the overall supervision and
direction of the Management Committee, provided however that the Manager shall
not spend funds prohibited by this Operating Agreement or the Articles of
Organization, and shall obtain prior approval of the Members or the Management
Committee where expressly required by this Operating Agreement or by the Act.
5.2 Authority of the Manager.
(a) Prohibited Actions. The Manager shall not have authority to take any
of the following actions on behalf of the Company:
(i) knowingly do any act in contravention of this Operating
Agreement;
(ii) knowingly do any act which would make it impossible to carry on
the ordinary Business of the Company, except as otherwise provided in this
Operating Agreement;
(iii) cause the Company to voluntarily take any action that would
cause a Bankruptcy or dissolution of the Company.
(b) Permitted Transactions. The Manager is expressly authorized to conduct
the day-to-day activities of the Business of the Company and to negotiate and
execute any agreements necessary to carry out the Initial Business as may be
expanded by the Members from time to time, subject to the limitations contained
in Sections 5.1, 5.2, 5.3, 5.4 , 5.5 and 5.8.
5.3 Management Committee. The Company's Business shall be managed by a
management committee the members of which shall be appointed pursuant to the
provisions of Section 5.6 (the "Management Committee"). The Management Committee
shall have exclusive authority over the Manager and to manage the Company's
Business with respect to the matters set forth in Section 5.4 and to the extent
provided in this Operating Agreement or the Articles of Organization, except in
those cases in which approval of the Members is expressly required by this
Operating Agreement or by the Act.
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5.4 Authority of the Management Committee.
(a) Authorized Actions. Provided that the Management Committee has
obtained the unanimous vote or Consent from the Members for any capital
expenditures or Capital Contributions that may be required, the Management
Committee shall have authority to take any actions on behalf of the Company
which are not specifically reserved to the Members by this Operating Agreement,
the Articles of Organization or the Act, including, but not limited to the
following, except that in connection with any approval of the matters specified
in clauses (i), (ii), (iii), (v), (vi), (viii), (xiii) and (xiv), the unanimous
vote or Consent of the members of the Management Committee shall be required to
have the authority to act :
(i) modify the Initial Business of the Company and approve and amend
a business plan;
(ii) approve and amend budgets for capital expenditures authorized
by the Members and operating expenses, and the debt or Capital Contributions
authorized by the Members necessary to implement such budgets;
(iii) engage in acquisitions related to the business purpose of the
Company;
(iv) purchase, sell or lease real estate, except that the Manager
shall have authority to lease office space in New Jersey and Pennsylvania for
marketing staff;
(v) authorize distributions of property, or restrict distributions
of Distributable Cash to Members with respect to their relative Membership
Interests;
(vi) authorize the amount of indebtedness of the Company and its
debt to equity ratio ;
(vii) incur indebtedness for borrowed money on behalf of the Company
or refinance any such indebtedness of the Company;
(viii) issue notes, bonds, or other obligations or securing
obligations by mortgage or pledge of any of the Company's property or income, or
assume liabilities in any transaction by the Company;
(ix) confess a judgment against the Company, or release, settle or
compromise any claim or right in favor of the Company;
(x) create Reserves;
(xi) authorize transactions between the Company and the Members, or
any of their Affiliates so long as such transactions are on "arm's length"
terms;
(xiii) appoint independent auditors of the Company;
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(xiv) appoint a successor Manager;
(xv) authorize the expansion of the Company IRU and acquire
wholesale capacity in the GPU Telcom Territory provided that the Members
provides Capital Contributions or other funding mechanisms necessary to fund the
related capital costs;
(xvi) determine compensation, pay bonuses, establish or modify
pension, profit sharing, benefit or incentive plans in accordance with the terms
of any budget approved pursuant to Section 5.4(a)(ii) above; and
(xvii) determine the Fair Market Value for any assets of the
Company.
In the event the unanimous vote or Consent of the Management
Committee is required but is not obtained within sixty days from the date
the Manager or a member of the Management Committee requests such vote or
Consent, either Member shall be entitled to declare that a Stalemate
exists, and such Stalemate shall be submitted to each of the principal
executive officers of the Members to resolve as provided in Section 7.10
(b) Prohibited Actions. The Management Committee shall not have authority
to take any of the following actions on behalf of the Company, without the
unanimous vote or Consent of the Members:
(i) admit a new Member or a Substitute Member to the Company or
issue any interest in the Company;
(ii) sell or otherwise transfer all or substantially all of the
assets of the Company;
(iii) merge or consolidate the Company with or into any other entity
or effect a change of control of the Company;
(iv) dissolve or liquidate the Company;
(v) authorize capital expenditures or authorize indebtedness for
borrowed funds and require additional Capital Contributions by the Members other
than as may be approved by all of the Members;
(vi) amend this Operating Agreement or the Articles of Organization.
(vii) terminate the Construction Operating Agreement or the Billing
and Services Agreement with GPU Telcom and TNS, respectively.
5.5 Authority of the Members. The Members shall have the authority to take
any action for matters on which the Management Committee has failed to act or to
obtain an affirmative vote
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or Consent of a majority of the members of the Management Committee. A Permitted
Transferee or a Member who does not have a Voting Interest shall not have
authority to take any action to bind the Company.
5.6 Number, Tenure, and Qualifications of Manager, Members of the
Management Committee.
(a) The initial Manager of the Company shall be ▇▇▇▇▇ ▇▇▇▇▇
(hereinafter referred to as "Manager"); provided, however, that within
sixty (60) days of the Effective Date, the Members shall jointly select a
full-time Manager who will be a full-time employee of the Company. The
full-time Manager shall enter into an employment agreement with the
Company which includes such terms and conditions as may be mutually
acceptable to the Members. Each of the Members agree that neither it nor
any of its Affiliates will solicit for employment or employ, as an
employee or consultant, any full-time Manager during the term of such
Manager's employment by the Company for a period of one (1) year
thereafter (unless the Company is dissolved or a Member has withdrawn as
provided in Section 10.4.
(b) The Manager shall hold office until his, her or its respective
successor is appointed by the Management Committee making the initial
appointment as provided in this Section 5.6, unless the Manager resigns or
is removed under Section 5.7. The Management Committee shall be comprised
of three individuals, two of whom shall be designated by TNS and one of
whom shall be designated by GPU Telcom (the "GPU Telcom Representative").
The initial Management Committee shall be composed of the following
individuals: ▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇, who are the designees of
TNS, and ▇▇▇▇▇ ▇▇▇▇▇▇, who is the GPU Telcom Representative, each of whom
shall serve until his or her successor is appointed by the Member entitled
to make the appointment as provided in this Section 5.6, unless he or she
resigns or is removed under Section 5.7. TNS shall designate the Chairman
of the Management Committee, and the initial Chairman shall be ▇▇▇▇▇ ▇.
▇▇▇▇▇.
(c) The parties agree that the costs associated with the time
Management Committee members expend on the Company shall not be reimbursed
by the Company but that the Management Committee members may be reimbursed
by the Company for all out-of-pocket expenses associated with Management
Committee activities, including, but not limited to, reasonable travel
expenses. Any vacancy in the office of the Manager created by removal or
resignation shall be filled by the Management Committee. Any vacancy in
the Management Committee created by removal or resignation of any of its
members shall promptly be filled by action of the Management Committee
entitled to appoint the member of the Management Committee whose removal
or resignation gave rise to the vacancy.
5.7 Removal and Resignation of the Manager and Members of the Management
Committee.
(a) Removal. The Manager may be removed at any time, with or without
cause, by
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unanimous vote or Consent of the Management Committee. Any member of the
Management Committee may be removed at any time, with or without cause, by
action of the Member who appointed such Management Committee member.
(b) Resignation. The Manager and any member of the Management Committee
may resign such position by giving written notice to each Member, and shall be
deemed to have resigned upon his or her death.
5.8 Duties of the Manager, Members of the Management Committee, and the
Members.
(a) The Manager, each member of the Management Committee, and each Member
shall exercise its or his or her powers and discharge its or his or her duties
in good faith with a view to the interests of the Company and its Members with
that degree of diligence, care, and skill that ordinarily prudent persons would
exercise under similar circumstances in like positions. The Manager, the members
of the Management Committee, and the Members may in all cases, if acting
reasonably and in good faith, rely upon financial statements of the Company that
were either certified in writing by an independent or certified public
accountant or firm of such accountants fairly to reflect the Company's financial
condition, or reported to such Manager, Management Committee member, or Member
to be correct by the Manager or Member having charge of the books of accounts of
the Company. A Manager or Management Committee member may not be held personally
liable for monetary damages for failure to discharge any duty as a Manager or
Management Committee, except as provided in Section 417 of the Act. A Member may
not held personally liable for monetary damages for failure to discharge any
duty as a Member unless the Member is found to have engaged in willful
misconduct or knowing violation of law.
(b) The Manager shall prepare and submit to the Management Committee for
unanimous approval or Consent by its members, capital expenditures and operating
budgets for the next Fiscal Year of the Company, and shall report to the
Management Committee on a regular basis with respect to the Company's actual
performance. Any capital expenditures budget and operating budget shall contain
a category for contingency items which may be spent at the discretion of the
Manager.
5.9 The Members of the Management Committee, and the Members Duties to
Company. Any Member and any member of the Management Committee (provided that
such activities do not violate or conflict with the terms of any written
agreement between the Company and a Management Committee member) may have other
business interests and may engage in other activities similar to and in addition
to those relating to the Company. Neither the Company nor any Member shall have
any right, by virtue of this Operating Agreement, to share or participate in
such other permitted investments or activities of any Management Committee
member or any Member or to the income or proceeds derived therefrom, including
the Segregated Networks. No Management Committee member, or Member shall incur
any liability to the Company or to any of the Members as a result of engaging in
any such other permitted business or venture. Notwithstanding the foregoing,
each of TNS and GPU Telcom agree that for so long as it is a Member under this
Agreement, neither it nor any of its Affiliates shall own a ten percent (10%) or
more voting or equity interest in, or manage or operate, any retail
telecommunications business
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other than the Company that engages in the Business in the GPU Telcom Territory,
provided however, that TNS shall be entitled to market and sell wholesale (but
not retail) telecommunications services and capacity, including leases and
conveyances by IRU of dark fiber strands, in the GPU Territory. Upon a
withdrawal of a Member following a Stalemate as provided in Section 10.4, no
restrictions shall apply to either party's business activities and each shall be
free to compete with the Company and with each other in the provisioning of all
forms of facilities-based and resale of telecommunications services on a
wholesale and retail basis.
5.10 Bank Accounts. The Manager may from time to time open bank accounts
in the name of the Company, and any officer or other designee of the Manager
shall be a signatory thereon, unless a majority of the members of the Management
Committee determines otherwise.
5.11 Indemnification of the Manager, Members of the Management Committee,
and Other Agents.
(a) General. The Company shall fully indemnify in all circumstances to the
extent not prohibited by law any person made, or threatened to be made, a party
to an action or proceeding whether civil or criminal, including an
investigative, administrative or legislative proceeding, including an action by
or in the right of the Company or any corporation, partnership, joint venture,
limited liability company, trust, employee benefit plan or other enterprise, of
any type or kind, domestic or foreign, by reason of that fact that such person,
his testator or intestate, is or was a Manager or member of the Management
Committee, or with the approval of a majority of the members of the Management
Committee is or was serving at the request of the Company, in any corporation,
partnership, joint venture, limited liability company, trust, employee benefit
plan or other enterprise of any type or kind, domestic or foreign, as a
director, officer or in any other capacity, against any and all judgments,
fines, amounts paid in settlement and expenses, including attorneys' fees,
actually or reasonably incurred as a result of or in connection with any such
action or proceeding or related appeal; provided, however, that no
indemnification shall be made to or on behalf of any Manager or member of the
Management Committee if a judgment or other final adjudication adverse to him
establishes that his acts were committed in bad faith or were the result of
active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled; and, the Company shall pay
expenses incurred by or on behalf of such a person in defending such a civil or
criminal action or proceeding (including appeals) in advance of the final
disposition of such action or proceeding promptly upon receipt by the Company,
from time to time, of a written demand of such person for such advancement,
together with an undertaking by or on behalf of such person to repay any
expenses so advanced to the extent that the person receiving the advancement is
ultimately found not to be entitled to indemnification for such expenses; and
the right to indemnification and advancement of defense expenses granted by or
pursuant to this Section 5.11 (i) shall not limit or exclude, but shall be in
addition to, any other rights which may be granted by or pursuant to any
statute, certificate of incorporation, by-law, resolution or agreement, (ii)
shall be deemed to constitute a contractual obligation of the Company to any
Manager or member of the Management Committee who serves in such capacity at any
time while this Section 5.11 is in effect, (iii) are intended to be retroactive
and shall be available with respect to events occurring prior to the adoption of
this Section 5.11, and (iv) shall continue to exist after the repeal
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or modification hereof with respect to events occurring prior thereto. It is the
intent of this Section 5.11 to require the Company to indemnify the persons
referred to herein for the aforementioned judgments, fines, amounts paid in
settlement and expenses, including attorneys' fees, in each and every
circumstance in which such indemnification could lawfully be permitted by an
express provision, and the indemnification required by this Section 5.11 shall
not be limited by the absence of an express recital of such circumstances.
(b) Insurance. The Company shall purchase and maintain insurance on behalf
of any person who is or was a Manager, or Management Committee member, and shall
have the power to purchase and maintain insurance on behalf of any person who is
or was an employee or agent of the Company, or is or was serving at the request
of the Company as a member, principal, director, officer, trustee, partner,
fiduciary, employee, or agent of another Entity, pension, or other employee
benefit plan or other enterprise, against any liability asserted against that
person and incurred by that person in any such capacity, or arising out of that
person's status as such, whether or not the Company would have the power to
indemnify that person against such liability under this Section 5.11.
ARTICLE VI
LIMITATION OF MEMBERS' LIABILITY AND PRIORITY
6.1 Limitation of Liability. Each Member's liability shall be limited as
set forth in this Operating Agreement, the Act, and other applicable law.
6.2 Deficit Capital Account. No Member shall have any liability to restore
all or any portion of a deficit balance in such Member's Capital Account. A
Member will not be personally liable for any debts or losses of the Company
beyond its respective Capital Contributions and any obligation of the Member
under Section 8.1 or 8.2 to make Capital Contributions, except as otherwise
required by law.
6.3 Priority and Return of Capital. Except as may be expressly provided in
this Agreement, no Member shall have priority over any other Member, either as
to the return of Capital Contributions or as to Net Profits, Net Losses, or
distributions; provided that this Section shall not apply to loans (as
distinguished from Capital Contributions) that a Member has made to the Company.
ARTICLE VII
MEETINGS
7.1 Member Meetings. Meetings of the Members may be called for any purpose
by a majority of the members of the Management Committee. The Members shall meet
at least annually.
7.2 Place of Member Meetings. The Person(s) calling a meeting pursuant to
Section 7.1
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may designate any place, within or outside the State of New York for any meeting
of the Members. If no designation is made, the place of meeting shall be the
principal executive office of the Company. The Members may meet, act and conduct
business through the use of teleconference or other similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time. Participation in such teleconference(s) shall constitute
presence in person at a meeting.
7.3 Notice of Member Meetings. Written notice stating the place, day, and
hour of the meeting and the purpose or purposes for which the meeting is called
shall be delivered not less than ten (10) nor more than sixty (60) days before
the date of the meeting, either personally, by mail, or facsimile, by the
Manager at the direction of the Person(s) calling the meeting, to each Member
entitled to vote at such meeting. The business transacted at each meeting of the
Members shall be limited to the purpose(s) stated in the notice of the meeting.
7.4 Meeting of All Members. If all of the Members meet at any time and
place and consent to the holding of a meeting at such time and place, such
meeting shall be valid without call or notice, and at such meeting lawful action
may be taken.
7.5 Quorum for Member Meetings. Members holding at least 75% of the Voting
Interests of all Members, represented in person or by proxy, shall constitute a
quorum at any meeting of Members.
7.6 Members' Manner of Acting. If a quorum is present, the affirmative
vote of Members holding a majority of the Voting Interests represented in person
or by proxy shall be the act of the Members, unless the vote of a greater or
lesser proportion or number is otherwise required by the Act, by the Articles of
Organization, or by this Operating Agreement. Unless otherwise expressly
provided herein or required under applicable law, Members who have an interest
(economic or otherwise) in the outcome of any particular matter presented to the
Members for a vote may vote or Consent upon any such matter and their Voting
Interest, vote or Consent, as the case may be, shall be counted in the
determination of whether the requisite matter was approved by the Members.
7.7 Member Proxies. At all meetings of Members a Member may vote in person
or by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the Manager before or at the
time of the meeting. No proxy shall be valid after eleven months from the date
of its execution, unless otherwise provided in the proxy.
7.8 Action by Members Without a Meeting. Action required or permitted to
be taken at a meeting of Members may be taken without a meeting if the action is
evidenced by one or more written Consents describing the action taken, signed by
a sufficient number of Members or Members holding the requisite Voting
Interests, as applicable, whose vote is necessary for the taking of the action
described therein and delivered to the Manager for inclusion in the minutes or
for filing with the Company records. Action taken under this Section is
effective when Members in the requisite number or holding the requisite Voting
Interests, as applicable, have signed the Consent, unless the Consent specifies
a different effective date.
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7.9 Waiver of Notice for a Member Meeting. When any notice is required to
be given to any Member, a waiver thereof in writing signed by the Member
entitled to such notice, whether before, at, or after the time stated therein,
shall be equivalent to the giving of such notice. Attendance at any meeting
shall constitute a waiver of notice unless there has been made a proper
objection to the meeting or to the items that are to be discussed.
7.10 Stalemate or Impasse by the Members. In the event the Members are
unable to get a quorum for a meeting or are deadlocked on any issue, a Member
may declare that a Stalemate exists and shall submit the same to be resolved by
appeal to the principal executive officers of the Members who shall then attempt
to resolve the Stalemate within ten (10) days of submission of the matter to
them In the event the Members' principal executive officer cannot resolve the
Stalemate within such 10 day period, the matter need not be submitted again to
the Members for a vote and the provisions of Section 10.4 shall apply.
7.11 Management Committee Meetings. Meetings of the Management Committee
may be called for any purpose by one or more members of the Management
Committee. The Management Committee shall meet at least monthly, and at such
other times and at such places as the Management Committee determines.
7.12 Notice of Management Committee Meetings. Written notice stating the
date, time, and the purpose or purposes of the meeting shall be delivered to
each member of the Management Committee at least five (5) business days prior to
the meeting. The business transacted at each meeting of the Management Committee
is limited to the purpose(s) stated in the notice of the meeting.
7.13 Location and Conduct of the Management Committee Meetings;
Adjournments.
(a) Each meeting of the Management Committee will be held at the Company's
principal executive office or at some other location agreed to by the Management
Committee.
(b) The Chairman of the Management Committee will preside over all
meetings of the Management Committee.
(c) Any meeting of the Management Committee may be adjourned from time to
time to another date and time or to another place. If at the time of adjournment
the Chairman announces the date, time, and place at which the meeting will be
reconvened, it is not necessary to give any further notice of the reconvening.
(d) Any one or more of the members of the Management Committee may
participate in a meeting of the Management Committee by means of a
teleconference or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
7.14 Waiver of Notice for a Management Committee Meeting.
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(a) A member of the Management Committee may waive notice of the date,
time, place, and purpose or purposes of a meeting of the Management Committee. A
waiver may be made before, at, or after the meeting, in writing, orally, or by
attendance.
(b) Attendance by a member of the Management Committee at a meeting is a
waiver of notice of that meeting, unless such member objects at the beginning of
the meeting to the transaction of business because the meeting is not properly
called or convened, or objects before a vote on an item of business because the
item may not properly be considered at that meeting and does not participate in
the consideration of the item at that meeting.
7.15 Management Committee Proxies. A member of the Management Committee
may cast or authorize the casting of a vote by filing a written appointment of a
revocable proxy with the Company at or before the meeting at which the
appointment is to be effective. Such member may sign or authorize the written
appointment by facsimile, or other means of electronic transmission stating, or
submitted with information sufficient to determine, that such member authorized
the transmission. Any copy, facsimile, telecommunication, or other reproduction
of the original of either the writing or the transmission may be used in lieu of
the original, if it is a complete and legible reproduction of the entire
original.
7.16 Management Committee Manner of Acting. If a quorum is present, the
affirmative vote of a majority of the members of the Management Committee
represented in person or by proxy shall be act of the Management Committee,
unless a unanimous vote is required by this Agreement. Unless otherwise
expressly provided herein or required under applicable law, members of the
Management Committee representing a Member who has an interest in the outcome of
any particular matter presented to the Management Committee for a vote may vote
or Consent upon any such matter. Their vote shall be counted in the
determination of whether the requisite matter was approved by the Management
Committee.
7.17 Quorum for Management Committee Meetings. In the event the Management
Committee is unable to get a quorum for a meeting or is deadlocked on any issue,
a member may request that the Stalemate or impasse be resolved by appeal to the
principal executive officers of the members who shall then attempt to resolve
the Stalemate or impasse. In the event the members' principal executive officers
cannot resolve the Stalemate or impasse, the matter need not be submitted again
to the Management Committee for a vote.
7.18 Quorum for Management Committee Meetings. For any meeting of the
Management Committee, a quorum consists of a majority of the members of the
Management Committee present in person or by proxy.
7.19 Action by Management Committee Without a Meeting. Any action required
or permitted to be taken at a meeting of the Management Committee may be taken
without a meeting by written Consent signed by the members of the Management
Committee required hereunder for such action. The written Consent is effective
when signed by such members of the Management Committee, unless a different
effective time is provided therein.
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ARTICLE VIII
CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
8.1 Members' Initial Capital Contributions.
(a) TNS shall contribute up to $4,000,000 to the Company as an initial
Capital Contribution, which amount shall be funded when and as requested by the
Manager, to fund the start up costs of the Initial Business including without
limitation the leasing of office space in New Jersey and Pennsylvania for
marketing staff, and the initial working capital requirements of the Company for
start-up costs such as expenses related to licenses and authorizations and
Regulatory Approvals, and to market telecommunications services on a resale
basis. In connection with the Initial Business of resale marketing, TNS will
design and implement a marketing campaign and the Manager will lease or
otherwise obtain space for sales offices in New Jersey and in Pennsylvania, and
TNS will assist the Company in the deployment of a direct sales team comprised
of employees of the Company into the GPU Telcom Territory. TNS shall not be
required to make any other Capital Contributions or otherwise fund the Business
of the Company, including but not limited to any requirement to fund the Company
IRU, the ongoing working capital requirements of the Company, the marketing of
telecommunications products and services on behalf of the Company as a
facilities-based provider, or otherwise fund the Business of the Company unless
it agrees to do so in its capacity as a Member.
(b) In connection with the Initial Business of resale marketing, GPU
Telcom will assign one or more customer service representatives familiar with
GPU Telcom's business activities to be employed by the Company at each of the
New Jersey and Pennsylvania offices. For a period of six (6) months from the
Effective Date, GPU Telcom shall make an employee available to the Company (at
the Company's expense) to handle financial, operational and other administrative
matters relating to the commencement of the Initial Business. GPU Telcom shall
not be required to make any Capital Contributions or otherwise fund the Business
of the Company, including but not limited to any requirement to fund the Company
IRU, the ongoing working capital requirements of the Company, the marketing of
telecommunications products and services on behalf of the Company on a resale
basis or as a facilities-based provider, or otherwise fund the Business of the
Company unless it agrees to do so in its capacity as a Member.
8.2 Additional Capital Contributions. Each Member shall be obligated to
contribute the amount of capital as authorized by the unanimous vote or Consent
of the Members.
(a) No Member shall be required to make any Capital Contribution in
addition to those contemplated by Section 8.1(a) or 8.2(b). In the event the
Members are required to make additional Capital Contributions as authorized by
the decision of the Members unanimous vote or Consent, the Members shall
participate in such additional Capital Contributions on a pro rata basis in
accordance with their Economic Interests. No additional Capital Contributions
may be made other than in cash without the approval of the Members. In the event
one Member makes additional Capital Contributions in accordance with this
Agreement and with the Consent of the other
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Member, the non-contributing Member's Economic Interest shall be diluted as
agreed to by the Members.
(b) Notwithstanding anything to the contrary contained in this Agreement,
including but not limited to Sections 8.1 and 8.2, in the event that the Manager
or the Management Committee reasonably determines that the Company's cash
reserves and reasonably anticipated revenues are less than is needed to satisfy
its existing liabilities or its budgeted needs for capital expenditures and
working capital during the succeeding twelve (12) months, the Manager, either
Member or the Management Committee shall be empowered to seek approval from the
Members (i) for additional Capital Contributions that are sufficient in the
reasonable judgment of the Manager or the Management Committee to fund the
anticipated shortfall, which approval may be withheld by either Member for any
or no reason, provided however that the failure by either GPU Telcom or TNS to
provide funds sought pursuant to this paragraph shall entitle either Member to
declare a Stalemate which shall be resolved in accordance with the provisions of
Section 7.10 and/or (ii) to obtain loans from third parties or any Member on
commercially reasonable terms.
8.3 Other Contributions. TNS and GPU Telcom shall contribute their
expertise, name recognition, customer contacts and other intangible assets to
the Company to facilitate the Business of the Company. GPU Telcom hereby
authorizes the Company's use of the GPU Telcom name and reputation in marketing
to customers in the GPU Telcom Territory and to access GPU Telcom customers to
market telecommunications services; provided however, that GPU Telcom shall be
entitled to review and must approve any marketing materials (including written
materials or any prepared script used in oral presentations and subsequently
distributed in writing) that include the GPU Telcom name prior to the use of
such materials by the Company; and provided further that the Company shall not
make any use of the GPU Telcom name that would be reasonably likely to have a
material, detrimental or adverse impact on GPU or any of its Affiliate's
reputation or standing in the business community or their respective
relationship with any regulatory body. Upon receipt by the Company of adequate
revenues or other funding by the Members to pay for the Company IRU under the
Construction Operating Agreement, and upon such payment by the Company to GPU
Telcom for the Company IRU as provided in the Construction Operating Agreement,
GPU Telcom shall deliver the Company IRU and upon such delivery the Company then
shall commence providing facilities-based telecommunications products and
services in the GPU Telcom Territory and the Company or both Members (rather
than TNS alone) shall fund the marketing to customers of facilities-based
telecommunications services on a retail basis, which shall include compensating
TNS for performing certain billing and other services for the Company pursuant
to the Billing and Services Agreement. Neither party shall charge the Company or
be entitled to a credit to their respective Capital Accounts for the intangible
assets contributed hereunder.
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8.4 Capital Accounts.
(a) A separate Capital Account shall be maintained for each Member in
accordance with the capital accounting rules of Section 704(b) of the Code. The
beginning balance in each Member's Capital Account shall be the amount of such
Member's initial Capital Contribution made pursuant to Section 8.1. Thereafter,
a Member's Capital Account shall be increased by (i) the amount of any
subsequent Capital Contribution to the Company by such Member; (ii) such
Member's allocable share of Net Profit and items in the nature of income or gain
which are allocated pursuant to Section 9.2; and (iii) such other amounts as may
be required for the Capital Account to be determined and maintained in
accordance with the rules of Section 1.704-1(b)(2)(iv) of the Treasury
Regulations (including Section 1.704-1(b)(2)(iv)(g) thereof). A Member's Capital
Account shall be decreased by (i) such Member's allocable share of Net Loss and
items in the nature of loss or deduction allocated pursuant to Section 9.2; (ii)
the amount of cash or the Fair Market Value of any property distributed from the
Company to such Member (reduced by the amount of debt, if any, assumed by such
Member in connection with the distribution); and (iii) such other amounts as may
be required for the Capital Account to be determined and maintained in
accordance with the rules of Section 1.704-1(b)(2)(iv) of the Treasury
Regulations (including Section 1.704-1(b)(2)(iv)(g) thereof). It is the parties'
specific intent that Capital Accounts shall be maintained in accordance with the
capital account maintenance rules contained in section 704(b) of the Code,
including the Treasury Regulations thereunder, and this Section 8.4(a) shall be
construed and applied to achieve such result.
(b) Upon liquidation of the Company (or any Member's Membership Interest),
liquidating distributions will be made in accordance with the positive Capital
Account balances of the Members and in accordance with Section 12.3 after taking
into account all Capital Account adjustments for the Company's Fiscal Year
during which the liquidation occurs.
8.5 Withdrawal or Reduction of Members' Contributions to Capital.
(a) A Member shall not receive out of the Company's property any part of
its Capital Contribution until all liabilities of the Company have been paid.
(b) A Member, irrespective of the nature of its Capital Contribution, has
only the right to receive cash in return for its Capital Contribution, except
for liquidation distributions under Section 12.
(c) A Member may not withdraw from the Company or assign its Membership
Interest or Economic Interest prior to the dissolution and winding up of the
Company, except as provided in Article X.
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ARTICLE IX
ALLOCATIONS, INCOME TAX, DISTRIBUTIONS,
ELECTIONS, AND REPORTS
9.1 Allocations of Profits and Losses from Operations. The Net Profits of
the Company for each Fiscal Year shall be allocated between the Members in
proportion to the Economic Interests held by Members. The Net Losses shall be
allocated between the Members in proportion to their Economic Interests;
provided, however, that if a Member's Capital Account is reduced to zero (0),
any additional Net Losses shall be allocated to the other Member until its
Capital Account is reduced to zero (0).
9.2 Special Allocations to Capital Accounts and Certain Other Income Tax
Allocations. Notwithstanding Section 9.1 hereof:
(a) In the event any Member unexpectedly receives any adjustments,
allocations, or distributions described in Sections 1.704-1(b)(2)(ii)(d)(4),
(5), or (6) of the Treasury Regulations, which create or increase a Deficit
Capital Account of such Member, then items of Company income and gain
(consisting of a pro rata portion of each item of Company income, including
gross income, and gain for such taxable year and, if necessary, for subsequent
years) shall be specially allocated to such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury Regulations, the
Deficit Capital Account so created as quickly as possible. It is the parties'
intent that this Section 9.2(a) be interpreted to comply with the alternate test
for economic effect set forth in Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations.
(b) In the event any Member would have a Deficit Capital Account at the
end of any Company taxable year which is in excess of the sum of any amount that
such Member is obligated to restore to the Company under Section
1.704-1(b)(2)(ii)(c) of the Treasury Regulations and such Member's share of
minimum gain as defined in Section 1.704-2(g)(1) of the Treasury Regulations
(which is also treated as an obligation to restore in accordance with Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations), the Capital Account of such
Member shall be specially credited with items of Company income (including gross
income) and gain in the amount of such excess as quickly as possible.
(c) Notwithstanding any other provision of this Section 9.2, if there is a
net decrease in the Company's minimum gain as defined in Treasury Regulation
Section 1.704-2(d) during a taxable year of the Company, then the Capital
Accounts of each Member shall be allocated items of income (including gross
income) and gain for such taxable year (and if necessary for subsequent years)
equal to that Member's share of the net decrease in Company minimum gain. This
Section 9.2(c) is intended to comply with the minimum gain charge-back
requirement of Section 1.704-2 of the Treasury Regulations and shall be
interpreted consistently therewith. If in any taxable year that the Company has
a net decrease in the Company's minimum gain, if the minimum gain charge-back
requirement would cause a distortion in the economic arrangement among the
Members and it is not expected that the Company will have sufficient other
income to correct that distortion, the Tax Matters Member may in its discretion
(and shall, if requested to do so by a Member) seek to have
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the Internal Revenue Service waive the minimum gain charge-back requirement in
accordance with Treasury Regulation Section 1.704-2(f)(4).
(d) Items of Company loss, deduction, and expenditures described in
Section 705(a)(2)(B) of the Code that are attributable to any non-recourse debt
of the Company and are characterized as partner (Member) non-recourse deductions
under Section 1.704-2(i) of the Treasury Regulations shall be allocated to the
Members' Capital Accounts in accordance with said Section 1.704-2(i) of the
Treasury Regulations.
(e) Beginning in the first taxable year in which there are allocations of
"nonrecourse deductions" (as described in Section 1.704-2(b) of the Treasury
Regulations), such deductions shall be allocated to the Members in the same
manner as Net Profit or Net Loss is allocated for such period.
(f) In accordance with Section 704(c)(1)(A) of the Code and Section
1.704(b)(2)(i)(iv) of the Treasury Regulations, if a Member contributes property
with a fair market value that differs from its adjusted basis at the time of
contribution, income, gain, loss, and deductions with respect to the property
shall, solely for federal income tax purposes (and not for Capital Account
purposes), be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to the Company and its fair market
value at the time of contribution.
(g) Any credit or charge to the Capital Accounts of the Members pursuant
to Sections 9.2 (a), (b), (c), (d), and/or (e) hereof shall be taken into
account in computing subsequent allocations of Net Profits and Net Losses
pursuant to Section 9.1, so that the net amount of any items charged or credited
to Capital Accounts pursuant to Sections 9.1 and 9.2 (a), (b), (c), (d), and/or
(e) shall to the extent possible, be equal to the net amount that would have
been allocated to the Capital Account of each Member pursuant to the provisions
of this Article IX if the special allocations required by Sections 9.2 (a), (b),
(c), (d), and/or (e) hereof had not occurred.
9.3 Distributions. All distributions of Distributable Cash and property
shall be made to the Members in proportion to the percentages of their Economic
Interests on the record date of such distribution. Except as provided in Section
9.4 and except as restricted by a majority of the members of the Management
Committee as provided in Section 5.4(a)(v), all Distributable Cash shall be paid
to the Members periodically throughout the Fiscal Year during which it was
earned or otherwise received by the Company. The final payment of Distributable
Cash determined for each Fiscal Year shall be no later than March 30 following
the end of such Fiscal Year. The Management Committee shall use its best efforts
to authorize payments of Distributable Cash at such times as to enable each
Member to pay its federal and state income taxes determined at the highest
effective tax rate attributable to its share of the Company's taxable income.
Except as provided in Section 9.4, all distributions of property shall be made
at such time as determined by a majority of the members of the Management
Committee as provided in Section 5.4(a)(v).
9.4 Limitation Upon Distributions. No distribution shall be declared and
paid if, in the determination of a majority of the members of the Management
Committee after giving effect to the distribution:
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(a) the Company would not able to pay its debts as they become due in the
usual course of business; or
(b) all liabilities of the Company, other than liabilities for which the
recourse of creditors is limited to specified property of the Company, would
exceed the fair value of the Company's assets, except that the fair value of
property that is subject to a liability for which the recourse of creditors is
limited shall be included in the Company's assets only to the extent the fair
value of that property exceeds that liability.
As contemplated by Section 508 of the Act, the members of the
Management Committee may base the determination under this Section on either:
(a) financial statements prepared on the basis of accounting practices and
principles that are reasonable under the circumstances; or
(b) a fair valuation or other method that is reasonable under the
circumstances.
The members of the Management Committee shall make their
determination under this Section and authorize any distribution under Section
9.3 in accordance with the standards of Section 508 of the Act.
9.5 Accounting Principles. The Net Profits and Net Losses of the Company
shall be determined as provided in Section 1.38 using the accrual method of
accounting applied on a consistent basis.
9.6 Interest On Capital Contributions. No Member shall be entitled to
interest on its Capital Contribution, except as otherwise specifically provided
for in this Agreement.
9.7 Accounting Period. The Company's accounting period shall be the Fiscal
Year.
9.8 Books of Account and Records. At the expense of the Company, the
Manager shall maintain and preserve records and accounts of all operations and
expenditures of the Company for the length of time thereafter as may be required
to meet the records retention requirements of any taxing or regulatory body
having direct or indirect jurisdiction over all accounts, books, and other
relevant Company documents. The books of account shall accurately reflect all
transactions and other matters relating to the Company's business in such detail
and completeness as is customary and usual for businesses of the type engaged in
by the Company. As contemplated by Section 1102 of the Act, at a minimum the
Company shall keep at its principal place of business the following records and
shall be prepared to make such records available to regulatory agencies as may
be required by law:
(a) a current list and a past list with the full names and last known
mailing addresses of each Member and each member of the Management Committee;
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(b) a copy of the Articles of Organization and all amendments thereto;
(c) copies of the Company's federal, state, and local income tax returns
and financial statements for the six most recent years;
(d) copies of the current and all prior Operating Agreements of the
Company, including all amendments thereto;
(e) a writing setting forth the amount of cash and the Fair Market Value
of property or services contributed by each Member;
(f) copies of any separate agreements pertaining to a Member's obligation
to contribute cash, property, or services; and
(g) minutes of meetings of the Members, the Management Committee, or the
Manager and any written consents obtained from Members, the Management
Committee, or the Manager in lieu of a meeting; and
(h) such other records as the Management Committee deems appropriate.
Upon reasonable advance notice to the Manager, each Member shall have the
right, during ordinary business hours, to inspect and copy such Company
documents at the requesting Member's expense, subject to the Confidentiality
provision in Section 17.16; provided, however, that the Manager shall be
authorized, in its discretion, to withhold from or to restrict or condition the
access of one or more Members to information of the Company as and to the extent
contemplated by Section 1102 (c) of the Act.
9.9 Returns and other Elections. The Manager shall cause the preparation
and timely filing of all tax returns required to be filed by the Company
pursuant to the Code and all other tax returns deemed necessary and required in
each jurisdiction in which the Company does business. Copies of such returns, or
pertinent information therefrom, shall be furnished to the Members within a
reasonable time after the end of the Company's Fiscal Year. All elections
permitted to be made by the Company under federal or state laws shall be made by
the Tax Matters Member, provided that the Tax Matters Member shall make any tax
election requested by the Management Committee or by a unanimous vote or Consent
of the Members.
9.10 Statements and Reports.
(a) As soon as practicable, but in no event later than ninety (90) days
after the end of each Fiscal Year, the Manager will cause to be prepared and
will have furnished to each of the Members, with respect to such period, (I) a
profit and loss statement, (ii) a statement of cash flows, (iii) a Company
balance sheet as of the close of such period, and (iv) such other statements
showing in reasonable detail each Member's interest in each of the items
described above. The foregoing statements will be prepared in accordance with
GAAP, consistently applied, and audited by an independent certified public
accounting firm of national reputation which shall be designated by the
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unanimous vote or Consent of the Members in accordance with Section
5.4(a)(xiii), and the cost of preparing the statements and of each such audit
will be paid for by the Company.
(b) Unaudited quarterly financial reports and updates with respect to the
Company's business shall be prepared and furnished to each Member as soon as
practicable after the end of each fiscal quarter, but in no event later than
forty-five (45) days following the end of the fiscal quarter.
(c) Monthly financial reports and updates with respect to the Company's
business shall be prepared and furnished to each Member as soon as practicable
after the end of each month, but in no event later than fourteen (14) days
following the end of each month.
(d) The Manager will gather and report information as the Members may
reasonably require to enable the Members to satisfy any applicable regulatory
requirements to which the Members may be subject.
ARTICLE X
TRANSFERABILITY
10.1 General. Except as otherwise specifically provided in this Article X,
without the unanimous vote or Consent of the Members, a Member shall not have
the right to sell, assign, transfer, exchange, or otherwise transfer
(collectively, "Transfer"), whether or not by operation of law, all or any part
of its Membership Interest.
Notwithstanding the foregoing, a unanimous vote or Consent of the Members
shall not be required in order for a Member to Transfer all or any part of its
Membership Interest, and it shall be permissible for a Member to Transfer all or
part of its Membership Interest and this Agreement, to any direct or indirect
parent that wholly-owns the Member or to any wholly-owned direct or indirect
subsidiary thereof, or in connection with any merger or consolidation to which
the Member or its parent is the surviving and controlling party. Provided
further, in the event of a Transfer by a Member to any such parent or
wholly-owned direct or indirect subsidiary or a Transfer that may occur in
connection with any merger or consolidation where the Member or its parent is
the surviving and controlling party, the right of first refusal provisions of
Section 10.2 shall not apply.
Each Member hereby acknowledges the reasonableness of the restrictions on
Transfer of Membership Interests imposed by this Operating Agreement in view of
the Company's purposes and the relationship of the Members. Accordingly, the
restrictions on Transfer contained in this Article X shall be specifically
enforceable.
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10.2 Right-of-First Offer.
(a) A Member (the "Selling Member") that desires to sell its Economic
Interest in the Company to a qualified third party purchaser shall at least
thirty (30) days prior to effecting a Transfer, deliver a written notice to the
other Member stating the terms and conditions upon which the sale is to be made
and the consideration offered therefor. The other Member shall have the right to
purchase all (but not less than all) of the Membership Interest proposed to be
sold by the Selling Member upon the same terms and conditions as stated in the
aforesaid written notice of intention to sell by giving written notice to the
Selling Member of its intention to purchase the Selling Member's Membership
Interest within thirty (30) days after receipt by such other Member of written
notice from the Selling Member. The offer to sell shall be irrevocable during
the thirty (30) day period. If the non-selling Member fails to so notify the
Selling Member of its exercise of this right to purchase within said period, the
right to purchase as to such offer shall terminate and the Selling Member shall
be entitled to consummate the Transfer of its Membership Interest in the Company
to a third party purchaser on the terms set forth in the notice given to the
non-selling Member.
In the event the non-selling Member gives written notice to the Selling
Member of its exercise of this right to purchase all of the Selling Member's
Membership Interest in the Company, the non-selling Member shall have the right
to designate the time, date, and place of closing, provided that the date of
closing shall be within the later of sixty (60) days after the written notice of
acceptance by the non-selling Member or sixty (60) days of receipt of any
required regulatory approval for such transfer; provided, however, that the
non-selling Member shall be required to file for any such regulatory approval
within five (5) days of its written notice of acceptance. If the non-selling
Member fails to so file for any required regulatory approval within such five
(5) day period or fails to close within such sixty (60) day period, the right to
purchase shall terminate and the Selling Member shall be entitled to consummate
the transfer of its Membership Interest in the Company to a third party
purchaser on the terms set forth in the notice given to the non-selling Member.
(b) The third party purchaser shall become a Permitted Transferee of the
Selling Member's Membership Interest in the Company and as a condition to
recognizing the effectiveness and binding nature of any such sale as against the
Company or otherwise, the non-transferring Member may require the Selling Member
and the Permitted Transferee to execute, acknowledge, and deliver to the Company
such instruments of transfer, assignment, and assumption and such other
certificates, representations, and documents, and to perform all such other
acts, which the non-transferring Member may reasonably deem necessary or
desirable to:
(i) constitute such purchaser as a Permitted Transferee;
(ii) confirm that the Permitted Transferee has accepted, assumed,
and agreed to be subject to and bound by all of the terms, obligations, and
conditions of the Operating Agreement, as the same may have been further
amended;
(iii) preserve the status of the Company as a foreign or domestic
limited liability
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company after the completion of such sale, under the laws of each jurisdiction
in which the Company is qualified, organized, or does business;
(iv) maintain the status of the Company as a partnership for federal
tax purposes; and
(v) assure compliance with any applicable state and federal laws,
including, without limitation, securities laws and regulations.
10.3 Transfers by Operation of Law.
(a) In the event that a Member or Permitted Transferee (i) files a
voluntary petition under any bankruptcy or insolvency law, or a petition for the
appointment of a receiver, or makes an assignment for the benefit of creditors,
or (ii) is subjected involuntarily to such a petition or assignment, or to an
attachment or other legal or equitable interest with respect to its Membership
Interest, and such involuntary petition or assignment, or attachment or other
legal or equitable interest is not discharged within ninety (90) days after its
date, or (iii) is otherwise subject to a transfer of its Membership Interest by
operation of law or pursuant to judicial decree or settlement of judicial
proceedings, (any of the foregoing being a "Bankruptcy" and the Member or
Permitted Transferee being the "Bankrupt Person"), then in such event the
Bankrupt Person shall have only an Economic Interest in the Company, and shall
have no right to vote or participate in management of the Company or to
designate the Manager or members of the Management Committee, and shall be
deemed to have offered to sell all of its Economic Interest to the other Member
as provided in this Section 10.3. Such offer of sale shall be irrevocable for a
period of ninety (90) days from the date on which the other Member first learned
of the event which gave rise to the Bankruptcy, and within said time period the
other Member may, by delivering a written notice of acceptance to the Bankrupt
Person, accept the offer in respect of all, but not less than all, of said
Economic Interest. If the other Member does not notify the Bankrupt Person of
its decision to purchase the Economic Interest within the applicable ninety (90)
day offering period, said offer to sell shall be deemed not to have been
accepted by the other Member.
(b) The purchase price at which the other Member may elect to purchase an
Economic Interest in accordance with the provisions of this Section 10.3 shall
be the Fair Market Value of the Bankrupt Person's Economic Interest.
(c) If the other Member elects to purchase an Economic Interest in
accordance with the provisions of this Section 10.3, transfer of the Economic
Interest shall be made at the office of the Company on a mutually satisfactory
business day within the later of thirty (30) days of acceptance of the offer to
sell by the other Member or thirty (30) days of receipt of any required
regulatory approvals for such transfer. Delivery of instruments evidencing such
transfer to the other Member, shall be made upon receipt by the Bankrupt Person
of cash representing the aggregate purchase price for the Economic Interest , or
at the option of the purchaser, cash representing 20% of the aggregate purchase
price for the Economic Interest plus a three-year note for the balance of the
purchase price.
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10.4 Stalemate and Right of Redemption.
(a) Upon the occurrence of a Stalemate, each Member shall use good faith
efforts to resolve the dispute giving rise to the Stalemate in accordance with
Section 7.10 or Section 7.17. If such Stalemate has not been resolved within ten
(10) days of its submission to the Members' principal executive officers (the
"Stalemate Date"), each of TNS and GPU Telcom shall then negotiate in good faith
to achieve a mutually agreeable purchase and sale arrangement at Fair Market
Value such that one Member would thereafter own all of the Membership Interests
in the Company. If the Stalemate Date has occurred on or after the two (2) year
anniversary of the Effective Date, and the Members are not able to negotiate a
purchase and sale arrangement within thirty (30) days after the Stalemate Date,
either Member may, for a period of ninety (90) days thereafter, subject to the
provisions of Section 10.2, seek to obtain a bona fide third party purchaser for
its Membership Interest and consummate a sale. If neither Member consummates a
sale, then each of TNS and GPU Telcom shall have the right, exercisable at any
time thereafter (provided that such Stalemate is continuing at the time of such
exercise) by delivery of written notice (the "Withdrawal Notice") to the other
Member, to elect for the Company to redeem GPU Telcom's Membership Interest in
the Company. The date of such notice shall hereinafter be referred to as the
"Withdrawal Date".
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In the event that a Member elects for GPU Telcom to withdraw from the
Company pursuant to this Section 10.4, the Company shall redeem the entire
Membership Interest of GPU Telcom in accordance with the following procedures:
(i) The Company shall distribute to GPU Telcom an IRU in 49% of the
available and unused dark fiber strands in the Company IRU. Upon a
distribution of said IRU to GPU Telcom, GPU Telcom's Membership Interest,
including its Economic Interest, in the Company shall terminate.
(ii) If GPU Telcom is a regulated telephone company as of the
Withdrawal Date (or if GPU Telcom designates a regulated telephone company
to receive the assets to be distributed pursuant to this Section
10.4(a)(ii) (a "Designated Purchaser"), then following receipt of any
necessary Regulatory Approval received within nine (9) months of the
Withdrawal Date, GPU Telcom (or the Designated Purchaser) shall be
distributed from the Company 49% of the customers utilizing the Company
IRU (provided the customers agree to such transfer), facilities, business
and assets of the Company attributable to the Economic Interest of GPU
Telcom (or the Designated Purchaser) as of the Withdrawal Date; provided,
however, that the Company shall continue as a party to the Construction
Operating Agreement.
(iii) The Company IRU distributed pursuant to Section 10.4(a)(i)
shall be terminated when the distributions are made pursuant to Section
10.4(a)(ii). The petition, if any, to the appropriate Public Service or
Public Utility Commissions required by Section 10.4(a)(i) shall be made as
soon as possible at GPU Telcom's sole cost and expense following the
Withdrawal Date. The Company shall retain rights under the Construction
Operating Agreement and the GPU ROW to the extent set forth therein, to
(x) expand the Company's network and (y) to construct and install
Segregated Networks, respectively, in the GPU Telcom Territory
(iv) In the event, GPU Telcom fails to obtain any Regulatory
Approval required in order for the Company to make the distributions under
10.4(a)(ii) within nine months from the Withdrawal Date, GPU Telcom shall
retain the IRU distributed pursuant to 10.4(a)(i) for the term of the
Company IRU, and GPU Telcom shall not be entitled to any further
distributions from the Company or TNS.
(v) TNS agrees to provide GPU Telcom assistance and training on
agreed upon terms to assist GPU Telcom in developing independent sales,
marketing and product development expertise in the provision of retail
telecommunications services and to obtain any necessary Regulatory
Approvals required for any transfer contemplated by this Section 10.4.
10.5 Pledge. TNS and GPU Telcom each may pledge, hypothecate or mortgage
their respective Economic Interests to secure their respective obligations or to
guarantee indebtedness of the Company. The Manager shall be entitled to pledge
the assets of the Company in connection with financing to the extent authorized
by the unanimous vote or Consent of the Members.
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10.6 Effecting a Transfer. The Transferring Member agrees, upon request of
the non-transferring Member, to execute such certificates or other documents and
perform such other acts as may be reasonably requested by the non-transferring
Member from time to time in connection with such Transfer or redemption of a
Membership Interest or Economic Interest. A Member who Transfers or purports to
Transfer a Membership Interest or Economic Interest in violation of this Article
X hereby indemnifies the Company and the remaining Member against any and all
loss, damage, or expense (including, without limitation, tax liabilities or loss
of tax benefits) arising directly or indirectly as a result of such Transfer or
purported Transfer.
10.7 Admission of Substitute Member. The Permitted Transferee shall be
admitted to the Company as a Substitute Member so long as the Substitute Member
shall agree in writing to be bound by the terms of this Agreement and shall have
all the rights and obligations associated with a Membership Interest, including
in particular the right to vote and participate in the management and affairs of
the Company as permitted by this Agreement in accordance with the Voting
Interest of the Transferring Member, the Act and other applicable laws.
ARTICLE XI
ADDITIONAL MEMBERS OR PERMITTED TRANSFEREES
No new Member, Permitted Transferee or Substitute Member shall be entitled
to any retroactive allocation of losses, income, or expense deductions incurred
by the Company. The Manager may, at its option, close the Company books (as
though the Company's tax year had ended) or make pro rata allocations of loss,
income, and expense deductions to a new Member, Permitted Transferee or
Substitute Member for that portion of the Company's Fiscal Year in which it held
a Membership Interest or Economic Interest in accordance with the provisions of
Section 706(d) of the Code and the Treasury Regulations promulgated thereunder.
ARTICLE XII
DISSOLUTION AND TERMINATION
12.1 Dissolution.
(a) The Company shall be dissolved upon the occurrence of any of the
following events:
(i) the unanimous vote or Consent of Members to dissolve the
Company; or
(ii) the sale or other disposition of all or substantially all of
the assets of the Company, or the permanent cessation of the Company's business
operations; or
(iii) the Bankruptcy of a Member, unless within the next one hundred
eighty (180) days of the Bankruptcy the Company is continued by the Consent of
the other Member.
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(b) As soon as possible following the occurrence of any of the events
specified in this Section 12.1 effecting the dissolution of the Company (and if
pursuant to Section 12.1(a)(iii) where the other Member does not Consent to
continue the Business of the Company), the appropriate representative of the
Company shall execute Articles of Dissolution in such form as shall be
prescribed by the Act and file same with the office of the Secretary of State.
12.2 Effect of Filing Articles of Dissolution. Upon the filing of Articles
of Dissolution with the Secretary of State, the Company shall cease to carry on
its business, except insofar as may be necessary for the winding up of its
business.
12.3 Winding Up, Liquidation, and Distribution of Assets.
(a) Upon dissolution, the Manager shall immediately proceed to wind up the
affairs of the Company in accordance with the requirements of the Act and other
applicable law. In furtherance of the winding up of the Company, the Manager
shall:
(i) sell or otherwise liquidate all of the Company's assets, except
the Construction Operating Agreement and any Company IRUs, as promptly as
practicable;
(ii) sell or otherwise liquidate any Company IRUs, to the extent
necessary to fulfill the Company's obligations under subsection (iii);
(iii) discharge or make reasonable provision for all liabilities of
the Company, including liabilities to Members who are also creditors and
establish such Reserves as may be reasonably necessary to provide for
contingent liabilities of the Company (for purposes of determining the
Capital Accounts of the Members, the amounts of such Reserves shall be
deemed to be an expense of the Company);
(iv) distribute the remaining assets of the Company, if any, in the
following order of priority:
(1) To TNS, the Company's rights under the Construction
Operating Agreement;
(2) The balance of any remaining assets shall be distributed
to each Member in accordance with the Member's remaining Capital Account
balance, after giving effect to contributions, allocations, and distributions
for all periods.
(b) The Members shall cause an accounting to be made by the Company's
independent accountants of the accounts of the Company and of the Company's
assets, liabilities and operations, from the date of the last previous
accounting until the date of dissolution.
(c) Any assets of the Company which are distributed in kind shall be
deemed to have been sold to the Members in proportion to their Economic
Interests as of the date of dissolution for their
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Fair Market Value, and the Capital Accounts of the Members shall be adjusted to
reflect such deemed sale.
(d) Notwithstanding anything to the contrary in this Agreement, upon a
liquidation, if any Member has a Deficit Capital Account (after giving effect to
all contributions, distributions, allocations, and other Capital Account
adjustments for all Fiscal Years, including the year during which such
liquidation occurs), such Member shall have no obligation to make any Capital
Contribution, and the negative balance of such Member's Capital Account shall
not be considered a debt owed by such Member to the Company or to any other
person for any purpose whatsoever.
12.4 Return of Capital Contribution - Nonrecourse. Except as provided by
law or as expressly provided in this Agreement, upon dissolution, each Member
shall look solely to the assets of the Company for the return of its Capital
Contribution. If the Company property remaining after the payment or discharge
of the debts and liabilities of the Company is insufficient to return the
Capital Contribution of a Member, such Member shall have no recourse against any
other Member.
12.5 Breach of Operating Agreement; Remedies; Survival. The parties agree
and acknowledge that, in addition to any other remedies specifically set forth
herein, in the event of a breach of any provision of this Operating Agreement by
a Member, the Company and the non-breaching Members shall be entitled to receive
from the breaching Member any and all damages suffered by them as a result of
such breach, together with all reasonable expenses incurred in connection with
the enforcement of this Operating Agreement and the collection of such damages,
including reasonable attorneys' fees. The obligations of the Members hereunder
shall survive the withdrawal of any Member and the dissolution or termination of
the Company.
ARTICLE XIII
REPRESENTATIONS AND WARRANTIES
Each Member hereby represents and warrants, severally as to itself only,
to the other as follows:
(a) It has been duly incorporated and is validly existing and in good
standing under the laws of its state of incorporation, and is duly qualified to
conduct business as a foreign corporation in each jurisdiction in which such
qualification is required, except where the failure to be so qualified would not
be reasonably likely to have a material adverse effect on such Member.
(b) The execution and delivery by it of this Agreement, and the
performance of its obligations hereunder, have been duly authorized by all
necessary corporation action including its Board of Directors, and will not
conflict with or violate any of its constituent documents or any agreement or
instrument to which it is a party or by which it or its properties are subject
and will not violate, or conflict with, or result in a breach of or constitute a
default under, or result in the creation of a right of cancellation under, or
result in the impairment of any right of or result in the creation or imposition
of any lien upon the party under any mortgage, indenture, agreement, instrument,
judgment, statute, law, decree, court order, writ, injunction, permit,
regulation or rule to
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which it is a party or by which it is bound, except to the extent that any of
the foregoing would not be reasonably likely to have a material adverse effect
on such Member.
(c) There are no actions, suits, claims, proceedings, investigations or
inquiries pending or, to the knowledge of such Member's knowledge threatened
against it, or against any of its officers or employees which (i) seek to
prevent the acquisition of an interest in the Company or the other transactions
contemplated hereby; or (ii) call into question the validity, or materially
hinder the enforceability or performance of this Agreement. To the knowledge of
such Member, there are no events or conditions which would provide the basis for
any such litigation, proceeding or investigation.
(d) Such Member has not employed any broker or finder or incurred any
liability for any brokerage fees, commissions, or finders' fees in connection
with the acquisition of an interest in the Company or the other transactions
contemplated by this Agreement.
(e) Such Member is not, and no Affiliate of such Member is, nor as a
result of holding an interest in the Company would such Member or its Affiliates
be, an "investment company" as defined in, or subject to regulation under, the
Investment Company Act of 1940.
(f) Such Member is acquiring its interest in the Company based upon its
own investigation, and the exercise by a party of its rights and the performance
of its obligations under this Agreement will be based upon its own
investigation, analysis and expertise. Such Member's acquisition of its interest
in the Company is being made for its own account for investment, and not with a
view to the sale or distribution thereof.
ARTICLE XIV
INJUNCTION
Because of the unique relationship of the Members in the Company and the
unique value of their interests therein, neither party shall be prevented from
applying for and obtaining injunctive relief in instances where, in the absence
thereof, the rights of such party cannot be otherwise adequately protected. The
Members agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. Accordingly, it is agreed that the
Members shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
ARTICLE XV
SEGREGATED NETWORKS
15.1 GPU Telcom Network. Subject to the restrictions on competition set
forth in Section 5.9, GPU Telcom reserves the right to construct, install, own
and operate the GPU Telcom
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Network and related electronics, equipment and facilities within and outside the
GPU Telcom Territory and GPU Telcom shall retain exclusive ownership of the GPU
Telcom Network (except the Company IRU shall belong to the Company). The Company
shall not have any right, interest or access to the GPU Telcom Network except to
the extent authorized by GPU Telcom, in its sole discretion, provided however,
that the Company shall have the exclusive right, access, control and ownership
of the Company IRU.
15.2 Telergy Network. Subject to restrictions on competition set forth in
Section 5.9, TNS reserves the right to construct, install, own and operate the
TNS Network and related electronics, equipment and facilities within and outside
the GPU Telcom Territory and TNS shall retain exclusive ownership of the TNS
Network. Neither GPU Telcom nor the Company shall have any right, interest or
access to the TNS Network except to the extent authorized by TNS, in its sole
discretion. Upon a Withdrawal of GPU Telcom or purchase and sale of Membership
Interests as provided in Section 10.4, TNS shall be entitled to construct and
install expansions to the Company IRU or any Segregated Networks using the
Construction Operating Agreement and the GPU ROW in the GPU Telcom Territory.
ARTICLE XVI
RELATIONSHIP OF THE PARTIES
16.1 Revenue Sharing Procedures. The parties understand and agree that the
Company will interconnect the Company IRU to networks owned and operated by
local and long distance carriers including TNS or GPU Telcom and their
respective Affiliates.
16.2 Solicitation of Employees. Until the expiration of three (3) years
after either party ceases to be a Member of the Company, no party nor their
respective Affiliates will newly employ, engage or seek to employ or engage,
directly or indirectly, any employee of the Company or any employee of the
remaining Members of the Company who are providing services to the Company
without the written consent of the Company or such Members as applicable, unless
such employee has been discharged by the Company or by such Member or such
employee is employed by an entity that is acquired by a party or one of its
Affiliates.
16.3 Employee Hires. The parties will insure that the Company and its
subsidiaries will not employ, engage or seek to employ or engage, directly or
indirectly, any employee of a Member or its Affiliate, without the written
consent of such Member, unless such employee has been discharged by such Member
or its Affiliate or such employee is employed by an entity that is acquired,
directly or indirectly, by the Company.
16.4 Support Service Agreements. The parties currently contemplate that
certain services will be provided to the Company by employees of both of the
Members or by employees of companies which are subsidiaries or Affiliates of the
Members. The Members agree that TNS and GPU Telcom each shall provide services
to the Company relating to operating and maintaining a telecommunications
business, and GPU Telcom shall serve as the exclusive construction arm
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pursuant to the terms of the Construction Operating Agreement. The parties agree
to execute the Billing and Services Agreement and the Construction Operating
Agreement within thirty days from the Effective Date. The Manager shall execute
the above described agreements, upon execution thereof by GPU Telcom and TNS.
16.5 Access to Right-of-Way. Subject to and in accordance with the
provisions of the Construction Operating Agreement, the Company intends to
obtain the initial Company IRU and to expand the Company IRU by obtaining
additional IRUs from GPU Telcom in the GPU Telcom Territory. To the extent
provided in the Construction Operating Agreement, GPU Telcom has obtained access
to the GPU ROW for the construction, installation, operation and delivery of the
Company IRU as defined from time to time by the Members and Segregated Networks.
As set forth in the Construction Operating Agreement, the Company and TNS shall
retain the right to use the GPU ROW for the Company IRU and any Segregated
Networks and the Company and TNS shall retain the rights, to the extent set
forth therein, to construct and install spurs, extensions, laterals, and rings
in the GPU Telcom Territory upon a withdrawal or dissolution as provided in this
Agreement.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1 Notices. Any notice, demand, or communication required or permitted
to be given by any provision of this Operating Agreement shall be deemed to have
been sufficiently given or served for all purposes if delivered personally to
the Person or to an executive officer of the Person to whom the same is directed
or, if sent by registered or certified mail, postage and charges prepaid, by
reputable overnight courier, or by facsimile, addressed to the Person's and/or
Company's address, as appropriate, which is set forth in this Operating
Agreement. Any such notice given by mail shall be deemed to be given three
business days after the date on which the same was deposited in a regularly
maintained receptacle for the deposit of United States mail, addressed and sent
as aforesaid, one day after deposited with such a reputable overnight courier,
or upon confirmation of actual receipt by the intended recipient when sent via
facsimile.
17.2 Other Ventures. Subject to the penultimate sentence of Section 5.9,
the Members and their respective Affiliates may, independently or with others,
invest or engage in any business or venture, including telecommunications, data
and information, energy and energy marketing and management activities similar
to that of, or in competition with, the Company. The other Member shall not have
any rights or obligations in and to such independent ventures or the income or
profits derived therefrom.
17.3 Application of New York Law. This Operating Agreement, and the
application and interpretation hereof, shall be governed exclusively by its
terms and by the laws of the State of New York.
17.4 Amendments. Other than as expressly provided herein, this Operating
Agreement may not be amended except by the unanimous vote or Consent of the
Members.
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17.5 Execution of Additional Instruments. Each Member hereby agrees to
execute such other and further statements of interest and holdings,
designations, powers of attorney, and other instruments necessary to comply with
any laws, rules, or regulations.
17.6 Construction. Whenever used in this Operating Agreement and when
required by the context the singular number shall include the plural and vice
versa, and the masculine gender shall include the feminine and neuter genders
and vice versa.
17.7 Headings and Pronouns. The headings in this Operating Agreement are
inserted for convenience and are in no way intended to describe, interpret,
define, or limit the scope, extent, or intent of this Operating Agreement or any
provision hereof. All pronouns shall be deemed to refer to masculine, feminine,
or neuter, singular or plural as the identity of the Person or Persons may
require.
17.8 Waivers. The failure of any party to seek redress for violation of or
to insist upon the strict performance of any covenant or condition of this
Operating Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
17.9 Rights and Remedies Cumulative. The rights and remedies provided by
this Operating Agreement are cumulative and the use of any one right or remedy
by any party shall not preclude or waive the right to use any or all other
remedies. Said rights and remedies are given in addition to any other rights the
parties may have by law, statute, ordinance or otherwise.
17.10 Severability. If any provision of this Operating Agreement or the
application thereof to any person or circumstance shall be invalid, illegal, or
unenforceable to any extent, the remainder of this Operating Agreement and the
application thereof shall not be affected and shall be enforceable to the
fullest extent permitted by law.
17.11 Successors and Assigns. Each and all of the covenants, terms,
provisions and agreements herein contained shall be binding upon and inure to
the benefit of the Members and, to the extent permitted by this Operating
Agreement, their respective legal representatives, successors and assigns.
17.12 Rights of Creditors. This Agreement is expressly not intended for
the benefit of any creditor of the Company or any other person who is not a
Member. No creditor or other Person shall have any rights to the Member's
obligation for Capital Contributions.
17.13 Counterparts. This Agreement may be executed in any number of
counterparts, no one of which needs to be executed by both of the Members, and
this Agreement shall be binding upon both the Members with the same force and
effect as if both the Members had signed the same document, and each such signed
counterpart shall constitute an original of this Agreement.
17.14 Integration. This Operating Agreement constitutes the Members'
entire agreement
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with respect to the subject matter hereof, and supersedes any and all prior oral
or written agreements or understandings with respect thereto.
17.15 Public Announcements. The Members agree that before they or any of
their respective Affiliates issue any press releases or otherwise make any
public statements with respect to this Agreement or issue any further press
releases or otherwise make any public statements with respect to the
transactions contemplated hereby, they will obtain the written Consent of the
other party hereto to such press release or public statement. Neither the
Members nor any of their Affiliates shall issue a press release or make any
public statement without such prior written Consent except, in each case, in the
reasonable opinion of counsel to the disclosing party, as may be required by
applicable law, rule, regulation or order or by obligations pursuant to any
listing agreement with any securities exchange on which any of its or their
securities may be listed, upon prior notice to the other party.
17.16 Confidentiality. The Members agree as follows with respect to
information (whether in the form of documents, oral communications, visual
examination of facilities, or otherwise) disclosed by any Member to any other
Member in the course of the formation of the Company or in course of the
Company's operations (the "Confidential Information"):
(a) Subject to the exceptions set forth in Sections 17.16 (b), (c) and
(d), the Members (i) will treat all Confidential Information as confidential,
(ii) will not use Confidential Information for any purpose other than in
connection with the Business or their Membership Interest and, in the case of
the disclosing Member, in connection with such disclosing Member's business, and
(iii) will not disclose any Confidential Information to third parties. Each
Member shall, at all times, be responsible for compliance by its designated
members of the Management Committee, and its directors, officers, employees and
agents with the obligations under this Section 17.16.
(b) The confidentiality obligations of the Members contained in Section
17.16(a) shall not apply to any Confidential Information which (i) is or becomes
publicly known through no fault of the Person receiving the Confidential
Information, (ii) is disclosed to the Person receiving the Confidential
Information on a non-confidential basis by a third party who such Person
believes after due inquiry is entitled to disclose it, (iii) the Person
receiving the Confidential Information can demonstrate on the basis of written
records was already known to it on a non-confidential basis prior to receipt,
(iv) is subsequently developed by the Person receiving the Confidential
Information independently of Confidential Information, or (v) subject to Section
17.16(c), is required to be disclosed by law or legal process.
(c) Each Member will provide the Company and the other Members hereto with
prior notice of each instance in which Confidential Information is required to
be disclosed by law or legal process (which notice shall be reasonable and
written to the extent practicable). Such written notice shall be given as
promptly as is practicable under the circumstances.
(d) The Members shall be entitled to disclose Confidential Information to
their agents, financial advisors, representatives, consultants (including,
without limitation, legal counsel and accountants) and lenders as they may
determine to be appropriate in connection with the Company
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or their interest in the Company. In addition, the Members shall have the right
to discuss the business of the Company, if required, with the staff or members
of regulatory agencies which would have jurisdiction over the Company's
business, and TNS and its Affiliates shall have the right to discuss the
business of the Company in connection with its borrowing of funds through the
offering of a high yield notes or any public or private offering of the
securities of TNS or its Affiliates.
(e) The obligations of this Section 17.16 shall survive the termination of
this Agreement.
17.17 No Third Party Beneficiaries. Except as expressly provided herein,
nothing in this Agreement shall entitle any Person other than the Members or
their respective successors and assigns permitted hereby to any claim, cause of
action, remedy or right of any kind.
17.18 No Partnership Created. It is the express intention of the Members
that the representations, warranties, covenants and agreement contained in this
Agreement do not create a partnership between them (other than for tax
purposes).
17.19 Agreement Jointly Drafted. The Members agree that the Agreement was
jointly drafted and that no interpretive presumption shall exist against either
Member as a result of authorship of this Agreement.
17.20 Further Assurances. The Members agree to use commercially reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable to carry out all of their
respective obligations under this Agreement and to make effective the
contributions and the and other transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, the Members have signed this Operating Agreement of
Telergy Mid-Atlantic, LLC as of the date first written above.
TELERGY NETWORK SERVICES INC.
By: /s/▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, CEO
GPU TELCOM SERVICES, INC.
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇
--------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
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