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                                                                  EXHIBIT 10.1.1

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                          RIGHT OF OCCUPANCY AGREEMENT



                                    between




                        NIAGARA MOHAWK POWER CORPORATION



                                      and




                             TELERGY JOINT VENTURE




                             Dated February 2, 1996

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                               TABLE OF CONTENTS

SECTION   TOPIC                                                             PAGE
-------   -----                                                             ----

     1    DEFINITIONS........................................................  1

     2    PURPOSE OF AGREEMENT...............................................  5

     3    SCOPE OF AGREEMENT.................................................  5

     4    RIGHT-OF-OCCUPANCY TERM............................................  7

     5    SCOPE OF RIGHT OF OCCUPANCY........................................  7

     6    SELECTION OF THE SPECIFIC BACKBONE ROUTE...........................  9

               Documents To Be Provided To TELERGY...........................  9
               Working Drawings.............................................. 10

     7    ADDITIONAL RIGHTS-OF-OCCUPANCY FOR SPUR ROUTES..................... 11

     8    ENTRY AND NOTICE................................................... 12

     9    TELERGY WORK....................................................... 13

     10   APPROVALS AND PERMITS.............................................. 14

     11   CONSTRUCTION AND INSTALLATION...................................... 15

               Non-Cable Facilities.......................................... 17
               Cable Installation............................................ 17

     12   MAINTENANCE AND OPERATION.......................................... 18

     13   NIAGARA CAPACITY, RATES, CHARGES AND COSTS......................... 20

               Niagara Capacity.............................................. 20
               Niagara Spur Capacity......................................... 21

          MODIFYING NIAGARA OR TELERGY FACILITIES............................ 21

     15   UNAUTHORIZED USE NIAGARA FACILITIES................................ 22

     16   CONDEMNATION, BANKRUPTCY, AND OTHER TRANSFERS...................... 23

               Bankruptcy.................................................... 23
               Right of First Refusal........................................ 24
               Relocations................................................... 24
               Condemnation.................................................. 24

     17   TERMINATION OR DEFAULT BY TELERGY.................................. 25

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<TABLE>
<CAPTION>
SECTION        TOPIC                                                        PAGE
-------        -----                                                        ----
<S>            <C>                                                          <C>
     18        TERMINATIONS OF AUTHORIZATIONS................................ 26

     19        NIAGARA ABANDONMENT........................................... 28

     20        NIAGARA'S EXPENSES AND EMPLOYEE COSTS......................... 29

     21        INDEPENDENT CONTRACTOR STATUS................................. 29

     22        TAXES......................................................... 30

     23        NOTICES....................................................... 31

     24        LIABILITIES AND INDEMNIFICATION............................... 32

     25        INSURANCE..................................................... 33

     26        LIENS......................................................... 37

     27        AMENDMENTS.................................................... 37

     28        CONFIDENTIALITY............................................... 37

     29        DISPUTES...................................................... 39

               COVENANTS OF THE PARTIES...................................... 39

     31        PUBLIC SERVICE COMMISSION APPROVAL REQUIRED................... 39

     32        MISCELLANEOUS PROVISIONS...................................... 40

                   Entire Agreement and Modification......................... 40
                   Choice of Law............................................. 40
                   Consents.................................................. 40
                   Construction of Agreement................................. 40
                   No Waiver................................................. 41
                   Force Majeure............................................. 41
                   Remedies.................................................. 41
                   Severability.............................................. 41
                   Compliance................................................ 41
                   No Merger................................................. 41
                   Binding Agreement......................................... 41
                   Acts in Furtherance Of Agreement.......................... 41
                   Drug and Alcohol Abuse Policy............................. 42
                   Intellectual Property Sole Property of Niagara............ 42
                   Patent, Copyright and Trademark Infringement.............. 42

     33        ENVIRONMENTAL HAZARD LIABILITY................................ 43
</TABLE>

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<TABLE>
<CAPTION>

SECTION        TOPIC                                             PAGE
<S>            <C>                                               <C>
34             EQUAL EMPLOYMENT OPPORTUNITIES..................  43

                    Federal Subcontracting Requirements........  44

35             AUDIT AND MAINTENANCE RECORDS...................  45

36             WARRANTIES......................................  45

37             SURVIVAL........................................  46

38             END-OF-TERM.....................................  46
</TABLE>
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<PAGE>   5
                          RIGHT OF OCCUPANCY AGREEMENT

THIS AGREEMENT, made this 2nd day of February, 1996, between NIAGARA MOHAWK
POWER CORPORATION, a corporation organized and existing under the laws of the
State of New York, having its principal office at 300 Erie Boulevard West,
Syracuse, New York 13202 (hereinafter called "NIAGARA") and TELERGY JOINT
VENTURE, a Joint Venture organized and existing under the laws of the State of
New York, having its principal office for purposes hereof at 5784 Widewaters
Parkway, Dewitt, New York 13214 (hereinafter called "TELERGY").

In consideration of the mutual promises and covenants contained herein, TELERGY
and NIAGARA intending to be bound, agree as follows:

1.   DEFINITIONS

     As used in this Agreement, the following terms shall, unless the context
     otherwise requires, have the meanings specified in this Section 1.

     1.1  "Agreement" shall mean the Right-of-Occupancy Agreement entered into
     herein between NIAGARA and TELERGY, and as the same may be amended,
     modified and supplemented from time to time. Words such as "herein,"
     "hereafter," "hereof," "hereto," "hereby," and "hereunder," when used with
     reference to this Agreement refer to this Agreement as a whole unless the
     context otherwise requires. The word "shall" denotes mandatory language;
     the word "may" denotes discretionary language.

     1.2  "Approved Drawings" shall mean Working Drawings that have been
     reviewed and approved by NIAGARA.

     1.3  "As Built Drawings" shall mean drawings of a System Segment of the
     Backbone Network as actually installed and as amended from time-to-time.

     1.4  "Backbone Network" shall mean the fiber optic transmission-based
     telecommunications network connecting major cities along the Backbone
     Route.

     1.5  "Backbone Route" shall mean the geographic location of the Backbone
     Network which shall connect major Points-of-Presence as set forth in this
     Agreement.

     1.6  "Bankruptcy" with respect to any principals of the TELERGY shall mean
     the happening of any of the following:

          (a)  The filing of an application for, or consent to, the appointment
          by a Federal District Court of a Trustee over all or substantially all
          of its assets;
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          (b)  The filing of a voluntary petition in bankruptcy or the filing of
          a pleading in any court of record admitting in writing its inability
          to pay its debts as they become due;

          (c)  The making of a general assignment for the benefit of creditors;

          (d)  The filing of an answer admitting the material allegations of, or
          its consenting to, or defaulting in answering, a bankruptcy petition
          filed against it in any bankruptcy proceeding; or

          (e)  The entry of an order, judgment, or decree by any court of
          competent jurisdiction adjudicating TELERGY or a TELERGY Affiliate
          bankrupt or appointing a Trustee over its assets, and such order,
          judgement, or decree continuing unstayed and in effect for a period of
          sixty (60) consecutive days.

1.7   "Conduit" shall mean an individual pipe, tube or duct forming an enclosed
raceway for cable and/or conductors, also referred to as "duct".

1.8   "Construction Plan" shall mean a proposed schedule of engineering and
design, commencement and completion dates for receipt of Approvals as set forth
in Section 10 herein, and dates for construction, installation and
implementation of the Segments of the Backbone Network.

1.9   "Easement" shall mean an easement in gross and/or the highest lesser
Right-of-Occupancy or use permitted to be granted by the nature of NIAGARA's
interest in and to its Rights-of-Way.

1.10  "Entry Notice" shall mean such notice as set forth in Section 8.

1.11  "Extension Period" shall mean the two, ten-year options, exercisable by
TELERGY, to extend the Initial Term of this Agreement with respect to the
Right-of-Occupancy used in connection with the Backbone Network or discrete
System Segments.

1.12  "Fiber Optic Ground Wire" or "F.O.G. Wire" shall mean static wire
containing optical fibers.

1.13  "Initial Term" shall mean the initial twenty-five (25) year-period of this
Agreement.

1.14  "Maintenance" shall mean maintenance, repairs, upgrades, relocations,
replacement, reinstallation and removal activities.


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1.15  "Make-Ready Work" shall mean all work performed by NIAGARA or its
designated contractor, including but not limited to the rearrangement of
existing facilities, replacement of cable, rodding of duct, and installation of
subduct required to accommodate the installation of TELERGY's Facilities in
accordance with this Agreement.

1.16  "NIAGARA" shall mean the Niagara Mohawk Power Corporation, its successors
and assigns.

1.17  "NIAGARA Capacity" shall mean the equivalent capacity of [* * *] as
set forth below in Section 13, which capacity shall be provided to NIAGARA by
TELERGY in consideration for the Right-of-Occupancy conferred by this Agreement.

1.18  "NIAGARA Facilities" shall mean gas and electric transmission and
distribution lines, conduits, poles, electric or other towers, wires,
conductors, pipes, pipelines, structures and necessary appurtenances above and
below ground located within NIAGARA's Right-of-Way, as well as NIAGARA buildings
and structures.

1.19  "NIAGARA Spur Capacity" shall mean NIAGARA's proportionate increased
capacity from any subsequent technological improvements or extensions or Spurs
that increase the original capacity of the Backbone Network; such increased
capacity shall be provided to NIAGARA in accordance with Section 13 herein.

1.20  "Points of Presence" or "POPs" shall mean the points at which long
distance carriers interconnect with local exchanges for the purpose of providing
inter-exchange telecommunications service to customers in such local exchanges;
as well as the points at which the NIAGARA Capacity and any NIAGARA Spur
Capacity shall be delivered to and interconnect with the Backbone Network.

1.21  "Pre-Construction Survey" shall mean the work operations performed by
NIAGARA or its designated contractor in order to process an application for a
Right-of-Occupancy to the point just prior to performing any necessary
Make-Ready Work.

1.22  "Property Drawings" shall mean the NIAGARA Right-of-Way drawings, plan and
profile drawings for a Right-of-Way within which TELERGY has a
Right-of-Occupancy.

1.23  "Regenerator" shall mean a facility which receives, regenerates, and
retransmits a digital telecommunications transmission signal, together with
attendant equipment and structures, including power sources.

1.24  "Right of Occupancy" shall mean the right to place fiber optic cable, and
splice closures, as well as F.O.G. Wire subject to Section 7.4, within the
Right-of-Way, in accordance with the terms and conditions of this Agreement. A
Right-of-Occupancy under this Agreement shall not provide TELERGY with any
ownership interest in NIAGARA

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CONFIDENTIAL
[* * *]   Confidential treatment has been requested with respect to material
          omitted on this page. The omitted portions have been filed separately
          with the Securities and Exchange Commission.
<PAGE>   8
Facilities, real property or Right-of-Way. Any TELERGY installation of F.O.G.
Wire in accordance with Sections 6.4.10 and/or 16.5, shall be only for the
purposes of this Agreement, and upon installation, such wire shall be included
in the Right-of-Occupancy, subject to Section 38.2 herein.

1.25   "Right-of-Way" shall mean the area of NIAGARA-owned (in fee, easement,
license, permit, franchise or otherwise), -operated, or -controlled real
property for electric and gas transmission and distribution lines as defined by
the NIAGARA Property Drawings and other documents.

1.26   "Spur System" or "Spur Route" shall mean an extension to the original
Backbone Network, either off of the Backbone Route, or from a TELERGY Facility,
such as a terminal or junction, to the Backbone Route.

1.27   "System Segment" or "Segment" shall mean a portion of the Backbone
Network or a Spur Route or a portion of a Spur Route.

1.28   "Telecommunication System" or "System" shall mean the Backbone Network
and TELERGY Facilities as is heretofore or hereafter conceived, invented or
developed by TELERGY, and which primarily utilizes optical fiber as the means
for transmitting voice, data or video and/or other information pursuant to this
Right-of-Occupancy Agreement.

1.29   "TELERGY" shall mean the Joint Venture, which applies for and is granted
permission by NIAGARA under this Agreement to place its Facilities using
NIAGARA's Right-of-Way and Facilities and which is responsible for compliance
with NIAGARA's regulations and/or standards regarding such accommodations.

1.30   "TELERGY Facilities" means telecommunications facilities installed by or
on behalf of TELERGY in, on, upon, under, across, along and through the
Right-of-Occupancy on a Right-of-Way, including the transmission systems
designed to and used to carry communications traffic and including conduit,
carrier pipes, cables, fibers, junctions, regenerators, power sources, fault
alarm systems, electronics, structures or shelters, towers, satellite earth
stations and all other personal property necessary for or useful to the
construction, installation, operation, maintenance, repair, reinstallation,
replacement, relocation and removal of the Telecommunication System.

1.31   "Working Drawings" shall mean drawings prepared by TELERGY and submitted
to NIAGARA for approval depicting the engineering design and configuration of
the Backbone Network and/or System Segments.

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2    PURPOSE OF AGREEMENT

This Agreement is entered into for the purposes of ensuring that NIAGARA has
sufficient telecommunications capacity to meet its internal needs to satisfy
its public service and corporate obligations and purposes and to authorize
TELERGY's use of NIAGARA's Right-of-Way along the Backbone Route to provide
telecommunications services and advanced interactive information and
entertainment services to customers within and outside New York.

3    SCOPE OF AGREEMENT

     3.1  Subject to the provisions of this Agreement, NIAGARA and TELERGY agree
     that TELERGY shall acquire, for its own use, unless otherwise provided
     pursuant to the terms of this Agreement, a non-exclusive Right-of-Occupancy
     in specific NIAGARA Rights-of-Way, for the construction, installation,
     operation, and maintenance of a single Backbone Network, comprised of the
     backbone cable, related equipment and TELERGY Facilities, along the
     Backbone Route. The Right-of-Occupancy shall be revocable only in
     accordance with the terms and provisions of this Agreement.

     3.2  The rights granted herein constitute Rights-of-Occupancy burdening the
     Right-of-Way to the extent such Right-of-Occupancy is permitted pursuant to
     the terms of the applicable contract, agreement, easement, permit, license
     or franchise conveying to NIAGARA its Right-of-Way.

     3.3  Nothing herein shall be construed to obligate NIAGARA in any way to
     acquire any Rights-of-Way for TELERGY's use, nor shall NIAGARA be obligated
     to grant a Right-of-Occupancy where such grant would contravene any
     restriction or condition on NIAGARA's use of a Right-of-Way or otherwise
     adversely affect NIAGARA's Facilities or NIAGARA's property rights on any
     Right-of-Way, provided that NIAGARA agrees to cooperate and provide
     reasonable assistance in good faith, when consistent with NIAGARA's public
     service and corporate obligations, with TELERGY efforts to acquire
     additional Rights-of-Way, easements or franchises necessary to construct
     the Backbone Network, at TELERGY's sole cost and expense.

     3.4  NIAGARA does not warrant the validity or apportion ability of any
     rights it may hold to place the Backbone Network or TELERGY Facilities
     within its Right-of-Way. NIAGARA will, upon written request by TELERGY and
     as set forth in Section 6.3, subject to the confidentiality provisions set
     forth in Section 28 herein, provide available information and copies of any
     documents in its files pertinent to the nature of the rights NIAGARA
     possesses over its Right-of-Way. The cost of providing such information and
     reproducing documents shall be borne by TELERGY.


                                       5




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3.5  Where NIAGARA's Right-of Way is, in its reasonable judgement, sufficiently
broad under New York State law to permit TELERGY's Right-of-Occupancy, TELERGY
shall not be required to obtain an independent easement from the fee owner to
place its Facilities. However, where NIAGARA believes that its rights are
insufficient to grant the requested Right of Occupancy, upon prior notice to
TELERGY, NIAGARA, in its discretion, may seek to obtain permission from the fee
owner for TELERGY Facilities, or to defend or to establish TELERGY's
Right-of-Occupancy for its Facilities independent of an easement as set
forth above. The fully allocable costs, if any, of such efforts shall be paid by
TELERGY. Nothing herein shall be deemed, however, to require NIAGARA to obtain
permission, to defend, or to establish TELERGY's Right-of-Occupancy for
TELERGY's Facilities.

3.6  To the extent it has the ability and right to do so, NIAGARA shall provide,
at no cost to TELERGY, access to Right-of-Way necessary for all end-link
connections and repeaters from the Backbone Network to NIAGARA's
Points-of-Presence in specified locations in Buffalo, Albany, Syracuse,
Oswego/Nine Mile, Watertown, Utica and Guilderland, from TELERGY Facilities in
such cities that will provide mutually cost-effective connections of the
geographic locations set forth in Section 9.5 and the NIAGARA Capacity set forth
in Section 13.

3.7  In addition to the Right-of-Occupancy granted by NIAGARA as described in
Sections 3-6, NIAGARA shall grant TELERGY Rights-of-Occupancy at each
Regenerator or junction, at mutually-approved locations along the Backbone
Route, for the installation, maintenance, operation, repair, replacement and
removal, at TELERGY's sole cost and expense, of utilities required to service
the System including auxiliary and primary power sources and water and sewer
lines. When required by the utility company, power supplier or municipality
providing such services, NIAGARA shall grant appropriate access and/or
Right-of-Occupancy within the Right-of-Way to such utility company, power
supplier and/or municipality.

3.8  Except for the NIAGARA Capacity, NIAGARA Facilities, and NIAGARA
Right-of-Way which shall be the property of NIAGARA, the Backbone Network,
TELERGY Facilities, and the Telecommunication System installed using the
Right-of-Occupancy conferred herein shall be and remain at all times the
personal property of TELERGY regardless of the manner or method of installation
of such System(s) or any part or component. The parties agree to execute all
reasonable documentation requested to evidence such ownership.

3.9  Nothing contained herein shall be construed to compel NIAGARA to construct,
reconstruct, retain, extend, repair, place, replace or maintain any
Right-of-Way or NIAGARA Facilities or Right-of-Way not needed for NIAGARA's own
service requirements.

3.10 NIAGARA reserves to itself, its successors and assigns, the right to
relocate, operate and maintain the NIAGARA Facilities or Right-of-Way in such a
manner as will best enable it to fulfill its own service requirements.




                                       6
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4    RIGHT-OF-OCCUPANCY TERM

     4.1  For an Initial Term of twenty-five (25) years commencing on the date
     of approval by the New York State Public Service Commission (Commencement
     Date) and ending on the expiration of the three-hundredth (300th) month
     thereafter, unless earlier terminated or unless extended pursuant to this
     Agreement, subject to the terms and conditions set forth in this Agreement,
     NIAGARA hereby grants to TELERGY a Right-of-Occupancy in, on, upon, under,
     over, across, along and through (hereinafter collectively referred
     "within") the Backbone Route Right-of-Way.

     4.2  NIAGARA hereby grants TELERGY, its successors and assigns, the right
     and option to extend the Initial Term of this Agreement in its entirety or
     with respect to any System Segments, from the date upon which it would
     otherwise expire for up to two (2) consecutive Extension Periods of ten
     (10) years each.

     4.3  Each Extension Period may be exercised individually as to each System
     Segment or collectively as to any two or more System Segments, by written
     notice to NIAGARA, three (3) months prior to the expiration of the Initial
     Term or an Extension Period as to each such System Segment (hereinafter
     "Election Date"). Such notice shall notify NIAGARA of TELERGY's election
     either to exercise its said option for the next Extension Period in respect
     to the Backbone Network or any System Segment, or terminate this Agreement
     with respect to the Backbone Network or a System Segment, subject to the
     Severance Payments set forth in Section 17, upon a date which date shall be
     no sooner than twenty-four (24) months from the date of such notice to
     NIAGARA. In the event that TELERGY shall elect to extend the term of this
     Agreement as to a portion only, but not the entirety, of the System,
     TELERGY shall nonetheless continue to provide the NIAGARA Capacity and, if
     applicable, any NIAGARA Spur Capacity.

     4.4  In the event TELERGY does not give NIAGARA notice of election with
     respect to any System Segment on or before the Election Date with respect
     to any Extension Period, the Initial Term of this Agreement shall
     automatically be extended for thirty (30) days after notice from NIAGARA
     advising TELERGY that it has failed to notify NIAGARA of any election.
     Within thirty (30) days of receipt of the NIAGARA notice, TELERGY shall
     either exercise its said option for the next Extension Period, or terminate
     this Agreement with respect to any System Segment upon a date that shall be
     no sooner than twenty-four (24) months of the date of such response.


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<PAGE>   12
5.   SCOPE OF RIGHT OF OCCUPANCY

     5.1  The specific Right-of-Way that will be subject to the
     Right-of-Occupancy shall be defined by the parties in the manner set forth
     in Section 6. The Right-of-Way for Segment I of the Backbone Route shall be
     defined within ninety (90) days following the execution of this Agreement.
     Maps showing the Right-of-Way subject to the Right-of-Occupancy shall be
     prepared and attached to this Agreement as Exhibit A. The remaining
     Rights-of-Way shall be defined by the parties in the manner set forth in
     Section 6 within six months following the date of this Agreement.

     5.2  Subject to Section 3.6 herein, where TELERGY desires to construct and
     install the Backbone Network in areas where NIAGARA's interest in the
     Right-of-Way is insufficient to authorize TELERGY Facilities and NIAGARA
     does not chose to exercise its right to pursue authorization in accordance
     with Section 3.6, TELERGY, at it's sole cost, may negotiate with the fee
     simple owners for the right for NIAGARA to allow such use by TELERGY,
     provided that NIAGARA shall cooperate with and assist TELERGY as set forth
     in Section 3.3 herein.

     5.3  TELERGY is not obligated to use the Right-of-Occupancy conferred in
     this Agreement. TELERGY may decide to use non-NIAGARA rights-of-way in
     certain locations, so long as the specific geographic locations and dates
     specified in Sections 3.6 and 9.5, as well as the NIAGARA Capacity as set
     forth in Sections 3.6 and 13, are connected to the Backbone Network, which
     shall be fully operational.

     5.4  The Right-of-Occupancy granted herein shall be nonexclusive, and shall
     be subordinated to the provisions of the First Mortgage Indenture dated
     October 1, 1937, as amended, from NIAGARA's predecessor (Central New York
     Power Corporation) to the Marine Midland Trust Company of New York, now
     Marine Midland Bank, N.A. as Trustee, and to all liens, encumbrances,
     Rights-of-Occupancy, easements, rights, privileges, licenses, or grants or
     whatever nature heretofore or hereinafter given by NIAGARA or its
     predecessors or successors in interest, which affect the property of
     NIAGARA, including but not limited to drainage rights, streets, roadways,
     telephone lines, underground conduits, sewers, manholes, pipes or
     right-of-way.

     5.5  Nothing herein contained shall be construed as a grant by NIAGARA of
     any exclusive Right-of-Occupancy, right or privilege to TELERGY. NIAGARA
     shall have the absolute right, without notice to TELERGY, to grant, renew
     and extend Right-of-Occupancy, rights, licenses, and privileges to others
     not parties to this Agreement, by contract or otherwise, to use any NIAGARA
     Facilities or Right-of-Way covered by this Agreement. However,
     Right-of-Occupancies existing at the time of such future Right-of-Occupancy
     agreements or arrangements shall not be diminished. The rights of TELERGY
     shall at all times be subject to such existing and future
     Right-of-Occupancy agreements or arrangements. NIAGARA, in negotiating and
     entering into any such future Right-of-Occupancy agreements and/or


                                       8
<PAGE>   13
     arrangements, shall not diminish the Right-of-Occupancy of TELERGY, as
     provided for in this Agreement, except as provided herein.

     5.6   The rights of parties to whom NIAGARA currently leases or licenses
     any of the Right-of-Way on which the Backbone Network will be installed
     shall be protected and TELERGY, its contractors, agents and employees shall
     assume all responsibility for any damage actually done by TELERGY, its
     contractors, agents and employees to lawns, gardens, shrubbery, fences,
     real and personal property. Upon completing construction, TELERGY shall
     restore the lands to substantially the same condition as before entering
     thereon. TELERGY shall investigate and resolve any and all complaints
     arising from or in connection with its Right-of-Occupancy in an expeditious
     manner.

6    SELECTION OF THE SPECIFIC BACKBONE ROUTE

     6.1   Immediately upon executing this Agreement, the parties agree to work
     closely and reasonably to prepare Working Drawings reflecting preliminary
     and final sites for the Right-of-Occupancy within any Right-of-Way ensuring
     that it connects the Points-of-Presence and geographic locations set forth
     in Section 3.6 and 9.5 along the Backbone Route. During the initial joint
     review and inspection, every reasonable effort will be made by the parties
     to produce and modify, if necessary, the Working Drawings through the most
     expeditious means. If known to NIAGARA, it shall notify TELERGY of any
     outstanding adverse claims affecting any Right-of-Way which TELERGY has
     identified for use by the System.

     6.2   In the event that NIAGARA shall agree to undertake any TELERGY
     requested special Right-of-Way research and services, or engineering
     services, TELERGY shall pay all pre-approved costs incurred by NIAGARA in
     providing such research and services.

     6.3   Documents To Be Provided To TELERGY.

           6.3.1   To facilitate TELERGY's determination of the specific
           position and location of TELERGY's Facilities and to prepare the
           Construction Plan, NIAGARA agrees to provide TELERGY materials and
           documents as described in this Section 6.

           6.3.2   Within 15 days of the date of this Agreement, NIAGARA will
           provide TELERGY with standard engineering guidelines for construction
           plans.

           6.3.3   Upon request, reasonable access to available title
           documentation and Right-of-Way Maps within NIAGARA's possession that
           relate to the Backbone Route, including easements, occupancy rights
           or any third-party rights heretofore granted and/or restrictions on
           the Right-of-Occupancy intended by this Agreement.


                                       9
<PAGE>   14
     6.3.4     Available survey records for inspection and/or reproduction by
     TELERGY, at its sole cost and expense, subject to limitations of survey
     contracts, regulations or local laws.

     6.3.5     NIAGARA does not guarantee the accuracy of Right-of-Way Maps or
     surveys in its possession.

     6.3.6     TELERGY shall abide by the confidentiality provisions set forth
     in Section 28 with respect to NIAGARA Maps and surveys.

6.4  Working Drawings.

     6.4.1     NIAGARA shall permit TELERGY's employees, agents and contractors
     to enter the Backbone Route Right-of-Way, subject to the notice provisions
     set forth in Section 8, for the purpose of surveying and inspecting the
     same and to make such engineering and other tests as may be necessary or
     advisable to enable TELERGY to prepare Working Drawings and the
     Construction Plan, as well to locate the Right-of-Occupancy on such
     Right-of-Way, and to determine the engineering and cost consideration with
     respect to construction and installation of the Backbone Network therein.

     6.4.2     NIAGARA agrees to participate with TELERGY in a joint review of
     the preliminary route designation plans for the Backbone Route
     Right-of-Occupancy, and in making reasonably necessary physical inspections
     of a Right-of-Way for the purpose of identifying problem areas, arriving at
     suitable alternatives, and defining final routes.

     6.4.3     Based upon the preliminary Right-of-Occupancy designation,
     physical inspections and other engineering data available to TELERGY, it
     shall prepare and submit to NIAGARA four (4) sets of construction plans
     ("Working Drawings") for the Backbone Network. Telergy may submit such
     Working Drawings for the entire Backbone Network, or for designated System
     Segments.

     6.4.4     Working Drawings for each System Segment shall be submitted by
     TELERGY to NIAGARA's Engineering Department not less than ten (10) days
     prior to TELERGY's anticipated initiation of construction for such System
     Segment.

     6.4.5     Following each submission of Working Drawings, NIAGARA shall, as
     soon as reasonably possible, but no later than ten (10) days of its
     receipt, approve the Working Drawings, in whole or in part ("Approved
     Drawings"), or raise any bona fide objections, in writing, describing in
     reasonable detail the basis for rejection and the necessary modifications
     to obtain NIAGARA's approval.

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          6.4.6     A "bona fide objection" shall mean any condition that will
          cause the unreasonable interference with NIAGARA's operations, pose
          an unreasonable hazard to NIAGARA's personnel, customers, properties
          or NIAGARA Facilities, pose a violation of law, regulation, code
          and/or NIAGARA's Construction Standards and policies, unreasonably
          limit the use of the Right-of-Way, or cause a devaluation of
          NIAGARA's, its successors' or assigns, rights, title, and or interest
          in the Right-of-Way.

          6.4.7     Upon receipt of any such objections, TELERGY shall either:
          (i) correct the Working Drawings by making appropriate changes thereto
          and resubmitting them to NIAGARA for its approval, or (ii) dispute
          such objection, by referring the matter in question to NIAGARA for
          determination in the first instance, and without thereby waiving any
          rights in respect to the matter in controversy.

          6.4.8     Upon such resubmission, NIAGARA shall raise any bona fide
          objections as set forth in Sections 6.4.5 and 6.4.6.

          6.4.9     Notwithstanding anything herein to the contrary, due to the
          accelerated construction requirements of the installation of the
          Backbone Route, the parties agree to exercise their best efforts
          consistent with NIAGARA's public service responsibilities to assure
          all Working Drawings are reviewed and approved by NIAGARA in support
          of TELERGY's construction schedule.

          6.4.10    Procedures and schedules for any necessary F.O.G. Wire
          installations on the Backbone Route will be developed jointly by
          NIAGARA and TELERGY, who will exercise their best efforts consistent
          with NIAGARA's public service responsibility to assure that all F.O.G.
          Wire installation(s) are completed as soon as practical.

          6.4.11    All Working Drawings, Approved Plans, As-built Drawings,
          maps and survey and the copyrights therein, shall be the property of
          NIAGARA, and shall be subject to the confidentiality provisions of
          this Agreement.

          6.4.12    Upon TELERGY's receipt of all Approvals in accordance with
          Section 11 as well as the Approved Drawings and NIAGARA's approval of
          the Construction Plan, TELERGY's installation and construction in
          accordance with this Agreement and, particularly Sections 8-12, shall
          commence.

7    ADDITIONAL RIGHTS-OF-OCCUPANCY FOR SPUR ROUTES

     7.1  Nothing herein shall be construed to provide TELERGY additional
     Right-of-Occupancy in NIAGARA Right-of-Way for the design, engineering,
     construction, installation,


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<PAGE>   16
     operation, maintenance, repair, replacement, relocation, reinstallation and
     removal of any Spur Routes supplementing or extending the Backbone Network.

     7.2  Any such Spur Routes required or desired by TELERGY for the design,
     engineering, construction, installation, operations, maintenance, repair,
     replacement, relocation, reinstallation and removal within NIAGARA
     Rights-of-Way, including the installation of fiber optic cable and related
     equipment for any such required or desired Spur Routes, shall be negotiated
     by the parties, subject to Section 14 herein.

     7.3  TELERGY, however, shall have the right either upon the original
     installation or subsequently where appropriate, to install multiple fiber
     optic cables within the Right-of-Occupancy contemplated herein along the
     Backbone Route or portions thereof only to accommodate additional Spur
     Routes or interconnects, subject to Section 7.1 and 7.2.

     7.4  Except for F.O.G. Wire, if TELERGY shall utilize any of NIAGARA's
     Facilities, buildings or structures for the installation of the TELERGY
     Facilities, TELERGY shall enter into an appropriate Agreement with NIAGARA
     and shall pay NIAGARA's then prevailing rates, charges or negotiated fees.

8    ENTRY AND NOTICE

     8.1  In no event shall TELERGY, its employees, agents or contractors, be
     authorized to access NIAGARA Right-of-Way or Facilities without NIAGARA
     permission, which shall not be unreasonably withheld, and the presence of
     a NIAGARA engineer, inspector or escort. Except for emergency situations
     or situations requiring expeditious action, whenever TELERGY desires to
     enter upon a Right-of-Occupancy to construct, install, maintain, repair,
     reinstall, replace, relocate or remove any part or portion of the System
     or its Facilities, TELERGY shall submit written notice ("Entry Notice") in
     advance to NIAGARA.

     8.2  If Entry Notice is required for proposed work that may disturb
     NIAGARA's operations, TELERGY's Entry Notice shall include in reasonable
     detail, the purpose of the entry, and methods of the proposed construction,
     repair, replacement or other work, and shall require approval from
     NIAGARA's engineer, and shall require written approval from NIAGARA'S
     Engineer.

     8.3  Such plans and the timing of all such work shall be subject to the
     consent and approval of NIAGARA, and TELERGY's obtaining any required
     Approvals as provided in Section 10.

     8.4  Prior to commencement of any cable installation, TELERGY shall
     provide required notification to the respective local Underground
     Utilities Locating Service as is appropriate for that area.


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<PAGE>   17
     8.5  TELERGY, upon not less than seven (7) working days prior notice to
     NIAGARA, may during any period of construction and installation of the
     Backbone Network or, following completion of construction thereof, in
     connection with post-construction cleanup activities. Maintenance or
     repairs, place inspectors, supervisors, or other reasonably necessary
     personnel on site for the protection of TELERGY's operation, property,
     Right-of-Occupancy, or the property of others.

     8.6  For and during the term of the Agreement, NIAGARA shall not excavate
     for the purposes of longitudinal construction and/or insertion of cable or
     conduit within five (5) feet of the running line of the System other than
     for necessary operations of NIAGARA's Facilities. Except for NIAGARA System
     emergencies, all excavations within ten (10) feet of the running line of
     the System shall require not less than thirty (30) days prior written
     notice to TELERGY and shall be coordinated with TELERGY so as to prevent
     damage to the System and the disruption of transmission there over.
     Moreover, NIAGARA shall use its best efforts to minimize any disruptions of
     the System during the performance of any work by NIAGARA or others within
     the restricted area.

9    TELERGY WORK

     9.1  Within ninety (90) days after the date of this Agreement, the parties
     shall jointly decide, consistent with NIAGARA's public service
     responsibilities, whether the Backbone Network shall be installed and
     constructed underground or overhead. Underground facilities shall be
     installed when technically, operationally and economically feasible.

     9.2  A detailed description of the construction technique for each Segment
     of the Backbone Network shall be prepared and attached to this Agreement
     and incorporated herein, before any construction or installation commences.

     9.3  TELERGY shall comply with NIAGARA's Construction Standards and
     policies as well as any Approval or Permits, in the construction of the
     System. Any material deviations from NIAGARA's standard engineering
     guidelines shall require prior written approval of NIAGARA.

     9.4  Any changes necessary to NIAGARA's overhead and underground Facilities
     necessitated by this Agreement as reasonably determined by NIAGARA will be
     made by NIAGARA at TELERGY's sole cost and expense.

     9.5  TELERGY shall install and construct the Backbone Network along the
     Backbone Route in three Segments. Segment I shall connect [***], on or
     before [***]. Segment II shall connect [***] to the aforementioned city
     that was not connected during Segment I, on or before [***]. Segment 3
     shall connect [***],

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      [***], on or before [***]. The locations and dates are critical to
      NIAGARA. Segment I must be installed and fully operational on or before
      [***]; Segment II must be installed and fully operational on or before
      [***]; and the entire Backbone Network along the Backbone Route must be
      fully operational and capable of carrying telecommunications traffic on or
      before [***].

      9.6   TELERGY shall exercise good faith efforts to obtain all Approvals
      and Permits, as set forth in Section 11, necessary for construction of the
      Backbone Network as expeditiously as possible. TELERGY shall notify
      NIAGARA in writing in the event any Approval or Permit is delayed,
      advising of the Approval outstanding, reasons for the delay, efforts to
      obtain the approval and minimize any delay, and the anticipated date of
      approval.

      9.7   TELERGY, at its sole risk, cost and expense, shall furnish all
      materials to be used in connection with this Right-of-Occupancy, the
      Backbone Network and Telecommunications System, and shall construct,
      install, operate, maintain, use, change, alter, relocate or remove TELERGY
      Facilities or any part thereof in accordance with the design and
      specifications on Approved Plan(s) and the terms and conditions of this
      Agreement, in a prudent and workmanlike manner, in conformity with any
      applicable statutes, rules, orders, regulations and specifications of any
      public body having jurisdiction thereof and in conformity with NIAGARA's
      standards, rules and policies, and so as not to interfere with or endanger
      any property, operations, maintenance, or employees of NIAGARA, or of
      other existing parties occupying or using the property of NIAGARA.

      9.8   Power sources installed by TELERGY shall meet all applicable
      National Electrical Codes, NIAGARA and state and local-ordinance
      requirements.

      9.9   NIAGARA's activities to support TELERGY's design, planning,
      construction, installation or MAINTENANCE efforts, and its conduct of
      periodic and post-construction inspections shall not operate to relieve
      TELERGY of any responsibility, obligation or liability specified in this
      Agreement. TELERGY shall be responsible for compliance with all Federal,
      state or local laws, rules, regulations, codes and/or ordinance governing
      the activities contemplated by this Agreement.

10    APPROVALS AND PERMITS

      10.1  TELERGY shall secure, at its expense, all necessary, final and
      unconditional approvals, permits and licenses (collectively referred to as
      "Approvals") from all governmental authorities and/or other parties having
      jurisdiction or approval rights with respect to the use and occupation of
      the Backbone Right-of-Way and the provision of telecommunications
      services, the installation, operation and maintenance of the Backbone
      Network and Telecommunications System within the Right-of-Occupancy, and
      the provision

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of telecommunications services, specifically  including, without limitation, any
required environmental approvals. Environmental impact assessments or statements
required, if any, shall be prepared by TELERGY at its sole risk, cost and
expense, with copies provided to NIAGARA.

10.2 NIAGARA shall be required to obtain Approval of this Agreement by the
Public Service Commission of the State of New York, at TELERGY's sole cost and
expense.

10.3 TELERGY shall be responsible for obtaining from third parties, private
entities and/or public agencies any and all necessary easements, rights of way,
licenses, permits, permissions, certifications or franchises to construct,
operate and/or maintain TELERGY Facilities on private or public property at the
location of TELERGY's Facilities.

10.4 NIAGARA agrees that it shall provide reasonable cooperation to TELERGY in
connection with TELERGY's  efforts to obtain such necessary permits and
consents.

10.5 If NIAGARA's permission or consent in writing is required by a governmental
or regulatory agency in conjunction with the processing or application by
TELERGY for such permits and consents, or if NIAGARA is required to obtain any
governmental or regulatory approvals with respect to TELERGY's proposed
activities or any related NIAGARA activities necessary to the completion of
TELERGY's proposed activities, NIAGARA shall provide such consent, provided,
however, that NIAGARA shall have the right to review and approve the terms and
conditions, if any, that may be required or requested of NIAGARA by said
governmental or regulatory agency, which such approval shall not be unreasonably
withheld.

10.6 NIAGARA shall have the right to review and approve the terms and conditions
of any such Approvals to insure that they are compatible with the continued use
and maintenance of NIAGARA's Facilities and Rights-of-Way.

10.7 If required by any law or regulation and upon request, NIAGARA agrees to
review and, if approved, shall cause its authorized officers or representatives
to execute any applications or other documentation prerequisites to securing the
Approvals.

10.8 Following the issuance of any necessary Approvals in respect of any System
Segment, and upon compliance with the terms and conditions of this Agreement,
TELERGY, its employees, agents, contractors and/or subcontractors shall have the
right to construct the System within the Right-of-Occupancy within any
Right-of-way in accordance with the Approved Plans.


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<PAGE>   20
11    CONSTRUCTION AND INSTALLATION

      11.1 TELERGY shall furnish to NIAGARA a Construction Plan consisting of a
      proposed schedule of engineering and design, commencement and completion
      dates for receipt of Approvals as set forth in Section 10 herein, and
      dates for construction, installation and implementation of the Segments of
      the Backbone Network. Time being of essence with respect to Sections 3.6,
      9.5 and 13 herein, said schedule shall not otherwise be binding on the
      parties but shall be an indication of proposed construction and
      installation, unless otherwise specified in this Agreement.

      11.2 Except as herein otherwise expressly set forth, construction and
      installation of the Backbone Network and the furnishing of all labor,
      materials and equipment necessary to construct and install the same, shall
      be at TELERGY's expense. All such work shall be performed in a good and
      workmanlike manner and in compliance with all laws, ordinances, codes and
      regulations, and Approvals of any governmental authorities having
      jurisdiction there over, and any appropriate NIAGARA construction
      standards, practices and/or procedures.

      11.3 All access to areas in and around NIAGARA Facilities shall be
      coordinated by NIAGARA in accordance with TELERGY's anticipated
      construction schedule.

      11.4 TELERGY shall have the right to select the type of fiber optic cable
      to be installed in NIAGARA's Right-of-Way and Facilities, subject to
      NIAGARA's review and approval, which shall not be unreasonably withheld.

      11.5 TELERGY Facilities shall be placed, maintained, relocated or removed
      in accordance with NIAGARA's requirements and specifications, including
      but not limited to the current editions of NIAGARA's Code Rule 53,
      Underground Standards for Construction, the National Electric Code (NEC),
      the National Electrical Safety Code (NESC), Rules and Regulations of the
      Occupational Safety and Health Act (OSHA), and all Approvals, or rules or
      regulations of any governing authority having jurisdiction. Where a
      difference in specification may exist, the more stringent shall apply.

      11.6 TELERGY Facilities shall not physically, electronically or
      inductively, or otherwise, interfere with NIAGARA's Facilities.

      11.7 NIAGARA reserves the right to specify the type of construction
      standards and practices required in situations not otherwise covered in
      this Agreement. In such cases, NIAGARA, will furnish to TELERGY written
      materials, if available, specifying and explaining the required
      construction.

      11.8 TELERGY Facilities installation may be performed, at TELERGY's
      discretion, by NIAGARA, NIAGARA's designated contractor upon delivery of
      any appropriate facilities by

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<PAGE>   21
TELERGY, or by TELERGY or its subcontractor, following completion of Make-Ready
Work.

11.9  In the event that TELERGY Facilities installation is performed by a
contractor or sub-contractor, NIAGARA and TELERGY each shall have the right to
approve such contractor or sub-contractor, which approval shall not be
unreasonably withheld; however, TELERGY shall be responsible for all acts of
its contractors and shall ensure its contractors compliance with the provisions
of this Agreement. Following completion of TELERGY Facilities installation,
TELERGY shall have the right to conduct testing in accordance with NIAGARA
approval to insure that agreed-upon design specifications have been met.

11.10 NIAGARA reserves the right to prohibit all TELERGY Facilities other than
fiber optic cable, splice closures and repeaters from its manholes, pull boxes
and hand holes. Splices in TELERGY's fiber optic cables shall be located only
in manholes, pull boxes or hand holes.

11.11 TELERGY shall be responsible for any problems from, or in, TELERGY
Facilities, unless such problem was caused by the intentional or reckless act
or omission of NIAGARA.

11.12 Non-Cable Facilities.

      11.12.1 As requested by TELERGY, NIAGARA, where franchised and
      reasonable, shall provide to TELERGY at the regenerator sites, metered
      electric service, the cost of which shall be paid by TELERGY in accordance
      with applicable New York State Public Service Commission approved
      tariffs.

      11.12.2 TELERGY shall be entitled to install its regenerator facilities
      for its Telecommunications System along the Backbone Route. The location
      of such Facilities shall be subject to NIAGARA's advance written approval.
      No regenerator facility shall be located on any portion of such Rights-of-
      Way or other NIAGARA property identified by NIAGARA as unavailable due to
      a planned NIAGARA use at such location. Whenever possible, Niagara agrees
      to locate TELERGY's regenerator facilities with sites on the Backbone
      Route approximately [***] feet by [***] feet in size, which sites will be
      located at or near power plants or substations or as identified by
      TELERGY, which shall be deemed part of the Right-of-Occupancy hereunder.

      11.12.3 During construction of the System, NIAGARA agrees to allow
      TELERGY and its contractors and subcontractors, without charge, to use
      portions of the Backbone Route Rights-of-Way at NIAGARA pre-approved
      locations only for the erection of temporary structures and fences to
      protect TELERGY's construction materials, equipment and fuel, provided no
      adverse impact to NIAGARA's Facilities, operations or environmental
      requirements shall result therefrom and further provided


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           that any such structures and/or fences shall be removed by TELERGY
           following completion of construction of the applicable System
           Segment.

     11.13 Cable Installation.

           11.13.1  Cables crossing under public roadways shall be at a location
           and depth as determined by state and local conditions, laws,
           regulations, Approvals or orders of public authorities, and shall
           also be in accordance with the Approved Drawings, Construction Plan
           and Construction Standards.

           11.13.2  Cables crossing over or under other existing public
           utilities shall be located and installed in accordance with local
           conditions, laws, regulations, Approvals, or orders of public
           authorities, and any requirements of the New York State Public
           Service Commission.

           11.13.3  If, in the conduct of work, any changes or alterations,
           permanent or temporary, in existing pipelines, sewers, drains,
           conduits, fences, power, signal or communication lines or other
           utilities are necessary, such changes shall be made or caused to be
           made, by TELERGY and at TELERGY's sole risk, cost and expense, in
           accordance with Section 8.1 herein.

           11.13.4  Emergency cable installation, Maintenance and repair methods
           shall comply with standards and policies to be developed by the
           parties.

           11.13.5  TELERGY, at its sole cost and expense, shall furnish, erect
           and thereafter maintain cable markers designating all TELERGY
           underground Facilities. Such markers shall be installed along the
           Backbone Network running line. The cable markers shall be placed in
           conformity with industry standards or as otherwise approved by
           NIAGARA.

12   MAINTENANCE AND OPERATION

     12.1  Within six (6) months following completion of any Segment, TELERGY
     shall furnish to NIAGARA final, executed "As Built Drawings," of
     reproducible quality, depicting the Backbone Network, or System Segment,
     which, as the same may be amended from time to time and/or as the running
     line may from time to time be shifted by settlement, natural forces or
     casualties, shall constitute the locations of the Right-of-Occupancy.

     12.2  As Built Drawings shall become Exhibits to and form a part of this
     Agreement upon verification and approval by NIAGARA.


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     12.3      Following the completion of the initial construction of any
     System Segment, the operation, maintenance, repair, replacement,
     reinstallation, relocation and/or removal thereof shall be solely at
     TELERGY's cost and under its control, except as otherwise set forth in this
     Agreement, including but not limited to Sections 8 and 10 governing
     Approvals and Entry Notice.

     12.4      Unless prohibited by law or any governmental agency ruling or by
     local franchise, TELERGY shall have the right to leave in place within the
     Right-of-Way rather than remove therefrom any buried cable(s), conduit or
     other appurtenances so placed.

     12.5      All Maintenance, repair and restoration ("Maintenance") costs
     related to the Backbone Network, the Telecommunication System and TELERGY
     Facilities shall be the responsibility of TELERGY.

     12.6      All Maintenance associated with TELERGY Facilities, including
     ongoing operational activities as well as repairs and service interruptions
     of TELERGY's Facilities, shall be the ultimate responsibility of TELERGY
     subject to NIAGARA review and inspection. TELERGY shall be entitled, at its
     sole cost, to hire a qualified telecommunications maintenance company to
     perform Maintenance activities with respect to TELERGY Facilities, subject
     to NIAGARA approval, which shall not be unreasonably withheld.

     12.7      All Maintenance associated with NIAGARA Facilities resulting from
     or attributable to TELERGY's Right-of-Occupancy shall be the responsibility
     of NIAGARA; however TELERGY shall be responsible for all associated costs.

     12.8      To the extent that NIAGARA's maintenance of a Right-of-Way
     encompasses a TELERGY Right-of-Occupancy, NIAGARA will extend such standard
     maintenance services to cover such Right-of-Occupancy without cost to
     TELERGY, unless the existence of TELERGY's Facilities significantly
     increases the cost-associated with such Maintenance.

     12.9      Upon a request from TELERGY to perform Maintenance with respect
     to NIAGARA's Facilities, recognizing that time may be of the essence,
     NIAGARA shall investigate the need for such Maintenance, within a
     reasonable period of time. Maintenance of NIAGARA Facilities shall be
     performed only by NIAGARA's, at its discretion based, on its investigative
     findings.

     12.10     With respect to Maintenance of TELERGY Facilities, a NIAGARA
     inspector, engineer or escort shall be present and shall be authorized to
     terminate such activities when, in the inspector's sole discretion, said
     activities pose a danger to NIAGARA's Facilities.

     12.11     In no event shall access to NIAGARA's Facilities or Right-of-Way
     be authorized without the presence of a NIAGARA inspector or escort.
     Notwithstanding the foregoing provision, NIAGARA agrees that if TELERGY
     designates a contractor for Maintenance, the

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<PAGE>   24
     Maintenance company shall be granted access to the NIAGARA Facilities and
     TELERGY's Facilities, under such terms and conditions as may be set by
     NIAGARA, and within such fixed period of time as may be agreed upon between
     TELERGY, NIAGARA and the selected contractor.

     12.12     TELERGY shall have the right, subject to NIAGARA's availability,
     to inspect its Facilities periodically, upon thirty (30) days prior written
     notice to NIAGARA. Such inspection costs shall be borne solely by TELERGY.
     No inspection shall be authorized and/or conducted by TELERGY without the
     presence of NIAGARA's inspector or escort.

13   NIAGARA CAPACITY, RATES, CHARGES AND COSTS

     13.1      Niagara Capacity.

               13.1.1   In consideration of the granting of the
               Right-of-Occupancy within the Backbone Route Right-of-Way,
               TELERGY initially shall provide Niagara with [***] of capacity of
               the Backbone Network along the entire Backbone Route ("NIAGARA
               Capacity").

               13.1.2   The NIAGARA Capacity and any NIAGARA Spur Capacity shall
               be delivered to selected NIAGARA Points-of-Presence, which sites
               may change from time-to-time during the term of this Agreement.
               The NIAGARA Capacity shall be delivered to NIAGARA selected
               Points-of-Presence in [***] to ensure that [***] are connected to
               the Backbone Network.

               13.1.3   In each city, the NIAGARA Capacity dedicated from
               TELERGY Facilities in such cities to NIAGARA's Facilities in such
               cities shall be engineered and installed by TELERGY to initially
               provide NIAGARA with lit fiber in the amount of [***],
               delivered to the specified NIAGARA lightwave distribution panel.
               Service will be delivered by TELERGY to NIAGARA at the [***]
               level but NIAGARA is solely responsible for equipment necessary
               to multiplex or demultiplex.

               13.1.4   TELERGY shall engineer, furnish, install and maintain
               all electronics, cabling, and equipment to each [***] demarcation
               in the above locations. Such demarcation will be a standard [***]
               interface termination (fiber distribution panel).

               13.1.5   NIAGARA shall engineer, furnish, install and maintain
               all electronics, cabling, etc, beyond the lightwave distribution
               panel demarcation in the above locations. NIAGARA may provide
               access, floor space and support service, such as

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         commercially available electricity and HVAC, at NIAGARA's Facilities as
         listed above where available at NIAGARA's discretion.

         13.1.6    The parties agree that the baseline NIAGARA/TELERGY ratio in
         respect of the System shall be defined within ninety (90) days after
         the System is designed in accordance with this Agreement.

     13.2 NIAGARA SPUR CAPACITY.

         13.2.1    At its own expense, TELERGY shall have the right to replace
         and upgrade the System due to changes in technology as long as the
         NIAGARA Capacity is not adversely affected. In the event of any such
         replacement and upgrade of the capacity of the Backbone Network,
         TELERGY shall increase the NIAGARA Capacity and, if applicable, the
         NIAGARA Spur Capacity proportionally as described below.

         13.2.2    NIAGARA shall have the right to receive additional NIAGARA
         Spur Capacity as a proportionate increase in the capacity of the
         Backbone Network at the [***] level in order to maintain, but
         not exceed, the baseline NIAGARA/TELERGY established pursuant to
         13.1.6, provided that such proportionate increase shall be limited to a
         maximum total equivalent capacity of [***].

         13.2.3    TELERGY agrees to inform NIAGARA in the event that NIAGARA's
         proportionate share of the installed and in service NIAGARA Capacity
         exceeds [***].

     13.3 The NIAGARA Capacity and, if applicable, the NIAGARA Spur Capacity
     shall be owned by NIAGARA and may be utilized for any purpose whatsoever
     at NIAGARA's sole discretion.

     13.4 In addition to constructing, installing and maintaining the NIAGARA
     Capacity and Spur capacity, TELERGY shall be responsible for all costs
     arising out of or related to this Right-of-Occupancy Agreement.

14   MODIFYING NIAGARA OR TELERGY FACILITIES

     14.1 Should NIAGARA, for its own service requirements, need to modify
     existing or install additional NIAGARA Facilities using Right-of-Way
     subject to the TELERGY Right-of-Occupancy, NIAGARA shall notify TELERGY.

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          14.1.1   Except in an emergency, a written notice shall be sent as
          soon as possible before any such installation or modification is
          implemented or installed, and NIAGARA shall pay costs for the
          rearrangement of TELERGY's Facilities.

          14.1.2   In the event TELERGY is responsible for costs pursuant to
          Section 14.1.1, TELERGY shall have the option either to (i) pay
          NIAGARA the costs thereof for the rearrangement of TELERGY's
          Facilities, or (ii) arrange for such reinstallation in accordance with
          the terms and conditions of this Agreement.

          14.1.3   TELERGY shall have the right to have its inspectors, at its
          sole cost and expense, present during any relocation work by NIAGARA
          in accordance with Section 12.14.

          14.1.4   Within seven (7) working days of the date of completion of
          NIAGARA's relocation and post-construction inspection, it shall notify
          TELERGY in writing that the relocation is completed.

          14.1.5   In the event TELERGY or its contractors performs relocation
          activities, TELERGY shall make the necessary arrangements to ensure
          that NIAGARA's inspectors are available.

          14.1.6   TELERGY shall notify NIAGARA within seven (7) working days of
          the completion of any TELERGY Facilities. TELERGY shall make such
          arrangements as may be necessary to enable NIAGARA to inspect such
          Facilities. If TELERGY's Facilities are not deemed in compliance with
          NIAGARA engineering and/or operating standards, applicable Approvals,
          and safe work practices on initial inspection by NIAGARA, subsequent
          inspections to determine if any appropriate corrective action has been
          taken may be made by NIAGARA. TELERGY shall reimburse NIAGARA for the
          cost of any inspections of TELERGY's Facilities.

     14.2   Should TELERGY, for its own business requirements, require or desire
     additional Rights-of-Occupancy or NIAGARA Facilities, TELERGY shall notify
     NIAGARA in writing and submit an Application for Right of Occupancy
     (Attachment B), if appropriate.

          14.2.1   NIAGARA shall process any request in the same manner and
          subject to the same conditions and provisions set forth in this
          Agreement, advising TELERGY of NIAGARA's acceptance, rejection or
          modification of said request.

          14.2.2   TELERGY shall reimburse NIAGARA for actual costs involved for
          such review, processing and modifications, upon submission of
          documented invoices.


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<PAGE>   27
15   UNAUTHORIZED USE NIAGARA FACILITIES

     15.1  If any TELERGY Facilities shall be found occupying NIAGARA Facilities
     or Right-of-Way for which a Right-of-Occupancy has not been granted by
     NIAGARA, NIAGARA, without prejudice to its other rights or remedies under
     this Agreement, including termination or otherwise, may impose a charge and
     require TELERGY to submit in writing, within ten (10) days after receipt of
     written notification from NIAGARA of the unauthorized occupancy, an
     Application for a Right-of-Occupancy (Exhibit B). If such Application is
     not received by NIAGARA within the specified time period, NIAGARA may
     remove TELERGY's Facilities without liability, and the cost of such removal
     shall be borne by TELERGY.

     15.2 For the purpose of determining the applicable charge, the unauthorized
     occupancy of NIAGARA's Facilities or Right-of-Way shall be treated as
     having existed for a period of [***] prior to its discovery; or for the
     period beginning with the date of the initial Agreement, whichever period
     shall be shorter, and NIAGARA's prevailing rates, charges and fees shall be
     due and payable forthwith whether or not TELERGY is permitted to continue
     the occupancy.

     15.3 Should NIAGARA remove TELERGY's Facilities from NIAGARA's Facilities
     or Right-of-Way under Section 15.1 or 18.5, NIAGARA will deliver to TELERGY
     the Facilities so removed upon payment by TELERGY of the cost of removal,
     storage and delivery, and all other amounts due NIAGARA. NIAGARA shall have
     a lien on TELERGY's Facilities removed from NIAGARA's Facilities or
     Right-of-Way, with power of public or private sale, to cover any amounts
     due NIAGARA. Such liens shall not operate to prevent NIAGARA from pursuing,
     at its option, any other remedy in law, equity or otherwise.

     15.4 No act or failure to act by NIAGARA with regard to an unauthorized
     occupancy shall be deemed as a Right-of-Occupancy for the occupancy, and,
     if any Right-of-Occupancy should be subsequently issued, it shall not
     operate retroactively or constitute a waiver by NIAGARA of any of its
     rights or privileges under this Agreement, or otherwise, provided, however,
     that TELERGY shall be subject to all liabilities, obligations and
     responsibilities of this Agreement in regard to said unauthorized occupancy
     from its inception.

16   CONDEMNATION, BANKRUPTCY, AND OTHER TRANSFERS

     16.1 Nothing contained in this Agreement shall be construed as prohibiting
     NIAGARA from undertaking any merger, reorganization, or acquisition
     activity whether voluntary or involuntary, so long as such activity shall
     not hinder, impede, alter or vary the terms and conditions of the
     Right-of-Occupancy conferred herein.

     16.2 TELERGY shall not assign, sub-license, sublet or transfer the rights
     associated with this Agreement of the Right-of-Occupancy, granted herein,
     and such rights shall not inure to

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<PAGE>   28
     the benefit of TELERGY's successors or assigns without the prior written
     consent of NIAGARA, as well as Public Service Commission and other
     regulatory bodies' review and approval, if required. In the event such
     consents are granted by NIAGARA, the provisions of this Agreement shall
     apply to and bind TELERGY's successors and assigns.

     16.3   Bankruptcy. Subject to the rights of the principals of TELERGY, in
     the event that either of the principals of TELERGY is involved in a
     bankruptcy as defined in Section 1.5 of this Agreement, or in the event
     that the interest of TELERGY Facilities or the Right-of-Occupancy become
     the subject of garnishment, attachment or tax lien proceeding, and in the
     further event that such a petition and/or proceeding shall not be quashed
     or removed within 45 days after filing, service or levy, whichever first
     occurs, NIAGARA shall have the right and option within 15 days after the
     expiration of such 45-day period to purchase "proportionately the interest
     incumbered as the "computed" value payable in cash within that 15-day
     period.

     "Proportionately" shall mean that portion of the undivided interest in the
     property involved in such bankruptcy, garnishment, attachment or tax lien
     proceeding, which the undivided interest owned by a TELERGY bears to all of
     the undivided interest in the subject property other than that involved in
     such bankruptcy, garnishment, attachment of tax lien proceeding.

     "Computed value" shall mean the value of the undivided interest in the
     subject property as computed by the regularly retained certified public
     accountants of TELERGY. Such computation shall be binding and conclusive
     upon the parties absent manifest error.

     16.4   Right of First Refusal. There shall be no sale, exchange or other
     transfer or assignment of the whole or any portion of any assets of TELERGY
     without the prior written consent of NIAGARA. NIAGARA shall have the right,
     in the first instance, to acquire the subject assets based upon the
     computed value as defined in Section 16.3 herein.

     16.5   Relocations. In the event that a portion of NIAGARA's Right-of-Way
     or NIAGARA Facilities, where TELERGY has a Right-of-Occupancy occupied by
     TELERGY Facilities, is required for NIAGARA's gas and electric business,
     NIAGARA will exercise a best effort approach for TELERGY's continued use of
     the Right-of-Occupancy in Right-of-Way or NIAGARA Facilities. However,
     where this is not appropriate, NIAGARA will, where feasible, with F.O.G.
     Wire supplied by TELERGY, pull in, attach and make ready for TELERGY
     connection, the F.O.G. Wire on the rebuilt/relocated sections of the
     Right-of-Way or NIAGARA Facilities.

          16.5.1   TELERGY, at its sole cost, assumes all responsibility for all
          installations, training, materials, splices and bypass necessary to
          reconnect the relocated portion of the System to the balance of the
          Backbone Network. Additionally, TELERGY agrees that such F.O.G. Wire
          shall meet NIAGARA's electrical and structural design requirements and
          all applicable Approvals.

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<PAGE>   29
          16.5.2   If NIAGARA is required by any municipal or state public
          authority or agency to relocate its Right-of-Way or NIAGARA Facilities
          which contain TELERGY's Facilities, TELERGY shall pay its
          proportionate share of total relocation costs. The cost shall include
          all relocation and reasonably incurred "tie-up" costs under the
          circumstances at the usual rates recoverable by NIAGARA in relocation
          projects.

     16.6   Condemnation. Should any portion of the Right-of-Occupancy along the
     Backbone Route used by TELERGY for Backbone Network be appropriated and/or
     acquired by condemnation or the power of eminent domain by any public or
     quasi-public authority, then the Rights-of-Occupancy hereby granted to the
     extent appropriated shall terminate, but this Agreement shall otherwise
     remain in full force and effect.

          16.6.1   If any taking includes any portion of the Backbone Network,
          TELERGY's interest shall be severed from NIAGARA's interest in such
          proceeding and the parties agree to have the condemnation awards
          specifically allocated between and payable in accordance with
          TELERGY's interest, both physical and occupational, including any
          incremental value of an affected Right-of-Way by virtue of the
          installation of the Backbone Network, and NIAGARA's interest, both
          physical and ownership rights. In addition, if permitted pursuant to
          applicable law, TELERGY shall be entitled to make a claim for, and
          then receive, the portion of the award attributable to either the
          entire amount if separately allocated or the proportionate share if
          combined in a lump sum award, the Backbone Network and/or damages
          payable on account of Backbone Network relocation expenses.

          16.6.2   To the extent it has knowledge, NIAGARA shall notify TELERGY
          immediately of any condemnation threatened or filed against any
          portion of the Right-of-Way along the Backbone Route which includes
          TELERGY's preliminary route designation plan or could include any part
          of the System within a Right-of-Occupancy. NIAGARA further agrees not
          to sell or convey any portion of a Right-of-Occupancy on a
          Right-of-Way containing any Facilities to such acquiring authority in
          lieu of condemnation without prior notice to and approval by TELERGY.

17.  TERMINATION OR DEFAULT BY TELERGY

     17.1   TELERGY shall not terminate its use of the System (Discontinuance)
     or any portion thereof except as set forth in this Section 17 during the
     first twenty-five (25) years of this Agreement ("Initial Term").

     17.2   If TELERGY terminates this Agreement during the first twenty-five
     (25) years of the Initial Term, or the operation and Maintenance of the
     Backbone Network, or any portion thereof, without NIAGARA approval in
     writing, TELERGY shall (i) at TELERGY's sole cost, pay NIAGARA a one time
     sum of seven thousand dollars ($7,000.00) per mile of

                                       25
<PAGE>   30
     NIAGARA's Right-of-Way effected by the portion of the Backbone Network so
     terminated, and (ii) make business arrangements for the provision of
     capacity up to an amount that is equivalent to the NIAGARA Capacity and any
     NIAGARA Spur Capacity in service at the time of termination, as determined
     by NIAGARA.

     17.3   The per-mile-severance-payment figure shall be reduced annually on
     the anniversary of the Commencement Date by one/twenty-fifth (1/25th),
     commencing with the first anniversary thereof.

     17.4   NIAGARA shall advise TELERGY of its Capacity requirements pursuant
     to Section 17.2 upon its receipt of notice from TELERGY that TELERGY has
     determined to terminate its operation and maintenance of the Backbone
     Network, or a portion thereof.

     17.5   If TELERGY fails to satisfy the requirements and obligations set
     forth in Sections 3.7 and 9.5 of this Agreement, TELERGY shall pay any and
     all costs associated with, related to or arising from NIAGARA's relocation
     or extension of its private microwave system, including but not limited to,
     reasonable attorney fees and disbursements.

     17.6   If TELERGY fails to satisfy the requirements set forth in Sections
     3.6, 9.5 and/or 13, TELERGY shall pay any and all costs associated with
     NIAGARA's relocation or extension of its private microwave system.

18   TERMINATIONS OF AUTHORIZATIONS

     18.1   Regardless of the reason for the valid termination of this
     Agreement, TELERGY shall reimburse NIAGARA for [***] incurred in
     connection with this Agreement.

     18.2   In addition to rights of termination provided to NIAGARA under other
     provisions of this Agreement, NIAGARA shall have the right to terminate a
     Right-of-Occupancy granted pursuant to the provisions of this Agreement
     where:

          (a)   TELERGY's Facilities are maintained or used in violation of any
          law or in aid of any unlawful act or undertaking, or

          (b)   TELERGY ceases to have authority to construct and operate its
          Facilities on public or private property covered by the
          Right-of-Occupancy; or

          (c)   TELERGY fails to comply with any of the terms and conditions of
          this Agreement or defaults in any of its obligations thereunder.

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          (d)   TELERGY's Facilities occupy NIAGARA's Facilities or Right-of-way
          without having first been issued a Right-of-Occupancy therefor; or

          (e)   TELERGY, subject to the provisions specified in this ??? should
          permanently cease to provide telecommunications services over its
          Facilities, which shall mean for a period of six (6) consecutive
          months.

          (f)   TELERGY Facilities or Right-of-Occupancy are used by others not
          a party to this Agreement without the prior written consent of
          NIAGARA, which consent shall not be unreasonably withheld, provided
          that such use shall not be construed as including use by TELERGY's
          customers as provided for in this Agreement.

          (g)   TELERGY sublets or apportions part of a Right-of-Occupancy to an
          entity not a party to this Agreement without the prior written consent
          of NIAGARA, which consent shall not be unreasonably withheld.

          (h)   TELERGY's Right-of-Occupancy can be terminated by NIAGARA
          wherever and whenever a governmental agency requires the same, in
          which case NIAGARA will remove and return TELERGY's Facilities to
          TELERGY, at TELERGY's expense.

          (i)   TELERGY's insurance carrier shall at any time notify NIAGARA
          that the policy or policies of insurance as required in Section 26
          will be or have been canceled or amended so that those requirements
          will no longer be satisfied; or

          (j)   TELERGY shall fail to pay any sum due or to deposit any sum
          required under this Agreement, within thirty (30) days following
          TELERGY's receipt of written notice requiring such payment or deposit
          from NIAGARA.

          (k)   any authorization which may be required by any governmental or
          private authority for the construction, operation and maintenance of
          TELERGY's Facilities in NIAGARA Facilities or Right-of-Way is denied,
          revoked or canceled.

          (l)   the Public Service Commission of the State of New York or the
          Federal Communications Commission makes a determination that TELERGY's
          Right-of-Occupancy would make NIAGARA a telephone corporation for
          purposes of Commission regulation under the Public Service Law.

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<PAGE>   32
     18.3 Notwithstanding the above, TELERGY shall have the right to cure the
     above stated defaults within thirty (30) days of written notice by NIAGARA
     to TELERGY of said default. Upon receipt of said written notice and within
     five (5) days, TELERGY shall notify NIAGARA of its intention to cure the
     default within the said 30-day period set forth above. If TELERGY fails to
     give such five days notice or if TELERGY advises NIAGARA that it does not
     intend to cure, then TELERGY shall be deemed in default and the thirty (30)
     day period for cure shall not apply.

     18.4 In the event of termination of any of TELERGY's authorizations
     hereunder, or at the expiration of the Term of this Agreement, NIAGARA will
     remove, abandon, or maintain for NIAGARA's use, TELERGY's Facilities within
     ninety days of the effective date of the termination; provided, however,
     that TELERGY shall be liable for and pay all fees and charges pursuant to
     provisions of this Agreement to NIAGARA until TELERGY's Facilities are
     actually removed, abandoned or maintenance is taken over by NIAGARA,
     whichever comes first and provided further that each party shall be
     required to perform any and all obligations under this Agreement until such
     time. NIAGARA shall have the right to remove such Facilities at TELERGY's
     expense and without any liability on the part of NIAGARA for damage or
     injury to such Facilities or interruption of TELERGY's services except for
     liability for damage or injury to such Facilities caused by the negligence
     of NIAGARA or its agents or employees. At NIAGARA's sole option, NIAGARA
     may elect to remove TELERGY's Facilities, or any portion thereof, abandon
     such Facilities in place, or maintain such Facilities for its own use.

     18.5 When TELERGY's Facilities are removed, abandoned or maintained by
     NIAGARA, no further Right-of-Occupancy shall be permitted until TELERGY has
     first complied with all of the provisions of this Agreement as though no
     such Right-of-Occupancy had been previously made and all outstanding
     charges due to NIAGARA for Right-of-Occupancy have been paid in full.

19   NIAGARA ABANDONMENT

     19.1 NIAGARA may at any time and for any reason abandon Right-of-Way if
     NIAGARA no longer requires it for its public service or corporate purposes,
     provided however that in the event of a voluntary NIAGARA abandonment of
     Right-of-Way that includes any portion or portions of the Backbone Route or
     Spur Route Right-of-Occupancy within which TELERGY shall have installed its
     Facilities, NIAGARA shall give TELERGY not less than six (6) months prior
     written notice.

     19.2 In the case of a proposed involuntary NIAGARA abandonment, such as one
     due to a calamity or earthquake or other natural calamity rendering the
     Backbone Route or Spur Route Right-of-Way, or portions thereof, unusable,
     of any portion or portions of said Backbone Route or Spur Right-of-Way,
     within which TELERGY shall have installed


                                       28
<PAGE>   33
     its Facilities, NIAGARA shall give TELERGY written notice of any such
     abandonment as soon as practical before any such abandonment ("Involuntary
     Notice").

     19.3   In any event, where the NIAGARA abandonment is voluntary, TELERGY
     shall have the option to continue to use the affected Right-of-Occupancy,
     to the extent possible. If TELERGY should exercise such option to continue
     to use a NIAGARA abandoned Right-of-Way, TELERGY shall thereafter be
     responsible for the maintenance of the applicable Right-of-Way.

     19.4   If an abandoned portion of the Backbone Route or Spur Route
     Rights-of-Way shall be acquired, obtained, or sold to any entity other than
     TELERGY, such sale shall be subject to the existing Rights-of-Occupancy and
     the rights granted to TELERGY under this Agreement. The obligations of the
     respective parties under this article shall survive the Expiration Date in
     respect of any occurrences within the Term.

20   NIAGARA'S EXPENSES AND EMPLOYEE COSTS

     20.1   NIAGARA's costs and expenses for [***].

     20.2   Such expenses indicated in Section 21.1 shall include, but not be
     limited to [***].

21   INDEPENDENT CONTRACTOR STATUS

     NIAGARA reserves no control whatsoever over the employment, discharge,
     compensation of or services rendered by TELERGY's employees or contractors,
     and it is the intention of the parties that TELERGY shall be and remain, an
     independent contractor and that nothing herein shall be construed
     inconsistently with TELERGY's status as an independent contractor or as
     creating or implying any partnership or joint venture between NIAGARA and
     TELERGY.

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22   TAXES

     22.1   TELERGY shall pay all transfer taxes, documentary stamps, recording
     costs or fees, or any similar expense in connection with the recording or
     filing of any memoranda or short form of the Agreement describing the
     Right-of-Occupancy granted to TELERGY hereby.

     22.2   TELERGY further agrees that if it is determined by any state or
     local governmental authority that the sale, acquisition, license, grant,
     transfer or disposition of any part or portion of the Rights-of-Occupancy
     herein described requires the payment of any taxes, including but not
     limited to sales, use, real property transfer gains taxes, or tax on the
     furnishing of utility services under any statute, regulation or rule,
     TELERGY shall pay the same, plus any penalty or interest thereon, directly
     to said taxing authority, and shall defend and hold NIAGARA harmless
     therefrom; provided, however, TELERGY's said obligation to hold NIAGARA
     harmless shall not apply to any penalty or interest due in respect of the
     delinquent payment of any such tax where the delinquency shall result due
     to NIAGARA's failure to promptly notify TELERGY of any known assessment
     and/or levy of such tax and/or to send TELERGY any invoice or bill in
     respect thereof.

     22.3   TELERGY shall pay all annual or periodic real property, personal
     property, gross receipts, franchise tax or other taxes levied or assessed
     upon the Right-of-Occupancy, Backbone Network, or Telecommunications
     System, or on account of their existence, and shall indemnify, defend and
     hold harmless NIAGARA against the payment thereof. TELERGY shall be
     responsible for the filing of any and all returns or other filings in
     respect of such personal property taxes.

     22.4   NIAGARA shall indemnify and hold harmless TELERGY from and against
     any annual or periodic taxes levied or assessed in respect of the
     Rights-of-Way, exclusive of the Right-of-Occupancy, Backbone Network, or
     Telecommunications System, including net income taxes, increases in such
     taxes.

     22.5   To the extent that NIAGARA is required to make any kind of
     submission or filing with any governmental or regulatory authority which
     could effect the amount of any tax that TELERGY must pay pursuant to this
     Agreement, NIAGARA shall coordinate such submission or filing, and the
     information contained therein, with TELERGY. Further, NIAGARA agrees that
     it shall provide TELERGY prompt notice of the receipt of any notice of
     assessment in respect of the Rights-of-Way, or any portion thereof, which
     may include as an increment of the amount of such assessment a sum which is
     attributable to this Agreement and/or the Backbone Network.

     22.6   TELERGY shall have the right to protest any such levy or assessment
     in respect of any such tax or other fee or charge which TELERGY is
     obligated to pay in accordance with the Agreement, or to make claim for
     refund, rebate, reduction or abatement of any of said

                                       30
<PAGE>   35
     taxes. Further, TELERGY shall have the right to protest any assessment of
     which it has been given notice pursuant to this Section. NIAGARA shall
     cooperate, where appropriate, with TELERGY, at TELERGY's cost and expense,
     including reasonable attorney's fees, in the prosecution of any protest
     regarding the assessment and/or levy or any claim for refund, rebate,
     reduction or abatement of said taxes.

23   NOTICES

     23.1 Any notice to be given to NIAGARA under this Agreement shall be sent
     by certified mail or overnight express delivery:

          (one copy each to):

          (1) Director-Net. Mgmt. & Comm.
              NIAGARA Mohawk Power Corporation
              300 Erie Boulevard West
              Syracuse, NY 13202

          and

          (2) NIAGARA Project Mgr. - TELERGY Project
              Network Management & Comm. Department
              NIAGARA Mohawk Power Corporation
              300 Erie Boulevard West
              Syracuse, NY 13202

     23.2 Any notice given to TELERGY under this Agreement shall be sent by
     certified mail or overnight express delivery:

          (one copy each to):

          (1) KCI Network Services, Inc.
              5784 Widewaters Parkway
              Dewitt, New York 13214

          and

          (2) Plum Street Enterprises
              Vice-President of Mass Marketing
              300 Erie Boulevard West
              Syracuse, New York 13202



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<PAGE>   36
     23.3 Notice shall also be given to such other parties as may be designated
     in writing to the other party.

     23.4 Unless otherwise herein set forth, notices shall be sent, postage
     prepaid, either by registered or certified U.S. Mail, Return Receipt
     Requested, or by overnight express delivery service, and shall be deemed
     served or given when received by the addressee, as evidenced by the date of
     the Return Receipt or the receipt provided by the delivery service.

     23.5 In case of an emergency demanding immediate examination or repairs of
     the Facilities by NIAGARA, notice shall be given by either party to the
     other in person or by telephone to the emergency response center designated
     in writing by each party to the other. Each party giving such notice shall
     follow up with written notice within three (3) business days.

     23.6 During the maintenance and operation phase, in order to secure safety
     of NIAGARA's operations, employees and crews, and of TELERGY employees
     and/or contractors, Entry Notices shall be given to NIAGARA's appropriate
     Regional Control Operator by TELERGY.

24   LIABILITIES AND INDEMNIFICATION

     24.1 To the fullest extent permitted by law, TELERGY (in this Section 24
     sometimes referred to as "Indemnitor") agrees to defend, indemnify and save
     NIAGARA, its agents and employees (sometimes referred to as "Indemnitee")
     harmless from and against any and all liabilities, cost, suit charge,
     expenses, claims, losses, damages, cause of action, bodily injury or death
     of any person whomsoever, including employees of the parties, or damage to
     any property, real and personal, including environmental damages, and
     economic damages to property of NIAGARA or TELERGY, whether owned, leased
     or licensed, including but not limited to TELERGY's Facilities, and all
     costs and expenses, including, but not limited to attorneys' fees and
     disbursements incurred or sustained by the Indemnified party in any action
     or proceeding between Indemnitor and the Indemnified party, or between the
     Indemnified party and any third party, or otherwise incurred or sustained
     in enforcing this indemnification, caused by, arising out of or in any way
     connected with this Right-of-Occupancy or the construction, installation or
     subsequent operation, maintenance, repair, replacement, reinstallation,
     relocation or removal of TELERGY's Backbone Network, Telecommunications
     System, or its Facilities, unless such loss, injury or damage shall have
     resulted solely from the reckless or deliberate act or omission to act of
     NIAGARA or its agents, employees or contractors.

     24.2 To the fullest extent permitted by law, NIAGARA agrees to defend,
     indemnify and save TELERGY harmless from and against any and all claims,
     losses, damages, bodily injury or death of any persons whomsoever,
     including employees of the parties, or damage to any property, including
     property of NIAGARA or TELERGY, whether owned, leased or licensed,
     including TELERGY's Facilities, excluding damages to TELERGY's Facilities


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<PAGE>   37
     occasioned by emergency actions of NIAGARA, and all costs and expenses,
     including, but not limited to attorneys' fees and disbursements incurred or
     sustained by the Indemnified party in any action or proceeding between
     Indemnitor and the Indemnified party, or between the Indemnified party and
     any third party, or otherwise incurred or sustained in enforcing this
     indemnification, caused by, arising from or growing out of the negligent
     act or omission to act of NIAGARA or its agents, employees or contractors.

     24.3      Either party ("Indemnitor") shall have the right to defend the
     other party ("Indemnitee"), by counsel of the Indemnitor's selection
     reasonably satisfactory to the other party ("Indemnitee"), with respect to
     any claims within the indemnification provisions hereof. The parties shall
     give each other prompt notice of any asserted claims or actions indemnified
     against, shall cooperate with each other in the defense of any such claims
     or actions and shall not settle any such claims or actions without the
     prior consent of the indemnifying party ("Indemnitor").

     24.4      Except for third-party bodily injury, personal injury or property
     damage obligations, neither of the parties shall be liable to the other for
     special, consequential or exemplary damages (including, without limitation,
     any claims from any client, customer or patron of either party for loss of
     services) arising under this Agreement or from the breach of any of the
     provisions hereof.

     24.5      The obligations of the respective parties under this Section 24
     shall survive the expiration date in respect of any occurrences within the
     term. Furthermore, TELERGY understands and agrees that it is responsible
     for any and all costs and expenses incurred by NIAGARA to enforce this
     indemnification provision. The obligations set forth herein shall survive
     completion of the work and termination of this contract for any reason.

     24.6      TELERGY shall take prompt action to defend and indemnify NIAGARA
     against claims, actual or threatened, but in no event later than the
     service of a summons, complaint, petition or other service of process
     against NIAGARA alleging damage, injury, liability or expenses attributed
     in any way to this Agreement, the Work, or the acts, fault, negligence,
     equipment, facilities, personnel, or property of TELERGY, its agents,
     employees, subcontractors or suppliers. TELERGY shall defend any such claim
     or threatened claim, including as applicable, engagement of legal counsel,
     to respond to, defend, settle or compromise any claim or threatened claim.

25   INSURANCE

     25.1      From the commencement of the Work, through the term of this
     Agreement or longer where specified, TELERGY shall provide at its own
     expense, insurance policies with coverages intended to be primary, issued
     by reputable insurance companies acceptable to NIAGARA which meet or exceed
     the requirements listed herein.

                                       33

<PAGE>   38
               (a) Workers Compensation and Employers Liability Insurance
               required by the State of New York. Coverage shall include the
               U.S. Longshoremen's and Harbor Workers Compensation Act and the
               Jones Act.

               (b) Public Liability, covering all operations to be performed
               under this Agreement, with minimum limits of:

                   -     Bodily Injury    $1,000,000/$1,000,000
                   -     Property Damage  $  500,000/$  500,000


                         OR


                   -     Combined Single Limit       $1,000,000


                         OR


                   -     BI & PD per occurrence      $1,000,000
                   -     General Aggregate and
                         Product Aggregate           $2,000,000


     25.2 This policy shall include Contractual Liability, Products-Completed
     Operations and Explosion, Collapse and Underground (XCU) coverage. If the
     Products-Completed Operations coverage is written on a Claims-made basis,
     coverage shall be maintained continuously for at least two (2) years after
     final acceptance of the work.

     25.3 Automobile Liability, covering all owned, non-owned and hired
     vehicles used in connection with the work to be performed under this
     Contract with minimum limits of:

                   -     Bodily Injury               $300,000/$500,000

                   -     Property Damage             $100,000

                         OR

                   -     Combined Single Limit       $500,000


     25.4 Protective Liability Policy in the name of NIAGARA covering all work
     performed under the contract, with limits as specified in Section 25.1. In
     lieu of providing this coverage, TELERGY may include NIAGARA as an
     additional insured under the public liability policy to provide coverage
     for, but not limited to, the liability arising out of TELERGY's work under
     this Agreement.


                                       34
<PAGE>   39
25.5  Watercraft Liability, if the Work requires the use of watercraft, with the
same limit of liability of not less than $1,000,000 combined single limit.

25.6  Aircraft Liability, if Work requires the use of aircraft, with a limit of
liability of not less than $1,000,000 combined single limit.

25.7  At the request of NIAGARA, TELERGY shall provide Professional liability
coverage with a limit of liability to be determined by NIAGARA's Risk Management
Department.

25.8  In the event TELERGY uses subcontractors in connection with this
Agreement, it shall require all subcontractors to provide the same insurance
coverage as required in Section herein.

25.9  Prior to starting work, TELERGY shall promptly provide NIAGARA with the
original Owner's Protective Liability policy and Certificate(s) of Insurance for
all other coverages required herein at the following address:

                    Niagara Mohawk Power Corporation
                    ATTN: Risk Management/Building C-1
                    300 Erie Boulevard West
                    Syracuse, New York 13202

Such certificates, and any renewals or extensions thereof, shall provide that at
least thirty (30) days prior written notice shall be given to NIAGARA in the
event of any cancellation or diminution of coverage, except in respect of
non-payment of premiums, in which event NIAGARA shall receive ten (10) days
prior notice. Such certificate(s) of insurance shall outline the amount of
deductible or self-insured retentions which shall be for the account of TELERGY.
Such deductibles of self-insured retentions shall not exceed one-hundred
thousand (100,000) dollars unless agreed to in writing by NIAGARA's Risk
Management Department.

25.10 If any policy should be canceled prior to the period set forth in this
Agreement, and TELERGY fails immediately to procure other insurance as specified
herein, NIAGARA reserves the right to procure such insurance and to charge the
cost to TELERGY.

25.11 TELERGY shall furnish NIAGARA with copies of any accident reports sent to
TELERGY's insurance carriers covering accidents occurring in connection with or
as a result of the performance of work under this Agreement.

25.12 These requirements are in addition to any which may be required elsewhere
in the Contract. TELERGY shall comply with any governmental and/or site specific
insurance requirements even if not stated herein.


                                       35
<PAGE>   40
     25.13     Nothing contained in these insurance requirements shall be
     construed as limiting the extent of TELERGY's responsibility for payment
     of damages resulting from its work under the Purchase Order, or under this
     Agreement, or limiting, diminishing or waiving TELERGY's obligations to
     defend and save harmless NIAGARA in accordance with Section 24.

     25.14     The maintenance of the insurance hereinabove specified shall not
     limit either party's liability under this Agreement, but shall be
     additional security therefor.

     25.15     All insurance shall be effected by valid and enforceable policies
     issued by insurers of responsibility and licensed to do business in the
     State of New York, such responsibility and the insuring agreements to meet
     with the reasonable approval of NIAGARA and TELERGY.

     25.16     The limits of the policies required hereunder shall be increased
     from time to time by agreement of the parties to meet changed
     circumstances including, but not limited to, changes in the purchasing
     power of the dollar and the course of plaintiff's verdicts in personal
     injury actions; provided, however, such limits shall not be increased more
     frequently than every five (5) years.

     25.17     In recognition of the potential for changes in the insurance
     market and the availability and cost of insurance, the parties hereby
     expressly agree that, in the event that either (i) the insurance required
     of TELERGY hereunder shall cease to be available (either as to limits or
     coverages) or (ii) such insurance shall be available only at excessive
     cost, the parties shall agree upon alternative policy limits and/or
     coverages, as well as appropriate levels of self-insurance for TELERGY.

     25.18     Nothing in this Section 25 shall be construed as to prevent
     TELERGY from satisfying its insurance obligations pursuant to this
     Agreement under a blanket policy or policies or pursuant to a decision to
     self insure which meets or exceeds the requirements hereof. In the event
     of self insurance, NIAGARA shall receive from TELERGY written notification
     indicating such coverage thirty (30) days prior to implementation of self
     insurance and thirty (30) days prior to any change in such self insurance
     status.

     25.19     TELERGY shall be responsible for obtaining property insurance,
     at its own cost and expense, covering all real and personal property used
     in  connection with this Agreement, with minimum limits of liability
     customarily maintained by other Persons of similar size and business.

26   LIENS

     26.1      In the event that any property of NIAGARA shall become subject
     to any mechanics' artisan' or materialmans' liens chargeable to or through
     TELERGY, TELERGY shall promptly cause such lien to be discharged and
     released of record, by payment, posting of


                                       36
<PAGE>   41
     bond, court deposit or other means, without cost to NIAGARA and shall
     indemnify NIAGARA against all costs and expense, including reasonable
     attorneys' fees, reasonably incurred in discharging and releasing such
     lien; provided, however, that if any such lien is not so discharged and
     released within thirty (30) days after notice thereof by NIAGARA to
     TELERGY, or within such shorter period as shall be mandated under
     applicable local law, then NIAGARA may pay or secure the release or
     discharge thereof at the expense and cost of TELERGY.

     26.2 Nothing herein shall preclude TELERGY and/or NIAGARA as the case may
     be from contesting any such lien or the contract or action upon which the
     same arose after the same shall have been bonded as described above.

27   AMENDMENTS

     27.1 Each party shall be responsible for its own costs, including legal
     fees, incurred in negotiating or finalizing this Agreement.

     27.2 Neither this Agreement nor any term or provision hereof can be
     amended, waived, modified, supplemented, discharged or terminated, except
     by an instrument in writing signed by the party against which enforcement
     thereof is sought.

     27.3 This Agreement and any amendment, modification, waiver or supplement
     hereto may be executed by the parties hereto on separate counterparts,
     each of which when so executed and delivered shall be an original for all
     purposes, but all such counterparts shall together constitute but one and
     the same instrument.

28   CONFIDENTIALITY

     28.1 NIAGARA and TELERGY agree to respect the confidentiality of this
     Agreement and materials used or prepared in connection herewith, and shall
     restrict the distribution of this Agreement and all maps, material,
     documents and information identified in this Agreement as confidential,
     only to those persons designated to implement the provisions hereof and
     their respective counsels, consultants and advisors; provided, however
     that any such disclosure to persons who are not employees and counsel(s)
     of the parties shall be made only after such persons have executed a
     written agreement to be bound by the terms of this Section and shall not
     further disclose confidential information to additional persons absent
     written agreement from the parties hereto. The parties further agree that
     they shall not disclose or furnish to any third parties copies of this
     Agreement or any materials referred to herein, without the prior written
     consent of the other party hereto, except as shall be necessary in order
     to implement the provisions hereof, including the construction of the
     System, securing the necessary approvals therefor, and the financing of
     the System, and except as required by Court order

                                       37
<PAGE>   42
     or as otherwise required by law, the New York State Public Service
     Commission or any other governmental entity or in any legal proceedings
     relating to this Agreement.

     28.2 Notwithstanding to the contrary, either party shall notify the other,
     as soon as practicable, in the event that any disclosure request as
     contemplated in Section 28.1 would require disclosure of confidential
     material provided by any one party to the other hereunder and the party so
     notified shall have the right to formally dispute any such disclosure of
     such confidential material where such disclosure would unreasonably harm,
     prejudice, or destroy such party's proprietary interest, the information
     requested is not rationally related to the purpose for which such
     information is sought, or such party could submit other non-confidential
     information that could satisfy the request. Any such party may petition
     for exemption from Freedom of Information Act or other similar disclosure
     requirements, for "in camera" inspection of such confidential information,
     or for other limitations on the disclosure of confidential information.

     28.3 Neither party shall have the right to obtain any information or
     documents from the other which are not material to the provisions or
     implementation of this Agreement.

     28.4 The parties recognize that this Agreement and the materials and
     documents referred to herein, may contain information which a reasonably
     informed person would recognize as confidential, insider information which
     should be handled accordingly.

     28.5 The parties agree that in distributing copies or portions of these
     materials to person necessary to implement the same, such copies shall be
     clearly marked or indicated as "confidential" and prohibiting further
     distribution, copy or reproduction of the same.

     28.6 In the event of an actual or threatened disclosure of such
     information by either party, its agents, employees, or contractors, which
     might cause irreparable harm to the other party, it is agreed that
     monetary remedies available at all may be inadequate and, therefore, the
     aggrieved or threatened party shall be entitled to receive injunctive
     relief as an equitable remedy.

     28.7 The obligations of the parties under Section 28 shall survive the
     expiration date for a period of ten (10) years.

29   DISPUTES

     29.1 It is the intent of the parties that disputes which may arise between
     them, or between employees of each, be resolved as quickly as possible, and
     may, in certain instances, involve decisions made on the spot. When such
     resolution is not possible, and depending upon the nature of the dispute
     and the phase of installation of the Facilities and System, the parties

                                       38
<PAGE>   43
     agree to seek to resolve such disputes, insofar as they do not constitute a
     breach or default under this Agreement, in the manner set forth in this
     section.

     29.2      Questions as to the right of access to the Right-of-Occupancy
     within a Right-of-Way during design, planning, construction, installation,
     maintenance and operational phases, or access to or copies of NIAGARA's
     documents, shall in all instances be referred initially to the designated
     or authorized representative of NIAGARA, which representative shall render
     such decision within a reasonable period. Decisions of such designated or
     authorized representative shall be referable by TELERGY to NIAGARA's
     Engineer.

     29.3      Any other dispute between the parties shall be referred
     initially to NIAGARA's Engineer for decision, which shall be rendered in
     writing within a reasonable period time.

     29.4      The parties agree that neither shall proceed against the other
     by litigation or otherwise before the offending party has had notice of and
     reasonable time and opportunity to respond to and/or cure any breach or
     default hereunder.

     29.5      TELERGY agrees to give testimony or depositions, either in court
     or before other tribunals in connection with any matters covered by this
     Agreement.

30   COVENANTS OF THE PARTIES

     30.1      Except as otherwise provided, each of the parties represents,
     warrants and covenants to the other that: (i) it has full right and
     authority, including any requisite corporate approvals, to enter into and
     to perform its respective obligations under this Agreement; (ii) the
     execution of this Agreement is not violative of its charter, by-laws or
     any laws or regulation by which it is bound or to which it subject; (iii)
     no litigation or governmental proceeding is pending or threatened which
     might adversely affect this Agreement, the transactions contemplated by
     this Agreement, or the rights of the parties hereunder.

31   PUBLIC SERVICE COMMISSION APPROVAL REQUIRED

     31.1      TELERGY's and NIAGARA's performance under this Agreement are
     contingent upon approval by the NIAGARA Board of Directors and a favorable
     determination by the New York Public Service Commission and any authorized
     Federal or State agency, from which determination TELERGY shall not seek
     appellate review, absent NIAGARA approval, which shall not be withheld
     unreasonably.

     31.2      In the event that the necessary regulatory approvals are not
     obtained, either party shall have the option of terminating this Agreement
     on or before July 31, 1996 by written notice to the other party pursuant
     to the Notice provisions set forth in Section 28.


                                       39
<PAGE>   44
32    MISCELLANEOUS PROVISIONS

      32.1 Entire Agreement and Modification. This Agreement constitutes the
      entire agreement between the parties pertaining to the subject matter
      hereof and supersedes all prior and contemporaneous agreements and
      understanding of such parties in connection herewith. It may not be
      modified or amended nor may any obligation of either party be changed or
      discharged except in writing signed by the duly authorized officer or
      agent of the party to be charged. Notice of changes in any applicable
      tariffs will be provided in accordance with Section 24. Currently
      effective Right-of-Occupancy or Licenses, if any, issued pursuant to
      previous agreements shall remain in effect as if issued pursuant to this
      Agreement.

      32.2 Choice of Law. This Agreement shall be governed by, and interpreted
      according to, the laws of the State of New York, without giving effect to
      the principles of conflicts of law. No claim, demand, action, proceeding,
      arbitration, litigation, hearing, motion or lawsuit arising from, related
      to, or connected with this Agreement shall be commenced or prosecuted in
      any jurisdiction other than courts in the State of New York, and any
      judgment, determination, order, finding or conclusion reached in any other
      jurisdiction shall be null and void between the parties hereto.

      32.3 Consents. No consent or approval required of any party pursuant to
      this Agreement shall be unreasonably withheld or delayed.

      32.4 Construction of Agreement. The Section headings in this Agreement and
      the Table of Contents hereof are for convenience of reference only and
      shall neither be deemed to be a part of this Agreement nor modify,
      define, expand or limit any of the terms or provisions hereof. All
      references to numbered Sections, unless otherwise indicated, are to
      Sections of this Agreement. Words and definitions in the singular shall
      be read and construed as though in the plural and vice versa, and words
      in the masculine, neuter or feminine gender shall also be read and
      construed as though in either of the other genders.

      32.5 No Waiver. Any waiver by either party at any time of any of its
      rights as to anything contained herein shall not be deemed to be a waiver
      of the same or similar right at a subsequent time. The failure of any
      party to seek redress for violation of or to insist upon the strict
      performance of any covenant or condition of this Agreement shall not
      prevent a subsequent act, which would have originally constituted a
      violation, from having the effect of any original violation.

      32.6 Force Majeure. Any failure of either party to perform its
      obligations under this Agreement shall not be a breach of this Agreement
      if such failure results from Acts of God, governmental action that did
      not result from wrongdoing by the party involved in such governmental
      action, or labor strikes that could not reasonably be avoided by the
      party subject to such labor strike.

                                       40
<PAGE>   45
     32.7  Remedies.  The rights and remedies provided by this Agreement are
     cumulative and the use of any one right or remedy by any party shall not
     preclude or waive its right to sue on any or all other remedies. Said
     rights and remedies are given in addition to any other rights such party
     may have by law, statute, ordinance or otherwise, except as such remedies
     are expressly limited in this Agreement.

     32.8  Severability.  Any provision of this Agreement which is invalid,
     illegal or unenforceable in any manner in any jurisdiction shall be, as to
     such jurisdiction, ineffective to the extent of such invalidity,
     illegality or unenforceability without in any ways affecting the validity,
     legality or enforceability of the remaining provisions hereof, and any
     such invalidity, illegality or unenforceability in any jurisdiction shall
     not invalidate or in any way affect the validity, legality or
     enforceability of such provision in any other jurisdiction.

     32.9  Compliance.  NIAGARA and TELERGY shall at all times observe and
     comply with the provisions of this Agreement, and such provisions are
     subject to all laws, ordinances, contracts and regulations which in any
     manner affect the rights and obligations of the parties herein.

     32.10  No Merger.  There shall be no merger of this Agreement or the
     Rights-of-Occupancy hereby granted with the fee estate in a Right-of-Way
     by reason of the fact that this Agreement, and the Rights-of-Occupancy
     created by this Agreement, or any interest in this Agreement or in any
     such Rights-of-Occupancy, may be held, directly or indirectly, by or for
     the account of any person who shall own the fee estate in a Right-of-Way
     or any interest in such fee estates, and no such merger shall occur unless
     and until all persons having an interest in this Agreement, and in the
     Rights-of-Occupancy created by this Agreement, shall join in a written
     instrument effecting such merger and shall duly record the same.

     32.11  Binding Agreement.  Subject to Section 16.2, the provisions of this
     Agreement shall be binding upon and shall inure to the benefit of the
     parties hereto and their respective heirs, successor, and assigns.

     32.12  Acts In Furtherance Of Agreement.  NIAGARA and TELERGY each agree
     to do such other and further acts and things, and to execute and deliver
     such additional instruments and documents, not creating any obligations,
     or imposing any expenses, additional to those otherwise created or imposed
     by this Agreement, as either party may reasonably request from time to
     time whether at or after the execution of this Agreement, in furtherance
     of the express provisions of this Agreement.

     32.13  Drug And Alcohol Abuse Policy.  TELERGY personnel, its agents and
     contractors shall be fit for duty at all times during their performance of
     any activities pursuant to this Agreement, and shall not be under the
     influence of alcohol or drugs. TELERGY's personnel, agents and contractors
     shall not bring, use, distribute, sell or possess alcoholic beverages or
     illegal drugs during the performance of any activities on NIAGARA
     property. TELERGY

                                       41
<PAGE>   46
     shall not assign any individual who is in violation of this policy to
     perform and activities pursuant to this Agreement, and if TELERGY
     discovers any individual is in violation of these requirements, it shall
     immediately remove any such person from the performance of activities
     and/or NIAGARA property. Violation of these requirements by TELERGY
     personnel, agents and contractors shall result in denial of access to
     NIAGARA property, facilities and equipment and, in the case of possession,
     use or sale of illegal drugs, shall be reported to NIAGARA's Security
     Department immediately.

     32.14     Intellectual Property Sole Property of Niagara. All information,
     analyses, conclusions, reports, drawings, specifications ("Information")
     developed, obtained, or prepared by either party pursuant to this
     Agreement shall be the sole property of NIAGARA, provided however that
     Working Drawings developed and prepared by TELERGY shall be the sole
     property of TELERGY subject to the Confidentiality Provisions set forth in
     Section 28 herein.

     32.15     Patent, Copyright and Trademark Infringement. All royalties for
     any patent, invention, article, name, symbol, logo or arrangement that may
     be furnished by TELERGY and used or embraced in TELERGY Facilities shall be
     paid solely by TELERGY. TELERGY shall protect and save harmless NIAGARA
     against any and all claims, demands, proceedings, judgments, orders and
     costs, including legal fees and disbursements, on account of any such
     royalty or fee and shall pay all judgments against NIAGARA resulting
     therefrom before they become enforceable liens against NIAGARA property.
     Should any suits for infringement of patents, copyrights or trademarks be
     brought against NIAGARA, TELERGY shall give a bond in amount and with
     sureties satisfactory to NIAGARA to indemnify NIAGARA against any
     judgments, costs, and attorneys' fees and disbursements. Should any
     injunction be threatened or issued, TELERGY shall promptly secure
     dissolution thereof by giving bond or otherwise or, a NIAGARA's option,
     shall promptly cease use of the article, arrangement, invention, name or
     logo that is subject to such dispute.

33   ENVIRONMENTAL HAZARD LIABILITY

     33.1      Upon TELERGY's furnishing to NIAGARA appropriate plans and
     drawings of its planned facilities and the allowance of a reasonable
     amount of time for NIAGARA to review such plans, NIAGARA agrees to
     promptly inform TELERGY of any such hazardous or toxic waste areas,
     whether or not designated as such by the Environmental Protection Agency
     or any other similar federal, state or local authority, of which NIAGARA's
     Environmental Affairs Department, Syracuse, New York, has knowledge of or
     of which such Department may subsequently learn with respect to the
     Backbone Route. If such hazardous or toxic waste areas are located on land
     owned by NIAGARA in fee, NIAGARA agrees to defend, indemnify and hold
     TELERGY harmless from any and all claims, fines and actions arising out of
     the existence of any such hazardous or toxic waste areas or the obligations
     which may now or hereafter be imposed, statutory or otherwise, to remove
     therefrom or otherwise neutralize or contain, any such toxic or hazardous
     substances, unless such liability is: (i) created by a


                                       42
<PAGE>   47
     release by TELERGY or its agents, employees, contractors or subcontractors
     of a toxic or other hazardous substance into the environment, (ii) created
     by TELERGY's or its agents', employees', contractors', subcontractors'
     disturbance of a pre-existing condition within the Right-of-Way of which
     TELERGY had knowledge provided that NIAGARA shall disclose to TELERGY all
     such pre-existing conditions within the Backbone Route known to NIAGARA,
     or (iii) created by TELERGY's or its agents', employees', contractors' or
     subcontractors' disturbance of a pre-existing condition within the
     Right-of-Way where the condition was not previously known by NIAGARA.

     33.2  No Toxic Materials. TELERGY shall not place any material on
     NIAGARA's Right-of-Way or facilities that is recognized by appropriate
     governmental authority as toxic/hazardous material, equipment and waste.

     33.3  In the event TELERGY discovers, or has knowledge of hazardous or
     toxic waste areas, whether or not designated as such the Environmental
     Protection Agency or any other similar federal, state or local authority,
     it shall immediately stop work if discovered during construction, and
     notify the designated representative of NIAGARA's Environmental Affairs
     Department in Syracuse, New York.

     33.4  NIAGARA also agrees to promptly inform TELERGY of any other uniquely
     sensitive and protected environmental resources along the Backbone Route
     which is known to NIAGARA's Environmental Affairs Department, Syracuse,
     New York.

     33.5  In the event any such hazardous or toxic waste areas or any other
     regulated environmental resources (including, but not limited to regulated
     wetlands, protected streams, navigable waters, rare, threatened,
     endangered or protected species or species habitats, sensitive
     archaeological sites, etc.) are identified with respect to the Backbone
     Route, their location shall be included on the "As Built Drawings"
     furnished to NIAGARA in accordance with Section 12.1 of this Agreement.

34   EQUAL EMPLOYMENT OPPORTUNITIES

     34.1  The provisions of the following laws, Executive Orders, and any
     rules and regulations issued thereunder, are incorporated herein by
     reference as part of the Agreement:

               (a)  Paragraphs one (1) through seven (7) of Section 202 of
               Executive Order 11246, as amended, relating to equal opportunity
               in employment under government contracts and subcontracts;

               (b)  Section 2012 of Title 38 of the United States Code and
               Executive Order 11701, as amended, relating to affirmative action
               obligations of


                                       43
<PAGE>   48
           government contractors and subcontractors for disabled veterans and
           veterans of the Vietnam era;

           (e) Section 03 of the Rehabilitation Act of 1973, and Executive Order
           1178, as amended, relating to affirmative action obligations of
           government contractors and subcontractors for handicapped workers;
           and

           (d) The Human Right Law of the State of New York (Article 1 of the
           Executive Law).

34.2  The parties agree to fully comply with such provisions, and any
amendments thereof. In addition, all subcontractors and agreements that the
parties enter into to accomplish the work under the terms of this Agreement
shall obligate such subcontractors to comply with such provisions.

34.3  FEDERAL SUBCONTRACTING REQUIREMENTS

           (a) The provisions of the following laws, Executive Orders, and any
           rules and regulations issued thereunder, are incorporated herein by
           reference as part of this Agreement;

           (b) Executive Order 1162, as amended, relating to utilization of
           minority business enterprises in the performance of government
           contracts and subcontracts;

           (c) Executive Order 12138, as amended, relating to utilization of
           women-owned businesses in the performance of government contracts and
           subcontracts; and

           (d) Section 211 of Public Law 9-07, as amended, relating to
           utilization of small business concerns and small disadvantaged
           business concerns in the performance of government contracts and
           subcontracts.

           (e) The parties agree to fully comply with such provisions and any
           amendments thereof. In addition, all subcontracts and agreements
           the parties enter into to accomplish the work under the terms of this
           Agreement shall obligate such subcontractors to comply with such
           provisions.

                                       44
<PAGE>   49
35         AUDIT AND MAINTENANCE OF RECORDS

           35.1  At TELERGY's expense, NIAGARA has the right, upon ten (10) day
           written notice to TELERGY, to audit TELERGY's books and records at
           the location where such books and records are maintained insofar as
           they pertain to the terms and conditions of this Agreement. The
           audits will be performed during normal business hours 9:00 a.m. to
           5:00 p.m., Monday through Friday. Such audits may be performed by
           NIAGARA's employees or by professional auditing firms or both.

36         WARRANTIES

           36.1  NIAGARA makes no representation as to the full continuity of
           its Backbone Route or Spur Route Rights-of-Way. TELERGY recognizes
           that NIAGARA acquired some portions of its Rights-of-Way many years
           ago prior to the personal knowledge of existing NIAGARA employees,
           and for that reason, NIAGARA cannot warrant that it has complete
           title in fee simple, easement or otherwise. NIAGARA will make
           available to TELERGY for its review all agreements and other
           documents in NIAGARA's possession in respect of NIAGARA's right,
           title and interest in and to its Backbone Route and Spur Route
           Rights-of-Way. In the event that TELERGY shall determine in its
           reasonable judgment that any part or all of NIAGARA's right, title
           and interest in and to its Rights-of-Way shall be inadequate for use
           in conjunction with the transaction contemplated hereby, NIAGARA at
           its option may take, at TELERGY's expense, such action as TELERGY
           determines to be necessary to correct such inadequacies. Further,
           NIAGARA will at all times following execution of this Agreement and
           during the term of Agreement provide such cooperation and assistance
           as TELERGY may reasonably request in respect of issues or problems
           regarding use of the NIAGARA Rights-of-Way for the purposes
           contemplated herein.

           36.2  TELERGY warrants that the Facilities connected with, necessary
           for, or useful, to the NIAGARA Capacity provided for in Section 13
           shall be operational and functional on or before the dates specified
           in Section 9.5 herein.

           36.3  TELERGY acknowledges that all work, including but not limited
           to any construction and maintenance activities, to be performed in
           connection with this agreement poses great hazards to human beings
           and personal property. TELERGY warrants that it will make its
           employees, agents and contractors aware of these hazards as well as
           the potential consequences associated with exposure to these hazards.
           Furthermore, TELERGY warrants that it has full responsibility for any
           and all injury and damages to persons or property resulting from
           these hazards and any failure by TELERGY to advise its employees,
           agents or contractors as required herein.

                                       45
<PAGE>   50
37   SURVIVAL

     37.1 The provisions of this Agreement shall survive granting of the
     Rights-of-Occupancy provided for herein and delivery of this Agreement for
     recording, if such recording is necessary to effectuate the rights granted
     herein.

38   END-OF-TERM

     38.1 At the expiration of the Term, TELERGY shall remove its Facilities
     excluding any buried cable(s), conduit, buried appurtenances associated
     with the cable installation (but does not include building foundations/
     structures), or any other material and/or equipment as outlined in Section
     12A, from the Right-of-Occupancy and restore any material damage resulting
     from such removal.

     38.2 Except for the NIAGARA Capacity, NIAGARA acknowledges, confirms and
     agrees that all of the Facilities at any time and from time to time
     installed by or on behalf of TELERGY within the Backbone Route or Spur
     Route Rights-of-Way shall at all times be and remain personal property of
     TELERGY regardless of the manner or mode of installation thereof and shall
     at all times during and within a reasonable period after the expiration of
     the Term be removable by TELERGY with the exception of any F.O.G. Wire,
     which, at TELERGY's option may either be removed and replaced with a Static
     Wire at TELERGY's expense or abandoned in place.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate on the date and year first above written.

Date:    2/2/96                                    /s/ E. J. Dienst
     --------------------                ---------------------------------------
                                         NIAGARA MOHAWK POWER CORP.

                                         By:           E. J. Dienst
                                            ------------------------------------

                                         Title:     VP - Electric Delivery
                                               ---------------------------------

Date:   2/2/96                           ---------------------------------------
     --------------------                TELERGY JOINT VENTURE

                                         By:       /s/ Brian Kelly
                                            ------------------------------------

                                         Title:         C.E.O
                                               ---------------------------------

                                       46