Document:

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                                                                   EXHIBIT 10.5

                          RIGHT-OF-OCCUPANCY AGREEMENT

This Right of Occupancy Agreement, made as of the 10th day of June, 1998,
between NEW YORK STATE ELECTRIC & GAS CORPORATION, a corporation organized and
existing under the laws of the State of New York, having offices for the
transaction of business at 4500 Vestal Pkwy East, Binghamton, New York 13902
(hereinafter called "NYSEG") and TELERGY East, LLC, organized and existing under
the laws of the State of New York, having offices for the transaction of
business at One Telergy Parkway, East Syracuse, New York 13057 (hereinafter
called "TELERGY East").

      In consideration of the sum of one dollar lawful money of the United
States of America by each in hand paid to the other, receipt of which is hereby
acknowledged, and of the mutual promises and covenants contained herein, TELERGY
East and NYSEG intending to be bound, agree as follows:

                                    ARTICLE I
                               SCOPE OF AGREEMENT

      Subject to the terms and conditions of this Agreement, NYSEG hereby grants
to TELERGY East for its own use, unless otherwise provided pursuant to the terms
of this Agreement, anon-exclusive Right-of-Occupancy, revocable only in
accordance with the terms and provisions of this Agreement, to install TELERGY
East's Backbone Network, Spurs and Facilities using NYSEG's Rights-of-Way,
poles, towers, abandoned gas and propane pipeline, Conduit and ducts
(hereinafter collectively "Right-of-Way"), which specific Right-of-Way shall be
defined by the parties as set forth in this Agreement; provided, however, NYSEG
shall apportion to TELERGY East only such real property rights that it currently
has or subsequently acquires and which it can lawfully apportion or, in the case
where NYSEG owns its rights-of-way in fee, such grants to TELERGY East as may be
legally permissible) to TELERGY East and the rights to be apportioned and/or
granted to TELERGY East are personal to TELERGY East and are not transferable or
re-apportionable by TELERGY East and shall not inure to the benefit of TELERGY
East's successors and assigns, except as provided in the LLC Operating Agreement
of even date or with the prior written consent of NYSEG (and, if necessary, the
consent of the Public Service Commission), it being the specific understanding
of the parties that the rights to be apportioned hereunder are being apportioned
and/or granted by NYSEG to TELERGY East in the nature of a quitclaim transfer
and that TELERGY East and not NYSEG shall bear the risk that Telergy East is
legally entitled to enter upon, occupy and use NYSEG Rights-of-Way, poles,
towers, Conduits, ducts and abandoned gas and propane air pipelines for the
purposes stated herein, and that TELERGY East specifically agrees to indemnify
NYSEG for all damages, costs, fees, penalties, including reasonable attorney
fees, and for any punitive or exemplary damages that might be imposed as a
result of the occupancy by TELERGY East of NYSEG Rights-of-Way, poles, towers,
Conduits, ducts and abandoned gas and propane air pipelines pursuant to this
Agreement; and further provided, that any new Right-of-Way, poles, towers,
Conduits, ducts or additional abandoned gas or propane air

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pipelines that NYSEG may in the future obtain, possess or control shall also
become subject to the terms of this Agreement.

                                   ARTICLE II
                                   DEFINITIONS

      "Agreement" shall mean this Right-of-Occupancy Agreement entered into
herein between NYSEG and TELERGY East 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.

      "Approved Plans" shall mean plans which have been reviewed and approved by
NYSEG.

      "Backbone Network" shall mean the initial path of the Fiber Optic Network
between Binghamton and Auburn, including cable of approximately 100 strands to
be installed overhead pursuant to this Agreement, which will connect to the
Ithaca and Binghamton and other Spurs,. primarily using NYSEG poles and towers.

      "Bankruptcy" with respect to any principles of TELERGY East or NYSEG shall
mean the happening of any of the following:

      A. The filing of an application for, or consent to, the appointment by a
Federal District Court of a Trustee over all or substantially all of its assets;

      B. The filing of a voluntary petition in bankruptcy or the filing of a
pleading in any court of record admitting in writing its inability to pay its
debts as they become due;

      C. The making of a general assignment for the benefit of creditors;

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

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

      "Binghamton Spur" shall mean a Spur off the Backbone Network to be
constructed and installed in NYSEG Right-of-Way to a point at or near [***].

      "Conduit" shall mean an individual pipe, tube or duct forming an enclosed
raceway for cable and/or conductors, also referred to as "duct," which may be
owned by NYSEG or installed by TELERGY East in NYSEG Right-of-way along its
electric or gas distribution or transmission systems and which may contain
multiple innerducts; provided, however, natural gas and/or propane air
pipelines, except abandoned gas or propane air lines, shall not be considered to
fall within the

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CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
      on this page. The omitted portions have been filed separately with the
      Securities and Exchange Commission.
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definition of a Conduit and further provided, however, that Rights-of-Way along
the path of natural gas and propane air pipelines shall fall within the
definition of "Right-of-Way."

      "Cornell Project" shall mean an ADSL resale application and any necessary
extension off the Backbone Network that may be required to be installed in NYSEG
Right-of-Way or Facilities in connection with Telergy's provisioning of ADSL
services.

      "Easement" shall mean an easement in gross and/or the highest lesser real
property Right- of-Occupancy or use permitted to be apportioned or granted to
Telergy So Tier and which shall be consistent with the nature of NYSEG 's
interest in and to its Rights-of-Way.

      "Electric Towers" shall mean metal and/or wood structures used for the
attachment of electrical transmission lines.

      "Entry Notice" shall mean such notice as set forth in Paragraph 6.10.

      "Facilities" when applied to property of or installed by or on behalf of
TELERGY East in, on, upon, under, across, along and through the
Right-of-Occupancy shall mean any transmission systems designed to carry
communications traffic and include Conduit installed by Telergy East,
innerducts, trace wire, 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 Fiber Optic Network.

      "Fiber Optic Network" shall mean the TELERGY East network, including the
Backbone Network and an spurs, loops or extensions thereto excluding the Cornell
Project, whether heretofore or hereafter conceived, invented or developed, which
primarily utilizes optical fiber as the medium for transmitting voice
communications and/or other information or data and which is located within
NYSEG's Right-of-Way utilized under this Agreement, excluding the Cornell
Project.

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

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

      "Ithaca Spur" shall mean an extension off the Backbone Network to be
constructed and installed in NYSEG Right-of-Way connecting to Cornell and
extending on to connect two points at or near Bell Atlantic POPS.

      "TELERGY East" shall mean the limited liability company, which is a party
to this Agreement and is granted permission by NYSEG in accordance with the
terms and conditions of this Agreement to place its Fiber Optic Network and
Facilities using NYSEG 's Right-of-Way and which is responsible for compliance
with NYSEG 's regulations and/or standards as well as all legal and other
regulatory or governmental rules, regulations and orders in performing
activities contemplated by this Agreement.

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      "Make-Ready Work" shall mean all work including but not limited to the
rearrangement of existing facilities, rodding of duct, and similar installation
required to accommodate the installation of TELERGY East's Backbone Network and
spurs, loops or extensions thereto, including the Cornell Project, in accordance
with this Agreement.

      "NYSEG " shall mean New York State Electric and Gas Corporation, which is
a party to this Agreement.

      "NYSEG Capacity" shall mean the dark fiber strands set forth below in
Article 5.1, which dark fiber shall be provided to by TELERGY East in
consideration for the Right-of-Occupancy conferred by this Agreement.

      "NYSEG Standards" shall mean all rules, regulations and procedures that
shall govern Telergy East's activities under this Agreement, which standards
shall be attached hereto as Exhibit "A".

      "NYSEG System" shall mean NYSEG's Right-of-Way and electric, natural gas
and propane air transmission and distribution systems.

      "Pre-Construction Survey" shall mean the work operations to be performed
in order to process an application for a Right-of-Occupancy to the point just
prior to performing any necessary Make-Ready Work. There are three elements of
Pre-Construction Survey:

      A. engineering (planning) record search to determine span capacity of
conduit or gas system,

      B. field inspection of the existing facilities to verify available space
and determine Make-Ready Work order, and

      C. administrative effort required to process the application and prepare
Make-Ready Work order.

      "Property Drawings" shall mean the NYSEG Right-of-Way drawings, plan and
profile drawings for the use of Right-of-Way within which TELERGY East has been
granted a Right-of-Occupancy, in accordance with the terms and conditions of
this Agreement.

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

      "Right of Occupancy" shall mean Telergy East's right to place its Fiber
Optic Network and Facilities for the Backbone Network and any spurs, loops or
extensions thereto including the Cornell Project in NYSEG's Right-of-Way as
defined below in accordance with and as defined by the terms and conditions of
this Agreement. A Right-of-Occupancy under this Agreement shall not provide
TELERGY East with any ownership interest in NYSEG 's real property or
Right-of-Way.

      "Right-of-Way" shall mean the area of NYSEG-owned, -operated, or
-controlled property for an electric or gas distribution or transmission line,
Conduit, pole, tower, or facilities, abandoned

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gas and propane pipeline and other NYSEG gas or electric as well as access to
Rights-of-Way or easements along the path of any NYSEG natural gas or propane
air pipeline as well as access to Rights-of-Way that may be acquired by NYSEG
within and outside of New York State subsequent to the date of this Agreement.

      "Spur" shall mean any extension off the Backbone Network, and shall
include laterals, loops and spurs constructed or installed in NYSEG's
Right-of-Way, excluding the Cornell Project.

      "System" shall mean Telergy East's Fiber Optic Network, as is heretofore
or hereafter conceived, invented or developed by TELERGY East, 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.
"Term" shall mean the Initial Term and any extensions thereof.

      "Tower Sites" shall mean those areas on the Right-of-Way on which towers
or earth satellites are located.

      "Working Day" shall mean any day other than a Saturday, a Sunday or a
Federal or New York State holiday.

                                   ARTICLE III

                         RIGHT-OF-OCCUPANCY DESIGNATION

      3.1 For an initial term of twenty-five (25) years, NYSEG hereby grants to
TELERGY So-Tier Right-of-Occupancy in, on, upon, under, across, along and
through (hereinafter collectively referred "within") its Right-of-Way, the
precise locations and path of which will be determined as set forth herein, for
the construction, installation, operation, maintenance, repair, replacement,
relocation, reinstallation and removal therein, thereon, thereover, thereunder
or therefrom of a Fiber Optic Network, including the installation of the
Backbone Network, Spurs and the Cornell Project as well as related equipment or
Facilities, in accordance with the terms and conditions of this Agreement. NYSEG
hereby grants TELERGY East, its successors and assigns, the right and option to
extend the Initial Term of this Agreement in its entirety or with respect to all
or any portion of the system, from the date upon which it would otherwise expire
for up to two (2) consecutive Extension Periods of ten (10) years each.

      Nothing in this Agreement permits the installation of more than one
System, except when making necessary repairs, including cable replacement. The
aforesaid grants shall constitute Rights-of-Occupancy burdening the Right-of-Way
to the extent set forth in this Agreement. Nothing herein shall be construed as
to obligate NYSEG in any way to acquire any Rights-of-Way or other interests for
TELERGY East, provided, however, that NYSEG agrees to provide Telergy East with
access to any available Rights-of-Way that NYSEG may subsequently acquire in
accordance with the terms and conditions of this Agreement.

      Although TELERGY East shall be entitled to additional Right-of-Occupancy,
in accordance with the terms and conditions of this Agreement for its Spurs
supplementing the Backbone Network

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and the Cornell Project as desired by TELERGY East for the design, engineering,
construction, installation, operations, maintenance, repair, replacement,
relocation reinstallation and removal therein, thereon, thereover, thereunder or
therefrom of Spur, including the installation of fiber optic cable and related
equipment for any Spurs, the precise path of the Spurs shall be mutually decided
by the parties.

      TELERGY East shall have the right, in accordance with the terms and
conditions of this Agreement, either upon the original installation or
subsequently where necessary, to install multiple fiber optic cables within
Right-of-Way contemplated herein along the Backbone Network, Spurs or portions
thereof and the Cornell Project to accommodate additional capacity requirements,
provided that available space exists for such multiple fiber optic cables.

      Where TELERGY East desires to construct the Fiber Optic Network in areas
where NYSEG does not possess a fee simple interest in the property which contain
its electric towers, NYSEG in such cases, hereby apportions such rights as it
has to Telergy East, in accordance with the terms and conditions of this
Agreement: (i) to construct the System and the Cornell Project in the NYSEG
Right-of-Way and (ii) to negotiate with the fee simple owners. The parties
understand that TELERGY East is not obligated to construct any particular area
and may decide to use non-NYSEG Rights-of-Way or facilities in certain
locations. TELERGY East desires, but is not obligated to construct all or any
portion of the System within any Right-of-Way along the NYSEG Right-of-Occupancy
contemplated by this Agreement.

      The Right-of-Occupancy granted herein shall be non-exclusive, and shall be
subordinated to all existing easements, rights, privileges, licenses, or grants
or whatever nature heretofore given by NYSEG, which now exist and which affect
the property NYSEG, including but not limited to drainage rights, streets,
roadways, telephone lines, underground conduits, sewers, manholes, pipes or
right-of-way. Provided further, and notwithstanding the other provisions of this
Agreement, the parties recognize that NYSEG has the legal obligation to provide
non-discriminatory access to all telecommunications providers and, as such,
TELERGY East's Right-of-Occupancy to NYSEG Rights-of-Way, poles, towers,
conduits, ducts and abandoned gas and propane air pipelines shall not be
exclusive, however NYSEG shall not grant any third party rights to utilize
Rights-of-Way that interferes with Telergy East's rights hereunder. If other
telecommunications providers request access to NYSEG's Rights-of Way, for a
particular NYSEG route for which TELERGY East has not already requested such
access and agreed to pay the fees as set forth in Paragraph 5.1, then NYSEG
reserves the right to grant any such other telecommunications provider to
NYSEG's facilities, even if in granting such access, NYSEG would no longer have
any space available on that particular route to permit further or additional
telecommunication construction on that particular route. Further installation of
Facilities shall be permitted only insofar as such installations meet with all
legal, regulatory or governmental requirements and NYSEG Standards.

      3.2 NYSEG shall provide at its own expense one set of all reasonably
requested copies of its Property Drawings with available indices for the
designated path of the Backbone Network, any Spurs or the Cornell Project.
Furnishing such drawings or materials however shall not be a guarantee of the
accuracy or completeness by NYSEG, and TELERGY East agrees to hold NYSEG
harmless from any claims by Telergy East or its agents arising from the
inaccuracy or completeness of such drawings or materials.

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      3.3 NYSEG shall permit TELERGY East's employees, agents and contractors to
enter Right-of-Way for the Backbone Network, any Spurs, and the Cornell Project
on reasonable prior notice, which notice shall not be required to given more
than three (3) business days 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 East to prepare plans for the location of Backbone
Network, Spur, or the Cornell Project within any Right-of-Way and to determine
the engineering and cost consideration with respect to construction of the
System therein.

      NYSEG shall also provide TELERGY East reasonable access to available title
documentation within NYSEG 's possession with respect to the Backbone Route and
any Spurs, including easements or occupancy rights, if any, heretofore granted
within any portion of such Right-of-Way, including any third-party rights, and
other existing agreements with respect to the Right-of-Way and/or restrictions
on NYSEG's right to use and occupy the same for the purposes intended by this
Agreement, including without limitation, utility crossings.

      NYSEG shall further provide TELERGY East reasonable access to maps and
other documentation within NYSEG's possession as may be sufficient to describe
the identity and location of other users of the portions of the Backbone
Network, any Spurs, or the Cornell Project, which TELERGY East may have under
consideration for the installation or replacement of the System. If known to
NYSEG, it shall notify TELERGY East of any outstanding adverse claims that have
been or are made affecting any Rights-of-Way for which a Right-of-Occupancy has
or may be granted and in which TELERGY East has identified for its use under
this Agreement.

      3.4 Within ten (10) days of the date of this Agreement, NYSEG will provide
to TELERGY East standard written engineering guidelines for construction plans
and standard guidelines for determining position and location of TELERGY East `s
Facilities. Any material deviations from such standard guidelines shall be
subject to the written approval of NYSEG .

      3.5 The parties intend that to the extent it is reasonable and in
accordance with applicable legal requirements, where TELERGY East installs fiber
optic cable underground, it will place the cable near the perimeter of the
Right-of-Way and the parties agree to work closely and reasonably to select a
preferred route for the Right-of-Occupancy within any Right-of-Way.

      3.6 NYSEG agrees to participate with TELERGY East in a joint review of the
preliminary route designation plans for the 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. Based upon such preliminary plans, physical inspections and other
engineering data available to TELERGY East, it shall prepare and submit to NYSEG
one (1) set of construction plans ("Working Drawings") for the System, which may
be submitted either for the entire System or for designated Spurs. Working
Drawings shall be submitted by TELERGY East to NYSEG 's Engineering Department
not less than ten (10) days prior to TELERGY East's anticipated initiation of
construction.

      Following each submission of such Working Drawings, NYSEG shall approve
the same in whole or in part or raise any bona fide objections thereto in whole
or in part which shall be stated in

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writing and shall include reasonable detail of any necessary modifications
provided however, that NYSEG's approval shall be in accordance with the
provisions of Article I and Paragraph 3.1. For purposes of this Agreement, a
"bona fide objection" shall include any condition that will cause the
unreasonable interference with NYSEG 's operations, pose an unreasonable hazard
to NYSEG 's personnel, properties or facilities, or unreasonably limit the use
of the Right-of-Way by NYSEG for power or gas transmission or distribution
purposes. NYSEG agrees to review Working Drawings and to approve or raise bona
fide objections thereto as soon as reasonably practical, but in no event later
than five (5) days following receipt of each submission in NYSEG 's Engineering
Department. Upon receipt of any such objections, TELERGY East shall either: (i)
correct the Working Drawings in respect of which such objections were noted by
making appropriate changes thereto, or (ii) advise NYSEG of any technical
problems that may impede TELERGY East's ability to make the changes, and, in
either event, shall resubmit them to NYSEG.

      Notwithstanding anything herein to the contrary, due to the accelerated
construction requirements of the installation of the Backbone Network, the
parties agree to exercise their best efforts consistent with NYSEG 's public
service responsibilities to assure all Working Drawings for the Backbone Network
are reviewed and approved by NYSEG no later than [***], and to ensure that
Working Drawings for the Cornell Project are reviewed and approved by NYSEG no
later than [***].

      Procedures and schedules for any necessary F.O.G. Wire installations on
the Backbone Route will be developed jointly by NYSEG and TELERGY East, and each
will exercise their best efforts to assure that all F.O.G. Wire installation(s)
are completed as soon as practical.

      In addition to the Right-of-Occupancy apportioned or granted by NYSEG as
described in this Articles I and III, NYSEG shall apportion or grant to TELERGY
East, in accordance with the terms of this Agreement, Rights-of-Occupancy at
each Regenerator or Junction, at locations along the path of the Backbone
Network, any Spurs or the Cornell Project, the precise location of which shall
be mutually approved, for the installation, maintenance, operation, repair,
replacement and removal, at TELERGY East's sole cost and expense, of utilities
required to service the System including auxiliary and primary power sources and
water and sewer lines, for the use of TELERGY East. In furtherance of the
foregoing, and when required by the utility company or municipality providing
such services, NYSEG shall grant appropriate access and/or Right-of-Occupancy
within the Right-of-Way, to the extent NYSEG's Right-of-Way Agreements permit
the apportionment or grant of such access, to such utility company and/or
municipality. Power sources installed by TELERGY East shall meet all applicable
National Electrical Codes, and NYSEG regulatory and local-ordinance
requirements.

                                   ARTICLE IV
                         SITES FOR NON-CABLE FACILITIES

      4.1 As requested by TELERGY East, NYSEG, where franchised, reasonable and
in accordance with any applicable NYSEG Agreements, shall provide TELERGY East
at the Regenerator Sites, metered electric service in accordance with all
applicable tariffs (including any duty that TELERGY East may have to pay the
cost of any such Facilities that exceeds the cost of

CONFIDENTIAL
[***] Confidential treatment has been requested with respect to material omitted
      on this page. The omitted portions have been filed separately with the
      Securities and Exchange Commission.

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what NYSEG may be required to provide pursuant to its tariff free of charge),
the cost of which shall be paid by TELERGY East.

      4.2 TELERGY East shall be entitled, in accordance with the terms and
conditions of this Agreement, to install its Regenerator Facilities for its
System or the Cornell Project, along Rights-of-Way; provided, however that no
Regenerator facility shall be located on any portion of such Rights-of-Way or
other NYSEG property identified by NYSEG as unavailable due to a planned NYSEG
use at such location. The location of such Regenerator Facilities shall be
subject to NYSEG 's approval. Wherever possible, NYSEG agrees to use its best
efforts to provide TELERGY East vacant land (a maximum of [***] feet by [***]
feet in size) at or near power plants or substations identified by TELERGY East
along the Backbone Network or any Spurs for use or such Regenerator Facilities,
but only to the extent NYSEG has the right to apportion or grant such access
and, provided further, any costs associated with the use of such vacant land
shall be borne by TELERGY East.

                                    ARTICLE V
                                NYSEG DARK FIBERS

      5.1 In consideration of the granting of the Right-of-Occupancy within the
Backbone Network Rights-of-Way, TELERGY East shall pay an annual fee of
approximately $338 per pole for attachment for the initial construction of the
Backbone Network which is approximately 92 miles from Binghamton to Syracuse.
For Spurs, including the Binghamton and Ithaca Spurs, to be constructed or
installed in the future, where TELERGY East uses NYSEG Right-of-Way, Conduit,
ducts, abandoned gas or propane air pipelines (other than for the initial
Binghamton to Syracuse run) for the purpose of installing Facilities as set
forth in this Agreement, TELERGY East shall provide NYSEG with six (6) dark
fiber strands along the entire length of any such Spur, excluding the Cornell
Project, when such Spur is constructed or installed by TELERGY East on NYSEG's
Rights-of-Way or in NYSEG owned or controlled ducts, Conduits or in abandoned
gas or propane air pipelines and NYSEG the dark fiber shall be accepted as
payment in kind, provided however that NYSEG shall not receive strands within
the service entrance pipes used to access buildings by Telergy East . NYSEG
shall have an irrevocable right to use ("IRU") such dark fibers and NYSEG shall
have the right to utilize those fibers to satisfy its own internal
communications needs, or may lease or transfer the dark fiber to parties
(including those that compete with TELERGY East), or NYSEG"s Affiliates, and/or
make any other lawful and proper use of the dark fiber as NYSEG may desire
provided however that in the event NYSEG uses any portion of the dark fiber or
its IRU for purposes other than its internal communications needs, NYSEG or the
third-party transferee shall be required to pay maintenance fees and other
standard charges as are then in effect at the time of such use.

      5.2 If TELERGY East shall utilize any of NYSEG 's distribution poles for
the installation of any portion of TELERGY East's Fiber Optic Network, TELERGY
East shall enter into the appropriate Pole Attachment Agreement and shall pay
NYSEG 's then prevailing pole attachment charge, as filed by NYSEG with the
Public Service Commission of the State of New York and NYSEG shall not be
entitled to any dark fibers along any particular portion of the Backbone Network
or any Spurs where TELERGY East pays NYSEG's standard pole attachment fees.

CONFIDENTIAL
[***]  Confidential treatment has been requested with respect to material
       omitted on this page. The omitted portions have been filed separately
       with the Securities and Exchange Commission.

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      5.3 At its own expense, TELERGY East shall have the right to replace and
upgrade the System due to changes in technology as long as NYSEG's use of its
dark fiber is not adversely affected, and so long as there is space available.

      5.4 In the event NYSEG terminates Telergy East's use of any portion of any
Right-of-Way due to a taking, condemnation or public utility requirement,
Telergy East's obligation to provide dark fiber along the affected portion shall
terminate without further liability or payment to NYSEG.

                                   ARTICLE VI
              CONSTRUCTION SCHEDULE, NOTICE, STANDARDS AND PERMITS

      6.1 TELERGY East shall furnish to NYSEG a proposed schedule of
commencement and completion dates for construction of the Backbone Network
within ten (10) days of the date of this Agreement. Said schedule shall not be
binding on the parties but shall be an indication of proposed construction and
installation.

      6.2 TELERGY East shall secure, at its expense, all necessary and 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 in respect of the use and occupation of the
Right-of-Way and the installation, operation and maintenance of the System
within the Right-of-Occupancy, specifically including, without limitation, all
required regulatory environmental approvals. If required by any local law, NYSEG
agrees, upon request to cause its authorized officers or representatives to
execute any applications or other documentation prerequisite to securing the
Approvals. Environmental impact assessments or statements required, if any,
shall be prepared by TELERGY East at its sole risk, cost and expense.

      6.3 Following the issuance of any necessary Approvals, TELERGY East, its
employees, agents, contractors and/or subcontractors shall, in accordance with
the terms and conditions of this Agreement, have the right to construct the
System within any Rights-of-Way and shall obtain a Right-of-Occupancy in
accordance with the Working Drawings.

      6.4 All access to areas in and around utility tower and pole areas, as
well as power plants and substations shall be coordinated by NYSEG in accordance
with TELERGY East's anticipated construction schedule.

      6.5 Except as herein otherwise expressly set forth, construction and
installation of the Backbone Network, Spurs and the Cornell Project and the
furnishing of all labor, materials and equipment necessary to construct and
install the same, shall be at TELERGY East's sole expense. All such work shall
be performed in a good and workmanlike manner and in compliance with all laws,
ordinances, codes and regulations of any governmental authorities having
jurisdiction thereover, subject, nevertheless, to TELERGY East's right in good
faith and at its expense to

                                       10
<PAGE>   11

contest any such laws, ordinances, codes or regulations and NYSEG's Standards or
the application thereof to the System or TELERGY East's installation thereof;
and, if required by law, NYSEG , at its discretion, may permit any such contest
to be conducted in its name.

      6.6 TELERGY East shall be responsible for obtaining from 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 its Fiber Optic Network or the Cornell Project or portions thereof on
private or public property at the location of TELERGY East's Facilities. NYSEG
agrees that it shall provide reasonable cooperation in connection with TELERGY
East's efforts to obtain such necessary permits and consents.

      6.7 If NYSEG 's permission or consent in writing is required by a
governmental or regulatory agency in conjunction with the processing or
application by TELERGY East for such permits and consents, NYSEG shall provide
same, provided, however, that NYSEG shall have the right to review and approve
the terms and conditions, if any, that may be required or requested of NYSEG by
said governmental or regulatory agency, which such approval shall not be
unreasonably withheld.

      6.8 In conformance with the other terms and provisions of this Agreement,
NYSEG does not warrant the validity or apportionability of any rights it may
hold for TELERGY East to place its Facilities on private property. NYSEG will,
upon written request by TELERGY East, provide available information and copies
of any documents in its files pertinent to the nature of the rights NYSEG
possesses over private property. The cost of providing such information and
reproducing documents shall be borne by TELERGY East.

      6.9 Where TELERGY East determines that NYSEG has an Easement over a public
or private right of way sufficiently broad under New York State law to permit
TELERGY East's Right-of-Occupancy, it shall, in its sole discretion, make the
determination whether to obtain an independent Easement from the property owner
to place its Facilities. NYSEG shall have no duty to advise TELERGY East
concerning its perceptions or beliefs concerning the issue whether TELERGY East
has a lawful right of access to its poles, Rights-of-Way, ducts, Conduits and
abandoned gas and propane air pipelines except that NYSEG shall be required to
inform Telergy East of any known challenges to NYSEG's use or occupancy of any
Right-of-Way, and shall further use its best efforts to advise Telergy East of
any persons or entities with whom NYSEG has had or is aware of disputes
involving real property interests of entering on property; otherwise it shall be
TELERGY East's sole duty and responsibility to review NYSEG records to make such
determinations.

      6.10 Except for maintenance, emergency situations or situations requiring
expeditious action, whenever TELERGY East desires to use NYSEG's Right-of-Way to
construct, install, repair, reinstall, replace, relocate or remove any part or
portion of the System or its Facilities, TELERGY East shall submit written
notice ("Entry Notice") three business days in advance to NYSEG . If, other than
in an emergency, the proposed work shall require TELERGY East to disturb NYSEG
's operations, such Entry Notice shall include, as applicable, plans, including
reasonable details and methods of the proposed construction, repair, replacement
or other work. Such plans and the timing of all such work shall be subject to
the consent and approval of NYSEG

                                       11
<PAGE>   12

as provided in Paragraph 3.6. Prior to commencement of any cable installation,
TELERGY East shall provide required notification to the respective local
Underground Utilities Locating Service as is appropriate for that area.

      For and during the term of the Agreement, NYSEG 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
gas and/or electric distribution or transmission purposes. Except for NYSEG
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 East and shall be coordinated with TELERGY East so as to prevent damage
to the System and the disruption of transmission thereover. Moreover, NYSEG
shall use its best efforts to minimize any disruptions of the System during the
performance of any work by NYSEG or others within the restricted area.

      6.11 TELERGY East, at its sole risk, cost and expense, shall furnish all
materials, construct, maintain, use, change or remove TELERGY East Facilities or
any part thereof in accordance with the design and specifications on Working
Drawings, 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 NYSEG 's Standards and so as
not to interfere with or endanger any property, operations, maintenance, or
employees of NYSEG , or of other existing parties lawfully occupying or using
the property of NYSEG .

      6.12 Except as otherwise provided herein, TELERGY East shall be
responsible for any and all costs associated with the design, engineering,
construction, installation and subsequent maintenance and operations of the
System.

      6.13 TELERGY East , upon not less than three (3) working days prior notice
to NYSEG, may during any period of construction and installation of the Backbone
Network, any Spurs or the Cornell Project, following completion of construction
thereof, in connection with post-construction cleanup activities, place
inspectors, supervisors, or other reasonably necessary personnel on site for the
protection of Telergy East's operation, property, Right-of-Way, or the property
of others.

      In the event that TELERGY East shall require the use of NYSEG personnel at
other than normal business hours, it shall reimburse NYSEG for payment by to
NYSEG for any "shift differentials" for any such personnel or the excess of
overtime pay for any such personnel over their normal compensation provided that
Telergy East agrees in advance to such additional costs. In addition, TELERGY
East shall pay for all pre-approved personnel to oversee the repair of damage to
NYSEG 's facilities due to TELERGY East's or its subcontractors' negligence
except work performed by NYSEG during construction.

      6.14 Following the completion of the initial construction of the Backbone
Network, the operation, maintenance, repair, replacement, reinstallation,
relocation and/or removal thereof shall be solely under the control and at the
expense of TELERGY East, subject nevertheless to the provisions regarding Entry
Notices as set forth above.

                                       12
<PAGE>   13

      6.15 The parties recognize that high voltage transmission wires may come
into play with the construction and maintenance of some of TELERGY East's
System. There are certain types of work that only "qualified electrical
contractors" can perform (e.g., work within ten (10) feet of high tension wires)
Provided further, in the event maintenance or construction of TELERGY East's
Facilities requires NYSEG to deactivate pipes or lines, TELERGY East shall be
responsible to pay NYSEG all costs associated therewith, including any lost
revenues that NYSEG incurs as a result of such deactivation provided however
that the parties shall meet and agree to the amount of any such lost revenues in
advance..

                                   ARTICLE VII
              RELOCATIONS, SURVEY RECORDS, FACILITY LOCATION SIGNS

      7.1 In the event that a portion of NYSEG 's Right-of-Way occupied by
TELERGY East is reasonably required (and not merely for NYSEG's convenience) by
NYSEG or is required by regulatory or legal reasons in connection with NYSEG 's
gas and/or electric business, NYSEG will exercise a best effort approach for the
continued use of the Right-of-Occupancy of the Right-of-Way or alternate
Right-of-Way by TELERGY East subject however to the other terms and conditions
of this Agreement. However, where this is not appropriate, NYSEG will, subject
to the terms and conditions of this Agreement, where feasible, with F.O.G. Wire
supplied by TELERGY East, pull in, attach and make ready for TELERGY East
connection, the F.O.G. Wire on the rebuilt/relocated sections of the
Right-of-Way, and NYSEG shall be paid an appropriate fee for such services.
TELERGY East, at its sole cost, assumes all responsibility for all
installations, training, materials, splices and bypass necessary to relocate
and/or reconnect the relocated portion of the System to the balance of the
System and NYSEG shall not incur any cost and TELERGY East shall bear the entire
cost associated with such required relocation or removal of Facilities by
TELERGY East where such relocation and/or removal is reasonably required by
NYSEG (and not merely for NYSEG's convenience) or is required by regulatory or
legal reasons to be used in connection with NYSEG's gas and/or electric
business. Additionally, TELERGY East agrees that such F.O.G. Wire shall meet
NYSEG 's electrical and structural design requirements. In the event of such
relocation, if the continued use of the Right-of-Way by TELERGY East is not
appropriate, and if a F.O.G. Wire installation is not feasible and removal of
all or a portion of TELERGY East's System from NYSEG's right-of-way is required,
all responsibility for provision of the NYSEG dark fiber related to the portion
affected by such removal may be terminated by Telergy East without further
obligation to NYSEG..

      7.2 NYSEG shall make available survey records in its possession for
inspection and/or reproduction by TELERGY East at TELERGY East's costs, subject
to limitations of survey contracts, regulations or local laws. NYSEG however
shall not be deemed to have guaranteed the accuracy of such standards.

      7.3 TELERGY East's, at its sole cost and expense, shall furnish, erect and
thereafter maintain cable markers designating all TELERGY East underground
Facilities. Such markers shall

                                       13
<PAGE>   14

be installed at the edge of the Right-of-Way or some other location reasonably
designated by NYSEG along centerline. The cable markers shall be placed in
conformity with industry standards or as otherwise approved by NYSEG.

      If NYSEG is required by any municipal or public authority to relocate its
Conduit System which contains TELERGY East Facilities and TELERGY East desires
to relocate rather than use other Rights-of-Way, including those of third
parties, TELERGY East shall pay its proportionate share of the total relocation
costs. The cost shall include all relocation costs and tie up costs reasonably
incurred under the circumstances at the usual rates recoverable by NYSEG in
relocation projects.

      7.4 Should any portion of the Backbone Network, any Spurs or the Cornell
Project installed by TELERGY East in NYSEG Right-of-Way 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, and NYSEG shall use its best efforts to
make other Right-of-Way available to TELERGY East and, in any event, this
Agreement shall otherwise remain in full force and effect.

      7.5 If any taking includes any portion of the System, TELERGY East's
Facilities, or the Cornell Project, TELERGY East's interest in the System shall
be severed from NYSEG's interest in such proceeding and the parties agree to
have the condemnation awards specifically allocated between and payable in
accordance with TELERGY East's interest, both physical and occupational,
including any incremental value of an affected Right-of-Way by virtue of the
installation of the System that is awarded, and NYSEG's interest, both physical
and ownership rights. In addition, if permitted pursuant to applicable law,
TELERGY East shall be entitled to make a claim for and 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 System and/or
damages payable on account of System relocation expenses.

      To the extent it has knowledge, NYSEG shall notify TELERGY East
immediately of any condemnation threatened or filed against any portion of the
Backbone Network which includes TELERGY East's preliminary Network designation
plan or could include any part of the System within a Right-of-Occupancy, and
NYSEG 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 East. Upon
giving any such notice to TELERGY East, NYSEG shall, to the extent available to
it, offer TELERGY East, without payment of any additional consideration therefor
by TELERGY East, alternate contiguous areas within the Right-of-Way within which
the Right-of-Occupancy may be relocated following such taking.

                                  ARTICLE VIII
                       CABLE INSTALLATION AND CONSTRUCTION

                                       14
<PAGE>   15

      8.1 Except for the initial Backbone Network which shall be installed
primarily using above ground poles and towers, in all situations where possible
and practical, cable shall normally be installed by TELERGY East underground,
and in accordance with Working Drawings approved by NYSEG and with the
construction standards as provided herein. Cables crossing under public roadways
shall be at a location and depth as determined by state and local conditions,
laws, regulations or orders of public authorities and NYSEG Standards and
requirements. To the extent not preempted by state of local laws, regulations or
orders, such installation shall also be in accordance with the approved Working
Drawings and the construction standards as provided herein. Cables crossing over
or under other existing public utilities shall be located and installed in
accordance with local conditions, laws, regulations or orders of public
authorities, NYSEG Standards and requirements and such requirements as may be
required by the New York State Public Service Commission. 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 solely
by TELERGY East and at TELERGY East's sole risk, cost and expense. Emergency
cable installation, maintenance and repair methods shall comply with standards
and policies to be developed by the parties; provided, however, in no event
shall a TELERGY East emergency situation allow TELERGY East to damage other
third party or NYSEG facilities such that such NYSEG or third party facilities
would be required to be taken out of service.

      8.2 The rights of parties to whom NYSEG currently, or to whom NYSEG may in
the future lease, license, or apportion any of the lands on which the Fiber
Optic Network, System or Cornell Project will be installed shall be protected
and TELERGY East, its contractors, agents and employees shall assume all
responsibility for any damage actually done by TELERGY East, its contractors,
agents and employees to lawns, gardens, shrubbery, fences, etc, and upon
completing construction, TELERGY East shall restore the lands to substantially
the same condition as before entering thereon, provided however that in the
event NYSEG performs any such work, NYSEG shall assume all responsibility for
compliance with the terms and conditions of this Agreement applicable to such
NYSEG work. TELERGY East shall investigate and resolve any and all complaints
arising from or in connection with such construction in an expeditious manner.
TELERGY East shall not place any material on NYSEG property that is recognized
by appropriate governmental authority as toxic/hazardous material, equipment and
waste.

      8.3 TELERGY East shall comply with NYSEG 's construction standards and
policies in the construction of the System. Any changes necessary to NYSEG 's
overhead and underground facilities necessitated by this Agreement as reasonably
determined by NYSEG will be made by NYSEG at TELERGY East's sole cost and
expense.

                                   ARTICLE IX
                      NYSEG 'S EXPENSES AND EMPLOYEE COSTS

      9.1 NYSEG 's reasonable costs and expenses for any work performed at the
request of TELERGY East pursuant to the terms hereof, including necessary
construction in public right-of-way, shall be paid by TELERGY East within thirty
(30) days of the date of an accurate invoice including appropriate
documentation. Such expenses of NYSEG shall be in accordance with NYSEG 's
standard external billing practices. NYSEG shall present such expenses to
TELERGY

                                       15
<PAGE>   16

East monthly for payment via an itemized invoice, together with supporting
documentation of the incurred costs for the previous thirty (30) day period.

                                    ARTICLE X
                          INDEPENDENT CONTRACTOR STATUS

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

                                   ARTICLE XI
                                      TAXES

      11.1 TELERGY East 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 East hereby. TELERGY East 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, ad valorem,
transfer gains taxes, or tax on the furnishing of utility services under any
statute, regulation or rule, TELERGY East shall pay the same, plus any penalty
or interest thereon, directly to said taxing authority, and shall hold NYSEG
harmless therefrom; provided, however, TELERGY East said obligation to hold
NYSEG 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
NYSEG 's failure to promptly notify TELERGY East of the assessment and/or levy
of such tax and/or the receipt of any invoice or bill in respect thereof.

      11.2 TELERGY East 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, System or Facilities, or on account of their existence,
and shall indemnify NYSEG against the payment thereof. TELERGY East shall be
responsible for the filing of any and all returns or other filings in respect of
such personal property taxes.

      11.3 To the extent that NYSEG 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 East must pay pursuant to this Agreement, NYSEG
shall coordinate such submission or filing, and the information contained
therein, with TELERGY East. Further, NYSEG agrees that it shall provide TELERGY
East 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 System and/or the Facilities. TELERGY East shall have the right to protest
any such levy or assessment in respect of any such tax or other fee or charge
which TELERGY East is obligated to pay in accordance with the Agreement, or to
make claim for refund, rebate, reduction or abatement of any of said taxes.
Further, TELERGY East shall have the right to protest any assessment of which it
has been given

                                       16
<PAGE>   17

notice pursuant to this Article. NYSEG shall cooperate, where appropriate, with
TELERGY East, at TELERGY East's cost and expense, in the prosecution of any
protest regarding the assessment and/or levy or any claim for refund, rebate,
reduction or abatement of said taxes.

      11.4 The Backbone Network, any Spurs, the Cornell Project, Facilities and
the System installed on NYSEG 's Right-of-Way shall be and remain at all times
the personal property of TELERGY East regardless of the manner or method of
installation. The parties agree to execute all reasonable documentation
requested to evidence such ownership.

                                   ARTICLE XII
                                     NOTICES

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

            (one copy each to):

            New York State Electric & Gas Corporation
            Corporate Drive
            Kirkwood Industrial Park
            Binghamton, NY  13902
            Attn: Michael Coppola

      and

            New York State Electric & Gas Corporation
            4500 Vestal Pkwy. East
            Binghamton, NY  13902
            Attn: Luke Mickum

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

            (one copy each to):

            Telergy East,  LLC
            One Telergy Parkway
            East Syracuse, New York 13057
            Attn: President

            and

                                       17
<PAGE>   18

            Telergy, Inc.
            20 Corporate Woods Boulevard
            Albany, New York   12211
            Attn: General Counsel

Notice shall also be given to such other parties as may be designated in writing
to the other party.

      12.3 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. In case of an emergency
demanding immediate examination or repairs of the Facilities by NYSEG, 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.

                                  ARTICLE XIII
                         LIABILITIES AND INDEMNIFICATION

      13.1 To the fullest extent permitted by law, TELERGY East ("Indemnitor")
agrees to defend, indemnify and save NYSEG , its agents and employees
("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 NYSEG, TELERGY East or other third parties
legally on the Right-of-Way (whether owned, leased or licensed), including but
not limited to TELERGY East's Facilities, and all costs and expenses, including
legal expenses, 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 East's Facilities,
unless such loss, injury or damage shall have resulted from the negligent act or
omission to act of NYSEG or its agents, employees or contractors.

      13.2 To the fullest extent permitted by law, NYSEG agrees to defend,
indemnify and save TELERGY East 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 NYSEG
or TELERGY East or other third parties legally located on the Right-of-Way
(whether owned, leased or licensed), including TELERGY East's Facilities and all
costs and expenses, including legal expenses, incurred or sustained in enforcing
this indemnification, caused by, arising from or growing out of (i) the
negligent act or omission to act of NYSEG or its agents, employees or
contractors, or (ii) TELERGY East having followed NYSEG 's express written
instructions as to the manner, means or methods of performing any act.

                                       18
<PAGE>   19

      13.3 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").

      13.4 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.

      13.5 The obligations of the respective parties under this Article thirteen
shall survive the expiration date in respect of any occurrences within the term.

                                   ARTICLE XIV
                                    INSURANCE

      14.1 From the commencement of the Work, through the term of this
Agreement, TELERGY East shall provide at its own expense, insurance policies,
issued by reputable insurance companies acceptable to NYSEG which meet or exceed
the requirements listed herein:

            A. Workers Compensation and Employers Liability Insurance required
by the State of New York. Coverage shall included 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

      14.2 This policy shall include Contractual Liability, Products-Completed
Operations and Explosion, Collapse and Underground (XCU) coverage. If the
Products-Completed Operations

                                       19
<PAGE>   20

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.

14.3        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

      14.4 Protective Liability Policy in the name of NYSEG covering all work
performed under the contract, with limits as specified in Section 14.1. In lieu
of providing this coverage, TELERGY East may include NYSEG as an additional
insured under the public liability policy to provide coverage for, but not
limited to, the liability arising out of the TELERGY East's work under this
Agreement.

      14.5 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.

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

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

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

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

                  NYSEG
                  ATTN:  Risk Management
                  _________________________________
                  _________________________________
                  _________________________________

                                       20
<PAGE>   21

      Such certificates, and any renewals or extensions thereof, shall provide
that at least thirty (30) days prior written notice shall be given to NYSEG in
the event of any cancellation or diminution of coverage.

      14.10 Reservation of Liens - If any policy should be canceled prior to the
period set forth in this Agreement, and the TELERGY East fails immediately to
procure other insurance as specified herein, NYSEG reserves the right to procure
such insurance and to charge the cost to TELERGY East.

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

      14.12 TELERGY East shall furnish NYSEG with a certificate of such
insurance and of renewals thereof prior to the expiration of any such
policy(ies) and shall name NYSEG as an additional insured under its respective
policy(ies), if any.

      14.13 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 NYSEG and TELERGY East. 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. 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 either party 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 both parties.

      14.14 Nothing in this Article XIV shall be construed as to prevent TELERGY
East from satisfying its insurance obligations pursuant to this Agreement under
a blanket policy or policies.

                                   ARTICLE XV
                                      LIENS

      15.1 In the event that any property of NYSEG shall become subject to any
mechanics, artisan or materialmans liens chargeable to or through TELERGY East,
it shall promptly cause such lien to be discharged and released of record, by
payment, posting of bond, court deposit or other means, without cost to NYSEG
and shall indemnify NYSEG 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 NYSEG to TELERGY East, or within
such shorter period as shall be mandated under applicable local law, then NYSEG
may pay or secure the release or discharge thereof at the expense and cost of
TELERGY East.

                                       21
<PAGE>   22

      15.2 Subject to the other terms and conditions of this Agreement, NYSEG
shall keep TELERGY East Facilities free and clear of all liens or other
encumbrances which arise in any way from or as a result of NYSEG 's activities
and cause any such liens or encumbrances which may arise to be discharged or
released of record as provided in this Article within thirty (30) days after
notice thereof by TELERGY East to NYSEG , or within such shorter period as shall
be mandated under applicable local law, then NYSEG may pay or secure the release
or discharge thereof at the expense and cost of TELERGY East.

      15.3 Nothing herein shall preclude TELERGY East and/or NYSEG 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.

      15.4 TELERGY East hereby recognizes and agrees that this Agreement shall
be subject and subordinate to the provisions of the first mortgage indenture
dated October 1, 1937, as amended, from NYSEG 's predecessor, Central New York
Power Corporation, to the Marine Midland Trust Company of New York, now Marine
Midland Bank, N.A., as Trustee. Notwithstanding such subordination, except for
the NYSEG Capacity, NYSEG hereby recognizes and agrees that the System shall be
and remain at all times the personal property of TELERGY East and the System
shall at no time be or become subject to or collateral under said first mortgage
indenture.

                                   ARTICLE XVI
                                   AMENDMENTS

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

      16.2 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.

      16.3 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.

                                  ARTICLE XVII
                                   PROCEDURES

      17.1 TELERGY East's Facilities shall be placed, maintained, relocated or
removed in accordance with NYSEG's Standards, including but not limited to the
current editions of NYSEG 's 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 any
governing authority having jurisdiction. Where a difference in specification may
exist, the more stringent shall apply. TELERGY East's Facilities shall not
physically, electronically or inductively interfere with NYSEG 's Conduit System
or other Facilities.

                                       22
<PAGE>   23

      17.2 NYSEG reserves the right to specify the type of construction
standards required in situations not otherwise covered in this Agreement. In
such cases, NYSEG will in its discretion furnish to TELERGY East written
material which will specify and explain the required construction. Subject to
Paragraph 17.1, TELERGY East shall have the right to select the type of fiber
optic cable to be installed.

      17.3 At TELERGY East's discretion, Facilities installation may be
performed by NYSEG, NYSEG 's designated contractor, or TELERGY East or its
subcontractor, following completion of Make-Ready Work and delivery of
Facilities by TELERGY East to NYSEG. TELERGY East shall have the right to
conduct testing of its Facilities in accordance with mutually agreed-upon
standards (which will be provided and agreed upon prior to installation)
following the completion of fiber optic installation to insure that agreed-upon
design specifications have been met. Splices in TELERGY East fiber optic cables
shall be located only in manholes, pull boxes or handholes.

      17.4 TELERGY East shall be responsible for any problems from or in its
Facilities, excepting such as may have been caused by the negligence of NYSEG as
provided for herein.

      17.5 Should NYSEG for its own requirements (other than those imposed by
regulatory or legal rules, orders and requirements as contemplated in Section
7.1 of this Agreement), need to install additional conduit, gas or other
facilities or modify such conduit, gas or other facilities in which TELERGY East
has a Right-of-Occupancy, NYSEG shall notify TELERGY East and if Telergy East
desires to utilize additional Rights-of-Way associated with NYSEG's installation
of additional conduit, gas or other facilities, NYSEG shall pay the costs of
such relocation Notification of any relocation by NYSEG shall be given in
writing not less than thirty (30) days before any such modification except in
emergency situations, and TELERGY East shall have the option either to (i)
relocate at NYSEG's costs unless the relocation is required as contemplated in
Section 7.1, or (ii) terminate its use of such facilities and the payment of
dark fiber along the area subject to relocation without further liability to
NYSEG. NYSEG agrees that whenever it performs construction related activities or
installs, or upgrades underground conduit or gas facilities or with respect to
installations through building entrances, it will notify TELERGY East in advance
so that TELERGY East can simultaneously install fiber or conduit for its System
under proportionate cost sharing arrangements to be agreed upon by the parties.

      17.6 All maintenance work for Facilities of TELERGY East shall be the
responsibility of TELERGY East. Recognizing that time may be of the essence,
upon a request from TELERGY East to perform maintenance with respect to NYSEG 's
facilities where maintenance is required on NYSEG facilities and such lack of
maintenance is interfering with TELERGY East Facilities, NYSEG shall investigate
reported interruptions of TELERGY East Facilities, within a reasonable time
frame. Repair or restoration of failed Facilities will be dictated by
investigated findings. At TELERGY East's discretion TELERGY East, or its
designated contractor will perform all work necessary for repair or restoration
of its Facilities. NYSEG 's inspector shall have the right to be present and
oversee TELERGY East's repair activities, and to terminate such activities when,
in the inspector's discretion, said activities pose a danger to NYSEG 's
facilities. Notwithstanding the foregoing provision, NYSEG agrees that if a
contractor or subcontractor is designated for

                                       23
<PAGE>   24

maintenance work required to repair and restore service interruptions of TELERGY
East's Facilities, a qualified telecommunications maintenance company selected
by TELERGY East shall be granted access to the affected Right-of-Way under such
reasonable terms and conditions as may be set by NYSEG, for the purpose of
restoring service interruptions within such fixed period of time as may be
necessary under the circumstances. NYSEG agrees to have supervisory personnel
available within such period of time in order to supervise the maintenance work
required to repair and restore service interruptions. TELERGY East shall have
the right, subject to NYSEG 's availability, to inspect its Facilities
periodically, upon three (3) days advance written notice to NYSEG. Such
inspection costs shall be borne solely by TELERGY East.

                                 ARTICLE XVIII
                             LIABILITY AND DAMAGES

      18.1 NYSEG reserves to itself, its successors and assigns, the right to
relocate and maintain its Right-of-Way, Conduit, duct and all of its facilities
and to operate its facilities in conjunction therewith in such a manner as will
best enable it to fulfill its own service requirements, with costs associated
with such relocations to be paid as set forth in Sections 7.1 and 17.5 of this
Agreement, provided however that once Telergy installs any portion of its Fiber
Optic Network, System or the Cornell Project in Right-of-Way pursuant to this
Agreement, NYSEG shall not be entitled to interfere with the operation of the
Network except as expressly provided in this Agreement. In emergency situations,
TELERGY East shall be required to act immediately where practicable to
coordinate any emergency responses with NYSEG, including but not limited to any
expedited removal or relocation of TELERGY East Facilities that may be required
in such emergency.

                                   ARTICLE XlX
                         TERMINATIONS OF AUTHORIZATIONS

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

      a. TELERGY East' Facilities are maintained or used in violation of any law
or in aid of any unlawful act or undertaking, or

      b. TELERGY East ceases to have authority to construct and operate its
System on public or private property covered by the Right-of-Occupancy; or

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

      d. TELERGY East Facilities occupy NYSEG 's Right-of-Way without having
first been issued a Right-of-Occupancy therefor; or

                                       24
<PAGE>   25

      e. TELERGY East Facilities or Right-of-Occupancy are used by others not a
party to this Agreement (excluding TELERGY East's customers, carriers and
lessees) without the prior written consent of NYSEG, which consent shall not be
unreasonably withheld, provided, however, that a lawful successor of TELERGY
East under the LLC Operating Agreement shall be deemed a party to this
Agreement.

      f. TELERGY East's Right-of-Occupancy can be terminated by NYSEG wherever
and whenever a governmental agency requires the same, in which case NYSEG will
return TELERGY East's Facilities to TELERGY East and at TELERGY East shall
remove the same at its expense less any otherwise proper credits accruing to
TELERGY East.

      g. TELERGY East's insurance carrier shall at any time notify NYSEG that
the policy or policies of insurance as required in Article V (1) will be or have
been canceled or amended so that those requirements will no longer be satisfied;
or

      h. any authorization which may be required by any governmental or private
authority for the construction, operation and maintenance of TELERGY East's
Facilities in the Conduit System is denied, revoked or canceled.

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

      19.3 In the event NYSEG's desires to abandon property utilized by Telergy
East, NYSEG may at any time terminate a portion of the Right-of-Occupancy upon
the earlier of written notice to Telergy East to be given six (6) months in
advance or as soon as NYSEG decides to abandon any such property in accordance
with any applicable regulatory or legal requirements, which notice shall specify
that East, that NYSEG no longer requires the underlying Right-of-Way for its own
public utility purposes for whatever reason, or the affected portion thereof,
for its own electric and gas purposes. NYSEG will, on a best efforts basis,
attempt to provide other Right-of-Way or Facilities to meet TELERGY East's
needs, however, Telergy East will be required to relocate its Facilities in
other NYSEG or third party Right-of-Way within be six (6) months from the date
of notification at Telergy East's sole cost. In the event of termination of any
of TELERGY East authorizations hereunder, TELERGY East will remove or abandon,
TELERGY East's Facilities within ninety (90) days of the effective date of the
termination; provided, however, that TELERGY East shall be liable for and pay
all fees and charges (including dark fiber) pursuant to provisions of this
Agreement to NYSEG until the expiration of the 90 day period or TELERGY East
Facilities are actually removed, abandoned or maintenance is taken over by
NYSEG, whichever comes first and provided further that each party shall be
required to perform any and all obligations under this Agreement until such
time. NYSEG shall have the right to remove such Facilities at TELERGY East's
expense and without any liability on the part of NYSEG for damage or injury to
such Facilities or interruption of

                                       25
<PAGE>   26

TELERGY East's services except for liability for damage or injury to such
Facilities caused by the negligence of NYSEG or its agents or employees.

                                  ARTICLE XXI
                            MISCELLANEOUS PROVISIONS

Disputes. 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 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.

Headings. The Article 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 or lettered Articles or Sections,
unless otherwise indicated are to Articles or 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.

Mergers. Neither party shall be prohibited by the terms of this Agreement from
undertaking any merger or acquisition activity whether voluntary or involuntary,
and all such activity shall not hinder, impede, alter or vary the terms,
conditions and covenants of this Agreement. 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; and, for purposes of this Agreement, a
reasonable time to cure any breach or default shall be deemed to be fifteen (15)
days after notice, in the case of a monetary default; sixty (60) days after
notice in the case of a non-monetary default, unless the nature of the default
in question is such that it is not reasonably susceptible of being cured within
such 60-day period, then if the curing thereof shall not have commenced within
such period and shall not thereafter be prosecuted to completion with reasonable
diligence. 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.

Representations. 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 and governmental 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.

Contingencies. TELERGY East's and NYSEG 's performance under this Agreement are
contingent upon a favorable determination by the New York Public Service
Commission and any

                                       26
<PAGE>   27

authorized Federal or State agency, which determination shall not be subject to
appellate review. In the event that the necessary approvals are not obtained on
or before October 31, 1998, either party shall have the option of terminating
this Agreement by written notice to the other party pursuant to the Notice
provisions set forth in Articles 12.1 and 12.2. Except for a termination for
failure to obtain PSC Approval or a breach by NYSEG, TELERGY East shall
reimburse NYSEG for all costs incurred in connection with the termination of
this Agreement.

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, omissions of third parties when such
omissions did not occur due to action or inaction or the party failing to
perform, or labor strikes or walkouts that could not reasonably be avoided by
the party subject to such labor strike or walkout.

No Waiver. 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.

      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.

Assignment, Subletting and Other Transfers. TELERGY East shall not assign,
sub-license, sublet or transfer ("Assignment") any authorization granted herein,
and such authorization shall not inure to the benefit of TELERGY East's
successors or assigns without the prior written consent of NYSEG, except as
provided in the LLC Operating Agreement, and, where necessary upon approval from
the Public Service Commission. In the event of any such assignment, the
provisions of this Agreement shall apply to and bind the TELERGY East's
successors and assigns.

Compliance with Applicable Laws. NYSEG and TELERGY East 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.

Other Agreements. Nothing contained herein shall be construed as a limitation,
restriction, or prohibition against NYSEG with respect to any Right-of-Occupancy
agreements and arrangements which NYSEG has entered into, or may in the future
enter into, with others not covered by this Agreement, except that
Right-of-Occupancies existing at the time of such future grants of
Right-of-Occupancy to NYSEG Right-of-Way, agreements or arrangements shall not
interfere with or be subordinated to the rights of any subsequent third parties.
The rights of TELERGY East shall at all times be subject to such existing
Right-of-Occupancy agreements or arrangements, and all

                                       27
<PAGE>   28

future Rights-of-Occupancy shall be subject to Telergy East's rights hereunder.
NYSEG, in negotiating and entering into any such future Right-of-Occupancy,
agreements and/or arrangements, shall not diminish the Right-of-Occupancy of
TELERGY East, as provided for in this Agreement.

      Notwithstanding any other provision of this Agreement, TELERGY East as a
common carrier, shall have the right, subject to the terms and conditions of
this Agreement, to permit TELERGY East's customers to use a portion of the
capacity or fiber on TELERGY East's Facilities.

Entire Agreement.. This Agreement constitutes the entire agreement between the
parties with regards to TELERGY East's use of NYSEG 's system. 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. Prior written notice of changes in any applicable pole
rates (to be approved by the Public Service Commission) shall be given to
TELERGY East five (5) days advance of any such filing with the Public Service
Commission.

Governing 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 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.

Bankruptcy. Subject to the rights of the principles of the TELERGY East, in the
event that either of the principles of TELERGY East is involved in a bankruptcy
as defined in Article II of this Agreement, or in the event that the interest of
the TELERGY East in the System becomes 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 thirty (30) days after filing,
service or levy, whichever first occurs, NYSEG shall have the right and option
within thirty (30) days after the expiration of such thirty (30) day period to
purchase "proportionately the interest encumbered as the "computed" value
payable in cash within that thirty (30) 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 East 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 the TELERGY East. Such computation shall be binding and
conclusive upon the parties absent manifest error.

Binding Agreement. The provisions of this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their lawful respective
successors and assigns.

Acts In Furtherance. NYSEG and TELERGY East each agree to do such other and
further acts and things, and to execute and deliver such additional instruments
and documents, not creating any

                                       28
<PAGE>   29

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.

Environmental Hazard Liability. NYSEG agrees to promptly inform TELERGY East 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 NYSEG 's Environmental Affairs Department, Syracuse, New
York, has knowledge of or of which such Department may subsequently learn with
respect to the Backbone Route. NYSEG agrees to defend, indemnify and hold
TELERGY East 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 release by TELERGY East
or its contractors or subcontractors excluding NYSEG of a toxic or other
hazardous substance into the environment, (ii) created by TELERGY East's
disturbance of a pre-existing condition within the Right-of-Way of which TELERGY
East had knowledge provided that NYSEG shall disclose to TELERGY East all such
pre-existing conditions within the Backbone Route known to NYSEG , or (iii)
created by TELERGY East's disturbance of a pre-existing condition within the
Right-of-Way where the condition was not previously known by NYSEG and was not
created by a disturbance by NYSEG.

      Upon learning of any such hazardous or toxic waste areas within which the
Right-of-Occupancy is intended to be or is located, NYSEG shall, within thirty
(30) working days, to the extent available to it, offer TELERGY East, without
payment of any additional consideration therefor, alternate contiguous areas
within which the Backbone Route may be relocated to avoid such hazardous or
toxic waste areas.

      In the event TELERGY East 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
Director of NYSEG 's Environmental Affairs Department in Binghamton, New York.

      In Witness Whereof, the parties hereto have executed this Agreement in
duplicate on the date and year first above written.

WITNESS  (ATTEST)             NEW YORK STATE ELECTRIC & GAS CORPORATION

_______________________       By:_______________________________________

                              Name:_____________________________________

                              Title: _____________________________________

                                       29
<PAGE>   30

WITNESS  (ATTEST)             TELERGY EAST, LLC

_______________________       By:_________________________________________

                              Name:_______________________________________

                              Title: ________________________________________

                                       30<PAGE>   1

                                                                   EXHIBIT 10.6

                   STRATEGIC CONSTRUCTION OPERATING AGREEMENT

               GOVERNING FIBER NETWORK CONSTRUCTION, INSTALLATION,
                      ENGINEERING AND PROCUREMENT SERVICES

                                  TELERGY, INC.
                                       AND

                           MASTEC NORTH AMERICA, INC.

                                                             Dated: May 6, 1998

<PAGE>   2

                   STRATEGIC CONSTRUCTION OPERATING AGREEMENT
                                TABLE OF CONTENTS

Section     Index of Terms                                        Page Number
 1.0        DEFINITIONS..................................................1
 2.0        GENERAL RELATIONSHIP.........................................3
 3.0        GENERAL CONSTRUCTION\INSIDE PLANT SERVICES...................5
 4.0        MATERIALS AND EQUIPMENT......................................5
 5.0        CONSTRUCTION BONDS, LIENS AND ENCUMBRANCES...................6
 6.0        CONDITIONS...................................................8
 7.0        PERMITS, REGULATIONS, LICENSES AND NOTICES...................8
 8.0        CONTROL AND SUPERVISION OF SERVICES..........................9
 9.0        OTHER CONTRACTORS, COOPERATION AND INTERFERENCE..............9
10.0        CONTRACT PRICE, INVOICING AND PAYMENTS......................10
11.0        RECORDS.....................................................10
12.0        INSURANCE/INDEMNITY.........................................11
13.0        PROTECTION OF SERVICE AND PROPERTY..........................12
14.0        PROPERTY OWNER CLAIMS.......................................12
15.0        DEFAULTS....................................................12
16.0        ASSIGNMENT..................................................13
17.0        PUBLICITY...................................................13
18.0        GOVERNMENT REQUIREMENTS.....................................13
19.0        WRITTEN NOTICE..............................................14
20.0        CHOICE OF LAW AND INTERPRETATION............................15
21.0        CONSENTS....................................................15
22.0        NO WAIVER...................................................15
23.0        REMEDIES....................................................16
24.0        SEVERABILITY................................................16
25.0        COMPLIANCE..................................................16
26.0        BINDING CONTRACT............................................16
27.0        ACTS IN FURTHERANCE OF CONTRACT.............................16
28.0        CONFIDENTIALITY.............................................16
29.0        FORCE MAJEURE...............................................17
30.0        TERM AND TERMINATION........................................17

                                       i
<PAGE>   3

                   STRATEGIC CONSTRUCTION OPERATING AGREEMENT

This sets forth the Agreement made as of May 6, 1998 ("Agreement" or "Operating
Agreement") between MASTEC NORTH AMERICA, INC., a Florida corporation with its
mailing address at 3155 N.W. 77th Avenue, Miami, Florida 33122 ("MasTec"), and
TELERGY, INC., a New York corporation with offices located at 5784 Widewaters
Parkway, Syracuse, New York, 13214 ("Telergy").

                                    RECITALS

WHEREAS, Telergy and its subsidiaries and affiliates, among other activities,
constructs, installs, owns and operates fiber optic telecommunications networks
in Upstate, New York and is in the process of finalizing arrangements to perform
similar activities in Downstate, New York and throughout the Northeast region of
the United States of America ("Northeast") and Canada; and

WHEREAS, MasTec. and its subsidiaries and affiliates, among other activities,
performs engineering, construction, installation and related activities
("Services") for telecommunications providers such as Telergy; and

WHEREAS, the parties desire to enter into a mutually beneficial strategic
relationship to construct and install fiber optic telecommunications networks
throughout the Region which will provide Telergy with a turnkey solution for all
of its fiber network requirements, including provisioning of the Services; and

WHEREAS, the parties intend for MasTec to serve as Telergy's Strategic
Construction Contractor on all fiber Network builds except when
construction-related activities are required under regulation, municipal
contract, public utility rules or standards to be performed by others, including
utilities or their designated agents, or when MasTec's rates, terms and
conditions are not competitive; and

WHEREAS, the parties intend for MasTec to act as Telergy's turnkey solution for
inside plant and wiring requirements for Telergy customers, including school
districts and the business and commercial market segments; and

WHEREAS, the parties hereto desire to simultaneously enter into various
financing and security agreements relating to the strategic relationship entered
into pursuant to this Operating Agreement.

                                      TERMS

NOW THEREFORE, in consideration of the matters recited and the mutual promises
contained herein the parties agree as follows:

1.0   DEFINITIONS

"Backbone Network" shall mean the primary fiber optic telecommunications network
connecting major cities from which spurs, loops and rings are connected and
through which long-haul fiber services may be provided to carriers and
customers.

"Backbone Construction Contract" shall mean individual contracts for the
construction and installation of specific Backbone Networks and provisioning of
Services in various geographic locations throughout the Region, which shall be
executed from time to time pursuant to this Agreement and shall be attached

<PAGE>   4

hereto and incorporated herein as sequential numbered Exhibits to this
Agreement.

"Boston Network" shall mean the Backbone Network from Albany through Portland to
Boston Massachusetts, which construction and installation is anticipated to be
completed on or before June 30, 1999.

"Downstate Network " shall mean the Backbone Network from Duchess County to 60
Hudson Street, New York City, which construction and installation is anticipated
to be completed on or before December 31, 1998 in accordance with a License and
Operating Agreement dated January 28, 1998 ("L&O Agreement") between Telergy
Metro LLC and Consolidated Edison Company of New York, Inc. ("CECONY") and
CECONY's construction and maintenance rules, which L&O Agreement is pending
approval from the Public Service Commission of the State of New York ("PSC").

"MasTec" shall mean MasTec North America, Inc. and any of its Subsidiaries that
enter into Backbone Construction Contracts during the Term of this Agreement.

"MasTec's Representative" shall mean the employee of MasTec or its Subsidiary
that is designated to interface with Telergy or its Subsidiary for each Backbone
Construction Contract.

"Material and Equipment" shall have the meaning as set forth in Section 4 of
this Agreement.

"Montreal Backbone" shall mean the Backbone Network from Albany or Glens Falls,
New York to Montreal, Canada, which construction and installation is anticipated
to be conducted jointly with Metrix Interlink Corporation, a Canadian Company,
utilizing the construction services of MasTec's Subsidiary Wilde Construction
Inc. and Metrix's Canadian subcontractor Telecon and which is targeted to be
completed on or before June 1999.

"Other Networks" shall mean all Backbone Networks to be constructed and
installed by Telergy and MasTec or their respective Subsidiaries formed after
the date of this Agreement for which the parties or their Subsidiaries execute
Backbone Construction Contracts.

"Region" shall mean the geographic territory in and around the Boston,
Downstate, Montreal and Upstate Networks, as well as Other Networks in which
Telergy and MasTec or their respective Subsidiaries may enter into Backbone
Construction Contracts throughout New York and the Northeast region of the
United States of America and Canada and for which MasTec or its Subsidiaries
will be providing Services during the Term of this Agreement.

"Right-of-Way Owner" shall mean the party with whom Telergy shall have
contracted for the right to occupy real property or facilities (including
municipalities and utilities) for the purposes of constructing, installing,
maintaining and operating the Backbone Networks. In those instances where the
said party with whom Telergy has contracted is not the holder of record of the
fee title to the said real estate (e.g., where under applicable state law an
entity would be deemed to hold only an easement or right-of-way), "right-of-way
owner" for purposes of this Contract shall be deemed to include the holder(s) of
record of the fee title to the said real estate, whether or not Telergy shall
have obtained the express consent of the said party to the construction,
installation maintenance and operation of the Backbone Networks. "Services"
shall mean all construction and installation services, including time, materials
and labor and

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<PAGE>   5

equipment, as well as the procurement of fiber, switches and electronics,
conduit, handholes and related network components and inside plant and wiring
services as contemplated by this Operating Agreement and the Backbone
Construction Contracts.

"Subsidiary" shall mean with respect to Telergy, MasTec or MasTec's parent,
MasTec, Inc. (each referred to herein as "Company"), (i) any corporation,
association, or other business entity of which at least 50% of the total voting
power of shares of capital stock or other equity interests entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly by such Company or one or more of the other Subsidiaries
of that Company and (ii) any partnership or limited liability company (a) the
sole general partner, the managing general partner or the sole managing Member
of which is such Company or a Subsidiary of such Company, or (b) the only
general partners or Members of which are such Company or of one or more
Subsidiaries of such Company (or any combination thereof).

"Telergy" shall mean "Telergy, Inc." and any of its Subsidiaries that enter into
Backbone Construction Contracts with MasTec or any of its Subsidiaries during
the Term of this Agreement.

"Telergy's Representative" shall mean the employee of Telergy or its Subsidiary
that is designated to interface with MasTec or its Subsidiary under each
Backbone Construction Contract.

"Term" shall mean a period commencing on the date this Agreement is signed by
both parties and expiring on April 30, 2001, unless otherwise extended in
writing by the parties or terminated as provided herein.

"Upstate Network" shall mean the extension of the Upstate Backbone Network
installed from Buffalo to Albany to Pleasant Valley, New York as well as Upstate
Local Loops as contemplated in the Hyperion Operating Agreement dated February
20,1997 and the Niagara Spurs as contemplated in Right-of-Occupancy Agreement
dated January 16, 1996, as modified on September 25, 1997.

2.0 GENERAL RELATIONSHIP

As set forth in the Recitals on the first page of this Agreement, Telergy owns
and operates a fiber optic telecommunications backbone in the Upstate Network
and intends to construct and install Other Networks, including Downstate, Boston
and Montreal Networks. The parties agree that Telergy, in its sole discretion,
shall determine whether to construct Other Networks as well as the timing, route
and manner and method of any such construction. The construction of the
Downstate Backbone is pending approval from the Public Service Commission of the
State of New York and negotiations are underway with respect to the Boston and
Montreal Networks. This Agreement is not intended to create or impose any
obligation on Telergy to construct and install any specific Other Networks
although the parties agree that Telergy intends to construct Backbone Networks
throughout the Region, including expanding the Upstate Network and constructing
and installing the Downstate, Boston and Montreal Networks, and that this
Agreement shall govern the rights and obligations of the parties hereto in
connection with the activities contemplated hereunder.

The parties agree that during the Term of this Agreement so long as MasTec's
pricing, terms and conditions, including those applicable to equipment and
materials, are competitive, Telergy shall use MasTec as its Strategic
Construction Contractor for all future fiber construction and installation
projects (both buried and aerial and tower construction for PCS and wireless
services), including those in the

                                       3
<PAGE>   6

Region except when an applicable regulatory or public utility requirement
requires specific contractors for particular segments or aspects of segments of
network construction. In the event public utility or local, state or federal
law, rules or regulations require the use of union personnel, MasTec shall
ensure such union personnel are employed.

The parties agree that in the event Telergy is required by public utility or
regulatory requirements to obtain bids or quotations for all or a portion of the
Services for a specific Backbone Construction Contract, Telergy shall seek such
bids or quotations for such Services and MasTec, in its discretion, may submit
or resubmit a bid or quotation for such Services. To the extent that Telergy is
then required, by public utility or regulatory requirements, to accept a written
bid or quotation other than MasTec's (without resubmission or continuation of
the bid process), Telergy shall be free to do so; provided, however, to the
extent permitted by the public utility or regulatory requirements, MasTec shall
have a first right of refusal to perform any such Services upon the same prices,
terms and conditions as set forth in the written bid or quotation which
otherwise would have been accepted. Additionally, to the extent that Telergy has
obtained a bona fide written offer from an unaffiliated third party (a "Third
Party Offer") to perform Services for a specific Backbone Construction Contract
which establishes that MasTec's pricing, terms and conditions are not
competitive, then, unless MasTec shall agree in writing, within ten days after
receipt of written notice from Telergy (which notice shall include a copy of the
Third Party Offer), to perform such Services upon the same prices, terms and
conditions as provided in the Third Party Offer, Telergy shall be free to accept
the Third Party Offer with respect to the specific Services set forth therein.

The parties acknowledge that for certain construction-related activities such as
work on high-voltage facilities, the Right-of-Way Owner may obligate Telergy to
use specific contractors to perform certain Services, including utility
personnel and their internal designated agents, in connection with particular
Backbone Construction Contracts. Telergy agrees to use its best efforts to
assist MasTec to be included on approved contractor lists of Right-of-Way
Owners, including introducing MasTec to the Right-of-Way Owners.

The parties further agree that MasTec shall provide all inside plant and wiring
services to Telergy customers on an exclusive basis provided that MasTec's rates
are competitive.

In addition, the parties agree that as and when requested by Telergy MasTec will
procure or obtain materials and equipment such as fiber, conduit, switches and
electronics and handholes in connection with Telergy's networks on its behalf
from vendors selected by Telergy, subject to the warranty provisions set forth
in section 4 of this Agreement.

The parties and or their affiliates or subsidiaries intend to enter into
specific Backbone Construction Contracts for each Backbone Network to be
constructed and installed by Telergy utilizing the Services of MasTec and
further intend that the provisions of this Agreement shall apply to, govern and
be incorporated into each Backbone Construction Contract. The parties further
intend that only those terms and conditions that are unique to the construction
and installation of each specific Backbone Network shall be set forth in the
Backbone Construction Contracts, each of which shall otherwise be governed by
this Agreement. This Agreement shall be incorporated in and attached to each
Backbone Construction Contract. The parties acknowledge that where Services will
be performed using rights of way or facilities of third parties, particularly
utilities and municipalities, the utilities and regulators may impose specific
requirements on Telergy's use of such facilities and MasTec recognizes and
agrees to abide by such requirements. Telergy will provide copies of each
applicable section of right-of-way agreements and any construction or
maintenance rules governing the same to the specific MasTec Subsidiary and said
documents shall be attached to the Backbone Construction Contracts and shall be
incorporated therein by reference. Any such municipal or utility requirements
shall precede the terms of this Agreement to the

                                       4
<PAGE>   7

extent necessary to ensure compliance with the utility or regulatory
requirements.

MasTec is engaged as an independent contractor and is not an agent, partner,
joint venturer or employee of Telergy. MasTec may contract to perform work on
other telecommunications or similar construction projects inside or outside the
Region, even if those projects are for entities that are potential or actual
competitors of Telergy or any of its affiliates, provided however that such
efforts by MasTec shall not interfere with MasTec's performance of its
obligations and duties under this Agreement and any Backbone Construction
Contracts.

3.0 GENERAL CONSTRUCTION\INSIDE PLANT SERVICES

The parties contemplate that individual Backbone Construction Contracts shall be
executed with respect to each Backbone Network to be constructed and installed
hereunder and said contracts shall be attached hereto as sequentially numbered
Exhibits and shall be incorporated herein by reference. The Backbone
Construction Contracts shall contain the terms and conditions set forth in this
Agreement along with the costs and pricing for the specific fiber construction,
inside plant and wiring and procurement of materials and equipment, and any
other terms or conditions specifically required in connection with a particular
Backbone Network, which terms and conditions shall be consistent with the
general terms of this Operating Agreement.

4.0 MATERIALS AND EQUIPMENT

The parties acknowledge that the strategic relationship contemplated hereunder
envisions MasTec purchasing a portion of the telecommunications fiber, conduit,
handholes, switches and electronics, equipment and supplies from
Telergy-designated vendors ("Materials and Equipment"), and that such purchases
may be paid from the trade financing as provided in that certain Financing
Agreement of even date between Telergy and MasTec ("Financing Agreement"). Any
such Materials and Equipment used or installed on behalf of Telergy shall be the
property of Telergy and MasTec shall deliver such Materials and Equipment to
Telergy free and clear of all liens, security interests and encumbrances (except
liens in favor of MasTec permitted by the Financing Agreement), and shall pay
the vendors of such Materials and Equipment on such terms as shall be agreed
upon, prior to invoicing to Telergy. With respect to construction activities,
unless otherwise provided in a Backbone Construction Contract, MasTec shall
furnish and transport all the necessary tools, construction equipment and labor
and all the materials necessary to perform the Services.

In the event Telergy furnishes material, fiber or supplies, the parties agree
that each Backbone Construction Contract shall specify the manner in which such
materials shall be received, unloaded and stored, which party shall be obliged
to verify the quantities and test the materials for compliance with applicable
standards and requirements, and which party shall be responsible for the care,
custody, and control, bearing the risk of damage thereto, for all Telergy
furnished material.

MasTec agrees that it shall at all times in accordance with the industry best
practices protect from damage due to MasTec's and its subcontractors'
operations, equipment and materials, whether stored or installed, paving.
structures and any and all other items on the work site belonging to
right-of-way owners, Telergy or others.

MasTec further agrees to adhere to the standards, rules and regulations of any
public utilities or municipalities governing construction or installation of the
Backbone Networks being constructed and installed in utility or municipal
rights-of-way, conduit, towers and facilities.

                                       5
<PAGE>   8

Under each Backbone Construction Contract, upon completion of the Services
thereunder, MasTec shall be responsible for the complete removal from the work
site of all temporary facilities, of whatever nature, and shall restore the
sites to substantially the same condition that existed prior to the construction
or installation activities.

Under each Backbone Construction Contract, construction equipment obtained or
furnished by MasTec shall be in good operating condition, safe, fit for the uses
for which intended, and suitable for safe, legal and efficient performance.

With respect to any telecommunications equipment to be installed by MasTec under
a Backbone Construction Contract, MasTec will install the equipment in
accordance with the manufacturer's specifications. MasTec is not responsible for
the proper functioning of properly installed equipment and Telergy's sole remedy
with respect to such properly installed equipment being the manufacturer's
warranty that MasTec will assign to Telergy upon completion of the Services
under a Backbone Construction Contract.

5.0 CONSTRUCTION BONDS, LIENS AND ENCUMBRANCES

The parties acknowledge that performance and payment bonds may be required in
connection with one or more of the Backbone Construction Contracts and the
parties agree to include any requirements relating to payment and performance
bonds with such sureties as may be required in the Backbone Construction
Contracts on a case-by-case basis. However, the parties agree that MasTec will
be responsible for any contractors' licenses, occupational licenses or similar
licenses required for MasTec to perform the Services, and for any bonds for the
repair of rights-of-way required by the Right-of-Way Owner, or by any local
municipalities or other governmental authorities having jurisdiction with
respect to the performance of Services, copies of which shall be provided to
Telergy upon request.

In the event a contractor's performance bond is required in connection with a
particular construction project, the terms and conditions of any such bond shall
be set forth in the particular Backbone Construction Contract.

In the event that any property installed in the construction of any Backbone
Network shall become subject to any mechanics', artisans, materialmens' or
similar construction liens ("Lien") chargeable to or through MasTec or its
subcontractors, suppliers or representatives, and for which Telergy has paid
MasTec in full, MasTec shall promptly cause such lien to be discharged and
released of record, by payment, posting of bond, court deposit or other means,
without cost to Telergy and MasTec shall indemnify Telergy against all
reasonable cost and expense, including reasonable attorneys' fees, 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
Telergy to MasTec, or within such shorter period as shall be mandated under
applicable local law, then Telergy may pay or secure the release or discharge
thereof at the cost and expense of MasTec; provided further that nothing herein
shall preclude MasTec or Telergy from contesting any such Lien or the contract
or action upon which the Lien arose after the Lien has been bonded as
contemplated herein.

                                       6
<PAGE>   9

6.0 CONDITIONS

Prior to execution of each Backbone Construction Contract, Telergy shall provide
MasTec with copies of any relevant sections of right-of-way access agreements
and/or construction rules and regulations that apply to the particular Backbone
Network, and MasTec shall ensure that it is fully informed as to the nature of
the geographic locations of the Backbone, the physical climatic and other
conditions prevailing at the work site, and all other matters which may in any
way affect the Services to be performed under the Backbone Construction
Contracts, as well as the costs thereof and the time for performing Services. By
way of example but not limited to the foregoing, MasTec agrees to: (a) examine
the specifications, drawings and all other contract documents: (b) inspect the
work site, the size and location of the work areas, the access thereto, and the
availability of utilities; and (c) fully inform itself as to the character,
quality and quantity of the surface and subsurface materials and conditions to
be encountered including, but not limited to, the rock water and soil conditions
and the scope and amount of Services required.

In the course of Backbone Network planning, Telergy may, but shall not be
required to contract with independent contractors for consultative engineering
services, geological studies, rock and survey reports, soil boring reports, and
for other matters of an informational nature. Any such engineering services,
studies, reports or informational matter will be made available to MasTec for
its use in connection with any Backbone Construction Contract, provided however
that MasTec shall be responsible for any conclusions it draws from such reports
and may, at its option and expense, retain its own experts to analyze data and
make additional explorations, tests or studies.

7.0 PERMITS, REGULATIONS, LICENSES AND NOTICES

Unless otherwise required by applicable ordinances, codes or statutes, or as
otherwise agreed to by the parties in any Backbone Construction Contract,
Telergy shall generally obtain all necessary highway permits, construction
permits or right-of-way grants, at its cost and expense.

Telergy is responsible for obtaining all other permits, licenses and other
necessary authorizations to construct and install each Backbone Network,
including all required authorizations from the Right-of-Way Owner and any local
municipalities or governmental authorities to perform the Services. Telergy
shall also be responsible for payment of any inspection or similar fees and
expenses. All necessary permits, licenses and certificates, municipal or
otherwise, including all permits required to handle or use dynamite or other
explosives and the licenses set forth in Section 5 of this Agreement, that are
required in connection with the construction of any Backbone Network shall be
obtained by MasTec, at its expense.

MasTec shall comply strictly with local, municipal, state, federal and
governmental laws, orders, codes and regulations applicable to MasTec's
operations in the performance of the Services hereunder.

MasTec shall coordinate with Telergy with respect to any negotiations with any
governmental authority or agency for acceptance of variations from or revisions
to safety or health, environmental, air, water or noise pollution laws or
regulations relating to this Contract or to the performance thereof and shall
not agree to any such variations or revisions without Telergy's consent, which
will not be withheld unreasonably.

All Services shall be performed in compliance with the instructions of all
responsible governmental

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<PAGE>   10

officials regarding maintenance of traffic and protection of the public.

8.0 CONTROL AND SUPERVISION OF SERVICES

For all Services to be performed under any Backbone Construction Contract,
MasTec shall have full control and direction over the mode and manner of
performing Services, including responsibility for its personnel and
subcontractors. MasTec warrants that it shall provide an adequate number of
qualified and competent project management and supervisory staff, craft persons
and other personnel to perform the Services on a timely basis. At all times
during the course of the Services, MasTec shall provide at the site of the
Services a qualified, competent and responsible MasTec Representative who shall
be approved by Telergy prior to performance of any Services under any Backbone
Construction Contract. Each MasTec Representative shall have full authority to
represent MasTec with respect to any and all matters pertaining to the specific
Backbone Construction Contract, except pricing, which may not be changed without
the written authorization of an officer of MasTec. Telergy shall assign a
Telergy Representative to each Backbone Construction Contract, who shall have
full authority to represent Telergy with respect to any and all matters
pertaining to the specific Backbone Construction Contract, except pricing, which
may not be changed without the written authorization of an officer of Telergy.

For each Backbone Construction Contract, MasTec shall furnish Telergy with the
names and addresses of MasTec's subcontractors, field employees and any key
personnel who will be providing Services in connection with the Backbone
Network.

MasTec acknowledges that Telergy's use of utility and municipal rights-of-way is
subject to close scrutiny and agrees to perform all Services in strict
compliance with rules, requirements and regulations of Right-of-Way Owners, and
the Federal, State, and Local safety and health and performance rules.

9.0 OTHER CONTRACTORS, COOPERATION AND INTERFERENCE

As set forth in Section 2 of this Agreement, Telergy reserves the right to
solicit bids or quotations for the provisioning of Services from, and to award
contracts to, other contractors when necessary to comply with regulatory or
utility requirements and in the event that MasTec's pricing is not competitive
at the time a Backbone Construction Agreement is intended to be executed.
Telergy agrees however that so long as MasTec's quote is comparable in terms of
pricing, terms and conditions and completion dates, Telergy shall award any such
Services to MasTec to the maximum extent permissible. Further Telergy agrees
that all bids submitted by other contractors shall be for comparable Services of
equal quality and that bids for the construction of Backbone Networks shall be
accepted only from entities with a proven record and expertise to perform such
specialized construction activities. To the extent legally permissible, Telergy
agrees that MasTec shall have a first right of refusal to meet the prices and
terms and conditions of any competing quotation.

MasTec warrants the performance of any Services performed by itself and its
subcontractors for a period of one-year after the specific Backbone Network is
completed. In the provisioning of all Services, MasTec agrees to use, at a
minimum, the standards of care, skill and diligence ordinarily provided by a
professional telecommunications construction company providing the unique and
specialized services as contemplated by this Agreement.

                                       8
<PAGE>   11

10.0 CONTRACT PRICE, INVOICING AND PAYMENTS

The charges, fees and pricing for Services along with the costs for Materials
and Equipment to be purchased by MasTec on Telergy's behalf shall be set forth
in each Backbone Construction Contract, under the following general parameters:
(1) prices to be paid by Telergy for Services shall be competitive with other
similar contractors and shall include all local, state and federal taxes,
charges and excises that may be imposed in connection with the Services, which
sales and use taxes, if any, which shall be stated separately on each invoice.

MasTec or its Subsidiary shall submit invoices to the Director of Operations of
Telergy Inc., which invoices shall contain detailed itemization and appropriate
documentation for each charge. Telergy shall make payment to MasTec or its
Subsidiary within thirty days of receipt of properly submitted and documented
invoices or shall notify MasTec in writing of any questions or additional
documentation reasonably required. Each Backbone Construction Contract shall
provide for retainage if any is required in connection with a specific Backbone
Network. .

Pursuant to the terms of the Financing Agreement and related documents executed
simultaneous herewith, Telergy may use the financing provided by the Financing
Agreement to make payment of invoices under the Backbone Construction Contracts,
up to an aggregate maximum of Fifty Million Dollars ($50,000,000) at any time
for Services performed under this Agreement or the Backbone Construction
Contracts, subject to the other terms and conditions of the Financing Agreement.
MasTec shall be entitled, in its discretion, to stop work on any pending
Backbone Construction Contracts, unless amounts due under the Financing
Agreement for the particular Backbone Construction Contract or any other
agreement between Telergy and MasTec are paid in full when due.

The specific prices applicable to each Backbone Network shall be set forth in
the particular Backbone Construction Contract, with payments terms governed by
this Agreement and, if applicable, the Financing Agreement.

11.0 RECORDS

MasTec shall maintain complete records including, but not limited to all labor
and Equipment hours, Material purchased, and Services subcontracted to other
parties in connection with all unit rate and cost plus fee Services. The records
shall be maintained in accordance with recognized commercial accounting
practices and in such manner that they may be readily audited. The records,
including all supporting documents, shall be available at all reasonable times
for audit or inspection by Telergy both during the contract period and for one
(1) year following the date of final payment or until all disputes, if any,
between MasTec and Telergy have been finally resolved, whichever is later. After
approval by Telergy's Representative, one copy shall be retained by Telergy's
Representative and one copy by MasTec's Representative

12.0 INSURANCE/INDEMNITY

The parties agree that each Backbone Construction Contract (and any contracts
between MasTec and its subcontractors) shall include the insurance and
indemnification requirements as the parties mutually

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<PAGE>   12

agree, provided however that any insurance or indemnification requirements under
right-of-way access or municipal franchise agreements governing Telergy shall be
included in each such Backbone Construction Contract.

Unless otherwise required by Telergy's contracts with utilities or local
franchising authorities, MasTec will indemnify, defend and hold harmless Telergy
and its officers, directors, stockholders, affiliates, subsidiaries, employees,
agents, subMasTecs, independent MasTecs, independent contractors, officers,
directors, subcontractors, and other representatives (collectively the "Telergy
Indemnities") from and against any and all claims, damages, liabilities, losses,
injuries and expenses (including reasonable attorney and paralegal fees and
court costs and expenses, including penalties and interest) (collectively
"Losses") incurred or suffered, directly or indirectly, by the Telergy
Indemnities and arising out of or resulting from, directly or indirectly, the
performance or quality of the Services or the materials supplied or procured by
MasTec, from any breach of this Agreement or a Backbone Construction Contract by
MasTec or its affiliates, subsidiaries, agents, or subcontractors ("MasTec
Entities"), or from any other action or omission of the MasTec Entities or their
officers, directors, stockholders, employees, independent contractors, invitees
or others under its direction and control.

Unless otherwise required by Telergy's contracts with utilities or local
franchising authorities, Telergy will indemnify, defend and hold harmless MasTec
and its officers, directors, stockholders, affiliates, subsidiaries, employees,
agents, subcontractors, independent contractors and other representatives
(collectively the "MasTec Indemnities") from and against any and all Losses
incurred or suffered, directly or indirectly, by the MasTec Indemnities and
arising out of or resulting from, directly or indirectly, any breach of this
Agreement or a Backbone Construction Contract by Telergy or its affiliates,
subsidiaries, agents, or subcontractors ("Telergy Entities"), or from any other
action or omission of the Telergy Entities or their officers, directors,
stockholders, employees, independent contractors, invitees or others under its
direction and control.

Unless otherwise required by Telergy's contracts with utilities or local
franchising authorities, the obligations to indemnify and hold harmless pursuant
to this Section 12 will survive the termination of this Agreement. The
obligations of the indemnifying party (the "Indemnitor") under this Section 12
to the other party (the "Indemnitee") with respect to claims, demands, damages,
liabilities, costs and expenses asserted by third parties ("Third Party Claims")
will be subject to the following terms and conditions: The Indemnitee will give
the Indemnitor prompt notice of any Third Party Claim, and the Indemnitor will
assume the defense, compromise or settlement thereof promptly by representatives
of its own choosing, at its own cost and expense. No settlement will be agreed
to without the Indemnitee's prior written consent, which shall not be
unreasonably withheld. The Indemnitee will afford the Indemnitor a reasonable
opportunity to resolve the Third Party Claim. The Indemnitee may not offset
against amounts due to the Indemnitor the amount of any Third Party Claim until
the Indemnitor has had a reasonable opportunity to defend and resolve the claim.

                                       10
<PAGE>   13

To the extent that Telergy's contracts with utilities or local franchising
authorities requires other provisions governing indemnification, the specific
Backbone Construction Contract shall contain such provisions which shall apply
to and govern indemnification under the particular Backbone Construction
Contract. The Backbone Construction Contracts shall also set forth the
particular insurance Provisions required in connection with the particular Other
Network. After the date of this Agreement, Telergy agrees to use its best
efforts to negotiate all contracts with utilities or local franchising
authorities in a manner so as to prevent any conflict between the provisions of
this Section 12 and such contracts and to permit and uphold the desired
indemnification provisions of Telergy and MasTec as provided in this Section 12.

13.0 PROTECTION OF SERVICE AND PROPERTY

MasTec shall protect all other structures, utilities and Services of any kind
against damage or interruption of service and shall preserve and protect all
trees, shrubs, grass, or other vegetation on or adjacent to the right-of-way or
Services site which do not unreasonably interfere with the Services, and unless
otherwise required by Telergy, MasTec shall restore all property which may be
disturbed in the execution of the Services substantially to its former
condition. Should MasTec fail to properly restore property which MasTec or its
subcontractors have disturbed and should Telergy be required under any contract
with a public utility or local franchising authority to incur any expense in
restoring the same, MasTec shall reimburse Telergy for all reasonable expenses
or, upon notice to MasTec, Telergy may deduct the cost thereof from any amount
due or to become due for Services, unless MasTec objects in writing and
demonstrates that such expenses incurred by Telergy were not reasonable.

14.0 PROPERTY OWNER CLAIMS

MasTec agrees that during performance of Services, Telergy shall be informed of
all communications between MasTec and property owners from whom Telergy has
procured an easement or other property rights. MasTec agrees to cooperate with
Telergy in maintaining good relations with said property owners.

15.0 DEFAULTS

The parties acknowledge that construction and installation of each Backbone
Network may have specific deadlines and the parties agree that the applicable
Backbone Construction Contract shall contain specific default and cure
provision, which will vary depending on whether the time to complete the
specific Backbone Network is "of essence." Subject to Section 29 of this
Agreement, MasTec acknowledges that Telergy will suffer substantial damage if
construction is not completed in accordance with the specific utility,
regulatory or local franchise contracts, rules and requirements that will be set
forth in each particular Backbone Construction Contract, and that MasTec's,
and/or its Subsidiaries' or agents' failure to comply with the same will be
grounds for default by MasTec and the MasTec Subsidiary that has entered into
the specific Backbone Construction Contract with an opportunity to cure only to
the extent the contract governing Telergy's use of rights-of-way or facilities
provides a cure period. Telergy shall provide copies of the sections of the
applicable documents as and when specific Backbone Construction Contracts are
signed.

16.0 ASSIGNMENT

Neither party shall assign its rights or delegate its obligations under this
Operating Agreement or any Backbone Construction Agreement, without the prior
written consent of the other party, which shall not be unreasonably withheld,
except MasTec can delegate the performance of its obligations hereunder to

                                       11
<PAGE>   14

any of its operating subsidiaries or divisions, and with the written consent of
Telergy which shall not be unreasonably withheld, to any third-party
subcontractor, and Telergy can delegate the performance of its services and
financing under the Financing Agreement to any of its subsidiaries or operating
companies that sign a specific Backbone Construction Contract, provided however
that the parties to this Agreement shall be and remain at all times the
responsible parties hereunder.

17.0 PUBLICITY

MasTec and Telergy shall submit to the other party proposed copies of all
advertising or other publication wherein the name, trademark, code,
specification or service mark of the other party or its Subsidiaries or
affiliates is mentioned. MasTec, Telergy and their respective subcontractors
shall not make news releases, publicize or issue advertising or any other
publication with respect to the above or pertaining to the Services or this
Operating Agreement without first obtaining approval from the other party in
advance, which shall not be unreasonably withheld.

18.0 GOVERNMENT REQUIREMENTS

MasTec expressly agrees not to discriminate against any employee or applicant
for employment because of race, color, religion, sex, national origin or
handicap, and shall during the performance of this Contract comply with all
applicable Executive Orders and state and federal statutes and regulations.

MasTec shall develop an appropriate safety management plan and take all
reasonably necessary safety and other precautions to protect property and
persons from damage, injury or illness arising out of the performance of the
Services. MasTec shall comply with local, municipal, provincial, state, and
federal laws, orders, and regulations pertaining to health or safety which are
applicable to MasTec or to the Services, including, without limitation, the
Occupational Safety and Health Act of 1970 (84 U.S.C. 1950), as amended, and any
State plans approved thereunder and regulations thereunder to the extent
applicable. and MasTec agrees that the Materials, Equipment and facilities
whether temporary or permanent, furnished by MasTec in connection with the
performance of the Services shall comply with any such reasonably necessary
safety and other precautions.

When working on any right-of-way, the safety and continuity of operations of the
underlying Right-of-Way Owner are of paramount importance. MasTec shall arrange
the work so that the rights-of-way and facilities and any property within or
adjacent to the same are protected and safeguarded at all times.

MasTec shall utilize a suitable qualified safety inspector who will head its
safety program. This safety organization will be responsible for developing the
required safety plan, insuring attendance by all MasTec's employees, its agents
and its subcontractors' personnel at the safety training classes, and enforcing
compliance therewith in accordance with the applicable safety requirements,
laws, regulations, codes, this Agreement, and the specific Backbone Construction
Contracts.

MasTec shall take particular care to prevent the fouling of the rights-of-way
and facilities, and to avoid coming in contact with, or causing damage to the
same, any water, sewer, steam, gas, fuel, or other pipe lines, mains or service
pipes, electrical communications, other energy transmission conduits, cables,
wires, or service connections, other private, utility, or governmental
facilities, and any hazardous, toxic, or dangerous condition or thing, whether
they are located upon below, or above the ground surface.

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<PAGE>   15

Telergy shall provide MasTec with all information in its possession regarding
the location of underground or other utilities in or around project sites.
MasTec shall be responsible for protection of the integrity of the rights-of-way
and facilities and any property within or adjacent thereto. Damage, if caused by
MasTec or its Subsidiaries, representatives or subcontractors, will be the
responsibility of and costs shall be borne solely by MasTec or its
subcontractors. MasTec shall take proper measures to determine the presence of
noxious, combustible, or explosive gases and to prevent ignition in and around
manholes, excavations, and other openings. MasTec shall take all necessary
and/or customary precautions to prevent injury to persons or property from open
manholes, excavations, ditches, and from materials or equipment left on the
worksite, by placing signs and lights, erecting barricades, or doing other
things as prudence may require or as mandated by law, local regulations, or the
right-of-way owners.

MasTec shall comply, at its own expense, with all applicable provisions of the
Workers' compensation, unemployment compensation, sickness and disability social
security laws, Fair Labor Standards Act and all other local, state, and federal
laws or regulations relating to employment and to the licensing and operation of
contractors, applicable to its employees. Upon request from Telergy, MasTec
shall submit evidence of compliance with or coverage or qualification under all
applicable laws or regulations.

MasTec shall fully comply with all laws and regulations as well as utility
requirements relating to protection of the environment and to the use, storage,
handling and disposal of all hazardous substances, materials and waste.

19.0 WRITTEN NOTICE

All notices, demands, requests, instructions, approvals, proposals and claims
shall be in writing and shall be addressed as follows:

                  MASTEC NORTH AMERICA, INC.
                  3155 N.W. 77th Avenue
                  Suite 130
                  Miami, Florida 33122-1205
                  Attn: Legal Department

                  Telergy Inc.
                  20 Corporate Woods
                  Suite 100
                  Albany, New York 12211
                  Attn: General Counsel

20.0 CHOICE OF LAW AND INTERPRETATION

Each Backbone Construction Contract shall establish choice of law and venue
provisions. This Agreement shall be governed by, and interpreted according to
the laws of the State of Florida without giving effect to the principles of
conflicts of law. No claim, demand, action, proceeding arbitration,

                                       13
<PAGE>   16

litigation, hearing, motion or lawsuit arising from, related to, or connected
with this Agreement shall be commenced or prosecuted in any jurisdiction other
than state or federal courts located in the Dade County, Florida, and any
judgment, determination, order, finding or conclusion reached in any other
jurisdiction shall be null and void between the parties hereto.

If any legal proceeding is brought to enforce or interpret this Agreement or any
provision thereof, the prevailing party in any such proceeding shall be entitled
to recover from the other party its reasonable attorneys' and paralegal fees and
court costs. The parties recognize that their respective performance of their
obligations under Section 2 for MasTec to serve as Telergy's Strategic
Construction Contractor is special, unique and extraordinary in character, and
that in the event of the breach or threatened breach by either party of this
obligation, the other party would suffer irreparable injury for which no
adequate remedy at law may exist. Accordingly, in the event of a breach or
threatened breach by either party, the other party will be entitled, if its so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction as defined in this Agreement and the Backbone Construction
Contracts, either in law or in equity, to obtain damages for any breach of this
obligation, to enforce the specific performance of this Agreement by the other
party, or to enjoin it from breaching or attempting to breach this obligation.

21.0 CONSENTS

No consent or approval required of any party in connection with this Agreement
or the Backbone Construction Contracts shall be unreasonably withheld or
delayed.

22.0 NO WAIVER

Any waiver by any party at any time 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 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.

23.0 REMEDIES

Unless otherwise expressly provided in this Agreement, 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 by this Agreement.

24.0 SEVERABILITY

Any provision of this Agreement that is invalid, illegal or unenforceable in any
manner and in any jurisdiction shall be, as to such jurisdiction, ineffective to
the extent of such invalidity, illegality or unenforceability without in any way
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

                                       14
<PAGE>   17

jurisdiction.

25.0 COMPLIANCE

The parties 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.

26.0 BINDING CONTRACT

The provisions of this Agreement, including the attachments and exhibits hereto
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, successors and assigns.

27.0 ACTS IN FURTHERANCE OF CONTRACT

The parties 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 Operating Agreement, as another party may reasonably request
from time to time, in furtherance of the strategic relationship contemplated
hereunder.

28.0 CONFIDENTIALITY

MasTec agrees that all information, analysis, conclusions, drawings, reports,
specifications ("Information") developed by Telergy or developed by MasTec for
or on behalf of Telergy pursuant to this Agreement or the Backbone Construction
Contracts shall be the sole property of Telergy and that any Information
received by MasTec with respect to the business of Telergy or the Services
contemplated hereunder, proprietary or otherwise, shall be kept confidential and
any Information or other property of Telergy received by MasTec in connection
with the Services shall be returned to Telergy upon completion of the same.

29.0 FORCE MAJEURE

Any failure of a party to perform its obligations under this Agreement shall not
be a breach of this Agreement to the extent such failure results from acts of
God (including fires, hurricanes, earthquakes, tornadoes, flooding, snow storms,
severe thunderstorms, or similar natural occurences), war, riots and civil
insurrection, outbreaks of hostilities, states of emergency, governmental
delays, supply shortages (including power, gasoline, and other fuel shortages),
labor disputes, shortages or strikes or transportation delays, or similar
occurrences beyond the reasonable control of the party.

30.0 TERM AND TERMINATION

This Operating Agreement shall be effective from its date through April 30, 2001
(the "Initial Term"). Thereafter, it shall automatically renew for successive
one-year terms until either party gives written Notice in accordance with
Section 19 of its intention not to renew at least ninety days prior to the end
of any contract year, provided however that this Agreement shall terminate at
MasTec's sole discretion upon termination of the Financing Agreement, and any
Backbone Construction Contracts then underway

                                       15
<PAGE>   18

(and not otherwise terminated) shall survive termination of this Agreement until
said Contracts have been completed or terminated.

Notwithstanding the foregoing, (a) the indemnification obligations of any of the
parties will continue until the expiration of the applicable statute of
limitations, and (b) the termination of this Agreement due to Telergy's breach
will not terminate Telergy's obligations to MasTec under Section 2 or 20 of this
Agreement. Either party may terminate this Agreement upon thirty (30) days'
prior written notice to the other party because of (a) a breach by the other
party of a material term of this Agreement or the Financing Agreement. Either
party may terminate this Agreement or any Backbone Construction Agreement if the
other party becomes insolvent, is unable to pay its debts as they become due,
makes a general assignment for the benefit of creditors, files a voluntary
bankruptcy petition, or takes or has taken against it other similar action. The
party receiving notice of termination may cure the breach or other reason for
termination within thirty (30) days of prior written notice from the terminating
party, except for default under the Financing Agreement may be cured only as
provided in the Financing Agreement and related documents. Upon termination of
this Agreement or any Backbone Construction Contracts, MasTec will immediately
cease the performance of all Services on projects covered under this Agreement
or any terminated Backbone Construction Contract and vacate the job sites,
returning all tools, equipment, vehicles and materials supplied or paid for by
Telergy or other MasTec Subsidiaries. Telergy must pay all amounts due to MasTec
under this Agreement, any terminated Backbone Construction Contracts and the
Financing Agreement within thirty (30) days of such termination. In the event of
a Backbone Construction Contract is terminated by MasTec or is terminated by
Telergy due a breach by MasTec, Telergy shall be free to bring in any other
contractor or agent as necessary or appropriate to complete the Services to be
performed under such Backbone Construction Contract.

                                       16
<PAGE>   19

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives on this 6th day of May 1998.

MASTEC NORTH AMERICA, INC.          TELERGY, INC.

/s/Edward D. Johnson                /s/Brian P. Kelly
--------------------                -------------------
Signature                           Signature

Edwin D. Johnson                    Brian P. Kelly
Title: Senior Vice President        Chief Executive Officer.
       and Chief Financial Officer

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