Directors and Officers Insurance Premium Trust Agreement between Mpower Holding Corporation and HSBC Bank USA

Summary

Mpower Holding Corporation and HSBC Bank USA have entered into an agreement to establish an irrevocable trust. The trust is funded by Mpower to pay premiums for directors and officers insurance policies, ensuring coverage for current and former directors and officers for at least six years after a change of control or their departure. HSBC acts as trustee, managing the funds and making premium payments as directed. The trust assets are separate from company funds and can only be used for insurance premiums, with excess assets returned to the company after all obligations are met.

EX-10.20 12 y84771exv10w20.txt DIRECTORS AND OFFICERS INSURANCE PREMIUM PLAN EXHIBIT 10.20 HSBC BANK USA MPOWER HOLDING CORPORATION DIRECTORS AND OFFICERS INSURANCE PREMIUM TRUST AGREEMENT [HSBC LOGO] DIRECTORS AND OFFICERS INSURANCE PREMIUM TRUST AGREEMENT THIS AGREEMENT (hereinafter referred to as the "Trust Agreement"), made this 15th day of November, 2002 by and between Mpower Holding Corporation, a corporation organized and existing under the laws of the State of Delaware and having its principal offices at 175 Sully's Trail, Suite 300, Pittsford, New York, 14534 (the "Company"), and HSBC Bank USA ("HSBC"), a bank organized under the laws of the State of New York and having a principal place of business at One HSBC Center, Buffalo, New York 14203 (the "Trustee"). WITNESSETH: WHEREAS, the Company is from time to time a party to various officers and directors indemnifications insurance policies (together with any replacement, renewal or successor policies, the "Policies"), underwritten by various insurance companies (together with any successor thereto or any underwriter of a replacement, renewal or successor Policies or any successor thereto, the "Insurers"); and WHEREAS, the Trustee is not a party to the Policies and makes no representations with respect thereto, and all representations and recitals with respect to the Policies shall be deemed to be those of the Company; and WHEREAS, the Company wishes to establish a trust (the "Trust") to fund the payment of such premiums (the "Premiums") as necessary to purchase and maintain the Policies in accordance with the terms of this Trust Agreement; and WHEREAS, the Company wishes to contribute assets to the Trust that shall be held therein to pay the Premiums. NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: SECTION 1 Establishment of Trust (a) (i) The Company hereby deposits with the Trustee in trust $2,000,000, which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. (ii)The Trustee hereby accepts a trust consisting of the initial deposit referred to in the preceding sentence and such cash or other property acceptable to the Trustee as shall be paid or delivered to the Trustee from time to time, together with the earnings, income, additions and appreciation thereon and thereto (all of which is hereinafter called the "Fund"). (b) The Trust hereby established shall be irrevocable. (c) The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code, and shall be construed accordingly. (d) The principal of the Trust, and any earnings thereon, shall be held separate and apart from other funds of the Company and shall be used exclusively for the payment of Premiums to provide such coverage, for such duration and under such circumstances described in Section 2(a) of this Trust Agreement. It is intended that Trust assets will be used solely to pay the Premiums and will neither revert to the Company except with respect to excess assets as discussed in Section 11, nor be paid to any Covered Person (as defined below), or any creditors of the Company, the Insurer or any Covered Person. (e) The Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Neither the Trustee, any Covered Person nor the Insurer shall have any right to compel such additional deposits, or any other contribution to the Trust. SECTION 2 Payment of Premiums (a) (i) The Trustee shall pay when due from the Fund, such Premiums as necessary to purchase and maintain officers and directors indemnification insurance of not less than $20,000,000 (the "Run-Off Policy"), such that each director and officer covered under the Run-Off Policy as of the date hereof or at any time hereafter (each, a "Covered Person"), shall continue to be covered by officers and directors indemnification insurance and for six years following the earlier of (A) a change of control of the Company or the cessation of the Company's business, including by reason of the sale of all or substantially all of the stock or assets or the liquidation of the Company, or (B) the date that such Covered Person ceases to be a director or officer of the Company. (ii)The Company shall from time to time deliver to the Trustee following the execution of this Trust Agreement any information that is reasonably necessary to calculate or ascertain the amount and payment date of any Run-Off Policy Premiums and any other information that the Trustee may reasonably request. (b) The entitlement of a Covered Person to benefits under the Run-Off Policy shall be determined by the Company and/or the Insurer pursuant to the terms of the Run-Off Policy and the Trustee shall have no authority over and no responsibility for the determination of or disposition of claims for benefits under the Run-Off Policy. (c) If the principal of the Trust, and any earnings thereon, are not sufficient to pay any Premium as it falls due, or any portion thereof, the Company shall pay such Premium, or portion thereof, as it falls due. The Trustee shall notify the Company where principal and earnings are not sufficient. SECTION 3 Payments to the Company The Company shall have no right or power to direct the Trustee to return to the Company or to divert to any person any of the Trust assets before all Premiums have been paid in accordance with this Trust Agreement. 2 SECTION 4 Investment Authority (a) Subject to subsections (b) and (c) of this Section 4, the Trustee shall have the exclusive authority and discretion to manage and control the assets of the Fund as specified in this Section 4, and pursuant to such authority and discretion may exercise from time to time and at any time the power: (i) To invest and reinvest the Fund, without distinction between principal and income, in the group, family or class of mutual funds or other securities specified in writing by the Company (the "Investment Guidelines") which the Company shall provide to the Trustee following the execution of this Trust Agreement, and which shall constitute the exclusive permitted investments of the Fund (such Investment Guidelines to be annexed hereto as Exhibit 3); (ii) To exercise, personally or by general or limited proxy, the right to vote any securities held in the Fund, and to exercise, personally or by power of attorney, any other right appurtenant to securities held by the Fund; (iii) To exercise or sell any conversion or subscription or other rights appurtenant to any securities held in the Fund; and (iv) To invest and reinvest any property, real or personal, in the Fund in any other form or type of investment not specifically mentioned in this subsection (a), so long as the Company directs the Trustee to invest in such form or type of investment. (b) (i) The Trustee may invest in securities (including stock or rights to acquire stock) or obligations issued by the Company or the Bank. All rights associated with assets of the Trust shall be exercised by the Trustee or the person designated by the Trustee, and shall in no event be exercisable by or rest with Covered Persons. (ii) Any investment by the Trustee in securities or obligations of the Company or the Bank shall be subject to prior written approval of the Company. (c) The Trustee shall exercise its powers under this Section 4 in a manner consistent with the Investment Guidelines and shall have no liability whatsoever for any loss, cost or expense occasioned by any investment in accordance the Investment Guideline or otherwise in accordance with this Section. (d) To the extent permitted by law, the Trustee shall not be liable for any act or omission of the Company hereunder and, except as set forth hereunder, the Trustee shall not be under any obligation to invest or otherwise manage the assets of the Plan. Without limiting the generality of the foregoing, the Trustee shall not be liable by reason of its taking or refraining from taking any action hereunder at the direction of the Company; the Trustee shall be under no duty to question or to make inquiries as to any direction or order or failure to give direction or order by the Company, and the Trustee shall be under no duty to make any review of investments acquired for the Fund at the direction or order of the Company and shall be under no duty at any time to make any recommendation with respect to disposing of or continuing to retain any such investment. (e) Without limiting the generality of the provisions of Section 7 hereof, the Company agrees, to the extent permitted by law, to indemnify the Trustee and hold it harmless from and against any claim or liability that may be asserted against it, otherwise than on account of the Trustee's own gross negligence or willful misconduct or violation of any provision of law, by reason of the Trustee's taking or refraining from taking any action in accordance with this Section 4. (f) Subject to the other provisions of this Trust Agreement, the Trustee shall have the power and authority to be exercised in its sole discretion at any time and from time to time to issue and place 3 orders for the purchase or sale of securities directly with qualified brokers or dealers. Such orders may be placed with such qualified brokers and/or dealers who also provide investment information or other research or statistical services to the Trustee in its capacity as a fiduciary or investment manager for other clients. SECTION 5 Disposition of Income During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. SECTION 6 Accounts (a) (i) The Trustee shall keep accurate and detailed records of all receipts, investments and disbursements under this Trust Agreement. Such person or persons as the Company shall designate shall be allowed to inspect the books of account relating to the Fund upon request at any reasonable time during the business hours of the Trustee. (ii) Within 120 days after the close of each calendar year, the Trustee shall transmit to the Company, and certify the accuracy of, a written statement of the assets and liabilities of the Fund at the close of that calendar year, showing the current value of each asset at that date, and a written account of all the Trustee's transactions relating to the Fund during the period from the last previous accounting to the close of that calendar year. (For purposes of this Section, the date of the Trustee's resignation or removal as provided in Section 9 hereof or the date of the termination of the Trust as provided in Section 11 hereof shall be deemed to be the close of a calendar year with respect to the Trustee's resignation or the termination of the Trust, as the case may be.) (iii) Unless the Company shall have filed with the Trustee written exceptions or objections to any such statement or account within 180 days after receipt thereof, the Company shall be deemed to have approved such statement and account; and in such case, or upon the written approval by the Company of any such statement and account, the Trustee shall be forever released and discharged with respect to all matters and things expressly set forth in such statement and account as though it had been settled by decree of a court of competent jurisdiction in an action or proceeding to which the Company and all persons having any beneficial interest in the Fund were parties. (b) Nothing contained in this Trust Agreement shall deprive the Trustee of the right to have judicial settlement of its accounts. In any proceeding for a judicial settlement of the Trustee's accounts, or for instructions in connection with the Fund, the only other necessary party thereto in addition to the Trustee shall be the Company. If the Trustee so elects, it may bring in as a party or parties defendant any other person or persons. No person interested in the Fund, other than the Company, shall have the right to compel an accounting, judicial or otherwise, by the Trustee, and each such person shall be bound by all accountings by the Trustee to the Company, as herein provided, as if the account had been settled by decree of a court of competent jurisdiction in an action or proceeding to which such person was a party. SECTION 7 Responsibility of Trustee (a) The Trustee shall discharge its duties under this Trust Agreement with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company which is contemplated by, and 4 in conformity with, the terms of this Trust Agreement and is given in writing by the Company. The duties and obligations of the Trustee shall be limited to those expressly imposed upon it by this Trust Agreement, notwithstanding any reference herein to the Policy. (b) The Trustee shall have no duty to commence or defend any legal action arising in connection with the Trust unless it shall first have been indemnified, in manner and substance satisfactory to it, against its costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto. (c) The Trustee may consult with counsel, who may be counsel for the Company or for the Trustee in its individual capacity, and shall not be liable for any actions taken or omitted in accordance with the opinion of counsel. The Company agrees, to the extent permitted by law, to indemnify and hold the Trustee harmless from and against any liability that it may incur in connection with the this Trust Agreement, unless arising from the Trustee's own grossly negligent or willful misconduct, violation of law or willful breach of the provisions of Section 7(a). The Trustee shall not be required to give any bond or other security for the faithful performance of its duties under this Trust Agreement, except as required by law. The Trustee, in its corporate capacity, shall not be liable for claims of any persons in any manner regarding the Policy. (d) (i) The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein; provided, however, that if an insurance policy is held as an asset of the Trust, the Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee or to loan to any person the proceeds of any borrowing against such policy. (ii) The Trustee shall have, and in its sole and absolute discretion may exercise from time to time and at any time, the following administrative powers and authority with respect to the Fund consistent with the provisions of Section 4: (A) To continue to hold any property of the Fund whether or not productive of income; to reserve from investment and keep unproductive of income, without liability for interest, cash temporarily awaiting investment and such cash as it deems advisable or as the Company from time to time may specify in order to meet the administrative expenses of the Fund or anticipated distributions therefrom; (B) To hold property of the Fund in its own name or in the name of a nominee or nominees, without disclosure of the Trust, or in bearer form so that it will pass by delivery, but no such holding shall relieve the Trustee of its responsibility for the safe custody of the Fund in accordance with the provisions of the Trust Agreement; the Trustee's books and records shall at all times show that such property is part of the Fund; and, subject to Section 7(c), the Trustee shall be absolutely liable for any loss occasioned by the acts of its nominee or nominees with respect to the securities registered in the name of the nominee or nominees; (C) To employ in the management of the Fund suitable agents, without liability for any loss occasioned by any such agents selected by the Trustee with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a 5 like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. (D) To do all other acts that the Trustee may deem necessary or proper to carry out any of the powers set forth in Section 4 hereof or otherwise in the best interests of the Fund. (e) Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section ###-###-####-2 of the Procedure and Administrative Regulations promulgated pursuant to the Code. (f) Unless the Trustee participates knowingly in, or knowingly undertakes to conceal, an act or omission of the Company, or any other fiduciary, knowing such act or omission to be a breach of fiduciary responsibility, the Trustee shall be under no liability for any loss of any kind which may result by reason of such act or omission. (g) If a dispute arises as to the payment of any funds or delivery of any assets by the Trustee, the Trustee may withhold such payment or delivery until the dispute is determined by a court of competent jurisdiction or finally settled in writing by the parties concerned. SECTION 8 Taxes, Compensation and Expenses (a) (i) The Company shall pay any Federal, state, local or other taxes imposed or levied with respect to the corpus and/or income of the Fund or any part thereof under existing or future laws. (ii) All taxes that may be levied or assessed upon, or in respect of, the Fund shall be paid from the Fund. The Trustee shall notify the Company of any proposed or final assessments of taxes and may assume that any such taxes are lawfully levied or assessed, unless the Company advises it in writing to the contrary within 15 days after receiving the above notice from the Trustee. In such case, the Trustee, if requested by the Company in writing, shall contest the validity of such taxes in any manner deemed appropriate by the Company; the Company may itself contest the validity of any such taxes, in which case the Company shall so notify the Trustee and the Trustee shall have no responsibility or liability respecting such contest. If either party to this Trust Agreement contests any such proposed levy or assessments, the other party shall provide such information and cooperation as the party conducting the contest shall reasonably request. (b) The Trustee, without direction from the Company, shall pay from the Fund from time to time such reasonable compensation for its services as trustee as shall be agreed upon with the Company, the reasonable and necessary expenses and compensation of counsel and other agents employed or engaged by the Trustee pursuant to Section 7(d)(ii)(C) and all other reasonable and necessary expenses of managing and administering the Fund (which the Trustee, in its discretion, determines to be necessary or appropriate) that are not paid by the Company. 6 SECTION 9 Resignation and Removal of Trustee (a) The Trustee may resign at any time by written notice to the Company, which shall be effective 60 days after receipt of such notice unless the Company and the Trustee agree otherwise. (b) The Company, by action of its Board, may remove the Trustee at any time upon 60 days written notice, or upon shorter notice if acceptable to the Trustee. In the event it resigns or is removed, the Trustee shall have a right to have its accounts settled as provided in Section 6 hereof. (c) (i) Upon the resignation or removal of the Trustee and the appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 60 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. (ii) The Trustee may reserve such sums as the Trustee shall deem necessary to defray its expenses in settling its accounts, to pay any of its compensation due and unpaid and to discharge any obligation of the Fund for which the Trustee may be liable. If the sums so reserved are not sufficient for these purposes, the Trustee shall be entitled to recover the amount of any deficiency from either the Company or the successor Trustee, or both. When the Fund shall have been transferred and delivered to the successor Trustee and the accounts of the Trustee have been settled as provided in Section 6 hereof, the Trustee shall be released and discharged from all further accountability or liability for the Fund and shall not be responsible in any way for the further disposition of the Fund or any part thereof. (d) (i) If the Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 10 hereof, by the effective date of resignation or removal under subsection (b) above. If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee incurred in connection with the proceeding shall be allowed as administrative expenses of the Trust. (ii) Each successor trustee shall have all the powers and duties conferred upon the Trustee in this Trust Agreement and "Trustee", as used in this Trust Agreement, shall be deemed to include any successor Trustee. SECTION 10 Appointment of Successor In the event of the resignation or removal of the Trustee, a successor Trustee shall be appointed by the Company. Such appointment shall take effect upon delivery to the Trustee of an instrument so appointing the successor and an instrument of acceptance executed by such successor, both of which instruments shall be duly acknowledged by a notary public. The delivery of such instruments shall take place within sixty (60) days after notice of resignation or removal, as applicable, of the Trustee shall have been given. SECTION 11 Amendment or Termination (a) This Trust Agreement may be amended by a written instrument duly executed and acknowledged by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall make the Trust revocable. 7 (b) (i) The Trust shall not terminate until the date on which (A) all Premiums are paid in accordance with this Trust Agreement or (B) there are no more assets remaining in the Trust or there are insufficient assets remaining in the Trust to pay any Premium, or any portion thereof, when due and the Company is unable to pay the such premium, or portion thereof, in accordance with Section 2(c) of this Trust Agreement. Upon termination of the Trust, any assets remaining in the Trust shall be returned to the Company. (ii) Notwithstanding the foregoing, if not sooner terminated, the Trust shall terminate automatically on the twenty-first (21st) anniversary of the death of the last to die of all the Covered Persons, who are living and in being on the effective date of this Trust Agreement. (iii) In case the Trust is terminated, in whole or in part, the Trustee (subject to the provisions of Sections 9 and 10 hereof and reserving such sums as the Trustee shall deem necessary in settling its accounts and to discharge any obligation of the Fund for which the Trustee may be liable) shall apply and distribute to the Company any assets remaining in the Trust. Upon such termination of the Trust in whole or in part, the Trustee shall have a right to have its accounts settled as provided in Section 6 hereof. SECTION 12 Miscellaneous (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) No interest in the Fund and no amount payable in accordance with this Trust Agreement may be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (c) (i) This Trust Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts to be performed wholly within the State of New York, without regard to the conflicts of law provisions thereof. (ii) Nothing in this Trust Agreement shall be construed to subject the Trust created hereunder to ERISA. (iii) Any reference herein to ERISA or the Code shall include such law as in effect on the effective date hereof, subsequent amendment thereto and any succeeding law. (d) The titles to Sections of this Trust Agreement are placed herein for convenience of reference only, and the Trust Agreement is not to be construed by reference thereto. (e) This Trust Agreement shall bind and inure to the benefit of the successors and assigns of the Company and the Trustee, respectively. (f) This Trust Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute but one instrument, which may be sufficiently evidenced by any counterpart executed by all parties hereto. (g) Any corporation into which the Trustee is merged with or with which it is consolidated, or any corporation resulting from a merger, reorganization or consolidation, to which the Trustee is a party, or any corporation to which all or substantially all the trust business of the Trustee is transferred shall become the successor trustee under the Trust Agreement without the execution or filing of any further instrument or the performance of any further act. (h) The Company or anyone acting on its behalf may at any time employ the Trustee in its corporate (and not its fiduciary) capacity as agent to perform any act, keep any records or accounts, or 8 make any computations required by the Company. Any such agency relationship shall be established by a separate agreement between the Company and the Trustee, and the existence of such agreement and any actions performed by the Trustee under such agreement shall not affect its responsibilities as Trustee under this Trust Agreement. SECTION 13 Actions of the Company (a) Any action required by any provision of this Trust Agreement to be taken by the Company's Board shall be evidenced by a resolution of the Board, certified to the Trustee by the Secretary or an Assistant Secretary of the Company under its corporate seal. The Trustee shall be fully protected in relying upon any resolution so certified to it. Unless other evidence with respect thereto has been specifically prescribed in this Trust Agreement, any other action of the Company under any provision of this Trust Agreement, including any approval of or exceptions to the Trustee's accounts, shall be evidenced by a certificate signed by an officer of the Company, duly authorized to give communications to the Trustee, and the Trustee shall be fully protected in relying upon such certificate. The Trustee may accept a certificate signed by any duly-authorized Company officer authorized to give communications to the Trustee as proof of any fact or matter that it deems necessary or desirable to have established in the administration of the Trust (unless other evidence of such fact or matter is expressly prescribed herein), and the Trustee shall be fully protected in relying upon the statements in the certificate. (b) Notwithstanding anything herein contained to the contrary, the Trustee shall be entitled conclusively to rely upon any written notice, instruction, direction, certificate or other communication reasonably believed by it to be genuine and to be signed by the proper person or persons, and the Trustee shall be under no duty to make investigation or inquiry as to the truth or accuracy of any statement contained therein. (c) Until notice be given to the contrary, communications to the Trustee shall be sent to it at its office at One HSBC Plaza, Rochester, NY 14639, Attention: Charles Herendeen; communications to the Company shall be sent to it at its office at 175 Sully's Trail, Suite 300, Pittsford, New York, 14534, ATTN: Russell I. Zuckerman, Esq. SECTION 14 Name; Effective Date The name of the Trust created hereby shall be the Mpower Holding Corporation Directors and Officers Insurance Premiums Trust. The effective date of this Trust Agreement shall be November 18, 2002. 9 IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be executed in their respective names by their duly authorized officers as of the day and year first above written. MPOWER HOLDING CORPORATION By: /s/ Russell I. Zuckerman --------------------------------------- RUSSELL I. ZUCKERMAN, SR. VP & GENERAL COUNSEL TRUSTEE By: /s/ Charles G. Herrendeen --------------------------------------- Charles G. Herrendeen 10 STATE OF _New York ) COUNTY OF _Monroe ) ss: On this _____ day of ______________, 2002, before me personally came RUSSELL I. ZUCKERMAN, to me known, who, being by me duly sworn, did depose and say that he resides at 14 Cricket Hill Drive, Pittsford, NY 14534, that he is the Sr. VP & General Counsel of Mpower Holding Corporation, the Company described in the foregoing instrument, that he was duly authorized by the Company to execute the agreement and that he signed the agreement. - ---------------------------------- Notary Public STATE OF NEW YORK ) COUNTY OF _____________) ss: On this _____ day of ______________, 2002, before me personally came _________________________, to me known, who, being by me duly sworn, did depose and say that s/he resides at _______________________, that he is the ________________________ of HSBC Bank USA, the company described in and which executed the foregoing instrument as Trustee, by order of the Board of Directors of said company and that s/he signed. - ---------------------------------- Notary Public 11