Exhibit Exhibit I-2
Form of
Master Transition
Services Agreement
between
Emera Incorporated, Certain Emera Associate Companies
and
Emera Services Company
This Master Transition Services Agreement (the "Agreement") dated as of
_________, 2001, is entered into in multiple parts by and between the companies
whose names appear on the signature pages hereof, (each, a "Company" or
"Recipient" and collectively, the "Emera System Companies" or "Recipients"), and
Emera Incorporated, a Nova Scotia corporation ("Emera") and Emera Services
Company ("ESC" or "Recipient").
RECITALS
A. In connection with Emera's acquisition of Bangor Hydro-Electric Company
("BHE"), a Maine corporation, and Emera's subsequent registration as a public
utility holding company, Emera plans to establish ESC, a system service company
that shall provide services to Emera and its subsidiaries.
B. To facilitate the transition to ESC of the services currently performed
by Emera and the Emera Companies, the parties desire to enter into this
Transition Services Agreement to allow for the provision of temporary services
by Emera to the Emera Companies and ESC.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
I. TERM OF AGREEMENT. This Agreement shall be effective beginning on the closing
date of Emera's acquisition of BHE ("Effective Date") up to December 31, 2001 or
such other period as permitted by the Securities and Exchange Commission (the
period during which this Agreement remains effective being referred to herein as
the "Term").
II. SERVICES OFFERED. Exhibit I to the Agreement lists and describes all of the
services that may be available from Emera. Emera offers to supply those services
to each Recipient that is a party to the Agreement. The services are and will be
provided to the Recipient only at the request of the Recipient. From time to
time, the parties may identify additional services that Emera may provide to
Recipients under this Agreement. Emera will consult with the Recipients to
delineate the scope and terms of additional services that may be offered.
The services offered may be further described in Service Level Agreements
that define performance metrics or standards and other procedures and
requirements with respect to the provision of a particular category of services.
To the extent a category of service is more fully described in a Service Level
Agreement, it is incorporated into this Agreement by reference.
Emera shall maintain sufficient resources to perform its obligations under
this Agreement and shall perform its obligations in a commercially reasonable
manner. If no specific performance metrics for the provision of a service are
established, Emera shall provide the service exercising the same care and skill
as it exercises in performing similar services for itself.
If a Recipient requests the level at which any service to be provided to be
scaled up to a level in excess of the level in effect during the prior twelve
months, the Recipient shall give Emera such advance notice as it may reasonably
require sufficient to make any necessary preparations to perform such services
on the scaled up or modified basis. The level of a service shall be considered
scaled up if providing the service at the proposed level involves an increase in
personnel, equipment or other resources that is not de minimis and is not
reasonably embraced by the agreed definition and scope of that service prior to
the proposed increase.
II. SERVICES SELECTED.
A. Initial Selection of Services. Each Recipient shall designate on Exhibit
II to the Agreement, which may be amended when additional services are offered,
the services that it agrees to receive from Emera. Designation may also be in
the form of an opt-out where each company agrees to receive all services from
Emera except those specifically enumerated in Exhibit II.
B. Annual Selection of Services. Emera shall send an annual service
proposal form to each Recipient on or about July 1 listing services proposed for
the next fiscal year. By July 31, the Recipient shall notify Emera of the
services it has elected to receive during the next fiscal year.
III. PERSONNEL. Emera will provide services by using the services of
executives, accountants, financial advisers, technical advisers, attorneys,
engineers and other persons with the necessary qualifications.
If necessary, Emera, after consultation with the Recipient, may also
arrange for the services of affiliated or unaffiliated experts, consultants,
attorneys and others in connection with the performance of any of the services
supplied under this Agreement. Emera also may serve as administrative agent,
arranging and monitoring services provided by third parties to Recipient,
whether such services are billed directly to Recipient or through Emera.
Emera's sole responsibility to the Recipient for errors or omissions in
services shall be to furnish correct information and/or adjustments in the
services, at no additional cost or expense to Recipient; provided, Recipient
must promptly advise Emera of any such error or omission of which it becomes
aware after having used reasonable efforts to detect any such errors or
omissions. In no event shall Emera have any liability under this Agreement or
otherwise arising out of or resulting from the performance of, or the failure to
perform, services for loss of anticipated profits by reason of any business
interruption, facility shutdown or non-operation, loss of data or otherwise or
for any incidental, indirect, special or consequential damages, whether or not
caused by or resulting from negligence, including gross negligence, or breach of
obligations hereunder and whether or not Recipient was informed of the
possibility of the existence of such damages.
During a transition period from the effective date of this Agreement
through December 31, 2001, Emera may also contract for the services of certain
employees of the Emera System Companies for the purpose of staffing its service
operations. These arrangements will comply with the applicable provisions under
the Public Utility Holding Company Act of 1935, as amended ("1935 Act"),
including the provisions of Rule 90 thereunder requiring the performance of
services on the basis of cost.
IV. COMPENSATION AND ALLOCATION. As and to the extent required by law,
Emera will provide such services at cost allocated on a fair nondiscriminatory
basis. The Emera Policies and Procedures Manual contains rules for determining
and allocating costs. The parties shall use good faith efforts to discuss any
situation in which the actual charge for a service is reasonably expected to
exceed the estimated charge, if any, set forth in a Service Level Agreement,
provided, however, that charges incurred in excess of any such estimate shall
not justify stopping the provision of, or payment for, services under this
Agreement.
V. TAXES. Recipient shall bear all taxes, duties and other similar charges
(and any related interest and penalties), imposed as a result of its receipt of
services under this Agreement, including any tax which Recipient is required to
withhold or deduct from payments to Emera. Emera may collect from Recipient any
sales, use and similar taxes imposed on the provision of services and shall pay
such tax to the appropriate governmental or taxing authority.
VI. BILLING. Bills will be rendered during the first week of each month
covering amounts due for the month calculated on an estimated basis using the
actual expenses incurred to the extent possible during the second previous
month. This estimated amount would be adjusted on the xxxx to be rendered by the
conclusion of the following month. Any amount remaining unpaid after fifteen
days following receipt of the xxxx shall bear interest thereon from the date of
the xxxx at the lesser of the prime rate announced by [_____________] Bank and
in effect from time to time plus 2% per annum or the maximum non-usurious rate
of interest permitted by applicable law.
Emera will support its charges with reasonable documentation (which may be
maintained in electronic form). Emera will make adjustments to charges as
required to reflect the discovery of errors or omissions in the charges.
VII. TERMINATION AND MODIFICATION.
A. Modification of Services. The Recipient may modify its selection of
services at any time during the fiscal year by giving Emera written notice sixty
(60) days in advance for the additional services it wishes to receive, and/or
the services it no longer wishes to receive, from Emera.
B. Modification of Other Terms and Conditions. No other amendment, change
or modification of this Agreement shall be valid, unless made in writing and
signed by all parties hereto.
C. Termination of this Agreement. The Recipient may terminate this
Agreement with Emera by providing sixty (60) days advance written notice of such
termination to Emera. Emera may terminate this Agreement as to the Recipient by
providing sixty (60) days advance written notice of such termination to the
Recipient.
This Agreement is subject to termination or modification at any time to the
extent its performance may conflict with the provisions of the 1935 Act, or with
any rule, regulation or order of the Securities and Exchange Commission ("SEC")
adopted before or after the making of this Agreement. This Agreement shall be
subject to the approval of any state commission or other state regulatory body
whose approval is, by the laws of said state, a legal prerequisite to the
execution and delivery or the performance of this Agreement.
VIII. NOTICE. Where written notice is required by this Agreement, said
notice shall be deemed given when mailed by United States registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
A. To the Recipient:
B. To Emera:
IX. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Nova Scotia, without regard to its
conflict of laws provisions.
X. ENTIRE AGREEMENT. This Agreement, together with its exhibits,
constitutes the entire understanding and agreement of the parties with respect
to its subject matter, and effective upon the execution of this Agreement by the
respective parties hereof and thereto, any and all prior agreements,
understandings or representations with respect to this subject matter are hereby
terminated and cancelled in their entirety and of no further force or effect.
XI. WAIVER. No waiver by any party hereto of a breach of any provision of
this Agreement shall constitute a waiver of any preceding or succeeding breach
of the same or any other provision hereof.
XII. ASSIGNMENT. This Agreement shall inure to the benefit of and shall be
binding upon the parties and their respective successors and assigns. No
assignment of this Agreement or any party's rights, interests or obligations
hereunder may be made without the other party's consent, which shall not be
unreasonably withheld, delayed or conditioned.
XIII. SEVERABILITY. If any provision or provisions of this Agreement shall
be held to be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
XIV. EFFECTIVE DATE. This Agreement is effective as of the closing date of
Emera's acquisition of BHE.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the date first above mentioned.
Attest: By Recipient:
Attest: By Emera:
EXHIBIT I
Cost Accumulation and Assignment, Allocation Methods, and Description of
Services Offered by Emera During the Transition Period
This document sets forth the methodologies used to accumulate the costs of
services that may be performed by Emera during the Transition Period and to
assign or allocate such costs to other subsidiaries and business units within
the Emera registered holding company system that receive services from Emera
during this period.
Cost of Services Performed
Emera shall maintain an accounting system that enables costs to be identified by
Cost Center, Account Number or Capital Project ("Account Codes"). The primary
inputs to the accounting system shall be payroll records for Emera' employees,
accounts payable transactions and journal entries. Charges for labor shall be
made at the employees' effective hourly rate, including the cost of pensions,
other employee benefits and payroll taxes. To the extent practicable, costs of
services shall be directly assigned to the applicable Account Codes. The full
cost of providing services shall also include certain indirect costs, e.g.,
departmental overheads, administrative and general costs, and taxes. Indirect
costs shall be associated with the services performed in proportion to the
directly assigned costs of the services or other relevant cost allocators.
Cost Assignment and Allocation
Emera' costs shall be directly assigned, distributed or allocated to Recipients
in the manner described below:
1. Costs accumulated in Account Codes for services specifically performed for
a single Recipient shall be directly assigned or charged to such Recipient;
2. Costs accumulated in Account Codes for services specifically performed for
two or more Recipients shall be distributed among and charged to such
Recipients using methods determined on a case-by-case basis consistent with
the nature of the work performed and based on one of the allocation methods
described below; and
3. Costs accumulated in Account Codes for services of a general nature which
are applicable to all Recipients or to a class or classes of Recipients
shall be allocated among or charged to such Recipients by application of
one or more of the allocation methods described below.
Allocation Methods
The following methods shall be applied, as indicated in the Description of
Services section that follows, to allocate costs for services of a general
nature.
1. Number of End-Use Customers Ratio - A ratio based on the number of end-use
customers. This ratio will be determined annually based on the actual
number of end-use customers at the end of the previous fiscal year and may
be adjusted for any known and reasonably quantifiable events, or at such
time as may be required due to significant changes.
2. Total Assets Ratio - A ratio based on the total assets. This ratio will be
determined annually based on the actual total assets at the end of the
previous fiscal year and may be adjusted for any known and reasonably
quantifiable events, or at such time as may be required due to significant
changes.
3. Number of Employees Ratio - A ratio based on the number of employees
benefiting from the performance of a service. This ratio will be determined
annually based on actual counts of applicable employees at the end of the
previous fiscal year and may be adjusted for any known and reasonably
quantifiable events, or at such time as may be required due to significant
changes.
4. Number of Stores Issues Ratio - A ratio based on the actual withdrawals
from materials and supplies inventory. This ratio will be determined
annually based on actual withdrawals from materials and supplies inventory
at the end of the previous fiscal year and may be adjusted for any known
and reasonably quantifiable events, or at such time as may be required due
to significant changes.
5. Payroll Ratio - A ratio based on total wages, salaries, commissions and
other forms of compensation paid during the year which are reportable, for
federal income tax purposes, as taxable income to the employee, the
numerator of which is for an affected Recipient and the denominator for all
affected Recipients. This ratio will be calculated annually based on actual
experience.
6. Square Footage - This factor will be determined based on actual square
footage used by the applicable Recipients. This factor will be determined
annually based on square footage utilized at the end of the previous fiscal
year and may be adjusted for any known and reasonably quantifiable events,
or at such time as may be required due to significant changes.
7. Total Revenues Ratio - A ratio based on the sum of the revenue at the end
of each month for the immediately preceding twelve consecutive calendar
months, the numerator of which is for an affected Recipient and the
denominator of which is for all affected Recipients. This ratio will be
determined annually, or at such time as may be required due to significant
changes.
8. Composite Ratio - A blended ratio that weights equally the total assets,
payroll and total revenues ratios then in effect.
Description of Services
A description of each of the services performed by Emera during the
Transition Period, which may be modified from time to time, is presented below.
As discussed above, where identifiable, costs will be directly assigned or
distributed to Recipients. For costs accumulated in Account Codes which are for
services of a general nature that cannot be directly assigned or distributed,
the method or methods of allocation are also set forth. Substitution or changes
may be made in the methods of allocation hereinafter specified, as may be
appropriate and to the extent permitted under the SEC 60-day letter procedure,
and will be provided to state regulatory agencies and to each affected
Recipient.
1. Rates and Regulatory.
Emera may assist the Recipients in the analysis of their rate structures
and in the formulation of rate policies and may also advise and assist the
Recipients in proceedings before regulatory bodies involving the rates and
operations of the Recipients and of competitors where such rates and
operations directly or indirectly affect the Recipients. Costs of a general
nature may be allocated using the Number of End-Use Customers Ratio.
2. Internal Auditing.
Emera may conduct periodic audits of administration and accounting
processes. Audits would include examinations of Recipients' service
agreements, accounting systems, source documents, allocation methods and
xxxxxxxx to assure proper authorization and accounting for services. Costs
of a general nature may be allocated using the Composite Ratio.
3. Strategic Planning.
Emera may advise and assist the Recipients with the preparation of
strategic business plans and corporate strategies. Costs of a general
nature may be allocated using the Composite Ratio.
4. External Relations.
Emera may maintain relationships with government policy makers, conducts
lobbying activities and provides community relations support. Costs of a
general nature may be allocated using the Composite Ratio.
5. Transmission and Distribution System Management.
Emera may assist BHE in coordinating the management of its transmission and
distribution system to ensure the most efficient provision of services and
to capture economies of scale as a larger purchaser in the market. Costs of
a general nature may be allocated using the Total Assets Ratio.
6. Legal Services, Corporate Secretary, and Risk Management.
Emera may provide various legal services and general legal oversight, as
well as corporate secretarial functions for the benefit of the Recipients.
In addition, Emera may provide insurance, claims, security, environmental
and safety related services. Costs of a general nature may be allocated
using the Composite Ratio.
7. Marketing
Emera may assist the Recipients to develop marketing strategies for product
and brand name promotion. Individually, the Recipients may maintain
independent marketing personnel to handle the day-to-day details of
marketing campaigns. Costs of a general nature may be allocated using the
Number of End-Use Customers Ratio.
8. Financial Services.
Emera may provide various services to the Recipients including corporate
tax, treasury, corporate accounting and reporting, general ledger
maintenance and all accounting recordkeeping, processing certain accounts
such as accounts payable, cash management, and others as may be deemed
necessary, hedging policy and oversight, financial planning and rates. Each
Recipient may also maintain its own corporate and accounting group and
engage Emera to provide advice and assistance on accounting matters,
including the development of accounting practices, procedures and controls,
the preparation and analysis of financial reports and the filing of
financial reports with regulatory bodies, on a system-wide basis. Costs of
a general nature may be allocated using the Composite Ratio.
9. Information Systems and Technology.
Emera may provide the Recipients with electronic data processing and
telecommunication network services. Costs of a general nature may be
allocated using the Number of Employees Ratio.
10. Executive.
Emera may use the executive staff of Emera in order to assist the
Recipients in formulating and executing general plans and policies,
including operations, issuances of securities, appointment of executive
personnel, budgets and financing plans, expansion of services, acquisitions
and dispositions of property, public relationships and other related
matters. Costs of a general nature may be allocated using the Composite
Ratio.
11. Investor Relations.
Emera may maintain relationships with the financial community and provide
certain shareholder services for the benefit of the Recipients. Costs of a
general nature may be allocated using the Composite Ratio.
12. Customer Services.
Emera may provide billing, mailing, remittance processing, call center and
customer communication services for customers. Costs of a general nature
may be allocated using the Number of End-Use Customers Ratio.
13. Employee Services.
Emera may assist the Recipients in developing employee relations policies
and programs, and in training personnel in a coordinated manner throughout
the Emera System Companies. Each Recipient may maintain a human resources
group to handle the individualized application of policies and programs.
Emera may also provide payroll services, management of the employee benefit
plans, employee communications and mail services. Costs of a general nature
may be allocated using the Number of Employees Ratio.
14. Engineering.
Emera may provide engineering services for the Recipients. These services
may include infrastructure expansion and improvements, right-of-way
maintenance and acquisition, surveys, mapping, laboratory, and
environmental services. Costs of a general nature may be allocated using
the Number of End-Use Customers Ratio.
15. Business Support
i. Purchasing.
Emera may provide procurement services to Recipients. Costs of a
general nature may be allocated using the Number of Stores Issues
Ratio.
ii. Facilities Management.
Emera may provide facilities management services for offices owned by
Recipients. Costs of a general nature may be allocated using Square
Footage factor.
iii.Power Procurement
Emera may coordinate and procure power supply on behalf of Recipients.
16. Other.
Emera may provide other services, such as business development, as
identified in this document or requested by the Recipients. Costs of a
general nature may be allocated using the Composite Ratio.
EXHIBIT II
AGREED UPON SERVICES TO BE RECEIVED FROM
EMERA DURING THE TRANSITION PERIOD
SERVICES YES NO
1. Rates and Regulatory _____ _____
2. Internal Auditing _____ _____
3. Strategic Planning _____ _____
4. External Relations _____ _____
5. Transmission and Distribution System Management _____ _____
6. Legal Services, Corp. Sec'y and Risk Management _____ _____
7. Marketing _____ _____
8. Financial Services _____ _____
9. Information Systems and Technology _____ _____
10. Executive _____ _____
11. Investor Relations _____ _____
12. Customer Services _____ _____
13. Employee Services _____ _____
14. Engineering _____ _____
15. Business Support _____ _____
i. Purchasing _____ _____
ii. Facilities Management _____ _____
iii. Power Procurement
16. Other _____ _____
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