Exhibit 10.2
Execution Copy
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement") is entered
into as of November 5, 2004, by and between CCE HOLDINGS, LLC, a Delaware
limited liability company ("Holdings"), and SU Pipeline Management LP, a
Delaware limited partnership ("Manager").
RECITALS:
WHEREAS, pursuant to a Purchase Agreement dated as of June 24, 2004, as
amended, between Holdings and Enron Operations Services, LLC, Enron
Transportation Services, LLC, EOC Preferred, LLC and Enron Corp. (collectively,
"Enron"), Holdings has agreed to acquire (the "Acquisition") from Enron 100% of
the equity interests in CrossCountry Energy, LLC, a Delaware limited liability
company ("CrossCountry"); and
WHEREAS, CrossCountry owns 100% of the membership interests of
Transwestern Holding Company, LLC, a Delaware limited liability company that
owns 100% of the membership interests of Transwestern Pipeline Company, LLC, a
Delaware limited liability company (collectively, "Transwestern"); 100% of the
membership interests of CrossCountry Citrus, LLC, a Delaware limited liability
company that owns 50% of the issued and outstanding shares of capital stock of
Citrus Corp., a Delaware corporation (collectively, "Citrus"); and 100% of the
membership interests of CrossCountry Energy Services, LLC, a Delaware limited
liability company ("CES") (CrossCountry, Transwestern, Citrus and CES
collectively the "CrossCountry Entities", and Holdings and the CrossCountry
Entities and their respective facilities, property, operations, equipment and
other assets collectively the "Enterprise"); and
WHEREAS, Holdings desires to have Manager manage the Enterprise on its
behalf; and
WHEREAS, Holdings and Manager desire to set forth their respective
rights and obligations with respect to the operation and management of the
Enterprise following the Acquisition.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, the Parties intending to be legally bound
hereby agree as follows:
ARTICLE I
DEFINITIONS
The terms used herein shall have the respective meanings as set forth
below.
1.01 "Accepted Gas Pipeline Practices" shall mean those practices, methods
and acts engaged in or approved by a significant portion of the interstate
natural gas pipeline industry during the term of this Agreement and any of the
practices, methods and acts which, in the exercise of reasonable judgment in
light of the facts known at the time a decision is made, would have been
reasonably expected to accomplish a desired result at a reasonable cost
consistent with good business practices, reliability, safety and expedition.
1.02 "Accounting and Financial Procedures" shall mean the budgeting,
accounting, billing and auditing procedures set forth in Exhibit "A" hereto.
1.03 "Acquisition" has the meaning set forth in the Recitals to this
Agreement.
1.04 "Act" means the Securities Exchange Act of 1934, as amended.
1.05 "Affiliate" means, with respect to any person, any direct or indirect
subsidiary of such person, and any other person that directly, or through one or
more intermediaries, controls or is controlled by or is under common control
with such first person. As used in this definition, "control" (including with
correlative meanings, "controlled by" and "under common control with") means
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise).
1.06 "Annual Management Fee" has the meaning set forth in Section 3.09(a)
to this Agreement.
1.07 "CES" has the meaning set forth in the Recitals to this Agreement.
1.08 "Citrus" has the meaning set forth in the Recitals to this Agreement.
1.09 "Class A Member" has the meaning set forth in the LLC Agreement.
1.10 "Class A Membership Interests" has the meaning set forth in the LLC
Agreement.
1.11 "Committee" shall mean the Executive Committee of Holdings.
1.12 "Confidential Information" has the meaning set forth in Section 4.01
to this Agreement.
1.13 "Credit Facilities" shall mean such loan agreements and instruments to
which Holdings or any Holdings subsidiary shall be a party from time to time.
1.14 "CrossCountry" has the meaning set forth in the Recitals to this
Agreement.
1.15 "CrossCountry Entities" has the meaning set forth in the Recitals to
this Agreement.
1.16 "Dispute" has the meaning set forth in Section 7.02 to this Agreement.
1.17 "EBITDA" shall mean for any period the consolidated net income of
Holdings determined in accordance with GAAP plus (a) its reported interest
expense, plus (b) the amount it reported as income tax expense, plus (c) the
amount it reported as depreciation of assets, plus (d) the amount it reported as
the amortization of intangibles, in each case as determined in accordance with
GAAP.
1.18 "Effective Date" shall mean the date on which the Acquisition is
consummated.
1.19 "Enterprise" has the meaning set forth in the Recitals to this
Agreement.
1.20 "Enron" has the meaning set forth in the Recitals to this Agreement.
1.21 "Fiscal Year" shall mean the period of time commencing on the
Effective Date and continuing to December 31 of the same year and commencing on
January 1 of each subsequent year and ending on December 31 of the same year.
1.22 "Force Majeure Event" shall mean an act of God; severe fire, flood,
earthquake, storm or lightning; National Weather Service warnings or advisories,
whether official or unofficial, that result in the evacuation of facilities, an
act of Governmental Authority, or necessity for compliance with any court order,
law, statute, consent agreement, settlement ordinance or regulation promulgated
or agreed to by or with a Governmental Authority having jurisdiction with
respect to the applicable subject matter; a strike, lockout or other industrial
disturbance; an act of the public enemy, sabotage, war, act of terrorism,
insurrection or blockade; riot or other civil disturbance; epidemic; explosions,
delay in obtaining material, permits, equipment, and any other similar event or
cause that, in each such case, prevents, in whole or in part, the performance of
a Party's obligations under this Agreement, is not reasonably within the control
of the affected Party and which by the exercise of commercially reasonable
efforts the affected Party is unable to overcome or prevent.
1.23 "GAAP" means United States generally accepted accounting principles
consistently applied.
1.24 "Governmental Authority" means any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to United States federal, state or local government, including any governmental
authority, agency, department, board, commission or instrumentality or any
political subdivision thereof, and any tribunal, court or arbitrator(s) of
competent jurisdiction.
1.25 "Holdings" has the meaning set forth in the preamble to this
Agreement.
1.26 "Holdings Indemnified Parties" has the meaning set forth in Section
4.03 to this Agreement.
1.27 "Independent Accountant" shall initially mean PriceWaterhouseCoopers
LLP or such successor auditor as determined pursuant to the LLC Agreement.
1.28 "LLC Agreement" means the limited liability company agreement of
Holdings, as it may be amended from time to time.
1.29 "Manager" has the meaning set forth in the preamble to this Agreement.
1.30 "Manager Indemnified Parties" has the meaning set forth in Section
4.02(a) to this Agreement.
1.31 "Managing Member" has the meaning set forth in the LLC Agreement.
1.32 "Member" shall mean a member of Holdings from time to time, and
"Members" means each Member, collectively as provided by the LLC Agreement.
1.33 "Membership Interests" has the meaning set forth in the LLC Agreement.
1.34 "Notice" has the meaning set forth in Section 6.01 to this Agreement.
1.35 "Party" shall mean Holdings or Manager, and "Parties" shall mean both
Holdings and Manager.
1.36 "Projected EBITDA" has the meaning set forth in Section 3.09(a) to
this Agreement.
1.37 "Representatives" has the meaning set forth in Section 4.01 to this
Agreement.
1.38 "Rules" has the meaning set forth in Section 7.02(b) to this
Agreement.
1.39 "Shared Services" has the meaning set forth in Section 3.01(a) to this
Agreement.
1.40 "Southern Union" means Southern Union Company, a Delaware corporation.
1.41 "Transition Costs" has the meaning set forth in Section 3.01(c) to
this Agreement.
1.42 "Transwestern" has the meaning set forth in the Recitals to this
Agreement.
ARTICLE II
RELATIONSHIP AND REPRESENTATIONS OF THE PARTIES
2.01 General Principles Regarding the Relationship of the Parties. The
major policies and business decisions of Holdings, including but not limited to
those enumerated in Exhibit "B" hereto, shall be established by the Committee or
determined by a vote of the Members, and in each case, implemented by Manager as
directed by the Managing Member. The day-to-day management of the CrossCountry
Entities and the operation of the Enterprise, including all administrative and
ministerial functions of the business of Holdings not expressly addressed in
Exhibit "B" hereto or by the Committee, shall be the sole responsibility of the
Managing Member, which shall direct and supervise Manager in its duties
hereunder. In managing the Enterprise, Manager shall undertake commercially
reasonable efforts to act in the best interests of the Members and Holdings
collectively. Specifically, Manager shall act impartially with respect to the
Members and Holdings notwithstanding that Manager is an Affiliate of the
Managing Member and a Class A Member. Manager shall use reasonable efforts to
assist any Member in its sale of all or a portion of its Membership Interests,
at that Member's expense, including preparation of due diligence materials for
prospective purchasers. Manager shall devote such amount of time and resources
necessary to perform the services as appropriate for the operation of the
Enterprise, consistent and in accordance with (i) Accepted Gas Pipeline
Practices, (ii) laws and regulations applicable to the Enterprise and (iii)
material contracts and agreements binding on the Enterprise, including any
Credit Facilities.
2.02 Representations and Warranties of Manager. Manager represents and
warrants to Holdings, as of the date hereof, as follows:
(a) Manager is a limited partnership duly organized,
validly existing and in good standing under the laws
of the State of Delaware and has all requisite power
and authority to own its properties and assets and to
conduct its business as now conducted;
(b) Manager has taken all necessary action to authorize
the execution, delivery and performance of its
obligations under this Agreement, which action has
not been superseded or modified, and this Agreement
has been duly executed and delivered by Manager and
constitutes the legal, valid and binding obligation
of Manager, enforceable in accordance with its terms,
except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights
and general principles of equity;
(c) the execution, delivery and performance of this
Agreement do not violate (i) Manager's limited
partnership agreement or any resolution of its board
of managers or other committees charged with the
governance of its affairs, (ii) any contract to which
Manager or any of Manager's Affiliates is a party or
(iii) any law, rule, regulation, order, writ,
judgment, injunction, decree or determination
affecting Manager or any of its properties;
(d) no litigation is pending or, to Manager's knowledge
threatened, which seeks to restrain it from
performing its obligations hereunder or the adverse
outcome of which would materially affect its business
or its ability to perform its obligations hereunder;
and
(e) Manager or one of its Affiliates is experienced in
the administration and management of gas pipelines,
and has obtained all required approvals with respect
to the operation of such pipelines and has not been
and is not currently subject to any material judgment
or settlement of any claim imposing liability on it
for noncompliance with law or mismanagement in its
administration and management of any gas pipelines.
2.03 Representations and Warranties of Holdings. Holdings represents and
warrants, as of the date hereof, as follows:
(a) Holdings is a limited liability company duly
organized, validly existing and in good standing
under the laws of the State of Delaware and has all
requisite power and authority to own its properties
and assets and to conduct its business as now
conducted;
(b) Holdings has taken all necessary action to authorize
the execution, delivery and performance of its
obligations under this Agreement, which action has
not been superseded or modified, and this Agreement
has been duly executed and delivered by Holdings and
constitutes the legal, valid and binding obligation
of Holdings, enforceable in accordance with its
terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors'
rights and general principles of equity;
(c) the execution, delivery and performance of this
Agreement do not violate (i) Holdings' limited
liability company operating agreement or any
resolution of the Committee or other committees
charged with the governance of its affairs, (ii) any
contract to which Holdings is a party or (iii) any
law, rule, regulation, order, writ, judgment,
injunction, decree or determination affecting
Holdings or any of its properties; and
(d) no litigation is pending or, to Holdings' knowledge
threatened, which seeks to restrain it from
performing its obligations hereunder or the adverse
outcome of which would materially affect its business
or its ability reasonably to perform its obligations
hereunder.
ARTICLE III
GENERAL RESPONSIBILITIES OF MANAGER
3.01 Shared Services; Transition.
(a) The Members have agreed that certain operations of
Manager and its Affiliates will be shared with those
of the Enterprise. The Members have acknowledged that
as a direct result of such rationalization, Manager
and its Affiliates and agents will incur certain
nonrecurring costs that they would not otherwise
incur, including without limitation severance costs,
professional fees, transaction costs, systems
integration costs and the costs of relocating offices
and personnel (collectively, "Transition Costs").
(b) Separate from the Transition Costs (which are
nonrecurring), the Members have agreed that the
Enterprise will receive certain ongoing services from
employees of Southern Union and its Affiliates (the
"Shared Services"). The Members have acknowledged
that cost savings and operating efficiencies are
achievable through such employees providing the
Shared Services to the Enterprise while continuing to
provide such services to Southern Union and its
Affiliates. Manager, as directed by the Committee,
shall be responsible for determining and
administering the scope and provision of the Shared
Services.
(c) Manager shall also determine and administer the scope
and terms of the transitional services the Enterprise
will obtain from Enron during the transition period.
3.02 General Responsibilities. Manager shall be charged with and shall be
responsible for the operation of the Enterprise, including all administrative
and ministerial functions of the Enterprise, subject to the limitations
expressly provided for in Exhibit "B" hereto or as otherwise established from
time to time by the Committee. Consistent therewith, in performing the
responsibilities set forth herein, Manager shall carry out such
responsibilities, or shall use commercially reasonable efforts to cause
contractors selected by it to carry out such responsibilities, with the same
degree of diligence and care that Manager would exercise if operating its own
property and in a sound, workmanlike and prudent manner; and it shall comply,
and shall use commercially reasonable efforts to require all such contractors to
comply, with all relevant laws, statutes, ordinances, safety codes, regulations
and rules of any Governmental Authority applicable to Holdings or the
Enterprise.
3.03 General Services. Subject to the provisions of this Agreement and
commencing on the Effective Date, Manager, on behalf of and as agent for
Holdings, and in accordance with the approved budgets, shall employ sufficient
personnel to operate the Enterprise and provide all necessary services and acts
as Manager reasonably determines are necessary to carry out its responsibilities
under this Agreement, including but not limited to the provision of the services
specifically enumerated in Article I of Exhibit "A" hereto.
3.04 Reports.
(a) Manager shall inform the Committee at least monthly in reasonable
detail of any significant events or activities conducted by, or
affecting, the Enterprise and shall present to the Committee at
monthly meetings or in such monthly reports a copy of each
notice, demand or other communication delivered by or received by
the Enterprise during the preceding month that would be required
to be disclosed by the Enterprise on Form 8-K or any other form
promulgated by the Securities Exchange Commission under the Act
or, if the Enterprise is not at such time subject to the periodic
reporting requirements of the Act, those communications that
would be subject to disclosure if it were. Manager shall also
furnish to Holdings such additional information, reports, records
and projections pertaining to the Enterprise as Holdings may
reasonably request.
(b) Manager shall make immediate reports to the Committee of all
other material occurrences in relation to the Enterprise.
(c) Manager shall cause the preparation of all federal, state and
local reports, returns, pleadings and statements with respect to
the Holdings and the CrossCountry Entities to occur in accordance
with applicable laws, rules, regulations and orders. In
particular, Manager shall cause the preparation of all reports
required pursuant to federal and state securities laws for each
CrossCountry Entity to which such laws apply. Manager shall not
disseminate any press release, whether or not in connection with
a filing on Form 8-K, without approval of the Committee unless it
has first used reasonable efforts to provide the text of such
press release to the Committee but is unable to delay the
dissemination of such press release under applicable law to
obtain that approval.
3.05 Personnel.
(a) Except as otherwise decided by the Committee in the performance
of its duties hereunder, Manager shall have full authority and
responsibility for the management and supervision of all
employees of the CrossCountry Entities, including, but not
limited to, the sole discretion for the selection, supervision
and dismissal of such employees.
(b) Except as otherwise decided by the Committee, Manager shall
employ and supervise the personnel (including consultants and
professional service or other organizations) reasonably
determined by Manager to be required to perform its duties and
responsibilities hereunder in an efficient and economically
prudent manner. Manager shall pay all expenses incurred in
connection therewith, including reasonably allocated portions of
compensation, salaries, incentive compensation, wages, expenses,
applicable local, state and federal taxes, social security taxes,
xxxxxxx'x compensation insurance, retirement and insurance
benefits and other such expenses.
(c) Except as otherwise decided by the Committee, in carrying out its
responsibilities hereunder, Manager shall, whenever reasonably
practicable use, but not limit the use to, the services of the
environmental, risk management, safety, law, finance, accounting,
auditing, tax, engineering, human resources, payroll, planning,
budgeting, regulatory, public and governmental affairs,
information technology, operating and right-of-way departments of
Holdings, Manager or their respective Affiliates, as determined
by Manager.
(d) All personnel engaged or directed by Manager to perform Manager's
obligations under this Agreement and all contractors (and their
subcontractors) and consultants retained by Manager on its behalf
or on behalf of Holdings shall be in the reasoned opinion of the
Manager duly qualified and experienced to perform such
obligations. Manager shall use its commercially reasonable
efforts to enforce strict discipline and maintain good order
among such personnel, and shall use its commercially reasonable
efforts to require such personnel to comply with all relevant
laws, statutes, ordinances, safety codes, regulations and rules
of any Governmental Authority applicable to Holdings or the
Enterprise and its operation.
3.06 Contracts.
(a) Subject to the limitations set forth in Exhibit "B" hereto,
Manager is authorized to execute on behalf of Holdings any and
all contracts that Manager deems in its reasoned opinion
necessary or appropriate for purposes of this Agreement.
(b) All such contracts shall provide that the person entering into
the contract with Manager shall comply with all relevant laws,
statutes, ordinances, safety codes and rules and regulations of
any Governmental Authority having jurisdiction.
3.07 Insurance. Manager shall cause to be carried and maintained for the
benefit and at the expense of the CrossCountry Entities, Holdings, the Members
and the members of the Committee, such insurance as is necessary to comply with
all applicable laws, rules and regulations, as well as such insurance as is
customarily maintained by owners and operators of gas transmission pipelines. As
a minimum, such insurance shall include the coverages and endorsements set forth
in Exhibit "C" hereto and shall be provided by insurers, in such amounts, with
deductibles or self insured retentions, and in such form, as are acceptable to
Holdings, the CrossCountry Entities and the members of the Committee.
3.08 Compliance.
(a) Manager shall notify the Committee of any notices of material (i)
violations, (ii) litigation or (iii) other issues associated with
environmental compliance for the Enterprise. Manager shall
provide an annual report to the Committee on environmental
compliance and emerging regulations for the Enterprise, including
but not limited to information with respect to material leaks and
worker injuries, and shall include with such environmental report
copies of any environmental audits conducted during the calendar
year. Manager shall cause Holdings to implement and maintain an
environmental, health and safety management system comparable
with the system currently maintained by Panhandle Eastern Pipe
Line Company, LP.
(b) Manager shall provide to the Committee information with respect
to compliance metrics, compliance policies and compliance issues
upon the reasonable request of any Member. Manager shall cause
Holdings to implement and maintain a legal and policy compliance
program that is comparable with the program and policies
currently maintained by Panhandle Eastern Pipe Line Company, LP.
3.09 Annual Management Fee.
(a) As compensation for its services in connection with the operation
of the Enterprise and the management services provided by Manager
pursuant to this Agreement, Holdings shall pay Manager an annual
management fee (the "Annual Management Fee") in an amount
determined in accordance with the schedule immediately below,
based on the percentage by which the actual EBITDA of Holdings
for the applicable year (as determined by reference to its
audited financial statements) varies in comparison with the
projected EBITDA of Holdings for such year (as determined by
reference to the applicable operating budget) ("Projected
EBITDA"):
EBITDA as a Percentage
of Projected EBITDA Annual Management Fee Equals
---------------------- ----------------------------
100%-101.99% A percentage of EBITDA equal to the percentage by
which EBITDA exceeds Projected EBITDA
102%-104% 2% of Projected EBITDA + 2% of the amount by which
EBITDA exceeds 102% of Projected EBITDA
Over 104% 2.04% of Projected EBITDA + 25% of the amount by which
EBITDA exceeds 104% of Projected EBITDA
(b) For the sole purpose of determining the Annual Management Fee,
EBIDTA shall exclude the accrual of the Annual Management Fee,
whereas Projected EBITDA shall include a projected Annual
Management Fee of 2% of EBITDA. Any Annual Management Fee earned
with respect to any Fiscal Year shall be due and payable in cash
on the tenth business day following the Committee's receipt of
the audited financial statements of Holdings for such Fiscal Year
and confirmation of the amount of the fee payable hereunder, if
any.
(c) Notwithstanding any provision hereof to the contrary: (i) Manager
shall not receive any Annual Management Fee for the Fiscal Year
ending December 31, 2004; and (ii) if the Committee does not
reach an agreement with respect to the capital expenditures and
operating budgets for the first full Fiscal Year after the
Closing Date as contemplated by Sections 1.06(a) & (b) of Exhibit
"A" hereto by June 30, 2005, then Manager shall not receive any
Annual Management Fee for the Fiscal Year ending December 31,
2005.
ARTICLE IV
CERTAIN COVENANTS
4.01 Confidential Information.
(a) Each Party from time to time may be provided information that is
confidential and proprietary to the other Party. For purposes of
this Agreement, confidential or proprietary information shall
include and not be limited to customer lists and other customer
information, and financial, technical or business information
relating to one Party and provided by such Party to the other
("Confidential Information"). Each Party hereby unconditionally
agrees to hold in strict confidence, and not disclose or reveal
to any person or entity, any Confidential Information of the
other Party disclosed under this Agreement without either (i) the
prior written consent of the other Party, (ii) a requirement by
applicable law, regulation or court order, including as a matter
of federal or state securities law or pursuant to the rules and
policies of any national securities exchange on which securities
of the Party or its parent company are listed for trading,
provided the Party required to disclose uses diligent, reasonable
efforts to limit disclosure and to obtain confidential treatment
or a protective order and has allowed the other Party to
participate in the proceeding or (iii) as may be necessary for
Manager to perform obligations or enforce rights pursuant to this
Agreement. Except as otherwise set forth herein neither Party
shall provide Confidential information to any third party, except
that each Party may also disclose the Confidential Information or
portions thereof to the Affiliates, directors, officers,
employees, contractors, advisors and agents of such Party
(collectively "Representatives") that such Party reasonably
determines needs to know such Confidential Information for the
purpose of carrying on the business of the Enterprise or of the
Party, which Representatives shall be informed of the
confidential nature of the Confidential Information and shall
agree to bound by terms of this Agreement and not to disclose any
Confidential Information to any other person. Each Party shall
take all necessary and appropriate steps to protect the
confidential or proprietary information of the other Party.
Neither Party will use, or permit any third party to use,
Confidential Information in any manner except for the purpose for
which it was provided.
(b) If any Member wishes to transfer all or a portion of its
Membership Interests in accordance with the LLC Agreement,
Manager shall use its reasonable efforts to assist the Member
seeking to make such transfer as such Member may reasonably
request by Notice to the Manager, including furnishing any
Confidential Information to such Member as it may reasonably
request. Such Member may furnish to a prospective transferee any
such information so furnished to it by Manager, provided,
however, that any disclosure of Confidential Information to a
potential transferee is made subject to an executed
confidentiality agreement in a form reasonably acceptable to
Manager by which the potential transferee is legally bound.
(c) Upon termination of this Agreement, each Party will either return
to the other Party all documents and materials containing
Confidential Information furnished by such other Party, or
destroy such documents and materials and provide Notice of such
destruction to the other Party.
4.02 Indemnification by Holdings.
(a) Holdings shall indemnify, defend and hold Manager, its Affiliates
and any of their respective officers, directors, employees,
representatives or agents ("Manager Indemnified Parties")
harmless from any claims, costs, damages, losses or expenses
(including reasonable attorneys' fees for Counsel of Manager or
its Affiliate's choice) arising out of or relating to any breach
or default in the performance of Holdings' covenants, agreements
or obligations under this Agreement.
(b) Subject to Section 4.03, Holdings expressly acknowledges and
agrees that none of Manager, Manager's Affiliates or any of their
respective officers, directors, employees, representatives or
agents, shall be liable to Holdings for any action not in
violation of the terms of this Agreement, which is taken or
omitted by, for or at the direction of Manager in its prudent
business judgment in accordance with law and with respect to the
Enterprise in a manner consistent with its obligation or duties
as "Manager" under this Agreement. Subject only to Section 4.03,
Holdings shall indemnify, defend and hold Manager, Manager's
Affiliates and any of their respective officers, directors,
employees, representatives or agents, harmless from any claims,
costs, damages, losses or expenses (including reasonable
attorneys' fees for counsel of Manager or its Affiliate's choice)
arising out of or related to any action taken or omitted by any
of them hereunder in conformity with prudent business judgment in
accordance with law and in a manner consistent with its duties as
"Manager" under this Agreement. Manager may consult with and rely
upon the advice of counsel of its choice, including counsel
retained by or for Holdings or the CrossCountry Entities, in any
of the foregoing matters, including good faith determinations as
to actions required or prohibited by this Agreement.
4.03 Indemnification by Manager. Subject to section 4.02, Manager shall
indemnify, defend and hold Holdings, Holdings' Affiliates and any of their
respective officers, directors, employees, representatives or agents ("Holdings
Indemnified Parties"), harmless from any claim, cost, damage, loss or expense
(including reasonable attorneys' fees) that is a result of Manager's, or any of
its Affiliates', subcontractors', employees', representatives' or agents'
material breach of this Agreement.
4.04 Limitation of Liability; Sole Remedy. Notwithstanding anything to the
contrary in this Agreement, neither Party shall be liable for consequential,
incidental, punitive, exemplary or special damages resulting directly or
indirectly from, or connected with, the performance or non-performance under
this Agreement. The indemnification provided for in this Article IV shall be in
addition to (and not in lieu of) all other rights and remedies of the Parties,
whether at law or in equity, in connection with any failure by a Party to
perform or observe any term, provision, covenant or agreement on the part of
such Party to be performed or observed under this Agreement.
ARTICLE V
TERMINATION
5.01 Term. Except as provided in Section 5.02 or 5.03, this Agreement shall
become effective on the Effective Date and shall continue in force and effect
for a term of ten years from the beginning of the first calendar year following
the Effective Date, unless earlier terminated as permitted in this Article V,
and then shall be automatically renewed for an additional five-year term, unless
Manager provides Notice to Holdings of its intent to terminate this Agreement at
least 90 days prior to the end of the initial term. Notwithstanding any
provision of this Agreement to the contrary, this Agreement shall be void and of
no force and effect if the Effective Date shall not have occurred prior to
January 1, 2005.
5.02 Termination by Manager. Notwithstanding Section 5.01 and so long as
the Managing Member or its Affiliates have not taken action or failed to take
action materially contributing to a material breach by Holdings, Manager shall
be entitled to terminate this Agreement, without any further obligation or
liability on the part of Manager, as a result of a material breach by, or
attributable to, Holdings of any of its obligations that remain uncured for 60
days after the receipt by Holdings of Notice from Manager setting forth
reasonable detail about such breach or if such cure cannot be completed with the
60-day period, then if the cure is not undertaken promptly upon receipt of such
Notice, diligently prosecuted thereinunder and completed within 180 days. In the
event of the material breach of non-payment by Holdings, which remains uncured
for 30 days after the receipt by Holdings of Notice from Manager of such
non-payment, Manager shall be entitled to terminate this Agreement, without any
further obligation or liability to Holdings. Holdings shall continue to be
liable to Manager for full payment of (i) any compensation, in such amounts and
at such times as determined pursuant to Section 3.09, through the effective date
of actual termination pursuant to this Section 5.02, and (ii) all costs incurred
by Manager that are the responsibility of Holdings or the CrossCountry Entities
pursuant to Section 3.01 and 3.08.
5.03 Termination by Holdings. Notwithstanding Section 5.01, Holdings shall
be entitled to terminate this Agreement (a) upon Manager's material breach of
its obligations under this Agreement, and Manager's failure to cure such breach
within 60 days following Manager's receipt of Notice from the Holdings setting
forth in reasonable detail the relevant conduct or failure, (b) upon any of the
representations and warranties of Manager contained in this Agreement proving to
be materially false, incomplete or misleading, and not reasonably subject to
cure in a manner that will result in no material harm to Holdings, (c) upon
Manager committing a material violation of any law applicable to Holdings or any
CrossCountry Entity, (d) if Southern Union or its Affiliates cease to own
beneficially at least 80% of the Class A Membership Interests in Holdings, (e)
in the event that no dividends have been declared and paid by each of Holdings
and Transwestern Holding Company, LLC for a period of eight consecutive fiscal
quarters, unless the Committee has unanimously agreed that no such dividends
will be paid or (f) in the event of a failure to pay principal or interest as
and when due under any Credit Facility (subject to applicable grace periods);
provided however, that, Holdings shall continue to be liable to Manager for (i)
full payment of any compensation, in such amounts and at such times determined
pursuant to Section 3.09 through the effective date of such termination pursuant
to this Section 5.03 (including a pro rated portion of the Annual Management Fee
based on the year-to-date EBITDA realized as of the termination date versus
Projected EBITDA for the same period), and (ii) all costs incurred by Manager
that are the responsibility of Holdings or the CrossCountry Entities pursuant to
Article II of Exhibit "A" hereto.
5.04 Termination by Either Party. If a petition in bankruptcy or insolvency
is filed by Holdings or Manager, or if Holdings or Manager shall make an
assignment for the benefit of creditors, or if either shall file a petition for
a reorganization, or for the appointment of a receiver or trustee of all or a
substantial portion of its property, or if a petition in bankruptcy or
other-above described petition is filed against either which is not discharged
within 60 days thereafter, then either Party may terminate this Agreement by
serving Notice on the other Party.
5.05 Effect. Termination of this Agreement shall not relieve either Party
from any obligation accruing or accrued to the date of such termination, or the
right to audit under Section 1.08 of Exhibit "A" hereto, or deprive the Party
not in default of any remedy otherwise available to it.
5.06 Survival Upon Termination. The provisions of Article IV shall survive
the termination or expiration of this Agreement, and Section 4.01 shall remain
in full force and effect for a period of three years following such termination
or expiration, provided, however, that, the elimination of liability of Manager
pursuant to Section 4.02(b), and the acknowledgement by Holdings of its absolute
responsibility therefore, shall survive indefinitely; and Manager's entitlement
to any payment pursuant to this Agreement, including as or for any compensation,
fees, expense reimbursement, indemnification or otherwise, shall survive until
it has been paid all such amounts to which it may be entitled.
5.07 Duties Upon Termination. Upon expiration or termination of this
Agreement for any reason:
(a) At Holdings' sole expense, Manager shall cooperate with Holdings
in the transfer of the management of the Enterprise to Holdings
or to a new manager of the Enterprise designated by Holdings; and
(b) Manager shall deliver to Holdings all books, records, accounts,
manuals or other similar material in its possession that are
required to be maintained pursuant to the Agreement, except that
Holdings acknowledges that in the event this requirement requires
delivery of books, records, accounts, manuals or other similar
material that, as a result of being combined with information of
Manager's Affiliates, contains information of entities other than
the CrossCountry Entities. Manager may deliver copies of those
materials which have been redacted to eliminate information
related to entities other than the CrossCounty Entities.
ARTICLE VI
NOTICES AND REPORTS
6.01 Delivery. Any notice, request, instruction, correspondence or other
document to be given hereunder by either Party to the other (herein collectively
called "Notice") shall be in writing and delivered personally or mailed by
certified mail, postage prepaid and return receipt requested, or by telegram or
telecopier, as follows:
If to Holdings, to:
CCE Holdings, LLC
c/o General Electric Capital Corporation
000 Xxxx Xxxxx Xxxx
Xxxxxxxx, XX 00000
Attention: Portfolio Manager
Facsimile: (000) 000-0000
And to:
CCE Holdings, LLC
c/o Southern Union Company
Xxx XXX Xxxxxx, Xxxxxx Xxxxx
Xxxxxx-Xxxxx, XX 00000
Attention: President
Facsimile: (000) 000-0000
If to Manager, to:
SU Pipeline Management LP
c/o Panhandle Eastern Pipe Line Company, LP
0000 Xxxxxxxxxx
Xxxxxxx, Xxxxx 00000-0000
Attention: President
Facsimile: (000) 000-0000
6.02 Effectiveness. Notice given by personal delivery or mail shall be
effective upon actual receipt. Notice given by telegram or telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next business day after receipt if
not received during the recipient's normal business hours. All Notices given by
telegram or telecopier shall be confirmed promptly after transmission in writing
by certified mail or personal delivery. Any Party may change any address to
which Notice is to be given to it by giving Notice as provided above of such
change of address.
6.03 Copies. Copies of all Notices and reports submitted by Manager to
Holdings under this Agreement shall be sent to each of the Members at the
address to which Notices are to be given to Holdings as provided above.
ARTICLE VII
GOVERNING LAW AND DISPUTE RESOLUTION
7.01 Governing Law. This Agreement and the rights and duties of the Parties
hereunder shall be governed by and interpreted in accordance with the laws of
the State of New York without regard to the conflicts of laws provisions
thereof.
7.02 Dispute Resolution. Except for the circumstances described in Section
7.02(d), any dispute, controversy or claim between the Parties relating to,
arising out of or in connection with this Agreement as to its existence,
enforceability, validity, interpretation, performance or breach, or as to
indemnification or damages, including claims in tort, whether arising before or
after the termination of this Agreement (any such dispute, controversy or claim
being referred to as a "Dispute") shall be settled without litigation and only
by use of the following alternative dispute resolution procedure:
(a) At the written request of a Party, each Party shall appoint a
knowledgeable, responsible representative to meet and negotiate
in good faith to resolve any Dispute. The discussions shall be
left to the discretion of the representatives. Upon agreement,
the representatives may utilize other alternative dispute
resolution procedures such as mediation to assist in the
negotiations. Discussions and correspondence among the Parties'
representatives for purposes of these negotiations shall be
treated as confidential information developed for the purposes of
settlement, exempt from discovery and production, and without the
concurrence of both Parties shall not be admissible in the
arbitration described below, or in any lawsuit. Documents
identified in or provided with such communications, which are not
prepared for purposes of the negotiations, are not so exempted
and may, if otherwise admissible, be admitted in the arbitration.
(b) If negotiations between the representatives of the Parties do not
resolve the Dispute within 60 days of the initial written
request, the Dispute shall be submitted to binding arbitration by
a single arbitrator pursuant to the Commercial Arbitration Rules
("Large, Complex Case Program" or similar program, if conducted
by the American Arbitration Association), as then amended and in
effect, of the American Arbitration Association (the "Rules").
Either Party may demand such arbitration in accordance with the
procedures set out in the Rules. The arbitration shall take place
in New York, New York. The arbitration hearing shall be commenced
within 60 days of such Party's demand for arbitration. The
arbitrator shall have the power to and will instruct each Party
to produce evidence through discovery (i) that is reasonably
requested by the other Party to the arbitration in order to
prepare and substantiate its case, and (ii) the production of
which will not materially delay the expeditious resolution of the
dispute being arbitrated; each Party agrees to be bound by any
such discovery order. The arbitrator shall control the scheduling
(so as to process the matter expeditiously) and any discovery.
The Parties may submit written briefs. At the arbitration
hearing, each Party may make written and oral presentations to
the arbitrator, present testimony and written evidence and
examine witnesses. No Party shall be eligible to receive, and the
arbitrator shall not have the authority to award, incidental,
consequential, exemplary, special or punitive damages. The
arbitrator shall rule on the Dispute by issuing a written opinion
within 30 days after the close of hearings. The arbitrator's
decision shall be binding and final. Judgment upon the award
rendered by the arbitrator may be entered in any court having
jurisdiction.
(c) Each Party will bear its own costs and expenses (including
attorneys' fees) in submitting and presenting its position with
respect to any Dispute to the arbitrator; provided, however, that
if the arbitrator determines that the position taken in the
Dispute by the non-prevailing Party taken as a whole is
unreasonable, the arbitrator may order the non-prevailing Party
to bear such fees and expenses, and reimburse the prevailing
Party for all or such portion of its reasonable costs and
expenses (including attorneys' fees) in submitting and presenting
its position, as the arbitrator shall reasonably determine to be
fair under the circumstances. Unless the arbitrator orders
otherwise pursuant to the foregoing sentence, each Party to the
arbitration shall pay one-half of the fees and expenses of the
arbitrator and the American Arbitration Association. In the case
of any conflict between this paragraph (c) and Section 12.13(b)
of the LLC Agreement, the provisions of Section 12.13(b) of the
LLC Agreement shall be controlling.
(d) Notwithstanding any other provision of this Agreement, (i) either
Party may commence an action to compel compliance with this
section, and (ii) if any Party, as part of a Dispute, seeks
injunctive relief or any other equitable remedy, including
specific enforcement, then such Party shall be permitted to seek
such injunctive or equitable relief in any federal or state court
or competent jurisdiction before, during or after the pendency of
a mediation or arbitration proceeding under this section. Pending
final resolution of the dispute, the Parties hereto shall proceed
with the performance of their obligations under this Agreement.
ARTICLE VIII
MISCELLANEOUS
8.01 Force Majeure. Subject to the standards set forth in Article II, if,
by reason of the occurrence of a Force Majeure Event, Manager is rendered
unable, wholly or in part, to carry out its obligations under this Agreement,
and if Manager gives Notice and reasonably full particulars of such Force
Majeure Event in writing or by facsimile to Holdings within a reasonable time
after the occurrence of the cause relied on, upon giving such Notice, Manager
shall not be liable; provided, however, that Manager shall undertake
commercially reasonable efforts to remedy such cause with all reasonable
dispatch. If a Party is prevented from substantially performing its obligations
under this Agreement by Force Majeure for a period of 180 days, the other Party
may terminate this Agreement without further liability of either Party to the
other hereunder by ten days' Notice given any time thereafter unless substantial
performance is resumed during that ten ten-day period.
8.02 Laws and Regulatory Bodies. This Agreement, the operation of the
Enterprise and the rights and obligations of Holdings and Manager hereunder
shall be subject to all valid and applicable laws, orders, court decisions,
directives, rules and regulations of any Governmental Authority having
jurisdiction.
8.03 Waiver. No waiver by either Party of any default by the other Party in
the performance of any provision, condition or requirement herein shall be
deemed to be a waiver of, or in any manner a release of the other Party from,
performance of any other provision, condition or requirement herein, nor deemed
to be a waiver of, or in any manner a release of the other Party from, future
performance of the same provision, condition or requirement; nor shall any delay
or omission of either Party to exercise any right hereunder in any manner impair
the exercise of any such right or any like right accruing to it thereafter.
8.04 Modification. This Agreement may not be modified, varied or amended
except by an instrument in writing signed by the Parties.
8.05 Headings. The headings to each of the various Articles and Sections in
this Agreement are included for convenience and reference only and shall have no
effect on, or be deemed as part of the text of, this Agreement.
8.06 Assignment. Neither Party shall assign its rights and obligations
hereunder without the prior written consent of the other Party; provided,
however, that Manager may assign in whole or in part, its rights and obligations
hereunder to any direct or indirect wholly owned subsidiary of Southern Union.
8.07 Conflicts. In the event of any conflict or inconsistency between this
Agreement and the Accounting and Financial Procedures, the Accounting and
Financial Procedures shall control.
8.08 Operating and Maintenance Plan. Manager shall submit to appropriate
regulatory agencies an operating and maintenance plan for the Enterprise, as
required by the Minimum Federal Safety Standards, Part 192, of the Department of
Transportation.
8.09 Manager's Office. Manager may select the office locations used by or
for Holdings, the Enterprise and the CrossCountry Entities.
8.10 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Parties and their respective successors and permitted
assigns. Nothing in this Agreement, express or implied, is intended or shall be
construed to confer any right, remedy or claim upon any person other than the
Parties and their respective successors and permitted assigns .
8.11 Further Assurances. Holdings and Manager agree to execute and deliver
all such other and additional instruments and documents and to do such other
acts and things as may be necessary to more fully effectuate this Agreement and
to operate the Enterprise as contemplated by the Parties.
8.12 Amendment. This Agreement may not be modified or amended except by a
written instrument signed by each of the Parties to this Agreement.
8.13 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and together constitute one and the same
agreement.
8.14 Execution. The signatories to this Agreement represent and warrant
that they have the authority to execute the Agreement on behalf of the Parties
they represent.
8.15 Entire Agreement. This Agreement constitutes the entire agreement
between the Parties concerning the subject matter hereof, and same supersedes
any prior understandings or written or oral agreements relative to said matter.
8.16 Self-dealing. Notwithstanding any provision hereof to the contrary,
Manager, Manager's Affiliates and Holdings may engage in or possess an interest
in other business ventures of any nature or description, including the gas
distribution interstate and intrastate gas transmission, gas storage, liquefied
natural gas regasification and storage, whether independently owned or owned
with others, whether currently existing or subsequently created and Manager,
Holdings and their Affiliates shall not have any rights in or to any of these
other businesses ventures or the income or profits derived therefrom.
8.17 Severability. If any of the provisions of this Agreement shall be
determined by a Court of competent jurisdiction to be invalid or unenforceable,
all of the other provisions shall remain in full force and effect so long as the
economic or legal substance of the contemplated transactions is not affected in
any manner materially adverse to any Party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
Parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the Parties as closely as possible.
8.18 Performance Covenant. By its signature in the place provided below,
Panhandle Eastern Pipe Line Company, LP hereby covenants, to the extent
permitted by applicable law, to cause Manager to perform the duties and
obligations of Manager hereunder.
8.19 Title. Title to all materials purchased by Manager under the terms of
this Agreement specifically for the use of the Enterprise shall pass immediately
upon reimbursement therefor to, and vest in, Holdings.
[Signatures on following page]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be signed
in multiple originals by their respective officers thereunto duly authorized,
all as of the date first above written.
CCE HOLDINGS, LLC
By: /s/Xxxxxxx X. Xxxxxxxx
----------------------
Title: Authorized Signatory
---------------------
SU PIPELINE MANAGEMENT LP
By: /s/Xxxxxx X. Xxxxx
------------------
Title: President & COO
----------------
PANHANDLE EASTERN PIPE LINE COMPANY, LP
By: /s/Xxxxxx X. Xxxxx
------------------
Title: President & COO
----------------
168017v7 A-1
EXHIBIT "A"
TO
ADMINISTRATIVE SERVICES AGREEMENT
ACCOUNTING AND FINANCIAL PROCEDURES
ARTICLE I
GENERAL PROVISIONS
1.01 Books and Records. Manager shall keep, or cause to be kept, the books
and records of Holdings and the CrossCountry Entities at the principal place of
business of Holdings. The books and records shall be maintained in accordance
with generally accepted accounting principles and the requirements of the
Federal Energy Regulatory Commission, as applicable, consistently applied. Such
books and records shall reflect all transactions and be appropriate and adequate
for conducting the business. Quarterly within 45 days after the end of each
fiscal quarter of the Holdings and annually within 90 days after the end of each
Fiscal Year of Holdings, Manager shall deliver or cause to be delivered to
Holdings financial statements of Holdings and each subsidiary of Holdings that
is then subject to the periodic reporting requirements of the Act (or that is
required to file such reports pursuant to the Credit Facilities) as of the end
of and for such period. Such financial statements shall comply with the
requirements of the Act and the regulations thereunder or the requirements of
the Credit Facilities, as applicable, and shall include a balance sheet and
statements of income, Members' equity, status of and cash flows, shall be
prepared in accordance with GAAP and, with respect to the annual financial
statements, shall be accompanied by a report of the relevant entity's
independent certified public accountants stating that their examination was made
in accordance with generally accepted auditing standards and that in their
opinion such financial statements fairly present the Enterprise's financial
position, results of operations and cash flow in accordance with GAAP. Manager
shall, on behalf of Holdings, in connection with the Credit Facilities, make
such reports, submit such information and perform such additional duties as may
be required of Holdings by the Credit Facilities, so long as such Credit
Facilities are in effect.
1.02 Records. Manager shall keep or cause to be kept all books and records
necessary to record any and all affairs of Holdings, the CrossCountry Entities
and the Enterprise. Any such financial records shall be maintained in conformity
with applicable law, GAAP and other record keeping practices customary to
Manager and for the industry. Originals or copies of such books and records
shall be maintained by Manager, and shall be open to inspection and examination
by designated representatives and agents of the Members during the term of this
Agreement at any reasonable time upon reasonable prior request. All materials
and documents prepared or developed solely by or solely on behalf of Manager in
connection with and necessary to the Enterprise, including without limitation,
all manuals, data, designs, drawings, plans, specifications, reports and
accounts, shall become the property of Holdings when prepared except to the
extent such materials and documents are owned, co-owned, developed, licensed,
created, shared, used, in whole or in part, by Manager or Manager's Affiliates
(the "Excepted Documents"). With respect to the Excepted Documents, all such
materials and documents, together with any materials and documents furnished by
Holdings to Manager or to its employees, representatives, agents or contractors,
shall be delivered or otherwise made available to Holdings under a perpetual
royalty-free license.
1.03 Permits and Licenses. Manager shall take all necessary steps to
operate the Enterprise consistent with the permits and licenses of Holdings and
the CrossCountry Entities.
1.04 Tax Returns. Subject to the requirements of Section 7.5(e) of the LLC
Agreement, Manager shall prepare or cause to be prepared at the cost and expense
of Holdings all necessary federal, state and local tax returns, and file such
returns in a timely manner. In addition, Manager shall at the cost and expense
of Holdings engage a certified nationally recognized public accounting firm to
review and sign any federal income tax return.
1.05 Cash and Temporary Investments. Manager shall have custody of the
funds, notes, drafts, acceptances, commercial paper and other securities
belonging to Holdings; keep the funds belonging to Holdings on deposit in one or
more banking institutions designated by Holdings; invest available funds in
certificates of deposit, banker's acceptances, commercial paper, Eurodollar
certificates of deposit, repurchase agreements or United States Government or
Agency securities; and disburse such funds. Excess funds may be loaned through
short-term demand notes to each class of Member equally, subject to policies and
procedures established by the Committee. Under no circumstances shall Manager
commingle the funds of the Enterprise with the funds of Manager or any of its
Affiliates.
1.06 Budgets.
(a) Capital Expenditures Budgets. Not later than 90 days after the
Effective Date, Manager shall prepare and submit for approval by
the Committee a capital expenditures budget for the first full
Fiscal Year after the Effective Date. On or before November 30 of
the first full Fiscal Year, and on or before each November 30
thereafter, Manager shall prepare and submit for approval by the
Committee a capital expenditures budget for the ensuing Fiscal
Year. If the Committee is unable to agree on the capital
expenditures budget for any such Fiscal Year, the capital
expenditures budget shall be the budget that was in effect in the
immediately preceding Fiscal Year, subject to the discretion of
the Manager to increase one or more line items by not more than
5%. Except as the Committee may otherwise direct, the capital
expenditures budget so determined and then in effect shall
constitute authorization of Manager to incur in total the
expenditures contained in the capital budget plus the lesser of
(i) 10% of the capital budget during such Fiscal Year or (ii) $10
million. Manager shall submit for approval by the Committee any
proposed changes to the capital expenditures budget.
(b) Operating Budgets. Not later than 90 days after the Effective
Date, Manager shall prepare and submit for approval by the
Committee an operating budget for the first full Fiscal Year
after the Effective Date (which budget shall include, without
limitation, Transition Costs). On or before November 30 of the
first full Fiscal Year, and on or before each November 30
thereafter, Manager shall prepare and submit for approval by the
Committee an operating budget for the ensuing Fiscal Year. If the
Committee is unable to agree on the operating budget for any such
Fiscal Year, the operating budget shall be the budget that was in
effect in the immediately preceding Fiscal Year, subject to the
discretion of the Manager to increase one or more line items
(e.g., "general and administrative expenses") by not more than 5%
(and subject to the limitation that the budgeted EBITDA for the
new year shall not be less than 90% of the budgeted EBITDA for
the preceeding year). In addition, Manager shall provide
documentation to the Committee, in reasonably sufficient detail,
to show the allocation methodology and the allocation of the
direct and indirect operating costs budgeted to be incurred on
behalf of Holdings for such Fiscal Year. Manager shall not change
the allocation methodologies utilized for the approved operating
budget for any Fiscal Year without the approval of the Committee.
Except as the Committee may otherwise direct, the operating
budget approved by the Committee and then in effect shall
constitute authorization of Manager to incur in total the
expenses contained in such operating budget and, with respect to
any individual line item, up to an additional 5% (and to increase
increase the total expenses contained in the operating budget by
a corresponding amount). Manager shall submit for approval by the
Committee any proposed material changes to the operating budget.
(c) Second Year Estimated Budget. Not later than November 30 of each
year, commencing with 2005, Manager shall prepare and submit for
review by the Committee an estimated budget for the second
ensuing Fiscal Year. Each such estimated budget shall include in
reasonable detail for such Fiscal Year (i) projected revenues and
expenses of Holdings and each CrossCountry Entity, (ii) projected
capital expenditures for Holdings and each CrossCountry Entity,
(iii) results of operations of Holdings and each CrossCountry
Entity, and (iv) a general business plan for the Enterprise.
1.07 Inspection. Each Member of Holdings shall have the right, upon
reasonable Notice, at all reasonable times during usual business hours to
inspect the Enterprise and to examine and make copies of the books of account
and other records as maintained by Manager relating to the operation of the
Enterprise. Such right may be exercised through any agent or employee of such
Member designated in writing by it or by an independent accountant or attorney
so designated and such Party exercising such right shall use all reasonable care
to carry out any such inspection in such a manner as to result in a minimal
disruption of the business of Manager. The Party making the request shall bear
all expenses incurred in any inspection or examination made at its behest.
1.08 Audit. Each Member owning at least 25% of the outstanding equity
securities of Holdings may audit, at its own expense, during normal business
hours after 15 days' Notice to Manager, (i) all books and records of Manager and
Manager's Affiliates, relating solely to the operation of the Enterprise and
(ii) all books and records maintained by Manager pursuant to Section 1.01
hereof. Such audits shall not be commenced more often than once each Fiscal
Year. Notwithstanding anything herein to the contrary, in the event Manager is
involved in a financial closing, equity offering, debt offering, re-financing or
other financial reporting process that requires Manager's immediate attention,
then Manager may delay such audit by an additional up to an additional 15 days
upon Notice to the requesting Member. Each Member shall have two years after the
close of a Fiscal Year in which to make an audit of such books and records for
such Fiscal Year. Manager shall neither be required nor permitted to adjust any
item unless a claim therefore is presented or adjustment is initiated within two
years after the close of the Fiscal Year in which the statement therefore is
rendered, and in the absence of such timely claims or adjustments, the bills and
statements rendered shall be conclusively established as correct; provided,
however, that this shall not prevent adjustment resulting from a physical
inventory of the Enterprise property.
ARTICLE II
COSTS, EXPENSES AND EXPENDITURES
2.01 Transition Costs. All Transition Costs shall be allocated by the
Manager and charged to and paid by Holdings.
2.02 Direct Operating Costs Incurred by the Enterprise. All ordinary and
necessary costs associated with the direct operation of the Enterprise shall be
charged to and paid by Holdings. Such costs shall include, but not be limited
to, direct operating expenses, repairs, maintenance, capital additions and
replacements, retirements, abandonments and direct administration. Any costs or
expenses incurred by Manager in rendering direct operating services to
Affiliates or subsidiaries of Manager that are not related to the Enterprise
shall be charged to and paid by such Affiliate or subsidiary.
2.03 Direct Operating Costs Incurred by Manager or its Affiliates or
Agents. All ordinary and necessary costs associated with the direct operation of
the Enterprise, but incurred by Manager or an Affiliate or agent of Manager on
behalf of the Enterprise, shall be charged to and paid by Holdings, provided,
however, that such operating costs are calculated per the allocation methodology
and are within the applicable budgeted amounts approved by the Committee in
connection with the operating budget approval process as set forth in Section
1.06(b) of this Exhibit "A". If no operating budget is approved for Fiscal Year
2005, such operating costs shall be recoverable provided that they are
calculated in accordance with the cost allocation methodologies employed by the
CrossCountry Entities and by Panhandle Eastern Pipe Line Company, LP during the
calendar year ending December 31, 2004. Subject to Section 1.08 of this Exhibit
"A", all such documented operating costs shall be recoverable for the period
ending December 31, 2004. The ordinary and necessary costs associated with the
direct operation of the Enterprise, but incurred by Manager or an Affiliate or
agent of Manager on behalf of the Enterprise, shall include, but not be limited
to, expenses related to the following functions:
1. Engineering
2. Financial and Accounting
3. Marketing and Gas Supply
4. Rates and Regulatory Affairs
5. Pipeline Enterprises Operations
6. Legal Counsel
7. Tax Administration
8. Insurance Administration
9. Human Resources and Payroll
10. Information Technology
11. Administration
12. Public Affairs
13. Purchasing
14. Gas Reserves Evaluation
15. Office Costs
16. Aviation
17. Governmental Affairs
18. Materials and Equipment
19. Environmental
20. Risk Management
21. Safety
22. Business Development
With respect to payroll costs, appropriate loads including benefits and payroll
taxes will be included.
2.04 Indirect Operating Costs Incurred by Manager or its Affiliates or
Agents. A prorated portion of the costs and corporate overhead expenses incurred
by Manager or its Affiliates and agents in connection with the provision of the
Shared Services (excluding Transition Costs (which shall be recoverable pursuant
to Section 2.01 of this Exhibit "A") but including without limitation the
following: (i) compensation, including salaries, bonuses and other incentive
based compensation; (ii) employee benefits and perquisites including health,
retirement and other welfare benefits; (iii) accrued paid leave; (iv) severance
payments (including when due or payable to employees of Manager and its
Affiliates that they no longer require as a result of plans and changes
affecting or arising from the Enterprise; and (v) expenses attributable to the
use of Manager's corporate and its Affiliate's offices, equipment and facilities
in connection with the performance of its obligations hereunder) shall be
allocated by Manager to Holdings and shall be charged to and paid by Holdings,
provided, however, that such operating costs are calculated per the allocation
methodology and are within the applicable budgeted amounts approved by the
Committee in connection with the operating budget approval process as set forth
in Section 1.06(b) of this Exhibit "A". If no operating budget is approved for
Fiscal Year 2005, such operating costs shall be recoverable provided that they
are calculated in accordance with the cost allocation methodologies employed by
the CrossCountry Entities and by Panhandle Eastern Pipe Line Company, LP during
the calendar year ending December 31, 2004. Subject to Section 1.08 of this
Exhibit "A", all such documented operating costs shall be recoverable for the
period ending December 31, 2004. With respect to payroll costs, appropriate
loads including benefits and payroll taxes will be included.
2.05 Bank Accounts. At Manager's request, Holdings shall establish one or
more bank accounts in the name or names of Holdings, or any actual or trade name
used in the business of the Enterprise, and shall allow or to the extent
necessary provide Manager authority to sign checks as the agent for such account
holder to pay obligations of Holdings and the CrossCountry Entities as
contemplated by and in accordance with the terms of this Agreement. Holdings
shall cause such accounts initially to include sufficient funds to pay its
estimated financial obligations for at least 60 days, as reasonably estimated
and requested by Manager, and assure sufficient balances thereafter as
reasonably requested by Manager to permit timely payment of obligations of the
Holdings and the CrossCountry Entities. Under no circumstances shall Manager
commingle the funds of the Enterprise with the funds of Manager or any of its
Affiliates.
2.06 Payments. Manager shall invoice Holdings on a monthly basis (a)
pursuant to Section 2.01 of this Exhibit "A" for the applicable Transition Costs
incurred by the Enterprise, Manager or its Affiliates or agents during the
preceding month, (b) pursuant to Sections 2.03 and 2.04 of this Exhibit "A" for
the direct and indirect operating costs incurred on behalf of the Enterprise
during the preceding month and (c) pursuant to Section 3.09 of the Agreement the
Annual Management Fee, if any, earned by Manager during the preceding Fiscal
Year. Holdings shall pay such amounts to Manager in cash within ten days of the
date of receipt of Manager's invoice. To the extent Holdings in good faith
disputes the amount payable in any statement or invoice provided by Manager,
Holdings shall pay the undisputed portion of the invoice when due and provide
Manager with reasonable and sufficient documentation identifying the basis of
the dispute, including a detailed explanation of the reason for the dispute. If
the dispute cannot be resolved in 60 days, then either Party may submit the
dispute to the dispute resolution procedures set forth in 7.02 of the Agreement.
Any past due payments shall bear interest at the rate of 1% per month.
EXHIBIT "B"
TO
ADMINISTRATIVE SERVICES AGREEMENT
MANAGEMENT POLICIES
The following is a summary of the matters requiring approval by the
Executive Committee and Members pursuant to the LLC Agreement. In case of any
conflict between the following summary and the LLC Agreement, the LLC Agreement
shall be controlling.
Required Member Unanimous Approvals
Manager shall not undertake any of the following enumerated activities
unless they have been approved by all of the Members of Holdings:
(a) Amendment of any of the organizational documents of Holdings
including, but not limited to, its certificate of formation
and the LLC Agreement (except as expressly permitted by the
LLC Agreement);
(b) Requiring any Member to contribute additional capital beyond
its original equity contribution; and
(c) Issuing any membership interests or other equity securities of
Holdings to any Member (except as expressly permitted by the
LLC Agreement).
Required Member Two-Thirds Approvals
Manager shall not undertake any of the following enumerated activities
unless they have been approved by the Members holding a two-thirds majority of
the Class A Interests and Class B Interests, each voting separately as a class:
(a) Dissolution, termination or liquidation of Holdings or any CrossCountry
Entity;
(b) The sale of all or substantially all of the assets of Holdings; and
(c) The merger, consolidation or change in form of entity of Holdings or any
CrossCountry Entity, whether or not involving a change of control.
Required Executive Committee Approvals
Manager shall not undertake any of the following enumerated activities
unless they have been approved by the Committee (capitalized terms used below
without definition shall have themeanings assigned thereto in the LLC
Agreement):
(a) commencing, or any other material action with respect to, a Bankruptcy Event
of Holdings or any of its subsidiaries;
(b) transferring any assets of Holdings to satisfy any liabilities of any of the
Members or their respective Affiliates (or any trade or business, whether or not
incorporated, that is treated as a single employer together with such Member or
its Affiliates (under section 414 of the Code or section 4001(b) of ERISA))
arising from ERISA;
(c) selling, exchanging, licensing as licensor, leasing as lessor, or disposing
of any assets of Holdings or any Holdings subsidiary in excess of $30 million;
(d) engaging in, or acquiring any material assets related to, any business other
than the business historically conducted by CrossCountry with a value in excess
of $30 million, other than assets sold or exchanged in the ordinary course;
(e) redeeming any ownership interest in Holdings;
(f) making any non-pro rata distribution of cash, income, assets or rights to
any Member, except to the extent permitted under the LLC Agreement;
(g) entering into any material transactions (including purchases, sales or
leases of assets) by Holdings or any Holdings subsidiary with or for the benefit
of a Member or an Affiliate thereof;
(h) incurring or assuming any Indebtedness by Holdings or any Holdings
subsidiary in excess of $50 million in the aggregate, excluding the Indebtedness
incurred in connection with the acquisition of CrossCountry by Holdings;
(i) any repayment (other than (i) repayments in accordance with scheduled
maturity or which are otherwise mandatory pursuant to the terms of any document
to which Holdings or a Holdings subsidiary is a party and (ii) paydowns on any
revolving credit facility), voluntary prepayment or redemption of, or any
refinancing or other modification of the terms of, any indebtedness pertaining
to Holdings or a Holdings subsidiary;
(j) initiating any material legal proceedings or arbitration on behalf of
Holdings or a Holdings subsidiary, or agreeing to the settlement of any claim by
or against Holdings or a Holdings subsidiary with respect to claims in excess of
$3 million, or which include requests for any material injunction, specific
performance or other equitable relief;
(k) entering into any confession of a material judgment against Holdings or a
Holdings subsidiary;
(l) adopting each annual budget for Holdings and each Holdings subsidiary, and
any amendment or other modification to any such budget; provided, that if the
Committee is unable to agree on the annual budget for any year for Holdings or
any Holdings subsidiary, the applicable budget shall be determined in accordance
with Section 1.06(b) of Exhibit "A" to this Agreement;
(m) making any Rate Filing or any Material Regulatory Filing with any
Governmental Authority;
(n) implementing any material change in accounting policies or practices in
respect of Holdings or any Holdings subsidiary, or terminating the engagement of
Holdings's principal independent auditors;
(o) engaging any commercial or investment banks, independent accountants or
legal counsel to provide services to Holdings or any Holdings subsidiary unless
such engagement would not reasonably be expected to result in the payment
thereto of fees in excess of $250,000 in any Fiscal Year; and
(p) the entry into any new line of business or the formation of any
Holdings subsidiary.
In addition to the foregoing, the Executive Committee shall review and
approve the insurance coverages and providers maintained by Holdings and its
subsidiaries no less frequently than once each year, and at such other times as
the Managing Member may request.
EXHIBIT "C"
TO
ADMINISTRATIVE SERVICES AGREEMENT
INSURANCE
(a) The insurance carried pursuant to Section 3.07 of the
Agreement shall include the following coverages:
(i) All risk property insurance covering physical loss or damage
to buildings, contents, equipment and gas while in storage.
Such insurance shall include, but not be limited to fire and
extended coverage, collapse, flood, earth movement, certified
and non-certified terrorism and comprehensive boiler and
machinery coverage including production equipment. Such
insurance shall be written on a replacement cost basis,
without coinsurance.
(ii) At the option of the Committee, business interruption and
contingent business interruption covering loss of net profits
and continuing expenses written without coinsurance and in
amounts and with periods of indemnity as are acceptable to
Holdings, the CrossCountry Entities and the Committee members.
(iii) Liability insurance written in an amount not less than
$500,000,000 (or such lesser amount as specified by the
Committee). Such coverage shall include, but not be limited
to, premises/operations, explosions, collapse and underground
(XCU) broad form contractual, products/completed operations,
independent contractors, personal injury and sudden and
accidental pollution relating to the discharge or dispersal of
gas. Such policies shall not contain an exclusion for
terrorism, provided such insurance is commercially available.
(iv) Workers compensation insurance written with statutory limits
and employer's liability in an amount at least matching the
attachment point of the first layer of excess liability
coverage. Such policy shall contain an all states endorsement
and stop gap endorsement and shall not contain an exclusion
for occupational disease.
(v) Comprehensive automobile liability insurance for all owned,
non-owned and hired vehicles written in an amount at least
matching the attachment point of the first layer of excess
liability coverage.
(vi) Fidelity insurance written in an amount not less than
$10,000,000.
(vii) Directors' and officers' liability insurance written in an
amount not less than $25,000,000.
(viii) Such other insurance as is required to be maintained with
respect to the Enterprise in accordance with applicable laws,
rules and regulations.
(b) The insurance carried pursuant to Section 3.07 of the
Agreement shall be endorsed as follows:
(i) The appropriate parties, as determined by the Committee, shall
be named insureds, additional insureds or loss payees.
(ii) Losses, if any, in respect of the insurance provided under
paragraphs (a)(i), (a)(ii) and (a)(vi) above shall be solely
payable to the parties as designated by the Committee.
(iii) Insurers shall waive all rights of subrogation against the
CrossCountry Entities, Holdings and the Members, as their
interests may appear.
(iv) Such insurance shall be primary and without right of
contribution of any other insurance carried by the
CrossCountry Entities, Holdings and the Members.
(v) If such insurance is cancelled for any reason, such
cancellation shall not be effective for 30 days (or for 10
days in the event of nonpayment of premiums) following receipt
of notice of such cancellation by the named insured.
