EXHIBIT 10.7
FORM OF ADMINISTRATIVE SERVICES AGREEMENT
-----------------------------------------
THIS ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement") is executed
as of __________, 1997, by and between Citizens Utilities Company, a Delaware
corporation ("Citizens"), and Electric Lightwave, Inc., a Delaware corporation
("XXX").
W I T N E S S E T H:
WHEREAS, XXX is in the Telecommunications Business;
WHEREAS, Citizens owns all of the issued and outstanding Class B
Common stock, par value $.01 per share, of XXX, and, as parent of XXX, Citizens
has been providing XXX certain management, administrative and other services;
WHEREAS, XXX is effecting an initial public offering (the "Offering")
of shares of its Class A Common Stock, par value $.01 per share (the "Class A
Common Stock"), and, upon completion of the Offering, XXX will cease to be a
wholly owned subsidiary of Citizens and Citizens and XXX will be separate public
companies; and
WHEREAS, in order continue to enjoy the benefits of Citizens'
experience and skills after the Offering in the operation of ELI's business
which would not be available to XXX on a cost effective basis, XXX desires to
retain Citizens to continue to provide (or cause to provide) certain Services
(as defined herein) to XXX, and Citizens desires to accept such retention, all
on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
---------
RETENTION OF CITIZENS; LIMITATIONS OF AUTHORITY
-----------------------------------------------
1.1 Retention of Citizens.
---------------------
XXX hereby retains Citizens to provide the Services to XXX, and Citizens
hereby accepts such retention by XXX, all in accordance with the terms and
conditions of this Agreement. Citizens may utilize employees of its Affiliates
or consultants in providing Services hereunder. XXX may request that Citizens
expand, reduce or terminate the Services provided by Citizens to XXX, in which
case the parities will discuss, without obligation, such expansion, reduction or
termination as well as an additional charge or deduction in charges for such
Services. As used in this Agreement:
(a) "Affiliate" shall mean any person or entity that, directly or
---------
indirectly, alone or through one or more intermediaries, controls, is
controlled by or is under common control with Citizens; provided, that for
the purposes of this Agreement XXX shall not be considered to be an
Affiliate of Citizens.
(b) "Operating Company" shall mean the operating companies, divisions
-----------------
and operational centers of Citizens and its controlled companies which
receive services from Citizens' Stamford Administrative Offices and other
Responsibility Centers. Each Operating Company is allocated an appropriate
portion of the total cost of such services.
(c) "Responsibility Center" shall mean the Stamford Administrative
---------------------
Offices and any other Responsibility Center of Citizens from which services
are rendered to the Operating Companies. The cost of such services are
charged out to each Operating Company in accordance with the Allocation
Formula.
(d) "Services" shall mean the various services provided hereunder
--------
from time to time by Citizens and its Affiliates to XXX, as further
described in Section 2.2 hereof.
(e) "Telecommunications Business" shall mean the business of XXX in
---------------------------
providing telecommunications services as a competitive local exchange
carrier and otherwise.
1.2 Performance of Services. (a) Citizens shall perform the Services
-----------------------
with the same degree of care, skill and prudence customarily exercised for its
own operations. Except as otherwise provided in this Section 1.2, it is
understood and agreed that the Services will be substantially identical in
nature and quality to the Services performed by Citizens for XXX during the
years prior to the execution of this Agreement, except with respect to any
modifications which may be necessary to XXX becoming a public company.
(b) Each party acknowledges that the Services will be provided only with
respect to the Telecommunications Business or as otherwise mutually agreed by
the parties. XXX agrees to use the Services in accordance with all applicable
federal, state and local laws, regulations and tariffs and in accordance with
reasonable conditions, rules, regulations and specifications which are or may be
set forth in any manuals, materials, documents or instructions of Citizens.
Citizens reserves the right to take all actions in order to assure that the
Services are provided in accordance with any applicable laws, regulations and
tariffs.
(c) XXX shall provide any input or information needed by Citizens to
perform the Services pursuant to the provisions of this Agreement in a manner
consistent with the practices employed by the parties during the year prior to
the execution of this Agreement. Should the failure to provide such input or
information render the performance of the Services impossible or unreasonably
difficult, Citizens may, upon reasonable notice to XXX, refuse to provide such
Services.
1.3 Authority of XXX. Citizens understands that discretion and control over
----------------
the Telecommunications Business of XXX shall remain vested in XXX. Accordingly,
operational control and management over the Telecommunications Business
including, without limitation, (i) the oversight of the management of the
Telecommunications Business, (ii) the formulation and
2
implementation of policy decisions for the Telecommunications Business, (iii)
the supervision of the employment of personnel of XXX, (iv) the payment of all
financial obligations and expenses arising from the operation of the
Telecommunications Business, and (v) the receipt of all monies and profits
derived from the operation of such Telecommunications Business, shall be vested
in XXX.
1.4 Limitation of Authority. Except as otherwise stated herein, without the
-----------------------
prior written consent of XXX as evidenced by a resolution of its Board of
Directors, Citizens shall not be authorized or required under this Agreement on
behalf of XXX to:
(a) purchase or acquire, or sell, lease, trade, exchange or otherwise
dispose of any assets of XXX;
(b) incur any expense or any obligation which could result in a
liability in excess of $250,000 not set forth in a construction or
operating budget approved by XXX (or otherwise approved by XXX in writing)
nor, upon adoption by XXX of any such budget, incur any expenses in amounts
greater than 110% of approved amounts;
(c) cancel or compromise any claim or debt owed to XXX in excess of
$100,000; or
(d) create or consent to the creation of any lien or charge on any
assets of XXX.
1.5 Powers of Officers and Directors. Nothing herein shall be construed to
--------------------------------
release the officers and directors of XXX from the performance of their
respective duties or limit the exercise of their powers as prescribed by law or
otherwise.
ARTICLE II
----------
THE SERVICES
------------
2.1 Services Provided by Citizens. During the term of this Agreement and
-----------------------------
subject to the terms and provisions hereof, Citizens shall provide, or cause its
Affiliates or consultants to provide, such of the Services as XXX (acting
through its Board of Directors) and Citizens mutually may consider necessary or
desirable or as Citizens determines may be appropriate for the normal operation
of the Telecommunications Business of XXX.
2.2 Description of the Services. The Services to be provided to XXX, as
---------------------------
determined in accordance with Section 2.1 hereof, consist of various services
required in the conduct of ELI's Telecommunications Business, including, by way
of illustration and not limitation, the following:
(a) Financial management, including:
--------------------
(i) Accounting and reporting services - accounting policies and
procedures, billing and time reporting support, fixed asset,
construction
3
accounting, capital asset recovery and analysis, accounting internal
auditing and internal and external reporting and analysis;
(ii) Taxes - including federal, state and local tax filings
compliance and audit, tax research and planning, benefit plan
compliance and tax policy;
(iii) Treasury- including cash management and banking, investment
management, corporate finance, risk management and insurance
services;
(iv) Financial Analysis and Planning-including financial
forecasting assistance, acquisition analysis, actuarial services and
financial analysis; and
(v) Investor Relation-includes assistance with the establishment
of an investor relation program.
(b) Information services, including negotiating enterprise-wide
--------------------
purchase agreements, providing access to data bases and enterprise
application systems, procedures and processes relating to customer
satisfaction, enterprise management, deploy solutions and customer surveys.
(c) Legal and contract services, including the representation of XXX
---------------------------
in state and federal regulatory proceedings and before state and federal
courts. (ii) the drafting and review of relevant legislation; (iii) the
provision of advice and counsel regarding telecommunications matters
affecting XXX; (iv) the drafting, negotiation and interpretation of various
contracts; (v) the provision of advice, counsel and assistance regarding
mergers and acquisitions, antitrust, labor and employment matters; and (vi)
the supervision of outside counsel retained by XXX.
(d) Human resources services, including (i) the design of benefit and
------------------------
compensation programs; (ii) the maintenance of human resource systems
(which systems will keep employee information that will be necessary for
benefit and compensation program design, for implementation of such design
and for insuring compliance with the Employee Retirement Income Security
Act of 1974, as amended, the Internal Revenue Service and the Securities
and Exchange Commission); (iii) equal employment opportunity compliance,
management training, union fee avoidance programs and interpretation of
corporate policies.
(e) Corporate planning services, including assistance with corporate
---------------------------
budgeting.
ARTICLE III
-----------
COMPENSATION
------------
3.1 Service Costs. XXX shall pay Citizens and its Affiliates, as the case may
be, for all reasonable costs incurred by Citizens or its
4
Affiliates attributable to the performance by Citizens or its Affiliates of the
Services, including without limitation (a) all costs incurred by Citizens or its
Affiliates to vendors or other third parties in providing Services and related
supplies and goods; (b) the directly allocated costs of employees of Citizens
and its Affiliates (based on the average salary and all other compensation and
costs of the relevant Responsibility Centers) allocated to XXX in accordance
with Citizens' then current practice in allocating the cost of services to its
Operating Companies to the extent that the same can be based on the time of
employees of Citizens and its Affiliates expended in providing such Services;
(c) a portion of the non-directly allocated costs (including direct costs of
employees of Citizens and its Affiliates at the relevant Responsibility Centers
and all other costs and expenses of the relevant Responsibility Centers), which
are not based on time expended, all based on Citizens' then current procedure
(hereinafter referred to as the "Allocation Formula") used by Citizens for
charging unallocated costs of Citizens' relevant Responsibility Centers to the
Citizens Operating Companies as a component of the cost of services rendered;(d)
all other costs directly attributable to the rendering of the Services; and (e)
an amount equal to 25% of the aggregate of (b) and (c) above.
3.2 Billing Procedure. Citizens shall submit to XXX a quarterly
-----------------
statement showing in reasonable detail the calculation for the Reimbursable
Costs and the Fee, which amounts shall be due and payable, except as expressly
provided herein, within thirty (30) days of receipt of such statement by XXX.
ARTICLE IV
----------
CONFIDENTIALITY
---------------
Each party hereto may from time to time be provided information that
is confidential and proprietary to the other party hereto. Accordingly, each
party agrees that it will not reveal such information or any of it, which is not
otherwise in the public domain, to a third party without the consent of the
other party except as required by law or as necessary to perform obligations or
enforce rights hereunder; that such information will be distributed only to
those of its own employees and officers who have a reasonable need for it in
order to carry out the purposes of this Agreement; that such information will
not be used in any manner except for the purpose for which provided; and that
upon termination of this Agreement, all documents containing such confidential
and proprietary information upon request will be returned promptly to the party
to which such information belongs. Each party shall take such steps as are
reasonably necessary to protect the confidential or proprietary information of
the other. For purposes hereof, confidential or proprietary information shall
include customer lists and other customer information, and financial, technical
or business information relating to one party and provided by such party to the
other.
5
ARTICLE V
---------
INDEMNIFICATION
---------------
XXX shall indemnify, defend and hold Citizens and its Affiliates (and
their respective officers, directors, partners, employees and agents) harmless
from any claims, costs, damages (including consequential damages), losses or
expenses (including reasonable attorneys' fees) arising out of or relating to
this Agreement or the performance of Services under this Agreement except where
attributable to the gross negligence or willful misconduct of Citizens or its
Affiliates. Neither Citizens nor any of its Affiliates (nor any of their
respective officers, directors, partners, employees and agents) shall be liable,
in damages or otherwise, to XXX for any error or judgment or other act or
omission performed or omitted by Citizens or any of its Affiliates under or
otherwise in respect of this Agreement, except if such error of judgment or
other act or omission results from willful misconduct or gross negligence of the
party sought to be changed. All of the obligations of Citizens hereunder have
been undertaken by Citizens and its Affiliates solely for the benefit of XXX and
nothing set forth in this Agreement shall (or shall be deemed to) grant to any
other person any interest (whether as a third party beneficiary or otherwise)
herein.
ARTICLE VI
----------
TERM AND TERMINATION
--------------------
6.1 Term. This Agreement shall commence on _______, 1997 and
----
terminate on December 31, 2002, unless earlier extended or terminated in
accordance with the terms of this Agreement.
6.2 Renewal-Termination upon Notice. This Agreement will
-------------------------------
automatically renew for additional terms of two (2) years each, unless either
party provides written notice to the other party not less than six (6) months
prior to the end of the initial term or any such renewal term of its intent to
terminate this Agreement.
6.3 Termination upon Bankruptcy, Etc. Each party shall have the right
--------------------------------
to terminate this Agreement immediately upon written notice to the other party
if the other party: (1) makes an assignment for the benefit of creditors; (2)
has an Order for Relief under Titles 7 or 11 of the United States Code entered
by any United States court against such party; (3) has a trustee or receiver
appointed by any court for a substantial part of such party's assets; or (4)
attempts to make an unauthorized assignment of this Agreement.
6.4 Termination upon Material Breach. In the event of material breach
of any provision of this Agreement by a party, the non-defaulting party shall
give the defaulting party written notice, and:
(a) If such breach is for ELI's non-payment, XXX shall cure the
breach within thirty (30) calendar days of such notice. If XXX does not
cure such breach by such date, Citizens may, at its sole option, elect to
terminate this Agreement by giving written notice of such election to XXX.
6
(b) If such breach is for any other material failure to perform in
accordance with this Agreement, the defaulting party shall cure such breach
within ninety (90) calendar days of the date of such notice. If the
defaulting party does not cure such breach within such period (or is not
working diligently in good faith to cure such breach in cases where a
breach cannot reasonably be expected to be cured within ninety (90) days),
the non-defaulting party may, at its sole option, elect to terminate this
Agreement by giving written notice to the breaching party no earlier than
ninety (90) calendar days after the date of its notice of breach to the
defaulting party (or immediately upon such further notice to the defaulting
party if the defaulting party is not working diligently in good faith to
cure such breach in cases where a breach cannot be reasonably be expected
to be cured within ninety (90) days).
6.5 Termination upon Change of Control. Citizens may terminate this
----------------------------------
Agreement by written notice to XXX upon a Change of Control (as defined below)
with respect to XXX. A "Change in Control" shall be deemed to have occurred if:
(i) Citizens or its Affiliates shall own shares representing less than a
majority of the voting power of the then outstanding common stock of XXX; (ii) a
majority of the seats (other than vacant seats) on the Board of Directors of XXX
shall at any time be occupied by persons who were neither (1) nominated by
Citizens or by the Board of Directors of XXX, nor (2) appointed by directors of
XXX so nominated; or (iii) any person or group, other than Citizens or its
Affiliates, shall otherwise directly or indirectly have the power to exercise a
controlling influence over XXX.
6.6 Survival upon Termination. Notwithstanding the foregoing, the
-------------------------
provisions of Article IV (Confidentiality) and Article V (Indemnification) shall
survive the termination or expiration of this Agreement, and shall remain in
full force and effect for a period of three years following termination or
expiration.
6.7 Waiver. The failure of either party to exercise any right to elect to
------
terminate this Agreement shall not constitute a waiver of the rights granted
herein with respect to any subsequent default.
ARTICLE VII
GENERAL
7.1 Relationship; Self-Dealing. Nothing contained in this Agreement shall
--------------------------
be construed as creating a partnership, joint venture or similar arrangement of
or between Citizens and XXX. Citizens and its Affiliates may engage in, acquire
or possess an interest in other business ventures of any nature or description,
independently or with others, whether currently existing or hereafter created,
which may be in direct or indirect competition with XXX, and XXX shall not have
any rights in or to such independent ventures or the income or profits derived
therefrom, or to any opportunities offered or created thereby. Such activities
or arrangements shall not constitute a breach of this Agreement.
7.2 Entire Agreement. This Agreement constitutes the entire understanding
----------------
between the parties and supersedes any prior understandings respecting the
subject matter thereof.
7
7.3 Amendment; Waiver. This Agreement shall not be amended, modified,
-----------------
waived, released or discharged except by a writing signed by an officer or
authorized representative of each of the parties.
7.4 Successors and Assigns. No party hereto shall assign its rights and
----------------------
obligations under this Agreement or any part thereof, nor shall any party assign
or delegate any of its rights or duties hereunder without the prior written
consent of the other party, and any assignment made without such consent shall
be void; provided, that the rights and obligations of Citizens hereunder may be
assigned to and assumed by an Affiliate of Citizens without the consent or
approval of XXX.
7.5 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended or shall
be construed to confer upon any person other than the parties and successors and
assigns permitted by Section 7.4 hereof any right, remedy or claim under or by
reason of this Agreement.
7.6 Further Assurances. The parties shall execute and deliver such further
------------------
instruments and perform such further acts as may reasonably be required to carry
out the intent and purposes of this Agreement.
7.7 Headings. All article, section and paragraph titles or captions
--------
contained in this Agreement are for convenience only and shall not be deemed
part of the text of this Agreement.
7.8 Pronouns. All pronouns and any variations thereof shall be deemed to
--------
refer to the masculine, feminine, neuter, singular or plural as the context may
require.
7.9 Counterparts. This Agreement may be executed in one or more
------------
counterparts, and each of such counterparts shall for all purposes be deemed to
be an original, but all such counterparts together shall constitute but one
instrument.
7.10 Notices. Any notice, request, instruction or other document to be
-------
given hereunder by any party to the others shall be in writing and shall be
deemed to have been duly given on the next business day after the same is sent,
if delivered personally or sent by telecopy or overnight delivery, or five
calendar days after the same is sent, if sent by registered or certified mail
return receipt requested, postage prepaid, as set forth below, or to such other
persons or addresses as may be designated in writing in accordance with the
terms hereof by the party to receive such notice.
(a) If to Citizens, to:
Citizens Utilities Company
Xxxx Xxxxx Xxxx
Xxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxx X. XxXxxxxx
8
(b) If to XXX, to:
Electric Lightwave, Inc.
0000 X.X. Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxx 00000
Facsimile No.: (360-604-5333)
Attn:
7.11 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of [NEW YORK] without giving effect to the
principles of conflict of laws thereof.
7.12 Force Majeure. In the event that either party hereto shall be
-------------
delayed, hindered in, or prevented from the performance of any act required
hereunder by reason of failure of power, riots, insurrection, war, labor
disputes, Acts of God or other reasons of a similar nature not the fault of the
party delayed in performing the work or doing the acts required under the terms
of this Agreement, then performance of such work or act shall be excused for the
period of said delay and the period for the performance of any such work or act
shall be extended for a period equivalent to the period of such delay. In the
event that either party shall be indefinitely prevented from the performance of
any work or act required hereunder by reason of any such cause, performance of
such work or act shall be indefinitely excused.
7.13 Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if one or more of the provisions of this Agreement is
subsequently declared invalid or unenforceable, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions of this Agreement. In the event of such declaration of
invalidity or unenforceability, this Agreement, as so modified, shall be applied
and construed so as to reflect substantially the intent of the parties and
achieve the same economic effect as originally intended by the terms hereof. In
the event that the scope of any provision to this Agreement is deemed
unenforceable by a court of competent jurisdiction, the parties agree to the
reduction of the scope of such provision as such court shall deem reasonably
necessary to make such provision enforceable under the circumstances.
7.13 No Agency. This Agreement shall not be deemed expressly or by
---------
implication to create an agency, employee, or servant relationship between or
among any of the parties hereto, or any Affiliates of the parties hereto for any
purpose whatsoever.
9
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
hereinabove indicated.
ELECTRIC LIGHTWAVE, INC.
By:________________________________________
Name:
Title:
CITIZENS UTILITIES COMPANY
By:________________________________________
Xxxxxx X. XxXxxxxx
Vice President
10
