EXHIBIT B-3
SOUTHERN MISSOURI GAS COMPANY, L.C.
CONSTRUCTION, OPERATION AND MAINTENANCE MANAGEMENT AGREEMENT
This Agreement is entered into effective October 13, 1995
between TARTAN ENERGY COMPANY OF MISSOURI, L.C. d/b/a SOUTHERN
MISSOURI GAS COMPANY, L.C. ("SMGC"), a Missouri Limited Liability
Company, and TARTAN MANAGEMENT COMPANY OF MISSOURI, L.C. ("TMC"),
a Missouri Limited Liability Company.
W I T N E S S E T H:
WHEREAS, SMGC has received authorization from the Missouri
Public Service Commission ("MPSC") to construct, own and operate
a natural gas distribution system in south central Missouri; and
WHEREAS, SMGC desires to have TMC manage the construction,
operation and maintenance of such distribution system, as well as
manage SMGC and TMC desires to provide such services; and
WHEREAS, SMGC and TMC desire to enter into this Agreement to
set forth the terms and conditions upon which TMC will provide
such services for SMGC;
THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, SMGC and TMC agree as
follows:
ARTICLE I
DEFINITIONS
1.1 "Adjusted Operating Budget" has the meaning set forth
in Section 3.3 of this Agreement.
1.2 "Affiliate" of a Person shall mean any other Person
which, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with such
Person. The term "control" shall mean, with respect to a Person
that is a corporation, the right to exercise, directly or
indirectly, more than 50% of the voting rights with respect to
the outstanding shares of such corporation, and with respect to a
Person that is not a corporation, the right to direct management
policies of such Person.
1.3 "Agreement" shall mean this Construction, Operation and
Maintenance Management Agreement.
1.4 "Day" means a period of twenty-four (24) consecutive
hours, beginning at 8:00 a.m. Central Time.
1.5 "Expansion Budget" has the meaning set forth in Section
3.5 of this Agreement.
1.6 "Operating Account" has the meaning set forth in
Section 4.1 of this Agreement.
1.7 "Operating Budget" has the meaning set forth in Section
3.1 of this Agreement.
1.8 "Manager" means Tartan Management Company of Missouri,
L.C., or its permitted successors or assigns, or any other entity
that may be appointed Manager in accordance with the terms of
this Agreement.
1.9 "Manager Personnel" has the meaning set forth in
Section 6.4 of this Agreement.
1.10 "Parties" means Manager and SMGC.
1.11 "Partnership Agreement" means that certain Agreement of
Limited Partnership of Southern Missouri Gas Company, L.P. to be
entered into in accordance with the provisions of the Formation
Agreement for Southern Missouri Gas Company, dated October ___,
1995 by and among MCN Corporation, Tartan Energy Company of
Missouri, L.C., Torch Energy Marketing, Inc., et al.
1.12 "Person" means an individual, corporation, voluntary
association, joint stock company, business trust, partnership,
limited liability company, proprietorship or other legal entity
(excluding any governmental body) however constituted.
1.13 "SMGC" means Tartan Energy Company of Missouri, L.C.
d/b/a Southern Missouri Gas Company, L.C. or its permitted
successors or assigns.
1.14 "System" means that certain natural gas distribution
system as described on Exhibit "A" attached to this Agreement, as
such system may hereafter be modified or extended.
ARTICLE II
APPOINTMENT, RESPONSIBILITY AND AUTHORITY
2.1 Appointment of Manager. SMGC hereby appoints TMC, and
TMC hereby accepts such appointment, as Manager of SMGC and the
System.
2.2 Responsibility and Authority of Manager. Subject to
the terms of this Agreement and to the limitations set forth in
the Partnership Agreement, and subject to the budgetary approvals
required under Article III, Manager shall cause to be performed
on behalf of SMGC, and SMGC hereby vests in Manager the power and
authority to do, the following:
(a) Supervise the performance of all activities necessary
for the planning, design, construction, testing,
administration, accounting, operation, maintenance,
repair, expansion and abandonment of the System and of
SMGC;
(b) Subject to Section 3.5 below, seek additional
franchises from communities, for which SMGC does not
presently have a franchise, in the area of the System
and provide economic feasibility studies for SMGC with
respect to serving such communities and, if required,
provide such studies to the Missouri Public Service
Commission;
(c) Cause to be obtained all property, labor, material,
equipment, services and supplies from any available
source required by Manager to perform its
responsibility hereunder;
(d) Perform all administrative, accounting and related
reporting duties of SMGC to its owners and to its
regulators, and other governmental entities having
jurisdiction or authority over SMGC;
(e) Implement and administer all contracts pertaining to
and necessary for the construction, operation,
maintenance and repair of the System, including,
without limitation, the billing and collection of
amounts due and payable;
(f) In accordance with policies established by SMGC,
execute contracts for the purchase of natural gas
supply, acquisition of firm and/or interruptible
transportation on supplying pipelines and for peak
demand supply needs of the System as may be required;
(g) Make all reports required by governmental authorities
and obtain all necessary licenses and permits
applicable to the construction, operation, maintenance
and repair of all parts of the System;
(h) Obtain and maintain in force and effect, and require
all contractors and their subcontractors performing
services or providing equipment to maintain in force
and effect, insurance for the benefit of Manager and
SMGC in accordance with Article VI below or as
otherwise required by law;
(i) Maintain accurately the book of accounts for the System
and SMGC in accordance with generally accepted
accounting principles and the requirements of the
Missouri Public Service Commission;
(j) Prepare such forecasts, budgets, returns, statements,
reports and other filings as are required by this
Agreement or as SMGC may reasonably request;
(k) Retain all records relating to the System for such
period as required by law or for such longer period as
directed by the SMGC, but in no event for less than
three (3) years;
(l) Pay and discharge in a timely manner all obligations
under this Agreement incurred on behalf of SMGC by the
Manager to third parties which Manager does not contest
and contest such obligations as Manager considers to
warrant being contested;
(m) Acquire any leases, easements, rights-of-way,
servitudes and grants as are necessary for the
construction, operation, maintenance, and/or repair of
the System, and resist the perfection of any liens
against the System and to the extent permitted by law,
except as otherwise authorized by SMGC, hold the System
free from liens;
(n) Render and pay all local, state and federal taxes
(other than income and corporate franchise taxes)
applicable to or incurred as a result of the ownership
and operation of the System;
(o) Represent the System and SMGC in all matters before the
Missouri Public Service Commission (including, without
limitation, all utility rate matters). Maintain
contacts with federal, state, and local governmental
authorities on matters relating to the System;
(p) Make all operational decisions with respect to the
System, consistent with i) such policies as SMGC may
implement in consultation with Manager, and ii) the
requirements of the Missouri Public Service Commission;
(q) Cause to be performed such other services and take such
other actions as are necessary to fulfill Manager's
duties and obligations under this Agreement with
respect to the System and SMGC or as are reasonably
requested by SMGC.
In no event, however, shall Manager take any action with respect
to the System or SMGC which would require the approval of the
limited partners under Section 3.2 of the Partnership Agreement
(including any action prior to the execution of the Partnership
Agreement which would require such approval if the Partnership
Agreement were executed), without first obtaining the approval of
the requisite percentage of the Limited Partners' interests as
required under the Partnership Agreement. In addition, Manager
shall not take any of the following actions without first
obtaining the written agreement of SMGC: 1) enter into any gas
purchase contract, 2) enter into any firm gas transportation
contract, 3) enter into any negotiated third party gas sales
contract in an amount in excess of $10,000 and, (4) enter into
any contract (other than a gas sales contract or a contract
pertaining to an expansion which has been approved under Section
3.5) with a third party in an amount in excess of $100,000 per
year.
2.3 Reports. The Manager shall provide five (5) types of
reports, and such other reports as SMGC and Manager may agree
upon. All reports shall be provided by Manager to all owners of
SMGC. These five (5) types of reports are operating reports,
construction reports, system development reports, additional
reports and reports of non-routine occurrences. These reports
are defined as follows:
(a) Operating Reports. Within forty-five (45) Days
following the last Day of each month, and within fifty-five
(55) Days after the end of each calendar year, Manager shall
submit to the owners of SMGC a detailed report of operations
and maintenance of the System during such month and year,
respectively. Such reports shall include for the applicable
reporting period:
(i) income statement;
(ii) balance sheet;
(iii) the information required by Section 4.6 of
this Agreement;
(iv) information required to be reported to the
owners of SMGC under this Agreement; and
(v) such additional information as SMGC may
reasonably request concerning the operation
and maintenance of the System during the
reporting period.
(b) Construction Reports. Within thirty (30) Days
following the last Day of each month, and within sixty (60)
Days after the end of each calendar year, Manager shall
submit to the owners of SMGC a detailed report of
significant construction activities on the System during
such month and year, respectively, that are not covered in
the operating reports discussed in (a) above. Such reports
shall include for each applicable construction project:
(i) Total amount to be spent on the project;
(ii) The amount spent through the last Day of such
period and the amount of work completed
through such date;
(iii) The amount of any revision of the project
cost should it vary more than ten percent
(10%) from the original estimate;
(iv) Any information required for banks or other
entities providing construction funding for
the project being constructed; and
(v) Additional information that SMGC may
reasonably request concerning construction
activities that are ongoing.
(c) System Developmental Reports. Subject
to Section 3.5 below, within forty-five (45) Days
following the last Day of each calendar quarter.
Manager shall submit to the owners of SMGC a
report of progress on the development of
additional investment opportunities relating to
the System and the focus of the development
efforts moving forward.
(d) Additional Reports. Manager shall
provide to the owners of SMGC all information
concerning the operation of the System which is
necessary to allow the owners of SMGC to prepare
and submit, on a timely basis, all reports,
statements and other information required to be
furnished by SMGC to any lender pursuant to any
agreement, note or contract. Such requirements of
SMGC may include, without limitation, audited and
unaudited financial statements, opinions of
independent public accountants, certificates of
the officers of the Manager and/or monthly
operating reports and cash flow reports. Manager
shall also provide to the owners of SMGC such
additional information as may be reasonably
requested by SMGC, or the owners of SMGC.
(e) Reports of Non-Routine Occurrences.
Manager shall report to the owners of SMGC all
non-routine occurrences that Manager determines
may have a material adverse impact upon the
operation of the System as soon as practicable
after such occurrences. Manager shall promptly
prepare a follow-up report for the owners of SMGC
detailing as appropriate Manager's response to
each non-routine occurrence.
2.4 Relationship with SMGC. In performing its
responsibilities under this Agreement, Manager shall be an
independent contractor and not an employee of SMGC. This
Agreement shall not and is not intended to create any partnership
or joint venture relationship between SMGC and Manager.
2.5 Manager's Obligation. Manager agrees to
carry out its responsibilities and obligations under this
Agreement in accordance with sound workmanlike and prudent
practices of the natural gas distribution industry. All
personnel engaged or directed by Manager to perform services
under this Agreement (whether employees of SMGC or Manager,
consultants or independent contractors) shall be duly qualified
and experienced to perform such services. Manager shall ensure
that its employees, and shall use commercially reasonable best
efforts to ensure that SMGC's employees, consultants or
independent contractors, comply with all relevant laws, statutes,
ordinances, safety codes, regulations and rules of the
governmental authorities having jurisdiction over the same.
Subject to any applicable approval requirements set forth in
Section 2.2 above, Manager is authorized to execute on behalf of
SMGC all contracts, governmental filings and any other written
documentation of any kind deemed necessary by Manager, in the
performance of its obligations hereunder.
2.6 Emergencies. Notwithstanding any other
provision in this Agreement to the contrary, in case of
explosion, fire, flood, freezing, other sudden emergency, or any
major interruption of the operation of the System, or any part
thereof, the prior approval of SMGC shall not be required before
Manager shall be entitled to take such steps and incur such costs
as, in Manager's reasonable opinion, are necessary to deal with
such emergency or interruption. Provided, however, that Manager
shall, as promptly as possible, report such emergency or
interruption to SMGC. Manager shall also make all required
reports regarding said emergency to the applicable federal,
state, and local governmental authorities having jurisdiction
over the same.
2.7 Personnel. All personnel who are to be
located in Missouri in connection with the System or SMGC (other
than consultants and independent contractors, or employees of
Manager temporarily assigned to the System) shall be the
employees of SMGC and not of Manager. All personnel retained as
consultants and independent contractors in connection with the
System or SMGC, shall be retained on behalf of SMGC. Only such
personnel who are located at Manager's principal place of
business in Tulsa, Oklahoma (including such personnel who are
temporarily assigned by Manager to the System in Missouri) shall
be employees of Manager.
2.8 Meetings. The Manager shall be responsible
for coordinating the following meetings of the owners of SMGC.
Manager shall provide all owners of SMGC at least ten (10) Days'
prior notice of any meetings. These meetings are:
First Quarter Meeting. The first quarter
meeting will generally take place during the month
of March. The previous year end financial
results, audit reports and other items necessary
to meet any annual meeting requirements will be
presented at such meeting.
Second Quarter Meeting. The second quarter
meeting will generally take place during early
summer and may include a field visit of any
construction activities on-going. Year to date
financial information will be reviewed at this
meeting and field visits made if requested by
SMGC.
Third Quarter Meeting. The third quarter
meeting will generally take place in September.
Year to date financial results will be reviewed at
this meeting. The Manager will also present a
proposed Operating Budget for the following
calendar year which will include projected capital
expenditures for such following year (except for
capital expenditures contained in any Expansion
Budget). Such budget shall be subject to the
review and approval procedures set forth in
Article III.
Fourth Quarter Meeting. The fourth quarter
meeting will generally take place in mid-November
or early December. Year to date financial results
as well as projected year end results will be
reviewed at this meeting.
Any owner of SMGC shall have the right to call a meeting with the
Manager and to establish the agenda items for that meeting. Any
such owner shall provide Manager and the other owners of SMGC
with at least ten (10) days prior notice of such meeting and the
agenda to be presented at such meeting.
2.9 Other Activities. Subject to any provision
of this Agreement which specifically provides to the contrary,
this Agreement shall not restrict in any way the rights of SMGC
or Manager to engage in other businesses or activities; provided,
however, Manager shall not engage in activities in direct
competition with the System, unless Manager is permitted to
engage in such activities pursuant to Section 13.7 of the
Partnership Agreement.
ARTICLE III
BUDGETS, APPROVALS AND AUTHORIZATIONS
3.1 Budgets. The initial construction budget for
the Phase I construction of the System shall be as set forth in
Exhibit "B" attached to this Agreement. The Operating Budget
(including the manpower plan for the System) for calendar year
1996 shall be as set forth in Exhibit "C" attached to this
Agreement. The Operating Budget from the commencement of this
Agreement through the end of calendar year 1995 (the "Initial
Period") shall be the Operating Budget for 1996 multiplied by a
fraction, the numerator of which shall be the number of months
during the Initial Period and the denominator of which shall be
twelve (12). No further approvals shall be required of SMGC with
respect to such initial construction budget or such Operating
Budgets.
On or before the third quarter meeting to be held
in calendar year 1996, and on or before the third quarter meeting
to be held in each year thereafter during the term hereof as set
forth in Section 2.8 hereof, Manager shall prepare and submit to
the owners of SMGC an Operating Budget for the next succeeding
calendar year (the "Operating Budget"). The Operating Budget
submitted by Manager to the owners of SMGC shall set forth the
costs and expenditures for each month during such calendar year
estimated to be incurred under this Agreement. The Operating
Budget shall include such supporting documentation and data as
reasonably requested by SMGC. Such Operating Budget shall
include a separate "Capital" section which shall set forth
estimates of all capital and construction projects planned for
such calendar year, except for construction projects for the
expansion of the System into new service areas (i.e., towns,
cities, or counties where SMGC has not previously provided
natural gas service) which expansions are addressed in Section
3.5 below. All gas supply costs, transportation costs and any
other costs to be included in SMGC's purchased gas adjustment
clause authorized by the Missouri Public Service Commission shall
not be part of the Operating Budget.
3.2 Approval of Budgets.
(a) Authorization. Manager and SMGC
shall use their good faith efforts to reach
agreement on the Operating Budget for the ensuing
calendar year at the third quarter meeting at
which such Operating Budget is presented by
Manager under Section 2.8 above. If Manager and
SMGC are unable to reach agreement on such
Operating Budget at such meeting, within ten (10)
days following the conclusion of such meeting SMGC
shall submit to Manager, with a copy to all owners
of SMGC, a revised Operating Budget for such
ensuing year that SMGC is willing to accept.
Following Manager's receipt of such revised
Operating Budget, SMGC and Manager shall continue
to use their good faith efforts to reach agreement
on the Operating Budget for such ensuing calendar
year. If SMGC and Manager are unable to reach
agreement on such Operating Budget by December 1st
prior to the commencement of the calendar year in
which such Operating Budget is to be effective,
the Default Budget shall be deemed to be the
agreed upon Operating Budget for such ensuing
calendar year until such time as the parties
otherwise agree upon an Operating Budget for such
year or such Operating Budget is established by an
order of an arbitrator pursuant to the provisions
of Article XI. The Default Budget shall mean the
greater of 1) the Operating Budget in effect for
the calendar year immediately preceding the
calendar year for which the parties are unable to
reach agreement on an Operating Budget or 2) the
Operating Budget set forth on Exhibit "C" attached
hereto (provided, however, the "Capital" portion
of each Operating Budget specified in 1) or 2)
above shall be excluded from such Operating
Budgets); plus a capital amount of $250,000 to be
utilized for capital expenditures relating to the
System. Notwithstanding the language of the
preceding sentence the following shall apply: 1)
the General and Administrative Fee under Section
5.1 below to be included in the Default Budget for
any year shall, unless the parties have otherwise
agreed upon such Fee, be the Default General and
Administrative Fee for such year and 2) each time,
and at such time as, an expansion under Section
3.5 is approved by SMGC, the Operating Budget set
forth in Exhibit C shall be modified to reflect
the changed non-"Capital" costs and expenses
anticipated to such Operating Budget by reason of
such expansion.
(b) Arbitration. If the parties are
unable to reach agreement on an Operating Budget
by December 1st of the year preceding the year in
which such Operating Budget is to apply, the
parties shall resolve such disagreement by
arbitration pursuant to the provisions of Article
XI below. If the parties are able to reach
agreement on some but not all portions of any
Operating Budget, only those portions of the
Operating Budget which the parties are unable to
reach agreement on shall be submitted to
arbitration.
(c) Limitations of Expenditures. Without
the prior written consent of SMGC, Manager shall
not exceed the Operating Budget for any calendar
year by an amount in excess of ten percent (10%)
for any specific category, or by an amount in
excess of five percent (5%) in the aggregate, of
such Operating Budget, except as specified in
Sections 3.3 or 3.4 below.
3.3 Adjusted Operating Budget. If, during the
period covered by an Operating Budget, Manager determines that an
adjustment to the estimated costs set forth in the Operating
Budget is necessary or appropriate, then Manager shall submit to
SMGC, with a copy to the owners of SMGC, for approval an adjusted
budget ("Adjusted Operating Budget") setting forth such
adjustments as Manager considers are necessary or appropriate.
Within thirty (30) Days following SMGC's receipt of Manager's
proposed Adjusted Operating Budget, SMGC shall either approve
such budget by written notice to Manager or submit to Manager a
revised budget, in each case with a copy to the owners of SMGC.
SMGC's failure to submit to Manager a revised budget within such
thirty (30) Day period shall constitute its approval of the
Adjusted Operating Budget submitted by Manager. If SMGC submits
a revised budget, Manager shall have ten (10) Days from its
receipt of such revised budget to elect in writing to either
accept or reject it. Manager's failure to provide written notice
of acceptance of such revised budget to SMGC within such ten (10)
Day period shall constitute an approval of such revised budget.
If Manager rejects such revised budget, the matter shall be
resolved pursuant to the provisions of Article XI below.
3.4 Emergency/Required Expenditures. In the
event of, or given reasonable anticipation of, any force majeure
(as defined in Article VIII below) or other occurrence or
condition which might threaten life or property or render all or
any part of the System incapable of continuous operation, or if
required in order to prevent a material default under any
contract of SMGC or of Manager (entered into in the performance
of its duties under this Agreement), to comply with an order of a
governmental authority with jurisdiction over the System, or to
maintain the operational integrity of the System, Manager shall
take such steps and incur such reasonable expenses and reasonable
costs as in its reasonable opinion are required to deal with each
such emergency or requirement. Manager shall report the
particulars of any such emergency or requirement to SMGC in
writing as promptly as possible. If the emergency or requirement
causes Manager to incur expenses in excess of the expenditure
limitations set forth in Section 3.2(b) above, Manager's report
shall also include the particulars of such expenses.
3.5 Expansions.
(a) Identification. In the event Manager
identifies a possible expansion of the System into
a town, city, or county not then being served by
the System, which Manager believes can be
profitably achieved it shall upon not less than
ten (10) Days' notice call a meeting of the owners
of SMGC. At such meeting, Manager shall present
to the owners of SMGC a written proposal of such
expansion, which proposal shall include a detailed
description of such proposed expansion, together
with a detailed cost estimate of such expansion
("Expansion Budget").
(b) Response.
(i) Within thirty (30) Days following
the conclusion of any meeting
specified under (a) above involving
a proposed expansion having an
estimated cost of Two Million
Dollars ($2,000,000) or less, SMGC
shall provide its written notice to
Manager that it either approves or
disapproves such expansion
proposal. SMGC's failure to submit
to Manager its written approval of
such expansion proposal within such
thirty (30) Day period, shall be
deemed SMGC's rejection of such
proposal.
(ii) Within sixty (60) Days following
the conclusion of any meeting
specified under (a) above involving
a proposed expansion having an
estimated cost in excess of Two
Million Dollars ($2,000,000), SMGC
shall provide its written notice to
Manager that it either approves or
disapproves such expansion
proposal. SMGC's failure to submit
to Manager its written approval of
such expansion proposal within such
sixty (60) Day period, shall be
deemed SMGC's rejection of such
proposal.
(c) Approval. If SMGC approves an
expansion proposal within the applicable time
period set forth in (b) above, Manager shall
proceed with such expansion on behalf of SMGC
under this Agreement. In such event Manager shall
not exceed the Expansion Budget by an amount in
excess of ten percent (10%) in the aggregate of
such budget, without the prior written consent of
SMGC.
(d) Rejection. If SMGC rejects or is
deemed to have rejected an expansion proposal
under Section 3.5(b) above, Manager shall not
pursue the expansion specified in such expansion
proposal. Provided, however, subject to the
provisions of Section 13.7 of the Partnership
Agreement, Manager shall be permitted to pursue
such expansion for its own account, either by
itself or in concert with other Persons.
(e) During the period from the
Effective Date until the date of execution of the
Partnership Agreement, any proposed expansion
under this Section 3.5 shall be subject to the
provisions of Section 13.7 of the Partnership
Agreement (as if such Partnership Agreement were
then in effect).
ARTICLE IV
OPERATING ACCOUNT; DEPOSITS AND PAYMENTS
4.1 Operating Account. Manager will establish
and maintain a separate bank account in the name of SMGC with a
financial institution designated by SMGC ("Operating Account").
4.2 Deposits into the Operating Account.
(a) Proceeds. From and after the
Effective Date, Manager shall deposit into the
Operating Account (i) all proceeds (including,
without limitation, all sales proceeds, interest
income, insurance proceeds, settlements, proceeds
from condemnation or other taking, and refinancing
proceeds) received by Manager on behalf of SMGC
derived from the operation of the System or of
SMGC and (ii) any monies received by Manager from
SMGC under Section 4.2(b) below.
(b) Payments by SMGC. From and after
the Effective Date, SMGC shall pay to Manager for
deposit into the Operating Account the following
amounts:
(i)Payments by SMGC for Costs under
the Operating Budget and any Expansion
Budget. If necessary, within ten Days of
the end of each calendar month, Manager
shall invoice SMGC, with backup
documentation sufficient to support such
invoice, for the amount necessary to cause
the balance in the Operating Account to be
sufficient to pay all costs incurred under
the Operating Budget and any Expansion
Budget which Manager anticipates will
require payment in the next succeeding
month. If invoiced, SMGC shall pay the
invoiced amount within five (5) Days of
receipt of the invoice. In addition, if,
during any calendar month, Manager
determines that the sums available in the
Operating Account will be insufficient to
timely pay all amounts owed or incurred in
accordance with this Agreement during such
month, then the Manager shall notify SMGC,
in writing, of such circumstance and the
amount required to maintain a balance
sufficient to pay such amounts. SMGC shall,
within five (5) Days following its receipt
of such notice, remit to Manager such sums
as stated in Manager's notice.
(ii)Payment by SMGC of Manager's
Construction Fee. Within five (5) Days of
SMGC's receipt of an invoice, with backup
documentation sufficient to support such
invoice, from Manager for any construction
fee determined under Section 5.2 SMGC shall
pay the amount of such fee specified on such
invoice into the Operating Account; provided
that such payment shall not be required if
SMGC has made any payment required under
Section 4.2(b)(i) for such month and
sufficient amounts are in the Operating
Account to provide for the amounts to be
paid to Manager in accordance with Section
4.3 below.
(iii)Payment by SMGC of Incentive Fee
for Oversight of Ongoing Operations. Within
five (5) days of SMGC's receipt of an
invoice, with backup documentation
sufficient to support such invoice, from
Manager for the incentive fee for ongoing
operations determined under Section 5.3,
SMGC shall pay the amount of such fee
specified on such invoice into the Operating
Account; provided that such payment shall
not be required if SMGC has made any payment
required under Section 4.2(b)(i) for such
month and sufficient amounts are in the
Operating Account to provide for the amounts
to be paid to Manager in accordance with
Section 4.3 below.
4.3 Charges to the Operating Account by Manager.
On or after the Effective Date of this Agreement, and on or after
the first Day of each calendar month thereafter, Manager may
charge the Operating Account all amounts to be paid or reimbursed
to Manager under Article V of this Agreement.
4.4 Distribution. Manager shall, with each
monthly operating report submitted under Section 2.3(a) of this
Agreement, distribute to SMGC from the Operating Account the
amount in such account, if any, which is in excess of the amount
necessary to pay all costs incurred under the Operating Budget
and any Expansion Budget which Manager anticipates will require
payment in the following month plus any cash reserves provided
for in the Operating Budget or otherwise approved by SMGC.
Manager's obligation to make any such distribution to SMGC is
subject to SMGC having made all of its required payment and
funding obligations which are then due under this Agreement.
4.5 Limitations. Except where the result of
Manager's gross negligence or willful misconduct (including a
willful breach of this Agreement by Manager), Manager shall not
be liable for, nor shall Manager have any liability or
responsibility to pay or discharge any debts, obligations, costs,
taxes or any other expenses incurred, arising or in any way
related to the System or SMGC, including the operation thereof,
by Manager from its own funds or accounts, it being agreed that
all such debts, costs, obligations and expenses are, and shall
remain, the responsibility of SMGC and are to be paid from funds
received into the Operating Account from or on behalf of SMGC.
SMGC shall indemnify Manager against, and hold Manager harmless
from, all such debts, obligations, costs, taxes and other
expenses, including reasonable attorneys' fees, court costs and
any and all other loss or liability in connection therewith.
4.6 Statement of Account. Manager shall include
in the operating reports required by Section 2.3(a) of this
Agreement a statement showing all payments into, all payments and
distributions from and the balance remaining in the Operating
Account at the end of the applicable reporting period.
ARTICLE V
PAYMENTS TO MANAGER
5.1 General and Administrative Fee. SMGC shall
pay to Manager each month the "General and Administrative Fee" to
compensate Manager for a portion of its "General and
Administrative Costs" in performing the day to day management of
SMGC. Such General and Administrative Fee does not compensate
Manager for its "General and Administrative Costs" i) in
performing the management of any construction projects approved
by SMGC under Section 3.5, for which Manager will receive
compensation as determined under Section 5.2 below or ii) in
performing System development activities, for which Manager will
receive compensation as determined under Section 5.5 below.
(a) The "General and Administrative
Costs" of Manager shall be the general and
administrative costs of the principal business
location of Manager, such principal business
location currently being at Tulsa, Oklahoma.
These general and administrative costs of the
principal business location shall be general and
administrative salaries of employees of Manager at
the principal business location, employees
pensions and benefits and payroll taxes of such
employees, office supplies and expenses at the
principal business location of such employees,
personal injuries and physical damages at or to
the principal business location, rents and
depreciation of office furniture and equipment at
the principal business location, and amortization
of office leaseholds and maintenance of general
plant at the principal business location.
(b) The parties agree that the General
and Administrative Fee shall initially be $25,000
per month (the "Initial General and Administrative
Fee").
(c) The General and Administrative Fee
shall be agreed upon by the parties each year and,
subject to the provisions of subsection (e) below,
shall be included in the Operating Budget. If the
parties are unable to agree upon the General and
Administrative Fee for any year, the General and
Administrative Fee for such year shall be the
"Default General and Administrative Fee."
(d) The "Default General and
Administrative Fee" for any year shall equal the
product of the Initial General and Administrative
Fee multiplied by a fraction, the numerator of
which shall be the Index for the most recent month
for which the Index is available, and the
denominator of which shall be the Index for the
month of October, 1995. In no event, however,
shall the Default General and Administrative Fee
ever be less than the Initial General and
Administrative Fee. For the purposes of the
foregoing, the Index shall be the Consumer Price
index for all Urban Customers (CPI-U) as published
by the U.S. Department of Labor, Bureau of Labor
Statistics. If the Index is subsequently
converted to a different standard reference base
or otherwise revised, the determination of the
Default General and Administrative Fee shall be
made by using the conversion factor, formula or
table for converting the Index as published by the
Bureau of Labor Statistics, or in its absence, by
using the conversion factor, formula or table as
published by any nationally recognized publisher
of similar statistical information. If the Index
ceases to be published, then for purposes of the
determination of the Default General and
Administrative Fee, there shall be substituted for
it any other index that Manager and SMGC shall
agree upon. If the parties are unable to agree
upon a substitute index within 90 days after the
Index ceases to be published, the matter shall be
determined by arbitration in accordance with
Article XI of the Agreement.
(e) During any period in which any
construction project(s) are occurring on or in
connection with the System, the General and
Administrative Fee of Manager paid during any such
period shall be allocated between such
construction project(s) and the other activities
with respect to the System occurring during such
period, as appropriate.
(f) In the event an employee of
Manager, who otherwise is normally employed at the
principal business location of Manager, is
assigned to work at a different location for a
period in excess of two (2) weeks in connection
with work for the System or SMGC, all costs and
expenses of such employee (including without
limitation salary, personal expenses, benefits,
etc.) shall, to the extent authorized or approved
under Article III above, be charged to SMGC in
accordance with Section 5.4 below during the
period such employee is assigned to work at a
different location then Manager's principal
business location.
5.2 Construction Fee. For any construction
project approved by SMGC pursuant to Section 3.5 above, SMGC
shall pay to Manager a mutually acceptable construction
management fee, which fee shall be agreed upon at the time of
approval of such project by SMGC. Any fee payable under this
Section 5.2 shall be in addition to, and not in lieu of, any
other amounts to be paid to Manager under this Agreement.
(a) Initial Phase I Construction. The
construction management fee to be paid to Manager
for the construction of the System as set forth in
the Phase I Implementation Plan dated March 17,
1995 (the "Plan") shall consist of the following:
(i)A fee of $25,000 per month to
compensate Manager for a portion of its
"General and Administrative Costs" (as
defined in Section 5.1 above) in performing
the construction management of the System as
set forth in the Plan.
(ii)Subject to the other provisions of
this Section 5.2(a)(ii), an incentive fee of
Three Hundred Thousand Dollars ($300,000)
for construction management of the main
trunk pipeline specified in the Plan which
shall be payable at the startup of mainline
operations; provided, however, that payment
of this fee shall not cause the actual cost
of the mainline to exceed the projected cost
included in the Plan. If necessary, this
fee will be reduced to an amount so as not
to cause the actual mainline construction
costs to exceed such projected cost. A copy
of such projected cost of the mainline is
attached as Exhibit "D".
(iii)Subject to the other provisions of
this Section 5.2(a)(iii), an incentive fee
of Three Hundred Thousand Dollars ($300,000)
for construction management of the
distribution systems specified in the Plan,
as contemplated by such Plan, shall be paid
in two increments. The first portion of
such fee shall be One Hundred Forty Thousand
Dollars ($140,000) and shall be paid in
increments of Twenty Thousand Dollars
($20,000), with each such Twenty Thousand
Dollar ($20,000) increment payable to
Manager at the time the distribution system
to one of the seven (7) communities
specified in the Plan commences operations.
The second portion of such fee shall be One
Hundred Sixty Thousand Dollars ($160,000)
and shall be paid at the discretion of SMGC
as hereinafter determined. At any point in
time following the connection of five
thousand (5,000) customers to the System
Manager may request payment of such amount.
Manager may not make such request, however,
until such time as the merger contemplated
in Section 7.2 occurs. Upon receipt of such
request SMGC shall submit such request to
its limited partners for approval. If the
limited partner(s) holding a majority of the
limited partnership units which are
permitted to vote on such matter, determine
in the sole discretion of such limited
partner(s) that Manager has satisfactorily
performed the construction management of the
distribution systems specified by the Plan,
taking into consideration the management,
progress and cost of such distribution
systems, then SMGC shall pay to Manager the
$160,000 incentive fee.
(b) Subsequent Construction Projects.
Any expansion proposal submitted by Manager for a
construction project under Section 3.5 above,
shall include Manager's proposed construction
management fee for such project. Such proposed
fee shall include both i) a monthly fee to
compensate Manager for a portion of its "General
and Administrative Costs" (as defined in Section
5.1 above) in performing the construction
management of the proposed construction project
and ii) incentive fees for the management of the
proposed construction project. The approval of
any expansion proposal under Section 3.5, shall
include an agreement upon the construction
management fee to be paid Manager in conjunction
with the construction project which is the subject
of such proposal.
5.3 Incentive Fee for Oversight of Ongoing
Operations.
(a) If for any calendar year the Return (as
hereinafter defined) for such year exceeds the
Return for such year as set forth in Table 1 below
(the "Base Return"), SMGC shall pay to Manager an
incentive fee equal to the sum of the following:
(i) Twenty percent (20%) of the
product of a) the number of basis points
by which the Return exceeds the Base
Return, not to exceed one hundred basis
points, times b) the Net Income (as
hereinafter defined) for such year; plus
(ii) Twenty five percent (25%) of
the product of a) the number of basis
points (in excess of 100 basis points)
by which the Return exceeds the Base
Return, not to exceed two hundred basis
points, times b) the Net Income for such
year; plus
(iii) Thirty percent (30%) of the
product of a) the number of basis points
(in excess of 200 basis points) by which
the Return exceeds the Base Return,
times b) the Net Income for such year.
Table 1
Year 1996 1997 1998 1999 2000 2001 and beyond
Base Return 3% 6% 10% 12% 14% to be mutually
agreed upon
For purposes of the calculations to be made under
this Section 5.3(a), each one (1) basis point
shall equal .0001. Any fee payable under this
Section 5.3 shall be in addition to, and not in
lieu of, any other amounts to be paid to Manager
under this Agreement. The total incentive fee to
be paid under this Section 5.3 shall not exceed
seventy-five thousand dollars ($75,000) per year
when averaged over a three (3) consecutive year
period.
(b) For purposes of this Section 5.3, the
following definitions shall apply:
(i) "Return" shall mean for any calendar
year a percentage (to be calculated to three
places to the right of the decimal point) which
shall be determined by dividing the Net Income (as
hereinafter defined) for such year by the Owner
Equity (as hereinafter defined) for such year.
(ii) "Net Income" shall mean for any
calendar year, (x) the total gross revenues of
SMGC from all sources for such year, minus (y) the
Expenses (as hereinafter defined) for such year.
(iii)"Expenses" for any calendar year shall
mean all costs incurred by SMGC during such year
(including book depreciation as determined in
accordance with MPSC guidelines, any interest
expenses and imputed income taxes or other taxes
based on income of SMGC) which are expensed (i.e.,
not capitalized). For purposes of the foregoing,
imputed income taxes means the income taxes that
would have been paid had SMGC been a corporation
domiciled in Missouri.
(iv) "Owner Equity" shall mean for any
calendar year the arithmetic average of the equity
investment in SMGC (expressed in dollars) on the
first and last day of such year. For purposes of
the foregoing, such equity investment shall be
determined insofar as possible as if (i) SMGC were
a corporation domiciled in Missouri, and ii) the
interests of the partners in SMGC were stockholder
interests in such corporation.
5.4 Manager Direct Charges Incurred in Connection with
the System or SMGC. Subject to the limitations hereinafter
prescribed in this Section 5.4 and to the extent authorized or
approved under Article III above, Manager shall charge SMGC, and
SMGC shall pay for all direct costs and expenditures reasonably
incurred by Manager in connection with the planning, design,
construction, testing, administration, accounting, operation,
maintenance, upkeep, repair, expansion and abandonment of the
System and SMGC, (to the extent such costs and expenditures are
not paid directly by SMGC), including the following items:
(1) Rentals: All rentals paid by Manager.
(2) Labor and Personal Expenses:
(a) Salaries, wages and personal expenses of
Manager's and its Affiliates' employees directly
engaged in connection with the System, and in
addition, the portion reasonably allocable to the
System of the amounts paid as salaries, wages and
personal expenses of others temporarily employed
in connection therewith. As used herein, the term
"personal expense" shall mean travel, hotel,
transportation, meals and other usual out-of-
pocket expenditures incurred by employees in the
performance of their duties and for which such
employees are reimbursed.
(b) The cost of holiday, vacation, sickness
and other fringe benefits and customary allowances
applicable to the salaries, wages and personal
expenses chargeable under Section 5.4(2)(a) above.
The cost of plans for employees' group life
insurance, hospitalization, disability, pension,
retirement, savings, thrift, bonus, and other
benefit plans, applicable to labor costs which are
chargeable under Section 5.4(2)(a) hereto.
(c) Costs, expenses or contributions made
pursuant to assessments imposed by governmental
authority which are applicable to labor costs as
provided under Section 5.4(2)(a) and (b) hereto.
(d) The costs set forth in Section 5.4(2)(a)
through (c) above for Manager's employees who are
included within the General and Administrative Fee
under Section 5.1 above shall not be recovered
under this Section 5.4; provided, however, the
"personal expenses" (as defined in Section
5.4(2)(a) above) of such employees shall be
recovered under this Section 5.4.
(3) Material, equipment and supplies purchased or
furnished by Manager for use on the System or by SMGC,
which shall be charged at Manager's cost.
(4) Transportation of employees, equipment,
materials and supplies incurred in connection with the
System or SMGC.
(5) Services furnished by Persons other than
Manager shall be charged based on:
(a) The actual cost paid by Manager to a
Person for contract services and equipment.
(b) The salaries, wages and personal
expenses of professional consultant services and
contract services of technical personnel directly
employed, temporarily or permanently.
(c) The actual cost paid by Manager for
utilities.
(6) All costs or expenses necessary to replace or
repair System or SMGC property made necessary because
of damages or losses incurred by fire, flood, storm,
theft, accident or any other cause not controllable by
Manager through the exercise of reasonable diligence.
(7) All costs and expenses of investigations,
audits, proceedings, claims, demands or causes of
action arising in connection with the System or SMGC,
including without limitation reasonable attorney fees
and expenses, together with any judgments paid or
amounts paid in settlement or satisfaction of any of
the foregoing, and the actual expenses incurred by
Manager in securing evidence for the purpose of
defending against any such action or claim.
(8) All taxes, less any credits received, of
every kind and nature assessed or levied upon or in
connection with the System or the operation thereof, or
SMGC, including charges for late payment arising from
extensions of the time for filing.
(9) Insurance: All premiums paid and expenses
incurred for insurance carried under the Agreement or
for the benefit of the System or SMGC.
(10) All costs incurred in connection with the
System or SMGC as a result of or in compliance with
governmental or regulatory requirements, including
without limitation those relating to utility regulation
as well as environmental, health or safety
considerations applicable to the System or SMGC. Such
costs may include, but are not limited to, disposal of
wastes, surveys of an ecological or archaeological
nature and pollution prevention or control as required
by applicable legal requirements.
(11) All costs incurred for abandonment and
reclamation of the System, including costs required by
governmental or other regulatory authority.
(12) All costs of acquiring, leasing, installing,
operating, repairing and maintaining communication
systems, including radio and microwave facilities, for
the operation of the System or SMGC.
(13) All land right acquisition costs, including
those for rights-of-way, surface leases, permits, fee
purchases, etc.
5.5 Development Activities. SMGC shall pay to Manager
each month an initial fee of $5,000 per month to compensate
Manager for development activities undertaken by Manager in an
effort to expand the System. Such initial fee shall be paid
until the end of calendar year 1996. The continuation of such
fee, or any modification of such fee, beyond such period shall be
subject to the inclusion of such amount in the Operating Budget
in accordance with the approval process set forth in Section 3.2
above.
ARTICLE VI
INSURANCE, INDEMNITY, LITIGATION
6.1 Insurance. To the extent available, and to the
extent not otherwise obtained by SMGC, Manager shall obtain, and
shall maintain in effect at least the minimum insurance coverages
on the System, SMGC, and Manager as are specified in Section 6.2
below and any additional insurance required by SMGC applicable to
the System, to protect the interests of Manager, SMGC and any
lender of SMGC, if required by such lender. Manager shall
maintain such insurance coverage until this Agreement is
terminated under Article IX below.
6.2 Coverages.
(a) Minimum Insurance Coverages.
(i) Worker's compensation
insurance as required by applicable law, and
Employer's Liability Insurance with limits
of $1,000,000 per occurrence. The policies
shall be endorsed to include borrowed
servant, all states, voluntary compensation
and stop gap coverage endorsements. The
worker's compensation insurance policy shall
contain a provision that the insurance
company shall have no right to recovery or
subrogation against Manager, SMGC or their
respective Affiliates, shareholders,
members, managers, partners, officers,
directors or employees.
(ii) Commercial general liability
insurance with a combined single limit of
$1,000,000 per occurrence for bodily injury
and property damage, and including, without
limitation, the following specific
coverages:
(1) Coverage for all premises
operations and work let or sublet (for
independent contractors).
(2) Personal injury coverage.
(3) Employees named as additional
insureds, with the fellow employee
exclusion deleted.
(4) Broad form property damage
coverage, including completed
operations.
(5) Coverage against blasting
damage, adjacent building collapse and
damage to underground utilities, where
applicable.
(6) Blanket contractual liability
coverage against liability under
contracts entered into in connection
with the construction, operation,
maintenance or repair of the System, as
applicable.
(7) Sudden and accidental
pollution liability coverage, as
applicable.
(8) Exclusions for exemplary or
punitive damages to be deleted.
(iii) Umbrella Liability with limits
of $5,000,000.
(iv) Automobile liability insurance
covering the use of all owned, non-owned and
hired automobiles with a combined single
limit of $1,000,000 per occurrence, as well
as automobile liability insurance provided
by contractors and subcontractors with a
combined single limit of $1,000,000 per
occurrence, for bodily injury and property
damage.
(v) If Manager utilizes aircraft in the
performance of work, aircraft liability
insurance including owned, non-owned,
chartered or hired, fixed wing or rotary
aircraft with limits of at least $5,000,000
combined single limit bodily injury and
property damage. Aircraft liability will
include contractual liability. Hull
insurance will be provided on all owned
aircraft subject to the full replacement
value. Non-owned, chartered or hired
aircraft will be insured for hull insurance
to the full replacement value by the owner.
(vi) Builder's risk insurance during the
course of any construction, as applicable.
(vii) Manager shall use every
reasonable effort to have its contractors
and sub-contractors comply with applicable
Workers Compensation Laws, and carry such
insurances as Manager may deem necessary.
(b) General Conditions.
(i) All policies of insurance will
include endorsement providing that the
insurer will give thirty (30) Days' advance
written notice by certified mail to Manager
and SMGC in the event of cancellation,
material change in coverage or non-renewal.
Manager shall provide to the owners of SMGC,
certificates of insurance on all insurance
coverage obtained by Manager hereunder.
(ii) All policies of insurance shall be
endorsed to provide that the underwriter
shall have no rights of recovery or
subrogation against Manager, SMGC, or their
respective Affiliates, shareholders,
officers, directors, employees, managers,
members, partners, agents or insurance
underwriters.
(iii) Manager shall never be held
responsible for the financial solvency of
any insurance carrier or for the inability
to obtain the coverages set forth. Such
coverages and limits may change or be
unavailable from time to time and Manager
does not guarantee their continuance but
will use its best reasonable efforts to
provide such coverages and limits at
reasonable costs.
6.3 SMGC Insurance. SMGC shall have the right
to purchase, at its own cost, any insurance in addition to the
insurance obtained by Manager under Section 6.1 above, for the
sole and specific account of SMGC. Manager shall provide any
assistance required by SMGC to establish any claim made under
SMGC's specific insurance.
6.4 Indemnity. To the extent not satisfied by
insurance carried pursuant to this Article VI, SMGC shall
indemnify, defend and hold harmless Manager, and its Affiliates,
and their respective shareholders, officers, directors,
employees, managers, members, partners and agents (collectively
"Manager Personnel") from and against any and all claims,
damages, liabilities, demands, costs and expenses (including,
without limitation, attorneys' fees, court costs and interest)
arising out of or in connection with or as an incident to any act
or omission (including, without limitation, those arising from
the negligence of Manager or Manager Personnel) in the carrying
out by Manager of its responsibilities under this Agreement; save
and except such acts or omissions which are proven to constitute
gross negligence or willful misconduct (including a willful
breach of this Agreement by Manager) of Manager or Manager
Personnel.
6.5 Litigation.
(a) Litigation Decisions. Any and all
claims, damages or causes of action against SMGC
or Manager in favor of anyone other than SMGC or
in favor of any governmental entity arising out
of, in connection with, or as an incident to
Manager's performance under this Agreement
(including, without limitation, the management of
the construction, operation, maintenance or repair
of the System) shall be settled or litigated and
defended by SMGC or by Manager on behalf of SMGC.
Manager shall not commence litigation on behalf of
SMGC against third parties without the
authorization of SMGC.
(b) Notice of Litigation. Manager shall
give SMGC, and the owners of SMGC, notice of any
litigation against SMGC as soon as practicable
after Manager receives notice of such litigation.
6.6 Waiver of Claims. SMGC hereby waives any
and all claims against Manager and Manager Personnel for damages
resulting from Manager's or Manager Personnel's error or delay in
carrying out, attempting to carry out, or failing to carry out
its responsibilities under this Agreement, or any damages of any
kind, including consequential damages, occurring during the
course of, or arising from, performance or failure to perform
under this Agreement, unless such damages are proven to have
resulted from the gross negligence or willful misconduct
(including a willful breach of this Agreement by Manager) of
Manager or Manager Personnel.
ARTICLE VII
ASSIGNMENT
7.1 Assignment. No party to this Agreement
shall assign any of its rights or obligations under this
Agreement without the prior written consent of the other.
7.2 Merger. The parties specifically
acknowledge and agree that it is contemplated SMGC will be merged
into a partnership in which the partners in such partnership
would include at a minimum Torch Energy Marketing, Inc., MCN
Corporation, and Tartan Management Company of Missouri, L.C., or
any of their respective successors. In the event of such merger
all references to SMGC in this Agreement shall be deemed to
include such partnership.
ARTICLE VIII
FORCE MAJEURE
8.1 Force Majeure. If by reason of force
majeure any party to this Agreement is rendered unable, wholly or
in part, to perform or carry out its obligations under this
Agreement, other than to make payments when due, and if such
party gives notice and reasonably full particulars of such force
majeure in writing or by telecopy to the other within a
reasonable time after the occurrence of the cause relied on, the
party giving such notice, so far as and to the extent that it is
affected by such force majeure, shall not be liable during the
continuance of any inability so caused. The Party claiming force
majeure shall use due diligence to remedy its nonperformance with
all reasonable dispatch.
8.2 Force Majeure Defined. Without limitation,
force majeure shall include acts of God; acts of a public enemy;
fires, explosions, wars, earthquakes; storms or other inclement
weather which necessitates extraordinary measures and expense to
construct facilities and/or maintain operations; floods; extreme
cold or freezing; washouts; necessity for compliance with any
present or future court order or decision, law, regulation,
ruling or ordinance promulgated by any governmental authority
having jurisdiction, either federal, state, local or military;
civil disturbances; strikes, lockouts or other industrial
disturbances; shutdowns for purposes of necessary repairs,
relocations, or construction of facilities; breakage of or
accident to machinery or lines of pipe; the necessity for testing
(as required by governmental authority or as deemed necessary by
the Manager for safe operation); the necessity of making repairs
or alterations to machinery or lines of pipe; failure to surface
equipment or pipelines; inability of either party to obtain
necessary material, supplies, permits or labor to perform or
comply with any obligation or condition of this Agreement;
inability to obtain or delays in obtaining rights-of-way; and any
other causes, whether of the kind herein recited or not, which
are not reasonably in the control of the party claiming
suspension.
8.3 Strikes and Lockouts. It is understood and
agreed that the settlement of strikes, lockouts or other
industrial disturbances shall be entirely within the discretion
of the party having the difficulty and that the requirement of
Section 8.1 above that any force majeure shall be remedied with
all reasonable dispatch shall not require the settlement of
strikes, lockouts or other industrial disturbances by acceding to
the demands of an opposing party involved in such strike, lockout
or other industrial disturbance, when such course is inadvisable
in the discretion of the party having the difficulty.
ARTICLE IX
TERM AND TERMINATION
9.1 Term and Termination. This Agreement shall
take effect on the Effective Date, and shall remain in full force
and effect until the first to occur of:
(a) SMGC and Manager having agreed in
writing to terminate this Agreement; or
(b) Manager is removed or resigns pursuant
to the other provision of this Article IX; or
(c) January 1, 2001; provided, however, this
Agreement shall automatically extend for
successive one (1) year periods, unless either
party provides the other written notice of
termination at least six (6) months prior to
January 1, 2001, or any January 1st, thereafter.
9.2 Removal of Manager. SMGC shall be entitled
to remove Manager if any of the following events occur:
(a) Proceedings shall be commenced by or
against Manager for relief under any bankruptcy or
insolvency laws, or any law relating to the relief
of debtors (unless such proceedings are the result
of SMGC's failure to render payment to Manager as
required in this Agreement); and, such proceeding
(if involuntary) is not dismissed, nullified,
stayed or otherwise rendered ineffective within
sixty (60) Days after such proceedings shall have
been commenced; or
(b) A final non-appealable order of a court
having jurisdiction is entered appointing a
receiver, liquidator, trustee or assignee in
bankruptcy or insolvency for Manager's account or
for the winding up or liquidation of Manager's
affairs (unless such order is the result of SMGC's
failure to render payment to Manager as required
in this Agreement); and, such order (if the result
of any involuntary proceed) remains in force and
is undischarged or unstayed for a period of sixty
(60) Days; or
(c) Manager shall make a general assignment
of all of its assets for the benefit of its
creditors; or
(d) Manager shall default in the performance
of a substantial obligation under this Agreement
and within fifteen (15) Days (or such shorter time
which may be dictated as a result of any court
order, rule or regulation) following receipt of
written notice from SMGC of any such default,
Manager does not commence reasonable actions
necessary to remedy such default as soon as
reasonably practical.
(e) Manager fully divests itself of its
interest in SMGC (including any interest of
Manager in any successor to SMGC, which successor
may be by merger, or as otherwise permitted by
this Agreement).
(f) If SMGC successfully removes Manager,
Manager shall cooperate with SMGC to provide an
orderly transition of the management of the System
to SMGC.
9.3 Resignation of Manager. Manager may resign
if any of the following events occur:
(a) Proceedings shall be commenced by or
against SMGC for relief under any bankruptcy or
insolvency laws, or any law relating to the relief
of debtors; and, such proceeding (if involuntary)
is not dismissed, nullified, stayed or otherwise
rendered ineffective within sixty (60) Days after
such proceedings shall have been commenced; or
(b) A final non-appealable order of a court
having jurisdiction is entered appointing a
receiver, liquidator, trustee or assignee in
bankruptcy or insolvency for SMGC's account or for
the winding up or liquidation of SMGC's affairs;
and, such order (if the result of any involuntary
proceeding) remains in force and is undischarged
or unstayed for a period of sixty (60) Days; or
(c) SMGC shall make a general assignment of
all of its assets or of this Agreement for the
benefit of its creditors; or
(d) SMGC dissolves, liquidates or terminates
its corporate (or partnership, if applicable)
existence (other than by reason of the merger
contemplated in Section 7.2); or
(e) In any month during the term hereof, the
Operating Account and any funds made available by
SMGC are depleted (other than by reason of
Manager's breach of this Agreement) such that said
available funds are insufficient to pay when due
all costs and expenses incurred in accordance with
this Agreement, including, without limitation, the
payment to Manager of amounts owed under Article V
of this Agreement; provided Manager gives SMGC
fifteen (15) Days prior written notice of its
resignation. If, prior to the expiration of the
15th Day following SMGC's receipt of Manager's
notice, SMGC provides the funds necessary to meet
such current financial obligations, then such
notice shall be of no further force or effect and
Manager's notice of resignation shall be deemed
withdrawn.
9.4 Accounting and Liability. If Manager is
removed or resigns pursuant to Sections 9.2 or 9.3, Manager
shall, as soon as reasonably practical, submit to SMGC a final
accounting of its operations under this Agreement. In such
event, at the request of SMGC, Manager shall cooperate in an
audit and/or an inventory of all materials relating to the
System, which SMGC shall conduct or cause to be conducted. SMGC
shall reimburse Manager for all reasonable costs and expenses
incurred by Manager in conjunction with the foregoing. Manager
shall deliver to SMGC all records, reports and data that are in
its possession as the Manager. Subject to the provisions of
Section 9.5, upon the termination of this Agreement Manager shall
be released and discharged from all duties and obligations of
Manager under this Agreement.
9.5 Effect. Termination of this Agreement shall
not relieve any party of its obligation to pay amounts of money
due hereunder which were due prior to such termination or become
due as a result of such termination or as a result of actions
taken prior to such termination, whether the resultant liability
is known or unknown at the time of such termination. In the
event Section 9.2(f) is applicable, termination of the Agreement
shall be deemed to occur at the time Manager turns over
management of the System to SMGC.
ARTICLE X
NOTICES
10.1 Notices. Any notice, request, instruction,
correspondence or other document to be given hereunder by any
party (herein collectively called "Notice") shall be in writing
and delivered in person or by courier service requiring
acknowledgement of receipt of delivery or mailed by certified
mail, postage prepaid and return receipt requested, or by
telecopier, as follows:
If to the owners of SMGC:
MCN Corporation
000 Xxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: General Counsel
Telecopier No.: (000) 000-0000
With a copy (which shall not constitute
notice to) to:
Citizens Gas and Fuel
000 Xxxxx Xxxx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx Xxxxx
Telecopier No.: (000) 000-0000
Tartan Management Company of Missouri,
L.C.
0000 Xxxxx Xxxx
Xxxxx 000
Xxxxx, Xxxxxxxx 00000
Attention: Xxx X. Xxxxxx
Telecopier No.: (000) 000-0000
Torch Energy Marketing, Inc.
0000 Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000-0000
Attention: General Counsel
Telecopier No.: (000) 000-0000
If to any other owner of SMGC, addressed to
the applicable address provided by such
owner in writing to the Manager.
If to Manager:
Tartan Management Company of Missouri,
L.C.
0000 Xxxxx Xxxx
Xxxxx 000
Xxxxx, Xxxxxxxx 00000
Attention: Xxx X. Xxxxxx
Telecopier No.: (000) 000-0000
Notice given by personal delivery, courier service or mail shall
be effective upon actual receipt. Notice given by telecopier
shall be confirmed by appropriate answer back and 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 by telecopier
shall be confirmed promptly after transmission in writing by
certified mail or personal delivery. All Notices by mail shall
be deemed received on the fifth business day following the date
on which the same is mailed. 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.
10.2 Notices Prior to Execution of Partnership
Agreement. During the period from the Effective Date until the
date of execution of the Partnership Agreement, all information
which is required hereunder to be sent to the owners of SMGC
shall be sent to MCN Corporation and Torch Energy Marketing, Inc.
at their respective addresses set forth in Section 10.1 above.
ARTICLE XI
DISPUTE RESOLUTION
11.1 Arbitration. SMGC and Manager shall attempt
in good faith to resolve any controversy or claim arising from or
relating to this Agreement promptly by negotiations. On the
request of either party, whether made before or after the
institution of any legal proceeding, any action, dispute, claim
or controversy of any kind now existing or hereafter arising
between SMGC and Manager in any way arising out of, pertaining to
or in connection with this Agreement (a "Dispute") shall be
resolved by binding arbitration in accordance with the terms
hereof. Any party may, by summary proceedings, bring an action
in court to compel arbitration of any Dispute.
11.2 Rules of Arbitration. Any arbitration shall
be administered by the American Arbitration Association (the
"AAA") in accordance with the terms of this Section 13.4, the
Commercial Arbitration Rules of the AAA, and, to the maximum
extent applicable, the Federal Arbitration Act. Judgment on any
award rendered by an arbitrator may be entered in any court
having jurisdiction.
11.3 Arbitrator. Any arbitration shall be
conducted before one arbitrator. The arbitrator shall be a
practicing attorney licensed to practice in the State of Missouri
who is knowledgeable in the subject matter of the Dispute
selected by agreement between the parties hereto. If the parties
cannot agree on an arbitrator within thirty (30) Days after the
request for an arbitration, then any party may request the AAA to
select an arbitrator. The arbitrator may engage consultants that
the arbitrator deems necessary to render a conclusion in the
arbitration proceeding.
11.4 Arbitration Process. To the maximum extent
practicable, an arbitration proceeding hereunder shall be
concluded within one hundred eighty (180) Days of the filing of
the Dispute with the AAA. Arbitration proceedings shall be
conducted in St. Louis, Missouri. Arbitrators shall be empowered
to impose sanctions and to take such other actions as the
arbitrators deem necessary to the same extent a judge could
impose sanctions or take such other actions pursuant to the
Federal Rules of civil Procedure and applicable law. At the
conclusion of any arbitration proceeding, the arbitrator shall
make specific written findings of fact and conclusions of law.
The arbitrator shall have the power to award recovery of all
costs and fees to the prevailing party. Each party agrees to
keep all Disputes and arbitration proceedings strictly
confidential except for disclosure of information required by
applicable law.
11.5 Fees. All fees of the arbitrator and any
consultant engaged by the arbitrator, shall be paid by SMGC and
Manager equally unless otherwise awarded by the arbitrator.
ARTICLE XII
MISCELLANEOUS
12.1 Waiver. No waiver by Manager or SMGC of any
default by the other party in the performance of any provision,
condition or requirement in this Agreement shall be deemed to be
a waiver of, or in any manner release the other party from,
performance of any other provision, condition or requirement
herein, nor shall such waiver be 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.
12.2 Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
12.3 Regulation. This Agreement and the
obligations of Manager and SMGC hereunder are subject to all
applicable law, rules, orders and regulations of governmental
authorities.
12.4 Applicable Law. This Agreement shall be
governed by and interpreted in accordance with the laws of the
State of Missouri, except that any conflict of laws rule of such
jurisdiction which would require reference to the laws of some
other jurisdiction shall be disregarded.
12.5 Severability. If and to the extent that any
court or governmental agency of competent jurisdiction holds any
part or provision of this Agreement to be invalid or
unenforceable, the parties shall agree upon an equitable
adjustment of the provisions of this Agreement with a view toward
effecting its purpose. Such holding shall in no way affect the
validity or effectiveness of the other provisions of this
Agreement, which shall remain in full force and effect.
12.6 Remedies. All rights and remedies under
this Agreement are cumulative and in addition to other rights or
remedies under this Agreement or any applicable law.
12.7 Exhibits. Each exhibit referred to in this
Agreement is incorporated in this Agreement by reference.
12.8 Entirety of Agreement. Except to the extent
expressly contemplated herein, from and after the Effective Date,
this Agreement reflects the whole and entire agreement between
Manager and SMGC with respect to the subject matter hereof and
supersedes all previous agreements and understandings between
Manager and SMGC. This Agreement may be amended, restated or
supplemented only by the written agreement between Manager and
SMGC.
12.9 Special and Consequential Damages.
(a) In no event shall Manager or Manager
Personnel be liable to SMGC, its Affiliates or
their respective agents, officers, employees,
representatives, invitees, or principals, partners
and managers for any incidental, punitive,
consequential, or special damages (including,
without limitation, loss of profits and loss of
business opportunities), arising out of, resulting
from or relating in any way to this Agreement or
activities or omissions or delays in connection
therewith (including, without limitation, the
performance (whether timely or not) or
nonperformance of this Agreement) regardless of
whether Manager, its Affiliates and/or others may
be wholly, partially or solely negligent or
otherwise at fault, and regardless of any defect
in the System or the goods, equipment, or
materials relating to the System.
(b) In no event shall SMGC, its Affiliates,
and their respective shareholders, officers,
directors, employees, managers, members, partners
and agents be liable to Manager or Manager's
Personnel for any incidental, punitive,
consequential, or special damages (including,
without limitation, loss of profits and loss of
business opportunities), arising out of, resulting
from or relating in any way to this Agreement or
activities or omissions or delays in connection
therewith (including, without limitation, the
performance (whether timely or not) or
nonperformance of this Agreement), regardless of
whether SMGC, its Affiliates and/or others may be
wholly, partially or solely negligent or otherwise
at fault, and regardless of any defect in the
System or the goods, equipment, or materials
relating to the System.
12.10 No Drafting Presumption. No presumption
shall operate in favor of or against any party hereto as a result
of any responsibility that any party may have had for drafting
this Agreement.
12.11 Third-Party Beneficiaries. The
covenants and obligations of Manager and SMGC under this
Agreement are made for their express benefit, and except as
otherwise specifically set forth in this Agreement, no Person,
other than a Person which is a permitted successor or assign of
Manager or SMGC, is intended to have nor shall have the benefit
of, or any right to seek enforcement or recovery under, any of
such covenants or obligations.
12.12 Claims of Manager and SMGC. All claims
hereunder of Manager against SMGC shall be limited to the assets
of SMGC, and, in the event of any such claims, Manager hereby
waives any and all rights to proceed against any Affiliate of
SMGC. Further, all claims hereunder of SMGC against Manager
shall be limited to the assets of Manager, and SMGC hereby waives
any and all rights to proceed against any Affiliate of Manager.
For purposes of this Section 12.12, the term "Affiliate" shall
include the shareholders, officers, directors, members, managers
and partners of Manager, SMGC and their respective Affiliates.
12.13 Warranties. Except as specifically set
forth in this Agreement, Manager does not warrant any material
furnished hereunder by Manager beyond or back of the dealer's or
manufacturer's guaranty; and in case of defective material,
credit shall not be passed to SMGC until adjustment has been
received by Manager from the manufacturers or their agents.
12.14 Adjustments and Audits.
(a) All invoices and statements rendered to
SMGC by Manager under this Agreement during any
calendar year shall conclusively be presumed to be
true and correct after twenty-four (24) months
following the end of any such calendar year,
unless within the said twenty-four (24) month
period SMGC takes written exception thereto and
makes claim on Manager for adjustment. No
adjustment favorable to Manager shall be made
unless it is made within the same prescribed
period. The provisions of this paragraph shall
not prevent adjustments resulting from a physical
inventory of the System.
(b) Upon at least three (3) days' notice to
Manager, SMGC or any owner of SMGC (including any
employee, agent or professional consultant
designated by them) shall have the right at all
reasonable times during usual business hours, at
their sole expense, to visit and inspect any of
the properties of the System and to audit and copy
Manager's accounts and records relating to the
System or SMGC (including an examination of the
books and financial records of the System) for any
calendar year within the twenty-four month period
following the end of such calendar year; provided,
however, the making of an audit shall not extend
the time for the taking of written exception to,
and the adjustment of, any invoices or statements
hereunder. Manager shall bear no portion of the
audit cost incurred under this paragraph by SMGC,
or any owner of SMGC, unless agreed to by Manager.
The audits shall not be conducted more than once
each calendar year without the prior approval of
Manager, such approval not to be unreasonably
withheld. Accordingly, SMGC and the owners of
SMGC shall coordinate any audits each may desire
to undertake. Manager shall reply in writing to
an audit report within sixty (60) days after
receipt of such report from SMGC, or any owner of
SMGC. In addition SMGC or any owner of SMGC shall
have the right to discuss the affairs, and
finances of the System or SMGC with the principal
officers of Manager, and SMGC's independent public
accountants, all at such reasonable times and as
often as SMGC or any owner of SMGC may reasonably
request. Neither SMGC, nor any owner of SMGC
shall have any duty to make any inspection or
audit nor shall it incur any liability or
obligation (except as set forth in this Section
12.14) by reason of failing to make any such
inspection or examination.
12.15 Other Terms of Construction. Whenever
the context may require, any pronouns used in this Agreement
shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns, pronouns and verbs shall
include the plural and vice versa.
12.16 Security of Payment. Notwithstanding
any provision of this Agreement to the contrary, SMGC's payment
and funding obligations under this Agreement shall apply whether
or not SMGC is authorized or able to recover payments made or to
be made to Manager hereunder from its customers.
12.17 Counterparts. This Agreement is
executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute but one and
the same instrument.
12.18 Manager's Office. Manager may select
the location of its office or offices to perform its obligations
hereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Parties have entered into
this Agreement effective as of the Day first written above.
MANAGER:
TARTAN MANAGEMENT
COMPANY OF MISSOURI,
L.C.
By:
___________________
Name:
_________________
Title:
________________
TARTAN ENERGY COMPANY
OF MISSOURI, L.C.
d/b/a SOUTHERN MISSOURI GAS
COMPANY, L.C.
By:
___________________
Name:
_________________
Title:
________________
