EXHIBIT 10-D-4
CONSTRUCTION, OPERATION AND MAINTENANCE AGREEMENT
BY AND BETWEEN
PINE NEEDLE OPERATING COMPANY
AND
PINE NEEDLE LNG COMPANY, LLC
DATED AUGUST 8, 1995
TABLE OF CONTENTS
Page
1. Definitions 1
2. Relationship of the Parties 2
2.1 Appointment as Operator 2
2.2 Operator's Authority to Execute Contracts 2
3. Operation of the Facilities 2
3.1 Operator's Responsibilities 2
3.2 Claims 5
4. Employees, Consultants and Subcontractors 5
4.1 Operator's Employees, Consultants and
Subcontractors 5
4.2 Use of Affiliated Entities or Independent
Contractors 5
4.3 Standards for Operator and its Employees 6
4.4 Non-Discrimination and Drugs 6
5. Financial and Accounting 6
5.1 Accounting and Compensation 6
5.2 Budgets 7
5.3 Disputed Charges 7
5.4 Rate Reviews 7
5.5 Audit and Examination 7
6. Intellectual Property; License to Operator 8
7. Indemnification 8
8. Insurance 9
9. Term 10
10. Survival of Obligations 10
11. Law of the Contract and Arbitration 11
11.1 Law of the Contract 11
11.2 Arbitration 11
12. Special and Consequential Damages 12
13. General 13
13.1 Effect of Agreement; Amendments 13
13.2 Notices 13
13.3 Counterparts 13
13.4 Waiver 13
13.5 Assignability; Successors 13
13.6 Third Persons 14
13.7 Laws and Regulatory Bodies 14
13.8 Section Numbers; Headings 14
13.9 Severability 14
13.10 Further Assurances 14
13.11 Guarantee 14
Exhibit A - Accounting Procedure
CONSTRUCTION, OPERATION AND MAINTENANCE AGREEMENT
This agreement ("CO&M Agreement"), made and entered into as of the
8th day of August, 1995, is by and between Pine Needle Operating Company, a
Delaware corporation ("Operator"), and Pine Needle LNG Company, LLC, a North
Carolina limited liability company ("Company").
1. Definitions.
The definitions used in the Operating Agreement of the Company, dated
August 8, 1995 ("Operating Agreement"), shall, except as otherwise
specifically provided below, have the same meanings in this CO&M
Agreement.
1.1 Accounting Procedure. The accounting procedure set forth in
Exhibit A.
1.2 Day. A period of twenty four (24) consecutive hours commencing at
8:00 a.m., Eastern Standard Time.
1.3 Liabilities. Actions, claims, settlements, judgments, demands,
costs, expenses (including, without limitation, expenses
attributable to the defense of any actions or claims), attorneys'
fees and liabilities related to the Operation of the Facilities.
1.4 LNG Storage Services. The receipt, liquefaction, storage,
vaporization and delivery of natural gas by the Company by means of
the Facilities.
1.5 Month. A period of time beginning on the first Day of a calendar
month and ending at the same time on the first Day of the next
succeeding calendar month.
1.6 Operate the Facilities. Plan, design, construct, test, maintain,
repair, replace, improve, expand and/or operate the Facilities,
including, without limitation, the duties identified in Section 3.1
of this Agreement. Where used in noun form, such term shall be
"Operation of the Facilities."
1.7 Party. The Company or the Operator.
1.8 Pre-Completion Period. The period between the Formation Date and
the date that the Facilities are placed into service, which latter
date shall be certified in writing by the Operator.
1.9 Prohibited Conduct. Any action by the Operator that constitutes
bad faith, gross negligence or willful misconduct.
1.10 Required Accounting Practice. The accounting rules and regulations,
if any, at the time prescribed by the regulatory bodies under the
jurisdiction of which the Company is at the time operating and, to
the extent of matters not covered by such rules and regulations,
generally accepted accounting principles on a consistent basis as
practiced in the United States at the time prevailing for companies
engaged in a business similar to that of the Company.
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1.11 Year. Each twelve (12) Month period beginning on the first Day of a
calendar year and ending at the beginning of the first Day of the
next calendar year, provided that the first year hereunder shall
begin on the date hereof, and shall end at the beginning of the
first Day of the following calendar year, and further provided that
the last contract year shall end at the expiration of the term of
this CO&M Agreement pursuant to Section 9 hereof.
2. Relationship of the Parties.
2.1 Appointment as Operator. Subject to the terms and conditions of
this CO&M Agreement, the Company hereby appoints the Operator to
act hereunder, and the Operator hereby accepts such appointment and
agrees to act pursuant to the provisions of this CO&M Agreement and
the applicable provisions of the Operating Agreement. In performing
services pursuant to this CO&M Agreement, the Operator shall be an
agent of the Company.
2.2 Operator's Authority to Execute Contracts. Subject to the terms of
this CO&M Agreement, contracts in connection with Operation of the
Facilities may be negotiated and executed or amended by the
Operator as agent for the Company. Copies of all contracts entered
into by the Operator on behalf of the Company shall be provided to
the Company. All contracts and permits, if any, relating to Company
business and executed by the Operator prior to the Formation Date
shall be assigned by the Operator to the Company as soon as
practicable after the Formation Date.
3. Operation of the Facilities.
3.1 Operator's Responsibilities. The Operator shall be responsible for
the Operation of the Facilities, and thus subject to the provisions
of the Operating Agreement the Operator shall:
3.1.1 Prepare, file, execute and prosecute applications
for the Authorizations required by the Company and
make periodic filings required of the Company by
Governmental Authorities having jurisdiction,
including, without limitation, the preparation,
filing, execution and prosecution of the FERC
Application (and any amendments thereto) and the
Company's FERC tariff (and any amendments
thereto).
3.1.2 Provide or cause to be provided the day-to-day
operating and maintenance services, administrative
liaison and related services to the Company,
including, but not limited to, customer support,
rates (including rate cases), legal, accounting,
electronic bulletin board, engineering,
construction, repair, replacement, inspection,
operational planning, budgeting, tax and technical
services, and insurance and regulatory
administration.
3.1.3 Prepare and/or cause to be prepared the
engineering design and specifications for the
Facilities.
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3.1.4 Negotiate and execute contracts for the purchase
of materials, equipment and supplies necessary for
the Operation of the Facilities.
3.1.5 Prepare, negotiate and execute in the name of the
Company rights-of-way, land in fee, permits and
contracts, and initiate and prosecute eminent
domain proceedings, necessary for construction,
operation and maintenance of the Facilities, and
resist the perfection of any involuntary liens
against Company property.
3.1.6 Construct and install, or cause to be constructed
and installed, the Facilities.
3.1.7 Maintain accurate and itemized accounting records
for the Operation of the Facilities, together with
any information reasonably required by the Company
relating to such records, consistent with the
applicable provisions of Section 12 of the
Operating Agreement.
3.1.8 Prepare the financial reports set forth in Section
12 of the Operating Agreement.
3.1.9 Cause the Operation of the Facilities to be in
accordance with the requirements of all
Governmental Authorities having jurisdiction,
including, but not limited to, the requirements of
the United States Department of Transportation set
forth in 49 CFR Parts 192, 193 and 199 and in
accordance with sound and prudent natural gas
pipeline industry practices, and provide or cause
to be provided such appropriate supervisory,
audit, administrative, technical and other
services as may be required for the Operation of
the Facilities.
3.1.10 Prepare and file all necessary federal
and state income tax returns and all other
tax returns and filings for the Company (including
making the elections set forth in Section 11.2 of
the Operating Agreement). Each Member shall
furnish to the Operator all pertinent information
in its possession relating to Company operations
that is necessary to enable such returns to be
prepared and filed. The Operator shall pay on
behalf of the Company such taxes as are required
to be paid by the Company.
3.1.11 On behalf of the Company, maintain and administer
bank and investment accounts and arrangements for
Company funds, draw checks and other orders for
the payment of money, and designate individuals
with authority to sign or give instructions with
respect to those accounts and arrangements. The
Company's funds shall not be commingled with funds
belonging to the Operator.
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3.1.12 Negotiate, execute and administer the Service
Agreements in accordance with the Company's FERC
tariff, including, but not limited to, the
preparation and collection of all bills to the
Customers for services rendered thereunder.
3.1.13 Receive requests and issue confirmations for
service and other gas storage related information
from Customers and potential Customers in
accordance with the Company's FERC tariff.
3.1.14 Establish such procedures as may
be reasonable and appropriate to comply with or to
obtain an exemption from the marketing affiliate
rules set forth in the FERC Order No. 497 as the
same may be amended or superseded.
3.1.15 Dispatch and allocate daily scheduled nominations
for, and effectuate the physical receipt and
delivery of, the natural gas quantities to be
received, liquefied, stored, vaporized and/or
delivered on behalf of the Customers.
3.1.16 Utilize electronic flow measurement equipment for
volume determinations and natural gas
chromatographs as deemed appropriate by the
Operator for heating value determinations at
applicable metering points, as further described
in the Company's FERC tariff.
3.1.17 Except as otherwise provided by applicable laws or
governmental regulations or as otherwise directed
by the Company, retain all records, books of
account, Company tax returns, plans, designs,
studies, reports and other documents related to
the Operation of the Facilities for three (3)
years from the date of completion of the activity
to which such records relate (or such longer
period as may be required by law).
3.1.18 Report to the Company as soon as practicable
all non-routine occurrences that the Operator
determines may have a significant adverse impact
upon the Operation of the Facilities,
make any necessary repairs as a result
of such occurrences as the Operator
deems necessary, and make a follow-up
report at an appropriate time on the
Operator's response to each non-routine
occurrence; provided, however, that the
Operator shall obtain the prior approval
of the Company prior to performing
repairs with an estimated cost of over
$100,000 unless the non-routine
occurrence is of a nature that immediate
repair is required, in which event the
Operator may make such repair without
such prior approval but shall provide a
complete and accurate report to the
Company of such repair as soon as
practicable thereafter.
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3.1.19 Perform any required major equipment
overhaul and replacement; provided, however,
that the Operator shall obtain the prior
approval of the Company prior to performing such
overhaul or replacement with an estimated cost
of over $100,000 unless such overhaul or
replacement is of a nature that immediate action
must be taken, in which event the Operator may
perform such overhaul or replacement without
such prior approval but shall provide a complete
and accurate report to the Company of all such
actions as soon as practicable thereafter.
3.1.20 Perform such other duties as are reasonably
necessary or appropriate in the Operator's
discretion and enter into such other arrangements
as reasonably requested by the Company to
discharge the Operator's responsibilities under
this CO&M Agreement.
3.2 Claims. Any and all claims against the Company instituted by
anyone other than the Operator arising out of the Operation of
the Facilities that are not covered by insurance in accordance
with Section 8 of this CO&M Agreement shall be settled or
litigated and defended by the Operator in accordance with its
best judgment and discretion except when (a) the amount
involved is stated to be (or estimated to be, as the case may
be) greater than $100,000, or (b) criminal sanction is sought.
The settlement or defense of any claim described in (a) or (b)
above shall be decided by the Members pursuant to the
Operating Agreement.
4. Employees, Consultants and Subcontractors.
4.1 Operator's Employees, Consultants and Subcontractors. The
Operator shall employ or retain and have supervision over the
Persons (including consultants and professional service or
other organizations) required or deemed advisable by the
Operator to perform its duties and responsibilities hereunder
in an efficient and economically prudent manner. The Operator
shall pay all reasonable expenses in connection therewith,
including compensation, salaries, wages, overhead and
administrative expenses incurred by the Operator, and if
applicable, social security taxes, workers' compensation
insurance, retirement and insurance benefits and other such
expenses. The compensation for the Operator's employees shall
be determined by the Operator, provided that the amount and
terms of such compensation shall be comparable to those
prevailing in the natural gas industry where Operator's
employees are located for similar work. Subject to the other
provisions of this CO&M Agreement, all authorized expenses
pursuant to this Section 4.1 shall be reimbursed to the
Operator by the Company as provided in the Accounting
Procedure.
4.2 Use of Affiliated Entities or Independent Contractors. In
addition, the Operator may utilize, as it deems necessary or
appropriate, the services of any independent contractors or of
its or any Member's affiliated entity; provided, however, that
such services of the Operator's or any Member's affiliated
entity must be utilized on terms no less favorable to the
Company than those prevailing at the time for comparable
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services of nonaffiliated independent parties.
4.3 Standards for Operator and its Employees. The
Operator shall perform its services and carry out its
responsibilities hereunder, and shall require all of its
employees and contractors, subcontractors and materialmen
furnishing labor, material or services for the Operation of
the Facilities to carry out their respective
responsibilities in accordance with sound, workmanlike and
prudent practices of the natural gas pipeline (and LNG
storage) industry and in compliance with the Company's
FERC-approved tariffs and with all relevant laws, statutes,
ordinances, safety codes, regulations, rules and
authorizations of Governmental Authorities having
jurisdiction applicable to the Facilities.
4.4 Non-Discrimination and Drugs. In performing under this CO&M
Agreement, the Operator shall not discriminate against any
employee or applicant for employment because of race, creed,
color, religion, sex, national origin, age or disability,
and will comply with all provisions of Executive Order 11246
of September 24, 1965 and any successor order thereto, to
the extent that such provisions are applicable to the
Operator or the Company. The Company and the Operator do not
condone in any way the use of illegal drugs or controlled
substances. Any person known by the Operator to be in
possession of any illegal drug or controlled substance will
be removed by the Operator and not permitted to work on or
with respect to the Facilities. In addition, the Operator
shall meet all the applicable requirements imposed by the
Department of Transportation as specified in 49 C.F.R.,
Parts 40 and 199. Furthermore, upon request and to the
extent permitted by law, the Operator will furnish the
Company copies of the records of employee drug test results
required to be kept under the provisions of 49 C.F.R. Part
199. The provisions of this Section 4.4 shall be applicable
to any contractors, consultants and subcontractors retained
in connection herewith, and the Operator shall cause the
agreements with any contractor, consultant or subcontractor
to contain similar language.
5. Financial and Accounting.
5.1 Accounting and Compensation.
5.1.1 The Operator shall keep a full and complete
account of all costs, expenses and expenditures
incurred by it in connection with its obligations
hereunder in the manner set forth in the
Accounting Procedure.
5.1.2 The Operator shall be reimbursed by the Company at
the rate and in the manner set forth in the
Accounting Procedure for all costs and expenses of
the Operator in connection with the Operation of
the Facilities or otherwise to fulfill the
Operator's duties under this CO&M Agreement;
provided, however, that the Company shall not be
required to reimburse the Operator for costs and
expenses arising out of Prohibited Conduct or
claims for non-payment of any and all
contributions, withholding deductions or taxes
measured by the wages, salaries or compensation
paid to Persons employed by the Operator or any of
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its affiliated Companies in connection herewith.
5.2 Budgets and Reports. The Operator shall prepare and deliver to
the Company for approval, on a quarterly basis during the
Pre-Completion Period and thereafter as directed by the
Company, a budget reflecting the estimated costs to be
incurred for Operation of the Facilities during the ensuing 12
month period. Such budgets shall be prepared in sufficient
detail to satisfy the requirements of any lending institution
providing financing for the Facilities. The Operator shall
also prepare and deliver to each Member such forecasts, cash
flow projections and financial and operating reports with
respect to the Company as from time to time may be reasonably
requested by the Company, including fiscal year reports for
Members who report financial results on a basis other than the
calendar year.
5.3 Disputed Charges. The Company may, within the audit period
referred to in Section 5.5 hereof, take written exception to
any bill or statement rendered by the Operator for any
expenditure or any part thereof on the ground that the same
was not appropriate for reimbursement under the terms of
Section 5.1.2 above. The Company shall nevertheless pay in
full when due the amount of all statements submitted by the
Operator. Such payment shall not be deemed a waiver of the
right of the Company to recoup any contested portion of any
bill or statement; provided, however, that if the amount as to
which such written exception is taken or any part thereof is
ultimately determined in accordance with Section 11.2 of this
CO&M Agreement not to be appropriate for reimbursement under
the terms of Section 5.1.2 of this CO&M Agreement, such amount
or portion thereof (as the case may be) shall be refunded by
the Operator to the Company, together with interest thereon at
a rate (which in no event shall be higher than the maximum
rate permitted by applicable law) equal to two percent (2%)
per annum over the prime rate of Citibank, N.A. (or its
successor) from time to time publicly announced and in effect,
during the period from the date of payment by the Company to
the date of refund by the Operator.
5.4 Rate Reviews. The Operator shall review from time to time the
rates and fees charged for the LNG Storage Services and revise
such rates and fees as the Operator may deem appropriate for
the Company, as such rates and fees should in general reflect
increased or decreased costs or other changes in the
conditions of service.
5.5 Audit and Examination. The Company or any Member, after thirty
(30) Days' notice in writing to the Operator, shall have the
right during normal business hours to audit or examine, at the
expense of the Company or the requesting Member as the case
may be, all books and records maintained by the Operator, as
well as the relevant books of account of the Operator's
contractors, relating to the Operation of the Facilities;
provided, however, that the total number of full audits
commenced in any Year pursuant to this Section 5.5 shall not
exceed two. Such right shall include the right to meet with
the Operator's internal and independent auditors to discuss
matters rele vant to the audit or examination. The Company
shall have two Years after the close of a Year in which to
make an audit of the Operator's records for such Year;
provided, however, that any audits relating to construction
costs
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may be made up to twenty four (24) Months after the in-service
date of the Facilities (not including any Modifications) or
after the date that construction of the Modification in
question was completed, as certified in writing by the
Operator, in the case of a Modification.
6. Intellectual Property; License to Operator. Each Member hereby
grants to the Operator an irrevocable, royalty-free, non-exclusive and
non-assignable license to use, during the term of this CO&M Agreement,
any confidential information provided to the Company or the Operator
by said Member and designated as such by said Member. For purposes of
this Section 6, confidential information shall include, but shall not
be limited to, inventions (whether patented or not) and copyrighted or
copyrightable material. As a condition precedent to the effectiveness
of such license to use, the Operator hereby expressly agrees that it
will utilize such confidential information solely in connection with
the performance of its duties hereunder and further expressly agrees
that it will be subject to and bound by the provisions set forth in
Section 4.8.2 of the Operating Agreement as if it were a Member. Upon
termination of this CO&M Agreement or its removal as Operator, such
license shall terminate and the Operator shall return all confidential
information that has been provided to it, together with all
reproductions thereof in the Operator's possession, pursuant to such
license to use, to the Member from whom it obtained such confidential
information.
7. Indemnification. The Company agrees to indemnify, hold harmless
and defend the Operator and its affiliated companies and their
respective officers, directors, employees and agents (but not
including any Member of the Company, in its capacity as such) from and
against, and the indemnified parties shall have no liability to the
Company for, any and all Liabilities incurred arising out of or
relating to this CO&M Agreement or the Operation of the Facilities,
regardless of cause, including Liabilities attributable to the sole,
joint or concurrent negligence of the indemnified parties hereunder;
provided, however, that the Company shall not be required to indemnify
or hold harmless the indemnified parties from or against any
Liabilities attributable to the actions or omissions of Operator in
maintaining and administering accounts and arrangements as set forth
in Section 3.1.11 of this CO&M Agreement; provided, further, that the
Company shall not be required to indemnify or hold harmless the
indemnified parties from or against any Liabilities attributable to
Prohibited Conduct or claims for non-payment of any and all
contributions, withholding deductions or taxes measured by the wages,
salaries or compensation paid to Persons employed by the Operator or
any of its affiliates in connection herewith. In the event applicable
law limits in any way the extent to which indemnification may be
provided to an indemnitee, this Section 7 shall be automatically
amended, in keeping with the express intent of the parties hereto, as
necessary to render all the remainder of this CO&M Agreement valid and
enforceable and to provide that the indemnifications provided herein
shall extend and be effective only to the maximum extent permitted by
such law. Upon notice therefor, the Company shall advance to the
indemnified party the costs of any Liabilities for which
indemnification is to be sought hereunder upon the execution by the
indemnified party of a written undertaking to repay any costs for
which indemnification pursuant to this Section 7 is determined to be
improper by mutual agreement or pursuant to the procedures set forth
in Section 11.2 of this CO&M Agreement, together with interest thereon
at a rate (which in no event shall be higher than the maximum rate
permitted by applicable law) equal to two percent (2%) per annum over
the prime rate of Citibank, N.A. (or its successor) from time to time
publicly
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announced and in effect, during the period from the date of advancement
by the Company to the date of repayment by the indemnified party. With
respect to any claim against any indemnified party for which
indemnification may be sought hereunder, the Company shall not, without
the indemnified party's prior written consent, settle or compromise such
claim or consent to entry of any judgment in respect thereof which
imposes any future obligation on the indemnified party or which does not
include, as an unconditional term thereof, the giving by the claimant or
the plaintiff to the indemnified party a release from all liability in
respect of such claim. The Company (a) shall have the right to defend,
at its cost and expense, such claim in all appropriate proceedings, and
(b) shall have full control (including choice of counsel) of such
defense and proceedings, including any compromise or settlement thereof
(subject to the foregoing provisions of this Section 7), and the
indemnified parties shall cooperate in such defense in all reasonable
ways. The Company shall not be required to provide indemnification
pursuant to this Section 7 to the extent, if any, that the Liabilities
in question are not borne or incurred by the indemnified parties because
of the availability of insurance proceeds from the insurance required in
Section 8.2 of this agreement to the indemnified parties.
8. Insurance.
8.1 During the initial construction of the Facilities, the
Operator shall cause to be carried and maintained builder's
risk insurance to cover physical loss or damage to property
during construction, with a deductible amount selected by the
Operator. The builder's risk insurance shall name the Operator
and the Company as insureds.
8.2 At all times during the Operation of the Facilities, the
Operator shall provide (a) workers' compensation insurance
granting full compensation under the worker's compensation law
of any state in which operations are conducted, and (b)
employer's liability insurance with limits of $1,000,000 per
occurrence for all of the Operator's employees engaged in work
on the Facilities, and (c) automobile liability insurance for
all vehicles owned or used by the Operator, covering injuries
to or death of persons and damage to property, with a combined
single limit of $2,000,000 per occurrence.
8.3 If permitted by applicable law, the Operator may self-insure
the workers' compensation and employer's liability insurance
required above.
8.4 The costs for premiums, deductibles and retentions for the
insurance maintained by the Operator pursuant to this CO&M
Agreement shall be reimbursable costs pursuant to Section 5 of
this CO&M Agreement. In addition, in the event that the
Operator self-insures the workers' compensation and employer's
liability insurance required above, the Operator shall be
reimbursed as provided in Section 3.09 of the Accounting
Procedure.
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8.5 After completion of construction of the Facilities
("Constructed Facility"), the Company or each Member shall be
responsible for insuring its respective interest in the
property exposures with regard to the Constructed Facility and
the liquefied natural gas in storage. The Company or each
Member shall at all times be responsible for insuring its own
liability exposures with regard to the Facilities and the
operation, maintenance and construction thereof, except as
described in Section 8.2 of this agreement.
8.6 The Operator, the Company and the Members hereby waive, and
the insurers of any of them shall waive, all rights of
recovery against one another, the affiliated companies of each
and the insurers of any of them with respect to damage to or
loss of property that is a part of the Facilities
(collectively referred to as "Damages"). Such waiver of
recovery shall be effective regardless of the cause of the
Damages, including any Damages attributable to the sole, joint
or concurrent negligence of the party causing the Damages, but
excluding any Damages attributable to the gross negligence or
willful misconduct of the party causing the Damages. All such
policies of insurance purchased to cover the Facilities or any
part thereof, or the Operation of the Facilities or any part
thereof, or any natural gas received, liquefied, stored,
vaporized or delivered at or from the Facilities, shall be
endorsed properly to effectuate this waiver of recovery. In
addition, each Member's general liability insurance (including
excess insurance) policies shall be worded to provide a waiver
of all subrogation rights in favor of the Operator, the
Company and the other Members.
9. Term. This CO&M Agreement shall be effective as of the date
hereof and shall continue for the term of the Company as provided in
the Company's Articles of Organization; provided, however, that this
CO&M Agreement shall be terminated earlier upon the first to occur of
the following: (a) the Operator's affiliated company which is a Member
ceases to be a Member; or (b) the Operator commits a material default
under this CO&M Agreement and such material default continues for a
period of 120 days after notice thereof by the Company to the Operator
(provided, however, that no termination shall occur if the Operator
has initiated action to cure such material default but, despite its
good faith efforts, it has been unable to complete such cure within
such 120 day period).
10. Survival of Obligations. The termination of
this CO&M Agreement shall not discharge any Party from any obligation
which it owes to any other Party by reason of any transaction,
commitment or agreement entered into, or any Liabilities that shall
occur or arise (or the circumstances, events or basis of which shall
occur or arise) prior to such termination. It is the intent of the
Parties that any obligation owed by a Party to the other Party (whether
the same shall be known or unknown at the time of termination hereof, or
whether the circumstances, events or basis of the same shall be known or
unknown at the termination hereof) shall survive the time of termination
of this CO&M Agreement.
11. Law of the Contract and Arbitration.
11.1 Law of the Contract. THIS CO&M AGREEMENT SHALL BE GOVERNED BY
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NORTH CAROLINA, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS
OF LAWS.
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11.2 Arbitration.
11.2.1 In the event that the Parties are unable
to agree on any matter relating to this CO&M
Agreement, the Company or the Operator may
upon notice given to the other call for
submission of such matter to arbitration. The
Party requesting arbitration shall set forth
in such notice in adequate detail the issues
to be arbitrated, and within ten (10) Days
from the receipt of such notice, the other
Party may set forth in adequate detail
additional related issues to be arbitrated.
Within ten (10) Days after the giving of such
latter notice, each Party shall furnish to
the other Party a notice ("Decision Notice")
setting forth the decision (on a word-
for-word basis) that such Party wishes the
arbitrator(s) to make with respect to the
issues to be arbitrated. Within ten (10) Days
after the giving of the latter of the two
Decision Notices, the Parties shall attend a
meeting ("Meeting") at a mutually acceptable
time and place to discuss fully the content
of such Decision Notices and based thereon
determine whether either or both wish to
modify their Decision Notices in any way. Any
such modifications shall be discussed with
each other, so that when each Party finalizes
its Decision Notice, it shall do so with full
knowledge of the content of the other Party's
final Decision Notice. The finalization of
such Decision Notices and the delivery of
same by each Party to the other shall occur
at the Meeting unless by mutual agreement
they agree to have one or more additional
Meetings for such purposes. If arbitration is
invoked by either Party, the decision of the
arbitrators shall be final and binding upon
all Parties, and neither Party shall seek to
have the applicable issues litigated rather
than arbitrated (except as may be otherwise
required by law).
11.2.2 It is the intent of
the Parties that, to the extent practicable, such
binding arbitration shall be conducted by a
person knowledgeable and experienced in the type
of matter that is the subject of the dispute. In
the event the Parties are unable to agree upon
such person within ten Days after the last
Meeting held pursuant to Section 12.2.1 above,
then each Party shall select a person that it
believes has the qualifications set forth above
as its designated arbitrator (which selection
shall be accomplished by notifying the other
Party of the identity of such person), and such
arbitrators so designated shall mutually agree
upon a similarly qualified third person to
complete the arbitration panel; provided,
however, that if one of the Parties fails to
select its designated arbitrator as specified
herein within ten (10) Days of receiving notice
from the other Party that such other Party has
selected its designated arbitrator then the
arbitration provided for herein shall be
conducted by the one arbitrator so designated. In
the event that the persons selected by the
Parties are unable to agree on a third member of
the panel within ten (10) Days after the
selection of the latter of the two arbitrators,
such person shall be designated by the American
Arbitration Association. Upon final selection of
the entire panel, such panel shall, as
expeditiously as possible
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(and if possible, within ninety (90) Days after
the selection of the last arbitrator), render a
decision on the matter submitted for arbitration.
Such panel shall be required to adopt either the
decision set forth in the Operator's final
Decision Notice or the decision set forth in the
Company's final Decision Notice and shall have no
power whatsoever to reach any other result. Such
panel shall adopt the decision that in its
judgement is the more fair, equitable and in
conformity with this CO&M Agreement. The
arbitration shall be conducted in Charlotte, North
Carolina in accordance with the commercial
arbitration rules of the American Arbitration
Association.
11.2.3 Upon the determination of any such dispute, the
arbitrators shall bill the costs attributable to
such binding arbitration to the losing Party;
provided, however, that the arbitrators shall be
empowered to apportion such costs between the
Parties if they deem it appropriate.
11.2.4 It is the intent of the Parties that, once
arbitration is invoked by either Party pursuant to
the provisions of this Section 11, the matters set
for arbitration shall be decided as set forth
herein, and they shall not seek to have this
Section 11 rendered unenforceable or to have such
matter decided in any other way; provided,
however, that nothing herein shall prevent the
Parties from negotiating a settlement of any issue
at any time.
11.2.5 Without limiting any of the foregoing, for
purposes of this CO&M Agreement an independent
determination of whether an action or failure to
act constitutes Prohibited Conduct shall be made
by arbitration pursuant to this Section 11,
without regard to the findings of any court or
administrative body or the settlement or
compromise of any claim (other than a settlement
of the type referred to in Section 11.2.4 above).
12. Special and Consequential Damages. The indemnification provided in
Section 7 of this CO&M Agreement shall include without limitation claims
made by any Person for special, indirect, consequential or punitive
damages; otherwise, neither Party shall have any liability hereunder to
the other Party for any special, indirect, consequential or punitive
damages.
13. General.
13.1 Effect of Agreement; Amendments. This CO&M Agreement, together
with the Operating Agreement, reflects the whole and entire
agreement among the Parties with respect to the subject
matter hereof and supersedes all prior agreements and
understandings, oral and written, among the Parties with
respect to the subject matter hereof. This CO&M Agreement can
be amended, restated or supplemented only by the written
agreement of the Operator and the Company.
13.2 Notices. Unless otherwise specifically provided in this CO&M
Agreement, any notice or other communication shall be in
writing and may be sent by (a)
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personal delivery (including delivery by a courier service),
(b) telecopy to the following telecopy numbers (until changed
in accordance with this Section 13.2) or (c) registered or
certified mail, postage prepaid, addressed as set forth below
(or at such other address as may be designated in accordance
with this Section 13.2):
13.2.1 If to the Operator:
Pine Needle Operating Company
P.O. Box 1396
Houston, Texas 77251-1396
(2800 Post Oak Blvd. 77056)
Attention: Vice President - Operations and
Engineering
Telecopy number: (713) 439-4269
13.2.2 If to the Company, to each of the Members as set
forth in the Operating Agreement.
Notices shall be deemed given upon receipt, and a notice to
the Company shall be deemed given when received by the last
Member to receive same. Any Party may change its address or
telecopy number for notices hereunder by providing notice of
any such change to each of the other Parties.
13.3 Counterparts. This CO&M Agreement may be executed in
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
13.4 Waiver. No waiver by either Party of any default by the other
Party in the performance of any provision, condition or
requirement herein shall be deemed to be a waiver of, or in
any manner 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. Any delay or
omission of either Party to exercise any right hereunder shall
not impair the exercise of any such right, or any like right,
accruing to it thereafter.
13.5 Assignability; Successors. This CO&M Agreement may not be
assigned by either Party without the written consent of the
other Party; provided, however, that such consent shall not be
withheld unreasonably; provided, further, that this CO&M
Agreement may be pledged by the Company without the consent of
the Operator in connection with any Financing Commitment. This
CO&M Agreement and all of the obligations and rights herein
established shall extend to and be binding upon and shall
inure to the benefit of the respective successors and
permitted assigns of the respective Parties hereto. Unless
otherwise agreed, any assignment of this CO&M
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Agreement shall not relieve the assigning Party of any of its
obligations hereunder.
13.6 Third Persons. Except as expressly provided in this CO&M
Agreement, nothing herein expressed or implied is intended or
shall be construed to confer upon or to give any Person not a
Party hereto any rights, remedies or obligations under or by
reason of this CO&M Agreement.
13.7 Laws and Regulatory Bodies. This CO&M Agreement and the
obligations of the Parties hereunder are subject to all
applicable laws, rules, orders and regulations of Governmental
Authorities having jurisdiction, and to the extent of
conflict, such laws, rules, orders and regulations of
governmental authorities having jurisdiction shall control.
13.8 Section Numbers; Headings. Unless otherwise indicated,
references to Section numbers are to Sections of this CO&M
Agreement. Headings and captions are for reference purposes
only and shall not affect the meaning or interpretation of
this CO&M Agreement.
13.9 Severability. Any provision of this CO&M Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of that
prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or
enforceability of that provision in any other jurisdiction.
13.10 Further Assurances. Each Party agrees to execute and deliver
all such other and additional instruments and documents and to
do such other acts and things as may be reasonably necessary
more fully to effectuate the terms and provisions of this CO&M
Agreement.
13.11 Guarantee. By its execution of this CO&M Agreement as a Member
of the Company, the Member (in its individual capacity) that
is an affiliate of the Operator also hereby guarantees the
performance by the Operator of all the Operator's obligations
and liabilities under this CO&M Agreement.
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IN WITNESS WHEREOF, the Parties have caused this CO&M Agreement to be
executed by their duly authorized representatives as of the date first above
written.
OPERATOR:
PINE NEEDLE OPERATING COMPANY
By: ____________________________________
Frank J. Ferazzi
Vice President
COMPANY:
PINE NEEDLE LNG COMPANY, LLC By each of
its Members:
By: ____________________________________
Frank J. Ferazzi
Vice President
TransCarolina LNG Company
By: ____________________________________
nc
General Provisions
1.01 Statements and Billings. The Operator shall bill the Company on
the first Day of each Month or as soon as possible thereafter for the estimated
costs and expenses for the Month, including any adjustment that may be necessary
to correct prior estimated billings to actual. If requested by the Company, the
Operator will promptly provide reasonably sufficient support for the estimated
costs and expenses to be incurred for the Month. Actual bills will be summarized
by appropriate classifications indicative of the nature thereof and will be
accompanied by such detail and supporting documentation as the Company may
reasonably request.
1.02 Payment by Company. The Company shall pay all bills presented by
the Operator as provided in this CO&M Agreement on or before the fifteenth
(15th) Day after the bill is received. If payment is not made within such time,
the unpaid balance shall bear interest until paid at a rate (which shall in no
event be higher than the maximum rate permitted by applicable law) equal to two
percent (2%) per annum over the prime rate of Citibank, N.A. (or its successor)
from time to time publicly announced and in effect. Payment by or on behalf of
the Company shall not be deemed a waiver of the right to recoup any amount in
question.
1.03 Financial Records. The Operator shall maintain accurate books
and records in accordance with Required Accounting Practice covering all of the
Operator's actions under this CO&M Agreement.
1.04 Purchase of Materials. It is contemplated that all material,
equipment and supplies will be owned by the Company and purchased or furnished
for its account. So far as is reasonably practical and consistent with
efficient, safe and economical operation as determined by the Operator, only
such material shall be obtained for the Facilities as may be required for
immediate use, and the accumulation of surplus stock shall be avoided. To the
extent reasonably possible, the Operator shall take advantage of discounts
available by early payments and pass such benefits on to the Company.
1.05 Interest-Bearing Account. To the extent practicable, the funds
of the Company will be held in one or more interest-bearing accounts.
ARTICLE II
Capital Items
To the extent the Operator or any of its affiliated companies owns
real and/or personal property necessary or desirable for the Operation of the
Facilities that (a) under Required Accounting Practice, might be capitalized,
and (b) the Operator or such affiliate in its sole discretion is willing to
transfer for consideration to the Company, the Operator or such affiliate may,
if approved by the Company, so transfer such property to the Company.
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In the event of such a transfer, the Operator may charge the Company the net
book value thereof (as reflected on the books of the Operator or such affiliate
on the date of transfer).
The cost of natural gas utilized for installation, purging, testing
and line pack of the Facilities shall be a capital item. Any major modification
to information systems requiring information processing and/or programming
services shall be a capital item.
ARTICLE III
Costs and Expenses
Subject to the limitations hereafter prescribed and the provisions of
this CO&M Agreement, the Operator shall charge the Company for all costs and
expenses provided for in Section 5.1.2 of this CO&M Agreement, including, but
not limited to, the following items:
3.01 Rentals. All rentals paid by the Operator.
3.02 Labor Costs. All applicable personnel generating the following
labor costs shall keep time sheets so that the portion of their salaries and
wages chargeable under this CO&M Agreement may be supported and calculated, and
only such proportionate part of such labor costs shall be charged pursuant to
this Section 3.02:
(a) Salaries and wages of employees of the Operator and its affiliated
companies engaged in connection with the construction, operation, maintenance
and administration of the Facilities and, in addition, amounts paid as salaries
and wages of others temporarily employed in connection therewith. Such salaries
and wages shall be loaded to include the Operator's actual costs of bonuses,
holiday, vacation, sickness and jury service benefits and other customary
allowances for time not worked paid to persons whose salaries and wages are
chargeable under this Section 3.02(a). Direct labor charges may be billed from
the following areas: Operations, Engineering, Customer Services, Legal-Assigned,
Accounting, Tax, Rates and Planning.
(b) Expenditures or contributions made pursuant to assessments imposed
by Governmental Authority that are applicable to salaries, wages and costs
chargeable under Section 3.02(a) above, including, but not limited to, FICA
taxes and federal and state unemployment taxes.
(c) The costs of plans incurred by or on behalf of the Operator for
workers' compensation, employers' group life insurance, hospitalization,
disability, pension, retirement, savings and other benefit plans, that are
applicable to salaries and wages chargeable under Section 3.02(a) above. Such
costs shall be charged on the basis of a percentage assessment on the amount of
salaries and wages chargeable under Section 3.02(a) above.
(d) Overhead costs incurred to design and install information processing
and programming services during the construction period. The total charges to
the Company for these services will not exceed $50,000.
3.03 Reimbursable Expenses of Employees. Reasonable personal expenses
of employees whose salaries and wages are chargeable under Section 3.02(a)
above. As used herein, the term "personal expenses" shall mean out-of-pocket
expenditures incurred by employees in the performance of their duties and for
which such employees are reimbursed.
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The Operator shall maintain documentation for such expenses in accordance with
the standards of the Internal Revenue Service.
3.04 Material, Equipment and Supplies. Material, equipment and
supplies purchased or furnished from the warehouse or other properties of the
Operator's affiliated companies, priced at cost plus the affiliate's appropriate
purchasing and stores overhead ordinarily in use by the affiliate.
3.05 Transportation. Transportation of employees, equipment and
material and supplies necessary for the Operation of the Facilities.
3.06 Services. The cost of contract services and utilities procured
from outside sources.
3.07 Legal Expenses and Claims. All costs and expenses of handling,
investigating and settling litigation or claims arising by reason of the
Operation of the Facilities or necessary to protect or recover any Facilities or
property, including, but not limited to, attorney's fees, court costs, costs of
investigation or procuring evidence and any judgments paid or amounts paid in
settlement or satisfaction of any such litigation or claims. All judgments
received or amounts received in settlement of litigation with respect to any
claim asserted on behalf of the Company shall be for the benefit of and shall be
remitted to the Company.
3.08 Taxes. All taxes (except those measured by income) of every kind
and nature assessed or levied upon or incurred in connection with the Operation
of the Facilities or on the Facilities or other property of the Company and
which taxes have been paid by the Operator for the benefit of the Company,
including charges for late payment arising from extensions of the time for
filing that are caused by the Company, or that result from the Operator's good
faith efforts to contest the amount or application of any tax.
3.09 Insurance. Net of any returns, refunds or dividends, all
premiums, deductibles and retentions paid and expenses incurred for insurance
required to be carried under this CO&M Agreement. In the event that the Operator
self-insures the workers' compensation and employer's liability insurance as
provided in Section 8 of this CO&M Agreement, the Operator shall be reimbursed
only for the amount equivalent to the standard premium(s) which would have been
paid had such insurance been acquired, and the Operator shall not be reimbursed
for the costs associated with any claims paid by the Operator as an insurer
under such self-insurance.
3.10 Permits, Licenses and Bond. Cost of permits, licenses and bond
premiums necessary in the performance of the Operator's duties.
3.11 General Overhead. All other administrative and general
expenditures, including salaries and wages, bonuses, related benefits and
expenses of personnel of the Operator and/or the Operator's Affiliates
(excluding the personnel referred to in Sections 3.02 of this Article III) who
render services for the benefit of the Operator (in the performance of its
obligations hereunder) or the Company, including but not limited to,
administrative, public relations, personnel, purchasing, legal and treasury,
shall be charged as follows:
Pre-Completion Period: two percent (2%) of direct labor costs
Thereafter: five percent (5%) of direct labor costs
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