Exhibit 10.7
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement") is executed
as of December 1, 1997, by and between Citizens Utilities Company, a Delaware
corporation ("Citizens"), and Electric Lightwave, Inc., a Delaware corporation
("ELI").
W I T N E S S E T H:
WHEREAS, ELI is in the Telecommunications Business;
WHEREAS, Citizens owns all of the issued and outstanding Class B Common
Stock, par value $.01 per share, of ELI, and, as parent of ELI, Citizens has
been providing ELI certain management, administrative and other services;
WHEREAS, ELI is effecting an initial public offering (the "Offering")
of shares of its Class A Common Stock, par value $.01 per share (the "Class A
Common Stock"), and, upon completion of the Offering, ELI will cease to be a
wholly owned subsidiary of Citizens and Citizens and ELI will be separate
public companies; and
WHEREAS, in order continue to enjoy the benefits of Citizens'
experience and skills after the Offering in the operation of ELI's business
which would not be available to ELI on a cost effective basis, ELI desires to
retain Citizens to continue to provide (or cause to provide) certain Services
(as defined herein) to ELI, and Citizens desires to accept such retention, all
on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and for other good and valuable consideration, receipt of
which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
RETENTION OF CITIZENS; LIMITATIONS OF AUTHORITY
1.1 Retention of Citizens.
ELI hereby retains Citizens to provide the Services to ELI, and
Citizens hereby accepts such retention by ELI, all in accordance with the
terms and conditions of this Agreement. Citizens may utilize employees of its
Affiliates or consultants in providing Services hereunder. ELI may request
that Citizens expand, reduce or terminate the Services provided by Citizens to
ELI, in which case the parities will discuss, without obligation, such
expansion, reduction or termination as well as an additional charge or
deduction in charges for such Services. As used in this Agreement:
(a) "Affiliate" shall mean any person or entity that, directly
or indirectly, alone or through one or more intermediaries, controls, is
controlled by or is under common control with Citizens; provided, that for the
purposes of this Agreement ELI shall not be considered to be an Affiliate of
Citizens.
(b) "Operating Company" shall mean the operating companies,
divisions and operational centers of Citizens and its controlled companies
which receive services from Citizens' Stamford Administrative Offices and
other Responsibility Centers. Each Operating Company is allocated an
appropriate portion of the total cost of such services.
(c) "Responsibility Center" shall mean the Stamford
Administrative Offices and any other Responsibility Center of Citizens from
which services are rendered to the Operating Companies. The cost of such
services are charged out to each Operating Company in accordance with the
Allocation Formula.
(d) "Services" shall mean the various services provided
hereunder from time to time by Citizens and its Affiliates to ELI, as further
described in Section 2.2 hereof.
(e) "Telecommunications Business" shall mean the business of
ELI in providing telecommunications services as a competitive local exchange
carrier and otherwise.
1.2 Performance of Services. (a) Citizens shall perform the Services
with the same degree of care, skill and prudence customarily exercised for its
own operations. Except as otherwise provided in this Section 1.2, it is
understood and agreed that the Services will be substantially identical in
nature and quality to the Services performed by Citizens for ELI during the
years prior to the execution of this Agreement, except with respect to any
modifications which may be necessary to ELI becoming a public company.
(b) Each party acknowledges that the Services will be provided only
with respect to the Telecommunications Business or as otherwise mutually
agreed by the parties. ELI agrees to use the Services in accordance with all
applicable federal, state and local laws, regulations and tariffs and in
accordance with reasonable conditions, rules, regulations and specifications
which are or may be set forth in any manuals, materials, documents or
instructions of Citizens. Citizens reserves the right to take all actions in
order to assure that the Services are provided in accordance with any
applicable laws, regulations and tariffs.
(c) ELI shall provide any input or information needed by Citizens to
perform the Services pursuant to the provisions of this Agreement in a manner
consistent with the practices employed by the parties during the year prior to
the execution of this Agreement. Should the failure to provide such input or
information render the performance of the Services impossible or unreasonably
difficult, Citizens may, upon reasonable notice to ELI, refuse to provide such
Services.
1.3 Authority of ELI. Citizens understands that discretion and control
over the Telecommunications Business of ELI shall remain vested in ELI.
Accordingly, operational control and management over the Telecommunications
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Business including, without limitation, (i) the oversight of the management of
the Telecommunications Business, (ii) the formulation and implementation of
policy decisions for the Telecommunications Business, (iii) the supervision of
the employment of personnel of ELI, (iv) the payment of all financial
obligations and expenses arising from the operation of the Telecommunications
Business, and (v) the receipt of all monies and profits derived from the
operation of such Telecommunications Business, shall be vested in ELI.
1.4 Limitation of Authority. Except as otherwise stated herein, without
the prior written consent of ELI as evidenced by a resolution of its Board of
Directors, Citizens shall not be authorized or required under this Agreement
on behalf of ELI to:
(a) purchase or acquire, or sell, lease, trade, exchange or
otherwise dispose of any assets of ELI;
(b) incur any expense or any obligation which could result in
a liability in excess of $250,000 not set forth in a construction or operating
budget approved by ELI (or otherwise approved by ELI in writing) nor, upon
adoption by ELI of any such budget, incur any expenses in amounts greater than
110% of approved amounts;
(c) cancel or compromise any claim or debt owed to ELI in
excess of $100,000; or
(d) create or consent to the creation of any lien or charge on
any assets of ELI.
1.5 Powers of Officers and Directors. Nothing herein shall be construed
to release the officers and directors of ELI from the performance of their
respective duties or limit the exercise of their powers as prescribed by law
or otherwise.
ARTICLE II
THE SERVICES
2.1 Services Provided by Citizens. During the term of this Agreement
and subject to the terms and provisions hereof, Citizens shall provide, or
cause its Affiliates or consultants to provide, such of the Services as ELI
(acting through its Board of Directors) and Citizens mutually may consider
necessary or desirable or as Citizens determines may be appropriate for the
normal operation of the Telecommunications Business of ELI.
2.2 Description of the Services. The Services to be provided to ELI, as
determined in accordance with Section 2.1 hereof, consist of various services
required in the conduct of ELI's Telecommunications Business, including, by
way of illustration and not limitation, the following:
(a) Financial management, including:
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(i) Accounting and reporting services - accounting
policies and procedures, billing and time reporting support,
fixed asset, construction accounting, capital asset recovery
and analysis, accounting internal auditing and internal and
external reporting and analysis;
(ii) Taxes - including federal, state and local tax
filings compliance and audit, tax research and planning,
benefit plan compliance and tax policy;
(iii) Treasury - including cash management and
banking, investment management, corporate finance, risk
management and insurance services;
(iv) Financial Analysis and Planning-including
financial forecasting assistance, acquisition analysis,
actuarial services and financial analysis; and
(v) Investor Relation-includes assistance with the
establishment of an investor relation program.
.
(b) Information Services, including negotiating
enterprise-wide purchase agreements, providing access to data bases and
enterprise application systems, procedures and processes relating to customer
satisfaction, enterprise management, deploy solutions and customer surveys.
(c) Legal and contract services, including the representation
of ELI in state and federal regulatory proceedings and before state and
federal courts. (ii) the drafting and review of relevant legislation; (iii)
the provision of advice and counsel regarding telecommunications matters
affecting ELI; (iv) the drafting, negotiation and interpretation of various
contracts; (v) the provision of advice, counsel and assistance regarding
mergers and acquisitions, antitrust, labor and employment matters; and (vi)
the supervision of outside counsel retained by ELI.
(d) Human resources services, including (i) the design of
benefit and compensation programs; (ii) the maintenance of human resource
systems (which systems will keep employee information that will be necessary
for benefit and compensation program design, for implementation of such design
and for insuring compliance with the Employee Retirement Income Security Act
of 1974, as amended, the Internal Revenue Service and the Securities and
Exchange Commission); (iii) equal employment opportunity compliance,
management training, union fee avoidance programs and interpretation of
corporate policies.
(e) Corporate planning services, including assistance with
corporate budgeting.
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ARTICLE III
COMPENSATION
3.1 Service Costs. ELI shall pay Citizens and its Affiliates, as the
case may be, for all reasonable costs incurred by Citizens or its Affiliates
attributable to the performance by Citizens or its Affiliates of the Services,
including without limitation (a) all costs incurred by Citizens or its
Affiliates to vendors or other third parties in providing Services and related
supplies and goods; (b) the directly allocated costs of employees of Citizens
and its Affiliates (based on the average salary and all other compensation and
costs of the relevant Responsibility Centers) allocated to ELI in accordance
with Citizens' then current practice in allocating the cost of services to its
Operating Companies to the extent that the same can be based on the time of
employees of Citizens and its Affiliates expended in providing such Services;
(c) a portion of the non-directly allocated costs (including direct costs of
employees of Citizens and its Affiliates at the relevant Responsibility
Centers and all other costs and expenses of the relevant Responsibility
Centers), which are not based on time expended, all based on Citizens' then
current procedure (hereinafter referred to as the "Allocation Formula") used
by Citizens for charging unallocated costs of Citizens' relevant
Responsibility Centers to the Citizens Operating Companies as a component of
the cost of services rendered; and (d) an amount equal to 25% of the aggregate
of (b) and (c) above; provided, however, that it is intended that the service
costs paid by ELI shall not exceed comparable payments that would be made if
such services were to be provided by an unaffiliated third party.
3.2 Billing Procedure. Citizens shall submit to ELI a quarterly
statement showing in reasonable detail the calculation for the Reimbursable
Costs and the Fee, which amounts shall be due and payable, except as expressly
provided herein, within thirty (30) days of receipt of such statement by ELI.
ARTICLE IV
CONFIDENTIALITY
Each party hereto may from time to time be provided information that is
confidential and proprietary to the other party hereto. Accordingly, each
party agrees that it will not reveal such information or any of it, which is
not otherwise in the public domain, to a third party without the consent of
the other party except as required by law or as necessary to perform
obligations or enforce rights hereunder; that such information will be
distributed only to those of its own employees and officers who have a
reasonable need for it in order to carry out the purposes of this Agreement;
that such information will not be used in any manner except for the purpose
for which provided; and that upon termination of this Agreement, all documents
containing such confidential and proprietary information upon request will be
returned promptly to the party to which such information belongs. Each party
shall take such steps as are reasonably necessary to protect the confidential
or proprietary information of the other. For purposes hereof, confidential or
proprietary information shall include customer lists and other customer
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information, and financial, technical or business information relating to one
party and provided by such party to the other.
ARTICLE V
INDEMNIFICATION
ELI shall indemnify, defend and hold Citizens and its Affiliates (and
their respective officers, directors, partners, employees and agents) harmless
from any claims, costs, damages (including consequential damages), losses or
expenses (including reasonable attorneys' fees) arising out of or relating to
this Agreement or the performance of Services under this Agreement except
where attributable to the gross negligence or willful misconduct of Citizens
or its Affiliates. Neither Citizens nor any of its Affiliates (nor any of
their respective officers, directors, partners, employees and agents) shall be
liable, in damages or otherwise, to ELI for any error or judgment or other act
or omission performed or omitted by Citizens or any of its Affiliates under or
otherwise in respect of this Agreement, except if such error of judgment or
other act or omission results from willful misconduct or gross negligence of
the party sought to be changed. All of the obligations of Citizens hereunder
have been undertaken by Citizens and its Affiliates solely for the benefit of
ELI and nothing set forth in this Agreement shall (or shall be deemed to)
grant to any other person any interest (whether as a third party beneficiary
or otherwise) herein.
ARTICLE VI
TERM AND TERMINATION
6.1 Term. This Agreement shall commence on the date hereof and shall
terminate on December 31, 2005, unless earlier extended or terminated in
accordance with the terms of this Agreement.
6.2 Renewal-Termination upon Notice. This Agreement will automatically
renew for additional terms of two (2) years each, unless either party provides
written notice to the other party not less than six (6) months prior to the
end of the initial term or any such renewal term of its intent to terminate
this Agreement.
6.3 Termination upon Bankruptcy, Etc. Each party shall have the right
to terminate this Agreement immediately upon written notice to the other party
if the other party: (1) makes an assignment for the benefit of creditors; (2)
has an Order for Relief under Titles 7 or 11 of the United States Code entered
by any United States court against such party; (3) has a trustee or receiver
appointed by any court for a substantial part of such party's assets; or (4)
attempts to make an unauthorized assignment of this Agreement.
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6.4 Termination upon Material Breach. In the event of material breach
of any provision of this Agreement by a party, the non-defaulting party shall
give the defaulting party written notice, and:
(a) If such breach is for ELI's non-payment, ELI shall cure
the breach within thirty (30) calendar days of such notice. If ELI does
not cure such breach by such date, Citizens may, at its sole option,
elect to terminate this Agreement by giving written notice of such
election to ELI.
(b) If such breach is for any other material failure to
perform in accordance with this Agreement, the defaulting party shall
cure such breach within ninety (90) calendar days of the date of such
notice. If the defaulting party does not cure such breach within such
period (or is not working diligently in good faith to cure such breach
in cases where a breach cannot reasonably be expected to be cured
within ninety (90) days), the non-defaulting party may, at its sole
option, elect to terminate this Agreement by giving written notice to
the breaching party no earlier than ninety (90) calendar days after the
date of its notice of breach to the defaulting party (or immediately
upon such further notice to the defaulting party if the defaulting
party is not working diligently in good faith to cure such breach in
cases where a breach cannot be reasonably be expected to be cured
within ninety (90) days).
6.5 Termination upon Change of Control. Citizens may terminate this
Agreement by written notice to ELI upon a Change of Control (as defined below)
with respect to ELI. A "Change in Control" shall be deemed to have occurred
if: (i) Citizens or its Affiliates shall own shares representing less than a
majority of the voting power of the then outstanding common stock of ELI; (ii)
a majority of the seats (other than vacant seats) on the Board of Directors of
ELI shall at any time be occupied by persons who were neither (1) nominated by
Citizens or by the Board of Directors of ELI, nor (2) appointed by directors
of ELI so nominated; or (iii) any person or group, other than Citizens or its
Affiliates, shall otherwise directly or indirectly have the power to exercise
a controlling influence over ELI.
6.6 Survival upon Termination. Notwithstanding the foregoing, the
provisions of Article IV (Confidentiality) and Article V (Indemnification)
shall survive the termination or expiration of this Agreement, and shall
remain in full force and effect for a period of three years following
termination or expiration.
6.7 Waiver. The failure of either party to exercise any right to elect
to terminate this Agreement shall not constitute a waiver of the rights
granted herein with respect to any subsequent default.
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ARTICLE VII
GENERAL
7.1 Relationship; Self-Dealing. Nothing contained in this Agreement
shall be construed as creating a partnership, joint venture or similar
arrangement of or between Citizens and ELI. Citizens and its Affiliates may
engage in, acquire or possess an interest in other business ventures of any
nature or description, independently or with others, whether currently
existing or hereafter created, which may be in direct or indirect competition
with ELI, and ELI shall not have any rights in or to such independent ventures
or the income or profits derived therefrom, or to any opportunities offered or
created thereby. Such activities or arrangements shall not constitute a breach
of this Agreement.
7.2 Entire Agreement. This Agreement constitutes the entire
understanding between the parties and supersedes any prior understandings
respecting the subject matter thereof.
7.3 Amendment; Waiver. This Agreement shall not be amended, modified,
waived, released or discharged except by a writing signed by an officer or
authorized representative of each of the parties.
7.4 Successors and Assigns. No party hereto shall assign its rights and
obligations under this Agreement or any part thereof, nor shall any party
assign or delegate any of its rights or duties hereunder without the prior
written consent of the other party, and any assignment made without such
consent shall be void; provided, that the rights and obligations of Citizens
hereunder may be assigned to and assumed by an Affiliate of Citizens without
the consent or approval of ELI.
7.5 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is
intended or shall be construed to confer upon any person other than the
parties and successors and assigns permitted by Section 7.4 hereof any right,
remedy or claim under or by reason of this Agreement.
7.6 Further Assurances. The parties shall execute and deliver such
further instruments and perform such further acts as may reasonably be
required to carry out the intent and purposes of this Agreement.
7.7 Headings. All article, section and paragraph titles or captions
contained in this Agreement are for convenience only and shall not be deemed
part of the text of this Agreement.
7.8 Pronouns. All pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural as the context
may require.
7.9 Counterparts. This Agreement may be executed in one or more
counterparts, and each of such counterparts shall for all purposes be deemed
to be an original, but all such counterparts together shall constitute but one
instrument.
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7.10 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and shall be
deemed to have been duly given on the next business day after the same is
sent, if delivered personally or sent by telecopy or overnight delivery, or
five calendar days after the same is sent, if sent by registered or certified
mail return receipt requested, postage prepaid, as set forth below, or to such
other persons or addresses as may be designated in writing in accordance with
the terms hereof by the party to receive such notice.
(a) If to Citizens, to:
Citizens Utilities Company
High Ridge Park
Stamford, CT 06905
Facsimile No.: (203) 329-4651
Attn: Robert J. DeSantis
(b) If to ELI, to:
Electric Lightwave, Inc.
8100 N.E. Parkway Drive, Suite 150
Vancouver, Washington 98662
Facsimile No.: (360-604-5333)
Attn: David B. Sharkey
7.11 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without giving effect to
the principles of conflict of laws thereof.
7.12 Force Majeure. In the event that either party hereto shall be
delayed, hindered in, or prevented from the performance of any act required
hereunder by reason of failure of power, riots, insurrection, war, labor
disputes, Acts of God or other reasons of a similar nature not the fault of
the party delayed in performing the work or doing the acts required under the
terms of this Agreement, then performance of such work or act shall be excused
for the period of said delay and the period for the performance of any such
work or act shall be extended for a period equivalent to the period of such
delay. In the event that either party shall be indefinitely prevented from the
performance of any work or act required hereunder by reason of an such cause,
performance of such work or act shall be indefinitely excused.
7.13 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if one or more of the provisions of this Agreement is
subsequently declared invalid or unenforceable, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions of this Agreement. In the event of such declaration
of invalidity or unenforceability, this Agreement, as so modified, shall be
applied and construed so as to reflect substantially the intent of the parties
and achieve the same economic effect as originally intended by the terms
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hereof. In the event that the scope of any provision to this Agreement is
deemed unenforceable by a court of competent jurisdiction, the parties agree
to the reduction of the scope of such provision as such court shall deem
reasonably necessary to make such provision enforceable under the
circumstances.
7.14 No Agency. This Agreement shall not be deemed expressly or by
implication to create an agency, employee, or servant relationship between or
among any of the parties hereto, or any Affiliates of the parties hereto for
any purpose whatsoever.
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
hereinabove indicated.
ELECTRIC LIGHTWAVE, INC.
By:/s/ David B. Sharkey
--------------------
Name: David B. Sharkey
Title: President
CITIZENS UTILITIES COMPANY
By:/s/Robert J. DeSantis
---------------------
Name: Robert J. DeSantis
Title: Vice President and Treasurer
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