File No.
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM U-1
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National Fuel Gas Company Leidy Hub, Inc.
30 Rockefeller Plaza 10 Lafayette Square
New York, NY 10112 Buffalo, NY 14203
(Name of company filing this statement
and address of principal executive offices)
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NATIONAL FUEL GAS COMPANY
(Name of top registered holding company)
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Walter E. DeForest, President Bernard J. Kennedy, President
Leidy Hub, Inc. National Fuel Gas Company
10 Lafayette Square 30 Rockefeller Plaza
Buffalo, NY 14203 New York, NY 10112
(Names and addresses of agents for service)
It is respectfully requested that the Commission send copies of
all notices, orders and communications to:
Paul N. Edwards, Esq.
Phillips, Lytle, Hitchcock,
Blaine & Huber
3400 Marine Midland Center
Buffalo, NY 14203
Item 1. Description of Proposed Transactions.
National Fuel Gas Company ("National"), is a public
utility holding company registered under the Public Utility
Holding Company Act of 1935, as amended ("Act"). National's
subsidiary, Leidy Hub, Inc. ("LHI") has joined this Declaration.
LHI was formerly known as Enerop Corporation, but effective
December 29, 1993, its name was changed to Leidy Hub, Inc. See
Rule 24 Certificate dated January 24, 1994 (File No. 70-7201).
PROPOSED TRANSACTIONS
National and LHI are proposing:
(a) that LHI enter into a partnership with Hub
Services, Inc. ("Hub Services"), with LHI contributing no more
than $500,000 in capital to that partnership (not including
profits which are left in the business or distributed and later
reinvested), which will operate a business providing certain
services to the public, including to affiliates of the partners;
and
(b) that National guarantee certain present and
future obligations of LHI and the partnership.
These Proposed Transactions all derive from the
proposal that LHI enter into a partnership agreement
("Partnership") with Hub Services, a subsidiary of Natural Gas
Clearinghouse ("Clearinghouse"). Hub Services is a Delaware
corporation with an office at 100 First Avenue, Suite 700A,
Pittsburgh, Pennsylvania 15522. LHI and Hub Services entered
into a pre-partnership agreement which was effective as of
September 1, 1993 ("Pre-Partnership Agreement") (attached hereto
as Exhibit A-6). The Pre-Partnership Agreement provides, upon
the approval of the Securities and Exchange Commission ("SEC" or
"Commission"), for the formation of the Partnership to operate a
natural gas market area hub in the vicinity of Ellisburg and
Leidy, Pennsylvania (the "Hub"). A natural gas market area hub
is a place where two or more interstate natural gas pipelines
interconnect and where customers can seek and obtain various
services relating to the transportation, storage, purchase, sale,
exchange and lending of natural gas in the hub area. The
Partnership will provide such services to such customers.
National's subsidiary, National Fuel Gas Supply Corporation
("Supply"), is one of various interstate pipelines with
substantial facilities in the hub area.
The Hub
The Hub will create the reliability, efficiency and
flexibility necessary for buyers and sellers of natural gas in
the post-Order 636 restructured gas industry environment. See
"Parent Guarantee-Background." Indeed, as the Federal Energy
Regulatory Commission ("FERC") has stated, the creation of
"market centers" or "market area hubs" is in the public interest
because hubs will increase competition and efficiency and cut
transaction costs. The FERC's Office of Economic Policy
concluded that hubs reduce barriers to a more efficient market by
cutting transaction costs through matching buyers and sellers of
natural gas, reducing institutional constraints such as receipt
and delivery point inflexibility and increasing the benefits of
intermediation and diversification by third party gas merchants.
Federal Energy Regulatory Commission, Office of Economic Policy,
"Importance of Market Centers", page 2 (issued August 1991). To
further foster the development of market area hubs, FERC's Order
636 provided, among other matters, that "[a]n interstate pipeline
that offers transportation services on a firm basis . . . may not
include in its tariff any provision that inhibits the development
of market centers." 18 CFR Section 284.8(b)(6). The Report of
the FERC Pipeline Competition Task Force on Competition in Natural
Gas Transportation, in May, 1993, concluded that hubs will
increase reliability in supply emergencies, pipeline outages or
demand surges, mostly through the use of storage.
In addition to their other benefits, hubs improve
reliability through utilization of physical flexibility. The
storage fields and pipelines accessible via the Hub will provide
that physical flexibility. The Hub can also improve commercial
reliability by increasing liquidity and heightening
accountability. The Hub will increase the ability of
participants in the market to buy, sell, borrow or park gas on
short notice to correct short term shortfalls or surpluses of gas
supply.
The Partnership's suppliers will include Supply, a
wholly-owned subsidiary of National currently engaged in the
interstate transportation and storage of natural gas which will
provide tariff services to the Partnership on the same terms it
provides such services to anybody else. The Partnership will
also utilize unaffiliated pipelines in the Hub area. The
Partnership's customers may include National Fuel Gas
Distribution Corporation ("Distribution"), a wholly-owned
subsidiary of National and a public utility selling natural gas
and providing gas transportation services in western New York and
northwestern Pennsylvania (which may utilize the Partnership's
services to help buy or sell gas). In addition, National Fuel
Resources, Inc. ("NFR"), a New York corporation and a wholly-
owned subsidiary of National which ships gas on Supply and buys
and sells gas, including from and to Distribution, will be a
customer of the Partnership.
The Partnership would not provide any services
regulated by the FERC or any state commission. The Partnership,
when formed, will have no FERC jurisdictional facilities and will
engage exclusively in non-jurisdictional activities such as
agency services for entities who wish to arrange for storage,
transportation or gas lending services from regulated entities in
the vicinity of Ellisburg and Leidy, Pennsylvania (including
points of interconnection between pipelines other than Supply).
The Partnership would also be able to buy and sell natural gas,
including to and from National's other affiliates and
subsidiaries. The Partnership also plans to operate an
electronic bulletin board to facilitate title transfer
transactions and other services that may be offered by the
Partnership.
LHI's investment in the Partnership and the activities
of the Partnership will, if the partners' efforts to develop an
active Hub are successful, make it possible for Distribution (and
other utilities, brokers and marketers) to buy gas more
economically and efficiently. The extent to which Distribution's
customers, or anybody else, will benefit from the Hub will depend
on whether the Hub becomes an active place where a large number
of various natural gas transfers are made. The Applicants
believe that their efforts to date and in the future, combined
with the efforts of Hub Services and Clearinghouse, can bring
such a Hub into existence and result in the Partnership earning a
reasonable profit providing the services necessary to establish
and maintain the Hub.
Distribution's customers would benefit in another way
from large amounts of Hub throughput. Distribution buys gas
transportation and storage services from Supply as Supply's
largest firm customer, and passes the cost of those services on
to Distribution's customers. In January 1994, Supply established
three new services in its tariff related to the Hub: Rate
Schedules W-1, P-1 and IR-1, approved by FERC in an order
published at 61 FERC Paragraph 61,031. Roughly 90% of the revenue
which Supply receives from these rate schedules is refunded to
Supply's firm customers, including Distribution. As throughput
under these rate schedules increases, the amount Distribution
collects from its customers decreases.
Hub Services, as a shipper, has entered into service
agreements under Supply's Rate Schedules W-1 (wheeling), P-1
(parking) and IR-1 (imbalance resolution) which provide for
Supply to ship and store gas for Hub Services and to lend gas to
Hub Services. These contracts will be terminated or assigned to
the Partnership when it is formed, and the Partnership will become
a shipper under those Rate Schedules. Supply treats Hub Services,
and will treat the Partnership, as a marketing affiliate under
FERC regulations (See 18 CFR Part 161 and 18 CFR Section 250.16).
Since December 1990, Supply has been an "open access"
pipeline, operating an "open" transportation system whereby
producers, local distribution companies, brokers and other
shippers may contract for transportation services to ship natural
gas on Supply's interstate pipeline system much like a common
carrier. The proposed activities of the Partnership will enhance
Supply's efforts as an "open access" transporter. The services
that the Partnership is offering to perform will not interfere
with the firm and interruptible services Supply currently
provides. All services Supply performs under the W-1, P-1 and
IR-1 Rate Schedules are performed on an interruptible basis and at
the lowest priority on Supply. Because Supply is not proposing to
expand its facilities, there will be no cost to the current
customers; rather, existing customers will have enhanced options
by the participation of LHI in the Partnership.
Clearinghouse (parent of Hub Services) is not affiliated
with National or any of its subsidiaries. Clearinghouse is
eligible to become a shipper under any of Supply's open access
rate schedules, but is not currently a shipper. A Clearinghouse
subsidiary, NGC Transportation, Inc., is a shipper on Supply.
Clearinghouse formerly sold gas to Supply when Supply was in the
gas merchant business, and Clearinghouse currently sells gas to
Distribution. It is anticipated that Clearinghouse or its
affiliates may purchase services from, and may buy and sell gas
from and to, the Partnership.
Pre-Partnership Agreement
By way of preliminary explanation, under the Pre-
Partnership Agreement, Hub Services is operating the
business which will become the Partnership's business (the
"Business") when and if the SEC approves the formation of the
Partnership, and during that time, LHI's involvement in the
Business is structured so as not to offend the Act. Among other
things, this structure requires that all profits or losses of the
Business prior to the formation of the Partnership belong to Hub
Services, and that LHI not be obligated to indemnify Hub Services
against any market or investment risk in connection with its
operation of the Business.
If the SEC grants this Declaration-Application without
the imposition of any conditions which make it impracticable to
consummate the proposed transactions, and if certain other
conditions are satisfied, the Partnership will be formed. In
order that LHI and Hub Services begin their Partnership with equal
capital balances, the Pre-Partnership Agreement contemplates that
at the closing at which the Partnership is formed ("Closing"), Hub
Services will convey half the assets of the Business to LHI and
then the parties will each contribute half the Business assets to
the Partnership. The liabilities of the Business will be assumed
by the Partnership. If the Business has been profitable during
the Pre-Partnership phase, Hub Services will convey half the net
profits to LHI, and if the Business has not been profitable, LHI
will convey half the net losses to Hub Services. In this fashion,
if SEC approval is obtained, it will be as if the parties had been
partners from September 1, 1993, and if SEC approval is not
obtained, the Business will continue to belong to Hub Services.
The remainder of this section summarizes the provisions
of the Pre-Partnership Agreement, a copy of which is filed
herewith as Exhibit A-6. Under the Pre-Partnership Agreement, at
the Closing Hub Services shall deliver to LHI: the executed
Partnership Agreement; a satisfactory officer's certificate; 50%
of the Net Profits, if any, as defined; and such instruments, in
form and substance reasonably satisfactory to LHI, as will
effectively transfer to and vest in LHI good and marketable title
to a 50% share of all assets comprising the Hub as owned and
operated by Hub Services prior to the creation of the
Partnership, free and clear of all liabilities, liens,
encumbrances, claims and other restrictions other than
obligations associated with agreements entered into by Hub
Services in accordance with the Pre-Partnership Agreement. Hub
Services at the Closing shall also deliver to the Partnership
similar documentation effectively transferring to the Partnership
a 50% share of all the assets comprising the Business, and the
remainder of Hub Services' Capital Contribution, if any.
At the Closing, LHI shall deliver to Hub Services: the
executed Partnership Agreement; a suitable officer's
certificate; and 50% of the Net Losses, if any, as defined. LHI
shall deliver to the Partnership documentation similar to that to
be delivered by Hub Services, as will effectively transfer to the
Partnership good and marketable title to 100% of LHI's 50% share
of all the assets comprising the Business, and the remainder of
LHI's Initial Capital Contribution, if any.
In the Pre-Partnership Agreement Hub Services and LHI
make certain standard representations, warranties and covenants
to each other. The parties have agreed that no filing is
necessary with the Commodities Futures Trading Commission, and
LHI and National have agreed to file applications seeking the
approval of the SEC under the Act as soon as practicable, and to
use their best efforts to obtain such approval. The Closing is
subject to certain conditions, including that the SEC shall have
approved the Partnership and the transactions contemplated by the
Partnership Agreement, without any conditions which in the
judgment of either of the parties make it impracticable to
consummate the transactions contemplated by the Pre-Partnership
Agreement.
Prior to the formation of the Partnership ("Start-Up
Phase"), the Business has been operated from Hub Services'
office in Pittsburgh, Pennsylvania. Hub Services is authorized
to take all action necessary to own and operate the Business in
accordance with the terms and conditions of the Pre-Partnership
Agreement until the creation of the Partnership. An employee of
Clearinghouse who is also an officer of Hub Services has
the primary day-to-day responsibility for operation of the
Business during the Start-Up Phase. In addition, Clearinghouse
and Hub Services will make available from time-to-time such
employees as may be required in connection with the operation of
the Business, including, without limitation, clerical,
administrative and marketing personnel.
During the Start-Up Phase, the parties contemplate that
the Business will pay Hub Services for General and Administrative
Expenses, as defined, in a specified flat amount per month. For
this purpose, General and Administrative Expenses are deemed to
be all expenses incurred by Hub Services during the Start-Up
Phase, except the de minimis expenses incurred in the build-out
and furnishing of Hub Services' Pittsburgh office space, and
capital expenses designated as such by agreement of Hub Services
and LHI.
During the Start-Up Phase, Hub Services has the
authority, to the extent necessary and appropriate to the
operation of the Business, to undertake the following activities
on behalf of the Business, and no other activities without the
written consent of LHI: (i) borrow up to $10,000 in the
aggregate; (ii) make additional capital expenditures up to
$10,000 in the aggregate; (iii) incur operating expenses up to a
specified flat amount per month; (iv) negotiate and enter into
Hub Service Agreements with potential customers of the Business;
(v) negotiate and enter into short-term transactions pursuant to
Hub Service Agreements, provided such transactions carry a
primary term of three months or less; and (vi) negotiate and
enter into transportation service agreements and storage service
agreements with interstate and intrastate pipeline companies,
provided that such service agreements provide for interruptible
service.
During the Start-Up Phase, Hub Services is the
sole source of funds necessary to operate the Business. Fifty
percent of the Net Profit, if any, generated by the Business
during the Start-Up Phase shall be paid by Hub Services to LHI at
Closing. Fifty percent of the Net Losses, if any, generated by
the Business during the Start-Up Phase shall be paid by LHI to
Hub Services at Closing. For these purposes, "Net Profits" and
"Net Losses" shall be the surplus or deficiency remaining, of the
gross revenues of the Business received during the Start-Up
Phase, after subtraction of the following: (i) salary, vacations
and benefits; (ii) travel and promotion; (iii) General and
Administrative Expenses properly allocated by Hub Services to the
Business; and (iv) other operating expenses, not including the
cost of any asset which Hub Services contributes to the
Partnership at the Closing. Liabilities incurred during the
Start-Up Phase but not actually accrued by Hub Services prior to
the creation of the Partnership shall be assumed by the
Partnership.
The intent of these provisions is to place Hub Services
and LHI in the same economic positions as the parties would have
been in if the Partnership had been created on September 1, 1993
prior to initiation of operations, and both parties had equally
shared profits and losses. Notwithstanding anything else in the
Pre-Partnership Agreement, in no event shall LHI be under any
obligation to Hub Services in the event LHI or its affiliates do
not obtain SEC approval of the creation of the Partnership by
September 1, 1994. In the event the Partnership is not formed by
that date, and neither party is in material breach of its
obligations under the Pre-Partnership Agreement, Hub Services
shall be treated as the sole owner and operator of the Business
for all purposes, and all profits and losses shall be
attributable solely to Hub Services.
The parties acknowledge in the Pre-Partnership
Agreement that Hub Services will share space and office equipment
and facilities in offices leased and occupied by Clearinghouse's
Pittsburgh office, and borrow Clearinghouse employees from time-
to-time on a temporary basis for purposes associated with
operation of the Business. The allocations of cost from
Clearinghouse to Hub Services (and from Hub Services to the
Business) in connection with the Business are General and
Administrative Expenses included within the limit set out for such
expenses in the Pre-Partnership Agreement, except as otherwise
consented to by LHI and Hub Services. Subject to that limit,
expenses and salaries associated with shared space and borrowed
employees attributable exclusively to Hub Services' operation of
the Business are treated as expenses incurred by Hub Services in
connection with the operation of the Business. Hub Services shall
provide LHI with a monthly statement of such expenses supported by
invoices or similar supporting documents, and shall maintain
adequate records in accordance with generally accepted accounting
principles, supporting the allocation of expenses between Hub
Services and Clearinghouse. LHI shall have the right to review
the supporting records at Hub Services' Pittsburgh office upon
reasonable advance notice and shall have the right following
written notice to audit the allocation of expenses at LHI's sole
cost at any time prior to expiration of the Pre-Partnership
Agreement.
The Pre-Partnership Agreement may be terminated at any
time prior to formation of the Partnership, provided that the
party seeking to terminate is not in breach of the
Pre-Partnership Agreement: (i) upon the mutual consent of the
parties; (ii) if any suit or proceeding relating to any of the
transactions contemplated shall have been commenced or overtly
threatened which would make it commercially impracticable to
close; or (iii) if any of the conditions shall not have been
satisfied or performed in any material respect and waiver in
writing of such failure or non-performance shall not have been
made. The Pre-Partnership Agreement shall also terminate upon
the Closing.
The representations, warranties, covenants, agreements
and obligations of the parties shall survive for two years from
the Closing. Each party agrees to indemnify and hold harmless
the other from and against any and all damages, claims,
liabilities, losses, costs or expenses whatsoever arising out of,
attributable to or incurred with respect to any breach of
warranty or misrepresentation or breach or nonperformance of any
covenant, agreement or obligation, and any misrepresentation in
or omission from any certificate or instrument executed and
delivered in connection with the Pre-Partnership Agreement. In
no event shall a party be entitled to recover any punitive,
consequential or incidental damages in the event of breach.
Notwithstanding any other provision of the Pre-Partnership
Agreement, LHI is not obligated to indemnify and does not agree
to indemnify Hub Services or any other person against any market
or investment risk in connection with Hub Services' acquisition,
retention or disposition of the subject matter of the
Pre-Partnership Agreement.
No assignment or transfer of any of the rights,
interests or obligations of any party under the Pre-Partnership
Agreement shall be permitted except to an affiliate or successor
in interest by merger or consolidation. No such assignment shall
relieve the assignor of any of its obligations, duties or
liabilities thereunder. The Pre-Partnership Agreement shall be
governed, construed and enforced in accordance with the internal
laws of the State of Pennsylvania without regard to conflicts of
law principles.
Partnership Agreement
When and if the Commission approves this
Application/Declaration, a Closing will be held at which the
Partnership Agreement shall be entered into between LHI and Hub
Services. A copy of the Partnership Agreement is filed herewith
as Exhibit A-7. The Partnership shall be formed under the laws
of the State of Pennsylvania and shall be named The Ellisburg-
Leidy Northeast Hub Company, with its principal offices at
100 First Avenue, Suite 700A, Pittsburgh, Pennsylvania 15522.
The Partnership's business will be to operate and administer a
natural gas market area hub in the general vicinity of Ellisburg
and Leidy, Pennsylvania, and to provide services associated with
the operation of the Business.
Contemporaneously with the execution of the Partnership
Agreement, each partner shall contribute to the Partnership's
capital an equal amount in specified assets, which were
previously owned by Hub Services under the Pre-Partnership
Agreement, one half of which are to be transferred by Hub
Services to LHI and then to the Partnership at the Closing, as
described under the heading "Pre-Partnership Agreement".
Whenever the Executive Committee, as defined, determines in
accordance with the Partnership Agreement that the Partnership's
capital is or is presently likely to become insufficient for the
conduct of Partnership business, the Executive Committee may
issue a call for additional contributions to capital. These
contributions shall be payable in cash no later than five
business days after the date specified in the call. As discussed
herein, LHI will not contribute more than $500,000 in capital to
the Partnership (not including profits of the Partnership which
are either left in the business or distributed and later
reinvested), without returning to the SEC for its approval of any
such additional investment. See "Financing".
In order to raise additional capital to acquire assets
or for any other Partnership purpose, the Partnership may also
issue Partnership units to partners or to other persons and admit
such other persons to the Partnership as partners for the
consideration and on the terms and conditions agreed upon by the
partners.
Except as otherwise provided in the Partnership
Agreement, the property, business and affairs of the Partnership
shall be under the direction of the Executive Committee. Except
where the Partnership Agreement requires action of the partners,
the Executive Committee as such shall have the power to take any
action that the partners may take under law, subject to any
restrictions expressly set forth in the Partnership Agreement.
The unanimous approval of the members of the Executive
Committee shall be required before any of the following acts may
be taken: (i) borrowing transactions in excess of $25,000,
lending transactions or the guaranteeing of any third party
indebtedness; (ii) approving a capital budget and an operating
budget for each fiscal year, which shall not be exceeded without
the express consent of the Executive Committee except as provided
in (iii) below (provided, however, that the operating budget for
any year for which the partners fail to adopt such a budget shall
be limited to 85% of the previous year's operating budget, and
the capital budget for any year for which the partners fail to
adopt such a budget shall be the lesser of 85% of the previous
year's capital budget or $50,000); (iii) making any capital
expenditure in excess of $5,000, unless it is reflected in a
budget for the current fiscal year that has been approved by the
Executive Committee; (iv) entering into an agreement with a term
in excess of one year or involving payments in excess of $50,000
over the term of the agreement; (v) entering into an agreement
for the transportation, balancing, storage, parking, wheeling,
purchase, or sale of natural gas with a term in excess of one
year, involving an average daily volume obligation of more than
25,000 MMBtu; (vi) executing or otherwise entering into any
contract or commitment to transfer any asset, the fair market
value of which exceeds $50,000 or which is material to the
ongoing operations of the Partnership; (vii) executing or
otherwise entering into any contract or commitment for any
purchase or sale of gas in the ordinary course of business from
or to a partner, an officer or employee of the Partnership or any
of its subsidiaries, an affiliate of a partner or of an officer
or employee of the Partnership or any of its subsidiaries, or a
person related by blood or marriage to an officer or employee of
the Partnership or any of its subsidiaries, involving aggregate
consideration and the fair market value of which exceeds $50,000;
(viii) the indemnification of any officer or any other person
except as specifically provided in the Partnership Agreement.
The Executive Committee shall be composed of two
members for each partner. Each member shall be entitled to hold
office until death, resignation or removal, and partners who are
entitled to appoint a member may replace that member in the event
of a vacancy. Any member may be removed at any time without
cause by the partner entitled to appoint such member, but not
otherwise. Any member may appoint a proxy (including another
member) to attend meetings and vote, and all members in
attendance by means of a proxy shall be included in the count of
a quorum.
The Executive Committee shall hold an annual meeting,
and unless otherwise agreed shall hold regular meetings at the
offices of the Partnership during the months of January, April,
July and October of each year. In addition, special meetings of
the Executive Committee may be called by the Chairman, Vice
Chairman, the Executive Committee or any partner, upon notice to
all members of the Executive Committee. The presence of one
member designated by each partner shall constitute a quorum. If
a quorum is present, the unanimous action of all those present
shall constitute the action of the Executive Committee. The
Executive Committee may act by unanimous written consent of its
members without a meeting and, in addition, meetings of the
Executive Committee may take place by telephone or any means
whereby all persons attending can hear and speak to each other.
No member of the Executive Committee shall be entitled as such to
compensation for services or reimbursement of expenses incurred
as a member of the Executive Committee. Accordingly, LHI's
operating expenses will include the salaries of its officers and
the reimbursement of their expenses incurred in connection with
Partnership business.
The officers of the Partnership shall have only the
authority specified below, and shall not be general agents of the
Partnership. The managing executives of the Partnership shall be
the members of the Executive Committee, the Chief Operating
Officer, the Secretary and the Treasurer. There may be appointed
from time-to-time such Vice Presidents, Secretaries, Assistant
Secretaries, Treasurers and Assistant Treasurers as the Executive
Committee may desire. Any person may hold two or more offices,
except that the offices of Chief Operating Officer and Secretary
may not be held by the same person. No officer of the
Partnership (other than a member of the Executive Committee) may
simultaneously serve as an officer of any partner or affiliate of
a partner.
The officers shall be elected by the Executive
Committee at its annual meeting. Any officer may be removed by
the Executive Committee with or without cause. Vacancies in any
office shall be filled by the Executive Committee. Any vacancy
in the office of Chief Operating Officer shall be filled by
unanimous consent of the partners.
The Chairman, and in the absence of the Chairman, the
Vice Chairman, shall preside at meetings of the Executive
Committee and shall exercise such powers and perform such duties
as may be assigned by the Partnership Agreement or the Executive
Committee.
The Chief Operating Officer, subject to the general
control of the Executive Committee, shall be responsible for the
day-to-day management and direction of the affairs of the
Partnership, shall supervise generally the affairs of the
Partnership, and, subject to the limitations imposed by the
Partnership Agreement, any employment agreement, any employee
plan, or any resolution of the Executive Committee, shall have
full authority to execute all documents and take all actions that
the Partnership may legally take. The Chief Operating Officer
shall exercise such other powers and perform such other duties as
may be assigned to him by the Partnership Agreement or the
Executive Committee, including such duties and powers as may be
stated in any employment agreement.
In the absence of the Chairman, the Vice Chairman and
the Chief Operating Officer, the Vice President designated by the
Executive Committee shall, except as hereinafter provided, have
all of the powers and duties conferred upon the Chief Operating
Officer. Each Vice President shall have the same power as the
Chairman, the Vice Chairman or the Chief Operating Officer to
sign certificates, contracts or other instruments of the
Partnership (except an agreement for the transportation,
balancing, storage, purchase or sale of natural gas with a term
of more than one year and an average daily volume obligation of
more than 25,000 MMBtu), and shall perform such other duties and
may exercise such other powers as may from time to time be
assigned to him by the Partnership Agreement, the Executive
Committee, the Chairman, the Vice Chairman or the Chief Operating
Officer.
The Secretary shall record the minutes of the meetings
or actions of the partners and of the Executive Committee or any
sub-committee, shall see that all notices are duly given, shall
be custodian of all records other than financial records, shall
see that the books, reports, statements and certificates and
other documents required by law to be kept are properly kept and
filed, and in general shall perform all duties incident to the
office of secretary and such other duties as may from time to
time be assigned to him by the Executive Committee, the Chairman
or the Vice Chairman. The Assistant Secretary shall exercise the
powers of the Secretary during the Secretary's absence or
inability or refusal to act.
The Treasurer shall keep the books of account of the
Partnership and shall render statements of the financial affairs
of the Partnership in such form and as often as required by the
Partnership Agreement, the Executive Committee, the Chairman or
the Vice Chairman. The Treasurer, subject to the order of the
Executive Committee, shall have the custody of all funds and
securities, if any, of the Partnership, and shall perform such
other duties commonly incident to his office and as may be
designated from time to time by the Executive Committee, the
Chairman or the Vice Chairman.
The Partnership will establish for each partner a
Capital Account to which will be credited such partner's capital
contributions to the Partnership, items in the nature of income
or gain that are allocated to the partner pursuant to the
Partnership Agreement, and the amount of any Partnership
liabilities that are assumed by that partner or secured by any
property that is distributed to that partner. The initial
balance of the Capital Accounts of LHI and Hub Services will be
equal halves of the book value of the assets being contributed to
the Partnership. From each partner's Capital Account will be
debited the amount of distributions made to that partner, items
in the nature of expenses or losses that are allocated to that
partner pursuant to the Partnership Agreement, and the amount of
any liabilities of that partner that are assumed by the
Partnership or that are secured by any property that is
contributed by that partner to the Partnership.
The profits, losses and credits of the Partnership will
be determined at the end of each fiscal year of the Partnership,
which will end on December 31, unless otherwise agreed by the
partners. Such profits and losses will be allocated annually
based upon the results of an annual audit unless otherwise agreed
by the parties. Except as otherwise provided, the profits,
losses and credits of the Partnership shall be allocated 50% to
each partner.
The Partnership Agreement contains a number of special
allocation provisions intended to comply with applicable treasury
regulations with minimal affect on the net amount of allocations
made to each partner.
Partnership Cash Flow available for distribution will
be determined annually by the Executive Committee in connection
with its approval of the Annual Operating Budget or more
frequently as determined by the Executive Committee. The
Partnership Cash Flow determined to be available for distribution
shall be distributed 50% to each partner.
The Partnership shall continue for two years and shall
be automatically continued for additional terms of one year
unless a partner notifies the other partner at least three months
prior to the end of the term that the Partnership shall not be
automatically continued for an additional term. If the
Partnership has not previously been dissolved, it shall dissolve
20 years after the death of the last to die of the employees of
the partners as of the date of execution of the Partnership
Agreement.
The Partnership shall be dissolved upon the occurrence
of any of the following events: (a) the express will of all the
partners who have not suffered their interest in the Partnership
to be charged with their separate debts; (b) the expiration of
the term of the Partnership; (c) the withdrawal, bankruptcy, or
dissolution of any partner, unless all remaining partners agree
within 90 days to continue the Partnership; or (d) whenever a
partner commits a material breach of the Partnership Agreement,
provided that any partner seeking to dissolve the Partnership for
this reason shall first give the allegedly breaching partner a
sworn statement specifying the nature of the breach, after which
the partners shall in good faith attempt to resolve the dispute.
If the dispute is not resolved within six months, the partner
alleging the breach must give the allegedly breaching partner a
second sworn statement alleging that such breach has continued
and that the partner alleging the breach thereby dissolves the
Partnership. If the partner alleged to have breached the
Partnership Agreement believes there was no breach or that it was
cured prior to dissolution, such partner may attempt to recover,
from the partner alleging the breach, damages for wrongful
termination of the Partnership Agreement. On application by or
for a partner, a court shall decree a dissolution upon the
occurrence of any of the above circumstances, should the partners
not agree that the Partnership is dissolved.
If any partner ("Affected Partner") becomes bankrupt,
dissolves, merges or consolidates with any other person other
than an affiliate of the partner, the following provisions apply.
Any partner other than the Affected Partner shall have the right
to purchase all of the Affected Partner's interest in the
Partnership upon notice within 90 days after the event giving
rise to such partner becoming an Affected Partner. The purchase
price shall be equal to the fair market value of the Affected
partner's interest in the Partnership, which shall be determined
as of the date of the notice to the Affected Partner of the
election to purchase its interest. Fair market value shall be
determined by a national investment banking firm mutually
acceptable to the Affected Partner and the purchasing partner,
whose fees are paid by the Partnership.
If at any time a liability is asserted against the
Partnership based on acts or transactions that occurred before
the notice of the election to purchase the Affected Partner's
interest, the Affected Partner's share of the asserted liability
may be withheld from any amounts otherwise payable to the
Affected Partner until the amount of the liability is determined
by adjudication, settlement, compromise or otherwise. If at the
time the amount of the liability is finally determined, all
payments have been made to the Affected Partner or the amount
withheld is not sufficient to offset the Affected Partner's share
of the liability, the Affected Partner shall reimburse the
Partnership for its share of the liability immediately upon
demand.
Upon the dissolution of the Partnership, unless it is
reconstituted and continued, a liquidator designated by the
Executive Committee ("Liquidator") shall wind up the affairs of
the Partnership. The Liquidator shall obtain the approval of the
Executive Committee before selling, assigning, transferring or
encumbering any of the Partnership's assets and shall, after
payment of debts and liabilities of the Partnership, establish
such reserves as the Executive Committee deems necessary or
advisable. If any partner's Capital Account balance is negative
after taking into account all adjustments, the partner shall have
no obligation to contribute any amount to the Partnership except
to the extent necessary to meet the debts and obligations of the
Partnership including without limitation, any loans or advances
to the Partnership by any partner.
If any Partnership assets are to be distributed in kind
to the partners, the Liquidator shall obtain an independent
appraisal of the fair market value of such assets and shall
adjust the partners' Capital Accounts for any unrealized gain or
loss in the same manner as such Capital Accounts would be
adjusted upon an actual sale of such assets at the appraised
value. Appraisal fees shall be paid by the Partnership.
Each partner covenants and agrees that it will not
withdraw from the Partnership. If any partner does so withdraw,
such withdrawal shall be effective only upon 90 days' prior
notice to all other partners, and the Partnership may recover
from such partner damages for breach of such covenant and may
offset the damages just described against the amount otherwise
distributable to such partner, and/or may pursue any remedies
otherwise available under applicable law. Except as specifically
provided in the Partnership Agreement, no partner shall be
entitled to bring an action at law or equity for the partition or
dissolution of the Partnership. No partner may be removed as a
partner.
The Partnership Agreement restates the representation,
warranties and covenants which each party made in the
Pre-Partnership Agreement as of the date of the Partnership
Agreement. Such covenants, representations and warranties shall
survive for two years from the execution of the Partnership
Agreement. Each partner agrees to indemnify and hold harmless
the other and the Partnership from and against any and all
damages, claims, liabilities, losses, costs and expenses
whatsoever arising out of, attributable to, or incurred with
respect to any breach of warranty or any misrepresentation or the
breach or non-performance of any covenant. The Partnership shall
indemnify each partner from and against all losses, liabilities,
costs and expenses incurred on account of such partner's
liability for obligations of the Partnership, except that such
indemnity shall not apply to acts or omissions constituting gross
negligence, willful misconduct, bad faith or breach of the
provisions of the Partnership Agreement.
The Partnership shall maintain complete and accurate
books of account, on an accrual basis unless otherwise agreed,
and its fiscal year shall be the calendar year. The Executive
Committee shall mail to each partner monthly unaudited financial
statements, and within sixty days of the end of the fiscal year,
financial statements audited by the accounting firm of Arthur
Anderson, or another national accounting firm acceptable to the
Executive Committee, as well as sufficient information from which
each partner may prepare its own federal and state income tax
returns for the preceding year. Each partner or its authorized
representative shall have access to the properties, books,
records, accounts and information regarding the Partnership, its
Subsidiaries and their respective activities, whether in
possession of the Partnership or any affiliate of a partner.
The Executive Committee is charged with the
responsibility to cause to be timely prepared and filed all
required tax returns, a copy of which shall be provided to each
partner.
The Partnership may share office space, facilities and
equipment with Clearinghouse and Hub Services, and may borrow
their employees temporarily. Expenses and salaries associated
with such activities, up to a specified limit per month except as
otherwise approved by the Executive Committee, shall be
Partnership expenses. Clearinghouse and Hub Services shall
render a monthly statement of such expenses and shall maintain
adequate records, in accordance with GAAP, supporting such
allocation of expenses.
The Partnership may issue additional Partnership units
to partners or to other persons and admit such other persons to
the Partnership as partners for the consideration and on the
terms and conditions agreed upon by the partners. In addition,
any partner may transfer all or a portion of its Partnership
interest subject to the purchase rights described below, except
that no transfer may be made without the consent of all of the
other partners, which consent shall not be unreasonably withheld,
or if the Partnership would be considered to have terminated
within the meaning of Section 708 of the Internal Revenue Code.
Transferees shall agree to be bound by the terms of the
Partnership Agreement and all the other agreements and terms of
the Partnership, and the transferring partner and its transferee
each must represent and warrant to the other partners and the
Partnership that the transfer was made in accordance with all
applicable laws and regulations, including, without limitation,
securities law. Any transfer shall not release the transferring
partner from any of its liabilities and obligations under the
Partnership Agreement.
No partner shall grant any proxy or enter into any
agreement or voting trust with respect to its Partnership
interest. A partner shall be entitled to pledge up to 25% of its
Partnership interest to a commercial lending institution as
security for indebtedness of such partner if (i) the lender
executes a written agreement in favor of the other partners
pursuant to which it agrees (a) not to transfer such interest
except in compliance with the Partnership Agreement; (b) that any
transfer upon or in lieu of foreclosure of its security interest
will be subject to the purchase rights described below; and
(c) that if the lender acquires such interest, whether by
foreclosure or otherwise, it will assume all the obligations of
the pledging partner under the Partnership Agreement but not be
admitted to the Partnership as a partner or have the right to
vote on any matter; and (ii) such pledge does not reduce the
Partnership's borrowing capacity.
If any partner receives and wants to accept a bona fide
offer to purchase all or any portion of the partner's interest in
the Partnership, it shall give written notice ("Transfer Notice")
to the Partnership and the other partners, which then have the
prior right to purchase all but not less than all of the offered
interest. The Partnership has the first irrevocable option to
purchase or redeem all of the offered interest and may exercise
its option by written notice to the transferor within 20 days
from receipt of the Transfer Notice. If the Partnership elects
not to purchase the offered interest, each of the remaining
partners shall have the irrevocable option to purchase all of the
offered interest in accordance with their proportionate shares,
or on such other basis as they may agree. If the remaining
partners do not in the aggregate exercise options to acquire all
of the offered interest, the transferor may transfer the offered
interest within 120 days of the Transfer Notice. Any proposed
disposition which is not affected within such 120 day period
shall again become subject to the purchase rights described
herein.
If all or any portion of the consideration included in
the bona fide offer consists of consideration other than cash,
the Partnership or the Purchasing partners at their sole option
may pay such non-cash portion with either substantially similar
consideration of equivalent value or cash in an amount equal to
the fair market value of the non-cash consideration, as valued by
an independent third party accounting firm, evaluation firm or
investment banker ("Appraiser") selected by the transferor and
approved by the purchasing parties. The fee of the Appraiser
shall be paid for one-half by the purchasing parties and one half
by the transferor.
Notwithstanding anything else in the Partnership
Agreement, so long as the Partnership would not be deemed to have
terminated under federal tax law, a partner may assign its right,
interest or obligations thereunder to an affiliate or successor,
but no such assignment shall relieve the assignor of its
obligations, duties or liabilities to the other partner.
Except as otherwise provided in the Partnership
Agreement, no partner, nor any entity that owns more than 50% of
the partner ("Parent"), nor any subsidiary of a Parent
("Sibling") shall establish or operate any business covering the
area of Ellisburg and Leidy, Pennsylvania, which is or purports
to be a "market hub" or "market center" as those terms are used
in FERC publications. This shall not be interpreted to prohibit
any partner, Parent or Sibling from buying or selling gas or
buying or releasing capacity involving points in the area of
Ellisburg and Leidy, Pennsylvania without utilizing the services
of the Partnership. Supply and Distribution shall be permitted
to comply with applicable "open access" interstate natural gas
pipeline regulations and tariffs and state public utility
regulations. Partners and/or Siblings may become customers of
the Partnership, and otherwise engage in natural gas marketing or
brokering activities which may effectively compete with the
Partnership. The prohibition against competition contained in
the Partnership Agreement shall continue for the term of the
Partnership and for 12 months after dissolution. Unless
otherwise agreed, no partner, Parent or Sibling shall use the
Partnership's name, address or logo for one year after
termination of the Partnership.
Each party shall pay its own transaction costs. If any
sum is payable to any partner pursuant to the Partnership
Agreement, any amounts owed by such partner to the Partnership
may be offset from such sum before such payment to the partner.
ANALYSIS
As discussed in this filing, it is proposed that LHI
will enter into the Partnership with Hub Services whereby LHI
will acquire, own and control 50% of the Partnership.
Section 9(a)(1) of the Act requires that this acquisition of an
interest in a business be preceded by the Commission's approval
under Section 10(a)(3) of the Act.
Satisfaction of Requirements of Section 10(b) and 10(c)
Section 10(b)(1) - The proposed activities of LHI and
the Partnership do not involve the acquisition of "utility
assets" as defined by Section 2(a)(18) of the Act. Also, it is
not anticipated that the Partnership will acquire any "utility
assets." The Partnership will not be a "gas utility company" as
defined in Section 2(a)(4) of the Act, in that the Partnership
will not "own or operate facilities used for the distribution at
retail of natural or manufactured gas for heat, light or power."
Accordingly, LHI's acquisition of an interest in the Hub cannot
possibly tend "towards interlocking relations or the
concentration of control of public-utility companies," the
concern of Section 10(b)(1) of the Act.
Section 10(b)(2) - As discussed above, the proposed
activities of LHI and the Partnership do not involve the
acquisition of utility assets or an interest in a gas utility
company. Further, no acquisition of "securities" is proposed.
LHI and Hub Services will each own a fifty percent (50%) interest
in the Partnership. As indicated under the heading "Partnership
Agreement", each partner will exercise essentially equal control
over the affairs of the Partnership, so that LHI's general
partnership interest will be neither an "investment contract" nor
a "security" under applicable law. Therefore, this section is
not applicable.
Section 10(b)(3) - The proposed investment by LHI in
the Partnership will have a de minimus effect on the capital
structure of the National Fuel System, since LHI will have
authority to contribute no more than $500,000 to the capital of
the Partnership (see "Financing" and Exhibits S-2 through S-4).
Further, as discussed under "Proposed Transactions," these
proposed transactions will not be detrimental to the public
interest or the interest of investors or consumers or the proper
functioning of such holding company system.
Section 10(c)(1) - Since this filing does not involve
the acquisition of utility assets or securities of a gas or
electric company, Section 8 of the Act is not applicable. Also,
as discussed under the heading "Applicability of the Gas Related
Activities Act", LHI's investment in the Partnership is not
detrimental to the provisions of Section 11 of the Act.
Sections 10(c)(2) and (e) - Again, as this filing does
not involve the acquisition of utility assets or securities of a
public utility or holding company, these sections are not
applicable.
An exemption from competitive bidding is available
because no underwriting or public sale of securities is involved,
and competitive bidding is not necessary or appropriate in the
public interest or for the protection of investors or consumers.
Applicability of the Gas Related Activities Act
National and its subsidiaries (the "National Fuel
System" or the "System") are engaged principally in the
exploration, production, purchasing, gathering, transmission,
storage and distribution of natural gas. As a result of state
and federal legislation and regulatory developments, the roles
and functions of gas pipeline and distribution companies have in
recent years changed drastically. The passage by Congress of the
Gas Related Activities Act in 1990, Pub. L. No. 101-572 (1990)
(hereinafter referred to as "GRAA") acknowledges the changing
structure of the natural gas industry. Under the Act, all
proposed investments by Public Utility Holding Companies and
their subsidiaries are scrutinized by the SEC to insure that the
investments are necessary or appropriate to the operation of an
integrated public utility system. Section 2(a) of the GRAA
provides in effect that the investment by LHI in the Partnership
and the activities of the Partnership involving the transportation
and storage of natural gas are deemed, for purposes of Section
11(b)(1) of the Act, to be reasonably incidental or economically
necessary or appropriate to the operation of the National Fuel
System. The transportation- and storage-related services which
the Partnership will provide will comprise the predominance of its
business. Under Section 2(a) of the GRAA, the proposed
investment by LHI in the Partnership and the activities of the
Partnership therefore automatically satisfy Section 10 of the Act.
Parent Guarantee
National and LHI also seek authorization from the
Commission to allow National to act as guarantor of certain
obligations of LHI and the Partnership. National and its other
subsidiaries have previously been granted similar authority
pursuant to the provisions of the Application-Declaration and the
Order of the SEC dated November 12, 1993, HCAR No. 25922 ("Parent
Guarantee Order"). The obligations of LHI and the Partnership to
be guaranteed would be incurred as a result of the activities
undertaken by the Partnership related to the supply of natural
gas as delineated in the GRAA. It is anticipated that whenever
the Partnership is required to provide a guarantee, it will be
provided one-half by National and one-half by Clearinghouse.
Such guarantees include the guarantee of obligations associated
with: (1) gas transportation agreements entered into by the
Partnership with local distribution companies ("LDCs") or
pipelines such as Distribution and Supply; (2) gas purchase and
sale agreements entered into by the Partnership in the provision
of certain contemplated title transfer services; and (3) any and
all other agreements relating to the transportation,[footnote 1]
storage,[footnote 2] or supply[footnote 3] of natural gas.
<PAGE>
________________________
[footnote 1] - Defined as "the carriage of natural gas or
manufactured gas through gathering facilities, intrastate
pipelines facilities, off-shore pipeline facilities, or interstate
pipeline facilities, as well as the carriage of liquefied and
compressed natural gas by truck, ship or train." See 136 Cong.
Rec. H13277 (daily ed. Oct. 27, 1990) (statement of Rep. Markey).
[footnote 2] - Defined as "the injection of natural gas into
partially depleted natural gas fields or other suitable natural
gas storage facilities, holding the natural gas for a time in such
storage field, subsequently withdrawing the natural gas, and any
related activities and operations." See id. at H13276-77.
[footnote 3] - For the purposes of the Gas Related Activities Act
of 1990, the definitions of which apply to this declaration,
"supply" is deemed to include: (v) "marketing" (i.e., "activities
connected to the sale of company-owned production as well as the
purchase of natural gas or manufactured gas for resale to others
or the purchase or sale of natural gas or manufactured gas as an
agent for others or brokering of gas", see id.); . . . or (vi)
"other similar activities related to the supply of natural or
manufactured gas". See 15 U.S.C. section 79K (1993).
________________________
Such guarantees have become necessary under the new
operating environment created by FERC Order 636. The maximum
total amount of such guarantees to be outstanding at any one time
by National for the benefit of LHI and the Partnership will not
exceed $5 million. National seeks authority to provide the
guarantees described above through December 31, 1998. It is
anticipated that the guarantees will in many instances be made
for an indefinite period of time not to exceed four years.
National will pay no fees, expenses or penalties
associated with any of the guarantees. It would, however, as
guarantor assume the rights and obligations of LHI upon a payment
default. LHI and the Partnership would be responsible to repay
National for any payments National, as guarantor, must make on
their behalf, plus any interest expense (at the highest
incremental interest rate National must pay for borrowings on
behalf of the System through the money pool) or other expenses
incurred or paid by National as guarantor. It is anticipated
that repayment by LHI would be made from LHI's distributions from
the Partnership and repayment by the Partnership would be made
from Partnership revenues or additional capital calls as
permitted by the Partnership Agreement.
Background - In Order 636, FERC concluded, after
reviewing comments on its Notice of Proposed Rulemaking
proceeding, that the regulatory structure and the form of
historical bundled pipeline services was unduly discriminatory
and anticompetitive, and therefore unlawful under Section 5 of
Natural Gas Act.[footnote 4] The result of such rulemaking
proceeding has been a series of FERC orders - Order 636, Order
636-A, and Order 636-B.[footnote 5]
________________________
[footnote 4] - 15 U.S.C. Sections 717-717w (1988).
[footnote 5] - FERC Order 636, F.E.R.C. Statutes and Regulations
(CCH) Paragraph 30,939 (1992); FERC Order 636-A, F.E.R.C. Statutes
and Regulations (CCH) Paragraph 30,950 (1992); FERC Order 636-B,
F.E.R.C. Opinions, Orders and Decisions (CCH) Paragraph 61,272
(November 27, 1992).
________________________
As a remedy of the anticompetitive structure, the FERC
promulgated rules mandating a major restructuring of the natural
gas pipeline industry. Among other things, this restructuring
requires pipelines to:
(i) unbundle (separate) their sales and transportation
services;
(ii) provide open access transportation services;
(iii) allow firm transportation customers of downstream
pipelines to acquire capacity on upstream
pipelines held by downstream pipelines; and
(iv) implement a capacity releasing program so that
excess firm capacity is released to those desiring
capacity.
Gas Purchases - The Order 636 restructuring has
resulted in significant changes to the gas industry. For
example, most interstate pipelines will no longer perform a
merchant function, i.e., purchase gas for resale to LDCs which,
in turn, ultimately re-sell such supplies to retail customers.
In response to these industry changes, suppliers who have had no
ongoing relationships with the LDCs directly or with brokers and
marketers have been imposing significant security requirements
which gas purchasers such as the Partnership will have to meet.
These security requirements are being imposed across the board,
regardless of the financial strength of the purchaser, because
there has been no prior relationship between the parties. For
example, a number of suppliers have taken the position that any
time a subsidiary contracts for gas purchases, a parent guarantee
will be required.
The security requirements placed on LDCs undoubtedly
will also be imposed on smaller purchasers such as the
Partnership. Presently, Clearinghouse is providing the necessary
guarantees on behalf of Hub Services. In order to carry out its
marketing efforts, the Partnership will have on-going gas
purchase requirements and storage requirements and thus will have
to meet the security requirements imposed by suppliers. Again,
it is anticipated that whenever the Partnership is required to
provide a guarantee, it will be provided one-half by National and
one-half by Clearinghouse.
Gas Sales - Suppliers of gas may also be required to
provide guarantees that they will in fact deliver gas they have
contracted to sell. The Partnership may from time to time be
required to provide assurances of delivery, including a parent
guarantee.
Transportation - The Order 636 restructuring will also
result in significant changes to pipeline tariffs and operating
procedures which the pipelines have indicated will necessitate a
more stringent application of creditworthiness criteria to each
shipper which makes a request for transportation service. It is
anticipated that, from time to time, the Partnership as a shipper
on pipelines, including pipelines owned by National, may not, on
its own, meet the creditworthiness requirements of the pipelines.
Accordingly, the Partnership may be required to provide adequate
security to the pipeline, such as a three month prepayment or an
irrevocable letter of credit. Providing the three month
prepayment could be severely detrimental to the cash flow of the
Partnership. Similarly, the Partnership might not have sufficient
unencumbered assets to obtain a letter of credit. In any event,
the fees associated with a letter of credit could be saved if a
parent guarantee was provided in lieu of such letter of credit.
LHI and Hub Services would also be able to secure a letter of
credit or otherwise meet the pipeline creditworthiness
requirements if the letter of credit was backed by National's
guarantee of the obligations of LHI and/or the Partnership and
Clearinghouse's guarantee of the obligations of Hub Services
and/or the Partnership.
Amount of Guarantees - The total outstanding amount of
obligations which National will guarantee on behalf of LHI and
the Partnership will not exceed $5 million. There are at least
six interstate pipelines operating in the vicinity of Ellisburg
and Leidy, Pennsylvania. The Partnership may have up to three
agreements with each pipeline, one each for transportation,
storage and gas borrowing, and it will be required to post
security for the maximum quantities permitted under each of those
agreements although the actual quantities will normally be lower.
It is estimated that $5 million of guarantee authority will be
sufficient to cover one-half the maximum aggregate amounts of all
such agreements.
Financing
LHI presently has authority to participate in the
National Fuel System Money Pool pursuant to the provisions of the
Application-Declaration and the Order of the SEC dated
December 29, 1993, HCAR No. 35-25964 (the "Money Pool Order").
Under the terms of the Money Pool Order, certain National Fuel
System Companies are authorized to undertake certain intra-system
borrowing transactions through December 31, 1995. LHI may
participate in this intra-system arrangement and is authorized to
make borrowings from the Money Pool of a maximum principal amount
at any one time outstanding of Five Million Dollars ($5,000,000).
The Commission has reserved jurisdiction over $2,500,000 of this
amount pending completion of the record. Three Hundred Thousand
Dollars ($300,000) of this borrowing authority had been used
primarily for investments unrelated to the Hub as of March 28,
1994. It is anticipated that LHI's other investments will be
transferred to NFR pursuant to an Application-Declaration, Post-
Effective Amendment No. 6 to File 70-7833, expected to be filed
contemporaneously herewith, and that in connection with such
transfer, LHI's Money Pool borrowing authority will be
unaffected, except that if such Application-Declaration is
granted, LHI's outstanding $300,000 debt to the Money Pool will
be repaid.
In connection with this Application-Declaration, LHI is
seeking authority to borrow up to $500,000 from its existing
authority to borrow $2,500,000 over which the Commission has not
reserved jurisdiction, to be used for capital contributions to
the Partnership and for payments, if any, to Hub Services of
one-half of the Start-up Phase Net Losses (see "Pre-Partnership
Agreement"). LHI represents and undertakes that it will not
borrow more than $500,000 from the Money Pool for Partnership
purposes, nor will it make capital contributions to the
Partnership of more than $500,000 in total (not including profits
of the Partnership which are either left in the business or
distributed to LHI and later reinvested), without returning to the
SEC to seek its approval of any such additional future borrowings
or investments relating to the Partnership. LHI will also
continue to be bound by the terms and conditions of the Money Pool
Order. LHI proposes to use the proceeds from Partnership-related
borrowings from the Money Pool for its Initial Capital
Contribution to the Partnership, possible future capital
contributions to the Partnership, payment to Hub Services of
one-half of Start-up Phase Net Losses (if any) and for its own
working capital. Under the Partnership Agreement, LHI may be
required by the Executive Committee to contribute further capital
to the Partnership, and LHI's working capital requirements arise
because it may incur de minimis operating expenses which exceed
its distributions from the Partnership.
The Partnership's Rule 16 Exemption
Due to the fact that LHI, a wholly-owned subsidiary of
National, will control fifty percent (50%) of the voting
interests of the Partnership, the Partnership will be a
"subsidiary" of LHI under Section 2(a)(8) of the Act, and as a
subsidiary will be a part of National's "holding company system"
under Section 2(a)(9), and therefore an "associate company" of
National under Section 2(a)(10) of the Act. However, the
Partnership and its affiliates, as defined in Section 2(a)(11) of
the Act, in particular Hub Services and Clearinghouse, will be
exempt from all obligations, duties and liabilities otherwise
imposed upon it by the Act, as a result of Rule 16 promulgated
under the Act.
Rule 16 will grant such an exemption to the Partnership
and its affiliates because:
(1) the Partnership will not be a "public utility
company" as defined in Section 2(a)(5) of the Act;
(2) it will be organized to engage primarily in
arranging for storage, transportation and supply of natural gas;
(3) since none of Hub Services, Clearinghouse or any
of their affiliates is a registered holding company, no more than
50% of the Partnership's voting interests will be "owned,
directly or indirectly, by one or more registered holding
companies"; and
(4) the Commission will have approved the acquisition
by National and LHI of their interest in the Partnership pursuant
to this Application-Declaration.
Item 2. Fees, Commissions and Expenses.
It is estimated that the expenses to be incurred by
National in connection with the herein proposed transaction are
as follows:
Filing Fee $ 2,000
Fees and Expenses of Counsel (a) $ 10,000
- Estimated
(a) Phillips, Lytle, Hitchcock, Blaine & Huber
Stryker, Tams & Dill
Item 3. Applicable Statutory Provisions.
Sections 9(a), 10, 11(b), 12(b), 13(b) of the Act and
Rules 16, 23, 24, and 45 of the Act and the Gas Related
Activities Act of 1990 are all considered applicable to the
proposed transactions.
The applicability of each of the sections and rules to
each of the proposed transactions are set out as follows:
Proposed Transaction Applicable Provisions of the Act
LHI's investment Section 9(a), 10, 11(b) and the
in the Partnership Gas Related Activities Act
Guarantee by National Section 12(b)
of Obligations of LHI Rules 23, 24 and 45
To the extent that the proposed transaction is considered by the
Commission to require authorization, approval or exemption under
any section of the Act or provision of the rules or regulations
other than those specifically referred to herein, request for
such authorization, approval or exemption is hereby made.
Item 4. Regulatory Approval.
No federal regulatory authority, other than the
Securities and Exchange Commission, has jurisdiction over the
proposed transactions.
No state regulatory authority has jurisdiction over the
proposed transactions.
Item 5. Procedure.
Pursuant to the provisions of Rule 62, the Commission
is requested to issue an Order permitting the Declaration to
become effective as soon as possible with respect to consummation
of the transactions described herein.
Pursuant to Rule 24, Applicant-Declarants will provide
on a quarterly basis an income statement and balance sheet
reflecting the activities of LHI and the Partnership. If the
income statement reflects a net loss for a consecutive
twelve (12) month period, at the request of the SEC, a more
detailed income statement and balance sheet will be provided in
the form as mutually agreed by LHI and the Staff of the SEC.
Applicant-Declarants request permission to file such information
within 45 days after the end of each quarter.
Within six months of the effective date of the order,
LHI shall file with the SEC, in accordance with Section 15 of the
Act and pursuant to Rule 24, a copy of the accounting system
maintained by LHI and the Partnership as well as any cost
allocation methodology, work order procedures and cost accounting
procedures needed to collect and account for the income and
expenses of the activities of LHI and the Partnership. This is
to include the allocation of Partnership profits to LHI and Hub
Services.
Applicant-Declarants respectfully request that the
Commission's Order herein be entered pursuant to the provisions
of Rule 23. If a hearing be ordered, Applicant-Declarants waive
a recommended decision by a Hearing Officer, or any other
responsible officer of the Commission, agree that the Division of
Investment Management may assist in the preparation of the
Commission's decision and request that there be no waiting period
between the issuance of the Commission's Order and the date on
which it becomes effective.
Item 6. Exhibits and Financial Statements.
The following exhibits and financial statements are
made a part of this Application-Declaration:
(a) Exhibits
A-1 Restated Certificate of Incorporation of
National Fuel Gas Company, dated March 15,
1985 (Incorporated by Reference to Exhibit A-
4 in File No. 70-6667).
A-2 Certificate of Amendment of Restated
Certificate of Incorporation of National Fuel
Gas Company, dated March 9, 1987
(Incorporated by Reference to Exhibit A-3 in
File No. 70-7334).
A-3 Certificate of Amendment of Restated
Certificate of Incorporation of National Fuel
Gas Company, dated February 22, 1988
(Incorporated by Reference to Exhibit B-5 in
File No. 70-7478).
A-4 Certificate of Amendment of Restated
Certificate of Incorporation, dated March 17,
1992. (Incorporated by Reference to
Exhibit A-4 in File No. 70-8109).
A-5 Bylaws of the Company, as amended.
(Incorporated by Reference to Exhibit A-5 in
File No. 70-8109).
A-6 Pre-Partnership Agreement (Designated as
Exhibit EX-2 for EDGAR purposes). (Note that
Exhibit A to the Pre-Partnership is included
as Exhibit A-7). A PORTION OF THIS AGREEMENT
IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT UNDER RULE 104(b).
A-7 Form of Partnership Agreement (Designated as
Exhibit EX-3(a) for EDGAR purposes). A
PORTION OF THIS AGREEMENT IS SUBJECT TO A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER
RULE 104(b).
F-1 Opinion of Stryker, Tams & Dill (Designated
as Exhibit EX-5 for EDGAR purposes).
(b) Financial Statements
S-1 Leidy Hub, Inc. Pro Forma Condensed Balance
Sheet at December 31, 1993. CONFIDENTIAL
TREATMENT PURSUANT TO RULE 104(b) REQUESTED.
S-2 National Fuel Gas Company Pro Forma
Consolidated Condensed Balance Sheet at
December 31, 1993. CONFIDENTIAL TREATMENT
PURSUANT TO RULE 104(b) REQUESTED.
S-3 National Fuel Gas Company and Subsidiaries
Pro Forma Consolidated Condensed Income
Statement for the Period Ended December 31,
1993. CONFIDENTIAL TREATMENT PURSUANT TO
RULE 104(b) REQUESTED.
S-4 National Fuel Gas Company Pro Forma Journal
Entries as of December 31, 1993.
CONFIDENTIAL TREATMENT PURSUANT TO RULE
104(b) REQUESTED.
S-5 Leidy Hub, Inc. Pro Forma Condensed Income
Statement for the Period Ended December 31,
1993. CONFIDENTIAL TREATMENT PURSUANT TO
RULE 104(b) REQUESTED.
S-6 Leidy Hub, Inc. Pro Forma Journal Entries
as of December 31, 1993. CONFIDENTIAL
TREATMENT PURSUANT TO RULE 104(b) REQUESTED.
S-7 Ellisburg-Leidy Northeast Hub Company Pro
Forma Condensed Balance Sheet at December 31,
1993. CONFIDENTIAL TREATMENT PURSUANT TO
RULE 104(b) REQUESTED.
S-8 Ellisburg-Leidy Northeast Hub Company Pro
Forma Journal Entries as of December 31,
1993. CONFIDENTIAL TREATMENT PURSUANT TO
RULE 104(b) REQUESTED.
G-1 Proposed form of public notice (Designated as
Exhibit EX-99 for EDGAR purposes).
Item 7. Information as to Environmental Effects.
The proposed transactions outlined herein involve no major action
which will significantly effect the quality of the human
environment.
No federal agency has prepared or is preparing an
environmental impact statement with respect to the transactions
proposed in this Declaration.
SIGNATURES
Pursuant to the requirements of the Public Holding
Utility Company Act of 1935, the undersigned company has duly
caused this Statement to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL FUEL GAS COMPANY
By /s/ R. M. DiValerio_______
R. M. DiValerio, Secretary
LEIDY HUB, INC.
By /s/ Walter E. DeForest____
Walter E. DeForest
President
Dated: April 29, 1994
IIIha
SEC FORM U-1
76089.15
EXHIBIT INDEX
(a) Exhibits
A-1 Restated Certificate of Incorporation of
National Fuel Gas Company, dated March 15,
1985 (Incorporated by Reference to Exhibit A-
4 in File No. 70-6667).
A-2 Certificate of Amendment of Restated
Certificate of Incorporation of National Fuel
Gas Company, dated March 9, 1987
(Incorporated by Reference to Exhibit A-3 in
File No. 70-7334).
A-3 Certificate of Amendment of Restated
Certificate of Incorporation of National Fuel
Gas Company, dated February 22, 1988
(Incorporated by Reference to Exhibit B-5 in
File No. 70-7478).
A-4 Certificate of Amendment of Restated
Certificate of Incorporation, dated March 17,
1992. (Incorporated by Reference to
Exhibit A-4 in File No. 70-8109).
A-5 Bylaws of the Company, as amended.
(Incorporated by Reference to Exhibit A-5 in
File No. 70-8109).
A-6 Pre-Partnership Agreement (Designated as
Exhibit EX-2 for EDGAR purposes). (Note that
Exhibit A to the Pre-Partnership is included
as Exhibit A-7). A PORTION OF THIS AGREEMENT
IS SUBJECT TO A REQUEST FOR CONFIDENTIAL
TREATMENT UNDER RULE 104(b).
A-7 Form of Partnership Agreement (Designated as
Exhibit EX-3(a) for EDGAR purposes). A
PORTION OF THIS AGREEMENT IS SUBJECT TO A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER
RULE 104(b).
F-1 Opinion of Stryker, Tams & Dill (Designated
as Exhibit EX-5 for EDGAR purposes).
<PAGE>
(b) Financial Statements
S-1 Leidy Hub, Inc. Pro Forma Condensed Balance
Sheet at December 31, 1993. CONFIDENTIAL
TREATMENT PURSUANT TO RULE 104(b) REQUESTED.
S-2 National Fuel Gas Company Pro Forma
Consolidated Condensed Balance Sheet at
December 31, 1993. CONFIDENTIAL TREATMENT
PURSUANT TO RULE 104(b) REQUESTED.
S-3 National Fuel Gas Company and Subsidiaries
Pro Forma Consolidated Condensed Income
Statement for the Period Ended December 31,
1993. CONFIDENTIAL TREATMENT PURSUANT TO
RULE 104(b) REQUESTED.
S-4 National Fuel Gas Company Pro Forma Journal
Entries as of December 31, 1993.
CONFIDENTIAL TREATMENT PURSUANT TO RULE
104(b) REQUESTED.
S-5 Leidy Hub, Inc. Pro Forma Condensed Income
Statement for the Period Ended December 31,
1993. CONFIDENTIAL TREATMENT PURSUANT TO
RULE 104(b) REQUESTED.
S-6 Leidy Hub, Inc. Pro Forma Journal Entries
as of December 31, 1993. CONFIDENTIAL
TREATMENT PURSUANT TO RULE 104(b) REQUESTED.
S-7 Ellisburg-Leidy Northeast Hub Company Pro
Forma Condensed Balance Sheet at December 31,
1993. CONFIDENTIAL TREATMENT PURSUANT TO
RULE 104(b) REQUESTED.
S-8 Ellisburg-Leidy Northeast Hub Company Pro
Forma Journal Entries as of December 31,
1993. CONFIDENTIAL TREATMENT PURSUANT TO
RULE 104(b) REQUESTED.
G-1 Proposed form of public notice (Designated as
Exhibit EX-99 for EDGAR purposes).
EXHIBIT A-6
Pre-Partnership Agreement
(Designated As Exhibit EX-2 for EDGAR purposes)
PRE-PARTNERSHIP AGREEMENT
THIS AGREEMENT is made effective as of the 1st day of
September, 1993, by and between Leidy Hub, Inc., a New York
corporation with its principal offices at 10 Lafayette Square,
Buffalo, New York 14203 ("LHI") and Hub Services, Inc., a
Delaware corporation with its principal offices at 13430
Northwest Freeway, Suite 1200, Houston, Texas 77040 ("Hub
Services"). In this Agreement, LHI and Hub Services may be
referred to collectively as "the Parties" or individually as a
"Party".
RECITALS OF FACT
A. LHI is engaged in various activities related to the
natural gas industry. LHI is a wholly-owned subsidiary of
National Fuel Gas Company ("NFG").
B. Hub Services is engaged in the business of
administering and operating natural gas "hubs", which are
generally places where two or more interstate natural gas
pipelines interconnect and where customers seek services relating
to the transportation, storage, purchase, sale, exchange and
lending of natural gas in the hub area. Hub Services is a
wholly-owned subsidiary of Natural Gas Clearinghouse ("NGC").
C. The Parties desire to commence the organization and
operation of a natural gas hub in the vicinity of Leidy,
Pennsylvania ("Ellisburg-Leidy Hub") and, subject to regulatory
approvals LHI must obtain, create a general partnership comprised
of LHI and Hub Services, or their affiliates, for purposes of
owning and operating the Ellisburg-Leidy Hub (the "Hub
Partnership").
D. During the period from the effective date of this
Agreement until the creation of the Hub Partnership ("Start-Up
Phase"), Hub Services will own and operate the Ellisburg-Leidy
Hub in accordance with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants and agreements set
forth herein, the Parties agree as follows:
<PAGE>
ARTICLE I
FORMATION OF PARTNERSHIP
1.1 Partnership Agreement. At the Closing, as defined in
Section 2.1, and subject to all other terms and conditions of
this Agreement, LHI or one of its affiliates and Hub Services or
one of its affiliates will execute a Partnership Agreement
creating the Hub Partnership, substantially in the form of the
partnership agreement attached to this Agreement as Exhibit A
(the "Partnership Agreement"). The affiliate, if any, chosen by
LHI to be the partner in Hub Partnership (or LHI itself, if LHI
elects to enter into the Partnership agreement itself) is
referred to herein as LHI. The affiliate, if any, chosen by Hub
Services to be the other partner in Hub Partnership (or Hub
Services itself, if Hub Services elects to enter into the
Partnership Agreement itself) is referred to herein as "Hub
Services".
1.2 Initial Capital Contributions. Contemporaneously with
execution of the Partnership Agreement, and in accordance with
Section 5.4(a) of this Agreement and the pertinent provisions of
the Partnership Agreement, LHI and Hub will each make its Initial
Capital Contribution to the Hub Partnership.
ARTICLE II
THE CLOSING
2.1 Closing. The execution of the Partnership Agreement
and the transfer of the Initial Capital Contributions to the
Partnership shall be consummated at a closing (the "Closing") to
be held at the Pittsburgh offices of Hub Services as promptly as
possible after satisfaction or waiver of all the conditions to
the Closing set forth in Articles VIII and IX, at such time and
date as the parties shall mutually agree in writing, but not
later than September 1, 1994 (the "Closing Date"), unless
extended by agreement of the Parties.
2.2 Closing Documentation. At the Closing,
(a) Hub Services. Subject to the conditions specified
in Article VIII, Hub Services shall deliver
(i) to LHI:
(1) the executed Partnership Agreement;
(2) the certification of an officer of Hub
Services referred to in Section 7.1(e);
<PAGE>
(3) fifty (50) percent of the Net Profits,
if any, as defined in Section 5.4(a); and
(4) such instruments, in form and substance
reasonably satisfactory to LHI, as will
effectively transfer to and vest in LHI
good and marketable title to a fifty
percent (50%) share of all assets
comprising the Ellisburg-Leidy Hub as
owned and operated by Hub Services prior
to creation of the Partnership, free and
clear of all liabilities, liens,
encumbrances, claims and other
restrictions other than obligations
associated with agreements entered into
by Hub Services in accordance with
Article V of this Agreement.
(ii) to Hub Partnership:
(1) such instruments, in form and substance
reasonably satisfactory to LHI, as will
effectively transfer to and vest in the
Partnership good and marketable title to
one hundred percent 100%) of Hub
Services fifty percent (50%) share of
all assets comprising the
Ellisburg-Leidy Hub as owned and
operated by Hub Services prior to
creation of the Hub Partnership, free
and clear of all liabilities, liens,
encumbrances, claims and other
restrictions other than obligations
associated with agreements entered into
by Hub Services in accordance with
Article V of this Agreement; and
(2) the remainder of the Initial Capital
Contribution, if any, by certified or
bank check to the order of the
Partnership, or wire transfer of funds
to an account of the Partnership.
(b) LHI. Subject to the conditions specified in
Article VII, LHI shall deliver
(i) To Hub Services:
(1) the executed Partnership Agreement;
(2) the certificate of an officer of LHI
referred to in Section 8.1(d); and
<PAGE>
(3) fifty (50) percent of the Net Losses, if
any, as defined in Section 5.4(a), and
(ii) to Hub Partnership:
(1) such instruments, in form and substance,
reasonably satisfactory to Hub Services,
as will effectively transfer to and vest
in the Partnership good and marketable
title to one hundred percent (100%) of
LHI's (50%) share of all assets
comprising the Ellisburg-Leidy Hub as
owned and operated by Hub Services prior
to creation of the Hub Partnership, free
and clear of all liabilities, liens
encumbrances, claims and other
restrictions other than obligations
associated with agreements entered into
by Hub Services in accordance with
Article V of this Agreement.
(2) the remainder of the Initial Capital
Contribution, if any, by certified or
bank check to the order of the
Partnership, or wire transfer of funds
to an account of the Partnership; and
ARTICLE III
REPRESENTATIONS AND WARRANTIES BY HUB SERVICES
3.1 Hub Services. Hub Services represents and warrants to
LHI as follows:
(a) Organization. Hub Services is a corporation duly
organized, validly existing and in good standing under the laws
of Delaware and, to the best of its knowledge and belief has full
power and authority to own, operate and lease its properties as
heretofore owned, operated and leased and to carry on its
business as presently conducted. Hub Services is not qualified
to do business in any jurisdiction other than Delaware,
Pennsylvania, and Illinois and the character and location of the
properties presently owned, operated, or leased by Hub Services
does not require it to qualify or become licensed to do business
in any other jurisdiction. Hub Services does not own, directly
or indirectly, any material interest in any corporation,
association, or other person. True and complete copies of Hub
Services' Certificate of Incorporation, as amended, certified by
the Secretary of State of Delaware and its by-laws, as amended,
each certified by its Secretary, have been provided to LHI.
<PAGE>
(b) Authority Relative to Agreement. The execution,
delivery and performance of this Agreement by Hub Services and
consummation by it of the transactions contemplated hereby, have
been duly and effectively authorized by all necessary action,
corporate and other, and this Agreement constitutes a legal,
valid and binding obligation of Hub Services enforceable against
it in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
arrangement or similar laws affecting the rights of creditors
generally and subject to the discretion of courts to award
equitable remedies.
(c) Effect of Agreement. Except as specified in
Schedule 3.1(c), the execution, delivery and performance of this
Agreement by Hub Services and the consummation by each of the
transactions contemplated hereby (i) do not, to the best of its
knowledge and belief, require any filing with, or the consent,
waiver, approval, license or authorization of, any person,
government agency or public or regulatory authority; (ii) do not,
to the best of its knowledge and belief, violate, with or without
the giving of notice of the passage of time, any provision of law
applicable to Hub Services; (iii) do not conflict with or result
in a breach of Hub Services' Certificate of Incorporation, or by-
laws or any material franchise, contract, mortgage, deed of
trust, license, indenture or other agreement or other instrument,
or any order, judgment, decree, statute, regulation or any other
material restriction of any kind or character, to which Hub
Services is a party or by which Hub Services or any of their
assets may be bound or, to the best of their knowledge and
belief, give to others any right to terminate, or result in
termination or adverse modification of any provision of such
instruments; and (iv) do not result in the creation of any
liability, lien, charge, encumbrance, claim or other restriction
upon any of the property or assets of Hub Services or the
acceleration or maturity of any debt of Hub Services.
(d) Litigation. Hub Services is not a party to any
pending litigation, or other judicial or administrative
proceeding, nor to the best of its knowledge is there any
litigation or proceeding known to be threatened against Hub
Services, which would prevent consummation of this Agreement by
Hub Services.
(e) Finders' Fees. No person acting on behalf of Hub
Services has claimed, or is entitled to, under any contract or
otherwise, any payment as a broker, or finder or intermediary in
connection with the origin, negotiation, execution or
consummation of the transactions provided for in this Agreement.
(f) Compliance with Law. To the best of its
knowledge, Hub Services is and has been in compliance in all
material respects with all laws, ordinances, regulations, orders,
licenses, franchise and permits applicable to it, its properties
and assets, and to the operation and conduct of its business,
including but not limited to such laws and regulations relating
to protection of the public health or environment, waste
disposal, hazardous substances or wastes and occupational health
and safety.
(g) Absence of Fees for Agreement. No standby, option
or similar fee has been paid or is payable by or on behalf of Hub
Services as consideration for this Agreement.
(h) General Representations and Warranties. Neither
this Agreement nor any Exhibit or Schedule or other document
furnished by or on behalf of Hub Services in connection with this
Agreement contains any untrue statement of a material fact or
omits to state any material fact necessary to make the statements
contained therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES BY LHI
4.1 LHI. LHI represents and warrants to Hub Services as
follows:
(a) Organization. LHI is a corporation duly
organized, validly existing and in good standing under the laws
of the State of New York and has full power and authority to own,
operate and lease its properties as presently owned, operated and
leased and to carry on its business as now and heretofore
conducted. LHI is not qualified to do business in any
jurisdiction other than New York, and the character and location
of the properties presently owned, operated, or leased by LHI and
the nature of the business presently conducted by LHI does not
require it to qualify or become licensed to do business in any
other jurisdiction.
(b) Authority Relative to Agreement. The execution,
delivery and performance of this Agreement by LHI and
consummation by it of the transactions contemplated hereby, have
been duly and effectively authorized by all necessary corporate
action, and this Agreement constitutes a legal, valid and binding
obligation of LHI enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, or similar
laws affecting the rights of creditors generally and subject to
the discretion of courts to award equitable remedies.
(c) Effect of Agreement. Except as disclosed in
Schedule 4.1(c), the execution, delivery and performance of this
Agreement by LHI and the consummation by it of the transactions
contemplated hereby (i) do not require the filing with, or the
consent, waiver, approval, license or authorization of, any
person, government agency or public regulatory authority; (ii)
do not, to the best of its knowledge and belief, violate, with or
without the giving of notice or the passage of time, any
provision of law applicable to LHI; (iii) do not conflict with or
result in a breach of LHI's Certificate of Incorporation or
by-laws or any mortgage, deed of trust, license, indenture or
other agreement or other instrument, or any order, judgment,
decree, statute, regulation or any other material restriction of
any kind or character to which LHI is a party or by which LHI or
any of its assets may be bound, or, to the best of its knowledge
and belief, give to others any right to terminate, or result in
termination of any provision of such instruments; and (iv) do not
result in the creation of any liability, lien, encumbrance, claim
or other restriction upon any of the property or assets of LHI
except in favor of LHI's lenders, or result in the acceleration
or maturity of any debt of LHI.
(d) Litigation. LHI is not a party to any pending
litigation, or other judicial or administrative proceeding, nor
to the best of its knowledge is there any litigation or
proceeding known to be threatened against LHI which would prevent
consummation of this Agreement by LHI.
(e) Finders' Fees. No person acting on behalf of LHI
has claimed, or is entitled to, under any contract or otherwise,
any payment as a broker, or finder or intermediary in connection
with the origin, negotiation, execution or consummation of the
transactions provided for in this Agreement.
(f) Compliance with Law. To the best of its
knowledge, LHI is and has been in compliance in all material
respects with all laws, ordinances, regulations, orders,
licenses, franchises and permits applicable to it, its properties
and assets, and to the operation and conduct of its business,
including but not limited to such laws and regulations relating
to protection of the public health or environment, waste
disposal, hazardous substances or wastes and occupational health
and safety.
(g) Absence of Fees for Agreement. No standby, option
or similar fee has been paid or is payable by or on behalf of LHI
as consideration for this Agreement.
(h) General Representations and Warranties. Neither
this Agreement nor any Exhibit nor Schedule nor other document
furnished by or on behalf of LHI in connection with this
Agreement contains any untrue statement of a material fact or
omits to state any material fact necessary to make the statements
contained therein not misleading.
<PAGE>
ARTICLE V
PRE-PARTNERSHIP OWNERSHIP AND
OPERATION OF THE ELLISBURG-LEIDY HUB
5.1 Pre-Partnership Operations. The Parties anticipate
that the Ellisburg-Leidy Hub will commence commercial operations
on or around September 1, 1993 from Hub Services' office in
Pittsburgh, Pennsylvania. Hub Services is authorized to take all
action necessary to commence operation of the Ellisburg-Leidy Hub
and to own and operate it in accordance with the terms and
conditions of this Agreement until creation of the Hub
Partnership.
5.2 Personnel and Authority. Paul Drexelius, an employee
of Natural Gas Clearinghouse ("NGC") and an officer of Hub
Services shall have the primary day-to-day responsibility for
operation of the Ellisburg-Leidy Hub during the Start-Up Phase.
As an employee of NGC and officer of Hub Services, Paul Drexelius
is subject to the direct supervision of designated officers of
NGC and Hub Services as more fully set forth in NGC's Partnership
Agreement and Hub Services' Articles of Incorporation. In
addition to the services of Paul Drexelius, NGC and Hub Services
will make available from time-to-time such employees that may be
required in connection with the operation of the Ellisburg-Leidy
Hub, including, without limitation, clerical, administrative and
marketing personnel.
5.3 Hub Services' Authority.
(a) During the Start-Up Phase the parties contemplate
that Hub Services will incur General and Administrative
expenses totaling [$ ] per month. For purposes of
this Agreement, General And Administrative expenses are
deemed to be all expenses incurred by Hub Services during
the Start-Up Phase, except (1) [$ ] of expenses
incurred in the buildout and furnishing of Hub Services
office space; and (2) Capital expenses designated as such by
agreement of Hub Services and LHI. Monthly General and
Administrative expenses of [$ ] per month during the
Start-Up Phase are hereby approved by the parties.
(b) During the Start-Up Phase, Hub Services shall have the
authority, to the extent necessary and appropriate to the
operation of the Ellisburg-Leidy Hub, to undertake the
following activities on behalf of the Ellisburg-Leidy Hub,
and no other activities, without the written consent of LHI:
(i) borrow up to $10,000 in the aggregate;
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED
PURSUANT TO RULE 104(b)]
<PAGE>
(ii) make capital expenditures up to $10,000 in
the aggregate, (in addition to the [$ ]
identified in Section 5.3(a) above to the extent such
amount includes capital expenses);
(iii) incur General and Administrative expenses up
to [$ ] per month as provided in Section 5.3(a)
of this Agreement;
(iv) negotiate and enter into Ellisburg-Leidy Hub
Service Agreements with potential hub customers;
(v) negotiate and enter into Hub Transactions
pursuant to Ellisburg-Leidy Hub Service Agreements,
provided such transactions carry a primary term of
three months or less (for purposes of this subpart (v),
agreements containing rollover or evergreen clauses at
Hub Services' discretion shall not for that reason be
considered to carry a primary term in excess of three
months); and
(vi) negotiate and enter into transportation
service agreements and storage service agreements with
interstate and intrastate pipeline companies, provided
that such service agreements provide for interruptible
service.
5.4 Start-Up Profit and Loss.
(a) During the Start-Up Phase, Hub Services shall be
the sole source of funds necessary to initiate and operate the
Ellisburg-Leidy Hub. Fifty (50) percent of the Net Profit, if
any, generated by the Ellisburg-Leidy Hub during the Start-Up
Phase shall be paid by Hub Services to LHI at Closing. Fifty
(50) percent of the Net Losses, if any, generated by the
Ellisburg-Leidy Hub during the Start-Up Phase shall be paid by
LHI to Hub Services at Closing. For these purposes, "Net
Profits" and "Net Losses" shall be the amount or deficiency
remaining of the Ellisburg-Leidy Hub gross revenues received
during the Start-Up Phase after subtraction of the following:
(i) interest or fees paid on any indebtedness
incurred pursuant to Section 5.3(b)(i);
(ii) the cost of any capital asset purchased
pursuant to Section 5.3(b)(ii) which Hub Services
incurs during the Start-Up Phase (except the [$ ]
identified in Section 5.3(a));
(iii) General and Administrative Expenses properly
allocated by Hub Services to the Ellisburg-Leidy Hub
pursuant to Section 5.3(b)(iii); and
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED
PURSUANT TO RULE 104(b)]
<PAGE>
(iv) any other expenses incurred by Hub Services
during the Start-Up Phase with the written consent of
LHI.
Liabilities incurred during the Start-Up Phase, but not actually
accrued by Hub Services prior to creation of Hub Partnership,
shall be assumed by Hub Partnership. The intent of this Section
is to place Hub Services and LHI in the same economic positions
as the parties would have been in if the Hub Partnership had been
created prior to initiation of Hub operations and both parties
had equally shared expenses and borne losses. Notwithstanding
anything else in this Agreement, in no event shall LHI be under
any obligation to Hub Services in the event LHI or its
affiliates, do not obtain Securities and Exchange Commission
approval of the creation of Hub Partnership by September 1, 1994.
(b) In the event the Hub Partnership is not formed by
September 1, 1994, and neither Party is in material breach of its
obligations under this Agreement, Hub Services shall be treated
as the sole owner and operator of the Ellisburg-Leidy Hub for all
purposes and all profits and losses shall be attributable solely
to Hub Services. Nothing in this subpart (b) shall be construed
to limit the legal and equitable rights and remedies available to
the Parties in the event of a breach of this Agreement.
5.5 Periodic Reports. Hub Services shall at a minimum
furnish LHI with monthly reports summarizing the activity of the
Ellisburg-Leidy Hub, including, without limitation, a breakdown
of hub activity by nature of service provided, quantity of gas
handled by the hub, identification of customers, and a balance
sheet and income statement prepared in accordance with generally
accepted accounting principles ("GAAP"). In addition to the
foregoing reports, Hub Services will utilize its best efforts to
communicate orally with LHI on a regular basis for purposes of
seeking LHI's advice and assistance concerning hub activity. LHI
shall have the right to review the supporting records at Hub
Services' Pittsburgh office upon reasonable advance notice and
shall have the right, following written notice, to audit the
balance sheet and income statement, at LHI's sole cost, at any
time prior to the expiration of this Agreement.
5.6 Allocation of Hub Services' Costs and Expenses. The
parties acknowledge that Hub Services will (i) share space and
office equipment and facilities in offices leased and occupied by
NGC's Pittsburgh office, and (ii) borrow NGC employees from time
to time on a temporary basis for purposes associated with
operation of the Ellisburg-Leidy Hub. The allocations of costs
from NGC to Hub Services in connection with the Ellisburg-Leidy
Hub shall be General and Administrative expenses within the limit
set out for such expenses in Section 5.3(a), except as otherwise
consented to by LHI and Hub Services. Subject to that limit,
expenses and salaries associated with shared space and borrowed
employees attributable exclusively to Hub Services' operation of
the Ellisburg-Leidy Hub shall be treated as expenses incurred by
Hub Services in connection with operation of the hub. Hub
Services shall furnish LHI with a monthly statement of such
expenses, supported by invoices or similar supporting documents,
and shall maintain adequate records in accordance with GAAP
supporting the allocation of expenses between Hub Services and
NGC. LHI shall have the right to review the supporting records
at Hub Services' Pittsburgh office upon reasonable advance notice
and shall have the right, following written notice, to audit the
allocation of expenses, at LHI's sole cost, at any time prior to
expiration of this Agreement.
ARTICLE VI
COVENANTS OF HUB SERVICES
6.1 Conduct of Business Pending Closing. Except as
otherwise provided in this Agreement, or as LHI may consent to in
writing, Hub Services and its parent NGC shall not, until the
Closing, engage in any activity or enter into any transaction
that would (i) establish or operate any business covering the
area of Ellisburg and Leidy, Pennsylvania, which is or purports
to be a "market hub" or "market center" as those terms are used
in FERC publications; (ii) render inaccurate as of the Closing
Day any of the representations and warranties set forth in this
Agreement as if such representations and warranties were made at
and as of the Closing Date; or (iii) violate the conditions in
Article V above. Nothing in this Section shall be construed to
prohibit Hub Services or NGC from buying or selling gas, or
buying or releasing pipeline capacity, involving points in the
area of Ellisburg and Leidy, Pennsylvania, without utilizing the
services of the Ellisburg-Leidy Hub.
6.2 Change in Representations and Warranties. In the event
Hub Services learns that any of the representations and
warranties of Hub Services contained in or referred to in this
Agreement is or will become inaccurate Hub Services shall give
immediate detailed written notice thereof to LHI.
6.3 Confidentiality. Hub Services will use all reasonable
efforts to cause all confidential information obtained by it from
LHI or its affiliates to be treated as such and will use all
reasonable efforts not to use such information in a manner
detrimental to LHI. In the event that the transactions
contemplated hereby are not consummated for any reason, Hub
Services will destroy or expeditiously return to LHI all copies
of information furnished to it or its representatives by or on
behalf of LHI.
6.4 Consents of Others. Prior to the Closing, Hub Services
will have obtained all authorizations, consents and permits of
others required to permit the consummation of the transactions
contemplated by this Agreement. The parties agree that no filing
is necessary at the Commodities Futures Trading Commission.
ARTICLE VII
COVENANTS OF LHI
7.1 Conduct of Business Pending Closing. Except as
otherwise provided in this Agreement, or as Hub Services may
otherwise consent to in writing, LHI shall not, until the
Closing, engage in any activity or enter into any transaction
that would (i) establish or operate any business covering the
area of Ellisburg and Leidy, Pennsylvania, which is or purports
to be a "market hub" or "market center" as those terms are used
in FERC publications; or (ii) render inaccurate as of the Closing
Day any of the representations and warranties set forth in this
Agreement as if such representations and warranties were made at
and as of the Closing Date. Nothing in this Section shall be
construed to prohibit LHI's affiliates, National Fuel Gas Supply
Corporation or National Fuel Distribution Corporation from
complying with the laws, regulations and tariffs applicable to
them as an "open access" interstate natural gas pipeline and a
state-regulated public utility respectively, including, without
limitation, offering and providing competing services to
potential or existing Ellisburg-Leidy Hub customers.
7.2 Change in Representations and Warranties. If LHI
learns that any of the representations and warranties of LHI
contained in or referred to in this Agreement is or will become
inaccurate, LHI shall give immediate detailed written notice
thereof to Hub Services.
7.3 Confidentiality. LHI will use all reasonable efforts
to cause all confidential information obtained by it from Hub
Services or its affiliates to be treated as such and will use all
reasonable efforts not to use such information in a manner
detrimental to Hub Services or its affiliates. In the event that
the transactions contemplated hereby are not consummated for any
reason, LHI will destroy or expeditiously return to Hub Services
all copies of information furnished to it or its representatives
by or on behalf of Hub Services.
7.4 Consents of Others. Prior to the Closing, LHI will
have obtained all authorizations, consents and permits of others
required to permit the consummation of the transactions
contemplated by this Agreement except that with respect to SEC
approval under the Public Utility Holding Company Act of 1935,
LHI and NFG will file applications for such approval as soon as
practicable and will use their best efforts to obtain such
approval.
<PAGE>
ARTICLE VIII
CONDITIONS TO OBLIGATION OF
LHI TO CONSUMMATE CLOSING
8.1 Conditions. The obligation of LHI under this Agreement
to consummate the Closing is, at its option, subject only to the
conditions that:
(a) Covenants, Representations and Warranties. Hub
Services shall have performed, in all material respects, all
obligations and agreements and complied with all covenants
contained in this Agreement to be performed and complied with by
Hub Services prior to or at the Closing Date. Each of the
representations and warranties of Hub Services contained in this
Agreement shall be accurate in all material respects, at and as
of the date made and also at and as of the Closing Date with the
same force and effect as though made on and as of the Closing
Date.
(b) Officer's Certificate. LHI shall have received
certificates of Hub Services executed by an officer, dated as of
the Closing Date, in substantially the same form as Schedule
2.2(a)(2) hereto.
(c) Licenses, Permits. All applicable waiting periods
shall have expired, and LHI shall have received or renewed
(without any conditions which in the judgment of either of the
parties make it impracticable to consummate the transactions
contemplated by this Agreement) any and all franchises, licenses,
permits, approvals and other governmental and official
authorizations necessary to permit it to enter into the
transactions contemplated by this Agreement as occurring at the
Closing.
(d) No Material Adverse Change. There shall have
been, in the good faith judgment of LHI, no material adverse
change in the business, properties, operations, financial
condition, earnings or contractual or business relationships with
third parties of Hub Services since the date of this Agreement.
(e) SEC Approval. The SEC shall have approved the
Partnership and the transactions contemplated by the Partnership
Agreement, without any conditions which in the judgment of either
of the parties make it impracticable to consummate the
transactions contemplated by this Agreement.
<PAGE>
ARTICLE IX
CONDITIONS TO OBLIGATION
OF HUB SERVICES TO CONSUMMATE CLOSING
9.1 Conditions. The obligation of Hub Services under this
Agreement to consummate the Closing is, at their options, subject
only to the conditions that:
(a) Covenants, Representations and Warranties. LHI
shall have performed, in all material respects, all obligations
and agreements and complied with all covenants contained in this
Agreement to be performed and complied with by LHI prior to or at
the Closing Date. Each of the representations and warranties of
LHI contained in this Agreement shall be accurate in all material
respects, at and as of the date made and also at and as of the
Closing Date with the same force and effect as though made on and
as of the Closing Date.
(b) Officer's Certificate. Hub Services shall have
received a certificate of Enerop executed by an officer of LHI,
dated as of the Closing Date, in substantially the same form as
Schedule 2.2(b)(2) hereto.
(c) Licenses, Permits. All applicable waiting periods
shall have expired, and Hub Services shall have received or
renewed (without any conditions which in the judgment of either
of the parties make it impracticable to consummate the
transactions contemplated by this Agreement) any and all
franchises, licenses, permits, approvals and other governmental
and official authorizations necessary to permit it to enter into
the transactions contemplated by this Agreement as occurring at
the Closings.
(d) No Material Adverse Change. There shall have
been, in the good faith judgment of Hub Services, no material
adverse change in the business, properties, operations, financial
condition, earnings or contractual or business relationships with
third parties of LHI since the date of this Agreement.
(e) SEC Approval. The SEC shall have approved the
Partnership and the transactions contemplated by the Partnership
Agreement, without any conditions which in the judgment of either
of the parties make it impracticable to consummate the
transactions contemplated by this Agreement.
ARTICLE X
TERMINATION
10.1 Termination Prior to Closing. This Agreement may be
terminated at any time prior to the Closing provided that the
Party seeking to terminate this Agreement is not in breach of
this Agreement:
(a) Mutual Consent. Upon the mutual consent of all
parties hereto;
(b) Adverse Proceedings. By LHI or Hub Services if,
in the sole discretion, exercised in good faith, of such party
and its counsel, any suit or proceeding, legal or administrative,
relating to any of the transactions contemplated by the Agreement
shall have been commenced or overtly threatened which would make
it commercially impracticable for such party to close;
(c) Conditions to LHI's Obligations. By LHI if any of
the conditions provided in Article VIII shall not have been
satisfied, complied with or performed in any material respect on
or before the Closing Date and LHI shall not have waived in
writing such failure of satisfaction, noncompliance or
nonperformance.
(d) Conditions to Hub Service's Obligations. By Hub
Services if any of the conditions provided in Article IX shall
not have been satisfied, complied with or performed in any
material respect on or before the Closing Date and Hub Services
shall not have waived in writing such failure of satisfaction,
noncompliance or nonperformance.
10.2 Termination Upon Closing. This Agreement shall
terminate upon completion of the Closing.
ARTICLE XI
MISCELLANEOUS
11.1 Survival. The covenants, agreements, obligations,
representations and warranties of the parties hereto shall
survive for two years from the Closing.
11.2 Indemnification of LHI. Hub Services hereby agrees to
indemnify and hold harmless LHI from and against any and all
damages, claims, liabilities, losses, costs and expenses
whatsoever arising out of, attributable to, or incurred with
respect to (i) any breach of warranty or misrepresentation by or
on behalf of Hub Services under this Agreement, or the breach or
nonperformance of any covenant, agreement, or obligation to be
performed by Hub Services; and (ii) any misrepresentation in, or
omission from, any certificate or instrument executed and
delivered or to be executed and delivered by or on behalf of Hub
Services in connection with this Agreement. In no event shall a
party be entitled to recover any punitive, consequential or
incidental damages in the event of breach.
11.3 Indemnification of Hub Services. LHI agrees to
indemnify and hold harmless Hub Services from and against any and
<PAGE>
all damages, claims, liabilities, losses, costs and expenses
whatsoever arising out of, attributable to, or incurred with
respect to (i) any breach of warranty or misrepresentation by or
on behalf of LHI under this Agreement, or the breach or
nonperformance of any covenant, agreement, or obligation to be
performed by LHI; and (ii) any misrepresentation in, or omission
from, any certificate or instrument executed and delivered or to
be executed and delivered by or on behalf of LHI in connection
with this Agreement. In no event shall a party be entitled to
recover any punitive, consequential or incidental damages in the
event of a breach. Notwithstanding any other provision of this
Agreement, LHI is not obligated to indemnify, and does not agree
to indemnify, Hub Services or any other person against any market
or investment risk in connection with Hub Services' acquisition,
retention or disposition of the subject matter of this Agreement.
11.4 Entire Agreement. This Agreement and its Exhibits and
Schedules constitutes the entire agreement and supersede all
prior agreements and understandings, both written and oral,
between the parties hereto with respect to the subject matter
hereof and no party shall be liable or bound to the other in any
manner by any warranties or representations, except as
specifically set forth therein.
11.5 Modifications. Any amendment, change or modification
of this Agreement shall be void unless in writing and signed by
all the parties.
11.6 Absence of Restriction. Nothing in this Agreement
shall be construed as restricting the parties from competing with
each other, except as provided in Sections 6.1 and 7.1 above.
11.7 Binding Effect. This Agreement and the rights and
obligations hereunder will be binding upon and will inure to the
benefit of the parties and their respective, permitted successors
and assigns, but nothing in this Agreement is intended to confer
on any person not a party hereto any benefit or right.
11.8 Expenses. Each party shall each bear and pay its own
transaction costs associated with negotiation and execution of
this Agreement.
11.9 Notices. Any notices or other communications required
or permitted to be given pursuant to this Agreement shall be
deemed to have been given if delivered personally or sent by
certified mail, postage prepaid, addressed as follows:
(a) To LHI:
Mr. Walter E. DeForest
10 Lafayette Square
Buffalo, New York 14203
<PAGE>
With a copy to:
James R. Peterson, Esq.
National Fuel Gas Company
10 Lafayette Square, Room 1500
Buffalo, New York 14203
(b) To Hub Services:
Mr. Paul Drexelius
Natural Gas Clearinghouse
First & Market Building
100 First Avenue, #700A
Pittsburgh, Pennsylvania 15222
With a copy to:
John Herbert
Natural Gas Clearinghouse
13430 Northwest Freeway, #1200
Houston, Texas 77040
or such other addresses as shall be furnished in writing by the
parties.
11.10 Assignment. No assignment or transfer of any of the
rights, interests or obligations of any party under this
Agreement shall be permitted, except that any party may assign
its rights, interest and obligations hereunder to an affiliate or
successor in interest by merger or consolidation. No such
assignment shall relieve the assignor of any of its obligations,
duties or liabilities hereunder to the other parties.
11.11 Headings. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise
affect the meaning of the provisions hereof.
11.12 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute
one and the same instrument.
11.13 Governing Law. This Agreement shall be governed,
construed and enforced in accordance with the internal laws of
the State of Pennsylvania without regard to principles of
conflicts of law.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have duly
executed this Agreement as of the date first above written.
LEIDY HUB, INC.
By: /s/ Walter E. DeForest____
Title: President______________
HUB SERVICES, INC.
By: /s/ Stephen W. Bergstrom__
Title:Executive Vice President
JCH\AGR\136
<PAGE>
Schedule 2.2(a)(2)
Attached to and made part of the Pre-Partnership Agreement dated
as of September 1, 1993, between Leidy Hub, Inc. and Hub
Services, Inc.
Gentlemen:
The following serves as notice and certification that: Hub
Services, Inc. is a corporation duly organized and existing under
the laws of the State of Delaware; that Stephen W. Bergstrom is
an officer of Hub Services, Inc. and thus fully authorized to
execute that certain Partnership Agreement dated
_________________, 1994, executed by Hub Services, Inc. and Leidy
Hub, Inc.
I, John C. Herbert, Vice President and Assistant Secretary
of Hub Services, Inc. certify that the foregoing representations
and statements are true and correct and in full accordance with
Hub Services, Inc.'s Articles of Incorporation and Bylaws as of
this _____ day of ________________, 1994.
______________________________
__
Assistant Secretary
JCH\494
<PAGE>
Schedule 3.1(c)
Attached to and made part of the Pre-Partnership Agreement dated
as of September 1, 1993, between Leidy Hub, Inc. and Hub
Services, Inc.
No disclosure is made by Hub Services, Inc. under Section
3.1(c) of the Pre-Partnership Agreement.
JCH/494
EXHIBIT A-7
Partnership Agreement
Designated As Exhibit EX-3(a) for EDGAR purposes
EXHIBIT A
PARTNERSHIP AGREEMENT
THIS PARTNERSHIP AGREEMENT entered into and effective of
________________, 1994, by Leidy Hub, Inc. or its designated
affiliate, a New York corporation with its principal offices at
10 Lafayette Square, Buffalo, New York 14203 ("LHI"), and Hub
Services, Inc. or its designated affiliate, a Delaware
corporation with its principal offices at 13430 Northwest
Freeway, Suite 1200, Houston, Texas 77040 ("Hub Services"). LHI
and Hub are sometimes referred to as "Partners".
WITNESSETH
WHEREAS, the parties to this Agreement previously entered
into an Agreement dated ______________ (the "Pre-partnership
Agreement") pursuant to which LHI and Hub Services agreed,
subject to all the terms and conditions of the Pre-Partnership
Agreement, to organize and begin operation of the Ellisburg-Leidy
Northeast Hub and to cause the formation of a Partnership (the
"Partnership") for the purposes of gathering, purchasing,
transporting, storing, marketing natural gas, and owning and
operating the Ellisburg-Leidy Northeast Hub; and
WHEREAS, the Pre-Partnership Agreement contemplated that LHI
and Hub Services would become Partners in the Partnership
pursuant to this Partnership Agreement, which is intended to
govern the terms of the relationship between LHI and Hub Services
as Partners and to set forth certain covenants, representations
and warranties of the parties;
NOW, THEREFORE, in consideration of the covenants exchanged
herein and in reliance on the representations and warranties
given in the Pre-Partnership Agreement, the parties agree as
follows:
ARTICLE I
ORGANIZATION OF PARTNERSHIP
1.1 General Partnership. LHI and Hub Services by this
Agreement form a general partnership under the laws of the State
of Pennsylvania named The Ellisburg-Leidy Northeast Hub Company,
with its principal offices at 100 First Avenue, Suite 700A,
Pittsburgh, Pennsylvania 15222. The principal place of business
may be changed from time to time, and other offices may be
established by actions taken in accordance with the provision of
this Agreement.
1.2 Partnership Business. The business of the Partnership
will be to operate and administer a natural gas marketing hub in
the general vicinity of Leidy, Pennsylvania and to provide
services associated with operation of the hub. No Partner will
have any right or claim of right to the property contributed to
the Partnership by the Partners or to control the use of such
property or any other property of the Partnership, other than as
set forth in this Agreement or established by law.
1.3 Partnership Authority. The Partnership is empowered to
take any and all action necessary, appropriate, or convenient for
the accomplishment of its purposes, and for the benefit of the
Partnership and its properties, including, but not limited to:
(1) Entering into and performing contracts of any kind;
(2) Acquiring, constructing, operating, maintaining,
owning, transferring, renting, or leasing any property,
real, personal or mixed;
(3) Applying for and obtaining governmental
authorizations and approvals;
(4) Bringing and defending actions at law or equity;
and
(5) Subject to the provisions of this Agreement,
admitting additional parties as Partners or purchasing the
interest of any Partner.
1.4 Initial Capital. Contemporaneously with the execution
of this Agreement, each Partner shall initially contribute to the
Partnership's capital the amount of $__________ in assets,
consisting of the property listed on Exhibit 1.4, which property
was previously owned by Hub Services under the Pre-Partnership
Agreement. Exhibit 1.4 also sets forth the amounts that the
Partners agree are the market values of the properties.
1.5 Interest on Capital. No Partner shall be entitled to
receive any interest on its capital contribution.
1.6 Additional Capital. Whenever the Executive Committee
determines, in accordance with the provisions of Article II of
this Agreement, that the Partnership's capital is, or is
presently likely to become, insufficient for the conduct of
Partnership business, the Executive Committee may issue a call
for additional contributions to capital. These contributions
shall be payable in cash no later than five business days after
the date specified in the call.
1.7 Additional Partners. In order to raise additional
capital, to acquire assets, or for any other Partnership purpose,
the Partnership may issue Partnership units to Partners or to
other persons, and admit such other persons to the Partnership as
Partners, for the consideration and on the terms and conditions
agreed upon by the Partners. For purposes of this Agreement,
"Partnership unit" means a percentage ownership of the
Partnership, with one percentage point (1%) equaling one unit.
ARTICLE II
MANAGEMENT
2.1 Executive Committee - Powers.
(a) Except as otherwise provided in this Agreement,
the property, business and affairs of the Partnership shall be
under the direction of the Executive Committee. Except for
matters requiring the action of the Partners under the terms of
this Agreement, the Executive Committee shall have the power to
take any action that the Partners may take under law, subject to
any restrictions set forth in this Agreement.
(b) The approval by all members of the Executive
Committee present at a meeting of the Executive Committee at
which a quorum is present shall be required before any of the
following acts involving the Partnership or any of its
Subsidiaries may be taken:
(i) borrowing transactions in excess of $25,000,
lending transactions or the guaranteeing of any third
party indebtedness;
(ii) approving a capital budget and an operating
budget for each fiscal year, which shall not be
exceeded without the express consent of the Executive
Committee (except as provided in (iii) below);
provided, however, that:
(A) the operating budget for any year for
which the Partners fail to adopt such budget shall
be limited to eighty-five percent (85%) of the
previous year's operating budget; and
(B) the capital budget for any year for
which the Partners fail to adopt such budget shall
be the lesser of eighty-five percent (85%) of the
previous year's capital budget or $50,000.
<PAGE>
(iii) making any capital expenditure in excess of
$5,000 unless such expenditure is reflected in a budget
for the current fiscal year that has been approved by
the Executive Committee;
(iv) entering into an agreement with a term in
excess of one year or involving payments in excess of
$50,000 over the term of the agreement;
(v) entering into an agreement for the
transportation, balancing, storage, parking, wheeling,
purchase, or sale of natural gas with a term in excess
of one year involving an average daily volume
obligation of more than 25,000 MMBtu;
(vi) executing or otherwise entering into any
contract or commitment to transfer any asset, the fair
market value of which exceeds $50,000 or which is
material to the ongoing operations of the Partnership;
(vii) executing or otherwise entering into any
contract or commitment for any purchases or sales of
gas in the ordinary course of business from a Partner,
an officer or employee of the Partnership or any of its
Subsidiaries, an Affiliate of a Partner or of an
officer or employee of the Partnership or any of its
Subsidiaries, or a person related by blood or marriage
to an officer or employee of the Partnership or any of
its Subsidiaries, involving aggregate consideration and
fair market value of which exceeds $50,000;
(viii) the indemnification of any Officer or any
other Person except as specifically provided herein;
(ix) executing or otherwise entering into any
employment agreement or the hiring or firing of any
Officer or other similarly compensated person with or
without cause;
(x) setting or amending the compensation level of
any Officer or other similarly compensated person;
(xi) revaluating of any property or asset;
(xii) taking any action in its capacity as a
shareholder or partner of any Person (defined as any
individual, partnership or other legal entity);
(xiii) making an investment in any Person;
(xiv) (A) filing any claim or lawsuit against any
Person except where the amount claimed is for less than
$100,000 or (B) settling any claim or lawsuit except
where the fair market value of the settlement amount is
less than $100,000;
(xv) taking any other action not in the ordinary
course of business;
(xvi) amending this Agreement;
(xvii) transferring all or substantially all of the
assets of the Partnership or any of its Subsidiaries;
(xviii) merging or consolidating the Partnership with
or into any other Person; or
(xix) authorizing or issuing any additional
Partnership interests or admitting any additional
Person as a Partner.
Any other action required or permitted by the Executive
Committee under this Agreement may be taken only with the
approval in advance by all members of the Executive
Committee present at a meeting of the Executive Committee at
which a quorum is present.
2.2 Composition and Term.
(a) The Executive Committee shall be composed of two
members for each Partner. Each Partner is entitled to select two
members of the Executive Committee. All members shall be
entitled to receive notices and agendas of upcoming Executive
Committee meetings, attend all Executive Committee meetings and
participate in all discussions, and receive minutes from previous
Executive Committee meetings.
(b) Until replaced pursuant to the terms of this
Agreement, LHI's members shall be ______________________ and
______________________. Hub Services' members shall be
__________________________ and ____________________________.
__________________________ will be the Chairman, and
______________________ will be the Vice Chairman. Each member
shall be entitled to hold office until death, resignation or
removal. Partners who are entitled to appoint a member may
replace that member in the event of a vacancy. Any member may be
removed at any time without cause by the Partner entitled to
appoint such member, but not otherwise. Any member may appoint a
proxy (including another member) to attend meetings and vote
(including, without limitation, voting on any matter before the
Executive Committee). Without limiting the generality of the
foregoing, in determining if a quorum is present, all members in
attendance by means of a proxy shall be included in the count of
a quorum.
<PAGE>
2.3 Annual and Regular Meetings. The Executive Committee
shall hold an annual meeting, and may hold regular meetings at
such time and place as the Executive Committee determines by
resolution but in any event the Executive Committee shall, unless
the Executive Committee otherwise agrees, hold regular meetings
at the offices of the Partnership in Pittsburgh, Pennsylvania
during the months of January, April, July and October of each
year.
2.4 Special Meetings. Special meetings of the Executive
Committee may be called by the Chairman, Vice Chairman, the
Executive Committee or any Partner, upon notice to all members of
the Executive Committee.
2.5 Notice of Meetings. Notice of a special meeting shall
state the purpose of the meeting and notice of special and
regular meetings must be given in writing at least ten days in
advance of such meeting. Notice of such meeting may be waived in
writing.
2.6 Quorum and Manner of Acting. The presence of one
member designated by each Partner shall constitute a quorum. If
a quorum is present, the action of all those present shall
constitute the action of the Executive Committee. Any action the
Executive Committee may take, may be taken without a meeting by
unanimous written consent of the members. Meetings of the
Executive Committee may take place by telephone or any means
where any persons attending can hear and speak to each other.
2.7 No Compensation. No member of the Executive Committee
shall be entitled to compensation for its services, or any
reimbursement of expenses incurred, as a member of the Executive
Committee.
2.8 Vote Required. The action of the Executive Committee
shall be by unanimous consent of those members present (assuming
there is a quorum present).
2.9 Officers.
(a) Generally. The Partnership shall have agents,
referred to as "Officers" of the Partnership. These agents
(whose authority is limited pursuant to the following sentence)
shall be appointed in the manner specified below, and shall have
the titles and authority specified in this Section 2.9. Each
Officer shall have only the authority specified below, and shall
not be a general agent of the Partnership. Unless otherwise
decided by the Executive Committee, no Officer of the Partnership
(other than a member of the Executive Committee) may
simultaneously serve as an officer of any Partner, or of any
affiliate of a Partner.
<PAGE>
(b) Titles and Number. The managing executives of the
Partnership shall be the members of the Executive Committee, the
Chief Operating Officer, the Secretary and the Treasurer. There
shall be appointed from time to time, in accordance with
subsection (c) below, such Vice Presidents, Secretaries,
Assistant Secretaries, Treasurers and Assistant Treasurers as the
Executive Committee may desire. Any person may hold two or more
offices, except that the offices of Chief Operating Officer and
Secretary may not be held by the same person.
(c) Election and Term of Office. The Officers shall
be elected by the Executive Committee at the annual meeting;
provided that the following Officers are hereby installed and
authorized to act until the first such annual meeting of the
Executive Committee: _________________________,
__________________________, and ______________________. Each
Officer shall hold office until the annual meeting following the
date of election of such Officer. Any Officer may be removed by
the Executive Committee with or without cause. Vacancies in any
office shall be filled by the Executive Committee. Any vacancy
in the office of Chief Operating Officer shall be filled by
unanimous consent of the Partners.
(d) Chairman and Vice Chairman of the Executive
Committee. The Chairman, and in the absence of the Chairman, the
Vice Chairman, shall preside at meetings of the Executive
Committee, and shall exercise such powers and perform such duties
as may be assigned to him by this Agreement or the Executive
Committee.
(e) Chief Operating Officer. The Chief Operating
Officer, subject to the general control of the Executive
Committee, shall be responsible for the day-to-day management and
direction of the affairs of the Partnership, employees and
agents, shall supervise generally the affairs of the Partnership,
and, subject to the limitations imposed by this Agreement, any
employment agreement, any employee plan, or any resolution of the
Executive Committee, shall have full authority to execute all
documents and take all actions that the Partnership may legally
take. The Chief Operating Officer shall exercise such other
powers and perform such other duties as may be assigned to him by
this Agreement or the Executive Committee, including such duties
and powers stated in any employment agreement.
(f) Vice Presidents. In the absence of the Chairman,
the Vice Chairman and the Chief Operating Officer, the Vice
President designated by the Executive Committee shall, except as
hereinafter provided, have all of the powers and duties conferred
upon the Chief Operating Officer. Each of the Vice Presidents
shall have the same power as the Chairman, the Vice Chairman or
the Chief Operating Officer to sign certificates, contracts and
other instruments of the Partnership; provided, however, no Vice
President may execute or otherwise enter into any contract or
commitment referred to in Section 2.1(b)(v) unless the Executive
Committee approves the execution of that contract or commitment
by a Vice President. Any Vice President shall perform such other
duties and may exercise such other powers as may from time to
time be assigned to him by this Agreement, the Executive
Committee, the Chairman, the Vice Chairman or the Chief Operating
Officer.
(g) Secretary and Assistant Secretaries. The
Secretary shall record or cause to be recorded in books provided
for that purpose the minutes of the meetings or actions of the
Partners and the meetings or actions of the Executive Committee
or any subcommittees thereof, shall see that all notices are duly
given in accordance with the provisions of this Agreement and as
required by law, shall be custodian of all records (other than
financial), shall see that the books, reports, statements,
certificates and all other documents and records required by law
are properly kept and filed, and, in general, shall perform all
duties incident to the office of Secretary and such other duties
as may, from time to time, be assigned to him by the Executive
Committee, the Chairman, or the Vice Chairman. The Assistant
Secretaries shall exercise the powers of the Secretary during
that Officer's absence or inability or refusal to act. Each of
the Assistant Secretaries shall possess the same power as the
Secretary to sign certificates, contracts, obligations and other
instruments of the Partnership.
(h) Treasurer and Assistant Treasurers. The Treasurer
shall keep or cause to be kept the books of account of the
Partnership and shall render statements of the financial affairs
of the Partnership in such form and as often as required by this
Agreement, the Executive Committee, the Chairman, or the Vice
Chairman. The Treasurer, subject to the order of the Executive
Committee, shall have the custody of all funds and securities of
the Partnership. The Treasurer shall perform all other duties
commonly incident to his office and shall perform such other
duties and have such other powers as the Executive Committee, the
Chairman, or the Vice Chairman shall designate from time to time.
The Assistant Treasurers shall exercise the power of the
Treasurer during that Officer's absence or inability or refusal
to act. Each of the Assistant Treasurers shall possess the same
power as the Treasurer to sign all certificates, contracts,
obligations and other instruments of the Partnership.
(i) Powers of Attorney. The Executive Committee may
grant powers of attorney or other authority as appropriate to
establish and evidence the authority of the Officers.
2.10 Expenses. The Partnership shall pay only those
expenses that are directly attributable to the Partnership's
business.
<PAGE>
ARTICLE III
COVENANTS, REPRESENTATIONS AND WARRANTIES
3.1 Pre-Partnership Representations - LHI. LHI hereby
reaffirms to the Partnership for the benefit of Hub Services and
the Partnership the covenants, representations and warranties it
made in the Pre-Partnership Agreement, and affirms that those
covenants, representations and warranties are true as of the date
of this Agreement.
3.2 Pre-Partnership Representations - Hub Services. Hub
Services hereby reaffirms to the Partnership for the benefit of
LHI and the Partnership the covenants, representations and
warranties it made in the Pre-Partnership Agreement, and affirms
that those covenants, representations and warranties are true as
of the date of this Agreement.
ARTICLE IV
LOANS TO THE PARTNERSHIP
4.1 No Partner shall lend or advance money to or for the
Partnership's benefit without the approval of the Executive
Committee. If any Partner, with the requisite consent of the
Executive Committee, lends any money to the Partnership in
addition to its contribution to the Partnership's capital, the
loan shall be a debt of the Partnership to that Partner and shall
bear interest at a rate established and approved by the Executive
Committee. The liability shall not be regarded as an increase in
the lending Partner's capital, and it shall not entitle the
lending partner to any increased share of Partnership profits.
ARTICLE V
CAPITAL ACCOUNTS
5.1 Capital Accounts. The Partnership will establish for
each Partner a Capital Account, which will be maintained in
accordance with the following:
(a) To each Partner's Capital Account will be credited
(i) that Partner's capital contributions to the Partnership, (ii)
items in the nature of income or gain that are allocated to that
Partner pursuant to Article VI of this Agreement, and (iii) the
amount of any Partnership liabilities that are assumed by that
Partner or that are secured by any property that is distributed
to that Partner. Notwithstanding anything else in this
Agreement, the initial balance of the Capital Accounts of LHI and
Hub Services shall be deemed to be $_______________ each.
(b) From each Partner's Capital Account will be
debited the amount of (i) distributions made to that partner
pursuant to Article VI of this Agreement, (ii) any items in the
nature of expenses or losses that are allocated to that Partner
pursuant to Article VI of this Agreement, and (iii) the amount of
any liabilities of that Partner that are assumed by the
Partnership or that are secured by any property that is
contributed by that Partner to the Partnership.
5.2 Assignment. In the event any Partner's interest in the
Partnership is assigned to an affiliate in accordance with the
terms of this Agreement, the affiliate shall succeed to the
Capital Account of the Partner which assigns its interest.
5.3 Maintenance of Capital Accounts. Partners' Capital
Accounts will be maintained otherwise in accordance with Treasury
Regulation Section 1.704-1(b) or corresponding provisions of
future regulations. The foregoing provisions and other
provisions of this Agreement relating to Capital Accounts are
intended to comply with Treasury Regulation 1.704-1(b) and will
be interpreted and applied in a manner consistent with that
Regulation.
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
6.1 Partnership Profit and Loss. The profits, losses and
credits of the Partnership will be determined at the end of each
fiscal year of the Partnership, which will end on December 31 of
each calendar year unless otherwise agreed by the Partners.
Accounting principles will be applied in a consistent manner.
Profits and losses will be allocated annually based upon the
results of an annual audit, unless otherwise agreed by the
Parties.
6.2 Allocation of Profit and Loss.
(a) Except as otherwise provided in this Section 6.2,
the profits, losses and credits of the partnership shall be
allocated 50 percent to each Partner.
(b) Notwithstanding any other provision of this
Section 6.2, if there is a net decrease in Partnership minimum
gain (as defined in Treasury Regulation Section 1.704-2 (b) (2)
and computed in accordance with Treasury Regulation Section
1.704-2(d)) during any Partnership taxable year, then each
Partner shall be allocated such amount of Partnership income and
gain for such year (and subsequent years, if necessary)
determined under and in the manner required by Treasury
Regulation Sections 1.704-2(f) and (g) as is necessary to meet
the requirements for a minimum gain chargeback as provided in
such Regulation.
<PAGE>
(c) Notwithstanding any other provision of this
Section 6.2 except Section 6.2(b), if there is a net decrease in
Partner nonrecourse debt minimum gain (as determined in
accordance with Treasury Regulation Section 1.704-2(i)(5))
attributable to a Partner nonrecourse debt (as defined in
Treasury Regulation Section 1.704-2(b) (4)) during any
Partnership taxable year, any Partner who has a share of the
Partner nonrecourse debt minimum gain attributable to such
Partner nonrecourse debt, determined in accordance with Treasury
Regulation Section 1.704-2(g)(2), shall be allocated such amount
of income and gain for such year (and subsequent years, if
necessary) determined under and in the manner required by
Treasury Regulation Section 1.704-2(i)(4) as is necessary to meet
the requirements for a Partner nonrecourse debt minimum gain
chargeback as is provided in such Regulation.
(d) To the extent that an adjustment to the basis of
any asset pursuant to Code Section 734(b) or Code Section 743(b)
is required to be taken into account in determining Capital
Accounts as provided in Treasury Regulation Section
1.704-1(b)(2)(iv)(m), the adjustment shall be treated (if an
increase) as an item of gain or (if a decrease) as an item of
loss, and such gain or loss shall be allocated to the Partners
consistent with the allocation of the adjustment pursuant to such
Regulation.
(e) Nonrecourse deductions (as defined in Treasury
Regulation Section 1.704-2(b)(1)) of any fiscal year shall be
allocated among the Partners in proportion to their interests in
the Partnership.
(f) Any Partner nonrecourse deduction shall be
allocated pursuant to Treasury Regulation Section 1.704-2(i)(1)
to the Partner who bears the economic risk of loss with respect
to the Partner nonrecourse debt to which it is attributable.
(g) Notwithstanding any other provision of this
Section 6.2 except Sections 6.2(b) and 6.2(c), if during any
Partnership taxable year any Partner unexpectedly receives any
adjustments, allocations or distributions described in Treasury
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) and, as a
result of such adjustment, allocation or distribution, such
Partner's Capital Account balance is reduced below zero in an
amount exceeding the amount of such Partner's deficit amount that
it is obligated to restore within the meaning of Treasury
Regulation Section 1.704- 1(b)(2)(ii), items of Partnership
income and gain for such year (and, if necessary, subsequent
years) shall be allocated to such Partner in an amount and manner
sufficient to eliminate such deficit balance as quickly as
possible.
(h) The purpose and the intent of the special
allocations provided for in Section 6.2(b) through 6.2(g) are to
comply with the provisions of Treasury Regulation Sections
1.704-1 and 1.704-2 and such special allocations are to be made
so as to accomplish that result. However, to the extent
possible, the Partners in allocating items of income, gain, loss
or deduction between the Partners shall take into account the
special allocations in such a manner that the net amount of
allocations to each Partner shall be the same as such Partner's
distributive share of profits and losses would have been had the
events requiring the special allocations not taken place. The
Partners shall apply the provisions of Section 6.2(b) through
6.2(g) in whatever order they reasonably believe will minimize
any economic distortion that otherwise might result from the
application of the special allocations.
(i) Solely for income tax purposes, any item of
income, gain, loss, deduction or credit with respect to any
property (other than money) that has been contributed by a
Partner to the capital of the Partnership and which is required
to be allocated to Partners for income tax purposes under Code
Section 704(c) so as to take into account the variation between
the tax basis of such property and its fair market value at the
time of its contribution, shall be allocated to the Partners for
income tax purposes in the manner required by Code Section 704(c)
and the Regulations promulgated thereunder. If and when the
Capital Accounts of the Partners are required to be adjusted
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(f) or
(g) with respect to a revaluation of any asset of the
Partnership, subsequent allocations of income, gain, loss and
deduction, including, without limitation, depreciation or
deductions for cost recovery with respect to such asset, shall
take account of any variation between the then exiting adjusted
basis of such asset for federal income tax purposes and the fair
market value, as adjusted, of such asset, as such computations
may be required under Code Sections 704(b) and 704(c).
6.3 Partnership Cash Flow. The term "Partnership Cash
Flow" means the excess from time to time of the total of cash on
hand of the Partnership over the reasonable working capital
requirements of the Partnership.
6.4 Distributions of Partnership Cash Flow. Partnership
Cash Flow available for distribution will be determined annually
by the Executive Committee in connection with its approval of the
Annual Operating Budget, or more frequently as determined by the
Executive Committee. The Partnership Cash Flow determined to be
available for distribution shall be distributed 50 percent to
each Partner.
<PAGE>
ARTICLE VII
TERM AND DISSOLUTION
7.1 Term of Partnership. The Partnership shall continue
for two (2) years from the date of execution of this Agreement,
and shall be automatically continued for additional terms of one
(1) year unless a Partner notifies the other Partner(s), at least
three months prior to the end of the term, that the Partnership
shall not automatically be continued for an additional term. If
the Partnership has not previously been dissolved, it shall
dissolve twenty (20) years after the death of the last to die of
the employees of the Partners as of the date of execution of this
Agreement. Otherwise, the Partnership shall continue until it is
sooner dissolved in accordance with the provision of this Article
or as otherwise required by law.
7.2 Dissolution.
(1) The Partnership shall be dissolved upon the
occurrence of any of the following events:
(a) The express will of all of the Partners who
have not suffered their interests in the Partnership to be
charged for their separate debts;
(b) The expiration of the term of the Partnership;
(c) The withdrawal, bankruptcy, or dissolution of
any Partner, unless all remaining Partners agree within 90 days
to continue the Partnership; or
(d) The material breach of this Agreement by any
Partner; provided that any Partner seeking to dissolve the
Partnership for this reason shall first give the allegedly
breaching Partner a sworn statement ("Notice of Breach")
specifying the nature of the breach, after which the Partners
shall in good faith attempt to resolve dispute. If the Partners
have not resolved the matter within six (6) months after the
Notice of Breach is given, the Partner alleging the breach must
give the allegedly breaching Partner a second sworn statement
alleging that such breach has continued and that the Partner
alleging the breach thereby dissolves the Partnership effective
at least six (6) months and a day after the Notice of Breach was
given. If the Partner alleged to have breached this Agreement
believes that there was no material breach, or that such breach
was cured during the six months following the Notice of Breach,
such Partner may attempt to recover from the alleging Partner
damages for wrongful termination of this Agreement.
(2) On application by or for a Partner the court shall
decree a dissolution upon the occurrence of an event designated
in Section 7.2(1) should the Partners not agree that the
Partnership is dissolved.
7.3 Purchase Option. If any Partner (herein, the "Affected
Partner") becomes bankrupt, or dissolves, merges or consolidates
with any other Person (other than with an affiliate of a
Partner), the provisions of this Section 7.3 shall apply:
(a) Any Partner (other than the Affected Partner), or
its designee (the "Purchasing Partner"), shall have the right to
purchase all of the Affected Partner's interest in the
Partnership by so notifying the Affected Partner within 90 days
after the event giving rise to such Partner becoming an Affected
Partner. The purchase price shall be equal to the fair market
value of the Affected Partner's interest in the Partnership. The
fair market value shall be determined as of the date of the
notice to the Affected Partner of the election to purchase its
interest in the Partnership. Fair market value shall be
determined by a national investment banking firm mutually
acceptable to the Affected Partner and the Purchasing Partner.
Fees, if any, charged by the investment banking firm shall be
paid by the Partnership. The closing shall be held at a date
mutually satisfactory to the Affected Partner and the Purchasing
Partners, but not later than 120 days after the notice of
election to purchase the Affected Partner's interest in the
Partnership. The purchase price shall be payable in cash at the
closing. The payment to be made shall be conclusively deemed to
be, in complete liquidation and satisfaction of all the rights
and interest of the Affected Partner in respect of the
Partnership, including, without limitation, any interest in the
Partnership, any rights in specific Partnership property, and any
rights against the Partnership and (insofar as the affairs of the
Partnership are concerned) against the Partners.
(b) If at any time a liability is asserted against the
Partnership based on acts or transactions that occurred wholly or
in part before the notice of the election to purchase the
Affected Partner's interest in the Partnership, the Affected
Partner's share of the asserted liability (determined in
accordance with the Affected Partner's allocated share of profits
or losses pursuant to Section 6.2) may be withheld from any
amounts otherwise payable to the Affected Partner under this
Section 7.3 until the amount of the liability is determined by
adjudication, settlement, compromise or otherwise, at which time
so much of the withheld amount as equals the Affected Partner's
share of the liability shall be applied toward payment thereof
and the balance shall be paid to the Affected Partner. If, at
the time the amount of the liability is finally determined, all
payments under this Section 7.3 have been made to the Affected
Partner or the amount withheld is not sufficient to offset the
Affected Partner's share of the liability, the Affected Partner
shall reimburse the Partnership for its share of the liability
immediately upon demand.
<PAGE>
7.4 Liquidation. Upon the dissolution of the Partnership,
unless it is reconstituted and continued, a liquidator designated
by the Executive Committee ("Liquidator") shall wind up the
affairs of the Partnership. The Liquidator shall take full
account of the Partnership's property and liabilities and the
Partnership's property shall be liquidated as promptly as is
consistent with obtaining the fair value thereof. As promptly as
possible after the dissolution and final liquidation of the
Partnership, the Liquidator shall cause a proper accounting to be
made by the Partnership's auditors of the Partnership's assets,
liabilities, and operations through the last day of the calendar
month in which the liquidation shall occur or the final
liquidation shall be completed, as applicable. The Liquidator
shall obtain the approval of the Executive Committee before
selling, assigning, transferring or encumbering any of the
Partnership's assets and shall wind up and liquidate the affairs
of the Partnership in an orderly and businesslike manner. All
proceeds from the liquidation of the Partnership's assets shall
be applied in the following order of priority: (a) first, to the
payment of debts and liabilities of the Partnership, including
without limitation, any loans or advances to the Partnership by
any Partners, and the costs and expenses of liquidation; (b)
second, to the establishment of such reserves as the Executive
Committee deems necessary or advisable; (c) third, to the
Partners in accordance with their positive Capital Account
balances, determined after taking into account all Capital
Account adjustments for the Partnership taxable year in which the
liquidation occurs; and (d) any remaining amount, 50 percent to
each of the Partners. In the event that any Partner's Capital
Account balance is negative after taking into account all Capital
Account adjustments for the Partnership taxable year in which the
liquidation occurs, the Partner shall have no obligation to
contribute any amount to the Partnership as a result of the
negative Capital Account except to the extent necessary to meet
the debts and obligations of the Partnership, including, without
limitation, any loans or advances to the Partnership by any
Partner, but excluding any return of capital or other Partnership
distribution to the Partners. Any distribution to or
contribution from a Partner under this Article VII shall be made
by the end of the taxable year of the "liquidation" of the
Partnership, or, if later, within 90 days of such "liquidation"
as such term is defined in Treasury Regulation Section
1.704-1(b)(2)(ii)(g), except as otherwise permitted by Treasury
Regulation Section 1.704- 1(b)(2)(ii)(b). The distribution of
cash and/or property to a Partner in accordance with the
provisions of this Section 7.4 shall constitute a complete return
to the Partner of its capital contributions to the Partnership
and a complete distribution to the Partner of its interest in the
Partnership and all the Partnership's property.
7.5 Distribution in Kind. If any Partnership assets are to
be distributed in kind to the Partners, the liquidator shall
obtain an independent appraisal of the fair market value of such
assets at a date reasonably close to the date of liquidation and
shall adjust the Partners' Capital Accounts for any unrealized
gain or loss in the same manner as such Capital Accounts would be
adjusted under Article VI upon an actual sale of such assets at
such appraised value. Fees, if any, associated with the
appraisal shall be paid by the Partnership. The assets shall be
distributed in kind to the Partners in accordance with
Section 7.4. The Capital Account of each Partner shall be
debited by the appraised value of the assets distributed to it.
All distributions in kind to the Partners shall be made subject
to the liability of each distributee for costs, expenses, and
liabilities theretofore incurred or for which the Partnership
shall have committed prior to the date of termination.
7.6 Withdrawal of a Partner. Each Partner covenants and
agrees that it will not withdraw from the Partnership. If a
Partner shall so withdraw from the Partnership in violation of
such covenant and agreement, such withdrawal shall be effective
only upon at least 90 days prior notice to all other Partners,
and the Partnership may recover from such Partner damages for
breach of such covenant, and offset the damages just described
against the amount otherwise distributable to such Partner and/or
may pursue any remedies otherwise available under applicable law.
7.7 Limitations on Partition and Dissolution. Except as
specifically provided in this Article VII, no Partner shall be
entitled to bring an action at law or equity for the partition or
dissolution of the Partnership.
7.8 Removal. No Partner may be removed as a Partner.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
8.1 Survival. The covenants, representations and
warranties of the Partners shall survive for two years from
execution of this Agreement.
8.2 Indemnification by Hub Services. Hub Services hereby
agrees to indemnify and hold harmless LHI and the Partnership
from and against any and all damages, claims, liabilities,
losses, costs and expenses whatsoever arising out of,
attributable to, or incurred with respect to (i) any breach of
warranty or misrepresentation by or on behalf of Hub Services
under this Agreement, or the breach or nonperformance of any
covenant, agreement, or obligation to be performed by Hub
Services; and (ii) any misrepresentation in, or omission from,
any certificate or instrument executed and delivered or to be
executed and delivered by or on behalf of Hub Services in
connection with this Agreement.
<PAGE>
8.3 Indemnification by LHI. LHI agrees to indemnify and
hold harmless Hub Services and the Partnership from and against
any and all damages, claims, liabilities, losses, costs and
expenses whatsoever arising out of, attributable to, or incurred
with respect to (i) any breach of warranty or misrepresentation
by or on behalf of LHI under this Agreement, or the breach or
nonperformance of any covenant, agreement or obligation to be
performed by LHI; and (ii) any misrepresentation in, or omission
from, any certificate or instrument executed and delivered or to
be executed and delivered by or on behalf of LHI in connection
with this Agreement.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by Partnership. Subject to the
provisions of Section 9.2, the Partnership shall indemnify each
Partner from and against all losses, liabilities, costs, and
expenses incurred on account of such Partner's liability for
obligations of the Partnership; provided, however, that such
indemnity shall not apply to actions or omissions constituting
gross negligence, willful misconduct, bad faith or breach of the
provisions of this Agreement.
9.2 Unauthorized Acts. Except as otherwise expressly
provided herein, no Partner, in its capacity as a Partner, shall
have the authority to act as agent for or on behalf of the
Partnership or another Partner, to do any act which would be
binding on the Partnership or another Partner or to incur any
expenditures on behalf of or with respect to the Partnership. If
the Partnership or a Partner sustains any loss or liability
attributable to any act of another Partner which is unauthorized
under the terms of this Agreement, then the Partner who has taken
such unauthorized action shall indemnify the Partnership or such
Partner, as the case may be, for the amount of such loss or
liability so sustained.
ARTICLE X
ACCOUNTING AND INFORMATION
10.1 Books. The Partnership shall maintain complete and
accurate books of account of the Partnership's affairs for both
accounting and tax purposes, at the Partnership's principal place
of business. The Partnership's books shall be kept on the
accrual method of accounting generally applicable to
partnerships, except that another method may be applied with the
approval of the Executive Committee for financial statement
reporting purposes, on the advice of the Partnership's
accountants. The Partnership's accounting period, taxable year
and fiscal year shall be the calendar year or such other year for
<PAGE>
income tax purposes as may be required by the Code or Treasury
Regulations.
10.2 Reports and Information. The Executive Committee shall
mail to each Partner (i) monthly, within 15 days after the end of
each month, a balance sheet and statement of income, cash flow
and Partner's capital for the Partnership, covering the month
then ended, prepared on a consistent basis and in accordance with
generally accepted accounting principles and past practices of
the Partnership; (ii) subject to the approval of the Executive
Committee, within 60 days after the end of the fiscal year,
financial statements of the same type and prepared in accordance
with the same standards as in (i) above, covering the fiscal year
ended, audited by the accounting firm of Arthur Anderson or
another national accounting firm acceptable to the Executive
Committee with copies of all audit reports, and drafts thereof,
delivered simultaneously to all members of the Executive
Committee; and (iii) subject to the approval of the Executive
Committee, annually, by not later than March 10th of each year,
sufficient financial information concerning the results of
Partnership operations as is necessary for each Partner to file
its own federal and state income tax return for the preceding
year. Each Partner or its authorized representative shall have
access at the Partnership's principal place of business and other
appropriate locations, during ordinary business hours, to all
properties, books, records, accounts and information regarding
the Partnership, its Subsidiaries or their respective activities,
whether in possession of the Partnership or any affiliate of a
Partner.
10.3 Tax Returns and Elections. The Executive Committee
shall cause to be prepared and timely filed all federal, state
and local income and other tax returns and reports as may be
required as a result of the business of the Partnership. All
elections made on such returns shall be subject to the prior
approval of the Partners. Not more than 10 days after the date
on which the Partnership actually files its federal income tax
return, a copy of the return so filed shall be furnished to all
Partners.
10.4 Allocation of Expenses to Partnership. The Partnership
may (i) share space and office equipment and facilities in
offices leased and occupied by Natural Gas Clearinghouse's
("NGC") Pittsburgh office, and (ii) borrow NGC or Hub Services
employees from time to time on a temporary basis for purposes
associated with operating the Ellisburg-Leidy Hub. Expenses or
salaries associated with such shared space and borrowed employees
shall be treated as expenses incurred by the Partnership, subject
to the limit set forth in this Section 10.4. The allocations of
such costs from NGC or Hub Services to the Partnership shall
total no more than [ ] per
[CONFIDENTIAL TREATMENT OF BRACKETED MATERIAL REQUESTED
PURSUANT TO RULE 104(b)
<PAGE>
month, except as otherwise approved by the Executive Committee.
The Executive Committee shall review this limit at least every
six months, and shall endeavor in good faith to set that limit,
and approve requested monthly allocations exceeding that limit,
at amounts which compensate NGC or Hub Services for the actual
proportionate cost of prudently shared facilities and prudently
borrowed employees. NGC or Hub Services shall furnish all
members of the Executive Committee with a monthly statement of
such expenses, supported by invoices or other supporting
documents, and shall maintain adequate records in accordance with
GAAP supporting the allocation of expenses between the
Partnership and Hub Services or NGC. Nothing in this Agreement
shall obligate NGC or Hub Services to provide facilities or
furnish borrowed employees at a cost in excess of the cost
subject to compensation under this Section 10.4.
ARTICLE XI
TRANSFER OF PARTNERSHIP INTEREST
11.1 Restrictions on Transfer. Transfers of Partnership
interests to any Person (in this Article XI, a "Transferee")
shall be subject to the purchase rights and other terms provided
below. Additionally, except as otherwise provided in
Section 11.3(c), no Transfer of a Partnership interest may be
made (i) without the consent of all of the other Partners, which
consent shall not be unreasonably withheld or (ii) if the
Partnership would be considered to have terminated within the
meaning of Section 708 of the Internal Revenue Code. The consent
of all of the other Partners to such a Transfer shall, except as
provided in Section 11.3(c), constitute the consent of such
Partners to the admission of the Transferee as a partner in the
Partnership. No Transfer shall be effective until the
transferring Partner and its Transferee shall have executed and
delivered to the other Partners an appropriate document whereby
the Transferee agrees to be bound by the terms of this Agreement,
and all the other agreements and plans of the Partnership, and
the transferring Partner and its Transferee each represents and
warrants to the other Partners and the Partnership that such
Transfer was made in accordance with all applicable laws and
regulations, including, without limitation, securities laws. Any
Transfer of a Partnership interest permitted under this
Article XI shall not release the transferring Partner from any of
its liabilities and obligations under this Agreement, whether
theretofore accrued or arising after such transfer.
11.2 Reflecting Transfers on the Books of the Partnership.
The Partnership shall not transfer upon its books any interest
held or owned by any of the Partners to any person except in
accordance with this Agreement.
<PAGE>
11.3 Certain Restrictions and Permitted Transfers.
(a) No Partner shall grant any proxy or enter into or
agree to be bound by any voting trust with respect to the
interests.
(b) Any Transferee acquiring Partnership interest(s)
pursuant to a Transfer in accordance with the provisions of this
Article XI shall, as a successor or assignee hereunder, be deemed
to take such interest subject to all of the other provisions of
this Agreement.
(c) A Partner shall be entitled to pledge up to
twenty- five percent (25%) of its Partnership interest to a
commercial lending institution (the "Lender") as security for
indebtedness of such Partner if (i) the Lender executes a written
agreement in favor of the other Partners pursuant to which it
agrees (A) not to Transfer such interests except in compliance
with the provisions of this Agreement, (B) that any Transfer of
such interests upon or in lieu of foreclosure of its security
interest will be subject to the provisions of Section 11.4 and
that it must offer to sell the interests pursuant to Section 11.4
before it may accept any offer at foreclosure or in lieu of
foreclosure and (C) that if the Lender shall acquire such
interests, whether by foreclosure or otherwise, it will assume
and be bound by all the obligations of the pledging Partner under
this Agreement but the Lender and its assignees shall not be
admitted to the Partnership as a Partner or otherwise have the
right to vote on any matter and the Lender and its assignees
shall only have the right to receive distributions, and (ii) such
pledge does not reduce the Partnership's borrowing capacity. The
consent requirement of Section 11.1 and the provisions of
Section 11.4 shall not apply to the pledging of interests under
the preceding sentence.
11.4 Sale of Partnership Interest.
(a) If any Partner (as used in this Section, the
"Transferor") receives a bona fide offer to purchase all or any
portion of the Transferor's interest in the Partnership that the
Transferor desires to accept, the Transferor shall give written
notice (as used in this Section, the "Transfer Notice") to the
Partnership and the other Partners (as used in this Section, the
"Remaining Partners"), stating the Transferor's desire to make
such Transfer, the identity of the Person that made such bona
fide offer to purchase (as used in this Section, the "Offeror"),
the interest to be transferred (as used in this Section, the
"Offered Interest"), the cash price and other consideration which
has been offered for the Offered Interest and the other terms and
conditions of such proposed sale. The Partnership and the
Remaining Partners shall then have the prior right to purchase
all, but not less than all, of the Offered Interest in accordance
with Section 11.5.
(b) If the Partnership and the Remaining Partners
elect not to exercise the rights to purchase all of the Offered
Interest set forth in Section 11.4(a), then, subject to Section
11.1, the Transferor may transfer all of the Offered Interest to
the Offeror at any time within 120 days after the date the
Partnership received the Transfer Notice. Any such sale shall be
to the Offeror, at not less than the price for the Offered
Interest specified in the Transfer Notice and upon other terms
and conditions, if any, not more favorable to the Offeror than
those specified in the Transfer Notice. If the Transferor does
not effect such sale within such 120 day period, the proposed
disposition shall again become subject to the rights of purchase
set forth in Section 11.4.
11.5 Prior Rights to Purchase.
(a) The provisions of this Section 11.5 shall apply to
any Transfer referred to in Section 11.4.
(b) The Partnership, acting through the Executive
Committee, shall have the irrevocable option to purchase or
redeem all of the Offered Interest, and may exercise its option
by written notice to the Transferor (the "Partnership Notice"),
with copies to the Remaining Partners, within 20 days from the
date the Partnership receives the Transfer Notice (as used in
this Section, the "Offer Date"). The failure of the Partnership
to so notify the Transferor and the Remaining Partners within
such 20 day period shall be deemed an election not to purchase or
redeem the Offered Interest.
(c) In the event the Partnership elects not to
purchase or redeem the Offered Interest, each of the Remaining
Partners shall have the irrevocable option to purchase all of the
Offered Interest in accordance with their Proportionate Shares,
or on such other basis as they may agree. The option of the
Remaining Partners shall be exercisable by each Remaining Partner
by written notice from such Remaining Partner to the Transferor,
with a copy to the Partnership and the other Remaining Partners,
given within 30 days from the Offer Date, setting forth (a)
whether such Remaining Partner elects to purchase its
Proportionate Share and (b) whether such Remaining Partner elects
to purchase its Proportionate Share of the Proportionate Share of
any other Remaining Partner that declines to exercise its option.
The failure of a Remaining Partner to so notify the Transferor,
the Partnership and the other Remaining Partners within such
30 day period shall be deemed an election by such Remaining
Partner not to purchase the Offered interest. If the Remaining
Partners do not, in the aggregate, exercise their options to
acquire all of the Offered Interest, the Transferor may Transfer
the offered interest in accordance with Section 11.4(b).
(d) The parties, if any, that exercise their rights
under this Section are referred to in this Section as the
"Purchasing Parties". In the case of a Transfer subject to
Section 11.4, the Offered Interest shall be purchased and sold
for the consideration and on the other terms and conditions
offered by the Offeror; provided, however, that if such
consideration consists of or includes consideration other than
cash, the Purchasing Parties, at their sole option, may pay such
non-cash portion (if any) of the purchase price with either (i)
substantially similar consideration of equivalent value or (ii)
cash in an amount equal to the fair market value of the non-cash
consideration as valued in either case by an independent third
party accounting firm, evaluation firm or investment banker (the
"Appraiser") selected by the Transferor and approved by the
Purchasing Parties (the fee of which shall be borne one-half by
the Purchasing Parties and one- half by the Transferor) promptly
after a request by the Transferor. If the Transferor and the
Purchasing Parties cannot agree on an Appraiser within ten days
after the Purchasing Parties' receipt of written notice of the
Appraiser selected by the Transferor, then [insert alternative
selection procedure].
(e) The closing (the "Closing") of the purchase of the
Offered Interest under this Section will be held at the
Partnership's offices not later than 30 days after the giving of
the last notice of the election to purchase the Offered Interest,
or if such day is not a business day, on the next following
business day. At the Closing, the Purchasing Parties shall
tender to the Transferor the consideration required under this
Section 11.5, and the Transferor will duly execute and deliver
assignments of the Offered Interest to the Purchasing Parties,
conveying the Offered Interest with general warranty of title and
free and clear of all liens, adverse claims and encumbrances.
11.6 Assignment to Affiliates and Successors.
Notwithstanding anything to the contrary in this Agreement except
the prohibition set forth in Section 11.1(ii), any Partner may
assign its right, interest and obligations hereunder to an
affiliate or successor in interest by merger or consolidation.
No such assignment shall relieve the assignor of any of its
obligations, duties or liabilities hereunder to the other parties.
<PAGE>
ARTICLE XII
COMPETITION
12.1 Competing Hubs. Except as provided in this
Section 12.1 and 12.3, no Partner, nor any entity which owns more
than 50% of the outstanding voting stock of a Partner (a
"Parent"), nor any subsidiary of a Parent (a "Sibling"), shall
establish or operate any business covering the area of Ellisburg
and Leidy, Pennsylvania, which is or purports to be a "market
hub" or "market center" as those terms are used in FERC
publications. This Section 12.1 shall not be interpreted to
prohibit any Partner, Parent or Sibling from buying or selling
gas, or buying or releasing capacity, involving points in the
area of Ellisburg and Leidy, Pennsylvania, without utilizing the
services of the Partnership. The prohibition contained in this
Section shall be in effect during the term of this Partnership,
and for twelve (12) months after dissolution of this Partnership.
12.2 Use of Partnership Identity. Unless the Partners agree
otherwise in a signed written agreement, no Partner, Parent or
Sibling shall use the Partnership's telephone number, address,
name (or any deceptively similar name) or logo for twelve (12)
months after the termination of this Partnership.
12.3 Permitted Competition by National Fuel.
Notwithstanding the prohibition contained in Section 12.1 above,
LHI Siblings National Fuel Gas Supply Corporation ("Supply") and
National Fuel Gas Distribution Corporation ("Distribution") shall
be permitted to comply with the laws, regulations and tariffs
applicable to them as an "open access" interstate natural gas
pipeline and a state- regulated public utility, respectively.
For example, potential Partnership customers will be able to make
requests for service directly to Supply which may be in
competition with the services offered by the Partnership, and
Supply may be required to perform those services.
12.4 Partner Dealings with the Partnership. The Partners
expect that Partners and/or Siblings may become customers of the
Partnership, and otherwise engage in natural gas marketing or
brokering activities which may effectively compete with the
Partnership. Other than the specific prohibition in Section 12.1
above, nothing in this Agreement is intended to prohibit or limit
such competition.
12.5 Competition Between Partners. Except as specifically
provided in this Article XII, nothing shall limit or restrict the
Partners' ability to compete with each other.
<PAGE>
ARTICLE XIII
MISCELLANEOUS
13.1 Entire Agreement. This Agreement and its Exhibits and
Schedules constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, between the
parties hereto with respect to the subject matter hereof and no
Partner shall be liable or bound to the other in any manner by
any warranties or representations, except as specifically set
forth therein.
13.2 Amendment. Any amendment, change or modification of
this Agreement shall be void unless in writing and signed by all
Partners.
13.3 Confidentiality. The Partners will use all reasonable
efforts to cause all confidential information obtained from each
other to be treated as such and will use all reasonable efforts
not to use such information in a manner detrimental to each
other. In the event that the transactions contemplated hereby
are not consummated for any reason, each will destroy or
expeditiously return to the others all copies of information
furnished to it and its representatives.
13.4 Successors and Assigns. This Agreement and the rights
and obligations hereunder will be binding upon and will inure to
the benefit of the Partners and their respective, permitted
successors and assigns, but nothing in this Agreement is intended
to confer on any person not a party hereto any benefit or right.
13.5 Transaction Costs. Each party shall each bear and pay
its own transaction costs relating to the negotiation and
execution of this Agreement.
13.6 Notices. Any notices or other communications required
or permitted to be given pursuant to this Agreement shall be
deemed to have been given if delivered personally or sent by
certified mail, postage prepaid, addressed as follows:
(a) To LHI:
Mr. Walter E. DeForest
10 Lafayette Square
Buffalo, New York 14203
<PAGE>
With a copy to:
James R. Peterson, Esq.
National Fuel Gas Company
10 Lafayette Square, Room 1500
Buffalo, New York 14203
(b) To Hub Services:
Stephen W. Bergstrom
Hub Services, Inc.
13430 Northwest Freeway, #1200
Houston, Texas 77040
With a copy to:
John Herbert, Esq.
Natural Gas Clearinghouse
13430 Northwest Freeway, #1200
Houston, Texas 77040
or to such other addresses as shall be furnished in writing by
the parties.
13.7 Headings. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise
affect the meaning of the provisions hereof.
13.8 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute
one and the same instrument.
13.9 Choice of Law. This Agreement shall be governed,
construed and enforced in accordance with the internal laws of
the State of New York without regard to principles of conflicts
of law.
13.10 Additional Documents. The Partners agree to execute
any additional documents and to perform any additional acts as
are or may become necessary or convenient to carry out the
purposes of this Agreement.
13.11 Setoff Rights. In the event that any sum is payable
to any Partner pursuant to this Agreement, any amounts owed by
such Partner to the Partnership shall be deducted from such sum
before payment to the Partner.
<PAGE>
13.12 Severability. In the event that any provision of
this Agreement is held to be illegal, invalid or unenforceable
under present or future laws, then (i) such provision shall be
fully severable and this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision
were not a part of this Agreement; (ii) the remaining provisions
of this Agreement shall remain in full force and effect and shall
not be affected by such illegal, invalid, or unenforceable
provision or by its severance from this Agreement; and (iii)
there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and still be legal,
valid and enforceable.
IN WITNESS WHEREOF, each of the parties hereto have duly
executed this Agreement as of the date first above written.
LHI ENERGY CORPORATION
By:___________________________
Title:________________________
HUB SERVICES, INC.
By:___________________________
Title:________________________
JCH\AGR\120
EXHIBIT F-1
Opinion of Stryker, Tams and Dill
(Designated as Exhibit EX-5 for EDGAR purposes)
April 29, 1994
Securities and Exchange Commission
Judiciary Plaza
450 5th Street, N.W.
Washington, DC 20549
Re: National Fuel Gas Company
Leidy Hub, Inc.
Ladies and Gentlemen:
This opinion relates to the joint application-
declaration, filed on or about the date hereof, as amended (the
Application-Declaration"), by National Fuel Gas Company
("National") and one of its wholly-owned subsidiaries, Leidy Hub,
Inc. ("LHI"), under the Public Utility Holding Company Act of
1935, as amended.
The Application-Declaration seeks authorization for the
following transactions:
(i) the formation of a partnership (the "Partnership")
between LHI and Hub Services, Inc., a corporation unaffiliated
with National, for the purpose of operating a natural gas market
area hub in the vicinity of Leidy, Pennsylvania (the "Hub"); and
(ii) the guaranty by National (the "National Guaranty")
of certain obligations to be incurred by LHI and the Partnership
in connection with activities undertaken by the Partnership
relating to the supply of natural gas, as delineated in the Gas
Related Activities Act of 1990 (15 U.S.C. Section 79k); and
(iii) the borrowing by LHI of up to a maximum principal
amount at any one time outstanding of $500,000 for Partnership-
related purposes (the "LHI Partnership-Related Borrowings") from
the National Fuel Gas System Money Pool (the "Money Pool"),
heretofore approved by the Securities and Exchange Commission by
Order dated December 29, 1993, HCAR No. 35-25964 (the "Money Pool
Order").
Based upon the foregoing and subject to the
qualifications and assumptions hereinafter set forth, we are of
the opinion that:
<PAGE>
1. National is a corporation duly organized and
validly existing under the laws of the State of New Jersey;
2. If (i) the proposed transactions are approved by
the Board of Directors of National and consummated in accordance
with the order or orders of the Securities and Exchange
Commission thereon and, in the case of LHI's participation in the
Money Pool, the Money Pool Order, (ii) the Board of Directors of
LHI approves (x) the execution, delivery and performance by LHI
of the Partnership Agreement described in the Application-
Declaration, and (y) the LHI Partnership-Related Borrowings,
(iii) all authorizations and approvals from appropriate
governmental and regulatory authorities, if required in
connection with the participation by LHI in the Partnership and
the Money Pool or in connection with the activities of the
Partnership, are obtained, and (iv) the LHI Partnership-Related
Borrowings are appropriately documented and evidenced on the
books of LHI:
A. All laws of the State of New Jersey applicable to
the proposed transaction will have been complied with;
B. Upon the due execution and delivery by National of
appropriate instruments of guaranty, the obligations incurred by
National thereunder, insofar as New Jersey law is applicable,
will be duly authorized and within the power and authority of
National and, to that extent, will be valid and binding
obligations of National;
C. Insofar as New Jersey law is applicable, National
will legally acquire those obligations representing the LHI
Partnership-Related Borrowings which, pursuant to the terms of
the Money Pool, are owing to National; and
D. The legal rights of the holders of any securities
issued by National will not have been violated.
In rendering the opinions expressed in paragraph 2(B)
and, to the extent that it relates to the National Guaranty,
paragraph 2(D), we have relied on the advice of National that,
insofar as any of the proposed Hub transactions involve the
purchase of property (including, without limitation, natural gas)
by LHI or the Partnership, (i) the obligation of LHI or the
Partnership to pay the purchase price therefor will, by contract,
arise only upon the delivery of such property, (ii) payment of
the purchase price of such property will be due within thirty
(30) days after delivery, and (iii) those payment terms are
customary within the industry.
<PAGE>
In rendering the opinions expressed in paragraph 2(C)
and, to the extent that it relates to the Money Pool, paragraph
2(D), we have assumed that the LHI Borrowings will not have
maturities in excess of, nor be renewable or extendable at the
option of LHI to a date later than, twelve (12) months from their
respective dates of issuance or incurrence.
We consent to the use of this opinion as an exhibit to
the Application-Declaration.
Very truly yours,
STRYKER, TAMS & DILL
EXHIBIT G-1
Proposed Form of Public Notice
(Designated as EX-99 for EDGAR purposes)
Exhibit G-1
UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Release No. _______
In the Matter of
NATIONAL FUEL GAS COMPANY
30 Rockefeller Plaza
New York, NY 10112
LEIDY HUB, INC.
10 Lafayette Square
Buffalo, NY 14203
( )
NOTICE OF PROPOSED FORMATION OF PARTNERSHIP
National Fuel Gas Company ("National"), a registered
holding company, and its wholly-owned subsidiary, Leidy Hub, Inc.
("LHI") have filed an Application-Declaration with this
Commission pursuant to Sections 9(a), 10, 11(b), 12(b), 13(b) of
the Act and the Gas Related Activities Act and Rules 16, 23, 24
and 45 promulgated under the Act.
National and LHI propose to enter into an agreement
whereby LHI will enter into a partnership to be known as The
Ellisburg-Leidy Hub Company, which will engage in operating a
natural gas market area hub, providing services to customers who
wish to buy, sell, transport, store or borrow gas in the vicinity
of Ellisburg and Leidy, Pennsylvania. National and LHI are also
seeking authority for National to guarantee certain obligations
of LHI and the Partnership to be incurred in connection with the
Partnership's business.
The Application-Declaration and any amendments thereto
are available for public inspection through the Commission's
<PAGE>
Office of Public Reference. Interested persons wishing to
comment or request a hearing should submit their views in writing
to the Secretary, Securities and Exchange Commission, Washington,
D.C. 20549, and serve a copy on the applicant at the address
specified above. Proof of service (by Affidavit or, in case of
an attorney-at-law, by Certificate) should be filed with the
request. Any request for a hearing shall identify specifically
the issues of fact or law that are disputed. A person who so
requests will be notified of any hearing, if ordered, and will
receive a copy of any notice or order issued in this matter.
After said date, the Application-Declaration, as filed or as it
may be amended, may be granted and/or permitted to become
effective.
For the Commission, by the Division of Investment
Management, pursuant to delegated authority.
Jonathan G. Katz
Secretary
