TRANSITION SERVICES AGREEMENT. between. LONG ISLAND LIGHTING COMPANY d/b/a LIPA. and PSEG LONG ISLAND LLC. Dated as of.

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1 TRANSITION SERVICES AGREEMENT between LONG ISLAND LIGHTING COMPANY d/b/a LIPA and PSEG LONG ISLAND LLC Dated as of December 28, 2011

2 TABLE OF CONTENTS Page SECTION 1. DEFINITIONS... 2 Section 1.1 Definitions... 2 SECTION 2. TERM... 2 Section 2.1 General... 2 Section 2.2 Effective Date; Binding Effect... 2 SECTION 3. FRONT END TRANSITION SERVICES... 2 Section 3.1 General... 2 Section 3.2 Front End Transition Plan... 3 Section 3.3 Handover Checklist... 3 SECTION 4. SCOPE OF SERVICES... 3 Section 4.1 General... 3 Section 4.2 Periodic Reports... 5 SECTION 5. THE TRANSITION COMMITTEE... 6 Section 5.1 General... 6 Section 5.2 Membership... 7 Section 5.3 Disputes... 7 SECTION 6. THE SERVICE COMPANY... 7 Section 6.1 General... 7 Section 6.2 Organizational Matters; Covenants... 8 SECTION 7. COOPERATION... 8 Section 7.1 General... 8 Section 7.2 NGES... 8 SECTION 8. READINESS REPORT; CHECKLIST COMPLETION... 8 Section 8.1 General... 8 SECTION 9. SUBCONTRACTORS... 9 Section 9.1 General... 9 Section 9.2 Identification... 9 Section 9.3 Approval Section 9.4 Approval of Lockheed Martin SECTION 10. INDEPENDENT CONTRACTOR i

3 TABLE OF CONTENTS (continued) Page Section 10.1 General SECTION 11. CREDIT SUPPORT Section 11.1 General SECTION 12. SERVICE PROVIDER COMPENSATION; PAYMENT Section 12.1 General Section 12.2 Service Fees Section 12.3 Milestone Payments Section 12.4 Expenses; Third Party Costs Section 12.5 Invoices Section 12.6 Audit SECTION 13. EVENTS OF DEFAULT; REMEDIES Section 13.1 Service Provider Events of Default Section 13.2 LIPA s Remedies for Service Provider Default Section 13.3 LIPA Events of Default Section 13.4 Service Provider Remedies for LIPA Default SECTION 14. ADDITIONAL TERMINATION RIGHTS; TRANSFER OF SERVCO Section 14.1 Change of Control Section 14.2 Other Section 14.3 Performance of Obligations Section 14.4 Compensation Section 14.5 Transfer of ServCo Section 14.6 No Liability SECTION 15. INDEMNIFICATION; LIMITATIONS Section 15.1 Service Provider Indemnity Section 15.2 LIPA Indemnity Section 15.3 Claims Procedure Section 15.4 Limitations on Liability SECTION 16. INSURANCE Section 16.1 General ii

4 TABLE OF CONTENTS (continued) Page SECTION 17. FORCE MAJEURE Section 17.1 General Section 17.2 Due Diligence Section 17.3 Suspension of Performance SECTION 18. INTELLECTUAL PROPERTY Section 18.1 Work Product Section 18.2 Pre-Existing Property Section 18.3 Subcontractors Section 18.4 Termination; Survival SECTION 19. REPRESENTATIONS AND WARRANTIES Section 19.1 Representations and Warranties of LIPA Section 19.2 Representations and Warranties of Service Provider SECTION 20. RECORDKEEPING Section 20.1 Books and Records Section 20.2 Access SECTION 21. DISPUTE RESOLUTION Section 21.1 Negotiation Section 21.2 Arbitration SECTION 22. CONFIDENTIALITY Section 22.1 General Section 22.2 LIPA Personal Information Section 22.3 Security SECTION 23. MISCELLANEOUS Section 23.1 Amendment and Waivers Section 23.2 Further Assurances Section 23.3 Successors and Assigns Section 23.4 Governing Law; Jurisdiction; Venue Section 23.5 State Law Requirements Section 23.6 Counterparts iii

5 TABLE OF CONTENTS (continued) Page Section 23.7 Third-Party Beneficiaries Section 23.8 Entire Agreement Section 23.9 Severability Section Gender and Plurality Section References to Days Section Persons Section Headings Section Notices Section Negotiated Agreement Section Survival SCHEDULES Schedule 1 -- Front End Transition Plan Schedule 2 -- Handover Checklist Schedule 3 -- Insurance Schedule 4 -- Milestone Schedule and Payments Schedule 5 Neutral Arbitration Panel APPENDIX A STANDARD CLAUSES FOR LIPA CONTRACTS EXHIBIT A Form of Guaranty EXHIBIT B -- Form of Draft Subcontract between Service Provider and Lockheed Martin iv

6 TRANSITION SERVICES AGREEMENT THIS TRANSITION SERVICES AGREEMENT (the "Agreement") is made and dated as of December 28, 2011 by and between PSEG Long Island LLC, a New York limited liability company ("Service Provider"), and the LONG ISLAND LIGHTING COMPANY d/b/a LIPA, a New York corporation ("LIPA"), and a wholly-owned subsidiary of the LONG ISLAND POWER AUTHORITY, a corporate municipal instrumentality of the State of New York and a body corporate and politic and political subdivision of the State of New York (the "Authority"). Service Provider and LIPA are sometimes hereinafter referred to individually as a "Party" and together as the "Parties." RECITALS: WHEREAS, LIPA is a party to that certain Amended and Restated Management Services Agreement, dated as of January 1, 2006, as amended (the "MSA") between LIPA and National Grid Electric Services LLC ("NGES") pursuant to which NGES is, among other things, providing operation and maintenance services for LIPA's T&D System (the "MSA Activities"); WHEREAS, on June 3, 2010, the Authority issued the Utility Services Management Request for Proposals issued by LIPA (the RFP ) soliciting proposals for the operation and maintenance of, and management of Capital Improvements to, the T&D System and related facilities in the Service Territory in which LIPA has an ownership or leasehold interest; WHEREAS, in response to the RFP, Service Provider submitted a Technical Proposal, dated August 24, 2010, and a Pricing Proposal, dated December 15, 2010, in each case as supplemented by Service Provider's responses to questions provided by LIPA (the "Service Provider's Proposal"); WHEREAS, pursuant to the RFP procurement process, the Authority has determined that Service Provider's Proposal demonstrates Service Provider's capability to perform the Operations Services under the OSA (as hereinafter defined) and, together with Service Provider's Proposal for Front End Transition Services (as hereinafter defined), provides the best overall value to LIPA and its customers and LIPA has therefore selected Service Provider to provide operations, maintenance and other services for LIPA's T&D System following the expiration of the MSA; WHEREAS, the Parties are simultaneously herewith entering into an Operations Services Agreement, dated as of the date hereof (the "OSA"), under which, upon the Substantial Completion of the Front End Transition Plan (as hereinafter defined), Service Provider will furnish to LIPA the Operations Services pursuant to the terms and conditions of the OSA; WHEREAS, in order to provide for an orderly and efficient transition and handover to Service Provider on the Service Commencement Date (as hereinafter defined) of the MSA Activities in a timely fashion and without disruption of customer service, the Parties are entering 1

7 into this Agreement for Service Provider's provision of Front End Transition Services in advance of the Service Commencement Date; and WHEREAS, prior to execution of this Agreement, Service Provider has submitted to LIPA and LIPA has approved an updated front end transition plan as set forth in Schedule 1 hereto (the "Front End Transition Plan"), which provides for the transition and handover of the MSA Activities to, and the provision of other services by, Service Provider prior to the full commencement of services under the OSA (collectively the "Front End Transition Services"), including (i) the scheduling of Front End Transition Services with appropriate milestones in order to provide for the orderly continuity of the MSA Activities, (ii) the identification, assessment, acquisition, "unbundling" and transfer of the employees, assets, processes, and systems necessary or appropriate for Service Provider to perform the Operations Services under the OSA, and (iii) the Substantial Completion of the Front End Transition Plan. NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows: SECTION 1. DEFINITIONS Section 1.1 Definitions. All capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings assigned to them in the OSA. SECTION 2. TERM Section 2.1 General. The term of this Agreement shall commence on the date hereof and shall extend until the last to occur of the following: (a) 12:00 a.m. on January 1, 2014 (the "Target Service Commencement Date"); (b) the Effective Date of the OSA (as therein defined); and (c) LIPA's confirmation, which shall not unreasonably be withheld or delayed, that Service Provider has achieved Substantial Completion of the Front End Transition Plan (such period being the "Transition Period"). Section 2.2 Effective Date; Binding Effect. This Agreement shall not be a legally binding and effective agreement upon the Parties until this Agreement shall have been approved by the New York State Comptroller and the New York State Attorney General (the "Effective Date"). SECTION 3. FRONT END TRANSITION SERVICES Section 3.1 General. Throughout the Transition Period, Service Provider shall provide the Front End Transition Services under the Front End Transition Plan approved by LIPA, in a manner consistent with the Contract Standards so that the provision of the Front End Transition Services hereunder shall (a) not unreasonably interfere with LIPA s operations or the provision of the MSA Activities by NGES under the MSA, and (b) ensure a timely and orderly transition of the MSA Activities to Service Provider and to ServCo, without disruption of customer service and business continuity, so that Service Provider is able to assume its responsibilities to perform under the OSA by the Target Service Commencement Date. 2

8 Section 3.2 Front End Transition Plan. Schedule 1 hereto incorporates the most current Service Provider's Front End Transition Plan which, as approved by LIPA provides a detailed, comprehensive transition plan for Service Provider's timely performance of Front End Transition Services in accordance with the Contract Standards. From time to time during the Transition Period, the Front End Transition Plan will be adjusted, updated or otherwise modified as necessary in accordance with Section 5.1(f) hereof. The Front End Transition Plan generally provides: (a) for each of the Front End Transition Services identified, a detailed plan or process describing how Service Provider will develop and perform each task including the methods and approaches to be employed and the measures of task completion; Period; (b) a listing of those actions to be performed by LIPA during the Transition (c) a detailed schedule for the performance of the Front End Transition Services, including milestones and critical path issues; and (d) the identity of Service Provider's front end transition team and a description of the process for (i) coordinating activities with NGES and LIPA and (ii) positioning Service Provider and ServCo to assume responsibilities for providing Operations Services under the OSA on the Target Service Commencement Date. Section 3.3 Handover Checklist. Schedule 2 hereto incorporates the most current checklist (the "Handover Checklist"), as approved by LIPA, detailing all of the requirements for Service Provider to complete the Front End Transition Services by the Target Service Commencement Date. From time to time during the Transition Period, in light of experience developed during the Transition Period, the Handover Checklist will be adjusted, updated or otherwise modified by the Parties as necessary. SECTION 4. SCOPE OF SERVICES Section 4.1 General. The Front End Transition Services to be provided by Service Provider shall consist of the following: (a) preparation of detailed monthly budgets for the Front End Transition Services for each year of the Transition Period for LIPA's review and approval, and monthly reporting of actual costs and budget variances; (b) preparation of a detailed annual Operating Budget, Capital Budget and Energy Efficiency Budget, and related Work Plans for the first year of performance under the OSA beginning on the Service Commencement Date, as well as for the four year period thereafter; (c) identification and evaluation of, and attaining a practical familiarity with, all functional areas associated with the MSA Activities performed by NGES and the Operations Services to be performed under the OSA, including the processes, procedures, and key physical and human resources associated therewith; 3

9 (d) identification and evaluation of, and attaining a practical familiarity with, all business processes associated with the Operations Services; (e) attaining familiarity with, and providing updates to, LIPA s Operations Manual for provision of the Operations Services; Manual; (f) development, with LIPA's participation, of the Contract Administration (g) identification of, and the assumption of responsibility for securing the use of, any facilities, furnishings, material, supplies, assets and equipment (including, but not limited to all Information Technology ("IT") systems) owned, or available for lease or acquisition, by LIPA, but now used by NGES, or as may otherwise be required, and for preparing to continue, or to place, them in service by the Service Commencement Date, including any necessary demonstration, as requested by LIPA, of the capacity and readiness to do so timely and effectively; (h) integration of all existing IT systems owned, or available for lease or acquisition, by LIPA, but now used by NGES in providing the MSA Activities, or as may otherwise be required, with LIPA s and Service Provider s IT systems and preparing to continue, or to place, them in service by no later than the Service Commencement Date, including any necessary demonstration, parallel testing/operation and documentation, as requested by LIPA, of the capacity and readiness to do so timely and effectively; (i) determination of any functional gaps in the assets, IT systems, processes, or other elements critical to the performance and delivery of services under the OSA, development of proposals to LIPA to resolve these gaps, and implementation of LIPA's decisions with respect thereto; (j) identification of and establishment, to the extent necessary, of custody and control over, all Intellectual Property owned or available for lease or acquisition, by LIPA, but now used by NGES in providing the MSA Activities, or as may otherwise be required for the performance and delivery of services under the OSA; (k) establishment of a comprehensive staffing plan, including mobilizing Service Provider personnel, identification of key personnel and other staff employed by NGES, recruiting and migrating personnel to ServCo, recruiting additional staff as necessary, and maintaining appropriate staffing levels; (l) development of employee pension and other benefit plan programs for ServCo employees substantially similar to those provided under the NGES plans existing on the Service Commencement Date; (m) development of a labor relations plan for ServCo unionized employees for implementation no later than the Service Commencement Date; 4

10 (n) development of an employee training plan, including dissemination of key policies and procedures related to the Operations Services for implementation on the Service Commencement Date; (o) development of a communications plan for LIPA's review and approval with respect to the implementation of the Front End Transition Plan; (p) development of a communications plan for key stakeholders to be available for LIPA's review not later than three months prior to the Service Commencement Date for implementation on the Service Commencement Date; (q) development of practical familiarity with, and provision of updates to, LIPA s business continuity and disaster recovery plan, including provisions for back-up power in key facilities, access to, and use of, alternative facilities and systems, and back-up communications for implementation on the Service Commencement Date; (r) identification and assumption of responsibilities for existing subcontracts by the Service Commencement Date; (s) meeting and coordinating with NGES, as necessary, in order to successfully and timely undertake and complete the Front End Transition Services; (t) testing and demonstrating Service Provider s ability to perform the Operations Services in parallel with NGES, or in an acceptable simulated or virtual environment, for up to 60 days prior to the Target Service Commencement Date; (u) testing and demonstrating Service Provider's ability to produce on schedule the financial, accounting, and other analytical reports and schedules which LIPA receives under the MSA on a monthly or other basis, that support the Operations Services, including schedules necessary for LIPA to issue its tax-exempt debt, and to submit filings to regulatory agencies and prepare financial statements in accordance with GAAP; (v) providing such access as may be necessary to Service Provider's financial and accounting records and staff and creating schedules requested by LIPA or its auditors or other consultants as may be necessary to support the annual audit of LIPA's financial statements, audits performed by the NY State Comptroller's Office, or any other regulatory agencies, and to support special audits as may be requested by LIPA; and (w) development of recommendations to the Transition Committee on the Performance Metrics for the first Contract Year of the Agreement, including determination of benchmarks for first quartile, establishment of baseline, minimum and target levels, and development of reporting processes. Section 4.2 Periodic Reports. (a) Service Provider shall provide the Transition Committee (as defined below) with detailed weekly, monthly and other periodic reports as the Transition Committee may reasonably request from time to time with respect to Service Provider s performance of the 5

11 Front End Transition Services, including, but not limited to, the progress against budget, completion schedules, and milestones, including but not limited to those provided in the Front End Transition Plan. In connection therewith, Service Provider shall provide the Transition Committee with any other documents, reports, data, and other information or statement which the Transition Committee may reasonably request, including performance reports related to any of Front End Transition Services, and which may be reasonably produced from records maintained by Service Provider in the normal course of business consistent with the provisions of this Agreement with respect to record retention requirements. (b) Service Provider shall promptly advise the Transition Committee of any actual or potential failure or inability to achieve milestones by the dates set forth in the Front End Transition Plan, and shall promptly report to the Transition Committee any problems encountered in the performance of the Front End Transition Services, which Service Provider determines it is unable to promptly and adequately resolve. SECTION 5. THE TRANSITION COMMITTEE Section 5.1 General. The Parties hereby establish a transition committee (the "Transition Committee") which shall have responsibility for providing overall oversight, monitoring and coordination of the conduct of the Front End Transition Services, including progress against schedules and milestones, establishing priorities, approving any adjustments to the Front End Transition Plan and resolving, in the first instance, issues and disputes arising in connection therewith. The Transition Committee shall: (a) determine the schedule and process for the dissemination, review, and discussion of information pertaining to the operation and performance of the Front End Transition Services under the Front End Transition Plan; (b) review periodic progress reports from Service Provider describing Service Provider s progress in completing the Front End Transition Services under the Front End Transition Plan, identifying any unanticipated obstacles, delays, or problems, and recommending steps to resolve the same; (c) address any problems which Service Provider may encounter from time to time in the performance of the Front End Transition Services which Service Provider advises it cannot promptly and adequately resolve; (d) provide timely input with respect to the development and approval of budgets for the Front End Transition Services during the Transition Period; (e) monitor the monthly and annual budgets for the Front End Transition Services and promptly address significant variances between actual costs and budgeted amounts; (f) if and to the extent the Transition Committee determines necessary or appropriate, adjust, update or otherwise modify the Front End Transition Plan from time to time in light of experience developed during the Transition Period; 6

12 (g) engage in such other activities with respect to the oversight, coordination and administration of this Agreement as it may deem necessary, appropriate or advisable; and (h) review and approve Performance Metrics for the first Contract Year of the OSA, including benchmarks for first quartile, establishment of baseline, minimum and target levels, and development of reporting processes. Section 5.2 Membership. The Transition Committee membership shall consist of five senior representatives of LIPA and four senior representatives of Service Provider. LIPA and Service Provider shall designate and notify each other of their respective Transition Committee members and two alternate members not later than 10 days following the date of this Agreement. A Party may replace its Transition Committee members and alternates by written notice to the other Party should a vacancy occur for any reason. The Parties recognize and agree, however, that continuity of membership will foster a more efficient coordination and administration of the Front End Transition Plan and will therefore seek to maintain the existing membership to the extent possible. The Transition Committee shall establish its own charter, and procedures and policies for the administration of its activities. Section 5.3 Disputes. The Parties agree that notwithstanding a decision or action taken by a majority of the Transition Committee with respect to the following matters (each a "Material Decision"), a Party shall have the right to dispute the Material Decision and submit the dispute for resolution under Section 21 hereof. For purposes of this Section 5.3, the following shall constitute Material Decisions: thereof; (i) whether a Force Majeure event or LIPA Fault has occurred and the effect (ii) a decision or action which has or is reasonably likely to have a material adverse effect on Service Provider's ability to earn or receive Milestone Payments; (iii) 12.5(b) hereof; determinations of disputed invoice amounts as contemplated by Section (iv) a decision or action which imposes additional costs on Service Provider that are not payable or reimbursable by LIPA under the terms of this Agreement; and (v) a decision or action which materially and adversely affects Service Provider s ability to complete the Front End Transition Plan by the Target Service Commencement Date. SECTION 6. THE SERVICE COMPANY Section 6.1 General. As promptly as reasonably practicable following the Effective Date, Service Provider shall organize a wholly-owned subsidiary service company ("ServCo") as a New York limited liability company. As contemplated by the OSA, ServCo will employ the general workforce ultimately required by Service Provider to perform the Operations Services thereunder beginning on the Service Commencement Date. Service Provider shall directly, or 7

13 indirectly through ServCo, its Subcontractors or its Affiliates, carry out the Front End Transition Plan and perform the Front End Transition Services. Section 6.2 Organizational Matters; Covenants. Service Provider shall provide LIPA with the proposed forms of ServCo's organizational documents including the articles of organization, notice of formation, operating agreement and related documents for review and approval prior to their adoption and filing. During the Transition Period, Service Provider will maintain ownership of all of the membership interests of ServCo free and clear of any liens, pledges, charges or other encumbrances whatsoever. If ServCo should undertake material Front End Transition Services hereunder, LIPA, in its sole discretion, may require ServCo to become a Party to this Agreement by executing a joinder to this Agreement. SECTION 7. COOPERATION Section 7.1 General. LIPA shall from time to time take all such actions as may be reasonably necessary in order to enable or assist Service Provider to provide the Front End Transition Services, including, without limitation, (a) providing Service Provider's representatives with designated space and facilities at LIPA's principal offices for their use throughout the Transition Period, (b) giving reasonable access, during normal business hours and at such other times as are reasonably required, to LIPA s premises for the purpose of providing the Front End Transition Services, and (c) encouraging and facilitating a positive and cooperative working relationship with respect to the implementation and completion of the Front End Transition Plan and the performance of the Front End Transition Services thereunder; provided, however, that LIPA does not warrant the success of such efforts and Service Provider shall not be relieved, except to the extent of a Force Majeure or of a LIPA Fault, of any obligations hereunder because LIPA s actions, to the extent they are undertaken in good faith and in a reasonable manner, do not result in the intended outcome. Section 7.2 NGES. LIPA shall take such commercially reasonable actions which are necessary or appropriate from time to time (a) to cause NGES and subcontractors providing goods or services to LIPA to reasonably cooperate (including by providing reasonable access to the relevant facilities, books, records and personnel) with Service Provider to the extent such cooperation may be necessary in order for Service Provider to provide the Transition Services in a timely and efficient manner and to carry out its obligations hereunder and (b) to obtain for Service Provider such legal rights as may be necessary for Service Provider to utilize such facilities, equipment, intellectual property and other contract rights which NGES owns, leases or licenses and are to be transferred to LIPA pursuant to the terms of the MSA. It is understood and agreed, however, that LIPA does not warrant the success of such efforts and Service Provider shall not be relieved, except to the extent of a Force Majeure or of a LIPA Fault, of any obligations hereunder because LIPA s actions, to the extent they are undertaken in good faith and in a reasonable manner, do not result in the intended outcome. SECTION 8. READINESS REPORT; CHECKLIST COMPLETION Section 8.1 General. Not later than 180 days prior to the Target Service Commencement Date, Service Provider shall provide the Transition Committee with a report demonstrating Service Provider's readiness to assume its responsibilities under the OSA on the Target Service Commencement Date (the "Six Month Readiness Report"). 8

14 (a) The Six Month Readiness Report shall identify any responsibilities that Service Provider is obligated to assume under the OSA which Service Provider believes it may not be ready to or cannot timely assume on or prior to the Target Service Commencement Date. For any responsibilities under the OSA that Service Provider anticipates it may not be ready to assume or cannot timely assume by the Target Service Commencement Date, Service Provider shall simultaneously provide the Transition Committee with a written report containing a remedial action plan explaining how it will address such delay and how it intends to remedy the delay. Thereafter, Service Provider shall provide the Transition Committee with weekly reports detailing its progress against any remedial action plan. Notwithstanding the foregoing, the acceptance of a remedial action plan shall not be deemed and shall not constitute a waiver of any right which LIPA may have with respect to such delay, including its rights to exercise its remedies due to an Event of Default. (b) Service Provider shall provide LIPA with written notice at such time as Service Provider determines it has satisfactorily completed all items on the Handover Checklist and is therefore ready to perform all Operations Services under the OSA (a "Checklist Completion Notice"). Within five Business Days of its receipt of the Checklist Completion Notice, LIPA shall review the Checklist Completion Notice and, based thereon, notify Service Provider either that LIPA (i) concurs with Service Provider's determination and confirms that Service Provider has substantially completed the Front End Transition Plan (which event shall constitute "Substantial Completion of the Front End Transition Plan") or (ii) disagrees with Service Provider's determination, describing in reasonable detail the basis for LIPA's disagreement (a "Completion Objection Notice"). The Parties will seek to resolve any issues raised in a Completion Objection Notice and, if they are unable to do so within five Business Days, a Party may submit the matter for dispute resolution pursuant to Section 21 hereof. SECTION 9. SUBCONTRACTORS Section 9.1 General. LIPA shall have the right to approve all Subcontractors engaged by Service Provider to perform any Front End Transition Services hereunder, which approval shall not be unreasonably withheld or delayed. For any services or group of services in which an aggregate of $250,000 would be anticipated to be paid to a Subcontractor during the Transition Period, LIPA shall have the right to approve such Subcontractors on a task-by-task basis. Section 9.2 Identification. Prior to the beginning of the Transition Period, Service Provider shall propose a list of recommended subcontractors for LIPA s review and approval, which shall specify the proposed categories of potential work under contracts pursuant to which less than $250,000 would be paid for each such subcontractor during the Transition Period. Service Provider also shall furnish LIPA, together with such list, all information requested by LIPA, to the extent reasonably available to Service Provider, pertaining to the proposed subcontractors and categories of subcontracts in the following areas: the qualification and experience of the proposed subcontractors for the services to be performed or for the supplies or equipment to be furnished; any conflicts of interest; any record of felony criminal convictions or pending felony criminal investigations; any final judicial or administrative finding or adjudication of illegal employment discrimination; and any known final judicial or administrative finding or adjudication of non-performance of contracts with LIPA or the State of New York. 9

15 Section 9.3 Approval. LIPA may approve any proposed subcontractor for the Transition Period or for a designated shorter period or for a specific subcontract, which approval shall not be unreasonably withheld or delayed. If a subcontractor is approved for the Transition Period or for a shorter period, such subcontractor shall be deemed to be approved for the specified categories of potential work for the duration of the Transition Period or shorter period, as the case may be, unless LIPA otherwise notifies Service Provider. Subject to the foregoing, the approval or withholding thereof by LIPA of any proposed subcontractor shall not create any liability of LIPA to Service Provider, such subcontractor, third parties or otherwise. When engaging subcontractors, Service Provider shall not be relieved from its responsibility under this Agreement and liability for any error, fault or inconsistency in the provisions of the Front End Transition Services hereunder. All such subcontracts shall be subject to applicable New York State law and shall be assignable to LIPA at its discretion. Section 9.4 Approval of Lockheed Martin. LIPA hereby approves Lockheed Martin Services, Inc. as a Subcontractor of the Service Provider under this Agreement to perform the Front End Transition Services during the Term as set forth in a subcontract between the parties which shall be in substantially the form of the draft subcontract attached hereto as Exhibit B (the "LM Subcontract"). During the Term, Service Provider agrees that it shall not terminate or make any material amendment or modification to the LM Subcontract (a) unless it shall first provide LIPA with not less than 30 days prior written notice of such proposed amendment, modification or termination and (b) if LIPA reasonably objects in writing to such proposed amendment, modification or termination. Notwithstanding the foregoing, Service Provider may amend or modify the compensation arrangements as set forth in the LM Subcontract so long as the LM Subcontract continues to provide for meaningful revenue sharing between the parties thereto. SECTION 10. INDEPENDENT CONTRACTOR Section 10.1 General. Service Provider will perform this Agreement in the capacity of an independent contractor except and then only to the extent the Parties have expressly agreed that Service Provider shall act as LIPA's agent hereunder. Nothing in this Agreement shall be construed or inferred to imply that Service Provider is a partner, joint venturer, agent or representative of, or otherwise associated with LIPA. Each Party agrees not to represent to others or take any action from which others could reasonably infer that any of the Parties hereto is a partner, joint venturer, agent or representative of, or otherwise associated with, the other Party. SECTION 11. CREDIT SUPPORT Section 11.1 General. Not later than five Business Days following the Effective Date, Service Provider shall provide LIPA with the required Credit Support in the amount of $10,500,000. For purposes of this Agreement, "Credit Support" shall mean (a) an irrevocable, unconditional guaranty in the form attached hereto as Exhibit A from Service Provider's Parent Company or an Affiliate of the Service Provider (a "Guarantor") having at all times during the Transition Period (i) tangible net assets of not less than $500 Million and (ii) not less than the following credit rating from two of the three specified rating agencies: BBB from Standard & Poor's and from Fitch Ratings and Baa2 from Moody's Investors Services, and (b) in the event that the Guarantor no longer satisfies the creditworthiness standards set forth in (i) and (ii) above, 10

16 either (x) a substitute Guarantor who meets the creditworthiness standards set forth in (i) and (ii) above or (y) an acceptable irrevocable standby bank letter of credit in the amount of $10,500,000 issued by a U.S. commercial bank or foreign bank with a U.S. branch having (i) net assets of not less than $1 Billion and (ii) not less than the following credit rating from two of the three specified rating agencies: A- from Standard & Poor s and Fitch Ratings and A3 from Moody s Investors Services (the Letter of Credit ). SECTION 12. SERVICE PROVIDER COMPENSATION; PAYMENT Section 12.1 General. As compensation for the Front End Transition Services provided by Service Provider, LIPA shall pay Service Provider the Service Fees and, if earned, the Milestone Payments as set forth below. Section 12.2 Service Fees. LIPA shall pay Service Provider on an hourly basis (plus reasonable, agreed upon out-of-pocket expenses incurred by Service Provider) (collectively, the "Service Fees") which shall be calculated as follows: (a) The actual base hourly salaries of Service Provider personnel working on, or providing the Front End Transition Services, multiplied by a factor for purposes only of recovering costs associated with employee benefits, statutory fringes, and provisions for corporate overhead recovery without profit or markup (the "Transition Multiplier"); and (b) The result produced by Section 12.2(a) multiplied by the number of hours worked for Service Provider personnel. (c) The Transition Multiplier shall be Only individuals performing work under this Agreement shall be eligible to be billed to LIPA. Overtime (including secretarial overtime), defined to be time in excess of eight hours per day, shall not be reimbursable unless warranted by extraordinary circumstance and with LIPA s prior written approval pursuant to procedures set forth in the Contract Administration Manual. Section 12.3 Milestone Payments. Service Provider shall be entitled to the amounts set forth in Schedule 4 if, and only if, Service Provider completes the deliverable, or otherwise provides to LIPA the services, associated with such payment on or before the delivery date specified in Schedule 4 for that payment, as such delivery date may be extended by agreement of the Parties or due to Force Majeure or LIPA Fault (each a "Milestone Payment"). Notwithstanding the foregoing, except upon certain termination events as expressly provided in Section 14.4 hereof, LIPA shall have no obligation or liability to pay to Service Provider and Service Provider shall have no right to receive any Milestone Payments if the Service Commencement Date does not occur on or before the Target Service Commencement Date. Section 12.4 Expenses; Third Party Costs. All approved contractor and third party costs, reasonable travel, food, and lodging expenses associated with the provision of Transition Services, excluding automobile mileage, shall be billed at cost. Charges in excess of $25 must be substantiated by receipts. Automobile mileage shall be billed in accordance with current rates as stipulated in the U.S. Federal Acquisition Regulations. Service Provider shall take all reasonable actions to mitigate any expected longer-term or recurring costs such as lodging 11

17 expenses, for example, which it anticipates to incur in providing the Front End Transition Services. Service Provider is required to submit detailed documentation in support of requests for reimbursement pursuant to procedures set forth in the Contract Administration Manual. Section 12.5 Invoices. By no later than the tenth day of each month, Service Provider shall provide LIPA with a monthly invoice describing in reasonable detail the prior calendar month s Front End Transition Services and expenses (including third party and Subcontractor costs) and the Service Fees for such prior calendar month. (a) Payments of undisputed amounts on monthly invoices shall be due within 30 days of LIPA's receipt of such invoice. (b) Service Provider shall provide promptly to LIPA such additional supporting documentation evidencing the provision of Front End Transition Services, if any, and the calculation of Service Fees related thereto as LIPA may reasonably request and as may be required by Section 2880 of the New York Public Authorities Law. LIPA shall promptly advise Service Provider of any disputed invoice amounts, and all such disputes which the Parties are unable to resolve shall be submitted to the Transition Committee for resolution as provided in Section 21 hereof. (c) LIPA shall pay all undisputed amounts due under this Agreement free of any set-off, deduction or withholding. Without prejudice to Service Provider s other rights and remedies, where any sum remains unpaid after the applicable due date, it shall bear interest, which shall accrue daily, from the due date until the date of actual payment, at the Default Interest Rate. All amounts are payable in U.S. Dollars. Section 12.6 Audit. At any time and from time to time during and until the expiration of six years following the end of the Transition Period, LIPA may, upon reasonable notice, and at its own cost, audit (or cause to be audited) Service Provider s and all Subcontractor books and records in connection with any requests for payment of the Service Fees and cost reimbursement together with the supporting vouchers and statements, and the calculation of the Service Fees. Subject to the dispute resolution provisions of Section 21 hereof, each payment made by LIPA hereunder shall be subject to subsequent adjustment for amounts determined by LIPA not to constitute an allowable cost under this Agreement or for additional amounts determined by LIPA to be due to Service Provider on the basis of such audit. Following the determination that any such payment adjustment is required, the Party required to make payment shall do so within 30 days of the date of such determination. SECTION 13. EVENTS OF DEFAULT; REMEDIES Section 13.1 Service Provider Events of Default. Each of the following shall constitute an Event of Default on the part of Service Provider: (a) Involuntary Bankruptcy. The filing of an involuntary petition under the Federal Bankruptcy Code against either Service Provider or Guarantor which petition has not been either dismissed, discharged or stayed within 45 days after its filing; 12

18 (b) Voluntary Bankruptcy. The written admission by Service Provider or Guarantor that it is bankrupt, or the filing by Service Provider or Guarantor of a voluntary petition, or the consent by Service Provider or Guarantor to the appointment by a court of a receiver or trustee for all or a substantial portion of its property or business, or the making by Service Provider or Guarantor of any arrangement with or for the benefit of its creditors involving an assignment to a trustee, receiver or similar fiduciary, regardless of how designated, of all or a substantial portion of Service Provider s or Guarantor's property or business; (c) Credit Support. Failure of Service Provider to provide and maintain in full force and effect the required Credit Support which failure has not been cured within 10 Business Days following its occurrence by providing LIPA with either (i) a Guaranty Agreement from a substitute Guarantor or (ii) a Letter of Credit in support of the existing Guaranty Agreement which in such case shall remain in full force and effect but without duplication; (d) Failure to Comply With Agreement. The failure or refusal by Service Provider to perform any material obligation under this Agreement or of Guarantor to perform any material obligation under the Guaranty which failure is not excused due to a Force Majeure or LIPA Fault and has not been cured within 30 days following receipt of written notice thereof from LIPA; provided, however, that as long as Service Provider or Guarantor, as the case may be, is diligently attempting in good faith to cure such failure and it is reasonably expected that such failure is subject to cure, then Service Provider or Guarantor, as the case may be, shall have an additional 30 days to cure such default; provided further, however, that the preceding proviso shall not extend the time to comply with any Credit Support or payment obligations hereunder or under the Guaranty; (e) Target Service Commencement Date. Failure of Service Provider to achieve Substantial Completion of the Front End Transition Plan by the Target Service Commencement Date; and (f) Breach of Representation or Warranty. Any breach of a representation or warranty made by Service Provider in Section 19.2 hereof or by Guarantor in the Guaranty which has or is reasonably likely to have a material adverse effect on Service Provider's performance of its obligations hereunder or Guarantor's performance of its obligations under the Guaranty and in either case is not cured within 30 days following notice thereof from LIPA. Section 13.2 LIPA s Remedies for Service Provider Default. (a) Upon the occurrence of an Event of Default by Service Provider under paragraphs (a) or (b) of Section 13.1, this Agreement shall immediately terminate without further action by LIPA. (b) Following any other Event of Default by Service Provider, LIPA may seek by appropriate proceedings, judicial, administrative or otherwise, at law, in equity or otherwise, to protect and enforce its rights, to recover any damages to which it may be entitled hereunder, and to enforce performance by Service Provider, including specific performance of Service Provider s obligations hereunder; and, in addition, to exercise its remedies under this Agreement, as follows: subject, however, to the limits on liability set forth in Section 15.4 hereof: 13

19 (1) For an Event of Default under paragraph (c) or (d) of Section 13.1, and for an Event of Default under paragraph (e) of Section 13.1 if Service Provider previously has paid (or is already obligated to pay) LIPA the Maximum Liquidated Damage Amount pursuant to Section 13.2(b)(2) below, LIPA may terminate this Agreement upon not less than 10 Business Days' written notice to Service Provider; (2) For an Event of Default under paragraph (e) of Section 13.1, Service Provider shall pay to LIPA, as LIPA's sole and exclusive remedy for all monetary damages, costs, losses and expenses of whatever type or nature arising from or related to such Event of Default, liquidated damages (the "Liquidated Damages") in the amount of $1,750,000 per month for each month (or for any portion of a month on a pro rata basis) the Target Service Commencement Date is delayed, up to a maximum of $10,500,000 (the "Maximum Liquidated Damage Amount"). It is understood and agreed by the Parties that if such a Service Provider Event of Default should occur, LIPA's damages would be difficult or impossible to quantify with reasonable certainty, and accordingly, the payment provided for in this Section 13.2(b)(2) is a payment of liquidated damages (and not penalties) which is based on the Parties' estimate of damages LIPA would suffer or incur. Service Provider hereby irrevocably waives any right it may have to raise as a defense that the Liquidated Damages are excessive or punitive. Section 13.3 LIPA Events of Default. Each of the following shall constitute an Event of Default on the part of LIPA: (a) Failure to Pay. The failure of LIPA to pay undisputed amounts owed to Service Provider under this Agreement within 45 days following the due date for such payment; (b) Involuntary Bankruptcy. The filing of an involuntary petition under the Federal Bankruptcy Code against LIPA or the Authority which petition has not been either dismissed, discharged or stayed within 45 days after its filing; (c) Voluntary Bankruptcy. The written admission by LIPA or the Authority that it is bankrupt, or the filing by LIPA or the Authority of a voluntary petition or the consent by LIPA or the Authority to the appointment by a court of a receiver or trustee for all or a substantial portion of either of their properties or businesses, or the making by LIPA or the Authority of any arrangement with or for the benefit of its creditors involving an assignment to a trustee, receiver or similar fiduciary, regardless of how designated, of all or a substantial portion of LIPA s or the Authority's property or business; (d) Failure to Comply with Agreement. The failure or refusal by LIPA to perform any material obligation under this Agreement (other than its payment obligation under paragraph (a) above) which failure is not excused due to a Force Majeure and has not been cured within 30 days following receipt of written notice thereof from Service Provider or Guarantor; provided, however, that as long as LIPA is diligently attempting in good faith to cure such failure and it is reasonable to expect that such failure is subject to cure, then LIPA shall have an additional 30 days to cure such default; and (e) Breach of Representation or Warranty. Any breach of a representation or warranty made by LIPA in Section 19.1 hereof which has or is reasonably likely to have a 14

20 material adverse effect on LIPA's performance of its obligations hereunder and which is not cured within 30 days following written notice thereof from Service Provider. Section 13.4 Service Provider Remedies for LIPA Default. Upon the occurrence of an Event of Default by LIPA under (x) paragraph (a) of Section 13.3, Service Provider may terminate this Agreement upon not less than 10 Business Days written notice to LIPA, and (y) paragraphs (b) or (c) of Section 13.3, this Agreement shall immediately terminate without any further action by Service Provider. Following any other Event of Default by LIPA, Service Provider may seek by appropriate proceedings, judicial, administrative or otherwise, at law, in equity or otherwise, to protect and enforce its rights, to recover any damages to which it may be entitled hereunder, and to enforce performance by LIPA, including specific performance of LIPA's obligations hereunder, and to exercise its remedies under this Agreement. SECTION 14. ADDITIONAL TERMINATION RIGHTS; TRANSFER OF SERVCO Section 14.1 Change of Control. In the event a Change of Control of the Service Provider, the Guarantor or the Parent Company shall have occurred during the Transition Period, LIPA may terminate this Agreement upon not less than 30 days written notice to Service Provider; provided, however, that such notice must be given not later than 30 days following LIPA s receipt of written notice from Service Provider of the occurrence of such Change of Control. If LIPA fails to give such notice to Service Provider within such 30 day period, LIPA's termination rights with respect to such Change of Control under this Section 14.1 (but not with respect to any other or future Change of Control) shall expire and be of no further force or effect. Section 14.2 Other. LIPA may terminate this Agreement upon not less than 30 days' written notice to Service Provider at any time prior to the Target Service Commencement Date in the event LIPA elects to terminate the OSA upon a Municipalization or a Privatization. The Parties may also mutually agree to terminate this Agreement at any time. Section 14.3 Performance of Obligations. Following the giving of any termination notice under Section 13 or this Section 14, each Party shall continue to perform all of its obligations hereunder through the effective date of any such termination. Section 14.4 Compensation. (a) In the event of a termination of this Agreement under Section 13.3, 14.1 or Section 14.2, Service Provider shall be entitled to (i) compensation for the Service Fees, (ii) payment of its recoverable expenses under this Agreement for all Front End Transition Services rendered, (iii) any Milestone Payments earned and (iv) payment of its costs and any expenses incurred which are reasonably necessary to wind down its Front End Transition Services, in each case up to the effective date of such termination. (b) In the event LIPA terminates this Agreement pursuant to Section 14.1, Service Provider shall pay LIPA a termination fee in the amount of $7,000,000 on the effective date of such termination. 15

21 (c) Subject to the foregoing, any termination of this Agreement shall not otherwise affect any monies owing or obligations incurred hereunder by any of the Parties prior to the effective date of such termination. Section 14.5 Transfer of ServCo. In the event this Agreement is terminated pursuant to Section 13 or this Section 14, Service Provider shall on the effective date of the termination immediately transfer to LIPA or its designee the ServCo membership interests (free and clear of all liens, claims, charges and encumbrances) together with all ServCo assets, books, records, agreements and documents relating to its business and operations. The Parties shall mutually agree upon such instruments, agreements and other documents as may be reasonably necessary to effect such transfer. Section 14.6 No Liability. In the event this Agreement is terminated pursuant to this Section 14, except for the continuing obligations of the Parties which expressly survive such termination as provided in Section hereof, neither Party shall have any further liability or obligation to the other Party hereunder from and after the effective date of such termination. SECTION 15. INDEMNIFICATION; LIMITATIONS Section 15.1 Service Provider Indemnity. Subject to the limitation on Service Provider s liability set forth in Section 15.4 hereof, Service Provider hereby agrees to defend, indemnify, and hold harmless LIPA and its Affiliates and each of their respective officers, directors, trustees, employees, stockholders, agents and representatives (the "LIPA Indemnitees") from and against any and all Loss-and-Expense arising out of or resulting from Service Provider s (or their Subcontractors ) or its Affiliates negligence or willful misconduct in the performance of the Front End Transition Services hereunder, third party claims of infringements to the extent related to Service Provider s or Service Provider Related Parties (or their Subcontractors ) Pre-Existing Transition Services IP or Work Product, any breach of this Agreement, including any breach of any representations and warranties made in Section 19.2 hereof, except to the extent such Lossand-Expense is directly attributable to LIPA s negligence or willful misconduct. Notwithstanding the foregoing, the Parties hereby acknowledge and agree that LIPA's sole and exclusive remedy for monetary Loss-and-Expense for Service Provider's failure to achieve Substantial Completion of the Front End Transition Services by the Target Service Commencement Date is payment of Liquidated Damages up to the Maximum Liquidated Damage Amount as provided in Section 13.2 (b)(2) hereof. Section 15.2 LIPA Indemnity. Subject to the limitations in liability set forth in Section 15.4(a) hereof, LIPA hereby agrees to defend, indemnify and hold harmless Service Provider and its Affiliates and each of their respective officers, directors, trustees, employees, stockholders, agents and representatives (the "Service Provider Indemnitees") from and against any and all Loss-and-Expense arising out of or resulting from LIPA s (or its subcontractors') and/or its Affiliates negligence, willful misconduct or breach of this Agreement, including any breach of any representation or warranty made in Section 19.1 hereof, except to the extent that any such Loss-and-Expense is directly attributable to Service Provider s or its Subcontractors or Affiliates' negligence or willful misconduct. Section 15.3 Claims Procedure. 16

22 (a) Each Party hereto shall promptly notify the other Party of the assertion of any claim against it for which it is entitled to be indemnified hereunder, shall give the indemnifying party the opportunity to defend such claim, and shall not settle the claim without the approval of the indemnifying party. The indemnifying party shall be entitled to control the handling of any such claim and to defend or settle any such claim, in its sole discretion, with counsel of its own choosing that is acceptable to the indemnified parties; provided, however, that, in the case of any such settlement, the indemnifying party shall also obtain written release of all liability of the indemnified parties, in form and substance reasonably acceptable to the indemnified parties. Notwithstanding the foregoing, each indemnified party shall have the right to employ its own separate counsel in connection with, and to participate in (but, except as provided below, not control) the defense of, such claim, but the fees and expenses of such counsel incurred after notice to the indemnifying party of its assumption of the defense thereof shall be at the expense of such indemnified party unless: (i) the employment of counsel by such indemnified party has been authorized by the indemnifying party; (ii) counsel to such indemnified party shall have reasonably concluded that there may be a conflict on any significant issue between the indemnifying party and such indemnified party in the conduct of the defense of such claim; or (iii) the indemnifying party shall not in fact have employed counsel reasonably acceptable to the indemnified party to assume the defense of such claim within 20 days following the receipt by the indemnifying party of the notice from the indemnified party regarding the assertion of the applicable claim, in each case the fees and expenses of counsel for such indemnified party shall be at the expense of the indemnifying party; provided, however, that, with respect to clauses (ii) and (iii) of this sentence, the indemnifying party shall not be obligated to pay the fees and expenses of more than one law firm, plus local counsel if necessary in each relevant jurisdiction, for all such indemnified parties with respect to any claims arising out of the same events or facts or the same series of events or facts. The indemnifying party shall not be entitled, without the consent of such indemnified party, to assume or control the defense of any claim as to which counsel to such indemnified party shall have reasonably made the conclusion that there may be a conflict on any significant issue between the indemnifying party and such indemnified party in the conduct of the defense of such claim as set forth in clause (ii) above, provided that the foregoing limitation shall apply only with respect to those issues for which there may be such a conflict. These indemnification provisions are for the protection of the indemnified parties only and shall not establish, of themselves, any liability to third parties. Section 15.4 Limitations on Liability. (a) Neither Service Provider Related Parties nor the LIPA Related Parties shall, to the fullest extent permitted by law, be liable, whether in contract, indemnity, tort (including negligence, gross negligence and strict liability) or otherwise for any indirect, incidental, consequential or punitive damages arising from or relating to the performance or failure to perform their respective obligations under this Agreement, except for such damages payable to a Third Party in respect of a Third Party Claim. 17

23 (b) Notwithstanding anything contained in this Agreement to the contrary, Service Provider s entire liability to LIPA and the LIPA Indemnitees, whether in contract, indemnity, tort (including negligence, gross negligence and strict liability) or otherwise, and whether for breach of contract or indemnification, and for all Loss-and-Expense suffered by LIPA or the LIPA Indemnitees under this Agreement shall be limited to an aggregate amount (including any Liquidated Damage payments made to LIPA) of $10,500,000. SECTION 16. INSURANCE Section 16.1 General. Service Provider shall obtain and maintain in effect during the Transition Period property, liability and casualty insurance policies with respect to its performance of Front End Transition Services of the types and amounts of coverage as set forth in Schedule 3 hereto. SECTION 17. FORCE MAJEURE Section 17.1 General. If due to a Force Majeure event a Party is wholly or partially unable to perform its obligations under this Agreement, so long as such Party is in compliance with this Section 17, such Party (a) shall be excused from performance solely for the duration of, and solely to the extent that, such Force Majeure event prevents such Party from performing its obligations under this Agreement, and (b) shall not be in default in respect of any obligation hereunder. Notwithstanding the foregoing, in no event, however, shall a Force Majeure event excuse or suspend a Party's payment obligations hereunder. Section 17.2 Due Diligence. A Party claiming a Force Majeure event ("Claiming Party") shall: (a) provide prompt notice of such Force Majeure event to the other Party ("Non-Claiming Party"), including: a detailed written explanation of the event and an estimate of its expected duration and probable effect on the performance of the Claiming Party s obligations hereunder, together with the proposed action to mitigate or cure the Force Majeure event; (b) use its best efforts in accordance with Contract Standards to continue to perform its obligations under this Agreement and to remedy the condition that prevents or delays performance and mitigate the effects of same; and (c) keep the Non-Claiming Party timely informed in writing of all efforts to mitigate and remedy the Force Majeure event, including periodic updates to the duration estimate and, if applicable, notice of the Force Majeure event s cure. Section 17.3 Suspension of Performance. The suspension of performance due to a Force Majeure event shall be of no greater scope and of no longer duration than is required by such Force Majeure event. Section 18.1 Work Product. SECTION 18. INTELLECTUAL PROPERTY (a) The Parties hereby acknowledge and agree that, as between them, and whether or not specifically recognized or perfected under any Applicable Law, LIPA shall own all right, title, and interest in and to all Intellectual Property, and derivatives thereof, regardless of format, first created or produced in connection with performing the Transition Services under this Agreement by Service Provider and Service Provider Related Parties and, to the extent the 18

24 applicable third party contracts so provide, any of their Subcontractors ("Transition Services Work Product" or Work Product ), all of which shall to the fullest extent under Applicable Law be considered works made for hire. Service Provider shall use commercially reasonable efforts to ensure that relevant third-party contracts with Subcontractors properly reflect LIPA s ownership of Transition Services Work Product and Work Product pursuant to the preceding sentence. If any Subcontractor refuses to include such a provision in a relevant third-party contract, Service Provider shall notify LIPA and, at LIPA s request, Service Provider shall not use such Subcontractor for the provision of Transition Services. Whether or not any Transition Services Work Product constitutes a work made for hire, all Transition Services Work Product shall be the Intellectual Property of LIPA, which shall have the sole right to obtain or claim Patent (pursuant to Section 18.1(b)), Copyright Rights, Trademark and any other Intellectual Property rights therein, and to otherwise preserve its rights in and to the Work Product. (b) To the extent that ownership in any Transition Services Work Product does not automatically vest in LIPA, then Service Provider shall transfer and assign and shall cause Service Provider Related Parties and shall use commercially reasonable efforts to cause any of their Subcontractors to transfer and assign, and Service Provider does hereby assign all right, title and interest (including without limitation, all Intellectual Property rights, including any related Copyright Rights) in and to such Transition Services Work Product to LIPA. Service Provider shall, and shall cause Service Provider Related Parties and shall use commercially reasonable efforts to cause any applicable Subcontractors to, execute all documents and take all actions requested by LIPA to transfer such ownership and otherwise assist LIPA to register, patent and otherwise maintain and protect LIPA s Intellectual Property rights in and to such Transition Services Work Product anywhere in the world. Service Provider shall promptly and fully disclose in writing to LIPA all patentable Work Product created during this Agreement. Upon notification, LIPA shall have the right, in its sole discretion and at its sole cost and expense, to patent such Work Product (the resulting Patents shall be LIPA Patents ). Pursuant to this Section 9.3(C), Service Provider shall provide all necessary assistance for LIPA to obtain, sustain, and, from time to time, enforce such LIPA Patents. Such assistance shall be at LIPA s sole cost and expense. LIPA shall not assert LIPA Patents against Service Provider or Service Provider Related Parties or their Subcontractors in connection with the operation of their business operations or the performance of services for Service Provider or Service Provider Related Parties or LIPA. If LIPA notifies Service Provider of its intent not to patent any particular patentable Work Product, Service Provider shall have the right, in its sole discretion and at its sole cost and expense, to patent such Work Product (the resulting Patents shall be Service Provider Patents ). Service Provider shall not assert Service Provider Patents against LIPA or LIPA Related Parties or their contractors or Subcontractors in connection with the operation of their business operations or the performance of services for LIPA or LIPA Related Parties. The parties agree to enter into license agreements as appropriate consistent with the foregoing. (c) Subject to the terms and conditions of this Agreement, LIPA hereby grants, and shall cause its Affiliates to grant, to Service Provider and Service Provider Related Parties a fully paid-up, royalty-free, non-exclusive, non-transferable, sub-licensable (to Subcontractors) limited license during the Term of this Agreement to make, have made, use, import, copy, and modify the Transition Services Work Product, and to the extent sublicenseable, the LIPA Licensed Intellectual Property, solely as necessary to perform their 19

25 obligations pursuant to this Agreement. The use of LIPA Licensed Intellectual Property shall be subject to the license terms governing such use of third-party Intellectual Property. LIPA shall notify Service Provider of all such license terms, to the fullest extent permitted by the applicable contract. To the extent any LIPA Licensed Intellectual Property cannot be licensed to Service Provider or Service Provider Related Parties or their Subcontractors for any reason, or the relevant contract cannot be disclosed to Service Provider, then Service Provider, Service Provider Related Parties, and their Subcontractors in consultation with LIPA shall promptly obtain their own third party licenses for the relevant Intellectual Property at the sole cost and expense of LIPA. Section 18.2 Pre-Existing Property. Any Intellectual Property that is not first created or produced under this Agreement and is embedded in or otherwise necessary for the operation of the Transition Services Work Product shall remain the Intellectual Property of the owner, or contributing party (and shall be referred to as "LIPA Pre-Existing Transition Services IP", "Service Provider Pre-Existing Transition Services IP," "Service Provider Related Parties Pre- Existing Transition Services IP" or "Subcontractor Pre-Existing Transition Services IP", as the case may be). LIPA and Service Provider hereby grant (and Service Provider shall cause its Subcontractors to grant) to each other during the Transition Period and to the extent sublicensable non-exclusive, royalty-free, worldwide licenses to make, have made, use, import, copy, and modify such Intellectual Property in connection with the provision of services under this Agreement or under the OSA. The Parties shall indemnify and defend each other (and in the case of Service Provider Related Parties Pre-Existing Transition Services IP and Subcontractor Pre-Existing Transition Services IP, Service Provider shall indemnify and defend LIPA) as provided in Sections 15.3 and 15.4 hereof against third party claims of infringement with respect to their respective Pre-Existing Intellectual Property. Section 18.3 Subcontractors. Service Provider shall use commercially reasonable efforts to appropriately secure for LIPA the right to any Subcontractor s Intellectual Property and shall indemnify LIPA against third party claims of infringement related thereto. Service Provider shall restrict access to Transition Services Work Product and LIPA Pre-Existing Transition Services IP to its employees and Subcontractors performing the Scope of Services and shall not use Transition Services Work Product or LIPA Pre-Existing Transition Services IP for any other purpose without LIPA's prior approval. Section 18.4 Termination; Survival. In the event this Agreement is terminated prior to the expiration of the Transition Period, Service Provider shall promptly return Transition Services Work Product and LIPA Pre-Existing Transition Services IP to LIPA and shall have no rights thereto thereafter. Except for any Service Provider Pre-Existing Transition Services IP that is embedded in or otherwise necessary for the operation of the Transition Services Work Product, whether for completing the Front End Transition Services or for performing the Operations Services as defined in the OSA, in either case LIPA s license rights as set forth in Section 18.2 shall be perpetual and irrevocable and shall survive termination or expiration of this Agreement, LIPA shall promptly return Service Provider Pre-Existing Intellectual Property to Service Provider or Subcontractors, as the case may be, and shall have no rights thereto thereafter. 20

26 SECTION 19. REPRESENTATIONS AND WARRANTIES Section 19.1 Representations and Warranties of LIPA. LIPA hereby represents and warrants to Service Provider as follows: (a) Existence and Power. LIPA is a corporation duly organized and validly existing under the laws of the State of New York and a wholly-owned subsidiary of the Authority. On and after the Effective Date, LIPA will have full legal right, power and authority to enter into and perform its obligations under this Agreement; (b) Due Authorization and Binding Obligation. LIPA has duly authorized the execution and delivery of this Agreement. This Agreement has been duly executed and delivered by LIPA and on and after the Effective Date, will constitute a legal, valid and binding obligation of LIPA, enforceable against LIPA in accordance with its terms except insofar as such enforcement may be affected by bankruptcy, insolvency, moratorium and other laws affecting creditors rights generally; (c) No Conflict. Neither the execution nor the delivery by LIPA of this Agreement nor the performance by LIPA of its obligations hereunder nor the consummation by LIPA of the transactions contemplated hereby (i) as of the date hereof, conflicts with, violates or results in a breach of any law or governmental regulation applicable to LIPA, or (ii) as of the date hereof, conflicts with, violates or results in a breach of any term or condition of any judgment, decree, contract, agreement (including, without limitation, the certificate of incorporation or other organizational documents of LIPA) or instrument to which LIPA is a party or by which LIPA or any of its properties or assets are bound, or constitutes a default under any such judgment, decree, agreement or instrument, except as would not materially and adversely affect enforceability against LIPA of its obligations hereunder; (d) No Litigation. As of the date hereof, there is no action, suit or other proceeding, at law or in equity, before or by any court or Governmental Body pending against LIPA or the Authority or to LIPA s knowledge, threatened against LIPA or the Authority, which if adversely determined to LIPA or the Authority would materially and adversely affect the validity or enforceability of this Agreement, or which would materially and adversely affect the performance by LIPA of its obligations hereunder; (e) No Legal Prohibition. Subject to receiving the approvals set forth in Section 19.1(f), there is no Applicable Law in effect on the date hereof, which would prohibit the execution, delivery or performance by LIPA of this Agreement and the transactions contemplated hereby; and (f) No Consent. No consent or authorization of, filing with, notice to, or other act by or in respect of any Governmental Body or any other Person is required in connection with the execution and delivery by LIPA or the performance by LIPA of its obligations hereunder except for (i) approval of the New York State Attorney General and (ii) approval of the New York State Comptroller. Section 19.2 Representations and Warranties of Service Provider. Service Provider hereby represents and warrants to LIPA as follows: 21

27 (a) Existence and Power. Service Provider is duly organized and validly existing as a limited liability company under the laws of the State of New York, with full legal right, power and authority to enter into and perform its obligations under this Agreement; (b) Due Authorization and Binding Obligation. Service Provider has duly authorized the execution and delivery of this Agreement. This Agreement has been duly executed and delivered by Service Provider and constitutes the legal, valid and binding obligation of Service Provider, enforceable against Service Provider in accordance with its terms except insofar as such enforcement may be affected by bankruptcy, insolvency, moratorium and other laws affecting creditors rights generally; (c) No Conflict. Neither the execution nor the delivery by Service Provider of this Agreement nor the performance by Service Provider of its obligations hereunder nor the consummation by Service Provider of the transactions contemplated hereby (i) as of the date hereof, conflicts with, violates or results in a breach of any law or governmental regulation applicable to Service Provider and as of the Effective Date will not conflict with, violate or result in a breach thereof, (ii) as of the date hereof, conflicts with, violates or results in a breach of any term or condition of any judgment, decree, contract, agreement (including, without limitation, the certificate of incorporation or other organizational documents of Service Provider) or instrument to which Service Provider is a party or by which Service Provider or any of its properties or assets are bound, or constitutes a default under any such judgment, decree, agreement or instrument, except as would not materially and adversely affect enforceability against Service Provider of its obligations hereunder, or (iii) will result in the creation or imposition of any encumbrance of any nature whatsoever upon any of the properties or assets of Service Provider; (d) No Litigation. As of the date hereof, there is no action, suit or other proceeding, at law or in equity, before or by any court or Governmental Body, pending or, to Service Provider s knowledge, threatened against Service Provider which, if determined adversely to Service Provider, would materially and adversely affect the validity or enforceability of this Agreement, or which would materially and adversely affect the performance by Service Provider of its obligations hereunder; (e) No Legal Prohibition. There is no Applicable Law in effect on the date hereof which would prohibit the execution, delivery or performance by Service Provider of this Agreement and the transactions contemplated hereby; and (f) Intellectual Property. Service Provider and Service Provider Related Parties own the entire right, title and interest in and to, or have all necessary rights to use, all Service Provider Pre-Existing Transition Services IP and Service Provider Licensed Intellectual Property and all rights necessary to grant to LIPA and LIPA Related Parties and LIPA Subcontractors the licenses and other rights as provided herein and to perform their obligations hereunder. Service Provider Pre-Existing Transition Services IP and any Transition Services Work Product is not and will not be subject to any agreements containing any covenant or other provision that in any way limits or restricts the ability of LIPA or any LIPA Related Parties to use or exploit any Service Provider Pre-Existing Transition Services IP or the Transition Services Work Product for use in connection with the Transition Services or Operations Services. 22

28 SECTION 20. RECORDKEEPING Section 20.1 Books and Records. Service Provider shall prepare and maintain (and shall make available to LIPA upon its reasonable request) distinct, proper, accurate and complete books, records, files (including non-privileged internal memoranda and external correspondence relating to all Front End Transition Services) and accounts regarding the operations and financial or other transactions related to the Front End Transition Services hereunder to the extent necessary: (a) to enable LIPA to prepare financial statements regarding the operations of the T&D System, certified in accordance with GAAP and GASB; (b) to verify data with respect to any operations or transactions in which LIPA has a financial or other material interest hereunder; (c) to prepare periodic performance reports and statements with respect to performance of the Front End Transition Services which shall be submitted by Service Provider to LIPA; (d) as LIPA may reasonably request from time to time in connection with Service Provider's provision of Front End Transition Services hereunder; and (e) as may be required by Applicable Law or applicable regulatory authority. Such books, records and accounts shall be subject to Service Provider s internal review procedures under Section 404 of the Sarbanes-Oxley Act, as appropriate. Section 20.2 Access. Service Provider shall, upon reasonable notice from LIPA, produce for examination and copying at Service Provider s office, by LIPA representatives, all books of account, bills, vouchers, invoices, personnel rate sheets, cost estimates and bid computations and analyses, subcontracts, purchase orders, time books, daily job diaries and reports, correspondence, and any other documents showing all acts and transactions in connection with or relating to or arising by reason of this Agreement. Except as otherwise set forth in this Agreement, LIPA shall have full, complete and unrestricted access and audit rights (at LIPA s sole cost and expense) to all such books and records. The provisions of this subsection shall survive for a period of six years following the expiration or earlier termination of this Agreement. SECTION 21. DISPUTE RESOLUTION Section 21.1 Negotiation. A Party (an "Aggrieved Party") may provide written notice to the Transition Committee that the other Party is not performing its obligations in accordance with the terms and conditions of this Agreement or that a Material Decision is in dispute. Such notice shall describe with reasonable specificity the basis for the Aggrieved Party s belief and proposed resolution. If the Transition Committee is unable to resolve the dispute between the Parties within 10 Business Days following receipt of the notice, then the dispute shall be submitted to binding arbitration as set forth below. All negotiations and discussions pursuant to this Section 21.1 shall be confidential, subject to Applicable Law, and shall be treated as compromise and settlement negotiations for purposes of Federal Rule of Evidence 408 and applicable state rules of evidence. Section 21.2 Arbitration. (a) Any dispute which has not been resolved by the procedures set forth in Section 21.1 shall be finally resolved by binding arbitration in accordance with the CPR Rules. The Aggrieved Party shall submit the dispute by written notification to the other Party. Each Party shall within three days of submission of the dispute designate one arbitrator (who may not 23

29 otherwise be affiliated with such Party). The Party-appointed arbitrators shall within three Business Days following their appointment, select a third neutral arbitrator (the "Chair") from the list of qualified neutral arbitrators agreed to by the Parties and attached hereto as Schedule 4, and who shall have no actual or potential conflict in deciding or hearing the dispute. If the Partyappointed arbitrators cannot agree on the selection of the Chair, the Chair shall be selected by the CPR from the list attached hereto as Schedule 4. If none of the listed neutral arbitrators is able to serve, the Party-appointed arbitrators shall agree upon a Chair within three days or failing agreement, the Chair shall be selected by the CPR from its list of arbitrators. (b) The arbitration shall be governed by the FAA and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The site of any arbitration brought pursuant to the terms hereof shall be in Uniondale, New York, or such other site as the Parties may agree. The Parties shall equally bear the costs and expenses of the arbitrators subject to the right of the arbitrators to award a prevailing Party all or a portion of costs of arbitration as discussed in paragraph (c) below. The Parties shall agree in advance as to the manner in which the arbitration panel shall promptly hear witnesses and arguments, review documents and otherwise conduct the arbitration proceedings. Should the Parties fail to reach an agreement as to the conduct of the proceedings, the arbitration panel shall formulate its own procedural rules and promptly commence the arbitration proceedings. The arbitration proceedings shall be conducted as expeditiously as possible and the arbitration panel shall issue its decision (which need not be reasoned) in writing within five calendar days following the conclusion of the hearing of final arguments by the Parties. (c) The arbitration award shall be final and binding on the Parties and not subject to any appeal. The arbitrators shall have no authority to award damages other than the prevailing Party s damages specifically recoverable under and subject to the liability limitations provided in this Agreement plus interest at the Default Interest Rate from the date such damages were incurred. The Parties agree that the arbitration panel may award equitable remedies including specific performance. The arbitration award may include reimbursement of all or a portion of the prevailing Party s costs of arbitration and its reasonable attorneys fees relating to the subject dispute. Judgment upon the award may be entered in any court having jurisdiction or application may be made to such court for a judicial recognition of the award or an order of enforcement thereof, as the case may be. The Parties shall not submit a dispute subject to this Section 21.2 to any federal, state, local or foreign court or arbitration association except as may be necessary to enforce the arbitration procedures of this Section, to enforce the award of the arbitration panel or for provisional relief to prevent irreparable harm. If court proceedings to stay litigation or compel arbitration under the FAA or similar state legislation are necessary, the Party who unsuccessfully opposes such proceedings shall pay all associated costs, expenses and attorneys fees which are reasonably incurred by the other Party. Section 22.1 General. SECTION 22. CONFIDENTIALITY (a) Each Party agrees to maintain the confidentiality of all non-public information relating to any other Party, its Affiliates or any third party that may be disclosed by a Party to such other Party in connection with the performance of the Front End Transition Services hereunder and to use such information solely for the purposes of providing or receiving 24

30 the Front End Transition Services hereunder. Notwithstanding the foregoing, a Party s obligation hereunder shall not apply to information that (i) is already in the receiving Party s possession at the time of disclosure thereof and is not otherwise subject to a confidentiality obligation, (ii) is or subsequently becomes part of the public domain through no action or omission of the receiving Party, or (iii) is subsequently received by the receiving Party from a third party owing no obligation of confidentiality to any Party with respect to such information. (b) Notwithstanding the foregoing, non-public information may be disclosed by the receiving Party (i) to the receiving Party s Affiliates, directors, trustees, officers, employees, agents, subcontractors, auditors, consultants and financial advisors to the extent necessary in connection with the Front End Transition Services, provided that the receiving Party ensures that such parties comply with this Section 22, and (ii) as required by law, provided that, if permitted by law, written notice of such requirement shall be given promptly to the Party from which the non-public information originated so that such Party may take reasonable steps to avoid and minimize the extent of such disclosure. (c) Service Provider acknowledges that LIPA may be required to disclose confidential information of Service Provider upon request pursuant to Applicable Law, including the New York Freedom of Information Law. Section 22.2 LIPA Personal Information. Notwithstanding anything contained in this Section 22 or otherwise in this Agreement to the contrary, the Parties agree that Service Provider and Service Provider Related Parties shall not use or disclose any LIPA Personal Information except as directed by LIPA. Section 22.3 Security. Service Provider shall comply with and shall ensure that all Service Provider Related Parties, Affiliates, and all Subcontractors comply with LIPA s safety and security policies and procedures of which LIPA has given Service Provider prior written notice, and all requirements of the Energy Policy Act and Applicable Law regarding data security, cyber security and information security, including notification of security breaches or attempted breaches, with respect to LIPA Personal Information and the confidential information of LIPA or LIPA Related Parties. Service Provider shall immediately notify, and shall ensure all Service Provider Related Parties and Subcontractors shall immediately notify, LIPA (if possible, in writing) of any breaches in security or attempted breaches in security or any breach of data security of which it has knowledge, and at LIPA s direction shall perform an analysis of the cause, shall use commercially reasonably efforts to remedy such breach and shall cooperate fully with any civil or criminal authority in any investigation or action relating to such breach or attempted breach. SECTION 23. MISCELLANEOUS Section 23.1 Amendment and Waivers. No amendment of this Agreement will be effective unless it is in writing and signed by the Parties hereto and approved by the New York State Comptroller and the New York State Attorney General. No waiver of any provision of this Agreement will be effective unless it is in writing and signed by the Party granting the waiver, and no such waiver will constitute a waiver of satisfaction of any other provision of this Agreement. No failure or delay by any Party in exercising any right or privilege hereunder shall 25

31 operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof of the exercise of any other right, power or privilege. Section 23.2 Further Assurances. Each Party agrees to execute and deliver any instruments and to perform any acts as may be necessary or reasonably requested by the other Party in order to give full effect to this Agreement. LIPA and Service Provider, in order to carry out this Agreement, shall each use all reasonable efforts to provide such information, execute such further instruments and documents and take such actions as may be reasonably requested by the other and not inconsistent with the provisions of this Agreement and not involving the assumption of obligations or liabilities different from or in excess of or in addition to those expressly provided for herein. Section 23.3 Successors and Assigns. This Agreement will be binding upon the Parties and their respective permitted successors and assigns, except that no right, benefit or obligation hereunder may be assigned by any Party without the prior written consent of the other Party. Notwithstanding the foregoing, LIPA may, without the prior written consent of Service Provider (a) pledge or assign its rights as necessary in connection with its issuance of Revenue Bonds and (b) assign its rights and obligations to a LIPA Affiliate or to another governmental entity assuming the role and functions of LIPA. Section 23.4 Governing Law; Jurisdiction; Venue. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in New York without regard to any applicable principles of conflicts of law. (b) Each Party hereto irrevocably submits to the exclusive jurisdiction of any New York State Court located in Nassau County and the U.S. District Court for the Eastern District of New York for the purposes of any action to compel arbitration, in aid of arbitration or for provisional relief to prevent irreparable harm or preserve the status quo prior to the appointment of the arbitrators, and agrees to commence any such action only in such courts except in the case of a termination due to bankruptcy or insolvency over which a bankruptcy court may have exclusive jurisdiction. Each Party further agrees that service of any process, summons, notice or document by U.S. registered mail to such Party s respective address set forth herein shall be effective service of process for any such action. Each Party irrevocably and unconditionally waives any objection to the laying of venue of any action arising out of this Agreement or the transactions contemplated hereby in such courts, and hereby irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action brought in any such court has been brought in an inconvenient forum. EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SUCH PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF. Section 23.5 State Law Requirements. The provisions set forth in Appendix A relate to requirements imposed upon and/or applicable to LIPA and Service Provider by New York State 26

32 law and policies. These provisions are hereby deemed incorporated in this Agreement at this place. To the extent there is any conflict between any other provision of this Agreement and Appendix A, then Appendix A shall control. Section 23.6 Counterparts. The Parties may sign this Agreement in several counterparts, each of which will be deemed an original but all of which together will constitute one instrument. The Parties agree that execution and delivery of this Agreement may be effected by means of an exchange of facsimile or other electronic copies. Section 23.7 Third-Party Beneficiaries. Other than as expressly provided in Section 15 hereof, this Agreement does not, and is not intended to, confer any rights or remedies upon any Person, including any employee or former employee of Service Provider or LIPA, any beneficiary or dependents thereof, or any collective bargaining representative thereof, other than the Parties to this Agreement. Without limiting the generality of the foregoing, no provision of this Agreement shall create any third-party beneficiary rights in any employee or former employee of LIPA or Service Provider (including any beneficiary or dependent thereof) in respect of continued employment or resumed employment, and no provision of this Agreement creates any rights in any employee or former employee of LIPA or Service Provider (including any beneficiary or dependent thereof) in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for under such plans or arrangements. Section 23.8 Entire Agreement. This Agreement, including the schedules, appendices and exhibits attached hereto, constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes any and all prior oral or written agreements, understandings, proposals, representations or warranties relating to this Agreement. Section 23.9 Severability. If any provision of this Agreement is held invalid, illegal, or unenforceable in any jurisdiction, the remainder of this Agreement, or application of that provision to any Persons or circumstances, or in any jurisdiction, other than those as to which it is held unenforceable, will not be affected by that unenforceability and will be enforceable to the fullest extent permitted by Applicable Law. Section Gender and Plurality. Words of the masculine gender mean and include correlative words of the feminine and neuter genders and words importing the singular number mean and include the plural number and vice versa. Section References to Days. All references to days in this Agreement are references to calendar days unless specified as Business Days. Section Persons. Words importing persons include firms, companies, associations, general partnerships, limited partnerships, limited liability companies, trusts, business trusts, corporations and other legal entities, including public bodies, as well as individuals. Section Headings. The table of contents and any headings preceding the text of the Sections and subsections of this Agreement shall be solely for convenience of reference and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction or effect. 27

33 Section Notices. Any notices or communications required or permitted hereunder shall be in writing and shall be sufficiently given if sent by registered or certified mail return receipt request, postage prepaid, by nationally recognized overnight delivery service, signature required upon signed receipt or by facsimile transmission to the following: If to Service Provider: With copy to: If to LIPA: With copy to: PSEG Long Island LLC 80 Park Plaza, T20 Newark, NJ Attention: President Facsimile No: PSEG Services Corporation 80 Park Plaza, T5 Newark, NJ Attention: General Corporate Counsel Facsimile No: Long Island Power Authority 333 Earle Ovington Boulevard Uniondale, New York Attention: Chief Operating Officer Facsimile No: Long Island Power Authority 333 Earle Ovington Boulevard Uniondale, New York Attention: General Counsel Facsimile No: Changes in the respective addresses to which such notices may be directed may be made from time to time by any Party by written notice to the other Party. Notices and communications given by mail hereunder shall be deemed to have been given five days after the date of dispatch; all other notices shall be deemed to have been given upon receipt. Section Negotiated Agreement. This Agreement shall be considered for all purposes as prepared through the joint efforts of the Parties and shall not be construed against any one Party or the other as a result of the preparation, substitution or other event of negotiation, drafting or execution hereof. Section Survival. The rights and obligations of the Parties hereto pursuant to Sections 12, 13.2(b)(2), 14.4, 14.5, 14.7, 15, 18.2, 18.4, 20, 21, 22.1, 22.2, 23.2, 23.3, 23.4, , and the record retention and set-off provisions of Appendix A hereto shall survive the expiration or earlier termination of this Agreement and no such termination or expiration shall limit or otherwise affect the respective rights and obligations of the Parties hereto accrued prior to the date of such expiration or termination. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 28

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37 Schedule 1 Front End Transition Plan July 22, 2011 Updated Front-End Transition Plan for Long Island Power Authority s Utility Services Management Prepared for: Long Island Power Authority 333 Earle Ovington Blvd, Suite 403 Uniondale, New York Prepared by: Public Service Enterprise Group Incorporated 80 Park Plaza, T-20 Newark, NJ and Lockheed Martin Services, Inc. DBA LMSI 700 North Frederick Avenue Gaithersburg, MD PROPRIETARY DATA This proposal includes data that shall not be disclosed outside of LIPA and their advisors for this project and shall not be duplicated, used, or disclosed - in whole or in part - for any purpose other than to evaluate this response. If, however, a contract is awarded to this offeror as a result of or in connection with the submission of this data, LIPA shall have the right to duplicate, use, or disclose the data to the extent provided in the resulting contract. This restriction does not limit LIPA s right to use information contained in this data if it is obtained from another source without restriction. The data in this restriction is contained in the entirety of this proposal. 1

38 DETAILED FRONT-END TRANSITION PLAN BY TASK The PSEG-LM Team will execute a smooth, seamless, and secure transition; ensure utility operations continue uninterrupted; and demonstrate our readiness to be accountable for all work performed under the Operations Services Agreement. Our combined PSEG-LM Team experience will provide innovations, efficiencies, best transition practices, and lessons learned based on numerous large, complex contract transitions. The PSEG-LM Team will deliver efficient and effective management and leadership to ensure a seamless transition from the Current Service Provider. Our Team runs transitions like a project, with milestones and key deliverables. We bring our combined experience and lessons learned to Front-End Transition from previous DOE, DoD, NASA, and other U.S. Government agency and public utility contracts and operations. We plan to manage the LIPA Front-End Transition as a project using our ISO-certified transition planning procedures and team best practices. This requires detailed planning and scheduling prior to Front-End Transition; evaluation of transition risks; identification of mitigation measures; and strong leadership through execution. Jump Start. In order to provide the Updated Front-End Transition Plan by the requested date of November 1, 2011, the PSEG-LM Team plans to assemble a transition planning team, called the Jump Start Team. Jump Start is the period when detailed transition planning occurs. During Jump Start, the Team will develop the Updated Front-End Transition Plan and Schedule, which are due shortly after contract award. To maximize the success of the Front-End Transition, we also prepare Transition Work Packages (TWPs) during Jump Start which define the activities that we must perform to complete the Front-End Transition. The TWPs provide our transition teams with the work plans required to carry out their specific transition activities. The completed TWPs become part of the appendices of the Updated Front-End Transition Plan. The TWPs identified for each of the activities includes the schedule, resources and steps required to develop the artifacts that must be delivered during the transition period. For example, the recruiting and staffing TWP details the work and steps required to assess the existing workforce, hire incumbent workforce into ServCo, and augment the existing workforce to ensure we have all necessary skills in place to provide service upon commencement of Operations Services. Front-End Transition Due Diligence. During Front-End Transition, we will employ a disciplined due diligence process to identify existing functions, processes and procedures. After the existing items have been identified, an assessment and evaluation will be made to determine if the current state is adequate or if a change is needed. As part of this evaluation, consideration will be given to the resources needed, the cost involved, the risk to operations and the time involved in making a change. After the evaluation is complete, recommendations which contain detailed analysis and implementation plans will be submitted to LIPA for review. If concurrence is reached, the recommendations will be implemented according to plan. Figure A.1 describes the process for due diligence, evaluation, and implementation. 2

39 Due Diligence Process Current State Identification Assessment and Analysis Communicate and Collaborate with LIPA on Recommendations Implementation (if needed) Figure A.1. Due Diligence Items (B) Due Diligence Items Review T&D assets, including furnishings, facilities, material, supplies, equipment, and all IT systems. Review existing business processes, procedures, and plans. Review key physical resources and human resources. Review intellectual property. Review existing subcontracts. Review financial status for Accounts Receivable/Accounts Payable. Review forecasting and budgeting reports and status. Review in-flight projects Identify current state processes, procedures, and systems. Utilize the PSEG-LM Team continuous improvement principles to identify any inefficiency in the current state environment. Review LIPA s procedures to understand how changes are implemented and managed in the current state. Utilize the best-of-the-best approaches and transition as many of the current state elements as appropriate in order to minimize disruption in operations Identify any capability gaps or areas for improvement as a result of due diligence and provide detailed list of recommendations and implementation plans for LIPA s review. Work closely with LIPA to help them understand the recommendations and implementation plan in order to a make a decision After decision is made, establish detailed schedules for rolling out new processes, procedures, and systems. Pilot test first of any critical new process or procedure. Review the outcomes of each new process to determine if changes are required. Implement full scale deployment once all parties are in agreement. Summary of Front-End Transition Tasks The PSEG-LM Team will provide the Front-End Transition Services as required by the Scope of Services in the Transition Services Agreement. TSA 3.2d Service Provider (SP) process for staffing of the Front End Transition (FET) Team. The PSEG-LM FET Team will be mobilized and deployed on Day One of Front-End Transition. The PSEG-LM location and office space where the FET Team will reside will be established within 10 days of FET commencement, and the Team will work with LIPA to identify temporary work spaces in LIPA facilities as appropriate. During the first week of FET, the FET Team will conduct a kick-off meeting to discuss and establish the high-level approach for positioning the PSEG-LM Team and ServCo to assume responsibility of Operations Services by the Target Service Commencement Date. In addition, within one month of FET commencement, the FET Team will conduct Partnering and Planning Workshops (PPW), with PSEG, LM, LIPA, and NGES (as necessary) participation to jointly develop and agree upon processes for coordinating activities during FET. Figure A.2 describes the elements of the PPW. A focused workshop-based approach to building effective relationships amongst the PSEG-LM Team, Current Service Provider, and LIPA to: Multiparty Stakeholder workshops aimed at establishing a concept of operations for the teams associated with the Front-End Transition that: Partnering and Planning Workshop (PPW) Elements Align LIPA and PSEG-LM Team organizations. Establish methods of communication. Develop efficient program business rhythms. Clarify program requirements. Determine what matters to LIPA, NGES, and PSEG-LM Team Identify and resolve issues and concerns. Is held as soon as possible (usually within four to six weeks) after program start Is conducted jointly with LIPA, PSEG-LM Team, and NGES (as appropriate) Concentrates a high-energy effort over 2-3 days. Aligns LIPA and PSEG-LM Team Front-End Transition activities. Creates an environment of teamwork, collaboration, communication and trust. 3

40 Desired outcomes from the PPW are: Figure A.2. PPW Elements Partnering and Planning Workshop (PPW) Elements Focuses on program performance (collaborative objectives and metric settings). Common definition of success for the Front-End Transition period. Identified and agreed upon assumptions. Affirmation of how the teams will work together and mutual expectations. Acknowledged key interdependencies. Understanding of what is involved in effective Front-End Transition. Accomplishing as much productive mutual Front-End Transition work as possible. TSA 4.1.a Preparation of Detailed Monthly Budgets and Monthly Reporting of Actual Costs and Budget Variances. The PSEG-LM Team will evaluate the existing and historical financial reports and business rhythm of the Current Service Provider. This activity is dependent upon consultation and support from the Current Service Provider. As a result of this evaluation, we will develop the budget and report templates and the process for monthly reporting of actual costs and variances for review and approval by LIPA. Our Team will then prepare detailed monthly budgets for work performed during the Front-End Transition Period and provide monthly reporting of actual costs and budget variances to the Transition Committee. Our approach is to be transparent in our budgeting and financial reporting. For any system, asset or process creation/enhancement that are identified as a result of due diligence early in Front-End Transition, we will identify preliminary budgets options and seek LIPA approval through the Transition Committee. Duration will continue throughout the entire Transition. TSA 4.1.b Preparation of Detailed Annual Operating and Capital Budget, and a Capital Work Plan. The PSEG-LM Team will prepare an annual operating and capital budget and an operating and capital work plan for the first year of the OSA, as well as for the five-year period beginning on the Service Commencement Date. The operating and capital budgets shall reflect costs for all services that will be provided by the Service Provider under the OSA. The annual operating and capital budgets will be developed using a bottoms-up approach and will be reconciled using a top-down analysis. The budget profiles will be reviewed with LIPA and adjustments will be made as necessary. Once our Team secures LIPA s approval on the budgets, the baseline will be established and communicated to the PSEG-LM Team organization. The preparation of the annual operating and capital budgets and the capital workplan is dependent upon inputs from the Current Service Provider. Duration for preparation and review will be 6 months in second year of transition. TSA 4.1.c Identification and Evaluation of Functional Areas to be Performed Under the OSA. The PSEG-LM Team will perform an evaluation, identification and assessment of and attain practical familiarity with all processes, procedures, key physical resources, and key human resources associated with performing operations of the LIPA electric transmission and distribution system. Duration will be six months in the first year of transition. Following due diligence of each of the functional areas, the PSEG-LM Team will document any capability gaps or opportunities for process improvement, and develop recommendations and detailed plans for LIPA review and approval. 4

41 Comprehensive Due Diligence of the T&D System. The FET Team will evaluate the quantities and as-is condition of LIPA s Transmission and Distribution assets, operational procedures, and staffing. After a high level desktop analysis, it will be necessary to conduct an intensive visual and on the ground examination of the facilities and assets as described in Figure A.3. Evaluat ion of Electric Transmission Outside Plant Evaluat ion of Electric Transmission Inside Plant Evaluat ion of Electric Sub-Transmission Outside Plant Due Diligence of the T&D System Determine actual transmission operating voltages - minimum, nominal, maximum Obtain the simplified transmission one line system diagram Determine miles of transmission plant by voltage, overhead & underground Determine percentage of transmission right of way owned in fee and easements Obtain NERC/FERC Ratings of transmission lines, circuit designation, construction, conductor size, age Determine Transmission Performance Indicators; Availability index, transmission outages 2009-YTD by circuit, duration & cause Obtain outline of transmission circuit maintenance plan and maintenance completion rate 2009-YTD Evaluate Lock-Out-Tag-Out procedures Evaluate the EMS - State estimator, simulator, study mode; upgrade due Determine any BES stability issues Evaluate any Special Protection schemes Determine if the Transmission System Operators are responsible for NERC as the TO, LSE, DP Determine NERC Certification Evaluate Neptune operating procedures Determine if there is any Live Line Work Determine voltage schedules or bandwidth Determine what voltages the Transmission System Operators Control Evaluate Transmission Outage planning procedures Evaluate System Operator training program Evaluate Staffing Identify any Back-Up Control Centers Evaluate Restoration Plan - Blackstart capability Determine if they switch at night Determine if the system interacts with generators Determine any salt spray issues Obtain list of all stations by high side voltage Obtain one line diagrams for each station Evaluate operational design philosophy - loading, redundancy, interconnectivity, etc Obtain list of stations in flood prone areas and/or Tidal Issues. Evaluate Equipment Asset Information - Transformers, Breakers, Disconnects, Conductor Sizes, Nameplate Rating, Age, etc Determine Condition Peak Summer Loading Obtain list of station shutdowns from & YTD by cause Obtain outline of transmission substation maintenance plan and maintenance completion rate 2009-YTD Evaluate Lock-Out-Tag-Out procedures Determine any Special Protection schemes Determine if the Transmission System Operators are responsible for NERC as the TO, LSE, DP Determine NERC Certification Determine what voltages the Transmission System Operators Control Evaluate Transmission Outage planning procedures Evaluate System Operator training program Evaluate Staffing Identify any Back-Up Control Centers Evaluate Restoration Plan - Blackstart capability Determine if they switch at night Determine if the system interacts with generators Determine any salt spray issues Obtain actual sub-transmission operating voltages - minimum, nominal, maximum Obtain one line sub-transmission one line system diagrams for each line and network. Obtain miles of sub-transmission plant by voltage, overhead & underground Obtain description of construction type in OH and cable types in UG Determine if the Sub-transmission is built on public or private right of way. Determine ratings of transmission lines, circuit designations, conductor size and age. Determine Sub-Transmission Performance Indicators; Availability index, transmission outages 2009-YTD by circuit, duration and cause Obtain outline of sub-transmission circuit maintenance plan and maintenance completion rate 2009-YTD 5

42 Evaluat ion of Electric Sub-Transmission Inside Plant Evaluat ion of Electric Distribution System Evaluat ion of Transmission & Distribution Support Facilities Figure A.3. Due Diligence of the T&D System Due Diligence of the T&D System Determine any salt spray issues Determine if the line work is performed by Glove, Stick or Dead Obtain list of Stations by high side voltage. Obtain simplified One Lines for each station. Evaluate operation design philosophy loading, redundancy, interconnectivity, etc. Obtain a list of stations that are built in flood prone areas. Evaluate equipment information from LIPA Asset Registry-Transformers, Breakers. Determine Disconnects, etc. Nameplate Rating, Age, Condition, peak summer loading. Obtain a list of Station Shut Downs from 2009 to 2010 YTD describe cause. Obtain an outline of sub-transmission fed substation Maintenance Plan and indication of maintenance completion rate. Determine 2009 / 2010 YTD SAIFI as a function of substation events. Determine Operating Voltages, construction characteristics, circuit length, total circuit miles, average number of customers per circuit Evaluate methodology of reactive compensation and voltage regulation. Evaluate number of poles, average age of pole plant, joint use agreements, Total URD/BUD plant, sectionalizing, loop feed, fusing criteria Determine and YTD 2011 SAIFI, CAIDI, MAIFI Determine and YTD 2011 SAIFI as related to trees, animals, poles, overhead construction, conductor, failures and underground transformers, overhead transformer, UG/BUD construction, cable Determine number of network circuits, both spot and area by location, voltage, and YTD SAIFI Determine number of radial circuits, both spot and area by location, voltage, and YTD SAIFI Determine if there are there any loop schemes Determine if the line work is performed by Glove, Stick or Dead Review the organization that installs and maintains overhead and underground transmission outside plant facilities. Determine number of facilities and personnel dedicated to transmission outside plant Obtain list of specialized equipment owned by LIPA to install and maintain overhead and underground transmission outside plant facilities (helicopters, high reach bucket trucks, OH & UG cable vehicles) Review the organization that installs and maintains transmission inside plant facilities. Determine number of facilities and personnel dedicated to Transmission Inside Plant. Review the organization that installs and maintains sub-transmission inside and outside plant facilities. Determine number of facilities and personnel dedicated to sub-transmission inside plant. Review the organization that installs and maintains the distribution outside plant facilities. Determine number of facilities and personnel dedicated to distribution outside plant facilities. Obtain a list and quantity of rolling stock by type and age used to support the sub-transmission and distribution plant (fully insulated bucket trucks, digger/derrick trucks, pole trailers, street light type bucket trucks, one man trouble buckets, UG support equipment - cable pulling equipment, reel trailers, directional drilling equipment, HP water jet, etc). Obtain list of backup generators by Size & Voltage Review the Five year Business Plan Review the current Maintenance Plan for all Assets Determine if there are there established Life Cycle Plans for all Critical Assets Review the overall Electric System Strategy Determine the current Risk Tolerance Review the data that is used for Asset Management decisions Determine the level of detailed analysis that is performed on Outside Plant Assets In addition to the activities described above, the PSEG-LM Team will acquire and transfer any regulatory permits, licenses, and other operating requirements. 6

43 Comprehensive Due Diligence of Customer Services. The activities associated with the evaluation of LIPA s Customer Services function is described in Figure A.4. Evaluate Customer Service Facilities and Assets Learning and Updating Customer Service Policies and Procedures Develop a Plan with National Grid for Meter Reading Submit Gap Analysis and Customer Service Transition Plan for LIPA Approval Learn and Update Credit and Collections Policies Assist LIPA in Acquiring or Replacing Customer Service Assets Due Diligence of the Customer Services Function Visit and review all current Customer Service locations and their functions. Analyze facilities and identify National Grid locations that would be available and a strategic fit for LIPA USM Develop a recommended transition plan to separate customer facilities to support LIPA needs and identify any need for additional facilities. Based on accepted recommendations, proceed with facilities improvements and transition plan including final performance testing. Learn and understand Current Service Provider Policies and Procedures. Analyze policies and procedures; categorize policies and procedures by regulatory requirements, customer driven, or business needs. Review policies against PSE&G policies. Modify policies and procedures as needed and in coordination with transition operating changes Visit and review meter reading operating locations; evaluate requirements to move to monthly read Develop options and costs to deliver monthly reads: Internal staffing, vendor, or coordinated effort with National Grid Develop and recommend a meter reading strategy. Based on a separate or combined meter reading process, determine system applications, staffing and facilities needs. If necessary, together with LIPA, negotiate with National Grid to evaluate potential for a combined meter reading service agreement. Based on accepted recommendations, proceed with technology, staffing and facilities transition plan including final performance testing. Visit each customer service operating area. Understand process flow from Meter Reading Bill Calculation and Presentment Payment Processing Collections and Support areas. Identify major process and customer satisfaction opportunities and prioritize for biggest impact. o Identify boundaries and barriers between departments and work functions; focus on exceptions and items causing customer delays. o Review current process measures and the new ones identified in Performance Metrics Plan. Are measures aligned with organization goals and customer satisfaction? Identify gaps in measures versus 5 year targets. o Drill into operational data and compare to available benchmarks, as well as PSE&G results. o Understand how individual performance is measured, recognized, improved, and held accountable. o Solicit feedback and ideas from IBEW leadership on opportunities to improve corporate and individual performance. Provide Gap Analysis and recommendations for major operating areas to LIPA on accepted recommendations, proceed with technology, staffing and facilities transition plans. Visit each of the offices performing credit and collection functions, both back-office and the field as well as front-end account establishment. Analyze performance based on benchmarks, local regulations and targets, compare to PSE&G procedures. Review technology, applications and outside vendors in use. Identify opportunities for improvement and make any necessary recommendations for operational changes to LIPA. Based on accepted recommendations, proceed with technology, vendor and facilities transition plan including final performance testing. Develop Customer Services staffing transition plan. Review staffing transition plan with LIPA and IBEW leadership. As necessary for staffing, meter reading, facilities and technology requirements, together with LIPA, negotiate with National Grid for separation or assets or for joint use agreements. As necessary for staffing, meter reading, facilities and technology requirements, together with LIPA, negotiate with outside vendors for purchase of assets or services. Review existing Technology, life cycle status, ownership and its effectiveness in driving business results. o Call Center o Meter Reading o Billing Technol o Payment Processing ogy Identify PSE&G technologies, where synergies may exist and could provide value to LIPA. Evaluate existing Customer Information System, its ability to support business objections, and potential life span. Identify options and make recommendations to LIPA for immediate technology needs for transition. Develop 5 year Technology Roadmap that maximizes existing investments with strategically timed replacement or partnerships with 3rd party suppliers to support the attainment of customer satisfaction targets within 5 years. Propose capital plan to support the Roadmap. Figure A.4. Due Diligence of the Customer Services Function 7

44 Evaluation of Environmental, Health and Safety. The FET Team plans to conduct an environmental exposure assessment of LIPA s operations with respect to current federal, state, and local applicable regulations in the compliance categories, such as: Permitting, Hazardous materials / DOT, Chemical management, Hazardous / solid waste disposal and recycling, Regulatory reporting, and Emergency response plans. We will assess what environmental controls that are currently in place (people, equipment, and processes) and determine what resources are required to support closing gaps and assuring compliance. We will evaluate existing EHS processes and elements, and leverage our established processes to implement a comprehensive EHS Management Plan that includes: o Management Commitment. o Identifying and Assessing Issues, Risks and Impacts. o Defining Performance Indicators, Objectives and Targets. o Developing Control Programs. o Integrating EHS Considerations into Business Plans and Decisions. o Conducting Training, Maintaining Awareness and Assuring Competence. These elements are based on the International Organization for Standardization's specification for Environmental Management Systems (ISO 14001). This model provides a system that is adaptable to changing circumstances, manages business risks, and provides feedback mechanisms to assure sustained results. In addition, we will evaluate Current Service Provider records for EHS compliance, review open audit findings, and evaluate existing environmental compliance permits needed for transition. Evaluation of Human Resources Function. In addition to the development of the comprehensive staffing plan, benefit and pension plans, labor relations plan, and training plan (as described later in this FET Plan), the FET Team will conduct due diligence of the Current Service Provider HR and employment policies, procedures and handbooks. We will evaluate the existing procedures and take best practices from the PSEG-LM Team as necessary to develop the recommended plans for ServCo. In addition, we will evaluate the best means of maintaining these items through online access, print, or both. Development of Employment Policies, Procedures and Handbooks" TSA 4.1.d Identification and Evaluation of all Business Processes Associated with Operations Services. The PSEG-LM Team will perform an evaluation and identification and assessment of, and attain practical familiarity, with all business processes associated with performing operations of the LIPA electric transmission and distribution system. Duration will be six months in the first year of transition. Following due diligence of each of the business processes, the PSEG-LM Team will document any capability gaps or opportunities for process improvement, and develop recommendations and detailed plans for LIPA review and approval. Financial Management. In addition to the preparation of the budgets and financial reports, we will conduct due diligence on the major financial management activities during FET. These activities include: o Reviewing Existing Financial Controls and Develop Charging Practices - The PSEG- LM Team will review the existing accounting internal controls and organization during the first year of FET. Based on our Team s evaluation, we will suggest 8

45 modifications, additions or deletions to the procedures and controls if necessary. We will submit to LIPA our recommendations for review and approval, and implement any approved changes. o Establishing Financial Accounting System and Account Structure - The PSEG-LM Team will review the existing accounting system and chart of accounts during the first year of FET. Based on our Team s evaluation, we will suggest modifications, additions or deletions to the accounting system and chart of accounts if necessary. We will submit to LIPA our recommendations for review and approval, and implement any approved changes. o Identifying Outstanding Audit and Financial Non-Compliance Issues, Unfunded Claims, and Balance Sheet Transfers (Accounts Receivable, Liabilities, etc.) - The PSEG-LM Team will review any unfunded claims and prepare an action plan to clear those claims during the second year of FET. We will also identify and provide LIPA with explanation of current balances and the plan for transfer of balances for review and approval. o o Evaluating the Existing Payroll System and Labor Cost Reporting and Implementing Updates As Needed. Determining Any Gaps in Financial Systems and Develop / Implement Plan to Close Gaps. Procurement. In addition to establishing a plan for achieving M/WBE goals for LIPA and assisting LIPA in the acquisition of assets (as described later in this FET Plan), the PSEG- LM Team will review existing procurement and subcontract policies, procedures and systems implemented by the Current Service Provider, develop a plan and recommendation for enhancements or improvements in the policies, procedures and systems as needed, document the plan for procurement of goods and services in the Contract Administration Manual, and establish training for the procurement staff as needed. TSA 4.1.e Attaining Familiarity with, and Providing Updates to, LIPA s Operations Manual. In order to ensure the safe and reliable delivery of energy to customers while controlling costs, the PSEG-LM Team will utilize a comprehensive training and document management process. Revisions to the Operations Manual content will be accomplished though a structured training, comment, update, review and approval process. The Operations Manual will be updated, in partnership with LIPA, as part of our continuous process improvement approach. The PSEG-LM Team will review the existing Operations Manual and provide recommended updates for LIPA approval. Duration for the modifications and updates, and review and approval is four months, beginning late in the first year of Transition. TSA 4.1.f Development, with LIPA's Participation, of the Contract Administration Manual (CAM). The PSEG-LM Team will develop the final outline of the CAM in partnership with LIPA. Once LIPA reviews and approves the final outline, our Team will draft the CAM based on the results of the FET Team due diligence activities and deliver the draft CAM to LIPA for further review and comment. Based on LIPA s comments, our Team will finalize the CAM and deliver the final document for LIPA s approval. The duration of the entire CAM development activity will be six months, beginning in the first year of transition following the due diligence activities and completing six months prior to the target Operations Services commencement date. 9

46 TSA 4.1.g Identification of, and Assumption of Responsibility, for Securing the Use of Any Facilities, Furnishings, Material, Supplies, Assets, Equipment, and IT Systems Owned, or Available for Lease or Acquisition, by LIPA. The PSEG-LM Team assumes the responsibility for identifying and assisting LIPA in securing the use of any facilities, furnishings, material, supplies, assets, equipment, and IT systems owned, or available for lease or acquisition, by LIPA but now used by the Current Service Provider. During the due diligence of each of the functional areas, our Team will identify and document these assets, and develop a detailed plan and recommendation for acquiring the assets. The plan will be submitted to LIPA for review and approval, and our Team will assist LIPA in executing the plan upon approval. The completion of this activity is dependent upon the cooperation and concurrence of the Current Service Provider for acquiring the assets. Duration of this suite of tasks will be twelve months, beginning in the first year of transition. TSA 4.1.h Integration of all existing IT Systems Owned, or Available for Lease or Acquisition, by LIPA. Migrating the IT systems to LIPA that are managed by the Current Service Provider is an extremely complex task and requires a disciplined approach, very similar to our experience in a number of IT system transitions. LIPA s strategic goal to have all new or migrated systems that conform to its EIM framework and plug-and-play concept must be factored into the planning during Front-End Transition. The first step is to define the guiding principles and processes by which to evaluate the IT systems. Based on PSEG-LM Team s IT experience in similar evaluations, this is a critical step that provides the foundation and guides the analysis and decision making process. Also performed in this step, is the definition of the criteria by which systems will be evaluated, selected and prioritized. Next, we will work with LIPA and the Current Service Provider to define the functional requirements for the key IT systems that are required to support critical business processes and overall mission success. All existing systems then need to be evaluated to determine if they meet the functional requirements, target architecture and guiding principles, and what special issues of interdependencies with the current Service Provider s systems must be addressed. The focus during Front-End Transition will be on establishing a stable unbundled implementation of existing IT applications that are tested and operational in the new PSEG-LM Team computing environment. A cost benefit analysis will be conducted to assess the need to lease or acquire existing applications from the current Service Provider. The analysis would be submitted to LIPA for review and approval prior to transition of systems. During FET, decisions need to be made on the core components of the LIPA EIM architecture and future information systems framework that provide the technical foundation for all other technology evaluations and selection. Our Team will develop an integrated migration roadmap to determine the most efficient and lowest cost path to get to achieve LIPA s strategic goal of an EIM framework with plug-and-play capabilities. This plan will identify the order and priority of the system replacements or migrations and will create a long-term value. A clear delineation will be made between what functionality will be in place at the end of Transition and what functions will be deployed as ongoing enhancements to be performed after the PSEG-LM Team commences Operations Services. Any IT enhancements implemented prior 10

47 to Operations Services will be reviewed and approved by LIPA based on cost, benefit and risks of making early enhancements. Figure A.5 describes the activities associated with the evaluation of the IT systems. Due Diligence of the Information Technology Systems Develop a comprehensive list of all IT applications, including but not limited to: o Supervisory Control and Data Acquisition (SCADA) o Customer Information System (CIS) o Outage Management System (OMS) o Energy Management System (EMS) o Work management System (WMS) IT o Meter Data Management System (MDMS) Applications Due Identify IT resources, skill sets for each application Diligence Identify business stakeholders/business users Capture and document ownership/licensing details Capture and document IT operational details/upgrade cycle Capture SW maintenance & support contracts Document all existing interfaces, level & architecture of systems integration Capture IT processes documentation Capture Data Center details, facilities, hardware, UPS, etc Capture details and as-builts of LANs, WANs Capture telecommunication network details, assets IT Capture SCADA network details, assets Infrastructure Due Enlist all technical resources/roles, identify key personnel Diligence Document current ownership of facilities, and all other assets Document business processes for Operations and Maintenance Document equipment life, refresh cycles, warranties, contracts Figure A.5. Due Diligence of the Information Technology Systems TSA 4.1.i Determination of Any Functional Gaps in the Assets, IT Systems, Processes, or Other Elements Critical to the Performance and Delivery of Services under the OSA. As mentioned in the earlier tasks, immediately following the PSEG-LM Team due diligence of all processes, procedures, key physical resources, key human resources, and assets associated with the operations of the LIPA electric transmission and distribution system, we will identify any functional gaps and develop detailed plans to address those gaps for LIPA review and approval. The duration of these activities will be four months, beginning in the first year of transition immediately following the due diligence activities. TSA 4.1.j Identification of and Establishment of Custody and Control over all Intellectual Property Owned or Available for Lease or Acquisition by LIPA. The PSEG-LM Team will identify and document any Intellectual Property that is required for performance and delivery of services under the OSA. We will develop recommendations and detailed plans for establishing custody and control over the Intellectual Property for LIPA review and approval. We will assist LIPA in executing the approved plan. Completion of this activity is dependent upon inputs on Intellectual Property from the Current Service Provider. The duration of this activity will be five months beginning in the first year of transition following the due diligence activities and finalizing not later than six months prior to the target Operations Services commencement date. TSA 4.1.k Establishment of Comprehensive Staffing Plan. The PSEG-LM Team will develop a comprehensive staffing plan, including mobilizing PSEG-LM Team personnel, identification of key personnel and other staff employed by NGES, recruiting and migrating personnel to ServCo, recruiting additional staff as necessary, and maintaining appropriate 11

48 staffing levels. The staffing plan will be a result of due diligence of the current environment and collaboration between LIPA, PSEG and LM. Part of the due diligence is having access to the Current Service provider s employee information with the level of detail that we can assess who is doing what and where with normal HRIS information. The staffing plan will be reviewed internally, and then presented to LIPA on behalf of the PSEG-LM Team describing how personnel will migrate to ServCo on the Service Commencement Date. Duration of the entire activity will be five months beginning in the first year of transition following due diligence and completed no later than six months prior to target Operations Services commencement date. As part of the staffing plan activities, the FET Team will internally track the status and progress of staffing. The staffing plan tracking document will contain at a minimum the items listed in Figure A.6. Figure A.6. Staffing Plan Tracking Items Staffing Plan Tracking Items Numbers of positions required Specific job type for each position (job code/title/level) Organizational element each position belongs to Specific location for each position Hiring Manager Classification for each position (Manager, Exempt, Non-Exempt, Represented) Date needed Position status (sourcing, Interviewing, offer extended, offer accepted) Date offer extended / date offer accepted / anticipated start date Name of the candidate / employee filling each position Some of the key elements that will be included in the comprehensive staffing plan are as follows: Pre-Employment Screening Process. A pre-employment screening process will be developed and reviewed internally and be part of the staffing plan presented to LIPA on behalf of the PSEG-LM Team for review and approval. The process will be compliant with all local, state and federal laws, company policies, and we will engage the Union leadership for concurrence in the process. Migration of ServCo Personnel. At approximately six months before the Operations Service commencement date, the active staffing process will begin. A plan will be put into place that will target specific organizational groups in a phased approach to go through the hiring process (initial contact, application, interview, hiring decision, offer, offer accept). A gap analysis will be completed based on offers accepted / rejected, if any, and what external hiring will need to be accomplished to fill the gaps. Shared Services Positions. Upon start of the FET, an agreement / decision between LIPA, PSEG-LM Team and the Current Service Provider needs to be made on how to handle the shared services positions. Once the staffing plan for shared services positions is approved by LIPA, the FET Team will determine the number of actual external hires that would be needed. Human Resource Information System (HRIS). The FET Team will evaluate the existing HRIS and determine with LIPA if the HRIS for Operation Services will be provided by LIPA or our Team. The FET Team will migrate the ServCo employee data into the new HRIS, an activity that is dependent on cooperation and access to baseline employee data from the Current Service Provider. At a minimum, name, job code / title, current salary/hourly rate, reports-to manager, service dates (seniority date), training and certification data. New Hire Orientation (NEO). The FET Team will work with LIPA to develop a NEO presentation and package that would be presented to every employee. During the first three days of commencement of Operations Services, an initial NEO briefing will be completed for each employee. There will be some content specifically designed for the represented personnel and will need to be reviewed by union leadership for concurrence. The incumbent hires will receive an abbreviated version that will cover E- 12

49 Verify / I-9 requirements, some basic required policy signatures, and the employee handbook. In order to minimize disruption of utility services, the abbreviated versions of the NEO will be conducted at the employees specific work locations or at near-by locations just prior to or immediately following the employees work shift. In addition, this will be an opportunity for LIPA and the PSEG-LM Team to present the branding of the new contract and organization, and as such we will be dependent on LIPA to provide whatever branding materials they would like to pass out. TSA 4.1.l Development of Employee Pension and Other Benefit Plans. The PSEG-LM Team will develop the ServCo employee pension and benefit programs similar to the NGES plans in order to optimize the capture of Current Service Provider employees and key personnel. Estimated duration of this activity is three months, commencing after completion of due diligence activities. Pension Plans. The FET Team will conduct a detailed analysis of the pension plans provided by the Current Service Provider. Part of this analysis is to determine if there are any legacy pension and retiree medical plans that come over as a part of this transition. Our Team will evaluate options for putting in place a plan that will be substantially similar to the existing pension plan. One option would be for ServCo to become a sponsor to the existing pension plan if it makes fiscal sense, thus enabling a smooth transition. A second option would be to evaluate alternative pension plan vendors to develop a pension plan solution that is substantially similar in coverage and cost to the employee. The recommended solution will be vetted with the Union leadership to ensure compliance with the Collective Bargaining Agreement in effect. The final pension plan solution will be submitted to LIPA for review and approval, and will be in place no later than the Operations Services Commencement Date. Benefit Plans. The FET Team will conduct a detailed analysis of the benefit plans provided by the Current Service Provider. Our Team will evaluate options for putting in place plans that will be substantially similar to the existing benefit plans. One option would be for ServCo to become a sponsor to the existing pension benefit providers (Medical, Dental, Vision, Life, Disability) if it makes fiscal sense, thus enabling a smooth transition. A second option would be to evaluate alternative benefit providers and plans that are both substantially similar in coverage and costs to the employee. Also included in the benefits plan are vacation, absence, and tuition reimbursement for technical training and professional certification. The final benefit plan solution will be submitted to LIPA for review and approval, and will be in place no later than the Operations Services Commencement Date. TSA 4.1.m Development of a Labor Relations Plan. The PSEG-LM Team will develop a Labor Relations Plan that reflects our approach to maintaining and strengthening a positive, respectful and supportive relationship between our Senior Management Team and represented employees in ServCo. This plan will result in a low-risk and smooth transition of current represented personnel migrating to ServCo on the Operations Services Commencement Date. The FET Team will establish communications with the union representatives early during FET and will maintain constant communication with them throughout the FET and into operations. The FET Team will work with LIPA and the Current Service Provider labor relations representative to determine the migration plan for the represented work force. We will determine the current state of grievances, the paths to resolution, and those that may roll over to ServCo 13

50 upon Service Commencement date. Our Team will communicate the recommended employee migration approach to Union leadership. The estimated duration for this entire activity is four months, commencing after the due diligence activities. TSA 4.1.n Development of an Employee Training Plan, Including Dissemination of Key Policies and Procedures. The PSEG-LM Team will work with LIPA to develop employee training plans which will include key policies and procedures related to the Operations Services for implementation on the Service Commencement Date. We intend to conduct trainings for migrated ServCo employees on Long Island, possibly utilizing the PSEG training centers in Hicksville and Mellville, if available. PSEG s current training staff includes 32 instructors, all of whom are former craft employees in the bargaining unit and have extensive experience in their fields of expertise. In addition, training may be provided in the field on an as-needed basis to address a specific division or district s needs. The training plan will incorporate all required occupational and safety courses mandated by industry guidelines, local, state or federal agencies in support of Operations Services, as well as career development training. The FET Team will be dependent on the Current Service Provider to provide us with the listing and reference material on the applicable training requirements, and access to current employee training plans and records to ensure continuity of training and certifications. Training Policies and Procedures. The FET Team will review and evaluate the existing training policies and procedures, and recommend a plan for enhancement (if necessary) for LIPA review and approval. Key policies and procedures will be disseminated upon Operations Services Commencement. Training Management Information System. The FET Team will evaluate the existing systems that house employee training information and determine with LIPA if the system for Operation Services will be provided by LIPA or our Team. Migration of training information will either be via flat file transfer or a manual data load with the data provided by the Current Service Provider. TSA 4.1.o Development of a Communications Plan for LIPA's Review and Approval with Respect to the Implementation of the Front End Transition Plan. The PSEG-LM Team will develop Front-End Transition Communications Plan including progress reports, electronic, and printed communication media for LIPA s review and approval. Our Team will conduct Communications activities during Transition, such as employee town-hall meetings and public meetings, establishing web-based transition information portal (FAQ and open letters), and leveraging other forms of media as needed to communicate information. The intent of the PSEG- LM Team s communications plan during transition is to maintain public and employee support and engagement required to successfully transition and operate the LIPA contract. Key elements are: Ensure a smooth, organizational/operational transition, addressing informational needs of employees to enable them to fully support the program. Encourage pride in employees work and help them understand how they fit into the larger strategy. Guide managers as they meet with incumbent staff, avoiding interference with ongoing LIPA operations. 14

51 Development of the initial communications plan will be completed in the second quarter of the first transition year. Additional details of the Communication Plan are listed in Figure A.7. Communications Plan Elements A communication will be constructed introducing the team that will be leading the contract transition, outlining at a very high level what to expect over the next two years leading up to the commencement of service under the new contract Conduct early town hall style meetings to help convey the introduction of the new team at geographically disbursed locations. Identify other key milestones and communication opportunities that will introduce and socialize any new processes or vision of the new organization leading up to the start of the active staffing activity. Determine the best and most effective mediums to transmit interim communications to keep the employees apprised of the progress of the transition. Frequency of these communications would increase during the months leading up to and during the active staffing phase of the transition. Dependency on access to Current Service Provider , office and work space bulletin boards for effective communications. If there are to be any mass mailings to employee populations, we will work with LIPA to develop any and all collateral. Assemble a communications review panel made up of key FET stake holders that would review any communication to be released during the transition. Figure A.7. Communications Plan Elements TSA 4.1.p Development of a Communications Plan for Key Stakeholders for LIPA's Review. The PSEG-LM Team will develop the Operations Services Key Stakeholder Communications Plan in partnership with LIPA including progress reports, electronic, and printed communication media for LIPA s review and approval. Estimated duration for the preparation and approval of the plan is two months commencing six months before Operations Services Commencement Date. TSA 4.1.q Review and Update LIPA Business Continuity and Disaster Recovery Plans. The PSEG-LM Team, in partnership with LIPA, will implement a comprehensive program to ensure all appropriate measures are in place to preserve life, property, business operations, and the financial integrity and public image in the event a significant interruption of business occurs, or other adverse event which threatens the survival of the company. We will evaluate and provide recommendations for updating the Business Continuity and Disaster Recovery Plans (including backup power, communications, and critical business services and facilities) for LIPA review and approval. We will bring best practices as appropriate, such as PSEG s Business Interruption Management Committee, which develops, coordinates, and guides the implementation of a comprehensive program aimed at identifying those potential natural and contrived threats which would significantly interrupt LIPA s business, potentially causing financial harm, negative impact to public image, or shareholder concern. In addition, the FET Team will review and update the Business Continuity and Disaster Recovery Plan for IT. In doing so, we will evaluate the existing plan, business impact analysis, provisions for back-up power, alternative facilities and systems, and back-up communications. Estimated duration for evaluating and updating the plans is three months beginning near the end of the first year of transition. TSA 4.1.r Identification and Assumption of Responsibilities for Existing Subcontracts. The PSEG-LM Team will evaluate all subcontracts and vendors of the Current Service Provider and perform outreach and evaluation of those vendors. We will work with LIPA to determine 15

52 which contracts should be continued and which may be provided either by the PSEG-LM Team or by other means. The FET Team will develop a plan and recommendation for assuming responsibilities for existing subcontracts, and submit the plan for LIPA review and approval. Upon LIPA approval, the PSEG-LM Team will assume the existing subcontracts with appropriate assignment and further develop the LIPA approval process for subcontractors. Duration of this activity will occur over a 15 month period, beginning in the last quarter of the first year of transition. TSA 4.1.s Meeting and Coordinating with NGES. We will establish a physical presence at or near the Current Service Provider s facilities, as appropriate, and set up required meeting schedules to ensure coordination throughout transition. The transition team lead for each functional area will engage with their counterpart from the Current Service Provider. A Sharepoint site or portal will be established to enable real time document and information sharing. Our plan for due diligence during the first year of FET requires careful cooperation with NGES. We plan to minimize interference with ongoing utility operations and will work with NGES leadership to establish a business rhythm for meetings as appropriate. The due diligence period is estimated for three months shortly after contract award, with intermittent data calls to NGES for the duration of the Front-End Transition. TSA 4.1.t Testing and Demonstrating Ability to Perform the Operations Services in Parallel with NGES. The PSEG-LM Team is planning for a comprehensive testing program for all functional processes, IT systems, and T&D systems culminating with the demonstration of our readiness and ability to commence operations for up to sixty days before the service commencement date. We plan to commence the parallel demonstration approximately four months before the Operations Services Commencement Date either in parallel with NGES and/or on a simulated virtual environment (e.g., PSEG-LM Team existing laboratory or other acceptable site). TSA 4.1.u Testing and Demonstrating Ability to Produce On Schedule the Financial, Accounting, and Other Analytical Reports and Schedules which LIPA Receives Under the MSA. The PSEG-LM Team will review and evaluate the existing reporting processes and forms for supporting operations, LIPA regulatory filings, and other financial statements. We will develop the testing procedures and plan to perform comprehensive testing of the financial and accounting subsystems, culminating with the demonstration of our readiness and ability to commence financial operations and reporting. We will demonstrate that we can produce the schedules necessary for LIPA to (1) issue its tax-exempt debt; (2) submit filings to regulatory agencies; and (3) prepare financial statements in accordance with GAPP. We will review the test results with LIPA and perform training for the finance and accounting personnel, as appropriate. Estimated duration for the compilation and demonstration of the ability to produce financial and accounting data, reports, and schedules is four months. TSA 4.1.v Providing such access as may be necessary to Service Provider's financial and accounting records and staff and creating schedules requested by LIPA or its auditors or other consultants as may be necessary to support the annual audit of LIPA's financial statements, audits performed by the NY State Comptroller's Office, or any other regulatory agencies, and to 16

53 support special audits as may be requested by LIPA. The PSEG-LM Team will perform due diligence on the ad-hoc reporting that uses the financial and accounting data and records to prepare reports and information as requested by LIPA, its auditors, or consultants to support audits. The FET Team is committed to keeping financial records for the TSA in an audit ready status. There is no estimate for the duration of these activities, as they are considered inherent duties or responsibilities of the finance and accounting team. TSA 5.1 Formation of the Transition Committee. During the first month of FET, the PSEG-LM Team will establish the draft charter, roles and responsibilities of the members, policies and procedures for administration, schedule of meetings, and process for review and discussion of information. The Transition Committee charter and processes will be submitted to LIPA for review and approval. We will work with LIPA to schedule and conduct the first meeting of the Transition Committee, which shall consist of a facilitated workshop to create an environment of teamwork, collaboration, communication and trust with the development of governance as an essential outcome. TSA 5.2 Name Members of the Transition Committee. The PSEG-LM Team will seek concurrence from LIPA on the final members of the Transition Committee. Our Team proposes the following PSEG-LM Team members for the Transition Committee: PSEG-LM Team General Manager, Transition Manager and representation from all six of the Transition Augmentation Teams (Asset Acquisition, Customer Services, Information Technology Systems, Financial Management, Recruiting / Staffing, and Transmission and Distribution Services). The PSEG-LM Transition Committee members will interact with LIPA committee members to provide oversight, monitoring and coordination of Front-End Transition Services. Under the OSA, the Joint Operating Committee (JOC) has the general responsibility for governance, oversight, and coordination for the PSEG-LM Team and ServCo activities and the delivery of Operational Services. We expect that some of the JOC membership will be the same as the Transition Committee, in order to ensure orderly transition of duties from the Transition Committee to the JOC. TSA 4.2 Development and Delivery Plans for Reporting to the Transition Committee. The Transition Committee consisting of members from LIPA and the PSEG-LM Team will provide oversight, monitoring, guidance, and coordination for the Front-End Transition within the Transition Services Agreement (TSA). Our Team will work with LIPA during the first two months of FET to develop the detailed weekly, monthly, and other periodic reports that are presented to the Transition Committee, establish procedures for reporting progress against budget, refine FET Plan completion schedules and milestones, and implement the process for advisement of the Transition Committee of problems and issues. TSA 7.2 Describe the process for coordination with current SP and LIPA. During Front-End Transition, we anticipate LIPA will be involved in the oversight, monitoring, guidance, and coordination of activities and tasks. The Front-End Transition s success and timely achievement of the milestones is dependent upon LIPA arranging for our Team to have access to facilities, equipment, and other assets as well as ensuring that we have access to and necessary information about the workforce personnel. Figure A.8 provides an approximation of LIPA s 17

54 expected participation/involvement in each of the main tasks and activities identified in the Front-End Transition Plan, including the estimated time commitments for each party. Management Level Estimate of LIPA Transition Period Resource Commitment Department / Title Transition Year 1 Transition Year 2 Front-End Transition Activity Chief Operating Officer N/A 1/8 1/8 Transition Management Vice President Operations 1/8 1/8 T&D Services Vice President Customer Services 1/8 1/8 Customer Services Vice President Finance & Chief Financial Officer 1/8 1/8 Financial Management Vice President Administration 1/8 1/8 IT Systems, Recruiting and Staffing, Asset Acquisition Vice President Environmental Affairs 1/8 1/8 T&D Services General Counsel Legal 1/8 1/8 Transition Management Associate Vice President Environmental Affairs 1/8 1/4 T&D Services Associate Vice President Energy Efficiency & Renewable Programs 1/8 1/4 T&D Services Controller Accounting 1/8 1/4 Financial Management Executive Director Planning & Budget 1/8 1/4 Financial Management Executive Director Finance 1/8 1/4 Financial Management Director Regulatory, Rates & Pricing 1/8 1/4 Customer Services Director Marketing & Sales 1/8 1/4 Customer Services Director Customer Services 1/8 1/4 Customer Services Director T&D Planning 1/8 1/4 T&D Services Director Strategy Planning 1/8 1/4 T&D Services Director Security 1/8 1/4 T&D Services Director HR & Administration 1/8 1/4 Recruiting and Staffing Director Corporate Contract & Procurement 1/8 1/4 Asset Acquisition Manager IT Software 1/8 1/4 IT Systems Manager Information Systems 1/8 1/4 IT Systems Associate General Counsel Legal 1/8 1/4 Transition Management Administrative Support All 1/8 1/8 All Total 3 FTEs 5 FTEs Figure A.8. Estimate of LIPA Front-End Transition Resource Commitment A subset of the LIPA management listed above, along with management from the PSEG- LM Team, will be members of the Transition Committee. The estimated time commitments indicated above take into account LIPA s role on the Transition Committee. In addition to LIPA s role on the Transition Committee, examples of specific tasks that LIPA may be involved in during Front-End Transition include: Contract Administration. Administer the Transition Services Agreement between LIPA and the PSEG-LM Team, including addressing any questions or clarifications with regards to the agreement. Employee Outreach. Participate in the development and implementation of a communications and outreach plan, including town hall meetings with ServCo employees. Assist the PSEG-LM Team in populating a web-based Transition Information Portal as a communication vehicle for ServCo employees during Front-End Transition. Branding. Work with the PSEG-LM Team to establish the naming and branding of the ServCo entity. 18

55 Program Partnering Workshops. Jointly conduct Program Partnering Workshops (PPW) with the PSEG-LM Team and Current Service Provider to build effective relationships, develop efficient program business rhythms, establish methods of communication, and create an environment of teamwork, collaboration and trust during Front-End Transition. Financial Accounts. Assist the PSEG-LM Team in developing ServCo banking policies and establishing bank accounts. Budgeting. Assist the PSEG-LM Team in the early development of Annual Operating and Capital Budgets. Reviews and Approvals. Review and approve Front-End Transition deliverables, plans and documents. Coordination. Coordinate Front-End Transition activities, when needed, between the PSEG- LM Team and the Current Service Provider. Cooperation from the Current Service Provider is also an integral part of conducting an efficient and seamless transition of services. We intend to meet and coordinate with the Current Service Provider, as appropriate, throughout Front-End Transition in a way that avoids disruption of the Current Service Provider s ongoing operations of providing utility services management to LIPA, while completing transition activities in a timely fashion. It is the intention of the Program Partnering Workshops at the beginning of Front-End Transition to establish how the parties will effectively work together and to affirm mutual expectations. We anticipate that the Current Service Provider s involvement during Front-End Transition will be mainly during the due diligence and comprehensive data discovery Transition process, the acquisition of assets by LIPA, and Front-End Transition Activity Year 1 the testing and demonstration phase prior to commencement of operations. In addition, we expect the Current Service Provider to participate on the Transition Committee pursuant to its obligations under the MSA. Figure A.9 provides a rough approximation of the Current Service Provider s expected participation and involvement in each of the main tasks and activities identified in the Front- End Transition Plan, including the estimated time commitments. Estimate of CSP Transition Period Resource Commitment Transition Year 2 Transition Management 1/2 1/2 T&D Services 1 1 Customer Services 1/2 1 IT Systems 1 1 Financial Management 1/2 1/2 Recruiting & Staffing 1/2 1 1/2 Asset Acquisition 1 1/1/2 Total 5 FTEs 7 FTEs Figure A.9. Estimate of Current Service Provider Transition Period Resource Commitment TSA 6.2 Organization of ServCo. The PSEG-LM Team will work closely with LIPA through FET to establish the organization of ServCo. Completion of this activity requires the full collaboration and support from the following functions: Transition Management, HR and Recruiting, Financial Management, and T&D Services. The successful and timely organization of ServCo requires the following activities: Provide LIPA with organizational documents Establish with LIPA the invoicing and payment processes for Transition Fees 19

56 Establish with LIPA the process for approval of Milestone Payments Establish with LIPA the process for expense reimbursement Implement the on-boarding processes for Transition Team members Establish confidentiality agreements Establish agreement to comply with LIPA safety and security policies Obtain insurance as required during Front End Transition (Section 16 TSA) Establish with LIPA the record retention and access policies Establish Dispute resolution procedures (Section 21 TSA) TSA 8.1a Development of the Six Month Readiness Report. The FET Team will conduct a six-month readiness review per LIPA s approved process, and report our interim Front-End Transition Readiness Review not later than 180 days from the target Handover date. These reviews will report and discuss PSEG-LM Team s progress and completion of the tasks listed in the Handover Checklist. As a best practice, our Team will also provide evidence of readiness including formalized documentation, plans, and processes, including the remediation plan for any activities not ready to be assumed by our Team by Target Service Commencement Date. TSA 3.3, 8.1b Finalization of the Handover Checklist (Schedule 2 Attachment). The Handover Checklist ensures that the PSEG-LM Team is ready and capable of initiating or resuming operations following completion of the Front-End Transition Scope of Work tasks included in the Transition Services Agreement for the facility; without impact to safety, and with no degradation or interruption of services. The Handover Checklist validates that: (1) people are properly trained, available in sufficient numbers, and properly scheduled to support operations; (2) facilities and equipment are complete with all systems and assets in place; (3) IT and communication systems and equipment are configured for the Operations Services resources; (4) LIPA IT Application Suites have been unbundled from incumbent system, tested and deployed for independent operation; (5) ServCo entity is formed and has acquired the requisite personnel, processes, technology, and infrastructure assets; and (6) all prerequisite demonstrations (e.g., parallel service modeling and proof of efficiency and timeliness), testing, and training is complete. The PSEG-LM Team will work with LIPA to finalize the Handover Checklist elements and the detailed criteria for LIPA approval of the checklist activities. In addition, we will work with LIPA to establish the Checklist Completion Report. Senior Management. It is important that PSEG-LM Senior Management is engaged in activities during Front-End Transition, in order to ensure a seamless handover prior to commencement of Operations Services. Senior Management will be engaged with LIPA and the Transition Team to conduct the following activities: Completing staff mobilization and orientation. Establishing organization concept of operations, including roles, responsibilities, accountability, and authority. Facilitating interaction with LIPA and interface management with other stakeholders. Implementing employee relations and community outreach activities. 20

57 The PSEG-LM Team General Manager and Transition Manager will be in daily contact with LIPA through-out Front-End Transition and will support LIPA and the Transition Committee in the final Transition Readiness Review process. Operations Services Performance Metrics. During FET, as the PSEG-LM Team conducts studies and collects data through all the functional due diligence activities, we will ensure that we have the necessary resources, information, and infrastructure needed to activate performance metrics measurement and reporting upon the Service Commencement Date. Additional Tools for Successful FET. The primary means of verification of status of Front-End Transition by the PSEG-LM Team and LIPA will be in accordance with the approved Front-End Transition Plan, Milestone Schedule, and Handover Checklist. Over the course of FET, metrics will be defined to ensure that the progress of transition activities can be measured and provided to PSEG-LM Team management and LIPA via the Transition Committee. This ensures that risks to Handover are identified and mitigated, that barriers are overcome, and that critical customer services are not impacted. In addition, the PSEG-LM Team may develop additional internal checklists to ensure that acceptance criteria are being met according to LIPA s requirements for each major milestone. Our Team will implement this FETP while providing full transparency of progress to LIPA through the Transition Committee. The Transition Plan, Schedule, and reporting status will be online and available electronically to LIPA management. Our Transition Manager will conduct weekly standup meetings to assess transition status and will report our progress to the Transition Committee at a minimum on a monthly basis. In addition, our transition team will be on-call to provide information as requested by LIPA management and the Transition Committee. 21

58 PSEG LIPA Front End Transition Schedule 22

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