Nicor Inc.
Form 10-Q
Exhibit 10.11
 

INTERIM COOPERATIVE AGREEMENT

This agreement is made this 28th day of October 1993 by and between Commonwealth
Edison Company (“Edison”), an Illinois corporation, and Northern Illinois Gas
Company (“NI-Gas”), an Illinois corporation, (collectively, “Utilities”) to
provide an interim cooperative arrangement for the Utilities to address certain
issues at certain former manufactured gas plant (“MGP”) sites in Illinois.

WHEREAS, without admitting any liability, Edison and NI-Gas currently believe
that certain actions should be taken with regard to particular MGP sites; and

WHEREAS, without admitting any liability, Edison and NI-Gas may agree in the
future that certain actions should be taken with regard to other MGP sites; and

WHEREAS, Edison and NI-Gas have determined that it is in the public interest and
in their mutual best interest to work together on an interim basis to perform
mutually acceptable actions with regard to certain MGP sites; and

WHEREAS, Edison and NI-Gas have determined that it is in their mutual best
interest to pursue negotiation, and binding arbitration to the extent set forth
in this Agreement, to attempt to resolve issues regarding payment of the cost of
performing actions at certain MGP sites;

NOW THEREFORE, based on the covenants and mutual promises contained herein,
Edison and NI-Gas agree as follows.

 
1.
Interim Cost Allocation.

 
1.1
If either of the Utilities believes that costs should be incurred at one or more
MGP sites listed on Attachment A (“Site List”), it shall contact the other and
the Utilities shall meet as soon as reasonably possible to discuss whether they
agree that costs should be incurred and, if so, the nature of those costs. If
the Utilities reach agreement on those issues, each of the Utilities shall pay
50% of the agreed upon costs (“Interim Cost Allocation”), subject to the final
allocation of costs between the Utilities pursuant to Sections 4, 5 and 6 of
this Agreement (“Final Cost Allocation”). If either of the Utilities believes
that an MGP site should be added to the Site List, it shall contact the other
and the Utilities shall meet as soon as reasonably possible to discuss whether
they agree that the site should be added.

 
1.2
If, after discussion, the Utilities do not agree that costs should be incurred
for a particular site listed on Attachment A, they may pursue or continue to
pursue any and all rights which they would otherwise have under applicable law;
provided, however, that neither of the Utilities may commence litigation against
the other regarding any site on the Site List unless this Agreement has been
terminated in accordance with Section 14 or unless ninety (90) days before the
Utility intends to commence such litigation it sends the other Utility, by
telecopy and U.S. mail, written notice of such intent (“Initial Litigation
Notice”). The Initial Litigation Notice shall specify the MGP site or sites that
would be the subject of the litigation, and the Utility sending such notice may
commence litigation on the ninetieth (90th) day after the date of the Initial
Litigation Notice (said 90th day being hereinafter called the “Litigation
Date”). On the Litigation Date, the Utility that received the Initial Litigation
Notice may commence litigation against the other Utility regarding any MGP site
or sites on the Site List, provided that within forty (40) days of the date of
the Initial Litigation Notice the Utility receiving such notice sent the other
Utility written notice (“Responsive Litigation Notice”), by telecopy and U.S.
main, of its intent to commence litigation, including an identification of the
site or sites that would be the subject of the litigation to be initiated by it.
If a Utility commences litigation in accordance with this Section 1 without
terminating this Agreement in accordance with Section 14, this Agreement shall
be terminated with regard to the site or sites subject to the litigation
(“Termination of Agreement for Litigated Sites”), and the provisions of Section
14 (b) and (c) shall be applicable to such termination. A Utility may not
commence litigation in accordance with this Section 1 for a site for which any
arbitration proceeding has begun under this Agreement.

 
2.
Shared Costs.

 
2.1
The Utilities in the Interim and Final Cost Allocation under this Agreement
shall seek recovery from each other solely for Shared Costs, which shall be
defined as third party costs of investigation and/or remediation of a particular
MGP site (which investigation and/or remediation has been agreed to by both
Utilities in accordance with Section 1 of this Agreement) and any expenditures
incurred by the Coordinator/Utility for audits under Section 17(b) or in
prosecuting, defending, compromising, settling or paying suits or claims
pursuant to Section 2.4 of Attachment C. Examples of Shared Costs are the costs
of third party investigation and/or remediation of an MGP site (which the
Utilities have agreed to perform in accordance with Section 1 of this Agreement)
pursuant to:

 
a)
a work plan agreed upon by the Utilities in accordance with Attachment C;

b)    a work plan ordered by a federal or state regulatory agency;
or

 
c)
a work plan ordered by a court with appropriate jurisdiction, involving
litigation with a third party.

 
2.2
Examples of costs that are not Shared Costs under this Agreement are:

 
a)
a Utility’s payroll costs, overhead or internal or external legal costs (except
for external legal costs that the Defending Utility may incur in accordance with
Section 2.4 of Attachment C);

 
b)
a Utility’s ordinary costs of owning a particular former MGP site (including,
but not limited to, taxes, insurance, maintenance and other similar costs);

 
c)
costs incurred by a Utility in pursuit of recovery of insurance proceeds from
insurance carriers;

 
d)
costs of prosecuting, defending, compromising or settling third party litigation
relating to an MGP site, except to the extent allowed by Section 2.4 of
Attachment C; and

 
e)
costs incurred by either Utility prior to the date of this Agreement, unless the
Utilities have agreed pursuant to Section 3 to incur such costs.

 
2.3
Nothing in this Agreement shall limit the types of costs associated with MGP
sites that one Utility can recover from the other in litigation.

 
3.
Costs Currently Subject to Interim Cost Allocation.

 
3.1
Edison and NI-Gas have incurred and/or agree to incur the following costs as
Shared Costs, subject to the terms of this Agreement, including, but not limited
to, the Final Cost Allocation procedures set forth in Sections 4, 5 and 6 of
this Agreement:

 
a)
the cost of any settlement - acceptable to both Edison and NI-Gas -- and the
cost of any judgment entered against either or both Utilities in Alcan-Toyo
America, Inc. v. Northern Illinois Gas Co., No. 92C 7142 (N.D. Ill. filed
10/27/92);

 
b)
the cost of air monitoring - - and any other related activities acceptable to
both NI-Gas and Edison - - at the Oak Park site; and

 
c)
the cost of response activities - - acceptable to both NI-Gas and Edison - - at
the Streator site.

 
3.2
The following costs shall be subject to audit and final allocation as Shared
Costs in accordance with Sections 4, 5 and 6 of this Agreement:

 
a)
with regard to the Streator site, approximately $700,000 of costs that Edison
has incurred at the site prior to the date of this Agreement; and

 
b)
with regard to the Alcan site, approximately $45,000 of costs that NI-Gas has
incurred at the Alcan site prior to the date of this Agreement.

 
4.
Final Cost Allocation.

4.1 The final allocation of Shared Costs shall be determined on a site-by-site
basis through negotiation or arbitration as set forth in this Agreement,
although the Utilities may, if they so agree, aggregate individual sites for
Final Cost Allocation. If a Utility, pursuant to the Interim Cost Allocation,
has paid a greater percentage of Shared Costs for an MGP site or group of sites
than is allocated to it by the Final Cost Allocation, the other Utility shall
pay it the difference between the amount it actually paid pursuant to the
Interim Cost Allocation and the amount allocated to it by the Final Cost
Allocation. The time for Final Cost Allocation shall be determined as follows:

 
a)
During the twelve months following the completion of both a Phase I and a Phase
II investigation at a particular site, the Utilities shall attempt to negotiate
the final allocation of the Shared Costs already incurred and the estimated
future costs to be incurred in any Phase III remediation. If the Utilities are
unable to agree within such twelve months, either Utility may seek binding
arbitration as provided for in Section 5 after the conclusion of such twelve
months; or

 
b)
If the Utilities have completed a Phase I investigation, either Utility may seek
binding arbitration as provided for in Section 5 no earlier than three years
following the completion of the Phase I investigation at a particular site; or

 
c)
If the Utilities are unable to agree to continue to fund work at a particular
site on a 50/50 interim allocation basis at anytime during Phase I, Phase II or
Phase III, and for any reason (including, but not limited to, an inability to
agree on a consultant or the type of remediation to be performed in Phase III),
either Utility may commence arbitration in accordance with Section 5; but in no
event prior to two years after the date of this Agreement; or

 
d)
By Section 4.4 of Attachment C to this Agreement.

 
4.2
For purposes of this Section, Phase I, Phase II and Phase III are defined as
follows:

 
a)
A Phase I investigation is an investigation to collect data needed to adequately
characterize an MGP site for the purpose of developing and evaluating effective
response action alternatives. This investigation may be conducted in one or more
stages.

 
b)
A Phase II investigation is the process of evaluating the data from the Phase I
investigation in order to select a response action. A Phase II investigation is
complete when the Utilities have agreed upon a response action that will be
implemented for MGP site.

 
c)
A Phase III remediation is the implementation of a response action for a site.

 
5.
Initiation of Arbitration and Selection of Arbitrators.

 
5.1
Subject to Section 4, one Utility shall initiate the arbitration (“Initiating
Utility”) by requesting the Center For Public Resources, Inc. to send to it and
the other Utility a list of nine (9) potential arbitrators (“List of Potential
Arbitrators”). The initiating Utility shall inform the Center for Public
Resources, Inc. that:

 
a)
Before an arbitrator is included on the List of Potential Arbitrators, the
Center for Public Resources, Inc. should confirm with the arbitrator that he/she
(i) is interested in performing the arbitration and could do so in accordance
with the schedule set forth in this Agreement, and (ii) does not have any
conflict of interest that would interfere with impartial decision making;

 
b)
Each potential arbitrator must have legal training and experience in
environmental matters and contract dispute resolution; and

 
c)
The List of Potential Arbitrators must be accompanied by a curriculum vitae for
each arbitrator.

 
5.2
Within thirty (30) days of receipt of the List of Potential Arbitrators by both
Utilities, the Initiating Utility shall select an arbitrator from it and mail to
the other Utility notice of the selection. Within forty-five (45) days of the
receipt of the List of Potential Arbitrators the other Utility shall select an
arbitrator from it and mail to the initiating Utility notice of the selection.
Within sixty (60) days of the receipt of the List of Potential Arbitrators, the
Utilities shall meet to select a third arbitrator from the List of Potential
Arbitrators. If the Utilities cannot agree on a third arbitrator during their
meeting, before concluding such meeting they shall select an arbitrator by
having each Utility—beginning with the Initiating Utility—alternate in deleting
one name from the List of Potential Arbitrators until only one name remains
(other than the names of the two (2) arbitrators previously selected by the
Utilities). That name shall be the third arbitrator. The date such arbitrator is
selected shall be the Commencement Date for purposes of arbitration.

 
5.3
Each party shall pay the costs of the arbitrator it has selected and one-half
the costs of the third arbitrator together with its own costs of arbitration.
Such costs shall not be Shared Costs within the meaning of Section 2.

 
6.
Arbitration Procedure.

 
6.1
Within ten (10) days of the Commencement Date, the Utilities shall provide the
arbitrators a copy of this Section 6 and a copy of all publicly available
documents or portions of such documents, including those obtained from the U.S.
Environmental Protection Agency or the Illinois Environmental Protection Agency,
which the Utilities believe will provide the arbitrators with useful background
information about the site (or sites) that is the subject of the arbitration. If
the Utilities disagree regarding which documents should be provided to the
arbitrators, each Utility may provide whatever documents it chooses.

 
6.2
Within thirty (30) days (“Document Production Date”) of the Commencement Date,
each Utility shall submit to the other all non-privileged documents that it has
regarding the site (or sites) that is the subject of the arbitration, as well as
a certification—from its Vice President with responsibility for environmental
affairs—stating that the Utility is providing all such documents.

 
6.3
Within thirty (30) days after the Document Production Date, the Utilities and
the arbitrators shall have a Scheduling Conference. At this conference, the
Utilities and the arbitrators shall:

 
a)
decide what, if any, additional discovery shall be conducted and establish a
schedule for such discovery;

 
b)
schedule the filing of written testimony by the Utilities, a hearing for
cross-examination, the filing of memoranda by the Utilities prior to oral
argument, the oral argument, the filing of a brief by each Utility after the
oral argument, and the provision to the Utilities by the arbitrators of the
Final Cost Allocation Report (“FCAR”) which shall be binding on the Utilities;
and

 
c)
decide any other issues that the Utilities and the arbitrators agree should be
decided during the Scheduling Conference to facilitate the arbitration.

If the Utilities disagree about any matter discussed during the Scheduling
Conference, the arbitrators shall resolve such matter. The Utilities and the
arbitrators shall take all steps reasonably possible to ensure that the
arbitration process will be cost-effective, efficient and fair.

 
6.4
Notwithstanding any other provision of this Agreement, no Utility shall be
required to disclose to the other Utility or to the arbitrators any
communications with, or work product of, its attorneys.

 
6.5
The arbitrators may, in their sole discretion, communicate in writing with any
Utility to inquire about any gaps in the records, or to request further
information on any matter relevant to the development of an allocation, and
shall provide a copy of such inquiry to the other Utility. Each Utility shall
use its best efforts to comply in writing with an inquiry by the arbitrators
pursuant to this paragraph and shall provide a copy of its response to the other
Utility.

 
6.6
The provisions of this Agreement shall govern arbitration performed pursuant to
this Agreement; provided that the Center for Public Resources’ Rules for
Non-Administered arbitration of Business Disputes (1990) (“CPR’s Rules”), shall
govern the procedural issues, if any, that are not addressed by this Agreement,
although CPR’s Rules shall not govern any action that Edison or NI-Gas may have
against CPR or any arbitrator in connection with any arbitration performed under
this Agreement. In the event of any conflict between the provisions of this
Agreement and the procedural provisions of CPR’s Rules, this Agreement’s
provisions shall govern. CPR’s Rules are set forth in Attachment B.

 
6.7
The arbitrators shall be responsible for developing the Final Cost Allocation in
accordance with the procedures set forth in this Agreement. In developing the
Final Cost Allocation, the arbitrators shall consider all documents, information
and comments or other evidence submitted to or solicited by the arbitrators
pursuant to this Agreement.

 
6.8
The parties agree that notwithstanding the determination by the arbitrators in
accordance with this Agreement, neither party shall be allocated less than 20%
or more than 80% of the Shared Costs in the Final Cost Allocation and the Final
Cost Allocation Report. For instance,

 
a)
a determination by the arbitrators that one party should pay only 10% of the
total Shared Costs would mean that the party would be allocated 20% in the Final
Cost Allocation and FCAR, and the remaining party would be allocated 80%; and

 
b)
a determination that one party should be allocated 40% of the total Shared Costs
would mean that the party would pay 40% and the remaining party 60% as the Final
Costs Allocation. The arbitrators shall be informed that in no event shall the
Final Cost Allocation of FCAR assign to either party less than 20% or more than
80% of the Shared Costs.

 
6.9
The agreement of a majority of the arbitrators shall be the judgment of the
arbitrators.

 
6.10
The FCAR tendered by the arbitrators shall be final and binding. If one Utility
does not comply with the FCAR, the other Utility may have judgment entered
thereon and the FCAR shall be enforced in or by any court having jurisdiction
thereof. Such judgment shall be the judgment refered to in Section 7.1 and 7.4.

 
6.11
The arbitrators’ sole responsibility shall be to determine an allocation of the
Shared Cost for the site or sites subject to the arbitration. After a Final Cost
Allocation has been determined for a site, that allocation shall binding upon
the Utilities for all past or future Shared Costs for that site (incurred after
the date of this Agreement or specified in Section 3) that the Utilities agree
to incur, and/or for which the Utilities are legally liable. If one Utility
decides that Shared Costs should be incurred at a site for which a FCAR has been
issued, but the other Utility refuses to contribute to those costs, the former
Utility may commence litigation against the latter Utility to establish the
latter’s liability; provided, however, that if the latter Utility is found
liable, the Shared Costs will be allocated among the Utilities pursuant to the
FCAR. The arbitrators shall not have the right to:

 
a)
enforce an allocation;

 
b)
award damages or punitive damages;

 
c)
grant injunctive relief or specific performance; or

 
d)
require any Utility to follow a specific work plan or course of remediation for
a particular site.

 
6.12
It is the hope and intention of the parties that common questions of fact and
law will not need to be arbitrated at each site and that after one or two
arbitrations the parties will be able to stipulate as to such common questions.
Notwithstanding the foregoing, the doctrines of collateral estoppel and res
judicata shall not be applicable to any arbitration.

 
7.
Interest.

 
7.1
The parties agree that prejudgment interest shall be available to the Utility
which is finally determined to have paid as its Interim Cost Allocation more
than its proportionate share of the final allocated Shared Costs. For example,
if a Utility pay 50% of the interim allocated costs and the final Shared Costs
allocated to that Utility represent 40% of that total, the Utility would be
entitled to interest on 10% of the interim allocated costs from the date of
payment of such costs.

 
7.2
Interest shall be based on the U.S. Treasury rate for three year notes in effect
from time to time from the date of this Agreement, plus 50 basis points.

 
7.3
Interest shall not be paid on amounts already incurred prior to the date of this
Agreement by both parties as set forth in small subparagraphs a) and b) of
Section 3.2 of this Agreement.

 
7.4
The interest rate set forth in Section 7.2 shall also apply as post judgment
until the judgment is paid.

 
8.
Performance of Activities at a Site. 

If the Utilities decide to incur costs at a site pursuant to the terms of this
Agreement, they shall:

 
a)
select mutually acceptable consultants for the performance of services agreed to
by the Utilities;

 
b)
decide whether one Utility will act as the coordinator of agreed upon activities
involving the site (referred to as the Coordinator/Utility in Attachment C)
provided, however, that if a coordinator is selected, both Utilities will
participate in any significant decision making as more fully set forth in
Attachment C;

 
c)
exchange their technical information regarding that site;

 
d)
cooperate reasonably with each other regarding agreed upon activities involving
the site as more fully set forth in Attachment C;

 
e)
each Utility will sign as a cogenerator of any manifests needed involving the
removal of waste;

 
f)
cooperate reasonably with each other in any proceedings (including prudence
reviews), regarding the recovery from ratepayer, insurance carriers, or other
third parties of costs incurred pursuant to this Agreement, which cooperation
shall include: (i) providing documents and information regarding costs incurred
and activities performed under this Agreement; and (ii) allowing employees to
testify regarding such costs and activities; provided, however, that no Utility
shall be required to disclose work product of or communications with the
Utility’s legal counsel.

 
9.
Reservation of Rights. 

This Agreement shall not constitute, nor be interpreted, construed or used as
evidence of any admission of liability, law or fact, or a waiver of any right or
defense, provided, however, that:

 
a)
except as provided in Section 1 above, during the term of this Agreement,
neither of the Utilities may commence litigation against the other regarding
claims associated with manufactured gas plants that arise from, or are related
to, any of the sites on the Site List unless suit is brought by a third party or
government agency against a Utility concerning a site on the Site List, in which
case all claims, cross claims or third-party claims may be brought by each
Utility against the other; provided, however, that to the maximum extent
possible the Utilities shall attempt to resolve their differences under the
terms of this Agreement;

 
b)
neither Edison nor NI-Gas will assert in any proceeding any challenges to costs
that the Utilities agreed to incur after the date of this Agreement or for costs
identified under Section 3 of this Agreement, including, but not limited to,
challenges to the reasonableness of the costs or assertions that the costs were
not consistent with the National Contingency Plan;

 
c)
during the term of the Agreement, this Agreement tolls the statute of
limitations for any cause of action that Edison or NI-Gas may have against each
other regarding possible remediation arising from or relating to any of the
sites on the Site List.

 
10.
Settlement Negotiations. 

The Utilities agree that all activities undertaken pursuant to this Agreement
constitute negotiations for the purpose of compromise and settlement. Neither
the fact of participation of either Utility in the Agreement, nor any documents
or other information generated by either Utility or by the arbitrators pursuant
to this Agreement, may be introduced as evidence in any other proceeding, except
in proceedings regarding a request for regulatory approval of the Agreement, or
the recovery from ratepayers, insurance carriers or other third parties
(collectively, “Third Party Proceeding”) of costs incurred pursuant to this
Agreement and except for those documents or such information which is in the
public domain or obtainable in accordance with the following provisions of this
section. The arbitrators shall be prohibited from testifying on matters related
to an MGP site subject to arbitration under this Agreement or to this Agreement,
in any judicial or administrative proceeding, except for Third Party Proceedings
and except in proceedings to enforce the arbitration judgment. No Utility may
call as a witness, or seek discovery from, the arbitrators, or any of the
arbitrators’ partners, agents, employees, or representatives, in any judicial or
administrative proceeding, except for Third Party Proceedings related to an MGP
site subject to arbitration under this Agreement, or to this Agreement. Nothing
in this Agreement shall be construed to prohibit a Utility from using that
Utility’s own documents, publicly available documents or documents otherwise
available to the Utility other than from activities conducted under this
Agreement, in any judicial or administrative proceeding. Nothing in this
Agreement shall be construed to limit or otherwise affect the discovery rights
of any Utility to the Agreement against the other in any other proceeding with
respect to documents or information not generated by the arbitrators.

 
11.
Confidentiality.

 
a)
Except as provided to the contrary in Section 10, each Utility agrees that all
documents and information marked confidential and received from the other
Utility or its counsel, pursuant to the Agreement, and all reports and
communications from the arbitrator, shall be held in strict confidence by the
receiving Utility.

 
b)
Each Utility shall take all necessary and appropriate measures to ensure that
any person who is granted access to any documents or information received
pursuant to this Agreement is familiar with the confidentiality terms of this
Agreement and complies with the confidentiality obligation.

 
c)
The confidentiality obligations of the Utility shall remain in full force and
effect, without regard to whether a Utility terminates the Agreement, or this
Agreement results in a final allocation among the parties. The provisions of
this section shall not apply to information which is now or hereafter becomes
public knowledge without violation of the Agreement, which is sought and
obtained from a Utility pursuant to applicable discovery procedures and not
otherwise protected from disclosure, which is available to a Utility other than
from activities conducted under this Agreement, or which a Utility is required
by law to disclose (provided that the disclosing Utility notifies the other
Utility of such disclosure).

 
d)
The submission of document or information to the arbitrators does not constitute
a waiver of any Utility’s right to argue that such documents or information are
not discoverable in another proceeding.

 
12.
Preservation of Privilege. 

Each Utility agrees that the disclosure of any documents or information to the
arbitrators or to another Utility shall not be deemed a waiver of the
attorney-client privilege, work product, joint defense or self-evaluation or any
other privilege by the Utility providing the documents or information.

 
13.
New Parties. 

The Utilities may make provision for the addition of new parties after the
effective date of this Agreement. The Utilities may impose such additional terms
and conditions upon prospective new parties as may be agreed to by the
Utilities.

 
14.
Termination. 

Either of the Utilities may terminate this Agreement upon sixty (60) days
written notice to the other, provided that:

 
a)
any arbitration proceeding begun prior to the termination of this Agreement
shall be concluded in accordance with this Agreement, notwithstanding the
intervening termination;

 
b)
any obligations the Utilities have incurred to third parties (e.g., contractors,
government agencies) in accordance with this Agreement will not be terminated,
and such obligations will be fulfilled in accordance with the terms of this
Agreement, unless both Edison and NI-Gas agree to such termination;

 
c)
The following sections of this Agreement shall survive termination: Section
6.10, 6.11, 7, 8(f), 9, 10, 11, 12, 15, 17, 19 through 23, and Sections 2.5 and
4.5 of Attachment C.

 
15.
Nature of Agreement.

Nothing herein shall be deemed to create a partnership, joint venture or
principal/agent relationship between Edison and NI-Gas.

 
16.
Entire Agreement. 

This Agreement and Attachments hereto (which Attachments are part of this
Agreement) constitute the entire understanding of Edison and NI-Gas with respect
to the Agreement’s subject matter. No modification may be made to this Agreement
except one signed by both Utilities which expressly states that it is a
modification of the Agreement.

 
17.
Audit. 

 
a)
The Non-Coordinator/Utility, upon written notice to Coordinator/Utility thirty
days in advance, shall have the right to audit the accounts and records of
Coordinator/Utility and/or its contractors relating to the accounting hereunder
for any calendar year, within the twenty-four month period following the end of
such calendar year. Provided, however, that the Non-Coordinator/Utility must
take written exception to and make claim upon the Coordinator/Utility for all
discrepancies disclosed by said audit within said twenty-four month period.
Where there are two or more Non-Coordinators/Utilities, the
Non-Coordinators/Utilities shall make every reasonable effort to conduct joint
or simultaneous audits in a manner which will result in a minimum of
inconvenience to the Coordinator/Utility.

 
b)
In the event that the Coordinator/Utility is required by law or under the
Agreement to employ a public accounting firm to audit the records of the
activities for which the Utility is the Coordinator/Utility, the cost thereof
shall be a Shared Cost, and a copy of the audit shall be furnished to each
Utility.

 
c)
Except in the event that an audit is conducted under subparagraph b above, the
cost shall be borne by the Non-Coordinator/Utility.

 
d)
If the Coordinator/Utility is subject to an audit required by the Illinois
Commerce Commission, it shall notify the other Utility prior to the commencement
of such audit.

 
18.
Alternative Dispute Resolution. 

If the Utilities cannot reach agreement on any issue arising in connection with
this Agreement, they will consider using alternative dispute resolution-
-including, but not limited to, mediation, arbitration, or reliance upon the
decision of a mutually acceptable environmental consultant- -to resolve such
dispute.

 
19.
Successors and Assigns. 

This Agreement shall be binding upon the successors and assigns of the
Utilities; provided that no Utility can assign its rights under the Agreement
without the other Utility’s consent.

 
20.
Law. 

This Agreement shall be interpreted under the laws of the State of Illinois.

 
21.
Severability. 

If any provision of this Agreement is deemed invalid or unenforceable, the
balance of this Agreement shall remain in full force and effect.

 
22.
Effective Date, Method of Execution. 

The effective date of this Agreement shall be October 28, 1993. This Agreement
may be executed in multiple counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.

 
23.
Nonwaiver. 

Nothing in this Agreement shall be construed to waive any rights, claims,
privileges, or defenses which any Utility shall have against any other Utility
or any other person or entity.

 
24.
Exchange of Insurance Policies. If one Utility learns of the existence of a
general liability insurance policy which it believes may provide coverage to the
other Utility with regard to an MGP Site, the former shall notify the latter of
such a policy.

 
25.
Captions. 

The captions in this Agreement are for convenience only and shall not affect the
construction or interpretation of any term or provision hereof.

 
26.
Certain Costs. 

If the Utilities incur Shared Costs that they agree that they need to incur
prior to the approval or disapproval of this Agreement by the Illinois Commerce
Commission (to the extent such approval is required by Section 7-102 of the
Public Utilities Act), the Utilities shall act in accordance with this Agreement
with regard to such Shared Costs, including, but not limited to, the condition
that each Utility will pay, on an interim basis, 50% of the costs that it agrees
to incur for a site.

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IN WITNESS WHEREOF, each Utility designated below enters into this Agreement.
Each person signing this Agreement represents and warrants that he or she has
been duly authorized to enter into this Agreement by the company or entity on
whose behalf it is indicated that the person is signing.

Dated October 25, 1993                       Party: Northern Illinois Gas
Company_ 

By:_/s/ RICHARD J. LANNON     Richard J. Lannon, Vice President       
(Name and Title)

Designated Representative for Receipt of Notice and Invoices

Name: David L. Cyranoski, Secretery       

Address: 1844 Ferry Road, Naperville, IL 60563-9600     

Telephone Number: (708) 983-8676       

Facsimile Machine Number: (708) 983-8966      

Dated 10/28/93                    Party: Commonwealth Edison Company 

By: /s/ ROBERT J. MANNING     Robert J. Manning, Senior Vice President      
(Name and Title)

 
Designated Representative for Receipt of Notice and Invoices
Name: Thomas E. Hemminger        

Address: Commonwealth Edison Company, One First National Plaza, 35th Floor, 
Chicago, Illinois 60603         

Telephone Number: (312) 394-4433       

Facsimile Machine Number: (312) 394-4466      

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Attachment A

Former MGP/Site Address

1.
Aurora Gas Light Company
   
River St. at North Avenue Bridge
Aurora
     
2.
Belvidere Gas, Light & Fuel
   
Locust Street
Belvidere
     
3.
Chicago Heights Gas Company
   
17th& State Street
Chicago Heights
     
4.
Cicero Gas Company
   
Lombard & Garfield
Oak Park
     
5.
Coal Products Manufacturing Company
   
North Broadway
Lockport
     
6.
Freeport Gas, Light & Coke Company
   
Liberty & Jackson St.
Freeport
     
7.
Geneseo Electric Light & Gas Company
   
Oakwood & First St.
Geneseo
     
8.
Illinois Northern Utility Company
   
Market & 14th
DeKalb
     
9.
Illinois Northern Utilities Company
   
227 Miller
Sterling
     
10.
Joliet Gaslight Company, Station B
   
North Broadway & Ingalls St.
Joliet
     
11.
Kankakee Gas Company
   
Birch & Harrison St.
Kankakee
     
12.
LaGrange Gas Company
   
47th& Bluff St.
LaGrange
     
13.
Lemont Gas, Light Company
   
Main & Lockport Rd.
Lemont
     
14.
Lincoln Water, Light & Gas Company
   
Sangamon & Dacatur St.
Lincoln
     
15.
Lockport Gas Company
   
17th& I & M Canal
Lockport

NOTE: Edison and NI-Gas are not admitting liability at any of these sites, or
waiving any rights or defenses.

--------------------------------------------------------------------------------

Former MGP/Site Address (cont’d)

16.
Mendota Gas Company
   
Fifth St. & Ninth Ave.
Mendota
     
17.
Morris Gas Company
   
Nettle & Jackson St.
Morris
     
18.
Morrison Gas & Electric
   
Market & S. Orange
Morrison
     
19.
Northwestern Gas, Light & Coke Company
   
912 Clark St.
Evanston
     
20.
Northwestern Gas, Light & Coke Company
   
Maple & Vermont
Blue Island
     
21.
Northwestern Gas, Light & Coke Co./
   
Niles Center Station
   
Oakton St. & McCormick Blvd.
Skokie
     
22.
Ottawa Gas, Light & Coke Company
   
Illinois & Walker St.
Ottawa
     
23.
Pontiac Light & Water Company
   
Vermillion & Water St.
Pontiac
     
24.
Streator Gas, Light & Coke Co.
   
Water St. & Vermillion Rr.
Streator

 

 

NOTE: Edison and NI-Gas are not admitting liability at any of these sites, or
waiving any rights or defenses.

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CPR LEGAL PROGRAM
TO DEVELOP ALTERNATIVES TO LITIGATION

RULES AND COMMENTARY FOR NON-ADMINISTERED
ARBITRATION OF BUSINESS DISPUTES

CENTER FOR PUBLIC RESOURCES, INC.
366 Madison Avenue New York, N.Y. 10017 Tel (212) 949 6490 Fax (212) 949 8859

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CPR COMMITTEE ON PRIVATE ADJUDICATION

GERALD AKSEN, CHAIRMAN
Reid & Priest

GEOFFRY D.C. BEST
LeBoeuf, Lamb, Leiby & MacRae

RICHARD CHERNICK
Gibson, Dunn & Crutcher

WINSLOW CHRISTIAN
Senior Vice President and Director of Litigation
Bank of America

MARTIN GLENN
O’Melveny & Myers

ROBERT GORSKE
Vice President and General Counsel
Wisconsin Electric Power Company

JAMES P. GROTON
Sutherland, Asbill & Brennan

BERTHOLD H. HOENIGER
Bailey, Marshall & Hoeniger

STEPHEN D. HOUCK
Donovan Leisure Newton & Irvine

THE HONORABLE JOSEPH W. MORRIS
Gable & Gotwals

MICHAEL J. PLISHNER
McCutchen, Doyle, Brown & Enersen

PROFESSOR MAURICE ROSENBERG
Columbia Law School

JOHN M. TOWNSEND
Hughes Hubbard & Reed

ROBERT VON MEHREN
Debevoise & Plimpton

CLIFFORD L. WHITEHILL
Vice President and General Counsel
General Mills, Inc.

CPR STAFF

PETER H. KASKELL
Senior Vice President

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TABLE OF CONTENTS

INTRODUCTION

STANDARD PROVISIONS

 
A.
Pre-dispute Clause

 
B.
Existing Dispute Submission Agreement

THE RULES

 
A.
General and Introductory Rules

Rule 1.  Scope of Application
Rule 2.  Notices
Rule 3.  Commencement
Rule 4.  Representation

 
B.
Rules with Respect to the Tribunal

Rule 5.  Selection of Arbitrators by the Parties
Rule 6.  Selection of Arbitrators by CPR
Rule 7.  Qualifications, Challenges and Replacement of Arbitrators
Rule 8.  Challenges to the Jurisdiction of the Panel

 
C.
Rules with Respect to the Conduct of the Arbitral Proceedings

Rule 9.     General Provisions
Rule 10.    Discovery
Rule 11.    Evidence and Hearings
Rule 12.    Interim Measures of Protection
Rule 13.    The Award

 
D.
Miscellaneous Rules

Rule 14.    Failure to Comply with Rules
Rule 15.    Costs
Rule 16.    Confidentiality
Rule 17.    Settlement and Mediation
Rule 18.    Actions against CPR or Arbitrators
Rule 19.    Waiver

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CENTER FOR PUBLIC RESOURCES

RULES FOR NON-ADMINISTERED
ARBITRATION OF BUSINESS DISPUTES

INTRODUCTION

These Rules for Non-Administered Arbitration of Business Disputes (the “Rules”)
have been developed by a committee of leading arbitrators and practitioners
convened by the Center for Public Resources (“CPR”) and have been adopted by
CPR. CPR itself will not undertake to function as an administrative body with
respect to the Rules. Under the Rules, CPR’s responsibilities are limited to
acting as the appointing authority in certain circumstances (see Rule 6) and
deciding challenges to an arbitrator (see Rule 7.7).

STANDARD PROVISIONS

The Rules, which are intended in particular for use in complex commercial
arbitrations, may be adopted by parties wishing to do so by using one of the
following standard provisions:

A. Pre-dispute Clause

“Any controversy or claim arising out of or relating to this contract, or the
breach, termination or validity thereof, shall be settled by arbitration in
accordance with the Center for Public Resources Rules for Non-Administered
Arbitration of Business Disputes, by (a sole arbitrator) (three arbitrators, of
whom each party shall appoint one) (three arbitrators, none of whom shall be
appointed by either party). The arbitration shall be governed by the United
States Arbitration Act, 9 U.S.C. § 1-16, and judgment upon the award rendered by
the Arbitrator(s) may be entered by any court having jurisdiction thereof.”

B. Existing Dispute Submission Agreement

“We, the undersigned parties, hereby agree to submit to arbitration in
accordance with the Center for Public Resources Rules for Non-Administered
Arbitration of Business Disputes (the “Rules”) the following controversy:
[Describe briefly]
We further agree that the above controversy shall be submitted to (a sole
arbitrator) (three arbitrators, of whom each party shall appoint one) (three
arbitrators, none of whom shall be appointed by either party). We further agree
that we shall faithfully observe this agreement and the Rules and that we shall
abide by and perform any award rendered by the arbitrator(s). The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C. § 1-16, and
judgment upon the award may be entered by any court having jurisdiction
thereof.”

The Rules are designed to provide a procedural basis for the settling of
disputes. They are not intended to change substantive provisions of applicable
law. Therefore, it is recommended that parties consider the inclusion in their
agreement of specific clauses as to the place of arbitration and as to the law
governing the contract and the arbitration.

RULES FOR ARBITRATION

 A.GENERAL AND INTRODUCTORY RULES

Rule 1. Scope of Application

1.1 Where the parties to a contract have provided for arbitration under the
Rules, they shall be deemed to have made these Rules a part of their arbitration
agreement, except to the extent that they have agreed in writing, or on the
record during the course of the arbitral proceeding, to modify these Rules.
These Rules, and any amendment thereof adopted by CPR, shall apply in the form
obtaining at the time the arbitration is commenced.

1.2 These Rules shall govern the arbitration except that where any of these
Rules is in conflict with a mandatory provision of applicable law, that
provision of law shall prevail.

Rule 2. Notices

2.1 Notices shall be given in writing at the address specified in writing by the
recipient or, if no address has been specified, to the then business or
residence address of the recipient. Notices may be given by mail, telex or
facsimile transmission. Notices shall be deemed to have been received on the
date of delivery.

2.2 Time periods specified by these Rules or established by the Arbitral
Tribunal (the “Tribunal”) shall start to run on the day a notice is received,
unless the Tribunal shall specifically provide otherwise.

Rule 3. Commencement of Arbitration

3.1 The party commencing arbitration (the “Claimant”) shall address to the other
party (the “Respondent”) a notice of arbitration.

3.2 The arbitration shall be deemed commenced on the date on which the notice of
arbitration is received by the Respondent.

3.3 The notice of arbitration shall include in the text or in attachments
thereto:

(a) The full names, descriptions and addresses of the parties;

(b) A demand that the dispute be referred to arbitration pursuant to the Rules;

(c) The verbatim text of the arbitration clause or the separate arbitration
agreement that is involved;

(d) A statement of the general nature of the claimant’s claim;

(e) The relief or remedy sought; and

(f) The name and address of the arbitrator appointed by the Claimant, unless the
parties have agreed that neither shall appoint an arbitrator.

3.4 Within twenty days after receipt of the notice of arbitration, the
Respondent shall deliver to the Claimant a notice of defense. Failure to deliver
a notice of defense shall not delay the arbitration; in the event of such
failure, all claims set forth in the demand shall be deemed denied.

3.5 The notice of defense shall include:

(a) Any comment on items (a), (b), and (c) of the notice of arbitration that the
Respondent may deem appropriate;

(b) A statement of the general nature of the Respondent’s defense; and

(c) The name and address of the arbitrator appointed by the Respondent, unless
the parties have agreed that neither shall appoint an arbitrator.

3.6 The Respondent may include in it’s notice of defense any counterclaim within
the scope of the arbitration clause. If it does so, the counterclaim in the
notice of defense shall include items (a), (b), (c), (d) and (e) of Rule 3.3.

3.7 If a counterclaim is asserted, within twenty days after receipt of the
notice of defense, the Claimant shall deliver to the Respondent a reply to
counterclaim which shall have the same elements as provided in Rule 3.5 for the
notice of defense.

3.8 Claims or counterclaims may be freely added or amended prior to the
establishment of the Tribunal and thereafter with the consent of the Tribunal.
Notices of defense or replies to amended claims or counterclaims shall be
delivered within twenty days after the addition or amendment.

3.9 If a dispute is submitted to arbitration pursuant to a submission agreement,
Rule 3 shall apply to the extent that it is not inconsistent with the submission
agreement.

Rule 4. Representation

4.1 The parties may be represented or assisted by persons of their choice.

4.2 Each party shall communicate the name, address and function of such persons
in writing to the other party and to the Tribunal.
 

B. RULES WITH RESPECT TO THE TRIBUNAL

Rule 5. Selection of Arbitrators by the Parties

5.1 Unless the parties have agreed in writing on a Tribunal consisting of a sole
arbitrator or of three arbitrators not appointed by the parties, the Tribunal
shall consist of two arbitrators appointed by the parties and a third
arbitrator, who shall chair the Tribunal, selected as provided in Rule 5.2.

5.2 As soon as possible after the appointment of two party-appointed arbitrators
and delivery of the notice of defense provided for in Rule 3.4 and in any event
within fifteen days thereafter, the party-appointed arbitrators shall discuss
potential candidates for the third arbitrator and shall proceed to select the
third arbitrator. They shall attempt to make their selection within twenty days
of their initial discussion, but they may extend their selection process until
one or both of them have concluded, and have so advised the appointing parties,
that a deadlock has been reached. In this event, the third arbitrator shall be
selected as provided in Rule 6.

Rule 6. Selection of Arbitrator(s) by CPR

6.1 Whenever (i) a party has failed to appoint the arbitrator to be appointed by
it; (ii) the parties have failed to appoint the arbitrators to be appointed by
them acting jointly; (iii) the party appointed arbitrators have failed to
appoint the third arbitrator; or (iv) the parties have provided that one or more
arbitrators shall be appointed by CPR, the arbitrator(s) required to complete
the Tribunal shall be selected as provided in Rule 6, and either party may
request CPR in writing, with copy to the other party, to proceed pursuant to
Rule 6.

6.2 The written request may be made as follows:

(a) If a party has failed to appoint the arbitrator to be appointed by it, or
the parties have failed to appoint the arbitrator(s) to be appointed by them
through agreement, at any time after such failure has occurred.

(b) If the party-appointed arbitrators have failed to appoint the third
arbitrator, as soon as the procedure contemplated by Rule 5.2 has been
completed.

(c) If the arbitrator(s) are to be appointed by CPR, as soon as the arbitration
has been commenced.

6.3 The written request shall include complete copies of the notice of
arbitration and the notice of defense or, if the dispute is submitted under a
submission agreement, a copy of the agreement supplemented by the notice of
arbitration and notice of defense if they are not part of the agreement.

6.4 CPR shall then proceed as follows:

(a) Promptly following receipt by it of the request provided for in Rule 6.3,
CPR shall convene the parties in person or by telephone one or more times to
attempt to select the arbitrator(s) by agreement of the parties.

(b) If the procedure provided for in (a) does not result in the selection of the
required number of arbitrators, CPR shall submit to the parties a list of not
less than five candidates if one arbitrator remains to be selected, and of not
less than seven candidates if two or three arbitrators are to be selected. Such
list shall include a brief statement of each candidate’s qualifications. Each
party shall number the candidates in order of preference, shall note any
objection it may have to any candidate, and shall deliver the list so marked to
CPR. Any party failing without good cause to return the candidate list so marked
within ten days after receipt shall be deemed to have assented to all candidates
listed thereon. CPR shall designate as arbitrator(s) the nominee(s) willing to
serve for whom the parties collectively have indicated the highest preference
and who does not appear to have a conflict of interest. If a tie should result
between two candidates, CPR may designate either candidate. If this procedure
for any reason should fail to result in designation of the required number of
arbitrators, CPR shall appoint a person or persons whom it deems qualified to
fill any remaining vacancy.

Rule 7. Qualifications, Challenges and Replacement of Arbitrators

7.1 Each arbitrator shall be independent and impartial.

7.2 By accepting appointment, each arbitrator shall be deemed to be bound by
these Rules and any modification agreed to by the parties.

7.3 Each arbitrator shall promptly disclose in writing to the Tribunal and the
parties any circumstances that might cause doubt regarding the arbitrator’s
independence or impartiality. Such circumstances include bias, interest in the
result of the arbitration, and past or present relations with a party or its
counsel.

7.4 Any arbitrator may be challenged if circumstances exist or arise that give
rise to justifiable doubt regarding that arbitrator’s independence or
impartiality, provided, that a party may challenge an arbitrator whom it has
appointed only for reasons of which it becomes aware after the appointment has
been made.

7.5 A party may challenge an arbitrator only by a notice in writing to the
Tribunal, with copy to the other party, given no later than fifteen days after
(i) the parties have been notified that the Tribunal has been constituted, or
(ii) the challenging party has become aware of the circumstances specified in
Rule 7.4, whichever shall last occur. The notice shall state the reasons for the
challenge with specificity.

7.6 When an arbitrator has been challenged by a party, the other party may agree
to the challenge or the arbitrator may voluntarily withdraw. Neither of these
actions implies acceptance of the validity of the challenge.

7.7 If neither agreed disqualification nor voluntary withdrawal occurs, the
challenge shall be decided as follows:

(a) By unanimous vote of the remaining members of the Tribunal;

(b) If the Tribunal consists of a sole Arbitrator or fails or refuses to decide
the challenge, by the President of CPR.

7.8 In the event of death, resignation or successful challenge of an arbitrator,
a substitute arbitrator shall be selected pursuant to the procedure by which the
arbitrator being replaced was selected.

7.9 In the event that an arbitrator fails to act, or in the event the Tribunal
determines that an arbitrator is de jure or de facto prevented from duly
performing the functions of an arbitrator, the procedures provided in Rule 7.8
shall apply to the selection of a replacement.

7.10 If the sole arbitrator or the chairman of the Tribunal is replaced, the
successor shall decide the extent to which any hearings held previously shall be
repeated. If any other arbitrator is replaced, the Tribunal in its discretion
may require that some or all prior hearings be repeated.

Rule 8. Challenges to the Jurisdiction of the Tribunal

8.1 The Tribunal shall have the power to hear and determine challenges to its
jurisdiction.

8.2 The Tribunal shall have the power to determine the existence, validity or
scope of the contract of which an arbitration clause forms a part, and/or of the
arbitration clause itself. For the purposes of challenges to the jurisdiction of
the Tribunal, the arbitration clause shall be considered as separable from any
contract of which it forms a part.

8.3 Any challenges to the jurisdiction of the Tribunal, except challenges based
on the award itself, shall be made not later than the notice of defense, or with
respect to a counterclaim, the reply to the counterclaim.

C. RULES WITH RESPECT TO THE CONDUCT
OF THE ARBITRAL PROCEEDINGS

Rule 9. General Provisions

9.1 Subject to these Rules, the Tribunal may conduct the arbitration in such
manner as it shall deem appropriate. The chairman shall be responsible for the
organization of arbitral conferences and hearings and arrangements with respect
to the functioning of the Tribunal.

9.2 The proceedings shall be conducted in an expeditious manner. The Tribunal is
empowered to impose time limits it considers reasonable on each phase of the
proceeding, including without limitation the time allotted to each party for
presentation of its case and for rebuttal.

9.3 Except as otherwise provided in these Rules or permitted by the Tribunal, no
party or anyone acting on its behalf shall have any ex parte communication with
any arbitrator with respect to any matter of substance relating to the
proceeding, or on any matter with the arbitrator it appointed, except that a
party and the arbitrator it appointed may confer regarding the selection of the
chairman of the Tribunal.

9.4 As promptly as possible after the selection of the Tribunal, the Tribunal
shall hold an initial pre-hearing conference for the planning and scheduling of
the proceeding. The objective of this conference shall be to discuss all
elements of the arbitration with a view to planning for its future conduct.
Matters to be considered in the initial pre-hearing conference may include,
inter alia, the following:

(a) Procedural matters such as the timing and manner of any required discovery;
the desirability of bifurcation or other separation of the issues in the
arbitration; the scheduling of conferences and hearings; the scheduling of
pre-hearing memoranda; the need for and type of record of conferences and
hearings, including the need for transcripts; the amount of time allotted to
each party for presentation of its case and for rebuttal; the mode, manner and
order for presenting proof; the need for expert witnesses and how expert
testimony should be presented; and the necessity for any on-site inspection by
the Tribunal;

(b) The early identification and narrowing of the issues in the arbitration;

(c) The possibility of stipulations of fact and admissions by the parties solely
for purposes of the arbitration, as well as simplification of document
authentication; and

(d) The possibility of the parties engaging in settlement negotiations, with or
without the assistance of a mediator.

After the initial conference, further pre-hearing or other conferences may be
held as the Tribunal deems appropriate.

9.5 In order to define the issues to be heard and determined, the Tribunal may
inter alia make pre-hearing orders for the arbitration and instruct the parties
to file more detailed statements of claim and of defense and pre-hearing
memoranda.

9.6 Unless the parties have agreed upon the place of arbitration, the Tribunal
shall fix the place of arbitration. The award shall be deemed made at such
place. Hearings may be held and the Tribunal may schedule meetings, including
telephone meetings, wherever it deems appropriate.

Rule 10. Discovery

The Tribunal shall permit and facilitate such discovery as it shall determine is
appropriate in the circumstances, taking into account the needs of the parties
and the desirability of making discovery expeditious and cost-effective. The
Tribunal may issue orders to protect the confidentiality of proprietary
information, trade secrets and other sensitive information disclosed in
discovery.

Rule 11. Evidence and Hearings

11.1 The Tribunal shall determine the manner in which the parties shall present
their cases. Unless otherwise determined by the Tribunal, the presentation of a
party’s case shall include the submission of a pre-hearing memorandum including
the following elements:

(a) A statement of facts;

(b) A statement of each claim being asserted;

(c) A statement of the applicable law upon which the party relies;

(d) A statement of the relief requested, including the basis for any damages
claimed; and

(e) A statement of the evidence to be presented, including the name, capacity
and subject of testimony of any witnesses to be called and an estimate of the
amount of time required for the witness’ direct testimony.

11.2 Evidence may be presented in written or oral form as the Tribunal may
determine is appropriate. The Tribunal is not required to apply the rules of
evidence used in judicial proceedings, provided, however, that the Tribunal
shall apply the lawyer-client privilege and the work product immunity. The
Tribunal shall determine the applicability of any privilege or immunity and the
admissibility, relevance, materiality and weight of the evidence offered.

11.3 The Tribunal, in its discretion, may require the parties to produce
evidence in addition to that initially offered. It may also appoint experts
whose testimony shall be subject to cross examination and rebuttal.

11.4 The Tribunal shall determine the manner in which witnesses are to be
examined. The Tribunal shall have the right to exclude witnesses from hearings
during the testimony of other witnesses.

Rule 12. Interim Measures of Protection

12.1 At the request of a party, the Tribunal may take such interim measures as
it deems necessary in respect of the subject matter of the dispute, including
measures for the preservation of assets, the conservation of goods or the sale
of perishable goods. The Tribunal may require security for the costs of such
measures.

12.2 A request for interim measures by a party to a court shall not be deemed
incompatible with the agreement to arbitrate or as a waiver of that agreement.

Rule 13. The Award

13.1 The Tribunal may make final, interim, interlocutory and partial awards. An
award may grant any remedy or relief which the Tribunal deems just and equitable
and within the scope of the agreement of the parties, including but not limited
to specific performance of a contract. With respect to any interim,
interlocutory or partial award, the Tribunal may state in its award whether or
not it views the award as final, for purposes of any judicial proceedings in
connection therewith.

13.2 All awards shall be in writing and shall state the reasoning on which the
award rests unless the parties agree otherwise. When there are three
arbitrators, the award shall be made and signed by at least a majority of the
arbitrators; and if the award decides a number of issues, the part of the award
relating to each issue shall be made and signed by at least a majority of the
arbitrators.

13.3 A member of the Tribunal who does not join in an award may file a
dissenting opinion. Such opinion shall not constitute part of the award.

13.4 Executed copies of awards and of any dissenting opinion shall be delivered
by the Tribunal to the parties.

13.5 Within fifteen days after receipt of the award, either party, with notice
to the other party, may request the Tribunal to correct in an award any errors
in computation, any clerical or typographical errors, or any errors of a similar
nature.

Within thirty days after the delivery of an award to the parties, the Tribunal
may make corrections on its own initiative and corrections requested by either
party. All such corrections shall be in writing, and the provisions of Rule 13
shall apply to them.

13.6 After expiration of the thirty-day period provided in Rule 13.5, awards
shall be final and binding on the parties, and the parties undertake to carry
out awards without delay.

13.7 The dispute should in most circumstances be submitted to the Tribunal for
decision within six months after the initial pre-hearing conference required by
Rule 9.4. The final award should in most circumstances be rendered within one
month thereafter. The parties and the arbitrators shall use their best efforts
to comply with this schedule.

D. MISCELLANEOUS RULES

Rule 14. Failure to Comply with Rules

Whenever a party fails to comply with these Rules in a manner deemed material by
the Tribunal, the Tribunal shall fix a reasonable period of time for compliance
and, if the party does not comply within said period, the Tribunal may impose a
remedy it deems just, including an award on default. Prior to entering an award
on default the Tribunal may require the non-defaulting party to produce evidence
and legal argument in support of its contentions, which the Tribunal may receive
without the defaulting party’s presence or participation.

Rule 15. Costs

15.1 Each arbitrator shall be compensated at an hourly rate determined at the
time of appointment for all time spent in connection with the proceeding and
shall be reimbursed for any travel and other expenses.

15.2 The Tribunal shall fix the costs of arbitration. The costs of arbitration
include:

(a) The fees and expenses of member of the Tribunal;

(b) The costs of expert advice and other assistance engaged by the Tribunal;

(c) The travel and other expenses of witnesses to such extent as the Tribunal
may deem appropriate;

(d) The costs for legal representation and assistance and experts of the
successful party to such extent as the Tribunal may deem appropriate;

(e) The charges and expenses of CPR with respect to the arbitration.

(f) The costs of transcript; and

(g) The costs of meeting and hearing facilities.

15.3 Subject to any agreement between the parties to the contrary, the Tribunal
may apportion the costs of arbitration between or among the parties in such
manner as it deems reasonable taking into account the circumstances of the case,
the conduct of the parties during the proceeding, and the result of the
arbitration.

15.4 The Tribunal may request each party to deposit an equal amount as an
advance for the costs referred to in Rule 15.2, except those specified in
subparagraph (d), and, during the course of the proceeding, it may request
supplementary deposits from the parties. Any such funds shall be held and
disbursed in such a manner as the Tribunal may deem appropriate.

15.5 If the requested deposits are not paid in full within twenty days after
receipt of the request, the Tribunal shall so inform the parties in order that
jointly or severally they may make the required payment. If such payment is not
made, the Tribunal may suspend or terminate the proceedings.

15.6 After the award has been rendered, the Tribunal shall return any unexpended
balance from deposits made to the parties as may be appropriate.

Rule 16. Confidentiality

The parties and the arbitrators shall treat the proceedings, any related
discovery and the decisions of the Tribunal, as confidential, except in
connection with a judicial challenge to, or enforcement of, an award, and unless
otherwise required by law.

Rule 17. Settlement and Mediation

17.1 Either party may propose settlement negotiations to the other party at any
time. The Tribunal may suggest that the parties explore settlement at such times
as the Tribunal may deem appropriate and shall suggest that they do so at or
before conclusion of the hearing. The Tribunal shall give such assistance in
settlement negotiations as the parties may request and the Tribunal may deem
appropriate.

17.2 With the consent of the parties, the Tribunal at any stage of the
proceeding may arrange for mediation of the claims asserted in the arbitration
by a mediator acceptable to the parties. The Mediator shall be a person other
than a member of the Tribunal, unless the parties request and the Tribunal
agrees that a member of the Tribunal designated by the parties may serve as
Mediator. The Tribunal may provide the Mediator with whatever factual and legal
material developed in the arbitration it deems appropriate and may permit the
Mediator to attend conferences and hearings held in connection with the
arbitration. Unless the parties agree otherwise, any such mediation shall be
conducted under the CPR Model Procedure for Mediation of Business Disputes.

Rule 18. Actions against CPR or Arbitrators

Neither CPR nor any arbitrator shall be liable to any party for any act or
omission in connection with any arbitration conducted under these Rules.

Rule 19. Waiver

A party knowing of a failure to comply with any provision of these Rules and
neglecting to state its objections promptly waives any objection thereto.

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COMMENTARY ON CENTER FOR PUBLIC RESOURCES RULES

FOR NON-ADMINISTERED ARBITRATION OF BUSINESS DISPUTES

INTRODUCTION

The Center for Public Resources, Inc. (“CPR”) brings a distinct viewpoint to the
field of business dispute resolution. Its tenets:

1.     Most business disputes are best resolved privately and by agreement.

 
2.
Executives should play a key role in business dispute resolution and should
approach a dispute as a problem to be solved, not a contest to be won.

 
3.
A skilled and respected neutral third party can play a critical role in bringing
about agreement.

4.     Efforts should first be made to reach agreement by unaided negotiation.

 
5.
If such efforts are unsuccessful, resolution by a non-adjudicative procedure
such as mediation or the minitrial should next be pursued. These procedures
remain available even while litigation or arbitration is pending.

 
6.
If adjudication by a neutral third party is required, a well conducted
arbitration proceeding usually is preferable to litigation.

 
7.
During an arbitration proceeding the door to settlement should remain open;
arbitrators should encourage the parties to discuss settlement, if appropriate
employing a mediator.

 
8.
Arbitration proceedings often can be conducted efficiently by the arbitral
tribunal without administration by a neutral organization, or limiting the role
of such an organization to assistance in arbitrator selection, if required.

FEATURES OF WELL MANAGED ARBITRATION PROCEEDINGS

Primary objectives of arbitration are to arrive at a just and enforceable
result, based on a private procedure that is

 
·
fair,

 
·
expeditious,

 
·
economical, and

 
·
less burdensome or adversarial than litigation.

The above objectives are most likely to be achieved if the parties and their
attorneys

 
·
adopt well designed rules of procedure;

 
·
select skilled arbitrators who are able and willing to actively manage the
process;

 
·
limit the issues to focus on the core of the dispute; and

 
·
cooperate on procedural matters even while acting as effective advocates on
substantive issues.

GENERAL COMMENTARY ON THE RULES

The CPR Rules for Non-Administered Arbitration of Business Disputes (the
“Rules”) were developed by a committee (the “Committee”) of leading arbitrators
and practitioners convened by CPR to develop procedures to facilitate the
conduct of arbitration fairly, expeditiously and economically. The Rules are
designed to be easily comprehended. The Rules are intended in particular for the
complex case but are suitable regardless of the complexity of the case or the
amount in dispute.

The Rules reflect CPR’s view that disputants should make all reasonable efforts
to resolve their dispute by agreement. Rule 16 requires the Arbitral Tribunal
(the “Tribunal”) to suggest at or before conclusion of the hearing that the
parties engage in settlement negotiations, and authorizes the Tribunal to
arrange mediation with the consent of the parties.

The standard arbitration clauses in the Rules have been drafted to make
proceedings under the Rules subject to the United States Arbitration Act, 9
U.S.C. § 1 et seq. If parties desire a different law, or if the federal law does
not apply (where, for example, the underlying transaction is not “in commerce”),
another law should be specified. [See reference to Volt v. Stanford below at
page 8.]

Every disputant wants to have a reasonable opportunity to develop and present
its case. Parties that choose arbitration over litigation do so in large part
out of a need or desire for a proceeding that is also speedy and economical -
factors which tend to go hand in hand. The rules were designed with each of
these objectives in mind.

The complexity of cases will vary greatly. In rules of general application it is
not appropriate to fix hard and fast deadlines. Rule 13.7 commits the parties
and the arbitrator(s) to use their best efforts to assure that the dispute will
be submitted to the Tribunal for decision within six months after the initial
pre-hearing conference, and that the final award will be rendered within one
month thereafter. Rule 9.2 empowers the arbitrator(s) to establish time limits
for each phase of the proceeding, including specifically the time allotted to
each party for presentation of its case and for rebuttal.

Counsel are expected to cooperate fully with the Tribunal and with each other to
assure that the proceeding will be conducted with civility in an efficient,
expeditious and economical manner. Rule 15 empowers the arbitrators in
apportioning costs to take into account “the circumstances of the case.” This
broad power is intended to permit the arbitrators to apportion a greater share
of costs than they otherwise might to a party which has employed tactics the
arbitrators consider dilatory, or in other ways has failed to cooperate in
assuring the efficient conduct of the proceeding.

The Rules may be modified by written agreement. The Rules are designed for an
arbitration between two parties but may be amended to provide for a proceeding
among three or more parties.

TYPES OF DISPUTES

The Rules are designed for “business disputes”. This term is intended to
encompass disputes of any nature between business enterprises, including not
only “commercial” disputes but also, by way of example, intellectual property
disputes, construction disputes, disputes between manufacturers and distributors
or franchisees, and disputes between joint venturers. The Rules may be adopted
by parties which did not have a contractual or other business relationship, e.g.
for a patent infringement dispute. The Rules may even be employed to adjudicate
a dispute between a government agency and a contractor, subject to any legal
restraints on that government’s submission to arbitration. The parties may find
it appropriate to modify the Rules to adapt them to a specific type of dispute.

ADMINISTERED VS. NON-ADMINISTERED ARBITRATION

The principal functions normally performed by an organization administering
arbitration proceedings are to:

 
·
provide a set of rules which the parties can adopt in a pre-dispute agreement or
for an existing dispute;

 
·
provide administrative staff to render impartial services required for smooth
case handling and to insulate arbitrators from parties.

 
·
provide lists of persons from which arbitrators may be chosen;

 
·
appoint the arbitrator(s) if necessary;

 
·
decide arbitrator conflict of interest challenges if necessary;

 
·
determine arbitrator fees and bill the parties for such fees.

 
·
schedule hearings and send notices of hearings;

 
·
provide hearing rooms;

 
·
distribute documents;

 
·
review awards for procedural comments.

The charges of administering organizations typically are related to the amount
in dispute, but rates vary.

Many arbitration practitioners and arbitrators see a need for administered
arbitration, but others favor non-administered or “ad hoc” arbitration,
particularly for large or complex cases. They believe that the arbitrator(s) and
the parties’ advocates are capable of performing most of the functions general
performed by the administering organization, and that the arbitrator(s) and
advocates often may be better able to control the conduct of the proceeding than
such an organization. The fees charged by an administering organization also may
be a factor. The assistance of a neutral third party may be needed in selecting
the tribunal or deciding a conflict of interest challenge to an arbitrator.
Under the Rules, CPR is available to perform these limited functions.

Over ninety percent of arbitrations take place pursuant to the parties’ binding
commitment in their business agreement to submit possible futures disputes to
arbitration in accordance with specified rules. Once a dispute has arisen, it is
usually much more difficult for the parties to agree on any alternative to
litigation. Our committee recommends the inclusion of a dispute resolution
clause in most business agreements. The parties should also consider whether to
provide for administered or non-administered arbitration. Rules for administered
arbitration have long been available for incorporation by reference. The
availability of rules well designed for the efficient conduct of a
non-administered proceeding will facilitate the choice between these alternative
procedures.

The Rules are intended primarily for disputes between responsible parties which
will not attempt to obstruct the process. However, the Rules do permit the
process to go forward even if a respondent fails to deliver a notice of defense,
fails to participate in selection of the Tribunal, or ultimately fails to appear
at a hearing.

SALIENT FEATURES OF THE RULES

The Rules differ in numerous respects from arbitration rules promulgated by
other organizations. Features which our Committee considers particularly
significant are:

 
1.
The Rules call for non-administered arbitration.

 
2.
The Rules require the expeditious conduct of the proceeding, empowering the
arbitrator(s) to establish time limits for each phase of the proceeding (Rule
9.2), and to penalize a party engaging in dilatory tactics (Rule 15.3).

 
3.
All arbitrators, including those appointed by either party, are required to be
independent and impartial (Rule 7.1). Such a requirement enhances the
acceptability of the arbitration process, albeit a departure from existing U.S.
practice.

 
4.
The parties are given ample opportunity to select a sole arbitrator or a panel
of three arbitrators without intervention of CPR. If they fail, either party may
request CPR’s assistance (Rule 5).

 
5.
CPR will first convene the parties to attempt to select the arbitrator(s) by
agreement of the parties. Only if that attempt fails will CPR submit a list of
candidates to the parties for ranking (Rule 6.4).

 
6.
The Tribunal may decide challenges to its jurisdiction (Rule 8). This should
allow arbitrators to decide all issues, including arbitrability questions,
without the necessity for court intervention.

 
7.
The chairman of the Tribunal is assigned responsibility for the organization of
conferences and hearings and arrangements with respect to the functioning of the
Tribunal (Rule 9.1).

 
8.
The Tribunal is required to hold at least one pre-hearing conference to plan and
schedule the proceeding (Rule 9.4). Such conference should result in the smooth
scheduling of the case, and may aid possible settlement.

 
9.
The Tribunal is given great leeway in matters of procedure. The Tribunal is
specifically empowered, for instance, to

 
·
establish time limits for each phase of the proceeding (Rule 9.2);

 
·
limit the time allotted to each party for presentation of its case (Rule 9.2);

 
·
make pre-hearing orders (Rule 9.5);

 
·
permit such discovery as it deems appropriate (Rule 10);

 
·
require the submission of pre-hearing memoranda (Rule 11.1);

 
·
require evidence to be presented in written form (Rule 11.2).

 
10.
The Tribunal is empowered to appoint neutral experts (Rule 11.3).

 
11.
The Tribunal may take interim measures for the preservation of assets or other
interim measures (Rule 12.1).

 
12.
The Tribunal is required to state the reasoning on which its award rests unless
the parties agree otherwise (Rule 13.2). Our committee believes the parties are
entitled to know how the decision was reached.

 
13.
Each arbitrator is to be fully compensated at an hourly rate determined at the
time of appointment for all time spent in connection with the proceeding (Rule
15.1).

 
14.
The Tribunal is empowered to apportion costs, including attorneys’ fees and
other costs incurred by the successful party, between the parties, taking into
account the circumstances of the case, the conduct of the parties during the
proceeding and the result (Rule 15.3).

 
15.
the proceedings are confidential (Rule 16).

 
16.
The Tribunal may suggest at any time that the parties engage in settlement
negotiations and shall make that suggestion at or before conclusion of the
hearing (Rule 17.1).

 
17.
The Tribunal may arrange for mediation of the dispute at any time with the
consent of the parties (Rule 17.2).

INTERNATIONAL ARBITRATION

The Rules were designed in the first instance for disputes between parties
located in the United States; however, the Rules also are suitable for disputes
involving parties located in different countries. In the transnational context
it may be advisable to specify in the pre-dispute clause or the submission
agreement:

 
·
the place of arbitration;

 
·
the language(s) in which the proceedings are to be conducted;

 
·
the substantive law governing the merits of the dispute;

 
·
the nationality of the arbitrator(s); and

 
·
the arbitration law which will govern.

The parties also may consider certain modifications of the Rules when adopting
them for transnational disputes. For instance, if the parties prefer that the
functions assigned to CPR under Rule 6 and Rule 7.7 (b) be performed by another
neutral organization or official, they may so provide.

STANDARD CONTRACTUAL PROVISIONS

The suggested standard pre-dispute clause and submission agreement which precede
the Rules may be modified and may be supplemented. It is desirable that the
parties specify the place of arbitration and the law governing the contract and
the arbitration. If a governing law is specified it may be advisable to state
whether or not the conflict of laws rules of that law are included.

In light of the decision of the United States Supreme Court in Volt Information
Sciences, Inc. v Board of Trustees of Leland Stanford Junior University, 109 S.
Ct. 1248, _______ U.S. ________, No. 87-1318 (March 6, 1989), our Committee has
inserted language in the standard pre-dispute clause and submission agreement to
the effect that the governing law for the arbitration shall be the United States
Arbitration Act.

The laws of various jurisdictions differ on the question of whether arbitrators
are empowered to award punitive damages. If the parties wish to preclude the
arbitrators from awarding punitive or trebled damages, it would be advisable to
include a provision to that effect in the pre-dispute clause or the submission
agreement.

As stated above, CPR as a rule considers it highly desirable for disputants to
attempt to resolve their dispute without adjudication. Attached to this
commentary as Appendix A are suggested contract clauses calling for negotiations
or mediation before a dispute is submitted to arbitration.

The pre-dispute clause and the submission agreement call for an election as to
whether the Tribunal will be composed of

 
·
three arbitrators, of whom each party appoints one, and the two arbitrators thus
appointed attempt to select the third,

 
·
three arbitrators, none of whom are appointed by the parties, or

 
·
a sole arbitrator.

Such an election made in a pre-dispute clause may be changed by further
agreement once a specific dispute has arisen. If the parties fail to make an
election, the first mentioned procedure will apply in accordance with Rule 5.1.

Rules 5 and 6 govern the selection of arbitrators not appointed by either party.

It is essential for the parties to stipulate that judgment may be entered upon
the award, in order to comply with the requirement of the United States
Arbitration Act, 9 U.S.C. § 9.

COMMENTARY ON INDIVIDUAL RULES

A. General and Introductory Rules

Rule 3. Commencement of Arbitration

Rule 3 sets forth the procedure to be followed when a proceeding is commenced
pursuant to a pre-dispute arbitration clause. Under Rule 3.4, the arbitration
will proceed even if the respondent should fail to file a timely notice of
defense. If the pre-dispute clause required each party to appoint an arbitrator,
and either party fails to do so, the other party may request CPR to step in
pursuant to Rule 6.

A submission agreement entered into after a dispute has arisen may include all
or some of the material called for by Rules 3.3 and 3.5 and may eliminate the
need for a notice of arbitration and a notice of defense. Rule 3.9 provides that
“Rule 3 shall apply to the extent that it is not inconsistent with the
submission agreement.” If the parties so desire, the submission agreement can
provide that Rule 3 notices will not be required or will be modified.

Rule 4. Representation

It is assumed that parties normally would be represented by a law firm or an
individual attorney; however, the Rules permit parties to be represented or
assisted by any persons of their choice.

Under the laws of certain jurisdictions, representation of a party in an
arbitration proceeding may constitute the practice of law, in which case
representation by an attorney would be required.

B. Rules with Respect to the Tribunal

Rule 5. Selection of Arbitrators by the Parties

Most practitioners, when confronted with a large or complex dispute, have
greater confidence in a panel of three arbitrators than in a single arbitrator.
Moreover, they usually
prefer to permit each party to appoint an arbitrator. Rule 5.1 provides,
therefore, that the Tribunal shall consist of two arbitrators appointed by the
parties and a third arbitrator who shall chair the Tribunal, unless the parties
have agreed on a Tribunal consisting of a sole arbitrator or three arbitrators
not appointed by the parties.

For many companies the ability to select a tribunal well qualified to hear and
decide their dispute is a primary motivation to opt for arbitration. The
selection of highly qualified, experienced arbitrators is critical, the more so
if the amount in dispute is large and the issues are complex. Our Committee
believes that at least the chairman of the Tribunal usually should be a
respected attorney experienced in arbitration.

The arbitrators should be persons able and willing to control the course of the
proceeding and to make definitive rulings on substantive and procedural matters.

Sophisticated counsel representing the parties are likely to know of the
individuals, especially of attorneys, who are well qualified and who meet the
“independent and impartial” standard of Rule 7.1. CPR has established Panels of
leading members of the bar, including former judges, who are highly qualified to
serve as arbitrators. CPR’s lists of panelists are available on request, and
panel members may be contacted directly.

Tribunals of two arbitrators have been used on occasion, typically in complex
technological disputes in which the objective was to structure a modus vivendi
rather than only to arrive at conclusions as to liability and damages. The Rules
may be modified to provide for a two arbitrator Tribunal.

Rule 6. Selection of Arbitrator(s) by CPR

Selection of arbitrators by the parties is the preferred course, and the parties
are given ample opportunity to select a Tribunal without CPR’s assistance.
However, if they fail, either party may request CPR’s assistance at the time and
in the manner specified in Rules 6.2 and 6.3.

In accordance with Rule 6.4(a), CPR then will convene the parties and will
propose candidates in an attempt to complete the Tribunal in this informal and
speedy manner. If this procedure is not wholly successful, CPR will submit a
list of candidates to the parties in writing. The parties are required to rank
the nominees in order of preference. The nominee(s) willing to serve for whom
the parties collectively have indicated the highest preference will be selected.

The parties will be encouraged to inform CPR of the qualifications they seek in
an arbitrator. Individuals nominated by CPR are likely to be members of CPR’s
Panels.

Rule 7. Qualifications, Challenges and Replacement of Arbitrators

The degree of independence expected of a party-appointed arbitrator in the
United States is not always clear. Parties often expect the arbitrator they
appoint to act as their advocate on the panel. Our Committee does not favor this
approach. The Committee believes that the advocacy role should be performed
exclusively by each party’s counsel or other representative, and that permitting
arbitrators to play such a role is prejudicial to the disinterested and candid
deliberations in which the panel should engage. Consequently, Rule 7.1 states
that “Each arbitrator shall be independent and impartial.”

The rationale for party appointment is to enable each party to select an
individual it considers well qualified and whom it expects in turn to select a
capable chairman of the Tribunal. A party may discuss the case in general terms
with an individual before appointment, and the appointee may discuss the
selection of the chairman with that party. Once the Tribunal has been
constituted, no further ex parte communication is permitted between a party and
the arbitrator it appointed (Rule 9.3).

Rules 7.3 - 7.7 set forth a formal procedure for disclosure of “circumstances
that might cause doubt regarding the arbitrator’s independence or impartiality,”
and for a challenge for “justifiable doubt,” after the Tribunal has been
constituted. It is anticipated that normally an individual’s possible conflicts
of interest would be disclosed and resolved informally before selection, and
that it would rarely become necessary to invoke the formal procedure. In
general, we believe all the arbitrators should be held to the standards for
independent arbitrators promulgated in the ABA-AAA Code of Ethics for
Arbitrators in Commercial Disputes.

Rule 8. Challenges to the Jurisdiction of the Tribunal

This Rule expresses the generally accepted principle that arbitrator(s) have the
competence initially to determine their own jurisdiction. The arbitrator(s) will
decide whether the arbitration proceeds in the face of a jurisdictional
challenge.

C. Rules with Respect to the Conduct of the Arbitral Proceedings

Rule 9. General Provisions

Under Rule 9.1 the chairman is “responsible for the organization of the arbitral
conferences and hearings and arrangements with respect to the functioning of the
Tribunal.”

The efficiency of the proceeding will depend in large part on the chairman’s
taking the lead in asserting the Tribunal’s control over critical aspects of the
procedure, including the setting of time limits as authorized by Rule 9.2.

The Rules give the Tribunal wide latitude as to the manner in which the
proceeding will be conducted. It is expected that the procedure will be
determined in large part during the pre-hearing conference(s) held pursuant to
Rule 9.4 and that following the conference(s) the Tribunal will issue one or
more orders on procedural matters.

Narrowing issues to those central to the controversy, fact stipulations and
admissions should be strongly encouraged by the Tribunal in the interest of
focusing on core issues and simplifying the proceeding.

Some controversies hinge on one or two key issues of law which in litigation may
be decided early on motion for partial summary judgment. At the pre-hearing
conference, the desirability of the Tribunal’s ruling on such issues before the
hearings can be considered.

Other controversies hinge on a key issue of a technical nature on which a
neutral expert can be helpful in bringing about a resolution. The appointment by
the Tribunal of such an expert is authorized by Rule 11.3 and also can be
discussed at the pre-hearing conference.

The Tribunal may bifurcate the proceeding. If the proceeding is bifurcated to
first decide the issue of liability, the parties then may well be able to agree
on the remedy. Often parties have options not available to a judge or to
arbitrators.

A pre-hearing conference may well give the arbitrators an opportunity to
encourage settlement discussions or mediation, as contemplated by Rule 17.
Simply bringing the attorneys together for purposes of a conference may lead to
such discussions.

Rule 10. Discovery

These Rules, unlike most other arbitration rules, specifically empower the
Tribunal

“to permit and facilitate such discovery as it shall determine is appropriate in
the circumstances taking into account the needs of the parties and the
desirability of making discovery expeditious and cost-effective.”

Arbitration is not for the litigator who will “leave no stone unturned.”
Unlimited discovery is incompatible with the goals of efficiency and economy.
The Federal Rules of Civil Procedure are not applicable. Discovery should be
limited to that for which a party has a substantial, demonstrable need. Rule
11.2 provides for the application of the attorney-client privilege and the work
product immunity. That protection is intended to apply to discovery as well as
to hearings.

It is desirable for the parties’ counsel to agree, preferably before the initial
pre-hearing conference, on a discovery plan and schedule and to submit the same
to the Tribunal for its approval.

A party may encounter difficulties if it needs to secure documents or testimony
from an uncooperative third party. The arbitrators may well be of assistance in
such a situation through the exercise of their subpoena power or in other ways.
If the third party’s location is beyond subpoena range, holding a hearing at
that location may be an option.

Rule 11. Evidence and Hearings

The Rules do not establish a detailed mandatory hearing procedure but permit the
Tribunal to determine the procedure. At least the main features should be
established during the pre-hearing conference(s). The Tribunal need not apply
rules of evidence used in judicial proceedings, except that the Tribunal is
required to apply the attorney-client privilege and the work product immunity
when it determines that the same are applicable (Rule 11.2).

Self-authentication of documentary exhibits the authenticity of which is not
disputed is a widely used practice which reduces hearing time. In cases in which
voluminous testimony is expected the hearings will be expedited considerably if
the Tribunal requires the direct testimony of all or most witnesses to be
submitted in written form before the witness is to appear. This procedure also
enables opposing counsel to better prepare for cross-examination. Depositions
and affidavits would be admissible in evidence unless the Tribunal rules
otherwise.

The Tribunal should consider at the pre-hearing conference the imposition of
time limits on case presentation, as authorized by Rule 9.2. If necessary, any
such limits can be extended.

The Rules do not provide specifically for the notice the parties are to be given
of hearing dates and times. It is assumed that the Tribunal will give notice in
such form and with such lead time as is reasonable under the circumstances.

The efficiency of the proceeding will be enhanced substantially if hearings are
held consecutively. If the Tribunal heeds every schedule conflict claim and
adjournment request by either counsel, the hearings may drag on quite
unnecessarily.

The Tribunal and/or the parties are likely to request a hearing transcript.

Rule 11.3 empowers the Tribunal to appoint neutral experts. We would expect this
power to be exercised sparingly, and usually upon consultation with the parties
as to the need for a neutral expert, the scope of the assignment, and
identification of well qualified candidates. It is not intended that the expert
give advice to the Tribunal ex parte; indeed, the Rule entitles the parties to
cross examine and to rebut the expert. The conflicting views of partisan experts
can lead to confusion rather than elightenment of arbitrators. In appropriate
cases the arbitrators might encourage the parties early on, e.g. at the
pre-hearing conference, to agree on the joint appointment of a neutral expert.

The Rules do not automatically require the submission of post-hearing briefs,
but it is likely that the Tribunal will order the submission of such briefs.
Final oral argument also may be scheduled.

The Tribunal’s powers with respect to subpoenas are determined by applicable law
and are not dealt with specifically in the Rules.

Rule 13. The Award

Rule 13.2 provides:

“All awards shall be in writing and shall state the reasoning on which the award
rests unless the parties agree otherwise. When there are three arbitrators, the
award and any part thereof shall be made and signed by at least a majority of
the arbitrators; …”

Most parties engaging in arbitration want to know the basis on which the
arbitrator(s) reached their decision. Our Committee, moreover, considers it good
discipline for arbitrators to require them to spell out their reasoning.
Sometimes this process gives rise to second thoughts as to the soundness of the
result. The Rule 13.2 mandate gives the arbitrator(s) greater leeway than would
a requirement to state “conclusions of law and findings of fact.”

Some parties hesitate to arbitrate out of a concern that arbitrators are prone
to “split the baby”, i.e. to make compromise awards. Any tendency on the part of
the arbitrators to reach compromise awards should be restrained by the
requirement of a reasoned award.

Certain administering organizations and practitioners favor “bare” awards
without explanation of any sort, in the belief that such awards are the least
likely to be challenged and overturned by a court. In the Committee’s view the
risk that a reasoned award will be successfully challenged normally is small and
is outweighed by the other considerations mentioned above.

If an award consists of two or more parts, it is sufficient if any two out of
three arbitrators approve each part, even if the same two arbitrators do not
approve each part.

Unless the parties shall have agreed in their business agreement or otherwise as
to which law shall govern, the Tribunal is free to determine the law which is to
govern the award.

Rule 13.7 requires the parties and the arbitrators to use their best efforts to
submit the dispute to the Tribunal for decision within six months of the initial
pre-hearing conference, and to render the final award within one month following
such submission.

The Rules do not deal expressly with confirmation of an award, as the matter is
covered by the United States Arbitration Act, 9 U.S.C. § 9 and its state
counterparts.

Rule 14. Failure to Comply with Rules

Rule 14 empowers the Tribunal to impose a remedy it deems just whenever a party
materially fails to comply with the Rules. The power to make an award on default
is specifically included. Pursuant to Rule 15.3 the Tribunal also may take a
party’s conduct during the proceeding into account in assessing costs.

Rule 15. Costs

Our Committee believes that highly qualified arbitrators are entitled to be
fully compensated for all time devoted to the arbitration. If an arbitrator is a
member of a law firm, he is likely to expect compensation at approximately the
hourly rates normally charged for his services. The rates payable to
party-appointed arbitrators should be agreed to between the appointee and the
appointing party. The rates of other arbitrators should be established by
agreement with both parties. The members of a three member Tribunal are likely
to be compensated at different rates, but gross variations may present problems.

Normally, the parties are expected to make advances for costs to a fund pursuant
to Rule 15.4, and the arbitrators’ fees, as well as other expenses, would be
paid from such a fund.

The “costs of arbitration” enumerated in Rule 15.2 include the costs for legal
representation and assistance and experts of the successful party to such extent
as the Tribunal may deem appropriate,

In accordance with Rule 15.3, unless the parties otherwise agreed, the Tribunal
may apportion the costs of arbitration between the parties “in such manner as it
deems reasonable taking into account the circumstances of the case, the conduct
of the parties during the proceeding, and the result of the arbitration.” As
stated above, the arbitrator(s) may take into account tactics by either party
which unreasonably interfered with the expeditious conduct of the proceeding.

Rule 17. Settlement and Mediation

Over ninety percent of civil lawsuits and a high percentage of business
arbitration proceedings are disposed of before a trial or hearings take place,
most by settlement. Yet often each party is reluctant to propose settlement
negotiations, if only out of concern that the proposal will be seen as a sign of
weakness. A proposal to that effect by the Tribunal at one or more appropriate
junctures in the proceeding should launch negotiations, without either party’s
bearing the onus of being the proposer.

A skilled mediator can play a critical role in brining about agreement between
adversaries, even if bilateral negotiations did not bring them within reach of
agreement. If the Tribunal believes that mediation may result in a settlement,
the Tribunal is encouraged to urge the parties to engage in such a process and
to assist in arranging the same. As a rule, arbitration proceedings should be
suspended while mediation is in progress, at least for a limited time.

It may well be desirable for senior executives to play an active role in a
mediation proceeding. Often, the parties have settlement options that are
business oriented and less onerous than the payment of money. Business
executives are likely to be best able to explore such options.

The members of the Tribunal will be thoroughly familiar with the case, and an
arbitrator not appointed by either party may well be able to serve as mediator.
However, the parties may hesitate to confide in an arbitrator, and an arbitrator
would be inhibited in making settlement proposals or giving advice to the
parties. As a rule, therefore, it would be preferable for an individual not an
arbitrator in the case to serve as mediator. The Tribunal can be helpful by
proposing well qualified candidates and by familiarizing the mediator with the
case.

It is assumed that if a settlement does not come about, the terms of any
settlement offers will not be admitted into evidence at the hearings. If the
parties enter into a settlement agreement, they may wish to request the Tribunal
to issue an award incorporating the settlement terms.

--------------------------------------------------------------------------------

Appendix A-1

SAMPLE BUSINESS AGREEMENT DISPUTE RESOLUTION CLAUSE
(Mediation - Arbitration)

The parties will attempt in good faith to resolve any controversy or claim
arising out of or relating to this agreement by mediation in accordance with the
Center for Public Resources Model Procedure for Mediation of Business Disputes.
*

If the matter has not been resolved pursuant to the aforesaid mediation
procedure within sixty days of the commencement of such procedure (which period
may be extended by mutual agreement), the controversy shall be settled by
arbitration in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes, by (a sole arbitrator) (three
arbitrators, or whom each party shall appoint one) (three arbitrators, none of
whom shall be appointed by either party). The arbitration shall be governed by
the United States Arbitration Act, 9 U.S.C. § 1-16, and judgment upon the award
rendered by the Arbitrator(s) may be entered by any court having jurisdiction
thereof. The place of arbitration shall be ___________.

_________________________

 
*
The Center for Public Resources Model Minitrial Procedures may be substituted
for the mediation procedure.

--------------------------------------------------------------------------------

Appendix A-2

SAMPLE BUSINESS AGREEMENT DISPUTE RESOLUTION CLAUSE

(Two Step Negotiation - Mediation - Arbitration)

The parties will attempt in good faith to resolve any controversy or claim
arising out of or relating to this agreement promptly by negotiations between
executives of the parties.

If a controversy or claim should arise, ____________________________ of X Co.
and _________________________ of Y Co., or their respective successors in the
positions they now hold (herein called the “project managers”), will meet at
least once and will attempt to resolve the matter. Either project manager may
request the other to meet within fourteen days, at a mutually agreed time.

If the matter has not been resolved within twenty days of their first meeting,
the project managers shall refer the matter to senior executives, who shall have
authority to settle the dispute (herein called “the senior executives”).
Thereupon, the project managers shall promptly prepare and exchange memoranda
stating the issues in dispute and their positions, summarizing the negotiations
which have taken place, and attaching relevant documents. The senior executives
will meet for negotiations within fourteen days of the end of the twenty-day
period referred to above, at a mutually agreed time.

The first meeting shall be held at the offices of the project manager receiving
the request to meet. If more than one meeting is held, the meetings shall be
held in rotation at the offices of X Co. and Y Co.

If the matter has not been resolved within thirty days of the meeting of the
senior executives (which period may be extended by mutual agreement), the
parties will attempt in good faith to resolve the controversy or claim in
accordance the Center for Public Resources Model Procedure for Mediation of
Business Disputes.*

If the matter has not been resolved pursuant to the aforesaid mediation
procedure within sixty days of the commencement of such procedure (which period
may be extended by mutual agreement), the controversy shall be settled by
arbitration in accordance with the Center for Public Resources rules for
Non-Administered Arbitration of Business Disputes, by (a sole arbitrator) (three
arbitrators, of whom each party shall appoint one) (three arbitrators, none of
whom shall be appointed by either party). The arbitration shall be governed by
the United States Arbitration Act, 9 U.S.C § 1-16, and judgment upon the award
rendered by the Arbitrator(s) may be entered by any court having jurisdiction
thereof. The place of arbitration shall be ____________________.
____________________
* The Center for Public Resources Model Minitrial Procedure may be substituted
for mediation procedures.

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Attachment C

MANAGEMENT COMMITTEE

1.1
To provide for the orderly supervision of operations to be carried out under
this Agreement at MGP sites, there will be a Management Committee for each site
for which the Utilities agree to incur costs under this Agreement. Upon the
designation of a site as one as to which the Utilities agree to incur costs
under this Agreement, each Utility shall designate a representative to such
Management Committee who shall be authorized to act for such Utility by which
designated, and an alternate representative who shall be authorized to act for
such Utility in the absence of its representative. Such designation shall be
made by notice given to the other Utility, stating the names and addresses of
the representative and alternate representative designated by such Utility for
such Management Committee for a particular MGP site. Any Utility may change its
representative at any time by giving written notice to the other Utility. In
addition, any Utility may designate a special representative for a particular
Management Committee meeting by delivering to the other Utility’s representative
notice of such designation at or before such meeting. Any special representative
shall be authorized to act for the Utility by which designated only at such
meeting. In any matter arising under this Agreement, a representative or
alternate or special representative shall represent only the Utility which
appointed him. Such representative (or, in his absence the alternate or special
representative) shall have full power and authority to represent and bind such
Utility in all matters, and all acts done by him or his alternate or special
representative pursuant to the authority conferred on him shall be deemed to be
the acts of the Utility which appointed him. The representative or his alternate
or special representative of the Utility/Coordinator (as defined in Section 2
below) shall be Chairman at all meetings of the Management Committee. If neither
the representative, alternate representative, nor a special representative of a
Utility is able to attend any meeting held pursuant to this Agreement, the vote
of such Utility on any matter to be considered at such meeting may be cast by
written notice delivered to the other Utility representative at or before the
meeting but not thereafter.

1.2
The Management Committee may appoint such subcommittees, to be composed of
representatives of the Utilities as it deems advisable, for the study of any
problem in connection with operations hereunder.

1.3
The members of the Management Committee shall be fully empowered by the Utility
which they, respectively, represent to make all determinations required
hereunder to be made by the Utilities.

1.4
The Coordinator/Utility shall prepare and furnish to each Utility representative
and alternate representative a copy of the agenda and such supplementary
information as may be appropriate for each meeting of the Management Committee,
together with notice of the date, time and place of such meeting, to be received
at least fifteen (15) days in advance of the date of such meeting. The
Coordinator/Utility shall work with the representatives and alternate
representatives to select meeting dates, times and places that are acceptable to
all representatives and alternate representatives. All meetings of the
Management Committee shall be held in either Chicago or Naperville, Illinois, or
at such other place as is mutually agreed to by the Utilities. Each
representative or alternate or special representative shall be entitled to have
present at any meeting such agents and employees of his principal as he may
desire. The expenses incurred by a representative, alternates or special
representatives and agents and employees of any Utility attending a meeting
shall be borne solely by such Utility.

1.5
At all meetings of the Management Committee, only such matters as may be on the
agenda shall be considered, but at any such meeting, the agenda may be amended,
by unanimous consent, to include additional matters raised by any
representative. The Coordinator/Utility may call a meeting of the Management
Committee at any time it shall deem appropriate and shall do so upon the request
of any Utility by giving each Utility written notice thereof (pursuant to
Paragraph 1.4) with the agenda reflecting the matters requested by the Utility
or Utilities requesting the meeting. Written minutes of each meeting shall be
prepared by the Coordinator/Utility and copies thereof shall be made available
promptly to the Utilities. Each representative or alternate shall notify the
other representatives in writing of its approval or objection to said minutes
within fifteen (15) days after receipt thereof, and if a representative fails to
so notify the other representatives, it shall be deemed to have approved said
minutes. The determinations of the Management Committee made in accordance with
the voting procedure in Section 1.8 shall be binding on the Utilities.

1.6
Any matter arising under the Agreement may be submitted to the Management
Committee for consideration and to a vote without holding a meeting, provided
that such matter is submitted by notice in writing to all Utilities. Within
fifteen (15) days after receipt of such notice, each Utility shall give to each
other Utility notice in writing of its vote. Any proposal which thus receives
the affirmative vote provided for in Section 1.8 shall be deemed to be a
proposal decided upon by the Utilities, and the determination thus made shall be
binding upon them to the same extent as votes cast at a meeting of the
Management Committee. Coordinator/Utility shall keep a record of the vote open
to inspection by the Utilities at all reasonable times.

1.7
The Management Committee shall meet at least once each Calendar Year prior to
August 1 to consider the program of activities and budget for the relevant MGP
site that is proposed by the Coordinator/Utility for the succeeding Calendar
Year, and such other matters as may be on the agenda; provided, however, that
any such meeting may be waived by the unanimous consent of the Utilities and any
matters on the agenda may be submitted to the Management Committee as provided
in Section 1.6. No program of activities or budget may be implemented unless
approved unanimously by the Utilities.

1.8
Each Utility shall be entitled to one vote on any matter or proposal submitted
to the Management Committee in accordance with this Agreement and all decisions
of the Management Committee must be unanimous.

COORDINATOR/UTILITY
2.1
The Coordinator/Utility shall facilitate the performance of all operations
conducted by the Utilities under this Agreement for the MGP site. There shall be
a separate Coordinator/Utility for each site.

 
2.1.1
Any Coordinator/Utility at any time may resign as Coordinator/Utility hereunder
by giving to the other Utility notice in writing of such resignation. Such
resignation shall be effective one hundred eighty (180) days after the date of
notice thereof as provided above, or on the date on which a successor
Coordinator/Utility appointed by the Utilities as provided herein shall be ready
and able to assume the obligations of Coordinator/Utility hereunder, whichever
shall first occur.

 
2.1.2
The Coordinator/Utility may be removed at any time upon ninety (90) days’ notice
by determination of the Management Committee. The Utilities shall promptly give
to Coordinator/Utility notice in writing of such removal.

 
2.1.3
Removal or resignation of any Coordinator/Utility shall not in any way affect
its right, title or interest or obligations under this Agreement. On the
effective date of removal or resignation, Coordinator/Utility shall deliver to
the successor Coordinator/Utility possession of all funds, equipment, materials,
appurtenances, books, records, reports, data and rights acquired by or in the
custody of Coordinator/Utility for the joint account of the Utilities and shall
make an accounting to the Utilities for such items mentioned herein as shall not
be so delivered.

2.2
In accordance with agreed programs and budgets and the terms of the Agreement
and subject to such instructions as may be given from time to time by the
Management Committee, Coordinator/Utility shall on behalf of the other Utility
conduct all operations for its applicable site under this Agreement, and in
connection therewith, shall have the following rights, duties and obligations;
provided, however, that Coordinator/Utility shall consult with the other
Utilities when it deems necessary.

 
2.2.1
All such operations shall be conducted by Coordinator/Utility or by its duly
authorized agents or by such independent contractors as may be engaged by it
with the approval of the other Utility.

 
2.2.2
Coordinator/Utility, its agents or contractors, shall secure and furnish all
supervision, labor, services, materials, equipment, permits and rights necessary
or appropriate to operations hereunder and shall have custody of all materials
and equipment owned by the Utilities pursuant to this Agreement. The selection
of employees, the number thereof, their hours of labor and their compensation
shall be determined by Coordinator/Utility, its agents or contractors,
exclusively. However, only those items which are designated Shared Costs in
Section 2 of the Agreement are recoverable.

 
2.2.3
Coordinator/Utility shall conduct diligently all operations in accordance with
practices generally followed in remediation operations for manufactured gas
plant sites and shall perform such operations in an efficient and economical
manner. All operations shall be conducted in compliance with the terms of this
Agreement and all applicable laws and regulations.

 
2.2.4
Coordinator/Utility shall proceed with due diligence to secure or cause to be
secured such permits, easements, and other rights to the use of land as may be
requisite or appropriate to the conduct of operations and in accordance with all
applicable laws and regulations.

 
2.2.5
Coordinator/Utility shall permit, upon receipt of request in writing by any
Utility, employees and representatives of such Utility to have full access to
the area of operations (for the relevant MGP site) at all reasonable times and
at their own risk and expense, for the purpose of observing any and all
operations being conducted for the joint benefit of the Utilities and inspecting
all materials, equipment and property. Such inspecting Utility shall observe all
established safety rules and procedures for the site. Each Utility, through its
representatives, employees or agents duly authorized in writing for such
purposes, shall be permitted at reasonable intervals and during usual business
hours to examine and make copies of any and all data and interpretations
thereof, including but not limited to cores, samples, logs and surveys
concerning operations conducted hereunder at said Utility’s sole cost.
Coordinator/Utility shall furnish drafts of all reports (including, but not
limited to plans and proposals) to the other Utility and all the Utilities shall
have the right to make comments prior to the preparation of the final report or
any report submitted to the government. Coordinator/Utility shall furnish an
accurate monthly report to each Utility’s representative and alternate
representative on the Management Committee showing expenditures at the site.
Coordinator/Utility shall also furnish to any Utility any additional information
pertaining to operations at the site when a special request therefor is made;
provided, however, that the cost of gathering and furnishing any additional
information not ordinarily furnished by Coordinator/Utility shall be charged to
the Utility who requests the information.

 
2.2.6
Coordinator/Utility shall use its best efforts to keep the site free from liens,
charges and encumbrances arising out of the operations hereunder.

 
2.2.7
Coordinator/Utility shall promptly pay all costs, expenses and taxes other than
corporate income taxes incurred by its operations as Coordinator/Utility
hereunder and, with such cooperation of the other Utility as may be necessary or
appropriate, take such action as may at any time be necessary to protect the
site.

 
2.2.8
With regard to operations for a particular MGP site, Coordinator/Utility shall
procure and maintain in force for the Utilities any and all insurance authorized
by the Management Committee, without prejudice to each Utility’s right to
provide independently for its own additional insurance coverage with respect to
its interest in the site.

 
2.2.9
Coordinator/Utility shall keep full and complete records of accounts and of
technical operations hereunder and prepare and furnish to the Management
Committee and shall furnish, or cause to be furnished, to government agencies
(with opportunity for comment and input on drafts by the other Utilities) such
reports, statements, data and information as may be required (by law or the
Management Committee) from time to time for the operations conducted hereunder,
except such reports, statements, data and information to government agencies as
the Utilities may respectively and individually be required to prepare and
submit.

 
2.2.10
Unless otherwise directed by the Management Committee, notwithstanding prior
approval of the program of activities and budget set forth in Section 1.7 of
this Attachment, Coordinator/Utility shall submit to the other Utility, for its
review and comments, all contracts which exceed US$50,000.  The other Utility
shall have the right of prior approval of any contract which exceeds US$50,000
or ten percent of the total amount in the approved program of activities and
budget set forth in Section 1.7, whichever is less.

 
2.2.11
Notwithstanding Section 2.2.10, no contract containing term provisions which
exceed two years shall be executed prior to review and approval by both
Utilities.

2.3
Coordinator/Utility shall undertake to carry out each program of activities
adopted by the Utilities within the limits of the approved budget therefor.
Coordinator/Utility shall submit for approval to the Utilities a copy of
Authority for Expenditure (“A.F.E.”), for any expenditure in excess of
US$100,000.00, or its equivalent, for the site. Such approval of the A.F.E.
shall not be required if the expenditure in question has been included in an
approved program of activities and budget. Coordinator/Utility shall not
undertake any operations not included in any approved program of activities or
make any expenditures in excess of the approved budget and an approved A.F.E.,
if required, except as follows:

 
2.3.1
If necessary to carry out an approved program of activities for a calendar year,
the Coordinator/Utility is hereby authorized to make, during such year,
expenditures in excess of the budget adopted therefor, in an amount not to
exceed ten percent (10%) of such budget. Any such expenditures in excess of the
budget shall be reported promptly in writing to the Utilities by
Coordinator/Utility.

 
2.3.2
In case of an emergency, Coordinator/Utility may make such immediate
expenditures as it may deem reasonably necessary for the protection of life or
property, and such expenditures shall be reported promptly to the Utilities by
Coordinator/Utility.

2.4   Any and all claims and suits by third parties arising out of operations
conducted hereunder and brought against the Coordinator/Utility or the
Utilities, or any of them and/or any of their officers, directors, shareholders,
employees, agents or representatives (collectively, “Utility Representatives”),
shall, to the extent not covered by insurance, be compromised and settled or
defended by Coordinator/Utility; provided, however, that if the claim or suit is
brought against the Utility (and/or its Utility Representatives) that is not the
Coordinator/Utility, that Utility shall compromise and settle or defend the
claim or suit in accordance with this Section 2.4. The Utility that  compromises
and settles or defends a claim or suit pursuant to this Section 2.4 is
hereinafter called the “Defending Utility.” Defending Utility shall promptly
seek the advice of the Management Committee and shall comply with any decisions
of said Committee with respect thereto. Each Utility shall have the right to
participate through its own counsel, at its own expense, in the settlement,
compromise or defense of any claims and suits hereunder; however, all
expenditures incurred by Defending Utility in prosecuting, defending,
compromising, settling or paying any such claims or suits as directed by
decisions of the Management Committee shall be borne by the Utilities and
charged as a Shared Cost. Defending Utility shall have authority to settle a
suit for property damage or personal injury, brought against the Defending
Utility or the Utilities, or any of them or any Utility Representatives, without
the approval of the Management Committee, for an amount not to exceed $50,000.
2.5
Neither Utility nor any Utility Representative shall be liable to the other
Utility for any acts done or omitted to be done including negligence, in the
performance of operations hereunder including, but not limited to, functions as
Coordinator/Utility, provided that such acts or omissions shall not have
resulted from the gross negligence or willful misconduct of the Utility or its
Utility Representatives.

2.6
Coordinator/Utility will maintain on behalf of the Utilities such offices as may
be necessary or appropriate and approved by the Management Committee.

OPERATING PROGRAMS AND BUDGETS
3.1
After Coordinator/Utility shall have submitted its proposed program of
activities and budget for approval pursuant to Section 1.7 hereof, the
Management Committee shall, prior to October 20 of each calendar year, consider,
agree upon and adopt a program of activities and budget for the next succeeding
calendar year. Upon adopting a program of activities and budget as provided
herein, the Management Committee shall provisionally consider but not act upon,
adopt or agree to, a program of activities and budget for the calendar year next
following that for which the program of activities and budget shall have been
adopted.

3.2
Each proposed budget shall contain a properly itemized estimate of the cost of
the operations provided for in the respective program of activities and of all
other expenditures proposed to be made by Coordinator/Utility for each relevant
site during the calendar year. Each program of activities and budget adopted
shall be subject to review and revision by the Management Committee from time to
time; provided, however, that no revision shall be made which would prejudice
commitments previously made by the Coordinator/Utility within the limits of an
existing approved program of activities and budget.

3.3
As soon as reasonably possible after the adoption of a program of activities and
budget, Coordinator/Utility shall deliver or send a copy thereof to each
Utility.

COSTS, EXPENSES, AND DEFAULT
4.1
All Shared Costs incurred in the conduct of operations under this Agreement
shall be borne on an interim basis by the Utilities in proportion to their
respective percentages shown in Section 1 of the Interim Cooperative Agreement
except as otherwise herein provided. Such costs and expenses shall be determined
and settled in accordance with generally accepted accounting principles
(“Accounting Principles”) and Coordinator/Utility shall keep its records of
costs and expenses in accordance with such Accounting Principles. In the event
of conflict between this Agreement and said Accounting Principles the provisions
of this Agreement shall control.

4.2
At least thirty (30) days prior to the beginning of each calendar quarter,
Coordinator/Utility shall submit to each Utility an estimate of cash
expenditures to be made per month of operation during such quarter to carry out
the approved program of activities in accordance with the budget approved
therefor. Coordinator/Utility may require each Utility to advance its share of
estimated expenditures to be made each month in accordance with the terms of the
Accounting Principles (such advance not to be more than two weeks prior to the
start of the month).

4.3
In the event the other Utility fails to pay any invoice submitted, or cash call
made by the Coordinator/Utility, or if the Coordinator/Utility fails to pay its
share of costs and expenses hereunder, such non-paying Utility shall be in
default. Any non-defaulting Utility shall proportionately contribute to the
payment of the share of costs and expenses which the defaulting Utility has
failed to pay. Any defaulting Utility shall thereafter owe and be indebted to
each non-defaulting Utility for the proportionate contribution made by each such
non-defaulting Utility along with interest at the rate set out in Section 7 of
the Agreement.

4.4
In addition to the other remedies available to them, each non-defaulting Utility
shall have the option (but only after consultation with the defaulting Utility)
exercisable by notice in writing within thirty (30) days after the expiration of
ninety (90) days after a Utility first goes into default, to bring a request for
a final allocation of costs within the meaning of and subject to the limitations
of Sections 4, 5 and 6 of the Agreement for the site or sites in default.

4.5
The remedies contained in Section 4.1 through 4.4 above against a defaulting or
non-defaulting Utility are not exclusive and are without prejudice to any
remedies or actions at law or equity that are or may be available to any
non-defaulting Utility for the enforcement of its rights and collection of all
sums due and owing from any defaulting Utility. The failure to exercise any
right or remedy at any time shall not constitute a waiver of such right or
remedy or estop the future exercise of such right or remedy with respect to any
default or subsequent defaults in the performance by any Utility of its
obligations hereunder (including but not limited to the obligation to advance
funds).

MATERIALS AND EQUIPMENT
5.1
Except as may be specifically provided in this Agreement, all materials and
equipment acquired by Coordinator/Utility for operations hereunder shall be
owned by the Utilities in undivided shares in their proportion of the Interim
Allocation of Costs, or, if determined, the Final Allocation of Costs.

5.2
Except as may be otherwise approved by the Management Committee and subject to
the provisions of the Agreement, Coordinator/Utility shall purchase only such
materials and equipment as are reasonably required in the conduct of operations
provided for in the approved programs of activities or revisions thereof.
Coordinator/Utility shall not stockpile materials or equipment for future use
without the approval of the Management Committee.

5.3
Subject to the provisions of this Agreement, materials or equipment declared by
Coordinator/Utility to be surplus shall be disposed of in such manner as the
Management Committee may direct; or if the fair market value of an item does not
exceed US$10,000.00, Coordinator/Utility, upon giving to the Utilities twenty
(20) days’ written notice of intention so to do, shall dispose of said item in
such manner as Coordinator/Utility shall deem appropriate; provided however,
that each Utility may, if practicable, separately sell and dispose of its
interest in such materials or equipment or may purchase, at the prevailing
market price in the area, materials or equipment which Coordinator/Utility has
declared to be surplus and which Coordinator/Utility intends to dispose of on
the open market.

5.4
Upon termination of this Agreement, Coordinator/Utility shall salvage for the
joint account all jointly-owned materials and equipment which can reasonably be
salvaged, to be disposed of as provided in Section 5.3 hereof.

FORCE MAJEURE
6.1
The obligations hereunder of each Utility shall be suspended while and to the
extent that such Utility is prevented from complying with such obligations by
force majeure, including, without limitation, strikes, lockouts, labor and civil
disturbances, acts of God, unavoidable accidents, laws, rules, regulations or
orders of any government or agent or instrumentality thereof having at any time
de facto or de jure control over any of the Utilities, acts of war or conditions
arising out of or attributable to war, whether declared or undeclared, shortage
of essential equipment, materials or labor, or restrictions thereof or
limitations upon the use thereof, delays in transportation or communication,
adverse weather conditions or other causes reasonably beyond the control of any
Utility claiming force majeure hereunder, whether similar or dissimilar to the
causes herein specified. If force majeure should result in suspension of
performance of any of the obligations of any utility hereunder, such Utility
shall give to the other Utility notice in writing of such suspension of
performance as soon as reasonably possible, stating therein the date and extent
of such suspension and whether in whole or in part, and specifying in reasonable
detail the nature of the force majeure causing such suspension. Any Utility, the
performance of whose obligation has been suspended as aforesaid, shall resume
performance thereof as soon as reasonably possible after the circumstances
preventing such performance as provided above shall have terminated or ceased to
have such effect, and shall so notify the other Utility as herein provided. The
provisions of this Article shall not suspend the obligation of a Utility to make
timely payment of its share of costs and expenses hereunder or to provide access
to the site to the other Utility.