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EXHIBITS A - D - PGP GAS SUPPLY AGREEMENT NO. 1 Exhibit A CHARACTERISTICS OF FINANCIAL PRODUCTS 1. Tvpes of Financial Products. The General Manager of FGU, in accordance with the Financial Derivatives Policy of FGU, may approve, and Project Participant Representative shall approve on behalf of Project Participant, Financial Products which may consist of one or more of the following (including combinations thereof), without limitation: (a) Swaps and swap options or swaptions, pursuant to which (i) the price of a commodity is converted from a fixed price to a floating price or from a floating price to a fixed price, or (ii) the interest rate on debt issued to acquire or prepay the cost of Gas or interests therein may be synthetically converted from a floating rate to a fixed rate, or a fixed rate to a floating rate or from one floating rate to another. (b) Options or Forwards. pursuant to which a commodity can be purchased or sold for future delivery on an optional or committed basis and on a physical or cash-settled basis; (c) Caps. Floors or Collars. pursuant to which the price of a commodity can be limited to a maximum price, a minimum price, or a range between a maximum and a minimum price and the interest rate on debt may be limited to a maximum rate, a minimum rate on a range between a maximum and minimum rate; (d) Futures Contracts or Options on Futures Contracts, pursuant to which a commodity can be purchased or sold for future delivery on a committed or optional basis, and on a physical or cash-settled basis, through exchange traded and regulated transactions; (e) Other Hedg-es, pursuant to which the price or price fluctuations of a commodity, interest rates on debt used to prepay or finance the acquisition of a commodity or interests therein, or to the creditworthiness of a gas supplier or counterparty, can be established or mitigated, either in whole or in part, so as to reduce risk; and (f) Combinations, including any combination of the foregoing. For purposes hereof, a "commodity" includes, without limitation, natural gas of any kind (in place or delivered) and any precursor or by-product of natural gas. 2. Terms of Financial Products. Financial Products may be (i) established and regulated pursuant to the rules and regulations of exchanges upon which such products trade or (ii) be documented and evidenced by written financial contracts between the parties thereto pursuant to forms of agreements established by industry associations, including, without limitation, the International Swaps and Derivatives Association, Inc. (ISDA), such as ISDA's various forms of Master Agreement (inclusive or any schedule or supplement, credit support document, and confirmations related thereto). 3. Risks assumed in Financial Products. Inherent in Financial Products will be a variety of risks including, without limitation, the following: (a) Credit risks, including the risk that adverse financial changes occur with respect to a gas supplier, a counterparty, an exchange, or a clearinghouse (including bankruptcy) that would tend to reduce or negate the benefit of the Financial Product. (b) Pricing- risks, including the risk of not obtaining the best or most favorable price available for the Financial Product due to market conditions, lack of pricing liquidity or transparency, and macroeconomic events. (c) Basis risks, including the risk that the Financial Product is not a complete or effective hedge with respect to a commodity, its price or the interest rate a purchaser may pay on its underlying debt. (d) Termination risks, including the risk that the Financial , Product must or should be liquidated or terminated early in light of the terms of the Financial Product, which, in turn, may result in a significant payment by, or loss to, a party due to then current market conditions, even though the party's actions did not cause or trigger the termination. Termination can occur because of a number of factors, including (i) a failure of a party to perform its obligations (whether related to payment, delivery, providing collateral or margin, or otherwise) under the terms of a Financial Product or some other agreement to which the Financial Product refers (which may include the default by other Project Participants whose payments are intended in part to make required payments under the hedge agreements), (ii) the misrepresentation of a party to a Financial Product, (iii) cross defaults, (iv) the bankruptcy, or decline in the creditworthiness, of a party to a Financial Product, (v) the determination that a Financial Product is illegal or unenforceable whether due to a change in law or regulation or otherwise, and (vi) other factors. Following a termination, a party can be unhedged unless it terminates the transaction or commodity being hedged or establishes a new hedge. (e) Operating risks, including the risk that the Financial Product may increase costs or present new or unusual accounting, tax or 2 operating difficulties that require adaptation of existing systems, processes and policies. (0 Legal risks, including the risk that the Financial Product is unenforceable (whether due to a change in law or regulation or otherwise) or is not adequately documented to reflect the parties' agreement. # 222488L v2 3 Exhibit B DESCRIPTION OF SYSTEM The City of Clearwater, Florida was incorporated in 1923 by Chapter 9710, Special Laws of Florida, as amended. The Clearwater Gas System (CGS) is owned and operated as an enterprise utility by the City of Clearwater. CGS operates over 650 miles of underground gas main and handles the supply and distribution of both natural and propane (LP) gas throughout northern Pinellas County and western Pasco County. As a "full service" gas utility, CGS provides gas appliance sales and service, installation of inside customer gas piping, domestic and commercial gas equipment service, construction and maintenance of underground gas mains and service lines, and 24 hour response to any gas emergency call within the service area. The Clearwater Gas System is regulated for safety by the Florida Public Service Commission and the Federal Department of Transportation. CGS has been serving customers in the Clearwater area for over 78 years (since 1923) when operations were begun with a manufactured gas plant operation from coal and coke. In 1959, when natural gas transmission lines were finally extended to peninsula Florida, CGS discontinued the manufacturing of gas and began receiving piped natural gas from Florida Gas Transmission. Clearwater Gas System serves over 18,000 customers in a 298 square mile service territory, which includes 17 municipalities. as well as the unincorporated areas of north and central Pinellas County and western Pasco County. The Pinellas County service territory is 181 square miles and extends generally from Ulmerton and Walsingham Roads on the South to the Pasco County line on the North and from the Gulf of Mexico on the West to the Hillsborough County line on the East. This includes all of the Pinellas beach communities south to Redington Beach. The Pasco . County service territory is 117 square miles and extends from the Gulf of Mexico on the West inland about 10 miles to just West of State Road 41 and Land 0' Lakes (generally along the right-of-way for the proposed North Suncoast Parkway) and from the Pinellas and Hillsborough County lines on the South to generally State Road 52 on the North. Clearwater Gas System prides itself in being a competitive and public service-minded utility, making economical and enviromnentally-friendly gas, which is made in America, available in our community for all of the homes and businesses in our service area, with special focus on the residential customers who make up nearly 85% of our customer base. City of Clearwater, Florida Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds For the Year Ended September 30,2003 Operating revenues: Sales to customers Service charges to customers User charges to customers Billings to departments Rentals Total operating revenues Business-type Enterprise Water and Sewer Gas Solid Waste Utility UtilIty Utility $ 38,639,890 $ 28,226,159 $ 15,696,878 485,228 1 ,534,805 96,645 39,125,118 29,760,964 15,793,523 7,283.595 4,053,181 4,428,453 6,103,150 13,494,849 149 1,840,133 128,982 330,421 690,357 492,089 2,655,739 1,591,969 74,587 60,635 4,893,497 4,972,309 1,427,298 225,112 5,113,190 1,861,820 1,143,710 1,760,814 206,474 10,073 570,771 5,230 127,429 140,344 53,496 4,295 241,670 140,775 140,810 4,054,401 239,493 66,472 58,826 4,103 352,817 110,668 36,289 406,250 319,100 135,430 1,764,641 44,759 68,541 19,833 6,988,140 3,623,928 471,736 34,582,843 25,156,734 14,209,452 4,542,275 4,604,230 1,584,071 Operating expenses: Personal services Purchases for resale Operating materials and supplies Transportation Utility service Dumping charges Depreciation Interlund administrative charges Other current charges: Professional fees Advertising Communications Printing and binding Insurance Repairs and maintenance Rentals Miscellaneous Data processing charges Taxes Provision for estimated uncollectable accounts Total other current charges Total operating expenses Operating income (loss) 2 Remarks/Qualifiers Service Area in Square Miles 298 Pinellas 181 + Pasco 117 (42,3 mi. NE - SW) Population of Service Area 576,669 Per 2001 PEDC Data (from 2002 PERC Summary) Pinellas 434,200 + Pasco 142,469 Dwelling Units in Service Area 257,184 Per 2001 PEDC Data= 2.24 Occupants/Unit Pinellas 193,581 (2,24) + Pasco 63,604 (2,24) Customers - Total (NG+LP) Residential Firm (NG) General Service Firm (NG) Interruptible (NG) Propane (LP) 18,454 Sept., 2004 Billings (Pin. 16,223+ Pasco 2,231) "(Subtotal NG 16,452= Pin. 14,483 & Pasco 1,969) " 14,324 2,114 14 2,002 " (Pin. 1,740 + Pasco 262/1,915 res!. & 87 com!.) % of Dwelling Units Using CGS NG - Overall 5,6% Pinellas 6,5% Clearwater 12,8% 14,324 Residential Cust.!257, 184 Dwelling Units 12,535 Residential Cust.!193,581 Dwelling Units 6,362 Residential Cust.! 49,674 Dwelling Units Miles of Natural Gas Main 729,0 Sept., 2004 Actual (Pin, 645.2 & Pasco 83.8) 22.6 Sept., 2004 Actual (Pin. 22.4 & Pasco 23,5) NG Customers/Mile of Main % of Residential Firm Customers: With Water Heater With Gas Cooking With Gas Heating 58.8% Estimated (Based on Aug.l99 Customer Survey) 53.5% 30,5% Annual Heating Degree Days 518 10 Yr. Tampa NOAA Data thru Sept., 2004 3,703 10 Yr. Tampa NOAA Data thru Sept. 2004 Annual Cooling Degree Days Peak Contract Demand (Dekatherms/Day) 12,000 12,380 November - April All Time Peak Load (Dekatherms/Day) Annual Peak Load (DekathermslDay) 10,645 February 4, 1996 Actual (2,131 was wholesale to TECO PGS & CGS net was 10,249) FY 03/04 (January 10, 2004) FY 02/03 (January 24, 2003) FY 01/02 (March 4, 2002) FY 03/04 Actual 12,147 10,941 Annual Gas Sales (NG Therms) 21,538,066 (LP Gallons) 499,977 Annual Load Factor vs. Peak 54,2% FY 03/04 Actual Annual Load Factor vs, Contract 68.4% 'with relinquishment 79.8% FY 03/04 Actual Average Monthly Load Factor 80.1 % FY 03/04 Actual Avg, Single Family Home Consumption 273 (Therms/year) Annual Gas Revenues (Millions) $32.6M Employees (Actual Full-time Equivalent) 89.4 FY 91/92 Study (FY 03/04 Actual = 220 inc!. active, but dormant accounts) FY 03/04 Actual FY 03/04 Actual (Budget Authorized 90 FTE) Customers Served/Authorized Employee 205.0 September, 2004 Actual Revised 11/08/04 U:\My Documents\Word\CGSGENL\FY OI-02\CGS Overview Data,doc # 222488Lv2 3 Exhibit C PROJECT PARTICIPANT OUTSTANDING OBLIGATIONS Long Term Debt Gas System Revenue Bonds $14,605,000 Gas System Revenue Bonds and Gas System Revenue Refunding Bonds, Series 1997 A & Series 1997B; serial bonds due in annual installments of $555,000 due September 1, 2005, to $785,000 due September 1, 2013, interest at 4.375% to 5.00%; 5.25% term bonds in the amount of $790,000 maturing September 1, 2017; and 5.30% term bonds in the amount of $4,560,000 maturing September 1, 2027. (Ordinance 5118-91,5665-94,6030-96; Resolution 97-54) $8,020,000 Gas System Revenue Refunding Bonds, Series 1998; serial bonds due in annual installments of $35,000 due September 1, 2005, to $50,000 due September 1, 2012, interest at 4.00% to 4.60%; additional serial bond annual installments ranging from $620,000 to $755,000 from September 1, 2015 to September 1, 2019, interest at 4.75% to 4.90%; 4.70% term bonds in the amount of $645,000 maturing September 1, 2014; and 5.00% term bonds in the amount of $3,410,000 maturing on September 1, 2023. (Ordinance 5118-91, 6188-97; Resolution 98-09) $8,890,000 Gas System Revenue Refunding Bonds, Series 2004, serial bonds due in annual installments of $160,000 due September 1,2005, to $1,575,000 due September 1, 2026, interest at 2.00% to 4.375%. (Ordinance 5118-91, 7191-03; Resolution 03-36) # 2224887_v2 $11,345,000 $7,825,000 $8,870,000 Exhibit D FORM OF NATURAL GAS PRODUCTION SHARING AGREEMENT DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) NATURAL GAS PRODUCTION SHARING AGREEMENT FOR GAS SUPPLY POOL NO.1 By and Between PUBLIC GAS PARTNERS, INC. And [INSERT NAME OF MEMBER] DATED AS OF NOVEMBER 1, 2004 HEADING RECITALS ARTICLE 1 Section 1.1 Section 1.2 Section 1.3 Section 1.4 Section 1.5 Section 1.6 Section 1.7 Section 1.8 Section 1.9 Section 1.10 Section 1.11 Section 1.12 Section 1.13 ARTICLE 2 ARTICLE 3 Section 3.1 Section 3.2 ARTICLE 4 Section 4.1 Section 4.2 Section 4.3 Section 4.4 ARTICLE 5 Section 5.1 Section 5.2 Section 5.3 Section 5.4 Section 5.5 ARTICLE 6 ARTICLE 7 ARTICLE 8 ARTICLE 9 Section 9.1 Section 9.2 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) TABLE OF CONTENTS Pa2e ....................................... ...... ............................................................. 1 CONSTRUCTION AND INTERPRETATION ..................................... 5 Recitals Incorporated........................................................................... 5 Exhibits.................................... .............................................................. 5 References.............................................................................................. 5 Number and Gender.............................................................................. 5 Headings............... ......... ........................................................................ 5 Severability............................................................................................ 5 Resolution of Disputes, Arbitration and Mediation............................. 6 Choice of Law......................................................................................... 6 Venue ...... .............................................. ............................ ........... .......... 7 Interrelatedness of Production Sharing Agreements.......................... 7 Entirety of Agreement....................... ............................. ....................... 8 Preparation of Agreement.................................................................... 9 Definitions............................................................................................. 9 DEFINITIONS...................................................................................... 9 REPRESENTATIONS AND WARRANTIES ..................................... 16 Representations and Warranties of the Member............................... 16 Representations and Warranties of Public Gas Partners.................. 20 GOVERNANCE AND OPERATIONAL STRUCTURE ..................... 22 Governing Body of Public Gas Partners............................................. 22 Committees.......................................................................................... 22 Management of Public Gas Partners' Operations and Affairs .......... 23 Operating Committee For Gas Supply Pool No.1............................. 24 CHARACTER OF OBLIGATIONS ....... ......................... ..................... 25 Sale and Delivery of Gas or Cash ............ ...................... ..................... 25 Payment of Costs............................. .................................................... 26 Sharing of Costs ................... ............................................................... 27 True-Ups.............................................................................................. 27 Gas Supplies Held by Public Gas Partners ........................................ 28 QUANTITIES...................................................................................... 29 POINTS OF DELIVERy.......................... ........... ................................ 30 TITLE................................................................................................... 30 MEASUREMENT AND SPECIFICATIONS ..................................... 30 Measurement ........... ........... ............. ...................... ...... .......... .............. 31 Quality Specifications ......................................................................... 31 I ARTICLE 10 ARTICLE 11 Section 11.1 Section 11.2 Section 11.3 Section 11.4 Section 11.5 Section 11.6 Section 11. 7 ARTICLE 12 Section 12.1 Section 12.2 Section 12.3 Section 12.4 Section 12.5 Section 12.6 ARTICLE 13 Section 13.1 Section 13.2 Section 13.3 Section 13.4 Section 13.5 Section 13.6 ARTICLE 14 Section 14.1 Section 14.2 Section 14.3 Section 14.4 Section 14.5 Section 14.6 Section 14.7 Section 14.8 Section 14.9 ARTICLE 15 Section 15.1 Section 15.2 Section 15.3 ARTICLE 16 ARTICLE 17 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) HEDGING ....................................................................................;...... 31 ANNUAL BUDGET PROCESS AND PRICING OF DELIVERIES. 32 Annual Budget Process For Pool-Specific Costs ................................ 32 Annual Budget Process For Non-Pool-Specific Costs ........................ 33 Budget Amendments ................... ............. ............... ................... ......... 33 Allocation of Pool-Specific Costs to the Member ................................ 33 Allocation of General Costs to the Member........................................ 33 Allocation of Individual Costs ........................................... .................. 34 Categories of Costs.......... .................................................................... 34 COMPONENTS OF MONTHLY BILLINGS .....................................35 Acquisition Costs of Supply................................................................ 35 Ongoing Capital Development Requirements.................................... 35 Gas Supply Pool No.1 Operating Costs ............................................. 36 Costs of Outside Services.................................................................... 37 Manager Fees...................................................................................... 37 Contingency Reserves .......................................... ........ .............. ......... 38 BILLING AND PAYMENT ................................................................. 38 Timing ............. ............. ................... ........... ..... ..................... ............ .... 38 Late Payment...................................................................................... 39 Disputed Amounts .......... .................... ................ ..................... ............ 39 Audit Rights......................................................................................... 40 Status of Payment Obligations ... ............ ................. .................. ......... 40 Nature of Payment Obligation ...... ...... ............. .................... ............... 42 FAILURE TO PERFORM AND DEFAULT ....................................... 43 Default by Public Gas Partners and Remedies ..................................43 Default by the Member....................................................................... 44 Continuing Obligation of the Member................................................ 45 Right of Public Gas Partners to Suspend Service .............................. 45 Termination and Transfer of the Member's Participation Share Following Default......................................... 46 Step-Up Requirements........................................................................ 48 Termination of the Member's Participation Share Following Prepayment........................................................50 Abandonment of Remedy........ ........... ............ .................... .......... ....... 51 Waiver of Default................................................................................ 51 FORCE MAJEURE............................................................................. 51 Suspension of Obligations ....... ............................... ...... ....................... 51 Force Majeure in the Context of This Agreement.............................. 52 Force Majeure Defined ....................... .................. ................ ............... 53 EXCLUSIVITY AND AUTHORIZATION FOR ACQUISITIONS .... 53 SUCCESSION AND ASSIGNMENT ................................................. 55 11 Section 17.1 Section 17.2 Section 17.3 ARTICLE 18 Section 18.1 Section 18.2 Section 18.3 Section 18.4 Section 18.5 Section 18.6 ARTICLE 19 Section 19.1 Section 19.2 Section 19.3 Section 19.4 Section 19.5 Section 19.6 ARTICLE 20 Section 20.1 Section 20.2 Section 20.3 Section 20.4 Section 20.5 Section 20.6 ARTICLE 21 Section 21.1 Section 21.2 Section 21.3 ARTICLE 22 Section 22.1 Section 22.2 ARTICLE 23 Section 23.1 Section 23.2 ARTICLE 24 ARTICLE 25 ARTICLE 26 ARTICLE 27 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Succession............................................................................................ 55 Assignment.......................... ................................................................ 55 Third Party Beneficiaries.................................................................... 56 SPECIAL COVENANTS ................ ................................. .................... 56 Rates, Fees, and Charges of the Member ...........................................56 General Tax Covenant of Public Gas Partners.................................. 57 Continued Existence of the Member .................................................. 57 Continued Existence of Public Gas Partners .....................................58 Covenant Not to Vary Terms of Agreements .....................................58 Covenant to Enforce Underlying Contracts ....................................... 58 INFORMATION TO BE PROVIDED BY THE PARTIES TO EACH OTHER........................................................ 59 Financial Reporting by the Member................................................... 59 Other Information to Be Made Available by the Member ................. 59 Financial Reporting by Public Gas Partners ..................................... 60 Other Information to Be Made Available by Public Gas Partners.... 60 Information to Be Provided in Connection with the Member's Prepayment.................................................................................... 61 Costs Associated With Providing Information ................................... 62 COMPONENTS OF GAS SUPPLY POOL NO.1.............................. 62 Gas Supply Pool No.1 Portfolio.......................................................... 62 Working Interests and Royalty Interests ........................................... 63 Minimum Portfolio Requirements ......................................................63 Minimum Security for Secured Prepayments .................................... 64 Dissolution of Gas Supply Pool No.1................................................. 65 Completion of Gas Supply Pool No.1................................................. 65 FINANCING OF GAS SUPPLY POOL NO.1................................... 67 Interim Financing by Public Gas Partners........................................ 67 Permanent Financing.......................................................................... 67 Failure to Make Prepayment ................................ .............................. 68 CHANGES IN NOMINATED QUANTITY ........................................69 Reductions in Nominated Quantity.................................................... 69 Increases in Nominated Quantity...................................................... 70 TERM ................................................................................................... 70 Full Term............................................................................................. 70 Early Termination............................................................................... 71 NOTICES ............................... .............. ...................... ............ .... ..... ..... 72 RELATIONSHIP TO AND COMPLIANCE WITH OTHER INSTRUMENTS............................................................................ 74 LIABILITY OF PARTIES ........ ....................... .................................... 75 COUNTERPARTS ........................ ..... '" ...... ....... ............. ..................... 76 111 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) EXHIBIT A PARTICIPANTS IN GAS SUPPLY POOL NO.1, THEIR NOMINATED QUANTITIES, AND THEIR PARTICIPATION SHARES EXHIBIT B RULING REQUEST SUBMITTED BY PUBLIC GAS PARTNERS, INC. TO THE INTERNAL REVENUE SERVICE EXHIBIT C POINTS OF DELIVERY EXHIBIT D BREAKDOWN OF ANNUAL BUDGET BY CATEGORIES EXHIBIT E NATURAL GAS SERVICES CONTRACT BETWEEN PUBLIC GAS PARTNERS, INC. AND THE MUNICIPAL GAS AUTHORITY OF GEORGIA EXHIBIT F FORM OF OPINION OF COUNSEL TO THE MEMBER EXHIBIT G ILLUSTRATIVE CALCULATION OF REVISED PARTICIPATION SHARES FOLLOWING A REDUCTION IN THE MEMBER'S NOMINATED QUANTITY EXHIBIT H FORM OF HEDGING AND RISK MANAGEMENT POLICY EXHIBIT I FORM OF NOTICE OF REVISED PARTICIPATION SHARES IV DRAFT #8 - 9/21/04 PRMLEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) NATURAL GAS PRODUCTION SHARING AGREEMENT FOR GAS SUPPLY POOL NO.1 This Natural Gas Production Sharing Agreement for Gas Supply Pool No. 1 (hereinafter "Agreement") is dated as of November 1,2004, by and between Public Gas Partners, Inc. a Georgia nonprofit corporation and an instrumentality of its participating governmental entities (hereinafter "Public Gas Partners"), and , a organized under the laws of the State/Commonwealth of (hereinafter the "Member"). Public Gas Partners and the Member are sometimes hereinafter referred to collectively as the "Parties" or individually as a "Party". RECITALS WHEREAS, Public Gas Partners is a nonprofit corporation organized and established under the provisions of the Georgia Nonprofit Corporation Code, O.C.G.A. Section 14-3-101, et seq., as amended, the purpose of which is to acquire and manage reliable and economic natural gas supplies, through the acquisition of interests in natural gas producing properties and other long-term sources of natural gas supplies, for participating joint action agencies and large public natural gas and power systems; and WHEREAS, it is intended that Public Gas Partners be an organization exempt from federal income taxation as a governmental entity and that Public Gas DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Partners will satisfy the requirements necessary to be considered a governmental instrumentality under the Intemal Revenue Code of 1986,26 U.S.C. ~ 1, et al. (the "Code"); WHEREAS, the Member is a which provides service to ; and WHEREAS, Public Gas Partners and the Member, together with Other Members (as defined in this Agreement), have engaged in discussions regarding the value and benefits that could be provided to the Member and Other Members through the joint action of public gas entities and public electric entities in pooling their talents, expertise, and resources to acquire and manage long-term gas supplies needed as an essential component of their operations for the benefit of their member distribution systems and/or the consumers they serve; and WHEREAS, the Member on or before April 30, 2004, executed a Letter Of Intent and submitted a non-binding nomination of the quantity of natural gas deliverability that it anticipated requesting Public Gas Partners to acquire for sale to the Member through a portfolio of gas supply transactions making up a pool of supply acquisitions; and WHEREAS, the Letter Of Intent provided that the relationship between Public Gas Partners and the Member, as well as between Public Gas Partners and all Other Members, would be formalized in an agreement under which the non- binding nomination submitted in conjunction with the Letter Of Intent would be 2 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) replaced by a contractual level of requested deliverability that Public Gas Partners would be charged with obtaining for sale to the Member; and WHEREAS, Public Gas Partners has entered or intends to enter into a Natural Gas Services Contract with the Municipal Gas Authority of Georgia, one of the Members, pursuant to which the Municipal Gas Authority of Georgia shall serve as the Manager of Public Gas Partners for an initial term of five years as was also contemplated in the Letter Of Intent; and WHEREAS, the Member has worked collectively with Other Members to draft the Articles of Incorporation and Bylaws of Public Gas Partners, this Agreement, and the Natural Gas Services Contract, which all together realize the purpose of the Letter Of Intent; and WHEREAS, Public Gas Partners and the Member have agreed that Public Gas Partners shall undertake a program of supply acquisitions that is intended to include the acquisition of interests in gas reserves and gas prepayments, and that Public Gas Partners shall take, hold and retain title to such interests, and shall initially finance the purchase of such interests; and WHEREAS, Public Gas Partners and the Member have agreed that Public Gas Partners shall sell to the Member the Member's share of available production from such interests or contractual rights under the terms and conditions set forth in this Agreement; and 3 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) WHEREAS, Public Gas Partners and the Member have agreed that the Member shall be unconditionally obligated to pay its share of costs associated with all aspects of the program undertaken by Public Gas Partners to acquire and manage Gas Supply Pool No.1 to fulfill the Nominated Quantities of the Member and Other Members; and WHEREAS, Public Gas Partners and the Member have also agreed that the Member shall bear its proportionate share of all costs and shall receive its proportionate share of all benefits associated with Gas Supply Pool No.1; and WHEREAS, Public Gas Partners and the Member have further agreed that the Member shall make a lump sum advance payment for its proportionate share of the gas produced from or delivered pursuant to Gas Supply Pool No.1 at such time as Public Gas Partners may notify the Member such prepayment is due, and the Member shall make such payment from the proceeds of its permanent financing or other funds available to the Member in connection with such Gas Supply Pool No. 1 under the terms and conditions set forth in this Agreement; and WHEREAS, Public Gas Partners and the Member have further agreed that the effectiveness of this Agreement is contingent upon the execution of Production Sharing Agreements by the Member and Other Members for aggregate Annual Nominated Quantities of not less than 50,000 MMBtu per day. NOW, THEREFORE, in consideration of the premises and mutual covenants set forth in this Agreement and for other good and valuable consideration, the 4 DRAFT #8 -9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) receipt and sufficiency of which are hereby acknowledged, Public Gas Partners and the Member agree as follows: ARTICLE 1 CONSTRUCTION AND INTERPRETATION 1.1 Recitals Incorporated. Each of the clauses set forth in the Recitals above is incorporated into and made a part of this Agreement by this reference. 1.2 Exhibits. Each of the Exhibits to this Agreement is incorporated into and made a part of this Agreement by this reference. 1.3 References. References to Articles, Sections, and Exhibits in this Agreement are to the articles, sections, and exhibits of this Agreement. 1.4 Number and Gender. Unless the context plainly indicates otherwise, the use of the singular in this Agreement incorporates the plural and vice versa, and the use of the male, female, or neutral gender incorporates the others. 1.5 Headings. The headings used throughout this Agreement are inserted for reference purposes only and shall not be construed or considered in interpreting the terms and provisions of any Section or Article of this Agreement or the Agreement as a whole. 1.6 Severability. If any Article, Section, term or provision of this Agreement is declared by a court of competent jurisdiction to be illegal, unenforceable, or void, this Agreement shall continue in full force and effect without said Article, Section, term or provision; provided, however, that if such severability 5 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) materially changes the economic benefits of this Agreement to either Party, the Parties shall negotiate in good faith and attempt to agree to an equitable adjustment to the provisions of this Agreement to replicate to the best of their ability the economic benefits of this Agreement to both Parties. 1.7 Resolution of Disputes. Arbitration and Mediation. Notwithstanding any other provision of this Agreement to the contrary, the Parties by mutual agreement may agree to mediate or arbitrate any dispute that arises under this Agreement. In the event that a dispute arises between Public Gas Partners and the Member under this Agreement, the Parties agree that they shall pursue a process to attempt to resolve the dispute as follows: first, the dispute shall be discussed by the Parties at the staff level; if the dispute has not been resolved within 15 days of the initiation of discussions, the Parties shall next schedule a face-to-face meeting to include their chief executive officers at a mutually agreeable location, to take place in not more than 15 days; if the dispute has not been resolved within 15 days following such meeting, either Party may proceed to have the matter adjudicated, or the Parties together may agree to pursue mediation or non-binding arbitration of the dispute, or binding arbitration of the dispute. 1.8 Choice of Law. This Agreement shall be interpreted and construed in accordance with the laws of the State of Georgia, without regard to any conflict of laws provisions, provided that the capacity, power and authority of the Member to enter into this Agreement and any matter relating to the interpretation or 6 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) enforceability of any ordinance, resolution, agreement or other instrument adopted or otherwise entered into by the Member authorizing, securing or otherwise relating to its obligations under this Agreement, heretofore or hereafter adopted or assumed, shall be governed by and construed in accordance with the laws of the State/Commonwealth of 1.9 Venue. The Parties agree that venue shall lie in federal district court in Atlanta, Georgia. 1.10 Interrelatedness of Production SharinE! Agreements. This Agreement is substantially identical to the agreements between Public Gas Partners and each of the Other Members that are participating in Gas Supply Pool No.1 except for the provisions relating to the identification of the parties, individual commercial terms such as Nominated Quantities and Points of Delivery, and certain legal matters applicable to each of the Members such as state law and the terms of underlying contractual arrangements with Participating Utilities. The participants in Gas Supply Pool No.1 are listed in Exhibit A. This Agreement may not be amended except upon the unanimous agreement of Public Gas Partners, the Member, and each of the Other Members, and then only upon the concurrent execution of a substantially identical written amendment to the Production Sharing Agreements between Public Gas Partners and each of the Other Members; provided, however, that Exhibit A shall be amended from time to time without such agreement to conform to changes resulting from the addition of new Members as discussed in 7 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Sections 4.4(c) and 22.2 (listing of new participants and Nominated Quantities) and to conform to other changes provided for in Article 14 (defaults), Section 17.2 (assignments), Section 21.3 (failure to make Prepayment), Section 22.1 (reduction in Nominated Quantity). and Section 23.2 (early termination), or otherwise in this Agreement; Exhibit C may be amended by agreement of the Parties; and Exhibit E may be amended by agreement between Public Gas Partners and the Municipal Gas Authority of Georgia. Except for such amendments as described in the foregoing proviso, Public Gas Partners agrees that if either Party proposes an amendment to this Agreement, Public Gas Partners shall provide written notice of such proposed amendment to each of the Other Members within five days of sending or receiving such proposed amendment. If Public Gas Partners or one of the Other Members proposes an amendment to the Production Sharing Agreement between Public Gas Partners and such Other Member for Gas Supply Pool No.1, Public Gas Partners shall provide written notice of such proposed amendment to the Member within five days of sending or receiving such proposed amendment. 1.11 Entiretv of Agreement. This Agreement constitutes the entire agreement between Public Gas Partners and the Member with respect to the purchase and sale of gas produced or delivered from Public Gas Partners' interests in Gas Supply Pool No. 1. All prior negotiations and understandings, whether oral or in writing (including without limitation the Letter Of Intent referenced in the Recitals to this Agreement), are superceded by this Agreement. No modification of 8 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) the terms and provisions of this Agreement shall be or become effective except by the execution by the Parties of a written amendment. 1.12 Preparation of Agreement. The Parties have jointly drafted this Agreement and it shall be deemed to be their joint work product and shall not be construed against either Party by reason of its preparation. 1.13 Definitions. Unless another definition is expressly stated in this Agreement, the terms set forth in Article 2 shall have the meaning there set forth whenever they are used in this Agreement. ARTICLE 2 DEFINITIONS 2.1 "Annual Nominated Quantity" is defined in Section 2.17. 2.2 "Board of Directors" means the Board of Directors of Public Gas Partners, as described in Article 5. 2.3 "British thermal unit" or "Btu" means the amount of energy required to raise the temperature of one pound of pure water one degree Fahrenheit (10 F) at sixty degrees Fahrenheit (600 F) under standard atmospheric and gravitational conditions. 2.4 "Costs" means any and all costs or other expenditures incurred with respect to Gas Supply Pool No.1, whether they are incurred by Public Gas Partners directly in connection with Gas Supply Pool No.1 or are incurred by Public Gas Partners generally or in connection with more than one Project and are allocated to 9 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Gas Supply Pool No.1, and whether or not they are Individual Costs, including without limitation: operating and maintenance costs; capital expenditures; amounts payable by Public Gas Partners with respect to any debt or other obligations of Public Gas Partners issued or incurred to finance its acquisition of reserves or any other interests in, or contractual rights to, natural gas and its production, including but not limited to all costs of issuance, credit enhancement, interest rate swaps or other arrangements (including but not limited to ongoing payments and any termination or unwind payments), remarketing, and disclosure, all fees relating to trustees, paying and other agents, whether initial or ongoing, and all required reserves or deposits or other costs associated with the issuance or incurrence of any such debt; fees and expenses paid to the Manager and any other amounts payable by Public Gas Partners under the Services Contract; deposits; royalties; indemnities; environmental or other fines or liabilities; Losses; costs incurred by Public Gas Partners in its prosecution of any legal claim or other action to enforce its rights or otherwise in connection with or relating to its interests in gas properties or contractual rights acquired under Gas Supply Pool No.1; severance, ad valorem, or similar taxes; gathering, compression, transportation, and balancing charges and penalties or other similar charges; fuel and lost and unaccounted for gas; ongoing payments, termination payments, or unwind costs for hedges undertaken for the benefit of the Members; and other costs, expenses, and charges of any kind or nature that Public Gas Partners incurs in connection with the 10 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) production, acquisition, and delivery to the Member of the gas produced from its interests or otherwise acquired by Public Gas Partners as part of Gas Supply Pool No. 1. 2.5 "Cubic foot" means the amount of gas required to fill a cubic foot of space when the gas is at an absolute pressure of 14.73 pounds per square inch and at a temperature of sixty degrees Fahrenheit (600 F). 2.6 "FERC" means the Federal Energy Regulatory Commission and any successor thereto, including without limitation an Executive Branch agency of the federal government, an independent regulatory commission, or a Legislative Branch agency of the United States Congress. 2.7 "Force Majeure" has the meaning set forth in Section 15.3. 2.8 "Gas" means all natural gas, coal seam gas, coalbed methane, shale gas, casinghead gas, and associated gaseous hydrocarbons, including liquids and liquefiables, and any mixture of hydrocarbons or of hydrocarbons and non- combustible gases and associated liquids, consisting essentially of methane and conforming to the quality specifications applicable at the Point of Delivery. 2.9 "Gas Supply Pool No.1" means the gas supply acquisition projects and transactions consummated by Public Gas Partners to meet the initial Nominated Quantities of the Member and Other Members participating in the first portfolio of long-term natural gas supplies acquired by Public Gas Partners, together with the 11 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) management activities undertaken and conducted by Public Gas Partners in connection with such portfolio. 2.10 "Gas Tariff' means the interstate pipeline tariff filed by a "natural gas company" as defined in the Natural Gas Act (15 U.S.C. ~ 717 et seq.) pursuant to FERC regulations and approved by FERC, as it may be amended from time to time. 2.11 "Individual Costs" means any and all Costs that are allocated by the Operating Committee specifically to the Member or to a subset of all of the Members, but not to all of the Members, including without limitation costs associated with commodity swaps or other hedging agreements entered into by Public Gas Partners in its name for the benefit of and at the request of one or more but not all of the Members. 2.12 "Losses" means any and all costs of the defense of any action brought against or defended by Public Gas Partners in connection with its operations or relating to its interests in gas properties or contractual rights acquired under Gas Supply Pool No.1, including but not limited to all suits, judgments, claims, demands, causes of action, costs, and expenses arising out of or in any way connected to claims with respect to title, environmental liability, or otherwise relating to gas prior to its delivery to the Member under this Agreement. 2.13 "Manager" means the entity selected by Public Gas Partners to manage the day-to-day and ongoing operations of Public Gas Partners, which 12 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) initially shall be the Municipal Gas Authority of Georgia, and any and all successors thereto. 2.14 "Mcf'means 1,000 cubic feet of gas. 2.15 "Members" means the Member and the Other Members. All of the Members participating in Gas Supply Pool No.1 are listed in Exhibit A. 2.16 "MMBtu" means 1,000,000 Btus. One MMBtu also equals one dekatherm. 2.17 "Nominated Quantity" means the quantity in MMBtu per day that the Member has requested Public Gas Partners to acquire and sell to the Member under the terms and conditions of this Agreement each day. The Member shall establish a Nominated Quantity for the Summer Season and a Nominated Quantity for the Winter Season. The average of the Nominated Quantity for the Summer Season and the Nominated Quantity for the Winter Season shall be referred to in this Agreement as the "Annual Nominated Quantity". Each of the Other Members shall likewise have its own Nominated Quantity set for the Summer Season and the Winter Season, respectively, averaged as its Annual Nominated Quantity. The sum of all such quantities shall be referred to in this Agreement as the "Nominated Quantities for the Winter Season", the "Nominated Quantities for the Summer Season", and the "Annual Nominated Quantities", as applicable. The Nominated Quantities of all Members are set forth in Exhibit A. 13 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) 2.18 "Operating Committee" means the Operating Committee for Gas Supply Pool No. 1 as described in Article 4. 2.19 "Other Members" means other joint action agencies and large public gas and power systems that have joined Public Gas Partners as members, that are participants in Gas Supply Pool No.1, and that have executed agreements substantially identical to this Agreement with Public Gas Partners covering participation in Gas Supply Pool No. 1. The Other Members participating in Gas Supply Pool No.1 are listed in Exhibit A. 2.20 "Participating Utility" means those local government units that own and operate municipal gas and/or electric utility systems that have entered into contracts for the purchase of gas or electricity at wholesale from the Member. 2.21 "Participation Share" means the Member's percentage share of Gas Supply Pool No.1, including its benefits and burdens. Participation Share is an annual percentage which shall equal to the Member's Annual Nominated Quantity as a percentage of the total Annual Nominated Quantities of all Members participating in Gas Supply Pool No. 1. The Participation Share of the Member and the Participation Shares of all Other Members are shown in Exhibit A. 2.22 "Point of Delivery" means the tailgate of the Sabine Pipe Line Company's Henry Hub near Henry, Louisiana, or such other successor point or points as may be established by mutual agreement of the Parties. 14 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) 2.23 "Prepayment" means the lump sum advance payment that the Member shall be obligated to make to Public Gas Partners as provided in Section 21.2, in an amount and on a date certain to be set by Public Gas Partners, as determined by the Operating Committee, following due notice as described in this Agreement, for the delivery of the Member's Participation Share of all or a portion of available gas produced or otherwise acquired by Public Gas Partners in Gas Supply Pool No. 1. 2.24 "Production Sharing Agreements" means this Agreement and all of the Natural Gas Production Sharing Agreements, dated the date hereof, between Public Gas Partners and the Members, all of which are uniform in all material respects in terms, conditions, and provisions, with the exception of the Nominated Quantity, Participation Share, and Point of Delivery for each of the Members. 2.25 "Project" means any undertaking of Public Gas Partners designated as a "Project" by its Board of Directors. 2.26 "Seasonal Nominations" means the Member's Nominated Quantities for the Summer Season and the Winter Season, respectively. The Member's Seasonal Nominations shall initially be equal to the Member's Nominated Quantity during each month of the Summer Season and the Winter Season, as applicable, as a percentage of the total Nominated Quantities during such Summer Season and Winter Season of all Members participating in Gas Supply Pool No. 1. The Seasonal Nominations of the Member at the initiation of Gas Supply Pool No.1 and the Seasonal Nominations of all Other Members are shown in Exhibit A. 15 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) 2.27 "Services Contract" means the Natural Gas Services Contract between Public Gas Partners and the Manager, a copy of which is set forth in Exhibit E. 2.28 "Summer Season" means the six months of April through September. 2.29 "Summer Share" means the Member's Nominated Quantity for the Summer Season as a percentage of the total Nominated Quantities for the Summer Season of all Members. 2.30 "Winter Season" the six months of October through March. 2.31 "Winter Share" means the Member's Nominated Quantity for the Winter Season as a percentage of the total Nominated Quantities for the Winter Season of all Members. ARTICLE 3 REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of the Member. The Member hereby makes the following representations and warranties to Public Gas Partners: (1) The Member is a , duly organized and validly existing under the laws of the State/Commonwealth of and in good standing under the laws of the State/Commonwealth of , and has the power and authority to own its properties, to carry on its business as now being conducted, and to execute, deliver, and perform this Agreement. 16 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) (2) The execution, delivery, and performance by the Member of this Agreement have been duly authorized by all necessary corporate action of the Member and do not and will not require, subsequent to the execution of this Agreement by the Member, any consent or approval of the goveming body or any officers of the Member, any consent or approval of any third party, or any other governmental consents or approvals, except for such continuing actions by the governing body of the Member as may be required under the provisions of the Articles and Bylaws and except for such ongoing approvals and actions by the Member as are contemplated by this Agreement. (3) This Agreement is the legal, valid, and binding obligation of the Member, enforceable in accordance with its terms, except as such enforceability may be subject to (i) the exercise of judicial discretion in accordance with general principles of equity, (ii) bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditors' rights, and (iii) the valid exercise of the sovereign police powers of the State/Commonwealth of and the constitutional powers of the United States of America. (4) There is no action, suit, proceeding, inquiry, or investigation at law or in equity, before or by a court, a public board, or another body, pending (i.e., as to which the Member has received service of process) or, to the Member's knowledge, threatened, against or affecting the Member (or, to the Member's knowledge, any meritorious basis therefor) (i) attempting to limit, enjoin, or 17 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) otherwise restrict or prevent the Member from functioning, or contesting or questioning the existence of the Member, or the titles of the present officers of the Member to their offices; or (ii) wherein an unfavorable decision, ruling, or finding would (a) materially adversely affect the validity or enforceability of this Agreement or any other agreement or instrument to which the Member is a party and which is used or contemplated for use in the consummation of the transactions contemplated by this Agreement, or (b) materially adversely affect (1) the financial condition or results of operations of the Member or (2) the transactions contemplated by this Agreement. (5) The execution and delivery by the Member of this Agreement and the Member's compliance with its provisions will not conflict with or constitute on the Member's part a violation of, breach of, or default under (i) any of the Member's governing instruments, (ii) any Constitutional provision or statute, indenture, mortgage, lease, resolution, note agreement, or other agreement or instrument to which the Member is a party or by which the Member is bound, or (iii) any order, rule or regulation of any court or govemmental agency or other body having jurisdiction over the Member or any of its properties. (6) Any certificate signed by an authorized officer of the Member delivered to Public Gas Partners shall be deemed a representation and warranty by the Member to Public Gas Partners as to the statements made therein. 18 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) (7) The Member has provided an unqualified opinion of counsel in substantially the form set forth in Exhibit F. (8) [This representation would be included in the agreements between PGP and its joint action agency Members. It would not be applicable to the Agreements between PGP and distribution system members (such as The Southeast Alabama Gas District).] [In addition, the following language is to be included in the Production Sharing Agreement between PGP and FMP A. It is intended by FMP A to be substitute text for this Section 3.1 (h): The Member is entering into this Agreement on behalf of and for the benefit of its All-Requirements Power Supply Project. To the extent not paid from the Prepayment, all Costs and Individual Costs payable by the Member under this Agreement constitute Operation and Maintenance Expenses under the AlI- Requirements Power Supply Project Revenue Bond Resolution and may properly be included in rates to be charged to Project Participants in the All-Requirements Power Supply Project. The contracts between the Member and Project Participants in the All-Requirements Power Supply Project contain a covenant requiring the Project Participant to charge rates sufficient to pay all amounts due under such contract.] The Member has executed a contract with each of its Participating Utilities which (i) provides for the sale or utilization of the Gas attributable to the Member's Participation Share in Gas Supply Pool No.1, (ii) contains purchase and payment obligations of such Participating Utility that enable the Member to pay 19 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) timely all of its obligations to Public Gas Partners under this Agreement, including but not limited to a provision that the amounts billed by the Member to the Participating Utility shall be treated as operating and maintenance expenses of or a lien on the revenues of the Participating Utility's gas or electric distribution system, and (iii) includes provisions under which the Participating Utility covenants to charge and collect rates and fees sufficient at all times and in all respects to enable such Participating Utility to meet its obligations to the Member under such contract and all other amounts payable out of such revenues. 3.2 Representations and Warranties of Public Gas Partners. Public Gas Partners hereby makes the following representations and warranties to the Member: (a) Public Gas Partners (i) is a nonprofit corporation duly created and validly existing and in good standing under the laws of the State of Georgia, (ii) expects to be considered an instrumentality of the Members under the Internal Revenue Code, (iii) expects to be tax-exempt under Section 115 of the Internal Revenue Code, (iv) will act consistently with such status, and (v) has the corporate power and authority to enter into and perform this Agreement. (b) The execution, delivery, and performance by Public Gas Partners of this Agreement have been duly authorized by its Board of Directors and do not and will not require, subsequent to the execution of this Agreement by Public Gas Partners, any consent or approval of the Board of Directors or any officers of 20 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Public Gas Partners, any consent or approval of any third party, or any other governmental consents or approvals. (c) This Agreement is the legal, valid, and binding obligation of Public Gas Partners, enforceable in accordance with its terms, except as such enforceability may be subject to (i) the exercise of judicial discretion in accordance with general principles of equity and (ii) bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditors' rights. (d) There is no action, suit, proceeding, inquiry, or investigation at law or in equity, before or by a court, a public board, or another body, pending (i.e., as to which Public Gas Partners has received service of process) or, to Public Gas Partners' knowledge, threatened against or affecting Public Gas Partners (or to Public Gas Partners' knowledge, any meritorious basis therefor) (i) attempting to limit, enjoin, or otherwise restrict or prevent Public Gas Partners from functioning, or contesting or questioning its existence or the titles of its present officers to their offices, or (ii) wherein an unfavorable decision, ruling, or finding would (a) materially adversely affect the existence or powers of this Agreement or any other agreement or instrument to which Public Gas Partners is a party and which is used or contemplated for use in the consummation of the transactions contemplated by this Agreement or (b) materially adversely affect (1) the financial condition or results of operations of Public Gas Partners or (2) the transactions contemplated by this Agreement. 21 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) (e) The execution and delivery by Public Gas Partners of this Agreement and Public Gas Partners' compliance with its provisions will not conflict with or constitute on Public Gas Partners' part a violation of, breach of, or default under (i) any of the governing instruments of Public Gas Partners, (ii) any constitutional provision, statute, indenture, mortgage, lease, resolution, note agreement, or other agreement or instrument to which Public Gas Partners is a party or by which Public Gas Partners is bound, or (iii) any order, rule, or regulation of any court or govemmental agency or body having jurisdiction over Public Gas Partners or any of its properties. (f) Any certificate signed by an authorized officer of Public Gas Partners delivered to the Member shall be deemed a representation and warranty by Public Gas Partners to the Member as to the statements therein. ARTICLE 4 GOVERNANCE AND OPERATIONAL STRUCTURE 4.1 Governing- Bodv of Public Gas Partners. Public Gas Partners shall be governed by a Board of Directors, as prescribed by its Articles of Incorporation and Bylaws. 4.2 Committees. The operations of Gas Supply Pool No.1 shall be governed by the Operating Committee in accordance with the Articles of Incorporation and Bylaws and as further described in Section 4.4. In addition, the Board of Directors pursuant to the Bylaws may establish other committees of the 22 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Board whose responsibility shall be focused on particular substantive areas within the Board's areas of responsibility. 4.3 Management of Public Gas Partners' Operations and Affairs. Public Gas Partners shall be operated and managed by the Manager under the terms of the Services Contract. If the Services Contract with the Manager is not extended or is otherwise replaced, Public Gas Partners shall establish or enter into replacement management arrangements to continue the management and operation of Gas Supply Pool No.1 and Public Gas Partners' operations and affairs generally, in accordance with agreements or other actions entered into or taken by the Board of Directors. In the event that tax-exempt obligations have been issued by Public Gas Partners or any Member with respect to Gas Supply Pool No.1 or any Prepayment, any replacement management arrangement shall be entered into with another governmental unit or shall be a "qualified management contract" under applicable Internal Revenue Service guidelines. 23 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) 4.4 Operating- Committee For Gas Supply Pool No. 1. (a) Authority. The Board of Directors shall permanently delegate to the Operating Committee the authority to make all decisions conceming the management and operation of Gas Supply Pool No.1, except for the following, the authority for which, in addition to the specific reserved authority set forth in Sections 5.l(b) and 5.l(c) of the Bylaws, shall be reserved to the Board of Directors: decisions with respect to litigation; decisions to issue bonds or other means of financing; decisions to initiate or intervene in proceedings before the FERC or other state or federal regulatory bodies or courts; and decisions affecting more than one Project as delineated in the Bylaws. (b) Structure. The Operating Committee shall consist of at least one and not more than two representatives of the Member and of each of the Other Members. If the Member or any of the Other Members appoints two representatives to the Operating Committee, only one such representative (i) shall be counted for purposes of determining whether a quorum of the Operating Committee is present and (ii) shall be entitled to vote on matters before the Operating Committee. Such representatives shall be named and designated by the Member and each of the Other Members, respectively, and shall be appointed by the Board of Directors as provided in the Bylaws. In this way, the Member and each of the Other Members, through a committee of the Board of Directors, shall govern Gas Supply Pool No. 1. 24 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) (c) Quorum and Voting. Two-thirds of the members of the Operating Committee shall constitute a quorum for the transaction of business. A vote of a majority of the Operating Committee members present shall be necessary for action in all matters before the Operating Committee, except as follows: any Operating Committee member may call for weighted voting in accordance with the terms of Section 6.7(b) of the Bylaws or any successor provision thereto, or, in the event that the Bylaws are hereafter amended to eliminate weighted voting, any Operating Committee member may call for weighted voting under the procedure for weighted voting set forth in the Bylaws and the effective date of this Agreement following a decision to undertake a particular transaction as a component of Gas Supply Pool No.1, and a unanimous vote of all Operating Committee members is necessary to add a new Member of Public Gas Partners to Gas Supply Pool No. 1. ARTICLE 5 CHARACTER OF OBLIGATIONS 5.1 Sale and Deliverv of Gas or Cash. Public Gas Partners shall each day during the term of this Agreement sell and deliver and the Member shall purchase and receive its Summer Share or Winter Share, as applicable, of the Gas produced or otherwise delivered from Public Gas Partners' interests in Gas Supply Pool No. 1 for the Summer Season or the Winter Season, as applicable. The Parties acknowledge and agree that Public Gas Partners may receive cash from the sale of Gas produced from its interests in Gas Supply Pool No.1 from time to time, and 25 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) that as a result the Member may receive its applicable Summer Share or Winter Share of such cash received by Public Gas Partners in lieu of physical supply. Public Gas Partners will deliver physical Gas to the Member as all or part of the Member's Participation Share of Gas produced or otherwise delivered from Public Gas Partners' interests comprising Gas Supply Pool No.1 if such Gas or arrangements with respect thereto are available, and cash if such physical Gas or arrangements are not available. 5.2 Payment of Costs. The Member shall be billed by and shall pay to Public Gas Partners its Participation Share of all Costs not billed as Individual Costs, plus 100% of all Individual Costs allocated to it and not paid as part of its Participation Share of Costs, without regard to the quantity of Gas produced or delivered from Gas Supply Pool No.1 or any limitation set forth in Article 6 on the Member's obligation to take physical Gas, and whether or not any Gas is produced or otherwise delivered from Gas Supply Pool No.1 during any month or period of months during the term of this Agreement. The Member's bills will be adjusted during each month of the Summer Season and Winter Season, as applicable, such that the Member pays its proportionate share corresponding with the Member's Seasonal Nominations. Public Gas Partners shall develop an average cost per MMBtu of Gas delivered for purposes of passing through Costs to all Members participating in Gas Supply Pool No.1, with such average cost trued-up to actuals 26 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) at such times as may be determined by the Operating Committee but not less frequently than annually. 5.3 Sharing of Costs. The Member's initial proportionate entitlement to Gas and proportionate share of Costs for purposes of Article 5 and for all other purposes under this Agreement is determined by its Participation Share. The Parties acknowledge and agree that the Member's Participation Share may change based on other provisions of this Agreement, including without limitation the addition of one or more new Members to Gas Supply Pool No.1 pursuant to Section 4.4(c) and the Bylaws or a reduction in Nomination Quantities by the Member or by Other Members to the level of quantities already acquired by Public Gas Partners at any point in time pursuant to Article 22. 5.4 True-Ups. The Participation Share is an annual percentage, reflecting the intent of this Agreement that the Member shall share in the benefits and burdens of Gas Supply Pool No.1 on the basis of its relative Annual Nominated Quantity as a percentage of the total Annual Nominated Quantities of all of the Members, notwithstanding the delivery of Gas in accordance with Seasonal Nominations and the billing of Costs based on an average cost per MMBtu determined through the annual budget process, all as provided in this Agreement. Accordingly, it is the intent of the Parties that the annual true-up to actuals described in Section 5.2 shall be made pursuant to policies and standards established by the Operating Committee (which shall also review and approve the 27 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) annual true-up amounts to be paid to or by the Members) to ensure that the Member and each of the Other Members receives its fair share of the value of Gas Supply Pool No.1 and pays its fair share of the Costs of Gas Supply Pool No.1 as defined by its Participation Share. 5.5 Gas Supplies Held by Public Gas Partners. Public Gas Partners shall own and hold the entirety of the Gas supplies in Gas Supply Pool No.1 subject to its obligation to deliver to the Member its Summer Share and Winter Share, as applicable, of the Gas produced from or otherwise obtained as part of Gas Supply Pool No.1, including but not limited to Gas produced or otherwise obtained after retirement of the short-term bonds to be issued or other method of interim financing to be obtained by Public Gas Partners for the acquisition of all or any component of Gas Supply Pool No.1 and after the retirement of any bonds or other obligations issued by the Member to finance the Prepayment for Gas supplies purchased by the Member from Public Gas Partners for delivery from Gas Supply Pool No. 1. Without limiting the generality of the foregoing, in the event Public Gas Partners sells all or any portion of its ownership interests in the reserves or other components of Gas Supply Pool No.1 during the term of this Agreement and determines that all or a portion of the proceeds of such sale shall not (i) be used to buy replacement properties or other supplies, (ii) be reinvested in production, or (iii) be held in cash reserves, the Member shall realize its Participation Share of any such proceeds not so used in the net benefit (or costs) of such sale. 28 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) ARTICLE 6 QUANTITIES Public Gas Partners shall sell to the Member and the Member shall purchase from Public Gas Partners the Member's Summer Share or Winter Share of the production or other Gas supplies obtained by and available from Public Gas Partners in Gas Supply Pool No.1 each day during the term of this Agreement, up to 100% of the Nominated Quantity. The Parties acknowledge and agree that the Seasonal Nominations embodied in this Agreement are intended to bring together the Members' seasonally complementary loads and that Public Gas Partners may determine to meet the Annual Nominated Quantities of the Members through the acquisition of Gas supplies designed to meet the peak season Nominated Quantities, or through the acquisition of Gas Supplies designed to meet the Members' annual average day quantities, or through some other means, as recommended by the Operating Committee. For example, if Public Gas Partners determines to meet the Annual Nominated Quantities of the Members through the acquisition oflong-term Gas supplies in accordance with the annual average day nominations of the Members, Public Gas Partners in its discretion may meet the Members' aggregate Seasonal Nominations by selling a portion of its supplies into the market during the valley season and purchasing a portion of its supplies from the market during the peak season so as to effect a seasonal exchange of quantities. Public Gas Partners may sell production or other Gas supplies obtained or controlled by Public Gas 29 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Partners in Gas Supply Pool No.1 in excess of 100% of total Nominated Quantities to Members under separate agreements or to third parties. The agreement of the Member contained in this Article 6 to take its applicable share of Gas supplies up to 100% of the Nominated Quantity shall not limit its obligation to pay its Participation Share of all Costs not billed as Individual Costs plus all Individual Costs billed to it, as provided in Section 5.2. ARTICLE 7 POINTS OF DELIVERY The gas purchased and sold under this Agreement shall be delivered by Public Gas Partners to the Member at the Point of Delivery, or at such other points as Public Gas Partners and the Member shall mutually agree upon from time to time, as specifically described in Exhibit C. ARTICLE 8 TITLE Title to the gas delivered under this Agreement shall pass from Public Gas Partners to and vest in the Member at the Point of Delivery. As between the Parties, Public Gas Partners shall be deemed to be in exclusive control and possession of gas to be delivered under this Agreement prior to the time of its delivery to the Member, and the Member shall be deemed to be in exclusive control and possession of gas delivered under this Agreement thereafter. ARTICLE 9 30 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) MEASUREMENT AND SPECIFICATIONS 9.1 Measurement. Gas sold under this Agreement shall be measured through existing measurement facilities at the Point of Delivery. The unit of volume for measurement of gas delivered under this Agreement shall be one cubic foot of gas at a base temperature of sixty degrees Fahrenheit (600 F) at an absolute pressure of 14.73 pounds per square inch. The sales unit of the gas shall be one MMBtu. The conversion from Mcf to MMBtu shall be performed according to the Btu content of the gas as determined by the operator of the measurement equipment at the Point of Delivery on a dry basis. 9.2 Quality Specifications. All gas delivered under this Agreement shall be merchantable and shall conform to the minimum quality specifications and heating value specified in the FERC Gas Tariffs of the interstate pipelines interconnecting at the Point of Delivery. ARTICLE 10 HEDGING The Parties acknowledge and agree that they may enter into alternate price agreements (commodity swaps, options, etc.) with third party counterparties to hedge commodity price risks related to purchase, sale, production or storage from Gas Supply Pool No.1, or may enter into financial derivatives transactions to hedge interest rate risks associated with the financing thereof, and that such alternate price agreements and financial derivatives transactions may be undertaken by 31 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Public Gas Partners in its own name, by Public Gas Partners for the Member and Other Members participating in Gas Supply Pool No. 1 at their request, or in a combination thereof. Any such alternate price agreements shall be used only for purposes of price risk management and any such financial derivatives transactions shall be used only for purposes of managing debt service on outstanding borrowings and debt of Public Gas Partners. Any such agreements and transactions undertaken by Public Gas Partners in its own name or for the Member or Other Members at their request may be allocated and billed as Individual Costs as determined by the Operating Committee at the time such agreements and transactions are entered into, and may only be undertaken in accordance with hedging and risk management policies established by the Operating Committee. The initial hedging and risk management policy shall be substantially in the form set forth in Exhibit H. The Operating Committee shall have the right to amend the policy from time to time. ARTICLE 11 ANNUAL BUDGET PROCESS AND PRICING OF DELIVERIES 11.1 Annual Budget Process For Pool-Specific Costs. Public Gas Partners shall prepare a budget annually for all Costs of Public Gas Partners that it identifies as being directly related to Gas Supply Pool No. 1. Such budget shall be reviewed and considered by the Operating Committee, and following approval of the Operating Committee shall be presented by the Operating Committee to the Board 32 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) of Directors by no later than 60 days before the beginning of each fiscal year of Public Gas Partners. 11.2 Annual Budget Process For Non-Pool-Svecific Costs. Public Gas Partners may establish one or more additional Projects during the term of this Agreement. Public Gas Partners will incur costs and expenses that may appropriately be directly assigned to such additional gas supply pool or pools or other Projects and not to Gas Supply Pool No.1, or that, while not directly assignable, appropriately should be allocated among gas supply pools or other Projects, including Gas Supply Pool No. 1. Before the beginning of each fiscal year, Public Gas Partners shall prepare and approve a budget for Gas Supply Pool No.1 that includes all Costs that are not directly assigned to Gas Supply Pool No.1 but are allocated to Gas Supply Pool No. 1. 11.3 Bude-et Amendments. The annual budgets described in Sections 11.1 and 11.2 may be amended from time to time during the fiscal year by requisite action of the Board of Directors. 11.4 Allocation of Pool-Specific Costs to the Member. The Member shall bear its Participation Share of the Costs assigned and allocated to Gas Supply Pool No.1 as described in Section 11.1 and billed in accordance with Section 5.2. 11.5 Allocation of General Costs to the Member. The Member shall bear its Participation Share of all general Costs of Public Gas Partners that are not directly assigned to Gas Supply Pool No.1 but rather are allocated to Gas Supply Pool No.1 33 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) and to one or more other gas supply pools or other Projects as described in Section 11.2 and billed in accordance with Section 5.2. 11.6 Allocation of Individual Costs. The Member shall pay all Individual Costs allocated to it by the Operating Committee and shall pay its proportionate share of all Individual Costs allocated by the Operating Committee to it and one or more of the Other Members but not all of the Members, as such Individual Costs are billed in accordance with Section 5.2. 11. 7 Categories of Costs. The annual budget will include Costs in the following categories: acquisition costs; developmental costs; operating costs; outside services costs; administrative fees; and other costs. A breakdown of the types of costs and expenses included in each of those categories is set forth in Exhibit D. The compilation of the budgeted Costs in each of those categories will result in the calculation of an average cost of gas per MMBtu. Public Gas Partners will develop an average cost per MMBtu for the purpose of billing the Member for its Participation Share of Costs (other than Individual Costs) in a manner consistent with the Member's Seasonal Nominations as provided in Section 5.2. Individual Costs shall be billed separately in a manner established by the Operating Committee. The average cost per MMBtu may include amounts designed to fund or maintain cash reserves determined necessary and reasonable by the Operating Committee. Public Gas Partners shall perform a true-up of actual Costs incurred as compared to amounts billed to all Members within 120 days of the end of each fiscal 34 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) year, in a manner consistent with Section 5.4. Any amount due from the Member as a result of the true-up shall be due and payable within 60 days from receipt of invoice from Public Gas Partners. Any amount owed to the Member as a result of the true-up shall be credited on the next invoice from Public Gas Partners. ARTICLE 12 COMPONENTS OF MONTHLY BILLINGS 12.1 Acquisition Costs of Supply. During the period when interim financing obtained by Public Gas Partners is in effect, the monthly bill from Public Gas Partners to the Member shall include an amount representing the Member's Participation Share of all Costs associated with such interim financing. Mter the Member has made its Prepayment to Public Gas Partners in accordance with the notice provided by Public Gas Partners as described in Section 21.2, the monthly bill from Public Gas Partners to the Member shall no longer contain an element for Public Gas Partners' interim financing costs, except for any residual expenses or other interim financing costs that may remain payable. 12.2 Ongoing Capital Development Requirements. The Parties acknowledge and agree that the acquisition of interests in gas reserves by Public Gas Partners will carry with it ongoing requirements for capital development expenditures that will be incurred from time to time. The Member shall be responsible for paying its Participation Share of all such capital expenditures, which constitute Costs as defined in this Agreement. The Parties contemplate that 35 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) the permanent debt structuring put in place by the Member when it makes its Prepayment to Public Gas Partners as provided in Section 21.2 may include an amount for up to three years of estimated capital expenditures as projected by Public Gas Partners. In addition and otherwise, Public Gas Partners shall build capital reserves in amounts recommended by the Operating Committee and included in each annual budget for Gas Supply Pool No.1 approved by the Board of Directors in accordance with the Bylaws, which shall be funded through Public Gas Partners' monthly billings to the Member and the Other Members. In addition, the Parties acknowledge that Public Gas Partners may retain cash from the sale of gas owned by Public Gas Partners in accordance with policies approved by the Operating Committee or the Board of Directors, as applicable. Furthermore, the Parties contemplate that Public Gas Partners may realize proceeds from the sale of liquids extracted from gas volumes owned by Public Gas Partners. Such amounts may be retained by Public Gas Partners to meet ongoing capital requirements. 12.3 Gas Supply Pool No.1 Operating Costs. Costs incurred by Public Gas Partners in operating and maintaining Gas Supply Pool No.1 shall be estimated annually by the Operating Committee and included in the annual budget approved by the Board of Directors in accordance with the procedures set forth in Article 11 and the Bylaws. Such projected annual operating and maintenance Costs shall be billed in monthly increments as part of the monthly billings by Public Gas Partners 36 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) to the Member consistent with the Member's Seasonal Nominations as provided in Section 5.2. 12.4 Costs of Outside Services. The Parties acknowledge and agree that Public Gas Partners may incur ongoing and occasional expenses for professional and other outside services of reservoir engineers, other engineers, accountants, auditors, attorneys, consultants and others. Such Costs shall be billed to the Member in accordance with its Participation Share as provided in Section 5.2 as a component of the monthly billing to the Member. 12.5 Manager Fees. The Parties agree that the Manager shall perform the primary business functions of Public Gas Partners under the Services Contract for an initial term of five years beginning on the effective date of this Agreement for a monthly fee as defined in the Services Contract; provided, however, that the Manager shall not begin to charge a monthly fee until such time as Public Gas Partners has completed the first supply transaction in Gas Supply Pool No. 1. For so long as the Services Contract is in effect, Public Gas Partners shall include in its monthly billing to the Member an amount representing the Member's share of such fees, as follows: (i) the fixed component of the Manager's monthly fee shall be billed to the Member in accordance with its Participation Share; and (ii) the variable component of the Manager's monthly fee shall be billed to the Member in accordance with each MMBtu of gas delivered by Public Gas Partners to the Member for such month. Following the termination of the Services Contract 37 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) (including any extension of the initial term thereof), any administrative and management fees paid to a Manager, or any administrative and management Costs incurred by Public Gas Partners if there is no longer a Manager, shall be included in the annual budget process described in Sections 11.1 and 11.2 and the Bylaws. 12.6 Contingency Reserves. Public Gas Partners shall include target amounts to be deposited into a contingency reserve account held by Public Gas Partners in the annual budget approved by the Board of Directors. Such target amounts shall be billed monthly to the Member in accordance with the ,Member's Participation Share and consistent with Section 5.2. Upon the recommendation of the Operating Committee, the amount of such contingency reserve may be amended by the Board of Directors, which may direct that any additional reserve amounts shall be collected through billings to the Member and Other Members over a period of time of not less than three months. ARTICLE 13 BILLING AND PAYMENT 13.1 Timine:. On or before the 15th day of each calendar month, Public Gas Partners shall bill the Member for gas delivered and services rendered during the preceding calendar month in accordance with Section 5.2. On or before the 25th day of each calendar month or within 10 days after the date of the billing statement, whichever is later, the Member shall make payment of the amount due for gas delivered, services rendered, reimbursement for Costs, and fees owed under this 38 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Agreement and attributable to service during the preceding calendar month in accordance with Section 5.2. Payment shall be made by wire transfer to Public Gas Partners' account number as set forth in Article 24. 13.2 Late Payment. If the Member fails to pay an amount when due, interest shall accrue from the date when due until paid at a rate equal to 200 basis points above the prime rate published in The Wall Street Journal, (on the date of this Agreement, under the heading "Money Rates" and the sub-heading "Commercial Paper", and described as: "The base rate on corporate loans posted by at least 75% of the nation's 30 largest banks"), or such successor publication as may be approved by the Operating Committee, but in no event at a rate greater than permitted by applicable law. 13.3 Disputed Amounts. If the Member disputes the appropriateness of any charge or calculation in any billing statement from Public Gas Partners, the Member shall notify Public Gas Partners within the time provided for payment of the existence of and basis for such dispute and shall pay all amounts billed by Public Gas Partners under this Agreement, including any amounts in dispute. In no event may the Member withhold or offset any payment owed to Public Gas Partners under this Agreement. If it is ultimately determined that the Member did not owe the disputed amount, whether by agreement or by a final order of a court of competent jurisdiction which is not subject to appeal, or because any right to appeal has been waived or the Parties have irrevocably agreed not to appeal, Public Gas 39 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Partners shall pay the Member that amount plus interest calculated in accordance with Section 13.2. Either Party may bring legal action concerning payment of any amounts due under this Agreement. 13.4 Audit Rights. Each Party shall have the right, at its own expense, to examine and audit at any reasonable time the books, records, measurement data, and charts of the other Party to the extent necessary to verify the accuracy of any statement or charges made under or pursuant to this Agreement. Any inaccuracy discovered shall be corrected by the next month's billing. Neither Party shall be required to maintain books, records, measurement data, or charts for a period of more than three years, except as otherwise required by law. Neither Party shall have a right to question or contest any charge or credit if the other Party is not notified in writing within two years of the date of the charge or credit in question. 13.5 Status of Payment Obligations. The obligation of the Member to make payments to Public Gas Partners under this Agreement is a several obligation and not a joint obligation with that of any of the Other Members. [One or the other of the following provisions in (i) or (ii) will be included in the Agreement based upon the status of the Member as a joint action agency or distribution system.] (9) The obligation of the Member to make such payments (other than any termination or unwind payments associated with an interest rate swap, commodity hedge, or like agreement) shall constitute an operating 40 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) expense of the Member's municipal utility system payable solely from the revenues and other available funds of such system as a cost of purchased natural gas. Termination or unwind payments associated with an interest rate swap, commodity hedge, or like agreement shall be payable after any bonds or other debt obligations of the Member having a first lien on the net revenues of the Member's system, or as required by the instruments securing such bonds or other debt obligations. The Member is authorized and empowered by applicable law to recover the amounts payable by it under this Agreement through rates and charges established by the Member and collected from its utility customers; or (ii) The Member has entered into project-based or requirements contracts with its Participating Utilities providing for the sale or utilization of the Gas supply from its Participation Share in Gas Supply Pool No.1 and for the collection by the Member from such Participating Utilities of revenues sufficient to enable the Member to pay timely all Costs and all Individual Costs payable by it to Public Gas Partners under this Agreement. The Member covenants and agrees that its obligation to make payments to Public Gas Partners under this Agreement (other than any termination or unwind payments associated with an interest rate swap, commodity hedge, or like agreement) shall be paid solely from such revenues as an operating expense of the Member as a cost of purchased natural gas. Termination or unwind 41 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) payments associated with an interest rate swap, commodity hedge, or like agreement shall be payable after any bonds or other debt obligations of the Member having a first lien on the net revenues of the Member's system, or as required by the instruments securing such bonds or other debt obligations. Such payments shall be made whether or not Gas Supply Pool No.1 or any portion thereof is acquired, completed, operable, or operating and notwithstanding the suspension, interruption, interference, reduction or curtailment of deliveries of Gas under this Agreement for any reason whatsoever, in whole or in part. The obligation of the Member to make such payments is absolute and unconditional, shall not be subject to any reduction, whether by offset, counterclaim, or otherwise, and shall not be conditioned upon the performance by Public Gas Partners under this Agreement or any other agreement or instrument. 13.6 Nature of Payment Obligation. The obligation of the Member to make payments under this Agreement shall not constitute a debt of the Member within the meaning of any constitutional or statutory provision or limitation or a general obligation of or pledge of the full faith and credit of the Member, and neither the Member nor the State/Commonwealth of or any agency or political subdivision thereof shall ever be obligated or compelled to levy ad valorem taxes to make the payments provided for under this Agreement, and the obligation of the Member to make payments pursuant to this Agreement shall not give rise to or 42 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) constitute a lien upon any tangible property of the Member or any tangible property located within its boundaries or service area. ARTICLE 14 FAILURE TO PERFORM AND DEFAULT 14.1 Default by Public Gas Partners and Remedies. Public Gas Partners shall be in default of its obligations under this Agreement (i) if it fails to make a payment as and when provided for in this Agreement, (ii) if it fails to deliver to the Member its Summer Share or Winter Share, as applicable, of Gas that is produced or otherwise delivered from Gas Supply Pool No.1, or (iii) ifit breaches any covenant, agreement or obligation on its part contained in this Agreement. Public Gas Partners is not obligated to deliver any specific quantity of Gas, but rather is obligated to deliver the Member's Summer Share or Winter Share, as applicable, of such Gas as is available at a given point in time. In the event Public Gas Partners defaults in its obligation to make a payment as and when provided for in this Agreement, Public Gas Partners shall have five business days after notice to cure such default. Public Gas Partners shall pay interest at the same rate as is described in Section 13.2 from the date when payment is due until payment is made. In the enforcement of its right of recovery, the Member may bring any suit, action, or proceeding at law or in equity, including mandamus and action for specific performance, as may be necessary or appropriate to enforce such payment obligation. In the event of any default by Public Gas Partners in its delivery 43 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) obligations to the Member or under any other covenant, agreement or obligation on its part contained in this Agreement, the Member's sole remedy for such default shall be limited to mandamus, injunction, action for specific performance, or any other available equitable remedy as may be necessary or appropriate to enforce such covenant, agreement or obligation. In no event may the Member withhold or offset any payment owed to Public Gas Partners under this Agreement. 14.2 Default by the Member. Each of the following shall constitute a default by the Member under this Agreement: (a) failure of the Member to make to Public Gas Partners any of the payments (other than a Prepayment under Section 21.2) for which provision is made in this Agreement within five business days after the due date of any such payment; or (b) failure by the Member to observe any of the covenants, agreements, or obligations on its part contained in this Agreement and failure to remedy the same for a period of 30 days after written notice specifying such failure and requiring it to be remedied shall have been given by Public Gas Partners; or (c) bankruptcy, reorganization, arrangement, insolvency, or liquidation proceedings, including without limitation proceedings under Title 11, Chapter 9, United States Code, or other proceedings for relief under any federal or state bankruptcy law or similar law for the relief of debtors, are instituted by or 44 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) against the Member and, if instituted against the Member, said proceedings are consented to or are not dismissed within 30 days after such institution. 14.3 Continuinl? Obligation of the Member. In the event of any default referred to in Section 14.2, the Member shall not be relieved of its liability for payment of any amounts in default or its failure to observe its covenants, agreements, and obligations under this Agreement, and Public Gas Partners shall have the right to recover from the Member any amount in default. In enforcement of any such right of recovery, Public Gas Partners may bring any suit, action, or proceeding at law or in equity, including without limitation mandamus and action for specific performance, as may be necessary or appropriate to enforce any covenant, agreement, or obligation of the Member under this Agreement or the obligation of the Member to make any payment for which provision is made in this Agreement. 14.4 Right of Public Gas Partners to Susoend Service. In addition to proceeding with its rights against the Member upon default pursuant to Section 14.3, Public Gas Partners in its sole discretion, upon not less than five business days' written notice to the Member, may suspend the Member's right to receive Gas and other consideration and services applicable to its Participation Share under this Agreement and temporarily cease and discontinue providing delivery of all or any portion of Gas otherwise deliverable to the Member under this Agreement for a period of time within Public Gas Partners' discretion, until full satisfaction by the 45 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Member of its obligations under this Agreement. In connection with its determination to discontinue providing delivery of all or any portion of the Gas supplies otherwise deliverable to the Member, Public Gas Partners shall take into account, among such other matters as Public Gas Partners in its sole discretion may deem relevant, the amounts and due dates of its payment obligations under its financial and contractual obligations with respect to Gas Supply Pool No.1 and the funds, revenues, and reserves available to Public Gas Partners to enable it to meet such obligations. Any such discontinuance and suspension of deliveries to the Member shall not terminate, reduce, modify, or relieve the Member's obligations and liabilities under this Agreement. Upon any such discontinuance and suspension of deliveries, Public Gas Partners in its sole discretion may take any and all actions it deems necessary pending the cure of such default or the termination of the Member's Participation Share as provided in Section 14.5 to address the impact of such default, including without limitation the short-term marketing of any Gas otherwise deliverable to the Member and the application of available reserves. 14.5 Termination and Transfer of the Member's Participation Share Followinl? Default. Public Gas Partners and the Member acknowledge that a default by the Member or by any of the Other Members under the Production Sharing Agreements could reduce the revenues available to Public Gas Partners which are necessary for Public Gas Partners to meet its financial and contractual obligations with respect to Gas Supply Pool No.1, either on a timely basis or at all, 46 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) that the ability of Public Gas Partners to deliver Gas, other benefits, and services to the Members from Gas Supply Pool No. 1 will be materially and adversely affected, and accordingly that the interests of all Members will be materially and adversely harmed. Accordingly, the Parties agree that Public Gas Partners shall have the right to terminate the Member's Participation Share at any time following the suspension of service to the Member under Section 14.4. The termination of the Member's Participation Share may occur only upon action by the Board of Directors, following a recommendation of such termination by the Operating Committee, at a duly called and noticed meeting of the Board of Directors at which the Member shall have the right to make a presentation to the Board of Directors before the Board of Directors votes on the question of such termination. In the event the Board of Directors determines to terminate the Member's Participation Share, the Member shall be given written notice of termination, to occur not sooner than five days following such notice. The provisions of this Section 14.5 and of Section 14.6 are intended by the Parties to provide a means to ensure the sufficiency of revenues to Public Gas Partners following a default by the Member or one or more of the Other Members under the Production Sharing Agreements by providing for the termination and reallocation of the defaulting Member's Participation Share upon a determination by Public Gas Partners to follow that course. Public Gas Partners shall attempt to mitigate the impact of any such reallocation on the non-defaulting Members. The Member agrees that the provisions of this Section 14.5 and of 47 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Section 14.6 are reasonable and necessary in order to achieve the benefits of its joint and cooperative undertaking with the Other Members set forth in the Production Sharing Agreements with respect to Gas Supply Pool No. 1. 14.6 Step-Up Requirements. In the event of a default by anyone or more of the Other Members under their Production Sharing Agreements, Public Gas Partners, in addition to the remedies and actions provided elsewhere in Article 14: (a) May require the Member and each of the non-defaulting Other Members to pay, in addition to the Costs and Individual Costs otherwise due under the Production Sharing Agreements, an additional amount equal to the defaulting Other Member's unpaid Costs multiplied by a fraction, the numerator of which is the Member's Participation Share and the denominator of which is the aggregate Participation Shares of the non-defaulting Other Members; provided, however, that such increase (i) shall not exceed 25% of Costs otherwise due from the Member under this Agreement in accordance with its Participation Share and (ii) shall not extend for a period of more than three months; and (b) Shall, in the event the remedies and actions provided in Article 14 do not generate revenues necessary for Public Gas Partners to meet its financial and contractual obligations with respect to Gas Supply Pool No.1 and in any event upon the termination of one or more of the Other Members' Participation Shares pursuant to Section 14.5, require the Member to increase its Participation Share on a pro rata basis by an amount necessary to absorb the Participation Share or Shares of 48 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) the defaulting Member or Members; provided, however, that the aggregate amount of any and all such Participation Share increases under this Section 14.6 that may be allocated to the Member during the term of this Agreement shall never exceed 25% of the Member's Participation Share as set forth in the original Exhibit A (as it existed on the effective date of this Agreement). Any such reallocation of the Participation Share of one or more defaulting Other Members to the Member and to non-defaulting Other Members by Public Gas Partners may take place only following the termination of a defaulting Other Member's Participation Share as provided in Section 14.5. Upon approval by Public Gas Partners of any such reallocation, Public Gas Partners within five days shall notify the Member of its revised Participation Share and the revised Participation Shares of the Other Members, in the form of notice set forth in Exhibit I. Nothing in this Section 14.6 or otherwise in this Agreement shall preclude the Member and any of the Other Members from proposing a reallocation of their revised Participation Shares following such notice. Public Gas Partners in its sole discretion may agree to any such proposed reallocation, in which event it shall notify all Members, in the form of notice set forth in Exhibit I, of their revised Participation Shares within five days of such approval. Public Gas Partners shall exercise all of its rights against all defaulting Other Members, and all such defaulting Other Members shall remain liable to Public Gas Partners and the Member and non-defaulting Other Members for Costs incurred and damages suffered 49 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) by them in connection with the actions taken with respect to the Participation Shares of such defaulting Other Members as provided for in this Section 14.6. 14.7 Termination of the Member's Participation Share Followinl? Prepayment. In the event that the Member has made a Prepayment under Section 21.2 at the time the Member's Participation Share is terminated pursuant to Section 14.5, Public Gas Partners, upon the expiration of the term of the Other Members' Production Sharing Agreements and as part of the winding up arrangements under such Production Sharing Agreements, shall repay to the Member the depreciated net book value of the Member's Participation Share at the date of the Member's default, as determined by the books and records of Public Gas Partners, less any unrecovered Costs of Public Gas Partners resulting from the Member's default, and net of any other Costs applicable to the Member's Participation Share, without interest (the "Defaulting Obligation"), from the amounts, if any, remaining after the payment of all of Public Gas Partners' other financial and contractual obligations with respect to Gas Supply Pool No.1 (the "Non-Defaulting Obligations"). The Member acknowledges and agrees that, with respect to the payment provided for in this Section 14.7: (i) satisfaction of the Non- Defaulting Obligations will continue on schedule, so that payment of the Defaulting Obligation may be many years in the future, (ii) the Member shall have no right to demand acceleration of the Defaulting Obligation, and (iii) the payment of the Non- 50 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Defaulting Obligations may exhaust the assets of Gas Supply Pool No.1, leaving nothing to satisfy the Defaulting Obligation. 14.8 Abandonment of Remedy. In the event any proceeding undertaken on account of any default shall have been discontinued or abandoned for any reason, the parties to such proceeding shall be restored to their former positions and rights under this Agreement, respectively, and all rights, remedies, powers, and duties of Public Gas Partners and the Member shall continue as though no such proceeding had been taken. 14.9 Waiver of Default. Any waiver at any time by either Public Gas Partners or the Member of its rights with respect to any default of the other Party, or with respect to any other matter arising in connection with this Agreement, shall not be a waiver with respect to any subsequent default, right, or matter. ARTICLE 15 FORCE MAJEURE 15.1 Suspension of Obligations. In the event either Party is rendered unable, wholly or in part, by Force Majeure as defined in Section 15.3 to carry out its obligations under this Agreement, other than the obligation of the Member to make payments due to Public Gas Partners under this Agreement, which is an unconditional obligation, it is agreed that the obligations of such Party, so far as they are affected by Force Majeure, shall be suspended during the continuation of such inability to carry out its obligations caused by Force Majeure, but for no longer 51 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) period. The Party affected by Force Majeure shall remedy the Force Majeure condition to the extent possible with all reasonable dispatch; provided, however, that neither Party shall be required against its will to settle or otherwise adjust any labor dispute. The Party claiming Force Majeure shall give notice to the other Party, together with a detailed description of the Force Majeure event which renders the Party unable to carry out its obligations, by telephone as soon as reasonably possible after the occurrence of the Force Majeure event, followed by a facsimile transmission as soon as reasonably possible thereafter. 15.2 Force Maieure in the Context of this Alrreement. This Agreement provides that the Member is responsible for its Participation Share of the Costs and is entitled to receive its Participation Share of the benefits associated with the production and delivery of Gas acquired by Public Gas Partners under Gas Supply Pool No. 1. Accordingly, Public Gas Partners' obligation to deliver Gas to the Member under this Agreement is limited by the extent to which Gas is available or benefits are otherwise received by Public Gas Partners from its interests or rights under Gas Supply Pool No.1, and the Member agrees that any reduction in such quantities below any projected or expected level that might otherwise be interpreted as a violation of Public Gas Partners' obligations under this Agreement shall be deemed an event of Force Majeure under this Agreement, unless such reduction is the result of willful misconduct or gross negligence on the part of Public Gas Partners. 52 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) 15.3 Force Majeure Defined. The term "Force Majeure" means acts of God; strikes, lockouts, or other industrial disturbances; acts of the public enemy; wars, blockades, insurrections, or riots; epidemics; landslides, lightning, earthquakes, storms, floods, hurricanes, tornadoes, or washouts; civil disturbances or arrests or restraints of governments and peoples; regulatory actions; explosions, breakage, or accidents to necessary machinery or lines of pipe; the unanticipated necessity for maintenance of or making repairs or alterations to necessary machinery or lines of pipe; freezing of wells or lines of pipe associated with the production, gathering, or delivery of Gas under Gas Supply Pool No.1; partial or entire failure of wells under Gas Supply Pool No.1; curtailment or interruption of firm transportation necessary to the delivery of Gas; and any other causes, whether of the kind herein enumerated or otherwise, not within the reasonable control of the Party claiming Force Majeure and which by the exercise of due diligence such Party is or would have been unable to prevent or overcome. ARTICLE 16 EXCLUSIVITY AND AUTHORIZATION FOR ACQUISITIONS Public Gas Partners is authorized to pursue acquisitions under Gas Supply Pool No.1 up to the Annual Nominated Quantity for the Member for a period of 36 months from the effective date of this Agreement; provided, however, that the Member may reduce its Annual Nominated Quantity to the level already acquired by Public Gas Partners under Gas Supply Pool No.1, as described in Article 22, on 53 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) not less than 120 days' written notice. No other reduction in the Annual Nominated Quantity by the Member shall be permitted for any reason whatsoever. The Member agrees that it shall pursue acquisitions of working or royalty interests in Gas reserves exclusively through Public Gas Partners for a period of 36 months from the effective date of this Agreement; provided, however, that the Member is free to pursue the acquisition of working or royalty interest transactions on its own so long as it offers any such transaction to the Operating Committee. The Member shall present any such transaction to the Operating Committee at the same time it presents such transaction to its governing body. The Operating Committee shall be given the same period of time to review any such transaction and reach a determination as to whether or not to approve the transaction as part of Gas Supply Pool No.1 as it shall have, in the ordinary course of its operations, to review potential transactions presented to it by the Manager. If the circumstances require the consummation of the transaction before requisite approval by the Operating Committee can be achieved, the Member may complete the transaction and then offer it to the Operating Committee. In any event, if the Operating Committee declines to pursue the transaction offered to it by the Member, the Member may pursue the transaction on its own or in conjunction with any other entities, including Other Members. Furthermore, if the Operating Committee declines to pursue, or terminates pursuit of, any transaction developed by the Manager, or one brought to it by any of the Other Members, the Member is free to pursue the 54 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) transaction on its own behalf or in conjunction with any other entity, including one or more Other Members. ARTICLE 17 SUCCESSION AND ASSIGNMENT 17.1 Succession. The terms and provisions of this Agreement shall extend to and be binding upon the respective heirs, successors, assigns, legal representatives, or transferees of the Parties consistent with the provisions of Section 17.2. 17.2 Assilrllment. Except as provided in this Section 17.2, neither Party may assign its rights and interests under this Agreement except to another Governmental Entity (as defined in the Bylaws), and then only with the prior written consent of the other Party. If the Member seeks to assign its rights and interests under this Agreement to another Governmental Entity (as defined in the Bylaws) that is one of the Other Members, then such prior written consent of Public Gas Partners shall not be unreasonably withheld. Any assignment or other transfer of a Party's interests in this Agreement must include the express assumption, in writing, by the assignee or transferee of the duties and obligations of the assigning or transferring Party under this Agreement. Notwithstanding the foregoing, it is expressly recognized and agreed by the Parties that Public Gas Partners may assign its rights and interests in this Agreement or the revenues to be derived under this Agreement for the purpose of securing any issue of debt or securing any 55 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) alternate price arrangement undertaken in connection with the acquisition or management of components of Gas Supply Pool No.1, and that the Member may assign its rights and interests in this Agreement or the revenues to be derived under this Agreement for the purpose of securing any issue of bonds or other obligations or any such alternate price arrangement undertaken in connection with its Prepayment to Public Gas Partners for Gas supplies to be purchased under this Agreement, or for the management of such supplies. 17.3 Third Party Beneficiaries. It is specifically agreed that there are no third party beneficiaries to this Agreement, and that this Agreement shall not impart any rights enforceable by any person, firm, organization, or corporation not a Party to this Agreement. ARTICLE 18 SPECIAL COVENANTS 18.1 Rates. Fees. and Charlres of the Member. The Member shall at all times charge and collect rates, fees, and other charges for its gas supply or electricity services to its members or customers as shall be required to provide revenues at least sufficient in each fiscal year, together with other available funds, to pay all amounts due as they come due under this Agreement, together with all other obligations of the Member, and the Member shall promptly enforce the payment of all material accounts due and owing to the Member. 56 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) 18.2 General Tax Covenant of Public Gas Partners. Bonds may be issued by the Member for the Prepayment for the purchase of Gas supplies from Public Gas Partners under this Agreement with the intention that some or all of the interest thereon be excluded from gross income of the holders thereof under Section 103 of the Code. Accordingly, Public Gas Partners agrees for the benefit of the owners of such bonds that it will act in accordance with written instructions provided by the Member from time to time and shall not take any action, or fail to take any action, contrary to such instructions if such action, or failure to take action, would adversely affect the exclusion from the gross income of the holders thereof of interest on the bonds under the Code. Public Gas Partners has previously filed with the Internal Revenue Service a request for a ruling that it is an instrumentality of the Members for purposes of Sections 115 and 141 of the Code and addressing certain other matters relating to the transactions contemplated by this Agreement. A true, correct, and complete copy of such ruling request is attached to this Agreement as Exhibit B. Public Gas Partners agrees to provide to the Member copies of all correspondence between Public Gas Partners (including its counsel and advisors) and the Internal Revenue Service relating to such ruling request, within five business days of the sending or receipt of such correspondence. 18.3 Continued Existence of the Member. The Member hereby covenants and agrees to maintain its existence during the term of this Agreement, and not to 57 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) cause its dissolution or to merge or to cause or permit all of its assets to be conveyed to any entity, unless, in the case of a merger, it is the surviving entity. 18.4 Continued Existence of Public Gas Partners. Public Gas Partners hereby covenants and agrees to maintain its existence during the term of this Agreement, and not to cause its dissolution or to merge or to cause or permit all of its assets to be conveyed to any entity, unless, in the case of a merger, it is the surviving entity. 18.5 Covenant Not to Vary Terms of Alrreements. Public Gas Partners covenants that it shall not vary the terms of any of the Production Sharing Agreements from the terms of this Agreement except in accordance with the procedures set forth in Section 1.10 and except for individual Nominated Quantities, Seasonal Nominations, Points of Delivery, and individual statutory requirements and organizational matters. 18.6 [This section is applicable to joint action agency members.] Covenant to Enforce Underlvinl? Contracts. The Member agrees that it shall maintain in effect and shall enforce during the term of this Agreement contracts with its Participating Utilities that underlie its purchase and payment obligations under this Agreement and provide for purchase and payment obligations of such Participating Utilities with respect to Gas provided to the Member pursuant to this Agreement in such amounts and at such times as to equal in amount and timing the Member's obligations under this Agreement. 58 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) ARTICLE 19 INFORMATION TO BE PROVIDED BY THE PARTIES TO EACH OTHER 19.1 Financial Reportinl? by the Member. The Member agrees to deliver to Public Gas Partners: (i) within 150 days after the end of each fiscal year of the Member, financial statements of the Member for such fiscal year, audited by independent certified public accountants selected by the Member; (ii) if requested by Public Gas Partners, within 90 days after the end of each fiscal quarter of the Member, financial statements of the Member as of the end of such quarter, certified by its chief financial officer or other equivalent officer or employee; and (iii) such other financial data as Public Gas Partners may reasonably request. All such financial statements referred to in clause (i) above shall be prepared in accordance with generally accepted accounting practices. 19.2 Other Information to Be Made Available by the Member. The Member acknowledges that the ability of Public Gas Partners to obtain financing for the acquisition and operation of Gas Supply Pool No.1 depends upon, among other things, the credit standing of the Member and the Other Members and that it will be necessary for Public Gas Partners to provide certain information concerning the Members in connection with such financing. Consequently, the Member covenants to and agrees with Public Gas Partners that the Member shall, upon request, provide to Public Gas Partners information with respect to the Member, including 59 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) without limitation financial and operating information and all contracts, documents, reports, bond resolutions and indentures, as may be requested by Public Gas Partners or its counsel in connection with the financing of Gas Supply Pool No. 1. Furthermore, in addition to such information and the information required by Section 19.1, the Member covenants to and agrees with the Public Gas Partners that the Member will furnish to Public Gas Partners such other information and documents as Public Gas Partners may reasonably request from time to time that is in the possession of the Member. 19.3 Financial Reporting by Public Gas Partners. Public Gas Partners agrees to deliver to the Member: (i) within 150 days after the end of each fiscal year of Public Gas Partners, financial statements of Public Gas Partners for such fiscal year, audited by independent certified public accountants selected by Public Gas Partners; (ii) within 90 days after the end of each fiscal quarter of Public Gas Partners, financial statements of Public Gas Partners as of the end of such quarter, certified by its chief financial officer; and (ill) such other financial data as the Member may reasonably request. All such financial statements referred to in clause (i) above shall be prepared in accordance with generally accepted accounting practices. 19.4 Other Information to Be Made Available by Public Gas Partners. In addition to the records described in Section 13.4 in connection with a request by the Member for information concerning billings by Public Gas Partners and the 60 DRAFT #8 -9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) financial reports described in Section 19.3, Public Gas Partners shall make available for examination by the Member at mutually agreeable times the following information: (a) all books of accounts, records, documentation, and contracts in the possession of Public Gas Partners relating to the operation of Gas Supply Pool No. l' , (b) all agreements and data in the possession of Public Gas Partners relating to the financing of Gas Supply Pool No.1; (c) all operating and financial records and reports relating to Gas Supply Pool No. 1 in the possession of Public Gas Partners; and (d) such other information and documents with respect to Gas Supply Pool No.1 as the Member may reasonably request from time to time and that is in the possession of Public Gas Partners. 19.5 Information to Be Provided in Connection with the Member's Prepayment. Public Gas Partners acknowledges that, in connection with the Member's financing of its Prepayment, it will be necessary for the Member to provide certain information with respect to Public Gas Partners and Gas Supply Pool No. 1. Consequently, Public Gas Partners covenants to and agrees with the Member that it shall, upon request, provide to the Member such information, including without limitation financial and operating information and all contracts, documents, reports, financing and related documents, as may be requested by the 61 ~ DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Member or its counsel in connection with the financing of the Member's Prepayment. 19.6 Costs Associated With Providinl? Information. To the extent Public Gas Partners incurs Costs in gathering and compiling documents or other information, such Costs shall be billed as Individual Costs. ARTICLE 20 COMPONENTS OF GAS SUPPLY POOL NO.1 20.1 Gas Supply Pool No.1 Portfolio. Public Gas Partners will acquire long- term gas supplies on a portfolio project basis. Gas Supply Pool No.1 shall consist of (i) one or more acquisitions of working interests, royalty interests, net profits interests, leasehold interests, and any and all other interests in Gas reserves, related facilities, or lands, (ii) the acquisition and management of contract deliverability rights through secured natural gas prepayment transactions, and (iii) the acquisition and management of other contract rights to the delivery of Gas, sufficient in the aggregate to fulfill the nominations received from the Member and all Other Members equal to the aggregate of all Nominated Quantities. Public Gas Partners may fulfill the Nominated Quantities through one transaction or any number of transactions, and the Member, under this Agreement, agrees to participate in the entirety of Gas Supply Pool No. 1. Individual transactions shall each be a component of Gas Supply Pool No. 1. Public Gas Partners may participate with third parties, including third parties that are not Governmental 62 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Entities (as defined in the Bylaws), in any transaction that is part of Gas Supply Pool No.1 in the acquisition, operation, development or redevelopment of such project, including without limitation through joint ventures, joint bidding arrangements, farmout agreements, participation agreements, co-development agreements, or like agreements or arrangements. 20.2 Workinl? Interests and Royalty Interests. As described in Section 20.1, the portfolio acquired by Public Gas Partners under Gas Supply Pool No. 1 may include, without limitation, working interests and royalty interests in Gas producing properties, which shall include associated gathering, processing, compression, and other facilities. 20.3 Minimum Portfolio Requirements. The Parties acknowledge and agree that the Member's obligations under this Agreement extend to each of the individual transactions that are components of Gas Supply Pool No.1, and that Gas Supply Pool No.1 shall only include transactions that are approved by requisite action of the Operating Committee and the Board of Directors, as applicable, and which, when aggregated with other transactions already undertaken as part of Gas Supply Pool No.1 pursuant to requisite action of the Operating Committee and the Board of Directors, meet the following minimum criteria: (a) Projected minimum portfolio margins of $0.50 (50(i) per MMBtu below applicable forward curve pricing, as determined in accordance with criteria established by the Operating Committee. Forward curve pricing shall be defined in 63 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) such criteria as (i) all forward contract months listed by the New York Mercantile Exchange ("NYMEX") at the time of the determination by the Operating Committee to consummate a transaction and (ii) forward pricing as determined by the Operating Committee for months extending beyond those listed by NYMEX. In the event that the Operating Committee determines that NYMEX is no longer a viable and liquid benchmark for forward curve pricing, the Operating Committee may determine to use another listed exchange or trade publication forward curve. (b) At least 60% of the risk adjusted available volumes in Gas Supply Pool No.1 are reserves or are secured by underlying assets that are classified as proved, developed and producing reserves by a nationally recognized reservoir engineering firm engaged by Public Gas Partners to provide an independent review of the reserves, or by financial instruments from counterparties holding a minimum aggregate credit rating of" AA-" or equivalent from one of the national credit rating agencies (Moody's, S&P, or Fitch); and (iii) the assets being acquired must be located onshore in the continental United States or Canada, or in the shallow waters of the United States. 20.4 Minimum Security for Secured Prepayments. As described in Section 20.1, Public Gas Partners may enter into secured natural gas prepayment transactions as a component of Gas Supply Pool No. 1. Such prepayments must be secured by a credit rating of "AA-" or better, or an equivalent credit rating, through the underlying unenhanced credit rating of the applicable supplier, or provide 64 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) comparable security through a parent guaranty, a separate corporate guaranty, a surety bond, a letter of credit, the pledge of assets, or the posting of other collateral acceptable to Public Gas Partners. 20.5 Dissolution of Gas Supply Pool No. 1. The Operating Committee may by vote of 80% of all of the members of the Operating Committee determine that Gas Supply Pool No.1 shall be dissolved by sale or other disposition. Any such vote of the Operating Committee shall be presented by the Operating Committee as a recommendation to Public Gas Partners for a vote in compliance with the Bylaws. Upon such vote by Public Gas Partners, the determination of the Operating Committee shall be the action of Public Gas Partners. Upon a decision by the Operating Committee to implement the sale or other disposition of a component of Gas Supply Pool No.1, the Operating Committee shall determine whether the proceeds of any such sale or other disposition are to be reinvested in Gas Supply Pool No.1 or returned to the Member and the Other Members. Any return to the Member and the Other Members shall be in accordance with their respective Participation Shares. Upon the dissolution of Public Gas Partners, the Member shall receive a return in an amount equal to its Participation Share of the net assets of Public Gas Partners following sale or other disposition of such assets and the winding up of Public Gas Partners' affairs. 20.6 Completion of Gas Supply Pool No. 1. The Operating Committee shall determine when the Annual Nominated Quantities of the Member and the Other 65 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Members have been met by the transactions comprising Gas Supply Pool No. 1. The Operating Committee's determination in this regard shall meet the standard set forth below in this Section 20.6 and shall be conclusive. Upon such determination, Gas Supply Pool No.1 shall be closed, meaning that no additional acquisitions shall be made. The Operating Committee may not reach such a determination unless it finds that at least 80% of the aggregate Annual Nominated Quantities of the Member and the Other Members will be available for delivery on the date of such determination. Notwithstanding the foregoing, Gas Supply Pool No.1 shall automatically be closed not later than three years after the effective date of this Agreement if it has not been closed by action of the Operating Committee; provided, however, that if there are ongoing negotiations as of such date involving one or more potential transactions that the Operating Committee wishes to continue, the Operating Committee may keep Gas Supply Pool No.1 open for the purposes of completing such negotiations. 66 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) ARTICLE 21 FINANCING OF GAS SUPPLY POOL NO.1 21.1 Interim Financing by Public Gas Partners. Public Gas Partners shall obtain all interim financing necessary to acquire each component of Gas Supply Pool No.1 and to consummate each transaction that is part of Gas Supply Pool No. 1. Public Gas Partners shall obtain title to all interests and supplies it acquires and shall hold all such properties in its name. All costs and expenses associated with such interim financing shall be included in the Costs billed to the Member on a monthly basis in accordance with the terms of this Agreement. 21.2 Permanent Financing. Within six months after notice from Public Gas Partners that it must make a Prepayment to Public Gas Partners for the acquisition of its Participation Share of Gas Supply Pool No.1 acquired to that point in time, plus any anticipated capital development or other Costs that the Operating Committee determines are necessary or advisable to collect in advance, the Member shall obtain its own permanent financing or shall otherwise obtain funds sufficient to make its Prepayment to Public Gas Partners for its Participation Share. Such notice provided by Public Gas Partners to the Member shall specify the amount of the Prepayment to be made and the date upon which it is due. The amount of the Prepayment shall be calculated by multiplying the Member's Participation Share by the sum of (i) the total acquisition, development or other Costs incurred by Public Gas Partners in acquiring and developing the components of Gas Supply Pool No.1, 67 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) net of amounts recovered to the date of the Prepayment from the Member in monthly billings for Public Gas Partners' debt service or other interim financing Costs, (ii) an additional amount as determined by the Operating Committee up to the amount representing the Operating Committee's projection of capital development Costs to be incurred in connection with enhancing production and deliverability of fields and wells in Gas Supply Pool No.1; and (iii) any additional amount as determined by the Operating Committee. 21.3 Failure to Make Prepayment. In the event that the Member fails to make its Prepayment by the due date, the Parties agree that all quantities of Gas acquired by Public Gas Partners for the Member shall be held by Public Gas Partners and may be disposed of in one of the following ways, in Public Gas Partners' sole discretion: (i) Public Gas Partners may continue to sell all or any portion of the Gas to the Member under the terms and conditions of this Agreement as though Public Gas Partners had not yet provided notice to the Member that it must make its Prepayment to Public Gas Partners; (ii) Public Gas Partners may transfer the Member's Participation Share to the Other Members; (iii) Public Gas Partners may transfer the Member's Participation Share to a member of Public Gas Partners that is a participant in a Project other than Gas Supply Pool No.1, with the concurrence required in Section 4.4(c); (iv) Public Gas Partners may transfer the Member's Participation Share to a Governmental Entity (as defined in the Bylaws) that is not a member of Public Gas Partners, with the concurrence required in 68 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Section 4.4(c); (v) Public Gas Partners may sell the Gas it acquired pursuant to the Member's Annual Nominated Quantity on a short-term or long-term basis to Other Members; or (vi) Public Gas Partners may sell the Gas it acquired pursuant to the Member's Annual Nominated Quantity on a short-term or long-term basis to third parties that are not Members. In the event Public Gas Partners chooses to pursue option (ii), option (iii), or option (iv) above, this Agreement shall terminate upon notice from Public Gas Partners that it has selected such option and has completed all related transactions and winding up arrangements in accordance with this Agreement. In all cases, Public Gas Partners may pursue all remedies available at law or in equity against the Member to protect Public Gas Partners' interests and the interests of the Other Members. ARTICLE 22 CHANGES IN NOMINATED QUANTITY 22.1 Reductions in Nominated Quantity. Effective upon not less than 120 days' notice to Public Gas Partners, the Member may decrease its Annual Nominated Quantity (together with its Seasonal Nominations) to the level already acquired by Public Gas Partners through completed transactions under Gas Supply Pool No.1, but before Gas Supply Pool No.1 is filled. Upon the Member's exercise of such option, Public Gas Partners shall reduce the total Annual Nominated Quantities for Gas Supply Pool No.1 to eliminate that portion of the Annual Nominated Quantity that is no longer wanted by the Member and shall calculate 69 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) the revised Participation Shares of the Member and of all Other Members in Gas Supply Pool No. 1. All Members, including the Member if the Member decreases its Annual Nominated Quantity and any of the Other Members that decreases its Annual Nominated Quantity, remain obligated for all Costs of the existing portfolio and future transactions making up Gas Supply Pool No.1; however, individual Participation Shares shall be changed. An example of the calculation of the Member's new Participation Share and the Participation Shares of the Other Members under such circumstances is set forth in Exhibit G. 22.2 Increases in Nominated Quantity. In the event that any new Members are added to Gas Supply Pool No 1, consistent with the procedures described in the Bylaws and Section 4.4(c), the Member shall have the right, with the unanimous consent of the Other Members, to increase its Annual Nominated Quantity (together with its Seasonal Nominations). The Member shall provide notice in writing to Public Gas Partners and each of the Other Members of its requested Increase. ARTICLE 23 TERM 23.1 Full Term. This Agreement shall be effective upon (i) its execution and delivery to Public Gas Partners by the Member on or prior to December 31, 2004, and (ii) the acceptance by the Board of Directors and the execution by Public Gas Partners of Production Sharing Agreements with Members whose Annual 70 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Nominated Quantities total at least 50,000 MMBtu per day. Unless this Agreement is earlier terminated under the provisions of this Agreement, it shall continue in effect until the last to occur of the following: (a) the date on which the principal of, premium, if any, and interest on all bonds, notes, loans, or obligations issued or borrowings incurred by Public Gas Partners (with respect to Gas Supply Pool No.1) or the Member (with respect to a Prepayment) have been paid or sufficient funds shall have been irrevocably set aside for the full defeasance thereof; and (b) such time as each and every component of Gas Supply Pool No.1 is terminated, all deliveries thereunder have been completed, all Costs thereunder have been paid, and all contractual obligations of Public Gas Partners to third parties have been fully performed or provided for, all upon the determination of the Operating Committee to effect the final dissolution of Gas Supply Pool No.1 as provided in Section 20.5. 23.2 Early Termination. The Member may not withdraw from membership in Public Gas Partners while this Agreement is in effect without the unanimous consent of the Operating Committee and the subsequent unanimous consent of the Board of Directors. The Member may be removed from membership in Public Gas Partners by vote of the Board of Directors if it is in default of its payment obligations under this Agreement or if it fails to make its Prepayment as required by this Agreement, consistent with written policies established by Public Gas Partners. In the event the Member withdraws from or is removed from membership 71 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) in Public Gas Partners, this Agreement shall be terminated as of the effective date of such termination of membership, subject to the continuing obligation of the Member to satisfy all of its payment and other obligations under this Agreement and the conclusion of all winding up arrangements as provided for in this Agreement. Notwithstanding the foregoing provisions of this Section 23.2, if a court of competent jurisdiction determines that the Member is barred by the law of its State/Commonwealth from participating in Public Gas Partners as a member, but that the Member may otherwise be a party to this Agreement, the Member shall relinquish its seat on the Board of Directors but shall retain its seat on the Operating Committee, and this Agreement shall otherwise remain in full force and effect. This Agreement shall also terminate upon the effective date of the dissolution of Public Gas Partners. ARTICLE 24 NOTICES Any notice, request, demand, or statement provided for in this Agreement must be given in writing, unless another provision of this Agreement specifically provides otherwise. Notice must be provided by delivery in person, by United States mail, or by express courier. Notice must be provided at the addresses shown below, which addresses may be changed by written notice from one Party to the other: 72 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Public Gas Partners: Correspondence, notices and billing: Public Gas Partners, Inc. c/o Municipal Gas Authority of Georgia 104 TownPark Drive Kennesaw, GA 30144 Attn: Tel: Fax: E-mail: With a copy to: Chairman, Public Gas Partners, Inc. c/o Attn: Tel: Fax: E-mail: Payments: Public Gas Partners, Inc. Bank: ABA No.: Account: 73 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) The Member: Correspondence, notices, billing, and payments: Attn: Tel: Fax: E-mail: ARTICLE 25 RELATIONSIDP TO AND COMPLIANCE WITH OTHER INSTRUMENTS It is recognized by the Parties that Public Gas Partners, in undertaking or causing to be undertaken the planning, financing, acquisition, operation and maintenance of Gas Supply Pool No.1, must comply with the requirements of the financial and contractual obligations incurred by it and all regulatory permits and approvals necessary therefor, and it is therefore agreed that this Agreement is made subject to the terms and provisions of all financial and contractual instruments entered into by Public Gas Partners with respect to Gas Supply Pool No.1 and all such permits and approvals. Public Gas Partners covenants and agrees that it will use its best efforts for the benefit of the Member to comply in all material respects with all terms, conditions, and covenants applicable to it contained in the financial and contractual instruments entered into by Public Gas Partners with respect to Gas Supply Pool No.1 and all such permits and approvals. 74 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) Public Gas Partners covenants and agrees that it will not, without the consent of the Member, enter into any agreement or instrument which will, in the reasonable business judgment of Public Gas Partners at the date of the decision, materially and adversely affect the rights and obligations of the Member under this Agreement. ARTICLE 26 LIABILITY OF PARTIES Public Gas Partners and the Member shall assume full responsibility and liability for the maintenance and operation of their respective properties and each shall, to the extent permitted by law, indemnify and save harmless the other from all liability and expense on account of any and all damages, claims, or actions, including injury to or death of persons arising from any act or accident in connection with the installation, presence, maintenance, and operation of the property and equipment of the indemnifying party and not caused in whole or in part by the negligence of the other party; provided, however, that any liability which is incurred by Public Gas Partners through the operation and maintenance of Gas Supply Pool No.1 or pursuant to financial and contractual instruments entered into by Public Gas Partners with respect to Gas Supply Pool No.1 and not covered, or not covered sufficiently, by insurance shall be paid solely from the revenues of Public Gas Partners under this Agreement, and any payments made by Public Gas Partners to satisfy such liability shall be Costs under this Agreement. 75 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) ARTICLE 27 COUNTERPARTS This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and each of which shall be deemed to be original instruments. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date hereinabove first written. PUBLIC GAS PARTNERS, INC. By: ATTESTED: Printed Name: By: Its: Title: THE MEMBER By: ATTESTED: Printed Name: By: Its: Title: M: \ clients \ I8200\ I8200-I \ NATURAL GAS PRODUCTION SHARING AGREEMENT 09I604 DRAFT #8 CLEAN 76 "'C ~ (Jq ('0 I--' e ....., I--' 0 ;3 ;3 ~ ~ a:: ;3 ~ ~ 0 g. Il:l ...- ...- "1 CD CD cc-t- ~ CD 0 0 "tj ~ UJ. ...- :::!. l:l b ::I. ::I. e .... 0 .... ~ ~ "1 CD 0 n n cc-t- .... Il:l Il:l Il:l l:l ~ tr.1 rJl "tj ~ cc-t- l:l E? l:l Il:l a:: 0 .... tr.1 CD 0 CD CD ...- "1 ~ Il:l l:l rJl CD ~ l:l 0 rJl rJl Il:l CD ~ l:l CD rJl "1 Il:l .... c:: CD cc-t- ~ rJl Il:l n .... cc-t- tr.1 ~ > > cr' "Cl .... 10'0 ...- ~ 0 Il:l Il:l .... l:l Il:l E? ~ s ...- ~ = CD cr' "1 E? ~ ~ "1 Il:l 0 0 Il:l ... ~ ~ 0 0 ~ S "1 0 ~ .... "tj ::I. ~. > Il:l ~ ~ Il:l CD rJl "1 ~ n 0 0 0 t::l ~ ..0 Il:l ...., "' ~ ...., .... .... rJl ~ 0 rJl CD rJl t::l cc-t- l:l .... CD "1 cc-t- .... l:l 0 .... n .... rJl cc-t- "1 n '< 0 cc-t- ~ a,s. cc-t- l:l ::I. n n ~ Il:l cc-t- 10'0 = ~ 00 ... I:l"~ = ... "'l'CI (D = "' ... Q = f~~ = ...= = = = :1== q~- ~ ~z "'l Q "'9 I:l" ... (D = ~~ "'(D a.~ (Dt:) "'l = 00= (D = = "' tIl ... Q "' ='< ~ "'l Z ",Q 1:l"9 (D ... 00= i i 9 ~ ~f 00= (D = = :1 tIl "' Q'< = z o ~~ ~~ tfj~ t:l~ n O~ ~~ =:300 ;2 oo~ ~~ ~o =~ tfj~ sa~ ~8 ~t"4 ~z 00 ~. ~r ~~ 0= ztfj ~ oo~ ~ 00 tfj ~ ~ tc ~ ~ > ~~ ~~ ns3 ooot"4 antfj ~ o~ =ootfj .,oot:l ~O~ "'"z o ~ t:l seon~ I--'~O~ ~~~~ ~oo~# -tI::lt:lCXl ~ootfjl ~O~~ ;~~!::: 'I....... Q '-''''''''4 ~ DRAFT #8 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) EXHIBIT B RULING REQUEST SUBMITTED BY PUBLIC GAS PARTNERS. INC. TO THE INTERNAL REVENUE SERVICE Page 1 of 1 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) EXHIBIT C POINTS OF DELIVERY The tailgate of the Sabine Pipe Line Company's Henry Hub near Henry, Louisiana. Page 1 of 1 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) EXHIBIT D BREAKDOWN OF ANNUAL BUDGET BY CATEGORIES The Costs incurred by Public Gas Partners and billed to the Member will include but not be limited to the following: ~ Acquisition Costs (paid prior to Member's Prepayment) o Public Gas Partners' debt costs to acquire interests in reserves and other Gas supplies and to fund capital development costs of Gas Supply Pool No. 1. ~ Capital Development Costs o Ongoing budgeted expenditures to develop non-producing properties acquired in Gas Supply Pool No. 1 and to enhance production from producing reserves. ~ Operating Costs o Ongoing expenditures for operating wells, gathering, treating, processing, compression, transportation, and otherwise producing Gas from Public Gas Partners' interests, making the Gas of pipeline quality, and delivering it to the Point of Delivery. ~ Outside Services Costs o Ongoing and occasional costs for professional services and other outside services not provided by the Manager, including but not limited to reservoir engineering, accounting, audit, legal, consulting and comparable services. ~ Administrative Fees o Ongoing administrative and general costs of managing Public Gas Partners and maintaining its program of acquiring and managing a portfolio of transactions making up Gas Supply Pool No. 1. Initially, these services shall be provided by the Manager, and the Page lof2 DRAFT #7 - 9/9/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 Draft Member shall pay its share of the administrative fees set forth in this Agreement and in the Services Contract. > Other Costs o Any other costs not falling within one of the other categories, whether ongoing or occasional. Page 2 of2 DRAFT #8 - 9/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) EXHIBIT E NATURAL GAS SERVICES CONTRACT BETWEEN PUBLIC GAS PARTNERS. INC. AND THE MUNICIPAL GAS AUTHORITY OF GEORGIA Page 1 of 1 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) EXHIBIT F FORM OF OPINION OF COUNSEL TO THE MEMBER Page 1 of 1 DRAFT #8 - 9/9/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) EXHIBIT G ILLUSTRATIVE CALCULATION OF REVISED PARTICIPATION SHARES FOLLOWING A REDUCTION IN THE MEMBER'S NOMINATED QUANTITY Page 1 of 1 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) EXmBIT H FORM OF HEDGING AND RISK MANAGEMENT POLICY DEFINITIONS HEDGE - A hedge is used by Public Gas Partners to reduce the risk associated with normal business activities of buying or selling commodities or financial instruments. To qualify as a hedge there must be at least an 80% correlation between the hedging instrument and the underlying asset being hedged such as a commodity or interest rate. SPECULATION -Using financial instruments in a manner not expected to reduce the risk associated with Public Gas Partners' business activities related to Gas Supply Pool No. 1. Speculation will not be authorized at any time. FINANCIAL INSTRUMENTS - Financial instruments shall include derivative products such as over-the-counter (OTC) instruments; for example, options and swaps and the various combinations of such products. It also may include exchange-traded instruments such as futures and options. POLICY Hedging can be an effective tool in reducing the interest rate and commodity risk involved with the purchase and sale of natural gas. Hedging may also be Page 1 of 4 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) appropriate to reduce price risk associated with the purchasing and storing of natural gas. Public Gas Partners will engage only in financial hedge transactions that are consistent with prudent risk management practices related to Public Gas Partners' Gas sales or acquisition commitments (including fixed price commitments made to Members) or existing assets and liabilities and foreseeable future purchase and sales requirements. All interest rate hedges and all long-term commodity swaps (greater than three years) require Operating Committee authorization via a resolution of the Operating Committee. Officers or employees of Public Gas Partners or the Manager shall not directly or indirectly own or trade in energy futures contracts or options on energy futures contracts for their own accounts. Public Gas Partners shall not trade financial hedge instruments (including interest rate hedges and commodity swaps options, and combinations thereof) with a non-exchange Counterparty unless the Counterparty meets the following credit criteria: (i) for any hedge with a term of two years or greater, the Counterparty's obligations are rated, or are insured or guaranteed by an entity whose obligations are rated, in one of the two highest rating categories, without regard to gradations within a category, of any nationally recognized Page 2 of 4 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) rating service; and, for any hedge with a term of less than two years, the Counterparty's obligations are rated, or are insured or guaranteed by an entity whose obligations are rated, in one of the three highest rating categories, without regard to gradations within a category, of any nationally recognized rating service; or (ii) the Counterparty's exposure to Public Gas Partners is collateralized at 102% of the market value of such exposure, marked to market no less frequently than quarterly.* COUNTERPARTY AUTHORIZATION Based on the credit criteria referenced above, Public Gas Partners will execute master swap agreements and maintain relationships with a sufficient number of acceptable Counterparties to ensure a competitive environment to price the applicable hedging transactions. Authorization for negotiating and executing these agreements will be provided by the Board of Directors via resolution on an as needed basis. HEDGE COMMITTEE · Delayed start date hedges may not exceed 36 months for single A-rated counterparties. Page 3 of 4 DRAFT #8 - 9/21/04 PRIVILEGED AND CONFIDENTIAL FOR DISCUSSION PURPOSES ONLY Compared to 9/16/04 (Draft #7) A Hedge Committee will oversee the activities of the hedging program. The Committee shall be comprised of the The role of the Hedge Committee will be to determine whether a proposed transaction is a bona fide hedge, to choose the hedge vehicle to be utilized, and to review the performance of the hedging activity on a monthly basis. The Hedge Committee shall meet at least monthly, and may meet more often if needed. A member of the Hedge Committee shall be appointed to keep minutes of the meetings. The Hedge Committee shall provide the Operating Committee a summary of its activity every three months. LIMITS AND AUTHORITY The notional volume of hedging instruments shall not be greater than the contractual volume of offsetting "physical" market agreements. If at any time the total annual actual or expected net cash flow requirements associated with hedges exceeds $3,000,000 (not including the impact of long-term commodity swaps entered into as part oflong-term gas supply arrangements), the hedge portfolio will be immediately reviewed by the Hedge Committee to confirm that financial hedges in place remain appropriate. Page 4 of 4 EXHIBIT I FORM OF NOTICE OF REVISED PARTICIPATION SHARES # 2224887_v2 Appendix 1 PROJECT PARTICIPANT'S NOMINATED QUANTITY FOR GAS SUPPLY POOL NO.1 GAS ENTITLEMENT SHARE Name and Address of Proiect Participant Summer Season City of Clearwater 500 Dth's Clearwater Gas System 400 N. Myrtle Ave Clearwater, FL 33755 Winter Season 1,500 Dth's Annual Nominated Quantitv 1,000 Dth's Gas Entitlement Share 16.972% # 2224887_v2 FGU Entitlement Share PGP Gas Supply Pool No. 1 Appendix 1 Nominated Quantities Entitlement December 31, 2004 Share Participants Winter Summer Annual % 1 Blountstown 49 23 35 0.594 % 2 Chipley 60 25 43 0.730% 3 Clearwater 1,500 500 1,000 16.972% 4 Fort Meade 58 33 46 0.781 % 5 FPUA - LDC 500 400 450 7.637% 6 Homestead 0 500 250 4.243% 7 Jay 67 10 39 0.662 % 8 Lake City 367 178 273 4.633% 9 Lakeland 2,000 4,000 3,000 50.917% 10 Leesburg 400 250 325 5.516% 11 Pal atka 395 242 319 5.414% 12 Starke 90 48 69 1.171 % 13 Williston 60 25 43 0.730% Total 5,546 6,234 5,892 100.000% Entitlement Share-PGP.12312/30/2004 Appendix 2 PROJECT PARTICIPANT'S POINT OR POINTS OF DELIVERY PROJECT PARTICIPANT POINT OR POINTS OF DELIVERY City of Clearwater . North Gate Station: 1010 N. Hercules Ave, Clearwater, DRN# 3171 . South Gate: 2531 Nursery Rd, Clearwater, DRN # 3172 . Northeast Gate: 2910 McMullen Booth Rd, Clearwater, DRN# 3168 . Trinity Gate: 8017 Mitchell Blvd, New Port Richey (Pasco County), DRN# 291990 # 2224887_v2 Appendix 3 FORM OF OPINION OF COUNSEL TO PROJECT PARTICIPANT _,200_ [Underwriters, Counterparties or other Interested Parties] Florida Gas Utility 4619 NW 53rd Avenue Gainesville, FL 32609 Re: PGP Gas Supply Agreement No. 1[; Other Financial Instruments] Ladies and Gentlemen: I am counsel to the [please insertl (the "Public Agency"), and am furnishing this opinion to you in connection with the PGP Gas Supply Agreement No.1 ("PGP Gas Supply Agreement") [Financial Instrument] (the "Agreement"), dated as of , and executed between Florida Gas Utility ("FGU"), [ ] and the Public Agency as a Project Participant and purchaser of Gas from FGU. All terms used herein in capitalized form and not otherwise defined herein shall have the same meanings as ascribed to them in the Agreement. In connection with this opinion, I have examined originals or copies, certified or otherwise identified to my satisfaction, of the following: (a) The Constitution and laws of the State of Florida including, as applicable, special acts, ordinances, charters and agreements pursuant to which the Public Agency was created and by which it is governed; (b) Resolution No. _, duly adopted on , 200_ [please insert one or, if applicable, more resolution numbers and dates] (collectively, the "Resolution"), and certified as true and correct by certificate and seal as of [ ], authorizing the Public Agency to execute and deliver (i) the PGP Gas Supply Agreement described below and (ii) [other Agreement], in accordance with the provisions of the Constitution of the State of Florida, the Florida Interlocal Cooperation Act of 1969, Section 163.01 and Chapter 166, Florida Statutes, and other applicable provisions of law; (c) A copy of the PGP Gas Supply Agreement [other Agreement] executed by the Public Agency; (d) The Interlocal Agreement dated September 1, 1989, as amended on June 1, 1992, and as amended and restated by Amended and Restated Interlocal Agreement dated as of July 1, 1996, and thereafter amended and restated by Second Amended and Restated Interlocal Agreement dated as of July 27, 1999, between the Public Agency and the other public agencies named therein (the "Interlocal Agreement"); (e) [The Official Statement, [Private Placement Memorandum] [Other] dated as of [ 1, relating to [ ];] (f) [The Continuing Disclosure Agreement, dated as of [ ] (the "Continuing Disclosure Agreement"), among the Public Agency, FGU, and r 1; and] (g) All outstanding instruments relating to bonds, notes or other indebtedness of or relating to the Public Agency's System. I have also examined and relied upon originals or copies, certified or otherwise authenticated to my satisfaction, of such other records, documents, certificates and other instruments, and made such investigations of law, as in my judgment I have deemed necessary or appropriate to enable me to render the opinions expressed below. Based upon the foregoing, I am of the opinion that: 1. The Public Agency is [a public body corporate and municipal corporation of the State of Florida], [a utility authority and a part of government of the City of '], [a public agency as defined in Section 163.01(3)(b), Florida Statutes, as amended, and an electric utility as defined in Section 361.11(2), Florida Statutes, as amended] [PLEASE SELECT AS APPROPRIATE], duly organized and validly existing under the laws of the State of Florida, with the legal right to carry on the business of its System as currently being conducted and as proposed to 2 be conducted [as described in the [Official Statement] [Private Placement Memorandum] [other].] 2. The Public Agency has the right and power to adopt the Resolution, and the Resolution has been duly adopted by the Public Agency and is in full force and effect as of the date hereof in the form in which adopted. 3. The PGP Gas Supply Agreement[, the Financial Instrument] [,the Continuing Disclosure Agreement] (collectively, the "Agreements") and the Interlocal Agreement have been duly and lawfully authorized, executed and delivered by the Public Agency, and constitute the legal, valid and binding agreements and obligations of the Public Agency, enforceable against the Public Agency in accordance with their respective terms. 4. The authorization, execution, delivery, receipt and performance of the Agreements and all agreements and documents provided for or contemplated by the Resolution do not violate any applicable judgment or order of any court and do not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, the terms of any statute of the State of Florida, the Public Agency's ordinances or charter, any administrative rule or regulation of the State of Florida or any agency thereof or of any bond resolution, indenture, agreement, license, permit, franchise, or other instrument to which the Public Agency is subject, or by which it or any of its properties is bound, or result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the properties or assets of the Public Agency, except as expressly provided by the Agreements, nor do such actions result in any violation of any order, rule or regulation applicable to the Public Agency of any court or of any federal, state or other regulatory authority or governmental body having jurisdiction over the Public Agency or any federal statute, order, rule or regulation applicable to the Public Agency or the State of Florida. 5. Amounts payable by the Public Agency to FGU pursuant to the PGP Gas Supply Agreement [Financial Instrument] will constitute operating expenses of the Public Agency's System. 6. All approvals, consents or authorizations of, or registrations, or filings with, any governmental or public agency, authority or person required on the part of the Public Agency in connection with the execution, delivery and performance by it of the Agreements have been obtained or made. 3 - 7. There is no action, suit, litigation, inquiry, investigation or other proceeding by or before any court, governmental agency, public board or body or other tribunal of competent jurisdiction (either State or Federal) pending or, to the best of my knowledge after due inquiry, threatened against the Public Agency or its System which (a) questions the creation, organization or existence of the Public Agency, (b) affects or seeks to prohibit, restrain or enjoin the Public Agency from entering into, or wherein an unfavorable decision would materially adversely affect the ability of the Public Agency to, comply with its obligations contained in the Agreements, including the payment obligations to FGU contained therein, or (c) in any way affects or questions the validity, legality or enforceability of the Agreements, nor, to the best of my knowledge, is there any basis therefor. 8. Project Participant Representative has the power and authority to enter into Financial Products of the type described in the PGP Gas Supply Agreement or to authorize FGU to enter into such transactions on Project Participant's behalf and to bind Project Participant with respect thereto, subject in each case to the general parameters set forth in Exhibit A to the PGP Gas Supply Agreement. The opinions set forth herein as to the enforceability of the legal obligations of the Public Agency are subject to and limited by (i) bankruptcy, insolvency, reorganization, moratorium and similar laws, in each case relating to or affecting the enforcement of creditors' rights generally, and (ii) other general principles of equity. Very truly yours, # 2224887_v2 4