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Exhibit 10-CF
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding ("MOU.") is made and entered into as
of this 1st day of December, 1997 by and between Columbia Gas Transmission
Corporation ("Columbia"), Westcoast Energy (U.S.), Inc. ("Westcoast"), MCN
Investment Corporation ("MCN"), and TransCanada PipeLines Limited
("TransCanada"), sometimes collectively referred to herein as the "Parties" and
each individually as a "Party").
RECITALS:
A. Columbia currently owns and operates as part of its interstate
natural gas transmission system the following facilities: (1) Line A-5,
consisting of 8" to 24" diameter pipe located in the State of New York; (2) the
portion of Line 1278 and Line K from Milford, Pennsylvania to its
interconnection with Line A-5; and (3) other related lines, appurtenant
facilities, land and land rights (collectively referred to herein as the "A-5
System").
B. The Parties desire to form a new entity (the "Enterprise") which
would acquire a portion of the A-5 System and add new facilities to operate as a
new interstate natural gas transmission system. The resulting system is planned
to extend from a new Lake Erie export point interconnecting with TransCanada
PipeLines Limited to a terminus in Westchester County, New York as described on
Exhibit A attached hereto (the "Project").
C. The Parties are desirous of entering into this MOU in order to (i)
set out their respective participation interests in the Project, (ii) ascertain
the potential demand for the Project, including assessment of supply, end-use
demand, pricing, preliminary routing and potential regulatory and environmental
issues for the Project, (iii) provide for a method of funding the activities of
the Parties and (iv) provide for the management of the Project, all prior to or
concurrently with the negotiation and execution of definitive agreements
concerning the ownership, structure and operation of the Enterprise.
NOW, THEREFORE, in consideration of the mutual benefits to be derived,
the representations, warranties, conditions and promises contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties hereby agree as follows:
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ARTICLE 1
PROJECT DEVELOPMENT, MANAGEMENT AND OWNERSHIP
1.1 Project. The Project will consist of the acquisition of a portion
of the A-5 System and the development of new facilities into an approximately
400 mile long 24 and 36 inch diameter high pressure natural gas pipeline with a
preliminary estimated capacity to exceed 575 MMcf per day.
1.2 Ownership. The ownership of the Enterprise and the participation
interests in the Project shall be as follows:
Columbia 47.5%
Westcoast 21%
MCN 10.5%
TransCanada 21%
The admittance of a new party to the Enterprise and the Project shall be
permitted, subject to Section 6.03, only by the unanimous vote of the Management
Committee.
1.3 Equity Contribution. Each Party's equity contribution to the
Enterprise shall equal its percentage ownership interest in the Enterprise;
provided, however, Columbia's contribution will consist, in part, of a portion
of the A-5 System. The value of Columbia's A-5 System contribution will be the
net book value of the A-5 System (partial facilities, easements and
rights-of-way) assigned to the Enterprise which Columbia estimates to be
approximately $18,400,000 (U.S.) at May, 1999. This contribution shall be
reduced by the cost of any environmental remediation to the contributed
facilities, which Columbia estimates to be approximately $1,000,000 (U.S.).
Furthermore, this contribution will be made to the Enterprise pursuant to an
agreement (the "Contribution Agreement") that addresses, among other things,
final valuation of the contribution, the appropriate representations and
warranties as to title and condition of the assets, and agreement on
pre-existing liabilities.
1.4 Development of Project. Columbia will construct, operate and
maintain the Project for the Enterprise under competitive rates and in
accordance with a development agreement (the "Development Agreement") and an
operating, maintenance and management agreement (the "Operating Agreement") to
be negotiated between Columbia and the Enterprise. It is anticipated that
Columbia, pursuant to the Development Agreement and Operating Agreement, will be
reimbursed for certain indirect expenditures incurred in connection with the
development of the Project and operation of the Enterprise.
1.5 Definitive Agreements. Following completion of the feasibility
assessment referred to in Section 2.01 and a finding by the Management Committee
that the Project is feasible, the Parties agree to utilize commercially prudent
efforts to negotiate any and all definitive agreements, including but not
limited to the Development Agreement, the Operating Agreement, the Contribution
Agreement, and all other agreements that are necessary to form the Enterprise
and to develop, operate and manage the Project (collectively, the "Definitive
Agreements").
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ARTICLE 2
PROJECT IMPLEMENTATION, FEASIBILITY AND MANAGEMENT
2.1 Feasibility of Project. During the term of this MOU, the Parties,
including any additional parties which may be admitted to the Enterprise, agree
to work together to assess the overall feasibility of the Project. Such
feasibility shall include, but not be limited to, various studies, engineering
and analysis, rate design, marketing activities and Open Season participation.
Subsequent to a finding by the Management Committee that the Project is
feasible, the Parties intend to develop, finance, construct and operate the
Project. Attached hereto as Exhibit B is the schedule setting forth the proposed
time line for accomplishing certain objectives for the Project.
2.2 Management Committee. During the term of the MOU, the Project shall
be managed by a Management Committee (the "Management Committee") which shall be
comprised of one (1) representative from each Party. Each Party shall appoint
and designate in writing their own representative to serve on the Management
Committee. The initial representatives to serve on the Management Committee upon
the execution of this MOU shall be:
(a) Columbia Representative: David Pentzien
(b) Westcoast Representative: John Wolnik
(c) MCN Representative: Mike Feodorov
(d) TransCanada Representative: Brian Fowler
The representatives shall serve on the Management Committee until such time as
he or she resigns, is replaced by another representative, or the appointing
party ceases to be a Party. Each Party shall have the right from time to time
and at any time to designate in writing to the other Parties an alternate or
substitute representative to serve on the Management Committee. It is
anticipated by the Parties that the Definitive Agreements will provide for the
same management structure as set forth in this MOU with such modifications as
may be agreed by the Parties.
2.3 Duties of Management Committee. The Management Committee shall
conduct, direct and exercise full control over all activities of the Enterprise
and the Project. Except as otherwise expressly provided herein, all management
powers over the business and affairs of the Project and Enterprise shall be
exclusively vested in the Management Committee. The Management Committee shall
have full power and authority to do all things necessary or desirable by it to
further the development of the Project and formation of the Enterprise.
2.4 Chairman of the Management Committee. The Parties hereby agree that
Columbia shall have the right to appoint the initial Chairman of the Management
Committee for a term of (2) years after the in service date. The Chairman shall
disburse all payments, maintain accounts and financial records and carry on all
other financial matters in furtherance of the Enterprise. The Chairman shall
have the authority to make all approved expenditures on behalf of the Enterprise
and to make expenditures which vary from the budgeted amounts so long as such
budget modifications do not cause the cumulative budget amount to exceed lesser
of (a) ten
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percent (10%) of the cumulative budget or (b) $5,000 (U.S.) without approval
from the Management Committee. In addition, the Chairman shall be responsible
for notifying the representatives of each meeting of the Management Committee,
presiding over each such meeting and ensuring that accurate minutes of each
meeting are kept and distributed to each representative.
2.5 Meetings of the Management Committee. The business of the
Management Committee shall be conducted at regular meetings, which shall be
held, at such date, time and place as shall from time to time be determined by
the Management Committee upon two (2) days advance written notice. In no event
shall meetings occur less than once a month.
2.6 Voting. Except as otherwise provided herein, the day!to!day
business activities of the Enterprise shall be approved by the affirmative vote
of at least two members of the Management Committee representing at least fifty
and one-tenth percent (50.1%) of the proposed ownership interests in the
Enterprise as set forth in Section 1.02. Voting may be in person, by proxy or in
any other manner as deemed appropriate by the Management Committee. The
following decisions shall require the approval of all of the members of the
Management Committee entitled to vote thereon:
(a) Approval of the Contribution Agreement
(b) Approval of the Development Agreement
(c) Approval of the Operating Agreement
(d) Approval of the Lease Agreement
(e) Subject to Section 2.04, amendment of the 1997 and
1998 Budgets
(f) Any other material agreement by Columbia on behalf of
the Project with Columbia or its affiliates
(g) A finding the Project is feasible pursuant to Section
2.01
(h) All precedent agreements
2.7 Action Without Meeting. Any action required or permitted to be
taken by the Management Committee at any meeting may be taken without a meeting
if a consent in writing setting forth the action so taken is signed by all of
the representatives of the Management Committee. Such consent shall have the
same force and effect as if such action was taken at a meeting of the Management
Committee.
2.8 Telephone Meetings. The Management Committee may hold, and each
member thereof may participate in, a meeting of the Management Committee by
using conference telephone or similar communications equipment by means of which
all members participating in the meeting can hear each other, and participation
in such meeting shall constitute presence in person at such meeting.
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ARTICLE 3
BUDGET AND CASH CONTRIBUTIONS
3.1 Budget. The initial budget (the "Budget"), delineated by line item
of expenditure for each month for 1997 is attached hereto as Schedule 3.01. Upon
request, the Parties shall be entitled to receive a full accounting of all
expenditures to date and shall be entitled to audit such costs.
3.2 Cash Calls. At the direction of the Management Committee, the
Chairman shall make written calls for cash contributions ("Cash Calls") from the
Parties to fund the Budget. Such Cash Calls shall be made no more frequently
than once a month. Each Party's contribution shall be proportionate to the
equity participation in the Project described in Section 1.02 of this MOU. Each
Party shall bear its proportionate share of all historical costs and expenses
incurred by Columbia through and including the date of execution of this
Agreement and shall pay such proportionate shares of costs and expenses to
Columbia on or before ten (10) days of execution of this Agreement; provided
that any such payment shall be subject to adjustment if the Management Committee
so determines as a result of any audit performed pursuant to Section 3.01. Each
Party shall tender its share of the Cash Call within ten (10) days of receipt of
the notice of such Cash Call from the Chairman. Any payments not made timely
shall accrue interest charges at the prime rate of interest charged by Citibank,
N.A. for the applicable period plus two (2) percentage points. If a Party
remains in arrears on the payment of any Cash Call for more than forty-five (45)
days, then the representatives of those Parties of the Management Committee
representing at least a majority of the proposed ownership interest in the
Project who are not in arrears with respect to any Cash Calls may by written
notice terminate that Party's rights to participate in the Enterprise, with no
recourse against the remaining Parties and with no right to refund of amounts
already paid in response to Cash Calls. In addition, the defaulting Party shall
remain liable for all unpaid Cash Calls for which that Party remains in arrears.
3.3 Recoverable Costs. The recovery of expenses associated with
employees of individual Parties will not be permitted unless provided for in the
Budget or expressly approved by the Management Committee. Attached hereto as
Schedule 3.03 is a list of all Columbia employees that are permitted to recover
labor and reasonable overhead expenses and all reasonable travel and travel
related expenses that are for the benefit of the Project. These expenses are
reflected in Schedule 3.01. Employee expenses of non Columbia employees which
are permitted to be recovered shall be recoverable at the rate of $400.00 per
day plus all reasonable travel and travel related expenses of such employees
that are for the benefit of the Project and approved by the Management
Committee, provided they are submitted within 45 days of the end of the month in
which the expenses were incurred. All costs and expenses incurred by the Parties
prior to the execution of this MOU shall be deemed to be contributions to the
Enterprise only if such costs and expenses are approved by the Management
Committee and submitted within 45 days of execution of the MOU.
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ARTICLE 4
NON-COMPETITION AND CONFIDENTIALITY
4.1 Non-Compete. The Parties agree to work exclusively with one
another, to evaluate the Project and to complete the Project if the results of
the due diligence and studies indicate positive feasibility. The Parties agree
not to participate in the development of or invest in, directly or indirectly as
an equity participant, any other greenfield project or venture into the U.S.
Northeast which, if developed, would offer natural gas transportation services
in competition with the Project until the later of (a) the filing of the
application for approval of a FERC certificate of public convenience and
necessity authorizing the Project or (b) the expiration of one (1) year from the
date of this MOU, unless a Party discloses such interest in a potentially
competing project and receives written consent to participate from the
Management Committee. The Parties shall be free to pursue any complimentary or
non-competing ventures without the participation of any other Party. The Parties
hereby agree that Columbia's service on its existing transmission system and
Columbia's market expansion project authorized pursuant to FERC Docket No.
CP96-213 will not be deemed as a violation of its covenant not to compete. The
Parties further acknowledge that Westcoast is involved in the Maritimes and
Northeast Pipeline Project, MCN is involved in the Portland Natural Gas
Transmission Project, and TransCanada is involved in the TransMaritime Gas
Transmission Project, Iroquois Gas Transmission and the Portland Natural Gas
Transmission Project, as well as the TransCanada PipeLine, Limited Canadian
Mainline, and the Parties agree that participation or ownership in any of the
aforementioned projects or pipelines, or any contemplated or future expansions
thereof, will not be a violation of the covenant not to compete.
4.2 Confidentiality. The Parties agree that the nature, existence and
terms of this MOU shall be subject to the terms and conditions of the
Confidentiality Agreements (the "Confidentiality Agreements") previously
executed by the Parties.
ARTICLE 5
TERMINATION
5.1 Definitive Agreement Supersedes. Upon the execution of the
Definitive Agreements contemplated in Section 1.05, this MOU shall be wholly
superseded.
5.2 Project Not Feasible. Upon unanimous determination by the Parties
in writing that the Project is not feasible and will not be pursued, this MOU
shall terminate with no continuing rights or obligations except as provided in
Section 4.02; provided, however, that the covenant not to compete will be
released for all Parties. Further, should this MOU be terminated as provided for
in this Section 5.02, the Parties shall not be entitled to reimbursement of any
expenses incurred in furtherance of the Project incurred through the date of
termination; provided, however, the Parties shall remain liable for all expenses
incurred and previously authorized by the Management Committee.
5.3 Withdrawal by Individual Parties. At any time prior to the
execution of the Definitive Agreements, any Party may withdraw from its
participation in the Project and this
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MOU by delivering to the Management Committee written notice of its intention to
withdraw. No Party withdrawing pursuant to this Section 5.03 shall be entitled
to reimbursement of any expenses in furtherance of the Project incurred through
the date of withdrawal and such Party shall remain liable for all Cash Calls
made prior to the date of such withdrawal; provided, however, if the remaining
Parties continue the Project, then the withdrawing Party shall be entitled to an
amount equal to its cash contributions to the Enterprise upon the commencement
of commercial service of the Project or upon the introduction of a substitute
Party to the Enterprise, so long as either occurs within five years from the
date of withdrawal. Unless the remaining Parties agree otherwise, the remaining
Parties will receive a pro rata share of the withdrawing Party's rights in and
to the Enterprise and the Project.
5.4 No Agreement. If no Definitive Agreements have been signed by the
Parties by February 1, 1998 and the Parties have not elected in writing to
continue the terms and conditions of this MOU, then the MOU shall terminate
automatically; provided, however, each Party shall continue to be obligated to
pay for its share of costs and expenses approved by the Management Committee and
incurred prior to the termination of this MOU.
ARTICLE 6
MISCELLANEOUS
6.1 Preliminary Agreement. The Parties acknowledge and agree that this
MOU, although binding, is a preliminary agreement between the Parties concerning
the Enterprise and the Project and does not contain comprehensive details
concerning the management, organization, funding, development, construction,
operation, and other matters which will be essential to the Enterprise and the
Project and which will be set forth in the Definitive Agreements. The purpose of
this MOU is to establish the relationship between, and the obligations of, the
Parties prior to execution and delivery of the Definitive Agreements as well as
to provide an outline of the basic terms and conditions of the Definitive
Agreements. The obligation of the Parties to proceed with the Project and the
Enterprise beyond the obligations expressly set forth in this MOU is subject in
all respects to the execution and delivery of the Definitive Agreements.
6.2 Relationship of Parties. This MOU does not create a partnership,
joint venture or relationship of trust or agency between the Parties.
6.3 Assignment. Except as otherwise provided herein, this MOU shall not
be assigned without the prior written consent of the Parties, which consent
shall not be unreasonably withheld. Notwithstanding the foregoing, this MOU may
be assigned without the consent of the other Parties to (a) a wholly owned
affiliate with financial support of the assignor, or an affiliate of equivalent
or greater financial capability or (b) following the interest being first
offered through a right of first refusal to the remaining Parties to this MOU,
any entity succeeding to all or substantially all of the assets of such Party,
provided any such assignee expressly agrees in writing to bound by the terms of
this MOU.
6.4 Amendment. This MOU may not be altered, changed or amended, except
by an instrument in writing executed by all parties hereto.
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6.5 Choice of Law. This Agreement shall be governed and construed in
accordance with the State of Delaware except to the extent of any laws of the
United States of America and any rules, regulations, or orders issued or
promulgated thereunder applicable to this Agreement preempt Delaware Law, in
which event such Federal Law shall control.
6.6 Notices. Except as may otherwise be specifically provided for
elsewhere herein, any notice or communication required or permitted hereunder
shall be in writing and shall be deemed to have been duly given (i) if sent by
registered or certified mail (return receipt requested) on the date that is five
(5) business days following the date when delivery is made to the U.S. or
Canadian Postal Services (ii) if delivered personally, on the date that delivery
is made, (iii) if sent by facsimile on a business day during the hours of 8:00
and 5:00 p.m. ET by a facsimile machine which generates an electronic
confirmation of such receipt on the date when sent, and if sent by facsimile
after 5:00 p.m. ET on a business day, on the next following business day, or
(iii) if sent by overnight mail or overnight courier, on the business day
following the day when sent, at the following addresses (or at such other
addresses as shall be specified by the Parties from time to time):
Columbia: 12801 Fair Lakes Parkway
Post Office Box 10146
Fairfax, Virginia 22030
Att.: David Pentzien
Telephone: (703) 227-3223
Telecopy: (703) 227-3326
Westcoast: 50 Keil Drive North
Chatham, Ontario
Canada N7M 5M1
Att.: John Wolnik
Telephone: (519) 436-4567
Telecopy: (519) 436-4521
MCN: City Place I
185 Asylum Street, 32nd Floor
Hartford, CT 06103
Att.: Mike Feodorov
Telephone: (860) 275-6460
Telecopy: (860) 275-6245
TransCanada: TransCanada Pipelines Tower
111 5th Avenue, SW
Calgary Alberta
T2P 3Y6
Att.: Brian Fowler
Telephone: (403) 267-1908
Telecopy: (403) 267-8573
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6.7 Damages. No Party shall have any liability to the other Parties for
special, incidental, indirect or consequential damages nor for any matter
whatsoever associated with the activities covered by this MOU, except as
specifically set forth herein.
6.8 Entirety. This MOU and the Confidentiality Agreements constitute
the entire agreement between the Parties with respect to the subject matter
hereof, and, except for the Confidentiality Agreements, all prior
correspondence, memoranda, agreements or understandings (written or oral) with
respect hereto are merged into and superseded by this MOU.
6.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
If fewer than all of the Parties execute this MOU, it shall
nevertheless be enforceable against the Parties executing this MOU and the
ownership of the Enterprise, and the participating interests in the Project
shall be adjusted on a pro-rata basis among the Parties that have executed this
MOU unless the remaining parties agree otherwise.
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IN WITNESS WHEREOF, executed as of the date first written above.
Columbia Gas Transmission Corporation
By:_________________________________________
Printed Name:_______________________________
Title:______________________________________
Westcoast Energy (U.S.), Inc.
By:_________________________________________
Printed Name:_______________________________
Title:______________________________________
MCN Investment Corporation
By:_________________________________________
Printed Name:_______________________________
Title:______________________________________
TransCanada PipeLines Limited
By:_________________________________________
Printed Name:_______________________________
Title:______________________________________
By:_________________________________________
Printed Name:_______________________________
Title:______________________________________
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