MEMORANDUM OF UNDERSTANDING
ON TRANSMISSION PROJECT DEVELOPMENT
This Memorandum of Understanding on Transmission Project Development (the
"MOU") is entered into as of January 5, 1999, between Bangor-Hydro-Electric
Company, a Main corporation ("BHE") and Penobscot Hydro, LLC, a Delaware limited
liability company ("PHLLC"). Capitalized terms used herein and not defined
herein have the respective meanings set forth in the Asset Purchase Agreement,
dated as of September 25, 1998, among BHE, PP&L Global, Inc. and Penobscot Hydro
Co., Inc. (the "APA").
In consideration of the mutual covenants contained herein and in the APA,
BHE and PHLLC agree as follows:
1. This MOU constitutes the "memorandum of understanding" referred to in
Section 8.2(g) of the APA with respect to the potential future
development of the 345 Line (as such term is defined in APA Schedule
1.1(a)(61) which is reproduced as Schedule A attached hereto). As
contemplated by the APA, this MOU shall provide a framework for the
future development of the 345 Line and ensure that the 345 Line is
developed in accordance with all applicable federal and state laws and
regulations. The execution and delivery of the MOU by BHE satisfies
the condition to Buyer's obligation to close under the APA set forth
in such Section 8.2(g) insofar as the 345 Line project is concerned.
2. Following the closing of the APA (the "Closing"), PHLLC may elect to
develop and use the 345 Line under several alternative structures,
which may include (a) ownership of 345 Line assets by an entity which
shall be designated by PHLLC after the Closing to hold the 345 Line
("LineCo"), (b) ownership of 345 Line assets by BHE or an Affiliate of
BHE (or another qualified third party), with a right to transmission
capacity being conveyed to PHLLC consistent with applicable FERC
regulations and policies, or (c) ownership of 345 Line assets in a
partnership or limited liability company or other entity as mutually
agreed to by the parties in accordance with applicable state and
federal law. BHE's participation in the legal structures described in
(b) or (c) shall be at the sole discretion of BHE.
3. BHE agrees that, following the Closing, and until and unless the
transfer ofthe345 Line pursuant to the Transfer Notice (as hereinafter
defined) has occurred (but in any event, not longer than a period of
two (2) years following the Closing), BHE shall in consultation with
and at the direction of PHLLC retain full legal responsibility for
compliance with the Permits and will, diligently pursue and take all
commercially reasonable actions as may be necessary to preserve and
enhance the potential for development of the 345 Line, including (i)
retaining operational control of legal ownership of the rights of way
over which the 345 Line will be constructed; (ii) remaining a
permittee under the Permits relating to the 345 Line,
including, but not limited to those issued by the Maine Land Use
Regulation Commission and the Maine Department of Environmental
protection (the "Permits"); (iii) assuming a supervisory role over the
construction of the 345 Line in order to ensure compliance with the
requirements of the Permits; and (iv) taking such other similar
actions with respect to the development of the 345 Line project as
PHLLC may reasonably request or as may be required by the Permits,
including, but not limited to the actions requested (a) by the Maine
Department of Environmental Protection in a letter sent to BHE on
December 4, 1998 and (b) by the Maine Land Use Regulation Commission
in a letter sent to BHE on December 4, 1998. Unless otherwise required
by law to act as principle, BHE may take some or all of these actions
as agent for PHLLC. Except as provided in Section 8 hereof, all costs
and expenses incurred by BHE in connection with BHE's performance of
its responsibilities under the Permits, including the time of BHE
employees involved and travel expenses, legal, consulting and
engineering fees, filing fees, and other out-of-pocket expenses, shall
be borne by BHE until the first anniversary of the Closing, and
thereafter, assuming the MOU is in effect, shall be borne (without
xxxx-up) by PHLLC or LineCo; provided, however, that any other costs
incurred for development of the 345 Line after Closing, including all
costs of actual construction, shall be borne initially PHLLC or LineCo
and shall be considered project development costs for the purposes of
Section 7 hereof.
4. As contemplated by BHE's Divesture Plan and the APA and as reaffirmed
herein, BHE is obligated to transfer to PHLLC all of BHE's right,
title and interest in the 345 Line. At any time within thirteen (13)
months after the Closing, PHLLC may send BHE a written request (the
"Transfer Notice") requiring BHE to transfer to PHLLC or LineCo all of
BHE's right, title and interest in the 345 Line. Such transfer shall
occur (i) within thirty (30) days of receipt by BHE of the Transfer
Notice or (ii) within such longer period of time after BHE's receipt
oft he Transfer Notice as may be required to obtain necessary
regulatory approvals; provided that if the transfer is not completed
within two (2) years of Closing, BHE shall be relieved of all
obligations hereunder. The parties will use commercially reasonable
efforts to accomplish the transfer upon issuance of the Transfer
Notice. Such transfer shall be made in accordance with applicable
federal and state laws.
5. For a period of one (1) year following the Closing, BHE shall have the
option, but not the obligation, to receive a 50% equity interest in
LineCo. BHE must notify PHLLC in writing of its intention to receive a
50% equity interest in LineCo within one (1) year of the Closing. Such
notice by BHE (the "BHE Notice") shall include a confirmation of BHE's
willingness to comply with the requirements of Section 7 hereof.
Failure by BHE to give the BHE Notice within such time period shall be
deemed an election by BHE not to exercise such option.
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6. If PHLLC elects to offer BHE a consulting agreement with respect to
the 345 Line, such consulting agreement shall provide for (i)
reimbursement to BHE for all costs and expenses incurred by it under
the consulting agreement, including agreed hourly rates BHE employees
involved and travel expenses, legal, consulting and engineering fees,
filing fees, and other out-of-pocket expenses and (ii) if the 345 Line
project proceeds to financial closing, a success fee of not less than
5% of the total budgeted costs for such project net of any consulting
costs reimbursed to BHE by PHLLC. The services to be provided by BHE
for the period of up to two (2) years following the Closing as
described in Section 3 above shall not constitute PHLLC's retaining
BHE as a consultant for the purposes of this Section 6.
7. If BHE to exercise its right to receive a 50% equity interest in
LineCo, BHE and PHLLC shall, within ninety (90) days of the date of
the BHE Notice, negotiate in good faith a joint venture agreement with
respect to the 345 Line. Such joint venture agreement shall be on
commercially reasonable terms and (i) shall obligate the parties to
pay a pro rata share (equal to its equity interests in LineCo) of the
project development costs of the 345 Line (except for those costs
agreed to be borne by BHE pursuant to Section 3 above), (ii) shall
obligate the parties to make a pro rata equity contribution to LineCo
in accordance with the project development financial plan, (iii) shall
give the parties a pro rata vote in LineCo, (iv) shall require the
owner of the 345 Line (whether BHE or PHLLC or an Affiliate of BHE or
PHLLC) to transfer the 345 Line to LineCo, and (v) shall preclude the
parties from assigning their respective 50% interests without the
prior written consent of the other party, which consent shall not be
unreasonably withheld. Project development costs shall include, but
not be limited to, all costs incurred by PHLLC post-Closing and before
execution of the joint venture agreement reasonably related to the
development of the 345 Line, all costs incurred by LineCo after the
execution of the joint development agreement which are reasonably
related to the development of the 345 Line and any equity
contributions required in order to secure financing for the
construction of the 345 Line and for the permanent financing of the
345 Line.
8. PHLLC hereby agrees (i) to indemnify and hold harmless BHE and its
directors, officers, employees, advisors and affiliates from any
claims, losses, damages or liabilities (a) which may be asserted by
any third party arising out of actions of BHE with respect to the 345
Line taken (or not taken) pursuant to and in conformity with the prior
direction and approval of PHLLC, and (b) arising out of any action
taken by BHE in response to and in compliance with a regulatory order
relating to the 345 Line and (ii) that BHE shall have no liability to
PHLLC resulting from any action taken (or not taken) with respect to
the 345 Line so long as such actions (or inactions) were (a) performed
in conformity with the direction or approval given by PHLLC, or (b)
taken by BHE in response to and in compliance with a regulatory order
relating to the 345 Line, and, in the case of
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either (i) or (ii) above, such claims, losses, damages or liabilities
are not a result of the gross negligence or willful misconduct of BHE.
PHLLC further agrees to pay all costs and expenses of litigation
incurred by BHE both (y) in connection with any such indemnifiable
claims, losses, damages or liabilities described in (i) above and (z)
which would not have been incurred by BHE but for PHLLC's desire to be
a participant in the development or use of the 345 Line (but assuming
that BHE would have proceeded with development of the 345 Line). If,
for the twelve (12) month period following Closing BHE incurs costs
and expenses of litigation related to the development of the 345 Line
which are not indemnified hereunder, and such costs and expenses of
litigation are not a result of the gross negligence or willful
misconduct of BHE, PHLLC shall pay such costs and expenses of
litigation to the extent such costs and expenses are in excess of
$300,000. This Section 8 shall survive any termination of this MOU but
shall be of not force and effect from and after the time a joint
venture agreement is executed.
9. Ths MOU shall terminate upon the earliest to occur of the following:
(i) any termination of APA, (ii) upon a transfer of the 345 Line
pursuant to a Transfer Notice, (iii) the second anniversary of the
Closing; (iv) upon the execution of a joint venture agreement between
the parties (or their Affiliates) with respect to the 345 Line, or (v)
the failure of PHLLC to send the Transfer Notice within thirteen (13)
months after Closing; provided, that no termination under clauses
(ii), (iii), (iv) or(v) shall affect the obligations of the parties
under Sections 3 (with respect to any amounts unpaid at the time of
termination) or 6 and no termination under clause (ii) shall affect
the obligations of the parties under Section 5.
10. BHE shall not assign this MOU without the prior written consent of
PHLLC. PHLLC shall not assign this MOU without the prior written
consent of BHE, which consent shall not be unreasonably withheld.
11. This MOU shall be governed by and construed in accordance with the
laws of the State of Maine, without reference to the conflicts of laws
principles of such state.
12. Each party represents that its representative signing this MOU is duly
authorized to commit such party to the performance of this MOU.
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Executed by the parties hereto as of this date set forth above.
BANGOR HYDRO-ELECTRIC
COMPANY
By:
----------------------------
Name:
Title:
PENOBSCOT HYDRO, LLC
By:
----------------------------
Name:
Title:
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Executed by the parties hereto as of this date set forth above.
BANGOR HYDRO-ELECTRIC
COMPANY
By:
----------------------------
Name:
Title:
PENOBSCOT HYDRO, LLC
By:
----------------------------
Name:
Title:
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SCHEDULE A
"345 Line" means all right, title and interest of BHE in the proposed
tie-line beginning at the Maine/New Brunswick border in Woodland, Maine and
terminating at the MEPCO 345/115kV substation in Orrington, Maine. This includes
(i) the rights-of-way described on Annex I to Schedule 5.8 of the APA associated
with the 345 Line (the "345 Line ROWs"), (ii) all design information, cost
information, and any other information owned by BHE with respect to the
planning, permitting, design and construction of the portion of the line that
would be located in the State of Maine and (iii) the Permits (as such term is
defined in the APA) identified on Schedule 5.12 to the APA under the heading
"345kV Lien" and the submission and request for review of plan in accordance
with Section 18.4 titled "Review of participation Proposed Plan" of NEPOOL (the
"NEPOOL Application") to the full extent of BHE's ability to transfer such
Permits and NEPOOL Application") to the full extent of BHE's ability to transfer
such Permits and NEPOOL Application to PHLLC, provided that BHE shall not be
obligated to pay money or make other financial accommodation in order to effect
the transfer of such Permits and NEPOOL Application to Buyer. The 345 Line does
not include the portion of the line to be constructed in New Brunswick.
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