EXHIBIT 10.65
PRECEDENT AGREEMENT
BETWEEN
COLUMBIA GAS TRANSMISSION
CORPORATION AND
PANDA-BRANDYWINE, L.P.
THIS PRECEDENT AGREEMENT ("this Agreement")
is made and entered into as of the 25th day of February,
1994, by and between COLUMBIA GAS TRANSMISSION
CORPORATION, a Delaware Limited Partnership (hereinafter
called "Panda").
WITNESSETH
WHEREAS, Panda desires that Columbia provide
firm transportation service ("FTS") for up to 24,24O
Dth/day of natural gas supplies from an interconnection
between Columbia and ANR Pipeline Company for delivery
to Cove Point LNG Limited Partnership ("LNG"), at an
interconnection of the facilities of Columbia and LNG
near Loudoun (meter M.S. B-17762), Loudoun County,
Virginia for transportation and re-delivery by LNG to
a gas line serving the Panda cogeneration facility in
Brandywine, Maryland (the "Brandywine Facility");
WHEREAS, Panda has requested such FTS
pursuant to Columbia's currently effective Federal Energy
Regulatory Commission (FERC) Gas Tariff;
WHEREAS, Panda has made or will make
arrangements for the natural gas supply necessary for
transportation to the Brandywine Facility;
WHEREAS, Columbia desires to render such FTS
for Panda;
WHEREAS, construction of facilities by Columbia
will be necessary in order for Columbia to provide the
FTS;
WHEREAS, Panda will make arrangements for
transportation service on LNG to further transport such
natural gas supplies to the Brandywine Facility; and
WHEREAS, Columbia and Panda have executed a
Service Agreement attached hereto obligating Columbia to
provide the FTS as conditioned and described herein;
NOW THEREFORE, in consideration of the
mutual covenants herein contained, the parties hereto
agree as follows:
Section 1. (a) Fire Transportation Service.
Columbia shall provide Panda with 24,240 Dth/day
("Transportation Demand") of Firm Transportation Service
("FTS") for a primary term of approximately 25 years as
provided for herein and in the attached FTS Service
Agreement ("Service Agreement"), such FTS shall be
rendered under the Service Agreement pursuant to
Columbia's FTS Rate Schedule. Deliveries of the
Transportation Demand will be at even hourly rates of
flow equal to or less than 1/24 of the Transportation
Demand, which shall be incorporated into the Service
Agreement attached hereto; provided Columbia's gas
controller shall deliver gas to Panda at the rate of
flow requested by Panda to the extent that Columbia's gas
controller determines, in his discretion, that such rate
of flow can be accommodated within Columbia's system
limitations.
(b) Points of Receipt and Delivery. The primary
Point of Receipt for gas into Columbia's system shall
be at the interconnection of the facilities referenced
in Appendix A of the Service Agreement. The primary
Point of Delivery will be at the interconnection of the
facilities of Columbia and LNG near Loudoun, (meter M. S. 8-
17762) Loudoun County, Virginia as further described in
the Service Agreement. Columbia shall deliver gas to
the Point of Delivery at Columbia's prevailing line
pressure on the suction side of the Loudoun Compressor
Station.
Section 2. (a)(1) Columbia's New Facilities. In
order to provide the FTS requested by Panda, Columbia
will have to construct certain facilities on
Columbia's pipeline system, which facilities Columbia
will own, operate and maintain. The estimated cost
of constructing Columbia's new facilities is
$11,448,000, excluding any gross-up for income taxes.
Such amount is Columbia's budget estimate of the costs
associated with the construction of facilities
necessary to provide FTS to Panda. Subject to
the provisions of this Section 2 concerning additional
facility costs and Section 4 hereof concerning actual
cost reconciliation, Panda agrees to pay to Columbia a
Contribution-in-Aid-of-Construction of $8,772,590
plus the applicable gross-up for income tax in accordance
with the provisions set forth in Section 3 hereof.
(a)(2) Columbia shall diligently undertake the
effort to obtain all governmental approvals necessary for
Columbia to construct the new facilities and provide
FTS to Panda, as provided herein. Panda shall cooperate
with and provide to Columbia on a timely basis all
information and data requested by Columbia which
Columbia deems necessary in order to obtain the
necessary regulatory approvals, including any
information requested by the FERC or its staff, for
construction of the new facilities. Upon (i) receipt
of all necessary regulatory authority upon terms and
conditions acceptable to Columbia and Panda, (ii)
receipt of all requisite approvals and permits
acceptable to Columbia and Panda, (iii) receipt of the
initial payment by Panda to Columbia of the
Contribution-In-Aid-of-Construction as specified in
Section 3(b)(i) hereof and (iv) satisfaction of the
Conditions Precedent set forth in Section 11 hereof,
Columbia shall commence construction of the facilities
required to provide the FTS to Panda.
(b) Additional Facility Cost. If, after
Columbia receives an order from the FERC approving the
construction of the new facilities upon terms and
conditions acceptable to Columbia and Panda, or any
time during construction of the facilities, Columbia
determines that the budget estimate for the cost of
the new facilities ($11,448,000 excluding any gross-up
for income taxes) necessary for Columbia to serve the
Brandywine Facility is anticipated to increase by 10% or
less of such budget estimate, then Columbia agrees to
pay such additional increase in cost. If said costs are
anticipated to increase by greater than 10% of the
budget estimate, Columbia shall give Panda advanced
written notice of such cost increase, with information
supporting the cost increase. Columbia shall not
proceed to incur such cost increase until Columbia and
Panda negotiate in good faith for the sole purpose of
determining a method to fund that portion of the
increase which is in excess of 10% of the budget
estimate. The funding method negotiated for the sole
purpose of determining the method to fund such excess
will be acceptable to both parties and structured so as
to preserve the economic integrity of the new facilities
construction. All facility costs for which Panda is
responsible shall remain unchanged or be adjusted upward
in accordance with the outcome of such negotiations. In
the event such negotiations are necessary, the
negotiation period will terminate upon the earlier of
(i) the parties reaching agreement as to the basis upon
which the project will proceed or (ii) the effective date
of termination of this Agreement by Panda or
Columbia as provided in Section l0(a)(i) or l0(b)(i)
hereof. However, such negotiation period shall be limited
to no more than 6 (six) months from the date Panda
receives notice of an Increase in the budget estimate
unless otherwise mutually agreed to by both Columbia
and Panda.
Section 3. (a) Contribution-in-Aid-of-
Construction. Panda shall make a Contribution-in-Aid-of-
Construction (the "Contribution") of $8,772,590, plus
applicable grossup for income taxes calculated at the
applicable tax rates over the life of the construction
of the facilities contemplated herein. The tax gross-
up will apply only to the facilities paid for by Panda
but owned by Columbia as further identified in
Appendix A to this Agreement. For purposes of this
Agreement, the "tax gross-up", or reimbursement for
income taxes incurred by Columbia as a result of
receipt of the Contribution, shall be calculated in
accordance with the decision of the FERC In
Transwestern Pipeline Company, 45 FERC (CCH) Para.
61,116 (l988). The parties understand and agree that
the cost of the new facilities construction for which
Panda is ultimately responsible shall be reconciled with
the actual costs of this project pursuant to Section 4 of
this Agreement.
(b)(1) Payment of Contribution. Panda will make
an initial payment in the amount of $100,000 toward
its Contribution upon the execution of this Agreement
by both Columbia and Panda. In addition, Panda will
make a second payment to Columbia in the amount of
$100,000 towards its Contribution, on March 1, 1994.
Columbia shall use such payments to defray the cost
of preparing and making the required FERC filing for
the new Columbia facilities, and to defray the cost of
Columbia's environmental assessment with respect to the
construction of the new Columbia facilities. Panda will
fund the balance of the Contribution out of the proceeds
of the financing for the Brandywine Facility. Upon the
closing of such financing, Panda shall certify in writing
to Columbia that the full amount of the Contribution
as defined in Section 3(a) hereof as of the date
of this Agreement ($8,772,590 plus the tax gross-up) is
or will be available to Columbia under the terms and
provisions of such financing (but not in a manner
inconsistent with the specific terms of this Agreement)
to pay the remaining amount due Columbia in respect of
the Contribution.
(b)(2) Columbia shall provide to Panda, on a monthly
basis, a good faith estimate of the cost of the
materials, other related construction costs and expenses
and any tax "gross-up" then known to Columbia that
Columbia will have to incur for the construction of the
Columbia facilities during the upcoming month. Panda
shall review such estimate and, within twenty (20) days
of Panda's receipt of such estimate, may provide
Columbia with a list of suppliers that may provide at a
lower cost materials that are the same as those described
in Columbia's estimate. If Columbia, in its
discretion, deem appropriate, it may purchase the same
materials from the list of suppliers provided by Panda;
provided that nothing herein shall be construed as an
obligation on Columbia to do so.
(b)(3) Panda shall pay in full or cause to be
paid in full to Columbia, within thirty (30) days of Panda's
receipt of any and all monthly invoices in respect of
the Contribution submitted by Columbia. Such monthly
invoices will be accompanied by a schedule and
supporting information reflecting in reasonable detail
the purpose for which Columbia will expend the requested
funds in connection with the construction of the new
Columbia facilities. Such amounts requested and actually
received by Columbia from Panda shall be applied toward
Panda's Contribution. In no event will Columbia be
obligated to proceed with or continue with any
construction of facilities as described herein until
payment by Panda and receipt by Columbia of the
funds requested by Colombia in the monthly invoices.
After payment in full by Panda of all facilities
costs for which it is responsible, as may be adjusted
pursuant to the terms of this Agreement, Columbia
shall begin expending Colombia's own funds to satisfy any
of its obligations hereunder for the cost of facilities.
Section 4. Actual Cost Reconciliation. (a) In
the event the actual cost of the new Columbia facilities
constructed hereunder is equal to or less than
$7,530,120 excluding any gross-up for income taxes, Panda
shall only be responsible for such actual cost, plus any
gross-up for income taxes.
(b) If the actual cost is greater than
$7,530,120 but equal to or less than $11,448,000.
excluding any gross-up for income taxes, Panda shall only
be responsible for 31.713% of the amount by which such
actual cost exceeds $7,530,120, plus any gross up for
income taxes, and Columbia shall be responsible for the
remaining portion (68.287%) of the amount by which
such actual cost exceeds S7,530,120. In addition, Panda
shall be responsible for the first $7,530,120 of the
actual total cost, plus any gross-up for income taxes.
(c) If the actual cost is greater than
$11,448,000, excluding any gross-up for income taxes,
the provisions of Section (4)(b) hereof shall apply with
respect to actual cost up to $11,448,000, and the
actual costs in excess of $11,448,000 shall be borne:
(1) by Columbia to the extent such excess is less than or
equal to 10% of $11,448,000; and (2) by Panda and
Columbia, to the extent such excess is greater than the
10% of $11,448,000; borne by Columbia pursuant to the
preceding Section 4(c)(1), in accordance with the
results of the negotiations between the parties as
provided for in Section 2(b) hereof, plus any gross-up
for income taxes applicable to the amount of the excess
cost for which a party is responsible.
(d) For any portion of the new facilities costs
for which Panda is responsible and has not paid to
Columbia at the end of the new facilities construction,
Columbia will render Panda a final invoice for the
balance, plus applicable grossup for income taxes, which
shall be payable by Panda within 30 days of Panda's
receipt of the invoice from Columbia. If Columbia has
collected more from Panda than for which Panda is
responsible, Columbia shall refund such excess to Panda
within 180 days of completion of the construction of the
new facilities, plus interest on such excess calculated
at the FERC approved interest rate at the time of such
refund.
Section 5. Commencement of Service. Subject to
the provisions of Section 11 hereof, this Precedent
Agreement shall become effective as of the date first
above written. For purposes of payment of the reservation
charge and Panda's right to deliver to or cause the
Transportation Demand to be delivered by Columbia, the
FTS and the primary term of the Service Agreement
shall commence on the date of the completion of the
Columbia facilities, which date shall be no earlier than
November 30, 1995. The primary term of the Service
Agreement shall end on that date 25 years after the
"Actual Commercial Operation Date" determined pursuant
to that certain Power Purchase Agreement, dated
August 9, 1991, between Panda and Potomac Electric
Power Company, which ending date shall be no earlier
than May 31, 2021. After the initial primary term (of
approximately 25 years) such service shall continue from
year to year thereafter unless terminated by either
party upon six (6) months written notice to the other.
Panda will notify Columbia of the "Actual Commercial
Operation Date" in the form of an actual date certain
as soon as it becomes known to Panda.
Section 6. Compliance with Columbia Gas Tariff.
The terms and conditions of this Agreement and the
Service Agreement are subject to the FTS Rate Schedule and
the General Terms and Conditions of Columbia's effective
FERC Gas Tariff, as the same may be amended or
superseded from time to time, and which are applicable
to the FTS Rate Schedule. Panda will submit to Columbia
from time to time, and within specified time periods,
all required forms and information necessary under
Columbia's FERC Gas Tariff to receive the
transportation services specified herein.
Section 7. Notices. Notices under this Agreement
shall be in writing, by letter, telex, or telecopier, and
shall be deemed to have been duly made when hand
delivered, when deposited in the mail as registered
or certified postage prepaid, or in the case of
transmission by telecopier, when confirmation of receipt
is obtained, or in the case of telex notice of answer-
back received, and shall be addressed as follows:
If to Columbia
Columbia Gas Transmission Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Director of Market Development
PH: 304/▇▇▇-▇▇▇▇
FAX:304/▇▇▇-▇▇▇▇
If to Panda
Panda Energy Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Manager, Transportation and
Exchange
Ph: 214/▇▇▇-▇▇▇▇
Fax: 214/▇▇▇-▇▇▇▇
Either party may change its address for purposes of
notice by so notifying the other in writing.
Section 8. Governing Law. This Agreement shall
be governed by the laws of the State of West Virginia,
except as to any matters subject to federal law and
the exclusive jurisdiction of the FERC.
Section 9. Successors and Assigns. This
Agreement cannot be assigned except by the written
agreement of the parties hereto; provided, Panda may,
without the consent of Columbia, pledge or assign a
security interest in its rights and interests under this
Agreement and the Service Agreement to its lenders or
other parties providing financing for the Brandywine
Facility ("Panda's Lenders") as security for Panda's
obligations under the terms of such financing.
Columbia acknowledges but without relinquishing any right
or action it may assert against Panda, or as otherwise
permitted by law, upon an event of default by Panda
under the terms of such financing, any of Panda's
Lenders may (but shall not obligated to) assume or cause
its designee or a new lessee or purchaser of the
Brandywine Facility to assume, all of the interests,
rights, and obligations of Panda thereafter arising under
this Agreement or the Service Agreement; provided, that
if any of Panda's Lenders assume this Agreement or the
Service Agreement as a result of Panda's default,
Panda's Lenders shall provide written notice to
Columbia within sixty (60) days of such assumption. If
the rights and interests of Panda in this Agreement
or Service Agreement shall be assumed, sold or
transferred to Panda's Lenders, as provided for herein:
(i) the successor party shall be bound by and assume the
terms and conditions of this Agreement, the Service
Agreement and any and all obligations to Columbia
arising or accruing under this Agreement and the Service
Agreement from and after the date of such assumption, sale
or transfer; (ii) Columbia shall continue this Agreement
and the Service Agreement with the successor party as
if such person had thereafter been named as the
contracting party under this Agreement and the
Service Agreement; and (iii) Panda shall be released
and discharged from any and all obligations to Columbia
arising or accruing under this Agreement or the Service
Agreement from and after the date of such assumption,
sale or transfer; provided, that nothing herein shall be
construed as releasing or discharging Panda of any and
all obligations arising or accruing under this Agreement
or the Service Agreement prior to such date. In the
event of any assumption, assignment or transfer, the
terms of this Agreement and the Service Agreement shall
be binding upon and inure to the benefit of the successors
or assignees of the parties hereto. Any such assignment
shall expressly provide that the assignee thereunder
assumes all of the obligations of the assigning party
under this Agreement and the Service Agreement;
provided, however, if any of Panda's lenders assumes this
Agreement or the Service Agreement as a result of Panda's
default, their liability shall be limited to the parent
of applicable reservation charges and reservation
surcharges, and commodity charges and commodity
surcharges to Columbia for the transportation service
provided under the Service Agreement.
Section 10. Termination. This Agreement shall
only be terminated as provided in this section.
(a) Termination by Panda. Panda, upon thirty
(30) days written notice to Columbia, may terminate
this Agreement if: (i) the negotiations contemplated
in Section 2(b) hereof are not satisfactory to Panda,
in its reasonable discretion, at the end of the
negotiation period; (ii) Panda fails to complete the
construction of the Brandywine Facility by June 1, 1996;
or (iii) if any of the conditions precedent in Section
11) hereof are not fulfilled by June 1, 1997. Any such
termination shall not be effective if the unsatisfied
condition of this Section 10(a) is satisfied prior to the
end of the 30-day notice period.
(b) Termination By Columbia. Columbia, upon
thirty (30) days written notice to Panda, or Panda's
Lenders, as the case way be, may terminate this
Agreement if: (i) the negotiations contemplated in
Section 2(b) of this Agreement are not satisfactory to
Columbia, in its reasonable discretion, at the end of
the negotiation period; (ii) Panda's failure to make
payments to Columbia as provided in Section 3(b) hereof;
or (iii) if any of the conditions precedent in Section 11
hereof are not fulfilled by June 1, 1997. Any such
termination shall not be effective if the unsatisfied
condition of this Section 10(b) is satisfied prior to the
end of the 30-day notice period.
(c) Termination Costs. If this Agreement is
terminated by Panda or Columbia pursuant to this
Section 10, Panda shall reimburse and pay Columbia,
within sixty (60) days of Columbia's providing Panda with
an itemized listing, for any and all costs and expenses
incurred by Columbia, its agents or contractors, up to,
but not exceeding the Contribution, as of the effective
date of such termination pertaining to the design of the
facilities contemplated herein; obtaining regulatory and
other approval for construction of such facilities;
and the actual construction of such facilities. Such
costs and expenses shall include, but not be limited
to, costs and expenses for all: construction; materials;
supplies; labor; taxes; equipment; charges attributable
to holding and returning any unused equipment,
materials or supplies; design engineering; legal and
professional fees; internal charges; preparation of
regulatory or other filings, reports and supporting
materials; and all efforts to obtain the requisite
regulatory and other approvals. Columbia shall retain title
to any facilities constructed or in the process of
being constructed and to any equipment, materials
or supplies that cannot be returned to vendors or
suppliers. Columbia shall not be required to
refund or reimburse Panda for any funds paid by
Panda to Columbia pursuant to this Agreement, to the
extent such funds are necessary to satisfy any of
the aforementioned costs and expenses, or any "tax gross-
up" thereon.
(d) Service Agreement. If this Agreement is
terminated, the Service Agreement attached hereto
shall also be deemed terminated as of the effective
date of termination of this Agreement.
Section 11. Conditions Precedent. Except for the
rights and obligations of Columbia and Panda set forth in
Section 2(a)(2) hereof, which shall be effective on
the date first above written, performance by Columbia
and Panda under this Agreement and the Service Agreement
is expressly conditioned upon:
(a) Columbia obtaining any and all necessary
internal budgetary approvals;
(b) Panda executing appropriate precedent
and/or transportation agreements with the upstream and
downstream transporters under terms satisfactory to
Panda, in its sole discretion, and furnishing proof
to Columbia's reasonable satisfaction of such
agreements prior to Columbia commencing construction of
the required facilities;
(c) Panda executing appropriate gas supply
agreement(s) or purchasing gas reserves under terms
satisfactory to Panda, in its sole discretion, and
furnishing proof to Columbia's reasonable satisfaction of
such agreements prior to Columbia commencing
construction of the required facilities;
(d) Panda and Columbia executing the
attached Service Agreement concurrently with the
execution of this Precedent Agreement;
(e) Columbia receiving regulatory approvals,
acceptable to Columbia and Panda in their reasonable
discretion, from the FERC approving the required
facilities construction as set forth herein;
(f) Panda closing on or making arrangements
for the construction financing for the Brandywine
Facility, on terms and conditions satisfactory to Panda,
in its sole discretion;
(g) Approval by the United States Bankruptcy
Court for the District of Delaware, if such approval
is determined by Columbia to be necessary; and
(h) Execution of an Operating and Balancing
Agreement by and between LNG, Panda and other parties as
deemed necessary by Columbia containing terms
acceptable to Columbia and Panda, in their reasonable
discretion.
Columbia shall exercise all due diligence
to cause the conditions precedent (a), (d), (e), (g) and
(h) set forth above, and Panda shall exercise all due
diligence to cause the conditions precedent (b), (c),
(d), (f) and (h) set forth above to be satisfied on or
before October 1, 1994, which is the target date for
closing of the construction financing of the Brandywine
Facility. Each party shall provide notice to the other
party of the satisfaction of each condition for which the
notifying party is responsible within 30 days after
the fulfillment of each such condition. If any of the
foregoing conditions precedent are not satisfied, this
Agreement may be terminated as provided for in Section
10 hereof.
Section 12. Miscellaneous. Terms defined in
the Service Agreement and not otherwise defined herein
shall have the meaning assigned in the Service
Agreement.
Section 13. Financing Review. Columbia
acknowledges that Panda intends to finance the
Brandywine Facility on non-recourse basis. As such,
Panda's Lenders will review this Agreement as part of
their due diligence review prior to providing
construction financing for the Brandywine Facility.
Columbia therefore agrees to provide such
documentation, including but not limited to consents to
assignment, opinions of counsel or certificates, as
Panda's Lenders may reasonably require in connection
with such financing, and the arrangement between
Columbia and Panda contemplated in this Agreement.
Panda shall reimburse Columbia for any costs and
expenses incurred by Columbia in hiring any third parties
necessary to comply with this Section 13.
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be executed by a duly authorized
representative as of the date first above written.
COLUMBIA GAS TRANSMISSION
CORPORATION
By:
Name:
Its:
PANDA-BRANDYWINE, L.P.
By:
Name:
Its: