Document:

Exhibit 10.11

OPERATING AGREEMENT

by and between

TUSCARORA GAS TRANSMISSION
COMPANY

and

TRANSCAN NORTHWEST BORDER
LTD.

DATED AS OF THE 19TH DAY OF DECEMER, 2006

TABLE OF CONTENTS

	
  ARTICLE I. DEFINITIONS

  	
   

  
	
  Section 1.01
  Definitions

  	
   

  
	
  Section
  1.02 Exhibits

  	
   

  
	
  ARTICLE II.
  RELATIONSHIP AND REPRESENTATIONS OF THE PARTIES

  	
   

  
	
  Section 2.01
  Designation of Operator

  	
   

  
	
  Section 2.02
  General Principles Regarding the Relationship of the Parties

  	
   

  
	
  Section 2.03
  Operator’s Representations

  	
   

  
	
  Section 2.04
  Performance Standard of Operator

  	
   

  
	
  ARTICLE III.
  RESPONSIBILITIES OF OPERATOR  

  	
   

  
	
  Section 3.01
  Limitation of Authority

  	
   

  
	
  Section 3.02
  Operator’s Right to Request Instructions from Partnership

  	
   

  
	
  Section 3.03
  General Responsibilities

  	
   

  
	
  Section 3.04
  Budgets and Schedules

  	
   

  
	
  Section
  3.05 Reports

  	
   

  
	
  Section 3.06
  Employees/ Consultants and Subcontractors

  	
   

  
	
  ARTICLE IV.
  FINANCIAL, ACCOUNTING AND BILLING PRACTICES  

  	
   

  
	
  Section 4.01
  Accounting and Compensation

  	
   

  
	
  Section 4.02
  Statements of Costs

  	
   

  
	
  Section 4.03 Records
  of Costs

  	
   

  
	
  Section 4.04
  Inspection of Facilities

  	
   

  
	
  Section
  4.05 Audit

  	
   

  
	
  Section 4.06 Rate
  Reviews

  	
   

  
	
  ARTICLE V.
  INDEMNIFICATION, LITIGATION, INSURANCE AND LIABILITY  

  	
   

  
	
  Section 5.01
  Operator’s Indemnity

  	
   

  
	
  Section 5.02
  Partnership’s Indemnity

  	
   

  
	
  Section 5.03
  Consequential Damages

  	
   

  
	
  Section 5.04 Insurance

  	
   

  
	
  Section 5.05
  Litigation Decisions

  	
   

  
	
  Section 5.06
  Notice of Litigation

  	
   

  
	
  ARTICLE VI. TAXES  

  	
   

  
	
  Section 6.01
  Tax Returns and Payments

  	
   

  
	
  Section 6.02 Ad
  Valorem Taxes

  	
   

  
	
  ARTICLE VII.
  INTELLECTUAL PROPERTY AND NON-COMPETITION  

  	
   

  
	
  Section 7.01
  Inventions and Copyrights

  	
   

  
	
  Section 7.02
  Confidentiality

  	
   

  
	
  Section 7.03
  License to Operator

  	
   

  
	
  ARTICLE VIII.
  ASSIGNMENT  

  	
   

  
	
  Section 8.01 Assignment

  	
   

  
	
  ARTICLE IX. TERMINATION
  

  	
   

  
	
  Section 9.01
  Term and Termination of the Agreement

  	
   

  
	
  Section 9.02
  Termination of Operator

  	
   

  
	
  Section 9.03
  Operator’s Costs, Expenses and Actions upon Termination

  	
   

  
	
  Section 9.04
  Survival of Obligations

  	
   

  

 ii
 

 

	
  ARTICLE X. FORCE MAJEURE

  	
   

  
	
  Section 10.01
  Effect of Force Majeure

  	
   

  
	
  Section 10.02
  Nature of Force Majeure

  	
   

  
	
  Section
  10.03 Non-Force Majeure Situation

  	
   

  
	
  Section
  10.04 Resumption of Normal Performance

  	
   

  
	
  Section 10.05
  Strikes and Lockouts

  	
   

  
	
  ARTICLE
  XI. REMEDIES

  	
   

  
	
  Section 11.01 Remedies

  	
   

  
	
  ARTICLE XII.
  INDEPENDENT CONTRACTOR

  	
   

  
	
  Section
  12.01 Independent Contractor

  	
   

  
	
  ARTICLE
  XIII. APPROVAL OR ACTION OF PARTNERSHIP

  	
   

  
	
  Section
  13.01 Approval or Action of Partnership

  	
   

  
	
  ARTICLE
  XIV. GENERAL

  	
   

  
	
  Section 14.01
  Counterparts

  	
   

  
	
  Section 14.02 Captions

  	
   

  
	
  Section 14.03
  Binding Effect

  	
   

  
	
  Section 14.04
  Entire Agreement

  	
   

  
	
  Section
  14.05 Prior Operating Agreement

  	
   

  
	
  Section 14.06
  Severability

  	
   

  
	
  Section 14.07
  Applicable Laws

  	
   

  
	
  Section
  14.08 Laws and Regulatory Bodies

  	
   

  
	
  Section 14.09 Waiver

  	
   

  
	
  Section 14.10
  Further Assurances

  	
   

  
	
  Section 14.11 Notices

  	
   

  
	
  Section 14.12
  Pronouns and Plurals

  	
   

  
	
  Section 14.13 Conflicts

  	
   

  
	
  Section
  14.14 Not for Benefit of Third Persons

  	
   

  
	
  Section 14.15
  References to Money

  	
   

  
	
  EXHIBIT “A”

  	
   

  
	
  ARTICLE I. GENERAL
  PROVISIONS

  	
   

  
	
  Section 1.01
  Statements and Billings

  	
   

  
	
  Section 1.02
  Payment by Partnership

  	
   

  
	
  Section 1.03
  Disputed Charges

  	
   

  
	
  Section 1.04
  Adjustments

  	
   

  
	
  Section 1.05
  Financial Records

  	
   

  
	
  ARTICLE II.
  CAPITAL ITEMS AND CONSTRUCTION COSTS

  	
   

  
	
  Section 2.01
  Capital Items and Construction Costs

  	
   

  
	
  ARTICLE III.
  COSTS, EXPENSES AND EXPENDITURES

  	
   

  
	
  Section 3.01 Rentals

  	
   

  
	
  Section 3.02 Labor Costs

  	
   

  
	
  Section 3.03
  Reimbursable Expenses of Operating Personnel

  	
   

  
	
  Section 3.04
  Material, Equipment and Supplies

  	
   

  
	
  Section 3.05
  Transportation

  	
   

  
	
  Section 3.06 Service

  	
   

  
	
  Section 3.07 Taxes

  	
   

  
	
  Section 3.08 Insurance

  	
   

  
	
  Section 3.09 Permits,
  Licenses and Bonds

  	
   

  
	
  EXHIBIT “B”

  	
   

  

 

 

 iii

OPERATING AGREEMENT

(the “Agreement”)

THIS
AGREEMENT (the “Agreement”) dated as of the 19th day of December, 2006 (the “Effective
Date”).

BETWEEN:

TUSCARORA GAS TRANSMISSION COMPANY,

a Nevada general
partnership, (“Partnership”)

AND

TRANSCAN NORTHWEST BORDER LTD.,

a
Delaware corporation

(“Operator”)

Partnership
and Operator are each referred to herein individually as a “Party” and
collectively as the “Parties.”

WHEREAS, Partnership was formed pursuant to a general
partnership agreement effective as of June 11, 1993 between TCPL Tuscarora
Ltd., a Delaware Corporation and Tuscarora Gas Pipeline Co. a Nevada
corporation (“TGPC”), as amended by First Amendment to General Partnership
Agreement, dated September 1, 2000, as amended by Second Amendment to General
Partnership Agreement, dated as of December 17, 2003, as amended by Third
Amendment to General Partnership Agreement, dated as of November 22, 2006, and
as may be further amended from time to time (“Partnership Agreement”);

WHEREAS, an operating
agreement effective as of October 12, 1995 between Partnership and Tuscarora
Gas Operating Company (the “Prior Operating Agreement”) terminated as the
Effective Date;

AND WHEREAS, Operator is willing and
able to operate the Tuscarora Pipeline on the terms and conditions set forth
below;

NOW
THEREFORE, in consideration of the mutual promises and
covenants hereinafter set form, the Parties hereto agree as follows:

ARTICLE I.

DEFINITIONS

Section 1.01           Definitions

The
capitalized terms and expressions defined in the Partnership Agreement shall,
except as otherwise specifically provided herein, have the same meanings when
used in this Agreement. Otherwise, the capitalized terms and expressions used
in this Agreement shall have the meanings ascribed to them in Exhibit “B” of this
Agreement.

Section 1.02           Exhibits

Attached
to and forming a part of this Agreement are the following Exhibits:

Exhibit “A” - Accounting Procedure

Exhibit
“B” - Definitions

ARTICLE II.

RELATIONSHIP AND REPRESENTATIONS OF THE PARTIES

Section 2.01           Designation of
Operator

Subject
to the terms and conditions of this Agreement, Partnership hereby designates
Operator as operator of the Tuscarora Pipeline and Operator hereby accepts such
designation and agrees to act pursuant to and be bound by the terms of this
Agreement and the overall direction of Partnership as provided herein, acting
by and through its Management Committee.

Section 2.02           General
Principles Regarding the Relationship of the Parties

Operator
shall be responsible for such day-to-day management of the affairs of the
Project as determined by the Management Committee in writing from time to time
in its sole judgment, including, without limitation, the responsibilities set
forth in this Agreement.  Subject to Section
13.01, the Management Committee, upon written notice to Operator, may increase,
decrease, modify or otherwise alter Operator’s responsibilities hereunder and
upon receipt of such written notice, this Agreement shall be deemed amended in
accordance with such notice and Operator shall perform its amended
responsibilities in accordance with this Agreement as so amended. The
Management Committee shall have the right to monitor, consult with and provide
direction to Operator in connection with Operator’s performance of its
responsibilities under this Agreement.

 2
 

Section 2.03           Operator’s
Representations

Operator
represents, warrants to, and covenants with Partnership, acknowledging that
Partnership is relying on such representations, warranties and covenants, that:

(a)                                  Operator is
duly organized and in good standing under the laws of the State of Delaware and
is registered or otherwise qualified to carry on business in each jurisdiction
in which it carries on business.

(b)                                 The execution
and performance of this Agreement has been authorized by all necessary action,
does not and will not conflict with, result in any breach or violation of, or
constitute a default under any law or the terms, conditions or provisions of
any agreement or other instrument to which Operator is now or will be a party
or is otherwise bound.

(c)                                  Operator, in
entering into and performing this Agreement, does not require the consent or
approval of, or registration with, any other party or any governmental body,
agency or authority.

(d)                                 Operator shall
perform its obligations under this Agreement in accordance with the standards
set forth in Section 2.04.

Section 2.04           Performance
Standard of Operator

Operator,
in performing its responsibilities under this Agreement, covenants that it
shall:

(a)                                  carry out such
responsibilities, and shall cause all Operating Personnel and Additional
Personnel (as those terms are defined in Section 3.06), contractors (and their
subcontractors) and consultants to carry out such responsibilities, with the
same degree of diligence and care that Operator would exercise if operating its
own property and, in any event, in accordance and compliance with:

(i)                                     sound,
workmanlike and prudent practices of the gas transmission pipeline industry;

(ii)                                  all laws,
statutes, ordinances, safety codes, regulations, certificates, permits,
licenses and rules of governmental authorities applicable to the Project
including, without limitation, those relating to safety and the environment;

(iii)                               all policies,
guidelines, procedures and direction relating to the Project as may be adopted
by the Partnership from time to time; and

(iv)                              all Approved
Budgets.

 3
 

(b)                                 carry out such
responsibilities in the best interest of Partnership and in a prudent, cost
effective and efficient manner.

ARTICLE III.

RESPONSIBILITIES OF OPERATOR

Section 3.01           Limitation of
Authority

Notwithstanding
any other provision in this Agreement, unless otherwise directed by Partnership
in writing, Operator is not authorized to enter into and shall not execute any
contract, lease, sublease, note, deed of trust or other obligation for or on
behalf of Partnership or otherwise commit any Partner or Partnership to any
obligation to any third party:

(a)                                  unless there is
included therein provisions limiting the claims of such third party (and any of
its beneficiaries) to the assets of Partnership and expressly waiving any
rights of such parties (and any beneficiaries thereof) to proceed against the
Partners individually;

(b)                                 unless there is
included therein provisions requiring such third party to comply with all
relevant laws, statutes, ordinances, safety codes and rules and regulations of
governmental authorities having jurisdiction;

(c)                                  which will have
an adverse operational impact on Partnership or the Project;

(d)                                 which is not in
the ordinary course of business;

(e)                                  unless such
contract, lease, sublease, note, deed of trust or other obligation or
commitment has been first approved by Partnership pursuant to an Approved
Budget or otherwise;

(f)                                    if such third
party is:

(i)                                     any Partner or
any Partner’s Affiliate;

(ii)                                  a lobbyist,
attorney, accountant, publicist or financial or environmental consultant
engaged to represent Partnership or the Project.

Section
3.02           Operator’s
Right to Request Instructions from Partnership

Operator
may at any time seek clarification from Partnership with respect to any matter
contemplated by this Agreement and Partnership shall respond to such requests
in a timely fashion.

 4
 

Section
3.03           General
Responsibilities

Subject
to the other provisions of this Agreement and commencing on the Effective Date
hereof, Operator shall promptly and professionally, perform or cause to be
performed, in accordance with Approved Budgets, the following duties and
responsibilities on behalf of Partnership:

(a)                                  Day-to-day
Matters. Provide the day-to-day management supervision and
operating, maintenance, administrative and related services for the Project,
including, without limitation, accounting, engineering, planning, budgeting,
treasury, technical, tax, insurance administration, industrial relations,
public affairs and regulatory;

(b)                                 Materials, Equipment and
Supplies. Purchase or procure, in the name of Partnership,
materials, equipment and supplies necessary for the operation and maintenance
of the Project; sell or exchange in the name of Partnership such materials, equipment
and supplies; and take custody, control and management of any such materials,
equipment and supplies loaned by any Partner or by any other Person to
Partnership, pursuant to a loan agreement lease, purchase option agreement or
otherwise. With respect to such purchase or procurement of materials,
equipment, supplies or other property, Operator may purchase or procure such
property from any available source, including, without limitation, from a
Partner or its Affiliates, provided, however, that in the case of any purchase
from a Partner or Partner’s Affiliate, the terms and conditions (including,
without limitation, price) of any such loan, purchases or procurements are
approved by Partnership;

(c)                                  Personnel. Consistent
with the provisions of Sections 3.04 and 3.06, provide an adequate and
appropriate number of Operating Personnel and Additional Personnel (as those
terms are defined in Section 3.06) to perform the obligations contemplated
hereunder;

(d)                                 Operating  and  Maintenance
Plan. Operator
shall prior to any Expansions submit to Partnership for approval an operating
and maintenance plan, as required by the Minimum Federal Safety Standards, Part
192, of the Department of Transportation;

(e)                                  Contracts. Implement and
administer all contracts related to the operation and maintenance of the
Project to which Partnership is a party;

(f)                                    Payments. Pay and
discharge in a timely manner all obligations properly incurred by Operator, or
by Partnership to third parties pursuant to this Agreement and Approved Budgets;

 5
 

(g)                                 Forecasts and Budgets. Prepare and
submit to Partnership for approval all forecasts, budgets, schedules, work
papers, returns, statements, reports or filings specified in Sections 3.04 and
3.05 or otherwise reasonably requested by Partnership;

(h)                                 Accounts. Consistent
with Article IV hereof, maintain accurate and itemized tax and book accounting
records for Partnership and establish and maintain capital accounts for the
Partners in accordance with the applicable provisions of the federal Natural
Gas Act, Internal Revenue Code, the Required Accounting Practice and the
Accounting Procedure attached hereto as Exhibit A and incorporated in this
Agreement, for the operation and maintenance of the Project and for the design,
planning, construction, operation and maintenance of any Expansions completed
after the Effective Date, together with any information reasonably required by
Partnership relating to such records;

(i)                                     Commercial Paper.  For Partnership and for Partnership’s sole
benefit and interest, have or provide custody of funds, notes, drafts,
acceptances, commercial paper and other securities belonging to Partnership as
same may relate to the Project; keep funds belonging to Partnership on deposit
in one or more accounts in the name of Partnership in one or more banking
institutions approved by Partnership in writing and invest available funds in
the manner provided for by Partnership in writing, disburse such funds and keep
appropriate records in connection with all of the above transactions;

(j)                                     Tax Returns.   Consistent with the provisions of Article
VI, under the direction of the Tax Matters Partner and/or Partnership, prepare
and file all Partnership returns and render and pay (prior to delinquency), all
Partnership taxes presently and hereafter attributable to or arising from the
construction and operation of the Project;

(k)                                  Regulatory and Government
Requirements   Upon
the direction and subject to the prior approval of Partnership, Operator shall
prepare and file on behalf of Partnership:

(i)                                     all
applications required to be filed with any governmental agencies for:

(A)                              any Expansions and for the operation of the
Project, and

(B)                                original and revised Tariffs or rate
schedules and/or any amendments thereto;

 6
 

(ii)                                  all filings,
reports and the like prescribed by the regulatory body or bodies having
jurisdiction over the Project;

(iii)                               all reports and
returns required by federal, state and local taxing authorities (including but
not limited to income, withholding, franchise, sales, use and excise taxing
authorities); and

(iv)                              all other
filings required by governmental agencies having jurisdiction over the Project;

(l)                                     Regulatory Contacts. Respond to and
maintain contacts with governmental authorities, whether federal, state or
local, on behalf of Partnership;

(m)                               Transportation Service Agreements. Subject to
the prior approval of Partnership, negotiate and prepare and, upon execution by
Partnership, administer the Transportation Service Agreements or any amendments
thereto for service on the Project in accordance with the policies of
Partnership and the FERC Tariff, including but not limited to, the preparation
and collection of all invoices to the Shippers for services rendered
thereunder;

(n)                                 Gas Control. Perform gas
control and dispatch responsibilities for the Project including, without
limitation, dispatching and allocating daily scheduled nominations for the
natural gas quantities to be received, transported and redelivered and
responding to emergency conditions as necessary to assure safe operations;

(o)                                 Gas Measurement. Perform gas
measurement responsibilities for the Project including, without limitation, the
control of all valves, flow regulators and quantity measurement facilities, the
measurement of quantities of Gas actually received into and delivered from the
Project and the allocation of such quantities to Shippers;

(p)                                 Gas Quality. Monitor the
quality of Gas delivered into and out of the Project to maintain quality
specifications that are consistent with the quality specifications set forth in
the FERC Tariff and applicable interconnection agreements;

(q)                                 Operating Reports. For each
meeting of the Management Committee furnish Partnership with operating reports
covering the period since the last meeting of the Management Committee showing by
month total volumes and Btu content of the natural gas delivered into and from
the Project, the volumes and Btu content of the natural gas consumed or lost in
operations, and each Shipper’s share of all transportation volumes, together
with all 

 7
 

applicable natural gas
volume statements and Btu analyses. At the reasonable request of any Partner,
Operator shall provide an operating report that sets forth total daily volumes
and Btu content of the natural gas delivered into and from the Project, the
daily volumes and Btu content of the natural gas consumed or lost in operations
and each Shipper’s daily share of transportation volumes;

(r)                                    Interconnect Agreements.   Subject to the prior approval of
Partnership, negotiate and prepare and, upon execution by Partnership,
administer any and all interconnect agreements between Partnership and any
other Person with upstream or downstream facilities that interconnect with the
Project;

(s)                                  Expansions.  Subject to and under the direction of
Partnership, be responsible for the planning, design and construction of
Expansions (Operator acknowledges that major expansions will be managed by
Partnership);

(t)                                    Rights-of-Way. Purchase,
option or otherwise acquire, as required, after the Effective Date of this
Agreement, in the name of Partnership, rights-of-way, easements and land in fee
necessary for construction, operation and maintenance of the Project; use its
reasonable efforts to resist the perfection of or remove and discharge any
liens against Partnership’s property and, to the extent permitted by law, keep
Partnership’s property free from all liens;

(u)                                 Consultations.  Make reports at each meeting of the
Management Committee and be available at all reasonable times to consult with
Partnership regarding all responsibilities, duties, obligations and actions of
Operator in the form and at the times reasonably requested by Partnership.
Further, at the reasonable request of any Partner, Operator shall consult with
and provide information to the Partner regarding responsibilities, duties,
obligations and actions of Operator;

(v)                                 Records and Reports. Make and
retain records and prepare all forms and reports specified in Section 3.05 or
otherwise reasonably requested by Partnership or any Partner or Partners
entitled to vote who hold not less than 50% of the Partners’ Percentages held
by all Partners entitled to vote; provided that Operator shall provide and make
available such records, forms or reports and all applications, filings or
submissions of Partnership made by or on behalf of Operator, to each Partner,
to the extent requested by each Partner;

(w)                               Pipeline Abandonment. Perform all
activities necessary to abandon all or any part of the Project, subject to
approval of Partnership and all applicable laws;

 8
 

(x)                                   Partnership Requests.  Perform such acts as are reasonably requested
by Partnership or as are necessary to carry out Operator’s responsibilities
under this Agreement; and

(y)                                 Standard of Care. Meet the
standard of care set form in Section 2.04. In this regard, without limiting
such standard of care or the responsibilities of Operator, Operator agrees to
develop, implement and follow the written policies, operating manuals and
procedures and the like, which have been approved by Partnership.

Section 3.04           Budgets and
Schedules

(a)                             Operating and Capital
Maintenance Budget.   Within 45 days after the Effective Date of
this Agreement, Operator shall prepare and deliver to Partnership a proposed
annual operating and capital maintenance budget (including such amendments
thereto as may be requested by Partnership) including, without limitation,
operating income, expenditures and commitments which Operator anticipates for
the balance of Fiscal Year 2007, presented on a monthly basis and broken down
into such individual line items and including such supporting documentation and
data as Partnership may reasonably require. 
Partnership shall endeavor to notify Operator in writing of its approval
or disapproval of each such proposed operating and capital maintenance budget
within thirty (30) days after receipt thereof.  
Not less than ninety (90) days prior to the end of each Fiscal Year,
Operator shall prepare and deliver to Partnership a proposed annual operating
and capital maintenance budget (including such amendments thereto as may be
requested by Partnership) including, without limitation, operating income,
expenditures and commitments which Operator anticipates for the ensuing Fiscal
Year, presented on a monthly basis and broken down into such individual line
items and including such supporting documentation and data as Partnership may
reasonably require.  Partnership shall
endeavor to notify Operator in writing of its approval or disapproval of each
such proposed operating and capital maintenance budget within thirty (30) days
after receipt thereof. If any such proposed operating and capital maintenance
budget is disapproved, Operator shall revise and resubmit the same for approval
as soon as practicable; and Partnership shall endeavor to notify Operator of
its approval or disapproval of such revised operating and capital maintenance
budget within thirty (30) days after receipt thereof. If Partnership does not
approve all or a portion of an operating and capital maintenance budget within
sixty (60) days prior to the applicable Fiscal Year then Partnership shall
provide Operator, at least thirty (30) days prior to the applicable Fiscal
Year, with a tentatively approved budget (“Tentative Budget”) sufficient to
enable it to continue operations for a period of three (3) months and, thirty
(30) days prior to the 

 9
 

expiration of such three month period, shall
provide Operator with succeeding tentatively approved three (3) month budget
sufficient to enable to continue operations. Any final Approved Budgets shall
supplement any Tentative Budget then in place but shall not affect any
expenditures incurred or irretrievably committed to prior to the adoption of
such Approved Budget.

(b)                            Expansions.   For any Expansions of the Project,
Partnership and Operator shall follow the following procedure:

(i)                                     Upon request of
Partnership, Operator shall prepare and deliver to Partnership a complete and
detailed forecast of financial operations (including such amendments thereto as
may be requested by Partnership) anticipated for any Expansion of the Project (the
“Expansion Budget”), setting forth the estimated Expansion costs to be incurred
by Partnership for a twelve-month period. Operator shall also prepare a
schedule (including such amendments thereto as may be requested by Partnership)
setting for the planning, design, construction, testing and other activities
required for the Expansion. Partnership shall endeavor to notify Operator in
writing of its approval or disapproval of the Expansion Budget and such
schedule within thirty (30) days after receipt thereof. If such Budget and/or
schedule are disapproved, Operator shall revise and resubmit the same (and
shall revise all other rejected budgets and/or schedules and resubmit the same)
for approval in writing as soon as practicable; and Partnership shall endeavor
to notify Operator in writing of its approval or disapproval of any such
revised budget and/or schedule within thirty (30) days after receipt thereof.
If, at the expiration of such twelve (12) month period of the Expansion Budget,
the applicable FERC Certificate has not yet been received and accepted pursuant
to the terms of the Partnership Agreement, Operator shall continue to prepare
additional twelve (12) month Expansion Budgets for approval by Partnership in
the same manner as the first Expansion Budget until such time as the applicable
FERC Certificate is received and accepted or Partnership otherwise directs.

(c)                                  Authorized Expenditures.  Written approval by Partnership of any of the
budgets described in Sections 3.04(a) and (b) shall constitute authorization by
Operator to incur the expenditures contained therein, subject to any revisions
in such budgets approved or required by Partnership and the other provisions of
this Agreement; provided, however:

 10
 

(i)                                     Partnership may
approve only a portion of any budget and, if only a portion is approved, only
that approved portion shall constitute an Approved Budget;

(ii)                                  Operator may
incur the expenditures contained in such budget and incur expenditures up to
ten percent (10%) in excess of the amount set forth for any line item in such
budget, provided that the total of all such expenditures in excess of budgeted
line item amounts shall not exceed five percent (5%) of the total amount of
such budget. Operator shall immediately inform Partnership of any facts which
Operator believes may increase or decrease any line item in the most recent
budget approved by Partnership by ten percent (10%) or more or may increase or
decrease the total amount of such budget by five percent (5%) or more, and
Operator acknowledges and agrees that any increases of any line item by ten
percent (10%) or more or any increase of the total amount of such budget by
five percent (5%) or more shall require the prior written approval of
Partnership. Operator acknowledges and agrees that by virtue of this
subparagraph no budget shall include contingencies for cost overruns; and

(iii)                               In no event
shall Operator be obligated or permitted to make any payment or incur any
expenditure not authorized by Partnership or otherwise not contained in any
Approved Budget except to extent permitted by Section 3.04(f).

(d)                                 Additional Requests for
Funds. Nothing in this Article 3.04 shall preclude
Operator from submitting at any time to the Management Committee, additional
budgets or requests for funds to satisfy the expenses and commitments of
Partnership but Partnership shall have no obligation to approve additional
budgets or requests for funds.

(e)                                  Amendments to Approved
Budgets. Nothing in this Agreement shall preclude
Partnership from terminating or amending an Approved Budget provided that no
expenditures made or irretrievably committed to by Operator in any Approved
Budget shall be affected by such termination or amendment.

(f)                                    Non-budgeted Expenses. In carrying
out the responsibilities set forth in this Agreement, Operator may subcontract
for the performance of any such responsibilities; provided, however, that if
the expense involved in any such contract has not been approved in an Approved
Budget (such an unapproved expense is hereinafter referred to as a “non-budgeted
expense”), and such non-budgeted expense is in excess of $5,000 or the 

 11
 

total of such non-budgeted expense under all
such contracts entered into by Operator in the then current Fiscal Year would
exceed $25,000 if such contracts were entered into, Operator shall obtain the
written approval of Partnership prior to entering into such contracts.

(g)                                 Contracts.   Notwithstanding that the expenditures to be
made under a contract relating to the Project are set forth in an Approved
Budget, Operator shall submit for written approval by Partnership prior to
execution by Operator any contract:

(i)                                     relating to the
Project under which commitments, expenditures or revenues will or are expected
to exceed $25,000;

(ii)                                  any such
contract which, if entered into, would result in a total commitment by
Partnership and/or Operator to any one contractor in excess of $50,000 for the
then current Fiscal Year; or

(iii)                               any such
contract under which the term or anticipated duration of performance, including
any automatic renewals, exceeds twelve (12) months.

(h)                                 Emergencies. In case of
explosion, fire, flood, extreme cold, freezing or other sudden emergency, or
any accidental major interruption of the operation or construction of the
Project, or any part thereof, the prior approval of Partnership shall not be a
prerequisite to Operator taking such steps and incurring such costs as, in
Operator’s opinion exercised in good faith, are required to deal with such
emergency or interruption or to safeguard life and/or property in such event
if, in Operator’s opinion exercised in good faith, the delay incurred by
securing of such approval may jeopardize the interests of Partnership; and
Operator shall endeavor to secure from Partnership any written authorization
which might be required for any further action or expenditure. Operator shall
also promptly make any required reports of such emergency or interruption to
the Partners, each member of Partnership and federal, state and local
regulatory authorities having jurisdiction.

Section 3.05           Reports

Operator
shall make reports to Partnership in the form, nature and frequency specified
by Partnership or any Partner (provided that Operator shall provide each
Partner with copies of all reports requested by any Partner) and consult with
Partnership in the form, at the times and at the locations reasonably requested
by Partnership, including, but not limited to:

 12
 

(a)                                  Financial Statements.  The preparation and delivery of the
statements referred to in Article 7.4 (Annual Financial Statements) and Article
7.5 (Interim Financial Statements) of the Partnership Agreement.

(b)                                 Government Reports. Subject to the
other provisions of this Agreement, Operator shall prepare, execute on behalf
of Partnership and file with governmental and other agencies all administrative
forms or reports (including, without limitation, any regulatory filings,
Partnership tax returns, safety reports, operating reports and any other
reports from Partnership) required for the construction and day-to-day
operations of the Project.

(c)                                  Records Retention. Operator shall
retain all charts, records, books of account, Partnership tax returns and
materials, plans, designs, studies, reports, contracts (including appendices),
material specifications, vendor data, studies and other documents related to
the design, construction, operation and maintenance of the Project for a period
of at least five (5) years from the date of completion of the activity to which
such records relate, except those which relate to Partnership tax returns,
which shall be retained for a period of at least ten (10) years, and those
which by government regulation or decision of Partnership must be retained for
a longer period of time.

(d)                                 Measurements. Operator
shall supervise and make reports of readings of all measuring equipment
required in connection with the Project

(e)                                  Occurrence Reports. Operator
shall make immediate reports to Partnership of all claims, threatened claims
and litigation and all unusual, non-routine or significant occurrences in relation
to the Project, including, but not limited to:

(i)                                     any
environmental occurrence that must be reported to any local, state or federal
authority;

(ii)                                  any incident
that results in serious injury or death to any Person; and

(iii)                               any incident
that results in significant damage to property.

Additionally,
Operator shall notify Partnership immediately of any unusual occurrence that
may cause a materially higher cost than estimated for the Project or may have a
significant operational impact on the Project.

(f)                                    Project Status Reports. On or before
the tenth (10th) day of each month, Operator shall provide Partnership with a
written report describing the status of the Project, including the status of:

 13
 

(i)                                     the cash flow
of the Project;

(ii)                                  any proposed
budget and the Approved Budget(s);

(iii)                               capital
maintenance projects;

(iv)                              non-budgeted
expenses (as that term is used in Section 3.04(f) incurred;

(v)                                 any third party
claims reported to Operator;

(vi)                              existing or
contemplated Transportation Service Agreements and any amendment or assignments
thereof;

(vii)                           the unaudited
financial statements with variance explanations (as detailed, but not limited
to the requirements, in Article 7.5 (Interim Financial Statements) of the
Partnership Agreement) relating to the operation of the Project for the
preceding month;

(viii)                        the interim
and/or final results of any environmental audits done at the direction of
Partnership;

(ix)                                the operation
of the Project (including any matter or update arising in connection with
Operator’s responsibilities set forth in Section 3.03);

(x)                                   the number and
positions of Operating Personnel and Additional Personnel.

Such monthly status reports shall also describe in reasonable detail
the level of expenditures for services and items as compared to the amount
budgeted for such services and items.

Section 3.06           Employees/
Consultants and Subcontractors

(a)                                  Operating Personnel and
Additional Personnel.  Unless otherwise directed or authorized by
Partnership, Operator shall only:

(i)                                     use its
employees, employees of its Affiliates, or employees or other Persons
(including such Partner’s Affiliates) 
offered by Partnership  or  the 
Partners (collectively, the “Operating Personnel”),

(ii)                                  contract for
the services of unaffiliated independent contractors or other Persons (the “Additional
Personnel”),

 14
 

(iii)                               required by
Operator to perform its duties and responsibilities hereunder in an efficient,
cost effective and economical manner, provided that the expense for such
Operating Personnel and Additional Personnel has been approved in an Approved
Budget. Under no circumstances shall Operating Personnel or Additional
Personnel be permitted to subcontract or assign their responsibilities, without
the prior written consent of Partnership.

(b)                                 Reimbursement.   Operator shall be reimbursed by Partnership
for all expenses for Operating Personnel and Additional Personnel authorized by
Partnership pursuant to this Section 3.06 in accordance with Section 4.01 and
the Accounting Procedure attached as Exhibit “A”.

(c)                                  Qualifications.
 In carrying
out its responsibilities hereunder, Operator shall, whenever reasonably
practicable, use the services of Operating Personnel and in particular its own
or its Affiliates’ financing, accounting, auditing, tax, engineering, planning,
budgeting, regulatory, public affairs, operating, land and other departments
who have personnel possessing the necessary expertise to perform properly the
tasks assigned to them, or, with the consent of any Partner’s Affiliates, the
services of any of the Partners’ Affiliates, provided that the services of any
such Affiliate are utilized in accordance with the terms of this Agreement and
compensation to such Affiliates is in accordance with the other provisions of
this Agreement and such services are utilized on terms materially no less
favorable to Partnership than those prevailing at the time for comparable
services of unaffiliated independent parties. Operator shall also be authorized
to utilize, as it deems necessary, the services of Additional Personnel, and
Operator shall, subject to the other provisions of this Agreement, negotiate
contracts, for such services and execute such contracts.

(d)                                 Standards. All Operating
Personnel and Additional Personnel shall be duly qualified and experienced to
perform such obligations. Operator shall at all times enforce strict discipline
and maintain good order among such personnel, and shall require such personnel
to perform their services in connection with the Project in accordance with the
sound, prudent and workmanlike practices of the gas transmission pipeline
industry and to comply with all relevant laws, statutes, ordinances, safety
codes, regulations and rules of governmental authorities applicable to the
Project, Operator or Partnership.

(e)                                  Non-Discrimination. In performing
under this Agreement, Operator will not discriminate against any employee,
applicant for employment, contractor, subcontractor or consultant because of
race, creed, color, religion, sex, national origin, age or handicap, and will
comply with all provisions of all 

 15
 

applicable laws, regulations, orders and
guidelines of governmental administrative agencies relative to its employment
of employees and agents. All Additional Personnel shall be directed to comply
with these requirements and each contractor and subcontractor shall be required
to indemnify Partnership and the Partners against all costs, fees, penalties,
fines and expenses of any kind arising out of such Person’s non-compliance with
such laws, regulations and orders. The provisions of this Section 3.06(e) shall
be applicable to all Additional Personnel and other Persons engaged or directed
by Operator to the extent required by law.

(f)                                    Third Party Insurance. Operator shall
require all Additional Personnel and any other third party independent
contractors performing services for the benefit of Partnership or the Project
to maintain in force and effect insurance of the types and in the amounts as
may be specified from time to time by the Management Committee, including, but
not limited to, the coverages specified in Section 5 04.

(g)                                 Appointments.  Partnership shall have the right to require
Operator to appoint, reassign or remove a Person in Operator’s organization
(including any Operating Personnel or Additional Personnel) and to fill the position(s)
vacated by such reassignment with personnel satisfactory to Partnership. In
regard to this right, Operator and Partnership each agree that any Partner
holding not less than a fifty percent (50%) interest in Partnership shall
independently have the right to appoint and remove from time to time one
Person, as an Operating Personnel, to the Operator’s organization, the
authority and responsibilities of each such Person to be set forth in advance
by Partnership, it being acknowledged and agreed to by Operator and Partnership
that such Person, shall:

(i)                                     if agreed to by
such Partner and the Person appointed by such Partner, be appointed a signing
officer of Operator, and

(ii)                                  equally share,
with the other such Person(s) appointed, in the overall management of the
Operator and the Project, subject to the discretion and review of Partnership.

ARTICLE IV.

FINANCIAL, ACCOUNTING AND BILLING PRACTICES

Section 4.01           Accounting and
Compensation

(a)                                  Operator shall
keep a full and complete account of all revenues, costs, expenses and
expenditures incurred by it in connection with its obligations hereunder in the
manner set forth in the Accounting Procedure attached hereto as Exhibit “A” and
incorporated herein.

 16

(b)                                 Pursuant to the
provisions of the Accounting Procedure and in accordance with the Approved
Budgets, Partnership shall provide funds in advance to Operator each month for
all reasonable costs, expenses and expenditures estimated for such month for
work to be performed or material to be provided for the Project by Operator or
by any other Person(s) which are authorized under the Approved Budgets;
provided, however, that costs incurred by Operator under Section 5.01 (Operator’s
Indemnity) which are not otherwise covered by Section 5.02 (Partnership’s
Indemnity) shall neither be advanced nor reimbursed by Partnership.

(c)                                  It is the
intent of the Parties hereto that Operator, in carrying out its services
hereunder, shall:

(i)                                     subject to  the 
amounts  approved  for 
expenditure  under   the Approved Budgets, be fully reimbursed,

(ii)                                  neither have a surplus nor
incur a deficit in operating funds, and

(iii)                               neither make a profit nor
suffer a loss (after taking into account the applicable tax treatment), except
for costs incurred by Operator under Section 5.01 and not covered by Section
5.02.

To
the extent that a deviation from this standard occurs, appropriate
retrospective and/or prospective adjustments will, subject to the other
provisions of this Agreement, promptly be made to ensure that Operator is made
whole, but not obtain any profit or gain. Operator shall manage for the benefit
and account of Partnership any funds which may be made available by Partnership
of which Operator has custody in a prudent manner, utilizing up-to-date
techniques of cash management.

Section 4.02                                Statements of
Costs

Operator shall submit to
Partnership and to each Partner monthly summary statements prepared on a
monthly basis covering all costs, expenses and expenditures paid or incurred
and advances made by Operator and all revenue earned and expenses paid by
Partnership in relation to the Project from and after the date of this
Agreement. Each such statement shall be submitted no later than thirty (30)
days after the end of the month to which it relates.

Section 4.03                                Records of
Costs

Operator shall maintain
complete books of account and records of all costs, expenses and expenditures
incurred by Partnership prior to and during construction of any Expansions, in
the maintenance and operation of the Project, and in otherwise performing any
of its obligations under this Agreement, so as to 

 17
 

provide Partnership and the
Partners with the information required for accounting, regulatory, tax
(including, without limitation, federal, state and local), insurance, financing
and other reasonable purposes.

Section 4.04                                Inspection of
Facilities

Partnership and each Partner
shall have the right at all reasonable times during normal business hours to
inspect the Project and all related facilities. Such right may be exercised
through any agent, employee or representative designated by it. The person
making the request to inspect shall bear all expenses incurred in connection
therewith.

Section 4.05                                Audit

(a)                                  Partnership and
each Partner shall have, after fifteen (15) days’ notice in writing to
Operator, the right to audit or examine at its own expense, from time to time
during normal business hours, all books, work papers and records of Operator
and Operating Personnel as well as the relevant books of account of Operator’s
contractors (including Additional Personnel) relating to the design,
construction, operation, maintenance and administration of the Project
maintained pursuant to this Agreement. At the Management Committee’s or any
Partner’s option, such audits or examinations may be conducted by the Audit
Committee, the Partners, independent certified public accounts or other Persons
selected by the Management Committee. Such audit right shall include the right
to meet with Operator’s internal and independent auditors to discuss matters
relevant to the audit or examination. Any adjustments shall be in accordance
with the provisions of Section 1.03 of the Accounting Procedure. Partnership or
any Partner shall have thirty-six (36) months after the close of a calendar
year in which to audit Operator’s books, work papers and records for such
calendar year; provided, however, that any audits relating to construction
costs may be made up to thirty-six (36) months after the close of the calendar
year of completion of construction.

(b)                                 Absent fraud,
intentional concealment or misrepresentation by Operator, its Affiliates or
Operating Personnel or Additional Personnel, and except for any adjustments
which may arise from FERC compliance audits, Operator shall neither be required
nor permitted to adjust any item unless a claim therefor is presented or
adjustment is initiated within thirty-six (36) months  after the close of the calendar year in which
the statement therefor is rendered, and in the absence of such timely claims or
adjustments, the bills, and statements rendered shall be conclusively
established as correct; provided, however, this shall not prevent audit
adjustments resulting from physical inventory of the Project, any Expansions
and any other property of the Project, or audit adjustments relating to
construction costs incurred which are made within thirty-six (36) months after
the close of the calendar year of completion of construction.

 18
 

(c)                                  Operator shall
use best efforts to obtain and enforce in contracts with third parties
(including Additional Personnel) entered into in connection with the Project
provisions which give Partnership and Operator audit rights with respect to
such contracts substantially identical to those set forth in Section 4.05.

Section 4.06                                Rate Reviews

Operator, under the
direction of Partnership, shall review from time to time the rates and fees
charged for transportation services under the various Transportation Service
Agreements and report to Partnership any revisions in such rates and fees as
would enable full recovery of all costs in Partnership’s governmentally
authorized tariffs.

ARTICLE V.

INDEMNIFICATION, LITIGATION, INSURANCE AND LIABILITY

Section 5.01                                Operator’s
Indemnity

Except for acts, omissions
and/or matters for which Operator is entitled to be indemnified and is not
liable under Section 5.02, Operator shall indemnify and hold Partnership, each
Partner and their Affiliates and the directors, officers, employees, agents and
invitees of each of them harmless from and against all actions, claims,
demands, costs (including legal fees and disbursements) and liabilities
asserted against them by a third party which arise, directly or indirectly,
from or in connection with:

(a)                                  all negligent
acts or negligent failures to act by Operator and its contractors,
subcontractors, agents, directors, officers, employees and Operating Personnel
and Additional Personnel;

(b)                                 any breach of
this Agreement by Operator; and

(c)                                  claims for
non-payment of any and all contributions, withholding deductions or taxes on
wages, salaries or compensation paid to Persons engaged by Operator and its
contractors, subcontracts, agents, directors, officers, employees and personnel
(including Operating Personnel and Additional Personnel) in connection herewith
for which Partnership has already paid or reimbursed Operator except for claims
associated with or resulting from good faith efforts to contest such taxes.

 19
 

Section 5.02                                Partnership’s
Indemnity

(a)                                  Inasmuch as the
services to be provided by Operator hereunder are to be furnished and performed
for only the reimbursements provided in the Accounting Procedure attached as
Exhibit “A” hereto, Partnership shall indemnify and hold harmless Operator and
its directors, officers, employees, agents and Operating Personnel and
Additional Personnel (and their permitted subcontractors) from and against all
costs, expenses, expenditures, actions, claims, demands, costs and liabilities
asserted against them by a third party arising out of acts (or failure to act)
of Operator in good faith and within the scope of its authority as set forth in
this Agreement (to the extent only that such actions, claims, demands, costs
and liabilities are not satisfied by insurance carried pursuant to Section 5.04
below). Notwithstanding any other provision of this Agreement, Operator and its
directors, officers, employees, agents and Operating Personnel and Additional
Personnel shall not be liable to Partnership, each Partner or their Affiliates
and the directors, officers, employees, agents and invitees of each of them for
any obligations, costs, expenses, expenditures, actions, claims (including
third party claims), demands, costs, liabilities or commitments asserted
against or incurred by or on behalf of Partnership, any Partner or their
Affiliates arising out of acts (or failure to act) of Operator in good faith
and within the scope of its authority as set forth in this Agreement. Operator
and its directors, officers, employees, agents and Operating Personnel and
Additional Personnel shall not, however, be indemnified for its or their gross
negligence or willful misconduct.

(b)                                 Operator shall
use its best efforts to require that all contracts with Additional Personnel
(as herein defined in Section 3.06(a)) and their subcontractors include a
provision requiring such Additional Personnel to indemnify and save harmless
Operator, Partnership, the Partners and their Affiliates, and the directors,
officers, agents, employees and invitees of each of them from and against any
claim, loss or liability for death, personal injury or damage to or destruction
of property incurred by reason of any negligent act or omission of such
Additional Personnel and its employees, agents, servants and invitees.

Section 5.03                                Consequential
Damages

Notwithstanding any other
provision of this Agreement, Operator and its Affiliates shall not be liable to
Partnership, each Partner or their Affiliates for any consequential, exemplary,
special, incidental or punitive damages (including, without limitation, loss of
profits, revenues, income or savings, pipeline transportation capacity, cost of
capital or loss of business reputation or opportunity) arising from this
Agreement or any breach thereof or error in the 

 20
 

operation of the Project
regardless of the fault or negligence (whether sole, joint or concurrent,
active or passive) of Operator or its Affiliates.

Section 5.04                                Insurance

(a)                                  Operator shall
carry and maintain such insurance coverages as required or approved by
Partnership for the benefit of, and shall to the extent permitted by the
insurer(s) name as named insured, Operator, Partnership, each Partner and their
Affiliates and the directors, officers, employees (including Operating
Personnel), agents, servants and invitees of each of them, but only so far as
it relates, directly or indirectly, to the Project and such insurance coverages
shall include, where possible, cross liability provisions. Such insurance shall
be a reimbursable cost pursuant to Section 4.01 hereof and Article 3.08 of the
Accounting Procedure.

(b)                                 Operator shall
require contractors, subcontractors or consultants (including Additional
Personnel) to carry and maintain insurance deemed adequate by the Management
Committee:

(i)                                     to protect the Operator,
Partnership and each Partner and their Affiliates and the directors, officers,
employees, agents and invitees of each of them, but only so far as it relates,
directly or indirectly, to the Project, and

(ii)                                  satisfy any other
requirements of law.

(c)                                  In the event
any portion of the insurance contemplated by this Section 5.04 cannot be
obtained on terms satisfactory to the Management Committee, Operator shall have
no liability to Partnership for failure to procure such insurance, except to
give written notice immediately to the Management Committee of such fact.

Section 5.05                                Litigation
Decisions

Any and all claims, damages
or causes of action against Partnership asserted by anyone other than
Partnership, any Partner or Operator arising out of the design, construction,
operations, maintenance, and administration of the Project which are not
covered by insurance placed pursuant to Section 5.04 of this Agreement shall be
settled or litigated and defended by Operator in accordance with its best
judgment and discretion when either:

(a)           (i)             the
amount involved is $100,000 or less;

(ii)                                  no injunctive or similar
relief is sought, and

(iii)                               no criminal sanction is
sought; or

 21
 

(b)                                 the action is
one for which Operator is required to provide indemnification pursuant to
Section 5.01 of this Agreement;

otherwise, such decision
shall be made by Partnership, and any settlement or defense thereof shall be
controlled by Partnership.  The matters
described in subparagraph (a) above shall be carried out by Operator for and on
behalf of the Partnership and at Partnership’s expense (including expenses of
litigation and all amounts paid in settlement or to discharge judgment)

Section 5.06                                Notice of
Litigation

Operator shall give
Partnership notice of any litigation against Partnership or against Operator as
soon as practicable after Operator receives notice of such litigation.

ARTICLE VI.

TAXES

Section 6.01                                Tax Returns and
Payments

Subject to prior review and
written approval by Partnership, Operator shall file all returns and render and
pay (prior to delinquency) all taxes presently and hereafter enacted which are
the lawful obligations of Partnership. If any Partner requests, such returns
along with relevant data shall be prepared in time to permit such Partner to
reflect its results in any consolidated/ combined, or unitary tax return including
such Partner. Operator shall have no authority to make any elections on behalf
of Partnership or individual Partners for federal or state or any other income
tax purposes. Matters of tax policy for Partnership shall be the responsibility
of the Management Committee or of the Tax Matters Partner to the extent
delegated to such Partner pursuant to Article 7.6 of the Partnership
Agreement.  All taxes, net of applicable
credits, which are the lawful obligations of Partnership that are paid by
Operator shall be treated as costs chargeable to Partnership.

Section 6.02                                Ad Valorem
Taxes

Without limiting Section
6.01, Operator shall render for ad valorem taxation all property of Partnership
which by law should be rendered for such taxes, and it shall pay all such taxes
assessed thereon before they become delinquent. 
Operator shall bring any tax assessment which Operator believes to be
unreasonable to the attention of Partnership and, if so directed in writing by
Partnership, shall protest such valuation within the time and manner prescribed
by law, and prosecute the protest to a final determination, unless Partnership
directs Operator in writing to abandon the protest prior to final
determination. When any such protested valuation shall have been finally determined,
Operator shall pay the assessment, together with interest and penalty
accrued.  All ad valorem tax payments,
net of any applicable credits, shall be treated as costs chargeable to
Partnership.

 22
 

ARTICLE VII.

INTELLECTUAL PROPERTY AND NON-COMPETITION

Section 7.01                                Inventions and
Copyrights

Any (i) inventions, whether
patentable or not, developed or invented, or (ii) copyrightable material,
developed by Operator or its employees during and connected with the
performance of services under this Agreement shall, unless otherwise directed
by Partnership in writing, be assigned (and the same are hereby assigned for
good and valuable consideration) to Partnership, which shall have the exclusive
right to the exploitation hereof.

Section 7.02                                Confidentiality

Because the information and
knowledge gained during the performance of services hereunder may consist of
valuable proprietary information, the misuse or disclosure of which could cause
substantial damage to Partnership, any and all confidential and proprietary
information obtained by Operator in performance of its obligations hereunder
shall be held in strict confidence by Operator, its directors, officers,
employees, agents and Operating Personnel and Additional Personnel except as
needed to comply with the purposes of this Agreement or when disclosure is
compelled by law or regulation. Prior to any such disclosure, however, Operator
shall immediately provide to Partnership written notice thereof so that
Partnership may seek a protective order or other appropriate remedy or waive
compliance by Operator with this Section. In the event that any court or
administrative body requires disclosure of such confidential information, then
Operator or any of its employees, agents or subcontractors required to provide
such disclosure shall furnish only that portion of such confidential
information which is legally required and, further, shall each exercise their
best efforts to obtain reasonable assurances that confidential treatment will
be accorded such confidential information.

Any contracts entered into
by Operator related to this Agreement, including those for Additional
Personnel, shall contain a provision which similarly restricts the use and
disclosure of such information. This Section 7.02 shall survive the termination
of this Agreement.

Section 7.03                                License to
Operator

Each Partner which is a
signatory to this Agreement hereby grants to Operator on behalf of Partnership
an irrevocable, royalty-free, non-exclusive and a non-assignable, license to
use, during the term of this Agreement, any confidential information provided
to Partnership or Operator by said Partner and designated as such by the
Partner, or generated by Partnership or Operator on behalf of said Partner or
Partnership during the term of the Partnership Agreement.  For purposes of this Section 7.03,
confidential information shall include, but shall not be limited to, inventions
(whether patented or not) 

 23
 

and copyrights or
copyrightable material. As a condition precedent to the effectiveness of the
aforesaid license to use, Operator hereby expressly agrees that it will utilize
such confidential information solely in connection with the performance of its
duties hereunder and further expressly agrees that it will be subject to and
bound by the provisions set forth in Section 9.6 of the Partnership Agreement
as if it were a Partner, which provisions are incorporated herein by reference
as if set out in full. Upon termination of this Agreement or its removal as
Operator, Operator shall return all confidential information which has been
provided to it, together with all reproductions thereof in Operator’s
possession, pursuant to the aforesaid license to use to the Person (Partner(s)
of Partnership) from which it obtained such confidential information.

For the purposes of Sections
7.02 and 7.03, confidential information will not include information with
respect to which Operator is able to establish that:

(a)                                  at the time of
disclosure hereunder was or thereafter became generally available to the
public, other than as a result of a disclosure of information in violation of
this Agreement by Operator or anyone to whom Operator or its representatives
disclosed such information;  or

(b)                                 was or became
lawfully known to Operator on a non-confidential basis from a source (other
than Partnership) that is entitled to disclose the information; or

(c)                                  was already in
the possession of Operator or was lawfully acquired by Operator from a third
party if such third party is not subject to any prohibition against
transmitting the information;  or

(d)                                 was or is
developed by Operator independently of the confidential information received
directly or indirectly from or on behalf of Partnership or the provisions of
this Agreement.

ARTICLE VIII.

ASSIGNMENT

Section 8.01                                Assignment

(a)                                  Except as set out in this Section 8.01, neither this Agreement nor any of
the rights and obligations under this Agreement may be assigned by either Party
without the prior written consent of the other Party, which consent shall not
be unreasonably withheld.

 24
 

(b)                                 Notwithstanding any other provision of this Agreement, Operator may, without the consent
of the Partnership or Partners, assign this Agreement, including all rights and
obligations hereunder, at any time to any of Operator’s Affiliates.

ARTICLE IX.

TERMINATION

Section 9.01                                Term and
Termination of the Agreement

The term of this Agreement
shall commence as of the Effective Date and, subject to earlier termination in
accordance with Section 9.02 hereof, shall terminate on June 30, 2007.

Section 9.02                                Termination of
Operator

Partnership shall have the
right to terminate this Agreement by delivering 
a notice of termination (“Termination Notice”) to Operator upon the
occurrence of any of the following events:

(a)                                  Operator has
breached this Agreement or has acted in a manner contrary to the best interest
of Partnership (as determined by Partnership in its sole judgment) and has not
remedied such breach or action within 30 days of receipt of written notice of
such breach or action from the Partnership;

(b)                                 the Partnership
elects to terminate this Agreement;

(c)                                  Partnership
intends to dissolve or terminate the Partnership;

(d)                                 Operator
dissolves, becomes insolvent or if a petition in bankruptcy is filed by or
against Operator, or if Operator takes the benefit of any bankruptcy or
insolvency law, or files any plan or arrangement thereunder or if a receiver is
appointed for Operator or any of its property.

Section 9.03                                Operator’s
Costs, Expenses and Actions upon Termination

In the event of Partnership
delivering a Termination Notice to Operator, Operator shall, unless otherwise
specified in the Termination Notice, continue to operate the Project in
accordance with the terms and conditions of this Agreement up to and including
the date specified in the Termination Notice and shall forthwith without undue
delay, but in any event no later than sixty (60) days thereafter, transfer and
assign to Partnership, or to another entity if so directed by Partnership, any
and all assets of Partnership held by Operator its officers, directors,
employees, Operating Personnel and Additional Personnel hereunder, including,
but not limited to all contracts, permits, books, records, confidential
material, licenses, contract rights and other property, whether tangible or
intangible. Operator shall promptly wind 

 25
 

up its duties as Operator
and complete the transfer of its responsibilities and any assets of Partnership
held hereunder to Partnership or another entity as may be directed by
Partnership and Partnership shall pay to Operator upon any termination of this
Agreement, in addition to any costs for which Partnership may be obliged to
reimburse Operator pursuant to Article IV of this Agreement, any and all costs
and expenses reasonably incurred by Operator in winding up and transferring its
responsibilities and Partnership assets.

Section 9.04                                Survival of
Obligations

The termination of this
Agreement for any reason shall not discharge either Party from any obligation
which it owes to the other Party by reason of any transaction, commitment or
agreement entered into, or any loss, cost, damage, expense or liability which
shall have occurred or arisen (or the circumstances, events, or basis of which
have shall occurred or arisen) prior to such termination. It is the intent of
the Parties that any obligation owed by one Party to the other (whether the
same shall be known or unknown at the termination hereof, or whether the
circumstances, events, or basis of the same shall be known or unknown at the
termination hereof) shall survive the termination of this Agreement.

ARTICLE X.

FORCE MAJEURE

Section 10.01                          Effect of Force
Majeure

In the event that either
Partnership or Operator is rendered unable, by reason of an event of force
majeure, to perform, wholly or in part, any obligation or commitment set forth
in this Agreement, then upon such Party giving written notice and full
particulars of such event as soon as practicable after the occurrence thereof,
the obligations of both Parties, except for unpaid financial obligations
arising prior to such event of force majeure, shall be suspended to the extent
and for the period of such force majeure condition.

Section 10.02                          Nature of Force
Majeure

The term “force majeure” as
employed in this Agreement shall mean acts of God, strikes, lockouts or
industrial disputes or disturbances, civil disturbances, arrests and restraint
from rulers of people, interruptions by government or court orders, present and
future valid orders, decisions or rulings of any governmental entity having
proper jurisdiction, acts of the public enemy, wars, riots, blockades,
insurrections, inability to secure labor or inability to secure materials,
including inability to secure materials by reason of allocations promulgated by
authorized governmental agencies, epidemics, landslides, lightning,
earthquakes, fire, storms, floods, washouts, inclement weather which
necessitates extraordinary measures and expense to construct facilities and/or
maintain operations, explosions, 

 26
 

breakage or accident to
machinery or lines of pipe, freezing of wells or pipelines, inability to obtain
or delays in obtaining easements or rights-of-way, the making of repairs or
alterations to wells, pipelines or plants, partial or entire failure of gas
supply or any other cause, whether of the kind herein enumerated or otherwise,
not reasonably within the control of the Party claiming force majeure.

Section 10.03                          Non-Force
Majeure Situation

Neither Operator nor
Partnership shall be entitled to the benefit of the provisions of 0 if the
failure was caused by lack of funds, or with respect to the payment of any
amount or amounts then due hereunder.

Section 10.04                          Resumption of
Normal Performance

Should there be an event of
force majeure affecting performance hereunder, such events shall be remedied
with all reasonable dispatch to ensure resumption of normal performance.

Section 10.05                          Strikes and
Lockouts

Settlement of strikes and
lockouts shall be entirely within the discretion of the Party affected, and the
requirement in Section 10.04 that any event of force majeure shall be remedied
with all reasonable dispatch shall not require the settlement of strikes or
lockouts by acceding to the demands of the parties directly or indirectly
involved in such strikes or lockouts when such course is inadvisable in the
discretion of the Party having such difficulty.

ARTICLE XI.

REMEDIES

Section 11.01                          Remedies

Remedies provided under the
provisions of this Agreement shall not be construed as limiting the rights or
remedies otherwise conferred by law or in equity; provided, however, in no event
shall any Partner or any of its Affiliates or their respective directors,
officers, employees, agents or shareholders have any individual or separate
liability to Operator under or as a result of this Agreement and Operator
agrees that any claim against Partnership which may arise hereunder shall be
made only against the assets of Partnership and that all rights to proceed
against the Partners or their Affiliates and the assets of the Partners (other
than their interests in Partnership) as a result of any such claim or any
obligation arising therefrom, are hereby expressly waived.

 

 27

ARTICLE XII.

INDEPENDENT CONTRACTOR

Section 12.01                              Independent Contractor

In performing services
pursuant to this Agreement, Operator shall be an independent contractor and not
an employee, agent or servant of Partnership; and this Agreement does not create
any partnership or joint venture between Partnership and Operator.

ARTICLE XIII.

APPROVAL OR ACTION OF PARTNERSHIP

Section 13.01                              Approval or Action of Partnership

Notwithstanding any other
provision of this Agreement, Partnership and Operator acknowledge and agree
that the Management Committee shall have the exclusive right to make all
decisions and take all actions for Partnership under this Agreement and that
such decisions or actions shall be communicated to Operator by a written
communication signed by each member of the Management Committee (or their
respective designated alternates), provided that any communication relating to
an amendment of this Agreement effecting a reduction, limitation or elimination
of Operator’s responsibilities under this Agreement or the termination of this
Agreement need only be executed by the member of the Management Committee (or
its designated alternate) of any Partner or Partners, (excluding TGPC) who
hold(s) not less than 50% of the Partners’ Percentages held by all Partners
(excluding TGPC) to be effective and binding upon Operator and Partnership. All
the foregoing written communications shall be binding on Operator and
Partnership. In light of the foregoing, Operator agrees to make all
communications to Partnership through the Management Committee and to report to
and coordinate its efforts to satisfy its obligations hereunder with the
Management Committee.

ARTICLE XIV.

GENERAL

Section 14.01                              Counterparts

This Agreement may be
executed in counterparts, including counterparts delivered by facsimile, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument, notwithstanding that all of the parties
are not signatories to the original or the same counterpart.

 28
 

Section 14.02                              Captions

The article and section
headings used in this Agreement are for convenience only and shall not be
determinative in construing the meaning, effect or application of any article,
section or provision hereof.

Section 14.03                              Binding Effect

The rights and obligations
set forth in this Agreement shall be binding upon, and shall inure to the
benefit of, each of the parties hereto and their respective permitted
successors and assigns.

Section 14.04                              Entire Agreement

This Agreement constitutes
the entire agreement between the Parties pertaining to the subject matter
hereof and supersedes all prior agreements, representations and understandings,
including, without limitation, written or oral, pertaining thereto. This
Agreement shall be amended, restated or supplemented only by the written
agreement of all the Parties.

Section 14.05                              Prior Operating Agreement

Notwithstanding any other
provision of this Agreement, Operator shall not be responsible for any duties
or obligations accruing or arising under the Prior Operating Agreement.

Section 14.06                              Severability

If any provision of this
Agreement or the application thereof shall be invalid, illegal or unenforceable
to any extent and for any reason, the remainder of this Agreement and the
application of such remainder shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.

Section 14.07                              Applicable Laws

This Agreement and the
obligations of the parties hereto shall be governed by and interpreted in
accordance with the laws of the State of Nevada, without regard to the
principles of conflicts of law or principle that might refer the governance or
the construction of this Agreement to the law of another jurisdiction, and any
proceedings arising out of this agreement shall be brought in the appropriate
court of competent jurisdiction located in the state of Nevada in the city of
Reno.

Section 14.08                              Laws and Regulatory Bodies

This Agreement and the
obligations of the parties hereunder are subject to all applicable laws, rules,
orders and regulations of governmental authorities having jurisdiction and, in
the event of conflict, such laws, rules, orders and regulations of governmental
authorities having jurisdiction shall control.

 29
 

Section 14.09                              Waiver

No waiver by any Party of any
default by any other Party in the performance of any provision, condition,
covenant or requirement herein shall be deemed to be a waiver of, or in any
manner release, such other Party from performance of any other provision,
condition, covenant or requirement herein contained; nor deemed to be a waiver
of, or in any manner a release of, such other Party from future performance of
the same provision, condition, covenant or requirement.  Any delay or omission of any Party in
exercising any right hereunder shall not impair the exercise of any such right,
or any like right, accruing to it thereafter. No waiver of a right created by
this Agreement by one Party shall constitute a waiver of such right by the
other Party except as may otherwise be required by law with respect to Persons
not parties hereto. The failure of one Party to perform its obligations
hereunder shall not release the other Party from the performance of such
obligations.

Section 14.10                              Further Assurances

Each of the Parties hereto
agrees to execute and deliver such other and additional instruments and
documents, provide such information and to do or refrain from doing such other
acts as may be reasonably necessary to effectuate this Agreement.

Section 14.11                              Notices

Any notice, demand, request,
consent or approval required or permitted to be given or made under this
Agreement shall be in writing and shall be given either by mail, addressed to
the recipient, postage paid, and registered or certified with return receipt
requested or by delivering that writing to the recipient in person, by courier,
or by facsimile transmission.  All
notices, demands, requests, consents and approvals to be sent to a Party hereto
must, unless otherwise directed by the applicable Party, be sent to or made at
the following address:

	
  Partnership:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TransCanada PipeLines Limited

  
	
   

  	
   

  	
  450 1st Street S.W.

  
	
   

  	
   

  	
  Calgary, Alberta, Canada T2P 5H1

  
	
   

  	
   

  	
  Attention: Mark Zimmerman

  
	
   

  	
   

  	
  Facsimile: (403) 920-2363

  

 30
 

 

	
  

  	
  with a copy to:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TC PipeLines GP, Inc. 

  
	
   

  	
   

  	
  450 1st Street S.W. 

  
	
   

  	
   

  	
  Calgary, Alberta, Canada T2P 5H1

  
	
   

  	
   

  	
  Attention:  Secretary

  
	
   

  	
   

  	
  Facsimile:  (403) 920-2460

  

 

	
  Operator:

  	
   

  	
   

  
	
   

  	
   

  	
  TransCan
  Northwest Border Ltd.

  
	
   

  	
   

  	
  450, 1st Street S.W.

  
	
   

  	
   

  	
  Calgary, Alberta
  , Canada T2P 5H1

  
	
   

  	
   

  	
  Attention:  Craig Frew

  
	
   

  	
   

  	
  Facsimile:  (403) 920-2661

  
	
   

  	
   

  	
   

  

 

	
  

  	
  with a copy to:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TransCan Northwest Border Ltd.

  
	
   

  	
   

  	
  450 1st Street S.W. 

  
	
   

  	
   

  	
  Calgary, Alberta, Canada T2P 5H1

  
	
   

  	
   

  	
  Attention:  Secretary

  
	
   

  	
   

  	
  Facsimile:  (403) 920-2460

  

 

Any such notice or other
communication shall be deemed to have been received by the recipient:

(a)                                  in the case of
a letter which is hand-delivered or couriered, when actually delivered, in the
case of a letter which is sent by registered post, on the seventh day after
posting (or on actual receipt, if earlier); or

(b)                                 in the case of
transmission by facsimile, at the time of receipt of transmission, if such
transmission occurs on a business day and during normal business hours of the
recipient; otherwise on the next business day.

 31
 

Section 14.12                              Pronouns and Plurals

Whenever the context may
require, any pronoun used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular form of nouns, pronouns
and verbs shall include the plural and vice versa.

Section 14.13                              Conflicts

In the event there is any
conflict between this Agreement and any exhibit or other agreement referred to
herein, the provisions hereof shall be deemed controlling.

Section 14.14                              Not for Benefit of Third Persons

This Agreement is intended
to be solely for the benefit of Partnership, Partners and Operator and their
permitted successors and assigns and is not intended to and shall not confer
upon any other Person any other rights or benefits.

Section 14.15                              References to Money

All references in this
Agreement, and transactions hereunder, to money shall be to or in Dollars of
the United States of America.

IN WITNESS WHEREOF, the
Parties have caused this Agreement to be executed by their duly authorized
representatives as of this 19th day of December, 2006.

	
  

  	
  TUSCARORA GAS TRANSMISSION COMPANY

  
	
   

  	
  by its Partners

  
	
   

  	
   

  
	
   

  	
  Tuscarora Gas Pipeline Co.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carolyn C. Barbash

  
	
   

  	
  Name: 

  	
  Carolyn C. Barbash

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TCPL Tuscarora Ltd.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Craig R. Frew

  
	
   

  	
  Name: 

  	
  Craig R. Frew

  
	
   

  	
  Title:

  	
  President

  

 

 32
 

 

	
  

  	
  By:

  	
  /s/ Donald J. DeGrandis

  
	
   

  	
  Name: 

  	
  Donald J. DeGrandis

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TC Tuscarora Intermediate Limited Partnership,
  by its general partner, TC PipeLines GP, Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark Zimmerman

  
	
   

  	
  Name: 

  	
  Mark Zimmerman

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Donald J. DeGrandis

  
	
   

  	
  Name: 

  	
  Donald J. DeGrandis

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TRANSCAN NORTHWEST BORDER LTD.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Donald J. DeGrandis

  
	
   

  	
  Name: 

  	
  Donald J. DeGrandis

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Donald R. Marchand

  
	
   

  	
  Name: 

  	
  Donald R. Marchand

  
	
   

  	
  Title:

  	
  Vice-President

  

 

 33

EXHIBIT “A”

TO

OPERATING AGREEMENT

ACCOUNTING PROCEDURE

ARTICLE I.

GENERAL PROVISIONS

Section 1.01                                Statements and
Billings

Operator may, subject to the
provisions of the applicable Approved Budget, bill Partnership on the fifteenth
(15th) day of each month for the estimated costs and expenses net of estimated
revenues for the next succeeding month and any adjustments which may be
necessary to correct prior estimated billings to actual. Such estimates shall
not deviate from amounts specified in the Approved Budgets. Interest earned on
the advance payment of estimated costs shall be credited to the account of
Partnership and may be used by it to satisfy its obligations to Operator
hereunder. It is anticipated that the adjustments reflected in a given month’s
billing will usually relate to the second preceding month. Such bills will be
summarized by appropriate classifications indicative of the nature thereof and,
at the request of any member of the Management Committee, Operator shall
provide appropriate back-up detail to support adjustments to the bills. For
purposes of the Agreement and this Accounting Procedure, a “month” shall mean a
calendar month and a “Fiscal Year” shall mean a calendar year.

Section 1.02                                Payment by
Partnership

Partnership shall, subject to
the other provisions of the Agreement, pay all bills presented as provided in
the Agreement on or before the fifteenth (15th) day after the billing date and
the Partners’ receipt of the back-up detail referred to above.

Section 1.03                                Disputed
Charges

The Management Committee or
any Partner or Partners entitled to vote who hold not less than 50% of the
Partners’ Percentage held by all Partners entitled to vote may, within the time
provided in Section 1.04 of this Accounting Procedure, take written exception
to any bill or statement rendered by Operator for any expenditure or any part
thereof, on the ground that the same was not a reasonable, authorized or proper
cost incurred by Operator. Partnership shall nevertheless pay in full when due
the amount of all statements submitted by Operator which are in accordance with
the Approved Budgets and Section 1.02 of this Accounting Procedure. Such
payment by or on behalf of Partnership shall not be deemed a waiver of the
right of Partnership to recoup any contested portion of any bill or 

 A-1
 

statement. However, if the
amount as to which such written exception is taken or any part thereof is
ultimately determined by an independent and qualified arbitrator chosen by
Partnership and Operator not to be a reasonable, authorized or proper expense
incurred by Operator hereunder, such amount or portion thereof (as the case may
be) shall be refunded immediately by Operator to Partnership, or, at the
election of any Partner who holds not less than 50% of the Partners’
Percentages held by all Partners entitled to vote, amounts then or thereafter
owed by Partnership hereunder to Operator may be offset against amounts owed
hereunder by Operator to Partnership.

Section 1.04                                Adjustments

Payment of any such bills
shall not prejudice the right to protest or question the correction hereof
within the time periods prescribed for audits of such bills by Section 4.05(a)
of the Agreement. No adjustment favorable to Operator shall be made unless it
is made within the same prescribed time periods.

Section 1.05                                Financial
Records

Operator shall maintain for
the account of Partnership accurate books and records in accordance with the
FERC’s Uniform System of Accounts for Major Natural Gas Companies or any
successor system thereto.

ARTICLE II.

CAPITAL ITEMS AND CONSTRUCTION COSTS

Section 2.01                                Capital Items
and Construction Costs

Except for items included in
an Approved Budget or in the event of an emergency as provided in Section
3.04(h) of the Agreement, prior to the acquisition of any property, real or
personal, costing more than $5,000 in the name or on behalf of Partnership,
which under the accounting rules and regulations, if any, at the time
prescribed by Partnership is at the time operating, might be capitalized,
Operator shall prepare and submit to Partnership a forecast of the cost of all
such property.  Upon written approval of
such forecast by the Management Committee, Operator shall have authority to
purchase such property in Partnership’s name without further approval or action
by Partnership.

ARTICLE III.

COSTS, EXPENSES AND EXPENDITURES

Subject to the provisions of
the Approved Budgets, the limitations hereinafter prescribed and the provisions
of the Agreement, upon the approval by the Partnership of an Approved Budget,
Operator shall charge Partnership for all costs and expenses incurred by
Operator (except those costs incurred under Section 5.01 of the Agreement), net
of discounts, in connection with the administration, 

 A-2
 

planning, accounting,
design, construction, operation, maintenance, upkeep, or abandonment of the
Project and any Expansions (hereinafter collectively referred to as “Operations”),
including but not limited to the following items:

Section 3.01                                Rentals

All rentals paid by Operator

Section 3.02                                Labor Costs

Salary and wages of
Operating Personnel, as that term is used in the Agreement, at cost, taking
into account base salary and wages and applicable burden and overhead. The
Parties hereto hereby acknowledge that the aforesaid burden shall include,
without limitation, the cost of holidays, vacation, sickness and disability
benefits, established plans for employees’ group life insurance,
hospitalization, disability, pension, retirement, savings and other benefit
plans and other customary benefits and allowances paid to employees whose
salaries or wages are chargeable under this provision together with the
assessments imposed by governmental authorities which are applicable to such
salary, wages and the costs and benefits relating thereto. The aforesaid
overhead shall cover the costs of general office overhead and other indirect
and undistributable costs. The Parties acknowledge and agree that:

(a)                                  for Operating
Personnel provided by Operator or its Affiliates the salary and wages and
applicable burden and overhead shall be charged and recovered at the actual
rates incurred; and

(b)                                 all the
foregoing salary and wages and burden and overhead rates are subject to audit
verification.

Fees and compensation of
Additional Personnel, as that term is used in the Agreement. Payment of these fees
and compensation shall fully compensate and reimburse Operator for all
reasonable expenses incurred by Operator in relation to Additional Personnel
designated by Operator and approved by the Management Committee from time to
time.

Section 3.03                                Reimbursable
Expenses of Operating Personnel

Reasonable and necessary
expenses of Operating Personnel are chargeable under Section 3.02 above. As
used herein, the term “expenses” shall mean reasonable travel, hotel,
transportation, meal and other usual out-of-pocket expenditures incurred by
employees in the performance of their duties and for which such employees are
reimbursed. Operator shall maintain documentation for such expenses in
accordance with the standards of the Internal Revenue Service of the United States
of America.

 A-3
 

Section 3.04                                Material,
Equipment and Supplies

It is contemplated that all
material, equipment and supplies will be owned by Partnership and purchased or
furnished for its account. So far as is reasonably practical and consistent
with efficient and economical operation, only such material shall be obtained
for the Project as may be required for immediate use, and the accumulation or
surplus stock shall be avoided. To the extent reasonably possible, Operator
shall take advantage of discounts available by early payments and pass such
benefits on to Partnership. Material, equipment and supplies furnished by
Operator, if any, shall be priced at cost to Operator plus carrying costs and
stores loading costs to be established in writing by Operator and the
Management Committee.

Section 3.05                                Transportation

Transportation of employees,
equipment, material and supplies necessary for operations.

Section 3.06                                Service

(a)                                  The cost of
contract services provided by Persons other than Operator, including, without
limitation, costs billed by Partners or their Affiliates rendering services
pursuant to a contract with Operator (provided that all such contracts have
been approved in writing by the Management Committee).

(b)                                 The cost of
utilities.

(c)                                  Use and service
of vehicles, equipment and facilities furnished by Operator at rates agreed to
in writing by the Management Committee.

Section 3.07                                Taxes

All taxes (except those
measured by income) of every kind and nature assessed or levied upon
Partnership or incurred by Partnership in connection with the Project’s
facilities or operations or other property of Partnership and which taxes have
been paid by Operator for the benefit of Partnership, including charges for
late payment arising from extensions of the time for filing which is caused by
Partnership or which results from Operator’s good faith efforts to contest the
amount of application of any tax

Section 3.08                                Insurance

Net of any returns, refunds,
or dividends, all premiums paid and expenses incurred for insurance approved in
writing by the Management Committee, pursuant to Section 5.04(a) of the
Agreement.

 A-4
 

Section 3.09                                Permits,
Licenses and Bonds

Cost of permits, licenses
and bond premiums necessary in the performance of Operator’s duties, except for
permits or licenses paid for by Operator in the ordinary course of its
business.

 

 A-5

EXHIBIT “B”

DEFINITIONS

“Approved Budget” means each
budget prepared by Operator in accordance with the Agreement which has been
approved by the Management Committee and includes Tentative Budgets and
Expansion Budgets.

“Effective Date” shall have
the meaning set forth in the preamble to the Agreement.

“Fiscal Year” means the
calendar year.

“Transportation
Service Agreements” means those certain contracts in relation to the
transmission of natural gas, directly or indirectly, on the Project entered
into between Partnership and Shippers.

 

 B-110-K 2006 Exhibit 4.6

Exhibit 4.6

Form of Amendment No. 1 to Rights Agreement between Mattson Technology Inc. and Mellon Investor Services, LLC as
Rights Agent.

AMENDMENT No. 1 TO RIGHTS AGREEMENT

This AMENDMENT No. 1 TO RIGHTS AGREEMENT (the "Amendment") is entered into as of the __ day of
January, 2007, between Mattson Technology, Inc., a Delaware corporation (the "Company"), and Mellon Investor Services, LLC, a New
Jersey limited liability company, as rights agent (the "Rights Agent"). Capitalized terms not defined herein shall have the meanings
given them in the Rights Agreements (as defined below).

RECITALS

A.Pursuant to that certain Rights Agreement dated as of July 28, 2005, (the "Rights Agreement"), the Board of
Directors of the Company (i) authorized the issuance and declared a dividend of one right (a "Right") for each share of the
common stock, par value $0.001 per share, of the Company outstanding as of the close of business on August 15, 2005 (the "Record
Date"), each Right representing the right to purchase one one-thousandth of a share of Series A Preferred Stock of the
Company, having the rights, powers and preferences as set forth in a Certificate of Designation filed with the Delaware Secretary of
State and made a part of the Company's Certificate of Incorporation, upon the terms and subject to the conditions set forth in the Rights
Agreement, and (ii) further authorized the issuance of one Right with respect to each share of common stock of the Company
that shall become outstanding between the Record Date, and the Distribution Date. 

B.Pursuant to Section 27 of the Rights Agreement, the Company and the Rights Agent may, so long as the Rights are
then redeemable, amend any provision of the Rights Agreement, as determined by the Company in its sole discretion.

C.To the knowledge of the Board of Directors of the Company, there has been no occurrence of a Flip-In Event, nor has the
Expiration Date occurred, and accordingly the Rights are currently redeemable pursuant to Section 23 of the Rights
Agreement.

D.The Board of Directors of the Company has determined that it is in the best interest of the Company and its stockholders to
amend the Rights Agreement as set forth herein.

E.The Company has requested that the Rights Agreement be amended in accordance with Section 27 of the Rights
Agreement, as set forth herein, and the Rights Agent is willing to amend the Rights Agreement as set forth herein.

AGREEMENT

NOW, THEREFORE, the parties, intending to be legally bound, hereby agree as follows:

1.Section 1(a) of the Rights Agreement is hereby amended to read in its entirety as follows: 

"Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which, together with all Affiliates (as such
term is hereinafter defined) and Associates (as such term is hereinafter defined) of such Person shall be the Beneficial Owner (as such
term is hereinafter defined) of fifteen percent (15%) or more of the outstanding Common Stock of the Company, without the prior
approval of the Company's Board of Directors; provided, however, that in no event shall a Person who or which, together with all
Affiliates and Associates of such Person, is the Beneficial Owner of less than 15% of the Company's outstanding Common Stock,
become an Acquiring Person solely as a result of a reduction of the number of shares of outstanding Common Stock, including
repurchases of outstanding shares of Common Stock by the Company, which reduction increases the percentage of outstanding shares
of Common Stock beneficially owned by such Person, provided, further, that if a Person shall become the Beneficial Owner of 15% or
more of the Company's outstanding Common Stock then outstanding solely by reason of a reduction of the number of shares of
outstanding Common Stock, and shall thereafter become the Beneficial Owner of any additional shares of Common Stock of the
Company, then such Person shall be deemed to be an Acquiring Person unless upon the consummation of the acquisition of such
additional shares of Common Stock such person does not own 15% or more of the shares of Common Stock then outstanding. An
Acquiring Person shall not include an Exempt Person (as such term is hereinafter defined) or a Grandfathered Person (as such term is
hereinafter defined); provided further that a Grandfathered Person shall become an Acquiring Person if, (i) without the prior approval of
the Board of Directors, the Grandfathered Person becomes the Beneficial Owner of more than 18% of the Company's Common Stock;
but (ii) the Grandfathered Person shall not become an Acquiring Person solely by reason of a reduction of the number of shares of
outstanding Common Stock. Notwithstanding the foregoing, if (i) either (X) the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an Acquiring Person, as defined pursuant to the foregoing provisions of
this paragraph (a), has become such inadvertently (including, without limitation, because (A) such Person was unaware
that it beneficially owned a percentage of Common Stock that would otherwise cause such Person to be an Acquiring Person or
(B) such Person was aware of the extent of its Beneficial Ownership but had no actual knowledge of the consequences of such
Beneficial Ownership under this Rights Agreement) and without any intention of changing or influencing control of the Company, or
(Y) within two Business Days of being requested by the Company to advise the Company regarding same, such Person certifies
in writing that such Person acquired Beneficial Ownership of 15% or more of the Company's outstanding Common Stock inadvertently
or without knowledge of the terms of the Rights, and (ii) such Person divests as promptly as practicable a sufficient number of
shares of Common Stock so that such Person would no longer be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this paragraph (a), then such Person shall not be deemed to be or to have become an "Acquiring Person" for any
purposes of this Rights Agreement.

2.Section 1(v) of the Rights Agreement is hereby amended to read in its entirety as follows: 

"Grandfathered Person" shall mean NWQ Investment Management Company, LLC, which shall be and remain a Grandfathered
Person whether or not it ceases to Beneficially Own in excess of 15% of the Company's Common Stock. 

This Amendment shall be deemed effective as of June 21, 2006, the date of approval by the Board of Directors of the
Company, as if executed by both parties on such date. Except as amended hereby, the Rights Agreement shall remain unchanged and
shall remain in full force and effect.

This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall
constitute one instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed, as of the date and year first above
written.

	
 
	
MATTSON TECHNOLOGY, INC.

 

By:

Name:

Title:

	
 
	
MELLON INVESTOR SERVICES, LLC

As Rights Agent

 

By:

Name:

Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00118-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00118-of-00352.parquet"}]]