Document:

Exhibit 10.31

 

PROPERTY MANAGEMENT AGREEMENT

This Property
Management Agreement (the “Agreement”) made as of the 31st day of October, 2006, by and between TRT
Minnesota Valley III LLC, a Delaware limited liability company (“Owner”),
and Opus Northwest Management, L.L.C., a Delaware limited liability company (“Property
Manager”).

Owner desires to
retain the services of Property Manager, as an independent contractor, in
connection with the management and operation of the real property owned by
Owner identified on Exhibit A, attached hereto (“Property”) and
Property Manager desires to assume such responsibilities, upon the terms and
conditions set forth in this Agreement. If Exhibit A includes more than
one property, or if additional properties are added to this Agreement by the
written agreement of the parties from time to time, the term Property means one
property, some properties or all properties subject to the Agreement, as the
context may require.

In consideration
of the premises and the mutual promises and covenants herein contained, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Owner and Property Manager agree as follows:

1.             Appointment. Subject to the terms and provisions
of this Agreement, Owner hereby grants to Property Manager, as an independent
contractor, the exclusive right to manage and operate the Property. Owner and
Property Manager have entered into this Agreement in reliance upon the unique
knowledge, experience, reputation and expertise of the other party and in
reliance upon the duties of loyalty and confidentiality which each party hereby
agrees to undertake. Except as otherwise expressly provided in this Agreement,
neither party shall be required to accept performance under this Agreement from
any person, including, without limitation, Owner or Property Manager, as the
case may be, should it become a debtor in possession under the United States
Bankruptcy Code, or any trustee of either appointed under the United States
Bankruptcy Code and any assignee of such party or trustee, other than the other
party.

2.             Term and Termination.

(a)           Initial Term. The initial term
of this Agreement shall commence on October 31, 2006, or, if Owner is not the
owner of the Property on such date, on the date Owner closes on the purchase of
the property, and except as otherwise expressly provided in this Agreement,
shall continue until one year following the commencement of the term of this
Agreement and from year to year thereafter subject to termination as provided
in subsection (b). Owner shall have the right to terminate this Agreement
at anytime prior to the commencement of the initial term by providing Property
Manager with written notice of such termination.

(b)           Termination. Notwithstanding
anything to the contrary contained in this Agreement, Property Manager may
terminate this Agreement without cause upon 60 days prior written notice to the
Owner and Owner may terminate this Agreement without cause upon 30 days prior
written notice to the Property Manager. Owner may from time to time, by written
notice, without affecting this Agreement with respect to any other Properties,
delete individual properties from this Agreement.

 	 Initials:  PM  
 	  
 	   Owner  
 	  
 

  
 

 

(c)           Effect of Expiration or
Termination. Any expiration or termination of this Agreement shall not
affect or impair any rights or obligations which have accrued to either party
hereto prior to such expiration or termination, including, without limitation,
the rights of Property Manager to receive payments provided for hereunder. Upon
Owner’s delivery to Property Manager of notice of termination of this Agreement
under this Section 2, Owner may send a transition team to the Property to
participate in the day-to-day operations of the Property and Property Manager
shall cause its employees and other personnel engaged in the management and
operation of the Property to cooperate with Owner’s transition team.
Immediately upon the expiration of the term hereof, Property Manager shall
deliver to Owner all funds, including tenant security deposits, tenant
correspondence, property files, vendor invoices and books and records of Owner
related to the Property then in possession or control of Property Manager.
Within 60 days following expiration or termination, Property Manager shall
deliver to Owner a final accounting, in writing, with respect to the operations
of the Property.

(d)           Default. Upon the occurrence
of any breach of any term or provision of this Agreement by a party (“defaulting
party”), and after giving notice of such breach and an opportunity to cure as
provided below, the nondefaulting party shall be entitled to terminate this
Agreement immediately in addition to any remedy such party may have at law or
in equity. A defaulting party shall be entitled to cure a monetary breach
within 10 days after receipt of written notice of such breach, or, in the case
of a nonmonetary breach, within 30 days after such notice provided that the
defaulting party proceeds to diligently cure such breach upon receipt of such
notice.

(e)           Bankruptcy, Insolvency. If
either party shall file a petition in bankruptcy or for a reorganization or
arrangement or other relief under the United States Bankruptcy Code or any
similar statute, or if any such proceeding shall be filed against either party
and is not dismissed or vacated within 60 days after its filing, or if a court
having jurisdiction shall issue an order or decree appointing a receiver,
custodian or liquidator for a substantial part of the property of either party
which decree or order remains in force undischarged and unstayed for a period
of 60 days, or if either party shall make an assignment for the benefit of
creditors or shall admit in writing its inability to pay its debts as they
become due, the other party may terminate this Agreement upon five days written
notice.

(f)            Termination
by Mortgagee. Notwithstanding anything to the contrary contained in
this Agreement, the holder or holders of any indebtedness of Owner secured by a
first lien mortgage or deed of trust encumbering the Property (a “Mortgagee,”
as provided for in Section 9 of this Agreement) shall have the right to
terminate this Agreement without cause upon thirty (30) days prior written
notice to Property Manager in the event such Mortgagee forecloses its lien on
the Property, or accepts a deed in lieu of foreclosure from Owner, or otherwise
becomes a mortgagee in possession of the Property.

3.             Compensation.

(a)           Management Fee. As
consideration for the performance by Property Manager of all of its property
management duties under this Agreement, Owner agrees to pay to Property Manager
for each individual property subject to this Agreement and each month during
the term of this Agreement that the individual Property is subject to this
Agreement, a property

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management fee as detailed on the attached Exhibit B – Schedule of Property
Management Fees (the “Management Fee”). The Management Fee shall
be paid not later than the tenth (10th) day of the month following the month
for which such fee is earned. “Gross Receipts” means all receipts of every kind
and nature derived from the operation of the Property during a specified period
determined on a cash basis, including, without limitation, rent, rent
adjustments, utility charges, parking charges, service charges, proceeds of
rent interruption insurance and tenant reimbursements for operating expenses,
taxes and insurance; excluding: (i) security deposits (to the extent not
applied to delinquent rents) and other refundable deposits; (ii) lump sum
payments, which are not amortized, for above-standard tenant improvements;
(iii) interest on bank accounts for the operation of the Property; (iv)
proceeds from the sale or refinancing of the Property, or any part thereof; (v)
insurance proceeds or dividends received from any insurance policies pertaining
to physical loss or damage to the Property or any part thereof (but not
proceeds of rent interruption insurance); (vi) condemnation awards or payments
received in lieu of condemnation of the Property or any part thereof; and (vii)
any trade discounts and rebates received in connection with the purchase of
personal property.

(b)           Payment of Management Fee.
Provided that Property Manager is not in default under this Agreement, Property
Manager shall be entitled to pay itself the monthly Management Fee from the Property
bank account referred to in Section 6(a) hereof.

(c)           Reimbursable and Nonreimbursable
Costs. All costs incurred by Property Manager in the performance of its
duties under this Agreement that are in accordance with the approved Budget or
within $500 or 10% of the applicable line items in the approved Budget shall be
reimbursed by Owner. Notwithstanding any other provision herein or in any
Budget, the following costs shall not be reimbursable by Owner to Property
Manager:

(i)            costs relating to bookkeeping
services required to be performed by Property Manager hereunder unless such
costs are approved by Owner in writing to Property Manager;

(ii)           salaries and payroll expenses of
Property Manager’s executives, personnel, and employees of Property Manager, except
maintenance personnel billed on an hourly or other periodic basis and subject
to the limitations in the Budget;

(iii)          Property Manager’s off-site overhead
and general administrative expenses, except long distance telephone, fax,
overnight delivery, courier, registered mail, copying, entertainment (subject
to Owner’s prior approval in each instance), uniforms, and two-way radios,
where such charges are directly related to the operation of the Property;

(iv)          premiums for insurance required to be
maintained by Property Manager or any subcontractors hereunder; and

(v)           costs of Property Manager’s principal
and branch offices.

4.             Duties.

(a)           General Management Duties.
Subject to the availability of funds provided under the Budget, Property
Manager shall manage and operate the Property in a manner

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consistent with the management and operation of
comparable properties, shall provide such services as are customarily provided
by a manager of properties of comparable class and standing, and shall consult
with Owner and keep Owner advised as to all material or extraordinary matters
and decisions affecting the Property. Specifically, Property Manager shall, at
Owner’s expense, perform the following services and duties for Owner in a
faithful, diligent and efficient manner:

(i)            Property Manager shall timely
prepare and deliver to Owner such accounting and operations reports as and in
the manner required pursuant to Owner’s standard reporting requirements, as may
be amended from time to time;

(ii)           Maintain businesslike relations with
tenants of the Property whose service requests shall be received, considered
and recorded in systematic fashion in order to show the action taken with
respect to each request. Complaints of a serious nature shall, after thorough
investigation, be reported to Owner with appropriate recommendations for
addressing such complaints;

(iii)          Exercise its best efforts to collect
all rents and other sums and charges due from tenants, subtenants, licensees
and concessionaires of the Property;

(iv)          Prepare or cause to be prepared for
execution and filing by Owner all forms, reports and returns, if any, required
by all federal, state, or local laws in connection with unemployment insurance,
workmen’s compensation insurance, disability benefits, Social Security and
other similar taxes now in effect or hereafter imposed, and also any other
requirements relating to the contracting of third party vendors for the
Property; however, Property Manager shall not be obligated to prepare any of
Owner’s local, state, or federal income tax returns;

(v)           Pay prior to delinquency all real
estate taxes, sales tax, personal property taxes and assessments levied against
the Property, or any part thereof; and

(vi)          Subject to the limitations of the
applicable approved Budget adopted pursuant to subsection (b) hereof,
perform such other acts as are reasonable, necessary and proper in the
discharge of its duties under this Agreement.

(b)           Budgets.

(i)            Budget Approval Process.
Property Manager shall submit by September 1st of each year during the
term hereof (or such other date as Owner may request) a proposed detailed,
written estimate or projection of all receipts and expenditures for the
operation of the Property during the next Fiscal Year, including, without
limitation, all estimated rentals (including fixed, percentage and escalation
rents) and all estimated repairs, maintenance and capital projects (“Budget”)
for the ensuing Fiscal Year. Property Manager shall submit the preliminary
budget to Owner within 15 days after the date hereof for the remainder of the
Fiscal Year beginning on the date of this Agreement. A “Fiscal Year” is
a calendar year all or part of which falls within the term of this Agreement.
In the event Owner, in Owner’s sole judgment, disapproves of any proposed Budget
submitted by Property Manager, Owner shall give Property Manager written notice
thereof in which event Property Manager shall make all revisions thereto

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which Owner shall direct. Property Manager shall
resubmit the revised proposed Budget to Owner for approval. Until Owner has
approved the revised approved Budget, Property Manager may continue to operate
pursuant to the last approved Budget except for increased expenses relating to
taxes, insurance and utilities which should be paid on a current basis. In the
absence of any written notice of approval within 60 days after delivery of a
proposed Budget to Owner, the proposed Budget shall be deemed to have been
approved by Owner.

(ii)           Payment of Budgeted Expenses.
Property Manager shall have the right to pay all expenses according to the
approved Budget, including the Management Fee. Notwithstanding any other
provision in this Agreement, without the prior written consent of Owner,
Property Manager shall not incur or permit to be incurred expenses under this
Agreement (excluding only utility expenses, general real estate taxes,
insurance premiums, financing costs and emergency expenses) that exceed 10% of
the applicable line items in the Budget (e.g., cleaning expenses, HVAC
expenses, maintenance expenses, etc.) but in no event that exceed $500.00.
Property Manager shall promptly notify Owner whenever Property Manager
determines that the Budget or any expense item in the Budget is insufficient to
cover the expenses of operating the Property or the applicable expense item.

(c)           Property Personnel. Property
Manager shall employ, supervise, and discharge all employees required in
connection with the operation and management of the Property. All such
personnel shall, in every instance, be employees of Property Manager or
independent contractors. Property Manager shall provide and maintain, so long
as this Agreement is in force, worker’s compensation insurance in full
compliance with all applicable state and federal laws and regulations covering
all employees of Property Manager performing work in respect of the Property
operations. The granting of unbudgeted employee fringe benefits and plans not
required by law or union contract shall be subject to the reasonable prior
written approval of Owner. Property Manager agrees to comply with all
governmental anti-discrimination laws and shall not, unless acting at the
direction of Owner, do any act, nor permit any act to be done that would
constitute a violation of any or all of such laws. Property Manager shall
indemnify and hold Owner harmless from and against any and all claims,
penalties, liabilities and expenses of whatsoever kind and nature which may be
asserted by any governmental body having authority or by any person claiming to
be aggrieved by reason of any acts or failure to act by Property Manager in
accordance with or in violation of any said anti-discrimination laws, as long
as such act or failure to act is not caused or directed by Owner.

Employees
of the Property Manager or independent contractors shall include the following:

(i)            Property Manager. A person
who is primarily responsible for overseeing the management of the Property
hereunder and who is experienced in the administration and operation of
warehouse, and/or light industrial, and/or service center facilities of the
size, type, use, and quality of the Property;

(ii)           Others. Such other personnel
required to operate and maintain the Property, including, but not limited to,
an assistant property manager, maintenance manager, administrative and
accounting personnel, grounds keepers, and janitorial and custodial persons,

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as Property Manager reasonably deems necessary or
consistent with the level of service provided by other similarly situated
property.

(d)           Contracts and Supplies.
Property Manager shall, at Owner’s expense, at the lowest cost as in its
judgment is consistent with good quality, workmanship and service standards,
enter into contracts on behalf of Owner for the furnishing to the Property of
required utility services, heating and air-conditioning services and other
maintenance, pest control, and any other services and concessions which are
reasonably required in connection with the maintenance and operation of the
Property. Property Manager shall also place purchase orders for services and
Personal Property as are reasonably necessary to properly maintain the
Property. All such contracts and orders shall be subject to the limitations set
forth in the approved Budget. When taking bids or issuing purchase orders,
Property Manager shall use all reasonable efforts to secure for and credit to
Owner, any discounts, commissions or rebates obtainable as a result of such
purchases or services. Property Manager shall use all reasonable efforts to
make purchases and (where necessary or desirable) let bids for necessary labor
and materials at the lowest possible cost as in its judgment is consistent with
good quality, workmanship and service standards. Property Manager shall not
incur obligations to any person or entity in which Property Manager or any of
Property Manager’s employees has a financial or other interest or with which
Property Manager or any such employee(s) is affiliated unless: i) the price or
fee therefore is not higher than that which would have been charged as a result
of a bona fide arms-length negotiation for goods or services of comparable
quality; and ii) Property Manager delivers to Owner prior written notice and
Owner gives its prior written approval of any such proposed transaction.

(e)           Alterations, Repairs and Maintenance.

(i)            Budgeted Repairs/Emergency
Repairs. Property Manager shall, at Owner’s expense, perform or cause to be
performed all necessary or desirable repairs, maintenance, cleaning, painting
and decorating, alterations, replacements and improvements in and to the
Property as are customarily made by property managers in the operation of
properties of the kind, size, and quality of the Property; provided, however,
that no unbudgeted alterations, additions or improvements involving a
fundamental change in the character of the Property or constituting a major new
construction program shall be made without the prior written approval of Owner
unless specifically referenced in and performed pursuant to any lease
previously approved by Owner. In addition, no unbudgeted expenditure in excess
of $250 per item or a total of $1,000 per Fiscal Year shall be made for such
purposes in connection with any single Property without the prior written
approval of Owner. Emergency repairs involving manifest danger to life or
property, or immediately necessary for the preservation or the safety of the
Property, or for the safety of the tenants of the Property, or required to
avoid the suspension of any necessary service to the Property may be made,
however, by the Property Manager without prior approval and regardless of the
cost limitations imposed by this subsection (e). Property Manager shall as soon
as practicable give written notice to Owner of any such emergency repairs for
which prior approval is not required.

(ii)           Capital Improvements. In
accordance with the terms of approved Budgets and upon written request and/or
approval of Owner, Property Manager shall, from time to time during the term
hereof, at Owner’s expense, make or cause to be made all required capital

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improvements, replacements, or repairs to the
Property. All major repairs and capital replacements shall be managed by a
person who specializes in construction projects for the Property Manager (the “Construction
Manager”). The Property Manager shall be paid a construction management fee of:
5% of the total budgeted construction cost (excluding the construction
management fee) up to $50,000; 4% of the total budgeted construction cost
exceeding $50,001 and up to $200,000; and 3% of the total budgeted construction
costs exceeding $200,001 and up to $350,000; 2.5% of the total budgeted
construction costs exceeding $350,001 and up. For example and not by way of
limitation, the construction management fee for a $50,000 construction job
would be $2,500. The construction management fee shall be paid upon the
completion of the construction and written acceptance of the work by the Owner.
The construction management fee shall be based on the actual cost of the
project, including any change orders approved by Owner.

(iii)          In connection with all improvements,
replacements, or repairs to the Property (the “Work”), the Construction
Manager shall do the following:

(A)          prepare a detailed list of the Work to
be performed and review the preparation of all plans for the construction of
all improvements and repairs to the Property. Except for any Work which is less
than $2,500, the plans for the Work to be performed shall be submitted to the
Owner for its approval;

(B)           except for any Work which is less
than $2,500, prepare all bid documents which shall be distributed to at least
three (3) contractors on the approved contractor list;

(C)           except for any Work which is less
than $2,500, receive all submitted bids and evaluate such bids. In evaluating
the submitted bids, Construction Manager shall evaluate the price listed in the
bid, the timeliness of the work to be performed as stated in the bid, the
reputation of the contractor submitting the bid, and any other relevant factors
that Construction Manager determines should be taken into account when
evaluating the submitted bids. Once Construction Manager evaluates all the
submitted bids, Construction Manager shall recommend to Owner the bid, if any,
it believes is the best and shall explain to Owner why the recommended bid is
the best. Once Owner determines which bid to accept, Construction Manager shall
contact the contractor with the approved bid to award the contract;

(D)          review, inspect, and oversee the
construction of all improvements, replacements, or repairs to the Property to
ensure that all said improvements, replacements, and repairs comply with the
construction contract requirements and all applicable laws, including but not
limited to local building codes and ordinances;

(E)           ensure that all improvements,
replacements, or repairs to the Property are completed;

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(F)           except for any Work which is less
than $2,500 or for Work for which a single payment will satisfy the obligation,
prepare a draw package for the disbursement of funds to the Contractor. The
draw package or single payment invoices shall be submitted to Owner for its
approval;

(G)           ensure that all guaranties and
warranties for the materials, labor, and for work in connection with or
relating to the Work shall be in the name of the Owner or shall be assigned to
Owner upon the completion of the Work; and

(H)          after receiving adequate and complete
lien waivers from all workers and suppliers and other applicable parties in
connection with the Work, after taking any and all steps necessary to release
and to otherwise prevent perfection or enforcement of any liens filed or
recorded against the Property in connection with the construction of any and
all improvements or replacements or repairs to the Property, and after
receiving written approval from Owner, disburse all funds to the proper and
correct parties.

The Construction Manager
shall provide written reports to Owner, no less frequently than once a month, summarizing
the repairs, improvements, and replacements being constructed on the Property,
as well as such other reports as Owner may reasonably request. These reports
shall, among other things, summarize any material problems or issues which may
arise in connection with said construction.

(iv)          Defects and Warranties.
Property Manager shall give Owner written notice of any material or latent
defect in the Property and all parts thereof known to Property Manager promptly
after any of the foregoing comes to Property Manager’s attention including,
without limitation, material defects in the roof, foundation and walls of the
Property and in the sewer, water, electrical, structural, plumbing, heating,
ventilation and air conditioning systems. Property Manager shall make periodic
visual inspections of the Property consistent with its employees’ and agents’
expertise as referenced in Section 4(c)(i) hereinabove. Property Manager shall
have no obligation to discover any such condition or make any other
inspections, but Property Manager shall be required to ascertain the existence
of any contractor/subcontractor warranty or guaranty and to submit a request to
the appropriate contractor/subcontractor to repair the defect as necessary.

(f)            Licenses and Permits.
Property Manager shall, at Owner’s expense, attempt to obtain and maintain in
the name of Owner all licenses and permits required of Owner or Property
Manager in connection with the management and operation of the Property. Owner
agrees to execute and deliver any and all applications and other documents and
to otherwise cooperate with Property Manager in applying for, obtaining and
maintaining such licenses and permits.

(g)           Compliance with laws. To the
extent permitted by the approved Budget, Property Manager shall use best
efforts to comply with all applicable laws, regulations and requirements of any
federal, state or municipal government having jurisdiction with respect to the
use or manner of use of the Property or the maintenance or operation thereof.

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(h)           Legal Proceedings. Property
Manager cannot and may not terminate any lease, lock out a tenant, institute
suit for rent or for use and occupancy, or proceedings for recovery of
possession, without the prior written approval of Owner. In connection with
such suits or proceedings only legal counsel designated by Owner shall be
retained, and all such suits or proceedings shall be brought in the name of
Owner and shall be handled in such manner as Owner directs.

(i)            Inventory. Property Manager
shall maintain a current inventory of all equipment supplies, furnishings,
furniture and all other items of personal property now or hereafter owned by
Owner and located upon or used, or useful for, or necessary or adapted for the
operation of the Property.

(j)            Signs. Property Manager may
place one or more signs on or about the Property stating, among other things,
that Property Manager is the management and leasing agent for the Property. All
such signs and locations thereof shall be subject to Owner’s prior written
approval.

(k)           Third Party Vendors. All third
party vendors with whom Property Manager contracts on behalf of Owner shall be
required to submit certificates of insurance evidencing that such vendor
carries at least $1,000,000 in comprehensive general liability insurance and
such workers compensation insurance as may be required by statute in the state
in which the Property is located. If required by other provisions of this
Agreement, Owner shall be added as an additional named insured on such policies
of insurance.

(l)            Leases. In accordance with
the terms and provisions of this Agreement, Property Manager shall use
commercially reasonable efforts to ensure that all tenants comply with the
terms and provisions of their leases and shall take customary actions to
enforce such leases.

(m)          Additional Services. If
Property Manager shall perform such additional services as Owner may reasonably
request in writing, which are not specifically provided for in this Section 4
above, Property Manager will be compensated for such services on an hourly
basis or on a negotiated fee basis.

5.             Procedure For Handling Receipts And Operating Capital.

(a)           Receipts. All monies received
by Property Manager for or on behalf of Owner in connection with the operation
and management of the Property shall be promptly deposited by Property Manager
in an operating account or accounts established in Owner’s name at such bank as
directed by Owner (“Operating Accounts”). Periodically throughout the
month, Owner, in its sole discretion, may remove any excess funds from such
Operating Accounts.

(b)           Disbursements. Owner shall
deposit and maintain sufficient funds in the Operating Accounts, and Property
Manager shall withdraw and pay from such account or accounts, such amounts at
such times as the same are required in connection with the management and
operation of the Property in accordance with the provisions of this Agreement.

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(c)           Authorized Signatories. Certain
officers and employees of Property Manager, approved by Owner and designated on
Exhibit C hereto, shall be authorized signatories on the Operating
Accounts and shall have authority to make withdrawals from such Operating
Accounts. In addition, Owner shall have at least one officer or employee of
Owner as an authorized signatory on each Operating Account, which officer(s) or
employee(s) of Owner shall also be designated on Exhibit C hereto.
Property Manager shall cause all officers and employees of Property Manager who
are so designated to be bonded, at Property Manager’s expense, in an amount
required by Owner, but not less than $50,000. Property Manager shall also cause
all other officers, employees, affiliates or agents of Property Manager who in
any way handle funds for the Property to be bonded, at no expense to Owner, in
an amount not less than $50,000.

(d)           Security Deposits. All
security deposits of tenants of the Property shall be maintained under the
joint control of Owner and Property Manager in such manner as Owner shall
approve and as required by the applicable state law.

6.             Accounting.

(a)           Books and Records. In
accordance with the guidelines and operating procedures established by Owner,
Property Manager shall maintain, at the central office of Property Manager, a
comprehensive system of office records, books, computer files and data and
accounts pertaining to the Property (using such property management accounting
software that Owner may choose), which system currently is MRI. Owner also has
a website, xdrive.com, which Property Manager shall also be required to
maintain and/or access for additional required forms and reports. Such systems
(MRI & xdrive.com), records, books, computer files and data and accounts
shall be available for examination, copying and audit by Owner and its agents,
accountants and attorneys during regular business hours. Property Manager,
during the term, shall preserve all records, books, computer files and data and
accounts for a period of three years and at the end of such period shall
deliver or make available to Owner such records, books, computer files and data
and accounts. All such records, books and computer files and data shall, at all
times, be the property of Owner.

(b)           Periodic Statements; Audits.

(i)            Periodic Statements. Property
Manager shall timely prepare and deliver to Owner such accounting and
operations reports as and in the manner required pursuant to Owner’s standard
reporting requirements, as may be amended from time to time.

(ii)           Data Processes. Property
Manager shall timely meet all designated deadlines for inputting and
maintaining data on Owner’s MRI system (or other system hereafter designated by
Owner) so that Owner may download such data from Property Manager’s computers
to Owner’s computers on such designated deadlines.

(iii)          Audit. In the event that Owner
requires an audit, the audit shall be at Owner’s expense and the Property
Manager shall cooperate with the auditors.

(iv)          Other Statements. Owner may
request and Property Manager shall provide when available such monthly,
quarterly and/or annual leasing and management reports

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that relate to the operations of the Property as
Property Manager customarily provides the owners of other properties it
manages.

(c)           Return of Computer Hardware and
Software. Immediately following the termination of this Agreement by either
Owner or Property Manager, Property Manager shall return and/or deliver to
Owner, in good condition and working order, all hardware, software,
documentation, backup tapes, signature cartridges and all other computer
hardware and software purchased or otherwise provided by Owner to Property
Manager for Property Manager’s use during the term of this Agreement.

7.             Insurance.

(a)           Insurance by Owner. Owner, at
its expense, will obtain and keep in force adequate insurance against physical
damage (e.g., fire and extended coverage endorsement, boiler, and machinery,
etc.) and not less than $5,000,000 Occurrence and Aggregate general liability
insurance against liability for loss, damage, or injury to property or persons
which might arise out of the occupancy, management, operating, or maintenance
of the Property covered by this Agreement. Property Manager will be covered as
an insured in its capacity as a Real Estate Manager on all commercial general
liability insurance obtained by Owner. Owner shall save Property Manager
harmless from any liability on account of loss, damage, or injury, to the
extent actually insured against by Owner provided:

(i)            Property Manager notifies Owner
within twenty-four hours after Property Manager receives notice of any such
loss, damage or injury;

(ii)           Property Manager takes no action
(such as admission of liability) which bars Owner from obtaining any protection
afforded by any policy Owner may hold; and

(iii)          Property Manager agrees that Owner
shall have the exclusive right, at its option, to conduct the defense to any
claim, demand or suit within limits prescribed by the policy or policies of
insurance.

The
Property Manager shall furnish whatever information is requested by Owner for
the purpose of establishing the placement of insurance coverages and shall aid
and cooperate in every reasonable way with respect to such insurance and any
loss thereunder. Owner shall include in its hazard policy covering the
Property, the personal property, fixtures and equipment located thereon (owned
by either Property Manager or Owner), appropriate clauses pursuant to which the
insurance carriers shall waive the rights of subrogation with respect to losses
payable under such policies.

(b)           Indemnity. Owner agrees to
indemnify, defend and hold Property Manager harmless from and against any and
all loss, cost, damage, liability or expense (including, without limitation,
attorneys’ fees, accountants’ fees, consultants’ fees, court costs and interest)
resulting from bodily injury or tangible property damage and arising in
connection with the Property to the extent the same were caused by the
negligence or willful misconduct of Owner, or its officers or employees.

 11
 

 

(c)           Property Manager’s Insurance.
Property Manager shall maintain, at its expense, insurance coverages in the
following amounts:

(i)            Worker’s Compensation – Coverage A:
statutory amount

Coverage B: Employer’s Liability insurance:

$500,000 Each Accident

$500,000 Disease, Policy Limit

$500,000 Disease, Each Employee

(ii)           Commercial General Liability, on an
occurrence basis, including Bodily Injury and Property Damage Liability,
Personal and Advertising Injury Liability for the following limits:

	
  General Aggregate

  	
   

  	
  $  2,000,000

  
	
   

  	
   

  	
   

  
	
  Products -
  Completed Operations Aggregate

  	
   

  	
  $  2,000,000

  
	
   

  	
   

  	
   

  
	
  Each Occurrence

  	
   

  	
  $  1,000,000

  
	
   

  	
   

  	
   

  
	
  Personal and
  Advertising Injury Liability

  	
   

  	
  $  1,000,000

  

 

(iii)          Owned, Hired and Non-Owned Business
Automobile liability insurance in an amount no less than $1,000,000 per
accident Combined Single Limit for bodily injury and property damage

(iv)          Property Manager’s Errors &
Omissions Insurance in an amount not less than $1,000,000 per loss, aggregate.

(v)           Employee Theft Insurance in an amount
not less than $1,000,000. Employee Theft Insurance policy shall provide
coverage for theft of Owner’s money, securities and other property by employees
of Property Manager.

(vi)          Property Insurance
coverage for personal property of Property Manager.

All
coverage shall be provided by insurance companies with a current Best’s Rating
of A VIII or higher. At the commencement of the Agreement, Property Manager
shall furnish Owner with Certificates of Insurance. All insurance policies
shall provide for 30 days’ written notice to Owner prior to the cancellation or
any material change to any provisions therein. Certificates of Insurance shall
be modified so the words “endeavor to”, “but failure to mail such notice shall
impose no obligation or liability of any kind upon the company, its agents or
representatives”, and all provisions of similar effect shall be deleted from
the certificate form’s cancellation provision. At least ten (10) days prior to
the expiration of any such policy, Property Manager will provide to Owner
evidence of the renewal or replacement of the aforesaid policies.

 12

 

(d)           Indemnification of Owner.
Property Manager agrees to defend and hold and save Owner free and harmless
from and against all expenses, claims, liabilities, losses, judgments or
damages, including reasonable attorneys’ fees actually incurred (except to the
extent covered by insurance carried by Owner), which Owner may suffer or incur
as a result of any gross negligence or willful misconduct of Property Manager
or its agents, employees, independent contractors or others under the direction
or control of Property Manager, any claim by or relating to any employee of
Property Manager against Owner that is predicated on the claim that such
employee is the employee of Owner and not of Property Manager or acts outside
the scope of Property Manager’s authority hereunder, and agrees to retain legal
counsel reasonably acceptable to Owner and at Property Manager’s sole expense
to defend promptly and diligently any claim, action or proceeding brought
against Owner or Property Manager, jointly or severally, arising out of or in
connection with any of the foregoing. Owner shall have the right to be
represented by advisory counsel of its own selection and at its own expense.

It is
expressly understood and agreed that the provisions of Section 7(b) hereinabove
and the provisions of this Section 7(d) shall survive the termination of this
Agreement to the extent of any cause of action arising from events occurring
prior to such termination.

(e)           Subcontractor’s Insurance.
Property Manager shall require that all subcontractors brought onto the
Property have insurance coverage, at the subcontractor’s expense, in the
following minimum amounts (which amounts may be increased at Owner’s written
request, depending on the work to be performed):

(i)            Workman’s Compensation – statutory
amount;

(ii)           Employer’s Liability -
$500,000/$500,000/$500,000 minimum;

(iii)          Broad Form Commercial General
Liability (naming Owner and Property Manager as additional insureds) -
$1,000,000 per occurrence Combined Single Limit; $2,000,000 aggregate (i.e.,
such insurance shall include contractual liability, personal injury protection
and completed operations coverage and hold harmless provision in favor or Owner
and Property Manager);

(iv)          Auto Liability - $1,000,000 minimum;
and

(v)           Property Insurance coverage for tools and equipment brought onto
and/or used on the Property by the subcontractor – an amount equal to the
replacement costs of all such tools and equipment.

All
such general liability policies of insurance shall name Owner, Property Manager
and all other parties and/or entities required by Owner as additional insureds
thereunder, as their respective interests may appear.

Property
Manager must obtain Owner’s prior permission to waive any of the above
requirements. Property Manager shall obtain and keep on file a certificate of
insurance that shows the contractor is so insured.

 13
 

 

8.             Subordination to Mortgages.

(a)           Subordination. This Agreement
and Property Manager’s interest and rights hereunder, are subject and
subordinate to the lien of any first mortgage, whether now existing or
hereafter created on or against the Property, and all amendments, restatements,
renewals, modifications, consolidations, refinancings, assignments and
extensions thereof (“Mortgage”), without the necessity of any further instrument
or act on the part of the Property Manager. Property Manager agrees, at request
of the holder of any such Mortgage (the “Mortgagee”), to attorn to the
Mortgagee and/or to execute such documentation as the Mortgagee may reasonably
require to evidence that Property Manager’s interest and rights hereunder are
and shall be subject and subordinate at all times to the lien of the Mortgage.
The term “Mortgage” as used herein shall be deemed to include deeds of trust,
security agreements, assignments and any other encumbrances, and any reference
to the “Mortgagee” of a Mortgage shall be deemed to include the beneficiary
under a deed of trust. Notwithstanding the foregoing, nothing herein shall
obligate the Property Manager to continue its performance under this Agreement
unless it continues to be paid in accordance with the terms of this Agreement.

(b)           Rights after Events of Default.
In the event of any default under any Mortgage, the Property Manager shall
continue to perform its obligation under this Agreement until the termination
of this Agreement by the Mortgagee, which may occur in the Mortgagee’s sole
discretion, as provided for in Section 2(f) of this Agreement.

9.             Miscellaneous Provisions.

(a)           Notices. All notices, waivers,
demands, requests, or other communications, except for those approvals required
under this Agreement which shall be sent by facsimile or regular mail to the
asset manager for that individual Property, required or permitted hereunder
shall, unless otherwise expressly provided, be in writing and be deemed to have
been properly given, served and received (i) if delivered by messenger, when
delivered, (ii) if mailed, upon deposit in the United States mail, certified or
registered, postage prepaid, return receipt requested, (iii) if telexed, telegraphed,
or telecopied, if such dispatch is followed by delivery pursuant to (iv) below
the next business day, or (v) if delivered by reputable overnight express
courier, freight prepaid, the next business day after delivery to such courier;
in every case addressed to the party to be notified as follows:

 14
 

 

 

	
  To Property Manager:

  	
   

  	
  Opus Northwest Management, L.L.C.

  
	
   

  	
   

  	
  10350 Bren Road West

  
	
   

  	
   

  	
  Minnetonka, MN 55343

  
	
   

  	
   

  	
  Attn: Senior Vice President

  
	
   

  	
   

  	
  Telephone: 

  	
  952-656-4550

  
	
   

  	
   

  	
  Telefax: 

  	
  952-352-8550

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With a copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Opus Corporation

  
	
   

  	
   

  	
  10350 Bren Road West

  
	
   

  	
   

  	
  Minnetonka, MN 55343

  
	
   

  	
   

  	
  Attn: Legal

  
	
   

  	
   

  	
   

  
	
  To Owner:

  	
   

  	
  TRT Minnesota Valley III LLC

  
	
   

  	
   

  	
  c/o DCT Industrial Fund II LLC

  
	
   

  	
   

  	
  518 17th St., Ste 1700

  
	
   

  	
   

  	
  Denver, CO 80202

  
	
   

  	
   

  	
  Attn: Bonnie Micus

  
	
   

  	
   

  	
  Telephone:

  	
  303-228-2200

  
	
   

  	
   

  	
  Telefax:

  	
  303-228-2201

  

 

or to such other
address(es) or addressee(s) as any party entitled to receive notice hereunder
shall designate to the others in the manner provided herein for the service of
notices. Rejection or refusal to accept or inability to deliver because of
changed address or because no notice of changed address was given, shall be
deemed receipt.

(b)           Severability. If any term,
covenant or condition of this Agreement or the application thereof to any
person or circumstance shall, to any extent, be held to be invalid or
unenforceable, the remainder of this Agreement, or the application of such
term, covenant or condition to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby, and
each term, covenant or condition of this Agreement shall be valid and shall be
enforced to the fullest extent permitted by law.

(c)           No Joint Venture or Partnership.
Owner and Property Manager hereby renounce the existence of any joint venture
or partnership between them and agree that nothing contained herein or in any
document executed in connection herewith shall be construed as making Property
Manager and Owner joint venturers or partners.

(d)           Modification, Termination.
This Agreement may be amended or modified only by a written instrument executed
by Property Manager and Owner.

(e)           Total Agreement. This
Agreement constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof.

 15
 

 

(f)            Article and Section Headings.
Article and Section headings contained in this Agreement are for reference only
and shall not be deemed to have any substantive effect or to limit or define
the provisions contained herein.

(g)           Successors and Assigns. This
Agreement shall be binding on the parties hereto, and their successors and
permitted assigns. Property Manager may not assign or otherwise transfer its
interest hereunder without the prior written consent of Owner, which consent
may be withheld arbitrarily in Owner’s sole discretion. This Agreement is
freely assignable by Owner.

(h)           Governing Law. This Agreement
shall be construed in accordance with the internal laws of the state in which
the Property is located.

(i)            Sarbanes Oxley Act. Property Manager,
at it sole expense, shall comply with all requirements set forth in the
Sarbanes Oxley Act of 2002 with respect to the Project. Specifically, Property
Manager will be required to produce documentation of all accounting policies
and procedures which identify all key controls and describes in detail the
processes which ultimately affect the Project financial statements. In
addition, Property Manager may be required to perform periodic testing of such
identified controls and remediate any control weaknesses identified through
such test work. All policies and procedures, documentation and test work will
be performed to the specification of the Owner including but not limited to,
implementation of appropriate controls, scope of test work including such as
sample size, measures to be taken from remediation, etc.

(j)            Counterparts. This Agreement
may be executed in several counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same instrument.

SIGNATURES BEGIN ON NEXT PAGE

 16
 

 

SIGNATURE PAGE TO PROPERTY MANAGEMENT AGREEMENT

DATED OCTOBER 31, 2006 BETWEEN TRT MINNESOTA VALLEY III LLC

AND OPUS NORTHWEST MANAGEMENT, L.L.C.

IN
WITNESS WHEREOF, this Agreement has been executed as of the date first above
written.

	
  OWNER:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TRT MINNESOTA VALLEY III LLC, a Delaware limited
  liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: DCT Industrial Fund II LLC, a Delaware limited
  liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: DCT
  Industrial Operating Partnership LP (f/k/a Dividend Capital Operating
  Partnership LP), a Delaware limited partnership, its sole member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: DCT
  Industrial Trust Inc. (f/k/a Dividend Capital Trust Inc.), a Maryland
  corporation, its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Bonnie
  Micus

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Senior
  Vice President/Director of

  Property Management

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  
	
  PROPERTY
  MANAGER:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Opus Northwest Management, L.L.C., a Delaware
  limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  
	
   

  	
   

  	
  Name:Michael E. Dwyer

  
	
   

  	
   

  	
  Title:Senior Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  
					

 

 17
 

 

EXHIBIT A

to Property Management Agreement dated October 31,
2006

by and between TRT Minnesota Valley III LLC and Opus Northwest Management,
L.L.C.

LIST OF PROPERTIES COVERED BY THIS AGREEMENT

Addresses:

1. 3350 4th Avenue East, Shakopee, MN

 18
 

 

EXHIBIT B

to Property Management Agreement dated October 31, 2006

by and between TRT Minnesota Valley III LLC and Opus Northwest Management,
L.L.C.

SCHEDULE OF PROPERTY MANAGEMENT FEES

	
  Property Address

  	
   

  	
  % of Gross Receipts*

  	
   

  	
  Monthly Minimum*

  	
   

  
	
  3350 4th Avenue East, Shakopee, MN

  	
   

  	
  2

  	
  %

  	
  $

  	
  1,566

  	
   

  
							

 

* the greater of
the percent of gross receipts or the minimum amount, as noted above

 19
 

 

EXHIBIT C

to Property Management Agreement dated October 31, 2006

by and between TRT Minnesota Valley III LLC and Opus Northwest Management,
L.L.C.

DESIGNATED SIGNATORIES

TRT
Minnesota Valley III LLC

Matthew T. Murphy,
Vice President

Opus
Northwest Management, L.L.C.

Michael E. Dwyer

Vicki M. Ribich

Joanne Lehrke

 20Exhibit 10.1

MEMORANDUM OF UNDERSTANDING

This Memorandum of Understanding (“Memorandum”) is made and entered
into this 7th day of November, 2006, by and between Northwest Pipeline
Corporation, a Delaware corporation (“Northwest” or “Transporter”) and Cascade
Natural Gas Corporation (“Cascade” or “Shipper”). Transporter and Shipper are
sometimes referred to individually as “Party” and collectively as the “Parties”.

RECITALS:

Transporter owns and operates an interstate natural gas transmission
system subject to the jurisdiction of the Federal Energy Regulatory Commission
(“FERC”);

 

Shipper desires to become the prearranged shipper for certain available
firm transportation capacity on Transporter’s system, subject to the terms and
conditions of this Memorandum;

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and subject to all of the terms, conditions, and provisions
herein set forth, Transporter and Shipper do hereby memorialize, their
understanding as follows:

 

ARTICLE I

PREARRANGED TRANSACTION COMMITMENTS

1.                                       Cascade
agrees to submit a prearranged offer for 30,000 Dth/d of available TF-1
capacity between the receipt and delivery points specified on Exhibit A hereto,
for a primary term of 20 years beginning on the later of November 1, 2009, or
the in-service date of the Jackson Prairie deliverability expansion, with
standard bi-lateral evergreen rights, and subject to the discount rate
provisions and other considerations set forth below. Northwest agrees to accept
such prearranged offer for competitive bid under the open season process
provided in Northwest’s FERC Gas Tariff for available capacity.

2.                                       The
Parties agree that the prearranged TF-1 transportation agreement (the “Discounted
Capacity Agreement”) will be subject to discounted reservation rates (subject
to tariff revision to allow such discounts), as follows:

(i)                                     Winter
periods for the term of the contract (each of November through March): Subject
to Section 2 (iii) below, a daily reservation rate equal to 60% of maximum TF-1
reservation rate as it may change from time to time (i.e., equivalent to three
months of maximum TF-1 rate).

(ii)                                  Summer
periods (each of April through October) for the term of the contract: Subject
to Section 2 (iii) below, a daily reservation rate equal to the maximum TF-I
reservation rate, as it may change from time to time, multiplied by the actual
load factor for aggregate use of the reserved capacity by Cascade and any
replacement shippers, as provided in Rate Schedule TF-I of Northwest’s Tariff
(i.e., this would be equivalent to a 100% load factor volumetric maximum rate
for each dekatherm scheduled; thus, the reservation rate will he zero if no
capacity is used). This discount would apply to all nominated receipt and
delivery points.

 1
 

 

 

(iii)                               The foregoing winter
period and summer period discounts will apply only if nominations during the
winter period are limited to the JP receipt point. If on any day during a
winter period Cascade or any replacement shipper nominates from any other receipt
point than Jackson Prairie, the maximum TF-1 reservation rate will apply for
the twelve months following the last such occurrence.

3.                                       In
consideration for the long-term discounts set forth in Article I, Section 2,
Cascade agrees to the following terms and conditions. In the event that the
prearranged transportation transaction outlined in Article 1, Section 2 is
posted on Northwest Passage, pursuant to Article II, Section 2, and Cascade
declines to match a higher bid, as evaluated by Northwest pursuant to Article
II, Section 3, in order to obtain the subject capacity, Cascade shall not be
bound by the terms and conditions listed herein.

(i)                                     Execute
the amendments necessary to extend the primary term end dates for its

contracts as set forth below for five years:

	
  Contract

  	
   

  	
  Type

  	
   

  	
  Current

  Expiration

  	
   

  	
  Contract

  Demand

  	
   

  	
  Extension

  
	
  100002

  	
   

  	
  TF-1

  	
   

  	
  4/30/2015

  	
   

  	
  206,123 Dth/d

  	
   

  	
  4/30/2020

  
	
  100064

  	
   

  	
  IF-1

  	
   

  	
  3/31/08

  	
   

  	
  1,078 Dth/d

  	
   

  	
  3/31/2013

  
	
  100134

  	
   

  	
  IF-1

  	
   

  	
  11/30/2010

  	
   

  	
  330 Dth/d

  	
   

  	
  11/30/2015

  
	
  100149

  	
   

  	
  TF-1

  	
   

  	
  11/30/2010

  	
   

  	
  75 Dth/d

  	
   

  	
  11/30/2015

  
	
  100150

  	
   

  	
  TF-1

  	
   

  	
  11/30/2010

  	
   

  	
  160 Dth/d

  	
   

  	
  11/30/2015

  
	
  132329

  	
   

  	
  TF-1

  	
   

  	
  1/31/2016

  	
   

  	
  5,000 Dth/d

  	
   

  	
  1/31/2021

  
	
  100302

  	
   

  	
  TF-2

  	
   

  	
  10/31/2014

  	
   

  	
  16,789 Dth/d

  	
   

  	
  I 0/31/2019

  
	
  100304

  	
   

  	
  TF-2

  	
   

  	
  10/31/2014

  	
   

  	
  60,000 Dth/d

  	
   

  	
  10/31/2019

  
	
  100401

  	
   

  	
  SGS-2F

  	
   

  	
  10/31/2014

  	
   

  	
  16,789 Dth/d

  	
   

  	
  10/31/2019

  
	
  100601

  	
   

  	
  LS-1

  	
   

  	
  10/31/2014

  	
   

  	
  60,000 Dth/d

  	
   

  	
  10/31/2019

  

 

(ii)                                  Convert
its LS-1 contract to an open-access LS-2F contract with a bi-lateral evergreen
that can be converted to a unilateral evergreen with a five-year notice
provision once the necessary tariff change is filed and approved.

(iii)                               Convert Cascade’s
unilateral evergreen with a one-year notice provision to a unilateral evergreen
with a five-year notice provision for all contracts listed above except
Contract #100064 (subject to approval of the necessary tariff changes for the
SGS-2F and TF-2 contracts) and, at Cascade’s option, convert the bilateral
evergreen contract provision of Contract # 100064 to a unilateral evergreen
with a five-year notice provision.

(iv)                              Support
all tariff changes necessary to consummate the transactions contemplated
herein.

(v)                                 Support
the discount under the Discounted Capacity Agreement in all of Northwest’s rate
cases (under either section 4 or section 5 of the NGA) during the term of the
Discounted Capacity Agreement.

 2
 

 

 

(vi)                              Not
oppose any third-party long-term discounts related to the currently identified
187,000 Dths/d of available TF-1 capacity north from JP in any of Northwest’s
rate cases (under either section 4 or section 5 of the NGA) during the term of
the Discounted Capacity Agreement.

(vii)                           Not oppose reallocation of
costs due to reduced billing determinants related to any of Cascade’s terminated
TF-1 capacity in all rate cases (under either section 4 or section 5 of the
NGA), including pending rate cases, during the term of the Discounted Capacity
Agreement.

4.                                       Within
thirty days of execution of a memorandum of understanding, Northwest agrees to
pursue the tariff changes necessary to provide for a unilateral evergreen with
a five years notice provision for LS-2F, SGS-2F and TF-2 service such that the
conversions contemplated herein can occur. Northwest is also awaiting a final
order to allow the discounts contemplated herein to occur.

5.                                       Between
the date of this Memorandum and the posting referenced in Article II, Section 2
below, Northwest will not accept a bid at less than maximum rate for 30,000
Dth/d of Jackson Prairie north capacity if the resulting contract would have
rights extending beyond the later of November 2009 or the in-service date of
the Jackson Prairie deliverability expansion, nor will Northwest incorporate
this capacity into a potential expansion project.

ARTICLE
II

IMPLEMENTATION SCHEDULE AND MECHANICS

1.                                       Within
60 days of the execution of this Memorandum, Northwest will file with FERC for
approval of the prerequisite tariff changes identified in Article I, Section 4.

2.                                       Within
fifteen days after Northwest receives FERC approval of the Northwest’s
discounted capacity tariff change, the prearranged transaction outlined herein
will be posted on Northwest Passage. Such posting will constitute Cascade’s bid
and automatic execution of the Discounted Capacity Agreement (which will
include the on-going Cascade commitments noted in Article I, Sections 3(vi),
through 3(vii) as non­conforming agreement provisions) and the associated
contract term extension amendments. Additionally, Cascade will concurrently
execute a facilities agreement for reimbursement of the costs of Turnwater
Compressor Station modifications necessary to allow the 30,000 Dth/d under the
Discounted Capacity Agreement to be delivered on a firm basis at the
Bremerton/Shelton delivery point. Northwest’s execution will take place upon
award to Cascade, if Cascade is the successful bidder. Unless Cascade is the
successful bidder, the parties understand that the Discount Capacity Agreement,
the facilities agreement and the contract extensions contemplated herein will not
become effective. (Before amendments can be executed, the existing contracts
must be restated using the current forms of service agreement and the LS-I
contract must be converted to an LS-2F contract.)

3.                                       Along
with the prearranged offer posting, Northwest will post the criteria it will
use to evaluate and rank the bids. Maximum rate bids will be ranked first
according to term. Discount rate bids will be ranked next by total incremental
economic value of the bid represented as a percentage (capped at 100%) of the
NPV of a hypothetical contract for the requested volume and term at maximum
rate. All NPV calculations will be as of the 

 3
 

 

first day of the month in which the open season
begins, based on the existing maximum TF-1 reservation rate (currently $0.2776/Dth)
and a monthly discount factor of 10.99%/12. The total incremental economic
value of a bid will be calculated as follows:

(i)                                     NPV
of the guaranteed reservation rate revenues for the requested capacity over the
requested contract term (up to 20 years);

(ii)                                  plus
the “adjusted” NPV attributable to any primary term extensions of existing
maximum rate TF-1 contracts offered to provide supplemental economic value. The
NPV for each such contract extension will be “adjusted” by the ratio of the
length (in months) of the offered primary term extension to 120 months. For
example, a 10 year primary term extension would be attributed full NPV value,
while the adjusted value of 5 year and 2 year extensions would be 50% and 20%
of full NPV, respectively.

4.                                       As
the prearranged shipper, Cascade will have the right to match the competing bid,
if any, that has the greatest economic value.

5.                                       After
award of the capacity and prior to commencement of service, the executed
contracts will be submitted to FERC for approval of any non-conforming
provisions.

ARTICLE
III

TERMINATION

1.                                       This
Memorandum will terminate if Northwest receives a competing bid for higher
value than Cascade’s prearranged bid and Cascade elects not to match such
higher bid.

2.                                       This
Memorandum will terminate if the prerequisite tariff changes contemplated
herein (Article 1, Section 4) are not approved by the FERC.

3.                                       This
Memorandum will terminate upon Northwest’s execution of the Discounted Capacity
Agreement and associated contract term extension amendments

ARTICLE IV

NO THIRD PARTY BENEFICIARIES

This Memorandum will not create any rights in any third parties, and no
provision will be construed as creating any obligations for the benefit of, or
right in favor of, any person or entity other than Transporter and Shipper.

 

ARTICLE V

NOTIFICATIONS AND COMMUNICATIONS

Except as otherwise provided herein, any notice contemplated or
required by this Memorandum will be in writing, and will be considered duly
delivered when sent by registered or certified mail, or by facsimile, to the
appropriate Party at the appropriate address or phone number, as applicable,
set forth below, or at such other address or phone number as a Party may from
time to time designate by express written notice.

 4
 

 

 

Northwest Pipeline Corporation

295 Chipeta Way

Salt Lake City, UT 84108

Fax No.: (801) 584-7076

Attn: Ed Brewer and Jane Harrison

 

Cascade Natural Gas Corporation

P.O. Box 24464

Seattle, WA 98124

Fax No: (206) 654-4039

Attn: Jon T. Stoltz

 

ARTICLE VI

ENTIRE AGREEMENT

This Memorandum contains the entire agreement between Transporter and
Shipper with respect to the subject matter hereof, and supersedes any and all
prior agreements, understandings and commitments, whether oral or written,
concerning the subject matter hereof. No amendments to or modifications of this
Memorandum will be effective unless agreed upon in a written instrument
executed by Transporter and Shipper, which expressly refers to this Memorandum.

 

ARTICLE
VII

GOVERNING LAW AND DISPUTE RESOLUTION

1.                                       The
construction, interpretation, and enforcement of this Memorandum will be
governed by the laws of the State of Utah, notwithstanding any conflict of law
rule, which would refer any matter to the laws of another jurisdiction.

2.                                       In
the event of any dispute arising out of or relating to this Memorandum which
the Parties have been unable to settle within ten (10) days after the dispute
arose, then either Party may refer the dispute to a meeting of senior
management, in which case each Party shall nominate a senior officer of its
management to meet at a mutually agreed time and place not later than thirty
(30) days after the dispute arose to attempt to resolve the dispute. If a
resolution is not reached within sixty (60) days after the meeting of senior
officers, then either Party may refer the dispute to mediation. The parties
will mutually select a mediator, provided that if the parties cannot mutually
agree to a mediator, the mediator shall be the Director of FERC’s Office of
Dispute Resolution Services or successor position to the extent it is willing
to serve in that capacity.

 5
 

 

 

ARTICLE VIII

COUNTERPARTS

This Memorandum may be executed in one or more counterparts (delivery
of which may be made by facsimile), each of which shall be deemed an original
but all of which together shall constitute one and the same.

 

IN WITNESS WHEREOF, the Parties hereto have caused this Memorandum to
be duly executed as of the day and year first above written.

 

NORTHWEST PIPELINE CORPORATION

By:

 

/s/ Allison G. Bridges

 

Allison G. Bridges

Vice President Commercial Operations

 

CASCADE NATURAL GAS CORPORATION

By:

 

/s/ Jon T. Stoltz

 

Jon T. Stoltz

Senor Vice President, Regulatory & Gas Supply

 6
 

 

 

EXHIBIT A

TO

MEMORANDUM OF UNDERSTANDING

Dated October 23, 2006

	
  Contract Demand:

  	
  30,000 Dth/d

  
	
   

  	
   

  
	
  Primary Receipt Point Maximum Daily Quantity
  (Dth/d):

  	
   

  
	
  Jackson Prairie

  	
  30,000 Dth/d

  
	
   

  	
   

  
	
  Primary Delivery Point(s) Maximum Daily Delivery
  Obligation (Dth/d): 

  	
   

  
	
  Bremerton/Shelton Delivery Point

  	
  30,000 Dth/d

  

 

 7

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