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Exhibit 10.1  

 
 

THIRD AMENDMENT TO
  LOAN AND SECURITY AGREEMENT    
    

        THIS
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment") is entered into as of May 31, 2003, by and among Alpine Holdco Inc., a Delaware corporation
("Parent"), DNE Technologies, Inc., a Delaware corporation ("Technologies"), DNE Manufacturing and Service Company, a Delaware corporation ("Manufacturing"), Essex Electric Inc., a
Delaware corporation ("Electric"; Parent, Technologies, Manufacturing and Electric are collectively, the "Borrowers" and each, a "Borrower"), DNE Systems, Inc., a Delaware corporation
("Systems" or "Credit Party"), Foothill Capital Corporation, as agent ("Agent") for the Lenders (defined below) and as a Lender, Congress Financial Corporation (Southern), as documentation agent for
the Lenders ("Documentation Agent") and as a Lender, and the undersigned Lenders. 

        WHEREAS,
Borrowers, Credit Party, Agent, Documentation Agent and certain other financial institutions from time to time party thereto (the "Lenders") are parties to that certain Loan and
Security Agreement dated as of December 11, 2002 (as amended from time to time, the "Loan Agreement"); and 

        WHEREAS,
Borrowers, Agent and Lenders have agreed to amend the Loan Agreement in certain respects, subject to the terms and conditions contained herein. 

        NOW
THEREFORE, in consideration of the premises and mutual agreements herein contained, the parties hereto agree as follows: 

        1.     Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such
terms in the Loan Agreement. 

        2.     Amendment to Loan Agreement. Subject to the satisfaction of the conditions set forth in Section 4 hereof, the Loan
Agreement is amended in the following respects: 

        (a)   The
defined term "Updated Management Projections" is added to Section 1.1 of the Loan Agreement in its appropriate alphabetical order, as follows: 

        " 'Updated Management Projections' means the management projections submitted to the Agent on March 31, 2003 (a copy
of which projections are attached as Annex I to that certain Second Amendment to Loan and Security Agreement dated as of May 14, 2003)." 

        (b)   The
defined term "Adjusted Accounts Payable" set forth in Section 1.1 of the Loan Agreement is deleted in its entirety. 

        (c)   The
defined term "Adjusted Costs of Goods Sold" set forth in Section 1.1 of the Loan Agreement is deleted in its entirety. 

        (d)   The
defined term "Capex Availability" set forth in Section 1.1 of the Loan Agreement is amended by deleting the reference to the amount of "$10,000,000" set forth
therein and inserting a reference to an amount of "$5,000,000" in substitution therefor. 

        (e)   The
defined term "Collateral Reserve" set forth in Section 1.1 of the Loan Agreement is amended and restated in its entirety, as follows: 

        " 'Collateral Reserve' means an amount equal to $11,500,000; provided, that
upon a sale and leaseback transaction with respect to the Real Property owned by Electric and located at 1075 North Patt Street in Anaheim, California that is consummated in compliance with each of
the requirements set forth in clause (m) of the definition of Permitted Disposition, such amount shall be reduced to $10,000,000." 

 

        (f)    The
defined term "EBITDA" set forth in Section 1.1 of the Loan Agreement is amended and restated in its entirety, as follows: 

        (g)   " 'EBITDA' means, with respect to any fiscal period, Parent's and its Subsidiaries' consolidated net
earnings (or loss), minus extraordinary gains, plus, to the extent deducted in determining net earnings (or loss) for such period, (i) interest expense, (ii) income taxes,
(iii) depreciation and amortization, (iv) management fees under the Management Agreements accrued but not paid due to the operation of the terms of this Agreement,
(v) one-time, nonrecurring expenses identified in the Updated Management Projections, other nonrecurring operating expenses identified in the Updated Management Projections and
losses in connection with the discontinuance of certain product lines marked for discontinuance in the Closing Date Business Plan, in each case to the extent incurred after the Closing Date and prior
to December 31, 2003 (in an aggregate amount for all periods not to exceed $20,000,000) and (vi) uncapitalized transaction expenses incurred in connection with the closing of the
Acquisition and the transactions contemplated hereby and paid within one year following the Closing Date (in an aggregate amount for all periods not to exceed $4,000,000), as determined in accordance
with GAAP. 

        (h)   The
defined term "Eligible Capex Equipment" set forth in Section 1.1 of the Loan Agreement is amended and restated in its entirety, as follows: 

        " 'Eligible Capex Equipment' means Equipment (i) that is purchased and fully paid for by Electric after May 31,
2003, but prior to December 31, 2004 for use solely at the facility owned by Electric and located at 4251 Helton Drive, Florence-Lauderdale Industrial Park in Florence, Alabama,
(ii) that is new and unused as of such date of purchase, (iii) that has not become affixed to the real property at such facility in Florence, Alabama (unless the same is and remains
subject to a Mortgage) in a manner that would cause such Equipment to be considered a fixture and (iv) with respect to which Agent (for the benefit of the Lender Group) has a first-priority
perfected Lien and which is not subject to any other Lien." 

        (i)    The
defined term "Fixed Asset Availability" set forth in Section 1.1 of the Loan Agreement is amended by adding the following proviso at the end thereof, as
follows: 

        ";
provided, that upon a sale and leaseback transaction with respect to the Real Property owned by Electric and located at 1075 North Patt
Street in Anaheim, California that is consummated in compliance with each of the requirements set forth in clause (m) of the definition of Permitted Disposition, (a) in lieu of the
reduction provided for in the foregoing clause (iii) with respect thereto, the Fixed Asset Availability shall be reduced by an amount equal to (1) $4,500,000, if the proceeds of such
transaction are equal to or greater than $4,500,000 but less than or equal to $6,000,000 or (2) $4,500,000 plus $50,000 for each increment of
$100,000 above $6,000,000, if the proceeds of such transaction are greater than $6,000,000, and (b) so long as such transaction is consummated on or prior to December 31, 2003, the
automatic monthly reductions provided for in the foregoing clause (i) shall thereafter be made in amounts of $100,000 each." 

        (j)    The
defined term "Permitted Dispositions" set forth in Section 1.1 of the Loan Agreement is amended by deleting the word "and" at the end of clause (k)
thereof and inserting a comma in substitution therefor, by deleting the period at the end of clause (l) thereof and inserting the word "and" in substitution therefor, and by adding a new
clause (m) at the end thereof, as follows: 

        "(m)
a sale and leaseback transaction with respect to the Real Property owned by Electric and located at 1075 North Patt Street in Anaheim, California, so long as (i) no 

2

 

Default
or Event of Default then exists, (ii) the proceeds received by Electric pursuant to such transaction are all cash and are not less than $4,500,000, (iii) all of the proceeds
received by Electric pursuant to such transaction are applied to repay the Obligations in the manner set forth in Section 2.4(b) hereof, (iv) the documentation entered into in connection
with such transaction is reasonably acceptable to Agent in form and substance and (v) the buyer in such transaction has executed and delivered to Agent a Collateral Access Agreement in respect
of such Real Property in Anaheim, California." 

        (k)   Clause (i)
of Section 2.1(a)(w) of the Loan Agreement is amended by deleting the reference to the amount of "$45,000,000" set forth therein and inserting a
reference to an amount of "$37,500,000" in substitution therefor. 

        (l)    Clause (ii)
of Section 2.1(a)(w) of the Loan Agreement is amended by deleting in its entirety the sub-clause (C) currently set forth
therein, by modifying the reference to the sub-clause (D) currently set forth therein to be a reference to sub-clause (C) and by modifying the reference to the
sub-clause (E) currently set forth therein to be a reference to sub-clause (D). 

        (m)  Clause (iii)
of Section 2.1(a)(w) of the Loan Agreement is amended and restated in its entirety, as follows: 

        "(iii)
through December 31, 2003, 85% of the amount of credit availability created by clause (v) above, and after December 31, 2003, 70% of the amount of credit
availability created by clause (v) above, plus" 

        (n)   The
proviso set forth at the end of Section 2.1(a) of the Loan Agreement is amended and restated in its entirety, as follows: 

"provided, that (A) Revolver Usage based upon availability described in clause (v) above
and predicated on Eligible Accounts of Technologies and Manufacturing shall not exceed $5,000,000 in the aggregate at any time, (B) Revolver Usage based upon availability described in  clause (w) above and predicated on Eligible Inventory of Technologies and Manufacturing shall not exceed (I) zero, until Agent has
received appraisals with respect to the Inventory of Technologies and Manufacturing that are in form and substance reasonably acceptable to Agent and that contain methodologies, assumptions and other
terms reasonably acceptable to Agent or (II) $5,000,000, after Agent has received the appraisals described in the foregoing clause (I), (C) Revolver Usage based upon availability
described in clause (w) above and predicated on work-in-process shall not exceed $5,000,000 at any time, and
(D) Revolver Usage based upon availability described in clause (w) above and predicated on copper rods shall not exceed $5,000,000 at any
time." 

        (o)   The
reference to Schedule E-2 in the list of Exhibits and Schedules to the Loan Agreement is deleted in its entirety. 

        3.     Ratification. This Amendment, subject to satisfaction of the conditions provided below, shall constitute an amendment to
the Loan Agreement and all of the Loan Documents as appropriate to express the agreements contained herein. In all other respects, the Loan Agreement and the Loan Documents shall remain unchanged and
in full force and effect in accordance with their original terms. 

        4.     Conditions to Effectiveness. This Amendment shall become effective as of the date hereof and upon the satisfaction of the
following conditions precedent: 

        (a)   Each
party hereto shall have executed and delivered this Amendment to Agent; 

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        (b)   Companies
shall have delivered to Agent such documents, agreements and instruments as may be requested or required by Agent in connection with this Amendment, each in
form and content acceptable to Agent; 

        (c)   No
Default or Event of Default shall have occurred and be continuing on the date hereof or as of the date of the effectiveness of this Amendment; and 

        (d)   All
proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be
satisfactory to Agent and its legal counsel. 

        5.     Miscellaneous. 

        (a)   Warranties and Absence of Defaults. In order to induce Agent to enter into this Amendment, each Company hereby warrants
to Agent, as of the date hereof, that the representations and warranties of Companies contained in the Loan Agreement are true and correct as of the date hereof as if made on the date hereof (other
than those which, by their terms, specifically are made as of certain dates prior to the date hereof). 

        (b)   Expenses. Companies, jointly and severally, agree to pay on demand all costs and expenses of Agent (including the
reasonable fees and expenses of outside counsel for Agent) in connection with the preparation, negotiation, execution, delivery and administration of this Amendment and all other instruments or
documents provided for herein or delivered or to be delivered hereunder or in connection herewith. In addition, Companies agree, jointly and severally, to pay, and save Agent harmless from all
liability for, any stamp or other taxes which may be payable in connection with the execution or delivery of this Amendment or the Loan Agreement, as amended hereby, and the execution and delivery of
any instruments or documents provided for herein or delivered or to be delivered hereunder or in connection herewith. All obligations provided herein shall survive any termination of this Amendment
and the Loan Agreement as amended hereby. 

        (c)   Governing Law. This Amendment shall be a contract made under and governed by the internal laws of the State of Georgia. 

        (d)   Counterparts. This Amendment may be executed in any number of counterparts, and by the parties hereto on the same or
separate counterparts, and each such counterpart, when executed and delivered, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Amendment. 

        6.     Release. 

        (a)   In
consideration of the agreements of Agent and Lenders contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, each Company, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably releases, remises and forever
discharges Agent and Lenders, and their successors and assigns, and their present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees,
agents and other representatives (Agent, each Lender and all such other Persons being hereinafter referred to collectively as the "Releasees" and individually as a "Releasee"), of and from all
demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims,
defenses, rights of set-off, demands and liabilities whatsoever (individually, a "Claim" and collectively, "Claims") of every name and nature, known or unknown, suspected or unsuspected,
both at law and in equity, which such Company or any of its successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of
them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior 

4

 

to
the day and date of this Amendment, including, without limitation, for or on account of, or in relation to, or in any way in connection with any of the Loan Agreement, or any of the other Loan
Documents or transactions thereunder or related thereto. 

        (b)   Each
Company understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an
injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release. 

        (c)   Each
Company agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any
manner the final, absolute and unconditional nature of the release set forth above. 

5

 

        IN
WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized and delivered as of the date first above written. 

	 	 	BORROWERS:
	

 	
 	

DNE TECHNOLOGIES, INC.
 a Delaware corporation
	

 	
 	

By	
 	

/s/  STEWART H. WAHRSAGER      

	 	 	Title	 	Assistant Secretary
	

 	
 	
DNE MANUFACTURING AND SERVICE COMPANY
 a Delaware corporation
	

 	
 	

By	
 	

/s/  STEWART H. WAHRSAGER      

	 	 	Title	 	Assistant Secretary
	

 	
 	
ESSEX ELECTRIC INC.,
 a Delaware corporation
	

 	
 	

By	
 	

/s/  DAVID A. OWEN      

	 	 	Title	 	Senior V.P. Finance
	

 	
 	
ALPINE HOLDCO INC.,
 a Delaware corporation
	

 	
 	

By	
 	

/s/  DAVID A. OWEN      

	 	 	Title	 	V.P. Finance
	 	 	 	 	 

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	 	 	CREDIT PARTY:
	

 	
 	

DNE SYSTEMS, INC.,
 a Delaware corporation
	

 	
 	

By	
 	

/s/  STEWART H. WAHRSAGER      

	 	 	Title	 	Assistant Secretary
	

 	
 	
AGENT:
	

 	
 	

FOOTHILL CAPITAL CORPORATION,
 a California corporation
	

 	
 	

By	
 	

/s/  KEVIN BELANGER      

	 	 	Title:	 	Vice President
	

 	
 	
DOCUMENTATION AGENT:
	

 	
 	

CONGRESS FINANCIAL CORPORATION (SOUTHERN),
 a Georgia corporation
	

 	
 	

By	
 	

/s/  FRED ERNST      

	 	 	Title	 	Vice President
	 	 	 	 	 

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	 	 	LENDERS:
	

 	
 	

FOOTHILL CAPITAL CORPORATION
	
 	
 	

By	
 	

/s/  KEVIN BELANGER      

	 	 	Title:	 	Vice President
	

 	
 	
STANDARD FEDERAL BANK NATIONAL ASSOCIATION
	

 	
 	

By:	
 	

LaSalle Business Credit, Inc., its Agent
	
 	
 	

By	
 	

/s/  ROGER ATTIX      

	 	 	Title:	 	Vice President
	

 	
 	
CONGRESS FINANCIAL CORPORATION (SOUTHERN)
	
 	
 	

By	
 	

/s/  FRED ERNST      

	 	 	Title	 	Vice President
	

 	
 	
THE CIT GROUP / BUSINESS CREDIT, INC.
	
 	
 	

By	
 	

/s/  ELLIOTT HARRIS      

	 	 	Title:	 	Vice President
	

 	
 	
ORIX FINANCIAL SERVICES, INC.
	
 	
 	

By	
 	

/s/  ANDREW KOSOWSKY      

	 	 	Title:	 	Vice President

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THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT<PAGE>

                                                                    EXHIBIT 10.1

                          TRANSCANADA PIPELINE USA LTD.

May 28, 2003

TC PipeLines, LP
110 Turnpike Road, Suite 203
Westborough, Massachusetts 01581

Dear Sirs:

           RE:  RENEWAL OF U.S. $40,000,000 TWO YEAR REVOLVING
                CREDIT FACILITY IN FAVOR OF TC PIPELINES, L.P.
--------------------------------------------------------------------------------

     In consideration of the covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are
conclusively acknowledged by each of the parties, TransCanada PipeLine USA Ltd.,
a Nevada corporation (together with its successors and permitted assigns, the
"LENDER") hereby covenants and agrees with TC PipeLines, LP, a Delaware limited
partnership (together with its successors and permitted assigns, the "BORROWER")
to make available to the Borrower the credit facility (the "CREDIT FACILITY") as
more particularly described below and upon the terms and conditions outlined in
this letter agreement (as may be amended, modified, supplemented or restated
from time to time, the "AGREEMENT").

DEFINITIONS

     Unless something in the subject matter or context is inconsistent
therewith, the following capitalized terms used in the Agreement (including
Schedule A to the Agreement) shall have meanings indicated below:

"BANKING DAY" means a day which is both a Business Day and a day on which
dealings in United States Dollars by and between the banks in the London,
England interbank market may be conducted.

"BUSINESS DAY" means a day on which banks are open for business in New York, New
York but does not in any event include a Saturday or a Sunday.

"COMPLIANCE CERTIFICATE" means a certificate of the Borrower signed on its
behalf by the General Partner, substantially in the form attached hereto as
Schedule A.

"CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT" means the Contribution,
Conveyance and Assumption Agreement dated May 28, 1999 between TransCanada
Border PipeLine Ltd., TransCan Northern Ltd., TransCanada PipeLines Limited, the
Borrower, the General Partner and the Intermediate Partnership.

<PAGE>

"DEBT" means, without duplication, with respect to any person, all obligations,
liabilities and indebtedness of such person with respect to:

i)    indebtedness for borrowed money;

ii)   obligations arising pursuant to commercial paper programs or letters of
      credit or indemnities issued in connection therewith;

iii)  obligations under guarantees, indemnities, assurances, legally binding
      comfort letters or other contingent obligations relating to the
      indebtedness for borrowed money of any other person and all other
      obligations incurred for the purpose of or having the effect of providing
      financial assistance to another person, including, without limitation,
      endorsements of bills of exchange (other than for collection or deposit in
      the ordinary course of business); and

iv)   all other financing indebtedness, including monetary obligations of such
      person created or arising under any capital lease or other lease
      financing.

"DRAWDOWN" means, individually or collectively, as the context may require, an
advance of funds made by the Lender to the Borrower pursuant to this Agreement.

"DRAWDOWN DATE" means the date on which an advance of funds is made by the
Lender to a Borrower pursuant to the provisions hereof.

"DRAWDOWN NOTICE" means a written notice given by the Borrower to the Lender of
a Drawdown.

"EVENT OF DEFAULT" has the meaning ascribed thereto in Section 7.01.

"GENERAL PARTNER" means TC PipeLines GP, Inc., a Delaware corporation, and any
successor thereto.

"GOVERNMENTAL AUTHORITY" means any federal, state, provincial, regional,
municipal or local government or any department, agency, board, tribunal or
authority thereof or other political subdivision thereof and any entity or
person exercising executive, legislative, judicial, regulatory or administrative
functions of, or pertaining to, government or the operation thereof.

"INTEREST PAYMENT DATE" means, with respect to each Loan, the last Business Day
of each applicable Interest Period; provided that, any earlier date on which the
Credit Facility is fully cancelled or permanently reduced in full, shall be an
Interest Payment Date with respect to all Loans then outstanding.

"INTEREST PERIOD" means, with respect to each Loan, the initial period of one
month, two months, three months or six months (as selected by the Borrower and
notified to the Lender) commencing on the applicable Drawdown Date or Rollover
Date and ending on and including the last day of such period provided that the
last day of each Interest Period whether with respect to the same or another
Loan and the last day of each Interest period shall be a Banking Day and if the
last day of an Interest Period selected by the Borrower is not a Banking Day the
next Banking Day.

"INTERMEDIATE PARTNERSHIP" means TC PipeLines Intermediate Limited Partnership,
a Delaware limited partnership, and any successor thereto.

<PAGE>

"LIBOR" means the London Interbank Offered Rate of Interest and means, with
respect to any Interest Period applicable to a Loan, the per annum rate of
interest determined by the Lender, based on a three hundred sixty (360) day
year, rounded upwards, if necessary, to the nearest whole multiple of
one-sixteenth of one percent (1/16th%), as the average of the offered quotations
appearing on the display referred to as the "LIBO Page" (or any display
substituted therefor) of Reuter Monitor Money Rates Service (or if such LIBO
Page shall not be available, any successor or similar services as may be
selected by the Lender) for deposits in United States Dollars for a period equal
to the number of days in the applicable Interest Period, at or about 11:00 a.m.
(London, England time) on the second Banking Day prior to a Drawdown Date, for
the applicable Interest Period. Each determination of LIBOR may be computed
using any reasonable averaging and attribution method.

"LIMITED PARTNER" means any person who is or shall become a limited partner of
the Borrower.

"LIMITED PARTNERSHIP AGREEMENT" means the Amended and Restated Agreement of
Limited Partnership of TC PipeLines, LP dated as of the 28th day of May, 1999
and made among the General Partner, TransCan Northern Ltd. as the organizational
Limited Partner and those parties referred to as Partners therein, as from time
to time amended, supplemented or restated.

"LOAN DOCUMENTS" means this Agreement and all certificates, agreements,
instruments and other documents delivered or to be delivered to the Lender in
relation to the Credit Facility pursuant hereto, and, when used in relation to
any person, the term "Loan Documents" shall mean and refer to the Loan Documents
executed and delivered by such person.

"LOAN" means an advance of funds in United States dollars made by the Lender to
the Borrower pursuant to this Agreement.

"MATERIAL ADVERSE EFFECT" means a material adverse effect (i) on the business,
operations, property and assets or financial condition of the Borrower, or (ii)
on the ability of the Borrower to repay or pay, as the case may be, any
Obligations.

"NORTHERN BORDER" means Northern Border Pipeline Company, a general partnership
organized under the laws of Texas.

"OBLIGATIONS" means, at any time and from time to time, all of the obligations,
indebtedness and liabilities (present or future, absolute or contingent, matured
or not) of the Borrower to the Lender under, pursuant to or relating to this
Agreement or the Credit Facility and whether the same are from time to time
reduced and thereafter increased or entirely extinguished and thereafter
incurred again and including all interest, commissions, legal and other costs,
charges and expenses under this Agreement.

"OUTSTANDING PRINCIPAL" means, at any time, the aggregate of the principal
amount of all outstanding Loans.

"PARTNERS" means the General Partner and the Limited Partners.

"PERMITTED ENCUMBRANCES" means:

i)        liens for taxes, assessments or governmental charges which are not due
          and delinquent, or the validity of which the Borrower shall be
          contesting in good faith, provided the Borrower shall have made
          adequate provision (in accordance with generally accepted accounting
          principles) therefor;

<PAGE>

ii)       the lien of any judgment rendered, or claim filed, against the
          Borrower which the Borrower shall be contesting in good faith,
          provided the Borrower shall have made adequate provision (in
          accordance with generally accepted accounting principles) therefor;

iii)      liens, privileges or other charges imposed or permitted by law such as
          statutory liens and deemed trusts, carriers' liens, builders' liens,
          materialmen's liens, operator's liens and other liens, privileges or
          other charges of a similar nature which relate to obligations which
          are not due and delinquent;

iv)       undetermined or inchoate liens arising in the ordinary course of and
          incidental to operations of the Borrower which relate to obligations
          which are not due and delinquent, or the validity of which the
          Borrower shall be contesting in good faith, provided the Borrower
          shall have made adequate provision (in accordance with generally
          accepted accounting principles) therefor;

v)        security given to a public utility or any municipality or governmental
          or other public authority when required by such utility, municipality
          or authority in connection with the operations of the Borrower, to the
          extent such security does not materially detract from the value of any
          material part of the property of the Borrower;

vi)       cash or marketable securities deposited in connection with bids or
          tenders, or deposited with a court as security for costs in any
          litigation, or to secure workmen's compensation or unemployment
          insurance liabilities;

vii)      the lien or any right of distress reserved in or exercisable under any
          real property lease for rent or otherwise to effect compliance with
          the terms of such lease in respect of which the rent or any other
          obligation is not at the time overdue or if overdue the validity of
          which is being contested at the time in good faith, if the Borrower
          shall have made on its books a provision therefor reasonably deemed by
          the Lender to be adequate therefor;

viii)     Security Interests on property of the Borrower which are not otherwise
          Permitted Encumbrances if the aggregate amount of the Debt or other
          obligations secured by all such Security Interests is not at any time
          in excess of U.S.$1,000,000;

ix)       Security Interests arising under or in connection with the Partnership
          Agreement, the agreement of limited partnership of the Intermediate
          Partnership, the agreement of limited partnership of the TC Tuscarora
          Partnership, the partnership agreements of Northern Border or
          Tuscarora and the partnership agreements of any other entities
          acquired directly or indirectly by the Borrower in the future; and

x)        any extension, renewal or replacement (or successive extensions,
          renewals or replacements), as a whole or in part, of any Security
          Interest referred to in the preceding paragraphs (i) to (ix) inclusive
          of this definition, so long as any such extension, renewal or
          replacement of such Security Interest is limited to all or any part of
          the same property that secured the Security Interest extended, renewed
          or replaced (plus improvements on such property) and the indebtedness
          or obligation secured thereby is not increased;

provided that nothing in this definition shall in and of itself cause the Loans
and other amounts owing by the Borrower to the Lender hereunder to be
subordinated in priority to any such Permitted Encumbrance.

<PAGE>

"ROLLOVER" means the continuation of all or a portion of such Loan (subject to
the provisions hereof) for an additional Interest Period subsequent to the
initial or any subsequent Interest Period applicable thereto.

"ROLLOVER DATE" means the commencement of a new Interest Period applicable to a
Loan.

"SECURITY INTEREST" means mortgages, charges, pledges, hypothecs, assignments by
way of security, conditional sales or other title retentions (including, without
limitation, capital leases or any other lease financing), liens, security
interests or other encumbrances, howsoever created or arising, whether fixed or
floating, perfected or not.

"TC TUSCARORA PARTNERSHIP" means TC Tuscarora Intermediate Limited Partnership,
a Delaware limited partnership and any successor thereto.

"TUSCARORA" means Tuscarora Gas Transmission Company, a general partnership
organized under the laws of Nevada.

"TUSCARORA PURCHASE AGREEMENT" means the purchase and sale agreement dated July
19, 2000 though which TC Tuscarora Partnership purchased a 49% interest in
Tuscarora from TCPL Tuscarora Ltd.

"UNITED STATES DOLLARS" and "U.S. $" mean the lawful money of the United States.

<PAGE>

                   ARTICLE ONE - THE REVOLVING CREDIT FACILITY

1.01 AMOUNT. Revolving loans are available to the Borrower under the Credit
Facility to a maximum outstanding principal amount of U.S.$40,000,000.
Notwithstanding the foregoing, the maximum outstanding principal amount of
U.S.$40,000,000 may be increased or decreased (but not to be less than
U.S.$2,500,000) upon mutual written agreement of the Lender and the Borrower.

1.02 CURRENCY AND MINIMUM AMOUNTS. Drawdowns may only be made in United States
Dollars and in a minimum amount of U.S.$500,000.

1.03 DRAWDOWN NOTICES. The Borrower shall deliver to the Lender a Drawdown
Notice at least two Business Days prior to a Drawdown Date. Such notice shall
specify: i) the date of the Drawdown, such date being a Business Day; ii) the
principal amount of the Drawdown; and iii) particulars of the account into which
funds representing the Drawdown are to be transferred on the Drawdown Date.

1.04 PURPOSE. The Credit Facility shall be used for working capital and other
general business purposes, to fund capital expenditures, to fund capital
contributions to Northern Border, Tuscarora and any other entity in which the
Borrower may directly or indirectly acquire an interest, and to enable the
Borrower to make cash distributions to Partners if there has been a temporary
interruption or delay in the receipt of cash distributions from Northern Border,
Tuscarora or such other entity in which the Borrower has acquired a direct or
indirect interest.

1.05 REVOLVING NATURE AND AVAILABILITY. Subject to the terms and conditions
hereof, the Borrower may increase or decrease Loans under the Credit Facility by
making Drawdowns, repayments and further Drawdowns.

1.06 REPAYMENTS. The Borrower may at the end of any Interest Period repay,
without payment of penalty, the whole or any part of any Loan together with all
accrued and unpaid interest thereon to the date of such repayment. The Borrower
shall give the Lender advance notice of any such repayment at least two Business
Days prior to the date of repayment.

1.07 LIBOR LOAN ROLLOVERS. At or before 10:00 a.m. (Calgary time) two Banking
Days prior to the expiration of each Interest Period of each Loan, the Borrower
shall, unless it has delivered a repayment notice pursuant to Section 1.06 of
this Agreement (together with a Rollover Notice if a portion only is to be
repaid; provided that a portion of a Loan may be continued only if the portion
to remain outstanding is equal to or exceeds the minimum amount required
hereunder for Drawdowns of Loans) with respect to the aggregate amount of such
Loan, deliver a Rollover Notice to the Lender selecting the next Interest Period
applicable to the Loan, which new Interest Period shall commence on and include
the last day of such prior Interest Period. If the Borrower fails to deliver a
Rollover Notice to the Lender as provided in this Section, the Borrower shall be
deemed to have elected to Rollover the outstanding amount of the Loan for an
Interest Period equal to the Interest Period of the maturing loan.

1.08 NO SECURITY. The Credit facility shall be unsecured.

1.09 SET-OFF; NO WITHHOLDING. Any and all payments by the Borrower to or for the
benefit of the Lender shall be free and clear of and without set-off,
counterclaim, reduction or deduction whatsoever, including, without limiting the
generality of the foregoing, for any claims that the Borrower have or may have
against the Lender or for any present or future taxes, levies, imposts,
deductions, charges or withholdings, whether imposed by or on behalf of the
United States or Canada or any political subdivision thereof or any other taxing
authority. If the Borrower shall be required by law to deduct or withhold any
taxes from or in respect of any sum payable

<PAGE>

hereunder to the Lender, (i) the sum payable shall be increased as may be
necessary so that, after making all required deductions and withholdings the
Lender receives an amount equal to the amount it would have received had no such
deductions or withholdings been made, (ii) the Borrower shall make such
deductions and withholdings, and (iii) the Borrower shall pay the full amount
deducted or withheld to the relevant taxing authority or other authority in
accordance with applicable law.

1.10 MATURITY. The Credit Facility shall mature on the earlier of: (i) the date
two years from the date of this Agreement (the "FIXED MATURITY DATE"), or (ii)
the date upon which the Borrower provides written notice to the Lender that it
has obtained from another lender or lenders an economically comparable
replacement Credit Facility. Upon such date of maturity, all Outstanding
Principal, accrued and unpaid interest and all other amounts under or in respect
of this Agreement and the Credit Facility shall be paid to the Lender (x) on the
Fixed Maturity Date (in the case of maturity under clauses (i)) or (y) on or
prior to the 30th day after such written notice is provided to the Lender (in
the case of maturity under clause (ii)).

1.11 TERMINATION. The Borrower may terminate this Agreement upon 90 days written
notice to the Lender, provided, however, that in order for such termination by
the Borrower to be effective, all Outstanding Principal, accrued and unpaid
interest and all other amounts under or in respect of this Agreement and the
Credit Facility shall be paid to the Lender on or prior to the 30th day after
the termination date specified in such written notice provided to the Lender.

1.12 RENEWAL. This Agreement may be renewed upon the mutual written agreement of
the Borrower and the Lender.

                             ARTICLE TWO - INTEREST

2.01 RATE APPLICABLE TO LOANS. The Borrower shall pay interest to the Lender in
United States Dollars on Loans outstanding under the Credit Facility at a rate
per annum equal to LIBOR plus 1.25 per cent.

2.02 CALCULATION AND PAYMENT OF INTEREST. Interest on Loans, as specified above,
shall accrue daily and be calculated on the principal amount of each such loan
and on the basis of the actual number of days each such loan is outstanding in a
year of 360 days. Interest shall be calculated and payable in arrears on the
Interest Payment Date for each such loan for the actual number of days such loan
is outstanding in the period from and including the date such loan was made or
the preceding Interest Payment Date to which all accrued interest has been duly
paid, as the case may be, to and including the day immediately preceding the
following Interest Payment Date.

2.03 DEFAULT RATE. In the event that any amount due hereunder on any Loan
(including, without limitation, any interest payment) is not paid when due, the
Borrower shall pay interest on such unpaid amount (including, without
limitation, interest on interest) from the date when such amount was due until
the date that such amount is paid in full (but excluding the date of such
payment if the payment is made for value on such date at the required place of
payment specified by the Lender from time to time), and such interest shall
accrue daily, be calculated and compounded monthly and be payable on demand,
after as well as before demand, maturity, default and judgment, at a rate per
annum that is equal to LIBOR plus 3.25 per cent.

2.04 MAXIMUM RATE PERMITTED BY LAW. No interest to be paid hereunder shall be
paid at a rate exceeding the maximum non-usurious rate permitted by applicable
law. In the event that any interest exceeds such maximum rate, such interest
shall be reduced or refunded, as the case

<PAGE>

may be, so that interest payable hereunder shall be payable at the highest rate
recoverable under applicable law.

                  ARTICLE THREE - ACCOUNTS OF RECORD; PAYMENTS

3.01 CURRENCY AND PLACE OF PAYMENT. All payments of principal, interest and
other amounts to be made by the Borrower to the Lender pursuant to this
Agreement shall be made in United States Dollars for value on the Interest
Payment Date, or at such other date under this Agreement when such amounts are
due and payable and if such day is not a Business Day on the Business Day next
following, by deposit or transfer thereof to the account or accounts of the
Lender designated by the Lender to the Borrower for such purpose from time to
time.

3.02 LENDER RECORDS EVIDENCE. The Lender shall open and maintain books of
account evidencing the Loans and all other amounts owing by the Borrower to the
Lender hereunder. The Lender shall enter in the foregoing accounts details of
all amounts from time to time owing, paid or repaid by the Borrower hereunder.
The information entered in the foregoing accounts shall constitute prima facie
evidence of the obligations of the Borrower to the Lender hereunder with respect
to all Loans and all other amounts owing by the Borrower to the Lender
hereunder.

                       ARTICLE FOUR - CONDITIONS PRECEDENT

4.01 CONDITIONS FOR ALL DRAWDOWNS. On or before each Drawdown under the Credit
Facility the following conditions shall be satisfied to the satisfaction of the
Lender:

a)   after giving effect to the proposed Drawdown, the Outstanding Principal
     shall not exceed the maximum amount of the Credit Facility as set forth in
     Section 1.01;

b)   the Borrower shall, if so requested by the Lender, have executed and
     delivered to the Lender a promissory note in favour of the Lender
     evidencing the obligation of the Borrower to pay the Lender the principal
     amount of such Drawdown and interest thereon in accordance with this
     Agreement; and

c)   the Lender shall have received all such other agreements, certificates,
     declarations, opinions and documents, and all steps, actions and
     proceedings shall have been taken or performed, as the Lender may
     reasonably require, all in form and substance satisfactory to the Lender
     and its counsel.

4.02 WAIVERS. The above conditions are inserted for the sole benefit of the
Lender and may be waived by the Lender, in whole or in part (with or without
terms or conditions) without prejudicing the right of the Lender at any time to
assert such conditions in respect of any subsequent Drawdown.

                  ARTICLE FIVE - REPRESENTATIONS AND WARRANTIES

5.01 REPRESENTATIONS AND WARRANTIES. The Borrower and the General Partner hereby
represent and warrant to the Lender as follows and acknowledge and confirm that
the Lender is relying upon such representations and warranties:

a)   CORPORATE STATUS. The Borrower is a limited partnership duly formed and
     validly existing under the laws of Delaware and the General Partner is duly
     incorporated and validly existing under the laws of Delaware.

<PAGE>

b)   AUTHORITY. Each of the Borrower and the General Partner has the requisite
     power and authority to own or hold its respective properties and assets, to
     carry on its business as presently conducted and to execute, deliver and
     perform its obligations under this Agreement and the other Loan Documents
     to which it is a party.

c)   DUE AUTHORIZATION. Each of the Borrower and the General Partner has duly
     authorized, by all necessary action, the execution, delivery and
     performance of this Agreement and the other Loan Documents to which it is a
     party.

d)   ENFORCEABILITY. This Agreement and each of the Loan Documents has been duly
     executed and delivered by each of the Borrower and the General Partner and
     constitute legal, valid and binding obligations of each of the Borrower and
     the General Partner enforceable against each of the Borrower and the
     General Partner in accordance with their respective terms, subject to
     bankruptcy, insolvency, reorganization, moratorium and other applicable
     laws relating to creditor's rights generally and to general principles of
     equity and public policy.

e)   NO RESULTING VIOLATION. Neither the execution and delivery of this
     Agreement or any other Loan Document, nor compliance with the terms and
     conditions of this Agreement or any other Loan Document, has resulted or
     will (x) result in a violation of any applicable law or the Limited
     Partnership Agreement or the articles or by-laws of the General Partner or
     any resolutions passed by the Limited Partners of the Borrower or the
     shareholders or directors of the General Partner, or (y) result in a
     default under any agreement to which the Borrower or the General Partner is
     a party or by which the Borrower or the General Partner is bound, or (z)
     result in the creation of any Security Interest on any property of the
     Borrower or the General Partner under any agreement or instrument to which
     the Borrower or the General Partner is a party or by which the Borrower or
     the General Partner is bound, which in the case of (y) or (z) has a
     Material Adverse Effect.

f)   NON-DEFAULT. No event has occurred which would constitute an Event of
     Default or a breach of or default under the covenants herein or in any of
     the other Loan Documents or which would constitute such a breach or default
     with the giving of notice or lapse of time or both.

g)   FINANCIAL CONDITION. Except as has been disclosed to the Lender by written
     notice in accordance with the provisions of this Agreement, no change in
     the Borrower's financial condition (as disclosed or reflected in the
     financial statements delivered under Section 6.01(e) of this Agreement) has
     occurred which would reasonably be expected to have a Material Adverse
     Effect.

h)   ABSENCE OF LITIGATION. There are no actions, suits or proceedings pending
     or, to the knowledge of the Borrower, threatened in writing against or
     affecting the Borrower or any of its undertakings, property or assets, at
     law or in equity, in or before any court or before any arbitrator or before
     or by any Governmental Authority having jurisdiction in the premises in
     respect of which there is a reasonable possibility of a determination
     adverse to the Borrower and which, if determined adversely, would have a
     Material Adverse Effect.

i)   COMPLIANCE WITH APPLICABLE LAWS, COURT ORDERS AND MATERIAL AGREEMENTS. The
     Borrower has obtained all licences, permits, approvals and authorizations
     required in connection with its respective businesses and operations, all
     of which are in good standing, except where the failure to obtain such or
     be in good standing would not

<PAGE>

     reasonably be expected to have a Material Adverse Effect. The Borrower and
     its respective businesses and operations are in compliance with all
     applicable laws, all applicable directives, judgments, decrees, injunctions
     and orders rendered by any Governmental Authority or court of competent
     jurisdiction, the Limited Partnership Agreement and all agreements or
     instruments to which it is a party or by which its property or assets are
     bound, except where the failure to comply would not reasonably be expected
     to have a Material Adverse Effect.

j)   NO ENCUMBRANCES. Except for Permitted Encumbrances, there are no Security
     Interests against, on or affecting any or all of the properties or assets,
     of whatsoever nature or kind, of the Borrower, and the Borrower has not
     given any undertaking to grant or create any such Security Interest or
     otherwise entered into any agreement pursuant to which any person may have
     or be entitled to any such Security Interest.

k)   AGREEMENTS. Each of the Limited Partnership Agreement, the Contribution,
     Conveyance and Assumption Agreement and the Tuscarora Purchase Agreement
     has been duly executed and delivered by the parties thereto and constitutes
     legal, valid and binding obligations of the parties thereto, enforceable
     against such parties in accordance with its respective terms and no such
     agreement has been amended in any manner which would reasonably be expected
     to have a Material Adverse Effect.

l)   RANKING WITH OTHER DEBT. All Obligations of the Borrower hereunder rank at
     least PARI PASSU in right of payment with the other unsecured and
     unsubordinated Debt of the Borrower.

5.02 INQUIRIES; DEEMED REPETITION. All representations and warranties made
herein shall remain in full force and effect notwithstanding the execution of
the Loan Documents and shall be deemed to be restated by the Borrower and the
General Partner as if made effective on each Drawdown under this Agreement.

                         ARTICLE SIX - GENERAL COVENANTS

6.01 COVENANTS OF THE BORROWER. The Borrower hereby covenants and agrees with
the Lender that, unless the Lender otherwise consents in writing:

a)   PUNCTUAL PAYMENT. The Borrower shall duly and punctually pay all
     Outstanding Principal, interest and other amounts required to be paid by
     the Borrower hereunder in the manner specified hereunder.

b)   MAINTAIN EXISTENCE; NO CHANGE OF BUSINESS. The Borrower shall maintain its
     existence in good standing and do or cause to be done all things necessary
     to keep in full force and effect all properties, rights, franchises,
     licenses, permits and qualifications to carry on business in any
     jurisdiction in which it carries on business, except where failure to
     comply with the foregoing would not reasonably be expected to have a
     Material Adverse Effect. The Borrower shall maintain all its respective
     properties and assets and conduct its business, activities and operations
     in a manner consistent with applicable industry standards and industry
     practice in each jurisdiction where its business is conducted or its
     property and interests are located, except where failure to comply with the
     foregoing would not reasonably be expected to have a Material Adverse
     Effect. The Borrower shall not carry on businesses or operations which are
     materially different from the businesses and operations carried on by the
     Borrower on the date of this Agreement.

<PAGE>

c)   MATERIAL LITIGATION. The Borrower shall promptly give written notice to the
     Lender of any litigation, proceeding, dispute or action if the same has or
     might reasonably have a Material Adverse Effect and from time to time shall
     furnish to the Lender all reasonable information requested by the Lender
     concerning the status of any of the foregoing.

d)   NOTICE OF DEFAULT. The Borrower shall give prompt written notice to the
     Lender upon becoming aware of any default of the performance of any
     covenant, agreement or condition contained in this Agreement or any of the
     other Loan Documents, which notice shall specify such default or defaults.

e)   FINANCIAL STATEMENTS. i) The Borrower shall deliver to the Lender, as soon
     as available, and in any event within 90 days after the end of each of its
     fiscal years, copies of the audited annual financial statements of the
     Borrower, together with the notes thereto, all prepared in accordance with
     generally accepted accounting principles, consistently applied, together
     with a report of the Borrower's auditors on such statements, together with
     a Compliance Certificate, and ii) the Borrower shall deliver to the Lender,
     as soon as available, and in any event within 45 days after the end of each
     of its first, second and third fiscal quarters, copies of its unaudited
     quarterly financial statements, prepared in accordance with generally
     accepted accounting principles.

f)   NOTICE OF AMENDMENT OF AND DEFAULT UNDER AGREEMENTS. The Borrower shall
     give prompt written notice to the Lender of any default under or pursuant
     to the Limited Partnership Agreement and the amendment, cancellation or
     termination of, or the giving of any notice or the taking of any other step
     or action to amend, cancel or terminate the Limited Partnership Agreement
     or any other agreement in which the amendment, cancellation or termination
     of which might reasonably be expected to have a Material Adverse Effect.

g)   BOOKS AND RECORDS. The Borrower shall have and maintain proper books of
     account, records and other documents (in accordance with sound accounting
     practice) relating to its business and financial affairs and shall permit
     the Lender or its authorized agents at any reasonable time, at the expense
     of the Borrower, to examine such books of account, records and other
     documents and to make copies thereof and take extracts therefrom.

h)   INSPECTIONS. The Lender shall be entitled from time to time at any
     reasonable time to inspect the assets and properties and the business and
     operations of the Borrower and, for such purpose, the Lender shall have
     access to all premises occupied by the Borrower where any of such assets or
     properties may be found.

i)   OTHER INFORMATION. At the request of the Lender, the Borrower shall provide
     such other information regarding the business, affairs, financial
     condition, property or assets of the Borrower as the Lender may reasonably
     request.

j)   INSURANCE. The Borrower shall maintain insurance of such types, in such
     amounts and with such deductibles as are customary in the case of
     businesses of established reputation engaged in the same or similar
     businesses.

k)   COMPLIANCE WITH APPLICABLE LAWS. The Borrower shall comply with all
     applicable laws if the consequences of a failure to comply might reasonably
     be expected, either alone or in conjunction with any other such
     non-compliances, to have a Material Adverse Effect.

l)   PAYMENT OF TAXES. The Borrower shall from time to time pay or cause to be
     paid all material rents, taxes, rates, levies or assessments, ordinary or
     extraordinary, governmental royalties, fees or dues, and any other amount
     which may result in a Security Interest or

<PAGE>

     similar encumbrance against the assets of the Borrower arising under
     statute or regulation, lawfully levied, assessed or imposed upon the
     Borrower as and when the same become due and payable, except when and so
     long as the validity of any such rents, taxes, rates, levies, assessments,
     royalties, fees, dues or other amounts is in good faith being contested by
     the Borrower in appropriate proceedings and provided that it shall have
     established adequate reserves therefor (in accordance with generally
     accepted accounting principles) and such contestation will not involve
     forfeiture of any part of its assets which are material to the Borrower.

m)   DEFEND TITLE. The Borrower shall defend its property, undertaking and
     assets and its right, title and interest thereto, against all adverse
     claims and demands respecting the same, other than Permitted Encumbrances.

n)   NO SALE OF ASSETS. The Borrower shall not sell, transfer, lease, convey,
     abandon or otherwise dispose of (including, without limitation, in
     connection with a sale and a lease-back transaction) any of its assets or
     property (each of the foregoing transactions, an "asset sale"), unless any
     such asset sale or the cumulative effect of a series of such asset sales
     would not result in a Material Adverse Effect.

o)   NEGATIVE PLEDGE. The Borrower shall not create, issue, incur, assume or
     permit to exist any Security Interests on any of its property, undertakings
     or assets other than Permitted Encumbrances.

p)   PARI PASSU RANKING. The Borrower shall not create, assume or otherwise
     incur any Debt ranking prior to the indebtedness and liabilities of the
     Borrower to the Lender hereunder other than Debt secured by Permitted
     Encumbrances. The Borrower shall ensure that at all times all of its
     Obligations hereunder and under any Loan Documents rank at least PARI PASSU
     in right of payment with the other unsecured and unsubordinated Debt of the
     Borrower.

q)   NO MERGER, ETC. The Borrower shall not enter into any transaction whereby
     all or substantially all of its undertaking, property or assets would
     become the property of another person, whether by way of reconstruction,
     reorganization, recapitalization, consolidation, amalgamation, merger,
     transfer, sale or otherwise if the effect of any such transaction would be
     a Material Adverse Effect.

r)   NO DISSOLUTION. The Borrower shall not liquidate, dissolve or wind-up or
     take any steps or proceedings in connection therewith.

6.02 COVENANTS OF THE GENERAL PARTNER. The General Partner hereby covenants and
agrees with the Lender that:

a)      COMPLIANCE WITH AGREEMENT. The General Partner shall cause the Borrower
        to comply with this Agreement and each of the other Loan Documents to
        which the Borrower is a party.

b)      MAINTAIN EXISTENCE; NO DISSOLUTION. The General Partner shall maintain
        its existence in good standing. The General Partner shall not liquidate,
        dissolve or wind up or take any steps or proceedings in connection
        therewith.

c)      MAINTAIN STATUS AS GENERAL PARTNER. The General Partner shall not,
        without the consent of the Lender, resign as General Partner of the
        Borrower or otherwise limit its duties under the Limited Partnership
        Agreement.

<PAGE>

                 ARTICLE SEVEN - EVENTS OF DEFAULT AND REMEDIES

7.01 EVENTS OF DEFAULT. "Event of Default", as used in this Agreement, means the
occurrence of any one or more of the following events or circumstances:

a)   if the Borrower fails to pay the principal amount of any Loan when due and
     such default continues for five Business Days after notice from the Lender
     of such default;

b)   if the Borrower fails to pay:

     i)   any interest (including, if applicable, default interest) hereunder
          when due; or

     ii)  any other Obligation not specifically referred to above payable by the
          Borrower hereunder when due,

     and such default continues for 30 days after notice from the Lender of such
     default;

c)   if the Borrower fails to observe or perform any covenant or obligation
     contained in this Agreement on its part to be observed or performed (other
     than a covenant or obligation whose breach or default in performance is
     specifically dealt with elsewhere in this section) and such failure
     continues for a period in excess of 45 days after notice from the Lender of
     such failure, unless the Lender (having regard to the subject matter of the
     default) shall have agreed to a longer period, and in such event, within
     the period agreed to by the Lender;

d)   the filing by or on behalf of the Borrower of a voluntary petition or an
     answer seeking or consenting to reorganization, liquidation, arrangement,
     readjustment of its debts or for any other relief under any bankruptcy,
     reorganization, compromise, arrangement, insolvency, readjustment of debt,
     dissolution, liquidation, or similar act or law, state or federal, now or
     hereafter existing ("BANKRUPTCY LAW"), or the making by the Borrower of any
     assignment for the benefit of creditors; or the admission by the Borrower
     in writing of its inability to pay its debts as they become due;

e)   the filing of any involuntary petition against the Borrower in bankruptcy
     or seeking reorganization, liquidation, arrangement, readjustment of its
     debts or for any other relief under any Bankruptcy Law and an order for
     relief by a court having jurisdiction in the premises shall have been
     issued or entered therein; or a decree or order of a court having
     jurisdiction in the premises for the appointment of a receiver, liquidator,
     sequestrator, trustee or other officer having similar powers over the
     Borrower or all or a substantial part of its property shall have been
     entered;

f)   if a final judgment or order (subject to no further right of appeal) for
     the payment of money aggregating in excess of U.S.$10,000,000 or the
     equivalent amount in any other currency shall be rendered against the
     Borrower in respect of which enforcement proceedings have been commenced
     and such proceedings have not been effectively stayed and the Borrower has
     not paid or settled such judgment or order within thirty days after
     enforcement proceedings have been commenced;

g)   if a default with respect to any issue of Debt (which shall include, for
     avoidance of doubt, Debt incurred, assumed or otherwise created by the
     Borrower), which default results in the acceleration of any Debt in an
     aggregate amount in excess of U.S.$10,000,000 or the equivalent amount
     thereof in any other currency without such Debt having been discharged or
     such acceleration having been cured, waived, rescinded or annulled for a

<PAGE>

     period of 30 days after written notice thereof has been given by the Lender
     to the Borrower; or

h)   if any representation or warranty made by the Borrower in this Agreement,
     in a Compliance Certificate or any of the Loan Documents to the Lender
     shall prove to have been incorrect or misleading in any material respect on
     and as of the date thereof.

7.02 REMEDIES. If an Event of Default has occurred, which has not been waived by
the Lender or cured to the satisfaction of the Lender, Drawdowns under the
Credit Facility shall not be available and the Lender shall be entitled to
immediately demand and receive payment of all amounts owing by the Borrower to
the Lender hereunder by providing written notice to the Borrower. If the
Borrower fails to perform or make payment of any Obligations upon demand for
payment in accordance herewith, the Lender may in its discretion, exercise any
right or recourse and/or proceed by any action, suit, remedy or proceeding
against the Borrower authorized or permitted by law for the recovery of all the
Obligations and proceed to exercise any and all rights hereunder and the other
Loan Documents and no such remedy for the enforcement of the rights of the
Lender shall be exclusive of or dependent on any other remedy but any one or
more of such remedies may from time to time be exercised independently or in
combination.

7.03 REMEDIES CUMULATIVE. The rights and remedies of the Lender hereunder and
under any other Loan Documents are cumulative and are in addition to and not in
substitution of any rights or remedies provided by law or by equity. Any single
or partial exercise by the Lender of any right or remedy for, or procurement of
any judgment in respect of, default or breach of any term, covenant, condition
or agreement contained in this Agreement or any other Loan Document shall not be
deemed to operate as a merger of or be a waiver of or to alter, affect or
prejudice any other right or remedy or other rights or remedies to which the
Lender may be lawfully entitled for such default or breach.

                    ARTICLE EIGHT - EXPENSES AND INDEMNITIES

8.01 COSTS AND EXPENSES. The Borrower shall promptly pay upon notice from the
Lender all reasonable costs and expenses of the Lender in connection with the
Credit Facility, this Agreement and the other Loan Documents, including, without
limitation, in connection with the reasonable fees and out-of-pocket expenses of
legal counsel to the Lender and all costs and expenses in connection with the
establishment of the validity and enforceability of the Loan Documents and the
preservation, perfection or enforcement of the rights of the Lender under the
Loan Documents.

8.02 INDEMNITIES OF THE BORROWER. The Borrower hereby agrees to indemnify and
save harmless the Lender against any reasonable cost, loss, liability or expense
incurred by the Lender as a result of the failure of the Borrower to fulfil any
of its covenants or obligations hereunder or under the other Loan Documents.

8.03 INDEMNITY OF THE GENERAL PARTNER. The General Partner hereby agrees to
indemnify and save harmless the Lender against any reasonable cost, loss,
liability or expense incurred by the Lender as a result of the failure of the
General Partner to fulfil any of its covenants or obligations hereunder or under
any of the other Loan Documents.

                             ARTICLE NINE - GENERAL

9.01 NOTICES. Any demand, notice or communication to be made or given hereunder
(a "Communication") shall be in writing and shall be made or given by personal
delivery, registered

<PAGE>

mail or by transmittal by telecopy or other electronic means of communication
addressed to the respective parties as follows:

To the Borrower:

TC PipeLines, LP
c/o TC PipeLines GP, Inc.
450-First Street S.W.
Calgary, Alberta
Attention:        President
Telecopy No.:     ( 403) 920-2350

To the Lender:

TransCanada PipeLine USA Ltd.
450-First Street S.W.
Calgary, Alberta

Attention:        Treasurer
Telecopy No.:     ( 403) 920-2358

or to such other address or telecopy number as either party may from time to
time notify the other of in accordance with this provision. Any Communication
made or given hereunder by personal delivery or electronic communication during
normal business hours at the place of receipt on a Business Day shall be
conclusively deemed to have been made or given at the time of actual delivery or
receipt of Communication, as the case may be, on such Business Day. Any
Communication made or given hereunder by personal delivery or electronic
communication after normal business hours at the place of receipt or otherwise
than on a Business Day shall be conclusively deemed to have been made or given
at 9:00 a.m. (Eastern Standard time) on the first Business Day following actual
delivery or receipt of Communication, as the case may be. Any Communication made
or given hereunder by registered mail shall be conclusively deemed to have been
made or given at 9:00 a.m. (Eastern Standard time) on the third Business Day
after the mailing thereof.

9.02 WHOLE AGREEMENT. This Agreement together with any other Loan Documents
constitute the whole and entire agreement between the Borrower and the Lender
with respect to the subject matter hereof and cancel and supersede any prior
agreements, undertakings, declarations, commitments, representations,
warranties, written or oral, in respect thereof.

9.03 BENEFIT OF AGREEMENT. This Agreement shall enure to the benefit of and be
binding upon the Borrower and the Lender and their respective successors and
permitted assigns.

9.04 AMENDMENTS AND WAIVERS. Any provision of this Agreement may be amended only
if the Borrower and the Lender so agree in writing. Any waiver or any consent by
the Lender under any provision of this Agreement or any of the other Loan
Documents must be in writing and may be given subject to any conditions thought
fit by the Lender. Any waiver or consent shall be effective only in the instance
and for the purpose for which it is given.

9.05 SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
of this Agreement and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

<PAGE>

9.06 NUMBER AND PERSONS. Words used herein importing the singular number only
shall include the plural and vice versa, words used herein importing the
masculine gender shall include the feminine and neuter genders and vice versa
and words used herein importing persons shall include individuals, partnerships,
associations, trusts, unincorporated associations and corporations and vice
versa.

9.07 HEADINGS; SECTIONS. The insertion of headings herein is for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement. Unless something in the subject matter or context is inconsistent
therewith, references herein to Articles and Sections are to Articles and
Sections of this Agreement.

9.08 ACCOUNTING PRINCIPLES. Wherever in this Agreement reference is made to
generally accepted accounting principles, such reference shall be deemed to be
United States generally accepted accounting principles in use from time to time.

9.09 ASSIGNMENT. The Borrower shall not assign its rights or obligations under
this Agreement or the other Loan Documents without the prior written consent of
the Lender. The Lender may, without the consent of the Borrower, sell, assign,
transfer or grant an interest in the outstanding Loans and this Agreement and
the other Loan Documents to TransCanada Corporation, a Canadian corporation, or
any subsidiary thereof so long as such transaction does not increase the
Borrower's costs or risks under Section 1.09 hereof.

9.10 SCHEDULE. The Schedule to this Agreement is hereby incorporated herein and
deemed to be part hereof.

9.11 THIS AGREEMENT GOVERNS. In the event of any conflict or inconsistency
between the provisions of this Agreement and the provisions of any of the other
Loan Documents, the provisions this Agreement, to the extent of the conflict or
inconsistency, shall govern and prevail with respect to any Obligations.

9.12 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York (including Section
5-510.6(b) of the General Obligation Law of the State of New York) without
regard to the choice or conflict of law rules or principles.

9.13 BORROWER'S STATUS. TC PipeLines, LP is a limited partnership formed under
the laws of Delaware. A Limited Partner shall have no liability or obligation of
any kind whatsoever for any Obligations.

<PAGE>

     Kindly signify your acceptance of the Agreement by signing and returning
one copy of this Agreement to us.

Yours very truly,

TRANSCANADA PIPELINE USA LTD.

By: /s/ Russell K. Girling
    --------------------------------
    Name:  Russell K. Girling
    Title: Senior Vice-President and
           Chief Financial Officer

By: /s/ Albrecht W.A. Bellstedt
    --------------------------------
    Name:  Albrecht W.A. Bellstedt
    Title: Senior Vice-President,
           Law & Administration

ACCEPTED AND AGREED
as of the date first written above.

TC PIPELINES, LP
by its General Partner
TC PipeLines GP, Inc.

By: /s/ Theresa Jang
    --------------------------------
    Name:  Theresa Jang
    Title: Controller

By: /s/ Rhondda E.S. Grant
    --------------------------------
    Name:  Rhondda E.S. Grant
    Title: Secretary

TC PIPELINES GP, INC.

By: /s/ Theresa Jang
    --------------------------------
    Name:  Theresa Jang
    Title: Controller

By: /s/ Rhondda E.S. Grant
    --------------------------------
    Name:  Rhondda E.S. Grant
    Title: Secretary

<PAGE>

                                   SCHEDULE A
                             TO THE LETTER AGREEMENT
                            DATED MAY 28, 2003 AMONG
                         TRANSCANADA PIPELINE USA LTD.,
                              TC PIPELINES, LP AND
                              TC PIPELINES GP INC.

                             COMPLIANCE CERTIFICATE

TO:  TRANSCANADA PIPELINE USA LTD. (the "Lender")

     Reference is made to the letter agreement dated May 28, 2003 among
TransCanada PipeLine USA Ltd., TC PipeLines, LP and TC PipeLines GP, Inc. (as
amended, modified, supplemented or restated, the "Credit Agreement").
Capitalized terms used herein, and not otherwise defined herein, shall have the
meanings attributed to such terms in the Credit Agreement.

     This Compliance Certificate is delivered to the Lender pursuant to Section
6.01(e) of the Credit Agreement.

     The undersigned, [name], [title] of the General Partner of the Borrower,
hereby certifies that, as of the date of this Compliance Certificate:

1.   I have made or caused to be made such investigations as are necessary or
     appropriate for the purposes of this Compliance Certificate.

2.   To the best of my knowledge after due enquiry:

     a)   the consolidated financial statements for the fiscal year ending
          December 31, ______ provided to the Lender pursuant to the Credit
          Agreement were prepared in accordance with generally accepted
          accounting principles and present fairly, in all material respects,
          the financial position of the Borrower as at the date thereof;

     b)   the representations and warranties made by the Borrower and the
          General Partner in Section 5.01 of the Credit Agreement are true and
          correct in all material respects, except as has heretofore been
          notified to the Lender by the Borrower in writing [or except as
          described in Schedule hereto]; and

     c)   the Borrower and the General Partner are in compliance in all respects
          with all covenants in the Credit Agreement except as has heretofore
          been notified to the Lender by the Borrower in writing [or except as
          described in Schedule hereto].

3.   Except as has heretofore been notified to the Lender by the Borrower in
     writing [or except as described in Schedule ______ hereto], to the best of
     my knowledge after due enquiry there are not pending or threatened, in
     writing, any (a) claims, complaints, notices or requests for information
     received from a Governmental Authority by the Borrower or the General
     Partner, or which any of them is otherwise aware, with respect to any
     alleged violation of or alleged liability under any applicable laws, which,
     if prosecuted, would reasonably be expected to have a Material Adverse
     Effect or (b) actions, suits or proceedings which, if adversely determined,
     would reasonably be expected to have a Material Adverse Effect.

     I give this Compliance Certificate on behalf of the General Partner of the
Borrower and in my capacity as the [title] of the Borrower, and no personal
liability is created against or assumed by me in the giving of this Certificate.

     Dated at o, this o day of o, _____.

Name: ______________________________

Title:______________________________

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