I haven't reviewed for accuracy.  Please take a look and provide me with any comments.

Stuart
 
-----Original Message-----
From: Connett, Hugh 
Sent: Wednesday, January 16, 2002 12:10 PM
To: Zisman, Stuart
Subject: Napoleonvilee Storage - Pad Gas Purchase and related transactions


Stuart: The letter below sets out Bridgeline's understanding of the basic terms we have discussed relating to the pad gas purchase and other related transactions.  Please acknowledge your concurrence with these terms via an e-mail response at your earliest convenience. If you have any questions, please call me at (713) 345-5803.
 
Regards,
 
Hugh H. Connett
Vice President
 
 
January 16, 2002
 
LRCI, Inc.
1400 Smith Street
Houston, TX 77002
 
Attn:  Mr. Stuart Zisman
 
Subject:                 Napoleonville Pad Gas purchase and related transactions summary
 
Pursuant to our recent conversations, the following outlines the basic terms of a definitive agreement to be entered into by Bridgeline Holdings, L.P. ("BHLP"), Bridgeline Storage Company LLC ("BSC"), LRCI, Inc. ("LRCI") and such affiliates of LRCI as are necessary to effectively consummate the following transactions related to the Napoleonville storage caverns and the current Natural Gas Storage and Brine Service Agreement, as amended ("Brine Agreement"), between LRCI and Dow Hydrocarbons and Resources Inc ("DHRI"):
 
1)                   LRCI owns and agrees to sell to BSC the full volume of pad gas, which is agreed to be 4,075,500 Dth, in place in DRHI Caverns #13 and #14 in the Napoleonville area at a per unit price equal to the April 2002 NYMEX Close price as of February 26, 2002 (February 2002 contract settlement date) less $0.03/Dth to be effective March 1, 2002 ("Effective Date").
2)                   LRCI shall assign the Brine Agreement to BSC by assignment effective March 1, 2002.  LRCI shall be responsible for satisfying any outstanding obligations under the Brine Agreement, except that BSC shall make the fourth quarter 2001 and prorated first quarter 2002 (January and February) lease payments as determined in the Brine Agreement directly to DHRI.  BSC shall remit to LRCI any amounts for the power and land credits which may be due LRCI under the Brine Service Agreement in respect of time periods prior to March 1, 2002, which as of the date hereof total $11,401.35.
3)                   LRCI shall pay, or cause its appropriate affiliates to pay, the following: (i) $223,000 to BSC to reimburse BSC for construction cost of the NS#1 dewatering line; (ii) $328,000 to BSC to reimburse BSC for construction cost of the NS#1 24" gas flow line; and (iii) $2,080,386 to BSC for the final Pad Gas Payment; all such amounts being due in connection with the capital contributions obligations of LRCI and certain of its affiliates under the Amended and Restated Limited Partnership Agreement for Bridgeline Holdings, L.P. ("LP Agreement").
4)                   The definitive agreement will be entered into on or before February 15, 2002 and will contain representations and warranties from LRCI that (i) LRCI and the affiliates of LRCI joining in the execution of the closing documents under such definitive agreement are all of the parties that are required to join in such documents in order to effectively consummate the transactions as contemplated, (ii) LRCI and all such affiliates have all requisite authority to enter into such transactions; and (iii) neither LRCI nor any of its affiliates joining in the transactions is, or will be at such closing, a debtor in a bankruptcy proceeding.
 
The obligations of the parties to consummate the transactions described above are conditioned upon: (i) the simultaneous closing of all transactions described herein, (ii) LRCI's having completed and delivered to BSC, prior to such closing, all documentation necessary to evidence of record LRCI's earlier contribution under the LP Agreement of the Napoleonville Storage Well #1 tracts and the related rights of way for the 24" gas flow line and the power easement to BSC's compression facility, and (iii) BSC's successful negotiation and contemporaneous execution of all agreements with third parties necessary to complete the transactions as contemplated, including without limitation agreements with DRHI to satisfactorily amend the Brine Agreement.
 
The parties agree that all payments due to LRCI at closing may be netted against the amounts that BSC will pay LRCI at closing and that BSC shall remit the balance to LRCI in full by wire transfer at such closing.