B The Waneta Transaction. Table of Concordance between the APA and the Master Term Sheet

Transcription

1 B-11-3 The Waneta Transaction Table of Concordance between the APA and the Master Term Sheet

2 Waneta Transaction Table of Concordance This Table of Concordance has been prepared to help identify instances where substantive terms of the Asset Purchase Agreement and each of the draft agreements (attached to it in substantially final form) differ materially from the terms contemplated in the Master Term Sheet ( Term Sheet ) or its appendices. In this document, separate Tables of Concordance are provided for each of the following: Asset Purchase Agreement; Co-Ownership and Operating Agreement; Waneta Partial Sale CPA Amending Agreement; Surplus Power Rights Agreement; and Security Documents. The Asset Purchase Agreement and draft agreements contain substantial detail and elaboration as compared to the Term Sheet. This Table of Concordance does not describe or identify the detail or elaboration, except to the extent the substantive result is materially different from the Term Sheet. This document is intended to provide guidance only and is of no legal force or effect. If there is any inconsistency between this document and the provisions of the agreements, the latter will govern. Page 1 of 20

3 Table of Concordance Appendix I to the Term Sheet Asset Purchase Agreement TERM SHEET PROVISION ASSET PURCHASE AGREEMENT PROVISION Parties Teck Metals Ltd. (Vendor) * Teck Resources Limited (Guarantor) Teck American Limited (Covenantor) Teck American Limited name corrected to TCAI Incorporated. BC Hydro ( BCH ) (Purchaser) Assets 1/3 undivided interest in the assets comprising the Waneta Dam, the generating station, and the Waneta Substation, and related assets and equipment used in connection with the operation of those assets including real property, permits and agreements. Assumed Liabilities BCH to be responsible for 1/3 of all legal obligations of Teck relating to ownership, operation and maintenance of the Assets to be observed from and after Closing. For certainty, Teck is responsible for all obligations and liabilities relating to pre-closing period, regardless of when any claim is asserted. Certain components of the Waneta Substation assets will not be transferred. Exceptions were introduced to this arrangement so that BCH will not assume 1/3 of legal obligations and liabilities relating to: Material Contracts which are not Assumed Contracts; any environmental contaminants on the properties to the extent that they are being managed or proposed to be managed by Teck with a wide area site remediation plan applicable to the properties; employees of Teck; and indebtedness for borrowed money of Teck. Price CDN $825 million, payable in cash on closing. * The term no substantive changes has been used where the relevant rights and obligations in the agreement, although considerably more detailed and nuanced, have not changed or are substantially similar to the broad description of rights and obligations of the parties identified in the Term Sheet. Page 2 of 20

4 Representations and Warranties of Vendors and Guarantors Representations and Warranties of Purchaser: TERM SHEET PROVISION ASSET PURCHASE AGREEMENT PROVISION Representations and warranties as agreed between the parties and as are customary (e.g. title to assets, disclosure of all material contracts and permits, etc). Complete disclosure by Teck of all reports relating to asset condition, reasonably expected to be material to BCH. Representations and warranties as agreed between the parties and as are customary. In addition to the customary representations and warranties contemplated in the Term Sheet, there is a BCH knowledge-based representation and warranty to the effect that the transaction will not result in a breach or adverse alteration of any permits held by Teck in relation to the Waneta Assets. Survival of Representations and Warranties 24 months from Closing Date. Indefinite survival for representations and warranties relating to authority, ownership/title. No substantive changes, with the exception of the addition of a survival period for tax related representations and warranties lasting for the duration of applicable limitation periods and the addition of an indefinite survival period for Teck s obligations with respect to environmental contamination (see Assumed Liabilities above). Preclosing Covenants As follows: operation of assets in ordinary course by Teck; maintenance of insurance by Teck; reasonable access to assets to be granted by Teck; cooperation and reasonable efforts with respect to consents and regulatory approvals (Teck and BCH); BCH to diligently pursue BCUC acceptance; and BCH to diligently pursue First Nations consultation. Closing Conditions The party with the benefit of each specific condition is indicated in ( ): no material adverse change to Waneta assets No substantive changes, with the exception that further conditions have been added: an agreement with Waneta Expansion Power Corporation that, to the satisfaction of Teck, limits the designed diversion capability for power Page 3 of 20

5 TERM SHEET PROVISION ASSET PURCHASE AGREEMENT PROVISION and related transmission assets (BCH); purposes of Waneta Expansion Project to 22,110 cfs. representations and warranties are true and correct and pre-closing covenants have been observed and performed (Teck and BCH); the CPA Subagreement be amended. BCUC acceptance (BCH); CPA and related amendments (Teck and BCH); execution and delivery of Operating Agreement and Surplus Power Rights Agreement and any other agreements contemplated (Teck and BCH); no insolvency proceedings, litigation or government action to enjoin or restrain closing (Teck and BCH); receipt of necessary third party consents and regulatory approvals (Teck and BCH); no material non-assignable permits, licences or agreements (Teck and BCH); grant of Right of Way back from BCH for transmission assets not acquired by BCH but located on lands acquired by BCH (Teck); release of all non-permitted encumbrances on Assets (BCH); grant of security by each party over its share of the Waneta Dam to secure obligations (Teck and BCH); and other customary conditions. First Nations Consultation It would be a condition of closing in favour of BCH that no event or circumstance has occurred prior to closing that gives rise to reasonable grounds on which to determine that closing the transaction contemplated by the Asset Purchase Agreement would be inconsistent with maintaining Page 4 of 20

6 TERM SHEET PROVISION ASSET PURCHASE AGREEMENT PROVISION the honour of the Crown as it relates to efforts to seek reconciliation in connection with aboriginal interests of which BCH is then aware. Purchase Price Allocation To be agreed. As set out in Schedule 2.2(b). Adjustment for Taxes, Prepaids To be agreed. Teck to pay all expenses and receive all income up to the closing date, and BCH to pay its 1/3 share of all expenses and receive a 1/3 share by value of Waneta generation from and after the closing date. All other matters to be adjusted are to be settled directly between the parties within 45 days after the closing date. Taxes BCH responsible for transfer taxes on sale of 1/3 undivided interest in the Assets, excluding Teck s income taxes, if any. Indemnities Standard indemnities, no liability for indirect or consequential damages. No substantive changes, except with respect to any breach by Teck in respect of its obligation to pay, discharge or perform obligations and liabilities relating to the ownership, operation, maintenance of the Waneta Assets that are not to be assumed by BCH, and any failure by BCH to pay, discharge or perform assumed liabilities, the parties have no liability for indemnification until the total of all damages with respect to such matters exceeds $5,000,000. Once the total of all damages exceeds that amount, liability for full amount of damages without reduction or deduction. Closing Business Days after satisfaction of closing conditions. Target: December 31, th Business Day after satisfaction of closing conditions. If Closing has not occurred by March 31, 2010, either party may terminate. Page 5 of 20

7 Table of Concordance Appendix 2 of Term Sheet Co-Ownership and Operating Agreement Formation and Purpose of Co- Ownership TERM SHEET PROVISION CO-OWNERSHIP AND OPERATING AGREEMENT PROVISION Formed for purpose of the parties co-owning and operating the Waneta Dam to generate power for both parties benefit. Term For so long as the Waneta Dam is owned in undivided interests by more than one co-owner. No Partnership No partnership. Parties free to pursue other opportunities related to the Waneta Dam, but will consult on any actions that would materially and disproportionately affect the Waneta Dam or the other party s interest in power from the Waneta Dam. Initial Contribution BCH dedicates its 1/3 interest and Teck dedicates its 2/3 interest and its rights under the CPA, to joint operation by the parties. Operator Teck appointed initial Operator, responsible for day-to-day operations and managing the Waneta Dam. The standard for the Operator is one of a prudent owner and the Operator must exercise the degree of care and diligence of an experienced dam operator and in accordance with good utility practice. A non-exhaustive list of the duties of the Operator is set out in the Term Sheet. The list of duties of the Operator has been expanded upon and further delineated. Page 6 of 20

8 Operating Committee TERM SHEET PROVISION CO-OWNERSHIP AND OPERATING AGREEMENT PROVISION No substantive changes, except that: Committee to be established to oversee the Operator and make fundamental decisions with respect to the Waneta Dam. Equal representation of the parties with voting in proportion to ownership. Decisions decided by simple majority, except certain matters which are set forth in the Term Sheet, which require unanimity. Some decisions requiring unanimity are subject to determination by third party referee, applying a prudent owner standard and good utility practice standard, if the Operating Committee can t reach agreement, while other decisions requiring unanimity are not reviewable. additional matters requiring unanimous approval and which are subject to determination by third party referee include appointment of a third party Operator and the approval of the accounting and operating procedures; no requirement for Operating Committee to approve actions/expenditures undertaken with view to increasing generation/capacity of the Waneta Plant by more than 10%; concept replaced with process for Upgrades; and unanimous approval not required for environmental remediation matters (now covered by Teck s wide area site obligation) or actions responding to material environmental incidents. Appointment of Manager To manage the day-to-day operations of the Waneta Dam. First manager to be FortisBC. Waneta Management Agreement to be assigned and amended to recognize BCH s 1/3 rd interest. Teck (as Operator) will continue to be the party to the Waneta Management Agreement and so BCH will not take an assignment of a 1/3 interest in that agreement. No other substantive changes. Operating and Capital Budgets Operator to prepare annually and submit to the Operating Committee for approval, operating budgets (for at least 3 years), sustaining capital budgets (for at least 5 years) and contingency fund proposals. Specific contingency fund provisions omitted. No other substantive changes. Costs, Accounts, Settlements and Monthly Billings BCH and Teck will pay the costs associated with ownership, operation and maintenance and approved capital expenditures in proportion to ownership interests. The parties will each pay water rental fees associated with their share of capacity/energy and/or entitlement. Generally costs associated with Waneta operations are to be borne by the Co-Owners in proportion to their ownership interests and in accordance with their separate status. An accounting procedure schedule has been developed to set forth the principles of how costs are to be allocated and determined. If Co-Owner fails to pay billings when due, remedies will be as are customary for joint ventures. Failure by a co-owner to pay billings will constitute an event of default. The right of the other Co-Owner to take power to which the defaulting Co-owner would otherwise be entitled is not included as a remedy. Financial Audits Operator to arrange for annual financial audit including availability of capacity and/or energy to the Co-owners from the Waneta Dam. Annual financial audit will not include availability of capacity and/or energy to the co-owners from the Waneta Dam. Such information will be available to BCH directly or through the CPA. Performance Audits Either Co-Owner may commission third party performance audits at its expense to ensure that the Waneta Dam is being operated, managed and maintained to the required standards. No substantive changes, except to provide for periodic compliance audits to be commissioned at the Co-Owner s shared expense and the right of each Co-Owner to commission additional compliance audits at its own expense if it has reason to believe that the Operator is not complying with its obligations. Page 7 of 20

9 TERM SHEET PROVISION CO-OWNERSHIP AND OPERATING AGREEMENT PROVISION Upgrades If upgrades are undertaken that have the effect of increasing the capacity No substantive changes; clarification of what constitutes an Upgrade. and/or energy output of the Waneta Dam, the cost of such upgrades, the capacity/energy loss during the upgrade and any additional capacity/energy to be allocated proportionate to the parties interests. Share of Generation CPA to be amended so that BCH s 1/3 rd interest in the Waneta Dam is withdrawn from the CPA. The CPA will continue to apply to Teck s 2/3 rd interest. Each co-owner will receive its respective share of capacity/energy from the Waneta Dam for its own, exclusive use. Provisions are included in the Operating Agreement dealing with Teck s exchange accounts. CPA Scheduling Agreement will not be terminated prior to January 1, BCH s share of generation to be firm until January 1, 2036 (Teck assuming risk of reductions of Waneta generation and/or entitlement as a result of unit outages or for any reason, including force majeure), with the exception of single unit outages associated with up to 22 days of planned maintenance activities in the month of September and unit outages due to upgrades. Teck to be allocated all additional capacity and energy resulting from delay of the WEP in-service date past April 1, 2014, or cancellation of WEP, until January 1, Adjustments to Share of Generation BCH s 1/3 rd right to Waneta generation will not include any coordination benefits that the owner(s) of WEP are entitled to receive pursuant to the Waneta Release Coordination Agreement (WRCA), but will include 1/3 rd of coordination benefits the owner(s) of Waneta are entitled to pursuant to the WRCA. BCH and Teck to provide written notice pursuant to the CPA at certain times to specify Teck s then current entitlement from Teck s 2/3 rd interest in the Waneta Plant as determined by the calculations set out in the Term Sheet. Waneta Expansion Delay After January 1, 2036 Teck s entitlement from its 2/3 rd interest in Waneta will be equal to the entitlement from the Waneta Plant as determined by the Entitlement Calculation Program multiplied by 2/3 rd. If and for so long as the WEP does not proceed, then commencing on April 1, 2014: Teck to use its incremental capacity and flexibility under the amended CPA to dispose of the surplus WEP deferral energy in accordance Page 8 of 20

10 CPA to Continue between Parties Transmission Arrangements TERM SHEET PROVISION CO-OWNERSHIP AND OPERATING AGREEMENT PROVISION with the Surplus Power Rights Agreement ( SPRA ); and to the extent that Teck s incremental WEP deferral capacity is insufficient to dispose of the surplus WEP deferral energy, BCH to make capacity available to Teck as necessary to dispose of the surplus, subject to capacity limits in the Term Sheet. Teck will use such capacity to create scheduled products to be offered to BCH under the SPRA. If the CPA terminates, Teck and BCH to negotiate a new agreement based on the same concepts as the existing CPA. If unable to reach agreement, a third party will impose terms consistent with the foregoing through an arbitration process. The parties are not prevented from exercising their rights under the CPA to give notice of termination. If the CPA Scheduling Agreement terminates the parties will negotiate in good faith to enter into a replacement agreement. Prior to January 1, 2036, Teck to deliver BCH s electricity from Waneta to the Kootenay Interconnection (KI) on a firm (first priority) basis at no cost to BCH. BCH may also elect for that electricity and additional electricity injected by BCH at the KI to be delivered to the BC/US Border, if permitted. The maximum amount of power to be delivered by Teck is set out in the Term Sheet. If Teck is not using the remaining available transmission capacity on Line 71, it will make it available to BCH. Teck s delivery obligations are subject to certain limitations set forth in the Term Sheet. From January 1, 2036, Teck to deliver BCH s electricity from plant to the KI on a firm (first priority) basis at no cost to BCH. BCH may also elect for that electricity and additional electricity injected by BCH at the KI to be delivered to the BC/US Border, if permitted. The maximum amount of electricity to be delivered/scheduled is 1/3 of Line 71 s capacity. If Teck is not using the remaining available transmission capacity on Line 71, it will make it available to BCH. Teck s delivery obligations are subject to certain limitations set forth in the Term Sheet. Prior to January 1, 2036, Teck responsible for transmission losses and for sustaining capital and O&M costs of Line 71and afterwards, each of these to be shared proportionately. Page 9 of 20

11 Environmental Attributes TERM SHEET PROVISION CO-OWNERSHIP AND OPERATING AGREEMENT PROVISION Teck to maintain Line 71 as a prudent owner and maintain insurance. Teck not to sell /diminish its transmission rights required to deliver to BCH. If BCH acquires Teck s 2/3 rd interest, it will have the right to purchase Line 71 and other Teck transmission facilities related to the Waneta Dam (but not the smelter). BCH entitled to those environmental attributes from its 1/3 rd of generation necessary to claim that its share of generation is Clean or Renewable Electricity ; Teck entitled to all other environmental attributes from Waneta generation until December 31, If Teck can t unbundle the benefit of its environmental attributes associated with BCH s share of generation, parties to try to price the environmental attributes for purchase by BCH on a basis that shares the benefits that BCH is able to obtain from selling the energy with those environmental attributes. Until December 31, 2035, additional energy from the recent Waneta upgrades will be deemed to first supply smelter load (for the purpose of allocating renewable energy credits). From January 1, 2036, BCH and Teck entitled to environmental attributes of their respective share of Waneta generation. Page 10 of 20

12 Transfer of Co- Owner s Interest Operating Instructions Insurance/Material Destruction Liability, Indemnification and Compensation TERM SHEET PROVISION CO-OWNERSHIP AND OPERATING AGREEMENT PROVISION Limitations on transfers: only transfers of whole interests permitted; transferee must become a party to the Operating Agreement, the CPA, the SPRA and grant equivalent security; each co-owner must first offer its interest to the other. There are certain exceptions from the right of first offer; if the selling Co-Owner is the Operator and has majority voting rights on the Operating Committee, the other co-owner will have the right to become the Operator and to acquire majority voting rights on the Operating Committee; and if Teck transfers its 2/3 rd interest in connection with a sale of the smelter or if there is a change of control of Teck/Teck Resources Limited, BCH will have the right become the Operator and to acquire majority voting rights on the Operating Committee. As long as Teck s 2/3 rd interest is subject to the CPA, BCH will provide operating instructions in accordance with the CPA. Operating Committee to approve insurance coverage. Non-Operator may obtain own coverage. Unanimous Operating Committee approval required regarding reconstruction/replacement of all or a material portion of the dam or abandonment or permanent cessation of generation. If the parties do not unanimously agree to rebuild, there is a process for liquidating BCH firm energy/capacity rights in certain circumstances, and a buy-sell arrangement post Operator to indemnify the co-owners against losses, costs, damages arising from its negligence or wilful misconduct. No liability for indirect or consequential damages. BCH to compensate Teck for loss of power from the Waneta Dam if the capacity/energy from the Waneta Dam is reduced by changes to the Waneta Dam water licences or by changes to the water flow regime at the Waneta Dam that result from a water use planning process with respect to the Waneta Dam, where such changes are agreed to by BCH, but not Teck, or are imposed on Teck or the Waneta Dam because BCH is an owner of any interest in the Waneta Dam. There are various exceptions to this obligation set forth in the Term Sheet. Clarifies that: Co-Owners to indemnify Operator for losses, costs, damages suffered in its capacity as the Operator (except where operator is negligent); Co-Owners to indemnify each other for losses, costs, damages incurred in excess of their agreed upon share and also for their own separate debts, liabilities, etc.; and Teck to indemnify BCH for liabilities associated with the Waneta Substation equipment that is excluded from the venture. Page 11 of 20

13 TERM SHEET PROVISION CO-OWNERSHIP AND OPERATING AGREEMENT PROVISION Dispute Resolution Generally disputes to be submitted to binding arbitration. Certain decisions requiring unanimity of the Operating Committee are referred to a third party expert for determination and others are not. No substantive changes, except: Termination / Default Default under both the Operating Agreement and SPRA occurs if a party commits an default of default. The events of default are set forth in the Term Sheet. If a party is in default, the other party will have the option to, amongst other remedies: claim damages; if Teck is in default in delivering power, and the default is continuing for an extended period of time, BCH may replace the power with power that is Clean or Renewable Electricity and has equivalent firmness to Waneta Dam power for planning purposes and the cost will be recoverable as damages; terminate and liquidate the provisions of the Operating Agreement that provide for adjustments to the amended CPA and SPRA; and clarification that liquidated damages are payable in cases where Teck has taken more than its entitlement under the CPA or has an entitlement deficit. Liquidated damages are payable at 110% of market prices in certain cases; the non-defaulting party may exercise its rights under its security. However, the non-defaulting party will not foreclose on any property charged by the security except where the non-defaulting party is of the view that the net proceeds from operating Waneta, will be insufficient to repay, within two years, all amounts secured by the security; and method of calculating termination payment developed. become the Operator of the Waneta Dam with simple majority voting rights, at least until any failures in delivering any of the capacity and/or energy to which such party is entitled are resolved. Market Purchases In the event of unit outage, if Teck s entitlement is not sufficient to meet its smelter load and deliver the capacity/energy to BCH, Teck may on a shortterm basis purchase energy in the market to supply BCH, provided BCH is satisfied that doing so does not affect reliability of deliveries to BCH. Page 12 of 20

14 Table of Concordance Appendix 3 to the Term Sheet Waneta Partial Sale CPA Amending Agreement TERM SHEET PROVISION CPA AMENDING AGREEMENT PROVISION Section 1.1(dd) Amend to adjust Minimum Take Section 1.1(jj) Add (3) such that for purposes of Sections 1.1(b) and (c), 2.1, 2.3 (but not 2.3(e)), 2.5, 3.7, 6.7(c), 9.1 and 10.1 the Waneta Plant means that portion of the Waneta Plant owned by Teck Cominco (2/3 as of closing). Section 1.1(ll) Replace Teck Cominco at with the owner(s) of. Section 1.1(xx) Amend such that for purposes of Section 14.3 references to entitlement attributable to the Waneta Plant means only that portion of the Waneta Plant owned by Teck Cominco (2/3 as of closing). 4.4 Reduce size of Exchange Account to 46.5 GWh. The aggregate amount of exchange accounts under the CPA have not been reduced to reflect the withdrawal of a 1/3 interest in the Waneta Plant from the CPA. Provisions dealing with Teck s exchange accounts are included in the Operating Agreement. 9.1 Add the following after issues to the Entitlement Party in the second line: to the extent of the Entitlement Party s interest in those Water Licences Schedule A, Section 4.2 Add (h) such that in the case of the Waneta Plant, subject to Section 6.7, the Entitlement Capacity is adjusted to reflect only a portion of the Waneta Plant is owned by Teck Cominco so that its Entitlement Capacity for purposes of Table 9 is only 2/3 of the Entitlement Capacity calculated in accordance with this section. Schedule A, Section 4.3 Add (f) such that in the case of the Waneta Plant, subject to Section 6.7, the Entitlement Energy is adjusted to reflect only a portion of the Waneta Plant is owned by Teck Cominco so that its Entitlement Energy for purposes of Table 9 is only 2/3 of the Entitlement Energy calculated in accordance with this section. Page 13 of 20

15 Schedule A, Section 5.2 TERM SHEET PROVISION CPA AMENDING AGREEMENT PROVISION Reletter (b) through (f) as (c) through (g), and add (b) immediately following (a) such that, subject to Section 6.7: (i) the values used for the calculations in (a) for the Waneta Plant shall be values for the whole of the Waneta Plant (and for certainty before any adjustment to reflect Teck Cominco s 2/3 interest therein); and (ii) from and after January 1, 2036, any Entitlement Capacity adjustment for the Waneta Plant calculated pursuant to (a) will be multiplied by 2/3rds Schedule A, Section 5.3 By adding a paragraph immediately after the first paragraph such that, subject to Section 6.7: (i) the values used for the calculation of any Entitlement Energy outage adjustment factor for the Waneta Plant shall be values for the whole of the Waneta Plant (and for certainty before any adjustment to reflect Teck Cominco s 2/3 interest therein); and (ii) from and after January 1, 2036, any Entitlement Energy outage adjustment factor for the Waneta Plant will be multiplied by 2/3rds Schedule A Add Section 6.7 (Bilateral Amendments to Entitlement and Outage Adjustments) such that any Entitlement Party and BCH may bilaterally agree to change: (i) the Entitlement Energy and Entitlement Capacity for the Entitlement Party s Plant, from time to time and for either a specific period of time or until further notice, on written notice thereof to the other Entitlement Parties, and so often as such a notice is given, Table 9 shall be deemed amended to reflect such changes; and (ii) the outage factors for the Entitlement Party s Plant, from time to time and for either a specific period of time or until further notice, on written notice thereof to the other Entitlement Parties, and so often as such a notice is given, Table 10 shall be deemed amended to reflect such changes. Schedule A, Table 10 Update to note that with respect to the Waneta Plant it only reflects adjustments to the end of 2035, and that the changes made hereby to Schedule A, Sections 5.2 and 5.3 must be considered from and after January 1, This update has been reflected in the changes to sections 5.2 and 5.3. Page 14 of 20

16 Table of Concordance Appendix 4 to the Term Sheet Surplus Power Rights Agreement TERM SHEET PROVISION SURPLUS POWER RIGHTS AGREEMENT PROVISION Term Agreement to continue in force until December 31, Surplus Resulting from Load Changes to be Scheduled Any surplus energy of Teck s shall be disposed of pursuant to a scheduled transaction. Notice of Proposed Schedule Teck shall give notice of the disposal of such surplus energy products. Offered energy product(s) must conform to Teck s available capacity and the requirements of the Scheduling Agreement. Capacity not dealt with in Agreement. Option to Purchase BCH shall have the exclusive option to purchase any or all of the Short- Term products. If BCH declines or the option period expires, Teck will be entitled to sell to a third party on terms not materially less favourable than those offered to BCH. Long-Term Products will be subject to a period of good faith negotiations between Teck and BCH, after which, if no agreement is reached, Teck will be free to sell the Long-Term Products to a third party. Records and Third Party Audit Agreement to contain a no gaming provision and to provide that Teck will keep sufficient records to enable a third party auditor to confirm compliance with the right of first offer provisions. No substantive changes, except to add provisions addressing damages in the event that Teck is found to have failed to comply with the right of first offer provisions. Exception If the price (net of applicable transmission costs) that Teck is able to obtain for any surplus energy would be below Teck s water licence fees payable in respect of generation of that energy, Teck would be entitled to spill that energy from the CPA exchange accounts, rather than offering it to BCH. Additional Capacity If additional capacity becomes available to Teck through upgrades or otherwise, Teck will schedule the surplus resulting from Unplanned Changes so that BCH s obligation to purchase will be reduced. Page 15 of 20

17 TERM SHEET PROVISION SURPLUS POWER RIGHTS AGREEMENT PROVISION Notices Teck to provide Notice of Proposed Schedule to BCH as set out in the Surplus Power Table (name of Surplus Power Table changed to Transaction Protocol Table in the Agreement). Such Notice shall include the relevant delivery point(s) (the KI or the BC/US Border). When possible, Teck to give notice to BCH of significant planned outages of the Waneta Dam, Teck s smelter and/or Line 71. Unplanned Changes Surplus resulting from Unplanned Changes that Teck does not want or is not able to use shall be purchased by BCH at a percentage of the Monthly Average Index Price. Representatives of Teck and BCH on the CPA Operating Committee will develop a procedure for accounting of such transfers and will seek approval of the Committee. Industrial Load Exceeds Adjusted Entitlement Teck to call on reserves, purchase shortfall or turn down smelter to meet hourly Adjusted Entitlement capacity. BCH will have no obligation to supply such shortfall. Teck to purchase shortfall or turn down smelter to meet monthly Adjusted Entitlement capacity. BCH to have no obligation to supply such shortfall. No Active Arbitrage The Agreement to contain provisions requiring Teck to use good faith efforts to avoid active arbitrage and would include third party audit provisions and provisions for resolving disputes. Environmental Attributes No provisions contained in Term Sheet. Surplus energy sold to BCH to be sold with all associated Environmental Attributes, if any, unless they are able to be unbundled from the energy to which they are associated. If Environmental Attributes are unbundled, then Teck to have no obligation to offer such Environmental Attributes to BCH. Teck Purchases to Fulfill Third Party Sales If Teck sells to a third party surplus capacity and/or energy that it has offered to BCH, and which BCH has elected not to purchase, and Teck is unable to deliver the capacity or energy to that third party and would therefore be in default, then Teck may purchase capacity and/or energy for delivery to the third party to avoid the default. Liquidated and Other Damages If a party fails to deliver or receive a product that it has agreed to sell or purchase pursuant to the Agreement, the other party will be entitled to liquidated damages. If BCH fails to pay for energy it is obligated to purchase pursuant to Unplanned Changes, above, BCH will be in breach of the Agreement. If Teck fails to make surplus capacity and/or energy Page 16 of 20

18 17 TERM SHEET PROVISION SURPLUS POWER RIGHTS AGREEMENT PROVISION available to BCH as provided for in the Agreement, BCH will be entitled to damages based on principles to be negotiated. Transaction Protocol Table No provisions contained in Term Sheet. Note: Transaction Protocol Table referred to as Surplus Power Table in Term Sheet. Transaction Protocol Table provisions are based on the principle that Teck is to provide BCH with a first right to purchase surplus energy and that BCH shall have a reasonable opportunity to accept or decline any such Teck offer. Further, Teck will have a reasonable opportunity to obtain a price for its surplus energy, not materially less than the price offered to BCH, if BCH does not accept Teck s offer in a timely manner. Provisions included for developing and updating Transaction Protocol Table. Dispute Resolution No provisions contained in Term Sheet. Agreement provides for internal dispute resolution processes, by which the parties seek to resolve disputes through their respective senior executives before proceeding to binding arbitration. Remedies No specific provisions contained in Term Sheet. The agreement sets out process for audits and arbitration if BCH believes that Teck is not complying with the Agreement. BCH retains right after intentional or frequent and material failures to appoint a third party to purchase and sell energy on behalf of Teck in compliance with the right of first offer. Assignment of Rights No provisions contained in Term Sheet. Assignment provisions have been included in the Agreement. Page 17 of 20

19 Table of Concordance Appendix 5 to the Term Sheet Security Documents TERM SHEET PROVISION SECURITY DOCUMENT PROVISION Grantor of Security Each of Teck and BCH, in its capacity as co-owner of the Waneta Dam (the Co-Owner(s) ). Secured Obligations The Security Documents (listed below) shall secure performance of the Secured Obligations of the granting Co-Owner. Assets to be Charged The Security Documents (listed below) granted by each Co-Owner shall charge such Co-Owner s interest in the Waneta Dam (the Co-Owner s Interest ). Security Documents At closing, Security Documents shall be granted by each Co-Owner to the other, creating a fixed charge security on its Co-Owner s Interest, having priority over all encumbrances (other than Permitted Encumbrances), to include: Security granted by Teck to also charge Line 71 transmission assets, Excluded Substation Equipment and proceeds of business interruption insurance. Insurance is be assigned pursuant to the Operating Agreement. mortgages of real property or interests therein forming any part of the Co-Owner s Interest; No other substantive changes. Security Agreement creating a fixed charge security interest in all personal property forming any part of the Co-Owner s Interest; security assignments assigning interests in contracts, permits and other intangibles forming any party of the Co-Owner s Interest; consents from third parties where the granting of the security requires a consent under or would breach an agreement applicable to the Co- Owner or the Co-Owner s Interest; assignment of insurance on the Co-Owner s Interest; third party agreements from counterparties to contracts, permits or other intangibles forming part of the Co-Owner s Interest addressing such issues as the other Co-Owner may reasonably require, including giving the other Co-Owner notice of and opportunities to cure defaults, agreement to enter into replacement contracts in the event of Page 18 of 20

20 TERM SHEET PROVISION SECURITY DOCUMENT PROVISION termination pursuant to insolvency of the granting Co-Owner, setting limits on the other Co-Owner s obligations to perform the obligations of the granting Co-Owner under such contracts (only while in possession of Co-Owner s Interest) and permitting assignment of its security; and all necessary certificates and other supporting documents as the other Co-Owner may reasonably require, including without limitation opinions of legal counsel to the granting Co-Owner, as to, inter alia, the existence, corporate power and capacity of such Co-Owner, the authorization, execution, delivery and enforceability of the Security Documents and the absence of breach of any applicable agreements and other specified documents arising from the execution and delivery or, and the performance of obligations under, the Security Documents. Representations and Warranties Customary representations and warranties. Positive Covenants Co-Owners to: pay all taxes and claims which could give rise to liens on Co-Owner s Interest; ensure that all future property comprising the Co-Owner s Interest is charged by the Security Documents and any required Third Party Agreements are obtained in accordance with the Operating Agreement; maintain insurance coverage on the Co-Owner s Interest in accordance with the Operating Agreement; and standard further assurances and covenants. Negative Covenants Until the Secured Obligations are paid and performed in full, Co-Owners shall not: grant or permit to exist any lien over any of the Co-Owner s Interest Page 19 of 20

21 20 TERM SHEET PROVISION SECURITY DOCUMENT PROVISION other than Permitted Encumbrances; sell, lease or otherwise dispose of all or a portion of the Co-Owner s Interest except in accordance with the requirements of the Operating Agreement; and enter into any sale or all or substantially all of its assets or any merger, amalgamation or similar corporate reorganization except in accordance with the Operating Agreement. Events of Default The Security Documents shall be enforceable upon the default (subject to any applicable notice and cure periods) by the applicable Co-Owner of payment or performance of any of the Secured Obligations and in the circumstances of events of default as set forth in the Term Sheet. Nothing in the Security Documents shall limit the right of the Co-Owner to seek specific performance by the granting Co-Owner of the Secured Obligations. The granting Co-Owner shall remain liable for performance of the Secured Obligations to the extent such liability cannot be satisfied from the Co-Owner s Interest of the granting Co-Owner. No substantial changes, with the exception that remedies under the Security Documents are subject to provisions of the Operating Agreement which limit the right of a Non-Defaulting Party to sell or foreclose on charged property where such Non-Defaulting Party, acting reasonably, determines that operation of the property as a going concern will generate sufficient profits within two years to pay its claim in full. In addition to any remedies exercisable upon an Event of Default, a Co- Owner may, but shall not be obliged to, perform such covenant on behalf of the granting Co-owner to the extent and as provided for in the Operating Agreement and the cost of such performance shall be payable by the granting Co-Owner to the performing Co-Owner, together with interest thereon and shall form part of the Secured Obligations and shall be secured by the Security Documents Page 20 of 20