Document:

Developmental Loan Agreement Dated April 6, 2005

 

	 	 	 
	 

	 	 
	Exhibit 4.19

	 
	 	 
	 

DEVELOPMENT LOAN AGREEMENT

by and among

SEA BREEZE PACIFIC JUAN DE FUCA CABLE, LP

(the “Borrower”)

and

UNITED STATES POWER FUND, L.P.

(the “Lender”)

and

OLYMPIC CONVERTER GP, LLC and OLYMPIC CONVERTER, LP

(together, the “Subs”)

JUAN DE FUCA CABLE MANAGEMENT, INC.

(the “General Partner”)

and

BOUNDLESS ENERGY LLC and SEA BREEZE POWER CORP.

(together, the “Overrun Protectors”)

dated as of

April 6, 2005

 

 

DEVELOPMENT LOAN AGREEMENT

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	SECTION 1. DEFINITIONS	 	 	1	 
	 	1.1	 	 	Certain Defined Terms
	 	 	1	 
	 	1.2	 	 	Accounting Terms and Certain Principles of Interpretation
	 	 	13	 
	 	 	 	 	 
	 	 	 	 
	SECTION 2. LOAN	 	 	13	 
	 	2.1	 	 	Commitment
	 	 	13	 
	 	2.2	 	 	Promissory Note for Loans
	 	 	13	 
	 	2.3	 	 	Use of Proceeds
	 	 	14	 
	 	2.4	 	 	Advances
	 	 	14	 
	 	2.5	 	 	Interest
	 	 	16	 
	 	2.6	 	 	Repayment
	 	 	16	 
	 	2.7	 	 	Prepayments
	 	 	17	 
	 	 	 	 	 
	 	 	 	 
	SECTION 3. CONDITIONS PRECEDENT	 	 	18	 
	 	3.1	 	 	Conditions Precedent to Initial Advance
	 	 	18	 
	 	3.2	 	 	Conditions Precedent to Each Subsequent Advance
	 	 	21	 
	 	 	 	 	 
	 	 	 	 
	SECTION 4. REPRESENTATIONS AND WARRANTIES	 	 	23	 
	 	4.1	 	 	Existence; Compliance with Law
	 	 	23	 
	 	4.2	 	 	Power, Authorization; Enforceable Obligations
	 	 	24	 
	 	4.3	 	 	No Legal Bar
	 	 	24	 
	 	4.4	 	 	No Litigation
	 	 	24	 
	 	4.5	 	 	Indebtedness
	 	 	25	 
	 	4.6	 	 	Ownership of Property; Liens
	 	 	25	 
	 	4.7	 	 	Investment Company Act
	 	 	25	 
	 	4.8	 	 	Margin Securities
	 	 	25	 
	 	4.9	 	 	Subsidiaries
	 	 	26	 
	 	4.10	 	 	Possession of Franchises, Licences, etc
	 	 	26	 
	 	4.11	 	 	Financial Statements
	 	 	26	 
	 	4.12	 	 	Full Disclosure
	 	 	26	 
	 	4.13	 	 	No Default
	 	 	27	 
	 	4.14	 	 	Project Contracts
	 	 	27	 
	 	4.15	 	 	Taxes
	 	 	27	 
	 	4.16	 	 	Environmental Matters
	 	 	27	 
	 	4.17	 	 	Employee Benefit Plans
	 	 	27	 
	 	4.18	 	 	Documents
	 	 	27	 
	 	 	 	 	 
	 	 	 	 
	SECTION 5. COVENANTS AND CONTINUING AGREEMENTS	 	 	28	 
	 	5.1	 	 	Affirmative Covenants
	 	 	28	 
	 	5.2	 	 	Negative Covenants
	 	 	34	 
	 	5.3	 	 	Additional Agreements
	 	 	37	 

i

 

TABLE OF CONTENTS
(Continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	SECTION 6. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT	 	 	39	 
	 	6.1	 	 	Events of Default
	 	 	39	 
	 	6.2	 	 	Rights and Remedies
	 	 	43	 
	 	 	 	 	 
	 	 	 	 
	SECTION 7. MISCELLANEOUS	 	 	43	 
	 	7.1	 	 	Assignment
	 	 	43	 
	 	7.2	 	 	Payment of Expenses
	 	 	44	 
	 	7.3	 	 	Amendments and Waivers
	 	 	44	 
	 	7.4	 	 	Nonwaiver by Lender
	 	 	44	 
	 	7.5	 	 	Construction of Agreement
	 	 	45	 
	 	7.6	 	 	Waivers by Borrower
	 	 	45	 
	 	7.7	 	 	GOVERNING LAW; WAIVER OF JURY TRIAL; LIMITATION OF REMEDIES
	 	 	45	 
	 	7.8	 	 	Notices
	 	 	48	 
	 	7.9	 	 	Counterparts
	 	 	48	 
	 	7.10	 	 	Limitation of Liability
	 	 	48	 
	 	7.11	 	 	Confidentiality
	 	 	48	 
	 	7.12	 	 	Indemnity
	 	 	49	 

ii

 

DEVELOPMENT LOAN AGREEMENT

          This DEVELOPMENT LOAN AGREEMENT is executed this 6th day of April, 2005, by
and among SEA BREEZE PACIFIC JUAN DE FUCA CABLE, LP, a Delaware limited partnership
(“Borrower”); UNITED STATES POWER FUND, L.P., a Delaware limited partnership
(“USPF” or the “Lender”); JUAN DE FUCA CABLE MANAGEMENT, INC., a Delaware
corporation (“General Partner”), OLYMPIC CONVERTER, LP, a Delaware limited partnership
(“OC”), OLYMPIC CONVERTER GP, LLC, a Delaware limited liability company (“OCGP”
and, together with OC, the “Subs”) and SEA BREEZE POWER CORP., a British Columbia
corporation (“SBX”) and BOUNDLESS ENERGY LLC, a Maine limited liability company
(“BE” and together with SBX, the “Overrun Protectors”). Borrower, Lender, General
Partner, Overrun Protectors and the Subs are referenced herein individually as a “Party”
and collectively as “Parties.”

          WHEREAS, Borrower, whose only limited partners are SBJF Holding Corp. a British Columbia
corporation and Boundless Energy NW, Inc., a Delaware corporation (together, the “Limited
Partners”), and whose general partner is General Partner, was created to develop a 550 MW High
Voltage Direct Current (HVDC Light TM ) submarine transmission links spanning
the Strait of Juan de Fuca connecting the city of Victoria on the southern tip of Vancouver Island,
British Columbia, Canada to Port Angeles, Washington State, U.S.A., across a distance of
approximately 36km (21.6 miles) or an alternative route approved by the Lender herein connecting
Greater Victoria on Vancouver Island to the Olympic Peninsula (the “Project”),

          WHEREAS, Borrower desires that Lender make certain loans to Borrower to finance, on an interim
basis, the development of the Project and Lender is willing to make such loans to Borrower, on the
terms set forth herein and the related loan documents;

          WHEREAS, each Limited Partner and General Partner will benefit from the making of such loans
to Borrower and, accordingly, are making certain representations and warranties to Lender and
pledging their interests in Borrower as security for such loans;

          WHEREAS, each of the Subs will benefit from the making of such loans to Borrower, and,
accordingly, are making certain representations and warranties to Lender and guaranteeing such
loans and granting a security interest to Borrower as security for such loans;

          WHEREAS, each of the Overrun Protectors will benefit from the making of such loans to
Borrower, and, accordingly, are agreeing to provide certain protections to Lender in the event of
cost overruns by Borrower as set forth herein;

          NOW, THEREFORE, in consideration of the terms and conditions contained herein, and of any
extensions of credit heretofore, now or hereafter made by Lender, the Parties hereto agree as
follows:

SECTION 1. DEFINITIONS

          1.1 Certain Defined Terms. When used herein, the following terms shall have the
following meanings:

 

 

          “Advance”: Each partial advance of the Loans made by Lender to Borrower under Section
2.4 of this Agreement, including the Initial Advance.

          “Advance Request”: as defined in Section 2.4(d) of this Agreement.

          “Affiliate”: With respect to any Person, any other Person (a) directly or indirectly
controlling, controlled by or under direct or indirect common control with such Person; (b)
directly or indirectly owning or holding any equity interest or other economic interest or benefit
in such Person in excess of five percent (5%); or (c) in which such Person directly or indirectly
controls any voting stock or other equity interest in excess of five percent (5%). For purposes of
this definition, “control” (including with correlative meanings, the terms “controlling,”
“controlled by,” and “under common control with”) means the possession directly or indirectly of
the power to direct or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise. Notwithstanding the
foregoing, neither the Lender nor or its investors or participants shall be deemed to be an
Affiliate of Borrower, any Sub, either Limited Partner or General Partner.

          “Agreement”: This Development Loan Agreement, including all Exhibits and Schedules
hereto, as the same may be from time to time amended, modified or supplemented.

          “Alternate Juan de Fuca Project”: as defined in Section 5.3(a) of this Agreement.

          “Authorized Officers”: The officers of Borrower, each Sub, each Overrun Protector or
General Partner, as applicable, who are authorized to execute the Loan Documents and any documents
to be delivered in connection with the Loan Documents on behalf of Borrower, such Sub, such Overrun
Protector or General Partner, as applicable.

          “Availability Period”: The period from and including the Effective Date to, but
excluding, the Maturity Date.

          “Available Financing Proceeds”: All proceeds of any debt and equity financing for the
Project that are available to Borrower on the Financial Closing Date to make the payments set forth
in Section 2.6 (c) of this Agreement, consistent with the terms and conditions governing such debt
and equity financing.

          “Bankruptcy Code”: Title 11 of the United States Code, as in effect from time to
time, or any successor thereto.

          “BE”: Boundless Energy LLC, a Maine limited liability company, and its
successors-in-interest.

          “Board of Directors”: The board of directors of the General Partner.

          “Borrower”: Sea Breeze Pacific Juan de Fuca Cable, LP, a Delaware limited partnership,
and its permitted successors-in-interest.

          “Borrower Certificate”: A certificate from an Authorized Officer of Borrower, to be
submitted with each Advance Request, certifying (i) as to compliance with all of the applicable

2

 

conditions precedent for an Advance under Section 3.2, (ii) that the development of the
Project is progressing in a reasonably satisfactory manner and in compliance with the Development
Milestone set forth on Schedule 1.3 and the Development Loan Budget, (iii) that to the best
knowledge of the Borrower after due inquiry, no event, circumstance or condition exists that could
reasonably be expected to prevent the Project from timely completing each of the Development
Milestones and achieving Financial Close within the Development Loan Budget, (iv) as to use of all
prior proceeds of the Loans previously funded; and (v) with respect to an Advance Request only, (a)
that each item of cost and expense to be funded with the Advance with respect to which such
certificate is being given has been or will be properly incurred in accordance with this Agreement
and the Development Loan Budget and (b) that the amount of the requested Advance plus any amounts
then on deposit in the Depositary Account do not exceed the amount of costs and expenses payable
under the Development Loan Budget during the thirty (30) day period commencing on the anticipated
date of the Advance.

          “Borrower Organizational Documents”: as defined in Section 3.1(f) of this Agreement.

          “Business Day”: A day on which commercial banks are open for business in New York
City, New York.

          “Change of Control”: The occurrence of any of the following events: (i) a merger or
consolidation of Borrower, any Sub, either Limited Partner or General Partner with or into any
Person or the merger of another Person with or into Borrower, any Sub, either Limited Partner or
General Partner, (ii) a sale, transfer, lease, or other disposition by Borrower, any Sub, either
Limited Partner or General Partner to any Person of all or substantially all of the assets of
Borrower, such Sub, such Limited Partner or General Partner in a single transaction or a series of
transactions, (iii) a tender offer, sale of voting securities by Borrower, any Sub, either Limited
Partner or General Partner or other event or series of events as a result of which more than 20% of
the voting securities of Borrower, any Sub, either Limited Partner or General Partner is acquired,
directly or indirectly, by any Person or group (as defined in Section 13(d)(3) of the Securities
and Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder as in
effect on the Effective Date) or (iv) the Permitted Holders shall no longer have the right to
elect, directly or indirectly, all of the members of the Board of Directors.

          “Code”: The Internal Revenue Code of 1986, as amended from time to time.

          “Collateral”: The collateral subject to the Liens of the Security Agreement,
Mortgages, Depositary Agreement, Sub Pledge Agreement or Pledge Agreement, and any Security
Document entered into pursuant to Section 5.1(n) of this Agreement, as applicable.

          “Commitment Fee”: A commitment fee payable to Lender in an amount equal to ten
percent (10%) of the Maximum Amount.

          “Construction Budget”: The Construction Budget for the Project, which is attached to
this Agreement as Schedule 1.1, as such document may be revised from time to time in
accordance with this Agreement, and which sets forth the budgeted construction and non-

3

 

construction costs and expenses (including, without limitation, all interest, fees, taxes and
other carrying costs) for the completion of the Project.

          “Default”: Any event, act or condition which with notice or lapse of time, or both,
would constitute an Event of Default.

          “Depositary Account”: The account of Borrower established and maintained pursuant to
the Depositary Agreement.

          “Depositary Agreement”: The Depositary Agreement, dated as of even date herewith,
among Borrower, Depositary Bank and Lender, substantially in the form of Exhibit B attached
hereto, which grants Lender a security interest in the Depositary Account, and all amounts from
time to time on deposit therein.

          “Depositary Bank”: HSBC, together with its successors and assigns.

          “Development Loan Budget”: The Development Loan Budget for the Project, which is
attached to this Agreement as Schedule 1.2, as such document may be revised from time to
time solely in accordance with Section 5.1(k) of this Agreement, and which sets forth the budgeted
costs and expenses and the anticipated dates of Advances for the further development of the Project
from March 10, 2005 until September 30, 2006.

          “Development Milestone Schedule”: The Development Milestone Schedule for the Project,
which is attached to this Agreement as Schedule 1.3, which sets forth the Development
Milestones.

          “Development Milestones”: The specific milestones to be achieved in connection with
the further development of the Project, as identified in the Development Milestone Schedule.

          “Disbursement Date”: as defined in Section 2.4(d) of this Agreement.

          “Effective Date”: The date this Agreement is executed by the Parties, as first
written above.

          “Employee Benefit Plan”: The term “Employee Benefit Plan” means any employee benefit
plan within the meaning of Section 3(3) of ERISA that (a) is maintained for employees of Borrower
or any of its ERISA Affiliates or (b) has at any time within the preceding six (6) years been
maintained for the employees of Borrower or any current or former ERISA Affiliate, as well as any
Multiemployer Plan under ERISA.

          “Environmental Indemnity Matters”: as defined in Section 5.1(c) of this Agreement.

          “Environmental Laws”: Any and all Laws (including common laws) pertaining to human
health, safety and environment resource protection or property transfer in any and all
jurisdictions in which Borrower or any of its Subsidiaries is operating or conducting business, or
where any real property of Borrower or any of its Subsidiaries is located or where any Hazardous
Substances generated by or disposed of by Borrower or any of its Subsidiaries are located,

4

 

including, without limitation, the Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980 (“CERCLA”), as amended, the Federal Water
Pollution Control Act, as amended, the Resource Conservation and Recovery Act of 1976
(“RCRA”), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control
Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the National
Environmental Policy Act, the Endangered Species Act and the National Historic Preservation Act,
and any other federal, state, regional or local environmental conservation or protection Laws as
each may from time to time be amended or supplemented.

          “EPC Contract”: That certain Engineering, Procurement and Construction Contract to be
entered into by Borrower with respect to the design and construction of the Project in form and

substance satisfactory to Lender and with a party or parties acceptable to Lender.

          “Equity Agreements”: Those certain agreements entered into pursuant to the terms of
the Equity Term Sheet.

          “Equity Term Sheet”: That certain term sheet entered into simultaneously with this
Agreement by and between Borrower and Lender pursuant to which Lender has a legally binding option,
but not an obligation, to be an equity investor in the Project consistent with the terms set forth
in such term sheet.

          “ERISA”: The term “ERISA” means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor statute and all rules and regulations promulgated
thereunder.

          “ERISA Affiliate”: The term “ERISA Affiliate,” as applied to the Borrower, means any
Person that is a member of a group that is under common control with the Borrower, which together
with the Borrower is treated as a single employer within the meaning of Section 414(b), (c), (n),
or (o) of the Code.

          “Event of Bankruptcy”: With respect to any Person, the occurrence of any of the
following events:

     (i) the commencement by such Person of a voluntary case concerning itself under the
Bankruptcy Code or similar Law;

     (ii) an involuntary case is commenced against such Person and the petition is not
converted within ten (10) days, or is not dismissed within sixty (60) days, after
commencement of the case;

     (iii) a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge
of, all or substantially all of the property of such Person or such Person commences any
other proceedings under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar Law of any jurisdiction whether
now or hereafter in effect relating to such Person or there is commenced against such Person
any such proceeding which remains undismissed for a period of sixty (60) days;

5

 

     (iv) the entrance of any order of relief or other order approving any such case or
proceeding involving such Person;

     (v) such Person is adjudicated insolvent or bankrupt;

     (vi) such Person suffers any appointment of any custodian or the like for it or any
substantial part of its property which continues undischarged or unstayed for a period of
sixty (60) days;

     (vii) such Person makes a general assignment for the benefit of creditors;

     (viii) such Person shall fail to pay, or shall state that it is unable to pay, or shall
be unable to pay, its debts generally as they become due;

     (ix) such Person shall by any act or failure to act consent to, approve of or acquiesce
in any of the foregoing; or

     (x) any partnership, limited liability company or corporate action, as the case may be,
is taken by such Person for the purpose of effecting any of the foregoing.

          “Event of Default”: as defined in Section 6.1 of this Agreement.

          “Financial Closing Date” or “Financial Close”: The date upon which Borrower executes
definitive documentation with a lender or lenders for construction financing for the Project and
all conditions for the initial funding thereunder have been satisfied or waived and the initial
funding shall have occurred thereunder.

          “FPA”: The Federal Power Act, as amended.

          “Funding Date”: as defined in Section 2.4(d) of this Agreement.

          “GAAP”: United States generally accepted accounting principles consistently applied.

          “General Partner”: Juan de Fuca Cable Management, Inc., a Delaware corporation, and
its permitted successors-in-interest, which is the sole general partner of Borrower.

          “General Partner Organizational Documents”: as defined in Section 3.1(f) of this
Agreement.

          “Governmental Authority”: Any nation, state, sovereign or government, any federal,
regional, state, province, local or political subdivision and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining to government.

          “Guarantee”: The Guarantee and Subordination Agreement dated as of even date herewith,
made by the Subs and Sea Breeze in favor of Lender, substantially in the form of Exhibit C
attached hereto, which unconditionally guarantees full and punctual payment and performance of the
Obligations.

6

 

          “Hazardous Substance”: Any pollutant, contaminant, hazardous substance, hazardous
waste, toxic substance, petroleum or petroleum-derived substance, waste, or additive, asbestos,
asbestos-containing materials, polychlorinated biphenyls, radioactive material, or other compound,
element, chemical material or substance in any form whatsoever (including products) regulated,
restricted, defined or controlled by or under or for which liability may be imposed under any
Environmental Law.

          “Indebtedness”: Without duplication, (i) all obligations of any Person for borrowed
money or for the deferred purchase price of property or services (other than trade payables on
terms of sixty (60) days or less incurred in the ordinary course of business of such Person for the
purposes described, and terms set forth, in the Development Budget but only to the extent paid on
such terms), (ii) all obligations of such Person evidenced by a note, bond, debenture or similar
instrument, (iii) all obligations of such Person under capital leases or synthetic leases, (iv) the
stated amount of all letters of credit issued for the account of such Person and, without
duplication, all unreimbursed amounts drawn thereunder, (v) all Indebtedness of any other Person
secured by any Lien on any property owned by such Person, whether or not such Indebtedness has been
assumed, (vi) all obligations of such Person under any interest rate protection agreement and any
currency swap or similar agreement, and (vii) all contingent obligations of such Person
guaranteeing or intended to guarantee, or otherwise providing or intending to provide assurance
against loss in respect of, any Indebtedness, leases, dividends or other obligations of any other
Person.

          “Indemnified Liabilities”: as defined in Section 7.12 of this Agreement.

          “Indemnified Party”: as defined in Section 5.1(c) of this Agreement.

          “Independent Engineer”: Stone & Webster, or such other Person selected by Lender to
act as Independent Engineer hereunder and, provided no Event of Default has occurred and is
continuing, reasonably acceptable to Borrower.

          “Initial Advance”: The initial advance of the Loans to be made by Lender to Borrower
under Section 2.4(b) of this Agreement.

          “Initial Overrun Amount”: as defined in Section 5.3(c)(i) of this Agreement.

          “Insurance Policies”: The insurance policies described in Section 5.1(f) of this
Agreement.

          “Key Management Personnel”: The following management personnel of Borrower: E. John
Tompkins, Tony Duggleby, Brian Chernack, Mike Wise, Paul Manson, and any person who shall hereafter
become a member of Borrower’s Key Management Personnel pursuant to the Management Plan or
otherwise.

          “Law”: With respect to any Governmental Authority, any constitutional provision, law,
statute, code, rule, regulation, ordinance, treaty, order, decree, writ, judgment, decision,
certificate, holding, determination, injunction, Project Permit or requirement of such Governmental
Authority along with the interpretation and administration thereof by any Governmental Authority
charged with the interpretation or administration thereof. Unless the

7

 

context clearly requires otherwise, the term “Law” shall include each of the foregoing (and
each provision thereof) as in effect at the time in question, including any amendments,
supplements, replacements, or other modifications thereto or thereof, and whether or not in effect
at the date of this Agreement.

          “Lender”: United States Power Fund, L.P., and its permitted successors and assigns.

          “Lender Affiliate”: With respect to Lender, any other Person directly or indirectly
controlling, controlled by or under direct or indirect common control with Lender. For purposes of
this definition, “control” (including with correlative meanings, the terms “controlling,”
“controlled by,” and “under common control with”) means the possession directly or indirectly of
the power to direct or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

          “Lender Expenses”: as defined in Section 2.1 of this Agreement.

          “Lien”: Any mortgage, lien (statutory or other), pledge, hypothecation, assignment,
security interest, title-retention arrangement, mandatory deposit arrangement, encumbrance, or
other security agreement of any kind or nature whatsoever (including without limitation, any
conditional sale or other title-retention agreement, any sale of receivables or any capital lease),
and the filing of any financing statement under the UCC or comparable law of any jurisdiction in
respect of any of the foregoing.

          “Limited Partners”: means SBJF Holding Corp., a British Columbia corporation, and its
permitted successors-in-interest, and Boundless Energy NW, Inc., a Delaware corporation, and its
permitted successors-in-interest, which are the only limited partners of Borrower.

          “Loans”: as defined in Section 2.1 of this Agreement.

          “Loan Documents”: This Agreement, the Note, the Security Documents, the Equity Term
Sheet, the Equity Agreement and all other instruments, documents or other writings now or hereafter
executed by Borrower, either Sub, either Limited Partner, General Partner, either Overrun Protector
or Sea Breeze with respect to the Loans, or pertaining to or as security for the payment and
performance of the Obligations, including without limitation those certain Asset Assignment
Agreements and Bills of Sale dated as of the date hereof pursuant to which Sea Breeze is
transferring its assets to Borrower and OC.

          “LTCA”: those certain long-term transmission capacity agreement or agreements in
respect of the Project, all in form and substance satisfactory to Lender with a party or parties
acceptable to Lender.

          “Management Plan”: as defined in Section 3.1(k) of this Agreement.

          “Material Adverse Effect”: Any material adverse effect upon (i) the business,
operations, properties, assets or condition (financial or otherwise) of Borrower or the Project (in
each case taking into account the development status of the Project), (ii) the ability of Borrower
to perform any of its Obligations under the Loan Documents, (iii) the validity, perfection and
enforceability of the Liens granted under the Loan Documents, or (iv) the ability of Lender to

8

 

enforce any of the Obligations or any of its material rights and remedies under the Loan
Documents.

          “Material Impairment”: A reduction in the Project DCF amounting to more than
$5,000,000 from the Project DCF reflected in the Project Pro Formas, as a result of increases in
the Construction Budget, decreases in anticipated revenues from the Project, increases in
anticipated costs (including operating costs, interest expense and taxes), changes to the
construction schedule of the Project, changes in the anticipated timing of receipt of anticipated
revenues from, or the payment of anticipated costs of, the Project or any combination of the
foregoing, in all cases calculated for the period commencing on the anticipated Financial Closing
Date and using the same methodology and macro-economic assumptions utilized in the Project Pro
Formas.

          “Material Party”: the purchaser pursuant to a LTCA.

          “Maturity Date”: The earliest of (i) the Financial Closing Date, (ii) June 30, 2007
and (iii) the date on which the Obligations became immediately due and payable pursuant to Section
6.2 of this Agreement. Notwithstanding the foregoing, in the event that the Financial Closing Date
is delayed solely as a result of Lender’s failure to close its purchase of the Investor Allocation
(as defined in the Equity Term Sheet) after exercising its Option, then the date set forth in
subsection (ii) in the previous sentence shall be extended to December 30, 2007.

          “Mortgage”: Each Mortgage, Security Agreement, Assignment of Rents and Leases, to be
made by Borrower or any of its Subsidiaries, as applicable, from time to time (pursuant to Section
5.1(m) of this Agreement) of this Agreement in favor of Lender, in a form satisfactory to Lender,
which grants Lender a secured lien in all of the rights and interest of Borrower or any of its
Subsidiaries, as applicable, in all of the real property, used or to be used in connection with the
Project, and whether now owned or hereafter acquired by Borrower or any of its Subsidiaries, as
applicable.

          “Multiemployer Plan”: The term “Multiemployer Plan” means a “multiemployer plan” as
defined in Section 4001(a)(3) of ERISA to which Borrower or any ERISA Affiliate is making, or is
accruing an obligation to make, contributions or has made, or has been obligated to make,
contributions within the preceding six (6) years.

          “Non-Achievement Notice” as defined in Section 5.3(c)(iii) of this Agreement.

          “Note”: as defined in Section 2.2 of this Agreement.

          “Note Schedule”: The schedule attached to the Note, on which will be recorded the
amount of each Advance, the date of each Advance and the total outstanding principal balance of the
Loans from time to time.

          “Obligations”: All of Borrower’s and all of the Overrun Protectors’ liabilities,
obligations and indebtedness from time to time owing to Lender under the Loan Documents of any and
every kind and nature, including, without limitation, the obligations of Borrower under the
indemnities contained in Section 5.1(c) and Section 7.12 of this Agreement and the obligations of
the Overrun Protectors under Section 5.3(a), the Commitment Fee, all principal of

9

 

and interest on the Advances, charges, expenses and other sums chargeable to Borrower by
Lender, arising under this Agreement, the Note or the other Loan Documents whether heretofore, now
or hereafter owing, arising, due or payable from Borrower to Lender and howsoever evidenced,
created, incurred, acquired or owing, whether primary, secondary, direct, contingent, fixed or
otherwise and any obligations of Borrower or either Overrun Protector for any breach of the
representations and warranties set forth herein or in the other Loan Documents.

          “OC”: Olympic Converter, LP, a Delaware limited partnership and wholly owned
subsidiary of Borrower.

          “OCGP”: Olympic Converter GP, LLC, a Delaware limited liability company and wholly
owned subsidiary of Borrower.

          “Option”: The option of Lender to be an equity investor in the Project pursuant to
the terms set forth in the Equity Term Sheet.

          “Overrun Amount”: as defined in Section 5.3(c)(ii) of this Agreement.

          “Overrun Budget”: as defined in Section 5.3(c)(iii) of this Agreement.

          “Overrun Protectors”: as defined in the preamble of this Agreement.

          “Overrun Protectors Organizational Documents”: as defined in Section 3.1(f) of this
Agreement.

          “Partnership Interest”: Ownership interests in that certain limited partnership that
is the Borrower named herein.

          “Party” or “Parties”: as defined in the preamble to this Agreement.

          “Permitted Debt”: Indebtedness of Borrower for borrowed money in an aggregate
principal amount of $50,000 or less and which Indebtedness is (i) subordinated to the Obligations
on terms and conditions acceptable to the Lender, (ii) the proceeds of which are used solely to pay
budgeted costs and expenses under the Development Loan Budget, (iii) initially incurred at such
times as no Event of Default has occurred and is continuing and (iv) which is unsecured and
non-participating (i.e., which has no return thereon which is based on Borrower’s performance (such
as “equity kickers”)) and in connection with which the holder thereof and its Affiliates have no
rights or obligations to obtain or provide any equity or other interest, direct or indirect in
Borrower.

          “Permitted Holders”: Boundless Energy NW, Inc., a Delaware corporation, SBJF Holding
Corp., a British Columbia corporation and the Lender.

          “Permitted Lien”: Any inchoate: (i) Liens for ad valorem property taxes or
assessments or other governmental charges, as long as such taxes and assessments are timely paid
and discharged or the validity, applicability or amount thereof is being contested in good faith by
appropriate proceedings that will prevent the forfeiture or sale of any property of Borrower or
any of its Subsidiaries or any interference with the use thereof by Borrower or any

10

 

of its Subsidiaries and for which adequate reserves have been established in accordance with
GAAP, (ii) mechanic’s and materialmen’s Liens for obligations not yet due and payable, (iii) other
statutory Liens incurred in the normal course of business, (iv) real estate Liens or encumbrances
(other than for borrowed money) that do not interfere with the intended use of the property, and
(v) landlord’s Liens for rentals not yet past due and payable.

          “Person”: Any individual, sole proprietorship, partnership, limited liability
company, joint venture, trust, unincorporated organization, association, corporation, institution,
entity, party or Governmental Authority.

          “Pledge Agreement”: The Pledge and Security Agreement, dated as of even date
herewith, by and among each Limited Partner, General Partner and Lender, substantially in the form
of Exhibit D attached hereto, which grants Lender a security interest in each Limited
Partner’s Partnership Interest and General Partner’s Partnership Interest (which comprises all of
the Partnership Interests).

          “Principal”: as defined in Section 2.1 of this Agreement.

          “Process Agent”: as defined in Section 7.7(e) of this Agreement.

          “Project”: as defined in the recitals to this Agreement.

          “Project Assets”: as defined in Section 3.1(o) of this Agreement.

          “Project Contracts”: The following contracts and agreements entered into by Borrower
or any of its Subsidiaries from time to time: (i) the EPC Contract; (ii) the LTCAs; (iii) those
contracts and agreements described on Schedule 1.4 to this Agreement, (iv) any Real Estate
Rights, (v) all interconnection agreements required for the Project; (vi) any contract or agreement
which provides for payments of more than $100,000, (vii) any contract or agreement that is not by
its terms terminable by Borrower upon not more than ninety (90) days’ notice without penalty or
other liability to Borrower and (viii) any other contract or agreement that is material with
respect to the construction, operation, maintenance or ownership of the Project.

          “Project DCF”: Discounted cash flows to the Investor Allocation (as defined in the
Equity Term Sheet) for a period of twenty (20) years calculated using the same methodology utilized
in the Project Pro Formas and a discount rate of fifteen percent (15%) per annum based upon an
assumed capitalization of Borrower from and after the Financial Closing Date of eighty percent
(80%) senior secured indebtedness and twenty percent (20%) Investor Allocation, calculated from the
period commencing on the anticipated Financial Closing Date.

          “Project Permit”: Any authorization, consent, license, ruling, approval, permit,
exemption, consultation, filing, certificate, registration or license by or with any Governmental
Authority issued or anticipated to be issued to Borrower or any of its Subsidiaries in respect of
the Project or otherwise, including those listed on Schedule 1.5 to this Agreement.

          “Project Pro Formas”: as attached as Schedule 1.6 to this Agreement.

          “PUHCA”: The Public Utility Holding Company Act of 1935, as amended.

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          “Real Estate Rights”: All rights-of-way, easements, and other real property rights,
together with any agreement related thereto, relating to the Project.

          “Release”: Any release, pumping, pouring, emptying, injecting, escaping, leaching,
migrating, dumping, seepage, spill, flow, leak, discharge, disposal or emission.

          “SBX”: Sea Breeze Power Corp., a British Columbia corporation, and its
successors-in-interest.

          “Sea Breeze”: Sea Breeze Pacific Regional Transmission Systems, Inc., and its
successors and assigns.

          “Security Agreement”: The Security Agreement, dated as of even date herewith, made by
Borrower, each Sub and Sea Breeze in favor of Lender, substantially in the form of Exhibit
E attached hereto, which grants Lender a Lien on and security interest in all of Borrower’s,
each Sub’s and Sea Breeze’s personal property, whether tangible or intangible, and whether now
owned or hereafter acquired by Borrower, either Sub or Sea Breeze.

          “Security Documents”: The Security Agreement, the Guarantee, the Mortgages, the
Depositary Agreement, the Sub Pledge Agreement and the Pledge Agreement and any other document
entered into pursuant to Section 5.1(n) of this Agreement.

          “Status Report”: as defined in Section 5.1(e)(iv) of this Agreement.

          “Subs”: as defined in the preamble of this Agreement.

          “Sub Pledge Agreement”: The Pledge and Security Agreement, dated as of even date
herewith, by and between Borrower and Lender, in the form of Exhibit F attached hereto,
which grants Lender a security interest in Borrower’s limited liability company interests in OCGP,
Borrower’s limited partnership interests in OC.

          “Subsidiary”: With respect to any Person, any corporation or other entity of which at
least a majority of the outstanding shares of stock or other ownership interests having by the
terms thereof ordinary voting power to elect a majority of the board of directors (or Persons
performing similar functions) of such corporation or entity (irrespective of whether or not at the
time, in the case of a corporation, stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries or by
such Person and one or more of its Subsidiaries.

          “Subs Organizational Documents”: as defined in Section 3.1(f) of this Agreement.

          “Subsidiary Organizational Documents”: as defined in Section 5.1(n) of this
Agreement.

          “UCC”: The Uniform Commercial Code as in effect in the State of New York and/or any
other jurisdiction, the laws of which may be applicable to the creation, perfection or priority of
any Lien on any Collateral created pursuant to any Security Document.

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          “USPF”: United States Power Fund, L.P., and its permitted successors-in-interest as
Lender and owner and holder of its Note.

          1.2 Accounting Terms and Certain Principles of Interpretation.

          (a) All accounting terms used in this Agreement, whether or not defined in this Section 1,
shall, except as otherwise provided for herein, be construed in accordance with GAAP.

          (b) Defined terms in this Agreement shall include in the singular number the plural and in the
plural number the singular.

          (c) The words “hereof,” “herein” and “hereunder” and words of similar import when used in this
Agreement shall, unless otherwise expressly specified, refer to this Agreement as a whole and not
to any particular provision of this Agreement and all references to Sections, Exhibits and
Schedules shall be references to Sections, Exhibits and Schedules of this Agreement unless
otherwise expressly specified.

          (d) Unless otherwise expressly specified, any agreement, contract, or document defined or
referred to herein shall mean such agreement, contract or document in the form (including all
amendments and clarification letters relating thereto) delivered to the Lender on the Effective
Date as the same may thereafter be amended, supplemented, or otherwise modified from time to time
in accordance with the terms of this Agreement.

          (e) The words “include,” “includes” and “including” are not limiting.

          (f) The word “or” is not exclusive.

          (g) Unless otherwise expressly provided, a reference to any Person or Persons shall be
construed as a reference to any permitted successors and assigns of such Person or Persons.

SECTION 2. LOAN

          2.1 Commitment. Subject to and upon the terms and conditions hereof, and upon
satisfaction of the conditions precedent set forth in Section 3.1 and Section 3.2 hereto, the
Lender agrees to make Advances (the “Loans”) to Borrower from time to time during the
Availability Period (but not more frequently than once per calendar month) in an aggregate
principal amount up to, but not in excess of, Eight Million Dollars ($8,000,000) (the “Maximum
Amount”). The aggregate principal amount of the Advances and the aggregate accrued costs and
expenses pursuant to Section 7.2 (the “Lender Expenses”) shall together be deemed the
principal of the Loans (the “Principal”), it being understood that Lender’s payment of the
Lender Expenses shall be treated as Advances under the Loan but shall not reduce the Maximum
Amount.

          2.2 Promissory Note for Loans. The Loans made by the Lender shall be evidenced by,
and shall be due and payable in accordance with the terms of, a promissory note executed by
Borrower in favor of Lender in an amount equal to the aggregate amount of Loans committed to under
Section 2.1, substantially in the form of Exhibit A attached hereto (the “Note”).
The Initial Advance shall be evidenced on the Note Schedule delivered on the Effective Date, and
all

13

 

Advances subsequent to the Initial Advance shall be evidenced by notations thereof made on the
Note Schedule by the Lender. At the time of each Loan, the Lender is hereby authorized to make a
notation on the Note Schedule attached to the Note as to the date and the amount of such Loan. At
any time, the Lender is hereby authorized to make a notation on the Note Schedule attached to the
Note of any Lender Expenses. The principal amount shown on the Note Schedule shall be
prima facie evidence of the outstanding principal amount of each such Advance and
the Lender Expenses. Failure to make any such notation shall not limit or otherwise affect the
obligations of Borrower under this Agreement or under the Note.

          2.3 Use of Proceeds. All proceeds of the Loans shall be used by Borrower solely to
pay Borrower’s costs and expenses incurred in the development of the Project and in accordance with
the Development Loan Budget, and in any case shall be used only for legal and proper purposes which
are consistent with all applicable Laws; provided, that such proceeds shall not be used to pay or
reimburse any such costs and expenses incurred by Borrower or any Affiliate of Borrower prior to
the Effective Date.

          2.4 Advances.

          Subject to and upon the terms and conditions set forth in this Agreement and upon satisfaction
of the conditions precedent set forth in Section 3.1 and Section 3.2 hereto, as applicable:

          (a) Lender shall make Advances to Borrower of the proceeds of the Loans, by deposit of such
proceeds in the Depositary Account, as follows: (i) the Initial Advance, in accordance with
Section 2.4(b), and (ii) the subsequent Advances, in accordance with the procedures set forth in
Section 2.4(d).

          (b) The Initial Advance in the aggregate amount of Two Million Five Hundred Thousand Dollars
($2,500,000) shall be made by the Lender in a series of monthly Advances beginning on the Effective
Date. The dates, amounts, and detailed description of Borrower’s use of proceeds of each such
monthly Advance shall be set forth on Schedule 2.4(b); provided that Borrower may not use
more than Eight Hundred Twenty-Five Thousand Dollars ($825,000) in the aggregate of the Initial
Advance to fund internal costs of the Borrower. On the Effective Date and thereafter on the tenth
(10th) Business Day of each month following the month during which the Effective Date
occurs until the entire Initial Advance has been advanced by Lender, Borrower shall provide Lender
with: (i) a draw certificate in the form attached as Exhibit G hereto, setting forth (A)
the amount of the Initial Advance requested to be advanced by Lender and used in such month, (B) a
detailed description and budget of Borrower’s intended use of such proceeds, all of which shall be
in accordance with Schedule 2.4(b) (which description shall be deemed to be a covenant
under this Agreement by Borrower to Lender of Borrower’s use of such proceeds), (C) other than in
respect of the amount to be advanced on the Effective Date, a description of Borrower’s use of the
proceeds for the prior month’s advanced amount (which description shall be deemed to be a
representation under this Agreement by Borrower to Lender of Borrower’s use of such proceeds), (D)
a list of the Development Milestones achieved as of the date of such draw certificate (which list
shall be deemed to be a representation under this Agreement by Borrower to Lender of Borrower’s
achieved Development Milestones) and (E) evidence attached to such draw certificate satisfactory to
the Lender demonstrating the

14

 

achievement of any such Development Milestones; (ii) a Status Report; (iii) a reconciliation
of the Development Loan Budget and the use of prior amounts advanced and the anticipated uses of
the requested draw of the Initial Advance; and (iv) all other information or evidence reasonably
requested by Lender in connection with the Initial Advance (which information will be provided
promptly upon request, including when requested after delivery by Borrower of any of the materials
set forth in this Section 2.4(b)).

          (c) Notwithstanding anything herein to the contrary, in the event the Borrower’s intended use
of proceeds, or Borrower’s actual use of proceeds, set forth in a draw certificate delivered to
Lender does not meet the use of proceeds description set forth in Schedule 2.4(b) for the
applicable portion of the Initial Advance or in the event that as of the requested date of the
advance of the portion of the Initial Advance or the requested date of an Advance, as applicable,
Borrower has not achieved the Development Milestones to be achieved as of such date, Lender shall
not be obligated to fund any additional draws from the Initial Advance or any other Advance of the
Loans.

          (d) With respect to each Advance of the Loans (other than the Initial Advance) requested in
accordance with the Development Loan Budget, Lender shall receive written notice (an “Advance
Request”) from Borrower by 10:00 a.m. New York City time at least twenty (20) days prior to the
date of such Advance. Each Advance Request shall be for no less than Two Hundred Fifty Thousand
Dollars ($250,000) and Borrower may only make one Advance Request every two calendar months;
provided, however, that to the extent Borrower requests Advances on a quarterly basis rather than
every two months, Lender may alter the frequency of such Advances in Lender’s sole discretion. In
each Advance Request, Borrower shall (i) specify the aggregate amount of the Advances requested
from Lender, (ii) include a Status Report, (iii) provide evidence satisfactory to the Lender
demonstrating the achievement of any Development Milestones which are required pursuant to Section
3.2 to have been achieved by the relevant Funding Date, (iv) provide a reconciliation of the
Development Loan Budget and the use of prior Advances and the anticipated uses of the requested
Advance, (v) provide a detailed description and budget of Borrower’s intended use of the proceeds
from the requested Advance which shall be subject to the satisfaction of Lender (and which
description shall be deemed to be a covenant under this Agreement by Borrower to Lender of
Borrower’s use of such proceeds), and (vi) all other information or evidence reasonably requested
by Lender in connection with the Advances (which information will be provided promptly upon
request, including when requested after issuance of such Advance Request). Notwithstanding
anything herein to the contrary, (x) any internal costs of Borrower set forth in Borrower’s
intended use of proceeds in any Advance Request shall comply with Schedule 2.4(d) and no
portion of an Advance shall be used for any internal costs which deviate therefrom or for any
internal or development costs for which Sea Breeze will be seeking reimbursement under Section
2.6(c)(ii) and (y) in no case shall more than Three Million Seven Hundred and Fifty Thousand
Dollars ($3,750,000) in the aggregate of the proceeds of the Loans (including the Initial Advance)
be used to fund any internal costs of the Borrower. Each Advance Request shall be accompanied by a
Borrower Certificate, dated as of the relevant Funding Date. Provided that Borrower has complied
with the conditions set forth in Section 3.2, not later than 12:00 noon, New York City time, on the
twentieth (20th) day after the delivery of the Advance Request and Borrower Certificate (the
“Funding Date”), the Lender shall disburse the requested Advance in Dollars in immediately
available funds into the Depositary Account (such date of disbursement, the “Disbursement
Date”).

15

 

          2.5 Interest.

          (a) From the relevant Funding Dates until paid in full, the outstanding Principal balance of
the Loans shall bear interest at a rate of twenty percent (20%) per annum, compounded annually.

          (b) Interest under this Agreement shall be calculated on the basis of a year of 365 days for
the actual number of days elapsed during the period for which interest is calculated. Interest
shall be so calculated with respect to each day during such period by multiplying the outstanding
Principal balance of the Loans on such day at the close of business on such day by a daily interest
factor, which interest factor shall be calculated by dividing the interest rate per annum in effect
on such day with respect to such Loans by 365.

          (c) It is the intention of the Parties to conform strictly to applicable usury laws and,
anything herein or elsewhere to the contrary notwithstanding, the Obligations shall be subject to
the limitation that Borrower shall not be required to pay, and Lender shall not be entitled to
charge or receive, any interest to the extent that such interest exceeds the maximum rate of
interest which Lender is permitted by applicable Law to contract for, charge or receive and which
would not give rise to any claim or defense of usury. If, as a result of any circumstances
whatsoever, performance of any provision hereof shall, at the time performance of such provision is
due, violate applicable usury law, then, ipso facto, the obligation to be performed shall be
reduced to the highest lawful rate, and if, from any such circumstance, Lender shall ever receive
interest or anything which might be deemed interest under applicable Law which would exceed the
highest lawful rate, the amount of such excess interest shall be applied to the reduction of the
Principal amount owing on account of the Note or the amounts owing on other Obligations and not to
the payment of interest, or if such excessive interest exceeds the unpaid principal balance of the
Obligations, such excess shall be refunded to Borrower.

          2.6 Repayment.

          (a) Borrower shall have no obligation to make any payment of Principal or interest on the
Loans, or in respect of any Obligation (other indemnity obligations pursuant to Section 7.12 of
this Agreement), prior to the Maturity Date.

          (b) On the Maturity Date, the following Obligations shall become due and payable by Borrower
to Lender: (i) outstanding Principal of the Loans, (ii) accrued interest on the Loans, (iii) the
Commitment Fee and (iv) any other accrued and unpaid Obligations (other than indemnity obligations
pursuant to Section 5.1(c) and Section 7.12 of this Agreement or any other Obligation which has not
been finally liquidated in amount, which shall become due and payable as provided in such Sections
or otherwise in this Agreement).

          (c) Borrower and Lender agree that on the Financial Closing Date, the Available Financing
Proceeds shall be used by Borrower to make the following payments in the following order of
priority:

     (i) Lender shall receive full payment of the amounts set forth in Section 2.6(b) and any
other accrued and unpaid Obligations;

16

 

     (ii) Sea Breeze shall receive full reimbursement of its reasonable, documented
unreimbursed development expenses in connection with the Project, which expenses (1) are
expressly set forth on Schedule 2.6 and (2) are in compliance with Schedule
2.4(d) and Schedule 1.2, which expenses were previously provided to Lender in a
monthly report pursuant to Section 5.1(e)(vii) and which are approved by the Lender in its
sole discretion.

     (iii) The Overrun Protectors shall receive full reimbursement of the Overrun Amount made
by the Overrun Protectors in the proportion made by SBX and BE, respectively; provided,
however, that it shall be the responsibility of the Overrun Protectors to provide Borrower
with the proportional amount due to each Overrun Protector; provided, further, that in the
event that the Overrun Protectors do not provide Borrower with such proportionate amounts
prior to the Funding Closing Date, Borrower shall be entitled to pay the entire Overrun
Amount due to either Overrun Protector and shall have no further obligation to either Overrun
Protector hereunder; and

     (iv) SBX and BE shall receive full payment of their development fee, in the amount of
$5,000,000 each.

     (v) To the extent the lenders under the construction financing do not approve any
amounts under the preceding Sections 2.6(c)(ii)-(iv) or any fees paid by Borrower to any
investment bankers or financial advisors, then any amounts to be received by Sea Breeze, SBX
or BE under this Section 2.6(c) shall be reduced dollar for dollar in proportion to such
amounts not approved by the lenders under the construction financing.

          (d) All payments made by Borrower shall be made irrespective of, and without any reduction
for, any set-offs or counterclaims.

          For purposes of clarity, in no case shall Borrower be reimbursed for any development expenses which
do not comply with Section 2.6(c)(ii).

          2.7 Prepayments. Borrower shall have the right to prepay the Loans made by Lender
hereunder, at par and without any premium, penalty or other additional charge, at any time;
provided, however, that any refinancing by Borrower required to prepay the Loans shall be in an
amount equal to or greater than that necessary to fully pay all amounts due under Section 2.6 and
to fully finance the Project, shall be with a party reasonably acceptable to Lender and shall be
subject to terms and conditions reasonably satisfactory to Lender. Borrower shall provide Lender
written notice of its intent to exercise its rights under this Section 2.7(a) at least five (5)
Business Days prior to taking such action. Any such prepayment shall be for the full amount of the
Loans made by Lender, together with all interest, fees, charges and other Obligations owing to
Lender. Upon any such prepayment, any remaining commitments of Lender under Section 2.1 shall
immediately terminate and Lender shall no longer be a Lender under this Agreement, without any
further action of the Parties. Notwithstanding anything herein to the contrary, upon any such
prepayment, the Option and all rights of Lender set forth in Section 3.1(r) and Section 5.3 shall
continue in full force and effect until the Option terminates pursuant to its terms.

17

 

SECTION 3. CONDITIONS PRECEDENT

          3.1 Conditions Precedent to Initial Advance. In addition to the requirements set
forth in Section 2.4(b) and Section 2.4(c), the obligation of Lender to make the Initial Advance to
Borrower under this Agreement on the Effective Date is subject to the determination by Lender that
the following conditions precedent have been fulfilled:

          (a) Note. Lender shall have received a Note duly executed by Borrower in an amount
equal to the aggregate amount of Loans committed to under Section 2.1.

          (b) Development Loan Agreement and Equity Term Sheet. Each of this Agreement and the
Equity Term Sheet shall have been executed and delivered on behalf of Borrower, each Sub, each
Overrun Protector and General Partner.

          (c) Security Documents. Each of the Security Agreement and Guarantee shall have been
duly executed and delivered by Borrower, each Sub and Sea Breeze. The Depositary Agreement shall
have been duly executed and delivered by Borrower and Depositary Bank. The Pledge Agreement shall
have been duly executed and delivered by each Limited Partner and General Partner. The Sub Pledge
Agreement shall have been duly executed and delivered by the Borrower. Lender shall have received
evidence satisfactory to Lender that the Lender has a valid and perfected first priority security
interest in all of the Collateral. Each of Borrower, each Sub, each Limited Partner and General
Partner shall have delivered to or caused to be delivered to Lender executed documents (including
the financing statements on Form UCC-1 and other applicable documents under the laws of any
jurisdiction with respect to the perfection of Liens) as Lender may deem necessary or advisable to
perfect its Liens in the Collateral. Lender shall have received certified copies of UCC search
reports listing all effective financing statements that name Borrower, each Sub, each Limited
Partner or General Partner as debtor and that are filed in the jurisdictions in which the
Collateral is located or in jurisdictions where a financing statement with respect to the
Collateral would properly be filed, together with copies of such other financing statements (none
of which shall cover the Collateral).

          (d) Representations and Warranties, Defaults and Judgments. Lender shall have
received a certificate, in form and substance satisfactory to Lender, executed by an Authorized
Officer of each of Borrower, each Sub, each Overrun Protector, each Limited Partner and General
Partner dated the Effective Date to the effect that: (i) the representations and warranties made
by Borrower, each Sub, each Overrun Protector, each Limited Partner and General Partner, as
applicable, in this Agreement, the Note and the other Loan Documents or which are contained in any
certificate, document or other statement of Borrower, each Sub, each Overrun Protector, each
Limited Partner or General Partner, as applicable, furnished at any time under or in connection
herewith or therewith shall be correct on and as of the Effective Date, and (ii) no Default or
Event of Default shall have occurred, or shall be believed to have occurred, and be continuing on
such date or after giving effect to the Advance to be made on such date or the application of the
proceeds thereof.

          (e) Proceedings. Lender shall have received certificates, in form and substance
satisfactory to Lender, executed by an Authorized Officer of Borrower, each Sub, each Overrun
Protector , each Limited Party, General Partner and Sea Breeze dated the Effective Date

18

 

indicating that each of Borrower, each Sub, each Overrun Protector, each Limited Partner,
General Partner and Sea Breeze, as applicable, has the limited partnership, limited liability
company, limited liability partnership or corporate, as applicable, power and authority to: (i)
execute, deliver and perform the Loan Documents to which it is a party, (ii) consummate the
transactions contemplated by the Loan Documents to which it is a party, (iii) in the case of
Borrower, become obligated with respect to the Loans under this Agreement, (iv) in the case of each
Sub and Sea Breeze, guarantee the Obligations under the Guarantee.

          (f) Documents. Each of Borrower, each Sub, each Overrun Protector, each Limited
Partner, General Partner and Sea Breeze, as applicable, shall have delivered to Lender in form and
substance satisfactory to Lender copies of:

     (i) the Certificate of Limited Partnership of Borrower, the Certificate of
Formation of OCGP, the Certificate of Limited Partnership of OC, the certificate of
incorporation for SBX, the certificate of limited liability partnership for BE, and the
Certificate of Incorporation General Partner and, for the Borrower, each Sub, each
Overrun Protector and General Partner, a certificate dated not more than fifteen (15)
days prior to the Effective Date stating that Borrower, such Sub, such Overrun Protector
or General Partner, as the case may be, is validly existing and in good standing on such
date, all certified by the secretary of state of the state of such Parties’ formation;

     (ii) the limited partnership agreement of Borrower, certified as of the Effective
Date by the secretary of Borrower;

     (iii) the limited partnership agreement of OC, certified as of the Effective Date
by the secretary of OC;

     (iv) the operating agreement of OCGP, certified as of the Effective Date by the
manager of OCGP;

     (v) the limited liability company agreement for BE, certified as of the Effective
Date by the manager of BE;

     (vi) the memorandum of SBX, certified as of the Effective Date by the secretary of
SBX;

     (vii) the bylaws of General Partner, certified as of the Effective Date, by the
secretary of Limited Partner or General Partner, as applicable,

     (viii) all requisite resolutions of Borrower, each Sub, each Overrun Protector,
each Limited Partner, General Partner and Sea Breeze and any other documents evidencing
all actions taken by Borrower, each Sub, each Overrun Protector, each Limited Partner,
General Partner and Sea Breeze, to authorize the execution and delivery of this
Agreement and any other Loan Document requiring execution by Borrower, each Sub, each
Overrun Protector, each Limited Partner, General Partner or Sea Breeze, as applicable,
such resolutions to be certified as of the Effective Date

19

 

by the secretary of Borrower, each Sub, each Overrun Protector, each Limited
Partner, General Partner or Sea Breeze, as the case may be; and

     (ix) certificates, certified as of the Effective Date by the secretary of the
Borrower, each Sub, each Overrun Protector, each Limited Partner, General Partner and
Sea Breeze, as the case may be, setting forth the name and signature of each Authorized
Officer (Lender may rely conclusively on such certification until it receives notice in
writing to the contrary).

All of the foregoing documents relating to Borrower shall hereinafter be referred to as
“Borrower Organizational Documents”; all of the foregoing documents relating to Overrun
Protector shall hereinafter be referred to as “Overrun Protector Organizational Documents”;
all of the foregoing documents relating to the Subs shall hereinafter be referred to as “Subs
Organizational Documents”; and all of the foregoing documents relating to General Partner shall
hereinafter be referred to as “General Partner Organizational Documents”.

          (g) Process Agent. Evidence that National Corporate Research, Ltd., or such other
Person as is acceptable to Lender, has agreed to serve as the agent of Borrower, each Sub, each
Limited Partner, each Overrun Protector and General Partner for receipt of service of process in
the State of New York, and that the fees of such agent have been paid in advance for at least
eighteen (18) months.

          (h) Legal Opinions. The Lender shall have received an executed original of a written
legal opinion of Bernstein, Shur, Sawyer & Nelson, counsel for Borrower, OC, OCGP, the Limited
Partners and the Overrun Protectors, in the form satisfactory to Lender and its counsel dated as of
the Effective Date and addressed to Lender.

          (i) [Reserved].

          (j) No Adverse Actions. There shall not be pending or, to the knowledge of Borrower,
each Sub, each Overrun Protector, each Limited Partner or General Partner, threatened in writing,
any action, suit, proceeding, governmental investigation, or arbitration against or affecting
Borrower, any Subsidiary of Borrower, either Overrun Protector, either Limited Partner or General
Partner or any property of Borrower, any Subsidiary of Borrower, either Overrun Protector, Limited
Partner or General Partner that has not been disclosed to Lender by Borrower, any Sub, either
Overrun Protector, either Limited Partner or General Partner, in writing, and there shall have
occurred no development in any such action, suit, proceeding, governmental investigation, or
arbitration that, in the reasonable opinion of Lender, could reasonably be expected to have a
Material Adverse Effect. No injunction or other restraining order shall have been issued and no
hearing to cause an injunction or other restraining order to be issued shall be pending or noticed
with respect to any action, suit, or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of, this Agreement or the
making of the Loans hereunder.

          (k) Management Plan. Borrower shall have delivered to Lender a comprehensive
management plan in form and substance reasonably satisfactory to Lender detailing, among other
things, Borrower’s plan for the management of the development and construction phase and for

20

 

the hiring of additional Key Management Personnel and other personnel (the “Management
Plan”).

          (l) Depositary Account Authorized Signatories. Borrower shall have delivered to
Lender an executed copy of the Depository Bank’s form regarding the individuals authorized to sign
any documentation regarding, or withdraw funds from, the Depositary Account in form and substance
satisfactory to Lender.

          (m) Project Permits. Borrower shall have filed the applications for the Project
Permits set forth on Schedule 3.1(m)(i), all on terms and conditions satisfactory to
Lender.

          (n) Project Contracts. Borrower shall have entered into the Project Contracts set
forth on Schedule 3.1(n), all on terms and conditions satisfactory to Lender.

          (o) Transfer of Assets. All tangible and intangible assets and property necessary for
or otherwise related to the Project (the “Project Assets”), including but not limited to
those assets set forth on Schedule 3.1(o), and as are in existence as of the Effective
Date, shall have either been transferred to Borrower or OC or the owner of such Project Assets
shall have entered into assignment agreements and bills of sale with the Borrower and OC pursuant
to which such owner of Project Assets shall transfer certain Project Assets immediately upon its
receipt of any consents required to transfer such Project Assets, and the Project Assets are owned
by, or upon such subsequent transfer will be owned by, and held in the name of, Borrower or OC.

          (p) Open Season Process Description. Lender shall have received from Borrower a
detailed description and process of Borrower’s schedule and agenda for completion of an “open
season” process satisfactory to Lender and Borrower shall have entered into an agreement with a
third party consultant to assist Borrower in the “open season” process, the identity of such
consultant and the terms of such agreement to be satisfactory to Lender.

          (q) Market Study. Borrower shall have caused to be completed a market study of the
Project in form and substance satisfactory to Lender. Lender agrees that the market study of ZE
PowerGroup Inc. dated February 28, 2005 and heretofore delivered to Lender is satisfactory to
satisfy this condition.

          (r) Board of Directors. Pursuant to Borrower’s Organizational Documents and the
General Partner’s Organizational Documents, Lender shall have the right to designate two
representatives to the board of directors of the General Partner and such board of directors shall
not have more than four members until the energization of the Project after which the number of
members of the board of directors shall be more than four.

          (s) Development Milestones. On the date of any Advance that is part of the Initial
Advance, Borrower shall have achieved to the satisfaction of the Lender, all Development Milestones
on Schedule 1.3 that should have been achieved by such date.

          3.2 Conditions Precedent to Each Subsequent Advance. The obligation of Lender to make
any Advance hereunder after the Initial Advance shall be subject to the reasonable determination of
Lender that each of the following conditions precedent have been fulfilled; provided that, in the
event that any such condition precedent is not met, as determined by

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Lender, then Lender may waive the requirement that such condition precedent be satisfied and
fund the applicable Advance:

          (a) Representations. All of the representations and warranties of Borrower, each Sub,
each Limited Partner and General Partner contained in this Agreement shall be true and correct on
the date of each such Advance, as though made on and as of such date, except to the extent the
Project Pro Formas or any financial statements relate to a particular point in time.

          (b) Defaults and Events of Default. No event or circumstance shall have occurred and
be continuing, or would result from the Advances or the application of the proceeds thereof, which
constitutes a Default or an Event of Default.

          (c) Compliance with Development Loan Budget. Borrower’s aggregate development costs
and expenses as of the requested Funding Date shall not exceed the projected aggregate amount
thereof set forth in the Development Loan Budget and Borrower shall otherwise be in compliance with
the Development Loan Budget.

          (d) Advance Request. Borrower shall have submitted an Advance Request and a Borrower
Certificate in accordance with Section 2.4(d), each in form and substance reasonably satisfactory
to Lender and the Independent Engineer.

          (e) Absence of Material Impairment. No event, circumstance or fact or set of events,
facts or circumstances has occurred or exists that could, in Lender’s judgment, reasonably be
expected to cause a Material Impairment.

          (f) Development Milestones. With respect to any Advance other than the Initial
Advance, the Development Milestones numbered 1 through 18 in Schedule 1.3 shall have been
achieved to the satisfaction of Lender. In addition, on the date of any Advance, Borrower shall
have achieved to the satisfaction of Lender, all Development Milestones under Schedule 1.3
that should have been achieved by the date set forth for such Development Milestone on such
schedule.

          (g) Long Term Capacity Agreements. Borrower shall have entered into LTCAs with the
successful bidders of the “open season” process (which party or parties shall be acceptable to
Lender) for the most important “open season” products, all in form and substance satisfactory to
Lender, as of December 31, 2005, which LTCAs shall remain in full force and effect thereafter.

          (h) Use of Proceeds. Borrower shall have delivered to Lender evidence demonstrating
the use of all prior proceeds from Loans previously funded, which evidence shall be satisfactory to
Lender and shall include copies of all invoices for all expenses paid with Loan Proceeds. Lender
shall have approved the use of proceeds set forth in the Advance Request, in its sole discretion,
taking into account Lender’s assessment of the overall status of the Project.

          (i) Key Management Personnel. Borrower shall have retained or caused to be retained
through its Subsidiaries, through employment or management contract (i.e., independent
contractors), all of its Key Management Personnel, except where non-retention thereof could not, in
Lender’s judgment, reasonably be expected to have a Material Adverse Effect. Each Key

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Management Personnel shall be devoting as much professional time and attention to the Project
as is reasonably necessary, in Lender’s reasonable judgment, to complete such Key Management
Personnel’s services for the Borrower.

          (j) No Adverse Actions. There shall not be pending or, to the knowledge of Borrower,
any Sub, either Overrun Protector, either Limited Partner or General Partner threatened in writing,
any action, suit, proceeding, governmental investigation, or arbitration against or affecting
Borrower or any of its Subsidiaries, either Overrun Protector, either Limited Partner or General
Partner or any property of Borrower or any of its Subsidiaries, either Overrun Protector, either
Limited Partner or General Partner that has not been disclosed to Lender by Borrower, any Sub,
either Overrun Protector, either Limited Partner or General Partner, in writing, and there shall
have occurred no development in any such action, suit, proceeding, governmental investigation, or
arbitration that, in the opinion of Lender, could reasonably be expected to have a Material Adverse
Effect. No injunction or other restraining order shall have been issued and no hearing to cause an
injunction or other restraining order to be issued shall be pending or noticed with respect to any
action, suit, or proceeding seeking to enjoin or otherwise prevent the consummation of, or to
recover any damages or obtain relief as a result of, this Agreement or the making of the Loans
hereunder.

SECTION 4. REPRESENTATIONS AND WARRANTIES

          In order to induce Lender to enter into this Agreement, to make the Loans, each of Borrower,
any Sub, each Overrun Protector and General Partner hereby jointly and severally represents and
warrants to Lender on the Effective Date and on the date of each Advance that:

          4.1 Existence; Compliance with Law. (a) Borrower is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of Delaware; (b) OC is
a limited partnership duly organized, validly existing and in good standing under the laws of the
State of Delaware; (c) OCGP is a limited liability company duly formed, validly existing and in
good standing under the laws of the State of Delaware; (d) Boundless Energy NW, Inc. is a
corporation duly incorporated, validly existing and in good standing under the laws of the State of
Delaware; (e) SBJF Holding Corp. is a corporation duly formed, validly existing and in good
standing under the laws of British Columbia; (f) General Partner is a corporation duly
incorporated, validly existing and in good standing under the laws of the State of Delaware; (g)
SBX is a corporation duly incorporated, validly existing and in good standing under the laws of
British Columbia; (h) BE is a limited liability company, duly formed, validly existing and in good
standing under the laws of the State of Maine; (i) each of Borrower, any Sub, each Overrun
Protector, each Limited Partner and General Partner has the limited partnership, limited liability
company, unlimited liability company or corporate, as applicable, power and authority to own its
property and assets and conduct the business in which it is currently engaged and presently
proposes to engage; and (j) each of Borrower, any Sub, each Overrun Protector, each Limited Partner
and General Partner is qualified to do business as a foreign limited partnership or foreign
corporation, as applicable, and is in good standing under the laws of each jurisdiction where the
conduct of its business requires such qualification. Each of the Borrower Organizational
Documents, Subs Organizational Documents, General Partner Organizational Documents, Limited
Partners Organizational Documents and each Subsidiary Organizational Documents as

23

 

delivered to Lender pursuant to Section 3.1(f) or Section 5.1(n), as applicable, are true,
correct and complete and have not been amended or otherwise modified.

          4.2 Power, Authorization; Enforceable Obligations. Each of Borrower, Borrower’s
Subsidiaries, each Overrun Protector, each Limited Partner and General Partner has full limited
partnership, limited liability company, unlimited liability company or corporate, as applicable,
power and authority to make, deliver and perform the Loan Documents and the Project Contracts to
which it is a party and to become obligated with respect to borrowings and other Obligations
hereunder and thereunder, and has taken all action necessary to be taken by it to authorize such
borrowings, its Obligations hereunder and under the Loan Documents to which it is a party, and to
authorize the execution, delivery and performance of the Loan Documents and the Project Contracts
to which it is a party. No consent, waiver, authorization of or filing with any Person is required
in connection with the borrowings or other Obligations hereunder or the execution, delivery,
performance by, or the validity or enforceability against Borrower, Borrower’s Subsidiaries, either
Overrun Protector, either Limited Partner or General Partner of the Loan Documents and the Project
Contracts to which it is a party, that has not been obtained and is final, in full force and effect
and non-appealable. Each of the Loan Documents has been duly executed and delivered on behalf of
the Borrower, Borrower’s Subsidiaries, each Overrun Protector, each Limited Partner and General
Partner, as applicable, and the Loan Documents and the Project Contracts constitute legal, valid
and binding obligations of Borrower, Borrower’s Subsidiaries, each Overrun Protector, each Limited
Partner and General Partner, as applicable, enforceable against Borrower, Borrower’s Subsidiaries,
each Overrun Protector, each Limited Partner and General Partner, as applicable, in accordance with
their respective terms, except as enforceability may be limited by general equitable principles or
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors’ rights generally.

          4.3 No Legal Bar. None of the execution, delivery or performance of the Loan
Documents, the Project Contracts, the borrowings hereunder, the use of the proceeds thereof or the
consummation of the transactions contemplated hereunder or thereunder, nor compliance with the
terms and provisions hereof or thereof, do or will (i) contravene or violate any provisions of the
certificate of formation, the operating agreement, the certificate of incorporation, the bylaws or
other organizational documents of Borrower, any of Borrower’s Subsidiaries, each Overrun Protector,
either Limited Partner or General Partner, or any applicable provision of Law, including the
provisions of the PUCHA and the rules and regulatory thereunder, or (ii) conflict with, or result
in any breach of any of the terms and conditions of any lease, contract or agreement to which
Borrower, any of Borrower’s Subsidiaries, each Overrun Protector, either Limited Partner or General
Partner is subject or by which it or its properties are bound, or result in or require the creation
or imposition of any Lien (other than Liens in favor of Lender) on any of its properties or
revenues pursuant to any requirement of Law or contractual obligation.

          4.4 No Litigation. No investigation by or litigation, action, claim, judgment,
complaint, notice of violations, injunctions, orders, decrees, directives, suits or proceedings
before any court, tribunal, arbitrator, mediator, referee or Governmental Authority is pending, nor
to the knowledge of Borrower, any Sub, each Overrun Protector, either Limited Partner or General
Partner, is any of the foregoing threatened by or against Borrower, any of Borrower’s

24

 

Subsidiaries, each Overrun Protector, either Limited Partner or General Partner, or against
any of its respective properties or revenues: (a) with respect to the Loan Documents, the Project
Contracts, or any of the transactions contemplated hereby or thereby, or (b) arising after the date
of this Agreement that could be reasonably expected to have a Material Adverse Effect.

          4.5 Indebtedness. Except for the Indebtedness incurred pursuant to this Agreement,
each of Borrower, Borrower’s Subsidiaries, Limited Partners and General Partner has no
Indebtedness.

          4.6 Ownership of Property; Liens. (a) Each of Borrower, Borrower’s Subsidiaries, the
Overrun Protectors, Limited Partners and General Partner has good and indefeasible title to, and is
the sole owner of, all of its respective properties and assets and none of such property is subject
to any Lien, other than the Lien of Lender created under the Loan Documents and the Permitted
Liens. All tangible and intangible assets and property necessary for or otherwise related to the
Project and as are in existence as of the date of the making of this representation are owned by
Borrower and its Subsidiaries, as applicable. All Project Permits, contracts, agreements,
authorizations and other rights in respect of or otherwise related to the Project that have been
issued, or have been entered into or are in existence as of the date of the making of this
representation have been issued in the name of, or have been entered into and are owned by Borrower
or its Subsidiaries.

          (a) The Security Documents constitute a valid and continuing first Lien on and first security
interest in the Collateral in favor of Lender, free and clear of all other Liens in favor of others
and rights of others (other than the Permitted Liens) and prior to all other Liens in favor of
others and rights of others (other than Permitted Liens which have priority over the Liens of the
Security Documents by operation of law), and are enforceable as such as against creditors of and
purchasers from Borrower, any Subsidiary of Borrower, each Limited Partner or General Partner, as
applicable, or and as against any owner of the real property where any of the Collateral is located
and as against any purchaser of such real property and any present or future creditor obtaining a
Lien on such real property. All action necessary or desirable to protect and perfect such security
interest in each item of the Collateral has been duly taken.

          (b) This Agreement, the Security Documents, and the filing of the financing statements on Form
UCC-1 in the offices and locations described in Schedule 4.6(c) attached hereto will create
and perfect the Lender’s first priority security interest in the Collateral. No further action
will be required to maintain and preserve, or effectively to put other Persons on notice of, such
Lien and security interests other than the filing of continuation statements required by the UCC.

          4.7 Investment Company Act. Borrower is not an “investment company” or a company
“controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940,
as amended.

          4.8 Margin Securities. Neither Borrower nor any of its Subsidiaries is engaged and
will not, and Borrower shall not permit it Subsidiaries to, engage, principally or as one of its
important activities, in the business of extending credit for the purpose of “purchasing” or
“carrying” any “margin stock” within the respective meanings of each of the quoted terms under

25

 

Regulations G and X of the Board of Governors of the Federal Reserve System as now and from
time to time hereafter in effect. No part of the proceeds of any loans hereunder will be used for
“purchasing” or “carrying” any “margin stock” or otherwise that might violate Regulation X or any
other regulation of the Board of Governors of the Federal Reserve System.”

          4.9 Subsidiaries. Borrower does not have any direct or indirect Subsidiaries other
than the Subs. Borrower does not have any direct or indirect Subsidiaries for which it has not
received prior written consent from Lender to acquire or create. No Sub has any direct or indirect
Subsidiaries.

          4.10 Possession of Franchises, Licences, etc. Neither Borrower nor any of its
Subsidiaries is in violation of any Project Permit or any Law to which it or any of its properties
is subject, except for violations that, individually or in the aggregate, could not be reasonably
expected to have a Material Adverse Effect. Attached hereto on Schedule 4.10 is a true,
correct and complete list, and a description of the status thereof, of all franchises and Project
Permits that are necessary for the due execution, delivery and performance by Borrower and its
Subsidiaries of the Loan Documents and the Project Contracts to which it is a party and for the
design, construction, ownership and operation of the Project. There are no pending actions, suits
or proceedings seeking to revoke, rescind, suspend, alter or annul any such Project Permit, and
there are no claims, notices or investigations for any such purpose pending or threatened.
Borrower and its Subsidiaries have obtained all necessary approvals, if any, required under any
applicable Laws for the execution and delivery of this Agreement and the other Loan Documents to
which it is a party and has or will have obtained (on or prior to the time it is required to do so
under such any applicable Laws) all such approvals necessary for the performance of this Agreement
and the other Loan Documents to which it is a party.

          4.11 Financial Statements. The Project Pro Formas represent Borrower’s good faith
estimate, as of the Effective Date, of the projections of Borrower for the Project. The
Development Loan Budget represents Borrower’s good faith estimate of all costs and expenses
projected to be incurred in order to achieve Financial Close on or before June 30, 2006. The
Construction Loan Budget represents Borrower’s good faith estimate of all costs and expenses
projected to be incurred in connection with the design and construction of the Project.

          4.12 Full Disclosure. No representation or warranty of Borrower, any Sub, either
Overrun Protector, either Limited Partner or General Partner contained in any Loan Document, the
Project Pro Formas, the Development Loan Budget or any other document, certificate or written
statement furnished to Lender by or on behalf of the Borrower, any Sub, either Overrun Protector,
either Limited Partner or General Partner for use in connection with the transactions contemplated
by this Agreement contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not misleading in light
of the circumstances in which the same were made. There is no material fact known to Borrower, any
of Borrower’s Subsidiaries, either Overrun Protector, either Limited Partner or General Partner
that has had or could reasonably be expected to have a Material Adverse Effect and that has not
been disclosed herein or in such other documents, certificates, and statements furnished to Lender
for use in connection with the transactions contemplated hereby.

26

 

          4.13 No Default. No event has occurred, or is believed to have occurred, and is
continuing that constitutes a Default or an Event of Default.

          4.14 Project Contracts. Attached hereto on Schedule 4.14 is a true, correct
and complete list of the Project Contracts executed by Borrower or any Subsidiary. Borrower has
provided Lender with a true, correct and complete copy of all Project Contracts. Neither Borrower
(or any of its Subsidiaries) nor any party to any Project Contract is in default in any respect
under any Project Contract.

          4.15 Taxes. All tax returns and reports required to be filed by, or with respect to,
Borrower and any of its Subsidiaries, Limited Partners or General Partner in any jurisdiction have
been filed (or appropriate extensions obtained) and Borrower, each of Borrower’s Subsidiaries, each
Limited Partner or General Partner, as applicable, has paid all taxes, assessments, fees and other
governmental charges (“Taxes”) upon Borrower, Borrower’s Subsidiaries, such Limited Partner
or General Partner, as applicable, upon any of its properties, income or franchises that have
became due, and no tax Liens have been filed and no claims are being asserted against Borrower,
each of Borrower’s Subsidiaries, each Limited Partner or General Partner or any of its respective
properties or assets. All tax returns and reports filed by or on behalf of Borrower, each of
Borrower’s Subsidiaries, each Limited Partner or General Partner are true, correct and complete,
and there are no tax sharing arrangements that will require any payment by Borrower, any of
Borrower’s Subsidiaries, each Limited Partner or General Partner.

          4.16 Environmental Matters. Schedule 1.5 contains a complete list of all
Project Permits that may be required, are required or are anticipated to be issued to Borrower and
each of Borrower’s Subsidiaries relating to Environmental Matters. Borrower is in the process of
obtaining all Project Permits listed on Schedule 1.5 and is meeting all Development
Milestones set forth in Schedule 1.3. Neither Borrower nor any of its Subsidiaries is, has
been, or will be in violation of any Environmental Law which violation could reasonably be expected
to result in a liability to the Lender or a liability to Borrower or any of Borrower’s Subsidiaries
or their respective properties and assets or in an inability of Borrower or any of Borrower’s
Subsidiaries to perform its obligations under the Loan Documents or to obtain any of the Project
Permits. Neither Borrower nor any of its Subsidiaries has, nor, to Borrower’s and the Subs’
knowledge, has any other Person used, Released, generated, manufactured, or produced any Hazardous
Substances in connection with the Project, nor are there Hazardous Substances present on any
property owned, operated or leased by Borrower or any of its Subsidiaries that could reasonably be
expected to subject the Lender to liability, or Borrower or any of Borrower’s Subsidiaries to
liability, under any Environmental Law.

          4.17 Employee Benefit Plans. Neither Borrower nor any ERISA Affiliate maintains,
contributes to, has incurred, or has any liability, contingent or otherwise, with respect to any
Employee Benefit Plan.

          4.18 Documents. The documents set forth in Schedule 4.18 attached hereto,
together with such other contracts, agreements, letters of intent, understandings and instruments
entered into in accordance therewith comprise all of the contracts, agreements, letters of intent,
understandings, and instruments to which Borrower or any of Borrower’s Subsidiaries is a party

27

 

or by which Borrower or any of Borrower’s Subsidiaries, or their respective properties, are
bound (including all amendments, supplements, waivers, letter agreements, interpretations and other
documents amending, supplementing or otherwise modifying or clarifying such agreements and
instruments). Borrower has delivered to Lender true, correct and complete copies of all of the
documents listed on Schedule 4.18.

SECTION 5. COVENANTS AND CONTINUING AGREEMENTS

          5.1 Affirmative Covenants. Each of Borrower and the Subs covenants and agrees that,
unless Lender shall otherwise consent in writing, until the termination of this Agreement:

          (a) Maintenance of Existence. Borrower and each Sub will, and Borrower will cause
each of its Subsidiaries to, preserve and maintain at all times its legal existence.

          (b) Books, Records and Inspections. Borrower each Sub shall, and Borrower shall cause
each of its Subsidiaries to (i) keep proper books and records and account in which full, true and
correct entries in conformity with GAAP and all requirements of Law shall be made of all dealings
and transactions in relating to its business and activities and (ii) permit any officer, employee
or agent of Lender at any time, upon reasonable notice, to visit and inspect any of the properties
of Borrower, the Subs or any other of Borrower’s Subsidiaries and discuss the affairs, finances and
accounts of Borrower, the Subs or any of Borrower’s other Subsidiaries with its executive officers
and independent public accountants (and Borrower and each Sub hereby authorize such independent
public accountants to discuss Borrower’s, each Sub’s and any other of Borrower’s Subsidiaries’
financial matters with any such Person whether or not a representative of Borrower, a Sub or
Borrower’s Subsidiary, as applicable, is present), all at such reasonable times during normal
business hours and as often as Lender may reasonably request. In addition, Lender shall also be
entitled, upon reasonable notice, to examine Borrower’s, each Sub’s and each of Borrower’s
Subsidiaries’ books of record and accounts, take copies and abstracts therefrom, conduct an audit
of such books of record and account and of Borrower’s consolidated operations, all at such
reasonable times during normal business hours and as often as Lender may desire.

          (c) Environmental Indemnity. Borrower agrees to indemnify and to defend and hold
Lender and its owners, officers, directors, employees, representatives, agents and Affiliates (each
an “Indemnified Party”), harmless against, and agrees to promptly pay on demand or
reimburse each of them with respect to, any and all claims, demands, causes of action, loss,
damage, liabilities, costs and expenses of any and every kind or nature whatsoever (excluding,
however, all claims, demands, causes of action, loss, damage, liabilities, costs and expenses of an
Indemnified Party that arise from or relate to the willful misconduct or the gross negligence of
such Indemnified Party), by reason of or arising out of or in any way related to: (a) the breach of
any representation, warranty or covenant as set forth herein regarding Environmental Laws, (b) any
liability arising under any Environmental Laws, and (c) the failure of Borrower or any of its
Subsidiaries to perform any obligation required to be performed pursuant to Environmental Laws
(collectively “Environmental Indemnity Matters”). Without limiting the generality of the
foregoing, Borrower shall be obligated to pay or reimburse each Indemnified Party for all
out-of-pocket costs and expenses (including, without limitation, attorneys’ and consultants’ fees
and expenses) incurred by such Indemnified Party arising out of any Environmental Indemnity

28

 

Matters at the time such costs and expenses are incurred or upon written demand therefor. The
provisions of this Section 5.1(c) shall survive the final payment of all of the Obligations and the
termination of this Agreement and shall continue thereafter in full force and effect.

          (d) Compliance with Laws and Preservation of Rights and Properties. Borrower and each
Sub will, and Borrower shall cause each of its Subsidiaries to, remain in compliance with all Laws
(including all Environmental Laws) and Project Permits, and otherwise do or cause to be done all
things necessary to preserve and keep in full force and effect all rights and franchises necessary
to the conduct of its business, in each case except to the extent being contested by Borrower or
its applicable Subsidiary in good faith and except where failure to do so would not be reasonably
expected to have a Material Adverse Effect. Borrower and each Sub will, and Borrower will cause
each of its Subsidiaries to do or cause to be done all things necessary to preserve and keep in
full force and effect at all times the Project Contracts and the Project Permits necessary to the
conduct of its business and perform its obligations under the Project Contracts and the Project
Permits, in each except where failure to do so would not be reasonably expected to have a Material
Adverse Effect; to continue to conduct its business substantially as now proposed to be conducted
and to diligently pursue the further development of the Project; and at all times to maintain,
preserve and protect all property necessary to the conduct of its business and keep the same in
good repair, working order and condition, ordinary wear and tear excepted, and from time to time
make, or cause to be made, all repairs, renewals, replacements, betterments and improvements
thereto as may be necessary to the conduct of its business.

          (e) Financial Information, Reports, Notices, etc. Borrower and each Sub will furnish
or cause to be furnished to Lender copies of the following financial statements, reports, notices
and information:

     (i) within thirty (30) days of the Effective Date, and, thereafter, as soon as available
and in any event within fifteen (15) days after the end of each of calendar month, a balance
sheet of Borrower and each Sub as of the end of such month, certified as complete and correct
by an Authorized Officer of Borrower and the applicable Sub;

     (ii) as soon as available and in any event within ninety (90) days after the end of each
fiscal year of Borrower and each Sub, a copy of the balance sheet of Borrower and each Sub
and the related statements of partners’ or members’, as applicable equity for such fiscal
year, reviewed by independent public accountants reasonably acceptable to the Lender;

     (iii) concurrently with the delivery of the financial information pursuant to clauses
(i) and (ii), a certificate, executed by an Authorized Officer of the Borrower, stating that
no Default or Event of Default has occurred and is continuing (or, if a Default or Event of
Default has occurred, specifying the details of such Default or Event of Default and the
action that Borrower has taken or proposes to take with respect thereto);

     (iv) within ten (10) Business Days after the end of each month, a status report
regarding the Project (including, (A) the status of negotiations of all Project Contracts and
a list of all contracts, subcontracts and agreements that Borrower or any of Borrower’s

29

 

Subsidiaries is negotiating or which are subject to Borrower’s or any of Borrower’s
Subsidiaries’ approval (including a brief description thereof), (B) the status of all Real
Estate Rights, (C) the status of all Project Permits, (D) sufficient data and detail to allow
Lender to analyze the Project’s development, progress and anticipated economics on an ongoing
basis, (E) a description of any event or circumstance that would reasonably be expected to
cause a Material Impairment or a Material Adverse Effect and (F) a reconciliation of budgeted
expenditures to date under the Development Loan Budget to actual expenditures to date,
together with a narrative explanation of any material variances) (the “Status
Report”); provided, that Borrower shall not be required to deliver such Status Report if
it has provided a Status Report regarding Project to the Lender as part of an Advance Request
delivered by Borrower pursuant to Section 5.2 within the thirty (30) days preceding the date
such report would otherwise be due hereunder;

     (v) as soon as possible and in any event within three (3) Business Days after Borrower
obtains knowledge of the occurrence of a Default or Event of Default, a statement of an
Authorized Officer of Borrower setting forth the details of such Default or Event of Default
and the action which Borrower has taken and proposes to take with respect thereto;

     (vi) upon request of Lender from time to time, a summary of all invoices accounting for
any development cost in excess of $5,000 paid with the proceeds of a Loan (which summary may
be included in the Status Report described in clause (iv) above);

     (vii) within five (5) Business Days after the end of each month, a report detailing all
Borrower’s internal development costs, breaking down those reimbursed with the proceeds of an
Advance as permitted in Section 2.4(b) and Section 2.4(d) and those for which Borrower will
seek reimbursement pursuant to Section 2.6(c)(ii), in sufficient detail satisfactory to
Lender;

     (viii) five (5) Business Days prior to the execution, filing or submission to the
applicable Governmental Authority thereof, copies of each proposed amendment, modification or
supplement to any Project Contract or Project Permit (or application therefor) which Borrower
believes will not materially amend, modify or supplement such Project Contract or Project
Permit;

     (ix) as soon as possible and in any event within five (5) days after Borrower or a Sub
obtains knowledge of the occurrence of a termination of or breach by any Person under any
Project Contract, a statement of the chief executive, financial or accounting Authorized
Officer of Borrower setting forth the details of such breach and the action which Borrower or
the applicable Sub has taken and proposes to take with respect thereto;

     (x) as soon as possible and in any event within five (5) days after the Borrower or a
Sub obtains knowledge of any impairment, revocation, withdrawal, expiration, or non-renewal
of any Project Permit, a statement of the chief executive, financial or accounting Authorized
Officer of Borrower setting forth the details of such impairment, revocation, withdrawal,
expiration, or non-renewal and the action which Borrower or the applicable Sub has taken and
proposes to take with respect thereto;

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     (xi) as soon as possible and in any event within five (5) days after Borrower or a Sub
obtains knowledge of the commencement of any litigation, action, proceeding or labor
controversy affecting Borrower, any of Borrower’s Subsidiaries or the Project, notice thereof
and, to the extent Lender requests, copies of all pleadings and documentation relating
thereto; and

     (xii) such other financial and other information as Lender may from time to time
reasonably request.

          (f) Insurance. No later than fifteen (15) days after the Effective Date, the General
Partner of the Borrower shall determine the type and amount of liability insurance that Borrower
and its Subsidiaries will need to maintain with respect to themselves and their property.
Immediately thereafter but in any case within thirty (30) days after the Effective Date, Borrower
and its Subsidiaries shall obtain customary insurance policies from financially sound and reputable
insurance companies against loss and damage in form and substance reasonably acceptable to Lender
and Borrower shall deliver to Lender copies of such insurance policies as soon as they become
available. Without limiting any of the foregoing, all insurance policies required pursuant to this
Section shall (i) name the Lender as additional insured, and provide that no cancellation or
modification of the policies will be made without thirty (30) days’ prior written notice (or ten
(10) days’ prior written notice with respect to failure to pay the premium), to the Lender and (ii)
be in addition to any requirements to maintain specific types of insurance contained in the Project
Contracts. After issuance, Borrower and its subsidiaries shall keep all Insurance Policies in full
force and effect.

          (g) Project Contracts; Project Permits.

          (i) Borrower and each Sub shall, and Borrower shall cause each of its Subsidiaries to,
perform and observe all of its material covenants and obligations contained in the Project
Contracts to which it is a party and shall take all reasonable and necessary action to
prevent the termination of any such Project Contract. Borrower shall provide Lender with
updated drafts of the Project Contracts during the negotiation thereof, promptly as such
drafts become available and otherwise as Lender may from time to time request. Borrower
shall provide Lender with true, correct and complete copies of all Project Contracts,
together with any amendments, waivers or other modifications thereto.

          (ii) Borrower and each Sub shall, and Borrower shall cause each of its Subsidiaries to,
diligently work to obtain all Project Permits in accordance with the Development Milestones
Schedule. Borrower shall provide Lender copies of all applications, draft permits,
correspondence, meeting notes and final permits related to the Project Permits.

          (h) Financing Plan. Borrower shall provide Lender with a financing plan for the
Project in form and substance reasonably satisfactory to Lender, including any construction and/or
term financing, subordinated debt and preferred equity, promptly after such financing plan becomes
available and in any event not later than March 1, 2006. In connection with such plan, Borrower
shall use its reasonable efforts to obtain construction financing the terms of which include the
ability to prepay, without penalty, such financing upon the occurrence of a default

31

 

that leads to lenders thereunder to cease funding the loans. Borrower shall keep Lender
advised of the status of discussions relating to the engagement of an arranger for any financing
contemplated in such financing plan, and shall consult with Lender with respect to the selection of
such arranger prior to such selection.

          (i) Project Completion. Borrower shall diligently pursue, to Lender’s reasonable
satisfaction, completion of the development of the Project in accordance with the Development
Milestone Schedule, the Development Loan Budget and the Project Contracts. Borrower shall
diligently and timely implement the Management Plan.

          (j) Separateness. Borrower shall by the earlier to occur of (i) the date sixty (60)
days after the date of this Agreement and (ii) the date of the second Advance comply with the
separateness covenants set forth on Schedule 5.1(j). Promptly and in no event more than
ten (10) Business Days, after Lender shall request, Borrower shall amend its limited partnership
agreement to incorporate the separateness covenants set forth on Schedule 5.1(j) therein
and to provide for an independent special member the vote of whom shall be required in order to
commence or acquiesce in any Event of Bankruptcy with respect to Borrower and who shall consider,
to the extent permitted by Law, only the interests of Lender in casting any such vote, in form and
substance reasonably satisfactory to Lender.

          (k) Changes in Development Loan Budget. In the event Borrower determines that the
aggregate costs and expenses for the further development of the Project from March 4, 2005 through
June 30, 2006 are reasonably likely to exceed to the aggregate amount of such costs and expenses
set forth in the effective Development Loan Budget, or in the event that Financial Close has not
occurred by July 1, 2006, then Borrower shall submit a revised Development Loan Budget to Lender
for its review and approval. Upon approval by Lender, such revised Development Loan Budget shall
become the effective Development Loan Budget under this Agreement. Such approval shall in no event
increase or otherwise modify the commitment of Lender to make Advances under this Agreement, or
change any conditions precedent to Lender’s obligation to make Advances hereunder.

          (l) Further Assurances. Borrower and each Sub shall, and Borrower shall cause each of
its Subsidiaries to, take all such further actions and execute all such further documents and
instruments as Lender may at any time reasonably determine to be necessary for the better assuring
and confirming for Lender of all or any part of the security for the Obligations given or purported
to be given by Borrower, each Sub or any of Borrowers other Subsidiaries pursuant to the Security
Documents to which it is a party, including the perfection thereof.

          (m) Mortgage. In the event that Borrower or any of its Subsidiaries acquires an
interest in real property, Borrower or such Subsidiary shall promptly enter into a Mortgage with
Lender pursuant to which Lender shall obtain a first priority Lien (subject only to Permitted
Liens) in all of the rights of Borrower or such Subsidiary in and to such real property and make
all recordings and filings and pay all fees, charges and taxes necessary to perfect such Lien.

          (n) Property. Prior to purchasing, leasing or otherwise obtaining rights to any
property, Borrower will perform, or cause its Subsidiaries to perform, a standard Phase I ASTM
environmental assessment that demonstrates there are no Hazardous Substances on such property

32

 

or other conditions on such property which may give rise to liabilities under any
Environmental Laws. Borrower shall not, and shall not permit any of its Subsidiaries to, operate,
use, purchase, lease or otherwise obtain right to use any property that has been the subject of a
release of Hazardous Substances.

          (o) Subsidiaries. Contemporaneously with the creation or acquisition of any
Subsidiary of the Borrower after the Effective Date, including, without limitation the creation of
the Canadian Subsidiary under Section 5.1(q), the Borrower shall:

          (i) Grant or cause to be granted to Lender, a perfected, first priority security
interest in all the equity interests of such Subsidiary owned by the Borrower or any
Subsidiary of the Borrower (to the extent such equity interests were not previously pledged
to the Lender) and any other Person that owns or will acquire any equity interests in such
Subsidiary;

          (ii) Cause each such Subsidiary to guarantee the payment and performance of the
Obligations by executing and delivering to Lender a joinder to the Guarantee;

          (iii) Cause each such Subsidiary to execute and deliver to Lender a security agreement
and such other security documents, in form and substance acceptable to Lender, as Lender may
request to grant Lender a perfected, first priority Lien on all the property (whether real,
personal or mixed, tangible or intangible, owned or later acquired) of such Subsidiary;

          (iv) Deliver to Lender: (A) all organizational documents of such Subsidiary, which
documents shall be in form and substance acceptable to Lender (collectively, the
“Subsidiary Organizational Documents”), and (B) all requisite resolutions of such
Subsidiary, and any other documents evidencing all actions taken by such Subsidiary, to
authorize the execution and delivery of the Security Documents to which it is a party, such
resolutions to be certified as of the effective date of such Security Documents by the
secretary of such Subsidiary; and

          (v) Take, or cause the Subsidiary to take, such other actions as Lender may require
therewith.

          (p) Key Management Personnel. Borrower shall cause the Key Management Personnel to
devote as much professional time and attention to the Project as is reasonably necessary, in
Lender’s reasonable judgment, to complete such Key Management Personnel’s services for the
Borrower.

          (q) Canadian Subsidiary. No later than thirty (30) days after written notice from
Lender, Borrower shall form a new wholly-owned unlimited limited liability company under the laws
of Nova Scotia (the “Canadian Subsidiary”). Upon formation of the Canadian Subsidiary, all
assets of the Project located in Canada, including, without limitation, any Project Permits or
applications therefor, issued by, or filed with any Canadian Governmental Authority held by
Borrower or any of its Subsidiaries, shall be transferred to the Canadian Subsidiary.

33

 

          (r) Project Pro Formas. No later than seven (7) days after the Closing Date, Borrower
shall deliver to Lender a revised Schedule 1.6, in a form and substance satisfactory to
Lender, which shall constitute the Project Pro Formas after such delivery.

          5.2 Negative Covenants. Borrower and each Sub covenants and agrees (and, for purposes
of Section 5.2(s), each Limited Partner and General Partner covenants and agrees) that, unless
Lender shall otherwise consent in writing, until the termination of this Agreement.

          (a) Debt. Borrower shall not, and shall not permit any of its Subsidiaries to,
create, incur, assume, suffer to exist or otherwise become or remain directly or indirectly liable
for any Indebtedness except as provided herein or Permitted Debt. No Sub shall create, incur,
assume, suffer to exist or otherwise become or remain directly or indirectly liable for any
Indebtedness.

          (b) Liens. Neither Borrower nor any Sub shall, and Borrower shall not permit any of
its Subsidiaries to, create, incur, assume or suffer to exist a Lien against, security interest in
or other encumbrance on any of the property or assets now owned or hereafter acquired by it, or
assign or sell any income or revenues (including accounts receivable) or rights in respect of any
thereof, except for Liens created or permitted under this Agreement, the Note, the Security
Documents and the other Loan Documents or Permitted Liens.

          (c) Mergers, Consolidations, etc. Neither Borrower nor any Sub shall, and Borrower
shall not permit any of its Subsidiaries to (i) consolidate with or merge into or acquire any
Person or permit any other Person to consolidate with or merge into or acquire Borrower or such
Subsidiary, (ii) liquidate, wind-up or dissolve (or suffer any liquidation or dissolution) or (iii)
enter into any partnership or joint venture.

          (d) Sale of Assets. Neither Borrower nor any Sub shall, and Borrower shall not permit
any of its Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of, whether by sale,
merger, consolidation, liquidation, dissolution, or otherwise, in one transaction or a series of
transactions, any portion of its business, property or assets, whether now owned or hereafter
acquired, or stock or other evidence of beneficial ownership of, any Person, except for the sale or
other disposition for cash of any asset which, in the reasonable business judgment of the
management of Borrower or such Subsidiary has become obsolete or worn out or is unnecessary for the
Project and which is disposed of in the ordinary course of business on an arm’s length basis and
has an aggregate book value not in excess of $100,000 during any fiscal year of Borrower or such
Subsidiary.

          (e) Nature of Business. Neither Borrower nor any Sub shall make or permit to be made
any material change in the character of its business as anticipated to be carried on as of the date
hereof. Borrower shall not permit any of its Subsidiaries to make or permit to be made any
material change in the character of its business as anticipated to be carried as of the date of
such Subsidiaries’ acquisition or creation.

          (f) Related Person Transactions. Except as otherwise agreed by the Parties hereto in
writing and except for existing arrangements listed in Schedule 5.2(f) to this Agreement,
neither Borrower nor any Sub shall, and Borrower shall not permit any of its Subsidiaries to,
directly or indirectly, engage in any transaction between Borrower or such Subsidiary and any of

34

 

its officers, directors or members (or their respective officers, directors or shareholders)
or other Affiliates.

          (g) Project Contracts. Neither Borrower nor any Sub shall, and Borrower shall not
permit any of its Subsidiaries to, execute and deliver any Project Contract without the prior
approval of Lender. Neither Borrower nor any Sub shall, and Borrower shall not permit any of its
Subsidiaries to, cancel or terminate any Project Contract, or amend, modify or supplement in any
material respect any Project Contract, or waive any material breach or default under any Project
Contract, or waive, fail to enforce, forgive, compromise, settle, adjust or release any material
right, interest or entitlement, howsoever arising, under or in respect of any Project Contract or
in any way vary or agree to the variation of in any material respect any provision of a Project
Contract or of the performance of any material covenant or obligation of any Person under any
Project Contract. Borrower and each Sub shall, and Borrower shall cause each of its Subsidiaries
to, cause each contract or agreement that if entered into with Borrower or such Subsidiary, would
be a Project Contract to be entered into by Borrower or such Subsidiary and by no other Person
acting on Borrower’s or such Subsidiaries’ behalf or otherwise.

          (h) Project Permits. Borrower and each Sub shall, and Borrower shall cause each of
its Subsidiaries to, cause all Project Permits to be issued in Borrower’s or such Subsidiary’s
name, as applicable and to no other Person acting on Borrower’s or such Subsidiary’s behalf or
otherwise. Neither Borrower nor any Sub shall, and Borrower shall not permit any of its
Subsidiaries to, cancel or terminate any Project Permit, or amend, modify or supplement in any
material respect any Project Permit. Neither Borrower nor any Sub shall apply for or agree to the
terms of any Project Permit without the prior approval of Lender.

          (i) Consent and Approval Rights. If Borrower or any of its Subsidiaries has the right
under any Project Contract to approve or consent to any material Project-related document,
agreement or instrument entered into by another Person, neither Borrower nor any Sub shall, and
Borrower shall not permit any of its Subsidiaries to, exercise such approval or consent rights
without first obtaining the approval of Lender, such approval not to be unreasonably withheld.

          (j) Project Counterparties. Prior to it entering into any material agreement or
contract with any Person, Borrower and each Sub shall, and Borrower shall cause each of its
Subsidiaries to, make due inquiries to determine whether such Person has been debarred or
disqualified by any Governmental Authority from performing work or entering into contracts of the
type to be performed under or similar to the applicable agreement or contract, and if such is the
case (as determined based upon such inquiries), neither Borrower nor any Sub shall, and Borrower
shall not permit any of its Subsidiaries to, enter into such agreement or contract. Neither
Borrower nor any Sub shall, and Borrower shall not permit any of its Subsidiaries to, enter into
any agreement or contract if (i) such agreement or contract contains provisions that could impair
or impose conditions upon (w) the exercisability of the Option, (x) the assignability or transfer
of the Equity Agreement or any rights thereunder or of Lender’s equity interests in Borrower (upon
exercise of the Option and/or acquisition of such equity interests) or the rights of Lender under
Section 7.1(a) or 7.1(b) hereof, (y) the transfer of a direct or indirect interest in Lender or (z)
the exercise of any of Lender’s remedies under the Loan Documents, (ii) such agreement or contract
would impose recourse on or to, or otherwise create any obligations of,

35

 

Lender (as Lender or upon exercise of its Option and/or acquisition of such equity interests
or otherwise) or (iii) such agreement or contract is not collaterally assignable to Lender.

          (k) Advances, Investments, Loans and Distributions. Neither Borrower nor any Sub
shall, and Borrower shall not permit any of its Subsidiaries to, (i) lend money or credit or make
advances or contributions to any Person (other than as required under the Loan Documents and
Project Contracts), (ii) directly or indirectly purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution to any Person, or (iii)
make any distributions or dividends to its members.

          (l) Fiscal Year; Fiscal Quarter. Neither Borrower nor any Sub shall, and Borrower
shall not permit any of its Subsidiaries to, change its fiscal year or any of its fiscal quarters.

          (m) Use of Proceeds; Margin Regulations. Neither Borrower nor any Sub shall, directly
or indirectly, use any proceeds of any Loan other than in accordance with the provisions of Section
2.3. Neither Borrower or any Sub shall, directly or indirectly, use any part of the proceeds of
any Loan to purchase or carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock. Neither Borrower nor any Sub shall, directly or
indirectly, use the proceeds of any Loan in a manner that would reasonably be expected to violate
or be inconsistent with the provisions of Regulations T, U or X of the Board of Governors of the
Federal Reserve System. Borrower shall maintain such proceeds on deposit in the Depositary Account
until expended in accordance with the provisions of Section 2.3 and shall not deposit such proceeds
in any other account.

          (n) No Petition. To the extent it may lawfully so agree, each of Borrower and each
Sub agrees not, and Borrower shall not permit any of its Subsidiaries, to (i) commence any case,
proceeding or other action under any existing or future Law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization, arrangement, adjustment, winding-up,
liquidation, sequestration, dissolution, composition, or other relief with respect to its debts, or
(ii) seek appointment of a receiver, trustee, custodian or other similar official for it or for all
or any substantial part of its assets, or make a general assignment for the benefit of its
creditors, or (iii) take any action in furtherance of, or indicating its consent to, approval of,
or acquiescence in, any of the acts set forth above in clause (i) or (ii).

          (o) Environmental Matters.

          (i) Neither any property used, operated, owned or licensed by Borrower or any of its
Subsidiaries nor the construction activities and operations of the Borrower or any of its
Subsidiaries to be conducted thereon shall violate in any material respect any Environmental
Laws or order of any court or Governmental Authority with respect to Environmental Laws.

          (ii) Neither any property used, operated, owned or licensed by Borrower or any of its
Subsidiaries nor the construction activities and operations of the Borrower or any of its
Subsidiaries to be conducted thereon or, by any prior owner or operator of such property or
operation, shall be subject to any liabilities pursuant to any Environmental Laws or
existing, pending or to the knowledge of Borrower, threatened action, suit,

36

 

investigation, inquiry or proceeding by or before any court or Governmental Authority
with respect to Environmental Laws or to any material remedial obligations under
Environmental Laws.

          (iii) All Laws shall be satisfied in connection with the construction, operation or use
of the Project, including, without limitation, the present and past treatment, storage,
disposal or release of any Hazardous Substances.

          (iv) All Hazardous Substances generated by any construction activities or operations by
or on behalf of Borrower or any of its Subsidiaries shall be transported, treated and
disposed of any by carriers maintaining valid permits under the Resource Conservation and
Recovery Act of 1976 and any other Environmental Law and only at treatment, storage and
disposal facilities maintaining valid permits under any other Environmental Law, which
carriers and facilities are and, to the Borrower’s knowledge after due inquiry, have been
operating in compliance with such permits.

          (v) The Borrower and each Sub shall take all reasonable, desirable or customary steps to
determine and shall determine that no Hazardous Substances shall be disposed of or otherwise
released and that there has been no threatened release of any Hazardous Substances on any
property used, operated, owned or leased by Borrower or any of Borrower’s Subsidiaries.

          (p) Depositary Account. Borrower shall not make any modifications to or otherwise
amend or supplement the Depository Bank’s form regarding individuals with authority to sign
documents in connection with, or withdraw funds from, the Depositary Account delivered to Lender on
March 31, 2005 pursuant to Section 3.1(l) of this Agreement without the prior written consent of
Lender not to be unreasonably withheld.

          (q)
Partnership Interests. Borrower shall not issue any Partnership Interests after
the Effective Date. OC shall not issue any limited or general partnership interests after the
Effective Date. OCGP shall anot issue any membership interests after the Effective Date.

          (r) Subsidiaries. Borrower shall not create or acquire any Subsidiary without the
prior written consent of Lender. No Sub shall create or acquire any Subsidiary.

          (s) No Changes to Organizational Documents. None of the Borrower Organizational
Documents, Subs Organizational Documents, General Partner Organizational Documents, Limited
Partners Organizational Documents or any of the Subsidiary Organizational Documents shall be
amended or otherwise modified.

          (t) No Change to Route of Project. The route of the Project shall be from the city of
Victoria on the southern tip of Vancouver Island, British Columbia, Canada across the Strait of
Juan de Fuca to Port Angeles, Washington State, USA for a total distance of approximately 36km
(21.6 miles). Borrower shall not, and shall not permit any Person to, change such route of the
Project without the prior written consent of Lender, which consent may be not be unreasonably
withheld.

          5.3 Additional Agreements.

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          (a) Right of First Refusal.

        (i) In the event that the Parties determine to design, construct, own and operate
another submarine transmission link spanning the Strait of Juan de Fuca and connecting points
other than the city of Victoria on the southern tip of Vancouver Island, British Columbia,
Canada to Port Angeles, Washington State, U.S.A. but connecting British Columbia from greater
Victoria and/or from the “lower mainland” (so called) in greater Vancouver and the Olympic
Peninsula only (the “Alternate Juan de Fuca Project”), then USPF shall have the right
of first refusal to provide the development financing for each such Alternate Juan de Fuca
Project pursuant to terms and conditions substantially similar to the terms and conditions
set forth in this Agreement, unless otherwise mutually agreed to by the Parties.

        (ii) In the event of one or more Alternate Juan de Fuca Project, then USPF shall have
the option to invest 100% of the equity funds in each such Alternate Juan de Fuca Project
according to the terms and conditions set forth in the Equity Term Sheet (and, for purposes
of such option, the “Project” shall mean such Alternate Juan de Fuca Project(s)). The terms
and conditions of such investment in any Alternate Juan de Fuca Project shall not include a
requirement that the Lender receive any commitment fee similar to the Commitment Fee that is
required hereunder unless such fee is negotiated by the Parties at the time of such Alternate
Juan de Fuca Project.

          (b) Survival of Obligations Upon Termination of Agreement. Upon payment in full of
the outstanding Principal amount of the Loans, all interest thereon and payment or performance of
all other Obligations, all of the undertakings, agreements, covenants, warranties and
representations contained in the Loan Documents shall thereupon be terminated and the Parties
thereto released from all prospective obligations hereunder and thereunder; provided, however, that
the covenant in Section 5.3(a) above and the Obligations of Borrower under Sections 5.1(c) and 7.12
of this Agreement shall survive such termination.

          (c) Overrun Protection.

        (i) If Development Milestones 1 through 18 set forth on Schedule 1.3 have not
been achieved (such achievement to be determined in the exercise of the judgment of the
Lender) at the time when the Initial Advance has been funded in full by Lender and the
proceeds thereof have been used in full or have otherwise been committed or reserved by
Borrower in accordance with this Agreement, then the Overrun Protectors shall provide
Borrower with such amounts as and when needed to fund Borrower’s external costs until
Development Milestones 1 through 18 have been achieved in an aggregate amount of up to
$500,000 (the aggregate of such amounts advanced shall be referred to herein as the
“Initial Overrun Amount”).

        (ii) If the Development Milestones have not been achieved and the Financial Closing Date
has not occurred by the time when the Maximum Amount has been funded in full by Lender and
the proceeds thereof have been used in full or have otherwise been committed or reserved by
Borrower in accordance with this Agreement, then the Overrun Protectors shall provide
Borrower with such amounts needed to fund Borrower’s external

38

 

costs as and when needed up until the Financial Closing Date, in an aggregate amount not
to exceed the result of (x) $1,000,000 minus (y) the Initial Overrun Amount (the
aggregate of such amounts advanced plus the Initial Overrun Amount shall be referred to
herein as the “Overrun Amount”).

        (iii) Up until the Financial Closing Date, the Overrun Protectors shall provide Borrower
with all amounts necessary to fund Borrower’s internal costs to the extent that such costs
are not funded by the Lender pursuant to the terms of this Agreement.

        (iv) The obligations of the Overrun Protectors under this Section 5.3(c) shall be joint
and several and shall not be subject to offset or reduction for any reason.

        (v) The Lender shall be entitled to enforce the obligation of each Overrun Protector set
forth in this Section 5.3(c).

        (vi) For all purposes of this Agreement, references to Borrower’s “external costs” shall
mean all amounts owed to unrelated third parties and references to Borrower’s “internal
costs” shall mean all costs incurred by Borrower’s employees, agents and Affiliates,
including the Overrun Protectors, and each of their employees, agents and Affiliates.

SECTION 6. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT

          6.1 Events of Default. The occurrence of any one or more of the following events
shall constitute an “Event of Default”:

          (a) Borrower fails to pay any Obligation on the date such amount is due;

          (b) Borrower or any Sub fails to perform, keep or observe or otherwise breaches any covenant
contained in Section 5.1 of this Agreement (other than Sections 5.1(e)(v) or 5.1(f) of this
Agreement) and such failure or breach shall continue for a period of fifteen (15) days after
Borrower receives notice thereof from Lender; provided that if (i) such failure or breach cannot be
cured within such fifteen (15) day period, (ii) such failure or breach is susceptible of cure,
(iii) Borrower is proceeding with diligence and in good faith to cure such failure or breach, (iv)
the existence of such failure or breach has not had and is not reasonably likely to result in a
Material Adverse Effect and (v) Lender shall have received an officer’s certificate signed by an
Authorized Officer of Borrower to the effect of clauses (i) through (iv) above and specifying the
actions Borrower is taking to cure such failure or breach, then such fifteen (15) day period shall
be extended by up to an additional twenty (20) days as shall be necessary for Borrower diligently
to cure such failure or breach;

          (c) Borrower or any Sub fails to perform, keep or observe or otherwise breaches any covenants
contained in Section 5.1(e)(v), Section 5.1(f) or Section 5.2 of this Agreement (excluding Section
5.2 (b) (but only to the extent the Lien or security interest giving rise to the failure to
perform, keep or observe, or the breach of, such covenant was not made or granted by Borrower or
such Sub));

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          (d) Borrower or any Sub fails to perform, keep or observe or otherwise breaches the covenant
contained in Section 5.2(b) of this Agreement (to the extent that the Lien or security interest
giving rise to the failure to perform, keep or observe, or the breach of, such covenant was not
made or granted by Borrower or such Sub) and such failure shall continue for a period of fifteen
(15) days from the occurrence thereof;

          (e) Borrower, either Sub, either Limited Partner, General Partner, either Overrun Protector or
Sea Breeze fails to perform, keep or observe or otherwise breaches any material term, provision,
condition or covenant contained in this Agreement (other than those described in Sections 6.1(b),
(c), or (d) above), or any other Loan Document and such failure shall continue for a period of
fifteen (15) days after such breaching Person receives written notice thereof from Lender; provided
that if (i) failure or breach cannot be cured within such fifteen (15) day period, (ii) such
failure or breach is susceptible of cure, (iii) such breaching Person is proceeding with diligence
and in good faith to cure such failure or breach, (iv) the existence of such failure or breach has
not had and is not reasonably likely to result in a Material Adverse Effect and (v) Lender shall
have received an officer’s certificate signed by an Authorized Officer of such breaching Person to
the effect of clauses (i) through (iv) above and specifying the actions such breaching Person is
taking to cure such failure or breach, then such fifteen (15) day period shall be extended by up to
an additional thirty (30) days as shall be necessary for such breaching Person to cure such failure
or breach;

          (f) Any material statement, representation, warranty, report, financial statement or
certificate contained herein or in any other Loan Document or made or delivered by Borrower, either
Sub, either Limited Partner, General Partner, either Overrun Protector or Sea Breeze or any of
their respective officers, employees or agents to Lender is not true and correct or is misleading
in any material respect when made or deemed to have been made; provided, that no Event of Default
shall exist in respect of any such misrepresentation (excluding a misrepresentation under Section
4.2, Section 4.3(i), Section 4.6(a) or Section 4.12 of this Agreement) if the condition or
circumstance causing or giving rise to such misrepresentation has not resulted in a Material
Adverse Effect and is capable of being cured and is cured within fifteen (15) days after the date
on which such misrepresentation was found to have occurred and an Authorized Officer of such
defaulting Person certifies to Lender that such defaulting Person is diligently pursuing a cure and
such defaulting Person continues diligently to pursue such cure during such period;

          (g) Any Event of Bankruptcy shall occur with respect to Borrower, any Subsidiary of Borrower,
either Overrun Protector, either Limited Partner or General Partner or any Material Party;

          (h) Borrower or any Sub ceases to conduct its business substantially as now conducted; or
Borrower or any Sub is enjoined, restrained or in any way prevented by court order, or final order
of any governmental authority, from conducting all or any material part of its business and such
order shall not be lifted within thirty (30) days;

          (i) A notice is filed of record disclosing a Lien with respect to any of the assets of
Borrower or any of its Subsidiaries by the United States or Canada, or any department, agency or
instrumentality thereof, or by any state, province, county, municipal or other governmental

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agency, or if any taxes or debts owing at any time hereafter to any one of these becomes a
Lien upon any assets of Borrower or any of its Subsidiaries unless, in the case of any of the
foregoing, Borrower shall within ten (10) days thereafter commence (or cause its Subsidiary to
commence) and thereafter diligently pursue a proceeding to contest in good faith any such Lien or
tax, and shall have created a reserve on its books (or its Subsidiary’s books, as applicable) in
accordance with GAAP;

          (j) (i) Any order, judgment or decree shall be entered against Borrower or any of its
Subsidiaries decreeing Borrower’s or any of its Subsidiaries’ involuntary dissolution or split-up
and such order shall remain undischarged and unstayed for a period in excess of sixty (60) days or
(ii) Borrower or any of its Subsidiaries shall dissolve or cease to exist;

          (k) A Change of Control shall occur;

          (l) Any Security Document, once executed and delivered, shall for any reason cease to be in
full force and effect, or shall cease to give Lender the Liens, security interests, rights, powers
and privileges purported to be created thereby or the security interests and Liens granted to the
Lender in all or any part of the Collateral shall for any reason fail to constitute valid and
perfected first priority security interests and Liens, unless, in the case of any of the foregoing,
Borrower, each Sub, each Limited Partner or General Partner, as the case may be, shall within ten
(10) days after the earlier of (x) the date on which Borrower, such Sub, such Limited Partner or
General Partner, as the case may be, obtains knowledge thereof and (y) the date on which Borrower,
such Sub, such Limited Partner or General Partner, as the case may be, receives notice thereof,
Borrower, such Sub, such Limited Partner or General Partner, as the case may be, cures (or causes
the cure of) any such failure;

          (m) (i) Either Limited Partner or General Partner fails to perform, keep or observe or
otherwise breaches any covenant contained in Section 4.1, 4.2, 4.5, 4.7, 4.11, 4.14, 4.16 or 4.17
of the Pledge Agreement or (ii) Either Limited Partner or General Partner fails to perform, keep or
observe or otherwise breaches any covenant contained in Section 4.3, 4.4, 4.6, 4.8, 4.9, 4.10,
4.12, 4.13 or 4.15 of the Pledge Agreement or any other material terms, provisions, condition or
covenant contained in the Pledge Agreement and such failure or breach shall continue for a period
of fifteen (15) days after the occurrence thereof, provided that if such failure or breach cannot
be cured within such fifteen (15) day period; (iii) such failure or breach is susceptible of cure,
(iii) Limited Partner or General Partner, as applicable, is proceeding with diligence and in good
faith to cure such failure or breach, (iv) the existence of such failure or breach has not had and
is not reasonably likely to result in a Material Adverse Effect and (v) Lender shall have received
an officer’s certificate signed by an Authorized Officer of Limited Partner or General Partner, as
applicable, to the effect of clauses (i) through (iv) above and specifying the actions Limited
Partner or General Partner, as applicable, is taking to cure such failure or breach, then such
fifteen (15) day period shall be extended by up to an additional fifteen (15) days as shall be
necessary for Limited Partner or General Partner, as applicable, diligently to cure such failure or
breach;

          (n) Any Subsidiary of Borrower fails to perform, keep or observe or otherwise breaches any
covenant, material term or provision contained in any Security Document and such

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failure continues after the expiration of any cure periods contained in such Security Document
and such breach has, or would reasonably be expected to have, a Material Adverse Effect.

          (o) Any party shall breach or otherwise be in default under any Project Contract and such
failure continues after the expiration of any cure periods contained in such Project Contract and
such breach has, or would reasonably be expected to have, a Material Adverse Effect;

          (p) Any Project Contract or Project Permit shall cease to be in full force and effect prior to
its stated termination date and such occurrence has or would reasonably be expected to have a
Material Adverse Effect;

          (q) Any judgment or decree shall be entered by a court or courts of competent jurisdiction
against Borrower or any of its Subsidiaries, either Limited Partner or General Partner and (i) such
judgment or decree shall award non-monetary relief which has or would reasonably be expected to
have a Material Adverse Effect and has not been stayed, discharged, or vacated within thirty (30)
days, or (ii) such judgment or decree shall award monetary damages in an amount of $100,000 or more
individually, or in an aggregate amount of $250,000 or more when taken together with all other
judgments and decrees, and shall not be stayed, discharged, paid, bonded or vacated within thirty
(30) days or (iii) enforcement proceedings shall be commenced by any creditor on any such judgment
or decree;

          (r) There has occurred an event that has had or is reasonably expected to have a Material
Adverse Effect;

          (s) Any Person included in the Key Management Personnel shall no longer be employed or
otherwise engaged by Borrower with substantially the same or greater responsibilities for the
development of the Project as on the Effective Date (or the date of employment or engagement if
later), and such Person is not replaced by another Person of comparable experience and education
and otherwise reasonably satisfactory to Lender (who shall become a Key Management Personnel
member) within sixty (60) days of the loss of such Key Management Personnel member;

          (t) Any Indebtedness of Borrower or any of its Subsidiaries, either Limited Partner or General
Partner (other than the Obligations) in an aggregate principal amount of $100,000 or more, shall
not be paid when due or there shall occur any default or breach thereunder which renders such
Indebtedness capable of being declared by a creditor to be prematurely due and payable or placed on
demand;

          (u) Either Overrun Protector fails to pay any amount due to Borrower under Section 5.3(c) of
this Agreement on the date such payment is due; or

          (v) Any party other than Lender shall breach or otherwise be in default under that certain
Stockholders’ Agreement of General Partner dated as of even date herewith by and among General
Partner, Lender, SBX and BE (as the same may be amended from time to time in accordance with its
terms).

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          6.2 Rights and Remedies.

          (a) Upon the occurrence of any Event of Default in respect of Borrower or a Sub described in
Section 6.1(g) or Section 6.1(j), the Lender’s remaining commitments under Section 2.1 shall
automatically and immediately terminate, and the unpaid Principal amount of and any and all accrued
interest on the Loans and any and all other accrued Obligations shall automatically become
immediately due and payable, without demand, protest, notice or legal process or other requirements
of any kind.

          (b) Upon the occurrence and during the continuance of any Event of Default (other than an
Event of Default in respect of Borrower or a Sub described in Section 6.1(g) or Section 6.1(j)),
Lender may, by written notice to Borrower (i) declare that the remaining commitments under Section
2.1 are terminated, and (ii) declare the unpaid Principal amount of and any and all accrued and
unpaid interest on the Loans and any and all other accrued Obligations to be, and the same shall
thereupon be, immediately due and payable, without demand, notice or legal process of any kind.
All overdue Obligations shall bear interest at the rate of twenty-five percent (25%) per annum,
calculated on the basis of a 365-day year, compounded annually.

          (c) In addition to the foregoing, upon the occurrence and during the continuance of any Event
of Default, the Lender may exercise any or all of its rights as secured parties under the Security
Documents or otherwise exercise all rights and remedies under applicable law.

          (d) All rights and remedies provided for in the Loan Documents shall be cumulative with all
other rights and remedies available to Lender hereunder or otherwise available at law or in equity
upon the occurrence of an Event of Default.

SECTION 7. MISCELLANEOUS

          7.1 Assignment.

          (a) No Party may sell, assign or transfer this Agreement, or any portion hereof, including,
without limitation, such Party’s rights, title, interests, remedies, powers, liabilities,
obligations and/or duties hereunder, except that Lender may assign (including collaterally) this
Agreement: (i) to an unaffiliated third party, with the consent of Borrower, such consent not to be
unreasonably withheld or delayed, and (ii) to a Lender Affiliate, without the consent of Borrower;
provided that, in any case, such assignment will not subject Borrower to any additional material
regulatory requirements, including but not limited to regulation as a holding company under the
PUHCA. Upon Lender’s assignment of this Agreement in accordance with clause (i) above, Lender
shall be released from any future liability or obligations hereunder to the extent of such
assignment. This Agreement shall be binding upon and inure to the benefit of the Parties’
successors and permitted assigns.

          (b) Nothing in this Agreement nor in the other Loan Documents shall restrict, at any time,
direct or indirect transfers or assignments (including, without limitation, collateral assignments)
of interests in USPF, or in its constituent entities, so long as, following any such transfers or
assignments with respect to USPF, USPF shall remain controlled by or under common control with
Energy Investors Funds Group, LLC (the “USPF Control Requirement”). Transfers or
assignments in accordance with the foregoing are subject to the proviso in Section

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7.1(a) of this Agreement but if the conditions of such proviso are met shall not require prior
notice to any other Party nor any other Party’s consent or approval. In addition, the holding of
approval rights over decisions of USPF by any Persons or entities holding direct or indirect
interests in USPF shall not violate the USPF Control Requirement.

          7.2 Payment of Expenses.

          (a) Borrower shall pay all reasonable out-of-pocket costs and expenses of Lender in connection
with (i) Lender’s review and due diligence through Financial Close including, but not limited, to
legal expenses, costs associated with Lender’s retention of Stone & Webster and Tetra Tech, Inc. as
consultants and other third party costs, (ii) Lender’s negotiation, drafting, execution and
delivery of the Loan Documents (including the Equity Term Sheet and the Equity Agreements) and the
documents and instruments referred to therein and any agreement relating thereto or contemplated
thereunder, (iii) the management and administration of the Loan, (iv) the creation, perfection or
protection of the Liens of Lender, (v) any amendment, waiver or consent relating to any of the Loan
Documents, and (vi) the costs and expenses of Lender incurred in connection with the enforcement of
any rights or remedies available under the Loan Documents (including, without limitation, as to
each of the foregoing, the fees and expenses of legal counsel, the Independent Engineer and other
advisers).

          (b) Borrower shall have no obligation to make any payment pursuant to Section 7.2(a) of any of
the foregoing costs and expenses prior to the Maturity Date.

          (c) On the Financial Closing Date, Borrower’s obligation to pay Lender the foregoing costs and

expenses pursuant to Section 7.2(a) shall be determined in accordance with the provisions of
Section 2.6(b) and Section 2.6(c).

          7.3 Amendments and Waivers. Neither this Agreement, the Note, any other Loan Document
to which Borrower is a party nor any terms hereof or thereof may be amended, supplemented, modified
or waived except in accordance with the provisions of this Section 7.3. Lender and Borrower may,
from time to time, enter into written amendments or waivers of this Agreement, the Note or the
other Loan Documents to which Borrower is a party. Any such amendment, supplement, modification or
waiver shall be binding upon Borrower, Lender and all future holders of the Note.

          7.4 Nonwaiver by Lender. Lender’s failure, at any time or times hereafter, to require
strict performance by Borrower of any provision of this Agreement shall not waive, affect or
diminish any right of Lender to demand strict compliance and performance by Borrower thereafter.
Any suspension or waiver by Lender of an Event of Default under this Agreement shall not suspend,
waive or affect any other Event of Default under this Agreement, whether the same is prior to or
subsequent thereto and whether of the same or of a different type. None of the undertakings,
agreements, warranties, covenants and representations contained in this Agreement, and no Event of
Default under this Agreement, shall be deemed to have been suspended or waived by Lender, unless
such suspension or waiver is by an instrument in writing signed by an officer of Lender, as the
case may be, and directed to Borrower specifying such suspension or waiver.

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          7.5 Construction of Agreement.

          (a) This Agreement and all Schedules and Exhibits hereto referred to herein, together with the
Equity Term Sheet, the Note, the Security Documents and the other Loan Documents, embody the final,
entire agreement among the Parties hereto and supersede any and all prior commitments, agreements,
representations and understandings, whether written or oral, relating to the subject matter hereof
and may not be contradicted or varied by evidence of prior, contemporaneous, or subsequent oral
agreements or discussions of the parties hereto. There are no oral agreements among the parties
hereto. Except as otherwise provided in this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision in any Loan Document, the
provision contained in this Agreement shall govern and control.

          (b) Wherever possible, each provision of this Agreement shall be interpreted in such manner as
to be effective and valid under applicable law. If, however, any provision of this Agreement shall
be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.

          (c) The section titles contained in this Agreement are included for convenience only and are
without substantive meaning or content and are not a part of the agreement between the Parties
hereto.

          (d) THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT WAS DRAFTED JOINTLY BY COUNSEL TO LENDER, ON
THE ONE HAND, AND COUNSEL TO BORROWER, EACH SUB, EACH LIMITED PARTNER AND GENERAL PARTNER, ON THE
OTHER HAND, AND EACH PARTY THERETO HAS BEEN ADVISED BY COUNSEL AS TO ITS RESPECTIVE RIGHTS AND
OBLIGATIONS THEREUNDER. IN NO EVENT SHALL ANY PROVISION OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT BE CONSTRUED AGAINST ANY PARTY ON THE BASIS THAT SUCH PARTY (OR ITS COUNSEL) WAS THE
DRAFTER THEREOF.

          7.6 Waivers by Borrower. Except as otherwise provided in this Agreement, Borrower
waives, to the extent permitted by law: (a) presentment, demand, protest and notice of presentment,
notice of intent to accelerate the maturity of the Obligations and notice of such acceleration,
protest, default, non-payment, maturity, release, compromise, settlement, extension or renewal and
hereby ratifies and confirms whatever Lender may do in this regard; and (b) the benefit of all
stay, extension, marshaling-of-assets or similar laws, whether now or at any time hereafter in
force, which may delay, prevent or otherwise affect the performance of the Obligations by Borrower
or the enforcement of the Obligations by Lender. Borrower acknowledges that it has been advised by
counsel with respect to this Agreement and the transactions evidenced by this Agreement.

          7.7 GOVERNING LAW; WAIVER OF JURY TRIAL; LIMITATION OF REMEDIES. (a) THIS AGREEMENT
SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO

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CONFLICTS OF LAW PROVISIONS EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

          (b) THE PARTIES HERETO HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY
DEALINGS AMONG THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION AND THE LENDER/BORROWER
RELATIONSHIP THAT IS BEING ESTABLISHED. THE PARTIES HERETO ALSO WAIVE ANY BOND OR SURETY OR
SECURITY UPON SUCH BOND THAT MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY PARTY HERETO. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED
IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND
STATUTORY CLAIMS. THE PARTIES HERETO EACH ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO
THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.
THE PARTIES HERETO FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE LOAN DOCUMENTS, OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

          (c) NEITHER BORROWER, EITHER SUB, EITHER OVERRUN PROTECTOR, EITHER LIMITED PARTNER NOR GENERAL
PARTNER SHALL, REGARDLESS OF CAUSE, ASSERT ANY CLAIM WHATSOEVER AGAINST LENDER FOR LOSS OF
ANTICIPATORY PROFITS OR CONSEQUENTIAL, PUNITIVE, SPECIAL OR INDIRECT DAMAGES. LENDER SHALL NOT,
SHALL, REGARDLESS OF CAUSE, ASSERT ANY CLAIM WHATSOEVER AGAINST BORROWER, EITHER SUB, EITHER
OVERRUN PROTECTOR, EITHER LIMITED PARTNER OR GENERAL PARTNER FOR LOSS OF ANTICIPATORY PROFITS OR
CONSEQUENTIAL, PUNITIVE, SPECIAL OR INDIRECT DAMAGES.

          (d) Any legal action or proceeding against any of the Parties with respect to this Agreement
or any other Loan Document or the transactions in connection with or relating hereto or thereto,
may be brought in the courts of the State of New York in the County of New York or of the United
States for the Southern District of New York and, by execution and delivery of this Agreement, each
of the Parties hereby irrevocably accepts for itself and in respect of its property,

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generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts. Each
of the Parties agrees that a judgment, after exhaustion of all available appeals, in any such
action or proceeding shall be conclusive and binding upon each of the Parties, and may be enforced
in any other jurisdiction, by a suit upon such judgment, a certified copy of which shall be
conclusive evidence of the judgment.

          (e) Borrower hereby irrevocably designates, appoints and empowers National Corporate Research,
Ltd. (the “Process Agent”) with offices on the date hereof at 225 W. 34th
Street, Suite 910, New York, NY 10122, as its designee, appointee and agent to receive, accept and
acknowledge for and on behalf of Borrower, and in respect of its property, service of any and all
legal process, summons, notices and documents which may be served in any such action or proceeding.
Borrower further agrees that such service of process may be made on the Process Agent by personal
service of a copy of the summons and complaint or other legal process in any such legal suit,
action or proceeding on the Process Agent, or by any other method of service provided for under the
Laws in effect in the County of New York, State of New York, and the Process Agent hereby is
authorized and directed to accept such service for and on behalf of Borrower, and to admit service
with respect thereto.

          (f) Upon service of process being made on the Process Agent as provided in Section 7.7(e), a
copy of the summons and complaint or other legal process served shall be given by the Process Agent
to Borrower in the manner provided in Section 7.8, or to such other address as Borrower may notify
the Process Agent in writing. Personal service upon the Process Agent as provided in Section
7.7(e) shall be deemed to be personal service on Borrower and shall be legal and binding upon
Borrower for all purposes, notwithstanding any failure of the Process Agent to give copies of such
legal process thereto, or any failure on the part of Borrower to receive the same.

          (g) Borrower will at all times continuously maintain an agent to receive service of process in
the County of New York, State of New York on its behalf with respect to each Loan Document. In the
event that for any reason the Process Agent or any successor thereto shall no longer serve as agent
for Borrower to receive service of process in the County of New York on its behalf or shall have
changed its address without notification thereof to the Process Agent, Borrower, immediately after
having knowledge thereof, will irrevocably designate and appoint a substitute agent in the County
of New York, State of New York and advise Lender.

          (h) Nothing contained in this Section 7.7 shall preclude Lender from bringing any legal suit,
action or proceeding against any other Party in the courts of any jurisdiction where such other
Parties or any of its respective property or assets may be found or located. To the extent
permitted by the Laws of any such jurisdiction, such Parties hereby irrevocably submits to the
jurisdiction of any such court and expressly waives, in respect of any such suit, action or
proceeding, the jurisdiction of any court or courts which now or hereafter, by reason of its
present or future domiciles, or otherwise, may be available to it.

          (i) Each Party hereby irrevocably waives any objection which it may now or hereafter have to
the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection
with or any Loan Document or the transactions in connection with, or relating hereto or thereto
brought in the courts referred to in clause (d) above and hereby further

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irrevocably waives and agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.

          7.8 Notices. Without modifying any of the provisions of this Agreement concerning the
requirements for, or waiver of, any notice, all notices or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall be considered
properly given if mailed by first class United States mail, postage prepaid, registered or
certified with return receipt requested, facsimile, or by delivering same in person to the intended
addressee. Notice so mailed shall be effective three (3) days after it is deposited in a
receptacle maintained by the United States Postal Office for the acceptance of mail. Notice given
in any other manner shall be effective only if and when received by the addressee. For purposes of
notice, the addresses of the Parties shall be as set forth on Schedule 7.8 to this
Agreement; provided, however, that any Party shall have the right to change its address for notice
hereunder to any other location within the continental United States by the giving of ten (10)
days’ notice to the other Parties in the manner set forth hereinabove.

          7.9 Counterparts. To facilitate execution, this Agreement may be executed in as many
counterparts as may be required; and it shall not be necessary that the signature of, or on behalf
of, each party, or that the signatures of all persons required to bind any party, appear on such
counterpart, but it shall be sufficient that the signature of, or on behalf of, each party, or that
the signature of the persons required to bind any party, appear on one or more of the counterparts.
All counterparts shall collectively constitute a single agreement. It shall not be necessary in
making proof of this Agreement to produce or account for more than a number of counterparts
containing the respective signatures of, or on behalf of, all of the Parties hereto. Delivery of
an executed counterpart of a signature page of this Agreement by facsimile shall be effective as
delivery of a manually executed counterpart of this Agreement.

          7.10 Limitation of Liability. None of General Partner, either Limited Partner, any
stockholder, officer or director of General Partner or Limited Partner shall be personally liable
(whether by operation of law or otherwise) for any payments due hereunder or under any other Loan
Document or for the performance of any Obligations, except as expressly provided in any Loan
Document to which such Person is a party. The sole recourse of Lender against Borrower and its
Subsidiaries for the Obligations shall be against the Pledged Collateral (as defined in the Pledge
Agreement) and Lender shall not have any claim against any individual who is an officer or director
of Borrower or General Partner. Nothing in this Section 7.10 shall limit or otherwise prejudice in
any way the right of Lender to proceed against: (a) any Person with respect to such Person’s fraud
or misrepresentation; (b) either Overrun Protector with respect to the enforcement of such Overrun
Protector’s obligations hereunder or for breach of any representation or warranty by such Overrun
Protector; or (c) any Person that is a party to any bill of sale or asset assignment agreement
relating to the Project Contracts or Project Permits with respect to a breach of any obligation or
representation or warranty of such Person thereunder.

          7.11 Confidentiality. Lender agrees to hold any information designated as
“confidential” that it receives from Borrower pursuant to this Agreement in confidence in
accordance with procedures adopted by Lender in good faith to protect confidential information of
third parties delivered to it, except for disclosure (a) to Lender’s directors, managers, members,
owners, officers, employees, agents, legal counsel, accountants and other professional

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consultants, provided that such Persons are bound by the provisions of this Section
7.11, have a professional obligation to maintain the confidentiality of confidential information
supplied to them or agree to maintain the confidentiality thereof on substantially the same basis
as is provided under this Section 7.11, (b) to other professional advisors for Lender (including,
without limitation, the Independent Engineer), provided that such other professional
advisor agrees to maintain the confidentiality thereof on substantially the same basis as is
provided under this Section 7.11, (c) to any Governmental Authority having jurisdiction over Lender
as required by such Governmental Authority pursuant to any applicable Law, (d) as required by
applicable Law or legal process or in connection with any legal proceeding to which Lender is a
party, (e) to another Person in connection with a participation or assignment or a proposed
participation or assignment as contemplated by Section 7.1 (which Person shall be required to sign
a confidentiality agreement provided by Lender with respect to such confidential information), (f)
to any Affiliate of Lender provided that such Affiliate shall be subject to the same
obligations of confidentiality under this Section 7.11 as Lender, (g) to prospective purchasers of
any Collateral in connection with any disposition thereof, and (h) to any other Lender. The
confidentiality obligations set forth above shall not, however, apply to any information (i) which
is not treated by Borrower in a manner designed to maintain the confidentiality thereof, (ii) filed
with any Governmental Authority and available to the public, (iii) published in any public medium
from a source other than, directly or indirectly, Lender, or (iv) disclosed by Borrower to any
Person not associated with Borrower without first obtaining a confidentiality agreement
substantially similar to this Section 7.11. Nothing in this Section 7.11 shall be construed to
create or give rise to any fiduciary duty on the part of Lender to Borrower. The obligations of
Lender under this Section 7.11 shall survive the termination of this Agreement for a period of one
(1) year.

          7.12 Indemnity. Borrower shall pay, indemnify, defend and hold the Indemnified
Parties harmless (to the fullest extent permitted by Law) from and against any and all claims,
demands, suits, actions, investigations, proceedings, and damages, and all reasonable attorneys
fees and disbursements and other costs and expenses actually incurred in connection therewith (as
and when they are incurred and irrespective of whether suit is brought), which are asserted
against, imposed upon or incurred by any of them (a) in connection with or as a result of or
related to the execution, delivery, enforcement, performance, or administration of this Agreement
or the transactions contemplated hereby, and (b) with respect to any investigation, litigation, or
proceeding related to this Agreement (irrespective of whether any Indemnified Party is a party
thereto), or any act, omission, event, or circumstance in any manner related thereto (all the
foregoing, collectively, the “Indemnified Liabilities”). The foregoing to the contrary
notwithstanding, Borrower shall have no obligation to any Indemnified Party under this paragraph
with respect to any Indemnified Liability that a court of competent jurisdiction finally determines
to have resulted from the gross negligence or willful misconduct of such Indemnified Party. If any
Indemnified Party makes any payment to any other Indemnified Party with respect to an Indemnified
Liability as to which Borrower was required to indemnify the Indemnified Party receiving such
payment, the Indemnified Party making such payment is entitled to be indemnified and reimbursed by
Borrower with respect thereto. The obligations of Borrower in this Section 7.12 shall survive the
termination of this Agreement and the discharge of Borrower’s other obligations under this
Agreement.

[Signature Page Follows]

49

 

          IN WITNESS WHEREOF, this Agreement has been duly executed by the Parties as of the date set
forth at the outset hereof.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	BORROWER:	 	GENERAL PARTNER:
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	SEA BREEZE PACIFIC JUAN DE FUCA CABLE, LP	 	JUAN DE FUCA CABLE MANAGEMENT, INC.
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: Juan de Fuca Cable Management, Inc., its General Partner	 	By:	 	/s/ Anthony O. Duggleby
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	Name:	 	Anthony O. Duggleby
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	Title:	 	President
	 	 	 	 	 	 	 	 	 	 	 	 	 
	By:
	 	/s/ Anthony O. Duggleby
	 	 	 	 	 	 	 	 	 	 	 
	Name:
	 	Anthony O. Duggleby
	 	 	 	 	 	 	 	 	 	 	 
	Title:
	 	President
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	SUBS:	 	LENDER:
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	OLYMPIC CONVERTER GP, LLC	 	UNITED STATES POWER FUND, L.P.
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: Sea Breeze Pacific Juan de Fuca Cable, LP, its Sole Member	 	By: EIF US Power, LLC, its General Partner
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	By: Juan de Fuca Cable Management, Inc., its General Partner	 	 	 	By: Energy Investors Funds Group LLC, its Sole Member
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Anthony O. Duggleby	 	 	 	 	 	By:	 	/s/ Andrew Schroeder
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	Name:
	 	Anthony O. Duggleby	 	 	 	 	 	Name:
	 	Andrew Schroeder
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	Title:
	 	President	 	 	 	 	
	Title:		Partner
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	OLYMPIC CONVERTER, LP	 	 
	 	 	OVERRUN PROTECTORS:
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	By: Olympic Converter GP, LLC its General Partner	 	SEA BREEZE POWER CORP.
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	By:	 	/s/ Paul B. Manson
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	By: Sea Breeze Pacific Juan de Fuca Cable, LP, its Sole Member	Name:	 	Paul B. Manson
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	Title:	 	President
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	By: Juan de Fuca Cable Management, Inc., its General Partner	 	BOUNDLESS ENERGY LLC
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Anthony O. Duggleby	 	By:	 	/s/ Brian N. Chernack
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:
	 	Anthony O. Duggleby	 	Name:	 	Brian Chernack
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Title:
	 	President	 	Title:	 	President
	 	 	 	 	 	 	 	 	 	 	 	 	 

50

 

EXHIBIT A

PROMISSORY NOTE

April 6, 2005

          For value received, the undersigned, SEA BREEZE JUAN DE FUCA CABLE, LP, a Delaware limited
partnership (“Maker”), with its principal office at Lobby Box 91, Suite 1400, 333 Seymour
Street, Vancouver, British Columbia, Canada, V6B 5A6, hereby promises to pay to the order of United
States Power Fund, L.P., a Delaware limited partnership, and its successors and assigns
(“Payee”), at Payee’s office at c/o Energy Investors Funds, One Penn Plaza, Suite 4507, New
York, NY 10119 or at such other place as from time to time may be designated by Payee, in lawful
money of the United States of America, the amount set forth under the column titled “Total
Outstanding Principal Balance of Loan” on the Note Schedule attached hereto, in addition to the
Lender Expenses (as defined in the Loan Agreement (defined below)), with interest on such amount
accruing at the rate of twenty percent (20%) per annum, compounded annually, as set forth in
Section 2.5 of that certain Loan Agreement (as defined below). Each determination by Payee of the
Principal and interest amount hereunder shall, except for manifest error, be final, conclusive and
binding for all purposes.

          This Note is the Note referred to in that certain Development Loan Agreement, dated as of
April 6, 2005, by and among Sea Breeze Juan de Fuca Cable, LP, Juan de Fuca Cable Management, Inc.,
Olympic Converter, LP, Olympic Converter GP, LLC, Sea Breeze Power Corp., Boundless Energy LLC and
United States Power Fund, L.P. (the “Loan Agreement”). Terms defined in the Loan Agreement are
used herein as so defined unless otherwise defined herein. The holder of this Note shall be
entitled to, without limitation, the benefits provided in the Loan Agreement as set forth therein.

          The entire unpaid principal under this Note and any accrued interest thereon shall be due and
payable in accordance with Section 2.6 of the Loan Agreement.

          The makers, signers, sureties, guarantors and endorsers of this Note severally waive demand,
presentment, notice of dishonor, notice of intent to demand payment hereof, notice of demand,
diligence in collecting, notice, and protest. If this Note shall be collected by legal proceedings
or through a probate or bankruptcy court, or shall be placed with attorneys for collection, the
undersigned agrees to pay all costs of collection, including reasonable attorneys’ fees.

          This Note is secured by the liens and security interests created under those certain
Mortgages, Security Agreement, Depositary Agreement and Pledge Agreement, along with any security
agreement, guarantee or other document entered into pursuant to Section 5.1(n) of the Loan
Agreement.

          THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS RULES OR CHOICE OF LAWS RULES THEREOF EXCEPT
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

Exhibit A-1

 

          The undersigned has executed this Promissory Note as of the date first set forth above.

	 	 	 	 	 
	 	 	SEA BREEZE JUAN DE FUCA CABLE, LP
	 
	 	 	 	 
	 

	 	By:
	 	Juan de Fuca Cable Management, Inc.,
	 

	 	 	 	Its General Partner
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

Exhibit A-2

 

Note Schedule

	 	 	 	 	 
	 	 	 	 	Total Outstanding
	Amount of Advance	 	Date of Advance	 	Principal Balance of Loan
	 

	 	 
	 	 

Exhibit A-3

 

Exhibit B

DEPOSITARY AGREEMENT

Exhibit B-1

April 5, 2005

HSBC Bank USA, NA

600 University Street, Suite 2323

Seattle, Washington

98101

Fax No. (206) 233-0808

Attention: Leni Preciado

Re:      Deposit Account Control Agreement

Ladies and Gentlemen:

     In connection with financing arrangements between ourselves and United States Power Fund,
L.P. (“Lender”) which is joining with us in signing this letter below, we are asking you to
enter into this agreement concerning our account no. 446009725 (the “Deposit Account”) with you.

In order to secure our obligations to Lender pursuant to collateral security arrangements between
Lender and us, we have assigned to Lender and granted to Lender a security interest in and lien
upon the Deposit Account, any cash balances from time to time credited to the Deposit Account, all
contract rights, claims and privileges in respect of such Deposit Account, and any and all proceeds
(as defined in Section 9–102(a) (64) of the New York Uniform Commercial Code) of the foregoing,
whether now or hereafter existing or arising (collectively, the “Deposit Account Collateral”).

 

 

     Until you have received instructions from Lender to the contrary, we shall be entitled to
present items drawn on and otherwise to withdraw or direct the disposition of funds from the
Deposit Account; provided however, that you and we agree with Lender that (a) we may not,
and you will not permit us to, without Lender’s prior written consent, (i) withdraw any sums from
the Deposit Account if the credit balance of the Deposit Account remaining would be less than
$0   or (ii) close the Deposit Account.

     Notwithstanding the foregoing or any separate agreement that we may have with Lender, Lender
shall be entitled, for purposes of this agreement, at any time to give you instructions as to the
withdrawal or disposition of any funds from time to time credited to the Deposit Account, or to any
other matters relating to the Deposit Account, or any of the Deposit Account Collateral, without
our further consent. You hereby agree to comply with such instructions without any further consent
from us. Such instructions may include the giving of stop payment orders for any items being
presented to the Deposit Account for payment, or the transfer of all funds on deposit in the
Deposit Account to the account designated by Lender. You shall be fully entitled to rely upon such
instructions from Lender even if such instructions are contrary to any instructions or demands that
we may give to you. We confirm that you should follow instructions from Lender even if the result
of following such instructions from Lender is that you dishonor items presented for payment from
the Deposit Account. We further confirm that you shall have no liability to us for wrongful
dishonor of such items in following such instructions from Lender. You shall have no duty to
inquire or determine whether our obligations to Lender are in default or whether Lender is
entitled, under any separate agreement between us and Lender, to give any such instructions. We
further agree to be responsible for your customary charges and to indemnify you from and to hold
you harmless against any loss, cost or expense that you may sustain or incur in acting upon
instructions from Lender which you believe in good faith to be instructions from Lender.

     Unless you have obtained Lender’s prior written consent, you agree not to exercise any right
of recoupment or set-off, or to assert any security interest or other lien, that you may at any

time have against or in any of the Deposit Account Collateral on account of any credit or other
obligation owed to you by us or any other person. You may, however, from time to time debit the

Deposit Account for any of your customary charges in maintaining the Deposit Account or for
reimbursement for the reversal of any provisional credits granted by you to the Deposit Account, to
the extent, in each case, that we have not separately paid or reimbursed you therefore.

     You represent and warrant to Lender that the account agreement between you and us relating to
the establishment and general operation of the Deposit Account provides, whether specifically or
generally, that the laws of the State of New York govern secured transactions relating to the
Deposit Account. You covenant with Lender that you will not, without Lender’s prior written
consent, amend that account agreement so that secured transactions relating to the Deposit Account
are governed by the law of another jurisdiction. In addition, you represent and warrant to Lender
that you have not entered, and you covenant with Lender that you will not enter, into any agreement
with any other person by which you are obligated to comply with instructions from such other person
as to the disposition of funds

2

 

from the Deposit Account or other dealings with any of the Deposit Account Collateral. You are not
aware of any claim to our interest in the Deposit Account other than claims and interests of the
Debtor and the Lender. You further represent and warrant to Lender that you maintain no deposit
accounts for us other than the Deposit Account, and you covenant with Lender that any items or
funds received by you for our account will be credited to the Deposit Account.

     Kindly furnish to Lender, at its address indicated below, copies of all customary deposit
account statements and other information relating to the Deposit Account that you send to us.

     This agreement shall control over any conflicting agreement between you and us. This
agreement shall be governed by the internal law of the State of New York and shall be construed as
a sealed instrument under such law. This agreement may not be rescinded, terminated or amended
without the prior written consent of Lender.

     If you agree to and accept the foregoing, please so indicate by executing and returning to us
the enclosed duplicate of this letter.

[Signatures begin on the following page]

3

 

	 	 	 	 	 	 	 
	 	 	Very truly yours,
	 
	 	 	 	 	 	 
	 	 	SEA BREEZE PACIFIC JUAN DE FUCA CABLE, LP
	 
	 	 	 	 	 	 
	 	 	 	 	By: Juan de Fuca Cable Management, Inc., its General
Partner
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Name:	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Title:	 

LENDER:

UNITED STATES POWER FUND, L.P.

By: EIF US Power, LLC as its General Partner

By: Energy Investors Funds Group LLC as its Sole Member

By:____________________

4

 

     Andrew Schroeder

Title: Partner

ACCEPTED AND AGREED AS OF:_____________

HSBC Bank USA, National Association

By: _____________________________

Name:_____________________

Title:______________________

5

 

EXHIBIT C

GUARANTEE

Exhibit C-1

GUARANTEE AND SUBORDINATION AGREEMENT

     This GUARANTEE AND SUBORDINATION AGREEMENT (this “Guarantee Agreement”), dated as of
April 6, 2005, by and among OLYMPIC CONVERTER GP, LLC, a Delaware limited liability company
(“OCGP”), SEA BREEZE PACIFIC REGIONAL TRANSMISSION SYSTEM, INC., a British Columbia
corporation (“SBP-RTS”) and OLYMPIC CONVERTER, LP, a Delaware limited partnership (the
“US Sub” and together with OCGP and SBP-RTS, the “Guarantors” and each individually
a “Guarantor”) in favor of UNITED STATES POWER FUND, L.P., as the lender (the “Secured
Party”).

W I T N E S S E T H:

     WHEREAS, Sea Breeze Pacific Juan de Fuca Cable, LP, a Delaware limited partnership (the
“Borrower”), the Guarantors, the Lender, Juan de Fuca Cable Management, Inc., a Delaware
corporation, Sea Breeze Power Corp., a British Columbia corporation, and Boundless Energy LLC, a
Maine limited liability company, have entered into a Development Loan Agreement dated as of the
date hereof (as the same may be amended, restated or supplemented and in effect from time to time,
the “Loan Agreement”) and the Loan Documents referred to therein (the “Loan
Documents”), pursuant to which the Secured Party has committed to provide development loans
(the “Loans”) to Borrower; and

     WHEREAS, each of OCGP and the US Sub is, either directly or indirectly, a wholly-owned
subsidiary of the Borrower;

     WHEREAS, SBP-RTS is an affiliate of Borrower;

     WHEREAS, in order to induce the Secured Party to make the Loans, each Guarantor is willing to
guarantee the payment and performance of the Guaranteed Obligations (as defined herein);

     NOW, THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

     SECTION 1. Definitions. Capitalized terms used, but not otherwise defined, herein
shall have the respective meanings assigned to such terms in the Loan Agreement.

     SECTION 2. Representations and Warranties. Each Guarantor represents as to itself as
of the date hereof that:

6

 

     (a) Such Guarantor (i) is an entity duly incorporated, organized or formed, validly existing
and in good standing under the laws of the jurisdiction of its organization; (ii) has all requisite
corporate, limited liability company or limited partnership power, as applicable, and has all
governmental licenses, authorizations, consents and approvals necessary, to own its assets and
carry on its business as now being or as proposed to be conducted, and (iii) is qualified to do
business in all jurisdictions in which the nature of the business conducted by it makes such
qualification necessary.

     (b) Such Guarantor has all necessary limited corporate, liability company or limited
partnership power and authority, as applicable, to execute, deliver and perform its obligations
under this Guarantee Agreement; the execution, delivery and performance by such Guarantor of this
Guarantee Agreement have been duly authorized by all necessary corporate, limited liability
company, limited partnership or unlimited liability company action, as applicable; and this
Guarantee Agreement has been duly and validly executed and delivered by such Guarantor and
constitutes the legal, valid and binding obligation of such Guarantor, enforceable in accordance
with its terms, except as enforceability may be limited by general equitable principles or by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors’ rights generally.

     (c) Neither the execution and delivery by such Guarantor of this Guarantee Agreement or the
other Loan Documents to which it is party, nor compliance with the terms and provisions hereof and
thereof by such Guarantor, will (i) conflict with or result in a breach of, or require any consent
or filing under, the certificate of formation or incorporation, articles of association, operating
agreement, bylaws, memorandum of association or other formation, organizing or governing documents
of such Guarantor or any applicable law or regulation, or any order, writ, injunction or decree of
any court or Governmental Authority, or any agreement or instrument to which such Guarantor is a
party or by which it is bound or to which it is subject, except such consents and filings as have
been obtained or made, are in full force and effect and have been disclosed to the Secured Party in
writing, (ii) constitute a default under any such agreement, document or instrument, or (iii)
result in the creation or imposition of any Lien upon any of the revenues or assets of such
Guarantor pursuant to the terms of any such agreement or instrument (except for the Liens created
pursuant to or permitted by the Security Documents).

     (d) There are no legal or arbitral proceedings or any proceedings by or before any
Governmental Authority or agency, now pending or, to the knowledge of such Guarantor, threatened
against or affecting such Guarantor as to which there is a reasonable possibility of an adverse
determination.

     (e) Such Guarantor has obtained all authorizations, approvals and consents of, and has made
all filings and registrations with, any Governmental Authority and any third party necessary for
the consummation of the transactions contemplated hereby and the execution, delivery or performance
by it of any Loan Document to which it is a party, or for the validity or enforceability thereof,
except for filing and recording of the Liens created pursuant to, or permitted by, the Security
Documents.

     (f) As of the date hereof, and after giving effect to this Guarantee Agreement and the
obligations evidenced hereby, (i) each Guarantor is and will be solvent, (ii) the fair saleable

7

 

value of each Guarantor’s assets exceeds and will continue to exceed its liabilities (both
fixed and contingent), (iii) each Guarantor is and will continue to be able to pay its debts as
they become due and (iv) each Guarantor has and will continue to have sufficient capital to carry
on its business and all businesses in which it is about to engage.

     SECTION 3. The Guarantee. Each Guarantor hereby absolutely, irrevocably and
unconditionally guarantees the full and punctual payment and performance of the Obligations and all
other covenants, stipulations and agreements of Borrower set forth in the Loan Agreement or any
other Loan Document (the “Guaranteed Obligations”), when and as due, whether at maturity,
by acceleration, upon one or more dates set for prepayment or otherwise. Upon the failure of the
Borrower to punctually pay any such amount or perform such Guaranteed Obligations, each Guarantor
agrees that it shall forthwith on demand pay the amount not so paid or perform the Obligation not
so performed at the place and in the manner specified in the Loan Agreement or any other Loan
Document, as the case may be.

     SECTION 4. Guarantee Unconditional. Each Guarantor agrees that this Guarantee is a
guaranty of payment or performance and not of collection, and that its obligations under this
Guarantee Agreement shall be primary, absolute and unconditional, without limiting the generality
of the foregoing, shall not be released, discharged or otherwise affected by:

     (a) any extension, renewal, settlement, compromise, waiver or release in respect of any
obligation of the Borrower under the Loan Agreement or any other Loan Document or any obligation of
any Guarantor hereunder or under any Security Document, by operation of law or otherwise;

     (b) any modification or amendment of or supplement to the Loan Agreement or any other Loan
Document;

     (c) any release, non-perfection or invalidity of any direct or indirect security for any
obligation of the Borrower under the Loan Agreement or any other Loan Document or any obligation of
the Guarantor hereunder or under any Security Document;

     (d) any change in the corporate existence, structure or ownership of the Borrower, or any
insolvency, bankruptcy, reorganization or other similar proceeding affecting the Borrower or its
assets or any resulting release or discharge of any obligation of the Borrower contained in the
Loan Agreement or any other Loan Document;

     (e) the existence of any claim, set-off or other rights that any Guarantor may have at any
time against the Borrower, the Secured Party or any other Person, whether in connection herewith or
any unrelated transactions, provided that nothing herein shall prevent the assertion of any such
claim by separate suit or compulsory counterclaim;

     (f) any invalidity or unenforceability of the Loan Agreement or any other Loan Document
against the Borrower or relating to the Borrower for any reason or any provision of applicable law
or regulation purporting to prohibit the payment by the Borrower of the principal of or interest on
any Loan (except as otherwise expressly provided in the Loan Agreement) or any other amount payable
by the Borrower under the Loan Agreement or any other Loan Document;

8

 

     (g) the taking or accepting by Secured Party of any other security, collateral or guaranty, or
other assurance of payment or performance, for all or any part of the Guaranteed Obligations; or

     (h) any other act or omission to act or delay of any kind by the Borrower, any Guarantor, the
Secured Party or any other Person, or any other circumstance whatsoever which might, but for the
provisions of this paragraph, constitute a legal or equitable discharge of each Guarantor’s
obligations hereunder.

     SECTION 5. Discharge Only Upon Payment and Performance In Full; Reinstatement In Certain
Circumstances. Except as set forth in Section 8(c) below, each Guarantor’s obligations
hereunder shall remain in full force and effect until the satisfaction of all Guaranteed
Obligations, including the payment in full of the principal of and interest on the Loans and all
other amounts payable by the Borrower under the Loan Agreement and any other Loan Documents, and
the full performance of all other Guaranteed Obligations thereunder. If at any time any payment of
the principal of or interest on any Loan or any other amount payable by the Borrower under the Loan
Agreement or any other Loan Document is rescinded or must be otherwise restored or returned upon
the insolvency, bankruptcy or reorganization of the Borrower or otherwise, the Guarantor’s
obligations hereunder with respect to such payment shall be reinstated as though such payment had
been due but not made at such time. Each Guarantor hereby acknowledges that Borrower’s withdrawal
from ownership of such Guarantor, or termination of any ownership interest in such Guarantor now or
hereafter owned or held by Borrower, shall not alter, affect or in any way limit the obligations of
such Guarantor hereunder.

     SECTION 6. Waiver by Guarantor. Each Guarantor waives notice of acceptance of this
Guarantee Agreement, presentment for payment, performance, demand, protest, notice of intent to
accelerate, notice of acceleration, notice of dishonor, notice of default and, to the fullest
extent permitted by law, any notice not provided for herein, as well as any requirement that at any
time any action be taken or any recourse exhausted by any Person against the Borrower, any
Guarantor hereunder, or any other Person.

     SECTION 7. Stay of Acceleration. If acceleration of the time for payment of any
amount payable by the Borrower under the Loan Agreement or the time for performance of any other
obligation, covenant or agreement arising out of any Loan Document is stayed upon the insolvency,
bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration
under the terms of the Loan Agreement nonetheless shall be payable by any Guarantor hereunder
forthwith on demand by the Secured Party.

SECTION 8. Limitation on Guarantors’ Obligations.

     (a) Notwithstanding anything to the contrary set forth herein, the obligations of each
Guarantor hereunder shall be limited to an aggregate amount equal to the largest amount that would
not render its obligations hereunder subject to avoidance under Section 548 of the United States
Bankruptcy Code or any applicable provisions of comparable state law.

     (b) In addition, the sole recourse of Secured Party against SBP-RTS for the Guaranteed
Obligations shall be against any and all assets relating to the Project that are owned

9

 

or held by or in the name of SBP-RTS (the “Project Assets”), including without limitation
the Project Contracts and the Project Permits; provided, however, that nothing in this Section 8(b)
shall limit or otherwise prejudice in any way the right of Secured Party to proceed against SBP-RTS
(a) for its fraud or misrepresentation (or any fraud or misrepresentation by any officer, director,
employee or agent of SBP-RTS when acting on behalf of, or as a representative of, SBP-RTS); or (b)
for any breach of its covenants or obligations or representations and warranties under this
Agreement or any other Loan Document to which it is a party, including, without limitation, those
certain Asset Assignment Agreements and Bills of Sale pursuant to which SBP-RTS is assigning and
transferring the Project Assets to Borrower and US Sub (the “Transfer Documents”).

     (c) Upon SBP-RTS’s transfer of all of its right, title and interest in and to all of the
Project Assets to the US Sub and/or the Borrower, its obligations hereunder shall immediately be
discharged in full with no further action by any party; provided, however, that if any such
transfer is subsequently held or discovered to have been invalid, SBP-RTS’s obligations hereunder
shall be reinstated as though they had never been discharged; provided further that such discharge
shall not affect in any way any of SBP-RTS’s obligations, covenants, representations and warranties
under the Transfer Documents.

     SECTION 9. Subordination.

     (a) Each Guarantor agrees that the payment by the Borrower of any Permitted Debt in favor of
such Guarantor (the “Subordinated Lender”) shall be subordinated and subject to the prior
payment or performance in full of the Guaranteed Obligations and any other amounts payable by the
Borrower under the Loan Agreement and any other Loan Document (“Senior Debt”) in the manner
and to the extent provided in paragraphs (b) through (e) of this Section 9.

     (b) Upon any distribution of assets of the Borrower to creditors (other than the Subordinated
Lender), upon a liquidation or dissolution of the Borrower or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Borrower or its property, (i) the
Secured Party shall be entitled to receive payment in full of all Senior Debt before the
Subordinated Lender shall be entitled to receive any payment of principal of or interest on or any
other amounts in respect of Permitted Debt of in favor of the Subordinated Lender (the
“Subordinated Debt”); and (ii) until payment in full of the Senior Debt, any distribution
of assets of any kind or character to which the Subordinated Lender would otherwise be entitled
shall be paid by the Borrower or by any receiver, trustee in bankruptcy, liquidating trustee, agent
or other person making such payment or distribution to, or if received by the Borrower or the
Subordinated Lender, shall be held for the benefit of and shall be forthwith paid or delivered to,
the Secured Party.

     (c) If the Subordinated Lender does not file proper claims or proofs of claim in the form
required in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating
to the Borrower or its property prior to 45 days before the expiration of the time to file such
claims, then (a) upon the request of the Secured Party, the Subordinated Lender shall file such
claims and proofs of claim in respect of this instrument and execute and deliver such powers of
attorney, assignments and other instruments as are required to enable the Secured Party to enforce
any and all claims upon or in respect of the Subordinated Debt and to collect and

10

 

receive any and all payments or distributions which may be payable or deliverable at any time
upon or in respect of Subordinated Debt until payment in full of the Senior Debt, and (b) whether
or not the Subordinated Lender shall take the action described in the preceding clause (a), the
Secured Party shall nevertheless be deemed to have such powers of attorney as may be necessary for
them to file appropriate claims and proofs of claim and otherwise exercise the powers described
above.

     (d) No right of Secured Party to enforce the terms of this Section 9 shall be impaired by any
act or failure to act by the Borrower or either Guarantor. Neither the terms of this Section 9 nor
the rights of the Secured Party under this Guarantee Agreement shall be affected by any extension,
renewal or modification of the terms of, or the granting of any security in respect of, any Senior
Debt or any exercise or nonexercise of any right, power or remedy with respect thereto.

     (e) Until the Senior Debt is paid in full, the Subordinated Lender shall not exercise any
right of subrogation that it may have now or hereafter as a result of its performance of this
Guarantee Agreement.

     SECTION 10. Notices. All notices and other communications hereunder to any party
hereto shall be given or made in the manner provided in the Loan Agreement to such party at its
address set forth therein, or to such other address as such party may have provided by notice to
the other parties hereto in accordance with the procedure set forth in the Loan Agreement.

     SECTION 11. No Waivers. No failure or delay by the Secured Party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies provided in this Guarantee Agreement, the
Loan Agreement and the other Loan Documents shall be cumulative and not exclusive of any rights or
remedies provided by law.

     SECTION 12. Successors and Assigns. This Guarantee Agreement is for the benefit of
the Secured Party and its successors and assigns and, in the event of an assignment of the Loans or
other amounts payable under the Loan Agreement or the other Loan Documents, the rights hereunder,
to the extent applicable to the indebtedness so assigned, may be transferred with such
indebtedness. This Guarantee Agreement shall be binding upon each Guarantor and its successors and
assigns.

     SECTION 13. Changes in Writing. Neither this Guarantee Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, but only by an instrument in
writing and signed by each Guarantor and the Secured Party.

     SECTION 14. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial; Service of
Process.

     (a) This Agreement shall be construed in accordance with and governed by the law of the State
of New York.

11

 

     (b) Each of the Guarantors hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in
New York County and of the United States District Court for the Southern District of New York, and
any appellate court from any thereof, in any action or proceeding arising out of or relating to
this Guarantee Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York state or, to the extent permitted
by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Guarantee Agreement shall affect
any right that any Secured Party may otherwise have to bring any action or proceeding relating to
this Guarantee Agreement against any Guarantor or its properties in the courts of any jurisdiction.
Without limiting the generality of the foregoing, SBP-RTS hereby agrees to submit to the
jurisdiction of any court of competent jurisdiction within the United States and will comply with
all requirements necessary to give such court jurisdiction.

     (c) Each of the Guarantors hereby irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection which it may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement
in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court. In addition, in the event that
Lender chooses to bring an action or proceeding in a court of any state within the United States,
SBP-RTS hereby waives any right of removal to federal court.

     (d) Each of the Guarantors hereby irrevocably designates, appoints and empowers National
Corporate Research, Ltd. (the “Process Agent”) with offices on the date hereof at 225 W.
34th Street, Suite 910, New York, NY 10122, or any other person having and maintaining
a place of business in the State of New York whom either Guarantor may from time to time hereafter
designate (having given 30 days’ advance written notice thereof to the Secured Party), as the true
and lawful attorney and duly authorized agent for acceptance of service of legal process of the
Guarantor. Without prejudice to the foregoing, each party to this Agreement irrevocably
consents to service of process in the manner provided for notices in Section 10. Nothing in this
Agreement or any other Loan Document will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.

     SECTION 15. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE

12

 

FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED
TO ENTER INTO THIS GUARANTEE AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.

     SECTION 16. Waiver of Immunity. To the extent that either Guarantor has or hereafter
acquires any immunity from jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgment, attachment in aid or execution, or otherwise) with
respect to itself or its property, such Guarantor hereby irrevocably waives such immunity in
respect of its obligations hereunder and under the other Loan Documents to the extent permitted by
applicable law and, without limiting the generality of the foregoing, agrees that the waivers set
forth in this Section shall have effect to the fullest extent permitted under the Foreign Sovereign
Immunities Act of 1976 of the United States of America and are intended to be irrevocable for
purposes of such Act.

     SECTION 17. Supplements. Upon the execution and delivery by any Person of a
supplement to this Agreement (whether pursuant to Section 5.1(o)(ii) of the Loan Agreement or
otherwise), in each case in substantially the form of Exhibit A hereto (each, a “Guarantee
Supplement”), such Person shall be referred to as an “Additional Guarantor” and shall be and become
a Guarantor, and each reference in this Agreement to a “Guarantor” shall also mean and be a
reference to such Additional Guarantor and each reference in any of the other Loan Documents to a
“Guarantor” shall also mean and be a reference to such Additional Guarantor.

(Signatures Follow on Next Page)

13

 

     IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee and Subordination
Agreement to be duly executed by its authorized officer as of the day and year first above written.

GUARANTORS:

OLYMPIC CONVERTER GP, LLC

By: Sea Breeze Pacific Juan de Fuca Cable, LP, its Sole Member

By: Juan de Fuca Cable Management, Inc., its General Partner

By: __________________________________

Name:
________________________________

Title:
_______________________________

OLYMPIC CONVERTER, LP

By: Olympic Converter GP, LLC

its General Partner

By: Sea Breeze Pacific Juan de Fuca Cable, LP, its Sole Member

By: Juan de Fuca Cable Management, Inc., its General Partner

By: __________________________________

Name:
________________________________

Title:
_______________________________

SEA BREEZE PACIFIC REGIONAL

TRANSMISSION SYSTEM, INC.

By: __________________________________

Name:
________________________________

Title:
_______________________________

14

 

SECURED PARTY:

UNITED STATES POWER FUND, L.P.

By: EIF US Power, LLC

  its General Partner

By: Energy Investors Funds Group LLC

its Sole Member

By: ___________________

Name: Andrew Schroeder

Title: Partner

15

 

FORM OF GUARANTEE AGREEMENT SUPPLEMENT

[Date of Guarantee Supplement]

United States Power Fund, L.P.

c/o Energy Investors Funds

One Penn Plaza, Suite 4507

New York, NY 10119

Re: Loan, dated as of April 1, 2005 (as in effect on the date hereof, the “Loan
Agreement”), among Sea Breeze Pacific Juan de Fuca Cable, LP, a Delaware limited
partnership (the “Borrower”), the Guarantors, the Lender, Juan de Fuca Cable
Management, Inc., a Delaware corporation, Sea Breeze Power Corp., a British Columbia
corporation, and Boundless Energy LLC, a Maine limited liability company

Ladies and Gentlemen:

     Reference is made to the above-captioned Loan Agreement and to the Guarantee Agreement of even
date therewith (such Guarantee, as in effect on the date hereof and as it may be further amended,
supplemented or otherwise modified hereafter from time to time, the “Guarantee”).
Capitalized terms not otherwise defined herein shall have the same meanings as specified therefor
in the Loan Agreement or the Guarantee.

     SECTION 1. Joinder as Guarantor. The undersigned hereby agrees, as of the date first
above written, to be bound as a Guarantor by all of the terms and provisions of the Guarantee to
the same extent as each of the other Guarantors therein. The undersigned further agrees, as of the
date first above written, that each reference in the Guarantee to an “Additional Guarantor”
or a “Guarantor” shall also mean and be a reference to the undersigned, and each reference
in any of the other Loan Documents to a “Guarantor” shall also mean and be a reference to
the undersigned.

     SECTION 2. Governing Law; Jurisdiction; Etc.

16

 

          (a) This Guarantee Supplement shall be governed by, and construed in accordance with, the laws
of the State of New York.

          (b) The undersigned hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in
New York County and of the United States District Court for the Southern District of New York, and
any appellate court from any thereof, in any action or proceeding arising out of or relating to
this Guarantee Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York state or, to the extent permitted
by law, in such federal court. The undersigned agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Guarantee Supplement shall affect any
right that any Secured Party may otherwise have to bring any action or proceeding relating to this
Guarantee Agreement against any Guarantor or its properties in the courts of any jurisdiction.
Without limiting the generality of the foregoing, the undersigned hereby agrees to submit to the
jurisdiction of any court of competent jurisdiction within the United States and will comply with
all requirements necessary to give such court jurisdiction.

          (c) The undersigned hereby irrevocably and unconditionally waives, to the fullest extent it
may legally and effectively do so, any objection which it may now or hereafter have to the laying
of venue of any suit, action or proceeding arising out of or relating to this Agreement in any
court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court. Without limiting the generality of the
foregoing, the undersigned hereby waives any and all jurisdictional defenses to any United States
forum selected by any other party hereto on grounds including, but not limited to, forum
non-conveniens. In addition, in the event that any other party hereto or to the other Loan
Documents chooses to bring an action or proceeding in a court of any state within the United
States, the undersigned hereby waives any right of removal to federal court.

          (d) The undersigned hereby irrevocably designates, appoints and empowers National Corporate
Research, Ltd. (the “Process Agent”) with offices on the date hereof at 225 W. 34th Street,
Suite 910, New York, NY 10122, or any other person having and maintaining a place of business in
the State of New York whom the undersigned may from time to time hereafter designate (having given
30 days’ advance written notice thereof to the Secured Party), as the true and lawful attorney and
duly authorized agent for acceptance of service of legal process of the Guarantor. Without
prejudice to the foregoing, the undersigned irrevocably consents to service of process in the
manner provided for notices in the Guarantee Agreement. Nothing in this Supplement or any other
Loan Document will affect the right of any party to this Agreement to serve process in any other
manner permitted by law.

17

 

     SECTION 3. Waiver of July Trial. The undersigned irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Guarantee Supplement, the Guarantee, any of the other
Loan Documents, any documents delivered pursuant to the Loan Documents, or any actions of the
Secured Partiy in the negotiation, administration, performance or enforcement thereof.

Very truly yours,

[NAME OF ADDITIONAL 
       GUARANTOR]

By __________________________

Name:_____________________

Title:______________________

Address:___________________

18

 

EXHIBIT D

PLEDGE AGREEMENT

Exhibit D-1

PLEDGE AND SECURITY AGREEMENT

re SEA BREEZE PACIFIC JUAN DE RICA CABLE, LP

by and between

JUAN DE FUCA CABLE MANAGEMENT, INC.,

SBJF HOLDING CORP. and BOUNDLESS ENERGY NW, INC.

(the “Pledgors”)

and

UNITED STATES POWER FUND, L.P.

(the “Secured Party”)

dated as of

April 6, 2005

19

 

PLEDGE AND SECURITY AGREEMENT

re SEA BREEZE PACIFIC JUAN DE FUCA CABLE, LP

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	ARTICLE I DEFINITIONS	 	 	1	 
	 
	 	 	 	 	 	 
	ARTICLE II Pledge	 	 	3	 
	2.1.

	 	Pledged Collateral
	 	 	3	 
	2.2.

	 	Delivery of Certificates and Instruments
	 	 	5	 
	2.3.

	 	Pledgors’ Rights
	 	 	5	 
	2.4.

	 	Secured Party Liability
	 	 	6	 
	2.5.

	 	Attorney-in-Fact
	 	 	7	 
	2.6.

	 	Step-in Rights
	 	 	7	 
	2.7.

	 	Reasonable Care; Standards for Exercising Remedies; Marshaling Pledged Collateral
	 	 	7	 
	2.8.

	 	Security Interest Absolute
	 	 	10	 
	2.9.

	 	Effective as a Financing Statement
	 	 	10	 
	 
	 	 	 	 	 	 
	ARTICLE III PLEDGORS’ REPRESENTATIONS AND WARRANTIES 	 	 	10	 
	3.1.

	 	Existence; Compliance with Law
	 	 	10	 
	3.2

	 	Power, Authorization; Enforceable Obligations
	 	 	11	 
	3.3

	 	Governed by Partnership Agreement
	 	 	11	 
	3.4

	 	No Legal Bar
	 	 	11	 
	3.5

	 	No Litigation
	 	 	12	 
	3.6

	 	Security Interest; Title to Pledged Collateral
	 	 	12	 
	3.7

	 	Consents
	 	 	12	 
	3.8

	 	Partnership Interests
	 	 	13	 
	3.9

	 	Main Offices
	 	 	13	 
	 
	3.10

	 	Financial Benefit
	 	 	13	 
	3.11

	 	Taxes
	 	 	13	 
	 
	3.12

	 	Other Agreements
	 	 	13	 
	 
	3.13

	 	Borrower Partnership Agreement
	 	 	14	 
	 
	3.14

	 	No Default
	 	 	14	 
	 
	 	 	 	 	 	 
	ARTICLE IV COVENANTS	 	 	14	 
	4.1.

	 	Disposition of Pledged Collateral
	 	 	14	 

20

 

	 	 	 	 	 	 	 
	4.2.

	 	No Other Liens
	 	 	14	 
	4.3.

	 	Further Assurances
	 	 	14	 
	4.4.

	 	Voting Rights
	 	 	14	 
	4.5.

	 	Partnership Interests
	 	 	14	 
	4.6.

	 	Performance of Partnership Agreement
	 	 	15	 
	 
	4.7.

	 	Amendments to the Partnership Agreement
	 	 	15	 
	4.8.

	 	Financing Statements
	 	 	15	 
	4.9.

	 	Records and Schedules
	 	 	15	 
	 
	4.10.

	 	Maintenance of Existence
	 	 	15	 

21

 

	 	 	 	 	 	 	 
	4.11.

	 	Other Financing Statements
	 	 	16	 
	4.12.

	 	Certain Notices
	 	 	16	 
	4.13.

	 	Proceedings
	 	 	16	 
	4.14.

	 	Maintenance of Partner Status
	 	 	16	 
	4.15.

	 	Payment of Taxes
	 	 	16	 
	4.16.

	 	Bankruptcy
	 	 	16	 
	4.17.

	 	Location of Office; Name
	 	 	16	 
	 
	 	 	 	 	 	 
	ARTICLE V EXERCISE OF REMEDIES	 	 	17	 
	5.1.

	 	Remedies Generally
	 	 	17	 
	5.2.

	 	Sale of Pledged Collateral
	 	 	18	 
	5.3.

	 	Purchase of Pledged Collateral
	 	 	20	 
	5.4.

	 	Burden of Proof
	 	 	20	 
	5.5.

	 	Application of Proceeds; Deficiency
	 	 	20	 
	5.6.

	 	Cumulative Rights
	 	 	20	 
	 
	 	 	 	 	 	 
	ARTICLE VI MISCELLANEOUS	 	 	20	 
	6.1.

	 	Expenses
	 	 	20	 
	6.2.

	 	Indemnity
	 	 	21	 
	6.3.

	 	Notices
	 	 	21	 
	6.4.

	 	Continuing Assignment; Pledge and Security Interest; Release
	 	 	23	 
	6.5.

	 	Election of Remedies
	 	 	23	 
	6.6.

	 	Reinstatement
	 	 	24	 
	6.7.

	 	Consents Under the Partnership Agreement
	 	 	24	 
	6.8.

	 	GOVERNING LAW; WAIVER OF JURY TRIAL; LIMITATION OF REMEDIES
	 	 	24	 
	6.9.

	 	Consent to Jurisdiction
	 	 	26	 
	6.10.

	 	Termination; Release
	 	 	26	 
	6.11.

	 	Entire Agreement; Amendments; Waivers
	 	 	27	 
	6.12.

	 	Assignment
	 	 	27	 
	6.13.

	 	Indulgences or Delay
	 	 	27	 
	6.14.

	 	Severability
	 	 	27	 
	6.15.

	 	Headings
	 	 	27	 
	6.16.

	 	Multiple Counterparts
	 	 	27	 
	6.17.

	 	Drafting Interpretation
	 	 	27	 
	6.18.

	 	Limitation of Liability
	 	 	27	 

	 	 	 
	SCHEDULE 1

	 	LOCATIONS FOR FILING FINANCING STATEMENTS
	SCHEDULE 2

	 	CHIEF EXECUTIVE OFFICE OF PLEDGOR

	 	 	 
	EXHIBIT A

	 	IRREVOCABLE PROXY
	 
	 	 
	EXHIBIT B

	 	FORM OF PARTNERSHIP POWER

22

 

PLEDGE AND SECURITY AGREEMENT

re SEA BREEZE PACIFIC JUAN DE FUCA CABLE, LP

     THIS PLEDGE AND SECURITY AGREEMENT re SEA BREEZE PACIFIC JUAN DE FUCA CABLE, LP (this
“Agreement”) is entered into as of April 6, 2005, by and among JUAN DE FUCA CABLE
MANAGEMENT, INC., a Delaware corporation (“General Partner”), SBJF HOLDING CORP., a
British Columbia corporation (“SB LP”) and BOUNDLESS ENERGY NW, INC., a Delaware
corporation (“BE LP”; together with SB LP, the “Limited Partners”;
together with SB LP and General Partner, the “Pledgors” and each of such parties
individually, a “Pledgor”) in favor of UNITED STATES POWER FUND, L.P., a Delaware limited
partnership (the “Secured Party”). The Pledgors and the Secured Party are herein sometimes
collectively referred to as the “Parties” or individually as a “Party.”

     WHEREAS, General Partner is the sole general partner, and Limited Partners are the sole
limited partners, of Sea Breeze Pacific Juan de Fuca Cable, LP, a Delaware limited partnership
(“Borrower”), which is seeking a development loan and equity investments to finance, on an
interim basis, the development of a 550 MW high voltage direct current submarine transmission link
spanning the Strait of Juan de Fuca connecting Victoria, Vancouver Island, British Columbia,
Canada and Port Angeles, Washington State, USA or an alternate route approved by the Secured Party
connecting greater Victoria on Vancouver Island or greater Vancouver to the Olympic Peninsula (the
“Project”); and

     WHEREAS, Borrower and the Secured Party are parties to that certain Development Loan
Agreement, dated as of the date hereof (the “Loan Agreement”), and the Loan Documents and
the Equity Term Sheet referred to therein (collectively, the “Loan Documents”), pursuant
to which the Secured Party (as lender) has committed to provide development loans (the
“Loans”) to Borrower; and

     WHEREAS, the execution and delivery of this Agreement is a condition precedent to the
effectiveness of the Loan Agreement;

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged and, based upon the foregoing, and the mutual representations, covenants and
other agreements set forth herein, the Parties agree as follows:

ARTICLE I

DEFINITIONS

     Capitalized terms used but not otherwise defined herein shall have the meanings set forth in
the Loan Agreement. When used herein, the following terms shall have the following meanings:

     “Affiliate”: With respect to any Person, any other Person directly or indirectly
controlling, controlled by or under direct or indirect common control with such Person.

     “Agreement”: This Pledge and Security Agreement re Sea Breeze Pacific Juan de

23

 

Fuca Cable, LP, as the same may be from time to time amended, modified or supplemented.

     “Bankruptcy Code”: Title 11 of the United States Code, as in effect from time to
time, or any successor thereto.

     “BE LP”: as defined in the preamble to this Agreement.

     “Borrower”: as defined in the recitals to this Agreement.

     “General Partner”: as defined in the preamble to this
Agreement.

     “Governmental Authority”: Any nation, state, sovereign or government, any federal,
regional, state, province, local or political subdivision and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining to government.

     “Indebtedness”: Without duplication, (i) all obligations of any Person for borrowed
money or for the deferred purchase price of property or services (other than (x) trade payables on
terms of sixty (60) days or less incurred in the ordinary course of business of such Person and
(y) payables to vendors, suppliers, advisers or other providers to such Person), (ii) all
obligations of such Person evidenced by a note, bond, debenture or similar instrument, (iii) all
obligations of such Person under capital leases or synthetic leases, (iv) the stated amount of all
letters of credit issued for the account of such Person and, without duplication, all unreimbursed
amounts drawn thereunder, (v) all obligations of such Person under any interest rate protection
agreement and any currency swap or similar agreement, (vi) any of such Indebtedness described in
clauses (i) through (v) of any other Person secured by any Lien on any property owned by such
Person, whether or not such Indebtedness has been assumed, and (vii) all contingent obligations of
such Person guaranteeing or intended to guarantee, or otherwise providing or intending to provide
assurance against loss in respect of, any of such Indebtedness described in clauses (i) through
(v) above, or leases, dividends or other obligations, of any other Person.

     “Lien”: Any mortgage, lien (statutory or other), pledge, hypothecation, assignment,
security interest, title-retention arrangement, mandatory deposit arrangement, encumbrance, or
other security agreement of any kind or nature whatsoever (including without limitation, any
conditional sale or other title retention agreement, any sale of receivables or any capital
lease), and the filing of any financing statement under the Uniform Commercial Code or comparable
law of any jurisdiction in respect of any of the foregoing.

     “Limited
Partners”: as defined in the preamble to this Agreement. “Loan Agreement”: as defined in the recitals to

24

 

this Agreement. “Loan Documents”: as defined in the
recitals to this Agreement.

     “Obligations”: All of Borrower’s liabilities, obligations and indebtedness from time
to time owing to the Secured Party under the Loan Documents of any and every kind and nature,
including, without limitation, the obligations of Borrower under the indemnities, contained in
Sections 5.1(c) and 7.12 of the Loan Agreement, all principal of and interest on the Advances,
charges, expenses and other sums chargeable to Borrower by Secured Party, arising under the

25

 

Loan Agreement, the Note or the other Loan Documents, whether heretofore, now or hereafter owing,
arising, due or payable from Borrower to the Secured Party and howsoever evidenced, created,
incurred, acquired or owing, whether primary, secondary, direct, contingent, fixed or otherwise.

     “Partnership Agreement”: as defined in Section 2.1(a)(i).

     “Partnership Interests”: as defined in Section 2.1(a)(i) of this
Agreement. “Party” or “Parties”: as defined in the
preamble to this Agreement.

     “Person”: Any individual, sole proprietorship, partnership, limited liability
company, joint venture, trust, unincorporated organization, association, corporation, institution,
entity, party or Governmental Authority.

     “Pledged Collateral”: as defined in Section 2.1(a).

     “Pledgor” or “Pledgors”: as defined in the preamble to
this Agreement. “Project”: as defined in the recitals to this
Agreement.

     “SB LP”: as defined in the preamble to this Agreement.

     “Secured Party”: as defined in the preamble to this Agreement.

     “Uniform Commercial Code” or “UCC”: the Uniform Commercial Code as in effect from time
to time in the State of New York.

ARTICLE II

PLEDGE

     2.1 Pledged Collateral.

     (a) As collateral security for the prompt and complete payment and performance when due,
whether at stated maturity, by acceleration or otherwise, of all of the Obligations, whether now
existing or hereinafter arising and howsoever evidenced, each Pledgor hereby conveys, mortgages,
pledges, grants, assigns, hypothecates, transfers and delivers to the Secured Party a continuing
lien on, and a continuing first priority security interest in, all of such Pledgor’s right, title
and interest in, to and under the following property, whether now existing or hereafter from time
to time acquired (collectively the “Pledged Collateral”):

26

 

     (i) all of such Pledgor’s general or limited partnership interests, as applicable,
voting or management rights and other powers of ownership in Borrower and any other
ownership interest of whatever type in Borrower now or hereafter owned by such Pledgor, in
each case together with any options, warrants or other rights to purchase such interests at
any time owned by such Pledgor (including all such interests or options, warrants or other
rights acquired by such Pledgor in the future) (collectively, the

27

 

“Partnership Interests”) and all of such Pledgor’s rights to acquire additional
Partnership Interests for any purpose not inconsistent with the terms of the Loan
Agreement, this Agreement and the other Loan Documents;

     (ii) all of such Pledgor’s claims, rights, privileges, authority, powers, options,
security interests, liens and remedies, if any, under Borrower’s Limited Partnership
Agreement, dated as of even date herewith, as amended from time to time (the
“Partnership Agreement”), or at law or otherwise in respect of the Partnership
Interests, including, without limitation, all of its rights (including voting or any
management rights) as a general or limited partner of Borrower, as applicable, to exercise
and enforce every right, power, remedy, authority, option and privilege of Borrower
relating to the Partnership Interests, including any power to terminate, cancel or modify
the Partnership Agreement, to execute any instruments and to take any and all other action
on behalf of and in the name of Borrower, to make determinations, to exercise any election
(including, but not limited to, election of remedies) or option or to give or receive any
notice, consent, amendment, waiver or approval, together with full power and authority to
demand, receive, enforce, collect or receive any of the foregoing, to enforce or execute
any checks, or other instruments or orders, to file any claims and to take any action in
connection with any of the foregoing;

     (iii) all equity or other ownership interests, dividends, distributions, monies,
securities, instruments, payments and other property or proceeds of any kind to which such
Pledgor may be, or may become, entitled to from time to time as a general or limited
partner of Borrower, as applicable, by way of distribution, return of capital or otherwise,
in respect of or in exchange for any or all of the Partnership Interests;

     (iv) any other claim that such Pledgor now has or may acquire in the future as a
general or limited partner of Borrower, as applicable, against Borrower or its property;

     (v) all interests in substitution for or in addition to any of the foregoing, any
certificates representing or evidencing such interests, and all cash, securities,
distributions and other property at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the foregoing; and

     (vi) all proceeds, products and accessions of and to any of the property described in
the preceding clauses (i) through (v).

     (b) As used herein, the term “proceeds” shall be construed as defined in Section 9-I02(a)(64)
of the UCC and shall include whatever is received or receivable when any of the Pledged Collateral,
or any proceeds thereof, is sold, collected, exchanged or otherwise disposed of, whether
voluntarily or involuntarily, and shall include, without limitation, all rights to payment,
including interest and premiums, with respect to any of the Partnership Interests or any proceeds
thereof and any property into which any of the Pledged Collateral is converted, whether cash or
noncash proceeds, and any and all other amounts paid or payable under or in connection with any of
the Pledged Collateral.

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     (c) If any Pledgor acquires (by purchase, distribution or otherwise) any additional
Partnership Interests at any time or from time to time after the date hereof, such Pledgor shall:

     (i) forthwith pledge such Partnership Interests as security to Secured Party
hereunder;

     (ii) promptly notify Secured Party of such acquisition;

     (iii) to the extent such Partnership Interests (whether now owned or hereafter
acquired) are certificated, promptly deliver to Secured Party its certificates therefor
accompanied by such instruments of transfer as are reasonably acceptable to Secured Party
and promptly thereafter deliver to Secured Party a certificate executed by any authorized
officer of such Pledgor describing such Partnership Interests and certifying that they have
been duly pledged hereunder; and

     (iv) to the extent such Partnership Interests (whether now owned or hereafter
acquired) are uncertificated, promptly notify Secured Party thereof and promptly take all
actions required to perfect the security interest of Secured Party under applicable Law,
including, without limitation, under Section 8-106(c) of the UCC.

     2.2. Delivery of Certificates and Instruments. Each Pledgor shall deliver to Secured
Party all certificates or instruments representing or evidencing the Partnership Interests to be
held by Secured Party pursuant hereto in each case, properly endorsed in blank and in suitable
form for transfer by delivery and accompanied by duly executed irrevocable proxy in the form
attached as Exhibit A hereto and a limited partnership power in the form attached as Exhibit B
hereto, all in form and substance satisfactory to Secured Party. At any time and from time to
time, upon a written notice to the applicable Pledgor, Secured Party shall have the right to
exchange certificates or instruments representing or evidencing any of the Partnership Interests
for certificates or instruments of smaller or larger denominations. Secured Party shall have the
right, at any time following the occurrence and during the continuation of an Event of Default, in
its discretion and upon a written notice to the applicable Pledgor, to transfer to itself, or to
register in its name or in the name of any of its nominees, any or all of the Partnership
Interests. Each Pledgor shall take such actions as Secured Party reasonably requests to effect the
foregoing, to permit Secured Party to exercise any of its rights and remedies hereunder, to effect
fully the purposes of this Agreement, to create, perfect, maintain and preserve first priority
Liens on the Pledged Collateral in favor of Secured Party, and to provide for the payment of the
Obligations in accordance with the terms of the Loan Documents. Upon any change in applicable Law
or other material change in circumstances affecting the perfection of the security interests
granted hereunder, each

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Pledgor shall provide an opinion of counsel that is satisfactory to Secured Party with
respect to any pledge of the Partnership Interests and perfection of the Lien hereunder.

     2.3. Pledgors’ Rights.

     (a) Unless an Event of Default shall have occurred and be continuing, each Pledgor shall be
entitled to receive and retain any and all distributions paid in respect of the Partnership
Interests (whether in cash or other property) free and clear of the Lien created by this Agreement

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and in accordance with the Loan Documents and the Partnership Agreement; provided,
however, that, if received by any Pledgor, any and all (i) distributions paid or payable in
respect of the Partnership Interests in connection with (A) any partial or total liquidation or
dissolution of Borrower, (B) any distributions of capital of Borrower (other than distributions
made pursuant to the Loan Documents), or (C) any reorganization of Borrower, and (ii) property paid
or payable or otherwise distributed in redemption of, or in exchange for, the property in clause
(i) of this Section 2.3(a), shall be included as Pledged Collateral, shall be segregated from other
property and funds of such Pledgor, and shall forthwith be delivered to Secured Party in the same
form as so received (together with any necessary transfer documents or endorsements) to hold as
Pledged Collateral. Upon the occurrence and during the continuation of an Event of Default, each
Pledgor’s rights under this Section 2.3 shall cease and all such rights shall become vested in
Secured Party, who thereupon shall have the sole right to receive and hold such distributions as
Pledged Collateral.

     (b) Unless an Event of Default shall have occurred and be continuing, each Pledgor shall be
entitled to exercise all voting, management, consent, ratification, waiver, and other rights with
respect to the Partnership Interests for any purpose not inconsistent with the terms of this
Agreement or any of the other Loan Documents; provided, that no vote shall be cast, right exercised
or action taken that would result in a material violation of the Partnership Agreement, unless so
required by applicable Law. Upon the occurrence and during the continuation of an Event of Default
and upon a written notice by Secured Party to Pledgors, each Pledgor’s voting, management, consent,
ratification, waiver, and other rights with respect to the Partnership Interests that each Pledgor
would otherwise be entitled to exercise shall cease and such rights shall be vested in Secured
Party, who thereupon shall have the sole right to exercise or refrain from exercising such rights.

     (c) All distributions and other funds received by any Pledgor in violation of this Agreement
shall be received in trust for the benefit of Secured Party, shall be segregated from such
Pledgor’s other property and funds and shall be paid to Secured Party in the same form as so
received (together with any necessary transfer documents and endorsements) as Pledged Collateral.

     2.4. Secured Party Liability.

     (a) Notwithstanding any other provision contained in this Agreement, each Pledgor shall remain
liable under the Partnership Agreement for all of the obligations to be performed by it thereunder
to the same extent as if this Agreement had not been executed. The exercise by Secured Party or any
of its permitted assigns or successors of any of the rights hereunder shall not release any Pledgor
from any of its duties or obligations under the Partnership Agreement, to the extent that such
duties or obligations arose or accrued prior to the sale, assignment or other transfer of the
Partnership Interests by Secured Party in exercise of its remedies hereunder. None of Secured Party
or any of its directors, officers, employees, affiliates or agents shall have any obligation or
liability under the Partnership Agreement or under or with respect to any Pledged Collateral by
reason of or arising out of (i) this Agreement, except as set forth in Section 9-207 of the UCC, or
(ii) the receipt by Secured Party of any payment relating to any Pledged Collateral, nor shall
Secured Party or any of its directors, officers, employees, affiliates or agents be obligated in
any manner to (A) perform

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any of any Pledgor’s
obligations under or pursuant to the Partnership Agreement or any other agreement to which any Pledgor is a party, (B) make any
payment or inquire as to the nature or sufficiency of any payment or performance with respect to
any Pledged Collateral, (C) present or file any claim or collect the payment of any amounts or
take any action to enforce any performance under or with respect to the Partnership Agreement or
Pledged Collateral or (D) take any other action whatsoever with respect to the Pledged
Collateral, in each case, other than as required under this Agreement and the other Loan
Documents.

     (b) The powers conferred on Secured Party hereunder are solely to protect its interest in the
Pledged Collateral and shall not impose any duty upon it to exercise any such powers. Except for
the safe custody of any Pledged Collateral in its possession and the accounting for monies
actually received by it hereunder and, except as required by applicable Law, Secured Party shall
not have any duty regarding any Pledged Collateral or to take any necessary steps to preserve
rights against prior parties or any other rights pertaining to any Pledged Collateral and no such
duties shall be implied as arising hereunder.

     2.5. Attorney-in-Fact. Each Pledgor hereby appoints Secured Party, or any officer or
agent whom Secured Party may designate, as its true and lawful attorney-in-fact and proxy, which
appointment, being coupled with an interest, is irrevocable until the termination of the Loan
Documents according to their terms, with full power and authority in such Pledgor’s place and
stead, and in such Pledgor’s name or in its own name, at such Pledgor’s reasonable cost and
expense, from time to time after the occurrence and during the continuation of any Event of
Default in Secured Party’s discretion to take any action and to execute any instrument that
Secured Party may deem necessary or advisable to enforce its rights under this Agreement or to
accomplish the purposes of this Agreement or the other Loan Documents, including, without
limitation, authority to ask for, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for, endorse and collect all drafts or other instruments, chattel paper
and monies due and to become due or made payable to each Pledgor through any distribution,
interest payment or other payment in respect of the Pledged Collateral or any part thereof to be
paid over to Secured Party pursuant to Section 2.3(c) and to file any claims or take any action or
institute any proceedings that the Secured Party may deem to be necessary or desirable for the
collection thereof. Each Pledgor hereby ratifies any actions that said attorney shall lawfully
take or cause to be taken by virtue hereof, in each case pursuant to the powers granted under this
Section 2.5. Each Pledgor hereby acknowledges and agrees that Secured Party shall have no
fiduciary duties to any Pledgor, and each Pledgor hereby waives any claims or rights of a
beneficiary of a fiduciary relationship hereunder.

     2.6. Step-in Rights. Upon the occurrence and during the continuation of any Event of
Default and upon a written notice to any Pledgor, Secured Party may (but shall not be obligated
to) perform, or cause performance of, any of any Pledgor’s obligations under this Agreement.
Secured Party’s expenses, including the fees and expenses of its counsel, incurred in connection
with performing any such obligations shall be payable, jointly and severally, by Pledgors.

     2.7. Reasonable Care; Standards for Exercising Remedies; Marshaling Pledged Collateral.

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     (a) Notwithstanding anything to the contrary contained in this Agreement, Secured Party
shall exercise the same degree of care hereunder as it exercises or would exercise in connection
with its own property of the type of which the Pledged Collateral consists. Secured Party shall
be deemed to have exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment substantially
equivalent to that which Secured Party accords or would accord in similar transactions for its
own account; provided, however, it is expressly understood that Secured Party shall have no
responsibility for ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Pledged Collateral, whether or not Secured
Party has or is deemed to have knowledge of such matters, or taking any necessary steps to
preserve rights against any parties with respect to any Pledged Collateral.

     (b) In furtherance of the foregoing, to the extent applicable Laws impose on Secured Party an
obligation to exercise remedies in a commercially reasonable manner, each Pledgor acknowledges and
agrees that, to the extent consistent with applicable Law, it is not commercially unreasonable for
Secured Party (i) to fail to incur expenses deemed significant by Secured Party to prepare Pledged
Collateral for disposition or otherwise to convert raw material or work in process into finished
goods or other finished products for disposition, (ii) to fail to obtain third party consents for
access to Pledged Collateral to be disposed of, or to obtain or, if not required by other
applicable Laws, to fail to obtain governmental or third party consents for the collection or
disposition of Pledged Collateral to be collected or disposed of, (iii) to fail to exercise
collection remedies against account debtors or other persons obligated on Pledged Collateral or to
remove Liens or encumbrances on or any adverse claims against Pledged Collateral, (iv) to exercise
or fail to exercise collection remedies against account debtors and other Persons obligated on the
Pledged Collateral directly or through the use of collection agencies and other collection
specialists, (v) to advertise or fail to advertise dispositions of Pledged Collateral through
publications or media of general circulation, whether or not the Pledged Collateral is of a
specialized nature, (vi) to contact or fail to contact other Persons, whether or not in the same
business as any Pledgor, in connection with expressions of interest in acquiring all or any
portion of the Pledged Collateral, (vii) to hire or fail to hire one or more professional
auctioneers to assist in the disposition of Pledged Collateral, whether or not the Pledged
Collateral is of a specialized nature, (viii) to dispose Pledged Collateral by utilizing internet
sites that provide for the auction of assets of the types included in the Pledged Collateral or
that have reasonable capability of doing so, or that match buyers and sellers of assets (or to
fail to do so), (ix) to dispose of assets in wholesale rather than retail markets (or to fail to
do so), (x) to disclaim disposition warranties, (xi) to purchase insurance or credit enhancements
to insure Secured Party against the risk of loss, collection or disposition of Pledged Collateral,
or (xii) to the extent deemed appropriate by Secured Party, to obtain the services of other
brokers, investment bankers, consultants and other professionals to assist Secured Party in the
collection or disposition of any of the Pledged Collateral.

     (c) Without limiting the generality of the foregoing and except as otherwise provided by
applicable Laws, Secured Party shall not be required to marshal any collateral, including the
Pledged Collateral subject to the security interest created hereby, or to resort to any item of
Pledged Collateral in any particular order. To the extent that each Pledgor lawfully may, each
Pledgor hereby (i) agrees that it will not invoke any applicable Laws relating to the marshalling
of collateral that might cause delay in, or impede the enforcement of the Secured Party’s rights

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under, this Agreement or under any other instrument evidencing any of the Obligations or under
which any of the Obligations is outstanding or by which any of the Obligations is secured and (ii)
irrevocably waives the benefits of all applicable Laws and any and all rights to equity of
redemption or other rights of redemption that they may have in equity or at law with respect to
the Pledged Collateral.

     (d) Each Pledgor hereby waives, to the maximum extent permitted by applicable Law (i) all
rights of such Pledgor under any applicable Law limiting remedies, including recovery of a
deficiency, under an obligation secured by a mortgage or deed of trust on real property if the
real property is sold under a power of sale contained in the mortgage, and all defenses based on
any loss whether as a result of any such sale or otherwise, to recover any amount from Secured
Party, whether by right of subrogation or otherwise; (ii) all rights of such Pledgor under any
applicable Law to require the Secured Party to pursue Borrower or any other Person, any security
which Borrower may hold, or any other remedy before proceeding against such Pledgor; (iii) all
rights of reimbursement or subrogation, all rights to enforce any remedy that Secured Party may
have against Borrower, and all rights to participate in any security held by Secured Party until
the Obligations have been indefeasibly paid and performed in full; (iv) all rights to require
Secured Party to give any notices of any kind, including, without limitation, notices of
nonpayment, nonperformance, protest, dishonor, default, delinquency or acceleration, or to make
any presentments, demands or protests; (v) all rights to assert the bankruptcy or insolvency of
Borrower as a defense hereunder or as the basis for rescission hereof, (vi) all rights under any
applicable Law purporting to reduce such Pledgor’s obligations hereunder if the Obligations are
reduced; (vii) all defenses based on the disability or lack of authority of Borrower or any
Person, the repudiation of the Loan Documents by Borrower or any Person, the failure by Secured
Party to enforce any claim against Borrower, or the unenforceability in whole or in part of any
Loan Document; (viii) all suretyship and guarantor’s defenses generally; (ix) all rights to insist
upon, plead or in any manner whatever claim or take the benefit or advantage of, any appraisal,
valuation, stay, extension, marshalling of assets, redemption or similar law, or exemption,
whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the
performance by such Pledgor of its obligations under, or the enforcement by Secured Party of, this
Agreement; (x) any requirement on the part of Secured Party to mitigate the damages resulting from
any default; and (xi) except as otherwise specifically set forth herein all rights of notice and
hearing of any kind prior to the exercise of rights by Secured Party upon the occurrence and
during the continuation of an Event of Default to repossess with judicial process or to replevy,
attach or levy upon the Pledged Collateral. To the extent permitted by applicable Law, each
Pledgor hereby waives the posting of any bond otherwise required of Secured Party in connection
with any judicial process or proceeding to obtain possession of, replevy, attach, or levy upon its
Pledged Collateral, to enforce any judgment or other security for the Obligations, to enforce any
judgment or other court order entered in favor of Secured Party, or to enforce by specific
performance, temporary restraining order, or preliminary or permanent injunction, this Agreement
or any other agreement or document between such Pledgor and Secured Party. Upon the occurrence and
during the continuation of an Event of Default, Secured Party may elect to nonjudicially or
judicially foreclose against any real or personal property security it holds for the Obligations
or any part thereof, or to exercise any other remedy against Borrower, any security or any
guarantor, even if the effect of that action is to deprive any Pledgor of the right to collect
reimbursement from Borrower for any sums paid by such Pledgor to Secured Party.

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     2.8. Security Interest Absolute.

     (a) The obligation of each Pledgor under this Agreement is independent of the Obligations,
and a separate action or actions may be brought and prosecuted against any Pledgor to enforce this
Agreement. All rights of Secured Party hereunder, the pledge, hypothecation and security interest
hereunder, and all obligations of each Pledgor hereunder, shall be absolute and unconditional, to
the extent permitted by applicable Law, irrespective of:

          (i) any lack of validity or enforceability of any of the Loan Documents or any other
agreement or instrument relating thereto;

          (ii) any change in the time, manner or place of payment of, or in any other term of,
all or any of the Obligations, or any other amendment or waiver of or any consent to any
departure from the Loan Documents or any other agreement or instrument relating thereto;

          (iii) any manner of application of the Pledged Collateral, or proceeds thereof, to all
or any of the Obligations, or any manner of sale or other disposition of any other
collateral for all or any of the Obligations;

          (iv) any change, restructuring or termination of the structure or existence or
identity of Secured Party;

          (v) any exchange, release or non-perfection of any other collateral, or any release or
amendment or waiver of or consent to any departure from any guaranty, for all or any of the
Obligations; or

          (vi) any other circumstance that might otherwise constitute a defense available to, or
a discharge of, any Pledgor, Borrower or a third party grantor of a security interest,
except as otherwise provided herein.

     2.9. Effective as a Financing Statement. This Agreement shall also be effective as a
financing statement covering any Pledged Collateral and may be filed in any appropriate filing or
recording office. A carbon, photographic, facsimile or other reproduction of this Agreement or of
any financing statement relating to this Agreement shall be sufficient as a financing statement
for any of the purposes referred to in the preceding sentence.

ARTICLE III

PLEDGORS’ REPRESENTATIONS AND WARRANTIES

Each Pledgor represents and warrants as to itself that, as of the date hereof:

     3.1 Existence; Compliance with Law. Such Pledgor (i) is an entity duly organized or
formed, validly existing and in good standing under the laws of the jurisdiction in which

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it was organized, (ii) has the requisite power and authority to own and use its property and
assets, including the Pledged Collateral, and conduct the business in which it is currently engaged
and presently proposes to engage, and possesses all governmental approvals required for its
ownership of the Pledged Collateral and (iii) is qualified to do business as a foreign
corporation and is in good standing under the laws of each jurisdiction where the conduct of its
business requires such qualification.

     3.2. Power, Authorization; Enforceable Obligations. Such Pledgor has full corporate
power and authority to execute, deliver and perform this Agreement and the other Loan Documents
to which it is a party, and has taken all action necessary to be taken by it to authorize the
execution, delivery and performance of the Loan Documents to which it is a party. No consent,
waiver, authorization of or filing with any Person is required in connection with the execution,
delivery, performance by, or the validity or enforceability against such Pledgor of the Loan
Documents to which it is a party, that has not been obtained (and those that have been obtained
are all final, in full force and effect and non appealable). This Agreement and each of the Loan
Documents to which such Pledgor is a party have been duly executed and delivered on behalf of
such Pledgor, and constitute legal, valid and binding obligations of such Pledgor enforceable
against such Pledgor in accordance with their respective terms, except as enforceability may be
limited by general equitable principles or by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors’ rights generally.

     3.3. Governed by Partnership Agreement. The Partnership Agreement has been duly
executed and delivered by such Pledgor and constitutes the legal, valid and binding obligations
of such Pledgor, enforceable in accordance with its terms, except as enforceability may be
limited by general equitable principles or by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors’ rights generally.

     3.4. No Legal Bar. None of the execution, delivery or performance of this Agreement
or the other Loan Documents to which the such Pledgor is a party, nor the consummation of the
transactions contemplated hereunder or thereunder, nor compliance with the terms and provisions
hereof or thereof, do or will (i) contravene or violate any provisions of the certificate of
incorporation, bylaws or other organizational documents of such Pledgor, or any applicable Law or
Governmental Approval applicable to it or any of its properties or assets, including the
provisions of the Public Utility Holding Company Act of 1935 and the rules and regulations
thereunder, (ii) conflict with, or result in any breach of, any of the terms and conditions of
any mortgage, indenture, lease, or other contract, instrument or agreement to which such Pledgor
is subject or by which it or its properties are bound, (iii) result in or require the creation or
imposition of any Lien (other than Liens in favor of Secured Party) on any of its properties or
revenues pursuant to any requirement of Law or contractual obligation or in a condition or event
that constitutes (or that, upon notice or lapse of time or both, would constitute) an event of
default with respect to any of its contractual obligations, or (iv) result in the acceleration or
mandatory prepayment of any Indebtedness evidenced by, or the termination of, any contract,
agreement or instrument to which it is a party or by which it or any of its property is bound.

     3.5. No Litigation. No investigation by, or litigation, action, claim, judgment,
complaint, nature of violations, injunctions, orders, decrees, directives, suits or proceedings
before, any court, tribunal, arbitrator, mediator, referee or Governmental Authority is pending,
nor to the knowledge of such Pledgor, is any of the foregoing threatened, by or against such

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Pledgor, or against the Pledged Collateral or any of such Pledgor’s other properties or
revenues, in connection with or with respect to the Loan Documents or any of the transactions
contemplated hereby or thereby.

     3.6. Security Interest; Title to Pledged Collateral.

     (a) The security interest created pursuant to this Agreement constitutes a valid and
continuing first Lien on and first security interest in the Pledged Collateral in favor of the
Secured Party, free and clear of all other Liens (excluding Permitted Liens) in favor of others
and rights of others and prior to all other Liens (excluding Permitted Liens which have priority
over the Lien of this Agreement by operation of Law) in favor of others and rights of others,
and are enforceable as such as against creditors of and purchasers from such Pledgor.

     (b) The execution and delivery of the Loan Agreement and this Pledge Agreement, the
delivery to the Secured Party of the items set forth in Section 2.2 hereof and the filing of the
financing statements on Form UCC-1 in the offices and locations described in Schedule 1
attached hereto will create and perfect a valid first priority security interest in favor of
Secured Party in the Pledged Collateral, subject only to Permitted Liens. No further action will
be required to maintain and preserve, or to effectively put other Persons on notice of, such
Lien and security interests other than the filing of continuation statements required by the
UCC.

     (c) Each Pledgor has good and indefeasible title to and is the sole owner of all right,
title and interest in its respective Pledged Collateral and such Pledged Collateral is free from
any Lien or other right, title or interest of any person other than the Liens of Secured Party
created under the Loan Documents and this Agreement.

     (d) There is no financing statement (or similar statement or instrument of registration
under the law of any jurisdiction) executed by such Pledgor, or, to the knowledge of such
Pledgor after due inquiry, by any other person covering or purporting to cover any interest of
any kind in the Pledged Collateral hereunder, except financing statements filed or to be filed
in respect of the Lien created by this Agreement or unless a termination statement has been
filed with respect to such financing statement.

     3.7. Consents. No consent, authorization, approval or other action by, and no
notice to or filing with, any other Person or any Governmental Authority (other than the filing
of UCC financing statements in the filing offices indicated in Schedule 1, indicating
such Pledgor as “grantor” and the Secured Party as “Secured Party” and appropriately describing
the Pledged Collateral and, in the case of maintaining perfection, the filing of continuation
statements) is required either (a) for the creation or perfection of the Lien under this
Agreement or for the due execution, delivery or performance of this Agreement by such Pledgor,
or (b) for the exercise by Secured Party of the voting or other rights provided for in this
Agreement or of the remedies in respect of the Pledged Collateral pursuant to this Agreement,
except as may be required in connection with the disposition of the Pledged Collateral by laws
affecting the offering and sale of securities generally or except for consents, authorizations,
approvals or other actions that have been duly obtained.

     3.8. Partnership Interests.

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     (a) The Partnership Interests pledged hereunder constitute 100 percent of the issued and
outstanding partnership interests in Borrower. The Partnership Interests have been validly created
and all contributions with respect thereto required to be made as of the date hereof pursuant to
the Partnership Agreement have been paid to Borrower.

     (b) Except as specifically provided in or permitted by the Loan Documents, such Pledgor does
not have any outstanding (A) securities convertible into or exchangeable for the Partnership
Interests or (B) rights to subscribe for or purchase, or any options, warrants or other rights to
acquire, ownership interests convertible into or exchangeable or exercisable for partnership
interests, or any agreements, arrangements or understandings providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any character relating to,
the Partnership Interests.

     (c) There are no certificates, instruments, documents or other writings (other than the
Partnership Agreement) of Borrower which evidence any Partnership Interest of any Pledgor.

     (d) No Person has any right to purchase or terminate any or all of such Pledgor’s interests
in the Pledged Collateral, except pursuant to the terms of this Agreement.

     3.9. Main Offices. Such Pledgor’s chief executive office and the office where it
keeps its records concerning the Pledged Collateral are set forth on Schedule 2 hereto.

     3.10. Financial Benefit. Such Pledgor will derive financial benefit, directly or
indirectly, in return for Borrower undertaking the obligations under the Loan Documents to which
it is a party.

     3.11. Taxes.

     (a) Such Pledgor has filed all federal, state and local tax returns that are required to be
filed by it and has paid all taxes shown to be due and payable on such returns or pursuant to any
assessment received by it and to the extent, if any, such taxes are not due and payable, has
established reserves (segregated to the extent required by GAAP) that are adequate for the payment
thereof, and it does not have actual knowledge of any actual or proposed assessment in connection
therewith. Such Pledgor has not given or been requested to give a waiver of the statute of
limitations relating to the payment of any taxes.

     (b) There is no pending or, to such Pledgor’s actual knowledge, threatened, tax audit or
investigation of such Pledgor by any Governmental Authority.

     (c) Such Pledgor is not a “foreign person” within the meaning of Section 1445(0(3) of the
Code.

     3.12. Borrower Partnership Agreement. A true and complete copy of the Partnership
Agreement has been furnished to Secured Party and the Partnership Agreement is in full force and
effect.

     3.13. No Default. Such Pledgor is not in default or violation of any terms of this
Agreement or any other Loan Document to which it is a party.

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ARTICLE IV

COVENANTS

          Each Pledgor hereby covenants and agrees that from and after the date hereof until the
termination of this Agreement in accordance with Section 6.5:

     4.1. Disposition of Pledged Collateral. Except as otherwise specifically permitted by
the Loan Documents, such Pledgor shall not sell, assign, convey, transfer (by operation of law or
otherwise) or otherwise dispose of, or grant any option or warrant with respect to, or consent to
the sale, assignment, conveyance, transfer or other disposition of, or grant of any option or
warrant with respect to, any of the Pledged Collateral. Following a sale or transfer that is
permitted by the Loan Documents of the Pledged Collateral by such Pledgor, such Pledgor shall
cause the purchaser or transferee to promptly deliver to Secured Party all certificates
representing such person’s Pledged Collateral together with any instruments of transfer or
endorsements requested by Secured Party. Upon receipt of such items, Secured Party shall return to
such Pledgor any Pledged Collateral (and instruments of transfer or endorsement) in its possession
that is subject to such sale or transfer.

     4.2. No Other Liens. Such Pledgor shall not create, incur or permit to exist, shall
defend the Pledged Collateral owned by it against and shall take such other action as is
reasonably necessary to remove, any Lien or claim on or with respect to the Pledged Collateral,
other than the Lien created by this Agreement, and shall defend the right, title and interest of
Secured Party in and to the Pledged Collateral against all claims and demands.

     4.3. Further Assurances. Such Pledgor shall at any time and from time to time, at
such Pledgor’s expense, promptly execute and deliver all further instruments and documents and
take all further action that may be reasonably necessary or desirable, or that Secured Party may
reasonably request, in order to maintain a first priority perfected security interest in the
Pledged Collateral or to enable Secured Party to exercise and enforce its rights and remedies
hereunder with respect to any Pledged Collateral.

     4.4. Voting Rights. Such Pledgor shall exercise any and all management, voting and
other consensual rights pertaining to Borrower in a manner consistent with the terms of this
Agreement, the Partnership Agreement and the other Loan Documents.

     4.5. Partnership Interests. Except as specifically permitted by the Loan Documents,
(i) such Pledgor shall cause the Partnership Interests pledged hereunder to constitute at all
times not less than the entire partnership interests of Borrower then issued and outstanding, and
(ii) such Pledgor shall not permit (w) Borrower to issue any additional partnership interests at
any time (whether or not certificated), (x) Borrower to have outstanding any subscription
agreements, warrants, rights or options to acquire any partnership interests of whatever type, (y)
any partnership interest of Borrower to be dealt in or traded on any securities exchange or in any
securities market, or (z) any partnership
interest of Borrower to be deemed an investment company security (as defined in Section
8-103(b) of the UCC).

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     4.6. Performance of Partnership Agreement. Such Pledgor shall at its expense perform
and observe all of the terms and provisions of the Partnership Agreement to be performed or
observed by it, use commercially reasonable efforts to maintain the Partnership Agreement in full
force and effect, enforce the Partnership Agreement in accordance with its terms, and take all
commercially reasonable action to such end as may be from time to time be reasonably requested by
Secured Party.

     4.7. Amendments to the Partnership Agreement. Except as otherwise specifically
provided in the Loan Documents, such Pledgor shall not, without the prior written consent of
Secured Party, agree to or permit (i) the cancellation or termination of the Partnership
Agreement, except upon the expiration of the stated term thereof, or (ii) any amendment or
modification of the Partnership Agreement or waive any default under or breach of the Partnership
Agreement without the Secured Party’s prior written consent, except that Secured Party’s consent
shall not be required with respect to any such amendment or modification to comply with applicable
Law or to clarify any inconsistency or the like which would not adversely affect the rights of
Secured Party hereunder, provided, that it shall notify Secured Party of its intent to so amend or
modify the Partnership Agreement and shall provide to Secured Party a copy of the amendment or
modification it proposes to enter into at least 15 Business Days prior to entering into such
amendment or modification. In addition, it shall not consent to any transaction for the
termination, dissolution or winding up of, or the merger or consolidation with any other Person
by, or which would otherwise change the structure or organization of, Borrower.

     4.8. Financing Statements. Such Pledgor shall sign and deliver to Secured Party such
financing statements (or similar statements or instruments of registration under the law of any
jurisdiction), as may be necessary under applicable Law to establish and maintain the security
interests contemplated hereunder as valid, enforceable, first priority security interests as
provided herein and the other rights and security contemplated herein, all in accordance with (i)
the UCC as enacted in any and all relevant jurisdictions or (ii) any other applicable Law. Such
Pledgor authorizes Secured Party to file any such financing or continuation statements (or similar
statements or instruments of registration under the law of any jurisdiction) without any
additional authorization or signature of such Pledgor.

     4.9. Records and Schedules. Such Pledgor shall keep and maintain, at its own cost and
expense, records of the Pledged Collateral owned by it, including, but not limited to, records of
all payments received with respect thereto, and upon reasonable notice, and during normal business
hours, such Pledgor shall make the same reasonably available to Secured Party for inspection at
such Pledgor’s chief executive office and at such Pledgor’s sole cost and expense. Such Pledgor
shall furnish to Secured Party from time to time statements and schedules further identifying and
describing the Pledged Collateral and such other reports in connection with the Pledged Collateral
as Secured Party may reasonably request, all in reasonable detail.

     4.10. Maintenance of Existence. Such Pledgor shall do or cause to be done all things
necessary to preserve and maintain at all times its existence as a limited partnership and
preserve and maintain all of its rights, privileges, licenses and franchises and shall comply with
all requirements of all applicable Laws.

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     4.11. Other Financing Statements. Such Pledgor shall not, without the prior written
consent of Secured Party, execute or file in any public office or consent to the execution of or
filing of any enforceable financing statement or statements covering any or all of its Pledged
Collateral, except financing statements filed or to be filed in favor of Secured Party as secured
party or in connection with Permitted Debt.

     4.12. Certain Notices. Such Pledgor shall promptly notify Secured Party of any
written claim of which it has knowledge relating to title to the Pledged Collateral. It shall
deliver to Secured Party a copy of each other written demand, notice or document received by it
which could reasonably be expected to adversely affect Secured Party’s interest in the Pledged
Collateral promptly upon, but in any event within 5 Business Days after, its receipt thereof.

     4.13. Proceedings. Such Pledgor shall, promptly upon obtaining knowledge of any
action, suit or proceeding, at law or in equity, by or before any Governmental Authority, mediator
or arbitrator, pending or threatened, against it with respect to the Pledged Collateral, or upon
becoming aware of the failure of such Pledgor to comply with the terms and conditions of any
governmental approval applicable to such Pledgor or the Pledged Collateral, furnish to Secured
Party a notice of such event describing the same in reasonable detail and, together with such
notice or as soon thereafter as possible, a description of the actions that such Pledgor has taken
and proposes to take with respect thereto.

     4.14. Maintenance of Partner Status. Such Pledgor shall not withdraw as a partner of
Borrower or seek a partition of any property of Borrower.

     4.15. Payment of Taxes. Such Plegor shall pay, before any fine, penalty, interest or
cost attaches thereto, all taxes, now or hereafter assessed or levied against Borrower, its
Pledged Collateral or upon the Liens provided for herein, unless such taxes are being contested in
good faith and the such Pledgor shall have set aside on its books adequate reserves with respect
thereto in accordance with GAAP. Such Pledgor shall pay, or cause to be paid, all claims for
labor, materials or supplies which, if unpaid, would, by applicable Law or otherwise, become a
Lien on its Pledged Collateral, unless such claims are subject to a good faith dispute and any
such Liens are bonded over within thirty (30) days of the date they are filed.

     4.16. Bankruptcy. Such Pledgor shall not authorize, seek to cause, or permit Borrower
to (i) commence a voluntary case or other proceeding seeking (A) liquidation, reorganization or
other relief of Borrower or Borrower’s debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or (B) the appointment of a trustee, receiver, liquidator, custodian or
other similar official of Borrower or any substantial part of Borrower’s property, (ii) consent to
any such relief or to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against Borrower, or (iii) make a general
assignment for the benefit of creditors.

     4.17. Location of Office; Name.

     (a) Such Pledgor shall not, without 30 days’ prior written notice to Secured Party, change
its principal place of business, chief executive office or the office where it keeps its records
concerning its Pledged Collateral from the address specified on Schedule 1 hereto, and in

41

 

connection with any such change it shall deliver to Secured Party an opinion of counsel addressed
to Secured Party setting forth any actions required to be taken with respect to the filing,
recording, refiling and re-recording of this Agreement or financing statements or continuation
statements with respect thereto, if any, as are necessary to maintain and preserve the perfection
of the security interest of Secured Party in and to the Pledged Collateral granted hereunder and
such Pledgor or its counsel shall have taken all such actions specified in such opinion.

     (b) Such Pledgor shall not change its legal name unless it has (A) given to Secured Party at
least 30 days’ prior written notice of its intention to do so, clearly stating its new name and
the jurisdictions in which its new name shall be used, (B) provided to Secured Party such other
information in connection therewith as Secured Party may reasonably request, (C) taken all action
reasonably satisfactory to Secured Party to maintain the security interest of Secured Party in the
Pledged Collateral intended to be granted hereby at all times fully perfected and in full force
and effect and (D) delivered to Secured Party an opinion of counsel addressed to Secured Party
setting forth all actions required to be taken with respect to the filing, recording, refiling and
re-recording of this Agreement, or financing statements, continuation statements or other
applicable statements in the relevant jurisdiction with respect thereto, if any, as are necessary
to maintain and preserve the perfection of the security interest of Secured Party in and to the
Pledged Collateral granted hereunder and either such Pledgor or its counsel shall have taken all
of such actions specified in such opinion.

ARTICLE V

EXERCISE OF REMEDIES

     5.1. Remedies Generally. If an Event of Default shall have occurred and be
continuing, Secured Party may exercise, in addition to all other rights and remedies granted in
the Loan Agreement or the other Transaction Documents or in this Agreement and in any other
instrument or agreement securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party upon default under the UCC in effect from time to time in any relevant
jurisdiction (or such other like law in the applicable jurisdiction), and all other rights and
remedies available at law or in equity, in each case at the Pledgors’ expense and without prior
notice to any Pledgor except as required under applicable Law. In addition to any other remedy
provided herein, Secured Party may take any or all of the following actions:

     (a) Secured Party may declare, without presentment, demand, protest or notice of any kind,
all of which each Pledgor hereby expressly waives, the entire amount of the Obligations to be
immediately due and payable, whereupon all of such Obligations shall be and become immediately due
and payable.

     (b) Secured Party may exercise the powers of attorney set forth in Section 2.5 of this
Agreement to manage (or designate another Person to manage) the operations, business and affairs
of Borrower.

     (c) Secured Party may exercise any and all rights and remedies of any Pledgor under or in
connection with the Partnership Interests or otherwise in respect of the

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 Pledged Collateral, including, without limitation, the right to vote with respect to the Partnership Interests and all
rights of each Pledgor to demand or otherwise require payment of any amount with respect to the
Partnership Interests.

     (d) Secured Party may transfer to or register in the name of Secured Party or any of its
nominees any or all of the Pledged Collateral.

     (e) Secured Party may (A) notify Borrower to make payment and performance due to any Pledgor
under the Partnership Agreement or otherwise directly to Secured Party, (B) file any claims,
commence, maintain, settle or discontinue any actions, suits or other proceedings deemed by
Secured Party in its sole discretion to be necessary or advisable for the purpose of collecting
upon the Pledged Collateral, and (C) execute any instrument and do all other things deemed by
Secured Party in its sole discretion to be necessary and proper to protect and preserve, and to
permit Secured Party to realize upon, the Pledged Collateral and the other rights contemplated
thereby.

     5.2. Sale of Pledged Collateral. Without limiting the generality of Section 5.1,
Secured Party may, with notice as required by applicable Law, take any or all of the following
actions:

     (a) Secured Party may sell, license or otherwise dispose of the Pledged Collateral or any
part thereof in a commercially reasonable manner, which may include in one or more parcels at
public or private sale or at any of Secured Party’s corporate offices or elsewhere, for cash, on
credit or for future delivery, and at such price or prices and upon such other terms as Secured
Party may deem commercially reasonable, irrespective of the impact of any such sales on the market
price of the Pledged Collateral at any such sale. Each purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part of any Pledgor, and each Pledgor
hereby waives (to the extent permitted by Law) all rights of redemption, stay and/or appraisal
which it now has or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. Each Pledgor agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days’ notice to such Pledgor of the time and place of any
public sale or the time after which any private sale is to be made shall constitute reasonable
notification. Secured Party shall not be obligated to make any sale of Pledged Collateral
regardless of notice of sale having been given. Secured Party may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so adjourned. Secured Party
shall incur no liability as a result of the sale of the Pledged Collateral, or any part thereof,
at any public or private sale. Each Pledgor hereby waives any claims against Secured Party arising
by reason of the fact that the price at which any Pledged Collateral may have been sold at such a
private sale was less than the price that might have been obtained at a public sale, even if
Secured Party accepts the first offer received that Secured Party deems to be commercially
reasonable under the circumstances and does not offer the Pledged Collateral to more than one
offeree.

     (b) Secured Party may, in accordance with applicable Laws, accept the Pledged Collateral in
full or partial satisfaction of the Obligations.

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     (c) All payments made under or in connection with the Partnership Interests or otherwise in
respect of the Pledged Collateral, and received by Secured Party as Pledged Collateral in
accordance with the provisions hereof, may, in the discretion of Secured Party, be held by Secured
Party as Pledged Collateral for, and then or as soon thereafter as is reasonably practicable
applied in whole or in part by Secured Party against all or any part of, the Obligations in
accordance with the terms of the Loan Documents. Any surplus of such payments held by Secured
Party and remaining after payment in full of all of the Obligations shall be paid over to the
Pledgors or to whomsoever else may be lawfully entitled to receive such surplus.

     (d) Each Pledgor understands that, if Secured Party were to attempt to dispose of all or any
part of the Pledged Collateral, compliance with the Securities Act may strictly limit the course
of conduct of Secured Party and may also limit the extent to which or the manner in which any
subsequent transferee of any Pledged Collateral could dispose of the same. Similarly, there may be
other legal restrictions or limitations affecting Secured Party’s ability to dispose of all or
part of the Pledged Collateral under applicable “Blue Sky” or other state securities laws or
similar laws analogous in purpose or effect. Each Pledgor recognizes that, in light of such
restrictions and limitations, Secured Party may, with respect to any sale of the Pledged
Collateral, to the extent commercially reasonable, limit the purchasers to those who agree, among
other things, to acquire the Pledged Collateral for their own account, for investment, and not
with a view to the distribution or resale thereof. Each Pledgor acknowledges and agrees that, in
light of the foregoing restrictions and limitations, Secured Party may, in a commercially
reasonable manner, (a) sell the Pledged Collateral whether or not a registration statement for the
purpose of registering the Pledged Collateral or part thereof shall have been filed under the
Securities Act and (b) approach and negotiate with any one or more possible purchasers to effect
such sale. Each Pledgor acknowledges and agrees that any such sale may result in prices and other
terms less favorable to the seller than if such sale were a public sale without such restrictions.
In the event of any such sale, Secured Party shall incur no responsibility or liability for
selling all or any part of the Pledged Collateral at a price that Secured Party deems reasonable
under the circumstances, notwithstanding the possibility that a substantially higher price might
have been realized if the sale had been deferred until after registration under applicable
securities laws or if more purchasers had been approached. The provisions of this paragraph will
apply notwithstanding the existence of a public or private market upon which the quotations or
sales prices may substantially exceed the price at which Secured Party sells the Pledged
Collateral. Each Pledgor agrees that any sales made in accordance with this paragraph will be
deemed to have been made in a commercially reasonable manner.

     (e) If for any reason Secured Party desires to sell any of the Pledged Collateral at a public
sale, Secured Party may, at any time and from time to time, take or cause the issuer of such
Pledged Collateral to take such action and prepare, distribute or file such documents as are
required or advisable in the reasonable opinion of counsel for Secured Party to permit the public
sale of such Pledged Collateral.

     (f) If Secured Party determines to exercise its right to sell any or all of the Pledged
Collateral, upon written request, each Pledgor shall, and shall cause Borrower, as applicable, to
furnish to Secured Party all such information Secured Party may reasonably request in order to
determine the number of shares and other instruments included in the Pledged Collateral which

44

 

may be sold by Secured Party as exempt transactions under the Securities Act of 1933, as amended,
and the rules of the Securities and Exchange Commission thereunder.

     5.3. Purchase of Pledged Collateral. Secured Party may be a purchaser of the Pledged
Collateral or any part thereof or any right or interest therein at any sale thereof, whether at a
public disposition, or a private disposition, whether pursuant to foreclosure, power of sale or
otherwise hereunder and Secured Party may apply the purchase price to the payment of the
Obligations. Any purchaser of all or any part of the Pledged Collateral shall, upon any such
purchase, acquire good title to the Pledged Collateral so purchased, free of the security
interests created by this Agreement.

     5.4. Burden of Proof. To the full extent permitted by applicable Law, each Pledgor
shall have the burden of proving that any such disposition of the Pledged Collateral pursuant to
this Article 5 was conducted in a commercially unreasonable manner. To the extent permitted by
applicable Law, each Pledgor hereby specifically waives all rights of redemption, stay or
appraisal which it has or may have under any applicable Law now existing or hereafter enacted.
Each Pledgor authorizes Secured Party, at any time and from time to time, to execute, in
connection with a disposition of the Pledged Collateral pursuant to the provisions of this
Agreement, any endorsements, assignments or other instruments of conveyance or transfer with
respect to the Pledged Collateral.

     5.5. Application of Proceeds; Deficiency. The proceeds of any Pledged Collateral sold
pursuant to this Agreement shall be applied first, to the payment of any expenses incurred by
Secured Party in connection with the administration of this Agreement, the custody, preservation
or sale of, collection from or other realization from, any of the Pledged Collateral, the exercise
or enforcement of any of its rights hereunder or the failure of the Borrower or any Pledgor to
perform or observe any of the provisions of this Agreement or the other Loan Documents including,
without limitation, all attorneys’ fees and legal expenses incurred by Secured Party,
and then, to the payment of all or any part of the Obligations in accordance with the provisions
of the Loan Documents. Any surplus remaining after payment in full of all of the Obligations shall
be paid over to the Pledgors or to whomever may be entitled to receive such surplus.

     5.6. Cumulative Rights. Each right, power and remedy of Secured Party provided for in
this Agreement or now or hereafter existing at law or in equity or by statute shall be cumulative
and concurrent and shall be in addition to every other such right, power or remedy. The exercise
or beginning of the exercise by Secured Party of any one or more of the rights, powers or remedies
provided for in this Agreement or now or hereafter existing at law or in equity or by statute or
otherwise shall not preclude the simultaneous or later exercise by Secured Party of all such other
rights, powers or remedies, and no failure or delay on the part of Secured Party to exercise any
such right, power or remedy shall operate as a waiver thereof.

ARTICLE VI

MISCELLANEOUS

     6.1. Expenses.

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     (a) The Pledgors shall, jointly and severally, pay or reimburse or cause to be paid or
reimbursed to Secured Party for, any and all fees, costs and expenses of whatever kind or nature
(including, without limitation, the fees and expenses of its counsel and of any experts, special
consultants or local counsel who might be retained by Secured Party in connection with the
transactions contemplated hereby) incurred in connection with (i) the creation, preservation or
protection of the Liens on, and security interest in, its Pledged Collateral, including, without
limitation, all fees and taxes in connection with the recording or filing of instruments and
documents in public offices, payment or discharge of any taxes or Liens upon or in respect of the
Pledged Collateral, and all other fees, costs and expenses in connection with protecting,
maintaining or preserving the Pledged Collateral, the Secured Party’s interest therein, whether
through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or
proceedings arising out of or relating to the Pledged Collateral, (ii) the sale of, collection
from, custody or preservation of or other realization upon, any of its Pledged Collateral pursuant
to the exercise or enforcement of any of the rights of Secured Party hereunder or (iii) the failure
by such Pledgor to perform or observe any of the provisions hereof. Any amounts payable by any
Pledgor pursuant to this Section 6.1 shall be payable on demand.

     (b) If and to the extent that any obligations of any Pledgor under this Section are
unenforceable for any reason, such Pledgor shall make the maximum contribution to the payment and
satisfaction of such obligations that is permissible under applicable Law.

     6.2. Indemnity. Each Pledgor agrees to indemnify Secured Party and its Affiliates
(collectively, the “Indemnified Parties”) from and against any and all claims, liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and
disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted
against them or any one or more of them by any Person in any way relating to or arising out of (a)
the Lien on the Pledged Collateral in favor of Secured Party created hereunder, (b) this Agreement
or any default hereunder or breach hereof by any Pledgor, (c) any action taken or omitted by any
Indemnified Party pursuant to this Agreement or any exercise or enforcement of rights or remedies
hereunder, or (d) any sale or other disposition of or any realization on the Pledged Collateral,
but no Pledgor shall be liable to any Person for any portion of such claims, liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements that result from such Person’s gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction. Payment by an Indemnified Party will not be a
condition precedent to the obligations of any Pledgor under this indemnity. Except as otherwise
expressly provided in writing, this Section will survive the execution and delivery of this
Agreement, the satisfaction of the Obligations and any transfer or assignment of the Note.

     Notices. Without modifying any of the provisions of this Agreement concerning the
requirements for, or waiver of, any notice, all notices or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall be considered
properly given if mailed by first class United States mail, postage prepaid, registered or
certified with return receipt requested, facsimile, or by delivering same in person to the intended
addressee. Notice so mailed shall be effective (a) upon personal delivery thereof, including,
without limitation, by overnight mail or courier service, (b) in the case of notice by United
States mail, two (2) days after such notice was deposited in a receptacle maintained by the United
States Post Office for the acceptance of mail, or (c) in the case of notice by such a

46

 

telecommunications device, upon transmission thereof; provided such transmission is
promptly confirmed by any method set forth in clause (a) or (b) above. Notice given in any other
manner shall be effective only if and when received by the addressee. For purposes of notice, the
addresses of the Parties shall be as set forth below; provided, however, that any Party shall have
the right to change its address for notice hereunder to any other location within the continental
United States by the giving of ten (10) days’ notice to the other Party in the manner set forth
hereinabove.

	 	 	 
	If to General Partner:
	 
	 	 
	 

	 	Juan de Fuca Cable Management, Inc. 203
	 

	 	Red Stone Hill
	 

	 	Plainville, CT 06062
	 

	 	Telephone: (860) 747-0497
	 

	 	Facsimile: (860) 747-0297
	 
	 	 
	If to BE LP:
	 
	 	 
	 

	 	Boundless Energy NW, Inc.
	 

	 	203 Red Stone Hill
	 

	 	Plainville, CT 06062
	 

	 	Telephone: (860) 747-0497
	 

	 	Facsimile: (860) 747-0297If to SB LP:
	 
	 	 
	If to SB LP:
	 
	 	 
	 

	 	SBJF Holding Corp.
	 

	 	Lobby Box 91
	 

	 	Suite 1400
	 

	 	333 Seymour Street
	 

	 	Vancouver, British Columbia V6B 5A6
	 
	 	 
	 

	 	Telephone: (604) 689-2991
	 

	 	Facsimile: (604) 689-2990
	 
	 	 
	If to Secured Party:
	 
	 	 
	 

	 	United States Power Fund, L.P. 
	 

	 	c/o Energy Investors Funds One 
	 

	 	Penn Plaza, Suite 4507
	 

	 	 New York, NY 10119
	 
	 	 
	 

	 	Telephone: (212) 564-1276
	 

	 	Fax: (212) 564-4802
	 

	 	Attention: Andrew Schroeder
	 
	 	 
	with a copy to:

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	 	Energy Investors Funds
	 

	 	Three Charles River Place
	 

	 	63 Kendrick Street
	 

	 	Needham, MA 02494
	 

	 	Tel: (781) 292-7000
	 

	 	Fax: (781) 292-7099
	 

	 	Attention: General Counsel

     6.3. Continuing Assignment; Pledge and Security Interest; Release.

     (a) This Agreement shall create a continuing assignment, conveyance, mortgage, pledge,
hypothecation, transfer and grant of a security interest in the Pledged Collateral and shall (i)
remain in full force and effect until the indefeasible payment in full of the Obligations and the
expiration or termination of the Loan Agreement, (ii) be binding upon each Pledgor, their
successors and assigns, provided, that no Pledgor may transfer or assign any or all of its rights
or obligations hereunder without the prior written consent of Secured Party, and (iii) inure to
the benefit of, and be enforceable by Secured Party and its successors, transferees and assigns.
Without limiting the generality of the foregoing clause (iii), Secured Party may assign or
otherwise transfer all or any portion of its rights in the Obligations and in the Pledged
Collateral to the extent and in the manner provided in the Loan Documents, and such assignee
shall thereupon become vested with all the benefits in respect thereof granted to Secured Party
herein or otherwise.

     (b) At such time as this Agreement, in accordance with subsection (a) of this Section 6.4,
ceases to be of full force and effect, the security interest granted hereby shall terminate and,
except as otherwise provided herein, all rights to the Pledged Collateral shall revert to the
Pledgors. Upon any such termination, Secured Party shall, at any Pledgor’s expense and written
request, execute and deliver to such Pledgor such documents and instruments (including UCC
termination statements) and take such further actions as such Pledgor reasonably requests to
evidence such termination and reversion.

     6.4. Election of Remedies. Each Pledgor understands that the exercise by Secured
Party of the rights and remedies contained in the Loan Documents may affect or eliminate such
Pledgor’s rights of subrogation and reimbursement against Borrower and that such Pledgor may
therefore incur a partially or totally nonreimbursable liability hereunder. It is the intent and
purpose of each Pledgor that its obligations under this Agreement will be absolute, independent,
and unconditional under all circumstances. Accordingly, each Pledgor (a) expressly authorizes
Secured Party to pursue its rights and remedies with respect to the Obligations in any order or
fashion it deems appropriate, in its sole and absolute discretion, and (b) waives any defense
arising out of the absence, impatient, or loss of any or all rights of recourse,
reimbursement, contribution, or subrogation or any other rights or remedies of such Pledgor
against Borrower, any other Person, or any security, whether resulting from an election by
Secured Party to foreclose on any real property security by trustee’s sale rather than judicial
foreclosure, or from any other election of rights or remedies by Secured Party, or otherwise.

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     6.5. Reinstatement. This Agreement shall continue to be effective or shall be
reinstated, as the case may be, if at any time any amount received by Secured Party in respect of
the Obligations is rescinded or must otherwise be restored or returned by Secured Party upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of Borrower or upon the
appointment of any intervenor or conservator of, or trustee or similar official for, Borrower or
any substantial part of its assets, or otherwise, all as though such payment had not been made.

     6.6. Consents Under the Partnership Agreement.

     Pursuant to the terms of the Partnership Agreement, each Pledgor consents to:

     (a) the transfer of the Partnership Interests at any time to Secured Party or to any of its
nominees or permitted successors or assigns following the occurrence of an Event of Default, in
each case subject to and in accordance with the terms of this Agreement; and

     (b) the admission of Secured Party or any of its nominees or permitted successors or assigns
as a limited or general partner of Borrower, as applicable, at any time during which any Event of
Default has occurred and is continuing.

     6.7. GOVERNING LAW; WAIVER OF JURY TRIAL; LIMITATION OF REMEDIES.

     (a) THIS AGREEMENT SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO
DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
CONFLICTS OF LAW PROVISIONS, EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

     (b) THE PARTIES HERETO HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY
DEALINGS AMONG THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION AND THE SECURED
PARTY/PLEDGOR RELATIONSHIP THAT IS BEING ESTABLISHED. THE PARTIES HERETO ALSO WAIVE ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND THAT MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY PARTY
HERETO. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT
MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING,
WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. THE PARTIES HERETO EACH ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN
ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. THE PARTIES HERETO FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY

49

 

WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT, THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS. IN
THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.

     (c) NONE OF THE PARTIES HERETO SHALL, REGARDLESS OF CAUSE, ASSERT ANY CLAIM WHATSOEVER
AGAINST ANOTHER PARTY HERETO FOR LOSS OF ANTICIPATORY PROFITS OR CONSEQUENTIAL, PUNITIVE, SPECIAL
OR INDIRECT DAMAGES.

     (d) Any legal action or proceeding against any of the Parties with respect to this Agreement
or any other Loan Document or the transactions in connection with or relating hereto or thereto,
may be brought in the courts of the State of New York in the County of New York or the United
States for the Southern District of New York and, by execution and delivery of this Agreement,
each of the Parties hereby irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the non exclusive jurisdiction of the aforesaid courts. Each of the
Parties agrees that a judgment, after exhaustion of all available appeals, in any such action or
proceeding shall be conclusive and binding upon each of the Parties, and may be enforced in any
other jurisdiction, by a suit upon such judgment, a certified copy of which shall be conclusive
evidence of the judgment.

     (e) Each Pledgor hereby irrevocably designates, appoints and empowers National Corporate
Research, Ltd. (the “Process Agent”) with offices on the date hereof at 225 W.
34th Street, Suite 910, New York, NY 10122, as its designee, appointee and agent to
receive, accept and acknowledge for and on behalf of such Pledgor, and in respect of its property,
service of any and all legal process, summons, notices and documents which may be served in any
such action or proceeding. Each Pledgor further agrees that such service of process may be made on
the Process Agent by personal service of a copy of the summons and complaint or other legal
process in any such legal suit, action or proceeding on the Process Agent, or by any other method
of service provided for under the Laws in effect in the County of New York, State of New York, and
the Process Agent hereby is authorized and directed to accept such service for and on behalf of
such Pledgor, and to admit service with respect thereto.

     (f) Upon service of process being made on the Process Agent as provided in Section 6.8(e),
Process Agent shall give a copy of the summons and complaint or other legal process served to such
Pledgor in the manner provided in Section 6.3, or to such other address as such Pledgor may notify
the Process Agent in writing. Personal service upon the Process Agent as provided in Section 6.8(e)
shall be deemed to be personal service on the applicable Pledgor and shall be legal and binding
upon such Pledgor for all purposes, notwithstanding any failure of the Process Agent to give copies
of such legal process to such Pledgor, or any failure on the part of such Pledgor to receive the
same.

50

 

     (g) Each Pledgor will at all times continuously maintain an agent to receive service of
process in the County of New York, State of New York on its behalf with respect to each Loan
Document. In the event that for any reason the Process Agent or any successor thereto shall no
longer serve as agent for any Pledgor to receive service of process in the County of New York on
its behalf or shall have changed its address without notification thereof to the Process Agent,
such Pledgor, immediately after having knowledge thereof, will irrevocably designate and appoint a
substitute agent in the County of New York, State of New York and advise Secured Party.

     (h) Nothing contained in this Section 6.8 shall preclude Secured Party from bringing any
legal suit, action or proceeding against any Pledgor in the courts of any jurisdiction where any
Pledgor or any of its property or assets may be found or located. To the extent permitted by the
Laws of any such jurisdiction, each Pledgor hereby irrevocably submits to the jurisdiction of any
such court and expressly waives, in respect of any such suit, action or proceeding, the
jurisdiction of any court or courts which now or hereafter, by reason of its present or future
domiciles, or otherwise, may be available to it. Without limiting the generality of the foregoing,
SB LP hereby consents to the jurisdiction of any court of competent jurisdiction within the United
States and will comply with all requirements necessary to give such court jurisdiction.

     (i) Each Pledgor hereby irrevocably waives any objection which it may now or hereafter have
to the laying of venue of any of the aforesaid actions or proceedings arising out of or in
connection with any Loan Document or the transactions contemplated thereby, or relating hereto or
thereto, brought in any of the courts referred to in clause (d) above and hereby further
irrevocably waives and agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum. Without limiting
the generality of the foregoing, SB LP hereby waives any and all jurisdictional defenses to any
United States forum selected by any other party hereto on grounds including, but not limited to,
forum non-conveniens. In addition, in the event that Secured Party chooses to bring an action or
proceeding in a court of any state within the United States, SB LP hereby waives any right of
removal to federal court.

     6.8. Consent to Jurisdiction. The Parties hereby irrevocably: (i) consent to
non-exclusive personal jurisdiction in any Federal court sitting in the Southern District of New
York, for the purposes of any suit, action or other proceeding arising out of this Agreement, any
of the Loan Documents or any of the other agreements or transactions referred to herein or therein
or contemplated hereby or thereby, which is brought by or against either of the Parties, (ii)
waive any objection with respect thereto, and (iii) agree that all claims in respect of any such
suit, action or proceeding shall be heard and determined in any such court, and that such court
shall have non-exclusive jurisdiction over any claims arising out of or relating to this Agreement
and all transactions related thereto.

     6.9. Termination; Release. Upon the termination of the Loan Agreement and the Loan
Documents in accordance with their terms, this Agreement shall terminate and Secured Party, at any
Pledgor’s request and expense, shall promptly execute and deliver to such Pledgor the proper
instruments (including Uniform Commercial Code termination statements on form UCC-3) acknowledging
the termination of this Agreement, and will duly assign, transfer and deliver to such Pledgor
(without recourse and without any representation or warranty of any kind) such of

51

 

the Pledged Collateral as may be in the possession of Secured Party and has not theretofore been
disposed of or otherwise applied or released.

     6.10. Entire Agreement; Amendments; Waivers. This Agreement, together with the Loan
Agreement and the other Loan Documents and any and all attachments and/or exhibits attached hereto
or thereto, constitutes the entire agreement between the Parties pertaining to the subject matter
hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the Parties. No supplement, modification or waiver of
this Agreement shall be binding unless it shall be specifically designated to be a supplement,
modification or waiver of this Agreement and shall be executed in writing by each Pledgor and
Secured Party, and any such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.

     6.11. Assignment. This Agreement shall be binding upon and shall inure to the benefit
of the Parties hereto and their respective successors and permitted assigns. No other person shall
have any right, benefit or obligation hereunder.

     6.12. Indulgences or Delay. Neither the failure nor any delay on the part of either
Party to exercise any right, remedy, power or privilege under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege
preclude any other or further exercise of the same or of any other right, remedy, power or
privilege, nor shall any waiver of any such right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any
other occurrence.

     6.13. Severability. If any provision of this Agreement is rendered or declared
illegal, invalid or unenforceable by reason of any existing or subsequently enacted legislation or
by the final judgment of any court of competent jurisdiction, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.

     6.14. Headings. The headings of the several articles and Sections herein are inserted
for convenience of reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.

     6.15. Multiple Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

     6.16. Drafting Interpretation. The Parties and their respective counsel have prepared
this Agreement jointly, and the resulting document shall not be construed or interpreted
otherwise.

     6.17. Limitation of Liability. Anything herein to the contrary notwithstanding, the
obligations of the Pledgors under this Agreement are payable only to the extent of the Pledged
Collateral and do not constitute an obligation of (and no recourse shall be had with respect
thereto to) any shareholder, or other owner of any Pledgor or any other Person; and no judgment
for any personal liability or deficiency upon or with respect to, or otherwise in connection with,

52

 

the obligations under this Agreement shall be obtainable by Secured Party (or any Person claiming
by, through or under Secured Party) against any Pledgor or any shareholder, or other owner of any
Pledgor, or any other Person, absent such Person’s fraud or intentional misrepresentation;
provided, however, that nothing in this Section 6.18 shall limit or otherwise prejudice in any way
the right of Secured Party to proceed against any Person with respect to the enforcement of such
Person’s obligations under this Agreement or any Loan Document to which it is a party.

[The Next Page is the Signature Page]

53

 

     IN WITNESS WHEREOF, this Pledge and Security Agreement has been duly executed by the Parties
as of the date set forth at the outset hereof.

	 	 	 	 	 
	 	 	PLEDGORS:
	 
	 	 	 	 
	 	 	JUAN DE FUCA CABLE MANAGEMENT, INC.
	 

	 	By:	 	 
	 

	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 
	 
	 	 	 	 
	 	 	SBJF HOLDING CORP.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 
	 
	 	 	 	 
	 	 	BOUNDLESS ENERGY NW, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 
	 
	 	 	 	 
	 	 	SECURED PARTY:
	 
	 	 	 	 
	 	 	UNITED STATES POWER FUND, L.P.,

	 	 	 	 	 	 	 	 	 
	 	 	By:	 	EIF US Power, LLC

its General Partner
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By: Energy Investors Funds Group, LLC 
its Sole Member
	 

	 	 	 	 	 	By:	 	 
	 

	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Andrew Schroeder
	 	 	 	 	 	 	Title: Partner

54

 

Schedule 1

LOCATIONS FOR FILING FINANCING STATEMENTS

	 	 	 
	Debtor:	 	Jurisdiction
	Juan de Fuca Cable Management, Inc.

	 	Delaware — Secretary of State
	 
	SBJF Holding Corp.

	 	District of Columbia — Recorder of Deeds
	 
	Boundless Energy NW, Inc.

	 	Delaware — Secretary of State

55

 

Schedule 2

CHIEF EXECUTIVE OFFICES OF PLEDGORS

Juan de Fuca Cable Management, Inc. 

203 Red Stone Hill

Plainville, CT 06062

Telephone: (860) 747-0497

Facsimile: (860) 747-0297

SBJF Holding Corp.

Lobby Box 91

Suite 1400

333 Seymour Street

Vancouver, British Columbia V6B 5A6

Telephone: (604) 689-2991

Facsimile: (604) 689-2990

Boundless Energy NW, Inc. 203

Red Stone Hill

Plainville, CT 06062

Telephone: (860) 747-0497

Facsimile: (860) 747-0297

56

 

EXHIBIT A

FORM OF IRREVOCABLE PROXY

     Reference is made to that certain Pledge and Security Agreement re Sea Breeze Pacific Juan de
Fuca Cable, LP (the “Pledge Agreement”), dated as of April 6, 2005, by and among Juan de
Fuca Cable Management, Inc., a Delaware corporation (“General Partner”), SBJF Holding
Corp., a British Columbia corporation (“SB LP”) and Boundless Energy NW, Inc., a Delaware
corporation (“BE LP”; together with SB LP, the “Limited Partners”; and together
with both of SB LP and General Partner, the “Pledgors” and each of such parties
individually, a “Pledgor”) in favor of United States Power Fund, L.P., a Delaware limited
partnership (the “Secured Party”) that was entered into in connection with that certain
Development Loan Agreement, dated as of April 6, 2005, by and among General Partner, Sea Breeze
Power Corp., a British Columbia Corporation, Boundless Energy, LLC, a Maine limited liability
company, Secured Party, Sea Breeze Pacific Juan de Fuca Cable, LP, a Delaware limited partnership
(“Borrower”), Olympic Converter GP, LLC, a Delaware limited liability company and Olympic
Converter, LP, a Delaware limited partnership, as amended from time to time (the “Loan
Agreement”). Capitalized terms used but not otherwise defined herein shall have the
meanings set forth in the Loan Agreement.

     The undersigned hereby appoints the Secured Party as proxy with full power of substitution,
and hereby authorizes Secured Party to represent and vote, in any consent, at any meeting or at any
other time chosen by Secured Party in its sole discretion, all of the partnership interests in
Borrower owned by the undersigned on the date of exercise hereof in accordance with the Pledge
Agreement, for so long as an Event of Default has occurred and is continuing.

	 	 	 	 	 	 	 
	Date:

	 	 	 	[PLEDGOR]	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 

	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 

57

 

EXHIBIT B

FORM OF PARTNERSHIP INTEREST POWER

INSTRUMENT OF TRANSFER

OF PARTNERSHIP INTERESTS IN

SEA BREEZE PACIFIC JUAN DE FUCA CABLE, LP

     FOR VALUE RECEIVED, [ _________, a _________], hereby sells,
assigns and transfers unto United States Power Fund, L.P., a Delaware limited partnership (the
“Secured Party”), all of the _________percent [limited] [general] partnership interests in Sea
Breeze Pacific Juan de Fuca Cable, LP, a Delaware limited partnership (the “Partnership”)
represented by Certificate No. _________and standing in its name on the books of the Partnership,
pursuant to and in accordance with that certain Pledge and Security Agreement re the Partnership,
dated as of April 6, 2005, and does hereby irrevocably constitute and appoint the Secured Party as
its attorney to transfer the said interests on the books of the Partnership with full power of
substitution in the premises.

	 	 	 	 	 	 	 	 	 
	 

	 	Dated:
	 	 	,	 	 	 
	 

	 	 	 	 	 	                                         	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	[PLEDGOR]

	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	 
	 

	 	 	 	 	 	 	 
	 

	 	 	 	Name:
	 	 
	 

	 	 	 	Title:
	 	 

In presence of:

 

 

EXHIBIT E

SECURITY AGREEMENT

Exhibit E-1

SECURITY AGREEMENT

by and between

SEA BREEZE PACIFIC JUAN DE FUCA CABLE, LP

as Borrower,

and OLYMPIC CONVERTER, LP, SEA BREEZE PACIFIC REGIONAL

TRANSMISSION SYSTEM, INC., and OLYMPIC CONVERTER GP, LLC

as the Guarantors,

in favor of

UNITED STATES POWER FUND, L.P.

as the Secured Party

Dated as of April 6, 2005

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	1.	 	Definitions	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	2.	 	Grant of Security Interest	 	 	3	 
	 

	 	(a)
	 	Collateral
	 	 	3	 
	 

	 	(b)
	 	Sufficiency of Collateral Description
	 	 	7	 
	 

	 	(c)
	 	Obligations
	 	 	8	 
	 
	 	 	 	 	 	 	 	 
	3.	 	Perfection of Collateral	 	 	9	 
	 

	 	(a)
	 	Financing Statements
	 	 	9	 
	 

	 	(b)
	 	Delivery of Collateral
	 	 	9	 
	 

	 	(c)
	 	Collateral in Possession of Bailee; Perfection
	 	 	11	 
	 

	 	(d)
	 	Electronic Chattel Paper and Transferable Records
	 	 	11	 
	 

	 	(e)
	 	Letter-of-Credit Rights
	 	 	12	 
	 

	 	(f)
	 	Commercial Tort Claims
	 	 	13	 
	 

	 	(g)
	 	Further Assurances
	 	 	13	 
	 
	 	 	 	 	 	 	 	 
	4.	 	Representations and Warranties	 	 	14	 
	 

	 	(a)
	 	Representations Incorporated by Reference
	 	 	14	 
	 

	 	(b)
	 	Title; No Other Liens
	 	 	15	 
	 

	 	(c)
	 	Perfection Representations
	 	 	15	 
	 

	 	(d)
	 	Other Perfection Matters
	 	 	16	 
	 

	 	(e)
	 	Assigned Agreements
	 	 	17	 
	 
	 	 	 	 	 	 	 	 
	5.	 	Covenants and Agreements	 	 	17	 
	 

	 	(a)
	 	Notice of Adverse Claims and Changes in the Collateral
	 	 	18	 
	 

	 	(b)
	 	Legal Status
	 	 	19	 
	 

	 	(c)
	 	Prohibition Against Transfer of Collateral
	 	 	19	 
	 

	 	(d)
	 	Fees and Expenses
	 	 	19	 
	 

	 	(e)
	 	Filing Fees, Taxes, etc
	 	 	19	 
	 

	 	(f)
	 	Maintenance of Collateral and Records; Inspection
	 	 	20	 
	 

	 	(g)
	 	Limitation on Liens on the Collateral
	 	 	21	 
	 

	 	(h)
	 	Indemnification
	 	 	21	 
	 

	 	(i)
	 	Consents to Assignment
	 	 	21	 
	 

	 	(j)
	 	Location of Collateral
	 	 	21	 
	 

	 	(k)
	 	Performance of Assigned Agreements
	 	 	22	 
	 
	 	 	 	 	 	 	 	 
	6.	 	The Borrower’s and Each Guarantor’s Obligations	 	 	23	 
	 
	 	 	 	 	 	 	 	 
	7.	 	Remedies; Rights Upon Event of Default	 	 	23	 
	 
	 	 	 	 	 	 	 	 
	8.	 	Application of Proceeds	 	 	29	 
	 
	 	 	 	 	 	 	 	 
	9.	 	Assignment of Project Permits	 	 	29	 
	 
	 	 	 	 	 	 	 	 
	10.	 	Security Interest Absolute	 	 	29	 
	 
	 	 	 	 	 	 	 	 
	11.	 	The Secured Party Appointed Attorney-in-Fact	 	 	31	 

i

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page  
	12.	 	The Secured Party May Perform	 	 	33	 
	 
	 	 	 	 	 	 	 	 
	13.	 	No Duty on the Secured Party’s Part; Limitation on the Secured Party’s Obligations	 	 	35	 
	 

	 	(a)
	 	No Duty on the Secured Party’s Part
	 	 	35	 
	 

	 	(b)
	 	Limitations on Obligations
	 	 	35	 
	 

	 	(c)
	 	Delegation of Duty
	 	 	36	 
	 

	 	(d)
	 	Limitations on Liability
	 	 	36	 
	 
	 	 	 	 	 	 	 	 
	14.	 	Reasonable Care; Standards for Exercising Remedies; Marshaling Collateral	 	 	37	 
	 
	 	 	 	 	 	 	 	 
	15.	 	Absence of Fiduciary Relation	 	 	39	 
	 
	 	 	 	 	 	 	 	 
	16.	 	Survival of Representations and Warranties	 	 	39	 
	 
	 	 	 	 	 	 	 	 
	17.	 	Notices	 	 	39	 
	 
	 	 	 	 	 	 	 	 
	18.	 	No Waiver; Cumulative Remedies	 	 	39	 
	 
	 	 	 	 	 	 	 	 
	19.	 	Severability	 	 	41	 
	 
	 	 	 	 	 	 	 	 
	20.	 	Exculpatory Provisions; Reliance By the Secured Party	 	 	41	 
	 

	 	(a)
	 	Exculpatory Provisions
	 	 	41	 
	 

	 	(b)
	 	Reliance by the Secured Party
	 	 	41	 
	 
	 	 	 	 	 	 	 	 
	21.	 	Amendment	 	 	43	 
	 
	 	 	 	 	 	 	 	 
	22.	 	Successors and Assigns	 	 	43	 
	 
	 	 	 	 	 	 	 	 
	23.	 	Number and Gender	 	 	43	 
	 
	 	 	 	 	 	 	 	 
	24.	 	Headings	 	 	43	 
	 
	 	 	 	 	 	 	 	 
	25.	 	Waivers by Borrower and Each Guarantor	 	 	43	 
	 

	 	(a)
	 	Waiver of Trial by Jury
	 	 	22	 
	 
	 

	 	(b)
	 	Waiver of Certain Damages
	 	 	23	 
	 
	 

	 	(c)
	 	Consent to Jurisdiction
	 	 	23	 
	 
	 

	 	(d)
	 	Appointment of Agent for Service of Process
	 	 	23	 
	 
	 

	 	(e)
	 	Waiver of Service of Process
	 	 	24	 
	 
	 

	 	(f)
	 	Substitution of Process Agent
	 	 	24	 
	 
	 

	 	(g)
	 	No Exclusive Jurisdiction
	 	 	24	 
	 
	 

	 	(h)
	 	Consent to Venue
	 	 	24	 
	 
	 
	 	 	 	 	 	 	 	 
	26.	 	Notices	 	 	49	 
	 
	 	 	 	 	 	 	 	 
	27.	 	Counterparts; Facsimile Delivery	 	 	49	 
	 
	 	 	 	 	 	 	 	 
	28.	 	Continuing Security Interest; Termination	 	 	49	 

ii

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page  
	29.	 	Payments Set Aside	 	 	49	 
	 
	 	 	 	 	 	 	 	 
	30.	 	Non-Recourse Nature of Obligations	 	 	51	 
	 
	 	 	 	 	 	 	 	 
	31.	 	Conflicts, Etc.	 	 	51	 

iii

 

SECURITY AGREEMENT

This SECURITY AGREEMENT (this “Security Agreement”), dated as of April 6, 2005, is made by
and between Sea Breeze Pacific Juan de Fuca Cable, LP, a Delaware limited partnership (together
with its successors and assigns, the “Borrower”) and Olympic Converter, LP, a Delaware
limited partnership (the “USA Sub”), Olympic Converter GP, LLC, a Delaware limited
liability company (“OCGP”) and Sea Breeze Pacific Regional Transmission System, Inc., a
British Columbia corporation (“SBP-RTS” and together with USA Sub and OCGP, “the
Guarantors”, and each of USA Sub, OCGP and SBP-RTS individually, a “Guarantor”) in
favor of United States Power Fund, L.P., a Delaware limited partnership (the “Lender” or
“the Secured Party”) under the Loan Agreement (as defined below).

W I T N E S S E T H:

WHEREAS, Borrower is seeking a development loan to finance, on an interim basis, the development of
a 550 MW high voltage direct current submarine transmission link spanning the Strait of Juan de
Fuca connecting Victoria, on the southern tip of Vancouver Island, British Columbia, Canada and
Port Angeles, Washington State, USA or an alternative route approved by the Lender pursuant to the
Loan Agreement connecting greater Victoria on Vancouver Island or greater Vancouver to the Olympic
Peninsula (the “Project”);

WHEREAS, Borrower is the sole member of OCGP, Borrower and OCGP are the sole partners of US Sub and
Borrower is an affiliate of SBP-RTS;

WHEREAS, Borrower, the Guarantors and Lender are parties to that certain Development Loan
Agreement, dated as of the date hereof (the “Loan Agreement”), and the Loan Documents
referred to therein (the “Loan Documents”), pursuant to which the Lender has committed to
provide development loans (the “Loans”) to Borrower and each Guarantor has committed to
guarantee Borrower’s obligations under the Loans, among other things; and

WHEREAS, the execution and delivery of this Agreement is a condition precedent to the effectiveness
of the Loan Agreement;

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order
to induce the Lender to make the Loans and to make available the commitments as set forth in
Section 2.1 of the Loan Agreement, the parties hereto hereby agree as follows:

          1. Definitions. Unless otherwise defined herein, all terms used herein, including
such terms used in the preamble and recitals hereto, which are defined in the

 

 

Loan Agreement shall have their respective meanings as therein defined. All references to
sections, schedules and exhibits in or to this Security Agreement are to sections, schedules and
exhibits in or to this Security Agreement, unless otherwise specified. The words “hereof,”
“herein” and “hereunder” and words of similar import when used in this Security Agreement shall
refer to this Security Agreement as a whole and not to any particular provision of this Security
Agreement. For purposes of this Security Agreement, all other undefined terms used herein, whether
capitalized or not, but which are defined in Articles 8 or 9 of the Uniform Commercial Code (as the
same may be in effect, from time to time, in the State of New York or any other applicable
jurisdiction, the “Code”), shall have their respective meanings as therein defined, except for the
following capitalized terms, which shall have the following meanings:

     “Assigned Agreements”: as defined in Section 2(a)(i) of this Security Agreement.

     “Code”: as defined in Section 1 of this Security Agreement.

     “Collateral”: as defined in Section 2(a) of this Security Agreement.

     “Consent”: as defined in Section 5(i) of this Security Agreement.

     “Indemnified Liabilities”: as defined in Section 5(h) of this Security Agreement.

     “Interest Rate”: as defined in Section 2(c)(ii) of this Security Agreement.

     “Mortgage”: as defined in Section 2(b) of this Security Agreement.

     “Secured Party”: as defined in the preamble to this Security Agreement.

     “Security Interest”: as defined in Section 2(a) of this Security Agreement.

          2. Grant of Security Interest.

          (a) Collateral. As security for the prompt and complete payment and performance when
due (whether at stated maturity, by acceleration or otherwise) of any and all of the Obligations
(as defined below) now existing or hereafter arising, and howsoever evidenced, each of the Borrower
and each Guarantor hereby confirms the grant and creation of a lien on and first priority security
interest in favor of the Secured Party and hereby collaterally assigns, conveys, mortgages,
pledges, hypothecates and transfers to the Secured Party and grants to the Secured Party, a Lien on
and first priority security interest (the “Security Interest”) in all of its right, title
and interest in, to and under the following, whether now existing or hereafter arising or acquired
(the “Collateral”):

     (i) each contract to which the Borrower or any Guarantor is a party or a third party
beneficiary (and any and all accounts, general intangibles, instruments, and contract rights
arising thereunder or related thereto), but excluding any contracts or engagements with legal
counsel, accountants, brokers and investment bankers, and including but not limited to (1) any
and all transmission

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interconnection agreements, engineering, procurement and construction contracts,
transmission scheduling rights agreements or transmission capacity sales agreements, (2) any
and all contracts, licenses or permits, whether executed, granted or issued by a private
person or entity, governmental entity or agency, whether such contracts are now or at any time
hereafter existing, (3) any and all right, title and interest Borrower or any Guarantor may
have in any financing arrangements relating to the financing of or the purchase of all or any
portion of the Collateral by future purchasers, (4) all plans, specifications, and drawings
prepared for the Project, (5) any and all contracts, letters of intent, easements, licenses, rights of way or other agreements granting the
Borrower or any Guarantor any option to purchase, or any right to lease or use, real
property, or granting to Borrower or any Guarantor any other right to or interest in real
property, (6) all other contracts to which Borrower or any Guarantor is a party or
beneficiary which in any way relate to the use, enjoyment, development, construction,
operation, maintenance or ownership of the Collateral (such Project Contracts and other
contracts, as amended, supplemented or otherwise modified, being individually referred to
herein as an “Assigned Agreement” and collectively referred to herein as the
“Assigned Agreements”), including (A) all rights of the Borrower or any
Guarantor, now or hereafter existing, to receive moneys thereunder, whether or not earned
by performance or for property that has been or is to be sold, leased, licensed,
assigned, or otherwise disposed of pursuant to the Assigned Agreements, (B) all rights of
the Borrower or any Guarantor, now or hereafter existing, to receive proceeds of any
performance or payment bond, insurance, indemnity, warranty or guaranty with respect to
the Assigned Agreements, (C) all claims of the Borrower or any Guarantor, now or
hereafter existing, for damages arising out of or for breach of or default under the
Assigned Agreements, (D) all supporting obligations in favor of the Borrower or any
Guarantor and incurred pursuant to the Assigned Agreements, and (E) all rights of the
Borrower or any Guarantor, now or hereafter existing, to take any action to terminate,
amend, supplement, modify or waive performance of the Assigned Agreements, to perform
thereunder and to compel performance and otherwise exercise all remedies thereunder;
provided, however, unless an Event of Default shall have occurred and be
continuing, the Borrower and each Guarantor, as applicable, may exercise all rights,
interests and benefits under the Assigned Agreements in any lawful manner not prohibited
by this Security Agreement, the Loan Agreement or any of the other Loan Documents;

     (ii) all investment property, including certificated securities, uncertificated
securities, securities accounts, financial assets, and security entitlements, and all deposit
accounts and all other bank accounts and sub-accounts, including the Deposit Account, together
with all funds, cash, monies, financial assets, investments, instruments, certificates of
deposit, promissory notes, and any other property at any time on deposit therein or credited
to any of the foregoing, all rights to payment or withdrawal therefrom, and all income,
profits, gains, and interest thereon;

     (iii) all Project Permits, including those with respect to the development,
reconstruction, repair, alteration, addition, improvement, replacement, use, operation or
management of the Project (including, all Project Permits now or hereafter held in the name or
for the benefit of the Borrower or any Guarantor);

     (iv) all equipment, accounts, agreements, contract rights, inventory (including fuel
supplies), goods, accessions, chattel paper, electronic chattel paper,

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documents, instruments, letter of credit rights, promissory notes, general intangibles,
payment intangibles, software, supporting obligations, commercial tort claims, fixtures, trade
fixtures, money, after-acquired property and other assets owned by the Borrower or any
Guarantor or in which the Borrower or any Guarantor has rights, including the improvements,
equipment and fixtures associated with the Project, or the designs, plans and specifications
relating to the Project owned by the Borrower or any Guarantor on the date hereof or hereafter
acquired, all pollution allowances, offsets and similar rights, and any right, title or interest of the Borrower or any Guarantor under any insurance,
indemnity, warranty or guaranty in respect of the Project or of any of the foregoing, and
any rents, revenues, incomes and profits in respect of the Project;

     (v) all proceeds, products and accessions of and to any and all of the foregoing
Collateral, including whatever is received upon any collection, exchange, sale or other
disposition, or distribution on account of any of the Collateral, any property into which any
of the Collateral is converted, or any rights arising out of the Collateral, whether cash or
non-cash proceeds, and any and all other amounts paid or payable or in connection with any of
the Collateral; and

     (vi) to the extent not included in the foregoing, any other personal or fixture property
of the Borrower or any Guarantor, whether tangible or intangible, of every kind and nature,
whether now existing or hereafter arising or acquired;

provided, however, (i) any of the Project Permits which by their terms or by
operation of Law would become void, voidable, terminable or revocable or would constitute a breach
or default thereunder or under any applicable Law if pledged or assigned hereunder or if a security
interest therein were granted hereunder are expressly excepted and excluded from the Security
Interest granted under and the terms of this Security Agreement to the extent necessary to avoid
such voidness, voidability, terminability or revocability or breach or default, and (ii) any sale
of assets permitted by the Loan Agreement shall be released from the Security Interest granted
hereunder and shall no longer be part of the Collateral upon the consummation of such sale. The
Collateral is intended to include all of the above-described assets, wherever the same may be now
or hereafter located.

          (b) Sufficiency of Collateral Description. It is the intention of the parties
hereto that the description of the Collateral set forth in 
Section 2(a) be sufficient, together
with the description of any mortgaged property as set forth in any mortgage made by Borrower in
favor of Secured Party in accordance with the Loan Agreement (a “Mortgage”), to enable the
Secured Party, upon exercise of its remedies set forth in this Security Agreement and any such
Mortgage, to take possession of, and foreclose upon, all of the right, title and interest of the
Borrower and of each Guarantor in and to the Project and any and all real property and personal
property of the Borrower and of each Guarantor, tangible and intangible, used or usable in
connection therewith, and to enable the Secured Party or its designee to operate, sell, lease,
license or otherwise dispose of the entire interest of the Borrower and of each Guarantor in and to
the Project or any part thereof, in each case, upon the occurrence and during the continuance of an
Event of Default; provided, however, that all of the Collateral is hereby assigned
to the Secured Party solely as security, and the Secured Party shall have no duty, liability or
obligation whatsoever with respect to any of the Collateral, unless the Secured Party so elects in
writing.

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          (c) Obligations. This Security Agreement secures, in accordance with the
provisions hereof, the following obligations, now existing or hereafter arising (collectively, the
“Obligations”):

     (i) payment and performance of each and every obligation, indebtedness, covenant and
agreement of the Borrower and of each Guarantor, now or hereafter
existing, contained in the Loan Agreement, the Guarantee or any other Loan Document, in each case whether
for principal, interest, premium, fees, expenses or otherwise pursuant thereto, and any
amendments or supplements thereto, extensions or renewals thereof or replacements
therefor;

     (ii) payment of all sums advanced in accordance herewith or in accordance with any other
Security Document by or on behalf of the Secured Party, to protect, retake, hold, or prepare
for sale, lease, license or other disposition of, or realize upon, any of the Collateral
purported to be covered hereby or thereby, including those fees and expenses described in
Sections 5(d) and 5(e) hereof, with interest thereon at the interest rate set forth in Section
2.5 of the Loan Agreement and based on a 365-day year (the “Interest Rate”) from the
date of demand therefor;

     (iii) performance of every obligation, covenant and agreement of the Borrower and each
Guarantor contained in any agreement now or hereafter executed by the Borrower or any
Guarantor, as applicable, which recites that the obligations thereunder are secured by this
Security Agreement or any other Security Document; and

     (iv) payment of all sums, with interest thereon at a rate per annum equal
to the interest rate specified in the Loan Agreement from the date of demand therefor, that
becomes due and payable to or for the benefit of the Secured Party pursuant to the terms of
this Security Agreement or any other Loan Document;

in each case, whether direct or indirect, joint or several, absolute or contingent, liquidated or
unliquidated, now or hereafter existing, renewed or restructured, reinstated, created or incurred,
and, including all indebtedness of either Borrower or any Guarantor under any instrument now or
hereafter evidencing or securing any of the foregoing.

          3. Perfection of Collateral. In order to insure the attachment, perfection and first
priority of, and the ability of the Secured Party to enforce, the Security Interest in the
Collateral, the Borrower and each Guarantor agree, in each case, at the Borrower’s or such
Guarantor’s (as applicable) sole expense, to take the following actions with respect to the
Collateral:

          (a) Financing Statements. The Borrower and each Guarantor shall (i) file or cause to
be properly filed, registered and recorded all financing statements and other documents as are
necessary or required by applicable Laws to grant in favor of the Secured Party, a perfected
Security Interest in the Collateral, and (ii) deliver to the Secured Party an acknowledgment copy,
or other evidence satisfactory to it, of each such filing, registration or recordation.

          (b) Delivery of Collateral. With respect to all sums of money, instruments,
promissory notes, tangible chattel paper, and negotiable documents now and hereafter

5

 

acquired by or arising in favor of the Borrower or any Guarantor, the Borrower or such
Guarantor, as applicable, shall deliver the same to the Secured Party or the Depositary Bank
pursuant to the terms of the this Security Agreement or the Depositary Agreement, as applicable,
and the terms hereof. All such monies, instruments, promissory notes, tangible chattel paper, and
negotiable documents shall be in suitable form for transfer by delivery or otherwise, or shall be
accompanied by duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Secured Party, in order to grant in favor of the Secured Party
or the Depositary Bank, as applicable, for the benefit of Secured Party, a perfected Security
Interest in such money, instruments, promissory notes, tangible chattel paper, and negotiable
documents.

          (c) Collateral in Possession of Bailee; Perfection. If any goods that Borrower or any
Guarantor owns or has a right in are now or at any time in the possession of a bailee, Borrower or
such Guarantor, as applicable, shall promptly notify the Secured Party thereof and shall promptly
obtain an acknowledgment from the bailee, in form and substance reasonably satisfactory to the
Secured Party, that the bailee holds such Collateral for the benefit of the Secured Party and, if
an Event of Default has occurred and is continuing, shall act upon instructions from the Secured
Party, without the further consent of the Borrower or such Guarantor, as applicable. If for any
reason the Secured Party cannot perfect a Security Interest in the items in possession of a bailee,
then upon instructions from the Secured Party, the Borrower or such Guarantor, as applicable, shall
promptly transport such items to the location specified by Secured Party with respect to which the
Secured Party will be able to so perfect its Security. Upon instructions from the Secured Party,
the Borrower or the applicable Guarantor, as applicable, shall obtain such additional insurance on
the Collateral as the Secured Party deems necessary (consistent with the requirements of the Loan
Agreement) to protect the Secured Party’s interests.

          (d) Electronic Chattel Paper and Transferable Records. With respect to all electronic
chattel paper or any “transferable record”, as that term is defined in Section 201 of the federal
Electronic Signatures in Global and National Commerce Act or in Section 16 of the Uniform
Electronic Transactions Act as in effect in any relevant jurisdiction, now or hereafter acquired by
or arising in favor of the Borrower or any Guarantor, the Borrower or the applicable Guarantor, as
applicable, shall promptly notify the Secured Party thereof and, at the request of the Secured
Party, shall take such action as the Secured Party may reasonably request, or as otherwise
necessary, to vest in the Secured Party “control” (as defined in the Code) of such electronic
chattel paper or “control” under Section 201 of the federal Electronic Signatures in Global and
National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions
Act, as so in effect in such jurisdiction, of such transferable record. The Secured Party will
arrange, pursuant to procedures satisfactory to the Secured Party for the Borrower or the
applicable Guarantor, as applicable, to make alterations to the electronic chattel paper or
transferable record permitted under the Code or, as the case may be, Section 201 of the federal
Electronic Signatures in Global and National Commerce Act or Section 16 of the Uniform Electronic
Transactions Act for a party in control to make without loss of control, unless an Event of Default
has occurred and is continuing or would occur after taking into account any action by the Borrower
or such Guarantor, as applicable, with respect to such electronic chattel paper or transferable
record.

6

 

          (e) Letter-of-Credit Rights. With respect to any letter of credit now or hereafter
issued in favor of the Borrower or any Guarantor, the Borrower or such Guarantor, as applicable,
shall promptly notify the Secured Party thereof and, at the request and option of the Secured
Party, the Borrower or such Guarantor, as applicable, shall, pursuant to an agreement in form and
substance satisfactory to the Secured Party, either (i) arrange for the issuer and any confirmer of
such letter of credit to consent to an assignment to the Secured Party of the proceeds of any
drawing under the letter of credit or (ii) arrange for the Secured Party to become the transferee
beneficiary of or nominee under the letter of credit.

          (f) Commercial Tort Claims. With respect to any commercial tort claim that the
Borrower or any Guarantor may hereafter hold, the Borrower or such Guarantor, as applicable, shall
promptly notify the Secured Party in a writing signed by the Borrower or such Guarantor, as
applicable, of the brief details thereof and grant to the Secured Party a perfected Security
Interest therein and the proceeds thereof, all upon the terms of this Security Agreement, with such
writing to be in form and substance satisfactory to the Secured Party.

          (g) Further Assurances. To the extent not included in the foregoing, the Borrower and
each Guarantor shall, from time to time at the Borrower’s or such Guarantor’s, as applicable,
expense, promptly execute and deliver all further agreements, instruments and documents, and take
all further action, that may be necessary or advisable, or that the Secured Party determines may be
necessary, in order to create, perfect, or protect any Security Interest granted or purported to be
granted hereby or to enable the Secured Party to exercise and enforce its rights and remedies
hereunder with respect to the Collateral. Without limiting the generality of the foregoing, the
Borrower and each Guarantor shall (i) execute and file such financing and continuation statements,
or amendments thereto, and such other instruments, endorsements and notices, as may be necessary,
or as the Secured Party may reasonably request, in order to perfect and preserve the Security
Interest granted or purported to be granted hereby; (ii) cause the Secured Party’s name to be noted
as the secured party on any certificate of title for a titled good if such notation is a condition
to attachment, perfection or priority of, or ability of the Secured Party to enforce, the Security
Interest in such Collateral; (iii) comply with any provision of any statute, regulation or treaty
of the United States as to any Collateral if compliance with such provision is a condition to
attachment, perfection or priority of, or ability of the Secured Party to enforce, the Security
Interest in such Collateral; (iv) obtain governmental and other third party consents and approvals,
including any consent of any licensor, lessor or other person obligated on Collateral; (v) obtain
waivers from mortgagees and landlords in form and substance satisfactory to the Secured Party; (vi)
execute any agreement, or deliver any Collateral to the Secured Party, in form and substance
reasonably satisfactory to the Secured Party, in order to provide the Secured Party with “control”
(as such term is defined in the Code) with respect to the relevant Collateral in order for the
Secured Party to obtain a perfected Security Interest in such Collateral; and (vii) take all
actions required by any other Laws in any relevant jurisdiction, or by other Law as applicable in
any foreign jurisdiction.

7

 

          4. Representations and Warranties. The Borrower and each Guarantor hereby represents and
warrants as follows:

          (a) Representations Incorporated by Reference. The Borrower and each Guarantor hereby
makes each and every representation and warranty made by it in Article V of the Loan Agreement to
the same extent as if each such representation and warranty had been set forth in full herein, and
each such representation and warranty is hereby incorporated by reference in this Section 4. In
addition, SBP-RTS hereby makes each and every representation and warranty contained in Section 4 of
the Loan Agreement to the same extent as if SBP-RTS was a party to the Loan Agreement and as if
each such representation and warranty had been set forth in full
herein. Each such representation and warranty is hereby incorporated
by reference in this Section 4.

          (b) Title; No Other Liens. The Borrower and each Guarantor are the sole owners of the
Collateral in existence on the date hereof and will be, along with any of its Subsidiaries pursuant
to and in accordance with Section 5.1(o) of the Loan Agreement, the sole owners of the Collateral
hereafter acquired, free and clear of any and all Liens or claims of others except for Permitted
Liens, and the Borrower and each Guarantor has full power and authority to grant the Security
Interest in and to the Collateral hereunder. Except with respect to the Secured Party, the
Permitted Liens and otherwise as required or permitted under this Security Agreement, no security
agreement, financing statement or other public notice with respect to all or any part of the
Collateral is on file or of record in any public office. Further, no Lien or Security Interest on
or in any membership, partnership, equity or other ownership interests of the Borrower or any
Guarantor has been registered in the ownership interest register maintained by the Borrower or such
Guarantor, as applicable, in which all membership, partnership, equity or other ownership interests
of the Borrower or the applicable Guarantor, as applicable, are recorded, except for Permitted
Liens. The Borrower and each Guarantor further represent that: (i) none of the Collateral
constitutes, or is the proceeds of, “farm products” as defined in the Code, and (ii) none of the
account debtors or other persons obligated on any of the Collateral is a governmental authority
subject to the Federal Assignment of Claims Act or like federal, state or local statute or rule in
respect of such Collateral.

          (c) Perfection Representations. The exact legal name of the Borrower is Sea Breeze
Pacific Juan de Fuca Cable, LP, the Borrower is duly organized and validly existing as a limited
partnership in the State of Delaware, and its certificate of limited partnership is duly filed with
the Secretary of State of the State of Delaware. The Borrower’s principal place of business and
chief executive office is located at 203 Red Stone Hill, Plainville, CT 06062. The exact legal
name of OCGP is Olympic Converter GP, LLC, OCGP is duly organized and validly existing as a limited
liability company in the state of Delaware, and its certificate of formation is duly filed with the
Secretary of State of the State of Delaware. OCGP’s principal place of business and chief
executive office is located at 203 Red Stone Hill, Plainville, CT 06062. The exact legal name of
the USA Sub is Olympic Converter, LP, USA Sub is duly organized and validly existing as a limited
partnership in the State of Delaware, and its certificate of limited partnership is duly filed with
the Secretary of State of the State of Delaware. The USA Sub’s principal place of business and
chief executive office is located at 203 Red Stone Hill, Plainville, CT 06062. The exact legal
name of SBP-RTS is Sea Breeze Pacific Regional Transmission System, Inc., SBP-RTS is duly
incorporated and validly existing as a corporation in the province of British Columbia, Canada, and
its articles of incorporation are duly filed with the British Columbia Corporate Registry.
SBP-RTS’s

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principal place of business and chief executive office is located at 333 Seymour Street, Suite
1400, Vancouver, British Columbia, Canada V6B 5A6.

          (d) Other Perfection Matters. Financing statements or other appropriate instruments
have been filed pursuant to the Code in the public offices set forth in Schedule A as may be
necessary to perfect the Security Interest granted or purported to be granted hereby to the extent
any such Security Interest may be perfected by the filing of a financing statement. All other
action necessary or requested by the Secured Party to protect and perfect the Security Interest in
each item of the Collateral has been duly taken, including those actions set forth in Section 3
with respect to any Collateral that the Borrower or any Guarantor now owns or in which the
Borrower or any Guarantor now has a right. Subject to the requirements contained in the Code with
respect to the filing of continuation statements, this Security Agreement constitutes a valid,
continuing and perfected Security Interest in the Collateral in favor of the Secured Party, subject
to no Liens (other than Permitted Liens), and is enforceable as such against creditors of and
purchasers from the Borrower or the applicable Guarantor against any owner, lessee or mortgagee of
the real property where any of the Collateral is located or to which any of the Collateral relates
and against any purchaser of such real property and any present or future creditor obtaining a Lien
on such real property.

          (e) Assigned Agreements.

     (i) Each of the Assigned Agreements in effect on the date hereof, a true and complete
copy of which has been furnished to the Secured Party, has been duly authorized, executed and
delivered by the Borrower or the applicable Guarantor, and, to the knowledge of the Borrower
and such Guarantor, each of the other parties thereto, and is in full force and effect, and is
binding upon and enforceable against the Borrower or the applicable Guarantor, as applicable,
and, to the knowledge of the Borrower and such Guarantor, each of the other parties thereto,
in accordance with its terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’
rights generally or by limitation upon the availability of equitable remedies;

     (ii) None of the Assigned Agreements has heretofore been amended or modified, except as
set forth in Schedule 1.4 or Schedule 4.14 to the Loan Agreement; none of the Assigned
Agreements has heretofore been suspended, canceled or terminated; none of the Borrower, any
Guarantor nor, to the knowledge of the Borrower or the applicable Guarantor, the other parties
thereto, is currently in default under any of the terms thereunder; and no event has occurred
which, with the giving of notice or the passage of time or both, would constitute such a
default; and

     (iii) None of the Assigned Agreements has been transferred or assigned by the Borrower or
any Guarantor, or, to the knowledge of the Borrower or the applicable Guarantor, any other
party thereto, except to the Secured Party as expressly provided herein.

          5. Covenants and Agreements. Each of the Borrower and each Guarantor hereby
covenants and agrees that it shall faithfully observe and fulfill, and shall cause to be observed
and fulfilled, each and all of the following covenants until all Obligations have been indefeasibly
paid and performed in full and the commitments set forth in Sections 2.1 and 3.1 of the Loan
Agreement have terminated or expired:

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          (a) Notice of Adverse Claims and Changes in the Collateral. Each of the Borrower and
each Guarantor shall, after the Borrower or the applicable Guarantor becomes aware or should have
become aware of any information of (i) any adverse claim against the Collateral involving an amount
in excess of $50,000 per individual claim and $100,000 for the aggregate of all adverse claims, or
(ii) any substantial change in the Collateral or of the occurrence of any
event which could reasonably be expected to have a material adverse effect on the value of the
Collateral or on the Security Interest therein, deliver promptly to the Secured Party notice of
each such claim, change or event.

          (b) Legal Status. Neither the Borrower nor any Guarantor shall change its name, place
of business or, if more than one, chief executive office, or its mailing address or organizational
identification number if it has one, or change its type or organization, jurisdiction of
organization or other legal status, without providing at least sixty (60) days prior written notice
to the Secured Party and shall take, at its expense, all action necessary or requested by the
Secured Party in order to continue the perfection and priority of the Security Interest in the
Collateral. If the Borrower or any Guarantor does not have an organizational identification number
and later obtains one, the Borrower or such Guarantor, as applicable, shall forthwith notify the
Secured Party of such organizational identification number.

          (c) Prohibition Against Transfer of Collateral. Neither the Borrower nor any
Guarantor shall sell, transfer, lease or otherwise dispose of any of the Collateral, or attempt,
offer or contract to do so, except as permitted pursuant to this Security Agreement, the Loan
Agreement and any other Loan Document.

          (d) Fees and Expenses. The Borrower shall upon demand pay to the Secured Party the
amount of any and all reasonable out-of-pocket costs and expenses (including the reasonable fees
and expenses of its counsel, any special consultants reasonably engaged, and any local counsel who
might reasonably be retained by the Secured Party in connection with the transactions contemplated
hereby), which the Collateral may incur in connection with (i) the sale, lease, license or other
disposition of, collection from, or other realization upon, any of the Collateral pursuant to the
exercise or enforcement of any of the rights of the Secured Party hereunder, (ii) the exercise of
its rights under this Security Agreement, or (iii) the execution, delivery and performance of this
Security Agreement, any agreement supplemental hereto and any instruments of further assurance.
Any amounts payable by the Borrower pursuant to clause (i) or (ii) of this Section 5(d) shall be
payable on demand and any amounts payable by the Borrower pursuant to clause (iii) of this Section
5(d) shall be payable on the Maturity Date and all such amounts shall constitute Obligations
together with interest thereon at the Interest Rate from such date.

          (e) Filing Fees, Taxes, etc. The Borrower shall pay all filing, registration
and recording fees or re-filing, re-registration and re-recording fees, and all federal state,
county and municipal stamp taxes and other similar taxes, duties, imposts, assessments and charges
arising out of or in connection with (i) the Collateral or the use or operation of such Collateral,
(ii) the execution and delivery of this Security Agreement and any agreement supplemental hereto
and (iii) the execution and delivery of any instruments of further assurance.

10

 

          (f) Maintenance of Collateral and Records; Inspection. At all times and at its own
cost and expense, the Borrower and each Guarantor shall keep and maintain the Collateral in good
order and repair and will not use the same in violation of any Law or any policy of insurance
thereon, except as otherwise provided in the Loan Agreement. The Borrower and each Guarantor shall
keep and maintain, at all times and at its own cost and expense, complete records of the
Collateral, which records shall be satisfactory to the Secured Party. Such records will be
kept at the Borrower’s principal place of business set forth in Section 4(c). The Borrower and
each Guarantor shall furnish to the Secured Party statements and schedules further identifying and
describing the Collateral and such other reports in connection with the Collateral as the Secured
Party may reasonably request, all in reasonable detail. Subject to Section 5.1(b) of the Loan
Agreement, the Secured Party may inspect the Collateral.

          (g) Limitation on Liens on the Collateral. The Borrower and each Guarantor shall
defend the right, title and interest of the Secured Party in and to any of the Collateral against
the claims and demands of all Persons whomsoever.

          (h) Indemnification. The Borrower and each Guarantor shall defend, indemnify and hold
harmless the Secured Party and their officers, directors and employees, from and against any and
all costs, expenses, disbursements, liabilities, obligations, losses, damages, injunctions,
judgments, suits, actions, causes of action, fines, penalties, claims and demands, of every kind or
nature (including reasonable attorney’s fees and expenses) (herein collectively called the
“Indemnified Liabilities”) which are occasioned by, result from or arise out of any of the
terms, agreements, or covenants to be performed by the Borrower or any Guarantor or any party
thereto under this Security Agreement or any Assigned Agreement, other than Indemnified Liabilities
finally determined by a court of competent jurisdiction as resulting from the Secured Party’s or a
the Secured Party’s gross negligence or willful misconduct. Except as otherwise expressly provided
in writing, all indemnities set forth herein shall survive the execution and delivery of this
Agreement, the termination of this Agreement and the making and repayment of the Obligations.

          (i) Consents to Assignment. Each of the Borrower and each Guarantor has obtained and
provided to the Secured Party executed copies of all consents to this Security Agreement from each
of the parties (other than the Borrower and the Guarantors) to the Assigned Agreements to which it
is a party except in respect of those Assigned Agreements for which, by their respective terms, the
consent of such parties to this Security Agreement is not required, and agrees to obtain such
consents from each party (other than the Borrower and the Guarantors) to any Assigned Agreement to
which it is a party executed after the date hereof and from each future or successor consenting
party to such Assigned Agreement except in respect of those Assigned Agreements for which, by their
respective terms, the consent of such parties to this Security Agreement is not required, which
consents (each a “Consent”) shall be in form and substance reasonably satisfactory to the
Secured Party.

          (j) Location of Collateral. The Collateral, to the extent not delivered to or under
the control of the Secured Party in accordance with the terms of this Security Agreement, will be
kept at the Project, the Borrower’s chief executive office or, if applicable, the location where
such Collateral has been produced or is under construction, installment or assembly and neither the
Borrower nor any Guarantor will

11

 

remove the Collateral from such locations without providing at least sixty (60) days’ prior
written notice to the Secured Party.

          (k) Performance of Assigned Agreements. Each of the Borrower and each Guarantor
agrees in any event to furnish to the Secured Party as soon as possible (and in any event within
fifteen (15) days after the execution thereof) a signed copy of each amendment, modification or
supplement to any Assigned Agreement or a copy of each Additional Contract to
which it is a party. Each of the Borrower and each Guarantor shall deliver to the Secured Party
promptly upon receipt thereof a copy of any notices, or other document issued or received by the
Borrower or such Guarantor, as applicable, pursuant to any Assigned Agreement.

          6. The Borrower’s and Each Guarantor’s Obligations. (a) All payments received by the
Borrower or any Guarantor under or in connection with any of the Collateral shall be held by the
Borrower or such Guarantor, as applicable, in trust for the Secured Party, shall be segregated from
other funds of the Borrower or such Guarantor, as applicable, and shall, forthwith upon receipt by
the Borrower or such Guarantor, as applicable, be turned over to the Secured Party or its designee
in the same form as received by the Borrower or such Guarantor, as applicable (duly endorsed by the
Borrower or such Guarantor, as applicable, to the Secured Party, if requested), and (b) any and all
such payments so received by the Secured Party or its designee (whether from the Borrower or any
Guarantor or otherwise) may, in the sole discretion of the Secured Party or its designee, be
deposited into such accounts as the Secured Party shall determine, or upon and during the
continuance of an Event of Default be applied, subject only to the relevant provisions of the Loan
Agreement and this Security Agreement and as otherwise may be required by applicable Laws, in whole
or in part by the Secured Party or its designee in the manner specified in Section 8, unless
otherwise consented to by the Secured Party.

          7. Remedies; Rights Upon Event of Default. Upon the occurrence and during the
continuance of an Event of Default, in addition to any rights the Secured Party may have under the
Loan Agreement or any other Loan Document, the Secured Party may do one or more of the following:

     (a) Declare, without presentment, demand, protest or notice of any kind (except as
specifically required by any Loan Document), all of which each of the Borrower and each
Guarantor hereby expressly waives, the entire amount of Obligations to be immediately due and
payable, whereupon all of such Obligations declared due and payable shall be and become
immediately due and payable; provided, however, if, with respect to the
Borrower or any Guarantor, an Event of Default occurs pursuant to Sections 6.1(g) or 6.1(j)
of the Loan Agreement, the acceleration provided for in this Section 7(a) shall be deemed to
have been made upon the occurrence of such Event of Default without declaration or any other
action by the Secured Party;

     (b) In addition and without limitation to any rights arising out of the Loan Agreement
and the other Loan Documents, take the following enforcement action with respect to the
Deposit Account and any securities account or deposit account constituting part of the
Collateral, without being required to give any notice to the Borrower or any Guarantor, the
Depositary Bank or any securities intermediary or other bank (except as may be required by
applicable Law): (i) direct the

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Depositary Bank and any securities intermediary or bank, or the Borrower or any
Guarantor (as applicable) to deliver the same to the Secured Party at any place or places
designated by the Secured Party, it being understood that such obligations are of the essence
under this Security Agreement and that, accordingly, upon application to a court of equity
having jurisdiction, the Secured Party shall be entitled to a decree requiring specific
performance by the Depositary Bank, any other bank or securities intermediary, or the
Borrower or any Guarantor, as the case may be, of such obligations; (ii) withdraw any and all
cash and liquidate any financial assets and
other property not constituting cash in the Deposit Account or any securities account or
deposit account constituting part of the Collateral, and apply such cash and the liquidation
proceeds of financial assets or other property, if any, then held in the Deposit Account or
any other securities account or deposit account constituting part of the Collateral, to the
benefit of the Secured Party in satisfaction of all or any part of the Obligations then due
and payable in the manner specified in Section 8 hereof; and (iii) sell, assign, or otherwise
liquidate the Deposit Account or any securities account or deposit account constituting part
of the Collateral, or any part thereof, at a public or private disposition, for cash, upon
credit or for future delivery, and at such prices as the Secured Party may deem satisfactory,
and take possession of the proceeds of any such sale or liquidation. Each of the Borrower
and each Guarantor hereby acknowledges that if an Event of Default has occurred and is
continuing, the Secured Party is entitled to apply amounts standing to the credit of the
Deposit Account, or any other securities account or deposit account constituting part of the
Collateral as contemplated in this Section 7(b);

     (c) Make such payments and do such acts as the Secured Party may deem necessary to
protect, perfect or continue the perfection of the Security Interest in the Collateral,
including (i) paying, purchasing, contesting or compromising any Lien which is, or purports
to be, prior to or superior to the Security Interest granted hereunder, (ii) filing a copy of
this Security Agreement and other documents in the office in which a record of the Lien on
any mortgaged property created by any Mortgage is recorded, (iii) filing any transfer
statement necessary to entitle the transferee to the transfer of record all rights of the
Borrower and any Guarantor in the Collateral referenced in such transfer statement, and (iv)
commencing, appearing or otherwise participating in or controlling any action or proceeding
purporting to affect the Security Interest in or ownership of the Collateral;

     (d) Foreclose on the Collateral as herein provided or in any manner permitted by
applicable Laws and exercise any and all of the rights and remedies conferred upon the
Secured Party by the Assigned Agreements either concurrently or in such order as the Secured
Party may determine without affecting the rights or remedies to which the Secured Party may
be entitled under the Loan Agreement or any other Loan Document. Each of the Borrower and
each Guarantor hereby waives, to the extent permitted by applicable Law, notice and judicial
hearing in connection with the Secured Party’s taking possession or commencing any
collection, recovery, receipt, appropriation, repossession, retention, set-off, sale,
leasing, licensing, conveyance, assignment, transfer or other disposition of or realization
upon any or all of the Collateral, including any and all prior notice and hearing for any
prejudgment remedy or remedies and any such right which the Borrower or such Guarantor would
otherwise have under the

13

 

constitution or any statute or other law of the United States of America or of any
state;

     (e) Require the Borrower and each Guarantor to, and each of the Borrower and each
Guarantor hereby agrees that it shall, at its expense and upon request of the Secured Party,
forthwith assemble all or part of the Collateral as directed by the Secured Party and make it
available to the Secured Party at the location designated by the Secured Party;

     (f) Without notice or demand or legal process (to the extent permitted by applicable
Laws), enter upon any premises of the Borrower or any Guarantor and take
possession of the Collateral, whereupon the Secured Party may use or operate the
Collateral (i) for the purpose of preserving the Collateral or its value or (ii) as permitted
by an order of a court having competent jurisdiction;

     (g) Without notice, except as specified below, sell, lease, license or otherwise dispose
of the Collateral, or any part thereof, in its then present condition or following any
commercially reasonable preparation or processing. Any such disposition of the Collateral
may be made by one or more contracts, in one or more parcels, at public or private
disposition at the Secured Party’s offices or elsewhere, at such time or times, for cash, on
credit or for future delivery, and at such price or prices and upon such other terms that the
Secured Party reasonably believes are commercially reasonable. Each of the Borrower and each
Guarantor agrees that, to the extent notice of any such disposition shall be required by
applicable Law, at least 10 days’ notice to the Borrower or such Guarantor, as applicable, of
the time and the place of any public disposition or the time after which any private
disposition is to be made shall constitute reasonable notification. The Secured Party may
purchase Collateral at a public disposition, or at a private disposition only if the
Collateral is of a kind that is customarily sold on a recognized market or the subject of
widely distributed standard price quotations. The Secured Party shall not be obligated to
make any disposition of the Collateral regardless of notice of disposition having been given.
The Secured Party may adjourn any public or private disposition from time to time by
announcement at the time and place fixed therefor, and such disposition may, without further
notice, be made at the time and place to which it was so adjourned. The Secured Party shall
incur no liability as a result of the manner of disposition of the Collateral, or any part
thereof, at any private disposition conducted in a commercially reasonable manner. Each of
the Borrower and each Guarantor hereby waives, to the extent permitted by applicable Law, any
claims against the Secured Party arising by reason of the fact that the price at which the
Collateral, or any part thereof, may have been disposed of at a private disposition was less
than the price which might have been obtained at a public disposition or was less than the
aggregate amount of the Obligations, even if the Secured Party accepts the first offer
received which the Secured Party deems to be commercially reasonable under the circumstances
and does not offer the Collateral to more than one offeree. To the full extent permitted by
applicable Law, the Borrower and the applicable Guarantor, as applicable, shall have the
burden of proving that any such disposition of the Collateral was conducted in a commercially
unreasonable manner. To the extent permitted by applicable Law, each of the Borrower and
each Guarantor hereby specifically waives all rights of redemption, stay or appraisal which
it has or may have under any Law now existing or hereafter enacted. Each of the Borrower and
each Guarantor authorizes the Secured Party, at any time and from time to time, to execute,
in connection with a disposition of the Collateral pursuant to the provisions of this
Security Agreement, any

14

 

endorsements, assignments or other instruments of conveyance or transfer with respect to
the Collateral;

     (h) In accordance with applicable Law, accept the Collateral in full or partial
satisfaction of the Obligations; and

     (i) Exercise in respect of the Collateral, in addition to other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies of a secured
party after default under the Code and any relevant Law in any jurisdiction.

          8. Application of Proceeds. The net proceeds of any enforcement, foreclosure,
collection, recovery, receipt, appropriation, or realization on or any sale, lease, license or
other disposition of the Collateral shall be applied, first, to the payment of any expenses
incurred by the Secured Party in connection with the administration of this Security Agreement, the
custody, preservation or sale of, collection from or other realization from, any of the Collateral,
the exercise or enforcement of any of its rights hereunder or the failure by the Borrower or any
Guarantor to perform or observe any of the provisions hereof including, without limitation, all
reasonable attorneys’ fees and legal expenses incurred by the Secured Party, and then, to the
payment of all or any part of the Obligations in accordance with the provisions of the Loan
Documents. Any surplus remaining after payment in full of all of the Obligations shall be promptly
paid over to the Borrower or the applicable Guarantor or to whomever may be entitled to receive
such surplus.

          9. Assignment of Project Permits. Each of the Borrower and each Guarantor shall,
upon the occurrence and during the continuance of an Event of Default at the request of the Secured
Party, contemporaneously with and at any other time following any foreclosure by the Secured Party
on any part of any mortgaged property covered by any Mortgage, assign, transfer or otherwise
furnish to the Secured Party or to any transferee of the interest of the Secured Party (to the
extent so assignable or transferable), all of the its rights and interest in, to and under all
Project Permits, including all offsets, allowances and similar rights issued under or in connection
with all Laws, which are required to permit the Project to be operated in accordance with all Laws.
Upon the request of the Secured Party upon the occurrence and during the continuance of an Event
of Default following collection, enforcement, foreclosure, sale, lease, license or other
disposition by the Secured Party on or with respect to the Project, each of the Borrower and each
Guarantor agrees to use its best efforts to assist the Secured Party in renewing or extending in
the name of the Secured Party (or any other Person operating the Project) or otherwise obtaining
the benefits of all of the Project Permits and other rights referred to in the immediately
preceding sentence to the extent that such Project Permits and other rights shall not be assignable
or transferable.

          10. Security Interest Absolute. All the rights of the Secured Party hereunder and
the Security Interest and all obligations of the Borrower and each Guarantor hereunder shall be
absolute and unconditional irrespective of:

     (a) any lack of validity or enforceability of any of the Project Contracts or any of the
Collateral or any other agreement or instrument relating thereto;

15

 

     (b) any change in the time, manner or place of payment of, or in any other term of, all
or any of the Obligations, or any other amendment or waiver of or any consent to any
departure from any Project Contract or any of the Collateral or any other agreement or
instrument related thereto, except for any change, amendment, waiver, consent or departure
effected in accordance with the applicable Loan Documents;

     (c) any exchange or release of any Collateral or any other collateral, or the
non-perfection of any of the Security Interests, or any release or amendment or waiver of or
consent to or departure from any guaranty, for all or any of the Obligations, except for any
exchange, release, amendment, waiver, consent or departure effected in accordance with the
applicable Loan Documents; or

     (d) to the full extent permitted by applicable Law, any other circumstance that might
otherwise constitute a defense available to, or a discharge of, the Borrower, any Guarantor
or any third party pledgor other than payment in full of the Obligations.

          11. The Secured Party Appointed Attorney-in-Fact. Each of the Borrower and each
Guarantor hereby irrevocably constitutes and appoints the Secured Party and any officer or agent
thereof, with full power of substitution, as its true and lawful attorney-in-fact (which
appointment as attorney-in-fact shall be coupled with an interest), with full authority in the
place and stead of the Borrower or such Guarantor, as applicable (or any nominee or agent
designated by the Borrower or such Guarantor, as applicable) and in the name of the Borrower or
such Guarantor, as applicable (or any nominee or agent designated by the Borrower or such
Guarantor, as applicable), or otherwise, from time to time from and after the occurrence and during
the continuation of an Event of Default in the Secured Party’s discretion, to take any action and
to execute any and all documents and instruments which the Secured Party may deem necessary or
advisable to accomplish the purposes of this Security Agreement in a commercially reasonable manner
to the extent required by the Code, without notice to or assent by the Borrower or such Guarantor,
as applicable, including:

     (a) to receive, endorse and collect all instruments, chattel paper or
letter-of-credit-rights made payable to the Borrower or such Guarantor, as applicable, or
investment property in which Borrower or such Guarantor, as applicable, has an interest, in
each case representing any dividends, interest payments or other distributions constituting
Collateral or any part thereof and to give full discharge for the same and to file any claim
or to take any other action or proceeding in any court of law or equity or otherwise deemed
appropriate by the Secured Party for the purpose of collecting any and all of such dividends,
payments or other distributions;

     (b) to enforce the rights of the Borrower or such Guarantor, as applicable, under any
provision of any Assigned Agreement to the extent permitted thereunder and under the terms of
this Security Agreement and the applicable Consent;

     (c) to pay or discharge taxes and Liens levied or placed on the Collateral;

16

 

     (d) (i) to direct any party liable for any payment under or with respect to any of the
Collateral to make payment of any and all moneys due or to become due thereunder or with
respect thereto directly to the Secured Party or as the Secured Party shall direct, including
drawing under any letter-of-credit-rights, (ii) to ask or demand for, collect, receive
payment of and receipt for, any and all moneys, claims and other amounts due or to become due
at any time in respect of or arising out of any Collateral, (iii) to commence and prosecute
any suits, actions or proceedings at law or in equity in any court of competent jurisdiction
to collect the Collateral or any part thereof and to enforce any other right in respect of
any Collateral, (iv) to defend any suit, action or proceeding brought against the Borrower
or such Guarantor, as applicable, with respect to any Collateral, (v) to settle, compromise
or adjust any suit, action or proceeding described in clauses (iii) and (iv) above and, in
connection therewith, to give such discharges or releases as the Secured Party may deem
appropriate and (vi) generally, to sell, transfer, pledge and make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as though the Secured
Party were the absolute owner thereof for all purposes;

     (e) (i) to execute, in connection with any sale, lease, license or other disposition
permitted to be made by the Secured Party hereunder, any endorsements, assignments, transfer
statements, or other instruments of conveyance or transfer with respect to the Collateral,
and to file or register the same if required by applicable Laws, (ii) communicate in its own
name with any party to any agreement or instrument included in the Collateral, at any
reasonable time, with regard to any matter relating to such agreement or instrument, (iii) to
the full extent permitted by applicable Laws, file one or more financing or continuation
statements, and amendments thereto, relative to all or any part of the Collateral without the
signature of the Borrower or such Guarantor, as applicable, provided that the Secured Party
shall give notice to the Borrower or such Guarantor, as applicable, promptly after taking any
action described in this Section 11(e) (but failure to give such notice shall not subject the
Secured Party to liability); and

     (f) from time to time from and after the occurrence and during the continuation of an
Event of Default in the Secured Party’s discretion to take any action which the Secured Party
may, in its discretion and at the Borrower’s expense, deem necessary or appropriate (i) to
perfect, maintain and enforce any Security Interest created in favor of the Secured Party,
(ii) to create, perfect, maintain and enforce any Security Interest granted or purported to
be granted hereby, or (iii) to otherwise accomplish the purposes of this Security Agreement.

          12. The Secured Party May Perform. (a) Upon the occurrence and during the
continuance of an Event of Default, with prior notice to the Borrower or any Guarantor, as
applicable, the Secured Party without releasing the Borrower or any Guarantor, as applicable, from
any obligation, covenant or condition hereof, itself may make any payment or perform, or cause the
performance of, any such obligation, covenant, condition or agreement or any other action in such
manner and to such extent as the Secured Party may deem necessary to protect, perfect or continue
the perfection of the Security Interest. Any costs or expenses incurred by the Secured Party in
connection with the foregoing shall be governed by the Loan Documents, constitute a part of the
Obligations secured by the Security Documents, shall bear interest at the Interest Rate and be
payable by the Borrower upon demand by the Secured Party.

17

 

          (b) Notwithstanding anything to the contrary contained herein or in any other Loan Document,
each of the Borrower and each Guarantor hereby:

          (i) agrees that the Secured Party, without releasing the Borrower or such Guarantor, as
applicable, from any obligation, covenant or condition hereof, itself may take any action and
execute any document, including making any payment or performing, or cause the performance of, any
obligation, covenant, condition or agreement or any other action under or in respect of

18

 

any Assigned Agreement that the Secured Party deems necessary or advisable or which may
otherwise be required to cure any default under any Assigned Agreement at any time and from time to
time (including at any time prior to the occurrence of an Event of Default) upon receipt by the
Secured Party of a notice of any such default by any third party to a Project Contract or otherwise
at any time that the Secured Party otherwise has knowledge of such default; and

          (ii) irrevocably constitutes and appoints the Secured Party and any officer or agent thereof,
with full power of substitution, as its true and lawful attorney-in-fact (which appointment as
attorney-in-fact shall be coupled with an interest), with full authority in the place and stead of
the Borrower or such Guarantor, as applicable (or any nominee or agent designated by the Borrower
or such Guarantor, as applicable), and in the name of the Borrower or such Guarantor, as applicable
(or any nominee or agent designated by the Borrower or such Guarantor, as applicable), or
otherwise, at any time and from time to time to take any action contemplated in clause (i) above
(including at any time prior to the occurrence of an Event of Default) upon receipt by the Secured
Party of a notice of any such default by any third party to a Project Contract or otherwise at any
time that the Secured Party otherwise has knowledge of such default.

          The Secured Party may take such actions under either clause (i) or (ii) above as the Secured
Party may deem appropriate.

          13. No Duty on the Secured Party’s Part; Limitation on the Secured Party’s
Obligations.

          (a) No Duty on the Secured Party’s Part. The powers conferred on the Secured
Party hereunder are solely to protect the Secured Party’s interests in the Collateral and shall not
impose any duty upon the Secured Party to exercise any such powers. The Secured Party shall be
accountable only for amounts that it receives as a result of the exercise of such powers.

          (b) Limitations on Obligations. Except as provided in the next sentence,
anything herein to the contrary notwithstanding, the Borrower and each Guarantor shall remain
liable under the Assigned Agreements and any other agreements to which it is a party included in
the Collateral to the extent set forth therein to perform all of its duties and obligations
thereunder to the same extent as if this Security Agreement had not been executed. The exercise by
the Secured Party of any of the rights or remedies hereunder shall not release the Borrower or any
Guarantor from any of its duties or obligations under the Assigned Agreements or any other
agreements included in the Collateral unless expressly assumed by the Secured Party in writing.
All of the Collateral is hereby assigned to the Secured Party solely as security, and the Secured

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Party shall have no duty, liability or obligation whatsoever with respect to any of the
Collateral, unless the Secured Party so elects in writing consistent with its rights under this
Security Agreement or fails to act in a commercially reasonable manner to the extent required by
the Code.

          (c) Delegation of Duty. The Secured Party may execute any of its duties under
this Security Agreement or the other Loan Documents by or through agents or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to such duties so long as
such counsel was selected with reasonable due care. The Secured Party shall not be responsible
for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable
care.

          (d) Limitations on Liability. The Secured Party shall not be liable for any action
taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon it by this Security
Agreement.

          14. Reasonable Care; Standards for Exercising Remedies; Marshaling Collateral.

          (a) The Secured Party shall exercise the same degree of care hereunder as it exercises or
would exercise in connection with similar transactions for its own account. The Secured Party
shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral
in its possession if the Collateral is accorded treatment substantially equal to that which the
Secured Party accords or would accord collateral held by the Secured Party in similar transactions
for its own account; provided, however, it is expressly understood that the Secured
Party shall not have responsibility for taking any steps to preserve rights against any parties
with respect to the Collateral. In furtherance of the foregoing, to the extent applicable Laws
impose on the Secured Party an obligation to exercise remedies in a commercially reasonable manner,
each of the Borrower and each Guarantor acknowledges and agrees that it is not commercially
unreasonable for the Secured Party (i) to fail to incur expenses reasonably deemed significant by
the Secured Party to prepare Collateral for disposition or otherwise to complete raw material or
work in process into finished goods or other finished products for disposition, (ii) to fail to
obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not
required by other Laws, to fail to obtain governmental or third party consents for the collection
or disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection
remedies against account debtors or other persons obligated on Collateral or to remove Liens or
encumbrances on or any adverse claims against Collateral, (iv) to exercise collection remedies
against account debtors and other persons obligated on Collateral directly or through the use of
collection agencies and other collection specialists, (v) to advertise dispositions of Collateral
through publications or media of general circulation, whether or not the Collateral is of a
specialized nature, (vi) to contact other persons, whether or not in the same business as the
Borrower or such Guarantor, as applicable, for expressions of interest in acquiring all or any
portion of the Collateral, (vii) to hire one or more professional auctioneers to assist in the
disposition of Collateral, whether or not the Collateral is of a specialized nature, (viii) to
dispose of Collateral by utilizing internet sites that provide for the auction of assets of the
types included in the Collateral or that have reasonable capability of doing so, or that match
buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets,
(x) to disclaim disposition warranties, (xi) to purchase insurance or credit enhancements to insure
the Secured Party against the risk of loss, collection or disposition of Collateral, or (xi) to the
extent

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deemed appropriate by the Secured Party, to obtain the services of other brokers, investment
bankers, consultants and other professionals to assist the Secured Party in the collection or
disposition of any of the Collateral.

          (b) Without limiting the generality of the foregoing and except as otherwise provided by
applicable Laws, the Secured Party shall not be required to marshal any collateral, including, the
Collateral subject to the Security Interest created hereby and any guarantees of the
Obligations, or to resort to any item of Collateral or guarantees in any particular order; and
all of the Secured Party’s rights hereunder and in respect of such Collateral and guarantees shall
be cumulative and in addition to all other rights, however existing or arising. To the extent that
the Borrower and any Guarantor lawfully may, each of the Borrower and each Guarantor hereby (i)
agrees that it will not invoke any Laws relating to the marshaling of collateral which might cause
delay in or impede the enforcement of the Secured Party’s rights under this Security Agreement or
under any other instrument evidencing any of the Obligations or under which any of the Obligations
is outstanding or by which any of the Obligations is secured or guaranteed and (ii) irrevocably
waives the benefits of all laws and any and all rights to equity of redemption or other rights of
redemption that it may have in equity or at law with respect to the Collateral.

          15. Absence of Fiduciary Relation. The Secured Party undertakes to perform or to
observe only such of its agreements and obligations as are specifically set forth in this Security
Agreement or any other Loan Document, and no implied agreements, covenants or obligations with
respect to the Borrower, any Guarantor, any other Affiliate of the Borrower or any Guarantor or any
other party to any of the Assigned Agreements shall be read into this Security Agreement against
the Secured Party. The Secured Party in its capacity as such is not a fiduciary of and shall not
owe or be deemed to owe any fiduciary duty to the Borrower, any Guarantor, any other Affiliate of
the Borrower or any Guarantor or any other party to any of the Assigned Agreements, except as
otherwise specifically required by applicable Laws.

          16. Survival of Representations and Warranties. All agreements, representations and
warranties made herein or incorporated by reference herein shall survive the execution and delivery
of this Security Agreement and the other Loan Documents and shall terminate only upon the
indefeasible payment in full in cash of the Obligations and expiration of the commitments under the
Loan Agreement, and shall be deemed to be material and to have been relied upon by the Secured
Party, regardless of any investigation made by or on behalf of the Secured Party.

          17. Notices. All notices, demands, requests and other communications
required or permitted hereunder shall be in writing and shall be given in accordance with Section
26 of this Security Agreement.

          18. No Waiver; Cumulative Remedies. By exercising or failing to exercise any
of its rights, options or elections hereunder (without also expressly waiving the same in writing),
the Secured Party shall not be deemed to have waived any breach or default on the part of the
Borrower or any Guarantor or to have released the Borrower or any Guarantor from any of its
obligations secured hereby. No failure on the part of the Secured Party to exercise, and no delay
in exercising (without also expressly waiving the same in writing) any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such
right, power or privilege preclude any other or further exercise thereof, or the exercise of any
other

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right, power or privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law. The Secured Party shall have all of the rights and remedies granted
under the Loan Agreement or any other Loan Document, and available at law or in equity, and these
same rights and remedies may be pursued separately, successively or concurrently against the
Borrower or any Guarantor or any Collateral, at the discretion of the Secured Party. The
application of the Collateral to satisfy the Obligations pursuant to the terms
 hereof shall not operate to release the Borrower or any Guarantor from their Obligations until
payment in full of any deficiency has been made in cash.

          19. Severability. In the event any one or more of the provisions contained in this
Security Agreement or in any other Loan Document should be held invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired thereby. Where provisions of any
law or regulation resulting in such prohibition or unenforceability may be waived, they are hereby
waived by the Borrower, each Guarantor and the Secured Party to the full extent permitted by law so
that this Security Agreement shall be deemed a valid, legal and binding agreement, enforceable in
accordance with its terms, and the Security Interest created hereby shall constitute a continuing
first lien on and first perfected security interest in the Collateral, in each case enforceable in
accordance with its terms. The parties hereto shall endeavor in good-faith negotiations to replace
any invalid, illegal or unenforceable provisions with valid provisions, the economic effect of
which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

          20. Exculpatory Provisions; Reliance By Secured Party.

          (a) Exculpatory Provisions. Neither the Secured Party, nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates, shall be liable to the Borrower or
any Guarantor or any other Person for any action taken or omitted to be taken by it under or in
connection with this Security Agreement or any other Project Contract (except as otherwise provided
herein or therein), or responsible in any manner to any Person for any recitals, statements,
representations or warranties made by the Borrower or any Guarantor or any officer thereof
contained in this Security Agreement or any other Project Contract or in any certificate, report,
statement or other document referred to or provided for in, or received by the Secured Party under
or in connection with, this Security Agreement or any other Project Contract or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this Security Agreement or
any other Project Contract or for any failure of the Borrower or any Guarantor to perform any of
the Obligations. The Secured Party shall not be under any obligation to any Person to ascertain or
to inquire as to the observance or performance of any of the agreements contained in, or conditions
of, this Security Agreement or any other Project Contract, or to inspect the properties or records
of the Borrower or any Guarantor. Notwithstanding anything to the contrary contained herein,
neither the Secured Party, nor any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates shall be exonerated from its gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction.

          (b) Reliance by the Secured Party. The Secured Party shall be fully protected in
relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter,
electronic mail, telegram, telecopy, telex, teletype or facsimile message, statement,

22

 

order, instrument, opinion, report, request, direction, bond, debenture or other document or
conversation believed by it in good faith to be genuine and correct and to have been signed, sent
or made by the proper Person or Persons and upon advice and statements of independent accountants
and other experts selected by it and, with respect to all legal matters pertaining to this
Agreement and its duties hereunder, upon advice of counsel selected by it. Except as otherwise
expressly set forth herein,
 the Secured Party shall have no obligation to any Person to act or refrain from acting or
exercising any of its rights under this Security Agreement.

          21. Amendment. No modification or waiver of any of the provisions of this
Security Agreement shall be binding on the Secured Party or the Borrower or any Guarantor, except
as expressly set forth in a writing duly signed and delivered by the Secured Party, the Borrower
and each Guarantor.

          22. Successors and Assigns. This Security Agreement shall be binding upon
and inure to the benefit of the Borrower, each Guarantor and the Secured Party, and their
respective successors and permitted assigns. In the event of any assignment or transfer by the
Secured Party of any instrument evidencing all or any part of the Obligations, the holder of such
instrument shall, subject to the Loan Agreement, be entitled to the benefits of this Security
Agreement.

          23. Number and Gender. Whenever used in this Security Agreement, the
singular number shall include the plural and the plural the singular, and the use of any gender
shall be applicable to all genders.

          24. Headings. Section headings and the Table of Contents used herein are for
convenience of reference only, are not part of this Security Agreement and are not to affect the
construction of, or to be taken into consideration in interpreting, this Security Agreement.

          25. Waivers by Borrower and Each Guarantor. Except as otherwise provided in this
Agreement, each of Borrower and each Guarantor waives, to the extent permitted by Law: (a)
presentment, demand, protest and notice of presentment, notice of intent to accelerate the maturity
of the Obligations and notice of such acceleration, protest, default, non-payment, maturity,
release, compromise, settlement, extension or renewal and hereby ratifies and confirms whatever
Lender may do in this regard; and (b) the benefit of all stay, extension, marshaling-of-assets or
similar laws, whether now or at any time hereafter in force, which may delay, prevent or otherwise
affect the performance of the Obligations by Borrower or any Guarantor or the enforcement of the
Obligations by Lender. Each of Borrower and each Guarantor acknowledges that it has been advised
by counsel with respect to this Agreement and the transactions evidenced by this Agreement.

     (a) Waiver of Trial by Jury. THE PARTIES HERETO HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY DEALINGS AMONG THEM RELATING TO THE
SUBJECT MATTER OF THIS LOAN TRANSACTION AND THE LENDER/BORROWER RELATIONSHIP THAT IS BEING
ESTABLISHED. THE PARTIES HERETO ALSO WAIVE ANY BOND OR

23

 

 SURETY OR SECURITY UPON SUCH BOND THAT MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY
PARTY HERETO. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL
DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE PARTIES HERETO EACH ACKNOWLEDGE THAT THIS WAIVER IS A
MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON
THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER
IN THEIR RELATED FUTURE DEALINGS. THE PARTIES HERETO FURTHER WARRANT AND REPRESENT THAT EACH
HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT, THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS.
IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY
THE COURT.

     (b) Waiver of Certain Damages. NEITHER THE BORROWER NOR ANY GUARANTOR
SHALL, REGARDLESS OF CAUSE, ASSERT ANY CLAIM WHATSOEVER AGAINST LENDER FOR LOSS OF
ANTICIPATORY PROFITS OR CONSEQUENTIAL, PUNITIVE, SPECIAL OR INDIRECT DAMAGES. THE LENDER
SHALL NOT, REGARDLESS OF CAUSE, ASSERT ANY CLAIM WHATSOEVER AGAINST BORROWER OR ANY GUARANTOR
FOR LOSS OF ANTICIPATORY PROFITS OR CONSEQUENTIAL, PUNITIVE, SPECIAL OR INDIRECT DAMAGES.

     (c) Consent to Jurisdiction. Any legal action or proceeding against any of the
Parties with respect to this Agreement or any other Loan Document or the transactions in
connection with or relating hereto or thereto, may be brought in the courts of the State of
New York in the County of New York or of the United States for the Southern District of New
York and, by execution and delivery of this Agreement, each of the Parties hereby irrevocably
accepts for itself and in respect of its property, generally and unconditionally, the
non-exclusive jurisdiction of the aforesaid courts. Each of the Parties agrees that a
judgment, after exhaustion of all available appeals, in any such action or proceeding shall
be conclusive and binding upon each of the Parties, and may be enforced in any other
jurisdiction, by a suit upon such judgment, a certified copy of which shall be conclusive
evidence of the judgment.

     (d) Appointment of Agent for Service of Process. Each of the Borrower and each
Guarantor hereby irrevocably designates, appoints and empowers National Corporate Research,
Ltd. (the “Process Agent”) with offices on the date hereof at 225 W. 34th
Street, Suite 910, New York, NY 10122, as its designee, appointee and

24

 

agent to receive, accept and acknowledge for and on behalf of the Borrower and such
Guarantor, and in respect of its property, service of any and all legal process, summons,
notices and documents which may be served in any such action or proceeding. Each of the
Borrower and each Guarantor further agrees that such service of process may be made on the
Process Agent by personal service of a copy of the summons and complaint or other legal
process in any such legal suit, action or proceeding on the Process Agent, or by any other
method of service provided for under the Laws in effect in the County of New York, State of New York, and the
Process Agent hereby is authorized and directed to accept such service for and on behalf of
the Borrower and such Guarantor, and to admit service with respect thereto.

     (e) Waiver of Service of Process. Upon service of process being made on the
Process Agent as provided in Section 25(d), a copy of the summons and complaint or other
legal process served shall be given by the Process Agent to the Borrower or applicable
Guarantor in the manner provided in Section 26, or to such other address as Borrower or such
Guarantor, as applicable, may notify the Process Agent in writing. Personal service upon the
Process Agent as provided in this Section 25(e) shall be deemed to be personal service on the
Borrower or such Guarantor, as applicable, and shall be legal and binding upon Borrower or
such Guarantor, as applicable, for all purposes, notwithstanding any failure of the Process
Agent to give copies of such legal process thereto, or any failure on the part of the
Borrower or such Guarantor, as applicable, to receive the same.

     (f) Substitution of Process Agent. Each of the Borrower and each Guarantor will
at all times continuously maintain an agent to receive service of process in the County of
New York, State of New York on its behalf with respect to each Loan Document. In the event
that for any reason the Process Agent or any successor thereto shall no longer serve as agent
for the Borrower or any Guarantor to receive service of process in the County of New York on
its behalf or shall have changed its address without notification thereof to the Process
Agent, the Borrower or such Guarantor, as applicable, immediately after having knowledge
thereof, will irrevocably designate and appoint a substitute agent in the County of New York,
State of New York and advise the Lender.

     (g) No Exclusive Jurisdiction. Nothing contained in this Section 26 shall
preclude the Secured Party or any Lender from bringing any legal suit, action or proceeding
against the Borrower or any Guarantor in the courts of any jurisdiction where the Borrower or
any Guarantor or any of their respective property or assets may be found or located. To the
extent permitted by the Laws of any such jurisdiction, each of the Borrower and each
Guarantor hereby irrevocably submits to the jurisdiction of any such court and expressly
waives, in respect of any such suit, action or proceeding, the jurisdiction of any court or
courts which now or hereafter, by reason of its present or future domiciles, or otherwise,
may be available to it. Without limiting the generality of the foregoing, SBP-RTS hereby
agrees to submit to the jurisdiction of any court of competent jurisdiction within the United
States and will comply with all requirements necessary to give such court jurisdiction.

     (h) Consent to Venue. Each of the Borrower and each Guarantor hereby
irrevocably waives any objection which it may now or hereafter have to the laying

25

 

of venue of any of the aforesaid actions or proceedings arising out of or in connection
with or any Loan Document or the transactions in connection with, or relating hereto or
thereto brought in the courts referred to in clause (d) above and hereby further irrevocably
waives and agrees not to plead or claim in any such court that any such action or proceeding
brought in any such court has been brought in an inconvenient forum. Without limiting the
generality of the foregoing, SBP-RTS hereby waives any and all jurisdictional defenses to any
United States forum selected by any other party hereto on grounds including, but not limited
to, forum non-conveniens. In addition, in the event that Lender chooses to bring an action
or proceeding in a court of any state within the United States, SBP-RTS hereby waives any
right of removal to federal court.

          26. Notices. Without modifying any of the provisions of this Agreement concerning
the requirements for, or waiver of, any notice, all notices or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall be considered
properly given if mailed by first class United States mail, postage prepaid, registered or
certified with return receipt requested, facsimile, or by delivering same in person to the intended
addressee. Notice so mailed shall be effective two (2) days after it is deposited in a receptacle
maintained by the United States Postal Office for the acceptance of mail. Notice given in any
other manner shall be effective only if and when received by the addressee, which receipt shall be
deemed to have occurred upon the date of actual delivery as shown by the addressee’s registry, or
by carrier or other certification of receipt. For purposes of notice, the addresses of the Parties
shall be as set forth on Schedule B to this Security Agreement; provided, however, that any Party
shall have the right to change its address for notice hereunder to any other location within the
continental United States by the giving of ten (10) days’ notice to the other Parties in the manner
set forth hereinabove.

          27. Counterparts; Facsimile Delivery. This Security Agreement may be executed in two
or more counterparts, each of which shall constitute an original but all of which when taken
together shall constitute but one and the same agreement. Delivery of an executed counterpart of a
signature page of this Security Agreement by facsimile shall be as effective as delivery of a
manually executed counterpart of this Security Agreement.

          28. Continuing Security Interest; Termination. This Security Agreement shall create
a continuing Security Interest in the Collateral and shall remain in full force and effect for the
benefit of the Secured Party until all Obligations to be paid or performed by the Borrower and each
Guarantor under the Loan Documents have been indefeasibly paid and performed in full and the
Commitment has terminated. Upon the happening of all of such events, the Security Interest granted
hereby shall terminate. Upon such termination, the Secured Party shall, within thirty (30) days of
its receipt of a request from the Borrower or any Guarantor and at the expense of the Borrower,
execute and deliver to the Borrower or such Guarantor, as applicable, such documents as the
Borrower or such Guarantor shall reasonably request to evidence such termination or expiration,
including termination statement(s) for any financing statement on file with respect to the
Collateral.

          29. Payments Set Aside. To the extent that the Borrower, any Guarantor or any other
Person on behalf of the Borrower or any Guarantor makes a payment or payments of the Obligations to
the Secured Party or the Secured Party enforces its security interests or exercises its right of
set-off, and such payment or payments or the proceeds of such enforcement or set-off or any part
thereof are subsequently

26

 

invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid
to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common
law or equitable cause, then to the extent of such recovery, the Obligations or any part thereof
originally intended to be satisfied, and this Security Agreement and all Security Interests, rights
and remedies therefor, shall be revived and continued in full force and effect as if such payment
had not been made or such enforcement or set-off had not occurred.

          30. Non-Recourse Nature of Obligations. Notwithstanding anything to the contrary
contained in this Agreement or any other Loan Document, recourse for the satisfaction of the
Obligations shall be limited to enforcement of the security interests, liens and encumbrances
against the assets of the Borrower and any Guarantor granted to the Secured Party and the equity or
other ownership interests of the Borrower and any Guarantor pledged to the Secured Party pursuant
to the Security Documents, and no other recourse for the satisfaction of the Obligations shall be
had, whether by levy or execution or otherwise, against any partner of the Borrower or any member,
partner or other owner of any Guarantor or against any of their members, stockholders, managers,
directors, officers, agents or employees under any Law or Loan Document, or by the enforcement of
any assessment or penalty, or otherwise, nor shall any of such persons or entities be personally
liable for any amounts or claims, or liable for any defenses or any judgment based thereon or with
respect thereto, other than payment from the assets of the Borrower and each Guarantor and the
equity interests in the Borrower and in each Guarantor as a result of realization on the Collateral
pursuant to security interests, liens and encumbrances granted to the Secured Party pursuant to the
Security Documents; provided, however, nothing contained in this Section 30 shall (i) impair in
respect of the Borrower or any Guarantor the validity of the indebtedness evidenced by this
Security Agreement and the Notes secured by the Security Documents, prevent the taking of any
action in accordance with the terms of the Loan Agreement or any other Loan Document (during any
period that any of the security interests, liens and encumbrances on the assets of Borrower and of
any Guarantor and the equity interests in the Borrower and of any Guarantor pledged as aforesaid
pursuant to the Security Documents are in effect) that is permitted by law against the assets of
the Borrower and any Guarantor or the proceeds of such assets, or in any way affect or impair the
right of any the Secured Party to take any action permitted by law to realize upon any of the
Collateral or any other security which may secure the Obligations, (ii) be deemed to release any
member or any Affiliate of the Borrower or any Guarantor, or any past, present or future member,
partner, officer, employee, director or agent of any thereof, from liability for its own fraudulent
actions, knowing misrepresentations or willful misconduct or from any of its express obligations or
liabilities, under any agreement, document, instrument or certificate executed by such Person in
connection with the transactions contemplated by the Project Contracts or from liability for the
breach of any fiduciary duties whether such duties arise before or after the institution of any
bankruptcy, reorganization or insolvency proceeding in respect of either Borrower, any Guarantor or
any of Borrower’s or any Guarantor’s other Affiliates, or (iii) limit the right of the Secured
Party to initiate judicial proceedings against any partner, member, owner or any Affiliate of the
Borrower or of any Guarantor or of any other Person solely to the extent necessary to obtain
jurisdiction over the Borrower or any Guarantor.

          31. Conflicts, Etc. To the extent that any provision of this Security Agreement
shall be determined to conflict with any provision of the Loan Agreement, such provision of the
Loan Agreement shall govern.

27

 

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

BORROWER:

SEA BREEZE PACIFIC JUAN DE FUCA

CABLE, LP

	 	 	 	 	 
	By:

	 	Juan de Fuca Cable Management,
	 	 
	Inc., its General Partner	 	 

	 	 	 	 	 	 	 
	By:

	 	 
	 	 
	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 
	 

	 	 	 	 	 	 

SECURED PARTY:

UNITED STATES POWER FUND, L.P.

	 	 	 	 	 
	By:

	 	EIF US Power, LLC,
	 	 
	its General Partner	 	 

	 	 	 	 	 	 	 
	 

	 	By:
	 	Energy Investors Funds Group LLC,
	 	 
	 	 	its Sole Member	 	 

	 	 	 	 	 	 	 	 	 
	 

	 	By:
	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 

	 	Name:
	 	 	 	Andrew Schroeder	 	 
	 

	 	Title:
	 	 	 	Partner	 	 

	 	 	 	 	 	 	 
	GUARANTORS:	 	 
	 
	 	 	 	 	 	 
	OLYMPIC CONVERTER GP, LLC	 	 
	 
	 	 	 	 	 	 
	By:	 	Sea Breeze Pacific Juan de Fuca	 	 
	Cable, LP, its Sole Member	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Juan de Fuca Cable	 	 
	 

	 	Management, Inc., its General	 	 
	 

	 	Partner	 	 

	 	 	 	 	 	 	 	 	 
	 

	 	By:
	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 
	OLYMPIC CONVERTER, LP  	 	 
	 
	 	 	 	 	 	 	 	 
	By:	 	Olympic Converter GP, LLC	 	 
	its General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Sea Breeze Pacific Juan de Fuca	 	 
	 	 	Cable, LP, its Sole Member	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	Juan de Fuca Cable	 	 
	 

	 	 	 	Management, Inc., its General	 
	 

	 	 	 	Partner	 

	 	 	 	 	 	 	 	 	 
	 

	 	By:
	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 

 

 

	 	 	 	 	 	 	 
	 	 	SEA BREEZE PACIFIC REGIONAL
	 	 	TRANSMISSION SYSTEM, INC.,
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
	 	 
	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:
	 	 
	 	 
	 

	 	 	 	 	 	 

 

 

	 	 	 
	 

	 	Schedule A
	 
	 	 
	 

	 	to
	 

	 	Security Agreement

FINANCING STATEMENTS FILINGS

	 	 	 
	Debtor:

	 	Sea Breeze Pacific Juan de Fuca Cable, LP
	 
	 	 
	Secured Party:

	 	United States Power Fund, L.P.
	 
	 	 
	Jurisdictions:

	 	Delaware
	 
	 	 
	Filing Office:

	 	Secretary of State of the State of Delaware
	 
	 	 
	Debtor:

	 	Olympic Converter GP, LLC
	 
	 	 
	Secured Party:

	 	United States Power Fund, L.P.
	 
	 	 
	Jurisdictions:

	 	Delaware
	 
	 	 
	Filing Office:

	 	Secretary of State of the State of Delaware
	 
	 	 
	Debtor:

	 	Olympic Converter, LP
	 
	 	 
	Secured Party:

	 	United States Power Fund, L.P.
	 
	 	 
	Jurisdictions:

	 	Delaware
	 
	 	 
	Filing Office:

	 	Secretary of State of the State of Delaware
	 
	 	 
	Debtor:

	 	Sea Breeze Pacific Regional Transmission System, Inc.
	 
	 	 
	Secured Party:

	 	United States Power Fund, L.P.
	 
	 	 
	Jurisdictions:

	 	District of Columbia
	 
	 	 
	Filing Office:

	 	District of Columbia Recorder of Deeds

 

 

	 	 	 
	 

	 	Schedule B
	 
	 	 
	 

	 	to
	 
	 	 
	 

	 	Security Agreement

Addresses for Notices

2

 

	 	 	 
	 

	 	Sea Breeze Pacific Juan de Fuca Cable, LP
	Borrower:

	 	203 Red Stone Hill
	 

	 	Plainville, CT 06062
	 

	 	Telephone: (860) 747-0497
	 

	 	Facsimile: (860) 747-0297
	 
	 	 
	 

	 	Olympic Converter GP, LLC
	OCGP:

	 	203 Red Stone Hill
	 

	 	Plainville, CT 06062
	 

	 	Telephone: (860) 747-0497
	 

	 	Facsimile: (860) 747-0297
	 
	 	 
	the USA

	 	Olympic Converter, LP
	Sub:

	 	203 Red Stone Hill
	 

	 	Plainville, CT 06062
	 

	 	Telephone: (860) 747-0497
	 

	 	Facsimile: (860) 747-0297
	 
	 	 
	 

	 	Sea Breeze Pacific Regional Transmission System, Inc.
	SBP-RTS:

	 	Lobby box 91
	 

	 	333 Seymour Street
	 

	 	Suite 1400
	 

	 	Vancouver, British Columbia, Canada V6B 5A6
	 

	 	Telephone: (604) 689-2991
	 

	 	Facsimile: (604) 689-2990
	 
	 	 
	the Secured

	 	United States Power Fund, L.P.
	Party:

	 	c/o Energy Investors Funds
	 

	 	One Penn Plaza, Suite 4507
	 

	 	New York, NY 10119
	 

	 	Telephone: (212) 564-1276
	 

	 	Fax: (212) 564-4802
	 

	 	Attention: Andrew Schroeder
	 
	 	 
	 

	 	with a copy to:
	 
	 	 
	 

	 	Energy Investors Funds
	 

	 	Three Charles River Place
	 

	 	63 Kendrick Street
	 

	 	Needham, MA 02494
	 

	 	Tel: (781) 292-7000

3

 

	 	 	 
	 

	 	Fax: (781) 292-7099
	 

	 	Attention: General Counsel

4

 

EXHIBIT F

SUB PLEDGE AGREEMENT

PLEDGE AND SECURITY AGREEMENT

re OLYMPIC CONVERTER GP, LLC and OLYMPIC CONVERTER, LP

by and among

SEA BREEZE PACIFIC JUAN DE FUCA CABLE, LP and OLYMPIC CONVERTER

GP, LLC

(the “Pledgors”)

-and-

UNITED STATES POWER FUND, L.P.

(the “Secured Party” and “Lender”)

dated as of

April 6, 2005

5

 

PLEDGE AND SECURITY AGREEMENT re

OLYMPIC CONVERTER GP, LLC and OLYMPIC CONVERTER, LP

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	ARTICLE I DEFINITIONS	 	 	1	 
	 	 	 
	 	 	 	 
	ARTICLE II PLEDGE	 	 	4	 
	2.1	 	Pledged Collateral
	 	 	4	 
	2.2	 	Pledgors’ Rights
	 	 	7	 
	2.3	 	Secured Party Liability
	 	 	8	 
	2.4	 	Attorney-in-Fact
	 	 	8	 
	2.5	 	Step-in Rights
	 	 	9	 
	2.6	 	Reasonable Care; Standards for Exercising Remedies; Marshaling Pledged Collateral
	 	 	9	 
	2.7	 	Security Interest Absolute
	 	 	11	 
	2.8	 	Effective as a Financing Statement
	 	 	12	 
	 	 	 
	 	 	 	 
	ARTICLE III REPRESENTATIONS AND WARRANTIES	 	 	12	 
	3.1	 	Pledgors’ Representations and Warranties
	 	 	12	 
	 	 	 
	 	 	 	 
	ARTICLE IV COVENANTS	 	 	16	 
	4.1	 	Disposition of Pledged Collateral
	 	 	16	 
	4.2	 	No Other Liens
	 	 	16	 
	4.3	 	Further Assurances
	 	 	16	 
	4.4	 	Voting Rights
	 	 	16	 
	4.5	 	Equity Interests
	 	 	16	 
	4.6	 	Performance of LLC Agreement
	 	 	17	 
	4.7	 	Amendments
	 	 	17	 
	4.8	 	Financing Statements
	 	 	17	 
	4.9	 	Records and Schedules
	 	 	18	 
	4.10	 	Maintenance of Existence
	 	 	18	 
	4.11	 	Other Financing Statements
	 	 	18	 
	4.12	 	Certain Notices
	 	 	18	 
	4.13	 	Proceedings
	 	 	18	 
	4.14	 	Payment of Taxes
	 	 	18	 
	4.15	 	Bankruptcy
	 	 	19	 
	4.16	 	Location of Office; Name
	 	 	19	 
	 	 	 
	 	 	 	 
	ARTICLE V EXERCISE OF REMEDIES	 	 	20	 
	5.1	 	Remedies Generally
	 	 	20	 
	5.2	 	Sale of Pledged Collateral
	 	 	20	 

6

 

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	5.3	 	Purchase of Pledged Collateral
	 	 	22	 
	5.4	 	Burden of Proof
	 	 	22	 
	5.5	 	Application of Proceeds; Deficiency
	 	 	23	 
	5.6	 	Cumulative Rights
	 	 	23	 
	 	 	 
	 	 	 	 
	ARTICLE VI MISCELLANEOUS	 	 	23	 
	6.1	 	Expenses
	 	 	23	 
	6.2	 	Indemnity
	 	 	24	 
	6.3	 	Notices
	 	 	24	 
	6.4	 	Continuing Assignment; Pledge and Security Interest; Release
	 	 	25	 
	6.5	 	Election of Remedies
	 	 	26	 
	6.6	 	Reinstatement
	 	 	26	 
	6.7	 	Consents Under the LLC Agreement
	 	 	26	 
	6.8	 	GOVERNING LAW; WAIVER OF JURY TRIAL; LIMITATION OF REMEDIES
	 	 	26	 
	6.9	 	Consent to Jurisdiction
	 	 	28	 
	6.10	 	Termination; Release 
	 	 	29	 
	6.11	 	Entire Agreement: Amendments; Waivers 
	 	 	29	 
	6.12	 	Assignment 
	 	 	29	 
	6.13	 	Indulgences or Delay 
	 	 	29	 
	6.14	 	Severability 
	 	 	29	 
	6.15	 	Headings 
	 	 	29	 
	6.16	 	Multiple Counterparts 
	 	 	29	 
	6.17	 	Drafting Interpretation 
	 	 	30	 
	6.18	 	Limitation of Liability
	 	 	30	 

7

 

PLEDGE AND SECURITY AGREEMENT re

OLYMPIC CONVERTER GP, LLC and OLYMPIC CONVERTER, LP

          THIS PLEDGE AND SECURITY AGREEMENT re OLYMPIC CONVERTER GP, LLC and OLYMPIC CONVERTER, LP
(this “Agreement”) is entered into as of April 6, 2005, by and between SEA BREEZE
PACIFIC JUAN DE FUCA CABLE, LP, a Delaware limited partnership (the “Borrower”), OLYMPIC
CONVERTER GP, LLC, a Delaware limited liability company (“OCGP” and together with the
Borrower, the “Pledgors” and each individually a “Pledgor”), and UNITED STATES
POWER FUND, LP. (the “Secured Party” or “Lender”). Pledgor and Secured Party are
herein sometimes collectively referred to as the “Parties” or individually as a
“Party.”

WHEREAS, Borrower is seeking a development loan to finance, on an interim basis, the
development of a 550 MW high voltage direct current submarine transmission link spanning the
Strait of Juan de Fuca connecting Victoria, Vancouver Island, British Columbia, Canada and
Port Angeles, Washington State, USA, or an alternative route approved by the Lender connecting
greater Victoria on Vancouver Island or greater Vancouver to the Olympic Peninsula (the
“Project”);

WHEREAS, the Pledgors and the Secured Party are parties to that certain Development Loan
Agreement, dated as of the date hereof (the “Loan Agreement”), and the Loan Documents
referred to therein (the “Loan Documents”), pursuant to which the Secured Party (as
Lender) has committed severally to provide development loans (the “Loans”) to
Borrower;

WHEREAS, Borrower is the sole member of OCGP and Borrower and OCGP are the sole partners of
Olympic Converter, LP, a Delaware limited partnership (“USA Sub”, and together with OGCP,
the “Subs” and each individually, a “Sub”);

WHEREAS, the execution and delivery of this Agreement is a condition precedent to the
effectiveness of the Loan Agreement;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged and, based upon the foregoing, and the mutual representations, covenants
and other agreements set forth herein, the Parties agree as follows:

ARTICLE I

DEFINITIONS

          Capitalized terms used but not otherwise defined herein shall have the meanings set forth in
the Loan Agreement. When used herein, the following terms shall have the following meanings:

8

 

          “Affiliate”: With respect to any Person, any other Person directly or indirectly
controlling, controlled by or under direct or indirect common control with such Person.

          “Agreement”: This Pledge and Security Agreement re Olympic Converter GP, LLC and
Olympic Converter, LP, as the same may be from time to time amended,
modified or supplemented.

          “Bankruptcy Code”: Title I1 of the United States Code, as in effect from time to time, or
any successor thereto.

          “Event of Default”: As defined in the Loan Agreement.

          “Governmental Authority”: Any nation, state, sovereign or government, any
federal, regional, state, local or political subdivision and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining to government.

          “Indebtedness”: Without duplication, (i) all obligations of any Person for borrowed
money or for the deferred purchase price of property or services (other than (x) trade payables on
terms of sixty (60) days or less incurred in the ordinary course of business of such Person and (y)
payables to vendors, suppliers, advisers or other providers to such Person), (ii) all obligations
of such Person evidenced by a note, bond, debenture or similar instrument, (iii) all obligations of
such Person under capital leases or synthetic leases, (iv) the stated amount of all letters of
credit issued for the account of such Person and, without duplication, all unreimbursed amounts
drawn thereunder, (v) all Indebtedness of any other Person secured by any Lien on any property
owned by such Person, whether or not such Indebtedness has been assumed, (vi) all obligations of
such Person under any interest rate protection agreement and any currency swap or similar agreement
and (vii) all contingent obligations of such Person guaranteeing or intended to guarantee, or
otherwise providing or intending to provide assurance against loss in respect of, any Indebtedness,
leases, dividends or other obligations of any other Person.

          “Lender”: as defined in the preamble to this Agreement.

          “Lien”: Any mortgage, lien (statutory or other), pledge, hypothecation, assignment,
security interest, title-retention arrangement, mandatory deposit arrangement, encumbrance, or
other security agreement of any kind or nature whatsoever (including without limitation, any
conditional sale or other title retention agreement, any sale of receivables or any capital
lease), and the filing of any financing statement under the Uniform Commercial Code or comparable
law of any jurisdiction in respect of any of the foregoing; provided, however, that none of the
following shall constitute a Lien under this Agreement: any inchoate: (a) liens for ad valorem
property taxes or assessments or other governmental charges, as long as such taxes and assessments
are timely paid and discharged or the validity, applicability or amount thereof is being contested
in good faith by appropriate proceedings that will prevent the forfeiture or sale of any property
of any Person or any interference with the use thereof by such Person and for which adequate
reserves have been established in accordance with GAAP, (b) mechanic’s and materialmen’s liens for
obligations not yet due and payable, (c) other statutory liens incurred in the normal course of
business, (d) real estate liens or encumbrances that do not materially

9

 

interfere with the intended use of the property, and (e) landlord’s liens for rentals not yet past
due and payable provided that the aggregate amount of obligations secured by liens referred to in
clauses (b), (c) and (e) of this definition shall not exceed $150,000.

          “LLC Agreement”: As defined in Section 2.1.

          “Loan Agreement”: As defined in the recitals to this
Agreement.

          “Loan Documents”: As defined in the recitals to this
Agreement.

          “Material Adverse Effect”: Any material adverse effect upon (i) the business,
operations, properties, assets, prospects or condition (financial or otherwise) of any Subs or
Pledgor (in each case taking into account the development status of the Project), (ii) the ability
of any Subs or Pledgor to perform any of its material Obligations under the Loan Documents, (iii)
the validity, perfection and enforceability of the Liens granted under the Loan Documents, or (iv)
the ability of the Lender to enforce any of the material Obligations or any of its material rights
and remedies under the Loan Documents.

          “Membership Interests”: As defined in Section 2.1(a)(i) of this Agreement.

          “Obligations”: All of Pledgor’s liabilities, obligations and indebtedness from time
to time owing to the Lender under the Loan Documents of any and every kind and nature, including,
without limitation, the obligations of Pledgor under the indemnities, contained in Sections 5.1(c)
and 7.12 of the Loan Agreement, all principal of and interest on the Advances, charges, expenses
and other sums chargeable to Pledgor by Lender, arising under the Loan Documents, whether
heretofore, now or hereafter owing, arising, due or payable from Pledgor to the Lender and
howsoever evidenced, created, incurred, acquired or owing, whether primary, secondary, direct,
contingent, fixed or otherwise.

          “OCGP”: As defined in the preamble to this Agreement..

          “Partnership Agreement”: As defined in Section 2.1(a)(iv) of this
Agreement.

          “Partnership Interests”: As defined in Section 2.1(a)(iii) of this
Agreement.

          “Party” or “Parties”: As defined in the preamble to this
Agreement.

          “Person”: Any individual, sole proprietorship, partnership, limited liability
company, joint venture, trust, unincorporated organization, association, corporation,
institution, entity, party or Governmental Authority.

          “Pledged Collateral”: As defined in Section 2.1(a).

          “Pledgor”: As defined in the preamble to this
Agreement.

          “Project”: As defined in the recitals to this
Agreement.

          “Secured Party”: As defined in the preamble to this Agreement.

10

 

          “Securities Act”: The Securities Act of 1933, as
amended.

          “Sub” or “Subs”: As defined in the recitals to
this Agreement.

          “Uniform Commercial Code” or “UCC”: the Uniform Commercial Code as in effect
from time to time in the State of New York.

          “USA Sub”: As defined in the recitals to this
Agreement.

ARTICLE II

PLEDGE

     2.1 Pledged Collateral.

     (a) As collateral security for the prompt and complete payment and performance when due,
whether at stated maturity, by acceleration or otherwise of all of the Obligations, whether now
existing or hereinafter arising and howsoever evidenced, each Pledgor, as applicable, hereby
conveys, mortgages, pledges, grants, assigns, hypothecates, transfers and delivers to Secured
Party for the benefit of Secured Party a continuing lien on, and a continuing first priority
security interest in all of such Pledgor’s right, title and interest in, to and under the
following property, whether now existing or hereafter from time to time acquired (collectively
the “Pledged Collateral”):

          (i) all of such Pledgor’s limited liability company interests, voting rights and
powers of ownership in OCGP and any other ownership interest of whatever type in OCGP now
or hereafter owned by Pledgor, in each case together with any options, warrants or other
rights to purchase such interests at any time owned by such Pledgor (including all such
interests or options, warrants or other rights acquired by such Pledgor in the future)
(collectively, the “Membership Interests”) and all of such Pledgor’s rights to
acquire additional Membership Interests for any purpose not inconsistent with the terms of
this Agreement and the other Loan Documents;

          (ii) all of such Pledgor’s claims, rights, privileges, authority, powers, options,
security interests, liens and remedies, if any, under OCGP’s Operating Agreement, dated as
of March 24, 2005, as amended from time to time (the “LLC Agreement”) or at law or
otherwise in respect of the Membership Interests, including, without limitation, all of its
rights (including voting rights) as a member of OCGP to exercise and enforce every right,
power, remedy, authority, option and privilege of OCGP relating to the Membership
Interests, including any power to terminate, cancel or modify the LLC Agreement, to execute
any instruments and to take any and all other action on behalf of and in the name of such
Pledgor in respect of the Membership Interests and OCGP, to make determinations, to
exercise any election (including, but not limited to, election of remedies) or option or to
give or receive any notice, consent, amendment, waiver or approval, together with full
power and authority to demand, receive, enforce, collect or receive any of the foregoing,
to enforce or execute any checks, or other instruments or orders, to file any claims and to
take any action in connection with any of the foregoing;

11

 

          (iii) all of such Pledgor’s limited partnership interests, voting rights and powers of
ownership in USA Sub and any other ownership interest of whatever type in USA Sub now or
hereafter owned by such Pledgor, in each case together with any options, warrants or other
rights to purchase such interests at any time owned by such Pledgor (including all such
interests or options, warrants or other rights acquired by such Pledgor in the future)
(collectively, the “Partnership Interests”) and all of such Pledgor’s rights to
acquire additional Partnership Interests for any purpose not inconsistent with the terms of
this Agreement and the other Loan Documents;

          (iv) all of such Pledgor’s claims, rights, privileges, authority, powers, options,
security interests, liens and remedies, if any, under USA Sub’s Limited Partnership
Agreement, dated as of March 24, 2005, as amended from time to time (the “Partnership
Agreement”) or at law or otherwise in respect of the Partnership Interests, including,
without limitation, all of its rights (including voting rights) as a partner of USA Sub to
exercise and enforce every right, power, remedy, authority, option and privilege of USA Sub
relating to the Partnership Interests, including any power to terminate, cancel or modify
the Partnership Agreement, to execute any instruments and to take any and all other action
on behalf of and in the name of such Pledgor in respect of the Partnership Interests and USA
Sub, to make determinations, to exercise any election (including, but not limited to,
election of remedies) or option or to give or receive any notice, consent, amendment, waiver
or approval, together with full power and authority to demand, receive, enforce, collect or
receive any of the foregoing, to enforce or execute any checks, or other instruments or
orders, to file any claims and to take any action in connection with any of the foregoing;

          (v) all equity interests, dividends, distributions, moneys, securities,
instruments, payments and other property or proceeds of any kind to which such Pledgor may
be, or may become, entitled to from time to time as a member of OCGP or a partner of USA
Sub by way of distribution, return of capital or otherwise in respect of or in exchange for
any or all of the Membership Interests or the Partnership Interests, as applicable;

          (vi) any claim that such Pledgor now has or may acquire in the future as a member of
OCGP or a partner of USA Sub against any other Sub, as applicable, or its property;

          (vii) all interests in substitution for or in addition to any of the
foregoing, any certificates representing or evidencing such interests, and all cash,
securities, distributions and other property at any time and from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all of the
foregoing; and

          (viii) all proceeds, products and accessions of and to any of the property described in
the preceding clauses (i) through (viii).

         (b) As used herein, the term “proceeds” shall be construed as defined in Section
9-102(a)(64) of the UCC and shall include whatever is received or receivable when any

12

 

of the Pledged Collateral, or any proceeds thereof, is sold, collected, exchanged or otherwise
disposed of, whether voluntarily or involuntarily, and shall include, without limitation, all
rights to payment, including interest and premiums, with respect to any of the Membership
Interests or the Partnership Interests or any proceeds thereof and any property into which any of
the Pledged Collateral is converted, whether cash or noncash proceeds, and any and all other
amounts paid or payable under or in connection with any of the Pledged Collateral.

          (c) If such Pledgor acquires (by purchase, distribution or otherwise) any additional
Membership Interests or Partnership Interests at any time or from time to time after the date
hereof, it shall:

          (i) forthwith pledge such Membership Interests or Partnership Interests, as
applicable, as security to Secured Party hereunder;

          (ii) promptly notify Secured Party of such acquisition;

          (iii) to the extent such Membership Interests or Partnership Interests (in each case,
whether now owned or hereafter acquired) are certificated, promptly deliver to Secured Party
its certificates therefor accompanied by such instruments of transfer as are reasonably
acceptable to Secured Party and promptly thereafter deliver to Secured Party a certificate
executed by any authorized officer of such Pledgor describing such Membership Interests or
Partnership Interests, as applicable, and certifying that they have been duly pledged
hereunder; and

          (iv) to the extent such Membership Interests or Partnership Interests (whether now
owned or hereafter acquired) are uncertificated, promptly notify Secured Party thereof
and promptly take all actions required to perfect the security interest of Secured Party
under applicable Law, including, without limitation, Section 8-106(c) of the UCC.

       2.2 Delivery of Certificates and Instruments. Each Pledgor, as applicable, shall
deliver to Secured Party all certificates or instruments representing or evidencing the Membership
Interests or Partnership Interests to be held by Secured Party pursuant hereto in each case,
properly endorsed in blank and in suitable form for transfer by delivery and accompanied by duly
executed irrevocable proxy in the form as attached as Exhibit A hereto and a limited
liability company or limited partnership, as applicable, power in the faun attached as Exhibit
B hereto, all in form and substance satisfactory to Secured Party. Secured Party shall have the
right, at any time following the occurrence and during the continuation of an Event of Default, in
its discretion and upon a written notice to such Pledgor, to transfer to or to register in its name
or in the name of any of its nominees any or all of the Membership Interests and/or Partnership
Interests. Each Pledgor shall take such actions as Secured Party reasonably requests to effect the
foregoing, to permit Secured Party to exercise any of its rights and remedies hereunder, to effect
fully the purposes of this Agreement, to create, perfect, maintain, and preserve first priority
Liens on the Pledged Collateral in favor of Secured Party, and to provide for the payment of the
Obligations in accordance with the terms of the Loan Documents. Each Pledgor shall provide an
opinion of counsel with respect to the perfection of the Lien hereunder satisfactory to Secured
Party with respect to any pledge of the Membership Interests or the

13

 

Partnership Interests, as applicable, upon the request of Secured Party, upon any change in
applicable Law or other material change in circumstances affecting the perfection of the security
interests granted hereunder. Secured Party will hold such security certificates, documents,
instruments, irrevocable proxies, and stock powers until the Obligations have been indefeasibly
paid and satisfied in full. At any time and from time to time, upon a written notice to the
applicable Pledgor, Secured Party shall have the right to exchange certificates or instruments
representing or evidencing any of the Membership Interests or the Partnership Interests, as
applicable, for certificates or instruments of smaller or larger denominations.

      2.3 Pledgors’ Rights.

          (a) Unless an Event of Default shall have occurred and be continuing, each Pledgor shall be
entitled to receive and retain any and all distributions paid in respect of its Membership
Interests or Partnership Interests (in each case, whether in cash or other property) free and
clear of the Lien created by this Agreement and in accordance with the Loan Documents, the LLC
Agreement or the Partnership Agreement, as applicable; provided, however, that
any and all

          (i) distributions paid or payable in respect of the Membership Interests or the
Partnership Interests, as applicable, in connection with (A) any partial or total
liquidation or dissolution of OCGP or the USA Sub, as applicable, (B) any distributions of
capital of OCGP or the USA Sub, as applicable, (other than distributions made pursuant to
the Loan Documents), and (C) any reorganization of OCGP or the USA Sub, as applicable; and

          (ii) property paid or payable or otherwise distributed in redemption of, or in
exchange for, the property in clause (i) of this Section 2.3, if received by either
Pledgor, shall be included as Pledged Collateral, shall be segregated from other property
and funds of such Pledgor, and shall forthwith be delivered to Secured Party in the same
form as so received (together with any necessary transfer documents of endorsements) to
hold as Pledged Collateral. Upon the occurrence and during continuation of an Event of
Default, all of such Pledgor’s rights under this Section 2.3 shall cease and all such
rights shall become vested in Secured Party, who thereupon shall have the sole right to
receive and hold such distributions as Pledged Collateral.

          (b) Unless an Event of Default shall have occurred and be continuing, each Pledgor shall be
entitled to exercise all voting, consent, ratification, waiver, and other rights with respect to
its Membership Interests and its Partnership Interests for any purpose not inconsistent with the
terns of this Agreement or any of the other Loan Documents; provided, that no vote shall be cast,
right exercised or action taken that would result in a material violation of the LLC Agreement or
the Partnership Agreement, unless so required by applicable Law. Upon the occurrence and during the
continuation of an Event of Default and upon a written notice by Secured Party to either Pledgor,
all of such Pledgor’s voting , consent, ratification, waiver, and other rights with respect to the
Membership Interests or the Partnership Interests, as applicable, that such Pledgor would otherwise
be entitled to exercise shall cease and such rights shall be vested in Secured Party, who thereupon
shall have the sole right to exercise or refrain from exercising such rights.

14

 

          (c) All distributions and other funds received by either Pledgor in violation of this
Agreement shall be received in trust for the benefit of Secured Party, shall be segregated from
any such Pledgor’s other property and funds and shall be paid to Secured Party in the same form
as so received (together with any necessary transfer documents and endorsements) as Pledged
Collateral.

     2.4 Secured Party Liability.

          (a) Notwithstanding any other provision contained in this Agreement, each Pledgor shall
remain liable under the LLC Agreement and the Partnership Agreement, as applicable, for all of the
obligations to be performed by such Pledgor thereunder to the same extent as if this Agreement had
not been executed. The exercise by Secured Party or any of its respective permitted assigns or
successors of any of the rights hereunder shall not release either Pledgor from any of its duties
or obligations under the LLC Agreement or the Partnership Agreement, to the extent arising or
accruing in respect of any period prior to the sale, assignment or other transfer of the
Membership Interests or the Partnership Interests, as applicable, by Secured Party pursuant to any
exercise of remedies under this Agreement. None of Secured Party or any of its respective
directors, officers, employees, affiliates or agents shall have any obligations or liability under
the LLC Agreement, the Partnership Agreement or under or with respect to any Pledged Collateral by
reason of or arising out of this Agreement, except as set forth in Section 9-207 of the UCC, or
the receipt by Secured Party of any payment relating to any Pledged Collateral, nor shall Secured
Party or any of its respective directors, officers, employees, affiliates or agents be obligated
in any manner to perform any of either Pledgor’s obligations under or pursuant to the LLC
Agreement, the Partnership Agreement or any other agreement to which either Pledgor is a party,
make any payment or inquire as to the nature or sufficiency of any payment or performance with
respect to any Pledged Collateral, present or file any claim or collect the payment of any amounts
or take any action to enforce any performance under or with respect to the LLC Agreement, the
Partnership Agreement or Pledged Collateral or take any other action whatsoever with respect to
the Pledged Collateral, in each case, other than as required under this Agreement and the other
Loan Documents.

          (b) The powers conferred on Secured Party hereunder are solely to protect its interests in
the Pledged Collateral and shall not impose any duty upon it to exercise any such powers. Except
for the safe custody of any Pledged Collateral in its possession and the accounting for moneys
actually received by it hereunder and except as required by applicable Law, Secured Party shall
not have any duty as to any Pledged Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any Pledged Collateral
and no such duties shall be implied as arising hereunder.

     2.5 Attorney-in-Fact. Each Pledgor hereby appoints Secured Party or any officer or
agent whom Secured Party may designate, as its true and lawful attorney-in-fact and proxy, which
appointment being coupled with an interest is irrevocable until the termination of the Loan
Documents according to their terms, with full power and authority in such Pledgor’s place and stead
and in such Pledgor’s name or in its own name, at such Pledgor’s reasonable cost and expense, from
time to time after the occurrence and during the continuation of any Event of Default in Secured
Party’s reasonable discretion to take any action and to execute any instrument which Secured Party
may reasonably deem necessary or advisable to enforce its rights under this

15

 

Agreement or to accomplish the purposes of this Agreement or the other Loan Documents,
including, without limitation, authority to ask for, demand, collect, sue for, recover,
compound, receive and give acquittance and receipts for, endorse and collect all drafts or
other instruments, chattel paper and moneys due and to become due or made payable to such
Pledgor representing any distribution, interest payment or other payment in respect of the
Pledged Collateral or any part thereof to be paid over to Secured Party pursuant to Section
2.3(c) and to file any claims or take any action or institute any proceedings which the Secured
Party may deem to be necessary or desirable for the collection thereof. Each Pledgor hereby
ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof, in each
case pursuant to the powers granted under this Section 2.5, each Pledgor hereby acknowledges
and agrees that Secured Party shall have no fiduciary duties to such Pledgor, and each Pledgor
hereby waives any claims or rights of a beneficiary of a fiduciary relationship hereunder.

     2.6 Step-in Rights. Upon the occurrence and during the continuation of any Event
of Default and upon a written notice to the applicable Pledgor, Secured Party may (but shall
not be obligated to) perform, or cause performance of, any of such Pledgor’s obligations under
this Agreement. Secured Party’s reasonable expenses, including the reasonable fees and expenses
of its counsel, incurred in connection with performing any such obligations shall be payable by
such Pledgor.

     2.7 Reasonable Care; Standards for Exercising Remedies; Marshaling Pledged
Collateral.

          (a) Notwithstanding anything to the contrary in this Agreement, Secured Party shall
exercise the same degree of care hereunder as it exercises or would exercise in connection with
its own property of the type of which the Pledged Collateral consists. Secured Party shall be
deemed to have exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment substantially
equivalent to that which Secured Party accords or would accord in similar transactions for its
own account; provided, however, it is expressly understood that Secured Party shall have no
responsibility for ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Pledged Collateral, whether or not Secured
Party has or is deemed to have knowledge of such matters, or taking any necessary steps to
preserve rights against any parties with respect to any Pledged Collateral.

          (b) In furtherance of the foregoing, to the extent applicable Laws impose on Secured Party
an obligation to exercise remedies in a commercially reasonable manner, each Pledgor
acknowledges and agrees that, to the extent consistent with applicable Law, it is not
commercially unreasonable for Secured Party (i) to fail to incur expenses reasonably deemed
significant by Secured Party to prepare Pledged Collateral for disposition or otherwise to
complete raw material or work in process into finished goods or other finished products for
disposition, (ii) to fail to obtain third party consents for access to Pledged Collateral to be
disposed of, or to obtain or, if not required by other applicable Laws, to fail to obtain
governmental or third party consents for the collection or disposition of Pledged Collateral to
be collected or disposed of, (iii) to fail to exercise collection remedies against account
debtors or other persons obligated on Pledged Collateral or to remove Liens or encumbrances on
or any adverse claims against Pledged Collateral, (iv) to exercise or fail to exercise
collection remedies

16

 

against account debtors and other Persons obligated on the Pledged Collateral directly or
through the use of collection agencies and other collection specialists, (v) to advertise or
fail to advertise dispositions of Pledged Collateral through publications or media of
general circulation, whether or not the Pledged Collateral is of a specialized nature, (vi)
to contact or fail to contact other Persons, whether or not in the same business as such
Pledgor, in connection with expressions of interest in acquiring all or any portion of the
Pledged Collateral, (vii) to hire or fail to hire one or more professional auctioneers to
assist in the disposition of Pledged Collateral, whether or not the Pledged Collateral is of
a specialized nature, (viii) to dispose Pledged Collateral by utilizing internet sites that
provide for the auction of assets of the types included in the Pledged Collateral or that
have reasonable capability of doing so, or that match buyers and sellers of assets (or to
fail to do so), (ix) to dispose of assets in wholesale rather than retail markets (or to
fail to do so), (x) to disclaim disposition warranties, (xi) to purchase insurance or credit
enhancements to insure Secured Party against the risk of loss, collection or disposition of
Pledged Collateral, or (xii) to the extent deemed appropriate by Secured Party, to obtain
the services of other brokers, investment bankers, consultants and other professionals to
assist Secured Party in the collection or disposition of any of the Pledged Collateral.

          (c) Without limiting the generality of the foregoing and except as otherwise provided by
applicable Laws, Secured Party shall not be required to marshal] any collateral, including the
Pledged Collateral subject to the security interest created hereby, or to resort to any item of
Pledged Collateral in any particular order. To the extent that such Pledgor lawfully may, each
Pledgor hereby (i) agrees that it will not invoke any applicable Laws relating to the marshalling
of collateral which might cause delay in or impede the enforcement of the Secured Party’s rights
under this Agreement or under any other instrument evidencing any of the Obligations or under which
any of the Obligations is outstanding or by which any of the Obligations is secured and (ii)
irrevocably waives the benefits of all applicable Laws and any and all rights to equity of
redemption or other rights of redemption that they may have in equity or at law with respect to the
Pledged Collateral.

          (d) Each Pledgor hereby waives, to the maximum extent permitted by applicable Law (i) all
rights under any applicable Law limiting remedies, including recovery of a deficiency, under an
obligation secured by a mortgage or deed of trust on real property if the real property is sold
under a power of sale contained in the mortgage, and all defenses based on any loss whether as a
result of any such sale or otherwise, of such Pledgor’s right to recover any amount from Secured
Party, whether by right of subrogation or otherwise; (ii) all rights under any applicable Law to
require the Secured Party to pursue OCGP, the USA Sub, or any other Person, any security which OCGP
or the USA Sub may hold, or any other remedy before proceeding against such Pledgor; (iii) all
rights of reimbursement or subrogation, all rights to enforce any remedy that Secured Party may
have against OCGP or the USA Sub and all rights to participate in any security held by Secured
Party until the Obligations have been indefeasibly paid and performed in full; (iv) all rights to
require Secured Party to give any notices of any kind, including, without limitation, notices of
nonpayment, nonperformance, protest, dishonor, default, delinquency or acceleration, or to make any
presentments, demands or protests; (v) all rights to assert the bankruptcy or insolvency of OCGP or
the USA Sub as a defense hereunder or as the basis for rescission hereof, (vi) all rights under any
applicable Law purporting to reduce such Pledgor’s obligations hereunder if the Obligations are
reduced; (vii) all defenses based on the disability or lack of authority of OCGP, the USA Sub, or
any Person, the repudiation of the

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Loan Documents by OCGP, the USA Sub, or any Person, the failure by Secured Party to enforce any
claim against OCGP or the USA Sub or the unenforceability in whole or in part of any Loan
Document; (viii) all suretyship and guarantor’s defenses generally; (ix) all rights to insist
upon, plead or in any manner whatever claim or take the benefit or advantage of, any appraisal,
valuation, stay, extension, marshalling of assets, redemption or similar law, or exemption,
whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the
performance by such Pledgor of its obligations under, or the enforcement by Secured Party of, this
Agreement; (x) any requirement on the part of Secured Party to mitigate the damages resulting from
any default; and (xi) except as otherwise specifically set forth herein all rights of notice and
hearing of any kind prior to the exercise of rights by Secured Party upon the occurrence and
during the continuation of an Event of Default to repossess with judicial process or to replevy,
attach or levy upon its Pledged Collateral. To the extent permitted by applicable Law, each
Pledgor hereby waives the posting of any bond otherwise required of Secured Party in connection
with any judicial process or proceeding to obtain possession of, replevy, attach, or levy upon its
Pledged Collateral, to enforce any judgment or other security for the Obligations, to enforce any
judgment or other court order entered in favor of Secured Party, or to enforce by specific
performance, temporary restraining order, preliminary or permanent injunction, this Agreement or
any other agreement or document between such Pledgor and Secured Party. Upon the occurrence and
during the continuation of an Event of Default, Secured Party may elect to nonjudicially or
judicially foreclose against any real or personal property security it holds for the Obligations
or any part thereof, or to exercise any other remedy against OCGP or the USA Sub, any security or
any guarantor, even if the effect of that action is to deprive either Pledgor of the right to
collect reimbursement from OCGP or the USA Sub, as applicable, for any sums paid by such Pledgor
to Secured Party.

     2.8 Security Interest Absolute.

          (a) The obligation of each Pledgor under this Agreement is independent of the Obligations,
and a separate action or actions may be brought and prosecuted against either Pledgor to enforce
this Agreement. All rights of Secured Party and the pledge, hypothecation and security interest
hereunder, and all obligations of each Pledgor hereunder, shall be absolute and unconditional, to
the extent permitted by applicable Law, irrespective of:

          (i) any lack of validity or enforceability of any of the Loan Documents or
any other agreement or instrument relating thereto;

          (ii) any change in the time, manner or place of payment of, or in any other term of,
all or any of the Obligations, or any other amendment or waiver of or any consent to any
departure from the Loan Documents or any other agreement or instrument relating thereto;

          (iii) any manner of application of the Pledged Collateral, or proceeds thereof, to all
or any of the Obligations, or any manner of sale or other disposition of any other
collateral for all or any of the Obligations;

          (iv) any change, restructuring or termination of the structure or existence or
identity of any of Secured Party;

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          (v) any exchange, release or non-perfection of any other collateral, or any release
or amendment or waiver of or consent to any departure from any guaranty, for all or any
of the Obligations; or

          (vi) any other circumstance which might otherwise constitute a defense available to,
or a discharge of, either Pledgor, USA Sub, OCGP (in its capacity as a Sub, in addition to
as a Pledgor) or a third party grantor of a security interest except as otherwise provided
herein.

     2.9 Effective as a Financing Statement. This Agreement shall also be effective as a
financing statement covering any Pledged Collateral and may be filed in any appropriate filing or
recording office. A carbon, photographic, facsimile or other reproduction of this Agreement or of
any financing statement relating to this Agreement shall be sufficient as a financing statement for
any of the purposes referred to in the preceding sentence.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

     3.1 Pledgors’ Representations and Warranties. Each Pledgor, as applicable,
represents and warrants with respect to itself that, as of the date hereof:

          (a) Existence; Compliance with Law. (i) Such Pledgor is a limited partnership or
limited liability company, as applicable, duly formed, validly existing and in good standing under
the laws of the State of Delaware, (ii) such Pledgor has the limited partnership or limited
liability company, as applicable, power and authority to own and use its property and assets,
including the Pledged Collateral, and to conduct the business in which it is currently engaged and
presently proposes to engage, and possesses all governmental approvals required for its ownership
of the Pledged Collateral and (iii) such Pledgor is qualified to do business as a foreign limited
partnership or foreign limited liability company and is in good standing under the laws of each
jurisdiction where the conduct of its business requires such qualification.

          (b) Power, Authorization; Enforceable Obligations. Such Pledgor has full limited
partnership or limited liability company, as applicable, power and authority to execute, deliver
and perform this Agreement and the other Loan Documents to which it is a party, and has taken all
action necessary to be taken by it to authorize the execution, delivery and performance of the Loan
Documents to which it is a party. No consent, waiver, authorization of or filing with any Person is
required in connection with the execution, delivery, performance by, or the validity or
enforceability against such Pledgor of the Loan Documents to which it is a party, that has not been
obtained and is final, in full force and effect and non appealable. This Agreement and each of the
Loan Documents to which such Pledgor is a party have been duly executed and delivered on behalf of
such Pledgor, and constitute legal, valid and binding obligations of such Pledgor enforceable
against such Pledgor in accordance with their respective terms, except as enforceability may be
limited by general equitable principles or by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors’ rights generally.

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          (c) Binding Obligations. The LLC Agreement and/or the Partnership Agreement have
been duly executed and delivered by such Pledgor, as applicable, and constitute the legal,
valid and binding obligations of such Pledgor, enforceable in accordance with their respective
terms, except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganize

          (d) No Legal Bar. None of the execution, delivery or performance of this Agreement
or the other Loan Documents to which such Pledgor is a party, or the consummation of the
transactions contemplated hereunder or thereunder, nor compliance with the terms and provisions
hereof or thereof, do or will (i) contravene or violate any provisions of the certificate of
formation or limited partnership, the partnership or operating agreement or other
organizational documents of such Pledgor, or any applicable Law or Governmental Approval
applicable to it or any of its respective properties or assets, including the provisions of the
Public Utility Holding Company Act of 1935 and the rules and regulations thereunder, or (ii)
conflict with, or result in any breach of any of the terms and conditions of any mortgage,
indenture, lease, or other contract, instrument or agreement to which such Pledgor is subject
or by which it or its properties are bound, or result in or require the creation or imposition
of any Lien (other than Liens in favor of Secured Party) on any of its properties or revenues
pursuant to any requirement of Law or contractual obligation or in a condition or event that
constitutes (or that, upon notice or lapse of time or both, would constitute) an event of
default with respect to any of its contractual obligations, or (iii) result in the acceleration
or mandatory prepayment of, any Indebtedness evidenced by, or termination of, any contract,
agreement or instrument to which it is a party or by which it or any of its property is bound.

          (e) No Litigation. No investigation by or litigation, action, claim, judgment,
complaint, nature of violations, injunctions, orders, decrees, directives, suits or
proceedings before any court, tribunal, arbitrator, mediator, referee or Governmental
Authority is pending, nor to the knowledge of such Pledgor, is any of the foregoing
threatened by or against such Pledgor, or against the Pledged Collateral or any of such
Pledgor’s other properties or revenues with respect to the Loan Documents, or any of the
transactions contemplated hereby or thereby, which, individually or in the aggregate, if
decided adversely to the interests of such Pledgor, could reasonably be expected to result in
a Material Impairment or materially adversely affect the Pledged Collateral or the ability of
such Pledgor to enter into and perform its obligations under this Agreement or which
questions or could reasonably be expected to materially adversely affect the legality,
validity or enforceability of any of the Loan Documents.

          (f) The security interest created pursuant to this Agreement constitutes a valid and
continuing first Lien on and first security interest in the Pledged Collateral in favor of the
Secured Party, free and clear of all other Liens (excluding Permitted Liens) in favor of others
and rights of others and prior to all other Liens (excluding Permitted Liens which have priority
over the Lien of this Agreement by operations of Law) in favor of others and rights of others,
and are enforceable as such as against creditors of and purchasers from such Pledgor.

          (g) The execution and delivery of the Loan Agreement and this Pledge Agreement, the
delivery to the Secured Party of the items set forth in Section 2.2 hereof and the filing of
the financing statements on Form UCC-1 in the offices and locations described in

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Schedule I attached hereto will create and perfect a valid first priority security interest in
favor of Secured Party in the Pledged Collateral, subject only to Permitted Liens. No further
action will be required to maintain and preserve, or effectively to put other Persons on notice
of, such Lien and security interests other than the filing of continuation statements required by
the UCC.

          (h) Such Pledgor has good and indefeasible title to and is the sole owner of all right, title
and interest in its Pledged Collateral and such Pledged Collateral is free from any Lien or other
right, title or interest of any person other than the Liens of Secured Party created under the
Loan Documents and this Agreement.

          (i) There is no financing statement (or similar statement or instrument of registration under
the law of any jurisdiction) executed by such Pledgor, or, to the knowledge of such Pledgor after
due inquiry, by any other person covering or purporting to cover any interest of any kind in its
Pledged Collateral hereunder except financing statements filed or to be filed in respect of the
Lien created by this Agreement, unless a termination statement has been filed with respect to such
financing statement.

          (j) No consent, authorization, approval or other action by, and no notice to or filing with,
any other Person or any Governmental Authority (other than the filing of UCC financing statements
in the filing offices indicated in Schedule I indicating such Pledgor as “grantor”, the Secured
Party as “Secured Party” and appropriately describing the Pledged Collateral) is required either
(a) for the creation or perfection of the Lien under this Agreement or for the due execution,
delivery or performance of this Agreement by such Pledgor, or (b) for the exercise by Secured Party
of the voting or other rights provided for in this Agreement or of the remedies in respect of the
Pledged Collateral pursuant to this Agreement, except as may be required in connection with the
disposition of the Pledged Collateral by laws affecting the offering and sale of securities
generally or except for consents, authorizations, approvals or other actions that have been duly
obtained or made or those that the Secured Party may be required to obtain or take pursuant to any
internal policies or procedures and, in the case of maintenance of perfection, the filing of
continuation statements under the UCC.

          (k) The Membership Interests pledged hereunder constitute 100 percent of the issued and
outstanding limited liability company interests in OCGP. All of the Membership Interests have been
duly authorized and validly issued and are fully paid and non-assessable. The Partnership Interests
pledged hereunder constitute 100 percent of the issued and outstanding limited partnership
interests in the USA Sub. All of the Partnership Interests have been duly authorized and validly
issued and are fully paid and non-assessable.

          (1) Such Pledgor’s chief executive office and the office where it keeps its records
concerning its Pledged Collateral is set forth on Schedule 2 hereto. Such Pledgor’s
jurisdiction of formation is Delaware.

          (m) Such Pledgor will derive financial benefit, directly or indirectly, for undertaking the
obligations under the Loan Documents to which such Pledgor is a party and for each Sub
undertaking the obligations under the Loan Documents to which such Sub is a party.

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          (n) The Membership Interests have been validly created and all contributions with respect
thereto required to be made as of the date hereof pursuant to the LLC Agreement have been paid
to OCGP. The Partnership Interests have been validly created and all contributions with respect
thereto required to be made as of the date hereof pursuant to the Partnership Agreement have
been paid to the USA Sub.

          (o) Except as specifically provided in or permitted by the Loan Documents, it does not have
outstanding (A) any securities convertible into or exchangeable for the Membership Interests or
the Partnership Interests or (B) any rights to subscribe for or to purchase, or any options,
warrants or other rights to acquire capital stock or securities convertible into or exchangeable
or exercisable for capital stock, or any agreements, arrangements or understandings providing for
the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character
relating to, the Membership Interests or Partnership Interests.

          (p) Total Partnership and Membership Interests. There are no certificates,
instruments, documents or other writings (i) other than the Partnership Agreement of USA Sub, that
evidence any Partnership Interest of either Pledgor, or (ii) other than the LLC Agreement of OCGP,
that evidence any Membership Interest of either Pledgor.

          (q) Taxes.

          (i) Such Pledgor has filed all federal, state and local tax returns which are
required to be filed by it and has paid all taxes shown to be due and payable on such
returns or pursuant to any assessment received by it and to the extent, if any, such
taxes are not due and payable, has established reserves (segregated to the extent
required by GAAP) that are adequate for the payment thereof, and it does not have
actual knowledge of any actual or proposed assessment in connection therewith which,
either in any case or in the aggregate, would reasonably be expected to have a Material
Adverse Effect. It has not given or been requested to give a waiver of the statute of
limitations relating to the payment of any taxes.

          (ii) There is no pending or, to such Pledgor’s actual knowledge, threatened,
tax audit or investigation of such Pledgor by any Governmental Authority.

          (iii) It is not a “foreign person” within the meaning of Section
1445(f)(3) of the Code.

          (r) Other Agreements. No Person has any right to purchase or terminate any
or all of its interests in the Pledged Collateral, except pursuant to the terms of this
Agreement.

          (s) LLC Agreement. A true and complete copy of the LLC Agreement has been
furnished to Secured Party and the LLC Agreement is in full force and effect.

          (t) No Default. It is not in default or violation of any terms of this Agreement or
any other Loan Document to which it is a party.

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ARTICLE IV

COVENANTS

          Each Pledgor hereby covenants and agrees, as to itself, that from and after the date
hereof until the termination of this Agreement in accordance with Section 6.5:

     4.1 Disposition of Pledged Collateral. Except as otherwise specifically permitted by
the Loan Documents, such Pledgor shall not sell, assign, convey, transfer (by operation of law or
otherwise) or otherwise dispose of, or grant any option or warrant with respect to, or consent to
the sale, assignment, conveyance, transfer or other disposition of, or grant of any option or
warrant with respect to, any of the Pledged Collateral. Following a sale or transfer by such
Pledgor of the Pledged Collateral permitted by the Loan Documents, such Pledgor shall cause the
purchaser or transferee to promptly deliver to Secured Party all certificates representing such
person’s Pledged Collateral together with any instruments of transfer or endorsements requested
by Secured Party. Upon receipt of such items, Secured Party shall return to such Pledgor any
Pledged Collateral (and instruments of transfer or endorsement) in its possession that is subject
to such sale or transfer.

     4.2 No Other Liens. Such Pledgor shall not create, incur or permit to exist, shall
defend the Pledged Collateral owned by it against, and shall take such other action as is
reasonably necessary to remove, any Lien or claim on or with respect to the Pledged Collateral,
other than the Lien created by this Agreement, and shall defend the right, title and interest of
Secured Party in and to the Pledged Collateral against all claims and demands.

     4.3 Further Assurances. Such Pledgor shall at any time and from time to time, at
such Pledgor’s expense, promptly execute and deliver all further instruments and documents, and
take all further action, that may be reasonably necessary or desirable, or that Secured Party may
reasonably request, in order to maintain a first priority perfected security interest in the
Pledged Collateral in favor of Secured Party or to enable Secured Party to exercise and enforce
its rights and remedies hereunder with respect to any Pledged Collateral.

     4.4 Voting Rights. Such Pledgor shall exercise any and all management, voting and
other consensual rights pertaining to each Sub, as applicable, in a manner consistent with the
teems of this Agreement, the Partnership Agreement or the LLC Agreement, as applicable, and the
other Loan Documents.

     4.5 Equity Interests.

          (a) Except as specifically permitted by the Loan Documents, (i) such Pledgor, as applicable,
shall cause the Membership Interests pledged hereunder to constitute at all times not less than the
entire limited liability company interests of OCGP then issued and outstanding, and (ii) it shall
not permit (w) OCGP to issue any additional limited liability company interests in OCGP at any time
(whether or not certificated), (x) OCGP to have outstanding any subscription agreements, warrants,
rights or options to acquire any limited liability company interests of whatever type, (y) any
limited liability company interest of OCGP to be dealt in or traded on any securities exchange or
in any securities market, or (z) any limited liability

23

 

company interest of OCGP to be deemed an investment company security (as defined in Section
8-103(b) of the UCC).

          (b) Except as specifically permitted by the Loan Documents, (i) such Pledgors shall cause the
Partnership Interests pledged hereunder to constitute at all times not less than the entire
partnership interests of USA Sub then issued and outstanding, and (ii) it shall not permit (w) USA
Sub to issue any additional partnership interests in USA Sub at any time (whether or not
certificated), (x) USA Sub to have outstanding any subscription agreements, warrants, rights or
options to acquire any partnership interests of whatever type, (y) any partnership interest of USA
Sub to be dealt in or traded on any securities exchange or in any securities market, or (z) any
partnership interest of USA Sub to be deemed an investment company security (as defined in Section
8-103(b) of the UCC).

     4.6 Performance of Partnership and LLC Agreement. Such Pledgor shall at its expense
perform and observe all the terms and provisions of the Partnership Agreement and the LLC
Agreement, as applicable, to be performed or observed by it, use commercially reasonable efforts
to maintain the Partnership Agreement and the LLC Agreement, as applicable, in full force and
effect, enforce the Partnership Agreement and the LLC Agreement, as applicable, in accordance with
its terms, and take all commercially reasonable action to such end as may be from time to time
reasonably requested by Secured Party. Such Pledgor shall not cancel or terminate the Partnership
Agreement or the LLC Agreement or consent to or accept any cancellation or termination thereof

     4.7 Amendments. Except as otherwise specifically provided in the Loan Documents,
such Pledgor shall not, without the prior written consent of Secured Party, agree to or permit (i)
the cancellation or termination of the Partnership Agreement or the LLC Agreement, except upon the
expiration of the stated term thereof, or (ii) any amendment or modification of the Partnership
Agreement or the LLC Agreement or waive any default under or breach of the Partnership Agreement
or the LLC Agreement without the Secured Party’s prior written consent, except that Secured
Party’s consent shall not be required with respect to any such amendment or modification to comply
with applicable Law or to clarify any inconsistency or the like and would not adversely affect the
rights of Secured Party hereunder, provided, that it shall notify Secured Party of its intent to
so amend or modify the Partnership Agreement or the LLC Agreement, as applicable, and shall
provide to Secured Party a copy of the amendment or modification it proposes to enter into at
least 15 Business Days prior to entering into such amendment or modification. In addition, such
Pledgor shall not consent to any transaction for the termination, dissolution or winding up of, or
the merger or consolidation with, any other Person by any Sub, or which would otherwise change the
structure or organization of any Sub.

     4.8 Financing Statements. Such Pledgor shall sign and deliver to Secured Party such
financing statements (or similar statements or instruments of registration under the law of any
jurisdiction), as may be necessary under applicable Law to establish and maintain the security
interests contemplated hereunder as valid, enforceable, first priority security interests as
provided herein and the other rights and security contemplated herein, all in accordance with the
UCC as enacted in any and all relevant jurisdictions or any other applicable Law. Such Pledgor
authorizes Secured Party to file any such financing statements (or similar statements or

24

 

instruments of registration under the law of any jurisdiction) without the signature
of such Pledgor.

     4.9 Records and Schedules. Such Pledgor shall keep and maintain, at its own cost and
expense, records of the Pledged Collateral owned by it, including, but not limited to, records of
all payments received with respect thereto, and upon reasonable notice, and during normal
business hours, such Pledgor shall make the same reasonably available to Secured Party for
inspection at such Pledgor’s chief executive office and at such Pledgor’s own cost and expense.
Such Pledgor shall furnish to Secured Party from time to time statements and schedules further
identifying and describing its Pledged Collateral and such other reports in connection with the
Pledged Collateral as Secured Party may reasonably request, all in reasonable detail.

     4.10 Maintenance of Existence. Such Pledgor shall do or cause to be done all things
necessary to preserve and maintain at all times its existence as a limited partnership or a
limited liability company, as applicable, and preserve and maintain all of its rights,
privileges, licenses and franchises and shall comply with all requirements of all applicable
Laws.

     4.11 Other Financing Statements. Such Pledgor shall not, without the prior
written consent of Secured Party execute or file in any public office or consent to the
execution of or filing of any enforceable financing statement or statements covering any or
all of its Pledged Collateral, except financing statements filed or to be filed in favor of
Secured Party as secured party or in connection with Permitted Debt.

     4.12 Certain Notices. Such Pledgor shall give Secured Party prompt notice of any
written claim relating to title to its Pledged Collateral of which it has actual knowledge. It
shall deliver to Secured Party a copy of each other written demand, notice or document received
by it which could reasonably be expected to adversely affect Secured Party’s interest in any of
the Pledged Collateral promptly upon, but in any event within 10 Business Days after, its receipt
thereof.

     4.13 Proceedings. Such Pledgor shall, promptly upon obtaining actual knowledge of any
action, suit or proceeding at law or in equity by or before any Governmental Authority pending or
threatened against it with respect to any of its Pledged Collateral, which could reasonably be
expected to result in a Material Adverse Effect on such Pledgor or any of its Pledged Collateral or
a Material Impairment, or upon becoming aware of the failure to comply with the terms and
conditions of any governmental approval applicable to such Pledgor which could reasonably be
expected to result in a Material Adverse Effect on such Pledgor or any of its Pledged Collateral,
furnish to Secured Party a notice of such event describing the same in reasonable detail and,
together with such notice or as soon thereafter as possible, a description of the action that such
Pledgor has taken and proposes to take with respect thereto.

     4.14 Maintenance of Status. Such Pledgor, as applicable, shall not withdraw as

     4.15 Payment of Taxes. Such Pledgor shall pay, before any fine, penalty, interest or
cost attaches thereto, all taxes, now or hereafter assessed or levied against any Sub, as
applicable,

25

 

its Pledged Collateral or upon the Liens provided for herein, unless such taxes are being
contested in good faith and such Pledgor shall have set aside on its books adequate reserves with
respect thereto in accordance with GAAP. It shall pay, or cause to be paid, all claims for labor,
materials or supplies which, if unpaid, would by applicable Law become a Lien on any of the
Pledged Collateral, unless such claims are subject to a good faith dispute and any such Liens are
bonded over within thirty (30) days of the date they are filed.

     4.16 Bankruptcy. Such Pledgor shall not authorize, seek to cause, or permit any Sub,
as applicable, to commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to such Sub or such Sub’s debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of such Sub or any substantial
part of such Sub’s property or to consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding commenced against such
Sub, or to make a general assignment for the benefit of creditors.

     4.17 Location of Office; Name.

          (a) Such Pledgor shall not, without 30 days’ prior written notice to Secured Party, change
its principal place of business, chief executive office or the office where it keeps its records
concerning its Pledged Collateral from the address specified on Schedule I hereto, and in
connection with any such change it shall deliver to Secured Party an opinion of counsel addressed
to Secured Party setting forth any actions required to be taken with respect to the filing,
recording, refiling and re-recording of this Agreement or financing statements and continuation
statements with respect thereto, if any, as is necessary to maintain and preserve the perfection
of the security interest of Secured Party in and to its Pledged Collateral granted hereunder and
all such actions specified in such opinion shall have been taken.

          (b) Such Pledgor shall not change its legal name unless (A) it has given to Secured Party not
less than 30 days’ prior written notice of its intention so to do, clearly describing its new name
and the jurisdictions in which its new name shall be used and providing such other information in
connection therewith as Secured Party may reasonably request, (B) with respect to its new name, it
has taken all action, satisfactory Secured Party, to maintain the security interest of Secured
Party in all of the Pledged Collateral intended to be granted hereby at all times fully perfected
and in full force and effect and (C) it has delivered to Secured Party an opinion of counsel
addressed to Secured Party setting forth all action required to be taken with respect to the
filing, recording, refiling and re-recording of this Agreement, or financing statements and
continuation statements with respect thereto or other applicable statement in any relevant
jurisdiction, if any, as is necessary to maintain and preserve the perfection of the security
interest of Secured Party in and to the Pledged Collateral granted hereunder and all such actions
specified in such opinion shall have been taken.

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ARTICLE V

EXERCISE OF REMEDIES

     5.1 Remedies Generally. If an Event of Default shall have occurred and be
continuing, Secured Party may exercise, in addition to all other rights and remedies granted in
the Loan Agreement, any other Loan Document, or this Agreement and in any other instrument or
agreement securing, evidencing or relating to the Obligations, all rights and remedies of a
secured party upon default under the UCC in effect from time to time in any relevant jurisdiction
(or such other like law in the applicable jurisdiction) and all other rights and remedies
available at law or in equity in each case at the defaulting Pledgor’s expense and without prior
notice to any Pledgor, except as required under applicable Law. In addition to any other remedy
provided herein, Secured Party may take any or all of the following actions:

          (a) Secured Party may declare, without presentment, demand, protest or notice of any kind,
all of which such Pledgor hereby expressly waives, the entire amount of Obligations to be
immediately due and payable, whereupon all of such Obligations declared due and payable shall
be and become immediately due and payable.

          (b) Secured Party may exercise the powers of attorney set forth in Section 2.5 of this
Agreement to manage (or designate another Person to manage) the operations, business and affairs
of the Subs.

          (c) Secured Party may exercise any and all rights and remedies of either Pledgor under or in
connection with the Partnership Interests, Membership Interests, or otherwise in respect of the
Pledged Collateral, including, without limitation, the right to vote with respect to the
Partnership Interests and the Membership Interests and all rights of Pledgor to demand or
otherwise require payment of any amount with respect to the Partnership Interests or Membership
Interests.

          (d) Secured Party may transfer to or register in the name of Secured Party or any of its
nominees any or all of the Pledged Collateral.

          (e) Secured Party may (A) notify the Subs to make payment and performance due to either
Pledgor under the Partnership Agreement or the LLC Agreement or otherwise to Secured Party, (B)
file any claims, commence, maintain, settle or discontinue any actions, suits or other
proceeding’s deemed by Secured Party in its sole discretion necessary or advisable for the purpose
of collecting upon the Pledged Collateral, and (C) execute any instrument and do all other things
deemed necessary and proper by Secured Party in its sole discretion to protect and preserve, and
to permit Secured Party to realize upon, the Pledged Collateral and the other rights contemplated
thereby.

     5.2 Sale of Pledged Collateral. Without limiting the generality of Section 5.1,
Secured Party may, with notice as required by applicable Law, take any or all of the following
actions:

          (a) Secured Party may sell, license or otherwise dispose of the Pledged Collateral or any part
thereof in a commercially reasonable manner, which may include in one or

27

 

more parcels at public or private sale or at any of Secured Party’s corporate office or elsewhere,
for cash, on credit or for future delivery, and at such price or prices and upon such other terms
as Secured Party may deem commercially reasonable, irrespective of the impact of any such sales on
the market price of the Pledged Collateral at any such sale. Each purchaser at any such sale shall
hold the property sold absolutely free from any claim or right on the part of such Pledgor, and
such Pledgor hereby waives (to the extent permitted by Law) all rights of redemption, stay and/or
appraisal which it now has or may at any time in the future have under any rule of law or statute
now existing or hereafter enacted. Such Pledgor agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days’ notice to such Pledgor of the time and place of any
public sale or the time after which any private sale is to be made shall constitute reasonable
notification. Secured Party shall not be obligated to make any sale of Pledged Collateral
regardless of notice of sale having been given. Secured Party may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so adjourned. Secured Party
shall incur no liability as a result of the sale of the Pledged Collateral, or any part thereof,
at any public or private sale. Such Pledgor hereby waives any claims against Secured Party arising
by reason of the fact that the price at which any Pledged Collateral may have been sold at such a
private sale was less than the price which might have been obtained at a public sale, even if
Secured Party accepts the first offer received that Secured Party deems to be commercially
reasonable under the circumstances and does not offer the Pledged Collateral to more than one
offeree.

          (b) Secured Party may, in accordance with applicable Laws, accept the Pledged
Collateral in full or partial satisfaction of the Obligations.

          (c) All payments made under or in connection with the Partnership Interests and the
Membership Interests, or otherwise in respect of the Pledged Collateral and received by
Secured Party as Pledged Collateral in accordance with the provisions hereof may, in the
discretion of Secured Party, be held by Secured Party as Pledged Collateral for, and then
or as soon thereafter as is reasonably practicable, applied in whole or in part by Secured
Party against all or any part of the Obligations in accordance with the terms of the Loan
Documents. Any surplus of such payments held by Secured Party and remaining after payment
in full of all the Obligations shall be paid over to the Pledgor that would have had the
right to receive such payment if not for this Agreement or to whomsoever else may be
lawfully entitled to receive such surplus.

          (d) Such Pledgor understands that compliance with the Securities Act may strictly limit
the course of conduct of Secured Party, if Secured Party were to attempt to dispose of all or any
part of the Pledged Collateral, and may also limit the extent to which or the manner in which any
subsequent transferee of any Pledged Collateral could dispose of the same. Similarly, there may be
other legal restrictions or limitations affecting Secured Party in any attempt to dispose of all or
part of the Pledged Collateral under applicable “Blue Sky” or other state securities laws or
similar laws analogous in purpose or effect. Such Pledgor recognizes that, in light of the
foregoing restrictions and limitations, Secured Party may, with respect to any sale of the Pledged
Collateral, to the extent commercially reasonable, limit the purchasers to those who agree, among
other things, to acquire the Pledged Collateral for their own account, for investment, and not with
a view to the distribution or resale thereof Such Pledgor acknowledges

28

 

and agrees that, in light of the foregoing restrictions and limitations, Secured Party, in a
commercially reasonable manner, (a) may proceed to make such a sale whether or not a registration
statement for the purpose of registering the Pledged Collateral or part thereof shall have been
filed under the Securities Act and (b) may approach and negotiate with any one or more possible
purchasers to effect such sale. Such Pledgor acknowledges and agrees that any such sale may result
in prices and other terms less favorable to the seller than if such sale were a public sale
without such restrictions. In the event of any such sale, Secured Party shall incur no
responsibility or liability for selling all or any part of the Pledged Collateral, in a
commercially reasonable manner, at a price that Secured Party, in a commercially reasonable
manner, in good faith deems reasonable under the circumstances, notwithstanding the possibility
that a substantially higher price might have been realized if the sale were deferred until after
registration as aforesaid or if more purchasers were approached. The provisions of this paragraph
will apply notwithstanding the existence of a public or private market upon which the quotations
or sales prices may exceed substantially the price at which Secured Party sells. Such Pledgor
agrees that sales made in accordance with this paragraph in all respects will be made in a
commercially reasonable manner.

          (e) If for any reason Secured Party desires to sell any of the Pledged Collateral at a
public sale, Secured Party may, at any time and from time to time take or cause the issuer of
such Pledged Collateral to take such action and prepare, distribute or file such documents as
are required or advisable in the reasonable opinion of counsel for Secured Party to permit the
public sale of such Pledged Collateral.

          (f) If Secured Party determines to exercise its right to sell any or all of the Pledged
Collateral, upon written request, such Pledgor shall, and shall cause each Sub, as applicable, to
furnish to Secured Party all such information Secured Party may reasonably request in order to
determine the number of shares and other instruments included in the Pledged Collateral which may
be sold by Secured Party as exempt transactions under the Securities Act and the rules of the
Securities and Exchange Commission thereunder.

     5.3 Purchase of Pledged Collateral. Secured Party may be a purchaser of the Pledged
Collateral or any part thereof or any right or interest therein at any sale thereof, whether at a
public disposition, or a private disposition, whether pursuant to foreclosure, power of sale or
otherwise hereunder and Secured Party may apply the purchase price to the payment of the
Obligations. Any purchaser of all or any part of the Pledged Collateral shall, upon any such
purchase, acquire good title to the Pledged Collateral so purchased, free of the security
interests created by this Agreement.

     5.4 Burden of Proof. To the full extent permitted by applicable Law, such Pledgor
shall have the burden of proving that any such disposition of the Pledged Collateral pursuant to
this Article 5 was conducted in a commercially unreasonable manner. To the extent permitted by
applicable Law, such Pledgor hereby specifically waives all rights of redemption, stay or appraisal
which it has or may have under any applicable Law now existing or hereafter enacted. Such Pledgor
authorizes Secured Party, at any time and from time to time, to execute, in connection with a
disposition of the Pledged Collateral pursuant to the provisions of this Agreement, any
endorsements, assignments or other instruments of conveyance or transfer with respect to the
Pledged Collateral.

29

 

     5.5 Application of Proceeds; Deficiency. Except as otherwise specified therein, the
proceeds of any Pledged Collateral sold pursuant to this Agreement, shall be applied, first, to
the payment of any expenses incurred by Secured Party in connection with the administration of
this Agreement, the custody, preservation or sale of, collection from or other realization from,
any of the Pledged Collateral, the exercise or enforcement of any of its rights hereunder or the
failure by the Company or either Pledgor to perform or observe any of the provisions hereof
including, without limitation, all reasonable attorneys’ fees and legal expenses incurred by
Secured Party, and then, to the payment of all or any part of the Obligations in accordance with
the provisions of the Loan Documents. Any surplus remaining after payment in full of all of the
Obligations shall be paid over to the Pledgor that owned the Pledged Collateral or to whomever may
be entitled to receive such surplus.

     5.6 Cumulative Rights. Each right, power and remedy of Secured Party provided for in
this Agreement or now or hereafter existing at law or in equity or by statute shall be cumulative
and concurrent and shall be in addition to every other such right, power or remedy. The exercise
or beginning of the exercise by Secured Party of any one or more of the rights, powers or
remedies provided for in this Agreement or now or hereafter existing at law or in equity or by
statute or otherwise shall not preclude the simultaneous or later exercise by Secured Party of
all such other rights, powers or remedies, and no failure or delay on the part of Secured Party
to exercise any such right, power or remedy shall operate as a waiver thereof.

ARTICLE VI

MISCELLANEOUS

     6.1 Expenses.

          (a) Each Pledgor shall pay or reimburse or cause to be paid or reimbursed to Secured Party
for, any and all reasonable fees, costs and expenses of whatever kind or nature (including, without
limitation, the reasonable fees and expenses of its counsel and of any experts, any special
consultants engaged by Secured Party, and any local counsel who might be retained by Secured Party,
in connection with the transactions contemplated hereby) incurred in connection with (i) the
creation, preservation or protection of the Liens on, and security interest in, its Pledged
Collateral, including, without limitation, all reasonable fees and taxes in connection with the
recording or filing of instruments and documents in public offices, payment or discharge of any
taxes or Liens upon or in respect of the Pledged Collateral, and all other reasonable fees, costs
and expenses in connection with protecting, maintaining or preserving the Pledged Collateral, the
Secured Party’s interest therein, whether through judicial proceedings or otherwise, or in
defending or prosecuting any actions, suits or proceedings arising out of or relating to the
Pledged Collateral, (ii) the sale of, collection from, custody or preservation of or other
realization upon, any of its Pledged Collateral pursuant to the exercise or enforcement of any of
the rights of Secured Party hereunder or (iii) the failure by either Pledgor to perform or observe
any of the provisions hereof. Any amounts payable by a Pledgor pursuant to this Section shall be
payable on demand.

30

 

          (b) If and to the extent that any obligations of either Pledgor under this Section are
unenforceable for any reason, each Pledgor shall make the maximum contribution to the payment and
satisfaction of such obligations which is permissible under applicable Law.

     6.2 Indemnity. Each Pledgor agrees to indemnify Secured Party and its Affiliates
(collectively, the “Indemnified Parties”) from and against any and all claims, liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and
disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted
against them or any one or more of them by any Person in any way relating to or arising out of (a)
the Lien on the Pledged Collateral in favor of Secured Party created hereunder, (b) this Agreement
or any default thereunder or breach thereof by either Pledgor, (c) any action taken or omitted by
any Indemnified Party pursuant to this Agreement or any exercise or enforcement of rights or
remedies hereunder, or (d) any sale or other disposition of or any realization on the Pledged
Collateral, but neither Pledgor will be liable to any Person for any portion of such claims,
liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from such Person’s gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction. Payment by an Indemnified Party will not be a
condition precedent to the obligations of either Pledgor under this indemnity. Except as otherwise
expressly provided in writing, this Section will survive the execution and delivery of this
Agreement, the satisfaction of the Obligations and any transfer or assignment of the Note.

     6.3 Notices. Without modifying any of the provisions of this Agreement concerning the
requirements for, or waiver of, any notice, all notices or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall be considered
properly given if mailed by first class United States mail, postage prepaid, registered or
certified with return receipt requested, facsimile, or by delivering same in person to the intended
addressee. Notice so mailed shall be effective (a) upon personal delivery thereof, including,
without limitation, by overnight mail or courier service, (b) in the case of notice by United
States mail, two (2) days after such notice was deposited in a receptacle maintained by the United
States Post Office for the acceptance of mail, or (c) in the case of notice by such a
telecommunications device, upon transmission thereof; provided such transmission is
promptly confirmed by any method set forth in clause (a) or (b) above. Notice given in any other
manner shall be effective only if and when received by the addressee. For purposes of notice, the
addresses of the Parties shall be as set forth below; provided, however, that any Party shall have
the right to change its address for notice hereunder to any other location within the continental
United States by the giving of ten (10) days’ notice to the other Party in the manner set forth
hereinabove.

If to Borrower:

Sea Breeze Pacific Juan de Fuca Cable, LP

203 Red Stone Hill

Plainville, CT 06062

Telephone: (860) 747-0497

Facsimile: (860) 747-0297

31

 

If to OCGP:

203 Red Stone Hill

Plainville, CT 06062

Telephone: (860) 747-0497

Facsimile: (860) 747-0297

If to Secured Party:

United States Power Fund, L.P.

c/o Energy Investors Funds One

Penn Plaza, Suite 4507 New York,

NY 10119

Telephone: (212) 564-1276

Fax: (212) 564-4802

Attention: Andrew Schroeder

with a copy to:

Energy Investors Funds

Three Charles River Place

63 Kendrick Street

Needham, MA 02494

Tel: (781) 292-7000

Fax: (781) 292-7099

Attention: General Counsel

     6.4 Continuing Assignment; Pledge and Security Interest; Release.

          (a) This Agreement shall create a continuing assignment, conveyance, mortgage, pledge,
hypothecation, transfer and grant of and security interest in the Pledged Collateral and shall (i)
remain in full force and effect until the indefeasible payment in full of the Obligations and the
expiration or termination of the Loan Agreement, (ii) be binding upon each Pledgor, and its
successors and assigns, provided, that neither Pledgor may transfer or assign any or all of its
rights or obligations hereunder without the prior written consent of Secured Party, and (iii) inure
to the benefit of, and be enforceable by Secured Party and its successors, transferees and assigns.
Without limiting the generality of the foregoing clause (iii), Secured Party may assign or
otherwise transfer all or any portion of its rights in the Obligations to the extent and in the
manner provided in the Loan Documents, and such assignee shall thereupon become vested with all the
benefits in respect thereof granted to Secured Party herein or otherwise.

          (b) At such time as this Agreement, in accordance with subsection (a) of this Section 6.4,
ceases to be of full force and effect, the security interest granted hereby shall terminate and,
except as otherwise provided herein, all rights to the Pledged Collateral shall revert to the
Pledgor that owns such Pledged Collateral. Upon any such termination, Secured Party shall, at a
Pledgor’s expense and written request, execute and deliver to such Pledgor such

32

 

documents and instruments (including UCC termination statements) and take such further
actions as such Pledgor reasonably requests to evidence such termination and reversion.

     6.5 Election of Remedies. Each Pledgor understands that the exercise by Secured Party
of the rights and remedies contained in the Loan Documents may affect or eliminate such Pledgor’s
right of subrogation and reimbursement against any Sub and that such Pledgor may therefore incur a
partially or totally nonreimbursable liability hereunder. It is the intent and purpose of each
Pledgor that its obligations under this Agreement will be absolute, independent, and unconditional
under all circumstances. Accordingly, each Pledgor (a) expressly authorizes Secured Party to pursue
their rights and remedies with respect to the Obligations in any order or fashion they deem
appropriate, in its sole and absolute discretion, and (b) waives any defense arising out of the
absence, impairment, or loss of any or all rights of recourse, reimbursement, contribution, or
subrogation or any other rights or remedies of such Pledgor against any Sub, any other Person, or
any security, whether resulting from an election by Secured Party to foreclose on any real property
security by trustee’s sale rather than judicial foreclosure, or from any other election of rights
or remedies by Secured Party, or otherwise.

     6.6 Reinstatement. This Agreement shall continue to be effective or be reinstated,
as the case may be, if at any time any amount received by Secured Party in respect of the
Obligations is rescinded or must otherwise be restored or returned by Secured Party upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of either Pledgor or upon the
appointment of any intervenor or conservator of, or trustee or similar official for, either
Pledgor or any substantial part of either Pledgor’s assets, or otherwise, all as though such
payment has not been made.

     6.7 Consents Under the Partnership Agreement and the LLC Agreement. Pursuant to the
terms of the Partnership Agreement and LLC Agreement, each Pledgor consents to:

          (a) the transfer of the Partnership Interests and/or Membership Interests, as applicable,
at any time to Secured Party or to any of its nominees or permitted successors and assigns
following the occurrence of an Event of Default, in each case subject to and in accordance with
the terms of this Agreement; and

          (b) the admission of Secured Party or such nominees as a partner of USA Sub or a member of
OCGP at any time during which any Event of Default has occurred and is continuing.

     6.8 GOVERNING LAW; WAIVER OF JURY TRIAL; LIMITATION OF REMEDIES.

          (a) THIS AGREEMENT SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO
DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
CONFLICTS OF LAW PROVISIONS EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

          (b) THE PARTIES HERETO HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR

33

 

ARISING OUT OF THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY DEALINGS AMONG THEM RELATING
TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION AND THE LENDER/BORROWER RELATIONSHIP THAT IS
BEING ESTABLISHED. THE PARTIES HERETO ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND
THAT MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY PARTY HERETO. THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE
PARTIES HERETO EACH ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.
THE PARTIES HERETO FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE LOAN DOCUMENTS, OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY
BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

          (c) NO PARTY HERETO SHALL, REGARDLESS OF CAUSE, ASSERT ANY CLAIM WHATSOEVER AGAINST ANY
OTHER PARTY HERETO FOR LOSS OF ANTICIPATORY PROFITS OR CONSEQUENTIAL, PUNITIVE, SPECIAL OR
INDIRECT DAMAGES.

          (d) Any legal action or proceeding against any of the Parties with respect to this
Agreement or any other Loan Document or the transactions in connection with or relating hereto
or thereto, may be brought in the courts of the State of New York in the County of New York or
of the United States for the Southern District of New York and, by execution and delivery of
this Agreement, each of the Parties hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the non exclusive jurisdiction of the aforesaid
courts. Each of the Parties agrees that a judgment, after exhaustion of all available appeals,
in any such action or proceeding shall be conclusive and binding upon each of the Parties, and
may be enforced in any other jurisdiction, by a suit upon such judgment, a certified copy of
which shall be conclusive evidence of the judgment.

          (e) Each Pledgor hereby irrevocably designates, appoints and empowers National Corporate
Research, Ltd. (the “Process Agent”) with offices on the date hereof at 225 W.
34th Street, Suite 910, New York, NY 10122, as its designee, appointee and agent to
receive, accept and acknowledge for and on behalf of such Pledgor, and in respect of its
property, service of any and all legal process, summons, notices and documents which may be
served in any such action or proceeding. Each Pledgor further agrees that such service of
process may be made on

34

 

the Process Agent by personal service of a copy of the summons and complaint or other legal process
in any such legal suit, action or proceeding on the Process Agent, or by any other method of
service provided for under the Laws in effect in the County of New York, State of New York, and the
Process Agent hereby is authorized and directed to accept such service for and on behalf of such
Pledgor, and to admit service with respect thereto.

          (f) Upon service of process being made on the Process Agent as provided in Section 6.8(e), a
copy of the summons and complaint or other legal process served shall be given by the Process
Agent to the applicable Pledgor in the manner provided in Section 6.3, or to such other address as
such Pledgor may notify the Process Agent in writing. Personal service upon the Process Agent as
provided in Section 6.8(e) shall be deemed to be personal service on the applicable Pledgor and
shall be legal and binding upon such Pledgor for all purposes, notwithstanding any failure of the
Process Agent to give copies of such legal process thereto, or any failure on the part of such
Pledgor to receive the same.

          (g) Each Pledgor will at all times continuously maintain an agent to receive service of
process in the County of New York, State of New York on its behalf with respect to each Loan
Document. In the event that for any reason the Process Agent or any successor thereto shall no
longer serve as agent for either Pledgor to receive service of process in the County of New York
on its behalf or shall have changed its address without notification thereof to the Process
Agent, such Pledgor, immediately after having knowledge thereof, will irrevocably designate and
appoint a substitute agent in the County of New York, State of New York and advise Lenders.

          (h) Nothing contained in this Section 6.8 shall preclude Secured Party from bringing any
legal suit, action or proceeding against either Pledgor in the courts of any jurisdiction where
such Pledgor or any of its property or assets may be found or located. To the extent permitted by
the Laws of any such jurisdiction, each Pledgor hereby irrevocably submits to the jurisdiction of
any such court and expressly waives, in respect of any such suit, action or proceeding, the
jurisdiction of any court or courts which now or hereafter, by reason of its present or future
domiciles, or otherwise, may be available to it.

          (i) Each Pledgor hereby irrevocably waives any objection which it may now or hereafter have to
the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection
with or any Loan Document or the transactions in connection with, or relating hereto or thereto
brought in the courts referred to in clause (d) above and hereby further irrevocably waives and
agrees not to plead or claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient forum.

     6.9 Consent to Jurisdiction. The Parties hereby irrevocably: (i) consent to
non-exclusive personal jurisdiction in any Federal court sitting in the Southern District of New
York, for the purposes of any suit, action or other proceeding arising out of this Agreement or any
of the agreements or transactions referred to herein or contemplated hereby, which is brought by or
against either of the Parties, (ii) waive any objection with respect thereto, and (iii) agree that
all claims in respect of any such suit, action or proceeding shall be heard and determined in any
such court, and that such court shall have non exclusive jurisdiction over any claims arising out
of or relating to this Agreement and all transactions related thereto.

35

 

     6.10 Termination; Release. Upon the termination of the Loan Agreement and the Loan
Documents in accordance with their terms, this Agreement shall terminate and Secured Party, at a
Pledgor’s request and expense, shall promptly execute and deliver to such Pledgor the proper
instruments (including Uniform Commercial Code termination statements on form UCC-3)
acknowledging the termination of this Agreement, and will duly assign, transfer and deliver to
such Pledgor (without recourse and without any representation or warranty of any kind) such of
its Pledged Collateral as may be in the possession of Secured Party and has not theretofore been
disposed of or otherwise applied or released.

     6.11 Entire Agreement: Amendments; Waivers. This Agreement, together with the Loan
Documents and any and all attachments and/or exhibits attached thereto, constitutes the entire
agreement between the Parties pertaining to the subject matter hereof and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions, whether oral or
written, of the Parties. No supplement, modification or waiver of this Agreement shall be binding
unless it shall be specifically designated to be a supplement, modification or waiver of this
Agreement and shall be executed in writing by each Pledgor and Secured Party, and any such waiver
or consent shall be effective only in the specific instance and for the specific purpose for
which given.

     6.12 Assignment. This Agreement shall be binding upon and inure to the benefit of
the Parties hereto and their respective successors and permitted assigns. No other person shall
have any right, benefit or obligation hereunder.

     6.13 Indulgences or Delay. Neither the failure nor any delay on the part of either
Party to exercise any right, remedy, power or privilege under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege
preclude any other or further exercise of the same or of any right, remedy, power or privilege,
nor shall any waiver of any such right, remedy, power or privilege with respect to any occurrence
be construed as a waiver of such right, remedy, power or privilege with respect to any other
occurrence.

     6.14 Severability. If any provision of this Agreement is rendered or declared
illegal, invalid or unenforceable by reason of any existing or subsequently enacted legislation
or by the final judgment of any court of competent jurisdiction, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full force and effect
and in no way shall be affected, impaired or invalidated.

     6.15 Headings. The headings of the several articles and Sections herein are
inserted for convenience of reference only and are not intended to be a part of or to affect the
meaning or interpretation of this Agreement.

     6.16 Multiple Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

36

 

     6.17 Drafting Interpretation. The Parties and their respective counsel have prepared
this Agreement jointly, and the resulting document shall not be construed or interpreted
otherwise.

     6.18 Limitation of Liability. Anything herein to the contrary notwithstanding, the
obligations of each Pledgor under this Agreement are obligations of such Pledgor payable only to
the extent of its Pledged Collateral and do not constitute an obligation of (and no recourse shall
be had with respect thereto to) any limited partner or general partner of the Borrower or any
other Person; and no judgment for any personal liability or deficiency upon or with respect to, or
otherwise in connection with, the obligations under this Agreement shall be obtainable by the
Secured Party (or any Person claiming by, through or under such party) against a Pledgor or any
member or partner of either Pledgor, or any other Person, absent such Person’s fraud or
intentional misrepresentation; provided, however, that nothing in this Section 6.18 shall limit or
otherwise prejudice in any way the right of Secured Party to proceed against any Person with
respect to the enforcement of such Person’s obligations under this Agreement or any Loan Document
to which it is a party.

[The Next Page is the Signature Page]

37

 

     IN WITNESS WHEREOF, this Pledge and Security Agreement has been duly executed by the Parties
as of the date set forth at the outset hereof.

	 	 	 	 	 	 	 
	 	 	PLEDGORS:
	 
	 	 	 	 	 	 
	 	 	SEA BREEZE PACIFIC JUAN DE FUCA CABLE, LP  
	 	 	By: Juan de Fuca Cable Management, Inc.,	 	 
	 	 	its General Partner	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	OLYMPIC CONVERTER GP, LLC	 	 
	 	 	By: Sea Breeze Pacific Juan de Fuca Cable, LP,	 	 
	 	 	its Sole Member	 	 
	 	 	 	 	By: Juan de Fuca Cable Management, Inc., its
	 

	 	 	 	General Partner	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	SECURED PARTY:	 	 
	 
	 	 	 	 	 	 
	 	 	UNITED STATES POWER FUND, L.P.
	 	 
	 	 	By: EIF US Power, LLC, its	 	 
	 	 	General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	By: Energy Investors Funds Group LLC, its	 	 
	 

	 	 	 	Sole Member	 	 

	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Andrew Schroeder	 	 
	 	 	Title: Partner	 	 

38

 

Schedule      I

LOCATIONS FOR FILING FINANCING STATEMENTS

	 	 	 	 
	Debtor:

	 	Jurisdiction	 
	 

	 	 	 
	Sea Breeze Pacific Juan de Fuca Cable, LP

	 	Delaware — Secretary of State	 
	 
	 	 	 
	Olympic Converter GP, LLC

	 	Delaware — Secretary of State	 

39

 

Schedule      2

CHIEF EXECUTIVE OFFICE OF PLEDGOR

Sea Breeze Pacific Juan de
Fuca Cable, LP 203

 Red Stone Hill

Plainville, CT 06062

Telephone: (860) 747-0497

Facsimile: (860) 747-0297

Olympic Converter GP, LLC 203

Red Stone Hill

Plainville, CT 06062

Telephone: (860) 747-0497

Facsimile: (860) 747-0297

40

 

EXHIBIT      A

FORM OF IRREVOCABLE PROXY

          Reference is made to that certain Pledge and Security Agreement regarding Olympic Converter
GP, LLC and Olympic Converter, LP (the “Pledge Agreement”), dated as of April 6, 2005, by
and between Sea Breeze Pacific Juan de Fuca Cable, LP, a Delaware limited partnership, as a
Pledgor, Olympic Converter GP, LLC, a Delaware limited liability company (“OCGP”), as a Pledgor,
and United States Power Fund, L.P., a Delaware limited partnership (the “Secured Party”)
and that certain Development Loan Agreement (the “Loan Agreement”), dated as of April 6,
2005, by and among Pledgors, Lender, Juan de Fuca Cable Management, Inc., a Delaware corporation,
Sea Breeze Power Corp., a British Columbia corporation, Boundless Energy, LLC, a Maine limited
liability company and Olympic Converter, LP, a Delaware limited partnership (“USA Sub”).
Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the
Loan Agreement.

          The undersigned hereby appoints the Secured Party as proxy with full power of substitution,
and hereby authorizes Secured Party to represent and vote (i) all of the limited liability
company interests of OCGP or (ii) all of the limited liability company interests of USA Sub,
owned by the undersigned on the date of exercise hereof in accordance with the Pledge Agreement,
for so long as an Event of Default has occurred and is continuing at any meeting or at any other
time chosen by Secured Party in its sole reasonable discretion.

	 	 	 	 	 	 	 	 	 	 	 
	Date:	 	 	 	 	 	[SEA BREEZE PACIFIC JUAN DE FUCA	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	CABLE, LP][OLYMPIC CONVERTER GP, LLC]	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 	 	Title:	 	 

41

 

EXHIBIT B

FORM OF LIMITED LIABILITY COMPANY OR LIMITED PARTNERSHIP INTEREST

POWER

INSTRUMENT OF TRANSFER

OF [MEMBERSHIP] [PARTNERSHIP] INTERESTS IN

[OLYMPIC CONVERTER GP, LLC] [OLYMPIC CONVERTER, LP]

          FOR VALUE RECEIVED, [Sea Breeze Pacific Juan de Fuca Cable, LP, a Delaware limited
partnership][Olympic Converter GP, LLC], hereby sells, assigns and transfers unto United States
Power Fund, L.P., a Delaware limited partnership, all of the
___ percent [limited liability
company membership interests in Olympic Converter GP,LLC] [limited partnership interests in Olympic
Converter, LP] (the “Company”) represented
by Certificate No. ___ and standing in its
name on the books of the Company, pursuant to and in accordance with that certain Pledge and
Security Agreement regarding Olympic Converter GP, LLC and Olympic Converter, LP, dated as of April
6, 2005, and does hereby irrevocably constitute and appoint its attorney to transfer the said
interests on the books of the Company with full power of substitution in the premises.

          Dated:_________________,_______

	 	 	 	 	 	 	 
	 	 	[SEA BREEZE
PACIFIC JUAN DE FUCA CABLE, LP] [OLYMPIC CONVERTER GP, LLC]	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	     Name:	 	 
	 	 	          Title:	 	 

 

 

EXHIBIT G

FORM OF DRAW CERTIFICATE

Exhibit G-1

Form of

INITIAL ADVANCE DRAW CERTIFICATE

(No. ____)

	 	 	 
	To:

	 	United States Power Fund, L.P.
	 
	 	 
	From:

	 	Sea Breeze Pacific Juan de Fuca Cable, LP
	 
	 	 
	Dated:

	 	_______________, 2005

     1. Capitalized terms used but not otherwise defined herein shall have the meanings given to
such terms in that certain Development Loan Agreement by and among Sea Breeze Pacific Juan de Fuca
Cable, LP (“Borrower”), United States Power Fund, L.P. (“Lender”), Olympic
Converter GP, LLC, Olympic Converter, LP, Juan de Fuca Cable Management, Inc., Boundless Energy LLC
and Sea Breeze Power Corp. and dated as of April 6, 2005 (as the same may be amended from time to
time in accordance with the terms set forth therein, the “Agreement”).

     2. In accordance with Section 2.4(b) of the Agreement, Borrower hereby requests a portion of
the Initial Advance from Lender in the amount of $_________.

     3. Attached hereto as Schedule A is a detailed description and budget of Borrower’s
intended use of the proceeds of the portion of the Initial Advance requested hereby (the
“Current Advance”). Borrower hereby agrees that it will only the proceeds of the Current
Advance solely to pay for the costs set forth on Schedule A hereto and that all of the
costs set forth on Schedule A hereto comply with the use of proceeds description for such
Current Advance set forth on Schedule 2.4(b) to the Agreement.

[      4. Attached hereto as Schedule B is a detailed description of Borrower’s use of the
proceeds of the portion of the Initial Advance in the amount of $____________ advanced by Lender on
[_________________, 2005][Insert prior month’s Initial Advance date] (the “Prior Advance”).
Borrower hereby represents and warrants to Lender that (i) all proceeds of the Prior Advance were
applied solely to pay the costs set forth on Schedule B hereto, (ii) all of the costs set
forth on Schedule B hereto comply with the use of proceeds description set forth on
Schedule 2.4(b) to the Agreement and (iii) except as set forth on Schedule B, all costs set forth
on Schedule A of the Initial Advance Draw Certificate relating to the Prior Advance have been paid
in full.][Delete this paragraph for the Certificate delivered on the Effective Date.]

 

 

[      5. Attached hereto as Schedule C is a list of the Development Milestones that Borrower
has achieved as of the date hereof. Borrower hereby represents and warrants to Lender that each of
the Development Milestones set forth on Schedule C have been achieved in full and that no
other Development Milestones have been achieved as of the date hereof. Also attached to
Schedule C is evidence demonstrating Borrower’s achievement of the Development Milestones
set forth on Schedule C. Upon request by Lender, Borrower shall deliver to Lender any
other evidence requested by Lender to evidence its achievement of the Development Milestones set
forth on Schedule C.][Delete this paragraph for the Certificate delivered on the Effective
Date.]

     6. Borrower hereby certifies, represents and warrants to Lender as follows:

          (a) no Default or Event of Default has occurred under the Agreement;

          (b) no change or event which could have a Material Adverse Effect has occurred;

          (c) all conditions to the disbursement of the Current Advance set forth in the Agreement that
are required to be satisfied by the Borrower have been satisfied; and

          (d) all of the representations and warranties of the Borrower set forth in the Agreement and
the other Loan Documents are true and correct on and as of the date hereof with the same effect as
if made on the date hereof, other than any representations and warranties made as of a specific
date.

     IN WITNESS WHEREOF, Borrower has caused this Initial Advance Draw Certificate to be duly
executed by its duly authorized officer as of the date first set forth above.

	 	 	 	 	 	 	 
	 	 	SEA BREEZE PACIFIC JUAN DE FUCA CABLE, LP  
	 
	 	 	 	 	 	 
	 	 	By:      Juan de Fuca Cable Management, Inc.,
	 	 	its General Partner
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

 

 

Schedule A

Intended Use of Current Advance

 

 

Schedule B

Actual Use of Prior Advance

and Deviations from Intended Use of Prior Advance

 

 

Schedule C

Development Milestones Achieved

and Evidence of Achievement

 

 

Schedule 1.1 to Development Loan Agreement

CONSTRUCTION BUDGET

 

 

Schedule 1.1 to Development Loan Agreement

Juan de Fuca Project

CONSTRUCTION BUDGET - RECONCILIATION

	 	 	 	 	 
	Capital Cost as per Construction Budget
	 	$	128,270,000	 
	 
	 	 	 	 
	Project’s Capital Cost
	 	$	199,400,000	 
	 
	 	 	 	 
	 
	 	 	 
	Difference
	 	$	(71,130,000	)
	 
	 	 	 
	 
	 	 	 	 
	Items not included in Capital Cost Budget
	 	 	 	 
	Reserve for Capitalized interest and Op. Expenses
	 	$	20,000,000	 
	Development Costs
	 	$	12,850,000	 
	Developer’s Fee
	 	$	10,000,000	 
	Open Season Marketing
	 	$	5,200,000	 
	Contingency
	 	$	18,000,000	 
	Furniture
	 	$	40,000	 
	Computers
	 	$	40,000	 
	Project Financing Costs
	 	$	5,000,000	 
	 
	 	 	 
	Total Items
	 	$	71,130,000	 
	 
	 	 	 
	 
	 	 	 	 
	Capital Cost with Additional Items
	 	$	199,400,000	 
	 
	 	 	 	 
	Project’s Capital Cost
	 	$	199,400,000	 
	 
	 	 	 	 
	 
	 	 	 
	Difference Reconciled
	 	 	0	 
	 
	 	 	 

 

 

Schedule 1.2 to Development Loan Agreement

DEVELOPMENT LOAN BUDGET

 

 

Schedule 1.2
  Estimated Development Costs for Juan De Fuca # 1
  (All Figures in US Dollars)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Pre-Open	 	 	 	 	 	 	 	 	 	 	 	 	Post Open	 	 	 	03105-09/05	 	 
	 	 	 	 	 	 	6 - Month	 	 	6 - Month	 	 	 	Season	 	 	 	13 - Month	 	 	 	 	 	 	Season	 	 	 	Juan De Fuca	 	 
	 	 	 	 	 	 	External	 	 	Internal	 	 	 	Development	 	 	 	External	 	 	13 - Month	 	 	 	Development	 	 	 	Development	 	 
	 	 	 	 	Task Description	 	costs	 	 	coats	 	 	 	Totals	 	 	 	Costs	 	 	Internal	 	 	 	Totals	 	 	 	Budget Totals	 	 
	Siting	 	Site Work and Document Review
	 	 	0	 	 	 	69,200	 	 	 	 	69,200	 	 	 	 	0	 	 	 	0	 	 	 	 	0	 	 	 	 	69,200	 	 
	 	 	 	 	Site Options & ROW options

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	
Canadian - Victoria
	 	 	20,000	 	 	 	2,496	 	 	 	 	22,496	 	 	 	 	100,000	 	 	 	32,448	 	 	 	 	132,448	 	 	 	 	154,944	 	 
	 	 	 	 	USA - Pod Angeles
	 	 	10,000	 	 	 	2,496	 	 	 	 	12,496	 	 	 	 	40,000	 	 	 	32,448	 	 	 	 	72,448	 	 	 	 	84,944	 	 
	 	 	 	 	Architectural Evaluation & Site Analysis
	 	 	5,000	 	 	 	2,139	 	 	 	 	7,139	 	 	 	 	25,000	 	 	 	27,813	 	 	 	 	52,813	 	 	 	 	59,952	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Technical	 	Subtotal
	 	 	35,000	 	 	 	76,331	 	 	 	 	111,331	 	 	 	 	165,000	 	 	 	92,709	 	 	 	 	257,709	 	 	 	 	369,040	 	 
	 	 	 	 	Feasibility Studies
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Note 1	 	USA side - BPA
	 	 	0	 	 	 	0	 	 	 	 	0	 	 	 	 	0	 	 	 	0	 	 	 	 	0	 	 	 	 	0	 	 
	 	 	 	 	Canadian side - BCTC
	 	 	20,000	 	 	 	17,500	 	 	 	 	37,500	 	 	 	 	0	 	 	 	0	 	 	 	 	0	 	 	 	 	37,500	 	 
	 	 	 	 	Interconnect Studies

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	
USA side - BPA
	 	 	50,000	 	 	 	35,000	 	 	 	 	85,000	 	 	 	 	0	 	 	 	0	 	 	 	 	0	 	 	 	 	85,000	 	 
	 	 	 	 	Canadian side - BCTC
	 	 	50,000	 	 	 	35,000	 	 	 	 	85,000	 	 	 	 	0	 	 	 	0	 	 	 	 	0	 	 	 	 	85,000	 	 
	 	 	 	 	Facilities Studies

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	
USA side - BPA
	 	 	100,000	 	 	 	12,750	 	 	 	 	112,750	 	 	 	 	0	 	 	 	16,000	 	 	 	 	16,000	 	 	 	 	128,750	 	 
	 	 	 	 	Canadian side - BCTC
	 	 	100,000	 	 	 	12,750	 	 	 	 	112,750	 	 	 	 	0	 	 	 	16,000	 	 	 	 	16,000	 	 	 	 	128,750	 	 
	 	 	 	 	WECC Area System Reliability Interconnect Study
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Note 2	 	Study Work 1 Evaluation, Oversight and Review
	 	 	0	 	 	 	98,000	 	 	 	 	98,000	 	 	 	 	0	 	 	 	40,000	 	 	 	 	40,000	 	 	 	 	138,000	 	 
	 	 	 	 	Participation in Regional Utility Organizations
	 	 	70,000	 	 	 	217,133	 	 	 	 	287,133	 	 	 	 	156,000	 	 	 	287,040	 	 	 	 	443,040	 	 	 	 	730,173	 	 
	 	 	 	 	System
Benefits
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	
Analysis Direction & Review
	 	 	15,714	 	 	 	15,714	 	 	 	 	31,429	 	 	 	 	204,286	 	 	 	204,286	 	 	 	 	408,572	 	 	 	 	440,000	 	 
	 	 	 	 	Negtlations
	 	 	0	 	 	 	9,643	 	 	 	 	9,643	 	 	 	 	0	 	 	 	125,357	 	 	 	 	125,357	 	 	 	 	135,000	 	 
	 	 	 	 	Operating Agreements
	 	 	0	 	 	 	4,786	 	 	 	 	4,786	 	 	 	 	0	 	 	 	62,214	 	 	 	 	62,214	 	 	 	 	87,000	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Subtotal
	 	 	405,714	 	 	 	468,276	 	 	 	 	863,990	 	 	 	 	360,286	 	 	 	750,897	 	 	 	 	1,111,183	 	 	 	 	1,975,173	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	PR/GR	 	Government & Public Relations
	 	 	19,643	 	 	 	91,003	 	 	 	 	110,646	 	 	 	 	92,857	 	 	 	379,382	 	 	 	 	472,239	 	 	 	 	582,885	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Subtotal
	 	 	19,643	 	 	 	91,003	 	 	 	 	110,646	 	 	 	 	92,857	 	 	 	379,382	 	 	 	 	472,239	 	 	 	 	582,885	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Environmental	 	Preliminary Project Scope
	 	 	8,000	 	 	 	17,658	 	 	 	 	25,658	 	 	 	 	0	 	 	 	0	 	 	 	 	0	 	 	 	 	25,658	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Permitting	 	Terrestrial
	 	 	15,000	 	 	 	1,100	 	 	 	 	16,100	 	 	 	 	0	 	 	 	7,700	 	 	 	 	7,700	 	 	 	 	23,800	 	 
	 	 	 	 	Marine
	 	 	40,000	 	 	 	3,000	 	 	 	 	43,000	 	 	 	 	0	 	 	 	8,000	 	 	 	 	8,000	 	 	 	 	51,000	 	 
	 	 	 	 	Marine surveys
	 	 	138,500	 	 	 	0	 	 	 	 	138,500	 	 	 	 	300,000	 	 	 	0	 	 	 	 	300,000	 	 	 	 	438,500	 	 
	 	 	 	 	Route Work
	 	 	0	 	 	 	1,000	 	 	 	 	1,000	 	 	 	 	0	 	 	 	10,000	 	 	 	 	10,000	 	 	 	 	11,000	 	 
	 	 	 	 	Canadian Permitting Applications

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	 
	 	 	 	 	
National Energy Board (NEB)
	 	 	0	 	 	 	36,495	 	 	 	 	36,495	 	 	 	 	0	 	 	 	0	 	 	 	 	0	 	 	 	 	36,495	 	 
	 	 	 	 	Public Consultation Program
	 	 	13,950	 	 	 	131,376	 	 	 	 	145,326	 	 	 	 	0	 	 	 	23,679	 	 	 	 	23,679	 	 	 	 	169,005	 	 
	 	 	 	 	Environmental Assessment US & Canadian
	 	 	164,250	 	 	 	58,551	 	 	 	 	222,801	 	 	 	 	0	 	 	 	62,679	 	 	 	 	62,679	 	 	 	 	285,480	 	 
	 	 	 	 	Application Process
	 	 	15,000	 	 	 	2,786	 	 	 	 	17,786	 	 	 	 	0	 	 	 	36,214	 	 	 	 	36,214	 	 	 	 	54,000	 	 
	 	 	 	 	Agency /Stakeholder Consultation &Permitting
	 	 	0	 	 	 	2,464	 	 	 	 	2,464	 	 	 	 	0	 	 	 	32,036	 	 	 	 	32,036	 	 	 	 	34,500	 	 
	 	 	 	 	American Permit Applications

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	
Presidential Permit ( DOE)
	 	 	0	 	 	 	60,936	 	 	 	 	60,936	 	 	 	 	0	 	 	 	600,879	 	 	 	 	600,879	 	 	 	 	661,815	 	 
	 	 	 	 	FERC Approval
	 	 	0	 	 	 	18,358	 	 	 	 	18,358	 	 	 	 	0	 	 	 	47,357	 	 	 	 	 	 	 	 	 	65,715	 	 
	 	 	 	 	US EPA
	 	 	20,500	 	 	 	0	 	 	 	 	20,500	 	 	 	 	20,500	 	 	 	0	 	 	 	 	20,500	 	 	 	 	41,000	 	 
	 	 	 	 	US Army CoE
	 	 	15,200	 	 	 	0	 	 	 	 	15,200	 	 	 	 	15,200	 	 	 	0	 	 	 	 	15,200	 	 	 	 	30,400	 	 
	 	 	 	 	WA Energy Facility Site Evaluation Council
	 	 	22,500	 	 	 	0	 	 	 	 	22,500	 	 	 	 	22,500	 	 	 	0	 	 	 	 	22,500	 	 	 	 	45,000	 	 
	 	 	 	 	WA Department of Ecology
	 	 	25,500	 	 	 	0	 	 	 	 	25,500	 	 	 	 	25,500	 	 	 	0	 	 	 	 	25,500	 	 	 	 	51,000	 	 
	 	 	 	 	Municipal Research & Services Center of WA
	 	 	25,500	 	 	 	0	 	 	 	 	25,500	 	 	 	 	25,500	 	 	 	0	 	 	 	 	25,500	 	 	 	 	51,000	 	 
	 	 	 	 	Public Consultation / Native Consultation
	 	 	40,000	 	 	 	0	 	 	 	 	40,000	 	 	 	 	40,000	 	 	 	0	 	 	 	 	40,000	 	 	 	 	80,000	 	 
	 	 	 	 	US Coast Guard/ Navy
	 	 	20,500	 	 	 	0	 	 	 	 	20,500	 	 	 	 	30,000	 	 	 	0	 	 	 	 	30,000	 	 	 	 	50,500	 	 
	 	 	 	 	Permit Compliance
	 	 	2,857	 	 	 	0	 	 	 	 	2,857	 	 	 	 	37,143	 	 	 	0	 	 	 	 	37,143	 	 	 	 	40,000	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Subtotal
	 	 	567,257	 	 	 	333,725	 	 	 	 	900,982	 	 	 	 	516,343	 	 	 	828,543	 	 	 	 	1,344,886	 	 	 	 	2,245,868	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Legal	 	Legal Counseling
	 	 	286,967	 	 	 	0	 	 	 	 	286,987	 	 	 	 	0	 	 	 	0	 	 	 	 	0	 	 	 	 	288,987	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Siting
	 	 	37,214	 	 	 	0	 	 	 	 	37,214	 	 	 	 	463,786	 	 	 	0	 	 	 	 	483,786	 	 	 	 	521,000	 	 
	 	 	 	 	System Benefits
	 	 	20,714	 	 	 	0	 	 	 	 	20,714	 	 	 	 	269,286	 	 	 	0	 	 	 	 	269,286	 	 	 	 	290,000	 	 
	 	 	 	 	Operating Agreements
	 	 	22,064	 	 	 	0	 	 	 	 	22,064	 	 	 	 	286,836	 	 	 	Q	 	 	 	 	 	 	 	 	 	308,900	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Subtotal
	 	 	366,960	 	 	 	0	 	 	 	 	366,960	 	 	 	 	1,039,907	 	 	 	0	 	 	 	 	1,039,907	 	 	 	 	1,406,887	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Oversight &	 	Financing Premium
	 	 	125,000	 	 	 	0	 	 	 	 	125,000	 	 	 	 	267,657	 	 	 	0	 	 	 	 	287,857	 	 	 	 	412,857	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Management	 	Project Administration
	 	 	0	 	 	 	491,474	 	 	 	 	491,474	 	 	 	 	0	 	 	 	1,250,266	 	 	 	 	1,250,266	 	 	 	 	1,341,740	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Power	 	Subtotal
	 	 	125,000	 	 	 	491,474	 	 	 	 	616,474	 	 	 	 	267,657	 	 	 	1,250,266	 	 	 	 	1,538,123	 	 	 	 	2,154,597	 	 
	 	 	 	 	FERC Markel Authority
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Contracts	 	Market Analysis
	 	 	20,000	 	 	 	25,000	 	 	 	 	45,000	 	 	 	 	0	 	 	 	0	 	 	 	 	0	 	 	 	 	45,000	 	 
	 	 	 	 	Open Season
	 	 	75,000	 	 	 	55,250	 	 	 	 	130,250	 	 	 	 	0	 	 	 	0	 	 	 	 	0	 	 	 	 	130,250	 	 
	 	 	 	 	Bid Evaluation & Negotiation
	 	 	0	 	 	 	51,826	 	 	 	 	51,826	 	 	 	 	0	 	 	 	153,734	 	 	 	 	153,734	 	 	 	 	205,560	 	 
	 	 	 	 	Financial Advisors
	 	 	60,000	 	 	 	0	 	 	 	 	60,000	 	 	 	 	130,000	 	 	 	0	 	 	 	 	130,000	 	 	 	 	190,000	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Subtotal
	 	 	155,000	 	 	 	132,076	 	 	 	 	267,076	 	 	 	 	130,000	 	 	 	153,734	 	 	 	 	283,734	 	 	 	 	570,810	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 	External	 	Internal	 	 	 	Total	 	 	 	External	 	Internal	 	 	 	Total	 	 	 	Total Budget	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Budget Totals
	 	 	1,674,574	 	 	 	1,582,866	 	 	 	 	3,257,460	 	 	 	 	2,592,250	 	 	 	3,455,531	 	 	 	 	6,047,781	 	 	 	 	8,305,240	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Note 1: Completed and paid for by SBP-RTS	 	Cash Contributions and Deferrals
	Note 2: Includes 100,000 credit from ABB
on External Costs to be paid at closing
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	 
	 	EIF	 	 	 	 	 	 	2,500,000	 	 	 	 	 	 	 	5,500,000	 	 	 	 	 	 	 	8,000,000	 
	 
	 	SBP-RTS	 	 	 	 	 	 	 	751,460	 	 	 	 	 	 	 	547,781	 	 	 	 	 	 	 	1,305,240	 
	 
	 	Total Costs	 	 	 	 	 	 	3,257,460	 	 	 	 	 	 	 	6,047,781	 	 	 	 	 	 	 	9,305,240	 
	 	 	 
	(All Figures in US Dollars)	 	Draw Schedule for Juan De Fuca Development Pre-Open Season
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	 
	 	AL Closing	 	1-Apr-05	 	1-May-05	 	1-Jun-05	 	1-Jun-05	 	1-Aug-05	 	 	 	 
	 
	 	covers	 	covers	 	covers	 	covers	 	covers	 	covers	 	 	 	 
	Sheet produced by Mark A Mainetti
	 	Feb/05-Mar/05	 	Apr/05	 	May/05	 	Jun/05	 	Jun/05	 	Aug/05	 	Total
	Prepared on 4/1/2005
	 	 	500,000	 	 	 	300,000	 	 	 	450,000	 	 	 	400,000	 	 	 	300,000	 	 	 	550,000	 	 	 	2,500,000	 
	 	 	     

 

 

Schedule 1.3 to Development Loan Agreement

DEVELOPMENT MILESTONE SCHEDULE

Schedule 1.3

 

 

Schedule 1.3 to Development Loan Agreement

Juan de Fuca Project

DEVELOPMENT MILESTONE SCHEDULE

	 	 	 	 	 	 	 	 	 
	GANTT Task 	 	Item	 	Milestone	 	Date
	Permitting

Phase

	 	 	1.	 	 	Pre-application meeting with NEB
	 	COMPLETED

August 16, 2004
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	2.	 	 	Meetings with the Office of Regulatory Assistance (Nov 1 2004) and USACE
(Jan 14 2005); NOAA, USF&W responded to BPA stating meeting not
necessary

Need to meet WS F&W, DNR, Coast Guard, SHPO
	 	COMPLETED

Further activities

as determined by

BPA
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	3.	 	 	Submit applications for Presidential Permit (USA)
	 	COMPLETED

December 15,

2004
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	4.	 	 	Receipt of letter from executive director of Washington Energy Facility
Site Evaluation Council confirming that Council jurisdiction does not
extend to Project Company.
	 	COMPLETED

January 31, 2005
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	5.	 	 	Designation of lead and cooperating agencies for NEPA process, and
commence NEPA/SEPA review process.
	 	COMPLETED

January 2005
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	6.	 	 	Contact all applicable agencies requesting transfer to the Borrower and
OC any and all Project Permits, and any applications therefor, held by
Affiliates of Borrower, including, without limitation, the Presidential
Permit, DOE Permits, BPA Permits and all Canadian Permits.
	 	Within 14 days of

closing
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	7.	 	 	Unless waived by Lender, Borrower to deliver United States and Canadian
regulatory legal opinions from outside counsel in form satisfactory to
Lender.
	 	Within 21 days of

closing
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	8.	 	 	Deliver to Lender copies of the Insurance Policies, certificates of such
Insurance Policies or insurance binders, together with a certificate of
an Authorized Officer of Borrower, and a certificate of the insurance
agency placing such insurance, each to the effect that the coverage
evidenced by such policies complies in all respects with the
requirements of the Development Loan Agreement.
	 	Within 30 days of

closing
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	9.	 	 	Execute contracts with environmental consultants and public relations
consultants.
	 	Within 30 days of

closing
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	10.	 	 	Transfer to the Subsidiaries any and all Project Permits, and any
applications therefor, held by Affiliates of Borrower, including,
without limitation, the Presidential Permit, DOE Permits, BPA Permits
and all Canadian Permits.
	 	Within 60 days of

closing
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	11.	 	 	Approval by the FERC of “open season” plan for Project Company and
advancing of market authority.
	 	Within 60 days of

closing

 

 

	 	 	 	 	 	 	 	 	 
	GANTT Task 	 	Item	 	Milestone	 	Date
	Permitting

Phase

	 	 	12.	 	 	Obtain Endangered Species Act species list from U.S. Fish and Wildlife
Service and National Marine Fisheries Service and Species At Risk
Act: Schedule I species list from Environment Canada.
	 	May 1, 2005
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	13.	 	 	Commence NEB consultation process with all identified agencies and
stakeholders.
	 	May 1, 2005
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	14.	 	 	Pre-application meeting pursuant to 33 C.F.R. 325.1(b) with US Army
Corps of Engineers (USACE) and Federal and State agencies with
jurisdiction by law or special expertise.
	 	May 30, 2005
	 
	 	 	 	 	 	 	 	 
	Technical
System Studies

	 	 	15.	 	 	Completion of BPA Interconnection Study required by BPA .
	 	June 30, 2005
	 
	 	 	 	 	 	 	 	 
	Technical
System Studies

	 	 	16.	 	 	Completion of Feasibility Study required by BCTC.
	 	July 31, 2005
	 
	 	 	 	 	 	 	 	 
	Power

Contracting

Phase

	 	 	17.	 	 	Completion of open season auction bidding process and notification of
bid awards to major successful open season bidders, provided that the
terms of such bids shall be in form and substance satisfactory to
Lender.
	 	September 30,

2005
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	18.	 	 	Obtain Letters of Intent, with authorization to perform Phase II site
evaluations as necessary, for Victoria and Port Angeles Converter
Stations and ROWs
	 	September 30,

2005
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	19.	 	 	Obtain authorizations for core sampling and seismic survey and complete
detailed route survey (or DFO, USACE and state agency determinations
that work is not jurisdictional).
	 	October 31, 2005
	 
	 	 	 	 	 	 	 	 
	Engineering,

Procurement, &

Design

	 	 	20.	 	 	Complete negotiation of not-to-exceed price agreement with ABB for
turnkey construction in form and substance reasonably acceptable to
Lender.
	 	October 31, 2005
	 
	 	 	 	 	 	 	 	 
	Technical
System Studies

	 	 	21.	 	 	Completion of Facilities Study for BPA
	 	October 31, 2005
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	22.	 	 	Acceptance of report on open season by FERC.
	 	October 31, 2005
	 
	 	 	 	 	 	 	 	 
	Power

Contracting

Phase

	 	 	23.	 	 	Award of minor contracts to successful minor open season bidders.
	 	October 31, 2005
	 
	 	 	 	 	 	 	 	 
	Technical
System Studies

	 	 	24.	 	 	Completion of Interconnection Study required by BCTC
	 	November 30,

2005
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	25.	 	 	Submit application for NEB Permit and all other Canadian permits deemed
necessary by Terra Environmental.
	 	December 15,

2005
	 
	 	 	 	 	 	 	 	 
	Power

Contracting

Phase

	 	 	26.	 	 	Execution and delivery by borrower and successful bidders of major LTCAs
in form and substance reasonably acceptable to Lender; multiple
contracts for the most important open season products.
	 	December 31,

2005
	 
	Permitting

Phase

	 	 	27.	 	 	Complete detailed site evaluations of terrestrial routes & sites.
	 	December 31,

2005

 

 

	 	 	 	 	 	 	 	 	 
	GANTT Task 	 	Item	 	Milestone	 	Date
	Siting and

Regulatory

Requirements

	 	 	28.	 	 	Obtain site options as necessary for Victoria Converter Station and
options for Victoria ROW.
	 	December 31,

2005
	 
	 	 	 	 	 	 	 	 
	Siting and

Regulatory

Requirements

	 	 	29.	 	 	Obtain site options as necessary for Port Angeles Converter Station and
options for Port Angeles ROW.
	 	December 31,

2005
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	30.	 	 	Receipt of order of Washington Utilities and Transportation Commission
[and BC equivalent] disclaiming any jurisdiction over Project Company
	 	December 31,

2005
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	31.	 	 	Submit applications for all federal Project Permits. Application for
JARPA (Joint Aquatic Resources Permit Application)/ Hydraulic Project
Approval:

• DNR Aquatic Use Authorization

• Water Quality Certification — Section 401

• Section 404 Permit

• Shoreline Substantial Development Permit

• Certificate of compliance with Critical Areas Ordinance

• Floodplain Development/Management Permit

• Section 10 permit

	 	January 15, 2006
	 

	 	 	 	 	 	• Construction Stormwater General Permit

And any other permits determined necessary by E&E.	 	 
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	32.	 	 	Submit applications for all State and local Project Permits deemed
necessary by E&E.
	 	January 15, 2006
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	33.	 	 	Obtain agreements for crossing existing marine facilities (as necessary).
	 	January 30, 2006
	 
	 	 	 	 	 	 	 	 
	Technical

System Studies

	 	 	34.	 	 	Completion of Facilities Study required by BCTC.
	 	March 31, 2006
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	35.	 	 	Re-zoning for converter station sites (as necessary).
	 	June 1, 2006
	 
	 	 	 	 	 	 	 	 
	Engineering,

Procurement, &

Design

	 	 	36.	 	 	Execution and Delivery by Borrower and contractor acceptable to Lender
of EPC Contract in form and substance reasonably acceptable to Lender.
	 	July 31, 2006
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	37.	 	 	Complete Environmental Assessment satisfying requirements of National
Environmental Policy Act, State of Washington Environmental Policy Act,
and Canadian Environmental Assessment Act.
	 	August 31, 2006
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	38.	 	 	Receive or cause to be received all Project Permits necessary to
commence construction and achieve construction financing.
	 	August 31, 2006
	 
	 	 	 	 	 	 	 	 
	Technical

System Studies

	 	 	39.	 	 	Receipt from BPA of Record of Decision authorizing Interconnection
Agreement and Execution of Interconnection Agreement.
	 	August 31, 2006
	 
	 	 	 	 	 	 	 	 
	Permitting

Phase

	 	 	40.	 	 	Receipt of Presidential Permit.
	 	August 31, 2006
	 
	 	 	 	 	 	 	 	 
	Financing Phase

	 	 	41.	 	 	Completion of negotiations with BPA over compensation for major system
benefits.
	 	September 30, 2006

 

 

Schedule 1.4 to Development Loan Agreement

Project Contracts

Schedule 1.4

 

 

Schedule 1.4 to Development Loan Agreement

Juan de Fuca Project

PROJECT CONTRACTS

Executed contracts:

	 	1.	 	a) Interconnection Feasibility Study Agreement for Bonneville Power

Administration – No. 04TX-11754

Date: October 20, 2004

b) Feasibility study report by ABB

Potential connection points in the Port Angeles area, sensitivity analyses for feasibility
of different siting, routing and technical options.

Date: January 25, 2005

	 	2.	 	BPA (Preliminary) Environmental study agreement

No. 05TX-11861

Date: November 22, 2004
	 
	 	3.	 	Societe Generale regarding financial modeling, structuring of open season, bid
evaluation
	 
	 	4.	 	Capital Access LLC regarding financial advisors

Expected contracts:

	 	 	 
	Entity	 	Description / Scope
	ZE Power Group

	 	Market assessment and assistance with planning open season
	BPA

	 	Electrical interconnection and facilities studies
	BCTC

	 	Electrical feasibility, interconnection, and facilities studies
	Management Agreements

	 	Contracts with management personnel for project
	Pilot House

	 	Public Relations Advisors, Media Relations Advisors
	Alan Dolan and Assoc.

	 	Public Consultation Advisors
	Ecology and Environment

	 	US Permitting and Environmental Assessment
	Archipelago, Dom Tolitt

	 	Canadian / Marine Environmental Studies
	Marine survey contractor(s)

	 	Survey and geotechnical investigation along proposed route
	Manning Cooper & Associates

	 	Wildlife survey – Terrestrial and Marine
	Coastal Ocean Resources,
Inc.

	 	Desktop study for marine survey

 

 

Schedule 1.5 to Development Loan Agreement

List of Project Permits Issued or Anticipated

 

 

Schedule 1.5

Schedule 1.5 to Development Loan Agreement List of Project Permits Issued or Anticipated

Schedule 1.5 to Development Loan Agreement

Juan de Fuca Project

PROJECT PERMITS

Please note that the permitting requirements of the proposed project are based upon our current
understanding and cannot be more specific without more detailed routing and construction
information.

1. USA

Permits required dependent upon construction technology and routing

Presidential Permit

Marine survey permit(s)

Permits covered by Joint Aquatic Resource Permits Application (JARPA):

	 	•	 	Dept. Natural Resources Aquatic Use Authorization
	 
	 	•	 	Water Quality Certification — 401 (Federal Water Pollution Control
Act)
	 
	 	•	 	Section 404 Permit — Water Pollution Control Act
	 
	 	•	 	Hydraulic Project Approval
	 
	 	•	 	Shoreline Substantial Development Permit
	 
	 	•	 	Certificate of compliance with Critical Areas Ordinance
	 
	 	•	 	Floodplain Development Permit
	 
	 	•	 	Section 10 permit
	 
	 	•	 	Construction stormwater general permit

Crossing agreements

Rezone converter station site

Any State and local project permits deemed necessary by E&E

2. CANADA

Permits required dependent upon construction technology and routing

Certificate of Public Convenience and Necessity (CPCN) from National Energy Board (NEB)

Marine survey permit(s)

Department of Fisheries and Oceans (DFO) Section 35(2) permit

DFO Section 36(4) permit

DFO Section 44 licence

Transport Canada section 5(1) permit

Environment Canada section 127(1) permit

Rezone converter station site

Rights-of-leave (Crossing Agreement): Canadian Pacific Railway, and others

Electrical Permits

Construction Permits

Any additional project permits deemed necessary by Sea Breeze Pacific RTS

 

 

Schedule 1.6 to Development Loan Agreement

Project Pro Formas

 

 

Schedule 1.6 to Development Loan Agreement

Juan de Fuca Project Pro Formas

CAPITAL BUDGET FIELD OPERATIONS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Section Name	 	 	 	Item Name	 	Quantity	 	Unit Price	 	 	Total Price	 
	Turn Key Transmission	 	 	 	1	 	$	126,000,000	 	 	$	126,000,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Land Acquisition	 	 	 	1	 	$	1,600,000	 	 	$	1,600,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	[Maintenance	 	 	 	1	 	$	670,000	 	 	$	670,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Other	 	Reserve for Capitalized interest and Op. E	 	1	 	$	20,000,000	 	 	$	20,000,000	 
	 	 	Development Costs *	 	1	 	$	12,850,000	 	 	$	12,850,000	 
	 	 	Developer’s Fee	 	1	 	$	10,000,000	 	 	$	10,000,000	 
	 	 	Open Season Marketing	 	1	 	$	5,200,000	 	 	$	5,200,000	 
	 	 	Contingency	 	1	 	$	18,000,000	 	 	$	18,000,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Others	 	 	 	 	 	 	 	 	 	$	66,050,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Capital Expenditure Field Operations	 	 	 	 	 	 	 	$	194,320,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 

CAPITAL BUDGET OFFICE ASSETS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Section Name	 	 	 	Item	 	Quantity	 	 	 	 	 	 	 	 	 
	Furniture
	 	 	 	Furniture	 	 	1	 	 	$	40,000	 	 	$	40,000,	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Computers
	 	 	 	Computers	 	 	1	 	 	$	40,000	 	 	$	40,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Capital Expenditure Office Assets	 	 	 	 	 	 	 	 	 	$	80,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Project Expenditure	 	 	 	 	 	 	 	 	 	$	194,400,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Project Financing Costs	 	 	 	 	 	 	 	 	 	$	5,000,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	TOTAL COSTS	 	 	 	 	 	 	 	 	 	$	199,400,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

	*	 	Not included in this estimate are estimated $
2 million spent by cable supplier for their project.

 

Schedule 1.6 to Development Loan Agreement

Juan de Fuca Project Pro Formas

GENERAL ASSUMPTIONS

	 	 	 	 	 
	Line Rated Capacity
	 	 	940	 
	Firm Capacity (North to South)
	 	 	940	 
	Firm Capacity (South to North)
	 	 	400	 
	Firm Capacity Usage
	 	 	90	%
	Non-firm Capacity
	 	 	400	 
	Non-firm Capacity Usage
	 	 	60	%
	Headroom Capacity
	 	 	0	 
	Headroom Capacity Usage
	 	 	0	%
	Vars Usage
	 	 	0	%
	 
	 	 	 	 
	Project Term
	 	 	20	 
	Year 1 Completion
	 	 	100.00	%
	 
	 	 	 	 
	Corporate Tax Rate

	 	 	0.00	%
	Interest Rate on Excess Cash
	 	 	2.00	%
	Interest Rate on Line of Credit
	 	 	9.00	%
	Debt Interest Rate
	 	 	7.50	%
	Price Earnings Ratio
	 	 	10	 
	RRR on Equity (Ke)
	 	 	16.00	%
	Minimum Operating Cash Requirement
	 	 	500,000	 
	 
	 	 	 	 
	Dividend Payout Ratio

	 	 	100.00	%
	Opening Retained Earnings
	 	$	—	 
	Opening Cash
	 	$	—	 
	Opening FIT
	 	$	—	 
	Opening Line of Credit
	 	$	—	 
	Opening Debt
	 	$	—	 
	Ownership in Subco
	 	 	100.00	%
	Total Shares Issued and Outstanding
	 	 	7,000,000	 

	Note 1	 	To be determined from system reliability study and
negotiations with relevant utilities.

 

 

Schedule 1.6 to Development Loan Agreement

Juan de Fuca Project Pro Formas

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ASSUMPTIONS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	CAPITAL INVESTMENTS
	 	 	 	 	 	 	 	 	 	 	2007	 	 	 	2008	 	 	 	2009	 	 	 	2010	 	 	 	2011	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	Life	 	CCA Rate	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Turn Key Transmission
	 	 	20	 	 	 	4.00	%	 	$	166,850,000	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	Land
	 	 	 	 	 	 	 	 	 	$	1,600,000	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	 	 	 	 	 	 	 	$	168,450,000	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Maintenance
	 	Life	 	CCA Rate	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	5	 	 	 	30.00	%	 	$	670,000	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Office Assets
	 	Life	 	CCA Rate	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Computers
	 	 	5	 	 	 	30.00	%	 	$	40,000	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	Furniture
	 	 	5	 	 	 	20.00	%	 	$	40,000	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	Financing Costs/Licensing & Permits
	 	 	20	 	 	 	5.00	%	 	$	10,200,000	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	Total Office Assets
	 	 	 	 	 	 	 	 	 	$	10,280,000	 	 	$	—	 	 	$	 	 	 	$	—	 	 	$	—	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	TOTAL INVESTMENT
	 	 	 	 	 	 	 	 	 	$	179,400,000	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	 
	TOTAL INVESTMENT FROM CAPITAL BUDGET TAE
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	DIFFERENCE
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Reserve for Capitalized interest and Op. Expenses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	SECOND YEAR
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	$	—	 	 	RECONCILED	 	 	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	INCOME STATEMENT
REVENUE
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	2007	 	 	 	2008	 	 	 	2009	 	 	 	2010	 	 	 	2011	 
	Wheeling Charge (Per MWh)3,25
	 	 	 	 	 	 	 	 	 	$	3.25	 	 	$	3.25	 	 	$	3.25	 	 	$	3.25	 	 	$	3.25	 
	Wheeling Charge Headroom (Per MWh)
	 	 	 	 	 	 	 	 	 	 	 	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	Vars (Per MWh)-
	 	 	 	 	 	 	 	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	Black Start (Per MWMonth)
	 	 	 	 	 	 	 	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Transmission Down Time
	 	 	 	 	 	 	 	 	 	 	2.00	%	 	 	2.00	%	 	 	2.00	%	 	 	2.00	%	 	 	2.00	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	OTHER REVENUE (TOTAL)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Transmission Upgrade Deferral
	 	 	 	 	 	 	 	 	 	$	—	 	 	$	1,654,900	 	 	$	1,654,900	 	 	$	1,654,900	 	 	$	1,654,900	 

 

 

Schedule 1.6 to Development Loan Agreement

Juan de Fuca Project Pro Formas

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	UNITS OF PRODUCTION
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Firm
Capacity (North to South) Available During the Year (MW)
	 	 	0	 	 	 	540	 	 	 	540	 	 	 	540	 	 	 	540	 
	Firm Capacity (South to North) Available During the Year (MW)
	 	 	0	 	 	 	400	 	 	 	400	 	 	 	400	 	 	 	400	 
	Firm Capacity Usage
	 	 	 	 	 	 	0	%	 	 	90	%	 	 	90	%	 	 	90	%	 	 	90	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Non-firm Capacity Available During the Year (MWh)
	 	 	0	 	 	 	400	 	 	 	400	 	 	 	400	 	 	 	400	 
	Non-firm Capacity Usage
	 	 	 	 	 	 	0	%	 	 	60	%	 	 	60	%	 	 	60	%	 	 	60	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Headroom Capacity Available During the Year (MWh)
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	Headroom Capacity Usage
	 	 	 	 	 	 	0	%	 	 	0	%	 	 	0	%	 	 	0	%	 	 	0	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Line Rated Capacity
	 	 	 	 	 	 	0	 	 	 	600	 	 	 	600	 	 	 	600	 	 	 	600	 
	Vars Usage
	 	 	 	 	 	 	0	%	 	 	70	%	 	 	70	%	 	 	70	%	 	 	70	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Black Start Capacity (MW)
	 	 	 	 	 	 	0	 	 	 	540	 	 	 	540	 	 	 	540	 	 	 	540	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	DIRECT COSTS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	O&M
	 	 	 	 	 	 	 	 	 	$	997,000	 	 	$	1,994,000	 	 	$	1,994,000	 	 	$	1,994,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	GENERAL AND ADMINISTRATIVE
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	Fixed
	 	 	 	 	 	 	2007	 	 	 	2008	 	 	 	2009	 	 	 	2010	 	 	 	2011	 
	Management Fee
	 	 	 	 	 	 	 	 	 	$	700,000	 	 	$	700,000	 	 	$	700,000	 	 	$	700,000	 
	Land Royalty
	 	 	 	 	 	$	40,000	 	 	$	40,000	 	 	$	40,000	 	 	$	40,000	 	 	$	40,000	 
	Travel Expenses
	 	 	 	 	 	$	50,000	 	 	$	50,000	 	 	$	50,000	 	 	$	50,000	 	 	$	50,000	 
	Rent
	 	 	 	 	 	$	30,000	 	 	$	30,000	 	 	$	30,000	 	 	$	30,000	 	 	$	30,000	 
	Legal Fees
	 	 	 	 	 	$	25,000	 	 	$	25,000	 	 	$	25,000	 	 	$	25,000	 	 	$	25,000	 
	Audit & Accounting Fees
	 	 	 	 	 	$	20,000	 	 	$	20,000	 	 	$	20,000	 	 	$	20,000	 	 	$	20,000	 
	Utilities
	 	 	 	 	 	$	15,000	 	 	$	15,000	 	 	$	15,000	 	 	$	15,000	 	 	$	15,000	 
	Miscellaneous
	 	 	 	 	 	$	20,000	 	 	$	20,000	 	 	$	20,000	 	 	$	20,000	 	 	$	20,000	 
	Contingency
	 	 	 	 	 	$	100,000	 	 	$	100,000	 	 	$	100,000	 	 	$	100,000	 	 	$	100,000	 
	 	 	 	 	 	 	 
	Total General and Administrative
	 	 	 	 	 	$	 	 	 	$	1,000,000	 	 	$	1,000,000	 	 	$	1,000,000	 	 	$	1,000,000	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	WORKING CAPITAL
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Receivables days
	 	 	 	 	 	 	30	 	 	 	30	 	 	 	30	 	 	 	30	 	 	 	30	 
	Payable days
	 	 	 	 	 	 	45	 	 	 	44	 	 	 	43	 	 	 	42	 	 	 	41	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	FINANCING
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Debt
	 	 	80.00	%	 	$	159,520,000	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Equity
	 	 	20.00	%	 	$	39,880,000	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	100.00	%	 	$	199,400.00	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	$	179,400,000	 	 	$	—	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	$	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	$	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	$	20,000,000	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

 

Schedule 1.6 to Development Loan Agreement

Juan de Fuca Project Pro Formas

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	ASSUMPTIONS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	CAPITAL INVESTMENTS
	 	 	 	 	 	 	 	 	 	 	2012	 	 	 	2013	 	 	 	2014	 	 	 	2015	 	 	 	2016	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Life
	 	 	 	 	 	CCA Rate	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Turn Key Transmission
	 	 	20	 	 	 	4,00	%	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	Land
	 	 	 	 	 	 	 	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	 	 	 	 	 	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Maintenance
	 	Life	 	CCA Rate	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	5	 	 	 	30.00	%	 	$	670,000	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	Office Assets
	 	Life	 	CCA Rate	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Computers
	 	 	5	 	 	 	30.00	%	 	$	40,000	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	Furniture
	 	 	5	 	 	 	20.00	%	 	$	40,000	 	 	$	—	 	 	$	 	 	 	$	—	 	 	$	—	 
	Financing Costs/Licensing & Permits
	 	 	20	 	 	 	5.00	%	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	Total Office Assets
	 	 	 	 	 	 	 	 	 	$	80,000	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	TOTAL INVESTMENT
	 	 	 	 	 	 	 	 	 	$	750,000	 	 	 	 	 	 	$	—	 	 	$	—	 	 	$	—	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	TOTAL INVESTMENT FROM CAPITAL BUDGET TAE
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	DIFFERENCE
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Reserve for Capitalized interest
and Op. Expenses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	SECOND YEAR
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	INCOME
STATEMENT REVENUE
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	2012	 	 	 	2013	 	 	 	2014	 	 	 	2015	 	 	 	2016	 
	Wheeling Charge (Per MWh)
	 	 	 	 	 	 	 	 	 	$	3.25	 	 	$	3.25	 	 	$	3.25	 	 	$	3.25	 	 	$	3.25	 
	Wheeling Charge Headroom (Per MWh)
	 	 	 	 	 	 	 	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	 	 	 	$	—	 
	Vars (Per MWh)
	 	 	 	 	 	 	 	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	Black Start (Per MWMonth)
	 	 	 	 	 	 	 	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Transmission Down Time
	 	 	 	 	 	 	 	 	 	 	2.00	%	 	 	2.00	%	 	 	2.00	%	 	 	2.00	%	 	 	2.00	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	OTHER REVENUE (TOTAL)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Transmission Upgrade Deferral
	 	 	 	 	 	 	 	 	 	$	1,654,900	 	 	$	1,654,900	 	 	$	1,654,900	 	 	$	1,654,900	 	 	$	1,654,900	 

Schedule 1.6 to Development Loan Agreement

 

 

Juan de Fuca Project
Pro Formas

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	UNITS OF PRODUCTION
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Firm Capacity (North to South) Available During the Year (MW)
	 	 	 	 	 	 	540	 	 	 	540	 	 	 	540	 	 	 	540	 	 	 	540	 
	Firm Capacity (South to North) Available During the Year (MW)
	 	 	 	 	 	 	400	 	 	 	400	 	 	 	400	 	 	 	400	 	 	 	400	 
	Firm Capacity Usage
	 	 	 	 	 	 	90	%	 	 	90	%	 	 	90	%	 	 	90	%	 	 	90	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Non-firm Capacity Available During the Year (MWh)
	 	 	 	 	 	 	400	 	 	 	400	 	 	 	400	 	 	 	400	 	 	 	400	 
	Non-firm Capacity Usage
	 	 	 	 	 	 	60	%	 	 	60	%	 	 	60	%	 	 	60	%	 	 	60	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Headroom Capacity Available During the Year (MWh)
	 	 	 	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	Headroom Capacity Usage
	 	 	 	 	 	 	0	%	 	 	0	%	 	 	0	%	 	 	0	%	 	 	0	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Line Rated Capacity
	 	 	 	 	 	 	600	 	 	 	600	 	 	 	600	 	 	 	600	 	 	 	600	 
	Vars Usage
	 	 	 	 	 	 	70	%	 	 	70	%	 	 	70	%	 	 	70	%	 	 	70	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Black Start Capacity (MW)
	 	 	 	 	 	 	540	 	 	 	540	 	 	 	540	 	 	 	540	 	 	 	540	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	DIRECT
COSTS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	O&M
	 	 	 	 	 	 	 	 	 	$	1,994,000	 	 	$	1,994,000	 	 	$	1,994,000	 	 	$	1,994,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	GENERAL AND ADMINISTRATIVE
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	Fixed
	 	 	 	 	 	 	2012	 	 	 	2013	 	 	 	2014	 	 	 	2015	 	 	 	2016	 
	Management Fee
	 	 	 	 	 	$	700,000	 	 	$	700,000	 	 	$	700,000	 	 	$	700,000	 	 	$	700,000	 
	Land Royalty
	 	 	 	 	 	$	40,000	 	 	$	40,000	 	 	$	40,000	 	 	$	40,000	 	 	$	40,000	 
	Travel Expenses
	 	 	 	 	 	$	50,000	 	 	$	50,000	 	 	$	50,000	 	 	$	50,000	 	 	$	50,000	 
	Rent
	 	 	 	 	 	$	30,000	 	 	$	30,000	 	 	$	30,000	 	 	$	30,000	 	 	$	30,000	 
	Legal Fees
	 	 	 	 	 	$	25,000	 	 	$	25,000	 	 	$	- 25,000	 	 	$	25,000	 	 	$	25,000	 
	Audit & Accounting Fees
	 	 	 	 	 	$	20,000	 	 	$	20,000	 	 	$	20,000	 	 	$	20,000	 	 	$	20,000	 
	Utilities
	 	 	 	 	 	$	15,000	 	 	$	15,000	 	 	$	15,000	 	 	$	15,000	 	 	$	15,000	 
	Miscellaneous
	 	 	 	 	 	$	20,000	 	 	$	20,000	 	 	$	20,000	 	 	$	20,000	 	 	$	20,000	 
	Contingency
	 	 	 	 	 	$	100,000	 	 	$	100,000	 	 	$	100,000	 	 	$	100,000	 	 	$	100,000	 
	 	 	 	 	 	 	 
	Total General and Administrative
	 	 	 	 	 	$	1,000,000	 	 	$	1,000,000	 	 	$	1,000,000	 	 	$	1,000,000	 	 	$	1,000,000	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	WORKING
CAPITAL
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Receivables days
	 	 	 	 	 	 	30	 	 	 	30	 	 	 	30	 	 	 	30	 	 	 	30	 
	Payable days
	 	 	 	 	 	 	40	 	 	 	40	 	 	 	40	 	 	 	40	 	 	 	40	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	FINANCING
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Debt
	 	 	80.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Equity
	 	 	20.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	100.00	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

 

Schedule 1.6 to Development Loan Agreement

Juan de Fuca Project Pro Formas

INCOME STATEMENT

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2007	 	 	2008	 	 	2009	 	 	2010	 	 	2011	 
	Revenue
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Wheeling (Firm Capacity)
	 	$	—	 	 	$	23,603,908	 	 	$	23,603,908	 	 	$	23,603,908	 	 	$	23,603,908	 
	Wheeling (Non-firm Capacity)
	 	 	0	 	 	 	6,696,144	 	 	 	6,696,144	 	 	 	6,696,144	 	 	 	6,696,144	 
	Wheeling (Headroom)
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	Vars
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	Black Start
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	Transmission Upgrade Deferral
	 	 	0	 	 	 	1,654,900	 	 	 	1,654,900	 	 	 	1,654,900	 	 	 	1,654,900	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	Total Revenue
	 	 	0	 	 	 	31,954,952	 	 	 	31,954,952	 	 	 	31,954,952	 	 	 	31,954,952	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Direct costs
	 	 	0	 	 	 	997,000	 	 	 	1,994,000	 	 	 	1,994,000	 	 	 	1,994,000	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Gross profit
	 	 	0	 	 	 	30,957,952	 	 	 	29,960,952	 	 	 	29,960,952	 	 	 	29,960,952	 
	 	 	 
	Gross profit percentage
	 	#DIV/01	 	 	 	96.88	%	 	 	93.76	%	 	 	93.76	%	 	 	93.76	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Operating expenses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	General & Administrative
	 	 	300,000	 	 	 	1,000,000	 	 	 	1,000,000	 	 	 	1,000,000	 	 	 	1,000,000	 
	 	 	 
	Total operating expenses
	 	 	300,000	 	 	 	1,000,000	 	 	 	1,000,000	 	 	 	1,000,000	 	 	 	1,000,000	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	EBITDA
	 	 	-300,000	 	 	 	29,957,952	 	 	 	28,960,952	 	 	 	28,960,952	 	 	 	28,960,952	 
	EBITDA percentage
	 	#DIV/01	 	 	 	93.75	%	 	 	90.63	%	 	 	90.63	%	 	 	90.63	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Amortization
	 	 	9,002,500	 	 	 	9,002,500	 	 	 	9,002,500	 	 	 	9,002,500	 	 	 	9,002,500	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	EBIT
	 	 	-9,302,500	 	 	 	20,955,452	 	 	 	19,958,452	 	 	 	19,958,452	 	 	 	19,958,452	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Interest Expense/Revenue
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Interest expense
	 	 	11,964,000	 	 	 	11,687,725	 	 	 	11,390,729	 	 	 	11,071,459	 	 	 	10,728,244	 
	Credit Line Interest Charge
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	Interest Earned on Cash Balances
	 	 	0	 	 	 	81,786	 	 	 	321,174	 	 	 	596,101	 	 	 	745,023	 
	 	 	 
	Total Interest Expense
	 	 	11,964,000	 	 	 	11,605,939	 	 	 	11,069,555	 	 	 	10,475,358	 	 	 	9,983,220	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	EBT
	 	 	-21,266,500	 	 	 	9,349,513	 	 	 	8,888,896	 	 	 	9,483,093	 	 	 	9,975,232	 
	 	 	 
	 
	 	 	-8,506,600	 	 	 	3,739,805	 	 	 	3,555,559	 	 	 	3,793,237	 	 	 	3,990,093	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Income tax provision

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Current
	 	 	0	 	 	 	0	 	 	 	108	 	 	 	117	 	 	 	125	 
	FIT Expense/(Recovery)
	 	 	-213	 	 	 	93	 	 	 	-19	 	 	 	-22	 	 	 	-25	 
	 	 	 
	Total income tax
	 	 	-213	 	 	 	93	 	 	 	89	 	 	 	95	 	 	 	108	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	EAT

	 	$	(21,266,287	)	 	$	9,349,420	 	 	$	8,888,808	 	 	$	9,482,999	 	 	$	9,975,132	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	STATEMENT OF RETAINED EARNINGS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Opening Retained Earnings
	 	$	—	 	 	$	(21,266,287	)	 	$	(11,916,868	)	 	$	(3,028,060	)	 	$	—	 
	Add/Subtract: Net Income
	 	 	-21,266,287	 	 	 	9,349,420	 	 	 	8,888,808	 	 	 	9,482,999	 	 	 	9,975,132	 
	Less Dividends
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	-6,454,939	 	 	 	-9,975,132	 
	 	 	 
	Closing Retained Earnings
	 	$	(21,266,287	)	 	$	(11,916,868	)	 	$	(3,028,060	)	 	$	—	 	 	$	—	 

 

 

Schedule 1.6 to Development Loan Agreement

Juan de Fuca Project Pro Formas

BALANCE SHEET

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2007	 	 	2008	 	 	2009	 	 	2010	 	 	2011	 
	ASSETS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current assets

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts receivable
	 	$	—	 	 	$	2,626,434	 	 	$	2,626,434	 	 	$	2,626,434	 	 	$	2,626,434	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current liabilities

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts payable
	 	 	36,986	 	 	 	240,734	 	 	 	352,718	 	 	 	344,515	 	 	 	336,312	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Working Capital (less FIT)
	 	 	-36,986	 	 	 	2,385,700	 	 	 	2,273,717	 	 	 	2,281,919	 	 	 	2,290,122	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Long term Assets
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Turn Key Transmission
	 	 	158,507,500	 	 	 	150,165,000	 	 	 	141,822,500	 	 	 	133,480,000	 	 	 	125,137,500	 
	Land
	 	 	1,600,000	 	 	 	1,600,000	 	 	 	1,600,000	 	 	 	1,600,000	 	 	 	1,600,000	 
	Maintenance
	 	 	536,000	 	 	 	402,000	 	 	 	268,000	 	 	 	134,000	 	 	 	0	 
	Computers
	 	 	32,000	 	 	 	24,000	 	 	 	16,000	 	 	 	8,000	 	 	 	0	 
	Furniture
	 	 	32,000	 	 	 	24,000	 	 	 	16,000	 	 	 	8,000	 	 	 	0	 
	Financing Costs/Licensing & Permits
	 	 	9,690,000	 	 	 	9,180,000	 	 	 	8,670,000	 	 	 	8,160,000	 	 	 	7,650,000	 
	FIT
	 	 	213	 	 	 	119	 	 	 	138	 	 	 	160	 	 	 	186	 
	 	 	 
	Total Term Assets
	 	 	170,397,713	 	 	 	161,395,119	 	 	 	152,392,638	 	 	 	143,390,160	 	 	 	134,387,686	 
	 
	 	 	 
	 
	 	$	170,360,726	 	 	$	163,780,819	 	 	$	154,666,355	 	 	$	145,672,080	 	 	$	136,677,808	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	FINANCED BY
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Liabilities
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Debt
	 	 	155,836,334	 	 	 	151,876,392	 	 	 	147,619,455	 	 	 	143,043,248	 	 	 	138,123,825	 
	Operating line (cash)
	 	 	-4,089,320	 	 	 	-16,058,705	 	 	 	-29,805,040	 	 	 	-37,251,168	 	 	 	-41,326,017	 
	FIT
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	 	 	 
	 
	 	 	151,747,014	 	 	 	135,817,687	 	 	 	117,814,415	 	 	 	105,792,080	 	 	 	96,797,808	 
	 	 	 
	Equity
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Capital stock
	 	 	39,880,000	 	 	 	39,880,000	 	 	 	39,880,000	 	 	 	39,880,000	 	 	 	39,880,000	 
	Retained Earnings
	 	 	-21,266,287	 	 	 	-11,916,868	 	 	 	-3,028,060	 	 	 	0	 	 	 	0	 
	 	 	 
	Total Equity
	 	 	18,613,713	 	 	 	27,963,132	 	 	 	36,851,940	 	 	 	39,880,000	 	 	 	39,880,000	 
	 	 	 
	 
	Total
	 	$	170,360,726	 	 	$	163,780,819	 	 	$	154,666,355	 	 	$	145,672,080	 	 	$	136,677,808	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	Balance Sheet Balancing
	 	$	0	 	 	$	0	 	 	$	0	 	 	$	0	 	 	$	0	 
	 	 	 

 

 

Schedule 1.6 to Development Loan Agreement

Juan de Fuca Project Pro Formas

CASH FLOWS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2007	 	 	2008	 	 	2009	 	 	2010	 	 	2011	 
	Operating Activities:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net income
	 	$	(21,266,287	)	 	$	9,349,420	 	 	$	8,888,808	 	 	$	9,482,999	 	 	$	9,975,132	 
	Adjustments
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Depreciation and amortization
	 	 	9,002,500	 	 	 	9,002,500	 	 	 	9,002,500	 	 	 	9,002,500	 	 	 	9,002,500	 
	FIT
	 	 	-213	 	 	 	93	 	 	 	-19	 	 	 	-22	 	 	 	-25	 
	Working capital
	 	 	36,986	 	 	 	-2,422,686	 	 	 	111,984	 	 	 	-8,203	 	 	 	-8,203	 
	 	 	 
	Cash Provided by Operations
	 	$	(12,227,014	)	 	$	15,929,327	 	 	$	18,003,272	 	 	$	18,477,274	 	 	$	18,969,404	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Financing Activities:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Debt
	 	 	155,836,334	 	 	 	-3,959,941	 	 	 	-4,256,937	 	 	 	-4,576,207	 	 	 	-4,919,423	 
	Equity
	 	 	39,880,000	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	Dividends
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	-6,454,939	 	 	 	-9,975,132	 
	 	 	 
	 
	 	 	195,716,334	 	 	 	-3,959,941	 	 	 	-4,256,937	 	 	 	-11,031,146	 	 	 	-14,894,555	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Investing activities:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Capital investment
	 	 	-179,400,000	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	 
	 	 	-179,400,000	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net
change in cash for the year
	 	 	4,089,320	 	 	 	11,969,385	 	 	 	13,746,335	 	 	 	7,446,128	 	 	 	4,074,849	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	Operating line (cash), beginning of year
	 	$	—	 	 	$	4,089,320	 	 	$	16,058,705	 	 	$	29,805,040	 	 	$	37,251,168	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	Operating line (cash), end of year
	 	$	4,089,320	 	 	$	16,058,705	 	 	$	29,805,040	 	 	$	37,251,168	 	 	$	41,326,017	 
	 	 	 

 

 

Schedule 1.6 to Development Loan Agreement

Juan de Fuca Project Pro Formas

INCOME STATEMENT

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2012	 	 	2013	 	 	2014	 	 	2015	 	2016	 
	Revenue
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Wheeling (Firm Capacity)
	 	$	23,603,908	 	 	$	23,603,908	 	 	$	23,603,908	 	 	$	23,603,908	 	 	$	23,603,908	 
	Wheeling (Non-firm Capacity)
	 	 	6,696,144	 	 	 	6,696,144	 	 	 	6,696,144	 	 	 	6,696,144	 	 	 	6,696,144	 
	Wheeling (Headroom)
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	Vars
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	Black Start
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	Transmission Upgrade Deferral
	 	 	1,654,900	 	 	 	1,654,900	 	 	 	1,654,900	 	 	 	1,654,900	 	 	 	1,654,900	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	Total Revenue
	 	 	31,954,952	 	 	 	31,954,952	 	 	 	31,954,952	 	 	 	31,954,952	 	 	 	31,954,952	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Direct costs
	 	 	1,994,000	 	 	 	1,994,000	 	 	 	1,994,000	 	 	 	1,994,000	 	 	 	1,994,000	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Gross profit
	 	 	29,960,952	 	 	 	29,960,952	 	 	 	29,960,952	 	 	 	29,960,952	 	 	 	29,960,952	 
	 	 	 
	Gross profit percentage
	 	 	93.76	%	 	 	93.76	%	 	 	93,76	%	 	 	93,76	%	 	 	93,76	%
	Operating expenses

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
General & Administrative
	 	 	1,000,000	 	 	 	1,000,000	 	 	 	1,000,000	 	 	 	1,000,000	 	 	 	1,000,000	 
	 	 	 
	Total operating expenses
	 	 	1,000,000	 	 	 	1,000,000	 	 	 	1,000,000	 	 	 	1,000,000	 	 	 	1,000,000	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	EBITDA
	 	 	28,960,952	 	 	 	28,960,952	 	 	 	28,960,952	 	 	 	28,960,952	 	 	 	28,960,952	 
	EBITDA percentage
	 	 	90.63	%	 	 	90.63	%	 	 	90,63	%	 	 	90,63	%	 	 	90,63	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Amortization
	 	 	9,002,500	 	 	 	9,002,500	 	 	 	9,002,500	 	 	 	9,002,500	 	 	 	9,002,500	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	EBIT
	 	 	19,958,452	 	 	 	19,958,452	 	 	 	19,958,452	 	 	 	19,958,452	 	 	 	19,958,452	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Interest Expense/Revenue
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Interest expense
	 	 	10,359,287	 	 	 	9,962,658	 	 	 	9,536,283	 	 	 	9,077,929	 	 	 	8,585,199	 
	Credit Line Interest Charge
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	Interest Earned on Cash Balances
	 	 	826,520	 	 	 	885,638	 	 	 	951,987	 	 	 	1,009,809	 	 	 	1,058,464	 
	 	 	 
	Total Interest Expense
	 	 	9,532,767	 	 	 	9,077,020	 	 	 	8,584,295	 	 	 	8,068,120	 	 	 	7,526,735	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	EBT
	 	 	10,425,685	 	 	 	10,881,432	 	 	 	11,374,156	 	 	 	11,890,332	 	 	 	12,431,717	 
	 	 	 
	 
	 	 	4,170,274	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Income tax provision
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current
	 	 	131	 	 	 	138	 	 	 	146	 	 	 	154	 	 	 	162	 
	FIT Expense/(Recovery)
	 	 	-27	 	 	 	-29	 	 	 	-32	 	 	 	-35	 	 	 	-37	 
	 	 	 
	Total income tax
	 	 	104	 	 	 	109	 	 	 	114	 	 	 	119	 	 	 	124	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	EAT
	 	$	10,425,581	 	 	$	10,881,323	 	 	$	11,374,043	 	 	$	11,890,213	 	 	$	12,431,592	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	STATEMENT OF RETAINED EARNINGS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Opening Retained Earnings
	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	Add/Subtract: Net Income/Loss
	 	 	10,425,581	 	 	 	10,881,323	 	 	 	11,374,043	 	 	 	11,890,213	 	 	 	12,431,592	 
	Less Dividends
	 	 	-10,425,581	 	 	 	-10,881,323	 	 	 	-11,374,043	 	 	 	-11,890,213	 	 	 	-12,431,592	 
	 	 	 
	Closing Retained Earnings
	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 

 

 

Schedule 1.6 to Development Loan Agreement

Juan de Fuca Project Pro Formas

BALANCE SHEET

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2012	 	 	2013	 	 	2014	 	 	2015	 	 	2016	 
	ASSETS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current assets
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts receivable
	 	$	2,626,434	 	 	$	2,626,434	 	 	$	2,626,434	 	 	$	2,626,434	 	 	$	2,626,434	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Current liabilities
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts payable
	 	 	328,110	 	 	 	328,110	 	 	 	328,110	 	 	 	328,110	 	 	 	328,110	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Working Capital (less FIT)
	 	 	2,298,325	 	 	 	2,298,325	 	 	 	2,298,325	 	 	 	2,298,325	 	 	 	2,298,325	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Long term Assets
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Turn Key Transmission
	 	 	116,795,000	 	 	 	108,452,500	 	 	 	100,110,000	 	 	 	91,767,500	 	 	 	83,425,000	 
	Land
	 	 	1,600,000	 	 	 	1,600,000	 	 	 	1,600,000	 	 	 	1,600,000	 	 	 	1,600,000	 
	Maintenance
	 	 	536,000	 	 	 	402,000	 	 	 	268,000	 	 	 	134,000	 	 	 	0	 
	Computers
	 	 	32,000	 	 	 	24,000	 	 	 	16,000	 	 	 	8,000	 	 	 	0	 
	Furniture
	 	 	32,000	 	 	 	24,000	 	 	 	16,000	 	 	 	8,000	 	 	 	0	 
	Financing Costs/Licensing & Permits
	 	 	7,140,000	 	 	 	6,630,000	 	 	 	6,120,000	 	 	 	5,610,000	 	 	 	5,100,000	 
	FIT
	 	 	213	 	 	 	242	 	 	 	274	 	 	 	308	 	 	 	346	 
	 	 	 
	Total Term Assets
	 	 	126,135,213	 	 	 	117,132,742	 	 	 	108,130,274	 	 	 	99,127,808	 	 	 	90,125,346	 
	 	 	 
	 
	 	 	 
	 
	 	$	128,433,537	 	 	$	119,431,066	 	 	$	110,428,598	 	 	$	101,426,133	 	 	$	92,423,670	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	FINANCED BY
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Liabilities
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Debt
	 	 	132,835,446	 	 	 	127,150,438	 	 	 	121,039,054	 	 	 	114,469,317	 	 	 	107,406,849	 
	Operating line (cash)
	 	 	-44,281,908	 	 	 	-47,599,371	 	 	 	-50,490,456	 	 	 	-52,923,184	 	 	 	-54,863,179	 
	FIT
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	 	 	 
	 
	 	 	88,553,537	 	 	 	79,551,066	 	 	 	70,548,598	 	 	 	61,546,133	 	 	 	52,543,670	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Equity
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Capital stock
	 	 	39,880,000	 	 	 	39,880,000	 	 	 	39,880,000	 	 	 	39,880,000	 	 	 	39,880,000	 
	Retained Earnings
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	 	 	 
	Total Equity
	 	 	39,880,000	 	 	 	39,880,000	 	 	 	39,880,000	 	 	 	39,880,000	 	 	 	39,880,000	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	$	128,433,537	 	 	$	119,431,066	 	 	$	110,428,598	 	 	$	101,426,133	 	 	$	92,423,670	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	Balance Sheet Balancing
	 	$	0	 	 	$	0	 	 	$	0	 	 	$	0	 	 	$	0	 
	 	 	 

 

 

Schedule 1.6 to Development Loan Agreement

Juan de Fuca Project Pro Formas

CASH FLOWS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2012	 	 	2013	 	 	2014	 	 	2015	 	 	2016	 
	Operating Activities:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net income
	 	$	10,425,581	 	 	$	10,881,323	 	 	$	11,374,043	 	 	$	11,890,213	 	 	$	12,431,592	 
	Adjustments
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Depreciation and amortization
	 	 	9,002,500	 	 	 	9,002,500	 	 	 	9,002,500	 	 	 	9,002,500	 	 	 	9,002,500	 
	FIT
	 	 	-27	 	 	 	-29	 	 	 	-32	 	 	 	-35	 	 	 	-37	 
	Working capital
	 	 	-8,203	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	Cash Provided by Operations
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	 
	 	$	19,419,851	 	 	$	19,883,794	 	 	$	20,376,511	 	 	$	20,892,678	 	 	$	21,434,055	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Financing Activities:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Debt
	 	 	-5,288,380	 	 	 	-5,685,008	 	 	 	-6,111,384	 	 	 	-6,569,737	 	 	 	-7,062,468	 
	Equity
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	Dividends
	 	 	-10,425,581	 	 	 	-10,881,323	 	 	 	-11,374,043	 	 	 	-11,890,213	 	 	 	-12,431,592	 
	 	 	 
	 
	 	 	-15,713,961	 	 	 	-16,566,331	 	 	 	-17,485,426	 	 	 	-18,459,950	 	 	 	-19,494,060	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Investing activities:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Capital investment
	 	 	-750,000	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	 
	 	 	-750,000	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net change in cash for the year
	 	 	2,955,891	 	 	 	3,317,463	 	 	 	2,891,084	 	 	 	2,432,728	 	 	 	1,939,995	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	Operating line (cash), beginning of year
	 	$	41,326,017	 	 	$	44,281,908	 	 	$	47,599,371	 	 	$	50,490,456	 	 	$	52,923,184	 
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 
	Operating line (cash), end of year
	 	$	44,281,908	 	 	$	47,599,371	 	 	$	50,490,456	 	 	$	52,923,184	 	 	$	54,863,179	 
	 	 	 

 

 

Schedule 1.6 to Development Loan Agreement

Juan de Fuca

Project Pro Formas

Equity Cash Flow Projections

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year	 	 	 	 	 	2007	 	 	2008	 	 	2009	 	 	2010	 	 	2011	 	 	2012	 	 	2013	 	 	2014	 	 	2015	 	 	2016	 
	Cash Provided by
Operations
	 	 	 	 	 	$	(12,227,014	)	 	$	15,929,327	 	 	$	18,003,272	 	 	$	18,477,274	 	 	$	18,969,404	 	 	$	19,419,851	 	 	$	19,883,794	 	 	$	20,376,511	 	 	$	20,892,678	 	 	$	21,434,055	 
	Debt Principal
	 	 	 	 	 	$	(3,683,666	)	 	$	(3,959,941	)	 	$	(4,256,937	)	 	$	(4,576,207	)	 	$	(4,919,423	)	 	$	(5,288,380	)	 	$	(5,685,008	)	 	$	(6,111,384	)	 	$	(6,569,737	)	 	$	(7,062,468	)
	Operating Cash Reserve
	 	 	 	 	 	$	15,910,680	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	Capex
	 	 	 	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	(750,000	)	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	Equity
	 	 	 	 	 	$	(39,880,000	)	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	 	 
	Terminal Value
	 	 	 	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net Cash Flows
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	Assuming Terminal Value
	 	 	 	 	 	$	(39,880,000	)	 	$	11,969,385	 	 	$	13,746,335	 	 	$	13,901,066	 	 	$	14,049,981	 	 	$	13,381,472	 	 	$	14,198,788	 	 	$	14,265,127	 	 	$	14,322,941	 	 	$	14,371,587	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	Without Terminal Value
	 	 	 	 	 	$	(39,880,000	)	 	$	11,969,385	 	 	$	13,746,335	 	 	$	13,901,066	 	 	$	14,049,981	 	 	$	13,381,472	 	 	$	14,198,786	 	 	$	14,265,127	 	 	$	14,322,941	 	 	$	14,371,587	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Equity IRR
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Assuming Terminal Value
	 	 	33.70	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Without Terminal Value
	 	 	33.57	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Equity NPV 15%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Assuming Terminal Value 
	 	$	42,050,549	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Without Terminal Value 
	 	$	39,613,870	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

 

Schedule 1,6 to Development Loan Agreement

Juan de Fuca Project Pro Formas

Equity Cash Flow Projections

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Year	 	 	 	 	 	2017	 	 	2018	 	 	2019	 	 	2020	 	 	2021	 	 	2022	 	 	2023	 	 	2024	 	 	2025	 	 	2026	 
	Cash Provided by
Operations
	 	 	 	 	 	$	22,002,533	 	 	$	22,585,144	 	 	$	23,214,070	 	 	$	23,876,663	 	 	$	24,575,446	 	 	$	25,313,137	 	 	$	26,077,651	 	 	$	26,902,123	 	 	$	27,774,928	 	 	$	28,699,690	 
	Debt Principal
	 	 	 	 	 	$	(7,592,153	)	 	$	(8,161,564	)	 	$	(8,773,682	)	 	$	(9,431,708	)	 	$	(10,139,086	)	 	$	(10,899,517	)	 	$	(11,716,981	)	 	$	(12,595,754	)	 	$	(13,540,436	)	 	$	(14,555,969	)
	Operating Cash Reserve
	 	 	 	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	4,089,320	 
	Capex
	 	 	 	 	 	$	(750,000	)	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	(750,000	)	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	Equity
	 	 	 	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 
	Terminal Value
	 	 	 	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	—	 	 	$	39,880,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net Cash Flows
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	Assuming Terminal Value
	 	 	 	 	 	$	13,660,380	 	 	$	14,423,579	 	 	$	14,440,388	 	 	$	14,444,955	 	 	$	14,436,361	 	 	$	13,663,620	 	 	$	14,360,670	 	 	$	14,306,389	 	 	$	14,234,492	 	 	$	58,113,041	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	Without Terminal Value
	 	 	 	 	 	$	13,660,380	 	 	$	14,423,579	 	 	$	14,440,388	 	 	$	14,444,955	 	 	$	14,436,361	 	 	$	13,663,620	 	 	$	14,360,670	 	 	$	14,306,389	 	 	$	14,234,492	 	 	$	18,233,041	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Equity IRR
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Assuming Terminal Value
	 	 	33.70	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Without Terminal Value
	 	 	33,67	%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Equity NPV l 15%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Assuming Terminal Value
	 	$	42,050,549	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Without Terminal Value
	 	$	39,613,870	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

 

 

Schedule 2.4(b) to Development Loan Agreement

Monthly Advances and Use of Proceeds

 

 

Schedule 2.4(b)                    

	 	 	 
	Estimated Development Costs for Juan De Fuca # 1
	 	 
	 
	 	 
	(All Figures in US Dollars)

	 	 MONTHLY EXTERNAL COSTS 
	 
	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	03/05	 	 	04/05	 	 	05/05	 	 	06/05	 	 	07/05	 	 	08/05	 	 	 	03/05 - 08/05	 	 
	 	 	External	 	 	External	 	 	External	 	 	External	 	 	External	 	 	External	 	 	 	6 - Month	 	 
	 	 	Costs	 	 	Costs	 	 	Costs	 	 	Costs	 	 	Costs	 	 	Costs	 	 	 	Sub-Total	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Siting
	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	35,000	 	 	 	 	35,000	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Technical
	 	 	120,000	 	 	 	37,000	 	 	 	37,000	 	 	 	137,000	 	 	 	37,000	 	 	 	37,714	 	 	 	 	405,714	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	PR/GR
	 	 	4,500	 	 	 	2,000	 	 	 	2,000	 	 	 	2,000	 	 	 	2,000	 	 	 	7,143	 	 	 	 	19,643	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Env. Permitting
	 	 	37,325	 	 	 	33,375	 	 	 	167,875	 	 	 	29,375	 	 	 	29,375	 	 	 	269,932	 	 	 	 	567,257	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Legal
	 	 	43,503	 	 	 	44,778	 	 	 	38,528	 	 	 	38,528	 	 	 	38,528	 	 	 	118,521	 	 	 	 	322,386	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Oversight
1 MGT
	 	 	25,000	 	 	 	15,000	 	 	 	22,500	 	 	 	20,000	 	 	 	15,000	 	 	 	27,500	 	 	 	 	125,000	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Power Contracts
	 	 	45,000	 	 	 	25,000	 	 	 	25,000	 	 	 	25,000	 	 	 	25,000	 	 	 	10,000	 	 	 	 	155,000	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Subtotal External
	 	 	275,328	 	 	 	157,153	 	 	 	292,903	 	 	 	251,903	 	 	 	146,903	 	 	 	505,810	 	 	 	 	1,630,000	 	 
	1st Payment in
	 	 	20,000	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	 	1,650,000	 	 
	2nd Payment in
	 	 	25,000	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	 	1,675,000	 	 
	Internal Stipend
	 	 	137,500	 	 	 	137,500	 	 	 	137,500	 	 	 	137,500	 	 	 	137,500	 	 	 	137,500	 	 	 	 	825,000	 	 
	Total Ext./Int.
	 	 	457,828	 	 	 	294,653	 	 	 	430,403	 	 	 	389,403	 	 	 	284,403	 	 	 	643,310	 	 	 	 	2,500,000	 	 
	Draw Request
	 	 	500,000	 	 	 	300,000	 	 	 	450,000	 	 	 	400,000	 	 	 	300,000	 	 	 	550,000	 	 	 	 	2,500,000	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

       Draw Schedule for Juan De Fuca Development Pre-Open Season

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 
	 	At Closing	 	1-Apr-05	 	 	1-May-05	 	 	1-Jun-05	 	 	1-Jul-05	 	 	1-Aug-05	 	 	 	 	 
	 	   covers	 	covers	 	 	covers	 	 	covers	 	 	covers	 	 	covers	 	 	 	 	 
	 	   Feb/05-Mar/05	 	Apr/05	 	 	May/05	 	 	Jun/05	 	 	Jul/05	 	 	Aug/05	 	 	Total	 	 
	 	   500,000	 	 	300,000	 	 	 	450,000	 	 	 	400,000	 	 	 	300,000	 	 	 	550,000	 	 	 	2,500,000	 	 
	 	 	 

	 	 	 
	Sheet produced by Mark A Mainetti

	 	 
	Prepared on 4/1/05
	 	 

 

 

Schedule 2.4(d) to Development Loan Agreement

Permitted Internal Costs

 

 

	 	 	 
	Schedule 2.4(d)
	 	 
	Estimated Development Costs for Juan De Fuca # 1 (Post Open Season)
	 	 
	(All Figures in US Dollars)

	 	MONTHLY EXTERNAL COSTS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	09/05	 	 	10/05	 	 	11/05	 	 	12/05	 	 	01/06	 	 	02/06	 	 	03/06	 	 	04/06	 	 	05/06	 	 	06/06	 	 	07/06	 	 	08/06	 	 	09/06	 	 	09/05 – 09/06	 
	 	 	External	 	 	External	 	 	External	 	 	External	 	 	External	 	 	External	 	 	External	 	 	External	 	 	External	 	 	External	 	 	External	 	 	External	 	 	External	 	 	13 Month	 
	 	 	Costs	 	 	Costs	 	 	Costs	 	 	Costs	 	 	Costs	 	 	Costs	 	 	Costs	 	 	Costs	 	 	Costs	 	 	Costs	 	 	Costs	 	 	Costs	 	 	Costs	 	 	Sub-Total	 
	Siting
	 	 	35,000	 	 	 	35,000	 	 	 	35,000	 	 	 	35,000	 	 	 	25,000	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	165,000	 
	Technical
	 	 	27,714	 	 	 	27,714	 	 	 	27,714	 	 	 	27,714	 	 	 	27,714	 	 	 	27,714	 	 	 	27,714	 	 	 	27,714	 	 	 	27,714	 	 	 	27,714	 	 	 	27,714	 	 	 	27,714	 	 	 	27,714	 	 	 	360,286	 
	PR/GR
	 	 	7,143	 	 	 	7,143	 	 	 	7,143	 	 	 	7,143	 	 	 	7,143	 	 	 	7,143	 	 	 	7,143	 	 	 	7,143	 	 	 	7,143	 	 	 	7,143	 	 	 	7,143	 	 	 	7,143	 	 	 	7,143	 	 	 	92,857	 
	Env. Permitting
	 	 	432,057	 	 	 	22,857	 	 	 	12,857	 	 	 	2,857	 	 	 	2,857	 	 	 	2,857	 	 	 	2,857	 	 	 	2,857	 	 	 	2,857	 	 	 	2,857	 	 	 	2,857	 	 	 	2,857	 	 	 	2,857	 	 	 	518,343	 
	Legal
	 	 	79,993	 	 	 	79,993	 	 	 	79,993	 	 	 	79,993	 	 	 	79,993	 	 	 	79,993	 	 	 	79,993	 	 	 	79,993	 	 	 	79,993	 	 	 	79,993	 	 	 	79,993	 	 	 	79,993	 	 	 	79,993	 	 	 	1,039,907	 
	Oversight/MGT
	 	 	65,000	 	 	 	0	 	 	 	42,500	 	 	 	0	 	 	 	40,000	 	 	 	0	 	 	 	37,500	 	 	 	0	 	 	 	37,500	 	 	 	0	 	 	 	37,500	 	 	 	0	 	 	 	27,857	 	 	 	287,857	 
	Power Contracts
	 	 	10,000	 	 	 	10,000	 	 	 	10,000	 	 	 	10,000	 	 	 	10,000	 	 	 	10,000	 	 	 	10,000	 	 	 	10,000	 	 	 	10,000	 	 	 	10,000	 	 	 	10,000	 	 	 	10,000	 	 	 	10,000	 	 	 	130,000	 
	Subtotal External
	 	 	656,907	 	 	 	182,707	 	 	 	225,207	 	 	 	172,707	 	 	 	192,707	 	 	 	127,707	 	 	 	165,207	 	 	 	127,707	 	 	 	165,207	 	 	 	127,707	 	 	 	165,207	 	 	 	127,707	 	 	 	165,207	 	 	 	2,592,250	 
	Internal Stipend
	 	 	223,673	 	 	 	223,673	 	 	 	223,673	 	 	 	223,673	 	 	 	223,673	 	 	 	223,673	 	 	 	223,673	 	 	 	223,673	 	 	 	223,673	 	 	 	223,673	 	 	 	223,673	 	 	 	223,673	 	 	 	223,673	 	 	 	2,907,750	 
	Total Ext./Int.
	 	 	880,580	 	 	 	406,380	 	 	 	448,880	 	 	 	396,380	 	 	 	448,880	 	 	 	351,380	 	 	 	416,380	 	 	 	351,380	 	 	 	388,880	 	 	 	351,380	 	 	 	388,880	 	 	 	351,380	 	 	 	379,237	 	 	 	5,500,000	 
	Bi-Monthly Ext./Int.
	 	 	1,286,960	 	 	 	 	 	 	 	845,260	 	 	 	 	 	 	 	845,260	 	 	 	 	 	 	 	767,760	 	 	 	 	 	 	 	740,260	 	 	 	 	 	 	 	740,260	 	 	 	 	 	 	 	379,237	 	 	 	5,500,000	 
	 Draw Request
	 	 	1,300,000	 	 	 	 	 	 	 	850,000	 	 	 	 	 	 	 	850,000	 	 	 	 	 	 	 	800,000	 	 	 	 	 	 	 	750,000	 	 	 	 	 	 	 	750,000	 	 	 	 	 	 	 	300,000	 	 	 	5,500,000	 

     Draw Schedule for Juan De Fuca Development Post-Open Season

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	1-Sep-0S	 	 	1-Nov-05	 	 	1-Jan-06	 	 	1-Mar-06	 	 	1-May-06	 	 	1-Jul-06	 	 	1-Sep-06	 	 	 	 
	 	 	covers	 	 	Covers	 	 	Covers	 	 	covers	 	 	covers	 	 	covers	 	 	covers	 	 	 	 
	 	 	Sep/05-Oct/05	 	 	Nov/05-Dec/05	 	 	Jan/06-Fe/06	 	 	Mar/06-Apr/06	 	 	May/06-Jun/06	 	 	Jul/06-Aug/06	 	 	Sep/06	 	 	Total	 
	 
	 	 	1,300,000	 	 	 	850,000	 	 	 	800,000	 	 	 	750,000	 	 	 	750,000	 	 	 	750,000	 	 	 	300,000	 	 	 	5,500,000	 

Sheet produced by Mark A Mainetti

Prepared on        4/1/2005

 

 

Schedule 2.6 to Development Loan Agreement

Development Expenses

 

 

Schedule 2.6 to Development Loan Agreement

Juan de Fuca Project

Summary of deferred costs for Juan de Fuca HVDC Project

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	SBP-RTS	 	2004 Deferred Costs	 	 	2005 Deferred	 	 	Costs	 	 	All in $USD	 
	Duggleby
	 	$	80,970.00	 	 	$	12,262.28	 	 	$	108,450.00	 	 	$	7,788.00	 	 	$	209,470,28	 
	Manson
	 	$	83,700.00	 	 	 	56,928.18	1	 	$	38,000.00	 	 	$	4,285,40	 	 	$	130,913,58	 
	Hodgson
	 	$	29,250.00	 	 	$	0.00	 	 	$	0.00	 	 	$	0,00	 	 	$	29,250.00	 
	R Campfens
	 	$	189,750.00	 	 	$	5,154,20	 	 	$	47,400.00	 	 	$	1,774.80	 	 	$	244,079.00	 
	Wise
	 	$	194,175.00	 	 	$	5,857.82	 	 	$	43,800,00	 	 	$	2,000.00	 	 	$	245,832,82	 
	Moore
	 	$	29,150.00	 	 	$	51.60	 	 	$	5,500.00	 	 	$	40.00	 	 	 	334.741,60	 
	Bardas
	 	$	62,650.00	 	 	$	0.00	 	 	$	2,750.00	 	 	$	0.00	 	 	$	65,400.00	 
	Griffiths
	 	$	9,475.00	 	 	$	0.00	 	 	$	2,225.00	 	 	$	0.00	 	 	$	11,700.00	 
	Perez
	 	$	15,875.00	 	 	$	0.00	 	 	$	7,875.00	 	 	$	0.00	 	 	$	23,750.00	 
	J Campfens
	 	$	975,00	 	 	$	0.00	 	 	$	0,00	 	 	$	0.00	 	 	$	975,00	 
	Docherty
	 	$	12,000.00	 	 	$	3,000.00	 	 	$	3,125.00	 	 	$	0.00	 	 	$	18,125.00	 
	Day
	 	$	20,925,00	 	 	$	241.99	 	 	$	14,800.00	 	 	$	147.90	 	 	$	36,114,90	 
	Ruffelle
	 	$	14,250.00	 	 	$	0,00	 	 	$	900.00	 	 	$	0.00	 	 	$	15,150.00	 
	Krakowski
	 	$	3.950.00	 	 	$	977,00	 	 	$	9,850,00	 	 	$	76.23	 	 	$	14,853,23	 
	Katzmann
	 	$	4,995.00	 	 	$	0.00	 	 	$	3,555,00	 	 	$	0.00	 	 	$	8,550,00	 
	Kenny
	 	$	2,375.00	 	 	$	5,786.91	 	 	$	0.00	 	 	$	0.00	 	 	$	8,161,91	 
	Zurek
	 	$	0.00	 	 	$	0,00	 	 	$	6,120.00	 	 	$	0.00	 	 	$	6,120.00	 
	Quinter
	 	$	0.00	 	 	$	0,00	 	 	$	8,500.00	 	 	$	0.00	 	 	$	8,500.00	 
	Kohl
	 	$	0.00	 	 	$	0.00	 	 	$	3,000.00	 	 	$	0.00	 	 	$	3,000,00	 
	Thind
	 	$	0.00	 	 	$	0.00	 	 	$	1,500.00	 	 	$	0.00	 	 	$	1,500.00	 
	Whiteside
	 	$	0.00	 	 	$	0.00	 	 	$	0.00	 	 	$	0.00	 	 	$	0.00	 
	Otton
	 	$	0.00	 	 	$	0.00	 	 	$	225.00	 	 	$	0.00	 	 	$	225.00	 
	Worthy
	 	$	0.00	 	 	$	0.00	 	 	$	7,650.00	 	 	$	0.00	 	 	$	7,650.00	 
	Johnson
	 	$	0-00	 	 	$	0.00	 	 	$	1,175.00	 	 	$	0,00	 	 	$	1,175.00	 
	Kotliano
	 	$	0.00	 	 	$	0.00	 	 	$	1,440,00	 	 	$	0.00	 	 	$	1,440,00	 
	Richardson
	 	$	0.00	 	 	$	0.00	 	 	$	0.00	 	 	$	0.00	 	 	$	0,00	 
	Hackman
	 	$	0.00	 	 	$	0.00	 	 	$	0.00	 	 	$	0.00	 	 	$	0.00	 
	Stevenson
	 	$	0.00	 	 	$	0,00	 	 	$	3,237,50	 	 	$	0,00	 	 	$	3,237,50	 
	McConnell
	 	$	0.00	 	 	$	0.00	 	 	$	2,750.00	 	 	$	0.00	 	 	$	2,750.00	 
	Raymond
	 	$	0.00	 	 	$	0.00	 	 	$	2,499,75	 	 	$	1,880.00	 	 	$	4,379,75	 
	Legal-LM
	 	NA	 	 	$	1,600,00	 	 	NA	 	 	$	0,00	 	 	$	1,600.00	 
	Legal-BSSN
	 	NA	 	 	$	4,048,95	 	 	NA	 	 	$	0.00	 	 	$	4,048,95	 
	Legal-DWT
	 	NA	 	 	$	4,946,40	 	 	NA	 	 	$	0.00	 	 	$	4,948,40	 
	Baan Strategies
	 	NA	 	 	$	9,630.00	 	 	NA	 	 	$	0.00	 	 	$	9,630.00	 
	ZE PowerGroup
	 	NA	 	 	$	2,000,00	 	 	NA	 	 	$	0.00	 	 	$	2,000.00	 
	Boundless Energy
	 	NA	 	 	$	72,616,68	 	 	NA	 	 	$	854.06	 	 	$	73,470,74	 
	Shawn Hamilton
	 	NA	 	 	$	4,305.33	 	 	NA	 	 	$	0.00	 	 	$	4,305,33	 
	Span Communications
	 	NA	 	 	$	210,16	 	 	NA	 	 	$	0.00	 	 	$	210,18	 
	Pamawed
	 	NA	 	 	$	1,592.00	 	 	NA	 	 	$	0.00	 	 	$	1.592.00	 
	Minister of Finance
	 	NA	 	 	$	160.00	 	 	NA	 	 	$	0.00	 	 	$	160.00	 
	USAIS Inc
	 	NA	 	 	$	2,027.08	 	 	NA	 	 	$	0.00	 	 	$	2,027.08	 
	CCN Matthews
	 	NA	 	 	$	1,760.00	 	 	NA	 	 	$	0.00	 	 	$	1,760.00	 
	Pres Permit Fees
	 	NA	 	 	$	330.00	 	 	NA	 	 	$	0.00	 	 	$	330.00	 
	Security Deposit — ABB
	 	NA	 	 	$	55,850.00	 	 	NA	 	 	$	0.00	 	 	$	55,850.00	 
	Total
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

DEVELOPMENT EXPENSES

Boundless Energy

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	2003 Deferred	 	 	2004 Deferred	 	 	2005 Deferred	 	 	 	 	 
	Tompkins
	 	$	136,500.00	 	 	$	0,00	 	 	$	441,000.00	 	 	$	10,840.00	 	 	$	125,100.00	 	 	$	1,223,22	 	 	$	714,663,22	 
	Chemack
	 	$	135,300.00	 	 	$	0,00	 	 	$	442,200.00	 	 	$	0.00	 	 	$	111,300.00	 	 	$	858,66	 	 	$	689,658,66	 
	Gilbert
	 	$	67,980.00	 	 	$	0.00	 	 	$	222,210.00	 	 	$	0.00	 	 	$	21,600.00	 	 	$	0.00	 	 	$	311,790.00	 
	 
	 	$	0.00	 	 	$	0.00	 	 	$	0.00	 	 	$	0.00	 	 	$	0.00	 	 	$	0.00	 	 	$	0.00	 
	Mainetti
	 	$	30,648.00	 	 	$	0.00	 	 	$	96,780.00	 	 	$	0.00	 	 	$	21,420.00	 	 	$	0.00	 	 	$	148,848,00	 
	Exec Staff
	 	$	5,130.00	 	 	$	0.00	 	 	$	16,560,00	 	 	$	0,00	 	 	$	7,350.00	 	 	$	0.00	 	 	$	29,040.00	 
	Staff
	 	$	3,444.00	 	 	$	0,00	 	 	$	13,734.00	 	 	$	0.00	 	 	$	3,360.00	 	 	$	0.00	 	 	$	20,538.00	 
	 
	 	$	379,002.00	 	 	$	0,00	 	 	$	1,232,484.00	 	 	$	10,840.00	 	 	$	290,130.000	 	 	$	2,081.88	 	 	$	1,914,537.88	 

 

 

Schedule 3.1(m)(i) to Development Loan Agreement

Juan de Fuca Project

Applications for Project Permits

	4.	 	Application for Presidential Permit

Federal US regulatory document required for the project as a preliminary step in permitting
major projects.

Docket no: PP_299

Filed: December 15

 

 

Schedule 3.1(n) to Development Loan Agreement

Juan de Fuca Project

PROJECT CONTRACTS

Executed contracts:

	5.	 	a) Interconnection Feasibility Study Agreement for Bonneville Power Administration –

No. 04TX-11754

Date: October 20, 2004
	 
	 	 	b) Feasibility study report by ABB

Potential connection points in the Port Angeles area, sensitivity analyses for feasibility
of different siting, routing and technical options.

Date: January 25, 2005
	 
	6.	 	BPA (Preliminary) Environmental study agreement

No. 05TX-11861

Date: November 22, 2004
	 
	7.	 	Societe Generale regarding financial modeling, structuring of open season, bid
evaluation
	 
	4.	 	Capital Access LLC regarding financial advisors

 

 

Schedule 3.1(o) to Development Loan Agreement

Assets

Schedule 3.1

 

 

Transfer of assets from Sea Breeze Pacific Regional Transmission System, Inc. to US and Canadian
entities.

	 	 	 	 	 
	US- Olympic Converter, LP
	Item	 	Date	 	Description
	Presidential Permit Application

	 	Filed December 16, 2004
	 	Federal US regulatory document required for the
project as a preliminary step in permitting major
projects.
	 

	 	 	 	Docket no: PP_299
	 
	 	 	 	 
	BPA Interconnection Application for Queue
position

	 	Sent June 1, 2004
	 	Request for interconnection (#132, 133, 134) up
to 990 MW at Port Angeles and/or Fairmount
substations, secured by $10,000 deposit
	 
	 	 	 	 
	Siting Reports:

   1.Port Angeles

   2.Victoria

	 	1. Revised January 18, 2005

2. Revised January 17, 2005
	 	Descriptions and preliminary feasibility
assessments of drilling sites, local routing,
potential building sites, local development and
zoning, environmental issues for substations.
	 
	 	 	 	 
	Project planning materials (Gantt charts,
etc.)

	 	Updated as required
	 	Detailed documentation and organizational plans
for project phases and components, including
financial information
	 
	 	 	 	 
	Archaeological information for Esquimalt and
Port Angeles areas

	 	Last updated January 6, 2005
	 	Currently only publicly available documentation
has been collected, including articles and
database searches, no studies or reports have
been commissioned. Includes info on the Rayonier
site and Port Angeles graving dock excavations.
	 
	 	 	 	 
	Maps prepared externally

	 	Various
	 	Currently assembling maps and data for geology,
bathymetry, utilities, TRIM, USGS topography, etc.
	 
	 	 	 	 
	Maps and databases prepared internally

	 	Various
	 	Currently assembling and producing cartographic,
geomatic, planimetric maps and associated
databases to facilitate project planning and
development
	 
	 	 	 	 
	Project Description

	 	November 23, 2004, revised February 8, 2005
	 	Several versions of this document have been
prepared at varying levels of detail, revised as
information becomes available and plans are
finalized.
	 
	 	 	 	 
	Financial models for project development

	 	December 21, 2004
	 	Detailed models of a range of market and
development scenarios, soon to be updated to
conform with specifics in Gantt charts –
confidential.
	 
	 	 	 	 
	ABB Interconnection Facility Study No.
04TX-11754 (completed for BPA)

	 	January 25, 2005
	 	Potential connection points in the Port Angeles
area, sensitivity analyses for feasibility of
different siting, routing and technical options.
	 
	 	 	 	 
	BPA Environmental Permit Coordination

Contract

	 	November 26, 2004
	 	Contract with BPA to perform the functions of
Lead Agency in conducting and

 

 

	 	 	 	 	 
	US- Olympic Converter, LP
	Item	 	Date	 	Description
	 

	 	 	 	coordinating NEPA
process pursuant to Presidential Permit
regulations
	 
	 	 	 	 
	Western Electric Coordinating Council (WECC)
Regional Study Authorization

	 	 	 	Application, approval, organizational materials,
meeting minutes, study scope and progress report
for SBPRTS to undertake the analysis of regional
impact of the project – beyond immediate effects
on interconnected utilities – to establish path
rating for transmission line and to determine
system impacts/benefits. Preliminary results
required to verify project capacity for open
season.
	 
	 	 	 	 
	Societe Generale engagement letter for open
season

	 	February 25, 2005
	 	Agreement to engage Soc Gen to assist in
designing and conducting open season and
providing financial advice
	 
	 	 	 	 
	ZE Power consulting contract

	 	January 25, 2005
	 	Contract with ZE Power to undertake market
feasibility analysis and to provide general
consulting services to SBPRTS and Soc Gen in the
design of the open season and in identifying
potential markets and customers in Northwest.
	 
	 	 	 	 
	ZE Power market feasibility analysis

	 	February 24, 2005
	 	Report on the market potential as well as the
types ad value of projects to be sold in the open
season.
	 
	 	 	 	 
	Jurisdictional determination of Washington
State Energy Facilities Siting & Evaluation
Council (FSEC)

	 	 	 	Formal EFSEC determination that project is not
with agency’s permit jurisdiction
	 
	 	 	 	 
	US environmental consulting contract

	 	February 2005
	 	To assist in the preparation and prosecution of
environmental permits in the US.
	 
	 	 	 	 
	Website and other PR development

	 	Ongoing
	 	Provides information about the company, project,
contacts via web, brochures, press releases, etc.
	 
	 	 	 	 
	Goodwill

   1. ABB

   2. Boundless Energy LLC

   3. Sea Breeze Energy Inc.

	 	 	 	Support in terms of personnel, work, networking,
technical information, information systems and
data.

 

 

	 	 	 	 	 	 	 	 	 
	Canada – Sea Breeze Pacific Juan de Fuca Cable, LP
	Item	 	Date	 	Description
	BCTC interconnection application	 	Sent June 3, 2004, revised November 15, 2004	 	Application for interconnection to 990MW,
upgraded to multi-terminal 1600 MW HVDC line with
PG&E, with capacity to expand up to 3200MW
	 
	 	 	 	 	 	 	 	 
	NEB Application material, includes: 

1. Project outline

2. Draft project justification

3. Tables for VECs/species of concern

	 	1. Updated as details require

2. Revised December 2, 2004

3. January 11, 2005
	 	 	1.

2.	 	 	Describes the nature, background,
technical, regulatory and environmental
rationale behind the project

Summary of infrastructure, economic and
technological benefits of the project
compared to other options
	 

	 	 	 	 	3.	 	 	Preliminary matrices of environmental
features of special concern, applicable
at different spatial and temporal scales
to assess project impacts.
	 
	 	 	 	 	 	 	 	 
	Government/public relations (Canada) consulting contract	 	February 16, 2005	 	Contract with Pilot House to advise and assist in
communications, publications and meeting for
Canadian permitting & development.
	 
	 	 	 	 	 	 	 	 
	Table of stakeholder consultations to date and minutes	 	Daily updates	 	Summary of dates, representatives and topics of
all communications, as requested by NEB to
include in Application.
	 
	 	 	 	 	 	 	 	 
	Filing and accounting systems	 	Under development, currently in draft form	 	Accounting system soon to be updated to conform
with specifics in Gantt charts – confidential.
Filling structure will follow a hierarchical
model based on NEB Application structure

 

 

Schedule 4.6(c) to Development Loan Agreement

Security Filings

	 	 	 
	Debtor	 	Filing Office
	Sea Breeze Pacific Juan de Fuca
Cable, LP

	 	Delaware — Secretary of State
	Olympic Converter GP, LLC

	 	Delaware — Secretary of State
	Olympic Converter, LP

	 	Delaware — Secretary of State
	Juan de Fuca Cable Management, Inc.

	 	Delaware — Secretary of State
	SBJF Holding Corp.

	 	District of Columbia — Recorder of Deeds
	Boundless Energy NW, Inc.

	 	Delaware — Secretary of State
	Sea Breeze Pacific Regional
Transmission System, Inc.

	 	District of Columbia — Recorder of Deeds

 

 

Schedule 4.10 to Development Loan Agreement

Juan de Fuca Project

     PROECT PERMITS AND FRANCHISES AND STATUS

Cross reference to Schedule 1.5

Schedule 5.1(j)

 

 

Schedule 4.14 to Development Loan Agreement

Juan de Fuca Project

     EXECUTED PROJECT CONTRACTS

Cross reference to Schedule 3.1(n).

Schedule 5.1(j)

 

 

Schedule 4.18 to Development Loan Agreement

Juan de Fuca Project

DOCUMENTS

1. Siting Reports

	 	–	 	Descriptions and preliminary feasibility assessments of drilling sites,
local routing, potential building sites, local development and zoning,
environmental issues for substations.
	 
	 	–	 	Port Angeles Siting Report (January 18, 2005)
	 
	 	–	 	Esquimalt and Horsey Siting Report (February 25, 2005)

2. Project Planning materials

	 	–	 	Detailed documentation and organizational plans for project phases and
components, including financial information
	 
	 	–	 	GANTT Chart (March 10, 2005)

3. Archaeological information for Esquimalt and Port Angeles areas

	 	–	 	Currently only publicly available documentation has been collected,
including articles and database searches, no studies or reports have been
commissioned. Includes info on the Rayonier site and Port Angeles graving dock
excavations.
	 
	 	–	 	Port Angeles Site at Rayoneir Mill at Ennis Creek (December 31, 2004)

4. Maps prepared externally

	 	–	 	Currently assembling maps and data for geology, bathymetry, utilities,
TRIM, USGS topography, etc.
	 
	 	–	 	Data sets acquired for maps (November 16, 2004)

5. Maps prepared internally

	 	–	 	Currently assembling and producing cartographic, geomatic, planimetric
maps and associated databases to facilitate project planning and development
	 
	 	–	 	Data sets acquired for maps (November 16, 2004)

6. Project Description

	 	–	 	Several versions of this document have been prepared at varying levels
of detail, revised as information becomes available and plans are finalized.
	 
	 	–	 	Project Description document (February 8, 2005)

7. Table of stakeholder consultations to date

	 	–	 	Summary of dates, representatives and topics of all communications, as
requested by NEB to include in Application.
	 
	 	–	 	Table of stakeholder interactions (Last updated March 9, 2005)

8. WECC notification of intent for interregional study

	 	–	 	Sent: October 26, 2004

Schedule 5.1(j)

 

 

Schedule 5.1(j) to Development Loan Agreement

Separateness

Borrower shall undertake the following activities:

	 	1.	 	Borrower shall maintain a separate office which is conspicuously identified as its
office so it can be easily located by outsiders.
	 
	 	2.	 	Borrower shall prepare and maintain its own separate, full and complete books, records
and financial statements.
	 
	 	3.	 	All formalities regarding the separate existence of Borrower shall be maintained.
Borrower shall act only in its own name and through authorized agents pursuant to its
organizational documents.
	 
	 	4.	 	Borrower shall maintain separate bank accounts in its own name and all investments made
by or on behalf of Borrower shall be made solely in Borrower’s name.
	 
	 	5.	 	No Affiliate of Borrower shall guarantee any debts of Borrower, and Borrower shall not
guarantee any debts of any of its Affiliates.
	 
	 	6.	 	Borrower shall not acquire obligations or securities of, or make loans or advances to,
any of its Affiliates.
	 
	 	7.	 	Borrower shall not commingle any of its money or other assets with the money or assets
of any of its Affiliates.
	 
	 	8.	 	All business transactions that are entered into by Borrower with any of its Affiliates
shall be on terms and conditions not more or less favorable to Borrower than terms and
conditions available at the time to Borrower for comparable transactions with unaffiliated
persons and shall have been approved in accordance with its organizational documents and
shall otherwise comply with the provisions of the Loan Documents.
	 
	 	9.	 	The capitalization of Borrower shall be adequate in light of its contemplated business
and obligations.
	 
	 	10.	 	Borrower shall manage directly its own liabilities, including paying its own operating
expenses. In the event employees of Borrower participate in or receive payroll, benefits
or pension, insurance other benefit plans of or from any of its Affiliates, Borrower, on a
current basis, shall reimburse such Affiliate for Borrower’s pro rata share of the costs
thereof to the extent permitted under the Loan Documents.
	 
	 	11.	 	Borrower shall use separate stationery, invoices and checks.

Schedule 5.1(j)

 

 

	 	12.	 	Borrower shall hold itself out as a separate entity and shall correct any
misunderstanding regarding its separate entity status of which Borrower has actual
knowledge.

Schedule 5.1(j)

 

 

Schedule 5.2 (f) to Development Loan Agreement

Juan de Fuca Project

     Related Person Transactions

Related Parties:

Boundless Energy NW, Inc.

Sea Breeze Management Services, Inc.

The above two companies are related parties to the project sponsors and will be providing invoices
related to all internal costs of the project as outlined in Schedule 1.2.

Schedule 5.1(j)

 

 

Schedule 7.8 to Development Loan Agreement

Addresses for Notices

	 	 	 
	Borrower:

	 	Sea Breeze Pacific Juan de Fuca Cable, LP
	 

	 	203 Red Stone Hill
	 

	 	Plainville, CT 06062
	 

	 	Telephone: (860) 747-0497
	 

	 	Facsimile: (860) 747-0297
	 
	 	 
	Overrun Protectors:

	 	Boundless Energy LLC
	 

	 	203 Red Stone Hill
	 

	 	Plainville, CT 06062
	 

	 	Telephone: (860) 747-0497
	 

	 	Facsimile: (860) 747-0297
	 
	 	 
	 

	 	Sea Breeze Power Corp.
	 

	 	Lobby Box 91
	 

	 	Suite 1400
	 

	 	333 Seymour Street
	 

	 	Vancouver, British Columbia V6B 5A6
	 

	 	Telephone: (604) 689-2991
	 

	 	Facsimile: (604) 689-2990
	 
	 	 
	General Partner:

	 	Juan de Fuca Cable Management, Inc.
	 

	 	203 Red Stone Hill
	 

	 	Plainville, CT 06062
	 

	 	Telephone: (860) 747-0497
	 

	 	Facsimile: (860) 747-0297
	 
	 	 
	Subs:

	 	Olympic Converter GP, LLC
	 

	 	203 Red Stone Hill
	 

	 	Plainville, CT 06062
	 

	 	Telephone: (860) 747-0497
	 

	 	Facsimile: (860) 747-0297
	 
	 	 
	 

	 	Olympic Converter, LP
	 

	 	203 Red Stone Hill
	 

	 	Plainville, CT 06062
	 

	 	Telephone: (860) 747-0497
	 

	 	Facsimile: (860) 747-0297

 

 

	 	 	 
	USPF:

	 	United States Power Fund, L.P.
	 

	 	c/o Energy Investors Funds
	 

	 	One Penn Plaza, Suite 4507
	 

	 	New York, NY 10119
	 

	 	Telephone: (212) 564-1276
	 

	 	Fax: (212) 564-4802
	 

	 	Attention: Andrew Schroeder
	 
	 	 
	 

	 	with a copy to:
	 
	 	 
	 

	 	Energy Investors Funds
	 

	 	Three Charles River Place
	 

	 	63 Kendrick Street
	 

	 	Needham, MA 02494

Tel: (781) 292-7000
	 

	 	Fax: (781) 292-7099
	 

	 	Attention: General CounselLease Agreement Dated May 24, 2005

 

EXHIBIT 4.20

CORDOVA EQUITIES INC.

Landlord

- and -

SEA BREEZE POWER CORP.

Tenant

LEASE OF OFFICE SPACE

MULTI-TENANT OFFICE PROJECT

	 	 	 	 	 	 	 
	 

	 	LEASED PREMISES:
	 	Suite 1400 — 333 Seymour Street
	 	 
	 

	 	 	 	Vancouver, British Columbia	 	 

 

 

INDEX

	 	 	 	 	 	 	 
	SECTION	 	 	 	PAGE	 
	 
	 	Term Sheet	 	 	1	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 1.00 - DEFINITIONS	 	 	 	 
	 
	 	 	 	 	 	 
	1.01
	 	Definitions	 	 	3	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 2.00 - GRANT OF LEASE AND GENERAL COVENANTS	 	 	 	 
	 
	 	 	 	 	 	 
	2.01
	 	Grant	 	 	3	 
	2.02
	 	Landlord’s General Covenants	 	 	3	 
	2.03
	 	Tenant’s General Covenants	 	 	3	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 3.00 - TERM AND POSSESSION	 	 	 	 
	 
	 	 	 	 	 	 
	3.01
	 	Term	 	 	4	 
	3.02
	 	Early Occupancy	 	 	4	 
	3.03
	 	Delayed Possession	 	 	4	 
	3.04
	 	Acceptance of Leased Premises	 	 	4	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 4.00 - RENT	 	 	 	 
	 
	 	 	 	 	 	 
	4.01
	 	Rent	 	 	4	 
	4.02
	 	Security Deposit	 	 	4	 
	4.03
	 	Intent	 	 	5	 
	4.04
	 	Payment of Rent - General	 	 	5	 
	4.05
	 	Partial Month	 	 	5	 
	4.06
	 	Payment of Tenant’s Occupancy Costs	 	 	5	 
	4.07
	 	Resolution of Disputes	 	 	6	 
	4.08
	 	Area Determination	 	 	6	 
	4.09
	 	Vacancy	 	 	7	 
	4.10
	 	Method of Payment	 	 	7	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 5.00 - USE AND OCCUPATION	 	 	 	 
	 
	 	 	 	 	 	 
	5.01
	 	Use of Leased Premises	 	 	7	 
	5.02
	 	Compliance with Laws	 	 	7	 
	5.03
	 	Prohibited Uses	 	 	8	 
	5.04
	 	Common Elements	 	 	8	 
	5.05
	 	Hazardous Use	 	 	8	 
	5.06
	 	Tenant’s Security Interest	 	 	8	 
	5.07
	 	Rules and Regulations	 	 	8	 
	5.08
	 	Permitted Signs	 	 	9	 
	5.09
	 	Prohibited Signs	 	 	9	 
	5.10
	 	Window Coverings	 	 	9	 
	5.11
	 	Parking	 	 	9	 
	5.12
	 	Authorization of Enquiries	 	 	9	 
	5.13
	 	Records	 	 	9	 
	5.14
	 	Overloading	 	 	10	 
	5.15
	 	Telecommunications	 	 	10	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 6.00 - SERVICES, MAINTENANCE, REPAIR AND ALTERATIONS	 	 	 	 
	 
	 	BY LANDLORD	 	 	 	 
	 
	 	 	 	 	 	 
	6.01
	 	Operation of Project	 	 	10	 
	6.02
	 	Building Services and Facilities	 	 	10	 
	6.03
	 	Maintenance, Repair and Replacement	 	 	11	 
	6.04
	 	Alterations / Renovations by Landlord	 	 	11	 
	6.05
	 	Access by Landlord	 	 	12	 
	6.06
	 	Energy Conservation	 	 	12	 
	6.07
	 	Supervision and Extended Services	 	 	12	 
	6.08
	 	Landlord’s Work	 	 	12	 
	6.09
	 	Control by Landlord	 	 	12	 

 

 

	 	 	 	 	 	 	 
	SECTION	 	 	 	PAGE	 
	 
	 	ARTICLE 7.00 - PAYMENT FOR SERVICES AND MAINTENANCE, REPAIR AND	 	 	 	 
	 
	 	ALTERATIONS BY TENANT	 	 	 	 
	 
	 	 	 	 	 	 
	7.01
	 	Utilities 	 	 	12	 
	7.02
	 	Lights 	 	 	13	 
	7.03
	 	Heating, Ventilation and Air Conditioning	 	 	13	 
	7.04
	 	Alterations by Tenant 	 	 	13	 
	7.05
	 	Tenant’s Trade Fixtures and Personal Property 	 	 	14	 
	7.06
	 	Maintenance and Repair 	 	 	14	 
	7.07
	 	Inspection 	 	 	14	 
	7.08
	 	Failure to Maintain 	 	 	14	 
	7.09
	 	Liens 	 	 	15	 
	7.10
	 	Roof 	 	 	15	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 8.00 TAXES	 	 	 	 
	 
	 	 	 	 	 	 
	8.01
	 	Taxes Payable by Landlord 	 	 	15	 
	8.02
	 	Taxes Payable by Tenant 	 	 	15	 
	8.03
	 	Tax Increases Attributable to Tenant 	 	 	15	 
	8.04
	 	GST 	 	 	16	 
	8.05
	 	Landlord’s Election 	 	 	16	 
	8.06
	 	Right to Contest 	 	 	16	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 9.00 - INSURANCE, LIABILITY AND ENVIRONMENTAL	 	 	 	 
	 
	 	 	 	 	 	 
	9.01
	 	Landlord’s Insurance 	 	 	16	 
	9.02
	 	Tenant’s Insurance	 	 	 	 
	9.03
	 	Placement of Tenant’s Insurance by Landlord 	 	 	18	 
	9.04
	 	Limitation of Landlord’s Liability 	 	 	18	 
	9.05
	 	Environmental Issues 	 	 	18	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 10.00 - DAMAGE AND DESTRUCTION	 	 	 	 
	 
	 	 	 	 	 	 
	10.01
	 	Limited Damage to Leased Premises, Access or Services 	 	 	19	 
	10.02
	 	Major Damage to Leased Premises 	 	 	19	 
	10.03
	 	Damage to Building 	 	 	20	 
	10.04
	 	No Abatement 	 	 	20	 
	10.05
	 	Notify Landlord 	 	 	20	 
	10.06
	 	Expropriation 	 	 	20	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 11.00 - DEFAULT	 	 	 	 
	 
	 	 	 	 	 	 
	11.01
	 	Arrears 	 	 	20	 
	11.02
	 	Costs of Enforcement 	 	 	21	 
	11.03
	 	Performance of Tenant’s Obligations 	 	 	21	 
	11.04
	 	Remedies on Default 	 	 	21	 
	11.05
	 	Availability of Remedies	 	 	22	 
	11.06
	 	Waiver 	 	 	22	 
	11.07
	 	Waiver of Exemption and Redemption 	 	 	22	 
	11.08
	 	Companies’ Creditors Arrangement Act 	 	 	22	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 12.00 - ASSIGNMENT, SUBLETTING AND OTHER TRANSFERS	 	 	 	 
	 
	 	 	 	 	 	 
	12.01
	 	Request for Consent 	 	 	22	 
	12.02
	 	Basis for Consent 	 	 	23	 
	12.03
	 	Terms and Conditions Relating to Consents 	 	 	24	 
	12.04
	 	Subsequent Transfers 	 	 	24	 
	12.05
	 	Profit Rents upon Transfers 	 	 	24	 
	12.06
	 	Advertising 	 	 	24	 
	12.07
	 	Grant of Security Interest by Transferee 	 	 	24	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 13.00 - TRANSFERS BY LANDLORD	 	 	 	 
	 
	 	 	 	 	 	 
	13.01
	 	Sale, Conveyance and Assignment 	 	 	25	 
	13.02
	 	Effect of Transfer 	 	 	25	 
	13.03
	 	Subordination 	 	 	25	 
	13.04
	 	Attainment 	 	 	25	 
	13.05
	 	Effect of Attornment 	 	 	25	 
	13.06
	 	Repurchase 	 	 	25	 

 

 

	 	 	 	 	 	 	 
	SECTION	 	 	 	PAGE	 
	 
	 	ARTICLE 14.00 - SURRENDER	 	 	 	 
	 
	 	 	 	 	 	 
	14.01
	 	Possession and Restoration	 	 	25	 
	14.02
	 	Tenant’s Trade Fixtures and Personal Property	 	 	26	 
	14.03
	 	Overholding 	 	 	26	 
	 
	 	 	 	 	 	 
	 
	 	ARTICLE 15.00 - GENERAL	 	 	 	 
	 
	 	 	 	 	 	 
	15.01
	 	Estoppel Certificates 	 	 	26	 
	15.02
	 	Entire Agreement	 	 	27	 
	15.03
	 	No Registration of Lease or Notice	 	 	27	 
	15.05
	 	Demolition / Substantial Renovation	 	 	27	 
	15.06
	 	Relocation	 	 	27	 
	15.07
	 	“For Lease” Signs	 	 	27	 
	15.08
	 	Unavoidable Delays	 	 	27	 
	15.09
	 	Limitation of Recourse	 	 	27	 
	15.11
	 	Delegation of Authority	 	 	28	 
	15.12
	 	Relationship of Parties	 	 	28	 
	15.13
	 	Governing Law	 	 	28	 
	15.14
	 	Amendment or Modification	 	 	28	 
	15.15
	 	Legal and Administration Costs	 	 	28	 
	15.16
	 	Construction	 	 	28	 
	15.17
	 	Captions and Headings	 	 	28	 
	15.18
	 	Interpretation	 	 	28	 
	15.19
	 	Time of the Essence	 	 	29	 
	15.20
	 	Successors and Assigns	 	 	29	 
	15.21
	 	Counterparts	 	 	29	 
	15.22
	 	Further Schedules	 	 	29	 
	15.23
	 	Independent Legal Advice	 	 	29	 
	15.24
	 	No Offer	 	 	29	 
	15.25
	 	Landlord’s Security Interest	 	 	29	 
	15.26
	 	Survival of Covenants and Indemnities	 	 	30	 
	15.27
	 	Exculpatory Provisions	 	 	30	 
	15.28
	 	Brokerage Commissions	 	 	30	 
	15.29
	 	Covenants to be Performed at Landlord’s Option	 	 	30	 
	15.30
	 	Radiation	 	 	30	 

SCHEDULES

	 	 	 	 	 	 	 
	Schedule A

	 	-
	 	Plan Showing Leased Premises
	 	 
	 
	 	 	 	 	 	 
	Schedule A1

	 	-
	 	Legal Description of Land	 	 
	 
	 	 	 	 	 	 
	Schedule B

	 	-
	 	Definitions	 	 
	 
	 	 	 	 	 	 
	Schedule C

	 	-
	 	Rules and Regulations	 	 
	 
	 	 	 	 	 	 
	Schedule D

	 	-
	 	Landlord’s Work	 	 
	 
	 	 	 	 	 	 
	Schedule E

	 	-
	 	Additional Covenants, Agreements and Conditions (if any)	 	 
	 
	 	 	 	 	 	 
	Schedule F

	 	-
	 	Form of Indemnity Agreement
(if applicable)	 	 
	 
	 	 	 	 	 	 
	Schedule G

	 	-
	 	Security Interest - Remedies on Default	 	 
	 
	 	 	 	 	 	 
	Schedule H

	 	-
	 	Contents of Leased Premises	 	 

 

 

 PAGE 1 OF TERM SHEET — FORMING PART OF LEASE OF OFFICE SPACE — MULTI-TENANT

	 	 	 	 	 	 	 	 	 	 	 
	1.

	 	(a)
	 	LANDLORD: CORDOVA EQUITIES INC.	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	ADDRESS:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	c/o Morguard Investments Limited
	 	TELEPHONE:
	 	 	604.681.9474	 
	 

	 	 	 	Suite 400 — 333 Seymour Street
	 	FAX NUMBER:
	 	 	604.685.0161	 
	 

	 	 	 	Vancouver, British Columbia	 	 	 	 	 	 
	 

	 	 	 	V6B 5A6	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	(b)
	 	LANDLORD’S HEAD OFFICE:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	c/o Morguard Investments Limited
	 	TELEPHONE:
	 	 	905.281.3800	 
	 

	 	 	 	800 — 55 City Centre Drive
	 	FAX NUMBER
	 	 	905.281.1800	 
	 

	 	 	 	Mississauga, ON L5B 1M3

 	 	 	 	 	 	 
	 

	 	 	 	Attention: President	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	(c)	 	Landlord’s “Environmental Contact”: Operations Manager	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	2.	 	   TENANT (legal name): SEA BREEZE POWER CORP.	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	   ADDRESS:
	 	 	 	TELEPHONE:
	 	604.689.2991

	 

	 	 	 	 	 	FAX NUMBER:
	 	 	604.689.2990	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	   Suite 1400-333 Seymour Street	 	 	 	 
	 	 	   Vancouver, British Columbia	 	 	 	 
	 

	 	   V6B 5A6	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 
	3.

	 	PROJECT NAME:
	 	MUNICIPAL ADDRESS OF PROJECT:
	 
	 	 	 	 
	 

	 	333 SEYMOUR
	 	333 Seymour Street Vancouver,
	 

	 	 	 	British ‘Columbia V6B 5A6

	4.	 	LEASED PREMISES:

		 	Attached as Schedule A to this Lease is a plan of the Project showing the Leased Premises
by hatching. The Leased Premises are designated as Suite 1400.

	5.	 	RENTABLE AREA OF LEASED PREMISES:

		 	10,788 square feet subject to adjustment in accordance with the definition of Rentable
Area and Section 4.08. The Rentable Area of the Leased Premises shall be calculated in
accordance with the BOMA ANSI standards ANSI Z65.1-1980, except to the extent modified by
the definition of Rentable Area.

	6.	 	(a) SECURITY DEPOSIT: $26,760.89 (shall be due on July 1, 2005) (SECTION 4.02)

		 	(b) OTHER DEPOSIT: $25,798.96 (SCHEDULE E)

 

 

PAGE 2 OF TERM SHEET — FORMING PART OF LEASE OF OFFICE SPACE — MULTI-TENANT

	 	 	 	 	 	 	 
	7.

	 	TERM:
	 	 	 	3 years
	 
	 	 	 	 	 	 
	 

	 	(a)
	 	FIRST DAY OF TERM:
	 	October 1, 2005
	 
	 	 	 	 	 	 
	 

	 	(b)
	 	LAST, DAY OF TERM:
	 	September 30, 2008

	8.	 	BASIC RENT:

		 	From October 1, 2005 to September 30, 2007, $129,456.00 per annum, $10,788.00 per
month calculated at a rate of $12.00 per square foot per annum of the Rentable Area
of the Leased Premises; and

		 	From October 1, 2007 to September 30, 2008, $140,244.00 per annum, $11,687.00 per
month calculated at a rate of $13.00 per square foot per annum of the Rentable Area
of the Leased Premises.

	9.	 	USE OF LEASED PREMISES:

		 	The Leased Premises shall be used solely for the purpose of a general office for the
business of the development of renewable energy projects and the application of
related power technologies, and for no other purpose. The Leased Premises shall not
be used for any use prohibited by Article 5.00 or Section 9.05.

	10.	 	ENVIRONMENTAL ISSUES:

	 	 	 	 	 	 	 
	 

	 	LEASE SECTION 9.05:
	 	Applies þ
	 	Does not applyo
	 
	 

	 	RIDER I (SECTION 9.05):
	 	Applies ·o
	 	Does not apply þ
	 
	 	 	 	 	 	 
	11.

	 	INDEMNIFIER:
	 	NOT APPLICABLE	 	 

Additional Covenants, Agreements and Conditions (if any) listed here are more particularly
set out in Schedule E.

	 	1.	 	Other Deposit
	 
	 	2.	 	Special Equipment
	 
	 	3.	 	Signage
	 
	 	4.	 	Parking

 

 

LEASE OF OFFICE SPACE

MULTI-TENANT OFFICE BUILDING

THIS LEASE is made as of the 24th day of May, 2005.

	BETWEEN:	 	CORDOVA EQUITIES INC.,

		 	 a company incorporated under the laws of the Province of British Columbia;

		 	 (the “Landlord”)

	AND:	 	SEA BREEZE POWER CORP.

		 	 a company incorporated under the laws of the Province of British Columbia;

		 	 (the “Tenant”)

     IN CONSIDERATION of the mutual covenants contained herein, the parties hereby agree as follows:

ARTICLE 1.00 — DEFINITIONS

1.01 Definitions - In this Lease the terms defined in Schedule B shall have the meanings
designated therein respectively.

ARTICLE 2.00 — GRANT OF LEASE AND GENERAL COVENANTS

2.01 Grant - The Landlord hereby leases to the Tenant and the Tenant hereby leases from
the Landlord the Leased Premises, to have and to hold during the Term, subject to the terms and
conditions of this Lease.

2.02 Landlords General Covenants - The Landlord covenants with the Tenant:

	(a)	 	subject to the provisions of this Lease, for quiet enjoyment of the Leased Premises so
long as the Tenant shall observe and perform all of the covenants and obligations of the
Tenant herein; and
	 
	(b)	 	to observe and perform all the covenants and obligations of the Landlord herein.

2.03 Tenant’s General Covenants - The Tenant covenants with the Landlord:

	(a)	 	to pay Rent without any deduction, abatement or set-off whatsoever; and
	 
	(b)	 	to observe and perform all the covenants and obligations of the Tenant herein.

 

 

ARTICLE 3.00 - TERM AND POSSESSION

3.01 Term - The Term of this Lease shall begin on the Commencement Date and end on the
date set out in Item 7(b) of the Term Sheet unless terminated earlier as provided in this Lease.

3.02 Early Occupancy - The Tenant may, with the Landlord’s prior written consent, use
and occupy the Leased Premises or portions thereof before the Commencement Date. In the event of
early occupancy, the Tenant shall pay to the Landlord on the date of occupancy a rental for the
period from the date the Tenant begins to use or occupy the Leased Premises or portions thereof
to the Commencement Date, which rental shall be that proportion of the Rent for the first
calendar year of the Term which the number of days in such period is of 365, multiplied by that
proportion that the part of the Leased Premises used and occupied from time to time by the
Tenant prior to the Commencement Date is of the total area of the Leased Premises. Except where
clearly inapplicable, all provisions of this Lease shall apply during such period.

3.03 Delayed Possession - If the Landlord is unable to deliver possession of all or any
portion of the Leased Premises by the Commencement Date, this Lease shall remain .in full force
and effect and the Tenant shall take possession of the Leased Premises on the date when the
Landlord delivers possession of all of the Leased Premises, which date shall be conclusively
established by notice in writing from the Landlord to the Tenant at least 10 days before such
date. The Landlord shall not be liable to the Tenant for any loss, damage or inconvenience
resulting from any delay in delivering possession of the Leased Premises but, unless the delay is

caused by or attributable to the Tenant, its servants, agents or independent contractors, no Rent
shall be payable by the Tenant for the period prior to the date on which the Landlord can deliver
possession of all. of the Leased Premises, unless the Tenant elects to take possession of a
portion of the Leased Premises, in which case Rent shall be payable in respect thereof from the
date such possession is so taken. Despite anything contained to the contrary in this Section
3.03, if the Landlord is of the opinion that it is unable to deliver possession of all or any
part of the Leased Premises by the expiration of 6 months from the Commencement Date, the
Landlord shall have the right to terminate this Lease upon written notice to the Tenant,
whereupon neither party shall have any liability to the other and, after the termination date,
the Landlord shall return to the Tenant, without interest or deduction, the Security Deposit, if
any.

3.04 Acceptance of Leased Premises - Taking possession of all or any portion of the
Leased Premises by the Tenant shall be conclusive evidence as against the Tenant that the Leased
Premises or such portion thereof and the Common Elements are in satisfactory condition on the
date of taking possession, subject only to latent defects and to deficiencies (if any) listed in
writing in a notice delivered by the Tenant to the Landlord not more than 10 days after the date
of taking possession.

ARTICLE 4.00 — RENT

	4.01	 	Rent - The Tenant shall pay to the Landlord as Rent for the Leased Premises the
aggregate of:
	 
	(a)	 	Basic Rent in respect of each year of the Term, payable in advance and without notice or
demand In monthly instalments as set out in Item 8 of the Term Sheet commencing on the
Commencement Date and on the first day of each calendar month thereafter during the Term;
	 
	(b)	 	the Tenant’s Proportionate Share of Operating Costs and the Tenant’s Proportionate
Share. of Taxes, during the Term, in each case payable in monthly instalments at
the times and in the manner provided in Section 4.06; and
	 
	(c)	 	all amounts (other than payments under Subsections 4.01 (a) and! (b)) payable by the
Tenant to the Landlord under this Lease, at the times and in the manner provided in this
Lease or, if not so provided, as reasonably required by the Landlord.

4.02 Security Deposit - The Landlord acknowledges receipt on or before the Commencement
Date of the amount set out in Item 6(a) of the Term Sheet (the “Security Deposit”) to be held by
the Landlord, without any liability whatsoever on the part of the Landlord for the payment of
interest thereon, as a security deposit for the faithful performance by the Tenant of the terms,
covenants and conditions of this Lease during the Term hereof and not to be applied on account
of Rent except as otherwise provided in this Section 4.02. The Security Deposit will not be a
limitation on the Landlord’s damages or other rights and remedies available under this Lease or
at law or equity, nor shall the Security Deposit be either a payment of liquidated damages or an
advance payment of Rent. The Landlord shall have no fiduciary responsibilities or trust
obligations whatsoever with regard to the Security Deposit and shall not assume the duties of a
trustee for the Security Deposit. The Security Deposit shall not be mortgaged, assigned or
encumbered by the Tenant and the Landlord shall not be bound by any such mortgage, assignment or
encumbrance. It is understood and agreed between the parties that any portion of the Security
Deposit may, at the Landlord’s

 

 

option, be applied toward the payment of overdue or unpaid Rent and may also be applied as
compensation to the Landlord for any loss or damage sustained with respect to the breach on the
part of the Tenant of any terms, covenants and conditions of this Lease, provided in all cases,
however, that the Tenant’s liability hereunder is not limited to the amount of the Security
Deposit. If during the Term any portion of the Security Deposit is so applied, then the Tenant
shall on written demand deliver to the Landlord a sufficient amount by certified cheque to
restore the Security Deposit to the original sum deposited. The Landlord shall refund to the
Tenant after the expiry date of this Lease any portion of the Security Deposit not used by the
Landlord after application by the Landlord to any damage incurred by the Landlord by reason of
the default of the Tenant under the terms of this Lease. It is further provided that the
Landlord will be discharged from all liability to the Tenant with respect to the Security
Deposit to the extent that it is transferred to any purchaser of the Landlord’s interest in the
Leased Premises.

4.03 Intent - It is the stated purpose and intent of the Landlord and the Tenant that
this Lease and the Rent shall be fully net to the Landlord.

4.04 Payment of Rent - General - All amounts payable by the Tenant to the Landlord
pursuant to this Lease shall be deemed to be Rent and shall be payable and recoverable as Rent
in the manner herein provided and the Landlord shall have all rights against the Tenant for
default in any such payment as in the case of arrears of Rent. Rent shall be paid to the
Landlord in lawful money of Canada, without deduction, abatement or set-off, at the local
address of the Landlord set out in Item 1 of the Term Sheet or to such other Person or such
other address as the Landlord may from time to time designate in writing. The Tenant’s
obligation to pay Rent shall survive the expiration or earlier termination of
this Lease. Any Rent or other sum received or accepted by the Landlord and paid by
anyone other than the Tenant, on behalf of the Tenant, shall not release or in any way affect
the covenants of the Tenant set out in this Lease and shall not be deemed to constitute or
evidence the Landlord’s consent to a Transfer under Article 12.00. Any Rent or other sum
received by the Landlord from or for the account of the Tenant while the Tenant is in default
under this Lease may be applied at the Landlord’s option to the satisfaction in whole or in
part of any of the obligations of the Tenant then due under this Lease in such manner as the
Landlord sees fit regardless of any designation or instruction of the Tenant to the contrary.

4.05 Partial Month - If the Commencement Date is a day other than the first day of
a calendar month, or if the Term ends on any day other than the last day of a calendar month,
Rent for the fractions of a month at the beginning and at the end of the Term shall be adjusted
pro rata on a per diem basis.

4,06 Payment of Tenant’s Occupancy Costs

	(1)	 	Estimate and Payment
	 
	(a)	 	The Landlord shall deliver to the Tenant a written estimate or a written revised
estimate of: (i) the Tenant’s Proportionate Share of Operating Costs for each Fiscal Year;
and (ii) the Tenant’s Proportionate Share of Taxes for each Fiscal Year. The Tenant shall
pay to the Landlord the amount so estimated in equal monthly instalments (except as
otherwise required in this Section 4.06 with respect to Property Taxes) in advance over
that Fiscal Year simultaneously with the Tenant’s payments on account of Basic Rent. If
the Landlord does not deliver to the Tenant such an estimate, the Tenant shall continue to
pay the Tenant’s Proportionate Share of Operating Costs and the Tenant’s Proportionate
Share of Taxes based on the last such estimate delivered by the Landlord until a further
estimate is delivered by the Landlord and the next payment on account of the Tenant’s
Operating Costs or Taxes shall be adjusted to take into account any over or under payment
in the preceding. instalments paid in the Fiscal Year to which the estimate or
revised estimate relates. Notwithstanding the foregoing, as soon as bills for all or any
portion of amounts included in Operating Costs and Taxes as so estimated are received, the
Landlord may bill the Tenant for the Tenant’s Proportionate Share thereof and the Tenant
shall pay the Landlord such amounts so billed (less all amounts previously paid on account
by the Tenant on the basis of the Landlord’s estimate as aforesaid) as Rent within 5 days
following demand therefor.
	 
	(b)	 	Within a reasonable time after the date in each calendar year when the final instalment
of Property Taxes is due in respect of commercial properties generally in the municipality
in which the Project is located (the “Final Payment Date”), the Landlord shall deliver a
statement (the “Tax Statement”) to the Tenant that: (i) specifies the Tenant’s
Proportionate Share of Taxes for the Property Tax Year; and (ii) sets out the total (the
“Prepayment Total”) of amounts payable under this Subsection 4.06(1)(b) that have been
paid by the Tenant between the Final Payment Date in the previous Property Tax Year and
the Final Payment Date of the current Property Tax Year. If the Prepayment Total, less any
amounts that were previously credited to the Tenant, and any amounts paid for arrears in
respect of previous Property Tax Years, (the “Net Prepayment Total”) is less than the
Tenant’s Proportionate Share of Taxes specified in the Tax Statement, the Tenant shall pay
the deficiency with the next monthly payment of Basic Rent. If the Net Prepayment Total
exceeds the Tenant’s Proportionate Share of Taxes specified in the Tax Statement, the
Landlord shall, unless the

 

 

	 	 	Tenant is then in default under this Lease, credit the excess to the Tenant on account of
the next succeeding payments of the Tenant’s Occupancy Costs. The Landlord may estimate
Property Taxes for the Property Tax Year following the then current Property Tax Year and
the Tenant shall continue after the Final Payment Date to make monthly payments in
advance, in amounts determined by the Landlord, for periods determined by the Landlord.
The monthly payments paid by the Tenant after the Final Payment Date shall be credited
against the Tenant’s Proportionate Share of Taxes for the subsequent Property Tax Year.
	 
	(c)	 	Any portion of the Tenant’s Proportionate Share of Taxes accrued with respect to the Term
or any part thereof paid by the Landlord prior to the Commencement Date shall be reimbursed
by the Tenant to the Landlord on the Commencement Date or on demand thereafter. Subject to
Sections 8.03 and 8.05, the Tenant shall pay the Tenant’s Proportionate Share of any
Property Taxes or the Landlord’s reasonable estimate thereof monthly in advance in the same
manner as for payment of the Tenant’s Proportionate Share of Operating Costs.
	 
	 	 	Notwithstanding the foregoing, the Landlord shall always have the right:
	 
	 	 	(i) to revise the amount of instalments on account of Property Taxes payable by the Tenant
to an amount that allows the Landlord to collect all Property Taxes payable by the Tenant
by the final due date of Property Taxes for the calendar year; and/or
	 
	 	 	(ii) to schedule and require payment by the Tenant of instalments on account of Property
Taxes payable by the Tenant such that by the final due date of Property Taxes for any
calendar year, the Tenant shall have paid to the Landlord the full amount of Property
Taxes payable by the Tenant for such calendar year, which arrangement may include payment
of instalments by the Tenant in a calendar year on account of Property Taxes payable by
the Tenant for the next calendar year.

(2) Annual Statement and Adjustment - The Landlord shall deliver to the Tenant within 120 days
after the end of each Fiscal Year or as soon after that date as the same shall be prepared by or
for the Landlord, a written statement setting out in reasonable detail the amount of the Tenant’s
Occupancy Costs for such Fiscal Year. If the total of monthly instalments of the Tenant’s
Occupancy Costs actually paid by the Tenant to the Landlord during that Fiscal Year differs, from
the amount of the Tenant’s Occupancy Costs payable for that Fiscal Year under Subsection 4.01(b),
the Tenant shall pay to the Landlord or, if the Tenant is not in default, the Landlord shall
credit to the Tenant on account of the next succeeding payments of the Tenant’s Operating Costs
and Taxes, as the case may be, the difference, without interest, within 30 days after the date of
delivery of the statement.

(3) Disputes - If the Tenant disputes the Landlord’s statement setting out Operating Costs or the
Tax Statement for any Fiscal Year, the Tenant shall provide notice thereof in writing to the
Landlord within 60 days of delivery of the applicable statement in respect of that Fiscal Year.
Notwithstanding delivery of such notice, the Tenant shall continue to pay Rent in accordance with
the terms of this Lease. In the event of a dispute, the determination of the Tenant’s
Proportionate Share of Operating Costs or the Tenant’s Proportionate Share of Taxes as made by the
Landlord’s auditors shall be conclusive and binding upon both the Landlord and the Tenant. All
costs of obtaining such determination shall be included in Operating Costs; provided that if the
Landlord’s auditors confirm the Landlord’s calculations within a variance of 5%, the Tenant shall
be solely responsible for the entire cost of such determination and shall. pay such
costs to the Landlord forthwith upon demand. If the Tenant and any one or more of the other
tenants in the Project are responsible to pay such costs, the Tenant shall be jointly and
severally liable with such other tenant or tenants.

4.07 Resolution of Disputes - In the event of any disagreement as to the amount or
propriety of any amount included in Operating Costs, a certificate of the auditor of the
Landlord, acting reasonably, shall be conclusive as to the amount of Operating Costs for any
period to which such certificate relates.

4.08 Area Determination - The Landlord may from time to time, as it deems necessary,
cause the Rentable Area of the Leased Premises and the Total Rentable Area of the Building or any
part thereof to be recalculated or remeasured and the cost thereof shall be included in Operating
Costs (except as otherwise provided in this Section 4.08). Upon any such recalculation or
remeasurement, Rent (including without limitation Basic Rent) shall be adjusted accordingly. If
any calculation or determination by the Landlord of the Rentable Area of any premises (including
the Leased Premises) is disputed or called into question, it shall be calculated or determined by
the Landlord’s architect or surveyor from time to time appointed for that purpose, whose
certificate shall be conclusive and binding upon the parties hereto. The cost of such calculation
or determination shall be included in Operating Costs; provided that if the Tenant disputes the
Landlord’s calculation or determination and the calculation or determination by the Landlord’s
architect or surveyor agrees with the Landlord’s calculation or determination within a 2%
variance, the Tenant shall pay the full cost of such calculation or determination forthwith upon
demand. If the Tenant and any one or more

 

 

of the other tenants in the Project are responsible to pay such costs, the Tenant shall be
jointly and severally liable with such other tenant or tenants.

If any error shall be found in the calculation of the Rentable Area of the Leased Premises or in
the calculation of the Tenant’s Proportionate Share, Rent (including without limitation Basic
Rent) shall be adjusted for the Fiscal Year in which the error is discovered and for the Fiscal
Year preceding the Fiscal Year in which the error was discovered, if any, and thereafter, but
not for any prior period.

4.09 Vacancy - if any part of the Building available for leasing is not occupied, the
Landlord shall have the right, in respect of amounts forming part of Operating Costs which vary
proportionately with occupancy, to include in Operating Costs a larger amount of costs, which
larger amount shall be based on a reasonable estimate of the actual cost which would have been
incurred if the unoccupied parts of the Building available for leasing were occupied, it being
intended hereby that the Landlord shall obtain, to the extent reasonably possible, full
reimbursement of Operating Costs attributable to or in respect of occupied premises, and not
that: (i) the Tenant shall subsidize Operating Costs incurred by the Landlord attributable to or
in respect of vacant premises; or (ii) the Landlord shall recover more than actual Operating
Costs.

4.10 Method of Payment

(1) Unless the Landlord advises otherwise in writing, the Tenant shall provide to the Landlord
on or before the Commencement Date and thereafter on or before the beginning of each Fiscal Year
during the Term and within 10 days after delivery of the Landlord’s estimate of any payment
constituting Rent, postdated cheques in the amount of Rent for each month during that Fiscal
Year.

(2) At the Landlord’s request, the Tenant shall participate in a pre-authorized payment plan
whereby the Landlord will be authorized to debit the Tenant’s bank account each month or from
time to time for Rent payable on a monthly basis, and any amount payable provisionally on an
estimated basis. The Tenant hereby undertakes to execute and deliver such documents as may
reasonably be required to give full force and effect to this Subsection 4.10(2) within 5 days of
such request.

ARTICLE 5.00 - USE AND OCCUPATION

5.01 Use of Leased Premises - The Tenant shall use and occupy only the usable part of
the Leased Premises and only for office purposes to carry on the business set out in Item 9 of
the Term Sheet and shall not use or permit the Leased Premises or any part thereof to be used or
occupied for any other purpose or business except as otherwise expressly permitted under this
Lease or by any Person other than the Tenant. The Tenant shall be responsible for obtaining at
its expense all necessary approvals, licences and permits, including but not limited to zoning,
development, building, occupancy and business approvals, licences and permits, for its intended
use of the Leased Premises and shall submit all applications for such approvals, licences and
permits to the Landlord for its consent (which consent, if the application pertains to the
zoning applicable to the Project or may adversely affect the value or use of the Project or any
part thereof, may be arbitrarily withheld by the Landlord) prior to making application.
Notwithstanding the Landlord’s consent to an application, the Tenant shall indemnify and defend
the Landlord and hold it harmless from and against any and all Claims incurred or suffered by
the Landlord directly or indirectly arising out of the Tenant’s application for such approvals,
licences or permits or the resulting approvals, licences and permits with respect to the use,
intended or otherwise, of the Leased Premises whether such Claims are in respect of the Leased
Premises or in respect of the Building or the Project. The Landlord makes no representation
whether or not necessary approvals can be obtained for the Tenant’s use or intended use. The
Landlord makes no representation or warranty, express or implied, that the present or future use
of the Leased Premises, if such use is anything other than office use, is legally fit for the
intended use, or complies with any law, by-law or regulation governing the use of the Leased
Premises.

5.02 Compliance with Laws - The Tenant shall promptly and at its own cost comply with
all present and future laws, regulations and orders relating to, and obtain and maintain in
force all approvals, permits, licences and registrations required for, any of the following:

	(a)	 	the occupation or use of and the conduct of any business in or from the Leased Premises;
	 
	(b)	 	the condition of the Leasehold Improvements, fixtures, furniture and equipment installed
therein;
	 
	(c)	 	Pollutants and the protection of the environment so far as those laws, regulations and
orders or any of them relate to the Project; and
	 
	(d)	 	the making by the Tenant of any repairs, changes or improvements in or to the Project;

and the Tenant shall immediately give written notice to the Landlord of the occurrence of any
event in the Leased Premises constituting an offence thereunder or being in breach thereof and
if the

 

 

Tenant shall, either alone or with others, cause the happening of any such event, the Tenant
shall immediately give the Landlord notice to that effect and thereafter give the Landlord from
time to time written notice of the extent and nature of the Tenant’s compliance with the
foregoing provisions of this Section.

The Tenant agrees that if the Landlord determines in its sole discretion that the Landlord, its
property, its reputation or the Leased Premises or any one or more of the foregoing is placed in
any jeopardy, as determined by the Landlord, by the requirements for any work required to ensure
compliance with the foregoing provisions of this Section 5.02, or the Tenant is unable to fulfil
its obligations under this Section, the Landlord may itself undertake such work or any part
thereof at the cost and expense of the Tenant.

The Tenant shall, at its own expense, remedy any damage to the Leased Premises caused by such
event or work or by the performance of the Tenant’s obligations under this Section.

If alterations or improvements to the Leasehold Improvements or to the Leased Premises are
necessary to comply with any of the foregoing provisions of this Section or with the requirements
of insurance carriers, the Tenant shall forthwith complete such work, complying always with the
applicable provisions of this Lease, to the extent that it can be done within the Leased Premises
and in any event shall pay the entire cost of alterations and improvements so required.

In the event that structural repairs or upgrading of the Building, including but not limited to
seismic upgrading, is required to permit the Tenant’s use, the Landlord may, at its sole
discretion, terminate this Lease.

5.03 Prohibited Uses - The Tenant shall not commit, cause or permit any nuisance in or
about or any damage to the Leased Premises or any part thereof, the Building, the Project or any
of the Leasehold Improvements or goods or fixtures therein, any overloading of the floors of the
Leased Premises or any use or manner of use causing annoyance to other tenants or occupants of
the Project. Without limiting the generality of the foregoing, the Tenant shall not use or permit
the use of any portion of the Leased Premises for any dangerous, illegal, noxious, odorous or
offensive trade, business or occurrence. The Tenant shall keep the Leased Premises free of
debris, Pollutants and anything of a dangerous, noxious, odorous or offensive nature or which
could create a fire hazard (through undue load on electrical circuits or otherwise) or vibration,
heat, odour or noise detectable outside the Leased Premises in the sole discretion of the
Landlord. The Tenant shall not use equipment in the Leased Premises in a manner that results in
its being seen or heard outside the Leased Premises.

5.04 Common Elements - The Tenant and its employees and invitees shall be entitled to
use, in common with others entitled thereto, for purposes for which they are intended and only
during such hours as the Landlord may designate from time to time, the Common Elements. The
Tenant and its employees and invitees shall not obstruct the Common Elements or use the Common
Elements other than for their intended purposes and then only in accordance with the rules and
regulations set by the Landlord from time to time.

5.05 Hazardous Use - The Tenant shall not do, omit to do or permit to be done anything
which will cause or may have the effect of causing the cost of the Landlord’s insurance in
respect of the Project or any part thereof to be increased at any time during the Term or any
policy of insurance on or relating to the Project to be subject to cancellation. Without waiving
or limiting the foregoing prohibition, the Landlord may demand and the Tenant shall pay to the
Landlord upon demand, the amount of any increase in the cost of insurance caused by anything so
done or omitted or permitted to be done. The Tenant shall forthwith upon the Landlord’s request
comply with the requirements of the Landlord’s insurers, cease any activity complained of and
make good any circumstance which has caused any increase in insurance premiums or the
cancellation or threatened cancellation of any insurance policy. In determining the amount of
increased premiums for which the Tenant is responsible, a schedule or statement issued by the
Person who computes the insurance rates for the Landlord showing the components of the rate shall
be conclusive evidence of the items that make up the rate. If any policy of insurance in respect
of the Project or any part thereof is cancelled or becomes subject to cancellation by reason of
anything so done or omitted or permitted to be done, the Landlord may without prior notice
terminate this Lease and re-enter the Leased Premises.

5.06 Tenant’s Security interest - The Tenant shall not, without the Landlord’s prior
written consent, create a security interest in Leasehold improvements installed by the Tenant or
the Landlord in the Leased Premises.

5.07 Rules and Regulations - The Tenant shall observe and cause its employees, servants,
agents, invitees, customers, subtenants, licensees and others over whom the Tenant can reasonably
be expected to exercise control to observe the rules and regulations attached as Schedule C
hereto and such further and other reasonable rules and regulations and amendments and additions
thereto as may be made by the Landlord and notified to the Tenant by mailing a copy
thereof. to the Tenant or by posting same in a conspicuous place in the Building. All
such rules and regulations now or hereafter in force shall be read as forming part of this Lease;
provided that if there is a conflict

 

 

between the rules and regulations and this Lease, the terms of this Lease shall prevail. The
Landlord shall not be responsible to the Tenant for the non-observance of any rule or regulation
or the terms of any lease or agreement to lease by any other tenant of the Project.

5.08 Permitted Signs - The Tenant shall use only such identification signs as are
prescribed by the Landlord from time to time and as comply with all applicable by-laws,
regulations and codes as to size, location, arrangement, type of lettering, colour; appearance
and design for uniform use by office tenants in the Building. Such signs shall contain only the
name under which the Tenant carries on business.

5.09 Prohibited Signs - Except with the prior written consent of the Landlord, which
consent may be arbitrarily withheld or rescinded in the Landlord’s sole discretion, or as
provided in Section 5.08, the Tenant shall not paint, display, inscribe, place or affix any
sign, symbol, notice, advertisement, display or direction of any kind anywhere outside the
Leased Premises or on the interior of any glass, windows or doors or elsewhere within the Leased
Premises so as to be visible from the outside of the Leased Premises.

5.10 Window Coverings - Without the prior written consent of the Landlord, the Tenant
shall not install any blinds, drapes, curtains or any other window coverings in the Leased
Premises and shall not remove, add to or change the blinds, drapes, curtains or other window
coverings installed by the Landlord from time to time. The Tenant shall keep all window
coverings open or closed at various times as the Landlord may from time to time direct by the
rules and regulations or otherwise.

5.11 Parking - Any Parking Facilities provided by the Landlord shall at all times be
subject to the exclusive control and management of the Landlord or those whom the Landlord may
designate from time to time. The Landlord shall have the right from time to time to establish,
modify and enforce reasonable rules and regulations with respect to any Parking Facilities and
shall have the right from time to time:

	(a)	 	to expand, reduce, or change the area, level, location and arrangement of the Parking
Facilities and to construct any Parking Facilities;
	 
	(b)	 	to enforce parking charges with appropriate provisions for free parking ticket validating
by tenants of the Building;
	 
	(c)	 	to temporarily close all or any portion of the Parking Facilities to such extent as may,
in the Landlord’s opinion, be legally sufficient to prevent a dedication thereof or the
accrual of rights to any Person or the public;
	 
	(d)	 	to temporarily obstruct or close off all or any part of the Parking Facilities for the
purpose of maintenance or repair; and
	 
	(e)	 	to do and perform such other acts in and to the Parking Facilities as, in the judgment of
the Landlord, shall be advisable with a view to the improvement of the convenience of and
use of the Building by tenants, their employees and invitees.

The Landlord will operate and maintain the Parking Facilities in such manner as the Landlord in
its sole discretion shall determine from time to time. Without limiting the scope of such
discretion, the Landlord shall have the sole right to employ all personnel and make all rules
and regulations pertaining to and necessary for the proper operation and maintenance of the
Parking Facilities. The Tenant shall participate in any free parking or other ticket validation
system established by the Landlord and abide by all rules and regulations pertaining thereto and
the Tenant shall pay to the Landlord monthly, together with payments on account of Basic Rent,
all parking charges attributable to the Tenant as evidenced by parking tickets validated by the
Tenant in accordance with any system established by the Landlord.

5.12 Authorization of Enquiries - The Tenant hereby authorizes the Landlord to make
enquiries from time to time of any government or municipality or governmental or municipal
agency with respect to the Tenant’s compliance with any and all laws and regulations pertaining
to the Tenant or the business conducted in the Leased Premises including, without limitation,
laws and regulations pertaining to Pollutants and the protection of the environment; and the
Tenant covenants and agrees that the Tenant shall from time to time provide to the Landlord such
written authorization as the Landlord may reasonably require in order to facilitate the
obtaining of such information.

5.13 Records - The Tenant shall keep on the Leased Premises or at the Tenant’s head
office complete records of, all goods stored on, or processed, manufactured, packaged
or used in any process in the Leased Premises by the Tenant and by any other occupant of the
Leased Premises or any part thereof. The Landlord may examine such records and the Tenant shall
provide extracts from or copies thereof all as required by the Landlord from time to time. This
requirement to maintain such records shall survive the expiry or earlier termination of the
Term.

 

 

5.14 Overloading - The Tenant shall not install or permit the installation of equipment
or storage of items that, in the opinion of the Landlord’s engineer, overloads the capacity of
any utility or of any electrical or mechanical facility in the Project or which may exceed the
load-bearing capacity of the floors of the Project. If damage is caused to the Leased Premises
or to the Project as a result of any installation in contravention of this Section, the Tenant
shall repair the damage or, at the Landlord’s option, pay to the Landlord on demand the cost of
repairing the damage incurred by the Landlord.

5.15 Telecommunications

(1) The Tenant may utilize a telecommunication service provider of its choice with the
Landlord’s prior written consent, which consent shall not be unreasonably withheld, subject to
the provisions of this Lease, including but not limited to the following:

	(a)	 	prior to commencing any work in the Project, the service provider shall execute and
deliver the Landlord’s standard form of licence agreement, which shall include a provision
for the Landlord to receive compensation for the use of the space for the service
provider’s equipment and materials;
	 
	(b)	 	the Landlord shall incur no expense or liability whatsoever with respect to any aspect
of the provision of telecommunication services, including without limitation, the cost of
installation, service, materials, repairs, maintenance, removal, interruption or loss of
telecommunication service;
	 
	(c)	 	the Landlord must first reasonably determine that there is sufficient space in the
risers of the Building for the installation of the service provider’s wiring and cross
connect; and
	 
	(d)	 	the Tenant shall indemnify and hold harmless the Landlord for all losses, claims,
demands, expenses and judgments against the Landlord caused by or arising out of, either
directly or indirectly, any acts or omissions by the service provider or the Tenant or
those for whom either of them is responsible at law.

(2) The Tenant shall be responsible for the costs associated with the supply and installation of
telephone, computer and other communication equipment and systems and related wiring within the
Leased Premises to the boundary of the Leased Premises for hook up or other integration with
telephone and other communication equipment and systems of a telephone or other communication
service provider, which equipment and systems of the service provider are located or are to be
located in the Building pursuant to the Landlord’s standard form of licence agreement and,
subject to the provisions of Section 14.01, for the removal of same.

(3) The Landlord shall supply space in risers in the Building and space on floor(s) of the
Building in which the Leased Premises are located, the location of which shall be designated by
the Landlord in its discretion, to telecommunication service providers who have entered into the
Landlord’s standard form of licence agreement for the purpose, without any cost or expense to
the Landlord therefor, of permitting installation in such risers and on such floor(s) of
telephone and other communication services and systems (including data cable patch panels) to
the Leased Premises at a point designated by the Landlord.

(4) The Landlord shall have the right to assume control of wiring, cables and other
telecommunication equipment in the Building and may designate them as part of the Common
Elements.

ARTICLE 6.00 SERVICES, MAINTENANCE, REPAIR AND ALTERATIONS BY LANDLORD

6.01 Operation of Project - During the Term, and so long as no Event of Default shall
exist, and so long as no event shall occur which, with the passage of time or the giving of
notice or both, would constitute an Event of Default, the Landlord shall operate and maintain
the Project in accordance with applicable laws and regulations and with standards from time to
time prevailing for similar projects in the area in which the Project is located and, subject to
payment by the Tenant of Rent, shall provide the Services set out in this Article 6.00; provided
that the Landlord shall not be responsible for operating, maintaining, repairing or replacing
any systems, facilities or equipment to the extent that the operation, maintenance, repair or
replacement thereof are specifically stated in this Lease to be the responsibility of the
Tenant.

6.02 Building Services and Facilities - The Landlord shall provide:

	(a)	 	washrooms accessible to the Leased Premises for the use of the Tenant, its employees and
invitees in common with other persons entitled thereto;
	 
	(b)	 	domestic running water to the building standard washrooms in the Leased Premises, if
any, and to washrooms available for the Tenant’s use in common with others entitled
thereto;

 

 

	(c)	 	access to and egress from the Leased Premises for use by the Tenant, its employees and
invitees in common with other persons entitled thereto, provided that the Landlord may
restrict access for security purposes or require that all persons seeking access produce
identification;
	 
	(d)	 	heating, ventilation and air conditioning to the Building, including the Leased Premises, to
a level sufficient to maintain therein conditions of reasonable temperature and comfort
provided that, unless otherwise agreed by the parties, a full standard of interior climate
control shall only be maintained during those hours and on those days established from time
to time by the Landlord as being operating periods for the Building, having reasonable regard
to energy conservation;
	 
	(e)	 	lighting and electrical power to the Common Elements as reasonably required;
	 
	(f)	 	electrical power to the Leased Premises for lighting and for standard office equipment
capable of operating from the voltage circuits available and then standard for the Building;
	 
	(g)	 	janitorial services to the Leased Premises and Common Elements to a standard consistent from
time to time with similar buildings in the area in which the Building is located;
	 
	(h)	 	a directory board located in the Common Elements providing identification of the tenants in
the Building in such manner and containing such information as the Landlord may determine;
and
	 
	(i)	 	subject to Section 5.15; appropriate ducts for bringing telephone services to the Leased
Premises.

6.03 Maintenance, Repair and Replacement - Subject to the provisions of Article 10.00 and
payment by the Tenant of Rent, the Landlord shall operate, maintain, repair and replace the
systems, facilities and equipment necessary for the proper operation of the Project and for
provision of the Landlord’s Services set out in Section 6.02 (except as may be installed by or be
the property of the Tenant) and shall maintain and repair the foundations, structure and roof of
the Building and repair damage to the Building which the Landlord is obligated to insure against
under Article 9.00, provided that:

	(a)	 	if and so long as all or part of the systems, facilities and equipment in the Project or the
supply of utilities to the Project are destroyed, damaged or interrupted, the Landlord shall
have a reasonable time within which to complete any necessary repair or replacement and,
during that time, shall only be required to maintain such Services as are reasonably possible
in the circumstances;
	 
	(b)	 	the Landlord may temporarily discontinue such Services or any of them at such times as may
reasonably be necessary;
	 
	(c)	 	the Landlord shall use reasonable diligence in carrying out its obligations under this
Section 6.03, but shall not be liable under any circumstances for any consequential damages,
whether direct or indirect, to any Person or property resulting from any failure to do so;
	 
	(d)	 	no reduction or discontinuance of Services under this Section 6.03 shall be construed as a
breach of the Landlord’s covenant for quiet enjoyment or as an eviction of the Tenant or,
except as specifically provided otherwise in this Lease, release the Tenant from any
obligation under this Lease;
	 
	(e)	 	the Landlord shall not be liable under any circumstances for any damage caused by
interruption or failure of any satellite, telecommunications system, utility, wiring,
elevator or escalator;
	 
	(f)	 	the Landlord shall have no responsibility for any inadequacy of performance of any systems
within the Leased Premises if the Leased Premises or the use thereof depart from the design
criteria for such systems as established by the Landlord for the Building; and
	 
	(g)	 	nothing contained herein shall derogate from the provisions of Article 10.00.

6.04 Alterations / Renovations by Landlord - During the Term or any renewal or extension
thereof, it is understood and agreed that, if the Landlord intends to make changes, additions or
improvements to or renovate the Project or any part thereof, of which the Leased Premises form a
part (the “Renovation Work”), notwithstanding anything contained in this Lease to the contrary,
the Landlord, its servants, agents, contractors and representatives may proceed with the
Renovation Work without further consent or approval of the Tenant and the Tenant hereby
irrevocably grants to the Landlord its consent to the carrying out of the Renovation Work;
provided that the Renovation Work shall not materially interfere with or adversely affect the
business of the Tenant carried on in the Leased Premises. It is specifically understood and agreed
that there shall be no compensation

 

 

paid to the Tenant nor shall there be any abatement of Rent in connection with the Renovation
Work. In exercising its rights pursuant to this Section 6.04, the Landlord shall be entitled to:

	(a)	 	enter the Leased Premises from time to time to make changes or additions to the structure,
systems, facilities and equipment in the Leased Premises where necessary to serve the Leased
Premises or other parts of the Building;
	 
	(b)	 	limit from time to time as may be necessary by reason of the Renovation Work, ingress to
and egress from the Leased Premises and/or the Project;
	 
	(c)	 	change, add to, diminish, demolish, dedicate for public purposes part or parts of, improve
or alter any part of the Project not in or forming part of the Leased Premises; and
	 
	(d)	 	change, add to, diminish, improve or alter the location and extent of the Common Elements.

The Landlord agrees to use commercially reasonable efforts to give to the Tenant notice of its
intention to proceed with the Renovation Work and the Tenant shall cooperate with the Landlord in
order to allow the Renovation Work to be completed as expeditiously as possible. It is
specifically agreed by the Landlord and the Tenant that the Landlord shall not, ‘by reason of
exercising its rights pursuant to this Section 6.04, be in default or be deemed to be in default
of any covenant or proviso contained in this Lease or at law.

6.05 Access by Landlord - The Tenant shall permit the Landlord to enter the Leased
Premises at any time in case of an emergency or a health related issue, either real or perceived,
and otherwise during normal business hours where such entry will not unreasonably disturb or
interfere with the Tenant’s use of the Leased Premises or operation of its business, to: (i)
examine, inspect and show the Leased Premises for purposes of leasing, sale or financing; (ii)
provide Services or make repairs, replacements, changes or alterations as provided for in this
Lease; or (iii) take such steps as the Landlord may deem necessary for the safety, improvement or
preservation of the Leased Premises or the Project. The Tenant shall cooperate with the Landlord
in any such showing of the Leased Premises. The Landlord shall, whenever possible, consult with or
give reasonable notice to, the Tenant prior to entry but no such entry shall constitute an
eviction or a breach of the Landlord’s covenant for quiet enjoyment or entitle the Tenant to any
abatement of Rent.

6.06 Energy Conservation - The Landlord shall be deemed to have observed and performed its
obligations under this Lease, including those relating to the provision of utilities and Services,
if in so doing it acts in accordance with a directive, policy or request of an authority having
jurisdiction in the field of energy conservation, security or environmental matters.

6.07 Supervision and Extended Services - The Landlord, if it shall from time to time so
elect, shall have the right to supervise the moving of furniture or equipment of the Tenant and
(in addition to supervising the Tenant’s work as provided for in this Lease) to supervise the
making of repairs conducted within the Leased Premises and the exclusive right to supervise or
make deliveries to the Leased Premises. In addition, and by arrangement with the Tenant, the
Landlord may provide extended cleaning or other services to the Tenant in addition to those
normally supplied and referred to in this Lease. In each case, the Landlord’s costs and expenses
incurred with respect thereto together with a reasonable administration fee shall be paid to the
Landlord by the Tenant from time to time promptly upon receipt of invoices from the Landlord.

6.08 Landlord’s Work The Tenant agrees that it has entered into this Lease on the express
understanding that, unless otherwise specifically provided in Schedule D or Schedule E, the Leased
Premises are being leased “as is” and that the Landlord’s work in respect of the Leased Premises
is limited to the scope delineated as Landlord’s work in Schedule D. All other improvements to the
Leased Premises shall be performed at the sole expense of the Tenant in accordance with the terms
of this Lease including, but not limited to, Section 7.04.

6.09 Control by Landlord - The Tenant agrees that the Landlord shall have control of the
Project and, without limiting the generality of anything contained elsewhere in this Lease, the
Landlord may make such use of the Common Elements and permit others to make such use of the Common
Elements as the Landlord may from time to time determine subject, in the case of use by others, to
such terms and conditions and for such consideration as the Landlord may in its discretion
determine, provided that such uses do not materially obstruct access to the Leased Premises and
the Landlord may temporarily close all or any part or parts of the Project to such extent as may,
in the opinion of the Landlord or any Consultants engaged by the Landlord in that regard, be
legally sufficient to prevent a dedication thereof or the accrual of rights therein to any Person
or the public.

ARTICLE 7.00 - PAYMENT FOR SERVICES AND MAINTENANCE, REPAIR AND ALTERATIONS BY TENANT

7.01 Utilities - In addition to the payment of the Tenant’s Occupancy Costs and
notwithstanding Sections 6.01 and 6.02, the Tenant shall be responsible for the cost of all
utilities including electricity

 

 

supplied to the Leased Premises. The Tenant shall not, without the prior written approval of the
Landlord, which may be arbitrarily withheld, install or cause to be installed in the Leased
Premises any equipment that will require additional utility usage or any telecommunications lines
and/or conduits in excess of that normally required for office premises. If, with the Landlord’s
approval, such additional equipment is installed, the Tenant shall be solely responsible for such
excess utility usage. If utilities are supplied to the Tenant through a meter common to other
tenants in the Project (there being no obligation on the Landlord to install separate meters), the
Landlord shall pay the cost of the utilities and apportion the cost pro rata among the tenants
supplied through the common meter, based on all relevant factors including, but not limited to,
the hours of use, number and types of lights and electrical equipment and the proportion of each
tenant’s Rentable Area to the Rentable Area of all tenants to which the common meter relates. Upon
receipt of the Landlord’s statement of apportionment, the Tenant shall promptly reimburse the
Landlord for all amounts apportioned to the Tenant by the Landlord; provided that the Landlord may
elect by notice to the Tenant to estimate the amount which will be apportioned to the Tenant and
require the Tenant to pay that amount in monthly instalments in advance simultaneously with the
Tenant’s payments of Basic Rent. Notwithstanding the foregoing, and whether the Leased Premises
are separately metered or not, the Landlord may purchase in bulk from the utility supplier the
aggregate utility requirements of the Project at the applicable rates determined by a single meter
on the Project and may, in billing the Tenant for its share of such utility, apply a scale of
rates not greater than the current scale of rates at which the Tenant would from time to time be
purchasing the whole of its utilities required and consumed in respect of the Leased Premises if
the Tenant were purchasing directly from the utility supplier. The Tenant shall upon the
Landlord’s request install a separate utility meter or meters in the Leased Premises at the
Tenant’s expense.

In addition to the payments to the’ Landlord required by this Article 7.00, the Tenant shall pay
all rates, charges, costs and expenses as may be assessed or levied by any supplier of utilities
to the Tenant other than those supplied by the Landlord.

7.02 Lights - In addition to the payment of the Tenant’s Occupancy Costs and
notwithstanding Sections 6.01 and 6.02, except to the extent the same is included in Operating
Costs, the Tenant shall pay to the Landlord monthly in advance, with its payments of Basic Rent, a
reasonable amount as determined by the Landlord in respect of replacement of building standard
fluorescent tubes, light bulbs and ballasts in the Leased Premises on a periodic basis or as
required from time to time and the costs of cleaning, maintaining and servicing of the electrical
light fixtures in the Leased Premises.

7.03 Heating, Ventilation and Air Conditioning - In addition to the payment of the
Tenant’s Occupancy Costs and notwithstanding Sections 6.01 and 6.02, the Tenant shall be
responsible for the cost of all heating, ventilation and air conditioning required in the Leased
Premises or any part thereof in excess of that required to be provided by the Landlord under
Section 6.02(d). If at any time during the Term the Landlord shall determine that the cost of the
heating, ventilation and air conditioning required in the Leased Premises or any part thereof is
in excess of that normally required in other parts of the Building which are used for normal
office purposes, the Landlord may deliver to the Tenant a statement in writing setting out the
cost of the excess and upon receipt of the statement from time to time the Tenant shall promptly
reimburse the Landlord for the amount shown in the statement as attributable to the Leased
Premises.

7.04 Alterations by Tenant - The Tenant may from time to time at its own expense make
changes, additions and improvements to the Leased Premises to better adapt the same to its
business, provided that any change, addition or improvement shall:

	(a)	 	comply with the requirements of the Landlord’s insurers and any governmental or municipal
authority having jurisdiction;
	 
	(b)	 	be made only if, prior to preparation of any plans and specifications and prior to
commencement of any work in the Leased Premises, including, without limiting the generality
of the foregoing, any demolition, construction or alterations, the Tenant has determined
through testing at its own cost and expense what Pollutants, if any, are present in the
Leased Premises and, if the Tenant fails to do so, the Tenant acknowledges and agrees that it
shall indemnify and hold harmless the Landlord from and against any and all Claims growing or
arising out of the Tenant’s failure to do so;
	 
	(c)	 	be made only after detailed plans and specifications therefor have been submitted to the
Landlord and received the prior written approval of the Landlord, all at the expense of the
Tenant, and should the Landlord provide its written approval, such approval shall not be
deemed to mean that the proposed changes, additions or improvements comply with any existing
or future municipal by-laws or any other applicable laws, by-laws, codes or requirements. All
costs incurred with respect to such approval shall be at the expense of the Tenant. Any
changes, additions and/or improvements affecting the Building’s electrical, mechanical and/or
structural components shall only be performed by contractors selected by the Landlord (the
“Landlord’s Contractors”). A list of the Landlord’s Contractors is available upon request;

 

 

	(d)	 	equal or exceed the then current standard for the Building;
	 
	(e)	 	be carried out in a good and workmanlike manner and, subject to Subsection 7.04(c), only
by Persons selected by the Tenant and approved in writing by the Landlord who shall, if
required by the Landlord, deliver to the Landlord before commencement of the work,
performance and payment bonds as well as proof of workers’ compensation and public liability
and property damage insurance coverage, with the Landlord and the Landlord’s Agent and
nominee (if any) named as additional insureds, in amounts, with companies and in a form
reasonably satisfactory to the Landlord, which shall remain in effect during the entire
period in which the work will be carried out; and
	 
	(f)	 	be made only after the Tenant has provided to the Landlord evidence of all requisite
permits and licences and any other information reasonably required by the Landlord.

Upon completion of such change, addition or improvement, the Tenant shall provide to the Landlord
as-built drawings and/or a CAD disk of same in a format useable by the Landlord, together with
evidence satisfactory to the Landlord of a final inspection of such change, addition or
improvement (including inspection of mechanical and electrical systems where applicable) by the
authority which issued the permit or licence for same.

7.05 Tenant’s Trade Fixtures and Personal Property - The Tenant may install in the Leased
Premises its usual trade fixtures and personal property in a proper manner; provided that no
installation or repair shall interfere with or damage the mechanical or electrical systems or the
structure of the Building. If the Tenant is not then in default hereunder, the trade fixtures and
personal property installed in the Leased Premises by the Tenant may be removed by the Tenant
from time to time in the ordinary course of the Tenant’s business or in the course of
reconstruction, renovation or alteration of the Leased Premises by the Tenant, subject to the
provisions of Article 14.00, and provided that the Tenant promptly repairs at its own expense any
damage to the Leased Premises and the Building resulting from the installation and removal and
provided further that in the event of removal of trade fixtures, except at the expiration of the
Term, the Tenant shall promptly replace such trade fixtures with trade fixtures of equal or
greater quality and value, subject to, the provisions of Section 14.01.

7.06 Maintenance and Repair - Except to the extent that the Landlord is specifically
responsible therefor under this Lease, the Tenant, at its cost, shall maintain, repair and
replace the Leased Premises, all Leasehold Improvements and all apparatus therein in good order
and condition, and in compliance with the requirements of all authorities having jurisdiction,
including without limitation:

	(a)	 	keeping the Leased Premises and the immediate surrounding area in a clean and tidy
condition and free of debris and garbage;
	 
	(b)	 	repainting and redecorating the Leased Premises and cleaning and maintaining window
coverings and carpets at reasonable intervals as reasonably required by the Landlord;
	 
	(c)	 	making repairs and replacements as needed to the Leased Premises including, without
limitation, to internal and external glass within or on the exterior of the Leased Premises
(with the exception of glass comprising the curtain wall), doors, hardware, partitions,
walls, fixtures, lighting and plumbing fixtures, wiring, piping, ceilings, floors and
thresholds in the Leased Premises; and
	 
	(d)	 	keeping the Leased Premises in such condition as to comply with the requirements of any
authority having jurisdiction.

7.07 Inspection - The Landlord and its Consultants may from time to time enter upon the
Leased Premises:

	(a)	 	to inspect the Leased Premises and its condition; and
	 
	(b)	 	to inspect any work being done by the Tenant both during the course of such work and
following completion thereof.

If the Landlord or the Landlord’s Agent shall determine that the work being done by the Tenant is
in breach of this Lease or fails to comply with the requirements of this Lease in any respect,
the Tenant shall forthwith remedy such breach or failure to comply and shall desist from
continuing the same. The Tenant shall, at its own cost, make good any deficiency in such work and
remedy any failure to comply with the requirements of this Lease.

7.08 Failure to Maintain - If the Tenant fails to perform any obligation under this
Article 7.00, then on not less than 5 days’ notice to the Tenant, the Landlord may enter the
Leased Premises and perform the obligation without liability to the Tenant for any loss or damage
thereby incurred. The Tenant shall promptly after receiving the Landlord’s invoice therefor
reimburse the Landlord for all costs incurred by the Landlord in performing the obligation plus
20% of the costs for overhead and

 

 

supervision.

7.09 Liens - The Tenant shall:

	(a)	 	pay promptly when due all costs for work done or caused to be done or goods affixed by the
Tenant in the Leased Premises which could result in any lien or encumbrance on the
Landlord’s interest in the Project or any part thereof, or the filing or registration of
any
security interest or notice thereof;
	 
	(b)	 	keep the title to the Project, including every part thereof and the Leasehold
Improvements, free and clear of any lien, encumbrance or security interest or notice
thereof; and
	 
	(c)	 	indemnify and hold harmless the Landlord against any Claims arising out of the supply of
goods, materials, services or labour for the work.

The Tenant shall immediately notify the Landlord of any lien, encumbrance, claim of lien,
security interest, or notice thereof or other action of which it has, or reasonably should have,
knowledge and which affects the title to the Project or any part thereof and, except for those
contemplated, by Section 15.25, shall cause the same to be removed within 5 Business Days (or
such additional time as the Landlord may consent to in writing), failing which the Landlord may
take such action as the Landlord deems necessary to remove same and the entire cost thereof shall
immediately become due and payable by the Tenant to the Landlord. The Tenant shall not affix or
cause to be affixed to the Project any goods acquired under conditional sale or with respect to
which any lien, encumbrance or security interest exists. The Landlord may from time to time post
such notices in such places on the Leased Premises as the Landlord considers advisable to prevent
or limit the creation of any liens upon the Project or any part thereof.

7.10 Roof - The Tenant shall not be entitled to install upon the roof of the Building any
equipment except as consented to in writing by the Landlord, which consent may be arbitrarily
withheld, but if given shall be subject to whatever conditions the Landlord, in its sole
discretion, deems necessary in the circumstances.

ARTICLE 8.00 - TAXES

8.01 Taxes Payable by Landlord - The Landlord covenants and agrees to pay all
Taxes assessed against the Landlord or the Project on account of its ownership when due (except
for Business Taxes payable directly to the taxing authority by the Tenant under Subsection
8.02(b) and similar taxes levied or assessed separately from Taxes and payable directly to the
taxing authority by other tenants or occupants of the Project) and subject to the provisions
hereinafter contained in this Article 8.00. Provided however, that the Landlord may defer payment
of any such Taxes or defer compliance with any statute, law, by-law, regulation or ordinance in
connection with the levy of such Taxes in each case to the fullest extent permitted by law as
long as it shall diligently prosecute any contest or appeal of such Taxes.

8.02 Taxes Payable by Tenant - The Tenant shall pay promptly when due all Taxes upon or
on account of the following:

	(a)	 	to the Landlord, the Tenant’s Proportionate Share of Taxes; and
	 
	(b)	 	to the taxing authority or to the Landlord at the Landlord’s direction, any Taxes imposed
or assessed against or in respect of the personal property and Leasehold Improvements of
the, Tenant in the Leased Premises or in respect of any business operations carried on or in
respect of the use or occupancy thereof by the Tenant or by any subtenant or licensee, if
levied or assessed separately from Taxes upon the remainder of the Land and Building and
referred to herein as “Business Taxes”.

The Tenant agrees to provide to the Landlord within 3 days of receipt thereof, an original or
duplicate copy of any separate bill for Taxes. The Tenant shall deliver promptly, upon request of
the Landlord, receipts for all such payments and will furnish such other information as the
Landlord may require.

8.03 Tax Increases Attributable to Tenant - If any Taxes in respect of the Leased
Premises or Project are greater than they otherwise would have been by reason of the constitution
or ownership of the Tenant, the use of the Leased Premises by the Tenant, the school support of
the Tenant or any other reason peculiar to the Tenant, the portion of such Taxes in each year
attributable to such reason, as determined by the Landlord, shall be paid by the Tenant to the
Landlord at least 15 days prior to the due date for payment thereof by the Landlord, and in
addition to Property Taxes and other Taxes otherwise payable by the Tenant under this Lease.

8.04 GST - The Tenant shall pay to the Landlord the amount of all GST accruing due with
respect to Rent at the time the Rent is due and payable to the Landlord under this Lease. The
Tenant’s obligation to pay GST under this Section shall not be limited or precluded by any
limitation contained

 

 

in this Lease upon the Landlord’s right to recover or receive payment from the Tenant of taxes
upon the Landlord’s income or profits or otherwise.

8.05 Landlord’s Election - Notwithstanding that any Taxes (including without limitation,
any of the foregoing payable by the Tenant under Subsection 8.02(a)) may be separately imposed,
levied, assessed or charged by the appropriate authority for or in respect of the (Leased
Premises and other portions of the Project, the Tenant shall nevertheless be obligated to pay
the Tenant’s Proportionate Share of Taxes as part of the Tenant’s Occupancy Costs.
Notwithstanding the foregoing, the Tenant’s Proportionate Share of Taxes so determined may be
adjusted by the Landlord, acting reasonably and equitably to the extent necessary, to ensure
that the Tenant’s Proportionate Share of Taxes is the same as it would have been following
application of any special provision of real property tax related legislation applicable to this
Lease.

8.06 Right to Contest - Each of the Landlord and the Tenant (provided the Tenant is
legally entitled to do so) shall have the right to contest in good faith the validity or amount
of any Taxes which, in the case of the Landlord, the Landlord is responsible to pay under this
Article 8.00 and which, in the case of the Tenant, the Tenant is responsible to pay under
Subsection 8.02(b) and for which it is separately assessed. Notwithstanding anything to the
contrary herein, the Tenant may, upon prior written notice to the Landlord, defer payment of any
amount payable by it pursuant to Subsection 8.02(b) for which it is separately assessed, to the
extent permitted by law; provided that no contest by the Tenant shall involve the possibility of
forfeiture, sale or disturbance of the Landlord’s interest in the Leased Premises or the
imposition of any penalty or interest, charge or lien and that, upon the final determination of
any contest by the Tenant, the Tenant shall immediately pay and satisfy the amount found to be
due, together with any costs, penalties and interest. If, as a result of any contest by the
Tenant, any tax, rate, levy, assessment, fee or other charge is increased, the Tenant shall be
responsible for the full amount of such increase in respect of the period to which the contest
relates and to any subsequent tax periods which commence during the Term.

The Tenant shall not contest any amount payable by it under Subsection 8.02(a) but may contest
any amount payable by it under Subsection 8.02(b) or appeal any assessment therefor subject to
complying with the following:

	(a)	 	the Tenant shall deliver to the Landlord any notices of appeal or other like instrument
and obtain the Landlord’s consent thereto, which consent shall not be unreasonably
withheld, before filing the same;
	 
	(b)	 	the Tenant shall deliver whatever security the Landlord reasonably requires;
	 
	(c)	 	the Tenant shall promptly and diligently prosecute the contest or appeal at its sole
expense; and
	 
	(d)	 	the Tenant shall keep the Landlord fully informed thereof.

ARTICLE 9.00 - INSURANCE, LIABILITY AND ENVIRONMENTAL

9,01 Landlord’s Insurance - During the Term, the Landlord shall place insurance coverage
on and with respect to the Project excluding the area(s) to be insured by the Tenant as set out
in Section 9.02, which coverage shall include the following, if available at reasonable cost in
the opinion of the Landlord:

	(a)	 	all risks insurance for the full reconstruction value of the Project, excluding Leasehold
Improvements, as determined by the Landlord;
	 
	(b)	 	as an extension to the insurance maintained pursuant to Subsection 9.01(a), insurance on
the rental income derived by the Landlord from the Project on a gross rental income form
with a period of indemnity of not less than the period as estimated by the Landlord from
time to time which would be required to rebuild and, if necessary, to re-tenant the Project
in the event of the complete destruction thereof;
	 
	(c)	 	boiler and machinery insurance, including repair or replacement and rental income
coverage, if applicable;
	 
	(d)	 	plate glass insurance (not including plate glass fronting or within the Leased Premises)
if deemed appropriate by the Landlord;
	 
	(e)	 	commercial general liability insurance; and
	 
	(f)	 	such other insurance which is or may become customary or reasonable for owners of
projects similar to the Project to carry in respect of loss of, or damage to, the Project
or liability arising therefrom.

 

 

The insurance referred to in this Section shall be carried in amounts determined reasonably by the
Landlord. The insurance shall be written in the name of the Landlord with loss payable to the
Landlord and to any mortgagee (including any trustee under a deed of trust and mortgage) of the
Project from time to time. The policies of insurance referred to in Subsections 9.01(a), (b), (c),
(d) and (e) shall contain a waiver of the insurer’s right of subrogation as against the Tenant.
The Landlord hereby waives its right of recovery against the Tenant, its employees and those for
whom the Tenant is in law responsible with respect to all Claims required to be insured against by
the Landlord hereunder.

Notwithstanding any contribution by the Tenant to insurance premiums as provided for in this
Lease, no insurable interest is conferred upon the Tenant under policies carried by the Landlord.
Except as specifically provided in this Lease, the Landlord shall in no way be accountable to the
Tenant regarding the use of the insurance proceeds arising from any Claims.

9.02 Tenant’s Insurance - At its own expense the Tenant shall take out and thereafter
maintain in force at all times during the Term and at all times when the Tenant is in possession
of the Leased Premises insurance policies as follows:

	(a)	 	all risks insurance on Leasehold Improvements and on all other property of every
description, nature and kind owned by the Tenant or for which the Tenant is legally liable,
which is installed, located or situate within the Leased Premises or elsewhere in the
Project, including without limitation, all inventory or stock-in-trade in an amount not less
than the full replacement cost thereof without deduction for depreciation; such insurance
shall be subject to a replacement cost endorsement and shall include a stated amount
co-insurance clause and a breach of conditions clause;
	 
	(b)	 	commercial general liability insurance to respond to any and all incidents occurring in the
Leased Premises in the minimum amount of $3,000,000.00 per occurrence including the following
extensions: owners and contractors protective; limited pollution coverage endorsement;
products and completed operations; personal injury; occurrence basis property damage; blanket
contractual and non-owned automobile liability; such insurance shall include the Landlord and
the Landlord’s Agent and nominee (if any) as named additional insureds, and shall protect and
indemnify the Landlord and the Landlord’s Agent and nominee (if any) in respect of all
Claims, including Claims by the Tenant, as if the Landlord and the Landlord’s Agent and
nominee (if any) were separately insured; such insurance shall include cross liability and
severability of interest clauses;
	 
	(c)	 	boiler and machinery or equipment breakdown insurance, including repair or replacement
endorsement, in an amount satisfactory to the Landlord and providing coverage with respect to
all objects introduced into the Leased Premises by or on behalf of the Tenant or otherwise
constituting Leasehold Improvements;
	 
	(d)	 	plate glass insurance on all internal and external glass within or fronting the Leased
Premises; however, notwithstanding the foregoing, the Tenant may elect to self-insure for the
insurance described in this Subsection 9.02(d);
	 
	(e)	 	business interruption insurance on the profit form providing all risks coverage with a
period of indemnity of not less than 12 months and subject to a stated amount co-insurance
clause;
	 
	(f)	 	tenant’s legal liability insurance for the full replacement cost of the Leased Premises,
including loss of use thereof; and
	 
	(g)	 	any other form of insurance in such amounts and against such risks as the Landlord may from
time to time reasonably require.

The Tenant acknowledges and agrees that it shall be solely responsible for insuring the Leasehold
Improvements, its equipment and stock and any other property owned or brought into the Leased
Premises by the Tenant whether affixed to the Building or not.

The insurance policies referred to in this Section shall be subject to such higher limits as the
Tenant, or the Landlord. acting reasonably, or any mortgagee of the Landlord’s interest in the
Project may require from time to time. The policies of insurance referred to in Subsections
9.02(a), (b), (c), (d), (e), (f) and (g) shall contain a waiver of the insurer’s right of
subrogation as against the Landlord. The Tenant hereby waives its right of recovery against the
Landlord, its employees and those for whom the Landlord is in law responsible with respect to all
Claims required to be insured against by the Tenant hereunder. Any and all deductibles in the
Tenant’s insurance policies shall be borne solely by the Tenant and shall not be recovered or
attempted to be recovered from the Landlord. In addition, all such policies shall be
non-contributing with, and will apply only as primary and not excess to, any insurance proceeds
available to the Landlord.

The Tenant shall provide to the Landlord at the commencement of the Term and at least 30 days
prior to the renewal of all insurance referred to in this Section 9.02, and promptly at any time
upon

 

 

request, a certificate of insurance evidencing the insurance coverage maintained by the Tenant in
accordance with this Section 9.02. The delivery to the Landlord of a certificate of insurance or
any review thereof by or on behalf of the Landlord shall not limit the obligation of the Tenant
to provide and maintain insurance pursuant to this Section 9.02 or derogate from the Landlord’s
rights if the Tenant shall fail to fully insure.

All policies shall provide that the insurance shall not be cancelled or changed to the prejudice
of the Landlord without at least 30 days’ prior written notice given by the insurer to the
Landlord. All policies of insurance shall be placed with a company licensed to sell commercial
insurance in Canada.

The Tenant acknowledges and agrees that, if it fails to obtain and maintain in force any of the
insurance policies set out in this Section 9.02, then the Tenant shall indemnify and hold
harmless the Landlord in respect of any losses arising therefrom.

9.03 Placement of Tenant’s Insurance by Landlord - If the Tenant fails to place or
maintain all or any of the insurance coverage referred to in Section 9.02, the Landlord may, at
its option, place all or any part of such insurance in the name of or on behalf of the Tenant and
the Tenant shall pay to the Landlord upon demand all costs incurred by the Landlord in so doing
including, without limitation, the premium or premiums for such insurance together with the
Landlord’s administrative fee of 15% of such premium.

9.04 Limitation of Landlord’s Liability - The Landlord, the Landlord’s Agent, their
employees and any Person for whom any of them are in law responsible shall not be liable under
any circumstances for any damage caused by anything done or omitted to be done by any other
tenant of the Project or any Person for whom such tenant is in law responsible or any damage
resulting from the exercise of the Landlord’s control over the Project or any part thereof.

9.05 Environmental Issues

(1) Landlord’s Requirements - The Tenant shall not bring into or allow to be present
in the Leased Premises or the Project any Pollutants except such as are disclosed in
Schedule H hereto. If the Tenant shall bring, create, discharge or release upon, in or from the
Project, including the Leased Premises, any Pollutants, whether or not disclosed in Schedule H
and whether during the Term of this Lease or any prior lease by the Tenant, then such Pollutants
shall be and remain the sole property of the Tenant and the Tenant shall promptly remove same at
its sole cost at the expiration or sooner termination of the Term or sooner if required by the
Landlord.

(2) Governmental Requirements - If, during the Term or any renewal or extension of this Lease or
at any time thereafter, any governmental authority shall require the clean-up of any Pollutants:

	(a)	 	held in, discharged in or from, released from, abandoned in, or placed upon the Leased
Premises or the Project by the Tenant or its employees or those for whom it is in law
responsible; or
	 
	(b)	 	released or disposed of by the Tenant or its employees or those for whom it is in law
responsible;

whether during the Tenant’s occupancy of the Leased Premises or any other premises in the Project
pursuant to this Lease or any prior lease by the Tenant of the Leased Premises or any other
premises in the Project, then the Tenant shall, at its own expense, carry out all required work,
including preparing all necessary studies, plans and approvals and providing all bonds and other
security required by any governmental authority or required by the Landlord and shall provide
full information with respect to all such work to the Landlord; provided that the Landlord may,
at its option, perform any such work at the Tenant’s sole cost and expense, payable on demand as
additional Rent.

(3) Environmental Covenants In addition to and without restricting any other obligations or
covenants herein, the Tenant covenants that it will:

	(a)	 	comply in all respects with all Environmental Laws relating to the Leased Premises or the
use of the Leased Premises;
	 
	(b)	 	promptly notify the Landlord in writing of any notice by any governmental authority
alleging a possible violation of or with respect to any other matter involving
any Environmental Laws relating to operations in the Leased Premises or relating to any
Person for whom it is in law responsible or any notice from any other party concerning any
release or alleged release of any Pollutants; and
	 
	(c)	 	permit the Landlord to:

 

 

	 	(i)	 	enter and inspect the Leased Premises and the operations conducted therein;
	 
	 	(ii)	 	conduct tests and environmental assessments or appraisals;

	 
	 	(iii)	 	remove samples from the Leased Premises; and
	 
	 	(iv)
   examine and make copies of any documents or records relating to the Leased Premises
and interview the Tenant’s employees as necessary; and

	(d)	 	promptly notify the Landlord of the existence of any Pollutants in the Project.

(4) Environmental Indemnification - The Tenant shall, during the Term and at all times
thereafter, indemnify and hold the Landlord harmless at all times from and against any and all
losses, damages, penalties, fines, costs, fees and expenses (including legal fees on a
solicitor and client or substantial indemnity basis and Consultants’ fees and expenses)
resulting from:

	(a)	 	any breach of or non-compliance with the environmental obligations and covenants of the
Tenant as set out in this Lease; and
	 
	(b)	 	any legal or administrative action commenced by, or claim made or notice from, any
third party, including, without limitation, any governmental authority, to or against the
Landlord and pursuant to or under any Environmental Laws or concerning a release or
alleged release of Pollutants at the Leased Premises into the environment and related to
or as a result of the operations. of the Tenant or those acting under its authority or
control at the Leased Premises or any other premises in the Project, and any and all costs
associated with air quality issues, if any, and ‘whether during the Term of this Lease or
any prior lease by the Tenant of the Leased Premises or any other premises in the Project.

[If Rider 1 (Section 9.05) is attached to this Lease this Section will be deleted and
initialled and the terms and conditions stated on Rider 1 will govern the relationship between
the Landlord and the Tenant with respect to environmental issues.]

ARTICLE 10.00 - DAMAGE AND DESTRUCTION

10.01 Limited Damage to Leased Premises, Access or Services If during the Term, the
Leased Premises or any part thereof, or other portions of the Building providing access or
Services essential to the Leased Premises, shall be destroyed or damaged by any hazard against
which the Landlord is obligated to insure pursuant to Section 9.01, the Landlord, if permitted
by law to do so, shall proceed with reasonable diligence to rebuild and restore or repair the
Leased Premises or comparable premises or such access routes or Service systems, as the case
may be, in conformance with current laws to the extent of insurance proceeds received. The
covenants of the Tenant to repair shall not include any repairs of damage required to be made
by the Landlord under this Section 10.01. For greater certainty, it is understood and agreed
that, upon substantial completion of the Landlord’s work, the Tenant shall repair or restore
the Leased Premises as required by Section 7.06. Rent payable by the Tenant shall abate from
the date of such damage or destruction to the date of substantial completion of the Landlord’s
work as determined by the Landlord’s architect or engineer or restoration of access or
Services, as the case may be. If less than all of the Leased Premises is destroyed or damaged
as contemplated in this Section 10.01, Rent payable by the Tenant shall abate from the date of
such damage or destruction to the date of substantial completion of the Landlord’s work in the
same proportion as the Rentable Area of the Leased Premises so damaged or destroyed is of the
total Rentable Area of the Leased Premises.

10.02 Major Damage to Leased Premises - Notwithstanding any other right of termination
contained herein, if the Leased Premises shall be damaged or destroyed by any hazard against
which the Landlord is obligated to insure under this Lease, and if in the opinion of the
Landlord’s architect or engineer, given within 30 Business Days of the happening of said damage
or destruction, said damage or destruction is to the extent that the Leased Premises shall be
incapable of being rebuilt or repaired or restored with reasonable diligence within 6 months
after the occurrence of such damage or destruction, then the Landlord may, at its option,
terminate this Lease by notice in writing to the Tenant. If such notice is given by the
Landlord under this Section 10.02, then this Lease shall terminate on the date of such notice
and the Tenant shall immediately surrender the Leased Premises and all interest therein to the
Landlord and Rent shall be apportioned and shall be payable by the Tenant only to the date of
such damage or destruction and the Landlord may thereafter re-enter and repossess the Leased
Premises. For greater certainty, it is understood and agreed that: (i) if the Landlord does not
elect to terminate this Lease as aforesaid, upon substantial completion of the Landlord’s work,
the Tenant shall repair or restore the Leased Premises as required by Section 7.06; and (ii) if
the Landlord elects to terminate this Lease as aforesaid, the Tenant shall pay to the Landlord
forthwith upon demand the cost of repairing or restoring the Leased Premises, as determined by
the Landlord’s architect or engineer, acting reasonably (but not in any event to exceed the
replacement cost of the then existing Leasehold Improvements), by way of insurance proceeds
available to the Tenant or otherwise.

 

 

10.03 Damage to Building - Notwithstanding anything to the contrary contained in this
Lease or that the Leased Premises may not be affected, if in the reasonable opinion or
determination of the Landlord or the Landlord’s architect or engineer, rendered within 30
Business Days of the happening of damage or destruction, the Building shall be damaged or
destroyed to the extent that any one or more of the following conditions exist:

	(a)	 	in the reasonable opinion of the Landlord the Building must be totally or partially
demolished, whether or not to be reconstructed in whole or in part;
	 
	(b)	 	in the reasonable opinion of the Landlord’s architect or engineer the Building shall be
incapable of being rebuilt or repaired or restored with reasonable diligence within 6
months after the occurrence of such damage or destruction;
	 
	(c)	 	any tenant of the Building which, in the Landlord’s absolute discretion, is a major
tenant of the Building becomes entitled to terminate its lease as a result of such damage
or destruction;
	 
	(d)	 	more than 35% of the Total Rentable Area of the Building is damaged or destroyed. as
reasonably determined by the Landlord’s architect or engineer; or
	 
	(e)	 	any or all of the heating, ventilating, air conditioning, electrical, mechanical or
elevator systems in the Building are damaged or destroyed as reasonably determined by the
Landlord’s architect or engineer;

then the Landlord may at its sole option terminate this Lease by notice in writing to the
Tenant. If notice is given by the Landlord under this Section 10.03, then this Lease shall
terminate from the date of such notice and the Tenant shall immediately surrender the Leased
Premises and all interest therein to the Landlord and Rent shall be apportioned and shall be
payable by the Tenant only to the date of such notice and the Landlord may thereafter re-enter
and repossess the Leased Premises. If the Building is damaged to the extent described in this
Section 10.03 and the Landlord does not terminate this Lease, the Landlord will, to the extent
of insurance proceeds received, rebuild or repair the Building to base building standards, but
the rebuilt or repaired Building may be different in configuration and design from that
comprising the Project prior to the damage or destruction.

10.04 No Abatement - Except as specifically provided in this Article 10.00, there shall
be no abatement of Rent and the Landlord shall have no liability to the Tenant by reason of any
injury to, loss of or interference with the Tenant’s business or property arising directly or
indirectly from fire or other casualty, howsoever caused, or from the making of any repairs
resulting therefrom or to any portion of the Building or the Leased Premises.

10.05 Notify Landlord - The Tenant shall immediately notify the Landlord or its
representative in the Project of any accident or defect in the Project, the Leased Premises or
any systems thereof and, as well, of any matter or condition which may cause injury or damage
to the Project or any person or property located therein.

10.06 Expropriation - In the event of Expropriation of all or part of the Leased
Premises and/or the Building, neither the Landlord nor the Tenant shall have a claim against the
other for the shortening of the Term, nor the reduction or alteration of the Leased Premises or
the Building. The Landlord and the Tenant shall each look only to the Expropriating authority
for compensation. The Landlord and the Tenant agree to cooperate with one another so that each
is able to obtain the maximum compensation from the Expropriating authority as may be permitted
in law in relating to. their. respective interests in the Leased Premises and the Building.
Nothing herein contained shall be deemed or construed to prevent the Landlord or the Tenant from
enforcing and prosecuting a claim for the value of their respective interests in any
Expropriation proceedings. However, to the extent that a part of the Project other than the
Leased Premises is Expropriated, the full proceeds paid or awarded therefor will belong solely
to the Landlord and the Tenant will assign to the Landlord any rights it might have or acquire
in respect of such proceeds or awards and will execute those documents that the Landlord
reasonably requires in order to give effect to this intention.

Where used in this Section 10.06 “Expropriation” means expropriated by a governmental or
municipal authority, or transferred, conveyed or dedicated in contemplation of a threatened
expropriation and “Expropriated” and “Expropriating” have corresponding meanings.

ARTICLE 11.00 - DEFAULT

11.01 Arrears - The Tenant shall pay monthly to the Landlord interest at a rate per
annum equal to the lesser of the Prime Rate plus 5% and the maximum rate permitted by
applicable law upon all Rent required to be paid hereunder from the due date for payment
thereof until the same is fully paid and satisfied.

 

 

In addition to the interest charges, in order to cover the extra expense involved in handling
delinquent payments, the Tenant, at the Landlord’s sole option; shall pay to the Landlord a
charge of $100.00 (the “Late Charge”) when any instalment of Rent is received by the Landlord
after the relevant due date thereof.

In addition, if any cheque presented to the Landlord by the Tenant representing payment of Rent
is not honoured by the Tenant’s bank or such cheque is returned to the Landlord indicating that
there are not sufficient funds in the Tenant’s account to honour such cheque, the Tenant shall
pay to the Landlord a charge of $50.00 for the first such occurrence during the Term, $150.00 for
the second such occurrence during the Term and $250.00 for each such subsequent occurrence during
the Term (the “NSF Charge”). It is hereby understood and agreed that the Late Charge and the NSF
Charge is charged as Rent and not as a penalty or interest, for the purpose of defraying the
Landlord’s expenses incident to the processing of such overdue payments and that such Late Charge
or NSF Charge is due and payable on and from the day immediately following the due date of such
overdue payment or, if no due date is specified in this Lease, then on the 10th day following
demand for same by the Landlord.

11.02 Costs of Enforcement - The Tenant shall indemnify the Landlord against all costs
and charges (including legal fees on a solicitor and client or substantial indemnity basis and
the Landlord’s reasonable administration charges) reasonably incurred either during or after the
Term in enforcing payment of Rent hereunder and in obtaining possession of the Leased Premises
after default of the Tenant or upon expiration or earlier termination of this Lease or in
enforcing any covenant, proviso or agreement of the Tenant herein contained or in determining the
Landlord’s rights or the Tenant’s obligations under this Lease or both. All such costs and
charges shall be paid by the Tenant to the Landlord forthwith upon demand.

11.03 Performance of Tenant’s Obligations - All covenants and agreements to be performed
by the Tenant under any of the terms of this Lease shall be performed by the Tenant, at the
Tenant’s sole cost and expense, and without any abatement of Rent. If the Tenant fails to perform
any act to be performed by it hereunder then, in the event of an emergency, either real or
perceived, or if the failure continues for 10 days following written notice thereof, the Landlord
may (but shall not be obligated to) perform the act without waiving or releasing the Tenant from
any of its obligations relative thereto, but having commenced to do so may cease to do so without
completing performance thereof. All sums paid and costs incurred by the Landlord in so performing
the act, plus 20% of the cost for overhead and supervision together with interest thereon at the
rate set out in Section 11.01 from the date payment was made or such cost was incurred by the
Landlord shall be payable by the Tenant to the Landlord on demand.

11.04 Remedies on Default - Upon the happening of an Event of Default the Landlord may,
at its option, and in addition to and without prejudice to all rights and remedies of the
Landlord available to it either by any other provision of this Lease or by statute or the general
law, exercise any one or more of the following remedies:

	(a)	 	be entitled to the full amount of the current month’s and the next ensuing 3 months’
instalments of Rent which shall immediately become due and payable and the Landlord may
immediately distrain for the same, together with any arrears then unpaid;
	 
	(b)	 	without notice or any form of legal process, forthwith re-let or sublet the Leased Premises
or any part or parts thereof for whatever term or terms and at whatever rent and upon
whatever other terms, covenants and conditions the Landlord considers advisable including,
without limitation, the payment or granting of inducements all on behalf of the Tenant; and
on. each such re-letting or subletting the rent received by the Landlord therefrom will be
applied first to reimburse the Landlord for any such inducements and for any expenses,
capital or otherwise, incurred by the Landlord in making the Leased Premises ready for
re-letting or subletting; and secondly to the payment of any costs and expenses of
re-letting or subletting including brokerage fees and legal fees on a solicitor and client
or substantial indemnity basis; and third to the payment of Rent; and the residue, if any,
will be held by the Landlord and applied to payment of Rent as it becomes due and payable.
If rent received from re-letting or subletting during any month is less than Rent to be paid
during that month hereunder, the Tenant will pay the deficiency which will be calculated and
paid monthly on or before the first day of every month; and no re-letting or subletting of
the Leased Premises by the Landlord or entry by the Landlord or its agents upon the Leased
Premises for the purpose of re-letting or subletting or other act of the Landlord relating
thereto including, without limitation, changing or permitting a subtenant to change locks,
will be construed as an election on its part to terminate this Lease unless a written notice
of termination is given to the Tenant; and if the Landlord elects to re-let or sublet the
Leased Premises without terminating, it may afterwards elect to terminate this Lease at any
time by reason of any Event of Default then existing;
	 
	(c)	 	seize and sell such goods, chattels and equipment of the Tenant as are in the Leased
Premises and the Landlord may, but shall not be obligated to, apply the proceeds thereof to
all Rent to which the Landlord is then entitled under this Lease. Any such sale may be

 

 

	 	 	effected by public auction, private sale or otherwise, and either in bulk or by
individual item, or partly by one means and partly by another; all as the Landlord in its
sole discretion may decide;
	 
	(d)	 	terminate this Lease by leaving upon the Leased Premises notice in writing of the
termination, and such termination shall be without prejudice to the Landlord’s right to
damages; it being agreed that the Tenant shall pay to the Landlord on demand as damages the
loss of income of the Landlord to be derived from this Lease and the Leased Premises for
the unexpired portion of the Term had it not been terminated; or
	 
	(e)	 	re-enter into and upon the Leased Premises or any part thereof in the name of the whole
and repossess and enjoy the same as of the Landlord’s former estate, anything herein
contained to the contrary notwithstanding;

and the Tenant shall pay to the Landlord forthwith upon demand all expenses of the Landlord in
re-entering, terminating, re-letting, collecting sums due or payable by the Tenant or realizing
..upon assets seized or otherwise exercising its rights and remedies under this Section 11.04
including tenant inducements, leasing commissions, legal fees on a solicitor and client or
substantial indemnity basis and all disbursements and the expense of keeping the Leased Premises
in good order, repairing the same and preparing the same for re-letting.

In addition, and without limiting the generality of the foregoing provisions of this Section
11.04,. upon the happening of an Event of Default, and whether or not this Lease is terminated
in accordance with such provisions: (i) the Landlord shall have no further liability to pay to
the Tenant or any third party any amount on account ‘or in respect of a refund of any Security
Deposit, prepaid Rent or prepaid Taxes or any tenant inducement, leasehold improvement
allowance, lease takeover or lease subsidy or any other concession or inducement otherwise
provided to the Tenant under or with respect to this Lease, and any Rent free period otherwise
provided to the Tenant hereunder shall be null and void and of no further force or effect and
Rent shall be payable in full hereunder without regard to any such Rent free period; and (ii)
any cash allowance, inducement payment, and the value of any other benefit paid to or conferred
on the Tenant by or on behalf of the Landlord in connection with the Leased Premises or this
Lease shall be recoverable in full as additional Rent and shall be payable to the Landlord on
demand.

11.05 Availability of Remedies - The Landlord may from time to time resort to any or all
of the rights and remedies available to it upon the occurrence of an Event of Default either by
any provision of this Lease or by statute or the general law, all of which rights and remedies
are intended to be cumulative and not alternative, and the express provisions herein as to
certain rights and remedies are not to be interpreted as excluding any other or additional
rights or remedies available to the Landlord by statute or the general law.

11.06 Waiver - If the Landlord shall overlook, excuse, condone or suffer any default,
breach or non-observance by the Tenant of any obligation hereunder, this shall not operate as a
waiver of the obligation in respect of any continuing or subsequent default, breach or
non-observance and no such waiver shall be implied but shall only be effective if expressed in
writing.

The Landlord’s acceptance of Rent after a default is not a waiver of any preceding default under
this Lease even if the Landlord knows of the preceding default at the time of acceptance of the
Rent. No term, covenant or condition of this Lease shall be considered to have been waived by
the Landlord or the Tenant unless the waiver is in writing. The Tenant waives any statutory or
other rights in respect of abatement, set-off or compensation in its favour that may exist or
come into existence hereafter with respect to Rent.

11.07 Waiver of Exemption and Redemption - Notwithstanding anything contained in any
statute now or hereafter in force limiting the right of distress, none of the Tenant’s goods or
chattels in the Leased Premises at any time during the Term shall be exempt from levy by
distress for Rent in -arrears, and this agreement of the Tenant in this Section may be pleaded
as an estoppel against the Tenant.

11.08 Companies’ Creditors Arrangement Act - By virtue of its interest in this Lease,
the importance of the Tenant continuing to carry on business in the Leased Premises in
accordance with this Lease, and the Landlord’s entitlement to damages where this Lease is
terminated by reason of an Event of Default, the Landlord does and will (despite any changes in
circumstances of the Tenant or its business) constitute a separate class or category of creditor
in any plan of arrangement or other proposal submitted by or on behalf of the Tenant under the
Companies’ Creditors Arrangement Act (Canada) or any similar legislation for bankrupt .or
insolvent debtors.

ARTICLE 12.00 - ASSIGNMENT, SUBLETTING AND OTHER TRANSFERS

12.01 Request for Consent - The Tenant shall not effect a Transfer of this Lease or of
all or part of the Leased Premises without the prior consent in writing of the Landlord, which
consent shall not,

 

 

provided no Event of Default has occurred, be unreasonably withheld. Provided that the Tenant
shall, at the time the Tenant shall request the consent of the Landlord, deliver to the Landlord
such information in writing (herein called the “required information”) as the Landlord may
reasonably require respecting the proposed Transferee including, without limitation, the name,
address, nature of business, financial responsibility and standing of such proposed Transferee.
Provided further that after receiving such request, the Landlord shall have the right, at its
option, to terminate this Lease if the request relates to all of the Leased Premises or, if the
request relates to a portion of the Leased Premises only, to terminate this Lease with respect to
such portion, by giving, within 10 days after receiving the required information, not less than 30
nor more than 60. days’ written notice of termination to the Tenant. In the event of
such termination, the Rent and other payments required to be made by the Tenant hereunder shall be
adjusted to the date of termination and, in the case of a partial termination, Rent shall abate in
the proportion that the area of the portion of the Leased Premises for which this Lease is
terminated bears to the area of the Leased Premises and this Lease shall be deemed to be amended
accordingly.

If the Landlord elects to terminate this Lease as to all or part of the Leased Premises, the
Tenant may by written notice (given within 10 days or such longer time as the Landlord may consent
to in writing after receipt of the Landlord’s notice of termination) notify the Landlord of the
Tenant’s intention to refrain from the Transfer which gave rise to the Landlord’s notice of
termination or of the Tenant’s intention to accept such notice of termination. If the Tenant gives
written notice to the Landlord within such time period that it intends to refrain from such
Transfer, then the Landlord’s election to terminate this Lease in whole or in part shall become
null and void. Otherwise, the Landlord’s termination shall take effect on the date stipulated by
the Landlord in its notice of termination.

12.02 Basis for Consent - Notwithstanding anything in the Landlord and Tenant Act, the
Commercial Tenancies Act or any other statute or law and without limiting the grounds upon which a
consent may be refused, the Landlord will not be deemed to be unreasonable in refusing consent
when:

	(a)	 	the giving of such consent would place the Landlord in breach of any other tenant’s lease in
the Project or the proposed use by the Transferee is not substantially the same as that of
the Tenant;
	 
	(b)	 	such consent is requested for a mortgage, charge, debenture (secured by floating charge or
otherwise) or other encumbrance of, or in respect of, this Lease or the Leased Premises or
any part of them;
	 
	(c)	 	the Transferee, in the opinion of the Landlord: (i) does not have a history of successful
business operation in the business to be conducted in the Leased Premises; (ii) does not have
a good credit rating or a substantial net worth; or (iii) there is a history of default under
other leases by the Transferee or by companies or partnerships that the Transferee was a
principal shareholder of or a partner in at the time of the default;
	 
	(d)	 	the Transferee is an existing tenant in the Project or in any other project of the Landlord,
or has been within 3 months prior to the proposed assignment or sublease taking effect;
	 
	(e)	 	the Landlord has other premises in the Project available for leasing to the Transferee;
	 
	(f)	 	in the case of a Transfer to a subtenant of less than the entire Leased Premises, if such
would result in a configuration which: (i) would require access to be provided through space
leased or held for lease to another tenant or improvements to be made outside of the Leased
Premises; or (ii) would, in the sole opinion of the Landlord, be unreasonable to attempt to
re-lease to a third party;
	 
	(g)	 	the required information received from the Tenant or the proposed Transferee is not
sufficient in the Landlord’s opinion to enable the Landlord to make a determination
concerning the matters set out above; or
	 
	(h)	 	the use of the Leased Premises by the proposed Transferee, in the Landlord’s opinion arrived
at in good faith, could result in excessive use of the systems or Services in the Project, be
inconsistent with the image and standards of the Project or expose the occupants of the
Project to risk of harm, damage or interference with their use and enjoyment thereof, or
reduce the value of the Project.

The Landlord shall not be liable for any claims, actions, damages, liabilities, losses or expenses
of the Tenant or any proposed Transferee arising out of the Landlord’s unreasonably withholding
its consent to any Transfer and the Tenant’s only recourse will be to bring an application for a
declaration that the Landlord must grant its consent to the Transfer.

In no event shall any Transfer to which the Landlord may have consented release or relieve the
Tenant or any Indemnifier from its obligations fully to perform all the terms, covenants and
conditions

 

 

of this Lease; the Indemnity Agreement or any renewals or extensions of this Lease or the Term on
its part to be performed and, in any event, the Tenant shall be liable for the Landlord’s costs
incurred in connection with the Tenant’s request for consent as set out in Subsection 12.03(g).

12.03 Terms and Conditions Relating to Consents - The following terms and conditions
apply in respect of a consent given by the Landlord to a Transfer:

	(a)	 	the consent by the Landlord is not a waiver of the requirement for consent to subsequent
Transfers, and no Transfer shall relieve the Tenant of its obligations under this Lease,
unless specifically so provided in writing;
	 
	(b)	 	no acceptance by the Landlord of Rent or other payments by a Transferee is: (i) a waiver
of the requirement for the Landlord to consent in writing to the Transfer; (ii) the
acceptance of the Transferee as tenant or subtenant; or (iii) a release of the Tenant or
Indemnifier from its obligations under this Lease or any Indemnity Agreement;
	 
	(c)	 	the Landlord may apply amounts collected from the Transferee to any unpaid Rent;
	 
	(d)	 	the Transferor, unless the Transferee is a subtenant of the Tenant, will retain no rights
under this Lease in respect of obligations to be performed by the Landlord or in respect of
the use or occupation of the Leased Premises after the Transfer and will execute an
Indemnity Agreement on the Landlord’s standard form in respect of obligations to be
performed after the Transfer by the Transferee;
	 
	(e)	 	the Transferee shall, when required by the Landlord, jointly and severally with the
Tenant, enter into an agreement directly with the Landlord agreeing to be bound by this
Lease as if the Transferee had originally executed this Lease as the Tenant, and the Tenant
will not be released nor relieved from its obligations under this Lease including, without
limitation, the obligation to pay Rent;
	 
	(f)	 	in the .event that this Lease is disaffirmed, disclaimed or terminated by any trustee in
bankruptcy of a Transferee, the original Tenant named in this Lease shall be deemed, upon
notice by the Landlord given within 30 days of such disaffirmation, disclaimer or
termination to have entered into a lease with the Landlord containing the same terms and
conditions as in this Lease, with the exception of the Term of such Lease which shall expire
on the date on which this Lease would have ended save for such disaffirmation, disclaimer or
termination; and
	 
	(g)	 	any documents relating to a Transfer or the Landlord’s consent will be prepared by the
Landlord or its solicitors and a reasonable administration charge of at least $250.00 and
the greater of: (i) a reasonable document preparation fee of at least $450.00; or (ii) those
legal fees on a solicitor and client or substantial indemnity basis incurred by the Landlord
will be paid to the Landlord by the Tenant on demand.

12.04 Subsequent Transfers - The Landlord’s consent to a Transfer shall not be deemed to
be consent to any subsequent Transfer, whether or not so stated.

12.05 Profit Rents upon Transfers - In the event of any Transfer by the Tenant by virtue
of which the Tenant receives a rent in the form of cash, goods or services from the Transferee
which is greater than the Rent payable hereunder to the Landlord, the Tenant shall pay any such
excess to the Landlord in addition to all Rent payable under this Lease, and such excess rent
shall be deemed to be further Rent payable hereunder.

12.06 Advertising - The Tenant shall not advertise the Leased Premises or any part
thereof as being available for leasing or this Lease as being available for transfer in any
medium and will not cause or permit any such advertisement, unless the Landlord has permitted the
Tenant to do so in writing and has given written approval of the wording of such advertisement,
which permission and approval may be arbitrarily withheld.

12.07 Grant of Security Interest by Transferee - The Tenant will cause any Transferee and
any new Indemnifier of this Lease to grant a mortgage, charge and security interest to the
Landlord in form corresponding to the Security Interest granted in Section 15.25 by delivery of a
written security agreement in form and substance satisfactory to the Landlord prior to the
effective date of the Transfer.

The Tenant shall pay all costs associated with the granting and perfection of mortgages, charges
and security interests granted pursuant to this Lease upon any Transfer.

 

 

ARTICLE 13.00 - TRANSFERS BY LANDLORD

13.01 Sale, Conveyance and Assignment - Nothing in this Lease shall restrict’ the right
of the Landlord to sell, convey, assign, pledge or otherwise deal with the Project, subject
(except as provided in Section 13.03) only to the rights of the Tenant under this Lease.

13.02 Effect of Transfer - A sale, conveyance or assignment of the Project by the
Landlord shall operate to release the Landlord from liability from and after the effective date
thereof in respect of all of the covenants, terms and conditions of this Lease, express or
implied, except as they may relate to the period prior to the effective date, and the Tenant
shall thereafter look solely to the Landlord’s successor in interest.

13.03 Subordination - Subject to Section 13.04, this Lease, at the option of any
mortgagee, trustee or chargee, is and shall be subject and subordinate in all respects to any
and all mortgages (including deeds of trust and mortgage) now or hereafter registered against
title to the Building or Land and all advances thereunder, past, present and future and to all
renewals, modifications, consolidations, replacements and extensions thereof. The Tenant agrees
to execute promptly and in any event within 10 days after request therefor by the Landlord or
the mortgagee or trustee under any such mortgage or deed of trust and mortgage an instrument of
subordination as may be requested.

13.04 Attornment - The Tenant agrees, whenever requested by any mortgagee, trustee or
chargee (in this Section 13.04 and in Section 13.05 called the “Mortgagee”) taking title to the
Project by reason of foreclosure or other proceedings for enforcement of any mortgage or deed
of trust, or by delivery of a deed in lieu of such foreclosure or other proceeding, to attorn
to such Mortgagee as a tenant under all of the terms of this Lease. The Tenant agrees to
execute promptly and in any event within 10 days after a request by any Mortgagee an instrument
of attornment as may be required by it.

13.05 Effect of Attornment - Upon attornment pursuant to Section 13.04, this Lease
shall continue in full force and effect as a direct lease between the Mortgagee and the Tenant,
upon all of the same terms, conditions and covenants as are set forth in this Lease except
that, after attornment, the Mortgagee and its successors in title shall not be:

	(a)	 	liable for any act or omission of the Landlord;
	 
	(b)	 	subject to any offset or defence which the Tenant might have against the Landlord; or
	 
	(c)	 	bound by any prepayment by the Tenant of more than 1 month’s instalment of Rent unless
the prepayment shall have been approved in writing by the Mortgagee or by any predecessor
of the Mortgagee’s former interest as mortgagee of the Project.

13.06 Repurchase - The Tenant acknowledges and agrees that should the Landlord sell,
convey, assign, pledge or otherwise deal with the Project or any interest therein, or
intend to deal with the Project or any interest therein, in any manner described herein
then the Landlord may, at its option, if the Landlord has provided the Tenant with Basic
Rent free periods, Rent free periods and/or other inducements during the Term and/or any
renewal or extension of the Term of this Lease, reimburse the Tenant for the then present
value of any then unexpired Basic Rent free periods or Rent free periods and/or other
inducements provided to the Tenant under this Lease, in an amount equal to the discounted
cash value thereof determined by applying the then current yield of 10 year Canadian
Government Bonds plus 4% (hereinafter referred to in this Section 13.06 as the “Discounted
..Cash Value”) to the dollar amount of such outstanding Basic Rent free periods, Rent free
periods and/or other inducements and the Tenant agrees that any such periods or inducements
for which it has received such Discounted Cash Value from the Landlord will no longer exist
or be payable or be of any force or effect from and after the date on which such Discounted
Cash Value is received by the Tenant from the Landlord. The Tenant agrees to forthwith
execute any agreement prepared by the Landlord, the purpose of which agreement is to amend
this Lease by deleting such Basic Rent free periods, Rent free periods and/or other
inducements from this Lease for which the Tenant has received the Discounted Cash Value
from the Landlord.

ARTICLE 14.00 - SURRENDER

14.01 Possession and Restoration

(1) Upon the expiration or other termination of the ‘Term, the Tenant shall immediately quit
and surrender possession of the Leased Premises and all Leasehold Improvements in substantially
the condition in which the Tenant is required to maintain the Leased Premises, excepting only
reasonable wear and tear and damage covered by the Landlord’s insurance under Section 9.01, and
the Tenant shall deliver to the Landlord the keys, mechanical or otherwise, and combinations,
if any, to the locks in the Leased Premises and entries thereto.
Notwithstanding the forgoing, the Landlord shall have the
right, at its sole option upon expiration or other termination of the
Term, to

 

 

require that the
Tenant remove or cause to be removed at the Tenant’s cost all or
any part of Leasehold Improvements ion the Leased Premises whether or
not installed by or on behalf of the Tenant or installed by or on
behalf of a previous tenant or during a previous term and to restore
the Leased Premises and other parts of the Project affected by the
installation or removal thereof to base building standards.
Notwithstanding the forgoing, the Landlord may, at its sole option,
perform the said removal and restoration work at the Tenant’s
sole cost and expense. The Tenant will deliver the Leased Premises clean subject only to reasonable wear and
tear, with repairs to any damaged walls and flooring due to the removal of any Tenant fixtures.
In addition, the Landlord shall have the right, at its sole option upon expiration or other
termination of the Term, to require that the Tenant remove or cause to be removed at the
Tenant’s cost all or any part of any wiring, cables, risers or similar installations
appurtenant thereto installed by the Tenant or on the Tenant’s behalf in the risers of the
Building (the “Wiring”) and to restore the risers and other parts of the Project affected by
the installation or removal of the Wiring to their condition existing prior to the installation
of the Wiring (the `Wire Restoration Work”). Notwithstanding the foregoing, the Landlord may,
at its sole option, perform the Wire Restoration Work at the Tenant’s sole cost and expense.
Upon surrender, all right, title, and interest of the Tenant in the Leased Premises and all
Leasehold Improvements located therein and in all Wiring shall cease.

(2) If the Landlord elects to perform the said removal and restoration work and/or the Wire
Restoration Work, 90 days (or as soon after such date as is reasonably possible) prior to the
expiration of the Term the Landlord may inspect the Leased Premises to determine the extent of
the Wire Restoration Work and the work required to restore the Leased Premises and other parts
of the Project affected by any installation or removal of Leasehold Improvements to base
building standards and upon receipt of the Landlord’s estimate of the costs thereof (the
“restoration cost”) the Tenant shall provide to the Landlord, by certified cheque, the
restoration cost.

14.02 Tenant’s Trade Fixtures and Personal Property - After the expiration or other
termination of the Term or in the event of the abandonment of the Leased Premises by the
Tenant, all of the Leasehold Improvements and the Tenant’s trade fixtures and personal property
remaining in the Leased Premises shall be deemed conclusively to have been abandoned by the
Tenant and may be appropriated, sold, destroyed or otherwise disposed of by the Landlord
without notice or obligation to compensate the Tenant or to account therefor, and the Tenant
shall pay to the Landlord upon written demand all of the costs incurred by the Landlord in
connection therewith.

14.03 Overholding - If the Tenant remains in the Leased Premises or any part thereof
after the expiration or other termination of the Term:

	(a)	 	without the consent of the Landlord, no yearly or other periodic tenancy shall be
created and the Tenant shall be deemed, notwithstanding any statutory provision or legal
assumption to the contrary, to be occupying the Leased Premises as a tenant at will of the
Landlord, which tenancy may be terminated at any time by the Landlord without the
necessity of any prior notice to the Tenant, but the Tenant shall be bound by the terms
and provisions of this Lease except any options thereby granted to the Tenant and except
the Basic Rent which shall be twice the greater of: (i) the rate provided for herein for
the final year of the Term; and (ii) the market rate for similar premises as determined by
the Landlord at the time of such overholding, plus, in either case, the sum of $200.00
daily, and subject to such additional obligations and conditions as the Landlord may
impose by notice to the Tenant; or
	 
	(b)	 	with the consent of the Landlord and agreement as to the Rent payable, the tenancy
shall be month-to-month at the Rent agreed and otherwise on the terms and conditions of
this Lease, but without any option to renew or for a new lease.

The Landlord may recover possession of the Leased Premises during any period’ with respect to
which the Tenant has prepaid the amount payable under Subsection 14.03(a).

The Tenant shall promptly indemnify and hold harmless the Landlord from and against all Claims
against the Landlord as a result of the Tenant remaining in possession of all or any part of
the Leased Premises after the expiry of the Term without the consent of the (Landlord
(including, without limitation, any compensation to any new tenant or tenants which the
(Landlord may elect to pay whether to offset the cost of overtime work or otherwise).

ARTICLE 15.00 - GENERAL

15.01 Estoppel Certificates - The Tenant shall whenever requested by the Landlord, a
prospective purchaser or any mortgagee (including any trustee under a deed of trust and
mortgage) promptly, and in any event within 10 days after request, execute and deliver to the
Landlord or to any party or parties designated by the Landlord a certificate in writing as to
the then status of this Lease, including as to whether it is in full force and effect, is
modified or unmodified, confirming the Rent payable hereunder and each element hereof and the
then state of the accounts between the Landlord and the Tenant, the existence or non-existence
of defaults and any other matters pertaining to this Lease in respect of which the Landlord
shall request a certificate, and provide such other information as may reasonably be required,
including a copy of the Tenant’s most recent

 

 

audited financial statements. The party or parties to whom such certificates are addressed
may rely upon them.

15.02 Entire Agreement - There is no promise, warranty, representation, undertaking,
covenant or understanding by or binding upon the Landlord except such as are expressly set forth
in this Lease and this Lease, including the Term Sheet and schedules hereto, contains the entire
agreement between the parties hereto.

15.03 No Registration of Lease or Notice - The Tenant shall not register or apply to
register this Lease or any notice of this Lease or any interest under this Lease and waives any
statutory obligation upon the Landlord to execute and deliver this Lease in registrable form.
The Tenant shall, at its own cost, promptly on request discharge any registration or filing or
notice that contravenes this Section. Notwithstanding the foregoing, the Landlord may elect to
require that this Lease or notice of this Lease be registered.

15.04 Project Name and Trademarks - The Tenant shall not refer to the Project or
Building by any name other than that designated from time to time by the Landlord and the Tenant
shall use the name of the Building for the business address of the Tenant, but for no other
purpose. Compliance with this Section shall be at the sole cost and expense of the Tenant and
the Tenant shall have no claim against the Landlord for any costs or expenses incurred by the
Tenant, whether direct or indirect, in complying with this Section.

15.05 Demolition / Substantial Renovation - Notwithstanding any other provision of this
Lease, the Landlord may terminate this Lease at any time upon giving to the Tenant not less than
12 months’ notice of such termination if it is the Landlord’s intention to demolish, redevelop
or substantially renovate all or part of the Building.

15.06 Relocation - The Landlord shall have the right, at any time and from time to time
before and during the Term and any renewal or extension of the Term of this Lease, to change the
location of the Leased Premises from the location described in this Lease to another location of
similar size and finishes anywhere else in the Project. Provided that the Landlord shall give
the Tenant reasonable notice of such relocation and the Landlord shall reimburse the Tenant for
all reasonable costs directly related to such relocation, but not including any indirect costs
such as lost profits during the relocation period or damages for inconvenience.

15.07 “For Lease” Signs - The Landlord shall have the right during the last 12 months of
the Term to place upon the Leased Premises a notice of reasonable dimensions stating that the
Leased Premises are “for lease” and the Tenant shall not obscure or remove such notice or permit
the same to be obscured or removed.

15.08 Unavoidable Delays - If the Landlord or the Tenant (the “delayed party”) shall be
delayed, hindered or prevented in or from the performance of any of its covenants under this
Lease by any cause not within the control of the delayed party, as determined by the Landlord
acting reasonably (excluding lack of finances of the delayed party), the performance of the
covenant shall be excused for the period during which performance is rendered impossible and the
time for performance thereof shall be extended accordingly, but this shall not excuse the Tenant
from the prompt payment of Rent or from the performance of any of its other obligations under
this Lease not related to such cause.

15.09 Limitation of Recourse - The Tenant acknowledges that, notwithstanding any other
provision contained in this Lease, the obligations of and rights against the Landlord under this
Lease shall be performed, satisfied and paid only out of and enforced against, and recourse
hereunder shall be had only after judgment and only against, the right, title and interest of
the Landlord from time to time in, and the Landlord’s revenue derived from, the Project. No
obligation of the Landlord hereunder or in respect hereof is personally binding upon, nor shall
any resort or recourse be had, judgment issued or execution or other process levied against, the
Landlord (except to the extent necessary for enforcement under the first sentence of this
Section 15.09 and only for that purpose), or against any other assets or revenues of the
Landlord. The only remedy against the Landlord shall be an action for damages, except that if
the Tenant is of the opinion that any consent requested pursuant to Article 12.00 hereof has
been wrongfully withheld, its remedies are as set out in Section 12.02.

If the Landlord is, or this Lease is assigned by the Landlord to, a real estate investment trust
(“REIT”), the parties acknowledge and agree that the obligations of the REIT hereunder and under
all documents delivered pursuant hereto (and all documents to which this document may be
pursuant) or which give effect to, or amend or supplement, the terms of this Lease are not
personally binding upon any trustee thereof, any registered or beneficial holder of units (a
“Unitholder”) or any annuitant under a plan of which a Unitholder acts as a trustee or carrier,
or any officers, employees or agents of the REIT and resort shall not be had to, nor shall
recourse or satisfaction be sought from, any of the foregoing or the private property of any of
the foregoing, but the Project only shall be bound by such obligations and recourse or
satisfaction may only be sought from the revenue of the Project.

 

 

15.10 Notice - Any notice required or contemplated by any provision of this Lease shall
be given in writing and delivered either: (i) personally; (ii) by prepaid courier service; (iii)
by facsimile with confirmation of transmission; or (iv) by registered mail, postage prepaid; and
if to the Landlord at the Landlord’s local office as specified in Item 1(a) of the Term Sheet,
with a copy to the Landlord’s head office address as specified in Item 1(b) of the Term Sheet
and if to the Tenant at the Leased Premises (whether or not the Tenant has departed from,
vacated or abandoned the same), or, at the Landlord’s option, to the Tenant’s head office
address as specified in item 2 of the Term Sheet. Notwithstanding the provision of any statute
or law relating thereto, service by means of electronic mail of any notice required to be given
in writing by either party hereto pursuant to this Lease shall not constitute good and effective
service.

Any notice shall be considered to have been given or made: (i) if delivered personally or by
prepaid courier, on the day of delivery; (ii) if sent by facsimile and received on or before
4:30 p.m. local time for the recipient, on the day of transmission; (iii) if sent by facsimile
and received after 4:30 p.m. local time for the recipient, on the next Business Day following);
or (iv) if sent by registered mail, 3 Business Days following the date upon which it was mailed.
Either party may from time to time by notice in writing to the other designate another address
or addresses in Canada as the address to which notices are to be sent. If the postal service is
interrupted or substantially ‘delayed or threatened to be interrupted or delayed, any notice
shall only be delivered by one of the alternate methods stated above.

If two or more Persons are named as, or bound to perform the obligations of, the Tenant
hereunder, notice given as herein provided to any one of the Persons constituting the Tenant or
so bound shall be deemed to be notice simultaneously to all Persons constituting the Tenant and
to all Persons so bound. Any notice given to the Indemnifier or the Tenant shall be deemed to
have been given simultaneously to the other of them and to all Persons bound by their
obligations hereunder.

15.11 Delegation of Authority - The Landlord’s Agent may act on behalf of the Landlord
in any manner provided for herein. The Tenant acknowledges that, if this Lease has been executed
for and on behalf of, in the name of and with the authority of the Landlord by the Landlord’s
Agent, the covenants and agreements of the Landlord are obligations of the Landlord and its
successors and assigns only and are not obligations personal to or enforceable against the
Landlord’s Agent in its own right.

15.12 Relationship of Parties - Nothing contained in this Lease shall create any
relationship between the parties hereto other than that of landlord and tenant and, if
applicable, indemnifier.

15.13 Governing Law. - This Lease shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the laws of the province in which the
Project is situated and the laws of Canada applicable therein and shall be subject to the
exclusive jurisdiction of the courts of the province in which the Project is situated.

15.14 Amendment or Modification - No amendment, modification or supplement to this Lease
shall be valid or binding unless set out in writing and executed by the Landlord and the Tenant
with the same degree of formality as the execution of this Lease.

15.15 Legal and Administration Costs  - The Tenant shall indemnify the Landlord against
all legal fees on a solicitor and client or substantial indemnity basis and disbursements
incurred by the Landlord or by the Landlord’s Agent in connection with the negotiation,
preparation and execution of any renewal, amendment, assignment, cancellation, approval or
consent in connection with this Lease, including the Landlord’s reasonable administration
charges. All such costs and charges shall be paid by the Tenant to the Landlord forthwith upon
demand.

15.16 Construction - All of the provisions of this Lease are to be construed as covenants
and agreements. If any provision of this Lease is illegal or unenforceable, it shall be considered
separate . and severable from the remaining provisions of this Lease, which shall remain in force
and be binding as though the provision had never been included. Any language or wording in this
Lease which has been struck out shall be deemed not to have ever been included herein and shall
not be considered in construing or interpreting any other provision of this Lease, nor shall there
be any implication that by the deletion of any language or wording, the parties hereto intended to
state the opposite of the struck out language or wording.

15.17 Captions and Headings - The captions and headings contained in this Lease are for
convenience of reference only and are not intended to limit, enlarge or otherwise affect the
interpretation of the Articles, Sections or parts hereof to which they apply.

15.18 Interpretation - In this Lease, “herein”, “hereof”, “hereunder”, “hereafter” and
similar expressions refer to this Lease and not to any particular Article, Section or other
portion thereof unless there is something in the subject matter or context inconsistent
therewith. Wherever necessary or appropriate in this Lease, the plural shall be interpreted as
singular, the masculine gender as feminine or neuter and vice versa; and when there are two or
more parties bound by the Tenant’s covenants herein contained, their obligations shall be joint
and several. If the Tenant is a

 

 

partnership, each Person who is presently a member of such partnership and each Person who
becomes a member of any successor partnership shall be and continue to be liable jointly and
severally for the performance of the obligations of this Lease, whether or not such Person
ceases to be a member of such partnership or successor partnership and after the partnership
ceases to exist.

15.19 Time of the Essence - Time shall be of the essence hereof and no extension or
variation of this Lease shall operate as a waiver of this provision.

15.20 Successors and Assigns - Subject to specific provisions contained in this Lease to
the contrary, this Lease shall enure to the benefit of and be binding upon the successors and
assigns of the Landlord and the heirs, executors and administrators and the permitted successors
and assigns of the Tenant.

15.21 Counterparts - This Lease may be executed in counterparts and the counterparts
together shall constitute an original.

15.22 Further Schedules - Any additional covenants, agreements and conditions forming
part of this Lease will be attached as Schedule E and the Tenant agrees with the Landlord to
comply with the provisions of Schedule E. If an Indemnifier is a party hereto, the form of
Indemnity Agreement to be executed by the Indemnifier and the Landlord as a separate agreement
will be attached as Schedule F.

15.23 Independent Legal Advice - The Tenant and the Indemnifier each acknowledge that
the Landlord hereby advises each of the Tenant and the Indemnifier to obtain advice from
independent legal counsel prior to signing this Lease and/or the Indemnity Agreement. The Tenant
and the Indemnifier further acknowledge that any information provided by the Landlord is not to
be construed as legal, tax or any other expert advice and the Tenant and the indemnifier are
cautioned not to rely on any such information without seeking legal, tax or other expert advice.

The Landlord and the Tenant understand, acknowledge and agree that this Lease has been freely
negotiated by both parties and that, in any dispute or contest over the meaning, interpretation,
validity or enforceability of this Lease or any of its terms or conditions, there shall be no
inference, presumption or conclusion drawn whatsoever against either party by virtue of that
party having drafted this Lease or any portion thereof.

15.24 No Offer - The Landlord will not. be deemed to have made an offer to the Tenant by
furnishing an unexecuted copy of this Lease with particulars inserted. Notwithstanding that a
Security Deposit or payment of advance Rent is received by the Landlord when this Lease is
received by the Landlord for execution, no contractual or other right will exist between the
Landlord and the Tenant with respect to the Leased Premises until the Landlord, the Tenant and
the Indemnifier, if any, have executed and delivered this Lease and any required Indemnity
Agreement.

15.25 Landlord’s Security Interest

(1) As security for the Tenant’s performance of its obligations under this Lease, including but
not limited to the payment of Rent and GST, the Tenant grants to the Landlord by way of security
interest, mortgage, pledge, charge, assignment and hypothec a continuing security interest (the
“Security Interest”) in the Tenant’s present and future undertaking and all of its present and
after acquired personal property and assets including without limitation the assets described in
Schedule G attached hereto and forming part hereof and all goods (including inventory), trade
fixtures and other personal property of the Tenant located from time to time on the Leased
Premises and any Leasehold Improvements which the Tenant effects on or in respect of the Leased
Premises (collectively the “Collateral”). The Tenant may however, prior to the occurrence of an
Event of Default, sell or dispose of its inventory to its customers in the ordinary course of
business, in accordance with the terms and conditions of this Lease, without the consent of the
Landlord. The Tenant will promptly execute additional documents and will provide additional
information required by the Landlord from time to time in connection with the Security Interest.
The Tenant authorizes the Landlord to file a financing statement and any other form of document
required in connection with the Security Interest to perfect, protect or preserve its Security
Interest. The Landlord’s Security Interest is in addition to and not in lieu of its right of
distress.

(2) The Landlord may enforce its Security Interest upon the occurrence of an Event of Default in
the manner outlined in Schedule G attached hereto and forming part hereof or in any other manner
available at law or in equity.

(3) The grant of the Security Interest shall not effect or result in a merger of any rights or
interests of any party hereto.

(4) To the extent permitted by law, the Tenant hereby waives its right to receive a copy of any
financing statement, financing change statement or verification statement relating to the
Security Interest.

 

 

(5) The Landlord and the Tenant acknowledge that they have not agreed to postpone the time for
attachment of the Security Interest with respect to existing Collateral, and that the Security
Interest shall attach to after acquired Collateral as soon as the debtor has rights in such
Collateral.

15.26 Survival of Covenants and Indemnities - All Obligations of the Tenant which arise
during the Term pursuant to this Lease and which have not been satisfied at the end of the Term
and all indemnities of the Tenant contained in this Lease shall survive the expiration or other
termination of this Lease.

15.27 Exculpatory Provisions - In all provisions of this Lease containing a release,
indemnity or other exculpatory language in favour of the Landlord, reference to the Landlord
includes reference also to the Landlord’s Agent and nominee (if any) and any Person for whom
any one or more of them is in law responsible and the directors, officers and employees of the
Landlord, the Landlord’s Agent and nominee (if any) and any Person for whom they are in law
responsible (including the agents of any of them) while acting in the ordinary course of their
employment (collectively the “Released Persons”), it being understood and agreed that, for the
purposes of this Section 15.27, the Landlord is deemed to be acting as the agent or trustee on
behalf of and for the benefit of the Released Persons solely to the extent necessary for the
Released Persons to take the benefit of this Section 15.27.

15.28 Brokerage Commissions - The Tenant covenants that no act of the Tenant has given
rise nor shall give rise to any Claims against the Landlord for any brokerage commission,
finder’s fee or similar fee in respect of this Lease. The Tenant hereby indemnifies and agrees
to hold the Landlord harmless from any Claims for such commission or fees with respect to this
Lease except any which were directly contracted for by the Landlord.

15.29 Covenants to be Performed at Landlord’s Option Where any provision in this Lease
gives the Landlord the option of having the Landlord or the Tenant perform the covenants set
out in such provision, the Tenant shall perform such covenants unless the Tenant is otherwise
directed by way of written notice from the Landlord.

15.30 Radiation Only if the Landlord believes on reasonable grounds that radiation is
or has been used or created by the Tenant or any Person permitted by the Tenant to be in the
Leased Premises, shall this Section 15.30 apply to the Tenant.

 

 

`

The Tenant agrees, if so requested by the Landlord, to conduct at its own expense a survey
by an accredited firm of consultants acceptable to the Landlord to determine the level of
radiation in the Leased Premises, and if such levels are in excess of those allowable
under Environmental Laws and set by the applicable regulatory authorities governing
radiation, the Tenant agrees, at its own cost and expense and on terms and conditions
approved by the Landlord, to reduce the level of radiation to a level allowable under
Environmental Laws and set by such applicable regulatory authorities.

IN WITNESS WHEREOF the parties hereto have executed this Lease as of the .date first set
forth above.

	 	 	 	 	 
	APPROVAL	 	LANDLORD:
	BRANCH Jan 8/05	 	CORDOVA EQUITIES INC.,
	 	 	by its agents MORGUARD INVESTMENTS LIMITED
	 
	 	 	 	 
	 

	 	By :
	 	/s/ MICHAEL WALKER
	 

	 	 	 	 
	 

	 	 	 	Name: MICHAEL WALKER
	 

	 	 	 	Title: AUTHORIZED SIGNATORY
	 
	 	 	 	 
	 

	 	By :	 	 
	 

	 	 	 	/s/ J. I. JOHNSTON
	 

	 	 	 	 
	 

	 	 	 	Name: J. I. JOHNSTON
	 

	 	 	 	Title: AUTHORIZED SIGNATORY
	 
	 	 	 	 
	 	 	We have authority to bind the Corporation

	 	 	 	 	 	 	 
	WITNESS to signatures to Tenant :	 	TENANT:
	 	 	 	 	SEA BREEZE POWER CORP.
	 
	 	 	 	 	 	 
	signature:

	 	

	 	By :	 	/s/ PAUL B. MANSON
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Name: PAUL B. MANSON
	 

	 	 	 	 	 	Title: PRESIDENT
	print name:

	 	

	 	 	 	 
	 
	 	 	 	 	 	 
	address:

	 	 	 	By :	 	/s/ EUGENE HODGSON
	 

	 	 
	 	 	 	 
	 

	 	 	 	 	 	Name: EUGENE HODGSON
	 

	 	 	 	 	 	Title: VICE PRESIDENT
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	occupation:
	 	 	 	 	 	 
	 	 	 	 	I/We have authority to bind the Corporation
	 

	 	

	 	 	 	 

 

 

SCHEDULE
A

PLAN SHOWING
LEASED PREMISES

 

 

SCHEDULE Al

LEGAL DESCRIPTION OF LAND

	 	 	 
	Firstly:

	 	PID:006-974-848 Lot
	 

	 	A
	 

	 	Block 14
	 

	 	District Lot 541
	 

	 	Plan 20201
	 
	 	 
	Secondly:

	 	PID: 006-979-530 Lot
	 

	 	B
	 

	 	Block 14
	 

	 	District Lot 541
	 

	 	Plan 20200

 

 

SCHEDULE B

DEFINITIONS

“Article”, “Item”, “Schedule”, “Section” and “Subsection” mean the specified article, item,
schedule, section or subsection, as the case may be, of this Lease.

“Basic Rent” means the amount set out in Item 8 of the Term Sheet payable by the Tenant to the
Landlord in respect of each year of the Term.

“Bio-Medical Waste” shall mean and include the following:

(a) (I) surgical waste including all materials discarded from surgical procedures, including
but not limited to, disposable gowns, soiled dressings, sponges, casts, lavage tubes,
drainage sets, underpads and surgical gloves;

(ii) pathological waste including all human tissues and anatomical parts which emanate
from surgery, obstetrical procedures, autopsy and laboratory;

iii) biological waste including blood and blood products, excretions, exudates,
secretions, suctionings and other body fluids including solid/liquid waste from renal
dialysis;

(iv) isolation waste including all waste emanating from the care or treatment of a
patient on any type of isolation or precaution except reverse (protective) isolation;

(v) . cultures and stocks of etiologic agents and associated biologicals including,
without limitation, specimen cultures, cultures and stocks of etiologic agents, wastes
from production of biologicals and serums, and discarded live and attenuated vaccines;

(vi) laboratory waste which has come in contact with pathogenic organisms, including but
not limited to, culture dishes, devices used to transfer, inoculate and mix cultures,
paper and cloth which has come in contact with specimens or cultures;

(vii) animal carcasses exposed to pathogens in research, their bedding and other waste
from such animals;

(viii) sharps, including any discarded article that may cause punctures or cuts,
including but not limited to, needles, IV tubing with needles attached, scalpel blades,
glassware, and syringes that have been removed from their original sterile containers;
and

(ix) any other wastes identified as infectious or similar wastes in any other applicable
federal, provincial or municipal laws, regulations and guidelines; and

(b) “Chemotherapy Waste” (also known as antineoplastic or cytotoxic waste) means and
includes discarded items, including but not limited to, masks, gloves, gowns, empty IV
tubing bags, vials, syringes and other contaminated materials which have been contaminated
by chemotherapeutic drugs or antineoplastic agents; and

(c) any waste defined as bio-medical waste under any applicable law or regulation.

“Building” means the buildings, structures and improvements from time to time during the Term .
erected in, upon or under the Land municipally identified in. Item 3 of the Term
Sheet and all. alterations and additions thereto and replacements thereof.

“Business Day” means any day which is not a Saturday, Sunday or a statutory holiday observed in
the province in which the Project is situated.

“Capital Tax” means the applicable amount of any tax or taxes including but not limited to
Large Corporations Tax payable based upon or computed by reference to the paid-up capital or
place of business of the Landlord as determined for the purposes of such tax or taxes; provided
that for the purposes hereof, the “applicable amount” of such tax or taxes shall mean the amount
thereof that would be payable if the Project were the only establishment of the Landlord in the
jurisdiction of the taxing authority or if any other establishment of the Landlord therein were
located outside that jurisdiction.

“Claims” means claims, losses, actions, suits, proceedings, causes of action, demands, damages
(direct, indirect, consequential or otherwise), judgments, executions, liabilities,
responsibilities, costs, charges, payments and expenses including, without limitation, any
professional, consultant and legal fees on a solicitor and client or substantial indemnity basis
and any associated disbursements.

“Collateral” has the meaning ascribed in Section 15.25.

 

 

“Commencement Date” means the first day of the Term as specified in Item 7(a) of the Term Sheet.

‘Common Elements means the areas, facilities, utilities, improvements, equipment and
installations (collectively, “elements”) in the Project that, from time to time, are not
intended to be leased to tenants of the Project (including, without limitation, elements within
rentable premises that are intended for the benefit of tenants of the Project and their
invitees and employees) or are designated from time to time as Common Elements by the Landlord
and includes access roads, driveways and parking areas and facilities.

“Consultants” means any reference in this Lease to the Landlord’s accountant, auditor,
architect, surveyor or other consultant shall be deemed to be such duly qualified consultant
appointed by the Landlord in its absolute discretion for the purposes of this Lease or of any
provision hereof; and they will act in accordance with this Lease and the principles and
standards of their professions. In determining any cost allocation the Landlord may rely on,
and the parties shall be bound by, the decision or determination of the Landlord’s Consultants.

“Environmental Laws” shall include any domestic and foreign federal, provincial, municipal or
local laws, statutes, regulations, ordinances, guidelines, policies, judge made laws or common
laws and any orders of a court or governmental authority, relating in any way to the natural or
human environment (including land, surface water, groundwater, and real, personal, moveable and
immoveable property), public or occupational health and safety, and the manufacture,
importation, handling, use, reuse, recycling, transportation, storage, disposal, elimination
and treatment of a substance, hazardous or otherwise.

“Event of Default” means any of the following events:

	(a)	 	all or any part of the Rent hereby reserved is not paid when due;
	 
	(b)	 	the Term or any goods, merchandise, stock in trade, chattels or equipment of the Tenant or

any Indemnifier is or are seized or taken or exigible in execution or in attachment or if a
creditor takes possession thereof or if a writ of execution is issued against the Tenant or
any Indemnifier;
	 
	(c)	 	the Tenant or any Indemnifier or any Person bound to perform the obligations of the
Tenant in this Lease either as guarantor or indemnifier or as one of the parties
constituting the Tenant takes any steps in furtherance of or suffers any order to be made
for its winding-up or other termination of its corporate existence or becomes insolvent or
commits an act of bankruptcy or becomes bankrupt or takes the benefit of any statute that
may be in force for bankrupt or insolvent debtors or becomes involved in voluntary or
involuntary winding-up proceedings or if a receiver or receiver/manager shall be appointed
for all or any part of the business, property, affairs or revenues of the Tenant or such
Indemnifier or Person;
	 
	(d)	 	the Tenant makes a bulk sale of its goods or moves or commences, attempts or threatens
to move its goods, chattels and equipment, or any of them, out of the Leased Premises
(other than in the normal course of its business) or ceases to conduct business in the
Leased Premises;
	 
	(e)	 	the Tenant fails to move into or take possession of the Leased Premises or vacates or
abandons the Leased Premises in whole or in part or fails to actively carry on business
therein;
	 
	(f)	 	a report or statement required from the Tenant under this Lease is materially false or
misleading except if it results from an innocent clerical error as determined by the
Landlord;
	 
	(g)	 	any policy of insurance taken out by either the Landlord or the Tenant with respect to
the Project shall be cancelled by reason of any act or omission of the Tenant;
	 
	(h)	 	the Tenant enters into a Transfer except in compliance with the provisions of this Lease; or
	 
	(i)	 	the Tenant or any indemnifier or any Person bound to perform the obligations of the
Tenant pursuant to this Lease either as guarantor or indemnifier or as one of the parties
constituting the Tenant fails to observe, perform and keep each and every covenant,
agreement, provision, stipulation and condition herein contained to be observed, performed
and kept by the Tenant or the Indemnifier, including observance and performance of the
rules and regulations, (other than payment of Rent) and persists in the failure after 10
days’ written notice by the Landlord requiring the Tenant to remedy, correct, desist or
comply (or if any breach would reasonably require more than 10 days to rectify, unless the
Tenant commences rectification within the 10 day notice period and thereafter promptly,
effectively and continuously proceeds with the rectification of the breach.

“Expropriated”, “Expropriating” and “Expropriation” .have the meanings ascribed in Section
10.06.

 

 

“Fiscal Year” means a period, from time to time determined by the Landlord, all or part of which
falls within the Term, at the end of which the Landlord’s accounts in respect of the Project are
balanced for auditing or bookkeeping purposes. Such period shall be 12 months except when the
Landlord designates a new date. upon which the fiscal year shall end.

“GST” means goods and services tax, being that tax payable pursuant to Parts VIII and
IX of the Excise Tax Act, as amended and re-enacted from time to time, and other like taxes
levied from time to time and includes any blended sales tax which combines GST and provincial
sales tax.

“Indemnifier” means the Person, if any, so identified in the Term Sheet and who has signed this
Lease as Indemnifier.

“Indemnity Agreement” means the agreement attached as Schedule F.

“Land” means those lands legally described in Schedule Al as same may be expanded or contracted
from time to time.

“Landlord’s Agent” means the Person retained by the Landlord from time to time to operate or
manage the Project which, as of the date of this Lease, is Morguard Investments Limited.

“Lease” means this lease, the Term Sheet, and all Schedules attached hereto which are referred
to in this lease and every properly executed instrument which by its terms amends, modifies or
supplements this lease.

“Leased Premises” means those premises in the Building which are described and identified in
Item 4 of the Term Sheet and which are marked in a distinguishing manner on the plan attached as
Schedule A.

“Leasehold Improvements” means:

	(a)	 	all improvements, fixtures, installations, alterations and additions from time to time
made, erected or installed to or in the Leased Premises, in addition to, beyond or
replacing the base building standards, including all partitions however affixed (including
moveable and demountable partitions), millwork and affixed wall units, internal stairways,
doors, hardware, light fixtures, carpeting and other applied floor finishes, and heating,
ventilating and air conditioning equipment and other building services not forming part of
the Landlord’s base building equipment and services; and
	 
	(b)	 	alterations, improvements and equipment made or installed for the exclusive benefit of
the Tenant elsewhere in the Project;

in either case whether or not installed by or on behalf of the Tenant and whether or not
installed during the Term including, without limitation, all fixtures (except trade fixtures) in
the Leased Premises.

“Mortgagee” has the meaning ascribed in Section 13.04.

“Operating Casts” means in respect of any Fiscal Year the total of all costs, expenses and
amounts, incurred or accrued in that Fiscal Year for or with respect to ownership, management,
operation, maintenance, repair, upkeep, insurance, supervision, decoration, cleaning and
upgrading of the Project and the determination and allocation of such costs, expenses and
amounts, whether incurred or accrued by or on behalf of the Landlord or by or on behalf of the
Landlord’s Agent including, without limitation and without duplication:

A. Inclusions - if provided by the Landlord (subject to certain exclusions and
deductions as hereinafter set out):

	(a)	 	the cost of providing and maintaining security, landscaping, gardening and snow and
refuse removal;
	 
	(b)	 	the cost of heating, air conditioning and ventilating the Building and investigating and
remedying air quality and moisture issues and issues related thereto, if any;
	 
	(c)	 	the cost of providing hot and cold or tempered water, electricity (including lighting)
and all other utilities to all parts of the Project not otherwise paid by tenants;
	 
	(d)	 	the cost of providing janitor, window cleaning and general cleaning services including
supplies to all parts of the Project including all premises leased to tenants of the
Project;
	 
	(e)	 	the cost of, replacement of building standard. fluorescent tubes, light bulbs and
ballasts in the Leased Premises and the costs of cleaning, maintaining and servicing of the
electrical light fixtures in the Leased Premises if not separately invoiced pursuant to
Section 7.02;

 

 

	(f)	 	the cost of all insurance taken out and maintained by the Landlord under Article
9:00 and the cost of any deductible amount paid by the Landlord in connection with a
claim under its insurance;
	 
	(g)	 	the rental or lease cost of all rented or leased equipment acquired for the operation or
maintenance of the Project;
	 
	(h)	 	accounting costs incurred in connection with the Project including computations required
for the imposition of charges to tenants and audit fees incurred for the determination of
any costs hereunder and the reasonable costs of collecting and enforcing payment of such
charges;
	 
	(I)	 	the cost of all equipment acquired for operation or maintenance of the Project if
expensed fully in the Fiscal Year in which such equipment is acquired;
	 
	(j)	 	if expensed fully in the Fiscal Year in which the expense is incurred, the cost of any
improvement, replacement, repair or alteration whether with respect to buildings,
improvements, equipment, fixtures or otherwise and whether on-site or off-site which, in
the opinion of the Landlord, is necessary to reduce or limit increases in Operating Costs
or is required by the Landlord’s insurance carriers or by any changes in the laws, rules,
regulations or orders of any governmental authority having jurisdiction, including those
necessary to comply with energy conservation, pollution and environmental control
standards and the costs of any procedures required with respect thereto;
	 
	(k)	 	the cost of investigating; testing, monitoring, removing, enclosing, encapsulating or
abating any Pollutants which are in or about the Project or any part thereof or which have
entered the environment from the Project, if the Landlord is required to do so or if, in
the Landlord’s opinion, it is harmful or hazardous to any Person or to the Project or any
part thereof or to the environment;
	 
	(I)	 	the cost of repairs and replacements to or in respect of the Project including those
resulting from normal wear and tear and otherwise and including those necessary with
respect to the window coverings, decorations, elevators and escalators (if any), roof or
any Parking Facilities;
	 
	(m)	 	the cost of repairs, replacements and improvements to systems in the Project including,
without limitation, the heating, ventilating, air conditioning and energy-saving and
security systems and devices;
	 
	(n)	 	at the Landlord’s election (such election to be evidenced by the method of calculating
Operating Costs for each Fiscal Year), either amortization, in an amount determined by the
Landlord’s accountant, of the cost (whether incurred before or during the Term and whether
or not incurred by the party constituting the Landlord at any time or its predecessor in
title or interest) of any repair, replacement, decoration or improvement of the Project
not expensed within the Fiscal Year in which the expenditure was incurred and of all
equipment required for the operation and maintenance of the Project not included within
Operating Costs for the Fiscal Year in which the expenditure occurred in accordance with
Subsections (i) and (j) above, or depreciation in an amount determined by the Landlord’s
accountant based on the cost (whether incurred before or during the Term and whether or
not incurred by the party constituting the Landlord at any time or its predecessor in
title or interest) of any of those items which the Landlord in its absolute discretion has
elected to treat as capital in nature together with, in each case, an amount equal to
interest at the Prime Rate plus 1.5% per annum on the undepreciated or unamortized amount
thereof;
	 
	(o)	 	the amount of all salaries, wages and fringe benefits paid to or for the benefit of
employees and others engaged either full-time or part-time in the operation or maintenance
of the Project;
	 
	(p)	 	amounts paid for service contracts with independent contractors;
	 
	(q)	 	the cost of energy audits, conservation studies and other, measures taken to conserve
energy or reduce costs or liability;
	 
	(r)	 	the cost of renting, operating and maintaining Project signs and providing directional
signage;
	 
	(s)	 	all other expenses of every nature incurred in connection with the maintenance and
operation of the Project;
	 
	(t)	 	the cost of direct supervision attributable to any of the above;

 

 

	(u)	 	the fair rental value of space in the Building occupied by the Landlord, its
manager or personnel in connection with the Services; and
	 
	(v)	 	any Capital Tax imposed upon the Landlord; provided that if the Capital Tax payable by the
Landlord in this connection is for a period not coinciding with the Fiscal Year, the
amount of
the Capital Tax included in Operating Costs in each Fiscal Year shall be that amount
payable
by the Landlord accruing during the Fiscal Year;

plus a management fee equal to that amount paid to the Landlord’s Agent in respect of
management of the Project or any part thereof or the Landlord’s reasonable charges in lieu
thereof if the Landlord elects to self manage the Project or any part thereof, which fee
shall be in keeping with the industry standard.

B. Exclusions Operating Costs shall exclude, without duplication and without limiting
the generality of the foregoing, and except to the extent expressly included above:

	(a)	 	debt service;
	 
	(b)	 	major structural repairs;
	 
	(c)	 	costs determined by the Landlord from time to time to be fairly allocable to the
correction of initial construction faults or initial maladjustments in operating
equipment, but only to the extent that such costs are recovered from the contractor or
others responsible;
	 
	(d)	 	any ground rent payable by the Landlord in respect of a lease of the Land or part
thereof; and
	 
	(e)	 	tenant improvement allowances, leasing commissions and leasing costs.
	 
	C.	 	Deductions - There shall be deducted from Operating Costs:
	 
	(a)	 	the proceeds of insurance recovered by the Landlord applicable to damage, the cost
of repair of which was included in the calculation of Operating Costs paid by’ the
Tenant; and
	 
	(b)	 	amounts recovered as a result of direct charges to the Tenant and other tenants to
the extent that the cost thereof was included in the calculation of Operating Costs.

“Parking Facilities” means that part of the Project containing parking facilities with
vehicular access thereto including, without limitation, parking spaces, ramps, circulation
space, vehicular entrances and exits, the structural elements thereof and services,
facilities and systems contained in or servicing such parking facilities.

“Person” means an individual, partnership, firm, corporate entity, trust, government or any
department or agency thereof or any combination of them.

“Pollutants” means any substance which is regulated by or which would be considered a
contaminant, pollutant, waste or deleterious or hazardous substance under Environmental Laws,
or which is or may be hazardous to persons or property or detrimentally affect property value
and includes, without limiting in any way the generality of the foregoing:

	(a)	 	radioactive materials;
	 
	(b)	 	explosives;
	 
	(c)	 	any substance that, if added to any air, land and/or water, would degrade or alter
or form part . of a process of degradation or alteration of the quality of that air,
land and/or water, to the extent that it is detrimental to its use by human beings or by
any animal or plant;
	 
	(d)	 	any solid, liquid, gas, microorganism, mould, sound, vibration, ray, heat,
radiation, odour or combinations of any of them that is likely to alter the quality of
the environment (including air, land and water) in any way or the presence of which in
the environment is prohibited by regulation or is likely to affect the life, health,
safety, welfare or comfort of human beings or animals or to cause damage to or otherwise
impair the quality of soil, vegetation, wildlife or property;
	 
	(e)	 	toxic substances;
	 
	(f)	 	substances declared to be hazardous or toxic under any law or regulation now or
hereafter enacted or promulgated by any governmental or municipal authority having
jurisdiction over the Landlord, the Tenant, the Leased Premises or the Project of which the
Leased Premises form a part;

 

 

	(g)	 	any substance, the use or transportation of which or the release of which into the
environment is prohibited, regulated, controlled or licensed under Environmental Laws;
	 
	(h)	 	anything contaminated by any Pollutants; and
	 
	(i)	 	Bio-Medical Waste.

“Prime Rate” means the rate of interest per annum established from time to time by The Bank of
Nova Scotia (or such other bank being one of the 5 largest Canadian chartered banks measured
by assets as the Landlord may designate from time to time) at its head office in Toronto,
Ontario as the reference rate of interest to determine interest rates it will charge on
Canadian dollar loans to its Canadian customers and which it refers to as its “prime rate”.

“Project” means the Land and Building and Includes, without limitation, all Common Elements.

“Property Tax Year” means the 12 month period set by the municipal taxing authorities as the
period for and over which Property Taxes and, where applicable, business taxes are assessed,
charged and payable by the owner or occupant of the Project or Leased Premises respectively,
whether on a calendar or fiscal year or any other basis.

“Property Taxes” means all taxes, rates, levies, duties and assessments whatsoever whether
municipal, school, provincial, parliamentary or otherwise levied, charged, imposed or assessed
against the Project or upon the Landlord in respect, thereof or from time to time
levied, charged, imposed or assessed in the future in lieu thereof or in addition thereto,
including, without limitation, those levied, charged, imposed or assessed for education,
school and local improvements and all business taxes, if any, from time to time payable by the
Landlord or levied against the Landlord on account of its ownership of, or interest in, or the
operation of the Project; and all costs and expenses incurred by the Landlord in good faith in
contesting, resisting or appealing any such taxes, rates, duties, levies or assessments
including, without limitation, legal fees on a solicitor and client or substantial indemnity
basis and other professional fees and interest and penalties on deferred payments, but
excluding income or profits taxes upon the income of the Landlord. If any portion of the
Project is assessed or taxed other than at the prevailing commercial assessment rates and mill
rates due to the occupancy of any tenants or the nature of any tenant’s operation, then the
amount of such taxes, rates, levies, duties or assessments shall be adjusted to be an amount
equal to the amount which would have been incurred had such portion of the Project been
assessed and taxed at the prevailing commercial assessment rates and mill rates throughout the
entire period for which the calculation is being made. Any tax levied on commercial property
or other like tax based on the area or use of the Project or the Leased Premises or any tax on
rent imposed in lieu of the foregoing taxes are included herein. Property Taxes shall not
include any Business Taxes payable by the Tenant pursuant to Section 8.02 and any similar
Taxes levied or assessed separately against other rentable premises in the Project.

“Rent” means the aggregate of all amounts payable by the Tenant to the Landlord under this
Lease. Provided that any and all amounts so payable which are collectible by the Landlord as
agent of a taxing authority and which are Taxes imposed by that authority on the Tenant are
included in Rent so as to determine the Landlord’s rights and remedies in the case of delay or
failure to pay the same notwithstanding that the same do not accrue to the Landlord as rent
hereunder.

“Rentable Area” means the area of the Leased Premises, the Building or any part thereof as
determined by the Landlord and which may be adjusted from time to time to give effect to any
structural or functional change and any change in the leasing pattern in the Building, and
which shall be calculated in accordance with the BOMA ANSI standards specified in Item 5 of
the Term Sheet (except to the extent altered by this definition) as follows:

	(a)	 	in the case of premises occupying the whole of one or more floors, the Rentable Area
of such premises shall be determined by measuring to and from the inside finish of
permanent outer Building walls or from the glass line, whichever extends further, but
shall not include stairs and elevator shafts (except stairs and elevators exclusively
serving the Tenant where the Leased Premises consist of more than one floor), flues,
stacks, pipe shafts and vertical ducts with their enclosing wall. Washrooms, air
conditioning equipment rooms, fan rooms, janitors’ closets, electrical closets and other
closets serving that floor or floors shall be included in the Rentable Area of such
premises. No deductions shall be made for columns and projections necessary to the
Building;
	 
	(b)	 	in the case of premises occupying part of a floor, the Rentable Area of such premises
shall be determined by measuring from and to whichever of the following form the
boundaries of such premises: the inside finish of permanent outer Building walls or from
the glass line, whichever extends further; the centre of partitions which separate such
premises from adjoining premises or public and/or service areas; and the office side of
the corridor walls or other permanent partitions, without in any case, deduction for
columns and projections necessary to the Building, and includes washrooms, air
conditioning equipment rooms, fan rooms, janitors’ closets, electrical closets and other
closets within and serving the Leased

 

 

	 	 	Premises exclusively, but does not include stairs and elevator shafts supplied by the
Landlord for use in common with other tenants, and flues, stacks, pipe shafts or
vertical ducts with their enclosing walls within the Leased Premises; the Rentable Area
as so determined shall have added thereto a portion of the area of the public and/or
service areas on such floor which, without limitation, shall include corridors, elevator
lobbies, washrooms, air conditioning equipment rooms, fan rooms, janitors’ closets,
electrical closets and other closets serving that floor. The portion of such area of the
public and/or service areas so added shall be that portion from time to time which the
Rentable Area of such premises bears to the Rentable Area of all premises leased or set
aside from time to time for leasing by the Landlord on that floor (including such
premises).

“Security Deposit” has the meaning ascribed in Section’ 4.02.

“Security Interest” has the meaning ascribed in Section
15.25.

“Service(s)” means those activities, personnel, facilities, systems and supplies required for
the complete decoration, repair, administration, replacement, maintenance, improvement and
operation of the Project.

“Taxes” means comprehensively all various classes and types of taxes, rates, levies, fees,
duties, charges and assessments from whatever source arising and levied, rated, imposed,
assessed, conferred or chargeable against the Project, the Leased Premises or in respect of the
occupancy and activity carried on therein or on account of the Landlord’s ownership of or
interest in the Project or on account of rents payable with respect therefor and includes
Property Taxes, business taxes or any like tax or other amount levied or assessed in lieu of, in
addition to, or in substitution therefor, whether or not similar to or of the foregoing
character and whether or not in existence on the date hereof, together with an administrative
charge for allocation of Taxes and all costs and expenses incurred by the Landlord in good faith
in contesting, resisting or appealing any such taxes, rates, duties, levies or assessments
including, without limitation, legal fees on a solicitor and client or substantial indemnity
basis and other professional fees and interest and penalties on deferred payments, but excluding
income or profits taxes upon the income of the Landlord.

“Tenant’s Occupancy Costs” means for each Fiscal Year the Tenant’s Proportionate Share of the
Operating Costs and the Tenant’s Proportionate Share of Taxes, in each case for that Fiscal
Year.

“Tenant’s Proportionate Share” means that proportion that the Rentable Area of the Leased
Premises bears to the Total Rentable Area of the Building.

“Term” means the period of time set out in Item 7 of the Term Sheet unless sooner terminated.

“Term Sheet” means the pages identified as Term Sheet attached to this Lease; and all
information and particulars contained therein shall form part of this Lease.

“Total Rentable Area of the Building” means the total Rentable Area of the Building located at
or above grade level.

“Transfer” means:

	(a)	 	an assignment, sublease, licensing or other disposition by the Tenant of this Lease or
any interest therein or any interest in the Leased Premises (whether or not by operation of
law) or in a partnership that is the Tenant under this Lease, or a mortgage or charge
(floating or. otherwise) or other encumbrance of or upon this Lease by the Tenant, except a
Transfer that, occurs on the death of the Transferor;
	 
	(b)	 	a parting with or sharing of possession of all or part of the Leased Premises; and
	 
	(c)	 	a transfer or issue by sale, assignment, bequest, inheritance, operation of law or other
disposition, or by subscription, of all or part of the corporate shares of the Tenant which
results in a change in the effective voting control of the Tenant (unless the Tenant is a
corporation whose shares are traded on a stock exchange in Canada or the United States of
America or is a subsidiary of such a corporation).

“Transferor” and “Transferee” have meanings corresponding to the definition of “Transfer”. In
the case of a Transfer described in item (c) of the definition of Transfer, the Transferor is
the Person that has or would have effective voting control before the Transfer and the
Transferee is the Person that has or would have effective voting control after the Transfer. The
singular and plural forms of defined words and phrases shall have corresponding meanings.

 

 

SCHEDULE C

RULES AND REGULATIONS

	1.	 	Definition - in these rules and regulations, ‘Tenant” includes the employees,
servants, agents, invitees, subtenants and licensees of the Tenant and others over whom the
Tenant can reasonably be expected to exercise its control.
	 
	2.	 	Common Elements - The Landlord reserves entire control of the Common Elements and
will maintain them in such manner as it deems best for the benefit of the tenants
generally. The Landlord reserves the right to restrict and regulate the use of the Common
Elements by the Tenant and by persons making deliveries to the Tenant.
	 
	3.	 	Smoking - Smoking is not permitted in the Common Elements, except as may be
otherwise designated. The Landlord shall have the right, in its sole discretion, to
determine whether any designated smoking area shall be established, and the size and
location of any such area.
	 
	4.	 	Obstructions - The sidewalks, driveways, entrances, vestibules, passages,
corridors, halls, elevators and stairways shall not be encumbered or obstructed by the
Tenant or be used by it for any purpose other than for entrance to and exit from the Leased
Premises.
	 
	5.	 	Deliveries — The Tenant shall not permit the parking of delivery vehicles so as to
interfere with the use of any driveway, walkway, parking area or other Common Elements. The
Tenant shall ensure that deliveries of materials and supplies to the Leased Premises are
made through such entrances, elevators and corridors and at such times as may from time to
time be designated by the Landlord and shall promptly pay or cause to be paid to the
Landlord the cost of repairing any damage in or to the Building caused by any person making
such deliveries. The Landlord reserves the right to remove at the expense and risk of the
owner any vehicle not using designated “vehicle standing” areas.
	 
	6.	 	Security - The Landlord may from time to time adopt appropriate systems and
procedures for the security and safety of the Building including restricting access during
non-business hours and the Tenant shall comply with the Landlord’s reasonable requirements
relating thereto.
	 
	7.	 	Locks - No additional locks or bolts of any kind shall be placed by the Tenant
upon any of the doors or windows of the Leased Premises, nor shall any changes whatsoever
be made to existing locks or the mechanics thereof except by the Landlord at its option.
The Tenant shall not permit any duplicate keys to be made, but additional keys as
reasonably required shall be supplied by the Landlord when requested by the
Tenant in writing and at the Tenant’s expense. Upon termination of this Lease, the Tenant
shall surrender to the Landlord all keys to the Leased Premises and any other parts of the
Building together with any parking passes or other devices permitting entry,
	 
	8.	 	Antennae - The Tenant shall not mount or place an antenna or aerial of any nature
on the exterior of the Leased Premises or Building.
	 
	9.	 	Garbage - The handling and disposal of garbage shall comply with arrangements
prescribed by the Landlord from time to time. No disproportionate or abnormal quantity of
waste material shall be allowed to accumulate in the Leased Premises and the cost of
removal or clearing of quantities in excess of such normally provided service may be
charged to the Tenant.
	 
	10.	 	Repairs, Alterations and Improvements - The Tenant shall carry out repairs,
maintenance, alterations and improvements in the Leased Premises only during times agreed
to in advance by the Landlord and in a manner which will not interfere with the rights of
other tenants in the Building.
	 
	11.	 	Maintenance - The Tenant shall provide adequate facilities and means to prevent
the soiling of walls, floors and carpets in and abutting the Leased Premises whether by
shoes, overshoes, any acts or omissions of the Tenant or otherwise.
	 
	12.	 	Installations and Wiring - The Tenant shall not mark, paint, drill into or in any
way deface the walls, ceilings, partitions, floors or other parts of the Leased Premises
and the Building except with the prior written consent of the Landlord and as it may
direct. If the Tenant desires electrical or communications connections, the Landlord
reserves the right to direct qualified persons as to where and how the wires should be
introduced, and without such directions, no boring or cutting for wires will be permitted.
No gas pipe or electric wire will be permitted which has not been ordered or authorized in
writing by the Landlord. .

 

 

	13.	 	Heating, Air Conditioning and Plumbing Systems - The Tenant shall not attempt
any repairs, alterations or modifications to the heating, air conditioning or plumbing
systems.
	 
	14.	 	Water Fixtures - The Tenant shall not use the plumbing facilities for any other
purpose than that for which they are constructed, and no foreign substance of any kind shall
be thrown therein, and the Tenant shall pay the cost of any breakage, stoppage or damage
resulting from a violation of this provision.
	 
	15.	 	Personal Use of Leased Premises - The Leased Premises shall not be used for
residential, lodging or sleeping purposes or for the storage of personal effects or property
not required for business purposes as permitted under this Lease.
	 
	16.	 	Solicitations - The Landlord reserves the right to restrict or prohibit canvassing,
soliciting or peddling in the Building.
	 
	17.	 	Heavy Articles - The Tenant shall not, in the Leased Premises or the Building, bring
in, take out, position, construct, install or move anything liable to injure or destroy any
part of the Building including, without limiting the generality of the foregoing,
any safe, business machinery or other heavy machinery or equipment without the prior written
consent of the Landlord. In giving such consent, the Landlord shall have the right, in its
sole discretion, to prescribe the permitted weight and the position thereof, and the use and
design of planks, skids or platforms required to distribute the weight thereof. All damage
done to the Building by moving or using any such heavy equipment or machinery shall be
repaired at the expense of the Tenant. The moving of all heavy equipment or other machinery
shall occur only by prior arrangement with the Landlord.
	 
	18.	 	Bicycles, Animals - The Tenant shall not bring any animals, except for guide dogs,
into the Building and shall not permit bicycles or other vehicles inside or on the sidewalks
outside the Building except in areas designated from time to time by the Landlord for such
purposes.
	 
	19.	 	Furniture and Equipment - The Tenant shall ensure that furniture, equipment and
fixtures being moved into or out of the Leased Premises are moved through such entrances,
elevators and corridors and at such times as may from time to time be designated by the
Landlord and shall promptly pay or cause to be paid to the Landlord the cost of repairing any
damage in the Building caused thereby.
	 
	20.	 	Heating / Cooling - The Tenant shall not use any means of heating or cooling the
Leased Premises other than that provided by or specifically otherwise permitted in writing by
the Landlord.
	 
	21.	 	Undue Electrical Loads, Heat, Vibration - No material or equipment which could cause
undue loads on electrical circuits or undue vibration, heat or noise shall be brought into
the Building or used therein by or on behalf of the Tenant and no machinery or tools of any
kind shall be affixed to or used in the Leased Premises without the prior written consent of
the Landlord.
	 
	22.	 	Fire Regulations - No Tenant shall do or permit anything to be done in the Leased
Premises or bring or keep anything therein which will in any way increase the risk of fire,
or obstruct or interfere with the rights of other tenants, or violate or act at variance with
the laws relating to fires or with the regulations of the fire department or the board of
health. The Tenant shall cooperate in any fire drills and shall participate in all fire
prevention or safety programs designated by the Landlord.
	 
	23.	 	Flammable Materials - No flammable oils or other flammable, dangerous or explosive
materials shall be kept or permitted to be kept in the Leased Premises.
	 
	24.	 	Food and Beverages - Only persons approved from time to time by the Landlord may
prepare, solicit orders for, sell, serve or distribute foods or beverages in the Building or
use the elevators, corridors or other Common Elements for any such purpose. The Tenant shall
not permit in the Leased Premises the use of equipment for the preparation, serving, sale,
distribution or dispensing of food and beverages except with the prior written consent of the
Landlord and in accordance with arrangements approved by the Landlord.
	 
	25.	 	Notice of Accidents - The Tenant shall give immediate notice to the Landlord in case
of fire or accident in the Leased Premises or in the Building, or in case of defects therein
or in any fixtures or equipment thereof, notwithstanding the Landlord may have no obligations
with respect thereto.
	 
	26.	 	Janitorial Services - The Tenant shall not use or engage any person or persons other
than the janitor or janitorial contractor of the Landlord for the purpose of any cleaning of
the Leased Premises, except with the prior written consent of the Landlord.

 

 

	27.	 	Dangerous or Immoral Activities - The Tenant shall not make any use of the
Leased Premises which could result in risk or injury to any person, nor shall the Leased
Premises be used for any immoral or criminal purpose.
	 
	28.	 	Proper Conduct - The Tenant shall not perform any acts or carry on any practice which
may damage the Common Elements or be a nuisance to any other tenant in the Project.
	 
	29.	 	Additional Rules and Regulations - The Landlord shall have the right to make such
other and further reasonable rules and regulations as in its sole judgment may from time to
time be necessary or of benefit for the safety, care, cleanliness and appearance of the
Project and for the preservation of good order therein.

 

 

SCHEDULE D

LANDLORD’S WORK

NOT APPLICABLE

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SCHEDULE E

ADDITIONAL COVENANTS, AGREEMENTS AND CONDITIONS (if any)

1. Other Deposit

The amount of $25,798.96 shall be held by the Landlord, without interest, as a deposit to
be applied on account towards the first month’s gross rent including GST coming due under
the Lease.

2. Special Equipment

The Tenant shall be responsible for the installation, operation and maintenance of any
special equipment required by its occupancy, including telephone, computers and
communication(s) facilities.

3. Signage

The Landlord will install Building standard signage for the Tenant. No other signage, other
than the Building standard signage shall be permitted without the Landlord’s prior written
approval.

4. Parking

The Landlord shall license to the Tenant 2 reserved parking stalls in the parking garage in
the Building during the Term of the Lease at the prevailing rates established by the
Landlord or its parking contractor plus provincial sales tax and GST. The foregoing monthly
rate shall be adjusted from time to time to the then current monthly rate charged by the
Landlord or its parking contractor for parking space in the garage of the Building.

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SCHEDULE F

FORM OF INDEMNITY AGREEMENT (if applicable)

NOT APPLICABLE

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SCHEDULE G

     SECURITY INTEREST — REMEDIES ON DEFAULT

TENANT:

ADDRESS OF LEASED PREMISES:

DATE:

1.
  ;  If the Security Interest becomes enforceable, the Landlord may, at its option:

	(a)	 	appoint any Person as receiver of all or any part of the Collateral. The word
“receiver” as used in this section 1 includes both a receiver and a receiver and manager.
The Landlord may, from time to time, remove or replace any appointed receiver, or may
institute proceedings in any court of competent jurisdiction for the appointment of a
receiver or for the sale of all or any part of the Collateral. Any receiver will have and
may exercise all rights and powers conferred upon the Landlord under this Lease together
with such other rights and powers which such receiver may have at law or in equity. Any
receiver will be considered to be the agent of the Tenant so far as the responsibility
for the receiver’s acts is concerned and the Landlord will not be responsible for any act
or omission on the part of the receiver, whether wilful, negligent, imprudent or
otherwise;
	 
	(b)	 	take such steps as it considers necessary or desirable to obtain possession of all or
any part of the Collateral and the Tenant agrees that the Landlord may, by its servants,
agents or receiver, at any time during the day or night and without prior notice, enter
the Leased Premises where the Collateral may be found for the purpose of taking
possession of or removing or immobilizing the Collateral or any part of it;
	 
	(c)	 	in connection with the realization of the Collateral, carry on all or any part of the
business and undertaking of the Tenant and may enter upon, occupy and use all or any part
of the property owned or used by the Tenant (including the Collateral) for such time as
the Landlord sees fit, free of charge, and neither the Landlord nor any agent or receiver
appointed by the Landlord will be liable to the Tenant for any negligent or imprudent act
or omission in so doing or in respect of any rent, charges, depreciation or damages in
connection with such actions;
	 
	(d)	 	seize, collect, realize, borrow money on the security of, sell, obtain payment for,
give valid receipts and discharges for, release to third parties or otherwise deal with
or dispose of the Collateral or any part of it in the manner, upon the terms and
conditions and at the time or times as may seem to it advisable, without notice to the
Tenant. The mode, terms and conditions of disposition of the Collateral or any part of it
will be in the sole discretion of the Landlord and it will be deemed to be commercially
reasonable for the Landlord to dispose of the Collateral or any part of it in the
ordinary course of its business. Without limiting any other rights the Landlord may have,
the Landlord may. purchase all or any part of the Collateral at a private
sale, auction, tender, public sale or any other mode of disposition;
	 
	(e)	 	charge on its own behalf and pay to others reasonable sums for expenses incurred and
for services rendered (including legal fees on a solicitor and client or substantial
indemnity basis and fees for receivers, managers, accountants and other professionals) in
connection with the Landlord’s realizing or preparing to realize on the Collateral
(including without limitation obtaining advice in preparation for or otherwise in respect
of such realization) or otherwise dealing with the Collateral in accordance with the
provisions of this Lease and all such sums will be payable by the Tenant to the Landlord
on the earlier of demand and payment of any such sum by the Landlord, and will be secured
by the Security Interest; or
	 
	(f)	 	if it deems it necessary for the proper realization of all or any part of the
Collateral, pay any claim, lien, security interest or other encumbrance that may exist or
be threatened against the Collateral, and the amount paid, together with all costs and
expenses of the Landlord incurred in that connection, will be payable by the Tenant to
the Landlord on the earlier of demand and payment thereof by the Landlord, and will be
secured by the Security Interest.

None of the foregoing remedies shall be exclusive of or dependent on any other remedy, but any
one or more of such remedies may be exercised from time to time independently or in
combination.

2. The Landlord will have the right to postpone indefinitely the sale of the Collateral or any
part of it and shall further have the right, pending that sale, to lease the Collateral or any
part of it to any

 

 

person for any period as the Landlord in its absolute discretion deems necessary in order to
recover or to attempt to recover any indebtedness secured by the Security Interest.

3. The Landlord will not be liable or accountable for any failure to realize or otherwise deal
with the Collateral or any part of it and will not be bound to institute proceedings for the
purpose of effecting any of the foregoing or for the purpose of preserving any rights of the
Landlord, the Tenant or any other person in respect of the Collateral.

4. All monies received or collected by the Landlord in respect of the Collateral may be applied
and reapplied as the Landlord deems fit.

 

 

SCHEDULE H

CONTENTS OF LEASED PREMISES

The following Schedule H is referred to in Section 9.05, Environmental Issues, in this Lease.

All contents and materials, other than standard office furnishings and supplies, stored in the
Leased Premises are as follows:

(please include, in detail, all materials, Pollutants, including but not limited to,
chemicals and related items that are used and/or stored in the Leased Premises)

 

NONE

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