ANNEX CSupplementary provisions
ANNEX C COMMITMENTS PROVIDED BY THE UNITED KINGDOM TRADING COMMITMENT Definition ‘EDF Group Company’ means a member of the same group of companies as EDF Energy. Operative Terms [ ].1 Each of NNBG and EDF Energy shall ensure, in any agreement for market services for the sale of the output of HPC entered into with any EDF Group Company (the ‘MSA Counterparty’) that, for so long any EDF Group Company is a shareholder (direct or indirect) in NNBG, the MSA Counterparty agrees to: (A) record all trades undertaken to sell the HPC forecast output in a separate NNBG book; (B) price all trades undertaken to sell the HPC forecast output conducted with any EDF Group Company at the market price for the product concerned at the time of trading; (C) undertake at market price all HPC forecast output bilateral trades with any other asset portfolios owned or traded by any EDF Group Company; and (D) provide to NNBG (with consent for NNBG to provide the same to the CfD Counterparty, the Secretary of State and the European Commission) such information as may be reasonably required by NNBG to report to the CfD Counterparty, the Secretary of State and the European Commission on the MSA Counterparty's compliance with points (A), (B) and (C) above. [ ].2 NNBG shall, and EDF Energy shall procure that NNBG shall, by the [ߦ] Business Day of each calendar year provide the CfD Counterparty (with consent for the CfD Counterparty to provide the same to the Secretary of State and the European Commission) with a written report on the MSA Counterparty's compliance with points (A), (B) and (C) of Clause [ߦ].1 in the previous calendar year. EQUITY GAINSHARE MECHANISM 1. Overview of the clause 1.1. There will be an Equity Gain Share arrangement consisting of two distinct components: (A) a mechanic to capture gains from the project above certain levels as a result of the project outperforming relative to the original base case assumptions (the ‘Project Gain Mechanic’); and (B) a mechanic to capture gains above certain levels arising from sales of equity from the original shareholders (the ‘Equity Sale Mechanic’). 1.2. The amount of the equity gain will be shared with the CfD Counterparty and will depend on the level of the realised equity IRR at the relevant time. All threshold levels will take account of the cost of committed equity, as determined in accordance with the model: HPC IUK Model […] per ‘DECC Output’ worksheet (A) if the realised Equity IRR is more than the Equity IRR in the model that includes the cost of committed equity (11,4 % (nominal) as of model: HPC IUK Model […] per ‘DECC Output’ worksheet as supplied to the Commission on 19 September 2014) but less than or equal to the threshold in (B) below, any gain above that Equity IRR threshold will be shared with the CfD Counterparty as to 30 %; and (B) if the realised Equity IRR is more than both (i) 13,5 % (nominal) and (ii) 11,5 % (expressed in real terms but taking into account CPI inflation), any gain above such threshold will be shared with the CfD Counterparty as to 60 %. 1.3. There will be no double counting between the mechanisms. 1.4. Set out below is further detail on how the mechanics of the provision will operate. In addition, there will be a covenant package in support of these obligations, which may include security. 2. Relevant mechanism — Project Gain Mechanic 2.1. Subsequent to the Project Gain Mechanic having been first triggered, should a further injection of equity be required in any period, the further injection of equity will be taken into account in calculating equity holders' gains. 2.2. The Project Gain Mechanic captures the gains above the relevant threshold (as set out in point 1.2 above) as a result of the project outperforming relative to the original base case assumptions. 2.3. To determine whether any threshold has been reached in any period, the cumulative realised to-date Equity IRR will be calculated using an updated financial model throughout the project life. The Equity Gain Share calculation will be triggered in the same period in which any threshold is reached. 2.4. Once the Project Gain Mechanic is triggered, the CfD Counterparty will be entitled to the relevant percentage of equity holders' distributions in that period and all future periods (until the next threshold is reached in which case the relevant sharing percentage will be adjusted accordingly). 2.5. The CfD Counterparty entitlement to equity holders' gains will be in effect over the entire life of the HPC project from the first time the Project Gain Mechanic has been triggered. 3. Relevant mechanism — Equity Sale Mechanic 3.1. An Equity Gain Share will also be triggered upon a direct or indirect sale of shares or shareholder loans (if applicable) by the original shareholders of NNBG at any time during the life of the HPC project. The steps involved are: (A) Step 1 — For each investor, establish the base case equity injection and price (as extracted from the appropriate financial model). (B) Step 2 — Upon the occurrence of a sale/disposal of equity tranche by any investor, establish the Equity Sale IRR achieved by that investor on the particular sale/disposal of the tranche of equity. (C) Step 3 — The Equity Sale IRR realised by the investor selling the equity tranche is calculated taking into account the actual gross proceeds of the equity tranche sale/disposal, actual equity injections proportionate to this equity tranche sold/disposed and past dividends/shareholder loan interest and principal repayments (proportionate to this equity tranche sold/disposed) to that investor out of NNBG. (D) Step 4 — If the Equity Sale IRR is above any of the thresholds set out in point 1.2 above, the Equity Gain Share will be calculated as follows. (E) Step 5 — Calculate the theoretical amount of money that would have to have been realised by the shareholder for the same sale of equity which, if used to calculate the Equity IRR as in Step 3 above, would have resulted in the realised Equity Sale IRR being equal to the relevant threshold. (F) Step 6 — The positive difference (if any) between the actual sale proceeds amount used in Step 3 above and the theoretical equity sale proceeds amount calculated in Step 5 above is then the excess equity gain to be shared between NNBG shareholders and the CfD Counterparty. 3.2. The above calculations are carried out for each sale/disposal of equity independent of any prior sale/disposals of equity irrespective of whether or not previous sales/disposals of equity resulted in a gainshare to the CfD Counterparty. 3.3. Equity sales/disposals by secondary investors (i.e. who bought/acquired the equity on a third-party, arms-length basis from the original equity investors) will be exempt from this mechanic if such secondary investors were to subsequently sell/dispose such equity (being ‘secondary equity’). 4. Provisions to support Equity Gain Share mechanisms 4.1. Anti-avoidance provisions will ensure that transactions are not designed to frustrate the intent of the Project Gain Mechanics or the Equity Sale Mechanic. 4.2. To support the Equity Gain Share mechanics, provisions will be made to ensure payments are made to the CFD Counterparty in circumstances where there is a breach of either the Project Gain Mechanic or the Equity Sale Mechanic or there is a breach of the anti-avoidance undertakings. 5. Disputes Any disputes in relation to the Equity Gain Share mechanism will be resolved in accordance with a similar dispute resolution process as is set out in the HPC Contract. CONSTRUCTION GAINSHARE MECHANISM 1. Overview of the clause 1.1. The Construction Gain Share mechanism is designed to share savings, implemented through reduction of the Strike Price, where construction comes in at lower than the forecast cost in the agreed financial model for the HPC project. This mechanism will work in one direction, with no Strike Price increase if construction costs are higher than forecast. 1.2. The initial gain share calculation will take place on the date which is the earliest of (i) the date falling 6 months after the Reactor Two Start Date; (ii) the tenth anniversary of the Reactor One Start Date; and (iii) the date (if any) after the Reactor One Start Date on which the parties agree that Reactor Two will not reach its start date. The final gain share calculation will take place on the sixth anniversary of the date of the initial gain share calculation (or earlier if all construction related claims have been settled before then). 1.3. We have set out below further detail on how the mechanics of the provision will operate. 2. Relevant mechanism 2.1. No earlier than a defined period before each of the Initial Reconciliation Date and the Final Reconciliation Date, NNBG will provide the CfD Counterparty with a written report. 2.2. Each report shall: 2.2.1. set out, in reasonable detail: (a) the aggregate amount of the Construction Costs to the date of the report, expressed in sterling; (b) the aggregate amount of the Construction Costs reasonably forecast to be incurred, paid or accrued by NNBG, expressed in sterling, provided that such Construction Costs shall be limited to those Construction Costs that would be reasonably and properly incurred, paid or accrued by NNBG to satisfy regulatory requirements without incurring excessive cost or expense; (c) NNBG's actual Construction Schedules; and (d) NNBG's estimated Construction Schedules for any period after the date of the relevant report; 2.2.2. set out, in reasonable detail, evidence of the steps taken to ensure that the amount of any Construction Costs forecast to be incurred, paid or accrued by NNBG following the date of the report shall be limited to those Construction Costs that would be reasonably and properly incurred, paid or accrued by NNBG to satisfy regulatory requirements without incurring excessive cost or expense; 2.2.3. if the report, or any part thereof, is prepared by or with the assistance of one or more third parties, include details of those third party(ies) and copies of any reports prepared by such third party(ies); and 2.2.4. the consequential adjustment (if any) to the Strike Price. 2.3. The report will provide relevant supporting information and be accompanied by a Directors' Certificate certifying the information enclosed within the report. 2.4. The CfD Counterparty may require further supporting information from NNBG within a specified period. If the CfD Counterparty makes such a request, NNBG has to provide such supporting information within a specified period from the request. 2.5. The CfD Counterparty will notify NNBG whether or not it accepts the report provided by NNBG within a specified period. If NNBG and the CfD Counterparty are unable to reach agreement, then the matter may be referred by either party for independent resolution. 2.6. If NNBG does not provide the CfD Counterparty with a report, the CfD Counterparty may obtain an opinion from an independent firm of cost consultants as to the Construction Costs and Construction Schedules and that opinion will be used instead. 2.7. NNBG will give the CfD Counterparty and its professional advisers (including the cost consultants) such assistance as the CfD Counterparty may reasonably request for the purposes of reviewing the report and verifying the Construction Costs. 2.8. The financial model will be updated with the revised Construction Costs and revised Construction Schedules, as set out in the report or as advised by the cost consultants, and rerun to determine a revised Strike Price. The difference between the Strike Prices produced by running the financial model using the forecast Construction Costs and Construction Schedules and rerunning it with the revised Construction Costs and revised Construction Schedules will determine the size of the construction gain, expressed in GBP/MWh. The CfD Counterparty will be entitled to take 50 % of the construction gain discovered by the exercise above (which percentage will increase to 75 % in respect of any construction gain in excess of GBP […] (nominal)), by reducing the then prevailing Strike Price by that amount. 2.9. If at any time during the period between the Initial and Final Reconciliation Dates NNBG identifies any Construction Costs or Construction Schedules different from the corresponding ones used in the model update and which give rise to savings in respect of the Construction Costs, NNBG may elect to make interim payments to the CfD Counterparty in an amount equal to the whole or part of these additional Construction Costs savings.