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ex1013.htm

THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), NOR ANY STATE SECURITIES LAWS AND NEITHER THIS NOTE NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE CORPORATION RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THIS NOTE, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE CORPORATION, THAT THIS NOTE MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.

Tactical Air Defense Services, Inc.

(a Nevada corporation)

 

Convertible Promissory Note

 

Issue Date: October 15, 2010

 

Total Note: US $110,000.00

NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained herein, and for good and valuable consideration, receipt of which is hereby acknowledged, the Corporation promises to pay (subject to the conversion provisions set forth herein) to the order of The Gary Fears Trust (the “Holder”) or its assignee, on October 14, 2013 (the “Due Date”), upon presentation of this Convertible Promissory Note (the “Note”), One Hundred and Ten Thousand dollars and Zero Cents  (hereinafter the “Principal Amount”) together with any accrued and unpaid interest.  The Note is convertible into shares of common stock (the “Common Stock”) of the Corporation.

 

 

1.           Interest.  Subject to the Holder's right to convert, interest payable on this Note shall accrue at the annual rate of twelve percent (12%) and be payable in arrears on the Due Date, accelerated or otherwise, when the Principal Amount and remaining accrued but unpaid interest shall be due and payable, or sooner as described below.

2.           Conversion.

2.1.           Option to Convert.  The Holder shall have the right, from and after the issuance of this Note and then at any time until this Note is fully paid, at his option, to convert, in whole or in part, subject to the terms and provisions hereof, the then outstanding balance of the Principal Amount of the Note, and at the Holder's election, the interest accrued on the Note, into such number of shares of Common Stock as equals the dollar amount being converted divided by the Conversion Price.  The term “Conversion Price” shall be and mean $.002, which Conversion Price shall have full-ratchet anti-dilution protection in connection with any Common Stock sold or issued by the Corporation prior to the date of conversion of the Note.

2.2.           Exercise of Conversion Right. The conversion right shall be exercised, if at all, by surrender of the Note to the Corporation, together with written notice of election executed by the Holder, which may be in the form which is included with this Note (hereinafter referred to as the “Conversion Notice”) to convert such Note or a specified portion thereof into Common Stock.

The date of conversion (the “Date of Conversion”) shall be the date on which the Conversion Notice is received by the Corporation and the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record Holder or Holders of such Common Stock on such date.

2.3.           Maximum Conversion.  The Holder shall not be entitled to convert an amount of the Note which would result in beneficial ownership by the Holder, in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder, of more than 4.99% of the outstanding shares of Common Stock of the Corporation at any time. The Holder shall have the sole responsibility to determine whether the restriction contained herein shall limit any conversion hereunder.

2.4.           Reservation of Shares. The Corporation shall have the obligation at all times to reserve and keep available, free from preemptive rights, unissued or treasury shares of Common Stock sufficient to effect the conversion of this Note.

3.           Prepayment.   The Corporation shall have the right to prepay this Note, in whole or in part, without penalty or a premium, upon thirty (30) days written notice to the Holder.

4.           Investment Representations of Holder.  The Holder hereby makes the following representations and warranties to the Corporation as its successor interest, each of which shall apply with respect to the acquisition of this Note.

4.1           Restricted Securities.

4.1.1           Holder has been advised that the Note and Common Stock underlying any of the foregoing (collectively, the “Securities”), have not been registered under the Securities Act or any other applicable securities laws, and that Securities are being offered and sold pursuant to Section 4(2) of the Securities Act and/or Rule 506 of Regulation D thereunder, or under Regulation S, and that the Company’s reliance upon Section 4(2) and/or Rule 506 of Regulation D and/or on Regulation S, is predicated in part on Holders representations as contained herein.  Holder acknowledges that the Securities will be issued as “restricted securities” as defined by Rule 144 promulgated pursuant to the Securities Act, and that the Securities will bear substantially the following legend:

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.  THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED FOR VALUE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREOF UNDER THE SECURITIES ACT OF 1933 AND/OR THE SECURITIES ACT OF ANY STATE HAVING JURISDICTION OR AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR ACTS.

 

4.2           Preexisting Relationship.  The Holder has a preexisting personal or business relationship with the Company, one or more of its officers, directors, or controlling persons.

 

5.           Default.

5.1.           Payment of this Note shall, at the election of the Holder, be accelerated immediately upon the occurrence of any of the following events (an “Event of Default”):

(a)           The non-payment by the Corporation when due of the Principal Amount and interest as provided in this Note; or

(b)           The occurrence of any other material breach of the provisions of this Note which has not been cured after a reasonable time after receipt by the Corporation of written notice of such breach, other than a Non-Registration Event, as defined in Section 6.4, the liquidated damages for which are set forth below.

5.2.           Each right, power, or remedy of the Holder hereof during the continuation of any Event of Default as provided for in this Note 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 right, power, or remedy provided for in this Note or now or hereafter existing at law or in equity or by statute, and the exercise by the Holder of any one or more of such rights, powers, or remedies shall not preclude the simultaneous or later exercise by the Holder hereof of any or all such other rights, powers, or remedies.

5.3.           If and for as long as an Event of Default has occurred and is continuing then the annual rate of interest shall increase to eighteen percent (18%) until such time as the Principle Amount and remaining accrued but unpaid interest has been paid.

6.           Registration Rights.

 

6.1           Registration Rights Granted.  If the Corporation at any time proposes to register any of its securities under the 1933 Act for sale to the public, whether for its own account or for the account of other security holders or both, except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Registrable Securities for sale to the public, provided the Registrable Securities are not otherwise registered for resale by the Holder pursuant to an effective registration statement, each such time it will give at least fifteen (15) days' prior written notice to the record holder of the Registrable Securities of its intention so to do. Upon the written request of the Holder, received by the Corporation within ten (10) days after the giving of any such notice by the Corporation, to register any of the Registrable Securities not previously registered, the Corporation will cause such Registrable Securities as to which registration shall have been so requested to be included with the securities to be covered by the registration statement proposed to be filed by the Corporation, all to the extent required to permit the sale or other disposition of the Registrable Securities so registered by the holder of such Registrable Securities (the “Seller”). In the event that any registration pursuant to this Section 6.1 shall be, in whole or in part, an underwritten public offering of common stock of the Corporation, the number of shares of Registrable Securities to be included in such an underwriting may be reduced by the managing underwriter if and to the extent that the Corporation and the underwriter shall reasonably be of the opinion that such inclusion would adversely affect the marketing of the securities to be sold by the Corporation therein; provided, however, that the Corporation shall notify the Seller in writing of any such reduction. Notwithstanding the foregoing provisions, or Section 6.4 hereof, the Corporation may withdraw or delay or suffer a delay of any registration statement referred to in this Section 6.1 without thereby incurring any liability to the Seller.

 

           6.2.           Registration Procedures. If and whenever the Corporation is required by the provisions of Section 6.1 to effect the registration of any Registrable Securities under the 1933 Act, the Corporation will, as expeditiously as possible:

 

(a)           subject to the timelines provided in this Agreement, prepare and file with the SEC a registration statement required by Section 6, with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as herein provided), promptly provide to the Holder of the Registrable Securities copies of all filings and SEC letters of comment (but not any information that is material, non-public information unless such information is also promptly publicly disclosed) and notify Holder (by facsimile and/or by e-mail addresses provided by Holder) on or before 6 pm ET on the same business day that the Corporation receives notice that (i) the SEC has no comments or no further comments on the registration statement, and (ii) the registration statement has been declared effective (failure to timely provide notice as required by this Section 6.2(a) shall be a material breach of the Corporation’s obligation and an Event of Default as defined in the Note and a Non-Registration Event as defined in Section 6.4 of this Note);

 

(b)           prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective until such registration statement has been effective for a period of two (2) years, and comply with the provisions of the 1933 Act with respect to the disposition of all of the Registrable Securities covered by such registration statement in accordance with the Sellers’ intended method of disposition set forth in such registration statement for such period;

 

(c)           furnish to the Seller, at the Corporation’s expense, such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons reasonably may request in order to facilitate the public sale or disposition of the Common Stock covered by such registration statement;

 

(d)           use its commercially reasonable best efforts to register or qualify the Registrable Securities covered by such registration statement under the securities or “blue sky” laws of such jurisdictions as the Seller shall request in writing, provided, however, that the Corporation shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction;

 

(e)           if applicable, list the Registrable Securities covered by such registration statement with any securities exchange on which the Common Stock of the Corporation is then listed;

 

(f)           immediately notify the Seller when a prospectus relating thereto is required to be delivered under the 1933 Act, of the happening of any event of which the Corporation has knowledge as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; and

 

(g)           provided same would not be in violation of the provision of Regulation FD under the 1934 Act, make available for inspection by the Seller,  and any attorney, accountant or other agent retained by the Seller or underwriter, all publicly available, non-confidential financial and other records, pertinent corporate documents and properties of the Corporation, and cause the Corporation's officers, directors and employees to supply all publicly available, non-confidential information reasonably requested by the Seller, attorney, accountant or agent in connection with such registration statement.

 

6.3.           Provision of Documents.  In connection with each registration described in this Section 6, Seller will furnish to the Corporation in writing such information and representation letters with respect to itself and the proposed distribution by it as reasonably shall be necessary in order to assure compliance with federal and applicable state securities laws.

 

6.4.           Non-Registration Events.  The Corporation and the Seller agree that the Seller will suffer damages if the Registrable Securities are not included after written request therefore, in any registration statement described in Section 6.1 and maintained in the manner and within the time periods contemplated by Section 6 hereof, and it would not be feasible to ascertain the extent of such damages with precision.  Accordingly, if and to the extent that the Registrable Securities are not included in any registration statement described in Section 6.1 (such an event referred to as a "Non-Registration Event"), then the Corporation shall deliver to the Holder, as Liquidated Damages, an amount equal to one percent (1%) for each thirty (30) days (or part thereof) thereafter, of that portion of the Principal Amount which cannot be converted into Registrable Securities that are, at the time of conversion, fully registered for resale under an effective Registration Statement. The Corporation must pay the Liquidated Damages in cash or an amount equal to one hundred and fifty percent (150%) of that portion of the Liquidated Damages if paid in additional shares of registered unlegended free-trading Common Stock.  Such Common Stock shall be valued at a per share value equal to the average of the five (5) lowest closing bid prices of the Common Stock as reported by Bloomberg L.P. for the twenty (20) trading days preceding the first day of each forty-five (45) day or shorter period for which Liquidated Damages are payable.  The Liquidated Damages must be paid within ten (10) days after the end of each forty-five (45) day period or shorter part thereof for which Liquidated Damages are payable.  In the event a Registration Statement is filed by the Filing Date but is withdrawn prior to being declared effective by the SEC, then such Registration Statement will be deemed to have not been filed. All oral or written and accounting comments received from the SEC relating to the Registration Statement must be responded to within ten (10) business days.  Failure to timely respond to SEC comments is a Non-Registration Event for which Liquidated Damages shall accrue and be payable by the Corporation to the holders of Registrable Securities at the same rate set forth above.  Notwithstanding the foregoing, the Corporation shall not be liable to the Holder under this Section 6.4 for any events or delays occurring as a consequence of the acts or omissions of the Holder contrary to the obligations undertaken by Holder in this Note.  Liquidated Damages will not accrue nor be payable pursuant to this Section 6.4 nor will a Non-Registration Event be deemed to have occurred for times during which Registrable Securities are transferable by the holder of Registrable Securities pursuant to Rule 144(k) under the 1933 Act.

 

6.5.           Expenses.  All expenses incurred by the Corporation in complying with Section 6, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Corporation, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities or “blue sky” laws, fees of the National Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents and registrars, costs of insurance and fee of one counsel for Seller are called “Registration Expenses.” All underwriting discounts and selling commissions applicable to the sale of Registrable Securities, including any fees and disbursements of one counsel to the Seller, are called "Selling Expenses."  The Corporation will pay all Registration Expenses in connection with the registration statement under Section 6.  Selling Expenses in connection with each registration statement under Section 6 shall be borne by the Seller.

 

6.6.           Indemnification and Contribution.

 

(a)           In the event of a registration of any Registrable Securities under the 1933 Act pursuant to Section 6, the Corporation will, to the extent permitted by law, indemnify and hold harmless the Seller, and, as applicable, each officer of the Seller, each director of the Seller, each underwriter of such Registrable Securities thereunder and each other person, if any, who controls such Seller or underwriter within the meaning of the 1933 Act, against any losses, claims, damages, or liabilities, joint or several, to which the Seller or such underwriter or controlling person may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable Securities was registered under the 1933 Act pursuant to Section 6, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of, or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances when made, and will subject to the provisions of Section 6.6(c) reimburse the Seller, each such underwriter and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the Corporation shall not be liable to the Seller to the extent that any such damages arise out of or are based upon an untrue statement or omission made in any preliminary prospectus if (i) the Seller failed to send or deliver a copy of the final prospectus delivered by the Corporation to the Seller with or prior to the delivery of written confirmation of the sale by the Seller to the person asserting the claim from which such damages arise, (ii) the final prospectus would have corrected such untrue statement or alleged untrue statement or such omission or alleged omission, or (iii) to the extent that any such loss, claim, damage, or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by the Seller, or any such controlling person in writing specifically for use in such registration statement or prospectus.

 

(b)           In the event of a registration of any of the Registrable Securities under the 1933 Act pursuant to Section 6, Seller will, to the extent permitted by law, indemnify and hold harmless the Corporation, and each person, if any, who controls the Corporation within the meaning of the 1933 Act, each officer of the Corporation who signs the registration statement, each director of the Corporation, each underwriter and each person who controls any underwriter within the meaning of the 1933 Act, against all losses, claims, damages, or liabilities, joint or several, to which the Corporation or such officer, director, underwriter or controlling person may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Registrable Securities were registered under the 1933 Act pursuant to Section 6, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Corporation and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action, provided, however, that the Seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage, or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to Seller, as such, furnished in writing to the Corporation by Seller specifically for use in such registration statement or prospectus, and provided, further, however, that the liability of the Seller hereunder shall be limited to the net proceeds actually received by the Seller from the sale of Registrable Securities covered by such registration statement.

 

(c)           Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Section 6.6(c) and shall only relieve it from any liability which it may have to such indemnified party under this Section 6.6(c), except and only if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 6.6(c) for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected, provided, however, that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified parties, as a group, shall have the right to select one separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred.

 

(d)           In order to provide for just and equitable contribution in the event of joint liability under the 1933 Act in any case in which either (i) Seller, or any controlling person of Seller, makes a claim for indemnification pursuant to this Section 6.6 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 6.6 provides for indemnification in such case, or (ii) contribution under the 1933 Act may be required on the part of the Seller or controlling person of the Seller in circumstances for which indemnification is not provided under this Section 6.6; then, and in each such case, the Corporation and the Seller will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that the Seller is responsible only for the portion represented by the percentage that the public offering price of its securities offered by the registration statement bears to the public offering price of all securities offered by such registration statement, provided, however, that, in any such case, (y) the Seller will not be required to contribute any amount in excess of the public offering price of all such securities sold by it pursuant to such registration statement; and (z) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 6(f) of the 1933 Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.

 

6.7.           Delivery of Unlegended Shares.

 

(a)           The Common Stock shall not contain any legend, provided (i) a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Common Stock pursuant to Rule 144, or (iii) if such Common Stock are eligible for sale under Rule 144(k), or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the Staff of the Commission).  A holder of Common Stock may, by notice to the Corporation, require the Corporation to reissue any Common Stock previously issued, so that new Common Stock does not contain any legends.  Within five (5) business days (such fifth (5th) business day being the “Unlegended Shares Delivery Date”) after the business day on which the Corporation has received such holder’s request to remove legends (along with receipt of any already existing legended securities held by holder of appropriate Conversion Notices necessary for issuance of shares, the Corporation shall deliver, and shall cause legal counsel selected by the Corporation to deliver to its transfer agent (with copies to Holder) an appropriate instruction and opinion of such counsel, directing the delivery of shares of Common Stock without any legends, reissuable pursuant to any effective and current Registration Statement described in Section 6 of this Agreement or pursuant to Rule 144 under the 1933 Act (the “Unlegended Shares”); and the Corporation shall cause the transmission of the certificates representing the Unlegended Shares together with a legended certificate representing the balance of the submitted  certificate, if any, to the Holder at the address specified in the notice of sale, via express courier, by electronic transfer or otherwise on or before the Unlegended Shares Delivery Date.  Transfer fees shall be the responsibility of the Seller. In the event that the shares of Common Stock is not registered or that unlegended shares are not able to be issued as a result of the non-availability of an exemption under the 1933 Act, the Holder hereby accepts issuance of restricted and appropriately legended shares.

 

(b)           In lieu of delivering physical certificates representing the Unlegended Shares, if the Corporation’s transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer program, upon request of a Holder, so long as the certificates therefore do not bear a legend and the Holder is not obligated to return such certificate for the placement of a legend thereon, the Corporation shall cause its transfer agent to electronically transmit the Unlegended Shares by crediting the account of Holder’s prime Broker with DTC through its Deposit Withdrawal Agent Commission system.  Such delivery must be made on or before the Unlegended Shares Delivery Date.

(c)           The Corporation understands that a delay in the delivery of the Unlegended Shares pursuant to Section 6 hereof later than two business days after the Unlegended Shares Delivery Date could result in economic loss to a Holder.  As compensation to a Holder for such loss, the Corporation agrees to pay late payment fees (as liquidated damages and not as a penalty) to the Holder for late delivery of Unlegended Shares in the amount of $20 per business day after the Delivery Date for each $10,000 of purchase price of the Unlegended Shares subject to the delivery default.  If during any 365 day period, the Corporation fails to deliver Unlegended Shares as required by this Section 6.7 for an aggregate of thirty (30) days, then Holder assignee holding Registrable Securities subject to such default may, at its option, require the Corporation to redeem all or any portion of the Common Stock subject to such default at a price per share equal to 120% of the Conversion Price of such Common Stock or 120% of the fair market value of such Common Stock, whichever is higher (“Unlegended Redemption Amount”).  The amount of the liquidated damages described above that have accrued or paid for the twenty day period prior to the receipt by the Holder of the Unlegended Redemption Amount shall be credited against the Unlegended Redemption Amount.  The Corporation shall pay any payments incurred under this Section in immediately available funds upon demand.

(d)           In addition to any other rights available to a Holder, if the Corporation fails to deliver to a Holder Unlegended Shares as required pursuant to this Agreement, and after the Unlegended Shares Delivery Date the Holder purchases (in an open market transaction or otherwise) shares of common stock to deliver in satisfaction of a sale by such Holder of the shares of Common Stock which the Holder was entitled to receive from the Corporation (a "Buy-In"), then the Corporation shall pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the amount by which (A) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of common stock so purchased exceeds (B) the aggregate purchase price of the shares of Common Stock delivered to the Corporation for reissuance as Unlegended Shares together with interest thereon at a rate of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty).  For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase price of shares of Common Stock delivered to the Corporation for reissuance as Unlegended Shares, the Corporation shall be required to pay the Holder $1,000, plus interest. The Holder shall provide the Corporation written notice indicating the amounts payable to the Holder in respect of the Buy-In.

(e)           In the event a Holder shall request delivery of Unlegended Shares as described in Section 6.7 and the Corporation is required to deliver such Unlegended Shares pursuant to Section 6.7, the Corporation may not refuse to deliver Unlegended Shares based on any claim that Holder or any one associated or affiliated with Holder has been engaged in any violation of law, or for any other reason, unless, an injunction or temporary restraining order from a court, on notice, restraining and or enjoining delivery of such Unlegended Shares shall have been sought and obtained and the Corporation has posted a surety bond for the benefit of Holder in the amount of 120% of the Conversion Price of such Common Stock or 120% of the fair market value of such Common Stock, whichever is higher, which are subject to the injunction or temporary restraining order, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder to the extent Holder obtains judgment in Holder’s favor.

7.           Anti-Dilution Adjustments. The Conversion Price shall be subject to adjustment as follows, from the Issue Date of the Note and then until the Note is fully paid:

(a)           In case the Corporation shall at any time subdivide or combine the outstanding shares of Common Stock, declare a stock dividend, stock split, reverse stock split or other similar transaction or reclassify its Common Stock, the Conversion Price in effect immediately prior to such transaction shall be proportionately adjusted to reflect the effect of such transaction. Any such adjustment shall be effective at the close of business on the date such transaction shall become effective.

(b)           In case of a consolidation or merger of the Corporation with or into another corporation (other than a merger or consolidation in which the Corporation is the continuing corporation and which does not result in a reclassification of outstanding shares of Common Stock of the class issuable upon the conversion of this Note and pursuant to which the security holders of the Corporation are not entitled to receive securities of another issuer) other than the Business Combination, or in case of any sale or conveyance to another corporation of the property of the Corporation as an entirety or substantially as an entirety, the Corporation or such successor or purchasing corporation, as the case may be, shall execute an instrument providing that the Holder of this Note shall have the right thereafter to convert this Note as set forth in the first paragraph of this Note. The foregoing provisions of this Note shall similarly apply to successive reclassification of shares of Common Stock and to successive consolidations, mergers, sales, or conveyances by such successor corporation.

(c)           In case the Corporation shall, at any time subsequent to the Issue Date of the Note, sell or issue in any new issuance of Common Stock, either directly or indirectly, at a price lower than the Conversion Price, then the Conversion Price shall immediately become and mean the lowest price at which any such shares of Common Stock were sold or issued, either directly or indirectly (the “Ratchet Provision”); provided, however, such Conversion Price Ratchet Provision shall not apply to the conversion of any new issuance of Common Stock resulting from an instrument issued prior to or an event prior to the Issue Date of the Note.

8.           Failure to Act and Waiver. No failure or delay by the Holder hereof to insist upon the strict performance of any term of this Note or to exercise any right, power or remedy consequent upon a Event of Default hereunder shall constitute a waiver of any such term or of any such breach, or preclude the Holder hereof from exercising any such right, power or remedy at any later time or times. By accepting payment after the due date of any amount payable under this Note, the Holder hereof shall not be deemed to waive the right either to require payment when due of all other amounts payable under this Note, or to declare a Event of Default for failure to effect such payment of any such other amount.

The failure of the Holder of this Note to give notice of any failure or breach of the Corporation under this Note shall not constitute a waiver of any right or remedy in respect of such continuing failure or breach or any subsequent failure or breach.

9.           Consent to Jurisdiction. The Corporation hereby agrees and consents that any action, suit or proceeding arising out of this Note shall be brought in any appropriate court in the State of Florida, and by the issuance and execution of this Note the Corporation irrevocably consents to the jurisdiction of each such court.

10.           Transfer/Assignability.  This Note shall be binding upon the Corporation and its successors, and shall inure to the benefit of the Holder and its successors and assigns. The Note and any shares of Common Stock converted therefrom, and all of the terms and conditions described herein, are assignable and may be transferred, sold, or pledged by the Holder at its sole discretion.

11.           Governing Law. This Note shall be governed by and construed and enforced in accordance with the laws of the State of Florida, or, where applicable, the laws of the United States, without regard to conflicts of law.

12.           Binding upon Successors.  (a) All covenants and agreements herein contained by or on behalf of the Corporation shall bind its successors and assigns and shall inure to the benefit of the Holder and his successors and assigns; Corporation may not assign this Agreement or any rights or duties hereunder without Holder’s prior written consent and any prohibited assignment shall be absolutely void.  Holder reserves the right to sell, assign, transfer, negotiate, or grant participation in all or any part of, or any interest in Holder’s rights and benefits hereunder; provided, that Holder shall, for informational purposes but not as a requirement, notify the Corporation of the identity of all other assignees or participants who have acquired an ownership interest in the Note, and upon conversion, in the equity of the Corporation as a result thereof.  In connection with any such assignment or participation, Holder may disclose all documents and information which Holder now or hereafter may have relating to Corporation's business.

IN WITNESS WHEREOF, the Corporation has caused this Note to be duly executed as of the 15th  day of October, 2010.

Tactical Air Defense Services, Inc.

Michael Cariello, Director 

Alexis Korybut, DirectorExhibit 4.147

Exhibit 4.147

  
EXECUTION COPY

[***] Represents material which has been redacted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Exhibit 4.147

Letter Agreement

for the 

Join Development, Financing, Construction, Operation and Maintenance

of Crump Geothermal Power Project by

Ormat Nevada Inc. and Nevada Geothermal Power Inc.

Intending to be legally bound, each of Ormat Nevada Inc. ("Ormat") and Nevada Geothermal Power Inc. ("NGP") hereby represent, warrant, and agree as follows:

	
1.  Background:

	
Ormat and NGP shall, subject to and on the basis of the terms and conditions outlined herein, make an equity investment in a special purpose, bankruptcy remote entity to be known as "Crump Geothermal Company LLC" ("CGC"), in order to jointly develop, finance, construct, own, operate and maintain through CGC one or more geothermal power plants sited on, and using the geothermal resource available from, what is currently NGP property in the area known as the "Crump Geyser Area" located in Warner Valley, Lake County, Oregon (the "Project").  Each of Ormat and NGP are sometimes also referred to herein as a "Party" and collectively, as the "Parties."

The Parties shall use their commercially reasonable efforts to conclude documentation for, and consummate the transactions contemplated herein in order to (i) start construction of the first power plant of the Project at a size of up to 30MW  in 2010 and complete such construction in 2013, to qualify for the Treasury Cash Grant under Section 1603 of the American Recovery and Reinvestment Act; and (ii) apply for a Department of Energy loan guarantee under Section 1705 of the American Recovery and Reinvestment Act ("ARRA")

Unless otherwise defined in the body of this letter agreement (this "Letter Agreement") certain defined terms used herein have the meanings set forth in Schedule I hereto.

	
2.  The Project Company:

	
CGC will be established at or immediately prior to Closing as a special purpose bankruptcy remote limited liability company (with customary bankruptcy protections) solely for the purpose of exploring, developing, permitting, drilling, constructing, owning and operating one or more geothermal power plants (with all associated production and injection wells, pipes and gathering facilities) utilizing the geothermal resource identified in the relevant property.

		
	 	
Prior to, or concurrent with, the Closing, NGP will transfer, convey and assign to CGC (the "NGP Contribution") all of its rights, title and interest in and to the Crump Geyser Area, including, without limitation, any real property rights (whether owned in fee, as lessee under ground leases, geothermal leases (BLM or private), rights of way, easements, or otherwise), any field studies, surveys, seismic information, drilling results, reservoir reports, and all other geological, geophysical, or other technical and engineering data and information, any permits, and any other personal property assets pertaining to the Crump Geyser Area and the Project, including the DOE Grant [1].  Other than liabilities directly associated with the real property interests or under any relevant permit, no liabilities will be transferred by NGP to CGC unless previously agreed to in writing by Ormat.  NGP shall use its commercially reasonable efforts to obtain the consent of the lessors under the geothermal leases to (i)  an amendment thereto to address the issues identified in Schedule II attached hereto, and (ii) a transfer of the geothermal leases to CGC as lessee.

From Closing, CGC shall initially be owned by NGP and Ormat in equal proportions:  NGP 50% and Ormat 50%. 

Ormat shall be the managing member of CGC and, for purposes of United States federal income tax, the â€œTax Matters Partnerâ€� of CGC.  CGC will make a "59(e) election" in respect of all intangible drilling and development costs.  CGC's tax, fiscal, and operational year shall be the calender year (January 1 to December 31).

	
3.  Ormat Acquisition Payment: 

	
As consideration for the NGP Contribution, Ormat will pay NGP $2.5 million (the "Acquisition Payment"), in the installments and at the times set forth below: 

At Closing                                             $100,000

1st year anniversary of Closing         $200,000

2nd year anniversary of Closing        $500,000

3rd year anniversary of Closing or, if earlier, the Commercial Operations Date and receipt of the Treasury Cash Grant under

[1] Parties may decide to forego transferring the DOE Grant to CGC if timing will be negatively impacted.

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the ARRA                                                $1,700,000

To the extent that, as part of any dilution calculation effected in accordance with the Dilution Mechanism provision of Section 6 below, NGP is given credit for any installment of the Acquisition Payment, such credit shall be deemed to satisfy Ormat's payment obligation pro tanto and Ormat shall have no further obligation or liability on account of that installment of the Acquisition Payment.

	
4.  Development Phase; Development Funding:

	
Ormat will fund 100% of all relevant activities of CGC during the Development Phase, including without limitation, development, permitting, drilling, procurement and any related expenditures incurred by CGC, up to an aggregate maximum amount of $15 million (the "Development Phase Funding"). 

Ormat shall use its commercially reasonable efforts to conclude the Development Phase within 15 months from Closing in accordance with the following schedule:

*  One development well shall be completed on or before December 31, 2010;

*  A minimum of $7,500,000 shall be expended on or before December 31, 2011; and

*  The balance of the Development Phase Funding shall be expended on or before February 28, 2012.

At Ormat’s election, and subject to (i) compliance with applicable laws and regulations, (ii) any in-kind contribution being of competitive pricing based on similar technical performance specification as available from an arms-length third-party provider, Ormat may fund Development Phase expenditures in cash or in-kind (for example, by contributing drilling and related exploration services, including, without limitation, by providing an Ormat owned drilling rig), or in any combination of the foregoing.  If Ormat elects to fund Development Phase expenditures in-kind by contributing drilling rig and related services, the rates set forth in Schedule III hereto shall apply and be in effect for a period of 12 months from the date of this Letter Agreement, and thereafter subject to adjustment by agreement of the Parties.  In-kind contributions with a value in excess of $2,500,000 shall be subject to Management Committee approval.  For greater certainty with respect to the value attributable to any in-kind funding, if Ormat elects to fund all or any portion of the Development Phase expenditures in-kind, it will first provide NGP with valuations of such in-kind contributions.  If NGP does not agree with the valuations provided by Ormat, acting reasonably, the Parties will refer the matter for resolution in accordance with the dispute resolution provisions outlined herein.  No valuation

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shall be required if the Management Committee has otherwise approved the in-kind contribution or if the in-kind contribution consists of an Ormat drilling rig and related services that are provided at the rates set forth in Schedule III.

Ormat may terminate this Letter Agreement and its obligations hereunder by delivering a No-Go Decision to NGP.  Upon such delivery, Ormat shall promptly transfer its 50% ownership interest in CGC to NGP, free and clear of any Liens other than Development Phase Permitted Liens, at no cost to NGP.

NGP may terminate this Letter Agreement by providing written notice of termination to Ormat in the event that (i) Ormat fails to pay any installment of the Acquisition Payment when due (unless such payment obligation has been satisfied by means of a credit as part of any dilution under Section 6 hereof)  and such failure continues for a period of three (3) days after written notice from NGP, or (ii) Ormat fails to satisfy any of the Development Phase Funding commitments described above after written notice from NGP and the passage of a sixty( 60) day cure period (provided that such cure period shall be extended for so long as Ormat has commenced curing within such 60-day period and is diligently and in good faith pursuing such cure).  Upon such termination by NGP, Ormat shall promptly transfer its 50% ownership interest in CGC to NGP, free and clear of any Liens other than Development Phase Permitted Liens, at no cost to NGP.

	
5.  Funding for Construction Phase and Operations Phase:

	
During each of the Construction Phase and Operation Phase, the Parties will fund all relevant activities, including without limitation, development, permitting, drilling, procurement, construction, finance, and operation and maintenance costs and expenses of CGC in accordance with their respective pro-rata ownership interest.  The Parties will have 30 days from the approval of the budget or, if such budget is to be funded by means of a periodic capital call, 15 days after each capital call, (in each case, the “Funding Window”) to provide their respective pro-rata share of the budget (or such capital call).  Should the budget for a particular work phase be exceeded, both parties will be required to provide additional funding to CGC pro-rata to their ownership interest.

CGC shall endeavor to obtain long-term financing for funding at the Commercial Operations Date, if available on commercially reasonable terms. 

If either Party does not have the necessary funds to make its pro-rata payment of ongoing development, permitting, drilling, procurement, construction, finance, operation and maintenance costs and expenses, the other Party shall have the right, but not the obligation, exercisable in its sole discretion, to increase its ownership interest in CGC by making such payment, and the non-

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funding Party shall have its ownership interest decreased on a corresponding basis, in accordance with the Dilution Mechanism (defined below).  Each Party shall grant the other Party a first priority perfected security interest over its ownership interest in CGC to secure its funding performance obligations and any resulting dilution that may be required.  Each Party agrees to use its reasonable commercial efforts to reach customary arrangements with the other Party’s third-party project finance (or other) lenders with respect to its security interest over the financing Party’s ownership interest.

At Ormat’s election, and subject to (i) compliance with applicable laws and regulations, (ii) any in-kind contribution being of competitive pricing based on similar technical performance specification as available from an arms-length third-party provider, Ormat may fund any Construction Phase or Operations Phase expenditures in cash or in-kind (for example, by contributing drilling and related exploration services, including, without limitation, by providing an Ormat owned drilling rig), or in any combination of the foregoing.  If Ormat elects to fund any Construction Phase or Operations Phase expenditures in-kind by contributing drilling rig and related services, the rates set forth in Schedule III hereto shall apply and be in effect for a period of 12 months from the date of this Letter Agreement, and thereafter subject to adjustment by agreement of the Parties.  In-kind contributions with a value in excess of $2,500,000 shall be subject to Management Committee approval.  For greater certainty with respect to the value attributable to any in-kind funding, if Ormat elects to fund all or any portion of the Construction Phase or Operations Phase expenditures in-kind, it will first provide NGP with valuations of such in-kind contributions.  If NGP does not agree with the valuations provided by Ormat, acting reasonably, the Parties will refer the matter for resolution in accordance with the dispute resolution provisions outlined herein.  No valuation shall be required if the Management Committee has otherwise approved the in-kind contribution or if the in-kind contribution consists of an Ormat drilling rig and related services that are provided at the rates set forth in Schedule III.

	
6.  Dilution Mechanism:

 

	
In the event that (i) a Party (the “Defaulting Party”) fails to make its pro-rata payment of the approved budget (or budget cost overrun) or any capital call within the Funding Window, and (ii) the other Party (the “Non-Defaulting Party”) makes such payment (in its sole discretion), the ownership interest of the Parties in CGC shall be adjusted such that each Party’s ownership interest shall equal a percentage expressed as a fraction of (A) divided by (B), where:

(A) is equal to a Party’s aggregate investment in, and deemed or in-kind contribution to, CGC up to the date of calculation, and

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(B) is equal to the sum of both Parties’ aggregate investment in, and deemed or in-kind contribution to, CGC up to the date of calculation (collectively, the “Dilution Mechanism”).  

Solely for purposes of calculating the Dilution Mechanism as of the end of the Development Phase only, each Party's aggregate investment in, and deemed or in-kind contribution to, CGC shall be deemed equal to and valued at $11 million.  If any dilution is effected at any time while an Acquisition Payment installment has not been made by Ormat because such installment is not yet due, NGP shall receive a credit in calculating its aggregate investment in CGC equal to all of the then remaining outstanding Acquisition Payment installments (and such credit shall satisfy Ormat's Acquisition Payment obligation pro tanto).  For the avoidance of doubt, no dilution shall be effected during the Development Phase.

In the event that NGP's ownership interest has been diluted in accordance with this Section, NGP shall have the right, up to the Commercial Operations Date, after any dilution occurrence, to buy-back its lost ownership interest and thereby restore its position up to a 50% ownership interest, by paying to Ormat an amount equal to the sum of (i) the defaulted pro-rata payment, plus (ii) interest thereon, calculated at an annual rate of [***]%, based on a year of 360 days and twelve 30-day months.

Notwithstanding the foregoing, in no event shall NGP's ownership interest in CGC (reflecting its ownership interest in the up to 30MW Project) be diluted as a result of the Dilution Mechanism or otherwise, below twenty percent (20%) (the "Floor Protection").

If the Parties elect to construct an expansion of, an additional phase to, or a new power plant within the Project, with the intention of increasing the aggregate generation capacity of the Project above 30MW (such additional generation, the "Additional MWs"), each Party shall bear 50% of the costs associated therewith, and the Dilution Mechanism shall apply thereto; provided that NGP shall not enjoy the Floor Protection with respect to its ownership interest as it relates to the Additional MWs, and provided, further, that notwithstanding any dilution in respect of its ownership interest in respect of the first 30 MWs, so long as a Party funds its pro-rata share of expenses associated with the Additional MWs, it shall be entitled to restore its ownership position in respect of the Additional MWs up to 50%.  

If it becomes necessary to more accurately reflect the Parties' respective ownership and economic rights in and to the Additional MWs, the Parties may elect to structure the Additional MWs through a separate project entity and each Party hereby agrees to cooperate with the other and take such further steps as may be

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necessary to give effect to the provisions of this Letter Agreement.

	
7.  NGP Borrowing Option:

	
During the Construction Phase, in case NGP is unable to provide its pro rata share of Construction Phase expenditures required under any approved budget or capital call, NGP shall have the right to receive interim bridge financing from Ormat for all or a portion of NGP’s share of such costs up to a total of $15 million, in two separate tranches of $7.5 million each (the "First Tranche" and "Second Tranche," respectively).

 

Ormat's bridge financing shall be on such terms and conditions as the Parties shall agree on, which shall include, without limitation, the following minimum terms: (i) a first priority perfected security interest over NGP's equity interest in CGC (and all rights, title and interest in to and under such equity interest); (ii) an appropriate "accounts" structure and first priority perfected security interest over all Cash Available for Distribution that is distributable, allocated or actually distributed to NGP, (iii) a first priority perfected security interest over any other rights, title and interest in and to CGC and the Project that NGP may have (e.g., insurance and condemnation proceeds); (iv) an annual interest rate of not less than [***]% for the First Tranche and [***]% for the Second Tranche, and (v) a final maturity of the earlier of (x) CGC obtaining third party non-recourse or limited recourse financing and (y) subject to the last sentence of the succeeding paragraph with respect to the Treasury Cash Grant under Section 1603, the Commercial Operations Date.

 

Ormat's bridge financing shall be mandatorily prepaid by NGP using (i) 100% of any funds representing NGP's share from Project specific grants under current or future programs implemented by a governmental authority to encourage the development of renewable energy projects, including, without limitation, Treasury Cash Grants under Section 1603 of the ARRA, assuming the Project is eligible, has applied for, and has received any such grants or programs, and (ii) 100% of any funds allocable to NGP from any third party funds raised by CGC.  Ormat's bridge financing shall in any event be mandatorily prepaid on the later of (i) the Commercial Operations Date and (ii) only in the case of a Treasury Cash Grant under Section 1603, and with respect to that portion of the prepayment amount constituting funds from such grant, 90 days from the Commercial Operations Date.

 

NGP shall have a three (3) day cure period for any defaulted payment, including payments due on the final maturity date.

 

	
8.  Equipment Supply; EPC:

	
Ormat will supply, and NGP agrees that CGC will utilize, Ormat equipment for the Project.  In addition, NGP agrees and undertakes to vote its ownership interest and Management

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Committee vote accordingly, so that Ormat shall serve as the Engineering, Procurement and Construction (“EPC”) contractor for the Project.  

The EPC Contract price shall be based on the rates provided by Ormat to NGP in the EPC contract for NGP's Faulkner 1 Project, adjusted to take into account (i) inflation, and (ii) the design specifications and other technical characteristics of the Project.  By way of example and without limiting the foregoing, if the Project has a higher temperature resource than Faulkner 1, the EPC rates shall reflect a reduction from the Faulkner 1 EPC rates, and if the Project has a lower temperature resource than Faulkner 1, the EPC rates shall reflect an increase from the Faulkner 1 EPC rates.

The Parties agree to early release the EPC supply in an amount of up to 5% of the expected Project cost in order to qualify for the "start of construction test" for purposes of the Treasury Cash Grant under the ARRA.

 

The EPC Contract shall be Davis-Bacon compliant, if necessary.  For the avoidance of doubt, there shall be no price adjustment (upward or downward) to the EPC Contract rates or overall price, regardless of any changes required in order to be Davis-Bacon compliant.

 

	
9.  Developer; Operator:

	
Ormat shall be responsible for and shall lead all Development Phase activities.  Ormat shall provide the Management Committee with periodic progress reports (as frequently as monthly if merited) during the Development Phase.  Ormat shall also be the Operator and project manager for the Project, with responsibility and authority for all day to day management and operations of the Project, subject to the oversight responsibility of the Management Committee.

Notwithstanding the foregoing, Ormat shall consult with NGP on a monthly basis to the extent practical and shall seek to utilize NGP's available resources and talents in relation to geological and drilling matters, permitting, financing, and PPA contracting where necessary to complement Ormat's services.

Any development services provided by Ormat or NGP to CGC shall be billed to CGC at the rates set forth in Schedule III hereto (which shall be in effect for 12 months from the date of this Letter Agreement and thereafter subject to adjustment by agreement of the Parties).  The O&M fee for serving as an Operator shall be comprised of a fixed fee and a cost plus fee, escalated on the basis of annual CPI.

 

	
10.  Management Oversight:

	
A management committee (the “Management Committee”) comprising two representatives from each Party shall have

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oversight responsibility for the following: 

(i) reviewing and approving annual budgets for the Project during the Operations Phase as proposed by the Operator; 

(ii) reviewing and approving a development plan for any expansion of, or additional phases for, the Project;

(iii) receiving and reviewing quarterly financial reports prepared by the Operator containing an income statement, balance sheet and cash flow statement prepared in accordance with US GAAP, subject to customary year-end adjustments and the absence of footnote disclosures (in addition, NGP will receive monthly trial balances);

(iv) reviewing and approving the EPC Contract for the Project (and any expansion or additional phase of the Project); 

(v) reviewing and approving power purchase agreements, and reviewing other material project agreements;

(vi) overseeing long-term project financing by CGC;

(vii)  reviewing and/or preparing informal progress updates for the Parties; and

(viii) establishing such other protocols and procedures necessary from time to time to implement the transactions contemplated herein.

The Management Committee shall also be authorized to make a recommendation to the Parties to replace the Operator for any reason permitting such replacement under the terms of the O&M Agreement and, during the period prior to execution of an O&M Agreement, if the Operator has been grossly negligent, or has acted in bad faith, or engaged in willful misconduct.

The Management Committee shall meet on a monthly basis during the Development Phase and the Construction Phase, and quarterly thereafter (or more frequently if necessary) to conduct its necessary activities.  Management Committee decisions shall be made on the basis of voting reflecting the ownership ratios.  Simple majority will be required for all decisions other than (x) transactions with any affiliate of either Party, which shall require a super-majority vote of 75%, (y) any merger, consolidation, sale, lease, transfer or other disposition of all or substantially all of the assets of CGC (in one or a series of transactions), and (z) a bankruptcy filing or any other liquidation or analogous proceeding by or relating to CGC, which shall require unanimous approval.

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11.  Deadlocks:

	
If the authorized representatives participating in a meeting of the Management Committee are unable to reach agreement on a matter put to vote (a "Deadlock"), the Parties shall attempt to resolve such Deadlock through negotiations of the Authorized Representatives.  If such Deadlock is not resolved within five (5) Business Days, the Deadlock shall be referred to a panel consisting of a senior executive  of each Party with the authority to resolve the matter causing such Deadlock.  Such panel shall convene within five (5) Business Days after the expiration of the aforementioned five (5)-Business Day period and the members of such panel shall attempt in good faith to promptly resolve such Deadlock.  If a Deadlock arises regarding the approval of the amount of an annual operating budget and such Deadlock is not resolved within fifteen (15) days after the panel of senior executives has convened, then the operating budget in question shall be deemed to have been approved at an amount equal to one hundred and ten percent (110%) (adjusted for inflation) of the amount of the preceding year's operating budget (or then effective operating budget, if higher), and such operating budget (as so deemed approved) shall remain in effect for the earlier of one (1) year and the time when a new operating budget is adopted by the Management Committee.  If a deadlock occurs with respect to any proposed major capital expenditure for improvement or maintenance of the Project and the Parties are unable to achieve a resolution of such Deadlock within ninety (90) days after the panel of senior executives has convened, then the non-consenting Party will be subject to dilution.

	
12.  Expansions:

	
Either Party may propose to the Management Committee that CGC undertake an expansion of the Project (an "Expansion Proposal" and "Expansion", respectively).  If a Deadlock occurs and the Parties are unable to agree on an Expansion Proposal within sixty (60) days after the panel of senior executives has convened, then, so long as the Expansion Conditions (as defined below) are met, the following procedures will apply:

(i) the Parties shall structure the Expansion through a separate project entity;

(ii) the Proposing Party shall be the Operator and project manager for the Expansion and the separate project entity; and

(iii) any dilution in respect of the Expansion under the Dilution Mechanism shall apply only to a Party's interest in and to the Expansion and the separate project entity (and not to its entire ownership interest in CGC).

For purposes of this Section 12, the "Expansion Conditions" are:

(x) delivery by the Proposing Party to the other Party of a satisfactory report from an independent reputable geothermal 

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resource consultant to the effect that the Expansion's utilization of CGC's geothermal resource will not adversely impact the performance and operation of the existing Project at a level consistent with CGC's original projections;

(y) if required, receipt of consents from any third-party lenders to CGC; and

(z) if NGP is the Proposing Party, NGP's then ownership interest in CGC shall be not less than 50%, and the Ormat bridge financing shall have been irrevocably paid in full in cash. 

	
13.  Change of Control Call Option:

	
If a Party experiences a Change of Control (as defined below) ("Party X"), the other Party ("Party Y") shall be entitled to exercise a call option (the "Change of Control Call Option") to acquire all of the ownership interests in CGC held by Party X, at a price (the "Change of Control Call Option Price") determined and calculated as follows:

(A) If the Change of Control occurs prior to (i) the Commercial Operations Date, and (ii) CGC's receipt of a geothermal resource report from a reputable independent consultant confirming the adequacy and sufficiency of the geothermal resource based on the parallel flow testing of three production wells and observation of the resource behavior on that basis, and (iii) CGC entering into a long-term power purchase agreement for the Project (the requirements in the preceding clauses (ii) and (iii) referred to collectively as the "Change of Control Call Option Price Factors"), then the Change of Control Call Option Price shall be equal to the sum of (1) $12.5 million minus any paid installments of the Acquisition Payment, plus (2) interest on the resulting amount of clause (1), calculated at an annual rate of [***]% based on a year of 360 days and twelve 30 day months.

(B) If the Change of Control occurs (i) prior to the Commercial Operations Date, but (ii) after the occurrence of the Change of Control Call Option Price Factors, then the Change of Control Call Option Price shall be equal to the value of Party X's pro-rata ownership share of the fair market value of CGC, which shall be determined on the basis of a Discounted Cash Flow calculation, based on the parameters outlined in Schedule IV hereto.

(C) If the Change of Control occurs after the Commercial Operations Date, the Change of Control Call Option Price shall be equal to Party X's pro-rata ownership share of the then current fair market value of CGC, which shall be determined by a qualified independent valuator that is acceptable to both Parties.

The Change of Control Call Option shall be exercised by Party Y by delivering written notice to Party X no later than 30 days following the Change of Control and shall be consummated by the

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Parties within 30 days following Party Y's notice.

In the event that the Change of Control occurs after the Commercial Operations Date, and Party Y elects to exercise the Change of Control Call Option, then Party X shall have the right, exercisable prior to consummation of the Change of Control Call Option, to make an all-cash only offer to purchase all of the ownership interest in CGC held by Party Y at a price that is not less than a 15 % premium over the applicable Change of Control Call Option Price and upon payment terms that are described in a written offer to Party Y (the “Purchase Offer”).  Upon receipt of the Purchase Offer, Party Y shall have the right, exercisable within 30 days after receipt of the Purchase Offer, to either: (i) accept the Purchase Offer and proceed to consummate the sale transaction; or (ii) deliver notice in writing to Party X that Party Y shall purchase all of the ownership interest in CGC held by Party X on terms identical to the Purchase Offer (the "Buy-out Notice").  Upon delivery of a Buy-out Notice, Party Y shall be bound to consummate the acquisition of all of the ownership interest in CGC held by Party X in accordance with the terms of the Buy-out Notice.

For purposes of this Section, "Change of Control" means any one or a combination of the following: (i) if any person or related persons constituting a group (other than, in the case of Ormat, the persons owning voting common stock of Ormat as of the date hereof), become the beneficial owners, directly or indirectly, of more than 50% of NGP’s or Ormat’s voting stock, as the case may be; (ii) the acquisition, after the date hereof, by any person or related persons constituting a group, of (1) the power to elect, appoint or cause the election or appointment of at least a majority of the members of the board of directors of NGP or Ormat, as the case may be, through beneficial ownership of the capital stock of NGP or Ormat, as the case may be, or otherwise, or (2) all or substantially all of the properties and assets of NGP or Ormat, as the case may be; (iii) the sale, lease, transfer, conveyance or other disposition (including, without limitation, by way of merger or consolidation) in one or a series of related transactions, of all or substantially all of the assets of NGP or Ormat, as the case may be; and (iv) the adoption of a plan relating to NGP’s, or Ormat’s, as the case may be, liquidation or dissolution.

For purposes of the above definition of Change of Control: The term “person” shall have the meaning used in Section 13(d) and Section 14(d)(2) of the United States Securities Exchange Act of 1934 as in effect on the date hereof (the “Exchange Act”).  The term “group” shall have the meaning used in Rule 13d-5 under the Exchange Act.  The term “beneficial owner” shall have the meaning used in Rule 13d-3 under the Exchange Act.

References in this definition involving the capital stock of any

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Party shall be deemed to be made on the assumption that all convertible securities of such Party then outstanding and all convertible securities of such Party issuable upon the exercise of any warrants, options and other rights outstanding at such time were converted at such time and that all options, warrants and similar rights to acquire shares of capital stock of such Party were exercised at such time.

	
14.  Assignment Restrictions:

	
Neither Party may assign its rights and interests under this Letter Agreement to a third party without the consent of the other Party which is not to be unreasonably withheld.  Notwithstanding the foregoing, (i) either Party may assign its rights and interests hereunder to a wholly-owned affiliate without prior written consent of the other Party, and (ii) either Party may grant a security interest over its rights and interests hereunder in favor of lenders.  Each Party agrees to use its reasonable commercial efforts to reach customary arrangements with the other Party’s third-party project finance (or other) lenders with respect to any proposed financing by a Party.

	
15.  Ownership Transfers:

	
Any proposed sale, transfer or other disposition of a Party’s ownership interest in CGC (whether directly or indirectly and including by means of any merger, consolidation, reorganization or otherwise) (such Party, the "Selling Party") shall be subject to the two-step procedure set forth in this Section (the "Ownership Transfer ROFO" and "Ownership Transfer ROFR", respectively).

First Step - Ownership Transfer ROFO

Prior to offering its ownership interest to any third party, the Selling Party shall first give notice (the "Offer Notice") to the other Party specifying the price (the "Specified Price")  and other terms (the "Specified Terms") at and on which the Selling Party is willing to sell its ownership interest.

The non-transferring party shall have the right, for a period of 30 days after receipt of an Offer Notice, to inform the Selling Party in writing of its election to purchase the Selling Party's ownership interest at the Specified Price and on the Specified Terms set forth in the Offer Notice (such notice, the "ROFO Acceptance Notice").  Any ROFO Acceptance Notice, if given, shall be irrevocable.

The Parties shall consummate the sale and transfer of the ownership interest no later than 60 days following the delivery of the ROFO Acceptance Notice.

If the non-transferring Party does not deliver a ROFO Acceptance Notice, the Selling Party shall be free to offer its ownership interest for sale and transfer to third parties, subject to the right of

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first refusal described below.

Second Step - Ownership Transfer ROFR

Prior to closing any proposed sale, transfer or other disposition of its ownership interest with a third party, the Selling Party shall first give notice (the "ROFR Notice") to the other Party specifying the price (the "ROFR Specified Price") and other terms (the "ROFR Specified Terms") at and on which the Selling Party is willing to sell its ownership interest to the third party.

The non-transferring party shall have the right, for a period of 30 days after receipt of a ROFR Notice, to inform the Selling Party in writing of its election to purchase the Selling Party's ownership interest at the ROFR Specified Price and on the ROFR Specified Terms set forth in the ROFR Notice (such notice, the "ROFR Acceptance Notice").  Any ROFO Acceptance Notice, if given, shall be irrevocable.

The Parties shall consummate the sale and transfer of the ownership interest no later than 60 days following the delivery of the ROFR Acceptance Notice.

 If the non-transferring Party does not deliver a ROFR Acceptance Notice, the Selling Party shall be free to consummate a sale transaction with the proposed third party purchaser on the terms and conditions set forth in its notice to the non-transferring Party.  Any change in such terms and conditions shall trigger the Ownership Transfer ROFR and the time periods provided herein in respect thereof. 

Transfers to wholly-owned affiliates shall not be subject to the Ownership Transfer ROFO or the Ownership Transfer ROFR.  An assignment by way of security to lenders shall not be subject to the Ownership Transfer ROFO or the Ownership Transfer ROFR, but an exercise by the lenders of their rights to sell the encumbered ownership interest to a third party shall trigger both the Ownership Transfer ROFO and the Ownership Transfer ROFR.

	
16.  Confidentiality; Public Announcements:

	
Both Parties agree to not disclose any information regarding the existence of discussions between them, this Letter Agreement (including its existence) and the transactions contemplated herein, or, during the terms of CGC and the Project, their business relationship, unless such disclosure is (i) to its shareholders and affiliates, and its and their directors, officers, employees, agents, advisors or other representatives (collectively "Representatives") who are advised of the confidential nature of such items, or (ii) required (in the sole discretion of the disclosing Party) by law (including, without limitation, securities laws and the rules and regulations of any stock exchange on which securities of a Party or any of its affiliates are listed) or (iii) mutually agreed to by the

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Parties.  Each Party shall be responsible for any breach of the confidentiality obligation hereunder by its Representatives.  The Parties agree that a breach of this confidentiality obligation will cause irreparable harm and the non-defaulting Party shall be entitled to specific performance of such obligation, without any showing of actual damages or the posting of bond.

No press release or other public announcement of any sort and in any media concerning this Letter Agreement (including its existence) and the transactions contemplated herein, or concerning any agreement or document contemplated herein or therein, will be issued by either Party without the prior written consent of the other Party, which consent shall not be unreasonably refused, except as such press release or public announcement may be required by applicable law, including without limitation securities laws and the rules and regulations of any stock exchange on which securities of a Party or any of its affiliates are traded.  Each Party shall, to the extent practical, provide any press release or other public announcement to the other for review and comment and, if appropriate, the Parties shall endeavor to issue joint press releases.

	
17.  Governing Law:

	
This Letter Agreement and any other definitive legal documentation for the transactions contemplated by this Letter Agreement shall be governed by the laws of the State of New York (without regard to conflict of laws principles that might otherwise apply the laws of any other jurisdiction), except that the limited liability company agreement of CGC will be governed by the laws of the state of Delaware (without regard to conflict of laws principles that might otherwise apply the laws of any other jurisdiction) and any real estate documents shall be governed by the laws of the relevant jurisdiction.

Each Party represents, warrants and covenants that the provisions of this Letter Agreement constitute valid legal  and binding obligations of such Party, enforceable against it in accordance with their terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws, or by general principles of equity, whether considered in a proceeding in equity or at law).

Each Party irrevocably submits to the non-exclusive jurisdiction of the United States federal courts located in, and the local courts of, the borough of Manhattan, New York, State of New York, and any appellate court therefrom.  Each Party hereby waives any right to trial by jury in connection with, or as a result of, any matter referred to in this Letter Agreement.

	
18.  Dispute Resolution:

	
This Letter Agreement, and any other definitive legal documents for the transactions contemplated by this Letter Agreement between the Parties shall be subject to, and  include, the following

15

 

		
	 	
dispute resolution provision:

Any dispute, controversy or claim arising under or relating to this Letter Agreement and any of the definitive legal agreements governing the transactions contemplated herein, or the breach, termination or validity thereof (a “Dispute”), which cannot be resolved by the Parties through negotiation by the Parties’ Management Committee representatives within ten (10) days of written referral thereto by a Party shall be referred to a panel consisting of a senior executive of each Party, with authority to decide or resolve the matter in dispute, for review and resolution.  Such senior executives shall meet and in good faith attempt to resolve the Dispute within twenty-five (25) business days after delivery of written notice of the Dispute by one Party to the other Party.

If the Parties fail for any reason to resolve the Dispute as provided in the preceding paragraph (subject to any mutually agreed time extension), the Parties agree to arbitrate the Dispute using the following procedures:

At the request of either Party upon written notice to that effect to the other Party (a “Demand”), the Dispute shall be finally settled by binding arbitration before a panel of three (3) arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) then in effect, except as modified herein and unless the Parties agree otherwise in writing, provided that disputes regarding capital contributions shall be settled in accordance with the Expedited Procedures of the Commercial Dispute Resolutions Procedures of the AAA.  The Demand must include statements of the facts and circumstances surrounding the Dispute, the legal obligation breached by the other Party, the amount in controversy and the requested relief accompanied by documents supporting the Demand.

Arbitration shall be held in New York, New York.  The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. §§ 1 et seq.

Each Party shall select one (1) arbitrator within ten (10) days of the receipt of the Demand, or if a Party fails to make such selection within ten (10) days from the receipt of the Demand, the AAA shall make such appointment.  The two (2) arbitrators thus appointed shall select the third arbitrator, who shall act as the chairman of the panel.  If the two arbitrators fail to agree on a third arbitrator within fifteen (15) days of the selection of the second arbitrator, the AAA shall make such appointment from its National Roster in accordance with its rules.

The award shall be determined by majority vote.  The award shall be in writing (stating the award and the reasons therefor) and shall

16

		
	 	
be final and binding upon the Parties, and shall be the sole and exclusive remedy between the Parties regarding any Disputes, counterclaims, or accountings presented to the arbitral panel.  The arbitral panel shall be authorized in its discretion to grant pre-award and post-award interest at commercial rates, except to the extent that applicable interest rates are otherwise provided herein.  Judgment upon any award may be entered in any court having jurisdiction.  For purposes of a pre-arbitral injunction, pre-arbitral attachment or other order in aid of arbitration proceedings, the Parties hereby agree to submit to the jurisdiction of the United States federal courts located in, and the local courts of, the borough of Manhattan, New York, State of New York.  Each of the Parties irrevocably waives, to the fullest extent permitted by law, any objection it may now or hereafter have to the jurisdiction of such courts or the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.  Each of the Parties hereby consents to service of process by registered mail or receipted courier at its address set forth herein and agrees that its submission to jurisdiction and its consent to service of process by mail is made for the express benefit of the other Party.

This Letter Agreement, and any other definitive legal agreement governing the transactions contemplated herein, and the rights and obligations of the Parties hereunder and thereunder shall remain in full force and effect pending the award in any arbitration proceeding.

Unless otherwise ordered by the arbitrators, each Party shall bear its own costs and fees, including attorneys’ fees and expenses.  The Parties expressly agree that the arbitrators shall have no power to consider or award any form of damages barred under “Limitation of Damages” below.

The Parties, to the fullest extent permitted by Applicable Law, hereby irrevocably waive and exclude any recourse to the court system other than to enforce the agreement to arbitrate pursuant hereto, for attachment, or other order in aid of arbitration proceedings or to enforce the award of the arbitral panel.

	
19.  Limitation of Damages:

	
Except for claims brought by third parties, no Party shall under any circumstances be liable for special, consequential, incidental, punitive or exemplary damages, whether by statute, in tort or contract or otherwise.  The limitations imposed herein on the measure of damages shall be without regard to the cause or causes related thereto, including the negligence of any Party.  To the extent any damages required to be paid hereunder are liquidated, the Parties acknowledge that such damages are difficult or impossible to determine, otherwise obtaining an adequate remedy is inconvenient, and the liquidated damages constitute a

17

		
	 	
reasonable approximation of the harm or loss.

	
20.  Costs and Expenses:

	
Each Party will bear its own costs and expenses (including its counsel's costs and expenses) in connection with the drafting and negotiation of this Letter Agreement, the definitive agreements and all other aspects of the transactions contemplated herein.

	
21.  Termination:

	
Unless earlier terminated in accordance with the provisions of Section 4 above, this Letter Agreement shall remain in full force and effect until replaced by a limited liability company agreement for CGC (the "CGC LLC Agreement") and an EPC Contract (the "EPC Contract")for the Project.  The Parties shall use their commercially reasonable efforts to finalize and execute the CGC LC Agreement and the EPC Contract on or before December 31, 2010.

	
22.  Area of Interest:

	
From the date of this Letter Agreement and extending for a period of two (2) years (the "Restriction Period"), neither Party shall directly or indirectly acquire any interest or a right to acquire any interest in geothermal leases, mining claims, other leases or any other real property interest within the Area of Interest (as such term is defined below) covered by this Letter Agreement.

For the purpose of this Letter Agreement, the Area of Interest is defined as the area with the current exterior boundaries of any NGP property within the Crump Geyser Area to which this Letter Agreement relates and the area three (3) miles outside such exterior boundaries.

In the event that a Party, knowingly or unknowingly, violates the terms and conditions of this Section 22 during the Restriction Period, any such interest obtained by the within the Area of Interest shall be deemed to form part of Project under this Letter Agreement, and title to such interest shall be immediately transferred to CGC at cost.

[The next page is the signature page of this Letter Agreement]

18

 

IN WITNESS WHEREOF, the Parties have caused this Letter Agreement to be signed by their respective duly authorized officers as of the date indicated:

		
		
ormat nevada inc.

			
		
By:  ______/s/ Yehudit Bronicki_______________

			
Name: ___Yehudit Bronicki_____________

			
Title: ______Chief Executive Officer_____

		
Date: October 29, 2010

			
			
		
NEVADA GEOTHERMAL POWER INC

			
		
By:  ______­­­­­­­­­­­­­­­­­­________________________________­­­­­

			
Name: _______________________________

			
Title: _________________________________

		
Date: October­­­­ ­­__, 2010

	 		 
			

IN WITNESS WHEREOF, the Parties have caused this Letter Agreement to be signed by their respective duly authorized officers as of the date indicated:

		
		
ormat nevada inc.

			
		
By:  _____________________________________

			
Name: _______________________________

			
Title: ________________________________

		
Date: October __, 2010

			
			
		
NEVADA GEOTHERMAL POWER INC

			
		
By:  ____/s/ Brian Fairbank____________

			
Name: Brian Fairbank, President and CEO

			
		
Date:  October 29, 2010

			
			

 

Schedule I

to Letter Agreement

DEFINITIONS

"Cash Available for Distribution" means, as of any date, all cash, cash equivalents and liquid investments (excluding capital contributions and any investments in restricted accounts) held by CGC as of such date after taking into account payment of debt service in relation to any debt financing incurred by CGC and any restrictions on distributions imposed by the terms of any such debt financing, and after accounting for all reserves that, in the reasonable judgment of the managing member of CGC, are necessary or appropriate for the operation of CGC or the Project consistently with the power purchase agreement and other applicable project agreements and with prudent geothermal industry practice.  Reasonable reserves shall consist of any combination of the following reserves as reasonably determined by the managing member: (i) necessary for payment of expenses included in the annual (or any interim or special) budget, (ii) necessary to prevent or mitigate an emergency situation, (iii) established with the prior written consent of the Parties, (iv) necessary to allow CGC to meet expenses that are clearly identified and expected with reasonable certainty to become due, but that are not included in the budget, (v) necessary to ensure sufficient spare parts or the payment of operational and maintenance costs for the Project, (vi) necessary for well drillings or well maintenance or (vii) one or more additional reserves not referred to in the preceding clauses of this definition that do not in the aggregate exceed $500,000.

"Closing" means the date upon which the Closing Conditions have been met or waived by the Party entitled to the benefit thereof (in its sole and absolute discretion) but in any event no later than October 31, 2010.  

"Closing Conditions" means (i) delivery of a written notice from Ormat to NGP to the effect that Ormat has (x) concluded its due diligence review of the Crump Geyser Area, Crump Geothermal LLC, and the land rights and other items to be included in the NGP Contribution (including title thereto which shall be evidenced by an owner’s title insurance policy), and such other related matters as Ormat shall determine (in its sole and absolute discretion) and such review is satisfactory to Ormat in its sole and absolute discretion; (ii) each Party shall have delivered to the other Party a certificate of its authorized officer regarding (x) compliance with all matters required of such Party hereunder on or prior to Closing; (y) accuracy of information provided, and any representations and warranties made, by such Party as part of the transactions contemplated herein; and (z) corporate power, authority and approval of the transactions contemplated herein; (iii) CGC shall have been established as contemplated herein; (iv) each Party shall have complied with its obligations set forth herein required to be performed on or prior to the Closing Date, and (v) the Ormat Acquisition Payment is made, and the limited liability company interests in CGC have been issued to the Parties (free and clear of any Liens other than as expressly contemplated herein).

"Commercial Operations Date" shall have the meaning set forth for such term in the Project's relevant power purchase agreement.

"Construction Phase" means the period encompassing construction of the Project, commencing with the Management Committee’s decision to proceed with construction and ending upon achievement of “commercial operations” as such term may be defined in the Project’s power purchase agreement.

 

 

"Development Phase Permitted Liens" means (i) any Liens imposed by law in favor of the IRS or any state tax authority that are allocable to NGP's 50% ownership interest in CGC; (ii) any Liens imposed by or under any real estate agreement or instrument binding on CGC; (ii) any Liens included as part of the NGP Contribution (that were agreed to by Ormat); and (iii) any other Lien except for Liens in favor of any third party granted, imposed or suffered to exist by Ormat.

"Development Phase" means the period commencing with the Closing and ending upon expenditure by Ormat of $15 million.

"Liens" means any mortgage, lien, pledge, charge, security interest or other encumbrance, including liens for taxes or assessments, builder, mechanic, warehouseman, materialman, contractor, workman, repairman or carrier liens or other similar liens or claims.

"No-Go Decision" means written notification provided by Ormat to NGP that it does not desire to enter into, or continue with, the Project.  A No-Go Decision may be made by Ormat at any time during the Development Phase.

"Operations Phase" means the period commencing on and after the conclusion of the Construction Phase.

"Operator" means, initially, Ormat, and thereafter, any such other person or entity appointed by the Management Committee to replace Ormat in accordance with the terms of this Letter Agreement.

2

 

Schedule II

to Letter Agreement

LEASE AMENDMENT ISSUES

 

(2.5)       Landlord Reserved Rights – Landlord reserves rights for mining, O&G development etc and is only required to require a third-party lessee to enter into good faith negotiations with Tenant to agree on non-interference arrangements.  It would be better to be more specific with respect to the non-interference covenants the Parties expect to see in any Non-Disturbance Agreement or surface use agreement with another lessee

(3)          Term – The term is only 10 years, plus Tenant has a right to extend 10 times for 1-year period only.  Each extension may be exercised only at the time of the expiration of the then-current term (no advance extensions), and only if Tenant is conducting exploration, development or production activities on the Property at that time.  This should be change to clarify that the lease can be held by production and including if the lease is part of a unit.

(4.1)       Annual Rent – It is not clear what the annual rent will be for years 11-20 (if extensions are exercised).

(5)          Surface Lease – It is not clear what constitutes “production and/or transmission facilities” for which surface rents must be paid.  Are roads included?  Only  new roads?  Overhead transmission lines?  How much area do they occupy?

(7.1)       Reclamation Security – Tenant is required to provide Landlord with reclamation/restoration security prior to commencing production of Geothermal Resources on the Property, which security is subject to Landlord’s approval prior to Tenant conducting any development activity on the Property.  It would be better to state the objective criteria for any such security.  Also, it should be clear that no duplicative security should be required, so that if Tenant must post a bond or other security to secure a permit or pursuant to applicable law, Tenant should not have to provide Landlord with duplicative security.

(8.1)       Geothermal Practice – This should be limited to a prudent geothermal industry practice standard.

(9)          Pooling/Unitization – Address/eliminate Landlord's written consent for any pooling or unitization arrangement.

(12.1)    Real Estate Taxes – This provision is ambiguous and does not clearly state which party  is responsible for paying the base ad valorum real estate taxes and assessments.  Also, this section should include Tenant’s right to pay the Landlord’s portion of any such taxes and offset such payments against rents due or to receive reimbursement of such amounts from Landlord on demand.

(13.1)    Insurance – At the end of Section 13.1, what is meant by “additional insurance for production well drilling and plant operations for control of fluids”?  Does Tenant have to increase its limits if these activities are conducted on the Property, or simply ensure that these are covered activities and obtain any special endorsements/coverages to do so?

 

 

(18)        Title – Landlord does not make any title representation or warranty, and Tenant’s sole remedy if LL does not have good and marketable title to the Property is to terminate the Lease and get Tenant’s payments back.

(26)        Assignment/Encumbrances – Any assignment, sublease, mortgage, encumbrance requires LL’s written consent, not to be unreasonably withheld.  This will be an issue that needs to be addressed for financing purposes.

MISSING PROVISIONS

There are no lender/mortgagee protection provisions and no waiver of consequential damages in the Lease.  Both of these provisions should be added.

2

 

Schedule III

to Letter Agreement

DRILLING RIG RATES / DEVELOPMENT STAFF RATES

 

GeoDrill Rig #1 

Daywork rate is $15,000/day. This price includes a forklift, per diem, 13 5/8" BOPE equipment, drillpipe, heavy weight drillpipe, and drill collars. This is a 1600 HP rig with a depth rating of 18,000 ft.

GeoDrill Rig #2 

Daywork rate is $12,000/day. This price includes a forklift, per diem, 9" BOPE equipment, drillpipe, heavy weight drillpipe, air compressor, and drill collars. This is a truck-mount rig with a depth rating of 4500 ft.

A 10% handling fee will be added to the above rates (for both drilling rigs).

 

Hourly Rate of Each Party's Staff Engaged in the Development and Construction of the Project:

$75.00

 

Schedule IV

to Letter Agreement

DISCOUNTED CASH FLOW CALCULATION PARAMETERS

The Discounted Cash Flow calculation will be done by a qualified independent valuator that is acceptable to both Parties, on the basis of and taking into account the following parameters:

1.  Revenues, projected based on the size of the power plant in accordance with the geothermal engineer report and the energy rates (price) of the power purchase agreement, using a 95% availability factor, and 1 degree Farenheit cooling rate or as determined by the independent resource consultant.

Less

2.  All operating expenses, including without limitations, any royalty payments, lease payments, insurance premiums, taxes and G&A costs;

3.  Annual maintenance Capex;

4.  Debt service based on an assumed long-term loan (i) bearing interest at the then current market rate, and (ii) having a debt:equity ratio consistent with then current market conditions for a project financing with a minimum DSCR required for a BB+ rating;

5.  Assumed income taxes at the highest applicable federal and state tax rates (currently 35% at the federal level).

The projected cashflow of the operating period (calculated as per above) will be adjusted (i) for the projected investment remaining to be made in the project to achieve commercial operations, (ii) for an ITC cash grant ( if the project is eligible), and (iii) the amount of the term debt to be drawn on the Commercial Operations Date. 

The after tax cash flow as well as the projected investment and the expected ITC cash grant, will all be discounted at a discount rate between 13% and 15% (as determined by the qualified independent valuator, acting reasonably), to the  date of the exercise of the Change of Control Call Option.

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