Document:

Filed by Automated Filing Services Inc. (604) 609-0244 - US Geothermal Inc. - Exhibit 10.19

 FIRM ENERGY SALES AGREEMENT

  BETWEEN 

  IDAHO POWER COMPANY 

  AND 

  US GEOTHERMAL INC 

  TABLE OF CONTENTS 

	 Article	                               TITLE
	 1	 	 Definitions
	 2	 	 No Reliance on Idaho Power
	 3	 	 Warranties
	 4	 	 Conditions to Acceptance of Energy
	 5	 	 Term and Operation Date
	 6	 	 Purchase and Sale of Net Energy
	 7	 	 Purchase Price and Method of Payment
	 8	 	 Environmental Attributes
	 9	 	 Facility and Interconnection
	 10	 	 Transmission Agreement
	 11	 	 Metering and Telemetry
	 12	 	 Records
	 13	 	 Protection
	 14	 	 Operations
	 15	 	 Reliability Management System
	 16	 	 Indemnification and Insurance
	 17	 	 Force Majeure
	 18	 	 Liability; Dedication
	 19	 	 Several Obligations
	 20	 	 Waiver
	 21	 	 Choice of Laws and Venue
	 22	 	 Disputes and Default
	 23	 	 Governmental Authorization
	 24	 	 Commission Order
	 25	 	 Successors and Assigns
	 26	 	 Modification
	 27	 	 Taxes
	 28	 	 Notices
	 29	 	 Additional Terms and Conditions
	 30	 	 Severability
	 31	 	 Counterparts
	 32	 	 Entire Agreement Signatures
	  	 	 
	  	 	 Appendix A
	  	 	 Appendix B
	  	 	 Appendix C

 FIRM ENERGY SALES AGREEMENT

  (10 aMW or Less) 

RAFT RIVER GEOTHERMAL POWER PLANT 

Project Number: 31765155 

                THIS
  AGREEMENT, entered into on this    29th   
  day of   December    2004 between US GEOTHERMAL INC.
  an Idaho corporation (Seller), and IDAHO POWER COMPANY, an Idaho corporation
  (Idaho Power), hereinafter sometimes referred to collectively as “Parties”
  or individually as “Party.” 

WITNESSETH: 

               WHEREAS,
  Seller will design, construct, own, maintain and operate an electric generation
  facility; and 

               WHEREAS,
  Seller wishes to sell, and Idaho Power is willing to purchase, firm electric
  energy produced by the Seller’s Facility. 

                THEREFORE,
  In consideration of the mutual covenants and agreements hereinafter set forth,
  the Parties agree as follows:

 ARTICLE I: DEFINITIONS 

                 As
  used in this Agreement and the appendices attached hereto, the following terms
  shall have the following meanings: 

	 1.1      	 “Commission” - The Idaho Public
        Utilities Commission. 

	 	 
	 1.2      	 “Contract Year” - The period
        commencing each calendar year on the same calendar date as the Operation
        Date and ending 364 days thereafter. 

	 	 
	 1.3      	 “Designated Dispatch Facility”
        - Idaho Power’s Systems Operations Group, or any subsequent group
        designated by Idaho Power. 

	 	 
	 1.4      	 “Facility” - That electric generation
        facility described in Appendix B of this Agreement. 

	 	 
	 1.5      	 “Geothermal Production Well Contribution
        Rating” – Each individual geothermal well contribution,
        defined in MWs, to the generator rating of the generator directly attached
        to the 

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	 	 specific geothermal well. The sum of the individual
        Geothermal Production Well Contribution Ratings directly providing motive
        force for individual generation units must equal the generator rating
        of the individual generation unit(s) as specified in Appendix B. The Geothermal
        Production Well Contribution Ratings will be as specified in Appendix
        B or as may be adjusted in accordance with paragraph 14.4 of this Agreement.
      

	 
	 1.6      	 “Inadvertent Energy” –
        Electric energy Seller does not intend to generate. Inadvertent energy
        is more particularly described in paragraph 7.3 of this Agreement. 

	 
	 1.7      	 "Interconnection Facilities" - All facilities
        required to be installed to interconnect and deliver energy from the Facility
        to the Transmitting Entity’s system including, but not limited to,
        connection, switching, metering, relaying, communications and safety equipment.
      

	 
	 1.8      	 “Initial Capacity Determination”
        – The process by which Idaho Power confirms that under normal
        or average design conditions the Facility will generate at no more than
        10 average MW per month and is therefore eligible to be paid the published
        rates in accordance with Commission Order No. 29214. 

	 
	 1.9      	 “Losses” – The loss of
        electrical energy expressed in kilowatt hours (kWh) occurring as a result
        of the transformation and transmission of energy between the point where
        the Facility’s energy is actually delivered to the Transmitting
        Entity (measured by either the Idaho Power or the Transmitting Entity’s
        Metering Equipment) and the Point of Delivery on the Idaho Power electrical
        system. The loss calculation formula will be as specified in Appendix
        B of this Agreement. 

	 
	 1.10      	 “Market Energy Cost” –
        Eighty-five percent (85%) of the weighted average of the daily on-peak
        and off-peak Dow Jones Mid-Columbia Index (Dow Jones Mid-C Index) prices
        for non-firm energy. If the Dow Jones Mid-Columbia Index price is discontinued
        by the reporting agency, both Parties will mutually agree upon a replacement
        index, which is similar to the Dow Jones Mid- Columbia Index. The selected
        replacement index will be consistent with other similar agreements and
        a commonly used index by the electrical industry. 

	 
	 1.11      	 “Material Breach” – A Default
        (paragraph 22.2.1) subject to paragraph 22.2.2. 

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	 1.12      	 “Maximum Capacity Amount” –
        The maximum capacity (MW) of the Facility will be as specified in Appendix
        B of this Agreement. 

	 
	 1.13      	 “Metering Equipment" - All equipment
        specified in Schedule 72, this Agreement and any additional equipment
        specified in Appendix B required to measure, record or telemeter power
        flows between the Seller's Facility and Idaho Power's electrical system.
      

	 
	 1.14      	 “Net Energy” – All of the
        electric energy produced by the Facility, less Station Use, less Losses,
        expressed in kilowatt hours (kWh), which the Transmitting Entity delivers
        to Idaho Power at the Point of Delivery for the full term of the Agreement.
        Net Energy does not include Inadvertent Energy. 

	 
	 1.15      	 “Operation Date” – The
        day commencing at 00:00:01 (H:M:S) hours, Mountain Time, following the
        day that all requirements of paragraph 5.2 have been completed. 

	 
	 1.16      	 “Point of Delivery” – The
        location specified in Appendix B, where the Transmitting Entity delivers
        the Facility’s Net Energy and Inadvertent Energy to Idaho Power.
      

	 
	 1.17      	 “Prudent Electrical Practices”
        – Those practices, methods and equipment that are commonly and ordinarily
        used in electrical engineering and operations to operate electric equipment
        lawfully, safely, dependably, efficiently and economically. 

	 
	 1.18      	 “Scheduled Operation Date” –
        The date specified in Appendix B when Seller anticipates achieving the
        Operation Date. 

	 
	 1.19      	 “Schedule 72” – Idaho Power’s
        Tariff No 101, Schedule 72 or its successor schedules as approved by the
        Commission. 

	 
	 1.20      	 “Season” – The three periods
        identified in paragraph 6.2.1 of this Agreement. 

	 
	 1.21      	 “Station Use” – Electric
        energy that is used to operate equipment that is auxiliary or otherwise
        related to the production of electricity by the Facility. 

	 
	 1.22      	 “Surplus Energy” – (1)
        Net Energy produced by the Seller’s Facility, scheduled and delivered
        by the Transmitting Entity and accepted by Idaho Power during the month
        which exceeds 110% of the monthly Net Energy Amount for the corresponding
        month specified in paragraph 6.2. or (2) If the Net Energy produced by
        the Seller’s Facility, scheduled and delivered by the Transmitting
      

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	 	 Entity and accepted by Idaho Power during the month
        is less than 90% of the monthly Net Energy Amount for the corresponding
        month specified in paragraph 6.2, then all Net Energy scheduled and delivered
        by the Transmitting Entity to Idaho Power on the Seller’s behalf
        for that given month or (3) All Net Energy produced by the Seller’s
        Facility, scheduled and delivered by the Transmitting Entity and accepted
        by Idaho Power prior to the Operation Date. 

	 
	 1.23      	 “Total Cost of the Facility”
        - The total cost of structures, equipment and appurtenances. 

	 
	 1.24      	 “Transmitting Entity” - The signatory(s)
        (other than the Seller) to the Transmission Agreement referred to in paragraph
        10.1 and its successors and assigns. 

 ARTICLE II: NO RELIANCE ON IDAHO POWER 

	 2.1      	 Seller Independent Investigation - Seller
        warrants and represents to Idaho Power that in entering into this Agreement
        and the undertaking by Seller of the obligations set forth herein, Seller
        has investigated and determined that it is capable of performing hereunder
        and has not relied upon the advice, experience or expertise of Idaho Power
        in connection with the transactions contemplated by this Agreement. 

	 	 
	 2.2      	 Seller Independent Experts - All professionals
        or experts including, but not limited to, engineers, attorneys or accountants,
        that Seller may have consulted or relied on in undertaking the transactions
        contemplated by this Agreement have been solely those of Seller. 

 ARTICLE III: WARRANTIES 

	 3.1      	 No Warranty by Idaho Power - Any review,
        acceptance or failure to review Seller’s design, specifications,
        equipment or facilities shall not be an endorsement or a confirmation
        by Idaho Power and Idaho Power makes no warranties, expressed or implied,
        regarding any aspect of Seller’s design, specifications, equipment
        or facilities, including, but not limited to, safety, durability, reliability,
        strength, capacity, adequacy or economic feasibility. 

	 	 
	 3.2      	 Qualifying Facility Status - Seller warrants
        that the Facility is a “Qualifying Facility,” as that term
        is used and defined in 18 CFR §292.207. After initial qualification,
        Seller will take such steps as 

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	 	may be required to maintain the Facility’s
        Qualifying Facility status during the term of this Agreement and Seller’s
        failure to maintain Qualifying Facility status will be a Material Breach
        of this Agreement. Idaho Power reserves the right to review the Seller’s
        Qualifying Facility status and associated support and compliance documents
        at anytime during the term of this Agreement. 

ARTICLE IV: CONDITIONS TO ACCEPTANCE
  OF ENERGY 

	 4.1      	 Prior to the Operation Date and as a condition
        of Idaho Power’s acceptance of deliveries of energy from the Seller,
        Seller shall: 

	 
	 	 4.1.1   
          
	 Submit proof to Idaho Power that all licenses, permits
        or approvals necessary for Seller’s operations have been obtained
        from applicable federal, state or local authorities, including, but not
        limited to, evidence of compliance with Subpart B, 18 CFR 292.207. 

	 
	 	 4.1.2      
	 Opinion of Counsel - Submit to Idaho Power
        an Opinion Letter signed by an attorney admitted to practice and in good
        standing in the State of Idaho providing an opinion that Seller’s
        licenses, permits and approvals as set forth in paragraph 4.1.1 above
        are legally and validly issued, are held in the name of the Seller and,
        based on a reasonable independent review, counsel is of the opinion that
        Seller is in substantial compliance with said permits as of the date of
        the Opinion Letter. The Opinion Letter will be in a form acceptable to
        Idaho Power and will acknowledge that the attorney rendering the opinion
        understands that Idaho Power is relying on said opinion. Idaho Power’s
        acceptance of the form will not be unreasonably withheld. The Opinion
        Letter will be governed by and shall be interpreted in accordance with
        the legal opinion accord of the American Bar Association Section of Business
        Law (1991). 

	 
	 	 4.1.3      
	 Initial Capacity Determination - Submit to
        Idaho Power a certificate from a Registered Professional Engineer licensed
        and in good standing in the State of Idaho certifying that the Facility’s
        design and operating protocols will limit generation at the Facility to
        no more than 10 average MW in any given month. 

	 
	 	 4.1.4      
	 Engineer’s Certifications - Submit
        an executed Engineer's Certification of Design & 

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	 	 	 Construction Adequacy and an Engineer's
        Certification of Operations and Maintenance (O&M) Policy as described
        in Commission Order No. 21690. These certificates will be in the form
        specified in Appendix C but may be modified to the extent necessary to
        recognize the different engineering disciplines providing the certificates.
      

	 
	 	 4.1.5      	 Insurance - Submit written proof
        to Idaho Power of all insurance required in Article XVI. 

	 
	 	 4.1.6      	 Transmission Agreement - Provide
        Idaho Power with a copy of the Transmission Agreement executed by the
        Seller and the Transmitting Entity in a form acceptable to Idaho Power.
        Idaho Power’s acceptance will not be unreasonably withheld. 

	 
	 	 4.1.7      	 Written Acceptance – Request
        and obtain written confirmation from Idaho Power that all conditions to
        acceptance of energy have been fulfilled. Such written confirmation shall
        be provided within a commercially reasonable time following the Seller’s
        request and will not be unreasonably withheld by Idaho Power. 

	 
	 	 4.1.8      	 Idaho Power Electrical System Study
        – Seller and Transmitting Entity will request, in writing, a
        specific Point of Delivery where the Facility’s Net Energy and Inadvertent
        Energy will be delivered to Idaho Power. This request will include the
        Maximum Capacity Amount (MW) as specified in Appendix B-4. Upon receipt
        of this request, at Seller’s expense, Idaho Power will complete
        an electrical system study to determine Idaho Power’s ability to
        receive the Maximum Capacity Amount at the requested Point of Delivery.
        This study will include a study of the Idaho Power electrical system at
        this Point of Delivery and estimation of any additional Seller costs associated
        with completing this request as specified in Appendix B. 

	 
	 	 	 4.1.8.1
	 If said study shows that Idaho Power will be unable
        to receive the Maximum Capacity Amount at the requested Point of Delivery,
        the Seller and Transmitting Entity may request a different Point of Delivery
        or revise the Maximum Capacity Amount and a similar study, at the Seller’s
        expense, will be conducted. 

	 
	 	 	 4.1.8.2
	 If the Seller and Transmitting Entity request permission
        to deliver the 

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	 	 	 	 Maximum Capacity Amount at a Point of Delivery that
        Idaho Power has identified as being unable to receive the Maximum Capacity
        Amount, at Seller’s request and expense, Idaho Power will conduct
        a study to determine the necessary upgrades and/or modifications required
        to enable receipt of the Maximum Capacity Amount at the requested Point
        of Delivery. 

	 
	 	 	 4.1.8.3	 Seller will be responsible for all customary and
        reasonable expenses associated with all Idaho Power studies, upgrades
        and/or modifications required to enable delivery of the Maximum Capacity
        Amount at the requested Point of Delivery. An initial deposit will be
        calculated based upon the estimated cost of each individual study, upgrade
        or modification and will be required to be paid by the Seller prior to
        Idaho Power conducting any work associated with the Seller’s request.
        Upon completion of any and all studies, upgrades and/or modifications
        required to accommodate the Seller’s request, Idaho Power will reconcile
        the actual expenses with the previously paid deposit and the appropriate
        refund or additional billing will be processed. 

 ARTICLE V: TERM AND OPERATION DATE 

	 5.1      	 Term - Subject to the provisions
        of paragraph 5.2 below, this Agreement shall become effective on the date
        first written and shall continue in full force and effect for a period
        of twenty (20) Contract Years from the Operation Date. 

	 
	 5.2      	 Operation Date - The Operation
        Date may occur only after the Facility has achieved all of the following:
      

	 
	 	 a)      
	 Completed all Conditions to Acceptance of Energy
        as specified in Article IV. 

	 
	 	 b)     
      
	 Commission approval of this Agreement has been received.
      

	 
	 	 c)      
	 Seller has demonstrated to Idaho Power's satisfaction
        that the Facility is complete and able to provide energy in a consistent,
        reliable and safe manner and has requested an 

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	 	 Operation Date in written form. 

	 
	 	 d)     
      
	 Seller has received written confirmation from Idaho
        Power of the Operation Date. This confirmation will not be unreasonably
        withheld by Idaho Power. 

	 
	 5.3      	 Seller’s failure to achieve the
        Operation Date within ten (10) months of the Scheduled Operation Date
        will be an event of default. 

 ARTICLE VI: PURCHASE AND SALE OF NET ENERGY 

	 6.1      	 Delivery and Acceptance of Net Energy
        - Except when either Party's performance is excused as provided herein,
        Idaho Power will purchase and Seller will sell all of the Net Energy produced
        by the Facility and delivered by the Transmitting Entity to the Point
        of Delivery. All Inadvertent Energy produced by the Facility will also
        be delivered by the Transmitting Entity to Idaho Power at the Point of
        Delivery. At no time will the total amount of Net Energy and/or Inadvertent
        Energy produced by the Facility and delivered by the Transmitting Entity
        to the Point of Delivery exceed the Maximum Capacity Amount. 

	 
	 6.2      	 Net Energy Amounts - Seller intends
        to produce and Transmitting Entity shall deliver Net Energy in the following
        monthly amounts: 

	 	 	 
	 	6.2.1
	 Initial Year Monthly Net Energy Amounts:
      

	  	 	 Month	 kWh
	  	 	 	 
	  	 	 March	 7,440,000
	 Season 1	 	 April	 7,200,000
	  	 	 May	 7,440,000
	  	 	 	 
	  	 	 July	 7,440,000
	  	 	 August	 7,440,000
	 Season 2	 	 November	 7,200,000
	  	 	 December	 7,440,000
	  	 	 	 
	  	 	 June	 7,200,000
	  	 	 September	 7,200,000
	 Season 3	 	 October	 7,440,000
	  	 	 January	 7,440,000
	  	 	 February	 6,720,000

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	 	 6.2.2      	 Ongoing Monthly Net Energy Amounts
        - Seller shall initially provide Idaho Power with one year of monthly
        generation estimates (Initial Year Monthly Net Energy Amounts) and beginning
        at the end of month nine and every three months thereafter provide Idaho
        Power with an additional three months of forward generation estimates.
        This information will be provided to Idaho Power by written notice in
        accordance with paragraph 28.1, no later than 5pm of the 5th day
        following the end of the previous month. If the Seller does not provide
        the Ongoing Monthly Net Energy amounts in a timely manner, Idaho Power
        will use the most recent 3 months of the Initial Year Monthly Net Energy
        Amounts specified in paragraph 6.2.1 for the next 3 months of monthly
        Net Energy amounts. 

	 
	 	 6.2.3      	 Seller’s Adjustment of Net Energy
        Amount – 

	 
	 	 	 6.2.3.1
	 No later than the Operation Date, by written notice
        given to Idaho Power in accordance with paragraph 28.1, the Seller may
        revise all of the previously provided Initial Year Monthly Net Energy
        Amounts. 

	 
	 	 	 6.2.3.2
	 Beginning with the end of the 3rd month
        after the Operation Date and at the end of every third month thereafter:
        (1) the Seller may not revise the immediate next three months of
        previously provided Net Energy Amounts, (2) but by written notice given
        to Idaho Power in accordance with paragraph 28.1, no later than 5pm of
        the 5th day following the end of the previous month, the Seller
        may revise all other previously provided Net Energy Amounts. Failure to
        provide timely written notice of changed amounts will be deemed to be
        an election of no change. 

	 
	 	 6.2.4      	 Idaho Power Adjustment of Net Energy
        Amount – If Idaho Power is excused from accepting the Seller’s
        Net Energy as specified in paragraph 14.2.1 or if the Seller declares
        a Suspension of Energy Deliveries as specified in paragraph 14.3.1 and
        the Seller’s declared Suspension of Energy Deliveries is accepted
        by Idaho Power, the Net Energy Amount as specified in paragraph 6.2 for
        the specific month in which the reduction or suspension under paragraph
        14.2.1 or 14.3.1 occurs will be reduced in accordance with 

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	 	 	the following:

	 	 Where:  	  	  	  
	 	  	 	 	 
	 	  NEA  	 =  	 Current Month’s Net Energy Amount
      (Paragraph 6.2)  
	 	  	 	 	 
	 	  SGU  	 =  	 a.)  	 If Idaho Power is excused
        from accepting the Seller’s Net Energy as specified in paragraph
        14.2.1 this value will be equal to the percentage of curtailment as specified
        by Idaho Power multiplied by the TGU as defined below. 

	 	  	 	 	 
	 	  	  	 b.)  	 If the Seller declares a
        Suspension of Energy Deliveries as specified in paragraph 14.3.1 for an
        entire generation unit(s) this value will be the sum of the individual
        generation units size ratings as specified in Appendix B that are impacted
        by the circumstances causing the Seller to declare a Suspension of Energy
        Deliveries.

	 	  	 	 	 
	 	  	  	 c.)  	 If the Seller declares a
        Suspension of Energy Deliveries as specified in paragraph 14.3.1 due to
        a forced outage of an individual production well(s), this value will be
        the sum of the individual production well(s) Geothermal Production Well
        Contribution Rating(s) as specified in Appendix B that are impacted by
        the circumstances causing the Seller to declare a Suspension of Energy
        Deliveries.

	 	  	 	 	 
	 	  	 	 	 
	 	  TGU  	 =  	 Sum of all of
        the individual generator ratings of the generation units at this Facility
        as specified in Appendix B of this agreement. 

	 	  	 	 	 
	 	  RSH  	 =  	 Actual hours
        the Facility’s Net Energy deliveries were either  reduced or
        suspended under paragraph 14.2.1 or 14.3.1  

	 	  	 	 	 
	 	  TH  	 =  	 Actual total
        hours in the current month  

	 	 	Resulting formula being: 

	 	 	Adjusted  

      Net Energy  

      Amount  	 =  	 NEA  	 –  	  ( 	 ( 
      	SGU 

      TGU  	 X  	 NEA  	 ) 
      	 X  	 ( 
      	RSH  

      TH  	 ) 
      	 )  

	 	 This Adjusted Net Energy Amount will be used in
        applicable Surplus Energy calculations for only the specific month in
        which Idaho Power was excused from accepting the Seller’s Net Energy
        or the Seller declared a Suspension of Energy. 

	 	 
	 6.3      	 Unless excused by an event of Force Majeure, Seller’s
        failure to deliver Net Energy in any Contract Year in an amount equal
        to at least ten percent (10%) of the sum of the Initial Year Net 

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	 	Energy Amounts as specified in paragraph 6.2 shall constitute an event
      of default. 

 ARTICLE VII: PURCHASE PRICE AND METHOD
  OF PAYMENT 

	 7.1      	 Net Energy Purchase Price – For all
        Net Energy, Idaho Power will pay the non-levelized energy price in accordance
        with Commission Order 29646 with seasonalization factors applied: 

	 	  	 Season 1 - (73.50 %)  	 Season 2 - (120.00 %)  	 Season 3 - (100.00 %)  
	 	 Year  	 Mills/kWh  	 Mills/kWh  	 Mills/kWh  
	 	 2004  	 36.17  	 59.05  	 49.21  
	 	 2005  	 37.00  	 60.41  	 50.34  
	 	 2006  	 37.85  	 61.80  	 51.50  
	 	 2007  	 38.73  	 63.23  	 52.69  
	 	 2008  	 39.62  	 64.68  	 53.90  
	 	 2009  	 40.53  	 66.17  	 55.14  
	 	 2010  	 41.46  	 67.69  	 56.41  
	 	 2011  	 42.42  	 69.25  	 57.71  
	 	 2012  	 43.39  	 70.85  	 59.04  
	 	 2013  	 44.39  	 72.48  	 60.40  
	 	 2014  	 45.42  	 74.16  	 61.80  
	 	 2015  	 46.47  	 75.86  	 63.22  
	 	 2016  	 47.54  	 77.62  	 64.68  
	 	 2017  	 48.63  	 79.40  	 66.17  
	 	 2018  	 49.76  	 81.24  	 67.70  
	 	 2019  	 50.91  	 83.11  	 69.26  
	 	 2020  	 52.07  	 85.02  	 70.85  
	 	 2021  	 53.28  	 86.99  	 72.49  
	 	 2022  	 54.51  	 88.99  	 74.16  
	 	 2023  	 55.76  	 91.04  	 75.87  
	 	 2024  	 57.05  	 93.14  	 77.62  
	 	 2025  	 58.37  	 95.29  	 79.41  
	 	 2026  	 59.72  	 97.50  	 81.25  

	 7.2      	 Surplus Energy Price - For all
        Surplus Energy, Idaho Power shall pay to the Seller the current month’s
        Market Energy Cost or the Net Energy Purchase Price specified in paragraph
        7.1, whichever is lower. 

	 
	 7.3      	 Inadvertent Energy – 

	 
	 	 7.3.1   
          
	 Inadvertent Energy is electric energy produced by
        the Facility, expressed in kWh, which the Transmitting Entity delivers
        to Idaho Power at the Point of Delivery that exceeds 10,000 KW multiplied
        by the hours in the specific month in which the energy was 

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	 	 	 delivered. (For example January contains 744 hours.
        744 times 10,000 KW = 7,440,000 kWh,. Energy delivered in January in excess
        of 7,440, 000 kWh in this example would be Inadvertent Energy. 

	 
	 	 7.3.2   
          
	 Although Seller intends to design and operate the
        Facility to generate no more than 10 average MW and therefore does not
        intend to generate Inadvertent Energy, Idaho Power will accept Inadvertent
        Energy that does not exceed the Maximum Capacity Amount but will not purchase
        or pay for Inadvertent Energy 

	 
	 7.4      	 Payment Due Date – Energy
        payments to the Seller will be disbursed within 30 days of the date which
        Idaho Power receives and accepts the documentation of the monthly Net
        Energy and Inadvertent Energy actually produced by the Seller’s
        Facility and delivered to Idaho Power by the Transmitting Entity as specified
        in Appendix A. 

	 
	 7.5      	 Continuing Jurisdiction of the Commission
        – This Agreement is a special contract and, as such, the rates,
        terms and conditions contained in this Agreement will be construed in
        accordance with Idaho Power Company v. Idaho Public Utilities Commission
        and Afton Energy, Inc., 107 Idaho 781, 693 P.2d 427 (1984); Idaho
        Power Company v. Idaho Public Utilities Commission, 107 Idaho 1122,
        695 P.2d 1 261 (1985); Afton Energy, Inc, v. Idaho Power Company,
        111 Idaho 925, 729P.2d 400 (1986); Section 210 of the Public Utilities
        Regulatory Policies Act of 1978 and 18 CFR §292.303-308. 

 ARTICLE VIII: ENVIRONMENTAL ATTRIBUTES 

	 8.1      	 Idaho Power waives any claim to ownership of Environmental
        Attributes. Environmental Attributes include, but are not limited to,
        Green Tags, Green Certificates, Renewable Energy Credits (RECs) and Tradable
        Renewable Certificates (TRCs) directly associated with the production
        of energy from the Seller’s Facility. 

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 ARTICLE IX: FACILITY AND INTERCONNECTION 

	 9.1      	 Design of Facility - Seller will design,
        construct, install, own, operate and maintain the Facility and any Seller-owned
        Interconnection Facilities so as to allow safe and reliable generation
        and delivery of Net Energy and Inadvertent Energy to the Transmitting
        Entity for the full term of the Agreement. 

	 
	 9.2      	 Interconnection Facilities - Seller will
        construct, install, own and maintain all Interconnection Facilities other
        than those owned, installed or maintained by the Transmitting Entity.
        Seller will pay all costs of interconnecting with the Transmitting Entity
        and transmitting Net Energy and Inadvertent Energy to Idaho Power. 

 ARTICLE X: TRANSMISSION AGREEMENT 

	 10.1      	 Transmission Agreement - The Seller will
        arrange and pay for the delivery of Net Energy and Inadvertent Energy
        over the facilities of the Transmitting Entities (the Bonneville Power
        Administration (“BPA”) and the Raft River Rural Electric Cooperative
        (“Raft River”)) to the Point of Delivery. The delivery of
        Net Energy and Inadvertent Energy from the Facility to the Idaho Power
        Point of Delivery shall be in accordance with the terms and conditions
        of a Transmission Agreement between the Seller and the Transmitting Entities.
      

	 
	 10.2      	 Acceptance of Transmission Agreement - This
        Agreement is expressly conditioned and contingent upon Idaho Power’s
        acceptance of the Transmission Agreement. Such acceptance will not be
        unreasonably withheld. Idaho Power will be identified within the Transmission
        Agreement as an intended third party beneficiary of the Transmission Agreement
        and a material default by Seller under the Transmission Agreement will
        be a material default under this Agreement. 

	 
	 10.3      	 Losses - Idaho Power will only purchase the
        Net Energy that is delivered by the Transmitting Entity to Idaho Power
        at the Point of Delivery. Idaho Power will only accept the Inadvertent
        Energy delivered by the Transmitting Entity to Idaho Power at the Point
        of Delivery. Losses will be calculated as provided in Appendix B of this
        Agreement. 

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 ARTICLE XI: METERING AND TELEMETRY 

	 11.1      	 Metering and Telemetry - Idaho Power shall,
        for the account of Seller, provide, install, and maintain Metering Equipment
        as required to determine the amount of Net Energy and Inadvertent Energy
        delivered to Idaho Power by the Transmitting Entity at the Point of Delivery.
        The metering will be installed at the location as specified in Appendix
        B of this Agreement. If required by Idaho Power, metering will also include
        measurement of kilovar-hours in a manner agreed to by both Parties. All
        customary and reasonable Metering Equipment and installation costs shall
        be borne by Seller, including costs incurred by Idaho Power for inspecting
        and testing such equipment at reasonable intervals at Idaho Power's actual
        cost of providing this Metering Equipment and services. All meters used
        to determine the billing hereunder shall be sealed and the seals shall
        be broken only by Idaho Power when the meters are to be inspected, tested
        or adjusted. 

	 
	 11.2      	 Meter Inspection - Idaho Power shall inspect
        and test all meters upon their installation and at least once every four
        (4) years thereafter. If requested by Seller, Idaho Power shall make a
        special inspection or test of a meter and Seller shall pay the reasonable
        costs of such special inspection. 

	 
	 	 Both Parties shall be notified of the time when
        any inspection or test shall take place, and each Party may have representatives
        present at the test or inspection. If a meter is found to be inaccurate
        or defective, it shall be adjusted, repaired or replaced, at Idaho Power's
        expense in order to provide accurate metering. If a meter fails to register,
        or if the measurement made by a meter during a test varies by more than
        two percent (2%) from the measurement made by the standard meter used
        in the test, adjustment (either upward or downward) to the payments Seller
        has received shall be made to correct those payments affected by the inaccurate
        meter for the actual period during which inaccurate measurements were
        made. If the actual period cannot be determined, corrections to the payments
        will be based on the shorter of (1) a period equal to one- half the time
        from the date of the last previous test of the meter to the date of the
        test which established the inaccuracy of the meter; or (2) six (6) months.
      

 - 14 - 

 

	 11.3      	 Telemetry – Idaho Power will install,
        operate and maintain at Seller's expense metering, communications and
        telemetry equipment which will be capable of providing Idaho Power with
        continuous instantaneous telemetry of the Facility’s generation,
        Net Energy and Inadvertent Energy amounts delivered by the Transmitting
        Entity, to Idaho Power's Designated Dispatch Facility. 

	 
	 11.4      	 If, (1) the Transmitting Entity provides and maintains
        Metering and Telemetry equipment in a manner that is acceptable to Idaho
        Power, and (2) the Metering and Telemetry equipment is capable of providing
        Idaho Power with the same data as specified in paragraph 11.1, 11.2 and
        11.3, and (3) Idaho Power is provided with manual and automated access
        to the Transmitting Entity’s Meters and Telemetry equipment and
        associated data, and (4) the Seller provides communication circuits and
        pays all expenses associated with these communication circuits and any
        other expenses associated with Idaho Power accessing this data for the
        full term of this Agreement, Idaho Power will not install Metering and
        Telemetry equipment that would duplicate the Metering and Telemetry equipment
        provided by the Transmitting Entity. 

 ARTICLE XII - RECORDS 

	 12.1      	 Maintenance of Records - Seller shall maintain
        at the Facility or such other location mutually acceptable to the Parties
        adequate total generation, Net Energy, Station Use and Inadvertent Energy
        records in a form and content recommended by Idaho Power. 

	 
	 12.2      	 Inspection - Either Party, after reasonable
        notice to the other Party, shall have the right, during normal business
        hours, to inspect and audit any or all generation, Net Energy, Station
        Use and Inadvertent Energy records pertaining to the Seller's Facility.
      

 ARTICLE XIII - PROTECTION 

	 13.1      	 Seller will construct, operate and maintain the
        Facility and Seller-furnished Interconnection Facilities in accordance
        with Prudent Electrical Practices, the National Electric Safety Code and
        any other applicable local, state and federal codes. 

 - 15 - 

 ARTICLE XIV - OPERATIONS 

	 14.1	 Communications - Idaho Power, the
        Transmitting Entity and the Seller shall maintain appropriate operating
        communications through Idaho Power’s Designated Dispatch Facility
        in accordance with Appendix A of this Agreement. 

	 
	 14.2  	 Energy Acceptance – 

	 
	 	 14.2.1   
          
	 Idaho Power shall be excused from accepting and
        paying for Net Energy or accepting Inadvertent Energy produced by the
        Facility and delivered by the Transmitting Entity to the Point of Delivery,
        if it is prevented from doing so by an event of Force Majeure, or if Idaho
        Power determines that curtailment, interruption or reduction of Net Energy
        or Inadvertent Energy deliveries is necessary because of line construction
        or maintenance requirements, emergencies, electrical system operating
        conditions on its system or as otherwise required by Prudent Electrical
        Practices provided that during such curtailment, interruption or reduction
        Idaho Power, the Transmitting Entity and the Seller shall with reasonable
        limits attempt to coordinate, schedule and deliver Net Energy to the Idaho
        Power electrical system at other Points of Delivery if Idaho Power is
        capable of accepting the Net Energy deliveries at the other Points of
        Delivery. If, for reasons other than an event of Force Majeure, Idaho
        Power requires such a curtailment, interruption or reduction of Net Energy
        deliveries for a period that exceeds twenty (20) days, beginning with
        the twenty-first day of such interruption, curtailment or reduction, Seller
        will be deemed to be delivering Net Energy at a rate equivalent to the
        pro rata daily average of the amounts specified for the applicable month
        in paragraph 6.2. Idaho Power will notify Seller when the interruption,
        curtailment or reduction is terminated. 

	 
	 	 14.2.2      
	 Under no circumstances will the Transmitting Entity
        deliver Net Energy and/or Inadvertent Energy on behalf of the Seller’s
        Facility to the Point of Delivery in an amount that exceeds the Maximum
        Capacity Amount at any moment in time. Delivery of Net Energy and/or Inadvertent
        Energy by the Transmitting Entity to the Point of Delivery 

 - 16 - 

 

	 	 
	that exceeds the Maximum Capacity Amount will be a Material Breach of
      this Agreement. 
	 
	 14.3      
	 Seller Declared Suspension of Energy
        Deliveries 

	 
	 	 14.3.1
	 If the Seller’s Facility experiences a forced
        outage due to equipment failure which is not caused by an event of Force
        Majeure or by neglect, disrepair or lack of adequate preventative maintenance
        of the Seller’s Facility, Seller may, after giving notice as provided
        in paragraph 14.3.2 below, temporarily suspend or reduce all deliveries
        of Net Energy to Idaho Power from the Facility or from individual generation
        unit(s) within the Facility impacted by the forced outage for a period
        of not less than 48 hours to correct the forced outage condition (“Declared
        Suspension of Energy Deliveries”). The Seller’s Declared Suspension
        of Energy Deliveries will begin at the start of the next full hour following
        the Seller’s telephone notification as specified in paragraph 14.3.2
        and will continue for the time as specified (not less than 48 hours) in
        the written notification provided by the Seller. In the month(s) in which
        the Declared Suspension of Energy occurred, the Net Energy Amount will
        be adjusted as specified in paragraph 6.2.4. 

	 
	 	 14.3.2      
	 If the Seller desires to initiate a Declared Suspension
        of Energy Deliveries as provided in paragraph 14.3.1, the Seller will
        notify the Designated Dispatch Facility by telephone. 

      The beginning hour of the Declared Suspension of Energy
        Deliveries will be at the earliest the next full hour after making telephone
        contact with Idaho Power. The Seller will, within 24 hours after the telephone
        contact, provide Idaho Power a written notice in accordance with Article
        XXVIII that will contain the beginning hour and duration of the Declared
        Suspension of Energy Deliveries and a description of the conditions that
        caused the Seller to initiate a Declared Suspension of Energy Deliveries.
        Idaho Power will review the documentation provided by the Seller to determine
        Idaho Power’s acceptance of the described forced outage as qualifying
        for a Declared Suspension of Energy Deliveries as specified in paragraph
        14.3.1. Idaho Power’s acceptance of the Seller’s forced outage
        as an acceptable forced outage will be based upon the clear documentation
      

 - 17 - 

 

	 	 	 provided by the Seller that the forced outage is
        not due do an event of Force Majeure or by neglect, disrepair or lack
        of adequate preventative maintenance of the Seller’s Facility. 

	 
	 14.4      	 Adjustment of Geothermal Well Production
        Contribution Ratings – Prior to the Operation Date and within
        30 days after the end of the first Contract Year the Seller may adjust
        the Geothermal Well Production Contribution Ratings specified in Appendix
        B. For the remaining term of this Agreement the Seller may adjust the
        Geothermal Well Production Contribution Ratings at the time that a production
        well originally identified in Appendix B or added to the facility in accordance
        with paragraph 14.4 of this Agreement is permentantly taken out of service
        or when a new production well is placed into service. In all circumstances
        the sum of the individual Geothermal Well Production Contribution Ratings
        must always be equal to the generator rating specified in Appendix B.
      

	 
	 14.5      	 Voltage Levels - Seller, in accordance
        with Prudent Electrical Practices shall minimize voltage fluctuations
        and maintain voltage levels acceptable to the Transmitting Entity and
        Idaho Power. Idaho Power may, in accordance with Prudent Electrical Practices,
        upon one hundred eighty (180)days' notice to the Transmitting Entity and
        the Seller, change its nominal operating voltage level by more than ten
        percent (10%) at the Point of Delivery, in which case Seller shall modify,
        at Idaho Power's expense, Seller's equipment as necessary to accommodate
        the modified nominal operating voltage level. 

	 
	 14.6      	 Generator Ramping - Idaho Power,
        in accordance with Prudent Electrical Practices, shall have the right
        to limit the rate that generation is changed at startup, during normal
        operation or following reconnection to the Transmitting Entity and Idaho
        Power's system. Generation ramping may be required to permit Idaho Power's
        voltage regulation equipment time to respond to changes in power flow.
      

	 
	 14.7      	 Scheduled Maintenance – On
        or before January 31 of each calendar year, Seller shall submit a written
        proposed maintenance schedule of significant Facility maintenance for
        that calendar year and Idaho Power and Seller shall mutually agree as
        to the acceptability of the proposed schedule. The Parties determination
        as to the acceptability of the Seller’s timetable for scheduled
      

 - 18 - 

 

	 	 maintenance will take into consideration Prudent
        Electrical Practices, Idaho Power system requirements and the Seller’s
        preferred schedule. Neither Party shall unreasonably withhold acceptance
        of the proposed maintenance schedule. 

	 
	 14.8      	 Maintenance Coordination - The Seller, Idaho
        Power and the Transmitting Entity shall, to the extent practical, coordinate
        their respective line and Facility maintenance schedules such that they
        occur simultaneously. 

	 
	 14.9      	 Contact Prior to Curtailment - Idaho Power
        will make a reasonable attempt to contact Seller and/or the Transmitting
        Entity prior to exercising its rights to curtail, interrupt or reduce
        deliveries from the Transmitting Entity from the Seller’s Facility.
        Seller and the Transmitting Entity understand that in the case of emergency
        circumstances, real time operations of the electrical system, and/or unplanned
        events Idaho Power may not be able to provide notice to the Seller or
        the Transmitting Entity prior to interruption, curtailment, or reduction
        of electrical energy deliveries to Idaho Power. 

 ARTICLE XV: RELIABILITY MANAGEMENT SYSTEM 

	 15.1      	 Purpose. In order to maintain the reliable operation
        of the transmission grid, the WECC Reliability Criteria Agreement sets
        forth reliability criteria adopted by the WECC to which Seller and Idaho
        Power shall be required to comply. Seller acknowledges receipt of and
        understanding of the WECC Reliability Criteria Agreement and how it pertains
        to the Seller’s facility. 

	 	 
	 15.2      	 Compliance. Seller shall comply with the requirements
        of the WECC Reliability Criteria Agreement, including the applicable WECC
        reliability criteria set forth in Section IV of Annex A thereof, and,
        in the event of failure to comply, Seller agrees to be subject to the
        sanctions applicable to such failure. Such sanctions shall be assessed
        pursuant to the procedures contained in the WECC Reliability Criteria
        Agreement. Each and all of the provisions of the WECC Reliability Criteria
        Agreement are hereby incorporated by reference into this Article 15 as
        though set forth fully herein, and Seller shall for all purposes be considered
        a Participant, and shall be entitled to all of the rights and privileges
        and be subject to all of the obligations of a 

 - 19 - 

 

	 	 Participant, under and in connection with the WECC
        Reliability Criteria Agreement, including, but not limited to the rights,
        privileges and obligations set forth in Sections 5, 6 and 10 of the WECC
        Reliability Criteria Agreement. 

	 
	 15.3      	 Payment of Sanctions. Seller shall be responsible
        for reimbursing Idaho Power for any monetary sanctions assessed against
        Idaho Power due to the action or inaction of the Seller by WECC pursuant
        to the WECC Reliability Criteria Agreement. Seller also shall be responsible
        for payment of any monetary sanction assessed against the Seller by WECC
        pursuant to the WECC Reliability Criteria Agreement. Any such payment
        shall be made pursuant to the procedures specified in the WECC Reliability
        Criteria Agreement. 

	 
	 15.4      	 Transfer of Control or Sale of Generation Facilities.
        In any sale or transfer of control of any generation facilities subject
        to this Agreement, Seller shall, as a condition of such sale or transfer,
        require the acquiring party or transferee with respect to the transferred
        facilities either to assume the obligations of the Seller with respect
        to this Agreement or to enter into an agreement with Idaho Power imposing
        on the acquiring party or transferee the same obligations applicable to
        the Seller pursuant to this Article 15. 

	 
	 15.5      	 Publication. Seller consents to the release
        by the WECC of information related to the Seller’s compliance with
        this Agreement only in accordance with the WECC Reliability Criteria Agreement.
      

	 
	 15.6      	 Third Parties. Except for the rights and
        obligations between the WECC and the Seller specified in this Article
        15, this Agreement creates contractual rights and obligations solely between
        the Parties. Nothing in this Agreement shall create, as between the Parties
        or with respect to the WECC: (a) any obligation or liability whatsoever
        (other than as expressly provided in this Agreement), or (b) any duty
        or standard of care whatsoever. In addition, nothing in this Agreement
        shall create any duty, liability or standard of care whatsoever as to
        any other party. Except for the rights, as a third-party beneficiary under
        this Article 15, of the WECC against the Seller for the Seller, no third
        party shall have any rights whatsoever with respect to enforcement of
        any provision of this Agreement. Idaho Power and the Seller expressly
        intend that the WECC 

 - 20 - 

 

	 	 is a third-party beneficiary to this Article
        15, and the WECC shall have the right to seek to enforce against the Seller
        any provision of this Article 15, provided that specific performance shall
        be the sole remedy available to the WECC pursuant to Article 15 of this
        Agreement, and the Seller shall not be liable to the WECC pursuant to
        this Agreement for damages of any kind whatsoever (other than the payment
        of sanctions to the WECC, if so construed), whether direct, compensatory,
        special, indirect, consequential, or punitive. 

	 
	 15.7      	 Reserved Rights. Nothing in the
        Article 15 of this Agreement or the WECC Reliability Criteria Agreement
        shall affect the right of Idaho Power, subject to any necessary regulatory
        approval, to take such other measures to maintain reliability, including
        disconnection that Idaho Power may otherwise be entitled to take. 

	 
	 15.8      	 Termination of Article 15. Seller
        may terminate its obligations pursuant to this Article 15: 

	 
	 	 15.8.1
	 If after the effective date of this Article 15,
        the requirements of the WECC Reliability Criteria Agreement applicable
        to the Seller are amended so as to adversely affect the Seller, provided
        that the Seller gives fifteen (15) days’ notice of such termination
        to Idaho Power and WECC within forty-five (45) days of the date of issuance
        of a Commission order accepting such amendment for filing, provided further
        that the forty-five (45) day period within which notice of termination
        is required may be extended by the Seller for an additional forty-five
        (45) days if the Seller gives written notice to Idaho Power of such requested
        extension within the initial forty-five (45) day period; or 

	 
	 	 15.8.2
	 For any reason on one year’s written notice
        to Idaho Power and the WECC. 

 ARTICLE XVI: INDEMNIFICATION AND INSURANCE 

	 16.1      	 Indemnification - Each Party shall agree
        to hold harmless and to indemnify the other Party, its officers, agents,
        affiliates, subsidiaries, parent company and employees against all loss,
        damage, expense and liability to third persons for injury to or death
        of person or injury to property, proximately caused by the indemnifying
        Party’s construction, ownership, operation or 

 - 21 - 

 

	 	 maintenance of, or by failure of, any
        of such Party’s works or facilities used in connection with this
        Agreement. The indemnifying Party shall, on the other Party’s request,
        defend any suit asserting a claim covered by this indemnity. The indemnifying
        Party shall pay all costs, including reasonable attorney fees that may
        be incurred by the other Party in enforcing this indemnity. 

	 
	 16.2      	 Insurance - During the term of
        this Agreement, Seller shall secure and continuously carry the following
        insurance coverage: 

	 
	 	 16.2.1
	 Comprehensive General Liability Insurance
        for both bodily injury and property damage with limits equal to $1,000,000,
        each occurrence, combined single limit. The deductible for such insurance
        shall be consistent with current Insurance Industry Utility practices
        for similar property. 

	 
	 	 16.2.2 
	 The above insurance coverage shall be
        placed with an insurance company with an A.M. Best Company rating of A-
        or better and shall include: 

	 
	 	 	 (a)      
	 An endorsement naming Idaho Power as an additional
        insured and loss payee as applicable; and 

	 
	 	 	 (b)     
      
	 A provision stating that such policy shall not be
        canceled or the limits of liability reduced without sixty (60) days’
        prior written notice to Idaho Power. 

	 
	 16.3      	 Seller to Provide Certificate of Insurance
        - As required in paragraph 4.1.5 herein and annually thereafter, Seller
        shall furnish Idaho Power a certificate of insurance, together with the
        endorsements required therein, evidencing the coverage as set forth above.
      

	 
	 16.4      	 Seller to Notify Idaho Power of Loss
        of Coverage - If the insurance coverage required by paragraph 16.2
        shall lapse for any reason, Seller will immediately notify Idaho Power
        in writing. The notice will advise Idaho Power of the specific reason
        for the lapse and the steps Seller is taking to reinstate the coverage.
        Failure to provide this notice and to expeditiously reinstate or replace
        the coverage will constitute a Material Breach of this Agreement. 

 ARTICLE XVII. FORCE MAJEURE 

	 17.1      	 As used in this Agreement, “Force Majeure”
        or “an event of Force Majeure” means any cause 

 - 22 - 

 

	 	 beyond the control of the Seller,
        Transmitting Entity or of Idaho Power which, despite the exercise of due
        diligence, such Party is unable to prevent or overcome. Force Majeure
        includes, but is not limited to, acts of God, fire, flood, storms, wars,
        hostilities, civil strife, strikes and other labor disturbances, earthquakes,
        fires, lightning, epidemics, sabotage, or changes in law or regulation
        occurring after the Operation Date, which, by the exercise of reasonable
        foresight such party could not reasonably have been expected to avoid
        and by the exercise of due diligence, it shall be unable to overcome.
        If either Party is rendered wholly or in part unable to perform its obligations
        under this Agreement because of an event of Force Majeure, both Parties
        shall be excused from whatever performance is affected by the event of
        Force Majeure, provided that: 

	 	 (1) 	 The non-performing Party
        shall, as soon as is reasonably possible after the occurrence of the Force
        Majeure, give the other Party written notice describing the particulars
        of the occurrence.

	 	 	 
	 	 (2) 	 The suspension of performance
        shall be of no greater scope and of no longer duration than is required
        by the event of Force Majeure.

	 	 	 
	 	 (3) 	 No obligations of either
        Party which arose before the occurrence causing the suspension of performance
        and which could and should have been fully performed before such occurrence
        shall be excused as a result of such occurrence.

 ARTICLE XVIII: LIABILITY; DEDICATION 

	 18.1      	 Nothing in this Agreement shall be construed to
        create any duty to, any standard of care with reference to, or any liability
        to any person not a Party to this Agreement. No undertaking by one Party
        to the other under any provision of this Agreement shall constitute the
        dedication of that Party’s system or any portion thereof to the
        other Party or to the public or affect the status of Idaho Power as an
        independent public utility corporation or Seller as an independent individual
        or entity. 

 - 23 - 

 ARTICLE XIX: SEVERAL OBLIGATIONS 

	 19.1  	 Except where specifically stated in this Agreement
        to be otherwise, the duties, obligations and liabilities of the Parties
        are intended to be several and not joint or collective. Nothing contained
        in this Agreement shall ever be construed to create an association, trust,
        partnership or joint venture or impose a trust or partnership duty, obligation
        or liability on or with regard to either Party. Each Party shall be individually
        and severally liable for its own obligations under this Agreement. 

 ARTICLE XX: WAIVER 

	 20.1  	 Any waiver at any time by either Party of its rights
        with respect to a default under this Agreement or with respect to any
        other matters arising in connection with this Agreement shall not be deemed
        a waiver with respect to any subsequent default or other matter. 

 ARTICLE XXI: CHOICE OF LAWS AND VENUE 

	 21.1      	 This Agreement shall be construed and interpreted
        in accordance with the laws of the State of Idaho without reference to
        its choice of law provisions. 

	 	 
	 21.2      	 Venue for any litigation arising out of or related
        to this Agreement will lie in the District Court of the Fourth Judicial
        District of Idaho in and for the County of Ada. 

 ARTICLE XXII: DISPUTES AND DEFAULT 

	 22.1      	 Disputes - All disputes related
        to or arising under this Agreement, including, but not limited to, the
        interpretation of the terms and conditions of this Agreement, will be
        submitted to the Commission for resolution. 

	 
	 22.2      	 Notice of Default - 

	 
	 	 22.2.1
	 Defaults. If either Party fails to perform
        any of the terms or conditions of this Agreement (an “event of default”),
        the nondefaulting Party shall cause notice in writing to be given to the
        defaulting Party, specifying the manner in which such 

 - 24 -

 

	 	  	default occurred. If the defaulting Party shall fail
        to cure such default within the sixty (60) days after service of such
        notice, or if the defaulting Party reasonably demonstrates to the other
        Party that the default can be cured within a commercially reasonable time
        but not within such sixty (60) day period and then fails to diligently
        pursue such cure, then, the nondefaulting Party may, at its option, terminate
        this Agreement and/or pursue its legal or equitable remedies. 

	 
	 	 22.2.2
	 Material Breaches – The notice and
        cure provisions in paragraph 22.2.1 do not apply to defaults identified
        in this Agreement as Material Breaches. Material Breaches must be cured
        as expeditiously as possible following occurrence of the breach. 

	 
	 22.3      	 Security for Performance - Prior
        to the Operation Date and thereafter for the full term of this Agreement,
        Seller will provide Idaho Power with the following: 

	 
	 	 22.3.1
	 Insurance - Evidence of compliance with the
        provisions of paragraph 16.2. If Seller fails to comply, such failure
        will be a Material Breach and may only be cured by Seller supplying
        evidence that the required insurance coverage has been replaced or reinstated;
      

	 
	 	 22.3.2  
	 Engineer’s Certifications - Every three
        (3) years after the Operation Date, Seller will supply Idaho Power with
        a Certification of Ongoing Operations and Maintenance (O & M) from
        a Registered Professional Engineer licensed in the State of Idaho, which
        Certification of Ongoing O & M shall be in the form specified in Appendix
        C. Seller’s failure to supply the required certificate will be an
        event of default. Such a default may only be cured by Seller providing
        the required certificate; and 

	 
	 	 22.3.3
	 Licenses and Permits - During the full term
        of this Agreement, Seller shall maintain compliance with all permits and
        licenses described in paragraph 4.1.1 of this Agreement. In addition,
        Seller will supply Idaho Power with copies of any new or additional permits
        or licenses. At least every fifth Contract Year, Seller will update the
        documentation described in Paragraph 4.1.1. If at any time Seller fails
        to maintain compliance with the permits and licenses described in paragraph
        4.1.1 or to provide 

 - 25 -

 

	 	 	the documentation required by this paragraph, such
        failure will be an event of default and may only be cured by Seller
        submitting to Idaho Power evidence of compliance from the permitting
        agency. 

ARTICLE XXIII: GOVERNMENTAL AUTHORIZATION 

	 23.1      	 This Agreement is subject to the jurisdiction of
        those governmental agencies having control over either Party of this Agreement.
      

 ARTICLE XXIV: COMMISSION ORDER 

	 24.1	 This Agreement shall become finally effective upon
        the Commission’s approval of all terms and provisions hereof without
        change or condition and declaration that all payments to be made to Seller
        hereunder shall be allowed as prudently incurred expenses for ratemaking
        purposes. 

 ARTICLE XXV: SUCCESSORS AND ASSIGNS 

	 25.1	 This Agreement and all of the terms and provisions
        hereof shall be binding upon and inure to the benefit of the respective
        successors and assigns of the Parties hereto, except that no assignment
        hereof by either Party shall become effective without the written consent
        of both Parties being first obtained. Such consent shall not be unreasonably
        withheld. Notwithstanding the foregoing, any party which Idaho Power may
        consolidate, or into which it may merge, or to which it may convey or
        transfer substantially all of its electric utility assets, shall automatically,
        without further act, and without need of consent or approval by the Seller,
        succeed to all of Idaho Power’s rights, obligations and interests
        under this Agreement. This article shall not prevent a financing entity
        with recorded or secured rights from exercising all rights and remedies
        available to it under law or contract. Idaho Power shall have the right
        to be notified by the financing entity that it is exercising such rights
        or remedies. 

 - 26 - 

 ARTICLE XXVI: MODIFICATION 

	 26.1      	 No modification to this Agreement shall be valid
        unless it is in writing and signed by both Parties and subsequently approved
        by the Commission. 

 ARTICLE XXVII: TAXES 

	 27.1      	 Each Party shall pay before delinquency all taxes
        and other governmental charges which, if failed to be paid when due, could
        result in a lien upon the Facility or the Interconnection Facilities.
      

 ARTICLE XXVIII: NOTICES 

	 28.1      	 All written notices under this agreement shall be
        directed as follows and shall be considered delivered when deposited in
        the U. S. Mail, first-class postage prepaid, as follows: 

	 To Seller:  	 US Geothermal Inc.  
	  	 Attn: Daniel Kunz  
	  	 1509 Tyrell Lane, Suite B  
	  	 Boise, Idaho 83706  
	  	 
	  	 
	 To Idaho Power:  	 Vice President, Power Supply  
	  	 Idaho Power Company  
	  	 P O Box 70  
	  	 Boise, Idaho 83707  

 ARTICLE XXIX: ADDITIONAL TERMS AND CONDITIONS 

	 29.1      	 This Agreement includes the following appendices,
        which are attached hereto and included by reference: 

	 	 	 	Appendix A          -                     Generation
      Scheduling and Reporting 
	 	 	 	Appendix B          -                     Facility
      and Point of Delivery 
	 	 	 	Appendix C          -                     Engineer’s
      Certifications 

 ARTICLE XXX: SEVERABILITY 

	 30.1      	 The invalidity or unenforceability of any term or
        provision of this Agreement shall not affect the validity or enforceability
        of any other terms or provisions and this Agreement shall be construed
      

 - 27 - 

 

	 	in all other respects as if the invalid or unenforceable term or provision
      were omitted. 

 ARTICLE XXXI: COUNTERPARTS 

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

 ARTICLE XXXII: ENTIRE AGREEMENT 

	 32.1      	 This Agreement constitutes the entire Agreement
        of the Parties concerning the subject matter hereof and supersedes all
        prior or contemporaneous oral or written agreements between the Parties
        concerning the subject matter hereof. 

                IN
  WITNESS WHEREOF, The Parties hereto have caused this Agreement to be executed
  in their respective names on the dates set forth below:

  

 - 28 - 

 APPENDIX A 

	A –1 	MONTHLY POWER PRODUCTION AND SWITCHING REPORT 
	 	 
	 	At the end of each month the following required documentation will be
      submitted to: 
	 	 
	 	                                     Idaho
        Power Company 

                                            
        Attn: Cogeneration and Small Power Production 

                                            
        P 0 Box 70 

                                            
        Boise, Idaho 83707 

               The
  Meter readings required on this report will be the readings on the Meter
  Equipment measuring the Facility’s generation and Station Use and the
  Idaho Power Meter Equipment measuring Net Energy and Inadvertent Energy delivered
  to the Idaho Power electrical system and/or any other required energy measurements
  to adequately administer this Agreement. If the Idaho Power Metering is not
  located at the point which is able to measure the exact energy deliveries to
  the Idaho Power electrical system, then the metered energy amounts will be adjusted
  to account for electrical Losses occurring between the metering point and the
  point which the energy is delivered to the Idaho Power electrical system. 

 - 29 - 

 Idaho Power Company 

 Cogeneration and Small Power Production

 MONTHLY POWER PRODUCTION AND SWITCHING REPORT 

 Month ___________________       Year
  ___________________

	Project Name	 	    	 	Project Number:	      
	 	 	 	 	 	 
	Address	 	 	 	Phone Number:	 
	 	 	 	 	 	 
	City	 	State	 	Zip	 

	  	 	 Facility  	 	 Local  	 	 Auxiliary  	  	  
	  	 	 Output  	 	 Service  	 	 Service  	  	  
	 Meter Number	:	 
    	 	 
    	 	 
    	  	  
	 End of Month kWh Meter Reading	:	 
    	 	 
    	 	 
    	  	  
	 Beginning of Month kWh Meter	:	 
    	 	 
    	 	 
    	  	  
	 Difference	:	 
    	 	 
    	 	 
    	  	  
	 Times Meter Constant	:	 
    	 	 
    	 	 
    	  	
      Net Generation  
	 kWh for the Month	:	 
    	–	 
    	–	 
    	 =
	 Metered Demand	:	 
    	 	 
    	 	 
    	  

	 Breaker Opening Record  	   	 Breaker Closing Record  

	 Date 
    	 Time 
    	 Meter 
    	 	 *  	 Reason 
    	 	 Date 
    	 Time 
    	 Meter 
    
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 

	 *	 Breaker Opening Reason Codes  	               I
        hereby certify that the above meter readings are true and correct as of
        Midnight on the last day of the above month and that the switching record
        is accurate and complete as required by the Firm Energy Sales Agreement
        to which I am a Party. 

	 1	 Lack of Adequate Prime Mover  
	 2	 Forced Outage of Facility  
	 3	 Disturbance of IPCo System  
	 4	 Scheduled Maintenance  
	 5	 Testing of Protection Systems  
	 6	 Cause Unknown  
	 7	 Other (Explain)  

	 	
      Signature  	 	
      Date  

 - 30 - 

 

	A-2 	ROUTINE REPORTING 
	 	 	 	 	 	 
	 	 	Idaho Power Contact Information
	 	 	 	 
	 	 	 	Daily Energy Production Reporting 
	 	 	 	 
	 	 	 	 	Call daily by 10 a.m., 1-800-356-4328
      or 1-800-635-1093 and leave the following information: 
	 	 	 	 	 
	 	 	 	 	 	•      Project Identification
      - Project Name and Project Number
	 	 	 	 	 	•      Current Meter
      Reading
	 	 	 	 	 	•      Estimated Generation
      for the current day
	 	 	 	 	 	•      Estimated Generation
      for the next day
	 	 	 	 	 	 
	 	 	 	Planned and Unplanned Project outages
	 	 	 	 	 	 
	 	 	 	 	Call 1-800-345-1319 and leave the following
      information: 
	 	 	 	 	 	 
	 	 	 	 	 	•      Project Identification
      - Project Name and Project Number
	 	 	 	 	 	•      Approximate time
      outage occurred
	 	 	 	 	 	•      Estimated day
      and time of project coming back online
	 	 	 	 	 	 
	 	 	Seller’s Contact Information 
	 	 	 	 	 	 
	 	 	 	24-Hour Project Operational Contact 

	 	 	 	 	 Name:  	   	   
	 	 	 	 	 Telephone Number:  	 	 
	 	 	 	 	 Cell Phone:  	 	 
	 	 	 	 	 	 	 
	 	 	 	Project On-site Contact information 
	 	 	 	 	 	 	 
	 	 	 	 	Telephone Number: 	 	 

 - 31 - 

 APPENDIX B 

      FACILITY AND POINT OF DELIVERY

 PROJECT NO. 31765155 

RAFT RIVER GEOTHERMAL POWER PLANT 

	 B-1  	 DESCRIPTION OF FACILITY  
	 	 	 	 
	  	 The Raft River
        Geothermal Power Plant, Unit #1 (RRGPP-1) is currently under design, Appendix
        B shall be amended to include the final details of RRGPP-1 upon completion
        of the design. Failure to provide details acceptable to Idaho Power by
        December 31, 2005 or 6 months prior to the Operation Date (which ever
        occurs first) will be a Material Breach of this Agreement. In general,
        RRGPP-1 is planned to be an air-cooled, 15 MW Facility using geothermal
        fluid in a closed-loop Rankine cycle. The Facility will consist of at
        least four geothermal production wells providing geothermal energy to
        a single generator with a 15.8 MW generator rating.

	 	 	 	 
	  	 	 Geothermal Production Well Contribution
      Ratings as of the date of this Agreement:  
	 	 	 	 
	  	 	 	 The sum of these ratings must equal the generator
      rating specified above.  

	 Production Well RRG#1	 4.55 MW 
	 Production Well RRG#2	 4.23 MW 
	 Production Well RRG#3	 3.95 MW 
	 Production Well RRG#5	 3.07 MW 

	 B-2  	 LOCATION OF FACILITY  
	 	 
	  	 The Facility is located at: Section 23, Township
      15 South, Range 26 East, Cassia County, Idaho.  
	 	 
	 B-3  	 SCHEDULED OPERATION DATE  
	 	 
	  	 Seller has selected June 15, 2006, as the Scheduled
      Operation Date.  
	 	 
	 B-4  	 MAXIMUM CAPACITY AMOUNT: This value (MW) will
      be provided by the Seller to Idaho  
	 	 
	  	 Power in the request for
        an Idaho Power Electrical System Study as specified in paragraph 4.1.8
        of this Agreement. This value will be the maximum energy (MW), as determined
        by a qualified  

 - 32 - 

 

	  	 engineer that potentially
        could be delivered by the Seller’s Facility to the Transmitting
        Entity’s  electrical system at any moment in time.

	 	 
	 B-5  	 POINT OF DELIVERY

	 	 
	  	 “Point of Delivery”
        means, unless otherwise agreed by both Parties, the point of interconnection 
        between Idaho Power and the Transmitting Entity at the Minidoka dam substation.
        The  Transmitting Entity will be the Bonneville Power Administration
        – Transmission Business Line.

	 	 
	 B-6  	 LOSSES 

	 	 
	  	 If Idaho Power is provided
        acceptable and accurate energy (kWh) delivery data by the  Transmitting
        Entity for actual energy delivered at the Point of Delivery on the Idaho
        Power  electrical system for this Facility, no energy loss calculation
        will be required. If the  Transmitting Entity does not provide acceptable
        and accurate energy delivery data to Idaho  Power then a Loss calculation
        will be required. The Loss calculation will consist of the most  accurate
        measurement of the energy losses (kWh), agreed to by both parties, associated
        with  transformation and transmission of the Facility’s generated
        energy between the Transmitting  Entity’s or Idaho Power’s
        metering point and the Point of Delivery on the Idaho Power electrical
         system. This loss calculation will be initially set at 2% of the
        kWh energy production recorded  on the Transmitting Entity’s
        or Idaho Power’s Metering equipment. At such time as the Seller
         provides Idaho Power with electrical equipment specifications (transformer
        loss specifications,  conductor sizes, etc) of all of the electrical
        equipment between the Transmitting Entity’s or  Idaho Power’s
        Metering equipment and the Point of Delivery on the Idaho Power electrical
         system or other acceptable calculations of this energy loss, Idaho
        Power will configure a revised  loss calculation formula to be agreed
        by both parties and used to calculate the kWh Losses for  the remaining
        term of the Agreement. If, at anytime during the term of this Agreement,
        the  Parties agree that the loss calculation does not correctly reflect
        the actual kWh losses attributed  to the electrical equipment between
        the Idaho Power Metering Equipment and the Idaho Power  electrical
        system, Idaho Power shall adjust the calculation and retroactively adjust
        the previous  months kWh loss calculations.

 - 33 - 

 

	 B-7  	 METERING AND TELEMETRY

	 	 
	  	 If Idaho Power is required
        to install metering and telemetry equipment as specified in Article 11
         of this Agreement, the Idaho Power Metering Equipment, provided
        by Idaho Power at the  Sellers expense will be located at a point
        that will enable the Metering Equipment to measure the  Facility’s
        total energy deliveries to the Transmitting Entity. Telemetry equipment
        will be  installed by Idaho Power at the Seller’s expense that
        will be able to provide continuous  telemetering of the Facility’s
        energy deliveries to the Transmitting Entity. The Seller will  arrange
        for and make available at Seller’s cost, a communications circuit
        acceptable to Idaho  Power, dedicated to Idaho Power’s use
        to be used for load profiling and another communications  circuit
        dedicated to Idaho Power’s communication equipment for continuous
        telemetering of the  Facility’s energy deliveries to the Transmitting
        Entity to Idaho Power’s Designated Dispatch  Facility. The
        meters will register kilowatt-hours and kilowatts of demand. Idaho Power
         provided meter and communication equipment will be owned and maintained
        by Idaho Power  with total cost of purchase, installation, operation
        and maintenance including engineering and  administrative cost to
        be reimbursed to Idaho Power by the Seller. Seller metering equipment
         will be located at all necessary points within the Seller’s
        Facility to accurately measure each  generators energy production,
        Station Usage, and any other energy diversions that occur prior to  the
        Idaho Power Metering Equipment.

	  	 
	 B-8  	 REACTIVE POWER

	 	 
	  	 Idaho Power will provide
        no reactive power to the Facility.

	  	 
	 B-9  	 COSTS

	 	 
	  	 The cost of the Metering
        and Telemetry Equipment will be determined based upon the final design
        of the Facility and this total cost will be paid to Idaho Power in accordance
        with Schedule 

 - 34 - 

 

	 	72. In addition to the installation and construction
        charges above, during the term of this Agreement, Seller will pay Idaho
        Power the monthly operation and maintenance charge specified in Schedule
        72 or its successor schedules(s). The monthly operations and maintenance
        charge will begin on the first day of the month following completion of
        the installation of the Idaho Power provided equipment. The monthly operations
        and maintenance charge will be based upon the initial cost paid by the
        Seller in accordance with Schedule 72. Upon reconciliation of the actual
        costs, in accordance with Schedule 72 the monthly operations and maintenance
        charge will be adjusted to reflect the actual cost incurred by Idaho Power
        and the previously charged monthly operation and maintenance expense will
        be revised to reflect the actual cost incurred by Idaho Power. Idaho Power
        will refund or Seller will remit any underpayment of the adjusted
        monthly operations and maintenance charge within sixty (60) days of the
        determination of this amount. In addition, there will be a monthly charge
        for the communication circuit lease cost associated with the telemetry
        equipment. Seller recognizes that the monthly communications circuit charge
        may be adjusted by Idaho Power as the cost to Idaho Power is adjusted
        by the owner of the communication circuit(s).

- 35 - 

 APPENDIX C 

 ENGINEER'S CERTIFICATION 

 OF

 OPERATIONS & MAINTENANCE POLICY 

 The undersigned _____________________________________ , on
  behalf of himself and ____________________________________ , hereinafter collectively
  referred to as "Engineer," hereby states and certifies to the Seller as follows:

1.          That
  Engineer is a Licensed Professional Engineer in good standing in the State of
  Idaho.

 2.          That
  Engineer has reviewed the Energy Sales Agreement, hereinafter "Agreement," between
  Idaho Power as Buyer, and US Geothermal, Inc as Seller, dated _______________________________
  .

 3.          That
  the cogeneration or small power production project which is the subject of the
  Agreement and this Statement is identified as IPCo Facility No. ________________
  and is hereinafter referred to as the "Project."

 4.          That
  the Project, which is commonly known as the ____________________________________________________
  Project, is located in Section ______ , Township ______ , Range ______ , Boise
  Meridian, ____________________ County, Idaho.

 5.          That
  Engineer recognizes that the Agreement provides for the Project to furnish electrical
  energy to Idaho Power for a twenty (20) year period.

 6.          That
  Engineer has substantial experience in the design, construction and operation
  of electric power plants of the same type as this Project.

 7.          That
  Engineer has no economic relationship to the Design Engineer of this Project.

 8.          That
  Engineer has reviewed and/or supervised the review of the Policy for Operation
  and Maintenance ("O&M") for this Project and it is his professional opinion
  that, provided said Project has been designed and built to appropriate standards,
  adherence to said O&M Policy will result in the 

- 36 - 

 Project's producing at or near the design electrical output, efficiency and
  plant factor for a twenty (20) year period.

 9.          That
  Engineer recognizes that Idaho Power, in accordance with paragraph 5.2
  of the Agreement, is relying on Engineer's representations and opinions contained
  in this Statement.

 10.          That
  Engineer certifies that the above statements are complete, true and accurate
  to the best of his knowledge and therefore sets his hand and seal below.

  

By ______________________________

 

 

(P.E. Stamp) 

 

 

Date ______________________________

 - 37 - 

 APPENDIX C 

 ENGINEER’S CERTIFICATION

 OF

 ONGOING OPERATIONS AND MAINTENANCE 

                The
  undersigned ____________________________________ , on behalf of himself and________________________________

  hereinafter collectively referred to as “Engineer,” hereby
  states and certifies to the Seller as follows: 

 1.          That
  Engineer is a Licensed Professional Engineer in good standing in the State of
  Idaho. 

 2.          That
  Engineer has reviewed the Energy Sales Agreement, hereinafter “Agreement,”
  between Idaho Power as Buyer, and US Geothermal, Inc as Seller, dated _________________________________.

 3.          That
  the cogeneration or small power production project which is the subject of the
  Agreement and this Statement is identified as IPCo Facility No. _____________
  and hereinafter referred to as the “Project”. 

 4.          That
  the Project, which is commonly known as the_______________________________________________________________

  Project, is located at ____________________________________________________________________.

 5.          That
  Engineer recognizes that the Agreement provides for the Project to furnish electrical
  energy to Idaho Power for a twenty (20) year period. 

 6.          That
  Engineer has substantial experience in the design, construction and operation
  of electric power plants of the same type as this Project. 

 7.          That
  Engineer has no economic relationship to the Design Engineer of this Project.

 8.          That
  Engineer has made a physical inspection of said Project, its operations and
  maintenance records since the last previous certified inspection. It is Engineer’s
  professional opinion, based on the Project’s appearance, that its ongoing
  O&M has been substantially in accordance with said O&M Policy; that
  it is in reasonably good operating condition; and that if adherence to said
  O&M Policy continues, the Project will continue producing at or near its
  design electrical output, efficiency and plant factor for the

 - 38 - 

 remaining ______ years of the Agreement. 

 9.          That
  Engineer recognizes that Idaho Power, in accordance with paragraph 5.2 of the
  Agreement, is relying on Engineer’s representations and opinions contained
  in this Statement. 

 10.          That
  Engineer certifies that the above statements are complete, true and accurate
  to the best of his knowledge and therefore sets his hand and seal below. 

  

By ______________________________

 

 

(P.E. Stamp) 

 

 

Date ______________________________

 - 39 - 

 APPENDIX C 

 ENGINEER'S CERTIFICATION

 OF

 DESIGN & CONSTRUCTION ADEQUACY 

                The
  undersigned _____________________________________ , on behalf of himself and
  ______________________________, hereinafter collectively referred to as "Engineer",
  hereby states and certifies to Idaho Power as follows:

 1.          That
  Engineer is a Licensed Professional Engineer in good standing in the State of
  Idaho.

 2.          That
  Engineer has reviewed the Firm Energy Sales Agreement, hereinafter "Agreement",
  between Idaho Power as Buyer, and US Geothermal, Inc as Seller, dated _______________________________
  .

 3.          That
  the cogeneration or small power production project which is the subject of the
  Agreement and this Statement is identified as IPCo Facility No ________________
  and is hereinafter referred to as the "Project".

 4.          That
  the Project, which is commonly known as the ____________________________________________________
  Project, is located in Section ______ , Township ______ , Range ______ , Boise
  Meridian, ____________________ County, Idaho.

 5.          That
  Engineer recognizes that the Agreement provides for the Project to furnish electrical
  energy to Idaho Power for a ___________ (_______ ) year period.

 6.          That
  Engineer has substantial experience in the design, construction and operation
  of electric power plants of the same type as this Project.

 7.          That
  Engineer has no economic relationship to the Design Engineer of this Project
  and has made the analysis of the plans and specifications independently.

 8.          That
  Engineer has reviewed the engineering design and construction of the Project,
  including the civil work, electrical work, generating equipment, prime mover
  conveyance system, Seller furnished Interconnection Facilities and other Project
  facilities and equipment.

 - 40 - 

 9.          That
  the Project has been constructed in accordance with said plans and specifications,
  all applicable codes and consistent with Prudent Electrical Practices as that
  term is described in the Agreement.

 10..          That
  the design and construction of the Project is such that with reasonable and
  prudent operation and maintenance practices by Seller, the Project is capable
  of performing in accordance with the terms of the Agreement and with Prudent
  Electrical Practices for a (___) year period. 

11.         That Engineer
  recognizes that Idaho Power, in accordance with paragraph 5.2 of the
  Agreement, in interconnecting the Project with its system, is relying on Engineer's
  representations and opinions contained in this Statement.

 12.          That
  Engineer certifies that the above statements are complete, true and accurate
  to the best of his knowledge and therefore sets his hand and seal below.

  

By ______________________________

 

 

(P.E. Stamp) 

 

 

Date ______________________________

 - 41 - 

 Idaho Power routing and review – 

	  	 E-mailed to:  	 Comments  

      receiving back  	 Comments  

      incorporated  	 Approved 
	 

      Developer  	 Supplied to  

      Connelly Ward on  

      12/9/2004  	  	  	 Dan Kunz confirmed in e- mail on 12/28/04 that
      agreement was acceptable 
	 

      Bart Kline  	 

      12/6/2004  	 

      12/7/2004  	 

      12/7/2004  	 Bart provided final comments on 12/7/2004 Approved
      
 

      Discussed agreement with Bart on 12/23 he advised the agreement was acceptable
      with the changes that were still under discussion. 
	 

      Karl Bokenkamp  	 

      12/6/2004  	 

      12/9/2004  	 

      12/9/2004  	 Met and with through questions on 12/9–
      approved 
 

      Discussed changes with Karl on 12/27 he advised they are acceptable. 

      Routed a complete copy to Karl on 12/27 for a final review if he desired
    
	Monica Moen  	    	    	    	    
	 Lisa Grow /  

      Marsha Leese  	 12/6/2004  	    12/7/2004  	 12/7/2004  	 Approved as 

      written 
	 Vern Porter  	 Disclosure consent  

      required –sent to  

      US Geothermal on  

      12/28/2004  	  	  	 

 - 42 -EXHIBIT 10.1

 

DEVELOPMENT, DISTRIBUTION, AND MANUFACTURING AGREEMENT

 

This DEVELOPMENT, DISTRIBUTION, AND MANUFACTURING AGREEMENT (the “Agreement”) is entered into as of March 23, 2005
(the “Effective Date”), by and
between RAPISCAN SYSTEMS, INC., a
California corporation having a principal place of business at 12525 Chadron
Avenue, Hawthorne, California 90250 (“Rapiscan”),
and IMPLANT SCIENCES CORPORATION,
a Massachusetts corporation having a principal place of business at 107 Audubon
Road #5, Wakefield, Massachusetts 01880 (“IMX”).
 Rapiscan and IMX shall be referred to
herein individually as a “Party” and collectively as the “Parties.”

 

RECITALS

 

WHEREAS,
IMX is engaged in the business of developing, manufacturing, marketing, selling
and servicing explosive and toxic substance trace detection devices for the
Security Market (as defined herein);

 

WHEREAS,
Rapiscan is engaged in the business of developing, manufacturing, marketing,
selling and servicing products for the Security Market;

 

WHEREAS, IMX desires
to grant Rapiscan an exclusive license to sublicense, market, sell and service
the Quantum SnifferTM Products, as further defined herein, under a
private label and upon the terms and subject to the conditions set forth
herein;

 

WHEREAS,
Rapiscan desires to provide IMX funding to develop systems and subsystems for
an integrated baggage screening device and [*] for the Security Market; and

 

WHEREAS,
Rapiscan and IMX desire to manufacture and sell the integrated baggage
screening device and [*] resulting from the development of these devices.

 

NOW, THEREFORE, in consideration of the promises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by each of the Parties
hereto, the Parties agree as follows:

 

1.                                      DEFINITIONS.

 

Capitalized terms used in this Agreement and not otherwise defined
herein shall have the respective meanings set forth below.

 

“Affiliate” means
with respect to any Party, any person or entity that, directly or indirectly,
is controlled by, controls or is under common control with such Party.

 

“Agreement” means this Development, Distribution and
Manufacturing Agreement, together with all exhibits, schedules and appendices
hereto (which are hereby incorporated by reference herein), as the same may be
amended or supplemented from time to time in accordance herewith.

 

“Patent Rights” means all
patents, patent applications and rights to file patent applications that relate
to any QSTM Product or its manufacture, sale, use, design, import
and export and are licensed to, owned or controlled by IMX now or in the
future, including those listed on Exhibit “A”

 

[*]  Information omitted due to confidential
treatment.

 

1

 

attached
hereto, and including, in each case, any improvements, reissues or extensions
thereof and any foreign counterparts, divisions, continuations or
continuation-in-part of any applications or substitutes therefore including any
applications which may claim priority from patents included in the Patent
Rights, whether listed in Exhibit “A” or otherwise.

 

“Product Approvals” means, for any country or other jurisdiction
in the Territory, those regulatory approvals required for importation, exportation,
promotion, pricing, marketing and sale of the QSTM Products in such
country or other jurisdiction for use in the Territory.

 

“Product Specifications” means
the detailed specifications developed for the QSTM Products..

 

“Proprietary Module” means the IMX Ion Source/Drift Tube
Assembly.

 

“Proprietary Rights” means all proprietary rights and interests
of every nature owned or licensed by IMX, as they relate to the QSTM Products
or any other products which are subject to the terms and conditions herein, whether
now existing or hereafter arising, including
Patent Rights, in, to, related to or covering or incorporated into any Product,
including those relating to their manufacture, sale, use or design and shall
include inventions, ideas, improvements (including Improvements), manufacturing
know-how, technology, trade secrets, and trademarks (including Trademarks (as
defined herein)).

 

 “QSTM Private
Label Products” means the QSTM Products, having a design and
functionality identical to that of the QSTM Products (except for
agreed changes), produced by or exclusively for Rapiscan.

 

“QSTM Products” means only the two (2) following IMX
Quantum SnifferTM products, which are in existence
and available for sale on a private-label basis to Rapiscan, immediately prior
to the Effective Date: (i) a hand-held trace detection device, specifically
known as model no. QS-H100; and (ii) a bench-top trace
detection device, specifically known as model no.  QS-BT100.  QSTM Products
includes any improvements to, and derivatives of, (i) and (ii).

 

“QSTM Proprietary Rights” means all proprietary
rights and interests of every nature owned or licensed by IMX, as they relate
to QSTM Products, whether now existing or hereafter arising,
including Patent Rights, in, to, related to or covering or incorporated into
any QSTM Products, including those relating to their manufacture,
sale, use or design and shall include inventions, ideas, improvements,
manufacturing know-how, technology, trade secrets, and trademarks.

 

“QSTM Technology” means the proprietary  Ion Mobility Spectrometry technology
developed by IMX.

 

“Rapiscan X-ray Products” means the belt-driven X-ray inspection
devices manufactured and sold by Rapiscan.

 

“Regulatory Authority” means any national, supra-national,
regional, state or local regulatory agency, department, bureau, commission,
council or other governmental entity in the Territory.

 

“Security Market” means any and all markets in the Territory,
other than medical or non-destructive testing, related to the provision of
security products and/or services.

 

2

 

“Standard List Price” means the best price at which IMX has sold
the referenced product, other than distributors, subject to Rapiscan’s audit, measured
at the time of the referenced Rapiscan order, but not taking into account
special promotional pricing given to a third party with Rapiscan’s agreement.  If pricing is lowered within 90 days after a
particular sale of products from IMX to Rapiscan, the newly-lowered price shall
be considered the Standard List Price with respect to that sale; if pricing is
lowered more than 90 days after a particular sale of products from IMX to
Rapiscan, that sale will not be subject to a retro-active discount.

 

“Territory” means the entire world.

 

“Trademarks” means the trademarks described on Exhibit “A”
attached hereto, and any additional trademarks owned or controlled by IMX that
may be used from time to time with respect to the QSTM Products
and/or Improvements, or any other products which are subject to the terms and
conditions herein, whether now existing or hereafter arising

 

2.                                      GRANT OF LICENSE.

 

2.01                           With respect of the QSTM Private Label Products,
and subject to the terms and conditions set forth in this Agreement, IMX hereby
grants to Rapiscan a fully-paid and royalty free (except for the provisions of Section 6)
exclusive right and license to purchase, use, sublicense, market, offer to
sell, sell, import and otherwise exploit the QSTM Private Label Products
throughout the Territory during the Term. 
Subject to the terms and conditions of this Agreement, IMX agrees not to
manufacture, license for manufacture, private-label, provide or sell the QSTM
Products or QSTM Private Label Products to any third party that
manufactures, licenses for manufacture, private-labels, provides or sells X-ray
products to the Security Market, other than Rapiscan as provided for herein,
within the Territory during the Term. 
Notwithstanding the aforementioned, IMX will not be prevented from
marketing and selling the QSTM Products to end-users through its
direct sales force and/or independent third-party distributors (the “IMX
Distributor”).  However, IMX agrees that
it will not sell QSTM Products to the IMX Distributors if the IMX
Distributor represents an X-ray product competitive to the Rapiscan X-ray
Products and intends to bundle the QSTM Product with such
competitive X-ray products, and IMX will procure that its products using QSTM
Technology will never be sold to any manufacturer or seller of X-ray equipment,
other than Rapiscan, and that IMX will not permit its distributors to have
sub-distributors.  During the Term, IMX
further agrees to take all actions reasonably requested by Rapiscan to prevent
such unauthorized sales activity.  The
Parties acknowledge and agree that with respect to any QSTM Private
Label Products, the rights of the Parties as set forth herein shall survive the
termination or expiration of this Agreement on a non-exclusive basis throughout
the Territory in perpetuity.

 

2.02                           With respect to the Development Products (as defined
in Section 5.01), and subject to the terms and conditions set forth in
this Agreement, IMX hereby grants to Rapiscan a fully-paid and royalty free
(except for the provisions of Section 6) exclusive right and license to
purchase, use, sublicense, market, offer to sell, sell, import and otherwise
exploit the Development Products throughout the Territory during the Term.  Subject to the terms and conditions of this
Agreement, IMX agrees not to manufacture, license for manufacture,
private-label, provide or sell the Development Products to any third party.  During the Term, IMX further agrees to take
all actions reasonably requested by Rapiscan to prevent such unauthorized sales
activity.  The Parties acknowledge and
agree that with respect to any Development Products, the rights of the Parties as
set forth herein shall survive the termination or expiration of this Agreement
on a non-exclusive basis throughout the Territory in perpetuity.

 

3

 

2.03                           If at any time IMX shall cease to sell the QSTM
Products for security and inspection applications, Rapiscan shall then have the
right to manufacture the QSTM Products under the terms set forth
under Section 3.04 of this Agreement, and Rapiscan shall have the
exclusive right in the Territory to market, sell, and offer to sell the QSTM
Products for security and inspection applications.  In the event Rapiscan exercises its right to
manufacture pursuant to this Section 2.03, Rapiscan shall pay IMX a
royalty as set forth in Section 6.01.

 

3.             QSTM PRIVATE LABEL PRODUCTS MANUFACTURE AND SUPPLY; RIGHTS TO PURCHASE.

 

3.01                           Product Orders.  All orders to purchase the QSTM
Private Label Products from IMX shall be on Rapiscan’s standard form of purchase
order and IMX shall deliver the QSTM Private Label Products in
accordance therewith.  The provisions of
this Agreement shall prevail over any inconsistent statements or provisions,
rights and obligations contained in any document related to this Agreement
passing between the Parties, including but not limited to, any purchase order,
acknowledgment, confirmation and/or notice. 
IMX acknowledges and agrees that Rapiscan shall have the right to
purchase the QSTM Private Label Products, upon the terms and conditions
set forth in this Agreement.  The
Proprietary Module of the QSTM Products and QSTM Private
Label Products will be sold by IMX to Rapiscan at no more than [*]per complete
unit.

 

3.02                           Product Specifications; Packaging and Labeling.  All QSTM
Private Label Products manufactured and delivered by IMX hereunder shall be in
full compliance with Product Specifications and shall be ready for end-user
sale, including all packaging, labeling, and instructions for use as approved
by Rapiscan.  All QSTM Private
Label Products shall include the
Rapiscan brand names.  The design, size
and location of each of such brand name shall be determined by Rapiscan in its
sole discretion, and be
labeled (including without limitation bar coding/UPN numbers) in accordance with
the procedures specified from time to time by Rapiscan and Rapiscan shall have
the right to review and comment on all packaging and labeling for the QSTM
Private Label Products sold to Rapiscan on a private label basis.  Rapiscan may, in its sole option, include any
QSTM Private Label Products as a component in any kit or collection
of other products sold by Rapiscan into the Security Market.

 

3.03                           Obligation to Supply.  Subject to
the terms and conditions set forth in this Agreement, during the Term, IMX
shall manufacture, sell and deliver to Rapiscan, and Rapiscan will purchase
from IMX, the QSTM Private Label Products, or Developed Products, or
components thereof (collectively, “IMX Manufactured Products”), in such
quantities as Rapiscan may request from time to time pursuant to the
requirements set forth in Section 3.04. 
Rapiscan shall be responsible for providing reasonable forecasts
pursuant to the requirements set forth in Section 3.04.  If Rapiscan complies with Section 3.04,
then IMX shall be obligated to maintain an adequate inventory of the IMX
Manufactured Products in order to satisfy Rapiscan’s orders throughout the
Territory and during the Term.  IMX shall
deliver all of the IMX Manufactured Products ordered by Rapiscan on the date
specified for delivery in the purchase order or, if no such date is specified,
within sixty (60) days of the date of the purchase order for the QSTM
Private Label Products.  In the event
that Rapiscan places orders exceeding its forecast, IMX shall use its best efforts
to deliver such order at the earliest possible date, but shall not be required
to deliver such order in less than 60 days. 
In the event Rapiscan places an order exceeding 100 units, Rapiscan
shall have the right to require a second manufacturing source for such
units.  At no time shall Rapiscan be
required to provide IMX with any funding in advance with respect to its orders.

 

4

 

3.04                           Manufacturing Rights.  Rapiscan
shall have the right, but not the obligation, to manufacture (including
assembly) all or some (at Rapiscan’s election) components of the QSTM
Private Label Products, other than the Proprietary Module, and any other
electronic components that IMX currently purchases or manufactures (each a “Component”
and collectively the “Components”) if Rapiscan can do so at a price equal to or
less than the higher of: (a) the price IMX charges to Rapiscan for such
Components; or (b) IMX’s cost as indicated by reasonable documentation.  Upon such election by Rapiscan to manufacture
any Component, IMX shall buy from Rapiscan its entire requirement of that
Rapiscan-manufactured Component.  If IMX
outsources any manufacturing of Components, and receives a bona fide written
offer from an unrelated and non-Affiliated third party whereby such third party
offers to manufacture the Component(s) ordered by IMX from Rapiscan for a price
less than the amount charged by Rapiscan, then Rapiscan shall have the option,
in its sole discretion, to match such third party offer, whereupon IMX shall be
obligated to purchase such Component(s) from Rapiscan at a price equal to the
matched offer.  In the event Rapiscan
elects not to match such third party offer, IMX may elect to have such third party
manufacture the Component(s) on the terms and at the price set forth in such
third party offer.  The Parties
acknowledge and agree that Rapiscan shall have the right to match each and
every offer made by any third party with respect to the manufacture of
Components during the Term.  IMX acknowledges
and agrees that within six (6) months after the Effective Date, IMX shall enter
into good faith discussions with Rapiscan with respect to granting Rapiscan the
exclusive right to manufacture the Proprietary Module such that the Proprietary
Module shall then be a Component hereunder. 
In the event Rapiscan elects to exercise its rights pursuant to this Section 3.04,
then IMX agrees to provide Rapiscan with all specifications, criteria,
standards, custom parts, and tooling
reasonably necessary for Rapiscan to manufacture the Components.  IMX shall also provide such other assistance
and materials that Rapiscan may reasonably request from time to time.  Any and all tooling developed and paid for by
Rapiscan in connection with the manufacturing of Components shall at all times be the exclusive property of Rapiscan.  Upon request, IMX shall supply Rapiscan with
a list of Components with respect to which IMX outsources manufacturing,
including specifications for such Components.

 

3.05                           Forecasts.  Rapiscan shall provide IMX with
monthly rolling 180-day forecasts of its requirements for products or
components under this Agreement, of which the requirements for the first 60
days shall be binding, and the requirements for days 61 through 90 may be
changed by no more than 50%.

 

3.06                           Product Pricing for QSTM Private Label Products.  Rapiscan
shall purchase QSTM Private Label Products at a discounted purchase
price as follows: i) the QS-H100 (ie., Handheld QSTM product) will
initially be discounted by [*] from the Standard List Price for the first 25
units in a calendar year, and [*] from the Standard List Price for subsequent
units in that calendar year, and reviewed periodically to determine mutually
agreed upon adjustments to the discount resulting from efficiencies in the
manufacturing cost of the product, and ii) the QS-BT100 (ie., Benchtop QSTM
product) will be discounted by [*] from the Standard List Price for the first
25 units in a calendar year, and [*] for subsequent units in that year.  The parties agree that single orders in large
quantities will be subject to a negotiated further discount.  Rapiscan may sell any QSTM Private
Label Products at any price it desires, however, in no event shall IMX be
obligated to sell any of such QSTM Private Label Products at a price
lower than the Standard List Price less applicable discount as set forth in
this Section 3.05.  Notwithstanding
the discounts provided for the QSTM Private Label Products set forth
herein, both Rapiscan and IMX shall periodically review the discounts, and make
adjustments as are necessary. 
Notwithstanding the foregoing, if a [*] discount from the lowest price
that IMX charges or has charged any distributor, at the time of a Rapiscan
order or for 120 days thereafter, for the product that Rapiscan ordered, would
result in a lower price

 

5

 

than the
preceding formulas, IMX shall provide Rapiscan with the lower price calculated
in accordance with this sentence.

 

3.07                           QSTM Private Label Products Installation,
Training and Warranty.  Rapiscan shall perform all installation,
training and shall fulfill the one year warranty service obligations in
accordance with Section 7.  IMX
shall fulfill its spare and warranty obligations set forth in Section 9.

 

3.08                           Payment.  Except as set forth below, IMX shall invoice
Rapiscan for QSTM Private Label Products delivered to Rapiscan in
accordance with this Agreement and the purchase orders therefore at the
purchase price set forth above.  For a
period of one (1) year commencing on the Effective Date, Rapiscan shall pay for
the QSTM Private Label Products, as applicable, within thirty (30)
days of the IMX invoice date for such products, and thereafter, until the
expiration or termination of this Agreement, Rapiscan shall pay for the QSTM
Private Label Products, as applicable, within sixty (60) days of the IMX
invoice date for such products, in each case, provided there is no dispute
regarding the validity of the invoice.

 

3.09                           Demos.  Upon Rapiscan’s request, IMX shall promptly
provide and deliver to Rapiscan five demonstration units of the QSTM
Private Label Products per fiscal year.  The
purchase price for such demonstration units shall be at a [*] discount from the
QSTM Products Standard List Price. 
Rapiscan shall certify that such demonstration units shall not be
resold; in the event that a demonstration unit purchased by Rapiscan is resold,
Rapiscan shall pay IMX the difference between the prices stated in this Section 3.09,
and the price Rapiscan otherwise would have paid.

 

3.10                           Shipping; Risk of Loss.  IMX shall
ship QSTM Private Label Products ordered by Rapiscan hereunder in
accordance with the purchase orders therefore via a common carrier selected by
IMX, FOB IMX’s facility.  Title and risk
of loss shall pass to Rapiscan upon shipment of the QSTM Private
Label Products from IMX’s facility.

 

3.11                           Acceptance.  All QSTM Private Label
Products will be subject to Rapiscan’s acceptance at Rapiscan’s designated
destination point at any time after delivery, which acceptance will not be
unreasonably withheld.  Rapiscan shall
notify IMX within 90 days after delivery of any apparent defect in material or
workmanship or non-conformity of any QSTM Private Label Product to
the Product Specifications, Product Approvals or purchase order.  Rapiscan’s remedy in the event of any defect
is to require IMX to promptly repair or replace, at IMX’s election and sole
cost, the defective QSTM Product. 
Without prejudice to any other right or remedy of Rapiscan, in the event
any QSTM Private Label Product is defective in material or workmanship,
or is otherwise not in conformity with the QSTM Product
Specifications, Product Approvals or the requirements of Rapiscan’s purchase
order, Rapiscan will have the right to reject such QSTM Private
Label Product.  Any QSTM
Private Label Product that has been rejected shall be replaced by and at the
sole expense of IMX promptly after receipt of notice from Rapiscan.  Rapiscan will not be required to pay for any
rejected item, or its shipping costs or any other costs related thereto.  Rapiscan will return all rejected QSTM
Private Label Products to IMX at IMX’s sole expense.

 

3.12                           Changes.  IMX shall not make any significant changes to
its manufacturing processes, any QSTM Private Label Product
(including labeling) or to the QSTM Product Specifications, unless
approved by Rapiscan in writing in advance (which approval shall not be
unreasonably withheld), except to the extent required by law.  IMX shall notify Rapiscan not less

 

6

 

than seven
(7) days in advance of implementing any significant change to the QSTM
Products or QSTM Product Specifications to be made.  Notwithstanding the aforementioned, should
Rapiscan request new capability or engineering redesign of the QSTM
Private Label Products to provide design modifications or additional
functionality other than what is commercially available in the QSTM Products,
then the cost of such modifications to design and/or functionality will be
borne by Rapiscan on a time and material basis.

 

4.                                      PRODUCT DEVELOPMENT.

 

4.01                           QSTM Baggage Screening Development and
Funding.  IMX shall use its QSTM Technology
to develop the subsystem necessary for integration with the Rapiscan X-ray
Products resulting in an integrated baggage screening device prototype capable
of detecting trace and bulk explosives (the “QSTM Baggage Screening
Prototype”).  Rapiscan shall provide IMX
up to One Million Dollars ($1,000,000) to develop the QSTM Baggage
Screening Prototype based upon a statement of work to be developed within ninety
(90) days of the Effective Date (the “Baggage Screening Statement of Work”).  On the Effective Date, Rapiscan will make an
initial payment of One Hundred Thousand Dollars ($100,000) in order to develop
the Baggage Screening Statement of Work. 
The Baggage Screening Statement of Work shall set forth the specifications,
nature and timing of the work necessary to develop the QSTM Baggage
Screening Prototype and three (3) key milestone dates to be used for purposes
of evaluating the continued feasibility of development (the “Baggage Screening
Milestone Dates”).  Upon acceptance by
Rapiscan of the Baggage Screening Statement of Work (the “Baggage Screening
Development Effective Date”), Rapiscan shall make a payment of Two Hundred
Twenty Five Thousand Dollars ($225,000) to IMX in order to begin the
development of the QSTM Baggage Screening Prototype.  At each Baggage Screening Milestone Date, and
upon mutual agreement of the parties as to continued development of the QSTM
Baggage Screening Prototype, Rapiscan shall pay IMX an additional Two Hundred
Twenty Five Thousand Dollars ($225,000). 
The Baggage Screening Statement of Work shall provide for IMX to use its
best efforts to deliver two (2) QSTM Baggage Screening Prototypes
within twelve (12) months of the Baggage Screening Development Effective Date.  Upon Rapiscan’s request for additional QSTM
Baggage Screening Prototypes, which are not to be used for purpose of resell to
end-user customers without IMX’s consent, IMX will build each additional
prototype and Rapiscan shall pay IMX the cost of material, labor, and overhead,
plus IMX’s G&A costs as set by the Defense Contract Audit Agency (“DCAA”)
rate.  In the event, and at any time,
that Rapiscan shall determine that continued development of the QSTM
Baggage Screening Prototype is not feasible or will not result in a
commercially viable product, then IMX will retain all rights to continue the
development of the QSTM Baggage Screening Prototype and all
exclusive rights to commercialize, manufacture, market, sell, and resell to
third-parties, provided that IMX shall make any such sale only to end-users,
and not to resellers, and Rapiscan shall have no further funding obligations
with respect thereto.  IMX will be under
no obligation to repay any funds provided by Rapiscan and Rapiscan shall have
no rights to demand repayment of any funds provided through the time that
Rapiscan may decide to decline from any further funding of the QSTM
Baggage Screening Prototype development.

 

4.02                           QSTM [*] Development and Funding.  IMX shall
use its QSTM Technology to develop the subsystem necessary for the
development of [*] prototype capable of detecting trace explosives (the “QSTM
[*] Prototype”).  Rapiscan shall provide
IMX up to Two Million Dollars ($2,000,000) to develop the QSTM [*]
Prototype (the “[*] Funding”) based upon a statement of work to be developed
within ninety (90) days of the Effective Date (the “[*] Statement of Work”),
and subject to limitations resulting from government funding as set forth in Section 4.04.  On the Effective Date, Rapiscan will make an
initial payment of One Hundred Thousand Dollars ($100,000) in order to develop
the [*] Statement of Work.  The [*]
Statement of Work shall set forth the specifications, nature and timing of the
work necessary to develop the QSTM [*] Prototype and three (3) key

 

7

 

milestone
dates to be used for purposes of evaluating the continued feasibility of
development (the “[*] Milestone Dates”).  Upon acceptance by Rapiscan of the [*]
Statement of Work (the “[*] Development Effective Date”), Rapiscan shall make a
payment of Four Hundred Seventy Five Thousand Dollars ($475,000) to IMX in
order to begin the development of the QSTM [*] Prototype.  At each [*] Milestone Date, and upon mutual
agreement of the parties as to continued development of the QSTM [*]
Prototype, Rapiscan shall pay IMX an additional Four Hundred Seventy Five
Thousand Dollars ($475,000).  The [*]
Statement of Work shall provide for IMX to use its best efforts to deliver one
(1) QSTM [*] Prototypes within fourteen (14) months of the [*]
Development Effective Date.  Upon
Rapiscan’s request for additional QSTM [*] Prototypes, which are not
to be used for purpose of resell to end-user customers without IMX’s consent,
IMX will build each additional prototype and Rapiscan shall pay IMX the cost of
material, labor, and overhead, plus IMX’s G&A costs as set by the Defense
Contract Audit Agency (“DCAA”) rate.  In
the event, and at any time, that Rapiscan shall determine that continued
development of the QSTM [*] Prototype is not feasible or will not
result in a commercially viable product, then IMX will retain all rights to
continue the development of the QSTM [*] Prototype and all exclusive
rights to commercialize, manufacture, market, sell, and resell to third-parties,
provided that IMX shall make any such sale only to end-users, and not to
resellers, and Rapiscan shall have no further funding obligations with respect
thereto.  IMX will be under no obligation
to repay any funds provided by Rapiscan and Rapiscan shall have no rights to
demand repayment of any funds provided through the time that Rapiscan may
decide to decline from any further funding of the QSTM Baggage
Screening Prototype development.

 

4.03                           Adjustment to QSTM [*] Prototype Funding.  In the
event that IMX receives a government award for the development of a [*]for the detection of trace explosives, then Rapiscan may
adjust the [*] Funding, for purposes of developing the QSTM [*]
Prototype, as follows:

 

(a)                                  If IMX receives government funding for the
development of [*], Rapiscan’s funding obligation under Section 4.02 shall
be reduced by the amount of such government funding.

 

(b)                                 In the event that Rapiscan’s funding is adjusted under
Section 4.03(a), and on condition that Rapiscan has not determined that
continued development of the QSTM [*] Prototype is not feasible or
will not result in a commercially viable product, then IMX and Rapiscan shall,
in good faith, cooperate to identify additional products to be developed for
the Security Market using the QSTM Technology of types other than
the products described in Sections 4.01 and 4.02 (the “Other QSTM
Development Products”), and funding by Rapiscan in an amount equal to the reduction
in funding under Section 4.03(a) shall be used to fund the Other QSTM
Development Products upon terms and conditions similar to those set forth in
this Agreement.

 

4.04                           Intellectual Property.  Intellectual
property developed by a party in fulfilling its obligations under this
Agreement shall remain the property of that party.  Intellectual property jointly developed under
this agreement shall be jointly owned by the parties.  As used in this section, “intellectual
property” includes rights protectable under patent, copyright, trademark, or
similar rights of any kind.

 

5.                                      DEVELOPED PRODUCTS MANUFACTURE AND
SUPPLY.

 

5.01                           Definition of Developed Products.  As used in this Agreement, the following
terms shall have the indicated meanings:

 

(a)                                  “QSTM Baggage Screening Subsystem” means
the commercial version of the QSTM Baggage Screening Prototype.

 

8

 

(b)                                 “Integrated Baggage Screening Device” means the
developed device capable of detecting trace and bulk explosives through the
combination of the QSTM Baggage Screening Subsystem and Rapiscan
X-ray Products.

 

(c)                                  “[*] Trace Subsystem” means the commercial version
of the QSTM [*] Prototype.

 

(d)                                 “[*]” means the developed device capable of
detecting trace explosives using the QSTM [*] Trace Subsystem,
exclusive of any other value added components integrated by Rapiscan.

 

(e)                                  “Development Products” means, collectively, the QSTM
Baggage Screening Subsystem and the [*].

 

5.02                           Manufacturing Rights.  In the
event that the Integrated Baggage Screening Device and/or the [*] go into
production, then components of the QSTM Baggage Screening Subsystem or
the [*] Trace Subsystem shall be added to the definition of “Components” under Section 3.04,
and Rapiscan shall have the manufacturing rights set forth therein.  In the event that Rapiscan shall elect to
manufacture all components of either the QSTM Baggage Screening
Subsystem or the [*] Trace Subsystem, then Rapiscan shall pay the royalty set
forth in Section 6.  If Rapiscan
does not elect to manufacture any components of the [*] Trace Subsystem (as
defined below), IMX shall sell the [*] Trace Subsystem to Rapiscan for a price
that is currently estimated to be approximately [*], or if such price is
ultimately agreed to be different, a different price will be negotiated in good
faith with the goal of providing IMX with [*] in small quantities.

 

6.                                      ROYALTIES.

 

6.01                           QSTM Private Label Products
Royalties.  In the event that IMX
withdraws from the business of manufacturing and selling the QSTM Products or QSTM Private Label Products, then
Rapiscan may elect to manufacture and sell the QSTM Products and QSTM Products on an exclusive basis.  In consideration of this exclusive right to
manufacture and sell the QSTM
Products and QSTM
Private Label Products, Rapiscan shall pay to IMX a royalty of [*] on the net
selling price of the QSTM
Products and QSTM
Private Label Products for the first twenty-five (25) units sold within each
fiscal year (prorated for partial years); and ii) if Rapiscan sells more than
twenty-five (25) units in that fiscal year (prorated for partial years), then
royalties on all units sold in that fiscal year shall be [*].  For purposes of this section, “net selling
price” means the selling price of the subject products, less (a) any amounts
paid by Rapiscan to IMX for the purchase of components for those products, and
(b) third party commissions.

 

6.02                           Integrated
Baggage Screening Device Royalties. 
Rapiscan shall pay to IMX a royalty on the sale of the Integrated
Baggage Screening Device as follows: i) [*] of the Baggage Screening Value
Added, as defined herein, for the first twenty-five (25) units sold within each
fiscal year (prorated for partial years); and ii) if Rapiscan sells more than
twenty-five (25) units in that fiscal year (prorated for partial years), then
royalties on all units sold in that fiscal year shall be [*] of the Baggage
Screening Value Added.  The Baggage
Screening Value Added is defined as: i) the difference between Rapiscan’s
selling price of the Integrated Baggage Screening Device and Rapiscan’s selling
price of the comparable Rapiscan X-ray Product, less ii) the price paid to IMX
by Rapiscan for any components purchased by Rapiscan from IMX, and less (iii)
third party commissions.

 

6.03                           [*]Royalties. 
Rapiscan shall pay to IMX a royalty on the sale of the [*] as follows:
i) [*] Net Selling Price, as defined herein, for the first twenty-five (25)
units sold within each fiscal year (prorated for partial years) and ii) if
Rapiscan sells more than twenty-five (25) units in that fiscal year, then
royalties on all units sold in that fiscal year shall be [*] Net Selling
Price.  The [*]

 

9

 

Net Selling Price is defined as
[*]the total selling price by Rapiscan of the [*]less:
(a) the purchase price paid by Rapiscan to IMX for the [*]and any other
components purchased by Rapiscan from IMX; and (b) third party
commissions.  The [*] Net Selling Price
excludes any value added components added to the [*] by Rapiscan.

 

6.04                           Time
of Payment of Royalties.  With
respect to each fiscal year in which royalties are due hereunder, Rapiscan
shall pay all royalties due hereunder for that fiscal year on or before the
45th day after the end of the fiscal year, delivered concurrently with a
statement indicating the manner in which the royalties were calculated.

 

6.05                           Fiscal
Year.  As used in this Agreement, “fiscal
year” means a yearly period ending June 30.

 

7.                                      PRODUCT
SERVICES OBLIGATIONS.

 

7.01                           QSTM Private Label Products
Services Obligations.  Commencing as
of the Effective Date and after the training of Rapiscan personnel, Rapiscan
shall service the QSTM
Private Label Products sold by Rapiscan under IMX warranty and in accordance
with Rapiscan’s standard service procedures. 
IMX shall use commercially diligent efforts to train Rapiscan
personnel.  IMX acknowledges and agrees
that all QSTM Private
Label Products shall include an IMX warranty in accordance with the terms and
conditions of this Agreement. 
Notwithstanding the foregoing, IMX acknowledges and agrees that Rapiscan
shall have the exclusive right to provide warranty repair services for the QSTM Private Label Products for
the term of any such warranty, as extended. 
Rapiscan shall have the right to provide out of warranty repair service
for the QSTM Private
Label Products for the life of such QSTM Private Label Products upon such terms and conditions
(including prices) as determined by Rapiscan in its sole discretion from time
to time.

 

7.02                           Development
Products Service Obligation. 
Commencing as of the respective effective date of commercial
availability of each of the Integrated Baggage Screening Device and [*],
Rapiscan shall service the Development Products sold by Rapiscan.  IMX acknowledges and agrees that all Development
Product subsystems shall include an IMX warranty in accordance with the terms
and conditions of this Agreement. 
Notwithstanding the foregoing, IMX acknowledges and agrees that Rapiscan
shall have the exclusive right to provide warranty repair services for the
Development Products for the term of any such warranty, as extended.  Rapiscan shall have the right to provide out
of warranty repair service for the Development Products for the life of such
Development Products upon such terms and conditions (including prices) as
determined by Rapiscan in its sole discretion from time to time.

 

8.                                      REGULATORY APPROVALS AND COMPLIANCE.

 

8.01                           General.  IMX shall be responsible, at its sole cost
and expense, notwithstanding those costs that are directly related to research
and development and are funded by Rapiscan in accordance with the provisions of
Section 4, for obtaining, maintaining and complying with all United States
and foreign regulatory requirements and approvals (including all Product
Approvals) necessary to promote and sell the QSTM Products, QSTM
Private Label Products, and Development Products (collectively, the “Products”)
in the Territory during the Term.  Should
Rapiscan manufacture any Components, IMX shall provide Rapiscan with all
information in its possession and such technical assistance as Rapiscan may
reasonably request in order for Rapiscan to obtain, maintain, and comply with
all United States and foreign regulatory requirements and approval (including
Products Approvals) to which it may become subject as a manufacturer of the
Components.  In addition, Rapiscan shall
be responsible for obtaining any import or export licenses that may be required
in order to ship a Product internationally, but IMX shall be obligated to
provide Rapiscan with such technical information and assistance as Rapiscan may
reasonably

 

10

 

request in order that Rapiscan may submit information
necessary to obtain import or export licenses, as applicable.  IMX shall promptly notify Rapiscan and
provide to Rapiscan a copy or transcription, if available, of any communication
from any Regulatory Authority relating to the Products, the marketing thereof
or any related matter (including copies of all Product Approvals) and shall
keep Rapiscan reasonably apprised of regulatory interactions and similar
activities with governmental authorities and international bodies in connection
with the Products.  In pursuing such
approvals, IMX shall permit Rapiscan, upon reasonable request, to review IMX’s
regulatory and ongoing trial plans (if any) for the Territory.

 

8.02                           Data.  IMX shall provide to Rapiscan copies of its
existing technical and other data related to the Products to support Rapiscan’s
marketing activities.  IMX shall update
the data submissions it makes under this Section 8.02 and provide Rapiscan
with all new data promptly after the same is developed, assembled or comes to
the attention of IMX.  IMX shall also
periodically (and in any event, no less
frequently than once per calendar quarter) provide Rapiscan with a
written report summarizing the progress of all product trials (if any) with
respect to the Products.

 

8.03                           Product Recalls.  (a) If, in the reasonable
judgment of IMX on an individual basis, or in the reasonable judgment of IMX
and Rapiscan on a mutual basis, any Product defect or any government action
requires a recall of, or the issuance of an advisory letter regarding any
Product, either Party may undertake such recall or issue such advisory letter,
after consultation with the other Party. 
Each Party shall notify the other Party in a timely manner prior to
making any recall or issuing any advisory letter.  The Parties shall endeavor to reach an
agreement prior to making any recall or issuing any advisory letter regarding
the manner, text and timing of any publicity to be given such matters in time
to comply with any applicable legal or regulatory requirements, but such
agreement will not be a precondition to any action that either Party deems
necessary to protect users of the Products or to comply with any applicable
governmental orders or mandates.  The
Parties agree to provide reasonable assistance to one another in the event of
any recall or issuance of any advisory letter.  The party responsible for the cause of the recall
shall promptly pay or reimburse the non-responsible party for the reasonable
costs of effecting such recall or issuing such
advisory letter, including costs related to return of recalled Products and
refunding to the non-responsible party any purchase price paid for recalled Products.  Notwithstanding anything in this Agreement to
the contrary, Rapiscan shall have the right to manage any Product recall within
the Territory.

 

(b)                                 In the event of a recall of any Product, IMX shall
correct any deficiency relating to its manufacturing, packaging, testing,
labeling, storing or handling of such product, if applicable, and shall, at
Rapiscan’s option, either, at IMX’s sole cost replace each unit of the Product
recalled (including units held in inventory by Rapiscan or its customers) with
a corrected Product within a reasonable period of time, or refund the full
purchase price therefore. IMX shall reimburse Rapiscan for all costs and
expenses (including shipping, quality control testing, notification and restocking
costs) incurred by Rapiscan as a result of any recall.

 

8.04                           Notices.

 

(a)                                  IMX shall notify Rapiscan immediately if it becomes
aware of any issue with the Products or their testing, manufacture, labeling or
packaging, including any issue relating to regulatory compliance, safety or
efficacy of such products.  Without
limiting the generality of the foregoing, IMX will notify Rapiscan immediately
if it becomes aware of any death or bodily injury caused by a Product (or
suspected to be caused by a Product  or any malfunction of a Product occurring
within the Territory.

 

11

 

(b)                                 Rapiscan shall notify IMX immediately if it becomes
aware of any issue with a Product or its testing, manufacture, labeling or
packaging, including any issue relating to regulatory compliance, safety or
efficacy of a Product. Without limiting the generality of the foregoing,
Rapiscan will notify IMX immediately if it becomes aware of any death or bodily
injury caused by a Product (or suspected to be caused by a Product) or any
malfunction of a Product.

 

8.05                           Compliance with Laws.  Each Party
will comply with all applicable laws and regulations in the Territory
pertaining to the testing, manufacture, labeling or packaging of the Products and
in any other manner pertaining to performance by such Party of its obligations
under this Agreement, including the maintenance of ongoing quality assurance
and testing procedures to comply with applicable regulatory requirements.  Each Party will also comply with all
applicable laws and regulations of the countries and jurisdictions in the
Territory pertaining to the import, export, distribution, sales and marketing
of the Products.  Without limiting the
generality of the foregoing, IMX or Rapiscan will (i) report to every
applicable Regulatory Authority within any relevant time periods all events
that are required to be reported (including without limitation any death or
serious bodily injury caused by a Product); and (ii) deliver, within the
permitted time periods, all annual or other periodic reports required to be
delivered to every applicable Regulatory Authority.

 

8.06                           Manufacturing Requirements.  Each party will
manufacture the Products in accordance with (a) the Product Specifications, (b)
all applicable regulations, and (c) other pertinent rules and regulations of
the Regulatory Authorities.  The Products
will equal or exceed industry standards of quality, and the manufacturer shall
maintain a quality assurance program that equal or exceeds industry standards,
including compliance with standards published by the International Organization
for Standardization.  Upon the request of
the other party, the manufacturing party shall provide written evidence of
compliance with the criteria set forth in the preceding sentence.

 

8.07                           Rapiscan  Inspection Rights and Regulatory Co-operation.

 

(a)                                  Rapiscan shall have the right to have its
representatives present at the plant or plants at which the Products are
manufactured during normal business hours to conduct an initial and periodic
inspections of such facilities and manufacturing procedures for compliance with
the Product Specifications and Rapiscan’s quality assurance requirements and to
inspect IMX’s inventory of the Products, work-in-process, raw materials to be
used for the Products, production records and such other matters as may be
pertinent to proper quality assurance of the Products to be delivered
hereunder.  Rapiscan agrees to give IMX a
minimum of five (5) days’ prior
notice of any such inspection.  IMX shall
use commercially reasonable efforts to promptly take such action as is required
to correct any deficiencies identified by Rapiscan relating to such facilities
and procedures and/or the production of any Product.  IMX further agrees to use commercially
reasonable efforts to provide such documentation or conduct such analysis as
Rapiscan may reasonably request in connection with any regulatory submission or
audit.

 

(b)                                 IMX agrees to assist Rapiscan in arranging visits
and inspection of the plants at which IMX’s vendors manufacture any component
(if applicable), material, sub-assembly or service for any Product.  Subject to the terms and conditions of this
Agreement, IMX may not outsource manufacturing of sub-components of any
Product, or change any supplier, including engaging a new supplier or changing
an existing supplier, for any component material, sub-assembly or service
relating to any Product without providing ninety (90) days advance
written notice to Rapiscan.

 

12

 

8.08                           Regulatory Audit.  IMX will permit authorized
representatives of any Regulatory Authority to inspect IMX’s plant and
production facilities relating to or used in connection with the manufacture of
the Products and will promptly notify Rapiscan when IMX receives notice of any
such inspection.  IMX will advise
Rapiscan of the findings of any regulatory inspection and will take the
necessary steps reasonably promptly to correct any compliance deficiencies
found by the Regulatory Authority relating to the production of the Products.  IMX further agrees to use commercially
reasonable efforts to provide to Rapiscan such documentation or conduct such
analyses as Rapiscan may reasonably request in connection with any regulatory
submission or audit concerning the Products.

 

8.09                           Complaints.  IMX will perform complaint
evaluations in order to investigate the cause of any complaints and to
determine any required corrective actions.  IMX will maintain records of such
investigations.  IMX has a period of
seven (7) business days from the time it receives a request from Rapiscan to
perform a complete investigation that contains a root cause analysis, and
corrective action recommendations.  IMX
will also maintain a cross-reference system from IMX’s complaint handling
system to Rapiscan’s complaint handling system. 
IMX will complete all corrective actions, including corrective actions
identified in a response to Rapiscan pursuant to this Section 8.09 or
corrective actions reasonably requested by Rapiscan, within ninety (90) days.

 

9.                                      INTELLECTUAL PROPERTY.

 

9.01                           Trademark License.  Subject to the terms and
conditions of this Agreement, IMX hereby grants to Rapiscan a fully-paid and
royalty-free right and license to use the Trademarks in connection with
sublicensing, promoting, marketing, selling, and/or delivering the Products and
the in the Territory.  Rapiscan shall not
be obligated to use the Trademarks in connection with sublicensing, promoting,
marketing, selling, distributing and/or delivery of any Product.  IMX shall take such actions as are reasonably
required to maintain the Trademarks in effect, and shall inform Rapiscan of any
changes in or additions to the Trademarks. Without limiting the foregoing,
Rapiscan shall be entitled to use its own trademarks, or its Affiliate(s), in
connection with sublicensing, promoting, marketing, selling, distributing
and/or delivering of the Products, which trademarks shall remain at all times
the exclusive property of Rapiscan, or its Affiliate(s) (as applicable).  The Parties acknowledge and agree that the
Trademarks shall remain at all times the exclusive property of IMX.

 

9.02                           Infringement.

 

(a)                                  (a) Each Party will notify
the other Party in writing of any infringement of a Patent Right or Trademark
or any other intellectual property right within thirty (30) days after it
becomes aware of such infringement or unauthorized disclosure.  IMX shall have the exclusive right at its own
cost to take all legal action it deems necessary or advisable to eliminate or
minimize the consequences of any infringement of a Patent Right or Trademark or
any other intellectual property right.

 

(b)                                 IMX shall permit Rapiscan to participate at its own
cost in any legal action brought by IMX to eliminate or minimize the
consequences of any infringement of a Patent Right or Trademark.

 

(c)                                  All proceeds realized upon any judgment or
settlement regarding an action undertaken pursuant to Section 9.02(a)
above and in which Rapiscan participates as described in Section 9.02(b)
above shall be shared on a pro-rata basis in accordance with the out-of-pocket
costs by IMX and Rapiscan with respect to such infringement.  Notwithstanding the foregoing, if IMX

 

13

 

notifies
Rapiscan in writing that it does not intend to exercise its rights to take
legal action to eliminate or minimize the consequences of an infringement of a
Patent Right or Trademark or any other intellectual property right, then (i)
Rapiscan may pursue legal action with respect of such infringement in its own
name or in the name of IMX at Rapiscan’s sole cost, (ii) IMX shall cooperate
with Rapiscan in connection therewith, and (iii) Rapiscan shall be entitled to
one hundred percent (100%) of the proceeds realized from any judgment or settlement
in connection with such legal action.

 

9.03                           Patent Prosecution.  IMX shall apply for, prosecute
and maintain, during the term of this Agreement, the Patent Rights listed in Exhibit
“A” hereto. IMX shall keep Rapiscan advised as to the issuance or lapse of
any Patent Rights.

 

9.04                           Patent Prosecution Costs.  Payment of
all fees and costs relating to the filing, prosecution and maintenance of the
Patent Rights shall be the sole responsibility of IMX.

 

10.                               CERTAIN OBLIGATIONS OF IMX.

 

10.01                     Product Information.  IMX will
furnish to Rapiscan any and all product handling manuals, sales literature, and
other applicable information relating to the Products, including such
information as is necessary or appropriate for Rapiscan to formulate any other
manuals, promotional materials and warning labels deemed necessary or
appropriate by Rapiscan  (collectively,
the “Product Information”).  IMX
represents and warrants that the Product Information shall be accurate and
complete in all material respects, and undertakes to update any such Product
Information when any information included therein becomes outdated, inaccurate
or misleading.  Rapiscan shall have the
right, but not the obligation, to produce, at its expense and with the approval
of IMX (which approval will not be unreasonably withheld), promotional
material, product handling manuals, instructions for use, warning labels and
other written information relating to the Products which is based in whole or
in part on the material supplied by IMX.

 

10.02                     Training Advice and Assistance.  IMX will
provide reasonable technical assistance and training regarding the Products for
Rapiscan’s representatives as Rapiscan reasonably requests.  IMX shall also provide to Rapiscan other
services or other support information to assist Rapiscan in marketing the Products
as Rapiscan reasonably requests. 
Rapiscan shall be solely responsible for providing training and
assistance to its customers for the use of the Products at its own cost and
expense.

 

11.                               REPRESENTATIONS AND WARRANTIES.

 

11.01                     Mutual Representations and Warranties.  Each of the
Parties hereby represents and warrants to the other that:

 

(a)                                  it is a duly and validly organized and existing
corporation in good standing, in the case of Rapiscan under the laws of the State
of California, and in the case of IMX, under the laws of the Commonwealth of
Massachusetts, and that it or its Affiliates that may be performing its
obligations under this Agreement are legally qualified to do business in each
jurisdiction in which this Agreement may be performed and its activities
hereunder requires such qualification;

 

(b)                                 the performance of this Agreement and the consummation
of the transactions contemplated herein will not result in any breach or
violation of any terms or provisions of, or

 

14

 

constitute a
default under, its Certificate of Incorporation or Articles of Incorporation,
as applicable, or By-Laws, or other organizational documents, or any material
agreement or instrument to which it is a party, by which it is bound, or to
which any of its property is subject; and

 

(c)                                  all requisite corporate action has been taken for
the due authorization, execution, delivery, and performance of this Agreement
by it, and this Agreement constitutes a legal binding obligation, enforceable
against such Party, in accordance with its terms, except insofar as
enforceability may be limited by bankruptcy, insolvency, reorganization, or
similar laws affecting the rights of creditors generally.

 

11.02                     Product Warranty.  IMX represents and warrants to
Rapiscan that all Products supplied to Rapiscan hereunder shall: (i) conform to
the relevant Product Specifications, (ii) be manufactured, labeled, packaged
and tested (while in the possession or control of IMX) in accordance with the
applicable Product Approvals therefore and the applicable laws and regulations
in each country or jurisdiction within the Territory relating to the
manufacture, labeling, packaging and testing of the Products, (iii) be free from
defects in design, materials and workmanship, (iv) at all times be merchantable
and fit for intended uses, and (v) be free and clear of all liens and
encumbrances.

 

11.03                     Non-Infringement and Ownership.  IMX
represents and warrants to Rapiscan that (i) the Trademarks, Patents, and any
other intellectual property rights underlying the Products now or in the future
do not and shall not infringe the rights of any third parties, and (ii) IMX is
the exclusive owner of the Trademarks, Patents and all other intellectual
property rights related to any of them or the Products, (iii) said Trademarks
and Patents are valid and enforceable and in good standing, and (iv) IMX has
the sole right to use the Trademarks and Patents throughout the Territory as
well as any other intellectual property rights necessary for Rapiscan to
exploit the Products.

 

12.                               INDEMNIFICATION. IMX shouldn’t have any problems with any Rapiscan
infringement, since Rapiscan is downstream.

 

12.01                     Infringement Indemnification with Respect to the
Products.  IMX shall defend, indemnify and hold harmless
Rapiscan, its subsidiaries, parent corporations, Affiliates, officers,
directors, shareholders, partners, employees, agents, and their respective
successors and assigns from and against any claim, suit, demand, loss, damage,
expense (including reasonable attorney’s fees and those that may be asserted by
a third party) or liability (collectively, “Losses”) arising from or related to
an allegation that any Product infringes or misappropriates any intellectual
property right of any third party (including any patent, copyright, trade
secret or trademark).

 

12.02                     Replacement Indemnification.  If any
Product is deemed to be defective, IMX shall, at its own expense, replace the
defective Product, as applicable, with a non-defective product conforming to
the Product Specifications at no additional cost to Rapiscan.

 

12.03                     Other Claims.  Subject to the provisions of Section 12.05
below, each of IMX and Rapiscan (each, in such capacity, an “Indemnifying Party”)
will defend, indemnify and hold harmless the other Party, its subsidiaries,
parent corporations, Affiliates, officers, directors, partners, shareholders,
employees, agents, and their respective successors and assigns (collectively,
in such capacity, the “Indemnitees”) from and against any Losses, including
Losses imposed upon the Indemnitee(s) by any third party, arising from or
related to: (a) any breach of such Indemnifying Party’s representations and
warranties, covenants or obligations under this Agreement; or (b) any

 

15

 

negligence
or intentional misconduct by such Indemnifying Party (or its employees, agents
or representatives) in performing its obligations under this Agreement. Without
limiting the foregoing, IMX shall defend, indemnify and hold harmless the
Rapiscan Indemnitees from and against any Losses imposed upon the Rapiscan
Indemnitees by any third party arising from or related to any of the Products in
connection with any (i) regulatory claims or any injury, illness or death to
the extent that such injury, illness or death resulted from the act or omission
of IMX (or any person or entity acting on IMX’s behalf), (ii) a breach of any
Product warranty, (iii) Product defect, and (iv) product liability claims.

 

12.04                     Procedure.  A Party seeking indemnification
shall promptly notify the other Party in writing of a claim or suit; provided,
that a Party’s failure to give such notice or delay in giving such notice shall
not affect such Party’s right to indemnification under this Section 12 except
to the extent that the other Party has been prejudiced by such failure or
delay.  Neither Party has any obligation
to indemnify the other Party in connection with any settlement made without the
Indemnifying Party’s written consent. 
The Indemnitee has the right to participate at its own expense in the
claim or suit and in selecting counsel therefore.  The Indemnitee shall cooperate with the Indemnifying
Party as reasonably requested, at the Indemnifying Party’s sole cost and
expense.  The Indemnifying Party shall
not settle any claim or suit without the Indemnitee’s prior written consent
unless such settlement is limited to the payment of cash by the Indemnifying
Party and contains a full release of the Indemnitee.

 

12.05                     Insurance.  At all times during which any
Product is commercially distributed or sold by Rapiscan hereunder, as well as
for a period of seven (7) years thereafter, both Rapiscan and IMX shall procure
and maintain from a reputable insurer reasonably satisfactory to each other’s
insurance, including product liability insurance, adequate to cover its
obligations hereunder and which is consistent with normal business practices of
prudent companies similarly situated. Such insurance policy shall at all times name Rapiscan as an additional insured
thereunder.  It is understood that such
insurance shall not be construed to create a limit of IMX’s liability with
respect to its indemnification obligations under this Section 12.  IMX and Rapiscan shall provide each other
with written evidence of such insurance on or before the Effective Date.  IMX and Rapiscan shall provide each other with
written notice at least fifteen (15) days prior to the cancellation,
non-renewal or material change in such insurance.  IMX shall promptly seek “certification” and “designation”
of the Products under the S.A.F.E.T.Y. Act, as such terms are
defined in such Act.  The parties shall
cooperate and share equally in the costs of obtaining such “certification” and “designation”
for any IMX Future Products or Improvements.

 

13.                               TERM AND TERMINATION.

 

13.01                     Term.  This Agreement shall take effect as of the
Effective Date and shall remain in full force and effect for a period of seven
(7) years from the Effective Date and shall automatically renew for an
additional term of seven (7) years unless and until either Party elects to
terminate this Agreement by providing written notice to the other Party of its
election to terminate this Agreement at least six (6) months prior to the end
of the initial seven (7) year term (the “Term”).

 

13.02                     Termination.

 

(a)                                  Either Party may terminate this Agreement at any
time upon thirty (30) days prior written notice to the other Party in the event
that the other Party shall have materially

 

16

 

breached
any of its obligations, representations or warranties hereunder and shall not
have cured such breach within ninety (90) days of the receipt of such notice.

 

(b)                                 The Parties may also terminate this Agreement at any
time upon mutual written agreement.

 

13.03                     Change of Control.  This Agreement shall not be
terminated upon a change in control of either Party and, to the extent applicable, the Party undergoing a change of control shall
cause such transferee to assume all of its duties and obligations hereunder.

 

13.04                     Effect of Termination. 
Notwithstanding anything to the contrary contained herein, upon
termination or expiration of this Agreement, IMX shall fill all Product orders
placed by Rapiscan at any time prior to and including the date of termination
or expiration in accordance with the terms of this Agreement.  Further, IMX shall fill all Product orders
placed by Rapiscan with respect to Products which Rapiscan is permitted to
continue to exploit in accordance with Sections 3, 5 and 6, if any, at any time
following the date of termination or expiration of this Agreement (the “Post-Termination
Orders”), provided that, any such Product orders, exclusive of orders for QSTM
Private Label Products, shall be made on terms and conditions which are no less
favorable to Rapiscan than as provided for in this Agreement.  With respect of Post-Termination Orders for
the QSTM Private Label Products, the terms and conditions, including
pricing, will be negotiated in good faith. 
Following the date of such termination or expiration, Rapiscan shall
continue to have all rights necessary or appropriate to manufacture, market, sell
and service such Products (including Products delivered pursuant to
Post-Termination Orders and any Products ordered by Rapiscan prior to
termination or expiration), on a non-exclusive basis in perpetuity, and IMX
shall continue to comply with all of its duties and obligations hereunder
necessary or appropriate to facilitate such activities of Rapiscan.  The termination or expiration of this
Agreement shall not affect the rights and obligations of either Party that may
have accrued prior to the effective date of termination or any obligation that
by its nature or express terms survives termination.

 

14.                               RAPISCAN COMPETITORS.

 

14.01                     Competitors.  During the Term, IMX hereby
acknowledges and agrees that IMX and its Affiliates shall not accept, whether
directly or indirectly, without Rapiscan’s prior written consent, any
investments, solicitations, or any business of any kind whatsoever from any
competitors of Rapiscan or its Affiliates (including without limitation, OSI
Systems, Inc.) who are in direct or indirect competition with the development,
manufacture, marketing or sales of Security Market products similar to those of
Rapiscan or its Affiliates.

 

14.02                     Exclusion of [*].  Notwithstanding the
restrictions set forth in Section 14.01, Rapiscan will allow IMX to engage
in any and all business transactions with [*]and successors, including the distribution
of QSTM Products and use of the QSTM Technology for
integration with [*].  However, IMX will
procure that no products sold by IMX to [*] will be resold, whether directly or
indirectly, to a competitor of Rapiscan.

 

15.                               GENERAL PROVISIONS.

 

15.01                     Governing Law.  This Agreement shall be governed
and construed in accordance with the laws of the State of California without
giving effect to its rules regarding conflicts of laws.

 

17

 

15.02                     Waiver.  Except as otherwise expressly set forth
herein, no provision of or right under this Agreement shall be deemed to have
been waived by any act or acquiescence on the part of either
Party, its agents or employees, except by an instrument in writing
signed by an authorized officer of each Party. 
No waiver by either Party of any breach of this Agreement by the other
Party shall be effective as to any other breach, whether of the same or any
other term or condition and whether occurring before or after the date of such
waiver.

 

15.03                     Independent Contractors.  Each Party
represents that it is acting on its own behalf as an independent contractor and
is not acting as an agent for or on behalf of any third party.  This Agreement and the relations hereby
established by and between IMX and Rapiscan do not constitute a partnership,
joint venture, franchise, agency or contract of employment.

 

15.04                     Assignment.  Except as set forth in Section 15.03
above, (i) Rapiscan may not assign its rights or obligations hereunder without
the prior written consent of IMX to any person or entity other than an
Affiliate of Rapiscan, and (ii) IMX may not assign its rights or obligations
hereunder without the prior written consent of Rapiscan to any person or entity
other than an Affiliate of IMX. Subject to the limitations herein, this
Agreement shall be binding upon and inure to the benefit of said successors in
interest and permitted assigns of the Parties and shall not be deemed to be for
the benefit of any other person or entity. 
Any such successor or assignee of a Party’s interest shall upon request
expressly assume in writing the performance of all the terms and conditions of
this Agreement to be performed by said Party and such succession or assignment
shall not relieve the assignor of any of its obligations under this Agreement.

 

15.05                     Publicity. 
Except as is necessary for governmental notification purposes
or to comply with applicable laws and regulations or to enforce their
respective rights under this Agreement, and except as otherwise agreed to by
the Parties hereto in writing, the Parties shall (a) keep the material terms of
this Agreement confidential and (b) agree upon the text and the exact timing of
any press release or public announcement relating to the transactions
contemplated by this Agreement.  Such
filing party shall seek confidential treatment for all of or, at a minimum,
those sections of the Agreement containing confidential, proprietary, and trade
secret information.  To the extent
permitted by applicable law, the filing party shall consult with and seek
assistance from the non-filing party in requesting such confidential treatment.

 

15.06                     Notices.  Unless otherwise provided herein, any notice,
report, payment or document to be given by one Party to the other shall be in
writing and shall be deemed given when delivered personally or mailed by
certified or registered mail, postage prepaid (such mailed notice to be
effective on the date which is three business days after the date of mailing),
or sent by reputable overnight courier (such notice sent by courier to be
effective one business day after it is deposited with such courier), and in the
case of Rapiscan, addressed to the attention of President, with a copy to the
attention of the General Counsel, Law
Department, 12525 Chadron Avenue, Hawthorne, California 90250, and in
the case of IMX, addressed to the attention of President at 107 Audubon Road, #5, Wakefield,
Massachusetts 01880, or to such other place as any Party may designate
as to itself by written notice to the other Party.

 

15.07                     Severability.  In the event any provision of
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other term or provision hereof.  The parties agree that they will negotiate in
good faith or will permit a court to replace any provision hereof so held
invalid, illegal or unenforceable with a valid provision which is as similar as
possible in substance to the invalid, illegal or unenforceable provision.

 

18

 

15.08                     Headings.  Headings of the sections and subsections of
this Agreement are for reference purposes only and shall not limit or affect
the meaning or construction of the terms and conditions hereof.

 

15.09                     Interpretation.  Words such as “herein”, “hereinafter”,
“hereof” and “hereunder” refer to this Agreement as a whole and not merely to a
section or paragraph in which such words appear, unless the context
otherwise requires.  The singular shall
include the plural, unless the context otherwise requires.  Whenever the word “include”, “includes” or “including”
appears in this Agreement, it shall be deemed in each instance to be followed
by the words “without limitation.”

 

15.10                     Entire Agreement; Amendment.  The terms and provisions contained in this
Agreement constitute the entire understanding of the parties with respect to
the transactions and matters contemplated hereby and supersede all previous
communications, representations, agreements and understandings relating to the
subject matter hereof.  No agreement or
understanding amending, supplementing or extending this Agreement shall be
binding upon either Party unless it is in a writing
and signed by the applicable Party. 
Without limiting the foregoing, the parties anticipate that the
Exhibits, annexes and schedules hereto may be amended or supplemented from time
to time by mutual written agreement.

 

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

 

15.12                     Specific Performance.  Each Party
acknowledges that it will be impossible to measure in money the damage to the
other Party if a Party fails to comply with the obligations imposed by this
Agreement, and that, in the event of any such failure, the other Party will not
have an adequate remedy at law or in damages. 
Accordingly, each Party agrees that injunctive relief or other equitable
remedy, in addition to remedies at law or damages, is an appropriate remedy for
any such failure and will not oppose the granting of such relief on the basis
that the other Party has an adequate remedy at law.  Each Party agrees that it will not seek, and
agrees to waive any requirement for, the securing or
posting of a bond in connection with any other Party’s seeking or obtaining
such equitable relief.

 

15.13                     Currency.  All payments due hereunder shall be made in
U.S. Dollars.

 

[SIGNATURE PAGE TO
FOLLOW]

 

19

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers, and have duly
delivered and executed this Agreement under seal as of the date first set forth
above.

 

 

	
  RAPISCAN SYSTEMS, INC.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Deepak Chopra

  	
   

  
	
   

  	
  Name: Deepak Chopra

  
	
   

  	
  Title: Chairman and CEO, OSI Systems Inc.

  
	
   

  
	
   

  
	
  IMPLANT SCIENCES CORPORATION

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Anthony J. Armini

  	
   

  
	
   

  	
  Name: Anthony J. Armini

  
	
   

  	
  Title: Chairman and CEO

  
					

 

20

 

Exhibit “A”

 

PATENTS AND TRADEMARKS

 

	
  Filing Date

  	
   

  	
  Title

  
	
  3/5/02

  	
   

  	
  18-0 Oxide Cyclotron Targets for 18F
  Production.

  
	
   

  	
   

  	
   

  
	
  11/14/02

  	
   

  	
  Cyclone Sampling Nozzle for an Ion Mobility
  Spectrometer.

  
	
   

  	
   

  	
   

  
	
  11/14/02

  	
   

  	
  Radiative Sample Warming for IMS.

  
	
   

  	
   

  	
   

  
	
  1/22/03

  	
   

  	
  Explosives Detection System.

  
	
   

  	
   

  	
   

  
	
  1/7/04

  	
   

  	
  Virtual Wall Gas Sampling for an Ion
  Mobility Spectrometer.

  
	
   

  	
   

  	
   

  
	
  4/5/04

  	
   

  	
  Modified Vortex for Ion Mobility
  Spectrometer.

  
	
   

  	
   

  	
   

  
	
  5/25/04

  	
   

  	
  Pulsed Vapor Desorber.

  
	
   

  	
   

  	
   

  
	
  7/14/04

  	
   

  	
  Flash Vapor Sampling for a Trace Chemical
  Detector.

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