DEVELOPMENT LOAN AGREEMENT

 

DEVELOPMENT LOAN AGREEMENT

by and among

SEA BREEZE PACIFIC JUAN DE FUCA CABLE, LP

(the “Borrower”)

and

UNITED STATES POWER FUND, L.P.

(the “Lender”)

and

OLYMPIC CONVERTER GP, LLC and OLYMPIC CONVERTER, LP

(together, the “Subs ”)

JUAN DE FUCA CABLE MANAGEMENT, INC.

(the “General Partner”)

and

BOUNDLESS ENERGY LLC and SEA BREEZE POWER CORP.

(together, the “Overrun Protectors”)

dated as of

April 6, 2005

 

 

DEVELOPMENT LOAN AGREEMENT

TABLE OF CONTENTS

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TABLE OF CONTENTS (Continued)

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DEVELOPMENT LOAN AGREEMENT

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

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

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

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

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

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

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

SECTION 1. DEFINITIONS

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

 

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          “ EPC Contract ”: That certain Engineering, Procurement and Construction Contract to be entered into by Borrower with respect to the design and construction of the Project in form and substance satisfactory to Lender and with a party or parties acceptable to Lender.

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

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

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

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

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

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

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

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

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

     (v) such Person is adjudicated insolvent or bankrupt;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          1.2 Accounting Terms and Certain Principles of Interpretation .

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

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

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

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

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

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

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

SECTION 2. LOAN

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

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

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

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

          2.4 Advances .

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

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

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

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

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

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

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          2.5 Interest .

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

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

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

          2.6 Repayment .

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

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

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

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

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

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

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

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

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

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

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

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SECTION 3. CONDITIONS PRECEDENT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          (i) [Reserved] .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SECTION 4. REPRESENTATIONS AND WARRANTIES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SECTION 5. COVENANTS AND CONTINUING AGREEMENTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          (g) Project Contracts; Project Permits .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          (o) Environmental Matters .

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

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

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

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

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

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

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

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

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

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

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

          5.3 Additional Agreements .

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          (a) Right of First Refusal .

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

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

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

          (c) Overrun Protection .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          (k) A Change of Control shall occur;

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

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

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

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

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

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

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

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

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

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

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

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

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          6.2 Rights and Remedies .

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

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

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

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

SECTION 7. MISCELLANEOUS

          7.1 Assignment.

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

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

43

 

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

          7.2 Payment of Expenses .

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

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

          (c) On the Financial Closing Date, Borrower’s obligation to pay Lender the foregoing costs and expenses pursuant to Section 7.2(a) shall be determined in accordance with the provisions of Section 2.6(b) and Section 2.6(c).

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

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

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          7.5 Construction of Agreement .

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

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

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

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

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

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

45

 

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

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

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

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

46

 

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

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

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

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

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

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

47

 

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

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

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

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

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

48

 

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

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

[Signature Page Follows]

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

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EXHIBIT A
PROMISSORY NOTE

April 6, 2005

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

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

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

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

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

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

Exhibit A-1

 

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

Exhibit A-2

 

Note Schedule

Exhibit A-3

 

Exhibit B

DEPOSITARY AGREEMENT

Exhibit B-1

April 5, 2005

HSBC Bank USA, NA

600 University Street, Suite 2323

Seattle, Washington

98101

Fax No. (206) 233-0808

Attention: Leni Preciado

Re:       Deposit Account Control Agreement

Ladies and Gentlemen:

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

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

 

 

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

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

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

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

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

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

2

 

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

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

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

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

[Signatures begin on the following page]

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LENDER:

UNITED STATES POWER FUND, L.P.

By: EIF US Power, LLC as its General Partner

By: Energy Investors Funds Group LLC as its Sole Member

By:____________________

4

 

     Andrew Schroeder

Title: Partner

ACCEPTED AND AGREED AS OF:_____________

HSBC Bank USA, National Association

By: _____________________________

Name:_____________________

Title:______________________

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EXHIBIT C

GUARANTEE

Exhibit C-1

GUARANTEE AND SUBORDINATION AGREEMENT

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

W I T N E S S E T H:

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

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

      WHEREAS, SBP-RTS is an affiliate of Borrower;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SECTION 8. Limitation on Guarantors’ Obligations .

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

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

9

 

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

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

     SECTION 9. Subordination .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

12

 

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

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

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

(Signatures Follow on Next Page)

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

GUARANTORS:

OLYMPIC CONVERTER GP, LLC

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

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

By: __________________________________

Name: ________________________________

Title: _______________________________

OLYMPIC CONVERTER, LP

By: Olympic Converter GP, LLC
its General Partner

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

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

By: __________________________________

Name: ________________________________

Title: _______________________________

SEA BREEZE PACIFIC REGIONAL

TRANSMISSION SYSTEM, INC.

By: __________________________________

Name: ________________________________

Title: _______________________________

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SECURED PARTY :

UNITED STATES POWER FUND, L.P.

By: EIF US Power, LLC
  its General Partner

By: Energy Investors Funds Group LLC
its Sole Member

By: ___________________
Name: Andrew Schroeder
Title: Partner

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FORM OF GUARANTEE AGREEMENT SUPPLEMENT

[Date of Guarantee Supplement]

United States Power Fund, L.P.
c/o Energy Investors Funds
One Penn Plaza, Suite 4507
New York, NY 10119

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

Ladies and Gentlemen:

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

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

     SECTION 2. Governing Law; Jurisdiction; Etc .

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

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

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

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

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

Very truly yours,

[NAME OF ADDITIONAL
       GUARANTOR]

By __________________________

Name:_____________________

Title:______________________

Address:___________________

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EXHIBIT D

PLEDGE AGREEMENT

Exhibit D-1

PLEDGE AND SECURITY AGREEMENT

re SEA BREEZE PACIFIC JUAN DE RICA CABLE, LP

by and between
JUAN DE FUCA CABLE MANAGEMENT, INC.,
SBJF HOLDING CORP. and BOUNDLESS ENERGY NW, INC.

(the “Pledgors”)

and

UNITED STATES POWER FUND, L.P.
(the “Secured Party”)

dated as of

April 6, 2005

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PLEDGE AND SECURITY AGREEMENT

re SEA BREEZE PACIFIC JUAN DE FUCA CABLE, LP

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