Execution Copy

DEVELOPMENT AGREEMENT

This Development Agreement (together with the indicative term sheet set forth in Exhibit A attached hereto, the “Development Agreement”) is entered into as of [DATE] (the “Effective Date”) between [COMPANY], a corporation organized and existing under the laws of the State of California, having offices at [ADDRESS] (“[COMPANY]”) and [COMPANY], a [STATE] Limited Liability company, having its offices at [ADDRESS] (“[COMPANY]”). [COMPANY] and [COMPANY] are collectively referred to as the “Parties” and each individually as a “Party.”

RECITALS

(a) [COMPANY] is the owner of an existing electric generation facility located at [ADDRESS] that was designed to use lignite as the fuel (as more particularly described in Exhibit A attached hereto, the “Facility Assets”). [COMPANY] purchased the Facility and the real property on which it is located from the bankruptcy estate of its previous owner. [COMPANY] has entered into the Power Purchase Agreement (as defined in Exhibit A attached hereto) providing for the sale to [COMPANY] (“[COMPANY]”) of the net electric output of the Facility Assets following their conversion to a biomass fueled facility as described below.

(b) [COMPANY] and [COMPANY] desire to enter into negotiations concerning arrangements whereby [COMPANY], an affiliate of [COMPANY] (such affiliate being herein called the “Project Owner”) would purchase from [COMPANY] the Facility Assets (as more particularly described in Exhibit A attached hereto) and would lease from [COMPANY] the real property on which the Facility Assets are located, and the Project Owner would convert the Facility Assets into a not less than 10 MW nor more than a 16.5 MW (net output) open-loop biomass powered electric generating facility meeting the requirements of the Power Purchase Agreement (as defined in Exhibit A attached hereto) and generally consisting of a circulating fluidized bed boiler, a single steam turbine generator and related equipment including interconnection equipment, and own and operate the Facility Assets to produce and sell the electric energy generated thereby. The prospective purchase of the Facility Assets and the lease of the real property on which the Facility Assets are located by the Project Owner is herein called the “Transaction”.

(c) As an inducement for [COMPANY] to enter into this Development Agreement and undertake the negotiations and due diligence investigation contemplated hereby, [COMPANY] represents and warrants to [COMPANY] that: (1) [COMPANY] has never operated the Facility Assets to produce electricity, the Facility Assets having been shut down by the prior owner prior to its acquisition by [COMPANY] and have remained out of service since that time; and (2) the Facility Assets are capable of being, and are ready to be, converted into a not less than 10 MW nor more than 16.5 MW (net output) open-loop biomass fueled electric generating facility consisting of a circulating fluidized bed boiler, a single steam turbine generator and related equipment including interconnection equipment meeting the requirements of the Power Purchase Agreement.