Item 2.03
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Creation of a Direct Financial
Obligation
or
an
Obligation
under
an
Off-
Balance Sheet Arrangement of a Registrant.
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On May 19, 2016, the wholly owned subsidiary of U.S. Geothermal
Inc. (the Company), Idaho USG Holdings, LLC (Idaho USG Holdings), entered
into a note purchase agreement (the Note Agreement) with The Prudential
Insurance Company of America and Prudential Annuities Life Assurance Corporation
(each, a Purchaser and together, the Purchasers), pursuant to which Idaho
USG Holdings issued and sold to the Purchasers $20,000,000 aggregate principal
amount of Idaho USG Holdings senior secured notes (the Notes), and pursuant
to which Idaho USG Holdings may, within the next two years, issue additional
debt up to an aggregate of $50,000,000 on the same terms as the Notes.
The Notes are due on March 31, 2023 (the Maturity Date) and
bear interest at a fixed rate of 5.80% per annum. Idaho USG Holdings is required
to prepay the principal amounts set forth in the amortization schedule attached
to the Note Agreement on the last day of each first and third fiscal quarter,
commencing with September 30, 2016 through the Maturity Date. As described
further below, the Notes are collateralized with Idaho USG Holdings ownership
interest in the Neal Hot Springs and Raft River projects (each, a Project and
together, the Projects). In the event of certain losses relating to either
Project, Idaho USG Holdings will be required to prepay additional, and in
certain cases all, of the outstanding principal amounts of the Notes, together
with any accrued and unpaid interest thereon. Principal amounts of the Notes may
be prepaid in whole or in part, with a minimum prepayment of $2,000,000, at any
time, subject to make-whole provisions set forth in the Note Agreement.
All amounts owing pursuant to the terms of the Notes, the Note
Agreement or any related financing document are secured by Idaho USG Holdings
right, title and interest in and to its real and personal property, including,
without limitation, the Projects and, by virtue of a pledge by the Companys
wholly owned subsidiary, U.S. Geothermal Inc., an Idaho corporation (USG
Idaho) and sole member of Idaho USG Holdings, the equity interests in Idaho USG
Holdings. The Company and USG Idaho have indemnified Idaho USG Holdings, the
collateral agent for the secured parties (the Collateral Agent) and the Note
holders from any loss or liability of Idaho USG Holdings resulting from all or
any portion of the investment tax credit cash grant being required to be repaid
to the U.S. Treasury Department or any other governmental authority.
In addition, pursuant to the terms of the Note Agreement, Idaho
USG Holdings has indemnified each Purchaser, any other holder of the Notes, the
Collateral Agent and the depositary for the secured parties against any
judgment, liability, claim, order, decree, cost, fee, expense, loss, action or
obligation resulting from the consummation of the transactions contemplated in
the Note Agreement, and which in any way relate to or arise out of either
Project, the Note Agreement, any related transaction document, the enforcement of
terms thereof or certain environmental claims.
Idaho USG Holdings paid a fee to the Purchasers in an amount
equal to 1.00% of the principal amount of the Notes being purchased. In
addition, Idaho USG Holdings agreed to pay all costs and expenses incurred by
the Purchasers and each other holder of the Notes in connection with the
transactions contemplated by the Note Agreement, including reasonable attorneys
fees and an annual servicing fee to the Note holders in an aggregate amount
equal to $50,000.
The Note Agreement contains customary representations and
warranties, affirmative and negative covenants, and events of default. Upon an
event of default, some or all of the Notes then outstanding will become
immediately due and payable and subject to a default rate of interest per annum
equal to the greater of 7.80% per annum and 2.00% over the rate of interest
publicly announced by JPMorgan Chase Bank, N.A. from time to time in New York as
its base or prime rate.
Proceeds from the sale of the Notes will be used to fund
capital expenditures, pay off an existing 7.00% interest loan of approximately
$1,000,000, increase output at existing facilities, advance the development of
existing projects, pursue strategic acquisitions, and for general corporate
purposes.